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Epps, Tracey --- "International Economic Law" [2010] NZYbkIntLaw 15; (2010) 8 New Zealand Yearbook of International Law 243

Last Updated: 10 August 2015

INTERNATIONAL ECONOMIC LAW

I. Introduction

New Zealand trade negotiators were busy in 2010, with action at the bilateral, regional, and multilateral levels. While the Doha Development Round negotiations continued to be marred by disagreements, New Zealand played an active role in pushing for progress. New Zealand trade litigators were also busy: both the Panel and Appellate Body reports in the Australia – Apples1 dispute were released in 2010. I report on these developments further below.

II. Multilateral Developments in the Doha Round

In March, negotiators in Geneva participated in a “stocktaking” exercise run by the Trade Negotiations Committee (TNC). Subsequently, the negotiations followed what WTO Director-General Pascal Lamy has called a “cocktail approach”. This involved consultations led by chairs of the negotiating groups, bilateral and plurilateral meetings among Members, and consultations between the Director-General and delegations in various groupings. New Zealand was closely involved in this process.2 Highlights of the year included the following.

A. Agriculture

The Agriculture negotiations continued in 2010 under the Chair of New Zealand Ambassador, David Walker. In March, Ambassador Walker presented the group’s stocktaking report to the TNC.3 The report indicated that a number of areas remained controversial and without resolution in sight (including cotton, sensitive products, the Special Safeguard Mechanism, tropical and diversification products, long-standing preferences, and preference erosion).

On cotton, Ambassador Walker reported that Members involved in the stocktaking process had emphasised their continued commitment to finding a solution that addresses the harm caused by other Members’ policies to the Cotton 4 (Benin, Burkina Faso, Chad, and Mali) and to do so “ambitiously, expeditiously and specifically”. Talks on cotton have been conducted in the sub-Committee on Cotton which has a mandate to “review all trade-distorting policies affecting the sector in all three pillars of market access, domestic support, and export competition”.4 Despite such laudable goals, Ambassador Walker noted that not all Members are in a position to agree to the text as drafted, and no significant progress was made during the year. The United States in particular has maintained that no proposal can be made on cotton before agreement has been reached on the issue of agricultural subsidies more generally.5 Regarding sensitive products, disagreement remained as to the extent to which developed country Members ought to be able to designate certain tariff lines as “sensitive products”. Safeguards for developing countries were also an issue, with Ambassador Walker noting that the question of a special safeguard mechanism is one of the more politically charged issues under discussion, as well as one of the most complex. As the year ended, plans were made to continue negotiations on unresolved issues in the New Year with the goal of finalising a deal in 2011.

B. Non-Agricultural Market Access

Negotiations continued on further liberalisation of non-agricultural market access (NAMA), with the Chair’s texts of December 2008 as the basis for discussion. The Chair’s March 2010 stocktaking report to the TNC noted that, since 2008, the main gap in the negotiations has continued to be the view of some Members that the draft NAMA package is unbalanced because of a perceived inadequate level of market access in some key markets and lack of clarity on the use of flexibilities.6 This led some Members to engage in bilateral discussions with some of their larger emerging trading partners in an effort to obtain greater concessions. Members receiving such requests have reportedly felt that they are already giving enough and that any extra access could only be granted in return for further reciprocal concessions by the “demandeurs”.

C. Rules

The rules negotiations in Geneva include anti-dumping and horizontal subsidies, and fisheries subsidies (discussed below in Section D). On anti- dumping and horizontal subsidies, the group completed a discussion begun in 2009 on the texts that had been circulated by the Chair in December 2008, and then moved to discuss unaddressed areas. New Zealand also remained active in the work of the various rules committees, and in October, circulated a discussion paper to the Committee on Anti-Dumping Practices Working Group on Implementation. The Paper explains New Zealand’s experiences with the topic of “sunset” reviews under the Anti-Dumping Agreement.7 Article 11.3 of that Agreement provides for termination of any definitive anti-dumping duty unless authorities determine by review that the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. Such reviews are known as “sunset” reviews. One of the problems New Zealand has experienced with sunset reviews is a lack of cooperation from foreign exporters and other interested parties. The Discussion Paper expressed New Zealand’s interest in hearing whether other Members have similar problems and, if so, what information they use as a substitute for that not provided by the exporters.8 This type of work in the Committee is indicative of how the WTO structure enables such useful activities to continue on quietly behind the headlines of the Doha Development Agenda.

