Fundamental Rationales for Derogation of GATT Obligations - Essay Example

Article XX of GATT [General Agreement on Tariffs and Trade] permits WTO Member States to act inconsistently with their GATT obligations in order to pursue certain designated policies. A number of developing countries, however, claim that this provision has promoted the use of unilateral environmental, health and other policies as a means of disguised protectionism’ Introduction The above quoted statement is arguably true in that the reasons for which some developed countries (most especially the United States) seek to invoke the Exception Clauses in GATT’s article XX may be interpreted as disguised protectionism. However, as evident through different cases where countries have petitioned the dispute resolution panel and even appealed to the WTO’s Appellate Body, the successful use of the exception clauses is in itself a tall order, especially because it becomes hard for a country to prove that its use of the provisions of article XX are in good faith, and will not disadvantage other countries faced with similar social, economic, cultural and natural environments. 1. The fundamental rationales for derogation of GATT obligations under Article XX. The General Agreement on Tariffs and Trade (GATT) specifies instances where a member of the World Trade Organisation (WTO) can adopt measures that are inconsistent with its (GATT’s) provisions. The rationales for the exceptions include inconsistent social and cultural environments, and as such, GATT appears to recognise that different WTO member countries may need different polices to: “protect public morals”; “protect human, animal or plant life or health”; and conserve “exhaustible natural resources”.1 Additionally, the need to protect national treasures, and the need to trade differently with prison labour all appear as other justifications offered by GATT for exceptions in article XX (f) and XX (e) are anything to go by. Generally, in the ten exceptions contained in Articles XX (a) to XX (j), the framers of GATT seem to have acknowledge that each member country can apply exceptions where the need to protect public morals (e.g. from pornography, blasphemy, and/or Internet gambling) arise. Additionally, the framers acknowledge that different member countries may need to apply exceptions for the sake of protecting human, plant or animal health and life. Moreover, the realisation that prison labour may invoke different perceptions on its suitability or lack thereof especially from human rights perceptive justifies the exception as indicated in GATT article XX (e). Another apparent rationale in Article XX (f) relates to the right for a member country to deny the market access to its natural treasures. XX (h) on the other hand appears to be founded on the rationale that WTO member countries may be involved in intergovernmental commodities agreements. Legal issues and obligations likely to guide the Member States in determining whether to use or abandon Article XX of GATT The best indicators of the legal issues and obligations that should guide WTO member states in their use of lack thereof of Article XX are contained in its opening paragraph (also known as the chapeau), which states that: Subject to the requirement that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this agreement shall be construed to prevent the adoption or enforcement by any contracting party.2 The above quoted text can be interpreted to mean that Article XX of GATT cannot be used legally where its use can lead to discrimination in some countries. The Venezuela-US Gasoline dispute,3 where the United States was the defendant and Venezuela was the complainant, is an illustration that the chapeau does indeed determine the legality or lack thereof in how a country chooses to use the exception clauses. Venezuela had complained to WTO that the US’s requirements for oil imports from Venezuela to meet the strict criteria set in the Clean Air Act were discriminatory. Consequently, the WTO panel in a 1996 ruling stated that the standards set by the US were indeed discriminatory and that “more stringent quality requirements for imported gasoline were not necessary to improve environmental conditions”.4 Dissatisfied with the ruling, the US appealed. The WTO appellate body found error in how the WTO panel had interpreted the wording between article XX (b) and XX (g). As such, the former ruled that the US regulations were indeed within the range of GATT XX (g). The Appellate body however ruled that the US could have used less discriminatory methods to attain its clean air objectives, and thus observed that the US had acted contrary to the provisions of the chapeau.5 In the United States’ shrimp case, the WTO Appellate Body ruled that the chapeau as contained in Article XX should be perceived as a reiteration of the principle of good faith. The principle of good faith is closely related to Abus de droit, (abuse of right), which prohibits states from abusive use of rights, especially if such use breaches the treaty rights of other WTO members.6 Legally therefore, the exception