Download II. History of international economic law

II. History of international
economic law
Thomas Müller
1. Globalization and international economic law
2. Theories: in particular Neoliberalism
3. Two pillars: GATT and the System of Bretton
Woods
1. Globalization and international
economic law
1.1. What is globalization?
• Multifaceted – not fully understood
• Globalization: (Economic, social, cultural, political,
technological) process by which the people of the world are
unified into a single society and functioning together.
• Economic globalization: integration of national economies
into the international economy through trade (esp breaking
down of artificial barriers), general capital flows, esp foreign
direct investment, migration and the spread of technology and
know-how. Possible emergence of a global marketplace or a
single world market (Neoliberalism). It is just one pillar of
the globalization process (but an important one).
• Economic globalisation affects people everywhere and in
many aspects of life (jobs, food, health, education, leisure
time, prices of goods and services)
• Economic globalisation is not unprecedented – 19th century
till WW I.
1.2. Economic integration and spill over
• See preambles, F 1
• Economic integration leads also to political
integration (spill over). Strategy of European
and international integration (but see also the
political integration UNO)
• Economic integration leads to welfare, it is also
an instrument e.g. to halve poverty and eridicate
hunger
• Conclusio 1: Economic integration is not the
main goal
• Conclusio 2: Economic globalization has to be
managed and regulated at the international level
to reach overruling goals.
1.3. Technology and Liberalisation: Main
forces of economic integration
• Technology makes integration feasible;
Liberalisation of trade and foreign direct
investment make it happen
• Technology: Transport, Communication and
Information, Computing (see examples Bossche,
4 f)
• Liberalisation: Most developed countries have
lowered barriers to trade and capital over the
last 60 years
• Postive effects: Access and Democratisation
of technology, finance and information
(Internet!)
• Negative effects: Marketization (receding
governments, deregulation, shrinking of social
See also F 2
Growth in the volume of world merchandise trade by selected region, 2000-2006 © WTO
Exports
Imports
200006
200006
2005
2006
2005
2006
5
7
8
World
5
7
8
3
6
8
North America
5
6
6
6
8
3
South and Central America
6
14
14
4
4
7
Europe
4
4
7
4
4
7
European Union (25)
3
4
7
8
4
6
Commonwealth of Independent States (CIS)
17
18
21
10
11
13
Asia
9
8
9
6
5
10
Japan
3
2
3
6
6
8
Six East Asian traders Hong Kong, China; Malaysia; Republic of
8
8
11
Korea; Singapore; Separate
Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Taipei, Chinese) and
©http://www.globalpolicy.org
•
•
•
•
•
•
•
Example: China
„One of the key elements of China´s economic reform process has been
the encouragement of foreign direct investment. Since late 1970s, China
has gradually opened its economy for foreign businesses and has attracted
large amount of direct foreign investment. At the same time, China’s
policies toward FDI have also experienced various changes on their policy
priorities.“ (Fung et al, Foreign Direct Investment in China: Policy, Trend
and Impact [2002], 3)
1979: The Law of the People´s Republic of China on Joint-Ventures using
Chinese and Foreign Investment was adopted, granting foreign investment
a legal status in China
Since 1980: setting up Special Economic Zones (SEZs)
1982: The decision to open up China to the world economy was formally
included in the 1982 state constitution adopted by the Sixth National
People´s Congress.
1986: Provisions of the State Council of the People´s Republic of China for
the Encouragement of Foreign Investment (preferential tax treatment,
freedom to import inputs such as materials and equipment, right to
retain and swap foreign exchange with each other, simpler licensing
procedures, autonomy of joint ventures from external bureaucratic
interference, privileged access to supplies of water, electricity and
transportation, etc)
…. And more….
1.4. Economic integration and international
economic law
• International economic law exists since countries/states
trade goods
• International law depends on the emergence of modern
state
• Modern state: natural law 16 th century provided the
basis for the diplomatic conference system and
absolutist state-formation – Autonomy/Souvereignity Mercantilism
• Basis for international economic law is thus the national
foreign trade legislation
• Competences are shifted to international/supranational
bodies in the 20th century and international law grows
concurrently to economic globalisation – Antithesis to
absolute Autonomy/Souvereignity
1.5. International economic law
• Rules concerning the behavior of legal
persons participating in cross border trade
(including capital and services)
• Conventions, common law, principles of law,
international law resolutions, supranational
law and national foreign trade legislation
• „Legislative bodies“ on national, regional and
international basis
• Rule-based system of human institutions is
essential to a beneficial operation of the
markets (rules concerning rights and duties of
those carrying out transactions)
• Reasons:


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Countries must be restrained from taking trade-restrictive measures
(„tying their hands to the mast“ like Ulysses)
Avoid escalation of trade restrictive measures (trade wars)
Security and predictability
Single states can not cope with economic globalization
State measures (e.g. product safety, health, environmental protection)
are „reduced“ to necessity, harmonization is possible
Equity in international economic relations („Freedom that oppresses ...
law that makes free)
1.6. Questions
• How is „globalization“ defined?
