International Economic Law JVD 2014-­‐2015 Samenvatting International economic law Jonathan Van Dooren 2014-­‐2015 1 International Economic Law JVD 2014-­‐2015 (Les 1: 23/09/2014) I. Introduction International economic law à Uneasy to define • ~ International trade law – Global trade law -­‐ World trade law -­‐ International trade regulation • 3 elements o Law o Economic activity § Trade law (buying and selling goods and services) is only a part of economic law § Also investments § Financing is crucial o International/global dimension • Central = agreements between countries (treaties) Agreements on international economic activity • GATT o General Agreement on Tariffs and Trade o “The rules” à The bible of international economic law o Tariffs = import taxes o GATT is a collection of treaties • WTO o World Trade Organisation à Most important organization for international economic law o Must take care of the rules o Dispute settlement! • Bilateral – multilateral – plurilateral trade agreements o 100’s of other treaties o Bilateral à Between 2 parties o Multilateral à Between more than 2 parties (Tens of parties) o Plurilateral à Little amount of parties (3/4/5) • Investment agreements o Example: Between Europe and China • The international monetary system o IMF, Worldbank, new initiatives o Regional bodies 2 International Economic Law JVD 2014-­‐2015 II. The economics of free trade Why should trade be free? • Difference between trade and free trade? à Free trade is without barriers (no tariffs) • Classical free trade theory o Adam Smith, “The Wealth of Nations” (1776) o Theory of absolute advantage § The bananas vs. computers example § Specialisation! à Trade allows countries to specialize in the production of the goods that they can produce relatively MORE efficiently and import the goods that they produce relatively LESS efficiently. The exchange of these goods benefits both countries § Even unilateral trade liberalisation is useful à Free trade is useful even if it is applied in only one way à Ex. Even if Costa Rica asks for tariffs on the import of German computers and Germany does not ask for tariffs on the bananas, even then it can be efficient § Countries without absolute advantage? à What do we do if we have a country that does not has an absolute advantage at all ? Not better at making anything à Theory of comparative advantage o Theory of comparative advantage § David Ricardo, “The principles of political economy” (1817) § The theory of comparative advantage states that when two countries specialize in producing the good in which they have a comparative advantage, BOTH economies gain from trade, even if one country is more efficient in producing both goods. Each country will export the good for which it has a comparative advantage § So it is still efficient to specialize à In which industry? à In that industry where you have a comparative advantage § Example: 3 International Economic Law JVD 2014-­‐2015 o Factor Proportion theory § Heckscher & Ohlin § Importance of production factor endowment à Important element to know in which sector a country has to specialize à Production factor endowment § The forrestry example • Canada à Logical, just because there are plenty of woods in Canada, abundant resources of wood § Countries export products that use their abundant and low-­‐cost factors of production, and import products that use the countries' scarce factors § Different countries & goods à Comparative advantage à Specialization & trade à Better utilization of resources o Similar countries & goods? (“intra-­‐industry trade”) à Economies of scale § The larger the scale of production, the more efficient (lower cost) § Economies of scale is a term that refers to the reduction of per-­‐unit costs through an increase in production volume. 4 building blocks of free trade • Gains from better utilisation of resources • Gains from increased competition o Competition leads to lower prices à Lower prices make consumers happy • Gains from access to a broader variety of goods and services • Gains from innovation and technology o Enhances improvement à New technology is absorbed in all countries • Some say free trade has a Global poverty reduction – effect à But we have to be critical • The peace effect à Trade and free trade is good for world peace à If there is trade, countries need each other, a sort of linkage between companies and people of those countries à The chance for keeping peace is far more bigger (this was the idea after WOII in Europe) à A bit overstated 4 International Economic Law JVD 2014-­‐2015 (Les 2 : 30/09/2014) Challenges to free trade • Trade generates income distribution effects o Some groups win, some lose o Income distribution effect of free trade (Ricardo) à Winners and losers o Example: All Portuguese workers have to specialize into wine business so the cloth workers lose their jobs à Solution? o è Leads to adjustment costs § The cloth workers from the example do something else à The adjustment costs are actually lower than the gains that you have from free trade § Redistribution role for the government à Big role for the government when they engage in free trade to support the losers in this system to redistribute the gains from free trade o Less in case of intra-­‐industry trade § Trade liberalisation is easier between similar countries o Overall gains outweigh losses • Justified protectionist measures o Protectionist Examples: § Import tariffs § Quotas § Import bans § Export subsidies à Providing subsidies to your domestic producers/sponsoring your industry à China did this with the sector of solar panels § De facto import bans à ‘You can import solar panels into the EU but they have to have a certain dimension’ à silly technical standards as trade barriers o Infant industry argument à Our car industry in Thailand is still very young so we have to protect our own market from the foreign car exporters § Economic theory à it is not efficient, you cannot do that § In many cases it is not successful à They make the domestic industry lazy à No development at the right speeds § On the other hand à Sensitive discussion à EU and US have done this for more than 50 years § Example of china à The Chinese had been very successful in fulfilling that policy à From a more political point of view (in some cases) à There can be good reasons to adopt these measures to make the industry competitive o The optimal tariff concept à For a small economy it will always be bad to ask for tariffs § Typical example à In Belgium we can’t grow rice, so we have to import à The Belgian consumers pay the world price for rice, if the 5 International Economic Law JVD 2014-­‐2015 government asks for tariffs à The price of rice will raise for Belgian consumers § Belgium is an important economy for the import of champagne of France à From the point of view for trade in champagne, Belgium is a large economy as it comes to the import of champagne (the optimal tariff story) If we raise the tariff on the import of champagne, that will in the end be better for everyone à If Belgian government raises tariffs from 5 tot 15% à Prices for champagne will raise à Demand for champagne will decrease à Demand in Belgium (important economy for this) decreases so the French price will drop à The tariff will be absorbed by the producers • Consumers will stay in the same situation as before the tariff raise, so no disadvantage for consumers and good for the government è In Belgium gains and welfare increases • Global picture à In France there are only losers à Global welfare will decrease § è National welfare increases, but global welfare decreases o Revenue raising in LDC’s (Less developed countries) § Not that easy for a government to collect taxes (you need a good administration) à ‘World, you have to allow us to make sure we have a certain level of income to let our country develop’ à So LDC’s ask for tariffs at their borders because they have no income from local businesses § It may be good for a very limited time à But after a certain limited number of years those countries have to adopt the free trade concept à They have to use the gained revenue to set up a good tax administration o National security § Conflict/war setting à Works in different directions § One of the reasons à By supporting some of your domestic industries that are really important à If you come into a situation of war à Ex. Steel industry à Almost every country in the world has steel industry à From a political perspective it should be allowed to use protective measures for you domestic steel industry § The same with the domestic agriculture industry à In war time you have to be able to produce your own food § Export bans à French government will not allow to deliver French war boats to Russia o Health, safety & environmental concerns § Import bans à Food products treated with dangerous substances or toys dangerous for little children 6 International Economic Law •
JVD 2014-­‐2015 Reciprocity à Prisoner’s dilemma o Economic theory à If you liberalize your market, it is good for you . It is irrelevant what other countries do à Theoretical it is correct, but in practice it is more difficult o From a political point of view à If my local industry wants to export some goods to another country where I don’t ask import tariffs, we will expect the other country also to drop their tariffs o Prisoner’s dilemma à As long as there is a chance to win without doing anything themselves à As long as the possibility stays to ask tariffs while the other one does not ask tariffs o è BOTH parties won’t liberalize their markets if you take this viewpoint and that is why those free trade agreements are so important à To install that reciprocity Objections to free trade • Anti-­‐globalisation à Maybe it is economically efficient but not something to pursue à Political arguments (non-­‐economic) o World trade à Globalisation à Global mono-­‐culture à No more diversity, we have to protect our cultural heritage o Trade liberalisation exacerbates inequalities à The rich countries are getting richer and the pour countries have no advantages in the story and they stay poor § Hyporcritical high-­‐income countries à The developed countries are denying the LDC’s to use projectionist measures, the developed countries used decades ago. They LDC’s say they need the time to develop o Global trade liberalisation = threat to § Environment § Human rights (exploiting workers) § Self-­‐sufficiency in food production § LDC’s development strategies o Plea for the opposite à Localisation § Stop with free trade à Discriminate in favour of your local producers 7 International Economic Law JVD 2014-­‐2015 III. GATT/WTO history and structure 1850 – GATT • 2nd half 19th century o E.g. repeal of Corn Laws (UK) à Allow free trade in corn à Very revolutionary for that time • Recession à WWI à Great Depression à Extreme protectionism o “Beggar-­‐thy-­‐neighbour policies” à You adopt a policy to solve your own economic problems by actually pushing those problems to your neighbour à No structural measures o E.g. Smoot-­‐Hawley Tariff (US) à Tariffs up to 60% • WWII à Economic/Political reconstruction o Bretton Woods (1944) § IMF (stabilising exchange rates) § Worldbank (development assistance) § International Trade Organisation [ITO] (monitoring multilateral system of liberalised international trade) à Never existed, never came into force! GATT • ITO o ITO charter signed in Havana 1947 o US Congress refuses ratification (1950) • Parallel o Talks on reducing & binding tariffs § 1945 – 15 countries à A smaller group of 15 countries that started with bilateral trade negotiations (for instance Canada says we have a really important train factory (Bombardier). We want to get our trains into the European market. Belgium has tyre factories and they want to import them into Canada à So maybe there is an agreement possible between Canada and Belgium to reduce import tariffs for importing those trains and tyres à So there is reciprocity and free trade § 1947 – 23 countries o Protocol of Provisional Application § General Agreement on Tariffs and Trade (GATT 1947) • The idea à It will be part of the rules for the ITO but there was no ITO yet • The group of 23 nations à Let us provisionally already apply that GATT treaty à Protocol of provisional application § Provisional basis à As long as the ITO does not come into force we will provisionally apply the GATT § As from 30/06/1948 § Remained “provisional” until 1994 è For the first 50 years of free trade there was no organisation 8 International Economic Law •
JVD 2014-­‐2015 GATT 1947 Preamble o “The Governments of the Commonwealth of Australia, the Kingdom of Belgium, the United States of Brazil, Burma, Canada, Ceylon, the Republic of Chile, the Republic of China, the Republic of Cuba, the Czechoslovak Republic, the French Republic, India, Lebanon, the Grand-­‐Duchy of Luxemburg, the Kingdom of the Netherlands, New Zealand, the Kingdom of Norway, Pakistan, Southern Rhodesia, Syria, the Union of South Africa, the United Kingdom of Great Britain and Northern Ireland, and the United States of America: Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods, …” •
