Dispute Settlement in the WTO

Dispute Settlement in the WTO

Dispute Settlement in the WTO

A Crisis for Sustainable Development

A WWF International, Centre for International Environmental Law (US),

Oxfam-GB and Community Nutrition Institute (US) Discussion Paper

1. Executive Summary

Four years after the completion of the Uruguay Round in Marrakech, the WTO's dispute settlement chickens are coming home to roost. The chickens took wing during the Uruguay Round negotiations when negotiators in the then GATT member countries strengthened and broadened the scope of international trade rules without due reference to social and environmental policies and laws. Most of these policies and laws are made at national level, but the WTO also now finds itself veering closer to collision with international law and agreements designed to promote sustainable development.

This discussion paper shows how recent WTO dispute panel and Appellate Body Rulings on trade restrictions on beef, bananas and shrimps, conflict with health, development and environmental policy objectives. The WTO's ruling on the EU-US Beef Growth Hormone dispute maintains that the burden of proof for health regulations restricting trade rests on policy makers seeking to protect human health, rather than those seeking to promote liberalized trade. The WTO's ruling against EU trade preferences for bananas from Caribbean islands will increase poverty there and could even threaten the economic and political stability of some of these countries. The WTO's ruling against the US import ban on shrimps caught by methods which kill tens of thousands of endangered sea turtles annually threatens efforts to conserve migratory species, the Global Commons and undermines international conservation agreements.

As well as threatening sustainable development, the nature and manner of the WTO's settlement of these disputes could ultimately threaten the integrity of the multilateral trading system. These disputes clearly illustrate serious policy conflicts that the Uruguay Round negotiations, and the dispute settlement process it created, could not and cannot address. Exercise of these WTO rules also has the effect of putting health, development and environmental policy decisions in the hands of trade policy makers and international jurists working behind closed doors.

It seems unlikely that governments or civil society in WTO member countries will tolerate this state of affairs for long. This compendium of WTO disputes is supposed to underline the urgency with which WTO Members must commit themselves to broad reform of the institution and its rules. Some elements of that reform are drawn out in the context of each dispute. The paper ends with recommendations for more fundamental reforms which entail the WTO relinquishing or sharing with other intergovernmental bodies its jurisdiction over socially and environmentally related trade disputes.

2. The WTO Shrimp-Turtle Ruling: International Trade versus the Global Environment

Matthew Stillwell, CIEL, Geneva &

Charles Arden-Clarke, WWF Int., Gland

2.1.Introduction

The Shrimp Turtle dispute is arguably the most important environmental case ever before the WTO. It raises a critical issue: to what extent can nations restrict importation of products whose production threatens endangered species and harms the global environment? The dispute also requires a WTO dispute settlement panel to interpret the environmental exceptions to the GATT and thus provides a litmus test of the WTO's commitment to ensuring that trade promotes sustainable development.

The Shrimp Turtle dispute arose from a challenge by India, Malaysia, Pakistan and Thailand to US trade measures designed to protect endangered sea turtles. Thousands of highly migratory sea turtles are killed worldwide every year by shrimp nets fitted without "turtle excluder devices" (TEDs). To protect endangered sea turtles, the US measures require that nations that catch and export wild shrimp to the United States be certified as having adopted conservation measures that require the use of shrimp nets fitted with TEDs.

The final report was released to the parties on April 6, 1998. This briefing examines how, and even whether, the report considers relevant legal and conservation arguments and facts crucial to a balanced settlement of the dispute. After reviewing the panel report, WWF and CIEL consider that the panel has failed to achieve such a balanced settlement. If adopted, the panel report would escalate existing conflicts between the WTO and domestic and international environmental law and policy.

2.2.The report of the WTO Shrimp Turtle Panel

The panel's report will be submitted to the WTO's Dispute Settlement Body for acceptance unless, as expected, it is appealed to the WTO Appellate Body by the United States.

The dispute requires the panel to consider the "General Exceptions" found in Article XX of the GATT. These exceptions carve out certain areas of national policy that were not intended to be constrained by GATT disciplines. They maintain countries' sovereign right to regulate trade where important policy objectives such as protection of plant, animal and human life (Article XX(b)) and conservation of natural resources (Article XX(g)) are involved. The exceptions allow countries to discriminate between products (such as shrimp) if necessary to protect animal life or health or if related to the protection of natural resources (such as endangered sea turtles).

