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Can a Protectionist Measure be Non-Discriminatory? Comparative Federal Markets and a Proposal for a Definition of Discrimination Under s 92 of the Australian Constitution

Published online by Cambridge University Press:  01 January 2025

Csongor István Nagy Open the ORCID record for Csongor István Nagy [Opens in a new window]
Csongor István Nagy*
Affiliation:
Centre for Social Sciences of the Eötvös Loránd Research Network (Federal Markets ‘Momentum’ Research Group), University of Szeged, Central European University (Budapest/Vienna/New York) and the Sapientia University of Transylvania (Romania)
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Abstract

Three decades ago, in Cole v Whitfield, the High Court of Australia opted for a discrimination-based standard with the argument that s 92 of the Australian Constitution targets solely protectionist measures. This article demonstrates, with the use of comparative law analysis, that, in contrast with this teleology, the High Court has built a lacunose definition of discrimination that is incapable of covering the whole spectrum of protectionist measures. It argues that measures having an asymmetric impact should be considered discriminatory and countenanced only if they are justified by a local legitimate end and are proportionate, even if they rely on distinctions that are not based on out-of-state origin.

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Articles
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Federal Law Review , Volume 51 , Issue 1 , March 2023 , pp. 58 - 77
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Copyright © 2023 The Author(s)

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Footnotes

The author is indebted to Professor Amedeo Arena, Professor Samantha Cheesman, Professor Helen Irving, Professor András Jakab and Professor Giovanni Piccirilli for their comments. Of course, all views and any errors remain the author’s own.

References

1. Cole v Whitfield (1988) 165 CLR 360.

2. Cf Gonzalo Villalta Puig, ‘Betfair and Sportsbet: The Remains of the Federal Purpose of s 92 of the Australian Constitution’ (2013) 87(3) Australian Law Journal 178.

3. While the EU is not a state proper, it displays numerous elements of a federal state, making comparisons highly lucrative, especially as to the internal market. There is a wealth of literature emphasizing the EU’s state features: see, eg, Robert Schütze, From Dual to Cooperative Federalism: The Changing Structure of European Law (Oxford University Press, 2009), 70 (‘[T]he American tradition easily classifies the European Union as a Federal Union. The Union has a mixed or compound structure; and in combining international and national elements, it stands on federal “middle ground”.’). For general theories of federalism and their application to the EU: see Christoph Schönberger, ‘Die Europäische Union als Bund: Zugleich ein Beitrag zur Verabschiedung des Staatenbund-Bundesstaat-Schemas’, (2004) 129(1) Archiv des öffentlichen Rechts 81; Christoph Schönberger, Unionsbürger: Europas föderale Bürgerrecht in vergleichender Sicht (Mohr Siebeck, 2005); Olivier Beaud, Théorie de la Fédération (Presses Universitaires de Frances, 2007). For comparisons to federal states: see, eg, R Daniel Kelemen, The Rules of Federalism: Institutions and Regulatory Politics in the EU and Beyond (Harvard University Press, 2004); Anand Menon and Martin Schain (eds), Comparative Federalism: the European Union and the United States in Comparative Perspective (Oxford University Press, 2006); Michael Burgess, Comparative Federalism: Theory and Practice (Routledge, 2006); Thomas O Hueglin and Alan Fenna, Comparative Federalism: a Systematic Inquiry (University of Toronto Press, 2nd ed, 2015).

4. WTO law, though an international law-based system, provides a very useful conceptual benchmarking for federal markets. While it is supposed to be much more deferential to member states than a federal polity when it gets to contrasting trade with local public interest, it reacts to the very same problems. WTO prohibits various forms of trade restriction, including discrimination based on national origin, and authorises member states to maintain the restriction if it serves a local legitimate end. For a comparison between WTO law and a federal market, see Daniel A Farber and Robert E Hudec, ‘Free Trade and the Regulatory State: A GATT’s-Eye View of the Dormant Commerce Clause’ (1994) 47(5) Vanderbilt Law Review 1401.

