Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 739: The Permissible Reach of National Environmental Policies

Henrik Horn () and Petros C. Mavroidis
Additional contact information
Henrik Horn: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm
Petros C. Mavroidis: Columbia Law School, New York

Abstract: Trading nations exchange tariff concessions in the context of trade liberalizing rounds. Tariffs, nonetheless, are not the only instrument affecting the value of a concession. Domestic instruments affect it as well, but public order is not negotiable, and, consequently, is not scheduled. Public order is unilaterally defined, but must respect the default rules concerning allocation of jurisdiction which are common to all WTO Members and bind them by virtue of their appurtenance to the international community. In this paper, we focus on the interaction between trade and environment. The purpose of this study is to highlight how these rules and the GATT/WTO jointly determine the scope for unilateral environmental policies for WTO Members. In the study we examine the relevant multilateral framework dealing with this issue, as well as the relevant GATT and WTO case-law. We also briefly present the jurisdictional default rules in Public International Law. As a means of focusing the discussion, we consider a series of scenarios, partly building on factual aspects of cases that have already been brought before the WTO. These scenarios are intended to isolate issues of specific interest from a policy point of view. For each scenario we then seek to determine what would the outcome be, in case WTO adjudicating bodies were to explicitly take account of the default rules concerning allocation of jurisdiction, something which has not been done to date. Our main conclusions are two-fold: on occasion, the outcome would be different, had WTO panels observed the default rules concerning allocation of jurisdiction; more generally, the default rules can help us understand the limits of some key obligations assumed under the WTO. Crucially, absent recourse to the default rules concerning allocation of jurisdiction, one risks understanding non-discrimination (the key GATT-obligation) as an instrument aimed to harmonize conditions of competition across markets, and not within markets, as the intent of negotiators has always been.

Keywords: Trade and Environment; WTO

JEL-codes: F13; F18; F53

133 pages, First version: April 2, 2008. Revised: June 20, 2008.

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