ESSAYS ON THE NATURE OF INTERNATIONAL TRADE LAW

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1 ESSAYS ON THE NATURE OF INTERNATIONAL TRADE LAW Robert E. Hudec CAMERON r~r~i MAY INTERNA TIONAL LAW & POLICY

2 CONTENTS FoKEWORDbyFriederRoessler. 10 AUTHOR'S PREFACE 15 I. THE NATURE OF INTERNATIONAL TRADE LAW 1. THE GATT LEGAL SYSTEM: A DIPLOMAT'S JURISPRUDENCE 17 I. The Negotiation History 18 A. The Trade Agreements Background 18 B. The ITO Negotiations 21 l.themain currents The ITO's substantive obligations TheTTO's enforcement procedures: the basic design The mechanics of the enforcement procedure Requests and recommendations Reviews of the ITO's jurisprudence 33 C. The GATT Negotiations 35 l.thepurpose and design q)"thegeneral Agreement GATT's disputes procedure ZTO's ambiguity magnified in the GATT. 41 II. The Belgian Family Allowances Case 41 A. The Dispute The dispute before the GATT The dispute under discussion Hardening of the Belgian position 48 B. The Panel Proceedings 50 l.thelegalimplicationsofthecase The Panel report 54 C. The Meaning of the Panel Report The minimum interpretation The breach of legal obligations The precise violation The Panel report in perspective 65 D. The Follow-up: Interpretation and Enforcement Afinalviewof the Panel decision 74 E.ASummary. 75

3 2. GATT OR GABB? THE FUTURE DESIGN OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE 77 I. The Current Debate. 80 II. The Function of Substantive Rules 88 A. The Draftsmen's Objectives 89 B. The Role of Substantive Rules in National Decision-Making The United States Executive The United States Congress 104 C. The Role of Substantive Rules in GATT Procedures "TRANSCENDING THE OSTENSIBLE": SOME REFLECTIONS ON THE NATURE OF LITIGATION BETWEEN GOVERNMENTS THE ROLE OF JUDICIAL REVIEW IN PRESERVING LIBERAL FOREIGN TRADE POLICIES 133 I.Tumlir's Critique: Protectionism as a Constitutional Failure 133 II. What can Courts do to Improve the Process? 139 A. The Substantive Function: A Question of Coherence 140 B. The Procedural Function: Delegation Revisited THINKING ABOUT THE NEW SECTION 301: BEYOND GOOD AND EVIL 153 I. What is the New Section 301, and How does it Violate GATT? 158 A. GATT-Based Retaliation: Regular B. Retaliation against "Unreasonable" Practices: Super 301 and Special II. The Case for Justified Disobedience 167 A. The Wheat Flour Subsidy Case 169 B. The Conditional MFNPolicy. 170 C. The "New Issues" Problem 172 HI. Objections to the Case for Justified Disobedience 173 IV. Some Possible Guidelines for Justified Disobedience 179 A. Structural Guidelines 179 B. Substantive Guidelines 180 V. Applying the Guidelines to the New Section A. GATT-based Retaliation: Regular B. Retaliation against "Unreasonable" Measures: Super 301 and Special

4 IV. Conclusion 196 APPENDIX 1 - US Retaliation in Section 301 Cases 198 APPENDIX 2 - US Performance in GATT Dispute Settlement, SELF HELP IN INTERNATIONAL TRADE DISPUTES "CIRCUMVENTING DEMOCRACY": THE POLITICAL MORALITY OF TRADE NEGOTIATIONS 215 II. CONCEPTS OF FAIRNESS IN INTERNATIONAL TRADE LAW 8. MIRROR, MIRROR ON THE WALL: THE CONCEPT OF FAIRNESS IN US FOREIGN TRADE POLICY 227 I. Introduction 227 II. Two Preliminary Observations 229 A. The Queen's Mirror. 229 B. Does Fairness Really Matter? 230 III. Offensive Unfairness 233 A. A Functional Perspective on Offensive Unfairness 232 B. The Substantive Content of Offensive Unfairness Claims Offensive unfairness claims in US domestic markets Offensive unfairness claims againstforeign trade 234 C. Containing Offensive Unfairness Claims 343 IV. Defensive Unfairness 245 A. A Functional Perspective on Defensive Unfairness 245 B. Dealing with Defensive Unfairness Claims DIFFERENCES IN NATIONAL ENVIRONMENTAL STANDARDS: THE LEVEL PLAYING FIELD DIMENSION 251 I. Recent Legislative Proposals 253 II. The Environmental Case for a Level Playing Field 255 III. The Concept of Fairness in International Trade 257 A. Fair Competition in US Economic Policy. 258 B. "Fair Competition" Applied to Foreign Trade 259 C. Limiting the Reach of Fairness Concepts 263 IV. Fairness Concepts in Action: Can Low Environmental Standards be Treated as "Subsidies" or "Dumping"? 264