clauses cannot be used if a country intends to cause harm to others; if there is no legitimate use of justifying their use; if used in bad faith; and if the exceptions are contrary to the fundamental rules of fairness or morality. In the shrimp-turtle case for example, the United States had stated that its ban of tuna from Mexico was justified by provisions of Article XX (b) and (g). However, the WTO Dispute Panel observed that the ban was “not necessary to protect animal life”.7 Additionally, the Panel observed that the US had not demonstrated its use of all reasonably available options to protect dolphins within and outside its territorial waters, through negotiating “international cooperative agreements”.8 In regard to Article XX (g), the Panel observed that it was only applicable to measures that are intended to make domestic restrictions effective. In other words, the Dispute Panel stated that the a country could only use the exception clause in XX (g) within its jurisdiction, and such a country could not be expected to impose the same restrictions on other countries which may not feel the urge to conserve the same natural resources. Still on the US shrimp case, the Panel rejected the idea that a WTO member could condition access to its domestic market in a manner that seeks to press other member states to modify their policies in a manner that fits into its environmental practices. The Panel specifically stated that: “A contracting party may not restrict imports of a product merely because it originates in a country with environmental policies different from its own”.9 In other words and as observed by Jackson, the panel seems to have used its decisions to reject eco-imperialism tendencies, where nations could impose standards on others without the latter’s participation or consent.10 Overall, it appears like countries need to ensure that their use of Article XX does not amount to arbitrary and/or unjustifiable discrimination against other countries, or a disguised hindrance to international trade. Q2. The nature and purpose of Article XX of GATT with special reference to US – Shrimp dispute According to the WTO, the nature and purpose of Article XX of GATT is to balance the “rights and duties” of a member country, whereby “ a balance must be struck between the right of a member to invoke an exception under article XX and the duty of the same member to respect the treaty rights of other members”.11 While invoking an exception under Article XX therefore, a member must consider the rights of other WTO members, and other substantive provisions in GATT, in order to ensure that none of the competing rights cancel each other out, and by so doing ensure that invoking an exception does not nullify, impair or distort the rights and obligations that members construed by becoming party to the GATT. 12 The complaint that led to what is now known as the US-Shrimp case was brought to WTO’s attention by Thailand, Pakistan, Malaysia and India in 1997. In their complaint, the countries challenged the decision by the United States to impose a ban on imports of shrimp harvested with equipment that kills sea turtles, an endangered marine species.13 The United States had imposed the ban pursuant to a 1989 amendment to its Endangered Species Act (referred to as Section 609), which calls upon exporting nations, as a prerequisite for access to the United States market, to verify that their shrimp fisheries do not threaten endangered sea turtles. In practical terms, the law required foreign fishing fleets to fit their trawling with a mechanism that could allow turtles to escape from shrimp nets without any significant loss of the shrimp – called “turtle excluder devices”.14 Thailand, Pakistan, Malaysia and India successfully challenged the United States measure arguing that it was inconsistent with the stipulations of GATT.15 The dispute panel ruled in this case that the action by the United States amounted to discrimination in trade, by applying an environment policy as an excuse. The US authorities appealed against the panel’s ruling and in 1998 the WTO Appellate Body overturned the ruling.16 The Appellate Body started by first examining and upholding the United States measure under three main elements of Article XX(g).17 This article reads that nothing from the Agreement (Article XX) shall be construed to stop the adoption or any member State of measures relating to the conservation of exhaustible natural resources if such measures are made effectively in conjunction with restrictions on domestic production or consumption.18 Initially, the Appellate Body agreed that endangered sea turtles comprise “exhaustible natural resources”. It also noted that sea turtles are part of the “natural resources” which are under the threat of extinction and are thus “exhaustible”.19 Remarkably, the Appellate Body established that the term “natural resources” should be read in an “evolutionary manner”, meaning that it is a term that cannot remain unaffected by subsequent changes in law, and should be interpreted in terms of its use in other international conventions and declarations