FIFTH GNLU INTERNATIONAL LAW MOOT COURT COMPETITION, 2013
THE CASE ZWOVKA - ZWOVKA ENVIRONMENT AND SECURITY OF CHILDREN ACT (WT/ DS/***)
APPELLANT SUBMISSION BY THE STATE OF ENRODA
Ntents
TABLE OF CONTENTS
LIST OF ABBREVIATIONS ............................................ .................................................................. ............................................ ................................ .......... iii INDEX OF AUTHORITIES............. AUTHORITIES................................... ............................................ ............................................ ............................................ ......................iv STATEMENT OF FACTS ............................................ .................................................................. ............................................ .................................... ..............vii MEASURE OF ISSUES .................................................... .......................................................................... ............................................. ................................. .......... ix ARGUMENTS ADVANCED.................................. ADVANCED........................................................ ............................................ ............................................ ......................1 1 I.
THE LEGISLATION PASSED BY ZWOVKA IS NOT IN ACCORDANCE WITH
ARTICLE III OF THE GATT AND ARTICLE 2.1 OF TBT ........................ ............................................... ........................... .... 1 A.
Environment & Security of Children Act is i s a technical regulation under Annex 1.1. 3
B.
The Legislation Passed By Zwovka Is Protectionist In Nature ................................... ................................... 4
C.
Article 2.1 of the TBT is to be Interpreted with the Preamble: ................................... ................................... 5
II.
ENRODA CONTENDS THAT IMPORTED TOYS ARE ACCORDED „LESS
FAVOURABLE‟ TREATMENT IN COMPARISON TO „LIKE‟ DOMESTIC PRODUCTS 7 A.
The toys mentioned in section 1 of the esc act and the dolls produced in zwovka are
„like products‟. ............................................ ................................................................... ............................................. ............................................ .............................. ........ 7 1.
the characteristics of the products indicate they are „like‟. ..................................... ..................................... 8
2.
enroda is of the view that the toys in question are ar e substitutable. substitutabl e. .......................... .......................... 10
B.
Application Section 2 Of The Act Lead to Imported Goods Being Treated „Less
Favourably‟ Than „Like‟ Domestic Goods. ............................................. .................................................................... ............................ ..... 11
III. A.
1.
the measure accorded to enroda amounts to detrimental detrime ntal treatment ....................... ....................... 12
2.
zwovka‟s measure does not constitute legitimate regulatory behaviour ............... behaviour ............... 13
ESC ACT IS IN VIOLATION OF ARTICLE 2.2 OF TBT ......................................... ......................................... 14 The Objectives For The ESC Act Are Not Legitimate In The Context Of Ar. 2.2 Of
The TBT.............................................................. ................................................................................... ............................................ ........................................... .....................14 B.
The ESC Act Fulfils The Necessity Necessi ty Requirement Under Ar. 2.2 Of The TBT ........ 15
i
IV.
THE ENVIRONMENT AND SECURITY OF CHILDREN ACT IS INVALID
UNDER AR. XI OF GATT AS IT PLACES QUANTITATIVE RESTRICTIONS ON TOYS IMPORTED INTO ZWOVKA. ................................. ....................................................... ............................................. ........................................ ................. 19 V.
THE MEASURE TAKEN BY ZWOVKA DOES NOT FALL UNDER ARTICLE
XX(B) OF THE GATT ................................... ......................................................... ............................................. .............................................. ............................ ..... 20 A.
The Measure Taken Is Not „Necessary‟ To protect Public Health ........................... ........................... 21
B.
The Measure Taken By Zwovka Does Not Fulfil The Ingredients Of The Chapeau. 23
VI.
SECTION 3 OF THE ESC ACT NOT INCORPORATED FOR PROTECTION OF
NATIONAL SECURITY. SECURITY. ........................... ................................................. ............................................ ............................................ ................................ .......... 25 REQUEST FOR FINDING .......................................................... ................................................................................ ......................................... ................... xiii
ii
LIST OF ABBREVIATIONS
VCLT
Vienna Convention on the Law of Treaties 1969
WTO
World Trade Organisation
GATT
The General Agreement on Tariffs and Trade
TBT
Agreement of the Technical Barriers to Trade
SPS
Agreement on the Sanitary and Phytosanitary measures
ESC Act
Environment and Security of Children Act
Art.
Article
Ed.
Edition
No.
Number
Vol.
Volume
Supp.
Supplement
U.S.
The United States of America
E.C.
The European Communities
WCO
World Customs Organisation
WHO
World Health Organisation
COOL
Country of Origin Labelling
ppm
Parts per million
OAZ
Organisation for Anarchy in Zwovka
TRC
Troikan Religious Council
DSB
Dispute Settlement Body
DSU
Dispute Settlement Understanding
iii
INDEX OF AUTHORITIES WTO APPELLATE BODY REPORTSS
Appellate Body Report, United States – Measures Affecting The Production And Sale Of Clove Cigarette .............................................................................................................passim Appellate Body Report, Brazil-Measures Affecting the Import of Retreaded Tyres ........ 23, 26 Appellate Body Report, EC – Measures Affecting Asbestos And Asbestos-Containing Products.........................................................................................................................passim Appellate Body Report, EC – Trade Description of Sardines ................................................... 5 Appellate Body Report, Korea – Measures Affecting Imports Of Fresh, Chilled and Frozen Beef ...................................................................................................................................... 14 Appellate Body Report, Phillipines- Taxes on Distilled Spirits .............................................. 13 Appellate Body Report, United States – Measures Concerning The Importation, Marketing And Sale Of Tuna And Tuna Products ................................................................ 4, 14, 17, 18 Appellate Body Report, US – Certain Country Of Origin Labeling (COOL) Requirements, ....................................................................................................................................... passim Appellate Body Report, US – Import Prohibition on Certain Shrimp and Shrimp Products... ........................................................................................................................................ 25, 26 Appellate Body Report, US – Standards For Reformulated and Conventional Gasoline ................................................................................................................................ ........24, 26 WTO PANEL REPORTS
Panel Report, Japan- Taxes on Alcoholic Beverages ............................................................. 12 Panel Report, Canada – Certain Measures Concerning Periodicals ........................................ 21 Panel Report, Turkey – Restrictions on Import of Textiles and Clothing Products ................ 21
iv
Panel Report. Thailand-Importation of and Internal Taxes on Cigarettes .............................. 24 PANEL REPORTS BEFORE 1994
Report of Panel, Italian Discrimination against Imported Agricultural Machinery .................. 4 AGREEMENTS ON INTERNATION TRADE
GATT. ..................................................................................................................................4, 21 TECHNICAL BARRIERS TO TRADE ......................................................................................passim Other Authorities
A NDREW T. GUZMAN A ND JOOST H.B. PAUWELYN, I NTERNATIONAL TRADE LAW .................25 CHARLES VERILL MAXIMUM CARBON I NTENSITY LIMITATIONS AND THE AGREEMENT ON Cambridge Business English dictionary, http://dictionary.cambridge.org/dictionary/business-english/elasticity-of-substitution. (Last Visited Dec. 29, 2012). ........................................................................................................ 12 World Customs Organization[ WCO], Harmonised System Nomenclature ........................... 12 Environmental Lead Exposure: a public health problem of global dimesnions ...................... 12 K EVIN K ENNEDY, I NTERNATIONAL TRADE R EGULATIONS: R EADINGS, CASES, NOTES AND PROBLEMS ............................................................................................................................ 22 LEO PAPER GROUP, HEAVY METALS A ND PHTHALATES COMPLIANCE CONTROL ................... 12 Micheal J Hahn, Vital Interests and the Law of GATT: An analysis of GATT‟s Security Exceptions......................................................................................................................27, 28 MICHEAL MING DU, DOMESTIC R EGULATORY AUTONOMY UNDER THE TBT AGREEMENT: FROM NON DISCRIMINATION TO HARMONIZATION .................................................................8 PETER VAN DEN BOSSCHE ,THE LAW AND POLICY OF WORLD TRADE ORGANIZATION: TEXT, CASES AND MATERIALS .......................................................................................................... 7
v
RAJ BHALA , INTERNATIONAL TRADE LAW: THEORY AND PRACTICE ...................................... 3, 6 R OBERT E. HUDEC „LIKE PRODUCTS‟: THE DIFFERENCE I N MEANING I N GATT ARTICLE I AND III 4 ....................................................................................................................................... 10 R OBERT E. HUDEC GATT/WTO CONSTRAINTS O N NATIONAL R EGULATIONS: R EQUIEM FOR AN AIM AND EFFECTS TEST .............................................................................................. 7,
RUDIGER WOLFRUM et. LAW, WTO
al., MAX PLANCK INSTITUTE FOR COMPARATIVE PUBLIC
17
LAW AND INT‟L
-TECHNICAL BARRIERS AND SPS MEASURES............................................. 3, 6, 7, 25
SIMON LESTOR et
al., WORLD TRADE LAW: TEXT, MATERIALS AND commentary ................... 3, 10
World Customs Organization, http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonizedsystem.aspx (Last visited Dec. 20th 2012). ......................................................................... 13
vi
STATEMENT OF FACTS
The dispute arises from a complaint brought by Enroda against the Environment and Security of Children (ESC) Act enacted by Zwovka. Enroda is a least economically developed country with a population of 5 million. Zwovka is a developing country located on the West of Enroda, with a population of over 5 million. Enroda has a thriving toy industry and exports toys of the description “Tricycles, scooters, pedal cars and similar wheeled toys” exclusively to Zwovka. These toys are popular in the age group of 3-6 years. The number of toys exported of this description has been rising rapidly, from 4 million in 2011 to 5 million in 2012. DOLLS DEPICTING TROIKAN FOLK HEROES
70% of the population of Zwovka follows the Troikan faith. The warrior prince Legann and his brothers are folk heroes from the Troikan mythology. Dolls depicting them are highly popular amongst the children following the Troikan faith, especially those in the age group of 4-8 years. These dolls fall under the Harmnised System Number (“HSN”) 9503. While natural paints were originally used for the manufacture of these dolls, since 2000, lead-based paint is used in the manufacture of all dolls. The dolls have a lead content of 300 ppm. While the Troikan Religious Council (“TRC”) has made attempts to regulate the market, the power of the religious police, which enforces the religious directives of the TRC, is limited to verbal warnings and confiscations. This has lead to an unregulated market for dolls with a capacity of over 1.75 million units a year, as opposed to the licensed companies with a total capacity of 200,000 units a year. INDUSTRIAL ZONES
The Zwovkan government has provided financial support to industries with the highest potential for lead growth under the Government Industrial Development Cooperation policy enacted in 1986. Industries like the battery manufacturing industry and the electronic industry have benefited from the same. These industries are located in Industrial Zones (“IZ”), where factories, management, residences for workers and schools are all located. 15% of the population under the age of 18 lives in such IZs. In 2002, it was pointed out by a non-governmental organisation that children raised in IZs ran a major risk of chronic exposure to lead poisoning. The government responded with a legislation that required factories of lead-based or lead-emitting industries to be closed to children. Several NGOs voiced fears of the legislation not doing enough. THE ORGANISATION FOR ANARCHY IN ZWOVKA
vii
The Organisation for Anarchy in Zwovka (“OAZ”) is secret organisation functioning in Enroda. The OAZ has made several statements calling upon its members to weaken Zwovka in every way possible. In 2005, investigative journalists from the Zwovka Times found that the OAZ did not have enough resources to translate their words into action. In 2011, the Heritage of Zwovka reported the OAZ asking its sympathisers in the toy industry to coat toys exported to Zwovka with extra layers of lead based paint. The Heritage of Zwovka, however, has been given a score of 35 on 100 for accuracy by the media watchdog MEDIAWATCH, while all other newspapers in Zwovka have a score above 65. During custom checks carried out by Zwovka, ten consignments of toys were examined. Seven of these were found to contain 150-300 ppm of lead, while three contained 600 ppm of lead. THE ENVIRONMENT AND SECURITY OF CHILDREN ACT
On May 5th, 2012, the Zwovkan parliament enacted the Environment and Safety of Children Act without any prior notice or communication with Eroda. Section 1 of the act limits its scope to the category “Tricycles, scooters, pedal cars and similar wheeled toys” falling under Zwovkan Tariff Code 9503. Section 2 of the Act prohibits the entry of all covered toys with a lead content above 100 ppm into Zwovka. Section 3 of the Act prohibits the import of all covered toys from Enroda for a period of twelve months, although this prohibition shall be withdrawn on the executive being convinced that intelligence reports claiming a threat to Zwovkan citizens from imports from Enroda are false, or may be extended if considered necessary. Aggrieved by the Act, Enroda requested consultations with Zwovka concerning the Act and its application. The consultations failed, however, and Enroda has hence requested the creation of a panel of the Dispute Settlement Unit of the WTO.
