In a post from yesterday, I reviewed the Appellate Body (“AB”) reports released on June 9 in the appeals by Honduras and the Dominican Republic on the panel reports on Australia’s plain packaging regime on tobacco products. As noted, the AB upheld the panel reports that Australia’s regime did not violate any WTO Agreements as alleged by the Appellants. See WTO Appellate Issues Reports on Australia’s Plain Packaging Requirements on Tobacco Products – Last Reports Until WTO Appellate Body Reform Occurs, https://currentthoughtsontrade.com/2020/06/09/wto-appellate-body-issues-reports-on-australias-plain-packaging-requirements-on-tobacco-products-last-reports-until-wto-appellate-body-reform-occurs/

There are important “separate views” contained in the AB reports that while agreeing with the final conclusion that there was no violation disagree with the searching review of the underlying record on the claim that the panels had not made an objective assessment of the facts pursuant to DSU Art. 11. The separate views also disagreed with the finding of the other two Division members that appellants’ due process rights were violated based on use of information in the interim panel reports that had not previously been available to the parties.

As WTO disputes have become ever more litigious, lawyers used by Members to handle appeals have increased the frequency of seeking a review of the factual record on the claim that panels have not made an objective assessment of the record. Instead of parties limiting appeals of such claims to extraordinary situations, increasing numbers of appeals have focused on these appeal issues. The result has been greatly complicated appeals, much longer AB reports and an inability for AB Divisions to render decisions in 60-90 days of the filing of an appeal.

The Australia plain packaging appeals were filed by Honduras on 17 July 2018 and by the Dominican Republic on 23 August 2018. Thus, the AB reports released on 9 June 2020 were 693 days and 656 days after the appeals were filed. While certainly part of the delay flows from the inability to fill the AB member vacancies since 2018, a significant part flows from the failure of the AB Divisions to limit review of claims under DSU Art. 11 to situations that plausibly create the extraordinary circumstances required for its invocation.

The AB reports in these appeals are 232 pages in length. The concept that a Division of the AB will draft reports in 60-90 days that are 232 pages in length is obviously implausiible. Eliminating the DSU Art. 11 claims would have reduced the length of the reports by roughly 100 pages and would have permitted the AB to focus on the legal issues and legal interpretations of the panel appealed by the parties. As clear from the Dispute Settlement Understanding, the AB isn’t to review factual issues. Rather DSU Art. 17.6 limits the AB to reviewing legal issues and legal interpretations of the panel.

The proper role of the AB and the need to clarify the limited circumstances when a challenge to facts found by the panel by claims of panel bias or failure to make an objective evaluation of the record (DSU Art. 11) have been some of the ongoing concerns of the United States in looking at the functioning of the AB. The latest AB reports demonstrate the importance of addressing the U.S. concerns. The separate views included in the report are important in articulating how the DSU Art. 11 claims in these appeals should have been handled.

The separate views are copied below and eloquently lay out the correct approach in these appeals. WT/DS435/AB/R at 179 – 183 and WT/DS441/AB/R at 179 – 183

“6.2 Separate opinion of one Division Member regarding Article 2.2 of the TBT Agreement

“6.2.1 Introduction

“6.523. It is well settled that not every error by a panel rises to the level of a breach of Article 11 of the DSU. Under the DSU, panels enjoy considerable discretion with respect to fact-finding and the evaluation of facts. This is underscored by the language of Article 11 that ‘a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case’, read in conjunction with Article 17.6 of the DSU, which says that ‘[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.’ In other words, Article 11 claims on appeal should be reserved – and entertained – only for rare instances of ‘egregious’ errors by panels, which call into question the good faith of the panel.1433

“6.524. With respect to the appellants’ claims regarding the Panel’s analysis under Article 2.2 of the TBT Agreement, I concur with the majority’s ultimate findings and conclusions. However, I disagree on two points: (i) that it was necessary to examine in detail the appellants’ claims that the Panel erred in determining the degree of contribution of the TPP measures to Australia’s objective; and (ii) that the Panel’s treatment of and reliance on multicollinearity and non-stationarity constituted an error under Article 11 of the DSU.

“6.2.2 Addressing the appellants’ claims regarding the contribution of the TPP measures was not necessary to resolve the dispute

“6.525. The complainants’ main argument before the Panel was that the TPP measures are more trade-restrictive than necessary because: (i) they are trade-restrictive; and (ii) they are not apt to, and do not, contribute to Australia’s legitimate public health objective.1434 In the alternative, the complainants argued that, even assuming that the TPP measures contribute to Australia’s legitimate public health objective, they are still ‘more trade-restrictive than necessary’ because there are alternative measures that are reasonably available to Australia and that would be less trade-restrictive while making an equivalent contribution to the objective.1435

“6.526. The Panel rejected those arguments by the complainants, while noting that the TPP measures are necessarily trade-restrictive because all tobacco products are imported into Australia, and that the TPP measures contribute to Australia’s public health objective by reducing consumption of tobacco products. The appellants challenge the Panel’s rejection of their arguments. My discussion of that challenge centres on the two sentences in paragraph 7.1025 of the Panel Report.

