Apples have been a source of friction in the trans-Tasman relationship for almost 90 years, but the dispute may be about to enter a new, more dangerous and more decisive phase.

Australia's WTO Appellant Body appeal was heard on 11 and 12 of October 2010 in Geneva and a ruling is expected before the end of the year. The most likely result is that (at least some aspects of) the WTO Panel's decision will be upheld and Australia will be instructed to come into compliance with the WTO Sanitary and Phyto-Sanitary Agreement (SPS Agreement). And it is then that the weapons of engagement may change.

But first, a little history.

Australia banned New Zealand apple imports in 1921 after the discovery in New Zealand of fire blight. Since 1986 New Zealand has been agitating against the ban after scientific studies failed to produce evidence that the disease can be transmitted through commercially traded apples.

In 2006 Australia moved from a blanket ban to the imposition of numerous stringent biosecurity provisions which achieved the same effect by proxy. The justification for the precautions was contained in a 600 page document, issued by Biosecurity Australia in November 2006, and was based on alleged risks from three diseases – fire blight, European canker and apple leaf curling midge.

New Zealand brought WTO proceedings in December 2007 contending that 16 of the restrictions were inconsistent with the SPS Agreement. These proceedings were joined by several third parties, including Chile, the EC, Japan and the US.

The dispute is highly technical but New Zealand's position is essentially that the import ban does not comply with several provisions of the SPS Agreement which broadly require that any SPS measure is: applied only to the extent necessary to protect human, animal or plant life or health; based on a scientific risk assessment; not maintained without sufficient scientific evidence; and not more trade-restrictive than necessary.

Australia's case, in essence, is that not all of the measures complained of fall within the scope of the SPS Agreement and that it has in any event carried out a scientific risk assessment under Article 5 of the SPS Agreement, which should be accorded deference.

Oral hearings before a WTO Panel were conducted in September 2008 and June 2009 and, on 6 August 2010, the WTO Panel delivered a comprehensive win to New Zealand.

It found that all 16 contested measures were SPS measures and were inconsistent with articles in the SPS Agreement. In general terms, it faulted Australia for:

  • failing to ground its import restrictions on a proper risk assessment, and
  • pursuing a response which – even taking into account Australia's chosen level of SPS protection – was more trade-restrictive than necessary.

In its argument on appeal, Australia relies heavily on the Appellate Body's 2008 decision in Round II of the WTO dispute between the US, Canada and the EC concerning the latter's ban on hormone-treated beef. In that case, the Appellate Body disagreed with the WTO Panel that the EC's new measures – implemented following the EC's 1998 loss in Round I – were not based on a proper risk assessment. Australia's overall argument is that, like the Hormones Panel, the Apples Panel has conducted an over-intensive review into Australia's risk assessment process and, in so doing, impermissibly substituted its judgement for that of Australia. (New Zealand also filed a cross-appeal on certain aspects of the Panel's legal interpretation, but this is a largely cautionary step.)

Given the breadth, detail and clarity of the Panel's findings, it seems unlikely that the Appellate Body will entirely overturn the Panel's decision. Completely successful WTO appeals, whilst not unknown, are rare. It is much more common for the Appellate Body to disturb selected factual findings and legal conclusions in what are typically long and technical decisions. Thus, the most likely scenario is that the substance of the Panel's decision will be upheld, even if it is not sustained in every particular, and that Australia will be instructed to bring its measures into line with the SPS Agreement.

Even such an outcome may, however, not be entirely unhelpful from Australia's perspective, as any doubt which is cast on the authority of the Panel's ruling will strengthen Australia's leverage in the enforcement phases of the dispute.

Because delay has value to Australia, we can assume that it will be careful rather than concerted in revising any offending measures. There is a real risk that any revised measures it implements may be seen by New Zealand as unsatisfactory and insufficient.

In this event, the dispute could follow the same trajectory as the US-Japan Apples case (which also concerned measures to prevent infestation of fire blight). Japan lost its appeal and accordingly relaxed its rules; but not to the US's satisfaction. The US successfully established its complaint before a WTO compliance panel, at which stage Japan and the US finally entered direct negotiations and were able a month later – and 38 months after the US first engaged the WTO dispute process – to announce a mutually agreed solution. (Interestingly, US apple exports to Japan are still negligible but not seemingly because of trade barriers.)

Should Australia refuse to bring its measures into line, WTO rules allow New Zealand to retaliate by suspending access agreements to the New Zealand market for selected Australian goods (and possibly services), including those unconnected with trade in apples. Such retaliatory action would have a significant impact for the broader CER relationship between New Zealand and Australia.

Possibly because of its venerable age, but partly also due to diplomatic finesse, the Apples dispute has thus far been tacitly cordoned off from the broader trans-Tasman relationship and has not been allowed to become a serious irritant. To allow extended brinkmanship over compliance with a final Appellate Body decision would be well outside the spirit of the CER relationship and single economic market work programme. It is hard to imagine either government would allow such a situation to persist.

This means that – after 89 years and much elaborate legal skirmishing before the WTO – the two countries will likely sit down to negotiate an arrangement which will, by the nature of these things, please neither but be acceptable to both.

A more detailed analysis of the WTO Panel decision can be found in the September 2010 edition of Chapman Tripp's Connected Asia Pacific newsletter.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.