A Critical Assessment of the Application of Article XX of the General Agreement on Tariffs and Trade
By Andrew Amos
Published on October 18, 2015
The World Trade Organisation (WTO) has a dual commitment to an ‘open, non-discriminatory and equitable multilateral trading system on the one hand’ and to the ‘protection of the environment, and the promotion of sustainable development on the other’. With this in mind, Article XX of the General Agreement on Tariffs and Trade (GATT) permits Member States of the WTO to adopt measures in pursuit of specified purposes, even if those measures would normally be WTO-inconsistent. There are ten ‘general exceptions’ – that Member States are given flexibility in regulating – such as the preservation of public morals; protection of human and animal health; and the conservation of natural resources.
This essay will evaluate the jurisprudence of general exceptions, and will assess how general these general exceptions are intended to be. Despite the fact that there will be a discussion of the WTO case-law in general, there will be a constant focus on the following two Chinese cases: China – Raw Materials and China – Publications and Audiovisual Products. It could be argued that the Appellate Body, along with GATT panels and WTO panels, has struggled in its application of Article XX. Due to this inconsistent interpretation there is a lack of coherence in the jurisprudence. In part II of this essay, there will be a discussion, in light of China – Raw Materials, as to whether WTO members can prioritise their own domestic market needs over the needs of other WTO members. This essay will ultimately contend that too wide an application of Article XX would do ‘needless violence to the delicate balance between trade facilitation and regulatory autonomy’.
Setting the Scene: Article XX
The WTO is comprised of sixty Member States and, since the accession of China in 2001, now accounts for 97% of world trade. Membership, however, requires each Member State to keep restriction on international trade to a minimum. It can be deduced that flexibility from the WTO contingency measures has resulted in a robust system. Nevertheless, a delicate balance needs to be struck between this commitment and flexibility, despite conflict between Member States’ internal policy goals. The tension between commitment and flexibility was succinctly outlined by the WTO in their annual report published in 2009:
Trade agreements define rules for the conduct of trade policy. These rules must strike a balance between commitments and flexibility. Too much flexibility may undermine the value of commitments, but too little flexibility may render the rules unsustainable.
The GATT has clearly established an array of substantive obligations owed by Member States; however, Article XX acts as a ‘safety valve, an insurance mechanism, or an adjustment policy’ which allows these Member States to balance their policy goals with free trade.
In relation to this balance, the scholarly opinions on the issue tend to be divided equally. On the one hand, some believe that the Appellate Body is entitled to examine whether or not a measure is proportionate. From the outset, the WTO World Trade Report, 2005, has recognised balancing in the past and takes account of the jurisprudence on the issue. One scholar even suggests that the Appellate Body applies a focus on the balancing of ‘competing rights, interests, and obligations as a pre-dominant feature within chapeau analysis’. There are multiple arguments in support of this theory. One of these is that balancing and proportionality tend to be used naturally in legal reasoning, and this should not differ with respect to the WTO.
Trachtman believes that balancing has the potential to be considered as part of the courts’ delegated tasks by the Member States. On the other hand, some believe that the Appellate Body is mistaken for implying proportionality analysis altogether. Some scholars go as far to claim that the Appellate Body does not have the relevant prerequisites in order to examine the appropriateness of measures.
It is important to provide context in relation to what would constitute a violation of the GATT, and any violation of this sort would ipso facto result in a ‘prima facie nullification or impairment’. Article XX is a potential defence yet the Appellate Body has acknowledged that there are two prerequisites to be satisfied in order for Article XX to be successful. Firstly, the measure adopted by the Member State must not fall outside of the scope of Article XX’s ten subparagraphs. Then, the chapeau requires further adherence and must also be satisfied. The chapeau stipulates that said measure must not result in ‘arbitrary or unjustifiable discrimination between countries where the same conditions prevail [or be a] disguised restriction on international trade’. It is unlikely, then, that neither the Appellate Body nor any other WTO judicial body, will apply Article XX until both of these prerequisites are satisfied.
Jurisprudence: The Inconsistencies
Although the jurisprudence is at times contradictory – resulting in inconsistent application – the burden upon Member States, to justify that their measure falls within Article XX, enables the WTO bodies to prohibit said measures which are too trade-restrictive. On the other hand, there are arguments which applaud the jurisprudence for reassuring members that there is regulatory space, at national level, for them to enforce trade-restrictive measures to serve policy goals. It could be argued, nevertheless, that this in is Member States’ favour as it allows them to retain a strong degree of sovereignty.
