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Just Between You and Me: Mutual Recognition Agreements and the Most-Favoured Nation Principle

Published online by Cambridge University Press:  16 November 2015

JOSHUA A. ZELL*
Affiliation:
University of Cambridge
*

Abstract

Mutual recognition agreements present unique legal issues in the application of the most-favoured nation obligations flowing from Article I:1 of GATT 1994 and Articles 2.1 and 5.1.1 of the TBT Agreement. Mutual recognition agreements come in two types – those recognizing the equivalence of technical regulations, and those recognizing the equivalence of conformity assessment procedures. Both carry potential trade advantages for state parties, but both also carry the potential to create unintended trade consequences for state parties if combined with a broad application of the most-favoured nation principle. The WTO Appellate Body has touched on a number of the relevant legal issues in a series of reports culminating in the May 2014 EC–Seals decision, but many questions remain. This article seeks to provide states and practitioners with a guide to the issues and the way in which the Appellate Body would most likely address the remaining questions, based on the existing jurisprudence.

Type
Review Article
Copyright
Copyright © Joshua A. Zell 2015 

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References

1 Article 1, Annex 1A, Marrakesh Agreement Establishing the World Trade Organization 1994, 1867 UNTS 3 (General Agreement on Tariffs and Trade 1994) (GATT 1994).

2 Article 5, Annex 1A, Marrakesh Agreement Establishing the World Trade Organization 1994, 1867 UNTS 3 (Agreement on Technical Barriers to Trade) (TBT).

3 A technical regulation is defined as a ‘[d]ocument 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 product process or production method.’ TBT Annex 1(1).

4 CAPs are defined as ‘[a]ny procedure used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled. Conformity assessment procedures include, inter alia, procedures for sampling, testing and inspection; evaluation, verification and assurance of conformity; registration, accreditation and approval as well as their combinations.’ TBT Annex 1(3).

5 This article does not address the related question of whether mutual recognition contained within a regional trade agreement is covered by the GATT Article XXIV exception, though leading scholars suggest most such recognition is not covered by the exception. See generally Trachtman, Joel P., ‘Toward Open Recognition? Standardization and Regional Integration under Article XXIV of GATT’, 6 Journal of International Economic Law (2003) 459 Google Scholar; Bartels, Lorand, ‘The Legality of the EC Mutual Recognition Clause under WTO Law’, 8 Journal of International Economic Law (2005) 691, at 711714 CrossRefGoogle Scholar.

6 WTO, United States – Measures Affecting the Production and Sale of Clove Cigarettes, Report of the Appellate Body, 4 April 2012, WT/DS406/AB/R (Appellate Body, US–Clove Cigarettes).

7 WTO, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, Report of the Appellate Body, 16 May 2012, WT/DS381/AB/R (Appellate Body, US–Tuna II).

8 WTO, United States – Certain Country of Origin Labelling (COOL) Requirements, Report of the Appellate Body, 29 June 2012, WT/DS384/AB/R, WT/DS386/AB/R (Appellate Body, US–COOL).

9 WTO, European Communities – Measures Prohibiting the Sale and Marketing of Seal Products, Report of the Panel, 25 November 2013, WT/DS400/R, WT/DS401/R (Panel, EC–Seals).

10 TBT, supra note 2, Article 2.1, ‘Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.’

11 GATT 1994, Article I:1, ‘[A]ny advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.’

12 Ibid., Article III:4, ‘The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin.’

13 See Bartels, supra note 5, at 714, ‘It is highly unlikely that [GATT Article XX or XXIV] would be able to justify violations of the TBT Agreement.’

14 See e.g. Irish, M., ‘Regulatory convergence, security and global administrative law in Canada-United States trade’, 12(2) Journal of International Economic Law (2009) 333, at 348Google Scholar, arguing that the TBT should be the lex specialis to the extent it conflicts with Gatt I:1; But cf. Marceau, Gabrielle and Trachtman, Joel P., ‘The Technical Barriers to Trade Agreement, the Sanitary and Phytosanitary Measures Agreement, and the General Agreement on Tariffs and Trade36(5) Journal of World Trade (2002) 811, at 870Google Scholar, ‘[T]he jurisprudence has not considered the TBT lex specialis to GATT,’ citing the EC–Asbestos and US–Gasoline Appellate Body reports.

15 The Note states, ‘In the event of a conflict between a provision of the [GATT] and a provision of another agreement in Annex 1A [including the TBT] … the provision of the other agreement shall prevail to the extent of the conflict.’

16 See Bartels, supra note 5, at 715 (note 86), arguing that opposing rights and prohibitions qualify as conflicts under the General Interpretative Note to Annex 1A; But cf. Trachtman, supra note 5, at 472, arguing the Interpretative Note only covers circumstances ‘where one agreement requires what another forbids’.

17 Supra note 6.

18 Supra note 7.

19 Supra note 8.

20 WTO, European Communities – Measures Prohibiting the Sale and Marketing of Seal Products, Report of the Appellate Body, 22 May 2014, WT/DS400/AB/R, WT/DS401/AB/R (Appellate Body, EC–Seals).

