Evidence in Environmental/Scientific Exceptions: Some Contrasts between the WTO Panel Report in China-Rare Earths and the ICJ Judgment in Whaling in the Antarctic

Two significant international decisions involving environmental protection claims were issued within the last few days of March 2014.  On 26 March 2014, a World Trade Organization (WTO) Panel issued its Report in China-Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum (hereafter, China-Rare Earths), which held, among others, that “China may not seek to justify the export duties it applies to various forms of rare earths, tungsten, and molybdenum [pictured above left, credit] pursuant to Article XX(b) [exception for measures “necessary to protect human, animal or plant life or health”] of the GATT 1994.” (Panel Report, para. 8.11b)  On 31 March 2014, the International Court of Justice issued its Judgment in Whaling in the Antarctic (Australia v. Japan: New Zealand intervening) (hereafter, the Whaling case) where the Court held, among others, that “the special permits granted by Japan in connection with JARPA II [Japanese Whale Research Programme under Special Permit in the Antarctic Phase II] do not fall within the provisions of Article VIII, paragraph 1 [, of the International Convention for the Regulation of Whaling.” [Judgment, para. 247(2)].  In China-Rare Earths, China sought to justify export duties that facially violated Paragraph 11.3 of China’s Accession Protocol to the WTO, by essentially alleging that these duties were justifiable as measures “necessary to protect human, animal, or plant life or health” within the purview of Article XX(b) of GATT 1994.  In the Whaling case, Japan sought to justify JARPA II as a programme “undertaken for purposes of scientific research and is therefore covered by the exemption provided for in Article VIII, paragraph 1, of the [International Convention on the Regulation of Whaling].” (Judgment, para. 49).  While both decisions contain rich analyses of numerous issues of treaty interpretation, one can also look at significant methodological contrasts between the ICJ and the WTO Panel on the treatment of scientific evidence and assignment of evidentiary burdens for the environmental/scientific issues in each case.

The Panel in China-Rare Earths declared that China’s export duties applied to various forms of rare earths, tungsten, and molybdenum “were inconsistent with Paragraph 11.3 of China’s Accession Protocol” (Panel Report paras. 8.1a, 8.6a, and 8.11a), which provides that

“China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of GATT 1994.” (Panel Report, para. 7.35)

The China-Rare Earths Panel further found that, consistent with the Appellate Body’s finding in China-Raw Materials (Appellate Body Report, 22 February 2012), China could not invoke GATT Article XX exceptions to justify measures inconsistent with its obligations under the Accession Protocol.  Admitting the absence of an explicit textual link to GATT Article XX (Panel Report, para. 7.63), China nonetheless argued that its obligation under Paragraph 11.3 of its Accession Protocol “is subject to general exceptions in Article XX of the GATT 1994, and that the export duties at issue are justified under Article XX(b) of the GATT 1994 because they are necessary to protect human, animal, or plant life or health.” (Panel Report, para. 7.49).  China sought to make its case for the applicability of GATT Article XX(b) on the basis of three interpretive arguments:  first, that “Paragraph 11.3 of China’s Accession Protocol has to be treated as an integral part of the GATT 1994”; second, that “the terms ‘nothing in this Agreement’ in the chapeau of Article XX of GATT 1994 do not exclude the availability of Article XX to defend a violation of Paragraph 11.3 of China’s Accession Protocol”; and third, that “an appropriate holistic interpretation, taking due account of the object and purpose of the WTO Agreement, confirms that China may justify export duties through recourse to Article XX of GATT 1994.” (Panel Report, para. 7.62).

The China-Rare Earths Panel rejected each of China’s arguments using techniques of treaty interpretation. (Panel Report, paras. 7.58 to 7.116)  Instead of stopping short at this juncture and proceeding to discuss other defenses invoked by China, however, the Panel engaged in extensive in arguendo reasoning to reject the viability of the defense of GATT Article XX(b), assuming the latter provision would apply to the prohibition in Paragraph 11.3 of China’s Accession Protocol.  It is this obiter analysis of the Panel (Panel Report, paras. 7.143 to 7.196) that stands in sharp contrast to the rigor of the International Court of Justice’s treatment of scientific/environmental evidence in the Whaling case.

