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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