Characterization of an objective in a public policy: the WTO law approach

Characterization of an objective in a public policy: the WTO law approach

by Yahir ACOSTA

Luis Yahir Acosta Pérez

This post will demonstrate that the legal characterization of a legitimate objective is of the utmost importance. It will begin exploring the meaning and scope of the legitimate objectives contained in TBT Agreement and GATT, respectively. Jurisprudence shows that the nature and characteristics of the legitimate objectives on the TBT Agreement can be relevant for interpreting GATT article XX subparagraphs, and vice versa. But, how complex is the operation for determining the legitimate objective?

McGrady holds that the characterization of a regulatory goal or legitimate objective is generally taken at face value by Panels and the AB.[1] The recent trilogy jurisprudence on the TBT Agreement[2] (US – Clove Cigarettes,[3] US – Tuna[4] and US – COOL[5]) would seem to confirm this statement.[6] However, EC – Seals appears to run against this vector. In this case, much emphasis was put on the issue of the Seal Welfare as a legitimate objective. A closer look at this case makes evident that the Panel and AB made a deep analysis of the legitimate objective and interests at issue, but only to determine the relationship between them. This is a novel issue in WTO jurisprudence[7] and anticipates that future cases involving multiple objectives and interests that are mutually exclusive will demand a lot of interpretative energy from panels and the AB.

Sungjoon Cho proposes a theoretical approach to the WTO system which will be helpful for understanding the importance of the legal characterization of the objective in the GATT and TBT Agreement. Cho’s main idea regarding the multilateral trading system or what he calls the Trade Constitution 2.0 is that: “[a]s future trade disputes concern more about non-tariff barriers of all sorts, the WTO tribunal will embrace the Trade Constitution 2.0 more often. More interpretive energy will be spent on issue [sic] of “how” a measure was applied, rather than “what” the measure was all about.”[8] As will be explained, this is in line with the recent GATT and TBT jurisprudence, including the Seal case. Following this idea, the legal characterization of the objective of a measure determines the “what” whereas the way the measure is applied defines the “how”.

The right to regulate is a deference to all WTO Members that allows them to rule, a priori, on any necessary legitimate objective. In EC – Seals, a case about an import ban on seal products placed by the European Union with the aim of protecting seal welfare, the AB recently admitted for the first time that article XX of the GATT reflects the right to regulate of all WTO Members. The AB also recalled that this right is also present in the TBT Agreement (paras. 5.124-25). Finally, the AB stressed that deference must be given to this right.

Having in mind the power of the “right to regulate”, it would seem that Cho’s idea is on the right path. Neither Panels nor the AB will spend much energy determining the legal characterization of the objective of a measure. As will be explained, this might be true for most cases with a single objective, but definitely not for all cases with multiple policy objectives at stake, as the Seals case evidenced.

In any case, Cho’s words must not be confused with the trivialization of the legal determination of an objective in a public policy. This is a delicate task which, in its turn, plays a fundamental role in the analysis of the “how”. It is so, because the objective works as a benchmark.[9] For instance, in the context of the TBT Agreement it “is the logical starting point in the analysis under Article 2.2 […], because it serves as the reference point for the purpose of analysing whether a measure is ‘more trade-restrictive than necessary’ to achieve its objective”.[10] In other words, a legitimate objective is a condition sine qua non to justify discrimination.

For this reason, the legal characterization of the objective of a measure forms an essential part of the analysis to be conducted under article 2.2 of the TBT Agreement, which provides for two conditions “that technical regulations must comply with in order not to constitute unnecessary obstacles to international trade”.[11] This two-step analysis[12] consists of the following requirements:

–   “Technical regulations must pursue a legitimate objective; and

–   They must not be more trade-restrictive than necessary to fulfil that legitimate objective, taking into account the risks non-fulfilment would create.”[13] (emphasis added)

This importance is similar in the GATT. As will be explained in Part IV, the necessity test is located in article XX and as such, the legitimate objective will play a pivotal role in this analysis, both in the subparagraph and the Chapeau stage, as was evidenced in Brazil – Retreaded Tyres[14] and EC – Seals.

