EUROPEAN COMMUNITIES �
TRADE DESCRIPTION OF SARDINES

3. Whether Codex Stan 94 is ineffective or inappropriate to fulfil the legitimate objectives pursued by the EC Regulation

(a) Whether the EC Regulation fulfils a legitimate objective

4.59 Peru submits that the purpose of the TBT Agreement is to prevent unnecessary obstacles to international trade and to further the objectives of the GATT 1994. Peru argues that the objectives of creating obstacles to trade and of affording protection to domestic producers are therefore clearly not "legitimate" objectives within the meaning of Article 2.2 of the TBT Agreement. Beyond this, Peru argues that the TBT Agreement contains no normative guidance as to the range of policy objectives that WTO Members may pursue with technical regulations. Peru claims that the TBT Agreement is essentially an agreement regulating how Members should pursue their policy objectives, not which policy objectives they should pursue.

4.60 The European Communities argues that the objectives pursued by Article 2 of the EC Regulation are consumer protection, market transparency and fair competition and that these are separate but interdependent objectives. It further explains that the legitimate objectives of the entire EC Regulation are the following: (a) to keep products of unsatisfactory quality off the market; (b) to facilitate trade relations based on fair competition; (c) to ensure transparency of the market; (d) to ensure good market presentation of the product; and (e) to provide appropriate information to consumers. According to the European Communities, the first objective only relates to preserved Sardina pilchardus. This is pursued through the prohibition of the marketing of products of substandard quality. The European Communities further argues that the third objective pursues consumer protection and the promotion of fair competition, and that the promotion of fair competition is in the interest of consumers but also serves wider economic objectives.

4.61 The European Communities argues that all objectives of WTO Members can be presumed to be legitimate and that this is a corollary of the principle that States must be presumed to act in good faith. In its view, if the objective is legitimate, WTO Members have the right to choose the level of protection they consider appropriate, as it is recognized in the preamble to the TBT Agreement. The European Communities also notes that the Appellate Body has confirmed that the WTO Agreements do not restrict the right of Members to fix the level of protection for their legitimate objectives. Quoting a passage in the preamble to the SPS Agreement similar to that in the TBT Agreement, the European Communities notes for example that the Appellate Body in EC - Hormones held that: "this right of a Member to establish its own level of sanitary protection under Article 3.3 of the SPS Agreement is an autonomous right". The European Communities notes that the Appellate Body made similar statements in EC - Asbestos, Korea - Various Measures on Beef, and Australia - Salmon.

4.62 The European Communities argues that its Regulation must be examined in the framework of the system of rules concerning labelling of foodstuffs in the European Communities. The objectives of EC Directive 2000/13 are to protect consumers and prevent distortions of competition. These objectives are fulfilled by laying down detailed and precise requirements as to how products should be labelled. The European Communities points out that EC Directive 2000/13 states that labelling must not mislead purchasers and establishes the principle that there should be a single correct name for a given foodstuff. The hierarchy of rules for determining the correct name for a foodstuff is: the name laid down in European Communities legislation; the name provided for in the laws, regulations and administrative provisions applicable in the member States in which the product is sold; the name customary in the member State in which the product is sold; and a description of the foodstuff, and if necessary, of its use which is clear enough to let the purchaser know its true nature and distinguish it from other products with which it might be confused.

4.63 In response to a question of the Panel, the European Communities submits that Article 7(c) of its Regulation refers to "preparations using homogenized sardine flesh" and that those products are "pastes", "p�t�s" and "mousses". It argues that the consumers are informed about the content of the above products because: as stated in the first paragraph of article 7(c), "the trade description must indicate the specific nature of the culinary preparation"; and according to article 3.1.2 and 3.1.3 of EC Directive 2000/13, the list of ingredients and the quantity of certain ingredients or categories of ingredients must be indicated on the labelling.

4.64 The European Communities further submits that, according to Article 7(c) of the Regulation at issue, a can containing at least 25% of homogenised Sardina pilchardus flesh and the remainder containing "the flesh of other fish which have undergone the same treatment" can be marketed as "sardine paste", "sardine p�t�", or "sardine mousse" only if the content of the flesh of any other fish is less than 25%. The European Communities explains that Article 7(c) does not derogate from Article 2, first indent, of the EC Regulation, which means that such a preparation must still be covered by CN code ex 1604 20 50. The European Communities therefore submits that according to Note 2 to the introduction of chapter 16 of the European Communities Combined Nomenclature, in cases where "the preparation contains two or more of the products mentioned above, it is classified within the heading of chapter 16 corresponding to the component or components which predominate by weight".

