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Introduction to Introduction to International Commercial Law International Commercial Law

(Trade and Investment) (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 Introduction to International Trade LawTrade Law

Lecture Outline:

1. GATT/International trade history2. The World Trade Organization 3. The Institution4. Key concepts – Tariffs, Most Favourite

Nation and National Treatment5. Dispute Settlement6. Reform – Trade negotiations

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- one of the oldest areas governed by - one of the oldest areas governed by international international rules rules- multi-layered trading system: - multi-layered trading system: bilateral, regional, bilateral, regional, intra-regional and global intra-regional and global- provisional set of rules - provisional set of rules - originally 23 contracting parties - originally 23 contracting parties - enacted 1 January 1948 - enacted 1 January 1948 - terminated 31 December 1995- terminated 31 December 1995- negotiated eight multilateral trade - negotiated eight multilateral trade "rounds" "rounds" - reduced tariffs, attempted to reduce - reduced tariffs, attempted to reduce other other trade barriers trade barriers - converted int’l trade to a rules-- converted int’l trade to a rules-based systembased system

1. The General Agreement on Tariffs 1. The General Agreement on Tariffs and Trade (GATT) / International trade and Trade (GATT) / International trade

historyhistory

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

2. The World Trade Organization2. The World Trade Organization

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3. The Institution3. The Institution

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-Tariffs (reciprocal and mutually -Tariffs (reciprocal and mutually

advantageous basis) advantageous basis) - Actual value tariffs- Actual value tariffs- Tariff schedules (Art. II GATT)- Tariff schedules (Art. II GATT)- Tariffication of other barriers - Tariffication of other barriers to tradeto trade- Brussels Convention on Tariff - Brussels Convention on Tariff Classification Classification- Harmonized system of - Harmonized system of customs customs classification classification

4. Key Concepts - Tariffs4. Key Concepts - Tariffs

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- Art. I GATT – Any advantage, favour, - Art. I GATT – Any advantage, favour,

privilege, or immunity in negotiated privilege, or immunity in negotiated

concessions extends to all WTO concessions extends to all WTO members. members.- Unconditionally, like products, de - Unconditionally, like products, de facto facto discrimination discrimination- Rationale of MFN - Rationale of MFN - Important exceptions: - Important exceptions: Grandfathered Grandfathered preferences, Art. XXIV – creation of preferences, Art. XXIV – creation of RTAs, Enabling clause, waivers such RTAs, Enabling clause, waivers such as as for the Cotonou Agreement. for the Cotonou Agreement.

4. Key Concepts – Most Favoured 4. Key Concepts – Most Favoured Nation PrincipleNation Principle

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

4. Key Concepts – National 4. Key Concepts – National TreatmentTreatment

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

5. Dispute Settlement5. Dispute Settlement

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

5. Dispute Settlement5. Dispute Settlement

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

6. Trade negotiations6. Trade negotiations

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Trade Related Investment Measures (TRIMS)

Physical and Portfolio Investment Bilateral Investment Treaties (BITs) Multilateral Attempts

- OECD - MIA- WTO- New EU Competence?

2. Investment2. Investment

Investment LawInvestment Law

An Emerging Network of Int’l Investment Agreements (IIAs):

Current int’l legal framework governing foreign investment is a vast network of over 2500 IIAs.

In 2005, 1,891 (75.8 %) in force, + 232 other IAs with investment provisions, + other regionals.

While other treaties and norms intersect and interact, IIAs are the primary public international law instruments that govern foreign investment.

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Investment lawInvestment law IIAs seek to create ‘favourable conditions’ or a ‘stable

framework’ for investment, for economic development, by impose binding obligations on States re: treatment of foreign investment: (i) a wide asset-based definition of investment; (ii) guarantees of non-discrimination (national and most-favoured-nation treatment); (iii) a minimum standard of treatment often expressed as ‘fair and equitable treatment’ coupled with an obligation not to impose arbitrary or discriminatory measures; (iv) the right to transfer investments and profits out of the host state; and (v) compensation for measures tantamount to expropriation.

A smaller number of IIAs provide for rights of entry for foreign investment, prohibitions on performance requirements, and ‘umbrella clauses’ under which a state agrees to observe its commitments to foreign investors.

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Investment lawInvestment 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 Trade Law and Sustainable DevelopmentDevelopment

Lecture Outline:

1. Sustainable Development and Globalisation

2. Foundations – Trade and Environment 3. Foundations – Trade and Development4. Integrated Trade Law and Policy-Making5. Sustainable Development in WTO

Disputes6. Conclusion

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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.”

