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InternationalBusinessLaw Lecturers

Introduction Definition

The term international law was first used by Jeremy Bentham in 1780 inhisIntroductiontothePrinciples of Morals and Legislation. Since about 1840, in the English and Romance languages it has replaced the older

terminology law of nations or droit de gens which can be traced back to the Roman concept of ius gentiumand thewritingsofCicero.

A clear definition of the core concept isnecessary.Internationallawisthecollectionofrulesandnormstha

states and other actors feel an obligation to obey in their mutual relations and commonly do obey. In internation

relations, actors are simply the individuals and collective entities, such as statesandinternationalorganizations,wh

can make behavioral choices, whether lawful or unlawful. Rules are formal, often written, expectations forbehavio

while norms are less formal customary expectations about appropriate behavior that are frequently unwritten

Diplomats receive immunity from their host states as a cleartreatyrule,whileadiplomatic normrequiresspokenan writtencorrespondencetobeverypolite.

However, the matter has become more complicated due to both the expansion of the scope of international

law into new areas and the emergence of actorsotherthanstatesonthe internationalplane,suchasintergovernment

organizations established by states, nongovernmental organizations created by private individuals, transnation

companies, individuals and groups, including minorities and indigenous peoples. Some of these new actors have al

acquired international legalpersonalityor,atleast,certainrightsunderinternationallaw,evenifonlygrantedbytrea concludedbetweenstates.

This development is reflected, for example, in the change of the definition in the Restatement (Third) by t

American Law Institute of the Foreign Relations Law of the United States, according to which international la

consists of rules and principles of general application dealing with the conduct of states and of internation

organizations and with their relations inter se, as well as with some of their relations withpersons,whethernatural juridical.(Restatement(Third),para.101,224.)

Isinternationallawreallylaw? Thereisanolddisputeontheissuewhetherinternationallawmaybeproperlycalledlaw. The observable behavior of states and other actors, as well as their frequent references to law in

communications and documents, demonstrate the laws reality. Moreover, disputes between states are usually accompaniedbyreferencestointernationallaw.

Its function in structuring the international system has been enhanced because of increasing glob interdependenceandtheselfinterestofstatesinregulatingtheirintercourserationallyonthebasisofreciprocity.

State continuously conclude and implement bilateral and multilateral treaties and establish and opera internationalorganizations.Seriouseffortsarebeingmadetocodifyinternationallaw. Caninternationallawbeviablewithoutemanatingfromaworldgovernment?

This law lacks a command feature and there are not effectivesanctionstopunishtransgressors.Statescanno

be arrested and simply put in jail. Nor does this law have a verticalstructureinvolvinganauthorityoperatingovert headsofthestates.

Thus, international law is a horizontal legal system, lacking asupremeauthority,thecentralizationoftheuse

force,andadifferentiationofthethreebasicfunctionsoflawmaking,lawdetermination,andlawenforcementtypica entrustedtocentralorgans.

The United Nations General Assembly is not a world legislature, the International Court of Justice in Th

Haguecanoperateonly on thebasisoftheconsentofstatestoitsjurisdiction,andthelawenforcementcapacityofth UnitedNationsSecurityCouncilisbothlegallyandpoliticallylimited.

The rules and principles of international law are accepted in practice as legally binding by states in the intercoursebecausetheyareusefultoreducecomplexityanduncertaintyininternationalrelations. Inconclusion:

International law is true law, it is not basedoncommandsbackedbysanctionsbutinsteadrestsonvoluntary compliance,anditcountsheavilyonthecooperationofthevariousactors(primarilythestates). Internationallawisnotbasedoncommandsbackedbysanctionsbutinsteadrestsonvoluntarycompliance.

As a matter of fact, municipal law, or domestic national law, counts heavily on thecooperationofthevariou

citizenries. If a national government had to force every citizen to obey every law, thatgovernmentwouldneedtoh

mercenary police officers equal in number to that countrys citizens. Although thereareenoughlawbreakersineve


to do so. Consequently, law does not succeed or fail depending on enforcement alone. While international law i

clearly weaker than municipal lawfromtheviewpointofindependent enforcement,itstillprovidestheexternalrelev

terms of legal reference for the conduct of states in their international relations, based on the fact that, in spite of


This observation applies equally well to a horizontal authority system in which the citizens (primarily

states) are sovereign, meaning they are legal equalsandfreeofanycentralauthorityoperatingovertheirheads.State

obey the lawbecauseitisusuallyintheirintereststodoso,andalegalstructuremakesinternationallifelessdangero

and costly. Because of international law, states haveconfidencethattheycansafelysendtheirambassadorstoforeig

soil they can ship goods across borders and expect payment their ships on the high seas will not beinterferedwith

or, in the caseofabreakdowninrelationsthatleadstowar,refugeeswillberepatriated.Thereasonthisdecentralize

legal system is able to work does not depend on the few risky sanctionsavailabletostates,suchaswarorretaliation

including breaking off trade or diplomatic contact. States hang together within a legal system due to a relationship

reciprocity. This relationship is one of give and take, with states returning in like kind the privileges and servicesth receivefromotherstates.

Fully appreciating the nature of international law is possible only by recognizing that international law is b

into the order of international relations. An order is an enduring pattern of values and behaviors which structures t

relationships of actors over time, usually decades orevencenturies.Todaysorder includesdemocratic,humanright

and capitalist values rising to primacy with the major states striving togetalongandtryingtopersuadelesserstates

accept more fully the same order, with itsdecidedlyWesterncharacter.Therulesofinternationallawhelptoestabli

and perpetuate a particular world order. States vary greatly in size and power, but all try to shape the internationa orderbyinfluencingthecontentofinternationallaw. NewInternationalEconomicOrder(NIEO)

The call for a New International Economic Order reflects the wide gap in living standards between Nort

(the developed countries) and South (the developing countries) and the desire of developing countries to redress th imbalanceintheinternationaleconomicsystem,inwhichtheirverypositionisnotoriouslyweak.
This divide is frequently depicted as the worlds NorthSouth division, with the developed statesgenerallynorth of the equator and the developing Third World states of Africa, Asia, and Latin America mostly south of the equator. As these states left colonialism inthe decadesbetweenthe 1940sandthe1980s,theirnumbersgrew,as did their sense of identity asaspecial group ofstates.Starting withtheir 1955 conference inBandung,Indonesia, and continuing with meetings held at the UN, these states have joined togethertobargaineconomicallywith the developed countries of the North. In the 1970s, their approach finally coalesced into a challenge to the free market world economy controlled by the North. Essentially, the South wanted a redistribution ofexisting wealth toenablethemtodeveloptheircountries.

The programme of a NIEO includes a complexvarietyofclaimswhichhavealsomanifestedthemselvesinth

controversy on the deep seabed miningregimeinthe1982LawoftheSeaConventionoronthe commonheritageo

mankind principle in general, as well as in the discussion on thecontrolofmultinationalenterprises,and inthe call thetransferoftechnologyaswellasforaNewWorldInformationandCommunicationOrder(NWICO).

It is generally recognized that there isaneedtoincreasethe flowoffinancetodevelopingcountries,especial

to those which are burdened with heavy debt, and to low income countries depending on aid, to counter the

acceleration of global poverty and an unacceptable decline in living standards. But the legal content of the idea solidarityamongstatesisinmanyrespectsstillveryambiguous.

Development assistance in the form of the transfer of money from North to South, claimed by developin

countries as a right, has not met the target of 0.7 per cent of GNP set by international institutions and accepted b

most OECD members, albeit not as a legally binding obligation. Some countries, such as the United States an

Switzerland, even reject the 0.7 per cent norm as a moral principle with theargumentthatsuchtargetryisbasedo

arbitrary norms and gives too much consideration to the quantity rather than to the quality of assistance. In fact,on

very few donor countries meet the 0.7 per cent norm. Whatactuallyhas occurredwasareversenetoutflowfromthe

developing to the developed countries due to capital flight and high interest rate payments, as well as the fall

commodity prices. According to figures presented by the WorldBankfor1994,onaverage,a personlivinginapoo

country received little more than US$1 per day. Onesixth of the countries in the world commands fourfifths of th

global wealth. The problems are most acute in Africa which has come to be called the lost continent. Of th

fortyeight least developed countries in the world, thirtythree are in Africa. About 50 per cent of the 365 millio

Africans live in absolute poverty, and this number is expected to increase during this decade. The recognition of t

huge development tasks that still lie ahead in most countries of the South has induced industrialized countries w

market economies to give some sympathy to at least certain aspects of the legal quest of developing countries for NIEOsincethe1960s. Thus, the general idea of a NIEO found some support in the Declaration on the Establishment ofaNew International Economic Order (the UN G.A. Resolution no.3201/1974 (SVI)) and the Programme of Action on the Establishment of a New International Economic Order (the UN G.A. Resolutionno.3202/1974(SVI))

adoptedbytheUNGeneralAssemblybyconsensuson1May1974,althoughindustrializedcountriesalreadyshowed theirdiscontentbyregisteringreservations.

However,thesubsequentCharterofEconomicRightsandDutiesof12December1974,originallyintended to

become legally binding, revealed the fundamental differences between North and South. The General Assemb

adopted the Charter as a resolution with a majority of 120 states against six votes (Belgium, Denmark, Germany

Luxembourg, the UK and the United States), with ten abstentions (Austria, Canada, France, Ireland, Israel, Italy

Japan, the Netherlands, Norway and Spain). Thus, sixteen states representing fifteen major OECD countries


they felt that many of its provisions went too far. The relevance of the Charter, which like many similar docume

calling for change in international economic relations is not legally binding,istherebyconsiderablydiminished.Am

balanced attempt to redress the differences of opinion between developing countries and industrialized countries wa

made in theDeclarationontheProgressiveDevelopmentofPrinciplesofPublicInternationalLawRelatingto a New International Economic Order adopted by the International Law Association in Seoul in 1986, but this is onlyaresolutionofanongovernmentalorganization.

The Charter emphasizes the permanent sovereignty of states over their natural resourcesandtheirjurisdictio

to regulate economic activity on their territory, especially with respect to foreign investment by multinatio

companies. The document contains provisions which are aimed at making it an instrument of change in favour

developing countries, concerning, inter alia, international trade, the transfer of technology, preferential treatmen

protection of commodity prices, and foreign aid. Dissent particularly arose concerning the principles laid down f compensationtobepaidinthecaseoftheexpropriationofforeigninvestment. TheroleofInternationalLaw 1.Toarrangeforthecooperationmostactorswishtohavemostofthetime.

Trytoimagineaworld withglobaltradegrindingtoahalt,healthandeconomicdevelopmentprogramsinpo countries screeching to a halt because the UN ceases to exist, or degradation of the oceans, outer space, and Antarcticabecausethesecommonheritagespacesnolongerenjoytheprotectionoftreaties.

Modern international life, as we know it today with its pervasive and predicable patterns of cooperation

would be impossible without the rules and understanding bound up in international law. Without rules todevelopa

sustain multiple kinds of positive interactions, internationalrelationswouldbelittlemorethanasetofstatescoexis inanatmosphereofconstantworryoversecuritythreats.

The law of nations, as these rules are sometimes called, is at least a cornerstone, if not the foundation, o moderninternationalrelations. 2.Internationallawidentifiesthemembershipofaninternationalsocietyofsovereignstates

Under law, states are granted formal recognition as members of international society, and given rights an

duties within this society. Enjoying membership, states can engage other states over competitive as well as mutu intereststhroughdiplomacyandattheforumsofnumerousorganizationsandinternationalconferences.

Additionally, there are nonstate actors as well participating in international society, such as the Unite

Nations, revolutionary movements, and evenindividualsinsomecircumstances.Nonstateactorshavealesserdegre oflegalstandingreflectingthecontinuedprimacyofthestateoverotheractorssharinginternationalsociety. 3.Amechanismtoregulatethecompetinginterestsofthevariousactorsandtocarrytheiragreementsintothefuture

There are nearly 200 (194+ Vatican) states and several other kings of actors, with most of these wanting to

believe that what has been arranged today will still be in place tomorrow. When a challenge to the status quo does

occurs between those wanting change and those who do not, international law helps constrain the ensuing politic strugglebyprovidingdiplomaticandjudicialoptionssuchasarbitration.

States mostly accept international society, underpinned by a legal system, because they see the possibility o protectingwhattheyhaveormakingsomegainswithminimumcosts.Thelawcanbeameanstoapoliticalend.

This role of international law hasbeensummedupinonesentence:Internationallawcodifiesongoingsolutio forpersistentproblems.(Ch.C.Joyner,1998). 4.Internationallawempowersweakercountriesastheypressforchangeagainstthewillofthepowerful

In diplomatic conferencesandinternationalorganizations,wherestrengthispartlymeasuredinvotes,smalla mediumsizedstateshavesometimeswontheday. For instance, at the Law of theSeasConference,19581982,themajorityofthestatessuccessfullypressed

for a 12mile offshore territorial jurisdiction to replace the traditional 3mile limit. The Soviet Union and the Uni

States, despite being Cold War adversaries, wanted the 3mile jurisdiction to remain in place as aninternationalrul

His traditional rule, dating back to the seventeenth century wouldleavethemwithagreaterexpanseofoceanforthe

powerful blue water navies. Superpowers on occasion have had to bend their knees in a world conditioned by the existinglawaswellasbyamajorityofstatespressingfornewlaw.

It is patently false to believe that one state even a superpower can unilaterally captain the course o internationallaw(D.J.Bederman).

5. The functions of international law, as in any system of law, are to assist in the maintenance of order and in t administrationofjustice(G.Mangone,1967)

If an international order were to endure, it not only neededthesupportofmajorpowers,butthis legalsystem mustalsoprovidejusticefortheinternationalsocietyasawhole.

This role of international law concerning such matters as improving human rights and promoting econom developmentforthelessadvantagedstates. 6.Themostinterestingandambitiousroleofinternationallawistheoutlawryofwar

Eliminating war as a normal means of international politics were core elements of the League of Nation

Covenant and the UNs Charter. Should war breakoutanyway,internationallawissufficientlypreparedsothatifju ad bellum (law to begin war, but often understood as warforajustcause)isviolated,jusinbello(lawof war)goes intoeffect.

The intent of this momentous reform was to move political conflict into diplomatic and judicial channe Towardthisend,internationallawoffersmanyoptionsforconflictresolutionshortofwar.

Admittedly, however, international law has a more successful record regulating trade, international electron

communications and airline travel, as well as many other subjects, thanisthecasewhennationalleadersperceivean reacttosecuritythreatsagainsttheirstates.


Global interdependence intensified so that by the 1970s and 1980s, especially in the world economy, strong patternsofcooperationweretakingplace.

Also, international government organizations (IGOs) exploded in growth after the Second World War

magnifying cooperation to new historical levels. The European Union, in particular, has been successful attracting memberstateswithotherseagerlywaitinginlinetojoinandenjoyabundleofeconomicbenefits.

Normative goals of nongovernment organizations (NGOs) such as Amnesty International in thehumanrigh fieldandGreenpeaceintheenvironmentalareaalsoinfluencetheworldagenda.

A loose array of states, IGOs and NGOs exercise a weak supranational authority to influence global policy

and global law in various issueareas. For instance, a wellknown example of an NGO affecting global policy is th case of Amnesty International leading a moral crusade to persuade states and the UN to accept first the 1975

Declaration on Torture and then the 1984 Convention on Torture. This convention received numerous ratifications andhelpeddampentheheinouspracticeoftorture.

The general notion that human progress is possible and that international law can help make for a bette internationalsociety. Operatingconditions The institution of international law, at the core of international society, operates within a mixture of conditions of worldthatarepushinginternationallawforward.

The historical process of globalization has intensified in the last quarterofacenturyto anunparalleleddegre

Globalism is the belief that resources, markets, and transportation and communication are worldwide and so

governance through rules and norms should operate from this level. Commercial air travel, economic exchange

violation of human rights, transnational crime, nearly instantaneous modern communications, and much else produ

widespread, troublesome effects that require global cooperation. The role of international law will almost certain

expand with the globalization process. More human activities and interactions will require more regulation. So clo hastodaysinternationalsocietypulledtogetherthatithaslongbeenknownasaglobalvillage.

Regional identities and activities cannot be lightly dismissed, however.Regionalismreferstoanidentityamo

a subsetofstateslinkedtogetherthrough asharedculture,history,andgeographicalproximity.Statessharingregion

identities often endeavor to promote common interests with treaties and organizations to that group of states. Th

existence of the African Union, the European Union, the League of Arab States, and the Organization of America

States, among many others, bear testimony to faith in regional arrangements. Regionalism involves the belief th

regional management is more efficient because fewer states are at stake, they are in geographical proximity,andth

often share a similar culture and problems. Inpractice,bothlevelscanencouragedevelopmentandprosperity withou


Often both global and regional efforts are both needed. In truth, global and regional orders are mostly compatibleandevenreinforceoneanother.

A powerful force binding the world together is the global market. An integrating world economy require

constant negotiation and reworking of the many rules and regulationthatallowtheworldsgiganticeconomicmach

to operate. The world is increasingly aware of its economic interdependence. The US needs China as a source to

borrow huge amounts to cover itsbudgetdeficits,andChinarequiresthelargeconsumermarketoftheUStokeepit

factories busy. Not everyone isequallyhappywiththeglobaleconomy,however.Theworldremainsdividedbetwee

the haves and have nots. The poorer states are in the majority, but have not been able to reform the world

economy and its supporting legal regime in substantial ways. Despite some economic progress by the poorer states thegapbetweenthetwoisstillwidening.

Many scholars place a great deal of attention on the distribution of power to explain international outcomes

One might think power spread among several or more major states would be the preferred power distribution. The

reasoning goes, since no one state can dominate, states are more willing to cooperate and develop rules for thei

interaction. International society as a whole might be able to shape international law in the global interest without

driving force of a great power. Some modern conferences havehad 180 ormorestatesinattendance,andtheweight ofthemajorityhasbeenabletotrumpthewillofmajorpowers. Typesofinternationallaw I.general/regionalinternationallaw/particularinternationallaw

General international law refers to rules and principles that are applicable to a large number of states, on th

basis of either customary international lawormultilateraltreaties.Iftheybecomebindinguponallstates,theyareof referredtoasuniversalinternationallaw.

But there is alsoregionalinternationallaw,whichappliesonlytocertaingroupsofstates,such as,for exampl

certain rules on diplomatic asylum recognized only by South American states, or the law of the European Unio

Regionalism tends to undermine the universality of international law, but it is an important existing feature of internationalsystem.

Moreover, the term particular international law is used to denote rules which arebindingupontwoorafew

states only. Mere usage, in the sense of widespread practice observed between states without any sense of legal obligation,isoftencalledinternationalcomity.


process of decolonization after the Second World War.Thesechallengesinprinciplenolongerappear.Butobviousl

the community of more than 194 states in existence today is rather heterogeneous in terms of military, political a

economic power, territorial size and population, political structure, and cultural and ideological orientation. Th

diversity also affects the interpretation and operation of international law to a considerable extent. Almost all of t

existing states, however, are members of the United Nations and of regional organizations ofvariouskindsandagre

on certain fundamental principles of international law as laid down in the 1970 Declaration on Principles of International Law Concerning Friendly Relations and Cooperation Among States in Accordance with the CharteroftheUnitedNations.Theseprinciplesinclude:

1 the prohibition of the threat or use of force by states against the territorial integrity or politicalindependenceofa state,orinanyothermannerinconsistentwiththepurposesoftheCharter

2 the peaceful settlement of disputes between states in such a mannerthatinternationalpeaceandsecurityandjustic arenotendangered 3thedutynottointerveneinmatterswithinthedomesticjurisdictionofanystate,inaccordancewiththeCharter 4thedutyofstatestocooperatewithoneanotherinaccordancewiththeCharter 5theprincipleofequalrightsandselfdeterminationofpeoples 6theprincipleofsovereignequalityofstatesand 7theprinciplethatstatesshallfulfillingoodfaiththeobligationsassumedbytheminaccordancewiththeCharter.

Another broad division made in international law is global versus regional law. The UN Charter, numerou

other multilateral treaties, declarations, principles such as jus cogens, and other types of rules havemultipliedrapid atthegloballevel,especiallysincetheSecondWorldWar.

Additionally, developments at the regional level have been equally robust. Africa, the Middle East, Europ

Latin America, and Southeast Asia, among other regions, have designed treaties, as well as IGOs, they believemee theirspecialneeds. III.public/privateinternationallaw

Public international law governs the relationships between states, between states and internationa organizations,andbetweenthesejuridicalpersonsandindividualsinvolvedintransborderrelationships.

The public side of international law primarily deals with the duties and rights of states and IGOs, with su

issues as the setup of international institutions (UnitedNations,EuropeanUnion,EuropeanHumanRightsCourtetc

human rights (European Convention on Human Rights), the extradiction of nationals from another country to th homecountry,etc.

Typical public laws are found in theareasofdiplomacy,statesuccession, war, intervention,andvariousissue ofjurisdictionrelatingtoairspace,territorialwaters,andlandterritory.

Private international law is a body of rules of the internal law of a state that is applicable when a legal iss

contains a foreign element, and it has to be decided whether a domestic rule should apply foreign law. (conflict laws)

Private international law focuses on private individuals and groups as their activities cross national bounda lines,producingeffectsontwoormorecountries.

It is originated from a belief that in certaincircumstancesitwouldbe appropriatetoapplyforeignlawortol aforeigncourtdecidethecase. For example: a Spanish court has to decide on the validity of a contract concluded between a French

company and an Italian merchant to be performed in Madrid. The Spanish judge would have to apply the rules o

Spanish private international law to find the applicable law of contract (French,Italian,Spanish,orothernationalla

depending on the circumstances on the case). These rules are known as conflict of law, belong to the internal/national/domestic(municipal)law,andthereareasmanysystemsastherearestates.

We must distinguish between treaties that seek to harmonize domestic rules on conflict of laws (i.e. The Choice

Court Agreements Convention, 2005) and treaties that seek to unify States substantive domestic law (law of EuropeanUnion)

The distinction between public and private international lawisgraduallyblurring.Asearlyas1963,W.Friedma

claimed that many activities once taken to belong to the private sphere have become a matter of public concern

drawing the attention of governments and IGOs. Friedmann stated that, There is today [1963] hardly any field o privatelawwhichcouldbeadequatelyunderstoodwithoutastrongandoftendecisiveadmixtureofpubliclaw.

Treaties as public law are increasingly absorbing private activities for regulation on everything from transnatio

business to the protection of children in custody and adoption cases. One of Hilary Clintons early tasks in 2009, a

Secretary of State, has been to champion the cause of an American father whohasforseveralyearssoughthisson

return from Brazil. There are ongoing meetings from time to time of the Hague Conference on Private Internation Lawthathasheldsessionssince1893.

Numerous conventions among states regulating private lives on a transnational basis have been produced by th

Hague Conference, for instance, the 1980 Convention on the Civil Aspects of International Child Abduction and th 1993ConventiononProtectionofChildrenandCooperationinRespectofInterCountryAdoption.

The main example of blur the distinction between public and private sides of international law is the internatio businesslaw.

International Business Law is a convenient term to cover the multitude of bilateral and multilateraltreatiesontra

commerce and investment, including rules governing international and regional organizations and settlement of tr disputes.

The law governinginternationalbusinessrelationsisoneofthemostimportantareasinwhichinternationalle


rules and principles and international institutions operate in practice. This reflects the remarkable growth of t

economic interdependence of the world since the end of the Second World War and it is challenging traditiona

perceptions of international law. It is still a matter of discussion among scholars what the term international busin

law exactly covers, the main problem being that the close interconnection with norms of the municipal law of sta

complicates the study of the area immensely. A restrained approach suggests concentrating on the internation

regulation of the establishment by foreign business of various factors of production (persons and capital) on th

territory of other states, on the one hand, and of international transactions concerning goods, services and capital o theother.

The Restatement (Third) takes the following view: The law of international business relations in its broades

sense includes all the international law and international agreements governing business transactions that cross st boundaries or that otherwise have implications for more than one state, such as those involving the movement goods,funds,persons,intangibles,technology,vesselsoraircraft.

The subject thus includes as subtopics the law of establishment, the law of foreign investment, the law o

business relations, the law of economic institutions, and the law of regional economic integration. But one could a

include many other questions, such as the international law of economic development or economic sanctions, th

problem of the extraterritorial application of national economic regulations, state immunity, the role of transnatio enterprises,airtransport,telecommunications,theprotectionoftheenvironment,etc.

The following also leaves aside international commercial law which deals with the relationship betwe

merchants and other private parties in their international business transactions and with international commerc arbitration.

International business law is to a large extent based upon reciprocal international (bilateral and multilatera

treatiesreflecting thecommercialprinciplequidproquo.Customaryinternationallawinthisareaisinsignificant.Un

customary law states have always been regardedasfreetoregulatetheireconomicandmonetaryaffairsinternallyan

externally as they see fit. Some customary law limits of this freedom in the business intercourse of states follow fr

the general principles of state sovereignty and state responsibility (e.g. concerning the treatment of aliens and th

property). Yet the principles of the freedom of commerce, the mostfavoured nation treatment or the principle ofth convertibilityofcurrenciesarenotguaranteedbycustomarylaw.


To avoid a ruleless vacuum,statesoverthecenturieshavereliedheavilyoncustomarylawthatemergedfrom


common practice as well as written treaties when agreement is fairly close. States also have put principles of law

good use whenever international law begins to regulate a new international activity, before customs and treaties ha

taken firm control. And, as subsidiary sources for filling in gaps in the law, judicial precedents and the teachings publicistshavebeenhelpful.

The word source of law has a variety of interpretations.Inthelegalsense,thetermmeansthecriteriaunde

which a rule is accepted as valid in the givenlegalsystematissue.Thesource hasatechnicalmeaningrelatedtot

lawmaking process and must not be confused with other sources on international law (such as information,researc orbibliographies).