D. Fisheries Subsidies

As noted in previous editions of the Yearbook, New Zealand has played an important role in the WTO negotiations on fisheries subsidies. New Zealand is a member of the “Friends of Fish”, a group of countries that supports sustainable fishing practices and eliminating harmful subsidies, and seeks effective and appropriate special and differential treatment for developing countries.9 WTO Members have been discussing a draft text on fisheries subsidies disciplines issued by the chairman of the Negotiating Group on Rules in November 2007. Discussions on this difficult issue continued in 2010. The difficulties arise because, as the United States has noted, the negotiations bring together “the complex world of global fisheries and the WTO rules system”.10

In 2010, communications were received for discussion from the United States, jointly from Brazil, China, India and Mexico, and on behalf of the Small and Vulnerable Economies (SVEs). The communication from the SVEs noted their view that those Members that have had a history of providing the highest magnitude of harmful subsidies should bear the greatest burden in these disciplines,11 and emphasised the importance of giving SVEs the necessary policy space to “provide subsidies of small magnitudes in the future, to be better equipped to harvest their own resources, within sustainable limits”.12 In its communication, the United States expressed its strong support for the overall structure and level of ambition in the Chair’s text, including a broad prohibition on fisheries subsidies as the core discipline, together with narrow exceptions and appropriate and effective special and differential treatment for developing countries.13 Brazil, China, India and Mexico focused in their communication on special and differential treatment, noting that the prohibition of subsidies causing excessive fishing effort and negatively impacting fisheries resources can be reconciled with the “important role of fisheries subsidies in the economic development of developing countries”.14 The fisheries subsidies negotiations are ongoing.

E. Dispute Settlement Review

New Zealand continued its active role in the long-running review of the WTO’s dispute settlement system. Unlike negotiations in other areas, the dispute settlement negotiations do not offer Members the chance of commercial gain, but rather, are about making systemic improvements to the WTO system. The review provides an opportunity for Members to clarify areas in the existing text where dispute settlement cases have highlighted gaps or ambiguity. Also on the agenda is the question of how to improve the ability of developing countries to take advantage of the WTO’s dispute settlement mechanism. In 2010, negotiators completed working through the draft text issued by the Chair of the Dispute Settlement Body in July 200815 and began a series of more focused, in-depth discussions (including at Ambassadorial level) of the more complex issues, key among them: sequencing and post-retaliation, effective compliance, and special and differential treatment.

III. Regional and Free Trade Agreements

A. Entry into Force of Free Trade Agreements

The ASEAN, Australia and New Zealand Free Trade Agreement entered into force on 1 January 2010 for (and between) Australia, Brunei, Burma, Malaysia, Singapore, New Zealand, the Philippines and Vietnam. The Malaysia – New Zealand Free Trade Agreement subsequently entered into force on 1 August 2010.

B. Commencement of Negotiations

Negotiations for a free trade agreement between New Zealand and India commenced during 2010. The first Round of negotiations was held in Wellington in April, and second and third Rounds were held in August and October. In November, the commencement was announced of free trade negotiations between New Zealand and Russia, Belarus and Kazakhstan, with negotiations to begin in 2011.

