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Home Archive for category "International Economic Law"

Stability vs. Flexibility: Can the European Union find the Balance?

Published on April 25, 2017        Author: 

To what extent can a State forego its contractual commitments, in particular those arising from a stabilization clause for human rights and environmental protection? (“under a stabilization clause, the host State commits itself either not to enact changes of the domestic law in the future, or at least, not to apply such changes to the investor”, Ohler, Concessions, Max Planck Encyclopedia, 2009.) Our assumption is that stabilization clauses and states’ rights to regulate should be integrated and not be taken as opposite obligations, considered as incompatible. In other words, if framed correctly, stabilization clauses can balance the two conflicting needs at stake: the sanctity of contract and a state’s right to regulate to protect its public interest (Leben, L’évolution de la Notion de Contrat d’État, Revue de l’arbitrage, 2003; Carbone, Luzzatto, Il Contratto internazionale, 1996; Giardina, State Contracts, national versus international law, The Italian Yearbook of international law, 1980; Fatours, International Law and International Contract, 1980; Mann, State Contracts in International Arbitration, 1967).

This post examines whether the (fairly) new European exclusive competence on foreign direct investment changes the way stabilization clauses should be framed in EU State contracts to avoid potential conflicts. There are two different kinds of possible conflicts that could arise: first involving either provisions among themselves, or second, the two different legal regimes at stake (the international and the European).

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Moving Trade into the 21st Century: Towards a More Inclusive Trade Agenda?

Published on April 21, 2017        Author: 

International organizations sometimes publish general reports – in addition to the usual annual versions – about their work and the future of their remit. Such reports invariably have a theme and are done when these organizations or the work they carry out has come under challenge. In 2005, on the occasion of the WTO’s so-called Sutherland report, Armin von Bogdandy and I found that:

“[a] perception of institutional crisis is pervading international organizations. One evermore fashionable response by the administration of an affected organization is to entrust a group of eminent persons to consider its future. Perhaps not surprisingly the resulting report calls for a politically feasible strengthening of that organization for which it provides good grounds.”

Early April saw the release of a – much less frequent – joint report by the World Bank, the International Monetary Fund, and the World Trade Organization, entitled Making Trade an Engine of Growth for All. The motive for the report is best interpreted as responding to a problem that is fundamental enough to warrant such an unusual step: the increasing calls for and a turn to more inward-looking economic policies. The Trump administration’s protectionist rhetoric and actions (see here, here and here) are the prime example for this development, with Brexit – despite assertions to the contrary: think Global Britain – serving as another.

The circumstances surrounding the release of the report also lead to the conclusion that it is designated to respond to the growing trend of inward-looking economic policies: it took place a) just prior to the 2017 Spring Meetings of the IMF and the World Bank Group, and b) in Berlin which the Financial Times’ Shawn Donnan called the “new capital of global free market liberalism”. The policy differences between the proponents and opponents of multilateralism are now clearly at display: Chancellor Merkel and the leaders of the IMF, the World Bank, the ILO, and the WTO have called for increasing trade policy cooperation and coordination, with the stated goal to not only curb protectionism, but also in order to reduce inequality and combat climate change. US Commerce Secretary Wilbur Ross on the other hand denied that US policies were protectionist (calling warnings of protectionism – ostensibly geared towards the US and other countries – “rubbish”).

The Trump administration policies and Brexit are the most visible manifestations of perceived political solutions to the discontent with the current globalized and interdependent economic system. The report itself recognizes that the public attitude towards trade is not as favorable as they used to be (paras 21-23). While it does not explicitly say so, it is worth noting that the three institutions have recognized that economic inequality is one of the main drivers of this discontent and that their past policies were – or at the very least were seen to be – partially responsible for this discontent.

The report touches on a number of issues, ranging from the long-term trends and benefits of trade, the interplay between trade and (domestic) adjustment (policies), to the need for a stronger rules-based trade regime. It is this last part that this post will focus on by analyzing the sometimes subtle, but important changes in direction that the report advocates as well its shortcomings.

The overall narrative of the report is such that the policies of trade liberalization championed by the three institutions since the end of WW II have resulted in a period of expansion of world trade at an “unprecedented historical pace” (para. 5). The institutions’ policies, indeed their very raison d’être, such as open markets, increased trade integration and competition, efforts to curb protectionist policies, “good governance” and fiscal discipline have come under intense scrutiny. But the report also contains remarkable language – at least for the institutions involved: it recognizes that globalization provides positive effects only where the appropriate domestic policies, including “social protection policies” (page 33), are in place so as to lead to a more equal distribution of gains.