• How does „economic globalization“ relate to
„general globalization“?
• Is economic integration the main goal of
regulated globalization?
• What are the main forces behind economic
globalisation?
• Is economic integration connected to
international economic law?
• Can economic globalization be reversed?
2. Theories (of economic
integration)
2.1. Overview
• How did the thinking of economists (and the law) evolve on this subject
over the last 400 years? Focus on capitalist theories.
• Importance of economist thinkers: Keynes: “… the ideas of economists and
political philosophers, both when they are right and when they are wrong,
are more powerful than is commonly understood. Indeed, the world is ruled
by little else… I am sure that the power of vested interests is vastly
exaggerated compared with the gradual encroachment of ideas…” (General
Theory of Employment, 1936, 383)
• Starting point: Mercantilism (17th century – 1st half of 19th century): rise
of economics (confidence in reason, exactly: raison d´etat); theories of
international markets; absolute state as the key-player
• Mercantilism is „archenemy“ of Liberalism but also its ground
• The Enlightenment also „causes“ Socialism (e.g. Marxists were „scientific“
socialists) – strong believe in reason (test of the morally acceptable, method
of scientific discovery, ultimate judge in resolving conflicting opinions) –
believe in invariant mechanical laws (opposite: Hegel and Marxists believe
in processes with telos)
• Modern forms: Neomercantilism, Neoliberalism
2.2. Mercantilism
•
Stands for Nationalism (national interest) and political
determination of economics (political economy)
•
No homogeneous economic school
•
Mercantilist policy has been a recurring topic ever
since nations began to regulate their economics
purposefully
•
Doctrine:
1.
2.
3.
4.
•
•
•
World resources are limited, international economic relations are a zero-sum game
between nations (win-lose situation)
National wealth (power) is measured in gold
Excess of exports over imports (surplus of the balance of trade) to accumulate
gold (import raw material, export finished goods)
To achieve surplus: protectionist measures/ Colbert: measures favoring
industrialization/ others: increase spending, curb interest rates
Diplomatic mercantilism: directed outward, concept of
disintegration (maintenance of the nation state as a
value)
Political mercantilism: directed inward (national frame),
most significant: nationalism of the welfare state
Neo-Mercantilism: see F3
2.3. Liberalism
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Stands for private interest and freedom of economy (laisser faire)
furthermore: limitations on the power of governments, the rule of
law, a market or mixed economy, and a transparent system of
government, etc.
Homogeneous economic schools (classic, neoclassic,
neoliberalism)
Liberal economic policy is a recurring topic since Adam Smith
(Wealth of Nations)
Market Liberalism Core Doctrine:
Belief in moral necessity of the market and market forces (i.e.
entrepreneur) – market shall determine important aspects of life
Self-interest alone (later: in a proper institutional setting) can lead
to socially beneficial results (through the invisible hand).
International economic relations are beneficial to all thanks to
international division of labor (esp the theory of comparative
advantage and of opportunity costs: even if a country could
produce everything more efficiently than another country, it would
reap gains from specializing in what it was best at producing and
trading with other nations). Liberalism is hostile to economic selfsufficiency.
Freedom of economy (to follow the self-interest) – withdrawal of
state and other intermediate powers (esp guilds) – hostile to every
interference in the process (esp distribution of wealth)
2.3. Liberalism (cont´d)
• Reject any design or plan for society
(religious, utopian, ethical) and also
external values (formal equality) – antiutopianism (anticipated grand strategy of
deregulation of neoliberalism)
• Nation state is taken for granted –
Nationalism
• Formal equality but inequality in talent
2.4. Neoliberalism
•
Neoliberalism is often used interchangeably with globalisation or
„the rich grow richer, the poor grow poorer“
•
But free markets and free trade are not new (Neoliberalism
derives from the ideas of early liberalism). What is the „Neo“ of
this form of Liberalism?
•
Doctrine:
1.
Marketization (creation of new markets, esp transaction intensive
markets), competition and transaction/contract maximilisation
(frequency of contracts) are overruling principles - Transaction
costs play an increasing role
2.
Everyone is an entrepreneur: Nations are companies in a global
market place („national competitiveness“ form of economic
nationalism?)
3.