5. It has to be noted that the comparators are not the only polities that constitutionalize free trade. However, these are the ones, which have given rise to a huge and complex body of case law. For instance, Article 4 of the Austrian Constitution provides for internal free movement and free trade, but has been of limited constitutional significance: see Stefan Storr, ‘Artikel 4’ in Benjamin Kneihs and Georg Lienbacher (eds), Rill-Schäffer Kommentar Bundesverfassungsrecht (Verlag Österreich, 2016), 5. The same holds true for Articles 117(IV)–(VI) of Mexico’s Constitution. Although not a federal state, Article 120 of Italy’s Constitution contains a similar provision. Nonetheless, it has produced a scant case law: see Antonio D’Aloia, ‘L’art. 120 Cost, la libertà di circolazione e l’insostenibile ipotesi delle ordinanze regionali di chiusura dei “propri confine”’, (2020) (April) Dirittifondamentali.it, 4. Furthermore, it confers a broad subsidiary power on the central government to intervene ‘whenever such action is necessary to preserve legal or economic unity’: Paolo Caretti, Diritto Constituzionale e pubblico (3rd ed, G. Giappichelli Editore, 2017), 374. There may be manifold historical, constitutional and sociological reasons why the foregoing provisions have not had, in terms of significance, a constitutional carrier comparable to s 92 of the Australian Constitution. One the one hand, the regulatory powers of the constituent territorial units may be less strong. On the other hand, the incentive and the tendency to protectionism may be milder. Local identities may be feeble, resulting in a less independent local political process, and the constituent territorial units may be exposed to out-of-state imports, making protectionist self-reliance less appealing. Be it as it may, the exploration of the root causes goes beyond the mission of this article. At this stage, it is sufficient to note that the foregoing systems are, in terms of the volume and complexity of the case-law, less expedient comparators for the present analysis.

6. It is worthy of note that the foregoing distinction is a useful conceptual tool, even if s 92 case law could be conceived holistically as featuring a single unified scheme. A measure that is discriminatory in a general sense is still not ‘relevantly discriminatory’, if it is justified by a local legitimate end. A measure that is not discriminatory is, however, not covered by s 92 at all.

7. For the position that the High Court engages (or should engage) in purpose analysis: see David Sonter, ‘Intention or Effect? Commonwealth and State Legislation after Cole v Whitfield’ (1995) 69(5) Australian Law Journal 332, 332 (‘[T]he criterion of invalidity after Cole v Whitfield is legislative intention or object and not the effect of the legislation’); Amelia Simpson, ‘Grounding the High Court’s Modern Section 92 Jurisprudence: The Case for Improper Purpose as the Touchstone’ (2005) 33(3) Federal Law Review 445 (Arguing for a ‘purpose-focused principle’ over ‘balancing’ and reasoning that the former is a ‘better touchstone’). For the position that the High Court engages (or should engage) in balancing instead of purpose analysis: see Bradley Selway, ‘The Rise and Rise of the Reasonable Proportionality Test in Public Law’ (1996) 7(4) Public Law Review 212, 216; Jeremy Kirk, ‘Constitutional Guarantees, Characterisation and the Concept of Proportionality’ (1997) 21(1) Melbourne University Law Review 1, 14; Anthony Gray, ‘The Australian Quarantine and Biosecurity Legislation: Constitutionality and Critique’ (2015) 22(4) Journal of Law and Medicine 788, 799; Susan Kenny, ‘Constitutional Fact Ascertainment’ (1990) 1(2) Public Law Review 134, 161–2; Gonzalo Villalta Puig, ‘Betfair and Sportsbet: The Remains of the Federal Purpose of s 92 of the Australian Constitution’ (2013) 87(3) Australian Law Journal 178, 180. Cf. Gonzalo Villalta Puig, ‘A European Saving Test for Section 92 of the Australian Constitution’ (2008) 13(1) Deakin Law Review 99, 100–1, 127–8; Gonzalo Villalta Puig, The High Court of Australia and Section 92 of the Australian Constitution (Thompson Reuters, 2008), 137–1, 189–3; Csongor Istvan Nagy, ‘Justifying Trade Restrictions Under s 92 of the Australian Constitution: A Comparative-Law-Based Proposal for a Coherent Doctrine’ (2020) 94(11) Australian Law Journal 874; Amelia Simpson, ‘Section 92 as a Transplant Recipient? Commentary on Chapter 8’ in James Stellios and John Griffiths (eds), Current Issues in Australian Constitutional Law (Foundation Press, 2020), 283, 294 (‘High Court’s recent insistence that s 92 analysis turns entirely upon an impugned provision’s practical effects, with no room for considering imputed purpose’).

