Winning battles and losing wars at the WTO

The World Trade Organization (WTO) Appellate Body (AB) review of the Panel report on the E.U. – Seals dispute was a win for Canada but the implications of the report go well beyond banning seal products from the E.U. market.

Some (reported an E.U. “win”) based on this extract from its press release
“The WTO confirmed the E.U.’s right to ban seal products on moral grounds related to animal welfare and the way the seals are killed. It did, however, criticise the way the exception for Inuit hunts has been designed and implemented.”

In fact, the AB condemned the arbitrary and unjustifiable discrimination in administration of the E.U. Seals regime. This is more than mere criticism. The E.U. lost because its implementation of the ban was discriminatory and was untrue to its stated objectives.

The E.U. banned imports of most seal products claiming the killing methods and unavoidable animal suffering offend the public morals (sense of right and wrong) of the E.U. citizenry.

But the ban was selective and it was in the selectivity that the E.U. was hoist on its own petard.
Limited exclusions from the ban were provided for products of hunts by Inuit and other indigenous peoples (the IC exception), government-regulated culling of seal herds and imports of seal products by travelers.

The E.U. created the IC exclusion to minimize adverse effects on indigenous peoples hunting seals at least in part for subsistence. Unfortunately, the IC exclusion did not work as well for Canadian Inuit as it did for others. The Greenland Inuit were able to meet the IC qualifying criteria while smaller scale Canadian Inuit hunts could not.

The E.U. had no persuasive explanation about how seal products hunted by Inuit differed from the products of commercial hunts.

There was no evidence that the E.U. public would consider the presence of some seal products less morally repugnant than others.

The E.U. seal products ban was found to be inconsistent with Article I:1 of the General Agreement on Tariffs and Trade (GATT 1994) because the IC exclusion operated in a way that discriminated against seal products of Canadian origin in favour of seal products of Greenland seal hunts.

GATT (1994) is one of the key WTO agreements which is built around basic obligations not to discriminate among members – the Most Favoured Nation or MFN Obligation in Article I and the National Treatment obligation in Article III which requires that behind the border regulations do not impose higher internal taxes on imports or treat imports no less favorably than like domestic products.

GATT obligations are designed to prevent Members from taking measures that restrict or prevent the free movement of goods in and out of their territories.

GATT obligations are rigorous but not absolute. The drafters of the GATT created a number of exceptions from the rules for sound public policy reasons in narrowly defined circumstances.

To benefit from an Article XX exclusion a measure must pass a two-step test.

First, the measure in question must fall within the scope of one of the ten subparagraphs of Article XX. If it does not, it is condemned and the breach must be remedied.

If a measure meets the first test, it must meet the overriding conditions in the “chapeau” of Article XX. A chapeau (“cap” or “hat”) is an unnumbered introductory clause or paragraph covering several subsequent provisions.

The Chapeau to Article XX permits enumerated exclusions:
“subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade”.

The E.U. claimed that the seal measure (ban) Article I:1 was justified under Article XX(a) as necessary to protect public morals. (Public morals is often equated with moral turpitude, pornography and crimes related to drugs and alcohol.)

The Appellate Body agreed with the original Panel that the objective of the E.U. Seal Measure fell within the scope of XX(a) and that it was “provisionally” necessary within the meaning of Article XX(a). This was the basis of the E.U. claim of victory.

The Article XX finding was “provisional” subject to its meeting the criteria of the “Chapeau”. On this the E.U. crashed and burned in large part because the application and operation of the IC exclusion was deemed to be arbitrary and unjustifiable discrimination.

U.S. Senators examining the original GATT agreement considered a challenge to their sanity. It is characterized as being written in code only understandable by experts. It has been part of my life for nearly 50 years. That Simon Lester, a former counsel to the AB, was “frustrated and perplexed” by the AB’s approach to some of the issues in seals underlines the complexities of the process.

There has been extensive debate on Simon’s blog over the last few days as to what the AB really meant in some of its key findings. The Seals report is not clear and it breaks new ground. As Simon points out, the real meaning is likely to evolve in future AB deliberations, including “COOL, Tuna and Plain Packaging”.

So Canada won – but, Joost Pauwelyn explains that the AB’s reasoning in allowing the public morals claim is fraught with dangers to the international trading system. Professor Pauwelyn explains the AB found that:

- there is no need for the invoking member to identify the existence of a risk (to public morals);
- the invoking country is not required to identify the exact content of the public morals standard;
- there is no need for consistency in responding to similar interests of moral concern.

This seems to suggest that the WTO Dispute Settlement process and the Appellate Body are reluctant to challenge or judge Members’ assertions of public morals grounds. There are important implications for other food products based on how animal welfare activists perceive the production process.

Production, but not consumption, of foie gras is banned in most E.U. member states. France is not among them. Article L654 of France’s 2006 Rural Code decrees: “Foie gras is part of the protected cultural and gastronomic heritage of France. By ‘foie gras’ is meant the liver of a duck or a goose specifically fattened by force-feeding.”

France did not react well to a foie gras ban in California. Don’t expect the E.U. production restrictions on foie gras to extend to France, or to Belgium, Spain or Hungary. Nor are Europeans likely to ban consumption.

In order to maintain its ban on seals, the E.U. must, after a reasonable period of time, modify it to ensure it conforms to its WTO obligations. Removing the exception for the IC hunts and other “leakage” which permit any seal products to remain on the E.U. market would help – but don’t hold your breath waiting for Brussels to do this.

Winning is one thing for Canada. How the E.U. will eventually comply with this decision is another matter.

Experience tells us that Brussels will not likely willingly eliminate the seal products ban. ..There will be stalling and half measures to assert compliance.

Too often at the end of the day WTO dispute settlement is a matter of big vs little instead of right and wrong...

The retaliation list for the Seals dispute, if necessary, should be chosen carefully. Perhaps it should begin with foie gras.

This has been excerpted from 4 June 2014 article by Peter Clark, international trade strategists, for iPolitics, and is available in its entirety at http://www.ipolitics.ca/2014/06/04/europe-won-small-battle-on-seals-but-is-losing-the-war/ (subscription may be required)