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Introduction
“General Exceptions”
Clause under WTO Jurisprudence
There are
several “General Exceptions” Clauses in WTO Agreements. Some of them are:
1. Article XX of GATT 1994
2. Article XIV of GATS
3. Security Exceptions (Article XXI of the GATT 1994)
4. Economic Emergency Exceptions (Article XIX of the GATT
1994)
However, the
scope of the present write-up is limited to Article XX of the GATT 1994.
An Outline
The general
exceptions are key provisions of the GATT 1994 allowing Members to justify on a
number of non-trade policy grounds measures that would otherwise be
inconsistent with the WTO Agreement. These grounds include protecting the
environment, public health and public morals, and preventing deceptive
practices. The general exceptions provide a mechanism for promoting
trade liberalisation with other important policy objectives that
Members may choose to pursue. As such, they often feature prominently in
disputes brought to the World Trade Organization (‘WTO’).
General Exceptions: Is
it a Novel Concept?
“General
Exceptions” in itself is not a novel concept. Older International Agreements
also had such exceptions clause but those exceptions related only to the
provisions on import prohibitions and restrictions. The present Article XX
covers a much wider field.
Exceptions that have not been invoked so far
Subparagraphs
(c), (e), (f), (h), (i) and (j) have not been invoked so far. These relate to
gold and silver; the products of prison labour; national treasures;
intergovernmental commodity agreements; materials necessary to a domestic
processing industry; and products in short supply.
Extra-territorial Measures
According to Simon Lester, there
are two types of Extra-Territorial Measures:
1. A country’s measure may require
that all products sold in the domestic market be produced in a certain way.
Such a measure would clearly act as a disadvantage to anyone who makes the
product abroad as the production method in foreign country might be very
different from the domestic one.
2. A country’s measure may impose
trade restrictions on imports if the foreign government does not take specific
actions in a particular policy area. Such a measure involving any kind of
performance requirement may create an artificial barrier and might act as
‘unjustifiable discrimination’.
This is clearly a very sensitive
issue in WTO. Time and again, this question has arose. It is high time that
such questions need to be resolved.
Design of Article XX
1. The Chapeau prohibits such
application of a measure at issue as would constitute
a.
Arbitrary Discrimination
b.
Unjustifiable Discrimination
c.
Disguised Restriction
2. Sub-Paragraphs that provide the exceptions.
Applicability of Article
XX
Article XX
states that “nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures”. This very
clearly explains that Article XX applies only GATT obligations and not to the
other agreements.
In China–Audio-visuals,
it was held that Accession Protocol can be relied upon to justify an exception
under Article XX of the GATT.
Despite the abovementioned
ruling, no clarity or consensus has been achieved on this issue. In Canada-Renewable
Energy, it was contended that the term ‘this agreement’ in Article
XX has no ‘ordinary’ meaning of its own. This term has been borrowed from GATT
1947. As we know that, GATT 1947 was carried over into the WTO agreements
mostly as it is. Thus it was contended that ‘this agreement’ must be
interpreted in the context of GATT 1994 and the other Annex 1A agreements.
Such confusion
persists because in Brazil-Desiccated Coconut, it was found that the
meaning of ‘this agreement’ in Article 32.3 of the ASCM refers not only
to the ASCM but also Article VI of the GATT 1994. Hence, it is to be duly noted
that the meaning of ‘this agreement’ is not inherently limited to the covered
agreements that it is used in.
Inclusion of
Accession Protocol for the purposes of interpreting Article XX seems quite
understandable and reasonable. However, inclusion of a separate agreement is a
question that seems unresolved for now for the reason that such an
interpretation might lead to systemic anomalies in the WTO Jurisprudence.
The present
methodology adopted by the Panel/AB seems quite prudent as it is always better
to decide on a case-to-case basis as it would allow the Panel/AB to see the
manner in which the defendants invoke Article XX in each matter and the
possible implications therein.
Despite the
confusion relating to Article XX’s application to other agreements, we must not
forget that the exceptions under Article XX apply and relate to all of the
obligations under the GATT 1994 i.e. NT Obligation, MFN Obligation and others.
The Issue of ‘Burden of Proof’
The burden of
proof is on the party invoking a specific exception under Article XX to show
that the measure is justified under that provision[1].
The party defending the exceptions must show that the aspects relating to both
the sub-paragraphs and the chapeau are satisfied separately. Proving one of
these would not automatically imply that the other one has also been satisfied.
