Review of the Operation of the SPS Agreement DRAFT FOR DISCUSSION

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1 Review of the Operation of the SPS Agreement Gretchen Stanton Paper prepared for: The World Bank s Integrated Program Of Research And Capacity Building To Enhance Participation Of Developing Countries In The WTO 2000 Negotiations Presented at: The Conference on Agriculture and The New Trade Agenda in the WTO 2000 Negotiations Sponsored by: The World Bank in cooperation with The World Trade Organization DRAFT FOR DISCUSSION Rules on international trade in all goods, including food and agricultural products, were established by the General Agreement on Tariffs and Trade (GATT) when it came into force in But the GATT rules also contained an exception which permitted countries to apply measures "necessary to protect human, animal or plant life or health" as long as these did not unjustifiably discriminate between countries nor were a disguised restriction to trade. During the GATT s Tokyo Round of multilateral trade negotiations ( ), an Agreement on Technical Barriers to Trade (often referred to as the "Standards Code") was negotiated, which inter alia covered technical requirements resulting from food safety and animal and plant health measures October 1-2, 1999 Geneva, Switzerland

2 A Review of the operation of the SPS Agreement Gretchen Stanton Background to the SPS Agreement Rules on international trade in all goods, including food and agricultural products, were established by the General Agreement on Tariffs and Trade (GATT) when it came into force in But the GATT rules also contained an exception which permitted countries to apply measures "necessary to protect human, animal or plant life or health" as long as these did not unjustifiably discriminate between countries nor were a disguised restriction to trade. During the GATT s Tokyo Round of multilateral trade negotiations ( ), an Agreement on Technical Barriers to Trade (often referred to as the "Standards Code") was negotiated, which inter alia covered technical requirements resulting from food safety and animal and plant health measures. The focus during the Uruguay Round of multilateral trade negotiations ( ) on the liberalization and reform of agricultural trade renewed interest in disciplining the use of non-tariff trade barriers, including sanitary and other technical regulations. The Standards Code was rewritten during the Uruguay Round, and at the same time a separate agreement covering sanitary and phytosanitary measures was negotiated. The new Technical Barriers to Trade Agreement (TBT Agreement) and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) entered into 1 force along with the Agreement on Agriculture, on 1 January Basic Provisions of the SPS Agreement The SPS Agreement affirms the right of WTO Members to restrict international trade when necessary to protect human, animal or plant life or health. At the same time, it aims to ensure that unnecessary health and safety regulations are not used as an excuse for protecting domestic producers from trade competition. To avoid that SPS measures be used as disguised trade restrictions, the SPS Agreement requires such measures to be based on science. They may be applied only to the extent necessary to protect human, animal or plant life or health. And they may not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail. The SPS Agreement covers all measures whose purpose is to protect human or animal health from food-borne risks; human health from animal- or plant-carried diseases; animals and plants from pests or diseases; the territory of a country from damage caused by pests. The SPS Agreement applies to any type of measure, including requirements on final products, processing requirements, inspection or control techniques, and health-related packaging or labelling. Members are encouraged to base their measures on internationally-developed standards, in order to ensure their scientific justification and advance the harmonization of

3 sanitary and phytosanitary requirements. The SPS Agreement explicitly recognizes the international standards, guidelines and recommendations established by three intergovernmental organizations: the FAO/WHO Codex Alimentarius Commission, the Office International des Epizooties, and the FAO International Plant Protection Convention. Measures based on international standards developed by these organizations are deemed to be consistent with the SPS Agreement. Governments may select to impose measures which result in a level of protection higher than that of an existing international standard. However, in this case, or when no relevant international standard exists, the measures have to be based on a risk assessment. If asked, Members have to explain why the level of protection achieved by an international standard is not sufficient and make their risk assessment available to other Members. When preparing their risk assessment, Members have to take into account available scientific evidence. In cases where relevant scientific evidence is not sufficient, Members may adopt temporary measures based on the available pertinent information while seeking to obtain the necessary scientific evidence. Although governments have a right to determine the level of health protection which they consider appropriate, arbitrary or unjustifiable differences in levels of protection which result in discrimination or a disguised restriction on trade must be avoided. Furthermore, in considering what measure to apply to achieve their health objective, a government must choose the least trade restrictive measure which is feasible. 2 When an exporting Member can demonstrate that its measures achieve the level of protection required by an importing country, then that importing country should accept the exporting country s measure as equivalent. Members cannot refuse to enter into consultations about equivalence if another Member requests them. The SPS Agreement recognizes that because of differences in climate, existing pests or diseases, or food safety conditions, SPS regulations have to be adapted to local conditions. The SPS Agreement requires Members to recognize pest or diseasefree areas, and to adapt their measures accordingly. These areas can consist of all of a country, part of a country, or all or parts of several countries. In the interest of transparency, Members have to publish their SPS regulations. In addition, each WTO Member must identify a national notification authority and an enquiry point. They are responsible for submitting notifications, providing the full text of SPS regulations to interested Members, and responding to requests for more information about new or existing measures. In particular, new or changed measures which are not based on international standards and which could affect trade have to be notified to the WTO when they are at the draft stage, except in emergency situations. Members comments have to be taken into account. Members are also required to facilitate the provision of technical assistance to help other countries achieve the level of protection desired in their export markets.

