International Law: Unit 6 Economic Law Prof. Fred Morrison Fall 2006

Unit 6: Economic Law2 Topics for this week International Trade Law Protection of Investments International Financial Law

International Trade Law

Fall 2006Unit 6: Economic Law4 Three principal periods Pre-1948: States could set tariffs and limits on trade as part of their sovereignty 1948: GATT (General Agreement on Tariffs and Trade) 1993: WTO (World Trade Organisation)

Fall 2006Unit 6: Economic Law5 Pre 1947 law States imposed tariffs and quotas to protect local industry Reduced international trade Higher costs States generally had three tariff rates General rate (high) Preferential rate (through bilateral agreements) “Colonial” rate (Ottawa preference; French Community rate, etc.) This system still functions for States that are not WTO members

Fall 2006Unit 6: Economic Law6 GATT Adopted 1947 Protocol of Provisional Application (pending ratification of ITO, which never happened) GATT provided substantive rules ITO was supposed to provide procedures, but never came into being GATT (as amended in 1994) is still in force

Fall 2006Unit 6: Economic Law7 GATT Principles 1. Generalized Most-Favored-Nation treatment GATT, art. I All GATT members give all other GATT members the “best” tariff rate available Only non-GATT members pay regular rate Exception: Customs unions Common external tariff; no internal tariffs Free Trade areas Separate external tariffs, no internal tariffs

Fall 2006Unit 6: Economic Law8 GATT Principles Progressive reduction of tariffs This was accomplished largely through various “rounds” of negotiations, in which all member countries “gave up” some tariff rates in order to achieve benefits from other countries.

Fall 2006Unit 6: Economic Law9 GATT Principles 2. National treatment. Once goods are admitted to a country, they are entitled to be treated the same as domestic goods of like kind. GATT art. III

Fall 2006Unit 6: Economic Law10 GATT Principles 3. Elimination of Quantitative Restrictions. The only means of limiting imports is tariffs; no quotas. States could prohibit goods, if they prohibited like goods domestically (e.g., alcoholic beverages) Toleration of mutually agreed export quotas

Fall 2006Unit 6: Economic Law11 Further developments in the GATT era Less developed countries could be given a favorable rate (“better than the best rate”) without triggering a rate cut for other developed countries In a sense, this replaced the old “colonial rate”

Fall 2006Unit 6: Economic Law12 Issues in GATT “Dumping” (Export of goods at less than their value) prohibited. Anti- dumping duties permitted to counteract dumping. GATT Art. VI “Subsidies” Countervailing duties authorized to offset government subsidies of production. GATT Art. XVI

Fall 2006Unit 6: Economic Law13 Issues in GATT “Safeguards.” Temporary measures to protect an industry particularly hard hit. Art. XIX

Fall 2006Unit 6: Economic Law14 Disputes in the GATT era Since GATT was an “informal” organization, dispute resolution was not formally organized. Initial decisions by “panels” of trade diplomats (possibly including lawyers) Adoption of those decisions by consensus of all of the GATT members Any member (including losing party) could block creation of panel or adoption or report

Fall 2006Unit 6: Economic Law15 WTO—1994 and beyond “Uruguay round” of trade negoiations led to adoption of World Trade Organisation. WTO provides organizational structure And a few new codes GATT continues to provide substantive law Subject to a few amendments. GATT 1994

Fall 2006Unit 6: Economic Law16 New with WTO More elaborate “codes” about many of the foregoing issues TRIPS. Trade-related Intellectual Property agreement Requires certain protection of intellectual property throughout WTO system Expands protection previously offered by multilateral treaties (Berne, Paris conventions)

Fall 2006Unit 6: Economic Law17 New with WTO GATS. General Agreement on Trade in Services. Opens trade in services (banking, insurance, legal services) across national boundaries

Fall 2006Unit 6: Economic Law18 New with WTO Shift in dispute resolution Automatically considered by panels Possibility of appeal to Appellate Body Elimination of possibility of “veto” of report Report is automatically adopted unless rejected by consensus

Fall 2006Unit 6: Economic Law19 Current issues Interplay of trade law with other parts of international law Environmental law; human rights law; etc. Look at Article XX exceptions Look to chapeau: “not... A means of arbitrary or unjustifiable discrimination” Specific exceptions

Protection of Investments

Fall 2006Unit 6: Economic Law21 The traditional law Western view Property of a foreigner could only be taken for a public purpose, and on payment of compensation that was Prompt (payable immediately; cash) Adequate (full market value before the taking) Effective (convertible currency) Diplomatic efforts to obtain compensation Foreigner must pursue local remedies first

Fall 2006Unit 6: Economic Law22 Other views Communist (Soviet) view Property was created by State and can be abolished by State. No compensation Calvo (Latin American) view Foreigner is only entitled to same compensation that a domestic citizen gets No international intervention to seek payment

Fall 2006Unit 6: Economic Law23 Means of protection Treaty protection. Takings clauses in-- Treaties of Friendship, Navigation, and Commerce (FCN) and Treaties of Amity Usually have no procedures Bilateral Investment Treaties Include procedures (arbitration between investor and state) Some multilateral treaties (e.g., NAFTA)

Fall 2006Unit 6: Economic Law24 Other means of protection ICSID. International Centre for the Settlement of Investment Disputes. Arbitration between investor and State NOTE: Break from State-State claims Arbitration award enforceable as an international award. (Waiver of sovereign immunity) Note: ICSID is subsidiary of World Bank

Fall 2006Unit 6: Economic Law25 Other means of protection Investment insurance. Investor buys insurance from Ex-Im Bank or similar institution. If property is nationalized (or certain other events, such as inconvertibility of currency occur), Ex-Im Bank pay investor, takes subrogation of claim Claim is then a State-to-State international claim

International Financial Institutions

Fall 2006Unit 6: Economic Law27 Major Global Institutions International Monetary Fund Stabilizing exchange rates World Bank (International Bank for Reconstruction and Development) Investing in development projects World Bank Group

Fall 2006Unit 6: Economic Law28 International Monetary Fund (IMF) Member States deposit funds in bank Bank uses funds to stabilize exchange rates Bank can lend hard currency to States which have payments problems First “tranche” of loans fairly simple Subsequent “trances” subject to “conditionality” Decision-making based on contributions Developed countries control the IMF in fact

Fall 2006Unit 6: Economic Law29 World Bank Group World Bank Loans to governments for development International Development Association Low (or no)-interest, long-term loans to the poorest countries International Finance Corporation Loans for development to private entities in developing countries Also ICSID

Fall 2006Unit 6: Economic Law30 World Bank Group Issues Decision-making. Similar to IMF Relationship of development to other international law goals (environment, human rights, etc.)

Fall 2006Unit 6: Economic Law31 Regional Development Banks Provide loans for development within particular geographic areas