Hormone Ban in Dispute Again: The WTO Refuses to Reject Either the EC Ban or Canadian/US Trade Sanctions

Introduction

One of the longest-running Word Trade Organization (WTO) disputes has reached its next, but not yet final, stage. The contention in the “mother of all transatlantic food safety conflicts”[1] has been the European Community (EC) ban since 1988 on hormone-treated beef. In 2004, the EC brought disputes against the United States and Canada for continuing to impose trade sanctions on EC exports after the EC had notified the WTO of legislation allegedly bringing the EC into compliance with WTO law. On March 31, 2008, the WTO circulated the panel reports in these disputes. The WTO Appellate Body (AB) then heard appeals from all parties and delivered its report on October 16.

The AB report resolves one of the puzzles of the WTO’s Dispute Settlement Understanding (DSU): What to do when the WTO Dispute Settlement Body (DSB) has authorized sanctions against the trade of a Member found to have failed to implement DSB recommendations, the Member then adopts an implementing measure, and the original complainant does not believe that the measure brings the implementing Member into compliance? The AB rejected the EC’s argument that sanctions had to cease when the EC unilaterally asserted compliance by notifying its new Directive. It clarified that sanctions under the DSU may continue until there is a multilateral dispute settlement finding that substantive compliance has occurred. The AB also rejected the panel’s conclusion that the new EC Directive was still noncompliant, and found numerous errors in the panel’s analysis of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement).

The AB urged both sides to promptly move forward with proceedings under DSU Article 21.5 to determine whether the EC has complied and whether continued sanctions are legally valid.

All three appellants declared victory. Nevertheless, the hormone ban and the sanctions both remain in place, Canadian and US beef still have no access to the enlarged EC market, and all must engage in yet another round of WTO litigation. The EC announced that it “will confidently engage in the next steps to solve this dispute.”[2] The US later criticized the AB’s report as judicial lawmaking.[3] On October 31, USTR announced that it is considering increasing its existing sanctions or shifting the targets to different products,[4] apparently to increase pressure for a market access settlement.

Background

In February 1998, the Dispute Settlement Body (DSB) adopted the Panel and Appellate Body reports in EC – Measures Concerning Meat and Meat Products (Hormones), concerning an EC ban on importation of meat and meat products from cattle treated with six particular growth hormones. The reports found this measure violated the SPS Agreement’s requirement that sanitary and phytosanitary measures must be based on a risk assessment and scientifically justified. The Appellate Body found that the measure violated SPS Articles 5.1 and 3.3 because it was not rationally related to a risk assessment. The DSB recommended that the EC bring the measure at issue into conformity with WTO rules.

After the EC announced that it would not be able to comply by the deadline set by the WTO, the DSB authorized the US and Canada to suspend trade concessions against EC exports, equivalent to the trade damage (US$116.8 million for the United States and CDN$11.3 million for Canada) caused by the EC’s failure to comply. Each applied 100 percent import duties to imports of certain products from the EC.

The EC then commissioned scientific studies and research on health risks from the six hormones, on the basis of which the EC adopted Directive 2003/74/EC on September 22, 2003. This Directive permanently bans meat and meat products treated with oestradiol 17ß, and (unlike the earlier measure) only provisionally bans meat treated with the other five hormones, pending more complete scientific information. On October, 27, 2003, the EC notified the DSB of the Directive and the scientific studies, asserting that the EC had provided risk assessments justifying the import prohibitions under the SPS Agreement, that the EC had fully implemented the recommendations and rulings of the DSB, and that the suspensions should be lifted. The US and Canada disagreed.

If a disagreement regarding whether measures taken to comply with DSB recommendations are WTO-consistent cannot be settled by other means, under DSU Article 21.5 the dispute must be resolved by referral wherever possible to the original panel. The EC assumed it could not seek an Article 21.5 proceeding, and the United States and Canada declined to do so. The EC then launched new WTO disputes against the sanctions in November 2004, which were referred to a common panel.

The Panel Report

In these disputes, the EC claimed that the continued trade sanctions by Canada and the United States violate Articles I and II of GATT 1994, as well as DSU Articles 21.5, 22.8, 23.1 and 23.2(a) and (c). The EC argued that its October 2003 notification triggered an obligation for the US and Canada to initiate Article 21.5 proceedings if they disagreed that Directive 2003/74/EC achieved compliance.

The panel first focused on DSU Article 23.2(a), which provides that a Member shall “not make a determination to the effect that a violation has occurred ... except through recourse to dispute settlement ...”. The panel agreed with the parties that Directive 2003/74/EC “is not the same measure as that which was found in breach” and had never been the subject of WTO litigation,[5] and then found that comments at two DSB meetings by Canadian and US diplomats stating that the new directive was WTO-illegal amounted to such a “determination”. The panel then found that by continuing to suspend concessions after October 2003, the defending parties had violated DSU Articles 23.1 and 23.2(a).

The panel then focused on the EC’s claim regarding violation of DSU Article 23.1, read with DSU Articles 22.8 and 3.7. The panel found that Article 22.8 requires that there be substantive compliance by the implementing party before there is any duty to terminate suspension of concessions. Evaluating the scientific evidence, the panel found that the Directive’s definitive ban violated SPS Articles 5.1, 5.2 and Annex A(4), and the Directive’s provisional bans violated SPS Article 5.7. The panel recommended that the defending parties bring their continued sanctions into conformity with their obligations under the DSU, but it did not request them to lift the sanctions.

