The Fragmentation of International Trade Law - SSRN papers

7 downloads 193 Views 744KB Size Report
Dec 14, 2002 - The thesis of this article is that the nature of international trade law is fragmented ... A Group of 20 nations (G-20), represented by their Finance Ministers and ...... All Ortnaw, with the Imperial Citys of Ossenburg, Gengenbach, ...
145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 145

The Fragmentation of International Trade Law: Is Now the Time for Variable Geometry? Rafael LEAL-ARCAS*

1.

INTRODUCTION

This article deals with international trade law at various levels of governance: unilateral, bilateral, regional, plurilateral, and multilateral. Multilateralism has dominated international relations in the various fields of international economic law such as international trade law and international monetary law after World War II—thereby giving birth to the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) and to the International Monetary Fund (IMF), respectively. The thesis of this article is that the nature of international trade law is fragmented and cyclical. At first, international trade agreements were bilateral. Then came the 1947 General Agreement on Tariffs and Trade, which multilateralized bilateral trade agreements. Years later, international trade law saw the collapse of multilateralism in 1979, which broke down during the Tokyo Round of multilateral trade negotiations. A series of new plurilateral (or selectively multilateral) agreements were adopted during the Tokyo Round, which caused a fragmentation of the multilateral trading system.1 In 1994, international trade law was again multilateralized with the World Trade Organization Agreement. In 2008, in the midst of the most serious global economic crisis since the Great Depression, it seemed pertinent to reform the system of global economic governance. A Group of 20 nations (G-20), represented by their Finance Ministers and Central Bank Governors, succeeded the Group of 7 (G-7) in re-shaping the future of the global economic architecture.2 This article addresses the importance of re-shaping the trade pillar of global economic governance, acknowledges multipolarity and the rise of

* Senior Lecturer in International Economic Law & European Union Law, and Deputy Director of Graduate Studies, Queen Mary University of London (Centre for Commercial Law Studies), United Kingdom. 2011 Global Research Fellow, New York University School of Law; 2011 Visiting Fellow, World Trade Institute (University of Bern). Ph.D. (European University Institute, Florence); JSM (Stanford Law School); LL.M. (Columbia Law School); M.Phil. (London School of Economics and Political Science); BA, JD (Granada University). Member of the Madrid Bar. Author of the books INTERNATIONAL TRADE AND INVESTMENT LAW: MULTILATERAL, REGIONAL AND BILATERAL GOVERNANCE (Edward Elgar, 2010) and THEORY AND PRACTICE OF EC EXTERNAL TRADE LAW AND POLICY (Cameron May, 2008). Contact at: [email protected]. 1 See Statement of the GATT Director-General on the Tokyo Round, April 12, 1979, 18 I.L.M. 553. 2 Enrique Rueda-Sabater, Vijaya Ramachandran, and Robin Kraft have proposed objective criteria (population and GDP) for deciding which countries should join the G-20 club. See Rueda-Sabater, E., Ramachandran, V. & Kraft, R. “A Fresh Look at Global Governance: Exploring Objective Criteria for Representation,” Center for Global Development, Working Paper No. 160, Washington, D.C., February 2009.

Electronic copy available at: http://ssrn.com/abstract=1794274

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

146

12/4/11

09:19

Page 146

THE JOURNAL OF WORLD INVESTMENT & TRADE

regionalism as the new global reality, and notes the lack of coordination between multilateral and regional mechanisms of economic governance. The scope of analysis in this article is the EU vis-à-vis Brazil, Russia, India, and China—the so-called BRIC countries3—using three three legal instruments or types of trade liberalization: unilateralism, bilateralism/regionalism, and multilateralism. The analysis of the EU with other equally economically important parts of the world, such as the United States or countries in the Asian/Pacific rim, is not part of this article’s scope, even if countries in the Asian/Pacific rim (such as Japan, New Zealand, or Australia) have entered into a large number of international agreements facilitating trade and foreign direct investments. The article is divided into eight sections. After the introduction, Section 2 presents three arguments on the fragmentation of international trade law. The article introduces in Section 3 an explanation of why trade is important. Section 4 is devoted to the European Union’s (EU) unilateral approach to international trade law in relation to the BRICs, followed by a multilateral approach when dealing with the BRICs on international trade law issues in Section 5. Plurilateralism in the context of international trade law is analyzed in Section 6. An analysis of the bilateral/regional approach to international trade law follows in Section 7, before the conclusion. 2.

THE FRAGMENTED NATURE OF INTERNATIONAL TRADE LAW: AN OVERVIEW OF THREE ARGUMENTS

With the delayed and stalled Doha Round of multilateral negotiation, multilateral trade governance seems to be in a stalemate. This, however, does not necessarily mean that the WTO is not doing its job. On the other hand, a growing number of bilateral and regional free-trade agreements (FTAs) are concluded for the purpose of enhancing trade and investment among the parties. This proliferation of FTAs has implications for multilateralism. For example, Mexico–Corn Syrup4 is at the intersection between multilateralism and regionalism. Given the fragmentation of international trade law, this article analyzes the 3 BRIC is a term used in economics to refer to the combination of Brazil, Russia, India, and China. The general thinking is that the term was first prominently used in a thesis of the Goldman Sachs investment bank. Goldman Sachs argues that the economic potential of Brazil, Russia, India, and China is such that they may become among the four most dominant economies by the year 2050. This will certainly affect the four European Union (EU) Member States which are members of the G-7. The thesis was proposed by Jim O’Neill, chief global economist at Goldman Sachs. The BRIC countries encompass over 25 per cent of the world’s land coverage and 40 per cent of the world’s population. The BRIC countries have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India. For further detail on the BRICs, see Goldman Sachs, BRICs and Beyond, The Goldman Sachs Group, 2007. For a thorough analysis of the trade relations between the EU and the BRICs unilaterally, bilaterally, and multilaterally, see Leal-Arcas, R. “The European Union and New Leading Powers: Towards Partnership in Strategic Trade Policy Areas,” Fordham International Law Journal, Vol. 32, Issue 2, 2009, pp. 345-416. 4 Mexico-Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, WT/DS132.

Electronic copy available at: http://ssrn.com/abstract=1794274

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 147

FRAGMENTATION OF INTERNATIONAL TRADE LAW

147

multilateral, regional, bilateral, and unilateral governance of international trade. For the analysis of unilateral trade measures, the European Union has been used as an example of unilateralism in international trade. The article also analyzes the role of the EU and the BRICs in the multilateral trading system, given the economic potential of these four emerging economies.5 The three main arguments of the article are as follows: (A) First Argument: The EU’s objective of engaging with the BRICs on trade matters is to establish peace, security,6 and prosperity in the 21st century. Trade creates economic ties and generates more wealth;7 thus it contributes to peace and security, since nations that trade with each other do not go to war.8 An example is the EU integration project. The same argument is true multilaterally: before the creation of the Doha Round in 2001, developing and least-developed countries had been marginalized in the world trading system,9 which brought with it serious economic implications. In 2001 in Doha (Qatar), developing countries were promised inclusion in the world trading system in order to achieve a higher level of justice and equity in the world.10 That is why the Doha Round is called the development agenda. The argument is that a more open and equitable trading System11 brings peace to the world and, in this sense, the Doha Round should not be approached as a zero-sum game—as many developing countries seem to perceive it—but as a win-win situation.12 5 For an economic analysis of the success of the BRIC countries, see Dominic Wilson & Roopa Purushothaman, “Dreaming with BRICs: The Path to 2050,” Global Economics Paper No. 99, October 2003. 6 For an analysis of security in the global context, see Hurrell, A. On Global Order: Power, Values, and the Constitution of International Society, Oxford: Oxford University Press, 2007, chapter 7. 7 See the views of Pascal Lamy in a speech given at the Barcelona Graduate School of Economics: Traditional theories taught us that countries—like people—gain from trade because they are different, and that it is relative rather than absolute differences in production costs that make trade profitable. This last insight provides the vital intellectual underpinning for the argument that all countries can gain from trade— you only have to be more competitive in relative, and not absolute, terms across production activities to gain from trade. Understanding this reality has been indispensable to the efforts of many over the last six decades and more to build a more open and inclusive multilateral trading system. Lamy, P. “The Economics and Politics of Trade are Inextricably Linked,” available at http://www.wto.org/ english/news_e/sppl_e/sppl107_e.htm. 8 For arguments on the correlation between trade and peace, see Sobek, D. The Causes of War, Cambridge: Polity, 2009, pp. 107-127. 9 Ismail, F. “How Can Least-Developed Countries and Other Small, Weak and Vulnerable Economies Also Gain from the Doha Development Agenda on the Road to Hong Kong?” Journal of World Trade, Vol. 40, No. 1, pp. 37-68, 2006. 10 On social justice, see McCrudden, C. Buying Social Justice: Equality, Government Procurement, and Legal Change, Oxford: Oxford University Press, 2007. 11 Peter Mandelson, former EU trade commissioner, who referred to a development package for leastdeveloped countries (LDCs) as “indispensable,” indicated at the Hong Kong WTO Ministerial Conference that the EU had committed to step up annual spending on aid for trade to EUR 2 billion by 2010. One billion of this will come from EU Member States, which agreed at the Hong Kong Ministerial Conference to the increase (from EUR 400 million per year); the remainder will come from the European Commission “Europe did not come to Hong Kong empty-handed on aid for traid,” he said. See in this respect, Iorio, M. “The Doha Development Agenda (DDA) and Aid for Trade: Finding the Policy Link,” International Gender and Trade Network, 2007. On aid for trade, see also Njinkeu, D. & Cameron, H. (eds.) Aid for Trade and Development, Cambridge: Cambridge University Press, 2008. 12 For an analysis of the evolution of the world trading system, see Demaret, P. “The Metamorphoses of the GATT: From the Havana Charter to the World Trade Organization,” Columbia Journal of Transnational Law (1995) Vol. 34, 123-171.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

148

12/4/11

09:19

Page 148

THE JOURNAL OF WORLD INVESTMENT & TRADE

To achieve this, a new and better global economic governance framework is needed.13 World Trade Organization (WTO) Director-General Pascal Lamy defines global (economic) governance as a: system we set up to assist human society to achieve its common purpose in a sustainable manner, that is, with equity and justice. Growing interdependence requires that our laws, our social norms and values, our mechanisms for framing human behavior be examined, debated, understood and operated together as coherently as possible. This is what would provide the basis for effective sustainable development in its economic, social and environmental dimensions.14

According to Jim O’Neill’s predictions, “rather than suggesting our [Goldman Sachs’s] BRIC dream may be derailed by the global recession, the notion that the BRICs can become collectively bigger than the G-7 [of leading industrialized countries] by 2035 is becoming more plausible.”15 In this sense, leaders of the so-called G-2016 have acknowledged the importance of expanding the voice of developing countries in the World Bank and in the International Monetary Fund.17 It follows from this statement that the Bretton Woods institutions,18 which are outdated,19 need to be reformed and 13 Pascal Lamy argues, in this sense, that trade is useful if it enhances the human condition. Realism and intellectual honesty require that we consider the costs and the politics associated with trade. If the beginning and end of the story was that trade was unconditionally beneficial to all and that the more we had of it the better, then governments would surely embrace it unilaterally and without question. And there would certainly be no need for the WTO Agreement to manage international trade relations. See Lamy, P. “The Economics and Politics of Trade are Inextricably Linked,” available at http://www.wto.org/english/news_e/sppl_e/sppl107_e.htm. For an academic analysis on the future of international economic law and governance, see Davey, W. & Jackson, J. (eds.) The Future of International Economic Law, Oxford: Oxford University Press, 2008. 14 See speech by Pascal Lamy at Bocconi University on 9 November 2009, available at http://www.wto.org/english/news_e/sppl_e/sppl142_e.htm. 15 O’Neill, J. “Why it Would be Wrong to Write off the BRICs,” Financial Times, Opinion, 5 January 2009. 16 This G-20 should not be confused with the developing-country alliance in the WTO agricultural negotiations. The members of the G-20 are the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States. The European Union is also a member, represented by the rotating Council presidency (since the entry into force of the Lisbon Treaty, it is the European Council president) and the European Central Bank. To ensure that global economic fora and institutions work together, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings on an ex-officio basis. The G-20 “promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability.” See http://www.g20.org/about_what_is_g20.aspx. The G-20 thus brings together important industrial and emerging-market countries from all regions of the world. Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade [including intra-EU trade] as well as two-thirds of the world’s population. The G-20’s economic weight and broad membership gives it a high degree of legitimacy and influence over the management of the global economy and financial system. For further details, see http://www.g20.org/about_what_is_g20.aspx. 17 Bridges Weekly Trade News Digest, “G-20 Recognises Central Role of Emerging Economies,” Vol. 12, No. 39, 19 November 2008, available at http://ictsd.net/i/news/bridgesweekly/34105/. 18 The Bretton Woods institutions are the organizations set up as the result of the UN Monetary and Financial Conference held in July 1944. Representatives of 44 Allied nations met in Bretton Woods, New Hampshire, which led to the signing of the Bretton Woods Agreements. The World Bank and the International Monetary Fund were established and became known as the Bretton Woods institutions. For further reading, see Stiglitz, J. Globalization and its Discontents, London: Penguin, 2001, chapter 1. 19 Aaditya Mattoo and Arvind Subramanian argue that “it is time to start working on a new agenda that really matters, rather than trying to resuscitate an inconsequential enterprise. The interests of a more diverse group of actors are now at stake. This calls for a new approach to international cooperation and the reallocation of responsibilities among international institutions. A Bretton Woods II offers exactly this opportunity.” See Aaditya Mattoo and Arvind Subramanian, “From Doha to the Next Bretton Woods: A New Multilateral Trade Agenda,” Foreign Affairs, January/February 2009, pp. 15-26, at 26.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 149

FRAGMENTATION OF INTERNATIONAL TRADE LAW

149

improved.20 O’Neill further argues that the G-821 should be reformed, with China, India, and Brazil taking the places of eurozone members Germany, France, and Italy, which he said should be represented by the European Council president and the European Central Bank.22 The world economy’s sudden, severe, and globally synchronized collapse in 2008 brought attention to the fact that the international trading system must also be reformed. As a result of the economic collapse, protectionist forces emerged and strengthened as the recession got worse.23 Although governments around the world made efforts to stabilize their economies, the hope was that stimulus packages would avoid generating new barriers against foreign products and services via local content requirements or other discriminatory provisions.24 The international community should therefore continue to open up markets to trade and investment.25 It is through the engine of open trade and technological change that the world has witnessed an extraordinary period of wealth creation since the establishment of the WTO.26 The emerging economies of Asia and Latin America have benefited most—but even Africa has grown at an unprecedented 6 per cent. It is through the engine of trade that the international community can ride its way out of economic downturns.27 Isn’t it time to propose a proper reform of global economic governance?28 (B) Second Argument: There remains substantial scope for all BRIC countries (except for Russia, which is not yet a member of the WTO) to make further commitments towards greater liberalization within the services sectors and within all 20 See generally Falk, R., Rajagopal, B. & Stevens, J. (eds.) International Law and the Third World: Reshaping Justice, London: Routledge-Cavendish, 2008. 21 The main difference between the G-7 and the G-8 (both coexist) is that the G-8 deals with political matters and includes Russia as a member, whereas the G-7 is for economic matters, and Russia is excluded. The members of the G8 are the US, Canada, UK, Germany, France, Italy, Russia, and Japan. For further reading on the G-7/G-8, see Jones, A. Dictionary of Globalization, Cambridge: Polity Press, 2006, pp. 86-7. 22 Faulconbridge, G. & Stott, M. “Crisis Speeds BRIC Rise to Power: Goldman’s O’Neil,” Reuters, 9 June 2009, available at http://www.reuters.com/article/wtUSInvestingNews/idUSTRE5583ZA20090609. For an analysis of the correlation between the G20 and the G8, see Subacchi, P. & Helleiner, E. “From London to L’Aquila: Building a Bridge between the G20 and the G8,” IE/CIGI BP 2009/01, The Royal Institute of International Affairs, June 2009. 23 On how to reform global trade within a new global economic governance, see Baldwin, R. & Evenett, S. (eds.) The Collapse of Global Trade, Murky Protectionism, and the Crisis: Recommendations for the G20, VoxEU.org Publication, 2009, available at http://www.voxeu.org/reports/Murky_Protectionism.pdf. 24 See speech by EU trade commissioner Catherine Ashton, “Open Trade and Investment: Driving Global Recovery,” 10 June 2009, available at http://ec.europa.eu/commission_barroso/ashton/speeches_articles/ spca015_en.htm#top. 25 For an analysis of the challenges the multilateral trading system will face in the longer term, Deere Birkbeck, C. & Meléndez-Ortiz, R. Rebuilding Global Trade: Proposals for a Fairer, More Sustainable Future, Jointly published by International Centre for Trade and Sustainable Development & The Global Economic Governance Programme, 2009, available at http://www.globaleconomicgovernance.org/wp-content/uploads/rebuilding-global-trade.pdf. 26 “The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade among nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.” Text taken from the WTO’s web site at http://www.wto.org/english/ thewto_e/whatis_e/whatis_e.htm. 27 Ibid. 28 On this note, see Patterson, D. & Afilalo, A. The New Global Trading Order: The Evolving State and the Future of Trade, Cambridge: Cambridge University Press, 2008. For a broader model of transnational and supranational governance inspired by Kantian cosmopolitanism, see Habermas, J. The Divided West, Polity, 2006.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

150

12/4/11

09:19

Page 150

THE JOURNAL OF WORLD INVESTMENT & TRADE

modes of supply29 provided in the General Agreement on Trade in Services (GATS).30 It will be demonstrated that, despite the commitments made within the GATS, services sectors still exhibit limitations that restrict equal competition for foreign competitors, sometimes resulting in non-compliance with the WTO doctrines of market access and national treatment. Different WTO Members set different strategies for services liberalization, reflected in their GATS or other negotiating positions. Excessive use of non-tariff barriers31 can lead to ineffective enforcement of GATS commitments, resulting in true market access lagging behind bound rates. Some countries keep a conservative position on their bound commitments, while in reality a more liberal access is enjoyed, affording them stronger leverage on future rounds of negotiation. A failure to effectively enforce bound commitments can also reflect an inability within a country to ensure uniform domestic implementation.32 (C) Third Argument: The attitude of the BRICs toward multilateralism is unclear. Moreover, the BRICs assume little responsibility to maintain international order in global economic governance. For example, China’s role at the WTO has been rather passive since it joined in December 200133 and Russia withdrew from the Energy Charter Treaty in July 2009, refusing to live by its international commitments.34 Moreover, China, India, and Brazil do want to become more important players in world affairs, but they seem to lean against “traditional” powers (mainly the US),35 and tend to focus on South-South regionalism.36 In other words, given that leadership is about responsibility, the BRICs should hide less behind the status of a developing country and stand up to their own ambition for new leadership. For most of the Cold War period, China “was not prepared to play entirely by the 29

The four modes of supply in the GATS are: Mode 1—Cross-border trade; Mode 2—Consumption abroad; Mode 3—Commercial presence; and Mode 4—Presence of natural persons. For an explanation of the four modes of supply under the GATS, see Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, pp. 516-524. 30 For an analysis of the evolution of the rules-based trading system and its impact on the services economy, see Panizzon, M., Pohl, N., & Sauvé, P. (eds.) GATS and the Regulation of International Trade in Services, Cambridge: Cambridge University Press, 2008. 31 Non-tariff barriers or non-tariff measures are measures other than tariffs applied by governments at the border that determine the extent to which a good or service has access to the import market. 32 Among those who claim that there is potential for developing countries to benefit from trade liberalization are: Anderson, K., Martin, W. & van der Mensbrugghe, D. “Doha Merchandise Trade Reform: What’s at Stake for Developing Countries?,” World Bank Policy Research Working Paper 3848, February 2006, available at http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2006/02/15/000016406_ 20060215164859/Rendered/PDF/wps3848.pdf. 33 See Leal-Arcas, R. “China’s Attitude to Multilateralism in International Economic Law and Governance: Challenges for the World Trading System” Journal of World Investment and Trade, Vol. 11, No. 2, 2010, pp. 259-273. 34 Leal-Arcas, R. “The EU and Russia as Energy Trading Partners: Friends or Foes?” European Foreign Affairs Review, Vol. 14, Issue 3, pp. 337-366, 2009. 35 See, for example, the results of the July 2008 WTO Mini-ministerial conference, where WTO members’ latest attempt to salvage a deal in the Doha Round broke down. Import-sensitive China and India were pitted against the US’s demands for predictable market access for farm products. For further details, see Leal-Arcas, R. “Services as Key for the Conclusion of the Doha Round,” Legal Issues of Economic Integration, 35(4), pp. 301-321, at 319-21, 2008. 36 That said, according to the United Nations Conference on Trade and Development, as global indicators continued to reveal the breadth of the 2008 financial crisis, developing countries in general softened the impact on their economies by increasing cooperation with other nations of the South. See Bridges Weekly Trade News Digest, “UN Urges Increased South-South Cooperation in Response to Crisis,” Vol. 13, No. 5, 12 February 2009.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 151

FRAGMENTATION OF INTERNATIONAL TRADE LAW

151

rules.”37 By the 1990s, however, China had fully accepted the identity of statehood and the rights and duties implied by sovereignty.38 It accepted these pluralist rules at a time when the rules of the game were changing.39 The dynamics of this changing order were driven by economic liberalization and the advance of liberal values and purposes including universal human rights. In 2005, then US Deputy Secretary of State Robert Zoellick, gave a speech entitled “Whither China: From Membership to Responsibility,”40 which focused on the rise of China’s international influence and the management of a Sino-US great power relationship. Zoellick expressed anxiety about China’s remarkable economic growth and growing influence as well as uncertainties about how China would use its power. He said “[M]any countries hope China will pursue a peaceful rise, but none will bet their future on it.”41 The idea of China as an international stakeholder has been reinforced by US foreign practitioners and scholars in many documents and speeches related to US foreign policy. For example, the 2006 US National Security Strategy reaffirmed China’s international status as a global player and urged that “[China] must act as a responsible stakeholder that fulfills its obligations and works with the United States and others to advance the international system that has enabled its success.”42 It is therefore argued in this article that it is necessary to pave the way for responsible multilateralism for the common goal,43 i.e., the establishment of peace, security, and prosperity in the 21st century.44 Further evidence of the fact that the attitude of the BRICs to multilateralism is unclear or that they assume little responsibility to maintain international order in global economic governance is the trilateral developmental initiative among India, Brazil, and South Africa (IBSA).45 Another example of questionable attitudes on the part of the BRICs toward multilateralism is the recent preferential trade agreement between India 37 Foot, R. “China and the Idea of a Responsible State,” in Zhang, Y. & Austin, G. (eds.) Power and Responsibility in Chinese Foreign Policy, Canberra: Asia Pacific Press, 2001, p. 24. 38 Gong, G. “China’s Entry into International Society: Beyond the Standard of ‘Civilization’,” Review of International Studies, (1991) 17, pp. 3-16. 39 See, for example, Donnelly, J. “Human Rights: The New Standard of Civilization?” International Affairs, Vol. 74.1, January 1998, pp. 1-23. 40 Zoellick, R. “Whither China: From Membership to Responsibility?” Remarks to the National Committee on US-China Relations, New York City, September 21, 2005. 41 Ibid, pp. 3-4. 42 The White House, “The National Security Strategy of the United States of America,” 2006. 43 Bruno Simma proposes other goals, in addition to peace and security: solidarity between states at different levels of development; environmental health; and the protection of human rights. These are explained in more detail in Bruno Simma, “From Bilateralism to Community Interest,” 1994:VI Rec. des Cours, pp. 217-384 (Martinus Nijhoff Publ.: The Hague/Boston/London, 1997), at 236-243. See also Erika de Wet, “The International Constitutional Order,” 55 International & Comparative Law Quarterly 51, 54-57 (2006) (describing the emergence of the international community as a process by which international and regional organizations as well as individuals were brought under the reach of international law that had formerly been reserved to states). 44 See remarks by Thomas Christensen before the US-China Economic and Security Review Commission, “China’s Role in the World: Is China a Responsible Stakeholder?” 3 August 2006, available at http://hongkong. usconsulate.gov/uscn_state_2006080301.html#top. 45 The India, Brazil, South Africa (IBSA) Dialogue Forum represents three important poles for galvanizing South-South cooperation and greater understanding between three important continents of the developing world namely, Africa, Asia and South America. The forum provides the three countries with a platform to engage in discussions for cooperation in the field of agriculture, trade, culture, and defense among others. See IBSA, About IBSA, available at http://www.ibsa-trilateral.org//index.php?option=com_content&task=view&id=1&Itemid=2.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

152

12/4/11

09:19

Page 152

THE JOURNAL OF WORLD INVESTMENT & TRADE

and Mercosur.46 This agreement will lower tariffs on a wide range of goods and is intended to serve as a stepping stone toward the establishment of a free-trade area between the parties. All these BRIC initiatives mentioned above, however, are not put forward to make the BRICs an object of suspicion in today’s global economic governance; rather, these initiatives are meant to show the importance of the BRIC’s engagement in multilateral affairs for the good functioning of the multilateral system. 3.

