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University of Batangas

College of Law
SPECIAL ISUES IN INTERNATIONAL LAW
(International Economic Law Particularly the regime of WTO)
October 12, 2013

Increased participation in the


world economy has become the
key to domestic economic growth
and prosperity - Peter Drucker

What is International Economic Law

Recent developments have made international economic

law a distinct part of international law.


Beyond the regulation of interstate trade, the law has
moved into the creation of international institutions,
formulation of definite rules governing a wide range of
economic matters, and the establishment of methods of
dispute resolution.
Moreover, international economic law affects not only
states but also multi-national corporations; likewise,
globalization of economic matters have affected traditional
notions of sovereignty.

The (Third) Restatement of Foreign Relations Law has this

statement:
The law of international economic relations in its
broadest sense includes all the international law and
international agreements governing economic
transactions that cross state boundaries or that otherwise
have implications for more than one state, such as those
involving the movement of goods, funds, persons,
intangibles, technology, vessels or aircraft.

Because of this broad range, four characteristics can be

pointed out:

First, IEL is obviously part of public international law; treaties alone


make this so;
Second, IEL is intertwined with municipal law; the balancing of
economic treaty law with municipal law is important;
Third, IEL requires multi-disciplinary thinking involving as it does not
only economics but also political science, history, anthropology,
geography, etc.;
Fourth, empirical research is very important for understanding its
operation.

Brief Historical Background

To hasten worldwide recovery from the devastation

wrought by WWII, plans for the establishment of three


multilateral institutions were discussed at Dumbarton Oaks
and Bretton Woods;
Said plans were made at the instance of the United Nations;
These three multilateral institutions are:

World Bank which was to address the rehabilitation and


reconstruction of war-ravaged and later, developing countries;
International Monetary Fund which was to deal to currency problems;
International Trade Organization which was to foster order and
predictability in world trade and to minimize unilateral protectionist
policies that invite challenge, even retaliation, from other states.

However, for a variety of reasons, including its

non-ratification by the United States, the


International Trade Organization (unlike WB and
IMF), never took off;
What remained was only GATT, or the General
Agreement on Tariffs and Trade;
The GATT was a collection of treaties governing
access to the economies of treaty adherents with no
institutionalized body administering the
agreements or dependable system of dispute
settlement;

GATT

GATT 1994 is one example of convention

that exhibits the artificiality of the


distinction between a contract treaty and
a law-making treaty:
As

a contract treaty it is a multilateral


contract treaty containing contractual
stipulations binding on the parties;
As a law-making treaty it establishes a legal
regime and in fact leads to the creation of a
new international economic order;

The contents of GATT 1994 were mostly

patterned after its predecessor GATT 1947;


GATT 1947 was basically a tariff agreement and
not the organic charter of some international
organization;
Hence,

GATT 1947 was characterized as essentially


contract making;

The creation of the WTO (earlier envisioned as

the International Trade Organization) completes


the plan that there be an international
monitoring and administering organization;

GATT 1947, however, was never itself

implemented;
Its provisions were effected rather through
PPAs Protocols of Provisional Application
(which circumvented for many jurisdictions
the constitutional requirement of
congressional ratification);
GATT 1994, on the other hand, has been dealt
with as treaty, and has been subjected to the
constitutional requirement of ratification;

Basic Principles of GATT:


The general conviction behind GATT is the undesirability of a
beggar-thy-neighbor policy that would be self-defeating if adopted
by all nations.
BEGGAR-THY-NEIGHBOR
It is an international trading policy that utilizes currency
devaluations and protective barriers to alleviate a nation's
economic difficulties at the expense of other countries.
The policy name is derived from its resulting impact, making a
beggar out of neighboring nations. The goal of a Beggar-ThyNeighbor strategy is to increase the demand for your nation's
exports, while reducing your reliance on imports. This is often
executed by devaluing the nation's currency, which will make
your exports cheaper to other nations.
While alluringly protective of domestic interests initially, it will
result, in the long end, a global order that leaves all worse off.

