Legal Analysis: WTO Implications of the Illegal-Timber Regulation

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1 ClientEarth * Briefing, September 2009 Legal Analysis: WTO Implications of the Illegal-Timber Regulation The European Parliament recently adopted amendments to the European Commission proposal laying down obligations on operators making timber or timber products available on the EU market. In accordance with co-decision legislative procedures, the proposal and amendments are now under consideration by the Council of the European Union. Several legal issues have arisen regarding compliance with trade rules under World Trade Organization and General Agreement on Tariffs and Trade (collectively WTO ). Our analysis of WTO rules and jurisprudence indicates that the European Community (EC) legislature may adopt trade-related measures aimed at protecting the environment subject to certain conditions. Measures to protect the environment often, by their very nature, restrict trade in some form, raising concerns regarding potential violation of WTO rules and member rights. But those measures are permissible if they do not result in unjustifiable or arbitrary discrimination. This legal analysis will clarify WTO issues related to several features of the proposal and amendments and, where necessary, make recommendations to ensure WTO compliance. Summary of Findings The most promising exception to WTO rules is GATT Article XX(g), which allows for trade restrictions related to the conservation of exhaustible natural resources if such measures are made in conjunction with restrictions on domestic production or consumption. (Pages 1-3.) The primary hurdles to WTO compliance are the chapeau requirements that limit claims to exception to measures that do not constitute arbitrary and unjustifiable discrimination or a disguised restriction on international trade. (Pages 3-7.) The Parliament amendments create an implied prohibition on trading illegal timber that complies with WTO rules. (Pages 7-8.) The Commission proposal and Parliament amendments both outline a risk-management procedure that could possibly violate WTO rules if due process is not afforded to impacted countries in either the text of the regulation or implementing measures. (Pages 8-10.) Exemptions for small- and medium-sized enterprises pose certain WTO issues that are best avoided by creating an entity dedicated to providing qualifying operators and enterprises assistance in their performance of due diligence, including financial support. (Page 10.) The World Trade Organization and the General Agreement on Tariffs and Trade The WTO is the global international organization controlling trade between nations. It provides the body of rules aimed at reducing obstacles to international trade. It is also the legal and institutional framework for monitoring and implementing its agreements, and for settling disputes arising from their * ClientEarth is a non-profit organisation of lawyers and policy experts that fuse law, science, and policy to create strategic solutions to key environmental challenges. For more information, please visit our website at

2 interpretation and application. The WTO sets out a liberal trade regime with several trade-protective rules. All trade measures from member countries, which includes the EC, must comply with these rules. The EC legislature s ability to take measures prohibiting or restricting certain imports is therefore constrained. Impermissible prohibitions or restrictions on trade can take several forms. Advantages or privileges afforded to one country must be afforded to all countries. 1 Foreign products must be accorded treatment no less favourable than that accorded to like products of nation origin. 2 Countries are generally precluded from adopting measures that prohibit or restrict the import of products from another party. 3 But in the instance a prohibition or restriction is instituted or maintained, it shall not be applied unless the importation of like products of all third countries is similarly prohibited or restricted. 4 In general, WTO members may not discriminate among foreign and domestic products. All goods are created equal. A critical determination in analyzing unlawful discrimination is whether the product in question is a like product. Assessments are made on a case-by-case basis. 5 Under WTO jurisprudence, likeness is ascertained by analyzing the nature and quality of the products, their end-uses, consumers tastes and habits, and tariff classification. 6 Evidence is weighed to make an overall determination of whether the products at issue could be characterized as like. 7 If characterized so, WTO rules prohibit trade restrictions and prohibitions subject to the exceptions below. General Exceptions to Trade Restrictive and Prohibitive Measures Article XX of the GATT outlines the general exceptions to measures that restrict trade. These exceptions are of particular importance to those seeking to achieve social and environmental policy objectives human rights, sustainable development, environmental protection because they offer the only concrete avenues to advance these values within the existing WTO regime: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (b) *** *** *** necessary to protect human, animal or plant life or health; (g) *** *** *** relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption. 8 The introductory clause or chapeau ensures that any measure is not applied in an arbitrary or unjustifiably discriminatory manner or as a disguised trade restriction. 9 In addition to making the showing that one of the exceptions applies, countries must also ensure that their measures do not violate the requirements in the chapeau. These chapeau requirements, as discussed below, are typically invoked to strike down otherwise valid claims to exception. 2 P a g e