“6.527. In the first of these sentences, the Panel found that the complainants failed to demonstrate that the TPP measures ‘are not apt to make a contribution to Australia’s objective’.1436 In the second sentence, the Panel found that, ‘[r]ather, … the evidence … , taken in its totality, supports the view that the TPP measures … are apt to, and do in fact, contribute to Australia’s objective.’1437

“6.528. The appellants’ appeals were silent regarding the first sentence. They addressed only the second sentence. In doing that, the appellants have not explained how any errors undermining the Panel’s finding in the second sentence of paragraph 7.1025 would suffice to demonstrate that the Panel erred in forming the conclusion in the first sentence of that paragraph.

“6.529. In response to questioning at the second hearing, the appellants stated that it was unnecessary to raise any independent appeal or challenge of the Panel’s finding in the first sentence, because the Panel’s finding in that sentence is integrally linked to the Panel’s finding in the second sentence. The appellants underscored that the Panel conducted an integrated analysis of the degree of contribution based on the evidence as a whole.1438

“6.530. I read these two sentences as saying different things. The first sentence says that the appellants failed to demonstrate that the TPP measures are not apt to make a contribution; the second sentence says that the totality of evidence supports the view that the TPP measures are apt to, and do in fact, make a contribution.

“6.531. Even assuming, arguendo, that the appellants are correct that the Panel relied on the totality of the evidence in forming both conclusions in these two sentences of paragraph 7.1025, I do not see how the errors alleged by the appellants pertaining to the Panel’s second-sentence finding would vitiate the Panel’s finding in the first sentence. The mere fact that the Panel may have relied on the same evidence for both findings does not mean that any errors in the Panel’s second determination – that the evidence supports the view that the TPP measures ‘are apt to, and do in fact’ make a contribution – also would undermine the Panel’s conclusion that the complainants failed to substantiate their burden of demonstrating that the TPP measures are not apt to contribute. Those are two different conclusions.

“6.532. Consequently, in order for us to overturn the Panel’s conclusion that the complainants failed to demonstrate that the TPP measures are not apt to contribute to Australia’s objective – expressed in the first sentence of paragraph 7.1025 – the appellants were required to demonstrate that the Panel’s errors in its examination of the evidence vitiated that conclusion, and did so in a manner so egregious as to constitute a violation of Article 11 of the DSU.

“6.533. As noted, the appellants did not appeal the Panel’s finding in the first sentence of paragraph 7.1025. They also did not otherwise address the question of whether any errors in the Panel’s evaluation of the second sentence in that paragraph would vitiate the first sentence, except to argue that the two sentences ‘are linked’ and that the Panel’s evaluation of them was based on the same evidence.

“6.534. As a result, I consider that the Panel’s determination that the complainants failed to demonstrate that the TPP measures are not apt to contribute to Australia’s objective is undisturbed on appeal. Since measures are presumed to be WTO-consistent until shown otherwise, it follows that the TPP measures are presumed to be at least capable of making a contribution to Australia’s objective1439, whether or not the Panel might have erred in determining that the totality of evidence supports the view that the TPP measures are apt to, and do in fact, make a contribution to Australia’s objective.

“6.535. It follows that the Panel’s finding, in the first sentence of paragraph 7.1025 of the Panel Report, stands. Since the TPP measures are therefore presumed to be capable of contributing to Australia’s objective, it further follows that: (i) the appellants have failed to demonstrate that the Panel erred in rejecting their principal argument; and (ii) with respect to their alternative argument, whether or not the proposed alternatives make an equivalent contribution to the TPP measures, the appellants did not present an alternative that is less trade-restrictive than the TPP measures1440, and consequently there is no basis for us to overturn the Panel’s overall conclusion that the appellants failed to demonstrate that the TPP measures are inconsistent with Article 2.2.

“6.536. Thus, I believe it was unnecessary, for purposes of resolving these disputes, for the majority to consider in detail the appellants’ claims regarding the Panel’s assessment of the TPP measures’ contribution to Australia’s objective. For that reason, I also believe that it was inadvisable for the majority to consider in detail the appellants’ contribution claims. This could have been a much shorter report, I believe, based on the findings that the first sentence of paragraph 7.1025, regarding aptness, stands, that the appellants’ proposed alternatives would not be less trade-restrictive than the TPP measures, and therefore that the appellants failed to demonstrate that the TPP measures are inconsistent with Article 2.2.

“6.2.3 Due process and Article 11 of the DSU

“6.537. I disagree with the majority’s intermediate finding that, by introducing in its Interim Report econometric analyses that had not been tested with the parties, the Panel failed to observe due process in a way that constitutes a violation of Article 11 of the DSU.

“6.538. In my view, the Panel’s reliance on multicollinearity and non-stationarity to test the robustness of the parties’ evidence was part of the Panel’s reasoning, with respect to which a panel enjoys considerable discretion. The parties to this case submitted to the Panel a large amount of econometric evidence. It was appropriate for the Panel to assess the probative value of that evidence. The Panel tested the robustness of the econometric studies submitted by the parties by taking into account, inter alia, whether the models suffered from multicollinearity and non-stationarity. The mere fact that these two so-called ‘criteria’ were not specifically mentioned by the parties is not sufficient to warrant a different scrutiny of the Panel’s reliance on them, as compared to the Panel’s reliance on other econometric concepts (e.g. overfitting and endogeneity) that the parties had identified. I therefore consider that the Panel acted within the bounds of its discretion as a trier of facts by not only examining the parameters used by each party, but also by going further in its evaluation and testing the robustness of the parties’ econometric evidence for multicollinearity and non-stationarity.

