TWN Info Service on WTO and Trade Issues (May17/02)
4 May 2017
Third World Network
Mexico can retaliate to tune of $163 million in tuna dispute
Published in SUNS #8451 dated 27 April 2017
Geneva, 26 Apr (Kanaga Raja) - An Arbitrator at the World Trade Organisation
(WTO) has determined that Mexico may request authorisation from the Dispute
Settlement Body (DSB) to suspend concessions or other obligations to the United
States at a level not exceeding USD 163.23 million per annum in the dispute
over the US "dolphin-safe" labelling regime for tuna products.
Mexico on 10 March 2016 had requested authorization from the DSB to suspend
concessions to the United States in the amount of USD 472.3 million annually.
On 22 March 2016, the US objected to this amount and at a meeting of the DSB on
23 March 2016, the matter was automatically referred to arbitration.
In a ruling issued on Tuesday, the Arbitrator has determined that the level of
nullification or impairment of benefits accruing to Mexico is USD 163.23
million per annum.
According to the Arbitrator's report, on 13 June 2012, the DSB adopted the
original Appellate Body report in this dispute, together with the report of the
original panel as modified by the Appellate Body.
In so doing, the DSB adopted the Appellate Body's finding that the Tuna Measure
at issue in the original proceedings (the original Tuna Measure) was
inconsistent with Article 2.1 of the Agreement on Technical Barriers to Trade
On 9 July 2013, the United States published in its Federal Register a legal
instrument entitled "Enhanced Document Requirements to Support Use of the
Dolphin Safe Label on Tuna Products" (the 2013 Final Rule).
According to the United States, the 2013 Final Rule constituted the measure
taken to comply with the DSB recommendations and rulings pursuant to Article
21.5 of the Understanding on Rules and Procedures Governing the Settlement of
Mexico considered that the 2013 Final Rule failed to bring the United States
into compliance with the DSB recommendations and rulings.
Subsequently, on 14 November 2013, the DSB, at Mexico's request, established a
panel under Articles 6 and 21.5 of the DSU, Article 14 of the TBT Agreement,
and Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT
On 14 April 2015, that panel found that the United States had not brought its
measure into compliance, and that the "amended tuna measure" was
inconsistent with Article 2.1 of the TBT Agreement and Articles I:1 and III:4
of the GATT 1994. The Appellate Body upheld those findings, albeit largely on
the basis of different reasoning.
(In response, the US adopted a second modified tuna measure in 2016, which is
not the subject of this arbitration. A compliance panel is currently examining
the 2016 tuna measure and is expected to issue its final report to the parties
The Arbitrator determined that in the present proceedings, the measure to which
this interpretation directs the Arbitrator is the 2013 Tuna Measure, and not
the 2016 Tuna Measure.
The 2016 Tuna Measure is not yet subject to any panel or Appellate Body
findings, and so it is not a measure that has been found to be
WTO-inconsistent. Moreover, the 2013 Tuna Measure, not the 2016 Tuna Measure,
was the version of the Tuna Measure in force at the time the RPT (reasonable
period of time) expired.
Accordingly, the 2016 Tuna Measure could not and did not bring the Tuna Measure
into compliance by the time the RPT expired, and it therefore should not form
the basis of the Arbitrator's assessment of the level of nullification or
impairment in these proceedings, said the Arbitrator.
FINDINGS OF THE ARBITRATOR
The Arbitrator concluded that the relevant measure for the purposes of these
arbitration proceedings is the 2013 Tuna Measure, which is the subject of
specific adverse DSB recommendations and rulings.
The Arbitrator therefore rejected the United States' request "for a
preliminary ruling that we find the relevant measure to be the 2016 Tuna
On appropriate time-frame that will form the basis of the calculation of the
level of nullification or impairment caused by the 2013 Tuna Measure, the
Arbitrator concluded that it is appropriate in these proceedings to assess the
level of nullification or impairment caused by the 2013 Tuna Measure for the
year 2014, which is the year immediately following the expiry of the RPT given
to the United States to comply with the DSB recommendations and rulings.
The Arbitrator then addressed the models that Mexico and the United States have
submitted, as well as the assumptions underpinning them.
The Arbitrator recalled that Mexico presents a calibrated partial equilibrium
model of the US and Mexican canned tuna markets.
It consists of a set of equations purporting to describe the US and Mexican
tuna markets by defining (a) the demand for canned tuna in the United States
and Mexico, respectively, (b) the supply of canned tuna in the United States
and Mexico, respectively, and (c) the market equilibrium conditions in the US
and Mexican markets for canned tuna.
The Arbitrator noted that Mexico's model is underpinned by three main
assumptions, namely, that (a) the Tuna Measure has restricted the supply of
canned yellowfin from Mexico into the United States; (b) that US consumers have
a preference for canned yellowfin and US retailers would sell Mexican canned
yellowfin after the withdrawal of the Tuna Measure; and (c) that Mexican
producers would supply all of the increased consumption of canned yellowfin in
the US market following the withdrawal of the Tuna Measure.
