Case Study 8 WTO Law [PDF]

Zitiervorschau

Case-solving Unit 8: TECHNICAL BARRIERS TO TRADE Issue 1​: ​Whether Richland violates the national treatment obligation of Article 2.1 of the TBT Agreement when adopting an amendment to its car safety legislation requiring that rear-engined cars like the DilDil Plus be equipped with side airbags (in addition to front airbags) while front-engined cars are not subject to this amendment? Rules​: Article 2.1 of TBT Agreement US - Clove Cigarettes (2012) Analysis​: The Appellate Body in US - Clove Cigarettes ruled that for a violation of the NT obligation of Article 2.1 to be established, three elements must be satisfied: ❖ Whether the legislation which has been amended in 2019 is a ‘technical regulation’ within the meaning of Annex 1.1 In Annex 1.1, a technical regulation is defined as a “document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory…”. In this case, the amended car safety legislation concerns the side airbags requirement (airbags are one of the characteristics of a car) and is introduced and enacted by the government of Richland, thus has binding force. => Therefore the legislation which has been amended in 2019 is a ‘technical regulation’ within the meaning of Annex 1.1. ❖ Whether DilDil Plus and Topican are like products The Appellate Body in US - Clove Cigarettes (2012) stated that the determination of likeness under Article 2.1 of the TBT Agreement is , as under Article III:4 of the GATT 1994: a determination about the nature and extent of a competitive relationship between and among the products at issue1, which is based on 4 criteria: (1) The products’ physical characteristics Both products at issue are four-seats urban cars and are manufactured to meet the same safety and emission standards. The most prominent difference between them is the placement of the engine: DilDil Plus has its engine placed on the back while that of Topican is in the front, which is not sufficient to deny their generally similar physical characteristics. (2) End uses Both products at issue are wheeled motor vehicles used for transportation (in urban areas). Therefore their end-uses are like. (3) Consumers’ tastes and habits Even though the difference on the placement of engines between the two types of cars leads to different safety level (at least in the case of a rare event like head-on collision), 1

Appellate Body Report, US - Clove Cigarettes (2012), para. 120.

consumers do not care much about such factor when choosing which car to buy. There is proof for that: a recent survey showed that people in Richland generally consider front-engined cars to be much safer than rear-engined cars, although that does not seem to stop them from buying rear-engined cars. In other words, difference on safety level as a result of different placement of engines is not a decisive factor for consumers to consider when purchasing a car. Moreover, even though there is a price gap between the two products but it is not sufficient to make consumers completely disregard the more expensive one; they are still in a sufficiently strong competitive relationship. In the absence of one another, consumers will most likely go for the other one in looking for a substitutability. Therefore DilDil Plus and Topican are similar in terms of consumers’ tastes and habits. (4) Tariff classification Both products at issue are classified into the same heading which is 8703 => same tariff classification. => In conclusion, DilDil Plus and Topican are like products.

❖ Whether DilDil Plus are accorded less favourable treatment than Topican The Appellate Body in US - Clove Cigarettes interpreted the ‘treatment no less favourable’ requirement of Article as: prohibiting both de jure and de facto discrimination against imported products, while at the same time permitting detrimental impact on competitive opportunities for imports that stems exclusively from legitimate regulatory distinctions.2 To determine whether the detrimental impact stems exclusively from a legitimate regulatory distinction rather than reflecting discrimination, the design, architecture, revealing structure, operation and application of the meausure at issue shall be examined.3 In this case, the effect of side airbags requirement with rear-engined cars rather than front-engined cars is to impose additional costs (to equip side airbags) on producers in other Members, notably producers from Newland, while at the same time imposing no additional costs on any domestic Richland’s entity. Moreover, the risk to the safety of the occupants that Richland claims to minimize by requiring only rear-engined cars be equipped with side airbags is not very convincing, since the placement of engines has nothing to do with how the side airbags will protect the occupants. In other words, both types of cars would need equipping side airbags if they want to increase the safety level. The fact that only rear-engined cars are subject to the requirement makes no sense and is not in compliance with Richland’s motive which is to ensure the safety of people when driving. Not to mention that the amended legislation at issue exempts rear-engined cars from Friendland from the requirement, while DilDil Plus which are also rear-engined cars imported from Newland are not. => Even though the amendment to Richland’s car safety legislation does not expressly distinguish between treatment accorded to the imported and domestic like products, it operates in 2 3

Appellate Body Report, US - Clove Cigarettes (2012), para. 175. ​Appellate Body Report, US - Clove Cigarettes (2012), para. 182.

