There is no clear definition and meaning of the term
intentional economic Law.
Legal scholars have however developed a broad and narrow
meaning of the term.
Broad sense:
I.E.L. refers to all aspects of International law that have an economic
character.
In this broad def. it is apparent that all relations btwn
countries have an economic bearing. Taken in this light, I.E.L. would then
encompass public intl. law, intl. investment law including law of the sea and
even intl. Humanitarian law. All these branches of intl. law have an economic
aspect.
Narrow sense: This
is the same as the broad sense to
include only those legal aspects that affect trade in goods between countries.
On this narrow aspect, I.E.L. would only deal with trade relations btwn countries pertaining to how
goods are bought and sold across national frontiers.
A course in I.E.L. is strictly restricted to this def. The
narrow def. of intl. economic is also divided into two branches:
1. Intl. monetary law (law of intl. financial institutions)
2. Intl. trade law
- I.E.L. primarily deals with financial aspects btwn countries. Deals with management of finances, balance of payment issues and intl. institutional framework regulating global finance.
- Intl. trade law is the law of contract on sale of goods btwn imported and exporters based in different countries.
- Intl trade law identifies the legal regime that determines the validity of contract of sale of goods, enforcements of the contracts, bill of lading, freight and insurance of goods in transit.
- Intl. trade law is basically private law of contract btwn importer and exporter.
Having distinguished btwn Intl. monetary law and Intl. trade
law, what remains of Intl. economic law is that it is the law that gives the
legal regulatory framework and policies that sovereign states use in the
conduct of their trade r/ship.
THEORIES BEHIND I.E.L.
There are several theories that have been put in place to
try to explain the basis of I.E.L. Three main theories are outstanding. These
are:
- Theory of Comparative Advantage
- Free Trade Theory
- Foreign Policy and Strategic Trade Theory.
1.Theory of Comparative Advantage:
This seeks to answer the question “Why countries trade with one another”. It also answers the
question “Which product will be traded
btwn countries”.
This theory was dev. By neo-classical economist led by
Ricardo and Adams Smith and recently John Maynard Keynes. This economists def.
this theory to mean that a country
will only produce and trade in these goods that it can produce cheaply when
compared to its neighbours. The basic goal here is comparison in cost of
production.
In economic terms this theory states that a country will
only concentrate in producing goods that it has comparative advantage over its
trading partners. In developing this theory neo-classical economists used wheat
and labour to explain their theory.
If country A uses ten men to produce 100 bushels of wheat
and country B uses 30 men to produce 100 bushels of wheat, and country A uses
20 men to produce 100 bales of cotton and country B uses 5 to produce 100 bales
of cotton, the theory states that country A would rather use its recourses
producing wheat since it has a comparative advantage over country B and sell
surplus wheat to country B.
Country B has a comparative advantage in the production of
cotton, Comparative advantage would then dictate that country B concentrate on
cotton production and sell surplus cotton to country A.
From the above example one would then see how the theory of
comparative advantage determines what produce a country produces and who it
trades with.
Shortcomings on the theory:
There are several criticisms that have been leveled against
the theory of Comparative advantage.
- The theory is based on labour as a key cost of production. In modern times, labour is not necessarily the key cost of production. The theory is based on that labour is the main factor of production process. In modern times there are other factors such a s capital, technology and entrepreneurship.
- Based on assumption that labour as a factor of production is mobile and come move within and across national frontiers. It ignores the fact that human beings cannot easily cross national borders. It ignores that even within a country labour is not mobile and cannot easily shift from one product to another. It ignores that there is skilled and unskilled labour.
- Based on assumption that theory is static and natural. It assumes countries will produce things as determined by nature. It ignores the fact competitive advantage can be created and not static.
- It ignores the supply side constraint in production system and concentrates on demand side.
- The theory is based on ideal situation that we have perfect competition, free flow of information within the market and there are no monopolies. This situation does not exist in the real world.
2. Free Trade Theory
This theory was also developed by the neo-classical
economists. It argues that all trading nations would seek to deceive maximum
benefits from freely trading with their neighbours. The theory states that if
there was free trade, countries will enjoy economies of scale due to large
scale production and all countries will be better of.
