WTO Panel Report:
United States - Poultry from China
4 October 2010 Summary
Decision A WTO Panel has ruled that the
United. States violated its WTO obligations
when Congress imposed restrictions on the
importation of poultry from China. A rider. In
a 2009 appropriations Bill denied funding to
implement a system that would have
permitted such importations to occur.
.The Panel found that this provision violated
the Agreement on the Application of
Sanitary and Phytosanitary Measures
(the. SPS Agreement) and the General
Agreement on Tariffs and Trade (GATT) 1994.
Significance of Decision / Commentary
The restriction. Imposed by Congress in
the present case followed a series of
well-publicized problems related to food
safety, in China particularly. The 2008
.Contaminated milk incidents. The
United States argued before the WTO
that "these food safety crises arose from
massive. Failures in China 's system of food
safety enforcement. "The measure challenged by China in the
WTO related to the system. For approving
the importation of poultry into the
United States. The US Food Safety and
Inspection Service (FSIS), an agency. Of
.The US Department of Agriculture
(USDA), authorizes poultry imports on a
country-by-country basis. The FSIS will
permit. The importation of poultry products
if it determines that the poultry inspection
system of a particular exporting country. Is
"equivalent to that of the United States."
Last year amid the, food safety scares in
China Congress passed, the Agriculture
Rural,, Development.Food and Drug
Administration and Related, Agencies
Appropriations Act of 2009 (the "AAA."), a
law that provided funding. For the activities
of, the USDA including the FSIS. Section
727 of the AAA stated that "None of the
funds made available. In this Act may be
used to establish or implement a rule
allowing poultry products to be imported
into the United States. From the People 's
.Republic of China. "In, other words
Congress prohibited the FSIS from
considering whether the Chinese poultry
inspection. System met US standards. This
was a, temporary measure which lasted
just over six months and then expired.
The United States. Argued that the law was
intended to provide "an additional period of
time for review of food safety issues
relating to China s. ' Enforcement problems."
Nonetheless the Panel, ruled that this single
sentence violated eight separate WTO
obligations of the United States.
A. Key threshold issue for the Panel
was whether Section 727 was an
"SPS measure", at all to which the
SPS Agreement, applied. The Agreement
contains extensive provisions on what
constitutes an SPS measure. The definition
includes a measure applied. "To protect
.Human or animal life or health within the
territory of the Member from risks arising
from additives contaminants toxins,,, Or
disease-causing organisms in foods ", such
as through", testing inspection certification
and, approval procedures... "It. Was by no
means evident that this definition applied
to Section 727. As the, Panel noted
Section 727 "deals with monetary
.Appropriations concerning the activities of
an Executive Branch agency of the
United States Government. "Nonetheless
the,, Panel concluded that this statutory
provision was indeed an SPS measure.
Brendan McGivern Partner Tel: 41 22 906 9804
E-mail:? Bmcgivern@whitecase.comWhite & Case 2
United States - Poultry from China
While not stating so explicitly the Panel, s decision. ' Seems to have
.Been based on a clear resistance to "form over substance"
arguments. Indeed later in, the, Panel Report when discussing
whether. Section 727 could be considered to be an "approval
procedure." under the, SPS Agreement the Panel warned against
measures. That could "unfairly reward the ingenuity of some WTO
Members and possibly create a dangerous safe haven for
disguised protectionism."Once the Panel had made the threshold
determination that Section 727 was an SPS measure it had, little
difficulty making. The determinations related to the substantive
breaches of the Agreement such as, the US failure to base its
measure on a. Risk assessment.
In contrast to the, SPS Agreement there was no question that
the GATT applied. The United States did not. Even contest China 's
.Claim that the measure was an import restriction in breach of
GATT Article XI. The Panel also found that Section 727 violated
the. MFN principle in GATT, Article I as it was targeted exclusively
against China.