The China-Rare Earths Panel admitted that China had “provided the Panel with sufficient evidence to substantiate this assertion that the mining and production of rare earths, tungsten, and molybdenum have caused grave harm to the environment in China, and as a consequence, to the health of humans, animals and plants in China” (Panel Report, para. 7.150), but maintained that China failed to demonstrate that its chosen measures – the export duties on the sale of rare earths to foreign markets – were indeed necessary to protect human, animal or plant life or health.  The Panel declared that China failed to show “a link between export duties and a pollution reduction objective” (Panel Report, para. 7.159), stressing that “the mere fact that the export of such products would be taxed does not demonstrate the existence of a link between such taxes and the goal of reducing pollution.” (Panel Report, para. 7.165).  China had alleged that its export duties would serve a pollution reduction objective “by increasing the price of the domestic and foreign-bound products, demand for these products will decrease, and, therefore, production of rare earth, tungsten, and molybdenum products in China will be reduced, resulting in less pollution connected with both mining and production.” (Panel Report, para. 7.172).

The China-Rare Earths Panel did not accept China’s claim that its export duties would indeed serve pollution reduction objectives, noting that “as the party invoking Article XX(b) of GATT 1994, China bears the burden of producing evidence and argument to substantiate its defence.” (Panel Report, para. 7.178)  The Panel capitalized on the point that China’s export duties would only potentially dampen production with respect to the supply of rare earths for foreign purchasers, but not necessarily for the domestic consumption of rare earths inside China:  “…China imposes export duties which increase prices only for foreign consumers, without any corresponding tax on sales to domestic consumers.” (Panel Report, para. 7.175).  For this reason, the Panel held that “China has not met its burden of proof in asserting that its export duties are ‘apt to make a material contribution’ to the protection of human, animal, and plant life and health.” (Panel Report, para. 7.178).  The Panel further held that China failed to show reasonable alternatives to its export duties, such as to amplify China’s current levels of volume restrictions on rare earths mining and production, pollution controls on mining and production, resource taxes and pollution taxes.  (Panel Report, para. 7.186)  Finally, the Panel also concluded that China’s export duties violate the chapeau of GATT Article XX (“arbitrary or unjustifiable discrimination between countries where the same conditions prevail”), since this chapeau allegedly covers “not only MFN-type discrimination among different countries to which an exported product is destined…but also national treatment-type discrimination arising from the difference in treatment accorded to the like product when destined for export, as compared with the treatment of the like product when destined for domestic consumption.” (Panel Report, para. 7.190)  Since China’s export duties would ultimately result in differences between the export prices and domestic prices of rare earths, the Panel deemed such measures to constitute arbitrary discrimination within the meaning of the chapeau of GATT Article XX.

Three observations can be made regarding the evidentiary treatment of the environmental exception in Article XX(b) of GATT 1994 in the China-Rare Earths Panel obiter.  First, the Panel sought an unspecified higher threshold of evidence of pollution reduction from the challenged measures (e.g. China’s export duties) before it could find that such measures indeed made a material contribution to the protection of human, animal and plant life and health. Evidence of projected reductions of foreign export demand as a result of the increase of export prices based on the export duties would be insufficient by themselves, absent a showing of counterpart evidence that domestic demand for rare earths would not also increase and thus offset any projected reductions in foreign export demand.  Second, the burden of producing evidence on the pollution-reducing impacts of the challenged measure rests wholly with the State imposing challenged measure, such that any analysis of the pollution-reducing impacts of the challenged measure would have to be made in conjunction with pollution reduction analyses for all other measures the State could take as “reasonably available” measures.  Rather than focus solely on the actual environmental impacts generated by the diminished rare earths production ensuing from China’s export duties, the Panel sent the message that the environmental impact analysis of these measures would inimitably have to be relative in nature.  As the world’s leading producer of rare earths (producing over 90% of the world supply despite possessing just around 20% to 1/3 of the world’s rare earth reserves), China would have to show that its export duties could ultimately diminish both foreign and domestic demand for rare earths, and that reduced production of rare earths (and concomitantly, any reduction of pollution from diminished levels of rare earths production) could not be achieved through any other reasonably available measures outside of the export duties in question.  Finally, it appears that while the Panel subjected China to various questions on these matters during the Interim Review stage, it did not seek to independently obtain information of these allegedly relative environmental impacts of the challenged measures, which it could have done under Article 13(1) of the Dispute Settlement Understanding (“right to seek information and technical advice from any individual or body as it deems appropriate”).  Instead, the Panel accepted one expert report submitted by the complainants (“Export Duties as a Means to Address Environmental Externalities” by Professor Gene Grossman) to conclude that the fall in China’s foreign exports of rare earths would indeed be offset by the increase in domestic consumption of rare earths as to negate any possible pollution reduction effects of the challenged measures.  (Panel Report, para. 7.178)

