With the AB's recent Tuna 21.5 report in mind, I think it's fair to say that the focus when analyzing less favorable treatment tends to be on the "stems exclusively from a legitimate regulatory distinction" element. I agree that this element is crucial, but I'm worried we aren't doing enough with the other element, detrimental impact. Here's a quote from the tuna report:
7.234. Beginning with the first step, we consider whether the labelling conditions under the amended tuna measure, taken together, modify the conditions of competition to the detriment of Mexican tuna products in the US market. In so doing, we must take "due cognizance" of the DSB's recommendations and rulings, including the findings of detrimental impact in the original proceedings, which constitute relevant background for our assessment. Accordingly, we begin by recalling the Appellate Body's finding in the original proceedings that the detrimental impact of the original tuna measure was "caused by the fact that most Mexican tuna products contain tuna caught by setting on dolphins in the ETP and are therefore not eligible for a 'dolphin-safe' label, whereas most tuna products from the United States and other countries that are sold in the US market contain tuna caught by other fishing methods outside the ETP and are therefore eligible for a 'dolphin-safe' label." ...
Here's my concern: Is it really enough to say that "most" Mexican products get one kind of treatment, and "most" U.S. products get a different kind of treatment? "Most" could mean 99% for each; or it could mean 51% for each. The exact percentages matter to me.
If you go to the original panel report, you get some more details on this:
7.314 Based on the above, we note that it is undisputed that at least two thirds of Mexico's purse seine tuna fleet fishes in the ETP by setting on dolphins (therefore fishing for tuna that would not be eligible to be contained in a "dolphin-safe" tuna product under the US dolphin-safe labelling provisions). We also take note of Mexico's indication that the portion of its fleet that the United States identifies as catching tuna eligible to be included in dolphin-safe tuna products (i.e. vessels under 363 metric tons) represents only a limited share of the total catch of the fleet, although we also note that the exact figures are disputed.
7.315 With respect to the US fleet, the United States has indicated that US vessels used to set on dolphins to catch tuna at the time the US dolphin-safe labelling provisions were enacted. The United States explains that there were, at the time, 46 US purse seine vessels along with 52 Mexican vessels that fished for tuna in the ETP, most of which were authorized to set on dolphins to catch tuna. The United States further indicates that US vessels did not fully discontinue the practice until years later, in the mid-1990s.
7.316 From these undisputed elements, it appears that the US fleet currently does not practice setting on dolphins in the ETP. We note also that two US full time purse seine vessels are currently registered to fish in the ETP for 2010 but neither has sought or obtained a Dolphin Mortality Limit (or DML) under the AIDCP, which implies that they are not allowed to set on dolphins. Mexico has also observed that these two vessels are also registered in the WCPFC, which suggests that they are not operating exclusively in the ETP.
7.317 From the above, it can be inferred that, as the practices of the US and Mexican tuna fleets currently stand, most tuna caught by Mexican vessels, being caught in the ETP by setting on dolphins, would not be eligible for inclusion in a dolphin-safe product under the US dolphin-safe labelling provisions. However, most tuna caught by US vessels is potentially eligible for the label, provided that it otherwise complies with the requirements of the measures.
So the ultimate conclusion relies on "most," but there are some additional facts leading up to that conclusion.
I have two main points here. First, panels looking at these issues should put a lot of effort into ascertaining the facts. They should press the parties, and come to factual conclusions related to detrimental impact that are as precise as possible.
And second, when panels and the Appellate Body make findings on less favorable treatment, the degree of detrimental impact should matter. For example, in the context of TBT Agreement Article 2.1, when considering detrimental impact and the purported legitimate regulatory distinction, the degree of detrimental impact should play a role in reaching an ultimate conclusion on less favorable treatment. (Under GATT Article III:4, where the current state of affairs looks only at detrimental impact, I suppose any degree of detrimental impact would lead to a violation, although I'm not sure how sustainable this approach is in general.)