Post on 23-Jan-2023
EXAMINING WTO GOVERNANCE ON LABELLING
CASE STUDY OF THE EU PALM OIL FOOD LABELLING REGULATION
BY
FEITTY EUCHARISTI PANDJAITAN
JANUARY 21ST, 2014
TABLE OF CONTENTS
I. INTRODUCTION 1
II. THE LABELLING REGULATION UNDER THE TBT AGREEMENT 3
A. THE APPLICATION OF ARTICLE 2.1 OF THE TBT AGREEMENT 3
1. The Labelling Regulation Is a Technical Regulation 4
2. Like Products of Palm Oil 6
3. Imported Palm Oil Is Accorded Less Favourable Treatment than Like Products 7
(a) Modifying Conditions of Competition of Vegetable Oil Used in the EU Market 8
(b) Detrimental Impact of the Labelling Regulation and de facto Discrimination against Palm Oil
Exporters 11
(c) Genuine Relationship between the Labelling Regulation and Its Detrimental Impact 13
B. THE APPLICATION OF ARTICLE 2.2 OF THE TBT AGREEMENT 14
1. The Labelling Regulation Is a Trade Restrictive Measure 15
2. The Legitimate Objective of the Labelling Regulation 16
3. The Labelling Regulation Is More Trade Restrictive than Necessary 17
III. THE LABELLING REGULATION UNDER GATT 19
A. THE APPLICATION OF ARTICLE III: 4 OF GATT 19
B. THE EXCEPTIONS PROVIDED UNDER ARTICLE XX OF THE GATT 21
1. Article XX (b) of GATT and the Protection of the Consumers’ Health 21
2. Article XX (g) of GATT and the Conservation of Exhaustible Natural Resources 22
3. The Chapeau of Article XX of GATT 24
IV. CONCLUSION 26
1
I. Introduction
Labelling activity in international trade has been increasing in the past decade, driven
by consumer demand and government intervention.1 Nowadays we can see there are more
producers in the market that are introducing information on packaging to show that their
products are either healthy, environmental friendly, in support of a good cause or other
relevant information that could create a good image in favour of the customers’ choices.
Consumers have the right to be informed about the health aspects and other important
information about the products they use, and the government is expected to protect this right.2
World Trade Organization (the “WTO”) members generally agree that labelling
schemes can be economically efficient and useful for informing consumers, while they tend to
restrict trade less than other methods.3 Yet, there are serious concerns in the WTO over the
growing complexity of the labels and how this could impact the ability of industries in
developing countries as well as small businesses to export.4 This concern is understandable
since standards and regulations across nations are diverse, and labelling requirements may be
deliberately crafted by the government of one country to impose a cost disadvantage on foreign
competitors.5
1 James K.R. Watson, the WTO and the Environment Development of Competence Beyond Trade 173 Routledge
Research in International Economic Law (2013). 2 European Commission Directorate General of Health& Consumer Protection, Consumer Protection in the
European Union: Ten Basic Principles, http://ec.europa.eu/consumers/cons_info/10principles/en.pdf page 2
(last visited 14 November 2013). 3 WTO Environment, ‘Environment Issues: Labelling’, WTO website,
http://www.wto.org/english/tratop_e/envir_e/labelling_e.htm (last visited 13 November 2013). 4 See id. 5 Alan O. Sykes, Products Standards for Internationally Integrated Goods Markets 1-2 The Brookings
Institution (1995). (“Standards and regulations may be deliberately crafted to impose a cost disadvantage on
foreign competitors. They may also differ across jurisdictions as a result of divergent tastes, because of
variations in technology, income, or resource endowments, or even chance. It is thus common for goods that
conform to all pertinent standards and regulatory requirements in their country of origin to fail to conform
elsewhere. And even when conformity to foreign standards and regulations is not difficult, the burden of
demonstrating conformity to the satisfaction of consumers or regulators abroad can still be considerable.
”Technical barriers” thus arise both from the divergence of standards and regulations across nations, and from
the burden of establishing conformity with them or not they are divergent.”)
2
A WTO member country is free to set its own trade and environment policy objectives,
however, such policy is subject to a set of broadly applicable legal constraints and principles,6
as provided under the WTO Agreement. It is interesting to examine then, based on the
European Union Regulation No. 1169/2011 on the Provision of Food Information to
Consumers (the “Labelling Regulation”),7 how the WTO would govern the implementation of
labelling policies in its member countries. The Labelling Regulation, which will be effective
as of 13 December 2014,8 requires the labelling of palm oil in all European Union (the “EU”)
food products. 9 There appears to be a legitimate objective behind this Labelling Regulation;10
however, palm oil exporter countries are concerned that the impact of the Labelling Regulation
will harm the export of palm oil to the EU.11
Under WTO governance, the Labelling Regulation potentially violates EU obligations
to the extent that the measures create a less favourable treatment and more trade restrictive
6 See id. at 117. 7 European Commission Regulation 1169/2011, the Provision of Food Information to Consumers O.J. (L 304)
page 18-63, [hereinafter the Labelling Regulation], Art. 1 (2). 8 Sustainable Palm Oil Platform, Legislation & Voluntary Commitments,
http://www.sustainablepalmoil.org/consumers-retailers/retailers/legislation-and-voluntary-
commitments/#sthash.jzZ4kTmT.dpuf
(accessed 29 October 2013). 9 See the Labelling Regulation, supra note 7, Art. 18. (“(1) the list of ingredients shall be headed or preceded by
a suitable heading which consists of or includes the word ‘ingredients’. It shall include all the ingredients of the
food, in descending order of weight, as recorded at the time of their use in the manufacture of the food. (2)
Ingredients shall be designated by their specific name, where applicable, in accordance with the rules laid down
in Article 17 and in Annex VI.. (4) Technical rules for applying paragraphs 1 and 2 of this Article are laid down
in Annex VII.” and Part A of Annex VII of the EU Food Labelling Regulation governing the indication and
designation of ingredients by descending order of weight. Palm Oil is categorize as Vegetable Oil which may be
grouped together in the list of ingredients under the designation ‘vegetable oils’ followed immediately by a list
of indications of specific vegetable origin.) 10 CNN.com, Profitable Palm Oil Leaves Environment Poor, last updated 10:10 pm EDT, Friday July 6, 2012.
http://www.cnn.com/2012/07/06/world/asia/palm-oil-industry/index.html
(accessed 15 October 2013). (Palm oil has a bad reputation in the market and accused as damaging the health
and environment.) 11 Europe Negative Campaign Put Pressure on CPO Export (in bahasa version), Investor Daily news dated
Tuesday, 1 October 2013. http://www.investor.co.id/agribusiness/kampanye-negatif-eropa-tekan-ekspor-
cpo/69851.
(accessed on 13 October 2013). (Chairman of Indonesian Palm Oil Commission stated that palm oil export on
2013 decreased for 13% in comparation to 2012, one of the reason for this is EU Food Labelling Regulation.
Palm Oil exporter is concern that this new regulation will reduce the competitiveness of Indonesia palm oil
exports in the EU.)
3
measures on the palm oil exporter in the EU market, and for this reason, the EU should revise
its Labelling Regulation. The underlying principle for this claim is governed by Article 2.1 and
Article 2.2 of the WTO Agreement on Technical Barriers to Trade (the “TBT Agreement”)
and the Article III:4 of the General Agreement on Tariffs and Trade 1994 (the “GATT”), which
will be described below.
II. The Labelling Regulation under the TBT Agreement
WTO member countries use the TBT Agreement as the existing guidance for labelling
and as a means to create the appropriate balance of rights and obligations for both mandatory
and voluntary labelling policies made by these countries.12 While WTO members have
flexibility in governing their own domestic standards, the WTO strictly governs the use of the
mandatory standards, known as a technical regulations, under Article 2 of the TBT Agreement.