1. Sustainable Development 1. Sustainable Development … and Globalisation… and Globalisation

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Physical links (impacts) - Complex relationships- Neither good nor bad (shades of grey)

Legal links- Three distinct bodies of international law- Areas of intersection and integration

Institutional links- WTO vis-à-vis MEA Secretariats and IGOs, - UNEP, UNDP- National and international NGOs

2. Foundations – Rapid Evolution in Law and 2. Foundations – Rapid Evolution in Law and Policy Policy

on Trade, Environment & Developmenton Trade, Environment & Development

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The trade perspective Economic growth through trade will solve all

environmental problems

The environment perspective The environment is threatened by the status

quo

The development perspective Poverty needs first and foremost policy

attention

2. Foundations – Different Perspectives2. Foundations – Different Perspectives

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2. Foundations – Global Environmental 2. Foundations – Global Environmental ManagementManagement

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 Provisions2. Foundation – Relevant WTO Provisions

WTO Agreement Trade in

Goods GATT TBT SPSTrade 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 And Doha Negotiations

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Growing membership of developing countries

New Development Theory GATT: Article XVIII GATT: Part IV Enabling Clause The WTO Agreements

2. Foundations – Trade and Development2. Foundations – Trade and Development

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4. Integrated Trade Law and Policy-4. Integrated Trade Law and Policy-MakingMaking

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, 4. Integrated Trade Law and Policy-Making, cont.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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US - Shrimp Turtle Case WTO Appellate Body: “We believe [the objective of sustainable development] must add colour, texture and shading to our interpretation of the agreements annexed to the WTO Agreement.”

EC - Tariff Preferences CaseAppellate Body rejected EC arguments that its tariff preferences were based on sustainable development objectives.

5. Sustainable Development in WTO 5. Sustainable Development in WTO DisputesDisputes

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6. Conclusions6. 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.Thank you.Markus W. Gehringmwg24@cam.ac.uk

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Article I GATT 1994General Most-Favoured-Nation Treatment1. With respect to customs duties and charges of any kind imposed on or in connection withimportation or exportation or imposed on the international transfer of payments for imports orexports, and with respect to the method of levying such duties and charges, and with respect to allrules and formalities in connection with importation and exportation, and with respect to all mattersreferred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity grantedby any contracting party to any product originating in or destined for any other country shall beaccorded immediately and unconditionally to the like product originating in or destined for theterritories of all other contracting parties.

Article III GATT 1994National Treatment on Internal Taxation and Regulation1. 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, processingor use of products in specified amounts or proportions, should not be applied to imported ordomestic products so as to afford protection to domestic production.

Article XX GATT 1994General ExceptionsSubject to the requirement that such measures are not applied in a manner which would constitute ameans of arbitrary or unjustifiable discrimination between countries where the same conditionsprevail, or a disguised restriction on international trade, nothing in this Agreement shall be construedto 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 effectivein conjunction with restrictions on domestic production or consumption;(h) undertaken in pursuance of obligations under any intergovernmental commodity agreementwhich conforms to criteria submitted to the CONTRACTING PARTIES and not disapproved bythem or which is itself so submitted and not so disapproved;

Important GATT rulesImportant GATT rules

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Important WTO rulesImportant WTO rules

Article II GATSMost-Favoured-Nation Treatment1. With respect to any measure covered by this Agreement, each Member shall accord immediatelyand unconditionally to services and service suppliers of any other Member treatment no lessfavourable than that it accords to like services and service suppliers of any other country.

Article XIV GATSGeneral ExceptionsSubject to the requirement that such measures are not applied in a manner which would constitute ameans of arbitrary or unjustifiable discrimination between countries where like conditions prevail, ora disguised restriction on trade in services, nothing in this Agreement shall be construed to preventthe 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 theprovisions of this Agreement including those relating to: (iii) safety;

Article 3 DSUGeneral Provisions2. The dispute settlement system of the WTO is a central element in providing security andpredictability to the multilateral trading system. The Members recognize that it serves to preserve therights and obligations of Members under the covered agreements, and to clarify the existingprovisions of those agreements in accordance with customary rules of interpretation of publicinternational law. Recommendations and rulings of the DSB cannot add to or diminish the rights andobligations provided in the covered agreements.