4 Implementation of the SPS Agreement A WTO committee has been established to oversee the implementation of the SPS Agreement among Members. All WTO Member governments are automatically members of the SPS Committee, and governments which have observer status in the WTO have observer status also in this committee. The SPS Committee has also granted observer status to the FAO/WHO Codex Alimentarius Commission, the Office international des epizooties, and the FAO International Plant Protection Convention, as well as to other relevant international governmental bodies, including the World Bank. The SPS Committee usually meets three times per year. A typical agenda includes discussion on specific trade concerns identified by Members, a wide range of transparency issues, and technical assistance needs and projects carried out by Members, the WTO Secretariat or observer organizations. In addition, the Committee is monitoring the use of international standards and developing guidelines to assist governments with the objective of achieving consistency in their application of the concept of the appropriate level of sanitary and phytosanitary protection. As stipulated by the SPS Agreement, the Committee carried out a three-year review of the operation and implementation of the SPS Agreement, which was finalized in March In the Three Year Review, Members agreed that the SPS Agreement was a useful set of international trade rules, which had contributed to improving international trading relationships with respect to sanitary and phytosanitary measures. However, the Committee noted that a number of implementation issues gave concern to some Members, including a number of 3 developing country Members. The Committee welcomed that a substantial number of SPS-related trade matters had been solved through discussions at formal SPS meetings, or through bilateral consultations. Transparency In the Three Year Review, Members noted that through the establishment of enquiry points and national notification authorities and through notifications, the Agreement had significantly improved transparency in the application of sanitary or phytosanitary measures. However, transparency could be further improved. Many Members still have not notified any SPS measures, and have not established an enquiry point. Members who notify do not always provide all the information necessary to judge whether the proposed measure in question could affect another Member s exports. To further improve transparency, the Committee made some changes to the recommended notification procedures in the context of the Three Year Review. These included asking countries where possible to indicate which countries would be particularly affected by a proposed regulation. The Committee also underlined that it is essential that regulations be notified when they are at the draft stage. If sufficient time is then provided for other countries to comment on proposed regulations, potential problems can be identified at a stage where it is still relatively easy to find solutions, for example by modifying the draft measure. Exchanging information electronically, including publishing regulations and unofficial translations on the internet, could significantly facilitate transparency. The Committee therefore encouraged Members to publish their sanitary and phytosanitary measures

5 on the internet, and to make available even unofficial translations of draft measures. Special and Differential Treatment and Technical Assistance The SPS Agreement asks Members to take into account the needs of developing countries in the preparation and application of sanitary and phytosanitary measures. Where possible, developing country Members should receive longer time frames for compliance with new sanitary or phytosanitary measures. Developing country Members had been able to postpone the implementation of certain provisions of the Agreement until Least developed countries can delay the application of the Agreement for a period of five years, which ends at the beginning of the year In the Three-year Review, the SPS Committee recognized that the WTO Secretariat and other relevant organizations had provided substantial technical assistance and cooperation over the first three years of the implementation of the Agreement. However, there was a need for enhanced technical assistance and cooperation, especially in the areas of human resource development, national capacity building, and the transfer of technology and information. Little information was available regarding the implementation of provisions of the SPS Agreement concerning hands-on cooperation, for example between importers and exporters trying to meet their requirements. As a follow-up to the review, the Secretariat has solicited such information from Members through questionnaires on technical assistance. Countries which need such assistance have been encouraged to make use of Committee meetings to inform Members of their 4 needs. Countries willing to provide assistance should use the Committee meetings to make known their projects and willingness. A need for greater coordination of technical assistance activities by Members, and also by the WTO Secretariat and other international organizations was recommended. This need for coordination can partly be addressed through the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries. Through this framework, IMF, ITC, UNCTAD, UNDP, World Bank and WTO are coordinating their assistance efforts in response to country needs assessments prepared by least developed countries. International Harmonization Harmonization, through the adoption of international standards and guidelines, facilitates trade by reducing the number of different standards exporters have to meet. Harmonization also increases transparency. Moreover, in terms of the SPS Agreement, international standards ensure the scientific justification of the measure. The Committee has welcomed the cooperation of the Codex and of the other international standard-setting organizations recognized by the Agreement, and their continuing work in updating and expanding international standards. The Committee has adopted a preliminary procedure to monitor the process of international harmonization and the use of international standards, guidelines and recommendations. This procedure encourages Members to identify where there are problems with existing international standards, or where an international standard is lacking. Other Members are then asked whether they share the identified concerns, and these are

