Confusing Product with Process

“Jacqueline Peel(link to Social Science Research Network)”:http://papers.ssrn.com/sol3/delivery.cfm/SSRN_ID423322_code030716630.pdf?abstractid=423322 from the “Faculty of Law(link to Law School at Melbourne)”:http://www.law.unimelb.edu.au at Mebourne University has published an excellent analysis ofthe difficulties still to be resolved by WTO members in managing conflicts between * the wish of each Member to safeguard its own and the global environment including by the use of trade regulations, and
* the wish of all Members to achieve and maintain open global markets. Her legal analysis reaches a conclusion that an economist might also reach, by another route.
Peel concludes that the logic adopted by the WTO’s Appellate Body—for example to resolve the Shrimp/Turtle trade dispute—does not offer a safe way out of this dilemma. The Appellate Body “allowed(link to the WTO Appellate Body report – aobut 300k MS Word doc)”:http://docsonline.wto.org:80/DDFDocuments/t/WT/DS/58ABR.DOC the United States in Shrimp/Turtle to appeal to one of the GATT’s exception provisions (Article XX, but there are others in WTO including the SPS Agreement) to justify a trade restiction that discriminated between ‘like products’ (shrimp imported or locally caught) on the basis of the process by which they were caught. But Peel shows that the logic of the GATT exceptions that were created for trade restrictions based on product differences does not translate so easily into exceptions based on different processes for producing the ‘like’ product. bq. “… mechanical application of product-based tests to process standards coupled with trade restrictions suggests that such restrictions will be legitimate provided they are evenhanded in their application and effective in achieving the articulated environmental goal. This approach overlooks the fact that process standards, unlike product standards, may need to vary between states in order for their application to be non-discriminatory and that effectiveness in the process context requires significant economic power on the part of the restricting nation to bring about the desired changes in the environmental practices of exporting nations.” An economist might argue that one important justification for the “like product rule” in GATT1 in the first place is that it protects the opportunity for different producers to use different methods of production in accordance with their comparative advantage[⇒ related story]. It is usually considered inequitable to discriminate like this because comparative advantage often reflects different endowments of e.g. capital and labor: poor countries usually have greater endowments of the latter than the former. The economic reason, however, to protect the opportunity to exploit comparative advantage is that this is where the gains from trade come from. To allow, even by exception, discrimination on the basis of different production processes is deeply inappropriate in the WTO because it gives authority to a principle that robs trade of its ability to create wealth. Jacqueline Peel’s article appears in the New York University Environmental Law Journal, Vol. 10, pp. 217-244, 2002 Thanks to “Lawrence Solum(Link to Legal Theory Blog)”:http://lsolum.blogspot.com/2003_07_01_lsolum_archive.html#105907695898470980 for the pointer. 1 GATT prohibits Members from maintaining a trade restriction that discriminates between ‘like’ products—essentially products with the same characteristics as far as a consumer is concerned—from different origins.

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