THE IMPORTANCE OF TRADE

Why is trade important in the political arena? Trade is about money, and money is a powerful instrument to foster political relations.47 Trade can be used as a “carrot” or as a “stick.” It is used as a “carrot” when preferences for certain countries create competitive advantages versus third parties. This is not possible multilaterally due to the most-favored-nation (MFN) treatment. The most-favored-nation treatment (GATT Article I, GATS Article II, and TRIPs Article 4), is the principle of not discriminating between one’s trading partners.48 In other words, the MFN principle is about treating other WTO Members equally. Under the WTO Agreements,49 countries may not normally discriminate between their trading partners. If a WTO Member grants another WTO Member a special favor (such as a lower customs duty rate for one of their products), then the WTO Member that granted special favor has to do the same for all other WTO Members. This principle, known as MFN treatment, is the core principle of the WTO Agreements. It is so important that it is the first Article of the GATT which governs trade in goods.50 MFN is also a priority in the GATS (Article II) and the TRIPs Agreement 46 International Centre for Trade and Sustainable Development, “India, Mercosur Deepen Economic Ties,” Bridges Weekly Trade News Digest, Vol. 13, No. 19, 27 May 2009, available at http://ictsd.net/i/news/bridges weekly/47387/. 47 For arguments on how to promote trade as an engine for growth and development, see the speech by Pascal Lamy at the UK Department for International Development on 22 January 2009, available at http://www.wto.org/ english/news_e/sppl_e/sppl113_e.htm. 48 For further analysis, see Mavroidis, P. The General Agreement on Tariffs and Trade: A Commentary, Oxford: Oxford University Press, 2005, chapter 2. See also generally, Mitchell, A. Legal Principles in WTO Disputes, Cambridge: Cambridge University Press, 2008. 49 The World Trade Organization (WTO) is a global trade agency that was established through the GATT Uruguay Round Agreement signed in 1994. The WTO provides dispute resolution, administration, and continuing negotiations for the 18 substantive agreements that it enforces. The WTO and its underlying agreements set a system of comprehensive governance that goes far beyond trade rules. It is argued by some commentators (Lori Wallach being one of the most relevant activists in the public domain) that the WTO system, rules, and procedures are undemocratic and non-transparent. The WTO’s substantive rules systematically prioritize trade over all other goals and values. Each WTO Member is required to ensure “the conformity of its laws, regulations and administrative procedures” (WTO Agreement Article XVI (4)) to the WTO’s substantive rules. National policies and laws found to violate WTO rules must be eliminated or changed; otherwise, the violating country faces trade sanctions. 50 Although the General Agreement on Tariffs and Trade, signed in 1947, was not formed at the Bretton Woods Conference that took place in Bretton Woods, New Hampshire (US), in 1944, the participants at the conference contemplated the necessity of an international trade organization (ITO). The GATT, which set out a plan for economic recovery after World War II, by encouraging reduction in tariffs and other international trade barriers, is therefore one of the three mechanisms for global economic governance that comprise the Bretton Woods System, the other two being the International Monetary Fund (IMF) and the World Bank. The GATT was a collection of rules applied temporarily, without an institutional basis, unlike the WTO, which is a permanent organization with a permanent framework and its own Secretariat. For almost 50 years, the GATT focused exclusively on trade in (footnote continued on next page)

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 153

FRAGMENTATION OF INTERNATIONAL TRADE LAW

153

(Article 4), although in each agreement the principle is handled slightly differently.51 Some exceptions are allowed, namely the so-called enabling clause52 and the preferential tariff treatment for least-developed countries.53 Under WTO law, countries can set up a free-trade agreement that applies only to goods traded within the group— discriminating against goods from outside.54 Or they can give developing countries special access to their markets.55 Or a country can raise barriers against products that are considered to be traded unfairly from specific countries.56 In the case of services, countries are allowed, in limited circumstances, to discriminate. The agreements, however, only permit these exceptions under strict conditions. In general, MFN means that every time a WTO country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners—whether rich or poor, weak or strong.57 Certain exceptions58 are, however, envisaged in the context of specific service activities within the framework of a list of exemptions from the MFN requirement. Work on this subject started in 2000. When the GATS59 came into force in 1995, WTO goods, leaving tariffs and quotas aside in the various rounds of negotiations of the world trading system. The GATT set the terms for countries who wanted to trade with each other. The GATT signatories were called “contracting parties.” The Uruguay Round, completed in 1994, replaced the GATT with the WTO, a global trade agency with binding enforcements of comprehensive rules expanding beyond trade. The GATT has now become one of the 18 agreements enforced by the WTO. 51 Together, those three Agreements cover all three main areas of trade handled by the WTO. 52 “Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favorable treatment to developing countries, without according such treatment to other contracting parties” (Decision of 28 November 1979). 53 “[t]he provisions of paragraph 1 of Article I of the GATT 1994 shall be waived until 30 June 2009, to the extent necessary to allow developing country Members to provide preferential tariff treatment to products of leastdeveloped countries...” (Decision of 15 June 1999). 54 See GATT Article XXIV. 55 Ibid. 56 Ibid. 57 See Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, pp. 507-508. 58 Exceptions are binding provisions on all signatories built into the core text of an agreement that lists the circumstances when a country may violate a term of an agreement without penalty. Exceptions only come into play as a defense when a country’s law or policy has been challenged in a dispute resolution as a violation of an agreement. 59 General Agreement on Trade in Services, April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, “The Results of the Uruguay Round of Multilateral Trade Negotiations—The Legal Texts,” 325, 33 I.L.M. 1167 (1994). For a full text of agreements resulting from the Uruguay Round, see Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, “Legal Instruments—Results of the Uruguay Round,” 1 (1994), 33 I.L.M. 1125 (1994). The GATS is one of the Agreements implemented by the WTO. The GATS sets rules for who controls or owns services and limits government regulation in the services sector. For the purposes of the GATS, ‘“services’ includes any service in any sector except services supplied in the exercise of governmental authority; ‘a service supplied in the exercise of governmental authority’ means any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers.” See GATS Article I.3(b) and (c). In other words, countries are left with enormous discretion to decide what service is supplied in the exercise of governmental authority by deciding whether to supply it on a monopoly and non-commercial basis. Some commentators—especially Lori Wallach—argue that only a small part of the GATS is about trade. The GATS allows some flexibility for countries to determine which service sectors they want to subject to the GATS full participation and deregulation pressures. However, some GATS rules apply even to sectors where countries have not committed. In addition, the text of the GATS commits all WTO countries to progressive liberalization (GATS Article XIX.1). Expansion of the GATS scope and the sectors it covers is now underway in the so-called “GATS 2000” negotiations. As of 2009, the GATS 2000 negotiations were still in the “request/offer” phase in the Doha Round framework, where WTO Members engage in bilateral negotiations requesting that other countries open up service (footnote continued on next page)

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

154

12/4/11

09:19

Page 154

THE JOURNAL OF WORLD INVESTMENT & TRADE

members were allowed a once-only opportunity to take an exemption from the MFN principle of non-discrimination between a member’s trading partners. The measure for which the exemption was taken is described in a member’s MFN exemption list, indicating to which member the more favorable treatment applies, and specifying its duration. In principle, these exemptions should not last for more than ten years. As mandated by the GATS, all these exemptions are currently being reviewed to examine whether the conditions which created the need for these exemptions in the first place still exist. And in any case, they are part of the current services negotiations. In fact, each government has included in its schedule the services for which it guarantees access to its market by setting out the limits it wishes to maintain for such access. Trade can also be used as a “stick” or punishment. For example, (1) to deny preferences to a certain country when granting them to others, thereby creating discrimination and trade diversion; (2) through trade defense instruments60 such as antidumping and safeguard measures;61 and (3) by legally punishing the wrongdoer to compensate the victim through the WTO dispute settlement system.62 As we will see later, trade agreements often include some non-trade policy objectives. This is the case of cooperation agreements that relate to sustainable development,63 human rights,64 good governance, et cetera.65 These agreements are usually aimed at lesser-developed countries. Examples of the EU’s cooperation agreements66 are the one signed with the Andean Pact (today the Andean sectors and offering sectors that they themselves will put on the negotiating table. For example, the EC had requested that WTO countries liberalize their water service, and the US had requested that Brazil open for ownership by US corporations elements of public higher education services. See Wallach, L. Public Citizen Pocket Trade Lawyer: The Alphabet Soup of Globalization, Washington, D.C.: Public Citizen’s Global Trade Watch, 2005. 60 Trade defense instruments are protective mechanisms that are legal under the WTO Agreements. They may be triggered to counter the effects of dumping, subsidies, and unexpected import surges causing injury to domestic industry. Such mechanisms include anti-dumping measures, countervailing duties and safeguards. See Dictionary of Trade Policy Terms, 5th ed., Cambridge: Cambridge University Press, 2007, p. 101. 61 On anti-dumping and safeguard measures in the case of China, see Messerlin, P. “China in the WTO: Antidumping and Safeguards,” unpublished, 14 December 2002. 62 See Article 22.1 DSU. According to Rachel Brewster, the WTO’s Dispute Settlement Understanding subordinates unilateral enforcement of international trade law to a rule-based system of multilateral enforcement. It also immunizes violations of WTO law from retaliatory sanctioning so long as the offending measures are withdrawn at the end of the litigation process, which is often several years later. See Brewster, R. “Shadow Unilateralism: Enforcing International Trade Law at the WTO,” University of Pennsylvania Journal of International Law, 2009. 63 The concept of sustainable development refers to a form of economic growth, which satisfies society’s needs in terms of well-being in the short, medium and—above all—long terms. It is founded on the assumption that development must enable us to meet today’s needs without jeopardizing the ability of future generations to meet their needs. It involves both the industrialized and the developing nations, and it has economic, environmental, and social aspects. In practical terms, it means creating the conditions for long-term economic development with due respect for the environment. The Treaty of Amsterdam makes explicit reference to sustainable development in the recitals of the EU Treaty. 64 For a linkage between modern trade law and human rights, see Hernández-Truyol, B. & Powell, S. Just Trade: A New Covenant Linking Trade and Human Rights, New York: New York University Press, 2009. See also Hafner-Burton, E. Forced to Be Good: Why Trade Agreements Boost Human Rights, Ithaca, NY: Cornell University Press, 2009. 65 On the relationship between human rights and globalization, see Benedek, W., De Feyter, K. & Marrella, F. (eds.) Economic Globalisation and Human Rights, Cambridge: Cambridge University Press, 2007. 66 Proposal for a Council Decision concerning the conclusion of Framework Agreement for cooperation between the European Economic Community and the Andean Pact [1993] OJ C25/31.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 155

FRAGMENTATION OF INTERNATIONAL TRADE LAW

155

Community)67 as well as with the Association of South-East Asian Nations (ASEAN)68 in 1980. Agreements were also designed by the European Community69 to help some Asian countries address problems arising from the loss of certain preferences from the Commonwealth.70 This was the case with India,71 Pakistan,72 Sri Lanka,73 and Bangladesh.74 In the case of the EU’s neighborhood, there were clear foreign policy objectives. With Eastern Europe, there was a strong role for trade policy in fostering foreign policy objectives. The integration of Eastern Europe into the EU has been facilitated by offering access to a huge market. With other countries in the European neighborhood, similar but not equally large economic incentives are offered in order to attain foreign policy goals such as security, stability, and peace. This is the case with North Africa and the Middle East. 4.

UNILATERALISM

4.1. EXPLORING THE CONCEPT While the practice of unilateralism is the oldest form of international State action, its legal acceptance has been questioned and its prevalence has decreased mainly as a result of—and in contrast to—multilateralism. The reason, presumably, is that while unilateralism was the norm under the Westphalian ideal of the nation state, it was only when the United Nations system altered the international law norm75 to multilateralism 67 The Andean Community is a trade bloc comprising until recently five South American countries: Venezuela, Colombia, Peru, Ecuador, and Bolivia. In 2006, Venezuela announced its withdrawal, reducing the Andean Community to four Member States. The trade bloc was called the Andean Pact until 1996, and came into existence with the signing of the Cartagena Agreement in 1969. Its headquarters are located in Lima, Peru. 68 ASEAN is composed of 10 members. The six Founding Countries of ASEAN are Malaysia, Indonesia, the Philippines, Singapore, Thailand, and Brunei. The rest of countries are Vietnam, Laos, Cambodia, and Myanmar. The aims and purposes of the Association are to accelerate economic growth, social progress, and cultural development, and to promote regional peace and stability. 69 The existence of the European Union (EU) came much later in time. The European Community (EC) was created by the Treaty of Rome of 1957, whereas the EU was created by the Maastricht Treaty on European Union in 1992. The entities co-existed in the pre-Lisbon Treaty era. It is important to note that the EC was part of the more encompassing EU and therefore I may use the term EU when referring to that more encompassing framework. For further detail on the legal difference between the EU and the EC in the pre-Lisbon Treaty era, see Leal-Arcas, R. Theory and Practice of EC External Trade Law and Practice, London: Cameron May, 2008, chapter 2. 70 The implementation of the “declaration of intent” does not require the conclusion of any agreement. 71 Council Regulation 3113/84 [1984] OJ L292/1, 5 (Agreement in the form of an exchange of letters between the European Economic Community and the Republic of India on the guaranteed prices for cane sugar for the 1984/85 delivery period). 72 Council Regulation 1196/86 [1986] OJ L108/1 (on the conclusion of the Agreement for commercial, economic and development cooperation between the European Economic Community and the Islamic Republic of Pakistan). 73 Council Decision 90/537/EEC [1990] OJ L301/1 (concerning the conclusion of the Agreement between the European Economic Community and the Democratic Socialist Republic of Sri Lanka on trade in textile products). 74 One early agreement with Bangladesh was on commercial cooperation. See Council Regulation 2785/76 [1976] OJ L319/1. 75 One could argue that the interpretation and application of international law is not static. See in this respect Wouters, J., Nollkaemper, A. & de Wet, E. (eds.) The Europeanisation of International Law: The Status of International Law in the EU and its Member States, The Hague: TMC Asser Press, 2008. See also Fernández de Casadevante Romani, C. Sovereignty and Interpretation of International Norms, Berlin; New York: Springer, 2007.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

156

12/4/11

09:19

Page 156

THE JOURNAL OF WORLD INVESTMENT & TRADE

that the measure of international action was changed so as to make some unilateral acts not acceptable,76 depending on the circumstances.77 However, there is definitely more fragmentation in international law today as one can see from US unilateral acts banning certain products in the US territory for environmental reasons against WTO principles.78 Moreover, cases such as the US Supreme Court’s Medellin79 or the European Court of Justice’s Intertanko80 and Kadi81 suggest that unilateralism is far from dead. Furthermore, numerous past cases of extraterritorial application of the law are also an indication of unilateralism. Unilateralism differs from bilateralism or multilateralism in that it is an act (or omission) by a single State, without a reciprocal element from the receivers. The International Law Commission’s Working Group on Unilateral Acts of States recalls that unilateral acts can be either political or legal,82 the difference being whether or not legal remedies are available in the case of a breach (the answer would be negative in the case of a political act, and positive in the case of a legal act).83 Moreover, a unilateral act can be a series of actions rather than a single act, and can take a variety of forms (written, oral, demonstrated)84 and be directed at a variety of targets (other States, international organizations, the international community).85 The enormous variety of unilateral acts has, in fact, led to the Working Group’s inability to progress beyond a schematic survey of representative unilateral acts.86 In the opinion of most international lawyers and international law scholars, unilateralism—by contrast to multilateralism—is an evil to be controlled through the international legal system itself.87 This is not to say that all measures now are or should be multilateral, or that all unilateral measures are legally wrong, since international law 76

See Shaw, M. International Law, 6th ed., Cambridge: Cambridge University Press, 2008, pp. 121-122. One must note, however, that the International Law Commission Working Group on unilateral acts of States does not seem to accept the idea of multilateralism as the rule and unilateralism as the exception. Instead, the Working Group puts aside considerations of such unilateral acts that would be considered “wrongful acts and acts which under international law may engage the international responsibility of States.” First Report on unilateral acts of States (by Special Rapporteur Víctor Rodríguez Cedeño), A/CN.4/486 at para. 29. 78 See Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998. 79 Medellín v. Texas 522 U.S. (25 March 2008) (Slip Opinion). 80 Case C-308/06, of 3 June 2008. 81 Kadi v. Council, Joined Cases C-402/05 P and C-415/05 P, of 3 September 2008. 82 On the relation between law and politics at the international level, see Scott, S. International Law in World Politics: An Introduction, Boulder, Colorado: Lynne Rienner Publishers, 2004. 83 See First Report on unilateral acts of States, A/CN.4/486 at para. 43. 84 Víctor Rodríguez Cedeño, International Law Commission Eighth Report on Unilateral Acts of States, A/CN.4/557 32-33 at para. 170 (noting that “the form is relatively unimportant in determining whether we are dealing with a unilateral legal act,” although conceding that the form may help indicate the acting State’s intent). 85 For example, Víctor Rodríguez Cedeño, International Law Commission Fifty-fourth Session, Fifth Report on Unilateral Acts of States, A/CN.4/55, 16 at para. 68 and 18 at para. 81 (4 April 2002) (defining unilateral act as directed at a State or international organization); ibid., Eighth Report on Unilateral Acts of States, A/CN.4/557 33 at para. 173 (noting that certain unilateral acts investigated were directed at the international community rather than at other States or international organizations). 86 See, e.g., Víctor Rodríguez Cedeño, International Law Commission, Fifty-seventh Session, Eighth Report on Unilateral Acts of States, A/CN.4/557 (26 May 2005). 87 For an accurate account of the purpose of international law and the powers of enforcement that international law has available to achieve its mission, see O’Connell, M.E. The Power and Purpose of International Law: Insights from the Theory and Practice of Enforcement, Oxford: Oxford University Press, 2008. 77

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 157

FRAGMENTATION OF INTERNATIONAL TRADE LAW

157

is about regulating the unilateral acts of States through agreed rules. “Multilateralism is our shared secular religion,” writes José Álvarez, when explaining the international lawyer’s often uncritical acceptance of multilateral approaches and corresponding distaste for all things which are unilateral.88 For one thing, unilateral acts are unable to solve many of the most pressing problems facing the international community, as those problems require the cooperation of many States (if not also many non-state parties). Unilateral acts, generally thought of as acts of a hegemonic power, dismantle the vision of the equality of States and violate the principle of non-intervention for the affected State(s). The end result is even worse, with a weakening of the actions of powerful players through law.89 4.2. THE EU’S UNILATERISM The focus of attention in this section is to see whether the EU can increase cooperation and establish trust through unilateral liberalization. In purely economic terms, unilateral MFN-liberalization is in the interest of each country. However, trade liberalization in political-economy terms is seen as a concession and is resisted by import substitution90 industries. This means that unilateral MFN-liberalization on a broad scale is often not very viable for the EU. When looking at bilateral political relations, we note that unilateral liberalization could work as a “carrot” to the benefit of the receiving country. Given that only one country benefits, this is politically more feasible than multilateral liberalization. Unilateral liberalization could also work as a “stick” because withdrawal from that unilateral liberalization is possible at any time. The EU already uses unilateral preferences.91 For example, the everything-but88 José Álvarez, “Multilateralism and Its Discontents,” 11:2 Europ. J. Int’l L. 393, 394 (2000); similarly, Rorden Wilkinson, Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation 32 (London: Routledge, 2000) (stating “Unilateralism ... is commonly equated with an aggressive, self-serving mode of behavior,” and citing Jagdish Bhagwati and Hugh T. Patrick, (eds.). Aggressive Unilateralism: America’s 301 Trade Policy and the World Trading System, Ann Arbor: University of Michigan Press, 1990, as well as Julio Nogues, “The Choice Between Unilateral and Multilateral Trade Liberalization Strategy,” 13:1 The World Economy (March 1990)). 89 See, e.g.. Raj Bhala, “Hegelian Reflections on Unilateral Action in the World Trading System,” 15 Berkeley J. Int’l L. 159 (1997) (urging the United States to realize that freedom in the Hegelian sense of the word requires cooperation as well as independent action and to stop acting unilaterally in trade matters); Vera GowllandDebbas, “The Limits of Unilateral Enforcement of Community Objectives in the Framework of UN Peace Maintenance,” 11:2 Europ. J. Int’l L. 361 (2000) (severely condemning unilateral uses of force in the absence of a clear UN Security Council authorization); Jules Lobel, “Benign Hegemony? Kosovo and Article 2(4) of the UN Charter,” 1 Chi. J. Int’l L. 19 (2000) (criticizing United States unilateral military actions as a threat to the UN system). See particularly David D. Caron, “Between Empire and Community: The United States and Multilateralism 2001-2003: A Mid-Term Assessment: Introduction,” 21 Berkeley J. Int’l L. 395 (2003) (explaining at pp. 396-397 various definitions of multilateralism, and continuing at pp. 397-401 to discuss the various aspects of unilateralism in the Administration of George W. Bush). 90 Import substitution is a policy for the development of a domestic productive capacity in goods and services to reduce or displace imports, often with the expectation of increases in employment and reductions in the current account deficit. For further information, see Walter Goode, Dictionary of Trade Policy Terms, 5th ed., Cambridge: Cambridge University Press, 2007, p. 222. 91 Nilsson, L. & Matsson, N. “Truths and Myths about the Openness of EU Trade Policy and the use of EU Trade Preferences,” April 2009, available at http://trade.ec.europa.eu/doclib/docs/2009/july/tradoc_143993.pdf.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

