The Jean Monnet Program



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List of Tables





List of Abbreviations


AB Appellate Body

AB&P WTO Appellate Body and Panel

CITES The Convention on International Trade in Endangered Species of Wild Fauna and Flora

ETMs environment-oriented trade measures

GATT The General Agreement on Tariffs and Trade

The LTRA Test The “least trade restrictive alternative” test

MMPA The U.S. Marine Mammal Protection Act

The SPS Agreement The Agreement on the Application of Sanitary and Phytosanitary Measures

The TBT Agreement The Agreement on Technical Barriers to Trade

WTO The World Trade OrganizationI

Introduction

Since the 1970s, international environmental problems have become prominent issues. In order to deal with these problems, the international community has adopted numerous international agreements and some countries have legislated a variety of laws and regulations. As one of the methods for protecting international environments, some of these domestic statutes and international treaties provide trade-restrictive measures. The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), for instance, requires its signatories to limit trade in species that are threatened with extinction under Article III, IV, and V of the Convention.1

The General Agreement on Tariffs and Trade (GATT), since its establishment in the 1940s, had emphasized the significance of free trade and the lowering of tariff and non-tariff barriers.2 The GATT and its contracting parties had paid little attention to environmental problems in their discussions until the beginning of the 1990s. Environmental protection and free trade had been discussed separately and few had pointed out the possibility that their interests might come into conflict with each other.3

However, this innocence stopped abruptly when the GATT Dispute Settlement Panel found that an embargo of the United States on tuna imports based on the U.S. Marine Mammal Protection Act (MMPA) was inconsistent with the GATT.4 The MMPA includes provisions which prohibit the imports of tuna which is captured with fishing methods which result in the incidental death of marine mammals.5 The Panel found that the U.S. import ban violated GATT provisions such as Article III, which establishes the national treatment obligation, and Article XI, which prohibits quantitative import restrictions.

This finding provoked public anti-trade sentiment. Environmentalists were outraged by this Panel ruling and began to argue that the promotion of free trade undermines environmental protection. This suspicion by environmentalists was a setback for the GATT, which was, at that time, conducting the Uruguay Round of negotiations, the most complicated and largest trade liberalization negotiation in its history. Some trade experts expressed hostility towards the environmentalists’ idea that some trade restrictions should be permitted in order to preserve the environment.6

Another dispute involving the MMPA arose in 1994. The European Community (EC) and the Netherlands brought complaints jointly when it became clear that Mexico, the complainant in Tuna/Dolphin I, would not push for the adoption of the Tuna/Dolphin I Panel report in the GATT because of ongoing NAFTA negotiations. The EC focused on the MMPA’s “second embargo”, which prohibited the imports of tuna into the U.S. from countries engaging in tuna trade with embargoed countries such as Mexico. Once again, the Panel found that the U.S. measure was inconsistent with GATT.7

In both Tuna/Dolphin I and Tuna/Dolphin II, the U.S. invoked GATT Article XX, which permits several exceptions from the GATT obligations based on such social reasons as environmental protection and preservation of public morality. In particular, the U.S. argued that its measures could be justified because they fall into the scope of Article XX (b), measures “necessary to protect human, animal or plant life or health”, and XX(g), measures “relating to the conservation of exhaustible natural resources”.8 In Tuna/Dolphin I, after pointing out that Article XX should be construed narrowly and that the burden of proof should be placed on the party invoking it, the Panel stated that the scope of Article XX is limited to measures taken to conserve the environment within the jurisdiction of the party invoking them.9 As a result, the Panel found that the U.S. measure which aimed at protecting dolphins living outside of U.S. jurisdiction could not be justified under Article XX of the GATT.10 The Panel in Tuna/Dolphin II rejected the geographical limitation which the Tuna/Dolphin I Panel adopted.11 However, the Panel found that the U.S. measure in question was effective only when the embargoed countries changed their conservation policies and that such a measure could not be permitted under Article XX because otherwise “the balance of rights and obligations among contracting parties, in particular the right of access to markets, would be seriously impaired.”12 That is, both Panels interpreted Article XX so narrowly that almost no environment-related trade measures which violate the provisions of the GATT can be justified under Article XX at all. Some point out that both Panels viewed the promotion of free trade as the preeminent value and overlooked the importance of non-trade values such as environment protection.13

However, since the establishment of the World Trade Organization (WTO) in 1995, the interpretation of Article XX has been loosened. The Appellate Body (AB), which is a permanent dispute settlement body in the WTO to review Panel decisions, adopted balancing approaches in the cases involving environment-related trade measures such as United States - Standards for Reformulated and Conventional Gasoline (hereinafter Gasoline)14 and United States - Import Prohibition of Certain Shrimp and Shrimp Products (hereinafter Shrimp/Turtle).15 In these cases, the AB paid attention to balancing the promotion of free trade with environmental protection when interpreting GATT Article XX. One of the reasons why the AB discarded the Panels’ approaches in Tuna/Dolphin I and II vis-à-vis GATT Article XX is the change in the preamble of the WTO Agreement16 from that of GATT 1947.17 As opposed to the GATT 1947, the preamble of the WTO Agreement acknowledges the importance of environmental protection. It provides that a purpose of the WTO is to accomplish “the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development”.18 As a matter of fact, in Shrimp/Turtle, the AB interpreted the term of Article XX (g) in the light of the preamble of the WTO Agreement.19



These discussions regarding the relationship between trade and environmental policies can be “economized”. From a viewpoint of economic theory, environment-oriented trade measures (ETMs)20 could be justified based on the existence of externalities or common property goods.21 As a matter of general proposition, externalities arise when the economic activities of economic entities such as consumers and producers cause effects which are not directly reflected in the market. Externalities can be either negative, such as when the activity of a party impose costs on another party, or positive, when the action of a party benefits another party. When negative (positive) externalities arise, the amount of the activity which causes the externalities would be excessive (less than optimal) since the actor does not take into account the costs (benefits) of the other party. In the context of international trade, negative externalities occur when a state exports products which inflict detrimental effects on the importing state’s nationals. These negative externalities would be “internalized” by restricting or controlling the imports of the products. However, there is vigorous debate as to what extent the WTO should permit externalities as a justification for ETMs since 1) ETMs are not the only method for “internalizing” externalities and 2) externalities are very difficult to define.22 Common property goods are those to which everyone has free access. As a result, they tend to be overutilized since, when economic entities use common property goods, they do not take into account how their use would affect the opportunities of others. In the context of international trade, the preservation of the global environmental commons would be the most significant issue; global commons are defined as “physical or biological systems that lie wholly or largely outside the jurisdiction of any of the individual members of society but that are valued resources for many members of society”23. For example, atmosphere, the ozone layer, and endangered species can fall within the category of the global environmental commons. It would be possible to deal with the problems of overutilizing the global environmental commons by invoking ETMs. For example, in Shrimp/Turtle, the U.S. tried to preserve seven kinds of sea turtles, which are listed in Appendix 1 of CITES, by banning the imports of shrimps from those countries which did not adopt regulatory programs comparable to those of the U.S. in order to prevent the incidental capture of sea turtles by shrimp trawlers. This U.S. measure can be regarded as an ETM aimed at dealing with problems concerning the overutilization of a common environmental good. Once again, it is also hotly discussed to what extent ETMs for preventing the overuse of the global environmental commons should be allowed under the WTO.

Many have discussed whether the use of ETMs should be allowed under the WTO from an economic viewpoint.24 Some argue that trade restriction is not usually an appropriate method for dealing with environmental problems,25 and others refute their opinions.26 However, the primary concerns in these discussions are limited to only two types of ETMs: ETMs which aim at coercing the countries targeted by the ETMs to improve their environmental behavior beyond the jurisdiction of the ETM-invoking countries; and ETMs which try to compensate for the targeted nations’ less strict environmental regulations by imposing tax or countervailing duties.27 These two kinds of ETMs do not represent all environmental measures which would affect international trade. States invoke environmental measures which aim at protecting the safety of nationals or the environment regardless of purporting to change other countries’ environmental policies. For example, states prohibit the production and consumption of certain kinds of products which bring about risks to human health. In order to render these prohibition effective, states also ban the imports of these products. Even though these environmental measures do not intend to change environmental policies of other states, they would also cause pernicious effects on international trade. As a matter of fact, this kind of ETM became the issue in the most of the disputes that have been involved in “trade and environment” since the establishment of the WTO. For instance, in European Communities – Measures Affecting Asbestos and Asbestos -Containing Products, Canada complained about the French import ban of asbestos, a measure which was an aspect of France’s general prohibition of the sale, use, and manufacture of asbestos in France.28 Although this French measure does not purport to change the Canadian environmental policy, it causes harmful effects on the Canadian export of asbestos. Also included in this category of ETM are most of the sanitary and technical measures which fall under the scope of the Agreement on Technical Barriers to Trade (hereinafter the TBT Agreement)29 and the Agreement on the Application of Sanitary and Phytosanitary Measures (the SPS Agreement).30 These agreements came into force when the WTO was established and aim at preventing technical regulations and sanitary measures of the members from “creat[ing] unnecessary obstacles to international trade”.31 Even though these agreements attempt to “minimize… the negative effects [of sanitary and technical regulations] on trade”32, it is crystal clear that they do not intend to deprive the sovereign right of the WTO members to enact sanitary and technical regulations in order to protect human health. Therefore, when we analyze this type of ETM (i.e., measures aimed at preserving the environment without intending to change other countries’ environmental policies), it does not make sense to discuss whether this kind of ETM should be allowed under the WTO. Rather, the concern of this paper is that ETM-imposing countries tend to choose measures which impose a heavy burden on international trade because they do not have an incentive to take into account the trade harms on other countries. This paper will primarily discuss whether the judicial tests which have been adopted by the Appellate Body and Panel (hereinafter the AB&P) in the WTO in the analysis of the SPS Agreement, the TBT Agreement, and GATT Article XX33, for example, the “least trade restrictive alternative” test and the “means and ends” test, could appropriately “correct” the behavior of ETM-imposing countries so as to achieve the “optimal use of the world’s resources.”

