DSM And Current Issues

Dispute Settlement Mechanism and current cases
September 22
2008

This document will be covering the World Trade Organization (WTO) and its Dispute Settlement Mechanism. It will also cover the structure and working of the DSM.
 

WORLD TRADE ORGANIZATION

The World Trade Organization (WTO) is an international organization designed to supervise and liberalize international trade. The WTO came into being on 1 January 1995, and is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1947, and continued to operate for almost five decades as a de facto international organization.
The World Trade Organization deals with the rules of trade between nations at a near-global level; it is responsible for negotiating and implementing new trade agreements, and is in charge of policing member countries' adherence to all the WTO agreements, signed by the majority of the world's trading nations and ratified in their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round. The organization is currently working with its members on a new trade negotiation called the Doha Development Agenda (Doha round), launched in 2001.
The WTO has 153 members, which represents more than 95% of total world trade. The WTO is governed by a Ministerial Conference, which meets every two years; a General Council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the Ministerial Conference. The WTO's headquarters is in Geneva, Switzerland.

Dispute Settlement Body
The Dispute Settlement Body (DSB) of the World Trade Organization (WTO) makes decisions on trade disputes between governments that are adjudicated by the Organization.
Institutional structure
The DSB is, in effect, a session of the General Council of the WTO: that is, all of the representatives of the WTO member governments, usually at ambassadorial level, meeting together. It decides the outcome of a trade dispute on the recommendation of a Dispute Panel and (possibly) on a report from the Appellate Body of WTO, which may have amended the Panel recommendation if a party chose to appeal. Only the DSB can make these decisions: Panels and the Appellate Body are limited to making recommendations.
The DSB uses a special decision procedure known as 'reverse consensus' or 'consensus against' that makes it almost certain that the Panel recommendations in a dispute will be accepted. The process requires that the recommendations of the Panel (as amended by the Appellate Body) should be adopted "unless" there is a consensus of the members against adoption. This has never happened, and because the nation 'winning' under the Panel's ruling would have to join this reverse consensus, it is difficult to conceive of how it ever could.
Once it has decided on the case, i.e., whether the complaint had been shown to be right or wrong, the DSB may direct the 'losing' Member to take action to bring its laws, regulations or policies into conformity with the WTO Agreements. This is the only direction that emerges from a WTO dispute. There is no concept of "punishment" or even restitution. The DSB will give the losing party a "reasonable period of time" in which to restore the conformity of its laws etc.
If the losing party fails to restore the conformity of its laws within the "reasonable period of time", the DSB may -- on an exceptional basis -- authorize a successful complainant to take retaliatory measures to induce action on the part of the losing party. This is very rare. Almost all WTO members "voluntarily" implement DSB decisions in time. Of course, when a losing country brings its laws etc. into conformity it may choose how to do so; indeed, it may not necessarily make the changes that the winning party would prefer.
Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy. Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. The system is based on clearly-defined rules, with timetables for completing a case. First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are possible.
However, the point is not to pass judgment. The priority is to settle disputes, through consultations if possible. By July 2005, only about 130 of the nearly 332 cases had reached the full panel process. Most of the rest have either been notified as settled “out of court” or remain in a prolonged consultation phase — some since 1995.
There has been over 300 disputes brought to the World Trade Organization (WTO) since its creation in January 1995 and these disputes cover a wide range of economic activities.

Introduction to the WTO dispute settlement system
The best international agreement is not worth very much if its obligations cannot be enforced when one of the signatories fails to comply with such obligations. An effective mechanism to settle disputes thus increases the practical value of the commitments the signatories undertake in an international agreement. The fact that the Members of the (WTO) established the current dispute settlement system during the Uruguay Round of Multilateral Trade Negotiations underscores the high importance they attach to compliance by all Members with their obligations under the WTO Agreement.
Settling disputes in a timely and structured manner is important. It helps to prevent the detrimental effects of unresolved international trade conflicts and to mitigate the imbalances between stronger and weaker players by having their disputes settled on the basis of rules rather than having power determine the outcome. Most people consider the WTO dispute settlement system to be one of the major results of the Uruguay Round. After the entry into force of the WTO Agreement in 1995, the dispute settlement system soon gained practical importance as Members frequently resorted to using this system.

The Dispute Settlement Understanding

The current dispute settlement system was created as part of the WTO Agreement during the Uruguay Round. It is embodied in the Understanding on Rules and Procedures Governing the Settlement of Disputes, commonly referred to as the Dispute Settlement Understanding and abbreviated “DSU” (referred to as such in this guide). The DSU, which constitutes Annex 2 of the WTO Agreement, sets out the procedures and rules that define today’s dispute settlement system. It should however be noted that, to a large degree, the current dispute settlement system is the result of the evolution of rules, procedures and practices developed over almost half a century under the GATT 1947.

Appellate Body

The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the parties to the dispute. The Appellate Body has its seat in Geneva, Switzerland

Dispute Settlement Mechanism and Developing countries

Developing countries need access to foreign markets if they are to reap the benefits of globalization. Multilateral negotiations under the World Trade Organization (WTO) play a pivotal role in facilitating market access. Yet, throughout the global economy, pressures for protectionism abound, threatening to roll back these gains. As a result, the WTO’s dispute settlement mechanism is widely seen as one of the most critical – and successful – features of the trade regime. Using this mechanism, WTO member-states can shine the spotlight of international legal scrutiny on the protectionist practices of their trading partners.

This rule-of-law system is especially important for developing countries, which typically lack the market size to exert much influence through more power-oriented trade diplomacy. Indeed, some poorer countries have used the WTO dispute settlement system to great effect, proving the system’s worth from a development perspective. Nonetheless, the technical and legal complexity of this regime makes it difficult for other developing countries to effectively use the system, many of which have never filed a WTO dispute, despite having repeated grounds to do so. In this issues brief, we elaborate this point by describing:

(a) How WTO dispute settlement works
(b) The prospective benefits and hurdles to effective use of the regime by developing countries and
(c) Some potential directions for technical assistance and capacity- building, focusing on WTO dispute settlement, in particular.

1. How WTO Dispute Settlement Works

A WTO dispute proceeds through three main stages: consultation; formal litigation; and, if necessary, implementation. All disputes start with a request for consultations, in which the member government bringing the case to the WTO (the complainant) sets out its objections to the trade measure(s) of another member government (the defendant). The two sides are then required to consult for 60 days with the goal of negotiating a mutually satisfactory solution to the dispute. Interestingly, a large proportion of cases are successfully resolved during consultations; 46% of all disputes brought to the WTO end at this stage, and three-quarters of those yield at least partial concessions from the defendant.

