Borne for the Product, Why Not for the Process?

It is as imperative, as it is difficult, for International Trade Lawyers to talk about the environment in a world that loves its trade. There are concerns over the  worsening in quality and dwindling availability of natural resources, where there have been various efforts made by the international trading community towards the conservation of the environment (here, here and here). In this context, I will critically discuss how technical regulations on trade, specifically Non-Product Related Process and Production Methods (“NPR-PPMs”), can be helpful in addressing the global environmental concerns that lie beyond one’s own borders. I will be specifically addressing the consistency of such NPR-PPMs imposed by a country under the General Agreement on Tariffs and Trade, 1994 (“GATT”). 

Background

Process and Production Methods (or PPMs) are technical regulations that can be imposed with respect to the production process of a product under Agreement on Technical Barriers to Trade (“TBT”). In this paper I specifically deal with the NPR-PPMs. These are PPMs that do not have any effect on the final product that is produced, rather concern the process of production of a product. There exists a divided position amongst the members of WTO if the NPR-PPMs should be covered under Annexure 1.1 of the TBT. For example, in US — Shrimp a NPR-PPM was imposed by the U.S.A. to the effect that it will not import any shrimp that has not been collected by a process that harms sea turtles.

However, the specific focus of this article is to analyse the legality of the NPR-PPMs under GATT. At the very outset, the reason that NPR-PPMs are important is that PPMs are a potent tool to address environmental concerns related to products. Therefore, addressing prioritisation of environmental concern over trade benefits, it is wholly plausible that PPMs may be extended to the process of production as well. This is particularly critical where, in many cases, rather than the products, it might be the process that might be causing the real harm to the environment. 

No Power for The Powerless

The Appellate Body (“AB”) in US — Shrimp held the occasional swimming of sea turtles through US waters enough to establish a ‘sufficient nexus’ for the US to adopt trade restrictions. In this context, it would be useful to refer to the work of Barbara Cooreman, as she tried to address the validity of NPR-PPMs concerning extraterritorially situated environmental resources, under Article XX of GATT. She argued that the AB failed to propound any jurisprudence with respect to such establishment of ‘sufficient nexus’ — which implied that the decision was a very case-specific holding. 

Cooreman, however does not offer anything to address the concern raised with respect to the aforementioned silence of the AB, and adds nothing new to the existing corpus of legal positions. She, towards the conclusion of her Decision Tree’ method, agrees that only if an NPR-PPM is fully or partially ‘inward-looking’, can it survive a chance under Article XX of GATT. She also re-affirms this point at the very end of her work. Which is the existing position as exhibited by the AB while establishing the ‘sufficient nexus’ in US — Shrimp, by stating the fact of sea turtles swimming through US waters. 

Essentially, Cooreman leaves it up to international consensus to tackle the problem, hence leaving a smaller country with an outward-looking PPM, as powerless as it was.  This further galvanises the need to review the framework critically. B.S Chimni, for instance, very convincingly explains the anti-environment and free trade stance that the WTO chooses to operate from when dealing with environmental issues under international law. Such approach of WTO has left the smaller countries (the third world) yearning for an approach which will “safeguard the interests of the third world countries as against the forces of protection in the north.”

In this context, what is necessary to evaluate is a consistent legal position which can be used by countries at large — Article III:4 of GATT offers some guidance in this regard that may be beneficial to reference.  

Legal for All Is Power for All

Article III of the GATT deals with the ‘National Treatment’ obligation. Article III:4 specifically deals with regulations that might afford less favourable treatment to the imported like products. A three-tier test must be satisfied for a measure to be inconsistent under Article III:4 of GATT. The very first step of this test concerns the ‘likeness’ of the products. It is this part of the test, I argue, that will provide countries with a way to adopt NPR-PPMs concerning environmental concerns situated beyond their borders. 

The panel in US — Clove Cigarettes held that the immediate purpose of the imposition of the technical regulation should be considered as a part of the ‘likeness’ criteria under TBT Article 2.1, this was rejected by the AB. Although, the AB did regard that such regulatory concerns can be made a part of the ‘likeness’ criteria, to the extent that they have an impact on the competitive relationship between the concerned products, under TBT and Article III:4 of GATT. Therefore, I accordingly employ the purpose of such NPR-PPM in an already existing criteria of ‘likeness’, i.e. consumer tastes and preferences (“CTPs”). There have been various arguments made in support of placing reliance on CTPs as a ‘likeness’ criteria.

In Philippines — Taxes on Distilled Spirits (para 118), the AB held that the likeness of the two products will be judged based on the various factors. One of these factors was CTPs. The AB made it very clear that such tastes and preferences must be of the consumers situated in the country concerned. My argument is that the competition between the two products will anyways not be equal to start with, owing to CTPs of that country. There is an assumption operating when a country adopts an NPR-PPM, that its population is genuinely concerned about the protection of the environment hence would not prefer goods produced through an environmentally harmful production method. 

The AB in Philippines — Taxes on Distilled Spirits realised that two products may be “like” in a given market, however this would not necessarily mean that they would be considered “like products” in another market (para 167). This rationale is largely owing to the difference in consumer considerations. Therefore, the AB concomitantly held CTPs to be a factor weighty enough to decide the fate of “likeness” of two products in a specific market. 

Given this, two products produced by two different production methods, one that is environmentally harmful and the other that is environmentally sustainable will not be ‘like’ products, because of extremely different CTPs for one over the other. While holding that CTPs affect competitiveness and hence likeness, when such concern lies beyond the borders of one’s country, one can make an argument that the two products fail the ‘likeness’ test itself, therefore, it is futile to look for the existence of any de facto discrimination.Therefore, in a world where consumers view the environment as a global problem, it is in a country’s benefit to make arguments for NPR-PPMs under Article III:4 of the GATT, even when the environmental concern that it aims to tackle exists extraterritorially.


Sahil Bansal is a final year law student, at Jindal Global Law School, Sonipat. 


Image: Reuters

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