The section entitled “Building Stronger Rules-Based Trade” (page 37 et seq.) reiterates the centrality of a strong WTO as opposed to a more fragmented trading system characterized by preferential/regional trade agreements or bilateral arrangements. By doing so, it picks up ideas put forth by Robert Hudec & John Jackson that the “power-based” GATT has been replaced by a “rules-based” WTO system. It rightly points out that a “core set of rules, a strong enforcement mechanism, and a common forum for cooperating on policy and sharing information” assists in “[reducing] overall levels of trade distortions, including conventional trade measures, subsidies, and other forms of state support” (para. 72). This echoes long-standing WTO principles: reducing tariff and non-tariff barriers (para. 69), promoting competition, “reassuring the public that international trade is evenhanded” and that “rules-based trade integration is critical to share trade benefits more widely” (para. 64). Such statements are a direct response to efforts of the Trump administration to pursue a more protectionist trade and fiscal agenda.

But beyond the orthodox ideas discussed above, the report broaches – although it may not break – new ground. It mentions new forms of services (mainly in conjunction with digitization) without however stating what reforms – beyond a need for rules to be clarified or enhanced – would be needed (para. 70). An area that is marked as a “frontier area” for trade reform is investment. The report explicitly argues for linking trade and investment more closely and for a more coherent policy approach in light of global supply chains (para. 71). The report would have benefited from further clarification of this point: should efforts be made to bring investment genuinely (beyond the TRIMS Agreement) under the purview of the WTO? The report does not provide any details about the extent to which, or how, this could happen. It does not mention a range of PTAs that have incorporated both trade and investment chapters over the last years and whether these developments were the impetus for the renewed effort of integrating trade and investment policies. In addition, there has been considerable debate about the current state of investment law in general, and investor state dispute settlement in particular (see here, here, here and here). It is also worth noting that there is considerable pushback by developing countries at the moment against recent efforts within the WTO to develop rules on investment facilitation.

Finally, the report puts forward pathways for the WTO to retain its relevancy as a negotiating forum. It proposes conducting negotiations on narrower issues similar to the Trade Facilitation Agreement or the Information Technology Agreement (para. 74). Beyond that, it recommends thinking further about a more plurilateral approach to negotiations (aka variable geometry) within the WTO, without however suggesting areas in which this may be fruitful (para. 75).

While there are a number of positive elements in the report, it contains shortcomings and omissions. The first is its economics-centered focus. While impressive, the bibliography contains only a very small number of sources that are from non-economists. Eg, the only identifiable legal academic’s work cited is one that deals with political economy rather than law. This wouldn’t be an issue – and could quite easily be shrugged off as a quibble by a member of an academic community yearning for greater recognition – if the report made suggestions of, or at least hint at, how trade and investment policies could be intertwined (never mind rules implemented); how health, the environment, and equality could be reconciled with trade or investment liberalization (para. 67 of the report is – to use the words of the Appellate Body in EC – Hormones – “not a model of clarity in drafting and communication”); what the extent of regulatory autonomy of governments should be without losing sight of a minimum degree of universality of rules; how consumer or citizen welfare can become more of a direct focus for the WTO rather than producers or exporters; or whether the structural design of the current system of international economic governance could be enhanced/reformed to contribute to achieving these goals. It is rather unfortunate – and a missed opportunity – that the report relegates the important discussion on poverty and developing countries to an annex. The five paragraphs devoted to Annex A reiterate the potential positive role of trade to assist in reducing poverty (paras 82-95, see eg para. 84: “Although causality is hard to establish, this fact pattern suggest (sic) that openness promotes poverty reduction by accelerating growth.” Emphasis in original.) and the need for sound domestic institutional arrangements (para. 86). What is missing is an acknowledgement of the obstacles developing countries are facing when trying to compete with developed country producers in eg the agricultural sector.

Both political science and legal literature are replete with discussions of these issues. Given the interdisciplinary nature of international economic relations it would be more useful in the future to include a broader set of disciplines in the formulation of such important reports. Overall, Making Trade an Engine of Growth for All is a cautious step in the right direction, away from well-trodden orthodoxy. In that sense, it serves the purpose of preserving the importance of the three institutions involved in its drafting. The report recognizes that the trade (and investment) liberalization paradigm can function for a wider swath of the global population only if cushioned by domestic policies (and even that is contested, see here). This is evidenced by statements such as “[t]rade and trade-related policies have a role to play not just in promoting growth and prosperity, but helping to share that prosperity more widely” (para. 81). But it stops short of recognizing that the institutions of global economic governance themselves have opportunities to do more to achieve greater equality.

