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Review of European Community & International Environmental Law
RECIEL 23 (3) 2014. ISSN 2050-0386
DOI: 10.1111/reel.12090
Water Footprint Labelling and WTO Rules
Laura Manson and Tracey Epps*
A water footprint is a concept that measures the total
volume of freshwater used to produce a product, measured over the full supply chain. This article discusses
one idea that has been mooted to ameliorate impending freshwater shortages – namely to encourage consumers to purchase products with a low water
footprint by using a water footprint label. A label may
provide sufficient incentive for consumers, and governments may impose measures such as taxes or
import restrictions based on the water footprint. The
article explores the international trade law implications of such measures and finds that, as with other
areas of environmental regulation, international
trade liberalization and the protection of sustainable
freshwater resources are not incompatible goals.
However, water footprint labelling, and other associated measures, could have inadvertent trade law
implications, meaning that it will be important for
governments to give careful thought to their design
and application.
INTRODUCTION
International trade in water takes place in various
physical guises: in consumable form, either as bottled
water, or in other water-based drinks; and in bulk.
However, such physical transfers of water occur only
on a very small scale.1 Of far greater practical significance is international trade in products with a substantial ‘virtual water’ content. The concept of ‘virtual
water’ refers to the amount of water used in the production of a good or service, and trade in ‘virtual
water’ has been identified as presenting significant
opportunities to enhance water use efficiency, particularly in agriculture, and to address global and regional
imbalances in water availability.2 As freshwater
*Corresponding author: Tracy Epps.
Email: tracey.epps@mfat.govt.nz.
1
This article will not attempt to discuss the trade that does occur, or
the related complications, such as whether water can be considered
a ‘good’ under international trade rules (e.g., there has been debate
as to whether water constitutes a ‘good’ under the North America
Free Trade Agreement and is therefore subject to the agreement’s
prohibition on export restrictions, or similarly, whether water can be
classified as a ‘good’ under the General Agreement on Tariffs and
Trade (GATT)); or the various instances of bulk water trade between
countries (e.g., between Singapore and Malaysia, or – in at least one
instance – between France and Spain).
2
The concept of ‘virtual water’ was conceived by Professor Tony
Allan. See J.A. Allan, ‘Fortunately There are Substitutes for Water:
scarcity becomes an increasingly pressing issue, a key
question that arises in considering how to encourage
trade and consumption of water-intensive products in
the ‘right’ direction is one relating to transparency –
namely, how do we know the virtual freshwater
content of any given product? An intriguing option
that has been mooted is to develop a water footprint
label that would assist in facilitating sustainable water
use by acting as a signal for the virtual water content
of products. Such a label would form the basis for
more well-informed consumer purchasing decisions,
and also more well-informed governmental policy.
Governments could implement water footprint labelling in an attempt to address freshwater scarcity
through discouraging trade and consumption of goods
with high virtual water content. They may also impose
taxes and import restrictions based on the label (i.e.,
adopt ‘trade-related water measures’). This article will
explore the international trade law implications of
such measures. It first sets out further background in
relation to freshwater scarcity, explaining why it is an
issue of no less significance than, for instance, climate
change. The article next considers the types of measures that governments might use to change consumer
behaviour, before examining such measures in light of
international trade rules.
FRESHWATER SECURITY,
‘VIRTUAL WATER’ TRADE AND
THE ‘WATER FOOTPRINT’
CONCEPT
Freshwater security3 is one of the most pressing issues
on today’s global agenda. A rapidly growing population,
Otherwise Our Hydro-political Futures would be Impossible’, in: Overseas Development Administration (ed.), Priorities for Water
Resources Allocation and Management (Overseas Development
Administration, 1993), 13; J.A. Allan, ‘Overall Perspectives on Countries and Regions’, in: P. Rogers and P. Lydon (eds.), Water in the
Arab World: Perspectives and Prognoses (Harvard University Press,
1994), 65. See also D. Waughray (ed.), Water Security: The WaterFood-Energy-Climate Nexus: The World Economic Forum Water Initiative (Island Press, 2011), at 69; and A. Gowlland Gualtieri, Legal
Implications of Trade in ‘Real’ and ‘Virtual’ Water Resources (International Environmental Law Research Centre, 2008), found at:
<http://www.ielrc.org/content/w0802.pdf>.
3
‘Water security’ refers to the capacity of a population to sustainably
provide adequate quantities of acceptable quality water for health,
livelihoods and development. See D. Grey and C. Sadoff, ‘Sink or
Swim? Water Security for Growth and Development’, 9:6 Water
© 2014 John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
329
LAURA MANSON AND TRACEY EPPS
large-scale industrialization and urbanization, and the
rapid development of technology are all factors placing
increasing stress on the availability and quality of freshwater resources.4 In 2007, it was estimated that onethird of the world’s population lived in places that had
periodic water shortages, and that this number is only
expected to increase.5 In 2009, the United Nations
Deputy Secretary-General warned that if current trends
continued, two-thirds of the world’s population could
face water shortages by 2025.6 Add to this the uncertain
effects that climate change will have on freshwater
availability, and it becomes clear why commentators
are labelling this a looming global freshwater crisis.7
Freshwater is a local resource. It is confined to the
boundaries of river basins and demands within a basin
must be met with water available from that basin. For
this reason, management of water resources has typically been dealt with at a local catchment or river basin
level in accordance with the principle of subsidiarity,
which requires water issues to be settled at the lowest
community level possible.8 Due to its bulky nature,
water cannot easily be moved or traded over long distances, and when it is – for example, through international trade in bottled water and other beverages,
shipping of bulk water or inter-basin water transfers –
the volume of water involved is relatively low on a
global scale.9 However, what does occur on a huge scale,
and what is contributing to freshwater increasingly
being viewed as a global resource, is long-distance
transfers of water in ‘virtual’ or ‘embedded’ form.10 This
primarily occurs through international trade in goods.
Policy (2007), 545; UN-Water Task Force on Water Security, ‘Water
Security and the Global Water Agenda: A UN-Water Analytical Brief’
(UN-Water Task Force on Water Security, 2013), found at: <http://
www.unwater.org/downloads/watersecurity_analyticalbrief.pdf>, at vi.
4
See, generally, 2030 Water Resources Group, Charting Our Water
Future: Economic Frameworks to Inform Decision-making (2030
Water Resources Group, 2009); C. Nellemann et al. (eds.), The Environmental Food Crisis: The Environment’s Role in Averting Future
Food Crises: A UNEP Rapid Response Assessment (United Nations
Environment Programme, 2009); and A. Agarwal et al., Integrated
Water Resources Management (Global Water Partnership, 2000),
found at: <http://www.gwp.org/Global/GWP-CACENA_Files/en/pdf/
tec04.pdf>.
5
See ‘Global Warming Forecasts – 2025’, found at: <http://
www.global-warming-forecasts.com/2025-climate-change-globalwarming-2025.php>.
6
‘Majority of World Population Faces Water Shortages Unless Action
Taken, Warns Migiro’, UN News Centre (5 February 2009).
7
M. Barlow and T. Clarke, Blue Gold: The Battle against Corporate
Theft of the World’s Water (Earthscan, 2002), at xii. For discussion of
the uncertain effects of climate change on freshwater and other
aspects of the natural and human environment, see C. Field et al.,
(eds.), Climate Change 2014: Impacts, Adaptation and Vulnerability –
Contribution of Working Group II to the Fifth Assessment Report of
the Intergovernmental Panel on Climate Change (Cambridge University Press, 2014).
8
See A. Agarwal et al., n. 4 above, at 28.
9
A.Y. Hoekstra, The Water Footprint of Modern Consumer Society
(Routledge, 2013), at 25–26.
10
Ibid., at 26.
© 2014 John Wiley & Sons Ltd
330
RECIEL 23 (3) 2014
‘Virtual’ or ‘embedded’ water does not refer to the
volume of water actually contained in the good, but
rather the amount of water used in its production.