4.65 Therefore, the European Communities submits that if the predominant weight is, for instance, mackerel, the corresponding heading would be that corresponding to mackerel and not to Sardina pilchardus. The European Communities argues that such a product could not be marketed under the trade description "sardines" but would have to be marketed under the name provided for in the laws, regulations and administrative provisions applicable in the member State in which the product is sold, in accordance with Directive 2000/13. The European Communities also submits that the term "other fish" in Article 7(c), second paragraph, refers to any other fish species, including but not limited to both Sardinops sagax and any other non-sardine-type fish species.

4.66 Peru notes that there is no disagreement with the European Communities that the objectives that it claims to pursue with its Regulation are legitimate objectives within the meaning of both Article 2.2 and 2.4 of the TBT Agreement. However, Peru submits that the objective to "improve the profitability of sardine production in the Community" as stated in the preambular part of the EC Regulation is not a "legitimate" objective within the meaning of the TBT Agreement. Peru argues that even though the TBT Agreement does not define the term "legitimate", its purpose is to further the objectives of the GATT 1994 and to avoid restrictions on international trade disguised as technical regulations. Peru argues that the TBT Agreement regulates how Members should pursue their policy objectives, not which policy objectives they should pursue.

4.67 Peru submits that when the European Communities notified its Regulation in 1989 to the Parties of the Tokyo Round Standards Code, it indicated that the objective and rationale of the EC Regulation was "consumer protection". However, Peru observes that the EC Regulation lays down minimum quality standards only for products made from Sardina pilchardus. Peru contends that if the concerns of consumers had been at the origin of the EC Regulation, the European Communities would not have limited its application to the species of sardines that populates European waters but would have adopted a regulation which also covers like products made from sardines harvested in the waters of other WTO Members.

4.68 In support of its reasoning, Peru first submits an opinion on the quality and the appropriate commercial name of Peruvian sardines prepared by a German food inspection institute, the Nehring Institute, and by the Federal Research Centre for Fisheries, Institute of Biochemistry and Technology of Germany which states that "the characteristics in taste and smell [of the product made from Sardinops sagax] are very similar to the products of Clupea pilchardus which come from Europe and North-Africa". Peru also submits that according to an open letter addressed by the Consumers' Association to the Advisory Centre on WTO Law, and whose facts and arguments Peru requests to be considered as part of its submission to the Panel, the EC Regulation "does nothing to promote the interests of European consumers".

4.69 Peru also argues that, according to Article 7(c) of the EC Regulation, fish processors could market fish paste using the name "sardines" provided that they add flesh from Sardina pilchardus to the flesh from Sardinops sagax. Therefore Peru contends that this part of the EC Regulation promotes the market opportunities of European sardine producers. Peru also notes the European Communities' argument that, in spite of the permission to use the term "sardines" for products of which up to one half is not prepared from Sardina pilchardus, the consumer would be adequately informed because the list of ingredients would have to indicate the quantities of each of the ingredients used. Peru contends that this argument cannot be reconciled with the European Communities' claim that the use of the term "sardines" for a product made from Sardinops sagax must be prohibited to protect the European consumer even if the list of ingredients indicates that it was made from Sardinops sagax.

4.70 Concerning the objective of maintaining market transparency, Peru argues that there is no rational connection between the objective of ensuring market transparency and the monopolization of the name "sardines" for fish of a species found mainly off the coasts of the European Communities and Morocco. Peru claims that the effect of monopolizing the name "sardines" for one species of sardines is that importers of Peruvian sardines are prevented from informing the European consumers in commonly understood terms of the content of hermetically sealed containers. As a result, market transparency is reduced. Peru argues that if cans with products prepared from Peruvian sardines were labelled as "Pacific Sardines" market transparency would be ensured.

4.71 The European Communities argues that the provisions of its Regulation laying down minimum quality standards, harmonizing the ways in which the product may be presented and regulating the indications to be contained on the label, all serve to facilitate comparisons between competing products. It further submits that some of these objectives are pursued by the Regulation at issue in conjunction with EC Directive 2000/13. The European Communities argues that this is particularly true of the name; accurate and precise names allow products to be compared with their true equivalents rather than with substitutes and imitations whereas inaccurate and imprecise names reduce transparency, cause confusion, mislead the consumer, allow products to benefit from the reputation of other different products, give rise to unfair competition and reduce the quality and variety of products available in trade and ultimately for the consumer.

4.72 The European Communities submits that Peru and some third parties misinterpret the second recital of the preamble to its Regulation. It argues that while the objectives of its Regulation are expressed in clear terms by using the expression "in order to �", the second recital simply indicates what the legislator thought could be one of the consequences of the Regulation ("�is likely to�"). In the view of the European Communities, it seems obvious that, as regards preserved sardine products, a law that ensures market transparency and fair competition, that guarantees the quality of the products and that appropriately informs the consumer of this, will most likely result in an improvement of the profitability of sardine production in the European Communities.