If consultations do not result in a mutually satisfactory solution, the complainant can request a panel proceeding, marking the start of the formal litigation stage. Panels are comprised of three to five persons with a background in trade law, agreed to by the parties on a case-by-case basis. There are typically two rounds of testimony, including from other countries (third parties) that notify the WTO of a “substantial” interest in the case. The panel then circulates an “interim report,” offering both sides an opportunity to comment and seek clarification. The complainant and defendant can still negotiate a settlement at this point. In fact, another 13% of all cases end at this stage before a ruling is rendered. If not, the panel issues its final report, which is then adopted by the WTO, unless one of two things happens. First, the two sides can agree not to adopt the panel report for whatever reason, although to date this has not happened. Second, one or both sides (but not third parties) can appeal the panel’s report, which happens frequently (i.e., in 73% of panel rulings).

The Appellate Body (AB) handles these appeals. Unlike panels, the AB is a standing body of jurists which is designed to ensure greater consistency across its rulings. The AB is tasked with hearing testimony from the parties, and any third parties, on how the panel may have erred in its legal reasoning. The AB can uphold or overturn the panel in whole or in part, and its decision is final. If this verdict favors the defendant, the case typically ends. If this verdict, instead, favors the complainant, the dispute may proceed to the implementation stage. When a defendant is ruled against, the panel and (or) AB calls for it to bring its measures into accordance with its WTO obligations. What this means in practice is, itself, often contested. If the complainant feels that the defendant has not taken appropriate steps, it can subsequently request a “compliance” panel. This panel, which is often comprised of the original panel members, must determine whether the defendant’s efforts have, in fact, brought its measure(s) into compliance. If not – a judgment the defendant can appeal to the AB – the complainant can request a second panel to set the level at which it can “retaliate” against the defendant. This typically involves imposing tariffs on the defendant’s exports. It is essential to note two things about retaliation. First, requests for authorization to retaliate are rare. Indeed, complainants have asked for authorization to retaliate in just seven of the hundreds of cases handled by the WTO. Second, it is up to the complainant, and not the WTO, to follow through on this authorization to retaliate, and this is rarer still. Of the six requests authorized to date (the seventh is pending at the time of this writing), complainants have retaliated in only three cases.



What is remarkable is that, despite its blend of law and politics, the system works, and works quite well. In fact, two-thirds of the disputes brought for adjudication in Geneva are resolved to the full satisfaction of the complainant. But is this true for all members? In particular, is the system useful for developing countries, most notably in disputes against developed countries? The answer is clearly “yes,” although more can be done to help developing countries make better use of the system.

2. WTO Dispute Settlement from a Development Perspective

Trade liberalization promises considerable returns, but comes with risks. One such risk is the possibility that a foreign government will succumb to lobbying by its own domestic producers and grant them protection. This can undermine a developing country’s interest in reallocating resources to the affected export sector, since poor countries tend to have fewer alternative export markets, and fewer export goods. As a result, the mere anticipation of such protectionism can deter or dilute much needed trade reform in developing countries. The WTO dispute settlement system can help insure against this risk by maintaining market access once it is won, thereby encouraging developing countries to embark on an open trade growth strategy. The conventional wisdom, of course, is that developing countries face substantial hurdles in using WTO dispute settlement.5 Foremost among these is their lack of market size with which to credibly threaten retaliation for noncompliance. In other words, the concern is that even with a legal victory in hand, a developing country may not be able to compel the defendant to liberalize, since its threat to retaliate lacks credibility. This may deter developing countries from filing complaints in the first place. A developing country might also be reluctant to initiate a dispute because of fears of reprisals, such as the suspension of foreign aid or unilateral trade preferences.

In addition to these difficulties, which in fact are true for small developed countries as well, developing countries face a unique problem: the lack of legal capacity. To take full advantage of WTO law, developing countries need the facility to aggressively pursue their rights in the increasingly complex legal trade regime. For such capacity, a country must have several things. It needs experienced trade lawyers to litigate a case, but also seasoned politicians and bureaucrats to decide whether it is worth litigating a case, which is arguably the most critical stage of the process. It needs a staff to monitor trade practices abroad, but also the domestic institutions necessary to participate in international negotiations on complex issues, like health and safety standards, which figure so prominently on the WTO’s agenda. The truth of the matter is that many developing countries lack even a single full-time WTO representative, let alone the necessary dedicated trade negotiation bureaucracy at home.

With these obstacles in mind, it might seem that developing countries stand to benefit little from WTO dispute settlement. But this is far from true. Poorer complainants have filed and won concessions from large industrialized states in a wide variety of disputes, with millions of dollars at stake. These cases have involved exports of underwear (Costa Rica v. US), shrimp (Thailand and Pakistan v. US), wool shirts (India v. US), gasoline (Venezuela and Brazil v. US), sardines (Peru v. European Communities) and poultry (Brazil v. European Communities), among other products.

Why, despite their lack of a credible threat to retaliate, have these developing countries succeeded in making effective use of WTO dispute settlement? The reason is that these complainants, like their wealthier counterparts, have benefited from the fact that defendants worry about the normative condemnation that goes along with a legal defeat, rather than threats of direct retaliation per se. In other words, defendants prefer to avoid being found “noncompliant” because such a label may damage their prospects of gaining compliance when they, in turn, file as complainants. In this way, defendant governments may value the integrity of the multilateral trade regime over the outcome of a single case. This means that poor complainants can use legal victories at the WTO to weigh in on the domestic political debates over free trade within defendant countries, as they look to gain market access. In short, the effectiveness of WTO dispute settlement derives more from these intangibles than from trade sanctions, which are rare, and which could never have been a credible factor in the dozens of cases in which wealthy defendants have conceded to poor complainants.

Viewed from this perspective, the emphasis on retaliation at the WTO is misplaced. While it is true that larger countries can more credibly threaten to retaliate, threats of retaliation are not the key to the system. As Robert Hudec explained, other provisions of the WTO “make legal complaints without retaliation quite a bit more effective than they were” under GATT. He further observed that the inability of poor countries to retaliate “is a problem, but it is a separate problem that has nothing to do with the utility of the dispute settlement procedure for a developing country complainant. The evidence, to which we now turn, bears out Hudec’s discerning insight.

In looking at the evidence, the first thing to note is that most WTO disputes are among a few members that account for the bulk of international trade, most notably the US and Europe. By comparison, developing countries have had little experience with dispute settlement. But, as Table 1 indicates, this disparity is largely explained by differences in trade volumes. Consistent with this explanation, a few developing countries, such as Brazil and India, have launched a relatively large number of disputes, while others, like China, are increasingly active in dispute settlement as third parties, seeking to gain experience with the system.



Nonetheless, the record of dispute outcomes testifies to the acuteness of the legal capacity problem for the smaller and poorer countries in the developing world. Table 2 displays the data on dispute outcomes since 1995. To be sure, despite their weak market power, the poorest complainants have nonetheless managed to get larger defendants to concede fully in over 40% of their cases. Yet their developed counterparts gain full concessions in nearly three-quarters of their complaints. As we show in a recent study (Busch and Reinhardt 2003), this is not just an artifact of differences in economic size. Rather, while the system is clearly working for all complainants, it is working better for those with the know-how and savvy to take maximum advantage of the legal opportunities the system affords.