Trade rounds o Engagement à Lowering trade barriers and reduce tariffs o Ultimate goal à Tariffs extremely low or non-­‐existent o Now 2001 – 2014 à Doha round à Trade rounds always lasting longer and longer à One of the reasons à The number of parties of the GATT is increasing o After Bretton woods à Actually the start of global free trade à The declaration of Punta del Este à Uruguay round o Marrakesh à Uruguay trade round was concluded with a meeting in Marrakesh à The parties of the GATT signed the agreement establishing the WTO à 50 years ago they made the GATT without an organisation. Now they made an organisation. They almost started from scratch concerning the text § The first annex to that Marrakesh declaration is the GATT (updated during Uruguay round) •
15/04/1994 Marrakesh declaration o Creation of the World Trade Organisation [WTO] (01/01/1995) § Agreement Establishing the World Trade Organization o GATT 1994 § Annex 1A o GATS (General Agreement on Trade in Services) § Annex 1B o TRIPS (Trade-­‐Related Aspects of Intellectual Property Rights) § Annex 1C à The old GATT does not deal with intellectual property o Dispute Settlement Understanding § Annex 2 o Trade Policy Review Mechanism § Annex 3 o Plurilateral Trade Agreements § Annex 4 § In the future, more of these à For instance an agreement of public procurement à For a lot of countries it was not politically defendable, that’s why they actually agreed to do this with a smaller group of countries 9 International Economic Law JVD 2014-­‐2015 •
Example above about Canada and Belgium is and example of those commitments •
Doha Trade Round o Started in 2001 à Capital of Qatar à It is getting really bad with the Doha negotiations o Deadlock à Negotiations are totally blocked 10 International Economic Law JVD 2014-­‐2015 (Les 3: 7/10/2014) What is the WTO? • Negotiating forum o Trade agreements to liberalise world trade o Place where members can negotiate about trade • Set of rules o WTO agreements signed by governments § Fostering domestic businesses o Dates back to GATT à Applicable to all members à Help open up the markets • Settle disputes o Dispute settlement is becoming the most important aspect à Avoid trade wars • Side effects of what the WTO is supposed to do o Capacity building à Strengthening the economy à Free trade should reduce global poverty § Assisting developing & transition economies (75 %) § Help for export: International Trade Center (WTO + UNCTAD) o Cooperation with other organisations à Idea of Bretton Woods (create IMF, World Bank) o Transparency x 2 à WTO tries to enhance transparency in two ways § Provide information to the public § Enhancing transparency for the WTO itself à Trade Policy Review Mechanism à Installed within the WTO, tries to gather information on the trade policy of all members. They can monitor trade policies adopted in the members states • Inter-­‐governmental organisation (founded by a treaty) • Members? o States or o Customs unions can be a member à Customs territory with full autonomy in the conduct of its external commercial relations § E.g. EU, Macao, Hong Kong o Developed vs. developing countries (2/3) § Majority of developing countries § Principle of self-­‐selection à The members can choose themselves whether they are developing or developed • However for example Belgium can not choose to be a developing country à Other members can refuse the status of developing country § Advantages for developing countries à Granted more time to implement measures § Least Developed Countries (LDC’s) • ECOSOC list 11 International Economic Law •
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2014-­‐2015 160 members (since 26 June 2014) o Last accessions: Yemen (2014), Lao, Tajikistan (2013), Montenegro, Russia, Samoa, Vanuatu (2012) o 159 countries in the world à Allmost the whole world is involved within the WTO Observers o = Countries negotiating membership o The Vatican will is an observer state and will remain so o
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JVD Afghanistan, Algeria, Andorra, Azerbaijan, Bahamas, Belarus, Bhutan, Bosnia and Herzegovina, Comoros, Equatorial Guinea, Ethiopia, Holy See (Vatican), Iran, Iraq, Kazakhstan, Lebanese Republic, Liberia, Republic of Libya, Sao Tomé and Principe, Serbia, Seychelles, Sudan, Syrian Arab Republic, Uzbekistan Coalition-­‐building (groups of WTO-­‐members that decide to work together) o The Quad: EU, US, Japan & Canada o ASEAN: Association of South East Asian Nations § Will become very important § Thailand, Cambodia, Indonesia, Laos o MERCOSUR: The Southern Common Market o NAFTA: North American Free Trade Agreement o SELA: Latin American Economic System o ACP: African, Caribean and Pacific Group o Cairns Group (agricultural trade liberalisation) § Small city in Australia à Different because it is not between countries that have a like interest because their territory is next to each other § In this case the link is their interest in agriculture à They want to totally liberalize their agriculture industry WTO’s institutional structure • WTO is run by its member governments o (Trade)-­‐ministers à If they can’t make it, there are ambassadors in Geneva o Ambassadors/delegates • NOT by an executive board • Decisions are taken by Consensus (no voting by majority) o ~ GATT o See art. IX (Marrakesh) Agreement Establishing the WTO o So it is ok and voted if there is no formal opposition by one of the members. We don’t have to take into account the abstention votes (not voting) è None of the present members formally objects to the proposed decision • BUT if consensus is impossible à Voting o Simple majority (exceptions) 12 International Economic Law •
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JVD 2014-­‐2015 Highest authority: Ministerial conference o Min. once/2 year o Decisions on all matters o Last conference in Bali à Adopted the Bali package nd
2 level: General council o Every member state à The ambassadors or delegates o Can come together in 3 different capacities § Decision making body à General council as such § Dispute settlement body à They do not settle the disputes themselves à They only appoint the panels that will settle the dispute o Trade policy review 3rd level: Councils (+ committees) o All members of the WTO take part à ex. A committee on trade and development o Goods council o Services council o TRIPS council th
4 level: Subsidiary bodies There are also informal meetings that are actually being held between allies within the WTO à Getting more and more important to have deals in those informal meetings 13 International Economic Law JVD 2014-­‐2015 •
The WTO Secretariat o Geneva o Task § Administrative & technical support § Legal & economic analysis § Accession negotiations § No real decision making powers! o Financed by members § Contributions based on share in world trade o Headed by a Director-­‐general § Former: Pascal Lamy (FR) § As from 01/09/2013 (4 years): Roberto Carvalho de Azevêdo (Brazil) 14 International Economic Law JVD 2014-­‐2015 IV. Core principles of WTO LAW Non-­‐discrimination • Most-­‐favoured nation (MFN) principle o Treating all WTO members equally o = Cornerstone of the whole non-­‐discrimination principle à You have to treat all WTO members the same way as your best trading partners à You have to treat them alike o At the beginning of the GATT à Rather small club o WTO à lets make a club of countries that favour each other à Most favoured nation principle o Example: § Country C wants to lower its tariffs for tomatoes from country A à from 10 to 5 %, then it has tot do the same for country B § For instance country C lowers its tariffs from 10 to 5% • Country A is member of WTO • Country B is member of WTO • è So 5 % for A and B § Suppose there is a country D, not member of WTO à Most favoured nation does not apply for country D à C can still ask 20% on tomatoes coming from country D § But if country C gives an advantage to country D à Then it also has to give the advantage to A and B because of the most favoured principle! (Although D is not a WTO member) o Legal basis? § Art. I GATT § Art. II GATS § Art. 4 TRIPS 15 International Economic Law JVD 2014-­‐2015 o Example: §
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Does V. have to extend the 0% tariff to all WTO members? à Yes Can V. apply a 10% tariff on tomato imports from T. while applying 0% for imports from WTO members? à Yes Can V. apply a 10% tariff on tomato imports from WTO members, while applying 0% for imports from T.? à No o As soon as you give someone an advantage, you have to immediately and unconditionally do the same for all other members of the WTO o Important “like products” à Like is not the same as identical, and not the same as just similar à Somewhere in between 16 International Economic Law JVD 2014-­‐2015 o Advantage? à Art. I,1 GATT § As soon as you give and advantage in one of the rules, tariffs, … you fall under the scope of art. 1 § Example: No paperwork need for one country à You have to give this advantage to all members § Sometimes between countries that are “enemies” à No special administrative needs, except for the “enemy” country” à Forbidden under the MFN principle o Immediately and unconditionally accorded § The advantage may not be subject to reciprocity or made conditional o “Like” products/services! § No legal definition à Case-­‐by-­‐case basis § Case law à 4 criteria (not limited) • Physical characteristics (nature, property & quality) o Example: Timber used in construction works à Dispute settlement stated à They are not like à based on their physical characteristics (another type of technical point of view) • End use o Example: Butter (milk) and margarine (plant) o Conclusion dispute settlement à They are alike because end use is the same • Consumers’ perceptions and behaviour o Example: important case on coffee à Coffee from a certain type of beans are not like products with coffee from other type of beans § End use à like § Physical à alike we would think § Consumers’ perception can differ • Customs classification o Really detailed à You can say that all kinds of beer would fit in the same category à But possible there is a qualification of beer with alcohol% of more than 5% and less than 5% à Narrow approach o Good about customs classification à It is rather objective 17 International Economic Law JVD 2014-­‐2015 o Exceptions on the MFN principle § Customs Unions & Free-­‐trade Areas • EU à Customs union • NAFTA à Within those borders you can depart from the MFN principle • Art. XXIV GATT § Preferential treatment to developing countries & LDCs + among developing countries • Enabling Clause (1979 – Tokyo Round) § Historical preferences • Art. I, 2-­‐4 GATT § Frontier traffic • Art. XXIV, 3 GATT § Unfairly traded products (Les 4: 14/10/2014) •
National treatment principle o Treating foreigners and locals equally o You have to treat foreign products and producers in the same way as your local products and producers o Non-­‐discrimination between domestic and foreign products, services or nationals o Deals with internal measures (no border measures) o Legal basis? § Art. III GATT § Art. XVII GATS à Important limitations § Art. 3 TRIPS 18 International Economic Law JVD 2014-­‐2015 o Example § Sales tax valid? à No § Package requirement valid? à also not allowed, but it could be valid if you use the same rule for domestic products Only internal m
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§ Concept of like products à Like an accordion à Open more wide or press it together § How dispute settlement body sees it • Taxation à Like products à Identical à Even the smallest difference in taxation leads to a breach (only in context art. III.2) • Directly competitive or substitutable à Cases on Minerva à Vodka and gin are not like products but they are competitive or substitutable • III.4 à The 4 possible approaches o Art. III GATT NATIONAL TREATMENT
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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.* 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.* à Taxes 19 International Economic Law JVD 2014-­‐2015 4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product. à Other kind of measures * A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed. o Specific exceptions § Government procurement • When countries are concluding contracts with private companies to do traffic works/build offices à In a WTO context this is possible • In EU à From a certain level of importance you cannot do this à All EU companies must be able to participate § Subsidies to domestic producers • You give advantages to your domestic companies § Internal maximum price control measures § Films o General exceptions Free trade – More open trade • Lowering trade barriers à Runs throughout all WTO documents à Ultimate goal is to liberalize trade • Tariffs o = “Customs duties” § Financial charge (tax) imposed at the border on goods going from one customs territory to another o Import Vs. export tariff o Ad valorem tariff Vs. specific tariff § Ad valorem = Based on value (Example: 5% on value) § Specific = 100 euro for a car or 5 euros for each ton of steel imported § à WTO tries to increase ad valorem and decrease specific tariffs § à Ad valorem is more transparent o Not prohibited under GATT/WTO (art. II GATT) o Multilateral negotiations § Reducing & binding tariffs • “WTO schedules of concessions” § In the 1950’s average tariff rate of 40% à Now an average tariff rate for industrialised countries on industry goods of 3 – 4 % à Huge decrease 20 International Economic Law •