viii
MEASURE OF ISSUES
I.
THE LEGISLATION PASSED BY ZWOVKA IS NOT IN ACCORDANCE WITH ARTICLE III OF THE GATT AND ARTICLE 2.1 OF TBT. A. ENVIRONMENT & SECURITY OF CHILDREN ACT IS A TECHNICAL REGULATION UNDER ANNEX 1.1 OF THE
TBT.
B. THE LEGISLATION PASSED BY ZWOVKA IS PROTECTIONIST IN NATURE. C. ARTICLE 2.1 OF THE TBT IS TO BE R EAD WITH THE PREAMBLE. II.
ENRODA CONTENDS THAT THE IMPORTED TOYS ARE ACCORDED ‘LESS FAVOURABLE’ TREATMENT IN COMPARISON TO ‘LIKE’ DOMESTIC PRODUCTS A. THE TOYS MENTIONED IN SECTION 1 OF THE ESC ACT AND THE DOLLS PRODUCED IN ZWOVKA ARE ‘LIKE PRODUCTS ’. 1.
THE CHARACTERISTICS OF THE PRODUCTS INDICATE THEY ARE ‘LIKE’.
2.
ENRODA IS OF THE VIEW THAT THE TOYS IN QUESTION ARE SUBSTITUTABLE
.
B. APPLICATION SECTION 2 OF THE ACT LEAD TO IMPORTED GOODS BEING TREATED ‘LESS FAVOURABLY ’ THAN ‘LIKE’ DOMESTIC
GOODS.
1.
THE MEASURE RESULTS IN DETRIMENTAL TREATMENT TO ENRODA .
2.
ZWOVKA’S MEASURE DOES NOT CONSTITUTE LEGITIMATE REGULATORY
BEHAVIOUR .
III.
ESC ACT IS IN VIOLATION OF ARTICLE 2.2 OF TBT. A. THE OBJECTIVES FOR THE ESC ACT ARE NOT LEGITIMATE IN THE CONTEXT OF AR . 2.2 OF THE TBT. B. THE ESC ACT FULFILS THE NECESSITY R EQUIREMENT UNDER AR . 2.2 OF THE TBT.
IV. V.
THE ENVIRONMENT AND SECURITY OF CHILDREN ACT IS INVALID UNDER AR. XI OF GATT. MEASURE TAKEN BY ZWOVKA DOES NOT FALL UNDER ARTICLE XX(B) OF THE GATT A. THE MEASURE TAKEN IS NOT ‘NECESSARY ’ TO PROTECT PUBLIC HEALTH. B. THE MEASURE TAKEN BY ZWOVKA DOES NOT FULFIL THE INGREDIENTS OF THE CHAPEAU.
VI.
SECTION 3 OF THE ESC ACT NOT INCORPORATED FOR PROTECTION OF NATIONAL SECURITY.
ix
SUMMARY OF ARGUMENTS ARGUMENT 1:
The ESC Act enacted by the State of Zwovka is in violation of Ar. III:4 of GATT and Ar. 2.1 because of three reasons. First, Section 2 of the Act is a technical regulation according to Annex 1.1 of Act because it identifies a particular product, it defines certain product characteristics and compliance with the products is mandatory. Further, Section 3 of the act is a technical regulation since the measure has to be studied as whole to understand the legal character of the measure. Therefore, the TBT agreement is applicable to the ESC Act. Second, the products mentioned in Section 1 of the Act and the domestically manufactured dolls are „like‟ products. Third, the measure is detrimental to imported products in comparison with „like‟ domestic products. Further, the detrimental impact is not due to a legitimate regulatory distinction. Therefore, the measure accords „less favourable‟ treatment in comparison with „like‟ domestic product. Hence, the measure violates the national treatment principle in the context of Ar. III:4 of GATT and Ar. 2.1 of the TBT. ARGUMENT 2
The ESC Act is in violation of Ar. 2.2 of the TBT because of two reasons. First, the objectives for the technical regulation are not „legitimate objectives‟ according to Ar. 2.2 of the agreement. The actual objectives of the agreement are protectionism and disguised restriction to trade. Second, the technical regulation is not necessary for the achievement of its objectives if it is accepted by the panel that the objectives of the technical regulation are „legitimate‟. Further, reasonably available alternate measures exist which are capable of achieving the degree of contribution equivalent to Section 2 and 3 of the Act. Therefore, the contentious measure is a violation of Ar. 2.2 of the TBT agreement because the two requirements of the Article are not fulfilled. ARGUMENT 3
x
The ESC Act is in violation of Article XI of the GATT because, the vary basic aims of the GATT is to prohibit parties from engaging in non-tariff restrictions. Article XI of the GATT forbids any quantitative restrictions or prohibitions the importation of a product originating within the borders of another contracting party. Several panels and appellate bodies have found an import ban as inconsistent with Article XI. Enroda further contends that Section 2 of the ESC Act, which places a restriction on importation, is also in violation of Article XI of the GATT. It is contended that the scope of Article XI is broad and deals with any issue concerning importation. ARGUMENT 4
Zwovka is not justified under XX of the GATT in incorporating Section 2 of the ESC Act. There are three elements which have to be considered for a measure to fall under this Section. The fact that the Section is applicable only to imported products and domestic producers are free to produce toys without any restriction on lead content, means that the measure is not being applied for protection of public health, but for the protection of domestic industry. Second, it has to be proven that such a measure was „necessary‟. There needs to be weighing and balancing to determine whether or not it is necessary. It has to not only be shown that the measure was making a contribution to the intended objectives, but also that the measure is almost „indispensable‟. The very fact that the provision is inapplicable to domestic producers indicates that the measure is not necessary. The next criterion to be proven under Article XX is that the provision must be in accordance with the chapeau. The chapeau la ys down conditions that the measure must not be arbitrary, indispensable or a disguised restriction on trade. The provision, which influences international trade, is being imposed without any consolation. Panels and appellate bodies in the past have decried unilateral decisions in the past as it does not play a very healthy role in International Trade Law. Article XX, moreover not only protects discriminatory measures when it affects the trade interests of two exporting or importing countries, but also the interests when discrimination is faced by an importing country against a domestic country.
xi
The measure is arbitrary as the measure is very rigid and inflexible and leaves very little room for negotiations. Moreover, members are also expected to also allow for differential treatment when countries are in different situations. Enroda and other such lesser developed countries have to be set standards lower than it is set in ordinary cases. ARGUMENT 5
Section 3 of the ESC Act seeks to protect the national security of the country. There is nothing which indicates that there was any conflict that existed between the countries prior to the passing of the Act. Moreover, it cannot be that the situation is emergency in international relations. Interpretation of the Vienna Convention on the Law of Traeties indicates that the power of discretion cannot go unquestioned. Also Section 3 of the Act is redundant if the purpose of the statute is to children from dangers connected with lead intake, as both Section and Section 3 serve the same purpose. Moreover, Section 3 of the ESC Act not only toys which contain lead, but all toys defined in Section 1 of the Act. This indicates that the measure
is
unreasonable
xii
and
unjustified.
ARGUMENTS ADVANCED
The State of Enroda will be submitting arguments on various issues. The first two issues which will be taken into consideration will be regarding Article III:4 of GATT and the TBT agreement. The first and second section will deal with Ar. III:4 of GATT and Ar. 2.1 of the TBT because both provisions are similar in nature since both deal with the national treatment principle.1 The first section is regarding the applicability of Ar. III:4 and 2.1 to the Act. Whereas, the second section will deal with like product analysis and less favourable treatment principle if the panel rejects the arguments submitted in the first section The third section will deal with Ar. 2.2 of the TBT agreement. The fourth section will deal with Ar. XI and Ar. XX. The final section will look into the exceptions under XXI. I.
