Interlocking Legal Orders II – Global Markets & Nation States

WTO
 Dates from 1995, but is a successor to a much earlier organisation – GATT 1947.
 More than 150 countries have signed up to the WTO – so widespread is its
membership, some people talk about it as a global constitution.
 Consists of lots of different parts. Umbrella – WTO Agreement. Underneath lots of
separate ones. Agreement of Agriculture for example.
 Bits of the Agreement which are bad news for some countries. Eg, intellectual
property bits bad news for the developing countries. But signed up in the hope that
other bits would be good news. “Package deal”.
 From a lawyer’s point of view: significant that it marks a moment of legalisation in
intl relations. Highly legalised compared to what went before. GATT based on
diplomacy – “gentlemen’s club”. Particularly apparent when looking at the system for
the settlement of disputes:
o The agreement creates WTO courts – Court of First Instance in WTO, called
panels.
o Court of Appeal in WTO system in called the Appellate Body – permanent
body, with semi-permanent judges. Appointed for 3 years at a time?
o Not so with panels. Parties try to agree on who, on an ad hoc basis, should be a
panel member. There is a backstop mechanism in the event of disagreement -
Director General? will decide.
o In essence, what these WTO courts are doing is judicially reviewing
regulations or legislation of member states. Testing the legality of national
law. Intl courts pronouncing upon the legality of, for example, the EU rule
banning the use of antibiotics in poultry farming. Quite radical for intl courts
to have a power that is in essence judicial review over national law, including
national legislation.
 Preamble says that WTO is committed to a wide range of issues. *see handout*.
Important legally, as well as politically - ??? Don’t lose sight of the preamble.
Objective, teleological approach to debate really matters. When power was passed to
WTO courts to judicially review national law, those judges were given an enormous
amount of discretion. Because of the laconic nature of the text, the judges have an
enormous amount of power. Raises a Q in thinking about the legitimacy of intl
organisations. Agreement which judges are interpreting is so ill-defined.
 *Pg 2 of handout* - Article 2.2: members mustn’t pass laws which create unnecessary
obstacles to intl trade. Ultimately it falls to the WTO judges to decide whether a
particular piece of legislation is necessary or not. The Pmt (and the people, by
implication) thought it was necessary, but for the WTO judges to adjudicate.
The EU and the WTO
By contrast to the UN Charter (MSs are members but EU itself not a member) the EU is a
member of the WTO agreement – binding upon the institutions of the EU as well as the
member states of the EU. Question arises, as a matter of EU law, what does it mean to say
that the WTO agreement is binding upon it?

 Direct effect... Question arises: if the WTO Agreement constitutes a part of EU law,
does the WTO Agreement have direct effect within the EU legal order? Does it confer
rights on individuals which we can enforce in national courts. In a mode of operation
 which is uncharacteristically conservative, the ECJ has decided that the WTO does
not have direct effect as a matter of EU law. WTO is also EU law, but in its character,
the Agreement does not have DE – means that the WTO Agreement is not judiciable
before courts in the EU. Neither national courts nor European courts can rely on the
WTO Agreement. WTO does not give rise to rights which we as individuals, or
companies, can enforce in courts in Europe.
 Really matters – who can take action in the WTO? Only states. An inter-state
system. No direct action for non-state parties in the WTO.
 ECJ decided no for essentially 2 reasons:
o WTO Agreement leaves some space for discretion for MSs. In particular, if a
country loses a case in the WTO, has a number of choices:
(a)lost a case, get rid of the law – change national law to bring into conformity
with WTO law. or (seen as second best options)
(b)MS that loses the case can negotiate with the MS that brought the case –
still an element of diplomacy.
(c) do nothing – won’t get rid of the offending law, and won’t negotiate
because not willing to compromise. What then? The country bringing the
action can suspend concessions – trade concessions in relation to that state.
EU famously lost in the Hormones case...
 (a) & (b) – non-legal aspect of WTO law is quite problematic
o Reciprocity type reason – EU’s major trading partners eg US, do not treat the
WTO as directly effective.
How can you secure/sustain economic globalisation without undermining the ability of
individual states to deliver public goods? When you have a disjuncture between
globalisation and political fragmentation? Big question that has become incredibility
apparent in the context of the financial services sector.
Techniques for Managing Regulatory Diversity:
There are broadly 3 approaches that can be taken to achieving economic integration, each of
which has v different implication in terms of the residual regulatory autonomy – power of
individual states.
o Non discrimination approach
Essentially based on the idea that individual states can regulate their market
and can apply their state regulation to goods or services entering their market
from other countries so long as they do so in a manner which is not
discriminatory. EU can regulate on, for example, toy safety, and can apply
those EU regulations to Chinese toys, so long as they do so in a manner which
does not discriminate. Same regs applied to manufacturers inside and outside
of the EU. What’s the advantage? Preserves a high level of regulatory
autonomy for individual states, and by implication, a high level of
preservation of the national system of democracy.
What are the disadvantages? (a)The most obvious is that it doesn’t do a
good job at integrating markets. Can end up with different regs in different
countries throughout the world, which manufacturers have to apply with –
creates obstacles, particularly for poorer countries, and inefficiencies in
production.
(b)Actually working out what it means is really difficult – you actually are
giving a lot of power to the WTO judges: a big controversy growing up at the
 moment is the relationship between trade & climate change. No agreement to
speak of at Copenhagen – we have a situation of globalisation & political
fragmentation.
o Mutual recognition approach
Similarity with n-d – for states to decide...but ends there. Mutual recognition
based approach says it’s for the state in which the product is manufactured
to set the regulatory requirement for that product. Products produced in the
law of their home state – so long as this is the case, then the product can be
traded freely throughout the world on the basis that states will mutually
recognise the validity of the regulation of other states. Does not apply
anywhere in the world. Disadvantages: states will compromise on the
standards of protection which they think are necessary – letting goods in
which don’t comply with their domestic regulation. EU’s level of consumer
protection is diminished.
o Harmonisation approach
Fundamentally different from the above two approaches – it says that in a
global marketplace, it no longer makes sense for individual states to regulate.
Politically, it’s never going to be feasible for states to import goods that don’t
meet their requirements. We should get rid of laws of individuals states, and
replace them with more universal laws, at an international or regional level.
Need to overcome the reality of political fragmentation, and get agreements
between states. About establishing political agreement at an intl level, and re-
regulating at an intl level.

