EUROPEAN COMMUNITIES —
TRADE DESCRIPTION OF SARDINES

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

1. The relationship between Article 2.1 of the TBT Agreement and Article III:4 of the GATT 1994

4.118 Peru argues that the national-treatment requirements set out in Article 2.1 of the TBT Agreement and Article III:4 of the GATT 1994 are identically worded and have the same objective, i.e., to ensure that internal regulations are not applied so as to afford protection to domestic production. Peru considers that Article 2.1 of the TBT Agreement introduces into the TBT Agreement the national-treatment and the most-favoured-nation principles set out in Articles I:1 and III:4 of the GATT 1994. Peru is of the opinion that the two provisions differ only in their scope: while Article III:4 of the GATT 1994 is broadly worded to cover all regulations affecting the internal sale, offering for sale, purchase, transportation, distribution or use of imported products, Article 2.1 of the TBT Agreement is limited to technical regulations as defined in Annex 1 of the TBT Agreement; in Peru's view, the regulations covered by Article 2.1 at issue are therefore a sub-set of the regulations covered by Article III:4 of the GATT 1994. For this reason, Peru argues that the jurisprudence developed by the Appellate Body for Article III:4 should be taken into account when interpreting Article 2.1 of the TBT Agreement.

4.119 In Peru's view, its arguments under Article 2.1 of the TBT Agreement on the less favourable treatment of Peruvian sardines and on the likeness of the species Sardinops sagax and Sardina pilchardus therefore apply equally to Article III:4 of the GATT 1994. Peru is consequently of the view that the EC Regulation is also inconsistent with this provision.

4.120 The European Communities contends that Peru's arguments under Article 2.1 of the TBT Agreement refer to its arguments under Article III:4 of the GATT 1994. It explains that it will therefore deal with them in its discussion of Peru's claim under Article III:4 of the GATT 1994.

4.121 Neither the European Communities nor Peru contests that the EC Regulation is a "a law, regulation or requirement affecting the internal sale, offering for sale, purchase, distribution or use" within the meaning of Article III:4 of the GATT 1994.

2. Whether domestic products prepared from Sardina pilchardus and imported products prepared from Sardinops sagax are "like" products

4.122 Both Peru and the European Communities submit that the Appellate Body, in its rulings on EC - Asbestos, explained how a treaty interpreter should proceed in determining whether products are "like" under Article III:4 and that it also pointed out that the determination has to be made on a case-by-case basis, employing four criteria in analyzing "likeness":

… (i) the properties, nature and quality of the products; (ii) the end-uses of the products; (iii) consumers' tastes and habits - more comprehensively termed consumers' perceptions and behaviour - in respect of the products; and (iv) the tariff classification of the products. We note that these four criteria comprise four categories of "characteristics" that the products involved might share: (i) the physical properties of the products; (ii) the extent to which the products are capable of serving the same or similar end-uses; (iii) the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and (iv) the international classification of the products for tariff purposes. These general criteria, or groupings of potentially shared characteristics, provide a framework for analyzing the "likeness" of particular products on a case-by-case basis.

4.123 Peru claims that imported products prepared from fish of the species Sardinops sagax and the domestic products prepared from fish of the species Sardina pilchardus are "like". In support of its claim, Peru argues that the report it submitted - "La Sardina Peruana (Sardinops sagax sagax) y la Sardina Europea ( Sardina pilchardus)" - demonstrates that the two species of fish are physically very similar and that there is no scientific or technical reason that would justify a commercial distinction. Peru further submits that according to the opinion of the Nehring Institute and the Federal Research Centre for Fisheries, Institute of Biochemistry and Technology, the characteristics in taste and smell of the product from Sardinops sagax are very similar to the products of Clupea pilchardus which originate from Europe and North Africa.

