Richard J. McLaughlin, J.S.D.
 

Editor's Note: The following is an excerpt from Dr. McLaughlin's paper "Sovereignty, Utility, and Fairness: Using U.S. Takings Law to Guide the Evolving Utilitarian Balancing Approach to Global Environmental Disputes in the WTO" that will be published in the Oregon Law Review this spring. For a copy of the paper, contact the Legal Program.

For nearly two decades, the United States has used threats of trade restrictions as a fundamental instrument of international fisheries and marine conservation policy. Trade embargoes have been threatened or actually imposed for a variety of extraterritorial marine conservation purposes including concerns over commercial whaling, dolphin mortality in tuna fishing operations, the use of high seas driftnets, and most recently the drowning deaths of sea turtles in shrimp fishing nets.

    On several occasions these restrictions have been challenged as illegal obstacles to free trade under the dispute settlement provisions of the General Agreement on Tariffs and Trade (GATT) and its successor organization the World Trade Organization (WTO). Most recently, on October 12, 1998, the Appellate Body (AB) of the WTO ruled that the U.S. violated the WTO agreement when it imposed an embargo on shrimp from India, Malaysia, Pakistan, and Thailand for failing to adopt sea turtle protection policies that were comparable to U.S. policies.1 The AB, although acknowledging that the trade restrictions served a legitimate environmental objective recognized under the treaty, found that the restriction was applied in an unjustified and arbitrary manner in violation of the treaty.
 Environmentalists charge that this and other decisions undermine world-wide environmental efforts and assembled the "Battle in Seattle" this past December to force the WTO to strike a better balance between corporate interests and the interests of workers, consumers and the environment. The leaders of labor, environmental and human-rights groups whose protests disrupted the meeting were quick to claim victory when the trade ministers failed to set an agenda for the next three years. The trade ministers said it was the complexity of the negotiations and the failure to compromise that ultimately doomed the talks. The negotiations, demonstrations, and resulting failure pave the way for a new approach to free trade including a better balancing by the WTO of nations' sovereignty and environmental actions.

Environmental Measures & World Trade
The WTO provides a regime to encourage free and open trade but contains exceptions in Article XX that provide justification for measures necessary to carry out policies such as protecting the global environment. Each exception is conditioned upon meeting the requirements in what is commonly termed the "chapeau" or preambular clause of the article. The chapeau prohibits any exception if it constitutes (1) arbitrary or unjustifiable discrimination between countries where the same conditions prevail; or (2) a disguised restriction on international trade.
     Early tribunal decisions viewed the Article XX exceptions narrowly and questioned the validity of conflicts between the promotion of free trade and environmental protection. They believed that the continuing process of trade liberalization was the overriding intent of the organization and as a consequence, placed obstacles in the path of any nation seeking to invoke an exception under Article XX by limiting them to a narrow class of activities.
     In 1996, soon after the U.S. imposed a world-wide import ban on shrimp from nations that were not certified as having sea turtle protection programs equivalent to U.S. programs, India, Malaysia, Pakistan, and Thailand brought a legal challenge to the Dispute Settlement Body of the World Trade Organization (WTO) for violation of free trade obligations.
    On April 6, 1998, in a widely-criticized and analytically suspect decision, the settlement panel found against the U.S. on every substantive point and ordered it to bring its law into compliance with the treaty.2 In reaching its conclusion, the panel described as especially risk-producing, the fact that the United States did not adequately engage in negotiations with each nation prior to imposing its measures that were intended to coerce nations into adopting environmental standards comparable to those in the U.S.
     The U.S. appealed and, although harshly critical of much of the legal analysis employed by the original panel and supportive of the U.S. on a couple of key issues, the AB ultimately ruled that the trade restrictions employed by the U.S. were an arbitrary and unjustifiable discrimination and ordered it to either bring its measures into conformance or pay compensation to the four claimants.
     Several aspects of the decision seem to signal a more environmentally friendly outlook by the WTO. For example, the AB ruled for the first time that unsolicited amicus briefs by non-governmental environmental organizations were allowed and the AB found that the trade restrictions on shrimp, despite their extraterritorial nature, did qualify for exception under Article XX(g) which allows States Parties to adopt measures "relating to the conservation of exhaustible natural resources . . . ."
     The AB then examined whether the U.S. measures constituted "unjustifiable discrimination between countries where the same conditions prevail" and found that the shrimp embargo was coercive in nature because it was placed on all nations that did not adopt conservation policies that were identical to those in effect in the U.S. As a consequence, nations like Australia, which has strict turtle conservation policies in place, but has chosen not to use turtle excluder devices (TEDs) as the centerpiece of that policy, were still subject to the embargo. The AB asserted that the measure was more concerned about requiring other members to adopt the same environmental regulations that it imposed on its domestic shrimp fishermen than in protecting and conserving sea turtles.