"We found that, on the whole, these assumptions are reasonable, although
we are not convinced by some of Mexico's intermediate arguments, in particular
its arguments that (a) all US retailers would be willing to sell canned
yellowfin imported from Mexico and (b) Mexico would export all of its canned
yellowfin to the United States and import yellowfin from other producing
countries to produce canned yellowfin for its domestic consumption."
With respect to the United States' model, the Arbitrator recalled that that
model is based on Mexico's historical share in the US tuna products market
prior to the adoption of the Tuna Measure. It compares actual US imports from
Mexico of tuna products with the Tuna Measure in place with the level of
imports that would occur if the Measure were withdrawn.
"We have explained above that the United States' model would not be a
reasonable basis for our calculation of the level of nullification or
impairment caused by the 2013 Tuna Measure because it bases Mexico's share in
the US tuna market on historical data that goes too far back into the
Thus, the Arbitrator concluded that both of the models proposed by the parties
"Accordingly, in our view, neither model, at least as initially presented
by the parties, provides an appropriate basis for our calculation of the level
of nullification or impairment caused by the 2013 Tuna Measure."
Assessing the two models in comparative terms, the Arbitrator recalled that the
fundamental difference between Mexico's and the United States' arguments is
that Mexico is of the view that the Tuna Measure restricted the supply of
canned yellowfin from Mexico to the United States, whereas the United States
maintains that the decline in supply has been due to weak demand for canned
yellowfin in the US market.
"As we have explained, we think that the evidence on the record tends on
the whole to support Mexico's assertion that the Tuna Measure has restricted
the supply of yellowfin tuna to the US market. We also agree with Mexico that
the evidence demonstrates the existence of demand in the US market for canned
yellowfin, and establishes that Mexico would be a competitive supplier of
"Accordingly, it would in our view be possible to base our calculation on
a modified version of Mexico's model, that is, a version of Mexico's model that
replaces those assumptions we have not found to be reasonable with other
assumptions that we think better reflect the counterfactual on which we base
The Arbitrator recalled that, in assessing the level of nullification or
impairment caused by the 2013 Tuna Measure, "we are not bound to base our
calculation on either Mexico's or the United States' model. We could, in
principle, attempt to develop an alternative model that would more accurately
represent our understanding of the relevant counterfactual."
The most plausible alternative approach would be the so-called "price
wedge method", whereby one would first determine the tariff equivalent of
the US dolphin-safe label, and then model the effect of its removal on the
equilibrium price and quantity of Mexican canned tuna products sold in the
However, as both parties acknowledge, the data on the record does not allow the
Arbitrator to apply the price wedge approach, because the data does not allow
for a comparison between the price of labelled and unlabelled tuna products.
"As we are unable to develop an alternative model, and because we find the
theory underlying Mexico's model more convincing than the theory underlying the
United States' model, we will base our calculation on a re-specified version of
Mexico's model," said the Arbitrator.
"In practical terms, this means that we will use a partial equilibrium
model to calculate the level of nullification or impairment."
Partial equilibrium models are used to calculate the equilibrium price and
quantity in a certain market. Market demand and supply curves are constructed
on the basis of consumer preferences and income, production technology, input
costs, and conditions of competition, among other factors. The equilibrium
price and quantity of the goods at issue in the specific market are found by
equating supply and demand.
In the case at hand, the parties have proposed to calculate the level of
nullification or impairment as the export loss, i.e. the difference between the
counterfactual level of exports of canned tuna (in the case of the withdrawal
of the 2013 Tuna Measure) and the actual level of exports, with both levels
being determined for the year 2014.
A partial equilibrium model can therefore be used to analyse the impact of the
withdrawal of the Tuna Measure - which, in economic terms, can be conceived of
as an exogenous shift in supply - on Mexico's exports of canned tuna to the
The Arbitrator considers as reasonable Mexico's assumption that the Tuna
Measure has restricted Mexico's supply of canned yellowfin to the US market and
therefore finds it reasonable to model the counterfactual as a shift to the
right of the supply curve of canned yellowfin from Mexico to the United States,
reflecting the expected increase in supply under the counterfactual.
"In conclusion, it is the Arbitrator's view that, if appropriately
implemented, the partial equilibrium modelling approach proposed by Mexico is a
reasonable methodology to estimate the export losses caused by the Tuna
"As regards the level of nullification or impairment resulting from our
model and its endogenous variables, we recall that the level of nullification
or impairment in these proceedings is the difference between the value of total
canned tuna exports estimated under the counterfactual and the value of
Mexico's actual exports of canned tuna to the United States, with both levels
being calculated for the year 2014."
Under the counterfactual, the Arbitrator estimated the value for total exports
in 2014 of canned tuna from Mexico to the United States (all of it being canned
yellowfin) to be equal to USD 185.88 million.
The value of Mexican canned tuna actually exported to the United States in 2014
was USD 22.65 million.
Taking the difference between the total value of exports of canned tuna from
Mexico to the United States under the counterfactual and the total value of
actual exports in 2014, the Arbitrator found that Mexico's estimated trade loss
in 2014 amounted to USD 163.23 million.
The Arbitrator thus determined that the level of nullification or impairment of
benefits accruing to Mexico as a result of the 2013 Tuna Measure is USD 163.23
million per annum.