Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade Proceedings of a Conference (2000) / Chapter Skim
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6 Risk Management and the World Trading System: Regulating International Trade Distortions Caused by National Sanitary and Phytosanitary Policies
6 Risk Management and the World Trading System: Regulating International Trade Distortions Caused by National Sanitary and Phytosanitary Policies
Pages 118-169
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From page 118... ...
countries not implement SPS measures that are more restrictive of trade than necessary to achieve the level of SPS protection that they seek. In this paper I review and assess the major provisions of the SPS Agreement (Appendix A)
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International standards have not become a straitjacket rather, they have had remarkably little impact on national SPS protection policies. (The main exceptions are in countries, especially in the developing world, that have not already adopted elaborate SPS protection policies; for those countries, international standards fill gaps and raise not lower the level of SPS protection.)
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From page 120... ...
that are often invoked, along with the SPS Agreement, in studies that examine how the international trading system attempts to accommodate differences in national regulations. I review the major elements and decisions of the three WTO disputes that have concerned SPS measures, which help reveal how the WTO system is interpreting the SPS Agreement.
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along with 14 other agreements on textiles, subsidies, technical barriers to trade, SPS measures, and other topics. The Uruguay Round also produced a stronger and more judicial disputeresolution procedure in which three-person panels hear and decide disputes and a standing Appellate Body hears appeals, and produced a mechanism that reviews trade policy in all member countries on a regular basis.
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In plain language, Article 3 promotes harmonization with international standards. And Article 5 allows countries to escape the straijacket of international standards, provided that an assessment of risks is the first step in setting such stricter SPS measures.
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In principle, the SPS Agreement also allows exporters broad latitude when determining the SPS measures that are needed to meet the level of SPS protection that importers demand. The agreement requires that importers accept the SPS measures of exporters.
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The latter has been the most controversial because existing SPS measures are generally much tighter in the advanced industrialized countries, which is also where most of the public interest groups active on SPS issues are located. Harmonization, they fear, will require compromising hard-won rules that protect consumers and the environment (Silverglade, 1998; Jacobsen, 1997~.9 Because of this heated debate, fully under way when the WTO agreements were negotiated, the SPS Agreement permits countries to adopt SPS protection policies that are stricter or weaker than international standards.
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Similarly, Article 2.2 requires that members base their SPS measures on "scientific principles." These general requirements are quite broad and thus, in practice, the decisions of the Panels and Appellate Body in the three WTO disputes related to the SPS Agreement have turned to Article 5 for a more detailed description of "scientific" determination of SPS levels and measures.~° Article 5 requires that SPS measures be "based on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account risk assessment techniques developed by the relevant international organizations" (Article 5.1, emphasis added)
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It is largely silent on the level of SPS protection that a county seeks. Indeed, as mentioned above, several provisions of Me SPS Agreement underscore that countries are free to set their own level of SPS protection, even if that level of protection is different from the level that would be afforded by international standards (e.g., Articles 2.1 and 3.3~.
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Levels and measures are two sides of Me same coin.~4 This remains a hotly contested issue because it concerns perhaps the most politically sensitive aspect of the SPS Agreement whether it will encroach on a nation's sovereign right to determine its own SPS protection level. SPS Measures that are Weaker than the International Standard The other type of exception to harmonization is the reverse of the first: Nations may adopt SPS measures that are less strict than international standards.
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From page 128... ...
At the same time the t6Two statements in the preamble make this point: "Recognizing the important contribution that international standards, guidelines and recommendations can make in this regard...." and Desiring to further the use of harmonized sanitary and phytosanitary measures between Members, on the basis of international standards...." In contrast, the preamble does not mention risk assessment or rules to govern deviations from international standards as principal objectives. This section is based mainly on Victor (1998~.
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, spurred by the European dairy industry, created a committee to harmonize milk standards and thus open trade in milk and milk products. In 1962 WHO and FAO loosely merged these activities into the Codex Alimentarius Commission.
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130 Aft!
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So far, none of the WTO disputes related to SPS measures has involved a Codex commodity standard. Many observers have raised the fear that commodity standards are vulnerable to "regulatory capture" standards set to benefit the standard setters rather than the public interest.
