Chapter 11 Audio podcast

On March 1st this year,Ngozi Okonjo-Iweala started her new position as Director General of the World Trade Organization, the WTO. Okonjo-Iweala is the first woman to ever hold the post, as well as the first person from Africa. She replaced Roberto Azevedo, of Brazil, who left his post one year before planned.Okonjo-Iweala takes over the WTO at a very pivotal time in the organization's history. The WTO is the most important international trade organization, but in recent years, it came face-to-face with American President, Donald Trump, who was very critical of the organization and the trade deals it oversees. In fact, Trump even threatened to withdraw the United States entirely from the WTO system. In addition, the WTO has been forced to witness the beginning of numerous trade wars and increasing international economic rivalry between the major powers of the world, in particular, between China and the United States. In this episode of the International Law Podcast, episode 11, I will focus on international economic law, and as always, I will highlight three areas that I find particularly noteworthy.

The first of these issues that I want to focus on is the WTO itself, the World Trade Organization. Now, the WTO was created in 1994 as the principal international trade organization with a global reach. The first thing to note here is that the WTO was established after the end of the Cold War. That was because it was not until then that it was actually possible to create an international trade institution with any real teeth of a global reach.Back in 1944, at the Breton Woods Conference in the United States, a General Agreement on Tariffs and Trade,the GATT, was created to liberalize world trade by reducing terrorists and other barriers to trade. Now, the GATTwas only meant to be a temporary agreement until a more solid international trade organization could be created. But for that to happen, the Cold War actually had to end.The ideological confrontation between the communist east and the capitalist west was paralyzing on many fronts in international law, and in particular, when it came to international trade law. But with the collapse of Communism in the 1990s, things began to improve.

From the early 1990s on,the United States was essentially left as a sole superpower, and Washington used that power to further expand on an international trade system built around core capitalist principles. In many ways, the 1990s was the golden era of international trade corporation. It was then that the international trade system that we know of today began to really take form.Here, one needs to understand that the development of the GATT and the international trade evolved around rounds of multilateral trade negotiations. And the breakthrough came at the so-called Uruguay Round of trade negotiations that was concluded in 1993,and where states reached agreement on many highly important issues.Among those issues was, finally, the replacement of the GATT with the WTO, the World Trade Organization. Also, at the Uruguay Round,an agreement was reached on the regulation of trade in services and intellectual property.

And our mechanism for the settlement of trade disputes was also created at the Uruguay Round. And since then, disputes that arise from WTO agreements can be brought before a dispute settlement body.These days,however, the 1990s seem long gone, and now it is much harder to continue to keep developing the WTO system any further. In fact, this year, 2021, marks the 20th anniversary of the initiation of the so-called Doha Round on negotiations that has yet to be finalized. Why has it become so hard to agree on further developments in international trade law? Well, for one thing, new agreements under the WTO system requires unanimity. And that is very hard to obtain these days.Possibly more important,it's been the rise of new, powerful economies that are very assertive of their own new power. And here I'm not just talking about China, but also about states like India, Brazil, South Africa, and Turkey.

Also, of course, there is no denying that the four-year presidency of Donald J. Trump and his America First agenda did very little to advance international cooperation on trade issues. As I noted in the introduction to this episode, Trump was very vocal in his opposition to the World Trade Organization and the international trade agreements; something that he felt was a very bad deal for America. Trump was also very critical of China, and Trump's America First agenda, whose protectionist economic policies has been described as economic populism by his core advisor, Steve Bannon, brought the United States on a collision course with most other major economies, culminating in civiltrade wars. Trump also blocked the appointment of new members to the body of second instance of the dispute settlement body, thereby essentially preventing it from functioning properly. Now, it remains to be seen, of course, how Joe Biden's America will take on the WTO system and the international trade system, as such. But there's no apparent reason to think they will somehow return to the happy days of the 1990s. It seems that economic tensions between the major powers, most noticeably between the United States and China, are not going to go away anytime soon. That said, however, I would assume that the Biden administration will be a more constructive partner for the WTO, as it moves forward,and also for its new director.

