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New Zealand-Australia Apples dispute – review of WTO Panel decision

22 September 2010

As expected, the final report of the WTO Panel in the New Zealand-Australia Apples dispute has confirmed a resounding victory for New Zealand.  In the previous edition of Connected Asia Pacific, we discussed the prospects for a negotiated settlement and the likelihood that Australia would appeal.  On 31 August 2010 Australia filed its appeal to the Appellate Body.  New Zealand’s submissions are due before the end of September 2010 and the appeal is due to be heard in public on 11 and 12 October 2010 in Geneva, with a decision expected in November 2010.  We review the Panel’s findings and consider how the argument before the Appellate Body is likely to develop.

Summary of the WTO Panel’s findings

Perhaps the most obvious comment on the WTO Panel Report, published on 9 August 2010, is that – at 548 densely written pages – it is neither short nor concise.  New Zealand will argue that this confirms the Panel’s careful review of the evidence.  Australia will argue that it demonstrates the extent to which the Panel has sought to second-guess Australia’s biosecurity decisions.  

New Zealand’s complaint was filed under the WTO Sanitary and Phyto-Sanitary Agreement (SPS Agreement), which regulates the manner in which WTO member states may impose health and biosecurity restrictions on imported goods.  Simply expressed, the SPS Agreement requires such restrictions to be objectively justified by scientific evidence. 

It is commonly understood that Australia has banned the importation of New Zealand apples.  This was the case from 1921 through to 2006.  After that date, however – and following risk assessments from Australian governmental agencies and a federal Senate review – Australia’s position has been that New Zealand apples can be imported into Australia provided numerous stringent biosecurity measures are satisfied.  It was against 16 of those measures that New Zealand’s complaint was addressed.  Fourteen of them related to three different pests:

  • measures 1 to 8 related to “fire blight” (a plant disease caused by a bacterium which causes plant flowers, shoots, twigs and leaves to wither and die) 
  • measures 9 to 11 and 131 related to “European canker” (a plant disease caused by a fungus which results in cankers on limbs and trunks and can also cause fruit rot), and 
  • measure 14 related to “apple leafcurling midge” (a small fly which feeds on the unfurling young leaves of apple trees causing the leaf margins to roll and curl).

New Zealand also challenged three general measures relating to orchard operations and inspections (measures 15 to 17). 

The justification for each of the measures was said by Australia to lie in a 600 page Final Import Risk Analysis Report for Apples issued by Biosecurity Australia in November 2006 (the Final IRA).  The general question with which the Panel was concerned was whether the Final IRA did indeed provide proper support for the 16 measures.  The Panel found that it did not, and that each of the 16 measures was inconsistent with provisions of the SPS Agreement.  New Zealand had invoked the following SPS provisions:

  • Article 5.1, according to which members must ensure that their sanitary and phytosanitary measures are based on a risk assessment
  • Article 5.2, providing that in assessing risks, members must take into account available scientific and technical evidence
  • Article 2.2, requiring SPS measures to be applied only to the extent necessary to protect human, animal or plant life or health, to be based on scientific principles and (save for an exception which is not relevant) not maintained without sufficient scientific evidence
  • Article 5.5, prohibiting members from making arbitrary or unjustifiable distinctions in the levels of SPS protection they consider to be appropriate in different situations
  • Article 2.3, requiring that SPS measures not unjustifiably discriminate between members and not constitute a disguised restriction on international trade
  • Article 5.6, requiring members to ensure that SPS measures are not more trade-restrictive than needed to achieve their appropriate level of SPS protection, and
  • Article 8, requiring members to observe the provisions of Annex C in conducting control, inspection and approval procedures, including ensuring that such procedures are undertaken and completed without undue delay.

In finding for New Zealand, the Panel concluded that:

  • each of the 16 measures were SPS measures, and therefore required to be consistent with the SPS Agreement
  • each of the 16 measures were inconsistent with Articles 5.1 and 5.2 – and hence Article 2.2, and  
  • the 14 specific measures were in breach of Article 5.6.

However, the Panel also held that:

  • New Zealand had failed to demonstrate that the measures were arbitrary, discriminatory or protectionist in accordance with Article 5.5 – and hence Article 2.3, and
  • New Zealand’s claim under Article 8 did not fall within the terms of reference established by New Zealand’s original panel request.

