In its rebuttal submission in the Mexico - GE Corn USMCA dispute, the U.S. has set out a non-violation nullification or impairment claim as an alternative to its violation claims (the U.S. did not elucidate the non-violation claim in its initial written submission, but it did indicate in fn. 136 of that submission that the claim was within the terms of reference, and it mentioned the claim in footnotes in the panel request).
As background, the USMCA provides for the following types of claims:
Article 31.2: Scope
Unless otherwise provided for in this Agreement, the dispute settlement provisions of this Chapter apply:
(a) with respect to the avoidance or settlement of disputes between the Parties regarding the interpretation or application of this Agreement;
(b) when a Party considers that an actual or proposed measure of another Party is or would be inconsistent with an obligation of this Agreement or that another Party has otherwise failed to carry out an obligation of this Agreement; or
(c) when a Party considers that a benefit it could reasonably have expected to accrue to it under Chapter 2 (National Treatment and Market Access for Goods), Chapter 3 (Agriculture), Chapter 4 (Rules of Origin), Chapter 5 (Origin Procedures), Chapter 6 (Textile and Apparel Goods), Chapter 7 (Customs Administration and Trade Facilitation), Chapter 9 (Sanitary and Phytosanitary Measures), Chapter 11 (Technical Barriers to Trade), Chapter 13 (Government Procurement), Chapter 15 (Cross-Border Trade in Services), or Chapter 20 (Intellectual Property Rights), is being nullified or impaired as a result of the application of a measure of another Party that is not inconsistent with this Agreement.
Here we are talking about a claim under Article 31.2(c) that "a benefit [the U.S] could reasonably have expected to accrue to it under Chapter 2 (National Treatment and Market Access for Goods), ... [or] Chapter 9 (Sanitary and Phytosanitary Measures) ... is being nullified or impaired as a result of the application of a measure of another Party that is not inconsistent with this Agreement."
Here's an excerpt from the U.S. submission with the "reasonably could have expected" element of the claim, to give people a flavor of the overall argument:
A. The United States Reasonably Could Have Expected to Accrue Benefits Under Chapter 2 and Chapter 9.
254. The ordinary meaning of the terms in the phrase “a benefit that [a Party] could reasonably have expected to accrue” is broad. Dictionary definitions of “benefit” include “[a]dvantage, profit, good”, as well as “[a] natural advantage or ‘gift,’” while “reasonably” may be defined as “[a]ccording to reason; with good reason, legitimately; justly, properly, fairly.” Thus, a “benefit” the United States “could reasonably have expected to accrue” could be understood as an advantage (including a natural advantage) or good that the United States legitimately or fairly could have expected.
255. U.S. exports of corn have long moved freely to Mexico, and—until recently—Mexico facilitated this access, including for GE corn. While the North American Free Trade Agreement (“NAFTA”) permitted Mexico to regulate U.S. access to its corn market via a tariff-rate quota until 2007, Mexico opted to open its markets to U.S. corn more than the NAFTA required, particularly during the latter years of this transition. Beginning in 2008, the NAFTA lifted all formal restrictions, allowing U.S. corn to enter Mexico free of all tariffs and quotas. Thereafter, U.S. exports to Mexico of corn and corn-based products blossomed, and according to USDA, U.S. exports of white corn and yellow corn rose from less than 190 million dollars in 1994 to more than $3 billion dollars in 2018. The USMCA continued this tariff-free and quota-free trade in corn, and in 2022—when GE products accounted for over 93 percent of corn planted in the United States—the United States exported more than $4 billion in corn to Mexico.
256. As this prior trade suggests, Mexico permitted the importation and sale of GE corn for decades, and has been one of the countries with the most authorizations for importing and selling GE crops for use in human food and animal feed. As discussed in Section II.D of the U.S. Initial Submission, Mexico’s principal legal instruments governing the importation and sale of agricultural biotechnology products in Mexico date from 2005, and in the years following the promulgation of these instruments Mexico regularly reviewed and approved authorization applications for GE events for food and feed use in Mexico. During this time Mexico issued over 200 event authorizations across 11 different GE crops—and the number of authorizations for corn alone nearly equals the number of authorizations for the other ten GE crops combined. In fact, prior to its sudden, recent reversal of policy, Mexico repeatedly touted the benefits of biotechnology, for example, noting that biotechnology can solve agricultural problems quickly and with minimal risk, meet critical food and healthcare needs, and contribute to sustainable development.