3 The WTO judiciary the Panel and Appellate Body undertake a two-tiered analysis. 10 The first tier analyzes whether the trade-restrictive measure fits into one of the Article XX exceptions. The second tier analyzes whether the measure conforms to the chapeau requirements. 11 I. Article XX Exceptions of Potential Application to the Illegal-Timber Regulation Two exceptions have potential application to the Illegal-Timber Regulation. The most promising is Article XX(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption. 12 For this exception to apply, WTO jurisprudence requires that the measure here, the Illegal-Timber Regulation be primarily aimed at or have a substantial relationship to the conservation of forests and the associated benefits. 13 It must also be made in conjunction with restrictions on domestic timber, which ensures even-handedness. 14 Tuna, endangered sea turtles, dolphins, and clean air have already been found to be exhaustible natural resources. 15 Forests are also likely to be considered an exhaustible natural resource, and their conservation protects not only the forests themselves but the biodiversity, ecosystems, and climate benefits therein. 16 Another exception of potential application is Article XX(b) for measures necessary to protect human, animal or plant life or health. 17 For this exception to apply, WTO jurisprudence focuses on whether the measure is necessary. To be necessary, an alternative measure must be not only less trade restrictive than the measure at issue, but should also preserve for the desired level of protection with respect to the objective pursued. 18 This will be determined by balancing several factors, including the contribution made by the compliance measure to the policy objective at issue, the importance of the common interests or values protected by the regulation, and the associated impact of the regulation on imports. 19 Consideration will also be given to the degree that any alternative measure would contribute to the realization of the end pursued. 20 Although not an insurmountable burden, this exception requires a level of scrutiny of a measure s necessity that is best avoided, if possible. Therefore, the preferred exception is Article XX(g), relating to the conservation of exhaustible natural resources. 21 II. Article XX s Chapeau Requirements Measures must not constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail nor be a disguised restriction on international trade. 22 The chapeau sets out both procedural and substantive requirements. The chapeau requirements are, in the words of the Appellate Body, but one expression of the principle of good faith. 23 WTO jurisprudence outlines three general elements for a measure to constitute an "arbitrary or unjustifiable discrimination between countries where the same conditions prevail." 24 First, the application of the measure must result in discrimination. The nature and quality of this discrimination must be different from the discrimination of like products that resulted in the initial WTO violation. 25 Second, the discrimination must be arbitrary or unjustifiable in character. This inquiry focuses on both the actual provisions in the measure and how it is applied in practice. 26 Third, the discrimination must occur between countries where the same conditions prevail. III. WTO Cases Applying the Chapeau Requirements Several high-profile cases have developed a body of jurisprudence to understand how the chapeau requirements and associated elements are applied under real-world scenarios. Four environmental 3 P a g e