This is not to say that the legal decisions handed down by the WTO are politically biased against developing countries. Far from it. Developing countries, as it turns out, are no less likely to win a ruling than wealthier complainants.



3. Priorities for Capacity- Building and Technical Assistance on Dispute Settlement

There are several priorities for capacity-building and technical assistance. First, developing countries need more access to information on the WTO-legality of the measures employed by their major trade partners. This information is vital not just in thinking about how to prosecute a case, but whether to prosecute a case. Institutions like the Agency for International Trade Information and Cooperation offer assistance to developing countries in interpreting trends in the global economy, and the Advisory Centre on WTO Law provides subsidized legal assistance. To close the early settlement gap, developing countries need to bridge the important contributions of these and other institutions, particularly with respect to evaluating the merits of a case before it is filed in Geneva, and articulating a negotiating strategy to win concessions before a legal verdict is issued. The long term goal, of course, is to build-up this expertise in the capitals of developing countries, but in the short-term the focus might be on funding institutions like the Advisory Centre to increase staff and tackle this broader mandate, or develop others to fill this role.

Second, developing countries also require assistance monitoring compliance with the WTO verdicts that they win. Both domestic and foreign trade associations and consumer groups can play a key role in this respect. Indeed, these organizations have strong incentive to keep track of protectionist practices on behalf of their constituents, and often have information that governments need to monitor compliance. The challenge for developing countries is not only to sponsor domestic trade associations and consumer groups, but to forge contacts with foreign ones. Peru, for example, was assisted by a British consumer group in challenging Europe’s trade restrictions on sardines, an ally that will prove crucial in monitoring future compliance.8 Forging alliances with foreign trade associations and consumer groups is also a highly cost-effective strategies for making better use of WTO dispute settlement, since resources are shared across a wide variety of organizations with local expertise.

Why should wealthy countries invest in capacity building and technical assistance for developing countries? The answer is simple: it is in their own best interest to do so. If developing countries are less successful in WTO dispute settlement, this only incites cheating in the system more generally, which in turn hurts wealthier countries, not just poorer ones. Lesser success in dispute settlement would also have a chilling effect on the willingness of developing countries to negotiate future trade rounds. Investing in capacity building and technical assistance should thus be a priority for the WTO membership as a hole, particularly as a means to closing the early settlement gap.

2002 United States steel tariff

The Section 201 steel tariff is a political issue in the United States regarding a tariff that President George W. Bush placed on imported steel on March 5, 2002 (took effect March 20). The tariffs were lifted by Bush on December 4, 2003.
The temporary tariffs of 8-30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports. More than 30 steel makers had declared bankruptcy in recent years. Steel producers had originally sought up to a 40% tariff. Canada and Mexico were exempt from the tariffs because of penalties the U.S. would face under free-trade agreements. Additionally, developing countries such as Argentina, Thailand, and Turkey were also exempt.
Both the issuing and the lifting of the tariffs caused controversy in the United States. Some of the president's political opponents, such as Representative Dick Gephardt, criticized the plan for not going far enough. For some of the president's conservative allies, imposing the tariff was a step away from Bush's commitment to free trade. Critics also contended that the tariffs would harm consumers and U.S. businesses that relied on steel imports, and would cut more jobs than it would save in the steel industry. Supporters of the tariffs believed that U.S. steel producers were being harmed by illegal "dumping" of steel below the cost of production on world markets.
There was a widespread belief on all sides of the debate, confirmed by top Bush administration officials, that politics played a role in the decision to impose tariffs. Namely, the large and important Rust Belt swing states of Pennsylvania and West Virginia would benefit from the tariffs. The placement of the tariffs was an odd one for Bush, who has signed numerous free trade agreements during his term in office. This was widely believed to be a calculated political decision, insofar as the localities that stood to benefit were marginal ones.
The tariffs ignited international controversy as well. Immediately after they were filed, the European Union announced that it would impose retaliatory tariffs on the U.S., thus risking the start of a major trade war. To decide whether or not the steel tariffs were fair, a case was filed at the Dispute Settlement Body of the World Trade Organization.
In late autumn of 2003, the WTO came out against the steel tariffs, saying that dumping was not a significant problem and that the tariffs represented an illegal barrier to free trade. After receiving the verdict, Bush declared that he would preserve the tariffs; in retaliation and under WTO rules, the European Union threatened to counter with tariffs of its own on products ranging from Florida oranges to cars produced in Michigan — each tariff was calculated to likewise hurt the President in a key marginal state. Faced with the threat, the United States backed down and withdrew the tariffs early.
The early withdrawal of the tariffs also drew political criticism from steel producers, as well as supporters of protectionism, but was cheered by proponents of free trade and steel importers. When he lifted the tariffs, Bush said, "I took action to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods. These safeguard measures have now achieved their purpose, and as a result of changed economic circumstances it is time to lift them.

Free trade is an important engine of economic growth and a cornerstone of my economic agenda. My Administration has successfully launched new global trade talks, reignited the movement for free trade within our own hemisphere, and helped bring China and Taiwan into the World Trade Organization. To open even more markets to American products, I have urged the Senate to grant me the trade promotion authority I need to create jobs and greater opportunities for U.S. workers and farmers.
An integral part of our commitment to free trade is our commitment to enforcing trade laws to make sure that America's industries and workers compete on a level playing field. Free trade should not mean lax enforcement. Consistent with this commitment, last June I launched a three-part initiative designed to restore market forces to world steel markets. This initiative includes international discussion to encourage the reduction of excess global steel capacity and negotiations to eliminate market-distorting subsidies that led to the current glut of capacity. I also called upon the United States International Trade Commission (ITC) to investi-gate the impact of imports on the U.S. steel industry under section 201 of the 1974 Trade Act. The ITC subsequently found that increased steel imports are a substantial cause of serious injury to our domestic industry.

Today I am announcing my decision to impose temporary safeguards to help give America's steel industry and its workers the chance to adapt to the large influx of foreign steel. This relief will help steel workers, communities that depend on steel, and the steel industry adjust without harming our economy.
These safeguards are expressly sanctioned by the rules of the World Trade Organization, which recognizes that sometimes imports can cause such serious harm to domestic industries that temporary restraints are warranted. This is one of those times.
I take this action to give our domestic steel industry an opportunity to adjust to surges in foreign imports, recognizing the harm from 50 years of foreign government intervention in the global steel market, which has resulted in bankruptcies, serious dislocation, and job loss. We also must continue to urge our trading partners to eliminate global inefficient excess capacity and market-distorting practices, such as subsidies.
The U.S. steel industry must use the temporary help today's action provides to restructure and ensure its long-term competitiveness. Restructuring will impact workers and the communities in which they live, and we must help hard-working Americans adapt to changing economic circumstances. I have proposed a major expansion of the National Emergency Grants program to assist workers affected by restructuring with effective job training and assistance. I have also proposed direct assistance with health insurance costs that will be available to workers and retirees who lose their employer-provided coverage. And I support coordinated assistance for communities and a strengthened and expanded trade adjustment assistance program. America's workers are the most highly skilled in the world, and with effective training and adjustment assistance we will help them find better, higher paying jobs to support their families and boost our economy.”