In the decentralized international legal system, lackingahierarchicalstructure,theproblemoffindingthelaw

much more complicated.Thereisnoauthoritytoadoptuniversallybindinglegislationandnocompulsoryjurisdiction

international courts without the consentofstate.Inthissystemthesamesubjectsofinternationallawthatarebound internationalrulesandprincipleshavecreatedthemthemselves. Art.38(1)oftheStatuteoftheInternationalCourtofJusticeprovides:

The Court, whose function is to decide in accordance with internationallawsuch disputesasaresubmittedt it,shallapply:

(a) international conventions, whether general or particular, establishing rules expressly recognized by the contest States (b)internationalcustom,asevidenceofageneralpracticeacceptedaslaw (c)thegeneralprinciplesoflawrecognizedbycivilizednations

(d) [] judicial decisions and the teaching of the most highly qualified publicists of the various nations, as subsidi meansforthedeterminationofrulesoflaw.

This provision is usually accepted as constituting a list of the sources of international law. Some writers ha

criticized it on the grounds that it does not list all the sources of internationallaw,orthatitincludesaspectswhich notgenuinesources,butnoneofthealternativelistswhichhavebeensuggestedhaswongeneralapproval. I.TREATIES

Treaties are the major instrument of cooperation in international relations, and cooperation often involves changeintherelativepositionsofthestatesinvolved.


The 1969 Vienna Convention on the Law of Treaties defines a treaty as an international agreement conclude betweenstatesinwrittenformandgovernedbyinternationallaw.

The 1986 Vienna Convention on the Law of Treaties between States andInternationalOrganizationsorbetween InternationalOrganizationsextendsthesamedefinitiontoagreementsbetweenIGOsandstatesorotherIGOs.



The term treaty is usually thought of in a generic sense and so covers all agreements, whether they are calle accords, conventions, charters, covenants, pacts, protocols, charter, declaration, engagement, arrangement, or

statutes, along with other terms in use. These terms are synonymous with treaty but there are some interestin patternsintheuseoftheseterms.

agreement is often used to refer to regional economic trade treaties, forinstance,theNorthAmericanFreeTrade Agreement.

convention has come into use for multilateral treatieswhenalargenumberofstates,eitherattheregionalorglob

level, generate treaty law. Conventions often enjoy the sponsorship of the UN or one of the specialized IGOs withi

the UN System. Wellknownexamplesarethe1969ViennaConventionoftheLawofTreaties,the1982Convention ontheLawoftheSea,andthe1989ConventionontheRightsoftheChild.

charter is used to refer to the foundational instruments of IGOs, forexample,the 1945 UNCharterandthe1952 CharteroftheOrganizationofAmericanStates.

protocol can have several slightly different meanings but usually appears in the form of an optional protoco whichisanaddonagreementtoanexistingtreaty,namedframeworktreaty.

Framework treaty covers the general subjectmatter, which can then be elaborated with optional protocols.

These protocols have a sufficiently independent character to require their own ratifications. The 1966 Covenant o

Civil and Political Rights now has two optional protocols, which allow a subset of ratifying states to make deep commitmentsregardingtheenforcementofhumanrights.

iii.Thebreadthoftreaties Treatieslikeothersourcesofinternationallaw,canbeconceptualizedas:

universal type of treaty imply fundamental norms or principles that are binding rules for all states, whether a giv statehasratifiedthistreaty.

The UN Charter has universal character. For instance, the deeply investednorm ofnonaggressionappliesto everystate,andtheUNCharterembodiesrulesaboutforcethatreflectthisnormofnonaggression.

The Charter applies not onlyto its192ratifyingstatebut isalsovalidascustomarylawforthehandfulofsm

states thathavenotjoined,as alreadymentioned.FurtherbolsteringtheuniversalityoftheCharterisitsArt.103,whi makesclearthatifatreatyofanykindconflictwiththeCharter,thelatterprevails.


A general treaty is likely the product of a conference attended by diplomats from a wide range of countrie

and even the representatives of IGOs and NGOs. Additional states may accede tothetreatyoritstermsmayextend tononratifyingstatesascustomaryrules.(WTOsConvention)

particular treatiesapplytoonlyafewstates,oftenjusttwo.Typicalexampleswouldbetreatiescallingforsharingt



1. Lawmaking treaties resemble nationalstatutesincontent,andtheyimposethesameobligationsonalltheparties

the treaty and seek to regulate the parties behavior over a long period of time. Their purpose is to conclude an agreementonuniversalsubstantivelegalprinciples(i.e.humanrightstreaties). However,lawmakingtreaties,applyonlytostateswhichagreetothem.

2. Contract treaties resemble contract, are not source of law, but merely legal transactions (for instance, a treaty wherebyonestateagreestolendacertainsumofmoneytoanotherstate). Theonlydistinctionbetweenalawmakingtreatyandacontracttreatyisoneofcontent.

v.Stagesoftreatymaking Aformalprocessexistsforcreatingthewrittenlawoftreaties,aprocessthatmaytakemanyyears: 1.Thefirststageisnegotiation.

This step is essentially a political bargaining process, whether two foreign offices are constructing a bilateral treaty

an international conference isturningoutamultilateralconvention.Sometimes statesexchangeworkingpapersthatw establisheachsidespositionandhelpsetanagendabeforeameetingtakesplace. 2.Thesignaturestage

This stage requires that diplomatic representatives sign the text of the treaty as an expression of provisional consen butthetreatyisstillsubjecttotheapprovaloftherepresentativesgovernments. 3.Theratificationstage

Ratification is the stage when the government of a state agrees to be bound by the treaty as a lawful obligation, an

becomes a party to the treaty. The procedure for ratification can range from the signature of the countrys chie executive to a more complex process involving the national legislature. When a treaty is ratified, a state sends

instrument of ratification to the state serving as the depositary, or keeper of records. Treaties also have to be registeredwiththeUN.

At the time of signature or ratification,statesmayinsistonareservationaboutoneor morearticlesofatreaty

In such a case, a state is saying it will be bound by all articles or the treaty except for those articles it find

objectionable. Some treaties might not ever go into a force if reservations were not allowed, and yet enough

reservations by a lot of states could easily vitiate the purpose of a treaty.Whenreservationsareallowedbytheothe

signatories, the rule followed is that the reservation mustnotmitigatethefundamentalpurposeofthetreaty.Amode

trend has been fortreatycreatingconferencestobecautiousaboutallowingreservationorsometimestoprohibitthem altogether. 4.Theentryintoforcestage

Treaties normally make clear the conditions under which they enter into force as international law for the ratify

states. Usually a prescribed minimum number of ratifications are needed to make the treaty lawful. (the 1969Vienn ConventionontheLawofTreatiesneeded35ratifications). 5.Thelastmajorstageforatreatyisregistration.

Although states can still choose one of their ranks as depositary, Art.102 of the Charter requires additionally that a

treaties be registered with the UN and made public. The Charter requirement is not as strict since it permits a

nonregistered treaty to apply its rules without registration, but such a treaty cannotbeusedbeforeanyagencyofth UN,includingtheICJ.


Additional states, through an act of accession, can sign and ratify the treaty at a later date. Mostmembersofthe UNobviouslyhaveratifiedtheUNCharterlongafteritsfoundingdateof1945inSanFrancisco.

Treaties often provide foranamendment,whichmightcallforageneralrevisionofatreatyorachangeinonlyo ortwoarticles.

Another postratification development is the invalidity of treaties which can occur but is rare. The Vienn ConventionontheLawofTreatiesprovidesthatatreatymaybecomeinvalidforoneormoresignatories: ifastatesinternallawforapprovingtreatieswasnotfollowed, ifastaterepresentativeexceededauthorityincommittingthestatetotheagreement, ifanerroroccurred, ifonestatetricksanotherintoratifyingbyfraudorpersuadesbybribes,or iftherepresentativeofhisorherstateisthreatenedwithforce.


1. A more serious problem is the refusal of a state to abide by a treaty or one of itscritical provisions,or unilateral

terminates its role in the treaty altogether. When a state performs in such a maverick manner, its action is called materialbreach.

If one state suspends or terminatesabilateraltreaty,theother partyisfreetowithdrawfromthetreatyifthemateri breachisserious.

If a multilateral treaty is at stake, the legal outcome is more complicated. After a breach by one state, the othe

parties to the treaty may terminate the treaty altogether or suspend treaty obligations with only the offending stat

However, if a trade treaty werebreachedbyonestate,theremainingsignatorieswouldprobablysupportthetreatyas longasithelpedthemtoprosper.

2. Another situation involves the principle rebus sic stantibus, meaning as long as conditionsremainthesame.Inth

situation, one party attempts to derogate, from a treaty obligation, by claiming a major change in the conditions o

which the treaty was originallyfounded.TheViennaConventionontheLawofTreatiesimposestoughstandards for countrytobeabletowithdrawfromatreatyonthesegrounds.


3. The Vienna Convention on the Law of Treaties also recognizes supervening impossibilityofperformance,althou

an instance of derogation of this kind is unlikely to arise very often. Ifatreatydependedonariverasaboundarylin

buttheriverdriedup,oran islandsharedbytwocountriesfishermenunderabilateralagreementpermanentlybecam submerged,thentermsoftherelevanttreatywouldnolongermakesenseandthusitcouldbeterminated. TheUNandtreaties

The UN, through the roles of the Sixth Committee (the legal committee) its International Law Commission, an

General Assembly declarations, have helped blanket the world in international law. When states want to change th

rules quickly, rather than go through the lengthy treatymaking process, they may press for a special resolution fro

the UN General Assembly, known as a declaration. This type of resolution is designed to createnew norms toguid states,aswhenThirdWorldstateswantednewtraderulesinthe1970s.

Declarations usually carry moral weight and may represent a large step toward a convention in the future

Professor L.Henkin calls this process a radical innovation becauseitinvolvesthepurposivecreationofanewnorm standinplaceofacustomaryruleevolvedthroughpractice. UN General Assembly declarationscan become internationallawifstates choosetoratifythem as multilateral treaties. Reliance on the slow customary law process among consensusoriented European states had to give way increasingly tothe varieddemands ofaworldwidesocietyofstates reflectingdifferentmoralattitudesaboutjusticeandstrugglingwithaninterdependentglobaleconomy. A quasilegislative processmanaged toarise within the UN, basedon a role of suggestinglaw to thestatessotheycanbettercopewiththe discordantdemandsof anexpandinginternationalsociety. The Preamble to the UN Charter and Article 13 (1) of this Charter call on the UN to promote the development of international law, but no one in 1945 could have imagined the outpouring of declarationsandconventionsfromtheUNthathaveenrichedthebodyofinternationallaw. TheGeneral Assemblycanpass hundreds of resolutionsper year,butonly a few of themstand out as declarations marking a potentially significant change in policy. And not all declarations evolve intotreatylaw. It can be remembered these declarationsaresoftlaw,representinga climate of political, and sometimes moral, opinion that occasionally transforms into the legal obligations of conventions, if supportforadeclarationgathersintoastrongforce(declarationsofintendedpoliciesbyabodyofstates).

Declarations are resolutions that carry considerable moral weight and may call for bold policy changes. Th ThirdWorldtriedtochangetheworldeconomytotheirlikingwithUNGeneralAssemblydeclarations.

These declarations areneitherlawfulnormerepoliticalstatements,butsomethinginbetween.TheUNGener

Assembly has issuedagoodlynumberofdeclarationsindifferentpolicyareas.Multilateralconferencessometimestu

out declarations as well as treaties, usually because the politics surrounding the conference will permit onlythislow

levelofagreement. For example, there is the famous1948 Universal Declarationof HumanRights thatgrew into twodistincttreaties in1966,theCovenant onCivilandPoliticalRightsandtheCovenantonEconomic, Social and Cultural Rights. The 1961 and 1963Declarationson Principlesof Outer Space ledto the 1967 Outer Space Treaty.A 1975 declaration opposing torture became the1984 Convention against Torture. Important declarations that did not become treaties buthelpedchange policiesof statesand influenced International Court of Justice decisions are, respectively, the 1960 Declaration on the Granting ofIndependenceofColonialCountriesandPeoplesandthe1970DeclarationonPrinciples of International Law Concerning Friendly Relations and Cooperation among States. A resolution about common heritage helped Third World states stake a claim to whatever the technologically advanced countries might find ofvaluein theseabed of theoceansorouterspace,aprovisionthatdid make its wayinto the1982 Lawofthe SeaConvention. And theGeneralAssembly hashelpeddefine war crimes with its formulation of the Nuremberg Principles that guided the prosecution of Nazi war criminalsattheendoftheSecondWorldWarandwithits1974DeclarationonAggression.

Perhaps the best serviceofalltheUNseffortsistheUNTreatyCollection,whichhasregisteredover40,000 treaties.AlltreatiescurrentlyinforcearoundtheworldarerequiredtobeinregisteredwiththeUN. Otherexamplesofsoftlawsare: i. There are policy agendas for states to follow that emerge from multilateral conferences. A wellknown example Agenda21forpromotingthehealthoftheplanetthatstemmedfromthe1992EarthSummit.

ii. Codes of conduct, encouraged by theUNandNGOsforMNCstofollowasethicalguidelines,areanothervariant ofsoftlaw.

Soft law is sometimes referred to as lex ferenda, as law in the making orlawasitshould be.Thislawi usuallycontrastedwithlexlata,orlawasitexists. Tosomeextenttreatieshavebeguntoreplacecustomarylaw. II.CUSTOM

Customary Law consists of the rules that emerge from the experiences of states over time as they try to

resolve interstate problems. As the internationalsocietyofstateshasbuiltup,olderstateshavesocializednewerstate withtherulesalreadydeveloped. Customary rules became law when there was a conviction that the expected behavior is opinion juris sive

necessitates (often shortened to opinion juris), a legal rule that it is necessary to obey. Customary rule is a general practiceacceptedaslaw.


Customary law is still important today especially in the areas of state duties and rights, state immunity, an

state succession. Even in these areas where countries are especially cautious, some treaties and declarations have a leastbeenpromoted. Forcustomarylawtobeseenasclearlyestablished,severalimportantquestionsareatstake:howmanystatesmust

adhere,overwhatperiodoftime,andwithhowmuchconsistencybeforeacustomisafirmruleofinternationallaw? AsW.Bishopjr.pointsout,itisdifficulttosayexactlyhowmuchtimemustpassforacustomtobecomecustomary

law.Inthefinalanalysis,aspecifictimeframeforacustomtoripenintolawisdifficulttoascertain,butthelongerth periodoftime,thebetterthechancesofestablishingthecustomslegitimacy. III.Theprinciplesofinternationallaw

A principle of international law of recognized by civilized nations is an accepted rule followed by judg

arbiters, and the diplomaticrepresentativesofstateswhencustomsandtreatiesareunclearorwhenthesetwosources

of laws appear to be in conflict. Principles fill in gaps left bythesefirmersourcesoflaw.Withinthehierarchyofth

sources, most legal authorities view principles as a subsidiary source, along with judicial decisions and thewritings

publicists. Undoubtedly principles are expected to continue in importance as a source since they are referred to i Article21ofthe1998StatuteoftheInternationalCriminalCourt.

In the early development ofinternationallaw,publicistshadlittlechoicebuttouse principlesextensively,bu

modern times they receive less attention due to the emergence of a substantial corpus of widely agreedupon customaryandtreatylaw.

In fact, the most relied upon principles have sometimes evolved into customary law or found a place i

treaties. Principles are likely to be reprised whenever international society experiences a new development tha

requires regulation, and before firm law is inplace.Commonusageofalegalpracticeinmanycountrieshasproven beareadysourceforprinciplesacceptedattheinternationallevel.

Principles of international law can be placed in three categories as to their origins, although these categorie canoverlaptosomeextent.

First there are the principles commonly used domestically in the major legal systems of the world. Thes

principles are well known and accepted by leaders and judges at the international level. Judges decidinginternation

law issues have often served previously inthemunicipalcontext,andtheybringtheirnationalexperienceswiththem

the international level. The municipal, or domestic, context provides most of the principles in use at the internatio

level. For example, the domestic principle used in an international setting is rebus sic standibus, which refers to

possible change in conditions underpinning an agreement. To get out of the agreement, onepartymustdemonstrate

drastic alteration of the conditions. Res judicata (a matter already adjudicated) is a stand most courts will take by refusingtohearacaseforasecondtime.


Second are the principles that arise at the international level itself instead of being borrowed from municip

systems. These principles are sometimes referred to asgeneralprinciples. Oneprinciplecitedasanexampleabovea

others is pacta sunt servanda, which means that agreements must be observed. This principle is the singularly mos

important because the international legal system would be nearly meaningless without it. This principles gr

importance is illustrated by its appearance in the preambles of both the UNCharterand1969ViennaConventionon

the Law of Treaties. Other examples of general or international level principles are found in the 1970 Declaration o

Principles of International Law Concerning Friendly Relations and Cooperation among States In Accordance Wit

the Charter of the United Nations. This declaration is intended to elaborate the Charter by identifying principles th

states have agreed to use in their mutual relationships. These principles include refraining from the use or threat

force, settling disputes peacefully, avoiding intervention in the affairs of otherstates,respectingotherstatessovere equality,andfulfillingallCharterobligations.

The third and final source of principles is natural law. The bestknown examples are principles of equity an

humanity. Equity calls for a fair settlement and can be identified with the jurisprudence of common law countries

also placed in the natural law tradition. Judges at the national and international levels have used equity decisions

prevent an injustice that might otherwise occur if laws were slavishly applied in a technical way. Judges have appl

equity mostly tohandleboundaryandmaritimeissues,as inthe NorthSeasContinentalShelfcaseoftheICJ.Equity

decisions can be a potentially serious problemifthepartiesatissue,orthejudgesinacase,representsharplydifferin

political and legal cultures. Although judges of the ICJ and arbiters have on occasionusedequitylaw,neithertheIC nor its predecessor the Permanent Court of Justice,haveappliedexaequoetbono(whatis justandfair)providedin

Article 38. Thisprincipleissimilartoequitybutismuchmoregeneral.Forthissourceoflawtoapply,bothparties in

dispute must agree to its use. While there is no bright line between the two, equity calls for fairness but is rooted normsoflawandprecedent.Exaequoetbonoisfreeoflegalmoorings.

One special principle inthenaturallawcategorythatdeservestoberevisitedisjuscogens,aninviolablenorm

states must adhere to without exception. Treaties and customary law are rendered invalid if they supportorcondon

genocide, slavery, a war of aggression, torture, oranyotherreprehensibleacts.Theexactsourceof juscogensisnot

completely clear.Mostauthoritiesdiscussjus cogensasadevelopmentsincethemidtwentiethcenturybasedoncore normsrepresentingsupreme,unbreakablelaw. IV.Judicialdecisionsandtheteachingofthemosthighlyqualifiedpublicistsofthevariousnations The role of judges and arbiters dealing with international law doesnot matchexactly either the work of common or civil law judges rather, judicial decision making at the international level is sui generis (of its own kind).Article 59of theStatuteof theInternationalCourtofJusticeprovidesthatThe decision of the Court has no bindingforce except betweenthe parties andin respectof thatparticular


case.The justices ofthe ICJ are lefttosearchamongtreaties,customs,andprinciplesoflawtofinda basis for asound decision.When a disputearisesoracrimehasbeencommitted, anycourtisloathto admit it cannot find appropriatelaw, butin at least onecasetheICJhadtroubledeterminingthelaw.In a1996 case about thelegitimacyof nuclearweapons, the UN General Assemblyasked theICJforan advisoryopinion on the following question: Is the threatoruseofnuclearweaponsinanycircumstance permittedunderinternationallaw? TheICJsearchedthroughtheareasofhumanrights,environmental, andarmedconflictlaw,butstillcouldnotprovidea definitiveanswer,notevenonthequestionof nuclear weaponsuse inselfdefense. The Court appearedhamstrungonthisissue,unabletobedecisiveafter reviewinga wide assortmentoflegalsources. TheICJhad toturn toaseriesofUNGeneralAssembly resolutions which declared that theuseof nuclearweaponswould be a violationof the Charterand a crime against humanity. In practice, the ICJ, as well as other international courts, does pay some attention totheirown prior decisionsandthejudgmentsofotherinternationaland,evennational,courts. When the ICJ, for instance, offered an advisory opinion in the 1949 Reparations for Injuries case, it established the precedent that IGOs can empower themselvessufficientlyenough to fulfill thegoalsof their treaties of creation, a precedent that from then on would be available to other courts and international organizations besides the UN. Other examples of ICJ precedentsettingdecisions easily come to mind.The 1951genocidecase helpedclarifyhowreservationstotreatieswouldbehandledin the future. And the 1970Barcelona Tractioncaselargelydefined the nationality ofcorporations, while the 1950 asylum and 1969 North Sea Continental Shelfcasescontributedsomeunderstanding tothe relationship between customary and treatylaw. TheArticle 21 of the1998 Statute of theInternational Criminal Court of Justice allows justices of this courttolook atprevious decisions, but that the same article regards judicial decisions as subsidiary. Amidst a proliferation of international courts and tribunals in recent years, judges undoubtedly are aware of prior decisions by their owncourtaswellas the judgments handed downbyother judicial bodies.However,theworldfallsfarshortofaunifiedlegal systemheadedbyatopworldcourtthatcanimposeglobaluniformityonlowerlevelsofcourts. In addition to principles and judicial decisions, publicists writings are another source clearly identified as asubsidiarysourceof international law.The yearsofprofound dependence on publicists coincidewith thelivesofsuchnoteworthywritersasGrotius,Pufendorf,andVattel.Althoughburgeoning customaryand treaty law havemostlyeclipsedtheroleofpublicists,theyarestillusefultoday.Publicists delve into subjects at great depth and pull togetherallthe fragments oftreatylaw, customs, andcourt decisionsinto ameaningfulwhole.GerhardvonGlahncitesRamphalLemkinsAxisRuleinOccupied Europe (1944) as contributing materially to the framing of the UN Convention on Genocide in the aftermathof the Second World War. Lemkineven coined thetermgenocide,meaning the killing ofa

tribe or nation of people, as Adolf Hitlers Nazi Germanyattempted to do to theJewishcommunity of Europe. Another way publicists provideaservice tointernationallawtoday istotake on mootissues,or theoreticalquestions,and offer suggestionsastohowthelawcan dealeffectivelywithaproblem.Much of outer space law had been written, partly under theinfluenceof publicists, beforemanystates could even clear the Earths atmosphere with their rockets, satellites, and crewed vehicles. OnlytheSoviet Union and the United States had the rockets to place a smallnumber of satellitesinto orbit whenthe core spacelaw,the 1967OuterSpaceTreaty,wasofferedforratification.Theacademicspadeworkof publicists may happen as the result of individual efforts, like that of Lemkins work on genocide,or it may be the productof abodyofscholars. Severalwellknownacademiesofinternationallawpublicists exist, including the American Law Institute, LInstitut de Droit International, the Hague Academy of International Law, and the International Law Association, which has 50 national branches. Deserving specialattention isthe UN International Law Commission(ILC).Whiletheotheracademiesareprivate, the ILC is a public body since it is an organ of an IGO. The ILC has helped propose a number of conventionsopenedforratificationbystates. V.OtherSources

The formal sources of Article 38 have been covered, but it is necessary to identify a few less explicit ones Thesesourcesdonothavethebindingnatureofopiniojuris,nonetheless,statesareinclinedtorespectthem.

One such source is comity, which consists mainly of courtesies that surround diplomatic intercourse. If on

side offers supporting evidence to clarify a position before negotiation begins, then the other side can beexpectedt

reciprocate. Or, if one state sends a diplomatic note to another, the sending state should notmakeitscontentspublic untilthereceivingstatehashadachancetoreadit.

Then there are memoranda of understanding, which are usually technical rules produced by two states

bureaucracies to handle common interests regarding commodity trades, antitrust laws, or such concerns as

environmental damages and health issues. More broadly, the 1975 Helsinki Agreements provided a basis o understandingonhowtheEastandWestwoulddealwitheachotherduringthegreatColdWardivide.

There are several instances of unilateral pronouncements by a state servingasbindinglaw.Thebestknown

the 1973 announcement byFrancethatitwasgoingtoconductnuclearatmospherictestsin1974inFrenchPolynesia

but after that date would cease such tests altogether. The ICJ regardedasbindingFrancesunilateralpronouncemen

in the 1974 Nuclear Tests Cases. Australia and New Zealand brought the case in objection to nuclear radiation in proximityoftheircountries.

Even a famous case of a binding oral agreement has occurred. DenmarkandNorwayhavedisputedoverthe

possession of Greenland, especially themorehabitableeasterncoast,since 1819. In1919,theNorwegianMinisterof


Foreign affairs asserted to a Danish diplomat that Norway would no longer object if Denmark claimed all o

Greenland. The dispute, nonetheless, arose once more, going before the Permanent Court of International Justice i

1933. The Permanent Court found in Denmarks favor. A writtenrecordoftheconversationbetweentheNorwegian foreignministerandtheDanishdiplomatprovedtobeNorwaysundoing.

The legal documents issued by several international organizations. In manyareasofinternationalbusinessla

cooperative effort both by governments and nongovernmentalbodieshasresultedinaharmonisedapproachtoman issuesfacedbyinternationalbusiness.Themainlawmakingbodiesare:


UNIDROIT is an international intergovernmental organization based in Rome. Originally set up as an auxilia

organ of the League of Nations, it is now governed by the terms of the UNIDROIT Statute,amultilateralagreemen signedin1940.

UNIDROIT was established to study the needs and methods for modernising, harmonising and coordinating

between states private law and particularlycommerciallaw.Itsmembershipcurrentlyconsistsoffiftyninestates.T instrumentsemployedbyUNIDROITtoachieveitsmissionofharmonisationareseveral. At its mostformal,proposalsforchangemight bethesubjectofaninternationalconvention.Suchaninstrument

intended to supersede the domesticlawofthosestateswhichadopttheConventionandtakethenecessarylegalsteps

to incorporate it into domestic law of the country concerned. Two such examples are the 1988 Conventions on

International Factoring and International Financing. Conventions traditionally tend to be given low priority bynatio

governments when compared with other more pressing business. This, coupled with the fact that a considerable tim

usually elapses before they come into force, has prompted the frequent use of alternative forms of UNIDROIT instrument.