a manner that reflects discrimination against like products imported from Newland. Therefore, such amended legislation accorded to rear-engined cars imported from Newland less favourable treatment than that accorded to Topican - domestic like products, within the meaning of Article 2.1 of the TBT Agreement. Conclusion​: ​Richland violates the national treatment obligation of Article 2.1 of the TBT Agreement when adopting an amendment to its car safety legislation requiring that rear-engined cars like the DilDil Plus be equipped with side airbags (in addition to front airbags) while front-engined cars are not subject to this amendment. Issue 2​: ​Whether Richland violates the MFN obligation of Article 2.1 of the TBT Agreement when adopting an amendment to its car safety legislation requiring that rear-engined cars like the DilDil Plus be equipped with side airbags (in addition to front airbags) while exempting rear-engined cars from Friendland from the requirement for a period of two years? Rules​: Article 2.1 of the TBT Agreement US - Clove Cigarettes (2012); US - Tuna II (Mexico) (2012) Analysis​: As the Appellate Body stated in US - Tuna II (Mexico), Article 2.1 of the TBT Agreement sets out a largely similar test of consistency with the MFN treatment obligation which also includes three elements discussed above. The first element is already discussed; with regard to the second element, it is obvious that the products at issue are both rear-engined cars so they are like products. Thus we only need to examine the third element: ❖ Whether DilDil Plus - rear-engined cars from Newland are accorded less favourable treatment than rear-engined cars from Friendland In this case, the amendment to Richland’s car safety legislation requiring that rear-engined cars be equipped with side airbags (in addition to front airbags), while exempting rear-engined cars from Friendland from the requirement for a period of two years, modifies the conditions of competition in the relevant four-seats city car market to the detriment of DilDil Plus from Newland. In particular, such requirement takes time and money to meet, which will add up to the price of the products, putting DilDil Plus in disadvantage in terms of competitive opportunities and conditions in the relevant market. => DilDil Plus - rear-engined cars from Newland are accorded less favourable treatment than rear-engined cars from Friendland. Conclusion​: ​Richland violates the MFN obligation of Article 2.1 of the TBT Agreement when adopting an amendment to its car safety legislation requiring that rear-engined cars like the DilDil Plus be equipped with side airbags (in addition to front airbags) while exempting rear-engined cars from Friendland from the requirement for a period of two years.

Issue 3​: ​Whether the new standard No.952 on “Side Impact Protection Rear Engined City Cars” approved by the Richland Committee for Standardisation is consistent with Article 2.4 of the TBT Agreement Rules​: Article 2.4 TBT Agreement EC - Sardines (2002) Analysis​: ❖ Whether there exists a relevant international standard The standard approved by the International Car Manufacturers’ Association (ICMA) in 1970 concerns all the mandatory requirements to ensure the safety of occupants when driving, including airbags. And Standard No.952 on “Side Impact Protection Rear Engined City Cars” specifies performance requirements for protection of occupants of city cars in side impact crashes => The standard approved by the International Car Manufacturers’ Association (ICMA) in 1970 is an international standard relevant to Standard No.952. ❖ Whether the relevant international standard is ‘used as a basis’ for the Standard No.952 at issue The panel in EC - Sardines (2002) concluded that the requirement to ‘use as a basis’ imposes the obligation to ‘employ or apply’ the international standard as ‘the principle constituent or fundamental principle for the purpose of enacting the technical regulation’.4 According to the Appellate Body in the same case law, this comes down to an analysis of whether there is a contradiction between the relevant international standard and the technical regulation at issue.5 In this case, Standard No.952 employs the international standard of requirements for protection of occupants of rear-engined city cars as the fundamental principle for the purpose of approving the standard which is to reduce the risk of serious and fatal injury to occupants. In addition, even though the performance requirements set out in Standard No.952 are higher than the performance requirements set out in the standard approved by the International Car Manufacturers’ Association (ICMA) in 1970, they are not contradict with each other. => The relevant international standard is ‘used as a basis’ for the Standard No.952 at issue. ❖ Whether the relevant international standard is an effective and appropriate means for the fulfillment of the legitimate objectives pursued A number of intermediate questions need to be answered to examine this element: (1) whether a legitimate objective is pursued; (2) how to assess the ineffectiveness and inappropriateness of the international standard; and (3) who has the burden of proof with regard to the ineffectiveness or inappropriateness of the relevant international standard. First of all, the

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Panel Report, EC - Sardines (2002), para. 7.110. Appellate Body Report, EC - Sardines (2002), para. 249.