4.73 Concerning the Nehring Institute, the European Communities contends that its opinion is not reliable as regards the name of the product. The Nehring Institute is a private company and its opinion was not based on any kind of consumer research. It relied on a wrong interpretation of the EC Regulation and indirectly reported oral statements from government officials (which the Nehring Institute cautioned needed to be confirmed). With respect to the letter from the Consumers' Association, the European Communities argues that it provides no evidence of what consumer expectations are and that all the facts refered to in the letter are incorrect. Concerning the objective of market transparency, the European Communities contends that contrary to Peru's argument, it is obvious that there is a "rational connection" between the legitimate objective of market transparency (and that of consumer protection) and the need to ensure that products are sold under their correct trade descriptions.

(b) Whether Codex Stan 94 is ineffective or inappropriate to fulfil the legitimate objectives pursued by the EC Regulation

4.74 The European Communities argues that, in this case, the use of Codex Stan 94, even if deemed relevant, would be inappropriate to fulfil the legitimate objectives pursued by its Regulation. The prohibition on the use of the term "sardines" is necessary to allow different products to be distinguished. The European Communities notes that one of the legitimate objectives recognized by Article 2.2 of the TBT Agreement is the prevention of deceptive practices. It also argues that the use of the term "X Sardines" where the "X" indicates the name of a country or geographic area would not achieve these objectives in the European Communities since the use of the word "sardines" would suggest to the consumer that the products are the same but originate from different countries or geographic areas. Furthermore, the need to prevent deceptive practices is also a requirement of the Codex Stan 94, which requires that whichever formula is used for sardine-type products, it has to be drafted in such a way so as not to mislead the consumer.

4.75 The European Communities submits that the wording of Codex Stan 94 clearly makes a distinction throughout its text between sardine and sardine-type products and expressly reserves the term "sardines" exclusively for Sardina pilchardus without any qualification. In most parts of the European Communities, especially in the producer countries, the term "sardines" has historically made reference only to Sardina pilchardus. Therefore, the European Communities claims that the use of the term "sardine-type" demonstrates that "sardines" is not considered a generic term.

4.76 The European Communities argues that the various publications refered to by Peru prove nothing about European consumers' understanding of the term "sardines". These publications list the dozens of common names existing for each fish in different languages in order to identify the proper scientific name of each one (as is the case of FishBase) or provide literal translation of all fish names even if these are not know in the country where the language is spoken (as in the case of the European Communities Multilingual Dictionary).

4.77 The European Communities contends that the Regulation at issue does not exist in a vacuum, but is part of its legitimate policy to ensure precision in the names of foodstuffs and in doing so to preserve quality, product diversity and consumer protection. It points out that it has a system in which each food product must bear a precise trade description on which the consumer can rely as a guarantee of the nature and characteristics of the product. It argues further that one result of its legitimate policy is to prevent the names of foodstuffs becoming generic; that is why "sardines" is not a generic term in the European Communities. This situation has now created uniform consumer expectations throughout the European market, the term "sardines" referring only to a preserved product prepared from Sardina pilchardus. Therefore, the European Communities argues that an unrestricted use of the term "sardines" even within a country will certainly create confusion as to the exact nature of the product being sold.

4.78 According to the European Communities, this system allows consumers to rely on the name of the product as providing reliable information about the nature and identity of a foodstuff and serves the objective of consumer protection, market transparency. Furthermore, the system allows for competition between manufacturers and producers based on the quality and price of their products and not on attempting to make consumers believe that they are buying something they are not. The European Communities contends that requiring precise names for foodstuffs also ensures that certain reputation can be associated with each particular name and that this is an important element for maintaining high quality and product diversity. Therefore, the European Communities is of the opinion that under a system where names are more flexible and a greater range of foodstuffs can be sold under each name, there is a natural tendency for all producers to use the cheapest ingredients that qualify for the name and allow the associated reputation to be exploited. This would lead to a smaller range of products being made available on the market and a lowering of quality and choice - often referred to as "levelling down".

4.79 The European Communities further argues that consumers in most of its member States have always associated the word "sardines" exclusively with Sardina pilchardus. They have also come to know canned Sardinops sagax under trade descriptions such as "Pacific pilchards" in the United Kingdom or "Sardinops Pilchard" in Belgium. The European Communities disputes Peru's assertion that European consumers associate Sardinops sagax with the trade description "sardines" and claims, to the contrary, that its consumers associate Sardinops sagax with trade descriptions such as "Pacific pilchards" and changing these trade descriptions would cause disruption and confusion. This would not be an effective or appropriate means for the fulfilment of the three legitimate objectives mentioned above.