Complaint against a ban imposed by the US on the importation of certain shrimp and shrimp products.
Seven species of sea turtles have to date been identified. They are distributed around the world in subtropical and tropical areas. They spend their lives at sea, where they migrate between their foraging and nesting grounds.
Sea turtles have been adversely affected by human activity, either directly (their meat, shells and eggs have been exploited), or indirectly (incidental capture in fisheries, destruction of their habitats, pollution of the oceans).
In early 1997, India, Malaysia, Pakistan and Thailand brought a joint complaint against a ban imposed by the US on the importation of certain shrimp and shrimp products. The protection of sea turtles was at the heart of the ban.
The US Endangered Species Act of 1973 listed as endangered or threatened the five species of sea turtles that occur in US waters, and prohibited their “take” within the US, in its territorial sea and the high seas. (“Take” means harassment, hunting, capture, killing or attempting to do any of these.)
Under the act, the US required that US shrimp trawlers use “turtle excluder devices” (TEDs) in their nets when fishing in areas where there is a significant likelihood of encountering sea turtles.
Section 609 of US Public Law 101–102, enacted in 1989, dealt with imports. It said, among other things, that shrimp harvested with technology that may adversely affect certain sea turtles may not be imported into the US — unless the harvesting nation was certified to have a regulatory programme and an incidental take-rate comparable to that of the US, or that the particular fishing environment of the harvesting nation did not pose a threat to sea turtles.
In practice, countries that had any of the five species of sea turtles within their jurisdiction, and harvested shrimp with mechanical means, had to impose on their fishermen requirements comparable to those borne by US shrimpers if they wanted to be certified to export shrimp products to the US. Essentially this meant the use of TEDs at all time.
Many have missed the importance of the Appellate Body’s ruling on this case.
In its report, the Appellate Body made clear that under WTO rules, countries have the right to take trade action to protect the environment (in particular, human, animal or plant life and health) and endangered species and exhaustible resources). The WTO does not have to “allow” them this right.
It also said measures to protect sea turtles would be legitimate under GATT Article 20 (i.e. XX) which deals with various exceptions to the WTO’s trade rules, provided certain criteria such as non-discrimination were met.
The US lost the case, not because it sought to protect the environment but because it discriminated between WTO members. It provided countries in the western hemisphere — mainly in the Caribbean — technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices.
It did not give the same advantages, however, to the four Asian countries (India, Malaysia, Pakistan and Thailand) that filed the complaint with the WTO.
The ruling also said WTO panels may accept “amicus briefs” (friends of the court submissions) from NGOs or other interested parties.
In 1997, Malaysia introduced an action pursuing to Article 21.5 of the Dispute Settlement Understanding (DSU), arguing that the United States had not properly implemented the findings of the Appellate Body in the Shrimp/Turtle dispute. The implementation dispute revolved around a difference of interpretation between Malaysia and the United States on the findings of the Appellate Body. In Malaysia’s view, a proper implementation of the findings would be a complete lifting of the US ban on shrimps. The United States disagreed, arguing that it had not been requested to do so, but simply had to revisit its application of the ban.

In order to implement the recommendations and rulings of the Appellate Body, the United States had issued Revised Guidelines for the Implementation of Section 609 of Public Law 101-162 Relating to the Protection of Sea Turtles in Shrimp Trawl Fishing Operations (the “Revised Guidelines”). These Guidelines replaced the ones issued in April 1996 that were part of the original measure in dispute. The Revised Guidelines set forth new criteria for certification of shrimp exporters.

Malaysia claimed that Section 609, as applied, continued to violate Article XI:1 and that the United States was not entitled to impose any prohibition in the absence of an international agreement allowing it to do so. The United States did not contest that the implementing measure was incompatible with Article XI:1, but argued that it was justified under Article XX(g). It argued that the Revised Guidelines remedied all the inconsistencies that had been identified by the Appellate Body under the chapeau of Article XX.

The implementation panel was called upon to examine the compatibility of the implementing measure with Article XX(g). It concluded that the protection of migratory species was best achieved through international cooperation. However, it found that whereas the Appellate Body had instructed the United States to negotiate an international agreement for the protection of sea turtles with the parties to the dispute, the obligation at issue was an obligation to negotiate, as opposed to an obligation to conclude an international agreement. It then found that the United States had indeed made serious “good faith” efforts to negotiate such an agreement. The implementation panel therefore ruled in favour of the United States.

Malaysia subsequently appealed against the findings of the implementation Panel. It argued that the panel erred in concluding that the measure no longer constituted a means of “arbitrary or unjustifiable discrimination” under Article XX. Malaysia asserted that the United States should have negotiated and concluded an international agreement on the protection and conservation of sea turtles before imposing the import prohibition. The Appellate Body upheld the implementation panel’s finding and rejected Malaysia’s contention that avoiding “arbitrary and unjustifiable discrimination” under the chapeau of Article XX required the conclusion of an international agreement. Malaysia also argued that the measure at issue resulted in “arbitrary or unjustifiable discrimination” because of its lack of flexibility. However, the Appellate Body upheld the panel’s finding and rejected this claim.
The Panel considered that the ban imposed by the US was inconsistent with GATT Article XI (which limits the use of import prohibitions or restrictions), and could not be justified under GATT Article XX (which deals with general exceptions to the rules, including for certain environmental reasons).
Following an appeal, the Appellate Body found that the measure at stake did qualify for provisional justification under Article XX(g), but failed to meet the requirements of the chapeau (the introductory paragraph) of Article XX (which defines when the general exceptions can be cited).
The Appellate Body therefore concluded that the US measure was not justified under Article XX of GATT (strictly speaking, “GATT 1994”, i.e. the current version of the General Agreement on Tariffs and Trade as modified by the 1994 Uruguay Round agreement).
At the request of Malaysia, the original panel in this case considered the measures taken by the United States to comply with the recommendations and rulings of the Dispute Settlement Body. The panel report for this recourse was appealed by Malaysia. The Appellate Body upheld the panel's findings that the US measure was now applied in a manner that met the requirements of Article XX of the GATT 1994.
What the Appellate Body said:
“In reaching these conclusions, we wish to underscore what we have not decided in this appeal. We have not decided that the protection and preservation of the environment is of no significance to the Members of the WTO. Clearly, it is. We have not decided that the sovereign nations that are Members of the WTO cannot adopt effective measures to protect endangered species, such as sea turtles. Clearly, they can and should. And we have not decided that sovereign states should not act together bilaterally, plurilaterally or multilaterally, either within the WTO or in other international fora, to protect endangered species or to otherwise protect the environment. Clearly, they should and do.
“What we have decided in this appeal is simply this: although the measure of the United States in dispute in this appeal serves an environmental objective that is recognized as legitimate under paragraph (g) of Article XX of the GATT 1994, this measure has been applied by the United States in a manner which constitutes arbitrary and unjustifiable discrimination between Members of the WTO, contrary to the requirements of the chapeau of Article XX. For all of the specific reasons outlined in this Report, this measure does not qualify for the exemption that Article XX of the GATT 1994 affords to measures which serve certain recognized, legitimate environmental purposes but which, at the same time, are not applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade. As we emphasized in United States — Gasoline [adopted 20 May 1996, WT/DS2/AB/R, p. 30], WTO Members are free to adopt their own policies aimed at protecting the environment as long as, in so doing, they fulfill their obligations and respect the rights of other Members under the WTO Agreement.”
India - Patent Protection for Pharmaceutical and Agricultural Chemical Products
Introduction
This dispute arises essentially from the following facts. Section 5 of the Indian Patents Act of 1970 does not permit product patents to be granted in respect of "substances intended for use, or capable of being used, as food or as medicine or drug". Only "claims for the methods or processes of manufacture shall be patentable" in respect of those substances. Thus, India currently does not make available patent protection for pharmaceutical and agricultural chemical products commensurate with the obligations of Article 27 of the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement"), which requires that "patents shall be available for any inventions, whether products or processes, in all fields of technology ... ", subject to the transition provisions of Articles 65.4 and 70.8 of the TRIPS Agreement and to certain exceptions not applicable in this case.

