For technical reasons, I'm posting this on behalf of Rob Howse:
I wanted to respond to Simon and further respond to Todd regarding the reaction to US-Cloves. In earlier posts I have defended the approach of the Appellate Body in proposing a test of whether detrimental effects on imports can be attributed to a legitimate regulatory distinction once it has been found that there is a significant disparate impact on imports. Before criticizing the AB for finding that the distinction that the US drew between clove and menthol cigarettes was not a "legitimate regulatory distinction" we have to be very careful to understand what the AB means by this concept.
For the AB, the concept derives from the balance between the right to regulate and the concern to avoid trade restrictiveness that is found both in the preamble to the TBT Agreement and in the operation of Article XX of the GATT in relation to operative provisions such as III:4. Legitimate regulatory distinctions relate to the kind of legitimate objectives that are contemplated in Article XX. Legitimate regulatory distinctions also must not constitute arbitrary or unjustifiable discrimination, within the meaning of the chapeau of Article XX, and as the concept is reflected elsewhere, such as the preamble to TBT.
Here is an example, from earlier jurisprudence-albeit under SPS not TBT or GATT, where, in effect, the AB found a Member's regulatory distinction to be legitimate (EC-Hormones), in particular not arbitrary or unjustifiable. The complainants pointed out that though the EU banned hormone-fed beef it did not ban products where the same or higher levels of hormones occurred naturally, such as broccoli. The AB responded:
221. We do not share the Panel's conclusions that the above differences in levels of protection in respect of added hormones in treated meat and in respect of naturally-occurring hormones in food, are merely arbitrary and unjustifiable. To the contrary, we consider there is a fundamental distinction between added hormones (natural or synthetic) and naturally-occurring hormones in meat and other foods. In respect of the latter, the European Communities simply takes no regulatory action; to require it to prohibit totally the production and consumption of such foods or to limit the residues of naturally-occurring hormones in food, entails such a comprehensive and massive governmental intervention in nature and in the ordinary lives of people as to reduce the comparison itself to an absurdity. (emphasis added).
Now let us compare the AB's rejection in US-Cloves of similar reasoning concerning the difference between banning clove cigarettes and banning menthol cigarettes (paragraph 225):
The United States argues that the exemption of menthol cigarettes from the
ban on flavoured cigarettes aims at minimizing: (i) the impact on the US health care system associated with treating "millions" of menthol cigarette smokers affected by withdrawal symptoms; and (ii) the risk of development of a black market and smuggling of menthol cigarettes to supply the needs of menthol cigarette smokers. ... We note, however, that the addictive ingredient in menthol cigarettes is nicotine, not peppermint or any other ingredient that is exclusively present in menthol cigarettes, and that thisingredient is also present in a group of products that is likewise permitted under Section 907(a)(1)(A),namely, regular cigarettes. Therefore, it is not clear that the risks that the United States claims to
minimize by allowing menthol cigarettes to remain in the market would materialize if menthol cigarettes were to be banned, insofar as regular cigarettes would remain in the market.
In other words, on the facts, the AB was not convinced that, to use the EC-Hormones language, it was simply obvious that banning menthol would entail "such a comprehensive and massive governmental intervention in... the ordinary lives of people" as to make it legitimate to ban cloves and not ban menthol, even if the main public health concern was the same.
Was the AB here wrong in its appreciation of the facts? In my view, the factual record as presented by the panel almost necessarily led the AB to the conclusion it came to. Here consider paragraph 7.57 of the panel report:
The United States explains that banning clove cigarettes and other flavoured cigarettes does not present the same public health risk in the United States as banning regular or menthol cigarettes. It argues that the public health effects of removing precipitously a cigarette which tens of millions of people smoke regularly have not been sufficiently evaluated to justify a ban and that is why Section 907(a)(1)(A) does not ban regular or menthol cigarettes. (emphasis added)
In other words, the panel presented the US as admitting that the public effects of banning a product that tens of millions of people are addicted to, far from being obvious, were speculative and had yet to be evaluated adequately. It might be, as the AB conjectured, that menthol smokers would switch to regular tobacco, and satisfy their nicotine addiction that way. Or it might be that they find smoking regular tobacco so unpleasant that they end up not doing it and have the withdrawal symptoms the US was worried about. Here we have an implicit judgment about the burden of proof. It seems to me that what the AB may be saying is that once it is established that their is prima facie a lack of even handedness - the clove market is hugely dominated by Indonesia, hence the comparison of the like groups of domestic and imported products points very strongly to a prima facie finding of de facto discrimination - then the burden is on the defendant to show nevertheless that the disparate impact stems from a legitimate regulatory distinction.
Thus my response to Todd: the US has the option of now going out and doing the kind of evaluation
it had admitted, according to the panel in 7.57, was yet to be done.
One final note on the deregulatory bias of the panel in its appreciation of the facts. The US had presented evidence that at the margin clove cigarettes posed additional health risks. Here is the panel's response:
Nonetheless, the evidence filed by the United States suggesting that the presence of eugenol and coumarin in clove cigarettes makes them more harmful to health does not lead us to a different conclusion in terms of toxicity. Regardless of whether eugenol and coumarin might allegedly cause further health problems, the principal reason why cigarettes create health risks is the inhalation of combusted substances, which may cause different types of cancer, different types of cardiovascular disease and various respiratory diseases and harms, among others.
This statement is totally illogical. It makes no sense at all in terms of the analysis of health risks. Basically the panel is saying that since all cigarettes are dangerous a WTO Member even if it has compelling evidence that, at the margin, one kind poses some special health risks that others don't pose, cannot distinguish in regulation between the two. In my view the complete irrationality or incoherence in stating that evidence of additional health risks does not affect toxicity suggests that the panel could in this particular instance have been found in violation of Article 11 of the DSU. But the United States did not plead this specifically before the AB, as far as I can see. And in other cases where the panel's deregulatory bias is evident, the kind of margin of appreciation for panel fact finding in the established jurisprudence on Article 11 suggests to me that it would have been difficult to persuasive establish a violation, as I have suggested in earlier posts.
In sum, before removing the ban on cloves, there should be a way of having this dispute ultimately reconsidered by the Appellate Body, on the basis of a better factual record. The AB decision has advanced the jurisprudence in the right direction but the panel record ultimately prevented an outcome that would have made evident the progressive thrust of the evolving legal doctrine.
