Tag Archives: EU

Seals, Morality, and the WTO

REUTERS/Paul Darrow

REUTERS/Paul Darrow

I recently returned from a conference in which a coauthor and I presented some research on clubbing seals to death. No, not on the methodology of the ugly business; instead, we were looking at the economic and legal questions raised by a recent pair of decisions by the World Trade Organization’s dispute settlement mechanism. The case raises issues of morality, extraterritoriality, and the dangers of a global trading system adrift.

To set the scene, Canada and Norway both engage in commercial seal hunts. The hunters ultimately sell the seal skins and furs commercially. In part to preserve those skins and furs, the hunters club the seals in the head to stun them before killing them.

More than a few people find this process offensive. In 2009, the European Union adopted measures to ban the sale of seal products in most cases (Foreshadowing: the “most” ends up mattering a lot). This prompted a formal complaint at the WTO later that year. Canada and Norway claimed, in effect, that the European Union had reneged on past promises of trade liberalization. The premise was that when Canada and Norway signed agreements such as the Uruguay Round of trade talks in the early 1990s, they did so on the understanding that their products would gain access to foreign markets. When Europe closed its markets to these particular products, the value of the original deal was diminished in Canadian and Norwegian eyes.

The European Union, which contains 28 countries but negotiates with a single voice at the WTO, responded that it was within its rights. The central trade agreement in question offered a number of exceptions that countries could use to justify the imposition of trade barriers. The language reads, “nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures…”—and then goes on to list the exceptions. Curiously, Europe did not opt for the one that concluded “…necessary to protect human, animal, or plant life or health.” Instead, Europe claimed that its seal trade barriers were “…necessary to protect public morals.”

The European Union recently ended up losing the case, both in front of the original panel and in front of the appellate body, though each used different reasoning. A key factor was the pliability of European moral concern. The original measures that banned seal product trade had, in fact, permitted it when hunts were performed by indigenous communities (e.g. Inuit) or when hunts were part of “marine resource management.” There was no evidence that these types of hunts were any more humane; they were just instances in which other European objectives (e.g. protecting indigenous communities) came into conflict with their expressed moral concerns.

A major challenge for the dispute panels was to figure out just how broad this “public morals” exception ought to be. Though it had appeared in trade agreements for a long time, it had not really been invoked much. Thus, its scope was ill-defined. This was what made the EU Seals case noteworthy; it grappled with a clause that, under an expansive interpretation, could blow an enormous hole in countries’ trade liberalization commitments. After all, countries are permitted to ban products that are dangerous or unhealthy, but there is a natural limitation to this license to block trade—one can test whether the products are, in fact, dangerous. But if countries can block products because they claim their citizenry has moral concerns about the way the product was produced, there are no such natural limits. As one of the conference participants had noted in previous work, a country could express moral concern about products made by trade partners who supported Israel or Taiwan. The intent of the original WTO agreement was clearly not to allow countries to reinstate protection whenever they felt like it. Yet the “moral concern” exception is there on the books. How to strike a balance?

The jurists decided that, at a minimum, the moral concern had to be pure. An abhorrence of seal clubbing, except when done by an Inuit, did not meet that test. This largely postponed the question. It served as a check against simple protectionist motives, in which moral concerns were put forward as an excuse for discriminating against imports. But it leaves open the extent to which countries can use their moral concern about the production methods, policies, and practices of other countries to justify barriers (which may, in turn, look a lot like sanctions).

The question is a difficult one. Judicial systems everywhere fill in blanks in the law when vague phrases demand interpretation. But they usually operate in conjunction with active legislatures, who can clarify the laws if they so choose. Further, justices often undergo careful selection and vetting procedures, as with the US Supreme Court, for which nominees are picked by the president and approved by the Senate. This process gives their interpretations some legitimacy (though, as this last week demonstrated, it hardly immunizes them against criticism).

The WTO dispute settlement mechanism does not enjoy either of these advantages. Global trade talks launched in 2001 have largely stalled and struggled to produce even modest results. The last two full global trade agreements concluded in 1994 and 1979. Policymakers have sometimes been tempted toward complacency about the lack of negotiation progress. The 1994 agreement strengthened dispute settlement; why not just let that system work and enjoy the benefits? The difficult questions of the EU Seals case show the dangers of such an approach. New political questions require new political agreements. Such an agreement at the WTO is long overdue.