158

12/4/11

09:19

Page 158

THE JOURNAL OF WORLD INVESTMENT & TRADE

arms initiative,92 which provides the most favourable treatment of all EU unilateral initiatives, granting the least-developed countries (LDCs)93 duty-free and quota-free access to the EU market. Another unilateral tool used by the EU is the Generalized System of Preferences (GSP), a vital tool of the EC’s pro-development trade policy,94 developed at the instigation of the United Nations Conference on Trade and Development.95 The GSP is an autonomous measure of the EC which, from the outset, has been authorized under GATT/WTO law, and where the BRICs are beneficiaries. The purpose of such an autonomous measure is, inter alia, to improve human rights protection in developing countries and to raise their export revenue. As explained above, the MFN principle does not allow different treatment of trading partners which are WTO Members. The only exceptions to that principle under GATT/WTO law are confined to regional integration (whether customs unions or free-trade areas)96 and preferences for developing countries.97 However, tariff reductions are generally not very meaningful because: preference margins are not very large; they do not affect sensitive goods; there is no graduation for product groups where competitiveness has increased; or because of restrictive rules of origin.98 As a result of re-calculations to reflect the evolution of international trade, preferences for specific product groups will be re-established for six beneficiary countries of the GSP (Algeria, India, Indonesia, Russia, South Africa, and Thailand). In addition to the GSP, the EU also offers a special incentive arrangement to foster sustainable development and good governance, called the GSP Plus incentive system.99 92 Council Regulation (EC) No. 416/2001 of 28 February 2001. This regulation grants duty-free access to imports of all products from least-developed countries without any quantitative restrictions, except to arms and munitions. 93 The least-developed countries (LDCs) are the 49 poorest nations in the world, often disproportionately experiencing the negative effects of corporate globalization. These 49 recognized countries, as defined by the United Nations, are deemed structurally handicapped in their development process, facing more than other developing countries the risk of failing to come out of poverty as a result of these handicaps, and in need of the highest degree of consideration from the international community in support of their development efforts. Numerous indicators can be used to illustrate that these are really the poorest nations on earth, such as their increasing marginalization in the world economy, as reflected in their tiny share of world exports. Although they make up around 10 per cent of the world’s population, LDCs account for less than 0.5 per cent of world exports. In 1980, their share was 0.8 per cent. “LLDC” is sometimes used for “least-developed countries” in opposition to “LDC,” which then stands for “lessdeveloped countries.” An empirical study that explains the difficulties of these nations in the world trading system is: Bowman, C. “The Pacific Island Nations: Towards Shared Representation,” in Gallagher, P., Low, P. & Stoler, A.L. (eds.) Managing the Challenges of WTO Participation: 45 Case Studies, Case Study 33, December 2005, available at http://www.wto.org/english/res_e/booksp_e/casestudies_e/case33_e.htm#fntext10. 94 On the legal basis for adoption of a GSP, see Case 45/86, Commission v. Council [1987] ECR 1493, where the ECJ confirmed former Article 113 EC (current Article 133 EC) as the appropriate legal basis. 95 The idea of granting developing countries preferential tariff rates in the markets of industrialized countries was originally presented by Raul Prebisch, the first Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), at the first UNCTAD conference in 1964. The Generalized System of Preferences was adopted at UNCTAD II in New Delhi in 1968. Under the standard GSP, preferential access to the EU market is provided to 176 developing countries and territories in the form of reduced tariffs on around 6,400 goods when entering the EU market, with no expectation of reciprocal treatment. 96 GATT Article XXIV and GATS Article V. 97 GATT Part IV. 98 On rules of origin, see generally Inama, S. Rules of Origin in International Trade, New York: Cambridge University Press, 2009. 99 See Council Regulation (EC) No. 732/2008, OJ L 211/1, of 22 July 2008, applying a scheme of generalized tariff preferences for the period from 1 January 2009 to 31 December 2011.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 159

FRAGMENTATION OF INTERNATIONAL TRADE LAW

159

To benefit from the GSP Plus scheme, countries need to demonstrate that their economies are poorly diversified, and therefore dependent and vulnerable. They also need to have ratified and effectively implemented 27 key international conventions: the 16 core conventions on human and labor rights and seven (out of 11) of the conventions related to good governance and the protection of the environment.100 At the same time, beneficiary countries must commit to ratifying and effectively implementing the international conventions which they have not yet ratified. In any case, the 27 conventions had to be ratified by the beneficiary countries by 31 December 2008. In December 2008, the EU granted preferential tariff rates for the period from 2009 to 2011 to 16 developing countries that met its criteria for sustainable development and good governance.101 None of the BRICs wants to be part of the GSP Plus incentive arrangement, presumably because they do not like conditionality, and because they do not see themselves as fitting the basic criteria. So would it make sense to create a new unilateral instrument? Not really, since the political resistance to competition from the BRICs would probably be strong, particularly with regard to China and Brazil when it comes to agriculture. Although technically association agreements with rights and obligations, the Yaounde and Lomé Conventions102 as well as the Cotonou Agreement103 provided another EU unilateral measure of preferential treatment given to the African, Caribbean and Pacific (ACP) countries.104 Even though there have been a series of treaties on which the EU’s relationship with the ACP countries has been based, it is argued that these association agreements did not mean to be reciprocal agreements stricto sensu and therefore did not mean to establish equivalent rights and obligations between the parties, 100 For the list of conventions to qualify for the GSP Plus scheme, see http://ec.europa.eu/trade/issues/global/ gsp/memo230605_en.htm. 101 For a list of the 16 beneficiary countries, see Commission decision of 9 December 2008, Dec. 2008/938/EC, OJ L 334/90. These tariff preferences are in addition to the standard GSP. See Bridges Weekly News Digest, “EU: 16 Developing Countries to Receive GSP+ Market Access Benefits,” Vol. 12, No. 42, 10 December 2008, available at http://ictsd.net/i/news/bridgesweekly/35942/. 102 McMahon, J. “Negotiating in a Time of Turbulent Transition: The Future of Lomé” (1999) CML Rev. 599; Elgström, O. “Lomé and Post-Lomé: Asymmetric Negotiations and the Impact of Norms” [2000] 5 EFA Rev. 175; Dickson, A. “The Demise of the Lomé Protocols: Revising European Development Policy” [2000] 5 EFA Rev. 197; Smith, F. “Renegotiating Lomé: The Impact of the World Trade Organisation on the EC’s Development Policy after the Bananas Conflict” [2000] EL Rev. 247; House of Lords EU Select Committee, “The EU and Africa: Towards a Strategic Partnership,” 34th Report, 2005-06, House of Lords Paper 206. 103 Martenczuk, B. “From Lomé to Cotonou: The ACP-EC Partnership Agreement in a Legal Perspective,” (2000) 5 European Foreign Affairs Rev. 461; Hilpold, P. “EU Development Cooperation at a Crossroads: The Cotonou Agreement of 23 June 2000 and the Principle of Good Governance” (2002) 7 EFA Rev 53; Arts, “ACP-EU Relations in a New Era: The Cotonou Agreement” (2003) 40 CML Rev 95; Babarinde, O. and Faber, G. “From Lomé to Cotonou: Business as Usual?” (2004) 9 EFA Rev. 27. 104 Such unilateral measures certainly do not help multilaterally. In July 2008, Ecuador threatened to sidetrack the WTO mini-ministerial conference that took place in July 2008, whose aim was to give a final push to the Doha Round, unless an agreement on banana tariffs was reached to stop the preferential treatment that the EC had been offering the ACP countries. See BNA WTO Reporter, “Ecuador Ready to Block Doha Deal Until Banana Feud Resolved,” 23 July 2008. However, on 26 July 2008, 11 Latin American banana exporters and the US reached an agreement with the EC on the latter’s import regime for bananas. Based on a proposal by Pascal Lamy, the EC would cut its MFN tariffs on bananas by the beginning of 2016. The pact would exempt the EC from having to cut banana tariffs under the Doha Round. See Bridges Weekly Trade News Digest, “WTO Members Move Forward on Bananas, Tropical Products, but Major Differences Loom,” Issue 8, 28 July 2008.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

160

12/4/11

09:19

Page 160

THE JOURNAL OF WORLD INVESTMENT & TRADE

since the majority of agreements, especially those with developing countries, are characterized by unbalanced commitments.105 It is in this sense that we are referring to EU’s unilateralism since the EU gave preferential treatment to the ACP countries. The original Treaty of Rome106 contained guidelines about external relations. First of all, the treaty established a special regime for development aid and cooperation,107 which initially aided developing countries that had a long-standing relationship (mostly former colonies) with founding Member States of the then European Economic Community—particularly France—to protect their dependent territories.108 This special regime was entirely unilateral and this was shown by the fact that in the original version of Part IV of the EEC Treaty there were references to the objectives of the scheme in terms of the right to self-determination and promotion of human rights as well as economic and social development. It was very late in the finalization of the Treaty of Rome text that it was seen that some sort of peg would be required to continue protection of the dependent territories after their independence from European countries—hence the curious placing of Article 310 EC (original Article 238 of the Treaty of Rome), whose original importance was almost entirely as a peg for the Yaoundé Conventions and its successor agreements, i.e., the Lomé Conventions, which linked 70 developing countries to the European Community (EC). In this sense, we see that one of the main reasons for international negotiations between the then European Economic Community (EEC) and third parties was the historic link between the various Member States of the EEC and overseas territories or dependencies. Shortly after the establishment of the EEC, there was an important transformation in the links between these countries and the European Common Market, which, according to Part IV of the EEC Treaty, consisted of a two-way free access for each other’s products and a special European Community aid program. To address the issue of access for these countries, the Yaoundé Conventions were held.109 The first Yaoundé Convention took place in the 1960s with 18 African States and Madagascar.110 The Yaoundé Conventions linked the European Community to African States, providing, inter alia, financial and technical assistance for economic development. Two important examples were the Convention of Association between the EEC and 105 In Case 87/75 Bresciani v. Amministrazione delle Finanze dello Stato [1976] ECR 129, para. 22, the ECJ stated in relation to the Yaoundé Convention that, “The Convention was not concluded in order to ensure equality in the obligations which the Community assumes with regard to the Associated States, but in order to promote their development.” 106 Treaty Establishing the European Economic Community (TEEC). 107 Article 182 EC (ex-Article 131 of the Treaty of Rome) and Part IV of the EC Treaty more generally. 108 Martenczuk, B. “Cooperation with Developing and Other Third Countries: Elements of a Community Foreign Policy” in S. Griller and B. Weidel (eds.) External Economic Relations and Foreign Policy in the European Union (Wien; New York: Springer, 2002) 385-417. 109 It was on January 1, 1971 that the Second Yaoundé Convention entered into force (18 African countries), as well as the Arusha Convention (three Eastern African countries). Treaty for the establishment of the East African Community, Arusha, 30 November 1999 [UNTS Vol. 2144 I-37437], and the Council Decision concerning the association of the EC Member States’ overseas territories. 110 An agreement between the European Economic Community and the Government of the Democratic Republic of Madagascar regarding fishing off the coast of Madagascar was signed some years later (OJ L 73/86, p. 25).

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 161

FRAGMENTATION OF INTERNATIONAL TRADE LAW

161

Associated African States, of July 20, 1963111 and the Convention of Association between the EEC and Associated African States, of July 29, 1969.112 After the first enlargement of the European Economic Community in 1973, the whole system was renegotiated (in 1973/1974) with 46 countries (all the former dependencies of the UK in Africa, the Pacific, and the Caribbean). In 1975, the first of a series of Lomé Conventions, between the European Economic Community and this group of countries, introduced new ideas such as the organization of commercial and industrial cooperation and the stabilization of export earnings.113 With reference to the Lomé Conventions, there was a total of four agreements negotiated: the European Economic Community-African, Caribbean, and Pacific Countries Convention (EEC-ACP Convention), of February 28, 1975, with 46 ACP countries;114 the second ACP-EEC Convention, of October 31, 1979, with 58 ACP countries;115 the third ACP-EEC Convention, of December 8, 1984, with 65 ACP countries;116 and the fourth ACP-EEC Convention, of December 1, 1989, with 68 ACP countries, extended to 70 ACP countries in 1995.117 Thanks to these Conventions, over 99 per cent of these countries’ imports enjoyed free access to the EU. In June 2000, the EU’s relations with 78 ACP countries were further governed by the Cotonou Agreement.118 With the expiry of the Cotonou Agreement since 1 January 2008, a new phase of multilateral agreements governs today’s EC relations with ACP countries, i.e., the Economic Partnership Agreements (EPAs), in order to comply with the EC’s WTO obligations. These agreements, which replace the previously mentioned association agreements, were also signed in order to overhaul the past trade relations between the EC and ACP countries, thereby enhancing the contribution of trade to development. For instance, the ACP countries and the EC have agreed to enter into economic integration agreements—concluding new WTO-compatible trading arrangements, progressively removing barriers to trade among them, and enhancing cooperation in all areas related to trade. To this end, Economic Partnership Agreements have been negotiated with ACP regions engaged in a regional economic integration process. EPAs are thus intended to consolidate regional integration initiatives within the ACP. They are also aimed at providing an open, transparent, and predictable framework for goods and services to circulate freely, thus increasing the competitiveness of the ACP and ultimately facilitating the transition towards their full participation in a liberalizing world economy—thereby complementing any initiative taken in the multilateral 111

(1970) 2 ILM 971. (1970) 9 ILM 484. 113 It was on February 28, 1975 that the signature of the so-called Lomé I took place between the European Economic Community and 46 ACP countries. 114 14 I.L.M. 596 (1985). The African, Caribbean and Pacific countries (ACP) Group was formed when the first Lomé Convention was signed with the EEC in 1975. In 2002, it encompassed 78 states (48 African states, 16 Caribbean states, 14 Pacific states), which all have preferential trading relation with the EC. 115 (1985) 19 ILM 327. 116 (1985) 24 ILM 571. 117 Fourth ACP-EEC Convention signed in Lomé [1991] OJ L229/3. 118 [2000] OJ L 317/3. 112

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

162

12/4/11

09:19

Page 162

THE JOURNAL OF WORLD INVESTMENT & TRADE

context.119 Formal negotiations started in September 2002 and EPAs entered into force on 1 January 2008. The non-reciprocal Cotonou Agreement trade preferences granted by the EC to ACP exports continued to be applied during the interim period (2000-2007). 5.

THE RISE AND FALL OF MULTILATERALISM

Multilateralism is personified in international trade agreements. International trade and the rapidly proliferating network of trade agreements have aroused passions for decades. While some blame trade agreements for exporting jobs, sowing poverty, furthering illegal migration, and stealing national sovereignty, others praise them as lynchpins of growth, pillars of peace, guarantors of security, and engines of globalization.120 Still others view them as useful instruments for fostering global trade and investment. 5.1. A CONCEPTUAL DEBATE Multilateralism is the stage of multiple-state interactions which international law entered into fully with the creation of the United Nations in 1945,121 and where to a large extent it remains today.122 By definition, multilateralism distinguishes itself from bilateralism in the number of States to an agreement: whereas a bilateral treaty is an agreement between two (or, in the case of plurilateral treaties, a few) States, a multilateral treaty is an agreement accepted by many, if not most, States.123 Consent 119 Not everyone is of the view that Economic Partnership Agreements are fair or beneficial for ACP countries. See Sanders, R. “A New Colonialism? EU Trade Demands and ACP Countries,” Huntington News, 16 June 2007, available at http://www.huntingtonnews.net/columns/070616-sanders-columnseutrade.html; Orengoh, P. “East Africa: EPA Controversy Continues,” Trade Law Centre for Southern Africa, 29 May 2007, available at http://www.tralac.org/scripts/content.php?id=6488. 120 Martin Shaw has tried to define the social science concept of “global”. See Martin Shaw, Theory of the Global State: Globality as an Unfinished Revolution, Cambridge: Cambridge University Press, 2000, at p. 15 (“I defined the global as ... an increasing awareness of the totality of human social relations as the largest constitutive framework of all relations”). Of particular significance to the concept is the simultaneous existence of the “global and nationalinternational categories”. Ibid, at 13. The debate between globalizers and anti-globalizers often suffers from a failure to realize what global really means: ... Globalizers and anti-globalizers alike assume that trade within a national economy is non-global, while that across national state boundaries is global. We can make no such assumptions, however. The evidence produced demonstrates little about the global or non-global content of either intra- or international trade. Mostly what it shows is the unsurprising—and unenlightening—fact that trade is still measured in national and international terms. Neither side of this argument grapples seriously with the ways in which, on the one hand, global change involves transformations of national and international relations, and on the other, changed national and international relations go to make up much of what constitutes the global.... Ibid, at 14. 121 A concise history of multilateralism in the Western legal tradition is recounted in John W. Head, “Supranational Law: How the Move toward Multilateral Solutions is Changing the Character of ‘International’ Law” 42 Kansas L. Rev. 605, 606-620 (1994). 122 The categorization of today’s world as “multilateral” is controversial. See Alain Pellet, “Brief Remarks on the Unilateral Use of Force” 11:2 Europ. J. Int’l L. 385, 391 (2000) (disputing as “over-optimistic” Ruth Wedgewood’s presumption of a multilateral world in her article “The Enforcement of Security Council Resolution 687: The Threat of Force against Iraq’s Weapons of Mass Destruction” 92 Am. J. Int’l L. 726 (1998)). 123 One author points to two aspects of multilateralism: international organizations for cooperation among member states, which have assumed a portion of their members’ sovereignty; and the sets of rules for managing international relations. John W. Head, “Supranational Law: How the Move toward Multilateral Solutions is Changing the Character of ‘International’ Law” 42 Kansas L. Rev. 605, 606 (1994).

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 163

FRAGMENTATION OF INTERNATIONAL TRADE LAW

163

thus remains an important element in this orthodox view of multilateralist international law,124 and with it, the continued importance of sovereignty. In a truly multilateralist—as opposed to a merely multipartite125—framework of legal relations, obligations are still owed by and to a State by every other State that has accepted that agreement. An emphasis on multilateralism removes the possibility of legitimate unilateral actions in violation of multilateral rules. This is because: (1) even though one State may be violating the system’s rules, not all States are harmed; and (2) even the State harmed has an obligation to non-violating States to act within the rules. Thus, multilateralism may be regarded as the most viable way of protecting the interests of weak and strong States equally, while maintaining a widespread peace (or at least relative stability). The international legal system of today aims at fulfilling the concept of multilateralism.126 While one cannot ignore the practical importance of States and bilateral diplomatic relations, the extension of recognized legal relations from being simply between two States to being among numerous international actors has caused a perceptible change in the quality of the international legal system.127 The recognition of the many aspects of this quality is not new. In The Changing Structure of International Law, published in 1964, Wolfgang Friedmann described the alteration of international relations from being a few-major-powers, state-only, diplomacy-oriented, Westerndominated system to a system of many states, multiple actors, and multiple interests. The move from “coexistence” to “cooperation” was the result of a combination of broad democratization, World War I and World War II, de-colonization, and a growing world 124 For an analysis of how international law is perceived in the United States and Europe, see Jouannet, E. & Ruiz Fabri, H. (eds.) Impérialisme et Droit International en Europe et aux États-Unis, Société de Législation Comparée, 2007. 125 Arthur Nussbaum used the terms “bipartite” and “multipartite” to distinguish between treaties between two sovereigns and treaties among three or more sovereigns. Arthur Nussbaum, A Concise History of the Law of Nations, New York: The MacMillan Company, 1947. 126 The United Nations (UN) is the premier “multilateral” system in this sense of quantitative multilateralism. The use of “multilateralism,” when used in connection with the UN, refers to the multiple states that are members of the system. See, e.g., M.A. Boisard and E.M. Chossudovsky, (eds.), Multilateral Diplomacy: The United Nations System at Geneva A Working Guide, 2nd rev’d ed., The Hague/London/Boston: Kluwer Law International, 1998. (2nd rev’d ed. by Jacques Lemoine). In the context of the World Trade Organization, “multilateral” is often referred to as a contrast to “plurilateral” or “regional,” while the term “multilateralism” is used generally in contrast to “regionalism.” There are differences in how these two conceptual pairings relate to the quantity/quality aspects of multilateralism, however. In plurilateralism, the difference indicates mainly a quantitative one, although the lack of consensus approval does have impacts on the extension of basic principles such as the most-favored nation obligation. Regionalism highlights more than purely quantitative differences (although that is an element as well), as “regionalism” signifies the potential rejection of the ideal of inclusiveness that the WTO professes to pursue. See Brigid Gavin and Luk Van Langenhove, “Trade in a World of Regions,” in Gary P. Sampson and Stephen Woolcock, (eds.), Regionalism, Multilateralism, and Economic Integration: the Recent Experience 277-313, at 282-286, Tokyo/New York/Paris: United Nations University, 2003 (distinguishing between “old regionalism” and “new regionalism” mainly on the basis of the latter’s integration of trade liberalization with steps toward deeper interactions in non-trade areas). 127 A conceptual distinction is made between “international legal system” and “international law” based on Bin Cheng’s topographic structuring of general international law—denoting with “international legal system” the combined rules stemming from treaties and (general) international law (broadly defined). See Bin Cheng, “Element(s) of General (or So-Called Customary) International Law,” in Antony Anghie and Garry Sturgess (eds.) Legal Visions of the 21st Century: Essays in Honour of Judge Christopher Weeramantry, pp. 377-390, at 379-380, The Hague/London/Boston: Kluwer Law International, 1998.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

