В. Economic. Political, and Legal Principles ofWorld Trade

A. Introduction

1. Since the beginning of written history, interre­gional trade and its legal regulation (ubi commercium, ibi ius) have been recorded as means for supplying citizens with more, better, or a larger variety of scarce goods and services. Most people earn their living by trading the fruits of their labour for the products they need. Hence, all civil societies are also economic and legal societies. As voluntary international trade tends to be mutually beneficial for all trading countries, private and public trade law is among the oldest fields of national and international law. For example, particular rules for interregional commerce were already present in the Babylonian Code of Hammurabi, in the laws and trade agreements of ancient Greek cities, in Roman law, and in the treaties of commerce between Rome and Carthage. The Marrakesh Agreement Establishing the World Trade Organization regulates more than 90% of world trade among 153 WTO Members by means of comprehensive legal rules intended 'to preserve the basic principles... underly­ing this multilateral trading system' (preamble Marrakesh Agreement: -> World trade Organization [WTO]). The explicit recognition and distinction of principles, objectives, and rules, and their progressive clarification through successive 'Rounds' of multi­lateral trade negotiations (see eg -> Doha Round; Uruguay Round), as well as through hundreds of dis­pute settlement rulings adopted by the WTO Dispute Settlement Body ('DSB'; - World Trade Organiza­tion, Dispute Settlement) and under the —> General Agreement on Tariffs and Trade (1947 and 1994) (‘GATT’), have contributed to a dynamic evolution of international trade law since World War II. Yet, as all agreements remain incomplete, the customary law requirement of settling international disputes 'in conformity with the principles of justice and interna­tional law', including "respect for, and observance of, human rights and fundamental freedoms for all'—as recalled in the preamble and in Art. 31 -> Vienna Con­vention on the Law of Treaties (1969) (1155 UNTS 331; ‘VCLT')—has proven of crucial importance for the legal and judicial interpretation and progressive development of regional and worldwide trade law in conformity with other fields of international law, such as the human rights obligations of all WTO Members (->Trade and Human Rights).

2. Rules are either applicable or not, depending on whether the social facts meet the ‘If-then’ conditions of rules. -> General principles of law such as the -> precautionary approach/principle referred to by the WTO Appellate Body in the —> EC-Hormones Case embody more general values or regulatory purposes, whose relevance for interpreting rules may require balancing and weighing of competing principles, such as in the interpretation of the specific 'precau­tionary rules' in Art. 5 WTO Agreement on Sanitary and Phytosanitary Measures ([signed 15 April 1994, entered into force 1 January 1995] 1867 UNTS 493). Principle-oriented interpretations may ration­alize and legitimize rules, for example by explaining the textual meaning, systemic interrelationship, and ‘object and purpose’ of rules (see Art. 31 VCLT), justifying their ‘dynamic interpretation’ in conformity with agreed changes of the law, eg the recognition of price-fixing carrel practices as ‘anti-competitive practices’, or by demonstrating that restrictions of freedom are suitable, necessary, and proportionate means foe realizing public interests. Interpretative arguments often depend on who interprets trade rules for whom and in which legal context; for instance, European courts protect the customs union rules of the European Union as individual freedoms of trade, but accept power -oriented arguments of trade poli­ticians that the underlying customs union rules in GATT 1947 should be construed only as intergov­ernmental rights and obligations of WTO Members based on political principles of reciprocity rather than on economic principles of consumer welfare and constitutional principles of -> rule of law for the benefit of citizens. The requirement of interpreting international treaties with due regard to ‘any relevant rules of international law applicable in the relations between the parties' (Art. 31 (3) (c) VCLT), similar to the widespread constitutional requirements of inter­preting domestic laws in conformity with the inter­national legal obligations of the country concerned, reflect presumptions against conflicting obligations. The broad principles, like -> sustainable development as a WTO objective, 'exceptions', and 'public interest clauses' in trade agreements have so far enabled the more than 400 GATT and WTO dispute settlement rulings over the past 60 years, like the case-law of the European Court of justice and of other regional courts, to avoid conflicts between International trade rules and non-economic legal obligations of trading countries.