4.124 Peru also argues that the process of inclusion of new fish species in Codex Stan 94, as described by Canada in its third party submission, confirms that products made from Sardina pilchardus and those made from Sardinops sagax are "like", because for the proposed fish species to be included in Codex Stan 94, reports must be submitted from at least three independent laboratories stating that the organoleptic properties, such as texture, taste and smell of the proposed species, after processing, conform with those characteristics of the species already included in the standard. Once a species has been found to meet these criteria, the Codex Alimentarius Commission takes its decision. Therefore, Peru submits that this process ensures that only species that are like from the consumers' perspective are included in Codex Stan 94. Thus, Peru claims that the two products at issue must be considered to be "like" products within the meaning of Article 2.1 of the TBT Agreement.

4.125 Peru thus argues that the physical properties of these products are very similar, and as a result of these similarities, they are capable of serving the same or similar end-uses, and that consumers perceive and treat the products as alternative means to satisfy the demand for preserved sea food. Peru refers in this respect to the Appellate Body's statement in EC - Asbestos, where it emphasised that:

Panels must examine fully the physical properties of products. In particular, panels must examine those physical properties of products that are likely to influence the competitive relationship between products in the marketplace.

4.126 According to Peru, a comparison of the physical properties of the two products at issue cannot but lead to the conclusion that the differences between them are of interest to biologists but not to the consumer and therefore do not influence the competitive relationship between them in the market place. The two products therefore must therefore be considered to be "like" products within the meaning of Article 2.1 of the TBT Agreement.

4.127 As to the fourth criterion that has been used for determining likeness - the international classification of the products for tariff purposes - Peru does not consider that this fourth criterion can provide useful guidance in this case. Nevertheless, Peru points out that the Harmonized System does not distinguish between sardines of different species and that WTO Members generally distinguish in their customs tariffs between fresh, frozen and canned sardines but not between sardines of different species.

4.128 Peru notes that the European Communities submitted extensive evidence on the biological differences between Sardinops sagax and Sardina pilchardus, but argues that it did not submit any evidence to the Panel demonstrating that the differences in physical properties of the two products at issue are such as to influence the competitive relationship between products in the marketplace. Peru further submits that the objection of the European Communities that any products which are in a competitive relationship would have to bear the same name if Peru's argument were to be accepted, would only be valid if all products found to be "like" products had to be treated identically under the national-treatment provisions of the TBT Agreement and the GATT 1994. However, national treatment does not mean identical treatment. It means no less favourable treatment. A GATT panel therefore correctly found that:

The mere fact that imported products are subject … to legal provisions that are different from those applying to products of national origin is in itself not conclusive in establishing inconsistency with Article III:4. In such cases, it has to be assessed whether or not such differences in the legal provisions applicable do or do not accord to imported products less favourable treatment.¹⁷

The same panel noted that:

there may be cases where application of formally identical provisions would in practice accord less favourable treatment to imported products and a contracting party might thus have to apply different legal provisions to imported products to ensure that the treatment accorded to them is in fact no less favourable.¹⁸

These rulings make clear that the national-treatment provisions are not violated if two like products are subject to different naming regulations. In such cases, it has to be assessed whether the different regulations accord imported products less favourable treatment than that accorded to the like domestic product.

4.129 The European Communities submits that with regard to living organisms, different species cannot be regarded as "like" for the purposes of being granted the same name because species represent the basic units of biological classifications outside which organisms cannot interbreed and produce viable offspring. European consumers do not consider different species to be so "like" that they should bear the same name. It also submits that from a scientific and biological point of view there is currently only one species of the genus Sardina, which is Sardina pilchardus, and Sardinops sagax belongs to another genus, the genus Sardinops. According to the European Communities, both genera belong to the same family Clupeidae as do other genera such as Sardinella, Clupea, Sprattus. Therefore, sardines ( Sardina pilchardus), sardinops (Sardinops sagax), round sardinella (Sardinella aurita), herring (Clupea harengus) and sprat (Sprattus sprattus) belong to the same family but to different genera.

