4 Rostatoment (Third), Vol. 2, part Vill: Selected Law of International Economic Relations, 261-337; JHJacksoniW.J. Davey, Intemational Economic Relations, 2nd edn 1989; E.-U. Petersmann, Constitutional Functions and Constitutional Problems of International Economic Law, 1991; 1 Seid-Hohenvelder, International Economic Law, 2nd edn 1992; H.Fox, International Economic Law ‘and Developing Countries. An Introduction, 1992; M.HilE.- UPatersmana (ets), National Constitutions and international Economic Law, 1983; J£H.Jackson! W.J.Davey/A.0.Sykes, J, Legal Problems of international Economic Relations: Cases, Materials and Text, 3rd edn 1995; J.H.Jackson, Economic Law, Intemational, EPIL 1 (1995), 20-32; E-U.Petersmann, International Economic Order: ibid, 1129-87; For a collection of documents see S.Zamoral R.Brand (eds), Dasie Documents of International Economic Law, 2 vols, +1990; P.KunigN.Laun.Meng, Intemational Economic Law, 2nd edn 1993. 2 See, for example, G. ‘Schwarzenberger, The Province and ‘Standards of International Economic Law 1, 1L2 (1948), 402-20. 3 See also M.W.lanis, An Introduction o international Law, 2nd eda 1993, 273. 4For an integrated approach, see 1M, Herdegen, Internationales Wirtschaitsrecht, 2nd edn 1995, 3. $D.CarreaulP.Jullard/T-Flory, Droit Intemational économique, 2nd edn 4980, 11 6 Restatement (Third), Vol.2, 261 7 See R.W.Bentham, The Law of Development: International Contracts, GYIL 32 (1989), 418; F.V.Garcia-Amador, Tho Emerging International Law of Development: A New Dimension of International Economic Law, 4990; A. Carty (ed.), Law and Development. Vol. 2: Legal Cultures, 1992; PEbow Bondzi- ‘Simpson (ed.), The Law and 15 Economy ‘The law governing international economic relations is one of the most important areas in which international legal rules and principles and international institutions operate in practice. This reflects the remarkable growth of the economic interdependence of the world since the end of the Second World War and it is challenging traditional perceptions of international law.' The concept of ‘international economic law’ which has come into use over several decades* covers a vast terrain which is far beyond the scope of this book. But to leave it aside completely would indeed convey a rather misleading impression of the nature of modern international law as it stands today.* It is still a matter of discussion among scholars what the term ‘international economic law’ exactly covers, the main problem being that the close interconnection with norms of the municipal law of states complicates the study of the area immensely.* A restrained approach suggests concentrating on the international regulation of the establishment by foreign business of various factors of production (persons and capital) on the territory of other states, on the one hand, and of international transactions concerning goods, services and capital on the other The Restatement (Third) takes the following view: 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.® The subject thus includes as sub-topics the law of establishment, the law of foreign investment, the law of economic relations, the law of economic institutions, and the law of regional economic integration, But one could also include many other questions, such as the international law of econon development” or economic sanctions.* As this book is concerned with an introduction to public international law,’ this chapter selects only some very basic features of international economic law. Other legal aspects of international economic relations, such as the problem of the extraterritorial application of national economic regulations," state immunity." the role of transnational enterprises," air transport," telecommunications,"* the protection of the environment and diplomatic protection"® are addressed in a different context in other chapters. The following also leaves aside international commercial law which deals with the relationshipTHE BRETTON WOODS SYSTEM __223 between merchants and other private parties in their international business transactions and with international commercial arbitration. International economic law is to a large extent based upon reciprocal international (bilateral and multilateral) treaties reflecting the commercial principle quid pro quo. Customary international law in this area is insignificant. Under customary law states have always been regarded as free to regulate their economic and monetary affairs internally and externally as they see fit."