Examples include model laws and general principles. The former, as the name suggests, representamodelset

of laws on a particular subject which states can take into consideration when drafting national legislation on thetop concerned,themodelFranchiseDisclosureLaw(2002)beinganexample.

General principles, on theotherhand,areaddresseddirectlytojudges,arbitratorsandcontractingpartieswhoare

left free to decide for themselves whether to use them or not. Prominent among these are the Principles of InternationalCommercialContracts,whichrepresentacodifiedstatementofthelawgoverningsuchcontracts.


UNCITRAL was establishedbytheGeneralAssemblyoftheUnitedNationsin1966,itsmandatebeingtofurthe theprogressiveharmonisationandunificationofthelawofinternationaltrade.

It has, todate,aconsiderablenumberofdocumentstoitscredit,includingconventionsandmodellawsspanning

a wide range of issues affecting international business. UNCITRAL has been active in areas as varied as th

international sale of goods, the international transport of goods, commercial arbitration, electronic commerc



The ICC is a nongovernmental organisation based in Paris but having representative offices in many countri

throughout the world. It was founded in 1919 with the aim of serving world business through the promotion of trad andinvestmentandtheopeningupofmarketsforgoodsandservices.

It plays a vital role in setting standards for the conduct of business that have global recognition. Although no

compelled to do so, parties to international business transactions frequently incorporate one or other of the ICCs

standard sets of business terms into their contracts. For example, most banks in the world operate on the ICCs Uniform Customs and Practice for Documentary Credits when financing exports through letters of credit. ICC

Incoterms provide a standard definition of trade terms such as f.a.s., f.o.b., c.i.f., etc., upon which countless export contractsareconcludedeveryday.

The ICC produces a wide variety of model contracts upon whichpartiescanbase theirrelationship.Amongthe modelformsavailablearethoserelatingtointernationalsales,commercialagency,distributorshipsandfranchising.

The ICC also facilitates the solution of business disputes through its arbitration and conciliation services, with t ICCInternationalCourtofArbitrationhavingaworldwidereputationinthisfield.


All legal systems recognize specific subjects that must comply with the rulesofthatsystemorfacesomefor ofsanction.

The subjects possess legal personality they have duties and rights including the capacity to appear before panelofarbitersoraninternationalcourt.

In fact, some subjects are also objects of international law they can receive the effects of international law includingbothbenefitsandsanctions. I.States 1.Whatastateis,forthepurposesofinternationallaw?

The state is a sovereign actor withacentralgovernmentthatrulesoverapopulationandterritoryandprotect

and represents that population in international politics. As sovereign entities, the statesareindependentofanyvertic authorityovertheirheads. The1933MontevideoConventiononRightsandDutiesofStatesprovidesinArticle1:

TheStateasapersonofinternationallawshouldpossessthefollowingqualifications: (a)apermanentpopulation, (b)adefinedterritory, (c)government,and (d)capacitytoenterintorelationswithotherStates.

The three criteria correspond to established international practice and to the socalled doctrine of the three elementsformulatedbytheGermanwriterG.Jellinekattheendofthenineteenthcentury. a.Permanentpopulation

The criterion of a permanent population refers to the significant number of permanent inhabitants it connectedwiththatofterritoryandconstitutesthephysicalbasisfortheexistenceofastate. Forthisreasonalone,Antarctica,forexample,cannotberegardedasastate.

The size of the population, as well as the size of territory, may be very small. This raises the problem o socalledministateswhichhavebeenadmittedasequalmemberstotheUnitedNations.

Who belongs to the permanent population of a state is determined by the internal law on nationality, whic internationallawleavestothediscretionofstatesexceptforanumberoflimitedcircumstances.

A state exercises territorial jurisdiction over its inhabitants and personal jurisdiction over its nationals wh

abroad. The essential aspects, therefore, is the common national legal system which governs individuals and diver groupsinastate. b.Definedterritory

The control of territory is the essenceofastate.Thisisthebasisofthecentralnotionofterritorialsovereignt

establishing the exclusive competence to take legal and factual measures within territory and prohibiting fore governmentsfromexercisingauthorityinthesameareawithoutconsent.

Therefore,territorialsovereigntyinvolvestheexclusiverighttodisplaytheactivities ofaState.Thisright

as a corollary a duty: the obligation to protect within the territory the rights of other States, in particular the

right to integrity and inviolability in peace and war, together with the rights which each Statemayclaimfor

nationals in foreign territory. (Judge MaxHuber,thePresidentofthePermanentCourtofInternationalJustic awardof4April1928,intheIslandofPalmascase,betweenNetherlandsandtheUnitedStates)

It is important to note that the concept of territory is defined by geographical areas separated by borderlines

from other areas and united under a common legal system. It includes the air space above the land and the earth

beneath it, in theory, reaching to the centre of the globe. It also includes up to twelve miles of the territorial se adjacenttothecoast.

What matters is that a state consistently controls a sufficiently identifiable core of territory. Thus, Israel w soonclearlyrecognizedasastate,inspiteoftheunsettledstatusofitsbordersintheArabIsraeliconflict.


Effective control by a government over territory and population is the third core element which combines th

other two into a state for the purposes of international law. There are two aspects following from this control by government,oneinternal,theotherexternal.

Internally, the existence of a government implies the capacity to establish and maintain a legal order in t senseofconstitutionalautonomy.

Externally, it meanstheabilitytoactautonomouslyontheinternationallevelwithoutbeinglegallydependen otherstateswithintheinternationallegalorder.

The mere existence of a government, however, in itself does not suffice, if it does not have effective contr overterritory

() a stable political organization had been created, and ()thepublicauthorityhadbecomestrongenough

to assert themselves throughout the territoriesoftheStatewithouttheassistanceofforeigntroops.(Reporton thestatusofFinland,1920,byInternationalCommitteeofJurists)

The notionofeffectivegovernmentisinterlinkedwiththeideaofindependence,oftentermedstatesovereign inthesensethatsuchgovernmentonlyexistsifitisfreefromdirectordersfromandcontrolbyothergovernments.

In international law, however, the distinction between independent and dependent states is based on externa

appearances and not on the underlying political realities of the situation as long as a state appears to perform th

functions which independent states normally perform(sendingandreceivingambassadors,signingtreaties, makinga

replying to international claimsand soon),internationallawtreatsthestateasindependentanddoesnotinvestigatet possibilitythatthestatemaybeactingunderthedirectionofanotherstate.

Moreover, it is important to note that, in principle, international law is indifferent towards the nature of t

internal political structure of states, be it based on Western conceptions of democracy and the rule of law, the

supremacy of a Communist Party, Islamic perceptionsofstateandsociety,monarchiesorrepublics,orotherformso

authoritarian or nonauthoritarian rule. The rule only demands that a government must have established itself in fa The legality or legitimacy of such an establishment are not decisive for the criteria of a state. The choice of a type

government belongs to the domestic affairs of states and this freedom is an essential precondition for the peacef coexistenceinaheterogeneousinternationalsociety. d.Capacitytoenterintorelationswithotherstates

The last criterion in the Montevideo ConventionsuggestedbytheLatinAmericandoctrinefindssupportinth

literature but is not generally accepted as necessary. GuineaBissau, for example, was recognized in the 1970s by UnitedStatesandbyGermanyonthebasisofonlythefirstthreeelements.

The Restatement (Third) of the American Law Institute, however, basically retains this criterion, although w certainqualifications:

An entity is not a state unless it has competence, within its own constitutional system, to conduct internation relationswithotherstates,aswellasthepolitical,technical,andfinancialcapabilitiestodoso. 2.SelectedDutiesandRightsofStates

Besidesaformaldefinitionofstatehood,statesalsohavedutiesandrightsthatguidetheirtreatmentofoneanothe Statesalsohavedutiesandrightsthatguidetheirtreatmentofoneanother:

i.StateDoctrine,acourtinonestatewillnotsitinjudgmentontheactofanotherstatecarriedoutonitsownterritory ii.Pactasuntservanda,statesareobligatedtoobeytreatiesandinternationallawingeneral. iii.Statesmustnotinterveneintheaffairsofotherstatesorattackthemmilitarily. iv.Statesmustnotallowtheirterritorytobeusedtoharmotherstatesbycounterfeiters,revolutionaries,terrorists,or evencommercialoperationsthatmaycausepollutiontoreachtheterritoryofanothercountry. v.Stateshaveanobligationtocompensateotherstatesandtheircitizensincasesofmaterialharmsthatinclude,for

example,shipwrecks,thefallofspacevehicledebris,andthenationalizationofprivatepropertybelongingcitizensof anothercountry.

vi.Stateshaveadutytoprotectforeignnationalsandtheirpropertyandtotreatthemaswellastheirowncitizenswit afewexceptions,mainly,regardingmattersofvotingandholdingpoliticaloffice. a.Stateshavearighttoselfpreservationincludingselfdefense. b.Statesenjoyarighttolegalequalityandsovereignindependenceincludingcontrolovertheirdomesticaffairs.

c.Stateshavearighttorecognizeoneanotherandtoparticipateindiplomaticintercourseincludingjoininginternatio organizations. d.StatescanexercisetherighttosueotherstatesintheInternationalCourtofJusticeandothercourtsiftheyhave ratifiedthetreatycreatingthesecourts.

e.Statespossesstherightofimmunityforactsofstate,fortheirdiplomats,andforvehiclesofwarincludingshipsan planes. f.Statesexpectotherstatestoreciprocateactsofgoodfaithandcomity.

These duties and rights provide a social lubricant for the mutual interactions of states that makes for a mor

convivial international society than otherwise would be the case. The exercise of these rights has no other limitati

than the exercise of the rights of other States according to international law. States, for example, are to act in goo

faith in their dealings with other states, and,veryimportantly,theymustrespecttheprincipleofpactasuntservanda Thishallowedlegalprinciplerequiresthatstatesrespectandobeyalltreatyobligations. 3.SovereignImmunityandActofState

a. Additionally, states can expect to benefit from rights based on state immunity, which means that norma

acts of state should be free from interference. Most importantly, a states government cannot be taken to court in



Sovereign immunity is the exemption of one states public acts and property from the court cases of anothe state.Itisanactofcomity.Inafriendlyway,onestatekeepsthebusinessofanotheroutofitscourts.

Until the midtwentieth century, the immunity of another state was seen in nearly absolute terms. After the Seco

World War, national governments were increasingly involved in a variety of businesses, such as banking, insuran andtransportation,leadingmoreandmorecountriestoadoptapolicyofrestrictiveimmunity.

If state acts were of the traditional kind, acta imperii, involving such matters as security or diplomacy the absolutesovereignimmunitywasrespected.

If state activity, however, concerned commercialacts,actagestionis,thenthedoctrineofrestrictiveimmunit appliedandastatescommercialbusinesscouldwindupinanotherstatescourts.

Internationally, there is no uniformity among countries as to when and how to apply sovereign immunity. T

Council of Europe attempted to harmonize practice of its membership with the 1972 European Convention on Stat

Immunity and set a low bar by requiring only three ratifications for the treaty to gointoeffect.Eightof47statesha

so far ratified. The UN also made an effort at harmonization with its 2004 ConventiononJurisdictionalImmunities

States and Their Properties that basically allows cases against states to go forward in court when commercia transactionsareinvolved.

Restrictive immunity representstheUnited Statespolicy,accordingtothe1976ForeignSovereignImmuniti Act. b.Theactofstatedoctrine

Like state immunity, deference is given to the sovereignty of another state, but here emphasis is on acts of

government on its own territory. This means that the decisions made by a government within its nationalcontext,t affectsanotherstatescitizensinanegativeway,willbegivenfullrespectasasovereignact. 4.Stateresponsibility

The existence of a state does not primarily rest on its relations to other states and its own foreign policy

capacity. Among a world of diverse states, irresponsible behavior can and does happen, sometimes shaking the

system of duties and rights, but there have been important efforts to strengthen the system of rights and duties wi written understandings. The 1970 Declaration onPrinciplesofInternationalLawConcerningFriendlyRelations and Co operation Among States inAccordancewiththeCharteroftheUnitedNationscallsonstatestorefrain

from the use of force, intervention, or other harmful acts toward other states and toactingoodfaithaccordingtoth

UN Charter. This declaration is often cited in UN General Assembly resolutions, court decisions, and diplomati

communiqus. Also, the UN International Law Commission labored for decades on revisions before adopting th Draft Articles on the Responsibility of States for Internationally Wrongful Acts. In 2001, theGeneralAssembly

commended the Draft Articles to states for adoption as treaty law. States have been slow to warm to this proposed


The international law on state responsibility involves the circumstances under whichastateisheldresponsib

for a breach of an international obligation. Historically, this concept focused on the way a state dealt with aliens, o

foreigners, on its territory. Fair and civilized treatment was expected at a minimum. Certainly an alien was not

encounter a lesser treatment than a citizen of the state in question. Under the UN International Law Commission

handling of the DraftArticlesontheResponsibilityofStates,theconceptnowseemsmoreopenended.These article

could cover state obligations about very controversial subjects such as peace, human rights, and the environmen

Conceivably, if the proposed treaty had been in force in 1986, the Soviet Union might have been held liable unde

treaty law, rather than a general principle, for the nuclear disaster in Chernobyl that cast radiation across norther

Europe. The society of states has long embraced the principle that one states territory and activities should not b

allowed to harm another state. Under the concept of state responsibility, an offending state is expected take

compensating steps ranging from an apology to reparation payments for damages dependingonthenatureandexten ofdamage. II.Internationalorganizations

The term international organization is usually used to describe an organization setupbyagreementbetwe twoormorestates,socalledintergovernmentalorganization(IGO).

It is different from the term nongovernmental organization (NGO), which is setupbyindividualsorgrou

of individuals (such as Amnesty International or Greenpeace), although some nongovernmental organizations a

entrusted with certain functions by states (International Committee of the Red Cross plays an important role i supervisingtheapplicationoftheGenevaoftheGenevaConventiontothelawsofwar)

Treaties setting up international organizations often provide, as does Article 104 of the United Nation

Charter, that the organization shall enjoy in the territory of each of its members such legal capacity as may b necessaryfortheexerciseofitsfunctionsandthefulfillmentofitspurposes.

All that this means is that the international organization possess objective international legal personality th

have the capacity to enterintorelationswithstatesandotherorganizationsandconcludetreatieswiththemitcanow property,enterintocontracts,accordingthestatusithasbeengivenundermunicipallaw,andsoon.

According to Article 43 of the United Nations Charter, the United Nationscanmakecertaintypesoftreaties withmemberstatesapowerwhichcouldnotexistiftheUNhadnointernationalpersonality.

When states create an internationalorganization,theysetitupforspecificpurposesandgiveitlimitedpower

which are determined by the exact set ofdutiesandrightsassignedtoeachorganization.Thus,powersmayvaryfro

organization to organization for example, the United Nations can take military action (in certain circumstances) b theWorldHealthOrganization(WHO)cannot.


The powers of international organizations need not necessarily be conferred expressly in the organization

constituent treaty an organization also has such impliedpowersasarenecessaryforthemostefficientperformance itsfunctions.

Other aspects related to the legal personality of international organizations are that they can also enjo

privileges and immunities (IGOs can send and receive ambassadors), may engage international responsibility a

liability (IGOs make treaties with states and with other IGOs), pose problems of succession (when an internation


A typical treaty between IGOs and states concerns host agreements that layout theprivilegesandimmunitie

of the IGOs while theyconductinternationalbusinessonthesoilofasovereignstate.IGOshavetohave headquarter ononestatesterritory,andtheyrequireprotectionfortheirpropertiesandpersonnel.

There are now some 500 international organizations ofverydifferenttypes.Thisproliferationreflectsthenee forincreasingcooperationbetweenstatestosolveproblemsofatransnationalnature. Theycanbeclassifiedundervariouscriteriaforexample, 1.accordingtowhethertheirmembershipisglobalorregional: atthegloballevelthereare:theUnitedNation,theWorldTradeOrganization,InternationalMonetaryFundetc.

at the regional level operate: the Organization of American States (OAS), the Organization of Central America

States (ODECA), the African Union (AU), the Commonwealth of States, the League of Arab States (AL), the EuropeanUnion(EU)etc. 2.accordingtotheirfunctionsandtasks:

unifunctional IGOs: the North American Free Trade Agreement (NAFTA), the Association of South East Asian Nations(ASEAN)alldesignedtoincreasetheeconomicprosperityoftheirmemberstates

multifunctional IGOs: UN and some of themajorregionalorganization,suchastheEU,theOAS,theAU,create toraisinglivingstandards,promotinghumanrights,maintainingpeace,amongotherworthwhileobjectives.

3. Most IGOs are ofthetraditionaltype,meaningthattheyareinessencebasedonintergovernmentalcooperationo stateswhichretaincontrolofthedecisionmakingandfinanceoftheorganization.

A new type of independent IGO created on a higher level of integration of member states, socalled supranationalorganization,ischaracterizedbythecumulativepresenceofthefollowingelements: theorgansoftheorganizationarecomposedofpersonswhoarenotgovernmentrepresentatives theorganscantakedecisionsbymajorityvote theyhavetheauthoritytoadoptbindingacts someofwhichhavedirectlegaleffectonindividualsandcompanies theconstituenttreatyoftheorganizationandthemeasuresadoptedbyitsorgansformanewlegalorderand

compliance of members states with their obligation andthevalidityofactsadoptedbytheorgansoftheorganizatio



The only existing internationalorganizationwhichcurrentlymeetsallofthesecriteriainasufficientdegreeis

EU. The member states pool their respective sovereignties creating a quasiauthority above the state level to mak moreeffectivepolicydecisionsforthecommongood. III.Nongovernmentalorganizations(NGOs)

NGOs are not established by a government ofbyanagreementbetweenstatesand theirmembersareprivate citizensorbodiescorporate.

NGOs are engaged in a broad variety of different areas, ranging from politics, the legal and judicial field, th socialandeconomicdomain,humanrightsandhumanitarianrelief,education,totheenvironmentandsports.

In the field of international business,importantNGOs,incorporatedunderthelawofaparticularstate,includ

the International Chamber of Commerce in Paris (ICC), the International Air Transport Association (IATA),andth internationalfederationsoftradeunionsandemployers. The role of NGOs in the international legal system is primarily an informal one. They have some effect

international lawmaking in certain areas by adding additionalexpertiseand making proceduresmoretransparent,an

a stronger effect with regard to supervision and factfinding as to the implementation of international norms, m visiblyintheareaofhumanrights.

From a formal legal point of view, on the global level there are no international legal standards governing t

establishment and status of NGOs. The relevant law is that of the state where an NGO is based and this may cause

problems in the case of international activities because national laws are different. Intergovernmental organizatio

may agree to grant NGOs a certain consultativeorobserverstatus.In accordancewithArticle71ofUNCharter,the

UN Economic and Social Council (ECOSOC) has adopted a number of resolutions concerning arrangements for consultingwithNGOs.

On the regional level, within the framework of the Council of Europe a common status for NGOs has been

recently laid down in the European Convention on the Recognition of the Legal Personality of Internation

NonGovernmental Organizations, signed in 1986 and in force since 1991. The Convention recognizes, among th

states which have ratified it, the legal personality and attached rights and duties as acquired by an NGO by it establishmentinanyoneofthestatesparties.

The constructive role of NGOs, especially in the field of human rights, in providing information, analysis a

public support, and active engagement inhumanitarianreliefoperationsandalleviatingpovertyindevelopingcountr forinstance,isnowgenerallyacknowledged.


IV.MultinationalCorporation(TransnationalCorporations) Multinational corporations (MNCs) are a special case of the NGOs actor, one that has risen to a height of powerandinfluencebeyondthatofotherNGOsinthegeneral.

MNCs are economic actors in pursuit of profit, and they operate at the heart of the economic globalization

process. They are businessenterpriseswithownership,management,production,andsalesactivitieslocatedinsever ormorecountries.

They constitute private business organizations comprising several legal entities linked together by pare corporationsandaredistinguishedbysizeandmultinationalspread.

The Western, or capitalist view, is that MNCs are helping build a burgeoning world economy that wi

advantage all states and peoples. The other interpretation, one associated with many Third World leaders, is tha

MNCs are further enriching thealreadyrichstatesattheexpenseofthepoorstatesandareevencausinghumanright andenvironmentalharmsalongtheway.

The MNCs have kept regulation restricted to Codes of Conduct, which are ethical guidelines. Corporations

essentially remain free to concentrate onprofitsthatwillrewardtheirshareholders.Themostimportantefforttorein

corporate power is probably the UN Center on Transnational Corporations. This Center tried to create aneffective, comprehensive UNCodeofConductonTNCs. By1999,theUNproducedanethicalcodeforMNCsknownasthe GlobalCompact.

Most regulation of MNCs has come from their host countries where they are headquartered and are usually treatedunderlawaslegalperson,ornationals.

Europe, always aleaderininternationallawandinstitutionaldevelopment,hasprovidedMNCssomebasisfo

legal personality. The EUs Corporate Social Responsibility requirements appear to be so clear and firm tha

compliance by corporations is generally expected, as if they were subjects of law. MNCs have legal personality an theyaresubjectsoftheEuropeanCourtofJusticesjurisdiction. The MNCs are different from International (multinational) public companies characterized in general by internationalagreementprovidingforcooperationbetweengovernmentalandprivateenterprises. Internationalpubliccompanies: havenotbeenconstitutedbytheexclusiveapplicationofonenationallaw whosemembersanddirectorsrepresentseveralnationalsovereignties

whose legal personality is not based, or at any rate not entirely, on the decisions of a national authority or th applicationofanationallaw

whose operations are governed, at least partially, by rules that do not stem from a single or even from severa nationallaws.


Such enterprises may vary widely in constitutional nature and in competences. Examples of such companie

would include INTELSAT established in 1973 as an intergovernmental structure for a global commercia

telecommunications satellite system Eurofima, established in 1955 by fourteen European states in order to leas

equipment to the railway administrations of those states, and the BankofInternationalSettlement,createdin1930b virtueofatreatybetweenfivestates,andthehostcountry,Switzerland.

The personality question will depend upon the differences between municipal and international personality.

the entity is given a range of power and is distanced sufficiently from municipal law, an international person may involved,butitwillrequirecarefulconsiderationofthecircumstances. V.Individuals

The question of the status in internationallawofindividualsiscloselyboundupwiththeriseintheinternatio protectionofhumanrights.

The link between thestateandtheindividualforinternationallawpurposeshashistoricallybeen theconcept

nationality. This was and remains crucial, particularly in the spheres of jurisdiction and the international protection

the individual by the state. Each state has the capacity to determine who are to be its nationals and this is to b

recognized by other states in sofarasitisconsistentwithinternationallaw,althoughinorder forotherstatestoacce thisnationalitytherehastobeagenuineconnectionbetweenthestateandtheindividualinquestion.

Individualsasageneral rulelackstandingtoassertviolationsofinternationaltreatiesintheabsenceofaprote

by the state of nationality, although states may agree to confer particularrightsonindividualwhichwillbeenforcea underinternationallaw,independentlyofmunicipallaw.

A wide range of treaties have provide for individuals to have rights directly and have enabled individuals

have direct access to international courts and tribunals. One may mention as examples the European Convention o

Human Rights, 1950 the European Union treaties the InterAmerican Convention on Human Rights, 1969 th

Optional Protocol to theInternationalConvenantonCivilandPoliticalRights, 1966the ConventionontheSettleme ofInvestmentDisputes,1965.

As farasobligationareconcerned,internationallawhasimposeddirectresponsibilityuponindividualincerta specifiedmatters,suchascriminalresponsibility(piracyandslavery,crimesagainsthumanityetc.) Conclusions

The International Court clearly recognized the multiplicity of models of personality in stressing that subjectsoflawinanylegalsystemarenotnecessarilyidenticalintheirnatureorintheextentoftheirrights. Thereare2basiccategories:

objective personality the entity is subject to a wide range or international rights and duties and it will b


entitled to be accepted asaninternationalpersonbyanyotherinternationalpersonwithitisconductingrelationsitw operateergaomnes.

qualified personality the entity is accepted by the consenting subject, in relation to itself and tha determinationwilloperateonlyinpersonam.

States are the original and major subjects of international law. Their personality derives from the very natu

and structure of theinternationalsystem.Statehoodwillariseasaresultofthefactualsatisfactionofthestipulatedle

criteria. All states, by virtue of the principle of sovereign equality, will enjoy the same degree of international le personality.

International organizations, rather than being derivative subject of international law, possess an inhere personalitydirectlyfromthesystemandwillthusconstitutegeneralandevenobjectivesubjectsofinternationallaw.

Also, NGOs, MNCs and individuals are derived subjects possessing only such international powers as conferredexceptionallyuponthembythenecessarysubjectsofinternationallaw.

WorldTradeOrganization Introduction

The foundingoftheWorldTradeOrganization,andtheentryintoforce ofitsrulesonJanuary1,1995marked aturningpointinthedevelopmentofinternationaleconomicrelations. TheWTOtodaycanbeconsideredthemostrelevantregulatorybodyinglobaleconomicrelations.

The WTO is understood as the embodiment of aregimewithcorrespondinginstitutionalfoundationsandleg regulations.

Ten years after its establishment, the WTO can be called a nearly universal organization. In addition to th

original members of the GATT, which became original Members of the WTO in accordance with Art. XI WTO

Agreement, many States or independent customs territories joined the newly created organization for thefirsttime, viewofthesuccessfulconclusionoftheUruguayRound. China and Taiwan were admitted at the endof2001,Russia,SamoaandMontenegrowere admitted after10

years (at the end of 2011) while other important requestsforadmission,suchas,amongstothers,fromSaudiArabia arecurrentlybeingnegotiated.