4 disputes are particularly relevant: US Gasoline, US Shrimp, EC Asbestos, and Brazil Retreaded Tyres. These cases delineate the contours of permissible and impermissible trade restrictions. A. US Gasoline (1996) The dispute arose when the United States (US) applied stricter rules on the chemical characteristics of imported gasoline than it did for domestically refined gasoline. To achieve clean air, the US instituted a program that required the dirtiest air basins, those in nonattainment of air quality standards, to use cleaner reformulated gasoline. Those areas that were in attainment were permitted to use dirtier conventional gasoline. To prevent refiners from dumping the pollutants extracted from reformulated gasoline into conventional gasoline an inexpensive way to dispose of them the US required conventional gasoline to meet a certain baseline for gasoline quality. For domestic refiners, the baseline was calculated as the quality of their gasoline in 1990, the so-called individual baseline. For foreign refiners, the baseline was fixed in the US Clean Air Act, the so-called statutory baseline. Venezuela and Brazil challenged the measure as violating the chapeau requirements, arguing that allowing domestic refiners to use individual baselines and requiring foreign refiners to use statutory baselines was unjustifiable discrimination. 27 The Appellate Body found that the claim to exception under Article XX(g) was proper, but that the US unjustifiably discriminated in violation of the chapeau. It found unpersuasive the justifications proffered for barring foreign refiners from using individual baselines and allowing domestic refiners to avoid statutory baselines: Barring foreign refiners from using individual baselines. The US argued that it would prove too administratively burdensome to verify and enforce on foreign soil. But the Appellate Body noted that this categorical statement did not apply to all foreign refiners, and that the US had failed to seek cooperative arrangements with foreign refiners and the foreign governments to make that determination, including with Venezuela and Brazil. 28 In other words, the US could not justify the across-the-board application of the statutory baseline on foreign refiners. Allowing domestic refiners to avoid statutory baselines. The US argued that applying the statutory baseline to domestic refiners would have been physically and financially impossible because of the magnitude of the changes required in almost all US refineries, causing substantial delay in the programme. But the Appellate Body noted that although this may very well have constituted sound domestic policy, the US disregard*ed+ that kind of consideration when it came to foreign refiners. 29 The Appellate Body concluded that these two omissions to explore adequately means of mitigating the administrative problems and counting the costs for foreign refiners of statutory baselines constituted unjustifiable discrimination and a disguised restriction on international trade. 30 It therefore struck down the measures. This case makes clear that countries implementing trade-restrictive measures must be able to justify them, and the WTO judiciary will scrutinize any justification to ensure it conforms to the stated objective. 4 P a g e

5 B. US Shrimp (1998) The dispute arose when the US prohibited imports of certain shrimp and shrimp products. The import ban resulted from the listing of five species of migratory sea turtles under the US Endangered Species Act. As a result of the listing, the US was required to prohibit any harassment, hunting, capture or killing of sea turtles. The US therefore required its shrimp trawlers to use turtle-excluder devices in their nets when fishing in areas frequented by sea turtles. The US also prohibited imports of shrimp harvested with technology that adversely affected sea turtles unless the harvesting country had a certified regulatory programme similar to that of the US or it was found that its particular fishing environment did not pose a threat to sea turtles. The practical effect of the ban was to require shrimp-harvesting countries with any of the listed sea turtles in their waters to impose on their shrimp trawlers essentially the same requirements as those borne by US shrimp trawlers if they wanted to be certified to export shrimp products to the US. In essence, it required the use turtle-excluder devices. India, Malaysia, Pakistan and Thailand challenged the US ban on the grounds that it unjustifiably and arbitrarily discriminated against their shrimp and shrimp products. The Appellate Body found both unjustifiable and arbitrary discrimination. Although the ban was proper under Article XX(g) since the protection of sea turtles was at its heart, the Appellate Body found several facets violated the chapeau, detailing in the clearest terms to date the chapeau s procedural and substantive requirements: Essentially the Same Program. The implementing regulations required foreign governments to adopt certified regulatory program that essentially dictated what a comparable regulatory program would entail. 31 The Appellate Body found that the US established a single rigid and unbending requirement 32 that required adoption of essentially the same policies and enforcement practices as those applied to, and enforced on, domestic shrimp trawlers, namely the use of turtle-excluder devices. 33 The certification process provided little or no flexibility in how officials make the determination for certification pursuant to these provisions. 34 In addition, the measure implied that, in certain circumstances, shrimp caught abroad using methods identical to those employed in the US would be excluded from the US market. 35 The Appellate Body found this was "difficult to reconcile with the declared objective of protecting and conserving sea turtles." 36 Unequal Treatment. The US provided certain countries mainly in the Caribbean technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices. The Appellate Body found that the US impermissibly discriminated between countries by affording these countries preferential treatment. 37 Duty to Negotiate. The US made serious efforts to negotiate a pact with only certain countries, including those countries that received technical and financial assistance. The Appellate Body found that the US failed to engage all shrimp-exporting countries in serious, across-the-board negotiations with the objective of concluding bilateral and multilateral agreements for the conservation and protection of sea turtles before enforcing the import prohibition. 38 This duty to negotiate and the failure thereof was heightened by the unilateral nature of the prohibition P a g e