C. Trans-Pacific Partnership (TPP)

In 2010, New Zealand commenced negotiations to expand the Trans- Pacific Strategic Economic Partnership Agreement (known as ‘P4’) beyond the original four members. The P4 came into force in 2006 with a membership of four countries on the Pacific Rim – New Zealand, Chile, Singapore and Brunei. In September 2008, these P4 partners and the United States announced that they would begin negotiations for an expanded Trans- Pacific agreement. Australia, Peru and Vietnam subsequently joined in the negotiations and the first negotiating round was held in Melbourne in March 2010, followed by Rounds in San Francisco, Brunei and Auckland.. Later in the year, it was announced that Malaysia would also join the negotiations. The TPP negotiations are wide-ranging in scope, with the aim of addressing ‘horizontal’ issues such as the interests of small and medium businesses, regulatory coherence, and other issues that reflect the way businesses operate in the twenty-first century. In addition to such comprehensive and innovative coverage, the TPP negotiations are importantly viewed as providing a pathway towards wider regional economic integration.

IV. Participation in WTO Dispute Settlement

A. Australia - Apples

In August 2010, the Panel established in the Australia – Apples case publicly released its report.16 The Panel found that all 16 of Australia’s measures applied to New Zealand apples and challenged by New Zealand, as well as Australia’s Final Import Risk Analysis for Apples from New Zealand (IR A), are inconsistent with Australia’s obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement).17 The key issue for resolution by the Panel was whether Australia had complied with the SPS Agreement’s requirements to ensure (a) that any SPS measure is applied “only to the extent necessary to protect human, animal or plant life or health, is based on scientific principles and is not maintained without sufficient scientific evidence”18; and (b) that their SPS measures are based “on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account risk assessment techniques developed by the relevant international organisations”.19 New Zealand argued that Australia’s measures, which were stated as being necessary to protect Australia from risks associated with fire blight, apple leaf curling midge, and European canker, failed to comply with either of these requirements.

The Panel agreed with New Zealand, finding that Australia’s IR A was not a valid risk assessment for the purposes of art 5.1 of the SPS Agreement. The SPS Agreement defines risk assessment in Annex A(4), and the Panel found that Australia’s IR A fell short of the requirements in the definition. In particular, New Zealand had argued that there were fundamental flaws in the methodology used in Australia’s IR A. The Panel agreed that these methodological flaws resulted in an exaggerated estimation of risk.20 The Panel also found that Australia had failed to conduct a proper risk assessment because it had not properly done what Annex A(4) requires of it, namely, to “evaluate the likelihood of entry, establishment or spread of a pest or disease within the territory of an importing Member according to the sanitary or phytosanitary measures which might be applied, and of the associated potential biological and economic consequences”.21 The Panel also found that, “since they are not based on a risk assessment as provided in Article 5.1 ... these measures can be presumed, more generally, not to be based on scientific principles within the meaning of Article 2.2”.22

In addition, the Panel upheld New Zealand’s argument under art 5.6 of the SPS Agreement, which requires Members to ensure that their measures are “not more trade-restrictive than required to achieve their appropriate level of sanitary or phytosanitary protection, taking into account technical and economic feasibility”. The Panel found that restricting imports of New Zealand apples to mature, symptomless apples (in the case of fire blight and European canker), and providing for a 600-unit sample inspection at the border (in the case of apple leaf curling midge) would fully achieve Australia’s appropriate level of protection.

Australia appealed the Panel’s findings to the Appellate Body, and the appeal was heard on 11-12 October. The Appellate Body upheld the Panel’s findings under arts 5.1 and 2.2 with respect to the inadequacy of Australia’s risk assessment and the insufficiency of its science.