For the purpose of examining whether the Labelling Regulation is in compliance with the
WTO, the section below will discuss this Labelling Regulation by first applying the principles
set under Article 2.1 and 2.2 of the TBT Agreement.
A. The Application of Article 2.1 of the TBT Agreement
Article 2.1 of the TBT Agreement states the following:
Members shall ensure that in respect of technical regulations, products imported from the
territory of any Member shall be accorded treatment no less favourable than that accorded to
like products of national origin and to like products originating in any other country.13
Therefore, Article 2.1 of the TBT Agreement combines the most-favoured nation
treatment obligation that prohibits discrimination through technical regulations among like
12 WTO Environment, supra note 3. 13 Agreement on Technical Barriers to Trade, 1868 U.N.T.S. 120 [hereinafter TBT Agreement] Art 2.1.
4
products imported from different countries and the national treatment obligation that prohibits
discrimination between domestic and imported like products.14
To show that a regulation does not comply with this provision, the following 3 (three)
elements should be demonstrated: (1) that the measure is classified as a technical regulation
within the meaning of Annex 1.1; (2) that the imported products must be “like” domestic
products and the products of other origins; and (3) that the treatment accorded to imported
products must be less favourable than that accorded to like domestic products and like products
from other countries.15
(1) The Labelling Regulation is a Technical Regulation
The TBT Agreement governs two types of documents known as standards and technical
regulations. A “standard” is a specification or set of specifications that relates to some
characteristic of a product or its manufacture, such as its size, dimensions, weight, design,
function, ingredients, or any number of other products attributes.16 Standards may or may not
be formally promulgated by a private or public standard-setting entity.17 Compliance with
standards is voluntary, and a product that does not conform to a standard could still be legally
permitted to be sold in the market.18 A technical regulation governs product characteristics or
specifications the same way as a standard, however, the difference is that compliance with
technical regulations is legally mandatory.19
14 Appellate Body Reports, United States – Certain Country of Origin Labelling (COOL) Requirements,
WT/DS384/AB/R/ WT/DS386/AB/R, adopted 23 July 2012, [hereinafter AB Report on US – COOL
Requirements] para. 267. 15 Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna
and Tuna Products, WT/DS381/AB/R, adopted 13 June 2012, [hereinafter AB Report on US – Tuna II] para.
229; Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove Cigarettes,
WT/DS406/AB/R, adopted 24 April 2012, [hereinafter AB Report on US- Clove Cigarettes] para. 87; AB
Report on US- COOL Requirements, supra note 14. 16 Sykes, supra note 5, at 2. 17 See id. 18 See id. 19 See id.
5
Three criteria are used in the WTO to consider whether a measure falls within the scope
of “technical regulation” in the TBT Agreement: 1) the document must apply to an identifiable
product or group of products; 2) such document must describe one or more characteristics of
the product; and 3) compliance with the product characteristics under the document must be
mandatory.20
It is interesting to point out the development of what constitutes mandatory compliance
from the recent case involving the United States – Measures Concerning the Importation,
Marketing and Sale of Tuna and Tuna Products US (the “Tuna Dolphin II Case”). In the Tuna
Dolphin II Case, the determination of whether a standard could be a technical regulation has
undergone more than just considerations on whether the labelling is mandatory.21 The
Appellate Body in the Tuna Dolphin II Case asserted that the US dolphin safe label was
mandatory and not voluntary, based on the fact that the US refused to recognize any standards
of method other than their own for setting what was dolphin safe, while Mexicans as the
claimant had shown that their methods were also dolphin safe under the standard of the
Agreement on the International Dolphin Conservation Program (AIDCP). 22 Therefore, a
20 Appellate Body Report, European Communities – Trade Description of Sardines, WT/DS231/AB/R, adopted
23 October 2002, DSR 2002:VIII, 3359, para. 176. 21 AB Report on US-Tuna II, supra note 15, para 199. 22 Panel Report, United States – Measures Concerning Importation, Marketing and Sale of Tuna and Tuna
Products WT/DS381/R, adopted 13 June 2012, as modified by Appellate Body Report WT/DS381/AB/R,
[hereinafter “Panel Report on US- Tuna II”] para. 7.143 and 7.144; see also AB Report on US-Tuna II, supra
note 15, para. 1, para. 2, para. 12. (In this case the Panel was established to consider a complaint by Mexico
regarding the consistency of certain measures imposed by the United States on the importation, marketing, and
sale of tuna and tuna products with the General Agreement on Tariffs and Trade 1994 and the Agreement on
Technical Barriers to Trade. The case involved a measure imposed by US under the Dolphin Protection
Consumer Information Act which set out the terms of the ‘dolphin-safe’ labelling scheme”. Mexico was
prohibited from using the term “marine mammal-safe” label as an alternative to Dolphin-Safe. In its appeal to
the Appellate Body under Tuna Dolphin II Case, US contends that the measures should not be regarded as
technical regulation because compliance with the dolphin safe label is not mandatory within the meaning of
Annex 1.1 to the TBT Agreement. US further argues that compliance with a labelling requirement is mandatory
within the meaning of Annex 1.1 if there is a requirement to use a particular label in order to place a product for
sale on the market, while by contrast, compliance with a labelling requirement is not mandatory in situations
where producers retain the option of not using the label. Mexico claimed that the measures was mandatory and
not voluntary, based on the fact that the US refused to recognize any standards other than their own for setting
what was dolphin safe while Mexicans claim that their methods are also dolphin safe under the Agreement on
the International Dolphin Conservation Program.)
6
labelling standard could also be regarded as a technical regulation23 and have a mandatory
character if the requirement to use the label became mandatory.24
The Labelling Regulation established the principles, requirements, and responsibilities
governing food information, and in particular food labelling.25 Article 18 of the regulation
stated that “(1) the list of (food) ingredients shall be headed or preceded by a suitable heading
which consists of or includes the word ‘ingredients’. It shall include all the ingredients of the
food, in descending order of weight, as recorded at the time of their use in the manufacture of
the food.”26 It further stated that “(2) Ingredients shall be designated by their specific name.”27
All public and private carrying out activities related to all stages of production, processing, and
distribution of food shall comply with the labelling requirement set in this regulation.28 Since
labelling palm oil is mandatory, the Labelling Regulation therefore shall be regarded as a
technical regulation.
(2) Like Products of Palm Oil
The determination of likeness under Article 2.1 of the TBT Agreement is related to the
“nature and extent of a competitive relationship between and among products.”29 Palm oil is
an edible vegetable oil produced from the pulp of the fruits of palms and is solid at room
23 AB Report on US-Tuna II, supra note 15, para. 230. 24 Panel Report on US-Tuna II, supra note 22, para. 7.143, para. 7.144 and para. 1, para. 2, para. 12. 25 The Labelling Regulation, supra note 7, at Art. 1 (2). 26 The Labelling Regulation, supra note 7, at Art. 18. 27 See id. 28 Commission Regulation 178/2002, Laying Down the General Principles and Requirements of Food Law,
establishing the European Food Safety Authority and Laying Down Procedures in Matters of Food Safety O.J.
(L 31), page 1-24, Article 2.2 (food business means any undertaking, whether for profit or not and whether
public or private, carrying out any of the activities related to any stage of production, processing and
distribution of food” Article 2.3 ‘food business operator’ means the natural or legal persons responsible for
ensuring that the requirements of food law are met within the food business under their control.) 29 AB Report on US- Clove Cigarettes, supra note 15, para. 111. Further, in the Appellate Body Report,
European Communities – Measures Affecting Asbestos and Asbestos – Containing Products, WT/DS135/AB/R,
adopted 5 April 2001, DSR 2001:VII, 3243, para. 101. (Like products is defined as: (i) The properties, nature
and quality of the products; (ii) Their end use; (iii) Consumer tastes and habits; (iv) Tariff classification of the
products.)