“6.539. With regard to the issue of due process, Australia argues that the complainants could have used the interim review stage to request the Panel to review the relevant parts of the Panel Report pursuant to Article 15 of the DSU but chose not to do so.1441 The appellants submit that interim review would not have provided them with a ‘meaningful opportunity’ to comment on the Panel’s concerns regarding multicollinearity and non-stationarity.1442

“6.540. Article 15.2 of the DSU says, in relevant part, that: Within a period of time set by the panel, a party may submit a written request for the panel to review precise aspects of the interim report prior to circulation of the final report to the Members. At the request of a party, the panel shall hold a further meeting with the parties on the issues identified in the written comments. If no comments are received from any party within the comment period, the interim report shall be considered the final panel report and circulated promptly to the Members.

“6.541. The complainants became aware of the Panel’s analysis of multicollinearity and non-stationarity when they received the Panel’s Interim Report on 2 May 2017. However, the complainants did not raise any substantive concerns with respect to these aspects of the Panel’s analysis in their comments on the Interim Report, nor did they request an interim review meeting. It is reasonable to read Article 15.2 as placing responsibility on the complainants to have raised the Panel’s reliance on multicollinearity and non-stationarity at the interim review stage, especially given the importance that the appellants attribute to these issues on appeal. In my view, the complainants’ failure to raise these issues at the interim review stage undermines the appellants’ claim regarding due process.

“6.542. Thus, since the complainants had an opportunity to raise these issues and did not do so, I do not agree with their claim that the Panel denied them due process by not ‘giving the parties any opportunity whatsoever to comment’.1443 Since the complainants did not attempt to raise their concerns regarding the Panel’s reliance on multicollinearity and non-stationarity at the interim review stage, it is unnecessary to speculate about whether the alleged limited nature of the interim review process, which I do not find to be expressed in the text of Article 15.2, would have been sufficient. Consequently, I disagree with the majority’s interim conclusion on this point.

“6.543. In light of the above, I consider that the appellants have not demonstrated that the Panel failed to make an objective assessment of the facts of the case as required under Article 11 of the DSU by denying the parties an opportunity to comment on the Panel’s reliance on multicollinearity and non-stationarity.

“1428 Panel Report, paras. 7.1025 and 7.1043.

“1429 Panel Report, para. 7.1255.

“1430 Panel Report, paras. 7.1464 and 7.1531.

“1431 Panel Report, paras. 7.1417 and 7.1495.

“1432 See also Panel Report (DS435), para. 8.1.a; Panel Report (DS441), para. 8.1.b.i.

“1433 Appellate Body Report, EC – Hormones, para. 133. See also Appellate Body Reports, Japan – Agricultural Products II, para. 141; Korea – Alcoholic Beverages, para. 164; EC – Bed Linen (Article 21.5 – India), para. 177.

“1434 See Panel Report, paras. 7.426, 7.437, 7.485 and 7.520; Honduras’ and the Dominican Republic’s responses to questioning at the second hearing.

“1435 See Honduras’ first written submission to the Panel, paras. 853 and 911; Dominican Republic’s first written submission to the Panel, paras. 737-739, 980, and 1019.

“1436 Panel Report, para. 7.1025.

“1437 Panel Report, para. 7.1025.

“1438 Honduras’ and the Dominican Republic’s responses to questioning at the second hearing (referring to Panel Report, paras. 7.495-7.497).

“1439 Where a panel finds that the parties’ evidence reveals that a measure is capable of contributing, or the evidence is unclear or mixed as to whether the measure is capable of contributing, a panel should find that the complainant has failed to demonstrate that the measure is incapable of contributing to the objective. This would at the same time mean that, to the extent that the complainant also argues that the measure is inconsistent with Article 2.2 on the basis that there are reasonably available less trade-restrictive alternative measures capable of making an equivalent contribution, the presumption of WTO-consistency requires that a panel presume that the measure is at least capable of making some contribution to the legitimate objective and, on that basis, proceed to examine the remaining factors for determining ‘necessity’, such as the degree of the measure’s trade restrictiveness and the availability of less trade-restrictive alternative measures.

“1440 For the reasons set forth in sections 6.1.3-6.1.4 we have upheld the Panel’s findings that the alternative measures proposed by the complainants would not be less trade-restrictive than the TPP measures.

“1441 Australia’s appellee’s submission, para. 464.

“1442 Honduras’ responses to questioning at the second hearing. In addition, the Dominican Republic noted that, at the interim review stage, it could pose only ‘rhetorical questions’ to the Panel. (Dominican Republic’s responses to questioning at the second hearing).

“1443 Dominican Republic’s appellant’s submission, para. 42. (emphasis omitted).”