The panel findings were bizarre and internally contradictory. The panel found that the EC had not complied, and so the authorization for sanctions had not lapsed, but it also found that the continued sanctions were an illegal unilateral act against a new measure (the new directive) which had never been the subject of dispute settlement. Its finding that diplomats’ statements in the DSB can constitute “determinations” under DSU Article 23.2(a) was also surprising. Although it found that the EC’s new Directive was still noncompliant, the panel still insisted that Canada and the United States either withdraw the trade sanctions or start yet another dispute settlement proceeding, because it found that its own jurisdiction did not extend to determining the WTO-consistency of the new Directive.[6]

All three parties appealed.

The Appellate Body’s Response

The AB chose to start from DSU Article 22.8, which provides that “[t]he suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed”. The AB found that “Removal means nothing less than substantive removal of the inconsistent measure”[7] and that suspension of concessions can continue until the removal of the measure found to be inconsistent results in substantive compliance. If there is a disagreement, then the disagreement must be resolved through multilateral dispute settlement; the suspension can continue during the dispute settlement process, but it must cease if the implementing measure is found to result in substantive compliance. If sanctions had to end whenever implementing measures were notified, this would undermine the effectiveness of sanctions in inducing full compliance, and fail to deliver a final resolution to disputes.

Suspension of concessions is an “abnormal state of affairs”, the Appellate Body found, and the suspending and implementing Members share responsibility to ensure that it is only temporary. When there is a dispute about whether an implementing measure achieves substantive compliance, and the dispute cannot be resolved by negotiation, both Members have a duty to engage in WTO dispute settlement under DSU Article 21.5 to establish whether the conditions in Article 22.8 are met and the suspension must cease.[8] The rules do not prevent an implementing Member from initiating Article 21.5 proceedings.

In such a Article 21.5 proceeding, said the AB, the implementing Member need only identify its implementing measure and the inconsistencies found in the original proceedings, and claim that it has complied. If the original complainant believes the new measure creates new violations, it can promptly file its own Article 21.5 panel request referencing those provisions, so that both requests can be referred to the original panel. Both parties have a duty to cooperate to resolve the dispute.[9] If the implementing Member makes a prima facie case and the original complainant fails to rebut, the panel will find that the respondent has achieved compliance.[10] If an Article 21.5 panel (and/or the Appellate Body) determines that the implementing Member has achieved substantive compliance, then upon adoption of the report(s) by the DSB, the DSB’s authority to suspend concessions terminates by operation of law (ipso iure).[11]

The AB then examined whether the continued sanctions had violated DSU Article 23. The AB observed that a suspension of concessions authorized by the DSB will not violate Article 23.1 as long as it is consistent with other DSU rules, including Article 22. If the respondent is found in dispute settlement proceedings to have complied, then the suspension is no longer consistent with DSU Article 22.8 and becomes a unilateral action prohibited by Articles 23.1 and 23.2. All parties have a responsibility to “engage actively in dispute settlement proceedings” to ensure that a suspension is not applied inconsistently with Article 22.8; if the United States and Canada failed to participate in such proceedings, that could violate Article 23.1, but this is not currently the case, as the United States and Canada had actively engaged in these proceedings.[12]

As for DSU Article 23.2(a), the AB defined “determination” as a “more or less final decision by a Member in respect of the WTO consistency of a measure taken by another Member,“ and considered the DSB statements at issue as merely “initial reactions to the EC’s self-proclaimed compliance”.[13] The AB found that “DSB statements are not intended to have legal effects and do not have the legal status of a definitive determination in themselves. Rather, they are views expressed by Members and should not be considered to prejudice Members’ positions in the context of a dispute.”[14]

The AB also made lengthy findings (omitted here due to lack of space) reversing the Panel’s findings that the directive violates SPS Articles 5.1 and 5.7. It found that the panel misinterpreted these provisions, misallocated the burden of proof, conducted a de novo review of the science incompatible with the proper standard of review, and mishandled its consultation with scientific experts. As the AB was unable to complete its analysis on the basis of the existing factual record, it found that the prior DSB recommendations and rulings in the Hormones case remain operative. It recommended that the DSB request all parties to initiate Article 21.5 proceedings without delay to resolve their disagreement about compliance and about the legal validity of continued sanctions.

Comment

The AB sorted the claims of this dispute into a legally coherent order. However, in light of the AB’s statements that the disagreements at hand should be addressed through Art. 21.5 proceedings, [15] one might wonder why the AB did not find that the panel, which was not based on Article 21.5, had no jurisdiction at all to handle this case.

About the Author

Dr. Markus Böckenförde LL.M. (UNM), an ASIL member, is a Senior Research Fellow at the Max Planck Institute for Comparative Public Law and International Law, Germany. He is the author of “Grüne Gentechnik und Welthandel” (Genetic Engineering and World Trade) and commented on various provisions of the SPS Agreement and the Dispute Settlement Understanding in the Max Planck Commentaries on World Trade Law.

About the ASIL International Economic Law Interest Group

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