Methodology to be adopted while Analysing Article
XX
The
interpretative Process to be adopted while analysing Article XX is quite
unique. There are two steps involved in this process[2]:
1. It must be
determined whether the measure at issue falls within one of the listed
exceptions (sub-paragraphs). If the answer is affirmative, the measure is said
to be ‘provisionally justified’ under the relevant sub-paragraph.
2. The next and
the final step involves a thorough scrutiny of the measures at issue on the
anvil of the ‘chapeau’.
The
significance of this sequencing and methodology has been exemplified by the
Appellate Body in following words:
“Sequence of
steps….reflects, not inadvertence or random choice, but rather the fundamental
structure and logic of Article XX.”
It must be
remembered that this sequencing in no manner suggests that sub-paragraphs are
more important than the chapeau or the vice-versa. Chapeau helps in preventing
the abuse or misuse of the exceptions provided in the sub-paragraphs by testing
the measure at issue to be “arbitrary or unjustifiable discrimination”
or “a disguised restriction on international trade”.
Chapeau or the Preamble
The term
‘Chapeau’ is a French word that means ‘Hat’. This term refers to the
introductory paragraph of Article XX because of its position in the text (above
all the sub-paras).
The soul and
the conception of the Chapeau of Article XX is quite old. In 1946, this
preamble or chapeau was inserted into the Draft ITO Charter during the London
Session of the Preparatory Committee. It was thought that many times the
general exemptions are misused for indirect protection, hence the need arose to
insert a clause that explicitly prohibits the use of such measures that
constitute indirect protection.
“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...”
It is important
to observe that it is the ‘application of the measure’[3]
that is at stake here and not the measure per se. The Chapeau clearly
provides a much needed equilibrium that stabilizes the right of a member to
invoke an exception vis-à-vis rights of other member states.
“Arbitrary or Unjustifiable Discrimination between
Countries where the same conditions prevail”
The meaning of
this phrase was discussed in US-Tuna. The Panel stated that:
“The Panel
noted the preamble to Article XX. The United States’ action of 31 August 1979
had been taken exclusively against imports of tuna and tuna products from
Canada, but similar actions had been taken against imports from Costa Rica,
Ecuador, Mexico and Peru and then for similar reasons. The Panel felt that the
discrimination of Canada in this case might not necessarily have been arbitrary
or unjustifiable. …”
In US-Automotive,
it was observed that:
“The Panel
noted that the exclusion order was directed against imports of certain
automotive spring assemblies produced in violation of a valid United States
patent from all foreign sources, and not just from Canada. It found, therefore,
that the exclusion order was ‘not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination against countries where the
same conditions prevail’.”
“Effects Based Approach”
The Panel Body
in Brazil-Tyres adopted an Effects Based Approach. In such an approach,
what matters most is the extent to which the discrimination was manifesting
itself in trade flows and the extent to which the discrimination undermines
Policy Objectives. Thus in this approach, Objective of the Measure at Issue
assumes prime importance. The discrimination must not exist to the extent of
undermining the objective of the measure at issue and if it does, that would
constitute as “unjustifiable discrimination”.
Under this
approach, no cause or rationale for the discrimination is required. What is
looked into is the effect of that discrimination on the trade[4]. A
good example of that would be a Treaty exemption that results into
discrimination in the nature of a MFN Obligation violation.
“Alternative Approach”
The Appellate
Body in Brazil-Tyres opined that arbitrary or unjustifiable
discrimination exists:
When a
measure provisionally justified under a para of Article XX is applied in a
discriminatory manner “between countries where same conditions prevail”.
AND
When the
reasons given for this discrimination bear no rational connection to the
objective falling within the purview of a para of Article XX
OR
When a
Measure Provisionally Justified under a para of Article XX goes against the
objective falling within the purview of a para of Article XX.
This approach
involves a test under which following question needs to be asked.
1. Whether
differing treatment between countries relates to the policy goal of the
applicable Article XX Exception?
2. If yes,
whether the discrimination or the differentiation is based on a rationale that
is legitimately connected with the policy of an Article XX Exception?
3. If yes, the
measure at issues does not amount to an abuse of the applicable Article XX
Exception.
Or in other
words:
There will
be unjustifiable discrimination in the absence of a rational connection between
the reasons for the discrimination, and the objectives reflected in the
relevant para of Article XX.
Conclusion
Our discussion
clearly shows interpretation of Chapeau is quite complex in nature. High value
is attached to giving each of the terms an independent meaning such as to
maintain distinct boundaries within Article XX.
