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EU Regulatory Policy and World Trade

Should all EU Institutions Care What the World Thinks?

Published online by Cambridge University Press:  04 August 2015

Tamara Perišin
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Abstract

Divergent regulatory practices in WTO compliance and external trade effects – The regulatory policy of EU ‘legislative’ institutions – The (de)regulatory policy of the ECJ – Explaining diverging regulatory practices – Policies behind diverging regulatory practices – Different institutional interaction in diverging regulatory practices – Should all EU institutions care what the world thinks?

Keywords

European Unionregulatory policyWTO compliance
Type
Articles
Information
European Constitutional Law Review , Volume 11 , Issue 1 , May 2015 , pp. 99 - 120
Copyright
Copyright © The Authors 2015 

Introduction

It is incontestable that each of the EU institutions represents different interests, and has different tasks in shaping the European Union’s legal order. In the field of the EU economic constitution, institutions can also have different preferences when it comes to balancing fundamental market freedoms and trade liberalisation on the one hand with the protection of other values, such as health, environment or animal welfare, on the other hand. While this institutional issue might seem to be an internal matter of the European Union, it has strong external effects and it influences the Union’s position in the world. This paper is interested in the institutional interplay and policies which have led to significant negative external trade effects, including WTO disputes.

The underlying premise of the paper is that all EU institutions have a duty to take WTO compliance and external trade effects into account when (de)regulating. The Treaties expressly state that all EU institutions are bound by international agreements to which the European Union is a party,Footnote 1 such as WTO treaties. The Union ‘shall work for a high degree of cooperation in all fields of international relations, in order to […] promote an international system based on stronger multilateral cooperation and good global governance’.Footnote 2 Furthermore, all institutions are required to ‘maintain an open, transparent and regular dialogue with representative associations and civil society’, which includes producers and importers from third countries.Footnote 3 The Commission, in particular, is obliged to consult broadly to ensure the coherence and transparency of Union actionsFootnote 4 (covering also the coherence of internal and external actions). In addition, the jurisprudence of the WTO Appellate Body suggests that a lack of consultation in the pre-legislation stage with certain WTO members on a non-discriminatory basis may in itself represent a violation of WTO obligations.Footnote 5

Despite this mandate, not all institutions show the same level of sensitivity towards WTO compliance and external trade effects. This paper shows that the historical inter-institutional division of external powers has had unintended consequences in the exercise of internal powers having external effects. Under the traditional inter-institutional division of powers in the field of external trade, the Commission has had the leading role and has represented both the European Union and its member states in the WTO, while the role of the Parliament has been the most limited (although its role here has gradually been increasing). The flipside of this is that when these institutions act internally, e.g. when they are adopting an internal market measure, it is the Commission that seeks to avoid negative external trade effects and WTO non-compliance, while the Parliament does not show much concern for these matters. The attitude of the Council in adopting measures with external effects depends on its composition. And the role of the Court is somewhat self-restrained as it tries to act ‘neutrally’ regarding these issues.

The paper unfolds in two main parts. Following this introduction, the first main part contains case studies into the regulatory policy of the EU’s ‘legislative’ institutions and the deregulatory policy of the European Court of Justice. They show that taking account of external trade effects or WTO compliance in regulating at the EU level might be the norm, but it is not something that the Union’s decision-makers practice in all situations. The second main part investigates the reasons for occasional disinterest in WTO law compliance or in external trade effects. It finds that policy reasons alone cannot explain why in some cases the EU has ignored negative external trade effects and WTO compliance, but it establishes that this is frequently a consequence of particular institutional interplay. The conclusion includes a normative statement arguing that all EU institutions should take account of WTO obligations and the external trade effects of EU rules, not only because this brings the EU’s actions in line with its official aims and commitment to multilateralism, but also because it benefits both European citizens and companies as well as those in third countries.

Divergent regulatory practices in WTO compliance and external trade effects

The regulatory policy of EU ‘legislative’ institutions

The European Union’s ‘legislative’ institutions (the Commission, the Council and the European Parliament) are bound to take WTO law into account when preparing legislation. During this process, they have several ways of detecting the external trade effects of Union measures which can point to possible WTO related issues and disputes. One way of identifying such effects is through the European Union’s own pre-legislative consultations with various interest groups, including those representing interests from third countries. All EU legislative institutions have certain bodies entrusted with WTO law issues whose task is to ensure that the Union does not adopt rules which would collide with its international obligations and constitute unnecessary obstacles to external trade, thus diminishing the advantages of multilateral trade liberalisation. This function is performed by the Directorate General for Trade in the Commission as well as by a team within its Legal Service; the International Trade Committee in the European Parliament; and the Foreign Affairs Council as one of the compositions of the Council of the EU with its Trade Policy Committee. Another way of gaining information about other WTO members’ positions is through institutionalised procedures in the WTO. For example, information exchange about external trade effects happens in the Committee on Sanitary and Phytosanitary Measures. When a WTO member plans to adopt a sanitary or phytosanitary measure, then other WTO members can express their views and concerns within the Committee.Footnote 6 Furthermore, bilateral agreements with other countries might provide a forum for considering the external effects of EU measures, which are relevant also for WTO compatibility. An example is the Transatlantic Economic PartnershipFootnote 7 between the United States and the European Union, accompanied by documents such as the Guidelines on Regulatory Cooperation and Transparency,Footnote 8 and the institutional mechanism of the Transatlantic Economic Council. All this is intended to contribute to EU legislation being drafted in a way which minimises the negative external trade effects of European Union law and prevents WTO disputes.

