2.1 The United States’ import market for beef and Argentina's exports of beef

In 2015, the United States imported over $6 billion in fresh, chilled, or frozen beef products. In real terms, as Figure 1 illustrates, US beef imports were more than 3.5 times higher in 2015 than in 1996. However, these imports also exhibited fluctuations during this period; the US beef-producing industry itself experienced negative shocks, including four outbreaks of BSE between 2003 and 2012.Footnote ⁵ The fact that various foreign markets were therefore closed to US beef exports also likely contributed to the political efforts of the National Cattleman's Beef Association between 2003 and 2015 to discourage lifting the ban on imports from Argentina.

Source: Constructed by the authors with data from USITC Dataweb for fresh and chilled beef (HTS 0201) and frozen beef (HTS 0202).

Figure 1. Total US beef imports, 1996–2015

US beef imports have also fluctuated in some years in ways that can be tied to major economic or animal health shocks, at both the bilateral and multilateral levels. For example, total US imports of beef dipped in 2003 partly because of a BSE outbreak in Canada that led to a temporary US bilateral import ban; imports from Canada increased in 2004 as the ban was lifted.

Furthermore, the real value of US beef imports fell by 10% in both 2008 and 2009 during the trade collapse associated with the global economic crisis. US beef imports rebounded strongly shortly thereafter and grew by 138% between 2009 and 2015.

As Figure 2 illustrates, over 92% of US beef imports in 2015 derived from only four countries: Australia, Canada, New Zealand, and Mexico. Of these, Canada's share of the US import market has declined considerably – from a peak of 48% in 1999 to only 17% in 2015.Footnote ⁶ New Zealand's market share has remained relatively constant, while Mexico and Australia have increased their share of the US import market. This may be partially explained by the US implementation of free trade agreements that lowered bilateral beef tariffs and expanded the quantitative limits of the tariff rate quotas for selected countries. Nevertheless, the fact that countries at great geographic distance from the United States – e.g., Australia and New Zealand – make up such a sizable share of the US import market indicates that beef need not be a geographically privileged product. Thus, it may be possible for Argentina to successfully export beef to the United States under the right conditions.Footnote ⁷

Source: Constructed by the authors with data from USITC Dataweb for fresh and chilled beef (HTS 0201) and frozen beef (HTS 0202). US import share from Argentine during this period included in ‘All Others’ but not shown independently since so small. See Figure 3.

Figure 2. Shares of the US import market for beef, selected countries, 1996–2015

Source: Constructed by the authors with data from USITC Dataweb for fresh and chilled beef (HTS 0201) and frozen beef (HTS 0202).

Figure 3. US imports of beef by selected source country in Latin America, 1996–2015

Figure 3 illustrates US imports of beef from several smaller countries in Latin America, including considerable beef imports from Costa Rica and Nicaragua. Furthermore, despite an FMD outbreak that cut Uruguay's exports to the United States to zero in 2002, US imports of beef from this country rebounded to more than $200 million by 2015. Finally, US imports from Chile – another country mentioned in the dispute described below – have remained negligible, despite the fact that Chile has been determined FMD-free.

As Figure 3 also documents, US beef imports from Argentina peaked at roughly $75 million (in 2015 constant dollars) in 1999, when Argentina accounted for 2.7% of the US beef import market. The Argentina FMD outbreak that triggered the US import ban in 2001 cut Argentina's exports to the United States to zero by 2002. Argentina's ‘loss’ of $75 million in annual exports to the United States is comparable to the average change in trade flows in disputed products between complainants and respondents as measured across all WTO disputes (surveyed in Bown and Reynolds, Reference Bown and Reynolds2015, table 3). By itself, this suggests there is nothing unusual about Argentina's complaint. Finally, Figure 3 also demonstrates the limited impact of the recent (effective as of October 2014 for Patagonia and September 2015 for Northern Argentina) post-WTO Panel decisions by the United States to reauthorize beef imports from Argentina.

