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Michigan’s clean energy standards violate international trade law

Seven states have passed environmental laws that are incompatible with the United States’ international obligations.

- July 4, 2019

At the World Trade Organization last week, the United States lost a case at the panel level, where India had sued over discriminatory clean energy laws in seven U.S. states: California, Delaware, Connecticut, Michigan, Minnesota, Montana and Washington. (See Todd Tucker’s analysis.) These laws were all judged as being discriminatory because they provided preferential treatment for use of locally produced content. That is a clear violation of WTO law — even if the laws’ purpose was to promote green energy.

The politics of green energy are complex

It is common knowledge that President Trump believes no action is needed to address climate change. In contrast, most analysts believe climate change is a real threat and that global coordinated action is needed to address it. The U.S. federal government is, for the moment, therefore a major dissenter from global efforts to take coordinated action. It now plans to pull out of the 2015 Paris agreement at the earliest permissible moment, in November 2020.

This is why some U.S. states are taking action on their own to cut carbon emissions.

The law makes it hard for U.S. states to disobey international agreements

So can U.S. states continue to breach international rules? In the United States, the power of states to take action is constrained by federal statutes, as well as by the Constitution, including the Commerce Clause, which prohibits discrimination against interstate and international commerce. However, state action is also constrained by international law, including the international trade law contained in the World Trade Organization treaty. The agreement that established the WTO states that each country must ensure the conformity of its domestic laws to WTO law.

More specifically, Article XXIV: 12 of the General Agreement on Tariffs and Trade (GATT, which is part of the WTO treaty) states that each country must “take such reasonable measures as may be available to it to ensure observance of [the GATT] by the regional and local governments and authorities within its territories.” This was supposed to allow federal countries to join the GATT without having to change their federal distribution of competence.

More broadly, under general international law, countries are fully responsible for the acts of their constituent entities. Except to the extent that Article XXIV: 12 reduces federal responsibility, the U.S. federal government is on the hook for state actions.

Finally, when the United States accepted the WTO agreement in 1994, it did so by executive agreement, through a statute: the Uruguay Round Agreements Act (URAA). Congress exercised its Commerce Clause-based prerogative to approve the WTO agreement and thus to make it the law of the land. Although Congress was solicitous of state prerogatives, WTO law is, even within the U.S. legal system, superior to preexisting and subsequent state law (but not federal law). However, it is clear that only the federal government has standing to bring a lawsuit to assert a state action violates WTO law. The federal government has, since the inception of the WTO in 1995, avoided bringing such a suit.

The Trump administration might decide to bring a federal lawsuit to suppress these state measures under WTO law. If it did, it would probably add a claim under the U.S. Constitution’s Commerce Clause. However, the Trump administration has not brought a Commerce Clause claim yet, although other state clean energy laws have been attacked by private industry under the Commerce Clause. It is worth noting that while private firms can bring Commerce Clause-based cases, they have no standing under the URAA to bring a WTO-based case.

The states’ actions are straightforwardly in violation of WTO rules

What this means is these states’ clean energy laws are straightforwardly discriminatory and therefore violate WTO law. It is unlikely that any potential exception, such as those for protection of life or for conservation of natural resources, would be available, in part because it is difficult to argue as required by those exceptions that discrimination is needed or even appropriate to achieve environmental goals.

If this holding stands, and the state measures are not brought into compliance, India may be authorized to retaliate against the United States, for example by blocking Indian markets to U.S. goods. However, the amount of retaliation is limited under WTO law to the amount by which India has been injured, which would probably be quite small. So, even though the United States will probably lose at the WTO, these seven states will not be required to change their laws unless the federal government sues them in federal court.

These state measures are a clear violation of WTO law. This, however, is an assessment of what the law says, rather than an assessment of what is politically right or wrong. Some argue discrimination, even though not necessary as a matter of policy, is politically necessary to enact state clean energy laws. That is a different question and a more vexed one.

Joel P. Trachtman is professor of international law at the Fletcher School of Law and Diplomacy, Tufts University.