In the previous paragraphs, the importance of the objective has been highlighted in both the “what” and the “how” dimensions. It is also important to mention that the characterization of an objective is a matter of law, and as such, it is subject to appellate review. In the past, this approach was criticized,[15] but treating objectives as a fact would be tantamount to set in stone a Panel’s characterization of the legitimate objective. Evidently, this would mean subtracting interpretative powers from the AB, which can only review matters of law but no factual matters found by the panels. In view of the above, it is concluded that the characterization of an objective is a legal question of the utmost importance. For this reason, the unequivocal identification of the objective is required to both panels and AB, as well as for WTO Members.[16]

1.1  How do WTO Courts can find an objective, and whether it is legitimate?

In light with this right to regulate, jurisprudence shows that the way a Member addresses their defence regarding its legitimate objectives is a strong argument favoured in most cases by the AB in the context of different WTO Agreements.[17] However, according to the AB it is not a definitive one. The legal operation performed by WTO Courts[18] is first, to determine the nature and content of the objective, and subsequently to examine the legitimacy of that particular objective.[19]

Regarding the first step, WTO jurisprudence gives much discretion to Members for setting their own policy goals.[20] However, panels and the AB also enjoy discretion for characterizing the objective pursued by the Member, according to the following standards:

A panel should take into account the Member's articulation of the objective or the objectives it pursues through its measure, but it is not bound by that Member's characterizations of such objective(s). Indeed, the panel must take account of all evidence put before it in this regard, including "the texts of statutes, legislative history, and other evidence regarding the structure and operation" of the measure at issue. A panel's identification of the "objective" of a measure is a matter of legal characterization subject to appellate review under Article 17.6 of the DSU.[21]

For the moment, we can conclude that the evaluation of the legitimacy of a particular objective is a holistic exercise based on objective parameters. This holds true for the TBT, the GATT and other WTO Agreements. However, panels have discretion regarding how much weight will be conferred onto each of these factors. It is noted that WTO jurisprudence shows that the Respondent’s articulation of the objective(s) it pursues through its measure plays one of the most important roles in this assessment. This is element will be considered in Part II of this work when dealing with the hierarchy of multiple objectives.

1.2  To be or not to be a legitimate objective within WTO law

What is the definition of a ‘legitimate objective’? A literal response was given by the AB in US – Tuna when it referred to the dictionary and concluded that a legitimate objective “is an aim or target that is lawful, justifiable, or proper”[22]. It further elaborated that panels must assess first, what is the objective (“what a Member seeks to achieve”), and subsequently, whether it is legitimate or not, according to the parameters mentioned in the first part of this work.[23]

Given the broad phrasing of article XX subparagraphs and TBT article 2 and its context, respectively, and on the other hand the broad discretion for panels and AB for assessing the legitimacy of an objective, it is hard to imagine a sincere public policy objective not passing this test.

Both GATT’s article XX subparagraphs and TBT’s article 2 (plus its preamble) provide a list of legitimate objectives that include protecting human life, the environment, public morals, among other important non-economic values.[24] Thus, both Agreements provide concrete examples of broad concepts that can accommodate legitimate objectives or policy goals. Therefore, these lists illustrate the objectives from the WTO texts angle.

Admittedly, legitimate objectives and legitimate regulatory purposes correspond to different legal concepts in GATT Article XX and other WTO agreements, such as the TBT. However, they represent the same thing. They are an expression of the right to regulate located in Article XX of the GATT and article 2 of the TBT Agreement, respectively (EC – Seals, AB, para 5.124-25). Additionally, as the AB in US – Tuna noted, “we consider that objectives recognized in the provisions of other covered agreements may provide guidance for, or may inform, the analysis of what might be considered to be a legitimate objective under Article 2.2 of the TBT Agreement.” (para. 313). This is an important issue that relates to the next point.

