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May 16, 2012

Analysis: today's WTO ruling bad for dolphins, consumers... and even the WTO

We’ve waded our way through today's 165-page, 771-footnote WTO ruling against dolphin-safe labels. Here’s a quick guide to what it says and means.

What it means for dolphins

From the 1950s through the 1990s, an estimated seven million dolphins were killed in the Eastern Tropical Pacific from the practice of chasing, encircling and netting them to catch the tuna underneath. This was profitable because, unlike in other fisheries and regions, dolphin and tuna swim together.

Beginning in the late 1980s and early 1990s, something changed: consumers got organized. First, they instituted a ban on dolphin-unsafe tuna, which the WTO’s predecessor organization ruled against in 1991 and 1994 and which was subsequently repealed. Around the same time, dolphin-safe labels were put on tuna, in order to allow consumers to “vote with their dollars” for dolphin-safe methods. These measures have been successful in reducing dolphin deaths to near-negligible numbers.

Countries like Ecuador were the success stories, in adapting to the dolphin-safe methods, and therefore tapping into consumers’ demand for dolphin-safe tuna. The U.S. and nearly all other nations’ fleets also adapted. Mexico, on the other hand, is almost alone as a hold-out – using litigation rather than adaptation, and in the process branding its fish in the minds of consumers as dolphin-unsafe. Not a real forward looking strategy, to say the least. This WTO case, brought by Mexico in 2008, is just the latest indication of this – after pushing unsuccessfully for a decade to get the Clinton and Bush administration and the U.S. courts to water down the labels.

It is vital for the ongoing health of dolphin herds that the U.S. not bow to this pressure from the WTO.

What it means for consumers

If the U.S. gives in on this WTO threat, consumers will have lower quality or less information on which to base their tuna purchasing practices. For families with kids (including of the grown-up variety) who love animals like dolphins, this will be deeply troubling on its own.

But think of the precedent this sets. The WTO has now said that even voluntary labeling schemes are open to WTO attacks if not all countries (regardless of their production practices) equally benefit from them. This is going to be especially the case whenever there are complementary governmental efforts to ensure the accuracy of the claims on the label.

Labels like organic, cruelty-free, fair trade, Buy Local, Buy America, green, natural, worker-friendly, gluten free and everything else could be next.

What happens next

After today’s ruling, Mexico will begin pushing for elimination of the dolphin-safe labels, or to be allowed to use the label without meeting the U.S. standards.

Depending on how the compliance proceedings progress, the U.S. will have a matter of weeks or months to begin complying. After an extreme outer bound of about 15-18 months, Mexico may be able to begin instituting trade sanctions on U.S. goods or services. In the past, such sanctions have helped to create a domestic constituency in industry and Congress crying out for elimination of the “offending measure.”

It is vital that the U.S. communicate clearly to Mexico and other WTO members that the labeling standards will not be eliminated or watered down. The U.S. can talk to Mexico if need be about other options for compliance, and make the point that it is really long overdue for Mexico to bring its fishing practices into line with international norms.

What the ruling says

Maybe I’m losing my cynical edge, but I was shocked by today’s WTO Appellate Body (AB) ruling. There were a variety of ways that the AB could have worked itself out of the mess left by the September lower panel ruling, and instead, the AB chose to deepen the knot.


Our memo from January goes through the lower panel ruling in detail.

There were five major claims that Mexico made, all of them novel under the rarely tested WTO Agreement on Technical Barriers to Trade (TBT), one of the 17 WTO pacts.

First, Mexico claimed that the labeling regime was “mandatory,” even though Mexico can and does sell tuna in the U.S. market without the label. This was the key argument, because “mandatory technical regulations” are subject to much more WTO scrutiny than “voluntary technical standards.”

The second claim was that the labels discriminated against Mexico, in violation of TBT Article 2.1. Third, that the labels were “more trade-restrictive than necessary to fulfil a legitimate objective,” in violation of TBT Article 2.2. Fourth, that the labels were not based on “relevant international standards,” in violation of TBT Article 2.4. Mexico here pointed to labels envisioned under the Agreement on the International Dolphin Conservation Program (AIDCP), which does not require an end to chase-encircle-net methods. And finally, that the labels also violated the WTO’s General Agreement on Tariffs and Trade (GATT).