Further keywords: Privatisation, Deregulation, free trade, stable
currency and low taxes, competition law
•
Application of Neoliberalism:
1.
International law (SAP´s of IMF, WTO-law)
2.
European community law (partly)
3.
National law (partly)
Lib/Merc Today
s Keith A. Darden, ECONOMIC IDEAS AND INSTITUTIONAL CHOICE AMONG
THE POST-SOVIET STATES (published online)
Mercantilism
MarketLiberalism
Energy Policy
Privatization
Macroeconomic/
Industrial
Policy
*More costly state
exploitation of
national resources
*Diversify sources of
supply, delivery
routes
Resist
privatization and
keep industries
under national
control
*Import-
Privatize and break
up energy
monopolies
Auctions open to
national and
*Prioritize stable
international bids
substituting
industrial policy
*Inflationary
currencies,
balanced budgets
*No direct
intervention in
production
2.5. Questions
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What is the difference between Mercantilism and
Liberalism?
Can both „theories“ be found in today´s economic
policies?
What are the main reasons for protectionist trade
policy? (Protect domestic industry and
employment, infant industry protection, optimal
tariff, strategic trade policy, revenue for
government, national security and self-sufficiency,
pursuit of non-economic/societal value
Why is free trade „good for all“ in economic
theory?
What is „Neo“ about the „Neoliberalism“?
Does Neoliberalism affect national policies?
Discussion
• RPG-Discussion:
• Group A represents globaphile, free-tradeorientated entrepreneurs
• Group B represents globaphobe,
protectionism-orientated NGO
• Prepare arguments for the questions: Is
economic globalization a blessing or a
curse? What role should international
economic law play?
3. Two pillars: GATT and the
System of Bretton Woods
3.1. General Remarks
• Most influential organisations of economic
globalisation: WTO, IMF, World Bank
• Weak organisations with small budget and
staff, but they can exert powerful effects
• “International economic constitution“:
regulating international transactions
concerning goods, services, capital,
intellectual property and transaction media
(money, currencies)
3.2. Complementary purposes
• An international trade organization to liberalize trade in
addition to IMF and World Bank would work toward the
expansion of trade and would benefit the world (by
ensuring economic stability and political peace)
• Trade organization will have jurisdiction over underlying
transactions and Fund will have jurisdiction over exchange
controls relating to the payments and transfers for those
transactions. TO: Liberalization, Fund: financing balanceof-payments support in order to restrain countries from
destructive measures (e.g. restricting transfers or related
payments and transfers)
3.3. From the GATT to the WTO
• December 1945 US invite allies to enter into negotiation to conclude a
multilateral agreement for the reduction of tariffs on trade in goods.
Also at the proposal of the US the UN ECOSOC adopts resolution
calling for a conference concerning an ITO, that should complement
the Bretton-Woods-System.
• Geneva meeting 1947: three major parts (Charter for an ITO,
multilateral agreement to reduce tariffs reciprocally, general clauses) –
latter two formed GATT, which advanced well, while negotiations on
ITO were more difficult.

But some countries feared submitting GATT alone to their parliaments
would jeopardise latter effort to get ITO passed

Compromise: PPA of October 1947 („Protocol of Provisional
Application of the General Agreement on Tariffs and Trade“ - parts
(esp MFN obligation and tariff concessions; procedural provisions,
see den Bossche 80) of GATT were applied provisionally
• Havana-Charter never entered into force (esp US Congress never
approved) – its demise left a significant gap in the structure of
international economic institutions
3.3. From the GATT to the WTO (cont´d)
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The GATT´47 became, although conceived as an agreement, a de facto international
organisation, but with a scant institutional framework
The GATT´47 was very successful in reducing tariffs on trade in goods (esp on
industrial goods): average level of tariffs of developed countries was brought down from
40 to 4 % in eight negotiating rounds
First five rounds (Geneva 1947, Annecy 1949, Torquay 1951, Geneva 1956, Dillon
1960-1961) dealt with reduction of tariffs, the next three rounds (Kennedy 1964-1967,
Tokyo 1973-1979, Uruguay 1986-1994) increasingly focus NTB´s, which were rapidly
becoming a more serious problem for international trade
Institutional and substantial deficits of the GATT´47:
Not very successful in dealing with NTB´s (direct price influencers, such as export
subsidies or drawbacks, exchange rate manipulations, methods of imports valuation,
customs surcharges, lengthy customs procedures, establishment of minimum import
prices, unreasonable standards and inspection procedures, and indirect price
influencers, such as import licensing)
Didn´t include trade in services and intellectual property which became rapidly
important
Agreement became to complex
No sufficient organisation
3.3. From the GATT to the WTO (cont´d)
• The Uruguay-Round led to the establishment of a
new international organisation for trade: the WTO
• Institutional and substantial deficits of the
international trade system were solved:
 The WTO is an international organisation with a
organisational structure
 Single agreement approach: the WTO is the legal
framework for the three pillars: GATT´94 (including
agriculture, textiles and clothing), GATS and TRIPS
 It further contains the DSU (Dispute Settlement
Understanding) and the TPRM (Trade Policy Review
Mechanism)
3.4. Questions
• Why do you think an international trade
organisation should be founded after
WWII?
