INTRODUCTION TO

INTERNATIONAL TRADE
LAW : CODIFICATION AND
DEVELOPMENT
 International Trade has been playing as significant role in
international relations ever since nation states come to
recognize each other.
 However, it made phenomenal progress during the last few
decades and acquired universal range in terms of its
applications.
 Today it not only governs the economic relations between
the states, but also regulates the conduct of states,
international organizations, individuals and non-state
entities dealing with trade and commerce.
 In this age of globalization and
interdependence,
principles of international trade law affect all states, small
and larg e, weak and powerful alike.
 New issues in trade such as services, intellectual property,
international investments etc. are transcending
national boundaries and affecting the humanity as a whole.
 International Trade Law (ITL) is the law
regulating
international commerce.
 It has two aspects: public and private.
 The public aspect of ITL seeks to coordinate commercial
policies of states; and it is a part of Public International Law.
 The private aspect of ITL governs international commercial
transactions between the people belonging to
different
 In addition, the bodies like the United
Nations Commission on International Trade
Law have been trying to develop standard
laws on various aspects of transnational
transactions and states are expected to
incorporate them in their respective legal
system.
 This process is known as unification of laws.
 The UN and its specialized agencies with their reach,
functions and scope are not only playing a
regulatory but also the promotional role in
accomplishing this task.
 One can notice a tremendous growth of international
treaties, laws and conventions over the years,
covering a vast area including human rights,
development of women and children, combating
terrorism, protecting environment and smooth
growth of trade and commerce.
 The purpose of ITL has been to foster free trade
among nations. Free trade in this context means that
people should be free to buy and sell goods cutting
across national frontiers.
 In other words, a person should be free to buy a
product from anywhere in the world wherein he can
get the best quality at the cheapest possible price.
Similarly, he should be free to sell his product
anywhere in the world at the highest possible price.
 In brief, it is the globalization of Article 301 of Indian
Constitution: Trade, Commerce and intercourse shall
be free throughout the territory of India.
 Int. Trade is all about the economic activity of buying and
selling where the transaction crosses a border or cross-border
Sale of Goods.
 However, cross-border exchanges are not only limited to Sale
of Goods but also movement of services, Capital and Labor etc.
 General Issues: Tariff Regulations, Cross-border transactions
including movement of services, Capital and Labor, Subsidies,
and Anti-Dumping.
 International Trade law is developed and regulated by various
institutions with specific objectives of combating the
aforementioned general issues. These institutions include ITO
(Preparatory work of ITO, ultimately resulted in adoption of
GATT), GATT and WTO.
 Before the emergence of modern state system in 17th century,
trade was free and merchants moved all over the world to the
extent they could buying and selling goods and incidentally
spreading knowledge and culture.
 In this way, they were the harbingers of modern civilization. But
once the organized state system came into existence, the
governments started interfering into these commercial
transactions.
 To start with, they began to levy tariffs on incoming goods mainly
with a view to bolstering their revenues. With the ushering in of
Industrial revolution, manufacturing became an important
component of national economy.
 At that stage, states started using tariffs and other devices to
protect national economy from foreign competitors. From that
time onwards, free trade and protectionism moved side by side:
one following the other like a shadow
 Thanks to the contributions of people like Adam Smith, the
governments realized the value of free trade; and made
conscious efforts to promote free trade.
 One can identify three distinct stages in the evolution of
international free trade regime.
 To begin with, states started concluding bilateral treaties, with a
view to mutually reducing tariffs with regard to certain
specified goods which were of interest to them.
 Anglo-French Treaty of 1860 was the earliest bilateral treaty
calling for a “tariff truce” and aiming at mutual tariff reductions.
And this stage continued up to the end of Second World War.
 According to Adam Smith, who is regarded as the father of
modern economics, countries should only produce goods in
which they have an absolute advantage.
 An individual, business, or country is said to have an absolute
advantage if it can produce a good at a lower cost than another
individual, business, or country.
 Furthermore, when a producer has an absolute advantage, it
also means that fewer resources and less time are needed to
provide the same amount of goods as compared to the other
producer.
 This greater overall efficiency in production creates an
absolute advantage, which allows for beneficial trade—this is
because producers are able to specialize and then, through
trade, benefit from other producers’ specialization.
 In the early 1930s, international economy was hit by
the Great Depression. States reacted by imposing
restrictions on incoming goods, hoping that they
would thereby protect domestic employment.
 The U.S. Congress passed Smoot-Hawley Act in 1930
whereby import duties were raised considerably.
Other states reacted in the same way; and beggar-
thy-neighbor policy became the order of the day.
Between 1929 and 1934, international trade shrank
by 2/3.