However, while the normal regulatory behaviour mandated by both European Union and WTO law is to analyse a proposed or an existing measure to check its WTO compliance and its external trade effects, case studies show the behaviour of EU institutions is inconsistent. In some cases, the Union is even excessively cautious in avoiding WTO non-compliance (e.g. concerning leghold traps and cosmetic ingredients tested on animals), and in others it was completely inattentive of it (e.g. dealing with beef treated with growth hormones, and seal products). This section cannot seek to provide an exhaustive overview of all the legislative histories involving WTO law or external trade effects, but it highlights representative examples of completely opposite types of behaviour of EU institutions.

The example of the Leghold Trap Regulation dates back to the pre-WTO period, as the measure was adopted in 1991.Footnote 9 This regulation banned the use of leghold traps in the European CommunityFootnote 10 and it also banned imports of pelts of certain animal species unless the Commission determined that the country of origin also banned leghold traps or that ‘the trapping methods used […] meet internationally agreed humane trapping standards’.Footnote 11 The Regulation was due to enter into force on 1 January 1995 (incidentally, also the date of the establishment of the WTO) so several countries in which leghold traps were still being used, namely Canada, the US and Russia, voiced their dissatisfaction with the measure. The European Union knew that under the new WTO regime it would not be able to block the adoption of Panel or Appellate Body reports determining its breach of WTO law in the way that the United States had done when the pre-WTO Panels in Tuna/Dolphin I and II found its measures (arguably) aimed at environmental and animal protection to be in breach of the GATT.Footnote 12 In the pre-WTO period, any party to the GATT could block the adoption of a Panel report and thereby prevent it from becoming legally binding. In the WTO system, this is no longer possible as Panel or Appellate Body reports are automatically adopted by the WTO Dispute Settlement Body unless there is a consensus of all WTO members not to adopt them. Due to this new regime, the European Union was thus willing to settle the issue outside the WTO framework. In 1998 (at about the time a WTO Panel and the Appellate Body were deciding the Shrimp/Turtle case, finding another measure with an animal welfare aspect to be illegal),Footnote 13 the EU concluded separate agreements with Canada and RussiaFootnote 14 and with the United States,Footnote 15 allowing the import of pelts from these countries into the European Union. What is important for the purposes of this paper is that the mere possibility of a WTO challenge affected the European regulatory policy.Footnote 16 The European Union did not formally change the Leghold Trap Regulation, but that was the de facto effect of the agreements with Canada, Russia and the United States, as the import ban did not apply to those countries despite their continued use of leghold traps.

The regulatory history of the Cosmetics Directive (now Cosmetics Regulation) tells a similar story,Footnote 17 and de Búrca and Scott used this example in a paper in the year 2000 precisely to show how WTO law can have an effect on EU decision-making.Footnote 18 This directive was originally adopted in 1976 regulating the composition, labelling and packaging of cosmetic products, but it has been amended several times. The 1993 amendmentFootnote 19 prohibited ingredients tested on animalsFootnote 20 with the planned entry into force of this provision on 1 January 1998. Again, it is worth recalling that in the period from 1993 when the relevant amendment to the Cosmetics Directive was adopted until 1998 when it was supposed to enter into force, the GATT Panel decided the Tuna/Dolphin II case, the WTO case Shrimp/Turtle was pending, and Canada, the United States and Russia were already voicing their opposition to the above-mentioned Leghold Trap Regulation. Against this background, the entry into force of the ban on cosmetic ingredients tested on animals was postponed several times. The EU regulator’s desire to make the measure WTO-compliant was mentioned, for example, in the Commission’s 1996 report on alternative methods of testing cosmetic ingredientsFootnote 21 and in the Commission’s answers to questions put by members of the European Parliament.Footnote 22 So, again, the mere possibility of a WTO challenge affected European regulatory policy and prompted the EU decision-makers to change their measure. As de Búrca and Scott explained at the time,Footnote 23 this was a very cautious move of the EU legislature since there was and still is plenty of room to argue that such a measure is in accordance with WTO law.

There are many other similar examples of WTO law affecting the regulatory policy of the European Union’s legislative institutions. Other authors have conducted studies showing the influence of WTO law on the development of European rules on forest certification,Footnote 24 eco-labelling of paper products,Footnote 25 electronic waste,Footnote 26 the Registration, Evaluation and Authorization of Chemicals legislation,Footnote 27 etc. Examples of WTO law affecting European Union regulatory policy continue to appear. Recently, it seems that concerns about WTO law prevented EU institutions even from formally proposing a Union-wide ban on food products derived from cloned animals’ offspring which was being prepared.Footnote 28 This is why this paper accepts that taking account of WTO law and external trade effects is ‘normal’ regulatory behaviour, as mandated by EU and WTO law.