7
temperature.30 In the EU, palm oil is usually sold and consumed in its refined form, i.e. after it
has been bleached and deodorized.31 Palm oil contains 50% saturated fat and in food products
it is often used together with other fats and oils which together determine the fatty acid
composition and eventually the effects on health.32 In the EU, palm oil shares its competition
in the market with rapeseed oil, sunflower oil, and soya oil.33 In 2011, palm oil was the second
most consumed vegetable oil in the EU after rapeseed oil.34 The statistics released in 2012 by
the Federation Representing the European Vegetable Oil and Protein meal Industry in Europe
(FEDIOL) showed that all palm oil was imported from outside the EU, while, its competitor
rapeseed oil was produced domestically.35 Hence, these vegetable oils are to be regarded as
like products.
(3) Imported Palm Oil Is Accorded Less Favourable Treatment than Like Products
Less favourable treatment is the most compelling element in the WTO dispute, in that
it prohibits not only de jure but also de facto less favourable treatment for imported like
products.36 An analysis of less favourable treatment involves an assessment of whether the
technical regulation at issue modifies the conditions of competition in the relevant market to
the detriment of the group of imported products vis-a vis the group of like domestic products.37
With attention to the Tuna-Dolphin II Case, the WTO Appellate Body breaks down its less
favourable treatment analysis in two parts. First, it assesses whether the measure modifies the
30 European Food Information Council, Frequently Asked Questions Palm Oil Q&A, EUFIC.ORG,
http://www.eufic.org/page/en/page/FAQ/faqid/question-answer-palm-oil/ (last updated 28/10/2013). 31 See id. 32 See id. 33 Federation Representing the European Vegetable Oil and Protein meal Industry in Europe (FEDIOL),
2012 Annual Statistics on Vegetable Oils Production, Imports, Exports and Consumption, FEDIOL.EU (Aug.
14, 2013), http://www.fediol.eu/data/1376905766Stat%20oils%202012.pdf. (According to its 2012 annual
statistics on 2011 Consumption of Vegetable Oil and Fats, rapeseed oil is the most consume vegetable oil in the
EU, while palm oil and sunflower oil rank as the number 2 and 3.) 34 See id. 35 FEDIOL, supra note 33. 36 AB Report on US- COOL Requirements, supra note 14, para. 259. 37 AB Report on US- Clove Cigarettes, supra note 15, para. 180; AB Report on US-Tuna II, supra note 15, para.
215; AB Report on US- COOL Requirements, supra note 14, para. 268.
8
conditions of competition of the imported product with the local product or a product from
another country. Second, it reviews whether any detrimental impact reflects discrimination
against the imported product.38 Given these points, there should also be a relationship between
the factors of modifying the competition and its detrimental impact.39 These approaches will
be used to analyze the less favourable treatment caused by the Labelling Regulation below.
(a) Modifying Conditions of Competition of Vegetable Oil Used in the EU Market
In the Tuna Dolphin II Case, the WTO Appellate Body decided that less favourable
treatment does not find its evidence merely on the basis of the origin of the product;40 rather,
it finds its evidence in the context of “whether a measure modifies the conditions of
competition in the relevant market to the detriment of imported products.”41 The same question
of how labelling modifies conditions of competition in the market could be found in the WTO
dispute of United States – Certain Country of Origin Labelling (COOL) Requirements
(hereinafter “COOL Case”). According to the COOL Case, labelling modifies conditions of
competition when there occurs different treatment to imported products that reduces
competitive opportunities of the product, while it creates an advantage or incentive for the
domestic producers in the relevant market.42
(i) The Labelling Regulation Creates Different Treatment of Palm Oil Exporters
38 AB Report on US-Tuna II, supra note 15, para. 231. 39 AB Report on US-Tuna II, supra note 15, para. 236-239. 40 AB Report on US-Tuna II, supra note 15, para. 224. (WTO Panel considered that Mexico failed to establish
that the measure affords treatment less favourable to Mexican tuna products since the measure do not inherently
discriminate on the basis of the origin of the product.) 41 AB Report on US-Tuna II, supra note 15, para. 214. 42 AB Report on US- COOL Requirements, supra note 14, para. 257. (WTO Panel identified three issues that it
would addressed in its analysis of whether the COOL measure affords less favourable treatment to imported
livestock. These issues are: (i) whether the different categories of labels under the COOL measure accord
different treatment to imported livestock; (ii) whether the COOL measure involves segregation and,
consequently, differential costs for imported livestock; and (iii) whether, through the compliance costs involved,
the COOL measure creates any incentive to process domestic livestock, thus reducing the competitive
opportunities of imported livestock.)
9
It is difficult to show that different treatment of palm oil exporters exists when the
differences occurred not as a direct result of the Labelling Regulation. The Labelling
Regulation seems to not discriminate against a specific country by enforcing the labelling of
palm oil. However, in determining whether a measure is de facto inconsistent with Article 2.1
of the TBT Agreement, the WTO Panel is of the view that one should carefully scrutinize the
particular circumstances of the case, that is, the design, architecture, revealing structure,
operation, and application of the technical regulation at issue, and, in particular, whether that
technical regulation is even-handed.43 Such an examination must take into account all the
relevant features of the market, which may include the particular characteristics of the industry
at issue, the relative market shares in a given industry, consumer preferences, and historical
trade patterns.44
Unlike other vegetable oil in the EU market, it is very important for palm oil to be
certified. Palm oil exporters, specifically Indonesia and Malaysia, received widespread
negative publicity in the EU market from environmental activists for causing destruction to the
forest and its ecosystem,45 a claim which is not addressed to the domestic like product, rapeseed
oil. As consumers in the EU are concerned with the environmental impact of palm oil
plantations, it seems that the Labelling Regulation promotes the use of certified sustainable
palm oil for the EU market. This promotion of certified palm oil is supported by the fact that
the Netherlands, the United Kingdom, and Belgium have set a goal of using only palm oil
certified by the Roundtable Sustainable Palm Oil (RSPO) by the end of 2015.46 The labelling
of specific vegetable oil in food as required by the Labelling Regulation will potentially lead
to a different treatment based on market preferences of consumers and certification standards
43 AB Report on US- Clove Cigarettes, supra note 15, para. 182; AB Report on US-Tuna II, supra note 15, para.
225. 44 AB Report on US COOL Requirements, supra note 14, para. 269. 45 CNN.com, supra note 10. 46 The Crop Site, thecropsite.com, reports, USDA Gain: EU-27 Oilseeds and Products Annual 2013 (14 May
2013), http://www.thecropsite.com/reports/?id=2062#sthash.hXywu9iN.dpuf.
10
for palm oil. For this reason, the Labelling Regulation will create different treatment of the
palm oil exporters.
