Developing nations and LDCs · Dispute Settlement · Legal Analysis · Ongoing disputes at the WTO

To import or not to import? : The case of Argentina- Financial Services

Often, the incentive to write on a subject can be found in the work of experts from that field. When I first began posting for the blog, my main source of trade law news was Simon Lester’s International Economic Law and Policy blog. That, coupled with matter form WorldTradeLaw.net was my daily source of trade inspiration, providing me a solid platform to build up my opinions and bolster my ITL knowledge. The tradition seems to continue in Round 2 of TradeinTransit as well.

Adarsh Ramanujan, a trade lawyer based in Geneva and an alumnus of my law school (NLU-J) recently posted a piece on some interesting legal interpretations found in the panel report (“PR”) on Argentina-Financial Services (DS 453). Though the matter is in appeal and Adarsh’s post is quite detailed (as they usually are), some musings on the matter are in order.

The case involves eight financial, taxation, foreign exchange and registration measures imposed on countries that, in Argentina’s opinion, refused to exchange information in order to promote fiscal transparency. These countries were labelled as “non-cooperating jurisdictions” and this seems to be a negatively worded definition since the implementing measure only allowed the country’s regulating bodies to determine who a “cooperating country” is [See para. 2.6 and 2.7 of the PR]. Since the measures primarily dealt with services and service-suppliers, the GATS agreement was discussed thoroughly.

Panama challenged the measures as being violative of obligations under the GATS and GATT agreements. In particular, Adarsh’s post relates to the interpretation of Articles II and XVII of the GATS and 2.1 of the TBT Agreement. The main question relates to the “treatment no less favourable” standard in trade law, something that comes up quite periodically in the WTO legal texts. The standard basically prohibits member countries from imposing a treatment on foreign entities which could be deemed “less favourable” than that accorded to domestic ones. The interpretation of this, seemingly simple concept, has troubled trade lawyers since the inception of the WTO. In this regard, several tests have been drawn up by WTO panels and Appellate Bodies (ABs), the predominant one being the “competitive conditions” test which prescribes that a treatment would be deemed less favourable if it results in modifying the conditions of competition in the relevant market (imposing country’s market) to the detriment of the foreign supplier, and consequently, to the benefit the domestic supplier/producer.

This test was accepted as applicable to Article XVII of the GATS, which concerns the National Treatment obligation in the agreement. The PR in China-Audiovisuals (para 7.978) was to this very effect. But the question that came up in the Argentina-Financial Services case was whether this test could be imported from Article XVII to Article II of the GATS, which concerns the Most Favoured Nation (MFN) principle in the agreement. Though the panel, on para 7. 220 ruled that such borrowing of interpretation is permissible, Adarsh’s post discussed the viability of the same.

What follows is only to explain and elaborate upon Adarsh’s idea.

We should probably begin by noting that previous ABs have warned against such a direct importation. In the famous case of EC-Bananas, on para 230-233, the AB discusses the panel’s decision to not allow such a lateral transfer of the ‘competitive conditions’ test. Even in this case, the two provisions involved were Articles II and XVII of the GATS. Though it expressly declares that WTO judiciaries should refrain from doing so, it goes on to reverse the panel’s decision and claims that “in casu” such importation is understandable. It argues that for the purpose of interpretation (particularly in such cases), context matters a lot. It found that both provisions deal with de jure as well as de facto discrimination. Since this, in its opinion, informed the context of the interpretation, importing the test from one provision to another was completely valid. Thus the permission to transpose was given in paras. 233 and 234 of its report. The panel had previously found that since the wording and structure of the two Articles was different, this transposition was impermissible. In the panels’s understanding, Article XVII contained the general principle not to discriminate in para 1 and this was followed by specifications on how to not discriminate in paras 2 and 3 which reinforced this principle. Since Article II had nothing of this sort, the panel felt that a different “ordinary” meaning had to be ascribed to the term ‘treatment no less favourable’ and therefore a different test needed to be evolved for it. However, the AB ruled that this structuring of the provisions was not sufficient to give a different ordinary meaning to the term since the phrase, as such, was identical in both. The AB was also not moved by the panel’s reasoning that since Article II relates to MFN and XVII relates to NT, comparison between the two is inadvisable. The AB plainly explained that, logically, there can be multiple ways to draft a discrimination provision and as long as the intention behind both is the same, there should not be any problem in finding a certain degree of co-relation between the two. In the end, it found that the clinching factor was that both provisions had the same context since they covered de jure and de facto discrimination.

