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WORLD TRADE
ORGANIZATION

WT/DS231/R
29 May 2002

(02-2894)

 
  Original: English

EUROPEAN COMMUNITIES —
TRADE DESCRIPTION OF SARDINES




Report of the Panel

(Continued)


4. Article 2.2 of the TBT Agreement

5.14 Concerning Article 2.2 of the TBT Agreement, Canada argues that the wording of this provision contains two separate and independent obligations which indicate that a Member cannot prepare, adopt or apply a technical regulation with a view to and with the effect of creating an unnecessary obstacle to trade. Canada submits that the preamble to the EC Regulation at issue states that it is "likely to improve the profitability of sardine production in the Community, and the market outlets therefor…". Canada claims that such language reveals that the EC Regulation has been adopted with a view to creating an unnecessary obstacle to international trade and that it is therefore inconsistent with Article 2.2 of the TBT Agreement.

5.15 Moreover, Canada claims that the EC Regulation has been adopted with the effect of creating an unnecessary obstacle to international trade. In support of this claim, Canada argues that it can be inferred from the text of Article 2.2 of the TBT Agreement that in order for a measure to be consistent with that provision, the following should occur:

(a) The objective of the technical regulation must fall within the range of legitimate objectives set out in Article 2.2 of the TBT Agreement;

(b) the technical regulation must fulfil the objective; and

(c) the technical regulation must not be more trade restrictive than necessary, taking account of the risks non-fulfilment would create.

5.16 With regard to the two first elements mentioned above, Canada notes that according to the European Communities, the labelling requirement in Article 2 of its Regulation has the objective of "ensuring consumer protection through market transparency and fair competition". Canada further notes that the European Communities argues that the Regulation at issue intends to protect consumers' expectations that in purchasing sardines they are purchasingSardina pilchardus, as they associate sardines with this particular species. In reply to this last argument, Canada contends that there is no evidence that this is the expectation of European consumers. Canada claims that, to the contrary, preserved sardines other thanSardina pilchardus have been successfully marketed as "sardines" in the European Communities market for over fifty years until the adoption of the EC Regulation. Canada considers this as evidence that in their perceptions and behaviour, European consumers have recognized these products as sardines and that they expect the term "sardines" to include species other than Sardina pilchardus.

5.17 Canada also asserts that consumers' expectations relate to the culinary and nutritional characteristics of the processed products. They are concerned with the organoleptic properties of the canned products such as flesh quality, taste and smell as well as nutritional content and its suitability for particular uses. Canada argues that in all relevant attributes, the product of various species, including Clupea harengus harengus and Sardinops sagax, is indistinguishable fromSardina pilchardus, as confirmed independently by their inclusion as "sardines" under the Codex Stan 94.

5.18 Moreover, Canada argues that market transparency is normally associated with the provision of accurate information that is relevant to consumers to assist them in making informed purchasing decisions and that the generic term "sardines" is understood by European consumers to refer to a range of species that are prepared and packed in a certain way and when preserved, are similar as to flavour, texture and end use. In Canada's view, the word "sardines" conveys meaningful information that allows consumers to identify these products and, by forcing products that had previously been identified by European consumers as sardines to use a different trade description, the EC Regulation itself misleads and confuses consumers.

5.19 Canada further submits that while the European Communities does not explicitly define the term "fair competition", it indicates that the Regulation at issue is intended to prevent producers of one product from unfairly benefiting from the reputation associated with another product. Canada argues that the European Communities' rationale is based on the false premise that the term "sardines" is only associated with the speciesSardina pilchardus and that the European Communities has also failed to offer any evidence that the reputation associated withSardina pilchardus is better than that associated with other species commonly known as sardines.

5.20 Thus, Canada asserts that the EC Regulation not only fails to fulfil any credible objective of consumer protection through market transparency and fair competition, but also actively undermines it.

