Approach Would Inject Fairness into WTO Disputes
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
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
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
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
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
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
What is the extent to
which the trade restriction interferes with sovereignty-based or treaty-based
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
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?
1. Appellate Body Report, United States - Import Prohibition
of Certain Shrimp and Shrimp Products, GATT Doc. WT/DS58/AB/R (Oct.
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).
Balancing Approach Would Inject Fairness into WTO Disputes