The phrase “Free trade” means that there are no barriers to
trade within countries. Free trade theory requires that sovereign states should
strive and remove barriers to trade btwn them. This theory recognizes that
there is free movement of goods and factors of production within countries.
Sovereign states in their trade relations leave erected barriers that prevent
free movement of goods. The barriers so commonly erected are tariffs and
quotas.
Developing nations depend on sales tax and tariffs for govt.
revenue. Removing these tariffs would lead to collapse of a countries economy.
Free trade proponents argue that by eliminating barriers
countries can engage in free trade and rip economies of scale. GATT and WTO are
founded on free trade as an ideal. However in practice, countries are striving
for a free trade. In striving for free trade, countries seek to eliminate and
reduce the barriers of trade. The goal is not to abolish but reduce them.
Advantages of Free
trade theory:
- Enables producers to take advantage of economies of scale i.e. large scale production. This has the effect of lowering the cost of production to optimum level. The market expands and this enables producers to expand production.
- Efficiency costs accrue to producers. By removing barriers to trade, some costs of production is removed from producers which enables producers to be more efficient since they can devote more time to the core of business. This thus lowers cost of production.
- Reduced cost of production is passed on to consumers in the term of lower prices. Thus the welfare of the consumer increases. This is known as utilitarian advantage.
3. Foreign Policy and Strategic Trade Theory
Comparative advantage and Free trade do not explain in total
why countries trade with one another. Free trade and comparative advantage are
based on economic notions. In the real world, social, military, political and
strategic considerations also determine trade patterns btwn countries.
There are countries that conduct trade relations with one
another not due to economic factors but because of strategic factors. The U.S.A. trades
with the Middle-East especially Israel
because it is strategic and not for economic factors. During the cold war both
East and West developed trade relations that were more strategic than economic.
Presently the U.S.A.
trade regime based in A.G.O.A.. E.U. conventions lome and controneall partnership agreements
are all based on strategic considerations. The trading patterns of a country
will be determined by its foreign policies.
These three theories reinforce one another in explaining
trade patterns in the modern world.
SOURCES OF I.E.L.
There are four sources:
a) Public
Intl. Law(P.I.L)
b) Intl
Customary law
c) Economic
treaties
d) The
law on Economic Organizations.
a)
P.I.L.
I.E.L. is ground in P.I.L. There are certain fundamental
principles which are the cornerstone of I.E.L. All Intl Economic treaties are
interpreted on the premise of P.I.L. The basic principle of P.I.L. is pancta
sunt servanda (agmt. Shall be kept) is the cornerstone of I.E.L. When
sovereign states enter into agmts. that defines their economic r/ship, the
validity of those agmts. is derived from pancta sunt servanda.
P.I.L. also provides the principles relating to
expropriation of property, the treatment of aliens and the authorized
signatories of treaties that bind countries.
Principles of P.I.L. are also used in discussing the extent
to which a country’s economic affairs is subject to intl. human rights
regulations.
b) Intl Customary law
This has three functions with respect to I.E.L.
a) Provides
the background against which consent in intl. economic relations must be
construed
b) In
its roots of intl. responsibility and welfare on land and at sea, intl.
customary law provides the bulk of rules governing the law of Intl. economic
torts and economic welfare (sanctions)
c) By
treaties and parallel national practices, intl. customary law can give rise to
new principles and generalizations relating to freedom of the seas in times of
peace and war and minimum standards of treatment of foreign nationals.
c)Economic Treaties:
The bulk of Intl.law is treaty based for e.g. treaties
creating regional trade blocks. Historically economic treaties were known as
treaties of friendship, commence and navigation (F.C.N. treaties)
F.C.N. treaties came into existence during the age of
exploration and navigation. These treaties were pleading friendships amongst
nations and define rules of commerce and underlying passages to navigation.
F.C.N. treaties eventually included new items in their content. They started
regulating questions of double taxation. A more advanced form of F.C.N.
treaties are bilateral and multilateral agmts.
