Microsoft Word - 5_2016.1_Serpin_FINAL3 SERPIN – FINAL THE PUBLIC MORALS EXCEPTION AFTER THE WTO SEAL PRODUCTS DISPUTE: HAS THE EXCEPTION SWALLOWED THE RULES? Pelin Serpin The public morals exception to the World Trade Organiza- tion (“WTO”) trade rules was explicitly invoked for the third time in the trade regime’s history in the WTO dispute over seal products. While shedding further light on the public morals exception, the WTO Appellate Body’s decision in this dispute has raised concerns about an overbroad public mor- als doctrine that could provide a cloak for protectionism. Some commentators argue that the decision has left the excep- tion with no boundaries, leaving the door open for validation of otherwise illegal trade-restrictive measures disguised as measures intended to protect a public moral. This Note ad- dresses such concerns about the unforeseen but far-reaching implications of the European Communities—Measures Pro- hibiting the Importation and Marketing of Seal Products (“EC—Seal Products”) decision, and argues that the Appel- late Body properly and necessarily left the definition and scope of what constitutes a public moral to the discretion of individual WTO member countries. In discussing the WTO’s treatment of the public morals exception in the context of the trade-morality conflict, this Note argues that the implications of the EC—Seal Products decision are not as severe as they may seem. Given the increasingly diverse values, beliefs, and morals that exist among WTO member countries, as well as the crucial role of the WTO as adjudicator among them all,  J.D. Candidate 2016, Columbia Law School; B.B.A. 2013, Baruch College. Many thanks to Professor Benjamin L. Liebman for his insight and guidance throughout the research and writing process. Additional thanks to the remarkable staff and editorial board of the Columbia Busi- ness Law Review for their assistance in preparing this Note for publica- tion. SERPIN – FINAL 218 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 this Note argues that the decision necessarily protects mem- ber countries’ sovereignty as well as the trade regime’s legiti- macy and resilience. I.  Introduction ................................................................ 219  II.  Background ................................................................. 220  A.  The WTO’s Commitment to Free Trade ............. 220  B.  Recognition of Legitimate Policy Exceptions ..... 223  C.  Relevance of the Public Morals Exception ......... 225  D.  Historical Context of the Public Morals Exception Prior to Judicial Interpretation ......... 227  III.  An Overview of the Brief Evolution of the Public Morals Doctrine and the Potential Implications of the Seal Products Dispute ......................................... 229  A.  U.S.—Gambling ................................................... 230  1.  Factual Background ....................................... 230  2.  The Panel and Appellate Body Decisions ...... 231  3.  Implications for the Public Morals Doctrine . 232  B.  China—Audiovisuals ........................................... 233  1.  Factual Background ....................................... 233  2.  The Panel and Appellate Body Decisions ...... 234  3.  Implications for the Public Morals Doctrine . 235  C.  EC––Seal Products .............................................. 236  1.  Factual Background ....................................... 236  2.  The Panel and Appellate Body Decisions ...... 238  a.  TBT Agreement Claims ............................ 238  b.  GATT Discrimination Claims .................. 238  c.  The Public Morals Exception ................... 239  3.  Potential Implications .................................... 242  IV.  The EC—Seal Products Decision Did Not Overly Broaden the Public Morals Exception ....................... 245  A.  Built-In Procedural Safeguards .......................... 245  B.  Broad Discretion is Appropriate and Necessary for the Good of the Trade Regime ....................... 248  V. Conclusion ........................................................................ 250  SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 219 I. INTRODUCTION An increasingly important conflict in the realm of inter- national trade systems is that between the level of regulato- ry autonomy that member states retain and their binding commitments to the free trade of goods and services. The evolution of the World Trade Organization (“WTO”) in par- ticular has been characterized by the search for the right balance between disciplining trade restrictions and preserv- ing regulatory autonomy. While the WTO’s main goal is to foster a fair and open trading system for the benefit of all its members, it provides for a margin of latitude to member countries’ sovereignty by allowing trade-restrictive measures aimed at certain national public policy purposes. One such purpose is to protect a public moral. A recent dispute at the WTO, the European Communi- ties—Measures Prohibiting the Importation and Marketing of Seal Products (“EC—Seal Products”) dispute, involved a trade-restrictive measure designed to protect the European Union’s public moral values against animal cruelty. Until the last decade, the public morals exception was rarely in- voked, with only three cases directly speaking on the subject to date, and the exception still lacks clarity in its definition and scope. A coherent doctrine guiding the application and limits of the public morals exception could have significant implications for WTO member countries and for world trade as a whole. Although the public morals exception has not been invoked often until now, there is a great likelihood that it will be utilized by countries more frequently to defend trade-restrictive measures, considering the growing diversity of the WTO’s membership and the increasing differences in values and morals among them. The public morals exception could potentially make room under the realm of the WTO rules for the protection of human and civil rights, and even animal rights, as seen in the EC—Seal Products dispute. At the same time, a public morals doctrine that is too ex- pansive could provide a cloak for protectionism, potentially undermining the immense progress made toward trade lib- eralization and even threatening the validity of existing trade agreements. This fear has been raised by an apparent SERPIN – FINAL 220 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 shift in the public morals doctrine in the WTO Appellate Body’s recent EC—Seal Products decision. While this deci- sion shed some further light on the public morals exception, some commentators argue that by leaving open the definition of which public morals fall within the scope of the exception, the Appellate Body left the doctrine with no boundaries at all, leaving the door open for validation of protectionist measures disguised as measures intended to preserve a pub- lic moral. This Note will address concerns about the unforeseen but far-reaching implications of the EC—Seal Products decision, and will argue that the Appellate Body properly and neces- sarily left the definition and scope of what constitutes a pub- lic moral within the meaning of the public morals exception to individual WTO member countries. Part II of this Note in- troduces the trade-morality conflict generally and highlights the importance of a coherent public morals doctrine in inter- national trade law. Part III describes how treatment of pub- lic morals in the WTO has evolved, and outlines the possible implications of the change brought by the recent EC—Seal Products decision. Part IV argues that these implications are not as severe as some may fear and that the public morals doctrine was properly broadened by the EC—Seal Products decision. II. BACKGROUND A. The WTO’s Commitment to Free Trade The underlying philosophy of the WTO, as was the case for its predecessor organization the General Agreement on Tariffs and Trade (“GATT”), now annexed therein, is that open markets, transparency, and nondiscriminatory trade policies accrue to the benefit of all participating nations.1 Re- flecting their desire to usher in a “new era of global economic cooperation” and to “operate in a fairer and more open multi- 1 BERNARD M. HOEKMAN & MICHEL M. KOSTECKI, THE POLITICAL ECONOMY OF THE WORLD TRADING SYSTEM: THE WTO AND BEYOND 1 (3d ed. 2009). SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 221 lateral trading system for the benefit and welfare of their peoples,” the parties to the WTO agreement pledged “to re- sist protectionist pressures of all kinds” and “not to take any trade measures that would undermine or adversely affect the results of the Uruguay Round,” the negotiations which cul- minated in the formation of the WTO.2 The theory behind the WTO’s commitment to liberal trade policies and against protectionism is that free trade sharpens competition and spurs innovation, while protection- ism ultimately results in stagnant, inefficient markets and low quality of products for consumers, eventually causing markets to contract and world economic activity to be re- duced.3 Thus, in accordance with their WTO commitments, member countries may not provide protection to domestic production or industries through internal policies, and dis- crimination between products or countries is condemned.4 When a member country erects barriers to trade, such as import or export bans, another member may challenge that legislation through WTO consultations and a dispute settle- ment panel.5 The obligation of non-discrimination in national regulation plays a fundamental role in the WTO’s promotion of free trade, and there are several disciplines on domestic regulation in the WTO agreement aimed at upholding this obligation.6 One of the cornerstones of the WTO agreement is the na- tional treatment principle, found in all of the main WTO 2 Marrakesh Declaration of Apr. 15, 1994, 1867 U.N.T.S. 148. 