Thus, the Panel faulted Australia for: (1) not grounding its measures in a proper risk assessment based on scientific evidence, and (2) adopting measures that – even taking into account Australia’s chosen level of SPS protection – were more trade-restrictive than necessary.

Summary of Australia’s grounds of appeal

The Appellate Body’s jurisdiction is limited to “issues of law covered in the panel report and legal interpretations developed by the panel”.  In order to obtain a different result on appeal, Australia must succeed in overturning each of the Panel’s substantive findings of breach of the SPS Agreement. 

Australia’s notice of appeal submits that:

  • the 16 measures, as a whole or individually, do not constitute SPS measures
  • the specific measures imposed for fireblight and apple leafcurling midge, as well as the general measures, are consistent with Articles 5.1 and 5.2 (and hence 2.2); in reaching the opposite conclusion the Panel erred in its interpretation and application of what constitutes a proper risk assessment, and failed to make an objective assessment of the matter (as required by Article 11 of the WTO Dispute Settlement Understanding), and
  • the above error infected the Panel’s decision on Article 5.6 insofar as it applied to the specific measures imposed for fireblight and apple leafcurling midge, as well as the general measures.

Australia’s written submissions, filed on 7 September 2010, further illuminate its argument.  Australia continues to rely, as it did before the Panel, on the Appellate Body’s 2008 decision in the EC Hormones Suspension case.  This was the second Appellate Body decision in a long-running dispute.  The first decision, from January 1998, was also the Appellate Body’s first consideration of the SPS Agreement.  In it the Appellate Body confirmed that the EC had not completed a risk assessment for the purposes of Article 5.1.  In the Suspension case, the Appellate Body was concerned with whether the US and Canada had lawfully suspended concessions due to the EC’s continued inconsistency with the SPS Agreement.  Part of this decision examined whether the EC’s new measures, implemented through a 2004 directive and based on further risk assessments, were SPS-compliant.  Although the Appellate Body did not finally determine this issue, it reversed the Panel’s finding that the new EC measures were not based on a risk assessment and therefore incompatible with the Article 5.1. 

Australia claims that, in light of the Suspension case, there is a matter of legal principle which requires further resolution concerning the precise standard of review for assessing compliance with Articles 5.1, 5.2 and 2.2, especially in the context of uncertain, inconclusive or incomplete scientific evidence.  Australia also claims that the relationship between the above articles and Article 5.6 requires careful consideration.

Briefly, we summarise Australia’s three key arguments.

Its first argument is that New Zealand and the Panel improperly characterised the 16 measures as SPS measures whereas, on proper application of the definition (found in Annex A(1)), only four qualify (two in relation to fireblight, one in relation to each of European canker and apple leafcurling midge).  The remaining 12 are merely ancillary administrative processes or procedures.   This submission appears to concede that some SPS measures do apply to New Zealand apples.  This argument may, therefore, be partly academic.  Australia’s submissions accept that “the identification of the measures appears not to be material to [the Panel’s] subsequent findings of infringement”, but argues that this issue “has the potential to impact significantly on the nature and scope of assessment able to be relied upon by a Member” (at [9]).  Australia had previously pursued the same argument before the Panel, which held that each of the individual measures, on their own, satisfied the broad definition of a SPS measure, which includes any measure applied “to protect animal or plant life or health within the territory of the Member from risks arising from the entry, establishment or spread or pests, diseases, disease-carrying organisms or disease-causing organisms” (see [7.173] to [7.187]).  

Australia’s second argument is that the Panel crossed the line from appropriate review of Australia’s risk assessment to substituting its own judgement for that of Australia.  The Final IRA, says Australia, was detailed and justifiable.  It fully explained its methodology, its intermediate steps and the scientific data on which each intermediate step was based.  Where the science was unclear, the Final IRA acknowledged this and identified the expert judgement taken.  The Panel’s finding that the Final IRA was not a proper risk assessment merely indicates disagreement with the expert judgements taken by Australia on the basis of inconclusive scientific data.  The Panel’s review accordingly went further than the standards required by Articles 5.1 and 5.2 (and, hence, 2.2).  Australia’s expert judgements should be accepted, provided they were legitimate by the scientific community standards, or at least not such as to undermine confidence in the assessment as a whole.