In analyzing these “judicial” tests, we are going to take into account two additional issues: the application/measure dichotomy, and the allocation of the burden of proof. In the analysis of GATT Article XX, the AB&P have adopted the dichotomy between the essence and the application of a measure. This distinction would have certain effects to render the AB&P’s scrutiny more deferential to ETMs. The allocation of the burden of proof would also have significant effects in determining how moderate or stringent the AB&P’s analysis on ETMs is. For example, their analysis would be more deferential to ETMs if they impose the burden of proving the unjustifiablity of the ETMs under GATT Article XX on complaining countries and vice versa.

This paper will begin with a discussion in Chapter II regarding the findings in the WTO cases involving the SPS Agreement, the TBT Agreement, and GATT Article XX. Chapter III will analyze above-mentioned judicial tests such as “least trade restrictive alternative” test and the “means and ends” test from an economic viewpoint. Chapter IV will examine the essence/application dichotomy which the AB&P have adopted. Chapter V will discuss the allocation of the burden of proof in the contexts of GATT Article XX and the SPS Agreement. Chapter VI will conclude.

II

Recent Cases Regarding “Trade and Environment”

In this Chapter, we discuss the recent AB&P findings involving Article XX of the GATT, the SPS Agreement and the TBT Agreement. The purpose of this Chapter is to clarify how AB&P have invoked judicial tests such as the “least trade restrictive alternative test” and the “means and ends” test, how they have utilized the application/essence distinction, and how they have allocated the burden of proof.


A. Article XX of the GATT


Article XX of the GATT provides that:
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, nothing in the Agreement shall be construed to prevent the adoption or enforcement by any contracting parties of measures: ...

(b) necessary to protect human, animal, or plant life or health; …



(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption....
With regard to the relationship between the independent paragraphs and the ‘chapeau,’ or the introductory clauses, of Article XX, the measures which can fall under the purview of one of the individual provisions also have to satisfy the requirement under the chapeau. The AB&P have strictly observed the analytical sequence of Article XX, first determining whether the measures can fall within the scope of individual paragraphs, then whether the measures can also satisfy the conditions set out in the chapeau.34 As a matter of fact, in Shrimp/Turtle, the Appellate Body characterized the order of this two-tier analysis as “not inadvertence or random choice, but rather [the reflection of] the fundamental structure and logic of Article XX”,35 reversing the Panel’s findings that “it seems equally appropriate to analyze first the introductory provision of Article XX”.36 The Appellate Body stated that the chapeau analysis, which is to prevent the abuse of the specific exemptions provided for in Article XX, becomes almost impossible unless the interpreters identify the justifiabilities of the measures under one or another of the individual paragraphs.37



1. Paragraph (b): Measures Necessary to Protect Human, Animal, or Plant Life or Health


The AB&P have found that the measures have to be the least trade restrictive ones “among the measures reasonably available to [the measures-imposing countries]”38 so as to be deemed to be “necessary” to protect human health or life in the meaning of paragraph (b).39 Despite the very stringent appearance of this so-called “least trade restrictive alternative test” (the LTRA test), the manner in which AB&P apply this test has been relatively modest in the context of Article XX (b) of the GATT. This has come about because of the distinction between measures themselves and the application of measures. In Shrimp/Turtle, the Appellate Body enunciated that interpreters of the GATT have to examine measures as a whole in analyzing the compatibilities of the measures to the individual paragraphs, while they have to analyze whether the application of the measures can satisfy the conditions set out in the chapeau.40 As a result, the objects of Article XX (b) scrutiny are the measures as a whole, as opposed to the detailed components of the measures which parts are found to be inconsistent with the GATT obligations. In this regard, Trachtman noted:
A fundamental question in connection with the necessity analysis is the scope of the ‘measure’ under review: is it the entire regulatory scheme or only the trade-restricting component?… Of course, if the necessity determination were required to be made only as to the regulatory scheme as a whole, it would be a much more deferential test.41
The Panel report in Argentina - Measure Affecting the Export of Bovine Hide and the Import of Finished Leather exemplifies the AB&P practice that the LTRA test in the context of GATT Article XX (b) is deferential to the measures in question.42 In this case, Argentina and the European Community disputed whether the Argentinean pre-payment system of income and value-added taxes, which resulted in imposing on importers heavier financial costs than on buyers of like domestic goods thereby violating GATT Article III:2, first sentence (non-discrimination between domestic and foreign like products on taxation), could be justified under the Article XX (d), which requires that the regulations be “necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement” (emphasis added). The Panel found that the pre-payment system in question, “in their general design and structure”, was the least trade restrictive measure among reasonably available ones in order to secure compliance with Argentinean laws of income tax and value-added tax.43 However, the Panel found that the application of this contested measure resulted in “unjustified discriminations” because an alternative course of action in which the Argentinean government would reimburse importers for the additional interest forgone or paid would be available and administratively feasible.44 If the Panel had examined the extra tax burden, a detailed aspect of the Argentinean pre-payment tax system, instead of the pre-payment system as a whole in its analysis of Article XX (d), the measures in question would have not been able to pass the LTRA test.

2. Paragraph (g): Measures Relating to the Conservation of Exhaustible Natural Resources.


Since the establishment of the WTO, the AB&P have had two opportunities to examine Article XX (g): Gasoline, and Shrimp/Turtle.

In Gasoline, Venezuela and Brazil complained that the U.S. was discriminating against foreign importers to the Unites States in setting the “baseline establishment” for gasoline, which was provided for in the U.S. 1990 Clean Air Act.45 The Act aimed at preventing the further deterioration of air pollution and the “baseline establishment rule” was designed for supervising the “non-deterioration” requirement in the Act. The U.S. set individual baselines for each of the most domestic refiners. However, the U.S. government applied statutory baselines for all foreign refiners, insisting that it was difficult to establish individual baselines for individual foreign refiners because of a paucity of information. These statutory baselines were much stricter than the average of the individual baselines. Venezuela and Brazil alleged that this discrimination between domestic and foreign refiners constituted a violation of Article III:4 (non-discrimination between domestic and foreign like products on regulation) of the GATT46. The Panel agreed.47 Then, with regard to the U.S. argument that the U.S. measure in question could be justified under Article XX (g), the Panel found that a measure has to be “primarily aimed at” the conservation of an exhaustible natural resource in order to be deemed to be “relating to” the conservation in the context of Article XX (g), referring to the Panel Report in Canada - Measures Affecting Exports of Unprocessed Herring and Salmon,48 in which the “primarily aimed at” test was first applied.49 The AB agreed that the “primarily aimed at” test should be applied to this particular case since all of the parties and the third participants in Gasoline agreed on the application of this test in the context of Article XX (g) of the GATT.50 Then the AB pointed out that without the baseline establishment rule the object of the Act, the prevention of further deterioration of air pollution, would have been “substantially frustrated”. It therefore found that the baseline establishment rule was “primarily aimed at” the protection of atmosphere in the U.S.51

In Shrimp/Turtle, four Asian countries complained that the U.S. embargo of the importation of shrimp, based on Section 609 of Public Law 101-102 and its 1996 Guidelines, both of which aim at protecting turtles from incidental takings by shrimp trawling vessels, was inconsistent with the GATT. The AB seemed to refine the “primarily aimed at” test further. First, the AB stated that the purpose of protecting endangered sea turtles was genuine since the policy of protecting sea turtles was shared by all of the parties to this dispute.52 Then, the AB analyzed whether the relationship between the protection of sea turtles and the contents of Section 609 was “a close and genuine” one and made the following two points: two exemptions under Section 609 were directly related to the policy goal of sea turtle protection,53 and the requirements for granting certification of importation of shrimps were also directly connected to the policy of sea turtle conservation.54 Finally, the AB concluded that:
focusing on the design of the measure here at stake, it appears to us that Section 609… is not disproportionately wide in its scope and reach in relation to the policy objective of protection and conservation of sea turtle species…. The means and ends relationship between Section 609 and the legitimate policy of conserving an exhaustible, and, in fact, endangered species, is observably a close and real one…. In our view, therefore, Section 609 is a measure “relating to” the conservation of an exhaustible natural resources within the meaning of Article XX (g) of the GATT 1994.55 [emphasis added]
The AB seemed to clarify that the “means and ends” test, or the “primarily aimed at” test, consists of two parts: first, the interpreters should check whether the objects and purposes of measures are “genuine”, then they should examine whether the relationships between the measures and their ends are “close and real” ones. Furthermore, it should be noted that the AB examined whether the scope of Section 609 was “disproportionately wide” in relation to the purpose of sea turtle protection. By so doing, the AB enunciated that not only the reduction of environmental harms but also harms on international trade derived from the measure are also to be taken into account in the analysis of the “means and ends” relationship. That is, the AB found that the deleterious effects on international trade could not be disproportionately large in comparison with the purpose of sea turtle protection, while, in Gasoline, the AB did not clarify whether trade harms could be taken into account in the analysis of the “primarily aimed at” test.

Like Article XX (b), the object of the Article XX (g) analysis is a measure as a whole. Therefore, the components of a measure which are found to be in violation of GATT obligations are not examined under an Article XX (g) analysis. Therefore, the “means and ends” test under Article XX (g) is deferential to measures in dispute. In Gasoline, the AB reversed the Panel’s findings that the “less favorable treatment” of imported gasoline, the component of measure which the Panel found to be violation of GATT Article III:4, had to be “primarily aimed at” the conservation of air quality in order to fall within the range of Article XX (g). The AB noted that the object of the Article XX (g) analysis is a regulatory measure as a gestalt, i.e. the baseline establishment rule, not parts of it, i.e. discriminatory application of the baselines against foreign refiners.56 As a result, scrutiny under Article XX (g) has been relatively moderate.


3. Chapeau of Article XX: Unjustifiable or Arbitrary Discrimination or Disguised Restriction to Trade


The measures which fall into the scope of one or another of the individual paragraphs from (a) through (g) in Article XX also have to satisfy the requirement in the chapeau so as to be justified under the GATT.