(ii) The Labelling Regulation Reduces Competitive Opportunities of Palm Oil and Creates
Incentives for Domestic Oil Producers
Article 2.1 of the TBT Agreement prohibits both de jure and de facto less favourable
treatment for imported like products.47 One of the approaches to assess whether a measure
accords de facto less favourable treatment was used by the WTO Appellate Body in the COOL
Case by analyzing whether the challenged measure entails a higher handling cost for the
imported product compared to the domestic product.48 Conclusively, the Panel was of the view
that although the implementation costs between imported and domestic products seems to be
the same, the labelling led to higher compliance costs for imported products,49 and for this
reason it seems logical that processing domestic products is in general less costly and more
viable than processing imported products.50 In COOL Case, the Panel observed that the more
different origins involved in the production of a meat, the more intensive the segregation
process in the supply and distribution that is required to ensure the labelling of the origin of
meat is accurate, and this led to a higher compliance costs.51
Many foods that use palm oil in the EU do not explicitly state the specific sources of
vegetable oil used in their product labels.52 The Labelling Regulation will result in a higher
cost of compliance for the palm oil user. As a direct consequence of the Labelling Regulation,
47 AB Report on US- COOL Requirements, supra note 14, para. 259. 48 See id. 49 Panel Reports, United States – Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/R /
WT/DS386/R, adopted 23 July 2012, as modified by Appellate Body Reports WT/DS384/AB/R /
WT/DS386/AB/R,[hereinafter “Panel Report on US- COOL] para. 7.331 and para. 7.346. 50 See id., para. 7.349. 51 Panel Report on US- COOL, supra note 49, para. 7.331 and para. 7.346. 52 European Food Information Council, supra note 30. (From December 2014, European Legislation No
1169/2011 obliges all individual oils present in food to be indicated on the label. No specific labelling of trans
fatty acids will be required. However, by 31 December 2014 the European Commission shall submit a report on
the presence of trans fatty acids in foods to decide whether further information on the label is required or their
use should be restricted.)
11
the food producer will need to change and revise their food packaging to reflect the use of palm
oil in the product. As an indirect consequence, since uncertified palm oil could harm the
reputation of the food products in the market, there is a potential demand of replacement of
uncertified palm oil with a certified one. Considering the EU market wants the palm oil used
in food to be certified, the cost of palm oil will consequently increase due to the certification
expenses. The impact of complying with the Labelling Regulation thus will increase the
production cost of palm oil as a result of the requirement to certify palm oil.
In the COOL Case, modifying conditions of competition occurs when a measure
imposed higher processing costs to imported raw material products and created an incentive
for the producer to use the raw material from the domestic product. 53 Certification of palm oil
product will increase the cost of production to palm oil exporters which make the price less
competitive in the market. Generally producers will seek to limit their production costs, and
thus under a cost and benefit consideration, the increase of palm oil prices would create a
disincentive for using palm oil. One of the alternatives for producers would be to seek for like
products that costs less and could be easily found in the domestic market, such as rapeseed oil.
As such, the Labelling Regulation reduces the competitiveness of palm oil price and creates an
incentive to use cheaper domestic like product, 54 such as rapeseed oil.
(b) Detrimental Impact of the Labelling Regulation and De Facto Discrimination against
Palm Oil Exporter
The WTO Appellate Body considers a broad definition of detrimental impact in the
Tuna Dolphin II Case. In that case, the Appellate Body acknowledged that any adverse impact
on competitive opportunities for imported products vis-à-vis like domestic products that is
caused by a particular measure may potentially be relevant in consideration of detrimental
53 Panel Report on US- COOL, supra note 49, para. 7.372 and 7.381, 7.420, and 7.548. 54 See id.
12
impact.55 As another illustration, the WTO Appellate Body considers that any adverse impact
on competitive opportunities for imported products could also include the regulatory
distinction that is based on different processing methods and not only on the basis of national
origin.56
According to the Tuna Dolphin II Case, the lack of access by a Mexican tuna producer
to the labelling requirement of dolphin safe is regarded as a detrimental impact on the
competitive opportunities for Mexican tuna products in the US market,57 since the label has a
significant commercial value in the US market.58 A report by Deloitte in 2012 expresses that
consumers in developing countries’ markets, including some countries in the EU, were
responding to sustainability concerns.59 Based on this report, the environmental label of a
product has a value in the market.
The labelling of palm oil in a product without any certification information will
potentially dissuade the customer from purchasing that product. The Labelling Regulation will
create an impact on the market environment of palm oil since it will put an increased demand
or even pressure for certified palm oil products. Certification of palm oil will create an
additional cost and will reduce the attractiveness of uncertified palm oil, thereby increasing
costs to palm oil exporters.60 This condition is similar to regulatory protectionism, whereby a
55 AB Report on US-Tuna II, supra note 15, para. 225 and AB Report on US- Clove Cigarettes, supra note 15,
footnote 372 of para. 179. 56 AB Report on US-Tuna II, supra note 15, para. 225. 57 AB Report on US-Tuna II, supra note 15, para. 235. 58 Panel Report on US-Tuna II, supra note 22, para. 7.289 - 7.291. (According to the WTO Panel, Mexico had
presented evidence concerning retailers’ and final consumers’ preferences regarding tuna products, which, in
the Panel’s view, confirmed the value of the “dolphin-safe” label in the US market and thus the label constitutes
an “advantage” on the US market.) 59 Deloitte Consumer Business, Food and Beverage 2012 a Taste of Things to Come, page 8.
https://www.deloitte.com/assets/Dcom-Russia/Local%20Assets/Documents/Foodandbeverage202012_web.pdf.
(The interview conducted by Deloitte in 2007 among 93 top-level executives at leading food and beverage
companies in Europe, Middle East, and Africa (EMEA) and the Americas. Based on this interview,
health/nutrition and sustainability/environment are among key issues driving the food and beverage industry
forward.) 60 UK Department for Environment, Food and Rural Affairs, Review of Policy Options Relating to Sustainable
Palm Oil Procurement, page 5, April 2011.
13
regulatory objective causes disadvantage to the foreign producers and increases the costs of
production outside the regulatory jurisdiction which is discriminative in nature.61 The
Labelling Regulation therefore creates a detrimental impact on the price of palm oil and is de
facto discriminative against palm oil exporters.
(c) Genuine Relationship between the Labelling Regulation and its Detrimental Impact
In order for a measure to be found to modify the conditions of competition in the
relevant market to the detriment of imported products, there must be a “genuine relationship”
between the measure at issue and the adverse impact on competitive opportunities for imported
products.62 This relationship is not easily demonstrated since the effects of technical barriers
in a certain country’s regulation are typically hard to measure, as they are often hidden in the
firm-specific costs of modifying a product to meet a standard or regulation, in the costs of
testing and certification procedures and their attendant delays, or, in the ways that
noncompliance with a standard may affect consumer purchasing decisions.63 In the WTO case
of China – Measures Affecting Imports of Automobile Parts, the WTO Appellate Body
considered that while a measure may not require certain treatment of imports, it may
nevertheless create incentives for market participants to behave in certain ways, and thereby
treat imported products less favourably.64
61 Alan O. Sykes, Regulatory Protectionism and the Law of International Trade, 66 U. Chi. L. Rev. 1, 3-4
(1999). (“regulatory protectionism” as any cost disadvantage imposed on foreign firms by a regulatory policy
that discriminates against them or that otherwise disadvantages them in a manner that is unnecessary to the
attainment of some genuine, nonprotectionist regulatory objective. Regulatory protectionism can result either
from substantive regulatory requirements or from the mechanisms used by regulators to ensure compliance with
substantive requirements (the “conformity assessment” process). Further, it can increase the costs of production
for firms outside of the regulating jurisdiction (“foreign firms”) and thereby confer a competit ive advantage on
domestic firms). 62 Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Phillipines,
WT/DS371/AB/R, adopted 15 July 2011, para. 134; Appellate Body Report, Korea – Measures Affecting
Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001,
DSR 2001:I, 5, [hereinafter “AB Report on Korea- Beef”] para. 137; AB Report on US- COOL Requirements,
supra note 14, para. 270. 63 Sykes, supra note 5, at 10. 64 Appellate Body Reports, China – Measures Affecting Imports of Automobile Parts, WT/DS339/AB/R /
WT/DS340/AB/R / WT/DS342/AB/R, adopted 12 January 2009, DSR 2009:I ,3, para. 195 and 196; AB Report
on US- COOL Requirements, supra note 14, para. 270.