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JVD 2014-­‐2015 Tariff binding o Legal commitment not to raise it above certain level à For example: We will lower it to 5% but bind it only at 10% à Gives us room within the next years to if necessary adjust our policies o Bound tariff Vs. applied tariff § à “Binding overhang” = Difference between the applied and bound tariff o Vanin example § They bind on tariff of 10% à Can Vanin ask for a tariff of 5? à They can do that. They can’t ask for a tariff of 12% § Can they ask for a tariff of 12% on the import of tables from a non WTO country? This is possible § Can they ask for a tariff of 4% on the import from countries non WTO-­‐member à Yes à But then they also have to use this 4% for WTO members (MFN) • You can grant advantages to LDC’s à In that case (under conditions of enabling clause) à You don’t have to apply these advantages to all WTO members o à Predictability § Almost all tariffs are now bound Modifying? o Renegotiations Other trade barriers? 21 International Economic Law JVD 2014-­‐2015 o Agricultural products à Very sensitive subject o Classical reasons à Very defending § Weather • Prices really influenced (volatile) by the weather à We cannot control the weather à We may take some protective measures to avoid those volatile prices § War and political instability linked argument • Provide in own food needs à So you have to protect agriculture § Protect the rural society o Since the Uruguay round à Agriculture Agreement è All protective measures have to be abolished à All existing trade restrictive measures must be replaced by tariffs •
Quantitative restrictions o Limits on quantity or value of imports/exports during certain time period o Prohibited § Art. XI, 1 GATT à No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party. §
è Total Ban is not possible under WTO-­‐law Only border measures • Prohibiting or restricting import/export • Red tape are border measures à Quite excessive o Tariff quotas allowed? § Tariff quotas example à 10% for the first 1000 tables imported, 15% for the next 5000 à They are allowed under WTO law (no discrimination) Exceptions o General exceptions o Specific exceptions o Ban on quantitative restrictions: Specific exceptions § è 3 specific measures § Last exception is only for fishery since agricultural agreement à No longer deals with agriculture à It is not longer allowed to apply quantitative restrictions to agriculture §
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22 International Economic Law JVD 2014-­‐2015 Transparency • External Vs. internal transparency o External à Keeping the public informed about the WTO o Internal à Keeping the WTO informed about what is going on in the countries • Internal transparency o Notifications to the WTO & members § Within all WTO legal text there is a system for notifications § + Publication § Example à If you want to reduce your binding overhang, you must first notify before you can adopt your new policy o Trade Policy Review Mechanism (TPRM) • Legal basis o Art. X GATT o Art. III GATS o Art. 63 TRIPS • TPRM o Reviewing trade policies of their members/of their peers à Whether they do or don’t apply the rules of the WTO in a right way o TPR Body = General Council § Importance! o Peer review of a member’s trade policy & practices § Conformity with WTO rules § Wider economic situation o No formal enforcement tool BUT increases discipline § WTO report + Policy statement + TPRB proceedings o Frequency? § Big 4 (EU, US, China & Japan) à Every 2 years § Next 16 (WT share) à Every 4 years § Others (exc. LDCs) à Every 6 years o è If there is a breach by one of the members à There must be a complaint with the dispute settlement body 23 International Economic Law JVD 2014-­‐2015 Special treatment for less developed members • Extremely important from political/policy perspective • Advantages granted to those developing countries do not suffice for the problems these countries are troubling with • ¾ = developing or transition economies o Developing countries Vs. LDCs • WTO = fostering development through trade liberalisation o But concept needs adjustments § Special & differential (S&D) treatment for developing countries (incl. LDC’s) § Uruguay round à Doha round o Committee on trade and development o + Other capacity building initiatives 24 International Economic Law •
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JVD Other groups o Small economies o Transition from central planning Special & differential (S&D) treatment o à 145 different provisions & decisions; a.o. § Principle of non-­‐reciprocity (GATT) • Soft commitment by the developed countries to not expect reciprocity when negotiating with developing countries § Enabling clause (1979) • Separate piece of legislation (late 70’s) specifically meant to better the situation of less developed countries à Herein there is an exception to the MFN principle à You can as a country grant advantages to a developing country without having to give this advantage to the other WTO members § Expanding trade opportunities by eliminating all trade barriers (basic Vs. processed materials) • Soft commitment à Higher rate for the import of wood, than when your importing tables (tables are processed) § Flexibility in tariffs to protect infant industries • Developing countries can adopt restrictive measures (import bans) § Longer transitional periods (e.g. TRIPS + 4 years) § Extra’s for LDCs (e.g. “Duty-­‐free Quota-­‐free treatment) 2014-­‐2015 (Les 5: 21/10/2014) V. WTO – Main exceptions (7) (1) General exceptions • Derogating from basic principles (= free trade restrictions) • For legitimate policy objectives o Example: You can’t set an import ban à But you can if you have a legitimate policy objective (import ban on ivory for protection of elephants) o 100’s of cases • à Strict conditions! • Legal basis o XX GATT o XIV GATS o 8 TRIPS 25 International Economic Law •
JVD 2014-­‐2015 General exceptions under XX GATT o è Double condition for restrictive measure to be justified: § List of exceptions (Article XX, subparagraphs (a) to (j)) + meeting specific conditions set forth therein § Measure applied according to the requirements of the Article XX, Chapeau o First step à Check the list § Case law helps us to get the right picture on how we have to apply this Art. XX of the GATT à You have to apply this article on a case on your exam! à Article XX: General Exceptions (GATT) 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; (c) relating to the importations or exportations of gold or silver; (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; (e) relating to the products of prison labour; (f) imposed for the protection of national treasures of artistic, historic or archaeological value (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;* (i) involving restrictions on exports of domestic materials necessary to ensure essential quantities of such materials to a domestic processing industry during periods when the domestic price of such materials is held below the world price as part of a governmental stabilization plan; Provided that such restrictions shall not operate to increase the exports of or the protection afforded to such domestic industry, and shall not depart from the provisions of this Agreement relating to non-­‐discrimination; (j) essential to the acquisition or distribution of products in general or local short supply; Provided that any such measures shall be consistent with the principle that all contracting parties are entitled to an equitable share of the international supply of such products, and that any such measures, which are inconsistent with the other provisions of the Agreement shall be discontinued as soon as the conditions giving rise to them have ceased to exist. The CONTRACTING PARTIES shall review the need for this sub-­‐paragraph not later than 30 June 1960 o Most important reasons on the list § (b) Necessary to protect human, animal or plant life or health • The Brazil tyres case à Brazil adopted an import ban on used tyres out of Europe à For protection of human health because tyres attract Mosquitos and this leads to diseases + They sometimes made fires in the streets with those tyres (toxic smoke) § (d) Necessary to secure compliance with laws or regulations which are not inconsistent with the GATT • Dual retail system for beef in Korea à They made a difference between domestic beef and imported beef à The 26 International Economic Law JVD 2014-­‐2015 possibility to buy imported beef was very limited à They wanted to make it possible there was compliance with the laws on market practices , not to shield the market à We want to make clear to our consumers this is another type of meat than our domestic meat à That’s why there is a dual retail system §
(g) Relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption • The term "exhaustible natural resources" refers to mineral or non-­‐living natural resources, as well as living species (US -­‐Shrimp, Appellate Body Report, para. 128) • è Invoked the most o Animal species for example à The elephant can be seen as an exhaustible natural resource o Also clean air à Very broad concept • Important case à US shrimp case o Shrimps and turtles (US ßà 4 Asian countries) o About the import of shrimps o Already from the 70’s on, measures in the US were adopted to avoid fisherman would catch and kill turtles à Fisherman who fished for shrimps were obliged to install special equipment to avoid that turtles came into the nets of the fishermen’s boats o Some years later à US won’t allow shrimps from countries that don’t have similar rules for the protection of turtles à If the fishermen in Asia don’t use the special electronic equipment for the protection of turtles, US will ban the import of those shrimps 27 International Economic Law JVD 2014-­‐2015 o “Necessary”? à Case law: necessicity test § = Weighing and balancing several factors: • The contribution made to its objectives • The importance of the protected interests • The trade-­‐restrictive effects of the measure § + Comparing with “possible alternative measures” (reasonably available) § Brazillian tyre case • Was the ban really necessary? à Dispute settlement body stated yes à Can be seen as necessary to protect human health • How important is the policy objective? à Protection of human health à Important objective § Korean beef case • Dual retail system is not necessary to be sure that there is compliance with you national rules or market practices • The measure was also really trade restrictive § Asbestos case • Asbestos à Toxic, used in construction works • France adopted a complete import ban on asbestos, and all products containing asbestos à They did not do the same for similar products that could contain toxic substances • à The French import ban was attacked by Canada but there was reasonably no alternative measure to take § Case between Thailand and US • Import ban on all American cigarettes in Thailand à While still allowing the sale of locally produced cigarettes • Reason à Necessary for protection of human health à Why specifically with American cigarettes? à Thai cigarettes are not made attractive from a marketing point of view (US uses nice brands/packaging and tries to convince children and women to smoke) • à Import ban is not necessary à There are other possible alternatives (adopt regulation on how US companies have to do their marketing/commercials) à These measures are far less trade restrictive § Tuna case between US and whole list of other countries • Limits on import of tuna to protect dolphins (similar to shrimp case) • Case was stopped because they agreed to settle it outside the dispute settlement body à US altered their regulation • US cannot adopt such a policy à They cannot restrict import of tuna because it is not fished in a way they want (Art. XX (b)) 28 International Economic Law §
JVD 2014-­‐2015 Shrimp case • 20 years later à Other direction à US can do that and can adopt a policy that prohibits the import of shrimp out of countries that are not fished in a right way (Art. XX (G)) à Your measure relates to the protection of turtles o “Relating to”? à “substantial relationship” with o Second step à Is the rule compliant with the chapeau § Example: Import ban on ivory applied in good faith? § = No • Arbitrary discrimination • Unjustifiable discrimination • Disguised trade restriction § Shrimp case • American measures were not applied with respect for principles of the chapeau à Because the US did not apply the rule as severe for certain South-­‐American countries as they did for the Asian countries § Brazil tyre case • Perfectly legitimate with step 1 (necessity test) • Brazil had been condemned by MERCOSUR (southern common market) à They could not keep the rule for their South-­‐American friends and so they made an exception à Because there is an exception for other South-­‐American tyres à The rule was not compliant with the chapeau § Example • De facto ban of the import out of Tristat • Vanin will say: We can adopt an exception for the protection of human health à If Vanin takes this 29 International Economic Law •