The membership of the European Union (EU) is now explicitly provided for in Art. XI:1 WTO Agreemen

where thetermEuropeanCommunitiesisused.Moreover,the25EUMemberStatesarealsoindividuallyMember of the WTO. The case of the European Union is also accommodated by a special provision (Art. IX:1 2 WTO



Like other international organizations, the WTO grants special privileges to the group of developingcountri

and, distinguishes between the group of Developing Countries (DC) and a specially defined subgroup, th

LeastDeveloped Countries (LDC). A definition for developing countries is only used in one instance in the WT Agreements, namely in Annex VII of the Agreement on Subsidies and Countervailing Measures, referring

developing countries as mentioned in Art. 27.2 (a) of that agreement. Regarding a definition of the LeastDevelope

Countries, Art. XI:2 WTO Agreement refers to recognition by the United Nations. In the absence of an explici

definition of the group of developing countries in the WTO Agreements, the categorization is made on the basis of

declaration by therespectiveState,whichcan,however,becontestedbyotherMembers.Thishasoccurredincertain

fields in the past, for example in the area of intellectual property. For States which accede to the WTO as new Members,theirstatusisdefinedduringtheaccessionnegotiations.

In relation to the United Nations and its system of specialized international organizations, the WTO, like th GATT1947,isgiventhestatusofadefactospecializedagency. I.TheWTOasanOrganization

According to Art. II:1 WTO Agreement, the WTO constitutes the common institutional framework for the

conduct of trade relations among its Members in the areas set out in the individual agreements and associated leg

instruments. The WTOs area of responsibility thus having been defined, Art. III WTO Agreement specifies itstask andfunctions.

The general and commonly found task description the administration of the corresponding legal statute

including their implementation is broadened by paragraph one, which expressly mentions the WTOs task o

furthering the objectives of the agreements. Explicitly mentioned is thefunctionofadministeringdisputesettlement theperiodical,politicalreviewofthetradepoliciesoftheMembers.

At the same time, the WTO shall explicitly serve its Members as aforumfornegotiations.Thisfunctionisn

limited to matters relating to existing agreements (Art. III:2:1 WTO Agreement), but includes the possibility that

WTO may serve as a forum for further negotiations concerning multilateraltradeissues,andasaframeworkfort implementationoftheresultsofsuchnegotiations.

Finally, alongside the general authorization to cooperatewithotherinternational organizations,Art.III:5WT

Agreement explicitly provides for cooperation with the International Monetary Fund andtheWorldBankwithavie toachievinggreatercoherenceinglobaleconomicpolicymaking.

The responsibilities oftheWTO,whichconsiderablysurpassthoseoftheGATT,areclearlygearedtowardsa

dynamic further development of the world trade order. Corresponding multifaceted assignments for review an

organization are, on the other hand, included in the individual agreements. Overall, this dynamic is described as


socalled builtin agenda and results in a staged, continuousnegotiationprocessthat is,forthemost part,assigned thecompetentbodies.

At the same time, as additional instruments for the further development of the world trade order, negotiatin

rounds are carried out, which canhenceforthbebasedonArt.III:2:1WTOAgreement,evenincasesconcerningnew

subjects. Currently, such negotiations take place in the Doharound.However,asthe currentexperienceunderline

the institutional momentumtowardsadynamicdevelopmentgeneratesaconsiderablepressureforsuccessthatmayb consideredoverlyambitious. BodiesandOrganizationalStructure

The WTO has an extensivelysubdividedstructure,includingthefollowingthreemainbodiesreferredtoint

WTO Agreement: the Ministerial Conference, serving as the representative body (Art. IV:1), the General Council a theexecutivebody(Art.IV:2),andtheSecretariatinchargeofadministrativeaffairs(Art.VI).

1. The Ministerial Conference is the principal organ of the WTO. It is open to all Members and meets at least onc

every two years. It has fullauthoritytotakedecisionsonallmattersunderanyofthe MultilateralTradeAgreements

requested by a Member to do so (Art. IV:1 WTO Agreement). Inaddition,theMinisterialConferencehasparticular

powersthatarepartlysubjecttospecialproceduresandmajorityrequirements.Itisalso responsibleforappointingth

Director General of the WTO, andforadoptingthestaffregulations(Art.VI:2and3WTOAgreement).Itfurtherha

the authority to set up committees, amongst which are committee on Trade and Development as well as the

Committees on Budget, Finance and Administration (Art. IV:7 WTO Agreement). It has important powers with

regard to authentically interpreting (Art. IX:2 WTO Agreement) and amending (Art. X:1 WTO Agreement) th

Multilateral Trade Agreements, and it is authorized to waive an obligation imposed on aMember, providedtherear

exceptional circumstances (Art. IX:3 WTO Agreement). Furthermore it can turn a multilateral agreement into

plurilateral agreement, as well as, vice versa, declare plurilateral agreements to be multilateral agreements (Art. X

WTO Agreement). Finally, it is the responsibility of the Ministerial Conference to decide on the negotiation a

regulation ofnewsubjects(Art.III:2 WTOAgreement),aswellastheacceptanceofnewMembers(Art.XII:2WTO Agreement).

2. The General Council (Art. IV:2 WTO Agreement) is a permanent executive body that, in the interval betwee

meetings of the Ministerial Conference, carries out the functions of the latter, and, in addition, has speci

responsibilities of its own. It meets as appropriate (Art. IV:2 s. 1, Art. IV:3 and Art. IV s. 1 WTO Agreement)and

consists of representatives of all Members. As regards its special function, the General Council can thus not b

distinguished from theMinisterialConferencebythegroupoftheMembersrepresentedonit,butrather withregard

their rank: while the Ministerial Conference is designed for highranking political participation, the General Coun

meeting at the site of the Secretariat in Geneva, is carried out by the representativesoftheMembersaccredited toit


The Council has the right to establish its own rules of procedure and, furthermore, to approve the respectiveruleso

procedure of the different committees in accordance with Art. IV:5 WTO Agreement. The General Council, i

particular, carries out important functions regarding the settlement ofdisputes andthereviewofthetradepolicyoft

Members. These functions are, however,notdirectlyallocatedtotheCouncil butare, fromaformalisticpointofview

rendered institutionally independent: theUnderstandingonRulesandProceduresGoverningtheSettlementofDispu

(DSU) and the Trade Policy Review Mechanism (TPRM) provide for institutional independence also with regard t

the organizational structure, and, as such, provide for a committee for dispute settlement Dispute Settlement Bod

(DSB), and a body for thereviewoftradepoliciesTradePolicyReviewBody(TPRB).Inthepresentstructureofthe

WTO, this institutional independence has not, however, been achieved through separate bodies. According to Art

IV:3 and 4 WTO Agreement, the work of the two bodies is rather allocated to the General Council, which can

however establish its own rules of procedure and appoint its own chairman for these special functions. In contrastt theMinisterialConference,theGeneralCouncilhastheexplicitauthoritytocreateitsownsubsidiaryorgans.

According to Art. IV:5 WTOAgreementthreespecialCouncils:TheCouncilforTradeinGoods,theCounci

for Trade in Services and the Council for TradeRelated Aspects of Intellectual Property Rights are allocated to th

General Council, and carry out their activities under thegeneralguidanceofthelatter.Participationinthesecouncil

open to all Members. The Councils meet as necessary. They establish their respective rules of procedure subject to

the approval of the General Council and can, as necessary, appoint subordinate committees which again themselve

have the right to set up their own rules of procedure subject to the approval of the respective Councils. The specia

bodies of the General Council have the general function of overseeing the operation and functioning of therespecti

agreements, i.e., the multilateral trade agreements relating to the trade in goods according to Annex1AoftheWTO

Agreement, the General Agreement on Trade in Services (GATS), and the Agreement on Trade Related Aspects of

Intellectual Property Rights (TRIPS). Additional special functions arise out of these agreements themselves and ca furthermore,beallocatedtospecialbodies. 3. The Secretariat of the WTO (Art. VI WTO Agreement) works under the guidance of a DirectorGeneral who is

appointed by the Ministerial Conference. Since the decisionmaking power rests exclusively in the hands of th

Members, the main task of the Secretariat is the logistic, technical and professional support of the councils an

committees, the developing countries, the dissemination of information to the media and the (world) public as well

the organization of the Ministerial Conferences. In addition to that, the Secretariat gives advice toStatesinterested

acceding to the WTO and it offers its legal expertise in the context ofdisputesettlement.In2005,theSecretariatha


respective share is calculated by reference to its share of world trade in goods, services and intellectual property. I

addition, theWTOhasextrabudgetaryresourcesatitsdisposalthataredonatedbyindustrialcountriesonavoluntar

basis. This money is used to finance technical aid for developing and transformation countries, i.e., in particular t


4. The powers, duties, conditions of service and term of office of the DirectorGeneral are determined by the

Ministerial Conference. The DirectorGeneral has comprehensive authority with respecttothestaffoftheSecretaria

while the Ministerial Conferenceiscompetenttomakegeneralregulationsinthisregard.TheDirectorGeneralandt

personnel of the Secretariat enjoy the status of international officials pursuant to the general rules. Art. VI:4 WT

Agreement extensively regulates their integrity andindependence:instructionsfrom anybodyexternaltotheWTOm

neither be sought nor accepted. The Members are requested to refrain from exercising influence. In addition, th DirectorGeneral and the staff of the Secretariat are to refrain from activities that may reflect on their position internationalofficials.

5. The institutional structure laidoutintheWTOAgreementiscomplementedbyadditionalbodiesandinstitutionst

are provided for under the different Agreements, or that have inthemeanwhilebeensetupbytheGeneralCouncilo

the Ministerial Conference. These include the institutions stipulated in the Plurilateral Trade Agreements (Agreem

on Trade in Civil Aircraft, Agreement on Government Procurement)theyoperatewithintheinstitutionalframework

the WTO and shall keep the General Council informed of their activities on a regular basis (Art. IV:8 WTO Agreement). II.TheWTOanditsLegalOrder

The special significance of theWTOconsistsinitsestablishmentofalegalorderforworldeconomicrelation

The reinforced and considerably extended substantive provisions contribute to this in the same wayastheeliminati ofunilateralmeasuresandthenowconsiderablymoreeffectiveandstreamlineddisputesettlement.

The WTO legal order is based on the sum of altogether 46 agreements which formally constituteAnnexest theWTOAgreement.

The essential tradeprovisionsarelocatedinAnnex1,theUnderstandingonRulesandProceduresGovernin

the Settlement of Disputes is contained in Annex 2, and the Trade Policy ReviewMechanismisincludedinAnn 3.Inaddition,Annex4liststhesocalledplurilateraltradeagreements.

In contrast to the socalled multilateral trade agreements, the membership in these plurilateral agreements optional.Also,theyhaveaspecialrolewithregardtotheirinstitutionsanddecisionmaking.

Annex 1, containing the multilateral trade agreements, is divided into a large first Part A that concerns a

agreements on the trade in goods, and therewith the original subject matter of the GATT 1947. Part B contains the new General Agreement on Trade in Services (GATS) and Part C comprises the Agreements on TradeRelated AspectsofIntellectualProperty(TRIPS).

The regulations on trade in goods contained in Annex 1 Part A are based on old regulations of the GATT

1947, and incorporate the latter agreement and its entire acquis according to a number of special provisions,



Corresponding to the structure of international public law, the agreements of the WTO are of equal rank in

relation to each other. The relationship between themisingeneraldeterminedbythegeneralprinciplesofinternatio

treaty law, and therefore,sincetherulelexposteriorderogatlegiprioriisinapplicablebyreasonofthesimultaneous conclusionoftheagreements,primarilythespecialityofprovisions(lexspecialis)isthegoverningprinciple.

However, before the rule lex specialis derogat legi generali can be applied, multiple explicit regulations on

the relationshipbetweentheindividualagreementshavetobeconsideredwhich,withregardtotheircontent,againb

down to the principle of speciality. In principle, it results from the special WTO regulations and the general rules

international public law that the various special provisions of the WTO legal order have preference over the gener rules,andinparticular,theprovisionsoftheGATT1994.

As the practice of dispute settlement shows,inthefaceoftheamplitudeofregulationsandwithregardtothe

internal relationship, a delimitation is often extremely difficult.Forexample,therelationshipbetweentheregulation

trade in goods (GATT) and the GATS has been controversial more than once. In addition, the delimitation i

especially critical in the area of the Sanitary and Phytosanitary measures (SPS) and the Technical Barriers to Trad (TBT)intheirrelationshiptothegeneralprovisionofArt.XXGATT1994.

Inadditiontotheindividualagreements, interpretationsplayasignificantroleintheWTOlegal order.Theyc

be adopted by a threefourths majority of the Ministerial Conference and the General Council, by virtue of the

mandate for authoritative interpretation according to Art.IX:2 WTO Agreement. Such interpretations are binding o

the WTO,thebodiesandits Members,andneedtobetakenintoaccountinthecaseofdisputesettlement.TheWTO

has adopted a number of interpretations regarding the old GATT 1947, and it has also in recent times made new

interpretations. The margin of interpretation that the WTO body is entitled to is, in relation to the alteration of t treaty,difficulttodetermine.

Aside fromtheagreementsandinterpretations,therearenumerousdecisions oftheMinisterialConference,th

General Council and the other bodies of the WTO, as well as decisions of the Ministerial Conference at the end o

WTO trade rounds. Such decisions concern internal organizational questions of the WTO, such as theorganization

institutional structure, the configuration of the bodies, its financial matters, and the topics to be addressed by th

individual bodies. They can also address the Members in, however, nonbinding form. General decisions have n

legally binding effect in relation to the Members due to the absence ofcorrespondingexplicitauthorization.Theyc however,beconsideredfortheinterpretationofWTOlaw.

The internal law of the WTO, i.e., the rules of procedure of the individual bodies, the rules on the annu

budget, the regulations of service, and other regulations, also belongs to this category. The surveillance an

implementation of the substantive international trade law contained in the agreements and possible interpretations ensuredbythedisputesettlementmechanismandtheTradePolicyReviewMechanism.

The former concern the quasijudicial control of possible rule violations at the request of a Member, and th

latter serves in a general sense as an a priori and politically, not legally, oriented controlofthegeneraltradepolicy

the respective Members. In addition, surveillance of and compliance with, as well as the implementation of, th agreements is assured by multiple notification obligations and by individual procedures of control contained in individualagreements. 1.EffectivenessandEnforcementofWTOLaw

The legality of WTO rules is secured by the system of dispute settlement. The dispute settlement mechanis

not only serves to solve disputes and secure the particular benefits which Members may expect as a result of th

conclusion of individualAgreementsandthe concessionsofotherMembers.Itis,asemphasizedbytheUnderstandin

on Rules and Procedures Governing the Settlement of Disputes (DSU), governed by the law of the WTO and is

committed to its enforcement in the joint interests of all Members. At the same time, Art.3.8 DSU, for example

facilitates access to a dispute settlement procedure. In the case of an infringement of provisions of the WTO leg

order, it presumes the nullification or impairment of benefits, which are a condition for the initiation of disp settlementproceedingsinaccordancewithArt.XXIIIGATT1994(para.207). The legal order binds and disciplines the foreign trade policy of individual Members. Within the scope of

rules, it inhibits forceful pursuit of their own interests. The protection of individual Membersfromthepowerofoth

plays an important role in world economic relations, in which trade volume, political influence and financial resour are very unequally distributed and are subject to legal restrictions only in a limited way. The streamlining and

juridical alignment of thedisputesettlementmechanismandtheprohibitionofunilateral measureswithinthe WTOh precisely been understood as a further decisive step away from a poweroriented and towards a ruleoriented approach. 2.TheRuleofLaw

The significance of the binding force of WTO rules, however, is neither limited to its formality and lega

binding effect nor by the exclusive applicability to the interstate level.Italsoincludesanelementoftheruleoflaw

extends to the level of the Member States. As a matter of fact, it finally is also of concern to individual mark participants.

A starting point for a rule of law is alreadyvisibleinthewayrelationsbetweenMembersareorganizedand

their relation to the organization jointly funded by them. Like other developed regimes of international law, theWT

does not content itself with formally binding its Members to the substantive law. It rather contains farreachin

procedural and substantive rules for the creation, amendment, implementation and interpretation of WTO rules. Th

Members are, in relation to each other as well as to the WTO, subject to extensive obligations to publish,notifyan


report on the content and enforcement of their trade policies. They are supported by the Trade Policy Review

Mechanism (TPRM) as an a priori instrument of control. Substantively, the exertion of rights is in many cases bou byacriterionofproportionality.

The legal order of the WTO however also contains a number of provisions which are aimed at guaranteein

the rule of law in the arrangement of the Members legal order with regard tolawmaking,administrationandjudic

control, and whichprovideforcorrespondingobligationsoftheMembers.Theirpurposeistoensure,accordingtoth

rule of law, that the Members enact and implement their trade policies, and thereby to provide legal security fo individualtradetransactionsandtheirparticipants.

In addition,inindividualareasthe WTOcontainsextensiveobligationswithregardtothenationallegalsyste

of its Members. For example, the Antidumping Agreement includes precise requirements concerning the procedur

and the substantive criteria of national antidumping procedures. The GATS contains diverse rules on the design

national law. To a much greater extent this is the case with the TRIPS, in which the Members have agreed to th

precise organization of national legal systems with respect to the enforcement of intellectual property rights, includ detailedrequirementssuchastemporaryreliefandpossiblesanctionsofpenallaw. 3.Nondiscrimination:MostFavouredNationTreatmentandNationalTreatment

Ithastobeemphasisedthatthepreambleexpresslyreferstotheeliminationofdiscriminationininternational traderelations.Theissueofnondiscriminationisnotinanywaymerelyasubordinatesideaspectoftrade liberalization.Instead,ithasitsownsignificance,asisalreadydemonstratedbythefactthattheobligationsto nondiscriminationappliesregardlessofwhetherornotobligationstoliberaliseexistintherelevantsector. Theelementofnondiscriminationshowsthatthetradeorderdoesnotmerelypursuethereductionoftrade barriersbutincludesmoreprincipledconcepts,which,inthecaseofnondiscriminationarethoseofcompetitive equalityandequity.


equallywiththereductionoftariffsandotherbarrierstotrade.Thefundamentalprincipleofnondiscriminationconta twoelements:theprincipleofmostfavourednationtreatment,andtheprincipleofnationaltreatment.Bothcanbe foundinallthreemajorpillarsoftheWTOlegalorder: mostfavourednationtreatmentinArt.I:1GATT1994,Art.IIGATS,andArt.4TRIPS,and nationaltreatmentinArt.IIIGATT1994,Art.XVIIGATS,andArt.3TRIPS. a.MostFavouredNationTreatment(MFN)

Definition Art.I:1GATT1994,thefundamentalprovisiononmostfavourednationtreatment,providesthat

any advantage, favour, privilege or immunity granted byanycontractingpartytoanyproductoriginatingin


destinedforanyothercountryshallbeaccordedimmediatelyandunconditionallytothelikeproductoriginati inordestinedfortheterritoriesofallothercontractingparties.

The provision refers to duties and charges of any kind imposed on or in connection with importation o

exportation or imposedontheinternationaltransferofpaymentsforimportsorexports,and tothemethodoflevyin suchdutiesandcharges,andtoallrulesandformalitiesinconnectionwithimportationandexportation.

In addition, the mostfavourednation principle is mentioned in plenty of other provisions of the GATT 199 andrelatedagreements,asfollowing: Art.III:7GATT1994Quantitativeregulationsrelatingtothemixture,processing,oruseofproducts Art.IVlit.bScreentimeforfilms Art.V:2Flagofvessels,placeoforigin,departure,entry,exitordestination Art.V:5TransitArt.V:6Transitanddirectconsignment Art.IX:1MarkingrequirementsArt.XIII:1Quantitativeprohibitionsandrestrictions Art.XVII:1lit.aApplicationforStatetradingenterprises Art.XVIII:20EconomicdevelopmentArt.XXGeneralexceptions. ThecorrespondingprovisiononmostfavourednationtreatmentinArt.II:1GATSisshorterandaccords

immediately and unconditionally to services and service suppliers of any other Member treatment no le favourablethanthatitaccordstolikeservicesandservicesuppliersofanyothercountry. ThisprinciplereferstoanymeasurecoveredbythisAgreement. ManyGATSprovisionsalsoincludetheideaofmostfavourednationtreatment,asdoesArt.4TRIPS: Art.VII:3Recognitionofprofessionalqualifications Art.VIIIApplicationformonopoliesandexclusiveserviceproviders Art.XNegotiationsonthequestionofsafeguardmeasures Art.XIIBalanceofpaymentsexceptions Art.XIVGeneralexceptions Art.XVSubsidies Art.XVIMarketaccess Art.XXINegotiationonmodificationofconcessions.


The principle of mostfavourednation treatment can be regarded as an expression and a formulation of the

principle of sovereign equality of states. Its significance within the world trade order rests first of all in the autom extension of the concessions made to one Member to all other WTO Members. At the same time,

mostfavourednation treatment assures the simplification and clarity of the structure of obligations, without which worldtradeorderwouldloseitsmanageabilityandwouldbebarelyworkable.

On the otherhand,themostfavourednationprinciplehasaconstitutiveroleforrelationsamongStatesatthelev

of the world trade order: As mentioned, the GATT does itself not oblige its Members to open themselves up tofre

trade. However, it offers procedures and mechanisms with thehelpofwhichMemberscanenterintosuchobligation onthebasisofreciprocalconcessions.

The mostfavourednation principle plays a fundamental role in this context. It ensures, first of all, the value o

reciprocal concession by preventing the other party from subsequently offering separate, even further reachin concessionstoanotherMemberwhichwoulddevaluetheconsideration.

Moreover, it ensures the manageability of the world trade system, which would otherwise break down into an infinitenumberofdifferentbilateraltradearrangements.

Furthermore, it leads to a multiplication of liberalizing effects which, as soon as they are conceded by a stat

benefit all other states. At the same time, this ensures that all states participate in the current state of development theworldtradesystem.

Finally, the mostfavourednation principle helps to reduce the impact of differences in power between th

Members. By way of mostfavourednation treatment, it is possible for smaller Members and newcomers to benefi fromconcessionsaswell.

The background to this are further and more farreaching economic policy aims and functions. The principle o

mostfavourednation treatment prohibits differentiation between exporters or goods from different States, an therefore leaves the decision on import, acquisition, and consumption to the market.given for the concession question.


Next to the general exceptions of the WTO legal system, which of course apply also to Art.I:1, some specific


First of all, Art. I itself, in its paragraph 4 allows for the continuation of historic preferences which, however, a todayofalmostnosignificance.

Very important,onthecontrary,arethoseexceptionalelementsthatare toprovideforthepreferentialtreatmento

developing countries. In this context, the socalled enabling clausemustbementionedinparticular,whichallows

the preferential treatment of developing countries. It was adopted in 1979 as a decision of the CONTRACTING

PARTIES of the GATT, and was meant to protect the general system of preferences which had been introducedby

the United Nations ConferenceonTradeandDevelopment.InarecentcasetheAppellateBodyhasclarifiedthelega

nature of the Enabling Clause as an exception to the general principle of mostfavourednation. In doing so, th

Appellate Body has nevertheless, and importantly, accepted the Enabling Clause as being an integral part of th GATT1994.

Apart from the enabling clause, special arrangements in favour of (developing) countries can be secured b

means of exceptional authorizations the socalled waivers. According to Art.IX:3 and 4 WTO Agreement, such

waivers are also permissiblefor otherpurposes,providedthesubstantiveandproceduralconditionscontainedinthes

provisions are met. The preference system of the European Union visvis the socalled AfricanCaribbeanPacifi

(ACP) countries as establishedundertheCotonouAgreementtheformerLomAgreement , forexample,isbased onsuchawaiver.

Another form of deviation from the mostfavourednation principle is provided for inArt.XXIV GATT1994an

Art.V GATS with regard to customs unions and customs communities, or economic integration (see the wording

Art.V GATS). Provided that the substantive and procedural conditions stipulated in the two regulations have bee

fulfilled, the Member States may, for thepurposeofestablishingacustomscommunityorcustomsunion,reducetra

barriers amongst themselves, without in return having to grant mostfavourednation treatment to other states. Th regulationalsoappliestotheEUanditscustomsunion.

Both the GATS and the TRIPS provide for deviations from the mostfavourednation principle in a very specifi

way. According to Art.II:2 GATS, Members can opt for exemptions from mostfavourednation treatment in certain

cases. Such exemptions are to be listed inaspecificannextotheGATSagreementandfurtherdetailsareregulatedi

the AnnexonArt.IIExemptions.Para.3oftheannexprovidesforareviewofallexemptionsgrantedforaperiodo morethan5years.

Furthermore, suchexemptionsshallinprinciplebevalidfornomorethan10years(para.6),and,inanycase,the

shall be subject to negotiation in subsequent trade liberalizing rounds. Finally, under para. 2 of the Annex any ne


in the same way as waivers. These regulations highlight a tendency to handle such exemptions restrictively and reducethemovertime.

The reason for creating these exemptions is the fact that the mostfavourednation principle can also inhib

progress in trade liberalization in certain circumstances. This is the case when individual Members fear that th

concessions will be of great profit to other Members without the latter being ready to make balanced concessions i return.

Another exemption is contained in Art.4 TRIPS, which spells out the mostfavoured nation principle but at th same time clarifies that any advantage, favour, privilege, or immunity deriving from other agreements is exempted ad). Thus, the TRIPS mostfavourednation standard does not require MemberstopassontonationalsofallWTO Membersalegaladvantageresultingfromtheirbeingpartytosomeotherinternationalagreement. b.NationalTreatment(NT)

The principle of national treatment alsohasafunctionfortheworldeconomicorderfarbeyondtheprohibitio ofdiscriminationinindividualcases.


National treatment basically calls for a denationalization of internal markets by way of prohibiting discriminat

against goods and services on the basisoftheirforeignorigin.Ittherewithinhibitstheuseofinternaltaxandregulat

measures to cause trade restrictions. The latter are accordingly only permissible at the border crossing. Nationa treatmentthusprotectstheruleoftariffication,i.e.,theconversionofallformsoftraderestrictionsintotariffs.