3 See Understanding the WTO: Basics, The case for open trade, WTO, http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact3_e.htm [http://per ma.cc/XXN8-BU8F]. 4 George A. Bermann & Petros C. Mavroidis, Introductory Remarks, in TRADE AND HUMAN HEALTH AND SAFETY 1, 2 (George A. Bermann & Petros C. Mavroidis eds., 2006). 5 See Understanding the WTO: Settling Disputes, A unique contribu- tion, WTO, http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e. htm [http://perma.cc/PA2Q-DQWP]. 6 Gabrielle Marceau & Joel P. Trachtman, Responding to National Concerns, in THE OXFORD HANDBOOK OF INTERNATIONAL TRADE LAW 209, 211 (Daniel Bethlehem et al. eds., 2009). SERPIN – FINAL 222 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 agreements.7 In accordance with this principle, Article III of the GATT requires that members refrain from using internal taxes and other internal regulations to favor domestic prod- ucts and production over imported products.8 The WTO Ap- pellate Body has interpreted this article as having the pur- pose of prohibiting protectionism, although it has not clearly defined this term.9 Similarly, Article XVII of the General Agreement on Trade in Services (“GATS”) holds that nations must give foreign services and service suppliers the same regulatory costs and benefits that they provide to domestic services and service suppliers.10 The WTO Agreement on Trade-Related Aspects of Intellectual Property (“TRIPS”) likewise holds that nations must provide the same protec- tions to intellectual property of foreign and domestic enti- ties.11 Another key principle of the WTO agreement aimed at preventing discrimination is the most favored nation (“MFN”) principle, which essentially requires that all mem- ber countries of the WTO treat one another equally in trade.12 Article I of the GATT provides that for all matters referred to in paragraphs 1 and 2 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product orig- inating in or destined for any other country shall be accorded . . . to the like product originating in or des- 7 Id. at 211–15. 8 General Agreement on Tariffs and Trade art. III, Oct. 30, 1947, 55 U.N.T.S. 194 [hereinafter GATT]; see also General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187 [hereinafter GATT 1994] (incorporating provisions from GATT 1947). 9 Marceau & Trachtman, supra note 6, at 211–12. 10 General Agreement on Trade in Services art. XVII, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S. 183 [hereinafter GATS]. 11 Agreement on Trade-Related Aspects of Intellectual Property Rights art. 3, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299 [hereinafter WTO TRIPS Agreement]. 12 Marceau & Trachtman, supra note 6, at 214. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 223 tined for the territories of all other contracting par- ties.13 Article 2.3 of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”) provides a similar obligation with respect to sanitary and phytosanitary measures,14 and Article 2.1 of the WTO Agreement on Technical Barriers to Trade (“TBT Agree- ment”) follows both Articles III and I of the GATT closely, requiring “treatment no less favourable than that accorded to like products of national origin and to like products origi- nating in any other country.”15 In essence, these provisions prohibit domestic policies and measures that discriminate against or between products or services from other WTO member countries. A trade- restrictive measure need not be discriminatory, however, to be held illegal under the GATT. The agreement also contains provisions requiring the gradual reduction of trade barriers in the form of customs duties or tariffs,16 and limiting quan- titative restrictions on imports and exports.17 The agreement further discourages unfair practices such as export subsi- dies18 and dumping products at below cost to gain market share.19 B. Recognition of Legitimate Policy Exceptions The WTO is ultimately committed to a fairer and more open multilateral trading system and condemns national pol- 13 GATT, supra note 8, art. I. 14 WTO Agreement on the Application of Sanitary and Phytosanitary Measures art. 2.3, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 493 [hereinafter WTO SPS Agreement]. 15 Agreement on Technical Barriers to Trade art. 2.1, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1868 U.N.T.S. 120 (1994) [hereinafter WTO TBT Agreement]; see gen- erally Marceau & Trachtman, supra note 6, at 214. 16 GATT 1994, supra note 8, art. II. 17 Id. art. XI. 18 Id. art. XVI. 19 Id. art. VI. SERPIN – FINAL 224 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 icies that have the effect of restricting trade. At least poten- tially or indirectly, however, almost all government policies affect trade in some way, even if they are only remotely re- lated to trade. At the same time, national measures that im- pede international trade or restrict market access may or may not be intended to protect a country’s domestic industry, and may even be intended to protect important national or public values—whether they focus on environmental, human rights, security or other concerns. In many cases, “the dis- tinction between a protectionist measure—condemned for imposing discriminatory or unjustifiable costs—and a non- protectionist measure restricting trade incidentally (and thus imposing some costs) is difficult to make.”20 Since its inception, the GATT has recognized that legiti- mate government policies may justify measures that are con- trary to the basic GATT obligations, and it contains several provisions to safeguard against those obligations that could encroach upon member countries’ sovereignty. Article XX of the GATT carves out a list of general exceptions to any of the contractual obligations in the agreement, including the MFN and national treatment principles.21 Article XX is invoked frequently in response to challenges against trade-restrictive measures at the WTO dispute set- tlement panel, and has provided support for countries to re- strict trade in order to protect certain public interests. The application of these exceptions are, however, subject to the requirement, or the “chapeau,” in Article XX’s preamble that such measures not be applied in a manner which would con- stitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.22 Thus, analysis of whether a trade-restrictive measure is justified under Article XX requires a two-tiered analysis: first, it must come under one of the particular listed exceptions, and se- cond, it must be appraised under the preamble clause.23 One 20 Marceau & Trachtman, supra note 6, at 210. 21 GATT 1994, supra note 8, art. XX. 22 Id. 23 Repertory of Appellate Body Reports––General Exceptions: Article XX of the GATT 1994, G.3.1 Article XX––Two Tier Analysis, WTO, SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 225 public policy exception that is frequently invoked in response to challenges to trade-restrictive measures and is often the subject of dispute is Article XX(b), which provides that “noth- ing in the agreement shall be construed to prevent the adop- tion or enforcement by any contracting party of measures . . . necessary to protect human, animal or plant life or health.”24 Another example is the exception contained in Article XXI, providing that a contracting party may act in contravention of its obligations under the GATT when those actions are necessary for the protection of its essential secu- rity interests.25 C. Relevance of the Public Morals Exception This Note addresses a provision that allows member countries to act in contravention of their WTO obligations through measures “necessary to protect public morals.”26 The concept of morality in the context of government regulation has been the subject of legal and philosophical debate since as early as the seventeenth century.27 Historically, trade con- trols based on morality have included matters such as reli- gion, human and fundamental rights, and attitudes on alco- hol, drugs, sexuality, bigamy, gambling, corruption in business and politics, consumer protection, or cruelty toward animals.28 In his leading work on the history of the public http://www.wto.org/english/tratop_e/dispu_e/repertory_e/g3_e.htm [https:// perma.cc/E6BW-KTZR]. 