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JVD 2014-­‐2015 defence, it has to prove it can comply with the necessity test à Art. XX(b) Vanin would be smart to use the defence because of conservation of clean air à Art. XX(G) à This measure is totally allowed à They will only have to prove that there is a “substantial relationship” (less proof needed) Can Vanin adopt this measure?à “I won’t accept cars from Tristat if in Tristat there isn’t any car produced with the same fuel efficiency than in Vanin” à You cannot impose your own policies all over the world à But after shrimp case there seems to be some room to adopt measures that affect environmental policies of other countries (2) Regional trade agreements (RTAs) • From a EU perspective we are very familiar with that • Trending topic from a political perspective à No real case law on this topic • EU (RTA) = Opposite to the MFN principle • Argument pro RTA’s o Evolution must go step by step à Those RTAs are perfect as a step towards evolution à They pave the way for more important and larger agreements • Contra RTAs o It just makes things more complex à Overlap between different RTAs à Raises transaction costs o Most dangerous evolution à Creating blocks that are on their selves almost self-­‐efficient à Danger to world-­‐peace o Instead of one big club à if the block becomes bigger, it can become a threat to the further existence of the WTO • Mongolia à 1 country within the WTO that is not member of any RTA • 2 types à Free Trade Area Vs. Customs Union • (Les 6: 28/10/2014) • Legal basis o XXIV GATT o V GATS o + Enabling clause § South-­‐south agreements • Internal + external conditions • + "Transparency Mechanism for Regional Trade Agreements“ o Provisional à Doha-­‐agenda o Notification à Each RTA must be notified 30 International Economic Law •
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JVD 2014-­‐2015 Internal condition o Restrictions must be eliminated with respect to substantially all the trade (XXIV:8 GATT) à You have to eliminate almost all trade restrictions (no more quotas, no more tariffs) o For Free Trade Areas à They don’t have to apply the same tariffs towards third-­‐parties o For customs unions à Members should apply substantially the same rules to trade with third-­‐parties (WTO) • à Common external tariff (CET) External condition o Overall goal of the whole story must be to facilitate trade o RTA must facilitate trade between territories, NOT raise barriers to the trade with others (XXIV:4 GATT) § Free Trade Area à Duties imposed on third parties may not be higher than before § Customs Union à Duties imposed on third parties may not on the whole be higher than the general incidence of those applied before à The common external tariff will have to be set on an average level (compared to the separate individual tariffs of the parties) Examples o EU o EFTA à Kind of a competitor of the EU à It is actually an agreement between the European countries that are not a member and not willing to become a member o NAFTA à Mexico + US + Canada o MERCOSUR à Southern Common Market o ASEAN Free Trade Area (AFTA) à Association of South-­‐East Asian nations à For the future very important o The Common Market of Eastern and Southern Africa (COMESA) (3) The enabling clause • 1979: Decision on Differential and more favourable treatment, reciprocity and fuller participation of developing countries • Part of GATT • Developed countries departing from MFN-­‐principle in favour of developing countries (art. 2, a) o Non discriminatory! (e.g. Case EC – Tariff preferences) § You have to grant your advantage under the enabling clause in a non discriminatory way § EC tariff preferences case à EU decided to grant tariff reductions to 12 specific developing countries à All of them struggling with drugs industry/trafficking (southern America, Afghanistan, Pakistan, …) • Idea EU à We have to try to replace their illegal economy by a legal and regular economy • India says à I’m not on the list à I don’t have problems with drug trafficking, but furthermore, my situation is quite 31 International Economic Law •
JVD 2014-­‐2015 alike with those 12 so I want you to apply the same tariff reduction to my home exporters • Dispute settlement body stated à India is right à Tariff reduction in a discriminatory way à The only aspect to make distinctions are their developmental, financial or trade needs § Identical preferential treatment for all similarly situated beneficiaries (developmental, financial and trade needs) o °2010: Transparency mechanism for Preferential Trade Agreements (PTAs ≠ RTA) à § PTA’s = What is concluded under the enabling clause § RTA’s = Regional trade agreements South-­‐South agreements (art. 2, c) o More flexible requirements compared to regular RTAs (art. XXIV GATT) (4) Balance of payments • All the amounts going in and out of a country (countries going bankrupt comparing in and outflows) • Restrictive import measures to safeguard o External financial position o Balance of payments • Legal basis o Art. XII (alle members) & XVIII:B (developing members only) GATT o Art. XII GATS • Strict conditions o Temporary o Absolutely necessary o Transparent o Avoid sectoral specificity o Notification (5) Security exceptions • Measures necessary for the protection of essential security interests • Non-­‐disclosure of information contrary to essential security interests • Legal basis: XXI GATT / XIVbis GATS / 73 TRIPS • What if Russia is applying import bans on European goods because of war reasons? • Is there in WTO-­‐law an argument for Belgian farmers that are no longer in the possibility to export their apples and pears to Russia? à Can I invoke WTO rules before a court à No, there is no direct effect • Read text in reader à Must be aware of advantages and disadvantages of 2 visions • Real situation à There is no country that adheres direct effect to WTO rules à It could have advantages • WTO law is almost for a 100% a case and issue between countries à The rules that are adopted affect our national companies / entrepreneurs à But the rules as such are between countries 32 International Economic Law JVD 2014-­‐2015 (6) Trade Remedies • Grey zone between hard free trade on the one hand seeing that as a good thing, and on the other hand seeing that free trade can cause injury to some industry • “Trade defence” à Temporarily shielding vulnerable sectors o Customs duties above bound levels + quantitative restrictions • Legal basis? o Anti-­‐dumping measures § Article VI GATT + Anti-­‐dumping Agreement o Countervailing measures § Article VI GATT + Agreement on Subsidies and Countervailing Measures (SCM) o Safeguards measures § Article XIX GATT + Agreement on Safeguards o è Separate agreement on each of these trade remedies • Dumping o Dumping goods into the market of another country à Anti-­‐dumping measures o Dumping = if you are exporting goods at a price that is far lower than your home market price à Example: solar panels à Made and sold on the Chinese market for 100 dollar (= domestic price) à Exporting to Europe at a price of 50 dollars à Export price seems to be far beneath home market price à Why would these Chinese companies dump their solar panels? § To gain market share within a certain market à Once they have their share they will gradually raise their prices è Start with dumping to attract consumers to gain market share è Raise prices and in the end you will be better off o Price discrimination § Export price < home market price § = Unfair if causing harm to domestic “like” industry • In many cases you will actually kill the domestic producers à Ruin local producers if dumping practice is so aggressive, you will not only gain market share but kill other companies in the same market § à Anti-­‐dumping measures to compensate unfair competitive advantage • Strict procedural + substantive requirements o The WTO does not prohibit dumping but they allow in certain cases anti-­‐
dumping measures § We won’t deal with this question ourselves but we have rules of what countries that are confronted with dumping, what they can do § è Dumping in itself is not prohibited 33 International Economic Law JVD 2014-­‐2015 o Example à Russia raised its tariffs (= anti-­‐dumping measure) on the import into Russia of commercial light vehicles (from Italy and Germany) à They raised their tariffs above the bound level § Suppose it was 5% à If they can establish there is dumping à They may raise their tariffs from 5% to a 20/25% level § à To a level that compensates the dumping margin (so the price is back to a level as if there would be no dumping) o Example à What can Medatian producers do? § 3 conditions have to be fulfilled in order to take anti-­‐dumping measures • Dumped imports? • Material injury? • Causal link? o Art. VI, 1 GATT à “A product is to be considered as being introduced into the commerce of an importing country at less than its normal value, if the price of the product exported from one country to another (a) is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country, or, (b) in the absence of such domestic price, is less than either (i) the highest comparable price for the like product for export to any third country in the ordinary course of trade, or (ii) the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit. Due allowance shall be made in each case for differences in conditions and terms of sale, for differences in taxation, and for other differences affecting price comparability 34 International Economic Law JVD 2014-­‐2015 GATT can be brought to exam! à You can choose a or b Technique of zeroing = Countries try to do if they are calculating dumping margins à It is forbidden • You may not use zeroing when calculating your dumping margin • Normally a-­‐it is not about one product à There will be several kinds of solar panels for example à calculating the average dumping margin à For all solar panels à Not checking the dumping margin of each panel separately à A general comparison for the group of different types of solar panels • If export price is higher than the normal value (opposite of dumping à Negative margin) for one element of the group à You could say the dumping margin is zero à But this is forbidden à You have to take into account the negative margin o Art. 2.6 Anti-­‐dumping Agreement à “Throughout this Agreement the term “like §
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product” (“produit similaire”) shall be interpreted to mean a product which is identical, i.e. alike in all respects to the product under consideration, OR in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration” Like product à within anti-­‐dumping agreement à Another definition for like product o Art. 3.1 Anti-­‐dumping Agreement à A determination of injury for purposes of Article VI §
of GATT 1994 shall be based on positive evidence and involve an objective examination of both (a) the volume of the dumped imports and the effect of the dumped imports on prices in the domestic market for like products, and (b) the consequent impact of these imports on domestic producers of such products o Art. 3.5 Anti-­‐dumping Agreement (causal link) à “Examine any known factors other than the dumped imports which at the same time are injuring the domestic industry, […]. Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.” o Anti-­‐dumping measures § Procedure à Anti-­‐dumping Agreement • Initiation & conduct of investigations (à) • Application & review of measures à Once you’ve adopted anti-­‐dumping measures, they can stay for 5 years § Increased customs duties (> bound rate) on products/producers at stake • E.g. amount ~ margin of dumping 35 International Economic Law •
JVD 2014-­‐2015 Subsidies and countervailing measures o Subsidies à SCM Agreement § Prohibition for some and restrcitions for all (specific) subsidies o Exporting with subsidies = UNFAIR if adverse effects on “like” domestic producers o Red box subsidies à Prohibited § Subsidies that set export goals § You may not give subsidies for the use of domestic products to your domestic producers o Yellow box subsidies o Article 1 SCM Agreement: Definition of a Subsidy à Not only direct transfers of funds à 1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: (a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as “government”), i.e. where: (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees); (ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)(1); (iii) a government provides goods or services other than general infrastructure, or purchases goods; (iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; […] and (b) a benefit is thereby conferred o Countervailing measures to compensate unfair competitive advantage § Applied on products of benefitted enterprises o Strict procedural + substantive requirements (SCM Agreement) § ~ anti-­‐dumping measures § “subsidized imports?” 36 International Economic Law •
