European Journal of International Law
1998 Vol. 9 (1): 181
http://www.ejil.org/journal/Vol9/No1/sr1g.html
(slightly reformatted without change of the contents)	

Decisions of the Appellate Body of the World Trade Organization
Hormones: European Communities - Measures Affecting Meat and Meat Products
David R. Hurst*

WTO Appellate Body Report: Hormones: European Communities - Measures Affecting Meat and Meat Products, AB-1997-4, WT/DS26/AB/R, WT/DS48/AB/R, Adopted by Dispute Settlement Body, February 13 1998, European Communities, United States and Canada, Appellant; European Communities, Canada and United States, Appellee; Australia, New Zealand and Norway, Third Participants; Feliciano, Ehlermann and	Matsushita.

I.   Abstract

In EC Measures Concerning Meat and Meat Products (Hormones), the Appellate Body determined that EC measures prohibiting the marketing or import of meat and meat products from animals treated with certain hormones were not “based on” a risk assessment under Article 5.1 of the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”), and therefore the measures were inconsistent with the SPS Agreement.

The significance of the Hormones case extends well beyond the particular dispute because the case provided the Appellate Body with its first opportunity to consider the SPS Agreement.  In adopting the SPS Agreement, WTO Members recognized that a discrimination-based test is a poor filter for distinguishing between legitimate SPS measures, and those implemented for protectionist purposes; and that even non-discriminatory measures have the clear potential to hamper international trade.  The incorporation of this latter understanding into the text of the SPS Agreement marks a departure from the GATT’s discrimination-based regime.  The SPS Agreement seeks to root out not only those measures which discriminate, but also those which are arbitrary in the sense that they do not really serve to advance their purported purpose of protecting life and health.  Under the SPS Agreement, a measure may be invalidated if it is not “based on” an objective standard -- either an international standard or a “risk assessment” -- even if the measure is not directly or indirectly discriminatory.

While the Panel’s interpretation of the SPS Agreement moved the Agreement far beyond the GATT’s discrimination-based regime, the Appellate Body took a much more deferential approach in its interpretation of the SPS Agreement, and in the process gave back much -- if not all -- of the ground claimed by the Panel.  In short, the Appellate Body found that in order to show that a SPS measure is “based on” an objective standard, only a “rational relationship” between the measure and standard need be established.  Although it is not entirely clear, the Appellate Body’s analysis suggests that this “rational relationship” standard is quite easily satisfied.  Once the “based on” requirement is sufficiently weakened, the result of the analysis under the SPS Agreement essentially turns on the Agreement’s weak anti-discrimination provision -- and as the Appellate Body’s analysis clearly demonstrates, analysis under this provision degrades into an unprincipled inquiry into the intent of the Member imposing a measure.

In its disposition of the case, the Appellate Body addressed several important issues of relevance to general international law.  First, in the context of analyzing the meaning of the phrase “based on,” the Appellate Body cited the interpretative principle of in dubio mitius for the proposition that given multiple possible interpretations, the meaning which is less onerous to the party assuming an obligation is preferred.  Second, the Appellate Body found it unnecessary to determine whether the precautionary principle had risen to the status of a generally accepted principle of international law, because even if it had, the fact that the principle is given specific meaning in several articles of the SPS Agreement means that the principle would not override the explicit language of other articles.  Third, the Appellate Body found that whether or not distinctions in levels of sanitary protection result in “discrimination or a disguised restriction on international trade” turns on the intent of the party imposing the measure.  Thus, a party’s good faith may immunize otherwise discriminatory measures.  Finally, the Appellate Body’s findings with respect to the selection and use of experts, standard of review, and terms of reference have significant implications for the role of panels in the dispute resolution process under the SPS Agreement, and indeed under any agreement governed by the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”).

II. Background

A.   Procedural History

On May 20, 1996, the Dispute Settlement Body (“DSB”) established a panel in a complaint brought by the United States relating to an European Communities (“EC”) ban on imports of meat and meat products from cattle which had been treated with certain natural or synthetic hormones for growth-promotion purposes.  On October 16, 1996, the DSB established a panel in a complaint brought by Canada relating to the same subject matter.  On November 4, 1996, the EC and Canada agreed that the U.S. and Canadian panels would be composed of the same three persons (hereinafter “Panel”).  The U.S. and Canadian Panel Reports, Hormones were circulated to Members of the World Trade Organization (“WTO”) on August 18, 1997.  The Reports, which are similar but not identical, concluded that the EC had violated various provisions of the SPS Agreement.  On September 24, 1997, the EC notified the DSB of its decision to appeal; the oral hearing was conducted on November 4-5, 1997.  The Report of the Appellate Body was circulated to Members of the WTO on January 16, 1998.

B.   The EC directives at issue

The import ban was originally promulgated in a series of EC Directives enacted prior to January 1, 1995, the date of entry into force of the WTO Agreement, of which the SPS Agreement is an integral part.  Then, on July 1, 1997, these directives were repealed and replaced by Council Directive 96/22/EC, of April 29, 1996.  Directive 96/22/EC prohibits the marketing or import of meat and meat products from animals treated with substances having a hormonal or thyrostatic action, including the six hormones at issue.  However, the Directive allows the administration -- for therapeutic and zootechnical purposes -- of certain substances having a hormonal or thyrostatic action.

III. Applicability of the SPS Agreement

A.   In General

All parties to the dispute agreed that the measures at issue were sanitary measures, and that, under Article 1.1 of the SPS Agreement, the SPS Agreement was applicable to the dispute.  Sanitary and phytosanitary measures include those applied “to protect human … life or health within the territory of the Member from risks arising from additives, contaminants, toxins or disease-causing organisms in foods.”  Footnote 5 to Annex A clarifies that “contaminants” include “veterinary drug residues.”  Unquestionably, the measures at issue were aimed at regulation of veterinary drug residues in order to protect human health.  According to Article 1.1 of the SPS Agreement, the “Agreement applies to all sanitary and phytosanitary measures which may, directly or indirectly, affect international trade.”  Because the measures at issue resulted in a ban on meat and meat products from treated animals, the measures clearly affected international trade.

B.	Temporal Application

Although the majority of the EC directives in dispute were enacted prior to January 1, 1995, the date of entry into force of the WTO Agreement, the Panel found, and the Appellate Body affirmed, that the SPS Agreement was applicable to the dispute.  First, Article 28 of the Vienna Convention on the Law of Treaties states that “[u]nless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to … any situation which ceased to exist before the date of the entry into force of the treaty.”  (emphasis added).  On this basis, both the Panel and the Appellate Body found that the SPS Agreement would apply to the measures at issue -- which did not cease to exist when the Agreement entered into force -- unless the Agreement revealed a contrary intention.  According to the Appellate Body, the SPS Agreement reveals no such contrary intention, and in fact several Articles indicate that the Agreement is intended to cover preexisting measures.  Finally, Article XVI.4 of the WTO Agreement states that each Member “shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.”  This removes all doubt that the SPS Agreement does not apply to the previously enacted measures.
C.	 Applicability of the GATT

The Panel found that the SPS Agreement is a “free standing” agreement which imposes obligations in addition to those imposed by the GATT.  The EC had asserted that the substantive provisions of the SPS Agreement merely interpret Article XX(b) of the GATT, so that without a prior violation of the GATT, the SPS Agreement would not apply.  The Panel rejected this reading on several grounds.  First, Article 1.1, which governs the applicability of the SPS Agreement, requires only that the disputed measure be a sanitary or phytosanitary measure, and that the measure affect international trade.  Thus, under the plain language of the statute, Article 1.1 does not require a prior violation of the GATT to trigger the applicability of the SPS Agreement.  Second, in addition to elaborating on provisions already contained in the GATT, the SPS Agreement establishes its own substantive obligations in order to promote, inter alia, the harmonization of sanitary and phytosanitary measures.  Third, Article 2.4 of the SPS Agreement provides that measures which conform with the SPS Agreement are presumed to satisfy the provisions of the GATT, in particular the provisions of Article XX(b); and Article 3.2 of the SPS Agreement provides that measures which conform to international standards are presumed to be consistent with the GATT 1994.  These presumptions imply that the SPS Agreement contains at least as many, and probably more, obligations than Article XX(b) of the GATT 1994.

In order to conduct its investigation in the most efficient manner, the Panel began its analysis with the SPS Agreement.  If instead the Panel had begun its analysis with the GATT, it would nonetheless have been necessary for the Panel to subsequently consider the SPS Agreement.  On the one hand, if a violation under the GATT had been made out, it would have been necessary to determine whether a defense under Article XX(b) could be made out -- and a defense under Article XX(b) can only be made out if a measure does not violate the SPS Agreement.  On the other hand, if no violation under the GATT had been made out, it would nonetheless have been necessary to consider the SPS Agreement because consistency with the GATT does not imply consistency with the SPS Agreement.  In contrast, measures conforming to the SPS Agreement are presumed consistent with the GATT 1994.  

D.	 Applicability of the TBT Agreement

Because the Agreement on Technical Barriers to Trade (“TBT Agreement”) “do[es] not apply to sanitary and phytosanitary measures as defined in Annex A of the [SPS Agreement],” and the measures at issue were clearly sanitary measures, the Panel found that the TBT Agreement was not applicable to the dispute. 

IV.   Analysis Under the SPS Agreement

A.   Analysis Under Article 3

The analysis under the SPS Agreement began with Article 3.  Article 3 is designed “[t]o harmonize sanitary and phytosanitary measures on as wide a basis as possible.”  In order to reach this objective, Article 3.1 provides that “Members shall base their sanitary or phytosanitary measures on international standards …, where they exist, except as otherwise provided … in paragraph 3.”  Article 3.2 provides that when measures “conform to” international standards, the measures will be presumed consistent with the relevant provisions of the SPS Agreement and of GATT 1994.  Article 3.3 provides that parties to the Agreement may introduce or maintain sanitary or phytosanitary measures which are more stringent that those “based on” international standards, but only “if there is a scientific justification,” or if the levels of protection required by the measures are established in accordance with the provisions of Article 5.  Articles 3.1 through 3.3 are not applicable if no international standards exist for the measure in question, e.g., as in the case of melengestrol acetate (“MGA”).
1. Analysis Under Article 3.1

The availability of international standards

The SPS Agreement uses the levels of protection specified in international standards, guidelines, and recommendations as a baseline for examining the levels of protection provided by measures implemented by parties to the Agreement.  Annex A to the SPS Agreement lists the applicable international standards for food safety, animal health and zoonoses, and plant health.  With respect to food safety, the applicable standards are those established by the Codex Alimentarius Commission (“Codex”), an international body of which most WTO Members are members.  Codex establishes, inter alia, Acceptable Daily Intakes (“ADIs”) and Maximum Residue Limits (“MRLs”) for various veterinary drugs.  An ADI for a particular veterinary drug provides an estimate of the amount of that drug which may be ingested over a lifetime without appreciable health risk.  The corresponding MRL sets a limit on the amount of drug residue permitted in food in order that the ADI not be exceeded.  Codex’s recommendations are often based on the recommendations of the joint FAO/WHO Expert Committee on Food Additives (“JECFA”), an organization composed of independent scientists.

