Optimal regulation and the law of international trade : a law & economics analysis of the WTO law on domestic regulation

Abstract

Background: Conflicts between domestic regulatory preferences and the law of the World Trade Organization (WTO) are numerous and a constant bone of contention. The list of regulatory objectives that potentially collide with the trade interests of other WTO members include subjects, such as human health, animal welfare and cultural diversity, to mention just a few. Aim: Against this backdrop, the question this thesis aims to answer is whether the law of the WTO on domestic regulation systematically obstructs or supports governments in attaining the optimal protection of societal and individual values. In other words, the thesis asks the question of whether the relevant WTO law is efficient. In order to provide a response to the main research question, it is necessary to address a number of sub-questions: (i) when are levels of regulation optimal?; (ii) why and under which conditions are levels of regulation distorted, i.e. sub-optimal?; (iii) why and under which conditions should member states' determination of the appropriate level of regulation be subjected to the disciplines set forth in international trade agreements?; and (iv) against this background, does WTO law allow governments to pursue optimal regulatory policies? Methodology: The present thesis' methodological approach is grounded on economic theory, and in particular the terms-of-trade approach to trade agreements. While standard microeconomic theory is applied so as to assess what optimal regulation actually, the terms-of-trade approach is used to explain when governments digress from optimal solutions and what role there is for international trade law in such cases. On this basis an analytical framework is provided which is applicable to all types of conflicts between WTO members' right to regulate and the disciplines to which they are committed under the regime of the WTO. Results: the two main results reported in the thesis are that (i) domestic regulatory measures should only be subject to scrutiny by WTO bodies when they cause negative international externalities through terms of trade manipulations; and that (ii) WTO law as applied by the WTO judiciary can, due to shortcomings in the interpretative approach, indeed prevent WTO members from attaining optimal levels of regulation.