TBT Agreement Article 2.1
TBT Agreement Article 2.1 provides as follows: “Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.” We analyzed the treatment of like products in US—Tuna II (Mexico) above.
Technical regulations establish distinctions between products according to their characteristics or their related processes and production methods. Thus, Article 2.1 does not mean that any distinctions would per se constitute “less favourable treatment” within the meaning of Article 2.1. Technical regulations may pursue legitimate objectives but must not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination.
“Less favourable treatment” requires a determination of whether the contested measure modifies the conditions of competition to the detriment of imported products. However, the existence of such a detrimental effect is not sufficient to demonstrate less favorable treatment if the detrimental impact on imports stems exclusively from a legitimate regulatory distinction rather than reflecting discrimination against the group of imported products. A measure may be de facto inconsistent with Article 2.1 even when it is origin-neutral on its face. A Panel must scrutinize the design, architecture, revealing structure, operation, and application of the technical regulation and, in particular, whether that technical regulation is evenhanded in the manner in which it addresses the risks in a particular case. The question of whether the measure has the effect of exerting pressure on another Member to modify its practices may be relevant, but would not be sufficient to establish a breach of Article 2.1. The fact that the detrimental impact may involve some element ofprivate choice does not relieve the Member of responsibility under the TBT Agreement, where the measure it adopts modifies the conditions of competition to the detriment of imported products. A measure may create incentives for market participants to behave in certain ways, and thereby treat imported products less favorably.
Technical regulations that have a de facto detrimental impact on imports may not be inconsistent with Article 2.1 when this impact stems exclusively from a legitimate regulatory distinction, provided that it is evenhanded. Thus, a “legitimate regulatory distinction” serves as a defense, where risks are addressed in an evenhanded way, for example where distinctions in treatment are based on evidence that the risks are different in different situations, and therefore the different situations need to be addressed in different ways to achieve the ultimate policy goal. With respect to climate change, emissions from different fuels could be subject to different taxes where the different emissions pose different risks, for example due to the nature and quantity of GHG emissions for each fuel or the GHG emissions from their productions processes. Different treatment of products, based on their PPMs, also might not constitute less favorable treatment, for example due to differences in their carbon footprint. The difficulty is that carbon footprints would be difficult to measure and the design of carbon labeling programs runs the risk of being distorted to benefit domestic industry lobbies, in countries where the policy process seeks to address their needs in this type of regulation. De facto discrimination, which creates incentives for private actors to choose domestic inputs over imported ones, could be incorporated into some element of the design of a regime of carbon taxes and border tax adjustments, for example where the taxes themselves do not discriminate but the reporting or filing requirements are more burdensome for the imported products. For example, in US—COOL, the least costly way of complying with the country-of-origin labeling program was to rely exclusively on domestic livestock. This type of “direct practical effect” in the market denies competitive opportunities to imports as a result of governmental intervention that affects the conditions of competition. Thus, when the operation of a measure in the market creates incentives for private actors systematically to make choices that benefit domestic products to the detriment of like imported products, then the measure may be found to treat imported products less favorably.
The Appellate Body Report in US—COOL indicates that it will be challenging to design and apply carbon labeling schemes in a manner that is consistent with Article 2.1 of the TBT Agreement. For example, labeling requirements may have to provide consumers with information commensurate with the type of information that upstream producers and processors are required to maintain and transmit. It may require the labels to list not just the total carbon footprint of a product, but to do so by production steps as well. For example, if the relevant production steps took place in more than one country, the label might need to identify the emissions involved with the production step that took place in each ofthose countries, indicate which production step took place in which country and in which order. Any exemptions from the labeling requirements would have to be carefully designed and applied as well. The burden of the recordkeeping and verification requirements would also have to be considered. To avoid creating incentives that benefit domestic products to the detriment of like imported products, the labeling scheme may end up being too costly and burdensome for many firms and governments to handle, particularly small firms and governments in least-developed countries.
The interpretation of “no less favourable treatment than” in the TBT context is consistent with that of GATT Article III, where the Appellate Body has indicated that whether or not products are treated less favorably should be assessed by examining whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products. However, if a detrimental effect on an imported product is explained by factors or circumstances unrelated to the foreign origin of the product, this does not necessarily imply that the challenged measure accords less favorable treatment to imports within the meaning of GATT Article III:4. If the categorization of products is in fact based on their origin, this should relieve the complainant of the obligation to prove that the products are similar, in accordance with WTO jurisprudence under GATT Article I:1, III:2, and III:4 that, where differential treatment is based on the origin of products, that distinction is sufficient to find a violation.
-  Appellate Body Report, US—COOL para. 228; Appellate Body Report, US—Tuna II (Mexico)para. 211; Appellate Body Report, US—Clove Cigarettes para. 169.
-  Appellate Body Report, US—Tuna II (Mexico) para. 213.
-  Appellate Body Report, US—Tuna II (Mexico) para. 215.
-  Appellate Body Report, US—Tuna II (Mexico) para. 225.
-  Appellate Body Report, US—Tuna II (Mexico) paras. 225, 232; Appellate Body Report, US—Clove Cigarettes para. 182.
-  Appellate Body Report, US—Tuna II (Mexico) para. 226.
-  Appellate Body Report, US—Tuna II (Mexico) para. 239.
-  Appellate Body Report, US—COOL para. 270.
-  Appellate Body Report, US—COOL para. 271.
-  Appellate Body Report, US—COOL paras. 287—8.
-  Appellate Body Report, US—COOL paras 343—50.
-  Appellate Body Report, Korea—Beef para. 137; Appellate Body Report, Philippines—DistilledSpirits para. 119.
-  Appellate Body Report, Dominican Republic—Cigarettes para. 96.
-  III:2: Panel Report, Argentina—Measures Affecting the Export of Bovine Hides and the Import ofFinished Leather (Argentina—Hides and Leather), WT/DS155/R, adopted February 16, 2001, paras.11.168—11.170; Panel Report, Indonesia—Autos para. 14.113; Panel Report, India—MeasuresAffecting the Automotive Sector (India—Autos), adopted April 5, 2002, para. 7.174; III:4: Panel Report,Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef (Korea—Beef), WT/DS161/R,WT/DS169/R, adopted January 10, 2001, para. 627; I:1: Panel Report, United States—ImportMeasures on Certain Products from the European Communities (US—Certain EC products), WT/DS165/R, adopted January 10, 2001, para. 6.54.