Figure 4 shows Argentina's exports of beef to the world and certain foreign markets during this period. After the FMD outbreak that began in 2000, Argentina's total beef exports fell 80% from two years earlier and bottomed out at roughly $150 million in 2001. Once the FMD was addressed and the OIE recognized part of Argentina as FMD-free, Argentina's global beef exports quickly responded, peaking at nearly $1.7 billion in 2009, although they have declined considerably since then, partially due to Argentina's own imposition of export restrictions.

Source: Constructed by the authors with data from UN Comtrade for fresh and chilled beef (HS 0201) and frozen beef (HS 0202). Argentine exports to United States not shown; see Figure 3.

Figure 4. Argentina's exports of beef, total and by selected destination market, 1996–2015

Some of the key foreign markets for Argentina's beef exports may help to explain its frustration with the US pace of addressing its request to resume bilateral exports. Specifically, Figure 4 shows that in some years since the FMD outbreaks, high-income EU countries such as Germany, Italy, and the Netherlands together accounted for roughly 50% of total Argentine beef exports – e.g., exports to these countries alone were $750 million in 2008.

Similarly, some important beef export markets for Argentina during this period were other emerging economies, although trade with these markets was characterized by considerable volatility. For example, the share of Argentina's exports to Chile and Russia peaked at 23% in 1997 and 35% in 2006, respectively; in other years, those markets accounted for single-digit shares of Argentina's beef exports. Most recently, Argentina has enjoyed major export growth to China. As late as 2011, Argentina's beef exports to China were zero; by 2015 they were $170 million, or 20% of Argentina's total beef exports.

2.2 Market failures, information asymmetry problems due to FMD, and national policies

We now consider a simple, closed-economy model designed to represent Argentina's domestic market for beef in the presence of FMD. In such a model, FMD is a negative externality because an outbreak in one farmer's herd generates costs to others because the disease is so infectious – an outbreak could easily spread to other farmers’ cattle and impose losses on those farmers. The FMD externality indicates that, if unabated by government policy, market failures are likely. Thus, there is a potential efficiency-enhancing role for national governments to design and implement policies to address FMD.Footnote ⁸

Economists typically consider the problems associated with FMD as arising from two essential characteristics: (1) an FMD outbreak is assumed to occur with some positive probability, and (2) when an FMD infection occurs, only sometimes is this information known to authorities.

First, FMD does indeed occur with some positive probability, but the nature of the disease implies that farmers can reduce its likelihood if they undertake costly investment in biosecurity measures, such as limiting herd movement, reducing exposure to outside contaminants, and cleansing and disinfecting the premises. However, since not all benefits of these measures accrue to the farmer – i.e., one farmer's effort to thwart a potential FMD outbreak provides externality benefits to other farmers – an individual farmer will tend to invest in prevention only to the extent that it makes sense from a private (profit-maximizing) perspective. The existence of investment benefits that spill over beyond the farmer into society implies that markets on their own will fail unless governments intervene with the appropriately tailored policy.

The government could legally mandate that the farmer undertake such biosecurity investment measures, or it could incentivize them through subsidies. However, a separate well-known real-world problem arises when governments implement such policies: the information asymmetry associated with the farmer's effort to ‘comply’ with the policy. How does the government know whether the farmer is following the biosecurity protocols? Government monitoring of individual farmers to prevent shirking is too costly. In economics, this information asymmetry leads to what is called a ‘moral hazard’ (hidden action) problem.Footnote ⁹

Second, it is possible that some FMD episodes go undiscovered by anyone aside from the farmer. Certainly, the farmer is in the best position to observe and report occurrences of the disease, and the sooner it is reported to the government, the more quickly the outbreak can be contained and the costs limited. However, again, market failure may result from the divergence between social costs and the private costs to the farmer depending on whether and how quickly the outbreak is reported. If the outbreak of FMD is reported, the farmer will experience losses to the herd with certainty, as authorities would mandate the herd is culled. If the outbreak is not reported, there is a chance the disease will not spread and that it will go undetected by the authorities. If so, the losses will be smaller – e.g., perhaps only partial loss of a herd. However, if the farmer does not report the FMD outbreak, there is greater chance that it will spread and impose greater costs to society.