The exceptions are limited only by the language in the introductory paragraph of Article XX (called the "chapeau"). The chapeau is designed to prevent the abuse of the exceptions to achieve protectionist goals.

According to the chapeau, discrimination between products to achieve environmental goals must not be "arbitrary or unjustifiable", or constitute a "disguised restriction on international trade".

In recent years, GATT and WTO panels have steadily eroded the scope of Article XX by imposing new requirements ones not justified by the plain language of the text that go beyond the "no protectionism" rule in the chapeau. For example, recent panels have required environmental measures to be "least trade restrictive." This standard unduly elevates trade over other important policy considerations and fails to recognize that governments, within reason, should be authorized to choose among several policy measures as long as the measures are not protectionist.

Today, the Shrimp Turtle panel report goes further by developing a new trade based threshold test for the chapeau of Article XX. The report marks an unprecedented departure from previous panel reports and from the text of the GATT environmental exceptions in Article XX. It marks a new low point in WTO dispute settlement and emphasises the need to find an alternative way, and potentially an alternative forum, to solve trade disputes that involve important environmental and social objectives.

Although no environmental trade measure has been upheld during GATT's 50 year history, previous panels have at least examined whether measures are necessary or related to environmental goals as required by Article XX(b) and (g). This panel departs from previous panel and Appellate Body practice by considering the chapeau requirements first thereby avoiding these substantive requirements. Starting at the chapeau allows the panel to create a new threshold test based on its characterization of the context, object and purpose of the WTO agreements. According to the panel, measures that condition market access on an exporting country's adoption of certain environmental policies will, "irrespective of their environmental purpose", be deemed "unjustifiable" and excluded from the scope of Article XX.

However, this approach is flawed at a number of levels. First, the chapeau governs the "application" of certain measures those defined in the enumerated exceptions including Article XX(b) and (g). How can the chapeau be applied to a measure before determining that is one that falls within one of these enumerated exceptions? Paradoxically, the panel's approach would require the chapeau to be applied to all measures. Second, the approach is inconsistent with the plain meaning of "unjustifiable" which means "incapable of justification" and establishes significant deference to national governments pursuing environmental policy. Third, the panel uses the broader context of the WTO Agreements to justify its narrow trade based interpretation of the chapeau but ignores the chapeau's immediate context: the terms of environmental exceptions in Article XX(b) and (g) and their role as part of a "General Exception" to the WTO Agreements.

More problematic is that the panel justifies its conclusion by considering the potential effect of the US measures on international trade when combined with hypothetical measures that may be taken by other countries. Article XX requires no such examination. On the basis of this hypothetical scenario, the panel concludes that the US measures threaten the very security and predictability of the trade system and are therefore excluded from Article XX. Rather than creating law on the basis of hypothetical situations, WTO panels should proceed cautiously by limiting themselves to applying the plain language agreed to by WTO Member States. Such an approach is essential if the WTO is to avoid characterization as a supranational body that overrides national priorities.

The panel's reading of Article XX, in effect, unilaterally creates new trade policy that elevates concerns for market access over threats to endangered sea turtles, to the global commons and to the environment generally. By stopping at the chapeau, the panel avoids the hard questions

that must inevitably be answered if the WTO is to develop trade jurisprudence that promotes sustainable development. Some of the more more serious legal and technical failings of the panel's approach are noted below.

The panel ignores scientific and other technical facts on the conservation of sea turtles and thus fails to take account of the objective facts of the case as required by Art. 11 of the WTO Dispute Settlement Understanding (DSU).

By finding against the US measures without first considering scientific and technical facts under Article XX(b) or (g), the panel fails to make an objective assessment of the matter as required by Article 11 of the DSU. For example, the panel failed adequately to consider scientific information about the migratory nature of endangered sea turtles before denying Article XX protection. Only after using trade factors to delimit the scope of Article XX and to exclude the U.S. measures did the panel consider whether turtles, as a highly migratory species, are a shared global resource. It concluded that, even if turtles were a shared global resource, the U.S. measures would be excluded from the scope of the environmental exceptions.

When interpreting the Article XX environmental exceptions the panel fails to give adequate weight to international law as required by the DSU and the Vienna Convention on the Law of Treaties.