164

12/4/11

09:19

Page 164

THE JOURNAL OF WORLD INVESTMENT & TRADE

population in the face of a diminishing natural resource base.128 Developments since then have led to a broader coverage of the areas of State cooperation in both the diplomatic arena and on the level of the international legal system.129 Others, however, claim that, in the case of international trade, its rules have failed to solve multilateral prisoner’s dilemmas. The GATT/WTO “might best be described as an effort to use bilateral means to solve a multilateral problem; its limitations can be traced to this mismatch between means and ends.”130 Multilateralism is generally used to indicate the working together of many States rather than of two States—as a purely quantitative difference in international relations. Others use multilateralism as a way of expressing the working together of States and non-state entities in order to pursue a particular goal.131 Rorden Wilkinson, for example, describes “multilateralism” as an “organizational practice” that revolves around a set of “core principles” (namely, indivisibility, diffuse reciprocity, and dispute settlement/enforcement of the rules), while Robert Cox sees it as a form of global governance132 that is “in form ... non-hierarchical but in reality cloaks and obscures the reality of dominant-subordinate relationships” (continuing to emphasize, however, that the non-hierarchical form “has importance, being a possible criterion of protest against abuse of hierarchical power”).133 This is the multilateralism that comes close to the concept of regime-specific “constitutionalism” as the latter is conceived of by authors such as John H. Jackson,134 but it also encompasses the universal multilateralism of the United Nations,135 with its proliferation of treaties and soft law created by the 128 Kohler-Koch describes the “institutionalization of international cooperation” as a product of the inability of the State to address the concerns raised by global and regional environmental problems, the loss of control over financial and monetary markets, and mass unemployment, all of which have been gaining in intensity since World War II. See Beate Kohler-Koch, ,,Der Nationalstaat im Übergang zum 21. Jahrhundert: erfolgsträchtig oder überholt?,“ in Klaus Armingeon, (ed.) Der Nationalstaat am Ende des 20. Jahrhunderts: Die Schweiz im Prozess der Globalisierung, pp. 127-147, at 131, Bern/Stuttgart/Wien: Verlag Paul Haupt, 1996. 129 For an analysis of the transformation of the international legal system, see Ziccardi Capaldo, G. The Pillars of Global Law, Aldershot: Ashgate, 2008. 130 See Goldsmith, J.L. & Posner, E. The Limits of International Law, Oxford: Oxford University Press, 2005, p. 135. 131 Whether that goal is in the interest of all participants, let alone the global community as such, is not relevant to the definition of “multilateral.” See José E. Álvarez, “Multilateralism and Its Discontents” 11:2 Europ. J. Int’l L. 393, 398 (2000). Indeed, several commentators see multilateral actions as not necessarily leading to the fulfillment of the international “community interest.” See id.; Jens Fey, Multilateralismus als Strategie: Die Sicherheitspolitik Kanadas nach dem Ende des Ost-West-Konflikts, Cologne: SH-Verlag, 2000 (discussing multilateralism as a strategic tool for protecting or promoting Canada’s state interests); Serge Sur, “The State between Fragmentation and Globalization” 8:3 Europ. J. Int’l L. 421 (1997) (using the term “globalization,” rather than “multilateralism,” but explaining it as a result of the hegemonic power of the United States). 132 On the interplay among the various levels of governance, see Fellesdal, A., Wessel, R., & Wouters, J. (eds.) Multilevel Regulation and the EU: The Interplay between Global, European and National Normative Processes, Leiden; Boston: Martinus Nijhoff, 2008. 133 Rorden Wilkinson, Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation 32, 34, London: Routledge, 2000 (citing Robert Cox (ed.) The New Realism: Perspectives on Multilateralism and World Order xvi, London: MacMillan, 1997). 134 John H. Jackson, “Reflections on International Economic Law,” 17 U. Pa. J. Int’l Econ. L. 17, 26 (1996) (describing his view of a ‘constitutional’ approach to international economic law as being one that focuses on the issue of allocating power and preventing abuses of that power). 135 On the future of the United Nations and international cooperation, see Weiss, T. What’s Wrong with the United Nations and How to Fix It, Cambridge: Polity, 2009.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 165

FRAGMENTATION OF INTERNATIONAL TRADE LAW

165

representatives of nearly all the world’s States together with significant input by nongovernmental voices.136 Depending on the circumstances, multilateralism seems to mean any and all of the things mentioned above, and the crucial quality of multilateralism is its being a thickening agent for the matrix of the international legal system.137 Seeing this quality as fundamental, any discussion of multilateralism brings along with it a need to review the place of its rivals, i.e., bilateralism, regionalism, and unilateralism within the legal system.138 5.2. THE EU VIS-À-VIS THE BRICs IN MULTILATERALISM Over the last twenty years, the relationship between the European Union139 and international institutions has become more sustained and consistent. Therefore, scholars have studied the origin of the multilateral identity and preferences of the EU.140 When it comes to the EU vis-à-vis the BRICs, the question to ask is how to foster more constructive multilateralism by using a trade policy approach. The Doha Round141 was 136 Bruno Simma and Dirk Pulkowski, “Of Planets and the Universe: Self-contained Regimes in International Law” 17:3 Europ. J. Int’l L. 483 (2006) (describing universal views of the international legal system and the particularistic view of relatively discrete legal systems as looking either at the universe from the perspective of planets or at planets from the perspective of the universe). 137 Particularly interesting is Emeka Anyaoku’s definition of multilateralism as a form of organization that “needs a soul,” providing thereby a moral dimension to the concept. See Wilkinson, R. Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation, London: Routledge, 2000, at p. 34 (quoting Emeka Anyaoku, “The Commonwealth and the New Multilateralism,” Speech given to the Centre for the Study of Global Governance, London School of Economics and Political Science, 12 May 1994). 138 Rorden Wilkinson, Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation, London: Routledge, 2000, at pp. 32-33. Wilkinson notes that the relatively few references to the qualitative aspects of uni-, bi-, and multilateralism generally are “done so more in passing and [take] the form of a value judgment about the attributes,” whereby unilateralism is portrayed as selfishness and bilateralism as a form of oppression. Id, at 32. 139 The European Union or EU is an intergovernmental and supranational union of 27 European countries, known as EU Member States. The European Union was established under that name in 1992 by the Treaty on European Union (the Maastricht Treaty). The European Union’s activities cover all areas of public policy, from health and economic policy to foreign policy and defense. However, the extent of its powers differs greatly between areas. Depending on the area in question, the EU may therefore resemble: 1. a federation (for example, on monetary affairs, agricultural, trade and environmental policy); 2. a confederation (for example, in social and economic policy, consumer protection, home affairs); or 3. an international organization (for example, in foreign policy). Since the Treaty on European Union came into force (Maastricht Treaty or TEU) on the 1st of November 1993, the use of the expression “European Union” has been generalized. At the same time, among the experts, the use of “pillars of the European Union” is very much à la mode. These two phenomena are to be regretted since they tend to create confusion (with an indiscriminate use of the expression “European Union”) or they tend to introduce a kind of false compartmentalization (i.e., division of competences in the EU by pillars) of the institutional reality to which these expressions make reference. The reasons which motivate this regret are mainly political: the fact of knowing who does what, and therefore who is responsible for certain issues, constitutes the conditio sine qua non, on one hand, for policy-makers to master the nature of their decisions and, on the other hand, for a minimum of democratic control to be possible. See Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, pp. 86-89. 140 Elgström, O. and Smith, M. (eds.). The European Union’s Role in International Politics: Concepts and Analysis, London: Routledge, 2006; Manners, I. and Lucarelli, S. Values and Principles in European Union Foreign Policy, London: Routledge, 2007; Groom, J. “Multilateralism as a Way of Life in Europe,” in Newman, E., Thakur, R. and Tirman, J. (eds.) Multilateralism under Challenge? Power, International Order, and Structural Change, Tokyo: United Nations University Press, pp. 460-481, 2007; Jørgensen, K.E. (ed.) The European Union and International Organizations, London: Routledge, 2009. 141 For a summary of the Doha Round of trade negotiations, see Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, pp. 486-500.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

166

12/4/11

09:19

Page 166

THE JOURNAL OF WORLD INVESTMENT & TRADE

the result of widespread agreement among delegates at the Fourth WTO Ministerial Conference142 in Doha that it was time to address the imbalances of previous rounds143 and to offer developing countries the prospect of trade talks which they could see were to their benefit.144 Although wealth redistribution seems to be vital to truly help the poor nations of the world, I would agree with WTO Director-General Lamy that the WTO’s role is not about redistribution of wealth.145 So a new round was necessary to include poor countries in the world trading system,146 and to promote economic development, as well as to alleviate poverty.147 The WTO Members are currently negotiating the Doha Development Agenda (DDA).148 A successful result of the DDA will mean more growth and development in the world trading system. A sensu contrario, failure of the DDA will imply no growth 142 A WTO Ministerial Conference takes place once every two years, bringing together trade ministers from all WTO Members. As the highest decision-making body in the WTO, the Ministerial Conference offers trade ministers from WTO Members the opportunity to meet and discuss important developments in the multilateral trading system and the global economy. The last WTO Ministerial Conference took place in December 2005 in Hong Kong. Previous WTO Ministerial Conferences to Hong Kong were held in Singapore (1996), Geneva (1998), Seattle (1999) (remembered for the anti-globalization movement that it provoked), Doha (2001), and Cancún (2003). For further detail, see Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, pp. 494-498. 143 WTO member countries tend to negotiate over several years on new agreements for a group of subjects. These series of negotiations are called rounds. They are often lengthy but can have the advantage of offering a package approach to trade negotiations, as opposed to negotiations on a single issue, such as the negotiations on financial services and telecommunications in the mid-1990s. The package approach can sometimes be more fruitful since there is always something beneficial for every participant in the negotiation, and therefore the ability to trade off various issues can make the agreement easier to reach. 144 For an overview of the Doha Round, see S. Cho, “Doha’s Development” (2007) 25 Berkeley Journal of International Law. 145 See speech by Pascal Lamy “Restoring Citizens’ Confidence in Trade Requires Sound Domestic Policies,” delivered at the University of California, Berkeley, on 29 October 2008, available at http://www.wto.org/english/ news_e/sppl_e/sppl105_e.htm. 146 Not everyone agrees with the governmental position that the Doha Round is beneficial to developing and least-developed countries. For severe criticisms of the Doha Round, see Oxfam Press Release, “New WTO framework doesn’t add up to development,” 22 June 2006, available at http://www.oxfam.org/en/news/press releases2006/pr060622_wto; Hertel, T.W. & Keeney, R. “What is at Stake: The Relative Importance of Import Barriers, Export Subsidies, and Domestic Support,” available at http://siteresources.worldbank.org/INTTRADE RESEARCH/Resources/Ch2AgTradeBook_HertelKeeney.pdf; Bouet, A., Orden, D. & Mevel, S. “More or Less Ambition in the Doha Round? Winners and Losers from Trade Liberalization with a Development Perspective,” available at https://www.gtap.agecon.purdue.edu/resources/download/2508.doc; Kinnman, S. & Lodefalk, M. “Economic Implications of the Doha Round,” Swedish National Board of Trade, July 2006, available at https://www.gtap.agecon.purdue.edu/resources/download/2756.pdf; European Commission Press Release, “Doha Round: Some Recent Economic Analysis,” MEMO/06/247, available at http://europa.eu/rapid/press ReleasesAction.do?reference=MEMO/06/247&format=HTML&aged=0&language=EN&guiLanguage=en. 147 This is certainly the position of former European trade commissioner Peter Mandelson, who said at a Party of European Socialists conference in Brussels on Decent Work that far from being responsible for poor labor conditions, free trade could be a ladder out of poverty and “an engine of the very prosperity that helps societies put poor labour conditions behind them for good.” “Free trade is not the enemy of decent work,” he concluded: “The enemy of decent work is our willingness to turn a blind eye to it. Free trade does not mean trade indifferent to fair conditions of production.” See the speaking points on “Free Trade is not the Enemy of Decent Work,” given by former commissioner Mandelson at a Party of European Socialists conference in Brussels on 10 May 2006 available at http://ec.europa.eu/comm/commission_barroso/mandelson/speeches_articles/temp_icentre.cfm? temp=sppm098_en. 148 Interestingly, rich countries call this agenda of negotiations the “Doha Development Agenda,” whereas poor countries refer to it as the “Everything but Development Round.” It has certainly been a mistake to call this round the “development round,” since the DDA is a multilateral trade negotiation with very little input on development. This rather vague distinction between rich and poor countries is based on the World Bank’s country classification. See The World Bank, “Country Classification,” available at http://web.worldbank.org/WBSITE/ EXTERNAL/DATASTATISTICS/0,,contentMDK:20420458~menuPK:64133156~pagePK:64133150~piPK: 64133175~theSitePK:239419,00.html.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 167

FRAGMENTATION OF INTERNATIONAL TRADE LAW

167

or development for the world, especially the poorest countries on the planet. In addition, the failure of the DDA will be regarded as a missed historic opportunity to eliminate export subsidies, to put an end to trade distortion. Consequently, all countries of the world trading system will lose, especially developing countries. With a successful result, the biggest gains to development will certainly be in the core areas of goods, services149 and agriculture, and so liberalizing trade among developing countries is an essential part of the Doha exercise.150 That is why the international community151 cannot miss the opportunity offered by the DDA, which can set a vision for the global economy for the next decades and make a major contribution to development.152 5.2.1. DOHA STILL PENDING Many deadlines for the conclusion of the Doha Round have been missed.153 It is interesting to note that it was the US and the Europeans who initiated with great interest the idea of the Doha Round, whereas developing countries were not very keen. However, today developing countries have a great interest in the conclusion of the Doha Round, and arguably the Americans not so much. Some commentators blame India and especially China for the failure to conclude the Doha Round in July 2008.154 There has been lack of progress or very slow progress of the Doha Round, which has brought generalized frustration to the world trading system. There are multiple reasons for the lack of progress: disagreement over major issues (such as agriculture), national elections in major WTO Members (for example, the US in 2008, India in 2009), as well as the unclear definition of the term “development” in the Doha Round.* Moreover, since lack of trust seems to be an important impediment toward progress in the Doha Round, bilateral dialogues as well as more intensive and broader political 149 On the challenges and opportunities in the services sector in bilateral and WTO negotiations, see generally Marchetti, J. & Roy, M. Opening Markets for Trade in Services: Countries and Sectors in Bilateral and WTO Negotiations, Cambridge: Cambridge University Press, 2008. 150 As we saw in the pre-Hong Kong Ministerial Conference period of negotiations, the agriculture negotiations are considered key to the success of the overall Doha Round of WTO talks. 151 The concept of an international community encompasses the concept of a cosmopolitan community. In this sense, an institution in a cosmopolitan international community must go further than “cosmopolitics”—a term coined by Pascal Lamy to describe his ideal World Trade Organization as an institution open to the voices (and politics) of individuals and willing to offer “interconnections between governments, markets, and civil society.” Steve Charnovitz, “WTO Cosmopolitics,” 34:2 N.Y.U. J. Int’l L. & Pol’y 299 (2002) (referring to Lamy’s February 2000 lecture at the London School of Economics, “Harnessing Globalization: Do We Need Cosmopolitics?”); Steve Charnovitz, “The WTO and Cosmopolitics,” 7:3 J. Int’l Econ. L. 675 (2004). Lamy’s definition of cosmopolitics exceeds the concept of cosmopolitics as transparency and participation suggested by Charnovitz. 152 On this note, see Hurrell, A. On Global Order: Power, Values, and the Constitution of International Society, Oxford: Oxford University Press, 2007, chapter 8. 153 On how to revive the Doha Round, see Bergsten, F. “Rescuing the Doha Round,” Foreign Affairs, WTO Special Edition, December 2005. 154 See Bergsten, F., Freeman, C., Lardy, N. & Mitchell, D. China’s Rise: Challenges and Opportunities, Washington, DC: Peterson Institute for International Economics & Center for Strategic and International Studies, 2008, p. 15. *For an interim report on the steps that need to be taken to complete the Doha Round, see High Level Trade Experts Group, “The Doha Round: Setting a Deal, Defining a Final Deal,” Interim Report, January 2011, available at http://www.number10.gov/uk/wp-content/uploads/doha-round-jan-2011.pdf.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

168

12/4/11

09:19

Page 168

THE JOURNAL OF WORLD INVESTMENT & TRADE

cooperation between the EU and Brazil/India/China may establish new trust.155 In this sense, it is worth noting that during the Doha Round, various Strategic Partnerships between the EU and some of the BRICs have taken place.156 In this context, what role do the BRICs play multilaterally? How can the EU engage with them to foster the DDA? Some of the BRICs play an increasingly important role at the WTO.157 They have attained a global reach in trade policy since the Cancún WTO Ministerial Conference in September 2003. Because major divides exist among the various WTO Members in relation to what the WTO’s future agenda should comprise, the Doha Ministerial Conference text put off all the major decisions until the following WTO Ministerial Conference in Cancún, whose principal aim was to present an overview of the progress of the negotiations in the framework of the DDA. In Cancún, talks were intended to forge agreement on the Doha Round’s objectives but collapsed due to a strong North-South divide on agricultural issues.158 Developing nations gained in strength, forming two new negotiating groups—the G-20,159 consisting of middle-income developing countries, and the G-90160 group of poorer developing countries—and finally rejecting the deal which they viewed as unfavorable. Evidence of the fact that some of the BRICs are increasingly playing important roles multilaterally comes from the G-20 of developing countries, where Brazil and India 155 The importance of trust in relation to the global economic crisis has been clearly acknowledged by Pascal Lamy in a speech on 3 November 2008 to the Geneva Shipping and Trading Association’s Commodities Week, arguing that we need “to restore trust in markets by reassuring investors that they are still operating within a rulesbased international trade and financial system.” See Lamy, P. “Lamy calls for better crafted regulation and a Doha Round deal to restore trust,” 3 November 2008, available at http://www.wto.org/english/news_e/sppl_e/ sppl106_e.htm. 156 However, one wonders how strategic a partner the EU was in the pre-Lisbon Treaty period, given that it often failed to speak with a single voice. For example, during the G-20 London meeting in April 2009, President Obama was alone representing a population of 300 million people and the largest economy in the world, President Hu Jintao was also the only representative of China on behalf of 1.3 billion people and the third largest world economy, while the EU, with half a billion inhabitants and a GDP of the same size as that of the US, was represented by no fewer than six Heads of State or Government. In other words, the EU has too many European leaders and not enough EU leadership. 157 The economic, social, and environmental upheaval being suffered by many countries that have lived under the WTO regime since 1995 means that business-as-usual at the WTO is over. It remains to be seen whether the handful of powerful WTO Members who have dictated WTO policy since 1995 will adapt to the new reality. By the same token, it is also unclear whether countries demanding changes to the WTO’s current system of rules that are damaging their national interests may begin to withdraw if those changes do not take place. Regarding withdrawal from the WTO Agreement, although Article XV(1) is clear and reads that “Any Member may withdraw from this Agreement. Such withdrawal shall apply both to this Agreement and the Multilateral Trade Agreements and shall take effect upon the expiration of six months from the date on which written notice of withdrawal is received by the Director-General of the WTO,” the withdrawal from certain rules or agreements is not entirely clear. 158 In his paper titled “Reviving the Doha Round,” Jeffrey Schott examined why the WTO negotiations stalled at the Cancún Ministerial and what needs to be done to revive the Doha Round. See Schott, J. “Reviving the Doha Round,” Peterson Institute for International Economics, May 2004, available at http://www.petersoninstitute.org/ publications/papers/paper.cfm?ResearchID=207. 159 The Group of 20, or G-20, is a group of developing countries focused on tearing down industrialized countries’ barriers to agricultural trade. In March 2006, the group included 21 countries: Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, the Philippines, South Africa, Thailand, Tanzania, Uruguay, Venezuela, and Zimbabwe. 160 The G-90 is a tripartite alliance of the African Union (AU), the African, Caribbean and Pacific Group (ACP) and least-developed countries (LDCs), forming a majority of developing countries in the WTO.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 169

FRAGMENTATION OF INTERNATIONAL TRADE LAW

169

seem to act as leaders.161 In the G-4, Brazil and India are now members (with the US and the EU) and have replaced Japan162 and Canada in this small circle.163 As for China in the WTO, it seems to have a strong interest, but is active only behind the scenes, which is rather surprising compared to India’s or Brazil’s attitude at the WTO. It is expected that China will assume more multilateral responsibility to maintain the international order and behave multilaterally as pro-actively as other new leading powers such as India and Brazil. Russia is not yet a member of the WTO. The EU has readily accepted the new prominent role of Brazil and India and engages constructively with them multilaterally. The EU pushes for a successful and ambitious Doha Round since it believes that it is in the interests of both the EU and the wider global economy. Moreover, the EU believes that a deal in which all WTO Members contribute based on their capacities would strengthen the multilateral trading system and the WTO by bringing the BRICs into a trade deal as core contributors for the first time; it would provide a shot of confidence in a highly uncertain global economy; it would create valuable new economic growth in the global economy, which could contribute to new trade for EU companies, job creation and greater competitiveness; and finally, it would remove important distortions in global farm trade that in many cases currently create unfair pressure on farming in the developing world.164 So what is required from the EU to conclude the DDA? Agricultural liberalization seems to be the key issue.165 Efforts to reach a preliminary agreement on the crucial Doha trade round have been stalled on the issue of agricultural subsidies and tariffs. The big trading blocs in the WTO (the US, Brazil, and Australia on one side, and the EC on the other) had been engaged in a tit-for-tat struggle,166 each refusing to accept that offers of subsidy cuts from the other had gone far enough. The group of 20 developing nations (G-20) is demanding heavier cuts from both sides. It is interesting to see the differences of opinion between the G-20’s strong stance on eliminating agricultural subsidies and the then EU trade commissioner Peter Mandelson’s statement that while there was a need for an ambitious Doha Round outcome, focusing on agriculture alone would be counter-productive. Brazil’s foreign minister, Celso Amorim, argued that “positive and 161 This new phenomenon of India and Brazil playing hardball at the WTO is clearly explained by Fareed Zakaria in Zakaria, F. The Post-American World, London: Allen Lane, 2008, p. 37. 162 For a historic analysis of Japan in the trade field, see Ikeda, M. Japan in Trade Isolation: 1926-37 & 1948-85, Tokyo: I-House Press, 2008. 163 For an analysis of how the US has played a key role in shaping the international economic order, and how this domination has started to diminish as other regions are becoming important economic players, see Bromley, S. American Power and the Prospects for International Order, Cambridge: Polity, 2008. 164 European Commission, “Special EU Trade News: Geneva WTO Ministerial,” 18 July 2008. 165 Pascal Lamy, on 29 May 2008, told the Committee of International Trade of the European Parliament that the world, and in particular the European Union, has a major stake in the conclusion of the Doha Round. In his view, the solution in the 2008 situation in the world did not lie in protectionism. See speech by Pascal Lamy, available at http://www.wto.org/english/news_e/sppl_e/sppl90_e.htm. 166 Tit-for-tat is the modus operandi in international trade. For example, country A raises barriers on product X because country B did it to product Y.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