5 A. Low Environmental Standards as Subsidies 264 B. Low Environmental Standards as Dumping 270 C. Conclusion 271 V. Fairness Revisited: Can Differences in Environmental Standards be Justified on Other Normative Grounds? 272 A. Legitimate Differences in General 272 B. A Fair-Trader's Approach to Legitimate Differences 274 C. An Economist's Approach to Legitimate Differences 276 D. Whither Legitimacy? 278 VI. Conclusion 279 III. CONCEPTS OF DISCRIMINATION IN INTERNATIONAL TRADE LAW 10. TIGER TIGER, IN THE HOUSE: A CRITICAL APPRAISAL OF THE CASE AGAINST DISCRIMINATORY TRADE MEASURES 281 Introduction 281 I. The Economic Consequences of Discrimination 284 A. Discriminatory Tariffs The basic case for efficiency loss The special case ofpreferences granted to developing countries The special case of temporary protective measures GATT legal rules: discrimination and reciprocity An overview. 291 B. Discriminatory Quantitative Restrictions What is a discriminatory QR? K casefor an efficiency loss TheArticleXIV exception Selective safeguards as an instrument of liberalization An overview The Political Consequences of Discrimination 305 A. The Lessons of the Pre-war Era Applied to GATT. 306 l.theimportanceofmfnintariffbargaining Conditional-MFN and trade liberalization Differences in the type ofdiscrimination Differences in thephyers Political irritation An overview. 315 B. The Lessons of the GATT Era 316

6 1. The consequences of selective safeguards The consequences ofdiscrimination to assist developing countries 318 C. Concerning Tigers in the House 320 III. The Ideology of Discrimination 321 A. Market Disruption. 321 B.Solidarity. 325 IV. Conclusions THE STRUCTURE OF SOUTH-SOUTH TRADE PREFERENCES IN THE 1988 GSTP AGREEMENT: LEARNING TO SAY MFMFN 331 Introduction 331 I. The Evolution of GSTP 332 II. A Brief Analysis of the GATT Agreement 336 III. The GSTP Trade Agreement 340 A. The Form and Structure of Concessions 340 B. The GSTP Negotiating Process: Reciprocity vs Nonreciprocity. 341 C. The Basic Legal Protection of Concessions 343 D. Control over Escape Clauses: More GATT-like than GATT. 346 E. The GSTP Rules on Discrimination Treatment of other insiders -MFFNand MFMFN Treatment of outsiders- the legal definition ofpreferences Treatment of parties in regional agreements 354 IV. Concluding Observations GATT/WTO CONSTRAINTS ON NATIONAL REGULATION: REQUIEM FOR AN "AIM AND EFFECTS" TEST 359 I. Introduction 359 II. Explicit (or dejure) Discrimination 361 HI. Origin-neutral (or defacto) Discrimination 364 A. The Product-Process Doctrine 364 B. The "Like Product" Standard 365 l.the traditional approach The "aim and effect" approach WTO rulings on the "aim and effects" approach Where does the "like product" test stand today? A postcard from the future 378 C. Article XX Doctrine after the "Aim and Effects" Debate 379 D. De Facto Discrimination Outside the "Like Producf'Context 382 l.the GATS Agreement K Standards Code TheSPSCode. 389 APPENDIX 393 ABOUT THE AUTHOR. 396

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