6 brought to the attention of the relevant standard-setting organizations. In July 1999, the Committee completed its first annual review of this procedure, and agreed to continue with the monitoring procedure for another two years. Although there has been increased activity in this area, much remains to be done. Suggestions by Members in the context of the Three Year Review refer not only to a more widespread adoption of international standards, but also to their development. Many developing countries are concerned that their interests are not adequately taken into account in the standard-setting organizations. Some developing countries have indicated that they have difficulties in participating actively in the development of international standards. Furthermore, while developed countries fear that the standards might become a "lowest common denominator", developing and least developed countries often find the standards unnecessarily stringent. It is difficult to imagine, however, that the level of international standards could be lowered, at a time when consumers around the world are demanding an ever higher quality and safety of food. Although most WTO Members are members of the relevant standard-setting organizations, ways to increase developing countries participation have been proposed, for example by organizing meetings in developing countries. Once established, standards have to be reviewed regularly to maintain them up to date, especially when scientific information changes. Where problems with existing standards, or the lack of standards have an impact on trade, cooperation and communication between WTO and the standard-setting bodies is especially important. 5 Equivalence and Adaptation to Regional Conditions Although there has been an increase in the recognition of equivalence and in bilateral negotiations to this end, in the Three Year Review the Committee recognized that further efforts were necessary to implement this provision in view of its importance for trade facilitation, especially for developing country Members. Members acknowledged the need to provide information on their appropriate level of protection and to recognize equivalence in achieving this level of protection, rather than insisting essentially on the sameness of measures. The Committee asked Members to provide more information on bilateral equivalence agreements, and welcomed the work to further the application of equivalence which is being carried out by Codex and other relevant international organizations. The Committee also welcomed that an increasing number of Members were applying the concept of adaptation to regional conditions, in particular by recognizing pest or disease-free areas, or areas of low pest or disease prevalence. There were still some difficulties in the implementation of these concepts, which stemmed from divergences in the interpretation and implementation of international guidelines, excessively lengthy administrative processes in importing countries, and the complexities often involved in risk assessment. The international standard-setting bodies assist Members in the application of pest or disease-free areas. Dispute Resolution Discussions of special trade concerns at SPS meetings draw attention to potential trade conflicts and may help avoid formal disputes. In a few cases, bilateral consultations, sometimes

7 with the participation of the Chairman of the SPS Committee or the WTO Secretariat, helped to facilitate the clarification of misunderstandings or otherwise resolve the issues involved. In the Three Year Review, the Committee noted that ad hoc consultations "could be an effective means of satisfactorily solving problems". Independent of the opportunity that the Committees provide in this respect, every WTO Member has the right to take recourse, at any time, to the formal WTO dispute settlement procedures. Between the establishment of the WTO in 1995 and mid-year 1999, over 175 disputes have been raised under this procedure. Sixteen of these disputes have alleged violation of the SPS Agreement. In some cases, a mutually agreed solution has been reached; in other cases, the SPS issues are a minor element. Three issues involving the SPS Agreement have been examined by panels and the Appellate Body under the formal dispute WTO settlement procedures: EC Measures Concerning Meat and Meat Products (Hormones), complaints by the United States and by Canada; Australia Measures Affecting Importation of Salmon, complaints by Canada and the United States; and Japan Measures Affecting Agricultural Products (Varietal Testing)United States. The Hormones case dealt with food safety; the Salmon and Varietal Testing cases dealt with animal and plant health, respectively. 6 Since these SPS disputes involved scientific or technical issues, the panels sought advice from experts chosen in consultation with the parties. The panel can consult individual experts, establish an advisory technical experts group, or consult the relevant international organizations In the Hormones Case, the Panel and the Appellate Body found the EC's import ban on beef from cows treated with certain growth-promoting hormones to be in violation of the SPS Agreement. In particular, because Codex standards existed for five of the six hormones at issue, the Panel judged that the EC was required to justify its ban, and hence its non-application of the international standards, on the basis of an assessment of the risks to human health. The Panel further found that the EC could not justify establishing a higher level of health protection in the case of beef from animals treated with the growthpromoting hormones when compared with other food products containing higher levels of the same hormones, or when compared to the levels of risk apparently accepted from other veterinary drugs. The Appellate Body agreed that the EC's import ban was in violation of the SPS Agreement because it was not based on a risk assessment. However, the Appellate Body did not agree that the different levels of protection from risk established by the EC resulted in discrimination or a disguised restriction of trade. The DSB requested the EC to bring its measure into conformity with its obligations, and an arbitrator established that a reasonable period of time for the EC to comply was by 13 May When the EC indicated that it would not be able to comply by that date, both the United States and Canada requested the right to retaliate against EC products to compensate for their lost trade opportunities. The original Panel was convened to determine what would be the appropriate amount of retaliation; its final

