Jean Monnet Center at NYU School of Law

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IV. Conclusion

The aim-and-effect test is not only more sensitive to the fiscal sovereignty of the Contracting Parties but it is also a viable alternative to the Panel's test. The aim-and-effect test protects fiscal sovereignty because the purpose of the government's measure is integral to whether products are "like" or "directly competitive." The result is a transparent and objective test to determine a violation of Article III:2. Moreover, the aim-and-effect test does not force defendant governments to rely on the limited exceptions to the GATT listed in Article XX, which, after further inquiry, do not apply to origin-neutral violations such as violations of Article III:2. The Contracting Parties can then defend their valid non-trade measures that have an unintended effect on trade during a dispute. In legislation, Contracting Parties will not limit their use of valid fiscal measures out of fear of negative trade effects or as a result of skewed incentives. From the perspective of a panel, the aim-and-effect test is complex but entirely feasible. Although Panels use numerous pieces of evidence for both the aim and the effect inquiries of the test, neither prong creates an excessive burden for either the panel or the complainants. Given all the benefits of the aim-and-effect test, it is surprising and disappointing that the Panel and the Appellate Body dismissed the test without considering its viability or addressing the important issues underlying the test.

Although the aim-and-effect test is more sensitive than the Panel's test to protecting the fiscal sovereignty of the Contracting Parties, opponents of the aim-and-effect test can make two powerful criticisms. First, panels do not see themselves performing a teleological role and should not perform this role. They are not courts interpreting the law, but rather bodies settling disputes among parties. If a panel is perceived as expanding its role or the Agreement between the Contracting Parties, its report may not be accepted by the parties to the dispute. As a panel report is not binding on future panels or even on the parties, a panel may not see the value in raising or responding to unnecessary or tangential concerns and issues. As a result, panels may choose a more mechanical approach as the safer and more appropriate route.

By following such a route, however, panels are abdicating a necessary role. They cannot remain mechanical given the ambiguity of the text of the Agreement. It is also frequently unclear what the Contracting Parties intended and therefore some interpretation is inevitable and desirable. Parties to the dispute might even reject the more mechanical approach if they feel panels are unable or unwilling to assess the parties' interests. The Vienna Convention also dictates a certain amount of teleology by requiring an examination of the context, purposes, and object of an article. Finally, panels already engage in this type of analysis, as the Panel evidenced, and the aim-and-effect test would enables panels to acknowledge this role.

The second criticism involves the potential long-term consequences of the aim-and-effect test. Does the aim-and-effect test make it too easy for governments to claim their policies are not trade-related? Should all non-trade policies be equally valid regardless of their effects on the competitive opportunities of imported products? Will the aim-and-effect test undermine the goals of the GATT? Is the potentially permissive aim-and-effect test a better option than restricting the sovereignty of the Contracting Parties?

Some of the arguably non-trade policies might indeed be cleverly disguised restrictions to trade. When the governments become more subtle in its disguises, the panels must become more attentive and more critical to discern the true purpose of the measures. In addition to the strategies already discussed to assess the purpose of a measure, panels should ask increasingly stringent questions. For instance, a higher tax on goods manufactured by workers with wages below a certain level has no ostensible trade purpose but could fall mostly on imported goods. If the government has a minimum wage and the policy begins the tax at or near that wage, then domestic goods will never be affected and the measure is a restriction on trade.

If there is no national minimum wage, in this example, then a panel must be more critical. This stringency will, in turn, force governments to ensure that their non-trade policies truly and clearly serve a domestic purpose. There must be a consistent objective in other government policies, such as education and health, to protect low wage workers. Similarly, it could be important evidence of a disguised restriction to trade if the government does not object to prison or child labor. A even more stringent analysis would require that the purpose of the measure was in the general interest on two levels: many, if not most, citizens of the country benefit from the policy and a significant public consensus on the issue exists. The measure would have to be the least trade restrictive means to achieve its goal and impose the government's social choices as little as possible on other Contracting Parties. By asking these questions, a panel can decide whether an arguably non-trade policy having significant trade effects is a disguised restriction to trade.

If a panel is convinced the measure is not a disguised restriction to trade, then the measure should stand regardless of its impact on trade. The question is how often will this occur? Under the aim-and-effect test, a panel could not decide that the trade effects are too great and the valid non-trade policy must be changed. The aim-and-effect test is not a balancing test because this type of test would restrict the fiscal sovereignty of the Contracting Parties. Panels, however, may not find themselves in such a situation. Governments may be deterred from pursuing a policy that significantly affects trade by the fear that other Contracting Parties will retaliate against them. If a government enacts a higher tax on goods made by low-wage workers and there is no protective purpose, then a second government hit by the first government's policy may decide to place a higher tax on other goods. A panel will ultimately find that the purpose of this second measure was to retaliate and negatively affect imports. Prior to a panel's determination, however, the damage to the first government could outweigh the benefit it received from its low-wage tax. Game theory dictates that governments should think twice before enacting a non-trade fiscal measure that has significant trade effects.

Admittedly, the consequences of the aim-and-effect test remain to be seen. Although the aim-and-effect test is potentially too permissive of policies that negatively affect trade, it does not seem to open the gates very wide. The protection of the fiscal sovereignty of the Contracting Parties counterbalances the unlikely, although existent, possibility that the objectives of the GATT would be undermined. The other option would be to restrict the sovereignty of the Contracting Parties so that all non-trade policies with trade effects would be invalid. The Contracting Parties, however, did not intend to restrict their sovereignty to such an extent. Given its other benefits and its greater sensitivity to the fiscal sovereignty of the Contracting Parties, the aim-and-effect test remains a more desirable choice than the Panel's test and one which future Panels should use to determine a violation of Article III:2.

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