8. Palmer v Western Australia (2021) 388 ALR 180, [27] (Kiefel CJ and Keane J).

9. Ibid.

10. Ibid [99] (Gageler J). See also [92], [114] (Gageler J), [184] (Gordon J).

11. Cf Helen Irving, ‘Constitutional Interpretation, the High Court, and the Discipline of History’ (2013) 41(1) Federal Law Review 95, 108–20.

12. Cole v Whitfield (n 1) 408. See also Palmer v Western Australia (n 8) [32], [50] (Kiefel CJ and Keane J).

13. Cole v Whitfield (n 1) 391–2.

14. Cole v Whitfield (n 1) 394.

15. R v Comeau [2018] 1 SCR 342.

16. Palmer v Western Australia (n 8) [238] (Edelman J).

17. ‘All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces’: Constitution Act 1867 (Imp), 30 & 31 Vict, c 3, s 121 (‘Constitution Act 1867’).

18. In 1921, in Gold Seal Ltd v Alberta (Attorney-General), Mignault J defined the ambit of s 121 as follows: ‘I think that, like the enactment I have just quoted, the object of section 121 was not to decree that all articles of the growth, produce or manufacture of any of the provinces should be admitted into the others, but merely to secure that they should be admitted “free,” that is to say without any tax or duty imposed as a condition of their admission. The essential word here is “free” and what is prohibited is the levying of customs duties or other charges of a like nature in matters of inter-provincial trade.’: (1921) 62 SCR 424, 470.

19. See, eg, George Vegh, ‘The Characterization of Barriers to Interprovincial Trade Under the Canadian Constitution’ (1996) 34(2) Osgoode Hall Law Journal 355; Ian A. Blue, ‘Long Overdue: A Reappraisal of Section 121 of the Constitution Act, 1867’ (2010) 33(2) Dalhousie Law Journal 161.

20. R v Comeau (n 15).

21. Filip Palda, ‘Why Canada Must Rid Itself of Interprovincial Trade Barriers’ in Filip Palda (ed) Provincial Trade Wars: Why the Blockade Must End (Fraser Institute, 1994) xi–xiii, citing Stelios Loizides and Michael Grant, Barriers to Interprovincial Trade: Fifty Case Studies (Conference Board of Canada, 1992) 6.

22. Comprehensive Economic and Trade Agreement, Canada-European Union, signed 30 October 2016, (not yet in force).

23. For an analysis of EU free movement law in the Australian context: see Patrick J Smith, ‘Free Movement of Goods Within the EC and s 92 of the Australian Constitution’ (1998) 72(6) Australian Law Journal 465; Gonzalo Villalta Puig, ‘Free movement of Goods: the European Experience in the Australian Context’ (2001) 75(10) Australian Law Journal 639.

24. See Niamh Nic Shuibhne, The Coherence of EU Free Movement Law: Constitutional Responsibility and the Court of Justice (Oxford University Press, 2013).

25. Procureur du Roi v Benoît and Gustave Dassonville (C-8/74) [1974] ECR 837, 852 [5].

26. As to the free movement of persons: see Union Royale Belge des Sociétés de Football Association and others v Bosman (C-415/93) [1995] ECR I-4921. As to the freedom of establishment: see Säger v Dennemeyer & Co Ltd (C-76/90) [1991] ECR I-4221, I-4245 [21]; Alpine Invetsments BV v Minister can Financiën (C-384/93) [1995] ECR I-1114. As to the free movement of services: see Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano (C-55/94) [1995] ECR I-4165. As to the free movement of capital: see Commission of the European Communities v Italian Republic (C-58/99) [2000] ECR I-3811.