4.80 The European Communities also recalls that, even before the EC Regulation entered into force, European Communities law required the products to be sold under the trade names determined by the laws of the relevant member States, and these laws did not allow the use of the trade description "prepared sardines" to be used for what Peru terms "all species of sardines". The European Communities refers to Council Directive 79/112/EEC of 18 December 1978, the predecessor to EC Directive 2000/13 which states:

The name under which a foodstuff is sold shall be the name laid down by whatever laws, regulations or administrative provisions apply to the foodstuff in question or, in the absence of any such name, the name customary in the member state where the product is sold to the ultimate consumer, or a description of the foodstuff and, if necessary, of its use, that is sufficiently precise to inform the purchaser of its true nature and to enable it to be distinguished from products with which it could be confused.

4.81 The European Communities submits that, in France for instance, Article 1 of "Arr�t� Minist�riel du 16 mars 1982 pour les poissons marins" prescribed the name "Sardine commune" for the Sardina pilchardus, and the name "Sardinops du Chili" or "Sardinops" for the Sardinops sagax. Similarly, in Spain, the name "Sardina" has been reserved for Sardina pilchardus since at least 1964. In 1984, Article 30.1 of "Real Decreto 1521/1984" of 1 August 1984, in combination with its Annex I, reiterates the attribution of the name "Sardina" to the Sardina pilchardus. Moreover, the European Communities notes that United Kingdom's regulations have required the name "Pacific pilchards" for Sardinops sagax since at least 1980, well before the adoption of the EC Regulation.

4.82 In conclusion, the European Communities argues that any name for what are considered "sardine-type products" that contains the word "sardines" would not be in accordance with the law and the custom of its member States and would mislead the European consumers.

4.83 Peru claims that the European Communities has failed to substantiate its assertion that Codex Stan 94 is an ineffective or inappropriate means for the fulfilment of its legitimate objectives. According to Peru, paragraph 6.1.1(i) of Codex Stan 94 takes into account the legitimate objective pursued by the European Communities, consumer protection, because the term "sardines" without any qualification is reserved for Sardina pilchardus. Peru notes that paragraph 6.1.1(ii) of Codex Stan 94 prescribes that products prepared from fish of the species not found in Europe are to be labelled as sardines from a country or geographic area or of a species or their common name. Therefore, even assuming that the European consumers indeed associate the word "sardines" exclusively with Sardina pilchardus, they would not be misled if sardines of the species Sardinops sagax were marketed as Pacific sardines. Peru argues that the European consumer offered a can labelled "Pacific sardines" or "Peruvian sardines" is not misled because the consumer is clearly informed that the product is not prepared from sardines caught in European waters. It is the use of a term without the word "sardines", such as the term "pilchard", to describe products made from sardines of the species Sardinops sagax that would confuse consumers. In this regard, Peru notes that the word "pilchard" is one of the common names for fish of the species Sardina pilchardus.

4.84 Peru claims that the name "sardines" is a generic term used to describe fish belonging to a large group of clupeid marine fish sharing the characteristics of young pilchards, and that until the adoption of the EC Regulation in 1989, all species of sardines could be marketed under European Communities law as sardines. Peru submits that the common names of Sardinops sagax in European countries are identical to the names to be used for that species according to Codex Stan 94 and argues that the European Communities cannot claim convincingly that the naming of a product, in accordance with linguistic conventions that the European Communities' authorities themselves found to exist in Europe, could mislead the European consumer.

4.85 In support of this claim, Peru argues that various publications prepared by the European Communities, international organizations and specialised institutions confirm that in all European countries at least one of the common names for fish of the species Sardinops sagax consists of the word "sardines" (or its equivalent in the national language) qualified by one of the countries or the geographic area in which this species is found, such as "Peruvian sardine" in English; "Sardine du Pacifique" in French; "Sardinha" in Portuguese. Amongst those publications, Peru mentions the "Multilingual Illustrated Dictionary of Aquatic Animals and Plants" - produced by the European Commission in co-operation with the member States of the European Communities and national fishery institutes; the electronic publication known as "FishBase", a publication which was prepared with the support of, inter alia, the European Commission, which lists about 110,000 common names for fish; and the Multilingual Dictionary of Fish and Fish Products prepared by the Organisation for Economic Cooperation and Development (OECD).

4.86 Peru claims that the Codex Stan 94 enhances market transparency and that the alternative suggestions of the European Communities have exactly the opposite effect. In the view of Peru, this demonstrates that the European Communities is ready to sacrifice market transparency in order to confer upon its producers the privilege of using the generic term "sardines". It is not apparent to Peru how the European Communities could possibly justify the deviation from the standard set out in paragraph 6.1.1(ii) of Codex Stan 94 in terms of market transparency when the very purpose of the labelling regulations set out in Codex Stan 94 for sardines of species other than Sardina pilchardus is to ensure market transparency.