• How were the „constitutional problems“ of
countries that needed parliamentary
approval solved concerning GATT ´47?
• What were institutional and substantial
deficits of the GATT´47?
• How did the WTO solve this problems?
3.5. System of Bretton Woods
• Origins:
 The Great Depression (economic slump in North America, Europe, and other
industrialized areas from 1929 until about 1939; most severe economic crisis
of modern times). Reaction of national states was protectionism, esp
imposing tariffs, raising existing ones, competitive devaluation, setting quotas
and other NTB’s. Effect: great reduction of the volume of international trade
(in total by half). Lessons learned: (1) weaknesses and imbalances within the
U.S. economy (2) inability of the nation's political and financial institutions to
cope with the vicious downward economic cycle (3) market forces alone
proved unable to achieve the desired recovery – governmental intervention is
required by liberal international economic system (result: turn-around in
economic theory/policy; regionally: rise of the welfare-state in Europe).
 Wartime devastation in Europe: US assistance was needed for
reconstruction
 Theory of “economic security”: fundamental causes of two WW lay in
economic discrimination and trade warfare (Cordell Hull) – ensure economic
stability and political peace. Free trade relies on free convertibility of
currencies and major monetary fluctuations can stall the free flow of trade.
The Great Depression in Europe
http://www.english.uiuc.edu/maps/depression/about.htm
• Bretton Woods-System of fixed exchange rates (IMF)
 Set forth in the Agreement of the International
Monetary Fund and the IBRD
 Members were required to establish a parity of
national currencies in terms of gold, to maintain
exchange rates (band of 1 %, change of par value only
with IMF approval in case of “fundamental
disequilibrium” - ) and to encourage an open system
by committing members to convertibility
 Principal reserve currency: US-Dollar (sell or buy
Dollars to maintain exchange rates) – US-Dollar linked
to gold at the rate of $ 35 per ounce (only currency
that was backed in gold)
 Stable exchange rate requires similar monetary
policies
• Bretton Woods-System of managing
trade deficits
IMF is provided with a fund composed of
contributions of member countries in gold
and their own currencies (“quota”)
Money is used to grant loans to member
countries with financial difficulties
(payback 18 months to 5 years) –
surveillance of the member states policies
by IMF
• Readjusting Bretton Woods
 USA began running a trade deficit (Vietnam war
accelerated inflation) in 1970 – gold coverage
deteriorated (from 55% to 22%) – excess of supply with
US-Dollars – US announces it would no longer convert
dollars in gold – speculation against dollar
 1971 Bretton Woods moved to 2,25 % fluctuation bands,
which could result in up 9 % divergence - unacceptable
to European Countries (Basle Agreement: maintain 2,25
against US-Dollar, limit fluctuation between their own
currencies to +/- 2,25%: “The Snake in the Tunnel”)
 1976 all major currencies were floating, exchange rates
no more a principal for monetary policy – flexible
exchange rate system
 Establishment of the EMS (European Monetary System
with its key elements ECU, Parity Grid and Exchange
Rate Mechanism [fluctuation margin 2,25%]) – replaced
by EURO.
• The IMF Today
Ensure stability of the international
monetary and financial system, the system
of international payments and exchange
rates
Surveillance of member countries’
economic situation, technical assistance
Financial assistance (policy programme of
IMF, effective implementation is
conditional)
Poverty reduction (HIPC-Initiative) –
Poverty Reduction Strategy Papers
• The IBRD
 Original mission was to finance the reconstruction of
european nations and Japan devastated by the WW II
with a focus on large-scale infrastructure projects,
building highways, airports, and powerplants.
 The IBRD now focuses on developing countries and
provides financing to eastern states/former Soviet Union
 World Bank Group: IBRD, IFC (private sector investment
in developing countries), IDA (providing long-term,
interest-free loans to the world's 81 poorest countries),
MIGA (promotes foreign direct investment into
developing countries by insuring investors against
political risk), ICSID (facilities for the conciliation and
arbitration of investment disputes between member
countries and individual investors)