JVD 2014-­‐2015 o è When we have established à § Subsidies § Injury § And there is a causal link è Then a country may adopt countervailing measures à Those measures are meant to compensate the harm that is caused by the subsidies o Another difference à If a country can establish that yellow box subsidies cause harm to some industry à Then you can choose § You can take your action by taking countervailing measures § You can choose to go to the dispute settlement body right away Safeguard measures o ≠ unfair practices o Not used that much § Actually a sort of emergency measures § They are not adopted because you are confronted as a country with unfair practices o è Just taken to protect domestic sector § One typical situation à When a sector is affected by a surge of imports, an extreme increase in the number of imported goods (really flooded with loads of products) o Temporary, protective measure for “like” sector affected by “surge of imports” § They can adopt them for 4 years (for example just tariff increases) § Adjustment period to foreign competition o On an MFN basis (7) Waivers • Art. IX:3 Marrakesh Agreement Establishing the WTO o GATT + GATS + TRIPS • Request to members for temporal derogation from a WTO rule • “Exceptional circumstances” • E.g. 1999à2009à2019 Waiver regarding MFN-­‐principle for LDCs • è If you cannot apply one of the other 6 exceptions, and one of a country’s sectors is in real need! It can ask for a waiver o On individual bases à To request temporarily derogate from your duties under WTO law o To give some advantages to the least developed countries 37 International Economic Law JVD 2014-­‐2015 (Les 7: 4/11/2014) VI. Dispute settlement Basic concepts • Dispute Settlement Understanding (DSU) o GATT (art. XXII & XXIII) à Uruguay Round à Marrakesh agreement Annex 2 à Doha? § Under the old GATT system à Less strong à The losing party could hinder the decision/ implementation of a GATT settlement (no clear procedural rules) o Goal? § Resolving disputes • à We have to solve disputes in our club with very strict procedural rules o Example: Every dispute must be settled within 12 months (rather quick) • Promptly • “Priority to settle disputes, not to pass judgements” o Mutually-­‐agreed solution Vs. adjudication à They try to get the parties around the table to agree o Mandatory to start the procedure with consultations between the parties outside the courts à Only if these consultations don’t lead to an agreement à Go to court § Enforcement • Away with violations of WTO-­‐law § Interpretation • Helps us to understand the text of the WTO • Example à GATT dates back to 1947 and is broadly formulated and not adapted to technologic evolution • If the parties want a binding interpretation à They have to ask it to the ministerial conference or the general council • Players? o Dispute Settlement Body (DSB) = General Council § à One of the 3 capacities the General council can gather in § Panels • 100’s of dispute settlement panels à Appointed case by case § Appellate body • If there’s an appeal à The case goes to the appellate body (permanent body, not appointed case by case) § Technical experts • Panels and Appellate body can ask for the help of technical experts (about chemicals, industrial processes) § (Arbitrator) • The parties can choose to do it otherwise à Dispute ruled by an arbitrator 38 International Economic Law JVD 2014-­‐2015 o Parties § (only) WTO member governments • No others o Companies can not be involved before the dispute settlement body (although most cases started by the instigation of a company) o But (un)solicited “amicus curiae briefs” (= Text provided by friends of the court) § Solicited à Court asks the opinion of the IMF or Flemish Government (they won’t become a party) § Unsolicited à Just freely, because you think you have tot do it à The court does not ask it à In the hope the Court will take your opinion into account (Example: Oxfam, Greenpeace) § Complainant(s) Vs. respondent(s) § Third parties • Only members of the WTO can be third parties à Manny lobbyists are trying to get NGO’s to get the status of third party • If substantial interest o Panels § The panels rule on the facts and the law § Appointed by DSB case-­‐by-­‐case (the DSB oversees the procedure) • The director-­‐general can appoint panel members if a party does not agree with the existing members § 3 (or 5) experts • (non)-­‐governmental individuals • Independence, diversity & experience (list) § Review case & submit report o Appellate body § Permanent body • 7 (representative) members – 4-­‐year term (1x renewable) § Reviewing legal aspects only o DSB à Negative consensus rule (= complete opposite of regular consensus) § à Strong power for the person that gives the proposal § Decision taken unless consensus against • Establishment of panels • Adoption of panel-­‐ or Appellate Body-­‐reports § ≠ positive consensus (General Council/GATT) 39 International Economic Law •
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JVD 2014-­‐2015 Covered agreements o è They can settle disputes on almost all WTO text o Marrakesh + Annexes § Except TPRM (annex 3) o Exclusive jurisdiction! § All WTO member governments bound themselves to give exclusive jurisdiction to the DSB § Excluding unilateral member actions or actions before other fora Complaints o You have to prove that there is a Nullification or impairment of WTO-­‐
benefit § à Every procedure starts with the proof that there is a nullification or impairment of a benefit under one of the WTO-­‐agreements § Violation (in 99% of the cases there will be a violation) § Non-­‐violation • The measure is not really a violation • Frustration of WTO-­‐benefits by WTO-­‐consistent rule • Case à US Vs (Kodak) . Japan (Fuji) o Kodak wanted to have their products sold on the Japanese market as well à Difficulties o The US launched a complaint against Japan à There may be actually no real breach of WTO-­‐rules but we’ve had a close look into the text of Art. 23 à Kodak is being harmed/encountering difficulties trying to sell their products on the Japanese market o The panel ruled à Yes a claim can be launched without a clear violation à There’s no proof about what the difficulties really are (more a factual issue) § Situation • è Even without a clear violation a complaint can be launched bases on Art. 23 • The applicability is a bit dangerous § Article XXIII: Nullification or Impairment 1. If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of (a) the failure of another contracting party to carry out its obligations under this Agreement, or (b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or (c) the existence of any other situation 40 International Economic Law JVD 2014-­‐2015 DSB Procedure • Consultations o Mandatory! o Request directly towards defendant o Notification to DSB o
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http://wto.org/english/news_e/news14_e/dsrfc_31oct14_e.htm “The European Union notified the WTO Secretariat on 31 October 2014 of a request for consultations with the Russian Federation regarding the tariff treatment Russia accords to certain goods in both agricultural and manufacturing sectors[…]” o Reply within 10 days – consultations within 30 days § If not à Directly to panel establishment (60 days) Adjudication by a Panel o Written request to DSB § Contents = crucial o Panel established by DSB § Opposition possible § If no agreement à Party can ask DG to appoint o Exchanging submissions & oral hearings o Draft descriptive part of panel report § à Comments o Interim report § Descriptive part + findings à Comments § Panelists may decide by majority o Final report Adoption of panel report by DSB o 20-­‐60 days o Unless: consensus not to adopt or appeal Appellate body o Appeal by parties only (appeal within 20 days) o Before adoption of panel report (once adopted à Final à Appeal no longer possible) o Limited to issues of law covered in panel report Adoption of appellate body report by DSB o Together with panel report Implementation o è Most difficult stage o Losing member must inform DSB within 30 days after report adoption o Immediately or within “reasonable period of time” § Reasonable periodà Weak link in the procedure (often 15 months) § Also weak link à No real separate body that has a close look on the enforcement and implementation o In case of disagreement à Panel § What if the losing party just alters the policy a bit à Back to the panel to reopen the case 41 International Economic Law •
JVD 2014-­‐2015 In case of non-­‐compliance o Losing country just doing nothing à No altering of policy o Losing party can offer à Voluntary compensation § Sometimes when a country says “this policy is very important for, we cannot change it” à We will offer you compensation (not an amount of money, but other trade advantages) § Example: Tariff reduction o Winning party can ask à Request for suspension of concessions § = Retaliation à Countermeasure à Sanctions that actually as well violate WTO-­‐law § DSB decides (& keeps under surveillance) § Equivalence! • Example: Raising tariffs (same sector) § Cross-­‐retaliation possible • Retaliation under another agreement than where the initial violation was situated • Example à Violation under the GATT, reaction under TRIPS • In case of disagreement à arbitrator o Losing party often starts a new case (this is not a retaliation but a new violation of WTO-­‐law) DSB • Special & differential treatment for developing countries o Importance? à Always a difference in economic power (Developing countries are more reliable on developed countries as in the opposite way) o In the legal arena à Equality of arms o Special legal assistance for developing countries and LDCs to take part in the WTO dispute Settlement system § The WTO provides special technical and legal assistance to these countries, to help them enforce their rights • DSB on Doha-­‐agenda o Not part of Single Undertaking § Single Undertaking = The list of topics that has been listed for finding an agreement to end the Doha Round § à Not crucial for Doha negotiations o A.o. § Extension of third party rights § “Remand” à Technique in situation where the appellate body can resend a case back to the Panel (facts lacing to rule on the appeal) • The appellate body can send a case back to the panel when the appellate body thinks they don’t have all the facts to rule on the appeal. The appellate body may only decide on legal issues. They can’t take into account all the factual evidence à So they must really rely on the report of the panel (they want a solution for this) à Will take more time § Remedies in case of non-­‐compliance à More rules to deal with these problems 42 International Economic Law JVD 2014-­‐2015 VII. TRIPS Introduction • Many rules from TRIPS already existed in developed countries trough treaties or conventions à Paris convention, ... o Incorporated by reference: these conventions, treaties were incorporated in the TRIPPS à Result of extreme lobbying by developed countries and large companies in developed countries. (Background: large amounts of import of fake products that were produced in developing countries) o Developing countries got more time to implement these rules. (LDC’s until 2016.) TRIPS is under review under the DOHA round Marrakesh agreement Annex 1C: • Trade-­‐Related Aspects of Intellectual Property Rights (TRIPS) • 01/01/1995 o Long transition process • Council for TRIPS • Based on WIPO conventions o Incorporation by reference • Part of Doha-­‐agenda Covered areas of IP law (creations of the mind) TRIPs’ features (3 elements) • Standards o How long are you protected? o Minimum standards of protection + exceptions to be applied by each member § More extensive protection allowed • Enforcement o How will you enforce your rights? o Through domestic procedures • Dispute settlement o Discussion à Exclusive jurisdiction of DSU • + General WTO-­‐provisions and basic principles o National treatment principle § Exception for prolonged term in copyright law o MFN-­‐principle à You may not discriminate between nationals of different foreign countries. Belgian government may not grant different protection between an author from Brazil or Russia 43 International Economic Law JVD 2014-­‐2015 (Les 8: 18/11/2014) Copyright • Berne convention o Berne convention is applicable through reference into the TRIPS agreement o Literary and artistic works § Example: Books, articles § "every production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression” o + Related rights § Protection of performers, producers of phonograms (sound recordings) and broadcasting organizations § Example: Choreography, music § Things are moving: Netflix, Spotify o Rights during author’s life + 50 years § What are those rights ? à Protection against unauthorized use of your creation § Exceptions • 3-­‐step-­‐test o Limitations or exceptions to copyrights are allowed if three conditions are met (known as "three step test") § 1. The limitations or exceptions are confined to certain special cases § 2. They do not conflict with a normal exploitation of the work § 3. They do not unreasonably prejudice the legitimate interest of the right holder o è Article 13 -­‐ Limitations and Exceptions § Members shall confine limitations or exceptions to exclusive rights to • Certain special cases • Which do not conflict with a normal exploitation of the work and • Do not unreasonably prejudice the legitimate interests of the right holder • Important case à EU Vs. US on the interpretation of Art. 13 o Facts à US had a system of 2 categories § Home-­‐style exception = Exception to copyright law à They did not have to pay for the use of a radio broadcast à Only for shops, bars, restaurants that used home-­‐style equipment • In the EU entrepreneurs had to pay a copyright fee 44 International Economic Law JVD 2014-­‐2015 Dispute settlement body à No problem, the exception in the US meets the 3-­‐step-­‐test and does not conflict with the normal exploitation of the rights The business exception à Not applicable for the small shops à Applicable to larger shops within a maximum number of square footage • Dispute settlement body à There are so many businesses that fall into this scope that this exception is not specific enough to meet the first condition in the 3-­‐step-­‐test •
