WTO Arbitrator Gives Mexico Green Light for Countermeasures in Tuna Dispute

27 April 2017

A WTO arbitrator has ruled that Mexico can request to “suspend concessions or other obligations” worth US$163.23 million per year against the United States, in the latest development in their high-profile trade dispute (DS381) on “dolphin-safe” tuna labelling.

The arbitration decision, released on Tuesday 25 April, means that Mexico will be able to ask the WTO’s Dispute Settlement Body (DSB) for authorisation to move forward with these countermeasures, which are expected to affect a select list of US goods imports. The arbitrator’s findings cannot be appealed.

Despite the approval of US$163.23 million, Mexico had actually asked that the arbitrator endorse countermeasures at nearly three times that level, at US$472.3 million per year. The US, for its part, had pushed for the arbitrator to approve a much lower figure, at US$21.9 million annually.

The “suspension of concession or other obligations,” in WTO jargon, means that a member can impose measures that would otherwise be in violation of trade rules, in response to another member having enacted WTO-illegal measures. Getting to the stage of imposing such countermeasures usually involves a long legal process at the global trade body.

At the WTO, an arbitrator is actually a three-person panel which reviews, among other issues, whether the requested countermeasures are equivalent to the level of  “nullification or impairment” of benefits suffered by the complaining party – in other words, the lost benefits that they would otherwise have had as a WTO member if global trade rules had been followed.

The level of this loss is what then determines the suspension of concessions. These countermeasures are meant to be temporary, until the illegal measures are removed or the parties involved reach a “mutually agreed solution” in line with WTO rules.

The US and Mexico have sparred for years over the labelling policy, which has drawn the attention of trade lawyers, environmental groups, and consumer labelling advocates alike. The WTO’s highest court, known as the Appellate Body, ruled in 2012 that the original US measure in place was in violation of global trade rules, on the grounds that it discriminated unfairly against Mexican tuna. (See Bridges Weekly, 16 May 2012)

The US issued changes to the labelling measure the following year. These then faced another challenge by Mexico, which argued that these updates were not enough to resolve the legal issues involved.

After another round of litigation, both a “compliance panel” as well as the Appellate Body agreed that Washington needed to revise the policy further to bring it in line with WTO rules. (See Bridges Weekly, 16 April 2015)

The US then announced another set of changes in 2016, which is the subject of another round of compliance panel proceedings. For the decision circulated on Tuesday, the US’ 2013 tuna labelling policy was determined to be the basis for the arbitrator to assess the nullification or impairment of benefits, rather than the changes made last year.

Compliance proceedings continue

The last several months of the US-Mexico case have seen various legal proceedings on parallel tracks. Along with arbitration, there are two separate “compliance panel” processes currently underway, which are looking at whether Washington’s efforts to update its tuna labelling policy last year have gone far enough to address the aspects that were not compliant with the global trade body’s rules.

Should these proceedings find that the 2016 version of the policy have indeed resolved these compliance issues, Mexico has confirmed that it would have to end these countermeasures, according to sources familiar with the case. Compliance rulings are expected within the coming months.

The office of Mexico’s Secretary of the Economy said on Tuesday that it plans to ask for DSB authorisation immediately, while also taking the necessary steps domestically to prepare for suspending some US imports.

“Mexico will continue defending the interests of its industry and the thorough compliance of international commitments by its trading partners,” said a statement from the government agency’s website, which also referred to the country’s continued commitment to fisheries and oceans sustainability. A statement had not yet been released by the Office of the US Trade Representative by press time.

Understanding labelling impacts

The arbitration proceedings dealt with various issues, such as what type of econometric model to use in calculating the appropriate level of “nullification or impairment.” The central issue affecting that debate was what has caused reduced supply and demand in the United States for canned Mexican yellowfin tuna, along with what would happen to both should the labelling measure be removed.

In reviewing Mexico’s proposed economic model, the arbitrator looked at whether US consumers have a preference for canned yellowfin and whether US retailers would be willing to put those Mexican products in their stores should the labelling scheme be removed, among other underlying assumptions regarding the tuna market.

In this context, the two parties debated how to understand the preferences of American consumers – such as how they actually interpret the meaning of the “dolphin-safe” label on tuna sold in US grocery stores.

The arbitrator therefore reviewed arguments such as whether US consumers would respond more favourably to Mexican tuna if there were dolphin-safe labels that distinguished between “regulated” and “unregulated” setting on dolphins, which refers to the use of nets which temporarily “set” on dolphins in order to catch the tuna swimming underneath.

According to the arbitrator, Mexico had argued that US consumers would respond to labels which clarified whether the type of setting used actually affected dolphin injury or mortality – and that the type of setting used by Mexican fisheries is safe.

The United States, meanwhile, said that its consumers would not be responsive to these distinctions, and are instead more likely to differentiate between tuna caught via setting relative to other types of fishing.

The arbitrator ultimately deemed both arguments in this area “unpersuasive” in light of the survey evidence submitted by the parties and ruled them out when assessing consumer preferences.

The arbitrator also looked at US consumers’ preferences between canned yellowfin tuna and albacore, given that Mexico had argued that yellowfin is a “premium” product while the US had countered that its consumers actually prefer the taste and texture of albacore.

After reviewing related questions, such as concerns over the mercury contents of different types of tuna, the arbitrator ultimately agreed with Mexico that US consumers consider yellowfin to be a “premium” type of tuna.

The arbitrator also looked at whether US retailers would be more likely to sell Mexican yellowfin tuna if the US dolphin-safe labelling policy were removed, examining case studies and statements from various companies, including the grocery multinational Walmart.

“We consider that there is no reason to assume that US retailers would not sell Mexican canned yellowfin after the withdrawal of the Tuna Measure, except those retailers accounting for 26.9 percent of total consumption of tuna products with respect to whom evidence on the record suggests that they would not sell tuna caught by setting on dolphins regardless of whether it carried a dolphin-safe label,” said the arbitrator.

The arbitrator, along with determining that US consumers have a preference for canned yellowfin relative to other species of tuna and that the country’s retailers would likely not have an issue selling it if the US policy were rescinded, also looked at whether removing the labelling measure would ensure that Mexico would be the biggest supplier to the US of this type of tuna.

Mexico’s claim that it could be competitive in selling yellowfin to the US – and would not face greater competition from other countries that have also been affected by the labelling policy – was deemed “plausible.” The arbitrator cited reasons such as the country’s shared border with the United States and the terms of the North American Free Trade Agreement (NAFTA), a three-country deal that covers trade between the US, Mexico, and Canada, among others.

After finding the bulk of Mexico’s arguments behind its economic model to be reasonable, the arbitrator calculated the level of “nullification or impairment” based on a revised version of the model.

ICTSD reporting. 

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