like the Convention on Biological Diversity.20 Nonetheless, the Appellate Body did not rule on the jurisdictional application of Article XX, and hence upon whether the US was allowed to use trade measures to protect natural resources located outside its territorial boundaries.21 The ruling stated that: We do not pass upon the question of whether there is an implied jurisdictional limitation in Article XX(g), and if so, the nature or extent of that limitation. We note only that in the specific circumstances of the case before us, there is a sufficient nexus between the migratory and endangered marine populations involved and the United States for purposes of Article XX(g).22 The ruling by the Appellate Body has a number of implications. On one hand, there was an indication that the United States’ measure of prohibiting the importation of shrimp from the affected countries fell within the scope of Article XX (g) of the GATT 1994 since the action could be implied as a measure whose primary objective was to conserve an exhaustible natural resource (sea turtles), giving effect to restrictions on local production or consumption. In this case, and in my opinion, the Appellate Body can be perceived to have effectively adjudged the right of a Member to invoke an exception under Article XX. The nexus between sea turtles and the United States is that the animals are highly migratory in nature, and could therefore pass in and out of the waters including those under the jurisdiction of the United States. Hohmann analyses this case in detail by noting that first, as it was noted by the Appellate Body, sea turtles are protected under CITES (Convention on International Trade in Endangered Species), which is a “de facto universally agreed environmental agreement.23 As such, it can be argued that the protection of sea turtles is not just a domestic issue, “but a universally accepted policy goal”.24 Second, the migration of the species in question was a decisive factor in the conclusion of a “sufficient nexus” It is understandable that since the conservation of the sea turtle is a universal issue, the United States was right its measure to protect the species as the “the protection of the sea turtle population was… not an exclusive concern of a single WTO member”. 25 From another point of argument, the Appellate Body did not pass upon the question of whether there was an implied jurisdictional limitation. As Herrmann and Terhechte note, the Appellate Body escaped from giving a clear answer by referring to the fact that the species to be protected (the sea turtles) migrate and traverse water subject also to the jurisdiction of the United States.26 Steger further argues that the United States conservation measure failed the requirements of the chapeau of Article XX for the reason that the United States applied the measure in a manner that constituted arbitrary and unjustifiable discrimination between countries where the same conditions prevail.27 The question of whether the Appellate Body dealt with the duty of WTO members to respect the treaty rights of other members is answered well by Ortino. According to Ortino, the Appellate Body found that the United States measure did not meet the terms of the chapeau.28 It noted that the United States’ action challenged by Thailand, Pakistan, Malaysia and India had been applied in an unjustifiably and arbitrarily as noted above. Specifically, the Appellate Body noted that Perhaps the most conspicuous flaw in this measure’s application relates to its intended and actual coercive effect on the specific policy decision made by foreign governments, Members of the WTO. [The measure], in its application, is, in effect, an economic embargo which requires all other exporting Members, if they wish to exercise their GATT rights, to adopt essentially the same policy (together with an approved enforcement programme) as that applied to, and enforced on, United States domestic shrimp trawlers.29 In addition to the ruling above, the Appellate Body noted, inter alia, that the United States measure as applied did not allow for any inquiry into the relevance of the United States regulatory programme for the conditions prevailing in other States.30 Further, the United States had not been involved in any negotiations with the complaining countries, although it had done so with nations of the Caribbean/Western Atlantic region and in spite of the internationally recognised preference for multilateral solutions to problems of conserving species such as the migratory turtles.31 Furthermore, the United States had given the countries of the Caribbean/Western Atlantic region a longer phase-in and technical assistance, as opposed to its “callous” treatment of the South Asian countries. In fact the Appellate Body found that the United States procedures for implementing its measure (the import restriction) were subjectively discriminatory, fundamentally because they denied “basis fairness and due process” to WTO members.32 Even then, the Appellate Body was emphasised the fact that the problems with the United States measure emanated not from the