On 31 December 1994, while Parliament was in recess, the President of India promulgated the Patents (Amendment) Ordinance 1994, with a view to meeting India's obligations under Article 70.8 and 70.9 of the TRIPS Agreement, pursuant to the recommendation by a group of patent experts. The Ordinance inserted a new Chapter IVA in the Patents Act to deal with "a claim for patent of an invention for a substance itself intended for use, or capable of being used, as medicine or drug". The Ordinance explicitly allowed the filing of patent applications in respect of those substances and subsequent processing by the Patent Offices notwithstanding the provisions of Sections 5 and 12 of the Patents Act. It also established a system for the grant of "exclusive marketing rights" with respect to the products that are the subject of such patent applications, subject to certain conditions.
The Ordinance had been issued in exercise of the powers conferred upon the President by Article 123 of the Indian Constitution, which enables the President to legislate when Parliament (either House or both Houses) is not in session and the President "is satisfied that circumstances exist which render it necessary for him to take immediate action". However, such Presidential actions expire six weeks after the reassembly of Parliament. Thus, under the relevant provisions of the Indian Constitution, the Patents Ordinance 1994 lapsed on 26 March 1995. In March 1995, the Indian administration introduced the Patents (Amendment) Bill 1995 into Parliament to implement the contents of the Ordinance on a permanent basis. However, the Bill lapsed because of the dissolution of Parliament on 10 May 1996.
Since the lapse of the Patents Ordinance, India has continued receiving patent applications for pharmaceutical or agricultural chemical products through unpublished "administrative instructions". Between 1 January 1995 and 31 January 1998, a total of 2,212 applications for pharmaceutical and agricultural chemical products have been received. All these applications are, according to India, stored separately for future action under subparagraphs (b) and (c) of Article 70.8 and under Article 70.9 of the TRIPS Agreement.
Under the current Indian legislation, there is no legal basis - procedurally or substantively - for the grant of exclusive marketing rights when a product which is the subject of a patent application under Article 70.8 (commonly called a "mailbox" application) becomes eligible for protection under Article 70.9 of the TRIPS Agreement. So far, no request for the grant of exclusive marketing rights has been submitted to the Government of India.
On 20 November 1996, the Dispute Settlement Body (DSB) established a panel to examine this matter at the request of the United States (WT/DS50). The European Communities and their member States (hereinafter collectively referred to as the "EC") participated in the panel process as an interested third party. The report of the Panel, which found that India violated the provisions of Article 70.8(a) and Article 70.9 of the TRIPS Agreement, was circulated to WTO Members on 5 September 1997. India appealed from certain issues of law and legal interpretations in the Panel report. The report of the Appellate Body, which modified the reasoning of the Panel but essentially upheld the conclusions of the Panel report in respect of Article 70.8(a) and Article 70.9, was circulated to WTO Members on 19 December 1997. The Appellate Body report and the Panel report, as modified by the Appellate Body, were adopted by the DSB on 16 January 1998. At the DSB meeting of 22 April 1998, the United States and India announced that they had agreed on an implementation period of 15 months.
Claims of the Complainant
The EC claims - largely relying on the conclusions of the Panel and the Appellate Body in dispute WT/DS50 – that: (a) India has not complied with its obligations under Article 70.8 of the TRIPS Agreement to establish "a means" that adequately preserves novelty and priority in respect of applications for product patents in respect of pharmaceutical and agricultural chemical inventions during the transitional period provided for in Article 65 of the TRIPS Agreement; (b) India has not complied with it obligations under Article 70.9 of the TRIPS Agreement; and (c) India thereby nullifies or impairs benefits accruing directly or indirectly to the EC under the TRIPS Agreement.
Claims of the Respondent
India claims that the EC's complaint in this case should be dismissed as inconsistent with the rules of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) on multiple complaints, in particular Articles 9.1 and 10.4, because the EC did not join the United States' complaint in the previous case. In the alternative, India claims that: (i) the mailbox system currently in force in India is consistent with Article 70.8(a) of the TRIPS Agreement; and (ii) India has not acted inconsistently with Article 70.9 of the TRIPS Agreement because it is not obligated to establish a system for the grant of exclusive marketing rights before all the conditions for the grant of the rights have been met in respect of a specific product.
On the basis of the findings set out above, the Panel concludes that India has not complied with its obligations under Article 70.8(a) because it has failed to establish a sound legal basis for adequately preserving novelty and priority in respect of applications for product patents in respect of pharmaceutical and agricultural chemical inventions during the transitional period to which it is entitled under Article 65 of the TRIPS Agreement; and that India has not complied with its obligations under Article 70.9 of the TRIPS Agreement because it has failed to establish a system for the grant of exclusive marketing rights.
The Panel recommends that the Dispute Settlement Body request India to bring its transitional regime for patent protection of pharmaceutical and agricultural chemical products into conformity with its obligations under the TRIPS Agreement

Genetically modified food

Genetically modified (GM) foods, are the foods that have had their DNA altered through genetic engineering. Unlike conventional genetic modification that is carried out through conventional breeding and that have been consumed for thousands of years, GM foods were first put on the market in the early 1990s. The most common modified foods are derived from plants: soybean, corn, canola, and cotton seed oil.
Controversies surrounding GM foods and crops commonly focus on human children and environmental safety, labeling and consumer choice, intellectual property rights, ethics, food security, poverty reduction, and environmental conservation.

The European Union and the United States have strong disagreements over the EU's regulation of genetically modified food. The US claims these regulations violate free trade agreements, the EU counter-position is that free trade is not truly free without informed consent.