Bilateral agmts focus on foreign investments and how to
protect foreign investments. It deals with rights to repatriate profits,
expropriation or nationalization of foreign investment and movement of capital.
Today F.C.N. treaties are comprehensive and deal with the following issues:
a) Right
of entry and for business and residence
b) Protection
of individuals and companies
c) Rights
and privileges of individuals and companies
d) Right
to practice a profession in a third country
e) Acquisition
of property
f) Patents
g) Tax
h) Remittance
of earnings and capital
i)
Competition from state owned enterprises
j)
Access to courts and dispute settlement
k) Shipping
l)
Duties and quantitative restrictions
At the end of WW2 most bilateral F.C.N.s were converted into
the GATT (General Agmt on Tariffs and Trades) of 1947. The F.C.N.s still play a
major role in bilateral r/ship btwn countries. Being treaties of an economic
character, their validity and interpretation is subject to the law of treaties a
s defined by P.I.L.
d. The law of
Economic Organizations.
In addition to Intl treaties and constitutions, principles
and policies of key Intl. org. are a source of law for I.E.L. There are several
org. whose decisions and practices determine the directions of I.E.L. The most
important of these org. are:
OECD, UNCTAD, GATT and WTO. In addition IMF and WB (world
bank) play a significant role in determining .I.E.L.
OECD
Organizations of Economic Co-operation and Development was
established in 1961 as a successor to Organization of European Economic
Co-operation (OEEC). The OECD aims are to promote growth, full employment and
trade on a multilateral non discriminatory basis and financial stability. It
has 24 member countries and these are the wealthiest countries of the world:
Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxemburg,
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey,
UK, and USA.
All these members have a seat in the OECD council. There is
an executive committee of 14 members and several adhoc committees. A member is
bound by the decisions of the council. The OCED…. And issues codes and
guidelines applicable to capital movement and multinational enterprises. The
OCED is the key policy making organ in the world.
The Paris Club
This is a group of seven major holders of WB and IMF. These
are the countries in which whose banks of citizens are owed money by the rest
of the world. They are USA,
UK,
France,
Germany,
Canada,
Russia,
Japan
and Switzerland.
Russia
is not a fully pledged member.
The role of the Pavis club is largely financial .They
monitor debt repayment that they are owed and foreign exchange compatibility of
indebted countries. Decisions of this club are communicated to the IMF and WB.
The club also deals with debt forgiveness. It meets once a year in Paris, hence its name.
UNCTAD:
This was first convened in Geneva in 1964 in the same year it became a
permanent organ of the UN general assembly.
Aims:
- To promote trade in the interest of development
- Formulate policies and principles concerning such trade
- Initiate multilateral agreements
- Harmonize govt. policies affecting the trade arena
As an organ, it was the brain child of developing countries
aimed at countering the effect and purpose of GATT.
Voting in UNCTAD is based on one nation one vote.
The conference meets in plenary every four years.
It trade and development board meets annually.
UNCTAD has several committees dealing with different issues.
The committees are:
Ø Commodities
Ø Manufacture
Ø Preference
Ø Transfer
of technology
Ø Invisibles
and Financing
Ø Economic
co-operation among developing countries
Ø Shipping
The UNCTAD secretariat is at Geneva and operates as part of the UN
secretariat. The budget is approved by UN and Secretary General presents the
budget to the General Assembly. UNCTAD has come up with several codes and
drafts multilateral agmts.
Most important of UNCTAD codes are:
Ø The
codes on multilateral transfer
Ø The
codes on conduct of transnational corporation
Ø The
draft agmt on rights and duties of states
THE INTERNATIONAL
BANK FOR RECONSTRUCTION AND DEVELOPMENT (IBRD)
The IBRD a.k.a. World Bank (WB) was conceived at the Bretton
Woods Conference of 1944. It was established in 1945 and became a specialized
agency of the UN in 1947.
At its conception, the idea behind the WB was to help in reconstruction and development of
war torn Europe after WW2. The USA through the
Marshall plan
was to provide the finances to assist the bank to reconstruct Europe.