THE LEGISLATION PASSED BY ZWOVKA IS NOT IN ACCORDANCE WITH ARTICLE III OF THE GATT AND ARTICLE 2.1 OF TBT
Article III of the GATT, based on the principle of non-discrimination is considered to be one of the building blocks of the WTO legal order. 2 It is on a footing with the Most Favoured Nation principle requiring the treatment of Member‟s goods on an equal footing with domestic goods. The broad purpose of Article III is to avoid protectionism and differential treatment in favour of domestic products.3 Article III applies to internal taxes, laws, regulations and development. 4 Paragraph 1 provides the general principle for not only internal taxes, but also internal legislation and regulation. 5 Paragraph 2 talks about internal taxes and other internal charges, while paragraph 4 discusses internal laws, regulations and other requirements.6 Ar. III:4 of GATT contains the following key elements. There must be (1) a law, regulation or requirement (2) affecting the internal sale, purchase, transportation, distribution or use of imported products that (3) accords „less favourable‟ treatment to imported domestic products than to (4) „like‟ domestic products. 7 Zwovka, in this case passed a legislation which affects Enroda in two ways. First, Section 3 of the Act bans the import of toys from Enroda for at least a period of 12 months. 8 These toys, mentioned in Section 1 of the Act are exported by Enroda only to Zwovka. Second, even if the ban is lifted after a period of 12 months, Enroda contends that even such a 1
et. al., MAX PLANCK INSTITUTE FOR COMPARATIVE PUBLIC LAW AND INT‟L LAW, WTO vol. 3, 2007). 2 MAX PLANCK , supra note 1, at 5. 3 id. 4 MAX PLANCK , supra note 1, at 9. 5 nd RAJ BHALA , INTERNATIONAL TRADE LAW: THEORY AND PRACTICE 4 (2 ed., 2001).. 6 R AJ BHALA, supra note 5, at 11. 7 SIMON LESTOR et al., WORLD TRADE LAW: TEXT, MATERIALS AND commentary 299 (2008) 8 Compromis, ¶ 15. RUDIGER WOLFRUM
TECHNICAL BARRIERS AND SPS MEASURES 214 (
1
measure is discriminatory. This is because of the fact that Zwovka imposes a restriction of 100ppm lead content in toys mentioned in Section 1 for imported products while domestic manufacture of „like‟ products which contain 300ppm lead content continues without restrictions.9 Enroda contends that the second measure is in violation of Article III:4. The issue of interest here is the 100ppm rule imposed on all toys referred to in Section 1 of the Act. This measure affects Enroda in several ways. Firstly, it allows the sale of domestic goods irrespective of their lead content, whereas in case of imported goods, it allows the sale of such goods only if its lead content is below 100ppm. This move by Zwovka leads to a drastic reduction of commercial opportunity for imported products by placing a higher standard on lead content hence, affecting the sale of the products. Therefore, it is submitted that section 2 of the ESC act falls under Article III:4 . Though there is nothing directly in the legislation itself that suggests unequal treatment, panels in the past have held that Article III not only covers direct discrimination, but indirect discrimination as well. 10 The meaning of the word „affecting‟ in the phrase “affecting internal sale…” 11 becomes extremely important for interpreting Ar. III:4. 12 According to the panel, the drafters of this Article intended to cover in paragraph 4 not only the laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify the conditions of competition between like domestic and imported products in the internal market to the detriment of imported products. 13 It is submitted that section 2 of the ESC act is an indirect measure which negatively affects the sale of goods imported from Enroda in the Zwovkan market. Hence, such a measure is discriminatory in nature. The next contention is regarding Ar. 2.1 of the TBT. There are three requirements that need to be fulfilled for a violation under Article 2.1 of the TBT. 14 First, the concerned measure must be a technical regulation. Second, the contentious domestic and imported products must be „like‟ products. Finally, the imported products must be accorded less
9
Id. Report of Panel, Italian Discrimination against Imported Agricultural Machinery, ¶ 11, L/833 - 7S/60 (July 15, 1958), [hereinafter Italian – Agricultural Machinery]. 11 Ar. III:4, GATT. 12 Italian Discrimination - Agricultural Machinery, supra note 10 at ¶ 12.1958. 13 Id. 14 Appellate Body Report, United States – Measures Concerning The Importation, Marketing And Sale Of Tuna And Tuna Products, ¶ 202, WT/DS381/AB/R (May 16, 2012) [hereinafter, US – Tuna]; Appellate Body Report, United States – Measures Affecting The Production And Sale Of Clove Cigarette, ¶ 87, WT/DS406/AB/R (April 4, 2012) [hereinafter US – Clove Cigarettes] 10
2
favourable treatment in comparison with like domestic products or imported products from other countries.15 A. ENVIRONMENT & SECURITY OF CHILDREN ACT IS A TECHNICAL REGULATION UNDER ANNEX 1.1.
The definition of a technical regulation is provided under Annex 1.1. of the TBT. 16 There are three requirements for a document to be considered a technical regulation. 17 These are that the product or group of products must be identifiable, the document in question must lay down certain product characteristics and compliance with the laid down product characteristics must be mandatory.18 The appellate body explained the meaning of the word “characteristic” in the second requirement by stating that the ““characteristics” of a product include... any objectively definable “features”, “qualities”, “attributes”, or other “distinguishing mark” ”.19 It further stated that “characteristics” included the product composition, the size, the shape, hardness, flammability etc. and “product characteristics” included qualities or features intrinsic to the product as well as “means of identification, presentation and appearance of the product”.20 The appellate body has also held that the product characteristics can be prescribed in a positive or negative form.21 Finally, the appellate body held that it is sufficient for a technical regulation to only lay down one product characteristic.22 The appellate body has also held in EC – Asbestos that the legal character of the “measure at issue” can only be determined if the “measure is examined as a whole”. 23 In EC – Sardines this decision has been reaffirmed by the appellate body. 24 `
The measure in question is the Environment & Security of Children Act 2012.25 First,
it is submitted that the legislation should be examined as a whole in light of the judgements of appellate body in EC – Asbestos and EC – Sardines as highlighted above.
15
US – Tuna, supra note 14 at ¶ 202; US – Clove Cigarettes, supra note 14 at ¶ 87. Technical Barriers to Trade, Annex 1.1; Appellate Body Report, EC – Measures Affecting Asbestos And Asbestos-Containing Products, ¶ 66, WT/DS135/AB/R (March 12, 2001) [hereinafter EC – Asbestos] 17 TBT, Annex 1.1 and Art.1; Appellate Body Report, EC – Trade Description of Sardines, ¶ 176, WT/DS231/AB/R (Sept. 26, 2001) [ hereinafter EC – Sardines]. 18 EC – Sardines, supra note 17, at ¶ 176. 19 EC – Asbestos, supra note 16, at ¶ 67. 20 Id. 21 EC – Sardines, supra note 17, at ¶ 176. 22 Id. 23 EC – Asbestos, supra 16, at ¶ 64. 2424 EC – Sardines, supra note 17, at ¶ 192s. 25 Compromis, ¶ 5. 16
3
It is also submitted that the measure is a technical regulation according to the definition of technical regulations under Annex 1.1. of the TBT. As explained above, there are three requirements for a document to be qualified as a technical regulation and the ESC Act fulfils these requirements. The first requirement is that the product must be identifiable. 26 According to section 1 of the ESC Act, the products which are regulated are “tricycles, scooters, pedal cars and similar wheeled toys”.27 Therefore, the products are clearly identifiable hence the first requirement is fulfilled. The second requirement is that the document must prescribe at least one product characteristic.28 This condition is also fulfilled because according to section 2 of the act, the toys identified in section 1 must not have a lead content of less than a 100ppm. The product characteristic has been prescribed by the act in a negative form and it has been held by the appellate body in EC – Sardines those product characteristics can be laid down in a negative form.29 Therefore, the legislation fulfils the second requirement as well by laying down a product characteristic. The final requirement is that compliance with product characteristics which are laid down must be mandatory. 30 This condition is also fulfilled because the import of all toys specified in section 1 of the act are prohibited if the lead content is more than 100ppm or if the toys do not conform to the technical standard s et by Zwovka. Therefore, it is submitted that the ESC Act is a technical regulation in accordance with Annex 1.1 of the TBT agreement. B. THE LEGISLATION PASSED BY ZWOVKA IS PROTECTIONIST IN NATURE
The purpose of Article III is to ensure there is no protectionism provided in the application of internal taxes, restrictions and regulations.31 A measure is to be viewed in the light of the competitive relationship between the domestic and the imported products. 32 If a measure taken by one of the members suggests that the competitive relationship is compromised in favour of domestic products, such a measure can be termed as protectionist in nature.33 There are a couple of ways by which members of the WTO tend to discriminate against imported goods in favour of domestic goods; one is de jure discrimination, wherein the discrimination is explicit and can be inferred from reading the text of the law that it 26
Article 1 and Annex 1 TBT, p. 187; EC – Sardines, supra note 17, ¶ 176. Compromis, ¶ 15. 28 EC – Sardines, supra note 17, ¶ 176. 29 Id. 30 Id. 31 R AJ BHALA, supra note 5, at 59. 32 MAX PLANK , supra note 1, at 6. 33 Id. 27
4
discriminates and the second method of discrimination is de facto discrimination wherein on the face of it the measure doesn‟t look discriminatory, but on reviewing facts relating to its discrimination it becomes obvious that there is discrimination. 34 Panels in the past have held that the term “to avoid protectionism” must not be understood in the traditional sense of the word. 35 This means that it is irrelevant whether the intent or aim or any of the motivating reasons of the legislator or regulator was the desire to engage in protectionism, and therefore unnecessary to sort through the expressions of such legislative intent.36 This statement is reflective of the objective test used today which does not look at the intent of the legislator, but instead infers from the legislation the intent of legislation.37 Based on the above, it is submitted by Enroda that the measure taken by Zwovka is discriminatory. The legislation passed by Zwovka explicitly discriminates between domestic and imported goods. It is a case where a more burdensome law is imposed for imported goods. 38 Enroda exports 5 million toys mentioned in section 1 of the ESC act every year to Zwovka. 39 These toys moreover, are exported only to Zwovka. 40 It is submitted that placing higher standards on imported toys lead to reduction of imports from Endroda which provides protection to the domestic toy industry in Zwovka since there are no restrictions placed on „like‟ domestic products. Moreover, it is evident from the measure that Zwovka isn‟t serious about its intentions for the measure, which is the protection human health because the measure applies to only toys referred to in Section 1 of the Act. This means that toys of any other kind can be exported to Zwovka without any difficulties, irrespective of the lead content. Enroda submits that the measure is a disguised restriction on trade.