Codex found that, with respect to the natural hormones at issue, when used for growth-promotion purposes in accordance with good animal husbandry practice, ADIs and MRLs were “unnecessary” because the use of the hormones is unlikely to pose a health hazard.  The reasons for this conclusion are found in the 32nd JECFA Report of 1988, on which the Codex standards are based.  According to JECFA, the potential toxicity of residues of these hormones is directly related to their hormonal effect, and thus, the level of hormone residues in food is determinative of the hormones’ toxic effects.  The JECFA Report found that the residue levels of these natural hormones found in meat from treated animals were extremely low relative to the amounts produced daily in human beings, or occurring naturally in other foods.  Additionally, the total residue levels found in meat from treated animals fell within the normal range of levels found in meat from untreated animals.

With respect to the synthetic hormones at issue, Codex established ADIs and MRLs for trenbolone and zeranol, but not for melengestrol acetate.  The 1988 JECFA Report concluded that, as in the case with the natural hormones at issue, the potential toxicity of residues of these hormones is directly related to their hormonal effect.  

Analysis under Article 3.1

Article 3.1 provides that “Members shall base their sanitary or phytosanitary measures on international standards, guidelines or recommendations, where they exist, except as otherwise provided … in paragraph 3.”  As discussed above, Codex found it unnecessary to establish ADIs and MRLs for the natural hormones at issue, effectively establishing an “unlimited” residue standard for these hormones.  On the other hand, Codex established ADIs and MRLs for two of the three synthetic hormones at issue; no standards were established for the third synthetic hormone.  Based on Annex A’s clear language that with respect to food safety, the Codex standards relating to veterinary drug residues are “international standards, guidelines and recommendations,” the Panel found that international standards exist in the sense of Article 3.1 for five of the six hormones at issue.  The Panel’s finding was not appealed.

Once it is determined that international standards exist, Article 3.1 requires that the sanitary measures at issue be based on those standards.  The Panel found that Article 3.2 “equates measures based on international standards with measures which conform to such standards.”  Then, finding that Article 3.3 “explicitly relates the definition of sanitary measures based on international standards to the level of sanitary protection achieved by these measures,”  the Panel concluded “that for a sanitary measure to be based on an international standard in accordance with Article 3.1, that measure needs to reflect the same level of sanitary protection as the standard.”  While the EC measures under consideration banned residues of the hormones under consideration when administered for growth-promotion purposes, thereby establishing a “no residue” level, the Codex standards allowed quantifiable residues of all hormones except MGA (for which no standards had been established).  Thus, the Panel concluded, the EC measures in dispute (except with respect to MGA) were not based on international standards as mandated by Article 3.1.  On appeal, the EC did not argue that its measures were based on international standards.

The Appellate Body rejected the Panel’s finding that “based on” has the same meaning as “conformed to.”  First, the Appellate Body found that the ordinary meanings of the terms were different; “conformed to” is narrower in scope than “based on,” so that it would be possible for a measure to be “based on” a standard, while not “conforming to” the standard.  Second, the terms are used in different articles, and in different paragraphs of the same article, and it can not be assumed that such usage was merely inadvertent.  Third, the Panel’s interpretation runs counter to the object and purpose of Article 3.  That is, harmonization is a future goal of Article 3; by requiring conformance to international standards, the Panel is forcing harmonization now.  Finally, the Appellate Body cited the interpretative principle of in dubio mitius for the proposition that given multiple possible interpretations, the meaning which is less onerous to the party assuming an obligation is preferred.  Here, it could not be assumed that the parties to the Agreement intended “based on” to be read “conformed to,” because such an interpretation would increase the burden of compliance relative to that imposed by interpreting “based on” less restrictively.

Comment

As the Appellate Body noted, “the Panel’s entire analysis rests on its flawed premise that ‘based on,’ as used in Articles 3.1 and 3.3, means the same thing as ‘conform to’ as used in Article 3.2.”  The Panel began its analysis of the term “based on” with the conclusion that “Article 3.2, which introduces a presumption of consistency with both the SPS Agreement and GATT for sanitary measures which conform to international standards, equates measures based on international standards with measures which conform to such standards.”  In order for such a conclusion to be accepted -- in the face of a complete absence of textual support in Article 3.2 itself -- the Panel would have had to provide substantial support for its position.  In fact, however, the Panel stated its conclusion as a premise -- and therefore this premise simply can not be credited.  In contrast, the Appellate Body provides substantial support for its interpretation -- an interpretation which, unlike the Panel’s, does not require a strained reading of Article 3.2 and the surrounding articles.

Although the Appellate Body did not provide clear guidance on the meaning of “based on” in the context of Article 3.1, some direction may be gleaned from the Body’s discussion.  The Appellate Body stated that “[a] thing is commonly said to be ‘based on’ another thing when the former ‘stands’ or is ‘founded’ or ‘built’ upon or ‘is supported by’ the latter.”  In other words, a measure may be said to be based on an international standard when “only some, not all, of the elements of the standard are incorporated into the measure.”  The Appellate Body defined “conform to” to require an identity between the measure and the international standard, and found that in contrast to the relationship required to support a finding that a measure is based on an international standard, “much more is required before one thing may be regarded as ‘conform[ing] to’ another.”  Thus, in order to establish that a measure is based on an international standard, a relatively weak link between measure and standard is required.   This conclusion is consistent with the Appellate Body’s analysis in the context of Article 5.1, where the same “based on” language is employed.  In the Article 5.1 context, the Appellate Body found that in order for a measure to be based on a risk assessment, the measure must be rationally related to a risk assessment.  Because Articles 3.1 and 5.1 perform analogous functions, it seems appropriate that the language appearing in both Articles should be given similar meaning.

When international standards are framed in terms of numerical limits, e.g., ADIs and MRLs, it is difficult to translate the Appellate Body’s general guidance -- i.e., that much less than identity between a measure and a standard is required to find that the measure is based on the standard -- into hard numbers.  Certainly, if a measure establishes an appropriate level of protection at a level 5-10 percent lower than the relevant standard, most people would not say that the levels of protection are much different.  The question becomes significantly closer when the variation rises to 20-30 percent, and certainly by the time the variation reaches 50 percent the levels of protection would be considered by most people to be much different. 

Because the Panel found that none of the EC measures were based on international standards under Article 3.1, and the Appellate Body never reached the issue, neither the Panel nor the Appellate Body decision provide guidance as to the proper analysis under Article 5 when a measure is found to comply with Article 3.1.  (Under the Appellate Body’s view of Articles 3.1, 3.2, and 3.3 as applicable to different situations, it is only necessary for a measure to satisfy one of these articles.)  As discussed above, Articles 3.1 and 5.1 perform analogous functions, so it would be repetitive to require that a measure which complies with Article 3.1 to nonetheless comply with Article 5.1.  Additionally, if compliance with 5.1 were required, the incentive structure of Article 3 would be damaged.  Under Article 3.2, if a measure “conforms to” an international standard, it will be presumed consistent with both the SPS Agreement, and with GATT 1994.  Under Article 3.3, a Member may implement a more stringent measure than that which could be justified as being “based on” an international standard, but there is a penalty: It must be shown that the measure is based on a risk assessment, and further that Articles 5.4 - 5.6 are satisfied.  Under Article 3.1, if a measure is “based on” an international standard, the measure does not gain a presumption of compliance with the SPS Agreement or with GATT, but there should be some benefit relative to Article 3.3.  Finally, and most simply, a measure which is based on an international standard is based on a risk assessment -- an assessment conducted by Codex or other designated organization.  

Because Articles 5.4 - 5.6 serve a separate function from that served by Articles 3.1 and 5.1, Articles 5.4 - 5.6 are an integral part of the analysis regardless of whether the measure is based on an international standard under Article 3.1, or based on a risk assessment under Article 5.1. 

2.	Analysis under Article 3.3

Because it was determined that the EC measures in dispute were not based on international standards, the analysis moved from Article 3.1 to Article 3.3.  Under Article 3.3, a Member may implement a more stringent measure than that which could be justified as being “based on” an international standard, but the right is not unqualified.  On its face, Article 3.3 allows measures which are not based on international standards in two instances: (1) when there is “scientific justification” for the measures; and (2) when the measures comply with Article 5.  Although the disjunctive nature of Article 3.3 implies that there is a difference between these choices, both the Panel and the Appellate Body concluded that compliance with Article 3.3 requires compliance with Article 5.  The Appellate Body’s conclusion was based on several considerations.  First, the footnote to Article 3.3 states that there is “scientific justification” in the sense of Article 3.3 when measures are adopted “on the basis of an examination and evaluation of available scientific information in conformity with the relevant provisions of [the SPS] Agreement.”  Article 5.1 mandates such an examination, termed a “risk assessment,” and Articles 5.2 and 5.3 describe factors to be considered in such an assessment, including “scientific evidence.”  Second, the second sentence of Article 3.3 states that “measures … shall not be inconsistent with any other provision of this Agreement.”  Textually, “other provisions” include both Article 5 and Article 2.  Finally, the Appellate Body found that the requirement for a risk assessment is necessary to maintain the negotiated balance between promoting international trade and protecting health.

B.	Analysis Under Article 5

As both the Panel and the Appellate Body concluded that compliance with Article 3.3 requires compliance with Article 5, the analysis proceeded from Article 3.3 to Article 5.  Article 5 deals primarily with two issues: risk assessment and determination of an appropriate level of sanitary protection (sometimes called “risk management”).  Articles 5.1 - 5.3 deal with the former, and Articles 5.4 - 5.6 deal with the latter.  Article 5.7, which was not at issue in this dispute, authorizes the adoption of provisional sanitary measures when existing scientific information is insufficient to reach a definitive conclusion regarding the necessity of a measure.

1.   Analysis under Article 5.1

As noted above, Articles 5.1 - 5.3 deal with risk assessment.  In particular, Article 5.1 requires that sanitary measures be “based on an assessment, as appropriate to the circumstances, of the risks to human … life or health,” while Articles 5.2 and 5.3 list factors which must be taken into account when conducting a risk assessment.  

Definition and Existence of a “Risk Assessment” 

The first step in determining whether a measure is based on a risk assessment is to establish whether a risk assessment exists.  Although the SPS Agreement itself provides little guidance as to the characteristics of a risk assessment, the analyses of the Panel and Appellate Body provide important instruction in this area.  The most significant findings of the Panel and Appellate Body are summarized below.

In the end, the Panel found that with respect to all hormones except MGA, several of the scientific reports invoked by the EC appeared to meet the requirements of a risk assessment, and therefore the Panel assumed that the EC had met its burden of demonstrating the existence of a risk assessment in the sense of Article 5.1 with respect to these hormones.   With respect to MGA, the Panel found that the EC had not met its burden of demonstrating the existence of a risk assessment.  These findings were not appealed.