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will in principle allow exporters to circumvent international standards by using commodity standards that yield an equivalent level of SPS protection. The Codex standard-setting processes for residues have made much more extensive use of risk assessment.
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Moreover, the pattern of commodity standard acceptances suggests that international standards followed rather than shaped national standards: in industrialized counties, which Wpically already had elaborate national commodity standards in place when international Codex norms were developed, nearly all acceptances were "with specific deviations."24 Deviations allowed them to tune international 23See statements by the experts in "Annex: Transcript of the Joint Meeting with Experts, held on 17-18 February 1997, WTO (1997b, paras.743, 819, 824, and 826~. 24Furthermore, most of the full acceptances by advanced industrial (Organization for Economic Cooperation and Development tOECD]
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For example, in the meat hormones case the Codex Commission had adopted standards for five of the six hormones in the dispute.25 The EC did not accept the Codex MRL standards, but that nonacceptance was irrelevant to the requirement in the SPS Agreement that the EC base its national standards on international standards (and to provide justification where it did not)
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, others work on problems of specific geographical regions. The OIE periodically revises the International Animal Health Code (OIE, 1998J which applies to mammals, birds, and bees; it is also the model for a separate International Aquatic Animal Health Code (OIE, 1997~.
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. Although the new IPPC is not in effect, guidelines for pest risk analysis- adopted in 1995 in parallel with development of the new treaty probably do apply, regardless of their legal status, because the SPS Agreement has an expansive requirement to base SPS measures on "international standards, guidelines, and recommendations developed by the relevant international organizations...."
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Risks are assessed and standards are set mainly through a bottom-up process that mirrors the risk-averse practice in advanced industrial nations. OTHER WTO AGREEMENTS: GATT 1994 AND THE TBT AGREEMENT Two other WTO agreements are often cited in the debate over how to manage technical barriers to trade and thus might be relevant for managing SPS measures.
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does not apply to SPS measures (Article 1.5~. Thus, in practice, neither the GATT 1994 nor the TBT Agreement plays a significant role in governing SPS measures.
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Many changes to national SPS policies will be timeconsuming to implement, yet only four years have passed since the WTO agreements went into effect on 1 January 1995. Thus, the approach here is to examine the three WTO dispute settlement cases that have concerned SPS measures: the EC's ban on imports of bovine meat produced with growth hormones ("EC meat hormones")
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If disputes demonstrate clear discipline and a credible threat to dismantle trade barriers then countries will be more likely to remove illegitimate SPS measures on Weir own. Indeed, there is substantial evidence that the extended effect is significant beyond the three measures that have been the subject of formal disputes, the SPS Agreement has been a "broader catalyst" that has induced some nations to remove illegitimate SPS measures (Roberts, 1998~.
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At issue was whether the EC ban, which concerned six hormones, was compatible with the SPS Agreement. In 1995 the Codex Alimentarius Commission had adopted standards for five of the six hormones in the dispute.
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The Dispute Panel interpreted Article 3.1 of the SPS Agreement, which declares that "Members shall base their sanitary or phytosanita~y measures on international standards" as a requirement that SPS measures conform with international standards.37 In perhaps its single most important ruling on SPS-related issues, the WTO Appellate Body explicitly overturned this interpretation, preferring instead the more common-sense definition of "based on:" A measure can be based on international standards without conforming with those standards. Instead of conformity, the Appellate Body pointed to Article 3's fundamental purpose: to promote the use of international standards while allowing countries to deviate from those standards if those deviations conform with Article 5 which pertains to the use of risk assessment (WTO (1998d)
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Moreover, the Appellate Body decided that not only is there a procedural requirement to obtain a risk assessment, but in addition: "The requirement that an SPS measure be 'based on' a risk assessment is a substantive requirement that there be a rational relationship between the measure and the risk assessment" (emphasis added) .39 The fact that all of the valid risk assessments showed that "good practice" application of growth hormones was safe—and the failure to examine the risks that the EC claimed could result in harm to consumers meant that the EC measure failed the "rational relationship" test.