 When the USA realized that it could not sell its
products any longer in international market, it tried to
get out of it by concluding bilateral trade agreements
with other countries whereby the parties mutually
reduced the tariffs on selected products.
 The U.S. Congress passed Reciprocal Trade
Agreements Act in 1934, authorizing the President to
conclude bilateral trade agreements for certain
period of time; and when that time expired, it
renewed the authority a couple of times. The fast track
authority, so given to the President was used by the
latter to enter into the GATT.
 The U.S.A. concluded a number of reciprocal trade agreements
with other countries. All of them invariably contained so-called
conditional most favored nation clause.
 For example, country A would give most favored nation
treatment to certain goods coming from B provided B
reciprocates this gesture. Thus both A and B would extend to
each other most favored nation treatment on reciprocal basis.
 But this kind of bilateral approach had its own limitations.
 Thus when the countries started negotiations for the
establishment of International Trade Organization, there was
general consensus on multilateral approach based on
unconditional most favored nation treatment.
 Many scholars are of the view that economic misery, caused by the
Great Depression facilitated the rise of totalitarianism in
Germany and Italy.
 The Allied Powers fought the War against the Axis Powers under
the slogan of protecting democracy from the onslaught
of
totalitarianism. Even as the War was raging, the Allied
Powers
started the deliberation on new World order which would secure
the World peace.
 The Atlantic Charter, agreed between the USA and the UK, was the
first step in this direction; and this Charter, inter alia, emphasized
free trade. Free trade among free people was the guiding
ideology for the reconstruction of war-ravaged world.
 The United Nations Organization was established in 1945
to
advance the cause of human rights and fundamental freedoms.
Free trade which is the expression of economic freedom
was
considered as the fortification of liberal world order.
 Soon after the First World War, the League of Nations was
established to foster multilateral approach towards international
problems.
 Though the League did not have a separate set up to deal with
international economic problems, its Secretariat made
significant intellectual contribution to the analysis of economic
problems.
 The first World Economic Conference was held under the under
the League’s Auspices in 1927; and it produced Geneva
Convention on Import and Export Prohibitions.
“The economic health of every country is a
proper matter of concern to all its neighbors,
near and far.”
U.S. President Franklin D. Roosevelt at the
opening of Bretton Woods
 What Was Bretton Woods?
 In the aftermath of WWII (in Europe) The
United Nations Monetary and Financial
Conference commonly known as Bretton
Woods conference, was a gathering of 730
delegates from all 44 Allied nations. Main
goal was to regulate the international
monetary and financial situation.
 The Bretton Woods Conference of 1944 recognized
the need for a comparable international institution
for trade (the later proposed International Trade
Organization (ITO)) with the International Monetary
Fund and the World Bank.
 Probably because Bretton Woods was attended only
by representatives of finance ministries and not by
representatives of trade ministries, an agreement
covering trade was not negotiated there.
 In early December 1945, the United States invited its
war-time allies to enter into negotiations to conclude
a multilateral agreement for the reciprocal reduction
of tariffs on trade in goods.
 In July 1945 the United States Congress had granted
President Harry S. Truman the authority to negotiate
and conclude such an agreement.
 At the proposal of the United States, the United
Nations Economic and Social Committee adopted a
resolution, in February 1946, calling for a conference
to draft a charter for an International Trade
Organization (ITO).
A Preparatory Committee was established in
February 1946, and met for the first time in London in
October 1946 to work on the charter of an
international organization for trade; the work was
continued from April to November 1947.
 At the same time, the negotiations on the General
Agreement on Tariffs and Trade (GATT) in Geneva
advanced well and by October 1947 an agreement
was reached: on October 30, 1947 eight of the
twenty-three countries that had negotiated the GATT
signed the "Protocol of Provisional Application of the
General Agreement on Tariffs and Trade".
 In March 1948, the negotiations on the ITO Charter were
successfully completed in Havana. The Charter
provided for the establishment of the ITO, and set out
the basic rules for international trade and other
international economic matters.
 The ITO Charter, however, never entered into force;
while repeatedly submitted to the US Congress, it was
never approved. The most usual argument against the
new organization was that it would be involved into
internal economic issues. On December 6, 1950
President Truman announced that he would no longer
seek Congressional approval of the ITO Charter.
 A British economist whose ideas have had a major impact on
modern economic and political theory.
 He advocated interventionist government policy, the use of fiscal
and monetary measures to mitigate the adverse effects of
economic recessions, depressions and booms.
 His ideas are the basis for the school of thought known as
Keynesian economics.
 Keynesian economics is a macroeconomic economic
theory of total spending in the economy and its effects on
output, employment, and inflation. ...
 Based on his theory, Keynes advocated for increased
government expenditures and lower taxes to stimulate demand
and pull the global economy out of the depression
 Keynes's theory suggested that active government policy could
be effective in managing the economy.
