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TWN Info Service on WTO and Trade Issues (May17/19)
26 May 2017
Third World Network

       
Mexico gets go-ahead to retaliate against US in tuna dispute
Published in SUNS #8469 dated 24 May 2017


Geneva, 23 May (Kanaga Raja) - The Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) on Monday approved the request by Mexico for authorisation to suspend the application to the United States of tariff concessions and other related obligations in the amount of US$163.23 million per annum.

This is in relation to its dispute with the United States over the US "dolphin-safe" labelling regime for tuna products.

In its communication to the DSB, Mexico said that it will implement the suspension of tariff concessions and other related obligations by increasing import tariffs on goods from the United States, and that it will submit the details of this measure at the earliest possible date.

In a ruling issued on 25 April, an Arbitrator at the WTO had determined that Mexico may request authorisation from the DSB to suspend concessions or other obligations to the United States at a level not exceeding US$163.23 million per annum (see SUNS #8451 dated 27 April 2017).

On 13 June 2012, the DSB adopted the original Appellate Body report in this dispute, together with the report of the original panel as modified by the Appellate Body.

In so doing, the DSB adopted the Appellate Body's finding that the US Tuna Measure at issue in the original proceedings (the original Tuna Measure) was inconsistent with Article 2.1 of the Agreement on Technical Barriers to Trade (TBT Agreement).

On 9 July 2013, the United States published in its Federal Register a legal instrument entitled "Enhanced Document Requirements to Support Use of the Dolphin Safe Label on Tuna Products" (the 2013 Final Rule).

According to the United States, the 2013 Final Rule constituted the measure taken to comply with the DSB recommendations and rulings pursuant to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

Mexico considered that the 2013 Final Rule failed to bring the United States into compliance with the DSB recommendations and rulings.

Subsequently, on 14 November 2013, the DSB, at Mexico's request, established a panel under Articles 6 and 21.5 of the DSU, Article 14 of the TBT Agreement, and Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994).

On 14 April 2015, that panel found that the United States had not brought its measure into compliance, and that the "amended tuna measure" was inconsistent with Article 2.1 of the TBT Agreement and Articles I:1 and III:4 of the GATT 1994. The Appellate Body upheld those findings, albeit largely on the basis of different reasoning.

In response, the US adopted a second modified tuna measure in 2016, which was not the subject of the arbitration proceedings.

The Arbitrator determined in the proceedings, that the measure to which this interpretation directs the Arbitrator is the 2013 Tuna Measure, and not the 2016 Tuna Measure.

A compliance panel is currently examining the 2016 tuna measure and is expected to issue its final report to the parties by mid-July.

Mexico on 10 March 2016 had requested authorization from the DSB to suspend concessions to the United States in the amount of US$472.3 million annually.

On 22 March 2016, the US objected to this amount and at a meeting of the DSB on 23 March 2016, the matter was automatically referred to arbitration.

Following the award of the Arbitrator on 25 April, at the DSB meeting on Monday, Mexico sought authorisation from the DSB to retaliate against the US.

According to trade officials, at the DSB meeting, Mexico pointed out that the Arbitrator had agreed with the model proposed by Mexico for calculating trade losses resulting from the illegal US measure, which produces estimated losses 7 to 19 times higher than that of the US model.

In its statement at the DSB, the US expressed regret over the request for authorisation put forward by Mexico.

The US said that in March 2016, the US National Oceanic and Atmospheric Administration (NOAA) had issued a rule modifying the US dolphin-safe labelling measure.

That rule directly addressed the DSB's findings and brought the US into compliance with its WTO obligations, it maintained.

As a result, if the compliance panel confirms that the current dolphin-safe labelling measure is no longer WTO-inconsistent, there would be no basis under WTO rules to apply any countermeasures, it added.

The US also raised some concerns over the award by the Arbitrator. Firstly, it said that the Arbitrator based its report on a measure that no longer exists.

This choice was inconsistent with the purpose and proper operation of an Article 22.6 proceeding, as made clear by the text of the DSU.

The level of suspension of concessions determined in any arbitration under Article 22.6 of the DSU must be equivalent to the current level of nullification and impairment.

According to the US, the text of DSU Article 22.4 is clear that the appropriate level of suspension of concessions may not exceed "the level of nullification or impairment" currently caused by the measure found to be WTO-inconsistent.

Article 22.7 also makes it clear that the relevant inquiry is focused on the present level of nullification and impairment, and Article 22.8 of the DSU is explicit that there can be no suspension of concessions where there is compliance.

Therefore, as the US tuna measure has been brought into compliance, there is no basis for a suspension of concessions in this dispute, it said.

With respect to the trade effects analysis in the award, the US said the Arbitrator's analysis erroneously over-estimates the trade impact of this measure.

More importantly, the Arbitrator used Mexico's model as a basis for calculation, even though the model was based on three major assumptions that were unproven and, in fact, were contrary to the evidence on US consumer preferences and the global supply of canned tuna.