In Europe, a series of unrelated food crises during the 1990s created consumer apprehension about food safety in general, eroded public trust in government oversight of the food industry, and left some consumers unwilling to consider "science" to be a guarantee of quality.

This has further fueled widespread public concern about genetically modified organisms (GMO), in terms of potential environmental protection (in particular biodiversity), health, and safety of consumers. Critics of GM foods contend that there is evidence that the cultivation of genetically modified plants may lead to environmental changes.

Many European consumers are demanding the right to make an informed choice about whether or not to consume GMO foods. Some polls indicate that some Americans would also like labeling, but it has not become a major issue. New EU regulations are expected to require strict labeling and traceability of all food and animal feed containing more than 0.5 percent GM ingredients.

A 2003 survey by the Pew Research Center found that a majority of people in all countries surveyed felt that GM foods were "bad". The lowest scores were in the US and Canada, where 55% and 63% (respectively) were against it, while the highest were in Germany and France with 81% and 89% disapproving. The survey also showed a strong tendency for women to be more opposed to GM foods than men.

Official US complaint with the WTO

The ban over agricultural biotechnology things is said by some Americans to breach World Trade Organization rules. Robert B. Zoellick, the United States trade representative, indicated the European position toward GMO was thought of as "immoral" since it could lead to starvation in the developing world or wars, as seen in some famine-threatened African countries (eg, Zambia, Zimbabwe, and Mozambique) that refuse to accept US aid because it contains GM food.
Zoellick's critics argue that US concern over Third World starvation is merely a cover for other issues. Some money for development aid is used by the American government via the World Food Programme (WFP) to help their farmers by buying up overproduction and giving it to the UN organization. GM-skepticism interferes with this program. American farmers lost market share in certain countries after changing to genetically modified food because of skeptical consumers.

Another European response to the claims of immorality is that the EU gives 7 times more in development aid than the US, yet its economy is less than 10% bigger than America's, and its GDP/head much lower than that of the US.

In May 2003, after initial delay due to the war against Iraq, the Bush administration officially accused the European Union of violating international trade agreements, in blocking imports of U.S. farm products through its long-standing ban on genetically modified food. Robert Zoellick announced the filing of a formal complaint with the WTO challenging the moratorium after months of negotiations trying to get it lifted voluntarily. The complaint was also filed by Argentina, Canada, Egypt, Australia, New Zealand, Mexico, Chile, Colombia, El Salvador, Honduras, Peru, and Uruguay. The formal WTO case challenging the EU's regulatory system was in particular lobbied by U.S. biotechnology giants like Monsanto and Aventis and big agricultural groups such as the National Corn Growers Association.

The US move was also interpreted as a sanction against the EU for requesting the end of illegal tax breaks for exporters or face up to $4 billion in trade sanctions in retaliation for Washington's failure to change the tax law, which the WTO ruled illegal four years ago.

WTO decision

The World Trade Organization has made a preliminary ruling that European Union restrictions on genetically engineered crops violate international trade rules. The United States, Canada, and Argentina together grow 80 percent of all biotech crops sold commercially, by which the EU regulates such crops. The countries argued that the EU's regulatory process was far too slow and its standards were unreasonable given that the overwhelming body of scientific evidence finds the crops safe.
The WTO ruled the ban illegal.
India on GMO
On March 10, 2006, the Central Government of India, after consultation with the Central Committee for Food Standards, published two draft rules to amend the Prevention of Food Adulteration Rules (1955), introducing labeling and approval requirements for GM food and the products derived thereof. Draft rule 37—E Labeling of Genetically Modified Food requires that all primary or processed foods, food ingredients, or food additives derived from a GM food be labeled accordingly, and that imported GM foods indicate the status of approval in the country of origin (see Appendix for the detailed rule).

Given that this draft labeling rule is being proposed, and at a time when many other developing countries are planning to introduce GM food labeling laws, it is informative to examine how other countries have addressed the issue and where this rule would place India compared to other countries.
A Review of National Labeling Laws and Their Observed Effects
During the last ten years, more than 40 countries have adopted labeling regulations, but the characteristics of the regulations and their degree of implementation vary greatly. While a large majority of countries belonging to the Organization for Economic Cooperation and Development (OECD) have implemented some type of labeling policy, only a few developing countries have introduced labeling laws, and even fewer have implemented them.

Among the countries with labeling laws, the only common feature is the quasi–generalized requirement to label products derived from GM crops that are not substantially equivalent to their conventional counterparts. This labeling requirement concerns GM products with novel traits, such as high–oleic–content canola, or the future nutritionally–enhanced rice (e.g., Golden Rice). Labeling is mandatory for these products in all countries with regulations because they recognize that consumers should be informed of the novel traits and properties of the food products in order to make informed decisions.

On the other hand, for products that are considered substantially equivalent to their conventional counterparts, which includes products derived from all transgenic crops with input–related traits (i.e., virtually all GM products today), there is a large international heterogeneity in labeling regulations. A first major dichotomy separates countries with voluntary labeling guidelines (e.g., Canada, Hong Kong, or South Africa) from those with mandatory labeling requirements (e.g., Australia, the EU, Japan, Brazil, or China). Voluntary labeling guidelines dictate rules that define what food can be called GM or non–GM, and let the food companies decide if they want to use such information signals on their products. In contrast, mandatory labeling requires food companies (processors, retailers, and sometimes food producers) to display whether the targeted product/ingredient contains or is derived from genetically engineered materials. A certain number of countries with mandatory labeling for GM ingredients also have voluntary guidelines for the labeling of non–GM food (e.g., Japan and the EU). This mixed mandatory/voluntary system is in place in countries with mandatory labeling for which consumers are willing to pay a premium to completely avoid GM ingredients, even at a residual level.