GATT rests on three essential principles:


1.
Trade should be conducted on a basis of non discrimination; for
example, MOST FAVORED NATION (MFN) provisions under
GATT bind parties to apply duties on importation of goods equally;
The MFN clause is a non-discrimination principle; each
member of the GATT is obligated to treat other GATT
members at least as well as it treats any other country with
regard to exports and imports;
2.
Government restraints on the movement of goods should be kept to
a minimum and should be reduced;
3.
The conditions of trade are to be discussed and agreed upon within
a multilateral framework;
GATT therefore makes three basic commitments:
Most-favored national commitments;
The reduction of trade barriers;
Multilateral negotiations;

The

core of GATT is Article II of the 1947


agreement:
Each country makes detailed commitments to
limit tariffs on particular items by the amount
negotiated and specified in the tariff schedule;
For each commodity, the country agrees to
charge a tariff which will not exceed an amount
specified in that schedule but which can be
lower;

Other

GATT principles:
There should be no prohibitions or restrictions
other than tariffs (that is, tariffs are allowed, but
limited);
Quotas are outlawed (that is, forbidden);
Subsidies on exports are frowned on (that is,
regulated);
Rules are established for customs unions and free
trade areas (state-trading mechanisms: subject to
disclosure);

THERE SHOULD BE NO PROHIBITIONS OR RESTRICTIONS


OTHER THAN TARIFFS (THAT IS, TARIFFS ARE ALLOWED, BUT
LIMITED);

What

is a tariff?
It is generally a tax imposed by the government of X
upon the importation of products from Y. Tariffs are
also called customs duties;
It is based on the value of the imported item (ad
valorem). It may, however, also be based on the
weight, the volume or unit, in which case it deals with a
specific tariff;
Technically, the importer pays the tariff as a condition
for taking the merchandise through customs;

QUOTAS

ARE OUTLAWED (THAT IS, FORBIDDEN);


What is the distinction between tariff and quoats?
A tariff is easy to identify and to measure. A quota is
more difficult to bargain about;
Tariffs can be applied in a non-discriminatory manner;
quotas can lead to discriminatory treatment;
Tariffs may raise prices on the imported goods in the
country of importation. A quota results in the absence
of any external check on the prices of locally produced
goods which are governed then only by intra-state
competition.

SUBSIDIES ON EXPORTS ARE FROWNED ON (THAT IS,


REGULATED);
What is dumping?
Dumping is sale by producer at (low) prices to get rid of surplus. If
possible, after costs of production of the entire line are recovered;
GATT described dumping as an export of goods by a producer or
seller in X to importers in Y at less than normal value. The latter
phrase means:
Less than the price at which the products are sold in X;
Less than the price at which Xs products are sold in W and Z;
Less than production costs plus reasonable mark-up and profit;
Dumping as defined is condemned by GATT. It is classified as a
devise of unfair trade, price discrimination and predatory pricing.

The GATT approach, however, is to prohibit dumping and to authorize


anti-dumping duties only if the foreign producer causes or threatens
material injury to an established industry in the importing state;
Subsidies may take in the form of:
Export subsidies when government subsidizes export products, the
exported products have a price advantage gained by the subsidy and
not by efficiency;
Production subsidies make local goods cheaper in comparison to
imported goods even if the former had higher production costs than
their foreign competitors;
Under the GATT, there is the requirement of notification and consultation
when the government subsidies are effected;
By way of regulation, export subsidies may be off-set by countervailing
duties.;
Similarly proscribed by GATT is national legislation (that is, taxes)
effecting discrimination on imported goods;

STATE-TRADE MECHANIMS ARE SUBJECT TO DISCLOSURE;


Article XVII of GATT 1994 has, for its goal, transparency of state
trading activities;
State trading activities are defined as governmental and nongovernmental enterprises including marketing boards which have
been granted exclusive or special rights or privileges including
statutory or constitutional powers in the exercise of which they
influence through their purchases or sales the level or direction of
imports or exports;
The Council for Trade in Goods is to be notified of state-trading
activities, and any member can call the attention of any other
member who does not comply with the notification requirement.
After this, the matter may be elevated to the council.

