TWN Info Service on WTO and Trade Issues (Jun20/10)
11 June 2020
Third World Network

WTO Appellate Board rules in favour of Australia over tobacco plain packaging
Published in SUNS #9136 dated 11 June 2020

Geneva, 10 Jun (Kanaga Raja) – The Appellate Body (AB) of the World Trade Organization (WTO) has upheld an earlier dispute panel ruling that had rejected the claims put forward by Honduras and the Dominican Republic that the tobacco plain packaging (TPP) measures instituted by Australia are inconsistent with its WTO obligations.

In a ruling issued on 9 June, the AB noted that the Panel had rejected the complainants’ claims and found that Honduras and the Dominican Republic had not demonstrated that the TPP measures are inconsistent with the provisions of the covered agreements at issue.

In light of these findings, the Panel had declined Honduras’ and the Dominican Republic’s requests that the Panel recommend, in accordance with Article 19.1 of the Dispute Settlement Understanding (DSU), that the Dispute Settlement Body (DSB) request Australia to bring the measures at issue into conformity with the TRIPS Agreement and the TBT (Technical Barriers to Trade) Agreement.

Having upheld the Panel’s findings under Article 2.2 of the TBT Agreement and Articles 16.1 and 20 of the TRIPS Agreement, the AB said that “it follows that we also agree with the Panel that Honduras and the Dominican Republic have not succeeded in establishing that Australia’s TPP measures are inconsistent with the provisions of the covered agreements at issue.”

Accordingly, the AB made no recommendation to the DSB, pursuant to Article 19.1 of the DSU.

This is the last AB report to be issued for now on account of the continued blockage by the United States in launching the selection process at the DSB to fill current vacancies at the Appellate Body.

[In a post on the IELP blog, Prof Simon Lester, a US trade law academic, said: “So that’s it for the Appellate Body, at least for now. No more reports are coming. (I’m not sure what will be done with the 11 panel reports that have been appealed).

[“What happens now? The establishment of the MPIA [the EU-led multi-party interim appeal arbitration arrangement] is moving along, with 21 parties and a pool of arbitrators likely to be coming soon. Will the MPIA work as a way for those 21 to maintain an appeals process? Will it work so well that others will sign on to it? Will it move from being interim to being permanent? Could it become the basis for a revived Appellate Body? It’s hard to predict any of this at the moment.” See full post at: https://ielp.worldtradelaw.net/2020/06/the-last-appellate-body-report-for-now.html

[Though there have been a number of posts on the blog, relating to the MPIA, none of these have so far raised the issue of the validity of invoking Article 25 of the DSU to set up the MPIA by 21 parties (EU+20 others) that requires changes to DSU rules and its costs to be borne out of the regular WTO budget. The US has objected to this last. See SUNS #9123 & #9134. See also   https://twn.my/title2/wto.info/2020/ti200520.htm,  https://twn.my/title2/wto.info/2020/ti200608.htm ]

The three AB members presiding over this dispute were Shree B. C. Servansing, Ujal Singh Bhatia and Thomas R. Graham.

However, one member of the AB issued a separate opinion concerning the findings under Article 2.2 of the TBT Agreement (see below).

BACKGROUND

According to the AB report, Honduras and the Dominican Republic each appealed certain issues of law and legal interpretations developed in the Panel Report, Australia – Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging.

The Panel was established to consider complaints by Honduras, the Dominican Republic, Cuba, Indonesia, and Ukraine with respect to certain restrictions, imposed by Australia, on trademarks, geographical indications (GIs), and other plain packaging requirements, applicable to all tobacco products sold, offered for sale, or otherwise supplied in Australia.

[Cuba and Indonesia did not appeal the Panel’s findings while Ukraine withdrew its complaint before the Panel had issued its ruling.]