6 Due Process. The certification process was not subject to formal procedural protections that allowed for review and appeal. The Appellate Body found that the certification process to be singularly informal and casual with no written opinion or formal appeal procedure, failing to meet certain minimum standards for transparency and procedural fairness in the administration of trade regulations. 40 In the wake of the Appellate Body decision, the US undertook a series of actions to address the issues outlined above. It engaged in across-the-board negotiations with shrimp-exporting countries. 41 It revised its regulations to require a regulatory program that was comparable in effectiveness rather than essentially the same. 42 On that point, the Appellate Body found there is an important difference between conditioning market access on the adoption of essentially the same programme, and conditioning market access on the adoption of a programme comparable in effectiveness. 43 The US also revised its regulations to permit sufficient flexibility for officials certifying programs, allowing them to take into account the unique circumstances in any given country. And it addressed the procedural fairness concerns, ensuring due process through transparent decision-making and the right to challenge an adverse determination. 44 Despite these actions, Malaysia nevertheless challenged the ban again through the recourse procedure. This time, however, the Appellate Body upheld the prohibition, finding that it no longer resulted in unjustifiable or arbitrary discrimination. 45 C. EC Asbestos (2001) The dispute arose when France prohibited the import of asbestos and asbestos-containing products. 46 Asbestos is a highly toxic material, exposure to which poses significant threats to human health, including asbestosis, lung cancer and mesothelioma. But due to resistance to very high temperatures, certain asbestos are widely used in various industrial sectors. To control the health risks associated with their release, France imposed a general ban on asbestos as well as on products that contained it. Canada, a major producer of asbestos-containing products, challenged the French law. The Appellate Body upheld the ban. France s objective of protecting human health legitimately allowed it to halt the proliferation of asbestos within its borders under Article XX(b). 47 With regard to the chapeau requirements, the Appellate Body upheld the Panel findings that, in the text of the French law, *o+nly the product in question is mentioned, without any reference to its origin and, therefore, no discrimination based on national origin was readily apparent. 48 It was also important that, within the administrative aspects of the law, there was no expressly discriminatory provision. 49 Canada s failure to show discrimination beyond a general import ban was insufficient to meet its burden to establish unjustifiable and arbitrary discrimination under the chapeau. 50 D. Brazil Retreaded Tyres (2007) The dispute arose when Brazil instituted an import ban on retreaded tyres. The goal of the ban was to reduce "the risks of waste tyre accumulation to the maximum extent possible." 51 Brazil had concluded that waste tyres were breeding grounds for vectors and rodents, and their decomposition or destruction by fire released toxins that were harmful to humans and the environment. As originally drafted, the ban did not include an exemption for members of the Mercado Común del Sur (Mercosur) Spanish for Southern Common Market. But a ruling by a Mercosur tribunal amended the import ban on retreaded tyres, requiring an exemption be established for Mercosur members. 52 The European Community 6 P a g e