21 Although the first three of these reports deal mostly with the national treatment obligation of TBT 2.1, the legal test they articulate applies equally to the TBT 2.1 MFN obligation.

22 Appellate Body, US–Clove Cigarettes, supra note 6, at para. 91.

23 Ibid., at para. 182.

24 Appellate Body, US–Tuna II, supra note 7, at para. 216.

25 Appellate Body, US–Clove Cigarettes, supra note 6, at paras. 1, 234.

26 Ibid., at paras. 214, 226.

27 Appellate Body, US–Tuna II, supra note 7, at paras. 172, 299.

28 Ibid., at para. 206.

29 Ibid., at paras. 215, 240.

30 Ibid., at paras. 297298.

31 Ibid., at para 242.

32 Ibid., at para. 297.

33 Appellate Body, US–COOL, supra note 8, at para. 350.

34 Ibid., at paras. 260, 262, 287, 292.

35 Ibid., at paras. 268, 271.

36 Ibid., at para. 292.

37 Ibid., at para. 349.

38 Panel, EC–Seals, supra note 9, at paras. 7.12, 7.170, 7.353.

39 Ibid., at para. 7.164.

40 Ibid., at para. 7.168.

41 Ibid., at para. 7.170.

42 Ibid., at paras. 7.319, 7.353.

43 Ibid., at paras. 7.600, 7.609.

44 See e.g. Appellate Body, US–Clove Cigarettes, supra note 6, at para 3.

45 Appellate Body, EC–Seals, supra note 20, at paras 5.59, 5.70.

46 Ibid., at para. 5.96.

47 Ibid., at note 1071.

48 Ibid., at para. 5.339.

49 Appellate Body, US–Clove Cigarettes, supra note 6, at paras. 88, 170–172.

50 Ibid., at paras. 177–179.

51 WTO, Korea – Measures Affect Imports of Fresh, Chilled and Frozen Beef, Report of the Appellate Body, 11 December 2000, WT/DS161/AB/R, WT/DS169/AB/R (Appellate Body, Korea–Beef).

52 WTO, European Communities – Measures Affecting Asbestos and Products Containing Asbestos, Report of the Appellate Body, 12 March 2001, WT/DS135/AB/R (Appellate Body, EC–Asbestos).

53 Appellate Body, US–Clove Cigarettes, supra note 6, at para. 169.

54 Ibid., at paras. 170–173.

55 Ibid., at para. 174.

56 Ibid., at para. 182.

57 The ‘reasonable’ requirement is derived from US–Tuna II, in which the US argued that the possible alternative of requiring certification from an independent observer that no dolphins were killed or seriously injured on a particular fishing trip was unreasonable because of cost and infrastructure requirements. The Panel and Appellate Body were not convinced this alternative was unreasonable, but in addressing the argument they appear to agree that this second element of the legitimate regulatory distinction analysis includes the condition of reasonableness. Appellate Body, US–Tuna II, supra note 7, at paras. 293–296.

58 See e.g. Appellate Body, US–COOL, supra note 8, at para. 347. The alternative in US–COOL of including more product-origin information on retail labels would have been more trade restrictive than the measure at issue, not less. Though perhaps counterintuitive, this approach makes sense given that the purpose of examining alternatives within the legitimate regulatory distinction analysis is not to place the complaining member in a better trade position, it is simply that the existence of the alternatives provides unbiased circumstantial evidence that the measure was designed to discriminate.

59 Appellate Body, US–Clove Cigarettes, supra note 6, paras. 216, 225.

60 Ibid., at para. 225.

61 Ibid., at para. 226.

62 Appellate Body, US–Tuna II, supra note 7, at para. 242.

63 Ibid., at para. 297.

64 Ibid.

65 Appellate Body, US–COOL, supra note 8, at para. 332.

66 Ibid., at para. 349.

67 WTO, Brazil – Measures Affecting Imports of Retreaded Tyres, Report of the Appellate Body, 3 December 2007, WT/DS332/AB/R, at para. 144 (Appellate Body, Brazil–Tyres).

68 Ibid., at para. 139.

69 Ibid., at para. 152.

70 Ibid., at para. 156.

71 Ibid.

72 Ibid., at paras. 225, 246.

73 Ibid., at para. 7.600 (note 939).

74 Ibid., at para. 7.639.

75 Ibid., at paras. 7.649–51.

76 Appellate Body, EC–Seals, supra note 20, at paras. 5.127–8.

77 Ibid., at paras. 5.310–11.

78 Ibid., at para. 5.339.

79 Ibid., at para. 5.318. It should be noted that this was not at all clear under the Appellate Body's previous findings in Brazil–Tyres.