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Being Charged by an Elephant: A story of globalization and inequality

Published on April 19, 2017        Author: 

Along with many economists and globalization scholars, my favorite graph these days is the elephant graph. Named for its distinctive elephant-shaped curve (see below), this graph shows the rise in real incomes for people in different income brackets throughout the world over a twenty year period of intense economic globalization (1998 to 2008). Economists often like to tell us that free trade is good because it is a rising tide that lifts all boats. What this graph suggests, however, is that economic globalization has produced clear winners and clear losers. This division seems to be playing an important role in explaining some of the rising nationalist and pro-protectionist sentiments we are witnessing in certain developed states, as shown by the rise of Trump and the vote for Brexit.

So who has won and lost in the age of economic globalization? Read the rest of this entry…

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Hegemonic Cooperation or Succession? The United States’ Emerging ‘Abandonment’, and China’s Rising ‘Defense’, of the Global Order

Published on March 21, 2017        Author: 

Many international lawyers all over the world will doubtless have experienced a surge of surrealism over the past weeks, witnessing dramatic contrasts emerging between American and Chinese foreign policies seeking to redefine the global order – with the latter veering towards deepening strategic international cooperation around the world, and the former emphatic about the insularity of its ‘America First’ policy (read: ‘walls’ could be literal and figurative). In January 2017, Chinese President Xi Jinping gave a rousing defense of economic globalization at Davos, pointing to the inevitability and irreversibility of the global economy, where for China, “the right thing to do is to seize every opportunity, jointly meet challenges and chart the right course for economic globalization.” A month later, American President Donald Trump delivered his Address to the US Congress stridently pronouncing the country’s shift towards a “direct, robust, and meaningful engagement with the world…American leadership that is based on vital security interests…[where] partners must meet their financial obligations…[and where] America is willing to find new friends, and to forge new partnerships, where shared interests align.”  The historic first meeting this week between US Secretary of State Rex Tillerson and Chinese President Xi Jinping was the first high-level commitment towards greater joint cooperation between the United States and China, possibly suggestive of softening stances between the established hegemon and the rising world power in containing shared threats, such as North Korea’s demonstrable nuclear ambitions.

The United States’ emerging abandonment of the same postwar multilateral architecture it largely created – in favor of much thicker versions of protectionism, bilateralism, and unilateralism – is ironically taking place at a time when China is gaining confidence in rising to defend the global order and the enduring value of international institutions. It is nothing less than a sharp reversal of the “New Great Game” dynamics I observed four years ago, characterizing the United States as the “unipolar hegemon that incorporates international law justification as part of its operational code in international relations”, and China as the “rising power whose operational code in international relations remains facially deeply sovereigntist but latently appears to be shifting towards some instrumental internationalism – quite consistent with the ideological hybridity bred by ‘socialist modernization’ or what Ronald Coase [described as] ‘Chinese capitalism’.” (at p. 370).

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The Constitutional Frontiers of International Economic Law

Published on March 9, 2017        Author: 

The End of Mega-Regionalism?

The future of ‘mega-regionals’, like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), has become doubtful since President Trump took office. Through decisions, such as the withdrawal from TPP, he is putting his rhetoric to ‘Make America Great Again’ in action. Yet, the idea to put national values first is not, I argue in a recent issue of the Journal of World Investment and Trade, so different from opposition to mega-regionals elsewhere. Both the ‘new America’ and opponents to mega-regionals in Europe speak in favor of disengaging from mega-regionals and replacing them with action by the nation state. At the same time, rejecting mega-regionals will result in sticking with the existing international institutional infrastructure that is widely regarded as insufficient to effectively regulate globalization for the better.

Despite similarities in their effects, there are important differences across the Atlantic. In the European Union, opposition most vocally comes from the left, not from the right. It also does not come from an elected executive, but from large numbers of citizens and opposition parties, as well as a smaller number of Member States, or even sub-divisions of Member States – think of Wallonia. And it is couched in entirely different vocabulary: Rather than speaking the language of nationalism and protectionism, opposition in the EU invokes constitutional values and rights – namely democracy, the rule of law, and fundamental rights – which are leveraged against mega-regionals and the institutions they come with, notably investor-state dispute settlement (ISDS) and regulatory cooperation.

Increasing Involvement of Constitutional Courts

Couching opposition to mega-regionals in constitutional language has important consequences: It brings in a different set of actors, namely constitutional courts. Following earlier examples in Latin America, the 13 October 2016 ruling of the German Constitutional Court on an application for an injunction against the Canada-EU Comprehensive Economic and Trade Agreement (CETA) brought by some 120,000 individuals is likely just the first of many court rulings in which international economic law encounters its constitutional frontiers head-on. Read the rest of this entry…

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The Impact of Austerity Policies on International and European Courts and their Jurisprudence

Published on March 3, 2017        Author: 

This post is part of the ESIL Interest Group on International Human Rights Law blog symposium on ‘The Place of International Human Rights Law in Times of Crisis’.

