Law and Institutions of International Trade Class 12

1. Law and Institutions of International TradeClass 12 MGT 3860Z Daryl Hanak

2. Agenda • Trade & Environment • Trade & Labour • Private international law aspects MGT 3860Z -- Fall 2006

3. Trade and Environment

4. Trade and Environment • International environmental policy development and international trade policy development on different tracks -- until the early 1990’s • Tuna-Dolphin GATT Case (1991) • Rio Earth Summit (1992) • Framework Convention on Climate Change • Convention on Biological Diversity • “Precautionary Principle” recognized • Trade provisions in environmental agreements • Banning trade in “environmentally harmful” products MGT 3860Z -- Fall 2006

5. Trade and Environment Tuna Dolphin Case • Successful challenge of US laws aimed at protecting dolphins who are killed as a “by-catch” of tuna harvesting techniques • GATT case (pre-WTO), so never formally adopted • Caused a great deal of concern among environmental groups and inspired them to action on trade matters MGT 3860Z -- Fall 2006

6. Trade and Environment • In this context of rising environmental concern and activity, there is the negotiation of the NAFTA, with its significant debates in the US • Environmental issues: • Trade agreements call for harmonization, so there will be a race to the bottom • Firms, employment will move to where costs (including environmental regs) will be lower • Lack of will by governments to enforce the environmental laws on the books – attracting investment and promoting competitive advantage • Environment ultimately found its way into the NAFTA MGT 3860Z -- Fall 2006

7. Trade and Environment • NAFTA environmental features • Reference to “sustainable development” • “Grandfathering” of existing environmental agreements if there is a conflict • Environment article in investment chapter – don’t relax environmental laws in order to attract investment • Parallel side accord on environmental cooperation – North American Agreement on Environmental Cooperation (NAAEC) MGT 3860Z -- Fall 2006

8. Trade and Environment NAAEC • Obligation to effectively enforce your environmental laws – government-government dispute settlement • Citizen “submission process” to allow complaints about failure to “effectively enforce” • Innovative structure – quasi-independent Secretariat; Public advice institutionalized • Development of the institution has been remarkable, although the attitude of the three governments has not been consistent MGT 3860Z -- Fall 2006

9. Trade and Environment Post NAFTA • As in many other areas, NAFTA still stands as a high water mark in the incorporation of environment into trade agreements • Canada and US bilateral trade agreements incorporate ideas from the NAAEC to a greater or lesser degree • Many other countries remain suspicious of the potential for protectionism that may be “hidden” in environmental language MGT 3860Z -- Fall 2006

10. Trade and Environment WTO • Includes references to sustainable development • Committee on Trade and Environment (CTE) established with a work program that allows countries to at least talk about issues like: • Relationship between Multilateral Environmental Agreements (MEAs) and WTO obligations (conflicts, parties/non-parties issues) • Kyoto Protocol (Framework Convention on Climate Change) • Biosafety Protocol (Convention on Biological Diversity) • Montréal Protocol (Convention on Ozone Depleting Substances) • CITES (Convention on International Trade in Endangered Species) • Basel Convention onn Transboundary Movement of Hazardous Wastes • Eco-labelling programs • “coherence” between international environmental negotiations and international trade negotiations MGT 3860Z -- Fall 2006

11. Trade and Environment Development of Environmental Assessment of Trade Agreements • So, how can we look at trade agreements and decide what effects they may have • Extrapolation from Trade Theories • CEC project on the assessment of the NAFTA • Strategic Environmental Assessments of Trade Agreements MGT 3860Z -- Fall 2006

12. Trade and Environment • The environmental effects of trade agreements can be classified as follows: • Scale Effects • Composition Effects • Technique Effects • Input Mix Effects • Wealth Effects • All based on trade theories that we looked at earlier • What does the evidence show? MGT 3860Z -- Fall 2006

13. Trade and Environment • NAAEC -- Commission for Environmental Cooperation (CEC) -- project on trade and environment since 1996 • CEC sponsored academic work resulting in a framework for the analysis of environmental effects • Does NAFTA “perhaps”, “it depends” • In the NAFTA context, even though there has been a number of years of experience with the NAFTA and the three countries keep relatively good statistics both on trade numbers and on environmental factors, the empirical evidence is not overwhelming. • Trade and Environment Symposia -- October 2000, March 2003, December 2005 MGT 3860Z -- Fall 2006

14. Trade and Environment • Example of the difficulties in drawing conclusion about environmental effects of a trade agreement: • removal of tariffs on agricultural products should reduce the cost of the imported product and demand for that, should go up. • However, it has been extraordinarily difficult to isolate the effect of the tariff reduction from things like: • normal economic growth that would have occurred anyway, • good marketing on the part of the exporters, • changes in consumer tastes, • increase in income levels in the importing country, • technological changes • etc. etc. etc.. MGT 3860Z -- Fall 2006

15. Trade and Environment • Governments careful to avoid making any claims to say that a certain reduction in tariffs has caused a certain level of trade in a particular product, or even all overall an increase in exports to our trading partners. • In Alberta's context, it is difficult to say that the NAFTA energy chapter "caused" the remarkable growth in the export of petroleum and natural gas to the US over the past 10 years. We can, however, say that trade agreements did contribute to this. How much it contributed to the growth is an open question. • From the environmental perspective, the same problem arises. In a general sense, trade liberalization is assumed to contribute to the increased trade in a particular product, but the extent to which that trade agreement "cause" a particular environmental effect is not at all easy to determine. • it would appear that the existence of a domestic environmental regulatory environment is probably be a better indicator of how the environment welfare under a trade agreement. In fact, "sustainable development" theories suggest that a high standards and environmental régime is a prerequisite for country to obtain the benefits from an international trade agreement MGT 3860Z -- Fall 2006