170

12/4/11

09:19

Page 170

THE JOURNAL OF WORLD INVESTMENT & TRADE

concrete indications, on the part of the developed countries,167 early on, about the key elements of the agricultural negotiations are indispensable to set the tone for a positive dynamic on all areas of [the] negotiations.”168 He pointed to unresolved issues beyond the gaps on trade-distorting subsidies, such as the speed with which tariff cuts would be phased in, tariff capping, and a potential provision in the draft agriculture text (Paragraph 80) that would allow countries to create tariff quotas for products for which none currently exists, which he said would create a zone of indetermination. In response to a US offer to cut farming subsidies by 60 per cent, the EC had offered to reduce its tariffs on agricultural goods by, on average, 38 per cent—an insufficient figure in the eyes of the US and the developing countries. The EC, however, was driven by internal conflict, with France accusing then commissioner Mandelson of exceeding his mandate to negotiate on behalf of the EU.169 To demonstrate the lack of trust that EU Member States tend to have toward the Commission, let us remember that on 18 February 2008, after rejecting the revised draft proposals for agriculture, industry, and services trade in the framework of the Doha Round, France’s minister for agriculture, along with 19 other EU ministers for agriculture, showed once again his lack of trust toward the European Commission in trade negotiations. Whereas for former EU trade commissioner Mandelson, the agricultural proposal forms “a good basis for further negotiations,”170 the views of Mr Barnier were that the text in agriculture was “totally unbalanced between concessions and other issues like services, industry or geographical indications, where we see no progress.”171 France’s rejection of the draft comes as no real surprise after years of intense lobbying against any large tariff and subsidy cuts, since France fears that it could destroy its farming sector.172 However, the fact that the rejection 167 (Footnote not original to the quotation; it has been added by the author of this work.) A developed country is a term used to categorize countries with developed economies, ones in which the tertiary and quaternary sectors of industry dominate. This level of economic development usually translates into a high income per capita, and a high Human Development Index (HDI). Countries with high Gross Domestic Product (GDP) per capita often fit the previous description of a developed economy; however, it is inaccurate to use GDP per capita alone when determining a country’s “developed” status. For a classification of countries based on income, see http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20421402~page PK:64133150~piPK:64133175~theSitePK:239419,00.html. 168 Bridges Weekly Trade News, “Political Positioning Dominates Opening Day of WTO Talks,” Issue 2, 22 July 2008. 169 It is interesting to observe the French fixation on agriculture, given the small percentage that it represents of France’s GDP. The arguments concerning a French political obligation to look after France’s farmers or protecting agricultural products for cultural reasons seem evident, but are they macroeconomically justified? 170 FarmPolicy.com, “Twenty EU Members Cool to Latest WTO Farm Text,” available at http://www.farm policy.com/?p=628. 171 EurActiv, “France rallies EU partners against world trade pact,” 19 February 2008, available at http://www.euractiv.com/en/trade/france-rallies-eu-partners-world-trade-pact/article-170401. 172 The difficult marriage between France and agriculture is constant when it comes to finding a European common position prior to the negotiation of multilateral trade agreements. For example, in September 1993, in relation to the European Commission’s mandate to renegotiate the Blair House Accord, Mr Juppé, the French foreign affairs minister, said to Sir Leon Brittan, trade commissioner at the time, that ‘[N]ous ne vous faisons pas confiance, nous ne vous avons jamais fait confiance, et nous ne vous ferons jamais confiance. We do not trust you, we have never trusted you, and we will never trust you’. See Le Figaro (27 September 1993) 8. The same story repeated itself in October 2005 and in January 2007 between the French government and the EU trade commissioner over the scope of the mandate to negotiate in the Doha Round negotiations. That said, none of these incidents took place at any of the actual multilateral trade negotiations, and not one EU Member State openly challenged the Commission’s role as sole negotiator of international trade agreements by starting in parallel bilateral negotiations. For a more detailed analysis of how multilateral trade negotiations work from an intra-EU perspective, see LealArcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, pp. 361-439.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 171

FRAGMENTATION OF INTERNATIONAL TRADE LAW

171

of the draft has the backing of so many other EU Members States could signal bad news for the Doha talks. Turning now to the BRICs, what is required from them to conclude the Doha Round? An immediate reaction would be that the BRICs should be prepared to accept more responsibility for the multilateral system, i.e., they should hide less behind the status of a developing country and step up to their own ambition to new leadership. This is certainly true in the case of China,173 without whose engagement the conclusion of the Doha Round will not happen, given its economic size in the world. However, the term “development” is not clearly defined in the Doha Development Agenda/Doha Round. If the Doha Round is concluded, certainly Brazil, China, and India will greatly benefit from better access to developed countries’ markets and to each other’s markets. However, this may happen partly at the expense of other poorer developing countries. At the same time, it is important that the originally dominant players of the world trading system, such as the US and the EU, do not disengage.174 In recent months, the US and the EU have by and large stopped criticizing each other on agricultural trade. Instead, they have turned their fire on developing countries like Brazil, India, and China, blaming their resistance on industrial tariff cuts for the impasse in the negotiations.175 To demonstrate this point, in his statement to the Trade Negotiations Committee during the July 2008 WTO Mini-ministerial Conference, David Shark, a US trade official, took aim at India and China for “insisting on the ability to raise agricultural tariffs in violation of their current WTO commitments,”176 and “firmly refusing”177 to take part in sectorspecific liberalization initiatives for industrial machinery, electronics, and chemicals.178 The BRICs should also accept greater differentiation among developing countries in the WTO and lower market barriers vis-à-vis poorer developing countries. In this sense, the former EU trade chief expects a pro-active role for the BRICs: “a limited number of developing countries must accept tariff cuts imposed by a NAMA coefficient,”179 Peter Mandelson told the Trade Negotiations Committee at the WTO, referring to Brazil, China, India, and the rest of the 30-odd relatively larger developing countries required to use the standard tariff reduction formula. “They must be real. These cuts must provide some new market access in practice. That is the political bottom line. Nothing else will work for us. Nothing else will close the deal.”180 173 In 2010, the International Monetary Fund ranked China as the second wealthiest nation in the world in absolute terms; India, Russia, and Brazil came in 4th, 6th, and 9th respectively. See International Monetary Fund, “World Economic Outlook Database,” October 2010, showing a nominal GDP list of countries. 174 The Warwick Commission, “The Multilateral Trade Regime: Which Way Forward?” The Report of the First Warwick Commission, University of Warwick, 2007, p. 10. 175 Bridges Weekly Trade News, “Geneva Mini-Ministerial: ‘Now or Never’ for Real this Time?” Issue 1, 21 July 2008. 176 Bridges Weekly Trade News, “G-7 Talks on Special Safeguard Mechanism Inconclusive as Blame Game Heats Up,” Issue 9, 29 July 2008. 177 Ibid. 178 BNA International Trade Daily, “U.S. Ups Pressure on China, India to Participate in Sectoral TariffCutting,” 29 July 2008. 179 Bridges Weekly Trade News, “Political Positioning Dominates Opening Day of WTO Talks,” Issue 2, 22 July 2008. 180 Ibid.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

172

12/4/11

09:19

Page 172

THE JOURNAL OF WORLD INVESTMENT & TRADE

5.3. MULTILATERALISM AT A STALEMATE A WTO Mini-ministerial Conference took place in July 2008 composed of a trade G-7.181 Governments’ latest attempt to salvage a deal in the Doha Round broke down on 29 July 2008, as ministers acknowledged that they were unable to reach a compromise after nine days of a WTO Mini-ministerial summit. This raises the question of how to move forward in this complex international trade negotiations scenario.182 The failure of the Mini-ministerial summit was due to a demand that the possibility of increasing tariffs by developing countries be incorporated in the deal to protect farmers from import surges under a special safeguard mechanism.183 Import-sensitive China and India were pitted against the US’s demands for predictable market access for farm products. A rational explanation for the failure of the multilateral trade talks is that countries such as India want to protect their poor and subsistence farmers, while the US and the EU negotiators are under pressure from powerful farm lobbies.184 Arguably, China—whose role at the Mini-ministerial Conference was defensive—also blew the Mini-ministerial Conference by helping India block the deal of further liberalization. In the past, Pascal Lamy has said that the basic ingredients of a successful Doha deal are clear: the US must agree to deeper cuts in its ceiling on trade-distorting farm subsidies, the EU must offer more agricultural market-access,185 and major developing countries such as Brazil and India must further reduce their industrial tariffs.186 The services negotiating committee met during the Mini-ministerial Conference to finalise work on a text aimed at providing guidance on how to proceed in the services talks, ahead of the “signalling conference” that ha[d] been [...] scheduled [during the miniministerial conference]. Bolivia, Cuba, and Venezuela maintained their opposition to the 181 This trade G-7 should not be confused with the finance G-7 representing the most industrialized nations in the world. The trade G-7 has replaced the so-called “Quadrilateral Trade Ministers’ Meeting” or Quad and is composed of the Quad (the US, the EU, Canada, and Japan) plus China, India, and Brazil. Its purpose is to see how key trade and investment matters can be moved forward. 182 Mercurio argues that systemic “institutional impediments still exist, which not only hinder the successful conclusion of the Doha Round, but also prevent effective long-term institutional governance and vision”. Mercurio, B. ‘The WTO and its Institutional Impediments’, University of New South Wales Faculty of Law Research Series, Working Paper 46 (2007), available online at http://law.bepress.com/unswwps/flrps/art46/. 183 The special safeguard mechanism is a proposal introduced within the Doha process of multilateral trade negotiations and intended to provide developing countries with access to a tailored agricultural safeguard mechanism for the simple reason that the special agricultural safeguard system in the WTO Agreement on Agriculture applies largely only for the benefit of developed countries. The special safeguard mechanism introduced during the Doha Round, however, should not be confused with the special agricultural safeguard, which is a system available under Article 5 of the WTO Agreement on Agriculture to WTO “members that have converted non-tariff measures to tariff protection. It allows WTO members to impose additional tariffs on agricultural products if import volumes exceed defined trigger levels or if import prices fall below defined trigger prices.” See Walter Goode, Dictionary of Trade Policy Terms, 5th ed., Cambridge: Cambridge University Press, 2007, p. 396. 184 CNN, “French minister: China, India thwarted WTO talks,” 30 July 2008, available at http://www.cnn.com/ 2008/BUSINESS/07/30/wto.france.ap/index.html. 185 On liberalizing agricultural markets, the G-33 argued that liberalizing developing country agricultural markets was never one of the objectives of the Doha Round. “This round is a development round, it’s all focused on market access from the developing countries into the developed countries, not the other way around,” Indian commerce minister Kamal Nath said in Jakarta in the framework of a summit on 20-21 March 2007 whose aim was to call on industrialized nations to take the lead in breaking the deadlock in the Doha Round trade negotiations. 186 International Centre for Trade and Sustainable Development, “Doha Negotiations Set To Pick Up Despite Lack of New Offers,” Bridges Weekly Trade News Digest, Vol. 11, No. 3, 31 January 2007, available at http://ictsd.net/i/news/bridgesweekly/6425/.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 173

FRAGMENTATION OF INTERNATIONAL TRADE LAW

173

most recent services text, joined this time by Nicaragua. Those countries maintain that there is no need for [...] a “roadmap” for the talks, arguing that the services provisions of the Hong Kong Ministerial Declaration provide sufficient guidance for the negotiations.187

According to Pascal Lamy, trade ministers that participated in the Mini-ministerial Conference “were very close to finalizing modalities in agriculture and [nonagricultural market access]”188 in the framework of deals governing tariff and subsidy cuts that governments had hoped to strike. He said that “a huge amount of problems which had remained intractable for years have found solutions.”189 Although the Mini-ministerial Conference was going to focus on agriculture and industrial goods, trade in services is a central part of any final Doha Agreement.190 At the mini-ministerial conference there was a signaling conference, in which WTO Members signaled where and how they planned to improve access to their services markets for other WTO Members. “It was understood that, while the signals exchanged were important in measuring progress, they would not represent the final outcome of the negotiations.”191 Such a signaling conference was just meant to provide a credible signal that the negotiations were moving forward. The signals would therefore provide comfort to WTO Members by reflecting real progress in the services negotiations. In this sense, officials from several countries expressed satisfaction with the signaling conference on services trade liberalization held on 26 July 2008 in the framework of the July WTO mini-ministerial conference in Geneva, at which participating countries—mostly developed and relatively large developing countries—provided indications of the sort of binding market-opening commitments they would be willing to undertake under a Doha Round agreement. WTO Members acknowledged that, while they “proceeded with services liberalization in their economies, the gap between existing levels of openness and current commitments continued to widen. Some participants stressed that a satisfactory outcome of the services negotiations could be one of the most significant dividends of the DDA, as a development Round.”192 In conclusion, “most participants indicated their readiness to improve access conditions for Mode 4.”193 187 International Centre for Trade and Sustainable Development (ICTSD), “WTO Mini-Ministerial, Day Three: and Then There Were Seven,” 24 July 2008, available at http://ictsd.net/i/wto/englishupdates/14095/. 188 Bridges Weekly Trade News Digest, “WTO Mini-Ministerial: The Day After,” Issue 11, 30 July 2008. 189 Ibid. 190 Leal-Arcas, R. “Services as Key for the Conclusion of the Doha Round,” Legal Issues of Economic Integration, 35(4), pp. 301-321, 2008; Leal-Arcas, R. “The GATS and Temporary Migration Policy,” in Lewis, M. & Frankel, S. (eds.) International Economic Law and National Autonomy, Cambridge: Cambridge University Press, 2009; Leal-Arcas, R. “The GATS in the Doha Round: A European Perspective,” in Alexander, K. & Andenas, M. (eds.) The World Trade Organization and Trade in Services, Leiden: Brill/Nijhoff, 2008, pp. 9-104; Leal-Arcas, R. “A Look at Services Trade: Implications of the Doha Talks Suspension and Resumption,” in Chaisse, J. & Balmelli, T. (eds.) Essays on the Future of the World Trade Organization, Volume I, Genève: Editions Interuniversitaires Suisses, 2008, pp. 99-134; Leal-Arcas, R. “Bridging the Gap in the Doha Talks: A Look at Services Trade,” Journal of International Commercial Law and Technology, Volume 2, Issue 4, 2007, pp. 241-249; Leal-Arcas, R. “The Resumption of the Doha Round and the Future of Services Trade” Loyola of Los Angeles International and Comparative Law Review, Volume 29, Issue 3, 2007, pp. 339-461. 191 P. Lamy, “Services Signalling Conference,” (WTO Doc. JOB(08)/93, 2008), para. 1. 192 Ibid, para. 3. 193 Ibid, para. 48.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

174

12/4/11

09:19

Page 174

THE JOURNAL OF WORLD INVESTMENT & TRADE

On GATS Mode 4 (presence of natural persons), Indian commerce minister Kamal Nath was pleased about the “good movement by the U.S. and by the EU”194 since both WTO Members were prepared to allow more professionals from India and other developing countries to work temporarily in their markets.195 Mr Nath was also pleased about the concessions on Mode 1 (cross-border trade), since Modes 1 and 4 are important to India’s information technology sector. He stressed the importance of the domestic regulation aspect of the services negotiations. EU Member States use two main instruments to enforce their national policy guidelines. The first is the economic needs test,196 which is permitted by GATS Article XVI:2. Through such a test, when it comes to wholesale and retail services trade, the governments of Belgium, Denmark, France, Italy, and Portugal set a limit on the number of department stores in order to prevent ruinous competition, to facilitate transport infrastructure planning and to regulate the special distribution of stores. These needs tests create uncertainty about the stability of market access.197 At the miniministerial summit, an Indian trade official said that the EC had suggested that it might consider lifting economic needs tests, a regulatory requirement that can make it nearly impossible to use Mode 4 access. The second instrument to enforce national policy guidelines is residence criteria. Companies are restricted in supplying specific insurance services through Mode 1 only if the head office is based in the EU. Residence criteria are also applicable to natural persons if they act in a position of responsibility on behalf of the company (in other words, the CEO, founder, board of directors, supervisory council et cetera). Such restrictions are often found in offers for trade in financial and insurance services. Although the exercise of the July 2008 WTO mini-ministerial conference does not represent the final outcome of the services negotiations, it has represented a step forward. There remains considerable potential for further multilateral services trade liberalization, even if the growth of South-South regional trade over the last decade has been quite remarkable;198 however, certain fields, such as culture, education, health, and public services, remain a barrier to the current trend of services liberalization. Moreover, although agriculture seems to be the key issue to disentangle the Doha talks, as 194 Bridges Weekly Trade News Digest, “Members Give Mixed Reactions to Lamy Compromise, Take ‘A Good Step Forward’ on Services,” Issue 7, 27 July 2008, available at http://ictsd.net/i/wto/englishupdates/14681/. 195 D. Pruzin, “U.S., EU Cite Moves in ‘Signaling’ Talks On Services; India Likes ‘Mode 4’ Openings,” BNA International Trade Reporter, 25 (2008), 1128. 196 Economic needs tests are “a mechanism controlled by government, industry or professional associations to decide whether the entry into the market of new foreign, and sometimes domestic, firms is warranted on economic grounds.” This mechanism may be discretionary and protectionist. GATS Article XVI, which sets out market-access rules, permits the use of economic needs tests. See W. Goode, Dictionary of Trade Policy Terms, 5th ed., Cambridge: Cambridge University Press, 2007, pp. 144-45. 197 P. Low and A. Mattoo, “Is there a Better Way? Alternative Approaches to Liberalization under the GATS,” in Sauvé, P. & Stern, R. (eds.) GATS 2000. New Directions in Services Trade Liberalization, Washington DC: Brookings Institution Press, 2000, pp. 449-72. 198 An example of South-South trade is a draft agreement among 22 countries on a new round of concessions under the Global System of Trade Preferences among Developing Countries (GSTP). For an optimistic analysis of the GSTP, see Endoh, M. “The Effects of the GSTP on Trade Flow: Mission Accomplished?” Journal of Applied Economics, 2005, 37, pp. 487-496.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 175

FRAGMENTATION OF INTERNATIONAL TRADE LAW

175

evidenced by the fatal results of the WTO mini-ministerial conference of July 2008, opening up service markets remains a vital aspect of a successful outcome from the Doha Round. In this respect, many developing countries see sending services supplies under Mode 4 of the GATS to lucrative markets as one of the principal areas of negotiations during the Doha Round. Whether the development promise of the Doha Round is achieved will depend in part on the extent to which the present level of commitments under Mode 4 is expanded. Finally, a better outcome might happen if deals on industrial goods, services, and trade facilitation were hammered out first before turning to agriculture, instead of the reverse, as has been happening. What can the EU do to support the conclusion of the Doha Round? In my opinion, the EU should try to foster a new sense of trust with the BRICs. However, there seems to be a direct conflict of interests as well as pressure on the European Commission’s Directorate-General for external trade not to be too altruistic. As a major “old” economic power, the EU should also refrain from patronizing the BRICs. The following quotation illustrates this point from a Russian perspective: Friends are only friends until you start splitting the money. These [Western] countries need to have access to oil and gas, and to get it they are prepared to use any means, including accusations that Russia has a different system of values. All ... Russia is doing is defending its interests. We want to live peacefully, but the West cannot tolerate the idea that we are an equal partner, that we are the same. Now there is no more time for niceties.199

Another example of this is the EU’s approach to China, which is stuck in the past. The “EU continues to treat China as the emerging power it used to be, rather than the global force it has become.”200 A further example of the EU’s problematic approach to China is treating China as a non-market economy in anti-dumping cases or the quota on textile imports from China. Moreover, the EU should accept and foster even more actively the new leadership roles of the BRICs. 5.4. IS MULTILATERALISM A CREDIBLE OPTION? With the delayed and stalled Doha negotiation, multilateral trade governance seems to be at stalemate.201 When the Doha Round was launched in November 2001, oil was $25 a barrel, a ton of rice cost $170, China’s current account surplus was 2 per cent of the country’s Gross Domestic Product (GDP),202 and US financial institutions were at 199 Igor Shuvalov, Russia’s first deputy prime minister, quoted in The Economist’s Special Report on Russia, 29 November 2008. 200 Fox, J. & Godement, F. “A Power Audit of EU-China Relations,” European Council on Foreign Relations, London, April 2009, p. 1 201 For an examination of the evolution of the multilateral trade regime, particularly during the WTO era and the Doha Round, see Das, D. The Evolving Global Trade Architecture, Cheltenham, UK and Cambridge, MA: Edward Elgar, 2007. See also Bethlehem, D., McRae, D., Neufeld, R., & Van Damme, I. (eds.) The Oxford Handbook of International Trade Law, Oxford: Oxford University Press, 2009. 202 A region’s Gross Domestic Product, or GDP, is one of several measures of the size of its economy. The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

176

12/4/11

09:19

Page 176

THE JOURNAL OF WORLD INVESTMENT & TRADE

the vanguard of globalization.203 In January 2009, oil was $45 a barrel, rice pushed past $500 a ton, and China and the oil-producing States had trillions of dollars at their disposal. The US financial system was in the midst of the worst financial crisis since the Great Depression of the 1930s.204 Against this background, and after so many disappointments and missed deadlines of the multilateral trade agenda, one wonders whether the WTO is in fact a useful forum for negotiating further trade liberalization.205 Many international leaders are still pushing for the completion of the Doha Round. However, does the existing Doha Round respond adequately to challenges such as fluctuating commodity prices, threats to the economic security of middle-class workers, financial instability, and environmental insecurity?206 Going forward, would an entirely new round of Bretton Woods talks be better equipped to develop a more ambitious agenda than that of the Doha Round, and bring aboard a broader set of global institutions than just the WTO? Should trade leaders look elsewhere, perhaps into regionalism, if the aim is to liberalize international trade?207 Soon after the collapse of world trade talks in July 2008, various WTO Members indicated their desire to move away from the single undertaking procedure,208 where nothing is agreed until everything is agreed. This procedure has served as the governing principle of the Doha Round ab initio. An alternative to the single undertaking procedure is the so-called variable 203 On economic globalization, Dani Rodrik argues that neither globalizers nor anti-globalizers have got it right. While economic globalization can be a boon for countries that are trying to dig out of poverty, success usually requires following policies that are tailored to local economic and political realities rather than obeying the dictates of the international globalization establishment. In Rodrik’s book One Economics, Many Recipes: Globalization, Institutions, and Economic Growth (Princeton, NJ: Princeton University Press, 2008), Rodrik provides an analysis of how successful countries craft their own unique strategies and what other countries can learn from them. To most pro-globalizers, globalization is a source of economic salvation for developing nations and, to fully benefit from it, nations must follow a universal set of rules designed by organizations such as the World Bank, the International Monetary Fund, and the World Trade Organization and enforced by international investors and capital markets. However, to most anti-globalizers, such global rules spell nothing but trouble, and the more poor nations shield themselves from them, the better off they are. Rodrik rejects the simplifications of both sides, showing that poor countries get rich not by copying what Washington technocrats preach or what others have done, but by overcoming their own highly specific constraints. 204 Aaditya Mattoo and Arvind Subramanian, “From Doha to the Next Bretton Woods: A New Multilateral Trade Agenda,” Foreign Affairs, January/February 2009. 205 For a reading on the profound impact of the Doha Round negotiations for the world, addressing three major issues central to the Doha negotiations, namely, development policy, trade policy concerns, and the so-called “trade and issues,” see Hohmann, H. (ed.) Agreeing and Implementing the Doha Round of the WTO, Cambridge; New York: Cambridge University Press, 2008. 206 For what to expect of the Doha Round, see Schott, J. “A 5-Step Program for Doha Rehabilitation: Rational Expectations about the Doha Round Negotiations,” VoxEU.org, Op-ed, 18 July 2008, available at http://petersoninstitute.org/publications/opeds/oped.cfm?ResearchID=976. 207 For reflections on the future of multilateralism, see Ciuriak, E.D., Curtis, J., Evenett, S. & Lotin, H. “Down and Almost Out: A Time for Reflection on the Future of the Multilateral Trading System,” The Centre for International Governance Innovation: Conference Report, July 2009. 208 Single undertaking is a provision that requires countries to accept all the agreements reached during the Round negotiations as a single package, rather than on a case-by-case basis. Before the Uruguay Round, there was no single undertaking (and therefore GATT members had opt-out options available when new rules and agreements were being negotiated). Also, there were few obligations imposed upon developing countries and a number of important plurilateral agreements, membership of which was wholly voluntary.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 177