14
Although the Labelling Regulation does not directly lead to palm oil certification, the
Labelling Regulation creates market conditions which pressure the food producers to use
certified palm oil. At present RSPO is the most broadly recognized framework reference for
sustainability in palm oil, which defines standards for plantations in the sustainable and the
environmental aspect.65 RSPO membership and certification for palm oil are operationally and
cost prohibitive for hundreds of small and medium suppliers, as well as those that are only
using a very small amount of palm oil.66 Palm oil labelling discriminates against small scale
palm oil farmers that are lacking access to obtain certification due to the expensive cost of
certification of RSPO.67 Thus, the Labelling Regulation promotes the certification of palm oil,
which is costly for the palm oil exporter, and thus is detrimental to the competitiveness of palm
oil prices and exports to the EU market.
B. The Application of the Article 2.2 of the TBT Agreement
Article 2.2 of the TBT Agreement states that technical regulations should not be
prepared, adopted, or applied with a view to or with the effect of creating unnecessary obstacles
to international trade.68 As such, a WTO member Country shall not create regulations that are
more trade-restrictive than necessary to fulfil a legitimate objective by taking into account the
risks non-fulfilment would create.69 There are several elements that must be observed in
assessing noncompliance with this provision: whether the measure is trade restrictive, whether
the objective pursued by the measure is legitimate, and, considering there is a legitimate
65 UNEP Global Environmental Alert Service, Thematic Focus: Ecosystem Management and Resource
Efficiency, Oil Palm Plantations: Threat and Opportunities for Tropical Ecosystems, page 6, December 2011.
http://www.unep.org/pdf/Dec_11_Palm_Plantations.pdf
(Accessed 1 November 2013). 66 UK Department for Environment, Food and Rural Affairs, UK Statement on Sustainable Palm Oil, 1 year on
progress report, November 2013. Page 7.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/259839/pb14061-palm-oil-
progress-report-131120.pdf. 67 See id. 68 The TBT Agreement, supra note 13, at Article 2.2. 69 AB Report on US- COOL Requirements, supra note 14, para. 377.
15
objective, whether the measure is more trade restrictive than necessary to fulfil its objective.70
These are the elements that will be further examined below.
(1) The Labelling Regulation is a Trade Restrictive Measure
In the COOL Case, the Appellate Body considers that the demonstration of a trade
restrictive measure does not require demonstration of any actual trade effects but rather focuses
on the competitive opportunities available to imported products.71 The Appellate Body in the
COOL Case also considers that a measure is trade restrictive when a measure negatively affects
imported products’ conditions of competition in the market by imposing higher costs in the
production process of the imported product.72
Palm oil production is the most efficient production of oil per hectare of cultivated
land.73 Palm oil’s efficient production led to cheaper costs and established a cheaper price
compared to other oils. In the food industry, palm oil is used as frying fat and as an ingredient
in a wide range of foods such as biscuits, margarine, snacks, and bakery products. 74 Palm oil
competitiveness in the global market also lies in its price.
An increased cost of production for palm oil exporters will affect the competitiveness
of the palm oil price in the EU market. Based on the OECD-FAO Agricultural Outlook 2011-
2020, the EU is the world’s leading importer of vegetable oil, accounting for almost 18% of
the market.75 Most of the EU’s vegetable oil consumption in 2010 was for food use.76 In the
70 AB Report on US- COOL Requirements, supra note 14, para. 358. 71 AB Report on US- COOL Requirements, supra note 14, para. 359. 72 See id. 73 UK Department for Environment Food & Rural Affairs, Sustainable Production of Palm Oil, UK Statement,
page 4, October 2012
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/256254/pb13833-palm-oil-
statement-1012.pdf.
(Accessed 1 November 2013). 74 See id. 75 Organization for Economic Cooperation and Development (OECD) and the Food and Agriculture
Organization (FAO), Agricultural Outlook 2011-2020, [hereinafter “OECD – FAO Agricultural Outlook”) at
114 (June 2011). 76 See id. at 109. (See Figure 5.2 and page 118, Annex 5.A, Table 5.A.1 World Oilseed Projections.)
16
same report, OECD-FAO depicted that Indonesia along with Malaysia will lead the increase
in global vegetable oil output and its market share; however, growing environmental
constraints could alter this projection.77 As an example of the possible alteration, various
companies in the palm oil supply chain in the Netherlands already declared their commitment
to use sustainably produced (RSPO-certified) palm oil by 2015.78 As such, there is less
opportunity for noncertified palm oil producers and suppliers to the EU market. Alternatively,
certified palm oil producers will also find their palm oil products’ price to be less competitive
due to the cost of certification of its product. Given these facts, the Labelling Regulation is a
trade restrictive measure for palm oil producers to export to the EU.
(2) The Legitimate Objective of the Labelling Regulation
The legitimacy of a measure’s objective can be found in the “genuine nature” of the
objective, which is “justifiable” and “supported by relevant public policies or other social
norms.”79 Legitimate objectives under Art. 2.2 of the TBT Agreement could be national
security requirements, the prevention of deceptive practices, and the protection of human
health or safety, animal or plant life or health, or the environment. 80
The EU Food Labelling objective is clear. It is designed to protect the health and well-
being of consumers in the EU while at the same time guaranteeing consumers’ right to
information and to make informed choices, which can be influenced by either health,
economic, environmental, social and ethical considerations.81 The measure was issued with the
purpose of serving the interests of the internal market by simplifying the law, ensuring legal
77 OECD-FAO Agricultural Outlook, supra note 75, at 108. 78 The Dutch Task Force Sustainable Palm Oil, Manifesto of the Task Force Sustainable Palm Oil, (November
2010).
http://www.taskforceduurzamepalmolie.nl/Portals/4/download/Manifesto_Task_Force_Sustainable_Palm_Oil.p
df 79 AB Report on US- COOL Requirements, supra note 14, para. 361. 80 The TBT Agreement, supra note 13, at Art. 2.2 of the TBT Agreement. (In assessing such risks, relevant
elements of consideration are, inter alia: available scientific and technical information, related processing
technology or intended end-uses of product.) 81 The Labelling Regulation, supra note 7, Recitals.
17
certainty, and reducing administrative burdens; it benefits citizens by requiring clear,
comprehensible, and legible labelling of foods.82 Thus, there appears to be a legitimate
objective behind this regulation.
(3) The Labelling Regulation is More Trade Restrictive than Necessary
Article 2.2 of the TBT Agreement governs that a measure shall not be more trade
restrictive than necessary to fulfil its objective.83 In doing so, there should be an assessment of
the objective of a measure according to what is revealed in its text, design, architecture, and
structure, as well as through various statements made by legislators during the legislative
process of enactment.84 The WTO interpretation in the COOL Case is that the labelling
measure fulfils its objective when the information on labels as prescribed by the measure
ensures meaningful information for consumers.85 The ability of a labelling regime to fulfill its
objective will also depend on the capability of labels to convey clear and accurate
information.86
The labelling of palm oil might not provide meaningful, clear, and accurate information
to food consumers. In terms of health and nutrition, the relationship between nutrition and
health must be considered over the whole diet and not in terms of single food items, while
paying attention to recommended intakes for saturated fat.87 In reference to industrial
processing, packaging, and marketing, constant food label adaptations would in any case be
disproportionate in comparison to the expected consumer benefits 88
and unnecessarily increase
82 Id. at Recital (9). 83 AB Report on US- COOL Requirements, supra note 14, para. 362. 84 See id. 85 AB Report on US- COOL Requirements, supra note 14, para. 364. 86 AB Report on US- COOL Requirements, supra note 14, para. 362. 87 European Food Information Council, supra note 30. (At the same time, using palm oil in place of partially
hydrogenated vegetable oils reduces the content of trans fats in foods made with these oils. Both saturated and
trans fat can raise LDL (bad) cholesterol levels. However, unlike saturated fats, trans fats also lead to a fall in
HDL (good) cholesterol and raise blood triglyceride levels, both of which are associated with an increased risk
of coronary heart disease. In overall, the European Food Safety Authority recommends that intakes of saturated
fats and trans fats be as low as possible.) 88 Federation Representing the European Vegetable Oil and Protein meal Industry in Europe (FEDIOL),
18
the amount of information provided on the label without a real benefit for the consumer.89
Ultimately, information on vegetable origin is insufficient for food consumers’ dietary
consideration, and thus the labelling is not an appropriate means to fulfil the objective of the
Labelling Regulation.