Unlike the individual paragraphs, the objects of the chapeau analysis are the detailed components of a measure, as opposed to the measure as a whole. In this regard, in Shrimp/Turtle, the AB also said that:


the chapeau of Article XX… addresses not so much the questioned measure… as such, but rather the manner in which that measure is applied…. The general design of a measure, as distinguished from its application, is, however, to be examined in the course of determining whether that measure falls within one… of the paragraphs of Article XX…. 57
Consequently, the chapeau scrutiny is less deferential to a measure in question than the analysis under the individual paragraphs. As the AB admitted in Gasoline, the burden of proving that a measure is not applied in a manner resulting in the abuse of the exceptions in the individual paragraphs is “a heavier task than that involved in showing that” the measure can fall into the category of one of the individual paragraphs.58 The AB elucidated that the reason why a heavier task is imposed in the context of the chapeau analysis is that the function of the chapeau is to strike the balance between the right of invoking exceptions under the individual paragraphs of Article XX and the duties under other provisions in the GATT.59

In Gasoline, the AB struck down the baseline establishment rule, stating “there was more than one alternative course of action available to the United States” except for giving less favourable treatment to foreign refiners in accomplishing the purpose of the Clear Air Act.60 The AB enumerated the following three possible options the U.S. could have invoked: 1) the U.S. could have imposed statutory baselines without differentiation to both domestic and foreign refiners,61 if the application of the statutory baselines to domestic refiners were impossible because of the burdens imposed by compliance with statutory baselines, the U.S. should have taken the same considerations for foreign refiners,62 2) the U.S. could have made available individual baselines to foreign refiners by utilizing “established techniques for checking, verification, assessment and enforcement of data relating to imported goods”63 and 3) even if, as the U.S. argued, it was difficult to establish individual baselines for foreign refiners because of the lack of data, the U.S. could have pursued cooperation with the governments of Brazil and Venezuela for the purpose of establishing individual baselines for foreign refiners.64 As a result, the AB concluded that the baseline establishment rule, in its application, amounted to “unjustifiable discrimination” and a “disguised restriction on international trade.”65

In Shrimp/Turtle, the AB found that the following factors should be regarded as “unjustifiable discrimination” “in their cumulative effect”:66

1) In spite of the relatively flexible terms of Section 609, the U.S. government, in practice, required other countries to adopt the regulatory program of requiring the use of Turtle Excluder Devices (TEDs).67 “[I]t is not acceptable to require other Members to adopt essentially the same comprehensive program…without taking into consideration different conditions which may occur in the territories of those other members.”68 [emphasis added]

2) The U.S. embargo covered shrimp caught by ships equipped with TEDs if the shrimp came from non-certified countries. That is, although the shrimp were caught by turtle-safe technology, they were excluded from importation into the U.S. This situation could not be reconciled with the declared policy objective of protecting and conserving sea turtles.69

3) The U.S. failed to approach the appellee nations in serious multilateral negotiations before enforcing the law against those countries, even though Section 609 required the Secretary of State to initiate such negotiations.70 Some international environmental agreements and resolutions recognized the needs and preferences for bilateral or multilateral negotiations.71 The U.S. should have conducted a serious attempt to negotiate with the complainants about sea turtle protection from incidental takings by shrimp trawling vessels.72 The unilateral character of the application of Section 609 underscored its unjustifiability.73

4) The application of Section 609 resulted in differential treatment among countries on three points. First, the U.S. negotiated with Caribbean/western Atlantic countries in the Inter-American Convention,74 but not with the appellees.75 Second, a three-year period for compliance with Section 609 was allowed to Caribbean/western Atlantic countries, but only four months were given to the appellees.76 Third, technology transfer efforts were made more aggressively for Caribbean/western Atlantic countries than for others.77

Furthermore, the Appellate Body held that the following facts constituted “arbitrary discrimination”:

1) The U.S. government, in the application of Section 609, required other countries to adopt essentially the same regulatory program as the U.S. program. This inflexibility constitutes “arbitrary discrimination.”78

2) The procedure for issuing the certification lacked procedural fairness. That is, “there was no formal opportunity for an applicant country to be heard or to respond to any argument that may be made against it, in the course of the certification process”.79

Based on the above-mentioned reasons, the AB held that the U.S. embargo was applied in a manner which amounted not only to “justifiable discrimination” but also to “arbitrary discrimination” between countries where “the same conditions prevail”. Thus, the AB concluded that the U.S. measure could not be justified under GATT XX.

These findings of the AB in Gasoline and Shrimp/Turtle are subject to many interpretations. Some argue that the AB actually applied the LTRA test in Gasoline and Shrimp/Turtle.80 On the other hand, one maintains that the AB utilized the LTRA test only in Gasoline, and, in fact, rejected the use of the LTRA test by utilizing a utilitarian-oriented balancing test in Shrimp/Turtle.81 Furthermore, others suggest that both Gasoline and Shrimp/Turtle abandoned the LTRA test.82 As these divergences of commentators’ evaluations on these two AB findings shows, it is quite difficult to extract a simple coherent principle from the AB findings regarding the chapeau. To be sure, the AB pointed out the availability of an alternative course of action in both cases. However, it is also clear that the AB emphasized the availability of alternatives in Gasoline more than in Shrimp/Turtle. The only part in Shrimp/Turtle about which the AB underscored the availability of other means was when it pointed out that the U.S. had not seriously conducted negotiations to encourage cooperation with the complaining parties. Furthermore, it is also undeniable that the AB findings in Shrimp/Turtle put emphasis on the function of the chapeau as a device balancing the right of a Member to invoke exceptions under Article XX with trade interests of other Members, and seemed to try to scrutinize the relationship between the ends of sea turtle protection and the means taken. In sum, it can be said that the chapeau analysis in Gasoline was more LTRA-like and that in Shrimp/Turtle it was more like a “means and ends” balancing test. Therefore, as the AB noted in Shrimp/Turtle, the content of the chapeau analysis varies, depending on the kind of measure at stake.83


4. Burden of Proof


The AB&P have consistently held to their position that the countries which invoke Article XX have to bear the burden of proving that their measures can be justified under that provision. In this regard, in United States - Shirts and Blouses from India (hereinafter Shirts and Blouses), the AB elucidated this position:
We acknowledge that several GATT 1947 and WTO panels have required such proof of a party invoking a defence such as those found in Article XX… to a claim of violation of a GATT obligation, such as those found in Articles I:1, II:1, III or XI:1. Articles XX… are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves. They are in the nature of affirmative defences. It is only reasonable that the burden of establishing such a defence should rest on the party asserting it. 84
The Panel Report in Asbestos spent a lot of space examining the allocation of burden of proof under Article XX. After referring to the above-mentioned AB findings in Shirts and Blouse, the Panel noted that a party invoking Article XX has to adduce sufficient evidence in order to establish a prima facie case that its measure is justified; then the burden of proof shifts to the complaining party which has to rebut the prima facie case with sufficient evidence.85

The Panel noted that, as to Article XX (b), the analysis consists of three parts:


(a) the existence of a risk for human health;

(b) the level of protection which the Member concerned wishes to achieve; and

(c) the existence of other measures consistent or less inconsistent with the GATT 1994 and enabling the same objective of protecting public health to be obtained.86
The Panel stated that, although countries have autonomy to decide the level of protection for their nationals, (b) in the above list, the analysis concerning (a) and (c) in the above list have to be based on scientific evidence.87 In this regard, the Panel noted that:
[The Panel’s] role, taking into account the burden of proof, is to determine whether there is sufficient scientific evidence to conclude that there exists a risk for human life or health and that the measures taken by France are necessary in relation to the objectives pursued. The Panel therefore considers that it should base its conclusions with respect to the existence of a public health risk on the scientific evidence put forward by the parties and the comments of the experts consulted within the context of the present case… The same approach will be adopted with respect to the necessity of the measure concerned.88
The Panel asserted that countries cannot enact measures for protecting human health without sufficient scientific evidence regarding the harm to human health. The burden regarding scientific evidence under the Article XX (b) could be deemed to be more severe than that under the SPS Agreement since, under the SPS Agreement, complaining parties bear the burden of establishing a prima facie case that SPS measures imposed by defending countries are not based on sufficient scientific evidence, as discussed later.89

Even though the AB&P have maintained their position that parties invoking exceptional provisions bear the burden of proof, the AB&P have made small adjustments in the burden-of-proof rule when it is necessary. For example, in Canada –Patent Protection of Pharmaceutical Products, the Panel observed that:


The third condition of Article 30 [of the TRIPs Agreement] is the requirement that the proposed exception must not ‘unreasonably prejudice the legitimate interests of the patent owner…. Although Canada, as the party asserting the exception provided for in Article 30, bears the burden of proving compliance with the conditions of that exception, the order of proof is complicated by the fact that the condition involves proving a negative. One cannot demonstrate that no legitimate interest of the Patent owner has been prejudiced until one knows what clams of legitimate interest can be made…. Accordingly, without disturbing the ultimate burden of proof, the Panel chose to analyze the issues presented by the third condition of Article 30 according to the logical sequence in which those issues became defined.90
Similar thing can be said about the LTRA test and the chapeau test; due to the “logical sequence” in which these tests are defined; we need a small adjustment in the order of proof. Until complaining parties claim that certain less trade restrictive measures are available to the parties invoking Article XX (b), the defending countries cannot demonstrate that these alternatives are not reasonably available to them. By the same token, unless complainants argue that certain aspects of the application of ETMs result in “unjustifiable discrimination”, “arbitrary discrimination”, or “disguised restrictions on trade”, the defending countries cannot prove that these aspects are not actually discriminatory or that alternatives are not reasonably available. It would be inefficient to require defending parties to anticipate and produce evidence contravening the indefinite number of possible claims in the context of the LTRA test and the chapeau test.91

In Asbestos, the Panel was probably aware of these “logical sequences” of the LTRA test and the chapeau test since the Panel implicitly made an adjustment in the allocation of the burden of proof in the Article XX (b) and chapeau analysis. As with the LTRA test, the Panel found that the European Community, the defending party, established a prima facie case by negating the reasonable availability of two possible policy options, controling the use of asbestos and allowing the use of chrysotile, which were suggested by Canada, the complainant.92 Strictly speaking, there are a lot of possible available policy options other than two claimed by Canada. Therefore, it would be also plausible that the European Union would not have been able to establish a prima facie case by refuting the availability of merely the two alternatives Canada claimed in the LTRA analysis. However, the Panel did not take this position. The Panel implicitly assumed that defending parties can establish prima facie cases of Article XX (b) justification merely by negating the options suggested by complaining parties. In other words, unless complaining parties claim the existence of measures that would be consistent or less consistent with GATT which can accomplish the same levels of protection as the ETMs the defending parties are invoking, the measures concerned are presumed to be the least trade restrictive one among reasonably available measures.