1.3  Are you on the list? Closed/open list of objectives

In EC – Seals, the EU contended that the TBT Agreement has an open list of possible legitimate objectives, which contrasts with the closed list contained in Article XX of the GATT. This fact could trigger interpretative discrepancies, such as allowing Members to protect an objective under the TBT Agreement but not the same objective under the GATT. This imbalance could also push Members to seek relief under the TBT Agreement rather than the GATT.[25]  

As it was mentioned above, the legitimate objectives of the GATT and TBT Agreement are an expression of the right to regulate. The AB concluded that the scope of the right to regulate balance the rights and obligations of the GATT and TBT Agreement, respectively (para. 5.127). Thus, the AB seems to be closing the gap between both Agreements. In the TBT trilogy, the AB constructed an interpretation that made a difference between the legal concepts for justification of a policy between the GATT and TBT Agreement. Considering the AB statements in EC – Seals, this differentiation of the legal concepts starts to look futile.[26] 

Thus, it would seem that all legitimate objectives can be placed equally in the GATT and TBT Agreement. However, there are authors and even countries that are hesitant about this outcome.[27] Yet, their arguments are unconvincing. I believe that a balanced reading of the GATT and TBT Agreement will prevail. As evidenced in this article, this interpretation was confirmed by the AB in EC – Seals (para 5.127). Thus, after EC – Seals it seems that a balanced view should allow Members to fit in article XX as many objectives as in other Agreements. This seems to be in line with the right to regulate recognized by the AB and Sungjoon Cho’s analytical tool, the ‘Trade Constitution 2.0’, and its deference to the “what”.

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[1] Benn McGrady, ‘Necessity Exceptions in WTO Law: Retreaded Tyres, Regulatory Purpose and Cumulative Regulatory Measures’, Journal of International Economic Law 12, no. 1 (1 March 2009): 153–73, doi:10.1093/jiel/jgn039, page 158

[2] Some authors have pointed out that this case trilogy is the first one to examine some fundamental issues of the TBT Agreement, and show what kind of technical regulations WTO Members may put in force. See Guzman, Andrew T. and Pauwelyn, Joost H.B., International Trade Law, Second Edition. 2012 (Chapter 19 online version); Yahir Acosta and Bradly J. Condon, Monografía del Acuerdo Sobre Obstáculos Técnicos al Comercio, México, D.F. (CDEI-ITAM, 2014), http://cdei.itam.mx/medios_digitales/archivos/educacion/Monografia%20OTC%20v.5-junio-14.pdf.

[3] United States – Measures Affecting the Production and Sale of Clove Cigarettes (US – Clove Cigarettes) (Appellate Body Report 2012).

[4] United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products (US – Tuna II (Mexico)) (Appellate Body Report 2012).

[5] United States – Certain Country of Origin Labelling (COOL) Requirements (US – COOL) (Appellate Body Reports 2012).

[6] This trilogy jurisprudence on the TBT Agreement (hereinafter, TBT trilogy) refers only to the three cases mentioned, although it is noted that the Panel in EC – Seals also examined the case under the TBT Agreement scope but its findings on this matter were declared moot by the AB, which preferred to analyze the issue with the GATT. Appellate Body Report, EC – Seals, para 5.70.

[7] In Brazil – Retreaded Tyres the AB did not examine a similar issue because the exceptions to Brazil’s measure were not argued as objectives, and more importantly, were not part of the original policy.

[8] Sungjoon Cho, ‘Trade Constitution 2.0’, International Economic Law and Policy Blog, accessed 10 February 2015, http://worldtradelaw.typepad.com/ielpblog/2014/03/trade-constitution-20.html.

[9] “the relevant objective is the benchmark against which a panel must assess the degree of contribution made by a challenged technical regulation, as well as by proposed alternative measures.” Appellate Body Report, US – COOL, para. 387.

[10] Panel Report, US – Clove Cigarettes, para. 7.335.

[11] Panel Report, US – Tuna II (Mexico), para 7.387.

[12] Panel Report, US – Clove Cigarettes, para 7.333.