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Trademarks • Paris Convention o Also incorporation by reference into the TRIPS agreement o Signs that are capable of distinguishing the goods or services of one undertaking from those of others § What is your basic right? à Owner of a registered trademark must at least be able to prevent the unauthorized use of an identical or similar sign on similar goods or services if likelihood of confusion • Likelihood of confusion à It must be possible that a consumer is confused o ßà Copyright: No registration needed o Examples: § Fedex (parcel delivery) Vs. Ferdex (medical equipment) • Completely different sectors of economic activity § MCdonals Vs. Donald’s Burger • The likelihood of confusion is far bigger in this case (compared to Fedex case) • This sign as such is not really similar • Although you can’t say there is no similarity between the two à Colour, the meaning of ‘Donald’s’ o Exceptions? à 3-­‐step-­‐test 45 International Economic Law JVD 2014-­‐2015 Geographical indications • Examples: Cheese, Wines, Tequila • GIs o Identify goods as originating in a particular region or locality in the territory of a WTO Member, o Where a given quality, reputation or other characteristic is essentially attributable to its geographical origin • Protection through trademark law or otherwise o Otherwise à A sui generis (standalone) regime for the protection of these geographical indications • Doha Round: negotiations on GI-­‐register o Goal à To make the rules more elaborate • Case à US Vs. EU o EU only granted the same protection to geographical indications to countries that had a similar/identical protection system o Problem à Only European geographical indications had a strong protection à Geographical indications from other countries outside the EU had a far less strong protection o US argued there was discrimination o Dispute settlement body Ruled the EU policy was not compliant with WTO law Patents • Inventions o Patent gives inventor exclusive right to prevent others from exploiting the invention, during a limited period of time § Novelty, inventiveness & industrial applicability § Disclosure! à Basic idea à If you want protection, you have to disclose your idea (no longer a secret) o Members may exclude some inventions from patentability • Min. protection during 20 years after filing o Judicial review must be available à A possibility for a court to review the patent • Exceptions à 3-­‐step-­‐test • Case: EU Vs. Canada on the 3-­‐step-­‐test o Medicines (very important sector for patents) à If the period of patent protection is over (after those 20 years) à Everybody can produce the same products (generic medicines) o In Canada some very important producers of generic medicines o Canadian Policy § Stockpiling exception à Producers of generic medicines got the right to prepare themselves to set their products into the market from the first day the 20-­‐year period of protection ended à So they already produced the medicines before the protection period ended (6 months before) 46 International Economic Law JVD 2014-­‐2015 Sample-­‐exception à Allowed producers to distribute samples and actually make them on the forehand familiar with the generic product o 2 different rulings by the dispute settlement body § Sample-­‐exception was allowed à No problem § Stockpiling exception à Not compliant with the 3-­‐step-­‐test • To broad à Not specific enough Patents on medicines gave rise to a very heavy debate o HIV medicines are also patented à It is actually the WTO patent law that causes the fact that many people in Africa cannot afford to pay for a medical treatment because the medicines are being patented o WTO is struggling with this (Going on for 20 years) o First idea à Compulsory licencing à A member state under the WTO can adopt a Compulsory licencing à The government can decide to neglect a patent in case of emergency § For example: Today a medicine is invented for Ebola à Countries can adopt a compulsory licence o è If you adopt a compulsory licence § You have to produce the products within your own country à If you don’t have the possibilities/means to produce it à Problem § It is a licence à The government has to pay for the use of the licence §
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47 International Economic Law JVD 2014-­‐2015 VIII. International investment law Introduction • Foreign direct investment (FDI) Vs. portfolio management o FDI à Foreign investor who actively puts money in a foreign economy § Home state à State where the investor lives § Host state à State where he makes his investment § Investment needs to be active! § Example à Setting up a company in Nigeria o Portfolio management à Just buying shares/bonds § Example à Just buying shares in a Nigerian company § Passive way of investing o International investment agreements (IIA) (esp. BITs) § Agreement in which a country actually commits itself to a certain treatment of investors from another country § Core à Property rights § BITs = Bilateral investment treaties § 1 in 1959 à 400 in 1990 à 6,000 today • Trigger for the boom in BITs o Main explanation à Changed role of developing countries à They changed their attitudes towards international investments o BITs were long used just as a safety net à Only since the 1990’s the rules of those BITs are being really enforced • Important role for developing countries o The Dependency theory à Developing countries were not in favour of foreign investment o From the 1980’s on à They departed from this dependency theory à The international investments can be very important for economic development • Investors actively using IIAs terms o • FDI & WTO? o There are no multilateral agreements on international investments o Only if within GATT scope o FDI as a substitute or a complement for trade in goods & services § à TRIMs = WTO text à Agreement on trade related investment measures (Weak piece of legislation) § Substitute à In stead of trading à setting up a branch/ investing in the foreign country o àß Other free trade agreements § NAFTA (Chapter 11), Mercosur à Important rules about international investments § àß Regional investment treaties (e.g. ASEAN Comprehensive Investment Agreement) 48 International Economic Law •
2014-­‐2015 International investment law o = Rules protecting foreign property by the government of the state in which it is found à Tries to protect property in a foreign country o Home state Vs. host state o From 1980’s on § Changing view of developing countries o Sources § BITs • State-­‐to-­‐state • Model BITs o Treaties based on modelBIT o “Proliferation issue” à In every international contact à Hard to find your way in the ‘spaghetti ball’ of international agreements • Components of a BIT: • Preamble à There is always a double aim o Home state à Protection of the property rights of the investors o Host state à A contribution must be made to the economic development of the host state • It’s all about the protection standards o Rules on non discrimination o Protection of property rights o No expropriation without compensation à Your property cannot be taken without a proper compensation for your loss • Dispute settlement o No DSB à Every BIT will have to make clear on how disputes will be dealt with § Arbitration for example § International centre for the settlement of investment disputes (ICSID) §
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JVD Sectoral agreements • Very few • Important one à 1994 Energy Charter Treaty (limited to energy sector) o Between EU, Russia and several Asian countries Regional agreements • Investment rules can be part of a free trade agreement • It can be a standalone text on investments within the scope of regional organisations • See RTAs 49 International Economic Law JVD 2014-­‐2015 §
Multilateral investment treaties à Don’t exist §
Customary rules of International law • The general rules of international law • Most important ones à The rules on interpretation of treaties (Vienna Convention) • Also important à ‘What is the definition of a state?’ §
General principles of law • Very broad • E.g. principles governing damages for contractual liability o In the BIT à Nothing about calculating the amount of damage when there is a breach of contract Contracts §
Investment • Building blocks of international investment law § No investment à No case § Originally o Investment protection = protection of “property, rights and interests” o In the past it was just about the concept of having property abroad § From 1960s o Economic concept “investment” § 5-­‐step test à 5 elements must be present to have an investment • 1. Transfer of funds • 2. Long term relationship between the investor and the investment à Short term projects are not seen as an investment • 3. Essence of investing à Thus humanitarian aid is not within the scope of an investment • 4. Active management involvement à Not just passive portfolio management • 5. There must be business risk § è Thus excluding: portfolio investment, pure sales, short term projects 50 International Economic Law JVD 2014-­‐2015 o Legal concept § Much more broader § BITs à Every BIT contains a definition of what an international investment is • Difficult to get an overall view à Every BIT differs § ICSID Convention • International Centre for Settlement of Investment Disputes • à First question they always have to answer is whether there is an investment or not • They developed a certain line of reasoning for what from a legal perspective can be seen as an investment (Les 9: 25/11/2014) •
BITs’ definitions o Traditionally: general definition + illustrative list § General Definitions are not very useful § E.g. 2010 BeLux – Montenegro BIT • “The term “investment” shall mean any kind of assets and any direct or indirect contribution in cash, in kind or in services, invested or reinvested in any sector of economic activity” • Belgium and Luxemburg work together for their bilateral agreements § E.g. US Model BIT • ““Investment” means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk” o à Investment must be asset-­‐based • “Forms that an investment may take include:” o
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(a) an enterprise; = basic form of an international investment (b) shares, stock, and other forms of equity participation in an enterprise; = Buying shares (for this BIT there is no active investment needed)à Just owning shares is enough (c) bonds, debentures, other debt instruments, and loans; = Granting a loan is also ‘investing’ (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-­‐
sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges. è The broader the definition, the more protection for investors 51 International Economic Law 2014-­‐2015 •