8 decision was issued on 12 July Subsequently, the DSB authorized the United States and Canada to suspend concessions on products of interest to the European Communities; both countries began to impose 100% increased tariffs on certain imports as of late July In the Salmon case, Canada alleged that Australia s import prohibition on fresh, chilled or frozen salmon violated several provisions of the SPS Agreement. The Panel and Appellate Body examined the assessment done by Australia of the risks of introducing fish diseases through salmon imports for human consumption. They found the risk assessment to be lacking in several critical aspects. In addition, the difference in levels of protection sought by Australia from the risk of salmon diseases compared to some other risks accepted by Australia was found to be unjustifiable and a disguised restriction of trade. The DSB requested Australia to bring its measure into conformity with its obligations, and an arbitrator established that a reasonable period of time for Australia to comply was by 6 July When Australia indicated that it would not be able to comply by this date, Canada requested authorization to retaliate against Australian products to compensate for lost trade opportunities. Australia requested that the original Panel be reconvened to determine what would be the appropriate amount of retaliation. Furthermore, on 19 July 1999, Australia announced changes to its import measures on salmon, which it claimed brought it into conformity with its WTO obligations. At Canada s request, the original Panel has been asked to examine the compliance of Australia s new measures, which it will do prior to examining the question on retaliation. In June 1999, the DSB agreed to establish a panel to examine the United States complaint against Australia s measures applying to salmonids. This complaint has also been referred to the panel examining the Canadian complaint. The third SPS issue which has been examined by a WTO dispute settlement panel concerns Japan s approval of quarantine treatment for imported fruit on a variety-by-variety basis. Japan claimed that different varieties of the same type of fruit might respond differently to a quarantine treatment, hence import approval was given only following testing of each variety. The United States complained that Japan s requirement was maintained without sufficient scientific evidence. The Panel and Appellate Body agreed that there was not sufficient scientific evidence to justify Japan s requirement, that Japan had not assessed the risk with respect to all of the products affected by the measure, and furthermore that Japan had failed to publish its import requirements. An interesting issue in the Varietal testing dispute concerns Article 5.7, which, in cases where sufficient scientific evidence is not available, allows countries to take provisional measures. Japan invoked this provision, claiming that its requirements were provisional and would be reviewed on the basis of variety-byvariety data supplied by exporters. The Panel and Appellate Body ruled that countries maintaining provisional measures on the basis of Article 5.7 have to actively search for scientific evidence that could enable them to undertake a risk assessment to justify their measure. The DSB requested Japan to bring its measure into conformity with its obligations, and the United States and Japan agreed that a reasonable period of time for Japan to comply would be until 31 December

9 Conclusions Even after only four years, the benefits of the SPS Agreement are increasingly evident. International trade in foods is becoming more predictable, and trade restrictions less arbitrary, to the benefit of consumers around the globe. The improved transparency of sanitary requirements and of other technical regulations resulting from the SPS Agreement enables exporters to identify, before shipping, what conditions their products must meet. The advance notification procedures permit governments and traders to seek changes in new requirements which might be unnecessarily damaging to their trade. Consumers also benefit from the requirement that their governments publish all regulations and respond to reasonable enquiries regarding trade measures. More substantively, the SPS Agreement explicitly recognizes that the protection of health must take priority over trade, yet its disciplines ensure that governments don t abuse this right, by using unnecessary health measures as trade barriers. These disciplines are of particular value to developing countries, whose lack of resources may limit their ability to otherwise challenge unjustified requirements. If developing country exporters can meet the relevant, internationally developed standard for their product, importing countries imposing more stringent requirements face the burden of proving that their additional demands are scientifically justified. This should bring considerable relief to exporters who previously have had to meet the different demands of each of their potential markets. At the same time, developing countries can rely on the internationally developed standards to provide the scientific justification required for their own import 8 regulations, as long as there is no discrimination in favor of domestically produced products. Other provisions of the SPS Agreement also promise considerable benefits for developing countries, particularly as they seek to expand exports of agricultural products. The recognition of the equivalence of different production methods should in many cases permit countries to use technologies which are more appropriate in their developmental situation. And the increased information regarding sanitary requirements, with the opportunity to seek changes in proposed regulations before they become mandatory, should also ease the burden of developing countries. The application of the SPS Agreement will continue to evolve as governments gain more experience in its implementation, and as specific trade concerns arise. Developing countries in particular will benefit as they learn to use the SPS Agreements as tool to maximize their benefits from world food trade. World Bank User N:\Rdv\Ingco\WTO Papers\Stanton Formatted.doc 02/22/00 9:44 AM

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