 Keynes advocated policies which acted against the tide of the
business cycle:
 deficit
spending when a nation's economy suffers
recession or when recovery is long-delayed from
unemployment is persistently high and and
 the suppression of inflation in boom times by either increasing
taxes or cutting back on government outlays.
 Governments should solve problems in the short run
rather than waiting for market forces.
 An American economist, statistician and public intellectual, and
a recipient of the Nobel Memorial Prize in Economic Sciences.
 A global public followed his restatement of a political
philosophy that insisted on minimizing the role of government
in favor of the private sector.
 As a leader of the Chicago School of economics, he had a
widespread influence in shaping the research agenda of the
entire profession.
HARRY DEXTER
WHITE
 He was one of the two great intellectual founders of the IMF and
the World Bank. As the chief international economist at the U.S.
Treasury in 1942–44, he drafted the U.S. blueprint for the IMF
that competed with the plan drafted for the British Treasury by
Keynes.
 The final compromise adopted at Bretton Woods, New
Hampshire in July 1944 retained much of the flavor of the White
Plan: it defined the IMF not as a world central bank but as a
promoter of economic growth through international trade and
financial stability.
 When the IMF began operations in 1946, President Harry S.
Truman named White as its first U.S. Executive Director. Since
no Deputy Managing Director post had yet been created, White
served occasionally as Acting Managing Director and
generally played a highly influential role during the IMF's first
year.
THE BRETTON
WOODS SYSTEM
 It was clear during the Second World War that a new
international system would be needed to replace the Gold
Standard after the war ended.
 The design for it was drawn up at the Bretton
Woods Conference in the US in 1944.
 US political and economic dominance necessitated the dollar
being at the centre of the system.
 After the chaos of the inter-war period there was a desire for
stability, with fixed exchange rates seen as essential for trade,
but also for more flexibility than the traditional Gold Standard
had provided.
 The Bretton Woods system was drawn up and fixed the dollar to
gold at the existing parity of US$35 per ounce, while all other
currencies had fixed, but adjustable, exchange rates to the
dollar. Unlike the classical Gold Standard, capital controls were
permitted to enable governments to stimulate their economies
without suffering from financial market penalties.
 In the absence of an international organization for
trade, countries turned, from the early fifties, to the
only existing multilateral international institution for
trade, the "GATT 1947" to handle problems
concerning their trade relations.
 Therefore, the GATT would over the years "transform
itself" into a de facto international organization. It
was contemplated that the GATT would be applied
for several years until the ITO came into force.
 However, since the ITO was never brought into
being, the GATT gradually became the focus for
international governmental cooperation on trade
matters.
 Seven rounds of negotiations occurred under GATT
before the eighth round - the Uruguay Round -
concluded in 1994 with the establishment of the
World Trade Organisation (WTO) as the GATT's
replacement.
 The GATT principles and agreements were adopted
by the WTO, which was charged with administering
and extending them.
 The economy of pre World War II was dominated by
US and its major trading partners. This process took
place in the form of bilateral agreements between
them.
 The US in order to secure more open markets offered
its own tariff cuts. Subsequent to World War II, diverse
measures were adopted to liberalize trade between
various nations to ensure close economic co-
operation between them.
 Hence, the wartime scenario made the groundwork
for the concept of liberalization of international trade.
This was by and large initiated by the United States
 of America. However, the major obstacle towards
achieving this objective was the existence of
multifarious trade barriers.
 This in turn called for a universal set of regulations,
which would be applicable to all the nations.
 In order to necessitate an overall international
progress in the economic order, it was necessary
that a substantial improvement be achieved in three
major domains i.e., investment, trade and exchange
policy.
 After several rounds of discussions between the
United States of America, the United Kingdom and
Canada in the Bretton Wood Conference, it was
agreed that the world economy would be organized
around three institutions’:
 International Monetary Fund
 The International Bank for Reconstruction and
Development or the World Bank
 International Trade Organization
 International Monetary Fund was formulated
to look after the short-term problems relating
to international liquidity and International
Bank for Reconstruction and Development to
take care of international investments.
Likewise International Trade Organization
was to take care of the ‘actual’ trade
relationship.
INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT (IBRD, LATER PART OF THE WORLD
BANK GROUP)

 IBRD, the lending arm of World Bank Group. The

IBRD offers loans to middle-income developing
countries. The IBRD is the first of five member
institutions that compose the World Bank Group.
 The initial mission of the IBRD in 1944, was to finance
the reconstruction of European nations devastated
by World War II. The IBRD and
its concessional lending arm, the International
Development Association (IDA), are collectively
known as the World Bank as they share the same
leadership and staff.