Transfers of ‘virtual water’ occur when water is consumed in one country to produce a good which is then
traded into another country.11 When considering the
effect of international transfers of ‘virtual water’
through trade in goods, it becomes apparent that
‘virtual water’ flows can dramatically impact the water
availability in a country. For example, Hoekstra notes
that: ‘Jordan imports about 5 to 7 billion m3 of virtual
water per year, which is in sharp contrast with the 1
billion m3 of water withdrawn annually from domestic
water sources.’12 More generally, water-scarce countries
can address local water shortages by ‘virtually’ importing the water needed to meet demand. To illustrate,
rather than using 1,300 litres of water to produce one
kilogram of wheat domestically, a water-scarce country
can ‘virtually’ import 1,300 litres of water by importing
one kilogram of wheat.13 Through international trade,
reductions in national water demand (and water
savings) will be experienced in countries that import
water-intensive goods (i.e., goods with a high virtual
water content), and increases in national water demand
(and water deficits) will be experienced in countries
that export water-intensive goods. When this is examined in the context of traditional trade theory, it
appears that international trade presents significant
opportunities to increase the efficiency of global water
use through countries specializing in the production of
goods for which the opportunity costs of the water used
to produce the good are relatively low. In fact, a study
carried out in 2006 determined that international trade
reduced global water use in agriculture by 5%.14
However, while international trade in ‘virtual water’
appears to present significant opportunities to reduce
global water usage, it does not represent a complete
solution to the issue of water sustainability.15 Perhaps
11
See A.Y. Hoekstra, n. 9 above, at 26.
A.Y. Hoekstra, The Relation between International Trade and
Freshwater Scarcity (World Trade Organization, 2010), at 1.
13
See <http://www.waterfootprint.org> for case studies and information on the water footprints of selected products and countries.
14
A.K. Chapagain, A.Y. Hoekstra and H.H.G. Savenije, ‘Water Saving
through International Trade of Agricultural Products’, 10:3 Hydrology
and Earth System Sciences (2006), 455.
15
See A.Y. Hoekstra, n. 12 above, at 13–14. Hoekstra notes that the
study did not differentiate between the use of green water (rainwater),
blue water (ground and surface water) and grey water (water pollution). There is a significant difference between blue and green water
savings because blue water resources are generally scarcer and
have greater opportunity costs than green water (e.g., blue water is
used for irrigation). Furthermore, Hoekstra recognizes, first, that
importing products to alleviate water scarcity issues is limited by the
need to generate sufficient foreign exchange from exports to afford
the imports; second, that relying on imported goods carries the risk of
moving away from food self-sufficiency; and third, that promoting
imports can have negative impacts for the domestic agricultural
sector, and may threaten the livelihoods of subsistence farmers.
12
RECIEL 23 (3) 2014
the biggest limitation is that countries have historically
been reluctant to create dependencies on others for
vital resources.16
Related to ‘virtual water’ is the concept of a ‘water
footprint’, which measures the total ‘volume of freshwater used to produce [a] product, measured over the
full supply chain’.17 For example, it takes approximately 15,000 litres of water to produce 1 kilogram of
beef, and 8,000 litres of water to produce a pair of
jeans.18 It has been suggested that the water footprint
concept can be used to inform consumers’ behaviour
and drive change towards more sustainable water
use.19 However, a precondition to encouraging trade
and consumption in the ‘right’ direction is product
transparency, and – as discussed in the next section –
a water footprint label has been mooted as a device to
help achieve this.20
One might ask why consumers would even care about
the impacts a product has on freshwater resources,
especially when the impacts are generally remote from
the consumer. This can largely be answered by way of
analogy with the problem of climate change. Twenty
years ago, climate change was hardly on the radar of
the general public. Now we have an international
agreement aimed at reducing greenhouse gas emissions,21 many companies are analyzing and reporting
their carbon footprints, and some products carry
carbon labelling. Such initiatives result from the realization that global warming, like freshwater scarcity,
threatens all humankind. However, there are also
important differences between climate change and
freshwater scarcity. Most significantly, unlike the offsetting of greenhouse gas emissions, freshwater shortages in a particular catchment cannot be offset by
freshwater abundance in another catchment.22 This
16
There is a tendency for countries to prioritize their own food security
over trade liberalization. This was seen in 2008, when volatility in
global food prices led to over 40 countries implementing export bans
to improve domestic food security. See ‘Soaring Food Prices Jeopardizing UN’s Ability to Feed the World’s Hungry’, UN News Centre
(24 April 2008).
17
A.Y. Hoekstra et al., The Water Footprint Assessment Manual:
Setting the Global Standard (Earthscan, 2011), at 2. The ‘water
footprint’ concept was introduced by Hoekstra in 2002. See A.Y.
Hoekstra (ed.), Virtual Water Trade: Proceedings of the International
Expert Meeting on Virtual Water Trade, IHE Delft, The Netherlands,
12–13 December 2002 (Water Footprint Network, 2003), found at:
<http://www.waterfootprint.org/Reports/Report12.pdf>.
18
See A.Y. Hoekstra, n. 9 above, at 3.
19
See generally ibid.
20
Ibid., at Chapter 13.
21
Kyoto Protocol to the United Nations Framework Convention on
Climate Change (Kyoto, 11 December 1997; in force 16 February
2005).
22
See generally A.E. Ercin and A.Y. Hoekstra, Carbon and Water
Footprints: Concepts, Methodologies and Policy Responses
(UNESCO, 2012), at 1.
WATER FOOTPRINT LABELLING
may lead to a lack of interest in far-off freshwater
shortages. However, this would be a very short-sighted
perspective given the outlook that two-thirds of the
world’s population will face water shortages by 2025.
As freshwater scarcity increases, everyone will begin to
feel pressure on their water resources as water-scarce
nations call upon other nations for further exports,
and eventually aid. No one can predict how this freshwater crisis will play out, but it is something with
respect to which pressure is likely to be brought to
bear on governments to take pre-emptive action. A
water footprint label could be one form of such preemptive action.
One possible twist on this situation is the possibility
that some water-scarce developing countries may nevertheless want to continue to increase exports in order
to promote economic growth, even where the products
in question have a high water footprint. They may be
able to do so without harm in the short to medium
term, but the strategy would put their long-term water
security at risk. One can imagine frictions arising if a
developed country seeking to take a leading position
on water management issues introduced a labelling
requirement or other trade-related water measures
that had a negative impact on developing countries’
exports.23 In such a scenario, or any other scenario
where one country takes issue with another’s traderelated water measures, the legality of those measures
may be resolved through the World Trade Organization’s dispute settlement mechanism. The likelihood of
this happening will depend on a situation arising
where a country finds the measures in question to be
sufficiently serious to outlay the resources required to
bring a complaint. Often, this will require that there
be a sufficiently significant economic impact on the
country’s commercial interests, but countries sometimes also bring cases in response to a systemic
concern, even in the absence of strong commercial
impacts, because they want to discourage other countries from implementing the same kinds of measures
in the future. If a complaint was brought to the WTO,
questions would inevitably arise as to how to balance
the goals of trade liberalization and freshwater
sustainability. It is therefore important to examine
international trade law rules in determining how a
water footprint label could best encourage trade and
consumption in the ‘right’ direction. These rules will
be discussed in detail below.
23
Note that there is no international legally binding agreement on
sustainable freshwater use. See A.Y. Hoekstra, n. 9 above, at 182.
There are, however, a large number of legally binding agreements in
relation to water and water use. See, e.g., S.C. McCaffrey, ‘International Water Cooperation in the 21st Century: Recent Developments in
the Law of International Watercourses’, 23:1 Review of European,
Comparative and International Environmental Law (2014), 4.