7 challenged both the import ban on retreaded tyres and the Mercosur exemption as violating the chapeau requirements. 53 The Appellate Body found that Brazil unjustifiably discriminated against foreign exporters of retreaded tyres. The import ban as originally drafted and justified was proper under Article XX(b). But the Mercosur exemption violated the chapeau requirements. According to the Appellate Body, whether the application of a measure results in arbitrary or unjustifiable discrimination should focus on the cause of the discrimination, or the rationale put forward to explain its existence. 54 As a result, the Appellate Body analyzed the ruling issued by the Mercosur tribunal and found an unjustifiable rationale for discrimination because it bore no relationship to the legitimate objective pursued by the Import Ban. 55 The case makes clear that subsequent modifications to a trade-restrictive measure are reviewable as are their justifications. Application of Chapeau Requirements to the EU Illegal Timber Regulation Against this background, the purpose of this legal analysis is to clarify WTO issues related to the EU regulation. Several concerns have arisen with respect to the Commission proposal and Parliament amendments. 56 In addition, the proposal and amendments are being considered by the Council and further issues may arise. In the interests of informing this debate, this legal analysis reviews WTO implications of an overriding general prohibition against trading illegally harvested timber, the inclusion of a risk-management procedure, and the creation of exemptions for small operators. In each analysis, it is assumed that the first tier is satisfied under the Article XX(g) exception relating to the conservation of exhaustible natural resources. The focus is instead on the second tier analysis of whether the measure conforms to the chapeau requirements. I. General Prohibition Against Trading Illegally Harvested Timber In 2008, the United States amended the US Lacey Act making it unlawful to trade timber and timber products in violation of any foreign law. 57 Not long afterward, the Commission considered a similar approach. 58 But it ultimately decided against a general prohibition due to implementation challenges and the legal constraints, primarily that EU enforcement and judicial institutions were ill-suited to deal with obtaining evidence on foreign soil and interpreting foreign laws. 59 Instead, the Commission opted to create a due-diligence requirement on operators that place timber or timber products on the market for the first time. In limiting due diligence to those first introducing the timber into the EU market, the Commission proposal avoided making the obligation applicable to all. The Parliament extended the overriding obligation against trading illegally harvested timber to all operators throughout the supply chain. In so doing, the Parliament amendments strengthened the Commission proposal and created a de facto general prohibition against trading illegally harvested timber applicable to all (amendments in italics): Recital 12 Many timber products undergo numerous processes before and after they are placed on the market for the first time. In order to avoid imposing any unnecessary administrative burden only those operators that place timber and timber products on the market for the first time, rather than all operators involved in the distribution chain, should be subject to the requirement to put in place a full system of measures and 7 P a g e

8 procedures (due diligence system) to minimise the risk of placing illegally harvested timber and timber products on the market. However all operators in the supply chain should be bound by the overriding prohibition against making illegally sourced timber or timber products available on the market, and must exercise due care to this effect. Article 3 1. Operators shall ensure that they place or make available on the market only legally harvested timber and timber products. Some have argued that an overriding prohibition, such as that in the Parliament amendments, violates WTO rules. This is not the case. Here, the regulation under consideration is part of a comprehensive program to strengthen efforts to address illegal logging and trade. 60 The record is replete with legitimate environmental justifications for banning illegally-harvested timber and timber products. 61 The European Union has exercised good faith to comply with its duty to negotiate, which is heightened by the unilateral nature of its proposal. 62 It has engaged in bilateral negotiations to resolve these issues through its Voluntary Partnership Agreements (VPA), consulted with several timber-exporting countries including, but not limited to, China, Japan, USA, Malaysia, Indonesia, Ghana, Cameroon, Russia, Brazil and participated in multilateral illegal logging negotiations. 63 Moreover, the prohibition does not purport to compel foreign governments to adopt essentially the same legal regime and, in fact, grants to foreign countries the ability to control the legality of harvested timber by amending their laws. 64 Under these conditions, general prohibitions are proper under the Article XX exceptions and chapeau requirements. 65 II. Risk-Management Procedures and High-Risk Register A cornerstone requirement of the Commission proposal and Parliament amendments is the riskmanagement procedure. This requires operators to assess the risk that timber was illegally harvested and implement measures to limit exposure. The Parliament amendments went much further than the Commission proposal in outlining the substance of the risk-management procedure and requiring the Commission to maintain a register of high-risk source of timber (amendments in italics): Article 4 1. The due diligence system referred to in Article 3(1) shall... include a risk management procedure which shall consist of the following: (i) systematic identification of risks, inter alia through collecting data and information and making use of international, Community or national sources; (ii) implementation of all measures necessary for limiting exposure to risks; (iii) establishing procedures which shall be carried out regularly to verify that the measures set out in points (i) and (ii) are working effectively and to review them where necessary; (iv) establishing records to demonstrate the effective application of the measures set out in points (i) to (iii). 2. The Commission shall adopt measures for the implementation of this Article with a view to ensuring uniformity of interpretation of the rules and effective compliance 8 P a g e