24 GATT 1994, supra note 8, art. XX(b). 25 Id. art. XXI. 26 Id. art. XX(a). 27 See generally ALAN HUNT, GOVERNING MORALS: A SOCIAL HISTORY OF MORAL REGULATION (1999). 28 Steve Charnovitz, The Moral Exception in Trade Policy, 38 VA. J. INT’L L. 689, 717 (1998) (explaining that “[t]he various ways morality- based trade measures had been employed before the GATT was written foreshadow many of the uses to which article XX(a) might be enlisted to- day”); see also Miguel A. Gonzalez, Trade and Morality: Preserving “Public Morals” Without Sacrificing the Global Economy, 39 VAND. J. TRANSNAT’L L. 939, 960–70 (2006) (summarizing the historical usage of public morals by courts and legislative bodies in the United States, Pakistan, Latin America, Australia, Canada, Hong Kong, and the United Kingdom). SERPIN – FINAL 226 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 morals exception, scholar Steve Charnovitz points out that these issues frame the backdrop against which the morality exception was written into the GATT.29 But, in contrast to many of the other general exceptions, the public morals clause—which now appears in both GATT and GATS30—has only been invoked at the WTO Dispute Settlement Body on few occasions, and until recently its parameters remained largely unexplored. In light of the changing dynamics of the WTO, and in view of the recent EC—Seal Products decision, however, it is likely that the public morals exception will be utilized more frequently as a defense of trade-restrictive measures by member countries defending their domestic pol- icies in the future. As noted at the time of the first WTO de- cision directly addressing the public morals exception, the increased heterogeneity and diversity of the WTO in con- junction with the growing economic importance of interna- tional trade to member countries may increase the frequency of trade-morality disputes.31 The WTO has grown to 162 members as of November 2015, up from the original twenty- three members of the original 1947 GATT.32 In addition, while originally the 1947 GATT was created with the over- riding objective of liberalizing “the flow of trade in industrial products among its largely industrialized Contracting Par- ties,”33 today it is made up mostly of developing nations with divergent socioeconomic and cultural backgrounds.34 With 29 Charnovitz, supra note 28, at 717. 30 GATT 1994, supra note 8, art. XX(a); GATS, supra note 10, art. XIV. 31 Jeremy C. Marwell, Note, Trade and Morality: The WTO Public Morals Exception After Gambling, 81 N.Y.U. L. REV. 802, 808 (2006). 32 GATT, supra note 8, Preamble (listing original twenty-three mem- ber countries); Understanding the WTO: The Organization: Members and Observers, http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm [https://perma.cc/TDX3-NCH7] (listing current member countries). 33 Melaku Geboye Desta, The Organization of Petroleum Exporting Countries, the World Trade Organization, and Regional Trade Agreements, 37 J. WORLD TRADE 523, 531 (2003). 34 See Development: Definition––Who are the Developing Countries in the WTO?, WTO, http://www.wto.org/english/tratop_e/devel_e/d1who_e. htm [https://perma.cc/2QXQ-4JYM]. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 227 increased size comes increased diversity of social, political, religious, and cultural values as well as greater potential for clashes over which public morals justify a restriction on trade. As world trade continues to rapidly grow, the economic interdependence of these countries and the rest of the world is also continuously increasing,35 presenting both a greater significance of potential trade barriers as well as a growing challenge to national governments regarding their control over domestic policy. Charnovitz highlights two key ways in which trade and morality clash in the context of a domestic trade policy: First, if a morally-motivated trade measure violates international trade rules, then employing it anyway undermines the rule of law and subverts values that may be dear to the country contemplating a trade measure. Second, if the trade measure is adjudged a violation of the GATT, then the target country might retaliate if the measure is not repealed.36 A coherent doctrine on the boundaries and depth of this exception could thus have profound implications for member countries of the WTO as well as countries outside of the or- ganization. D. Historical Context of the Public Morals Exception Prior to Judicial Interpretation The public morals exception was introduced to the trade regime in 1945, and was consistently incorporated into later 35 See HOEKMAN & KOSTECKI, supra note 1, at 8–27 (discussing statis- tics on the growth of world trade and global integration). 36 Charnovitz, supra note 28, at 691; see also Dispute Settlement Sys- tem Training Module: Chapter 6, The process—Stages in a typical WTO dispute settlement case, WTO, http://www.wto.org/english/tratop_e/ dis- pu_e/disp_settlement_cbt_e/c6s10p1_e.htm [http://perma.cc/9ESH-GHP8] (explaining that if a WTO member is held to have violated GATT rules, and the illegal measure is not brought into conformity with WTO rules within a reasonable time, the complaining party may, with prior approval from the Dispute Settlement Body, adopt countermeasures as “retaliation” or “sanctions” against the violating member). SERPIN – FINAL 228 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 drafts.37 Its adoption, however, was not accompanied by any explanatory text, and remains mostly unmodified to date.38 Some scholars say this suggests that, “while the drafters continually recognized the importance of enacting such an exception, they either did not see the need to further elabo- rate upon the concept of ‘public morals’ or they could not agree on its meaning.”39 Following conventional internation- al law, several scholars have interpreted the public morals clause under the Vienna Convention, which provides rules for treaty interpretation—including allowing for considera- tion of the treaty’s preparatory work and legislative history and interpreting the treaty in good faith, in accordance with the ordinary meaning of its terms, in context, in light of its object and purpose, and in light of subsequent agreements, practice, and laws.40 Under this approach, Charnovitz found that the legislative history also shed little light on the mean- ing of the public morals clause, and that ultimately it is diffi- cult to ascertain the meaning of the clause, in terms of “what morals” and “whose morals” are covered, under the Vienna Convention’s rules.41 Even so, this does not mean the public morals clause has been entirely overlooked. Mark Wu, who has written about the evolution of the public morals excep- tion in the WTO, argues that the lack of clarity from legisla- tive history and other Vienna Convention rules is not an in- dication that the public morals clause has been ignored, 37 See Uyen P. Le, Online and Linked In: “Public Morals” in the Hu- man Rights and Trade Networks, 38 N.C. J. INT’L L. & COM. REG. 107, 119 (2012) (discussing the history of public morals in the WTO). 38 Mark Wu, Note, Free Trade and the Protection of Public Morals: An Analysis of the Newly Emerging Public Morals Clause Doctrine, 33 YALE J. INT’L L. 215, 218–21 (2008). 39 Id. at 218 (citing Charnovitz, supra note 28, at 704–05 n.94 (sug- gesting that the negotiators knew “that [public morals] was an amorphous term covering a wide range of activities”)). 40 Vienna Convention on the Law of Treaties arts. 31–32, May 23, 1969, 1155 U.N.T.S. 331. 41 See Charnovitz, supra note 28, at 704–05 (discussing the lack of de- bate on Article XX(a) during the preparatory meetings). SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 229 pointing to the nearly 100 treaties and bilateral free trade agreements that incorporate such a clause.42 Yet, for nearly sixty years after its introduction, the pub- lic morals exception was never utilized in the face of a chal- lenge to a member country’s trade-restrictive measure at the WTO Dispute Settlement Body.43 Again, this is not to say that public morals were not an important basis for countries’ trade-restrictive measures during this time. Many countries placed various restrictions on imports throughout this period but did not need to invoke the public morals exception, either because their measures were not challenged at the WTO Dispute Settlement Body, or because they were challenged under a different, more concrete, exception that was also ap- plicable.44 This changed in March 2003, when Antigua and Barbuda (“Antigua”) brought a complaint against the United States, alleging that certain U.S. federal and state laws con- stituted a ban on the cross-border provision of Internet gam- bling services in violation of GATS Article XVI.45 III. AN OVERVIEW OF THE BRIEF EVOLUTION OF THE PUBLIC MORALS DOCTRINE AND THE POTENTIAL IMPLICATIONS OF THE SEAL PRODUCTS DISPUTE While public morals have been a part of the WTO regime since its inception, judicial interpretation of the clause is largely limited to three cases all occurring in the past dec- ade. In this Part, this Note provides an overview of the Unit- ed States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services (“U.S.