C. ARTICLE 2.1 OF THE TBT IS TO BE INTERPRETED WITH THE PREAMBLE :
The next issue is regarding the inclusion of the Preamble of the TBT while interpreting Ar. 2.1 of the agreement. According to the appellate body in US – Clove cigarettes, the preamble has a very important function of explaining the “object and purpose” of the 34
PETER VAN DEN BOSSCHE ,THE LAW AND POLICY OF WORLD TRADE ORGANIZATION: TEXT, CASES AND MATERIALS 371 (2005). 35 MAX PLANCK , supra note 1, at 25. 36 Id. 37 Id. 38 R OBERT E. HUDEC GATT/WTO CONSTRAINTS O N NATIONAL R EGULATIONS: R EQUIEM FOR AN AIM AND EFFECTS TEST 4. 39 Compromis, ¶ 9. 40 Id.
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agreement and it has to be taken into accounts while interpreting Ar. 2.1. 41 The appellate body was of the opinion that the fifth and sixth recital of the preamble creates a balance between trade liberalization and a member‟s right to regulatory autonomy.42 The fifth recital of the Preamble states that one of the objectives of the TBT agreement is to ensure that the technical regulation, standards and conformity assessment procedures do not lead to any unnecessary obstacles to trade. 43 Therefore, the fifth recital attempts to maximise international trade and restricting a member‟s regulatory autonomy. 44 On other hand, the sixth recital provides the balancing effect by recognising a member‟s right to regulate for pursuing a legitimate objective such as protection of public health and national security.45 The sixth recital puts forward two guidelines. The first guideline is that it recognises a member‟s right to regulate and states that this right should not be restricted. 46 The second guideline places a condition on the first guideline. It states that a member‟s right to regulate cannot be restrained if it is necessary to pursue a legitimate objective and it does not lead to arbitrary or unjustifiable discrimination or the regulation is a disguised restriction to trade.47 The next point that needs to be taken into is that there is no provision such as Ar. XX in the TBT or there is no separate provision for exceptions. 48 Therefore, unlike the GATT agreement, the TBT places social values such protection of human health on an equal level as the free trade obligation49 and this is reflected in the sixth recital of the Preamble which states that no country can be prevented from applying measures for the protection of human life, health, environment etc.50 Therefore, it is submitted that the TBT agreement does not have any substantive provision for exceptions but the Preamble of the agreement which ensures a member‟s right to regulate for the purpose of achieving the objectives provided in the sixth recital of the Preamble. The second aspect of the sixth recital is that the technical regulations should be applied in a manner which does not lead to “arbitrary or unjustifiable discrimination between 41
US – Clove Cigarettes, supra note 14, at ¶ 89. Id. at ¶ 96 43 TBT, Preamble, Fifth Recital; US – Clove Cigarettes, supra note 14, ¶ 92. 44 US – Clove Cigarettes, supra note 14, at ¶ 93. 45 See Id. at ¶ 95. 46 See Id. at ¶ 95. 47 Id. 48 See Id. at ¶ 101. 49 MICHEAL MING DU, DOMESTIC R EGULATORY AUTONOMY UNDER THE TBT AGREEMENT : FROM NON DISCRIMINATION TO HARMONIZATION 280 (2007) 50 Id.; TBT, Preamble, Sixth Rectial. 42
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countries where the same conditions prevail or as a disguised restriction to international trade”51 and “are otherwise in accordance with the provisions of the TBT.” 52 After interpreting Ar. 2.1 in the context of the sixth recital, the appellate body in US – Clove cigarettes held that a technical regulation does not violate Ar. 2.1 of the TBT if the technical regulation is pursuing one of the objectives mentioned in the recital, is not applied in a manner which leads to “arbitrary or unjustifiable discrimination or a disguised restriction to international trade” and the technical regulation is not in violation of any other provision of the TBT agreement. 53 Finally, the appellate body concluded by stating that “detrimental impact on competitive opportunities for imports” due to a legitimate regulatory distinction does not lead to a violation of Ar. 2.1 of the TBT. 54 In US – COOL legitimate regulatory distinction was discussed; it was held that legitimacy of a regulatory distinction can be discerned by ascertaining whether the measure is even handed in design and application.55 Further, it was added that a regulatory distinction is illegitimate if the measure is applied in a “manner that constitutes arbitrary or unjustifiable discrimination” because the measure is not designed and applied in an even handed manner. 56 This issue will be analysed in detail when „less favourable treatment‟ to impor ted products in comparison with „like‟ domestic products is ascertained. II.
ENRODA CONTENDS THAT IMPORTED TOYS ARE ACCORDED ‘LESS FAVOURABLE’
TREATMENT IN COMPARISON TO ‘LIKE’ DOMESTIC PRODUCTS
Enroda submits the two products in question are „like‟. It also believes that imported products are treated „less favourably‟ than like domestic products. A. THE TOYS MENTIONED IN SECTION 1 OF THE ESC ACT AND THE DOLLS PRODUCED IN ZWOVKA ARE ‘LIKE PRODUCTS ’.
One of the main requirements for a measure to be in violation of Ar. III:4 of GATT and Ar. 2.1 of the TBT is that the concerned goods have to be “like” products in the context of
51
TBT, Preamble, Sixth Rectial; C HARLES VERILL MAXIMUM CARBON I NTENSITY LIMITATIONS AND THE AGREEMENT ON TECHNICAL BARRIERS TO TRADE 45 (2008). 52 TBT, Preamble, Sixth Rectial; US – Clove Cigarettes, supra note 14, at ¶173. 53 US – Clove Cigarettes, supra note 14, at ¶ 173. 54 US – Clove Cigarettes, supra note 14, at ¶ 174. 55 Appellate Body Report, US – Certain Country Of Origin Labeling (COOL) Requirements, ¶ 271, WT/DS384/AB/R, WT/DS386/AB/R (June 29,2012) [hereinafter US – COOL]. 56 Id.
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Ar. III:457 and Ar. 2.1. 58 The first requirement for a measure to be in violation of Ar. III:4 and the second requirement for a technical regulation to be in violation of Ar. 2.1 of the TBT is that the contentious goods should be “like products”. It is submitted that the contentious goods are the toys mentioned in section 1 of the ESC act and the dolls domestically manufactured by Zwovka. It is also submitted that the contentious products are “like products” in the context of Ar. III:4 of GATT and Ar. 2.1 of the TBT agreement. 1.
THE CHARACTERISTICS OF THE PRODUCTS INDICATE THEY ARE ‘LIKE’.
The term „like products‟, used in paragraphs 2 and 4 of Article III has been an issue of much debate. The debate has surrounded around the usage of the term „like‟ and whether its meaning remains constant or not. The general policy of paragraphs 2 and 4 is based on the principle laid down in Article III:1 i.e., governments should not use “internal” measures in such a manner so as to give protection to domestic industry. 59 It is based on this general principle that the rule of less favourable treatment” has developed.60 According to this rule, “no less favourable treatment” should be accorded to imported products in comparison with “like” domestic products.61 Article III:2 uses the term „like products‟ along with the term “directly competitive products”, whereas paragraph 4 uses only the former. 62 The question is whether the meaning of “like” changes in accordance with the context in which it is used and thus, does the term need to be interpreted differently for different paragraphs of Ar. III. The appellate body in EC-Asbestos was of the view that the term „like‟ used in paragraph 4 has a broader scope than in paragraph 2. 63 However, the combined scope of „like products‟ and „directly competitive products‟ in Article III:2 is broader than that of Article III:4.64 This is because the term „directly competitive’ , used in paragraph 2 also includes a range of products that are not like.65 According to scholars, if the term „like products‟ is given the same meaning in paragraph 4 as it is given in paragraph 2, it would become too narrow, it is for this reason that it has a broader definition in Article III:4. 66
57
SIMON LESTOR supra note 7, at 299. US – Clove Cigarettes, supra note 14, at 87. 59 R OBERT E. HUDEC „LIKE PRODUCTS‟: THE DIFFERENCE I N MEANING I N GATT ARTICLE I AND III 4 (2000). 60 Id. 61 Id. 62 Id . 63 EC – Asbestos, supra note 16, at 94 64 Id. 65 R OBERT E. HUDEC, supra note 59, at 6. 66 Id. 58
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The appellate body in US – Clove cigarettes has held that for the purpose of determining „likeness‟ between two products or group of products under Ar. 2.1 of the TBT and III:4 of GATT, the “nature and extent of the competitive relationship” between the contentious products has to be examined.67 The reasoning provided by the appellate body for determining likeness through the competition oriented perspective is that only those set of products which are in a competitive relationship are affected by any measure according less favourable treatment to imported products in comparison with domestic products. 68 Hence, the determination of likeness under Article III(4) of GATT and Article 2.1 of the TBT is basically the determination of the “nature and extent of the competitive relationship” between the imported and domestic goods. 69 The determination of „likeness‟ of productsin the context of Ar. III:4 of GATT and Ar. 2.1 of the TBT has generally been based on the guidelines laid down by the report of the working party on BORDER TAX ADJUSTMENTS. 70 Several panels71 have followed the four point guideline laid down by the body. The four point guidelines include 72 (1) The properties, nature and quality of the products, (2) The end uses of the products, (3) Consumer Tastes and Habits (4)Tariff Classification. First, looking at the physical characteristics, it can be established from the facts of the case that the products in question are toys containing lead paint. 73 Moreover, both the category of toys is aimed at a similar market. In other words the market overlaps. In EC Asbestos, the appellate body considered carcinogenicity in deciding whether or not the products in question were like products.74 Both, imported toys and domestically manufactured dolls contain over 100 ppm of lead. The dolls produced in Zwovka have a lead content of 300 ppm. Whereas in the case of toys from Enroda, according to 10 sample consignments examined, the lead content for 30% of toys is 600 ppm, while the rest of the toys have a lead content between 150 and 300 ppm. 75 Both sets of toys fall above the standards set by ISO 76 and the US Government, 77 indicating that both are dangerous. Both of
67
US – Clove Cigarettes, supra note 14, at 120. EC – Asbestos, supra note 16, at 99. 69 Id. 70 EC – Asbestos, supra note 16, at 101. 71 Id. 72 Id. 73 Compromis, ¶ 3. 74 EC – Asbestos, supra note 16, at 103. 75 Id. 76 §101, CPSC Act. 68
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them can cause permanent cognitive neuropsychological manifestations, especially in children.78 Thus, from the perspective of health concerns arising from lead content in toys, the two products are „like‟. Hence, on the basis of the above arguments, it is submitted that both the toys of Zwovka and Enroda are like products. 2.