engined cars, particularly in side impact crashes, which is a legitimate objective. Secondly, Standard No.952 specifies performance requirements for protection of occupants of city cars in side impact crashes, including the requirement of side airbags equipment. Meanwhile the performance requirements of ICMA only require front airbags as a mandatory; the equipment of side airbags is optional. Meaning that in the event of a side impact crash, the ICMA requirements would not have the capacity to protect the occupants, at least not having the capacity to reduce the risk of serious and fatal injuries (the objective that Standard No.952 pursues), and it is not suitable for the fulfilment thereof.6 => The relevant international standard is not an effective and appropriate means for the fulfillment of the legitimate objectives pursued. Conclusion: The new standard No.952 on “Side Impact Protection Rear Engined City Cars” approved by the Richland Committee for Standardisation is consistent with Article 2.4 of the TBT Agreement. Issue 4​: Whether Richland would violate Article 2.2 of the TBT Agreement if they were to approve the draft legislation for the introduction of a quality label that domestic and foreign car manufacturers would be allowed to use on cars produced in countries which enforce the minimum labour standards set out in the relevant ILO Conventions (which Newland does not)? Rules​: ​Article 2.2 of the TBT Agreement US - Tuna II (Mexico) (2012) Analysis​: ❖ Whether the measure at issue is ‘trade-restrictive’ The Appellate Body in US - Tuna II (Mexico) (2012) defined ‘trade restrictive’ to mean ‘having a limiting effect on trade’.7 The labour standards vary from country to country, depending on the stage of development, per capita income, and political, social, and cultural conditions. If the proposed draft legislation at issue were to be approved, it would certainly cause some restrictions on trade. As we all know that besides the model, the price and other specific features that are generally be considered as characteristics of a car, consumers when purchasing a car are very much concerned about the quality label and logo that a car possesses. Especially in developed countries (like Richland) where labour standards is a very hot and sensitive issue, where people pay close attention to human rights issues, the fact that a car has a label showing that it was made in countries which enforce the minimum labour standards set out in the relevant ILO Conventions would make consumers develop a preference for it over a car which does not have such a thing. This could put Newland’s cars in disadvantage in terms of competitive opportunities and

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Appellate Body Report, EC - Sardines (2002), para. 288. Appellate Body Report, US - Tuna II (Mexico) (2012), para. 319.

conditions in the relevant market in comparison to domestic and imported cars from other countries and thus, have a limiting effect on trade. => The measure at issue is ‘trade-restrictive’. ❖ Whether the measure at issue fulfils a legitimate objective The third sentence of Article 2.2 lists specific examples of such ‘legitimate objectives’, however as indicated by the words ‘inter alia’ and as the Appellate Body stated in US - Tuna II (Mexico) (2012), the objectives expressly listed provide an illustration and reference point for other objectives that may be considered ‘legitimate’8. The objective of the draft legislation at issue is to promote fair labour practices and also to inform consumers on origin of the products, which could be considered as a legitimate objective. => The measure at issue fulfils a legitimate objective. ❖ Whether the measure at issue is ‘not more trade-restrictive than necessary’ to fulfil a legitimate objective, taking account of the risks non-fulfilment would create Adopting the ‘relational analysis’ of the Appellate Body in US - Tuna (Mexico) (2012)9, we shall examine these following factors: (i) The degree of contribution made by the measure to the legitimate objective at issue As discussed above, the legitimate objective of the draft legislation is to advance working conditions and promote fair labour practices. One of the most effective measures to help achieve such objective is to raise people’s awareness about labour conditions standards applied to every product that they consume. In other words, putting quality label can help inform consumers about issues that they are concerned with, particularly in this case are labour practices and working conditions, which could be achieved by the measure at issue => The degree of contribution made by the measure is comparably significant to the legitimate objective. (ii) The trade-restrictiveness of the measure As discussed above, if the draft legislation were to be approved, it would create certain restrictions on trade practices. However, the degree of trade-restrictiveness created by the legislation would not be very severe, because not everybody would be concerned with the labour standards or consider it as a decisive factor when purchasing a car, so the degree of trade-restrictiveness in this case still could be considered as acceptable and 'necessary'. (iii) The nature of the risks at issue and the gravity of consequences that would arise from non-fulfilment of the objective pursued through the measure The risks non-fulfilment of the labour standards in this case are disadvantaged competitive opportunities and conditions in the relevant market for Newland’s cars, which are less grave than the risks non-fulfilment of the objective of promoting fair labour practices. Conclusion​: ​Richland would not violate Article 2.2 of the TBT Agreement if they were to approve the draft legislation for the introduction of a quality label.

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Appellate Body Report, US - Tuna II (Mexico) (2012), para. 313. ​Appellate Body Report, US - Tuna II (Mexico) (2012), para. 322.