In the absence of any policy intervention, the market equilibrium outcome of this problem would result in the farmer's underreporting suspected cases of FMD because the failure to notify FMD imposes costs to society (FMD outbreaks on other farms) larger than the private costs to the individual farmer. In economics, this information asymmetry leads to what is called a problem of ‘adverse selection’ (hidden information).Footnote ¹⁰

Economists typically implement a ‘principal-agent’ framework to evaluate the implications of policies designed to address the economic incentives created by such information asymmetries. The government (the principal) represents the national or societal interest and seeks to design a policy that would incentivize the farmer (the agent) to act in society's best interest, as opposed to the farmer's interest alone.

Gramig, Horan, and Wolf (Reference Gramig, Horan and Wolf2009) developed a formal model that includes both types of information asymmetries to examine the tradeoffs associated with FMD. In particular, they examined the implications of a government indemnity payment program, which is a policy that guarantees to pay a farmer a set price in the event that the farmer truthfully reports an outbreak of FMD. One critical element is the size of the guaranteed payment relative to the expected costs to the farmer of the lost herd due to the government response (e.g., culling) and lost business once the FMD outbreak is publicized.

Their baseline analysis reveals two offsetting effects of a guaranteed indemnity payment program. First, a higher guaranteed payment encourages farmers to report the outbreak of FMD; this helps to address the adverse selection problem. But, second, a higher payment decreases the incentive for farmers to undertake the biosecurity investment necessary to prevent an FMD outbreak in the first place. Because the farmer is more likely to be fully compensated for an FMD outbreak, the higher guaranteed payment exacerbates the moral hazard problem. Put differently, a lower guaranteed indemnity payment addresses the moral hazard problem by placing more of the burden on the farmer to invest in biosecurity, but it also suggests that the farmer is less likely to report an FMD episode. The low payment increases the incentive for the farmer to try to conceal the outbreak, and the adverse selection (hidden information) problem is exacerbated.

One of the important insights of the Gramig–Horan–Wolf approach is that when there are two separate information asymmetry problems – as in the national context with FMD – a ‘one-size-fits-all’ public policy of a single indemnity payment scheme does not provide the government enough firepower to create the right incentives for farmers. The authors show that access to a second policy to complement the indemnity – such as an appropriately sized fine for failure to report a disease – is required if the goal is to elicit the societally appropriate levels of both farmer biosecurity investment and FMD reporting.

It is clear from the US–Animals dispute, as we detail below, that Argentina's public policy was not able to quickly or effectively deal with its FMD outbreak. The episode revealed problems with both Argentina's investment in biosecurity and truthful, accurate, and timely reporting. Nevertheless, it is also clear that the Panel Report itself was not directly concerned with Argentina's ex ante design or ex post implementation of its indemnity payments or other public policy toward FMD. The Panel was tasked with evaluating the US failure to reopen its market to Argentina's beef exports.

The Gramig–Horan–Wolf model highlights how information asymmetries created by the possibility of an FMD outbreak pose significant challenges for the design of not only national but also global policies. There is an important role for the OIE and the WTO's SPS Agreement to address the incentives faced by importing and exporting countries, as well as the exporting country's domestic policies, in order to motivate prompt and accurate reporting.