The second area of international economic law that I will elaborate on in this episode of the podcast concerns the element of so-called conditionality in the agreements that are adopted between the institutions like the International Monetary Fund, the IMF, and states that need to borrow money from the IMF.

And here, please note, the listener, that we have now left the area of international trade law and instead concern ourselves with international monetary law. The International Monetary Fund, the IMF, was yet another institution that was created at Bretton Woods in 1944. The job of the IMF is to ensure exchange stability and provide loans to states with economic difficulties. Now, the states that receive loans from the IMF are those who have acute balance of payment problems,and often it is the countries with the worst economic outlooks that reach out to the IMF.By the end of 2019, the biggest borrowers at the IMF were Argentina, Ukraine, Greece, and Egypt.

Now, as I'm sure most listeners of this podcast are all very well aware, it is never fun to borrow money from anybody, and borrowing cash from the IMF is no exception. And this is where the issue of conditionality comes in;because a loan to member state of the IMF is subject to conditions that are set by the IMF and its negotiators after consultation with the state. In most cases, to receive a loan from the IMF requires that the state commits to adopting sometimes very drastic economic and financial policies, as well as various economic programs that are meant to ensure that the lending state addresses the underlying economic problems. And yes, as states like Greece and Argentina can testify to, the specific terms of the loan agreements can be very tough indeed. The terms may include, for example, as was the case with Greece, demands of massive cuts in public spending, as well as tax increases, and sometimes measures that the local governments have been very reluctant to resort to itself out of concern for what the average voter might think. In practice, of course, the IMF is not hampered by any such concerns.Most recently, and ongoing, the IMF has been busy offering financial assistance to countries that have found themselves short of cash due to the COVID-19 pandemic. In fact, by the end of January 2021, more than one hundred states had asked for emergency funding from the IMF.At the time of speaking, the longer-term economic fallout from the pandemic has yet to be shown.

The third and last issue of international economic law that I will spend some time on in this episode is international legal protection of foreign investors in the case of expropriation. At the outset, it's important to note that it's generally up to states themselves to decide if they want to accept foreign investments into their countries. However, once the state does decide to permit foreign investments, international law will offer protection to the investor. In reality, this is a classic act of balancing.On the one hand, it is clear and obvious that a host state must be entitled to adopt its own economic policies, and that foreign investors should be aware of the risks they face when they invest in a foreign state. But, on the other hand, foreign investors do have certain concerns that are very legitimate, and they must have certain rights before a healthy international investment climate can exist.

Historically, one of the most thorny issues has been what to do in cases of national expropriation. In other words, what do you do when a state takes private property for public purposes? Of course, expropriation can take many forms. Nationalization is a term that is used when a host state takes control over an entire sector of the economy, but expropriation can also occur when the national legislator adopts new regulation that imposes so severe restrictions on the foreign property that its economic benefit is essentially destroyed. The term ‘creeping expropriation’ is used when measures that destroy the economic benefit of the property is imposed gradually over time.Now, international law is not hostile to expropriation, as such, but expropriations have to fulfill certain conditions.For one thing, the expropriation must serve public, and not private, purposes,and it must be non-discriminatory.Essentially,then, foreign investments must receive the same form of protection that expropriation of national investments.

Then, there is, of course, the question of compensation. And over time, there has been several rifts between western states, that have generally been making most of the foreign investments, and non-western states, especially when those have been communist states that have occasionally been those who have wanted to expropriate foreign investments and often want to get away without paying too much in compensation.Not surprisingly, the western states have argued for the importance of maximum protection for investors and for full compensation for expropriation. And while western states were faced with massive opposition in 1960s and ‘70s,in particular, nowadays, there is more or less overall agreement that expropriations must trigger full and complete compensation. In fact, as most developing countries have discovered, a promise of anything but full compensation has a tendency to make it very hard for those states to attract the foreign investors that are often crucial to the development of local economies. And what does full compensation mean? Well, it generally means the market value of the asset in question.