Secondly, the scope of the regulations widely differs among countries with mandatory labeling according to the following main characteristics:
a. Coverage: countries may require labeling for:
• A list of particular food ingredients or all ingredients in packaged food products that include detectable transgenic protein or DNA;
• Highly processed products derived from GM ingredients—even without quantifiable presence of GM ingredients;
• Animal feed;
• Additives and flavorings;
• Meat and animal products fed with GM feed;
• Food sold by caterers and restaurants;
• Unpackaged food.
b. Threshold level for labeling of GM ingredients:
• Applied to each ingredient or only to major three or five ingredients;
• Level, ranging from 0.9% to 5%, except China with no threshold level.
In particular, one of the major differences in regulations among countries with mandatory labeling depends on whether the regulation targets the presence of GM in the finished product (like Australia, New Zealand, and Japan) or on GM technology as a production process (like the EU, Brazil, and China). In the former case, only products with detectable and quantifiable traces of GM materials or ingredients are required to carry a label. In contrast, in the latter case, any product derived from GM crops will have to be labeled, whether it contains any traces of GM material or not. This means that canola or soybean refined oils are required to be labeled even if current detection techniques cannot detect significant traces of transgenic DNA or proteins in the final product. This difference is crucial for enforcement: a product–based system can be enforced with testing equipment and can filter a cheater, whereas a process–based system requires viable and trustable documentation systems, which will lead to identity preservation or traceability requirements for the producers and importers, i.e., systems that track or identify GM food or GM–free food from their origin to their final package and cannot guarantee the absence of cheaters.
Last but not least, national regulations differ by their degree of implementation and enforcement as shown in Table 1. Many developing countries have approved laws requiring the labeling of GM food, but have not implemented the laws, or have only partially enforced the laws. For instance, Brazil introduced labeling laws in 2003, but has yet to actually implement these laws (Cevallos, 2006). To a certain extent, other Asian countries, such as Indonesia, have only partially implemented their regulation. They may require importers to label their food as GM, but consumer products are not carrying GM labels. China has implemented labeling since 2004, and can be considered the only developing country with an effective labeling policy in place.
Table 1. Type of labeling policies and degree of enforcement as of February 2007.
Type of labelinga Countries with enforced labeling policies Countries with partially enforced or non–enforced labeling policies Countries with plans to introduce a labeling policy
Mandatory Australia, China , European Union, New Zealand, Norway, Japan, Russia, Saudi Arabia, South Korea, Switzerland, Taiwan Brazil, Chile, Croatia, Ecuador, El Salvador, Indonesia, Mauritius, Serbia, Sri Lanka (just introduced), Thailand (partial), Ukraine, Vietnam Bolivia, Cameroon, Colombia, Egypt, Ethiopia, Georgia, India, Israel, Ivory Coast, Jamaica, Malaysia, Namibia, Nigeria, Paraguay, Peru, Philippines (voluntary), Singapore, Uganda, UAE, Uruguay, Zambia
Voluntary Canada, Hong Kong, South Africa, USA
a For substantial equivalent products only.
Source: Carter and Gruère (2003a), Cevallos (2006), Cloutier (2006), Haigh (2004), US Department of Agriculture (2006), Wongruang (2006).

Table 2 shows international approaches to labeling according to these different criteria in major countries. We divide countries into three groups according to the relative degree of stringency of their regulations (Carter & Gruère, 2006; Cloutier, 2006). At one end of the spectrum, a first group of countries have introduced stringent mandatory labeling regulations based on production process, with wide coverage, few exceptions, and a very low threshold, which follows the EU model of labeling regulation. This group includes all European countries (outside of the EU). At the other end of the spectrum, a third group, that includes Canada and the US, has voluntary labeling guidelines for GM or non–GM food. The second and intermediary group, which includes Japan and Australia, has mandatory labeling requirements based on differences in the finished products, with intermediate or higher threshold levels, and a number of exemptions. Most developing countries still have to implement or enforce the regulations. Among the ones in Table 2, we consider that regulations in Brazil and China belong to the EU group, Thailand and Indonesia follow the Japanese type of regulation, and South Africa and the Philippines follow the US/Canada type of regulation.
Table 2. Characteristics of national labeling systems in major countries as of February 2007 divided into three groups according to the degree of stringency of their regulation.

Major Country Labeling typea Product / process Coverage Major exemptions Threshold level
European Union Mandatory, & national voluntary guidelines Process Food, feed, additives, flavorings, products derived from GM, restaurants Meat and animal products 0.9%
Brazil b Mandatory Process Food, feed, products derived from GM, meat and animal products Virtually none 1%
China Mandatory Process List; products derived from GM, restaurants Outside of list None (0%)
Australia–New Zealand Mandatory & voluntary Product All products based on content Processed products 1%
Japan Mandatory & voluntary Product List of food items Processed products 5%f
Indonesia b Mandatory Product List of food items Outside of list 5%f
Russia Mandatory Product All products based on content Feed 0.9%
Saudi Arabia Mandatory Product List of food items Outside of list, restaurants 1%
South Korea Mandatory & voluntary Product List of food items Processed products 3%g
Taiwan Mandatory & voluntary Product List of food items Outside of list 5%
Thailandc Mandatory Product List of food items Outside of list 5%f
Argentinad Voluntary Product Not specified—all products based on content
South Africa Voluntary Product Not specified—all products based on content
Philippinese Voluntary Product All products based on content 5%
Canada Voluntary Product All products based on content 5%
United States Voluntary Product All products based on content n/a
a For substantial equivalent products only.
b To our knowledge, the labeling regulation has not been fully implemented.
c Implemented with "voluntary" enforcement. Penalties are applied in case of reported fraud.
d No specific law.
e Proposed labeling regulation.
f On three main ingredients in each product.
g On top five major ingredients in each product.
Source: Carter and Gruère (2003a), Cevallos (2006), Cloutier (2006), Foster and French (2007), Haigh (2004), USDA (2006), Wongruang (2006).

Indian Draft Rules in the International Context
Established in March 2006, the Indian Draft rule 37–E includes a definition of genetically engineered or modified foods and the following provisions: (a) that mandatory labeling will be required for all primary or processed foods, food ingredients, or food additives derived from a GM food; (b) labels must indicate that the food has been subject to genetic modification, and; (c) labels for imported GM foods must indicate that the food has been approved for marketing in the country of origin (see Appendix). We will examine each of these provisions in light of our international analysis.

Provision (a): Labeling of all GM Food Products
First, draft rule 37–E proposes labeling requirements with a very comprehensive product coverage. The proposed standard would rank India’s regulation among the most stringent GM food labeling policies in the world. Provision (a) of the rules requires labeling for "GM food, derived there from, whether it is primary or processed or any ingredient of food, food additives, or any food products that may contain GM material…without any exceptions." In addition, the definition of genetically modified food (provision (i)) states that "food and food ingredients composed of or containing genetically modified or engineered organisms…or food and food ingredients produced from but not contained genetically modified or engineered organisms." In view of these two quotes, the requirements would include ingredients derived from GM and/or that may contain GM material.

