Observations on the nexus between trade law and domestic regulation
In the two decades since the WTO’s inception, the interaction between trade law and domestic regulation has usually been couched in terms of how far it is appropriate to balance the “right to regulate” with trade concerns. However, over the same period, many jurisdictions have been unilaterally implementing best practice regulatory guidelines that can be seen as internal constraints on the scope for regulation, in order to ensure that regulation is welfare enhancing.
The pertinent question therefore, is how these guidelines, and notably the concept of net economic benefits that underpin them, relates to trade law concepts, and in particular the necessity test. While highlighting differences, we also draw on recent cases involving the Agreement on Technical Barriers to Trade (TBT), and especially rulings in the US-COOL dispute, to show how the concept of necessity under trade law has evolved, bringing it closer in line with a traditional net-benefits test. We argue that though there is little scope to formally enshrine a netbenefits test in trade law, a more diligent application of best practice regulation at the domestic level would be both welfare enhancing and would also reduce trade friction.