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Introduction to International Commercial Law (Trade and Investment)

Introduction to International Commercial Law (Trade and Investment). Dr. Markus W. Gehring, MA (Cantab), LL.M. (Yale), Dr. jur. (Hamburg) Vice-Dean Research and Jean Monnet Chair ad personam in Sustainable Development Law. Introduction to International Trade Law. Lecture Outline:

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Introduction to International Commercial Law (Trade and Investment)

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  1. Introduction to International Commercial Law (Trade and Investment) Dr. Markus W. Gehring, MA (Cantab), LL.M. (Yale), Dr. jur. (Hamburg) Vice-Dean Research and Jean Monnet Chair ad personam in Sustainable Development Law

  2. Introduction to International Trade Law Lecture Outline: 1. GATT/International trade history 2. The World Trade Organization 3. The Institution 4. Key concepts – Tariffs, Most Favourite Nation and National Treatment 5. Dispute Settlement 6. Reform – Trade negotiations

  3. 1. The General Agreement on Tariffs and Trade (GATT) / International trade history - one of the oldest areas governed by international rules- multi-layered trading system: bilateral, regional, intra-regional and global- provisional set of rules - originally 23 contracting parties - enacted 1 January 1948 - terminated 31 December 1995- negotiated eight multilateral trade "rounds" - reduced tariffs, attempted to reduce other trade barriers - converted int’l trade to a rules-based system

  4. 2. The World Trade Organization - Objectives ?- Main functions: implementation, administration and operation of the covered agreements; negotiation of trade agreements; settlement of trade disputes; review of trade policies; fostering coherence in policy making- Pillar structure: GATT, GATS, TRIPS and horizontal agreements: DSU, TPRM and plurilateral agreements

  5. 3. The Institution

  6. 4. Key Concepts - Tariffs -Tariffs (reciprocal and mutually advantageous basis) - Actual value tariffs- Tariff schedules (Art. II GATT)- Tariffication of other barriers to trade- Brussels Convention on Tariff Classification- Harmonized system of customs classification

  7. 4. Key Concepts – Most Favoured Nation Principle - Art. I GATT – Any advantage, favour, privilege, or immunity in negotiated concessions extends to all WTO members.- Unconditionally, like products, de facto discrimination- Rationale of MFN - Important exceptions: Grandfathered preferences, Art. XXIV – creation of RTAs, Enabling clause, waivers such as for the Cotonou Agreement.

  8. 4. Key Concepts – National Treatment - Art. III GATT prohibits discrimination of foreign producers vis-à-vis domestic producers - Early GATT jurisprudence: a formally origin neutral taxation can violate Art. III:2 GATT- Centrality of likeness- Non-fiscal measures (Art III:4 GATT)- Relationship with Art. XX GATT

  9. 5. Dispute Settlement - Integrated dispute settlement system based on Articles XXII and XXIII GATT and the DSU- Function of the DSB- Coverage: goods, services and intellectual property - Procedures: strict time-limits - Adoption of panel reports: negative consensus principle - Appellate Body Review - Non-compliance with recommendations

  10. 5. Dispute Settlement - Consultation phase - Panels (Art. 6-8 DSU)- Panel process (Art. 12 DSU) - Panels time periods (Appendix 3) - Appeals Process (Art. 17 pp. DSU)- Adoption of reports- Compliance - (Cross)retaliation

  11. 6. Trade negotiations - Ministerial Conference  between Green rooms and NGO scrutiny- Consensus decision making (Art. XI WTO) - Panels time periods (Appendix 3) - Trade negotiation committee- Doha-Round: Agriculture as the most contested issue (initially also competition and investment)- Draft Hong Kong Ministerial Declaration

  12. 2. Investment • Trade Related Investment Measures (TRIMS) • Physical and Portfolio Investment • Bilateral Investment Treaties (BITs) • Multilateral Attempts - OECD - MIA - WTO - New EU Competence?

  13. Investment Law An Emerging Network of Int’l Investment Agreements (IIAs): • Current int’l legal framework governing foreign investment is a vast network of over 2500 IIAs. • In 2005, 1,891 (75.8 %) in force, + 232 other IAs with investment provisions, + other regionals. • While other treaties and norms intersect and interact, IIAs are the primary public international law instruments that govern foreign investment.

  14. Investment law • IIAs seek to create ‘favourable conditions’ or a ‘stable framework’ for investment, for economic development, by impose binding obligations on States re: treatment of foreign investment: (i) a wide asset-based definition of investment; (ii) guarantees of non-discrimination (national and most-favoured-nation treatment); (iii) a minimum standard of treatment often expressed as ‘fair and equitable treatment’ coupled with an obligation not to impose arbitrary or discriminatory measures; (iv) the right to transfer investments and profits out of the host state; and (v) compensation for measures tantamount to expropriation. • A smaller number of IIAs provide for rights of entry for foreign investment, prohibitions on performance requirements, and ‘umbrella clauses’ under which a state agrees to observe its commitments to foreign investors.