With regard to the chapeau analysis, the Panel found that the French measure in question was not discriminatory within the meaning of Article XX by stating that:
It should be borne in mind… that the introductory clause of Article XX concerns the application of the measure. It would therefore be possible for Canadian exports of chrysotile or products containing it to receive less favourable treatment than imports from other countries or French production with respect to the way in which the exceptions are administered by the French authorities…. However, we note that Canada has not argued that this was or had been the case. Canada merely recalls that it has demonstrated the existence of discrimination under Article III:4.93

Thus, the AB presumed that, unless complainants clarify the components of measures which might be discriminatory, the measures in question are presumed to be non-discriminatory. This presumption was a result of readjusting the order of proof because of the “logical consequence” of the chapeau test.


B. SPS Agreement


In this Chapter, we discuss the SPS Agreement.

1. Introduction


The Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) was concluded as the result of the Uruguay Round Negotiation. The SPS Agreement applies to measures which protect human, animal, and plant life or health within the territory of a Member from risks such as those arising from the entry of diseases, pests, and disease-carrying animals, and those arising from additives and contaminants in food.94

As the Panel Report in EC Measures Concerning Meat and Meat Products (hereinafter, Hormones) found,95 the compatibility of measures with the SPS Agreement is examined first, prior to the scrutiny of the measures under the GATT, as long as the measures are “sanitary and phytosanitary measures” within the meaning of Paragraph 1 of Annex A of the SPS Agreement. Furthermore, according to Article 2.4 of the SPS Agreement, the measures which are consistent with the SPS Agreement “shall be presumed to be in accordance with the obligations… under the provisions of GATT”. The general objective of the SPS Agreement is to minimize the negative trade effects of SPS measures, while maintaining the Members’ rights to enact SPS measures which are necessary to assure the levels of sanitary protections which the Members are free to decide.96



It is normally said that the SPS Agreement is distinct from the GATT mainly in the following two aspects: 1) under the SPS Agreement, SPS measures have to be based on a scientific evaluation of risks in order that non-discriminatory measures consistent with the GATT could be challenged under the SPS Agreement;97 and 2) international standards play significant roles in deciding whether sanitary measures are legitimate under the SPS Agreement.98 It should be noted, however, that there is “convergence” between the GATT and the SPS Agreement on the first point so that “non-discriminatory” measures could be struck down if the measures are not based on scientific evidence.

First, the AB&P have considered the concept of “likeness” under GATT Article III:4 as a relatively broad one. In Asbestos, the AB limited the consideration of risks involved in products only to the extent that the risks influence the competitive relationship between the products in question when it scrutinizes the “likeness” of the products.99 Thus, the AB implicitly refused to take into account either the purpose of the regulatory measures to reduce risks or the process of the production. As a result, relatively broad categories of goods, for example, genetically modified corn and normal corn, could be thought as “like” products under Article III:4 if consumers cannot appreciate the divergence of risks involved in the products and, as a result, the risks do not influence the competitive relationship between the products. Most of the distinctions made by regulatory measures are not specific to the country of origin. Rather, most of the regulatory measures are concerned about the risks derived from products and the risks do not always affect the competitive relationship between the products. In such cases, although the distinctions are made regardless of whether the products are domestic or imported, the regulatory measure would be regarded as “discriminatory” insofar as it accords “less favorable treatment” to one of the products in question. With regard to the concept of “less favorable treatment”, the AB seems to interpret Article III:4 as requiring no distortion of the conditions of competition among all like products. In Korea - Measures Affecting Imports of Fresh, Chilled and Frozen Beef (Beef hereinafter), the AB noted that the foreign products are accorded less favorable treatment when the conditions of competition between domestic and foreign products are modified.100 Furthermore, in the context of Article III:2, second sentence, in Chile - Taxes on Alcoholic Beverages (Pisco hereinafter), the AB stated that Members have to provide “equality of competitive conditions of all directly competitive or substitutable imported products in relation to domestic products [emphasis in original]”.101 When we take into account the similarities of the AB approaches in their interpretation of “so as to afford protection” under Article III:2 in Pisco with their interpretation of “less favorable treatment” under Article III:4 regarding the point that the AB focuses on the change of a competitive relationship occasioned by the regulation or taxation in question, it is clear that the distinctions made by origin-neutral regulatory measures could be found to be the violation of Article III:4. In this regard, the idea that “non-discriminatory” measures such as the general prohibitions of the use of growth hormones in beef in Hormones could not be challenged under the GATT102 is not accurate any more. Even if the U.S. had only alleged a violation of Article III:4 in Hormones, it would have been possible that he AB found the EC measure in violation. In other word, it would have been likely that the AB found that hormone-treated and non-hormone-treated beef were “like products” in the meaning of Article III:4, assuming that EC consumers did not differentiate them without the regulation, and the EC measure imposed disproportionate effects on foreign products.103

Second, in Asbestos, the Panel stated that the defending countries have to show there is sufficient scientific evidence proving the existence of risks and the necessity of measures, even under Article XX (b) scrutiny.104 Therefore, Members might not be able to take health-protecting measures if there is not sufficient scientific evidence regarding the risk and the relationship between the measures and the risk, even in the context of Article XX (b).

As a result of this analysis, we might be able to say that GATT obligations are converging with those of the SPS Agreement, diluting the distinct role of the SPS Agreement from the GATT to some extent.

In the following, we focus on Article 5.5 and 5.6 of the SPS Agreement since the contents of these provisions are comparable to those under Article XX (b) and the chapeau.


2. Article 5.5: Arbitrary or Unjustifiable Distinctions


Article 5.5 of the SPS Agreement provides that:
With the objective of achieving consistency in the application of the concept of appropriate level of sanitary or phytosanitary protection against risks to human life or health, or to animal and plant life or health, each Member shall avoid arbitrary or unjustifiable distinctions in the levels it considers to be appropriate in different situations, if such distinctions result in discrimination or a disguised restriction on international trade….
Article 5.5 clearly stipulates an obligation which does not exist under the GATT. Members have to avoid making “arbitrary or unjustifiable distinctions” which constitute “discrimination or disguised restrictions on international trade” when they set the appropriate levels of protection “in different situations”. Thus, as the AB noted in Hormones, three factors have to be shown: 1) appropriate levels of protection set by Members vary “in different situations”, 2) the differences of the appropriate levels of protection are “arbitrary or unjustifiable”, 3) the “arbitrary or unjustifiable” distinctions result in “discrimination or disguised restrictions on international trade”.105

As to the first factor, it is unclear what constitutes “different situations”. In Hormones, the AB stated:


The situations exhibiting differing levels of protection cannot, of course, be compared unless they are comparable, that is, unless they present some common element or elements sufficient to render them comparable. If the situations proposed to be examined are totally different from one another, they would not be rationally comparable and the differences in levels of protection cannot be examined for arbitrariness [emphasis in original].106
Even though this position regarding the meaning of “different situation” was also taken by the AB in Australia –Measures Affecting Importation of Salmon (hereinafter Salmon),107 it is unclear how much commonality is required so as to be considered as “comparable”.108 Consequently, it is, for example, possible that an SPS measure regarding Product A and another SPS measure relating Product B can be regarded as comparable in the meaning of “different situations”, even though A and B are neither actually nor potentially competitive with each other. Article 5.5, however, deals with the situations where the differences of SPS measure protection among products amount to “discrimination or disguised restrictions on international trade”, as opposed to the situations where an SPS measure itself causes detrimental effects on international trade.109 When two products each of which is prescribed by a different SPS measure are not competitive, the distinction as such does not cause any trade detrimental effects regardless of how different the two SPS measures are. It is, therefore, reasonable to limit the scope of “different situations” to situations where competitive products are involved.

With regard to the second factor, “arbitral or unjustifiable distinctions”, the AB&P seem to have suggested that distinctions are “arbitrary or unjustifiable” when products to which lower levels of health protection are afforded cause similar or higher risks than products to which higher levels of health protection are provided.110

As with the third factor, “discrimination or a disguised restriction on international trade”, the criteria which are used for the evaluation of the discriminatory or trade-restrictive nature of measures remain unclear.

In Hormones, the AB agreed with the Panel’s findings that the difference in the levels of protection for the hormones concerned, on the one hand, and for carbadox and olaquindox, anti-microbial agents used as additives for feeds given to piglets, on the other hand, were unjustifiable.111 It was known that carbadox and olaquindox induce cancer.112 Nevertheless, the AB reversed the Panel’s findings that this unjustifiable distinction resulted in “discrimination or a disguised restriction on international trade” because:


[t]he documentation [regarding the enactment of the prohibition of the use of hormones for growth promotion]… makes clear… [that the ban was a response to] the anxieties experienced within the European Communities concerning...the carcinogenicity of hormones...[and] the dangers of abuse...of hormones…used for growth promotion…. A major problem addressed in the legislative process of the European Communities [was]… to establish a common internal market in beef…. Reduction of any beef surplus [due to the ban]…is not only the interests of EC farmers, but also of non-hormone using farmers in exporting countries. We are unable to share the inference that the Panel apparently draws that the import ban on treated meat and the Community wide prohibition of the use of the hormones here in dispute for growth risk of cancer, but rather to keep out US and Canadian hormone-treated beef and thereby to protect the domestic beef producers in the European Communities.113
Thus, the AB emphasized the subjective intent of the EC regulations regarding the prohibitions of the use of hormones rather than the actual detrimental effects on trade derived from the distinctions between carbadox and the hormones in question. These subjective criteria present a contrast to the objective standards under the chapeau analysis of Article XX of the GATT, in which trade harms of the application of measures are scrutinized. It is mysterious why similar terms in Article 5.5 of the SPS Agreement and in the chapeau of GATT Article XX bring about completely opposite meanings. Furthermore, the AB seemed to focus on the harmful effects on trade derived from the EC import ban as such, while the real issue of the analysis should have been the baneful effects of the application of different measures between carbadox and the hormones in dispute.114 In Salmon, the AB found that the distinction in the levels of protection imposed by Australia between ocean-caught Pacific salmon and herring used as bait and live ornamental finfish resulted in discrimination or a disguised restriction on international trade based on the cumulative consideration of three “warning signals” and two “additional factors”.115 According to the AB, the three “warning signals” are 1) the arbitrary character of the distinction,116 2) the rather substantial difference in the levels of protection between the import prohibition on salmon and the tolerance for the imports of herring,117 and 3) the inconsistency of the import prohibition of the salmon in dispute with Articles 5.1 and 5.2 of the SPS Agreement.118 The two “additional factors” are 1) an unexplained change between the conclusion of the Australian 1995 Draft Report, which recommended allowing the importation of ocean-caught Pacific salmons under certain condition, and the 1996 Final Report, which recommended the continuation of the import prohibition;119 and 2) the lack of controls on the internal movement of ocean-caught Pacific salmons.120 In this case, it should be noted that the AB focused on objective standards such as the design and structure of the measure concerned, as opposed to the subjective intentions of the Australian legislature. That is a big difference from the AB findings in Hormones.121 However, most of the factors which were pointed out by the AB were about the import prohibition of salmon as such rather than the modification of the competitive conditions between salmon and herring derived from the distinctions the Australian government made. Even the factors relating to the distinctions, the first and second “warning signals”, are the same factors which are used for evaluating the second factor of Article 5.5, i.e., whether the distinctions are arbitrary or unjustifiable. As a result, these two “warning signals” have no independent values in the analysis of the third factor of Article 5.5, the discriminatory or trade-restrictive character of the distinctions. The discriminatory or trade-restrictive nature of measures themselves, as opposed to that of distinctions in the meanings of Article 5.5 of the SPS Agreement, should be prescribed under Article 2.3 of the SPS Agreement. The AB in Hormones and Salmons mixed Article 2.3 and Article 5.5. together.

Even though it is not clearly stated, the object of an Article 5.5 analysis seems to be a measure as a whole, as opposed to application of the measure. In Hormones, the AB emphasized the distinctiveness of Article 5.5 requirement from the GATT chapeau analysis.122 Furthermore, what the AB did in its Article 5.5 analysis in Hormones and in Salmon was a comparison between two measures in question, not a detailed scrutiny of the application of a single measure in issue. Thus, the AB implicitly regards the object of Article 5.5 analysis as measures as a whole. However, it is unclear how the essence/application dichotomy works in the context of Article 2.3 of the SPS Agreement since there have been no cases in which the violation of Article 2.3 is found independently from the violation of Article 5.5.


3. Article 5.6: LTRA Test


Article 5.6 of the SPS Agreement provides that:
…when establishing or maintaining sanitary or phytosanitary measures to achieve the appropriate level of sanitary or phytosanitary protection, Members shall ensure that such measures are not more trade-restrictive than required to achieve their adequate level of sanitary or phytosanitary protection, taking into account technical and economic feasibility.
The footnote to this provision reads as follows:
For purpose of paragraph 6 of Article 5, a measure is not more trade-restrictive than required unless there is another measure, reasonably available taking into account technical and economic feasibility, that achieves the appropriate level of sanitary or phytosanitary less restrictive to trade.
Thus, Article 5.6 adopts the LTRA test. Like the same test under Article XX (b) of the GATT, the less trade restrictive alternatives are regarded as reasonably available only when they are economically feasible and can accomplish the same levels of protection which the measures invoked by defending parties can achieve. In Salmon and Japan - Measures Affecting Agricultural Products (hereinafter Apple), the AB found that all of the following three factors have to be shown in order to establish a violation of Article 5.6: 1) there is at least one alternative which is reasonably available, taking into account technical and economic feasibility; 2) the alternatives can achieve the Member's appropriate level of protection; and 3) the alternative is significantly less restrictive to trade than the SPS measure in dispute.123

It is not clearly stated whether the object of the Article 5.6 LTRA test is the “entire regulatory scheme or only the trade-restricting component”.124 In Salmon and Apple, the AB, however, implicitly targeted the contested measures as a whole regardless of whether the AB was actually aware of the application/essence dichotomy. By so doing, the AB did not scrutinize the detailed components of the measures in the Article 5.6 analysis. Hence, the issue of Article 5.6 is whether less trade restrictive alternative measures are reasonably available, as opposed to whether the measure actually taken could be applied in a less trade restrictive manner. For example, negligence in negotiating for cooperation with other Members prior to the invocation to ETMs, which is a common factor to be found to be unjustifiable under the chapeau of the GATT Article XX, has never come out as an issue in the context of an Article 5.6 analysis. In both of these particular cases, the AB compared the measures themselves with other possible policy options. For example, in Salmon, the Panel stated that the possible alternatives which would be compared with the import ban of the raw salmon concerned were the five measures which were identified in the Australian 1996 Final Report.125 In Apple, the Japanese varietal testing requirement was compared with “testing by product”, which was suggested as a less trade restrictive alternative by the U.S.126 As a result, the LTRA analysis under Article 5.6 of the SPS Agreement has been a relatively moderate one, compared with that of Article XX (b) of the GATT. As a matter of fact, there have been no cases in which SPS measures have been struck down as violations of Article 5.6 of the SPS Agreement.


4. Burden of Proof


The issue of burden of proof in the SPS Agreement presents a curious contrast to that in Article XX of the GATT. As we discussed above, defending countries which invoke Article. XX bear the burden of proving that their behavior could be justified. Although the SPS Agreement and Article. XX of the GATT could preside over very similar situations, the AB&P have adopted a different approach in the context of the SPS Agreement; complaining parties bear the burden to establish prima facie cases that defending parties violate the SPS Agreement.

In Hormones, the Panel found that a defending party has to bear the burden of establishing a prima facie case that they are obeying their obligations under the SPS Agreement if they set a higher SPS standard than relevant international standards. The Panel noted that Articles. 3.1 and 3.2 of the SPS Agreement encourage all Members to adopt international standards; Article 3.1 imposes an obligation on Members to base their SPS measures on international standards except as otherwise provided for in the SPS Agreement; and Article 3.2 assigns to the complainant the burden of proving that a defendant’s measure is inconsistent with the SPS Agreement if the measure concerned conforms to relevant international standards.127 Consequently, according to the Panel, Article. 3.3, which permits Members to adopt an SPS measure which results in a higher level of SPS protection than that would be achieved by a measure based on the relevant international standards insofar as Members follow the obligations under Article 5 of the SPS Agreement, constitutes an “exception” from the obligations under Article 3.1.128 Then, the Panel found that, due to this exceptional character of Article. 3.3, the countries which set higher standards than relevant international standards have to bear the burden of proving that their SPS measures can be “justified”.129

The AB reversed this part of the Panel’s findings by stating that the Panel misconceived the relationship between Article 3.1 and 3.2 on the one hand and Article 3.3 on the other.130 The AB noted that Article 3.1 merely excludes the situations which are covered by Article. 3.3 from its purview.131 According to the AB, the general rule in the WTO dispute settlement process requiring a complainant to establish a prima facie case of inconsistency with relevant WTO Agreements before shifting the burden of showing consistency with the relevant provisions cannot be avoided by characterizing Article. 3.3 as an “exception”.132 Hence, the AB concluded that the Panel erred in relieving the U.S. and Canada from the burden of establishing a prima facie case showing that the EC measure in dispute was inconsistent with Article 3.3, Article 5.1, Article 5.5, and Article 5.6 of the SPS Agreement.133

However, it is not evident how the AB findings regarding the allocation of the burden of proof were reflected in the AB analysis of individual paragraphs such as Article 5.1 and Article 5.5 of the SPS Agreement.134 For example, the AB found that the distinction in the appropriate levels of protection between the hormones in dispute and carbadox was unjustifiable in the meaning of Article. 5.5.135 The AB found on this point merely by referring to the Panel’s discussion negating the EC’s arguments.136 It is evident that the Panel made this findings based on the assumption that the EC had the burden of proving that the measure in question was consistent with Article, 5.5 of the SPS Agreement. Therefore, strictly speaking, the AB should have not endorsed the Panel’s findings merely by referring to the Panel’s discussion since it was the U.S. and Canada which had to prove that the distinction the EC made between carbadox and the hormones in issue was unjustifiable. In this regard, the AB analysis regarding Article 5.5 contradicted the AB’s approach to the allocation of the burden of proof.

On the other hand, in Apple, the AB consciously connected the general policy regarding the allocation of burden of proof with the independent examination of each provision. This was exemplified by the AB analysis regarding Article. 5.6. The Panel was not convinced by the U.S. argument that “testing by product” was the less trade restrictive measure in the meaning of Article. 5.6 since the U.S. could not supply sufficient evidence that the Japanese appropriate levels of protection could have been achieved by “testing by product”.137 Nevertheless, the Panel turned its attention to “determination of sorption levels”, which was an alternative suggested by the experts advising the Panel. Then the Panel found that Japan could have accomplished its appropriate levels of protection by adopting “determination of sorption levels” instead of the more trade restrictive “vertical testing requirement”, thereby violating Article. 5.6 of the SPS Agreement.138 In finding this point, the Panel explicitly noted that the U.S. did not specifically argue that the "determination of sorption levels" could be a less trade restrictive alternative in the meaning of Article. 5.6.139 The AB reversed this Panel’s finding by stating that:
…we consider that it was for the United States to establish a prima facie case that there is an alternative measure that meets all three elements under Article 5.6 in order to establish a prima facie case of inconsistency with Article 5.6. Since the United States did not even claim before the Panel that the "determination of sorption levels" is an alternative measure which meets the three elements under Article 5.6, we are of the opinion that the United States did not establish a prima facie case that the "determination of sorption levels" is an alternative measure within the meaning of Article 5.6.140
By so finding, the AB enunciated the principle that complaining parties bear the burden of proving that the SPS measures of defending parties are inconsistent with provisions of the SPS Agreement.