4.87 Peru argues that it is legitimate for a government to adopt regulations giving each food product a precise and specific trade description that does not mislead the consumer. However, Peru argues that it is not legitimate to reserve the use of a generic term for a locally produced product and that the EC Regulation does not implement the legitimate policy of preserving specific and precise trade descriptions for food; it establishes minimum quality standards for products prepared from Sardina pilchardus and reserves the commercial benefit of this guarantee to products prepared from sardines originating from European waters. As explicitly recognised in the Preamble to the EC Regulation and further explained in the European Communities' first submission, Peru argues that this is meant to "improve the profitability of sardine production in the Community". According to Peru, it is not meant to ensure that products made from Sardina pilchardus are marketed only under one trade name. Peru argues that there are also no other European Communities regulations that establish specific and precise trade descriptions for the other species of sardines covered by the Codex Stan 94.

4.88 Peru argues that Codex Stan 94 does not prevent the European Communities from requiring that each product made from sardines bear a precise trade description on which the consumer can rely. Peru argues that if, for instance, canned fish of the species Sardina pilchardus are labelled "sardines" and canned fish of the Sardinops sagax are marketed as "Pacific sardines", each of the two products has a precise trade description and the consumers' expectations are protected and Codex Stan 94 is met.

4.89 Peru contends that it is possible that European consumers, when offered a can labelled "sardines" without any qualification expect to buy a product made from sardines of the species that populate European waters. Peru argues, however, that paragraph 6.1.1(i) of Codex Stan 94 takes this element into account because the term "sardines" without any qualification may be reserved for that species. Peru argues that when European consumers are offered a can labelled "Pacific sardines", they are not misled because they are clearly informed that the product is not prepared from sardines caught in European waters. Therefore, even assuming that European consumers do associate the word "sardines" exclusively with Sardina pilchardus, they would not be misled if sardines of the species Sardinops sagax are marketed as Pacific sardines. Based on these reasons, Peru concludes that the European Communities did not substantiate its assertion that the Codex Stan 94 is an ineffective or inappropriate means for the fulfilment of its legitimate objectives.

4.90 Peru notes that paragraph 6.1.1(i) of Codex Stan 94 accords the European Communities a privilege enjoyed by no other WTO Members in that it permits an unqualified use of the term "sardines" to the particular species of sardines found off the European coasts. Peru notes that it would be inconsistent with Codex Stan 94 if Peru were to reserve the unqualified use of the term "sardines" for products prepared from Sardinops sagax but it must ensure that its domestic food labelling regulation permits the marketing of Sardina pilchardus as sardines without any qualification as to their origin. In Peru's view, the European Communities cannot claim that an international standard that was drafted with European Communities' particular situation and interest in mind and accords such a privilege is an ineffective or inappropriate means for the fulfilment of its legitimate objectives.

E. ARTICLE 2.2 OF THE TBT AGREEMENT

1. Whether the EC Regulation is "more trade restrictive than necessary"

(a) Trade-restrictive effects

4.91 The European Communities argues that neither Peru, nor the third parties, have attempted to show that there is a barrier to trade at all - let alone an "unnecessary" one. It considers that Peru is obviously of the view that it could sell more of its Sardinops sagax products - or perhaps get a better price for them - if they could be called "sardines" rather than use their proper names of Pilchards or Sardinops. The European Communities contends that Peru's belief is not proof.

4.92 The European Communities submits that, in order to establish that Article 2 of the EC Regulation violates Article 2.2 of the TBT Agreement, both Peru and Canada limit themselves to analysing one of the many recitals of the EC Regulation and to asserting that this Regulation, having a clear protectionist intent, constitutes an obstacle to trade. It contends that Peru's and Canada's arguments constitute a tautology, unacceptable in legal proceedings where the complainant has the burden of proving a prima facie case. It argues that, Peru, in order to establish that Article 2 of the EC Regulation is applied "with a view to or with the effect of creating unnecessary obstacles to international trade", would have to demonstrate trade-restrictive effects; identify correctly the legitimate objectives pursued; and finally, establish that these restrictive effects are more trade-restrictive than necessary, taking into account the benefits to be expected from the realisation of the legitimate objectives. The European Communities claims that Peru fails to establish any of these requirements for a violation of Article 2.2 of the TBT Agreement.

4.93 Peru argues that under Article 2.2 of the TBT Agreement, it does not have to demonstrate that the EC Regulation has trade-restrictive effects. Peru submits that the drafters of the TBT Agreement proceeded on the assumption that all technical regulations, including those imposed for legitimate reasons, inevitably have trade-restrictive effects. Peru contends that each regulation prescribing the characteristics that an imported product (or process or production method related to that product) must meet imposes burdens that producers and distributors have to comply with and therefore inevitably has trade-restrictive effects. This is reflected in the wording "more trade-restrictive than necessary" in the text of Article 2.2.