There are conflicting opinions on the Appellate Body’s application of the general exceptions enshrined in Article XX. On the one hand, groups have criticised the WTO for interpreting the general exceptions too narrowly. On the other, many scholars have reported that the general exceptions are too general and one scholar goes as far to say that Article XX is ‘in fact… consistent with the textual meaning of the word ‘general.’’It has been argued that the Appellate Body should outright abandon their current approach and should instead adopt a holistic and analytical methodology in its future jurisprudence.
Further, the Appellate Body’s application of Article XX in United States – Gasoline highlights how broadly the general exceptions can be interpreted. The Appellate Body was interpreting the chapeau of Article XX and stated:
The chapeau says that “nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures…” The exceptions listed in Article XX thus relate to all of the obligations under the General Agreement: the national treatment obligation and the most-favoured nation obligation, of course, but others as well.
The wording by the Appellate Body, here, is self-explanatory and symbolises the explicit general application. Despite this, the Appellate Body clarified in United States – Shrimp, that ‘a balance must be struck between the right of a Member to invoke an exception under Article XX and the duty of that same Member to respect the treaty rights of the other Members’.
Therefore, due to the fact that it is a right of the member to invoke the general exception, said member should not be prevented from doing so unless it is clearly abandoned by the Member concerned. It could be argued that Article XX has been too widely interpreted and results in jurisprudence which is essentially incoherent.
China – Materials and Audiovisuals causing incoherence
The case of China – Raw Materials concerns a complaint brought by the United States, European Union and Mexico against China for sustaining WTO-inconsistent export restrictions on natural resources. The natural resources at issue were bauxite, coke, fluorspar, magnesium, manganese, phosphate, silicon metal, silicon carbide, and zinc. The three complaining parties claimed that China unlawfully restricted the exportation of these Raw Materials in multiple ways. Firstly, that China violated the GATT Article XI prohibition of quantitative export restrictions by means of quotas. Secondly, that China was in violation of its Accession Protocol and the Working Party Report for imposing export taxes. Thirdly, that certain materials were subjected to minimum export price requirements. Finally, China used export licensing as an administrative means of restricting the export of these materials.
In response, China invoked Article XX which included ‘arguments displaying various levels of conviction and convincingness’. China contended that they could justify, inter alia, the restrictions on coke, fluorspar, magnesium, manganese, and zinc under subparagraph (b) and (g). China argued that the export of these natural resources was permitted by subparagraph (b) because the duty applied was a realistic means of reducing pollution, which ultimately benefited human health. Further, China explained that they were justified by way of subparagraph (g) because said materials are considered to be exhaustible natural resources. China did not invoke Article XX in relation to the remaining materials. The Panel held that these measures were outside of China’s commitments enshrined in its Accession Protocol, the Working Party Report and also the GATT. The Appellate Body went on to subsequently confirm this.
To compare, China – Publications and Audiovisual Products is a dispute settlement case between the United States and China. As the name suggests, it concerns China’s implementation of measures restricting the importation of certain audiovisual products. The United States argued that said restrictions violated China’s Accession Protocol, the GATT and the General Agreement on Trade in Services.
The complainant submitted that the import restrictions were a violation of China’s commitments to trading rights. The United States referred the Panel to paragraphs 5.1 and 5.2 of China’s Accession Protocol to show this violation. Paragraph 5.1 of the Accession Protocol states:
Without prejudice to China’s right to regulate trade in a manner consistent with the WTO Agreement, China shall progressively liberalize the availability and scope of the right to trade, so that, within three years after accession, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China.
The United States argued that the Chinese were too restrictive as the importation was only permitted by certain Chinese companies. Further, the United States argued that China’s right to trade does not allow them to monopolise internal distribution. Paragraph 5.2 permits trading rights to cover all enterprises.