4.130 The European Communities also contests Peru's argument that consumers' tastes and habits can be inferred from the fact that two products are "similar". If this were the case, it argues that the Appellate Body would not have considered this as a separate criterion. Consumers' tastes and habits need to be proved with reference to the market concerned, namely the European market. The European Communities is of the opinion that, although not bearing the burden of proof, it has provided the Panel with evidence that European consumers do have the habit of choosing among different, although similar products to satisfy their varied tastes.

4.131 The European Communities also argues that the Clupeidae family is composed of 216 species of fish distributed in 66 genera and that if the extension of the use of the denomination "sardines" to sardinops was admitted, any of the other 216 species of the same family could be given the same name. In other words, the European Communities considers that if Peru's logic was adopted, namely that two fish can be considered "like" on the basis that they are "physically very similar"; and that they are capable of serving the same or similar end-uses, then, not only the 216 fish belonging to the family Clupeidae could be called sardines, but also all preserved sea food.

4.132 In light of the above, the European Communities considers that the "likeness" required of products for the purposes of naming them is much more stringent than it would be for the same products for the purposes of, for example, taxation. For the purposes of naming a product, not all products which are in a competitive relationship are "like" under Article III of the GATT 1994. It argues that if vodka and shochu can be considered "directly competitive or substitutable" for the purpose of internal taxation, it would be hard to say that their "likeness" goes as far as imposing that they be referred to in the same way. If this was the case, apples and oranges, or chicken and turkeys, because they are in a competitive relationship, should bear the same name. According to the European Communities, identical products can have the same name; like products must not.

4.133 The European Communities rejects the opinion of the Nehring Institute and the Federal Research Centre for Fisheries, Institute of Biochemistry and Technology, that Peru put forward to support the organoleptic similarities of products prepared with Sardina pilchardus and Sardinops sagax.

3. Whether the prohibition to market products prepared from Sardinops sagax under the name "sardines" accords a less favourable treatment

4.134 Peru reiterates its argument that the effect of monopolizing the name "sardines" for products made from fish of the species Sardina pilchardus is that European consumers of Peruvian preserved sardines cannot be informed that the hermetically sealed containers in which these products are marketed contain sardines, whereas the consumers of products made from Sardina pilchardus may be given this information. Peru argues that if the Sardina pilchardus is better known in a particular member State of the European Communities under a name other than "sardines" (for instance, under the name "pilchard") and products made from Sardina pilchardus could therefore be marketed more successfully under that name, the seller would be permitted to choose that name. By contrast, Peru argues, the seller of products made from Sardinops sagax is not given that choice. Peru therefore claims that the monopolization of the term "sardines" for products prepared from Sardina pilchardus accords competitive conditions to those products that are more favourable than those accorded to products prepared from Sardinops sagax. Consequently, in Peru's view, the "treatment" that the EC Regulation accords to Peruvian sardines is "less favourable" than that accorded to European sardine products.

4.135 In contrast, Peru contends that it would not be inconsistent with the national treatment requirement if the trade description for Peruvian sardines was "Pacific sardines" and the trade description "sardines" was reserved for European sardines, because this difference would not accord Peruvian sardines less favourable treatment. Peru submits that what renders the EC Regulation inconsistent with the national treatment requirement is not that it treats imported products differently but that the difference in treatment entails less favourable conditions of competition for imported products.

4.136 The European Communities argues that within its member States, each different fish of the family Clupeidae is sold under its proper correct name, thus benefiting from the specific market and reputation that each of them has developed. It states that it does not understand how this can amount to a measure that "accords to the group of 'like imported products' 'less favourable treatment' than the one it accords to the group of 'like domestic products'". The European Communities submits that the product canned sardines has to meet the standards contained in the EC Regulation whether imported or domestically prepared. Similarly, all other prepared fishes are subject to the same rule whether imported or domestically produced.

4.137 The European Communities argues that "according national treatment" means according a product its correct name, not granting to a different product a competitive opportunity represented by the use of another product's name. It further submits that Peru merely assumes that calling a product "sardines" is an advantage. The European Communities does not see why any of the names used for preserved Sardinops sagax should be considered less favourable than the use of the term "preserved sardines" for preserved Sardina pilchardus.