Nevertheless, in contrast to this ‘normal’ regulatory behaviour and, even more strikingly, to the described examples where the mere possibility of a WTO challenge led to a change in regulatory policy, there is a significant number of cases where a pending WTO dispute or even a determination of a breach of WTO law has not made the European Union change its measure, such as following the WTO disputes EC – Hormones and EC – Biotech.Footnote 29EC – Biotech, however, is not useful for the argument of this paper since the breach of WTO law was not caused solely by the actions of the European Union, but was a consequence of the special division of powers between the Union and its member states and of their combined action.

A clear example of the EU not being responsive to negative external trade effects and WTO non-compliance is the EC – Hormones dispute concerning the European directives banning beef treated with certain growth hormones, decided in the early years of the WTO.Footnote 30 The United States and Canada challenged this measure in the WTO and the European Union was found in breach of its WTO law obligations. Despite the decisions of the Panel and the Appellate Body which both determined a breach (albeit not entirely of the same provisions), the European Union has never abolished its measure. The issue was settled only recently, more than ten years after the Appellate Body’s report, in separate agreements on the basis of which the EU gave the United States and Canada alternative concessions for the importation of high-quality beef not treated with growth hormones.Footnote 31 This means that WTO law and the WTO dispute settlement system did not affect the regulatory policy of the European Union in this area.

A similar scenario is visible in the more recent example of the legislative history of the Seal Products Regulation and its implementing regulation, which banned placing seal products on the market (with narrow exceptions).Footnote 32 The Regulation was adopted two years after Canada had already challenged Belgian and Dutch national bans on seal products.Footnote 33 Following the adoption of the EU measure, Canada (now accompanied by Norway) redirected its challenge, arguing that the measure was incompatible with WTO law (and this has recently been confirmed by the WTO Appellate Body which found the EU measure to be inconsistent with the principle of most favoured nation).Footnote 34 Incidentally, the Regulation was also challenged by interested individuals before the ECJ who argued that the measure was not in accordance with the principles of conferred competences, subsidiarity, proportionality and with certain fundamental rights.Footnote 35 For the present paper, it is important that the pending WTO challenge against national measures with the same rules, which clearly signalled to the Union that its own measure would be equally challenged, had not affected EU regulatory policy. One might think that in this case the European Union had nothing to lose by adopting the measure since it was already supposed to act as a respondent in the WTO dispute defending the measures of Belgium and the Netherlands. However, this is not so. The EU could have used its internal mechanisms to remove the Belgian and the Dutch measures. First, the Commission could have challenged these measures as contrary to the EU free movement of goods rules in the sense that they significantly hindered intra-Union trade (deregulation, negative integration). Second, the European Union could have adopted its own piece of legislation which would have been less restrictive than a total ban, for example a conditional ban which would be responsive to the hunting methods used (reregulation, positive integration). Belgium and the Netherlands would then have to change their national rules. It is unclear why the Commission did not opt for the first scenario if it considered the Belgian and Dutch bans too restrictive. Typically, obstacles to EU internal trade should be removed through negative integration, while positive integration is only to be used when it is impossible to remove the obstacle in the former way. In this case, surprisingly, the Commission thought that national rules were too restrictive, but it did not challenge them, instead proposing a less restrictive measure at the EU level. The regulation originally proposed contained a conditional ban.Footnote 36 However, this proposal was amended in the European Parliament and finally a total ban was adopted, regardless of the fact that a WTO challenge was imminent.Footnote 37

The (de)regulatory policy of the ECJ

WTO law has been part of the reasoning of not only legislative institutions, but of judicial ones as well. The European Court of Justice has a role in deregulating the market, both when interpreting Union law, primarily Treaty rules on market freedoms, which require the removal of inconsistent national rules, and when deciding on the validity of EU secondary law. In the past, parties interested in a particular deregulation have frequently invoked WTO law to support their claim. However, it has quickly become settled case law of the Court that WTO law does not have direct effect within the Union.Footnote 38 This means that WTO law cannot be relied on either before national courts or the ECJ, nor can it be relied on either by individual or privileged applicants.Footnote 39 WTO law can only be used to assess the validity of an EU measure when that measure was ‘intended to implement a particular obligation assumed in the context of the WTO, or where the Community measure refers expressly to precise provisions of the WTO agreements’.Footnote 40 However, WTO law has been recognised to have an interpretative effect, meaning that both European and national legislation must be interpreted in light of it.Footnote 41 The question is thus whether issues of WTO law arise before the courts and form a context for their deregulatory policy.

