Here is an excerpt from the U.S. statement at the last DSB meeting, in which it discusses the EU - Palm Oil panel's interpretation of non-discrimination in TBT Agreement Article 2.1:
- The United States is disappointed that the Panel in this dispute at times simply adopted the Appellate Body’s previous erroneous interpretations of the TBT Agreement.
- For instance, with respect to Article 2.1 of the TBT Agreement, the Panel adopted the interpretation of recent Appellate Body reports that any detrimental impact on like imports will constitute a breach unless the detrimental impact “stems exclusively from a legitimate regulatory distinction.” Under this erroneous approach, any detrimental impact could constitute a breach – not because the impact is related to the foreign origin of the product, but because the measure was not constructed so as to eliminate any detrimental impact not exclusively related to the regulatory distinction.
- This test – first introduced by the Appellate Body and followed here by the Panel – lacks any basis in the text of Article 2.1 of the TBT Agreement. Article 2.1 is directed at controlling origin-based discrimination. Under a proper understanding of the provision based on its text, in its context, the focus is on whether the alleged different and detrimental treatment is explained by factors unrelated to the foreign origin of the product, such as whether the measure and distinction at issue bears a rational relationship to the regulatory purpose invoked.
- Yet, as a consequence of the Appellate Body’s test, adjudicators are placed in the inappropriate position of balancing the detrimental impact of a measure against its contribution to the objective at issue – a responsibility that should rest properly with policymakers.
(footnote omitted)
I am very interested in USTR's position on non-discrimination, and if I understand them correctly, I am sympathetic to their general concerns here. But I have some thoughts and questions.
To me, it's important to do both an impact/effect analysis and an intent/purpose/aims analysis under TBT Agreement Article 2.1, and it sounds like USTR agrees with that. (Let's not get into how GATT non-discrimination obligations and exceptions should divide up these two sets of analysis, because opening that can of worms will distract us.)
The issue then becomes how to carry out each part of the analysis.
On the impact part, what I would look at here is the degree of detrimental impact (or disparate impact or detrimental effect if you prefer) on imported products that results from a measure which contains a regulatory distinction that treats particular categories of similar but not identical products differently (e.g., liquor products with different levels of alcohol content). Let's say you have a measure which has that kind of impact on imported products on a de facto basis (i.e., worse treatment of imported products is not set out explicitly in the law, but the result of the measure when it is applied is that more imported products than domestic products fall into the product category that gets the worse regulatory treatment). In these circumstances, I would calculate the percentage of imported products that receive the worse treatment and the percentage of like domestic products that receive the worse treatment. If the difference in impact on imported and domestic products is appreciable (say, 60% of imported products get the worse treatment but only 40% of domestic products do), that would lend support to a finding of discrimination. And the higher the percentage difference, the more weight you would give to this factor in the overall consideration.
Turning to intent, in my view, the best way to characterize the intent inquiry is something along the lines of a design, structure etc. analysis, where you dig in to the wording of the measure and assess how it will operate in the market in question based on that wording (the GATT Article III:2, second sentence "so as to afford protection" analysis in the Appellate Body report in Chile - Alcohol offers a good example of what I have in mind). In my view, this gives the adjudicator the right amount of flexibility in examining, on an objective basis, the intent of the measure. (I don't mind looking at subjective intent too, but again, that's a big can of worms, so forget I said that!)
After determining the degree of detrimental impact and the degree of discriminatory intent, you would then come to an overall conclusion on whether the measure violates Article 2.1.
Now let's get to the U.S. statement. At the DSB meeting, USTR was critical of the "stems exclusively from a legitimate regulatory distinction" language used by the Appellate Body in formulating the TBT Agreement Article 2.1 standard. I was always a bit uncomfortable with that language myself, partly because it seemed like it might be applied very strictly and therefore it would be hard for Members to defend their non-protectionist measures. I feel like USTR was expressing similar concerns.
As an alternative, USTR puts forward a "rational relationship to the regulatory purpose invoked" standard. Here I would want to know more about how such a standard would be applied. How would the existence of a "rational relationship" be assessed? Is it the design, structure etc. test? Something else? USTR says "the focus [should be] on whether the alleged different and detrimental treatment is explained by factors unrelated to the foreign origin of the product." This is similar to the language used by the Appellate Body in Dominican Republic - Cigarettes when interpreting GATT Article III:4 ("the existence of a detrimental effect on a given imported product resulting from a measure does not necessarily imply that this measure accords less favourable treatment to imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product"), but people found that standard confusing and the Appellate Body abandoned it. I'd like to hear more about what USTR thinks it means and how it would be applied. USTR suggests that the "rational relationship" standard is an example ("such as") of the "unrelated to the foreign origin of the product" approach. Are there other examples?
Also, USTR says the following about the "stems exclusively" standard: "adjudicators are placed in the inappropriate position of balancing the detrimental impact of a measure against its contribution to the objective at issue – a responsibility that should rest properly with policymakers." I'm not sure what they mean here. In particular, I'm not sure how you can evaluate the impact and intent factors without the measure's contribution to its stated objective coming up at some point.
Overall, I think these are good discussions to have because this is a core principle of the trading system and we really need to get it right. But I'd want to hear more about how exactly USTR would like to see its standard applied (maybe by having them take some real world examples and walking everyone through it). And I'm curious to see how other governments would react to the U.S. view.