© 2014 John Wiley & Sons Ltd
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LAURA MANSON AND TRACEY EPPS
CHANGING CONSUMER
BEHAVIOUR: WATER FOOTPRINT
LABELLING IN PRACTICE
A water footprint label has been proposed by Hoekstra
as a potential mechanism to encourage trade and consumption in a direction that aligns with sustainable
water use.24 The basic premise of a water footprint
label is product transparency.25 Such a label would
allow consumers to understand ‘how much they contribute to the water consumption, water pollution, and
water scarcity in different places’,26 and would enable
them to make informed decisions to discriminate
between similar products based on the different
impacts the products’ supply chains have on freshwater resources.27
A water footprint label could be as simple as a ‘yes or
no’ label based on whether the product met a certain
set of freshwater sustainability criteria. This would be
akin to the ‘dolphin-friendly’ label at issue in the
US-Tuna case.28 However, the label could also provide
more detailed information on the product’s precise
water footprint, and/or the impact of its production
on water quality, regional water scarcity and ecosystems – that is, the sustainability of the product’s water
footprint. The label itself could be physical, or digital,
requiring consumers to scan a product code to obtain
the information.29
In 2009, Raisio, a Finnish food company, was the first
company to present a water footprint on a product. On
a package of oat flakes, Raisio added a label showing
that 101 litres of water were consumed per 100g of oat
flakes.30 It also showed that of this consumption, 99.3%
was from the cultivation of oats, 0.57% was from manufacturing and 0.16% was from packaging materials. The
issue with presenting a water footprint label in this
fashion is that it does not indicate whether the footprint
is good or sustainable, especially given the absence of a
benchmark water footprint for oat flakes. In Hoekstra’s
words, this type of label ‘does not offer a basis for conscious product choice’.31
24
See See A.Y. Hoekstra, n. 9 above, at Chapter 13. Other organizations such as the Water Footprint Network and Sustain have also
shown consideration of the idea. See <http://www.waterfootprint.org>
and <http://www.sustainweb.org>.
25
Ibid.
26
Ibid., at 188.
27
See A.Y. Hoekstra, n. 12 above, at 14.
28
See WTO AB 16 May 2012, United States – Measures Concerning
the Importation, Marketing and Sale of Tuna and Tuna Products,
WT/DS381/AB/R (‘US-Tuna II’).
29
See A.Y. Hoekstra, n. 9 above, at 197.
30
See <http://www.raisio.com>. See also A.Y. Hoekstra, n. 9 above,
at 197.
31
Ibid., at 198.
© 2014 John Wiley & Sons Ltd
332
RECIEL 23 (3) 2014
One way in which the ‘Raisio’-type label might be
adapted and improved for use by governments (which
would then make it subject to the disciplines of international trade rules)32 would be to disaggregate the
water footprint into the three different types of water
consumed as follows:
(i) Blue water footprint, showing consumption33 of
surface and groundwater along a product’s
supply chain;34
(ii) Green water footprint, showing consumption of
rain water (to the extent that it does not become
run-off) that occurs during the production of the
good;35 and
(iii) Grey water footprint, showing the freshwater
pollution resulting from the good’s production.36
A label presenting these three different water footprints
would be more effective in terms of achieving freshwater sustainability goals than one showing simply the
aggregate water footprint, as it would allow consumers
to take into account the relative values of the water
consumed or polluted during production. Blue water is
the most valuable type of water as it has the highest
opportunity costs.37 It is conceivable that two products
could have the same aggregate water footprint, but
starkly different blue water footprints. Therefore,
rather than a ‘Raisio’-type label that would result in
consumers being indifferent between the two products,
the goal of water sustainability could be enhanced by a
disaggregated label which allowed consumers to discriminate against the product with a higher blue water
footprint.
So far, the two alternative labels discussed have only
presented the quantity of water (or types of water) consumed and/or polluted during the good’s production.
32
Private standards are, in the great majority of cases and absent
government direction or involvement, not subject to the disciplines of
international trade agreements, including the rules in the WTO agreements. See T. Epps, ‘Demanding Perfection: Private Food Standards
and the SPS Agreement’, in: M.K. Lewis and S. Frankel (eds.),
International Economic Law and National Autonomy (Cambridge University Press, 2010), 73. For a discussion of water footprints as
private standards, see P. Szwedo, ‘Water Footprint and the Law of
WTO’, 47:6 Journal of World Trade (2013), 1259.
33
Here, ‘consumption’ refers to the ‘loss of water from the available
ground-surface water body in a catchment area’ and ‘losses occur
when water evaporates, returns to another catchment area or the sea
or is incorporated into a product’. See A.Y. Hoekstra et al., n. 17
above, at 2.
34
Ibid., at 2.
35
Ibid.
36
‘Grey water’ is defined as ‘the volume of freshwater that is required
to assimilate the load of pollutants given natural background concentrations and existing ambient water quality standards’. Ibid., at 2.
37
A.K. Chapagain, A.Y. Hoekstra and H.H.G. Savenije, Saving Water
through Global Trade (UNESCO-IHE, 2005), at 9. The authors point
out that ‘green water is the productive use of rainfall in crop production, which, in general, has a lower opportunity cost compared to blue
water use (i.e. irrigation)’.
RECIEL 23 (3) 2014
The issue with this is that such labels fail to reveal other
important information about the sustainability of the
water footprint. This includes information such as
where the water footprint is located, the impacts of the
freshwater use on downstream users and ecosystems,
and whether it contributes to freshwater scarcity or pollution in excess of allowable limits in that area.38 For
example, a low water footprint could simply be the
result of limited water availability in the area where the
good was produced as opposed to efficient use of freshwater. Similarly, two products with the same grey water
footprints might appear to have the same impact on
freshwater resources. However, further information
could reveal that the grey water footprint of one of the
products occurred in an area where freshwater bodies
were already polluted beyond acceptable limits. Consumers theoretically should care about this additional
information because it is important to actual freshwater
sustainability.
Therefore, a third type of label that would better serve
the goal of encouraging sustainable freshwater use
would be one that incorporates both the quantitative
water footprint and additional information about the
sustainability of this water footprint. However, the
issue with such a label is that presenting so much information would likely overwhelm and confuse consumers. A way to capture all of this information and present
it in an accessible way to consumers would be with what
Hoekstra refers to as a ‘water stewardship’ label.39 Of
course, the full set of detailed information could be
available by other means – for instance, online through
scanning a QR code. A ‘water stewardship’ label would
be an overall judgment of the performance of the
product.40 It could be a simple ‘yes or no’ label, which in
this case would be a ‘water stewardship’ stamp meaning
the product was produced based on good water stewardship, or it could be a label that ranked the degree of
water stewardship into one of several categories. The
background information about the blue, green and grey
water footprints of the product and the sustainability of
the footprints based on where they occurred, and who
or what they affected, would be taken into account in
determining the appropriate label for the product.
Hoekstra also suggests that as part of a ‘water stewardship’ label, we should consider the targets or plans by
the producers to make future improvements to the
water footprints of their products.41
Given the many different ways a water footprint label
could be formulated, a key challenge that arises is
developing a standardized methodology for the labelling, and in particular, for calculating the water footprint. In calculating a water footprint, an initial
38
See A.Y. Hoekstra, n. 9 above, at Chapter 13.
Ibid., at 197.
40
Ibid.
41
Ibid.
39
WATER FOOTPRINT LABELLING
question is: How far back along the supply chain one
should go in the analysis? A general rule that has
emerged in this field of study so far is to include the
water footprint of all processes that ‘significantly contribute’ to the total water footprint.42 This then raises
the question as to what is ‘significant’. Globalization has
also led to the complication of many products being
made up of components from several different locations
with different freshwater circumstances. However, as
long as sufficient accounting takes place throughout the
supply chain, this complication is not impossible to
overcome. In any case, Hoekstra has suggested that a
water footprint label should first be introduced for relatively water-intensive products, such as agricultural
commodities including rice, cotton, paper and cane
sugar.43 These goods are produced in a unique location
and their water footprint is much easier to calculate
than goods made up of several components. Another
issue that must be addressed is how often, and over
which time period a water footprint should be calculated. Water availability fluctuates over time, and the
time period selected could have a large effect on the
water footprint of a product – for example, in a dry
year, more irrigation is needed for crop growth thus
leading to higher water footprints.44 Taking an average
water footprint over a number of years might seem like
a practical way to smooth out these fluctuations, but
this discounts improvements in technology that have
led to greater efficiency in water use in more recent
years. We do not propose a solution to any of these
issues; rather we seek to illustrate the difficulties inherent in even formulating a calculation methodology, let
alone actually applying it in practice.