FRAGMENTATION OF INTERNATIONAL TRADE LAW

177

geometry.209 This term refers to situations where obligations differ for the various WTO Members. In other words, some WTO Members may choose to take on more or fewer obligations.210 An example of variable geometry is the special and differential treatment211 when giving special recognition for developing-country needs.212 Another example is regional or other GATT Article XXIV agreements.213 Out of the nine plurilateral agreements214 that the Tokyo Round generated, only two remain operational: those agreements covering government procurement—subscribed to by only around one-fifth of the membership—and trade in civil aircraft—by even less. Certainly, not everyone agrees with the variable geometry option. Variable geometry would give preference to certain issues above others, and thus to the interests of some WTO members over others. One suggestion has been to operate on the basis of a “critical mass” approach to WTO decision-making as a means to enable a multi-speed WTO.215 This means that not all WTO members would be obliged to make commitments on the topic in question. Only those WTO members that have an interest in the sector would be a party to the agreement, but the trade benefits arising from the 209 In the EU context, this concept refers to a situation in which some countries may integrate more (or faster) than others. This phenomenon has been given many other different names—among them, flexibility, differentiated integration, closer (or enhanced) cooperation, concentric circles, Europe à la carte, and two-speed (or multi-speed) Europe. The 1997 Treaty of Amsterdam represented the first attempt to formalize this principle. Before that, however, the UK’s and Denmark’s opt-outs on the Economic and Monetary Union, the UK’s and Ireland’s exemptions from the Schengen Agreement, and Denmark’s opt-out on anything to do with a common EU defense policy had already created de facto variable geometry. Another example was the admission to the EU of the neutral states of Austria, Finland, Sweden, and Ireland, which were not full members of the Western European Union and would inevitably be forced to resort occasionally to constructive abstention in foreign and security affairs. Given the prospect of the EU growing even less homogeneous with the accession of former Soviet bloc countries, such divergences appeared likely to increase rather than to diminish. 210 These obligations may, or may not, be enforceable through the dispute settlement mechanism of the WTO. 211 For an analysis on the special and differential treatment, see A. Keck and P. Low “Special and Differential Treatment in the WTO: Why, When and How?” World Trade Organization Economic Research and Statistics Division, Staff Working Papers ERSD-2004-03 (May 2004) available at http://www.wto.org/english/res_e/ reser_e/ersd200403_e.doc. 212 As a rule of thumb on the distinction between developing and developed country, one could say that a developing country is a country with a relatively low standard of living, undeveloped industrial base, and moderate to low Human Development Index (HDI). The term has tended to edge out earlier ones, including the Cold Wardefined “Third World,” which has come to have unintended negative connotations associated with it. 213 See Sutherland, P. (ed.) The Future of the WTO: Addressing Institutional Challenges in the New Millennium, World Trade Organisation (2004) 65; Abbott, F. “Integration without Institutions: The NAFTA Mutation of the EC Model and the Future of the GATT Regime” (1992) 40 American Journal of Comparative Law 917; Abbott, F. “Regional Integration Mechanisms in the Law of the United States: Starting Over” (1993) 1 Indiana Journal of Global Legal Studies; Sapir, A. “Trade Regionalism in Europe: Towards an Integrated Approach” (2000) 38 Journal of Common Market Studies 151; Ng’ong’ola, C. “Regional Integration and Trade Liberalisation in the Southern African Development Community” (2000) 3 Journal of International Economic Law 485; Abbott, F. “The North American Integration Regime and its Implications for the World Trading System” in Weiler, J. (ed.) Towards a Common Law of International Trade?: The EU, the WTO and the NAFTA, Oxford: Oxford University Press, 2000; Echandi, R. “Regional Trade Integration in the Americas during the 1990s: Reflections of some Trends and their Implication for the Multilateral Trading System” (2001) 4 Journal of International Economic Law 367; Norton, J. “The ‘Curious’ Dynamics of Free Trade in the Western Hemisphere: Prospects for the FTAA” in Cremona, M., Fletcher, I. and Mistelis, L. (eds.) Foundations and Perspectives of International Trade Law (London: Sweet and Maxwell, 2001); Mwebeiha, C.J. “Re-configuring the Spaghetti Bowl: Reflections on the Issue of Multi-Memberships in Regional Trade Agreements in Eastern and Southern Africa” (2004) 31(4) Legal Issues of Economic Integration 243; Ghoneim, A. “Rules of Origin and Trade Diversion: The Case of the Egyptian-European Partnership Agreement” (2003) 37(3) Journal of World Trade 597. 214 Unlike multilateral agreements, which all WTO members must accept, plurilateral agreements are optional. 215 See generally The Warwick Commission, “The Multilateral Trade Regime: Which Way Forward?” The Report of the First Warwick Commission, University of Warwick, 2007.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

178

12/4/11

09:19

Page 178

THE JOURNAL OF WORLD INVESTMENT & TRADE

agreement could be extended to the full WTO membership in accordance with the MFN principle.216 As Robert Zoellick, President of the World Bank Group,217 argues, the events of September and October 2008 in the global financial crisis could be the tipping point for many developing countries.218 As always, the poor are the most defenseless. Voices around the world are blaming free markets. Others are asking about the failures of governmental institutions. We cannot turn back the clock on globalization.219 So we must learn lessons from the past, as we build for the future. We must modernize multilateralism and markets for a changing world economy. The new multilateralism, suiting our times, will need to be a flexible network, not a fixed one.220 It needs to maximize the strengths of interconnecting and institutions, public and private. It should be oriented around pragmatic problem-solving that fosters a culture of cooperation.221 In the absence of a global deal to liberalize trade, Zoellick argues that countries should focus on forging regional trade agreements “linked to global disciplines,”222 and that they should try to use trade facilitation measures to decrease the costs of cross216

Bridges Weekly Trade News Digest, “Which Way Forward for World Trade?” Vol. 12, No. 32, 2008. The World Bank Group (WBG) is an international organization whose original mission was to finance the reconstruction of nations after the end of World War II. The Bank came into formal existence on 27 December 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary and Financial Conference (1 July-22 July 1944). The Bank’s five agencies are: – International Bank for Reconstruction and Development (IBRD) – International Development Association (IDA) – International Finance Corporation (IFC) – Multilateral Investment Guarantee Agency (MIGA) – International Center for Settlement of Investment Disputes (ICSID) For further reading, see Pincus, J. & Winters, J. Reinventing the World Bank, Ithaca, NY: Cornell University Press, 2002. 218 Zoellick, R. “Modernizing Multilateralism and Markets,” speech given at the Peterson Institute for International Economics in Washington, DC, 6 October 2008, available at http://www.iie.com/publications/ papers/print.cfm?doc=pub&ResearchID=1012. 219 Much academic literature has been produced in relation to the analysis of the global phenomenon of “globalization.” See, among others, K. Gallagher (ed.) Putting Development First: The Importance of Policy Space in the WTO and International Financial Institutions (London; New York: Zed Books, 2005); M. Wolf, Why Globalisation Works (New Haven: Yale University Press, 2005); J. Bhagwati, In Defense of Globalisation (Oxford: Oxford University Press, 2005); J.E. Stiglitz and A. Charlton, Fair Trade for All: How Trade Can Promote Development (Oxford: Oxford University Press, 2005); UN Millennium Project, Investing in Development: A Practical Plan to Achieve the Millennium Development Goals Overview Report, New York, 2005, available at www.unmillennium project.org/reports/index_overview.htm; P. Singer, One World: The Ethics of Globalization (The Terry Lectures Series) (New Haven: Yale University Press, 2002). Conversely, literature on anti-globalization is just as abundant: D. Ransom, The No-Nonsense Guide To Fair Trade; A. Starr, Naming the Enemy: Anti-Corporate Movements Confront Globalization, London: St. Martin’s Press, 2000); B. Epstein, “Anarchism and the Anti-Globalization Movement” (2001) 53(4) Monthly Review, A.S. Lang and C. Tichi (eds.) What Democracy Looks Like: A New Critical Realism for a Post-Seattle World (New Brunswick, N.J.: Rutgers University Press, 2006); J.-P. Boris, Commerce Inequitable: le Roman Noir des Matières Premières (Paris: Hachette Littératures, Radio France Internationale, 2005; J. Bandy and J. Smith (eds.) Coalitions Across Borders: Transnational Protest and the Neoliberal Order (Lanham, Md: Rowman and Littlefield, 2005); C. Eschle and B. Maiguashca (eds.) Critical Theories, International Relations and ‘the AntiGlobalisation Movement’: the Politics of Global Resistance (London: Routledge, 2005); Kofman, E. & Young, G. (eds.) Globalization: Theory and Practice, 3rd ed., New York: Continuum, 2008. 220 On government networks, see Slaughter, Anne-Marie A New World Order, Princeton: Princeton University Press, 2004. 221 Zoellick, R. “Modernizing Multilateralism and Markets,” speech given at the Peterson Institute for International Economics in Washington, DC, 6 October 2008, available at http://www.iie.com/publications/ papers/print.cfm?doc=pub&ResearchID=1012. 222 Ibid. 217

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 179

FRAGMENTATION OF INTERNATIONAL TRADE LAW

179

border commerce. Others, such as EU trade commissioner Catherine Ashton, argue that the 2008 economic crisis made the global trade deal more urgent rather than less,223 and that “[a]t a time of economic turbulence, we have to redouble our efforts in order to have a deal, and America has an important role to play.”224 6.

IS PLURILATERALISM AN OPTION?

The Doha Round is in crisis.225 If the Doha Round fails or achieves only very little and very late,226 then the WTO reputation will be seriously damaged and this may translate into an erosion of the WTO’s authority and the WTO’s Dispute Settlement Understanding. With their large export potential, the BRICs (apart from Russia, which is not yet a WTO member) should have a very strong interest in the WTO and the functioning rules of world trade, which are an insurance against protectionism227 and contain the trade powers of the US and the EU to quite an important degree. So how can we prevent the WTO from a deeper crisis? One possibility would be a plurilateral approach to trade agreements, which means that the agreements are optional and not binding on those WTO Members who do not engage in them.228 In the WTO context, multilateral negotiations, as opposed to plurilateral negotiations, imply the participation of all WTO members.229 The nature of the consequent multilateral 223 Similar arguments were made by Pradeep Mehta, who suggested that protectionist measures may not have been a good choice during the beginning of the 2008 financial downturn and argued that the 2008 global crisis needed a solid global response—in his view, the protectionist response was definitely a wrong one. Reviving the Doha Round constituted an important element of the needed response. See Mehta, P.S. “Multilateralism is the Cure,” Financial Express, 22 March 2009, available at http://www.financialexpress.com/printer/news/437408/#. 224 EurActiv, “New UK commissioner vows to rescue trade talks,” 21 October 2008, available at http://www.euractiv.com/en/trade/new-uk-commissioner-vows-rescue-trade-talks/article-176536. 225 For a detailed analysis of the Doha Round, see Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, chapters 8 and 9. 226 In the industrial sector in particular, EU trade ministers voiced in late May 2008 their dissatisfaction with the proposals for a global trade agreement, which they said did not offer sufficient guarantees on opening up new market opportunities for their businesses in third countries. Germany in particular slammed new flexibilities in the texts that would enable large emerging economies such as China to shelter entire sectors of their industry from outside competition. For BusinessEurope, the latest draft text on industrial goods was a step backwards for trade liberalization due to a new tariff reduction formula that enables countries like India, Brazil, and Argentina to make fewer cuts in import duties, while allowing new WTO Members such as China and Taiwan to phase in tariff cuts over a period of up to 15 years. See EurActiv, “Mandelson encounters resistance in trade talks,” 27 May 2008, available at http://www.euractiv.com/en/trade/mandelson-encounters-resistance-trade-talks/article-172692. 227 Pascal Lamy has repeatedly argued the importance of avoiding isolationism for the benefit of global trade. See Lamy, P. “Trade is part of the solution to the global economic crisis,” 3 February 2009, available at http://www.wto.org/english/news_e/sppl_e/sppl114_e.htm. Similar arguments by Pascal Lamy with respect to the Arab region can be found at http://www.wto.org/english/news_e/sppl_e/sppl112_e.htm. 228 For the most part, all WTO Members subscribe to all WTO Agreements. After the Uruguay Round, however, there remained four agreements, originally negotiated in the Tokyo Round, which had a narrower group of signatories and are known as “plurilateral agreements.” All other Tokyo Round agreements became multilateral obligations (i.e., obligations for all WTO members) when the World Trade Organization was established in 1995. The four were: – Trade in civil aircraft, – Government procurement; – Dairy products; and – Bovine meat. The bovine meat and dairy agreements were terminated in 1997. 229 Article II(3) of the WTO Agreement.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

180

12/4/11

09:19

Page 180

THE JOURNAL OF WORLD INVESTMENT & TRADE

agreements from these multilateral negotiations implies that commitments are taken by all the WTO Members. The idea behind plurilateral negotiations is to make the WTO deliver again on progressive liberalization. Emerging economies in general, and the BRICs in particular, should take part in it. The EU should try to create an understanding on this and appeal to the leadership of the BRICs to keep the WTO alive and moving. Once again, establishing more trust and a sense of cooperation is important. In the plurilateral agreements, Members might negotiate on single topics or across a broad agenda. The risk of this plurilateral approach is to marginalize WTO Members, typically the weakest and poorest members of the WTO family. To avoid this risk, the world trading system should allow them to participate in the plurilateral negotiations, but provide them with the freedom to opt out of a result counter-productive to the negotiations. The plurilateral process, akin to the bilateral request and offer mechanism, is informal. It takes place between demandeurs and those from whom they are seeking higher commitments. There are no formal negotiating sessions. There is no formal chair. There are no minutes for these informal negotiations. And importantly, there is no critical mass of countries representing 80-90 per cent of world trade in that sector, unless the negotiations draw in such a large number of countries that they effectively make up this ‘critical mass’ (an unlikely situation if it were completely voluntary). That negotiations can take place through a plurilateral request/offer approach is already outlined in paragraph 11 of the Negotiating Guidelines agreed to by all WTO Members before the GATS negotiations commenced in 2001.230 At the 2005 Hong Kong Ministerial Conference, developed countries231 succeeded in getting language permitting plurilateral negotiations, in addition to the bilateral request/offer negotiating method. This means that a group of countries will issue one request document demanding broad GATS coverage for a particular sector in one country or a group of countries. Rather than negotiating bilaterally, the countries would negotiate as a group. Developing nations were successful in preventing a text which would have made entering into plurilateral negotiations mandatory, because they were concerned that it would result in developed countries ‘ganging up’ on individual developing countries. As part of the plurilateral negotiating process, the WTO formed 13 “Friends Groups” that will develop joint request documents and a list of countries to which these 230 Paragraph 11 of the Guidelines and Procedures for the Negotiation on Trade in Services reads: “Liberalisation shall be advanced through bilateral, plurilateral or multilateral negotiations. The main method of negotiation shall be the request-offer approach.” Available at http://odin.dep.no/ud/english/doc/handbooks/ 032061-120002/dok-bn.html. 231 A developed country is a term used to categorize countries with developed economies in which the tertiary and quaternary sectors of industry dominate. This level of economic development usually translates into a high income per capita, and a high Human Development Index (HDI). Countries with high Gross Domestic Product (GDP) per capita often fit the previous description of a developed economy; however, it is inaccurate to use GDP per capita alone when determining a country’s “developed” status. For a classification of countries based on income, see http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20421402~page PK:64133150~piPK:64133175~theSitePK:239419,00.html.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 181

FRAGMENTATION OF INTERNATIONAL TRADE LAW

181

requests will be submitted.232 Other Friends Groups may be formed or operate in a less formal manner. Although the Friends Groups will be made up of WTO country representatives, major multinational service businesses have been working closely with each group on both the content of the offer and strategy to break into the service markets of countries high on their priority lists. In the case of services trade, to intensify and expedite services negotiations. Annex C233 of the Draft Hong Kong Ministerial Declaration introduced an interesting mode of negotiations, i.e., plurilateral negotiations. Annex C also exhorted Members to make new binding market-access commitments across the four modes of services supply stipulated in the GATS, and to give up existing restrictions on granting equal treatment to services providers from all WTO Members. These plurilateral negotiations, unlike conventional bilateral negotiations, permit a group of members to present collective requests to other members in any sector or mode of supply.234 Furthermore, the plurilateral approach has solidified a platform for interested WTO Members to build upon initial, sector-specific discussions, either through an extended round of negotiations similar to what transpired after the Uruguay Round or in the context of the next round of services negotiations mandated under the GATS.235 That said, Annex C also failed to deliver any timelines for service negotiations, even in a preliminary sense.236 Two weeks of intensive market-access negotiations in services trade started at the WTO in mid-April 2007.237 These marked the first services meetings to be conducted in formal negotiating mode since the Doha Round talks broke down in July 2006, although there had been informal talks in the interim. This first week was dedicated to plurilateral meetings between groups of demandeur countries seeking new marketopening commitments and the predominantly developing countries to which they 232

Below is a list of known Friends Groups, and the country chairing their discussions: 01. Audio-visual services (Chinese Taipei) 02. Air Transport (New Zealand) 03. Computer-related services (Chile) 04. Construction services (Japan) 05. Energy services (EU) 06. Environmental services (EU) 07. Express Delivery services (USA) 08. Financial services (Canada) 09. Legal services (Australia) 10. Logistical services (Switzerland) 11. Maritime services (Japan) 12. Mode 3 (Switzerland) 13. Mode 4 (Canada) 14. Telecommunication (Singapore). 233 For a reading of Annex C (annex on services), see the Revision of the Draft Ministerial Declaration in the framework of the Doha Work Program, Hong Kong WTO Ministerial Conference, Sixth Session on 18 December 2005 WT/MIN(05)/W/3/Rev2 available at http://www.wto.org/english/thewto_e/minist_e/min05_e/draft_ text5_e.doc. 234 See Cho, S. “Doha’s Development,” 25 Berkeley J. Int’l Law 165, at 177-78, 2007. 235 J. Bernabe and S. Cheng, “The Doha Round Negotiations on Services: An Overview,” p 2. Paper prepared for a seminar entitled Realizing the Doha Development Agenda as if the Future Mattered at the Salzburg Seminar, Salzburg, Austria (16-21 February 2007). 236 See Cho, S. “Doha’s Development,” 25 Berkeley J. Int’l Law 165, at 177-78, 2007. 237 International Financial Services London, “Ongoing discussions in WTO Round: raising the profile on services,” Trade Policy News, available at http://www.ifsl.org.uk/tradepolicy/news_index.cfm?NewsItem=274.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

182

12/4/11

09:19

Page 182

THE JOURNAL OF WORLD INVESTMENT & TRADE

submitted collective requests in February 2006. Although many developing countries remain reluctant to further open their markets to foreign services providers until there is more progress in the talks on agriculture and industrial tariffs, some major demandeur Members of the WTO such as the EC and the US identified key breakthrough sectors in which they were especially eager to see new liberalization. These plurilateral negotiations were more focused than in the past, benefiting from more thorough preparation by the requesting WTO members. Each of these sector-specific negotiations was coordinated by one sponsor of the collective request, and each had a structured agenda, unlike the more free-wheeling discussions in previous plurilateral WTO discussions. The participating countries were, therefore, each specifically asked whether they were going to meet the liberalization commitments set out in the collective request, and, if not, why they were unable to do so.238 They were also asked whether they were prepared formally to bind the level of liberalization actually applied in practice in each sector and, if they were unable to do so, why so.239 The second week was reserved for bilateral negotiations between individual WTO Members.240 7.