5.21 With regard to the last element mentioned above, Canada argues that, even if the EC Regulation did fulfil the objective of consumer protection through market transparency and fair competition, the EC Regulation is more trade restrictive than necessary, taking account of the risks non-fulfilment would create. The language and jurisprudence of the GATT offer guidance to the interpretation of the TBT Agreement, including Article 2.2. Under Article 2.2, a measure will be more trade restrictive than necessary if there is a reasonably available, less trade restrictive alternative measure that fulfils the Member's legitimate objective and is consistent with the TBT Agreement. The European Communities' objective can be met in a less trade restrictive manner by allowing species other thanSardina pilchardus to be marketed as preserved sardines in accordance with the Codex Standard; 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", "Peruvian Sardines" or "Canadian Sardines"). Canada recalls that the Appellate Body stated that one aspect of the determination of whether a WTO-consistent alternative measure is reasonably available is the extent to which it "contributes to the realization of the end pursued"; that is, the fulfilment of the stated objective. Canada argues that the Appellate Body also found that the more vital or important the common interests or values pursued, the easier it would be to accept as "necessary" measures designed to achieve those ends. In Canada's view, the exercise of "taking account of the risks non-fulfilment [of a legitimate objective] would create" when assessing the necessity of a measure under Article 2.2 of the TBT Agreement can be seen as similar to evaluating the necessity of a measure under Article XX(b) or (d) of the GATT 1994 in part by considering the importance of the objective being pursued. Canada argues that the greater the importance of the objective, the greater the risks non-fulfilment would create.

5.22 Canada claims that in the present case, 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, consistent with the TBT Agreement and that would fulfil the European Communities' objective. Canada argues that a less trade restrictive alternative would be to allow species other thanSardina pilchardus to be marketed as preserved sardines in accordance with 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", "Peruvian Sardines" or "Canadian Sardines").

5.23 Canada concludes that, whether or not the stated objective of consumer protection is a legitimate objective, the EC Regulation does not fulfil its objective and is, therefore, an unnecessary obstacle to trade, contrary to Article 2.2 of the TBT Agreement. Further, the EC Regulation is inconsistent with Article 2.2 in that it is more trade restrictive than necessary to fulfill a legitimate objective and has the effect of creating an unnecessary obstacle to international trade.

5. Article 2.1 of the TBT Agreement

5.24 Canada submits that the EC Regulation violates Article 2.1 of the TBT Agreement by according less favourable treatment to Peruvian preserved sardines of the species Sardinops sagax, and other like products, than that accorded to domestic and imported preserved sardines of the speciesSardina pilchardus.

5.25 In this connection, Canada considers that Peruvian preserved sardines of the species Sardinops sagax, and Canadian preserved sardines of the species Clupea harengus harengus are "like" domestic and imported preserved sardines of the speciesSardina pilchardus:

  • They are saltwater, pelagic fish belonging to the taxonomic family Clupeidae and when preserved, are of similar size, weight, texture, flavour and nutritional value;
     
  • They share the same end-use; they are prepared, served and consumed interchangeably; and
     
  • Peruvian preserved sardines of the species Sardinops sagax, and Canadian preserved sardines of the species Clupea harengus harengus have, for some time, been successfully marketed in the European Communities as "sardines".

5.26 In the view of Canada, the different and discriminatory marketing requirement imposed by the EC Regulation disrupts the conditions of competition between these like products in favour of domestic and imported preserved sardines of the speciesSardina pilchardus. Canada argues that exporters have identified their products as sardines in the European Communities for some time and have developed customer loyalty for their products; thus, by forcing these products to be marketed under a different description, the EC Regulation denies them the traditional identity and image associated with the term "sardines" and causes confusion among consumers. In addition, Canada argues that by prohibiting the use of the term "sardines" for all species other thanSardina pilchardus, the European Communities has altered the conditions of competition in the European Communities market for preserved sardines and created a monopoly under that name for its own domestic species and that of a few other countries, such as Morocco, where the European Communities has made a significant investment in sardine production.