In an attempt to address this challenge, the International Standards Organization (ISO) is currently
developing ISO Standard 14046 with the stated
purpose of providing decision makers in industry, government and nongovernmental organizations ‘with a
means to estimate the potential impact of water use
and pollution, based on a life-cycle assessment’.45 ISO
14046 is aiming to present a standardized framework
and scientific basis for calculating and reporting water
footprints. Because ISO standards are strictly voluntary, there is no guarantee that the standard would be
taken up on a wide enough scale to achieve the consistency of approach desired. However, in mitigation
of this is Article 2.4 of the Agreement on Technical
Barriers to Trade (TBT Agreement), which directs
WTO members to use ‘relevant international standards’ as a basis for technical regulations, where they
are required, unless such standards would be ‘an
42
See A.Y. Hoekstra et al., n. 17 above, at 10.
See A.Y. Hoekstra, n. 12 above, at 19.
44
See A.Y. Hoekstra et al., n. 17 above, at 13.
45
International Standardization Organization (ISO), ‘Measuring the
Impact of Water Use and Promoting Efficiency in Water Management’, ISO 14046 Briefing Note, found at: <http://www.iso.org/iso/
iso14046_briefing_note.pdf>.
43
© 2014 John Wiley & Sons Ltd
333
LAURA MANSON AND TRACEY EPPS
ineffective or inappropriate means for the fulfilment of
the legitimate objectives pursued’.46 ISO Standards
(and ISO 14046) would most likely constitute relevant
international standards under Article 2.4,47 so on this
basis reliance on ISO 14046 by WTO members in formulating their water-related technical regulations
would be required by the TBT Agreement (unless a
country could show that they would be ineffective or
inappropriate).
It is not at all clear that the ISO standard, if completed,
will be widely relied upon. The exception for when standards are ineffective or inappropriate includes where
‘fundamental technological problems’ would inhibit the
application of the standard.48 This would be most conceivable in the case of a developing country which
might not have the technology to accurately calculate
and report water footprints. Although reliance on ISO
standards appears to be consistent with the TBT Agreement, we do note the explicit statement in the briefing
note on ISO 14046 that the standard is not intended ‘to
be adopted or applied in a manner that results in barriers to trade that conflict with WTO requirements’.49
This implies that reliance on an ISO standard in itself is
not enough to comply with WTO requirements, and
countries could still fall foul of international trade rules
through the way in which they apply the standard.
It remains unclear to what extent standards such as ISO
14046 would be adopted, and in the absence of an international agreement on water labelling, it may be virtually impossible to get all countries to adopt a common
water footprint label. As a result, it is likely that we will
see private and public entities formulating their own
water footprint labels just like Raisio did in 2009, and
perhaps even their own certification schemes. This
would inevitably lead to confusion and scepticism of the
credibility of certifications and labelling. It may also
have trade law implications. In other contexts, such as
carbon labelling, there are a variety of requirements,
many of which are generated by the private sector –
companies, retail organizations and nongovernmental
organizations. The question as to what disciplines
might be imposed on private standards is not one that
we will address here, other than to note that without
some form of governmental involvement such standards will not be covered by the WTO’s disciplines.50
Rather, we will focus here on the possibility of measures
implemented by governments.
46
Agreement on Technical Barriers to Trade (Marrakesh, 15 April
1994; in force 1 January 1995) (‘TBT Agreement’).
47
F. Fontanelli, ‘ISO and Codex Standards and International Trade
Law: What Gets Said is not What’s Heard’, 60:4 International and
Comparative Law Quarterly (2011), 895, at 908.
48
TBT Agreement, n. 46 above, Article 2.4.
49
See ISO, n. 45 above.
50
See, e.g., T. Epps, n. 32 above, at 73; and P. Szwedo, n. 32 above.
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Ultimately, the success of any water footprint label
(whether a government measure or a private initiative) in encouraging sustainable water use would
depend upon its effectiveness in influencing consumer
behaviour, which relies both on consumers’ understanding of the label and the value they attach to
freshwater sustainability. With regard to consumers’
understanding of a water footprint label, a recent study
on EU product labelling found that a common assumption by consumers was that the labels represented the
environmental impact (or water usage) of the product
while in use.51 The concept of a life-cycle assessment
of a product’s environmental impact was not familiar.
Therefore, any label would have to be carefully
designed, and consumers well educated, for it to have
its desired effect. With regard to the value consumers
might attach to freshwater sustainability, the same
study found that when all other product characteristics
were held constant, consumers showed a higher willingness to pay, and a willingness to pay a premium for
products that were environmentally preferable.52
However, in reality, products are rarely identical in all
respects other than their environmental impact. This
means that the success of water footprint labelling in
influencing consumer purchase decisions may be
limited, unless the water footprint label also affects the
product’s price or availability. For example, governments could impose a sales-based tax on products with
a high or undesirable water footprint, or impose import
restrictions based on a product’s water footprint. The
trade law implications of such measures will be examined in detail in the next section.
IMPLICATIONS OF
INTERNATIONAL TRADE RULES
FOR THE DESIGN AND
IMPLEMENTATION OF
WATER-RELATED TRADE
MEASURES
In this section, we highlight the key obligations in the
WTO’s General Agreement on Tariffs and Trade
(GATT) and the TBT Agreement that countries must
observe if they adopt or maintain water-related trade
measures. The GATT’s obligations apply generally in
respect of trade in goods, while the TBT Agreement
imposes differing obligations in respect of mandatory
technical regulations, voluntary standards and conformity assessment procedures.53 Where a measure is not
within scope of the TBT Agreement, the obligations of
51
Ipsos MORI, London Economics and AEA, Research on EU
Product Label Options: Final Report (Ipsos MORI, 2012), at 7.
52
Ibid., at 5.
53
WTO AB 5 April 2001, European Communities – Measures Affecting Asbestos and Asbestos-containing Products, WT/DS135/AB/R
(‘EC-Asbestos’), at paragraph 80.
RECIEL 23 (3) 2014
the GATT will still be relevant.54 A trade-related water
measure may or may not be within scope of the TBT
Agreement, and thus obligations under both agreements are of relevance. Here we discuss the GATT obligations first, because one of the key elements of the
non-discrimination obligations is also relevant under
the TBT Agreement – namely, the determination of
whether products are ‘like’. ‘Likeness’ has been extensively considered under the GATT and the case law will
also inform determinations of ‘likeness’ under the TBT
Agreement.
THE GATT
Non-discrimination
The non-discrimination principle is the cornerstone of
the GATT and is encapsulated in two obligations:
national treatment and most-favoured-nation (MFN)
treatment. The national treatment obligation (Article
III) prohibits the application of measures (both regulatory and tax) to ‘imported or domestic products so as to
afford protection to domestic production’.55 Paragraph
4 applies the national treatment obligation to domestic
regulations, while paragraph 2 applies it to taxes.
Article III.4 will apply to domestic regulations that are
not technical regulations under the TBT Agreement,
such as a requirement on retailers to only stock products with a water footprint below a certain level. Article
III.4 requires WTO members to accord to imported
products ‘treatment no less favourable than that
accorded to like products of national origin in respect of
all laws, regulations and requirements affecting their
internal sale, offering for sale, purchase, transportation, distribution or use’.
Only ‘like’ products must be accorded national treatment under Article III.4. In determining ‘likeness’,
panels and the Appellate Body have taken a case-bycase approach using four criteria: (i) the products’ end
uses in a given market; (ii) the products’ properties,
nature and quality (including a requirement that the
products should share the same physical characteris54
In a dispute where an allegation of a violation of the TBT Agreement
is not found, or where a measure is found not to fall within that
agreement’s scope, arguments under the GATT will come into play.
For example, in the EC-Seal Products case, the Appellate Body found
that the EU’s seals regime did not constitute a ‘technical regulation’
as defined in the TBT Agreement. However, it went on to find violations under the GATT, and to examine the applicability of that agreement’s exceptions under Article XX. WTO AB 22 May 2014,
European Communities – Measures Prohibiting the Importation and
Marketing of Seal Products, WT/DS401/AB/R (‘EC-Seal Products’).
