Chapter 11 Guidance on Answering the Questions in the Book

Question 1:
Can you think of some concrete examples where international economic law overlaps with other fields of public international law? What role do the Bretton Woods institutions play in the international economic system?

Guidance:
The question essentially contains two aspects. The first asks the students to identify areas where international economic law overlaps with other areas of public international law. As noted in Question 2 to Chapter 10, there is an overlap between international economic law and international environmental law due to the link between environmental concerns and economic development/activity. There is also clear overlap between parts of international economic law and regional economic cooperation, most notably that of the EU and NAFTA. The book notes, for example, how the international monetary system has been supplemented with the monetary system in the EU and the introduction of a single European currency, the Euro. There is also an overlap between international investment law and human rights law, most notably the protection of property. The second part of the question asks the students to consider the purposes and importance of the 1944 Bretton Woods institutions. The book notes that the institutions were created in order to lay the foundation for a liberal international economic order with free-flowing economic transactions and equal market access. The conference at Bretton Woods paved the way for the creation of three important international organizations for the regulation of trade and monetary policy: the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (the ‘World Bank’), and the General Agreement on Tariffs and Trade (GATT). The GATT and its successor, the World Trade Organization, seek to liberalize world trade through the reduction of tariffs and other barriers to trade. The IMF, on the other hand, has been created to ensure exchange stability and provides loans to states with economic difficulties. The World Bank supplements the IMF through the provision of loans to developing countries.

Question 2:
The international economic system is frequently the object of criticism. Can you give some examples?

Guidance:
The question concerns the criticism of the existing international legal system due to its origins in liberal capitalist theory. The book notes that the Bretton Woods system of international economic law is based on theories of market capitalism and in particular the theory of comparative advantage. The book also notes that the capitalistic origin has made the system the object of critique and that the source of the criticism has transformed over the course of time. While the primary criticism in the Cold War era came from the communist east and from developing states that called for a ‘New International Economic Order’, more contemporary criticism primarily comes from the Global Justice Movement.

Question 3:
What is the difference between the MFN principle and the principle of national treatment? Why is it necessary for the GATT to exempt the application of the MFN principle in the EU?

Guidance:
Like Question 1, there are essentially two parts to this question. The first asks the students to identify the difference between the Most Favored Nation (MFN) principle and the principle of national treatment. The book refers to the two principles in the discussion of the WTO and the principles that govern the different WTO agreements. The MFN principle and the national treatment principle are both derived from a more overarching non-discrimination principle in international trade law that aims to ensure that foreign goods and services compete on a level playing field. The book also notes that a MFN clause in an agreement allows a party to a trade agreement treaty and its nationals to benefit from an advantage that is granted to another (third) state and its nationals pursuant to another agreement concluded between one of the parties to the first treaty and the third state. Under an obligation of national treatment, on the other hand, the importing state obliges itself to treat imported goods or service no less favorably than it treats its own national products. The second element to the question asks the students to consider the MFN principle in the EU. The book notes that the MFN principle does not apply to customs unions and free-trade areas, such as the EU. The reason is that the application of the MFN principle would in practice defeat the whole purpose of the customs union and the prioritized treatment of the members therein. 

Question 4:
Why is the IMF vital to the maintenance of a stable international economic order?

Guidance:
The question asks the students to consider the importance of the IMF for global economic stability. The book notes that the IMF was established with a view to avoiding a repetition of the interwar policies of competitive and manipulative devaluation of currencies. To do that, the IMF primarily seeks to promote international monetary cooperation, exchange stability and to put financial resources at the disposal of members with balance of payment difficulties. All these things are vital for ensuring stable economic conditions and for aiding states in acute financial trouble.

Question 5:
In what way does the monetary system in the EU differ from the system created under the IMF?

Guidance:
The question asks the students to consider why the EU monetary system differs from the system under the IMF. The most relevant issue here concerns the approaches to exchange rate stability. The book notes that the IMF originally created a regime of fixed exchange rates (on the basis of gold or the US dollar) but that the system only lasted until 1971. It also notes, though, that states are still under obligations in relation to their exchange arrangements. The main difference compared to the EU, of course, is that the latter has introduced a single currency, the Euro. As a result, states with the common currency cannot change their interest rates, devalue their currency, or control the supply of money. All that is now in the hands of the European Central Bank. As the book also notes, the European Monetary Union is based on exclusive individual liability meaning that the individual member states are responsible for their own financial commitments.

Question 6:
Under what conditions does international law allow a host state to expropriate foreign property?

Guidance:
The question tests the student’s ability to apply the principles of expropriation contained within international investment law. The book notes that customary international law permits the expropriation of foreign property if the expropriation serves public (and not private) purposes, is non-discriminatory, and is subject to compensation. It also notes the discussion about the proper standard of compensation and specifies that states now seem to agree that expropriation triggers full compensation. This is also the general standard applied in most bilateral investment treaties. The book also notes that international jurisprudence generally supports a standard of full compensation.