The bank was to lend money to Europeans to help them reconstruct their
countries. The charter of the WB states its aims as follows:
- To promote growth, trade and balance of trade equilibrium amongst members.
- It facilitates investment of capital for productive purposes at conventional rates and interests.
Only countries that are members of the IMF may join the WB.
Voting at the WB is not based on simple majority. Voting is weighted and
depends on members shares or contribution to bank.
THE INTERNATIONAL
FINANCE CORPORATION (I.F.C.)
IFC was set up in 1956 by WB as a separate entity. The
purpose of setting the IFC was to enable the bank do what it could not do under
its articles. In the article, the bank was prevented from lending to private
entities. It could only lend to governments. To go round this limitation, the
IFC was set up as an organization that can give loans to private enterprises
without govt. guarantee.
THE INTERNATIONAL
DEVELOPMENT ASSOCIATION (IDB)
It was established in 1960 to offer loans to governments on a more generous term than the bank. There
is no interest on IDA loans except for minimal service charge. The repayment
schedule is longer and more flexible. Repayment can be made in soft national
currency instead of foreign hard currency.
INTERNATIONAL
CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTE (ICSID)
This was established
in 1960 to encourage…. It promotes settlement of investment disputes btwn
contracting states and foreign investors. Another agency of WB is the Multilateral
Investment Guarantee Agency (MIGA). This came into existence in 1988 whose sole
purpose is to ensure foreign investment in contracting state. As an insurance
co. or agency, it covers risks that are not ordinarily covered by insurance
agencies. It gives protection against political risks, civil unrest and
expropriation of foreign property.
There are other intl. organizations that were long created
before the UN including intl. maritime organization (IMO), The Intl. labour
Organization (I.L.O.), The Intl Civil Aviation Org (I.C.A.D.)
Through policies they shape the intl. economic arena.
INTERNATIONAL
MONETARY FUND(IMF)
It was conceived in 1944 at Bretton woods Conference. It was
created in 1945 and its objective is to
ensure foreign exchange stability, currency convertibility and balance of
payment equilibrium among its members. It is the institution charged with
regulating the financial aspect of the Intl. trade. It comprises of a BOG,
executive board an M.D, a staff of Intl. civil servants and a council.
The highest authority of the IMF is the BOG which consists
of a governor and an alternate appointed by each of the IMF member countries.
The governor is usually the Ministers for Finance or Central Bank Governors.
The BOG has delegated most of its functions to the executive board which
conducts day to day activities of IMF.
The executive board consists of 24 executive board;5
appointed by individual countries due to shares- Germany, France, Japan, UK and
USA. The other 19 are to be elected through geographical representation in the
world. Asia has appointed 2, Latin
America 2, European Union 5, N. America
5, Africa 1.
Voting in IMF is based on a member’s shareholding and
subscription to the fund. A members subscription is referred to as a quota and
voting rights are tied to the quota. Every fund member is required to subscribe
an amount equal to its quota. Every member is required to remit 1% of its GDP.
The contribution should be made in gold or hard currency. In
order to reflect the principal of sovereign equality of states, each member
country has been given an initial quota of 250 SDR- Special Drafting Rights.
Thereafter a member’s contribution will be added on to the initial 250 to
determine its vote.
{Gross Domestic Product (GDP) -Foreigners= GNP (Gross
national Product i.e. what is produced by citizens) value of all products and
services produced in a country is GDP}
1 SDR= $150
The voting power:
USA- 265,518 votes-17.8%
Germany-
82,665 votes- 5.5%
Japan- 82,665
votes- 5.5%
France- 74,396 votes-4.99%
U.K. -
74,396 votes -4.99%
Saudi
Arabia
51,556 votes 3.46%
Russia- 43,381 votes 2.91%
China- 34,102 votes 2.29%
Kenya- 278 votes 0.01%
S. Africa 1020 votes 0.9%
THE GENERAL AGMT
ON TARIFFS AND TRADE (GATT)
GATT was not an institution per se rather it was an informal
accident of history.At the Bretton Woods conference of 1944, the allied forces
were determined to create a political institution that would guarantee world
peace and security. This was finally
established in San Fransisco
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