On appeal, Australia claimed that the Panel had failed to fulfil its duty under art 11 of the Dispute Settlement Understanding (DSU) to make an objective assessment of the matter before it. Australia argued that the Panel had disregarded critical aspects of the appointed experts’ testimony that were favourable to Australia, and had based its conclusions on a “fundamental misunderstanding of a significant aspect of Australia’s risk assessment methodology”.23 The Appellate Body rejected Australia’s claims, finding that the Panel had acted consistently with its duty to undertake an objective assessment of the matter.24 However, the Appellate Body found that the Panel had erred in concluding that Australia’s measures were more trade restrictive than necessary to meet Australia’s appropriate level of protection under Article 5.6 of the SPS Agreement. The Appellate Body considered whether it could undertake the analysis itself but found that there were insufficient uncontested facts or factual findings by the Panel to allow it to do so.25

B. United States – Tuna

New Zealand is participating as a third party in this ongoing dispute between Mexico and the United States. The dispute involves a Mexican complaint about United States measures that prevent Mexican tuna from being marketed in the United States using that country’s domestic “dolphin- safe” labelling scheme.26 Mexico has claimed various allegations of the WTO’s Technical Barriers to Trade Agreement (TBT Agreement).27 New Zealand has both a systemic and commercial interest in the case. As an exporter, it is particularly interested in the proper implementation of the TBT Agreement. This is due to the potential for technical regulations, standards and conformity assessment procedures to constitute unnecessary obstacles to trade. As a third party, New Zealand focused its submissions to the Panel on matters of legal argumentation, rather than taking a side with respect to the facts of the case.

New Zealand addressed several issues in its written submission, including the definition of how to define “technical regulation” in the TBT Agreement.28 “Technical regulation” is defined in Annex 1.1 as a “document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory. It may also include or deal exclusively with terminology, labels, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method”. New Zealand argued for a broad definition of “technical regulation” so as to avoid the situation where a large body of what are in fact technical barriers are able to escape the strict disciplines applicable to technical regulations and thus undermine the objectives of the Agreement.

New Zealand also made submissions on the meaning of “mandatory” in the first sentence of the provision. New Zealand took the view that Annex 1.1 does not exclude the possibility of a measure being de facto mandatory even though compliance with it is not mandatory on its face. If this allowance is not made for, Members might circumvent their obligations under the TBT Agreement by designing measures that appear on their face to be voluntary, but are in fact mandatory. The submissions noted, however, that a measure should only be deemed de facto mandatory where – owing to the exercise of government power – industry or other market participants have no real choice as to whether or not to comply.

C. United States – Mandatory Country of Origin Labelling

In this case, Canada and Mexico have complained about United States measures requiring mandatory country of origin labelling in respect of certain products (including meat) for sale in the United States, Canada and Mexico.29 The complaint is that the measures at issue are inconsistent with United States obligations under the General Agreement on Tariffs and Trade (GATT), the TBT Agreement and the Agreement on Rules of Origin. A systemic interest similar to that in United States – Tuna prompted New Zealand to participate as a third party and make submissions in this case (again, related to matters of legal argumentation).

In addition to issues that arose under the TBT Agreement (such as whether the measure was more trade restrictive than necessary under art 2.2, and whether the United States had provided less favourable treatment to foreign products), an interesting issue that arose in this case was whether there was a violation of art X of the GATT. Article X.3(a) provides that Members must “administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions and rulings”. In its submission, New Zealand noted the importance of art X.3. This is because it recognises that matters of governance, including uniform and reasonable administration of laws and regulations, can have just as significant a trade restrictive effect as border measures and domestic regulations. However, New Zealand also recognised that a certain amount of caution in the interpretation of the scope of this provision is desirable, given the potentially intrusive nature of a determination that a Member has violated art X.3(a). It therefore suggested that in reaching a decision on the facts, the Panel ought to seek a balance between the promotion of good governance and trade liberalisation, while recognising that countries do have very different systems of administration of laws and not every difference or difficulty faced by traders ought to result in a finding of violation of art X.3(a).