—Gambling”), China— Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment 42 See Wu, supra note 38, at 221–22, for examples of treaties and free trade agreements that incorporate a public morals clause. 43 See id. at 225. 44 Id. at 222–23. 45 See Request for the Establishment of a Panel by Antigua and Bar- buda, United States—Measures Affecting the Cross-Border Supply of Gam- bling and Betting Services, at 1, WTO Doc. WT/DS285/2 (June 13, 2003). SERPIN – FINAL 230 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 Products (“China—Audiovisuals”), and EC—Seal Products cases. It focuses on the portions of the decisions that contrib- ute to the development and understanding of the public mor- als exception in the WTO. It then discusses the potentially far-reaching implications of the EC—Seal Products decision that have raised fears of a limitless public morals exception. A. U.S.—Gambling 1. Factual Background The U.S.—Gambling decision was the first ever to speak directly on the public morals exception in the WTO, and is important for setting the precedent for future public morals defenses. The dispute arose out of the United States’ decision to ban the cross-border provision of Internet gambling and betting services.46 Antigua brought a complaint against the United States alleging that the U.S. ban was in violation of obligations under GATS Article XVI.47 The U.S. federal and state laws constituting the ban had significant ramifications for Antigua’s small and developing economy, which as a re- sult of an economic diversification program had come to de- pend largely on Internet gambling.48 Antigua alleged that the new laws had a discriminatory impact on Antigua’s economy because “‘the proposed U.S. ban on the use of credit cards and other financial instru- ments for Internet gambling effectively bans the supply of any offshore gambling and betting services to the [United States],’ while gambling institutions located within the [United States] remained unaffected.”49 46 See Marwell, supra note 31, at 811. 47 Id.; see also Request for the Establishment of a Panel by Antigua and Barbuda, supra note 45, at 1. 48 See Wu, supra note 38, at 226. 49 Georgia Hamann, Note, Replacing Slingshots with Swords: Impli- cations of the Antigua-Gambling 22.6 Panel Report for Developing Coun- tries and the World Trading System, 42 VAND. J. TRANSNAT’L L. 993, 999 (2009) (citing Caroline Bissett, Note, All Bets Are Off(Line): Antigua’s Trouble in Virtual Paradise, 35 U. MIAMI INTER-AM. L. REV. 367, 369 (2004)). SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 231 In response, the United States put forth several reasons why the U.S. laws, even if found to violate the United States’ obligations under GATS, could be justified under the public morals exception in GATS Article XIV(a): First, the remote supply of gambling services is par- ticularly vulnerable to exploitation by organized crime due to low set-up costs, ease of provision, and geographic flexibility. Protecting American society against the “destructive influence” of organized crime on persons and property was a matter of public mo- rality. Second, the Internet could introduce gambling into inappropriate settings, such as homes and schools, where it would not be subject to traditional, in-person controls. Internet gambling would facilitate gambling by children and have detrimental effects on compulsive gamblers by allowing anonymous, twen- ty-four-hour access.50 2. The Panel and Appellate Body Decisions The WTO Dispute Resolution Panel ruled in favor of An- tigua. The Panel first defined public morals as “standards of right and wrong conduct maintained by or on behalf of a community or nation.”51 Although the Panel found that gam- bling was an issue of public morality that could be included in the GATS public morals exception, and that the U.S. measures were in fact designed to protect such public morals within the meaning of this exception, it ultimately held that the U.S. measures were not “necessary” to protect public morals and thus were not justified by GATS Article XIV(a).52 50 See Marwell, supra note 31, at 811–12 (citations omitted) (citing Panel Report, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, ¶¶ 3.189-192, 3.211, 3.279-.281, 6.506- .507, 6.511, WT/DS285/R (Nov. 10, 2004) [hereinafter U.S.—Gambling Panel Report]; Executive Summary of the Second Written Submission of the United States, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, ¶ 37, WT/DS285 (Jan. 16, 2004)). 51 See U.S.—Gambling Panel Report, supra note 50, ¶ 6.465. 52 Id. ¶¶ 6.474, 6.482–.483, 6.485–.488, 6.535. SERPIN – FINAL 232 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 The Panel came to this conclusion by applying a three-factor balancing test developed in earlier GATT jurisprudence that focused on “the vitality of the interests to be protected, the extent to which the measure contributes to the stated goal, and the measure’s overall effect on trade.”53 On appeal, the Appellate Body overturned the Panel’s finding that the U.S. measures were not “necessary,” holding that Antigua failed to identify a reasonably available alter- native measure.54 But the Appellate Body ultimately also ruled against the United States, holding that the United States failed to show that its laws met the non- discrimination requirement of the “chapeau” (preamble) of Article XIV55 because it could not show the laws applied equally to both foreign and domestic suppliers of betting ser- vices.56 3. Implications for the Public Morals Doctrine As a matter of first impression under WTO law, this case made important doctrinal clarifications of the public morals exception. First, several scholars have marveled that the de- cision seemed to endorse a dynamic interpretation of public morals, with the Appellate Body choosing not to disturb the Panel’s statement that “the content of [public morals] can vary in time and space, depending upon a range of factors, including prevailing social, cultural, ethical and religious 53 See Marwell, supra note 31, at 813 (citing U.S.—Gambling Panel Report, supra note 50, ¶ 6.488). 54 See Appellate Body Report, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, ¶ 326, WTO Doc. WT/DS285/AB/R (adopted Apr. 7, 2005) [hereinafter U.S.—Gambling Ap- pellate Body Report]. 55 As in the preamble to GATT Article XX, see supra note 22, the pre- amble to GATS Article XIV makes the general exceptions subject to “the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services . . . .” GATS, supra note 10, art. XIV. 56 See U.S.—Gambling Appellate Body Report, supra note 54, ¶¶ 372– 73. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 233 values,” and that the regulating country has the right to de- termine the appropriate level of protection.57 Second, the de- cision clarified that when determining if a public moral is “necessary,” the same three-factor balancing test should be used as that applied by the court to measures “necessary to protect human, animal or plant life or health” under GATT Article XX(b) and GATS Article XIV(b), and the burden of proof falls on the complaining party to identify a reasonably available WTO-consistent alternative if said party disputes the necessity of the initial measure.58 Third, this decision clarified that established principles for evaluating nondis- crimination should guide the interpretation of the public morals exception.59 But U.S.—Gambling left open the fun- damental questions of what morals qualify as public morals and whether a state can unilaterally define its own public morals within the WTO exception.60 B. China—Audiovisuals 1. Factual Background In April 2007, the United States launched a case against China at the WTO, alleging that China imposed measures on the sale and distribution of imported audiovisual entertain- ment products that restricted trade in violation of China’s WTO commitments.61 The United States argued that China violated its obligations of market access under Article XVI and national treatment under Article XVII of the GATS—in 57 See Nicolas F. Diebold, The Morals and Order Exceptions in the WTO Law: Balancing the Toothless Tiger and the Undermining Mole, 11 J. INT’L ECON. L. 43, 49–50 (2008); Gonzalez, supra note 28, at 958; Wu, su- pra note 38, at 231. 58 See U.S.—Gambling Appellate Body Report, supra note 54, ¶ 291 n.350; see also Wu, supra note 38, at 229–30. 59 Wu, supra note 38, at 230. 60 Id. at 231–32. 