4.94 Peru considers that it would not be consistent with established GATT and WTO jurisprudence if Peru were found to be legally required to provide statistical or other evidence demonstrating that the EC Regulation adversely affected its exports. Peru refers to the Appellate Body report on India - Patents (US) in support of this view.¹⁴ Peru contends that the TBT Agreement obliges the European Communities to maintain certain conditions of competition for imported products; it is therefore sufficient for Peru to demonstrate that its products are not accorded those conditions of competition. Peru further submits that in interpreting the term "trade-restrictive" in Article 2.2 of the TBT Agreement, the Panel should take into account (a) that the basic provisions of the GATT on restrictive trade measures have been interpreted both in GATT and WTO jurisprudence as provisions establishing conditions of competition and (b) that one of the purposes of the TBT Agreement is to further the objectives of the GATT 1994.

4.95 In support of the above, Peru recalls that the GATT panel on EC - Oilseeds I states:

The CONTRACTING PARTIES have consistently interpreted the basic provisions of the General Agreement on restrictive trade measures as provisions establishing conditions of competition. Thus they decided that an import quota constitutes an import restriction within the meaning of Article XI:1 whether or not it actually impeded imports and that a tax on imported products does not meet the national treatment requirement of Article III whether or not the tax is actually applied to imports.¹⁵

4.96 Peru also recalls that the Appellate Body noted this jurisprudence approvingly in Japan - Alcoholic Beverages II and ruled that "Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products" and that "it is irrelevant that 'the trade effects' of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even non-existent".¹⁶

4.97 Peru argues that, according to the above-mentioned panels, the rationale for interpreting Articles III and XI of the GATT 1994 as provisions prescribing the establishment of conditions of competition is obvious: the basic provisions of the GATT 1994 on restrictive trade measures are not only to protect current trade but also to create the predictability needed to plan future trade. They must therefore be interpreted to apply to the regulatory framework governing both current and future trade. Furthermore, Peru submits that it is generally not possible to foresee or control with precision the impact of trade policy measures on import volumes; if the WTO-consistency of a restrictive trade measure were to depend on its actual trade impact, the question of whether a WTO Member is violating its obligations would depend on factors it can neither foresee nor control. Peru further points out that if that were the case, adversely affected WTO Members could only bring a complaint against such a measure after it has been proven to cause damage. Moreover, Peru submits that changes in trade volumes result not only from government policies but also other factors and, in most circumstances, it is therefore not possible to establish with certainty that a decline in imports following a change in policies is attributable to that change.

4.98 Peru contends that the above considerations apply also to the interpretation of the term "trade-restrictive" in Article 2.2 of the TBT Agreement and concludes that any measure adversely affecting the conditions of competition for imported products must be deemed to be "trade-restrictive" within the meaning of Article 2.2, irrespective of its actual trade impact.

4.99 According to the European Communities, Peru interprets Article 2.2 of the TBT Agreement to incorporate concepts from Article III:4 of the GATT 1994. It notes that Peru claims that Article 2.2 is concerned with conditions of competition rather than unnecessary restrictions on trade. The European Communities argues that, contrary to Peru's contention, it is not possible to derive from the decisions of the Appellate Body a principle "under GATT and WTO jurisprudence that the basic provisions governing international trade protect expectations on conditions of competition, not on export volumes".

4.100 The European Communities submits that the Appellate Body, in the case cited by Peru in support of its original contention, India - Patents (US), chided the panel for pronouncing a "general interpretative principle" according to which "legitimate expectations" concerning in particular the protection of conditions of competition must be taken into account in interpreting the TRIPS Agreement. The European Communities refers to the Appellate Body's statement that "[t]he legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself" and notes that just as in the case of the TRIPS Agreement considered in India - Patents (US), there is no basis for importing into the TBT Agreement concepts that are not there. It argues that the TBT Agreement expressly recognises the right of WTO Members to adopt the standards they consider appropriate to protect, for example, human, animal or plant life or health, the environment, or to meet other consumer interests. The European Communities argues that all technical regulations inevitably affect conditions of competition and claims that if such an effect were sufficient to establish an "obstacle to trade" contrary to Article 2.2 of the TBT Agreement, there would have been no need for the Members to refer, in the TBT Agreement, to unnecessary obstacles to trade.

4.101 Peru argues that contrary to the assertion of the European Communities, the Appellate Body did not chide the panel in India - Patents (US) for having endorsed the principle of conditions of competition. In the view of Peru, what the Appellate Body did was to chide the panel for having merged and therefore confused the concepts of "reasonable expectations" and "conditions of competition". Peru respectfully submits that the European Communities does the same in its argumentation.

(b) More trade-restrictive than necessary

4.102 Peru recalls that one of the purposes of the TBT Agreement is to further the objectives of the GATT 1994, and argues that according to consistent GATT and WTO jurisprudence, a measure cannot be justified as "necessary" under Article XX(b) and (d) of the GATT 1994 if an alternative measure is reasonably available that is not inconsistent with, or is less inconsistent with, other GATT provisions. Peru argues that the jurisprudence of the GATT and the WTO on the term "necessary" in Article XX(b) and (d) of the GATT 1994 is therefore relevant to the interpretation of the terms "more trade-restrictive than necessary" in Article 2.2 of the TBT Agreement. In Peru's view, a measure should therefore be deemed to be more trade restrictive than necessary within the meaning of Article 2.2, if there is a reasonably available, less trade-restrictive alternative measure that fulfils the Member's legitimate objective and that is consistent with, or less inconsistent with, the TBT Agreement.