The measures at issue in these disputes (the TPP measures) are “one of the means by which the Australia[n] Government will give effect to Australia’s obligations under the [World Health Organization Framework Convention on Tobacco Control (2003) (FCTC)]” and, in particular Articles 5, 11, and 13 of the FCTC, said the AB report.

CLAIMS UNDER ARTICLE 11 OF THE DSU

On claims under Article 11 of the DSU, the AB noted that the appellants had requested it to reverse the Panel’s conclusion that “the TPP measures are apt to, and do, make a meaningful contribution to Australia’s objective of reducing the use of, and exposure to, tobacco products.”

The appellants’ request is based, primarily, on their claims that the Panel failed in its duty under Article 11 of the DSU to make an objective assessment of the matter before it, with the appellants’ focus being on the Panel’s assessment of the facts of the case.

Australia had asked the AB to reject all of the appellants’ claims under Article 11 of the DSU, characterizing them as an “unprecedented assault on a panel’s performance of its fact-finding function.”

In its analysis on this issue, the AB noted that the sheer volume of the appellants’ claims under Article 11 of the DSU in these appellate proceedings is unprecedented.

The AB recalled that a claim that a panel has failed to conduct an objective assessment of the matter before it is “a very serious allegation”. Not every error by a panel amounts to a failure by the panel to comply with its duties under Article 11, only those which, taken together or singly, undermine the objectivity of the panel’s assessment of the matter before it, it said.

Indeed, said the AB, as an example of the grave implications of claims brought under Article 11, the Appellate Body has considered that a panel’s “[d]isregard”, “distortion”, and “misrepresentation” of evidence, “in their ordinary signification in judicial and quasi-judicial processes, imply not simply an error of judgment in the appreciation of evidence but rather an egregious error that calls into question the good faith of a panel”.

For these reasons, the Appellate Body has urged Members to consider carefully “when and to what extent to challenge a panel’s assessment of a matter pursuant to Article 11”. This is in keeping with the objective of the prompt settlement of disputes, and the requirement in Article 3.7 of the DSU that Members “exercise judgement in deciding whether action under the WTO dispute settlement procedures would be fruitful”.

The AB emphasized that it will not entertain attempts by the appellants to re-submit their factual arguments under the guise of challenging the objectivity of the Panel’s assessment of the facts of the case.

In the AB’s view, entertaining such factual arguments would undermine the Panel in its role as the trier of facts and the adjudicator of first instance in WTO dispute settlement.

“To our minds, entertaining the appellants’ factual arguments would not only fail to respect the role, and discretion, of the Panel as the trier of facts, but it would also not be in line with the Appellate Body’s caution that we: (i) will not “interfere lightly” with the panel’s fact-finding authority; (ii) will not “second-guess the [p]anel in appreciating either the evidentiary value of … studies or the consequences, if any, of alleged defects in [the evidence]”; and (iii) will not reach “a finding of inconsistency under Article 11 simply on the conclusion that [we] might have reached a different factual finding from the one the panel reached”.”

FINDINGS BY THE AB UNDER ARTICLE 2.2 OF TBT AGREEMENT

On Article 2.2 of the TBT Agreement, the AB said that with respect to the contribution of the TPP measures to Australia’s objective, it found that the appellants have not demonstrated that the Panel erred in finding, in paragraphs 7.1025 and 7.1043 of the Panel Report, that:

“7.1025. Overall ….. the complainants have not demonstrated that the TPP measures are not apt to make a contribution to Australia’s objective of improving public health by reducing the use of, and exposure to, tobacco products. Rather, we find that the evidence before us, taken in its totality, supports the view that the TPP measures, in combination with other tobacco-control measures maintained by Australia (including the enlarged GHWs [graphic health warnings] introduced simultaneously with TPP), are apt to, and do in fact, contribute to Australia’s objective of reducing the use of, and exposure to, tobacco products.