In their above-mentioned paper on the effects of the WTO on European Union decision-making, de Búrca and Scott highlighted the Omega Air Footnote 42 case as an example of WTO law discussions before national courts and the ECJ.Footnote 43 Omega Air challenged the Regulation on Civil Subsonic Jet Planes, which raised the noise standard for civil subsonic jet planes by making compliance with Chapter 3 of the Chicago Convention on International Civil Aviation and with one additional technical requirement a condition for the registration and operation of planes within the EU.Footnote 44 In the view of Omega Air, this additional technical requirement, going beyond the international standard, was disproportionate and was not based on any reasons.Footnote 45 The national courts were aware that the ECJ did not recognise the direct effect of WTO law, but they inquired whether the Regulation breached the principle of proportionality and the duty to provide reasons, all in the light of the possible rights that individuals might have under the GATT and the Agreement on Technical Barriers to Trade.Footnote 46 The issue was whether WTO obligations were relevant for determining a breach of the principle of proportionality and the duty to provide reasons. The decision of the ECJ merely restated that WTO rules cannot be used to assess the legality of Union legislation (except in special casesFootnote 47).Footnote 48 What is relevant in this case is that WTO compliance was invoked before the ECJ and was a part of the discourse despite the fact that the ECJ merely reiterated its previous position.

If today one looks at a factually and legally similar example, also dealing with air transport and its effects on the environment, one will find a very different attitude towards WTO law. The ATA Footnote 49 case shows that WTO law issues are not even mentioned before the Court.Footnote 50 In this case, a number of US airlines challenged the Aviation Emissions DirectiveFootnote 51 requiring the purchase of allowances for all the emissions on flights into or from the European Union. They argued that the Directive was contrary to customary international law and certain international agreements, but the Court did not accept their reasoning and found the Directive to be valid.Footnote 52 While the whole case was about the compatibility of the Directive with international law, neither the parties, nor the Advocate General,Footnote 53 nor the Court itself mentioned WTO law, despite the fact that parts of WTO law were relevant in the case. Parts of the GATT might have been applicable in this case because the Directive indirectly limits trade in goods (i.e. trade in certain planes that have high emissions), and also parts of the GATS to the extent that the Directive restricts services other than air transport, e.g. tourismFootnote 54 (while it remains arguable to what extent air transport services themselves are excluded from the scope of the GATSFootnote 55). Yet none of this was mentioned before the Court.

Explaining diverging regulatory practices

The case studies show that while taking account of external trade effects and WTO law might be the norm required by both EU and WTO law, there is a number of examples where the European Union’s behaviour was not influenced by the knowledge of negative external trade effects and WTO non-compliance. It is difficult to pin down one clear explanation for these discrepancies, but it certainly seems that this cannot always be explained by deliberate policy choices. Rather, divergent regulatory practices occur as a consequence of particular institutional interplay.

Policies behind diverging regulatory practices

There are various policy reasons that might cause the European Union occasionally to persist in measures having negative external trade effects or even not being WTO-compliant.

First, the European Union’s behaviour might be a consequence of different levels of commitment to different policy objectives. It might be that some objectives are more important for the EU than others, e.g. that human health is (arguably) more important than animal welfare, and that this is the reason why the European Union has not substantially modified its measure on beef hormones while it did modify or postpone the measures on leghold traps or cosmetic ingredients tested on animals. However, this argument is not very helpful when one looks at opposing examples dealing with identical interest. The case studies above were deliberately chosen as examples with the same type of interests at stake. By contrasting two internal market measures affecting animal welfare (the Cosmetics Directive with the Seal Products Regulation), and two cases on air transport measures affecting the environment (Omega Air and ATA), it is shown that different behaviours can occur even when the same interests are concerned.

However, it is possible that there is hidden interest in the background of legislative action. For example, when commenting on the Union’s decision to postpone the ban on cosmetic ingredients tested on animals, de Búrca and Scott mentioned (in subtle terms) that the EU might be hiding behind the alleged constraints of WTO membership, just as EU member states occasionally use the ‘blame it on Brussels’ tactic in justifying unpopular measures.Footnote 56 Along this line, De Ville recently claimed that WTO rules now serve ‘as a frame of reference constraining domestic actors by influencing what they deem legitimate’, but that they can also be used ‘as a rhetorical device that domestic actors can use to advance their preferences’.Footnote 57

Second, an explanation of the Union’s action might be a reflection of a policy of either to engage or not to engage in WTO disputes. A decade ago, Princen argued that WTO law was most effective when used as a threat.Footnote 58 A gradation of cases can show this. In cases where a mere threat of a WTO dispute was used, such as those concerning the Leghold Trap Regulation, the Cosmetics Directive or now the Aviation Emissions Directive, the EU changed or postponed the entry into force of its measure. In cases where the WTO dispute was unavoidable, such as that of the Seal Products Regulation because the European Union anyhow had to be a respondent in a case against Dutch and Belgian seal product bans, the Union adopted the measure only after the dispute started. And in cases where there was a dispute and a determination of a breach, such as with beef-hormones or genetically modified organisms, the EU did almost nothing to change its measure. However, one has to be careful with this reasoning, as correlation is not causation: a threat was presumably used in all the cases, but this just did not work in some of them, as the EU did not want to change its measure. Once a threat fails, then a formal dispute arises. Still, in the early days of the WTO, the European Union might have been more responsive to threats as it did not want to engage in disputes. This was most visible in the case of the Leghold Trap Regulation, which was supposed to enter into force on the same day the WTO was established, and the European Union probably responded to the threat because it was worried that it could not block the negative Panel report in the way that the United States had done in earlier GATT cases against it, namely Tuna/Dolphin.Footnote 59

