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Will DIOCOSEFLRD save tobacco rules from the WTO?

The WTO ruling against U.S. measures to reduce teen smoking continues to make waves, with folks like Daniel Ikenson, Scott Lincicome, and my old trade professor Steve Suranovic weighing in - mostly with straw man arguments or the straight libertarian push for less regulation. These are probably not the folks that have a lot invested in maintaining the Family Smoking Prevention and Tobacco Control Act (FSPTCA) to begin with.

We've laid out the essential timeline issues with compliance here. One of the more novel arguments for compliance comes from trade lawyer Rob Howse, who has commented on the issue at IELP here, here and here. In addition to recommending an extention of the FSPTCA's ban to menthol (which I've said is likely to be politically difficult if not impossible), Rob has suggested that the U.S. could comply by making a better case that the exclusion of menthol from the ban is justified. Towards this end, Rob advanced a novel interpretation of Article 21.5 of the WTO's Dispute Settlement Understanding (DSU), which reads:

“Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it.  When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB [Dispute Settlement Body] in writing of the reasons for the delay together with an estimate of the period within which it will submit its report.”

Rob seems to be saying that, while an Article 21.5 compliance panel could not overturn the AB’s ruling, it might be able to deem that the U.S. is acting consistently with the ruling if it had more data and studies justifying the U.S. approach.

There is a debate as to the legal merits of this argument, but it seems unlikely that the same panel that ruled against the FSPTCA once would think differently a second time around.

A bit of background is needed at this point.

In the WTO Appellate Body's (AB) ruling on the FSPTCA, the first step in their analysis was to examine the preamble to the Agreement on Technical Barriers to Trade (TBT, which the U.S. was found to violate), which is composed of nine “recitals” or paragraphs. It zeroed in on the second, fifth and sixth recitals, which read…

“Desiring to further the objectives of GATT [General Agreement on Tariffs and Trade] 1994;…
Desiring however to ensure that technical regulations and standards, including packaging, marking and labelling requirements, and procedures for assessment of conformity with technical regulations and standards do not create unnecessary obstacles to international trade;
Recognizing that no country should be prevented from taking measures necessary to ensure the quality of its exports, or for the protection of human, animal or plant life or health, of the environment, or for the prevention of deceptive practices, at the levels it considers appropriate, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade, and are otherwise in accordance with the provisions of this Agreement;…” (underline added)

The panel concluded that the GATT and TBT have to be interpreted in a “coherent and consistent manner,” and noted that the “right to regulate” is constrained by the requirement to comply with the TBT.  It would use these observations to state that judicial balancing exercises under the GATT consist of weighing obligation provisions against exception provisions, while balancing in the TBT (because of the context provided by the preamble) appears to consist of weighing obligations and exceptions within the same provision.

In sum, judicial balancing in the TBT can defer to regulatory prerogatives only when TBT rules are followed.

This balance – which continues to weigh heavily against regulation that violates TBT provisions –  led the AB to create a new “exception” type concept: “detrimental impacts on competitive opportunities stemming exclusively from legitimate regulatory distinctions” can be allowed under the TBT. This concept is so unwieldy that we will give it an appropriately unwieldy designation: the DIOCOSEFLRD test.

(This is likely to further confuse the ongoing debate about preambles in trade and investment agreements, which we explore in more detail in a separate memo.  Because there is no science to attributing weight to preambles, they can be (and usually are) used to interpret core provisions in anti-regulatory ways. But I digress...)

While, in some sense, it is positive that the AB chose to use the preamble to assign some weight to the virtues of regulation, the DIOCOSEFLRD test that it developed continues to assign much more weight to trade flows that than reasonable regulation.

Rob’s argument that the U.S. could comply without changing its measures seems to hinge on the AB's notion that the TBT Article 2.1 contains its own internal balancing exercise (similar to the balancing exercise in the GATT and GATS between obligation and exception provisions). Accordingly, even if the U.S. is out of line with its WTO obligations, it may be able to make a better argument that its measures can now take advantage of an exception.

Translated to the new TBT Article 2.1 jurisprudence, the U.S. could still be according less favorable treatment to Indonesia’s like cloves relative to U.S. menthols (i.e. still not meeting its WTO obligations), but it may be better able (with new info) to show that the FSPTCA can meet the DIOCOSEFLRD test (i.e. better meet an applicable WTO exception).

Rob cites the Article 21.5 compliance panels in EC-Bed Linen and US-Shrimp. The first was not an exception case, and the second was an older GATT case where the U.S. had actually done something to comply and it was Malaysia that was effectively religitating the underlying merits of the case.

But it does seems like the universe of most relevant WTO cases are those where exception provisions were invoked (since Rob suggests that the DIOCOSEFLRD is an exception of sorts), which we conveniently have listed here.

In contrast, The more relevant and recent case may be the Article 21.5 compliance panel in US-Gambling, where the U.S.did not get rid of its Internet gambling ban nor its partial allowance of betting on horses (a discrepancy that cost the U.S. recourse to an exception provision of the General Agreement on Trade in Services Article XIV). Instead, the U.S. attempted to better qualify for an exception provision in the GATS by providing new evidence, even though it did not dispute that it continued to be non-compliant with the underlying market access obligation.

