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Home International Economic Law Bilateral Investment Treaties Remaking the World towards ‘Fair and Reciprocal Trade’? The Case for (More) Interdisciplinarity in International Economic Law

Remaking the World towards ‘Fair and Reciprocal Trade’? The Case for (More) Interdisciplinarity in International Economic Law

Published on November 17, 2017        Author: 
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Geopolitical changes were on full display last week at multiple economic summits in Asia, where red carpet pageantry converged with the dramatic publicity of States brokering new deals at the regional meetings for the Asia-Pacific Economic Cooperation (APEC) in Viet Nam, the Association of Southeast Asian Nations (ASEAN) Heads of State Summit and the 12th East Asia Summit (EAS) in the Philippines, the side meetings of the China-led 16-country bloc drafting the Regional Comprehensive Economic Partnership (RCEP), the Japan-led Trans-Pacific Partnership-11 (recently renamed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), with considerable focus on United States President Donald Trump’s 12 day tour in Asia for these meetings as well as for bilateral trade talks with Japan, South Korea, and the Philippines.  In Viet Nam, US President Trump suddenly renamed the Asia-Pacific into the “Indo-Pacific”, a deliberate policy strategy to define Asia beyond China’s growing hegemony into a sphere of alliances built with India, Japan, and other Southeast Asian countries.  

The Asia economic summits conveyed the implicit assumption that international trade and investment treaties had to be revised or rewritten towards “fair trade”, even if there were differing understandings of what that fairness meant.  US President Trump’s address at APEC demanded “fair and reciprocal trade” as part of his ‘America First’ policy, blaming trade agreements for serious US trade deficits with China and other countries. Canadian Prime Minister Justin Trudeau delayed agreeing to renew the TPP partnership under the aegis of the CPTPP, pushing for Canadian interests in ensuring strict environmental and labour standards in the agreement, and succeeding in suspending the problematic provisions in the intellectual property chapter which the US had originated in the TPP draft.  Newly-minted New Zealand Prime Minister Jacinta Ardern claimed victory with the suspension of investor-State dispute settlement clauses from the CPTPP, in favour of compulsory domestic court adjudication for any investment disputes.  In contrast, China took up the cudgels for globalisation and the established institutions and processes of the multilateral system, with Chinese President Xi Jinping firmly declaring at APEC that “economic globalisation is an irreversible historical trend…in pursuing economic globalisation, we should make it more open and inclusive, more balanced, more equitable and beneficial to all.”

The recent pronouncements by world leaders should be of considerable interest to international lawyers, given the heightened political and economic expectations placed on international economic agreements (trade and investment treaties), and what social outcomes they should (or should not) produce beyond the traditionally narrow objectives of liberalising foreign market access.  The international economic system is moving towards a multi-speed configuration of States oscillating between competing economic ideologies (e.g. resurgent new forms of “mercantilist protectionism”, revised ‘mainstream’ neoclassical economics, ‘new’ behavioural economics, among others); changing philosophies of government (e.g. the revival of authoritarianism and ‘illiberal’ democracies, leaning away from liberal democracies); evolving theories on the regulation of property, competition, and information given rapidly-developing technologies (e.g. artificial intelligence and the explosion of automation in supply chains, the domestic and transnational social impacts of the digital ‘sharing’ economy, climate change-driven restructuring to consumption patterns and production processes); and expanding understandings of domestic and transnational challenges to global public goods (e.g. environment, health, peace and security, among others).  Accordingly, there is an even greater burden for international lawyers (especially those that assist or advise States drawing up their respective visions for a new global economic architecture), to clarify and be transparent about how the political, economic, and social ends sought will be effectively met through the current and future mechanisms of international economic law and its institutions for governance and coordination.  Beyond the fog of press publicity, are we candidly and accurately communicating to the politicians the actual limits of international economic treaties, along with their potentials?  

In this post, I argue that international lawyers – especially international economic lawyers tasked with drafting, revising, critiquing, and building the new bilateral, regional, and global constellation of economic treaties – increasingly have to deepen interdisciplinarity, and not just in the sense persuasively observed by Tom Ginsburg and Gregory Shaffer as the “empirical turn in international legal scholarship” (106 American Journal of International Law (2012), pp. 1-46. Perhaps more fundamentally, international lawyers need even more interdisciplinarity, because we are at present hard-pressed to approximate, if not achieve, an idea of “fairness” in the international economic system’s treaties and institutions (no matter how contested that sense of “fairness” is, to begin with).  If we accept that the “fairness of international law” is legitimately our concern as international lawyers and scholars (as Thomas Franck famously argued), we should be more open to readily engaging the interdisciplinary assumptions marshalled in the reform and remaking of international economic treaties and institutions today.  

