Worldwide: WTO Panel Rules Against Aspects Of EU Restrictions On The Importing And Marketing Of Seal Products

Keywords: WTO panel, EU restrictions, import, marketing, seal products

On November 25, 2013, a World Trade Organization (WTO) dispute settlement panel issued its report in EC – Measures Prohibiting the Importation and Marketing of Seal Products (WT DS400/R; WT/DS401/R) relating to complaints raised by Canada and Norway against regulations promulgated by the European Union (EU) concerning the importing and marketing of seal products (the "Seal Regime").

The panel found that the EU's Seal Regime did not conform with Article 2.1 of the WTO Agreement on Technical Barriers to Trade (TBT Agreement) or with Article III.4 of the General Agreement on Tariffs and Trade 1994 (GATT 1994). The panel did find, however, that the Seal Regime was consistent with Article 2.2 of the TBT Agreement. The panel recommended that the WTO Dispute Settlement Body request the EU to bring the inconsistent measures into conformity with its obligations under the TBT Agreement and GATT 1994.

Background

The dispute stems from complaints filed by Canada and Norway against EU regulations that prohibit seal products from the EU market unless they satisfy certain conditions/exceptions. The first condition/exception concerns products obtained from seals hunted by Inuits or indigenous communities (the IC condition/exception); the second concerns seals hunted as part of an official marine resource management program (the MRM condition/exception); and the third concerns travellers who can bring seal products into the EU in limited circumstances (the travellers condition/exception).

A majority of the seal products exported from Canada and Norway into the EU do not comply with these conditions/exceptions, as most seal hunting in these countries is undertaken for different reasons (which the WTO panel categorized as "commercial hunts"). As a result, most of their exports into the EU market were prohibited by the Seal Regime.

Claims Under the TBT Agreement

Article 2.1

Canada alleged that the IC and MRM conditions violated Article 2.1 of the TBT Agreement by discriminating against its seal imports compared with seal products from EU Member countries. Specifically, it claimed that the IC and MRM conditions accorded seal products from Canada (imported products) treatment less favorable than that accorded to like seal products of domestic origin, mainly from Sweden and Finland (domestic products), as well as those of other foreign origin, particularly from Greenland (other foreign products).

The panel first considered whether the imported and domestic/other foreign seal products at issue were "like" products, as Canada claimed, or whether, as the EU claimed, seal products hunted by commercial, IC or MRM method should be compared against seals hunted under the equivalent condition. The panel referred to the Appellate Body report in United States - Clove Cigarettes, which compared clove cigarettes (the product subject to the challenged import ban) with menthol cigarettes (the domestic product which was exempted from the ban). It noted that even though certain nonclove cigarettes from Indonesia were exempted from the ban, this was not considered relevant given that the "vast majority" of Indonesia's exports comprising clove cigarettes were negatively affected vis-à-vis the "vast majority" of the domestic product, menthol cigarettes. Thus, the panel in the instant dispute decided that all seal products were "like" for purposes of the TBT Agreement. The panel then concluded that the EU Seal Regime detrimentally affected imported seal products given that its IC or MRM conditions affected the competitiveness of a majority of imports from Canada.

The panel then turned to its core analysis under Article 2.1; specifically, whether the detrimental impact caused by the EU Seal Regime "stems exclusively from legitimate regulatory distinctions," keeping in mind that the EU Seal Regime's objective is to focus on the humane killing of seals. To do so, it employed a three-prong test, which considered (i) whether the distinction between IC, MRM and commercial hunting is rationally connected to the objective of the Seal Regime; (ii) if not, is there any cause or rationale that can justify the distinction (i.e., explain the existence of the distinction); and (iii) is the distinction designed or applied in a manner that constitutes arbitrary or unjustifiable discrimination such that it lacks evenhandedness.

First, the panel concluded that IC hunting was not connected to the objective of addressing the EU's public moral concerns on seal welfare because, similar to commercial hunting, IC hunting could result in pain and suffering of the animals.

With regard to the second prong of the test, the panel decided that a distinction between IC hunts and commercial hunts could be justified, considering that the purpose of each differed. Unlike commercial hunts, the primary or sole purpose of IC hunts was not commercial, even if indigenous persons could place the seal products on the market. This justified a distinction between the two hunts, as the rationale for IC hunting is founded on protecting and preserving Inuit culture and tradition and the sustaining of their livelihood, which are all principles that are and have been recognized broadly in international, Canadian and EU law.

Finally, the panel decided that the distinction was not applied in an evenhanded manner. Considering the highly developed level of hunting in Greenland, the volume of sealskins traded and the nature of the seal product industry in Greenland as compared with that of Norway and Canada, the panel concluded that the purpose of seal hunts in Greenland had characteristics closely related to those of commercial hunts. In contrast, the Canadian Inuit community was noted to be not as centrally organized and too small to be able to benefit from the exception, a fact recognized by the EU during the drafting of the legislation. Thus, the panel found the IC exception of the EU Seal Regime inconsistent with the EU's obligations under Article 2.1 of the TBT Agreement, as it failed to demonstrate that the detrimental impact caused by the IC exception on Canadian seal products stems exclusively from a legitimate distinction.

In considering the MRM exception, and as was the case for the IC exception, the panel found that because this method could cause pain and suffering to the animals, it did not address the EU's public moral concerns on seal welfare. Additionally, the panel concluded that there was no justification for the MRM distinction, as its purpose, like that of commercial hunting, is profit, albeit the profit derived is not from placing seal products on the market, but fishing activity that is being damaged by seals.