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The Appellate Body, which is more attuned to the political and social context In which the SPS Agreement and the WTO operate, gave importers much greater autonomy In setting SPS policy. Whereas the Panel found Tree main reasons to rule against Be EC, the Appellate Body endorsed only one the EC's failure to base its SPS measures on a risk assessment.44 4tThe Appellate Body derived this three-part test in part from Article 5.5, which requires that "each Member shall avoid arbitrary or unjustifiable distinctions in the levels tof SPS protection]
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country had the obligation to prove the consistency of its SPS levels. The Appellate Body argued that the complainant must first establish a prima facie case that the defending country violated the SPS Agreement; only then must the defender disprove the claim.
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evaluation of the impact of SPS measures on the likelihood of entry, establishment, or spreading of the diseases.48 Australia's "1996 Final Report," which established the ban on imports of fresh and frozen salmon, met the first requirement. But the Appellate Body said that Australia had failed the other two tests.
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Both the Panel and the Appellate Body stressed that Australia was free to determine its own level of SPS protection; however, they found that Australia did not apply that high level of protection in other comparable situations. By allowing imports of bait and ornamental fish, Australia exposed itself to greater risks than from salmon imports; not treating these comparable risks in comparable ways revealed that the saknon import ban was a disguised restriction on trade.
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The United States s°The ambiguity reflects that Australia's measure (the import ban) was not based on a risk assessment in particular, it failed to assess the risk reduction that might be caused by alternative SPS measures.
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827~.54 The Appellate Body endorsed the conclusion that the Japanese testing requirement was not based on a risk assessment; echoing Article 2.2 of the SPS Agreement, the Appellate Body found Hat the testing requirement was maintained "without sufficient scientific evidence" (WTO, 1999, pare. 76, and SPS Agreement Article 2.2~.
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Because there is no significant difference in the efficacy of fumigation techniques across different varieties of the same product, alternative measures such as setting fumigation requirements on the basis of the easily measured "sorption level" of new varieties, rather than a full retesting of each variety would be less restrictive of trade yet still achieve the level of SPS protection that Japan requires (WTO, 1998e, pares. 8.70-8.104~.55 The Appellate Body overturned this ruling because it was based on evidence marshaled by the Panel itself and thus the Panel had overstepped its authority;56 the United States had not, first, presented a prima facie case that a measure based on determination of sorption levels would have met the requirements of Article 5.6 and thus been less trade restrictive than the Japanese varietal testing scheme (WTO, 1999, pares.
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Nor would strict harmonization be necessary to avoid most of the trade distortions caused by SPS measures. The agreement thus aims to promote trade by imposing strict disciplines on the process by which members set SPS protection levels and measures that affect international trade.
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The WTO panels and Appellate Body rejected that argument because science can never prove that an action will result in absolutely zero risk, and thus policy-making requires the assessment of risks. The Appellate Body in the meat hormones case set the standard which has since prevailed: There must be a "rational relationship" between risk assessment and a country's SPS measures.60 But the Appellate Body defined neither "rational" nor "relationship." The standard is both procedural and substantive, but the more important substantive element is unclear.
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In the EC hormones case, carbadox and olaquindox were allowed for swine production, but natural and synthetic hormones were not allowed for beef production; yet both substances have been linked to a similar health effect (carcinogenicity) ; some experts consulted by the WTO Dispute Panel even suggested that such feed additives could directly harm workers who handled feeds.62 In the salmon case, Australia allowed imports of frozen herring bait and live ornamental fish that harbored many of the same diseases that Australia feared would arrive on imported salmon; yet fresh and frozen salmon were effectively barred, which protected the nascent Australian aquaculture industry.63 These easy cases have not given much clarity to what is comparable, except to underscore that comparable will not be interpreted in the narrowest possible manner as a requirement to impose comparable levels of SPS protection only when exactly the same sources and types of risks are at stalce.64 A Bird area of important ambiguity concerns Me criteria for judging the made effects of SPS measures.
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Should a nation be urged or required to lower its SPS protection slightly, if that would allow use of much less distortionary SPS measures? Logically there is only a small step from the existing SPS Agreement—which gives countries the right to determine their "appropriate level of SPS protection" to one that requires nations to consider international trade effects when determining SPS protection levels.