The panel interprets Article XX in clinical isolation from important international law principles many of which are either ignored or are only examined as a postscript to their decision to delimit Article XX. There are a number of international legal norms requiring the protection of turtles. However, the panel avoids serious consideration of these legal norms by determining the scope of Article XX by reference solely to trade factors. Further, the obligation to avoid transboundary harm and the precautionary principle are ignored by the panel. In addition, MEAs such as CITES, UNCLOS and the Biodiversity Convention supporting the protection of sea turtles are characterized to support denial of Article XX protection. This paradoxical result is justified by reference to treaty provisions suggesting international cooperation as a preferable way of dealing with transboundary issues. According to the panel, this supports its narrow reading of the environmental exceptions in Article XX. The panel's unsophisticated treatment of international environmental law principles belies unwillingness and/or lack of expertise to deal with complex cases involving rights and obligations relating to endangered species and protection of the global commons.

The panel fails to give adequate consideration to expert evidence thereby undermining the Uruguay Round Amendment to the DSU which introduced the provision to call independent experts.

The panel's restrictive interpretation of the chapeau allows it to minimize consideration of the scientific record when developing its findings. The only substantive reference to expert testimony is used to rebuff the United States' argument that the WTO Agreement preamble (requiring that resources be used "in accordance with the objective of sustainable development") supports its right under Article XX to protect sea turtles. The panel's approach to Article XX, if upheld, will substantially undermine the utility of the Uruguay Round amendments to the dispute settlement system which introduced the provision to call independent experts.

The panel's decision limits the ability of nations to protect highly migratory endangered species and will "chill" the development of international norms crucial to achieving sustainability.

It was argued before the panel that migratory turtles are part of the environment of other states, and the common heritage of humankind. Thus, all states have an obligation to protect them. The panel did not accept this argument. Nor did it accept that countries have the right to take unilateral action to protect common heritage. In fact, the panel report implies that the status of turtles as common heritage of mankind would reduce rather than strengthen the United States' right to impose unilateral measures. The panel also implies that multilateral negotiations are a precondition to unilateral action under Article XX, though it does not state this explicitly. Nor does it say that unilateral measures are permitted in response to failed negotiations. The report thus fails to provide governments with guidance as to how to frame future measures and disregards the process of environmental norm making that Article XX is designed, in part, to allow. By unduly limiting scope for unilateral action, the panel's ruling threatens to "chill" the development of environmental norms required to protect the global commons and to achieve sustainability.

The panel report rejects Civil Society participation in the WTO dispute settlement system.

The panel has the mandate to "seek information and technical advice from any individual or body which it deems appropriate". This could be interpreted to allow panels to promote civil society participation by accepting or seeking submission of amicus briefs. This would improve the WTO dispute settlement process, enhance its transparency and curb growing public concerns about its legitimacy. Regrettably, both for the WTO and for civil society, the panel declined to interpret the DSU to permit civil society participation. Rather, it found that accepting information offered by non governmental organizations is incompatible with the provisions of the DSU.

2.3.Conclusion a critical moment for the WTO

The panel report's superficial analysis of complex scientific and legal issues reveals the inability of WTO panels to handle sophisticated environmental and social cases. The panel report evades important factual, scientific and technical issues and creates a new trade based threshold test that would permit future panels to ignore the value of a broad range of environmental measures.

By this decision the panel is attempting to isolate the WTO from trade disputes involving complex environmental and social issues. Yet these issues will continue to arise as trade and environmental interdependencies increase. The panel's approach, by delimiting the scope of Article XX, may drastically reduce the WTO's environmental exceptions. The panel is, in effect, interpreting WTO rules to give trade objectives even higher priority over environmental ones. In the future, countries may be denied the right to have valid environmental measures ones without protectionist intent or effect considered under the GATT's environmental exceptions. As noted by the panel, measures such as the United States' will be denied Article XX protection Airrespective of their environmental purpose.@ (our italics)

This panel's report shows that WTO dispute panels are incapable of settling trade disputes in a manner that supports sustainable development. The panel report should be appealed to the WTO Apellate Body, which should: overturn the panel's unsound interpretation of Article XX; correct the panel's disregard for relevant scientific information and international laws; and allow interpretation of the WTO Dispute Settlement Understanding to allow participation by an interested, concerned and expert civil society. However, the only viable long-term solution to this WTO dispute settlement problem may well be for trade related social and environmental issues to be heard in a more, multidisciplinary, open and less partisan forum than the WTO.

3.Socio-economic Impacts of the WTO Ruling on EU's Banana Trade Regime in the Caribbean

Claire Godfrey, Oxfam GBClaire Godfrey, Oxfam GB

AWe are told that the world has changed, that because of the WTO there must be a free market in bananas. But the market should not be so free that it can destroy people=s lives.@