(1)	Requirements for Scientific Studies

Both the Panel and Appellate Body imposed requirements, beyond those textually supported by the Agreement, with which studies must comply in order to be considered valid risk assessments.  According to Annex A.4, “risk assessment” is defined as “the evaluation of the potential for adverse effects on human … health arising from the presence of additives [or] contaminants … in food.”  (emphasis added).  In addition to requiring that a risk assessment evaluate the health risks associated with hormone residues as found in meat or meat products,  both the Panel and Appellate Body required that the hormones had been administered for growth-promotion purposes.   The Panel seemed to tie both of these requirements to an underlying requirement that the scientific evidence comprising a risk assessment had to have considered hormone residue levels comparable to those which are typically found in meat treated with hormones for growth-promotion purposes in accordance with good veterinary practice.  Finally, both the Panel and the Appellate Body required that the studies focus on the particular hormones at issue, rather than classes or categories of hormones. 

(2)	Risk Assessment must Include All Risks

The Panel found that the obligation to base a sanitary measure on a risk assessment could be viewed as a specific application of the basic obligations contained in Article 2.2, which mandates that sanitary measures are to be “based on scientific principles,” and are “not [to be] maintained without sufficient scientific evidence.”  The Panel’s statements that “an assessment of risks is … a scientific examination of data and factual studies,” and that “a risk assessment … is a scientific process aimed at establishing the scientific basis for the sanitary measure,” are in accordance with this position.

The Appellate Body agreed with the Panel’s conclusion that Article 5.1 could be viewed as a specific application of the basic obligations contained in Article 2.2, and “stress[ed] that Articles 2.2 and 5.1 should constantly be read together.”  At the same time, the Appellate Body was careful to note that all risks to human health -- including “matters not susceptible of quantitative analysis by the empirical or experimental laboratory methods commonly associated with the physical sciences” -- should be considered in a risk assessment.  The Appellate Body referred to the language of Article 5.2 -- that a risk assessment take into account, inter alia, “available scientific evidence,” “relevant processes and production methods,” and “relevant inspection, sampling and testing methods” -- to support its position.  In particular, the Appellate Body found that “risks arising from failure to comply with the requirements of good veterinary practice in the administration of hormones for growth promotion purposes” and “risks arising from difficulties of control, inspection and enforcement of the requirements of good veterinary practice” were relevant to the present case.  Because the EC had only presented evidence regarding risks in cases where hormones had been administered in accordance with good veterinary practice, the Appellate Body concluded that the EC had not conducted a risk assessment evaluating the risks resulting from the failure to administer hormones in accordance with good veterinary practice. 

(3)	No minimum Quantitative Requirement

No threshold level of risk is required before a risk assessment can be considered valid in the sense of Article 5.1.  In one instance in the Panel reports, the Panel arguably implies that a 0-1 in a million risk would not be sufficient to serve as a basis for a sanitary measure.  To the extent that the Panel established such a risk threshold, the Appellate Body rejected the holding of the Panel.  Thus, any quantifiable risk -- no matter how small -- may serve as a basis for sanitary measures. 

On the other hand, the Appellate Body recognized the validity of the closely-related concept of “zero risk.”  The EC had asserted that since science can not assure to a certainty that the hormones at issue do not pose a threat to human health, there is always some risk -- perhaps unquantifiable -- which may serve as a basis for sanitary measures.  The Panel found that “if there is no scientific evidence of an identifiable risk, there is no basis on which to adopt a measure … under the SPS Agreement, except as provided in Article 5.7.”  The Appellate Body agreed that the theoretical uncertainty referred to by the EC was not the type of risk to be assessed under Article 5.1.

Comment

The Appellate Body’s finding regarding “zero risk” clarifies the boundary between Article 5.1 -- which presupposes the existence of evidence of risk -- and Article 5.7, which allows a Member to provisionally adopt SPS measures when scientific evidence is insufficient to support an analysis under Article 5.1.  In assessing whether a SPS measure is “based on” a risk assessment under Article 5.1, a panel must scrutinize the relationship between the measure and a risk assessment.  If a risk assessment points to no risk but the theoretical uncertainly inherent in scientific investigation, then there is nothing concrete to serve as a basis for comparison with the measure, and a meaningful comparison between the measure and risk assessment is impossible.  Therefore, unless a risk assessment provides evidence of a “concrete” risk, meaningful analysis under Article 5.1 is not possible.  On the other hand, Article 5.7 specifically provides for the implementation of provisional SPS measures while “Members … seek to obtain the additional information necessary for a more objective assessment of risk.”

The Appellate Body’s related finding -- that a risk assessment need not demonstrate a threshold level of risk in order to serve as a basis for a SPS measure -- recognizes that panels do not have the mandate to pass on the substantive merits of SPS measures.  If it instead were determined that a risk assessment must demonstrate a threshold level of risk in order to serve as a basis for a SPS measure, then a Member would be unable to establish standards to protect against less-than-threshold risks.  In other words, Members would be powerless to protect their populations against quantifiable -- although relatively minor -- threats to health and life.  This is not the intent of the SPS Agreement, which states in its preamble that “no Member should be prevented from adopting or enforcing measures necessary to protect … life or health.”  It should be noted that the Appellate Body’s finding that there is no threshold risk requirement does not make the test under Article 5.1 any less rigorous.  Regardless of the magnitude of the risk demonstrated by the risk assessment, the test of Article 5.1 -- i.e., that the measure be based on a risk assessment -- still must be satisfied.

(4)	Risk assessment may contain both majority and minority views

The Appellate Body found that it is unnecessary for a risk assessment to reach a “monolithic conclusion”; i.e., a risk assessment may present both majority and minority viewpoints.  Although in most cases governments will base their measures on mainstream scientific opinion, responsible and representative governments may act in good faith on the basis of what, at a given time, may be a divergent opinion coming from qualified and respected sources.  By itself, this does not necessarily signal the absence of a reasonable relationship between the SPS measure and the risk assessment, especially when the risk involved is life-threatening in character and is perceived to constitute a clear and imminent threat to public health and safety.

The Appellate Body noted that the presence or absence of the required reasonable relationship must be assessed on a case-by-case basis.

Comment

The Appellate Body’s finding that a measure may be based on a minority viewpoint does not signal a general weakening of the requirements of Article 5.1.  First, the Appellate Body’s finding does not indicate that unsubstantiated claims are sufficient to support SPS measures.  Even if a risk assessment represents both majority and minority viewpoints, both must be supported by objective evidence.  Therefore, the fact that a risk assessment is based on a minority viewpoint does not mean that it lacks an objective basis.  The Appellate Body’s statements are directed toward the situation where there are divergent viewpoints regarding the existing body of scientific information.  The Appellate Body’s finding reflects its understanding that it is not unusual for scientists viewing the same evidence to draw different conclusions.  The Appellate Body’s statements do not suggest that a minority viewpoint -- without objective support -- can overwhelm mainstream scientific opinion.  As discussed above in the context of “zero risk,” Article 5.1 is simply not applicable when there is insufficient scientific evidence to conduct an objective assessment of risk.  Second, when a measure is based on a minority viewpoint, the relationship between the measure and the risk assessment will be subject to more stringent review.  The Appellate Body stated that “[b]y itself, [reliance on a minority viewpoint] does not necessarily signal the absence of a reasonable relationship.”  The Appellate Body’s language indicates that reliance on a minority viewpoint is suspect, but not necessarily fatal.

The Appellate Body’s good faith argument in this context should be compared to its good faith argument in the context of Article 5.5, where good faith is decisive in the determination of whether distinctions in levels of sanitary protection result in “discrimination or a disguised restriction on international trade.”  In both cases, the Appellate Body invokes “good faith” in order to distinguish measures enacted for protectionist reasons from those designed to protect human life and health.  As discussed in more detail in the context of Article 5.5, there is no principled means to make this determination on the basis of good faith.  As a consequence, Article 5.5’s reliance on a Member’s intent essentially eviscerates the usefulness of that Article as a meaningful tool for distinguishing between valid and invalid SPS measures.  In the context of Article 5.5, the Appellate Body found evidence of good faith in “[t]he documentation that preceded or accompanied the enactment of the prohibition on the use of hormones for growth promotion … that formed part of the record of the Panel.”  However, the same documentation provided evidence that the EC was in part motivated by a desire to provide more favorable treatment to domestic beef producers.  At bottom, the determination comes down to the reviewing body’s “sense” of the totality of the evidence.  

Reliance on a good faith standard in the context of a risk assessment is far less damaging than in the context of Article 5.5 because in the former instance, even if reliance on a minority viewpoint is permitted, the required “rational relationship” between the measure and the risk assessment provides an objective “safety net.”  Certainly, “rational” is susceptible to an interpretation under which good faith is relevant.  However, the “rational relationship” test under Article 5.1 is a test of scientific rationality.  The Appellate Body’s language itself recognizes that “good faith” is not sufficient to satisfy the “rational relationship” test; in fact, the Appellate Body indicates that when good-faith reliance on a minority viewpoint is proffered as the basis for a SPS measure, the relationship between the measure and the risk assessment will be subject to more rigorous scrutiny.

Article 5.1’s Procedural Requirement

The Panel determined that Article 5.1’s requirement that a sanitary measure be based on a risk assessment has both a procedural and a substantive aspect.  The Panel found that according to the ordinary meaning of the words “based on,” read in the light of the object and purpose of Article 5, Article 5.1 requires that the party imposing the measure “actually took into account a risk assessment when it enacted or maintained its sanitary measure.”  This is a procedural requirement that a Member imposing a SPS measure take into consideration a risk assessment prior to implementation -- even if the conclusions reached in the risk assessment are ultimately disregarded.  In the case of the EC measures at issue, the Panel found no evidence that a risk assessment was considered in advance; the Panel noted specifically that the preambles to the EC measures never mentioned the scientific studies now being invoked by the EC.  Therefore, the EC measures failed to meet Article 5.1’s procedural requirement.
The Appellate Body disagreed with the Panel’s construction of the term “based on,” and found that there is no subjective component to Article 5.1.  Instead, the Appellate Body found that “‘based on’ is appropriately taken to refer to a certain objective relationship between two elements, that is to say, to an objective situation that persists and is observable between an SPS measure and a risk assessment.”  In other words, given a SPS measure and a risk assessment, a panel is able to assess whether the measure is “based on” the risk assessment by simply comparing the conclusions implicit in the SPS measure and the conclusions reached by the risk assessment.  Whether or not the Member imposing the measure in fact considered the risk assessment is irrelevant.  The Appellate Body expressed concern that a procedural requirement could lead to the disregard of relevant scientific evidence when a measure was being examined, especially in the case of measures enacted prior to the effective date of the WTO Agreement.  The Appellate Body also noted that the content of preambles of legislative acts is driven by considerations of WTO Members’ internal legal orders.  In other words, a measure’s preamble can not be taken as objective evidence of the process behind its implementation.

