THE POLITICAL ECONOMY OF WTO EXCEPTIONS.

• Author: Meyer, Timothy

ABSTRACT

In a bid to save the planet from rising temperatures, the European Union is introducing a carbon border adjustment mechanism--essentially a levy on imports from countries with weak climate rules. The United States, Canada, and Japan are all openly mulling similar proposals. The Biden Administration is adopting new Buy American rules, while countries around the world debate new supply chain regulations to address public health issues arising from COVID-19 and shortages in critical components like computer chips. These public policy initiatives--addressing the central environmental, public health, and economic issues of the day--all likely violate World Trade Organization (WTO) rules governing international trade, as well as regional free trade agreements. This inconsistency poses a political problem domestically and a diplomatic problem internationally, to say nothing of potential consequences authorized by the WTO.

To ward off these consequences, governments will seek to justify their measures under a series of exceptions to trade obligations first drafted in 1947. Although governments have invoked these exceptions with increasing frequency in recent years, they have never been tested in the manner that they will be in the coming years. Indeed, a provision in the 2021 Infrastructure and Investment Act--the first major legislative piece of the Biden Administration's economic agenda--contains a provision directing the government to invoke these exceptions to justify measures to manufacture personal protective equipment (PPE) in the United States.

This Article seeks to make sense of the exceptions and their role in the legal, political, and diplomatic proceedings that determine the fate ofpublic policies that restrict trade. It distills three paradigms through which to view legal exceptions in international trade agreements. Under the Policy Space Paradigm, governments have the right to violate international obligations so long as the violation is necessary to pursue a public policy goal permitted by an exception. Under the Safety Valve Paradigm, exceptions excuse violations that are undeterrable, such as those motivated by overwhelming domestic political pressure. Both of these approaches, which are dominant in international legal practice, permit governments to invoke international legal exceptions only to the extent that the government acts with a single, permissible objective. In so doing, both paradigms rest on faulty assumptions about how domestic policymaking works.

I therefore introduce the Channeling Paradigm, which rests on the observation that international trade policies are the result of bargaining between domestic interest groups. Exceptions in trade agreements influence that bargaining process and the resulting domestic coalitions. Industries seeking economic protection will often ally themselves with groups pursuing "non-trade" public policy goals, such as environmental protection or public health. Both groups benefit. The domestic industry obtains protection from foreign competition by lending its political support to a public policy goal. Public policy advocates obtain important political support for policies that provide public goods that governments often undersupply, such as measures to protect public health, fight climate change, and address economic inequality. Counterintuitively, then, the domestic political bargaining that legal exceptions encourage serves the public interest by channeling protectionist pressure into the promotion of public goods.

The Channeling Paradigm has implications for dispute resolution under international trade agreements, as well as the drafting of new agreements. In short, existing tests for the application of trade agreements 'public policy exceptions unduly constrain domestic politics. This Article argues that trade tribunals and treaty negotiations should adopt a Predominant Motive test when interpreting and drafting exceptions clauses. Under this approach, a trade restrictive policy would benefit from an exception if the primary objective of the measure is a permitted goal under the exception. So long as it does not become the predominant purpose of the challenged policy, economic protection would not be fatal to invoking an exception. The WTO compatibility of a wide range of critical government policies that have mixed motives--including President Biden's Buy American requirements that seek to address economic inequality within the United States; efforts to reshore critical U.S. supply chains with the goal of ensuring the United States has access to the components it needs to be a global leader in manufacturing; the European Union's efforts to impose a carbon tariff in aid of its efforts to combat climate change; and public health restrictions on trade in medical supplies and the COVID-19 vaccine--all depend on a more flexible approach to international legal exceptions.