61 Panel Report, China—Measures Affecting Trading Rights and Dis- tribution Services for Certain Publications and Audiovisual Entertainment Products, ¶ 1.1, WTO Doc. WT/DS363/R (adopted Aug. 12, 2009) [hereinaf- ter China—Audiovisuals Panel Report]. SERPIN – FINAL 234 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 addition to China’s Accession Protocol—because the measures limited the rights of foreign companies to import and distribute the goods in question, discriminating against them in favor of domestic companies.62 As part of its defense, China claimed that its measures were justified by the public morals exception under Article XX(a) of the GATT because the measures in question were designed to review the con- tent of foreign cultural goods and forms of expression that could potentially collide with significant values in Chinese society.63 2. The Panel and Appellate Body Decisions In contrast to U.S.—Gambling, where Antigua challenged the assertion that the U.S. measures were justified on the grounds of protecting public morals, here, the United States did not dispute that the publications affected by the measures could be harmful to Chinese perceptions of public morality and societal values.64 Thus, after establishing that the same interpretation of public morals developed by the U.S.—Gambling Panel under Article XIV(a) of the GATS ap- plies under Article XX(a) of the GATT, the Panel conducted its analysis with the assumption that if the affected products were brought into China, they could have a negative effect on public morals.65 The more determinative question was whether the measures satisfied the “necessity” requirement of the exception.66 In applying the three-factor balancing test 62 See id. ¶¶ 2.1–.3(c). For a detailed overview of the challenged Chi- nese measures, see Raj Bhala & David A. Gantz, WTO Case Review 2010, 28 ARIZ. J. INT’L & COMP. L. 239, 247–57 (2011). 63 See China—Audiovisuals Panel Report, supra note 61, ¶¶ 7.751– .752. 64 Panagiotis Delimatsis, Protecting Public Morals in a Digital Age: Revisiting the WTO Rulings on US—Gambling and China—Publications and Audiovisual Products, 14 J. INT’L ECON. L. 257, 282–83 (2011); see also China—Audiovisuals Panel Report, supra note 61, ¶ 7.763. 65 See China—Audiovisuals Panel Report, supra note 61, ¶ 7.763. 66 See Elanor A. Mangin, Note, Market Access in China—Publications and Audiovisual Materials: A Moral Victory with a Silver Lining, 25 BERKELEY TECH. L.J. 279, 298 (2010). SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 235 detailed in U.S.––Gambling,67 the Panel recognized that pro- tection of public morals was a highly important government interest in China, but ultimately found that all but one of the measures could not be considered necessary to protect public morals because the measures completely denied the right of certain enterprises to engage in importing and, therefore, failed to strike a reasonable balance.68 The Publications Measure, the one measure found to be necessary, was also struck down because of the existence of “reasonably availa- ble” alternatives.69 On appeal, the Appellate Body overturned the Panel’s preliminary finding that the Publications Measure was “nec- essary” due to the lack of reference to supporting evidence of a material contribution to the protection of public morals.70 The Appellate Body, however, affirmed all other findings by the Panel, including that the challenged measures were not necessary to protect public morals and thus were not justi- fied under Article XX(a) of the GATT.71 3. Implications for the Public Morals Doctrine The decision in this case affirmed the general definition of a public moral put forth in U.S.—Gambling and reiterated the court’s deference to an individual country’s choice of the appropriate level of protection for public morals.72 As previ- ously mentioned, however, the relation of the challenged measures to public morals is only the first tier of the excep- tion’s requirements. While the decision gave deference to the cultural specificity of morality in China and did not question whether the measures were related to public morals, it 67 See supra note 53 and accompanying text. 68 See Mangin, supra note 66, at 299–300. 69 See China—Audiovisuals Panel Report, supra note 61, ¶ 7.886– .909. 70 See Appellate Body Report, China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, ¶ 415(b)(iii), WTO Doc. WT/DS363/AB/R (Dec. 21, 2009). 71 Id. ¶ 415(e). 72 See Mangin, supra note 66, at 302. SERPIN – FINAL 236 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 seemed to set the bar quite high in employing the “necessity” test, possibly making it extremely difficult, if not impossible, for countries to prove that any measure is necessary to pro- tect public morals in the future.73 Simultaneously, China––Audiovisuals left a great deal of ambiguity regarding the meaning of public morals. The analysis assumed, arguendo, that public morals may be af- fected by the challenged measures, and neither the Panel nor the Appellate Body analyzed the issue of what constitutes a public moral and whether a country may unilaterally define the term. C. EC––Seal Products 1. Factual Background The third and most recent decision directly speaking on the doctrine of the public morals exception was decided on May 22, 2014. The dispute arose when the European Union (“EU”) adopted a legislative scheme banning the importation and marketing of most products made from seals.74 The ban was the result of a general public denouncement within the European community of the cruel and inhumane methods typically used to kill seals, and was thus justified on the ground that it protected EU citizens’ morals by shielding them from products made through such inhumane treat- ment.75 The EU seal regime, however, carved out several ex- ceptions from the ban, the key limitations being for seal products made by indigenous communities such as the Inuit (“IC exception”) and those made from seals hunted for pur- poses of marine resource management (“MRM exception”).76 73 Id. at 304. 74 Regulation (EC) 1007/2009 of the European Parliament and of the Council of 16 September 2009 on Trade in Seal Products, 2009 O.J. (L 286) 36. 75 Id. at 36; see also Ian Traynor, Europe Votes to Ban Seal Product Trade, GUARDIAN (May 5, 2009), http://www.theguardian.com/ environ- ment/2009/may/05/eu-bans-seal-products [http://perma.cc/7T6E-LLTX]. 76 See Appellate Body Report, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, ¶ 1.4, WTO SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 237 Sealing is both economically and culturally important for Canada and Norway, which have two of the largest sealing industries in the world.77 In 2010, Canada and Norway chal- lenged the ban at the WTO, arguing that it is discriminatory and restricts trade in violation of the EU’s obligations under Articles 2.1 and 2.2 of the TBT Agreement, Articles I:1, III:4 and XI:1 of the GATT 1994, and Article 4.2 of the Agriculture Agreement.78 The crux of the challenge was that the EU leg- islative scheme was more trade-restrictive than necessary to protect public morality in the EU because there existed rea- sonable, less restrictive alternatives, such as simply labeling the products based on whether animal welfare standards had been met.79 Canada and Norway also argued that the imple- mentation of the ban’s exceptions resulted in discrimination, or less favorable treatment, against products from Canada and Norway in favor of those from countries within and out- side of the EU.80 The complainants further argued that alt- hough the EU seal regime was aimed at addressing public concerns regarding seal welfare, those public concerns are not moral concerns for the EU public and are thus not justi- fied under Article XX(a) of the GATT.81 Doc. WT/DS400/AB/R, WT/DS401/AB/R (May 22, 2014) [hereinafter EC— Seal Products Appellate Body Report]. 77 See Robert Howse & Joanna Langille, Permitting Pluralism: The Seal Products Dispute and Why the WTO Should Accept Trade Restrictions Justified by Noninstrumental Moral Values, 37 YALE J. INT’L L. 367, 370 (2012). 78 See Request for the Establishment of a Panel by Canada, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WTO Doc. WT/DS400/4 (Feb. 14, 2011); Request for the Es- tablishment of a Panel by Norway, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WTO Doc. WT/DS401/5 (Mar. 15, 2011). 79 See EC—Seal Products Appellate Body Report, supra note 76, ¶ 1.5; Simon Lester, Lessons From the WTO Seal Products Case for the World Trading System, HUFFINGTON POST (Dec. 9, 2013), http:// www.huffingtonpost.com/simon-lester/lessons-from-the-seal-products- case_b_4384219.html [http://perma.cc/ZJK3-ZTB7]. 80 See EC—Seal Products Appellate Body Report, supra note 76, ¶ 1.5. 