Key findings of WTO Appellate Body concerning textile and footwear imports of Colombia

Key findings of WTO Appellate Body concerning textile and footwear imports of Colombia

On June 7, 2016, the Appellate Body report was circulated to the panel members

Colombia appealed the Panel’s findings that the measure was inconsistent with Article II:1(a) and (b) of the GATT 1994, and that Colombia had failed to demonstrate that its measure satisfied the requirements of Article XX(a) and Article XX(d) of the GATT 1994.

With respect to Article II:1(a) and (b) of the GATT 1994, the Appellate Body considered that the basis upon which the Panel refrained from interpreting Article II:1 was flawed. Specifically, the Appellate Body did not consider that the Panel could have refrained from ruling on the interpretative issue before it simply because the challenged measure did not “solely” cover the type of transactions that Colombia maintained was “illicit trade” and therefore outside the scope of Article II:1. For the Appellate Body, the Panel’s statement implied that the measure at issue applies, or could apply, to some transactions considered by Colombia to be illicit trade, and thus the Panel was required to address the interpretative issue before it. The Appellate Body therefore found that the Panel acted inconsistently with the obligation in Article 11 of the DSU to make an objective assessment of the matter, including an objective assessment of the applicability of the relevant covered agreements, and reversed the Panel’s finding that it was unnecessary for the Panel to issue a finding on whether Article II:1 applies to “illicit trade”.

In completing the legal analysis, the Appellate Body ruled that the scope of Article II:1(a) and (b) does not exclude what Colombia classifies as “illicit trade” from the requirements to respect tariff bindings. The Appellate Body also considered that a Member may seek to address concerns regarding money laundering through the exceptions contained in Article XX of the GATT 1994. The Appellate Body saw no grounds to disturb the Panel’s findings that the compound tariff necessarily exceeds Colombia’s bound tariff rates in the instances set out in the Panel Report, and upheld the Panel’s findings that the compound tariff is inconsistent with Article II:1(a) and (b) of the GATT 1994.

Concerning the Panel’s findings under Article XX of the GATT 1994

With respect to Article XX(a) of the GATT 1994, the Appellate Body found that the Panel erred in concluding that Colombia had failed to demonstrate that the compound tariff is a measure “designed” to protect public morals given the Panel’s recognition that the compound tariff is not incapable of combating money laundering, such that there is a relationship between that measure and the protection of public morals. The Appellate Body considered that the Panel, contrary to the legal standard under Article XX(a), prematurely concluded its analysis without assessing the degree of contribution of the measure to its objective, and its trade-restrictiveness, together with the other factors relevant to a weighing and balancing exercise with a view to assessing the “necessity” of the measure. The Appellate Body therefore reversed the Panel’s finding that Colombia had failed to demonstrate that the compound tariff is “designed” to combat money laundering.

In completing the legal analysis, the Appellate Body found that the measure is indeed “designed” to protect public morals in Colombia within the meaning of Article XX(a). However, in examining whether the compound tariff is “necessary” to protect public morals, the Appellate Body stated that the Panel’s findings revealed that there was a lack of sufficient clarity with respect to key aspects of the “necessity” analysis, particularly regarding the degree of contribution of the measure at issue to the objective of combating money laundering and the degree of trade-restrictiveness of the measure. The Appellate Body therefore found that Colombia had not demonstrated that the compound tariff is a measure “necessary to protect public morals” within the meaning of Article XX(a).

After setting out and applying the legal standard under Article XX(d) of the GATT 1994, the Appellate Body reached similar conclusions in respect of the Panel’s analysis under that provision. The Appellate Body found that the Panel erred in concluding that Colombia had failed to demonstrate that the measure is “designed” to secure compliance with the relevant provision of laws or regulations that are not GATT-inconsistent, given its recognition that the compound tariff is not incapable of securing compliance with Article 323 of Colombia’s Criminal Code, and reversed the Panel’s findings in that regard. The Appellate Body completed the legal analysis and found that the measure at issue is “designed” to secure compliance with relevant provisions of the laws or regulations that are not GATT‑inconsistent. However, the Appellate Body found that Colombia had not demonstrated that the compound tariff is a measure “necessary” to secure compliance with Article 323 of Colombia’s Criminal Code, within the meaning of Article XX(d).

In the light of the above findings, the Appellate Body did not consider it necessary to examine additional claims of error by Colombia, including that the Panel erred in its “necessity” analysis under Article XX(a); that the Panel acted inconsistently with its duty to conduct an objective assessment of the matter under Article 11 of the DSU in its analysis under Article XX(a); and that the Panel erred in its analysis under the chapeau of Article XX.

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