Comment

Although the term “based on” seems susceptible to both the Panel’s and the Appellate Body’s interpretations,  given the SPS Agreement’s ultimate goal of harmonization of sanitary measures among Members, the Panel’s interpretation seems more desirable.  When Members are forced to consider the available scientific evidence before implementing measures, Members implementing measures dealing with the same subject matter will tend to work from a common base of knowledge.  Although exposure to the same scientific evidence does not guarantee harmonization, such exposure, combined with Members’ realization that their measures’ bases in science must withstand scrutiny under the SPS Agreement, will certainly promote harmonization.  The Appellate Body’s objective test -- that when a measure is challenged, it must be shown that there is a “rational relationship” between the measure and a risk assessment -- provides only indirect evidence that the Member investigated the available scientific evidence prior to enacting its measure.  In other words, if the Member can locate scientific evidence sufficient to constitute a risk assessment, then it will be presumed that such evidence was considered prior to enactment.  Unquestionably, the Appellate Body’s test opens the door to ex post facto rationalization.  A Member seeking to justify its measure can scour the scientific realm for support for its position, and then claim that the evidence located is a risk assessment on which its measure is based.  

Even more troubling is that under the Appellate Body’s objective test, a Member’s responsibility to ensure that its sanitary measures have a basis in a risk assessment effectively begins only when a measure is disputed -- and most measures will not be disputed.  Thus, for a Member seeking to avoid the constraints imposed by the SPS Agreement, it seems a worthwhile gamble to implement measures as driven by domestic policy considerations -- and without consideration for the measures’ impact on international trade.  Under such a scenario, most measures will never be challenged -- and for those measure that are challenged, a careful search of the relevant field will likely yield some basis for the measure.  Occasionally, a measure will be invalidated, but the majority of measures will never be considered.  

Under the Panel’s test, a Member implementing a measure must provide evidence that it “actually took into account a risk assessment when it enacted or maintained its sanitary measure.”  The test thus encourages Members to consider the available scientific evidence in advance, and to document that such evidence was considered.  The Panel’s test promotes harmonization by encouraging Members to evaluate the scientific basis for all their measures, not just those which are later disputed -- and this evaluation will occur at the time of enactment, rather than at the advent of litigation.

The Panel’s test is also preferable to that imposed by the Appellate Body because a procedural requirement goes a long way toward compensating for a weak substantive requirement.  In other words, the imposition of a procedural requirement -- regardless of the substantive test imposed -- guarantees that the SPS Agreement’s overall goal of harmonization will be served.  Under the Appellate Body’s approach, it is important that the substantive test adopted provides strict scrutiny for challenged measures for a basis in a risk assessment.  Otherwise, there is almost no incentive for a Member to consider a risk assessment in advance -- and such consideration is perhaps the most effective means to accomplish the SPS Agreement’s overall goal of harmonization.  As discussed below, it is unclear whether objective test imposed by the Appellate Body -- that there be a “rational relationship” between the measure and a risk assessment -- will provide adequate scrutiny, but the Appellate Body’s analysis raises cause for concern. 

Article 5.1’s Substantive Requirement

The Panel found that in order for a measure to be based on a risk assessment, the scientific conclusions reached in the risk assessment must be “in conformity” with those reflected in the sanitary measures at issue.  In the Panel’s view, each of the studies invoked by the EC which qualified as a risk assessment concluded that the use of the hormones at issue as growth promoters in accordance with good veterinary practice is safe.  The EC measures, on the other hand, concluded that the use of the hormones at issue as growth promoters -- even in accordance with good veterinary practice -- is not safe.  Therefore, the Panel found that the EC measures were not based on a risk assessment.

The Appellate Body rejected the Panel’s “in conformity” test, and instead adopted a less stringent alternative, which might be called the “rational relationship” test.  The Appellate Body found that 

Article 5.1 … requires that the results of the risk assessment must sufficiently warrant -- that is to say, reasonably support -- the SPS measure at stake.  The requirement that an SPS measure be “based on” a risk assessment is a substantive requirement that there be a rational relationship between the measure and the risk assessment. 

In other instances, the Appellate used slightly different language to describe the test: “reasonable relationship,” “sufficiently support,” and “reasonably warrant.”  Applying the rational relationship test, the Appellate Body reached the same conclusion as that reached by the Panel: “that the scientific reports [submitted by the EC] do not rationally support the EC import prohibition.”  

Comment

The Hormones case was an easy case in the sense that regardless of the substantive test adopted by the Appellate Body, the EC’s measures would not have been found to be “based on” a risk assessment.  This is because none of the evidence which qualified as a risk assessment supported the EC’s position.  As a consequence, the Appellate Body was not forced to describe the contours of the rational relationship test with any sort of precision.  Instead, the Appellate Body described its test in over a half-dozen ways, using terms with significantly different connotations.  

Although the Appellate Body’s inadvertent use of language is not helpful, its analysis of the various evidence found by the Panel not to constitute a risk assessment provides significant insight into two aspects of the “rational basis test.”  First, regardless of the test adopted, the requirements for establishing a valid risk assessment will be used to supplement the test.  In other words, both the Panel and the Appellate Body are willing to impose requirements beyond those textually supported by the SPS Agreement in order to limit the evidence to be evaluated under the “rational relationship” test.  Because the evidence subject to evaluation has already been “filtered” for relevance, a less stringent test is required to provide a given level of correlation between a measure and a risk assessment.

Second, the Appellate Body’s treatment of a statement made by one of Panel’s experts, Dr. Lucier, indicates that a rather tenuous relationship between a measure and a risk assessment will suffice to satisfy the “rational relationship” test.  In testimony before the Panel, Dr. Lucier estimated that approximately one out of every one million women will develop cancer as a result of consuming meat treated with hormones.  The Appellate Body discounted this testimony by stating that “this opinion … does not purport to be the result of scientific studies … focusing specifically on residues of hormones in meat from cattle fattened with such hormones.”  Because Dr. Lucier did not assert that his estimate was based on a study of hormones as found in meat or meat products, as administered for growth promotion purposes, the estimate could not be considered a valid risk assessment, or a valid component of a risk assessment.  For this reason alone, the Appellate Body concluded that “the single divergent opinion expressed by Dr. Lucier is not reasonably sufficient to overturn the contrary conclusions reached in the scientific studies referred to by the European Communities that related specifically to residues of the hormones in meat from cattle to which hormones had been administered for growth promotion.”  The Appellate Body’s statement strongly implies that if Dr. Lucier’s estimate had met the requirements for a risk assessment, then the estimate would have been sufficient to support the EC’s measures.  This conclusion is remarkable for two reasons.  First, the Appellate Body’s statement makes it clear that a minority viewpoint, supported by objective evidence, may overwhelm a substantial body of contrary evidence representing mainstream scientific opinion.  Second, and even more striking, the Appellate Body’s statement suggests that a single estimate of a one in a million risk will support a measure establishing “no-residue” level of protection.  If so, an extremely weak relationship between a measure and a risk assessment will suffice to satisfy the “rational relationship” test.

Application of the Precautionary Principle in the Context of Article 5

Both the Panel and the Appellate Body rejected the EC’s argument that the precautionary principle might override the explicit language of Articles 5.1 and 5.2 of the SPS Agreement and lead to a finding that the EC’s measures were based on a risk assessment.  The EC had argued that the precautionary principle had reached the status of a generally accepted principle of international law, and therefore was applicable when interpreting the provisions of the SPS Agreement.  In particular, the EC asserted that in the face of conflicting scientific evidence and uncertainty regarding the safety of the hormones at issue, the precautionary principle justified a conservative approach, i.e., that the EC measures were based on a risk assessment.  Neither body found it necessary to determine whether the precautionary principle had risen to the status of a generally accepted principle of international law, because even if it had, the principle would not have overridden the explicit language of Articles 5.1 and 5.2.  Both the Panel and the Appellate Body supported their decisions by noting that the precautionary principle has been given specific meaning in the Agreement, particularly in Article 5.7, which authorizes the adoption of provisional sanitary measures when existing scientific information is insufficient to reach a definitive conclusion regarding the necessity of a measure.  The Appellate Body also noted that the precautionary principle is reflected in the sixth paragraph of the preamble, and in Article 3.3, both of which recognize the right of Members to individually determine the appropriate level of sanitary protection to be reflected in their sanitary measures, even if the levels determined are higher than those which could be justified as being based on international standards.  Additionally, the Appellate Body commented that 

a panel charged with determining, for instance, whether “sufficient scientific evidence” exists to warrant the maintenance by a Member of a particular SPS measure [as required by Article 2.2]… should, bear in mind that responsible, representative governments commonly act from perspectives of prudence and precaution where risks of irreversible … damage to human health are concerned.

Thus, a panel should operate in the shadow of the precautionary principle, especially in instances where a provision of the Agreement calls for particular subjectivity, e.g., how much evidence is required to be considered “sufficient” under Article 2.2.

2.	Analysis under Article 5.5

Articles 5.4 - 5.6 deal with the determination of an appropriate level of sanitary protection (sometimes called “risk management”).  In particular, Article 5.4 states that Members should strive to minimize negative trade effects when determining the appropriate level of sanitary protection to be reflected in a measure.  Article 5.5 strives to avoid arbitrary or unjustifiable distinctions in the levels of sanitary protection set by Members, when such distinctions damage international trade.  Finally, Article 5.6 mandates that measures be no more trade-restrictive than necessary to achieve the appropriate level of sanitary protection.  Both the Panel and the Appellate Body focused their analyses on Article 5.5. 

The relevant portion of Article 5.5 states that “each Member shall avoid arbitrary or unjustifiable distinctions in the levels it considers to be appropriate in different situations, if such distinctions result in discrimination or a disguised restriction on international trade.”  Based on this text, both the Panel and the Appellate Body found that Article 5.5 has three elements, each of which must be demonstrated in order to make out a violation of Article 5.5: (1) The Member must have adopted different levels of sanitary protection in “different situations”; (2) the differences (“distinctions” in the language of Article 5.5) must be “arbitrary or unjustifiable”; and (3) the differences must result in “discrimination” or a “disguised restriction on international trade”  These three elements will be discussed in sequence.

Different Levels of Protection in “Different Situations”

The first element of Article 5.5 is that the Member must have adopted different levels of sanitary protection in “different situations.”  In order for a comparison of levels of sanitary protection to make sense, the “different situations” must be “comparable” -- i.e., they must share relevant characteristics.  In the context of the present dispute, the Panel found that situations involving the same substance or the same adverse health risk were comparable.  Specifically, the following situations were found to be comparable:

1) Natural and synthetic hormones administered for growth promotion purposes vs. natural hormones occurring endogenously in meats (“first comparable situation”)

2) Natural hormones administered for growth promotion purposes vs. natural hormones administered for therapeutic or zootechnical purposes (“second comparable situation”)

3) Natural and synthetic hormones administered for growth promotion purposes vs. carbadox and olaquindox administered for growth promotion purposes (“third comparable situation”)

In each of the above comparable situations, the EC had adopted different levels of protection, thus establishing the first element of Article 5.5.  With respect to natural and synthetic hormones administered for growth promotion purposes, the EC had adopted a “no residue” level as its appropriate level of protection.  With respect to natural hormones occurring endogenously in meats, natural hormones administered for therapeutic or zootechnical purposes, and carbadox and olaquindox administered for growth promotion purposes, the EC had adopted an “unlimited residue” level.  Thus, in each case, the EC had adopted different levels of protection in comparable situations.