WTO

On January 1, 1995, the WTO revolutionalized international

business and economic relations amongst states;


It propelled the world towards trade liberalization and
economic globalization;
It rendered obsolete the age-old BEGGAR-THYNEIGHBOR policies;
It swept away as mere historical relics the heretofore
traditional modes of promoting and protecting national
economies like tariffs, export subsidies, import quotas,
quantitative restrictions, tax exemptions and currency
controls.

As mentioned earlier, the GATT was a collection of

treaties governing access to the economies of treaty


adherents with no institutionalized body administering
the agreements or dependable system of dispute
settlement;
After half a century and several rounds of negotiations,
principally the Kennedy Round, the Tokyo Round and
the Uruguay Round, the world finally gave birth to that
administering body the WTO with the signing of
the final act in Marrakesh, Morocco and the
ratification of the WTO Agreement by its members;

The Philippines and this is of special interest to the

legal profession will benefit from, among others, the


WTO system of dispute settlement by judicial
adjudication through the independent WTO settlement
bodies called:
1.
2.

Dispute Settlement Panels; and


Appellate Tribunal;

Heretofore, trade disputes were to be settled mainly

through negotiations where solutions were arrived at


frequently on the basis of relative bargaining strengths,
and where naturally weak and underdeveloped
countries were at a disadvantage.

The principle underlying the WTO is the desirability of

a common institutional framework for the conduct of


trade relations among its members in matters relating
to GATT;
Its functions are:
To

implement, administer and operate GATT and related


agreements;
To serve as a forum for negotiations among its members
concerning their multilateral trade relations under GATT;

Structure:
Ministerial

Conference
It is made up of representatives of all members and
meets once every two years. It carries out the functions
of the WTO. It decides on all matters under the
multilateral agreements.
General Council
This council is composed of representatives of all
members. Since the ministerial council meets only
once every two years, the general council performs the
functions of the ministerial conference in between its
sessions. It also acts as the Dispute Settlement Board
and as the Trade Policy Review Board.

The

Councils of the organization are:


The Council for Trade in Goods;
The Council for Trade in Services;
The Council for Trade-Related Aspects of Intellectual
Property Rights (TRIPS);
These councils operate under the guidance of the
General Council and each is governed by its own
agreement.

Decision-making

in the WTO is by consensus.


Only when no decision is reached by consensus is
recourse had to voting;
The organization may waive an obligation imposed on a
member in exceptional circumstances;
of the members must vote affirmatively to effect a
waiver of an obligation;
If the privilege or waiver is granted for more than a
year, the waiver is to be reviewed by the Ministerial
Conference;

WTO

has legal personality as decided on by its


members;
Consensus is made the determinant of
personality;
As such, it enjoys privileges and immunities as
may be necessary for it to carry out its
purposes. Its privileges and immunities is
similar to those of the UNs specialized
agencies;

WHO

vs. Aquino, 48 SCRA 242


This case involved the recognition of diplomatic immunity from
searches and seizures of a WHO official, recognized as a
diplomat by the executive branch of the Republic of the
Philippines.
The SC ruled that the recognition of diplomatic immunity is
essentially a political question left to the executive arm, under
separation of powers. The judiciary may not exercise its powers
in such a manner as to embarrass the executive in the conduct of
foreign relations. The reasons then for judicial recognition for
the executives plea of diplomatic immunity in favor of the
WHO representative is respect for the executive arms
competence in the conduct of international relations;
The SC likewise called attention to the obligations of the
Philippine government under the Convention on the Privileges
and Immunities of the Specialized Agencies of the United
Nations;

Dispute Resolution

Under the WTO, the Dispute Settlement Body exercises the


following:
It

establishes Panels;
It adopts Panel ad Appellate Body reports;
It authorizes the suspension of concessions and other obligations;

The hierarchy of remedies are:


The

Body first endeavors to help the contending parties arrive at a


mutually acceptable solution;
It then works toward securing the withdrawal of the questioned or
disputed measures by the member-state;
Compensation is only a temporary measure;
The application of concessions or obligations can be suspended on a
discriminatory basis against the offending member.
The preliminary measures preferred are the traditional means of:
consulation, good offices, conciliation and mediation.