3.1 The timing of US market reopening and the issue of undue delay

Argentina's first major contention in the 2012 dispute was that the US delay in responding to Argentina's request to resume import protocols for beef from Northern Argentina and for recognition of Patagonia as FMD-free was ‘undue’ and therefore violated the WTO's Agreement on Sanitary and Phytosanitary Measures. In particular, annex C(1)(a) of the SPS Agreement requires that an importing country's control, inspection, and approval procedures be ‘undertaken and completed without undue delay and in no less favorable manner for imported products than for like domestic products’. As additional context, Argentina also claimed that it was discriminated against, given that the United States took only two years to approve imports from Uruguay after its last outbreak of FMD, while Argentina's approval had not been considered at the time of the establishment of the Panel, nearly seven years after its last FMD outbreak.Footnote ¹¹

The United States, in turn, pointed to several factors contributing to its delay: Argentina's Servicio Nacional de Salud Animal (SENASA's) slow responses to requests for information, changes in Argentina relating to surveillance regulations and slaughterhouse standards, time needed to respond to the FMD outbreaks, a SENASA labor strike in 2005, and US laws on regulatory flexibility and paperwork reductions.

The arguments and the Panel's analysis raise several questions. What is the appropriate benchmark for measuring what constitutes ‘undue’ delay? If any errors or delays have occurred in the exporting country, do they necessarily justify further delays by the importing country? If there has been political interference in the process, is that an automatic violation of annex C of the SPS Agreement?

At the outset, the Panel noted the US claim that not every delay in undertaking or completing an approval procedure is contrary to the provisions of annex C(1)(a). The Panel also noted the US claim that the length of the approval process for Argentine exports conducted by other WTO members is not a reliable benchmark. Instead, the Panel accepted the interpretation in EC–Approval and Marketing of Biotech Products that a ‘delay’ is ‘a period of time lost by inaction or inability to proceed’ and noted that OIE guidelines and the US APHIS standard processing times serve as important indicators of a reasonable length of time (para. 7.117).Footnote ¹²

The Panel then engaged in a two-part analysis. First, it determined that there were delays both in the approval process for permitting beef imports from Northern Argentina and in the process of granting FMD-free status to Patagonia. Second, to assess whether the delay was ‘undue’ – i.e., unwarranted, excessive, disproportionate, or unjustifiable – the Panel examined each US justification. It concluded that three of four periods of delay were not justified, but that one was, given SENASA's delay in providing information in response to reasonable US requests. For one period (the time between the proposed rule to permit imports and promulgation of the final rule), the Panel assessed whether a period of more than one and a half years was reasonable. The Panel noted that it took APHIS only between four and 13 months to assess whether to permit imports from Uruguay, Santa Catarina (a state in southern Brazil), and Japan, and concluded that a period of over one year was ‘neither ordinary nor expected’ (para. 7.154). The Panel faulted the United States for a process that falls outside of the ‘ordinary’ while recognizing that APHIS does not have a clearly articulated timeline by which to judge its determination. The Panel may have been influenced by the United States’ having taken no action to reopen to Argentine beef imports during nearly 13 years since Argentina's initial November 2002 request.

A further source of comfort to the Panel appears to come from its perception that APHIS may have slowed its process due to political pressure from the US Congress. In 2009, Congress passed the Omnibus Appropriations Act, which prohibited the payment of salaries or expenses of any person for any activities that would allow imports of meat from Argentina until the US Secretary of Agriculture had reviewed US animal health aspects of the proposal to permit Argentine imports and issued a report to the Congress on his findings. Argentina consistently pointed to the passage of this act as evidence that the delay was not supported by scientific considerations but rather was due to political pressure on APHIS.

3.2 Burden of proof

This dispute revealed a clear tension inherent in the SPS Agreement concerning the allocation of the burden of proof. The SPS Agreement places the burden on the importing country. Yet, in this episode, Argentina was required to demonstrate the absence of FMD, the maintenance of effective surveillance techniques, and the ability to sequester the disease to prevent its spread across regions. On the other hand, US law required that the United States rely on its own procedures, including its own on-site inspections, to determine that Argentina had met these requirements.