80 See Appellate Body, US–Clove Cigarettes, supra note 6, at paras. 215–226.

81 Appellate Body, EC–Seals, supra note 20, at para. 5.321.

82 Ibid., at paras. 5.320, 5.338.

83 Trachtman suggests the Appellate Body should have accepted the EU argument for applying the legitimate regulatory distinction test to GATT I:1 to avoid conflicts between the TBT and GATT, but alternatively hopes the Appellate Body will avoid such conflicts by applying GATT XX more liberally. Joel P. Trachtman, ‘The WTO Seal Products Case: Doctrinal and Normative Confusion’, American Journal of International Law Unbound, 25 June 2015, available at http://www.asil.org/blogs/wto-seal-products-case-doctrinal-and-normative-confusion.

84 Member C may also claim that its technical regulations are equivalent to Member A's technical regulations, and demand recognition under TBT Article 2.7. However, this is not an MFN claim, and is not created by Member A's MRA with Member B. The favourable treatment or advantage accorded to Member B by Member A in the MRA is recognition of technical regulations of a certain quality, and to make an MFN claim Member C must assert that its technical regulations are of that same quality.

85 Panel, EC–Seals, supra note 9, at para. 7.622, quoting from US–Gasoline.

86 See e.g. Appellate Body, US–COOL, supra note 8, at para. 292, ‘[T]he COOL measure modifies the conditions of competition by creating an incentive in favour of processing exclusively domestic livestock’ (emphasis added).

87 Cf. Ankersmit, L., ‘What if Cassis de Dijon were Cassis de Quebec? The Assimilation of Goods of Third Country Origin in the Internal Market’, 50 Common Market Law Review (2013) 1387, at 1401CrossRefGoogle Scholar, arguing that the ‘lawfully marketed’ standard for free circulation within the EU should be modified to ‘lawfully marketable’, such that producers could directly market a product in any EU member state without first marketing the product in the member state with whose regulations the product complies.

88 See Ibid., at 1401–1402, noting that regulatory supervision might be lost if regulatory authorities of EU member states were forced to assess whether products comply with other member states' regulations.

89 See e.g. Panel, EC–Seals, supra note 9, at paras. 7.595–8.

90 See e.g. Ibid., at para 5.338.

91 Nicolaidas and Shaffer refer to the issue raised by this situation as the ‘issue of transitivity’. Nicolaidis, Kalypso and Shaffer, Gregory, ‘Transnational Mutual Recognition Regimes: Governance Without Global Government68 Law and Contemorary Problems (2005) 263, at 315Google Scholar.

92 TBT, supra note 2, at Annex 1(3); See Bartels, supra note 5, at 709.

93 TBT, supra note 2, at Article 5.1, ‘Members shall ensure that, in cases where a positive assurance of conformity with technical regulations … is required, their central government bodies apply the following provisions to products originating in the territories of other Members: conformity assessment procedures are prepared, adopted and applied so as to grant access for suppliers of like products originating in the territories of other Members under conditions no less favourable than those accorded to suppliers of like products of national origin or originating in any other country, in a comparable situation.’

94 Bartels, supra note 5, at 708; Rigod, B., ‘TBT-Plus Rules in Preferential Trade Agreements’, 40 Legal Issues of Economic Integration (2013) 247, at 268Google Scholar.

95 Bartels, supra note 5, at 708.

96 This is sometimes called ‘closed’ mutual recognition. See James Mathis, ‘Addressing Transatlantic Regulatory Barriers: Can the US and the EU Create an Effective Equivalency Instrument?’, in Elaine Fahey and Deirdre Curtin (eds.), A Transatlantic Community of Law: Legal Perspectives on the Relationship Between the EU and US Legal Orders (2014) 186, at note 38; Trachtman, supra note 5, at 459, 481.

97 A potential national treatment violation would arise if Member A denies foreign products access to Member A's CAPs for assessing conformity with another member's technical regulations. Such a measure appears to be a clear violation of TBT 5.1.1, but is outside the scope of this article.

98 Member C may also claim that its CAPs are equivalent to Member A's CAPs, and demand recognition under TBT Article 6.1. However, this is not an MFN claim, and is not created by Member A's MRA with Member B. The favourable treatment or advantage accorded to Member B by Member A in the MRA is recognition of CAPs of a certain quality, and to make an MFN claim Member C must assert that its CAPs are of that same quality.

99 See Beynon, P., ‘Community mutual recognition agreements, technical barriers to trade and the WTO's most-favoured nation principle’, 28 European Law Review (2003) 231, at 245Google Scholar.

100 A third member could also claim that its technical regulations or CAPs are equivalent to the first member's, but this claim would be based on the non-MFN obligations of TBT 2.7 (for technical regulations) or TBT 6.1 (for CAPs), obligations which exist prior to and are not created by the first member's recognition of a second member's technical regulations or CAPs.

101 In this situation, the first member can always counterclaim that the third member has an obligation to recognize the first member's technical regulations or CAPs under TBT 2.7 or TBT 6.1, respectively. However, these obligations are not worded as strongly as the MFN obligations of GATT I:1, TBT 2.1 and TBT 5.1.1. Ironically, the best case scenario is where the third member has entered a similar MRA with the second member, because there the first member can counterclaim based on the third member's MFN obligation created by the third member/second member MRA.