First, the Arbitrator accepted Mexico's claim that the US measure restricted the supply of canned yellowfin to the US market, despite significant evidence to the contrary.

The Arbitrator claimed that the adoption of the US tuna measure in 1990 was "the main reason" for declining yellowfin imports and purchases by US canneries. But the Arbitrator ignored the fact that all tuna purchases by US canneries declined in the 1990s, the US said.

The Arbitrator also asserted that yellowfin prices "generally increas[ed]" after 1990. But the Arbitrator relied on evidence related to fresh yellowfin for sale in the direct consumption/sashimi markets, not cannery-grade frozen yellowfin.

According to the US, they are two different markets - as any lover of sushi would appreciate - and cannot be confused.

Second, the Arbitrator found that, on average, US consumers prefer canned yellowfin over other types of canned tuna. But no evidence suggested more than a tiny fraction of US consumers have such a preference.

To the contrary, said the US, the evidence established that US consumers have a strong preference for canned albacore and skipjack-based light-meat tuna, as skipjack is the least expensive type of tuna and is low in mercury.

Multiple surveys confirmed that only a tiny percentage of consumers buying canned tuna (2-6%) look for yellowfin.

Additionally, US consumers, for decades, have been deeply concerned about the harmful effects of dolphin "sets" and have wanted to purchase tuna caught by other methods.

In response to this concern, all major US retailers have, for decades, decided not to purchase canned tuna produced by setting on dolphins.

The US said that it presented statements by all of the largest US retailers showing that their purchasing policies regarding canned tuna would not be affected by removal of the tuna measure.

Some of the retailers declared explicitly that they would never purchase tuna caught by setting on dolphins, while others explained that their purchasing decisions were not affected by the official label and would not be changed by its removal.

The US maintained that the Arbitrator had ignored the evidence about US consumer preferences and how they have shaped the decisions of all major US retailers.

Instead, the Arbitrator assumed that any retailer in the United States that had not explicitly vowed to never purchase tuna caught by setting on dolphins would start purchasing Mexican tuna if the measure were withdrawn.

This included retailers that had confirmed that removal of the measure would have no effect on their purchasing decisions.

Third, said the US, the Arbitrator agreed that Mexico would be the only supplier of canned yellowfin in the US market. "Let me repeat: no other WTO Member would successfully compete to sell canned yellowfin tuna in the US market."

This is unrealistic, and the assumption was made without any evidence as to the cost structure of the Mexican tuna industry compared to other industries or any evidence of the Mexican industry's ability to compete successfully in any market outside Mexico.

In combination, these findings resulted in a large over-estimation of the trade effects from the previous version of the dolphin-safe labelling measure. But as noted at the outset, the Arbitrator's analysis was of a measure that no longer exists today.

The US said if the compliance panel confirms that the current 2016 dolphin-safe labelling measure is no longer WTO-inconsistent, there would be no basis under WTO rules to apply any countermeasures in relation to the award that is being discussed today.

According to trade officials, Mexico, Japan, Canada and Brazil voiced systemic concerns about creating an endless "loop" of litigation whereby a member continuously proposes changes in measures deemed to be inconsistent with WTO rules in order to prevent a complainant from applying retaliatory measures.

In its intervention, Canada commended the Arbitrator for its cogent analysis and for taking due account of the systemic considerations at issue.

In particular, it welcomed and supported the finding that, under DSU Article 22.6, an Arbitrator is mandated "to assess the level of nullification or impairment caused by the WTO-inconsistent original measure (where no compliance measure was subsequently taken), or a subsequent WTO-inconsistent compliance measure, that was in existence at the time of expiry of the RPT [reasonable period of time]."

Like the Arbitrator, Canada said that it shared the concern expressed by Mexico regarding an interpretation of DSU Article 22.6 according to which a new assessment of compliance would be necessary before the DSB can authorise the suspension of concessions whenever:

(i) a compliance measure subject to adverse DSB recommendations and rulings is further modified;

(ii) the responding party claims to have come into compliance as a result of that modification; and

(iii) an Article 22.6 arbitration is subsequently conducted.

As the Arbitrator rightly notes, such an interpretation "could very substantially delay and ... effectively thwart, a complaining party's efforts towards obtaining DSB authorisation to suspend concessions."

Canada said this is consistent with the view that it has expressed in this forum, most recently at the DSB meeting on 20 February 2017, that it would be appropriate for the complaining party to be able to exercise its rights under DSU Article 22 in all circumstances where the DSB has ruled that a measure taken to comply in fact does not comply.

The adoption of successive modifications to a compliance measure must not undermine the ability of a complaining party to seek to suspend concessions, which is the remedy provided for in DSU Article 22 in cases of non-compliance.

According to Canada, that remedy effectively contributes to preserving the rights and obligations of Members under the covered agreements.

Canada therefore congratulated the Arbitrator for this well-reasoned and important section of the decision.