The SPS Agreement was brought into the WTO as part of the Uruguay Round's ‘single undertaking’. Only 43 contracting parties had signed the Tokyo Round's Standards Code, which contained pre-WTO disciplines on SPS measures.Footnote ¹³ The new SPS Agreement stemmed in part from the perception that the Standards Code had failed to prevent disruptions of trade in agricultural and other food products and that the standards were too widely divergent across countries. The new SPS Agreement became binding on all WTO members.

The SPS Agreement places the initial burden on importing countries that impose SPS measures, requiring that such measures be based on scientific principles; be applied only to the extent necessary to protect human, animal, or plant life or health; and not discriminate arbitrarily or unjustifiably between members. But this means that countries wishing to export must have in place their own internal SPS systems, and maintain sufficient records and administrative support to demonstrate that their agricultural products are in compliance with all the requirements of the importing member's SPS measure. Thus, although the SPS Agreement and its annex C place the burden for control, inspection, and approval on the importing member, an extensive burden also falls on the exporting country. And the burden can effectively shift from the importing country to the exporting country after the outbreak of a contagious disease.

Argentina and the United States both bore some of the burden for conducting a risk assessment in 1997, long before the more recent FMD outbreaks and WTO dispute. They worked in the 1990s to craft mitigating protocols to bring imports of Argentine beef into compliance with US standards for protection against FMD, with Argentina required to continually certify that its exports met the requirements and to notify the United States (and the OIE) of any outbreaks. The risk assessment and protocol opened up the US market to Argentine beef between 1997 and 2001. As shown in Figure 3, US imports of beef from Argentina achieved a peak of $75 million during this period.

When cattle from neighboring countries were illegally imported into Argentina and outbreaks of FMD began occurring in 2000, the United States banned further imports and effectively shifted the burden to Argentina to prove that it was able to control the disease. Argentina requested that APHIS come for site visits, in both Patagonia and Northern Argentina, and was required to provide extensive information and data both before and after each of five site visits between the fall of 2000 and February 2009.Footnote ¹⁴ There were often long intervals between the visits, despite repeated requests by Argentina, as the visits were a prerequisite to be declared FMD-free and to approval to resume beef exports. Yet Argentina's initial request in November 2002 may have been premature. It sought authorization to export beef to the United States pursuant to the 1997 protocols – even as sporadic outbreaks of FMD continued, particularly in Northern Argentina, until 2006.

This dispute also raises questions about the burden borne by exporting countries and the incentives associated with costs for both compliance and inspection. The United States incurred a significant burden to perform a full risk assessment while promulgating a final rule in 1997 to permit the initial imports of Argentine beef. That rule was clearly tied to US commitments as part of the Uruguay Round and the adoption of the SPS Agreement in 1994.Footnote ¹⁵ The rule was preceded by site visits to Argentina, the promulgation of a proposed rule to permit Argentine imports, a 150-day comment period, four public hearings in four cities throughout the United States, and responses to the 113 comments received.Footnote ¹⁶ The final rule was accompanied by an assessment of the economic impact of permitting imports from Argentina and contained certain ‘mitigating measures’, including that the meat had to come from premises where FMD had not been present during the prior 12 months and where the cattle had not been vaccinated for FMD (which masks the symptoms), and that all bone and lymphoid tissue was removed before exportation.

After more than 2,000 FMD outbreaks in Argentina in 2000 and 2001, how many of these steps should the United States be required to undertake all over again? Viewed differently, what should Argentina be required to do before requesting renewed access to the United States? The SPS Agreement does not address the issues, other than annex C's general placement of the burden for control, inspection, and approval on the importing country and its requirement that any fees for procedures performed not discriminate between domestic and imported products.

Both sides attempted to use the 1997 ruling to their advantage. Argentina claimed that little had to be done to reinstate its previous status, since so much work had gone into the 1997 final rule. The United States contended that its delays were justified by the substantial new data and extensive new work required in light of the thousands of FMD outbreaks.