6. Articles I:1 and III:4 of the GATT 1994

5.27 Canada claims that if the Panel finds that the EC Regulation is not a "technical regulation" for the purposes of the TBT Agreement, and thus does not violate Article 2.1 of that Agreement, the EC Regulation is nevertheless inconsistent with Articles I:1 and III:4 of the GATT 1994 because it accords less favourable treatment to Peruvian preserved sardines of the species Sardinops sagax and other like products such as Canadian preserved sardines of the species Clupea harengus harengus, than that accorded to like sardines of European Communities origin and those of certain other countries such as Morocco. Canada argues that the foregoing analysis of "like product" and "less favourable treatment" under the TBT Agreement applies equally to an analysis under Articles I:1 and III:4 of the GATT 1994.

7. Remarks on implementation

5.28 Finally, Canada contends that if the Panel agrees and finds that the EC Regulation violates the European Communities' obligations under the TBT Agreement or the GATT 1994, the Panel should not accept Peru's request that, pursuant to Article 19.1 of the DSU, it suggests that the European Communities implements its recommendation by extending the use of the term "sardines" only to Sardinops sagax. According to Canada, panels in other disputes have consistently declined to suggest ways in which Members found to be acting inconsistently could implement their recommendations and have deferred instead to the discretion of Members to decide how best to bring themselves into conformity. Canada claims that there is no reason in this case why the Panel should be any less deferential.

5.29 Moreover, Canada argues that even if the Panel did decide to make a suggestion regarding implementation, any such suggestion would have to be consistent with the WTO Agreement. A recommendation that the European Communities extends the use of the term "sardines" to Sardinops sagax alone would be inconsistent with Articles 2.4, 2.2 and 2.1 of the TBT Agreement and Articles I:1 and III:4 of the GATT 1994. If the Panel did choose to suggest ways in which the European Communities should bring the Regulation into conformity with the WTO Agreement, Canada contends that the suggestion would have to be based on the Codex Standard and sufficiently broad to encompass all like products, including the Canadian sardines of the species Clupea harengus harengus.

B. CHILE

1. Introduction

5.30 Chile submits that it has a direct trade interest in the dispute as a sardine producer and exporter of marine products to the European Communities, and that it has a systemic interest in the proper interpretation and implementation of the WTO Agreements, in particular the TBT Agreement.

5.31 Chile further submits that its request to join the consultations was rejected by the European Communities, which contended that Chilean exports of Sardinops sagax were equivalent to only 0.3 per cent of total European Communities' imports over the last three years. However, Chile notes with considerable concern that, in one of its written submissions, the European Communities points out that FAO figures show that Chilean catches of Sardinops sagax were the largest in the world, even larger than those of Peru. Chile recalls that Article 4.11 of the DSU indicates that "Whenever a Member other than the consulting Members considers that it has a substantial trade interest in consultations being held ... such Member may notify the consulting Members and the DSB…". This provision adds further that "Such Member shall be joined in the consultations, provided that the Member to which the request for consultations was addressed agrees that the claim of substantial interest is well-founded". Thus, Chile considers that it has a trade interest in the case brought by Peru before the DSB, given that, were Peru's arguments to be upheld, part of the Chilean production could gain access to the European market in conditions which are presently denied. Moreover, Chile considers that this interest is, in practice, related to the fact that it is one of the main producers of one species of sardines, as recognized by the European Communities. In Chile's view, a Member has a substantial trade interest when its exports are affected, whether positively or negatively, by the measure at issue. In most cases, such a measure results in the absence of exports, which is neither equivalent to nor the same as having no trade interest. To the contrary, the European Communities seems to consider that, to have a substantial trade interest in this matter, a Member must be marketing its sardines on the European market, i.e., not be affected by the ban established by the regulation at issue. On this premise, all Members which, as a result of the EC Regulation, are prevented from marketing their sardines on the European market would be excluded from the consultations.