BITs’ “investment” definitions à Cases o Fedax NV Vs. Venuzuela (ICSID 1997) § Fedax provided services to a private Venezuelan company à The company can’t pay in cash and wants to pay in short term government bonds (Debt instruments à promissory notes) § Fedax agreed with this à When the Venezuelan government has to pay the amounts covered by the bonds, the government does not want to pay to Fedax à Can Fedax seek protection under the BIT between the Dutch government and Venezuela? à Can this be considered as an investment? § è ICSID decides this is an investment, thus Fedax is protected (buying bonds is listed in the BIT) o Romak SA Vs. Uzbekistan (PCA 2009) § Romak (Suisse company) concludes a contract with a government owned company of Uzbekistan à The Suisse company would give advice on how to grow wheat and on the other part Romak delivers grain to the company § 5 deliveries and none of these have been paid à Romak wants to collect their bills à They seek protection under a BIT between Switzerland and Uzbekistan § The case was not settled by the ICSID à They went to the PCA (Permanent Court of Arbitration) § è PCA: we can’t just stick to the idea that every transfer of assets is an investment è No strict look at just the wordings, you have to take a broader perspective è There must be a contricution • In this case there no actual contribution à Just a sale of goods à You have to look at international trade law (Sales contracts) • è If it is limited to just a sale of goods, then it has nothing to do with a BIT § 3-­‐step test à Contribution, duration & risk •
ICSID (International Centre for Settlement of Investment Disputes) Convention o ICSID itself has to give a meaning to the wordings of the concept “investment” (the convention text does not define this) o Only competent if dispute arises out of an “investment” § à Double keyhole approach = “We don’t just have to look at an investment within a certain BIT” à There is something like a general definition of what an investment is for the specific purpose of the ICSID à • First look à Is this an investment in the meaning of the convention? • Second look à Is this an investment in the wordings of the specific BIT in the case? JVD 52 International Economic Law JVD 2014-­‐2015 o Objective approach § Salini-­‐test • Salini SPA Vs. Morocco (ICSID 2001) o Case between an Italian company (Salini) against the kingdom of Morocco o Facts à Salini concluded a contract with the Moroccan government to construct and maintain a really important highway in Morocco à Construction is nearly finished and the government of Morocco does not want to pay à Salini seeks protection in a BIT between Italy and Morocco • = 4-­‐step test o 1. Contribution of an asset (tangible or intangible transfer of assets) à Transfer of assets from Italy to Morocco? à Yes, transfer of materials, knowhow, … o 2. Duration (longer lasting relation) § 2 years § à If you have contract that lasts for more than 2 years = A longer lasting relation o 3. Risk § Different from normal business risk § è A risk that makes it unclear to what extent you will get profits o 4. Contribution to economic development § Quid-­‐pro-­‐quo idea à There must be something in the BIT for the home state (companies/investors are better protected) and also something for the host state (contribution to economic development) § But highly debated à • Some panels consider this as a 4th element of the Salini-­‐test • Other panels say this is not a hard rule • è Outcome of the case à “It is an investment” § It’s no real tick-­‐the-­‐box-­‐system à Flexible & pragmatic application… • Absence of one element can be compensated by strong presence of another o à Conceptual approach § Instead of an objective approach (saline-­‐test) à Nowadays a more conceptual approach (flexible, broad room for interpretation) • More legal uncertainty 53 International Economic Law •
JVD 2014-­‐2015 Not every investment is protected o Investment in host’s territory o Investment must be legal § Case: in a South American country some local businessmen set up a pyramid scheme à They received deposits without a licence • If I as a Belgian investor, invest in this scheme à I am not doing a legal investment and just actually put my money into an illegal construction à Thus, no protection under international investment law § Host states often use this argument to try to circumvent the wordings of a BIT à In case of expropriation à Host states are trying by adopting ad hoc legislation to make an investment illegal à The host state can then expropriate assets o Making Vs. operating the investment Investor • The person who has made an investment • Individuals + legal entities à Can be an individual, but also a company o Nationality of home state (positive requirement) and NOT of host state (negative requirement) § Nationality ≠ (permanent) residency • The fact that I as a Belgian national am residing in Nigeria is no problem for my investment in Nigeria • Basic rule à BITs are based on nationality, but they can also protect people who have their permanent residence in the country § Citizenship? § E.g. Soufraki Vs. UAE (United Arab Emirates) (ICSID 2004) • Soufraki claimed to be an Italian national that had the Canadian nationality as well à Double nationality • BIT between Italy and the UAE à He was involved in the construction development and exploitation of a port in Dubai à He seeks protection under the BIT between Italy and UAE • “You lose your Italian nationality as soon as you are adopting another nationality” à So Soufraki is no longer an Italian national à He’s Canadian • There’s no nationality of the home sate so no protection under the BIT § Corporations? • No customary rule of international law • à See terms of IIAs 54 International Economic Law •
JVD 2014-­‐2015 Nationality of corporations o Possible points of reference § Establishment/Incorporation § Seat • Registered office of a company à The precise address of the company in the country where it is incorporated § Real economic activity à Real seat § Preponderant interest à COMI (Centre of main interest) o Most BITs require combinations § E.g. incorporation + economic activity or incorporation + economic activity + seat o Impact of nationality of controlling shareholder? § Tokios Tokelés (Lithuanian company) Vs. Ukraine (ICSID 2004) • Tokios had set up activities in Ukraine and published books about an opposition leader in Ukraine à Ukraine hindered their work • Tokios said Ukraine was hindering their investment. There was a BIT between the 2 countries. The Ukrainian government said that Tokios was not a Lithuanian company but a Ukrainian company. Almost all of the shareholders were Ukrainian citizens. There is no clear link between Lithuania and Tokios • è ICSID à It doesn't matter what the shareholder’s nationality is. Although all shareholders are Ukrainian citizens the company remains Lithuanian §
Express possibility under ICSID for controlling individuals • It is often easier to set up a company under the national law of the host country before investing (tax reasons, sometimes required by law) à A Nigerian company is then investing in a Nigerian activity à No longer an international investment? • Most BITs deal with this à Individuals can lend their nationality to their company. •
Indirect investment o Corporate investor for investment in host o Shareholder of corporate investor for investment in host § Possible in most BITs à If I am shareholder of this corporate investor that invests abroad à I am also owner of the investments abroad § There can be a problem with company law à If I as a shareholder of this investment company, try to react at a loss à The rules of the company law will dictate if I have a standalone right as a shareholder to act on behalf of the company o Shareholder of host state company 55 International Economic Law JVD 2014-­‐2015 o Customary international law § For individuals à Diplomatic protection § For Shareholdings à No Diplomatic protection • For shareholdings there is no diplomatic protection! o A Spanish company with its majority of shareholders being Belgian citizens, does not give to our Belgian authority a right to act on behalf of these shareholders • BUT protection of shareholder rights under national laws o International investment law § Originally: no portfolio investment § à Evolution •  HOME state
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Shareholder on behalf of host state company Shareholders as investors in host state company à Can they be seen as standalone investors as well? o Actually they are not really investing in economic activity à They are investing in an indirect way by investing in the shares of the company o See BIT definitions o Minority shareholders? § CMS Gas Vs. Argentina (ICSID 2003) à I as a minority shareholder had no right to be protected under a BIT (could not be seen as an international investor) à In this case they are also protected § è An indirect investment is also protected o But derivative claims issue § From a company law perspective it is not self evident that an individual can claim damages for harm done to the company? à Normally shareholders don’t have a derivative right to claim § Under international investment law BITs try to give investors those rights § Prejudice to shares as such Vs. prejudice to host state company o Action by shareholders of a company holding shares in a host state company? 56 International Economic Law JVD 2014-­‐2015 Expropriation • State governments taking away o Property (direct) = Direct expropriation o Right to use and profit from any investment § ~ indirect expropriation (happens more frequently) à The government hindering the use of profits that comes of an investment o Even without being a BIT in place, one is protected against expropriation • Domestic Vs. foreign expropriation o Foreign expropriation = By a foreign government • States’ conditional right to expropriate o Like private property is a fundamental right of private people à Expropriation is a right of the states à 4 conditions § Public purpose § Due process § Non-­‐discriminatory § Adequate compensation (most important and most debated) (Les 10: 2/12/2014) Public purpose • = Interest of general public o Constructing a new canal, highway • ° Utilitarian view o à The greatest happiness for the greatest number • Undisputable o Expropriation as retaliation § à An act of revenge to punish a certain party o Expropriation for leaders’ personal enrichment • Control of productive assets (for purely financial motives)? o Amoco Vs. Iran ≠ ADC Vs. Hungary § Amoco Vs. Iran • Amoco was a US corporation active in the oil industry in Iran à Iran decided to nationalize the whole oil industry • Arbitrator à Iran had the right to do that à Because it was for a public purpose à They used the funds generated through the nationalisation for the development of the country (welfare of the people) § ADC Vs. Hungary • ADC (Canadian company) à they were granted a concession for the exploitation of Hungary’s most important airport 57 International Economic Law •
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JVD 2014-­‐2015 Hungary wants to nationalize its airport à They will end all contracts and take all property Hungary tried to establish that they were doing it for a public purpose Arbitrators did not see the public purpose in this case (airport is already running well) Due process • Procedural fairness o Timely notification, transparency, right to ask for reconsideration (+ hearing & justification) Non-­‐discrimination • MFN + National treatment • Nationality & race Compensation • Basic rule = The Hull-­‐formula (1938) o Prompt, adequate & effective compensation § Prompt à In a timely way à So that he can undertake a new investment § Effective à In a currency which is easily readily convertible § Adequate à Appropriate • A full compensation à Attacked by developing countries à They try to argue there must be an appropriate compensation à Take into account all elements of the case (example: sometimes the company is richer than the country) • IIAs o Investments’ “market value” § How to determine the value à Market value approach à Difficult because often there is no ‘market’ • ≠ compensation for illegal expropriation o Use the rules of customary international law o Not only the value of the investment à Also compensation for the loss of profits o Higher compensation 58 International Economic Law JVD 2014-­‐2015 Indirect expropriation • Background à Frequently o We don’t take the property title of property rights away o Actually the profits that follow from an investment are being limited o 2 basic examples § I set up a factory that makes shirts in Tunisia à Good business, I can produce 1000 shirts a day à The Tunisian government adopts a limitation that every factory in the region may produce a maximum amount of 10 shirts a day à Real hindrance of my activities § A raise of taxes from 5 to 50% à If this is a general corporate tax rate it will be difficult to prove that this is an indirect expropriation • Difficult but important to define o Why is it difficult? à There is very broad grey zone to determine whether there is an indirect expropriation on the one hand or just a normal government decision on the other hand • Example: We are in Mexico and the Mexican federal government grants a right for the exploitation for a landfill (place where waste is being gathered) to a US company à The local government decides not to give a permission for the exploitation of the landfill, because on this land it is important to protect cactuses à This is an indirect expropriation à The US company is still owner of the land • Decisive factors o Interference à With your right to use your investment or interference with the profits you are getting from your investment o Severity § Loss of control for the investor § More difficult à You still are in control of your investment but is becoming less profitable • If there is a significant/substantial reduce of profits à It will be an indirect expropriation o Duration § Normally expropriation is permanent o General regulatory measure § An action by the government will not be seen as an indirect expropriation if it is a general regulatory measure • If a government decides to raise the tax rate of corporate income tax for all companies in country from 30 to 35% (or more severe from 10 to 40%) à That’s a general regulatory measure • Actual approaches o Sole effect doctrine à You don’t have to take the intentions into account, just the effect of the measure on your property right o Effects + state interest à § You take the effect into account § But you also look at the intentions of the state à Is it in the interest of the general public, the environment, …? à Then there is no indirect expropriation 59 International Economic Law •
