'The right to regulate and the interpretation of the WTO Agreement ' by Andrew D Mitchell in (2023) Journal of International Economic Law comments
International investment treaty arbitrators have long recognized the existence of a State’s right to regulate under international law—independent of the treaty text itself—that ought to be factored into their analysis of whether a State violated its treaty obligations. The precise contours of such a right, and its interaction with the substantive disciplines of the treaty in question, have varied considerably across international investment law disputes. Indeed, some adjudicators have taken the approach that, although such a right absolves a State of acting unlawfully under the treaty, it does not absolve the State from paying compensation under it, perhaps nullifying the right’s practical import. Nonetheless, this represents a minority view, and perhaps in response to those approaches, States have increasingly codified the proposition in the text of their international investment treaties that there exists a sovereign right to regulate to be factored into adjudicators’ interpretation of their substantive disciplines. Recent major non-World Trade Organization (WTO) plurilateral trade agreements have also explicitly recognized the existence of an inherent ‘right to regulate’ in the public interest.
Compared to international investment law arbitrators, WTO adjudicators confronted with arguments about an inherent right to regulate that applies to WTO Agreement obligations have typically been dismissive. For instance, in China—Raw Materials, China argued that it possessed a right to regulate trade as an ‘inherent right’, and ‘not [as] a “right bestowed by international treaties such as the WTO Agreement”’, and that this inherent right should inform adjudicators’ understanding of China’s substantive commitments under the WTO Agreement. The USA, Mexico and European Union argued that China had exercised its inherent right to regulate trade when it acceded to the WTO Agreement, and any ability to deviate from its substantive disciplines can be found only in the WTO Agreement itself. Both the panel and the Appellate Body (‘AB’) agreed with the USA, Mexico and the European Union and declined to consider the existence of an inherent right to regulate outside of the WTO Agreement.
Along these lines, WTO adjudicators have traditionally framed a State’s right to regulate as essentially residual in character. In other words, upon accession to the WTO Agreement, whatever inherent right to regulate States have had under international law is transmuted into deference for their regulatory autonomy under WTO disciplines, rather than remaining an inherent WTO right as such. A key consideration in this regard has been the existence of standalone exceptions clauses that provide policy-based exceptions to substantive disciplines in major instruments of the WTO Agreement, such as Article XX of the General Agreement on Tariffs and Trade (‘GATT’)10 and Article XIV of the General Agreement on Trade in Services (‘GATS’). Moreover, WTO Agreement drafters have explicitly cross-applied these policy-based exceptions to some other WTO instruments, such as the Agreement on Trade-Related Investment Measures.
The existence of clauses providing for policy-based exceptions has led WTO adjudicators to eschew policy-based considerations in their interpretations of substantive disciplines, such as non-discrimination articles, even where there might be a textual or contextual basis for doing so. For example, the fourth preambular recital of the GATS ‘[r]ecogniz[es] the right of Members to regulate, and to introduce new regulations, on the supply of services within their territories…to meet national policy objectives’. The AB in Argentina – Financial Services nonetheless found this recital irrelevant to the interpretation of non-discrimination provisions in the GATS, given the codification of a more limited set of policy-based considerations through the exceptions clause of Article XIV. For the AB, the existence of policy-based exceptions meant that ‘regulatory concerns’ were excluded from the substantive disciplines. The AB reached the same conclusions under the GATT in EC—Seal Products.
Thus, in characterizing a State’s right to regulate as essentially residual in character, WTO adjudicators have traditionally emphasized that a State must either find a basis in the text of an instrument under the WTO Agreement that explicitly justifies a regulatory action16 or pursue only those regulatory actions that are consistent with the substantive disciplines of the WTO Agreement. Accordingly, unlike in international investment arbitrations, a State’s right to regulate has not been viewed as a standalone component under the interpretive analysis in WTO dispute settlement. Instead, policy-based considerations have been integrated only to the extent that they find expression in the ordinary sources of treaty interpretation, namely, the provision’s plain text and context in light of the treaty’s object and purpose.
This general approach has presented challenges concerning instruments under the WTO Agreement (‘Covered Agreements’) that omit any policy-based exception clauses. On occasion, WTO adjudicators have sought to overcome such challenges by cross-applying a policy-based exception clause to another instrument with a clear textual basis for doing so,19 but they have generally avoided this approach.
This article explores how WTO adjudicators have engaged in the interpretive process in cases involving a public policy-based measure when no policy-based exception clause has been available. This question has arisen recently in a diverse array of cases under the Agreement on Subsidies and Countervailing Measures (‘SCM Agreement’) (section II), the Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS Agreement’) (section III) and the Agreement on Technical Barriers to Trade (‘TBT Agreement’) (section IV). As I will show, WTO adjudicators have proactively made selective interpretive choices to recognize States’ right to regulate under these instruments, even where this may seem contrary to their plain text and the orthodox approach described earlier. While I do not take issue with the ultimate outcomes reached by WTO adjudicators, their attempts to situate a State’s right to regulate within the ordinary tools of treaty interpretation have resulted in approaches that are, at first glance, unclear and uncertain. Nevertheless, I argue in The right to regulate as a principle of regulatory autonomy? section that, while such unorthodox approaches appear ungrounded in ordinary interpretive principles, they can be explained in terms of each WTO instrument’s unique text, structure and purpose. By making more explicit reference to these legislative characteristics in their analyses, WTO adjudicators might be able to acknowledge a right to regulate at the WTO explicitly—not as an inherent and unfettered right at international law—but as a principle of regulatory autonomy that is derived explicitly or implicitly from the text of the Covered Agreements. This characterization would provide a firmer basis for WTO bodies to either reinforce or peal back policy-based considerations on a case-by-case basis.