In the Tuna Dolphin II Case, the Panel found that US exclusive dolphin safe labelling
is more trade restrictive than necessary to fulfill its legitimate objectives of protecting dolphin
since Mexican tuna captured under the alternative AIDCP standard could also have the similar
dolphin protection result.90 From this consideration, a measure could be more trade restrictive
than necessary when there is an alternative means that can be used by a producer to achieve
the same objectives. As having mentioned above, an accurate information on the nutrition
contained in food ingredients is more beneficial to the consumers’ health rather than the
specific detail of the ingredients.91 Providing an accurate nutritional information of the
vegetable oil is a better alternative to food consumers’ health. Thus, the labelling of palm oil
in food products is more trade restrictive than necessary to achieve its legitimate objective of
protecting the health of the food consumers.
Having considered the above assessment, the Labelling Regulation creates a less
favourable treatment and is more trade restrictive than necessary to palm oil exporter. In the
light of the above reasons, by implementing the Labelling Regulation, the EU has violated
Article 2.1 and Article 2.2 of the TBT Agreement.
Labelling Food, FEDIOL.EU (Aug. 14, 2013),
http://www.fediol.eu/web/labelling%20food/1011306087/list1187970148/f1.html
(This is a statement made by FEDIOL, an Associations of seed crushers and oil processors established in the
EU. FEDIOL members comply with an EU Code of Refining that lead to standard refined vegetable oils and
fats.) 89 See id. 90 Panel Report on US-Tuna II, supra note 22, para. 7.620 and 8.1 (b). 91 European Food Information Council, supra note 87.
19
III. The Labelling Regulation under GATT
Aside from the TBT Agreement, the Labelling Regulation will also be noncompliant
with the national treatment provision under Article III of GATT. The fundamental purpose of
Article III of GATT is to ensure equality of competitive conditions between imported and like
domestic products.92 This provision applies to laws, regulations, and requirements affecting
the internal sale, offering for sale, purchase, transportation, distribution, or use of products
(trading rules).93 Exceptions for Article III can be found in Article XX of GATT.94 This section
will explain whether the Labelling Regulation creates unequal competitive conditions between
palm oil and rapeseed oil specifically under Article III:4 of GATT. Following the discussion,
this section will also argue why this regulation might not be justified under the Article XX of
GATT.
A. The Application of Article III:4 of GATT
Article III:4 of GATT accords national treatment to imported products whereby
imported products shall not be treated less favourably than domestic products. 95 This provision
was made to assist the goal of reducing restraints on imports96 and applies not just to bound
products.97
92 Appellate Body Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/AB/R, adopted 30
July 1997, DSR 1997:I, 449, page 18. 93 Birgitte Egelund Olsen Et Al., WTO Law from a European Perspective 143 (The Netherlands, Kluwer Law
International BV. 2012). 94 Watson, supra note 1, at 182. 95 General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World
Trade Organization, Annex 1A, THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF
MULTILATERAL TRADE NEGOTIATIONS 17 (1999), 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994)
[hereinafter GATT]. (Art. III:4 of GATT. “The products of the territory of any contracting party imported into
the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to
like products of national origin in respect of all laws, regulations and requirements affecting their internal sale,
offering for sale, purchase, transportation, distribution or use.”) 96 John H. Jackson, National Treatment Obligations and Non-Tariff Barriers, 10 Mich. J. Int'l L. 207 (1989). 97 See id. (An important policy behind this rule is to prevent domestic tax and regulatory policies from being
used as a protectionist measure that would defeat the purpose of tariff bindings.)
20
Three important elements must be proven to claim a violation of Article III:4 of GATT.
First, the imported and the domestic products at issue must be ‘like products.98 As described
above, palm oil and rapeseed oil are considered “like products.” Second, the measure at issue
must be a law, regulation, or requirement affecting their internal sale, offering for sale,
purchase, transportation, distribution or use.99 The Labelling Regulation obviously covers the
sale and distribution of a food product. The last element to be proven is that imported products
are accorded ‘less favourable’ treatment than that accorded to like domestic products.100
The term “treatment no less favourable” in Article III:4 of GATT, similar to Article 2.1
of the TBT Agreement, prohibits both de jure and de facto less favourable treatment.101 The
less favourable treatment standard under this provision calls for effective equality of
opportunities for imported products in respect of the application of laws, regulations, and
requirements affecting their internal sale.102 If there is ‘less favourable treatment’ of the group
of the ‘like’ imported products, there is conversely ‘protection’ of the group of ‘like’ domestic
products.103
Although both palm oil and rapeseed oil de jure receive the same labelling treatment,
the impact of the Labelling Regulation is in fact is different. As examined under Article 2.1 of
the TBT Agreement above, labelling will create a condition where palm oil used for food
products needs to be certified as environmentally sustainable palm oil in favour of EU market
preference. This condition is discriminatory since the regulation does not create a condition
98 AB Report on Korea- Beef, supra note 62, para. 131. 99 See id. 100 See id. 101 AB Report on US- Clove Cigarettes, supra note 15, para. 100 and 175-180; AB Report on US-Tuna II, supra
note 15, para. 214, 215, and 236-239; and AB Report on US COOL Requirements, supra note 14, para. 269. 102 Autar Krishen Koul, Guide to the WTO and GATT, Economics, Law and Politics 115 Kluwer Law
International (2005). 103See id.
21
that requires palm oil like products to do so. Thus, the labelling will create a less favourable
treatment of palm oil in the EU.
B. The Exceptions Provided under the Article XX GATT
EU noncompliance with Article III:4 GATT can be exempted under conditions
provided in Article XX of GATT. There is a two-step analysis to demonstrate that a measure
is justified under this provision.104 In the first order, a measure should fulfil a condition
between clause (a) to (j) of Article XX GATT.105 Providing that the condition is covered under
this provision, a measure should also satisfy the requirements imposed by the opening clause
or the Chapeau of Article XX.106 In relation to the Labelling Regulation, the relevant conditions
to be applied are Article XX (b) and Article XX (g) of GATT. Having said this, the following
section will discuss why these clauses might not be applicable to the Labelling Regulation.
(1) Article XX (b) of GATT and the Protection of the Consumers’ Health
In respect of Article XX (b) of GATT, the labelling of palm oil in food is not necessary
to protect EU consumers’ health. An advance study on palm oil shows that the impact of palm
oil is often misunderstood, if not overrated.107 Scientific evidence shows that all oils and fats
contain both saturated and unsaturated fatty acids.108 Palm oil does have high saturated fat and
low polyunsaturated fat, which is claimed to contribute to heart disease.109 However, there are
no health concerns specific to palm oil.110 Moreover, palm oil contains only 50% saturated fat,
104 Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products,
WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755, [hereinafter “AB Report on US-Shrimp”]
para. 117-119. 105See id. 106 See id. 107 Donald J. McNamara Ph.D. (2010) Palm Oil and Health: A Case of Manipulated Perception and Misuse of
Science, Journal of the American College of Nutrition, 29:sup3, 240S-244S,
DOI:10.1080/07315724.2010.10719840. 108 European Food Information Council, supra note 30. 109 First Printing; May 2005, Center for Science in the Public Interest, Ellie Brown, Ph.D., Michael F. Jacobson,
Ph.D., Cruel Oil How Palm Oil Harms Health, Rainforest & Wildlife, page iv. 110 European Food Information Council, supra note 30.
