The Political Economy of WTO Exceptions

Abstract

This Article 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.

Keywords: WTO, international trade, international economic law, exceptions, dispute resolution, FTAs

JEL Classification: K33, F02