Thus, the requirements would apply to all highly processed products such as crude or refined soybean oil or cottonseed oil. Oil produced with GM soybeans may contain very minimal shares of GM material, which can in some cases be detected, but not quantified at a level of statistical significance. More specifically, crude oil may contain proteins with traces of transgenic DNA while refined oil does not (Chandrashekhar, 2006). The question then becomes whether meat and animal products (e.g., milk from animals fed with GM cottonseeds) would also be required to be labeled. Even if they do not include animal products, the draft rules, by including products derived from GM ingredients, are similar in nature to the EU rules. Hence, they are much stricter than the Australian, Japanese, or South Korean labeling requirements, and thus will likely be more expensive and more difficult to implement than the ones of these developed countries.
Provision (b): Labeling Information Content
Secondly, like in all other labeling countries, the labeling specification (clause (b)) only refers to the displaying of the words ‘genetically modified,’ not to the fact that the GM material has been approved by the governing body. This is arguably regrettable, because the information content remains limited and might act as a hazard warning signal to uninformed or partially informed consumers. In developed countries, consumers’ negative perception of GM food, reinforced by this imprecise information, triggered a rapid reaction by the main market actors, who preferred to avoid GM ingredients in order to escape the negative publicity associated with GM labeling requirements. Such a situation might occur for India’s packaged food products, thus resulting in a ‘no GM’ versus ‘non–GM’ choice for consumers, imprecise information, and likely higher food prices.
Provision (a) and (c): Labeling Imported GM Commodities
Thirdly, the draft rules require labeling for all GM food imported (as part of requirements under provision (a)), and that in addition (provision (c)) those imported food should say that the GM foods have been approved for marketing and use in the country of origin. To our knowledge, no other country explicitly asks for that second requirement, but it may not be as much a burden for the exporter as the requirement to label GM products. In fact, except during cases of gene escapes (Ledford, 2007), all GM food products exported have already been approved in the exporting country, and it is highly unlikely that a country would permit the production of a GM crop not approved for domestic consumption but only designed for export markets. Hence, we raise issues and concerns regarding the application of provision (a) to imported commodities, not the additional requirement under provision (c).
Provision (a) applies to both domestic and imported commodities, consistent with the General Agreement of the WTO. But the draft rules, like the regulations of the EU, could potentially be disputed at the WTO under the TBT agreement. In the current trade context, India is reportedly mostly importing soybean oil derived from GM soybeans, and all these imports will be subject to the labeling. At the same time, at the domestic level, there are no GM soybeans, and only cottonseeds derived from Bt cotton and oil derived thereof, whether packaged or not, would have to be labeled. Cotton does not represent a large share of total food budget. As a consequence, these labeling rules could be seen by the exporter as an effective non–tariff barrier to trade. Recent press articles from industry observers (Low, 2006; Chandrashekhar, 2006) explained that India was trying to find ways to increase the domestic price of oilseeds, and one observer even reported that GM labeling was advanced as an indirect way to protect the domestic market for edible oils in the long run. Furthermore recent discussions on GM labeling in India focused on imported soybean oil, not domestic cottonseed products (Sharma, 2007). This type of argument suggests that if an exporting nation’s oilseed industry was significantly affected by the loss in trade, it could launch a WTO dispute with a convincing claim against India. Furthermore, unlike in the EU, there is no compelling evidence to date that the introduction of GM food labeling requirement in India responds to any type of overwhelming consumer demand.
Cost
In terms of costs, previous studies in developed countries with industrialized food sectors suggest very significant costs, from US$1 to US$10 per capita per year, or more than 10% of manufacturing costs, which could amount to billions of dollars for India. However, it is clear that the industry structure and consumer response to price could be different in India. Three factors will drive the cost of implementation: first, the applied threshold level (a lower level raises costs); second, the degree of enforcement due to the need of testing facilities, experienced personnel, and whether or not the requirement applies to highly processed products, requiring a traceability system that goes back to the production farm; and third, the number of GM food varieties produced domestically. This last factor will likely be critical. Most countries that are producing GM food or feed have rejected mandatory labeling because of the costs of implementation and because of the market disadvantage it gives to products derived from transgenic crops. While Brazil both commercially produces a GM food or feed crop (GM soybeans) and has mandatory labeling, the labeling regulation has yet to be implemented. Spain produces GM maize only for animal feed, which has to be labeled, but labeling does not apply to animal products in the EU.
With such rules, if India intends to commercialize GM food crops in the near future, such as rice or brinjals (eggplants), all products from these crops would have to be labeled, and would potentially suffer from a discounted market price if consumers perceive the information as a hazard warning, or if labels are used by anti–GM groups. As a result, either GM producers would try to market their products without a label (illegally), or they might prefer to switch back to conventional non–GM food. Such an evolution would greatly reduce the returns from research and development for future GM food crops in the private and public sectors.
Concluding Comments
Existing evidence from developed countries shows that while mandatory labeling regulations have failed thus far to demonstrate any visible benefit in terms of consumer choice and consumer information, they have contributed to the disappearance of GM food ingredients in targeted products. At the same time, there is a general lack of evidence on the effects of GM food labeling requirements in developing countries, as most of these countries have not fully implemented their national regulations. Existing cost studies on labeling requirements in countries with industrialized food sectors suggest very significant market costs of implementation.
India’s proposed labeling rule for GM food is among the most stringent globally due to its extensive coverage. More specifically, it includes all highly processed products derived from GM crops, even without detectable traces of transgenic material. The proposed labeling content only refers to genetic modification, not to the fact that the GM material has been approved by the governing body or any other useful information. Furthermore, no other countries require the display of information regarding the approval status for marketing and use in the country of origin. The requirement to label all imported products derived from GM may result in significant international legal challenges.
In our review of international agreements, we note that not one of the relevant international agreements explicitly authorizes or supports labeling requirements for imported food products containing, or derived from, GM crops, as included in the Indian draft rule. Instead, there is a risk that such process–based labeling of GM food would be found inconsistent with WTO obligations. Lastly, there is no explicit threshold level for labeling in the draft rules. In the current world trade system, a 0% threshold level would result in labeling of all food produced from potentially GM commodities.
On the basis of this analysis and in view of existing evidence, we would like to make the following two assertions. First, India’s proposed regulation could lead to increased price for consumers, potentially lower revenues for small producers, and large implementation costs. Other developing countries, often with more concentrated and industrialized food marketing systems, have had difficulties enforcing less stringent labeling regulations. This suggests that the proposed rule risks being unenforceable in India. Secondly, international experience with GM food labeling also suggests that political pressure groups may capture labeling regulation, thus resulting in no consumer choice or information.
Still, it is noted that these conclusions on the potential effects of GM labeling are based on observations from other countries, not from India. Consequently, our main recommendation is to conduct more applied research and analysis on the potential effect of this and other labeling options for GM food in India before making any decision on this complex issue. More studies are needed in order to choose the best rule responding to India’s political objectives. Such effort could lead to a discussion of the issues at stake in the presence of all relevant stakeholders that will be directly affected by the potential regulations.

References:
• ‘WTO understanding a book published by, the ‘Geneva’ 2003
• Das B.L ‘Deficiencies and imbalances in WTO’,.2001, Third World Network, Malaysia,
• Dr. S. R. Mynemi, ‘International Economic Law’, 2001, Hyderabad
• Government publication on GATS, www.commerce.nic.in
• Hingmire G.S “Implementation of GATT and its effect on Indian Industries”, Master thesis submitted to Cardiff University, September 2002
• K. D. Raju, ‘WTO TRIPS Obligations and patent amendments in India : A critical stocktaking’, CSIR journal on Intellectual Property Law, Vol.9, May 2004 pp. 226-241
• Articles published at April 2004 by ICFAI Journal
• Private circulation notes on International law by Adv. S. E. Avhad
• Private circulation notes on International law by A.U. Pathan

Web resources.
• www.wto.org
• www.wipo.org
• www.uncitral.org
• www.wolrdbank.org
• www.imf.com