THE RISE OF BILATERALISM AND REGIONALISM

7.1. BACKGROUND The set of laws which we recognize as classical international law arose out of the 1648 Treaty of Westphalia,241 even if there have been formal legal frameworks guiding the relations between societies since the earliest history of civilizations.242 The Westphalian Peace established a balance of powers243 in Europe based on a territorial division of powers between various Sovereigns. The Treaty’s clear, vertical grant of sovereignty to each State overlay a (geographically identical) horizontal division of 238 Bridges Weekly, “Services Cluster Finishes with new Focus on Breakthrough Sectors,” Vol. 11 No. 15, 3 May 2007. 239 In the past, it had proven easier for WTO Members to take a defensive approach when facing requests, by asking sponsors technical questions about what they were seeking. See Bridges Weekly, “Services: Demandeurs, Requested Members both Content with Initial Plurilaterals,” Vol. 10 No. 13, 12 April 2006, available at http://ictsd.net/i/news/bridgesweekly/7391/. 240 Bridges Weekly, “Services Cluster Finishes with new Focus on Breakthrough Sectors,” Vol. 11 No. 15, 3 May 2007. 241 For an easily readable and concise run through the development of the law of nations throughout history, see John W. Head, “Supranational Law: How the Move toward Multilateral Solutions is Changing the Character of ‘International’ Law” 42 Kansas L. Rev. 605, 607-620 (1994); Jianming Shen, “The Relativity and Historical Perspective of the Golden Age of International Law,” 6 Int’l Leg. Theory 15 (2000) (focusing on the contributions of the major scholars of the three main eras of international legal development: the beginnings, lasting until the Peace of Westphalia; the enlightenment/growth phase, continuing until the end of the Napoleonic Wars; and the golden age of the post-1815—19th century). Martti Koskenniemi describes the more recent history of international legal thought in the published version of his contribution to the Hersch Lauterpacht Memorial Lectures. See Martti Koskenniemi, The Gentle Civilizer of Nations: The Rise and Fall of International Law 1870-1960, Cambridge: Cambridge University Press, 2002. Koskenniemi contradicts conventional belief in his assertion that the rise of truly modern conceptions of international law did not arise until the latter half of the 19th century (rather than after 1648). Id, at 4; see generally id, at 11-178. 242 For an overview on the developments in international law, see Miller, R. & Bratspies, R. (eds.) Progress in International Law, Leiden; Boston: Martinus Nijhoff, 2008. 243 For an account of the new balance of power in the world, see Brooks, S. & Wohlforth, W. World Out of Balance: International Relations and the Challenge of American Primacy, Princeton: Princeton University Press, 2008.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 183

FRAGMENTATION OF INTERNATIONAL TRADE LAW

183

jurisdiction.244 Thus, each Sovereign had the right to determine the religious policies of the lands under his authority without interference from other rulers. The sovereignty acknowledged by the Treaty of Westphalia did not prevent contacts (whether diplomatic or commercial) across borders, but it made mutual consent for such contacts a legal prerequisite. These legal prerequisites took the form of bilateral (or plurilateral) treaties between governments. Traditional views of international law maintain the essentially bilateralist view set forth in the late 18th century by de Vattel’s Le Droit des Gens ou Principes de la Loi Naturelle: States, as sovereigns, are bound and limited in their actions only by those rules to which they themselves have agreed to be bound and limited (explicitly in the case of treaties,245 explicitly or implicitly with regard to customary law246). The consentassumption of bilateralism is in turn based on the concept of legal equality of States— factual inequalities play no role.247 Obligations owed by and to States are therefore uni-dimensional and, importantly, discrete as well as specific to treaty partners. Therefore, unilateral actions in a bilateralist world would always be a legitimate response to a violation of the acting State’s rights.248 244 Although even here there was an exception to permit free transportation along the Rhine, while allowing the relevant sovereign the administrative right to carry out inspections of merchandise on passing ships. Treaty of Westphalia, Article LXXXIX, reads as follows: All Ortnaw, with the Imperial Citys of Ossenburg, Gengenbach, Cellaham and Harmospach, forasmuch as the said Lordships depend—on that of Ortnaw, so that no King of France can or ought ever to; pretend to or usurp any Right or Power over the said Countrys situated on this and the other side the Rhine: nevertheless, in such a manner, that by this present Restitution, the Princes of Austria shall acquire no new Right; that for the future, the Commerce and Transportation shall be free to the Inhabitants on both sides of the Rhine, and the adjacent Provinces. Above all, the Navigation of the Rhine be free, and none of the partys shall be permitted to hinder Boats going up or coming down, detain, stop, or molest them under any pretence whatsoever, except the Inspection and Search which is usually done to Merchandizes: And it shall not be permitted to impose upon the Rhine new and unwonted Tolls, Customs, Taxes, Imposts, and other like Exactions; but the one and the other Party shall contented with the Tributes, Dutys and Tolls that were paid before these Wars, under the Government of the Princes of Austria. 245 See Emer de Vattel, Le Droit des Gens ou Principes de la Loi Naturelle Appliqués à la Conduite et aux Affaires des Nations et des Souverains, Préliminaires, para. 24 (1758) (translation into German by Wilhelm Euler and Paul Guggenheim, Tübingen: J.C.B. Mohr (Paul Siebeck), 1959). 246 Ibid, at para. 25. 247 See de Vattel, E. Préliminaires, para. 18 (‘...Un nain est aussi bien un homme qu’un géant: une petite République n’est pas moins un Etat souverain que le plus puissant royaume’). As Anghie carefully reminds us, however, the Westphalian idea of sovereignty was limited to European States, with the factually unequal colonies of the European states having severe repercussions on the further development of international law: European states were sovereign and equal. The colonial confrontation, however,... was not a confrontation between two sovereign states, but rather between a sovereign European state and a non-European society that was deemed by jurists to be lacking in sovereignty—or else, at best only partially sovereign. ... [W]hat passes now as the defining dilemma of the discipline, the problem of order among states, is a problem to which, from the time of its origins, has been peculiar to the specificities of European history. And, further,... the extension and universalization of this European experience, which is achieved by transmuting it into the major theoretical problem of the discipline, has the effect of suppressing and subordinating other histories of international law and the peoples to whom it has applied. Antony Anghie, Imperialism, Sovereignty and the Making of International Law, Cambridge: Cambridge University Press, 2005, p. 5. 248 This view continues to be promoted. For example, in the report by the International Law Commission’s Special Rapporteur on Unilateral Acts of States, discussing comments by state representatives on the inclusion of the concept of “autonomy” in the definition of “unilateral act,” one sentence notes a bilateralist resistance to such an inclusion: “For some members, however, unilateral acts cannot be autonomous because they are always authorized by international law.” Víctor Rodríguez Cedeño, International Law Commission Fifty-fourth Session, Fifth Report on Unilateral Acts of States, A/CN.4/55, 13 at para. 53 (4 April 2002).

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

184

12/4/11

09:19

Page 184

THE JOURNAL OF WORLD INVESTMENT & TRADE

While the results of bilateralism include a relatively clear set of international legal rules and a necessary adherence to the (instinctively pleasing) principle of reciprocity, other results are less desirable. First, despite bilateralism’s emphasis on the notion of States’ legal equality, as Simma points out, “bilateralism unveils, and even endorses, the crucial dependence of the enforceability of a State’s international legal rights upon a favorable distribution of factual power.”249 Due to the “inherently unequal” nature of bilateralism, the enforceability of the “weaker” State’s legal rights cannot be considered assured.250 Moreover, bilateralism permits States to be internationally “morally uncommitted,”251 even if they are not so domestically. States in a bilateralist system are, according to Philip Allott, able to tolerate “oppression and starvation and disease and poverty, human cruelty and suffering, human misery and human indignity, of kinds, and on a scale, that they could not tolerate within their internal societies.”252 The full competence to address internal affairs also leaves the States the freedom to ignore problems external to their territory. In the case of the EU vis-à-vis the BRICs, what can the EU offer the BRICs to foster trust, a sense of cooperation and respectfulness, as well as a better multipolar253 framework of global economic governance?254 The EU can offer a large market, while the markets of the BRICs are of smaller economic relevance, except for the case of China where, according to predictions, China’s economy will overtake that of the US by 2050.255 And how will the EU manage the new phenomenon of moving from a global economic equilibrium, dominated principally by the EU and the US, to a new trend in which we have new voices and centers of gravity in the world economy? In this sense, there is certainly a need to reform the current Bretton Woods institutions. 7.2. THE TREND TOWARD REGIONAL INTEGRATION Regionalism is a method of integration. It is this form that perhaps best describes the supranationalism of the integration of European States into a Community and Union:256 sovereign States binding themselves both legally and politically into a single 249 Bruno Simma, “From Bilateralism to Community Interest in International Law,” 1994:VI Rec. des Cours 217-384, 233 (The Hague/Boston/London: Martinus Nijhoff Publishers, 1997). 250 Rorden Wilkinson, Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation, London: Routledge, 2000, at p. 32 (noting that imperialism is the extreme form of bilateralism). 251 Bruno Simma, “From Bilateralism to Community Interest in International Law,” 1994:VI Rec. des Cours 217-384, 233 (The Hague/Boston/London: Martinus Nijhoff Publishers, 1997). 252 Phillip Allott, Eunomia: A New World Order for a New Society, 2nd ed., 248 at §13.105(16) (Oxford: Oxford University Press, 2001). 253 The argument of multipolarity is elegantly described by Fareed Zakaria m his thesis about “the rise of the rest,” meaning that the rise of emerging economies to the top has dispersed power and complicated collective action. See Zakaria, F. The Post-American World, London: Allen Lane, 2008; see also Evenett, S. “EU Commercial Policy in a Multipolar Trading System,” The Centre for International Governance Innovation Working Paper Series, No. 23, April 2007. 254 For an analysis of multipolarity as well as the rise and fall of States, see Sobek, D. The Causes of War, Cambridge: Polity, 2009, pp. 131-71. 255 See YaleGlobal online, available at http://yaleglobal.yale.edu/display.article?id=7402. 256 Börzel, T. “Europeanization: How the European Union Interacts with its Member States,” in Bulmer, S. and Lesquene, C. (eds.), The Member States of the European Union, Oxford: Oxford University Press, pp. 45-76, 2005; Sedelmeier, U. “Europeanisation in New Member and Candidate States,” Living Reviews in European Governance 1(3), 2006, available at http://www.livingreviews.org/lreg-2006-3.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 185

FRAGMENTATION OF INTERNATIONAL TRADE LAW

185

entity in which national and supranational institutions share governance and answer to a court that protects not only the institutions of the system, but also the rights of the individual citizens.257 Such supranationalism as it exists in the EU is truly exceptional in today’s world.258 Even in these troubled times for the EU—when it is not easy to present the EU as a new paradigm of global governance—it is fair to argue that the European construction is the most ambitious experiment to date in supranational governance.259 It is the story of a desired, defined, and organized interdependence among the EU’s Member States.260 Among the many regional integration attempts, the EU remains “the laboratory of international governance—the place where the new technological frontier of international governance is being tested.”261 In fact, some regions of the world still today have difficulties in operating as a bloc for the benefit of the whole. This is the case with South Asia.262 The EU has a long history of promoting regional integration in other parts of the world, especially among developing countries.263 This is based on its own nature as the oldest and most advanced regional scheme, coupled with the perception among leading European policy-makers that the EU does indeed constitute a model for others.264 The EU has therefore long viewed itself as a “‘natural’ supporter of regional initiatives,”265 a view that sparked the increasing externalization of its model over time. This policy has become one of the cornerstones of the EU’s development policy, and the incentive of offering market access to the EU’s large internal market in support of such a strategy has gained in salience in recent years. By promoting regional integration, therefore, the EU actively influences emergent forms of regional governance in other parts of the world.266 257 On supranationalism in the EU, see Leal-Arcas, R. “Theories of Supranationalism m the EU,” Journal of Law in Society, Vol. 8.1, 2007, pp. 88-113. 258 Some would argue that the European Union is the only truly supernational organization currently in existence. See, e.g., Marci Hoffman, “International & Foreign Legal Research: Basic Concepts,” Spring 2008 (http://www.law.berkeley.edu/library/classes/iflr/basicsguide.html) setting out three elements of a supranational organization: it “(a) has powers that its member states do not have because they surrendered those powers to it; (b) may enact rules that preempt the laws and regulations of its member states; and (c) can grant rights and privileges to the nationals of its member states, which those nationals may directly invoke”. 259 See speech by Pascal Lamy at Bocconi University on 9 November 2009, available at http://www.wto.org/ english/news_e/sppl_e/sppl142_e.htm. 260 Ibid. 261 Ibid. 262 Dossani, R., Sneider, D., & Sood, V. (eds.) Does South Asia Exist? Prospects for Regional Integration, The Walter Shorenstein Asia-Pacific Research Center, Stanford University, and The Observer Research Foundation, New Delhi, December 2009. 263 Grugel, J. “Democratization and Ideational Diffusion: Europe, Mercosur and the Concept of Social Citizenship,” Journal of Common Market Studies, 45(1): 43-68, 2007; Söderbaum, F. and Van Langenhove, L. (eds.) The EU as a Global Player: The Politics of lnterregionalism, London: Routledge, 2007. 264 David Miliband, “Europe 2030: Model Power Not Superpower,” Speech Given at the College of Europe, Bruges, 15 November 2007; Romano Prodi, “Europe and Global Governance,” Speech to the 2nd COMECE Congress, Brussels, 31 March 2000: No. 00/115. 265 European Commission, “Support for Regional Economic Integration Efforts among Developing Countries,” COM(95), 219 final (Brussels, 16 June 1995, p. 6). 266 Chaban, N., Elgström, O. & Holland, M. “The European Union as Others See It,” European Foreign Affairs Review 11(2): 245-262, 2006. See also Ahnlid, A. “Setting the global trade agenda: the European Union and the launch of the Doha Round,” in Elgström, O. and Jönsson, C. (eds.) European Union Negotiations: Processes, networks and institutions, London and New York: Routledge, 130-147, 2005; Kerremans, B. and Gistelinck, M.M. “Trade Agreements, Labour Standards and Political Parties: Differences between the U.S. and the EU in their Approach towards the Inclusion of Labour Standards in International Trade Agreements,” UNU-CRIS Working Papers, (footnote continued on next page)

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

186

12/4/11

09:19

Page 186

THE JOURNAL OF WORLD INVESTMENT & TRADE

The EU’s main motivation for the promotion of regional integration is predicated on trade and economic gains. According to this view, the EU needs to have important economic interests at stake in order to get involved in the integrative efforts of other countries. These interests are two-fold: first, the EU promotes the integration of national markets into regional economies to benefit from economies of scale267 when accessing them with their own goods. Second, through the negotiation of bi-regional trade agreements, the EU has a powerful tool to shape the framework of economic governance in counterpart regions.268 The EU has a lot to gain from the integration of small, fragmented markets into larger economic units in which EU products can circulate more easily. Market size has become an important criterion for investment and trade decisions by private companies and serves as a strong incentive for European traders and investors. According to Pascal Lamy, Director-General of the WTO, “the whole will grow faster than the sum of its parts, offering outlets for our exports and opportunities for our investors.”269 This rationale is best reflected in the EU’s new approach to integration in Africa through the negotiation of economic partnership agreements (EPAs).270 The EPAs “should deal with all factors that constrain business activities in ACP countries”271 through “the creation of open, integrated regions sufficiently large to trigger economies of scale, support trade and attract foreign investment.”272 Such a strategy has been evaluated by one commentator as indicating that it “is based upon securing market access for European producers while selling the concept of the European ‘model’ of regional integration.”273 As the creation of regional markets goes hand in hand with the development of a regional economic governance framework, the EU has an interest in being able to access the enlarged market on terms that are favorable to its own industry. Regional economic integration is an ongoing process that is never complete.274 The EU has a comparative 2008/1, Brugge: United Nations University-Comparative Regional Integration Studies, 2008; Kissack, R. “EU Actorness in the International Labour Organisation: Comparing declaratory and voting cohesion,” Global Society 22 (4):469-489, 2008; Ladefoged Mortensen, J. “The World Trade Organization and the European Union,” in Jorgensen, K.E. (ed.) The European Union and International Organizations, London: Routledge, pp. 80-100, 2009 (focusing on the EU’s role in specific regimes and negotiations). 267 The term “economies of scale” characterizes the decrease in unit cost as a result of increasing production so that fixed costs may be spread out over a greater number of units produced. See Hinkelman, E.G. Dictionary of International Trade, 4th ed., San Rafael, Calif.: World Trade Press, 2000, p. 71. 268 Meunier, S. and Nicolaidis, K. “The European Union as a Conflicted Trade Power” Journal of European Public Policy, September 2006, Vol. 13, No. 6, pp. 906-925. 269 Lamy, P. “Regionalism and Multilateralism in Latin America” speech delivered at the Federação das Indústrias do Estado de São Paulo, 10 July 2001. 270 Economic partnership agreements are bilateral or plurilateral agreements. The content of such agreements varies greatly. Some merely promote voluntary economic cooperation between the partners. Others are proper free-trade agreements. See Walter Goode, Dictionary of Trade Policy Terms, 5th ed., Cambridge: Cambridge University Press, 2007, p. 145. 271 European Commission, “EPA Negotiations: Toolbox” (Brussels, 27 January 2003). 272 European Commission, “Africa, Caribbean, Pacific. EPA Negotiations: Toolbox,” available at http://ec.europa.eu/trade/issues/bilateral/regions/acp/toolbox_en.htm#top. 273 Farrell, M. “The EU and Inter-Regional Cooperation: In Search of Global Presence?,” in A. Verdun and E. Jones, The Political Economy of European Integration, London: Routledge, January 2005, p. 19. 274 For an analysis of the economics of regional integration, see Jovanovic, M. The Economics of International Integration, Cheltenham, UK and Northampton, MA: Edward Elgar, 2006.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 187

FRAGMENTATION OF INTERNATIONAL TRADE LAW

187

advantage over other such schemes as its integration process is the most advanced and it can therefore draw on its long experience in formulating common rules to impact the economic integration process of others.275 7.3. EXPLORING RTAS AS LEGAL INSTRUMENTS TO ENHANCE INTERNATIONAL TRADE A growing number of bilateral and regional free-trade agreements (FTAs) are concluded for the purpose of enhancing trade and investment among the parties to the agreement.276 This, however, is bringing about an associated issue known as the “spaghetti bowl” effect.277 What should be done to reinvigorate the Doha Round of multilateral trade negotiations?278 What should be done to get rid of the “spaghetti bowl”? How can we coordinate multilateral and regional governance of trade?279 The European Union’s trade policy uses a pyramidal structure with regard to the various degrees of trade preferences that it offers to different countries and regions. The BRICs have by and large been at the bottom of the preference pyramid thus far. An unofficial ranking of the preference pyramid would look as follows, starting from the top: new EU Member States and accession candidates, countries with which the EC has a free-trade agreement, countries of the Mediterranean region, the African, Caribbean and Pacific countries,280 and the BRICs in relation to the Generalized System of Preferences.281 So there appears to be potential to offer more market access to the BRICs and embed this in a policy-centered foreign policy approach. If we look at bilateral FTAs as instruments for liberalizing trade,282 the “carrot” 275 Anne-Sophie Claeys and Alice Sindzingre, “Regional Integration as a Transfer of Rules: The Case of the Relationship between the European Union and the West African Economic and Monetary Union (WAEMU),” paper given at Development Studies Association Annual Conference, Glasgow, University of Strathclyde, 10-12 September 2003. Available at http://www.edpsg.org/Documents/dp26.doc. 276 See generally Lester, S. & Mercurio, B. (eds.) Bilateral and Regional Trade Agreements: Case Studies, Cambridge: Cambridge University Press, 2009; Lester, S. & Mercurio, B. (eds.) Bilateral and Regional Trade Agreements: Commentary and Analysis, Cambridge: Cambridge University Press, 2009. 277 The spaghetti bowl effect is “a term used by Jagdish Bhagwati to describe the complexity of trade rules resulting from a proliferation of free-trade areas. A typical example of this is the existence of different rules of origin for each free-trade area. Countries that are members of more than one arrangement of this kind will have to administer different rules for each of them.” See Walter Goode, Dictionary of Trade Policy Terms, 5th ed., Cambridge: Cambridge University Press, 2007, p. 394. 278 For a thorough legal and policy analysis of the Doha Round, see Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, chapters 8 & 9. 279 Leal-Arcas, R. “Proliferation of Regional Trade Agreements: Complementing or Supplanting Multilateralism?” Chicago Journal of International Law, Vol. 11, No. 2, 2011. 280 The African, Caribbean and Pacific countries (ACP) Group was formed when the first Lomé Convention was signed with the European Economic Community in 1975. In 2002, it encompassed 78 states (48 African states, 16 Caribbean states, 14 Pacific states), which all have preferential trading relations with the European Union. 281 The Generalized System of Preferences, or GSP, is a formal system of exemption from the more general rules of the WTO. Specifically, it is a system of exemption from the most-favored-nation (MFN) principle that obligates WTO countries to treat the imports of all other WTO countries no worse than they treat the imports of their most favored trading partner. In essence, MFN requires WTO countries to treat imports coming from all other WTO countries equally, that is, by imposing equal tariffs on them, inter alia. For examples of guides and regulations, see Office of the United States Trade Representative, US Generalized System of Preferences Guidebook (March 2008), http://www.ustr.gov/assets/Trade_Development/Preference_Programs/GSP/asset_upload_file666_8359.pdf; EC External Trade, GSP Fact Sheet; http://trade.ec.europa.eu/doclib/docs/2008/july/tradoc_139988.pdf. 282 Estevadeordal, A. & Suominen, K. (eds.) Regional Rules in the Global Trading System, Cambridge: Cambridge University Press, 2009.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

188

12/4/11

09:19

Page 188

THE JOURNAL OF WORLD INVESTMENT & TRADE

function is important since FTAs offer preferential market-access, whereas in the “stick” function it does not seem realistic to withdraw preferences, as the free-trade agreement in question would need to be breached. This situation seems hardly imaginable and thus not a credible threat. From the emerging-markets perspective, another reason for the attractiveness of signing a free-trade agreement with the EU is their competitive advantage. A free-trade agreement can level the playing field, for example for Brazil in relation to Mexico and Chile, both of which already have FTAs with the EU. Moreover, there is an insurance against trade defense instruments as these are generally less used against trade partners. Furthermore, the EU could offer additional incentives (and therefore show generosity to build more political trust) by granting larger concessions or demanding fewer concessions than would be the case in a purely reciprocal give-and-take situation. However, even if the EU concessions were possible, what would the EU want to obtain in return? Market access seems to be the evident answer. This is what trade negotiations are about. The European Commission’s Directorate-General for trade would come under pressure if EU concessions were not used to enhance market access for European exporters in growing and important emerging markets like the BRICs. However, there are also disadvantages to FTAs, even if FTAs are WTO-compatible according to GATT Article XXIV.283 Further proliferation of FTAs284 results in transaction costs that are detrimental to multilateral trade liberalization at the WTO level, thereby provoking a fragmentation of multilateralism.285 In this sense, I would argue that the EU has responsibilities for the multilateral trading system and therefore should be defensive in bilateralism; in other words, the EU should only react when other countries move first with FTAs to EU export markets. That was the case with the US and Japan after the suspension of the Doha Round in July 2006,286 when the European Commission, on behalf of the EC and its Member States, started negotiating FTAs with India, ASEAN, and South Korea.287 The aim was to not lose the opportunities offered by the new emerging markets in Asia.288 Negotiations with South Korea were completed in October 2009, which is a big win for the EU, particularly at a time when the Doha Round continues to progress very slowly.289 This is the first FTA to include significant commitments to 283

GATT Article XXIV basically acknowledges that regionalism within multilateralism is WTO-compatible. On the proliferation of FTAs, see Bhagwati, J., Krishna, P., & Panagariya, A. (eds.) Trading Blocs: Alternative Approaches to Analyzing Preferential Trade Agreements, Cambridge, MA: MIT Press, 1999. See also Hallaert, J.-J., “Proliferation of Preferential Trade Agreements: Quantifying its Welfare Impact and Preference Erosion,” Journal of World Trade, Vol. 42, No. 5, October 2008. 285 On fragmentation of international law, see Broude, T. & Shany, Y. (eds.) The Shifting Allocation of Authority in International Law, Oxford: Hart, 2008. 286 On the rise of bilateralism among major trading partners, see Heydon, K. & Woolcock, S. The Rise of Bilateralism: Comparing American, European, and Asian Approaches to Preferential Trade Agreements, Tokyo; New York: United Nations University Press, 2009. 287 For an analysis of FTA negotiations between the EC and these three actors, see Sally, R. “Looking East: The European Union’s New FTA Negotiations in Asian,” Jan Tumlir Policy Essays, No. 3, October 2007. 288 For an analysis of regional economic integration in Asia, see Jiang Yu Wang, “China, India, and Regional Economic Integration in Asia,” Singapore Yearbook of International Law, Vol. 10, pp. 269-305, 2006. 289 See generally http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/korea/. 284