Another point which should be noted in the AB findings in Apple was that the AB clarified the threshold of shifting the burden of proof in relation to Article. 2.2 of the SPS Agreement, which requires that Members not maintain SPS measures without sufficient scientific evidence. Before the AB, the U.S. argued that allocating the initial burden of proof of inconsistency with Article. 2.2 to a complaining party means that it would be required, based on affirmative evidence, to prove a negative that there is no scientific evidence supporting the measure in dispute.141 The U.S. maintained that satisfying this requirement would be almost impossible.142 In rejecting this U.S. argument, the AB elucidated that a complaining party is merely required to raise a presumption that there are no relevant studies or reports in order to shift the burden of proof to the defending party in the context of Article. 2.2.143 According to the AB, this task is not impossible to accomplish because the complaining country can request the defending country, pursuant to Article 5.8 of the SPS Agreement, to provide "an explanation of the reasons" for the adoption of the measure concerned and the defending country is obliged to provide such explanation.144 Moreover, the AB pointed out that, if the defendant fails to offer any scientific study or report in support of the measure in issue, it would be strong evidence in establishing an assumption that there are no relevant scientific studies or reports.145 The AB clarified that the threshold of the burden shifting in the context of Article. 2.2 is so low that a complaining party can achieve it merely based on the information obtained from the defending party, pursuant to Article. 5.8 of the SPS Agreement. The same threshold would be applicable to Article. 5.1 of the SPS Agreement, which requires an SPS measure to be based on risk assessment, because both Article. 5.1 and Article. 2.2 require that there is a rational or objective relationship between an SPS measure and relevant scientific evidence.


C. TBT Agreement


The TBT Agreement establishes obligations to ensure that Members’ “technical regulations” are not prepared, adopted, or applied with the view or effect of creating unnecessary obstacles to international trade. The Annex 1 of the TBT Agreement defines “technical regulations” as:
Document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking, or labeling requirements as they apply to a product, process or production method.
This definition of “technical regulations”, which is critically important in deciding the scope of the TBT Agreement, is subject to various interpretations. In Asbestos, a French regulation prohibited the marketing of asbestos and asbestos-containing products and its exceptions permitted the use of chrysotile fiber under certain conditions. The Panel found that the part containing the prohibition of asbestos was not a “technical regulation” under the TBT Agreement, while the exceptions are considered to be “technical regulations”.146 The AB reversed this finding of the Panel, stating that “the proper legal character” of the French measure in question could not be determined without examining the measure as a whole.147 The AB pointed out that the real nature of the measure was not a total prohibition of the use of asbestos, but a measure permitting the use of asbestos in certain conditions.148 Then, underscoring the point that “technical regulations” have to “lay down” “product characteristics”, the AB noted that the object of a regulation has to be identifiable in order to be regarded as a “technical regulation”.149 The AB found that the products covered by the measure are identifiable since the measure concerned provided that all products must not contain asbestos fibers.150 Furthermore, the AB pointed out that the regulation set out the “applicable administrative provisions” with which the compliance was “mandatory”.151 Therefore, the AB held that the French measure concerned was a “technical regulation” under the TBT Agreement. In sum, the AB made clear that the scope of the TBT Agreement is very broad.

There have been no precedents which analyze substantial provisions of the TBT Agreement so far, even though the importance of the TBT Agreement in the issue of “trade of environment” is recognized.

In order to avoid unnecessary obstacles to international trade, the TBT Agreement specifies that Members should choose a least trade restrictive method of achieving a certain policy objective. In this regard, Article 2.2 of the TBT Agreement provides that:
Members shall ensure that technical regulations are not prepared, adopted, or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfillment would create….
It is unclear whether the LTRA test under Article 2.2 is the same as one under Article 5.6 of the SPS Agreement or under GATT Article XX (b). Article 2.2 does not mention whether a reasonable availability of options should be taken into account. We will have to wait for future WTO cases in order to figure out how the AB&P applies the LTRA test under Article 2.2. Also subject to future interpretation is whether the essence/application dichotomy works under the TBT Agreement.

A big difference between the SPS Agreement and the TBT Agreement is the “legitimate objectives” under both agreements. Under the SPS Agreement, only the protection of human or animal life or health can be a “legitimate objective” when enacting SPS measures. On the other hand, under the TBT Agreement, Article 2.2 asserts that legitimate objectives under the TBT Agreement are not only environmental protection or the protection of human health but also other policy objectives such as national security or the prevention of deceptive practices.




III

Economic Analysis of Judicial Tests

In this Chapter, we analyze the current jurisprudence of the AB&P regarding ETMs from an economic viewpoint. In the first two Sections, we discuss some factors and assumptions which will be necessary in analyzing judicial tests from an economic perspective. Section A discusses the definition of efficiency which is used in the first three Sections of this Chapter, namely the potential Pareto efficiency (PPE), or otherwise known as the Kaldor-Hicks efficiency, which is commonly used in the field of law and economics. Section B analyzes what kinds of costs have to be paid when invoking ETMs and how the costs could be allocated among countries. This Section shows that ETM-imposing countries are prone to prefer measures which impose a heavy burden on international trade. In Section C, we evaluate the “means and ends” test and the LTRA test, which are judicial tests which the AB&P have invoked, comparing these tests with the comparative cost-benefit analysis, which is the best “trade-off device”152 in light of the Kalder-Hicks efficiency. In Section D, we analyze the LTRA and “means and ends” tests in light of problems PPE has.


A. Potential Pareto Efficiency (PPE)


In the field of economics, Pareto efficiency is normally utilized as the standard for efficiency. Pareto efficiency is defined as the situation where “goods cannot be reallocated to make someone better off without making someone else worse off.”153 For example, suppose that there is a case in which Country A invokes an ETM by which it can gain benefits of $10 million, whereas the ETM inflicts $1 million damages on Country B’s export to Country A. In this hypothetical example, whether this state of affairs (the situation prior to the invocation of the ETM) is Pareto optimal depends on the amounts of the transaction costs when Country A negotiates with Country B, asking it to put up with the trade harms caused by the invocation of the ETM. We assume that, except for Country B, no other countries are affected by the ETM. If the amounts of the transaction costs are less than $9 million, both Country A and Country B are better off when Country A compensates Country B by the amount exceeding $1 million. In this situation, Country B is better off since the amount of the compensation exceeds the trade harms derived from the imposition of the ETM. That is, if the transaction cost is less than $9 million, the invocation of the ETM would be Pareto superior to the situation prior to the invocation of the ETM, given that voluntary bargaining between Country A and B would be held.154

One objection to the concept of Pareto efficiency is that the conditions for Pareto superiority are very difficult to be satisfied in the real world due to imperfect informational problems and the fact that most of the transactions affect third parties.155 The Kaldor-Hicks efficiency is more “practical” in the sense that it ignores whether a gainer from an action actually compensates a loser from the action.156 When benefits derived from an action exceed the costs, doing the action is “efficient” in the sense of PPE. That is, PPE focuses on the ability of gainers to compensate losers regardless of whether they actually do so; that is why PPE is also called potential Pareto efficiency(PPE). In other words, PPE is a kind of Pareto efficiency under the assumption that transaction costs are zero.157 With regard to the above-mentioned hypothetical example, the invocation of the ETM is considered to be Pareto optimal since Country B’s damages ($1 million) are outweighed by Country B’s benefits ($10 million) derived from the ETM.

Throughout the first three Sections of this Chapter, PPE will be utilized as the standard of efficiency since it makes analysis much simpler by allowing us to ignore the transaction costs for bargaining.

B. Costs and Benefits of ETMs


There are three factors which would be affected by the invocation of ETMs: harms to international trade (HT), benefits derived from the amelioration of environmental problems (EB), and administrative costs (AC). When EB outweigh the total of HT and AC, the ETMs actually improve world overall welfare in the sense of PPE (EB>HT+AC). The optimal ETMs are those which improve net benefits (EB-HT-AC) the most among available ETMs.

HT, EB, and AC are allocated among states as following:



  • With regard to HT, when a country invokes ETMs, the benefits from international trade usually decrease.158 According to a classical international trade theory, trade measures always decrease measure-imposing countries’ trade benefits. Nevertheless, as standard public choice theory suggests, countries sometimes impose trade restrictions so as to protect their industries. In this case, it can be said that the measure-imposing country has a distributional preference which is preferable for the industries. On the other hand, the trade benefits of exporting countries can either improve or deteriorate, depending on the demand elasticity of targeted products in importing countries and the qualities of the trade restriction. For example, if the measures in question are quantitative quotas and the demands of the imported products concerned are inelastic in the measure-invoking countries, the trade benefits in the exporting countries would increase.

  • EB are enjoyed only by measure-imposing countries if the measures aim at protecting the domestic environment (this is the definition of the “domestic” environment). On the other hand, if the objects of measures are the global environment, all states enjoy EB derived from the measures since the global environment is one of the public goods and the measure-invoking countries cannot exclude “free riders”.

  • All of AC of trade measures are usually borne by the measure-imposing countries.

We assume that ETM-invoking countries attempt to maximize their welfare. Therefore, they try to employ measures which improve their welfare the most. However, the measures which maximize ETM-invoking countries’ welfare are not necessarily the measures which maximize overall world welfare because measure-imposing countries do not have to bear all the costs derived from the invocation of the measure. There is divergence between ETM-invoking countries’ and world interests.

An ETM-invoking country does not have incentives to take into account the harms suffered in foreign countries in the following two ways:

First, that there is a domestic-market model in which the production of a product creates negative externalities and there are no administrative costs in implementing environmental regulations. If the producers do not have to bear the environmental harms as their private costs, the amount of the production exceeds the optimal. As a result, the society is better off by reducing the amount of the production. In this case, the marginal benefits derived from the decrease in the pollution exceed the marginal losses derived from the reduction in the use and production of the product. The government does not have an incentive to reduce the amount of the production beyond the point where the marginal losses derived from the reduction in the consumption and production exceed the marginal benefits of the reduction in the pollution. On the other hand, what happens in the context of international trade? Assume a case where State A tries to ameliorate an environmental problem which is caused by the importation of a product by restraining its importation. We assume three things: there is no “disguised purpose” for protecting its domestic industry in State A’s ETM, State A has perfect information, and there are no administrative costs in implementing the ETM. Given that State A tries to maximize its private welfare, the ETM would restrict the importation of the product excessively from the viewpoint of world welfare maximization in the sense of PPE. That is, State A tries to reduce the amount of the production up to the point where the marginal benefits derived from the reduction of the pollution equal the marginal losses derived from the reduction of the consumption, which loss is suffered by State A’s nationals. State A does not take into account the loss suffered by the exporters/producers in foreign countries. However, the optimal amount of the production from the viewpoint of potential Pareto efficiency would be the one in which the marginal benefits derived from the reduction of the pollution equal the total of the marginal losses derived from the reduction of the production, which loss is suffered by exporting countries, and the decrease in the consumption, which loss is suffered by the nationals of State A. In other words, countries tend to set “appropriate” (to maximize the ETM-invoking countries’ private benefits) levels of health or environmental protection “inappropriately” from the viewpoint of world welfare maximization in the sense of PPE.