Australia’s third argument is that the Panel’s finding of breach of Article 5.6 must fall away if its findings under Articles 5.1, 5.2 and 2.2 are invalid.  Further, Australia claims the Panel misapplied Article 5.6, in particular by not requiring New Zealand affirmatively to prove that a proper risk assessment must have concluded that alternative measure(s) would have satisfied Australia’s chosen level of protection.

Looking ahead

At the heart of Australia’s argument is the proposition that the Panel overreached its mandate by concluding that the Final IRA was not rationally related to scientific evidence. 

Although Australia’s appeal seeks to present this argument as involving novel questions of principle, the essential issues go back to the Appellate Body decisions in Japan – Agricultural Products II (1999) and the original EC – Hormones (1998).  In the former case, the Appellate Body held that “whether there is a rational relationship between the SPS measure and the scientific evidence is to be determined on a case-by-case basis and will depend upon the particular circumstances of the case, including the characteristics of the measure at issue and the quality and quantity of the scientific evidence” (at [84]).  In the latter case, the Appellate Body confirmed that a risk assessment need not adopt the “mainstream” scientific opinion, but can be based on good faith upon “a divergent opinion coming from qualified and respected sources” (at [194]).

This approach was reaffirmed in the Suspension case (at [590] and [591]):

A panel reviewing the consistency of an SPS measure with Article 5.1 must determine whether that SPS measure is "based on" a risk assessment.  It is the WTO Member's task to perform the risk assessment.  The panel's task is to review that risk assessment.  Where a panel goes beyond this limited mandate and acts as a risk assessor, it would be substituting its own scientific judgement for that of the risk assessor and making a de novo review and, consequently, would exceed its functions under Article 11 of the DSU.  Therefore, the review power of a panel is not to determine whether the risk assessment undertaken by a WTO Member is correct, but rather to determine whether that risk assessment is supported by coherent reasoning and respectable scientific evidence and is, in this sense, objectively justifiable.
The Appellate Body has observed that a WTO Member may properly base an SPS measure on divergent or minority views, as long as these views are from qualified and respected sources.  This must be taken into account in defining a panel's standard of review.  Accordingly, a panel reviewing the consistency of an SPS measure with Article 5.1 of the SPS Agreement must, first, identify the scientific basis upon which the SPS measure was adopted.  This scientific basis need not reflect the majority view within the scientific community but may reflect divergent or minority views.  Having identified the scientific basis underlying the SPS measure, the panel must then verify that the scientific basis comes from a respected and qualified source.  Although the scientific basis need not represent the majority view within the scientific community, it must nevertheless have the necessary scientific and methodological rigour to be considered reputable science.  In other words, while the correctness of the views need not have been accepted by the broader scientific community, the views must be considered to be legitimate science according to the standards of the relevant scientific community.  A panel should also assess whether the reasoning articulated on the basis of the scientific evidence is objective and coherent.  In other words, a panel should review whether the particular conclusions drawn by the Member assessing the risk find sufficient support in the scientific evidence relied upon.  Finally, the panel must determine whether the results of the risk assessment "sufficiently warrant" the SPS measure at issue. 

There can be little doubt the Panel was alive to the risk of overreach.  Indeed, it explicitly sought to apply the above-cited paragraphs in its decision (see [7.225] to [7.226]). 

Whereas the Appellate Body in the Suspension case had criticised the panel for not fully engaging with the evidence and summarily dismissing the EC’s arguments (at [553]), that critique is unlikely to be made of the Panel in New Zealand-Australia Apples.  The Panel’s detailed findings on the various measures were based on the evidence of seven experts.  The Panel’s review and mastery of the facts can only be described as exhaustive.  An important question may be whether they were so exhaustive as to give the impression the Panel had engaged in a form of de novo review.

It remains to be seen how the argument before the Appellate Body will proceed.  At this stage, however, Australia’s submissions on appeal are unlikely to have come as a serious surprise either to the original Panel or to New Zealand.

Footnote

  1. New Zealand’s complaint against measure 12 was withdrawn by agreement following clarification by Australia.