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 189

FRAGMENTATION OF INTERNATIONAL TRADE LAW

189

services liberalization, concessions which go well beyond offers at the WTO.290 In the case of ASEAN, however, free-trade talks between the ten-member bloc and the EU have been temporarily halted after two years of talks.291 7.3.1.ARE FTAS A CREDIBLE ALTERNATIVE TO MULTILATERALISM? In the context of the 2008 global economic crisis and an unfinished WTO Doha Round, multilateralism is at its weakest point. Since July 2006 (the date of the Doha Round of multilateral trade talks suspension), we have seen the obvious weaknesses and deficiencies of the multilateral trading system and, as a reaction, the proliferation of regionalism292 (although this has been happening for quite some time now293) and bilateralism.294 What does this mean for the future of global economic governance?295 Moreover, with hundreds of regional trade agreements now in force, it seems no longer meaningful to query whether they are stumbling blocks or building blocks. Instead, a more useful approach to this reality is to examine how trade agreements can be coordinated and integrated to form a coherent and efficient system of international law. Is it possible to multilateralize regionalism? If so, will this entail major changes to the structure of international trade law? After the suspension of the WTO Doha negotiations in July 2006, the European Commission looked ready to refocus its commercial strategy on bilateral free-trade agreements so as to catch up with the US and Japan.296 Bilateralism/regionalism is the natural consequence of failed multilateralism.297 This certainly has dangerous 290 International Financial Services London, “The EU-Korea Free Trade Agreement: A trade success,” 20 October 2009, available at http://www.ifsl.org.uk/output/TradePolicyItem.aspx?NewsID=325. 291 International Centre for Trade and Sustainable Development, “EU-Asia Update,” Bridges Monthly, Vol. 13, No. 2, June 2009, available at http://ictsd.net/i/news/bridges/48548/. 292 See the views by Fred Bergsten, “Plan B for World Trade: Go Regional,” Financial Times, Op-ed, 16 August 2006, available at http://petersoninstitute.org/publications/opeds/oped.cfm?ResearchID=655. 293 See El-Agraa, A. “Regional Trade Arrangements Worldwide,” in El-Agraa, A. (ed.) Economic Integration Worldwide, London: Macmillan Press, 1997; Curzon Price, V. “The European Free Trade Association,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; Weintraub, S. “The North American Free Trade Agreement,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; Bulmer-Thomas, V. “Regional Integration in Latin America Before the Debt Crisis: LAFTA, CACM and the Andean Pact,” in ElAgraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; Bulmer-Thomas, V. “Regional Integration in Latin America since 1985: Open Regionalism and Globalisation,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; El-Agraa, A. “The Caribbean Community and Common Market,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; Pomfret, R. “The Association of South-East Asian Nations,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; El-Agraa, A. “Integration Amongst Members of the Arab League,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997; Robson, P. “Integration in Sub-Saharan Africa,” in El-Agraa, A. (ed.) Economic Integration Worldwide, Macmillan Press, 1997. See also generally, Geiger, T. & Kennedy, D. (eds.) Regional Trade Blocs, Multilateralism, and the GATT: Complementary Paths to Free Trade?, London; New York: Pinter, 1996; Fawcett, L. & Hurrell, A. (eds.) Regionalism in World Politics. Regional Organization and International Order, Oxford: Oxford University Press, 1995. 294 For an analysis of bilateral and regional trade agreements in the context of the multilateral trading system, see Herrmann, C. “Bilateral and Regional Trade Agreements as a Challenge to the Multilateral Trading System,” EUI Working Papers, Law 2008/09. 295 For an analysis of governance (beyond the state), inter-state governance, and the increased role of civil society within global (economic) governance, see Hurrell, A. On Global Order: Power, Values, and the Constitution of International Society, Oxford: Oxford University Press, 2007, chapter 4. 296 European Commission ‘Research shows big potential gains from new EU FTAs’ Memo (23 April 2007). 297 On the dilemma of bilateralism versus multilateralism, see G. Glania and J. Matthes Multilateralism or Regionalism? Trade Policy Options for the European Union (Centre for European Policy Studies, 2005). However, see (footnote continued on next page)

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

190

12/4/11

09:19

Page 190

THE JOURNAL OF WORLD INVESTMENT & TRADE

repercussions for weak economies.298 Officially, concluding the Doha Round remains the EU’s number-one priority, but, since negotiations were suspended in July 2006299— when last resort talks failed to bring an agreement on reducing farm subsidies and lowering tariffs, therefore leading the WTO chief Pascal Lamy formally to suspend the Doha Round—the EU has been looking for other ways to open up foreign markets300 and keep up with its main trade rival, the US, which is currently leading the race to conclude FTAs with high-market-potential countries.301 The European Commission’s decision302 to launch new bilateral trade negotiations303 with countries such as India, South Korea, and the ten ASEAN304 States305 “could further complicate its trade regime, and divert interest from the multilateral trading system,”306 according to a bi-annual report carried out by the WTO on the EU’s trade policies and practices. On the specific case of ASEAN, European and Southeast Asian leaders agreed to step up efforts towards concluding a deal establishing what would be one of the largest free-trade zones in the world, at a bilateral summit in Singapore in November 2007. However, talks were overshadowed by disagreements about how to deal with the military dictatorship in Myanmar following its bloody views by Dahrendorf in the context of intellectual property protection, arguing that the strategy of forum-shifting suggests that bilateralism/regionalism and multilateralism alternate and will continue to do so. Despite alternation of fora, it is acknowledged that WTO law efficiency will suffer from the proliferation of preferential trade agreements (PTAs). Dahrendorf, A. “Global Proliferation of Bilateral and Regional Trade Agreements: A Threat for the World Trade Organization and/or for Developing Countries?” Maastricht Faculty of Law Working Papers, 2009-6. See also Leal-Arcas, R. “The Resumption of the Doha Round and the Future of Services Trade” Loyola of Los Angeles International and Comparative Law Review, Volume 29, Issue 3, 2007, pp. 339-461, at 409-415. It is therefore necessary to investigate further what the possibilities are to mitigate the negative effects of PTAs for the multilateral system. For example, the use of the WTO dispute settlement mechanism as a venue for resolving regional trade agreements (RTAs) disputes and the development of a body of common law on RTAs. See Gao, H. & Lim, C.L. “Saving the WTO From the Risk of Irrelevance: The WTO Dispute Settlement Mechanism as a ‘Common Good’ for RTA Disputes,” Journal of International Economic Law 11 (2008). 298 Trakman, however, claims that bilateralism can actually help developing countries in the world trading system. See L. Trakman, “The Proliferation of Free Trade Agreements: Bane or Beauty?” University of New South Wales Faculty of Law Research Series, Paper 54 (2007). 299 After five years of troubled negotiations, the Doha Development Round, aimed at freeing global trade and at extending the benefits of globalization to developing countries, was suspended following the failure of negotiators to reach a compromise about reducing farming subsidies and lowering import tariffs. The resumption of the Doha talks took place in February 2007. See Leal-Arcas, R. Theory and Practice of EC External Trade Law and Policy, London: Cameron May, 2008, p. 564. 300 This has been the case with emerging markets. See European Commission, “Global Europe: Competing in the World,” COM(2006) 567 final, 4 October 2006, p. 5. 301 Nevertheless, it is worth mentioning that this proliferation of bilateral trade agreements outside the WTO process is perceived as betraying the multilateral ideals that underlay the WTO and its forerunner, the GATT. 302 European Commission, “European Commission welcomes adoption of negotiating mandates for new Free Trade Agreements with India, Korea and ASEAN,” IP/07/540 (23 April 2007) available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/540andformat=HTMLandaged=0andlanguage =ENandguiLanguage=en. 303 Council of the European Union, “Conclusions on the Recommendations to open Negotiations with Countries of ASEAN, India and South Korea,” 2795 General Affairs Council meeting (23 April 2007). 304 Joint Ministerial Statement of the ASEAN Economic Ministers and the European Union Trade Commissioner on the Launch of Negotiations for the ASEAN-EU Free Trade Agreement (FTA) (4 May 2007); See also EurActiv, “EU launches free-trade talks with ASEAN” (4 May 2007) available at http://www.euractivcom/en/trade/eu-launches-free-trade-talks-asean/article-163559. 305 EurActiv, “EU to start free trade talks with India, South Korea and Asean” (24 April 2007) available at http://www.euractivcom/en/trade/eu-start-free-trade-talks-india-south-korea-asean/article-163321. 306 World Trade Organization, “Trade Policy Review of the European Communities” WT/TPR/S/177 (22 January 2007) xii.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 191

FRAGMENTATION OF INTERNATIONAL TRADE LAW

191

crackdown on pro-democracy protesters in September 2007.307 The Commission also hopes to negotiate more far-reaching agreements than would be possible under the WTO talks, by tackling issues such as investment, competition policy, and public procurement—known as the Singapore issues308—which were dropped from the Doha agenda in 2003.309 This return to a system of bilateral agreements and FTAs will mean that the large WTO Members would be able to strong-arm the small Members and the multiplication of trade rules and tariffs would generate higher transaction costs and damage the trading and investment environment. However, in a speech to the European Parliament’s International Trade Committee on 17 October 2006, Lamy warned that bilateral deals could contribute to weakening the multilateral trading system.310 Moreover, he argued that the growing number of bilateral and regional trade talks311 risked distracting from attempts to clinch a long-elusive global deal.312 He noted that when it came to bilateral talks, some countries appeared to be promising concessions beyond what would be needed to unblock the multilateral negotiations. Before the US Chamber of Commerce, he said: While bilateral agreements can be a useful complement, I do not believe they can substitute a strong multilateral trading system. Bilateral agreements are by their very nature discriminatory. They have obvious limitations in terms of issues covered since they do not tackle the toughest areas where trade restrictive and distorting measures, such as subsidies, still prevail. They may lead to trade diversion as opposed to trade creation. And they complicate the trading environment of economic operators who have to abide by a spaghetti bowl of different rules. In short, bilateral agreements are not the easy way out.313

Patrick Messerlin argues along the same lines by saying that multilateral liberalization of trade should be the center of European trade strategy, and claims that 307 EurActiv, “EU, ASEAN to push for trade deal despite Myanmar” (23 November 2007) available at http://www.euractivcom/en/trade/eu-asean-push-trade-deal-despite-myanmar-discord/article-168629. 308 The so-called Singapore issues refer to four working groups set up during the WTO Ministerial Conference of 1996 in Singapore, namely investment protection, competition policy, transparency in government procurement, and trade facilitation. Disagreements between largely developed and developing economies prevented a resolution on these issues, despite repeated attempts to revisit them, notably during the 2003 Ministerial Conference in Cancún, whereby no progress was made. Since then, some progress has been achieved in the area of trade facilitation. In July 2004, WTO Members formally agreed to launch negotiations. Under the mandate of the so-called “July package”, Members are directed to clarify and improve GATT Article V (Freedom of Transit), Article VIII (Fees and Formalities connected with Importation and Exportation) and Article X (Publication and Administration of Trade Regulations). The negotiations also aim to enhance technical assistance and capacity building in this area and to improve effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. 309 P.J. Lloyd and D. MacLaren, “The EU’s New Trade Strategy and Regionalisation in the World Economy” (2006) 61(4) Aussenwirtschaft 423-36. 310 See speech given by Pascal Lamy to the European Parliament’s International Trade Committee, where he warned that the Doha failure will seriously weaken the trading system. Available at http://www.wto.org/english/ news_e/sppl_e/sppl44_e.htm. 311 For an analysis of the main trends and characteristics of regional trade agreements, in force and under negotiation, see R. Fiorentino, L. Verdeja and C. Toqueboeuf, “The Changing Landscape of Regional Trade Agreements: 2006 Update” WTO Discussion Paper No. 12 (2007). 312 The same argument is made by a WTO report, which claims that the EC’s decision to seek bilateral freetrade agreements, as well as its rising agricultural tariffs, could be detrimental to the Doha negotiations on a globaltrade pact. See World Trade Organization, “Trade Policy Review. Report by the European Communities” WT/TPR/G/177 (22 January 2007). 313 P. Lamy, “US leadership will be key to the fate of the Round” (23 April 2007) available at http://www.wto.org/english/news_e/sppl_e/sppl61_e.htm.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

192

12/4/11

09:19

Page 192

THE JOURNAL OF WORLD INVESTMENT & TRADE

the recent shift in EU trade policy to negotiate bilateral agreements is taking the EU into dangerous waters on the grounds that the bilateral trade agreements considered by the EU are generally characterized by high tariff and non-tariff barriers in goods, as well as by restrictive regulations in services and investment.314 Woolcock, however, argues that the EU’s increased use of FTAs is compatible with its commitment to multilateralism, but only if the bloc redefines its concept of “all trade” as being 95 per cent of trade and avoids excluding large bands of sensitive products in specific sectors such as agriculture.315 While the EU will find that it might be able to address some of its specific concerns through bilateral agreements, I believe that it will not be able to answer all of them. In addition, the countries that the EU will negotiate with in these bilateral negotiations will want to see some concerns, like subsidies in agriculture, addressed somehow and that will only be through the multilateral, that is, the WTO, process.316 In the face of globalization, the EU must remain open. It must also ensure that markets abroad are open to its own exports.317 European businesses often find it difficult to access foreign markets due to high tariff and non-tariff barriers,318 as well as discriminatory measures applied against foreign companies. Removing such barriers is particularly important in the services sector, which represents around 70 per cent of Europe’s jobs and of the EU’s GDP, but which faces higher trade barriers than goods, mostly due to restrictive national regulations, such as technical standards, licensing requirements or national discrimination. This proposal of bilateral trade agreements as a result of the suspension of the Doha talks is diametrically opposite to the EU’s previous trade strategy, in which the focus was strongly on multilateral negotiations within the WTO, and free-trade deals were primarily driven by the logic of development or geopolitics rather than economic interests.319 That said, US businesses in Europe urged EU and US leaders to stop neglecting the transatlantic relationship in favor of boosting relations with China and India. They argued that the two transatlantic economies have become so highly 314 EurActiv, “Assessing EU trade policy in goods” (5 June 2007) available at http://www.euractivcom/en/ trade/assessing-eu-trade-policy-goods/article-164278. 315 S. Woolcock, “European Union policy towards Free Trade Agreements” ECIPE Working Paper No. 03/2007, p. 11. 316 For an analysis of how to multilateralize regionalism, see Baldwin, R. & Low, P. (eds.) Multilateralizing Regionalism: Challenges for the Global Trading System, Cambridge: Cambridge University Press, 2009. 317 The IMF had expected a sharp decline for virtually all major economies in the world during 2009. This made it difficult for countries to export their way out of recession. As a result, many countries were tempted to boost domestic demand through import protection, especially developing countries with WTO-bound tariffs that are far higher than tariffs actually applied (about 20-25 per cent versus 10-12 per cent for manufactures in Latin America, for example). An increase in global protection would merely aggravate the world recession, however, as occurred in the 1930s. Instead, to achieve global recovery, it will be important that the major economies each pursue expansionary monetary and/or fiscal policies, tailored to their individual situations. For further details, see Cline, W.R. “Trade, Finance, and the Global Recession,” remarks presented to the V Symposium on International Trade, Brazil Institute, Woodrow Wilson International Center for Scholars, Washington, DC, 20 February 2009, available at http://www.petersoninstitute.org/publications/papers/ cline0209.pdf. 318 International Financial Services London acknowledges its concerns about various barriers to doing business in India. See International Financial Services London, “EU-India talks, IFSL to consult on City views,” http://www.ifsl.org.uk/tradepolicy/. 319 On free trade arguments, see Bhagwati, J. & Hudec, R. (eds.) Fair Trade and Harmonization: Prerequisites for Free Trade?, Vol. 2: legal analysis, Cambridge, MA: MIT Press, 1996.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 193

FRAGMENTATION OF INTERNATIONAL TRADE LAW

193

interdependent that their future growth and job creation relies not on improving their relations with China and India, nor in completing a successful Doha Round, but in removing existing barriers to trade and investment in order to create a veritable transatlantic single market.320 Another argument of why bilateralism is taking over multilateralism is that, as experience shows, regional trade agreements have been instrumental in providing reciprocal trade liberalization, and have significant effects for the multilateral trading system as the share of global trade conducted regionally reaches unprecedented levels.321 From this perspective, one could argue that, if the aim is progressive liberalization of international trade, bilateralism and regionalism are certainly contributing to this goal. As WTO membership has grown, interests have diversified, and negotiations have become more cumbersome, countries have resorted to establishing regional trade agreements (RTAs).322 RTAs focus on the interests of countries in a particular region or group of regions, and not on global interests. By 2010, the WTO estimates that nearly 400 RTAs will have been in effect. RTAs allow for more efficient trade negotiations and permit countries greater freedom to choose their trading partners, trade deals, and conditions of trade. However, since RTAs operate outside the multilateral WTO system, many questions as to how the transition from a multilateral to a regional trading system will shape the way we think about social, political, and environmental issues arise.323 For example, how will trade relations between developed and developing nations change? Will RTAs become a tool for implementing the policy agenda of the powerful? What social, environmental, and political issues will arise under RTAs? Will RTAs hamper attempts to develop global standards on labor rights, women’s rights, environmental protection, and other social issues? Furthermore, while the multilateral institutions governing the global economy are facing serious challenges in the effective governance of a globalized world economy, 320 EurActiv, “US business call for ‘transatlantic single market’” (21 November 2006) available at http://www.euractivcom/en/trade/us-businesses-call-transatlantic-single-market/article-159894. 321 The Warwick Commission, “The Multilateral Trade Regime: Which Way Forward?” The Report of the First Warwick Commission, University of Warwick, 2007, p. 11. 322 See Preusse, H. “Regional Integration in the Nineties: Stimulation or Threat to the Multinational Trading System?” (1994) 28 Journal of World Trade 147; Zahrnt, V. “How Regionalisation can be a Pillar of a More Effective World Trade Organization” (2005) 39(4) Journal of World Trade 671; Marceau, G. and Reiman, C. “When and How is a Regional Trade Agreement Compatible with the WTO?” (2001) 28(3) Legal Issues of Economic Integration 297-336; T. Cottier, “The Challenge of Regionalisation and Preferential Relations in World Trade Law and Policy” (1996) 2 European Foreign Affairs Rev 149; Cottier, T. & Schefer, K. “The Relationship Between World Trade Organisation Law, National and Regional Law” (1998) 1 Journal of International Economic Law 83; J. Pauwelyn “The Puzzle of WTO Safeguards and RTAs” (2004) 7 Journal of International Economic Law 109; Sung-Hoon Park, “Regionalism, Open Regionalism and Article XXIV GATT: Conflicts and Harmony” in F. Snyder (ed.) Regional and Global Regulation of International Trade, Oxford: Hart Publishing, 2002; Trachtman, J. “Toward Open Recognition? Standardisation and Regional Integration under Article XXIV of GATT” (2003) 6 Journal of International Economic Law 459; Hsu, L. “Non-violation Complaints: WTO Issues and Recent Free Trade Agreements” (2005) 39 Journal of World Trade 205. 323 On trade and the environment, see Brown Weiss, E., Jackson, J. & Bernasconi-Osterwalder, N. (eds.) Reconciling Environment and Trade, 2nd ed., Leiden: Martinus Nijhoff, 2008; Shahin, M. “To What Extent Should Labor and Environmental Standards Be Linked to Trade?” The Law and Development Review, Vol. 2, No. 1, Article 2, 2009.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

194

12/4/11

09:19

Page 194

THE JOURNAL OF WORLD INVESTMENT & TRADE

regional agreements and institutions, such as the EU, ASEAN, or FTAs, are rising as forces in the governance of the global as well as regional economy. An example is the recent conclusion of an FTA between ASEAN and Australia and New Zealand, becoming one of Asia’s largest trade agreements.324 The challenges are, therefore, not the lack of institutions (whether multilateral or regional) governing the global economy, but the lack of coordination between these multilateral and regional mechanisms. 8.

CONCLUSION

This article concludes that the single undertaking—which seems too ambitious in today’s multilateral trading system—is no longer feasible because the WTO has more Members than ever (and WTO membership is an ongoing process, with more Members to come in the near future) and covers more topics than ever, which are more complex than ever. As an alternative, this article suggests variable geometry (that is, the idea that only a few WTO Members will benefit from plurilateral agreements on several topics on the agenda) and sectoral agreements (that is, all WTO members participate in negotiations and benefit from the agreed outcomes, but only one topic is discussed at a time, as was the case of the WTO Telecoms Agreement) as a way forward to unblock the multilateral trading system. The variable-geometry approach has the advantage of removing the current frustration at the WTO negotiating table—and sometimes violent protests organized by civil society—with its slow negotiating pace. However, one disadvantage is that developing countries at the WTO might feel marginalized. Regarding multilateralism, there is some, although limited, room for trade policy concessions at the multilateral level: with Brazil, in the case of agriculture and the Doha Round; and with India, resistance to Mode 4 of the GATS. As expressed earlier, the EU could offer additional incentives to the BRICs by granting larger concessions or demanding fewer concessions than would be the case in a purely reciprocal give-andtake situation. However, even if the EU concessions were possible, what would the EU want to obtain in return? Market access seems to be the evident answer. This is what trade negotiations are about. The European Commission’s Directorate-General for external trade would come under pressure if EU concessions were not used to enhance market access for European exporters in growing and important emerging markets. As for China, undoubtedly the world needs to adjust to China’s re-emergence, but China should also provide more globally. As analyzed earlier, China behaves like a small country with little systemic effect and responsibility to maintain international order. Therefore, China’s attitude to multilateral trade is unclear and China assumes little responsibility to maintain international order in global economic governance. In this sense, the EU expects China to assume a multilateral responsibility commensurate with the benefits it derives from the world trading system. Why? Because with greater power 324 For more detail, see Bridges Weekly Trade News Digest, “ASEAN Pushes for Deeper Integration, Signs FATA with Australia, New Zealand,” Vol. 13, No. 8, 4 March 2009.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 195

FRAGMENTATION OF INTERNATIONAL TRADE LAW

195

and a greater voice comes greater responsibility. Compared with India or Brazil, with whom China is on a par economically and in terms of new leading and emerging economic powers, China’s role in the world trading system has been rather passive both at the WTO’s dispute settlement system as well as in the Doha Round of multilateral trade negotiations. China therefore appears to lack an internationalist view to multilateral trade affairs. Finally, regarding bilateralism/regionalism, RTA partners make concessions that they would not extend to other WTO Members in multilateral trade negotiations, because coming to an agreement regionally is easier than multilaterally. A good example is the US-Singapore FTA, which includes clauses on competition, thereby going beyond the WTO agenda. However, the US found it very difficult to make concessions to India on agriculture in the multilateral context as evidenced by the July 2008 WTO miniministerial conference. RTAs nevertheless have limitations, such as the fact that RTA negotiations tend to be asymmetrical. This asymmetry often results in imbalanced deals, such as the case between Mexico and the US in the context of the North American Free Trade Agreement.

145-196_Leal-Arcas_Jwit12.2.qxp:145-196_Jwit12.2

12/4/11

09:19

Page 196