This responsiveness to threats is certainly less present today. Over the years, the European Union has become more comfortable in engaging in WTO litigation. This might be because internally the EU has been gaining more competences in the field of external trade, which has probably made it easier for it to take decisions on measures. There has also been a significant number of disputes in which the EU has found itself in the role of respondent. An incidental effect of this was that the Union was pressed to advocate certain regulator-friendly interpretations of WTO rules, and in each of the cases the Appellate Body (or the Panel) has at least partly followed the EU’s reasoning.Footnote 60 The Union might have lost a case, but some of its arguments became the official interpretation of the relevant treaties by the adjudicators.Footnote 61 In this way the European Union has influenced the development of WTO law.

Third, occasional disinterest in WTO compliance and external trade effects might derive from the fact that the Union has been relatively successful in exporting its standards. There is a number of examples where a high EU standard on health, environment, animal welfare or another matter started being observed by producers in third countries, or even adopted by third countries, or sometimes even adopted within some global standard-setting body. In most cases the export of a standard was not a deliberate policy of the European Union, but a mere incidental effect of internal action. However, even if this is not a deliberate external policy, awareness that the export of standards might occur informs EU internal policy. There has been significant scholarship on the ‘Brussels effect’ of EU rules,Footnote 62 but what is relevant for this paper is that this effect can occur regardless of WTO compatibility. For example, years after the Appellate Body’s finding in the EC – Hormones case that EU rules on beef-hormones were in breach of WTO law, the Union has not abandoned its measure, but instead US and Canadian farmers adjusted their production and gained better conditions for imports of ‘high quality beef’ (de facto exportation of standards).Footnote 63 The Seals Regulation was accompanied by another type of export of standards in the sense that the Union led by example, and several other countries followed suit.Footnote 64 And in the case of the Aviation Emissions Directive, despite the possibility of a WTO complaint against this measure, it seems that the EU standard (or a standard close to it) could be adopted at the international level within the International Civil Aviation Organization. Following the pressure of the EU unilateral measure which would require all flights to and from the European Union to pay allowances for the emissions released on the entire flight, an agreement was reached at the last ICAO General Assembly that the Organization would start developing a global system of market-based measures. The Assembly should make a decision on it at its next meeting in 2016, and implementation should start in 2020.Footnote 65 Thus, despite being found to be (or at least suspected of being) not WTO-compliant, many EU measures not only manage to remain in force, but they are also ‘exported’ to other countries. This (arguable) success in the export of standards might also make the European Union less concerned about WTO compliance.

Different institutional interaction in diverging regulatory practices

Each of the case studies involves the activity of different institutions and their organs. It is clear that every EU institution and every organ has a different task in external trade, so sensitivity to external trade effects differs greatly as well. If one looks at the case studies presented above through an institutional lens, one sees that the Commission is most concerned with WTO compliance and external trade effects, and the European Parliament is the least concerned. The case studies also show that the behaviour of the Commission and the Council depends on the internal division of tasks and power, i.e. on which Directorate General and which composition of the Council is in charge. The studies also show that the Court is somewhat uninterested in the matter.

The legislative history of the Leghold Trap Regulation is illuminating as it clearly shows that the shift in the Union’s attitude towards this measure actually reflected that the institutions or their organs who were involved in this matter had changed.Footnote 66 First, concerning the Commission, the Directorate General that was initially in charge of the Regulation was that for Environment.Footnote 67 However, when the agreements with Canada, Russia and the United States were negotiated, the Directorate General for Trade took over.Footnote 68 Second, a change also occurred within the Council. Concluding the agreements with Canada, Russia and the US was originally entrusted to the Environmental Council,Footnote 69 but after this composition of the Council blocked the agreements, decision-making was assigned to the General Affairs Council.Footnote 70 Finally, concerning the European Parliament, this institution has consistently been one of the biggest supporters of the Leghold Trap Regulation, and it voted against the agreements that derogated from it.Footnote 71 However, the role of the European Parliament was merely consultative both for the adoption of the RegulationFootnote 72 and of the agreements.Footnote 73

Similar institutional differences can be found in the legislative history of the Cosmetics Directive. The Commission was the first of the European institutions to become concerned about WTO compliance. In its 1996 report, where the Commission was supposed to outline the development of alternative methods for the testing of cosmetic ingredients, it was stated that such alternatives would not become available before the amendment banning ingredients tested on animals came into force.Footnote 74 This gave the Commission the power to postpone the entry into force of this amendment.Footnote 75 The same Commission report also stated that there was a ‘constraint’ which ‘must be borne in mind’ concerning the measure’s WTO compliance.Footnote 76 Similar concerns were later also voiced by the Commission in its answers to the European Parliament.Footnote 77 However, the Parliament continued to support the ban on cosmetic ingredients tested on animals despite the Commission’s concerns about WTO compliance. It stated the following:

Without going into detail about WTO rules, some important points should be recognised:

It is unacceptable for the Commission or Member States to refuse to implement Community law or measures on the basis of a perceived incompatibility of WTO rules.