Reference

to a Panel:

The

parties must request the Dispute Settlement Body for the


formation of a Panel;
The parties shall agree to the terms of the reference.
Appeals
A

standing appellate body is established by the DSB. It has seven


members but only three shall deal with a particular case.
It will be noted that in consonance with the primary aim of the
organization which is facilitating the transnational exchange of
goods and services, the dispute settlement machinery of the
organization is less rigid and has a bias for the amicable and nonjuridical resolution of dispute;

Likewise

noted is the fact that the DSB in fulfilling its task of resolving
disagreements between member-states is called on to administer the
GATT;
Case of IB-1996-I entitled United States Standards for
Reformulated and Conventional Gasoline:
US as appellant; Brazil and Venezuela as appellees; European
communities and Norway as Third Participants;
The case had to do with the standards the United States had set
for gasoline relative to clear air which resulted in what Brazil and
Venezuela claimed to be violations of the provisions of the
General Agreement.
The Appellate Body held that the baseline establishment rules set
by the United States did not conform with the relevant provisions
of the General Agreement. It recommended that the DSB
request the United States to bring its federal regulations into
conformity with its obligations under the GATT;

Taada vs. Angara


GR 118295, May 2, 1997

With regard to WTO, the SC enunciated the following:


WTO recognizes the need to protect weak economies
WTO decides by consensus decisions are made on the basis of
sovereign equality with each members vote equal in weight to that
of any other (vis--vis in the UN where major states have
permanent seats and veto powers in the Security Council);
Hence, poor countries can protect their common interests more
effectively through the WTO than through one-on-one negotiations
with developed countries;
Also, within WTO, developing countries can form powerful blocs to
push their economic agenda more decisively than outside the
Organization;
Thus, the basic principles underlying the WTO Agreement
recognize the need of developing countries like the Philippines to
share in the growth in international trade
commensurate with the needs of their economic
development.

Specific

WTO provisos protects Developing Countries


WTO Agreement grants developing countries a more
lenient treatment, giving their domestic industries some
protection from the rush of foreign competition;
Thus, with respect to tariffs in general, preferential
treatment is given to developing countries in terms of
the amount of tariff reduction and the period within
which the reduction is to be spread out. Specifically,
GATT requires an average tariff reduction rate of 36%
for developed countries to be effected within a period of
six (6) years while developing countries including the
Philippines are required to effect an average tariff
reduction of only 24% within ten (10) years.

In respect to domestic subsidy, GATT requires developed countries


to reduce domestic support to agricultural products by 20% over six
(6) years, as compared to only 13% for developing countries to be
effected within ten (10) years.
In regard to export subsidy for agricultural products, GATT requires
developed countries to reduce their budgetary outlays for export
subsidy by 36% and export volumes receiving export subsidy by 21%
within a period of six (6) years. For developing countries, however,
the reduction rate is only two-thirds of that prescribed for developed
countries and a longer period of ten (10) years within which to effect
such reduction.
Moreover, GATT itself has provided built-in protection from unfair
foreign competition and trade practices including anti-dumping
measures, countervailing measures and safeguards against import
surges. Where local businesses are jeopardized by unfair foreign
competition, the Philippines can avail of these measures.

ACKNOWLEDGMENT:
Introduction to Public International Law by Fr. Joacquin Bernas
Issues in Public International Law by Fr. Ranhillo Callangan Aquino;
Taada vs. Angara, GR 118295, May 2, 1997
WHO vs. Aquino, 48 SCRA 242

The End