(a)...
(b) Where do the limits of economic integration lie? Given that the agreement
is not just about trade. How do you decide, if & when indv states can step
outside of the integrated framework associated with things like the WTO
Agreement. Are there exceptions to the principle of global economic
integration? If so, what form do those exceptions take? In the same way are
there are broadly 3 paradigms for...there are 3 approaches to deciding on the
limits to economic integration:
How to frame exceptions to these techniques for managing regulatory diversity?
SCIENCE
EC – Hormones
Passed a directive banning the use of hormones in beef farming, over concerns over
public health. Other countries (US, Canada) allow the use of these substances, and wanted
to sell their beef in the European marketplace.
US & Canada brought an action in the WTO against the EU.
EU lost – their banning of the use of these substances was found to be in breach of
WTO law. Clear sign that the WTO today goes beyond a discrimination-based approach.
Why couldn’t the EU justify its measure?
The relevant but of the WTO Agreement in this case places an emphasis upon scientific
rationality – Article 2.2 of the SPS Agreement. WTO Agreement looks to scientific
reason in a bid to find universally valid language to find what is and isn’t acceptable.
 EU, in this case, was found not to have sufficient scientific evidence to justify
maintaining its ban. Scientific evidence said that approximately 1 in 1 million women
would get cancer as a result of eating the beef – oestrogen a substance which can cause
cancer. But what he couldn’t say specifically was what the impact of using the substances
and the food being eaten would be – no evidence. Not specific – not sufficient for the
purpose of the case. *pg 4 of handout* - read. Language of science used as an attempted
universally valid reason

RATIONALITY/PROPORTIONALITY
*pg 5* Brazil Tyres
Trade ban imposed by Brazil in the importation of used tyres – said that they had to
have this ban because tyres create a lot of waste, and a form of waste which, from their
point of view, was very problematic. Used tyres piled up become breeding grounds for
mosquitoes and exacerbate problems associated with tropical diseases like malaria. Also
get set on fire a lot – emit toxic fumes – bad for public health.
Appellate body adopted a proportionality based approach – 2 stages to that:
o Takes the form a weighing & balancing process – para 1 pg 5. How important
is the protection of the good that is being pursued? How important is the
public interest being pursued? How trade restrictive is the measure? What
contribution does the measure make to achieve its objective?
In this case they said that public health is a fundamental objective. Although it was a trade
restrictive measure, said it could be considered necessary.
o States still have to justify that there was no less trade restrictive means
available to achieve the objective in question. First bit more controversial than
the second bit of the test. Second bit doesn’t call into question the
reasonableness of the objective, which the first does. First asks how important
the objective is.

PROCEDURALISM
Shrimp case...
US banned the selling & importation of shrimp from countries which did not have in
place policies which secured the protection of sea turtles- unless certain equipment is
used, turtles are accidentally caught – endangered species. Even fishermen that used these
devises could not import to the US if their state did not have a policy for it.
Question arose as to whether the measure could be justified. Appellate Body has to ask,
can he measure be justified under the GATT exception – Article 20 of the GATT?
Measures which relate to the conservation of exhaustible natural resources. Includes
living creatures.
Having decided that, in principle, it relates to the conservation of exhaustible natural
resources...overarching framework for interpreting Article 20...Ssomething.
US measure not consistent with the *, and should therefore be viewed as contrary to
WTO law – reached that conclusion by adopting a proceduralist approach – invoking the
fact that the US had not satisfied certain procedural requirements which the Appellate
Body read into Article 20, and specifically to the shapo???
Perhaps the most important procedural requirement that they read in was the fact that
before individual state takes a unilateral trade restriction, it has a procedural obligation to
enter into serious negotiations with other states, with a view to arriving at a consensual
agreement about the kinds of standards that should be put in place. Prior to unilateralism,
should be an attempt to reach a consensual, multi-lateral agreement with other states.
In principle the ban was allowed, but on the facts of the case it wasn’t, because of
certain procedural shortcomings. And, they had imposed a unilateral ban without first
seeking a multilateral solution. *see page 6*
Respects regulatory diversity...6
Makes sure that states, especially powerful ones like the US, are accountable.
Accountability to people who are affected by the US measure, but who do not,
nonetheless form part of the US.
The effect of the ‘procedural turn’ was such that the appellate body, in essence, said
that it was OK for the US to impose a unilateral ban on shrimp coming from countries
which don’t have policies to protect sea turtles. In the end, it is argued, that procedural
approach did nothing more than legitimate a decision that was in the interest of the US
and other rich & powerful states, and which worked against poorer states.
*see quote on pg 7*