Argentina also urged reliance on the OIE's various recognitions of regions in Argentina as FMD-free as grounds to claim that the United States did not need to start its assessment from scratch. Clearly, reliance on the OIE as an independent international organization responsible for health standards for international trade in animals and animal products could be a cost-effective solution to the current allocation of the burden to importing countries. But, as this case demonstrates, importing countries are likely to be highly resistant to ceding control over inspection or approval procedures. Moreover, the OIE typically does not perform an on-site inspection itself; its information dissemination role depends on the data and responses to questions typically submitted by the exporting country. As we explained in Section 2, the existence of information asymmetries even only at the national level – between farmers and the government – can lead to significant market failures.

The United States regards OIE approval as, at best, a prerequisite for placing a country or region on its list for potential site visits. The United States generally does not grant approval for imports after a disease outbreak without completing its own site visit and verification of data and control procedures submitted by the exporting country.

3.3 Generating the right economic incentives in light of information asymmetries

The OIE is an international standard-setting organization supported by its 180 member countries. It provides a global public good.Footnote ¹⁷

Consider again the basic information asymmetry problem between the Argentine government and its farmers described in Section 2. The OIE supports member country governments that seek to design and implement efficient and effective national policies to address FMD. An important OIE role is to help Argentina's government incentivize farmers to invest in biosecurity measures to reduce outbreaks while also encouraging them to report outbreaks expeditiously when they occur.

However, this dispute reveals that the environment created by the OIE and the SPS Agreement has not struck the right balance to ensure that foreign markets reopen in an appropriate and timely manner after an FMD outbreak. Two major concerns stand out.

Argentina lacked credibility in truthfully reporting information. The Panel Report (appendix 1) notes that SENASA ‘out of concern for maintaining the international status of exports … decided to keep the FMD situation confidential until further data would permit a better evaluation of the situation’. Moreover, in July 2003 the OIE faced a request by Argentina to recognize as FMD-free Northern Argentina, where vaccination is practiced, only to suspend the designation one month later because of new outbreaks. This suggests that current OIE incentives are not sufficient to prevent Argentina (or any country) from claiming ‘too early’ that it was FMD-free. In addition, the United States was sceptical of Argentina's ability to control the movement of cattle or beef internally and at the border with its neighbors. The United States claimed that Argentina kept changing the rules on what could cross the line between Patagonia and Northern Argentina, as Argentina claimed each time that Patagonia had been effectively isolated from the outbreaks in Northern Argentina. Overall, this hurt Argentina's credibility and the resulting lack of trust weakens a system reliant on accurate and timely self-reporting to the OIE.

Furthermore, the OIE could not incentivize the United States to reassess Argentina's FMD status more quickly so as to reopen its import market. This failure could also undermine the system if an importing country's reluctance makes the exporting country less likely to report an FMD occurrence in the first place – hoping it does not turn into an outbreak and the exporter gets discovered – because it is worried about being shut out of foreign markets for an excessive period of time.

A separate information asymmetry made obvious by this dispute occurs after an outbreak and concerns about whether a beef-exporting country is truly FMD-free. In this case, the asymmetry is between Argentina's government and the rest of the world. As the OIE makes clear, this information is critical and relevant because FMD can spread across borders through international commerce in both cattle and beef products.

There are two main problems with the current system of incentives. First, it places most of the costs of determining whether the exporting country (in this case Argentina) is FMD-free on the importing country (the United States) – although most of the benefits of being deemed FMD-free would be enjoyed by the exporting country (Argentine beef producers). This overincentivizes the exporting country both to shield information about outbreaks and to potentially request FMD-free status even when the designation is not warranted, because there are benefits from the status and no explicit costs to the exporter in requesting the status change. Second, there is no explicit alternative for the OIE or Argentina to incentivize the importing country (the United States) to speed up the costly process of undertaking a new scientific analysis, even if Argentina's truthfulness had not been in question. As this episode illustrates, Argentina's only recourse was to file a formal dispute in which it would eventually be authorized to retaliate (impose costs on the United States) if the importer refused to comply.