The Appellate Body fundamentally clarifiedthepurposeofArt.IIIGATT1994inJapanAlcoholicBeveragesa follows:

The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal ta

and regulatory measures. More specifically, the purpose of Article III is to ensure that internal measures not b applied to imported and domestic products so as to afford protection to domestic production. Toward this end,

Article III obliges Members of the WTO to provide equality of competitive conditions for imported products i

relation to domestic products. [. . .]. ArticleIIIprotectsexpectationsnotofanyparticulartradevolumebutrathe oftheequalcompetitiverelationshipbetweenimportedanddomesticproducts.

The concept, which is set out in Art.III:1 GATT 1994 according to the view of the Appellate Body, may be

summarized as that the requirement of national treatment shall prevent the Members from applying internal tax a

regulatory measures which affectthecompetitiverelationshipbetweendomesticandimportedproductsinsuchway toprotectdomesticproduction.

NoLessFavourableTreatment The principle of national treatment prohibits the granting of less favourable treatment to foreign products servicesthanisaccordedtolikenationalproductsandservices.

It does not mandatorily require formallyequaltreatmentofnationalandforeign productsandservices,anditisn

limited to that either. Legally different regulations are a strong indication of a breach of the principle of natio treatment.However,thisprincipledoesnotnecessitateformallyequal,butrathernolessfavourable,treatment.

According to thecriterionofnolessfavourabletreatmentcompliancewiththeprincipleofnationaltreatmentcan

individual cases thus also be achieved when a regulation is formally different. Also, the national treatment princ doesnotbaraMemberfromaffordingmoreadvantageoustreatmenttogoodsorservicesofforeignorigin.

On the other hand, formally equal treatment does not a priori exclude infringement of the national treatme

principle. This requirement also includes de facto discriminating measures which do not go back to the origin of

product or service, but which however in their practical consequences primarily affect foreign products or service Thevitalcriterionforthevaluationofthisquestionistheaimandtheeffectofameasure(aimsandeffecttest).


An important exemption from the principle of national treatment is contained in Art.III:8 lit. a GATT 199

According to this provision, the principle does not apply to legal norms governing the procurementbygovernmen

agencies of products purchasedforgovernmentalpurposesandnotwithaviewto commercialresaleorwithaviewt


use in the production of goods for commercial sale. According to Art.XIII:1 GATS, this exception is also valid fo correspondingservices.

Incidentally, the security exceptionsinaccordancewithArt.XXIGATT1994andArt.XIVbisGATSapplyas wellasthejustificationstipulatedinArt.XXGATT1994. 4.TheSystemofExceptions

The system of the world trade order provides for a number of exceptions allowing Members todeviatefrom

their obligations with regard to certain objectives and interests. They referto differentgroundsofjustificationanda toadifferentextent,conditioneduponsubstantiveandproceduralrequirements.

An important group of exceptions concerns economic policy situations the protection of the balance o


A second group concerns exceptions in favour of other national interests in regulation, protection o

enforcement. Amongst these are in particular the protection of public order and morals, and the different policies f theprotectionofhealth,environmentandnationalresources(Art.XXGATT1994).

Finally, there are exceptions for the protection ofnationalsecurity. (Art.XXIGATT1994,Art.XIVbisGATS andArt.73TRIPS)

The significance of theexceptionsrestsincreasinglyintheirabilitytoestablishinterfaceswithothernational

international policy issues. There are clear interrelations with the world monetary system and its activity, w agreementsonresources,andwithnationalandinternationalhealthandenvironmentalpolicies.

To some extent, interests in regulationhavecometobeofsuchimportanceandpotentialforconflictthatmor

comprehensive regulations have been established on the basis of the exception rules. This is true,forinstance,fort

SPS agreement, which clarifies the exception contained in Art. XX lit. b GATT 1994 (Art. 2.2 SPS) and Art. 8for theTRIPsAgreement,whichemergedonthebasisofconflictingviewaboutthescopeofArt.XXlit.dGATT1994.

The manifold exceptions reveal a system of rule and exception that has firstbeen designedtoallowMember

to exercise their sovereign right to pursue certain policy objectives nationally. At the same time, however, thesyste


The exceptions cause a deviation from the general rules, amongst which are included therulesonreciprocit

The exceptions are linked in part to some mechanism for compensating other Members in view of this potenti distortionofreciprocity. 5.DisputeSettlement

A particularly remarkable aspect of the WTO, in comparison with other international regimes, is that it has

strong legallybasedelementofdisputesettlementandenforcement.Besidestheabstractreviewofthetradepolicies


Member States by the Trade Policy Review Mechanism (Paras 27, 51), the WTO Agreement includes in Annex 2

rules for the peaceful settlement of specific disputes the Dispute Settlement Understanding (DSU).1 Understandin onRulesandProceduresGoverningtheSettlementofDisputes.

The DSU provides for specific institutions which act within a twotiered quasilegal procedure, with a further pha

dealing with implementation matters, and finally, with possible countermeasures in cases of failure to implement ruling.

Foreigninvestments 1.Thedefinitionofforeigninvestment

Foreign investment involves the transfer of tangible or intangible assets from one country to another for t purposeoftheiruseinthatcountrytogeneratewealthunderthetotalorpartialcontroloftheowneroftheassets.

There can be no doubt that the transfer of physical property such as equipment, or physical property that is boughtorconstructedsuchasplantationsormanufacturingplants,constituteforeigndirectinvestment.

Foreign direct investment as havingdistinctcriteriasuchascommitmentofassetsintoaprojectwiththeobje

of profit and permanence and with a view to the risks arising from legal, political and economic changes. Forei

investment attracts the greater attention of international law for the simple reason that it involves the movement

persons and property from one state to another and such movements have the potential for conflict between two

states. It involves the securing of competitive advantages over local entrepreneurs both within the market as well

from the state authorities. The resulting integrationoftheforeigninvestorintothehosteconomymakeshisinvolvem intheinternaleconomicandpoliticalaffairsofthehoststateinevitable. Suchinvestmentmaybecontrastedwithportfolioinvestment.

Portfolio investment is normally represented by a movement of money for the purpose of buying shares in

company formed or functioning in another country. It could also include other security instruments through wh capitalisraisedforventures.

The distinguishing element is that, in portfolio investment, there is a separation between, on the one han managementandcontrolofthecompanyand,ontheother,theshareofownershipinit.

Investmenttreatiesalsodefinethenatureoftheforeigninvestmentthatis protectedthroughtheirprovisions.A aresult,definitionsdifferaccordingtothepurposeforwhichtheyareused. 1.Thedistinctionbetweenportfolioinvestmentandforeigndirectinvestment


In the case of portfolio investment, it is generally accepted that the investor takes upon himself the risk

involved in the making ofsuchinvestments.Hecannotsuethedomesticstockexchangeorthepublicentity whichru

it if he were to suffer loss. Likewise, if he were to suffer loss by buying foreign shares, bonds or other instrumen

there would be no basis on which he could seek a remedy. Portfolio investment was not protected by customary

international law. Such investment was attended by ordinary commercial risks which the investor ought to have be awareof.

But, customary international law protected the physical property of the foreign investor and other asset directlyinvestedthroughprinciplesofdiplomaticprotectionandstateresponsibility.

One view maintains that there should be no distinction between portfolio investments and foreign dire

investments as to the protection given to either by international law.This view is based on theassumptionthatthere

no distinction between the risks taken by either type of investor, both being voluntarily assumed. But, thisviewisn

accepted generally in international law, where it isclearthatforeigndirectinvestmentaloneissubjecttotheprotecti ofcustomaryinternationallaw. Severalreasonsaregivenforthisdifferenceintreatment.

The foreign investor takes out of his home state resources which could otherwise havebeen usedtoadvance theeconomyofthehomestate.Thehomestateissaidtobejustifiedinensuringthattheseresourcesareprotected.

Portfolio investments, on the other hand, can be made on stock exchanges virtually anywhere in the world

Since the host state cannot know to whom linkages are created through the sale of sharesonthesestockexchanges, therecanbenoconcreterelationshipcreatingaresponsibility.

This is not so in the case offoreigndirectinvestmentwheretheforeignerentersthe hoststate withtheexpre consentofthehoststate.

Nevertheless, the trend of thelawintheareamaybetocreateresponsibilitytowardsthosewhoholdportfolio

investments through treaties. This is a trend associated with the liberalisation of the movementof assets.Opinions a

found in some publications that portfolio investments are now to be included in foreign direct investments. To alar

extent, such opinions are influenced by the fact that treaties defining investments include shares in the definition

foreign investment. But, as will be demonstrated, shares in this context mean the shares ofajointventurecompany

which theforeignerpresent inthehoststatehasinvested,andisnotmeanttoincludesharesheld by anonresidentan

purchased entirelyoutsidethe hoststate. Therewillbecontinueduncertaintyattachedtothequestionwhetherportfol

investment is protected in the same manner as foreign direct investment in international law. The better view is t

portfolio investment is not protected unless specifically included in the definition of foreign investment in the rele treaty. 2.Actorsinthefieldofforeigninvestment


Thereareinvolvedinthisfield:theinvestorsandthehoststates. 2.1.Investors a.TheMultinationalCorporations(MNCs)

The largerpercentageofinvestmentstakesplaceasaresultofdecisionsofmultinationalcorporationstoinvestabroa

The new types of investment made by multinational corporations are intended to last for a long period of time. Th

focus of the law has the protection of the process of investment made by multinational corporations. A relate

phenomenon isthattheareasoftradewhichthemultinationalcorporationsseektoenterarewithinthesolepreserveo state agenciesorentitiesinmanydevelopingcountries.Theforeigncorporation enteringastatewilloftenhavetodo

in association with a state entity. It is a technique which enables the state to have continuous control over th investment. b.Statecorporations

State corporations, through which states have entered the sphere of international trade, are aphenomenonof

the twentieth century. They were the principal agencies through which states engaged in international trade, mainly

sectorslikehealth, education,transportandcommunicationswheretheprovisionofessentialservicestothepublicw

regarded as more satisfactorily performed by the state. The state would be motivated not by profit alone but by the

need to provide a public service. The functioningofstateentitiesensuresthatthesectorsinwhichtheyoperaterema

monopolies. In a joint venture, the motives of multinational corporations and the state entity will often be in confl

The multinational corporation is driven by the need for immediate profit. The state entity, on the other hand, h

longterm economic objectives of development and seeks to pursue these through the joint venture with th multinationalcorporation. c.Sovereignwealthfunds

Sovereign wealth funds are the latest players on the foreign direct investment scene. Some developingstates

flushed with money as a result of flows of profits resulting from globalization and the adoption of neoliberalpolic

have created funds with their surplus capital for making investments in developed countries. The states which ma

quick profits were the smaller city states like Dubai and Singapore which thrived during the neoliberal period b

providing the services necessary in an age of globalisation. But, the most dramatic rise was that of China. China

sovereign wealth funds are the cause of some anxiety in theWest, given that China is still seen as a potentially hos

state. The one issue that has drawn attention is the effort made by sovereign wealth funds to invest in the natur

resources and othervitalsectorsoftheUSeconomy.TheUSviewisthatnationalsecurity issuesareraisedwhensuc

acquisitions are attempted. In two instances, the US government has intervened in the acquisition of shares wi

national security implications, despite the factthatithascourtedChinaforinvestmentfunds.Therehasbeenresistan

to the acquisition of shares in the mineral resources sector in Australia by Chinese sovereign wealth funds. So fa effortstoresolvethisissuehaveresultedonlyinguidelinesastotheinvestmentsthesesovereignwealthfundsmake


The hoststatehasanabsoluterightofcontrol overtheentryandestablishmentandthewholeof theprocesso

foreign investment. The right of a state to control the entry of foreign investment is unlimited, as it is arightthatfl

from sovereignty. Theentry ofanyforeigninvestmentcanbeexcludedbya state.But,asovereignentitycansurrend

its rights even over a purely internal matter by treaty. Some regional and bilateral treatiesnowprovidefortheright entryandestablishmentofinvestmentstothenationalsofcontractingstates.

But, once an alien enters a state, both he and his propertyaresubject tothe lawsofthehoststate.Thisresult

flows from the fact that the foreign investor has voluntarily subjected himself totheregimeofthehoststatebymak entryintoit.

Therefore, wholeprocessoftheforeigninvestmentcouldbecontrolledbythe hoststateslaws.Thelawofth

host state could specify thelegalvehiclethroughwhichtheforeigninvestmentshouldbemade,thenatureofthecap

resources that should bebroughtfromoutsidethestate,theplanningandenvironmentalcontrolsthatthemanufacturi plantshouldbesubjectto,thecircumstancesoftheterminationoftheforeigninvestmentandotherlikematters.

Laws controlling foreign investment are on the increase. Even stateswhichmaintainanopenpolicyasregar

foreign investment are now beginning to impose restraints on the inward flow of foreign investments. The reason

this lies in the rapid changes that are taking place in the picture of foreign investment flows around the world. T

traditional exporters of capital are increasingly becoming recipients of capital. Increasing globalisation enables cap

to move around the world more rapidly. As a result, there is a greater wariness as to foreign investment and an

increasing readiness to control them. The picture that emerges is one of ambivalence. On the one hand, there is

desire to attract investment. On the other hand, there isaneedtocontrolit. Astateseeksto balancethesecompeting

functions through its investment laws. The use of foreign investment laws to scrutinise the entry of foreign investm intohoststateswillbeincreasinglyresortedtoforvariousreasonsinbothdevelopedanddevelopingstates.

But international law restricts the sovereign rights of the host state to impose whatever measure it please

relates to the bilateral and regional investment treaties which have increased in number in recent times. It is w

accepted in international law that sovereignty over a purely domestic matter could be restricted if there is a

international treaty dealing with thatmatter.Bilateralandregionalinvestment treaties,whicharerelativelyrecenteff

at investment protection, seek to impose certain agreed standards of treatment on the foreign investors of the stat

parties. The significance of these treaties to the international law on foreign investment is considerable. treaties, th constitutethelawonforeigninvestment. 3.Theinternationallawonforeigninvestment Foreigninvestmentisanessentiallyintrusiveprocesswhichtakesplaceentirelywithintheterritoryofahost state.Tobeabletoliftthatprocessoutofthedomesticsphereandsubjectittointernationalnormsrequiresanice



processhavingitsownbenefitsinmind.Thatisessentiallywhattheinternationallawonforeigninvestmentisabout. The purpose of investment treaties was to preserve some of thenormsthatthedevelopedstatesadvancedas

customary international law. Developed countries made these treaties because their favoured rules on investmen protection had been subjected to attack. Developed states also compete for markets andfornaturalresources.They

are keen to ensure that investments that flow into states which have political and other risks are protected by rules

When China opened up its economy, the size of its markets, the availability of cheap labour anditsnaturalresource

were attractions but there was a need to counteract the political risk to investment.ThemakingoftreatieswithChin

was an obvious advantage. Multinational corporations seek to manufacture atlocationswherecheapskilledlaboura

well as cheap resources are readily available. The law follows such investments,anditislogicalthatdevelopedstat

will want to protect their multinational corporations in the countries they enter. They seektomaketreatiesinorder

bring about a climate in which their foreign investors feel confident. Multinational corporations also act as pressu

groups to ensure that changes favourable to their interests are brought about through treatiessothattheirinvestmen

are protected and their profits can be repatriated. The underlying reasons for the treaty activityofanyonestatedoe

not remain constant. China again provides an example. Chinas more recent treaties are, however, premised on th

fact that the current significant outflows of foreign investment from China need to be protected. Itsnewertreatiesa becomingverysimilartothosewhichWesternindustrialisedstatessign. 3.1.Bilateralinvestmenttreaties(BIT)

BITs are designed to protect, promote and facilitate foreign investmentandconstitutetodatethemostwidel used instrument for these purposes. BITs have traditionally been negotiated between developing countries seeking

attract international investment and developed countries as the principal homes to foreign investors. Developi

countries, as hosts to foreign direct investment (FDI), concluded BITs in order to create a favourable climate and i

some cases to become eligible to participate in political risk insurance programmes organized by capitalexportin

countries. Another feature of bilateral investment treaties is that they are made between unequal partners. The

entrench an inequality that has always attended this area of international law. They are usually agreed between

capitalexporting developed state and a developing state keen to attract capital from that state. The observation tha

developing countries make such treaties among themselves does not obscure the fact thatoneofthesecountriesisa

exporter of capital visvis the other. The rationale for the treaty itselfisthepromiseofprotectionforthecapitalth issoreceived

The content of BITs has become increasingly standardized over the years and has largely influenced

rulemaking at the regional level, particularly during the last15years,evenifasaconsequenceofthesheernumber

BITs, formulations of individual provisions remain rather varied. In particular, there are differences between t



A typical BITs main provisions deal with the scope and definition of foreign investment admission

investments national and mostfavourednation treatment fair and equitable treatment guarantees and compensatio

in respect of expropriation guarantees of free transfer of funds and repatriation of capital and profits an disputesettlement provisions, both StatetoState and investortoState. The acceptability of investorState arbitrationwassignificantlyadvancedbytheconclusionin1965oftheWashingtonConvention.

The most relevant new development in international practice ofthelastfewyearsappearstobethefrequenc with which developing countries and countries in transition are concluding agreements with each other. In terms

content their practice does not seem to depart from the traditional BITs betweendevelopedanddevelopingpartners

From a legal perspective, the increasingly uniform state practice means that it is nowadays possible toarguethatth

BIT movement has moved beyond lex specialis (or better, leges speciales) to the level of customary law effective evenfornonsignatories.

From an economic perspective, capitalimporting country activism in concluding BITs underscores the kee

interest that such countries appear to have in creating a domestic environment that is conducive to FDI. Indeed, th

policy and regulatory environment of developing countries plays an important role both in attracting (ordiscouragi

investment flows and in ensuring that the ensuing benefits are maximized and costs minimized. By potenti

contributing to the creation of an investmentfriendly regulatory environment and by committing (or signallin

reinforced commitment) to a highstandardofprotectionforforeigninvestment,BITsarecommonlyassumedtoplay

positive albeit limited role in the promotion of FDI flows and thus to contribute to the economic development

the host country. This is of course in as far as FDI can be harnessed to contribute to the realization of the specifi

development objectives that each individual country has set for itself, while minimizing any attendant costs that presenceofFDImayentail.

However, BITs predominantly remain instruments of investmentprotection.Overtheyearstherehasnot bee

any significant change in their core objective. It is thus still true that, a striking feature of BITs is the multiplicit

provisions they contain that are specifically designed to protect foreign investments, and the absence of provisio specificallydesignedtoensureeconomicgrowthanddevelopment. Scopeofapplication

The main objective of BITs is toprotectinvestmentmadebyinvestorsofonepartyintheterritoryoftheothe

party. In order to maximize such protection, there is a marked tendency in current BIT practice to use a broad, assetbased, definition of the term investment. The latter typically includes movable and immovable property, tangibleandintangibleassets,intellectualproperty,aswellasequityandotherinterestincompanies.

Most BITs do not distinguish between direct and portfolio investment. Both minority and controlling interes

are generally protected. Furthermore, a broad definition may cover new forms of investment that parties did no

consider specifically at the time of negotiation. Instead a more restricted definition may require renegotiation of t treatyinordertoenlargethescopeovertime.


local lawsandregulations.ThismayallowhostcountriestoconfinetheapplicationofBITstoinvestmentsthatrespo

to the countrys policy objectives as embodied in domestic laws and regulations. The same result can be pursued throughprovisionsdealingwiththeadmissionofinvestment.

As regards the application of BIT provisions to investments made prior to the entry into force of the treaty, curren

practice remains mixed. Some BITs allow theextensionofprotection,whileothersexcludeit.AndsomeBITsrequi

prior investments to go through the prescribed admission procedures before extending treaty protection. A simila

issue refers tothecontinuationoftreatyprotectionwithregardtoexistinginvestmentsintheevent oftreatyterminati

With a view to ensuring a stable legal environment for investment, current practice tends to allow for such continu

protection, with some BITs limiting the coverage to investments established before the notice of termination, wh othersfocusontheeffectivedateoftermination.

BITs must also define to which investors the substantive provisions set out in a treaty apply. A capita

importing country may be reluctant to grant the benefits of a BIT to persons and companies having only a tenuou relationshipwithitstreatypartner(forexample,socalledshellormailboxcompanies).

Establishing the nationality of the investor is thus fundamental. The definition of the term investor usually incl naturalpersonsandjuridicalentities,oftenreferredtogenericallyascompanies.

With respect to natural persons, most BITs give protection to persons who are nationals of each of the

contracting countries concerned. The general practice isthentoprovidethatanaturalpersonpossessesthenationalit

of a State if the law of that State so provides. Some BITs, perhaps inspired by the customary international law

doctrine of effective nationality, require the existence of a genuine link betweentheindividualandthecountrygran

nationality in the form ofresidenceordomicile.However,ingeneral,BITsdonotresolvetheproblemofthetreatme ofnaturalpersoninvestorswithdualormultiplenationalities.

With regard to legal persons, BITs generally take an expansive approach in terms of thekindsofentitiestha

are meant to be covered. In defining the term investor, many treatiesincludelegalpersonsconstitutedunderthela

of a party, thus covering companies, as well as other legal entities. BITs extend protection to companies that ar

deemed to have the nationality of one of the signatories. Problems arise because in most cases, andincreasinglywi

the spread of multinational corporationsandinternationalproductionnetworks,placesofincorporation,thelocation

business activities and/or the nationality of ownership andcontrolofteninvolvemultiplejurisdictions.Inmostinstan

a multinational corporation operates in a host state through a subsidiary incorporated therein. Such a subsidiar

acquires the nationality of the host state and cannot avail itself of the diplomatic protection of its home state.

multinational corporation could also choose to do business through an entity incorporated in a third state, whos


BITs have in recent years tried to address such complexities, often by combining the traditional nationality tests

criteria, namely the place of incorporation the location of the seat of the corporation (sometimes referred to as th

sige social, real seat, or the principal place of management) and the nationality of the shareholders who own o

control the corporation. The place of incorporation, organization or constitution of a company is a widely use

criterion to determine nationality thanks to its ease of application. However, if usedin isolation,suchatestlendsits

to granting nationality to a company that has only a formal link with thecountryofincorporationanddoesnotenga

in any economic activity there. Indeed, the place of incorporation could be chosen exclusively to enjoy treat advantagesreservedtonationalsofsignatories.

Such a situation has prompted two main types of responses. Some BITscombinetheplaceofincorporationtestwith

criteria focusing on a companys seat. This test attributes the nationality of the place where the sige social i

located. The seat of a company often refers to the place of effective management decisionmaking, and as such while more difficult to determine, reflects a more significant economic relationship between the corporation and

country granting nationality. Other BITs instead include a denial of benefits clause meant to prevent, under certa

circumstances, nationals of third countries from obtaining BIT treatment by incorporating in one of the signato countries.ThisapproachistypicalinthepracticeoftheUnitedStates. Admissionandpromotionofinvestment

Under customary international law states have the sovereign right to regulate and prohibit or condition th

admission of investment and investors in their territory, in line with their right to admit or not aliens. The exercis

such a right may be motivated by a desire to preserve national economic or other public policy goals. The curren

practice in BITs is to follow this approach. Only a very few BITs confer any right of establishment to investors. general,treatyprotectiononlycomesintoplayaftertheinvestmenthasbeenadmitted.

With regard to admission, consolidated BITs practice refers to the need to admit investment in accordance

with the laws and regulation of the host country. This may mean that admission can be subject to the fulfilment

special conditions, such as the training oflocalpersonnelorthereinvestmentofprofits.MostBITsstress,withvario

formulations, the importance of facilitating or encouraging investment, creating favourable conditions and the l

Other areas that are often mentioned in best endeavour terms or subject to domestic legislation, include: th

exchange of information on investment opportunities, the dissemination of law and regulation affecting investm consultationmechanisms,thegrantingofworkpermitstokeyandtechnicalpersonnel.

With the exception of the United States and Canada, BITstypicallydonotdealwiththeissueofliberalizatio

of the entry regime for foreign investment. Such treaties leave liberalization matters entirely up to the autonomo

decisions of host countries as set out in their domestic legislation. On the contrary, the US and Canadian approac

allows for the reciprocal exchange of liberalization commitments through the granting of nationalandMFNtreatme

subjecttonegotiatedexceptions. Standardsoftreatment

In addition to anyadmissionstandards,BITsprovide foraseriesofstandardsoftreatmentoncean investmen

has been established. In current practice various formulations are used. Many BITs explicitlyrequirethehostcount

to afford investments covered by the treaty treatment no less favourablethanthatrequiredbyinternationallaw.Man

BITs also refer to fair and equitable treatment, full protection and security, prohibition of arbitrary an

discriminatory measures and the like. All these are minimum standards oftreatmentprovidedunderinternationalla

While their content is generally not defined, they may be used in conjunction with other standards and their meani

may need to be determined in the light of the specific circumstances of application. The notion of fair and equitab

treatment aims atensuringtheprudentandjustapplicationoflegalrules(evenintheabsenceofdiscrimination)and

can also provide an auxiliary element for the interpretation of other treaty provisions and for filling gaps in the trea

The full protection and security standard, or any of the various variations thereto (e.g. the most constant protectio and security) aims at ensuring that in linewithduediligencehostcountriesexercise reasonablecareto protect investments against injury caused by private parties as well as a result of public action. The prohibition of arbitrary and discriminatory measures refers to the prohibition of actions against foreign investors in general or specificgroupsofforeigninvestors.