The panel also decided that the distinction was not applied in an evenhanded manner. The requirement that MRM hunts not take place on a commercial basis and that the derivative products not be placed on the market in a "repetitive way," essentially meant that only Sweden, Finland and possibly the United Kingdom would qualify under the MRM exception. The MRM exception was found to rule out the eligibility of products from any type of sustainable marine management hunt other than the hunting of individual nuisance seals.

Article 2.2

The panel agreed with the EU that the Seal Regime was not inconsistent with Article 2.2 of the TBT Agreement, as it was not more trade restrictive than necessary. In so finding, it first decided that the EU public moral concern over seal welfare is a legitimate objective that can be pursued because the term "public morals" appears in both Article XX of GATT 1994 and Article XIV of the General Agreement on Trade in Services—objectives the TBT Agreement is meant to further.

The panel then determined that the Seal Regime was capable of making, and did make, some contribution, however small, to the EU's stated objective of addressing moral concerns. According to the panel, the Seal Regime prevented, to some extent, EU citizens from being exposed to, and participating as consumers in, commercial activities related to the products derived from seals that may have been killed inhumanely. Moreover, the regime appeared to have negatively affected the demand for seal products, though the IC and MRM exceptions diminished the measure's actual contribution to both aspects of its objective. Finally, the panel concluded that while alternative measures existed that could have been less trade restrictive and achieved the same objectives, none were reasonably available.

Articles 5.1.2 and 5.2.1

Canada and Norway also brought claims concerning the EU's implementation of a conformity assessment procedure (CAP) to administer the Seal Regime. According to the complainants, the EU, as importing Member, was obliged to ensure that the system functioned from the date of its entry into force; if the European Union did not wish to establish a recognized body capable of functioning from the EU Seal Regime's entry into force, it should have given interested third parties an adequate opportunity to apply sufficiently far in advance so as to allow recognized bodies to be established before the entry into force.

The panel agreed and upheld this claim, ruling that because the CAP requirements were published three days before their application with no other mechanism available, the earliest opportunity for potential applicants to initiate this process would have been just shortly before the day of entry into force of the Implementing Regulation. Thus, it would not have been reasonable to expect that the CAP could be completed prior to the Seal Regime's entry into force.

However, the panel rejected other claims concerning the CAP, such as one under Article 5.2.1 that required a CAP to be implemented as "expeditiously as possible." The complainants based their claim on the length of time taken by the EU to process Greenland's and Sweden's applications to recognize their competent authorities that could issue attesting documents. The panel considered it necessary to evaluate not only the entire length of time for an application to be processed, but also the time taken for each procedural step. As the complainants had not provided facts on each procedural step, the panel did not conclude that there had been a violation.

Claims Under GATT 1994

The panel found the Seal Regime inconsistent with the most-favored-nation principle in Article I:1 of the GATT 1994 because it did not "immediately and unconditionally" extend the same market access advantage on the EU market to the complainants' imports as was given to seal products originating from Greenland. The vast majority of seal products from Canada and Norway did not meet the IC conditions, while virtually all of Greenlandic seal products were likely to qualify under the exception. Thus, IC requirements were found to give rise to origin-based discrimination.

The panel also concluded that the MRM exception did not conform with the principle of national treatment under Article III:4 of the GATT 1994, in that the majority of imported seal products from Canada and Norway were given less favorable treatment than domestic (EU) seal products.

The panel disagreed with Norway's claim of origin-based discrimination, that in order to qualify for the IC exception, the seal products in question could only originate from a limited number of countries with an indigenous population. The panel stated that the Seal Regime did not give rise to discrimination per se, pointing out that several non-EU Member States have an indigenous population (including the Sami in Norway). Its reasoning was supported by the fact that the IC conditions related to the characteristics of the seal hunt rather than to a "closed list" of countries. Also, some of the communities whose seal products may qualify under the exception were not concentrated in one country.

Next, the panel rejected Canada and Norway's claim that the IC, MRM and travellers exceptions are inconsistent with Article XI:1 of the GATT 1994. Article XI:1 requires that WTO Members not institute or maintain any prohibitions on imports other than duties, taxes or other charges. Given that the complainants focused on the discriminatory aspect of the Seal Regime (i.e., the exceptions) rather than the measure in its entirety, the panel rejected their claims.

Finally, the EU defended the Seal Regime under Article XX of the GATT 1994. Article XX permits countries to impose measures necessary to protect, inter alia, public morals, provided that the measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. Having found that neither the MRM nor the IC exception to the Seal Regime was applied in an evenhanded manner under Article 2.1 of the TBT, the panel also concluded that the IC requirement did not satisfy the requirements of Article XX.

Final Observations

This panel report follows a trend begun earlier this year in United States – Clove Cigarettes, United States – COOL and United States – Tuna. In those disputes and the instant one, Article 2.2 of the TBT Agreement was construed very narrowly. Regardless of how burdensome on trade the measure in question might be (e.g., a complete ban on imports), the WTO is plainly reluctant to second-guess the means by which WTO Members pursue legitimate public policy objectives as long as those means make some contribution, however small, to the objective.

This panel report also continues a broader trend in WTO dispute settlement proceedings. With increasing frequency we are seeing disputes over what might be called the "intersection" of trade disciplines and the pursuit of public policy objectives at the national level.

Originally published December 12, 2013

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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