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).

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