“7.1043. Taken as a whole, therefore, we consider that the evidence before us supports the view that, as applied in combination with the comprehensive range of other tobacco control measures maintained by Australia and not challenged in these proceedings, including a prohibition on the use of other means through which branding could otherwise contribute to the appeal of tobacco products and to misleading consumers about the harmful effects of smoking, the TPP measures are apt to, and do, make a meaningful contribution to Australia’s objective of reducing the use of, and exposure to, tobacco products.”

With respect to the trade restrictiveness of the TPP measures, the AB found that the appellants have not demonstrated that the Panel erred in finding, in paragraph 7.1255 of the Panel Report, that: “[T]he TPP measures are trade-restrictive, insofar as, by reducing the use of tobacco products, they reduce the volume of imported tobacco products on the Australian market, and thereby have a “limiting effect” on trade. We also conclude that, while it is plausible that the measures may also, over time, affect the overall value of tobacco imports, the evidence before us does not show this to have been the case to date. We are also not persuaded that the complainants have demonstrated that the TPP measures impose conditions on the sale of tobacco products in Australia or compliance costs of such magnitude that they would amount to a limiting effect on trade.”

With respect to the alternative measures, the AB found that the Panel erred in finding that the complainants failed to demonstrate that each of the two alternative measures would be apt to make a contribution equivalent to that of the TPP measures.

Specifically, to the extent that the Panel suggested that each alternative measure may be considered apt to achieve a similar or comparable degree of “meaningful” overall reduction in smoking in Australia to that of the TPP measures, and yet its contribution would not be equivalent because of its failure to address the design features of tobacco packaging that the TPP measures seek to address in the context of Australia’s broader tobacco control policy, the AB found that the Panel erred in its application of Article 2.2.

At the same time, the AB said that it also found that the Panel did not err in finding that the complainants failed to demonstrate that these two alternative measures are less trade-restrictive than the TPP measures.

“Consequently, although we have found that the Panel erred in its application of Article 2.2 with respect to the equivalence of the contribution of each alternative measure, the Panel’s findings, in paragraphs 7.1471 and 7.1545 of the Panel Report, that the complainants had not demonstrated that the increase in the MLPA [minimum legal purchasing age] and the increase in taxation would each “be a less trade-restrictive alternative to the TPP measures that would make an equivalent contribution to Australia’s objective”, stand,” said the AB.

For these reasons, the AB upheld the Panel’s conclusion, in paragraph 7.1732 of the Panel Report, that: “[T]he complainants have not demonstrated that the TPP measures are more trade-restrictive than necessary to fulfil a legitimate objective, within the meaning of Article 2.2 of the TBT Agreement.”

SEPARATE OPINION ON ARTICLE 2.2 OF TBT AGREEMENT

According to the separate opinion of one AB member, it is well settled that not every error by a panel rises to the level of a breach of Article 11 of the DSU. Under the DSU, panels enjoy considerable discretion with respect to fact-finding and the evaluation of facts.

This is underscored by the language of Article 11 that “a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case”, read in conjunction with Article 17.6 of the DSU, which says that “[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.”

In other words, Article 11 claims on appeal should be reserved – and entertained – only for rare instances of “egregious” errors by panels, which call into question the good faith of the panel.

With respect to the appellants’ claims regarding the Panel’s analysis under Article 2.2 of the TBT Agreement, the dissenting AB member said he concurred with the majority’s ultimate findings and conclusions.

“However, I disagree on two points: (i) that it was necessary to examine in detail the appellants’ claims that the Panel erred in determining the degree of contribution of the TPP measures to Australia’s objective; and (ii) that the Panel’s treatment of and reliance on multi-collinearity and non-stationarity constituted an error under Article 11 of the DSU.”

The AB member believed that it was unnecessary, for purposes of resolving these disputes, for the majority to consider in detail the appellants’ claims regarding the Panel’s assessment of the TPP measures’ contribution to Australia’s objective.

