Carving out Policy Autonomy for Developing Countries in the World Trade Organization: the Experience of Brazil and Mexico
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Georgetown University Law Center Scholarship @ GEORGETOWN LAW 2012 Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil and Mexico Alvaro Santos Georgetown University Law Center, [email protected] © 2012 by the Virginia Journal of International Law Association. For reprint permissions, see http://www.vjil.org. This paper can be downloaded free of charge from: https://scholarship.law.georgetown.edu/facpub/885 http://ssrn.com/abstract=2030966 52 Va. J. Int'l. L. 551-632 (2012) This open-access article is brought to you by the Georgetown Law Library. Posted with permission of the author. Follow this and additional works at: https://scholarship.law.georgetown.edu/facpub Part of the International Law Commons, and the International Trade Law Commons VIRGINIA JOURNAL OF INTERNATIONAL LAW Volume 52 — Number 3 — Page 551 Y O T F I S V I R R E G V I I N N I A U 1819 Article Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil & Mexico Alvaro Santos © 2012 by the Virginia Journal of International Law Association. For reprint permissions, see http://www.vjil.org. Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil and Mexico ALVARO SANTOS* Although liberal trade and development scholars disagree about the merits of the World Trade Organization (WTO), they both assume that WTO legal obligations restrict states’ regulatory autonomy. This Article argues for relaxing this shared assumption by showing that, despite the restrictions imposed by international economic law obligations, states retain considerable flexibility to carve out policy autonomy. The Article makes three distinct contributions. First, it analyzes how active WTO members can, through litigation and lawyering, influence rule interpretation to advance their interests. Second, the Article redefines the concept of “legal capacity” in the WTO context and introduces the term “developmental legal capacity,” which describes how states can use legal tools and institutions not only as a sword to open new markets but also as a shield for heterodox economic policies. Third, the Article offers a comparative analysis of two case studies, Brazil and Mexico, and shows that they have pursued different trade and litigation strategies. While subject to the same WTO obligations, these countries have made different use of their policy *Associate Professor, Georgetown University Law Center. I would like to thank Lama Abu-Odeh, William Alford, Rachel Brewster, Joseph Conti, Michael Doran, Jeffrey Dunoff, John H. Jackson, Vicki Jackson, David Kennedy, Duncan Kennedy, Andrew Lang, Allegra McLeod, Nina Pillard, Michelle Ratton Sanchez, Joanne Scott, Mike Seidman, Gregg Shaffer, Robert Stumberg, Chantal Thomas, Vera Thorstensen, David Trubek, Philomila Tsoukala, Lucie White, Mark Wu, and an anonymous reviewer for their helpful criticisms and suggestions on earlier drafts. I am grateful to John London, Michael Sheehan, David Souzzi, and Markus Thomi for excellent research assistance. The Article has benefited from presentations at Georgetown’s Summer Faculty Workshop, Georgetown’s Institute for International Economic Law Luncheon, Harvard’s International Law Workshop, Harvard’s Institute for Global Law and Policy Faculty Workshop, the 2010 American Society of International Law’s Biennial Conference on International Economic Law at the University of Minnesota Law School, the “Laws Locations: Textures of Legality in Developing and Transitional Societies” conference at the University of Wisconsin Law School, and at the 2011 conference “Law and the New Developmental State in Latin America,” held at the Brazilian Center for Analysis and Planning (CEBRAP), in São Paulo, Brazil. 552 VIRGINIA JOURNAL OF INTERNATIONAL LAW [Vol. 52:551 space according to their own economic objectives. The Article concludes that, despite the apparent rigidity of the WTO, countries following a deliberate strategy can expand their regulatory space to advance their own interests. Introduction ........................................................................................................ 553 I. The Debate About Policy Autonomy in the WTO.. ........................ 556 A. Liberal Trade vs. Development Scholars ................................ 557 B. Structural vs. Pragmatic Development Scholars .................... 560 II. The WTO Limits on Countries’ Policy Autonomy .......................... 564 A. Restrictions .................................................................................. 564 B. Exceptions ................................................................................... 566 III. Countries’ Ability to Carve Out Policy Autonomy ........................... 570 A. Opportunities Arising From Strategic Lawyering .................. 571 1. In Theory ......................................................................... 571 2. In Practice ........................................................................ 577 B. Rule-Based and Doctrinal Space for Countries’ Policy Preferences ................................................................................... 585 1. Environmental Regulations .......................................... 585 2. Labor Standards .............................................................. 586 3. Intellectual Property ....................................................... 588 C. Linking Legal Capacity to a Development Strategy .............. 591 IV. The Cases of Brazil and Mexico .......................................................... 596 A. Differences in Trade Promotion and Industrial Policy ......... 598 1. Brazil ................................................................................ 599 2. Mexico .............................................................................. 601 B. Differences in Development Banks and Export Finance .... 602 C. Legal Capacity in the Service of Policy Autonomy................ 606 1. Differences in Legal Capacity ....................................... 608 a. Brazil .................................................................... 609 b. Mexico ................................................................. 609 2. Differences in Policy Objectives .................................. 612 3. Differences in Litigation Experience .......................... 613 a. As Complainants ................................................ 614 i. Brazil ....................................................... 614 ii. Mexico .................................................... 615 b. As Respondents ................................................. 617 i. Brazil ....................................................... 618 ii. Mexico .................................................... 621 4. The Brazil Aircraft Case and the Export Subsidies Prohibition ...................................................................... 624 D. The Limits of Strategic Litigation............................................. 628 Conclusion .......................................................................................................... 630 2012] POLICY AUTONOMY FOR DEVELOPING COUNTRIES 553 INTRODUCTION As countries around the world responded to the 2008 global financial crisis with economic stimulus and rescue packages, a vigorous debate developed in the rich North Atlantic countries about the role of the state in the market. In the United States, the government bailout of several financial institutions, the rescue of the American car manufacturers, and the start of several investment and spending projects seemed to inaugurate a greater role for the state in the economy. For a brief period of time, it seemed as though the strong belief in markets and the aversion to active state participation had crumbled and a paradigm shift in economic thought had taken place. Although this proved to be a temporary illusion and the parameters of the public debate have shifted dramatically since then, the crisis initiated a worldwide debate about the virtues and limits of the market. This debate had been going on for years in the context of developing countries — what was different this time was that a grave economic crisis originated in and affected the rich industrialized countries directly. This time, the debate and the reform policies that followed would have immediate consequences on the economies of the rich countries. The global financial crisis also threw the World Trade Organization (WTO) into the limelight and reenergized a vigorous debate between two main positions, which I call the “liberal trade” and “development” positions. Liberal trade scholars defend the WTO as an institution that can bring prosperity and increase economic welfare in the world. Development scholars, on the other hand, criticize the WTO for curtailing developing countries’ policy autonomy and hindering their ability to undertake the kind of policies that wealthy countries undertook to become rich. Interestingly, although liberal trade and development scholars disagree about the merits of the WTO, they both share an assumption that the WTO effectively restricts a state’s capacity to regulate in favor of its own domestic economic interests; the difference is that the former group celebrates this condition and the latter bemoans it. In this Article, I examine and challenge the assumptions of the two main positions in the debate. Development scholars argue that by imposing tight legal restrictions the