“Disguised Restriction
on International Trade”
The
jurisprudence relating to what constitutes disguised restriction on trade has
not developed much. In US-Gasoline, it was said that, ‘arbitrary discrimination’,
‘unjustifiable discrimination’ and ‘disguised restrictions’ should be read in
synchrony as they impart meaning to each other. Following propositions were
laid down:
1. ‘Disguised
Restriction’ includes disguised discrimination in International Trade.
2. Concealed or
Unannounced Restriction or Discrimination in international trade does not
exhaust the meaning and ambit of ‘disguised restriction’.
3. ‘Disguised
Restriction’ includes restrictions amounting to arbitrary or unjustifiable
discrimination in international trade taken under the guise of an Exception
under Article XX.
4. Factors
relevant in deciding whether the application of a particular measure amounts to
‘arbitrary or unjustifiable discrimination’ may be equally relevant in determining
the presence of a ‘disguised restriction’ on international trade.
Also, in Japan–Alcoholic
Beverages, the AB suggested that the protective application of a
measure can most often be discerned form its design, architecture and
revealing structure. Hence under the guise of following a legitimate
policy, any measure that restricts international trade is not permissible.
There have been
concerns that by not having a clear jurisprudence on “disguised restrictions”,
the GATT decisions could create a repulsive environment for the transparency to
exist and be followed as a principle by the governments as unconcealed or
blatant protectionist measures might pass the “disguised restriction”
test by the very virtue of their blatancy. This is clearly an ill-founded doubt
as we know that in US-Gasoline, it was said that ‘disguised restrictions’
should be read in synchrony with ‘arbitrary or unjustifiable discrimination”.
Let us assume
that a blatant protectionist measure exists and is challenged before the WTO on
the ground of it being a ‘disguised restriction to international trade’.
As held in US-Gasoline, the Panel while deciding the matter would definitely
care to see whether the measure at issue amount to ‘arbitrary or
unjustifiable discrimination’. If it does so, then it would be a disguised
restriction even if it is blatant. The emphasis is on the restrictions that
distort the international trade. Whether they are disguised or blatant is
immaterial for the purpose of interpreting the Preamble to Article XX. The
introductory clause has merely attempted to shield itself from all kinds of
protectionist measures.
Thus, according
to the Appellate Body[5], “the
fundamental theme is to be found in the purpose and object of avoiding abuse or
illegitimate use of the exceptions to substantive rules available in Article
XX”.
Non-Discrimination
Obligation (Article III) v. Non-Discrimination Requirement (Chapeau)
Simon Lester
asks a critical question that if discrimination is already prohibited
under Article III, what is the scope of additional non-discrimination
requirement of the Article XX Preamble? He opines that Article III requires
only a discriminatory effect to find a violation, whereas the introductory
clause requires discriminatory intent as well in order to be
violated.
Thus a discriminatory
effect sufficient enough to violate Article III might not lead to an automatic
violation of the Chapeau. The discrimination at issue must be intentional.
Adequately
exploring ways to cooperate and the Chapeau
In US-Gasoline,
it was considered that not exploring adequately the ways to cooperate with the
complainant so as to provide equal treatment is an omission that goes
‘well-beyond’ what is needed for Article III violation. Such a discrimination
clearly constitutes ‘unjustifiable discrimination’ or a ‘disguised restriction
on international trade’. Thus we see that the introductory clause has gone
through immense interpretative process.
Good Faith Negotiations
and the Chapeau
In US-Shrimp,
in response of to the AB ruling, US modified its measure at issue to comply
with the WTO Obligations. In doing so, it adopted new and flexible guidelines
and unsuccessfully tried to negotiate an agreement. Despite such changes, it
was complained that the measure still violates Article XX.
The Appellate
Body held that as long as US continued with its good faith negotiations, it
cannot be said that the measure constitutes unjustifiable or arbitrary
discrimination. Thus facts and circumstances as remote and distant as good
faith negotiations are also considered while interpreting the Chapeau.
Flexibility in the Domestic
Guidelines and the Chapeau
In the same
matter, it was also complained that despite the changes in the guidelines, the
new guideline constitutes as a ‘unilateral measure’ as the access to the US
market is dependent upon the policies that are prescribed by the US itself
without any consultations with other stakeholders. The Appellate Body responded
by saying that the new guidelines are ‘comparably effective’. The added
flexibility in the new guidelines implies that the measure is permissible.
Thus we see
that the Panel/AB adopts a relative assessment while comparing the old and the
new policies of a member state. It looks into the intent of the member to
rectify the omission. If the effort of the member is found to be earnest and in
good faith, then such a measure is not held to be restriction or a
discrimination. It is neither advisable nor permissible to have identical domestic
regulatory regime for all the member states without considering the fact that
the condition of a number of member states could be drastically different and
that the rigid guidelines would only lead to confusion and discrimination. This
also shows that the Panel/AB prefers customized and flexible guidelines rather
than the inelastic ones.