See also G. Marceau, ‘A Comment on the AB Report in EC – Seal
Products in the Context of the Trade and Environment Debate’, 23:3
Review of European, Comparative and International Environmental
Law (2014).
55
General Agreement on Tariffs and Trade 1994 (Marrakesh, 15 April
1994; in force 1 January 1995) (‘GATT’), Article III.1.
WATER FOOTPRINT LABELLING
tics); (iii) consumers’ tastes and habits; and (iv) tariff
classifications.56 A case-by-case examination of the
facts is required, and the Appellate Body has noted that
interpretation of ‘likeness’ involves ‘an unavoidable
element of individual discretionary judgement’.57
An important factor in the ‘likeness’ determination is
whether there is a competitive relationship between
the domestic and imported products. In EC-Asbestos,
the Appellate Body had to determine whether cement
made with asbestos fibres was ‘like’ cement made with
PCG (polyvinyl alcohol, cellulose and glass) fibres.58
While there was no evidence of a competitive relationship, the Appellate Body said that consumers might
view these two cements differently if they understood
the different health risks. Howse and Tuerk argue
that the Appellate Body in effect adopted a test of
whether the products would have been competitive in
an idealized market in which consumers had complete
information.59
We can ask whether two products with different
impacts on water resources could be considered unlike
each other. Hoekstra uses the example of a beverage
such as cola which contains sugars that can come from
various sources – sugar beet, sugar cane or maize. The
sugar crop in question might be grown with irrigation
water from the ‘overexploited Ogallala Aquifier beneath
the Great Plains in the United States.60 Under the
Article III.4 ‘likeness’ test, would cola with such sugar
be ‘like’ cola containing sugar grown in a region with
abundant water sources? He also gives the example of
cotton from Uzbekistan and Pakistan, which has a relatively large water footprint on blue water resources and
can be associated with the desiccation of the Aral Sea
and intensive use and pollution of the Indus River,
respectively, compared to cotton produced elsewhere
without such deleterious effects.61 In neither case are
the physical characteristics, end uses or tariff classifications of the products any different. In order for consumer preferences to play any role in differentiating
the products, evidence would be required. Even if
56
The first three of these criteria were set out by the 1970 GATT
Working Party Report on Border Tax Adjustments, BSID 18S/97,
adopted on 2 December 1970, at paragraph 18. The Appellate Body
in Japan-Alcoholic Beverages noted that the final criterion, tariff classification, had been referred to in several earlier cases. See WTO AB
1 November 1996, Japan – Taxes on Alcoholic Beverages, WT/DS8/
AB/R, WT/DS10/AB/R, WT/DS11/AB/R (‘Japan-Alcoholic Beverages’), at section H(1)(a).
57
Ibid.
58
EC-Asbestos, n. 53 above.
59
And where tort liability was available. See R. Howse and E. Tuerk,
‘The WTO Impact on Internal Regulations: A Case Study of the
Canada-EC Asbestos Dispute’, in: G. De Burca and J. Scott (eds.),
The EU and the WTO: Legal and Constitutional Issues (Hart, 2001),
283.
60
A.Y. Hoekstra, The Relation between International Trade and
Freshwater Scarcity (World Trade Organization, 2010), at 14.
61
Ibid.
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LAURA MANSON AND TRACEY EPPS
consumers in the importing country had complete
information, they might still see the products as ‘like’.
Would consumers in, say, the United Kingdom care
enough about conditions in the Great Plains, the Aral
Sea or the Indus River to consider the products ‘unlike’?
Would consumers in one state of the United States even
care about impacts on water resources in another state?
It is not inconceivable, and the background discussed
above suggests that things may well come to a point
where consumers will care (and certainly should care).
The point is that, under GATT rules, strong evidence
would be required to find a case of unlikeness such that
countries could differentiate between the products with
impunity.
It is important to note that in this type of ‘likeness’
determination, the difference between the products is
the process and production method (PPM). There are
two types of PPMs: those that are product-related, and
those that are not. Product-related PPMs are those
where the PPM actually results in an observable difference in the end product itself, such as an organic apple
compared to a non-organic one with pesticide residues
on it. On the other hand, a non-product related PPM –
such as the amount of water used in production of beef
– does not confer any particular observable characteristic on the end product. As suggested in the preceding
paragraph, it is plausible that different non-product
PPMs can make two products ‘unlike’ each other, but
only if it can be shown that consumers actually differentiate between them.62 The trouble is that it may be the
very lack of differentiation by consumers that leads a
government to regulate in the first place.63
There will only be a violation of Article III.4 if imported
products have been accorded ‘less favourable treatment’ than ‘like’ domestic products. This requires
that there be ‘effective equality of opportunities for
imported products to compete with like domestic products’64 and requires panels to ‘examine whether a
measure modifies the conditions of competition in the
relevant market to the detriment of imported products’.65 Even in the case of ‘like’ products, the GATT
allows governments some room to treat products differently. This is because it is not enough to prove a
violation to simply say that imported and domestic
62
The same point can be made in the context of differentiating
between products based on the amount of carbon or other greenhouse gases emitted during their production. See T. Epps and A.
Green, Reconciling Trade and Climate Change: How the WTO Can
Help Address Climate Change (Edward Elgar, 2010), at 75.
63
G. Marceau and J. Trachtman, ‘The Technical Barriers to Trade
Agreement, the Sanitary and Phytosanitary Measures Agreement,
and the General Agreement on Tariffs and Trade: A Map of the World
Trade Organization Law of Domestic Regulation of Goods’, 36:5
Journal of World Trade (2002), 811.
64
EC-Seal Products, n. 54 above, at paragraph 5.101.
65
WTO AB 20 January 2001, Korea – Measures Affecting Imports of
Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R
(‘Korea-Beef’), at paragraph 137.
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RECIEL 23 (3) 2014
products are being treated differently.66 Rather, the
imported product must have suffered some detriment.
Discrimination may be either de jure (where country
A’s product is treated differently on the face of the
measure) or de facto (where the measure is ostensibly
the same for domestic and imported products, but the
imported product nevertheless receives less favourable
treatment). De facto discrimination might be found, for
example, where it is easier for the domestic products to
meet the measure’s requirements, perhaps because the
importing country has better technology to improve
efficiency of water usage or because the importing
country has for some time required calculation and
reporting of water footprints. As a result, domestic producers may be well adapted to such requirements,
whereas producers of imported products might have
more difficulty because they have not had the same
requirements at home. The problem may be exacerbated for producers in developing countries.
Is it a defence for the government imposing the
measure to say that there is a legitimate regulatory distinction between the imported and domestic products?
In other words, is there a violation even though there is
a ‘genuine relationship’ between the measure and the
adverse impact on competitive opportunities for
imported products?67 This issue was recently addressed
by the Appellate Body in EC-Seal Products where the
EU unsuccessfully argued that a panel must inquire as
to whether the detrimental impact on competitive
opportunities for ‘like’ imported products stems exclusively from a legitimate regulatory distinction.68 This
finding confirmed that it is unlikely that simply having
a legitimate public policy reason for a regulatory distinction will be enough to absolve a country from being
in violation of the obligation.
Article III.2 applies the national treatment obligation to
taxes by setting out two separate tests – one in the first
sentence, and the other in the second sentence. The first
sentence prohibits imposition on imported products of
‘internal taxes or other internal charges’ in excess of
66
EC-Asbestos, n. 53 above, at paragraph 100; EC-Seal Products, n.
54 above, at paragraph 5.101.
67
EC-Seal Products, n. 54 above, at paragraph 5.101.
68
Ibid., at paragraph 5.117. In this regard, the EU was arguing for a
similar approach to be taken to the determination of ‘less favourable
treatment’ under GATT, n. 55 above, Article III.4 as under Article 2.1
of the TBT Agreement, n. 46 above. The issue has also been debated
by academics. Regan, for example, has argued that regulatory intent
is irrelevant in the determination, and that ‘less favourable treatment’
only covers measures with an objective protectionist intent. D. Regan,
‘Further Thoughts on the Role of Regulatory Purpose under Article III
of the General Agreement on Tariffs and Trade’, 37:4 Journal of
World Trade (2003), 737. On the other hand, Porges and Trachtman
have argued that it is unclear whether different treatment based on
non-protectionist goals is permitted under Article III or whether any
‘less favourable’ treatment would violate Article III.4. See A. Porges
and J. Trachtman, ‘Robert Hudec and Domestic Regulation: The
Resurrection of Aim and Effects’, 37:4 Journal of World Trade (2003),
783.