In this regard, the panel in Argentina-Financial Services was merely following AB’s dicta.

The more interesting aspect, as Adarsh points out, is with regard to the panel’s finding regarding the relevance of “regulatory aspects” of a measure in its interpretation. This seems akin to the weight given  to “regulatory justifications” under Article 2.1 of the TBT, which includes both – the MFN as well as NT obligations in the agreement. To give some context, Article 2.1 requires the interpreter to look into whether the harm faced by the imports (due to some measure) stems exclusively from a legitimate regulatory justification.

The question then becomes, should an interpreter follow the same modus operandi in interpreting the MFN and NT obligations under the GATS (i.e. Articles II and XVII). But right off the bat, the panel clarifies that any such comparison between the GATS and TBT is unfounded. It reasons that even though the preambles in both allow for members to regulate trade keeping in mind policy objectives, there exist major macro-level differences. First, unlike the GATS, the TBT only concerns the product and not the producer. The GATS on the other hand, provides rules for services as well as service-suppliers. And second, there are no exceptions provided under the TBT to its rules, unlike Article XIV of the GATS. This is notwithstanding the fact that, like the TBT, the GATS preamble talks about the significance of national regulatory objectives. Recital 3 allows members to undertake measures to fulfil national policy objectives (particularly in developing countries) and recital 4 declares that liberalization of trade must give deference to these objectives. So there is in fact some ground to insert “regulatory aspects” in the mix of things that one must analyse to find out whether Articles II and XVII have been violated. However, as Adarsh correctly points out, the panel finally rejected this importation  from the TBT to the GATS i.e. it found that an interpreter need not look into whether the discrimination stems exclusively from legitimate regulatory distinctions. However, this factor has to be considered somewhere in the analysis. Basically, the question of legitimacy of the regulatory distinctions need not be the be-all-and-end-all of the non-discrimination analysis, but the panel must definitely take it into account, especially when they impact the conditions of competition. [See para. 7. 232] On application however, Adarsh opines that the panel’s interpretation of Article II:1 of the GATS and 2.1 of the TBT, is pretty much identical. He explains:

A comparison with the factual application of this principle to one of the 8 measures under challenge gives a better understanding of how this is to be applied. Argentina had engaged in differential treatment between “cooperating countries” and “non-cooperating countries” and regulatory context for this classification was Argentina’s access to tax information on foreign suppliers. Based on evidence, the Panel more or less rejected Argentina’s arguments in all cases simply because of one fact – the classification between “cooperating countries” and “non-cooperating countries was actually not based on whether there was access to tax information; even countries from whom Argentina had no actual tax information were grouped under “cooperating” simply because they were currently negotiating a treaty to that extent (Panama itself was one such example) and at the same time, not all countries who were presently undertaking such negotiation were considered “cooperating”. One can refer to paras. 7.283-292 in this respect on the Panel’s analysis of measure 1 and one can trace similar factual analyses for the remaining measures as well.

When I think over the application of the law to the facts of the case – I fundamentally don’t see how this differs from the Panel assessing whether the differential treatment stems exclusively from regulatory distinctions. On the contrary, it appears that in these facts, because the differential treatment was not applied consistently and exclusively based on the actual access to tax information (legitimate regulatory distinction), Argentina’s justification were rejected.

 All this makes sense right now. But this is just a start. Will be posting more on this, as well as other ITL happenings soon.

Special thanks to Shahid Manjoor for the editing.

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