While we may not of course be the experts in these other disciplines, and we should, indeed, preserve the “relative autonomy” of international law (as Jan Klabbers cautions), some sharpening of our interdisciplinary sensibilities can nevertheless be useful in helping us to test the “good faith” nature of any postulation or assertion on the desired weight, form, content, and structure of our international economic treaties and institutions.  I use three examples of unstated assumptions in the debate over international economic treaties today that illustrate where interdisciplinarity is sorely lacking: 1) that international economic treaties can somehow erase trade deficits and permanently prevent trade imbalances; 2) that international economic treaties can anticipate and provide the most appropriate and suitable dispute resolution mechanism for the particular States parties to these treaties – for the entire life of these treaties – which is problematic with the growing depiction of a supposed ‘binary’ choice between investor-State dispute settlement mechanisms (ISDS) and local court adjudication (and/or political risk insurance); and 3) that international economic treaties can be designed to fully create desired social, environmental, labor, health, education, and all public interest outcomes.  I posit that while interdisciplinarity may show us that international economic treaties could be a correlative, if not possibly one of the causal, factors for desired outcomes, and that we can probably design them with sensitivity and vigilance towards controlling the negative externalities they cause and encouraging positive distributive consequences, the international economic treaty-writing (and rewriting) exercise is complex. We cannot – as politicians do – simplistically oversell or lionise these treaties as somehow the definitive “one size-fits all” solution to remake the world towards “fair and reciprocal trade”.

Trade Treaties as the Cure for Trade Deficits?

The seductive intuition to the United States’ current moves to renegotiate, terminate, revise, or reform trade agreements is that changing the terms of market access will somehow reduce, if not eliminate, US trade deficits with rivals such as China.  As reported by the Council on Foreign Relations, however, even among economists of different stripes, none have reached any definitive findings that the decisive actual cause of US trade deficits is the nature of its trade agreements. Rather, as the Cato Institute stressed:

“The most important economic truth to grasp about the U.S. trade deficit is that it has virtually nothing to do with trade policy. A nation’s trade deficit is determined by the flow of investment funds into or out of the country. And those flows are determined by how much the people of a nation save and invest – two variables that are only marginally affected by trade policy.” 

In March 2017, US President Trump ordered a “comprehensive study” of trade abuses that lead to trade deficits, which to date has not yet been declared to have been completed, much less publicly released.  Despite the absence of this information – and the positive finding that it is the capital, investment, and savings flows of a country that actually determine a trade deficit – the United States has nonetheless embarked on a policy of renegotiating or terminating its trade treaties such as NAFTA, KORUS FTA, and the TPP.  One can only wonder, despite the US Trade Representative’s stated objectives in these renegotiations, how international lawyers are drafting the new terms of US economic treaties.

ISDS, Local Court Adjudication, or Political Risk Insurance?

Various quarters immediately hailed victory when the resurrected Trans-Pacific Partnership Agreement (now CPTPP) considerably narrowed, if not de facto eliminated, investor-State dispute settlement clauses, making resort to local court adjudication compulsory.  There was no discussion in the press as to why local court adjudication in the 11 CPTPP countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) was held to be superior to any other form of dispute settlement, or why local court adjudication ought to have been the exclusive method for dispute settlement given the prospective long duration or term of this regional agreement.  The UN Conference on Trade and Development (UNCTAD) recognises a spectrum of dispute settlement options for trade and investment treaties, emphasising the importance of contextual fit, host State institutional environments, and policy coherence.  No such reasons, however, were furnished for the exclusive choice of local court adjudication in the CPTPP.  Similarly, in NAFTA renegotiations, a public letter signed by prominent academics advocated the elimination of investor-State dispute settlement, in favour of exclusively taking out political risk insurance. Considering that the United States insurance industry also suffered heavily and had to be bailed out from the accumulation of systemic risk in the 2008/2009 financial crisis, it was puzzling that the proposed dispute settlement mechanism put forward was to make political risk insurance compulsory for an industry that is itself reportedly also a source of systemic risk, and all the more so when one considers the  limitations on the effectiveness of such insurance policies.  Unlike current open multi-stakeholder debates on the EU multilateral investment court, neither the CPTPP or NAFTA renegotiations presented interdisciplinary evidence (whether from law, economics, statistics, political science, or other social sciences) on why their exclusive choices (e.g. local court adjudication or political risk insurance) were the most appropriate dispute resolution fit for the States involved in these negotiations. Again, one can only wonder at how international lawyers are helping to draft these renegotiated terms sans focused interdisciplinary dialogue and evidence-based results.

