Free Trade and the Regulatory State: A GATTs-Eye View of the Dormant Commerce Clause

At one time, federalism may have seemed a peculiarly American institution. Today, however, we can see federalism as a special case of the more general problem of allocating power among geographic units. Problems of federalism arise in structures as large as the European Union' and the even larger global trade system under the General Agreement on Tariffs and Trade ("GATT"). Free trade increasingly is accepted as a value internationally, as it always has been for commerce within the United States.

Yet, both internationally and domestically, free trade must accommodate the reality of the modern regulatory state-a state that shows little tendency to wither away. Regulation often creates competitive disadvantages for foreign producers. Sometimes the disadvantage is intended, but sometimes it is a genuinely unwanted consequence of a domestic policy. Trade-restricting effects frequently occur even with facially nondiscriminatory regulations because the different geographic or market positions of foreign producers often make it more costly to comply with demanding regulations.

For example, a rule mandating particular pollution controls for automobiles can force the foreign producer to set up a separate production operation in order to sell in that particular jurisdiction.