In its Report on the Appellate Body issued earlier this week, USTR makes the following point about the Appellate Body's non-discrimination jurisprudence:
Articles I:1 and III:4 of the GATT 1994 and 2.1 of the TBT Agreement set out Members’ national treatment and most-favored-nation (“MFN”) obligations. These provisions are concerned with origin-based discrimination.
The Appellate Body’s recent approach under both Article 2.1 and Articles I:1 and III:4 is to first look to see if a measure has a “detrimental impact” on imported products of a Member compared to the like products of the importing Member or imported products of any other Member. Where there is a detrimental impact, then the Appellate Body’s approach with respect to Article 2.1 is to conduct a further analysis to determine if any such detrimental impact stems exclusively from a legitimate regulatory distinction. With respect to Articles I:1 and III:4, however, there is no further analysis. The existence of a detrimental impact is alone sufficient to demonstrate a breach of those articles under the Appellate Body’s approach. The only recourse for a Member maintaining such a measure is to attempt to invoke an affirmative defense, such as Article XX of the GATT 1994. The Appellate Body’s approach does not find support in the text of the relevant provisions, nor in the manner in which they were applied under the GATT 1947 nor in prior panel or Appellate Body reports.
I agree with the U.S. criticism here, and I am concerned about the scope for policy space/regulatory autonomy as a result of the Appellate Body's reasoning. Generally speaking, in my view, you need to get both aim and effect (or whatever terms you want to use if "aim" and "effect" have become toxic) into Article III:4 (and Article I:1) somehow. We do that under Article III:2, second sentence and it has worked well, and I don't see a convincing textual, contextual, object and purpose, negotiating history, or policy reason not to do it under Article III:4. (Obviously, the text of Article III:2, second sentence is different from the text of Article III:4, but it is not different in a way that suggests you shouldn't look at some version of aim/motive/purpose/intent under Article III:4).
However, I want to push back against a couple arguments USTR makes in support of its general point. First, there was this one:
The “detrimental impact” standard is problematic and should be of serious concern for WTO Members. First and foremost, it would appear to be a standard that could easily result in a finding of a WTO violation even where there is no difference in treatment due to national origin. Under the Appellate Body’s approach, if any producer in any other WTO Member satisfies the requirements under the measure, while a producer in the exporting WTO Member does not, that would appear to suffice to find that the measure has a detrimental impact on the exporting WTO Member’s products.
There has been a long battle over this "diagonal test"/individual product view in the GATT/WTO and I'm pretty sure this argument has been mostly vanquished by now. It may be that a party to a dispute will make the argument from time to time, and a stray panel here and there might seem to rely on it, but I think the Appellate Body has been clear in rejecting it. The Appellate Body would not make a finding of detrimental impact based on a consideration of individual products (or producers). Rather, it would look at the entire group of products, and examine whether the group of imported products is disproportionately affected as compared to the group of like domestic products. Thus, I don't think there is a real threat that such a broad interpretation would be used as long as the Appellate Body is around. (Without the Appellate Body, I am less sure, and I can imagine an occasional panel adopting individual product language in response to a party's argument).
USTR also argued the following:
Another problem with this approach is that a measure that may not have a detrimental impact on imports in the present could very well have a detrimental impact in the future, depending on whether an exporting producer decides to change its product characteristics or production method. Thus, even where a WTO Member makes a significant effort to ensure that a measure is non-discriminatory, the WTO Member has no assurance when adopting a measure that the measure will withstand a challenge in the future based on changes in the market or changes by exporting producers.
They are probably thinking of cases such as Tuna here, but in my view, whether there is a finding of detrimental impact in these circumstances depends on the facts of the case and the way it is argued. I think there is a pretty strong defense to claims made in this way, even under the Appellate Body's standard.
But on this final USTR point, I agree:
This low and unpredictable threshold is not the concept of discrimination to which WTO Members agreed. It is difficult to imagine that WTO Members would have agreed to an obligation under which any measure that had a disparate impact on the goods from another WTO Member – even if the impact was entirely accidental – would be in breach of GATT Articles I:1 and III:4.
The Appellate Body appears to have given us an extremely broad Article III:4 standard. I wonder if, in a sensitive case, they would actually apply it as broadly as it seems, but nevertheless, it looks to me like we have a "low and unpredictable threshold." I agree with the U.S. that there is (and was) a better approach:
In fact, the Appellate Body’s approach is contrary to the fact that the phrase “treatment no less favourable” in Article III:4 was, in the past, always interpreted as providing regulatory space for WTO Members to take otherwise legitimate measures that may restrict trade unevenly across the membership of the WTO.
The general principle of Article III:1 of the GATT 1994, which informs the meaning of Article III:4, makes it clear that considerations of discrimination and “protection” are inherent in Article III:4. The second sentence of Article III:4 conveys a similar concept. It states: “The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.” Thus, Article III:4 itself embraces the concept that the reason behind a measure is important for purposes of the Article III:4 analysis, and that “nationality of the product” is a key concept.
(footnotes omitted)
I'm not completely sure what standard the U.S. wants to see here, but if it wants something along the lines of the approach used in Chile - Alcohol under Article III:2, second sentence (discriminatory effect plus some sort of objective look at the intent of the measure), then I am on board.
I'm curious as to whether other governments see the issue differently. There may be subtle differences in views as to how exactly to articulate this standard, but I would have thought most people wanted something along these lines, rather than what the Appellate Body appears to have said.
