Addressing Sanitary and Phyto-sanitary Disputes

Addressing Sanitary and Phyto-sanitary Disputes through the mechanisms provided for under the IOE and the IPPC

The principle that WTO Members are allowed to take measures to afford protection to human, animal and plant life and health is well established. Both the General Agreement on Tariffs and Trade (GATT, 1947) as well as the WTO Agreement on the application of Sanitary and Phytosanitary Measures (“the SPS Agreement”) provide legal justification for WTO Members to take measures which may affect imports of agricultural products.

The Doha-Round of multilateral trade negotiations is very much dealing with market access issues, domestic subsidy commitments and export competition. Even during bilateral trade negotiations ample time is spent on facilitating the reduction of tariffs to allow for preferential market access. The quality of such access is only as good as the exporter’s compliance with a trading partner’s SPS and technical regulations. Exporters can have all the market access they wish for (in terms of tariff treatment), but if they fail to meet these non-tariff requirements, the latter becomes barriers more difficult to (1) identify and (2) quantify (in terms of contribution to the exporter’s transaction costs).

The rules are clear that SPS measures should not be used as an excuse to provide protection for domestically produced import competing products. That is the function of tariffs and trade remedies. The SPS Agreement provides for very specific requirements, which need to be met when such a measure is imposed on imports. For example the measure must be proportionate to the level of risk, which the imposing trading partner wishes to uphold.

Increasingly producers and exporters of agricultural products are facing these so-called non – tariff measures preventing their exports from entering the markets of their trading partners. International standard setting bodies have been established to provide for multilateral platforms where international standards are formulated to provide more predictability and certainty for traders and thereby lowering their transaction costs. The relevant standard setting bodies recognised by the SPS Agreement are the International Office of Epizootics (IOE) dealing with animal health or sanitary measures, the Secretariat of the International Plant Protection Convention (IPPC) which is responsible for phyto-sanitary standards, guidelines and recommendations regarding plant health and finally the Codex Alimentarius Commission overseeing inter alia food safety including hygienic practices.

Being part of the WTO system, any dispute arising from an alleged violation of the provisions of the SPS Agreement, shall be dealt with under the WTO dispute settlement mechanism. However, the SPS Agreement provides that a complaining WTO Member can also make use of the dispute settlement mechanisms provided for under other international agreements such as the IOE and IPPC.

A number of industries (and also governments) often stand before the question which avenue to follow to resolve potential trade disputes related to SPS measures. In previous news articles, we reported on the use of the WTO Dispute Settlement Mechanism (“SPS Concerns Addressed via Dispute Settlement” dated 07-10-2009) as well as using the good offices of the Chairperson of the SPS Committee to resolve SPS-related disputes (See “SPS ‘Good Offices’- A Good Idea?” dated 15-01-2011). We now consider the dispute settlement mechanism provided for under the IOE as well as the IPPC.

The IOE provides for an internal mediation process in Article 5.3.8 of the Terrestrial Animal Health Code (2010). Once parties to a dispute agree to the process, the Director-General of the OIE nominates experts, usually from the OIE Reference Laboratories or Collaborative Centers to assist the parties to reach consensus. Both parties must agree to the appointment of the nominated experts. This dispute settlement mechanism is rather weak in comparison with the mechanism provided for in the WTO and even those provided for in the IPPC.

The process is entirely voluntary. So if one party does not consent to the proceedings, the mediation process cannot commence or proceed. Secondly, the outcome of the mediation process is non-binding (unless the parties have agreed otherwise). A further downside is that the parties have to carry the costs associated with the process, which includes expenses incurred by the IOE in facilitating the mediation. A fixed fee is payable by the parties to defray the costs assumed by the OIE. In 2009 this fee amounted to EURO 8,000. The value of the mechanism is that is directed at and mostly confined to resolving interpretational concerns related to standards based on technical and scientific considerations. Finally, all proceedings are confidential. Documents used during the mediation proceedings as well as the findings may however be used in formal WTO dispute settlement proceedings.

The IPPC provides several processes whereby disputing parties could resolve their differences. The IPPC claims that it is well positioned to deal with smaller phytosanitary measures in a less expensive yet effective dispute settlement system. It recognizes that more important trade issues involving SPS measures may be left to the WTO dispute settlement system to resolve. Considerations such as whether or not the matter at issue involves one or more complex legal questions and/or the impact on the exporting industry is sufficiently severe may guide a government in deciding rather to pursue the WTO dispute settlement route. On the other hand, if the dispute is more of a technical nature such as the interpretation to be given to a particular international standard the parties may decide instead to resort to the mechanisms provided for by the IPPC.

The Subsidiary Body on Dispute Settlement (SBDS) has been established within the IPPC to assist the IPPC Secretariat and the parties in suggesting the most appropriate procedure to resolve a dispute. Most of the proceedings provided for i.e. informal consultations, formal consultations, good offices, mediation and conciliation result in non-binding decisions. Arbitration may be binding on the parties although the enforcement of the arbitral award may give rise to difficulties. Once parties have concluded formal consultations albeit unsuccessfully, they can approach the Director-General of the Food and Agricultural Organisation for the establishment of an Expert Committee under Article XIII of the IPPC (1997) with the mandate to prepare a report with non-binding recommendations on the technical aspects of the dispute (IPPC Dispute Settlement System, 2006). Each of the parties may nominate one expert to serve on the Committee. Three independent experts will be selected from a list of experts presented by the IPPC Secretariat. In essence the Article XIII procedure is akin to a conciliation process. The Committee of Experts together with the parties determine the terms of reference, timeframes and the manner in which the proceedings will be conducted. The report of the Committee will be submitted to the IPPC Secretariat for technical review and if necessary to the FAO Legal Affairs Office for legal review. The report must then be approved by the SBDS where after the IPPC Secretariat submit the report to the Director-General of the FAO for distribution to the parties (IPPC Dispute Settlement System, 2006).

Alternatively the parties may address a dispute by making use of a mechanism provided for in a Supplementary Agreement under Article XVI of the IPPC (1997) Supplementary Agreement. Provision is made for the construction of supplementary agreements “…for the purpose of meeting special problems of plant protection which need particular attention or action…”. Parties to a dispute may enter into such an agreement providing for a mechanism to resolve a particular dispute (IPPC Dispute Settlement Manual, 2006), the findings of which will be binding on the parties to the agreement.

Parties making use of any of these mechanisms are responsible to share the costs. Finally, should parties find that their trade concerns, in particular legal issues, have not been addressed by using one or more of the IPPC dispute settlement processes, they can always refer the matter to the WTO dispute settlement mechanism for resolution. This will only be an option where both parties are WTO Members. The findings of the Committee of Experts regarding the technical aspects of a particular standard may be used in WTO proceedings.

The advantage of using the WTO mechanism is that parties are only liable to cover their own litigation costs arising from their participation in the dispute settlement system. The so-called institutional costs i.e. the costs associated with the establishment of and proceedings before a WTO panel as well as Appellate Body is covered by the WTO budget. The benefit of using the WTO dispute settlement mechanism over either the IOE or the IPPC mechanisms is the enforceability of the findings of a panel against the violating WTO Member, which through the process of reverse consensus followed within the WTO Dispute Settlement Body is binding on such Member. Whether this will be decisive in the decision to use the WTO system over the IOE or IPPC mechanisms will depend on the context and dynamics of each dispute. Hilton Lambert can be contacted for more information on any one or more of these dispute settlement mechanism to address SPS disputes.