4.103 In Peru's view, the considerations on the basis of which the Appellate Body determined in Korea - Various Measures on Beef the meaning of the term "necessary" in Article XX(d) of the GATT 1994 are of general application and should therefore guide the Panel in determining the meaning of the term "necessary" in Article 2.2 of the TBT Agreement, it being understood that the different context in which the term appears in the two provisions would need to be taken into account.

4.104 According to Peru, this means that the Panel should begin by examining whether the measure at issue makes a contribution to the realisation of the two ends that the European Communities claims to pursue (specific trade names and consumer protection). If the Panel reaches the conclusion that the measure does so, it must weigh the importance of the common interests or values realised by the measure against its impact on trade. On the other hand, If the Panel reaches the conclusion that the measure fails to make a contribution to the ends the European Communities claims to pursue, the question of weighing the common interests or values realised against its impact on trade will not arise.

4.105 Peru submits that the prohibition of the term "sardines" for Sardinops sagax in combination with the name of a country, geographical area or species or the common name does not make any contribution to the ends that the European Communities claims to pursue. Peru is therefore of the view that the Panel need not engage in a process of weighing up the three elements as conducted by the Appellate Body in Korea - Various Measures on Beef.

4.106 According to Peru, in the context of Article XX of the GATT 1994 the term "necessary" qualifies the term "measures", and the necessity test must consequently be applied by the panel to the measure it previously found to be inconsistent with another provision of the GATT 1994 and therefore requires justification under Article XX. However, in the context of Article 2.2 of the TBT Agreement, the term "necessary" qualifies the terms "not more trade-restrictive than", and what must thus essentially be determined to be "necessary" is the obstacle to trade created by the measure challenged by the complainant.

4.107 In the view of Peru, the EC Regulation is more trade restrictive than necessary because there is a less trade-restrictive alternative, namely Codex Stan 94, that is reasonably available, that is consistent with the TBT Agreement and that would fulfil the European Communities' objective. Peru argues that the objective of consumer protection that the European Communities claims to pursue with its Regulation can be met in a less trade-restrictive manner by allowing species other than Sardina pilchardus to be marketed as preserved sardines in accordance with the Codex Stan 94; that is, by including designations that inform consumers of the "country, geographic area, the species or the common name of the species in accordance with the law and custom of the country in which the product is sold," for example "Pacific Sardines" or "Peruvian Sardines". By adopting such a measure, Peru contends that the European Communities could provide European consumers with the most precise information possible and reserve the use of the term "sardines" without any descriptor for products made from Sardina pilchardus. Peru argues that this alternative is reasonably available, consistent with the TBT Agreement and would permit the European Communities to fulfil its stated objectives while at the same time being less restrictive of trade in preserved sardines.

4.108 Peru also submits, quoting a letter from the Consumers' Association whose arguments Peru presents as part of its submission to the Panel, that

�[t]here is no good reason to restrict sardines marketed within the [European Communities] to the specie Sardina pilchardus Walbaum. The equivalent Regulation for common marketing standards for tuna and bonito is not similarly restrictive, but permits, inter alia, Atlantic or Pacific bonito, Atlantic little tuna, Eastern little tuna, black skipjack "and other species of the genus Euthynnus". If a permissive and wide range of tuna or bonito species can be marketed in the Community under a common standards regime designed "to improve the profitability of tuna production in the Community" and to protect "consumers as regards the contents of packages" of tuna, it is difficult to understand why sardines should be marked out for a particularly restrictive regulatory regime.

4.109 The European Communities argues that even if Peru were to demonstrate that the EC Regulation is trade restrictive, it would still have to show that it is more trade restrictive than necessary in the light of the risks addressed by Article 2 of the EC Regulation.

4.110 With regard to the word "necessary" in Article 2.2 of the TBT Agreement and in Article XX(d) of GATT 1994, the European Communities argues that it is not used in the same context. First, it argues that Article XX(d) of GATT 1994 defines an exception and Article 2.2 of the TBT Agreement an obligation, and, second, Article XX(d) of GATT 1994 requires the measure to be "necessary to secure compliance" and Article 2.2 of the TBT Agreement, on the other hand, provides that the effects of the measure shall be "not more trade-restrictive than necessary". According to the European Communities, Article 2.2 does not strictly require that the measure is "necessary" to fulfil the legitimate objective - only that its effects not be more trade restrictive than necessary. Such a measure could be merely a helpful measure that, alone or perhaps together with other measures, helps in achieving the objective that the government pursues, even if possibly this objective could as well be accomplished in other ways than through the technical regulation in question. Accordingly, the only requirement in its view is that the measure should not be more trade restrictive than necessary, meaning that among two equally effective measures, the less trade restrictive should be chosen.

