The Next Generation of Trade and Environment Conflicts: The Rise of Green Industrial Policy

By Wu, Mark; Salzman, James | Northwestern University Law Review, April 1, 2014 | Go to article overview

The Next Generation of Trade and Environment Conflicts: The Rise of Green Industrial Policy


Wu, Mark, Salzman, James, Northwestern University Law Review


ABSTRACT-A major shift is transforming the trade and environment field, triggered by governments' rising use of industrial policies to spark nascent renewable energy industries and to restrict exports of certain minerals in the face of political economy constraints. While economically distorting, these policies do produce significant economic and environmental benefits. At the same time, they often violate World Trade Organization (WTO) rules, leading to increasingly harsh conflicts between trading partners.

This Article presents a comprehensive analysis of these emerging conflicts, arguing that they represent a sharp break from past trade and environment disputes. It examines the causes of the shift and the nature of the industrial policies at issue. The ascendance of these Next Generation conflicts transforms both the international and domestic political economies of trade litigation and environmental policy. It raises implications for the choice of forum for trade litigation, the divide between industrialized and developing countries' strategic interests, the stability of domestic political alliances, and the availability of WTO legal exceptions for environmental measures.

Perhaps surprisingly, the most worrisome implication of Next Generation cases for both environmental protection and trade liberalization arises from often-overlooked trade remedy laws. The choice of litigation forum matters greatly because the compliance options differ depending on the forum. As a result, the environmentally harmful consequences of Next Generation cases are likely to be greater in domestic trade remedies cases than in WTO dispute settlement cases. To mitigate the environmental harms from Next Generation cases and reduce the threat of a green trade war, this Article suggests that we focus on reforming domestic trade remedies rules.

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INTRODUCTION

Conflict between international trade and environmental protection is once again on the rise. After a decade of tranquility, major trading powers are aggressively challenging each other's pro-environmental policies in the name of global trade rules. Indeed, 2012 proved to be the most contentious year ever, with more conflicts looming on the horizon.

In March 2012, the United States, EU, and Japan joined forces to challenge China at the World Trade Organization (WTO) over China's export restrictions on rare earth minerals, enacted allegedly for environmental reasons.1 Two weeks later, a WTO panel heard oral arguments in a case brought by Japan and the EU over Ontario's feed-in tariffs for renewable energy.2 In May 2012, the U.S. slapped punitive tariffs on Chinese solar panels up to 250%, denouncing Chinese manufacturers for unfairly dumping their goods into the American market.3 China, in turn, attacked U.S. states' rebates for renewable energy installations.4 By September 2012, the EU had opened its own investigation into unfair practices of China's solar panel manufacturers.5 Weeks later, China responded by filing its own WTO case against the European feed-in tariffs for violating WTO rules.6 The year ended with a WTO panel finding Ontario's feed-in tariffillegal.7 This list is but a sampling of the growing conflicts.8 As we shall see, 2013 has proven to be equally contentious, with several important WTO rulings and confrontations over tariffs imposed on renewable energy goods.9

Deep tension between the competing goals of global governance regimes-encouragement of national environmental policies versus removal of protectionist trade barriers-is not new. The last time trade and environment conflicts were at a similar state of high alert was the mid- 1990s, when the United States imposed environmental conditions on imports of tuna and shrimp, and developing countries successfully challenged these regulations as illegal under international trade law. The recent cases, however, represent a dramatic departure from past conflicts. …

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