[13] Panel Report, US – Tuna II (Mexico), para 7.387. Importantly, the Panel in US – COOL found that the second sentence contains one obligation that can be segmented in different parts. The analysis order of these elements is to be defined on a case-by-case basis. Panel Report, US – COOL, para 7.331.

[14] Appellate Body Report, Brazil - Measures Affecting Imports of Retreaded Tyres (Brazil – Retreaded Tyres), WT/DS332/AB/R, circulated 3 December 2007.

[15] McGrady, ‘Necessity Exceptions in WTO Law: Retreaded Tyres, Regulatory Purpose and Cumulative Regulatory Measures’.

[16] This was the reason why in US-COOL, the AB reprehended the Panel for using a double characterization of the same legitimate objective. “For instance, at times the Panel identified the objective as being "to provide consumer information on origin"; at other times, the Panel referred to the objective as being "to provide as much clear and accurate origin information as possible to consumers". Through these differing formulations of the objective, the Panel introduced a level of uncertainty in its reasoning.” Appellate Body Reports, US – COOL, para 387 (footnotes omitted).

[17] See for instance, Appellate Body Reports, US – COOL, para 432; Appellate Body Report, US – Tuna II (Mexico), para 314; Appellate Body Report, Brazil – Retreaded Tyres, para 140; Appellate Body Report, US - Gambling, para 304. Arguably, the EU in EC – Seals also succeeded in defining its objective, but as we contend below, this was a pyrrhic victory.

[18] Arguably, Panels and the AB are not Courts. Regardless, in this text both concepts are used interchangeably. For more on the nature of WTO Courts see Georges Abi-Saab, "The Appellate Body and Treaty Interpretation" in Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge University Press, 2006).

[19] “[A] panel must assess what a Member seeks to achieve […] Subsequently, the analysis must turn to the question of whether a particular objective is legitimate”. Appellate Body Report, US – Tuna II (Mexico), para. 314.

[20] For instance, the AB has observed “that it is within the authority of a WTO Member to set the public health or environmental objectives it seeks to achieve, as well as the level of protection that it wants to obtain, through the measure or the policy it chooses to adopt.” Appellate Body Report, Brazil – Retreaded Tyres, para 140.

[21] Appellate Body Reports, EC – Seals, para. 5.144 (footnotes omitted).

[22] Appellate Body Report, US – Tuna II (Mexico), para. 313.

[23] Appellate Body Report, US – Tuna II (Mexico), para. 314.

[24] For instance, Article 2.2 of the TBT Agreement: “Such legitimate objectives are, inter alia: national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health, or the environment.”

[25] Joost Pauwelyn mentions this open/closed list feature, as well as the differences on the burden of the proof. I agree with him only regarding the latter. Robert Howse and Joost Pauwelyn, ‘WTO Seals: What Is It Really That Makes the AB Think That TBT Doesn’t Apply?’, International Economic Law and Policy Blog, 25 May 2014, http://worldtradelaw.typepad.com/ielpblog/2014/05/wto-sealswhat-is-it-really-that-makes-the-ab-think-that-tbt-doesnt-apply.html.

[26] This is a point made by Pauwelyn. Ibidem.

[27] Shaffer and Pabian mention the fact that after EC – Seals, the US has manifested “that providing consumer information is not among the list of Article XX exceptions” (emphasis added). However, it is added here that it could be argued that providing consumer information is necessary to avoid or prevent deceptive practices, and as such could be included in Article XX d) “necessary to secure…the prevention of deceptive practices”. I also note that, paradoxically, a similar argument was used by the US in US – Tuna II (Mexico) for protecting one of the objectives of its dolphin safe label (consumer information), but in that case, in the context of article 2.2 of the TBT Agreement (para. 7.437). See Gregory Shaffer and David Pabian, ‘International Decision: European Communities—Measures Prohibiting the Importation and Marketing of Seal Products’, The American Journal of International Law 109, no. 1 (2015): 154–61, at footnote 15.