For that reason, he also believed that it was inadvisable for the majority to consider in detail the appellants’ contribution claims. “This could have been a much shorter report, I believe, based on the findings that the first sentence of paragraph 7.1025, regarding aptness, stands, that the appellants’ proposed alternatives would not be less trade-restrictive than the TPP measures, and therefore that the appellants failed to demonstrate that the TPP measures are inconsistent with Article 2.2,” he said.

The AB member also disagreed with the majority’s intermediate finding that, by introducing in its Interim Report econometric analyses that had not been tested with the parties, the Panel failed to observe due process in a way that constitutes a violation of Article 11 of the DSU.

In his view, the Panel’s reliance on multi-collinearity and non-stationarity to test the robustness of the parties’ evidence was part of the Panel’s reasoning, with respect to which a panel enjoys considerable discretion. The parties to this case submitted to the Panel a large amount of econometric evidence. It was appropriate for the Panel to assess the probative value of that evidence.

He considered that the Panel acted within the bounds of its discretion as a trier of facts by not only examining the parameters used by each party, but also by going further in its evaluation and testing the robustness of the parties’ econometric evidence for multi-collinearity and non-stationarity.

The complainants became aware of the Panel’s analysis of multi-collinearity and non-stationarity when they received the Panel’s Interim Report on 2 May 2017. However, the complainants did not raise any substantive concerns with respect to these aspects of the Panel’s analysis in their comments on the Interim Report, nor did they request an interim review meeting.

In the AB member’s view, the complainants’ failure to raise these issues at the interim review stage undermines the appellants’ claim regarding due process. Thus, since the complainants had an opportunity to raise these issues and did not do so, he did not agree with their claim that the Panel denied them due process by not “giving the parties any opportunity whatsoever to comment”.

In light of the above, the AB member considered that the appellants have not demonstrated that the Panel failed to make an objective assessment of the facts of the case as required under Article 11 of the DSU by denying the parties an opportunity to comment on the Panel’s reliance on multi-collinearity and non-stationarity.

FINDINGS BY THE AB UNDER THE TRIPS AGREEMENT

On Article 16.1 of the TRIPS Agreement, the AB said that Article 16.1 of the TRIPS Agreement grants a trademark owner the exclusive right to preclude unauthorized third parties from using, in the course of trade, identical or similar signs for goods or services that are identical or similar to those with respect to which the trademark is registered.

The owner of a registered trademark can exercise its “exclusive right” as against an unauthorized third party but not against the WTO Member in whose territory the trademark is protected.

Neither the TRIPS Agreement nor the provisions of the Paris Convention (1967) that are incorporated by reference into the TRIPS Agreement confer upon a trademark owner a positive right to use its trademark or a right to protect the distinctiveness of that trademark through use.

Accordingly, there is no corresponding obligation on Members to give effect to such “rights”. Instead, in accordance with Article 1.1 of the TRIPS Agreement, Members are required to give effect to Article 16.1 by ensuring that, in the Members’ domestic legal regimes, the owner of a registered trademark can exercise its “exclusive right to prevent” the infringement of its trademark by unauthorized third parties.

Hence, said the AB, for purposes of WTO dispute settlement, in order to establish that a WTO Member has acted inconsistently with Article 16.1, the complaining Member must demonstrate that, under the responding Member’s domestic legal regime, the owner of a registered trademark cannot exercise its “exclusive right to prevent” the infringement of its trademark by unauthorized third parties.

For these reasons, the AB concluded that the Panel did not err in its interpretation in finding, in paragraphs 7.1978, 7.1980, and 7.2031 of the Panel Report, that:

“7.1978. In light of the ordinary meaning of the text and consistently with prior rulings, we agree with the parties that Article 16.1 does not establish a trademark owner’s right to use its registered trademark. Rather, Article 16.1 only provides for a registered trademark owner’s right to prevent certain activities by unauthorized third parties under the conditions set out in the first sentence of Article 16.1.