81 See id. ¶ 5.134. SERPIN – FINAL 238 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 2. The Panel and Appellate Body Decisions a. TBT Agreement Claims For the TBT Agreement to apply, the challenged measures must constitute a “technical regulation,” which re- quires that the measures be mandatory, apply to identifiable products, and lay down product characteristics or their relat- ed production methods.82 Finding that the TBT Agreement applies to the EU seal regime, the Panel analyzed Canada’s and Norway’s claims primarily under this Agreement; its analysis of the GATT claims was brief and referred back to the TBT analysis.83 The Appellate Body, however, reversed the finding that the TBT Agreement applies, holding that the EU seal regime does not set out product characteristics because the exceptions only “establish[] the conditions for placing seal products on the EU market.”84 Thus, the Appel- late Body held the Panel’s substantive findings under the TBT Agreement moot and of no legal effect.85 b. GATT Discrimination Claims Canada and Norway alleged that the EU seal regime was discriminatory in violation of Articles I.1 and III.4 of the GATT because, although the legislation did not on its face differentiate based on the origin of the seal products, the ex- ceptions accorded less favorable treatment to imports of seal products from Canada and Norway as opposed to those of domestic origin, mainly from Sweden and Finland, or those of other foreign origin, particularly from Greenland.86 The nondiscrimination requirement under these GATT provi- 82 See WTO TBT Agreement, supra note 15, Annex 1, ¶ 1. 83 Gregory Shaffer & David Pabian, The WTO EC—Seal Products De- cision: Animal Welfare, Indigenous Communities and Trade 2–3 (Univ. of Cal. Irvine Sch. of Law, Research Paper No. 2014-69, 2014). 84 See EC—Seal Products Appellate Body Report, supra note 76, ¶ 5.58. 85 See id. ¶ 5.70. 86 See id. ¶ 1.5. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 239 sions mirrors that under TBT Article 2.1.87 The court’s standard for finding less favorable treatment under TBT Ar- ticle 2.1 requires a showing of a detrimental impact for im- ports that is not the cause of a “legitimate regulatory distinc- tion.”88 In the dispute over the seal products ban, both the Panel and the Appellate Body rejected the EU’s argument that this same standard should apply to the GATT provi- sions.89 Rather, the Panel and Appellate Body held that only a finding of a detrimental impact on the competitive oppor- tunities for imports is necessary to find a violation of the GATT nondiscrimination provisions, and whether or not it is the cause of a “legitimate regulatory distinction” is irrele- vant.90 Based on this standard, the Panel and Appellate Body found that the ban was discriminatory because it did not “immediately and unconditionally” extend the same market access advantage to Canadian and Norwegian seal products that it did to like products from Greenland.91 Thus, even though the legislative scheme was origin-neutral on its face, it was held to violate the GATT’s nondiscrimination provisions.92 c. The Public Morals Exception After examining the text and legislative history of the EU seal regime as well as other evidence pertaining to its design, structure, and operation, the Panel found that the regime’s objective is to “address the moral concerns of the EU public 87 Compare Article 2.1 of the WTO TBT Agreement, supra note 15, with Articles I.1 and III.4 of the GATT, supra note 8. 88 Panel Report, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, ¶¶ 7.127, 7.132, WTO Doc. WT/DS400/R, WT/DS401/R (Nov. 25, 2013) [hereinafter EC—Seal Prod- ucts Panel Report]. 89 See id. ¶ 7.585; EC—Seal Products Appellate Body Report, supra note 76, ¶¶ 5.82, 5.125; Shaffer & Pabian, supra note 83, at 4. 90 Shaffer & Pabian, supra note 83, at 3. 91 See EC—Seal Products Panel Report, supra note 88, ¶ 7.600; EC— Seal Products Appellate Body Report, supra note 76, ¶ 5.95. 92 Shaffer & Pabian, supra note 83, at 3. SERPIN – FINAL 240 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 with regard to the welfare of seals,”93 and that addressing public concerns about seal welfare is a “legitimate” objective within the meaning of the public morals exception.94 Citing the flexibility afforded WTO members in U.S.––Gambling to define and apply standards of morality for themselves, the Appellate Body did not disturb this finding despite challeng- es by both the complainants and respondent.95 The Appellate Body seemed to show great deference to a member country’s definition of public morals. First, it reject- ed Canada’s argument that the Panel should have required the EU to demonstrate the existence of a risk to the EU pub- lic moral of seal welfare.96 The Appellate Body noted that in its decision in European Communities—Measures Affecting Asbestos and Asbestos-Containing Products,97 the Panel not- ed that the term “to protect human, animal, or plant life or health” within the meaning of Article XX(b) implies the ex- istence of a health risk.98 In EC––Seal Products, the Appel- late Body noted, however, that while a focus on dangers or risks to human, animal, or plant life or health “may lend it- self to scientific or other methods of inquiry,” such risk- assessment methods “do not appear to be of much assistance or relevance in identifying and assessing public morals” un- der Article XX(a).99 Thus, a member country invoking the public morals exception need not show that a particular pub- lic moral is actually at risk in order to justify its protection of that moral. Second, the Appellate Body also rejected Cana- da’s argument that the Panel should have identified the ex- 93 See EC—Seal Products Panel Report, supra note 88, ¶ 7.410. 94 Id. ¶ 7.419. 95 See EC—Seal Products Appellate Body Report, supra note 76, ¶¶ 5.167, 5.199–.201. 96 Id. ¶ 5.198. 97 Panel Report, European Communities—Measures Affecting Asbestos and Asbestos-Containing Products , ¶ 8.170, WTO Doc. WT/DS135/R (Sept. 18, 2000). 98 See EC—Seal Products Appellate Body Report, supra note 76, ¶ 5.197. 99 Id. ¶ 5.198. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 241 act content of the EU public morals standard at issue.100 And finally, the Appellate Body further rejected the assertion that a member country “must regulate similar public moral concerns in similar ways for the purposes of satisfying the requirement ‘to protect’ public morals under Article XX(a).”101 Canada argued that the EU would fail such a re- quirement because it did not similarly impose bans or trade restrictions to protect the welfare of other animals subjected to similar conditions.102 The Appellate Body, however, reject- ed such a requirement of consistency in a member country’s protection of an asserted moral, noting that member coun- tries “may set different levels of protection even when re- sponding to similar interests of moral concern.”103 The Appellate Body also affirmed the Panel’s finding that the EU Seal Regime is “necessary to protect public morals” within the meaning of Article XX(a).104 After applying the required balancing test and assessing whether a reasonably available alternative existed, the Appellate Body rejected the complainants’ assertion that the Panel erred in holding that the “necessity” test of Article XX(a) had been met.105 This part of the ruling was momentous because it established that, notwithstanding the way in which the ban was applied, the ban was not inappropriate and labeling did not have to be used instead. Nonetheless, the Panel and Appellate Body held that the ban was not justified under the general excep- tion because it did not meet the requirement of the Article XX chapeau, as it “applied in a manner that constitute[d] a means of arbitrary or unjustifiable discrimination.”106 Find- ing that the EU failed to show that (1) the ban’s exception is rationally related to the public moral objective, (2) the ban safeguards against potential abuse, and (3) the EU made “comparable efforts” to facilitate access to the IC exception 100 Id. ¶ 5.199. 101 Id. ¶ 5.200. 102 Id. 103 Id. 104 Id. ¶ 5.289. 105 Id. 106 Id. ¶ 5.338. SERPIN – FINAL 242 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 for the Canadian Inuit as it did with the Greenlandic Inuit, the Appellate Body held that the IC exception resulted in ar- bitrary and unjustifiable discrimination.107 3. Potential Implications The EC—Seal Products decision was thus a mixed ruling. The EU’s seal product ban was “necessary to protect public morals” under Article XX(a) of the GATT, and therefore “such a ban does not inherently violate trade rules.”108 While in U.S.––Gambling and China––Audiovisuals the tribunal held that there were reasonably available alternatives that were less trade-restrictive,109 here the body rejected the as- serted labeling alternative to the seal products ban. This holding carries great systemic importance and could possibly open the door to legal justifications of trade restrictions for a wide range of animal welfare objectives.110 At the same time, the way in which the EU implemented the ban was found to be illegal because it unjustifiably discriminated against cer- tain countries’ seal products by allowing an exception for in- digenous communities. The court held that regardless of the reason for a discriminatory effect, such as a legitimate regu- latory purpose, a measure violates the GATT nondiscrimina- tion requirements when it has a detrimental impact on com- petitive opportunities. This results in an asymmetry between complaints falling under the GATT and those falling under the TBT Agree- ment, the latter of which allows for disparate impact on competitive opportunities if a party can show that a legiti- mate regulatory purpose caused the disparate impact.111 107 Id. 108 See Lester, supra note 79. 