Mexico, Brazil and India also voiced concerns over the WTO Arbitrator allowing a delayed broadcast of the US opening statement at the arbitration hearing despite Mexico's opposition to the opening of the hearing.

OTHER ACTIONS

In other actions, the DSB agreed to establish a panel, at the request of India, to examine whether its revised measures relating to the importation of poultry and other agricultural products are in compliance with the rulings and recommendations of the DSB (see SUNS #8447 dated 21 April 2017).

This was a second-time request and panel establishment was automatic.

Japan, the European Union, Australia, Singapore, the Russian Federation, Kazakhstan, Korea, Brazil, Vietnam, China and Guatemala reserved their third party rights to the dispute.

According to trade officials, India reiterated its concerns over the US decision to seek authorization from the DSB to retaliate against India for not complying with the ruling without first seeking a compliance panel review of India's implementation efforts.

India also pointed out that the US has refused to enter into a sequencing agreement with India which would have allowed a compliance panel to rule while safeguarding US rights to retaliate in the event of a finding of non-compliance.

The US said that India has no basis for asserting compliance with the DSB recommendations in this dispute.

It recalled that the DSB found that India's measures blocking the importation of US poultry and other agricultural products were not based on science and breached several obligations of India under the SPS Agreement.

The DSB adopted these rulings in June 2015, nearly two years ago. Despite that, India continues to maintain a complete ban on US poultry and other agricultural products, the US maintained.

The US said that it has made concrete proposals to India and has yet to receive a substantive reply from India to those proposals.

It is regrettable that India remains focused on litigation instead of on actually achieving compliance in this dispute, said the US.

According to trade officials, Japan, the EU, Canada, Australia, Colombia, and Brazil reiterated concerns first expressed at the April meeting of the DSB regarding the issue of sequencing. Most of them argued that compliance proceedings should precede any request for the right to retaliate.

On the other items before the DSB, a request for the establishment of a panel by Turkey over countervailing measures imposed by the US on certain pipe and tube products from Turkey was blocked by the US.

Also at the meeting, Colombia blocked a panel request by Panama to examine whether Colombia had complied with an earlier panel ruling over Colombian measures related to the importation of textiles, apparel and footwear from Panama.

Both the Turkey request and that by Panama were first-time requests, and panel establishment will be automatic when the requests come up again before the DSB.

The DSB also adopted the panel report in the dispute over Chinese anti-dumping measures on imports of cellulose pulp from Canada, as well as the panel and Appellate Body reports in the dispute over certain US methodologies and their application to anti-dumping proceedings involving China.

Meanwhile, under "other business", the Russian Federation informed the DSB that it has successfully met the 11 May deadline for fully implementing the DSB rulings and recommendations in the dispute with the EU over Russia's tariff treatment of certain agricultural and manufacturing products (DS485).

Russia said for certain measures, such as palm oil, certain types of paper (measures 6, 7 and 8) and refrigerators (measures 10 and 11 challenged in the dispute), it had amended its applied rates prior to, or in the course of, these proceedings.

As of 1 September 2016, the duty applied by Russia in relation to the 9th measure at issue was also brought into conformity with Russia's WTO tariff commitments.

Further, with respect to duties on paper and paperboard products (measures 1-5), the Common Customs Union Tariff was amended in accordance with the recommendations of the Panel with the Decision of the Board of the Eurasian Economic Union adopted on 31 January 2017. This Decision came into force on 3 March 2017, it said.

APPELLATE BODY APPOINTMENTS

According to trade officials, the DSB again failed to reach agreement on the procedures for selecting two new Appellate Body members. The second four-year term of Mr. Ricardo Ramirez Hernandez will expire on 30 June 2017, and the second four-year term of Mr. Peter Van den Bossche will expire on 11 December 2017.

Two proposals were tabled at the meeting. One was put forth by Argentina, Brazil, Colombia, Chile, Guatemala, Mexico and Peru, and called for commencing the selection process of Mr. Ramirez's replacement immediately and to agree on his successor by 24 October.

The other proposal was tabled by the EU, calling for commencing both selection processes immediately and completing both of them by 24 October.

According to trade officials, the US said it was not in a position to agree to the EU proposal, given the ongoing transition in the new US administration and the recent appointment of the new US Trade Representative.

It would however agree to launching the process for Mr. Ramirez's replacement given that he will leave at the end of June.

The EU said it saw no reason why both selection processes could not begin immediately and why one selection process was being singled out. It called upon the Chair of the DSB to continue consultations to find a solution.

According to trade officials, China, India, Japan, Australia, New Zealand, Norway, Hong Kong (China), Korea, Switzerland, Canada, Chinese Taipei, Ecuador, Vietnam, and Russia expressed concerns over the continued delay.

Several Members pointed out that even if members could agree to launch the selection process for Ramirez's replacement today, there would still be a gap of several months before he leaves and before his successor arrives, putting further strains on the WTO's Appellate Body and dispute settlement system.

 


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