Second, even if we think of appropriate levels of health or environmental protection as given, countries tend to prefer ETMs which impose a heavy burden on international trade.159 In the following, suppose that there is a case in which Country D is considering whether it should invoke an ETM in order to protect the domestic environment. The “appropriate level of protection” which is determined by the government of Country D yield EB worth $40 million.160 There are three available measures which can achieve the appropriate level of protection as the Table 1 shows below.161 We assume that Country D has perfect information about costs of each option.





Measure

AC

HT

EB

World Welfare Improvement

(WW=EB-HT-AC)



A

$26.3m

$2.4m

$40m

$11.3m = ($40m-$2.4m-$26.3m)

B

$11.7m

$11.7m

$40m

$15.6m = ($40m-$11.7m-$11.7m)

C

$2.4m

$26.3m

$40m

$11.3m = ($40m-$26.3m-$2.4m)


Table 1: Three Available ETMs

As Table 1 shows, Measure B is the most welfare-enhancing from the viewpoint of PPE. The total of AC and HT are the least in Measure B, whereas EB are the same in all the measures.

Then, we examine the divergence between Country D’s private welfare (PW) and world overall welfare (WW). Suppose that a third of the HT is allocated to Country D (PHT). Table 2 shows the divergence between D’s (PW) and the world’s welfare (WW). All of the AC are to be borne by Country D. Country D obtains all of the EB.


Measure

AC

PHT

EB

PW

WW

A

$26.3m

$0.8m = ( 2.4/3)

$40m

$12.9m

$11.3m

B

$11.7m

$3.9m = (11.7/3)

$40m

$24.4m

$15.6m

C

$2.4m

$8.8m = (26.3/3)

$40m

$28.8m

$11.3m


Table 2: Divergence between PW and WW
As Table 2 shows, Country D actually prefers Measure C because PW is maximized in Measure C even though the world welfare is maximized when it invokes Measure B. This result is not surprising because Country D has to bear all of the AC, while the HT are shared by other countries. Country D prefers measures in which the HT are large but the AC are small. This is how the behavior of ETM-imposing countries tends to derogate from optimal even when we think of appropriate levels of health or environmental protection as given.

In these ways, ETM-invoking countries try to externalize the costs of ETMs to outsiders. However, as Coase suggests, this incentive itself does not necessarily mean that the invocation of the ETMs will end up with sub-optimal results.162

In the above hypothetical example, the exporting countries have to bear additional trade harms of $9.7 million ($26.3m x 2 ¸3 - $11.7m x 2 ¸ 3), which is greater than additional Country D’s benefits of $4.4 million ($28.8m - $24.4m) by taking Measure C instead of Measure B. Therefore, the exporting countries can be better off by bribing Country D any amount between $4.4million and $9.7million, suggesting Country D to invoke Measure B instead of Measure C.

However, this Coase-type bargaining between exporting and ETM-invoking countries does not necessarily occur because of the following reasons.

First, trade harms on exporters can be split among many countries. As a result, none of the exporting countries would have an incentive to bargain with ETM-invoking countries. For instance, in the above hypothetical example, suppose that the HT on foreign countries are divided over ten countries, each of which suffers the same amount of harm. That is, the additional amount of harms these countries suffer as a result of the invocation of Measure C instead of Measure B is $0.97 million which is much less than additional Country D’s benefits of $4.4 million. Therefore, individual exporting countries do not have incentives to seek to bargain with Country D. To be sure, bargaining is still possible if the exporters can cooperate for the purpose of bargaining. However, if the number of involved countries is large, then their ability to come together for bargaining may be small since the difficulties of cooperating tend to rise with the number of countries involved.

Second, bargaining would not occur due to the existence of asymmetric informational problems. Assume in the above hypothetical example that all of the HT on foreign countries concentrate on one country, say Country E, and Country E can make only a single take-it-or-leave-it offer to Country D. Country E is risk-neutral. Country E is not exactly sure how much Country D gains additionally by invoking Measure C instead of Measure B. Suppose that Country E think that there are two possibilities: the additional gain by taking Measure C might be $2 million with a probability of 80%, or it might be $6 million with a probability of 20%. In other words, Country E expect that, if it offers $2 million to Country D, it would be accepted with a probability of 80% and be rejected with a probability of 20%. If its offer is rejected, Country E still has to suffer the loss of $9.7 million. Therefore, Country E’s expected loss would be $3.54 million ($2 million x 0.8 + $9.7 million x 0.2) if it offers $2 million to Country D. On the other hand, if it offers $6 million, even though bargaining will occur for sure, Country E’s expected loss is also $6 million, which is greater than its expected loss when it offers $2 million. Therefore, its best offer is $2 million. However, the actual additional gain by invoking Measure C for Country D is $4.4 million, which is greater than Country E’s offer. Consequently, its offer will be rejected by Country D. As this example shows, bargaining would not occur since the parties to the bargaining would not have perfect information about the costs and benefits of available policy options.

Third, even if exporting countries have perfect information regarding the costs and benefits of available ETM options, they would not try to bargain with Country D; rather they would choose to bring an action before the WTO Dispute Settlement Body (DSB) because the initial allocation of “property rights” is unclear. If one of the rules under the WTO clearly admits a right of Country D to invoke Measure C, exporting countries would try to bargain with Country D without bringing the case to the DSB. However, in most of the cases, it is unclear whether the GATT, the SPS Agreement, or the TBT Agreement allows Country D to impose Measure C in order to protect its domestic environment. In fact, it might be also possible that the AB&P interprets these agreements as they guarantee exporting countries’ right of not being disturbed by ETMs like Measure C. As a result, the exporting countries may bring the case to the WTO prior to attempting to bargain with Country D in order to clarify whether they have a right to be protected from ETMs like Measure C. If they win, they have to pay nothing to force Country D to discard Measure C. Even if they lose, then they can try to bargain with Country D. In sum, it is rational for exporting countries to bring a case to the WTO in order to clarify the allocation of “property rights” prior to bargaining with ETM-invoking countries insofar as adjudication costs for the exporting countries are small.163

Because of these reasons, exporting countries and ETM-invoking countries might not bargain, or not be able to bargain successfully. Therefore, we need “trade-off devices” by which we alter the behavior of ETM-imposing countries appropriately.


C. Analysis of the LTRA and “Means and Ends” Tests


PPE implies that comparative cost-benefit analysis (CCBA) is the best way to maximize the net benefits obtained by ETMs. That is, in conducting CCBA, we compare the costs and benefits of available policy options and select the one which improves the net benefit (EB-AC-TH) the most. If the AB&P have perfect information regarding the costs and benefits of available ETM options, they can accomplish the optimal use of the world’s resource in the sense of PPE by striking down ETMs which are not the most efficient among available policy options. However, the AB&P have never invoked CCBA in analyzing ETMs. Instead, they have utilized the LTRA test and the “means and ends” test.

In the following, we compare the LTRA test and the “means and ends” test with CCBA.

AB&P has defined the LTRA as the test which examines whether ETM-invoking countries choose the least trade-restrictive measure among reasonably available ones. “Reasonably available” has two meanings: one is whether a less trade-restrictive measure is administratively available at reasonable cost; the other is whether a less trade-restrictive measure can effectively accomplish the purpose of the measure. The analysis of the “reasonably available” standard has to be done using inherently value-laden judgments; the strictness of the LTRA test may vary depending on how the “reasonably available” standard is applied. It should be noted that the LTRA test does not pay attention to the magnitude of EB. Regardless of the magnitude of EB, ETMs would be upheld as long as the ETM is the least trade-restrictive among reasonably available options. Furthermore, the LTRA test neither “compares” nor “sums up” any value at all. That is, in the process of LTRA scrutiny, AC, EB, and HT are examined independently without comparing them to each other or aggregating them.

As Trachtman points out, the LTRA test is “overbroad and underinclusive” in light of world welfare maximization in the sense of PPE.164 The optimal measure under CCBA could be struck down under the LTRA test if there exists a less trade-restrictive alternative than the optimal option.165 On the other hand, it is also possible that world welfare would deteriorate as a result of the invocation of the least trade restrictive measure if the EB obtained by the measure is extremely small and the HT is relatively huge. Furthermore, it is also pointed out that the least trade-restrictive test is imperfect in the sense hat it excludes policy options by thinking of “appropriate levels of protection” as given.166 That is, there would be measures which can improve the net benefits more than any options which can accomplish the “appropriate levels of protection”.

The “means and ends” test focuses on the relative relationship between HT and EB. AC is excluded from the scrutiny. When HT that occurs as a result of the invocation of an ETM is disproportionately large in comparison with the magnitude of EB obtained by the ETM, the ETM is struck down. Like the standard of the “reasonably availability” in the LTRA test, scrutinizing the “proportionality” between EB and HT inherently requires value-laden judgments. We have to wait for future cases to know how the “proportionality” standard is applied.167 In the process of the “proportionality” analysis, an examiner has to “compare” HT and EB. This is a big difference between the LTRA and “means and ends” tests.168

It should be noted that there is a big difference between the LTRA test and CCBA on the one hand and the “means and ends “ test on the other hand. In the process of the LTRA test and CCBA, multiple measures are examined. Meanwhile, in the scrutiny of the “means and ends” test, the examiner does not pay attention to the availability of other policy options; ETMs are upheld as long as HT is not disproportionately large in comparison with the magnitude of EB even if there is another measure which improves world welfare more than the measure in question. Therefore, the “means and ends” test is imperfect from the viewpoint of world welfare maximization. Furthermore, it can EB said that the “means and ends” test would be inferior to static cost-benefit analysis, which examines whether benefits from the invocation of a policy option exceeds the costs of the policy implementation in the sense of PPE, since administrative costs are excluded from the consideration of the “means and ends” test.