ENRODA IS OF THE VIEW THAT THE TOYS IN QUESTION ARE SUBSTITUTABLE
.
The next criterion to be looked at is the end uses of the product. According to panel in EC- Asbestos, it is to be interpreted as the „extent to which products are capable of serving same or similar end u ses’.79 The toys of both the countries have a very similar market whichis children of an age group of 3 - 8. 80 Though the Zwovkan dolls are also purchased by adults as collectibles, it is popular among them only to a limited extent. 81 It is submitted that the dolls/action figures and the products mentioned in section 1 of the ESC act are capable of serving same or similar end use which is of being used as toys by children. The panel in the Japan-Alcoholic Beverages82, was of the view that the most important criterion for determining „like products‟ was to look at end uses as determined by elasticity of substitution.83 Elasticity of Substitution is defined as the degree to which the number of products sold changes when the price of another similar product change, which shows to what degree the two products, can replace one another. 84 It has been held by the panel in the case of Japan-Alcoholic Beverages that 10% substitutability is enough to demonstrate substitution effect or the products have similar or same end uses. The target market is the same in this case. The fact that the children are the target market indicates in both cases as well as the fact that they fall under the same Harmonized System number 85 indicates that the end uses are the same as well, i.e. as toys. Moreover, this also demonstrates that the products are substitutes according to the conditions laid down in Japan-Alcohol case. In the light of the above arguments, it is submitted that the products have similar end uses.
77
LEO PAPER GROUP, HEAVY METALS A ND PHTHALATES COMPLIANCE CONTROL 18 (2011). Shilu Tong et al., Environmental Lead Exposure: A Public Problem Of Global Dimensions , Bulletin of the World Health Organization, 2000, 78 (9). 1068-1070 (2000). 79 EC – Asbestos, supra note 16, at ¶ 101. 80 Compromis, ¶ 2,9. 81 Compromis, ¶ 2. 82 Panel Report, Japan- Taxes on Alcoholic Beverages,¶ 6.22 WT/DS8/R, WT/DS10/R, WT/DS11/R, (July 11, 1996). 83 Id. 84 Cambridge Business English Dictionary.http://dictionary.cambridge.org/dictionary/business-english/elasticityof-substitution. (Last Visited Dec. 29, 2012). 85 World Customs Organization[ WCO], Harmonised System Nomenclature, WCO Doc. 2095-2012E (January 1, 2012). 78
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The next aspect to be examined is consumer tastes and habits. This is essentially an extension of the first two aspects. The appellate body in EC – Asbestos and US – Clove cigarettes has held that consumer tastes and habits refer to “the extent to which consumers are willing to use the products to perform these functions.” 86 The meaning of “these functions” refers to the similar end – uses which have been discussed above. The appellate panel in the EC-Asbestos87 case was of the view that carcinogenicity was a factor in not only determining physical characteristics, but it affected consumer choice as well. In this case, the lead content in imported products and domestically produced dolls is above 100 ppm. Therefore, it is submitted that there will be no differentiation between the imported toys and the dolls regarding consumer preference because both are equally capable of affecting the health of the consumer. Secondly, panels 88 have held that the aspect of substitutability of products must be looked from the perspective of consumers as well. The primary target market in both countries is young children, for whom both sets of toys have similar utility and function, hence are substitutable. Thus, on the basis of the above arguments, it is submitted that the two sets of toys are „like products‟ according to consumer tastes and habits. The harmonised system code is a set of codes created for the purpose of facilitating trade and thereby reducing costs. 89 Over 5000 products are under the code and the products are arranged in a logical and legal structure. 90 In this case, the toys of both countries fall under the same HSN heading, i.e., 9503.00. This indicates that they will be considered „like products‟ for the purpose of tariff classification. Thus, it is submitted by Enroda, in the light of the above arguments, that the panel holds the toys in question are „like products‟. B. APPLICATION SECTION 2 OF THE ACT LEAD TO IMPORTED GOODS BEING TREATED ‘LESS
FAVOURABLY ’ THAN ‘LIKE’ DOMESTIC GOODS.
86
US – Clove Cigarettes, supra note 14, at ¶125; EC – Asbestos, supra note 16, at 117. EC – Asbestos, supra note 16, at 119. 88 Appellate Body Report, Phillipines- Taxes on Distilled Spirits, ¶ 148, WT/DS396/AB/R, WT/DS403/AB/R, (Dec. 20, 2011). 89 World Customs Organization, http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-theharmonized-system.aspx (Last visited Dec. 20th 2012). 90 Id. 87
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The phrase „no less favourable‟ treatment means “according conditions of competition no less favourable to the imported product than to the like domestic product”. 91 Moreover, it has been held that it is not necessary to show that trade was affected by that particular measure.92 1.
THE MEASURE ACCORDED TO ENRODA AMOUNTS TO DETRIMENTAL TREATMENT
Under Ar. 2.1 the final requirement establishing a violation is that the imported products must be accorded “less favourable treatment” in comparison with “like” domestic products. 93 It has been held by the appellate body in US – clove cigarettes that the TBT agreement is a different agreement and the requirements of “less favourable treatment” will vary between Ar. 2.1 of the TBT and Ar. III:4 of the GATT but previous decisions on “t reatment no less favourable” under Ar. III:4 have to be taken into consideration. 94 It has been held by the appellate body that the difference between Ar. 2.1 of the TBT and Ar. III:4 of GATT is that in Ar. 2.1 the measure which causes the less favourable treatment is a technical regulation. 95 For determining “less favourable treatment” the appellate body in Korea – Various Measures on Beef in the context of Ar. III:4 of GATT has held that “less favourable treatment” should be determined by analysing the effect of the measure on the “conditions of competition” in the relevant market.96 Further, the appellate body has also held that the modification in the “conditions of competition” should be detrimental to imported products in comparison with “like” domestic products.97 Further, in context of the Ar. 2.1 of the TBT agreement, it has been held by the appellate body in US - CERTAIN COUNTRY OF ORIGIN LABELLING (COOL) REQUIREMENTS and other appellate body judgements that if a technical regulation has a detrimental impact on imported products but the detrimental impact is a result of a legitimate regulatory distinction then the technical regulation will not be considered to be in violation of Ar. 2.1. 98 The meaning of “legitimate regulatory distinction” was clarified in US – COOL as well. 99 It was held that a regulatory distinction needs to be “designed and applied in an even handed
91
Appellate Body Report, Korea – Measures Affecting Imports Of Fresh, Chilled and Frozen Beef, ¶ 135, WT/DS161/AB/R, WT/DS169/AB/R (Dec. 11, 2000) [hereinafter Korea – Beef ]; Panel Report, India – Measures affecting the Automotive Sector, ¶ 7.199, WT/DS146/R, WT/DS175/R (Dec. 21, 2001) [hereinafter India – Autos Panel Report ]. 92 Korea – Beef, supra note 91, at ¶ 136; EC – Asbestos, supra note 16, at ¶ 100. 93 US – Tuna, supra note 14, at ¶ 202; US – Clove Cigarettes, supra note 14, at ¶ 87. 94 US – Clove Cigarettes, supra note 14, at ¶ 180. 95 id . 96 Korea – Beef, supra note 91, at ¶ 137. 97 id. 98 US – Clove Cigarettes, supra note 14, at ¶ 182; US – COOL, supra note 55, at ¶ 271. 99 US – COOL, supra note 55, at ¶ 271.
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manner to be legitimate”.100 Hence, if a measure leads to unjustified or arbitrary discrimination then it cannot be considered as “legitimate”. 101 In US – Clove cigarettes it has been held that to decide on the issue of legitimate regulatory distinction, the panel must determine whether the technical regulation discriminates against imported products by examining the „design, structure, application of the technical regulation etc.‟ and the panel must ensure that technical regulation is even handed and justified. 102 In conclusion, it is submitted that for establishing “less favourable” treatment to imported products in comparison with domestic products under Ar. 2.1 of the TBT two requirements need to be fulfilled. The requirements are that the technical regulation or measure should have a detrimental impact on imports in comparison with “like” domestic products and it should discriminate against the imported product. The measure at issue is the ESC act which places a limit on the lead content in toys enumerated in section 1 of the act and bans the aforementioned toys from Enroda for a period of twelve months. 103 The state of Zwovka on the other hand has placed no restrictions on the lead content of the dolls manufactured in Zwovka which as submitted earlier are „like‟ the toys specified in Section 1 of the Act. It is submitted that in the light of the above mentioned evidence, the technical regulation limits the accessibility of the products imported from Enroda into the Zwovkan market in comparison with domestically produced dolls because toys imported from Enroda are banned for 12 months and a higher standard on lead content is placed on imported toys. Therefore, it is submitted that the measure has a detrimental impact on products imported from Enroda in comparison with dolls manufactured by Zwovka. 2.
