“Relevant” Regulation of Food Derivatives
By Daniela Garretón, Mary Arutyunyan and Robert Stumberg, Harrison Institute, Georgetown Law Center
The chair of the WTO’s Working Party on Domestic Regulation
(“WPDR”) has proposed a set of rules, called “disciplines” that would
limit government regulation of complex service industries.
One of the disciplines would require regulations to be
“relevant to supply” of a service. This could be interpreted to mean
that regulations must relate to the intrinsic quality of a service and
not the extrinsic impact a service has on the environment, communities
or markets. If so, this would be a significant change in the permissible
scope of government regulation.
This paper illustrates how a “relevant” test would apply to
regulation of derivatives, a financial service in which many WTO
countries have trade commitments. We focus on food commodity derivatives
because: (1) they are an essential part of agricultural trade; (2)
speculation has recently contributed to volatile prices in the commodity
markets; (3) this volatility has contributed to price spikes in food;
and (4) a policy solution has yet to be found. It may entail
reregulation of trade in food derivatives to mitigate the influence of
the new financial speculators.
Our analysis shows that a leading idea for re-regulating food
derivatives, a compulsory delivery requirement for derivative traders,
is likely to violate the “relevant” test, and it is unlikely to benefit
from the WTO’s “prudential exception” for measures that promote
financial stability. We conclude with three options to delete or clarify
the relevance test.
Click here to read “Relevant” Regulation of Food Derivatives (54 pages, pdf, 1.1MB)