measure itself, but rather from the way in which it had been applied.33 My opinion regarding the Appellate Body ruling in view of the chapeau is that the ruling effectively dealt with the duty of a WTO Member to respect the treaty rights of the other Members because the Appellate Body noted that the action by the US was not only arbitrary but also unjustifiably discriminatory against the complaining countries. This is because the situation after determination of the case was different. The United States made a number of changes in its regulations, which were designed to eliminate the Appellate Body’s fairness and due process concerns. The US also started engaging in negotiations with South Asian States on a turtle protection programme and offered some technical assistance. Finally, the regulations were amended so as to make them, at least in theory, more flexible as regards taking into consideration special local conditions and permitting imports of shrimp caught by boats employing United States approved conservation devices. Q3. Critical analysis of the role of the Appellate Body in dealing with ‘public morals’ in the US-Gambling DS285 under the WTO dispute settlement system The US-Gambling DS285 case started when, in October 2004, Antigua and Barbuda (herein known as Antigua) brought a complaint against the US, alleging that the United States federal and state laws represented a ban on the cross-border provision of Internet gambling services.34 In it counterargument, the United States invoked the “public morals” clause of the GATS (General Agreement on Trade in Services).35 This clause is also found in substantially analogous form in the GATT and is one of the various general exceptions to the WTO norm liberalising trade.36 GATT Article XX(a) and Article XIV (a) of GATs expressly provide exceptions to trade liberalization under the GATT on the basis of implementing measures to protect “public morals”.37 But if a matter were to arise regarding this clause there would be a problem defining the “morals” and this is the reason why the US-Gambling case is interesting in analysing the role of the WTO Appellate Body with respect to dealing with “public morals.” For instance, do “public morals” vary from one State to another? In addition to this, while it is undisputed that a government should be in a position to protect its population’s welfare, it seems unclear whether trade measures can be implemented to protect public morals in another country38 – and this is exactly where one of the challenges for dispute settlement under WTO arises. US-Gambling is the first WTO dispute to feature in public morals clause.39 According to Marwell, the case raised two new doctrinal questions that distinguish morality-related trade disputes from previous WTO jurisprudence revolving around human rights or environmental concerns. 40 The first question is about how an international tribunal like the WTO appellate Body should assess a country’s assertion that an issue is legitimately a matter relating to “public morals” given that such interests are likely to be strongly held, geographically localised and diverse across different political boundaries.41 The second question is about the basis upon which an international dispute resolution body such as the WTO Dispute Settlement Body should balance interests in regulating public morality against the rights of other member states assuming that a particular regulation is legitimately related to public morality.42 Ordinarily, the United States Justice department takes a prohibitionist stance toward online gambling, although questions have been raised over the level to which federal law actually forbids online gambling.43 But it is generally agreed that online gambling cannot be effectively prohibited, even if it is a potentially harmful activity.44 Between 1999 and 2003, when Antigua realised that there was a considerable reduction in the number of online gambling operations, it attributed the decline to the “increasingly aggressive” action taken by the United States against offshore gambling operations – which in the United States’ view were unlawful.45 In 2003, the Antiguan Government submitted a dispute to the WTO, contending that current and proposed United States and federal laws prohibiting cross-border Internet gambling, as well as judicial and executive acts taken against offshore gambling operations, put the US in violation of its obligations under the WTO’s GATS, including its market access and national treatment obligations, since the US measures treated foreign suppliers of cross-border gambling services less favourably than domestic providers of gambling services.46 In particular, Antigua argued that international development, specifically development of e-commerce, which the US pledged to promote at a 2001 ministerial conference in Doha, was being curtailed.47 The officials of Antigua pointed out that the online casino industry assists in providing the much-needed employment for youth in Antigua, helping to deter them from turning to unlawful means of livelihood such as dealing in drugs.48 They also asserted that the