Some BITs include only general language to this effect, while others specifycommitmentswithregardto bo

mostfavoured nation treatment (MFN) and national treatment (NT). MFN treatment provides that investors and

investment ofoneparty willnotbetreatedlessfavourablyintheotherpartythananythirdpartyinvestororinvestme

Thus with regard to postestablishment treatment (once admission has been granted), the MFN provision links th

existing BITs concluded by any one country in a network andhastheeffectofratchetingupthetreatmentofalltrea

partners investors and investments to the highest agreed denominator. National treatment ensures that investors an

investment of one party will receive from the host party treatment no less favourable than the treatment given

investors and investment of the hostparty. CurrentBITspracticeismixedwithcountrieseither grantingMFN only

both standards of treatment. The coverageoftheMFNandNTobligationsmayalsovarydependingonwhetherboth

investment and investors (or similar terms) are covered. Some qualifications are also added in a number of cases t limittheapplicationsofMFNandNTtoinvestmentinsimilarcircumstancesorinlikesituations.

General exceptions relating to public order and national security frequentlyapply.CurrentBITspracticeals

often excludes from the operation of the MFN clause special privileges granted as a result of regional integratio

agreements, such as the establishment of customs unions and free trade areas,andofotherbilateralagreements,suc

as double taxation treaties. Specific sectoral exemptionsmayalsoberecordedinBITsonasectoralbasis,asrecalled

above in connection with the US and Canadian practice of extending the better of MFN and NT also to the establishmentphase.

Many host countries,particularlyinthedevelopingworld,useawidearrayofperformancerequirementseithe

as mandatory conditions for admission or operation of an investment or as voluntary conditions linked tothegranti

of incentives. These may take the form of domestic content requirements and domestic purchase preferences, th

balancing of imports or sales in relation to exports or foreignexchangeearnings, requirementstoexportproductso

services, technology transfer requirements, and requirements relating to the conduct of research and development

the host country. Most BITs do not explicitly restrict the use of performance requirements. However, if th

performance requirements are imposed following the admission of an investment, they may give rise to a violation

national treatment. To the extent that they are imposed as a condition of the admission of an investment, they a

generally not covered by the national treatment obligation because in the majority of BITs, as already mentioned,t

right to national treatment applies to investment only after it has been admitted. Current US and Canadian practic

with a few other examples, departs from this approach and includes a prohibition on performance requirements as conditionofestablishing,expandingormaintaininganinvestmentproject.

The prohibition of performance requirements does not preclude the grantingofincentivesasaninducement

agree to abide by performance requirements. Any such incentives, however, may be subject to the MFN obligation

and thus wouldhavetobeofferedtoallinvestorscoveredbyBITsfeaturinganMFNclause.This would alsoapplyt

incentives granted by other BIT partners, unless specifically exempted. However, if the incentivewasofferedprior

establishment (e.g. a socalledlocationalincentive),whatismentionedabovewithregardtothenonapplicationofN wouldalsoseemtoapply. Expropriation

In the 1960s many developed countriesinitiatedBITsasawaytoprotecttheirinvestmentsabroadagainstthe

growing risks of expropriation and nationalization. Such risks have greatly abated in recent years.Incurrentpractic

the terms expropriation or nationalization are generally left undefined inBITs.Provisionsonexpropriationtypic

apply to actions by a country thatsubstantiallyimpairthevalueofaninvestment,regardlessofwhether theyamount

an isolated event or whether they are part of a major structural reform in the economy. Many BITs include broad

language, covering measures tantamount or equivalent to expropriation. Hence, most BITs also apply th

expropriation provisions to indirect expropriations, namely, when the host country takes an action that substantia

impairs the value of an investment without necessarily assuming ownership oftheinvestment.Furthermore,mostB

are also understood to apply expropriation provisions to creeping expropriations, which refer to expropriation

carriedoutbyaseriesoflegitimateregulatoryactsoveraperiodoftime whoseultimateeffectistosubstantiallyredu

the value of an investment. However, the demarcation between actions that wouldqualifyasillegitimateexpropriati asopposedtolegitimatepolicyandregulatorydecisionsisobviouslydifficulttoestablishandopentodispute.

BITs impose certain conditions on expropriation if it is to be consideredlawful.Thisfollowsgeneralinternationall

where there is no rule that would bar expropriation of alien property provided that such action is undertaken for

public purpose, in a nondiscriminatory manner, in accordance with due process of law and upon payment o

compensation. All these conditions are generally stipulated in typical BITs. Thus if a direct or indirect expropriati

takes place, compensation is due. Many disputes have revolved around the amount and modalities of such

compensation.The large majority of BITs use the traditional rule that such compensation must be prompt, adequa

and effective or some variation thereof. Adequacy generally refers to the investments market value, fair mark

value or genuine valuebeforetheexpropriationtookplaceandnotconsideringanydecreaseinvalue becauseofth

expropriations plans. Unless the value can be determined making recourse to stock exchangevaluations,forspecif

investment projects, for example, in mining ormanufacturing,thepresentvalue ofexpectedfutureearningortheact

funds invested in the enterprise may need to be considered. The requirementofpromptcompensationdoesnotmean

immediate payment but indicates, as often explicitly set out in many BITs, that interests accrue from the date

expropriation. Finally, effective refers to a compensation made in freely usable and transferable currency (or som otherfinancialinstruments).

In case of other breaches of obligations, such as NT, MFN or other minimum standards of treatment, no

comparable criteria for compensation are generally set out in BITs. With regard to cases of destruction of property

due to war and civil disturbances, if some form of compensation is required, for instance in case ofnegligence,som BITsrequirethatMFN(andsometimesalsoNT)isapplied. Transferoffunds

The provisions on the transfer of payments are quite important as they concern a key aspect on which the

interests of the host country and theforeigninvestormaydiffer.Hostcountriesoftenpreferthatprofitbereinvested

otherwise used in the domestic economy. Furthermore, developing countries often incur balanceofpayment

difficulties that the sudden repatriation of large profits or theproceedsfromsaleorliquidationcanworsen.Asaresu

they generally seek some form of flexibility. However, foreign investors regard the timely transfer of income, cap

and other paymentsasanindispensablerequirementtooperateandbenefitfromtheirinvestmentprojects,andtomee

their obligations visvis shareholders, contractors, creditors or licensors. Virtually every BIT hasaprovisiononth

transfer of payments, but there are important differences among them in termsofspecificwording.Withregardtot

categories of transfers covered, BITs generally address the repatriation of the capital invested, the transfer of return

generated by an investment and dividends to the investors shareholders, current payments made in relation to a

investment (i.e. amounts that may be needed to pay current expenses, the interest and principal on loans, or othe obligationsincurredbytheinvestor,suchasroyalties),andproceedsfromthesaleofallorpartoftheinvestment.

Two main approaches are common practice. The first is to guarantee the free transferofallpaymentsrelated


is simply to include an exhaustive list of the types ofpaymentscoveredbythetransferprovisions.BITs,withavari

of solutions, guarantee to investors the possibility of transferring payments in a freely convertible currency, with

delayandataspecifiedexchangerate(theofficialrate,themarketrateorsomeother rate).Exceptionsgenerallyallo

for a limited delay in cases of emergencies, such as in instances of insufficient foreign currency reserves. Howev

exceptions are to be administered on a nondiscriminatory basis. Insomeinstances,transfer guaranteesarelimitedb theexplicitapplicationoftheexchangecontrollawsofthehostcountry. Disputeresolution

Investment disputes under BITs may involve disputes between one State and investors of the other State, or

between the two States parties to the treaty. They are addressed in different provisions. Disputes between purely

private parties are normally resolved through recourse tothecourtsofthe State that hasjurisdiction,ortocommerci

arbitration. With regard to disputes between one party, generally the host country, and investors of the other party

current BITs practice provides for recourse to agreed third party disputesettlement mechanisms: consultation an

negotiation but above all arbitration. This allows investors to avoid submitting the disputes to the courts of the ho

State (which could be biased or perceived as such) or to ask for the diplomatic protection of its home State.Onlya

few BITsrequirethattheinvestorexhaustlocalremediesbeforeresortingtoarbitration.Theadvantageofarbitration

that the dispute is handled in an international legal forum, generally removed from political interference and able

deliver a speedy resolution. The methods for resolving disputes between States parties to BITs involving th

application or interpretation of the treaty are also typically spelled out in a number of provisions in BITs. While t

provisions regarding StatetoState disputes are generally rather short, calling for ad hoc arbitration in case

consultations fail, most BITs contain rather elaborate provisionsonthesettlementofdisputesbetweenaninvestoran

the host country(socalledinvestorStatedisputes), regardingthecompositionofthearbitrationpanel,timeframes,th scopeofarbitrabledisputes,andproceduralrules.

While current practice features several variations, the general trend is to give investors a choice of arbitra

mechanisms through institutions such as the World Banks International Centre for the Settlement of Investme

Disputes (ICSID) and its affiliated Additional Facility for host countries which are not party to the Washingto

Convention, the International Chamber of Commerce or the various regional arbitration centres, orthroughreferenc

to other arbitral rules, such as those established by the United Nations Commission on International Trade Law (UNCITRAL). The inclusion in BITs of various institutional options to conduct arbitration isgenerallyregardedas

expression of consent to arbitration on the side of thehoststate.Suchconsentisexpresslystatedinsomecases,such

as in the US practice. Investors have to provide their own written consent to arbitration. Arbitration awardsarethen

binding on the parties. Arbitration proceedings are generally confidential, and awards are sometimes publishe

Participation of amici curiae is normally not allowed.Enforcementisusuallycarriedoutonthebasisoftheprovisio oftheNewYorkConvention.



The universe of regionalinstruments on investmentorincludinginvestmentrulesdoesnotattaintheproportio

of the BIT phenomenon, but is still vast, diverse and growing. Such instruments aretodaycreatinganintricateweb overlappingcommitments.

While BITs have a distinct focus on matters of investment protection, regional integration agreements (RIA

are often geared towards liberalization even though an important (and increasing) number of them also addres investmentprotectionissues.

According to notifications made to the WTO, over 190 regional trade agreements are currently in force and

several dozen are reportedly planned or already under negotiation. A large number of them feature investmen

provisions and so do several other trade agreements that do not aim specifically at regional integration. Severa

agreements of this latter type have been concluded in recent years and many more are under negotiation. However

some recent instruments do not cover investment issues in light of the fact that a BIT already existed betwee signatories. This is the case notably of the USJordan FTA of 2000 and of the CanadaCosta Rica FTA of 2001.

Various recent agreements linking the European Union with third countries also refer to the possible conclusion

BITs between Member States of the EuropeanUnionandthethirdcountriesinquestion.Ontheotherhand,thereare

agreements such as the 1998 FTA between the Caribbean Community and the Dominican Republic or the 2000 USVietnamAgreementonTradeRelationsthatbasicallycontainBITlikeprovisionswithintheagreement.

At a regional level, only a few instruments are entirely devoted to investment, such as the Framewor

Agreement on the ASEAN Investment Area and the Andean Communitys Decision (adopted in 1991).However,a

growing number of regional agreements have included in the last few years a comprehensive set of investme

disciplines. The most prominentexampleistheNorthAmericanFreeTradeAgreement(NAFTA)thatwasconclude

in1992betweenCanada,Mexico,andtheUnitedStates.Otherregionalregimes that containprovisionsoninvestmen protection were established under theaegisofMercadoComundelSur(MERCOSURProtocols)andtheCaribbean

Community (CARICOM) in South and Central America, undertheAsiaPacificEconomicCooperation(APEC)and

the Association of Southeast Asian Nations (ASEAN) inAsia, underthe TreatyEstablishingtheCommonMarketfo

Eastern and Southern Africa (COMESA) and the Southern African DevelopmentCommunity(SADC)inAfrica,an

under several regional agreements in the Middle East. Finally, with the Energy Charter Treaty (ECT) one importa

sectoral agreement exists that contains provisions for the promotion andprotectionofinvestmentintheenergysecto

Energy Charter Treaty (Annex I of the Final Act of the European Energy Charter Conference) (ECT), signed December17,1994.

The general aim of these agreements is to create a more favourable investmentclimatethroughacombinatio

of investment liberalizationandprotectionmeasures,withaviewtoincreasingtheflowof investmentwithinorbetw

regions. The great diversity of regional instruments and the country configurations they bring together have gener

meant that the degree ofcommonalityintermsofagreedrulesismuchlessmarkedinsuchagreementsthanintheca ofBITs.

Scope and definition The manner in which regional instruments deal withthedefinitionoftermssuchasinvestmen

investor, control, or foreign investment depends primarily on the scope and purpose of each instrumen

Instruments geared towards investment protection objectives tend to espouse broad and inclusive definitions

Instruments oriented towards liberalization at times use relatively narrower definitions of investment, morefocused

FDI (and at the exclusion of portfolio investment). For instance, the 1996ASEANAgreementfortheProtectionand

Promotion of Investments (as amended) includes a very broad definition of investmentcoveringeverykindofasse

Conversely, the 1998 Framework Agreement on the ASEAN Investment Area explicitly excludes portfolio

investment. Decision 291 of the Commission of the Cartagena Agreement also covers FDI only. The 2000 FTA between EFTA States and Mexico explicitly considers investment to mean direct investment, which is defined

investment for the purpose of establishing lasting economic relations with an undertaking such as, in particul

investments which give the possibility of exercising an effective influence on the managementthereof.Foritspart, 1994 NAFTA, which aims at both investment protection and liberalization, contains a definition of Investment

Article 1139 based on a broad list of assets alongwithanegativelistofcertainclaimswhicharenotconsideredtob

investments. A similar approach is to be found in the many agreements that followed the NAFTA approach to

liberalization (see below under preestablishment). A very broad definition is also included in the 2002 Agreeme between Singapore and Japan for a NewAge Economic Partnership and the 2004 JapanMexico Economic

Partnership Agreement. The agreements concluded by the EC usuallydefinethetermscompanyorlegalpersont

mean corporations set up according to the laws of the parties and having their registered office or centra

administration or principal place of business within the parties and establishment to mean the takingupofeconom

activities and the setting up of undertakings, in particular companies. Comparable is the approach followed by th 1973TreatyEstablishingtheCaribbeanCommunity(CARICOM),asamendedbyaProtocoladoptedinJuly1997.


transparency obligation relating to the commitment to publish all laws, judgments, administrative practices a

procedures regarding investment. This approach is followed in a number of regional agreements. The 1996 ASEAN

Agreement for the Protection and Promotion of Investments includes a slightly stronger transparency commitme

calling on the parties to provide uptodateinformationonalllawsandregulationspertainingtoforeigninvestmenta

to ensure that such information be made as transparent, timely and publicly accessible as possible. The 1998

Framework Agreement on the ASEAN Investment Area extends the publication requirements to internationa

agreements affecting investment to which Member States are signatories. It also mandates prompt notification of a

change to existing laws, regulation and administrative guidelines affecting investment. In a similar vein is

transparency article in the investment chapter of the 2000 Agreement between the US and Vietnam on Trade

Relations. However, the Agreement also includes further and more detailed provisions in a specific chapter o transparency. The 2002 Agreement between Singapore and Japan for a NewAge Economic Partnership and 2004

MexicoJapan Economic Partnership Agreement include broad publication requirements as well as an obligation f

each Party to promptly respond to specific questions from, and provide information to, the otherParty...(Arts.2

and 160 respectively). The 2002 Association Agreement between the EU and Chile provides for the creation of

contact points to facilitate communication between the parties (Art.190). Furthermore, each Party shall provid

information and reply to any question from the other Party relating to an actual or proposed measure that migh substantiallyaffecttheoperationof...theAgreement.

Nondiscrimination The treatment of foreign investment refers to two phases. The first phase relates to treatment

accorded to a potential investor before the investment has taken place. This is generally referred to as the

preestablishmentor admission phase. Commitments in this area generally entail a liberalization of the investm

regime and may create rights of establishment for persons and companies covered by the agreement. A growin

number of recent regional agreements indeed focus on liberalizing the admission phase, often subject to sectoral an other exceptions. The second phase relates to standards of treatment after entry has been approved: the stage of

operation of the investment. The different standards used, namely national treatment, mostfavourednationtreatmen

fair and equitable treatment and international minimum standard of treatment were all already elaborated in BI

practice. Regional agreements that address the admission phase generally grant nondiscrimination standards also f theoperationphase.

Many RIAs now provide both for MFN and national treatment but only postentry. These include the 1997 CanadaChile Free Trade Agreement, the 2000 MexicoSingapore Free Trade Agreement, the 2000 FTA between Mexico and El Salvador, Guatemala and Honduras,the1995MexicoCostaRicaFTA,the1997MexicoNicaragua FTA, the 1994 Treaty on Free Trade between Colombia, Venezuela and Mexico, the 1998 ChileMexicoFTA,the

1998 FTA between Central America(CostaRica,ElSalvador,Guatemala,Honduras,Nicaragua)andtheDominican

Republic. An important issue in the context of the application of national treatment is the existence in host coun

domestic regulation of performance requirements, which may specifically affect foreign investment. Some regio

agreements, such as the NAFTA, address them in detail. Similar provisions are also included in the 1997 CanadaChile Free Trade Agreement (Art.G06),the1997MexicoNicaraguaFTA(Art.1605),andthe2000FTA between Mexico and El Salvador, Guatemala and Honduras (Art.1407), the 2003 US Chile FTA and the 2004

Central American Free Trade Agreement (CAFTA). Article 13 of the 1985 USIsrael FTA forbids the use of local

content and export performance requirements. A prohibition of a wide range of performance requirements is als

contained in the 2002 Agreement between Singapore and Japan for a NewAge Economic Partnership and in the 2004 MexicoJapan Economic Partnership Agreement. On the other hand, the 1994 Treaty on Free Tradebetween

Colombia, Venezuela and Mexico explicitly allows theimpositionofrequirementstolocateproduction,generatejob


trainworkers,orcarryoutresearchanddevelopment(Art.1704). Preestablishment commitments If we leave aside the European experience, the NAFTA is probably the first

regional agreement that has included deep and detailed commitments in the area of preestablishment rights wi important liberalization effects on the investment regimes of the Parties. In the NAFTA, each Party is required

accord the better of national treatment and MFN treatment to investors of another Party, and to investments of

investors of another Party, with respect to theestablishment,acquisition,expansion,management,conduct,operatio

and sale or otherdispositionofinvestments(Arts.11021104).TheNAFTAadoptsanegativelistapproachsuchthat

the actual coverage of the Agreements investment provisions is determined by the reservations provided for unde

Article1108anddetailedinanumberofannexestotheAgreement. Furthermore, theAgreementprovidesthatnothin

in the Investment Chapter shall be construed to prevent a Party from adopting,maintainingorenforcinganymeasur

otherwise consistent with the chapter, that it considers appropriate to ensure that investment activity in itsterritory

undertaken in a manner sensitive to environmental concerns (Art.1114). The NAFTA also provides for a genera

national security exception (Art.2102). A number of more recent regional agreements, especially those involvin

NAFTA signatories, have broadly followed the NAFTA model. This is the case, for example, with the 1997 CanadaChile Free Trade Agreement, the 2000 MexicoSingapore FTA, the 2000 FTA between Mexico and El

Salvador, Guatemala and Honduras, the 2000 Agreement between the US and Vietnam on Trade Relations and the 2004 CAFTA. Such an approach can also be found in the draft text for the FreeTradeAreaoftheAmericas,albeit

subject to many brackets reflecting sharply divergent views among FTAA participants. A very similar approach wa

also followed by the 2000 Agreement between New Zealand and Singapore on Closer Economic Partnership. The

2002 Agreement between Singapore and Japan for a NewAge Economic Partnership (and quite similarly the 2004

MexicoJapan Economic Partnership Agreement) also provides for national treatment with very broad language.Th

NT commitment is subject to exceptions, both horizontalandsectoral,listedinannexestotheAgreement,whicheac

Party endeavours to reduce or eliminate. A Joint Committee on Investment is entrusted, inter alia, with the task o

reviewing such exceptions forthepurposeof[their]reductionorelimination(Art.88).Aseriesofgeneralexceptio

are also set out, including with a view to protecting public morals, human, animal and plant life or health, priva

(Art.83). TheAgreementalsospecificallyaccordsnationaltreatmentwithrespecttoaccesstoitscourtsofjusticean

administrative tribunals and agencies in all degrees of jurisdiction (Art.74). In 1994, Member States of th

MERCOSUR adopted the Colonia Protocol on Reciprocal Promotion and Protection of Investments within

MERCOSUR.ThisProtocolalsoprovidesforMFNandnationaltreatmenttoinvestorsof thePartiesattheadmission

phase, subject to exceptions in sectors identified in an Annex to the Protocol. The Treaty Establishing the Caribbea

Community, as amended in 1997, prohibits the introduction by Member States of any new restrictions relatingtoth

right of establishment of nationals of other Member States (Art.35b of the 1997 Protocol). Member States are also

required over time to remove restrictions on the right of establishment of nationals of other Member States, includi

restrictions on the setting up of agencies, branches or subsidiaries by nationals of a Member State in the territory o

another Member State (Art.35c). The right of establishment is defined as therighttoengageinanynonwageearnin

activities and to create and manage economic enterprises (Art. 35b). Any discrimination on the basis of nationality

also prohibited (Art.38). Member States can apply for a waiver to the requirement to granttherightofestablishmen

(Art.38b). General (including the protection of human, animal and plant life and health) and security exceptions a

apply (Arts. 38b (bis)and38b(ter)).RIAs concludedbytheECincludeprovisionsaimedatliberalizing theadmissio

phase through the setting out of the right of establishment. A number of the Europe Agreements, Associatio

Agreements andPartnershipandCooperationAgreementsconcludedintheearly andmid1990sbetweentheECand

virtually all Central and Eastern European countries focus primarily on establishment issues by providing for natio

treatment with regard to the establishment and operation of companiesandnationals.Someoftheagreementsinclud

lists of reservations to the establishmentand nationaltreatmentobligationsandgenerallyfeaturetransitionperiods.T

term establishment is defined in each of these Agreements and generally refers to the right to take up and pursu

economic activities by means of the setting up and management of subsidiaries, branches and agencies. Som

Partnership and Cooperation Agreements, such as the one with the Russian Federation, only provide for MFN

treatment in the preestablishment phase,althoughtheimportanceofmovingtowardsthe grantingofnationaltreatm

is recognized. With the 2001 Vaduz Convention, the revised Convention establishing the European Free Trad

Association, the EFTA States have drawn up comprehensive chapters aiming at a general liberalization ofinvestme

and trade in services among themselves. The Convention is also based on the right of establishment of companies o

firms, formed in accordance with the law of a Member State and having their registered office, centraladministrati

or principal place of business in the territory of the Member States. The rightofestablishmentissubjecttoanegati

list of specific provisions and exceptions to be eliminated over time aswellastogeneral (ongroundsofpublicpolic publicsecurity,publichealthortheenvironment)andsecurityexceptions.

The OECD Code of Liberalization of Capital Movements and the Code of LiberalizationofCurrentInvisibl

Operations constitute legally binding rules, stipulating progressive, nondiscriminatory liberalization of cap


must be listed in country reservations against the Codes. The Codes are implemented through policy reviews an

country examinations, relying on peer pressure to encourage unilateral rather than negotiated liberalization. T

Codes were initially adopted in 1961 but havesincebeenrevisedandexpandedinscope.Recentadditionsdealtwith

the right of establishment (1984) and crossborder financial services (1992). For most member countries, remainin

reservations against the Code obligations relate to FDI, the purchase of real estate by nonresidents and the

prohibitions of certain types of securities operations. The 1998 Framework Agreement on the ASEAN Investmen

Area provides forMFNandnationaltreatmentforASEANinvestorsattheadmissionandestablishmentphase.These

obligations are subject to the possibility of waivers. General (including the protection of human, animal and plant

and health) exceptions also apply. The overall objective of the area is to ensure liberalization of all industries a

national treatment for the benefit of all ASEAN investors by 2010 and, moreover, to be extended to all investorsby 2020.

A number of African regional agreements also include the right of establishment and the removal of obstacles to t

free movement of capital among their objectives.Theseincludethe1993COMESATreaty,the1993RevisedTreaty

of the Economic Community of West African States (ECOWAS), 1994 Treaty Establishing the Economic and MonetaryUnionofWestAfricaandthe1999TreatyfortheEstablishmentoftheEastAfricanCommunity.

Development provisions Like the vast majority of international agreements RIAs also contain various exceptions

safeguards and transition periods meant to address the objectives and needs of parties at differing levels o

development. These qualifications may apply to all substantive provisions and may assume particularimportancew regard to the standard of treatment, both pre and postentry. A special category of exceptions also affects the repatriationoffundsandwillbeconsideredinthefollowingsection.