Many countries have been hit by deepening economic depression induced by the economic crisis of 2008. While there is no doubt that the crisis had its origins in unregulated financial speculation, by bailing out and recapitalising the broken banking system (see Bieling 2014), national governments were blamed for the financial slump and were asked by some international institutions, to adopt a policy of austerity (see Blyth 2013). This policy involved draconian cuts in government budgets and spending, the privatisation of public-sector organisations and administrations, and reduction of wages and prices to rescue financial and banking institutions that were deemed “too big to fail”. The main effects of these austerity policies have been described, studied and analysed in terms of the decline of welfare states, breaches of social rights, unemployment, and rising social inequalities between the rich and the poor (see Contiades and Fotiadou 2012; Kilpatrick and De Witte 2014 ; Vettori 2011).

The negative effects of austerity on fundamental rights protection have been monitored and denounced by several European institutions, including those responsible for protecting fundamental rights (see here and here). However, scant academic attention has been paid to the way international and regional courts are dealing with some of the policies within the economic crisis as human rights violations (see Salomon 2015). The austerity cases that have been brought before the European Court of Human Rights and the UN Committee on Economic, Social and Cultural Rights have faced the hurdles of admissibility and scope.

The European monitoring of the consequences of the economic crisis

Regarding the European Court of Human Rights [ECtHR], in a number of cases the Court has rejected applications (as it found them inadmissible as manifestly ill-founded) relating to austerity, notably in the field of wages and pensions. Here, the Court relied on the principles of proportionality and subsidiarity, and the limited and temporary nature of austerity measures (see Khoniakina v Georgia, Bakradze v Georgia, Frimu and Other v. Romania, Da Conceição Mateus v. Portugal, Santos Januário v. Portugal and Da Silva Carvahlo Rico v Portugal).

Equally, we could also point out a new sensitivity of the judges of the Court to economic and social rights affected by the economic crisis, austerity policies and public spending cuts. Read the rest of this entry…

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The Polisario case: Do EU fundamental rights matter for EU trade policies?

Published on February 3, 2017        Author: 

On 10 December 2015, the General Court of the European Union (GC) rendered a judgment in the Council v. Front Polisario case that was revolutionary in many regards: not only did a national liberalization movement successfully challenge an EU trade agreement, the Court also considered the EU Charter of Fundamental Rights (CFR) applicable to non-EU citizens on a non EU-territory and in the context of trade policies (see previously, Geraldo Vidigal in EJILTalk).

A month ago and a year later, the European Court of Justice (ECJ) quashed the decision of the GC and denied legal standing for the Front Polisario. However, the door for a role of EU fundamental rights as a benchmark for EU trade policies is not yet closed. To the contrary, the ECJ’s conclusions brought to the fore an ugly truth that shows that the extraterritorial effects of EU trade policies are in urgent need of closer scrutiny.

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Economic Nationalism in a New Age for International Economic Law: Recalling Warnings of Ludwig von Mises and the Austrian School

Published on January 30, 2017        Author: 

International economic law developments barely one month into 2017 have been nothing short of tectonic this side of the Atlantic. From US President Trump’s first executive action to withdraw the United States from the unratified Trans-Pacific Partnership; his subsequent announcement (later called mainly an option) to impose a 20% border tax on Mexican imports into the United States to finance a wall between the two countries; a declared initiative to renegotiate the North American Free Trade Agreement (NAFTA) that was signed under the administration of Republican President George Bush; unprecedented changes to the United States National Security Council removing the nation’s top military, intelligence, and security advisers to only permit regular attendance for White House chief strategist Steve Bannon and more limited attendance of the chairman of the Joint Chiefs of Staff and the Director of National Intelligence; threats of punitive tariffs against China and accusations of illegal currency manipulation; to last Friday’s latest executive order announcing a travel ban against individuals from seven predominantly Muslim states (approximately 218 million persons) and the 4-month suspension of any refugee entry, as a possible first step to a broader ban – it is becoming all too clear that barely ten days into the new presidency, the United States will not be above reversing, abandoning, disregarding, or defecting from any of the established rules and institutions of international economic law, through extraordinary actions and reversals that have scarcely any or no inter-agency vetting and consultation, and significantly, with the new president declining to divest himself from all business interests or to introduce transparency and consultation measures even as these political-security-economic policy reversals continue to be formulated with relative opacity. The Dow Jones industrial averages and NASDAQ composite index both dropped with the sudden rush to sell off US equities, and American private companies have taken to hiring crisis management and communication firms for the new age of undisclosed and sudden economic policy reversals, reviewing operations and mergers against possible charges of being “Anti-American”.

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