4.111 The European Communities consequently submits that the first criterion of the Appellate Body in Korea - Various Measures on Beef for Article XX(d) (the contribution made by the measure to the realisation of the end pursued) is not relevant for the analysis under Article 2.2 of the TBT Agreement, except that, if one measure is more effective in achieving the objective than another measure, it can be chosen, even if the less effective measure is less trade-restrictive.

4.112 The European Communities argues that the second criterion of the Appellate Body in Korea - Various Measures on Beef for Article XX(d) (importance of the common interest) suggests that the degree of permissible trade restriction would vary according to the importance of the objective pursued. According to the European Communities, however, this criterion is used by the Appellate Body to determine whether the measure is "indispensable" to fulfil the objective or whether it is simply "making a contribution". The European Communities considers that this does not seem relevant for an analysis under Article 2.2 since this provision simply requires a comparison of the trade effect of one measure with that of an alternative that also achieves the same objective, at least at the same level of protection. In providing a non-exhaustive list of legitimate objectives, the TBT Agreement deliberately refrains from setting out any choices as to the relative importance of one objective compared to another.

4.113 The European Communities argues that it is only the third criterion of the Appellate Body in Korea - Various Measures on Beef (impact of the measure on imports or exports) that is in one sense relevant to the analysis under Article 2.2. In its view, this follows from the very concept of "not more trade restrictive than necessary". However, the Appellate Body uses this criterion for a purpose that it is not relevant under Article 2.2 for the reasons seen above. The European Communities argues that under Article 2.2, one has to compare the trade effects of two measures, not the necessity of one measure.

4.114 The European Communities disagrees with Peru's assertion that a less restrictive measure would be to provide that preserved Sardinops sagax be called Peruvian or South American sardines. The European Communities finds that there is no answer to its argument that such a provision would not achieve its legitimate objective at the level of protection that the it seeks and that the EC Regulation, including its rules on names, does not create an obstacle to trade, but promotes it. Moreover, the European Communities contends that the quote from the Consumers' Association does not advance a single new element of fact but simply repeats facts that the European Communities had demonstrated to be wrong.

2. Taking account of the risks non-fulfilment would create

4.115 According to Peru, the phrase "taking account of the risks non-fulfilment would create" is preceded by a comma and therefore refers not only to the term "necessary" but to the whole of the obligation set out in the preceding phrase. Peru contends that if the phrase were to be interpreted to refer to the adverse consequences of a failure to apply the technical regulation, it would add nothing to the necessity test because these consequences would have to be taken into account in any case to determine whether the regulation meets that test. In Peru's view, the phrase was probably added to make clear that a technical regulation merely preventing risks (rather than predictable outcomes) may be both "legitimate" and "necessary", hence making explicit what is implicit in the necessity test set out in Article XX(b) and (d). According to Peru, this issue does not arise in the case before the Panel because neither party claimed that the EC Regulation serves to prevent risks.

4.116 The European Communities considers that the words "taking account of the risks non-fulfilment would create" make clear that the question of whether measures are alternatives or not can only be assessed once it has been established whether the alternative, allegedly less trade-restrictive measure, achieves the legitimate objectives of a level of protection at least as high as that achieved by the contested measure. In its view, the "downside" of not meeting the chosen level of protection is clearly an essential element in this consideration. According to the European Communities, it is the "mirror image" of the positive evaluation of whether the measure is capable of meeting the chosen level of protection, and it is only by looking at both sides of the picture that it is possible to compare properly the effectiveness of the two measures. It argues that the quoted words are thus an integral part of the test set out in Article 2.2 of the TBT Agreement (which it considers to be more a "comparison test" than a "necessity test") and that they were intended to preserve, not reduce, the right of WTO Members to determine their appropriate level of protection. The European Communities submits that the reason why these words do not occur in Article XX(b) or (d) of the GATT 1994 is the fact that the tests to be applied in Article XX(b) or (d) of the GATT 1994 are not the same as in Article 2.2 of the TBT Agreement.

4.117 According to the European Communities, the non-fulfilment of the objectives in this case would lead to the marketing of lower quality products, the use of disparate and confusing presentations, labelling and names, unfair competition, the elimination of higher cost and higher quality products from the market, the reduction in the quality and range of products available to the consumer and finally reduction in the reputation and consumption of preserved fish products in the European Communities, to the detriment of all economic operators in the sector and consumers.

To continue with F. ARTICLE 2.1 OF THE TBT AGREEMENT AND ARTICLE III:4 OF THE GATT 1994

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