Another set of developmentrelated provisions refers to the notions of investment promotion and facilitation. Th

CARICOM Treaty (as amended in 1997) provides for the adoption of measures in a large number of areas,ranging

from market intelligence to the harmonization of company laws. A number of regional agreements contain signific

provisions for the exchange of informationwithregardtoinvestmentandstrategicallianceopportunities.Theseinclu the 1995 MexicoCosta Rica FTA, the 1997 MexicoNicaragua FTA, the 1998 FTA between Central America

(Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua) and the Dominican Republic, the 2000 FTA between Mexico and El Salvador, Guatemala and Honduras. Some agreements, such as the 1993 Framework Cooperation

Agreement between the EEC and the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and

Panama, specifies (Art.8) that measures shall include: a) seminars, exhibitions and business missions b) train

businessmen with a view to setting up investment projects c) technical assistance for joint investment . . .. T

ChileEU Association Agreement goes into even more details. However, some of the most extensive provisions o

investment promotion are included in the 2000 Cotonou Agreement, which buildsupontheprovisionsoftheprevio

Lom Conventions. Finally, the 2000 Agreement between New Zealand and Singapore on Closer Economic

Partnership explicitly includes among its objectives the establishment of a cooperative framework for furth

strengthening the economic relations between the Parties through such means as: . . . (v) promoting trade an investment activities of private enterprises of the Parties through facilitating their exchanges and collaboration

promoting, particularly, trade and investment activities of small and medium enterprises of the Parties throu

facilitating their close cooperation . . .. The 2004 MexicoJapan Economic Partnership Agreement includes a fu

chapter dedicated to the improvement of the business environment andaspecificarticletothecooperationinthefie oftradeandinvestmentpromotion.Specificcommitteesarealsoprovidedfor(Arts.1369). Consultation and the settlement of disputes Some regionalagreementsprovideforthepossibilityofsettlingdispute

by meansofconsultationand negotiation, includingforinstancethe2002AgreementbetweenSingaporeandJapanf a NewAge Economic Partnership, the 2004 MexicoJapan Economic Partnership Agreement, the 2000 FTA

between Mexico and El Salvador, Guatemala and Honduras, the 1994 Colonia Protocol on Reciprocal Promotion

and Protection of Investments within MERCOSUR and the 1997 EUMexico Partnership Agreement. Many of the

Europe Agreements, Association Agreements and Partnership and Cooperation Agreements recently concluded by

the EU provide for consultation through the body (e.g. cooperation or association councils) entrusted with th monitoring and implementation of a specific agreement. Some RIAs contain provisions only for the settlement

disputes arising between the Parties,thusnot covering disputesbetweenaPartyandaninvestorofanotherParty.Thi

is for instance the case for the 1997 EUMexico Partnership Agreement, as well as for many of the Europe

Agreements, Association Agreements and Partnership and Cooperation Agreements recently concluded by the EU and for the 1998 Framework Agreement on the ASEAN Investment Area. Articles 1115 to 1138 of the NAFTA

contain detailed rules providing for the international arbitration of disputes betweenaPartyandaninvestorofanoth

Party. The investor canelecttoproceedundertheInternationalCentreforSettlementofInvestmentDisputes(ICSID Convention,theAdditionalFacilityRulesofICSIDortheUnitedNations

Commission on International Trade Law (UNCITRAL) Arbitration Rules. Detailed rules are contained in thes

provisions on matters such as the constitution of arbitral tribunals, consolidation of claims, applicable law, nature remedies,andfinalityandenforcementofarbitralawards. Assessingbilateralandregionaladvancesininvestmentrulemaking

Prior to the 1990s, relatively few investmentrelated provisions appeared in RIAs. Most such provisions were

intended to protect property and were found in BITs. Since the 1990s the number of RIAs with investmentrelated

provisions has increased dramatically and now these commonly appear in RIAs in every regionoftheworld.Prior

the 1990s, such agreements were negotiated principally among states within the same region and among states a

similar stages of economic development. RIAs now commonly link states in different regions of the world an

frequently seek to integrate economies at very different stages of development.Manyinvestmentrelatedprovisions

RIAs address thesameissuesastheircounterpartprovisionsinBITsandrelatetocompensationforexpropriationand

guaranteeing a free right of transfers. Although investment protection provisions in RIAs are often similar to tho

found in BITs, there is greater variation in the content of these provisions across RIAs thaninBITs.Oneexplanatio

may be that many countries use a model negotiating text for their BITs, which tends to create uniformity acro

bilateral treaties. On the other hand, the participation of many states in the negotiation of RIAs has tended torequir

more flexibility and thus morecreativityin thedraftingoflegalprovisions.ThecommonlyfoundprovisionsinRIAs

go beyond traditional BITs are those that prohibit anticompetitive business practices, protect intellectual propert

rights, liberalize admission procedures and liberalize trade in services, including in the form of commercial presen


RIAs in the Americas have been heavily influenced by the NAFTA, which contains an investment chapter modell

after the provisions of the US BITs, though more elaborate in some respects. The samecan alsobesaidofthe2004

MexicoJapan Economic Partnership Agreement. The European RIAs are principally concerned with liberalizatio

limiting anticompetitive practices, and protecting intellectual property. The European approach appears to leav

investment protectiontoBITs.Accordingly, RIAsinvolvingtheEU do notfeatureprovisionsoninvestorStatedispu settlement.

The fact that RIAs tend to contain greater variation in legal provisions than is the case with BITs does not meanth

RIAs are necessarily weaker agreements. Indeed, many RIAs contain high standards of investment protection and

liberalization. Furthermore, RIAs also tend to feature a larger number of provisions that take account of the speci

circumstances of developing countries than is the case under BITs. Finally, whetherlimitedtodevelopingcountries

including countries at different stages of economic development, RIAs appear to offer greater scope than BITs fo experimentingwithdifferentapproachestopromotingandregulatinginternationalinvestmentflows. 3.4.Themultilateralagreements

Instruments of international investment protection are, however, not restricted to bilateral and regiona

conventions. Instead, several international conventions have been concluded that express a desire by developed and developingcountriestoorderinternationalinvestmentrelationsmultilaterally. a.InvestmentrelatedrulesintheWTO The stated objectives of the Agreement on TradeRelated Investment Measures (the TRIMs Agreement)

include not only the promotion of the expansionandprogressiveliberalizationofworldtradebutalsothefacilitation

investment across international frontiers. The TRIMs Agreement prohibits the application of certain investme

measures related to trade in goods to enterprises operating within the territory of a Member. It should be noted tha

the TRIMs Agreement is concerned with the discriminatory treatment of imported and exported goods and is no

specifically concerned with the treatment of foreign legal or natural persons. Thus, the basic substantive provision

Article2oftheTRIMsAgreementprohibits theapplicationofanytraderelatedinvestmentmeasurethatisinconsiste

with the GATTs provisions on national treatment or the elimination of quantitative restrictions. In particular,

Illustrative List annexed to the Agreement identifies certain measures that are inconsistent with Article III:4 or Art XI:1ofGATT1994.

These cover essentially the following types of measures: local content requirements, tradebalancin

requirements, foreign exchange balancing requirements and restrictions on exportation. The Agreement bans not on

TRIMs that are obligatory in nature, but also those whosecomplianceisnecessaryinordertoobtainanadvantage.I

applies only to investment measures related to trade in goods. It does not cover trade in services. Measures

concerning service industries are addressed by the GATS, which does not contain explicit rules dealing withTRIM



Article 5 of the TRIMs Agreement contains provisions for the notification of, and for according transition

periods for the elimination of, traderelated investment measures inconsistent with the Agreementexistingatleast1 days prior to entry into force of the WTO. Under Article 5.1 States that were membersof WTOon1January1995

were required to notify to the Council for Trade in Goods, within 90 days after the date of entry into force of th

WTO Agreement, any TRIMs that were not in conformity with the Agreement. With regard to transition periods

developed, developing and leastdeveloped countries were given, respectively, two, five and seven years from th

date ofentryintoforceoftheWTOAgreementtoeliminatenotifiedTRIMs(Art.5.2).Furthermore,uponrequest,th

transition period could be extended for developing and leastdeveloped countries that demonstrate particular

difficulties in implementing the provisions oftheAgreement(Art.5.3).Afterprotractednegotiations,suchanextens

was granted to Argentina, Colombia, Malaysia, Mexico,Pakistan,thePhilippines,RomaniaandThailanduntilthee

of 2003, subject to certain criteria, such as the submission of a phaseout plan for the TRIMs measures. Export

performance requirements are another type of performance requirement often imposed on foreign investors. Fo

various domestic economicpolicyreasons,theseforceforeignaffiliatestoexportalargershareofthelocaloutputth

might otherwise be the case. They increase the cost of local sales byanamountthatequalsthecrosssubsidyneeded

to keep the share between export and local sales above the stipulated limit. Neither the TRIMs Agreement nor any

other WTO rules forbid the imposition on foreign investors of requirements to export a minimumamountofdomes

production. An important GATT dispute settlement panel ruling clarified this point in 1984. The panel considered complaint by the United States regarding certain types of undertaking which were required from foreign investors

Canada as conditions for the approval ofinvestmentprojects.Theseundertakingspertainedtothepurchaseofcertain

products from domestic sources (local content requirements) and to the export of a certain amount or percentage of

output (export performance requirements). The Panel concluded that the localcontentrequirementswereinconsisten

with the national treatment obligation of Article III:4 of the GATT butthattheexportperformancerequirementswe

not inconsistent withGATTobligations.ThePanel emphasizedthatatissueinthedisputebeforeitwastheconsisten

with the GATT of specific trade related measures taken by Canada under its foreign investment legislation and n Canadasrighttoregulateforeigninvestmentperse.

This panel decision confirmed that existing obligations under the GATT were applicable to performanc

requirements imposed by governments in an investment context in so farassuchrequirementsinvolvetradedistorti

measures. At the same time, the Panels conclusion that export performance requirements were not covered by the

GATTalsounderscoredthelimited scopeofexistingGATTdisciplineswithrespecttosuchtraderelatedperformanc

requirements. The subsequent Uruguay Round negotiations would not change this situation. The coverage of WT

rules on performance requirements is thus basically limited to the measures includedintheTRIMsIllustrativeList doesnotextendtoexportperformancerequirements.


In the mid1960s the Convention on the Settlement of Investment Disputes between States and Nationals of

Other States (ICSID Convention)wasconcludedand establishedamultilateralframeworkcontainingproceduralrule forconductingarbitrationsbetweenhostStatesandforeigninvestors.

In addition, the Convention Establishing the Multilateral Investment Guarantee Agency(MIGAConvention October 11, 1985, entered into force on April 12, 1988) constitutes a second successful incidence of genuine multilateralismintheinvestmentcontext.

It created a multilateral insurance framework for foreign investment projects. Both conventions support th


thepromotionandprotectionof foreigninvestment.Furthermore,theyillustratethepotentialandthegeneralwillingn ofStatestoestablishmultilateralordersforinternationalinvestmentrelations. 1TheInternationalCentreforSettlementofInvestmentDisputes(ICSID)

Despite the earlier failure of multilateral approaches in establishing substantive obligations on the treatment

foreign investment and parallel to the wave of uncompensated expropriations in many developing countries in t decadesfollowingtheirindependence,theICSIDConventionwassuccessfullyconcludedasearlyas1965.

This multilateral treaty created the International Centre for Settlement of Investment Disputes (ICSID) a

international organization closely tied to the World Bank and establishedaprocedural frameworkforthesettleme

of investment disputes between foreign investors and States through binding arbitration. As recognized by th

Preamble of the ICSID Convention, the conclusion of this multilateral treaty arose out of and reflected the need fo

international cooperation for economic development, and the role of private international investment therein

Currently, 143 of the 155 signatory States have ratified theConvention,includingmanyofthemostimportantcapita importingcountries.


investment arbitrations. Under Article 25 of the ICSIDConvention,theCentrehasjurisdictionoveranylegaldispu

arising directly out of an investment, between a Contracting State and a national of another Contracting State

whichthepartiestothedispute consentinwritingto submitto theCentre.Duringongoinginvestmentarbitrationun

the ICSID Convention, the investors home State is prevented from granting diplomatic protection, from bringing

claim in its own name, orfromotherwiseinterferingwiththesettlementofthedisputebetweeninvestorandhostSta

Disputes are usually settled by a panel of three arbitrators,twoofwhomarepartyappointed.Recoursetoarbitration

under the ICSID Convention is, however, entirely voluntary. Namely, the ratification of the ICSID Convention doe

not per seentailthesignatorysacceptanceoftheCentresjurisdictionforinvestmentdisputes.Instead,hostStatean


investor have to consent separately to ICSID arbitration. Originally drafted in order to offer a forum for contractua

arbitration between foreign investors and host States, consent to ICSID arbitrationnowadaysismostoftencontained

in BITs under which host States extend a standing offer to covered investors that they can accept by initiatin arbitrationundertheConvention.

The specificities of ICSID arbitration are the finality of ICSID awards and their automatic recognition in th

Conventions Member States. Unlike awards in international commercial arbitration, ICSID awards are subject onl

to Conventionspecific annulment proceedings, not, however, to domestic review according to the law of th

arbitrations situs. Furthermore, the enforcement State is prevented from invoking its public policy (order public

against the enforcement of an ICSID award. Instead, every Member State has to recognize anawardasbinding andenforce[it]withinitsterritoryasifitwasafinaljudgmentofacourtinthatState.

Recourse to ICSID arbitration, therefore, enables foreign investors to settle disputes with host States in an independent forum, and is particularly salient in promoting and protecting investments in countries with

underdeveloped, politically biased, corrupt or inefficient court system.Somewhatsurprisingly, theICSIDConventi

has developed into one of the most successful multilateral instrumentsinthefieldofinternationalinvestmentprotec

and governs most BITbased investorState disputes, although multilateral instruments containing substanti investmentruleshavefailedandcontinuetofaileventoday.

Notwithstanding the strong antipathies of most developingcountriesrelatingtoforeigninvestmentinthe196

and 1970s, the early success of the ICSID Convention can be ascribed to the absenceofanysubstantiveinvestment protectionandthevoluntaryrecoursetoinvestmentarbitrationundertheConvention.

Instead, the ICSID ConventionmerelycreatedaforumfordirectrecourseofinvestorsagainsthostStatesand

thereby aims at depoliticizing the settlement of investment disputes. The Convention also left the decision about

applicable law to the arbitrating parties, and did not impose direct obligations relating to the treatment of foreig

investors that could have beenperceivedaslimitingthesovereigntyofhostStates.Itsapparentneutralityvisavisth

sovereignty of capitalimporting countries and its apolitical approach to investorState relations were arguably th

decisive factors for the success of this multilateral framework at a time when substantive investment protecti

standards were highly controversial. Overall, however, it reflects a general interest of States to order internation investmentrelationsonamultilateralbasis.

In fact, the importance of the ICSID Convention as a mechanismforthesettlementofinvestorStatedispute

and its impact on the compliance with, and the enforcement of, obligations under international investment agreeme cannotbeunderestimated. 2TheMultilateralInvestmentGuaranteeAgency(MIGA)

The second successful multilateral agreement relating to the promotion and protection of foreign investme


was the MIGA Convention.Havingenteredintoforcein1988andcounting172MemberStatesasofApril2008,the

Convention established an international organization whose objective is to encourage the flow of investments f productivepurposesamongmembercountries.

Apart from activities like research and information about foreign investment, MIGAs primary tool fo

promoting and protecting foreign investment projects consists in offering an insurance scheme for foreign investor developingcountries.MIGAsinsurancecovers: currencytransferrisks, expropriationsandmeasurestantamounttoexpropriations, unenforceablebreachesofinvestorStatecontracts,and damagesfromwarandcivildisturbances.

In addition, the investor and MIGA can agree on broader insurance protection againstothernoncommercia risks.

In caseofaninsuredevent,MIGAcanpursuetherightstheinvestormayhaveagainstthehostStatebymean

of subrogation in the MIGAs own name. From the point of viewoftheforeigninvestor,purchasingMIGAinsuran

covers against the most salient foreign investment risks and was thus expected to contribute to additional investme

flows into developing countries. As with the ICSID Convention, the MIGA Convention does not, however, impos

any direct obligations upon the Member States relating to the treatment of foreign investment. This is considered

one of the reasons why MIGA was accepted by numerous States, including many foreign investment critical Lat

American countries, at a time when these countries still rejected entering into BITs. Unlike substantive investm obligations,aninsuranceframeworkwasviewedasinvolvingfewerrestrictionsonStatesovereignty.

Notwithstanding, theaccession tothe MIGAConventionsuggestsapositiveattitudeofStatesvisavisforeig

investment and the desirability of its protection by international law, in particular when compared with the rhetoric

the New International Economic Order. Furthermore, as with the ICSID Convention, the conclusion of the MIGA

Convention illustrates the willingness of developing countries to organize international investment relations o

multilateral basis. Not only is MIGA itself a multilateral international organization, it also actively contribute

fostering multilateral structures in international investment relations.Thus,MIGAhasamandatetoconclude,based

MFN treatment, agreements with developing countries that assure MIGA and the investments it insures certai

standards of treatment. Furthermore, MIGA is charged with promoting and facilitating the conclusion of internatio

investment treaties among its Member States. This mandate of promoting and protecting foreign investment in multilateralforumfurthermanifeststhepotentialformultilateralismininternationalinvestmentrelations. 5.Romanianforeigninvestmentlegislation Inordertostimulatetheinterestofforeignandlocalinvestorsfordevelopingnewinvestmentprojectsin




environment.ThemaximumamountoftheincentivesgrantedbytheRomanianlegislationforeachinvestmentprojec shouldnotexceedthemaximumallowedstateaidintensity,inaccordancewiththeUErulesofstateaid. Thecurrentlegislation(O.U.Gnr.92/1997regardingstipulatingdirectinvestment,amendedandaprovedby lawnr.241/1998)definesthefolowingtherms:directinvestment,portfolioinvestment,investor. Directinvestmentparticipatinginthebuildingorextensionofacompanyinanyformforseenbythelaw,

accuireingstockorsocialpartsofacomecialcompanywithexceptionofportfolioinvestersorfoundingandextensio ofabranchofficeinRomaniausing: 1.Financialcontribution,innationalcurrencyorconvertiblecirculatingmedium 2.Goodscontributionlikeimobilegoodsor/andmobilegoodsbodilyandnonbodily 3.Participatingintherisingofacompanyusinganylegalwayoffinancing

Portfolioinvestmentacquiringmobiliarvaluesoncapitalmarketsthatdontpermitthedirectparticipationin theadministrationofthecompany. Investornatural/legalperson,residentornonresident,livingorhavingpermanentofficeinRomaniaorin foreigncountriesthatinvestsinRomaniausinganymethodforeseenbythelaw.

Thus,additionaltotheresidentinvestors(Romanianlegalandnaturalpersons),nonresidentinvestorsbenef from:

therighttotransferabroadwithoutanyrestriction,afterpayingtheduelegalratesandtaxes,thefollowingincomes hardcurrency

thedividendorthebenefitobtainedwithacommercialcompanyortheprofitobtainedfromasubsidiaryofit,incas thattheyareshareholdersorassociates theincomesobtainedfromsellingofsharesorsocialparts amountsobtainedfromtheliquidationofacommercialcompany,accordingtotheLaw31/1990regarding commercialcompaniesmodifiedandcompleted,orfromtheliquidationofacompanyaccordingtothebankruptcy procedure,regulatedbythelawconcerningthejudiciaryprocedureandbankruptcy,modified theamountsobtainedascompensationsresultingfromanexpropriationorapplicationofothermeasureswithan equaleffect otherincomes,accordingtotheformofimplementingtheinvestment.

Thesameordinancestipulatedalsotherightoftheinvestortoselectthecompetentlegalorarbitrationinstancesforth settlementofpotentiallitigation. InRomaniarepatriationofprofitsisfreeandisregulatedbytheNationalBankofRomania.Incaseofboth foreigndirectinvestmentandportfolioinvestmenttherearetwosituations:


repatriationofdividendsafterthefinancialyearisconcluded repatriationofcapitalincaseofinvestmentliquidation(closingdownacompanyorsellingportfolioinvestment) 1.Repatriationofdividends

Repatriationofdividends,afterthefinancialyearisconcluded,isafreeforeigncurrencyoperation.Inthecas thatdividendsareobtainedinhardcurrencytherepatriationisacurrentaccountoperation.Inthemostfrequent

situation,whenthedividendsareinROL,therepatriationofdividendsisacapitalaccountoperation.Afterpreparatio ofbalancesheetandfinancialstatements,theBoardofAdministrationwilldecideontheallocationofprofits(for reinvestmentorfordividends). Theforeigninvestorisrequestedtoprovidethefollowingdocumentsfortheamountofdividends: balancesheet reportoftheBoardofAdministration

thepayrollinthesituationthatdividendshavebeenpaidincashorthepaymentdocumentissuedbythecompanyfo theinvestor. Theforeigninvestorwillorderthetransferoffundsintothepersonalcurrentaccount.Fromthepersonalaccountthe fundscanbeexchangedinhardcurrencyattherequestoftheclientinmaximum180daysfromthedateofthe payroll/paymentdocument.Theexchangeisafreeoperation,theapprovalofNationalBankofRomanianotbeing

requested,theonlyrestrictionbeingthetimeof180days.Aftertheexchangeoffundsinhardcurrency,thebankwill transferatorderthedividendsinthecountryoforiginofforeigninvestor. 2.Repatriationofcapitalincaseofinvestmentliquidation(closingdownacompanyorsellingportfolioinvestment).


alldebtsandtheamountofremainingcapital,theinvestorwillrequesttheexchangeofthisamountinthecurrencyof theinitialinvestment.Thisrequestmustbedonein180daysfromthedateoftheLiquidationReport.Thebankwill transferthesefundsatorderinthecountryoforiginofforeigninvestor.


ThecurrentlegislationisO.U.Gnr.92/1997regardingstipulatingdirectinvestment,amendedandapprovedby lawnr.241/1998definesthefollowingterms:directinvestment,portfolioinvestment,andinvestor.


stockorsocialpartsofacompanywithexceptionofportfolioinvestmentorfoundingandextensionofabranchoffic inRomaniausing: 1.Financialcontribution,innationalcurrencyorconvertiblecirculatingmedium 2.Goodscontributionlikeimmobilegoodsor/andmobilegoodsbodilyandnobodily


3.Participatingintherisingofacompanyusinganylegalwayoffinancing Portfolioinvestmentacquiringmobiliarvaluesoncapitalmarketsthatdontpermitthedirectparticipationinthe administrationofthecompany. Investornatural/legalperson,residentornonresident,livingorhavingpermanentofficeinRomaniaorinforeign countriesthatinvestsinRomaniausinganymethodforeseenbythelaw. Investorsbenefitfrom:

therighttotransferabroadwithoutanyrestriction,afterpayingtheduelegalratesandtaxes,thefollowingincomes hardcurrency thedividendorthebenefitobtainedwithacompanyortheprofitobtainedfromasubsidiaryofit,incasethatthey areshareholdersorassociates theincomesobtainedfromsellingofsharesorsocialparts theamountsobtainedfromtheliquidationofacompany

theamountsobtainedascompensationsresultingfromanexpropriationorapplicationofothermeasureswithanequ effect otherincomes,accordingtotheformofimplementingtheinvestment. InRomaniarepatriationofprofitsisfreeandisregulatedbytheNationalBankofRomania.


The phrase international competition law is something of a misnomer. There is no supranational author

charged with generating, applying, or enforcing competition law, there are almost no binding international agreeme

on the subject, and there are no international requirements with respect to substantive or procedural rules. Indeed thereisnotevenaforumfromwhichonecanimagineacoherenttransnationalpolicyoncompetitionemerging. There is, of course, plenty of business activity that is transnational in scope, and this activity is regulated

competition laws, but for better or worse,onlybydomesticcompetitionlaws.Competitionlawisonlyoneoftheleg toolsemployedbycountriestoregulatetheirinternaltradeconductedbyprivatefirms.

Because these domestic laws operate almost entirely independently of one another, firms engaged in

crossborder activities must determine which domestic lawsapplytotheiractivities,whatthoselawsrequire,andho

to comply. Depending on how aggressively domestic regimes apply their own laws beyond their borders, firms ma

find themselves simultaneously subject to numerous competition laws. Furthermore, because the costsandbenefits

regulation may fall in different countries, domestic lawmakers may face incentives to alter their domestic laws in


Competition law and policy, along with other forms of commercial law, has acquired international features duetot

emergence of economic globalisation.Bythetermeconomicglobalisation wemeanhereimprovementsintechnolo

and communications, liberalisation of international trade, and the subsequent increase of economic flows through t

operation of multilateral firms. On the other hand, through the opening up of national markets with the limitation

tariffs and other border barriers, the ability of multilateral firms to operate in multiple national markets has also be

increased. The concept of market power or monopoly power these terms will be usedinterchangeablydrives

most aspects of modern competition laws. Whether one is concerned with a single firm monopoly, competitor

colluding with a view to acting as if they were a monopoly, a firm seeking to predate on existing or potentialrivals

order to exclude them from the market, restrictive vertical distribution arrangements, or a merger that may lead to dominantposition,ineverycasethefocusisonthesocialwelfareimplicationsofexcessivemarketpower.

With the increase of multilateral firms came practices that have an effect on the territory of multiple natio

markets. Of these practices, the most directly linked to international trade are anticompetitive practices that have a

exclusionary effect, thus hindering theentranceandexpansionofforeignfirmsinthemarketswheretheanticompeti

practices take place. Because of the existence of such practices is needed for an international cooperation on competitionlaw,and/ortheharmonizationofcompetitionrules.

There are threetypesofanticompetitiveagreementsthatmayhaveaneffectontrade:cartels,verticalrestrain (orlimitationstocompetitiononexportmarkets)andcrossbordermergersandacquisitions.

1. Cartel consists in the agreements between market competitors with the same level of added value that restric competition,(socalledhorizontalagreement).

Cartels are the most blatant of anticompetitive practices, being addressed by all national competition authorities, b treateddifferentlyandcouldbe:

hardcore cartels which may be defined as agreements between firms to allocate shares in international markets increasepricesandreduceimports

export cartels, (which are similar to hardcore cartels), agreements between firms that are authorized by states or

exempted from national competition rules. Export cartels aim to create monopoly profitsat theexpenseoftheforeig

countries, and thus not only represent welfarereducing restrictions on competition but also bring disadvantages f internationaldistributionandpromotefreeriderbehaviourwithrespecttothepublicgoodoffreetrade. 2. Vertical restraints may be defined as agreements or concerted practices entered into between two or more

undertakings each of which operates, for the purposes of the agreement, at a different level of the production o

distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods


An indicative example is the automobile industry. The automobile market is global, in the sense that a limit

number of manufacturers dominate the sales of motor vehicles internationally. These manufacturers have organis

dealership networks, which at least in industrialised nations is the only way of promoting andsellingtheirproducts

consequence of the existence of global distribution systems is the fact that manufacturers have to face different ru relating to dealerships in different nations. In addition, it can be observed that the planning and operation of distributionnetworkbyamanufacturermayhaveaneffectonallthecountrieswhereitsproductisfinallysold.

A separateissue,withregardtotheinternationaleffectofverticalrestraints,mayarisebecauseoftheexistenc

of exclusive distribution agreements in the territory of one country, for instance between firms A and B, which m makeitimpossibleforanotherforeignfirmCtoenterthemarketwhereAandBoperate. 3. Multijurisdictional mergers crossborder merger and acquisition involved firms registered and operating

different countries. These transactions had an effect on the economic environment of more than one jurisdiction a thereforeinmanyinstancesmorethanonejurisdictionwereinterestedinreviewingthem. Therearetwosetsofproblemsrelatingtothisissue,oneproceduralandonesubstantive:

The procedural problem is related to the different notification procedures (in terms of deadlines to notify th


may cause both additional costs and legal unpredictability to the undertakings involved in the transaction. A notab exampleisthe1989Gillette/Wilkinsontransaction,whichwasnotifiedinfourteenjurisdictions.