9 by operators. The Commission shall, in particular, establish criteria for assessing whether there is a risk of illegally harvested timber and timber products being placed on the market. In doing so, the Commission shall take particular account of the special position and capacity of SMEs and, as far as possible, offer those enterprises adapted and simplified alternatives to reporting and control systems so that those systems do not become too burdensome. Based on factors related to the product type, source or complexity of the supply chain, certain categories of timber and timber products or suppliers shall be considered 'high risk', requiring extra due diligence obligations from the operators. Extra due diligence obligations may, inter alia, include: - requiring additional documents, data or information; - requiring third party audits. Timber and timber products from - conflict areas, or countries / regions covered by a UN Security Council ban on timber exports, - countries where there is consistent and reliable information regarding significant failures of forest governance, a low level of forest law enforcement or a high level of corruption, - countries where official Food and Agriculture Organisation (FAO) statistics show a decrease in forest area, - supplies where information on potential irregularities supported by reliable evidence, that has not been disproved by investigation, has been made available from customers or external parties, shall be considered as "high risk" by operators under this Regulation. The Commission shall make available a register of high-risk sources of timber and timber products or suppliers. 66 The focus on high-risk sources is a logical outgrowth of the risk-management procedure. It heightens the obligation on operators importing timber from those areas or countries. But it also raises an issue that the EC legislature must consider. The Commission-administered register of high-risk sources could have a de facto or as-applied traderestrictive effect on listed countries. In EC Asbestos, general prohibitions on products, without any reference to origin, are appropriate. 67 But the risk-management procedure introduces an origin-based analysis at the regulatory stage. In US Shrimp, under those instances, countries must be afforded due process through transparent and fair procedures on regulatory actions that affect them. 68 A high-risk listing without regulatory protections for affected countries would preclude them from producing relevant evidence, reviewing the basis of the decision, and challenging any errors. Providing formal procedural protections, written decisions, and an appeal process would address those concerns by allowing affected countries an opportunity to be heard. Providing clear criteria and administrative flexibility to take into account unique circumstances of affected countries would ensure comparable effectiveness without improper rigidity. Moreover, in Brazil Retreaded Tyres, the focus was on the justification for the discrimination, the rationale put forward to explain its existence. 69 Such procedures would ensure that any discrimination resulting from a high-risk listing would have the 9 P a g e

10 benefit of a robust record upon which to substantiate the discrimination. And such procedures would also benefit the overall Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan by engaging those countries with a high risk of illegally harvested timber, and could ultimately funnel them toward Voluntary Partnership Agreements. 70 Therefore, the Commission, as the entity charged with implementation, should ensure formal administrative procedures and due process in its implementing measures. 71 It is also advisable to include language to this effect in the regulation. III. Considerations or Exemptions for Small Operators The interest of small forest owners and operators has received particular attention. Some commentators have argued for special treatment of European small forest owners or operators, possibly creating exemptions for them. During early Council debates, several delegations asked for more clarification on the definition of operators and for possible exemptions for small operators, especially European, where due diligence systems have proven to be reliable and nationally efficient. 72 This focus on European small forest owners and operators is particularly problematic. Although this may be good domestic politics, disregarding these kinds of considerations for foreign forest owners would make bad law. Foreign and European must be afforded equal treatment under WTO rules. Exclusive exemptions for European owners or small operators would violate the chapeau requirement against unjustifiable discrimination and would be considered a disguised restriction on international trade. Similar to US Gasoline, an exemption for European small forest owners works against the justification for the regulation, which is to limit illegal logging and associated adverse impacts, and provides preferential treatment to European loggers in the form of a disguised trade restriction against foreign imports. The chapeau requires even-handedness, and would either have to exempt all small forest owners and enterprises, both European and foreign, or none. To address this question, EC legislators may wish to draw upon the experience in the regulation on registration, evaluation, authorization and restriction of chemicals (REACH). 73 The aim of REACH is to improve the protection of human health and the environment through the better and earlier identification of the intrinsic properties of chemical substances. 74 REACH gives greater responsibility to industry to manage the risks from chemicals and to provide safety information on the substances. 75 Manufacturers and importers are required to gather information on the properties of their chemical substances through chemical safety reports and to register the information in a central database run by the newly established European Chemicals Agency (ECHA) in Helsinki. 76 REACH provides all enterprises with significant assistance, requiring national helpdesks and technical guidance. 77 In addition, while maintaining the core requirements related to volumes, uses, and properties of the chemicals, several aspects make the requirements manageable for small- and medium-sized enterprises, such as reduced fees, less-burdensome information requirements for low-volume substances, forced data sharing among all enterprises, and pre-registration cost-sharing opportunities. 78 In the illegal-timber context, one viable approach to address the interests of small- and medium-sized enterprises would be to create an entity or delegate responsibility to an existing entity to provide qualifying operators and enterprises with technical assistance in their performance of due diligence. This approach would ensure that baseline due-diligence requirements without creating loopholes for circumvention. 79 Further, financial assistance could be provided to small- and medium-sized enterprises, allowing them to contract with a recognized monitoring organization. Such an approach, if applied to all small- and medium-sized operators regardless of national affiliation, would comply with WTO rules. 10 P a g e