One proposal is to institutionalize a system that would call for the exporting and importing countries to share the burden of the costs for such inspections. If the act of requesting an inspection entailed some cost to the exporting country, this would help alleviate the information asymmetry problem of the exporter requesting foreign inspections too soon – i.e., before it is actually FMD-free. When reputational effects are important, an apparent abuse of asymmetric information can also hurt the credibility of a country's regulators with the outside world. While more analysis is needed to fully evaluate such a proposal, the intuition is that it would work like a deductible in an insurance contract. Under moral hazard, sharing the cost burden may help to better align the incentives of the importing and exporting countries.

4.1 Discrimination

Like the rest of the WTO agreements, the SPS Agreement (article 2.3) contains provisions prohibiting arbitrary or unjustifiable discrimination between WTO members where similar conditions prevail.

Argentina claimed that the US measures arbitrarily discriminated against Argentina both substantively and procedurally. The first substantive claim of discrimination compared US imports from Uruguay with those from Northern Argentina, since both regions had FMD outbreaks at roughly the same time, both were recognized by the OIE as FMD-free where vaccination is practiced, and both had similar physical situations and institutional structures for dealing with FMD. The second claim compared Chile and Brazil's Santa Catarina for imports of animal products from Patagonia since all three regions had their last FMD outbreaks around the same time and the OIE recognized all as FMD-free where vaccination is not practiced.

Argentina's procedural claims were that the United States maintained a prohibition on imports from Northern Argentina and Patagonia for more than a decade while other WTO members were given risk assessments quite rapidly after outbreaks and were ‘given import permission accordingly’. Argentina specifically cited Uruguay, which had an FMD outbreak in 2001 but was allowed to export beef to the United States less than two years later, in 2003; the United Kingdom is on the APHIS list of FMD-free regions despite outbreaks in 2000–2001 (same as Argentina) and again in 2008; Japan is likewise on the list despite an outbreak in 2010, which was followed by a risk assessment just one year after the outbreak.

The United States contended that the conditions in Argentina were not similar to those in Uruguay, Santa Catarina, or Chile, citing differences in the size of both the geographical area and the herds in the various regions, the geography and length of borders over which FMD could be spread, the volume of veterinary resources available to check for and treat FMD, and the recent FMD history. The United States also emphasized that Argentina intentionally kept the full extent of the 2000–2001 FMD outbreaks confidential, whereas Uruguay promptly reported its outbreaks. The United States rejected OIE recognition as sufficient to conclude that similar conditions prevailed in the various regions because the OIE did not take into account whether a region accepted imports from FMD-infected areas, nor its veterinary capacity to detect, prevent, and control FMD.

The Panel did a three-part analysis of Argentina's claims of discrimination. The first assessed whether similar or identical conditions prevail between the two regions. The second examined whether the US measures discriminate between the two regions. The third considered whether the discrimination is arbitrary or unjustifiable. The Panel found in the affirmative for two of Argentina's claims of discrimination, but determined that Argentina had not demonstrated that similar conditions prevail between Northern Argentina and Patagonia compared to either the United Kingdom or Japan and hence found no violation of article 2.3 for the UK and Japan claims.

For the first part of the analysis, the Panel stated that the test for similar conditions was whether the risk of FMD introduction posed by imports from two regions and their ability to meet the US Appropriate Level of Protection (ALOP) if subject to comparable mitigating protocols are the same. The Panel recognized that finding similar conditions in two countries required an assessment not only of disease prevalence at a given point in time but also of the ‘credibility’ of the sanitary measures in place to prevent and control FMD, including veterinary capacity and infrastructure. In assessing whether any discrimination was ‘arbitrary or unjustifiable’, the Panel considered whether the distinction between the two sets of imports ‘bears a rational connection to the objective’ of the measures. For both of the claims where the Panel found discrimination, one key factor was its finding of ‘undue delay’, suggesting that procedural discrimination can affect a determination of substantive discrimination.