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Many have also feared that promoting the use of international standards in order to yield a level playing field will require "downward harmonization" toward the lowest common denominator. Both fears are important to examine, not only for a proper assessment of the SPS Agreement's effect on national policy but also more generally because they are central issues in the "trade and environment" debate.66 The experience with the SPS Agreement can thus help illuminate whether and how similar fears can be addressed when other areas of national policy collide with the international goal of promoting trade by restricting nontariff barriers to trade.
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The Appellate Body also set high hurdles for judging that a country's SPS levels and measures were incompatible with the SPS Agreement. The final decision remained the same the EC ban was declared incompatible but the reasoning was much more permissive of deviations from international standards.67 The three disputes might also be cited as evidence that the existence of the SPS Agreement and dispute resolution, at least in these three cases, has resulted in lower SPS protection.
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Today, in the handling of import bans for genetically modified foods (which are not currently the subject of a WTO dispute, but are being debated in the Codex Alimentarius Commission and have been the subject of numerous risk assessments) , the EC has taken a stance that is more favorable to international trade.
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Exporters have at their disposal a powerful mechanism the SPS Agreement backed by the strong WTO dispute resolution system with which they can attack SPS measures that are inconsistent with the rest of a nation's SPS protection scheme. If countries are under constant pressure to justify that they adopt comparable SPS measures in comparable situations, then they are likely to give much greater attention to internal alignment of risk assessment and management policies in other words, they are more likely to ensure that they impose comparable levels of risk management in comparable situations.
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However, that process might result in learning about some SPS measures that are deemed "legitimate" under the SPS Agreement and are also particularly effective protectionist trade barriers for example, quarantine measures imposed by countries that are free of particular diseases allow the importer to impose "equal treatment" on both local and foreign production while effectively barring imports. Nations may also learn that protectionist measures will not run afoul of the WTO if they also serve plausible SPS protection goals.
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International Standards: Little Impact Although the central purpose of the SPS Agreement is to promote harmonization of SPS measures, the three cases suggest that international standards have not had much impact. That finding is surely biased by the cases examined here dispute panels are likely to hear only those cases for which national SPS measures do not conform with international standards since cases where there is conformity are explicitly in compliance with the SPS Agreement and thus yield no viable dispute.
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Developing countries lodged more "full acceptances" of Codex commodity standards because they did not have many SPS measures already in place. But industrialized countries especially those with the most advanced SPS protection systems employed principally "acceptances with specific deviations." This suggests that international standards are a fluid that can fill gaps (when countries let the fluid flow)
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The requirement in the SPS Agreement that SPS measures be based on risk assessment unless they are based on international standards will underscore the need for international standards themselves to be based on risk assessment. Yet, to date, none of these organizations has applied a systematic policy for determining acceptable levels of risk.
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Thus they seek international standards that mirror those at home. The result is that the agenda and standards in the Codex are determined heavily by the SPS policies in the advanced industrialized countries.
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International standards could thus play an especially important role in opening trade to new markets, new products, and new methods of SPS protection. Examples currently on the agenda of the WTO include genetically modified organisms, labeling, and a scheme for more consistent implementation of SPS measures known as Hazard Analysis and Critical Control Points.
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As a growing number of national SPS measures come under scrutiny for their consistency win We SPS Agreement, this "made impact assessment" aspect of risk assessment will probably become commonplace. SUMMARY In this paper I have reviewed the provisions of the 1994 SPS Agreement and the first Tree WTO disputes related to Me application of the SPS Agreement.
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· Adequate risk assessments did exist in the two other cases (EC meat hormones and the Japanese fruits) ; however, in both of these cases the Panels and the Appellate Body deemed the SPS measures illegitimate because there was no "rational relationship" between the risk assessment and the measures applied.
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In particular, the Appellate Body overturned the legal reasoning of the Dispute Panel in the hormones case, which had maintained that national SPS measures must conform with international standards. The Appellate Body's interpretation probably gives nations more latitude than the creators of the SPS Agreement had originally intended.
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International Trade Reporter 14~41~: 1781-1787. Codex Alimentarius Commission.
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Report of the Appellate Body, WT/DS 18/AB/R. Geneva: WTO.
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