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“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)

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