11 Conclusion Understanding the contours of the exceptions to trade-restrictive measures is critical to advancing the Illegal-Timber Regulation. In this regard, policymakers have the benefit of WTO jurisprudence to inform their decision-making. Ensuring WTO compliance for the regulation and its implementing measures will promote a timely and secure response to the threat of illegal logging and, in the process, protect our endangered forests and the biodiversity, ecosystems, and climate mitigation therein. ClientEarth 21 September 2009 For further information please contact: Tim Grabiel Janet Pritchard m +33 (6) t +44 (0) m +44 (0) Brussels Av. de Tervuren 36 Bruxelles 1040 London 3 Chapel Place London EC2A 3DQ ClientEarth is a company limited by guarantee, registered in England and Wales, company number , registered charity number , registered office 2-6 Cannon Street, London EC4M 6YH. 1 General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, 1867 U.N.T.S. 187, 33 I.L.M (1994) *hereinafter GATT at Article I. 2 Id. at Articles III:4 and XI:1. 3 Id. at Article XI:1. 4 Id. at Article XIII:1. 5 Appellate Body Report, Japan Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97 at Paragraphs ; Appellate Body Report, European Communities Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001 *hereinafter EC Asbestos + at Paragraph EC Asbestos at p Id. at Paragraph GATT 1994 at Article XX. 9 Id. at Articles III:4 and XI:1. 10 Appellate Body Report, United States Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3 *hereinafter US Gasoline +; 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 US Shrimp +; Appellate Body Report, United States Import Prohibition of Certain Shrimp and Shrimp Products Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/AB/RW, adopted 21 November 2001 *hereinafter US Shrimp Recourse US Shrimp at Paragraph GATT 1994 at Article XX(g). 13 Panel Report, US Tuna (Mexico), unadopted, at Paragraph 5.33; US Gasoline, p. 18; Panel Report, Canada-Salmon and Herring at Paragraph P a g e