22
which compares favourably to the saturated fat content of other fats of similar application:
coconut (92%), palm kernel (84%), butter (66%), cocoa butter (62%) and tallow (54%).111
As an important consideration, palm oil is found to be a better alternative for food use
compared to its like products. In the United States for example, the American Heart
Association in 1968 recommended that people consume less than 10% of calories as saturated
fats for lowering coronary heart disease risk and choose only foods that are fat free, saturated
fat-free, and cholesterol free.112 As a result, US food companies started switching palm oil to
hydrogenated soybean oil, until more advanced research found that the hydrogenated soybean
oil contained a more harmful substance known as trans-fat, which increases the risk of diabetes,
impairs cardiac rhythm, or raises blood cholesterol level.113 Now in the United States, palm oil
is used as an alternative by food producers to soybean oil114 since it does not contain trans-fat.
Palm oil in the EU market is often used together in food products with other fats and
oils which together determine the fatty acid composition and eventually the effects on health.115
Likewise palm oil is not listed in EU as a ‘high risk’ product that is considered as harmful to
human health.116 Thus, the exception under Article XX (b) of GATT does not apply to the
Labelling Regulation.
(2) Article XX (g) of GATT and the Conservation of Exhaustible Natural Resources
It is unlikely that Article XX (g) of GATT provides justification in this case either.
Article XX (g) of GATT prescribed that WTO member countries may be noncompliant with
111 European Food Information Council, supra note 30. 112 McNamara, supra note 107, at 241S. 113 See id. at 243S. 114 Brown, supra note 109, page 2-3. 115 European Food Information Council, supra note 30. 116 European Commission Regulation 669/2009, the Implementing Regulation No 882/2004 of the European
Parliament and of the Council as regards the increased level of official controls on imports of certain feed and
food of non-animal origin and amending Decision 2006/504/EC O.J. (L 194) page 11-21. (A 'high-risk' product
is feed or food that is either a known, or an emerging, risk to public health. This may be due to the presence of
contaminants and/or undesirable substances such as aflatoxins, Salmonella or pesticides. A list of the 'high-risk'
products, country of origin and the frequency of checks can be found at Annex I of Commission Regulation
(EC) 669/2009, as amended by Commission Implementing Regulation (EU) 925/2013 of 25 September 2013.)
23
GATT if such noncompliance is “relating to the conservation of exhaustible natural
resources.”117 Palm oil plantation was accused as a main factor of forest destruction; and
therefore a measure imposed on the use of palm oil might find its justification as an effort to
conserve natural resources.118 Despite this accusation, the objective of Article XX (g) GATT
seems not to be in line with the objective of the Labelling Regulation.
Forests can be defined as natural resources covered by the Article XX(g) of GATT.
The definition of resource in this Article could be broad, covering the living and nonliving;119
however, the phrase “relating to” has a narrow interpretation, where it means that a measure
shall be primarily aimed at the objective under consideration.120 As such, the term “relating to”
in this Article XX (g) indicates that the WTO member country must be able to easily prove
that the regulation is primarily aimed at the environmental objectives stated in it.121 The
Labelling Regulation aims to make safe use of food while at the same time allow the consumers
to make an informed choice.122 Protecting forests is not the primary objective of the Labelling
Regulation. Therefore, it is unlikely that the EU can justify its Labelling Regulation under
Article XX(g) of GATT.
Another important concept under international law that should be considered in
interpreting this exception is the fact that a country can effectively control the conservation of
an exhaustible natural resource only to the extent that it is under its jurisdiction.123 The labelling
of palm oil tries to cover the production of goods that is happening outside its jurisdiction.
117 GATT Article XX (g). 118 UNEP Global Environmental Alert Service, supra note 66, page 3. (There is growing awareness that the
greater production of palm oil can increase the risk of destruction to tropical rainforest and drainage of peat land
causing impacts on biodiversity and climate change.) 119 AB Report on US- Shrimp, supra note 104, para. 127. 120 Ernst Ulrich Petersmann, the GATT/WTO Dispute Settlement System: International Law, International
Organizations and Dispute Settlement, Kluwer Law, London, 1997, p.99. 121 Watson, supra note 1, at 199. 122 Commissions Health and Consumer Directorate General Working Group, Questions and Answers on the
application of the Regulation (EU) No 1169/2011 on the provision of food information to consumers (31
January 2013), http://ec.europa.eu/food/food/labellingnutrition/foodlabelling/docs/qanda_application_reg1169-
2011_en.pdf 123 Autar Krishen Koul, supra note 102, at 317.
24
Whether the extraterritoriality impact of the Labelling Regulation is justified for public interest
or good cause, there are various opinions in support or against this, which nonetheless make
the application of this Article in labelling becomes more difficult.
(3) The Chapeau of the Article XX of GATT
Under the Chapeau of Article XX of GATT, a measure should not be applied “in a
manner which would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or as a disguised restriction on international
trade.”124 The Appellate Body provided an overview regarding the three constitutive elements
of the concept of “arbitrary or unjustifiable discrimination between countries where the same
conditions prevail” and held the following:125 first, the application of the measure must result
in discrimination; second, the discrimination must be arbitrary or unjustifiable in character,
where ‘arbitrary discrimination,’ ‘unjustifiable discrimination,’ and ‘disguised restrictions’ on
international trade have to be read side-by-side as they impart meaning to one another;126 and
third, this discrimination must occur between countries where the same conditions prevail.127
Disguised Restrictions include but are not limited to disguised discrimination.128
Disguised discrimination can be found in government regulation of product markets which
create regulatory protectionism by increasing the costs of production for firms outside of the
regulating jurisdiction and thereby confer a competitive advantage on domestic firms.129 This
124 GATT Article XX. 125 Autar Krishen Koul, supra note 102, at 313. 126 See id. 127 AB Report on US- Shrimp, supra note 104, para 150. 128 Autar Krishen Koul, supra note 102, at 313. (Disguised Restrictions include disguised discrimination, and
concealed or announced restrictions or discrimination in international trade does not exhaust the meaning of
‘disguised restrictions’ and fall within the domain of restrictions in international trade.) 129 Sykes, supra note 61.
25
practice is not new 130 and proven to be economically inefficient,131 particularly to the exporter.
As described above, there will be different treatment of certification between palm oil, as an
imported product, and rapeseed oil, as a domestic product in the market. The certification will
increase the costs of palm oil production which will become an advantage to the domestic like
products. The Labelling Regulation thus is a disguised discrimination against palm oil
exporters.