The compliance panel did not buy the U.S. argument. They stated that:

  1. In order to bring a measure into conformity with WTO obligations, “some change must come about.” (6.14)
  2. When a member violates WTO rules, the preferred solution is a prompt withdrawal of the measure (6.17 – 6.18)
  3. Measures to comply would “in principle, be new measures” – not the measure that was the subject of the original dispute. (6.19) This could include a new application of the old measure (6.21)
  4. A measure that simply moves in the direction of compliance is probably not good enough. (6.24)
  5. In sum, “There has been no change to any of these three measures since the original proceeding. There has been no change in the application of these three measures, or even their interpretation, since the original proceeding. There is no evidence of any changes in the factual or legal background bearing on these measures or their effects since the original proceeding that might have brought them into compliance. This indicates that they remain inconsistent with the United States' obligations under the GATS.” (6.27)

The U.S. argued that “it is not asking the Panel to revisit the findings of the Panel and the Appellate Body in this case, but that it is requesting the Panel to examine the issues under the chapeau of Article XIV based on new evidence and arguments not previously available to the Panel or the Appellate Body.” (6.40)

This seems to comport closely with Rob’s argument that new data may show that the U.S. could better meet the DIOCOSEFLRD test.

But the 21.5 compliance panel noted that such relitigation on the basis of better arguments risks going against the DSU’s mandate and “would run counter to the prompt settlement of disputes” (6.53) and the finality of AB decisions (6.57).

The panel also noted that precedents that the U.S. tried to invoke to justify this approach related to the consistency of measures taken to comply, rather than attempts to better qualify for an exception (6.61).

The U.S. also attempted to invoke the ambiguity as to the factual conclusions of the US-Gambling ruling on Article XIV to suggest that better evidence could lead to a different conclusion on Article XIV. But the compliance panel noted that the AB felt that the ambiguity of the facts in the first place did not constitute a sufficient ground for reaching a different legal conclusion, (6.76) and the ambiguity was not a matter of poor argumentation by USTR, but “a reflection of the ambiguous state of U.S. domestic law.” (6.83) (Some of that alleged ambiguity related to a failure of the federal government to prosecute intrastate gambling in the intervening period – a hairy constitutional issue (6.120-6.121) – and the lack of evidence of actual prosecutions (6.129).)

In sum, compliance panels have seemed unfavorably disposed to forgiving WTO violations on the basis of something short of a change in the real world.

Now, Rob could state that it is precisely because the DIOCOSEFLRD test hinges in part on the legitimacy of the underlying regulatory distinction that a compliance panel might be willing to consider legitimacy in the light of better understanding of the facts on the ground, even if the facts themselves hadn’t changed.

But even accepting this (which seems highly unlikely), the U.S. would still have to meet the test that the “detrimental impact on competitive opportunities stems exclusively from the legitimate regulatory distinction” (emphasis added).

I imagine this would be a difficult bar to meet, as competitive opportunities are shaped by many factors. And the FSPTCA itself probably affects competitive opportunities in all sorts of direct and indirect ways, such as by stigmatizing clove consumption (as Dr. Suranovic pointed out above). This impact on competitive opportunities could go beyond those impacts caused exclusively by the legitimate regulatory distinction (based in part on the predicted adverse impact of banning menthols).

So, I fully endorse Rob’s theory to the extent that it buys the U.S. time and could create openings for a political resolution. But I don’t know that a panel tasked with using the compliance proceedings to ensure a "satisfactory" resolution to disputes pursuant to the objects and purpose of the DSU Article 3 would agree that a measure that does not ban menthol nor allow clove imports achieves the DSU’s goals…

Which, IMHO, is why the rules themselves must change, to better protect sovereign prerogatives to engage in regulation (incremental and otherwise) without running through WTO minefields.

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Scott Lincicome

Thanks for the link to my post.  I always welcome the increased traffic.  So here's what I don't understand: your (pretty reasonable, minus the title) analysis above - which plainly demonstrates potential compliance alternatives, the FSPTCA's political weaknesses and the WTO's systematic and reasonable approach to these complicated issues - totally belies the initial (and ridiculous) hysteria that you and Lori spread when the ruling came out. (See, e.g., here: So much for "straw men.")
It's clear from your post that the WTO is not waging some secretive and pernicious attack on national health and safety regulations.  Instead, they're just openly and objectively adjudicating trade disputes based on the non-discrimination rules that currently exist.  As you say, you don't like those rules, and that's fine, I guess - I don't like a few of them either.  But that criticism is a far cry from broadly slandering the WTO and misleading the public into thinking that a secretive cabal of Genevan bureacrats has just "ordered" the United States to stop protecting children (or something).
If you and Lori had been this level-headed from the outset, I doubt Dan or I would've blogged on the issue.


As a casual observer, I have to wonder if the measure is worth defending. If the AB went out beyond its jurisdiction (i.e. a reasoning that was unsustainable under the rules of treaty interpretation), then I would. Not because I agree or disagree with the measure, but because the AB is denting the legitimacy of the entire WTO system as a legal institution.

But the reasoning, in my short knowledge, looked convincingly restricted within the permits of the law. In this case, the question becomes the reverse - is the measure worth saving, even if it means that the AB would have to abandon its currently solid looking reasoning?

I am not a health expert, but the ban against the clove, when rest of the others are still allowed in daylights, seemed not particularly effective.

Todd Tucker

Thanks for participating in the debate. Some further thoughts on what you raise here:

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