Wednesday, October 27, 2010

The Devil Made Me Do It: GATT and PPMs

The most sacrosanct of all global trade rules is that the World Trade Organization's (WTO) 150+ Members must treat a product from one Member no less favorably than it treats the "like" product from any other country.  For example, the most-favored nation (MFN) clause requires that Spain not tax or otherwise regulate the import or sale of bananas from Costa Rica in a more restrictive manner than it taxes or regulates bananas from Guatemala.

But what if the Guatemalan bananas are harvested in an unsustainable manner that requires continued clear cutting of virgin forest to maintain production, while the Costa Rican bananas are grown in an environmentally sound manner?  May a WTO Member restrict the former imports on environmental grounds, that is, treat the Guatemalan bananas "less favorably" than those from Costa Rica?

We note in Just Trade that "the GATT refuses entrance to [its] safe harbors to border measures that distinguish among products based on the way they are made or harvested--their processes or production methods."[1]  PPMs are the very lifeblood of environmental protection: steel made with low carbon emissions, shrimp caught without killing endangered sea turtles, wooden tables sourced from sustainable forests. Thus, exclusion from the WTO/GATT system of PPMs as a means to discriminate among products presents a severe disadvantage to enforcement of environmental and other human rights treaties, laws, and policies.  Import discrimination against armoires made from unsustainably-harvested tropical wood cannot be justified under MFN because a sustainably-sourced armoire is "like" the restricted product in its physical characteristics and uses.  Such a restriction must be immunized from WTO sanction, if at all, under the tight restrictions of GATT's General Exceptions, its Public Health and Welfare Clause.

We state in Just Trade that "no legal impediment" requires the PPM distinction.  Columbia University's noted trade economist, Dr. Jagdish Bhagwati, has confirmed in the Foreword to the first issue of the Indian Journal of International Economic Law, that legal interpretation did not enter into the equation.  Jagdish recalls, as the GATT Director General’s Economic Policy Advisor, being drawn into the discussion of what the panel should be asked to do about the creative U.S. claim that GATT article III permitted its discrimination among tuna imports based on how they were harvested.  He notes that the decision was based on two factors: first, that PPMs could too easily be used as disguised protectionism.  For example, a developed country could deny access to its market of products from Members that did not pay their workers a fair wage.
The second reason was that Emerging Market countries could not use PPMs against developed countries because they rarely would have higher environmental, labor, or other human rights standards than developed countries.  Thus, as Jagdish puts it, “an asymmetry of effective rights” would be created.[2]

I need not point out that neither of these premises for the PPM distinction is based on legal interpretation.  This is not to say that his reasons were not valid policy considerations, but the question before dispute panels is what the language of the treaty permits, not what should the drafters have written.  In fact, what Bhagwati and the Tuna-Dolphin panels were saying is, let’s send PPMs to the General Exceptions, where the far tighter restrictions will keep the use of PPMs in check.

As we note in Just Trade, this basis is ironic, given the rich interpretive history of GATT Article III, which offers stronger discipline against disguised protectionism than any other WTO provision.

[1] Berta Esperanza Hernandez-Truyol and Stephen Joseph Powell,Just Trade: A New Covenant Linking Trade and Human Rights 92 (New York: NYU Press 2009),
[2] Jagdish Bhagwati, Foreword, 1 Indian J. Int’l Econ. L. iv, vi (2008).

Latin American Scholar Attila Andrade Shares My View that Honduras Did Not Experience a "Coup"

Andrade (LLM Yale 72, JSD Yale 77) is senior partner at the law firm of Advocacia Attila De Souza Leao Andrade Jr. in Sao Paulo, Brazil. He is at UF Law this semester as a visiting professor as part of UF’s Foreign Enrichment Program.
Andrade said the Honduran Constitution denies Zelaya the right to seek another term and provides that the president cannot change the document.
“It also indicates that whoever attempts to change the constitution shall be immediately ousted,” Andrade said. “Unfortunately, this hasn’t been publicized much by the media in Latin America because it doesn’t suit the media.”
Andrade pointed out that their Constitution gives the power to their Supreme Court to remove the president from power, which is what happened. He said the coverage of the ousting has been poor and was surprised to see other countries backing Zelaya.
“However, the media, and unfortunately, all the other countries in the continent, which is amazing to me, back Zelaya up in suggesting that he there was a coup d'etat, that he was ousted by the military, and that he must return home in a glorious return to power,” Andrade said. “I don’t see it that way. It was a constitutional matter, the laws in place were complied with, and the man was perfectly ousted because he was too greedy to the point of trying to violate his own Constitution.”

Monday, October 25, 2010

Regional trade agreements as the new glue of multilateralism?

With successful conclusion of the Doha Round stalled for over three years and regional trade agreements (RTAs) proliferating as fast as new leaves in the spring, some trade experts already bemoan the demise of the WTO (I even subtitled a recent article "Is the WTO Withering Away?")  At least half of world trade crosses borders without reference to MFN principles, the most basic of foundational GATT principles.  Is modern trade multilateralism at an end a mere 60+ years after its birth?

Perhaps we underestimate the WTO's staying power.

With the explosion of RTAs comes the exponential growth of what Jagdish Bhagwati calls the "spaghetti bowl" of inconsistent and sometimes inexplicable trade rules that confound exporters to more than one region and have eaten away at the basic premises of the multilateral trading system.  In the near future, however, can we not expect these participants in the global market to demand some mechanism at minimum to compile these multifarious regulations into an easily-searched location and at best to harmonize them to some standardized, business-friendly system?  What other international organization is better equipped than the WTO to use its vaunted data-gathering skills to create the perfect web site to track, categorize, and explain each of the thousands of  RTA rules?  With every WTO Member a party to at least one and usually several RTAs, what better organization to engage its Members in the task of recommending harmonious "regional" trading rules that will return some semblance of predictability and order to the global market?  What Member, acting in its own interests, can possibly resist adapting its RTAs to these user-friendly standards?

RTAs, operating under the WTO umbrella, as the new glue of multilateralism?