Mechanisms exist within the WTO rules which enable measures to be notified prior to their implementation and for these to be discussed with trading partners;

In the event that a dispute should arise, a WTO mechanism exists whereby these can be resolved – in the event that the measure is found to be in contravention of the WTO rules, it is possible for these to be revoked or amended, or even retained with appropriate compensation;

Therefore the EC might have reasonably brought forward its proposal in the aftermath of such a dispute, but it is highly premature for it to do so without even an official word of protest from its trading partners.

In the event that implementation of the marketing ban did result in a dispute at the WTO, it should also be recognised that each measure is reviewed on its own merit. The use of animals to test cosmetics is plausibly a question of public morality and of animal life or health which are both permitted exceptions under WTO rules.Footnote 78

This position reflects the Parliament’s understanding of some of the WTO issues involved. Nevertheless, it still did not give priority to WTO compliance over other interests and it believed that the WTO could or even should also be sensitive to those other interests.

Comparable developments are visible in the legislative history of the directives on meat hormonesFootnote 79 that led to the EC – Hormones dispute in the WTO. This history reveals that on several occasions the Commission favoured less strict rules which were also more firmly based on scientific evidence and, thus, less likely to become challenged in the WTO. For example, following the Lamming scientific report, which held that the use of three relevant natural hormones for growth promotion purposes was not harmful and that additional tests were needed concerning the safety of two synthetic hormones, the Commission proposed a new directive which followed such an approach. This new proposal would have been less cumbersome for the Union’s trading partners and more likely to be considered WTO-compliant.Footnote 80 However, the proposal was rejected by other legislative institutions, the European Parliament and the Council.Footnote 81 Most opposition to meat treated with growth hormones came from the Parliament, despite the fact that the measures that the EU adopted on this issue were challenged and were found to be in breach of WTO law.Footnote 82

In the case of the Seal Products Regulation, there is again a great difference between the institutions’ sensitivity to WTO compliance. As mentioned above, the Commission’s proposal for the Regulation was very different from the Regulation ultimately adopted, and one could argue that this proposal was easily WTO-compliant. The original proposal for the RegulationFootnote 83 shows that the intention of the Commission was not to introduce a ‘total’ ban, but a conditional one. Seal products obtained through hunting and skinning that observed certain animal welfare standards and which were properly certified and labelled would have been permissible in the EU. The conditional ban proposed by the Commission was probably in accordance with WTO rules and would probably not have even led to a WTO challenge. However, this proposal was amended by various committees within the European Parliament, turning the measure into a total ban (with narrow exceptions for indigenous communities, marine management and individual imports). In contrast to the conditional ban, the total ban had many weaknesses in terms of WTO law compliance.Footnote 84 Members of the European Parliament had not asked much about WTO compliance before the adoption of the Regulation.Footnote 85 After the Regulation had been challenged, they posed some questions on WTO compliance for the Commission, which merely replied that it would defend the measure.Footnote 86 Once a measure was challenged, no answer of the Commission recognising WTO-compliance problems was politically feasible.

Similarly, in the unfolding developments concerning aviation emissions, the Commission is the one who would like to avoid a ‘trade war’ following the bill of the United States Congress giving a mandate to the US Secretary of Transportation to prohibit, under certain circumstances, US companies from complying with the EU Aviation Directive.Footnote 87 The Commission was quite prepared to postpone charging allowances for flights to and from the European Union until the next ICAO General Assembly meeting in 2016, giving the Organization a chance to find a global solution to this problem. The Parliament, however, was not keen to support this postponement, and its Environment Committee voted in favour of the Union applying the Emission Trading Scheme to all flights without any postponement.Footnote 88 In the three-way talks between the Commission, the Council and the Parliament that proposed a text for postponing the measure until 2016, it was the Parliament’s negotiators who insisted on a stricter wording of this document, requiring the International Civil Aviation Organization not only to develop a global system insuring carbon-neutral growth, but the reduction of emissions.Footnote 89

Analogous examples can be found in many areas, as recently with food products derived from cloned animals’ offspring,Footnote 90 or those containing nanomaterials.Footnote 91

Although the Treaty of Lisbon has given the Parliament more power in external relations, particularly in the Common Commercial Policy, one has yet to observe whether this has sensitised the Parliament to take account of WTO law and external trade effects also when adopting internal rules. If the Parliament does not become more tactful in these matters, the fact that the Treaty of Lisbon has accorded it more power in external trade could even aggravate the problems with WTO compliance and negative external trade effects.

As regards judicial deregulatory policy, the fact that WTO law is not a regular part of the discourse before the European Court of Justice is a normal consequence of existing case law. It is reasonable behaviour of the parties in a dispute before the ECJ not to invoke WTO law, knowing that the Court has ignored any WTO law arguments in previous disputes. It is also not likely that the Court would start giving WTO law more effect considering that the courts in other WTO member states are not doing so either. The European Union would be placed on unequal footing in international trade relations with other WTO members if its domestic courts enforced WTO law more than the courts of these trading partners. However, one wonders whether the ECJ’s indifference to the compliance of measures with WTO rules is prudent considering that such an approach pushes unsatisfied parties to seek remedies in other forums, including in the WTO.