109 See supra notes 54 and 69 and accompanying text. 110 See Ben Hancock, WTO Holds Animal Welfare Is ‘Public Moral’, But Hands EU Mixed Ruling, 32 INSIDE U.S. TRADE 22, May 30, 2014. 111 See Shaffer & Pabian, supra note 83, at 7 (“[The Appellate Body] appears to be moving toward accommodating any legitimate regulatory purposes under the chapeau . . . . The Appellate body could have clarified that, under the chapeau, there is no ‘unjustifiable discrimination’ if differ- entiation between products of different national origins reflects a legiti- SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 243 Some commentators have also criticized this portion of the ruling because it seemed to suggest that “every regulation that results in different market opportunities for different countries, regardless of the reason for the regulation and no matter how incidental that effect, is a prima facie violation of GATT and has to be justified under Article XX.”112 This in- terpretation of the ruling would open the door to holding il- legal a long stream of regulations intended to protect nation- al public policies, including environmental, safety, and health rules—most of which are likely to have different ef- fects on goods made in different countries.113 As previously discussed, prior to the EC—Seal Products ruling there was not a precise standard for how a public moral may be defined. Rather than clarifying the scope of the public morals exception, however, the EC—Seal Products de- cision has raised new questions and has further stoked fears of an exception without boundaries. The Appellate Body held that a member state invoking the exception “may set differ- ent levels of protection even when responding to similar in- terests of moral concern,” and that the member state need not show the existence of a threat to a particular moral, de- fine the content of the public moral at issue, nor be con- sistent in its protection of the public moral.114 Some commen- tators have raised the concern that this ruling will allow the public morals exception to be used as “catch-all justification” for a stream of protectionist trade measures.115 Another mate regulatory objective. Had it done so, it would have brought its rea- soning under the GATT chapeau and TBT Article 2.1 into closer align- ment. But it did not.”). 112 Rob Howse et al., Sealing the Deal: The WTO’s Appellate Body Re- port in EC—Seal Products, ASIL INSIGHTS (Am. Soc’y Int’l Law, Wash., D.C.), June 4, 2014, https://www.asil.org/insights/volume/18/issue/12/ seal- ing-deal-wto%E2%80%99s-appellate-body-report-ec-%E2%80%93-seal- products [https://perma.cc/2RYP-8YQF]. 113 Id. 114 See supra notes 96–103 and accompanying text. 115 See Howse et al., supra note 112. See also Adam Behsudi, WTO rules on seal furs imports, POLITICO (May 22, 2014), http:// www.politico.com/story/2014/05/wto-eu-seal-product-ban-canada-norway- 107004?o=0 [http://perma.cc/FA89-VYP2]. SERPIN – FINAL 244 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 scholar has pointed out that this ruling may mean that member countries will not even have to identify a precise standard or level of protection, nor a precise concern or risk that they are trying to protect through a trade restriction.116 The Appellate Body did not provide guidance to assess whether a public morals defense is genuine, such as requir- ing the submission of evidence or surveys to prove that a so- ciety truly holds certain beliefs or concerns; a government’s assertion that such a concern exists may be sufficient.117 The decision thus appears to leave the definition of a pub- lic morals defense largely to a WTO member’s discretion, signifying that any rational assertion that a measure is nec- essary to protect a public moral will be accepted and leaving the analysis of any abuse to the Article XX(a) chapeau. Such broad discretion in using the public morals exception could allow for morality-based disguises for illegal protectionist measures. “Virtually anything can be characterized as a moral issue,” and so “[t]he danger of protectionist abuse is real.”118 Further, public morals can be highly subjective and there can be vast differences in the approaches of WTO members to what products are and are not morally abhor- rent to their society.119 In sum, many fear that this discre- tionary approach is a shift toward unilateralism and that al- lowing countries to justify trade restrictions by any possible asserted public moral may open the gates for abuse and even threaten the validity of the trade agreement itself. 116 Joost Pauwelyn, The Public Morals Exception After Seals: How to Keep It in Check?, INT’L ECON. L. & POL’Y BLOG (May 27, 2014, 3:55 AM), http://worldtradelaw.typepad.com/ielpblog/2014/05/the-public-morals- exception-after-seals-how-to-keep-it-in-check.html [http://perma.cc/B6CP- QRN8]. 117 Id. 118 Charnovitz, supra note 28, at 731. 119 Brendan McGivern, Commentary, The WTO Seal Products Panel— The “Public Morals” Defense, 9 GLOBAL TRADE & CUSTOMS J. 70, 70 (2014). SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 245 IV. THE EC—SEAL PRODUCTS DECISION DID NOT OVERLY BROADEN THE PUBLIC MORALS EXCEPTION Although the fears of protectionist abuse of the public morals exception are not completely unfounded, Part IV of this Note argues that the EC—Seal Products ruling did not stray far by leaving the discretion of defining a public moral to individual WTO member countries. First, as demonstrated by the above cases, there exist significant built-in procedural safeguards against such abuse in the ambit of Article XX of the GATT and Article XIV of the GATS. It is highly unlikely that surpassing these hurdles will be easy for any member country even after EC—Seal Products. Second, the alterna- tives to such broad discretion to member countries in the realm of public morality would overly impinge on national sovereignty and could possibly threaten the stability of the trade regime as a whole. A. Built-In Procedural Safeguards Even if the EC—Seal Products decision is interpreted as giving a WTO member country broad discretion to define its morals within the meaning of the public morals exception, it is not likely that this will legitimize a future stream of trade restrictions. Professor Robert Howse, among other scholars, points out that built-in safeguards within the agreement it- self should allay these concerns.120 To begin with, the burden of proof serves as an instru- ment for preventing abuse of the member countries’ discre- tion.121 The general exception of preserving public morals is a defense that the respondent must invoke and for which it must prove all constituent elements.122 At the very least, U.S.—Gambling created a minimum threshold—later reiter- ated in China—Audiovisuals and EC—Seal Products—for a member to establish that its policy objective pursued by the 120 Howse et al., supra note 112. 121 Diebold, supra note 57, at 59. 122 Id. SERPIN – FINAL 246 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 challenged measure falls within the scope of the public mor- als exception. Although member countries have the right to define their own public morals and choose their level of pro- tection, they must still prove that the policy objective relates to “matters of domestic public morals.”123 In the EC––Seal Products decision, the Panel and Appellate Body emphasized evidence that showed animal welfare is truly an important value to the European community.124 The Appellate Body re- iterated that the panel must consider all evidence placed be- fore it, including “the texts of statutes, legislative history, and other evidence regarding the structure and operation of the measure at issue,” in establishing that a policy objective is within the scope of the exception.125 Thus, an obligation of good faith exists. A simple assertion that a certain value or set of beliefs exists would not be sufficient to bring a meas- ure within the scope of the public morals exception. But the question does arise as to what sort of evidence would be con- sidered in the case of a non-democratic member country, where it is unclear what the public truly believes or values. In an authoritarian regime or system where the government crafts national policy not on societal consensus but rather through top-down imposition, it will be more difficult for the WTO to ascertain whether the assertion of a public moral is being made in good faith. Even these countries, however, will have to put forth evidence beyond a mere declaration that a certain moral is important to the country as a whole. It would therefore be difficult to disguise an illegal protection- ist measure as a policy objective. Another procedural safeguard exists within the text of the public morals exception itself—namely, the “necessity” re- quirement. The China—Audiovisuals decision held that while China had a legitimate interest in protecting its public morality from the potential harms of the publications and audiovisual products, the challenged measures were not “necessary to protect public morals” within the meaning of 123 Id. 124 See EC—Seal Products Appellate Body Report, supra note 76, ¶ 5.203. 