A final noteworthy aspect of this decision. Relates to the Panel 's
conclusions on the relationship between the SPS Agreement and
GATT Article XX (b). This GATT exception. Permits WTO Members
.To take measures "necessary to protect human animal or, plant
life or health." The Panel noted that the, SPS Agreement. By its
own terms is an, "elaboration." of GATT Article XX (b). The Panel
concluded that where an SPS measure has been found. To violate
the substantive provisions of the SPS Agreement, "the disciplines
of Article XX (b) cannot be applied so as to. Justify such a measure. "
.The Panel 's ruling on this issue underscores the critical importance
of its initial threshold determination. It rightly. Concluded that a
measure found to breach the SPS Agreement cannot be upheld
under Article XX (b), based on the express textual. Relationship
between Article XX (b) and the Agreement. But what if the SPS
Agreement did not apply at all? As an evidentiary. Matter, the there
.May be cases in which a defending party 's evidence may be
sufficient to satisfy the requirements of GATT Article XX (b),. And
yet would be insufficient to meet the more specific and arguably
more exacting standards of the SPS Agreement. Thus. In this case
as, in, future disputes the key question is whether the challenged
provision is indeed an SPS measure.
, Analysis Threshold Issue:Section 727 as an SPS measure
As, noted above the Panel first needed to determine whether
Section 727 was an SPS measure. And thus whether the, SPS
Agreement applied at all. The Panel recognized that this was
"a crucial issue in this dispute." An
. Initial procedural clash arose from China 's use of the
conditional tense in its Request for Consultations. China' s
.Request stated in part that "although China does not believe that
the US measures at issue restricting imports of poultry. Products
from China constitute sanitary and phytosanitary, measures... If
it were demonstrated that any such measure is an. SPS measure
China, also requests consultations with the US pursuant to... The
SPS Agreement. "The United States argued that. China had not
.Requested consultations under the SPS Agreement. The Panel
rejected, this argument reasoning that China ', s Request read. As
a whole, "indicated that the SPS Agreement would serve as the
basis of, its claims albeit in a conditional manner." At
. The Panel stage China initially, argued that Section 727 was
a budgetary measure that resulted in the banning of imports. Of
poultry, from ChinaAnd not an SPS measure. However the
Panel, noted that "China radically changed its position." during
the, first hearing. And argued that Section 727 was indeed an
SPS measure.
The Panel noted that "[] he t fact that Section 727 deals with
monetary. Appropriations concerning the activities of an
Executive Branch agency of the United, States Government
.Instead of directly regulating sanitary and phytosanitary issues
could, be viewed as signifying that Section 727 is not. An SPS
measure. "," However after it carefully pondered ", the issue
the Panel concluded that" [], a lthough Section 727 is. An
appropriations bill it is, Congress' way of exerting control over
the activities of an Executive Branch agency responsible. For
.Implementing substantive laws and regulations on SPS matters. "
It concluded that" Section 727 is an SPS measure within. The
scope of the SPS Agreement. "
Equivalency provision of the SPS Agreement not the only
applicable discipline Article 4 of. The SPS Agreement provides in part that Members
shall accept the SPS measures of other Members as
", equivalentEven if these measures differ from their own ",
where the exporting Member" objectively demonstrates to the
importing Member. That its measures achieve the importing
Member 's appropriate level of sanitary or phytosanitary
protection. "The United. States argued that Article 4 was "the
only provision of the SPS Agreement that is applicable to
equivalence-based measures."China had not made a claim
under this Article.
The Panel rejected this, US argument reasoning that there was
nothing." In the text of Article 4 that suggests that it should be
applied in, a vacuum isolated from other relevant provisions of
the. SPS Agreement. "The Panel therefore turned to China 's other
claims under the Agreement.White & Case 3
United States - Poultry. From China
.No risk assessment conducted
The Panel recalled that Article 5.1 of the SPS Agreement
"enunciates the basic principle that. SPS measures must be
based on a risk assessment. "The Panel added that Article 5.2
" further instructs WTO Members on how. To conduct a risk
assessment. "The Panel noted that the United States" does not
dispute that no risk assessment was conducted. " Prior to the
.Enactment of Section 727 and ", the United States has not
presented any risk assessment to this Panel." Thus the
United,, States was found to be in breach of both of
these provisions.
Although the "risk assessment." criterion was not in dispute
the,, Panel nonetheless reviewed some of the prior WTO
jurisprudence on this key provision. It quoted the Appellate Body
.Ruling in EC - Hormones that "the results of the risk assessment
must sufficiently warrant - that is, to say reasonably. Support
- the SPS measure at stake. "It added that there must be a
" rational relationship. "Between the SPS measure and the. Risk
.
assessment The Panel also found that the United States violated Article 2.2
of the, SPS Agreement which requires each. WTO Member to
."Ensure." that any SPS measure is "applied only to the extent
necessary to, protect human anima.
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