Must the States Discriminate Against Their Own Producers Under the Dormant Commerce Clause

Abstract

This article works out the implications of an insight mentioned, but not developed, in the literature on free trade law: A polity that regulates its own producers without regulating outside producers serving that polity discriminates against its own producers. This insight gives rise to a question. Should laws serving free trade values require polities to discriminate against their own producers?

This article examines the legitimacy of requiring discrimination against in-state producers through the dormant Commerce Clause’s extraterritoriality doctrine - which prohibits regulating wholly outside the enacting state’s borders. This doctrine, by prohibiting regulation of producers outside the regulating state, seems to require discrimination against the enacting state’s producers.

Descriptively, it shows that governments rarely discriminate against their own producers, instead commonly using import restrictions to facilitate even-handed regulation. This practice suggests that even-handed regulation may have some justification. It then examines the normative case for allowing states to regulate even-handedly and explains how this case challenges the extraterritoriality doctrine. The analysis developed to explore the extraterritoriality doctrine’s legitimacy also informs domestic and international free trade law more broadly and contributes to an emerging literature on “horizontal federalism” - the law of interstate relations.

Keywords: extraterritoriality doctrine, dormant commerce clause, free trade, internet, climate change, leakage, federalism, horizontal federalism, state sovereignty, free trade, level playing field

JEL Classification: F10, K10