A Balancing Approach for the WTO
The U.S. has agreed to bring its policy into compliance with the AB decision rather than pay compensation to the four nations. However, the decision does little to clarify the circumstances under which member states may use trade restrictions for environmental purposes without risking future conflicts.
     Many of the same concerns that have been expressed in regard to the aims and moral approaches of allocating resources through international trade, have also been raised in regard to domestic laws governing the allocation of private property rights in the United States. This concern is framed as a debate over the aims and purposes of the "takings clause" in the Fifth Amendment to the U.S. Constitution and its impact on the ability of the government to regulate or "take" private property without due compensation. More specifically, the parallel debate in the context of trade law and U.S. takings law involves finding an answer to the following question: under what circumstances should a government be permitted to regulate conduct that is determined by that government to be either detrimental to the public interest or necessary to promote a public interest without having to compensate those whose rights are affected by that regulation?
 The question as posed to the international trade community involves the authority of one nation, for example, the United States, to impose a trade embargo as a method of regulating the environmental policies of another nation, for example, Thailand, in order to protect a natural resource of international concern, such as sea turtles.
     Weaknesses in the current system can be addressed by implementing a balancing approach based on three primary utilitarian principles proffered by Professor Frank Michelman in 1967: public benefit to the international community, demoralization costs to the targeted nation, and the cost to settle the dispute.3
     By explicitly and openly balancing the benefits to the international public with demoralization and settlement costs to achieve fairness, GATT/WTO dispute settlement tribunals can incorporate the legitimate expectancy interests of its members into its decision-making processes. By using a set of discrete criteria in its balancing effort, members will be provided with a more understandable and defensible method of identifying "arbitrary or unjustifiable discrimination" than the current interpretations allow. The factors in the chart on page 10 are examples of those that a GATT/WTO tribunal should examine when conducting a balancing analysis.
     In many ways, the AB is currently balancing these concerns in its recent decisions but the development of a list of specific criteria would allow for a balancing of the benefit to the international community, the demoralization costs to the targeted nation, and the costs to settle the conflict without the measure. For instance, the AB necessarily believed that despite the public benefits created by the U.S. turtle protection measures, the disruption to established GATT/WTO treaty-based expectations and the intrusion on sovereign rights caused by the rigid standards imposed by the U.S. created unacceptably high demoralization costs. In addition, the AB found the settlement costs to the U.S. not particularly substantial, commenting on the ability of the United States to successfully negotiate the Inter-American Convention for the Protection and Conservation of Sea Turtles (Inter-American Convention). Thus, if the U.S. was capable of settling its dispute with some members by negotiating a regional agreement, it is reasonable to assume that a course of action short of import prohibitions was available at a non-prohibitive cost.
     In the end, the AB incorporated (albeit unknowingly) all three of Professor Michelman's criteria into its substantive analysis of whether the U.S. trade measures created "arbitrary or unjustifiable discrimination" - it found public benefit levels high; demoralization levels of equal or greater intensity; and, settlement costs relatively low. Consequently, it decided that the United States should bring its trade measures into conformance with the treaty or pay compensation as set out in the applicable provisions of the WTO Dispute Settlement Understanding.

Conclusion
The WTO is at a crossroads. A comprehensive and consensual set of principles or guidelines based on a utilitarian model modified by fairness would improve the ability of nations to predict how their actions aimed at environmental protection may be treated by future panels if challenged and would add legitimacy to the dispute settlement process.
 

TABLE: Balancing Approach for WTO Disputes

Factors to Assess Public Benefit to the International Community

What are the characteristics of the natural resource being protected?

Is the resource threatened or endangered, highly migratory or a straddling or shared resource?

Is it especially susceptible or sensitive to the harm that is being prevented?

Is it an important component of a global ecosystem?

Is there broad consensus for its conservation?

Does it hold a unique place in the economic or cultural values of nation or the international community?
 

What are the characteristics of the conservation techniques being imposed?

Is the conservation technique effective and efficient?

Will implementation be a financial burden to the targeted nation?

Will "reciprocity of advantage" exist as a result of benefits conferred by the conservation technique?

Do some nations have a greater burden than others?

Is there international consensus approving the technique?
 

Factors to Assess Demoralization Costs

What is the extent to which the trade restriction interferes with sovereignty-based or treaty-based expectations?

Is the action unilateral toward a small number of nations?

What type of trade restriction is being imposed, i.e. is it narrowly tailored to the alleged harm?

Must the techniques be applied within the territorial boundaries of the targeted nation?

Is the trade measure imposed to immediately protect a particular resource or to coerce changes in domestic policies to protect the resource in the future?

Has the restricting nation contributed to the harm that is prevented by the trade restriction?

Has the restricting nation engaged in good faith negotiations with the targeted nation?

Does the technique imposed prohibit the economic activity or merely require a moderate change in behavior?

Are all nations subject to the measures treated equally and accorded due process safeguards?

Does the resource hold an especially valuable place in the economic or cultural values of the targeted nation?
 

Factors to Assess Settlement Costs

What is the extent to which trade restricting nation can avoid demoralization costs by compensation?

Is there a high or low probability for a negotiated settlement?

What level of compensation is necessary to achieve the intended environmental goal?

Would negotiations or settlement costs apply to a few nations or a large and diverse group?

Could the trade restricting nation compensate the targeted nation for the losses as a result of the imposition of conservation techniques? Are there non-economic factors (historical, cultural, religious) to prevent a solution?

Is there an international forum independent of GATT/WTO to assist in finding a solution?

ENDNOTES

1. Appellate Body Report, United States - Import Prohibition of Certain Shrimp and Shrimp Products, GATT Doc. WT/DS58/AB/R (Oct. 12, 1998).

2. World Trade Organization Report of the Panel on United States Import Prohibition of Certain Shrimp and Shrimp Products, 37 I.L.M. 832 (1998).

3. See Frank I. Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Just Compensation" Law, 80 Harv. L. Rev. 1214-24 (1967).