International Law: Unit 6 Economic Law

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

2. Topics for this week • International Trade Law • Protection of Investments • International Financial Law Unit 6: Economic Law

3. International Trade Law

4. 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) Unit 6: Economic Law

5. 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 Unit 6: Economic Law

6. 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 Unit 6: Economic Law

7. 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 Unit 6: Economic Law

8. 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. Unit 6: Economic Law

9. 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 Unit 6: Economic Law

10. 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 Unit 6: Economic Law

11. 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” Unit 6: Economic Law

12. 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 Unit 6: Economic Law

13. Issues in GATT • “Safeguards.” Temporary measures to protect an industry particularly hard hit. Art. XIX Unit 6: Economic Law

14. 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 Unit 6: Economic Law

15. 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 Unit 6: Economic Law

16. 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) Unit 6: Economic Law

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

18. 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 Unit 6: Economic Law

19. 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 Unit 6: Economic Law

20. Protection of Investments

21. 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 Unit 6: Economic Law

22. 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 Unit 6: Economic Law

23. 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) Unit 6: Economic Law

24. 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 Unit 6: Economic Law

25. 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 Unit 6: Economic Law

26. InternationalFinancial Institutions

27. Major Global Institutions • International Monetary Fund • Stabilizing exchange rates • World Bank (International Bank for Reconstruction and Development) • Investing in development projects • World Bank Group Unit 6: Economic Law

28. 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 Unit 6: Economic Law

29. 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 Unit 6: Economic Law

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

31. Regional Development Banks • Provide loans for development within particular geographic areas Unit 6: Economic Law