Trade and Investment Treaties and Desired Social Outcomes

While many of us do write on the negative social, environmental, labor, and human rights impacts from trade and investment treaties, it was riveting to see Canada push for a “progressive” revision of the TPP into the “Comprehensive and Progressive Agreement on Trans-Pacific Partnership”, which presumably contains Canada’s articulated preferences for trade agreements encapsulating environmental, labor, and social rights, as recently exemplified in the Canada-EU Trade Agreement (CETA).  

To date, however, it must be acknowledged that while the UN Office of High Commissioner on Human Rights (along with the Committee on Economic, Social and Cultural Rights) has spearheaded efforts to mainstream human rights into trade and investment agreements, there is still not much standardisation or methodological uniformity when it comes to arriving at the pragmatic details on how best to operationalise human rights into economic agreements, whether by requiring human rights impact assessments for these agreements (as proposed by UN Special Rapporteur Olivier de Schutter), rewriting trade and investment treaty provisions to inject human rights provisions directly, embedding human rights norms directly into foreign investment contracts, among others.  These proposals stand alongside rather incipient human rights compliance measurement methods (e.g. the OHCHR refers to human rights indicators) that have not yet been universally determined or fully tested, and which, correspondingly, could make it equally difficult to determine if the new “progressive” trade and investment treaties are indeed achieving desired social outcomes.

Moreover, even international human rights lawyers themselves perennially debate what compliance with human rights means for States facing different factual contexts. As UN Special Rapporteur on Extreme Poverty and Human Rights Philip Alston powerfully argued in a recent article, human rights in a “populist era” indeed requires even more introspection and openness by its advocates and scholars. To a certain extent, while international lawyers are drafting economic treaties in the hope of reaching this desired consistency with States’ international human rights obligations, they do need to engage interdisciplinary experts and methods, to verify (with actual data) if the treaty language and institutional design they are prescribing to States are indeed achieving desired environmental, labor, social, and human rights outcomes.

Conclusion

It is a unique time to teach and research on international economic law and development today, when so much of pending international developments are anchored on remaking the world order towards our shared (or different) conceptions of “fairness” in the international economic system.  On my end, I am often agnostic about the form of an international economic treaty (bilateral, regional, multilateral, among others) or its dispute resolution clause (arbitration, adjudication, negotiations, conciliation, insurance, among others), for the basic reason that my own early training in economics taught me to look functionally at these instruments and institutions as proposed tools to solve defined problems. The challenge is always to find the ‘right fit’ (or the best achievable fit, given a range of feasible options) for trade and investment treaties and their dispute resolution methods, given the short and long-term needs and problems of the State and non-State constituencies involved. Much of what appears missing from the public debates about trade and investment today may well be something as pedestrian as calling for more regular interdisciplinary engagement between international lawyers and experts in other disciplines. It is a  conversation worth having on a regular basis, if only to better inform the work of international economic lawyers and scholars, especially to make explicit our criteria for what constitutes “fair and reciprocal trade”.

Individuals, groups, families, communities, and populations – who are the real stakeholders and beneficiaries of trade and investment agreements – deserve straightforward answers on how their governments ‘legislating’ through trade and investment agreements are solving (or at least getting closer to solving) felt problems of poverty, inequality, disenfranchisement, and disempowerment.  Politicians can certainly use “fair and reciprocal trade” as a soundbite in international economic summits, but to international lawyers, it is the goal of “fair and reciprocal trade” that justifies even more interdisciplinarity to help check (as well as validate) our assumptions for rewriting the legal foundations of a new international economic system.

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4 Responses

  1. John R Morss

    Excellent contribution. How about proposing a panel at or around ESIL (too late for Manchester??/…2019 Athens(?))
    and/or propose a new IG in ESIL? Law and economics (and similar ‘behavioural’)is already a powerful voice in IL. It has perhaps said what it has to say… Would be good to trawl more widely.

  2. Diane Desierto

    Dear John:

    Many thanks – might be too late to propose a panel for ESIL 2018, but I agree with a possible new IG on international law and the social sciences (broader than just economics). Might be overdue, if we consider that 2014 Nobel Prize winner Jean Tirole predicted that the social sciences will eventually converge again into a general field, since we’re all now more closely looking at the same phenomena.

    With best wishes,
    Diane

  3. Rossana Deplano

    Wonderful post, thanks!

  4. Nancy Aizz

    Dear Diane,

    I haven’t read the full article yet, but it sounds interesting. Is it possible to get your e-mail, as I wan to communicate on references and resources about my dissertation that talks about compliance with the decisions of International Court of Justice, hence, I thought to approach you for being a former law clerk there.
    Thank you and Happy New Year!