5.32 Chile argues that the EC Regulation is inconsistent with Articles 2.4, 2.2 and 2.1 of the TBT Agreement, as well as with Articles I and III of the GATT 1994.

2. Retroactive application of the TBT Agreement

5.33 With regard to whether a Member is required to bring its technical regulations into conformity with international standards where they exist, Chile argues that the harmonization commitment must clearly be fulfilled in respect not only of future technical regulations but also of those that Members "have … adopted". Moreover, Article 2.4 of the TBT Agreement covers both the case in which a relevant international standard exists and that in which its completion is imminent. Although certain changes were not in force at the time the EC Regulation came into effect, Article 2.3 of the TBT Agreement indicates that a regulation shall not be maintained if the objective "can be addressed in a less trade-restrictive manner".

5.34 With regard to the European Communities' argument that the TBT Agreement, and in particular Article 2, does not apply to the EC Regulation inasmuch as the latter predates the entry into force of the WTO Agreements, including the TBT Agreement, Chile refers to the content of Article XVI:4 of the WTO Agreement. Chile also submits that nothing restricts this provision to laws, regulations and administrative procedures passed subsequent to the entry into force of the WTO Agreement.

5.35 In addition, Chile submits that member States of the European Communities, by consenting to the development of Codex Stan 94, must have been aware of the existence of the EC Regulation at issue, which should have been brought into conformity with the Codex Stan 94. Therefore, Chile considers that following the logic of Article 2.4 of the TBT Agreement, the EC Regulation must be based on relevant international standards, namely those adopted by member States of the European Communities in the Codex Alimentarius Commission. Interpreting Article 2.4 of the TBT Agreement in any other way would render Article XVI:4 of the WTO Agreement ineffective and redundant. As a final point on this particular issue, Chile argues that Article 2 of the TBT Agreement is based on the previous Tokyo Round Standards Code, which contained similar obligations.

3. Article 2.4 of the TBT Agreement

5.36 Chile contends that the international nature of the Codex Alimentarius Commission cannot be questioned, especially since it is an entity attached to the FAO and the WHO, both of which are international organizations par excellence. Furthermore, the standards developed by the Codex Alimentarius Commission comply with the principles of transparency, openness, impartiality, relevance and consensus set out in the Decision of the TBT Committee. Chile also argues that all the member States of the European Communities (which are also members of the Codex Alimentarius Commission) contributed, by way of consensus, to the development of Codex Stan 94.

5.37 Chile states that Codex Stan 94 applies to around 20 types of sardines, including Sardinops sagax. Chile argues that, pursuant to paragraph 6.1.1 of this internationally accepted standard, it can market its sardines on the European market under the following names:

  • Sardina chilena (Chilean sardine)
     
  • Sardina de Chile (Sardine from Chile)
     
  • Sardina del Pacífico (Pacific sardine)
     
  • Sardina Sardinops sagax ( Sardinops sagax sardine)

5.38 Chile disagrees with the interpretation of the European Communities of Article 2.4 of the TBT Agreement and argues that the reference in Article 2.4 to "as a basis for" affords each Member the possibility of adapting an international standard to its own reality or specific individual circumstances, without altering the objectives of that international standard, unless it (or its components) is an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued, and in such case the Member should justify why this is so. The question that arises here is whether Codex Stan 94 is an effective and appropriate means for the fulfilment of the objectives pursued by the European Communities. Chile notes that the aim of the EC Regulation at issue is "to keep products of unsatisfactory quality off the market" and to ensure the "correct information and protection of the consumer". Chile argues that these are also the objectives of the Codex Stan 94 which is an effective and appropriate means to fulfil the objectives set out in the EC Regulation.