  15. Investment law • In most IIAs, foreign investors enforce these rights through investor-state arbitration provisions under which the state provides its general consent to arbitrate claims under the IIA. • As of December 2005, 135 IIAs claims had been brought before ICSID.Altogether by 2005, there were 229 known investment treaty arbitrations. Over two thirds of the claims were filed after 2001. • SD concerns were first raised in 4 controversial claims under Chapter Eleven of the North American Free Trade Agreement (NAFTA): - Ethyl v. Canada: export and interprovincial trade ban prohibitions on MMT, a fuel additive; - Azinian v. Mexico: cancellation of a municipal waste concession; - Metalclad v. Mexico: closure of a hazardous waste site; and - Methanex v. United States: Californian ban on the use of MTBE, another fuel additive.

  16. Trade Law and Sustainable Development Lecture Outline: 1. Sustainable Development and Globalisation 2. Foundations – Trade and Environment 3. Foundations – Trade and Development 4. Integrated Trade Law and Policy-Making 5. Sustainable Development in WTO Disputes 6. Conclusion

  17. 1. Sustainable Development … and Globalisation • Building on the 1992 UN Conference on Environment and Development (Rio ‘Earth Summit’) • Addressing economic interdependence in the 2002 Johannesburg World Summit on Sustainable Development. • “Globalization offers opportunities and challenges for sustainable development. We recognize that globalization and interdependence are offering new opportunities to trade, investment and capital flows and advances in technology, including information technology, for the growth of the world economy, development and the improvement of living standards around the world. At the same time, there remain serious challenges, including serious financial crises, insecurity, poverty, exclusion and inequality within and among societies.”

  18. 2. Foundations – Rapid Evolution in Law and Policy on Trade, Environment & Development • Physical links (impacts) - Complex relationships- Neither good nor bad (shades of grey) • Legal links - Three distinct bodies of international law- Areas of intersection and integration • Institutional links - WTO vis-à-vis MEA Secretariats and IGOs, - UNEP, UNDP - National and international NGOs

  19. 2. Foundations – Different Perspectives • The trade perspective • Economic growth through trade will solve all environmental problems • The environment perspective • The environment is threatened by the status quo • The development perspective • Poverty needs first and foremost policy attention

  20. 2. Foundations – Global Environmental Management Trade Measures: - Trade ban - Protection provisions - Trade restrictions • - Trade prohibition 3. Part • - Cartagena Protocol: GMO trade restriction • - Kyoto Protocol: Trade links • New Generation • - Trade restriction • - Trade ban Principal MEAs • Early Agreements - CITIES - UNCLOS - Basel Convention - Montreal Protocol • Rio Agreements - CBD - Desertification - Climate Change • New Generation - PICs - POPs

  21. WTO Agreement Trade in Goods GATT TBT SPS Trade in Services GATS Trade in IPRs TRIPS 2. Foundation – Relevant WTO Provisions • Preamble; Art. V. 2 • Art. III, XX GATT • Art. 2.2, 2.6 TBT • Art. 2.1, 5 SPS • Art. XIV GATS • Art. 7, 30 TRIPS • And Doha Negotiations

  22. 2. Foundations – Trade and Development • Growing membership of developing countries • New Development Theory • GATT: Article XVIII • GATT: Part IV • Enabling Clause • The WTO Agreements

  23. 4. Integrated Trade Law and Policy-Making • Development that can meet the needs of the present without compromising the needs of future generations (Brundtland Report) • Reconciliation of development and environmental objectives (ICJ in Gabcikovo-Nagymaros Case) • Balance / integration / mutual support between economic growth, social justice and environmental protection objectives (WTO AB Report from US – Shrimp Dispute)

  24. 4. Integrated Trade Law and Policy-Making, cont. • An integrated agenda for the ‘Doha Development Round’ in the WTO – and likely for future trade rounds as well… - Procedural integration through consultations in CTE & CTD, sustainability impact assessment (inc. human rights impact assessment), transparency & participation, reform of dispute settlement procedures, etc. - Substantive integration in standards (TBT, SPS), agriculture, intellectual property rights, investment and other negotiations • Innovations in regional (integration) processes such as the European Union, the SADC, the NAFTA / FTAA, Cotonou Agreement, ASEAN or bilateral free trade agreements

  25. 5. Sustainable Development in WTO Disputes • US - Shrimp Turtle Case WTO Appellate Body: “We believe [the objective of sustainable development] must add colour, texture and shading to our interpretation of the agreements annexed to the WTO Agreement.” • EC - Tariff Preferences CaseAppellate Body rejected EC arguments that its tariff preferences were based on sustainable development objectives.

  26. 6. Conclusions • Recent WTO negotiations and cases reflect that the objective of sustainable development has become an integral part of the world trading system. • Legal arguments encompassing an integrated developmental and environmental approach have been made by the parties and accepted by the relevant trade dispute settlement organs. • However, WTO dispute settlement organs will not lightly accept sustainable development as a trump card. A solid legal understanding of the objective and its underlying principles is required to make a successful sustainable development argument in world trade law.

  27. Thank you. Markus W. Gehring mwg24@cam.ac.uk

  28. Important GATT rules

  29. Important WTO rules

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