125 Id. ¶ 5.144. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 247 the exception because there was not a real contribution by the trade-restrictive measures to the asserted policy objec- tive.126 While in U.S.—Gambling and EC—Seal Products, the challenged measures were found to be “necessary to pro- tect public morals,” those cases also demonstrated that the balancing test required for the necessity determination is a crucial step in the analysis and is subject to review on ap- peal. Even further, once these hurdles have been passed, the chapeau, or preamble, of Article XX of the GATT and Article XIV of the GATS serves as still another safeguard against potential abuse of the general exceptions, including use of the public morals exception as a cloak for “arbitrary or un- justifiable discrimination or disguised protectionism.”127 The EC—Seal Products decision demonstrated, as did the two cases before it, that the chapeau is not an easy fence to jump. Even though the seal products ban was found to be necessary to protect public morals—both coming within the scope of the exception and satisfying the necessity test—the ban was nonetheless struck down on the grounds that it constituted arbitrary and unjustifiable discrimination in violation of the Article’s chapeau.128 As previously discussed, this finding was based partially on the lack of safeguards against poten- tial abuse of the ban’s exceptions. As Nicolas Diebold points out, the chapeau “focuses on the good faith of the respondent with regard to the elements of discrimination and disguised trade restriction.”129 The necessity requirement and the cha- peau thus serve as “instruments to prevent an abusive appli- cation of the morals and other exceptions.”130 126 See China—Audiovisuals Panel Report, supra note 61, ¶ 7.868. 127 Howse et al., supra note 112; see also Diebold, supra note 57, at 67. 128 EC—Seal Products Appellate Body Report, supra note 76, ¶¶ 5.338–.339; see also supra notes 104–07 and accompanying text. 129 Diebold, supra note 57, at 67. 130 Id. at 66. SERPIN – FINAL 248 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 B. Broad Discretion is Appropriate and Necessary for the Good of the Trade Regime While there is understandable fear of overbroad discre- tion, member countries must recognize the potential implica- tion of curtailing such choice. Public morals, unlike any other exception in the trade agreement, is an area that is extreme- ly sovereignty-sensitive. In arguing for a pluralistic approach to the role of the WTO in regulating trade, Professor Robert Howse and Joanna Langille point out that “one of the most fundamental aspects of the ‘right to regulate’ under Article XX is a WTO member’s sovereign prerogative to determine the ‘level of protection’ it is seeking.”131 They add that this is a notion that has been repeatedly affirmed by the WTO Ap- pellate Body, and stress that any alternative approach to as- sessing morality-based regulations could possibly result in “intractable dilemmas of legitimacy and institutional compe- tence for the WTO adjudicator.”132 As discussed in Part II of this Note, the WTO member countries came together with the belief that a fairer and more open trading environment would be for the benefit and welfare of each member.133 In committing to the rules of the trade regime, each successive member undoubtedly recognized that some sovereignty would be forfeited to foster the trade goals of the organiza- tion. At the same time, member countries incorporated gen- eral exceptions such as the public morals exception into the agreement at its inception, indicating respect for the auton- omy of fellow countries in certain areas. The Panel in the EC—Seal Products dispute noted that GATT 1994 and GATS expressly include the protection of “public morals” as a gen- eral exception, which “demonstrated that ‘WTO Members considered this objective to be particularly significant.’”134 At the intersection of trade and public morality, finding the correct or appropriate balance is a complex struggle. In 131 Howse & Langille, supra note 77, at 415. 132 Id. at 417. 133 See supra notes 1–2 and accompanying text. 134 See EC—Seal Products Appellate Body Report, supra note 76, ¶ 5.140. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 249 the context of world trade, Charnovitz argues for the ac- ceptance of only internationally agreed-upon notions of pub- lic morals, proclaiming that “[a]llowing each government to restrict imports based on its own definition of morality could disrupt trade and allow imperialism by countries with mar- ket power.”135 But a universal approach to the definition of public morals would be extremely problematic. First, the composition of a country’s national public values is not im- mutable, but rather is likely to change as time passes. The WTO trade system itself is meant to survive and strengthen through time, and its endurance thus calls for flexible mech- anisms that will accommodate changes occurring within its member countries. Further, the vast differences in cultural, religious, social, and political values across nations render agreeing on a par- ticular set of valid morals extremely difficult, to say the least. Professor Mark Wu gives the example of import re- strictions on swine and pork products for religious reasons by Israel and several Islamic countries, demonstrating the difficulties in attributing to the WTO the role of deciding whether these beliefs and values are genuine.136 Judicial in- terpretation has only begun to shed light on the public mor- als exception over the last decade, but member countries have taken measures to protect their moral beliefs and val- ues since the regime’s inception. Differences in national pub- lic values will always exist, and the diversity of these values within the WTO continues to broaden. Imposing on a mem- ber country an internationally uniform definition of morals would contradict the very basis on which the exception was incorporated into the agreement. Diebold argues that this approach would be “contrary to the object and purpose of Ar- ticles XIV(a) [of the] GATS and XX(a) [of the] GATT.”137 He adds that an interpretation “that fails to protect the subjec- tive values of individual Members would render the morals and order exceptions largely ineffective, turning it into a 135 Charnovitz, supra note 28, at 742. 136 See Wu, supra note 38, at 223, 250–51. 137 Diebold, supra note 57, at 54. SERPIN – FINAL 250 COLUMBIA BUSINESS LAW REVIEW [Vol. 2016 toothless tiger.”138 If the Appellate Body had chosen instead to examine and interrogate the existence, substance, and le- gitimacy of the public morals asserted, it would likely pro- duce backlash from member countries who perceive it as an overstep of the WTO’s role. As Howse and Langille point out, “it becomes evident that narrowing the kind of rationale permitted as a basis for justified regulation under WTO law, while the WTO’s diversity broadens and deepens, would be setting the scene for a significant legitimacy crisis.”139 This is a very real concern that should not be taken lightly. The trade regime’s continuance and stability depends upon its members’ willingness to follow its rules and cooperate with its decisions and rulings. While there exist many incentives to do so, including the enormous benefits that have resulted from open and free trade, member countries will examine these incentives relative to the sovereignty that they must surrender. V. CONCLUSION One of the most emotionally charged debates in the realm of international trade law has been the conflict between trade and national autonomy and, to an even greater extent, between trade and morality. As countries become increasing- ly interconnected through globalization and international trade, and the WTO continues to expand and diversify, these conflicts only deepen and their implications become more significant for each individual nation. The evolution of the judicial interpretation of the public morals exception to members’ trade commitments has begun only recently, but has already set important milestones. Although some may fear that the Appellate Body has gone too far in leaving the discretion of defining public morality to individual member countries, this Note has argued that the court’s decisions ap- propriately and necessarily gave this role to the members. There exist substantial procedural safeguards within the trade agreement itself that protect against abuse of the pub- 138 Id. 139 Howse & Langille, supra note 77, at 428. SERPIN – FINAL No. 1:217] THE PUBLIC MORALS EXCEPTION 251 lic morals exception following these decisions. Given the in- creasingly diverse values, beliefs, and morals that exist among the members, as well as the crucial role of the WTO as adjudicator among them all, any other decision would have compromised the trade regime’s legitimacy and resili- ence.