The Panel's analysis raises the question of just how similar conditions have to be for a claim of discrimination to prevail. Obviously, in the SPS context, conditions are almost never going to be identical, as the size of the land, number and concentration of animals, and number of veterinarians will always vary from state to state and region to region. In this case, the variance with Uruguay was arguably substantial, yet the Panel found similar enough conditions to warrant a finding of discrimination.

4.2 Regionalization

This dispute, like a number of recent SPS cases, raises the issue of how and when importing countries must ‘adapt’ to the regional conditions of an exporting country, including pest- or disease-free areas,Footnote ¹⁸ as addressed in both article 6 of the SPS Agreement and the OIE Terrestrial Code. Article 6 in particular places the burden on importing countries to recognize regions or areas that are disease-free, specifying some of the factors to be considered in such a determination, and requires exporting members that claim such regions to provide evidence of their disease-free status.

Argentina contended that the US refusal to recognize Patagonia as FMD-free or to permit imports of animals or animal products from Patagonia constituted a violation of article 6.1. It claimed that the United States failed to take into account the fact that Patagonia South has been FMD-free since 1976 and Patagonia North since 1994; the FMD eradication and control programs put in place by SENASA; and the criteria and guidelines developed by the OIE, which had recognized the FMD-free status of Patagonia South in 2002 and Patagonia North in 2007.

The United States claimed that it was in the process of adjusting its measure when the Panel was established, as APHIS was still engaged in information exchanges with SENASA and was uncertain as to whether Argentina objectively demonstrated that Patagonia was, and was likely to remain, FMD-free. The United States rejected Argentina's claim that the OIE FMD determination constituted ‘criteria or guidelines’ under article 6.1. It argued that its regulations meet the criteria of article 6.2 but that once Argentina sought US recognition of Patagonia as FMD-free and the process of evaluating that claim began, the existing US ban on imports was transformed into a provisional measure under SPS article 5.7, which requires that the United States review its measure within a reasonable period of time. The United States claimed it was doing just that when the Panel was established.

The Panel found that the United States had indeed violated article 6.1, noting that APHIS itself was satisfied that it had sufficient information about the FMD situation in Patagonia to conclude its review in 2009.Footnote ¹⁹ As a result, the Panel found both that the United States had not completed its review without undue delay, in violation of article 8 and annex C, and that it had not reviewed the ‘provisional’ measure within a reasonable period of time (in keeping with article 5.7).

4.3 Special consideration for developing countries

Argentina claimed that, under article 10.1 of the SPS Agreement, the United States must give developing countries priority in the queue for inspections, risk assessments, and rulings. Argentina pointed out that the United States had acted with alacrity in reopening access to the US market for beef from the United Kingdom and Japan, while failing to act on Argentina's request for more than nine years, thereby violating article 10.1. The United States claimed that Argentina had never identified any particular needs related to its status as a developing country and therefore could not now claim that the United States had failed to address such unidentified needs.

The Panel started by stating that article 10.1, notwithstanding its somewhat vague ‘take account of’ language, creates an enforceable obligation on the United States, but largely agreed with the United States. In doing so, the Panel subtly shifted the burden of proof from prior reports that had placed the burden on the developing country to prove its claim that the importing country did not take account of developing-country members’ needs (as in EC–Approval and Marketing of Biotech Products). In this case, the Panel expressly provided for a shift in the burden to the importing country to show how it took account of the special needs of the developing country – if the developing country can demonstrate that its special needs were clearly identified and can show a lack of consideration for those special needs.

Argentina claimed that its special need for priority access to the approval process was communicated to the United States but that the latter failed to give Argentina speedier processing. The Panel ruled that article 10.1 and the phrase ‘take account of’ do not mandate always putting developing countries at the front of the line for risk assessments since importing countries must balance a wide variety of interests in determining when and how to conduct inspections and risk assessments.