United States’ concerns about crime and money laundering, which made it impose the restrictions, were unfounded because the online gaming industry in Antigua and Barbuda is tightly regulated and monitored by the government.49 Although, as it is pointed out above, regulating online gaming is a complex and uncertain issue, Antigua argued that the US conceded that it had measures that totally prohibited cross-border online gambling services from Antigua.50 To support this argument, Antigua relied, inter alia, on various United States government statements that it is always illegal for foreign operators to offer cross-border Internet gambling service anywhere in the US.51 But the reaction by the United States was criticism of Antigua’s characterisation of the American state and federal law as cumulatively amounting to a complete prohibition of cross-border Internet gambling.52 The US contended that Antigua had not satisfied the burden it bore as a complainant to institute a prima facie case that some specific regulatory measure was not consistent with the United States obligations under GATs.53 In addition, the US denied that cross-border gambling services were within its commitments under GATs and argued that if they were, Antigua had not proved that any US measure was inconsistent with its GATs obligations.54 The US further noted that remote online gaming posed serious financial and social dangers such as money laundering, crime, and problem or addictive gambling.55 On intervention in July 2003, the WTO Dispute Settlement Body agreed to establish a dispute resolution panel. The panel made its report public in November 2004, where it found that the US had made specific commitments under GATs with reference to gambling and betting services and, rejecting the argument that Antigua had failed to make out a prima facie case that specific US measures violated these obligations.56 It also found that certain US state and federal laws, including the federal Wire Act, Illegal Business Gambling Act, Travel Act, and the Louisiana and South Dakota prohibitions on Internet gambling amounted to violations of the GATs.57 The panel also determined that the United States had not been able to establish that the laws were justified under an exception in GATs allowing WTO members to adopt appropriate measures to protect public morals or maintain public order, because the US had failed to consult with Antigua before imposing restrictions on the cross-border supply of gambling and betting services.58 Further, the panel found that Antigua had failed to prove that the US measures were not administered in a reasonable, objective and impartial manner in violation of the GATs provisions.59 In January 2005, the US appealed to the WTO Appellate Body, and Antigua also made an appeal to the same body on some issues.60 The Appellate Body upheld the panel’s definition of “public moral” based on the ordinary written meaning, which was that public morals “denote standards of right and wrong conduct maintained by or on behalf of a community or nation”.61 Thus, it agreed with the United States that it could restrict gambling if it was necessary to safeguard public morals or maintain public order. However, when reviewing on the measures implemented by the United States, the Appellate Body did not pass on the question of whether the provision of Internet gambling services is socially or morally desirable.62 Rather, it found it insufficient, that the United States Congressional reports and evidence were considering moral standards of conduct, such as organised crime, money laundering, fraud, and underage and pathological gambling.63 The Appellate Body also disagreed with the panel’s finding that the United States had failed to show that its statutes were necessary based on the lack of consultation with Antigua. Consequently, the appellate body determined that is was lawful for the United States federal government to legislate the Wire Act, Travel Act, and the Illegal Gambling Business Act to protect people of the US, as long as such laws did not discriminate against foreign businesses. However, the Appellate Body also noted that the US had failed to establish that the restrictions in the three statutes were applied equally to both local and foreign suppliers of gambling services. The Appellate Body thus recommended that the Dispute Settlement Body of the WTO request the United States to harmonise its laws with its obligations under GATs.64 My opinion regarding the US-Gambling DS285 case is that the Appellate Body performed its role effectively in handling the case because it reprimanded the US where necessary and overruled some of the allegations brought by Antigua. The main concern however goes back to the issue of defining what “public morals” are. It is obvious that each country will have its own “public morals” depending on how it defines them. Going back to the case, it is notable that the Appellate Body avoided the particular issue of what is socially beneficial or morally wrong. This, according to Hohmann, is one effective way of handling the case because had the Appellate Body set a substantial review for public morals, it would easily have overstretched its authority and capacity with a view to potential issues in subsequent cases. 