The next Generation of Trade and Environment Conflicts: the Rise of Green Industrial Policy

Abstract

A major shift is transforming the trade and environment field, triggered by governments’ rising use of industrial policies to spark nascent renewable energy industries and to restrict exports of certain minerals, in the face of political economy constraints. While economically distorting, these policies do produce significant economic and environmental benefits. Yet at the same time, they often violate World Trade Organization (WTO) rules, leading to harsh conflicts between trading partners. This Article presents a comprehensive analysis of these emerging conflicts, arguing that they represent a sharp break from past trade and environment disputes. It examines the causes of the shift and the nature of the industrial policies at issue. The ascendance of these Next Generation conflicts transforms both the international and domestic political economies of trade litigation and environmental policy. It raises implications for the choice of forum for trade litigation, the divide between industrialized and developing countries’ strategic interests, the stability of domestic political alliances, and the availability of WTO legal exceptions for environmental measures. Perhaps surprisingly, the most worrisome implication of Next Generation cases for both environmental protection and trade liberalization arises from often overlooked trade remedy laws. The choice of litigation forum matters greatly because the compliance options differ depending on the forum. As a result, the environmentally harmful consequences of Next Generation cases are likely to be greater in domestic trade remedies cases than in WTO dispute settlement cases. To mitigate the environmental harms from Next Generation cases and reduce the threat of a green trade war, this Article suggests that we focus on reforming domestic trade remedies rules. AUTHORS—Mark Wu (mwu@law.harvard.edu) is an Assistant Professor of Law, Harvard Law School. James Salzman (salzman@law.duke.edu) is the Samuel F. Mordecai Professor of Law and Nicholas Institute Professor of Environmental Policy, Duke University. Professor Salzman serves as a member of the Trade and Environment Policy Advisory Committee (TEPAC), a statutorily mandated body that provides policy advice to the EPA Administrator and the U.S. Trade Representative on significant issues related to DRAFT PROVIDED FOR UNCTAD MEETING ONLY – FINAL VERSION FORTHCOMING N O R T H W E S T E R N U N I V E R S I T Y L A W R E V I E W 2 trade and the environment; his co-author serves as a Principal Liaison to TEPAC. We are grateful for the helpful comments on earlier drafts provided by Bill Alford, Gabby Blum, Rachel Brewster, Ann Carlson, Anupam Chander, Glenn Cohen, Noah Feldman, Jacob Gersen, John Goldberg, Jack Goldsmith, Jim Greiner, Rob Howse, Louis Kaplow, Petros Mavroidis, Joost Pauwelyn, Ben Roin, Luca Rubini, Ben Sachs, Jed Shugerman, Ronald Steenblik, Matthew Stephenson, Joel Trachtman, Elizabeth Trujillo, and the participants of the ASIL International Economic Law Roundtable on Renewable Energy, Colorado–Duke Climate Change Works-in-Progress Workshop, Duke Law Faculty Workshop, Harvard Law Faculty Workshop, Harvard University International Law–International Relations Workshop, UC Davis School of Law Faculty Workshop, and the UCLA Climate Change Law Workshop. Excellent research assistance was provided by Sam Harbourt, Mitch Drucker, and Lyric Chen. The views expressed in this Article represent the personal views of the authors and not the TEPAC. All errors are our own. PLEASE INQUIRE BEFORE CIRCULATING THIS DRAFT, AS A FINAL VERSION WILL BE FORTHCOMING SHORTLY. DRAFT PROVIDED FOR UNCTAD MEETING ONLY – FINAL VERSION FORTHCOMING 108:ppp (2014) The Rise of Green Industrial Policy 3 INTRODUCTION ................................................................................................................. 3 I. THE CLASSIC VIEW OF TRADE AND ENVIRONMENT DISPUTES .................................... 8 A. The Conventional Beliefs Arising Out of the Classic Cases ............................ 8 B. The Resurgence of Classic Assumptions in the Climate Change Debate ...... 14 II. THE RISE OF GREEN INDUSTRIAL POLICY ................................................................ 16 A. Why Have Green Industrial Policies Emerged? ........................................... 17 B. How Is Green Industrial Policy Being Deployed? ........................................ 19 C. Green Industrial Policy and Trade Disputes ................................................ 32 III. KEY IMPLICATIONS FROM THE RISE OF GREEN INDUSTRIAL POLICY DISPUTES ......... 43 A. The Rise of Multiple Fora: The WTO and Domestic Administrative Courts . 43 B. “Good” Versus “Bad” Actors: It’s Become Much More Complicated ........ 44 C. The Changing Political Economy: A Shattering of Key Alliances ................ 45 D. The Loss of Balance ...................................................................................... 51 IV. ARE LEGAL REFORMS NECESSARY? ........................................................................ 55 A. An Assessment of Existing Reform Proposals ............................................... 56 B. Do Environmental Interests Really Lose in Next Generation WTO Cases? .. 60 C. But Unilateral Trade Remedies Cases Can Be Environmentally Harmful .... 66 D. Pro-Environmental Reform Proposals for Trade Remedies ......................... 68 CONCLUSION .................................................................................................................. 73

Cite this paper

@inproceedings{Wu2014TheNG, title={The next Generation of Trade and Environment Conflicts: the Rise of Green Industrial Policy}, author={Mark L-C Wu and James F. Salzman and Samuel F. Mordecai and Bill Alford and Gabby Blum and Rachel Brewster and Ann B. Carlson and Anupam Chander and Glenn Cohen and Noah Feldman and Jacob Gersen and John C. P. Goldberg and Jack Goldsmith and Jim Greiner and Rob Howse and Louis Kaplow and Petros Mavroidis and Joost Pauwelyn and Ben Roin and Luca Rubini and Ben D Sachs and Jed Shugerman and Ronald Steenblik and Matthew Stephenson and Joel P. Trachtman and Elizabeth Trujillo}, year={2014} }