The Sub-Paragraphs
Article XX (b): Human,
Animal or Plant Life or Health
This article
permits measures that are necessary to protect human, animal or plant life or
health. The gravity of importance of this article can be understood by the fact
that a whole new SPS agreement has been enacted to address these issues as
positive rules[6].
A two pronged
approach is adopted while examining any defence under a sub-para[7]:
1. Whether the
measure at issue falls within the scope of the said sub-para?
2. If yes,
whether the measure at issue is ‘necessary’ to achieve this objective?
WTO Jurisprudence on
Article XX (b)
US—Gasoline
In this matter,
US argued that air pollution presents severe health risk to humans, animal and
plants and since most of this pollution is caused by vehicle emissions, it is
but natural to take measures that reduce such emissions. The panel found the
said measure to be in conformity with Article XX (b). However, the panel also
concluded that the manner in which the said measure violated the ‘National
Treatment’ Clause was not ‘necessary’ under Article XX (b).
EC—Asbestos
In this matter,
a ban was imposed on import of Asbestos by France. The aggrieved party was
Canada. Canada contended that even though Asbestos is a harmful substance, it
could still be handled safely if proper precautions are mandated by a law.
Thus, according to Canada, a ban on import of Asbestos though falling within
the ambit of Article XX (b) is not justified as it is not ‘necessary’ to take
such a drastic step. Softer steps such as a change in a law could have
sufficed. However, the Panel was unimpressed by the arguments put forth by the
Canada. The panel held that the French measure at issue was indeed ‘necessary’.
The matter went
to the AB. AB opined that measure requiring a change in law that mandates
controlled use of asbestos through proper handling and safety instructions is
definitely possible but whether such a measure is practical and efficacious has
not been demonstrated. The AB also said that the policy objective of France is
to eliminate the risk associated with Asbestos completely. It is proven that a
complete ban would achieve such an objective. Hence AB upheld the Panel’s
finding that France’s measure was indeed necessary to protect human, animal,
plant life or health.
Article XX (a)
This article
permits measures that are necessary to protect public morals. A similar
provision also exists in Article XIV (a) of GATS. This article has fairly broad
coverage. However, the extent of coverage that it is to receive depends on the
interpretation that is adopted by the Panel/AB in such cases. The landmark
matter in this respect is that of China—Audio-visuals.
China—Audio-visuals
In this matter,
China contended that reading materials and audio-visual products are goods with
cultural content i.e. ‘Cultural Goods’. It further said that such goods play a
pivotal role in shaping the value, ethics and behaviour of the society.
According to
China, because of such impact of these goods, it decided to put in place a
Content Review Mechanism so as to prevent dissemination of cultural goods that
can negatively impact the public morals and values of the society. Thus the sole
objective of the Content Review Mechanism is to prevent the importation of
cultural goods that could have a negative impact on public morals. However, it
was ultimately held that China did not demonstrate that its measures are
‘necessary’ to protect public morals under Article XX (a).
Article XX (g)
This article
permits measures relating to conservation of exhaustible natural resources if
such measures are made effective in conjunction with restrictions on domestic
production or consumption.
Weighing and Balancing
Test
In Korea
Beef[8],
it was stated that the necessity of a measure could be determined by weighing
and balancing the following factors:
A. The common interests/values or the “relative
importance” of the objectives that the measure seeks to protect
B. The contribution made by the environmental measure to
that policy objective
C. The trade restrictive impact of the measure on
international trade.
The AB equated
the word ‘necessary’ with ‘indispensable’.
Brazil – Retreaded Tyres and the Present View
The present view is that the member
countries can determine the level of protection they wish to give to their
public morals or human or animal or plant life or health. Thus, the view is
back to the EC—Asbestos for now.
[1]
US-Shrimp and EC-Tariff Preferences
[2]
EC-Tariff Preferences
[3]
Its origin could be traced to two Customary Principles of International Law
called as bona fide or “actions must be in ‘good faith’” and Pacta
Sunt Servanda or “treaties must be abided in ‘good faith’”.
[4]
Trade Effects Test
[5] US-Gasoline
[6]
Lester, p.280
[7] EC
– Tariff Preferences
[8] Appellate
Body Report, Korea-Measures Affecting Imports of Fresh, Chilled and Frozen
Beef, 161, WT/DS161,169/AB/R (Dec. 11, 2000)
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