The March 31 release of a WTO dispute panel report on the ongoing disagreement between the U.S. and the EU on whether the EU has met its obligations under the WTO agreement when not importing U.S. beef produced with growth promoting hormones shows both the strengths and the weaknesses of the WTO dispute resolution process. This report will not influence the basic issues and will result in appeals and new cases.

The heart of the matter is science-based import restrictions under the Agreement on Sanitary and Phyto-sanitary Measures (SPS) of the WTO. The SPS agreement allows such bans only if they can be scientifically justified. A WTO panel ruled in February of 1998 on a case brought by the U.S. in 1996 that the EU had not met that test. According to a USTR statement on March 31, “The hormone levels the EU is concerned about are 50 times less than the acceptable daily intake and they represent a tiny fraction of what occurs naturally in an egg or one glass of milk.” After an unsuccessful appeal by the EU, in July of 1999 the WTO authorized the U.S. to increase tariffs on selected EU exports to the U.S. by $116.8 million per year.

The ruling on March 31 dealt with a case filed against the U.S. by the EU in November 2004. The EU argued that in late 2003 it amended its regulations by continuing the permanent prohibition on one of the six hormones and provisionally applying the prohibition to the other five other pending the availability of sufficient scientific evidence and the U.S. should have ended the import tariffs. The panel ruled that procedurally the U.S. should have ended the tariffs after the 2003 actions, but should have recourse to some form of dispute settlement. The panel also reviewed the science of the case and ruled that the EU was still not in compliance with the science-based requirements under the SPS agreement. The ruling allows each party to claim victory and appeal the decision which both sides have 60 days to do.

The easiest mark against the WTO dispute settlement process is that it should not take 12 years with no final resolution. In the most recent case it took from November 2004 until September 2005 for the dispute panel to have its first meeting. Panels are generally asked to report in six months, but this panel asked to have until October of 2006 because of the complexities. In January 2007 after missing the October 2006 deadline, the panel asked for an extension until June 2007 and in June asked for an extension to October. This was for a case that had been thoroughly dissected earlier. With expected appeals, the end is not in sight.

Closely related to the time factor is the issue of what is sufficient scientific evidence under the SPS agreement. The EU used the “precautionary principle” as its basis for decision making, but how little is still too much? If the USTR statement is accurate that the level in dispute is only a faction of the amount of hormones naturally occurring in a glass of milk, then the precautionary principle has become almost a zero tolerance standard.

The lengthy delay for resolution has its benefits by countering claims that the WTO is a super government that can dictate that members take certain actions against their interests. The WTO is a voluntary organization of governments that have more to gain by working together than by being apart. The EU has every right to not comply with the 1998 ruling and pay the price by having tariffs increased on selected exports to the U.S. The EU also has the right to appeal rulings by WTO panels and to file new cases to defend what they perceive to be in the interest of their citizens. The WTO seeks to protect this tenet of national sovereignty, not to destroy it.

An argument can be made that the increased tariffs should be higher than the $116 million to force the EU to work out a compromise. The amount of tariffs is generally tied to the amount of loss in income by the affected industry, but if the number were two or three times as high the EU could still afford to suffer the higher tariffs and the U.S. could still impose the tariffs without suffering economic losses. That is not true with other countries. In the Brazilian cotton case against the U.S. the Brazilian government has recognized that the Brazilian people would be the big loser if the government tried to collect sharply higher tariffs on imports from the U.S. in response to the U.S. not changing its cotton support program. Some other compensation program would perhaps be more effective.

Lost somewhere in the debate is the fact that growth promoting hormones are used to increase the amount of meat produced per pound of feed consumed by beef animals. That translates into lower production costs and more choices for consumers. That is what international trade is all about. As the world’s second largest beef importer and second largest consumer, but only the ninth largest consumer on a per capita basis, the EU’s position is important for its consumers and for beef producers around the world. Some consumers would prefer to pay higher prices for meat produced without hormones, and the market should reflect those preferences. EU consumers with lower incomes would likely choose the lower priced product.

The limits to the dispute settlement process are clear. The case could drag on for years longer as both sides make appeals and then find new angles to use to file cases. Some resolution may be achieved by additional scientific analysis that may allay the fears of the skeptics of the use hormones or that raises doubts beyond the precautionary principle. A second approach is to negotiate a political settlement based on trade-offs on other intractable trade problems. A third option is to agree to disagree and move on to other issues. Short of a full commitment to free trade by one side or the other, a political compromise is the only solution. That compromise can only come through negotiations among the members of the WTO.