Tracey Epps
Ministry of Foreign Affairs and Trade, Wellington

1 Australia – Measures Affecting the Importation of Apples from New Zealand WTO DOC WT/ DS367/AB/R, AB-10-6392 (2010) (Report of the Appellate Body) and WTO DOC WT/ DS367/R, PR-10-3998 (2010) (Report of the Panel).
2 “WTO AG Negotiators Chug Along with Technical Work” Bridges Weekly Trade News Digest (International Centre for Trade and Sustainable Development, 5 May 2010).
3 Committee on Agriculture Special Session, Negotiating Group on Agriculture, Report by the Chairman, H.E. Mr David Walker, to the Trade Negotiations Committee for the Purpose of the TNC stocktaking exercise WTO Doc TN/AG/25 (2010).
4 “WTO Delegates Perform Cotton Ritual” Bridges Weekly Trade News Digest (International Centre for Trade and Sustainable Development, 9 June 2010).
5 Anne-Sophie Nivet and Aurelie Walker “The great cotton stitch-up” Trade Negotiations Insights (International Centre for Trade and Sustainable Development, December 2010).
6 Report by the Chairman, Ambassador Luzius Wasecha, to the Trade Negotiations Committee for the purpose of the TNC stocktaking exercise WTO Doc TN/MA/22 (2010) (submitted to the Negotiating Group on Market Access).
7 Article 11.3 – “Sunset” Reviews under the Anti-Dumping Agreement, Discussion Paper by New Zealand WTO Doc G/ADP/AHG/W/185 (2010) (submitted to the Committee on Anti- Dumping Practices, Working Group on Implementation).
8 Ibid.
9 The “Friends of Fish” comprises Argentina, Australia, Chile, Colombia, the United States, New Zealand, Norway, Iceland, Peru and Pakistan.
10 Ibid, at [2].
11 Textual Proposal for Additional Flexibilities for Small and Vulnerable Economies Under Article III of the Proposed Draft Chair’s Text on Fisheries Subsidies, Communication from the Small and Vulnerable Economies WTO Doc TN/RL/GEN/162 (2010) at [4] (Communication to the Negotiating Group on Rules).
12 Ibid, at [3]-[4].
13 Fisheries Subsidies – Articles I.2, IV and V, Communication from the United States WTO Doc TN/RL/GEN/165 (2010) at [1] (Communication to the Negotiating Group on Rules).
14 Fisheries Subsidies – Special and Differential Treatment, Communication from Brazil, China, India and Mexico WTO Doc TN/RL/GEN/163 (2010) (Communication to the Negotiating Group on Rules).
15 Special Session of the Dispute Settlement body – Report to the Trade Negotiations Committee for the Purpose of the TNC Stocktaking Exercise WTO Doc TN/DS/24 (2010) (Chairman’s Report).
16 WTO Doc WT/DS367/R, PR-10-3998 (2010) (Report of the Panel).
17 World Trade Organisation Agreement on Sanitary and Phytosanitary Measures (signed 15 April 1994, entered into force 1 January 1995).
18 Art 2.2.
19 Art 5.1.
20 At [7.508], [7.780] and [7.883].
21 At [7.510], [7.778], [7.886], [7.904] and [7.906].
22 WTO Doc WT/DS367/R, PR-10-3998 (2010) at [7.471]-[7.472] and [7.510] (fire blight), [7.778]-[7.781] (European canker), [7.886]-[7.887] (apple leaf curling midge) (Report of the Panel).
23 Australia – Measures Affecting the Importation of Apples from New Zealand WTO Doc WT/ DS367/AB/R, AB-10-6392 (2010) at [263]-[264] (Report of the Appellate Body).
24 Ibid at [280]-[315] and [327].
25 Ibid at [372]-[385].
26 United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products WTO Doc WT/DS831/R PR-11-4239 (2011) (Report of the Panel).
27 World Trade Organisation Technical Barriers to Trade Agreement (signed 15 April 1994, entered into force 1 January 1995).
28 New Zealand’s submission is available at <www.mfat.govt.nz>.
29 United States – Certain Country of Origin Labelling Requirements WTO Doc WT/DS386/8 11-0016 (2011).