JVD 2014-­‐2015 o Legitimate expectations § You have to take into account the legitimate expectations of the investor § Grand River Vs. USA (UNCITRAL 2011) • This case makes clear what is meant with legitimate expectations • Canadian producer and trader in cigarettes and tobacco products was selling his cigarettes in the US and was confronted with a legislation on cigarettes that became every some months more severe • The Canadian company tried to establish à The US government interferes with my profits à The legislation is only applied to cigarettes and no to alcohol, … • Arbitrator à It can be that there’s an interference with you rights, but you can’t have had a legitimate expectation when making your investment in the US that you would not encounter any legislation/action by the government that could make it harder to get your cigarettes sold in US territory Creeping expropriation o Governments sometimes try to do the expropriation in a whole list of steps o The same conditions apply as to a normal or indirect expropriation Standards of protection • Source? • Non-­‐arbitrariness o Discussed whether this is a rule of international customary law or not o Arbitrary = Action based on will of actor rather than on rational application of principles to certain facts § Damage without clear legitimate purpose; measure not based on legal standards à Just to hinder investment o ~ Reasonableness • Non-­‐discrimination o No discrimination based on nationality o Broad view of “likeness” § No discrimination between investors in a ‘like’ situation • Example: Producer of soft drinks / Producers of alcoholic beverages § E.g. Tax treatment 60 International Economic Law •
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JVD 2014-­‐2015 o National treatment à From a political perspective it is not that easy to defend to your locale voting people that you treat foreigners in the same way as domestic businesses o MFN à From an international perspective § Extremely far reaching consequences Full protection & security (FPS) o Rather self evident o Physical security à You have to do your upmost best to protect the assets of your foreign investors § But not unlimited à They cannot grant an absolute protection o Legal protection à § Example à There must be a legal regime to react against a strike (which lasts for instance for a period of time) Fair & equitable treatment o As a host state you have to treat your foreign investors in a good way à Very broad o Catch-­‐all provision of international investment law à If you don’t find a remedy à Look at this one o In customary international law § Host acting “in an outrageous way” o In IIAs § Reference to customary international law • = Minimal standard § Sui generis FET standard • Lemire Vs. Ukraine (IDSID 2010) (Les 11: 9/12/2014) IX. International Monetary Law Introduction • “Studying international monetary law is like visiting an exhibition of minimal art at a very expensive art gallery” o Hard to get access to and very technical o When you’re in à Disappointing à Most of the rules seem to be very important but it’s all soft law • International monetary law o In a global setting à Every country has its own currency § Buying tables in Peru à Transfer money from Belgium to Peru à Importer will have to exchange his money (Euro into Peso’s) o Ultimate goal à Creating a stable monetary system o Closely related with § International trade law § International investment law 61 International Economic Law JVD 2014-­‐2015 o Sources? § International law? • à Sovereignty à Each nation decides for itself what currency and monetary policy they use § Articles of Agreement of the International Monetary Fund (IMF) • Most important source of law § BIS • Bank for international settlements à A club of the central bankers of the world’s most developed economies • Headquarters in Bazel The IMF • Bretton Woods (1944) o Economic rebuilding of the world o http://www.imf.org/external/mmedia/view.aspx?vid=3832661975001 o 3-­‐pillars plan § World bank + IMF • Members = states (188) o Only states can be members of the IMF à Custom unions like the EU can not be a member as such of the IMF ßà This is possible in the WTO o Individual (≠ WTO) • Rules o Articles of agreement + By-­‐laws o Organ’s decisions • IMF Structure 62 International Economic Law JVD 2014-­‐2015 o Governance structure § Board of directors (5 + ca. 15 +1) • 5 directors of the 5 biggest economies • The other 15 (up to 18) directors are appointed by the remaining countries § Board of governors (broadest organ) • Every member has a seat in this board of governors à In most cases à The governor of the central bank of the state • 2 x/year • Residual power à If a certain topic is not attributed to another organ the board of governors has competence § Executive board à Managing director • Christine Lagarde § Basic rule: Consensus § Weighted voting à Criticism! • ≠ WTO à Every country = 1 vote • IMF à Some countries have more votes than others • Fixed number of basic votes (250) • + Additional votes according to a member’s QUOTA o Calculated at time of accession according to economic criteriaà The more important a country’s economy is à The more votes it has • Weighted voting is also applicable in the board of directors • Critique è This system makes the powerful countries more powerful and neglects the developing countries 63 International Economic Law JVD 2014-­‐2015 o Dispute settlement? § No separate body or procedure § But formal interpretation procedure • State à Executive board à Board of Governors • Very few procedures • IMF is not really meant to have formal disputes o The IMF’s triple function § Forum • A place where member states meet and can talk on their monetary policies § Providing liquidity • Overall goal of the IMF is to create a stable monetary system worldwide à Dangerous to this system is when a country gets into a state of bankruptcy • IMF is a lender of last resort § Exchange rate stability • It’s important to be able to exchange your currency Exchange rates • External value of money o Risk of being manipulated à Governments that want to promote the export industry in their country it is really interesting to devaluate your currency à To make your currency cheap • 1900 à Gold standard o The value of your money is depending on how much gold reserves you have • Bretton Woods o $ à Gold § Value of the dollar was pegged (linked) to gold o Others à $ § All other currencies were pegged (linked) to the US Dollar • 1973 à Floating exchange rates o 1970’s à Gold standard was too much fluctuations and there were very few policy options à New system need o Floating exchange rates = Value of money is linked to supply and demand o 2nd Amendment of IMF articles of agreement (1978) 64 International Economic Law •
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JVD 2014-­‐2015 Discretionary system of exchange rates o Floating § 42% of IMF members use floating exchange rates o Fixed (hard peg) § 26% of IMF members use hard peg § The external value of a currency is actually attached to the value of another currency à § Example: Peru pegs its currency to the euro à Increase in value of the euro means an increase in the value of the peso o Pegged (soft peg) § Currency into some extent pegged but there is still some room for market forces o (Monetary Union) § One step further § Exchange story is eliminated IMF surveillance of exchange rate policies o Soft law à No hard sanctions o Broadly interpreted § Annual visits à The IMF visits every member to review the exchange rate policy o But no effective sanctions in case of manipulation Exchange control • Examples o Currency prescription requirement à The government decides in which currency you can be paid as an entrepreneur or the rule that you can only receive payment in your local currency o Retention quotas à You as a citizen can only hold a limited amount of foreign currency o Surrender requirement à When you are receiving foreign currency, you are obliged to sell the foreign currency to the government • IMF à Freely convertible currency è The ultimate question: Is there free convertibility? o You must always be able to exchange your money for a currency of another country o à Multilateral payment system • Current transactions Vs. capital transfers 65 International Economic Law JVD 2014-­‐2015 o Current transactions § = Day to day transactions § No restrictions allowed • But exceptions • as long as “Free convertibility” is guaranteed § No discrimination or multiple currency practice • Most favoured nation aspect • Multiple currency practice à Example: A Chinese citizen wants to buy euros and the Belgian Central Bank says: You have to pay 8 RMB for 1 euro and 2 months later the Chinese wants to sell his euros back for RMB à Now 5 RMBs back for 1 euro à When there’s a spread of more than 2% between buying and selling price o Not for private cases à But for governments § Obligation to purchase between monetary authorities (= central banks) • Counterpart of the whole system of free convertibility • Central Banks are always obliged to buy their own currency when another central bank offers their currency o Capital transfers § Big amounts of money being transferred from one country to another § Restrictions allowed à It’s all up to the members à The government can decide whatever the want to § à No guarantee of free convertibility Balance of payments deficits = Providing liquidity • Part of the IMF’s triple function • The IMF has its own savings à IMF = The central bank of central bankers à The lender of last resort • IMF à Special Drawing Right (SDR) o International reserve asset § ~ Money § Value based on currency basket (4) • Each SDR actually reflect a part of one of those 4 currencies o Every participant à Net allocation § Net allocation = How much SDRs are you actually having § If it is above your quota à You will get interests § If it is beneath your quota à You will have to pay interests o SDRs à Highly debated 66 International Economic Law •
JVD 2014-­‐2015 Balance of payments deficits à A country’s monetary system is running out of liquidity o à More money out of the country than money going into the country o Import restrictions; volume increase o Financing + economic discipline § You lend money from the IMF and in exchange there is economic discipline à Cutting back on government expenses, raising taxes § IMF assists (a.o.) • “Lender of last resort” • Temporary • Individual • On request • Conditional à IMF may attach conditions to their loan and intervene in the country’s sovereignty o Example: Greence à Trojka o Financial à Interest rate, other financing you have to find as a country, tax income that you as a government have to raise o Economic à Obligation of privatising certain sectors of the economy § Privatising typical government controlled companies like in the telecom or energy sector The World Bank • Sister organisation of the IMF • ° Bretton Woods o 1. ITO, 2. IMF, 3. World bank • Focus on reconstruction & development o Through specific projects § Example à Financing specific projects of infrastructure in a developing country o = Micro-­‐economic perspective (≠ IMF) • The world bank group o International Bank for Reconstruction and Development (IBRD) o ICSID • Governance structure o ~ IMF • IMF – World Bank Concordat (1989) o To coordinate their activities § Macro-­‐economic problem à Help through IMF § Micro-­‐economic problem à Help through World Bank 67 International Economic Law JVD 2014-­‐2015 The Exam •
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Notes during classes Texts o Basic knowledge of the text on the relation between world trade law and domestic law o Text on the TTIP o Criticism article from the Economist Text of the GATT can be brought to the exam (first text of the second part of the reader) o Marks are allowed 3 types of questions o Theoretical § “What’s the ICSID?” § “What are SDRs?” § “Explain MFN principle” o Questions where you have to apply the rules § A case § An extract of an arbitral decision à Where you have to apply the legal rules o Opinion questions § “Weighted voting within IMF” § Be aware of the arguments in the discussions 68