“7.1980. [I]n order to show that the TPP measures violate Australia’s obligation under Article 16.1, the complainants would have to demonstrate that, under Australia’s domestic law, the trademark owner does not have the right to prevent third-party activities that meet the conditions set out in that provision.

“7.2031. [W]e therefore conclude that the possibility of a reduced occurrence of a “likelihood of confusion” in the market does not, in itself, constitute a violation of Article 16.1, because Members’ compliance with the obligation to provide the right to prevent trademark infringements under Article 16.1 is independent of whether such infringements actually occur in the market. Article 16.1 does not require Members to refrain from regulatory measures that may affect the ability to maintain distinctiveness of individual trademarks or to provide a “minimum opportunity” to use a trademark to protect such distinctiveness.”

Having found no error in the Panel’s interpretation, the AB agreed with the Panel that there was “no need to examine further the complainants’ factual allegation that the TPP measures’ prohibition on the use of certain tobacco-related trademarks will in fact reduce the distinctiveness of such trademarks, and lead to a situation where a “likelihood of confusion” with respect to these trademarks is less likely to arise in the market”.

“Honduras’ claims that the Panel erred in its application of Article 16.1 and failed to make an objective assessment of the matter as required by Article 11 of the DSU are conditioned on our reversal of the Panel’s interpretation. The condition on which Honduras’ appeal is predicated, i.e. the reversal of the Panel’s interpretation, has not been satisfied. Consequently, we have found that we need not address Honduras’ remaining claims of error,” said the AB.

In light of the foregoing, the AB upheld the Panel’s conclusion, in paragraph 7.2051 of the Panel Report, that “the complainants have not demonstrated that the TPP measures are inconsistent with Australia’s obligations under Article 16.1 of the TRIPS Agreement.”

On Article 20 of the TRIPS Agreement, the AB said that the ordinary meaning of the term “unjustifiably”, read in the context of other provisions of the TRIPS Agreement, indicates that Members enjoy a certain degree of discretion in imposing encumbrances on the use of trademarks under Article 20 of the TRIPS Agreement.

In order to establish that the use of a trademark in the course of trade is being unjustifiably encumbered by special requirements, the complainant has to demonstrate that a policy objective pursued by a Member imposing special requirements does not sufficiently support the encumbrances that result from such special requirements.

Such a demonstration could include a consideration of: (i) the nature and extent of encumbrances resulting from special requirements, taking into account the legitimate interest of the trademark owner in using its trademark in the course of trade; (ii) the reasons for the imposition of special requirements; and (iii) a demonstration of how the reasons for the imposition of special requirements support the resulting encumbrances.

Moreover, while in the circumstances of a particular case, the existence of an alternative measure involving a lesser degree of encumbrance on the use of a trademark could be used as a consideration in evaluating the justifiability of special requirements and related encumbrances on the use of a trademark, such an examination is not a necessary inquiry under Article 20 of the TRIPS Agreement.

The AB therefore considered that the Panel did not err in the interpretation of Article 20 of the TRIPS Agreement in stating, in paragraph 7.2430 of the Panel Report, that:

“[A] determination of whether the use of a trademark in the course of trade is being “unjustifiably” encumbered by special requirements should involve a consideration of the following factors:

“a. the nature and extent of the encumbrance resulting from the special requirements, bearing in mind the legitimate interest of the trademark owner in using its trademark in the course of trade and thereby allowing the trademark to fulfil its intended function;

“b. the reasons for which the special requirements are applied, including any societal interests they are intended to safeguard; and

“c. whether these reasons provide sufficient support for the resulting encumbrance.”

The AB also found that the Panel did not err in its application of this interpretation to the facts of the present dispute.

Consequently, the AB upheld the Panel’s conclusion, in paragraph 7.2606 of the Panel Report, that the complainants have not demonstrated that the TPP measures are inconsistent with Australia’s obligations under Article 20 of the TRIPS Agreement.