TABLE OF CONTENTS INTRODUCTION I. TRADE RULES AND THE TURN TO EXCEPTIONS II. CONVENTIONAL APPROACHES TO EXCEPTIONS A. The Policy Space Theory 1. The Idea 2. The Policy Space Theory in Action B. The Safety Valve Theory 1. The Idea 2. The Safety Valve Theory in Practice III. THE CHANNELING PARADIGM A. How International Law Channels Domestic Political Pressure 1. How Exceptions Reduce the Risk of International Sanctions 2. Domestic Politics B. How Trade Exceptionalism Promotes Public Policy C. The Perils of Erosion IV. EXCEPTIONALISM AND MIXED MOTIVES A. Handling Mixed Motive in Trade Law Cases 1. Justifying a Predominant Motive Test 2. The WTO's But-For and Any Motive Tests 3. A Predominant Motive Test for the WTO B. Redesigning Exceptions Clauses V. WHITHER PUBLIC POLICY WITHIN THE TRADE SYSTEM? INTRODUCTION

In July 2021, amidst the hottest summer on record and with wild fires burning from California to Turkey, the European Union (EU) announced that it would impose a carbon border adjustment--essentially a levy on imported products from countries that lack stringent climate rules governing production. (1) The move reflects a bid by the EU to encourage countries to adopt tougher climate rules, while also discouraging European consumers from consuming high-carbon products. The United States, Canada, Japan, and the United Kingdom are considering similar policies. (2) Since taking office in January 2020, President Joe Biden has expanded Buy American requirements in an effort to address economic inequality within the United States; (3) directed a review of critical U.S. supply chains with the goal of ensuring the United States has access to the components it needs to be a global leader in manufacturing; (4) and defended national security-related curbs on trade with Hong Kong in response to the suppression of democracy there. (5) The 2021 Infrastructure Investment and Jobs Act--the first major legislative piece of the Biden Administration's economic agenda--contains an entire Title devoted to "Build America, Buy America." (6) The EU imposed export restrictions on COVID-19 vaccines in early 2021, (7) a measure which follows extensive export restrictions on medical supplies during the early stages of the pandemic. (8)

These measures--each of which is likely to violate international trade rules, most notably those of the World Trade Organization (WTO)--are the most recent in a long line of trade restrictive measures governments have adopted that both serve a legitimate public policy objective and also benefit a domestic economic constituency. The United States, for instance, banned the import of shrimp caught in a manner that endangers sea turtles, a move supported by U.S. shrimpers eager for a market advantage. (9) To the delight of domestic tire producers, Brazil banned the importation of retreaded tires because when discarded they become breeding grounds for malarial mosquitos. (10) The EU refused to extend regulatory incentives for renewable energy to biofuels that lead to a risk of deforestation, a move hailed by the EU's domestic biodiesel industry. (11) Russia restricted the transit across its territory of Ukrainian products due to the geopolitical tensions between the two nations since the former's invasion of Crimea, but closer examination suggests that the specific restrictions imposed are motived by a desire to protect domestic industries. (12)

In each of these cases, a country imposed a trade restriction justified by an ostensible "non-trade" public policy goal--the environment, public health, or national security. And each of these measures was actively supported by a domestic interest group that stood to benefit from the resulting economic protection. This pattern, a common occurrence, presents an increasingly difficult challenge for the WTO and the world trading system more generally. More and more, governments clamor for the legal right to pursue policies that violate trade rules and burden international commerce. Many of these policies--carbon border adjustments to fight climate change, (13) restrictions on seal products to promote animal welfare, (14) domestic content requirements to spur the development of local renewable energy industries, (15) or restrictions on trade in goods made with forced labor (16)--address political and moral imperatives for which leaders and their constituents are willing to sacrifice the economic efficiency that accompanies trade liberalization. But building domestic political coalitions for these policies often involves using economic protection to benefit a domestic group. Governing is, after all, the art of compromise.

This Article argues that exceptions to international trade law's general rules provide the incentives that lead to the formation of these domestic coalitions. This argument is counterintuitive. International trade law is commonly justified on the grounds that it restrains domestic political pressure for protection. (17) Yet trade law also operates through a normexception framework. International trade's primary...