27. Keck and Mithouard (C-267-268/91) [1993] ECR I-6097.

28. See, eg, C&A Carbone Inc v Town of Clarkstown, 511 US 383, 392 (1994) (‘Discrimination against interstate commerce in favour of local business or investment is per se invalid,’ except compelling reasons justify it); Granholm v Heald, 544 US 460 (2005) (Michigan and New York allowed in-state but not out-of-state wineries to sell directly to consumers. The Supreme Court found both laws discriminatory).

29. See, eg, Donald H Regan, ‘The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause’ (1986) 84 Michigan Law Review 1091 (Arguing that what US courts do is not genuine balancing and what they really care about under the Dormant Commerce Clause is protectionism.); Richard H Fallon Jr, The Dynamic Constitution: An Introduction to American Constitutional Law and Practice (Cambridge University Press, 2nd ed, 2013) 310–11 (‘the Supreme Court regularly says that it will determine on a case-by-case basis whether the local benefits are great enough to justify the negative impact on interstate commerce. Virtually never, however, has the Court invalidated a state regulatory statute under the Commerce Clause unless that statute has had the effect of advantaging in-state economic interests over their out-of-state competitors’.).

30. Pike v Bruce Church Inc, 397 US 137, 142 (1970).

31. 468 US 263, 263–4 (1984).

32. Cf Hervis Sport v Nemzeti Adó (Court of Justice of the European Union, C-385/12, ECLI:EU:C:2014:47, 5 February 2014).

33. Ibid.

34. Ibid [45].

35. Tesco-Global v Nemzeti Adó (Court of Justice of the European Union, C-323/18, ECLI:EU:C:2020:140, 3 March 2020 (‘Tesco-Global’).

36. Vodafone Magyarország v Nemzeti Adó (Court of Justice of the European Union, C-75/18, ECLI:EU:C:2020:139, 3 March 2020 (‘Vodafone Magyarország’).

37. Tesco-Global (n 35) [76]; Vodafone Magyarország (n 36) [56].

38. Tesco-Global (n 35) [74]; Vodafone Magyarország (n 36) [54].

39. Tesco-Global (n 35) [70]; Vodafone Magyarország (n 36) [50].

40. Tesco-Global (n 35) [71]; Vodafone Magyarország (n 36) [51].

41. Tesco-Global (n 35) [72]; Vodafone Magyarország (n 36) [52].

42. 437 US 117 (1978) (‘Hunt’).

43. Ibid 138.

44. Ibid 128 (‘We cannot, however, accept appellants’ underlying notion that the Commerce Clause protects the particular structure or methods of operation in a retail market. … [T]he Clause protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulations’.).

45. 432 US 333 (1977).

46. Valerie Walker, ‘The Dormant Commerce Clause “Effect”: How the Difficulty in Reconciling Exxon and Hunt Has Led to a Circuit Split for Challenges to Laws Affecting National Chains’ (2016) 91(4) Washington Law Review 1895.

47. Hunt (n 42) 351.

48. Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WTO Doc WT/DS302/AB/R (25 April 2005, adopted 19 May 2005) (‘Dominican Republic — Cigarettes’).

49. Ibid [96].

50. Appellate Body Report, European Communities – EC Measures Concerning Meat and Meat Products (Hormones), WTO Docs WT/DS26/AB/R and WT/DS48/AB/R (16 January 1998, adopted 13 February 1998).

51. Walter Rau v De Smedt (C-261/81) [1982] ECR 3961.

52. Commission of the European Communities v Germany (C-178/84) [1987] ECR 1227.

53. For a similar matter: see Glocken and Gertraud Kritzinger v USL Centro-Sud and Provincia autonoma di Bolzano (C-407/85) [1988] ECR 4233.

54. Southern Pacific Company v Arizona, 325 US 761 (1945).

55. Bibb v Navajo Freight Lines Inc, 359 US 520 (1959).

56. Ibid [7]–[10].

57. Ibid [11]–[12].

58. (2008) 234 CLR 418.

59. (2012) 249 CLR 217, 264–5 and 269 (French CJ, Gummow, Hayne, Crennan and Bell JJ) and 288–9 (Kiefel J).

