Introduction to International Commercial Law (Trade and Investment)

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

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

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

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

4. Key Concepts - Tariffs

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

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

- Art. III GATT prohibits discrimination of foreign producers vis--vis domestic producers - Early GATT jurisprudence: a formally origin neutral taxation can violate Art. III:2 GATT - Centrality of likeness - Non-fiscal measures (Art III:4 GATT) - Relationship with Art. XX GATT
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5. Dispute Settlement
- Integrated dispute settlement system based on Articles XXII and XXIII GATT and the DSU - Function of the DSB - Coverage: goods, services and intellectual property - Procedures: strict time-limits - Adoption of panel reports: negative consensus principle - Appellate Body Review - Non-compliance with recommendations
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5. Dispute Settlement
- Consultation phase - Panels (Art. 6-8 DSU) - Panel process (Art. 12 DSU) - Panels time periods (Appendix 3) - Appeals Process (Art. 17 pp. DSU) - Adoption of reports - Compliance - (Cross)retaliation

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

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

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Investment Law
An Emerging Network of Intl Investment Agreements (IIAs):

Current intl legal framework governing foreign investment is a vast network of over 2500 IIAs. In 2005, 1,891 (75.8 %) in force, + 232 other IAs with investment provisions, + other regionals. While other treaties and norms intersect and interact, IIAs are the primary public international law instruments that govern foreign investment.
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Investment law

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

In most IIAs, foreign investors enforce these rights through investor-state arbitration provisions under which the state provides its general consent to arbitrate claims under the IIA. As of December 2005, 135 IIAs claims had been brought before ICSID. Altogether by 2005, there were 229 known investment treaty arbitrations. Over two thirds of the claims were filed after 2001.

SD concerns were first raised in 4 controversial claims under Chapter Eleven of the North American Free Trade Agreement (NAFTA): - Ethyl v. Canada: export and interprovincial trade ban prohibitions on MMT, a fuel additive; - Azinian v. Mexico: cancellation of a municipal waste concession; - Metalclad v. Mexico: closure of a hazardous waste site; and - Methanex v. United States: Californian ban on the use of MTBE, another fuel additive.
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Trade Law and Sustainable Development

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

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1. Sustainable Development and Globalisation

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

Physical links (impacts) - Complex relationships - Neither good nor bad (shades of grey) Legal links - Three distinct bodies of international law - Areas of intersection and integration Institutional links - WTO vis--vis MEA Secretariats and IGOs, - UNEP, UNDP - National and international NGOs
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2. Foundations Different Perspectives

The trade perspective

Economic growth through trade will solve all environmental problems

The environment is threatened by the status quo Poverty needs first and foremost policy attention

The environment perspective

The development perspective

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2. Foundations Global Environmental Management

Principal MEAs

Early Agreements - CITIES - UNCLOS - Basel Convention - Montreal Protocol Rio Agreements - CBD - Desertification - Climate Change New Generation - PICs - POPs

Trade Measures: - Trade ban - Protection provisions - Trade restrictions - Trade prohibition 3. Part - Cartagena Protocol: GMO trade restriction - Kyoto Protocol: Trade links New Generation - Trade restriction - Trade ban
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2. Foundation Relevant WTO Provisions

WTO Agreement Trade in Goods GATT TBT SPS Trade in Services GATS Trade in IPRs TRIPS

Preamble; Art. V. 2 Art. III, XX GATT Art. 2.2, 2.6 TBT Art. 2.1, 5 SPS Art. XIV GATS Art. 7, 30 TRIPS
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And Doha Negotiations

2. Foundations Trade and Development

Growing membership of developing countries New Development Theory GATT: Article XVIII GATT: Part IV Enabling Clause The WTO Agreements
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4. Integrated Trade Law and Policy-Making

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

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4. Integrated Trade Law and Policy-Making, cont.

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

US - Shrimp Turtle Case

WTO Appellate Body: We believe [the objective of sustainable development] must add colour, texture and shading to our interpretation of the agreements annexed to the WTO Agreement.

EC - Tariff Preferences Case

Appellate Body rejected EC arguments that its tariff preferences were based on sustainable development objectives.

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6. Conclusions

Recent WTO negotiations and cases reflect that the objective of sustainable development has become an integral part of the world trading system. Legal arguments encompassing an integrated developmental and environmental approach have been made by the parties and accepted by the relevant trade dispute settlement organs. However, WTO dispute settlement organs will not lightly accept sustainable development as a trump card. A solid legal understanding of the objective and its underlying principles is required to make a successful sustainable development argument in world trade law.
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Thank you.
Markus W. Gehring mwg24@cam.ac.uk

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Important GATT rules

Article I GATT 1994 General Most-Favoured-Nation Treatment 1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. Article III GATT 1994 National Treatment on Internal Taxation and Regulation 1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production. Article XX GATT 1994 General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (a) necessary to protect public morals; (b) necessary to protect human, animal or plant life or health; (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; (h) undertaken in pursuance of obligations under any intergovernmental commodity agreement which conforms to criteria submitted to the CONTRACTING PARTIES and not disapproved by them or which is itself so submitted and not so disapproved;

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Important WTO rules

Article II GATS Most-Favoured-Nation Treatment 1. With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country. Article XIV GATS General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures: (a) necessary to protect public morals or to maintain public order; (b) necessary to protect human, animal or plant life or health; (c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (iii) safety; Article 3 DSU General Provisions 2. The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.
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