Arbitrary or Unjustifiable Differences in Levels of Protection

The second element of Article 5.5 is that the differences in levels of sanitary protection adopted in “comparable situations” must be “arbitrary or unjustifiable.”  The Panel found that the differences in levels of sanitary protection adopted in the first and third comparable situations were “arbitrary or unjustifiable”; the Panel did not reach the second comparable situation.  The Appellate Body reached each situation, but found “arbitrary or unjustifiable” differences only in the case of the third.  Thus, the second element of Article 5.5 was demonstrated only in the case of the third comparable situation.  The three comparable situations are discussed in sequence below.

(1)	First comparable situation: natural and synthetic hormones administered for growth promotion purposes vs. natural hormones occurring endogenously in meats

With respect to natural hormones administered for growth promotion purposes, as compared to natural hormones occurring endogenously in meats, the Panel found that the distinctions in the levels of protection adopted by the EC were arbitrary and unjustifiable.  The Panel justified its decision on the following grounds: the EC had not submitted any evidence that the risk related to natural hormones used as growth promoters is higher than the risk related to endogenous hormones; the total residue levels of natural hormones in meat from treated animals falls well within the physiological range of levels found in meat from untreated animals, which varies by the sex and age of the animal; the residue levels of natural hormones in various natural food products is higher than the residue levels of these hormones in meat from treated animals; the practical difficulties of detecting the presence of residues of natural hormones in treated meat can not justify different levels of protection because the difficulties could be avoided under a different regulatory regime, and in any case, the difficulties would also be present with respect to natural hormones occurring endogenously in meat and other foods; and there is a very marked gap between a “no‑residue” level of protection against natural hormones used for growth promotion and the “unlimited-residue” level of protection with regard to hormones occurring naturally in meat and other foods.

With respect to synthetic hormones administered for growth promotion, the Panel found arbitrary or unjustifiable distinctions on the ground that the EC had not provided “convincing evidence that the synthetic hormones … are inherently more dangerous than the natural hormones” -- and had nonetheless adopted significantly different levels of protection.

The Appellate Body disagreed with the Panel, and found the marked difference in levels of protection justified on the grounds that while it is possible to eliminate through regulation the residues of hormones which have been administered for growth-promotion purposes, it is not possible to eliminate the residues of natural hormones occurring endogenously without “a comprehensive and massive governmental intervention in nature and in the ordinary lives of people.”  The Appellate Body summarily dismissed the Panel’s arguments with the statement that the “considerations cited by the Panel, whether taken separately or grouped together, do not justify the Panel’s finding of arbitrariness.”

Comment

The Appellate Body’s analysis reveals the subjective nature of the inquiry under Article 5.5.  The distinction between hormones occurring endogenously and those administered for growth promotion which was highlighted by the Appellate Body is not illusory, and therefore supports an inference that the differences in levels of protection are not arbitrary or unjustifiable.  Whereas the Appellate Body’s conclusion seems unremarkable, its treatment of the Panel’s findings is striking.  While each of the points raised by the Panel supports -- to a greater or lesser degree -- an inference that the distinctions in levels of protection were “arbitrary” or “unjustifiable,” the Appellate Body dismissed the Panel’s reasoning with no explanation.  The Appellate Body’s analysis reveals that the inquiry into whether differences are arbitrary or unjustifiable is purely subjective; the result will turn entirely on the body making the evaluation.

(2)	Second comparable situation: natural hormones administered for growth promotion purposes vs. natural hormones administered for therapeutic or zootechnical purposes

Because the Panel had determined that the distinctions in the levels of protection in the first comparable situation were arbitrary and unjustifiable, the Panel found it unnecessary to consider the second comparable situation.

The Appellate Body, however, reached the issue, and concluded that the distinctions in levels of protection were not arbitrary and unjustifiable.  The Appellate Body discussed two arguments set forth by the EC which arguably support its decision, but it did not explain how the arguments were weighted in its analysis.  First, the EC claimed that the distinctions were justified by the differences in frequency and scope of administration of the hormones.  Whereas the use of hormones for growth promotion purposes occurs in a regular and continuous manner, and on a herd-wide basis, the use of hormones for therapeutic purposes occurs occasionally and is targeted to sick or diseased animals.  The use of hormones for zootechnical purposes occurs only once per year, and on a herd-wide basis.  Second, the administration of hormones for therapeutic and zootechnical purposes is tightly regulated in the European Communities.

(3)	Third comparable situation: natural and synthetic hormones administered for growth promotion purposes vs. carbadox and olaquindox administered for growth promotion purposes

The Panel found that the distinctions in the levels of protection between natural and synthetic hormones, and carbadox and olaquindox, both administered for growth promotion purposes, were arbitrary and unjustifiable.  In reaching this conclusion, the Panel rejected seven arguments set forth by the EC.  First, there is no significance to the fact that carbadox and olaquindox are antimicrobial agents, and not hormones, because both the hormones at issue and carbadox and olaquindox are associated with the same adverse health effect, namely carcinogenicity.  Second, the substances can not be distinguished on the ground that carbadox and olaquindox have therapeutic effects, because the hormones at issue also have such effects.  Third, while carbadox and olaquindox are only commercially available in prepared feedstuffs in predetermined doses, the commercially available products containing the hormones at issue also contain predetermined doses.  Further, the means of administering the hormones -- i.e., through injections and implants -- is more accurate and reliable.  Fourth, contrary to the EC’s claim that there are no alternatives to carbadox and olaquindox with the same therapeutic action, there are readily available alternatives on the market.  Fifth, the argument that there is less potential for abuse in the case of carbadox and olaquindox because these substances only exert growth promotion effects in piglets up to four months is not compelling because there is no guarantee that treated piglets will not be slaughtered.  Sixth, even if it is true that carbadox and olaquindox are hardly absorbed in the gut of the piglet, there will always be some residue of the substances or their metabolites in the meat of the treated animal.  Finally, the fact that the EC Council has taken action on its own initiative to review carbadox and olaquindox does not justify the current distinctions, but rather suggests that the EC recognizes that the distinctions drawn may not be justified and should be reviewed.

After briefly recapping the first six of the arguments and counter-arguments summarized above (the final argument was not repeated on appeal), the Appellate Body -- providing absolutely no analysis -- expressed agreement with the Panel’s conclusion that the differences in levels of sanitary protection were arbitrary and unjustifiable in the sense of Article 5.5.

Comment

As with the first comparable situation, the Appellate Body’s analysis here reveals the subjective nature of the inquiry under Article 5.5.  In the former case, the Appellate Body dismissed the Panel’s analysis without explanation, and proceeded to adopt its own reasoning.  Here, the Appellate Body adopted the Panel’s analysis with no explanation but that “on balance, the difference in the levels of protection … is not, in itself, ‘arbitrary or unjustifiable.’”  The Appellate Body’s lack of analysis is especially disturbing because at least two of the EC’s arguments seem meritorious.  First, the fact that carbadox and olaquindox are administered through feed means that the only way to overdose animals with these additives is to overfeed the animals -- and there are physical limitations on how much animals will eat.  Second, the fact that carbadox and olaquindox only provide growth promotion effects in piglets up to four months means that after this time, contamination by these additives is not a concern.  On the other hand, growth promotion hormones are administered on a regular and continuous manner during the lifetime of the animals -- and thus these added hormones present an issue for concern regardless of when the animals are slaughtered. 

The Appellate Body’s analysis under the second element of Article 5.5 -- i.e., the determination of whether distinctions in levels of sanitary protection are “arbitrary and unjustifiable” -- is unprincipled and therefore unpredictable.  In its analysis with respect to the first comparable situation, the Appellate Body raises an argument which supports its position -- but the Appellate Body utterly fails to explain why the Panel’s arguments are not persuasive, or why its single argument carries more weight than the five arguments asserted by the Panel.  The Appellate Body’s analysis with respect to the third comparable situation is even more glaringly deficient.  In this case, the Appellate Body provides no analysis whatsoever, and instead meekly accedes to the Panel’s arguments.  The Appellate Body never explains why it finds the Panel’s arguments persuasive; there is no hint of a guiding rationale behind its analysis.  At bottom, the Appellate Body is unable to explain its decision-making process because there is very little to explain: The Appellate Body has adopted a “we know it when we see it” stance.  Unfortunately, such an approach provides no guidance to the parties which much conduct their affairs in accordance with the SPS Agreement: There is simply no way to predict what a panel or the Appellate Body will find to be “arbitrary or unjustifiable.”

Differences Resulting in Discrimination or a Disguised Restriction on International Trade

The third element of Article 5.5 is that the “arbitrary and unjustifiable” differences in levels of sanitary protection must result in “discrimination or a disguised restriction on international trade.”  Because the second element of Article 5.5 was satisfied only in the case of the third comparable situation, this is the only situation for which the Appellate Body reached this third stage of the Article 5.5 analysis.  With respect to the third situation, the Panel found that the differences in levels of sanitary protection resulted in “discrimination or a disguised restriction on international trade” -- and therefore that Article 5.5 had been violated.  The Appellate Body reversed the Panel’s finding, concluding that while the EC had made “arbitrary and unjustifiable” distinctions in levels of sanitary protection, these distinctions had not resulted in “discrimination or a disguised restriction on international trade.”  Thus, under the Appellate Body’s analysis, Article 5.5 was not violated.

(1)	Third comparable situation: natural and synthetic hormones administered for growth promotion purposes vs. carbadox and olaquindox administered for growth promotion purposes

The Panel found that the distinctions in the levels of protection between natural and synthetic hormones and carbadox and olaquindox result in “discrimination or a disguised restriction on international trade.”  The Panel began its analysis by establishing the relationship between the third element of Article 5.5 -- that the distinctions result in discrimination or a disguised restriction on international trade -- and the other two elements.  Drawing on an analogy from the Appellate Body Report on Japan -- Taxes on Alcoholic Beverages, the Panel made the determination that “in some cases the significance of the difference in levels of protection for comparable situations combined with the arbitrariness thereof may be sufficient to conclude that this difference in levels of protection results in ‘discrimination or a disguised restriction on international trade.’”  The Panel then established the applicability of the presumption to the case at hand in a series of three steps.  First, the Panel noted the large magnitude of the difference in levels of protection, i.e., a “no residue” level for the hormones at issue, and an “unlimited residue” level for carbadox and olaquindox.  Second, the Panel noted that the EC had failed to provide a plausible explanation for the difference.  Presumably, the Panel meant to emphasize the arbitrariness of the EC’s distinctions.  Third, the Panel noted that the distinctions in levels of protection result in an import ban on treated meat, which necessarily restricts international trade.  Finally, the Panel applied the presumption, concluding that the distinctions in levels of protection result in “discrimination or a disguised restriction on international trade.”
The Panel cited three additional factors in support of its conclusion.  First, the EC had multiple objectives in mind when implementing the measures at issue -- as reflected in the preambles of the measures in dispute, reports of the European Parliament, and opinions of the EC Economic and Social Committee -- including, harmonizing the regulatory schemes of the EC Member States, bringing about an increase in the consumption of beef, and providing more favorable treatment to domestic producers.  Second, because prior to the EC ban on treated meat, a significantly higher percentage of animals were treated with hormones in the U.S. and Canada than in the European Communities, the EC ban resulted in de facto discrimination against U.S. and Canadian meat in favor of EC meat.  Finally, the EC ban affected the bovine meat sector, where the EC seeks to limit meat supplies, and is less concerned with international competitiveness; whereas carbadox and olaquindox -- the residues of which are unrestricted -- are used in the pork meat sector where there are no domestic surpluses, and where international competition is a higher priority.

