My morals, your trade, our WTO: Public Morals after Brazil – Taxation
One of the main conceptual challenges in World Trade Organization (“WTO”) law is how to balance trade with non-trade concerns. Broadly speaking, the purpose of the WTO is to promote free trade – through, for example, lowering of tariffs, opening up of markets, and prohibitions against certain subsidies. All of these have “sovereignty costs”: the more obligations a Member takes up, the less space it has to regulate as it wishes. To ensure balance, WTO law provides a number of exceptions: Members can deviate from trade rules in favour of certain societal objectives, provided they fulfil specific conditions. Some of these objectives, like protection of public health and the environment, are easier to understand than others. This post deals with a particularly tricky creature – public morals.
Article XX(a) of the General Agreement on Tariffs and Trade (“GATT”) – an agreement which predates the WTO – allows members to maintain trade-restrictive measures if they are “necessary to protect” public morals. For almost sixty years (since the GATT’s inception in 1948), this exception lay dormant. Since 2004, however, there have been six invocations of the morals defence, and five of these came since 2013. There may be more in the future, especially since (as we will see) WTO panels, and the Appellate Body (“AB”) have lowered the threshold for determining when a public moral is at stake. Is this a cause for concern? Could a Member easily dress up protectionist policies (i.e. those intended to unfairly protect or promote domestic producers, in violation of WTO’s cornerstone principle of equal treatment) as public morals measures? To what extent does a panel have to take a Member at its word when the Member claims existence of a public moral, or when it argues that the motivation behind a certain measure was a moral one? Has the exception swallowed the rule?
In US – Gambling, the first case to take up public morals (albeit under a different WTO agreement), the panel clarified that public morals were “standard[s] of right or wrong conduct maintained by or on behalf of a community or nation” and thus “Members should be given some scope to define and apply for themselves the concepts of “public morals” … according to their own systems and scales of values” (paras 6.465, 6.461). This reasoning, untouched by the AB, is sensible considering the fluidity of public morals across time and space. This “partial deference” was followed, unchanged, by the panel in the next case, China – Audio-visuals (para 7.759). Then came the subtle, though significant, turning point: in EC – Seals, the panel omitted reference to “some scope” and understood public morals to be “as defined by the regulating member” (para 7.303). This entails a much higher level of deference to Members’ determinations. And though the latest panel report, in Brazil – Taxation (currently under appeal), clarified that Members’ discretion is “not unlimited”, the facts of the case along with the panel’s ultimate deference to Brazil, indicates that limits (if they exist) are very ill-defined.
In this case, Brazil exempted certain domestic companies producing television equipment from paying taxes, therefore violating its national treatment obligation. In its defence, Brazil argued that while television was the foremost medium of information reception in the country, large chunks of its population did not have (uninterrupted) access. In Brazil’s words, it was trying to “bridge the digital divide” and to “promote social inclusion”. The panel reviewed evidence and concluded that indeed such a divide existed. It then ruled that such objectives could fit within the meaning of public morals under Article XX(a). The problem, of course, is that while such objectives are legitimate and worthy of governmental attention, they are not what one would usually classify as “moral” concerns. Moreover, the cited Brazilian legislation, and supporting United Nations reports, all refer to public policy. The panel effectively erased boundaries between public interest, public policy and public morals. Broadly, public policy is based on public interest; but morality is different from interest and policy; and though most public policies may be considered “legitimate”, all morals (or interests) may not be so. WTO jurisprudence has so far failed to appreciate this nuance. The trouble began when the EC - Seals AB ruled that it was not necessary to “determine the exact content of a public moral at issue” (para 5.199): public opinion and EU legislation (empirical evidence) was enough to establish that humane treatment of seals was a moral concern in the EU. What the AB is probably trying to say is that public morals have no “normative meaning”. This is problematic because it gives XX(a) a somewhat “self-judging” nature: till now all countries have claimed “positive” morals; but what stops a Member from claiming that, for them, hostility towards a certain religion, or race, or gender/sex-group, is considered “moral”?
No doubt, a panel reviewing a Member’s measure does not stop after asking whether a moral exists. It must next see if that measure was “designed” to protect public morals. Here too, however, a low threshold has been established: Members must only show that a measure is not incapable of protecting public morals (AB in Colombia – Textiles, para 5. 89). Nevertheless, two additional legal conditions need to be satisfied. First, a Member must demonstrate that the measure was “necessary” to protect its morals. This entails a thorough “weighing and balancing” of the objective’s importance with the measure’s effectiveness and trade disruptiveness; after which the trade restrictiveness of the adopted measure is compared to the trade restrictiveness of “reasonably available alternatives”. This is where Brazil failed in the above case: the complainants suggested alternatives (including tax exemptions for domestic and foreign companies) which the panel found to be WTO-consistent, trade enhancing (rather than restricting) and capable of contributing to Brazil’s stated objective of social inclusion to a higher degree than Brazil’s original measure (by increasing supply and lowering the price of television equipment). A “moral” measure must also pass Article XX’s chapeau test: the Member must show that it has not acted in an “unjustifiable” or “arbitrary” manner, and that it has not tried to “disguisedly restrict trade”. Both these tests have been strictly interpreted by panels and the AB, resulting in a situation where, though all claimed public morals have been accepted, not a single Article XX claim (relating to morals or otherwise) has been successful.
This may be a sufficient safeguard against abuse for now. The situation must be seen in context: as the guarantor of Members’ “regulatory space” for goods trade, Article XX has been criticized for being too old and too limited (only ten recognized objectives) for effectively dealing with the gamut of today’s non-economic concerns. But too much judicial activism could also lead to complications: would other (admittedly legitimate) social objectives – labour, women’s rights etc. – also find a home within public morals? This is not a problem in itself (if animal rights qualify as morals, then why not human rights?), but the question is: where would the line be drawn? And while the answer will come in due time, it is hoped that panels and the AB will begin to delineate some sensible limits to the scope (and meaning) of the inherently amorphous concept of public morals.
Written by Akhil Raina, Marie-Curie Fellow and PhD candidate at the Leuven Centre for Global Governance Studies.
With thanks to Michal Ovádek & Andrei-Gavril Suse (Leuven Centre for Global Governance Studies), and to Vatsal Vasudev (WTO).