4.138 The European Communities contends that the reason why Peru appears not to be selling its product in the member States of the European Communities is not due to the non-existence of a market for sardinops or that sardinops are treated less favourably. It argues that Peru should have more confidence in the high level of quality of its preserved sardinops and should be devoting its energies to improving the reputation of its products for reliability and quality, rather than seeking to exploit the reputation of another product.

G. JUDICIAL ECONOMY

4.139 Peru requests the Panel to address its subsidiary claims on Articles 2.1 and 2.2 of the TBT Agreement only if it were to reach the conclusion that the EC Regulation is consistent with Article 2.4 of the TBT Agreement; and to examine the consistency of the EC Regulation with Article III:4 of the GATT 1994 only if it were to conclude that it is consistent with the TBT Agreement. Peru requests that the Panel avoid developing interpretation of the TBT Agreement that are not required to resolve the dispute.

4.140 Peru notes that, with respect to the principle of judicial economy, the Appellate Body stated:

The principle of judicial economy has to be applied keeping in mind the aim of the dispute settlement system. This aim is to resolve the matter at issue and to 'secure a positive solution to a dispute'. To provide only a partial resolution of the dispute would be false judicial economy. A panel has to address those claims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member with those recommendations and rulings "in order to ensure effective resolution of disputes to the benefit of all Members".¹⁹

4.141 Peru argues that the Panel would complete its task if it resolves the dispute as defined by the claims that Peru has submitted and refers to US - Cotton Yarn in which the Appellate Body refused to make a finding on an issue on the grounds that the findings it had already made "resolve[d] the dispute as defined by Pakistan's claims before the Panel".

4.142 The European Communities makes no arguments on the issue of judicial economy.

H. EUROPEAN COMMUNITIES' ARGUMENT THAT PERU REFORMULATED ITS CLAIMS

4.143 The European Communities also contends that Peru's "reformulation" of its claims as reproduced in paragraph 3.1 (a) above constitutes a widening of the claims presented in its first written submission and is therefore inadmissible. The European Communities argues that Peru is claiming in its second written submission that the European Communities and its member States cannot use a common name of the species Sardinops sagax according to the relevant law and customs to designate the preserved product unless it is accompanied by the word "sardines". The European Communities argues that since Peru has limited its complaint to Article 2 of the EC Regulation, the Panel's mandate only relates to the compatibility of that provision with the provisions of the covered agreements that have been invoked.

4.144 The European Communities further contends that Peru's formulation of its request for findings seeks to obtain a declaratory judgment that would require the European Communities to take certain specific action rather than simply remove any inconsistency and this would request the Panel to go beyond its mandate and is inadmissible. The European Communities also argues that Peru's reformulation of its claim is a consequence of the fact that Peru failed to properly research the common names of Sardinops sagax in the European Communities prior to commencing this dispute.

V. ARGUMENTS OF THIRD PARTIES

A. CANADA

1. Introduction

5.1 Canada submits that it has a substantial trade interest in the dispute with respect to its export of Canadian preserved sardines of the species Clupea harengus harengus to the European Communities, and a systemic interest in the interpretation of the TBT Agreement and the GATT 1994.

5.2 Canada argues that the EC Regulation permits only fish of the species Sardina pilchardus to be marketed in the European Communities as "sardines", impairing therefore the marketability of imported preserved sardines of species other than Sardina pilchardus. Canada further argues that the EC Regulation laying down common marketing standards for preserved sardines is a technical regulation within the meaning of the TBT Agreement and that it is inconsistent with the European Communities' obligations under Articles 2.4, 2.2 and 2.1 of the TBT Agreement and Articles I:1 and III:4 of the GATT 1994.