Conclusion – Should all EU institutions care what the world thinks?

The Treaties emphasise the European Union’s commitment to multilateralism, and there are numerous EU official documents confirming the Union’s orientation towards international trade, especially to the WTO’s multilateral trading system.Footnote 92 However, while this might be one of the features of the Union’s external policy, concerns for WTO compliance are not always equally present in the Union’s internal decision-making. This paper has involved several case studies looking at the regulatory policy of the EU’s ‘legislative’ and judicial institutions. These studies reveal that there are completely opposing examples of taking WTO law into account, even within the same EU policy. It is certainly true that there can be policy reasons for ignoring negative external trade effects and WTO non-compliance which might relate to the level of commitment to a particular (official or hidden) policy objective, preparedness to enter into WTO disputes and success in promoting regulator-friendly interpretations of WTO law, and the success in exporting standards. In addition, different regulatory outcomes can be a consequence of the fact that different institutions or organs have participated in certain regulatory activities, as there are undeniable differences between EU institutions in their sensitivity towards WTO compliance and external trade effects. The Commission, which, through its external activities, especially the Common Commercial Policy, is most exposed to contacts with third countries and the WTO, has also revealed most appreciation for the external trade effects of measures and to WTO compliance when proposing internal regulation. The regulatory and deregulatory actions of other institutions have shown less interest in WTO compliance and in the external trade effects.

Considering all this, one is tempted to re-examine whether in fact the European Union and its institutions should care what the world thinks of its measures and what effects these measures have.

It is thus worth recalling that economic theory shows that taking account of the external trade effects of internal measures is important for achieving both domestic and global efficiency.Footnote 93 In general, WTO members should seek to adopt WTO-consistent measures because protectionist measures or other unnecessary obstacles to trade hurt domestic importers, consumers and thus the country that imposed them.Footnote 94 Besides, WTO-inconsistent measures can also lead to retaliation which hurts the country’s own, otherwise competitive, exporters. The idea behind the WTO is to have a rule-based system of international trade for the benefit of all members, and such a system would not work if members unilaterally stopped meeting their WTO obligations.

For the European Union internally, it is particularly problematic if it loses a case on a measure which has a legitimate aim, but which was not entirely drafted in a WTO-consistent way (e.g. because it went beyond what is necessary or was insufficiently based on scientific evidence, etc.). In these situations there might be a possibility of amending the legislation in a WTO-consistent way, but this is not always politically feasible. The Union can then find itself in a position where it is being hurt by its own measure and also exposed to retaliation or where it is forced to offer alternative concessions. These are the kinds of disputes which can be avoided if WTO law and the views of third countries are continuously taken into account in EU regulatory activities.

This does not suggest that the European Union should always try to satisfy the interests of its trading partners or that it should fear challenges. The EU can, in pressing matters, even deliberately use its market power to promote certain non-trade interests outside its territory, especially if other ways of achieving such aims have failed. It can do this by blocking from its market the goods and services that do not meet its standards, and unilaterally push an agenda on which no progress has been made in some multilateral negotiations, for example in the Doha round or on the global regulation of emissions. In such situations, the EU’s unilateral action has an ‘international orientation’.Footnote 95

However, unilaterally imposing a trade barrier to achieve global standard has its costs and is risky. It might take many years for the export of standards to occur (as with beef-hormones), and this does not even have to happen. There are many examples where the European Union might be losing the battle to establish its standard as the global one.Footnote 96 Whenever the standard does not become globalised, then the EU internally still has a higher standard, but it also suffers the negative external trade effects hurting its importers and consumers and possibly retaliation harming its exporters. The EU institutions really have to be certain that the high standard is worth it.

Finally, if the European Union wants to remain relatively successful in WTO disputes and in the export of standards, it must be able show that a standard was reached through a high-quality decision-making process within its institutions where alternative measures of achieving the aim have been transparently discussed and found to be inadequate (either by not being able to achieve the same level of protection or by not being reasonably available). It is only by acting in this way that the EU can achieve its own constitutional imperatives of balancing internal and external trade liberalisation with the protection of its other objectives, and also maintain credibility on the global scene.

Footnotes

*

Prof. Dr. Tamara Perišin, MJur (Oxon), Faculty of Law, University of Zagreb. Thanks to Harvard Law School where a part of this research was conducted within the postdoctoral visitors’ programme; to Marise Cremona, Tamara Ćapeta, James Flett, Petros Mavoridis, Donald Regan, Siniša Rodin, Mark Wu, and Derrick Wyatt for their support of this research project, useful discussions on this topic or for comments on earlier drafts; to Aleksandra Čar and Sam Koplewicz for their research assistance; and to the participants of the EUI-CLEER joint conference ‘Trade liberalisation and standardisation’, and of the Harvard European Law Association lecture series, for their valuable feedback.

References

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2 Art. 21(2) TEU.

3 Art. 11(2) TEU.

4 Art. 11(3) TEU; similarly Art. 2 Protocol (No 2) on the Application of the Principles of Subsidiarity and Proportionality.

