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WTO/GATS negotiations and alcohol policy

Dag Endel

With the de facto breakdown in the WTO negotiations in the summer of 2006, there is now a freeze in all negotiation processes under the World Trade Organization. The breakdown came because of a controversy on markets access for and subsidies on agriculture products. However, since this is such a major issues for many countries, the breakdown on this point has had the consequence that also the GATS negotiations on trade in services have been halted. Today nobody knows if, when and how the negotiations may be back on track again. Some countries are pushing for an immediate resumption, while others are just waiting. But once the negotiations start up again, things may move very quickly. This means that NGOs wishing to influence the discussions must be prepared. They must also be ready to act quickly – indeed, they should start acting now, while the national ministries and negotiators have the time to listen.

Relevance for alcohol policy
The issues with strongest relevance for alcohol policies within the WTO system are now covered by the discussions under the GATS; General Agreement on Trade in Services. These negotiations do not cover the products themselves (eg. alcohol), but the services related to the products (like sales and marketing). A working group was established after the 2005 WTO meeting in Hong Kong with the task of developing so-called disciplines on domestic regulations.

Domestic regulations are any regulation of or restriction on the free trade in services implemented by national, regional or local governments.

Disciplines on domestic regulations are sets of guidelines on how, when and why governments can impose regulations on the trade in services; for example, alcohol licensing procedures, state monopolies, limiting the number of suppliers or outlets, restrictions on advertising and promotion activities.

However, ‘restrictions’ may be a more appropriate term than ‘disciplines’. The aim of the guidelines is definitely to avoid too much interference in the market by governments.

A poor result in the negotiations on domestic regulations, may severely limit governments’ freedom to use the alcohol control policy measures that are proven to be the most effective by alcohol research (ref. Babor et al). On the other hand, there are good possibilities to limit a possible damage by a few changes in the existing draft texts.

A fundamental conflict of interests?
The basic idea behind the international trade treaties under the World Trade Organization is that the removal of restrictions on the free trade in products and services are to be achieved progressively, and that the process of trade liberalization is essentially irreversible. Once trade restrictions have been lifted in a country the process towards their reintroduction is made very complicated.

In the WTO system alcoholic beverages are treated just like any other product unless a country makes specific provisions to the contrary.

This approach is in strong conflict with the approach now taken by the international alcohol research and public health community, reflected in the World Health Organisation sponsored study by Thomas Babor et al; “Alcohol – No Ordinary Commodity”. The same approach informs the study “Alcohol in Developing Societies – A Public Health Approach” by Robin Room et al.

According to these reports alcoholic beverages have so many detrimental effects on public health that necessary steps must be taken to limit consumption in order to reduce the burden on individuals and the society. Babor et al list in their report which measures are the most effective in preventing alcoholrelated harm; under the headline ‘Best practises’. Among the interventions recommended are: minimum legal purchasing age, government monopoly of retail sales, restrictions on hours or days of sale, outlet density restrictions and alcohol taxes.

Furthermore, while the aim of trade liberalization is an increase in sales and consumption, the paramount objective of alcohol control policies is to reduce the overall consumption and thereby reduce the harmful consequences.

This shows that there is a fundamental conflict of interest and objectives between a trade approach and a public health approach to trade in alcohol.

A long-term solution
This basic conflict of interests can only be solved by taking alcoholic beverages out of the WTO treaties and instead regulate these products under international agreements based on public health and social welfare interests. Robin Room and his colleagues conclude from a development perspective that as the international trade treaties are formulated now (eg. GATS), they are not in the interest of public health, since they threaten the existence of national and local controls over the market.

In its General Assembly in 2005 theWorld Medical Association discussed strategies for prevention of alcoholrelated harm and concluded: “Furthermore, in order to protect current and future alcohol control measures, advocate for consideration of alcohol as an extraordinary commodity and that measures affecting the supply, distribution, sale, advertising, promotion or investment in alcoholic beverages be excluded from international trade agreements.”

Can an exception be made for alcohol?
The WTO system (eg. the preamble to the GATS agreement) allows for restrictions on free trade in products and services, provided that regulations are implemented to protect important national policy objectives. Public health is one such legitimate objective.

