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Is action against US exports for failure to sign Kyoto Protocol WTO-legal?

Published online by Cambridge University Press:  20 July 2007

JAGDISH BHAGWATI  and
PETROS C. MAVROIDIS
JAGDISH BHAGWATI
Affiliation:
University Professor, Economics and Law, Columbia University
PETROS C. MAVROIDIS
Affiliation:
Edwin B. Parker Professor of Law, Columbia University
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World Trade Review , Volume 6 , Issue 2 , July 2007 , pp. 299 - 310
Copyright
Copyright © Jagdish Bhagwati and Petros C. Mavroidis 2007

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References

1  Critiques of demands for including unilaterally defined PPMs as a ground for suspension of market access to products not using the required PPMs has long been discussed by one of us (Bhagwati) in different places. See, in particular, Jagdish, Bhagwati and Srinivasan, T. N., ‘Trade and the Environment: Does Environmental Diversity Detract from the Case for Free Trade?’, in Bhagwati, Jagdish and Hudec, Robert (eds.), Fair Trade and Harmonization: Pre-requisites for Free Trade?, Cambridge, MA: MIT Press, 1996, Volume 1Google Scholar; and Bhagwati, , ‘Afterword: The Question of Linkage’, American Journal of International Law, 96(1) (2002): 126–134CrossRefGoogle Scholar. Bhagwati was also Economic Policy Adviser in 1991–93 to the Director General of GATT, Arthur Dunkel, when the original Dolphin–Tuna Panel decision was taken, rejecting the GATT legality of unilaterally specified PPMs as a way of restricting market access.

2  Bhagwati, In Defense of Globalization, page 157.

3  See both his latest book, Making Globalization Work, Norton, 2006, and the website of the Center for Global Development, a Washington DC think-tank, dated 29 September 2006, where the idea is presented by Stiglitz. His rationale for the implementation of the Bhagwati idea is however based on legal confusions between two quite different arguments: the Shrimp–Turtle decision and the argument that the failure to ratify and implement Kyoto amounts to the US using ‘hidden subsidies’. See the legal analysis in the text above.

4  The French Prime Minister's proposal was made in mid-November 2006 and immediately drew attention worldwide.

5  See the Financial Times, 17 December 2006, titled ‘EU Trade Chief to Reject “Green Tax” Plan’.

6  However, we have definite ideas on the Kyoto Treaty, its problems, and ways to amend it to remedy its defects. See in particular Jagdish Bhagwati, ‘A Global Warming Fund could succeed where Kyoto failed’, The Financial Times, 16 August 2006.

7  As we will see, the EU could theoretically use tariffs, CVDs, domestic taxes, and/or quotas. We classify the last, however, under domestic instruments since, in the case at hand, we would be enforcing, albeit at the border, a domestic instrument (i.e. a sales ban, for example, of a good produced using an undesirable production process). A sales ban enforced at the border is considered as per the Interpretative Note ad Art. III.4 GATT, a domestic measure.

8  Strictly speaking, likeness is not established using identical criteria under Art. I and Art. III GATT. However, in this case, tariff classification (the dominant criterion to establish likeness under Art. I GATT) is of no help, since there is no common classification (the European Union will notify eight digit tariff lines). In such cases, the criteria used in Art. III GATT are relevant to decide on likeness under Art. I GATT as well.

9  See WTO doc. WT/DS/108/AB/R.

10  Therefore, the Stiglitz assertion (Making Globalization Work) that the United States is open to action because its refusal to sign the Kyoto Protocol amounts to a ‘hidden subsidy’ is simply wrong.

11  Importantly, we do not make any normative statements: our analysis aims to describe the current status of WTO law.

12  Originally, the United States had requested from its trading partners to use its own technology when fishing shrimp. It subsequently accepted that any technology which could achieve comparable results was appropriate as well.

13  Note that no reference was made to the CITES treaty which prohibits trade in endangered species and their parts, presumably because that treaty has no provisions relating to collateral damage inflicted on the endangered species by PPMs used in other activities. Bhagwati has argued that CITES should be extended by negotiation to include such collateral damage.

14  It bears repetition, but here we are dealing with a case where the process of production has not been incorporated in the final product, hence EC–Asbestos is probably of limited relevance. We appropriately look elsewhere (as well) for guidance.

15  To avoid any misunderstandings on this score, we are not arguing that the European Union can legitimately enforce the Kyoto Protocol through trade measures. The European Union requests from all imported and domestic products to satisfy its regulatory framework with respect to gas emissions. As such, it is simply irrelevant if the source of the regulatory framework is an international agreement (Kyoto Protocol) or a unilaterally defined domestic measure.

16  See the Working Party report on Border Tax Adjustments, §14.

17  The destination principle, as explained above was taken over from bilateral agreements negotiated in the 1930s, such as the agreement of 6 May 1936 between the United States and France, see §10 of the Annex to Working Party report on Border Tax Adjustments.

18  See GATT Doc. L/3379 of 6 May 1970. See on this score the excellent analysis in Démaret, P. and Stewardson, R., ‘Border Tax Adjustments under GATT and EC Law and General Implications for Environmental Taxes’, Journal of World Trade, 28 (1994): 5–65Google Scholar.

19  So far, GATT/WTO case law has not dealt with cases of indirect taxes, such as payroll taxes.

20  The Appellate Body had no choice in this respect: in US–Shrimp it recognized the self-evident right of the US government to regulate the conditions for selling products in its market; it is their sovereign right to do so. This right however, like most rights, if exercised in an absolute, that is, an un-limited, manner will give rise to legitimate quarrels. The problem is that absent multilateral agreements, it is difficult to come up with clear criteria concerning the exercise of this right. Could the European Union for example, suggest that it will stop importing products from countries, such as the United States, that practice the death penalty because the death penalty runs afoul of the EU public order? Classic public international law analysis privileges the use of the effects doctrine, an instrument well suited to address pecuniary – but ill conceived to address non-pecuniary externalities, such as those discussed in this paper; hence the need to sign international agreements.

21  See WTO Doc. WT/DS/246/AB/R.

22  By the same token, the EU could impose a sales ban of all products produced in a Kyoto-unfriendly manner. The legal analysis remains the same as the choice between a fiscal domestic and a non-fiscal domestic measure is practically identical. It could also be the case that the EU imposes a carbon tax only on products originating in countries that have not enacted a similar carbon tax in order to implement the Kyoto Protocol. Once again the legal analysis is the same since, at the end of the day, the EU will be treating in a like manner like goods (i.e. Kyoto-friendly goods), assuming of course that one accepts that Kyoto friendliness is the defining characteristic for likeness.

23  One reading of the case law suggests that the Appellate Body is more deferential when health concerns are at stake. If true, the Appellate Body would be ill-advised to continue in a linear manner on this score: a basic premise of the negative integration character of the GATT is that WTO Members are free to unilaterally reveal their social preferences. All the judge could do (assuming litigation) is to ask whether the means sought are legitimate, without questioning the ends themselves. There is a fine line between environment and health though anyway, and regulatory interventions such as the ones discussed here could be drafted in terms of public health policy as well.

24  Over 4 billion dollars of transatlantic trade would have been affected, had the European Union decided to exercise its rights under the WTO.

25  Reported in many newspapers worldwide. See, in particular, Daily Telegraph (Australia), 15 November 2006.