China invoked Article XX (a) in an attempt to claim that these measures were justified under the GATT. This subparagraph allows a Member State to adopt WTO-inconsistent measures which are ‘necessary to protect public morals’. The Panel found that the measures were, in fact, not ‘necessary’. The Panel found it difficult to ascertain, at first, whether or not China was entitled to invoke Article XX (a). To relieve themselves of this difficulty, they assumed that Article XX was available and then examined whether the restrictions complied with the conditions posed by the Article. The Appellate Body, although ultimately upholding the decision of the Panel, criticised the Panel’s use of the arguendo assumption. Instead, the Appellate Body proceeded to provide dictionary definitions in order to come to a more reasoned conclusion. Further, it was concluded that whether a restriction will be allowed under Article XX depends on the particularised facts of the case. The textual analysis provided by the Appellate Body has resulted in the belief that, for Article XX to succeed as a defence, non-GATT provisions would have to make reference to the ‘right to regulate’.
Comparing China – Raw Materials and China – Publications and Audiovisual Products
When the two cases above are analysed side-by-side, it becomes apparent that the Appellate Body’s interpretation in China – Publications and Audiovisual Products significantly differs from its interpretation in China – Raw Materials. The reasoning for this is because the Appellate Body clarified in the latter dispute that Article XX can only be invoked in relation to GATT violations, apart from situations where there is explicit reference to a ‘right to regulate’. In the former case, however, China was permitted to use the general exceptions to justify the measures which violated their Accession Protocol. That said, it has been argued that the Appellate Body’s application of Article XX to China’s Accession Protocol is a ‘welcome development’ in the, at times, incoherent jurisprudence.
Although these rulings may appear to contradict each other, there does appear to be reasoning for it. The Panel, in China – Raw Materials, ruled that there was never any intention for Article XX to apply to paragraph 11.3 of China’s Accession Protocol. The Panel stated that this was because ‘no such language is found in Paragraph 11.3 of China’s Accession Protocol.’ In coming to their conclusion, the Panel issued the following:
The wording and the context of Paragraph 11.3 precludes the possibility for China to invoke the defence of Article XX of the GATT 1994 for violations of obligations contained in Paragraph 11.3 of China’s Accession Protocol… To allow such exceptions to justify a violation when no exception was apparently envisaged or provided for, would change the content and alter the careful balance achieved in the negotiation of China’s Accession Protocol… [undermining] the predictability and legal security of the international trading system.
This was corroborated by the Appellate Body. According to them, there is no basis in the Accession Protocol to allow the application of Article XX. The reasoning for this was because China was obliged to eliminate export duties solely from its Accession Protocol and not from the GATT. The Appellate Body therefore found it reasonable to assume that if there had been a common intention, by the way of textual language included in Paragraph 11.3, the outcome may have been very different.
It has been suggested that this approach is too restrictive and one scholar has criticised the ‘narrow textualist approach’ by stating that the silence should be seen as a further means of interpretation. However, to counter this, some scholars believe that the Panel were correct not to allow Article XX to apply to Paragraph 11.3 and that it is ‘unequivocally unavailable as a defence… [because it] does not even reference a single article in GATT’. One compelling argument is centred on the idea that denial of China’s right to invoke Article XX creates a ‘huge imbalance of rights and obligations… [raising] serious constitutional issue[s]. The general importance of the non-applicability finding in China – Raw Materials has also been noted, and could result in other cases citing environmental protection exceptions instead.
The Appellate Body’s analysis in China – Publications and Audiovisual Products causes problems for the interpretation of China – Raw Materials later on. Professor Guan WenWei of City University of Hong Kong, has displayed in her article that the Appellate Body’s analysis is ‘logically problematic and unreasonable.’ Some commentators have gone as far to say that because there is no obligation to make an express reference to the GATT thus makes the comparison between Paragraph 5.1 and 11.3 ‘unreasonable… and unacceptable’. There is also a potential pitfall arising from the comparison between the two: new members to the WTO would perhaps struggle to invoke Article XX, should they accept similarly ambiguous language, even though their measures meet acceptable policy goals. Nevertheless, it is without doubt that the Appellate Body has ‘created a major, internationalist precedent’ in China – Raw Materials. When China – Raw Materials and China – Publications and Audiovisual Products are coupled together, resulting in different outcomes, it became apparent that the Appellate Body had no intention to formulate a relationship between the GATT and other WTO agreements: they remain, arguably, to an extent, completely disinterested.