ZWOVKA’S MEASURE DOES NOT CONSTITUTE LEGITIMATE REGULATORY BEHAVIOUR
The next submission is that the measure in question is not a legitimate regulatory distinction but is a reflection of discrimination against like products imported from Enroda. First, the regulatory distinction has to be determined. The ESC act deals with the limit on lead content for imported toys from any country and banning of the toys given in section 1 of the act from Enroda. It is submitted relevant regulatory distinctions is the limit on the lead of toys only for imported toys and banning of the toys only from Enroda.
100
id . id . 102 US – Clove Cigarettes, supra note 14, at ¶182. 103 Compromis, ¶ 15. 101
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The next issue is the determination of the legitimacy of the regulatory distinction. 104 It is submitted that the regulatory distinction is not legitimate because the most probable objective of section 2 of the act is the protection of human health by limiting the lead content in toys. The important aspect is that the limitation is only placed on imported goods even though the „like‟ products which have a lead content of 300 ppm are manufactured domestically. 105 Therefore, it is submitted that the technical regulation is not even handed and it discriminates against products imported from Enroda because the restriction is only placed on imported products and for proper fulfilment of the objective of protection of public health, equivalent restrictions should be placed on both imported products and „like‟ products. In light of the above mentioned circumstances it is submitted that the ESC act modifies the competition to the detriment of imported products in comparison with domestically manufactured “like” products and the detriment is not a result of a legitimate regulatory distinction but it is reflection of the discrimination against products imported from Enroda. In conclusion, it is submitted that due to the detrimental effect faced by imported products and that such a measure does not constitute a legitimate restriction, it is submitted that imported goods are treated in a „less favourable‟ manner in comparison with domestic products in the context of Ar. 2.1 of the TBT. III.
ESC ACT IS IN VIOLATION OF ARTICLE 2.2 OF TBT
The next issue which is contended by Enroda is that the legislation violates Article 2.2 of the TBT agreement. There are two aspects of Article 2.2 which need to be taken into consideration. The first element is that technical regulations should not be “prepared, adop ted or applied”106 with an intention to create unnecessary obstacles to trade or the effect of the technical regulation should not lead to any unnecessary obstacle to trade. 107 Second, if the technical regulation restricts international trade then it should not be more than “necessary” to achieve a “legitimate objective”, taking account of the risks non – fulfilment would generate.108 A. THE OBJECTIVES FOR THE ESC ACT ARE NOT LEGITIMATE IN THE CONTEXT OF AR . 2.2 OF THE TBT. 104
US – Clove Cigarettes, supra note 14, at ¶182. Compromis, ¶ 3. 106 TBT, Article 2.2; US – COOL, supra note 55, at ¶ 369. 107 TBT, Article 2.2; US – COOL, supra note 55, at ¶ 369. 108 US – COOL, supra note 55, at ¶ 369. 105
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The first issue that must be taken into consideration is the definition or meaning of “legitimate objective”. The appellate body in US – Tuna II (Mexico) has held that a legitimate objective means a “target or aim which is lawful, justifiable or proper”. 109 Further, Ar. 2.2 provides a few examples of possible “legitimate objectives” such as public health, national security etc.110 It has been held by the appellate body in various decisions that the list of “legitimate objectives” is not an exhaustive list and it just acts as guide or “reference point” for determining possible legitimate objectives.111 It has also been held by the appellate body that while assessing the “legitimate objectives” for the measure, the panel is not bound by the member‟s characterization of the objective of the measure and the panel has to take into account all the relevant evidence such as the “legislative history and other evidence regarding the structure and operation of the measure”. 112 The first submission is regarding the objectives of the technical regulation in question. It is submitted that the objectives for the legislation are not „legitimate‟ under Ar. 2.2 because the objective of the legislation is to offer protection to domestic goods. The technical regulation leads to trade protectionism because the limit on the lead content in toys which according to Zwovka is for protecting the public health is only placed on imported goods and the state of Zwovka has not taken any similar measure for domestic products even though the „like‟ products manufactured by Zwovka contain 300 ppm of lead. 113 Therefore, it is submitted that the objective of the technical regulation is trade protectionism through a disguised restriction.
B. THE ESC ACT FULFILS THE NECESSITY R EQUIREMENT UNDER AR . 2.2 OF THE TBT
The next word which needs to be analysed is “fulfil” in the phrase "fulfil a necessary objective".114 According to the appellate body, the word fulfil stands for the "degree of contribution" made by the measure or technical regulation for the achievement of the "legitimate objective".115 The appellate body has also held thatthe member implementing the technical regulation is allowed to apply a technical regulation to achieve the legitimate objective according to the level considered to be appropriate by the member. 116The appellate 109
US – Tuna, supra note 14, at ¶ 313; US – COOL, supra note 55, at ¶ 370. TBT, Article 2.2. 111 US – Tuna, supra note 14, at ¶ 313, US – Tuna; US – COOL, supra note 55, at ¶ 370. 112 US – Tuna, supra note 14, at ¶.314, US – Tuna; US – COOL, supra note 55, at¶371. 113 Compromis, ¶ 3. 114 TBT, Art. 2.2. 115 US – Tuna, supra note 14, at ¶ 315; US – COOL, supra note 55, at ¶ 373. 116 US – Tuna, supra note 14, at ¶ 316, US - T una; US – COOL, supra note 55, at ¶ 373. 110
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body then held that to ascertain the level of contribution intended by the technical regulation for the achievement of the legitimate objective can be ascertained by analysing the "preparation, adoption and application of the technical regulation". 117 Finally, the appellate body held that by examining the design, structure and operation of the technical regulation it should be determined whether the technical regulation achieves the "level of contribution" it aims to achieve for the accomplishment of the "legitimate objective". 118 The next issue which needs to be considered for understanding Ar. 2.2 of the TBT is the concept of "necessity" in the context of Ar. 2.2. This concept has been used in this article in two instances.119 It is used in the phrase "unnecessary obstacles to international trade" and "not ... more trade restrictive than necessary". 120 It is submitted that for determining whether the measure at issue is necessary or not in the context of Ar. 2.2 three factors need to be considered and a "relational analysis" between the three factors should be undertaken.121 The three factors are: (1) The trade restrictiveness caused by the technical regulation. (2) The degree of contribution made by the technical regulation for the achievement of the legitimate objective. (3) The risks created if the legitimate objective is not fulfilled.122 Regarding trade restrictiveness, the appellate body has held that the meaning of measure being "trade restrictive" is the limiting effect that the measure has on trade. Further, it has also been held that trade restrictiveness is allowed to the extent it is required for the technical regulation to achieve the degree of contribution determined by the member for the accomplishment of the legitimate objective. 123 The next issue that needs to be discussed is the meaning of the phrase "the risks non fulfilment would create".124 According the appellate body in US - Tuna II the importance of the above mentioned phrase is that it suggests the comparison between the contentious measure and possible alternate measures.125 It was also held in the same case that the comparison should be made after taking into consideration the "nature of the risks at issue" and the "gravity of the consequences that would arise from the non - fulfilment of the
117
US – COOL, supra note 55, at ¶ 373. Id. 119 US – Tuna, supra note 14, at ¶ 318; US – COOL, supra note 55, at ¶ 374. 120 TBT, Art. 2.2; US – Tuna, supra note 14, at ¶318. 121 US – Tuna, supra note 14, at ¶ 318; US – COOL, supra note 55, at ¶ 374. 122 US – Tuna, supra note 14, at ¶ 318; US – COOL, supra note 55, at ¶ 374. 123 US – Tuna, supra note 14, at ¶ 319; US – COOL, supra note 55, at ¶ 375. 124 TBT, Art. 2.2. 125 US – Tuna, supra note 14, at ¶ 321. 118
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legitimate objective".126 Such a comparison will also help in determining whether the trade restrictiveness caused by the contentious measure is necessary.127 In conclusion it is submitted that for determining whether a "technical regulation is more trade restrictive than necessary" or for fulfilling the necessity requirement under Ar. 2.2 of the TBT, three factors need to be taken into account. The first factor is the "trade restrictiveness of the measure".128 Second, the "degree of contribution" the technical regulation makes for the achievement of the legitimate objective. 129 The final factor is "gravity of consequences" and the "nature of risks" involved if the objectives of the measure are not fulfilled.130 It is contended that the ESC act is in violation of Ar. 2.2 of the TBT because it is more trade restrictive than necessary for achieving the degree of contribution it aims to make towards the legitimate objective. If the objectives of Zwovka are considered legitimate then it is submitted that the technical regulation is more „trade restrictive than necessary for fulfilling the legitimate objective‟. On the basis of past events and the structure and design of the legislation it can be inferred that according to Zwovka the objectives of the ESC act is to protect public health and national security. For determining whether the measure is "more trade restrictive than necessary" there are three factors which need to be taken into consideration 131 as explained earlier. The first factor is that the technical regulation is trade restrictive; the measure at issue is trade restrictive because it places a higher standard for lead content in toys mentioned in section 1 of the Act for foreign producers than for domestic products according to section 2 of the legislation.132 Second, section 3 bans the import of the above mentioned products for at least a period of 12 months in Zwovka. 133 Therefore, in light of the above two reasons it is submitted that the legislation restricts access to toy producers from Enroda in the Zwovkan market and hence the technical regulation is trade restrictive in nature. The second factor is regarding the "degree of contribution" the technical regulation makes for achieving the "legitimate objective".134 It is submitted that there are alternate measures available which achieve equivalent "degree of contribution" when compared with the current 126
Id. Id. 128 US – Tuna, supra note 14, at ¶ 322. 129 Id. 130 Id. 131 US – Tuna, supra note 14, at ¶ 318; US – COOL, supra note 55, at ¶ 374. 132 Compromis, ¶ 15. 133 Id. 134 US – Tuna, supra note 14, at ¶ 318; US – COOL, supra note 55, at ¶ 374. 127
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measure and are less trade restrictive as well. An alternate measure is submitted instead of section 2 of the act, there are two parts to this measure. The first part is regarding a warning label on toys which have a lead content of more than 100 ppm. The label should contain the health risks involved with using toys with lead content above 100 ppm and it should also specify the lead content in the particular toy. The labelling can be similar to the warning labels for cigarettes which warn the consumer about the negative effects on health due to smoking. The second aspect of the measure is placing an upper limit of 300ppm of lead content on the imported toys which is the same for dolls manufactured domestically by Zwovka. The effect of the application of the measure will be that consumers will be reluctant to buy products which are labelled as dangerous and retailers will also be reluctant to sell products which have high lead content because of the fear of reduction in sales due to the label. Therefore, it is submitted that the alternate measure aims to achieve the "degree of contribution" to the legitimate objective of protecting public health similar to the current measure and it is less trade restrictive as well since it is more flexible. A possible legitimate objective for section 3 of the act is national security since it is given in the section that the section has been applied because of intelligence reports stating a threat to the national security of Zwovka. 135 It can be inferred that the threat to national security according to Zwovka from the OAZ is related to the lead content in toys by analysing past events and section 2 of the act. 136 It is submitted that a ban is unnecessary since a regulatory mechanism will be required for monitoring all import of toys mentioned in section 1 of the act or the lead content of the above mentioned toys will be verified for the proper application of the alternate measure by Zwovka, to ensure that toys above the administered lead content are not imported. Therefore Zwovka's national security objective can also be achieved by utilizing the alternate measure provided above since Zwovka will be required to put a regulatory mechanism in place to check the lead content of the imported toys. The third requirement is related to the nature of risks which are associated with non fulfilment of the legitimate objective.137 The alternate measure suggested above provides ver y little scope for risk since as explained above the customers and retailers will be reluctant to deal with products which have lead content above 100 ppm. Second, the upper limit on the
135
Compromis, ¶ 15, Id. 137 US – Tuna, supra note 14, at ¶ 318; US – COOL, supra note 55, at ¶ 374. 136
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lead content which is equivalent to the lead content in dolls manufactured in Zwovka will prevent exposure to lead content in toys higher than lead content prevalent in Zwovka. Second, the alternate measure will also ensure that the threat to national security is also minimized since all imports will be screened before importation by Zwovkan authorities to ensure that the imported goods fall under the limit of 300 ppm lead content. In light of the above reasons provided, it is submitted that the current measure is more trade restrictive than necessary to achieve the legitimate objectives under Ar. 2.2 of the TBT. IV.