In Article XIV of the agreement (General Exceptions) it is stated that the GATS Agreement shall not prevent Member states from adoption or enforcement of measures:

(a) necessary to protect public morals or to maintain public order

(b)necessary to protect human, animal or plant life or health; In a note paragraph (a) it is stated:

“The public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.”

Unfortunately, we do not know how robust these exemption paragraphs will be in the long run. But so far, trade arguments seem to have prevailed over other considerations when cases have been tested. It is significant that the exemption rule in the preamble to the GATS agreement is balanced with a number of other rules to limit the number of restrictions that can be introduced or maintained. In Article VI of the agreement it is said that domestic regulations

  • shall not “constitute unnecessary barriers to trade in services”
  • shall not be “more burdensome than necessary to ensure the quality of the service”
  • “in the case of licensing procedures, not in themselves (be) a restriction on the supply of the service”

‘Necessity Tests’
These rules are the basis for the WTO system of “necessity testing”. Governments and companies that find any domestic regulation on trade in a specific country to be unnecessary and contrary to therules of the WTO agreements and to the notion of free trade, may make a complaint. The case is then judged by a panel of WTO experts. Public health interests will face a number of problems when cases are to be judged by WTO panels, eg. cases on alcohol control policies:

  • The panels will be composed of trade experts whose primary purpose is to protect the WTO agreements and the notion of free trade
  • The panels will know the trade arguments well, but they will have less understanding of the health and social aspects of the alcohol trade, not to mention the broad evidence base for alcohol control policies
  • The burden of proof lies with the government that has implemented regulations on free trade. It will have to prove that the objective of the regulation is of national importance and that the regulations produce the intended result
  • A government will, furthermore, have to prove that other, lessrestrictive measures, would not serve the same purpose – which of course is very difficult, if not impossible

The difficulty of meeting these‘necessity tests’ is made clear by a ‘consolidated working paper’ on domestic regulations.Disciplines on domestic regulation pursuant to GATS article VI:4 -Consolidated working paper (JOB(06)/225) produced in the summer of 20061. One particular difficulty is that exemptions can only be made to achieve ‘national’ policy objectives. The legitimacy of the regulatory objectives of other levels of government (state, region or municipal) is not recognized, and these may not serve as a defence if WTO challenges are launched against sub-national regulations. The working paper also confirms that only a very restricted concept of ‘necessity’ will be permitted. Regulations can be challenged ifthey are deemed to be “unnecessary barriers to trade” and/or “more burdensome than necessary”. It would be up to WTO panels to determine whether a regulation was ‘necessary’. If there were less burdensome alternatives, if the regulation was ineffective in meeting its goals, or if the goals the regulation was intended to achieve were not ‘important’ enough then, following WTO jurisprudence, the regulation would fail to be ‘necessary’.

Alcohol licensing provides an obvious test case. Since all regulations in some way restrict commercial activity, any licensing requirement could potentially be challenged under this discipline. Moreover, the GATS covers not only cross border trade but also all foreign investment within the borders of a country, so any regulation could be challenged as impeding commercial activity.

Finally, national governments would be obliged to harmonize theirstandards with international ones wherever these existed. National differences would not be permitted. So, for example, if international standards on alcohol advertising were established, countries would not be able to implement their own, tougher regulations, such as total bans on such advertising.

References
Thomas Babor et al; “Alcohol – No Ordinary Commodity.

Robin Room et al.;“Alcohol in Developing Societies – A Public Health Approach”

Link to the full text of the GATS Agreement:
http://www.wto.org/english/docs_e/legal_e/26-gats.doc

The web site of World Trade Organizations:
http://www.wto.org/

1 Disciplines on domestic regulation pursuant to GATS article VI:4 - Consolidated working paper (JOB(06)/225) This document, like other documents in the GATS negotiations, has not been made public. However, copies are available from the author.

Dag Endal is the President of Actis, the Norwegian Policy Network on Alcohol and Drugs and project coordinator of FORUT – Campaign for Development and Solidarity.