В. Economic. Political, and Legal Principles ofWorld Trade

3. International trade law cannot be understood without the economic principles of comparative advantage, competition, and 'optimal trade interven­tion' underlying WTO rules and the more than 250 -> regional trade agreements ('RTAs'). Just as GATT liberalizes and limits discriminatory border restric­tions in order to promote 'trade under fully com­petitive conditions' (Art. VII GATT), the —> General Agreement on Trade In Services (1994) (‘GATS’) and the WTO Agreement on Trade-Related Intellectual Property Rights (‘TRIPS'; -> Intellectual Property, International Protection) promote market-driven division of labour and prevention of ‘anti-competitive practices', eg in Art. VIII GATS, in the Basic Telecommunications Agreement, and in Art. 8 TRIPS. The WTO objective of ‘mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade' (pre­amble Marrakesh Agreement) rests on the theory of comparative advantage as first developed by David Ricardo (1772 -1823): international trade liberalization tends to increase the economic welfare of every trading nation, eg by reducing the prices of consumer goods, enhancing productivity through specialization, creating new job opportunities, and enabling governments to redistribute part of the 'gains from trade' for helping the poor, assisting workers to shift from import-competing to export sectors of the economy, or protecting the environment. The additional WTO objective of 'elimination of discriminatory treatment in international trade relations' (pream­ble Marrakesh Agreement), and GATT’s legal rank­ing of trade policy instruments according to their economic efficiency (eg legal admissibility of tariffs and non-distorting subsidies, prohibition of —> non-tariff barriers to trade), rest on the economic theory of 'optimal intervention': 'market failures' should be corrected directly at their source by means of non­discriminatory regulations (eg prohibitions of cartels and other abuses of market power), without distort­ing citizen-driven offer, demand, and market compe­tition for scarce goods and services. Also the WTO requirements of most-favoured-nation treatment (-> Most-Favoured-Nation Clause) and national treat­ment (-> National Treatment, Principle) of goods, services, and intellectual property rights are primar­ily aimed at avoiding competitive distortions and 'protection of domestic production' (Art. III GATT) rather than at protecting sovereign equality of States.

4. Even though voluntarily agreed trade transactions tend to be mutually beneficial, economic theory alone cannot explain the reality of trade laws and trade policies. While the gains from trade tend to be distributed among large numbers of consumers (eg in terms of lower prices) and industries (eg in terms of enhanced productivity and competition) the adjustment сosts tend to be concentrated on import-competing pro­ducers, who have rational self-interests in opposing trade liberalization (eg in order to benefit from pro­tection rents). Hence, notwithstanding economic demonstration that unilateral liberalization of trade barriers tends to enhance consumer welfare and pro­ductivity in the liberalizing country, countries prefer reciprocal trade liberalizasion agreements for politi­cal reasons (eg in order to reduce protectionist pres­sures from import-competing producers by offering additional export opportunities and jobs in the export sector). The WTO objective of ‘reciprocal and mutu­ally advantageous arrangements directed to the sub­stantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations' (preamble Marrakesh Agreement) reflects these economic and political prin­ciples of trade policies. The WTO rules on 'fair trade' (eg in Arts VI and XVI GATT on 'dumping’, subsi­des, and countervailing duties), on safeguard meas­ures (eg Art. XIX GATT), on 'general exceptions' reserving sovereign rights to protect public interests (eg Arts XX and XXI GATT and Art. XIV GATS) and on preferential treatment of less-developed coun­tries (eg Part IV GATT, the 'Enabling Clause' of 1979 authorizing trade preferences for less-developed countries) are likewise determined by political rather than by economic reasons.

5. In conformity with the economic theories of 'opti­mal intervention', GATT permits non-discriminatory internal regulations (Art. III) and production subsidies (Art. XVI) but proscribes discriminatory non-tariff barriers to trade (Arts III and XI) and market-distorting export subsidies (Art. XVI) which are only in very exceptional cases a means of maximizing national welfare, eg if a country with market power can manipulate its 'terms of trade’ in its favour at the expense of its trading partners. WTO law respects national sovereignty, eg in terms of freedom to decide on the level of national tariffs, non-discriminatory national regulation of protection of human health, the environment, and other public interests. Hence, the function of most WTO rules is not to reconcile conflicts among national economic interests but to help countries to pursue welfare-increasing trade policies and collectively supply international public goods beneficial for all trading countries, eg in terms of transparent policy-making, international rule of law, and global division of labour offering consumers access to the best world markets.