RECIEL 23 (3) 2014
those applied to ‘like’ domestic products. To violate this
sentence, the imported and domestic products must be
‘like’. However, if they are not, there may be a violation
of the second sentence where there is competition
between an imported product and a ‘directly competitive or substitutable’ domestic product which is ‘not
similarly taxed’.69
The threshold for determining less favourable treatment under the first sentence is lower compared to the
second sentence. Where imported and domestic products are ‘like’, even a negligible difference between the
taxes imposed on them will constitute a violation (e.g.,
a tax of 5% on a domestic product with a water footprint
below a certain level versus a tax of 7.5% on an
imported product with a higher footprint). However, if
the products do not reach the threshold of being ‘like’,
but are ‘directly competitive or substitutable’, then
some differences in taxation levels are allowable as
there will only be a violation if the products are ‘not
similarly taxed’.70 However, such a small difference is
unlikely to be sufficient to change consumer behaviour,
and so wherever products are ‘like’ or ‘directly competitive or substitutable’, governments will have limited
policy space to tax them differently without being found
in violation.
Panels and the Appellate Body have used the same criteria to determine ‘like products’ under Article III.2 as
they have under Article III.4. In the case of Article III.2,
panels have construed ‘likeness’ more narrowly. This is
because, as the Appellate Body explained in JapanAlcoholic Beverages, the ‘second sentence provides for
a separate and distinctive consideration of the protective aspect of a measure in examining its application to
a broader category of products that are not like products as contemplated by the first sentence’.71 Only
through a narrow interpretation can it be ensured that
scope is left for application of the ‘directly competitive
or substitutable’ test.
An example would be where Country C imposes an
additional sales tax on the basis of a product’s water
footprint which results in Country A’s milk bearing 10%
additional sales tax compared to Country C’s milk. It is
going to be even more difficult for Country C to show
that imported and domestic milk are not ‘directly competitive or substitutable’ due to their differential water
footprints than it would be to show that the milk is not
‘like’. Panels and the Appellate Body have taken an
economics-focused approach to determining what is
‘directly competitive or substitutable’, looking at factors
such as elasticity of substitution in order to examine
69
Interpretive Note, Ad Article III GATT, n. 55 above.
Japan-Alcoholic Beverages, n. 56 above, at section H(2)(b).
71
Ibid., at section H(1)(a).
70
WATER FOOTPRINT LABELLING
competition in the relevant markets.72 They have said
that the required competitive relationship ‘may exist
between products that are not, at a given moment, considered by consumers to be substitutes but which are,
nonetheless, capable of being substituted for one
another’,73 and further, that it is the properties or characteristics of goods that are important because it is from
these that consumers derive utility. It is difficult to see
how – in the absence of very strong evidence showing
that consumers were not prepared to substitute low
water footprint milk with high footprint milk – the
imported and domestic products would not be found
‘directly competitive or substitutable’.
A violation of Article III.2 requires that a tax measure
be applied ‘so as to afford protection’. This requires
examining how the tax measure is actually applied, and
its effects, to see whether the measure actually affords
protection to domestic products. The effect is determinative; the intended objective of the measure is irrelevant.74 According to the Appellate Body, the protective
application of a measure ‘can most often be discerned
from the design, the architecture, and the revealing
structure of a measure’.75 In the milk scenario, this
would require examining the requirements for application of the additional sales tax to see if it was designed
so that domestic milk would be exempt. If so, this may
suggest a protective application.
The MFN obligation (Article I) requires that a country
accord any ‘advantage, favour, privilege or immunity’ to
a product from one country to ‘like’ products from other
countries. This obligation raises the same question of
‘likeness’ as the national treatment obligation and the
Article III cases will be instructive as to the approach to
be taken to the determination. An advantage such as a
lower sales tax cannot be afforded to a product from one
Member and not to a like ‘product’ from another.
Quantitative Restrictions
GATT Article XI prohibits members from imposing on
imports from other countries any ‘prohibitions or
restrictions other than duties, taxes or other charges’.76
This obligation would prevent a country from prohibiting or restricting imports of products based on their
water footprint, unless such a prohibition could be justified on the grounds of the general exceptions as discussed next.
72
Ibid., at section H(1)(b).
WTO AB 17 February 1999, Korea – Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, at paragraph 114.
74
Panels are required to undertake ‘a comprehensive and objective
analysis of the structure and application of the measure in question
on domestic as compared to imported products’. Japan-Alcoholic
Beverages, n. 56 above, at section H(2)(c).
75
Ibid., at section H(2)(c).
76
Such prohibitions or restrictions include quotas, import or export
licences or other measures.
73
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General Exceptions
The GATT Article XX exceptions allow a member in
violation of the agreement’s obligations to justify the
offending measure. Relevant exceptions are found in
subparagraph (b) (measures ‘necessary to protect
human, animal or plant life or health’) and (g) (measures ‘relating to the conservation of exhaustible
natural resources’ if such measures are made effective
in conjunction with restrictions on domestic production and consumption’).
Article XX’s chapeau prohibits measures that are
‘applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised
restriction on international trade’. The Appellate Body
has consistently required that, in examining whether a
measure falls within Article XX, it is first necessary to
determine whether it falls under one of the exceptions
in the subparagraphs and, if so, to assess whether it has
been applied in a manner consistent with the chapeau.77
To be justified under Article XX(g), a measure must
be ‘related to conservation of exhaustible natural
resources’. In US-Shrimp, the Appellate Body said that
the term ‘exhaustible natural resources’ is ‘evolutionary’, and must be defined in the light of ‘contemporary
concerns of the community of nations about the protection and conservation of the environment’.78 Cases have
variously found turtles, gasoline and clean air to be
exhaustible natural resources.79 It is difficult to imagine
water not being considered an exhaustible natural
resource, given the scarcity issues noted above.
Under Article XX(g), it is not necessary to show that a
measure has achieved, or is likely to achieve, its stated
objective. In US-Gasoline, the Appellate Body stated
that to be considered as ‘relating to’ conservation, a
measure must be ‘primarily aimed at’ the conservation
of exhaustible resources.80 As the Appellate Body noted
in that case
should it become clear that realistically, a specific measure
cannot in any possible situation have any positive effect on
conservation goals, it would probably be because that
measure was not designed as a conservation measure to
77
WTO AB 20 May 1996, United States – Standards for Reformulated
and Conventional Gasoline, WT/DS2/AB/R (‘US-Gasoline’), at 22.
78
WTO AB 6 November 1998, United States – Import Prohibition of
Certain Shrimp and Shrimp Products, WT/DS58/AB/RM (‘USShrimp’), at paragraph 130.
79
Regarding gasoline, see WTO DS 11 October 1994, United States
– Taxes on Automobiles, WT/DS31/R (‘US-Automobiles’), at 109.
Regarding clean air, see WTO DS 20 May 1996, United States –
Standards for Reformulated and Conventional Gasoline, WT/DS2/R
(unadopted). Other examples cited by the Appellate Body include
petroleum and iron ore. US-Shrimp, n. 78 above, at paragraph 128.
80
US-Gasoline, n. 77 above, at 18.
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begin with. In other words, it would not have been primarily
aimed at conservation of natural resources at all.81
In a later case, the Appellate Body softened this requirement, suggesting that the measure need only be ‘reasonably related to the ends’, based on an examination of
the ‘general design and structure’ of the measure and its
relationship to the objective’.82
Subparagraph (g)’s third requirement is that a measure
be made effective in conjunction with restrictions on
domestic production or consumption. This requires
that there be ‘even-handedness’ in restrictions between
domestic and foreign producers.83
Article XX(g) thus appears likely to provide a basis for a
country to justify a measure that discriminates between
products based on their water footprint, subject to the
measure being administered in a manner consistent
with the chapeau’s requirements (discussed below).
