UNIT 1: CONCEPT OF INTERNATIONAL TRADE LAW

1.1 Meaning and Concepts

Trade is transfer of ownership over goods and services from one person/entity to another.

International trade involves the flow of goods (trade in goods) and services (trade in services)
across national frontiers.

International trade law comprises of set of laws, rules and regulations that regulate cross
boarder exchange of goods and services.

International trade law is also a framework of law that enables countries to integrate their
domestic market into international market.

1.2 Genesis

The development of the law of international trade has gone through three stages. In the first
phase it appeared in the form of the medieval lex mercatoria, a body of universally accepted
rules. In the second stage it was incorporated into the municipal law of the various national
States which succeeded the feudal stratification on medieval society. The culmination of this
development was the adoption in France of the Code de commerce of 1807, in Germany the
promulgation of the General German Commercial Code (Allgemeine Handelsgesetzbuch) of
1861, and in England the incorporation of the custom of merchants into the common law by
Lord Mansfield. The third stage in the development of the law of international trade is
contemporary.1

The historical lex mercatoria was the law merchant/merchant law of the Middle Ages. It is
said to have emerged from the customary practices of the traders and merchants of those
days, both in the area of maritime trade and in general commercial transactions.

The main features of the historical lex mercatoria as an independent body of legal rules were,
a) that it did not originate from any particular legislator or rule-maker, and b) that it consisted
of a more or less coherent system of principles and rules of procedural and substantive law.
That system resulted from and took account of the "nature of the matter”, i.e. the specific
needs and risks of medieval sea trade as well as the practices and customs- with respect to
both substance and procedure- prevailing in the ports and market places of those days.

Over time, international commercial practice has established a broad variety of rules and
common concepts for specific transactions. The notion of lex mercatoria captures
internationally established customary rules or terms with a specific and internationally
recognized meaning.2

In 1987, an arbitral award of the International Chamber of Commerce listed several principles
or rules as part of the lex mercatoria.3

1
Progressive Development of the Law of International Trade: Report of the Secretary General of the United
Nations, 1966.
2
Matthias Herdegen, ‘Principle of International Economic Law’, 2013, Pg. 48.
3
Matthias Herdegen, ‘Principle of International Economic Law’, 2013, Pg. 48.
The arbitral tribunal decides that the applicable rules of the lex mercatoria should comprise
principles such as the one that contracts must prima facie be executed in conformity with the
stipulations contained therein (pacta sunt servanda), the one that contracts must be executed
in good faith, the one that in case that unforeseen difficulties arise after the conclusion of the
contract the parties must negotiate in good faith to overcome them, [ . . . ] the one that
contracts must be interpreted according to the principle of ut res magis valeat quam pereat
(favor validitatis) and the one that a party’s omission to respond to a letter which has been
addressed to it by the other party may be considered as an indication for the acceptance of the
terms contained therein.4

The contours of modern international trade law emerged towards the end of the Second
World War. The Havana Charter of 1948 which provided the establishment of an
International Trade Organization (ITO), provoking criticism in the United States, never
entered into force. However, a pivotal element of the Charter was realized in 1948: the
General Agreement on Tariffs and Trade (GATT) of 1947. The GATT aims to liberalize
world trade through the reduction of tariffs and the elimination or restriction of non-tariff
barriers to trade.5

The substantive principles of the GATT 1947 are continued by the GATT 1994. In
institutional terms, the crucial achievement of the ‘Uruguay Round’ is the establishment of
the World Trade Organization (WTO). The WTO law considerably extends the reach of
world trade law/international trade law. The General Agreement on Trade in Services
(GATS) now covers the service sector. The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) and the Agreement on Trade Related Investment
Measures (TRIMS) bring new areas within the ambit of the WTO regime. Specific
agreements address sanitary and phyto sanitary measures, technical barriers to trade,
safeguards, trade in the agricultural sector, anti-dumping measures, as well as subsidies and
countervailing measures.6

WTO provides the basic “constitutional” framework, facilitating the development of

international trade law. The WTO provides an executive, legislative and enforcement
apparatus for a code of conduct regulating international trade policies and practices of nation
States.7

Indeed, in the international trade sphere there are other institutions which also a play a role in
the development of international trade, for example, the United Nations Conference on Trade
and Development (UNCTAD), the World Intellectual Property Organization (WIPO) and the
International Labor Organization (ILO).8

4
Matthias Herdegen, ‘Principle of International Economic Law’, 2013, Pg. 48.
5
Matthias Herdegen, ‘Principle of International Economic Law’, 2013, Pg. 15.
6
Matthias Herdegen, ‘Principle of International Economic Law’, 2013, Pg. 174-175.
7
Asif H Qureshi and Andreas R Ziegler, 'International Economic Law', 2011, pg 310-311.
8
Asif H Qureshi and Andreas R Ziegler, 'International Economic Law', 2011, pg 310-311.