257. In negotiating what became the USMCA, the United States, Mexico, and Canada sought an ambitious outcome that would update the NAFTA and generate important economic opportunities for all three countries. After the USMCA entered into force, Mexico called the USMCA one of the most ambitious instruments it had negotiated on SPS matters, and noted that the USMCA SPS provisions improved disciplines provided for in the WTO SPS Agreement. Notably, Mexico also described the USMCA SPS Chapter as ensuring the protection of life and health and with the aim to advance decision-making with a scientific basis and to avoid unnecessary obstacles to trade. With respect to the National Treatment and Market Access Chapter, Mexico noted that its purpose was to provide greater certainty and transparency to the commercial exchange of goods between the USMCA parties, in order to facilitate and promote trade in North America.
258. The history of Mexico’s actions in the period leading to the successful renegotiation of the NAFTA supports the reasonableness of the U.S. expectation. Mexico permitted the importation and sale of corn, including GE corn, for decades before the USMCA entered into force. Mexico itself touted the benefits of GE corn as well as its safety, authorizing numerous GE events. Mexico also encouraged the tariff-free and quota-free entry of that GE corn. Mexico further lauded the ambition of the USMCA outcomes on SPS and market access. Accordingly, it was reasonable for the United States to expect that Mexico would not completely reverse itself by banning the use of GE corn in dough and tortillas and instructing Mexican government agencies to gradually substitute the use of GE corn in all products for human consumption and for animal feed. Instead, the United States could—and did—reasonably expect that the volume and value of U.S. exports to Mexico of corn, including GE corn, would continue under Chapter 2 and Chapter 9 after USMCA entered into force.
(footnotes omitted)
Let me start with a few thoughts on non-violation claims in general, and then I'll get to the claim in this case.
Back when the GATT -- with its broad principles but gaps when it came to specific subjects (such as subsidies) -- was the main source of international trade governance, the non-violation nullification or impairment remedy had a clearer role. If a particular subject wasn't covered by the rules, and thus there was no clear way to address the trade impact of a measure in that subject area which was unexpectedly put in place, a non-violation complaint could provide a remedy.
But as the GATT (and then the WTO) expanded in scope, there were fewer things not covered, and therefore fewer measures that could be characterized as unexpected. If a particular subject, such as SPS measures, had a set of detailed rules, then it could be argued that any measure that is consistent with the rules should have been expected. The logic here is that if there is a governing regime in place, and if a government was complying with that regime when it adopted the measure, shouldn't the measure be expected? For this reason, I've been skeptical of the continuing utility of the non-violation remedy in the GATT/WTO after the establishment of the WTO and its expansive set of rules.
On the other hand, it could be argued that the non-violation remedy was preserved in the text, so it must have some purpose, and the expanded substantive coverage should not totally eliminate the possibility of using it. Nevertheless, I still have questions about the scope of the non-violation remedy in the WTO context. And the limited number of claims over the years, and the absence of any recent successful claims, suggests others have these questions too.
That brings us to the USMCA. In this context, as set out above, the non-violation nullification or impairment provision explicitly applies to the subject matter chapters, including the SPS chapter at issue here, so the things I said about the GATT non-violation remedy and whether specific subjects are covered don't seem to apply. But that leaves me with some questions: What did the USMCA drafters -- borrowing a bit from the CUSFTA and NAFTA drafters -- have in mind when they explicitly created a non-violation remedy that applies to the SPS chapter (among other chapters)? In what circumstances did they think the non-violation remedy should be used, either in SPS cases or in general? I had a whole theory about how this remedy emerged during the League of Nations talks, but that doesn't apply very well here because of the broad coverage of the USMCA.
With all that in mind, how should the non-violation remedy be applied in a situation like the one here, in which a domestic regulation is the measure that is affecting trade flows? Should the U.S. have anticipated that Mexico might change its mind at some point on approving genetically engineered food products and adopt measures -- which are USMCA-compliant or else we wouldn't even get to the non-violation claim -- such as the ones at issue here? Does the well-known and long-standing controversy over these products affect the analysis of what is reasonable to expect?
I wish the GE Corn panel luck in sorting this all out if they decide there is no violation and thus have to deal with the non-violation claim.
