Second-Generation Flanking Policies: Addressing Extraterritorial and Non-Economic Costs of Trade Liberalization

Flanking policies – policies that aim to address potential negative effects of trade liberalization, and/or the concerns of domestic stakeholders regarding those negative effects, and that are either legally or factually linked to trade liberalization – have been a critical component of international trade policy since at least 1962. Over the years, however, flanking policies have changed. This Article argues that there is a heretofore unnoticed distinction between what I term first-generation flanking policies and second-generation flanking policies. Specifically, first-generation flanking policies target negative economic effects, or costs, of trade liberalization experienced within the enacting country. Trade adjustment assistance is the paradigmatic example. By contrast, second-generation flanking policies target non-economic costs that arise outside of the enacting country. Examples include the European Union's Carbon Border Adjustment Mechanism, Deforestation-free Products Regulation, and the United States' Uyghur Forced Labor Prevention Act. Because second-generation flanking policies directly target foreign activity, they often employ more trade-distorting policies – tariffs, imports bans, and associated administrative hurdles for imports – than first-generation flanking policies, which more often relied on domestic subsidies. Moreover, they reflect a significant reorientation of the limits of state authority in international trade law. Whereas authority to tax and regulate production in international economic law has historically been based primarily on a territorial link to productive activity, second-generation flanking policies target production but rely on a territorial nexus with consumption of goods and services.