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March 18, 2009

Is Your Mudda Necessary?

As the U.S. and international climate debate gears up, we are getting a lot of questions about how WTO compliant is this or that climate policy. My colleague Steve Charnovitz and two co-authors recently released a book called Global Warming and the World Trading System that goes into some depth on this topic.

I hope to release a response to this report in the coming weeks or months, but Steve and his coauthors have an extremely useful appendix that summarizes key WTO cases with relevance for environmental protection. Drawing from this, as well as this win-loss chart and our recent report on the WTO compatibility of Obama's green jobs plans, I conclude that the attempts to defend environmental and other public-interest policies at the WTO have failed most of the time.

By way of a background, the WTO's General Agreement on Tariffs and Trade (GATT) prohibits discrimination against foreign products (even some measures not intended to discriminate), and makes difficult all sorts of other environmental policy implementation besides. That grouplet of trade lawyers that claim that the WTO doesn't represent the most significant international legal tripwire against environmental protection rely on GATT's Article 20 exceptions, which read:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(b)        necessary to protect human, animal or plant life or health;..

(d)        necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices;...

(g)        relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

As you can see, defending an environmental measure can be cumbersome. There's that pesky "requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade." Then there's also that funny word "necessary." Is the environment "necessary"? Is my awful plaid shirt that my dad gave me that I am offending my co-workers with "necessary"? What about that after-dinner ice cream? We focus on some stats on the necessary test in this post.

It turns out that meeting this "necessary" hurdle is very difficult. According to Joost Pauwelyn, GATT panels never deemed environmental or public-interest policies "necessary" prior to the establishment of the WTO. As we list in our report in footnote 130, there have been 11 post-95 WTO cases where Article 20 exceptions have been invoked.

So, out of 11 cases pre- and post-95 where the "necessary test" was invoked, it was only accepted twice. Of the 15 cases listed here, the overall exception was only accepted twice. So environmental and other GATT exceptions failed 80-87 percent of the time.

If you have comments, or know of other cases where the exceptions (and specifically ones where the "necessary" test is relevant), please let me know. This is what I'm cramming together from memory and these few sources.

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Comments

Simon Lester

DS31, DS343, DS345, and DS339/340/342 all had an Article XX defense as well.

The question I would ask is, were any of these cases wrongly decided? It may just be that WTO complaints are only brought in situations where there is a clear violation (or lack of justification through an exception).

Todd Tucker

Good catch on Canada - Periodicals 1996, DS31. And DS349/340/342, China Auto Parts 2006. Both cases where necessary was invoked and rejected by the panel.

This changes my para above:

"So, out of 13 cases pre- and post-95 where the "necessary test" was invoked, it was only accepted twice, or 85% failure. Of the 17 cases listed here, the overall exception was only accepted twice, or 88%. So environmental and other GATT exceptions failed 85-88 percent of the time."

343 and 345 I already got.

Yeah, I've heard the argument before about the open-shut nature of cases by the time they get to the WTO. But such an overwhelmingly pro-plaintiff system definitely solidifies the perceived pro-liberalization bias of the WTO's dispute settlement system. Not that any of the WTO's defenders would have a problem with that - that is what they like about the system.

Folks may find this excerpt interesting from the 2006 US-Shrimp case (DS343):

316. Turning to our assessment of the issues appealed, we are of the view that the "necessity" test under Article XX(d) is different from the "reasonableness" test under the Ad Note. Relying on Appellate Body jurisprudence, the Panel considered that the following factors are relevant in determining whether a measure is "necessary" to secure compliance with laws and regulations: (i) the relative importance of the values or objectives the law or regulation is intended to protect; (ii) the extent to which the measure contributes to the realization of the end pursued—the securing of compliance with the law or regulation at issue; and (iii) the restrictive impact of the measure at issue
on imports. We see no error in the Panel's analysis of the meaning of the term "necessary" and the factors relied upon by it to evaluate the necessity of the EBR to secure compliance with certain laws and regulations of the United States, as the Panel's analysis is in consonance with the previous jurisprudence of the Appellate Body.
317. The EBR is intended to secure potential additional liability that might arise from significant increases in the amount of dumping after the imposition of an anti-dumping duty order. The United States has not demonstrated that the margins of dumping for subject shrimp were likely to increase significantly so as to result in significant additional liability over and above the cash deposit rates. Like the Panel, we do not, therefore, see how taking security, such as the EBR, can be viewed as being "necessary" in the sense of it contributing to the realization of the objective of ensuring the final collection of anti-dumping or countervailing duties in the event of default by importers.
318. We therefore uphold the Panel's findings, in paragraph 7.192 of the Panel Report in US – Shrimp (Thailand) and paragraph 7.313 of the Panel Report in US – Customs Bond Directive, that the EBR, as applied to subject shrimp, is not "necessary" to secure compliance with certain laws or regulations within the meaning of Article XX(d) of the GATT 1994.
319. In view of this conclusion that the EBR, as applied to subject shrimp, is not "necessary" within the meaning of Article XX(d), we do not express a view on the question of whether a defence under Article XX(d) of the GATT 1994 was available to the United States.

Todd Tucker

Oh, and if we want to count GATS cases, there is of course the Antigua case, where the U.S. claimed necessity under an Article XIV exception. Went down.

So, that's " out of 14 cases pre- and post-95 where the "necessary test" was invoked, it was only accepted twice, or 86% failure. Of the 18 cases listed here, the overall exception was only accepted twice, or 89%. So environmental and other GATT exceptions failed 86-89 percent of the time."

geo

has anyone settled on a preferred alternative phrasing to "necessary"?

substantially supportive of?
contemplated by a broader state policy?

clearly you don't want the hurdle too high. but having the hurdle too low would make the provision meaningless. should additional provisions be written to elaborate upon "necessary," so that you don't have to leave it to judiciaries?

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