The Appellate Body reversed the Panel’s finding of “discrimination or a disguised restriction on international trade.”  The Appellate Body began by rejecting the Panel’s analogy to Japan -- Alcoholic Beverages, and finding that “the degree of difference … in the levels of protection, is only one kind of factor which, along with others, may cumulatively lead to the conclusion that discrimination or a disguised restriction on international trade in fact results from the application of a measure or measures embodying one or more of those different levels of protection.”  The Appellate Body continued its analysis by stating that it “d[id] not attribute the same importance as the Panel to the supposed multiple objectives of the European Communities in enacting the EC Directives that set forth the EC measures at issue,” and then proceeding to consider several of the “supposed multiple objectives.”  The Appellate Body mentioned that the goals of harmonizing the regulatory schemes of the EC Member States, and bringing about an increase in the consumption of beef, were justified and not protectionist.  (The Appellate Body failed to address the EC’s objective of providing more favorable treatment to domestic producers.)  However, the Appellate Body’s discussion focused on the EC’s good faith concern regarding the safety of hormones.  The Appellate Body found that the documentation which preceded or accompanied the enactment of the ban makes clear the depth and extent of the anxieties experienced within the European Communities concerning the results of the general scientific studies (showing carcinogenicity of hormones), the dangers of abuse … of hormones and other substances used for growth promotion and the intense concern of consumers within the European Communities over the quality and drug-free character of the meat available in its internal market.

Thus, Appellate Body concluded:

We are unable to share the inference that the Panel apparently draws that the import ban on treated meat and the Community-wide prohibition of the use of the hormones here in dispute for growth promotion purposes in the beef sector were not really designed to protect its population from the risk of cancer, but rather to keep out US and Canadian hormone-treated beef and thereby to protect the domestic beef producers in the European Communities.

Comment

The Appellate Body’s analysis reveals that it considered the “discrimination or disguised restriction” inquiry to turn on the intent of the party imposing the measure.  In essence, the Appellate Body found that the EC’s admittedly “arbitrary and unjustifiable distinctions” did not result in “discrimination or a disguised restriction on international trade” because it felt that the measures were intended to protect the European Community’s population from the risk of cancer.  

The Appellate Body’s analysis and conclusion may be criticized on several grounds.  First, even under the Appellate Body’s subjective test, the Panel’s findings support a finding of “discrimination or disguised restriction.”  Although the Panel’s analogy to Japan -- Alcoholic Beverages may have been strained, it seems reasonable that the arbitrariness of a measure, combined with a large difference in levels of protection for comparable situations, may support an inference of bad intent.  Here, the difference in levels of protection was striking -- a “no residue” limit, compared to “an unlimited residue” limit -- and this treatment was provided without justification (the Appellate Body itself had found that the difference was “arbitrary and unjustifiable”).  The Appellate Body recognized that the EC had multiple objectives in mind in enacting the measures at issue, and it explicitly addressed each of the objectives highlighted by the Panel -- except the EC’s objective of providing more favorable treatment to domestic beef producers.  This objective directly supports an inference of “disguised restriction.”  Finally, the Panel noted that the EC ban affected the bovine meat sector, where the EC seeks to limit meat supplies, and is less concerned with international competitiveness; whereas carbadox and olaquindox are used in the pork meat sector where there are no domestic surpluses, and where international competition is a higher priority.  This finding further supports the inference that the distinctions in levels of protection result in a “disguised restriction.”

Second, the Appellate Body’s analysis ignores the objective component of the “discrimination or disguised restriction” inquiry.  Because the inquiry is disjunctive -- i.e., “discrimination” or “disguised restriction” -- each element must be given meaning.  Certainly, in the analysis of whether distinctions in levels of protection result in a “disguised restriction,” the aim of the party imposing the measure is relevant.  While one can objectively assess whether a measure creates a “restriction on international trade,” whether or not such a restriction was “disguised” is a matter of intent.  On the other hand, whether or not distinctions in levels of sanitary protection result in “discrimination” is an objective inquiry: Either the distinctions give one party a trading advantage, or they do not.  The Panel clearly recognized the objective nature of the inquiry: The Panel found that because prior to the EC ban on treated meat, a significantly higher percentage of animals were treated with hormones in the U.S. and Canada than in the European Communities, the EC ban resulted in de facto discrimination against U.S. and Canadian meat in favor of EC meat.

Finally, the Appellate Body’s conclusion that the EC’s good intentions save its measures from an Article 5.5 violation runs counter to the objectives of the SPS Agreement.  At bottom, the SPS Agreement seeks harmonization of sanitary and phytosanitary measures in order to facilitate international trade.  Harmonization is achieved by requiring parties to the Agreement to ensure that their measures are based on scientific principles; these principles may be reflected in international standards, or in risk assessments as defined in Annex A.  The SPS Agreement is manifestly not designed to protect measures which have no basis in science, regardless of whether the party imposing such measures intends to restrict international trade.  The Appellate Body’s conclusion condones measures which -- although imposing arbitrary and unjustifiable distinctions in levels of protection which interfere with international trade -- are imposed to address purely political concerns.

As with the Appellate Body’s analysis with respect to the second element of Article 5.5, the Appellate Body’s analysis with respect to the third element of Article 5.5 may be criticized because it provides no guidance to parties which must conduct their affairs in accordance with the SPS Agreement.  The Appellate Body’s analysis with respect to whether distinctions result in “discrimination or a disguised restriction” -- which turns almost entirely on the Appellate Body’s view of a Member’s intent -- presents at least two serious problems.  First, because legislation always reflects mixed objectives, it may be fallacious to speak of a Member’s “intent” at all.  Second, even if it were theoretically possible to uncover a Member’s intent, there is no principled way to go about the inquiry.  In discerning intent, the panel or Appellate Body must rely on its instincts -- and unfortunately, the rule of “we know it when we see it” provides no instruction for parties to the Agreement.

3.	Interpretation of Articles 2.2 and 5.6

Neither the Panel nor the Appellate Body evaluated the EC’s measures under Articles 2.2 or 5.6 of the SPS Agreement.  With respect to Article 5.6, the Panel found that since it had already found a violation of Article 5.5, it was unnecessary to consider Article 5.6.  In the case of Article 2, the Panel found that because “Articles 3 and 5 provide for more specific rights and obligations than the ‘basic rights and obligations’ set out in Article 2,” and it had already found violations under Articles 3 and 5, there was no reason to further examine Article 2.  The Appellate Body held that the Panel had not erred in refraining to proceed under these articles. 

The Appellate Body’s discussion of Article 2.2 did, however, provide some guidance for future analysis.  Both the U.S. and the EC asserted in their appellate arguments that nothing in the text of Articles 2, 3, or 5 supports a finding that all the obligations of Article 2 are subsumed under Articles 3 and 5.  The Appellate Body signaled its agreement with this proposition by asserting that if it had not found a violation under Article 5.1, it would have been necessary to continue its analysis under Article 2.2, which might nonetheless have been violated.

C.	Burden of Proof Under the SPS Agreement

Both the Panel and the Appellate Body recognized that in general, the complaining party has the initial burden of establishing a prima facie case of inconsistency with the SPS Agreement.  Once this burden has been carried, the burden of proof moves to the defending party to counter or refute the complaining party’s claim.  

Although the Panel and Appellate Body agreed on the general allocation of burden of proof, they disagreed on the allocation of burden of proof with respect to Article 3.  The Panel found that once the complaining party established a prima facie violation of Article 3.1, the burden moves to the defending party to show compliance with Article 3.3, and therefore with Article 5.  The Appellate Body rejected this holding, finding instead that the burden of proof remains on the complaining party to show non-compliance with Article 3.3, and therefore with Article 5.   At base, the difference in interpretation centers on the relationship between Articles 3.1 and 3.3.  The Panel, based on the language of Article 3.1 (i.e., that “Members shall base their … measures on international standards … except as otherwise provided … in paragraph 3”), found that Article 3.3 provides an exception to the general rule stated in Article 3.1.  Then, drawing an analogy between the purported rule-exception relationship between Articles 3.1 and 3.3, and the rule-exception relationship between, e.g., Articles I and III of GATT 1994, and Article XX of GATT 1994, the Panel found that the “established practice under GATT 1947 and GATT 1994 where … the burden of proof to justify an inconsistency with another GATT provision under Article XX … rests on the defending party” should apply.  The Appellate Body rejected the Panel’s interpretation of the relationship between Articles 3.1 and 3.3, finding no rule-exception relationship, but rather that Articles 3.1, 3.2, and 3.3 simply apply to different situations, i.e., they are different options: Article 3.1 applies when a measure is “based on” an international standard, Article 3.2 applies when a measure “conforms to” an international standard, and Article 3.3 applies when a measure results in a higher level of protection than would be achieved if the measure were based on an international standard.  The complaining party bears the burden of showing inconsistency with each of the applicable articles.

Comment

The Panel and the Appellate Body agreed that due to the nature of disputes under the SPS Agreement, the allocation of the burden of proof in proceedings under the SPS Agreement is an issue “of particular importance.”  In fact, however, the complex factual nature of the inquiry under the SPS Agreement limits the significance of the burden of proof in proceedings under the Agreement.

On the surface, the Appellate Body appears to make it significantly more difficult for the complaining party to make out a complaint under the SPS Agreement.  Under the Panel’s test, the complaintant must show that if there is an international standard applicable to the measure at issue, the measure is not based on this standard.  Once the complaintant makes this showing, the burden of proof moves to the defending party to establish compliance with Article 3.3.  As discussed previously, compliance with Article 3.3 requires compliance with Article 5.  As under the Panel’s test, the Appellate Body’s test requires that the complaintant show that if there is an international standard applicable to the measure at issue, the measure is not based on this standard.  However, even after establishing noncompliance with Article 3.1, the burden of proof remains on the complaintant to establish inconsistency with Article 3.3, and therefore with Article 5.  The significance of the Appellate Body’s decision, then, turns on the difficulty of proof under Articles 5.1 and 5.5.