As we have seen, neither the LTRA test nor the “means and ends” test can guarantee the realization of the maximization of world welfare in the sense of PPE. However, this result does not necessarily mean that the use of the LTRA test and the “means and ends” test by the AB&P is inadequate. As Dunoff and Trachtman point out, there are some limitations in the use of the law-and-economics methodology.169 The LTRA test and the “means and ends” test could be a good solution to these limitations in a particular situation.

D. Evaluation of AB&P’s Use of the LTRA and “Means and Ends” Tests


In the following Section, we examine whether the use of the LTRA test and the “means and ends” test could be supported in light of the distributional, ethical, and philosophical problems PPE has.

1. Critiques of PPE


There could be three main criticisms of the use of PPE concept in the context of international law: lack of attention to distributional problems among countries, the incommensurability of values, and problems with interstate comparison of the utility.

First, PPE assumes that there are no transaction costs in redistributing benefits regardless of whether winners actually compensate losers. PPE focuses on whether net benefits increase as a result of the invocation of a measure without regard to redistribtional results of the measure. For example, suppose that there is a measure which benefits the developed countries more than it harms the least developed countries. Assume that the redistribution of the benefits and costs are impossible because of high transaction costs. Under usual Pareto efficiency analysis, this measure cannot be considered to be efficient because the developed countries cannot be better off without making the undeveloped countries worse off. However, this measure is efficient under PPE because the benefits enjoyed by the developed countries exceed the costs suffered by the developing countries.170 PPE itself cannot philosophically, morally, or politically justify why harming others by conducting an action should be allowed when the benefits of the action are greater than the harms.

Second, in conducting CCBA or looking for a measure which accomplishes potential Pareto optimal, we have to “compare” and “amalgamate” various benefits and costs. However, as many have pointed out, it is a very difficult job to quantify all of the social values such as the environment, moral order, and security on a unified scale (for example, a monetized scale) in order to calculate the net benefits gained by a policy option.171 For example, in the context of the protection of endangered species, people value these species primarily for their existence per se, as opposed to values which could be enjoyed by the exploitation or use of the species. That is, people can obtain economic utilities from the very fact that the endangered species are preserved.172 Furthermore, some people also obtain “altruistic” utilities from the fact that endangered species are protected from cruelty or death. However, how can we quantify these kinds of values?173 As Sunstein argues, in real life, we evaluate these values in non-economic ways. As a result, describing these values in economic language would obscure the real nature of non-economic valuations which we are actually using.174 Furthermore, Dunoff maintains that the use of economic language in evaluating these “non-use values” means not only describing them inaccurately but also creating the risk of changing our understanding of these social values.175 In the context of ETMs, the problem of incommensurability of values is the most significant when we evaluate the benefits derived from environmental protection. While some of the environmental regulations are primarily based on use value, for example the protection of human health, the others refer to non-use values, for example, the protection of endangered species. In conducting CCBA, we have to quantify the benefits derived from ETMs so as to render these benefits and costs commensurable with those of trade harms and administrative costs. That is not an easy task.

Third, PPE entails the problem of interpersonal comparison of utilities. In the process of CCBA, an analyst compares benefits obtained by one person with costs suffered by another. However, there is no widely accepted method to evaluate the benefits/costs to another. In order to compare utilities between people, it is required not only that benefits or costs have to be quantified in a comparable scale but also that these quantifications have to accurately reflect the utilities of individuals. In the context of ETMs, this problem appears in the form of interstate comparison of utility. We are not sure how we can compare the benefits of an ETM-invoking country with the harms inflicted by exporting countries.

In the following, we analyze whether the use of the LTRA and “means and ends” tests are good methods for avoiding these problems that PPE has.

2. The LTRA Test


It should be noted that the AB&P have utilized the LTRA test on ETMs which aim at protecting the domestic environment, regardless of which agreement the disputes were brought under. Under the SPS Agreement, Salmon and Apple, the cases in which the LTRA test was applied, were all about the protection of their nationals’ health from risks associated with food consumption. Under the GATT, in Asbestos, the Panel applied the LTRA test to a French decree designed to protect their nationals from health risks arising from the use of asbestos. In this regard, the AB findings in Gasoline, in which the purpose of the U.S. measure was to ameliorate air pollution caused by gasoline combustion in major population areas in the U.S., seems to be somehow odd in light of this general trend that the LTRA test is applied to ETMs for protecting the domestic environment since the “primary aimed at” test was applied in Gasoline. However, we should bear in mind that the chapeau analysis in Gasoline was very close to the LTRA test. The AB’s approach in Gasoline presents a clear contrast to the AB’s findings in Shrimp/Turtle, where the object of the U.S. measure was to protect the global environment and the AB employed a balancing approach in the chapeau scrutiny. Furthermore, we should be mindful of the general tendency that the chapeau tests seem to be more LTRA-like when measures in dispute are in pursuit of the realization of domestic interests. In Bovine Hide, the Panel found that the application of the Argentinean measure in issue, which was aimed at preventing tax evasion of income and value-added taxes, amounted to “unjustified discrimination” because an “alternative course of action” in which the Argentinean government would reimburse importers for the additional interest forgone would be available and administratively feasible.176 The prevention of tax evasion can be regarded as a measure designed to protect “domestic” interests even though it is irrelevant with environmental protection. In sum, regardless of whether under the independent paragraphs of GATT Article XX, under the chapeau of GATT XX, or under Article 5.6 of the SPS Agreement, the AB&P have invoked the LTRA test when the case is about measures designed to protect the domestic interests.

In order to evaluate whether the use of the LTRA test in the context of the domestic environmental protection is appropriate, we need to analyze the above-mentioned distributional, ethical, and philosophical weaknesses of PPE, which raise great concerns in the context of ETMs preserving the domestic environment.

First, as a general proposition, the distributional problem is significant when countries invoke ETMs in order to protect the domestic environment. The benefits of the measure concentrate on the measure-imposing countries by sacrificing the trade interests of foreign exporters. To be sure, the consumers in measure-imposing countries also suffer harms derived from the restriction on international trade. However, countries do not have an incentive to invoke ETMs unless benefits from environmental protection outweigh the total of harms on their consumers plus administrative costs, assuming the ETMs are “genuine”(that is, there is no protectionistic motivation in the ETMs). In other words, ETMs for protecting the domestic environment could be regarded as a kind of “beggar-thy-neighbor” policy; measure-imposing countries are better off by making other countries worse off, even though the net benefits to the measure-imposing countries might exceed the trade harms borne by other countries.177

However, we should also take into account national sovereignty rights to deal with domestic environmental problems. It is an ETM-imposing country, not other countries, which should be able to decide how the ETM-imposing country deals with its domestic environmental problems. The WTO seems to concur with this proposition. The AB&P have repeatedly underscored the point that WTO members are free to set their appropriate levels of health or environmental protection as they wish.178

In this regard, it could be said that the LTRA test would strike an exquisite balance between the sovereign right of a measure-imposing country to protect its domestic environment and a right of other countries to enjoy the benefits of free trade; the LTRA test does not intrude on ETM-imposing countries’ discretion in determining its appropriate levels of environmental protection, whereas requiring them to minimize trade harms on other countries. The LTRA accomplishes the balancing of Members’ rights by not balancing values. It is not coincidental that the AB&P emphasized the sovereign right of Members to decide their appropriate level of protection when they invoked the LTRA test under GATT Article XX (b) or Article 5.6 of the SPS Agreement. To be sure, distributional problems remain unsolved to some extent insofar as outsiders have to suffer trade harms, even though they are minimized. However, as Trachtman points out, compensation for redistribution could be indirect; the application of the LTRA test for all the ETMs for preserving the domestic environment implies that all Members would receive roughly equivalent payoffs. All Members are guaranteed the right to decide their appropriate levels of protection whereas they simultaneously have the right not to suffer trade harms which are more than minimized.179

Second, with regard to the problem of the incommensurability of values, it should be noted that the LTRA test does not “compare” any values at all: it evaluates the magnitude of trade harms independently from any other values; it does not pay attention to the magnitude of benefits derived from environmental protection at all180; furthermore, it considers administrative costs only to the extent of determining whether alternatives are economically feasible. The LTRA test has a strong moral advantage by neither comparing values nor quantifying the value of environmental protection. However, examiners of the LTRA test should bear in mind that there is a sloppy pitfall in the analysis of administrative feasibility. It is possible to argue that administrative feasibility should be determined in light of the magnitude of benefits derived from environmental protection.181 However, if we take into account the benefits of environmental protection in evaluating administrative feasibility, the LTRA test loses its valuable advantages: unnecessity of comparing environmental value with other values and of quantifying the magnitude of environmental benefits. In other words, the LTRA test becomes a mere subset of cost-benefit analysis.182 In this regard, we should be careful of how we interpret the AB findings in Beef with regard to the relationship between the LTRA test and the purpose of trade measures. In Beef, in the analysis of GATT Article XX (d), the AB noted that “[t]he more vital or important…interests or values” are pursued, the easier trade measures would be deemed to be “necessary” to achieve their ends.183 This AB’s comment is subject to many interpretations. It might mean that the regulatory purpose should be taken into account in analyzing the administrative feasibility of alternatives. On the other hand, another possible interpretation is that the AB merely pointed out the general tendency that the more important the regulatory purpose is, the fewer available alternatives there are. Analysts of the LTRA test should avoid the former interpretation since this interpretation would erode the moral weight of the LTRA test. In this regard, it should be criticized that the AB examined the degree of importance of the French measure in question in Asbestos, while the analysis of the French regulatory purpose did not seem to play a significant role in examining the availability of alternatives.184

Third, as to the problem of interstate comparison of utilities, we should be mindful of the AB’s approach when evaluating the magnitude of trade restrictions as a gestalt without distinguishing between trade harms suffered by foreign exporters/producers and those borne by ETM-imposing countries’ consumers.185 By so doing, the AB&P avoid “comparing” utilities among countries.

In conclusion, the LTRA test is a good method for avoiding the distributional, philosophical, and moral problems that CCBA has. In particular, regarding distributional problems which are significant in the context of ETMs for protecting the domestic environment, the LTRA test significantly ameliorates the distributional disadvantages of the domestic ETMs, while guaranteeing the sovereign rights of ETM-imposing countries to decide their appropriate levels of health or environmental protection.


3. The “Means and Ends” Test





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