2. Retroactive application of the TBT Agreement

5.3 Canada disagrees with the European Communities' contention that Articles 2.2 and 2.4 of the TBT Agreement are not applicable to measures that were imposed before the entry into force of the TBT Agreement and notes that this contention is inconsistent with both the case law and Article XVI:4 of the WTO Agreement. Canada points out that the Appellate Body in EC - Hormones made clear that, regardless of when a measure came into force, as long as it remains in force after 1 January 1995, it is subject to the disciplines of the SPS Agreement. In the view of Canada, the Appellate Body's reasoning is equally applicable in this case. If the negotiators had wanted to exempt the numerous technical regulations in existence on 1 January 1995 from the disciplines of the TBT Agreement, they would have explicitly done so. Thus, Canada claims that if the Panel were to accept the European Communities' argument, a situation would arise in which it would be impossible to ensure the conformity with WTO obligations of technical regulations enacted prior to 1 January 1995, and which continue to be in force.

5.4 Canada also notes that the issue of the application of a WTO Agreement to a measure that was imposed before the entry into force of the Agreement was addressed by the Appellate Body in Brazil - Measures Affecting Desiccated Coconut. Canada notes that the Appellate Body stated with reference to Article 28 of the Vienna Convention:

Absent a contrary intention, a treaty cannot apply to acts or facts which took place, or situations which ceased to exist, before the date of its entry into force.

5.5 Canada asserts that after the entry into force of the TBT Agreement, the EC Regulation at issue did not "cease to exist", and that the TBT Agreement, including Articles 2.2 and 2.4, applies to measures that were enacted before 1 January 1995 and which continue to be in force.

5.6 With regard to this matter, Canada makes the final point that while the TBT Agreement was not in force at the time of the enactment of the EC Regulation, the Tokyo Round Standards Code, to which the European Communities was a party, was in force and its Article 2.2 contained provisions substantially similar to Article 2.4 of the TBT Agreement. Thus, even at the time the EC Regulation was enacted, the European Communities was under an obligation to use relevant international standards, such as the Codex Standard, as the basis for the Regulation at issue.

3. Article 2.4 of the TBT Agreement

5.7 Canada submits that it is well established that it is for the party asserting the fact, claim or defence, to bear the burden of providing proof thereof. Thus, in Canada's view and with respect to Article 2.4 of the TBT Agreement, Peru has to demonstrate that a relevant international standard exists or that its completion is imminent; and that the measure in question is not based on this standard. Canada argues that the burden then shifts to the defending party to refute the claimed inconsistency or to prove why the standard is ineffective or inappropriate to meet its legitimate objective.

5.8 Canada considers that for the purposes of the TBT Agreement, Codex Stan 94 is a relevant international standard, in that it applies to the same product category as the EC Regulation, namely, preserved sardines and, like the EC Regulation, relates to the marketing of that product. Canada also affirms that the European Communities is incorrect when it states that Codex Stan 94 is not relevant because "it did not exist and its adoption was not 'imminent' when the EC Regulation was adopted". In any event, whether or not Codex Stan 94 was in existence at the time the EC Regulation was adopted is irrelevant to the European Communities' obligation under Article XVI:4 of the WTO Agreement, to ensure that the EC Regulation is consistent with Article 2.4 of the TBT Agreement.

5.9 Furthermore, Canada is of the view that standards adopted by the Codex Alimentarius Commission are the internationally agreed global reference point for consumers, food producers and processors, national food control agencies and the international food trade. Moreover, Canada is of the view that Codex Stan 94 complies with the six principles (e.g., principles of transparency, openness, impartiality and consensus) and procedures set out by the Decision of the TBT Committee.

5.10 With regard to the development and adoption of Codex Stan 94, Canada notes that member States of the European Communities were actively involved in this process and that the European Communities acted as an observer. Canada further recalls that a multilateral consensus-based approach was applied in this process. In addition, Canada argues that the inclusion of species in the Codex Stan 94 is made pursuant to a two-step process: first, a proposed species must meet the rigorous, scientific criteria set out by the Codex Alimentarius Commission; then, once a species has been found to meet these criteria, the Codex members make the final decision on its inclusion. According to Canada's submission under the Codex process, the scientific criteria require that members proposing the inclusion of an additional species communicate to the Commission all relevant information on taxonomy, resources, marketing, processing technology and analysis. Canada points out that this information must include reports from at least three independent laboratories stating that the organoleptic properties, such as texture, taste and smell, of the proposed species after processing conform with those of the species currently included in the Codex Stan 94.