The foregoing evidentiary treatment of environmental claims differs sharply from the careful rigor exhibited by the International Court of Justice in the Whaling case.  In resolving the issue of whether special permits granted for JARPA II were indeed for the purposes of scientific research within the meaning of Article VIII, paragraph 1 of the International Convention on the Regulation of Whaling (ICRW) (Judgment, para. 42), the Court set out the following test and standard of review:

“67.  When reviewing the grant of a special permit authorizing the killing, taking, and treating of whales, the Court will assess, first, whether the programme under which these activities occur involves scientific research.  Secondly, the Court will consider if the killing, taking and treating of whales is ‘for purposes of’ scientific research by examining whether, in the use of lethal methods, the programme’s design and implementation are reasonable in relation to achieving its stated objectives.  This standard of review is an objective one.” (Judgment, para. 67)

The Court put forward its own questions to the experts called by Australia and Japan for this case (Judgment, paras. 20-21).  As may be seen from the Judgment, the Court conducted an extensive review and careful analysis of the evidence put forward by both parties (Judgment, paras. 98-242) in order to assess the reasonableness of the design and implementation of the challenged measure (in this case, JARPA II) to achieve its stated objectives of scientific research.  The Court noted that it was “not called upon to resolve matters of scientific or whaling policy” (Judgment, para. 69), but only to determine whether the JARPA II programme met the terms of special permits under Article VIII, paragraph 1 of the ICRW.  The Court found that:

“…the fact that a programme involves the sale of whale meat and the use of proceeds to fund research is not sufficient, taken alone, to cause a special permit to fall outside Article VIII.  Other elements would have to be examined, such as the scale of a programme’s use of lethal sampling, which might suggest that the whaling is for purposes other than scientific research.  In particular, a State party may not, in order to fund the research for which a special permit has been granted, use lethal sampling on a greater scale than is otherwise reasonable in relation to achieving the programme’s stated objectives.”  (Judgment, para. 94)

On the evidence, the Court noted that the JARPA II Research Plan “should have included some analysis of the feasibility of non-lethal methods as a means of reducing the planned scale of lethal sampling in the new programme” (Judgment, para. 137), and that ultimately “the target sample sizes in JARPA II are not reasonable in relation to achieving the programme’s objectives.” (Judgment, para. 224)  Thus, the Court determined that “JARPA II involves activities that can broadly be characterized as scientific research, but that the evidence does not establish that the programme’s design and implementation are reasonable in relation to achieving its stated objectives.” (Judgment, para. 227)

Admittedly, different treaty provisions are implicated in the China-Rare Earths Panel Report and the Whaling case.  But what is ultimately remarkable from these two recent international decisions is the methodology adopted by the respective tribunals for assessing the veracity of alleged environmental or scientific exceptions.  The China-Rare Earths Panel could have omitted any discussion of GATT Article XX(b) since it determined that this provision did not apply to the obligation in paragraph 11.3 of China’s Accession Protocol.  Instead, it subjected China to somewhat ambiguous evidentiary thresholds without itself conducting more encompassing fact-finding and analysis of environmental impacts that were supposedly at issue in regard to the reasonableness and necessity of China’s challenged measures.  In contrast, the Court in the Whaling case carefully delineated its standard of review for the claimed scientific research exception, and demonstrably conducted a comprehensive inquiry into the evidence before reaching its conclusion that Japan’s lethal methods in its JARPA II whaling programme were not reasonable for purposes of scientific research.  This contrast does provoke renewed questions about the nature of evidentiary fact-finding in international adjudication [See Morten Bergsmo (ed.), Quality Control in Fact-Finding, 2013], and the sensitivity of tribunals to the specialized nature of evidence for environmental and scientific claims.