On the substantive side, the problem relates to the different standards that two jurisdictions may apply in th

review of the same transaction. Notable examples regarding this issue include the conflict that occurred between th EUandtheUnitedStatesinrelationtothemergerbetweenBoeing/MDD.

The Boeing/MDD case related to the attempt by two US companies (Boeing and McDonnell Douglas) to

merge in December of 1996. This merger would have created the largest aerospace company in the world. The US

Federal Trade Commission (FTC) cleared the merger without conditions on 1 July 1997. However, this was notthe

case with the European Commission. Basing its jurisdiction on the financial thresholds of the Community dimensi

clause of the Merger Regulation, according to which no physicalpresencein theEC isrequired,itmadeitclearthat

would block the merger. At this point, the US government intervened and threatened the EU that, if theCommissio

blocked the merger, the United States would wage a commercial war against the EC by takingthecasetotheWTO

or by imposing trade sanctions. A more serious conflict was fi nally avoided, as the Commissiondecidedtoclearth mergeron30July1997subjecttosomecommitmentsthatBoeingoffered. Governmentalandhybridpractices


Apart from those practices, there are also competitionrelated governmental practices that may also have an

influence on the operation of international trade. These anticompetitive practices, supported by governments o

allowed by them through the exemptions from the application of competition rules, may include industrial pol

considerations, which may imply a lack of law,exemptionsandexclusionsfromtheapplicationofcompetition rules

lackofenforcementorstrategicenforcementoflaw,withtheaimofstrengtheningparticularfirms,andcreatingnatio championsthatwouldbeabletocompeteattheinternationallevel.

This type of discretionary application of competition law in favour of particular firms may also have an eff

on the ability of foreign firms to compete in national markets wheresuchpoliciesareapplied.Thesepoliciesmaya beincorporatedinthevariousregulationsadoptedbycountriesinparticularsectorsoftheireconomies.

On an international level, it has been argued that sectorspecific regulation may have an effect both on th abilityofforeignfirmstoenteramarketandonconsumerwelfare. Thesecaseshighlighttwoobservations: a.theunderstandingoftheoperationofcompetitionlawandpolicymayvaryindifferentcountriesand b.thedifferentnationalregulation,mayhaveanobviouseffectontheparticularapplicationatinternationallevel.

The variety of national policies which influence the particular application of national competition rules, al

with the internationalisation of economic activity and the consequent appearance of business practices that have a

effect on multiple markets, have a major impact on the international legal system. Thisassumptionstemsfromthef

that, on the one hand, there are varied national competition laws, and on the other, therearecompetitionlawrelated internationalproblemswhichhavetobesolvedthroughcooperationoftheaffectedstates.

Therefore, international problems need international solutions and in this regard, international agreemen

which provide for cooperation and/or harmonisation of competition rules, have been employed to address the anticompetitivepracticesbyfirmsthathaveaninternationaleffect.

Such cooperation may take two main forms: formal cooperation through the adoption of internationa agreements,orinformalcooperation,throughtheexchangeofideasandinformationbetweencompetitionofficials.

In the field of international competition law, in this absence of a central international legislative and judi body,alternativeformsofformalcooperationhavebeendeveloped. Therearethreedistincttypesofagreementswhicharedevotedtoorcontaincompetitionprovisions: 1.bilateralenforcementcooperationagreements, 2.bilateraltradeagreementswhichincludecompetitionprovisions,and 3.plurilateralregionaltradeagreementswhichincludecompetitionrules. 1.Bilateral(andtrilateral)enforcementcooperationagreements


Bilateral (and trilateral) enforcement cooperation agreements are agreements that do not harmonise the

competition laws of the contracting parties.Theseagreementsprovideformechanismsofenforcementcooperation.I

the field of competition law enforcement cooperation has been used asan alternativefortheharmonisationofnation competitionlaws.

Almost all of these agreements provide for a basic procedure of cooperation, that is to say: notification o

cases of mutual interest, exchange of information, cooperation and coordinationofenforcementactivitiesandnegati comity.

Their most positive effect is that they create the mechanism through which officials of different natio

authorities are able tocomeintocontactandhavetheopportunitytosharetheirviewsonissues ofmutualinterest.Th

provisionsformeetingsbetweencompetitionofficialsandtheprovisionsfortechnicalassistanceareevidenceofthis. However,asmentionedabove,itisindisputablethatenforcementagreementshavecertainlimitations.

In the first place, most of these agreements include a confidentiality clause making them ineffective in ca casesandcasesregardingabuseofdominantposition.

Secondly, even in merger cases, where cooperation has proved to be effective, these agreements failed to

provide the authorities with adequate legal tools to deal with such cases, where very sensitive interests of th contractingpartieswereaffected.

Thirdly, bilateral and trilateral enforcement cooperation agreements are by definition insufficient to deal w situationswheretheinterestsofmorethantwoorthreenationsareaffected.

All these considerations highlight the fact that, even though they are useful, enforcement cooperatio

agreements in the field of competition law are by no means adequate in themselves to provide radical solutions w respecttotheproblemscausedbyrestrictivebusinesspracticeswithaninternationaleffect. 2.BilateralTradeAgreementswhichincludecompetitionprovisions

Competition provisions are includedinbilateraltradeagreementsinthecontextofa muchbroaderanddivers

legal framework, which contains rules relating to political dialogue, trade liberalisation and commitment of the sig

parties to respect human rights and democratic principles, and (in most of them) approximation of the contractin partieslaws.Hence,commercial,politicalandculturalissuesarealladdressedbytheseagreements.

Nonetheless, the common denominator and starting point for further cooperation are rules relating to trad

liberalisation. Tariff reduction and the gradual creation of a free trade area is the obvious goal of most of thes

agreements. Accordingly, the main role for competition law is toreduce,andifpossible toeliminate,practicescarri outbyprivateundertakingsthatmayhaveaneffectontradebetweenthecontractingparties.

As indicated by an OECD study which compared the competition provisions found in fortyseven trade agreements,intermsofcompetitionlawandpolicy,onemaydistinguishtwofamiliesoftradeagreements.


The first, the EUstyle agreements, mainly contain substantive competition provisions, i.e. provisions that a toaddressanticompetitivebehaviour.

The second group of agreements, agreements where either the United States orCanadaisasigningparty,do

not contain substantive competition law provisions, but provisions dedicated to cooperation and coordination o enforcementactivities.

Nonetheless, the distinction used by the OECD cannot be anabsoluteone,sincethereareagreementssigned

by the EU which, apart from the substantive competition law provisions, also include provisions on cooperation wi theothercontractingparties.

This distinction offers some indication as to what distinguishes EU policy in thisfieldwhencomparedwith

policies followed by the United States and Canada. Whereas the United States and Canada use both enforcement

cooperation agreements on competition and bilateral trade agreements to put into context issues of cooperation on

competition law, the EU through bilateral trade agreements imposes the application of EU compatible competitio

rules regarding practices that affect the common trade, and in certain cases it obliges contracting parties to adop legislationidenticaltoitscompetitionlaw. 3.PlurilateralRegionalTradeAgreementswhichincludecompetitionprovisions

All these agreementsshareasignificantcommoncharacteristic:theyareregionalblocs,i.e.theyareformed b

neighbouring countries. The assumption is that people living in geographically close countries develop a certai communityofpoliticalandeconomicinterests,andthisleadstothecreationofformalinternationalnorms.

Competition law is only one of the legal tools adopted in the context of these agreements, and at least in theory,itsroleistoensurethattradeliberalizationonthebordersoftheseblocsmemberstates.

These agreements include both substantive competition rules and general rules regarding the institution structureoftheregime.


The first model is the one first adopted by NAFTA, according to which countries undertake a general

obligation to have an operationaldomesticcompetitionregimeandacommitmenttocooperateoncompetitionmatte ofcommoninterest.

The second model includesanumberofsubstantivecompetitionprovisionsandistheonefollowedbytheEU

It prohibits specific anticompetitive business practices and, in particular, they include provisions that aim to addre

anticompetitive agreements and the abuse of a dominant position which have an effect on the regional market.

dominant position can be acquired thanks to the success of a product and of an organization and not by

anticompetitive strategies. That is to say a dominant position is not to be condemned persemerelyitsabuse.Abus

can only be sanctioned in a relevant market, and it determines market impairment. We have to distinguish betwee


exploitative abuse is where dominant undertakings take excessive advantages of their market power and obtain

benefit by placing an unfair burden upon their customers or consumers without any effect on the competitiveproce

or the structure of the market in which dominant firms operate. Exclusionary abuse is where dominant undertakin denyrivalsaccesstothemarketorexpansioninthemarket.

In terms of the provisions which organise the institutional structure of these blocs, there are also two broad types institutionalstructuresprovided.

The first is the one adopted by NAFTA, in which no regional institution is provided and all the

competitionrelated issues are to be resolved by the national competition authorities of the participating countries.

this regard, NAFTA specifically provides that the participating states should cooperate in competition matters in th caseofNAFTAthesigningpartieshavealsoconcludednonbindingbilateralenforcementcooperationagreements.

The second type of institutional structure follows the EU approach and provides for the creation of a centralisedbodythathasthecompetencetoenforcecompetitionlawintheregion.

The EU model has beenbroadlyfollowedbyanumberofotherregionalblocs,andcertainlytheseagreement outnumbertheagreementsthatfollowtheNAFTAmodel.

Though there have been a number of past efforts to achieve more substantial cooperation with regard to competitionpolicy,therehasbeenlittlemovementinthatdirection.

In 1993, a group of antitrust scholars met in Munich, Germany and drafted an International Antitrust Code

which they proposed a Plurilateral Trade Agreement. This proposal represented an attempt at true internationa

cooperation on substantive competition issues. For example, Article 4 of the Code was to govern horizonta

agreements. It defined some that were per se illegal, and others that were to be treated under a rule of reason

approach. Similar substantive provisions were present with respect to vertical restraints (Article 5), mergers (Artic 11), abuse of dominant position (Article 14), and so on. The Draft Code was intended to be a true source of internationalcompetitionlawand,perhapsforthisreason,wasneveradopted.

The WTOs Doha Round negotiations saw the most recent attempt at international cooperation. The agenda

established for the Doha Round (the Doha Declaration) stated that further work in the Working Group on the

Interaction between Trade and Competition Policy will focus on the clarification of: core principles, includi

transparency, nondiscrimination and procedural fairness, and provisions on hardcore cartelsmodalitiesforvolunta

cooperation and support for progressive reinforcement of competition institutions in developing countries throu

capacity building. Notice that this charge does not indicate an intention to carry out negotiations between memb statesduringtheroundoftradetalks,andthereisnoindicationthatanysuchdiscussionstookplace.



International finance involves the study of international financial transactions, transactions that have so

crossborder element withrespecttopayment,creditorinvestment,orafinancialcontractThecrossborderaspectof

finance can arise from the fact that the activity of the provider and the user of funds may be located in two differe

countries. A lender can market and transfer funds to a borrower in another country, or the borrower can seek and

attain funds fromthelenderinthelenderscountry.Similarly,anissuerofsecuritiescanmarketanddistributesecuri

to investors inanothercountry, orforeigninvestorscanmakeinvestmentsbycomingtotheissuerscountry,aswhen foreigninvestorbuysUSequityonaUSstockexchange.

In short, international finance is very broad. It may effectively include any transaction or issue that involv morethanonecountry.

Law and regulation in the field of international finance is mainly the purview of national governments, multilateralinstitutionsarebecomingmoreimportantovertime.

For international finance, the IMF and the World Bank, established in 1944, are quite important. The IMF,

which is effectively controlled by developed countries,withtheUnitedStatesasprimusinterpares,wassetuptohe

member countries maintain agreed exchange rates. However, with theabandonmentoffixedratesin1972,itsmissio

has shifted to dealing with the financial problems of developing countries and the promulgation of internatio standards.

The multilateral system established by the Bretton Woods Conference in 1944 has had two main objectives

first, to advance the reduction of tariffs and other barriers to international trade, and, second, to create a globa

economic framework to minimize the economic conflictsamongnationswhich,at leastinpart,wereheldtohavebe responsiblefortheoutbreakoftheSecondWorldWar.

The Conference led to the creation of the three basic international economic institutionsregulatingmoneya

trade: the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD alsoknownastheWorldBank,andlatertheGeneralAgreementonTariffsandTrade(GATT). The Bretton Woods system was complemented by the Organization for Economic Cooperation and Development (OECD). In 1960 the OECD became the successor to the Organization for European Economic

Cooperation that had been set up in connection with the Marshall Plan aid given by the United States to reconstruc

Europe after the Second World War. The OECD comprises twentysix of the largest industrial statesintheWestern

world which together combine more than half of world production and more than 70 per cent of world trade. It i

primarily a forum for cooperation, especially withregardtothecoordinationofeconomicandmonetarypoliciesoft members. TheInternationalMonetaryFund(IMF) The main ideas that led to the creation of the IMF rest upon proposals made by the renowned economists

John Maynard Keynes (UK) and Harry Dexter White (USA). According to Article IV of the IMF Agreement, the essentialpurposeoftheinternationalmonetarysystemis

to provide a framework that facilitates the exchange of goods, services and capital amongcountries,andtha sustainssoundeconomicgrowth. Furthermore,ArticleImentioned,interalia,thefollowingpurposesoftheIMF:

(ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to th

promotion and maintenance of high levels of employment and real income and to the development of th productiveresourcesofallmembersasprimaryobjectivesofeconomicpolicy.

(iv) To assist in the establishment of a multilateral system of payments in respect of current transactio

between members and in the elimination of foreign exchange restrictions which hamper the growth of wor trade.

As of 1995, the membership of the IMF had increased to 179 states, including states arising from the

breakup of the Soviet Union. The rights and duties of members are based upon quotas, which are supposed to

reflect the economic and financial position of the members and which also determinetheleveloffinancialcontribu tobemadetotheFund. The main organ of the IMF is the Board of Governors composed of one Governor and one alternate nominatedbyeachmember(usuallytheMinisterofFinanceortheCentralBankGovernorarenominated).

The Executive Board has at least twenty Executive Directors, five of whom are appointed and fifteen ar elected.

The members with the largest five quotas have the right to appoint directors (the United States, United

Kingdom, Germany, France and Japan). A maximum of up to two additional directors may be appointed by other membersundercertainconditions.

The voting system is weighted and puts the actual decisionmaking power into the hands of the group o Westernstateswiththelargestquotas.

The IMF has manifold functions, but the main ones concern regulatory and supervisory functions with rega

to exchange rates, the regulation and coordination of the multilateral system of payments and transfers for curre

international transactions and include anumberoffinancialactivities. With regardtotheconvertibilityofcurrencies,



tied. It had to be abandoned for economic reasons in 1971 which led to an amendment of the IMF Agreement in

1976 allowing members legally to introduce flexible (floating) exchange ratesunderthesupervisionoftheIMF.O

important task of the IMF is to assist member states in balanceof payment deficit situations. Socalled specia

drawing rights (SDRs) play a particular role in providing the required liquidity. The SDR is an asset allocated to

members by the Fund as a reserve asset or for use in support of their currencies. It is valued by reference to a

basket of specified amounts of the most important currencies (US dollar, Japanese yen, Euro and pound sterling

and by reference to their exchange rates. In effect, the use of SDRs enables members to acquire hard currencies againsttheirownnationalcurrencies,butthemechanismistoocomplicatedtobedescribedhereinanydetail.

As a result of excessive lending by international institutions, Western states and private banks to developin

countries which became unable to repaytheirhugeforeigndebts,aseriousinternationaldebtcrisisemergedattheen

of the 1970s and it is still continuing. A rather controversial issue in this connection is the conditionality of lo

offered by the IMF and the World Bank to developing countries with such huge debts. Under socalled standby

arrangements between the IMF and the debtor country (Article XXX lit. d), the debtor country must formally

declare to undertake certain economic reform measures to counter its balanceofpayment deficit. This is aconditio

of the IMF for offering the loan, but it does not amount to a treaty obligation. Therefore, if the debtorstatedoesno

comply with the condition, legally it does not commit an internationally wrongful act. However, there might

difficulties inobtainingfurtherloans fromtheinternationalinstitutionswhichinfactmakesitdifficultnottocomply.

required structural adjustment policies often have painful social consequences for the populations of developin

countries. Whether they are really effective is a matter of debate. Many countries intheSouthfeelthattheyarebein putundertutelage,andregardthisasaninfringementoftheirsovereignty. TheWorldBank

The International Bank for Reconstruction and Development (World Bank) wassetuptogetherwiththeIMF atthe1994BrettonWoodsConference.

As set forth in Article 1 of its Articles of Agreement, the purposes of the World Bank are to assist in the

reconstruction and development of territories of members, to promote private foreign investment by means o

guarantees or participation in loans and other investments made by private investors, to provide (under certai

circumstances) finance for productive purposes, to promote the longterm balanced growth of internationaltradean

the maintenance of equilibrium in balances ofpayment,toarrangeitslendingpoliciestogiveprioritytothemoreus

and urgent projects and to conduct its operations with due regard to theeffectofinternationalinvestmentonbusine conditionsinthememberstates.

The Bank was originally concerned with reconstruction after the Second World War and is nowadays


primarily occupied with granting loans to developing countries to finance particular projects to improve th infrastructureandeconomicdevelopmentintheSouthingeneral.

Membership of the World Bank requires membership of the IMF therefore the two organizations have the

same circle of member states. The voting system and the structure of the main organs is similar to the model of t IMFthusthelargestshareholdersenjoyaprivilegedpositionaccordingtotheirfinancialinput.

In essence, the Bank acts as a financial intermediary which relends funds it raises inthemarketorguarantee

loans made to members through the commercial investment channel. It also makes loans out of its owncapitalfund

but this constitutes a smaller part of its actual activities. In view of strong criticismdirectedagainstthepureeconom

criteria applied in the Banks policy in the past, it has recently become more sensitivetothesocialandenvironmen consequencesoftheprojectsitfinancesthroughouttheworld. OtherIGOs

The World Bank is complemented by the International Finance Corporation (IFC) and the International

Development Association (IDA) these three organizations form the socalled World Bank Group. While the Worl

Bank lends only for specific projects to memberstatesortoanenterprisewithagovernmentguaranteeatappropriate

rates of interest, the IFC provides venture capital for productive private enterprises independent of a repaymen

guarantee by the home state of the borrower. The IDA gives concessionary loans (in fact often amounting to grant

because of the highly favourable terms) to the poorest countries which are no longer able to obtain finance unde

normal market conditions, and to private enterprises with suitable government guarantees. Affiliated with the Wo

Bank Group is the International Centre for the Settlement of Investment Disputes (ICSID) and the Multilatera InvestmentGuaranteeAgency(MIGA).

There are also a number of important intergovernmental groups that formulate policies that lay thefoundati

for internationally coordinated law and regulation. The most important of these is the G8, which is composed of t

major democratic industrial countries Canada, France, Germany, Italy, Japan, Russia, the UnitedKingdomandth

United States. The G8 holds annual economic summits at the head of state level and preparatory meetings at th

finance minister level. These summits formulate important policies, such as debt forgiveness for heavilyindebtedp

countries at the meeting in 2005, which get translated into action through international institutions or sovere initiatives.

Increasingly important for international finance are functional international regulatory bodies that operate

more technical levels than the G8. The most important of these are the Banking Supervision Committee (the Bas

Committee) of the Bank for International Settlements, the International Organization of Securities Commissio

(IOSCO), the International Association of Insurance Supervisors (IAIS) and the International Accounting Standard


TheBaselCommitteeisthemostinfluentialofthe internationalfunctionalregulatorsasaresultof itsformula

of the Basel capitaladequacystandards.Firstformulatedin1988,andrevisedinsubstantialmeasureinJune2004,fo

the internationally active banks of the G10 countries (Belgium, Canada, France, Germany,Italy,Japan,Luxembour

the Netherlands, Spain, Sweden, Switzerland, theUnitedKingdomandtheUnitedStates),thesestandardshavebeen

adopted by morethan100countriesworldwide.Inaddition,theBaselCommitteehasformulatedcoreprinciplesfo


IOSCO has formulated basic financialdisclosurerequirementsforpubliclyissuedsecurities,modeledafterU requirements,whichhavebeenadoptedintheUS,EUandJapan. The IAIS has also adopted core principles and standards for insurance companies and products that have

been implemented worldwide. Implementation of the core principles of these functional regulators in developi countriesisdonelargelythroughtheIMF.

The IASB has formulated international accounting standards that have been adopted in 2005 by the EU and


One should also include in thisgrouptheOrganisationforEconomicCooperationandDevelopment(OECD)

composed of 24 industrialized countries. Although its scope is much broader than finance, it has been influential formulatinginternationalcorporategovernancestandardsandtaxpolicy.

Two other important entities are the Financial Action Task Force (FATF), an organization of 31 countries

including the United States,concerned withpreventingmoneylaunderingandterroristfinancing, andtheParisClub,

informal group of 19 permanent member countries, with no formal legal status, whose role is to findcoordinatedan sustainablesolutionstothepaymentdifficultiesexperiencedbydebtornations.

The work of the functional regulators of course overlaps, as financial institutions increasingly offer allfinan

products (socalled universal banks). In addition, there are important overlaps between the functional regulators an

the IMF and World Bank. As a result, the Financial Stability Forum (FSF) was established in 1999 to enhance

cooperation in the area of financial market supervision and surveillance. It has 42 members consisting of 26 nation

representatives from 11 countries, plus 13 representatives of themultilateralinstitutions,plustworepresentativesfro

committees of central bank experts, a representative of the European Central Bank, andtheChairman,theGoverno

of the Bank of Italy. Beyond the efforts of the FSF,multilateralorganizationsmayworktogetheronspecific project

for example in 1999 the Basel Committee and IOSCO issued a joint report on disclosure (Basel Committee on BankingSupervisionandTechnicalCommitteeoftheInternationalOrganizationofSecuritiesCommissions1999).



various financial transactions, like the Bond Market Association (BMA) and the International Swaps andDerivativ

Association (ISDA). Common standards for contracts are important for reducing transaction costs andforincreasin

liquidity through the creation of standardized instruments, for example credit derivatives. These organizations a

coordinate activities in overlapping areas. For example, the BMA, the International Securities Market Associatio

(ISMA) and the International Primary Market Association (IPMA)in2005integratedtheirEuropeanbasedactivitie

into the International Capital MarketAssociation(ICMA)andestablishedaglobalpartnershipbetweentheBMAand ICMA. TheGeneralAgreementonTradeinServices(GATS)

The GATS should be singledoutforspecialattentionbecauseitisaninternationaltradeagreementthataffec

financial services. The core principle of GATS, expressed in Article II, is unconditional mostfavorednation (MFN

treatment: each service or service supplier from a member country must be treated no less favorably than any othe

foreign service orservicesupplier.Inaddition,thereisatransparencyrequirement.TheGATSincludeseach country

schedule for specific commitments and a list of MFN exemptions for that country. For financial services, there is uniqueadditionalelement,namely,theUnderstandingonCommitmentsinFinancialServices(Understanding).

In the GATS, market access and national treatment are specific commitments as opposed to general

obligations. As a result, national treatment and market access do not apply across the board to all services sectors

instead, they apply only to sectors, subsectors, or activities that are listed in a countrys schedule of commitment

Countries that choose to schedule commitments in accordance with the Understanding undertake commitments t market access and national treatment for all financial services subsectors. They then use a negative list approach

scheduling that is, everything is included unless excepted. TheUnderstandingalsocontainsastandstillprovisiont limitsexceptionstoexistingnonconformingmeasures.

GATS also includes a socalled prudential carveout for domestic regulation that permits a country to tak

prudential measures for the protection of investors, depositors, policy holdersorpersonstowhomafiduciaryduty

owed, or to ensure the integrity and stabilityofthefinancialsystemregardlessofanyotherprovisionsoftheGAT

Disagreement over whether a particular national measure falls within the prudential carveout is subject to WT

dispute settlement procedures and, if necessary, to a determination by a dispute settlement panel. However, mos

regulators do not appear to be particularly concerned about this possibility. For one thing, if a country is concerne

that a particular measuremightnotbegenerallyacceptedasprudential,itcouldsimplylistthemeasureasanexcepti initsinitialscheduleofcommitments.

Ensuring financial services expertise in the handlingofdisputesinvolvingfinancialserviceswas anotherissu

particular concern to financial services regulators. The concerns of financial officials were addressed by inserting


requirement in the Annex that dispute settlement panels on prudential issues and other financial mattersmusthave expertisenecessarytodealwiththespecificfinancialserviceunderdispute.

A final agreement on financial services was reached in 1997. Reaching an agreement does not, of course

mean that markets are truly open. It only means that the over 140 countries involved in the WTO have all mad

commitments of various kinds. The 1997 agreement was probably notable more for its airing of issues and th

consequent increased transparency concerning the sector than for its concrete achievements in terms of marke opening.Manycountriescommitmentssimplyspecifiedrulesalreadyinplace...andinsomecaseslessthanthis. In November 2001, the WTO members authorized a new round of trade negotiations, the socalled Doha

Round, which once again includes financial services. These negotiations are still under way. The current results a

disappointing. The existing offers for a new set of financial service commitments are limited in scope andscale.Al

WTO doesnotpresentlyhavethemandatetodealwiththemoredifficultquestionsofindirectbarrierstotradesucha

US requirements prohibiting use of international accounting standards or EU country restrictions on acquisitions

local banks. There are a variety of these barriers, which are prevalent even more in developed than developing countries(Asian,European,Japanese,LatinAmericanandtheUSShadowFinancialRegulatoryCommittees2004).