Subparagraph (b) requires that a measure be ‘necessary’ to protect human, animal or plant life or health.
Given the importance of water to health, it is plausible
that a country might seek to justify its measure under
this heading, although Article XX(g) (discussed above)
provides the easier test to fulfil. This is due to the
concept of necessity in subparagraph (b). In KoreaBeef, the Appellate Body stated that on a continuum
with ‘indispensable’ at one end, and simply ‘making a
contribution to’ at the other, the term ‘necessary’ is
closer to ‘indispensable’.84 The test set out by the Appellate Body in that case made the determination of
whether a measure is necessary dependent on the
importance of the objective, the measure’s contribution
to that objective and the trade impact of the measure.85
While the Appellate Body has included ‘the importance
of the objective’ as a relevant factor in determining
necessity, it has also emphasized that each WTO
Member has the right to set its own public health or
environmental objectives and the level of protection
related to those objectives.86
In Brazil-Tyres, the Appellate Body said that, in determining necessity, ‘a panel must assess all the relevant
81
Ibid., at 22. See also US-Automobiles, n. 79 above, at paragraph
3.198, where the European Community unsuccessfully argued that an
American tax known as the ‘gas guzzler tax’ could not be considered as
primarily aimed at the conservation of carbon fuel because it had
become a revenue measure designed to fund domestic programmes
favoured by the United States Congress and Administration.
82
US-Shrimp’, n. 78 above, at paragraph 141. See also S. Charnovitz,
‘The WTO’s Environmental Progress’, 10:3 Journal of International
Economic Law (2007), 685, at 701.
83
US-Gasoline, n. 77 above, at 21.
84
Korea-Beef, n. 65 above, at paragraph 161.
85
Ibid., at paragraph 164.
86
See, e.g., US-Gasoline, n. 77 above; and EC-Asbestos, n. 53
above, at paragraph 168.
RECIEL 23 (3) 2014
factors, particularly the extent of the contribution to the
achievement of a measure’s objective and its trade
restrictiveness, in the light of the importance of the
interests or values at stake’.87 This approach treats the
importance of the interests or values at stake not as a
direct part of the analysis, but as informing the balance
of the contribution of the measure and its trade
effects.88
In terms of considering the measure’s contribution to
the objective, in Brazil-Tyres, the Appellate Body
looked for a ‘genuine relationship of ends and means
between the objective purposed and the measure at
issue’89 and said that ‘when a measure produces restrictive measures on international trade as severe as those
resulting from an import ban, it appears to us that it
would be difficult for a panel to find that measure necessary unless it is satisfied that the measure is apt to
make a material contribution to the achievement of its
objective’.90 In EC-Seal Products, the Appellate Body
suggested that the Brazil-Tyres case had not set one
predetermined standard, but rather that each measure
has to be assessed on an individual basis against the
degree of contribution, the importance of the value and
the level of trade-restrictiveness.91 Much would depend
on how the objective of a water-related measure was
framed. If it was too broad or ambitious (e.g., reduce
water scarcity worldwide) it would be extremely difficult to show a real contribution to the objective’s
achievement; if, on the other hand, the objective was
more modest (e.g., increase consumers’ awareness of
water scarcity issues), then it would be easier to design
and structure a technical regulation that would contribute to its achievement. As to evidence, the Appellate
Body has taken a fairly liberal approach, suggesting in
Brazil-Tyres that the analysis did not have to be quantitative but could be qualitative, and noting that the
results of certain actions (e.g., measures to attenuate
global warming) can only be evaluated with the benefit
of time.92
A final inquiry under Article XX(b) is whether there are
other measures that would be equally as effective but
less trade restrictive. A panel must ask first, whether
the alternative preserves for the responding member
‘its right to achieve its desired level of protection with
respect to the objective pursued’.93 Second, whether the
WATER FOOTPRINT LABELLING
alternative is less trade restrictive than the impugned
measure.94 And third, even if an alternative measure
provides the same benefit and is less trade restrictive
than the impugned measure, whether it is ‘reasonably
available’.95
Once a measure is found to fall within one of the subparagraphs, the analysis turns to the chapeau, which
deals with the manner in which a measure is applied.
Specifically, it asks whether a measure is a means of
arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or is a disguised restriction on trade.
In interpreting the requirements of the chapeau, the
Appellate Body has favoured flexibility of measures. A
country should not require other countries to use
exactly the same measures as it imposes but, rather,
should focus on similar effects.96 In Brazil-Tyres, the
Appellate Body noted that if there is discrimination
between countries in the application of the measure,
the measure will violate the chapeau ‘when the reasons
given for this discrimination bear no rational connection to the objective falling within the purview of a
paragraph of Article XX, or would go against that objective’.97 In the case of water-related trade measures,
ensuring such a connection may not always be as simple
as it sounds, given the many factors that go towards
assessing water usage and efficiency; and to be safe
from challenge under the chapeau, the country would
have to show that they had taken into consideration the
differences between their circumstances and those of
their trading partners so as to come up with an evenhanded measure.
TBT AGREEMENT
The TBT Agreement was designed to promote trade
liberalization, while maintaining the right of members
to take measures that are a legitimate exercise of regulatory autonomy.98 Unlike the GATT, which has a specific exceptions clause, the TBT Agreement contains
statements in its preamble indicating that members can
address, inter alia, environmental concerns, so long as
they do not create ‘unnecessary obstacles to trade and
94
87
WTO AB 17 December 2007, Brazil – Measures Affecting Imports
of Retreaded Tyres, WT/DS332/AB/R (‘Brazil-Tyres’), at paragraph
156.
88
See T. Epps and A. Green, n. 62 above, at 147.
89
Brazil-Tyres, n. 87 above, at paragraph 145.
90
Ibid., at paragraph 150.
91
EC-Seal Products, n. 54 above, at paragraph 5.213.
92
Further, the selection of the method for determining the contribution
depends on the ‘nature, quantity, and quality of evidence existing at
the time the analysis is made’. Brazil-Tyres, n. 87 above, at paragraphs 145–146 and 151. This was confirmed in EC-Seal Products,
n. 54 above, at paragraph 5.222.
93
Brazil-Tyres, n. 87 above, at paragraph 156.
Ibid.
The Appellate Body said that ‘an alternative measure may be found
not to be reasonably available . . . where it is merely theoretical in
nature . . . or where the measure imposes an undue burden on that
Member, such as prohibitive costs or substantial technical difficulties’.
Ibid., at para 308.
96
See US-Shrimp’, n. 78 above, where the Appellate Body focused on
the nature of international negotiations regarding the environmental
concern at issue prior to the imposition of the measure.
97
Brazil-Tyres, n. 87 above, at paragraph 227.
98
M. Cardwell and F. Smith, ‘Contemporary Problems of Climate
Change and the TBT Agreement: Moving Beyond Eco-labelling’, in:
T. Epps and M. Trebilcock (eds.), Research Handbook on the WTO
and Technical Barriers to Trade (Edward Elgar, 2013), 391, at 403.
95
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LAURA MANSON AND TRACEY EPPS
are not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination
between countries . . . or a disguised restriction on
international trade’.99 In this section, we focus on the
obligations that apply to technical regulations.100
Definitions
Technical regulations are defined in Annex 1.1 of the
TBT Agreement as a:
Document which lays down product characteristics or their
related processes and production methods, including the
applicable administrative provisions, with which compliance is mandatory. It may also include or deal exclusively
with terminology, symbols, packaging, marking or labelling
requirements as they apply to a product, process or production method.
A labelling requirement, as discussed above, might
constitute a technical regulation under this definition,
which not only covers product-related PPMs, but also
covers non-product-related PPMs to the extent that
they deal with requirements for ‘terminology, symbols,
packaging, marketing or labelling requirements’.
Regulations requiring labels have generated concerns
under the TBT Agreement in various contexts, including country of origin, carbon footprinting and ‘food
miles’.101 A ‘yes or no’ water footprint label would
fit within this second category and may also raise
concerns.
Non-discrimination
The TBT Agreement imposes a non-discrimination
obligation for technical regulations that requires
members to afford both national treatment and MFN
treatment to ‘like’ imported products (Article 2.1). The
requirement is to accord ‘treatment no less favourable’.