65 For instance, to what extent is the import of alcohol to a Muslim country like Saudi Arabia in conflict with the Islam religion? The same applies to the import of beef to India, where the act is likely to be in conflict with the Hindu religion. Even then, according to the Appellate Body’s finding, the US laws prohibiting cross-border provision of online gambling services, though allegedly necessary to protect the local public morals, were inconsistent with obligations under the WTO agreement because they were discriminatory and protective of the local industry. Therefore in my view the Appellate Body seems to have focused more on the impact of a country’s measures against another with reference to the terms of the WTO agreements of trade liberalisation rather than what constitutes public morals. This is likely to affect countries in that their definition of public morals may be irrelevant if the Appellate Body relies only on other terms of the WTO agreement. As such, some countries may not want to be associated with the WTO dispute settlement system if their own definition of what constitutes public morality is very clear but is deemed that the dispute resolution mechanism will overlook it and focus only on the agreement. From the US-Gambling case, Bidgoli argues that the rulings and recommendations made by WTO Dispute Settlement Body have no immediate impact on US law, which can only be amended only by Congress. This means that the US would comply only if was it is satisfied that permitting online gambling would not compromise its “public morals”. Therefore, the issue of public morals should best be handled by countries themselves rather than the WTO Dispute Settlement Body as such rulings by the Appellate Body may only fuel discontent among countries based on how they define their morality – and this may make them want to disassociate themselves with the WTO dispute settlement system. Conclusion The exceptions in the Article XX of GATT permit countries to deviate from the WTO agreement of liberalising trade in pursuit of protecting public morals, protecting human, animal or plant life or health, and conserving exhaustible natural resources. However depending on how these clauses are applied, some countries may perceive some measures to be discriminatory as seen in US-Shrimp case and US-Gambling DS285 case. The argument by some developing countries that the provision of the exceptions promotes the use of unilateral environmental, health and other policies as a means of disguised protectionism can be seen in the sense that in both cases, the US was found to have violated a number of provisions in the WTO agreement that stipulate liberalised trade. As noted, the use of the exceptions is justified in some cases strictly in the sense of those exceptions, but unjustified and arbitrary in the sense of the WTO agreement. Making a determination regarding the exceptions is thus a tall order for the WTO Appellate Body. Reference list Appleton, Arthur E. & Plummer, Michael G., The World Trade Organization: Legal, economic and political analysis (Springer, 2005) Bidgoli, Hossein, Handbook of information security, information warfare, social, legal, and international issues and security foundations (John Wiley & Sons, 2006) Ehlermann, Claus-Dieter, ‘Opinion of C. Ehlermann in the Arbitration Under Chapter 11 of the North American Free Trade Agreement and Under the UNCITRAL Arbitration Rules Between Methanex Corporation and The United States of America’, (2002) Herrmann, Christoph & Terhechte, Jörg Philipp, European yearbook of international economic law 2011 (Springer, 2011) Hohmann, Harald, Agreeing and implementing the Doha Round of the WTO (Cambridge University Press, 2008) Jackson, John H., ‘World Trade Rules and Environmental Policies: Congruence or Conflict?’ (1992) 49(4) Washington and Lee Law Review 1239-40 Marwell, Jeremy C., ‘Trade and morality: The WTO public morals exception after gambling’, (2006) 81(802) New York University Law Review 804. Neuling, Bruce ‘The Shrimp-Turtle Case: Implications for Article XX of GATT and the Trade and Environment Debate’, (1999) Comparative Law Review Ortino, Federico, The WTO Dispute Settlement System 1995-2003 (Kluwer Law International, 2004) Robertson, David, International economics and confusing politics (Edward Elgar Publishing, 2006), 160. Steger, Debra P., Redesigning the World Trade Organization for the 21st century (Wilfrid Laurier University Press, 2010), 173 Venezuela-US Gasoline Dispute, (1997) Trade and Environment Database < http://www1.american.edu/TED/VENEZ.HTM> at 08 Nov. 2012. World Trade Organisation, ‘Legal Texts: GATT 1947- The General Agreement on Tariffs and Trade (GATT 1947) (2012) < http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXX> at 08 Nov. 2012 WTO para. 575 at WTO, ‘GATT/WTO dispute settlement practice relating to GATT Article XX, Paragraphs (b), (d) AND (g)’, (WT/CTE/W/203, 8 March 2002), 5 at 13. Nov. 2012 Read More