Unit – I Nature and Scope of International Trade Law and its

Traditional relationship with International Law

Definition of International Economic Law

International economic law in its widest meaning refers to those rules of public
international law which directly concern economic exchanges between the subjects of
international law. Peaceful relations between subjects of international law are, after all, to a
very large extent directly concerned with economic exchanges.

Seen from this angle, international economic law thus covers only a part, albeit an
important one of the disciplines of public international law as a whole. This argument will be
unwelcoming to those who maintain that international economic law is or should be a
discipline of its own, separate from public international law. Whatever may be the argument
regarding the subject as a separate discipline it is necessary to touch upon all aspects of
international economic law.

International economic law includes monetary law, competition/anti-trust law,

intellectual property and law and development. It embraces alternative perspectives, such as
Third World and feminist critique and interdisciplinary approaches and concerns itself with
the distribution of wealth and justice and with preservation of culture, the environment and
peace. Professor Georg Schwarzenberger defined international economic law as ‘a branch of
public international law that encompassed such matters as the ownership and exploitation of
natural resources, the production and distribution of goods, invisible economic or financial
transactions and currency and finance’. International economic law was to be found in
treaties and to a limited extent in customary international law and so called general principles
of law and was evidenced in the same way as public international law generally through
treaties, decisions of international and domestic courts as well as in the views of writers. That
international economic law was fundamentally no different than the rest of public
international law was an axiom for Schwarzenberger, ‘economic sovereignty remains the
starting point of International Economic Law as is sovereignty that of International law at
large’. Austrian jurist Professor Ignaz Seidl-Hohenveldern defined international economic
law as “those rules of public international law which directly concern economic exchanges
between the subjects of international law. He also tried to come to terms with the fact that
economic exchanges involve not only states but also “multinational enterprises”, or
arrangements between states and nationals of other states. He did this by adopting the
“modern doctrine which extends the categories of subjects of international law” that is by
broadening the traditional concept of international law.

He also found the sources of international economic law to be the traditional sources
of international law treaties, customary international law, general principles and subsidiary
sources but unlike Schwarzenberger he did not place economic sovereignty at the foundation
of international economic law. He had a somewhat more nuanced view of sovereignty,
considering that the concept of “relative sovereignty” reflected more accurately the reality of
international economic relations.

The common feature of the Schwarzenberger and Seidl-Hohenveldern approaches, as

well as that of the Colloque d’ Orleans, is that they all located international economic law in
the “economic relations of states”. That of course justifies treating international economic
law within a traditional international law framework. After all, international law is all about
the relations of states; and if international economic law is about the economic relations of
states, it goes without saying that international law are of the same genus.

Sovereignty of States – Reality of International Trade

But when we turn to international trade law, we face a dilemma. Although the process
of international trade regulation may give the appearance of being about the relations of
states, in reality international trade is not about the relations of states at all. There is
enormous scope for debate about the economic activity of buying and selling where the
transaction crosses a border. A simple model of international trade is a cross-border sale of
goods. A seller in one state (State A) sells goods to a buyer in another state (State B). The
goods are shipped from A to B and money to pay for the goods is transferred from B to A.
This exchange is, in essence, no different from a sale of goods from one individual to another
taking place solely within one state alone. It constitutes international trade only because the
transaction involves the transfer of something of value across a border.

Cross-border exchanges are, of course, not limited to the sale of commodities or of

manufactured goods, what is being purchased may not be goods but rather services, or the
transaction may involve the movement of capital from State to another through loans or
investment. Such international transactions are no more than cross-border examples of
transactions that take place every day within States. This subject is concerned with the
movement of goods, services, capital, and in some circumstances, labour, across borders.
This mirrors the reality of international economic activity – trade in services is substantial
part of international trade and trade and trade in services and investment are often
inextricably tied to trade in goods.

International trade law, then, is about the impact of borders and of nation States on
economic exchanges. If borders did not exist, the activity of buying and selling would
nevertheless still go on. Transactions would continue between individuals (firms,
corporations), involving the movement of goods, services and capital. Economic exchanges
would occur regardless of the existence of States. International trade law is about getting rid
of the impediments to economic exchange that borders and nation States impose. The
regulation of international trade is concerned with limits on the ability of states to interfere
with the cross-border exchanges. In other words, the starting assumption of modern
international regulation of trade is that border and other barriers to cross-border economic
exchanges must be limited if not eliminated. International trade law is concerned with
removing the impediments that sovereignty places in the way of trading across borders in one
sense, international trade law is about the irrelevance of the sovereignty of States. And this
stands in contrast to international law for, as Professor Carreau noted at the Colloque d’
Orleans, the starting assumption and defining characteristic of international law is the
sovereignty of States.