In US-Clove Cigarettes, the Appellate Body suggested
that ‘likeness’ in the TBT context is to be determined
‘based on the competitive relationship between and
among the products’.102 In this finding, the Appellate
99
TBT Agreement, n. 46 above, recitals 5 and 6.
Key obligations that apply to technical regulations are nondiscrimination (national treatment and MFN treatment), and that the
measure be not more trade-restrictive than necessary. Obligations on
members in respect of standards include ensuring that their central
government standardizing bodies accept and comply with the Code of
Good Practice for the Preparation, Adoption and Application of Standards in Annex 3 of the TBT Agreement, ibid. Standardizing bodies
that have accepted and are complying with the Code of Good Practice will be acknowledged as complying with the principles of the
Agreement. Conformity assessment procedures are subject to obligations in Articles 5 to 9 of the TBT Agreement.
101
For a discussion of concerns raised in the TBT Committee, see S.
Baddeley, P. Cheng and R. Wolfe, ‘Trade Policy Implications of
Carbon Labels on Food’, 13:1 Estey Centre Journal of International
Law and Trade Policy (2012), 59.
102
WTO AB 24 April 2012, US – Measures Affecting the Production
and Sale of Clove Cigarettes, WT/DS406/AB/R, at paragraphs 111–
113.
100
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RECIEL 23 (3) 2014
Body rejected the Panel’s approach which involved consideration of the measure’s regulatory objectives. The
Appellate Body did say that regulatory concerns may
play a role in the determination of ‘likeness’ to the
extent ‘they have an impact on the competitive relationship between and among the products concerned’ or are
otherwise reflected in traditional criteria for assessing
likeness such as ‘physical characteristics and consumer
preferences’.103 As discussed in the preceding section, a
water footprint labelling requirement may be seen as
responding to consumer concerns, providing them with
the required information to satisfy their preference for
environmentally friendly products. Given available evidence, consumer preferences may contribute to a
finding that the products are not like.104 Again,
however, evidence may also show that labelling requirements influence consumer preferences rather than
respond to them.105
There will be ‘less favourable treatment’ under Article
2.1, where the measure modifies the conditions of
competition in the relevant market to the detriment
of imported products; and the detrimental impact
‘reflects discrimination’ in that it does not ‘stem exclusively from a legitimate regulatory distinction’.106 The
latter requirement incorporates concepts found in the
chapeau of GATT Article XX. In US-COOL, the Appellate Body talked about a measure not stemming exclusively from a legitimate regulatory distinction as being
one that is ‘designed or applied in a manner that
constitutes a means of arbitrary or unjustifiable
discrimination’.107
The test for ‘less favourable treatment’ thus provides
policy space for governments to respond to water scarcity issues. If an imported product fails to qualify for a
label, or if doing so has negative implications for its
ability to compete in the market, and the distinction in
treatment stems exclusively from a non-discriminatory
and legitimate water policy, then the measure may not
constitute discriminatory treatment under Article 2.1 of
the TBT Agreement. However, the regulating country
would need to be careful in the measure’s design so as
to avoid any de facto discrimination.
Not More Trade-restrictive
than Necessary
Article 2.2 of the TBT Agreement requires members to
ensure that their technical regulations are not
103
Ibid., at paragraph 117.
T. Voon, A. Mitchell and C. Gascoigne, ‘Consumer Information,
Consumer Preferences and Product Labels under the TBT Agreement’, in: T. Epps and M. Trebilcock, n. 98 above, 454, at 465.
105
Ibid.
106
US-Tuna II, n. 28 above, at paragraph 231.
107
WTO AB 23 July 2012, US – Certain Country of Origin Labelling
(COOL) Requirements, WT/DS384/AB/R, WT/DS386/AB/R (‘USCOOL’), at paragraph 271.
104
RECIEL 23 (3) 2014
prepared, adopted or applied with a view to or with the effect
of creating unnecessary obstacles to international trade. For
this purpose, technical regulations shall not be more traderestrictive than necessary to fulfil a legitimate objective,
taking account of the risks non-fulfilment would create.
Such legitimate objectives are, inter alia: national security
requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health,
or the environment.
Policies aimed at conserving freshwater or improving
efficiency of its use would fall within the concept of
‘legitimate objectives’.108 But even where a legitimate
objective has been identified, there may be a violation if
the measure in question is more trade-restrictive than
necessary. In this regard, the Appellate Body has found
that a determination of violation requires panels to
consider:
(i) The regulation’s trade-restrictiveness;109
(ii) The regulation’s degree of contribution toward
achievement of the legitimate objective;110 and
(iii) The risks that non-fulfilment would create.111
Various design features of a regulation could contribute
to making it more trade-restrictive than necessary if
there were alternative ways of designing the regulation
that would make it more appropriate for a wider range
of producers from different countries and hence less
trade-restrictive. An assessment of the regulation’s
degree of contribution toward achievement of the legitimate objective raises similar questions as discussed in
relation to the GATT Article XX chapeau, including how
broadly the objective was framed and whether products
that comply with them actually promote freshwater
sustainability. If countries were able to base their measures on international standards, such as ISO, this
would help support arguments as to a regulation’s
degree of contribution.112
For a country imposing water labelling requirements on
imported products, it may be difficult to show that there
are risks from non-fulfilment of the objective. It is easy
to envisage risks from non-compliance by domestic
108
The term has been interpreted generously by the Appellate Body.
For a discussion of the concept, see A. Kudryavtsev, ‘The TBT
Agreement in Context’, in: T. Epps and M. Trebilcock, n. 98 above,
17, at 59.
109
US-Tuna II, n. 28 above, at paragraph 318; US-COOL, n. 107
above, at paragraph 471.
110
As evidenced by the design, structure and operation of the technical regulation, and also its application. See US-Tuna II, n. 28 above,
at paragraph 315; US-COOL, n. 107 above, at paragraph 373.
111
US-Tuna II, n. 28 above, at paragraph 318.
112
This would also be the case under the chapeau of GATT, n. 55
above, Article XX. In the TBT context, however, it is worth noting that
Article 2.4 of the TBT Agreement, n. 46 above, actually requires
members to use relevant international standards where they exist,
‘except when such international standards or relevant parts would be
an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued’.
WATER FOOTPRINT LABELLING
producers where the objective is to maximize efficient
use of water or minimize water pollution. Nonfulfilment of a broader objective related to use of water
internationally would not be likely to carry much of a
risk and so this factor would weigh minimally in the
overall analysis.
CONCLUSION
As with other areas of environmental regulation, such
as climate change, international trade liberalization
and sustainability of freshwater resources do not have
to be incompatible goals. WTO rules recognize the
importance of such areas of regulation, and panels and
the Appellate Body have accorded flexibility in their
interpretation of the rules to ensure that members
can exercise their rights to pursue such regulation.
However, the considerations we have highlighted indicate that water footprint labelling, and other traderelated measures based on a product’s water footprint,
could well have inadvertent trade law implications. This
may be the case even where the footprint’s calculation is
based on sound methodology, in part due to the fact
that freshwater usage will have a different impact on
the environment and on users in different areas, and in
part because capacity to improve efficiency of water use
will vary across regions.
We have sought in this article to highlight some of the
key issues raised by application of WTO rules (there
will, inevitably, be others), and in so doing, to highlight
the importance of giving careful consideration to how
measures are designed and applied. The devil is so often
in the detail, and the complications inherent in the very
exercise of calculating a product’s water footprint mean
that the actual trade implications of any measure can
only be assessed with full knowledge of the facts. The
complications should not act as a deterrent to governments in moving forward with the development of
means such as labels to encourage consumers to take
into account freshwater sustainability in their purchasing decisions, but careful design will be required.
Laura Manson (BCom/LLB(Hons), University of Otago,
New Zealand) is an analyst in Corporate Finance at PwC
New Zealand.
Tracey Epps (BA/LLB(Hons), LLM, SJD (Tor)) is a Lead
Adviser in the Legal Division of the New Zealand Ministry of Foreign Affairs and Trade.
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