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46 Omega Air, supra n. 42, paras. 40, 41.

47 Fediol, supra n. 38, Nakajima, supra n. 38.

48 Omega Air, supra n. 42, paras. 93, 94.

49 ECJ 21 December 2011, Case C-366/10, Air Transport Association of America v Secretary of State for Energy and Climate Change.

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53 Opinion of AG Kokott 6 October 2011, Case C-366/10, Air Transport Association of America v Secretary of State for Energy and Climate Change. AG Kokott mentions WTO law incidentally when explaining the effects of international law in the EU legal order (paras. 70, 71, 100).

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65 ICAO Resolution A38-18: Consolidated statement of continuing ICAO policies and practices related to environmental protection – Climate change, November 2013, particularly Art. 19.

66 For an analysis of this, see Princen, supra n. 16, p. 563-564.

67 Prelex legislative history at <ec.europa.eu/prelex/detail_dossier_real.cfm?CL=en&DosId=106242>, visited 3 April 2014, where DG11 marks DG Environment.

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69 1978th Council meeting – Environment, 9 December 1996, PRES/96/360; 2017th Council meeting – Environment, Luxembourg, 19/20 June 1997, PRES/97/204.

70 2024th Council meeting – General Affairs, 22 July 1997, PRES/97/246.

71 Resolution on the signing and conclusion of an international agreement between the EC, Canada and the Russian Federation on humane trapping standards, OJ 1997 C 200/02; Legislative resolution embodying Parliament’s opinion on the amended proposal for a Council Decision concerning the signing and conclusion of an Agreement on International Humane Trapping Standards between the EC, Canada and the Russian Federation (COM(97)0017 COM(97)0251 C4-0425/97 8091/97 - 97/0019(CNS)), OJ 1998 C 14/177; Legislative resolution embodying Parliament’s opinion on the proposal for a Council Decision concerning the signing and conclusion of an International Agreement in the form of an Agreed Minute between the EC and the United States of America on humane trapping standards (COM(97)0726 C4-0014/98 97/0360(CNS)), OJ 1998 C 210/31.

72 The Regulation was adopted on the basis of Treaty provisions on the CCP and the environment, Arts. 113 and 130s EC, later 133, 175 EC, now 207, 192 TFEU.

73 The legal basis for these agreements was Art. 228 EC, later 300 EC, now 218 TFEU.

74 1996 Commission Report, supra n. 21.

75 Commission Directive 97/18/EC of 17 April 1997 postponing the date after which animal tests are prohibited for ingredients or combinations of ingredients of cosmetic products, OJ 1997, L 114/43; Commission Directive 2000/41/EC of 19 June 2000 postponing for a second time the date after which animal tests are prohibited for ingredients or combinations of ingredients of cosmetic products, OJ 2000 L 145/25.

76 1996 Commission Report, supra n. 21, at p. 9.

77 E-0949/98 Written Question to the Commission ‘Impact on animal protection of the GATT/WTO’ by Mark Watts (PSE), 30 March 1998; and Answer to Written Question E-0949/98 given by Sir Leon Brittan on behalf of the Commission, 7 May 1998. See on this de Búrca and Scott, supra n. 18, p. 8.

78 I Report on the proposal for a European Parliament and Council directive amending for the seventh time Council Directive 76/768/EEC on the approximation of the laws of the Member States relating to cosmetic products (COM(2000) 189 - C5-0244/2000 - 2000/0077(COD)), Committee on the Environment, Public Health and Consumer Policy, FINAL A5-0095/2001, 21 March 2001.

79 Council Directive 81/602/EEC of 31 July 1981 concerning the prohibition of certain substances having a hormonal action and of any substances having a thyrostatic action, OJ 1981 L 222/32; Council Directive 88/146/EEC of 7 March 1988 prohibiting the use in livestock farming of certain substances having a hormonal action, OJ 1988 L 70/16; Council Directive 88/299/EEC of 17 May 1988 on trade in animals treated with certain substances having a hormonal action and their meat, as referred to in Article 7 of Directive 88/146/EEC, OJ 1998 L 128/36.

80 EC – Hormones, Panel Report, supra n. 30, paras. II.28-29.

81 EC – Hormones, Panel Report, supra n. 30, para. II.29.

82 EC – Hormones, Panel Report, supra n. 30, paras. II.31-32.

83 Proposal for a Regulation, supra n. 36.

84 Perišin, supra n. 34.

85 Two MEPs posed a question on the WTO dispute to the Commission E-0373/08 Written Question to the Commission ‘The challenge of seal bans in the WTO’ by Jens Holm (GUE/NGL) and Kartika Tamara Liotard (GUE/NGL), 4 February 2008.

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87 European Union Trading Scheme Prohibition Act of 2011, Pub. L. No. 112-200, 126 Stat. 1477 (2012).

This Act can be used as a tool in a trade war, but it also gives the US Secretary of Transportation a mandate to negotiate a global agreement on aviation emissions, which is in fact what the EU would like to happen.

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95 Scott, supra n. 62.

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