® Some customary law limits of this freedom in the economic intercourse of states follow from the general principles of state sovereignty and state responsibility (e.g. concerning the treatment of aliens and their property)."” Yet the principles of the freedom of commerce, the most favoured nation treatment” or the principle of the convertibility of currencies are not guaranteed by customary law. The Bretton Woods system and international economic organizations ‘Towards the end of the nineteenth century the international trade system had become based primarily upon liberal national legislation (e.g. on the gold standard and on the convertibility of national currencies) and on bilateral trade agreements and so-called ‘FN Treaties’ on friendship, commerce and navigation.*! The system collapsed with the First World ‘War, which was followed by protectionism and currency instability in the inter-war period. The Atlantic Charter of 1941 envisaged the establishment of a liberal international economic order, an idea mainly supported by the United States and the United Kingdom, to increase international economic transactions on the basis of equal market access conditions. The modern global system of international economic regulation between states rests upon the multilateral system established by the Bretton Woods Conference in 1944. The two main objectives of the Conference were, first, to advance the reduction of tariffs and other barriers to international trade, and, second, to create a global economic framework to minimize the economic conflicts among nations which, at least in part, were held to have been responsible for the outbreak of the Second World War. The Conference led to the creation of the three basic international economic institutions regulating money and trade: the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), also known as the ‘World Bank’, and later the General Agreement on Tariffs and Trade (GATT), which will be deale with in more detail below. The underlying philosophy of the system is the theory of comparative advantage, which had been developed by the British economists David Ricardo and John Stuart Mill by applying the market theory of Adam Smith to international transactions. It assumes that liberalized foreign trade and the corresponding international division of labour creates benefits for all participating national economies. In a nutshell, the international economic order envisaged in the Bretton Woods system views market access and the reduction of barriers to international trade and monetary transactions as the main instruments to promote a high level of Economic Development inthe Third Wort, 1992; S.K.Chatteree, Intemational Law of Development, EPIL 11(1995), 1247-51; R.Pritchard (ed), Economic Development, Foreign Investment and the Law, 1998. For the ‘multilateral agreement establishing the International Development Law Institute see ILM 28 (1989), 870. See also text below, 00-00. 8 See J.Combacau, Sanctions, EPIL 9 (1986), 337-41; M.PMalloy, Economic ‘Sanctions and US Trade, 1990; N. ‘Schriver, The Meaning and Operation of ‘Sanctions and Other Measures Short of the Use of Force. Ga. JICL 22 (1992), 41-53; J.AFrowein, Aticle 4, in ‘Simma CUNAC, 621-8. 9 See Chapter { above, 7-8, 10 See Chapter 7 above, 116-17. 41 See Chapter 8 above, 118-23. 12 See Chapter 6 above, 102-3. 13 See Chapter 13 above, 200-1 14 See Chapter 13 above, 202-3, 45 See Chapter 16 below, 241-53. 16 See Chapter 17 below, 256-63, 17 See B.M.Cremades, Commercial Acbitration, EPIL (1002), 674-7, 18 -UPetersmann, Rights and Duties of States and Rights and Duties of Their Citizens, in FS Bemharat, 1087, at 1094, See also S.Zamora, Is There Customary international Economic Law?, GYIL 32 (1989), 9. 19 See text below, 235-8, 20 See text below, 229. 21 See GHerrmann, Commercial Treaties, EPIL| (1992), 677-83; D. ‘Blumenwitz, Treaties of Friendship, ‘Gommerce and Navigation, EPIL 7 (1984), 484-80. 22H.Going, Bretton Woods Conference (1944), EPIL (1992), 494-5; S.A Siar, Financial Institutions, Intergovernmental, EPIL (1995), 378-81; E- U-Petersmann, Economic Organizations and Groups, International, bi, 32-8; RFMikesell, The Bretton Woods Debates, 1994; PB. Kenen (ec. ‘Managing the World Economy: Fity Years after Bretton Woods, 1994; The Bretton Woods Commission (ed), Bretton Woods: Looking tothe Future, 4994; J. CavanaghiD.Wysham’ \M.Arruda (eds), Beyond Bretton Woods: Altematives to the Global Economic Order, 1994,224 ECONOMY 23 Articles 1(3), 55(a) and (b), 56 of the Charter. See Chapter 21 below, 382-4, 24H.GSchermers, Weighted Voting, EPIL 5 (196), 980-9. 25H.J.Hahn, Organisation for Economic Co-operation and Development, EPIL 5 (1983), 214-22. 26A-N.d.Zayas, European Recovery Program, EPIL Il (1995), 282-5, 27 P-T.Seoll, Economic ‘Commissions, Regional, in Wottrum UNLPP /, 434-50; W.Meng, Economic Co-operation under the LUN-Systom, ibid, 451-60; R Lagoni, ECOSOC, ibid, 461-9. On ECOSOC see also Chapter 21 below, 382-3. 