International Law: Unit 6Economic Law
Prof. Fred MorrisonFall 2006
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Topics for this week
International Trade Law Protection of Investments International Financial Law
International Trade Law
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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)
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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
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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
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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
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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.
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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
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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
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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”
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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
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Issues in GATT
“Safeguards.” Temporary measures to protect an industry particularly hard hit. Art. XIX
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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
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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
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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)
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New with WTO
GATS. General Agreement on Trade in Services. Opens trade in services (banking, insurance, legal services) across national boundaries
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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
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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
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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
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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
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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)
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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
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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
InternationalFinancial Institutions
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Major Global Institutions
International Monetary Fund Stabilizing exchange rates
World Bank (International Bank for Reconstruction and Development) Investing in development projects World Bank Group
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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
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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
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World Bank Group Issues
Decision-making. Similar to IMF Relationship of development to
other international law goals (environment, human rights, etc.)
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Regional Development Banks
Provide loans for development within particular geographic areas