In short, the lower panel ruling found that:
1)    the labels are mandatory, because the government ensures that the claims are true and doesn’t allow competing dolphin-safe claims;
2)    the labels are not discriminatory under Article 2.1, since Mexico’s failure to qualify for the labels were not based on the origin of the fish, but rather the fleets’ fishing practices;
3)    the labels pursued a legitimate objective, but didn’t actually fulfill their objective, so violated Article 2.2. This was because the U.S. imposes more verification checks on ETP tuna than it does for tuna outside the ETP.
4)    the AIDCP was a relevant international standard, and that the US didn’t base its labels on the AIDCP standard, but that it did not need to since doing so would not have been as effective at meeting U.S. goals. Accordingly, the U.S. did not violate Article 2.4. 
5)    for reasons of judicial economy, the GATT claims were not examined.

The implication of the Article 2.2 finding was troubling: essentially, the U.S. would have had to comply with the ruling by increasing its verification practices in places where dolphin deaths from tuna fishing were not a problem. This in turn could have led to more WTO cases, where African and Asian and European fleets might have complained about trade-burdensome and disproportionate regulation.

Both the US and Mexico appealed the lower panel ruling so that all the claims would go in their respective favors. Australia, the EU and New Zealand took the U.S.’ side in many of its arguments, as did Brazil and other nations on some of the U.S. arguments.

And, as the AB did on its controversial ruling on a U.S. sweet flavored cigarette ban in April, the appellate analysis was even more anti-consumer than the lower panel ruling.

As to the first point, the mandatory versus voluntary distinction was perhaps the most controversial aspect of the lower panel ruling, and a lot in the academic trade law community urged the AB to find that mere truth-in-labeling requirements don’t turn voluntary standards into mandatory ones. This outcome seemed to be given some greater likelihood by the fact that a dissenting one out of three panelists at the lower level agreed that the dolphin-safe labels were not mandatory.

I was fairly sure that the AB would come down correct on this finding, but that they would probably need to explain carefully how they got there. I was proved wrong on both counts. They not only upheld that the labels were mandatory, but they spent only 10 paragraphs explaining their thinking (paras 190-199). Essentially, they conclude that anytime a government has any role in a labeling scheme (even to simply ensure the veracity of claims), it qualifies as mandatory. In this case, the AB made a big deal of the fact that the truthfulness requirements are part of the labeling scheme themselves. But I didn’t read anything in the ruling that would ensure that basic truthfulness requirements (such as those administered by the Federal Trade Commission, USDA or other agencies) wouldn’t also get caught in the net.

On the second point, the AB took Mexico’s side, and overturned the lower panel ruling and found instead that the labels discriminated against Mexico (even though Mexico could adapt to meet the labels’ requirements, just as Ecuador has). The worrying implication here is that imports have to be carved out from regulatory schemes.

The AB’s approach to evidence is absolutely shocking from a social science perspective. Essentially, the US gave detailed studies to show that the chase-encircle-net methods were especially harmful to dolphins and especially utilized in the ETP. Mexico showed weak evidence that some dolphins outside of the ETP may be sometimes harmed by other methods. They alleged that some tuna may be mislabeled, but provided no evidence. The AB, like the lower panel, gave roughly equal weight to these claims. Unlike the lower panel, the AB cited Mexico’s claims as a basis for a 2.1 rather than 2.2 violation.

The AB also revived an impossible to meet test (not derived from the actual TBT text) that “detrimental impacts on competitive opportunities stemming exclusively from legitimate regulatory distinctions” can be allowed under the TBT. We called this the DIOCOSEFLRD test, and argued that it would essentially be impossible to meet, since labels and other consumer protection measures have manifold effects, not all of which can be traced “exclusively” to the legitimate distinction. (para 297-299)

On the third point on Article 2.2, the AB overturned the lower panel ruling, essentially arguing that Mexico had not fully made its case – but not coloring in a whole lot what approach it will take on future 2.2 cases. (para 330)

On the fourth point on Article 2.4, the AB simply found that the AIDCP was not an “international” body because it wasn’t open to all WTO members, and didn’t delve too much into the other aspects of the U.S. and Mexico arguments (para 398)

On the fifth point, the AB ruled that Mexico’s claims should indeed have also been evaluated under the GATT – which could open the door to a whole new WTO case. (para 405)

Conclusion

In sum, the WTO (for the second time in a month) has showed very weak self-preservation instincts. It’s stepping into a hornet’s nest of domestic environmental and consumer protection from which it will not easily be able to extract itself.

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Comments

Rob Howse

In Tuna/Dolphin III, Mexico brought its complaint against the US to the WTO in clear violation of its obligation under NAFTA to settle this kind of environmental dispute in the NAFTA process. This is an additional reason for the US not to change its labeling scheme, at least until it can pursue Mexico in NAFTA proceedings-the US should not reward Mexico for violating its obligations to the US under NAFTA.

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