28 GGorea, United Nations Conference on Trade and Development, EPIL 5 (1983), 301— 7; RMarxen, UNCTAD, in Wotfrum UNLPP 1, 1274~ 83; On the latest ‘conference, UNCTAD IX, held in ‘South Africa from 27 Aprilto 11 May 41996 see UN Chronicle 1996, no. 58-60, 29 S.Marchisio/A.di Blase, Tho Food and Agricultural Organization (FAO), 1994; J.PDobbert, Food and ‘Agriculture Organization of the United Nations, EPIL I (1995), 413- 9; H.-J. Scholz, FAO, in Wolfrum UNLPP 1, 499-522. 30 See H.Sahimann/B.Blank, UNDP, in Worfrum UNLPP 1, 4284-20. 31 P.C.Szasz, United Nations industrial Development (Organization, EPIL 5 (1983), 329- 36; B.L Rau-MenizenGv, Koppentels, UNIDO, in Worfrum UNLPP 1, 1329-34, 32W.Benedek, Iniomational Fund for Agricultural Development, EPIL I (1995), 1146-9; PM.Frankentld, IFAD, in Woltrum UNLPP , 694 701. 33 See B.S.Chimni, Intemational Commodity Agreements: A Legal ‘Study, 1987; C.Tomuschat, ‘Commodities, Common Fund, EPIL 1(1992). 683-6: Commodities, Intemational Regulation of, Production and Trade, ibid, 686-92; R.Wolfrum, Commodity ‘Agreements/ Common Fund, in Wolfrum UNLPP I, 138-47. employment, to increase real income and to optimize the use of production factors. This is supplemented by the goal of monetary stability as a pre- condition for sound economic growth. In addition, the principle of non- discrimination aims at achieving the optimal allocation of resources and at preventing the distortion of competition resulting from privileged position of particular states. However, these liberal principles often conflict with the sovereign equality of states, as laid down in Article 2(1) of the UN Charter, and their freedom to determine their economic policies and priorities, in spite of the commitments to international cooperation also in the social and economic fields mentioned in the UN Charter.* Communist countries refused to join a number of the Bretton Woods institutions on the grounds that they were based on a capitalist (market economy) philosophy. Developing countries, initially critical of the alleged insensitivity of these Western institutions to poverty and problems of economic development in the Third World, gradually participated and began to play an important role in those organizations which operate on the basis of the one-state one-vote principle. The influence of industrialized countries remained overwhelming, however, in central institutions, such as the IMF or the World Bank, which make decisions according to a weighted voting system reflecting the amount of capital input into the organization and which thus dispenses with the principle of the sovereign equality of states." The Bretton Woods system was complemented by the Organization for Economic Cooperation and Development (OECD).** In 1960 the OECD became the successor to the Organization for European Economic Cooperation that had been set up in connection with the Marshall Plan aid given by the United States to reconstruct Europe after the Second World War.* The OECD comprises twenty-six of the largest industrial states in the Western world which together combine more than half of world production and more than 70 per cent of world trade. It is primarily a forum for cooperation, especially with regard to the coordination of economic and monetary policies of the members. In addition, the United Nations (which has created five regional economic commissions under ECOSOC for Europe, Asia and the Far East, Latin America, Africa, and Western Asia®”) has set up quite a number of more specialized organizations in the economic field, the most important of which for formulating the interests of developing countries is the United Nations Conference on Tiade and Development (UNCTAD), which was established in 1964. Under the umbrella of the UN there are also organizations dedicated to the improvement of living standards and to industrial development in the poorer countries, such as the Food and Agriculture Organization (FAO),” the United Nations Development Programme (UNDP),"’ the United Nations Industrial Development Organization (UNIDO),"! and the International Fund for Agricultural Development (IFAD). Furthermore, there are a number of not very successful commodity arrangements which aim to achieve a stable price level primarily in the interest of developing countries heavily dependent on the export of raw materials (e.g. rubber, coffee, tea, metals).” Apart from the OECD, other economic organizations which are regional in nature include the Organization of Petroleum ExportingTHE BRETTON WOODS SYSTEM __225 Countries (OPEC), the European Communities (ECSC, EEC and Euratom), now under the umbrella of the European Union, * the Benelux Economic Union,** the European Free Trade Association (EFTA),”” and. the European Economic Area (EEA), created in 1992. (The EEA agreement, governed by the principles of European Community law, was signed by the EC and ECSC and the member states and seven EFTA states. Switzerland withdrew following a referendum, With the accession of Finland, Austria and Sweden to the European Union, EFTA has been largely absorbed by European integration.) Furthermore, there is the 1988 Canada-United States Free Trade Agreement (FTA)," which formed the basis for the North American Free Trade Area (NAFTA),*" concluded in 1992 between Canada, Mexico and the United States as a free trade area open to further extension to Latin America as a counterweight to the European Union and Japan. There are also a number of other free trade areas and sub-regional economic organizations in Latin America, including the Andean Pact,” CACM, ALADI, SELA, CARICOM,” and MERCOSUR.