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International Trade and Investment
Villanova University School of Law
Gordon, Ruth

International Trade
·         Refers to the public international law, treaties, and legal institutions that constitute the multilateral trading system and the implementation of these public international law obligations into domestic law.
·         Practical:
o   Economic and commercial activities that cross national boundaries
The Law of International Trade: Levels of Analysis:
·         (1) National law
o   These laws apply to the interests of private parties in their transactions (i.e. national contract law)
·         (2) International Rules established by the Multilateral trading system
o   Treaties, agreements,
·         (3) *Public Law:
o   public law regulation at the national law (laws made regarding tarrigs, quotas, anti-dumping, export controls)
o   Usually implementation of international obligations.
Multilateral Trading System: (moving away from purely opportunistic economic behavior – co-operation to set rules)
·         Embodied in
o   GATT
o   WTO
·         Goals:
o   Provide the basis for the way nations deal with each other in trade and economic matters.
o   Establish the legal framework and set of rules and guidelines that concern the conduct of international trade and the resolution of disputes between members.
Channels of International Trade: (flows)
·         Trade in goods
o   Most basic and oldest channel- Governed by GATT (General Agreement on Trade and Tariffs)
o   Largest flow
·         Trade in services
o   Governed by GATS (General Agreement on Trade in Services)
o   Experience significant growth
·         Technology Transfer
o   Governed by TRIPS (Trade Related Aspects of International Property)
o   Highest rate of growth
·         Foreign Direct Investment
o   Governed by TRIMS (Trade Related Investment Measures) Not a comprehensive agreement like the three above.
o   Mostly between wealthier countries
Flow Issues:
·         FDI mostly between wealthier countries
·         The rules favor wealthier countries
·         The US was not pushed to open their markets during its industrial growth period to the extent that developing countries are pushed to be open in todays global economy.
·         the relatively free movement of goods, services, capital, technology, information and people all over the world.
The Creation of the Multi-Lateral Trading System
·         period following WWII – a group of nations led by the US held a conference in Bretton Woods to establish a set of international institutions that would help to avoid the disastrous economic policies that contributed to war.
·         Passed in 1932: put extremely high tariffs on incoming goods; followed by similar acts in many other nations. “Nations which are economic enemies are not likely to remain political friends for long”- may have led to WWII.
(1) IMF
·         Quickly approved – designed to ensure the stability of the international monetary system and to assist countries with balance of payment obligation
·         Coordinated monetary policy until 1970s
After currencies float – however some country’s central banks intervene to peg currency.
·         Current Role à lends to countries in emergencies. Designed to insure stability of the international monetary system so loans are usually conditioned on accepting economic policies (Western Adhesion)
o   Encourages the convertibility of its member currencies and generally supervises but has no power to control
o   Alleviates poverty through poverty reduction lending.
(2) World Bank
·         Quickly approved – Original purpose to rebuild Europe post WWII
·         After Marshall plan (reconstructing Europe – focus turned to the third world
·         Funded by member nations:
o   President of the World Bank has always been an American appointed by POTUS
·         Make up
o   International Bank for Reconstruction and Development; International Development Association; International Finance Corporation; Multilateral Investment Guarantee Agency; International Center for the Settlement of Investment Disputes
·         Types of Loans
o   Investment Loans: support economic development
o   Development Policy Loans: support policy and institutional reforms
(3) ITO:
·         Created to monitor GATT
·         US Congress opposed
(4) GATT (General Agreement of Tariffs and Trade):
·         Countries decoded to move ahead with a multi-lateral treaty to reduce tariff barriers:
o   Technically a treaty not an international org., it was administered by the contracting parties
·         A defacto international organization in Geneva until WTO in 1995
·         GOAL:
o   Move away from protectionist legacy in 1930s and move towards trade liberalization.
Emergence of WTO:
·         Why?
o   Significant new trade agreements would need a better system for resolving disputes
§  Create a UN that specialized in organizational structure and dispute settlement mechanisms.  A forum for discussion and dispute settlement!
o   Specific goals
§  (1) Forum for negations among members as to current and future agreements
§  (2) Administer system of dispute settlement
§  (3) Administer the trade policy review mechanism
§  (4) cooperate as needed with the IMF and World Bank
·         Formation:
o   Marrakesh Agreement:
§  Package of documents annexed to a single document started the WTO
o   Multiple parts
§  1A: Goods:  GATT 1994 (if IA agreement is in conflict with GATT 1994, IA controls)
§  1B: GATS: (General agreement of trade in services)
§  1C: TRIPS (trade related aspects of Intellectual property rights)
§  2:  DSU  (Dispute Settlement Understanding)
§  3: Trade Policy Review Mechanism
·         periodic review of each members compliance
§  4: Plurilateral Trade Agreements 
o   Agreements are voluntary (only vol

s by bringing people into contact with one another
§  trade promotes peace
·         Montesquieu – “the natural effect of commerce is to lead to peace because nations that trade with each other become reciprocally dependent.”
Direct Benefits:
·         increased productivity
·         access to larger markets – competition
·         comparative advantages (efficiency in production and global resource allocation)
·         lower costs of goods
·         Increases the availability (in terms of supply) of goods and services (more diverse products available)
·         Defeat prejudicies – bringing people and ideas in contact with one another.
·         Promote peace
Issues that affect comparative advantage:
·         Natural resources
·         Intellectual Property
·         More favorable government policies
o   Subsidies- Not supposed to do that under the WTO
o   Favorable parts of the tax code- not a good policy under the WTO. There are some permissible government activities that can shape comparative trade.
·         Proximity to the market
·         Education
·         Forms of government which promote stability
·         Cheap labor
Affect on Jobs:
·         Overall effect is actually neutral
o   Trade destroys and Creates jobs!
o   Exports and foreign investment creates new jobs
§  Foreign jobs are created
§  Domestic jobs in industries that have higher comparative advantages.
Wages and Jobs
·         Imports destroy bad low wage jobs.
o   Wages in exporting industries are well above average compared to wages in importing industries.
·         Policies that limit overall trade tends to increase employment in low wage industries and reduce employment in high wage industries
o   Shifts workers away from things they produce well to things that they don’t produce as well.
·         America is in the middle of restructuring.
·         Unprecedented technological advantage… US exports technology – workers need high level of education.
·         Labor force that is ill equipped to change to emerging industries.
·         What can the gov’t do?
o   (1) Stimulate more job creation
o   (2) Make sure displaced workers have a safety net
§  job training – job search and relocation.
o   (3) Pressure governments to upgrade the rights of workers in their domestic countries.