THE ENVIRONMENT AND SECURITY OF CHILDREN ACT IS INVALID UNDER AR. XI OF GATT AS IT PLACES QUANTITATIVE RESTRICTIONS ON TOYS IMPORTED INTO ZWOVKA. The General Agreement on Trade and Tariffs prohibits all contracting parties from
engaging in non-tariff restrictions.138 Tariffs are the preferred mode of protection under the GATT system and non-tariff barriers are generally recognised to have detrimental effects. 139 Article XI:1 of the Agreement forbids any “ prohibitions or restrictions other than duties, taxes or other charges” on, inter alia, the importation of a product originating within the borders of any other contracting party.140 An outright ban on the importation of a product is prima facie inconsistent with Article XI:1 of the GATT, as it constitutes a non-tariff based prohibition. In Canada – Periodicals, the panel adjudged a ban on the import of a certain periodicals to be inconsistent with Article XI:1.141 Similarly, the panel in “The United States Manufacturing Clause”, found a prohibition on certain literary material manufactured outside the United States and Canada to be inconsistent with Article XI:1.142 Placing conditions upon products for their importation would also constitute a violation of Article XI:1 of the GATT, as they constitute restrictions not amounting to tariff barriers. The panel in Japan – Semi Conductors observed that the coverage of non-tariff barriers which are banned under the Article is „comprehensive‟, i.e. the Article applies to all such measures prohibiting or restricting such an importation. 143 The panel in India – Autos echoed the above case in suggesting that the wording of Article XI:1 indicates a broad scope for the
138
GATT, Art. XI:1. Panel Report, Turkey – Restrictions on Import of Textiles and Clothing Products , ¶ 9.63, 9.65, WT/DS34/R (May 31, 1999) 140 Id. 141 Panel Report, Canada – Certain Measures Concerning Periodicals, ¶ 5.5, WT/DS31/R (March 14, 1997) 142 Report of the Panel, The United States Manufacturing Clause, ¶ 34, L/5609 (March 1, 1984) - 31S/74. 143 Report of Panel, Japan – Trade in Semi-Conductors, ¶ 104, L/6309 (March 24, 1988) – 35S/116. 139
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measures prohibited under the Article. 144 The panel also stated that any restriction in connection with importation is proscribed under Article XI:1.145 The panel in EC – Fruits and Vegetables adjudicated on a measure that prohibited the importation of tomato concentrates below a certain price as constituting a violation of Article XI:1.146 Likewise, in US – Shrimp, the panel held that laying conditions on the method of fishing for imported shrimp is against Article XI:1.147 In the instant case, Section 3 of the ESC Act places an absolute and mandatory ban on all toys originating in Enroda for a period of time anticipated to be, but not limited to twelve months.148 The access of the toys of Enroda covered in the Act into Zwovkan markets is hence completely restricted due to the said Section, a measure that is violative of Article XI as demonstrated above. This is clearly a prohibition on toys from Enroda not amounting to a duty, tax or other charge, as envisaged in Article XI. It is submitted that there is a prima facie violation of Article XI of the GATT in Section 3 of the Act. Section 2 of the ESC Act prohibits the importation of the toys covered in the Act with a lead content of over 100 ppm. This effectively creates a ceiling for lead levels in toys; exceeding which no toy is allowed into the customs territory of Zwovka. There is hence created a restriction in connection with importation on toys specified in the Act. As evidenced above, the placing of a condition on the importation of a product falls contrary to article XI:1. It is hence submitted that Section 2 of the ESC Act is inconsistent with Article XI:1 of the Agreement. V.
THE MEASURE TAKEN BY ZWOVKA DOES NOT FALL UNDER ARTICLE XX(B) OF THE GATT
Article XX of the GATT contains general exceptions of the GATT. The measure is used when a member loses an argument under a particular measure or when it concedes a particular provision. 149 Article XX consists of two major parts: the exceptions, which are ten in number and the chapeau which seeks to ensure t hat a particular measure is not unjustifiable
144
India – Autos Panel Report, supra note 91, at ¶ 7.246. See id. at ¶ 7.257. 146 Report of the Panel, European Community – Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables, ¶ 4.9, L/4689 (Oct. 4, 1978) – 25S/68. 147 Panel Report, United States - Import Prohibition of Certain Shrimp and Shrimp Products , ¶ 7.17, WT/DS58/R (May 15, 1998) 148 Compromis , ¶ 15. 149 K EVIN K ENNEDY, I NTERNATIONAL TRADE R EGULATIONS: R EADINGS, CASES, NOTES AND PROBLEMS 269 (2008) . 145
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or arbitrary.150 In the present case, Zwovka has claimed defence under Article XX(b) which allows a country to breach provisions of the GATT, if such a breach is to protect human, plant or animal life. It should also prove that such a measure is ‟necessary‟. For a country to use defence under Article XX(b), a member should show that (1) that the policy fell within the range of policies designed to protect human, animal or plant life; (2) that the inconsistent measures for which the measures were being invoked were „necessary‟ to fulfil the objective; and (3) that the measures were applied in conformity with chapeau or preamble of Article XX.151 Zwovka as stated above has claimed a defence under Article XX(b) of the GATT stating that Section 2 of the Act was incorporated in order to protect public health. Enroda, on the other hand believes that such a measure was taken in order to protect domestic goods and not for the protecting public health. This is evident from the fact that such measures are not applicable to domestic products, but only to imported products. Thus it is submitted that Zwovka is using XX(b) as a shield and in actuality the measure is in place to protect its own toy industry. A. THE MEASURE TAKEN IS NOT ‘NECESSARY’ TO PROTECT PUBLIC HEALTH
The second criterion that needs to fulfilled in order for a measure to fall under Article XX(b) is show that the measure taken is necessary. Enroda contends that the Zwovkan measure does not fulfil this criterion. The appellate body of Korea-Various Measures on Beef was of the view that every case has to have a process of weighing and balancing a series of factors which include the contribution made by the measure taken to the enforcement of the objective, the importance of the law in place and the impact of the law or regulation on the imports.152 Prior to looking at the guidelines laid down in Korea-Various Measures on Beef, the word „necessary‟ it becomes pertinent to define the term. In Korea-Various Measures on Beef , the Appellate Body was of the view that the phrase „necessary‟ was not limited to that which is indispensable.153 However, it was also held that the term „necessary‟ is closer to „indispensable‟ than the opposite pole of simply „making a contribution to‟. 154 In the case under contention, Zwovka has imposed the 100 ppm restriction, according to Section 2 of the ESC Act only on imported products. The domestic market is not regulated in manner with 150
id. id. 152 Appellate Body Report, Brazil-Measures Affecting the Import of Retreaded Tyres, ¶ 180WT/DS332/AB/R. 153 Korea – Beef, supra note 91, at ¶ 161. 154 Id. 151
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reference to its lead content. Thus toys with over 100 ppm continue to be produced and sold in Zwovka. Moreover, it has been held in the appellate body report of Brazil-Retreaded Tyres that only a negligible number of toys are being sold is not a valid defence. 155 Thus, it is submitted that the measure brought in by Zwovka is located closer to „making a contribution to‟, rather than „indispensable‟. It has also been held previously by the appellate body in the Brazil-Retreaded Tyres case that an import ban by design is as trade restrictive as can be. 156 It further elaborated on this point by stating that when a measure produces as restrictive as effects as an import ban , it would be difficult for a panel to accept it unless it is satisfied that the measure is apt to make a material contribution to the achievement of the objective. 157 Here all toys, as defined in Section1 of the ESC Act, are banned from imported into the country and hence qualifies as an import ban. It has also been shown above that a such a measure is not „indispensable‟ In the light of the above arguments made, it is submitted that such a measure taken by Zwovka is not „necessary‟ to protect public health. The panel is also expected to compare the measure adopted by a member with its possible alternatives.158 Enroda would like to suggest the following proposal. As explained previously, the toys in the market should be labelled with the lead content each toy contains. Enroda also believes that the limit must be increased to 300 ppm as this would not only bring in equity for both domestic and imported products, but would also benefit lesser developed countries like Enroda. Such a move is also more GATT consistent than the previous measure. Similar suggestions were given in the appellate body report of Thailand Cigarettes.159
The
alternative suggested is also taken, keeping in mind Zwovka‟s policy of protecting children from lead. By adopting such a measure, the consumers become aware of the lead content and can take an informed decision while buying their product and thereby protect children. Moreover, both the panel and the appellate bodies in the US-Gasoline report asserted the fact that a measure can only be ruled out if it is shown impossible to implement 160 substantiates Enroda‟s submission that our alternative must be accepted.