* The Additional Protocol on the Institutional Structure of MERCOSUR, (founded by Argentina, Brazil, Paraguay and Uruguay), adopted on 17 December 1994* may lead to the first significant integration process undertaken by developing countries. Chile joined MERCOSUR in June 1996. In Africa, for example, we find the Economic ‘Community of West African States (ECOWAS), founded in 1975, the African Economic Community, established in 1991,” and the Common ‘Market for Eastern and Southern Africa, created in 1993.* In the Pacific area, in 1989 the Asian-Pacific-Economic-Cooperation (APEC), with its seat in Singapore, was formed by a large number of states, including Australia, Hong Kong, China, Indonesia, Japan, Canada, Brunei, Malaysia, the Philippines, New Zealand, Singapore, South Korea, Taiwan, Thailand, Mexico, Papua New Guinea and the United States. In 1992 the Czech Republic, Hungary, Poland and the Slovak Republic created the Central European Free Trade Area (CEFTA)."’ Furthermore, in 1993 the Commonwealth of Independent States (CIS), which had emerged from the remains of the former Soviet Union, signed a ‘Treaty on Creation of an Economic Union.’*? Among the CIS members signing the Treaty on 24 September 1993 were Russia, Belarus, Armenia, Moldova, Kazakstan, Kyrgyzstan, Uzbekistan, Tajikistan and Azerbaijan. Ukraine and Turkmenistan joined as associated members. Georgia became full member in October 1993. Nor all of such forms of cooperation in free trade areas and customs unions have led to the creation of a legally separate organization, However, there is a danger that the trend to create large trading blocs may result in a regionalization of the world economy. This trend is also reinforced by the 1994 Energy Charter Treaty; which, subsequent to the non-binding European Energy Charter signed in 1991, is a novel multilateral investment and trade arrangement accepted by forty-nine states and the European Community. The International Monetary Fund (IMF) The main ideas that led to the creation of the IMF rest upon proposals made by the renowned economists John Maynard Keynes (UK) and 34 FL Shihata/A.R.Parra, Organization of Petroleum Exporting Countries, EPIL 5 (1983), 224-8. See also O.Eiwan, Organization of Arab Petroleum Exporting Countries, EPIL 6 (1983), 281-7, 35 See Chapters 1, 8 and 6, 96 above, 36 E.D.J.Krujtbosch, Benelux Economic Union, EPIL I (1992), 373-7: PPescatore, Belgium-Luxembourg Economic Union, ibid., 367-71, 37 W.karl, European Free Trade Associaton, EPIL II (1995), 237-40. 38 See, for example, A.Evans, The Law of the European Community Including the EEA Agreement, 1984; T. BlancheUR, PipponeniM. Westman- Clement, The Agreement on the European Economic Area (EEA), ‘1994. 39 Text in LM 27 (1988), 281. See 'S.A.Baker/S.B Battram, The Canada- United States Free Trade Agreement, IL 23 (1989), 37-80; Canada-United States Free Trade Agreement Binational ‘Secretariat: Background Note on the FTABinational Secretariat and A Status Report of All Casos Filed with tho ‘Secretariat under Chapters 18 and 19, ILM 30 (1991), 181; MHahn, Free ‘Trade Agreement between the United States and Canada (1988), EPIL II (1995), 469-73. 40 Text in /LM 32 (1993), 289 and 605. ‘See F-L Ansley, North American Free Trade Agreement: The Public Debate, Ga JICL 22 (1982), 489; M.D. Baer! ‘S.Weintraub (eds), The NAFTA Debate: Grappling with Unconventional Trade Issues, 1994; D.C.AlexanderiS.J. Rubin (eds), NAFTA and Investment, 1995; FIM.Abpott, Law and Policy of Regional integration: The NAFTA and Westem Hemispheric Integration in the World Trade Organisation, 1995. 41 M.Minker, Central American Integration: Evolution, Experience and Perspectives, GYIL 32 (1989), 4195-240; O.Ribpelink, Institutional Aspects of Regional Economic Integration: Latin America, Hague VIL 4 (1991), 86-105; K.R.Simmonds, Caribbean Cooperation, EPIL! (1992), 533-6; K.R.Simmonds, Central American Common Market, ibid, 548-50. 42 Toxt in LM 28 (1989), 1165. Seo P. Nikken, Andean Common Market, EPIL 1(1992), 155-9, 43 The Caribbean Community (CARICOM) established by a treaty in 41973, replaced the Caribbean Free Trade Association (CARIFA) founded in 1962. Text of the CARCOM Treaty in La 12 (1973), 1033.