Due to the complex factual nature of the inquiry under the SPS Agreement, the difficulty of proof under Article 5 for a particular party will be substantially the same regardless of who bears the burden of proof.  With respect to Article 5.1, the complaining party must show that there exists no risk assessment for the substance at issue, or that if a risk assessment exists, the measure is not based on this assessment.  Regardless of who officially bears the burden of proof, in practice the Member establishing the measure will be forced to come forth with evidence of a risk assessment.  If no such evidence is introduced, the complaintant may simply assert that it found no evidence that the Member imposing the measure performed a risk assessment, and therefore the Member could not have based its measure on a risk assessment.  Such an assertion would be sufficient to make out a prima facie case of noncompliance with Article 5.1, which if unrebutted, would lead to a finding against the defending party.  If evidence at least arguably constituting a risk assessment has been introduced, the complaintant will be forced to carefully examine the evidence and make arguments that the measures are not based on the assessment.  Due to the fact-intensive, scientific nature of the arguments which will be presented, a Panel is unlikely to find that the complaintant has failed to make out a prima facie case.  Without hearing the defending party’s counter arguments, and enlisting the testimony of experts, a Panel is simply not in a position to pass on the sufficiency of the complaintant’s arguments.  Thus, a Panel is unlikely to set a difficult standard for establishing a prima facie case.  As a consequence, regardless of whether the complaining or defending party officially bears the initial burden of proof, both parties will necessarily be forced to thoroughly argue their cases.  The same situation arises in the context of Article 5.5, where a panel must determine whether distinctions are “arbitrary or unjustifiable,” and whether distinctions lead to “discrimination or a disguised restriction.” 

D.	The Balance of Power Between Articles 3.1 and 5.1, and Article 5.5

The SPS Agreement has the difficult job of drawing the line between valid and invalid SPS measures.  As the preamble to the Agreement recognizes, Members should not be prevented from adopting and enforcing measures which are necessary to protect the health of their populations.  On the other hand, Members entered into the SPS Agreement in the first place because they recognized that sanitary measures have the potential to cripple international trade.  The SPS Agreement must strike a balance between these competing concerns.

The question which the Hormones case squarely raises -- but does not clearly answer -- is “How should the line between valid and invalid SPS measures be drawn”?  The SPS Agreement itself provides a general answer to this question: The determination should hinge on whether a measure is based on scientific principles.  Article 2.2’s mandate that measures be based on scientific principles, and not be maintained without sufficient scientific evidence, is specifically implemented in Articles 3.1 and 5.1, which evaluate measures for a basis in some objective standard.  In the case of Article 3.1, that objective standard is an international standard, guideline, or recommendation; in the case of Article 5.1, that objective standard is a scientifically-based risk assessment.  In its Hormones decision, the Appellate Body seeks to refine the SPS Agreement’s general answer; in particular, the Appellate Body seeks to define what it means for a measure to be “based on” an international standard, or “based on” a risk assessment.  Although the Appellate Body’s decision addresses the question, its answer is not clear; what it means for a measure to have a “rational basis” in an objective standard is yet to be determined.

The “tightness” of the required connection between the measure and either the international standard or the risk assessment is pivotal in determining the overall operation of the SPS Agreement.  The Panel’s interpretation of “based on” -- i.e., that “based on” is read “conform to” -- stands at one end of the spectrum.  Under this interpretation, a measure may deviate very little from the objective standard before it is invalidated.  In this case, Articles 5.4 - 5.6 have very little burden to shoulder because the “appropriate level of protection” will be tightly based on an international standard or risk assessment.  That is, the Member imposing the measure will have little flexibility in choosing its “appropriate level of protection.”  There will be no “arbitrary or unjustifiable” distinctions in levels of protection under Article 5.5 because any distinctions will be principled -- i.e., based on objective standards.  Similarly, distinctions in levels of protection will not result in “discrimination or a disguised restriction” because an inference of bad intent is not plausible when a measure merely implements an international standard or a legitimate risk assessment.  Under Article 5.6, measures can not be found to be more trade-restrictive than required because the levels of protection reflected in the measures were selected on the basis of what is required under an objective standard.  At bottom, when conformance to an objective standard is required, Members have little discretion to tailor their measures, and thus their measures are unassailable.  This position is recognized in Article 3.2, where measures which “conform to” international standards are presumed to comply with the SPS Agreement, and with GATT 1994.

At the other end of the spectrum, “based on” may be interpreted such that only a weak link is required between a measure and an objective standard.  In this case, measures pass easily through the gates provided by Articles 3.1 and 5.1, and the burden of drawing the line between valid and invalid SPS measures falls squarely on Article 5.5.  This result is problematic because -- as the Appellate Body’s decision clearly illustrates -- there is no principled way to distinguish valid from invalid measures under Article 5.5.  As detailed above, the “discrimination or a disguised restriction” inquiry, as interpreted by the Appellate Body, is an inquiry into the intent of the Member imposing the measure.  Under the Appellate Body’s analysis, the “arbitrary or unjustifiable distinction” inquiry under Article 5.5 is subjective to the point of appearing almost arbitrary.  Thus, the validity of a measure under Article 5.5 essentially turns on the Appellate Body’s view of the measure -- i.e., is the measure an unjustified attempt at protectionism, or is the measure a legitimate attempt to protect life and health. 

The difference between the ends of the spectrum can be seen as the difference between objective and subjective inquiry.  Under the “conform to” test, the inquiry is objective on two levels.  First, the inquiry is objective in the sense that the required link is outwardly verifiable: Either the measure follows from an objective standard, or it does not.  The importance of the views of the reviewing body is minimized because the body has no sanction to import its views into the analysis.  Second, the actual intent of the party imposing the measure is irrelevant.  On the other hand, under a test requiring only a weak link between the measure and an objective standard, the inquiry is subjective on two levels.  First, the viewpoint of the reviewing body is important in that the existence of the required link turns on a balancing of the evidence, and the body performing the balancing determines which evidence will be considered, and the probative value to be assigned to that evidence.  Additionally, when only a weak link between measure and standard is required, measures pass easily by Articles 3.1 and 5.1, and land squarely on Article 5.5 -- where the viewpoint of the reviewing body is outcome determinative.  Second, the outcome of the test under Article 5.5 depends on the intent of the party imposing the measure (as discerned by the reviewing body).

When the ends of the spectrum are contrasted, it becomes clear that analysis under the SPS Agreement should be accomplished near the objective end of the spectrum.  First, on the subjective side of the spectrum, the reviewing body is essentially deciding whether a particular measure is meritorious -- and a reviewing body is manifestly not qualified to make such a determination.  A reviewing body does not have sufficient knowledge of the science underlying a measure, the conditions existing in the Member country, etc., to make a principled determination.  More importantly, a reviewing body does not have the mandate to pass on the substantive merits of SPS measures.  A judicial body can not claim to be in a better position to determine what is necessary to protect a country’s population than the country’s own legislature.  Second, the intent of a country imposing a measure should be irrelevant.  If a measure has no basis in science, and it interferes with international trade, then the measure should be deemed invalid -- regardless of whether the imposing country had good intent. 

The Appellate Body’s decision does not purport to decide the required relationship between a measure and an objective standard -- but its analysis raises cause for concern.  The Appellate Body rejected the Panel’s “conform to” test with a persuasive analysis in the context of Article 3.1.  Then, in the context of Article 5.1, the Appellate Body stated a new test -- that there must be a “rational relationship” between a measure and a risk assessment.  Because there was no relationship between the EC measures and the risk assessments, the closeness of the relationship was not at issue.  As such, beyond providing new language for future analysis, the Appellate Body’s core holding provides no guidance as to the strength of the required relationship between measures and risk assessments.  However, as discussed in detail above, the Appellate Body’s discussion of a statement by Dr. Lucier provides support for the view that the “rational relationship” test sets a low standard for the required relationship between a measure and a risk assessment.  If this is the case, the effectiveness of the SPS Agreement has been seriously impaired.

VI.   General Procedural Issues

The Appellate Body’s findings with respect to the selection and use of experts, standard of review, and terms of reference have significant implications for the role of panels in the dispute resolution process under the SPS Agreement, and indeed under any agreement governed by the DSU.  Following a summary of the Appellate Body’s findings in each of these areas, the implications of these findings are discussed in a separate section.

A.	Panel’s Selection and Use of Experts

The Appellate Body found that, contrary to the allegations of the EC, the Panel had not erred in consulting individual experts rather than forming an expert review group.  The EC had contended that in seeking opinions from experts in their individual capacities, the Panel had deprived the EC of the procedural guarantees provided for expert review groups by Appendix 4 of the DSU.  In particular, an expert review group speaks with a single voice -- its advisory report, whereas by consulting individual experts, the Panel put itself in a position to chose among different scientific opinions.  The Appellate Body found that under both Article 11.2 of the SPS Agreement, and Article 13.2 of the DSU, the formation of an expert review group is left to the discretion of a panel.  When such a group is formed, its operation is governed by the rules and procedures set forth in Appendix 4 of the DSU.  On the other hand, in the case of experts operating in their individual capacities, a panel is free to develop ad hoc rules and procedures in consultation with the parties to the dispute. 

B.	Panel’s Standard of Review

The EC asserted that the Panel had failed to apply an appropriate standard of review in its analysis of the case: The EC argued that a “deferential reasonableness standard” was appropriate, while the Panel had taken an approach more akin to a de novo standard.  In particular, the EC asserted that that the Panel had erred in assigning a high probative value to the scientific views and opinions of the Panel-appointed experts, instead of limiting its review to an examination of the scientific evidence presented by the EC.  The EC voiced the related complaint that the Panel had failed to accord proper deference to the conclusions drawn by the EC on the basis of its scientific evidence.  In the EC’s view, the Panel should have limited itself to reviewing the process by which the EC reached its conclusions; the Panel should not have reviewed the substance of the conclusions themselves.  For instance, once the EC had concluded that a SPS measure was based on a risk assessment, the Panel should have limited its inquiry to determining whether the EC’s determination was made after an objective analysis of the risk assessment; the Panel should not have questioned the substantive validity of the conclusion itself.

The Appellate Body found that although the SPS Agreement is silent on the matter of an appropriate standard of review, Article 11 of the DSU articulates the appropriate standard of review to be used by panels in the determination of facts, and the subsequent legal characterization of such facts.  With respect to fact-finding, the standard of review to be used by a panel is not “de novo” or “total deference,” but rather an “objective assessment of the facts of the case.”  An “objective assessment of facts” requires that all evidence presented to a Panel be considered, and that factual findings be made on the basis of that evidence.  Although all evidence must be considered, the probative value ascribed to items of evidence is left to the discretion of the Panel.  With respect to legal questions, Article 11 states that “a panel should make an objective assessment of the matter before it, including … the applicability of and conformity with the relevant covered agreements.”  Thus, whether a panel’s analysis is procedural or substantive is driven by the particular provision under consideration.  For example, if it had been determined that “based on” in the context of Article 5.1 had only a procedural aspect, then the Panel’s analysis would have been so confined.