One of the way to determine whether a measure is applied in an unjustifiable manner
under the Chapeau of Article XX is by way of assessing whether there has been a serious effort
to negotiate the implementation of the measure with other members who may be affected.132
A study conducted by the UK shows that while the policy of procuring certified sustainable
palm oil will keep costs low to the government, it creates an additional cost to the private sector
that needs to switch from the noncertified palm oil to the certified sustainable palm oil.133 The
increase in cost will be borne mostly by the palm oil exporter that is required to obtain
certification and there has been no official documentation on EU efforts to facilitate
130 AB Report on US- COOL Requirements, supra note 14, para. 239, 240 and 242. (In the COOL Case, US
internal measure imposes an obligation on retailers selling specific products in the US to label those products
with their country of origin including livestock products of beef, pork, cattle and hogs. Meat labelled under
COOL measure may have one or more countries of origin depending on where the production steps took place,
respectively where the livestock born, raised, and slaughtered. In addition, the COOL measure requires
upstream suppliers to provide retailers with information on the origin of the meat supplied, imposes certain
obligations to the manner in which information on origin is to be conveyed to consumers, and imposes
recordkeeping requirements on producers along the livestock and meat production chain as part of its “audit
verification system”.) 131 Sykes, supra note 61. (Regulatory protectionism is economically inefficient, in part for the same reasons that
protectionism of any sort is inefficient. Protectionism draws high cost domestic firms into the market while
excluding low cost foreign firms, and it prices out of the market some consumers who would be willing to
purchase goods at a price exceeding the marginal cost of production of efficient suppliers. [See, for example,
Peter B. Kenen, The International Economy 17-19, 175-77 (Prentice-Hall 1985)] (showing how opening trade
by removing tariffs or quotas will increase consumer surplus in excess of any decrease in producer surplus)
What previous work has not appreciated, however, is that in most cases regulatory protectionism causes
additional deadweight losses that make it considerably more inefficient than other instruments of protection
such as tariffs, quotas, and subsidies. Accordingly, the societal returns to legal constraints on regulatory
protectionism are greater, other things being equal, than the societal returns to constraints on other protectionist
instruments.) 132 Watson, supra note 1, at 207. 133 UK Department for Environment, Food and Rural Affairs, supra note 60.
26
consultation with palm oil exporter prior to the issuance of the Labelling Regulation. The
Labelling Regulation is therefore arbitrary and violates EU obligations under GATT.
IV. Conclusion
The inexistence of a uniform international standard in labelling leads to a different and
diverse ways of how countries interpreted its labelling policy.134 Since the impact of labelling,
as with other technical barriers, is sometimes difficult to measure,135 it could be misused to
protect domestic producers, lead to discrimination and unnecessary barriers, or even worse
serve as a disguised restriction on international trade.136 The WTO provides discipline for this
in the TBT Agreement and Article III: 4 of GATT 1994. 137
The Labelling Regulation violates EU obligation under the TBT and GATT Agreement
by creating a less favourable treatment of the palm oil exporter and benefits the domestic like
products of palm oil. In various recent labelling disputes, the WTO Panel shed new light on
how to approach the less favourable treatment. One of the important considerations of the
WTO Panel is that labelling could have a significant commercial value to a product,138 which
in turn could modify the conditions of competition between foreign and domestic products.139
The fact that the exporter was lacking access to have its product being labelled therefore had a
negative impact on the competition of its products in the importing country, and thus the
134 Sykes, supra note 5, at 10. 135 See id. 136 WTO Environment, supra note 3. 137 Birgitte Egelund Olsen Et Al., supra note 93, at 65. (As prescribed in Article 3.2 of Dispute Settlement
Understanding (DSU), an objective of the dispute settlement system of the WTO is to ‘clarify’ the provisions of
the covered agreements ‘in accordance with customary rules of interpretation of public international law’. This
has consistently been interpreted by Appellate Body as a reference to the ‘general rule of interpretation’ codified
in Articles 31-32 of the Vienna Convention on the Law of the Treaties (Vienna Convention). Under the Vienna
Convention, the interpretation of treaty provisions focuses on the wording, object and purpose of a treaty, as well
as its context. Among the contextual elements the Vienna Convention, Article 31 (3) (c) includes ‘any relevant
rules of international law applicable between the parties’.) 138 Panel Report on US- Tuna II, supra note 22, para. 7.289 - 7.291. 139 AB Report on US-Tuna II, supra note 15, para. 235.
27
labelling created a less favourable treatment.140 The similar concept of less favourable
treatment under Article 2.1 of the TBT Agreement could also be found under the provision of
the Article III:4 of GATT,141 which calls for effective equality of opportunities for imported
products to domestic product in respect of the application of laws affecting their internal
sale.142 Hence as having described above, the Labelling Regulation violates the TBT
Agreement and GATT.
Equally important to the above, the Labelling Regulation is more trade restrictive than
necessary to palm oil exporter. Under the COOL Case, one of the ways to determine the trade
restrictiveness of labelling was by assessing whether the labelling information could fulfil its
legitimate objective, which is to convey the necessary information to the consumers.143 In the
Tuna Dolphin II Case, the WTO Appellate Body assessed that labelling is more trade restrictive
than necessary when the impact of not using the label was not that significant to the fulfillment
of objectives of the regulation requiring the labelling.144 Labelling is more trade restrictive than
necessary when the country issuing the regulation could not provide absolute evidence that the
labelling is essential to achieve its regulatory objectives,145 while, the indirect consequence of
the labelling caused higher compliance costs of imported products.146 Such situation is similar
to the impact of the Labelling Regulation on the palm oil export. The palm oil label does not
provides food consumers an essential nutritional information while the specific labelling of
palm oil is leading to the increasing production cost of palm oil food products. This increasing
costs reduce the competitiveness of palm oil products price in the market and create an
140 See id. 141 AB Report on US- Clove Cigarettes, supra note 15, para. 100 and 175-180; AB Report on US-Tuna II, supra
note 15, para. 214, 215, and 236-239; and AB Report on US COOL Requirements, supra note 14, para. 269. 142 Autar Krishen Koul, supra note 102, at 115. 143 AB Report on US- COOL Requirements, supra note 14, para. 362 and 364. 144 Panel Report on US-Tuna II, supra note 22, para. 7.620 and 8.1 (b). 145 AB Report on US- COOL Requirements, supra note 14, para. 364 146 AB Report on US- COOL Requirements, supra note 14, para. 359.
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advantage to the domestic competitor, rapeseed oil. The Labelling Regulation therefore
violates Article 2.2 of the TBT Agreement.
One might wish to argue that, for the sake of health and environmental protection, it is
possible for the EU to impose the Labelling Regulation on palm oil producers. Article XX of
GATT provides the basis of how to invoke this health and environmental protection defense.
However, it is unlikely that the Labelling Regulation would find its justification based on this
provision. The EU officially admits that there is no substantial evidence on the negative impact
of palm oil to human’s health,147 and, protecting forests is not a primary aim of the Labelling
Regulation.148 Also, the fact that the Labelling Regulation is arbitrary under the Chapeau will
contribute to the inapplicability of Article XX of GATT.149 Hence, EU noncompliance with
the TBT Agreement and GATT cannot be justified under the WTO.
Considering that the EU has created a less favourable treatment and more trade
restrictive measures for palm oil exporters, what can be done to remedy this situation? There
are not many studies conducted that explain how countries could remedy this situation. It is up
to the countries to decide how to formulate WTO obligations in their domestic law. As an
example, following the WTO Appellate Body decision on the Tuna Dolphin II Case, the US
has revised its labelling requirement to accommodate Mexican tuna exporters by way of
requiring the Fisheries Country of Origin (the “FCO”) documentation for the import of tuna.150
Instead of excluding Mexico’s method of fishing from US dolphin safe standard, the FCO
requires tuna exporters and importers to confirm that the product entering the US is dolphin
safe and that no dolphin were killed or seriously injured in the sets where the tuna was caught.
151 US revision of its dolphin safe labelling seems to be a good resolution; however, an
147 European Food Information Council, supra note 30. 148 Commissions Health and Consumer Directorate General Working Group, supra note 122. 149 Autar Krishen Koul, supra note 102, at 313. 150 Department of Commerce, National Oceanic and Atmospheric Administration, 50 C.F.R. § 216 (2013). 151 See id.
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additional reporting documentation like FCO might also create more of an administrative
burden for the importer, exporter, and also to the government. Lesson learned, the WTO must
provide more guidance on labelling implementation to ensure the WTO member countries’
compliance and to prevent any unnecessary labelling dispute in the future.