Meyer: Free Trade, Fair Trade, and Selective Enforcement

Timothy Meyer (Vanderbilt Univ. - Law) has posted Free Trade, Fair Trade, and Selective Enforcement (Columbia Law Review, forthcoming). Here's the abstract:

The 2016 presidential election was one of the most divisive in recent memory, but it produced a surprising bipartisan consensus. Donald Trump, Hillary Clinton, and Bernie Sanders all agreed that U.S. trade agreements should be, but are not, “fair.” Although only achieving broad consensus recently, the critique that U.S. trade agreements are unfair has been around for decades. Since 1992, much of this fairness critique has focused on ensuring that trade liberalization does not undermine non-commercial values, such as environmental protection and labor conditions. Beginning with the negotiation and ratification of the North American Free Trade Agreement (NAFTA) in the early 1990s, governments have responded by including in their trade agreements a prohibition on the selective enforcement of environmental and labor laws. This ban — a central component of efforts to make sure that free trade agreements are, indeed, fair — aims to prevent a global race to the bottom in environmental and labor standards.

These efforts have fallen wide of the mark. This Article makes two novel contributions. First, it demonstrates empirically that selective enforcement is considerably more pervasive than commonly thought. But contemporary selective enforcement is the reverse of the kind of selective enforcement that has traditionally concerned trade critics. Instead of selectively enforcing environmental and labor laws to gain a trade advantage, governments selectively enforce trade laws in ways that undermine environmental and labor interests. To illustrate, the Article presents data from trade enforcement actions in the energy and fisheries sector to demonstrate this claim. In both sectors, trade laws are enforced exclusively against natural resource substitutes, such as renewable energy and farmed fish. The natural resources with which these products compete, fossil fuels and wild fish, benefit from the same allegedly unlawful conduct but are not targeted for enforcement.

Second, this Article presents a theory of how selective enforcement of trade law distorts markets to the detriment of the environment. It argues that selective enforcement is an implicit subsidy for products that are not targeted for enforcement but benefit from the same allegedly unlawful conduct as targeted products. When, for instance, natural resource substitutes such as renewable energy are more likely to be targeted for enforcement, they incur three kinds of costs: litigation costs, liability, and lost investment. Taken together, these costs allow natural resources, such as fossil fuels, to sell at a discount relative to their competitors. This competitive advantage spurs unsustainable natural resource consumption and discourages investment in sustainable products. It presents evidence that selective enforcement in the energy and fisheries sectors has indeed caused these effects.

The Article concludes by suggesting how governments can reform trade law enforcement to address the pernicious effects of selective enforcement. Governments have acted to address other kinds of selective enforcement in the past, so reform is politically feasible. Nevertheless, given the current political climate, reforms should concentrate on increasing trade law enforcement across the board.