12 14 US Gasoline at p US Shrimp at Paragraph 129; Panel Report, US Canadian Tuna at Paragraph 4.9; Panel Report, US Tuna (EEC), unadopted, ast Paragraph 5.13; Panel Report, US Gasoline at Paragraph United Nations Convention on Biological Diversity, 1760 UNTS 79, 31 ILM 818 (1992) at Paragraph 3 (biological diversity is a common concern of humankind ); United Nations Framework Convention on Climate Change, 1771 UNTS 107, 31 ILM 849 (1992) at Preamble 1 (climate and its adverse effects are a common concern of humankind ). 17 GATT 1994 at Article XX(b). 18 Appellate Body Report, Brazil Measures Affecting Imports of Retreaded Tyres, adopted 3 December 2007, WT/DS332/AB/R *hereinafter Brazil Retreaded Tyres + at Paragraph Appellate Body Report, Korea Measures Affecting Imports of Fresh, Chilled and Frozen Beef, adopted 11 December 2000, WT/DS161/AB/R, WT/DS169/AB/R *hereinafter Korea Various Measures on Beef + at Paragraph EC Asbestos at Paragraph 172 citing Korea Various Measures on Beef at Paragraph GATT 1994, Article XX(g). 22 US Shrimp at Paragraph Id. at Paragraph Id. at Paragraph Id. at Paragraph 150; US Gasoline, p. 23 (the provisions of the chapeau cannot logically refer to the same standard(s) by which a violation of a substantive rule has been determined to have occurred ); Panel Report, European Communities Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R and Add.1, adopted 5 April 2001, as modified by the Appellate Body Report, WT/DS135/AB/R *hereinafter EC Asbestos Panel + at Paragraph (discrimination can exist between foreign products themselves or foreign products and domestic ones); see also US Gasoline, p US Shrimp at Paragraph US Gasoline 28 Id., pp Id., pp Id., pp US Shrimp at Paragraphs Id. at Paragraph 177, Footnote US Shrimp Recourse at Paragraph US Shrimp at Paragraphs Id. at Paragraph Id. at Paragraph Id. at Paragraphs Id. at Paragraphs Id. at Paragraph Id. at Paragraphs US Shrimp Recourse at Paragraphs Id. at Paragraphs Id. at Paragraph Id. at Paragraphs Id. at Paragraphs See EC Asbestos Panel; EC Asbestos. 47 EC Asbestos at Paragraph EC Asbestos Panel at Paragraph Id. at Paragraph Id. at Paragraph Brazil Retreaded Tyres at Paragraph Id. at Paragraphs Id. at Paragraph Id. at Paragraphs ; see also US Shrimp; US Shrimp Recourse; US Gasoline. 55 Brazil Retreaded Tyres at Paragraph European Parliament (2008), European Parliament legislative resolution of 22 April 2009 on the proposal for a regulation of the European Parliament and of the Council laying down the obligations of operators who place timber and timber products on the market, 2008/0198(COD)*hereinafter Parliament Amendments See Food, Conservation and Energy Act of 2008, Section 8204, Prevention of Illegal Logging Practices, adopted 22 May 2008; Lacey Act, 16 U.S.C et seq. 12 P a g e

13 58 European Commission, Staff Working Document, Accompanying document to the Proposal for a Regulation of the European Parliament and of the Council determining the obligations of operators who make timber and timber products available on the market, Impact Assessment Report on additional options to combat illegal logging *hereinafter Commission Impact Assessment + (2007), pp Id., pp Commission of the European Communities, Proposal for a Regulation of the European Parliament and of the Council laying down the obligations of operators who place timber and timber products on the market, 2008/0198 (COD) [hereinafter Commission Proposal +, pp US Gasoline, pp US Shrimp at Paragraph See Commission Proposal, p US Shrimp at Paragraphs See, e.g., EC Asbestos; Brazil Retreaded Tyres. 66 Parliament Amendments at Article EC Asbestos Panel at Paragraph US Shrimp at Paragraphs Brazil Retreaded Tyres at Paragraphs ; see, generally, US Shrimp; US Shrimp Recourse; US Gasoline. 70 European Union, Action Plan for Forest Law Enforcement, Governance and Trade (May 2003). 71 See, e.g., Decision 1999/468/EC laying down the procedures for the exercise of implementing powers (28 June 1999). 72 Council of the European Union, 2918th meeting of the Council Agriculture and Fisheries Brussels (19 January 2009) PRES/09/ Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Commission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/21/EC *hereinafter REACH European Commission, What is REACH? at (last visited 22 September 2009). 75 Id. 76 Id. 77 REACH at Recital 39 and Article European Commission, Questions and Answers on REACH, July 2007, p Parliament Amendments at Articles P a g e

GATT Article XX Exceptions. 17 October 2016

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