155
Appellate Body Report, Brazil - Measures Affecting the Import of Retreaded Tyres, ¶ 228, WT/DS332/AB/R (Dec. 3, 2007) [hereinafter Brazil – Retreaded Tyres]. 156 Id. at ¶ 150. 157 Id. 158 Id. at ¶ 156. 159 Panel Report. Thailand-Importation of and Internal Taxes on Cigarettes, ¶ 77, DS10/R - 37S/200 (Nov. 7, 1990) 160 Appellate Body Report, US – Standards For Reformulated and Conventional Gasoline , ¶ 6.24, WT/DS2/AB/R (April 29, 1996) [hereinafter US – Gasoline].
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Thus, in the light of the above arguments it is submitted that Enroda‟s measure does not constitute „necessity‟. B. THE MEASURE TAKEN BY ZWOVKA DOES NOT FULFIL THE INGREDIENTS OF THE CHAPEAU.
The previous chapter examined a specific exception contained within Article XX of the GATT. To qualify as an exception, however, a measure must do more than satisfy one of the specific provisions. 161It must satisfy each of the following conditions: 162
The exception must be applied in a manner which would not constitute a
means of unjustifiable discrimination between countries, where the same conditions prevail;
The exception must be applied in a manner which would not constitute a
means of arbitrary discrimination between countries, where the same conditions prevail;
The exception must not be a disguised restriction on international trade.
It also becomes pertinent to define the term‟ discrimination‟ and the extent to which to which it can be used, As the Appellate Body in US-Gasoline has stated, the word „discrimination‟ in the Chapeau of Ar. XX covers both discrimination between products f rom different supplier countries and discrimination between domestic and imported products. 163 Both these aspects may be scrutinised by a WTO settlement body. 164 There are several reasons as to why Enroda believes that there was discrimination in the application of the measure. The Appellate Body in the case of US-Shrimp was of the view that an aspect in deciding whether the measure is arbitrary or unjustifiable is the failure of a member to engage in negotiations with the other countries before the enforcement of a particular measure.165 A major factor which went against the United States in this case, was the Appellate Body‟s view that the of the United States‟ failure to enter negotiations with the other countries, which it held was unjustifiable. 166 Looking into the facts of the present case, it is submitted that the measure is unjustifiable. This is because of the two reasons stated above. First, Zwovka in this case has 161
A NDREW T. GUZMAN A ND JOOST H.B. PAUWELYN, I NTERNATIONAL TRADE LAW 371 (2nd ed. 2012) id. 163 MAX PLANCK , supra note 1, at 164 Id. 165 Appellate Body Report, US – Import Prohibition on Certain Shrimp and Shrimp Products, ¶ 166, WT/DS58/AB/R (Oct. 12, 1998) [hereinafter US – Shrimp]. 166 Id. at ¶ 171. 162
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set higher standards for imported toys than it has to domestic toys and has done this without any justifiable reasons. The 100ppm rule is imposed only on imported toys, while the domestic industry is free to produce toys with any amount of lead content. As demonstrated above, Article XX is not only applicable when two countries are treated differently, but also when an imported product is accorded „less favourable‟ treatment as compared to domestic products.167 Second, the ESC Act was passed unilaterally by Zwovka. Considering that the volume of importation from countries was high, Zwovka ought to have held consultations with other WTO members. Thus the fact that a measure, which significantly affects the interests of the other parties, was passed without the consultation of such parties indicates that the measure is unjustified. Looking at the aspect of the measure being arbitrary, the Appellate Body in the case of US-Shrimp was of the view that rigidity and inflexibility also constitute „arbitrary discrimination‟.168
In the Brazill-Tyres case, the European Communities argued that the
Panel erred in its decision making by holding that the special exemption, which is given to only MERCUSOR countries didn‟t result in arbitrary discrimination.The argument was that, from the perspective of protection of public health, it made no difference whether the retreaded tyres were produced by a particular set of countries or any other country and hence the application of such a measure resulted in arbitrary discrimination. 169 The appellate body to subscribed this argument. 170 The appellate body was also of the view that production of even a small number of such products resulted in Arbitrary Discrimination. 171 Enroda is of the view that the Zwovkan legislation results in „arbitrary discrimination‟.
Not only must similar countries be given to countries where similar
conditions prevail, but a measure must also allow for differential treatment when countries are in different situations.172 According to the facts, Zwovka is a Least Developed Country. The legislation does not take into account such cases, where a lesser developed country is affected. Enroda submits that not into consideration this and factors such as this indicates the rigidity and the inflexibility of the Act. The second argument Enroda would like to put forth is based on the argument of the European Communities in the Brazil-Tyres case that the exemption given to domestic products is arbitrary. If the objective of Zwovka is to protect
167
US – Gasoline, supra note 160 at ¶ 23. US - Shrimp, supra note 165 at ¶ 177. 169 Brazil – Retreaded Tyres, supra note 155, at ¶ 244. 170 Id. 171 See id. at ¶ 211. 172 US - Shrimp, supra note 165 at ¶ 164. 168
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public health, there is no difference between toys produced in the domestic market and toys imported from other countries. The next argument placed before the court relates to interpretation of the term „where same conditions prevail‟. Section 2 of the ESC Act is applicable to all the countries and hence clearly includes those countries which have same conditions as well. In this sense it is discriminatory. Providing exemption to only a particular set of countries, in this case because „same conditions prevail‟ in these countries, would be arbitrary discrimination. 173 This also indicates that such a narrow reading of the chapeau is not warranted. The fact that the measure is arbitrary and unjustifiable also indicates the fact that it is being imposed as a disguised restriction on trade. As argued previously, it is being imposed as a protectionist measure, in order to safeguard its domestic industry. Hence, it is prayed that the panel holds Zwovka‟s measures are in contravention of Article XX of the GATT. VI.
SECTION 3 OF THE ESC ACT NOT INCORPORATED FOR PROTECTION OF NATIONAL SECURITY.
Article XXI of the GATT is provision which deals specifically with the issue of National Security. The issue though has very seldom been invoked before the GATT; 174 the debate on the interpretation of the measure has been a fairly significant one. Enroda contends that the term is to be read in accordance with the Vienna Convention on the Law of Treaties. 175Article 31 of the VCLT suggests that the broadest interpretation of the term is unsustainable. Moreover, authors are of the view that the usage of the term „other emergency in International Trade…’ does not mean that countries are free to declare a unilateral decision.176 According to the “Decision Concerning Article XXI of the General Agreement”, in case of an invocation of Article XXI, affected contracting parties maintain all rights under the GATT.177 The ability to challenge an arbitrary invocation of the article before a panel is one such right, and should hence be protected. In addition, the drafting history of the section
173
Brazil – Retreaded Tyres, supra note 155, at ¶ 244. See Micheal J Hahn, Vital Interests and the Law of GATT: An analysis of GATT’s Security Exceptions , 12 Mich J. Int‟l L. 558 1990 -91.Pg. 560. 175 Id . 176 See Micheal J Hahn, Vital Interests and the Law of GATT: An analysis of GATT’s Security Exceptions, 12 Mich J. Int‟l L. 558 1990-91.Pg. 589. 177 SeeDecision, Cl. 2. 174
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reveals that it was always meant to be subject to review. 178 Furthermore, the Dispute Settlement Understanding specifically prohibits unilateral action by any contracting party. 179 Applying law to the facts of the current case, it is contended Enroda was not notified about any measure taken under article XXI.. The “Decision Concerning Article XXI of the General Agreement” requires a party taking a trade measure under article XXI to notify the contacting parties of the same.180 The preamble to the same recognises that an invocation of the Article creates a disruption in international trade that may compromise the rights of contracting parties. The ESC Act has been enacted without any prior information being given to any of the contracting parties. This is clearly in violation of the procedures laid down by the contracting parties for the application of Article XXI. Hence, the manner of invocation of the provision by Zwovka is incorrect. Moreover, Enroda contends Zwovka‟s view that the impugned Section was drafted in response to emergency in International Relations. An “emergency in international relations” implies a condition of extreme tension between States that exceeds ordinary strained relations.181 There is no record of there being any extraordinary strain between the Zwovka and Enroda immediately before the enactment of the ESC Act. There has been no prior communication between the two States about Zwovka‟s discontentment with the levels of lead in Enroda‟s exports. Zwovka‟s reasoning is that the measure is necessary in order to protect the security of children. In Enroda‟s view, there is no nexus between the security interests of Zwovka and the measure taken. Section 2 of the Act bans the importation of all covered toys with a lead content of over 100 ppm. 182 Enroda argues that while Section 2 of the ESC Act i s already in place, Section 3 becomes redundant. This is because, if Section 2 is in place, there is already a regulatory mechanism to ensure that toys only with less than only a certain amount of lead content are imported. Moreover, Section 3 of the Act not only bans the importation of toys containing lead, but any toy defined in Section 1 of the Act. If the reasoning for the incorporation of Section 3 was the fear of toys containing excessive lead content, 183 why was the ban extended to non-lead toys
178
See Michael Hahn, Vital Interests and the Law of th e GATT: An Analysis of GATT’s Security Exception, (1990) 12 Mich. J. Int‟l L. 568. 179 See Matsushita et al., THE WORLD TRADE ORGANISATION LAW, PRACTICE AND POLICY 5 97. 180 See Decision Concerning Article XXI of the General Agreement, Nov. 30, 1982, ANALYTICAL INDEX OF THE GATT 606, [hereinafter “Decision”] Cl. 1. 181 Hahn, supra note, at 589. 182 Compromis, ¶ 15 183 Compromis, para 13.
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as well. Hence, based on the arguments made above, Enroda submits that Section 3 of the Act is arbitrary and unreasonable, and hence Zwovka‟s arguments Article XXI must be quashed.
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