In international trade regulation, the role and functions of States take on a somewhat
different character from those traditionally perceived in international law. States are relevant
to international trade law because of their regulatory functions on either side of borders,
because they can facilitate or impede international trade, and can implement international
trade rules, and because in some instances they engage in trade themselves. But the concept
of “economic sovereignty” on which Professor Schwarzenberger founded international
economic law – the idea that States are autonomous, independent, territorially based political
units, is not the foundation of international trade law.

Indeed, as will be seen, in the light of what is commonly termed “globalisation”,

today it can be queried whether “economic sovereignty” can even be said to exist.

Thus, it can be said the field of international trade and economic law have not been
considered part of the mainstream of international law. The traditional approach to
international law, that had little place for international trade law, is no longer adequate for
international society today. In this regard, there are two major areas one has to focus on, first
the end of the Cold War, and second “economic globalisation.”

Developments in International Trade

End of the Cold War

With the end of the Cold War, a defence or peace and security-based rationale for
States or for international law is less compelling.

Today, Governments- States are concerned with economic welfare. Indeed, one of
the, if not the, most important expectations that citizens have of their Governments, at least in
democratic States is the enhancement and preservation of, their economic, social and cultural
welfare. In doing this, issues of defence and of peace and security in relation to threats from
other States are a small – an important but nevertheless increasingly small – part.

Moreover, since the Collapse of Communism in the former Soviet Union and Eastern
Europe, and the movement of these countries, and now of China, towards varying forms of
market economies, there is no longer any significant challenge at the level of States to the
market economy system of which contemporary international trade is a part. Although there
are divergent views on the precise direction, pace and necessary instruments to achieve
market economies, as well as how far down the road particular States should go, and how
other values in society , such as distributional goals are to be dealt with, there is simply no
competing political vision amongst States to economic liberalisation. And as a consequence,
there is no suggested alternative to an international economic regime in which international
trade is an essential part.

Independently of the end of the Cold War, although perhaps influenced it, the results
of the Uruguay Round of multilateral trade negotiations and creation of the WTO, have led to
a new dynamic in the regulation of trade. It can be said that just as the United Nations Charter
was the defining regime for post-War peace and security, the WTO may be the defining
regime for multilateral trade in its broadest sense in the post- Cold War era.

Economic Globalisation

The “national economy” involved capital and labour that was used within each State
or society to exploit primary resources and to manufacture goods. The resulting products
were sold within the markets of the State or available for export. Resources or goods from
other States were imported for direct sale or utilized in manufacturing. Under the model of a
“national economy”, the international part of the economic process – trade – constitutes an
addition to domestic production – it remedies a shortfall in that production. This image of
“national economies” implies the existence of independent, self-contained economic systems
that intersect at the point at which their nationals trade with each other. This is a common
image of economies of states, and the “international economy” is seen as the aggregation of
these national economies.

But the image is misleading. The picture is quite different.

Since the liberalizing of capital markets in the 1980s, capital is no longer domestic, it
moves freely across borders. Whereas Governments used to control how much money their
nationals could take out or bring into the country, i.e., exchange controls, have disappeared in
many countries. Foreign exchange transactions encompass investment and speculation as
well as financing of trade in goods.

Further, manufacturing is no longer a domestic process. As a result of the

liberalization in the movement of capital, manufacturers are able to move to where they can
produce most efficiently, taking advantage of economies of scale, labour costs, and the use of
technology. The substantial reduction in transportation and communications costs and
advances in technology have facilitated this. As a result, products are assembled from
components that may be manufactured in a variety of countries, so that the end-product
exported may be put together from services and components derived from several other
countries. Thus, what might appear to be a domestic manufacturing process, designed to
produce goods for domestic consumption, is in fact, a complicated international transaction.
It can be seen that there has been an internationalisation of production, of investment and of
distribution systems; with the result that economic activity in one State which contributes to
that State’s domestic economy is inextricably linked with economic activities in other States,
each contributing to the domestic economies of those States. Thus, the domestic economies
of the States themselves are inextricably linked. This is what is often popularly referred to as
“globalization”.

The idea of a national economy, controlled and regulated by central government

authorities is becoming less and less realistic. The idea of a “national economy” becomes
little more than a convenient accounting mechanism.
 “Economic globalisation” is not just a developed, Western State phenomenon. Nor is
it limited to common markets, such as the European Union, or to free trade areas such as
NAFTA. Market economies, which in their various manifestations have become the
predominant economic systems in States, are demonstrating these characteristics throughout
the world. In short, the international economic environment in which States function has
fundamentally changed.

From the above discussion it can be deduced that the scope of international economic
law is very wide and the regulation of international trade is concerned with limits on the
ability of States to interfere with the cross-border exchanges. Further, international trade law
has been seen as marginal to the field of international law. Attempts by scholars to explain
that international economic law is really the same as the rest of international law have
generally been unconvincing. A “peace and security” starting point for international law
ignores the reality of the post- Cold War era where for many States economic welfare is a
more fundamental concern than is fear of aggression from other States. A “peace and
security” situation for international law also ignores the fundamentally different economic
reality of a globalised and globalising economy.