60. For an analysis, see Dennis Rose, ‘Cole v Whitfield: ‘Absolutely Free’ Trade?’ in Hoong Phun Lee and Georgo Winterton (eds), Australian Constitutional Landmarks (Cambridge University Press, 2003) 335, arguing that the relevant question is whether the state measure is ‘directed against imports’; Stephen Gageler, ‘Chapter 1: The Section 92 Revolution’ in James Stellios (ed), Encounters with Constitutional Interpretation and Legal Education (Federation Press, 2018) 26–33.

61. Cole v Whitfield (n 1) 409–10.

62. Ibid 409.

63. Bath v Alston Holdings Pty Ltd (1988) 165 CLR 411.

64. Ibid 427.

65. (1990) 169 CLR 436.

66. (1990) 171 CLR 182.

67. (2005) 224 CLR 322. See David Bennett, ‘“Dammit, Let ‘Em Do It!”: The High Court and Constitutional Law’ (2006) 29(2) University of New South Wales Law Journal 167, 173–4.

68. APLA Ltd v Legal Services Commissioner (NSW) (2005) 224 CLR 322, [374].

69. Betfair Pty Ltd v Western Australia (2008) 234 CLR 418. For an analysis, see Michael Coper, ‘Betfair Pty Ltd v Western Australia and the New Jurisprudence of Section 92’ (2014) 88 Australian Law Journal 204.

70. Betfair Pty Ltd v Western Australia (n 69) 109.

71. Betfair was the only betting exchange operator located in Australia: Betfair Pty Ltd v Racing New South Wales (2012) 249 CLR 217, 255. See also Betfair Pty Ltd v Western Australia (n 69) 469.

72. Betfair Pty Ltd v Western Australia (n 69) 481.

73. (2012) 249 CLR 298 (‘Sportsbet’).

74. Betfair Pty Ltd v Racing New South Wales (n 71).

75. For an analysis of the two cases, see Gonzalo Villalta Puig, ‘Betfair and Sportsbet: The Remains of the federal Purpose of s 92 of the Australian Constitution’ (2013) 87 Australian Law Journal 178.

76. Sportsbet (n 73) 321, 324.

77. Ibid 321 (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

78. Betfair Pty Ltd v Racing New South Wales (n 71).

79. Ibid 284.

80. Ibid 284 (‘Because Betfair derives its commission only from bets which are successful, its gross revenue is only a fraction of its overall turnover on back bets … the fee represented between 54 and 61 per cent of Betfair’s commission in the financial years 2007–2008 and 2008–2009. Betfair compares this with the position of TAB, where the fee represents 10 per cent of its commission. It may be added that Betfair pleaded that to bookmakers the fee generally represented 25–50 per cent of their gross revenue’.).

81. Ibid 264–5 (French CJ, Gummow, Hayne, Crennan and Bell JJ) (‘[T]he term “discrimination” … may be applied where there is a relevant difference between the entities or activities which are the object of a law, yet the law applies as if there is no such difference’.). See also Palmer v West Australia (2021) 394 ALR 1, [31] (Kiefel CJ and Keane J), [98] (Gageler J), [184] (Gordon J), [236]–[237] (Edelman J).

82. Betfair Pty Ltd v Racing New South Wales (n 71) 270–1 (French CJ, Gummow, Hayne, Crennan and Bell JJ).

83. Ibid 272–3 (Heydon J).

84. Ibid 294 (Kiefel J).

85. Ibid 272, 274–5 (Heydon J).

86. Ibid 293 (Kiefel J).

87. Ibid 295 (Kiefel J).

88. Ibid 269 (French CJ, Gummow, Hayne, Crennan and Bell JJ).

89. See ibid 288–29 (Kiefel J).

90. Cf Michael Coper, ‘The Role of the Courts in the Preservation of Federalism’ (1989) 63 Australian Law Journal 463, 471 (‘But in my view, and evidently that of the High Court, threats to national economic unity beyond discrimination call for other than a judicial solution. When one explores those other solutions, there are two possibilities. One is that the Commonwealth may legislate so as to introduce a single régime for interstate trade. The other is that the States may agree to waive their own requirements in recognition of compliance with like requirements in another State’).