The Appellate Body held that the Panel had made “an objective assessment of the facts” before it, as mandated by Article 11 of the DSU.  In order to find that a panel has failed to make “an objective assessment of the facts,” it must be shown that there has been a deliberate disregard of evidence, or a willful distortion or misrepresentation of evidence.  “Disregard,” “distortion,” and “misrepresentation” each imply not merely an error of judgment in the appreciation of evidence, but rather an egregious error which calls into question the good faith of a panel; in other words, the party submitting evidence was denied fundamental fairness or due process.  The EC claimed that the Panel had disregarded or distorted the evidence submitted by the EC, as well as the opinions and statements made by the scientific experts advising the Panel.  Although the Appellate Body found several instances where the Panel had misquoted or misinterpreted evidence (including statements of experts), the Appellate Body never found that the Panel’s actions had been deliberate -- and therefore the Panel had not failed to make an “objective assessment of facts.”  

C.	Panel’s Terms of Reference

The Appellate Body found that within a panel’s terms of reference, a panel is free to adopt arguments submitted by the parties, or to develop its own legal reasoning, to support its findings and conclusions on the matter under consideration.  The claims identified in the request for the creation of a panel establish a panel’s terms of reference under Article 7 of the DSU.  Once these bounds are set, a panel is not limited to the arguments presented by the parties, and is free to develop its own arguments as necessary to support its findings and conclusions.  In this case, the EC had alleged that while the complaintants had not complained of a difference in treatment between hormones administered for growth promotion purposes, and natural hormones occurring endogenously in meat, the Panel had nonetheless addressed the argument in its analysis under Article 5.5.  The Appellate Body found that because both complaintants had alleged violations under Article 5.5, the Panel had not exceeded terms of reference in adopting its own argument.

D.	The Impact of the Procedural Issues 

The Appellate Body’s findings regarding the selection and use of experts, standard of review, and terms of reference provide panels with powerful tools to manipulate the outcomes of disputes.  Although panels presumably operate in good faith, there will be a natural tendency on the part of panels to reason backwards from the “right” result.  The term “manipulation” as used above is not meant in a derogatory or bad-faith sense.  Rather, the term is employed to emphasize a panel’s power -- as supplied by the procedural “tools” discussed below -- to bring the facts and law in line with its conclusion.  While recognizing the good faith of panels, it is nonetheless important to acknowledge the realities of judicial decision-making.

A panel’s ability to appoint experts on its own initiative allows it to supplement the factual record of a dispute developed by the parties with the opinions and factual statements provided by the experts.  In a sense then, the ability to appoint experts transforms “panel as adjudicator” to “panel as inquisitor.”  Instead of being forced to parse the potentially biased opinions of the parties’ experts, a panel has the power to appoint disinterested experts in an effort to reach the “truth” of the matter.  Of course, power can be wielded for both good and evil -- and a panel’s ability to appoint experts could be used to shape the factual record to support a particular result.

A panel’s power to appoint experts becomes far more significant when considered in conjunction with the “objective assessment of facts” standard of review.  This standard of review is not deferential to prior fact-finding by a party: A panel must consider all available evidence, and make factual findings based on that evidence.  For example, a party’s finding of fact that a particular scientific report reaches conclusion “A” is not binding on a panel; the panel is obligated to consider the report itself and make a finding of fact regarding the conclusion reached by the report.  As stated above, a panel must consider all available evidence -- and this includes the evidence introduced by the experts appointed by the panel itself.  As the composition of a body of evidence is altered, the conclusion reached through an “objective assessment” of that evidence will necessarily be affected.  Continuing the example above, it is possible that a panel considering the report alone would reach conclusion “A,” while the same panel considering both the report and the testimony of an expert would reach conclusion “B.”  Although all evidence must be considered, the probative value ascribed to items of evidence is left to the discretion of a panel.  Thus, it is conceivable that a panel might assign almost no probative value to evidence introduced by a party, while finding the evidence submitted by its experts compelling.  In fact, one of the EC’s primary arguments with respect to standard of review was that the Panel had assigned a high probative value to the views of its experts, while distorting and disregarding the evidence submitted by the EC and its scientific advisors.  The EC’s argument did not sway the Appellate Body, but in retrospect it makes a valid point: Allowing a panel to shape the factual record and then “pick and choose” evidence creates the potential for abuse.

Although the Appellate Body might have curbed the power of panels with respect to fact finding through an effective standard of appellate review, the Appellate Body instead effectively eliminated appellate review with respect to factual determinations by panels.  The Appellate Body found that unless a complaining party can establish deliberate disregard, distortion, or misrepresentation of evidence, or gross negligence, a panel’s findings of fact will not be overturned.  Thus the potent combination of a panel’s power to appoint experts, and the “objective assessment of facts” standard of review, will be unchecked by appellate review.

The distinction drawn by the Appellate Body between legal claims and arguments further increases the potential for manipulation by a panel.  Whereas the Appellate Body’s findings with respect to the selection and use of experts and standard of review provide a panel the means to shape the factual record in order to justify a desired result, the distinction between legal claims and arguments provides a panel the means to selectively advance legal arguments to reach a desired result.  Presumably, parties’ initial claims will be broad -- e.g., allegations that a sanitary measure violates Articles 2, 3, and 5 -- so a panel will operate bounded primarily by its own creativity.

Conclusion

The Hormones case is of great importance because it charts the SPS Agreement’s path away from reliance on the GATT’s discrimination-based regime.  In adopting the SPS Agreement, WTO Members recognized that a discrimination-based test is a poor filter for distinguishing between legitimate SPS measures, and those implemented for protectionist purposes -- especially since pest and disease risks vary among Member Countries.  Additionally, Members recognized that even non-discriminatory measures have the clear potential to hamper international trade.  Thus, while preserving the sovereign right of Members to promulgate the standards necessary to protect human life and health within their borders, the SPS Agreement seeks to root out those measures which are arbitrary in the sense that they do not really serve to advance their purported purpose of protecting life and health.  While the SPS Agreement prohibits SPS measures which “arbitrarily or unjustifiably discriminate between Members,” this is a weaker non-discrimination obligation than the national treatment obligation imposed by GATT Article III.  The SPS Agreement instead relies on the requirement that SPS measures be based on an objective standard -- either an international standard under Article 3.1, or a risk assessment under Article 5.1.  Thus, a measure may be invalidated if it lacks an objective basis -- even if the measure is not directly or indirectly discriminatory.

While the Panel’s interpretation of the SPS Agreement moved the Agreement far beyond the GATT’s discrimination-based regime, the Appellate Body took a much more deferential approach in its interpretation of the SPS Agreement, and in the process gave back much of the ground claimed by the Panel.  First, in the context of Article 3.1, the Panel interpreted the requirement that a Member’s SPS measures be “based on” an international standard to mean that the measures must “conform to” -- essentially adopt -- the international standard.  The Appellate Body rejected the Panel’s interpretation, finding instead that much less than identity is required to support a finding that a measure is based on an international standard.  Next, as in the context of Article 3.1, the Panel interpreted Article 5.1’s requirement that a Member’s SPS measures be “based on” a risk assessment to mean that the measures must “conform to” the assessment.  The Appellate Body rejected the Panel’s “conform to” test, and instead adopted a less stringent alternative: the “rational relationship” test.  Although it is not entirely clear, the Appellate Body’s analysis suggests that an extremely weak relationship between a measure and a risk assessment will suffice to satisfy the “rational relationship” test.  Thus, in the context of both Article 3.1 and Article 5.1, the Appellate Body substantially weakened the ability of the SPS Agreement to distinguish between measures which further the protection of human life and health, and those which do not.  In doing so, the Appellate Body denied proper recognition to a fundamental premise underlying the SPS Agreement: that even non-discriminatory measures have the clear potential to hamper international trade.  Further, because those measures which do not advance the protection of human life and health are also likely to be protectionist measures in disguise, the Appellate Body’s decision also cripples the Agreement’s ability to distinguish between valid SPS measures on the one hand, and protectionist measures on the other.

In its determination that Article 5.1’s “based on” requirement does not have a procedural aspect, the Appellate Body missed a chance to repair some of the damage it had done in establishing the “rational basis” test.  The Panel found that the Article 5.1 test has a procedural aspect -- that the party imposing the measure “actually took into account a risk assessment when it enacted or maintained its sanitary measure.”  The Panel’s test promotes harmonization by encouraging Members to evaluate the scientific basis for all their measures, not just those which are later disputed -- and this evaluation will occur at the time of enactment, rather than at the advent of litigation.  In contrast to a rigorous substantive test, a procedural test does not guarantee that measures are based on an objective standard; however, a procedural test will tend to lead to this favorable result.  On the other hand,  according to the Appellate Body’s analysis, so long as there is an outwardly verifiable relationship between the measure and a risk assessment, it makes no difference whether the Member imposing the measure ever even read the risk assessment.  The Appellate Body’s determination encourages Members to gamble by implementing measures as driven by domestic policy considerations -- and without consideration for the measures’ impact on international trade -- worrying about justification only in the unlikely event that litigation eventually ensues.  

The Appellate Body’s analysis under Article 5.5, which marked a further retreat from the objective standard originally enunciated by the Panel, also introduced substantial unpredictability into the analysis under the SPS Agreement.  Once the bulwark provided by Articles 3.1 and 5.1 has been rendered ineffective, analysis under the SPS Agreement is left to Article 5.5.  At best, Article 5.5 provides weak protection against measures which discriminate between Members or result in a disguised restriction on international trade.  At worst -- as the Appellate Body’s analysis clearly demonstrates -- Article 5.5 transforms the analysis under the SPS Agreement into an unprincipled inquiry into the intent of the Member imposing a measure.  The inquiry is not whether the Member imposing a measure discriminated -- but rather whether the Member intended to discriminate.  Clearly, once the analysis under Article 5.5 has descended into the morass of intention, the reviewing body’s viewpoint regarding a measure -- i.e., whether it is legitimate or protectionist -- becomes outcome determinative.  

In conclusion, there are no winners under the Appellate Body’s decision in the Hormones case.  As discussed above, the SPS Agreement was motivated by recognition that a discrimination-based test is a poor filter for distinguishing between legitimate SPS measures, and those implemented for protectionist purposes; and that even non-discriminatory measures have the potential to hamper international trade.  The incorporation of the latter principle in the text of the SPS Agreement creates great potential for facilitating international trade.  Although it is not entirely clear, the Appellate Body’s analysis seems to indicate that a weak relationship between a measure and an objective standard -- either an international standard or a risk assessment -- will be sufficient to satisfy the “based on” requirement.  If so, the SPS Agreement’s “great potential” will not be realized.  Further, the Appellate Body’s analysis reveals that once a weak test is accepted in Articles 3.1 and 5.1, the analysis under the SPS Agreement is transformed into an unprincipled inquiry into the intent of the Member imposing a measure -- and such a result seems antithetical to the principles underlying the Agreement.