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Guest Commentary: TTIP – Views from Europe

By Fredrik Erixon, director and cofounder of the European Centre for International Political Economy (ECIPE), a world-economy think tank based in Brussels, and was the Convenor of the Transatlantic Task Force on Trade, a joint project of ECIPE and the German Marshall Fund of the US that spearheaded the TTIP negotiations. A fuller version of his analysis can be found here (PDF).

Failures in the World Trade Organisation’s Doha Round have prompted countries to turn to preferential trade agreements. But are they worth their salt? While the most outstanding feature of past FTAs is that they have not had impressive effects on growth in trade and Gross Domestic Product (GDP), the negotiations for a Transatlantic Trade and Investment Partnership (TTIP) may change this verdict. Clearly, TTIP will be won or lost for its economic merits. And the pro-growth effects of TTIP are really what persuaded reluctant officials and politicians in Europe to join countries like Germany and Sweden in their efforts to push for a transatlantic FTA. Given Europe’s poor growth rates, trade agreements that could deliver higher economic growth have been given a new hearing.

Few would deny that TTIP has the capacity to deliver a sizeable contribution to GDP in Europe. The gains from this FTA would be bigger than from other FTAs for the reason that it involves two large economies. Simply, size matters. A “conservative” estimate by the Centre for Economic Policy Research in London suggests the TTIP gain for the EU to be in the tune of 0.3-0.5 percent of GDP (the GDP gains are slightly smaller for the US).

However, political scepticism of TTIP is less concerned with the bilateral economic gains (or losses) and more directed to its consequences on the World Trade Organisation as the central forum of trade negotiations. But perhaps surprisingly to some, the debate in Europe over TTIP has taken a different view. Generally, it has not thrived on the notion that TTIP should be an attempt to build a Fortress Atlantic – or that it is a strategy to gang up on China or other emerging powers competing with the US and Europe.

So while the strange acronym of TTIP is for some a code word for the death knell of the WTO, many trade observers in Europe would argue it is the substance that should be used to give global trade policy a needed shot in the arm.

TTIP, like the TPP, was not born out of deep and genuine beliefs in the principles of free markets or the classical school of free trade. Like any other trade agreement in the past years, these initiatives build on conditional views of free trade and free competition mixed up with soft mercantilism and a growing urgency to support economic growth. Yet it is the best available strategy to rejuvenate global efforts to liberalise trade.

In the past 15 years, the multilateral trading system has been a leaderless system with no clear direction that has unified the key members. The system itself benefited for several decades from the leadership by the United States, which considered this system to be critical for its overall strategic objective of spreading market-based capitalism. There were willing followers to the US leadership, but none other than the US had the requisite economic, political, and institutional capacity to underwrite the system. Yet since the collapse of the Cold War, American leadership has withered away, and its general position on trade liberalisation has somewhat changed. Absent political leadership and direction, the Doha Round got stuck because the political instinct of many countries was to favour status quo rather than new liberalisation as long as there is no external pressure that prompts them to revisit that position.

Like many other things in economic life, trade liberalisation tends to be driven by two motives: profits and fear. Countries agree to open up for greater foreign competition because they believe it will boost their economy or because they fear that other countries will go ahead without them if they stubbornly resist liberalisation. Despite all the success of trade-oriented models of growth, many countries have grown to think that they will not stand to benefit much from new trade liberalisation – and that they have no reason to fear failure.

TTIP may partly change this. It is a big initiative. And if the two biggest economies of the world go for a bilateral agreement, it means that there is a risk for other countries that stand outside that bilateral agreement and, which is important, other efforts to liberalise trade. That risk is mostly about not having a voice in the design of the trade reforms that are likely to serve as benchmarks in future international agreements. It is far less about loosing current trade access – but it is about the fear of not having as good access to trade that will be liberalised in the future. Consequently, if TTIP is the ‘real thing,’ if it achieves the promise of ushering the world into 21st Century trade policy, the response from the larger emerging economies cannot be no response at all. The political and economic opportunity costs of status quo would have been changed.