4. Article 2.2 of the TBT Agreement

5.39 Chile also claims that the EC Regulation is an unnecessary obstacle to trade. Chile argues that reserving a trade name exclusively for one particular species gives it a competitive advantage over other like products because it imposes the use of names with negative connotations, thus bringing down their prices and triggering an adverse reaction on the part of the consumers.

C. COLOMBIA

1. Introduction

5.40 Colombia submits that it has a systemic interest in important issues of principle and in the legal debate introduced by Peru with regard to the TBT Agreement.

5.41 Colombia agrees with Peru that the limits of competence of any Panel are its terms of reference pursuant to Article 7 of the DSU. However, Colombia argues that these terms of reference should be understood in the light of Articles 10 and 11 of the DSU, which require the Panel to determine the applicability of the covered agreements, a function which should be fulfilled on the basis of the arguments put forward by all parties to the dispute, including those put forward by third parties. In this respect, any attempt to restrict the rights of third parties to a dispute would not only be inappropriate for the multilateral trading system but also contrary to the DSU.

2. Retroactive application of the TBT Agreement

5.42 Concerning the European Communities' argument that in pursuance of Article 28 of the Vienna Convention, Codex Stan 94 would not be a relevant international standard because Codex Stan 94 did not exist at the time the EC Regulation was enacted, Colombia submits that such an argument lacks any real legal basis and would have serious implications for the fulfilment of multilateral commitments. In this connection, Colombia supports Canada's submission concerning the retroactive application of the TBT Agreement and asserts that, if the interpretation put forward by the European Communities were to be accepted, the scope of WTO commitments would be arbitrarily restricted.

5.43 Moreover, Colombia submits that the adoption of Codex Stan 94 subsequent to the date of entry into force of the EC Regulation does not affect its status as an international standard given that the obligation established in the TBT Agreement does not provide for any form of exemption from which a differentiation of Members' obligations, as of the time when a national technical regulation comes into effect, can be inferred.

3. Article 2.4 of the TBT Agreement

5.44 In Colombia's opinion, the EC Regulation is inconsistent with Article 2.4 of the TBT Agreement. Colombia further submits that the Codex Alimentarius Commission is a competent international standardizing body within the meaning of Articles 1.1 and 2.6 of the TBT Agreement and that Codex Stan 94 is an international standard.

5.45 Colombia considers that the identification of the elements which would exempt a country from implementing an international standard because it is an ineffective or inappropriate means to fulfill a legitimate objective must be drawn upon the examples set out in Article 2.4 of the TBT Agreement. It is Colombia's view that Article 2.4, by mentioning climatic or geographical factors, clearly restricts such exemption from the implementation of an international standard to objective elements.

5.46 Colombia contends that under Article 2.4 of, and the preamble to, the TBT Agreement, WTO Members are not authorized to hinder the market entry of a product by arguing that its quality characteristics are not identical to those of the products to which its consumers are accustomed. Colombia recognizes the right of WTO Members to take appropriate measures to prevent consumers from being misled. However, Colombia argues that the possibility of enacting a regulation to address such a concern is limited by the TBT Agreement which states that a regulation should not be discriminatory and should not constitute a disguised restriction on trade.

4. Article 2.2 of the TBT Agreement

5.47 With respect to Article 2.2 of the TBT Agreement and the elements that must be established for there to be a violation, Colombia argues that the determination of whether a technical regulation is more trade-restrictive than necessary should not be contingent upon a demonstration of trade-restrictive effects, such as the absence of the product on a given market. In the view of Colombia, the reading of Article 2.2 of the TBT Agreement in conjunction with Article 2.4 covers cases where no international standards exist or where they exist but prove to be ineffective or inappropriate.

5. Remarks on implementation

5.48 Colombia notes that a particularly significant aspect of the dispute will be the recommendation on the way in which the decision is to be implemented. If the arguments advanced by Peru on the inconsistency of the measure with the TBT Agreement prove successful, it is Colombia's understanding that the Panel report will have to be implemented through a measure consistent with the multilateral agreements.


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