5.11 Canada submits that, in accordance with Article 31(1) of the Vienna Convention, the ordinary meaning of the term "as a basis for" in Article 2.4 of the TBT Agreement is synonymous with "based on", and that the Appellate Body has stated that "[a] thing is commonly said to be 'based on' another thing when the former 'stands' or is 'founded' or 'built' upon or 'is supported by' the latter." In this context, Canada argues that the EC Regulation is not "founded", "built" upon or "supported by" Codex Stan 94. Canada notes that paragraph 6.1.1 of the Codex Stan 94 permits preserved sardines of 20 species other than Sardina pilchardus to use the name "sardines" along with a designation indicating the country, geographical area, species or the common name of the species. Therefore, Canada affirms that Codex Stan 94 is sufficiently flexible to allow the country of sale to choose the appropriate listed designator to accompany the name "sardines" and that the European Communities is incorrect when it argues that a measure that prohibits the use of the word "sardines" in conjunction with the designator for the 20 listed species other than Sardina pilchardus is based on Codex Stan 94.

5.12 Canada also submits that the European Communities misinterprets the meaning of "in a manner not to mislead the consumer" in paragraph 6.1.1 of Codex Stan 94. Canada argues that, read in context, this phrase refers back to "X sardines" and more specifically, prescribes that the designator "X" must not be presented in a manner that misleads the consumer. Canada contends that the European Communities' argument that consumers would be confused by the use of the word "sardines" along with the appropriate designator is refuted by the research conducted by the Codex Committee in the development of Codex Stan 94. Canada submits that the Codex Committee researched the common names of the species listed in paragraph 2.1.1 of Codex Stan 94 and in examining the results of this research came to a consensus that allowing species other than Sardina pilchardus to be labelled as "sardines" with the appropriate designator does not confuse consumers. Canada therefore agrees with Peru that the EC Regulation at issue is inconsistent with Article 2.4 of the TBT Agreement because it is not based on Codex Stan 94.

5.13 Canada argues that the European Communities failed to prove that Codex Stan 94 is ineffective or inappropriate for the fulfilment of its objective. Canada submits that "sardines" is a generic term²⁰, widely recognized, including under the Codex Stan 94, as applying to many different species of pelagic, saltwater fish that are prepared and packed in a certain way. In addition, Canada maintains that the fact that species other than Sardina pilchardus have been successfully marketed as "sardines" in the European Communities for some time indicates that European consumers recognize and accept that the term "sardines" does not apply exclusively to Sardina pilchardus and therefore it indicates that Codex Stan 94 is not inappropriate or ineffective. For example, the Canadian sardines, Clupea harengus harengus had, in 1990, been successfully marketed as "sardines" in the United Kingdom for over forty years and in the Netherlands for over thirty years. Furthermore, Canada states that throughout this period, Canada exported, and continues to export, products made of the species Clupea harengus harengus: preserved small juvenile Clupea harengus harengus, and preserved adult Clupea harengus harengus. Canada argues that until the adoption of the EC Regulation, the juvenile product was marketed as "sardines" in the European Communities - as provided for in Codex Stan 94 - while the adult product was marketed as herring. According to Canada, it continues to market preserved small juvenile Clupea harengus harengus as "sardines" in markets other than the European Communities.

20 The New Shorter Oxford English Dictionary, Clarendon Press, Oxford, 1993, defines "sardine" as "a young pilchard or similar small usu. clupeid marine fish, esp. when cured, preserved, and packed for use as food".

To continue with 4. Article 2.2 of the TBT Agreement

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