Using Article XX outside of the GATT
China – Publications and Audiovisual Products was the first time that the Appellate Body gave judgement on whether or not Article XX is available outside the context of the GATT. It could be argued that by not allowing a wider application outside of the GATT, the Appellate Body is contradicting their previous attempts to harmoniously interpret all agreements within the WTO as a whole. Nevertheless, despite Article XX not applying in China – Raw Materials, this is not to say that the WTO does not acknowledge its previous rulings and stated that ‘[the] WTO Agreement, as a whole, [is there to] to reflect the balance struck between WTO members between trade and non-trade related concerns’. It is important to note, however, that the Appellate Body acknowledged that solely because a balance is present does not necessarily give them ‘specific guidance on… whether Article XX… is applicable… [to] China’s Accession Protocol’.
However, where a certain provision does not explicitly make any reference to Article XX, there are still potential grounds for interpreting it in a way consistent with Article XX. When analysed in relation to another Agreement, the Agreement on Technical Barriers to Trade (TBT), this provides clarity on the issue. In relation to the TBT, the ethos of Article XX can be used in relation to Article 2.1 directly. In United States – Measures Affecting the Production and Sale of Clove Cigarettes , the Appellate Body did exactly this. Here, the question at issue was whether or not a United States ban on certain cigarettes was a breach of the TBT, Article 2.1, non-discrimination clause. Upon judgement, the Appellate Body stated that:
The TBT Agreement does not contain among its provisions a general exceptions clause. This may be contrasted with the GATT 1994, which contains a general exceptions clause in Article XX.
With this clarified, the Appellate Body went on to compare the fact that ‘Article 2.1 itself, read in the light of its context and of its object and purpose’ connotes a balance which is similar to that between Article XX and Article III of the GATT. With all of this in mind, Article 2.1 strikes a similar balance to Article XX, removing the need to invoke Article XX as a separate defence.
Some of the scholarly opinions assembled are readily distilled into a simple but compelling argument: the Appellate Body adopts a stance which is too cautious. Nevertheless, if the WTO embraced exactly that goal – striving for an improved functioning – it remains uncertain as to whether allowing Article XX to be interpreted outside of the GATT would serve this end. Pauwelyn argues, in fact, that the general exceptions contained in Article XX are not flexible enough to fit the significant notion of a ‘right to regulate’. This is corroborated by the fact that ‘the convoluted burden of justification’ that Article XX requires simply enables the WTO to prohibit inconsistent measures which are too trade-restrictive. Those that embrace the belief that the Appellate Body is too cautious, argue that it is imperative for the Appellate Body to become more active ‘for the sake of a better functioning of the WTO system’.
It has become apparent from the analysis of China – Raw Materials and China – Publications and Audiovisual Products that the relationship between certain WTO Agreements is not so clear-cut. China – Raw Materials has clarified that Member States are in a position to exercise their autonomy in deciding whether or not to harvest their natural resources. The case does, however, highlight that whenever that Member State does harvest their natural resources, they must make them available to other Member States within the WTO. A more potent point which is highlighted by this essay is that the WTO judicial bodies were wrong to interpret China’s Accession Protocol in such a way. The application of Article XX in the previous case of China – Publications and Audiovisual Products ultimately misled the decision in this case. By analysing the existing jurisprudence it becomes extremely apparent that there are theoretical deficits which continue to cause inconsistencies.
Before China – Raw Materials, it may have been suggested that there was no intention on behalf of the Appellate Body to formulate a relationship between the GATT and other WTO agreements. Since the Panel and Appellate Body issued their judgement in this case, however, it has been established that the general exceptions can, in fact, be invoked outside of the GATT. It should be noted, though, that the provision which has been breached must make reference to the language used in Article XX or the ‘right to regulate’.
Despite the inconsistency, the Appellate Body’s finding in China – Raw Materials is a welcome development to the existing jurisprudence. It should be noted that although a delicate balance needs to be struck between this commitment and flexibility, despite conflict between Member States’ internal policy goals, it can be seen from above, that allowing Article XX to be used outside of the GATT respects members’ regulatory autonomy without trumping the importance of flexibility.
Andrew Amos completed his undergraduate degree in law (LLB with Hons). He is now studying for a diploma in professional legal practice at University of Glasgow, School of Law.
Article picture: bobrov69 via Pixabay