 However, the International Trade Organization never
came to see the light of the day. This was due to the
non-ratification of the agreement relating to
International Trade Organization or ITO, especially
by United States, to which 53 states were signatories.
Although the failure of establishing the ITO was a
major setback to the international trade, its
contribution to the movement on international trade
regulation cannot be overlooked.
 The establishment of the ITO brought into existence
the ITO Charter which laid down the foundations not
only for GATT but also for the present WTO
Agreement.
 The resultant impact of the ITO was that even
after its failure to take off as an organization,
the ITO Charter was used to formulate GATT.
 This started when some of the participants at
the London Conference on Trade and
Employment recommended that the tariff
negotiation be initiated in the Charter at
Geneva.
 Those regulations, which were required to
protect the integrity of the trade and
concessions, were included and those
relating to employment investment etc were
disregarded.
 GATT was thus established, on a temporary
basis to break down trade barriers in the
form of tariffs, quotas, preferential trade
agreements between countries, etc., to make
the flow of commodities and capital, less
restricted by national government influence.
 It is for its temporary nature that a
signatory to the agreement is known as a
Contracting Party, since it is not an
organization.
 Hence, the origin of GATT traces back to
1947, which governed most of the world’s
trade in goods for almost, half a century.
 It was the foremost step towards liberalization of
global trade. Its importance may be highlighted as a
multilateral agreement, which facilitated
liberalization of trade by reducing tariffs, opening
markets and framing rules for free and fair trade.
The original signatories to GATT in 1947 were 23
nations.
 The GATT 1947 covered only trade in goods. It is
pertinent to note that GATT 1947, unlike GATT 1994,
did not cover trade in Trade in Services, Agriculture,
Textile and Apparel.
 This Agreement could also not justify the inclusion
of intellectual property rights regime within its
ambit and neither did it regulate the foreign
investment that is incidental to the free movement of
goods.
 By the end of Second World War, having
realized the limitations of bilateral
approach, the states went for a multilateral
approach for the first time.
 The General Agreement on Tariffs and
Trade was the product of this approach. The
principle of non-discrimination along with
tariff reduction became the basis for this
new multilateral regime.
 The principle of non-discrimination means
that states shall not discriminate between
goods by reference to their places of origin.
 After the horrors of the Second World War, the international
community set itself the objective to reintegrate the global
economy fundamentally.
 The goals pursued by the GATT are explicitly enumerated in the
preamble, namely raising the standard of living, ensuring full
employment, increasing the real incomes, the effective demand
and the production. Globally, this also entails the full use of the
world’s resources and expanding the production and exchange of
goods.
 Special emphasis is put on the support of developing countries, as
they represent three quarters of the 130 signatory countries.
 In order to realize these ambitious ideas, the signatory states
declared to enter into “reciprocal and mutually advantageous
arrangements directed to the substantial reduction of tariffs and
other barriers to trade and to the elimination of discriminatory
treatment in international commerce”.
 Although the WTO and the GATT are often described as
enhancing “free trade”, the system allows certain forms of
protection. This is why, more accurately, one should speak of a
system of rules dedicated to open, fair and undistorted
competition.
 Three main principles are thereby binding for the member states
when concluding above-mentioned international arrangements.
 Non-discrimination

 The central principle of non-discrimination shall prevent

protectionist measures and guarantee the freedom of trade among
all member states. It is designed to secure fair conditions of trade.
 Most-favoured-nation principle (MFN-principle), Art. I.
 Principle of National Treatment, Art. 3.
 This principle is supporting non-discrimination between the member
states and guarantees national compliance with the non-discrimination rule
in foreign trade. Therefore it prohibits unequal treatment of foreign
imported and locally-produced goods.
 Reciprocity
 According to the preamble as well as various provisions of the GATT,
negotiations are to be concluded “on a reciprocal and mutually
advantageous basis”.
 That is to say, that to a country which takes new steps towards liberalization
granting trade advantages to another member state is to be granted in turn
– “reciprocally – equivalent privileges by the favoured state.
 In declaring this, the member states aim at limiting the scope of free-riding
that may arise because of the MFN rule and at obtaining better access to
foreign markets. For the member states, the gain available from negotiating
is greater than from unilateral liberalization.
 The G eneral Ag reement on Tariffs and Trade (G ATT), the
International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD) were established to
provide institutional framework for post-War international
economic order.
 They were planned as response to economic problems that
afflicted international economy during inter-War period.
 However, as stated above, the theoretical main principles of the
GATT as formulated on paper are not strictly adhered to in
practical usage. Due to the numerous exceptions and restrictions
as well as a wide-ranging scope of interpretation with regard to
their implementation, it has become custom talking about the
“grey area of the GATT”.
 In short, Each signatory state lowers its own trade barriers through
negotiation.