16. Trade and Environment Strategic Environmental Assessment of Trade Agreements • Governments have struck upon the idea that they could make an "environmental assessment" of a trade agreement, modeled on environmental impact assessment of physical , commercial project. • “Ex ante” instead of “ex post” assessments that were done with the NAFTA and the Uruguay Round • Canada has been a strong promoter. Using the same sort of concept as and environmental impact assessment for an industrial project, Canada attempts to look at the future environmental effects of a trade agreements. Currently, the federal government has in place a process that is supposed to provide advice on trade negotiations as they are under way. Joined by the US and the EU • Unfortunately, the difficulty establishing the linkage between a trade agreement and environmental effect is multiplied when trying to estimate the environmental effects of a trade agreement that has not yet been completely negotiated. Speculation about the outcome of negotiations on top of difficulty of assigning causality to the trade agreement MGT 3860Z -- Fall 2006

17. Trade and Labour

18. Trade and Labour • Some groups and individuals argue that trade agreements must address labour issues because • It is unfair to compete against produced from “low-cost” labour • Rich Western countries and their industries should not be allowed to exploit workers in developing countries, and trade agreements tend to promote this exploitation • On the other hand, developing countries are suspicious of these types of statements because • labour is one of the few competitive advantages of that many countries have, and this should not be artificially be removed • Even developed countries are unwilling to submit to some sort of external review of their labour policies because • countries have the sovereign right to establish their own labour standards MGT 3860Z -- Fall 2006

19. Trade and Labour • There is a basic question about the existence of empirical evidence of the impact of labour standards on trade, and the impact of trade agreements on individual country labour standards and laws • Consider the example of Bangladesh or Haiti – do low labour standards for nonexistent labour laws and result in trade & economic success? • Other basic economic considerations are involved when firms make a choice about locating manufacturing facilities in particular countries, or engaging in economic activities with those countries: • Distance to market • Infrastructure (roads, telephones, water, electricity) • Workforce education • Taxation • Rule of law • Certainty of contract MGT 3860Z -- Fall 2006

20. Trade and Labour • OECD conducted a landmark study on the relationship between trade and labour standards • Lack of a strong correlation, with possible positive linkage between high labour standards and better international trade performance International Labour Organization (ILO) • Old organization, predates the GATT, WTO – established in 1919 to deal with international labour issues • Involves government, business and unions (tripartite structure) • Many labour conventions adopted by the organization • Review mechanism and complaint process. Complaints may be brought by unions, businesses and other governments. • Problem? Effectiveness of enforcement– leading back to consideration of possible linkages to WTO MGT 3860Z -- Fall 2006

21. Trade and Labour • The ILO is “patient”, willing to wait for formalized cooperation with WTO • ILO has been conducting a study on the “social aspects of globalization” • No consensus within WTO to begin any kind of study of labour issues within the WTO organization MGT 3860Z -- Fall 2006

22. Trade and Labour Possible linkages between trade agreements and labour standards include: • Trade sanctions, such as • Antidumping-like remedy for “social dumping”– the workers in the importing country (e.g. Canada) should not suffer the consequences of the policy choices in the exporting country (e.g. China) • “social countervailing duty” to level the playing field --since firms in the low labour standard jurisdiction would benefit from something that could be considered to be equivalent to a subsidy but – • Opens possibility/incentive, for harassment of exports by importing countries • Burdens the WTO, or other dispute settlement processes in other trade agreements, with topics for which it/they has no expertise • Trade sanctions only indirectly, if at all, address main concern • Trade sanctions may be counterproductive (Already discussed economic criticisms of countervailing duties in trade in goods • Plus problems of sovereignty and the indirect elimination of a competitive advantage MGT 3860Z -- Fall 2006

23. Trade and Labour • Possible linkages between trade agreements and labour standards include: • Labour cooperation agreements • Contain a general obligation to enforce existing labour laws, along with a commitment to support and enforce “core labour standards” (as included in the ILO conventions) • This approach has the benefit of preserving each country’s sovereignty, while still providing a forum to discuss labour matters • The continuing issue is how to address enforcement -- Alternative methods have been considered – could be a “fine”, could be “sunshine”, could be intergovernmental cooperation and capacity building • Canada promotes labour cooperation agreements in association with its bilateral trade agreements that it is currently negotiating. These agreements contain minimal obligations, but highlight potential areas of concern with respect to labour laws MGT 3860Z -- Fall 2006

24. Trade and Labour • Possible linkages between trade agreements and labour standards include: Consumer boycotts • “sweatshops” and celebrities may be vulnerable to these kinds of a highly publicized activities -- Puff Daddy, Martha Stewart, NIKE Labelling • Mandatory? • Who sets the standards for the label? MGT 3860Z -- Fall 2006

25. Private International Law

26. Private International Law • Corporate contract law • Business transactions • International contract law • Shipping terms MGT 3860Z -- Fall 2006

27. Private International Law • Law of the relationship between private parties, as opposed to relationships between governments • Sources -- the court cases involving international transactions, results of international arbitrations, conventions, treaties, model laws, domestic law • legal framework composed of conventions, protocols, model laws, legal guides, uniform documents, as well as other documents and instruments, which regulates relationships between individuals in an international context (OAS)   MGT 3860Z -- Fall 2006

28. Private International Law • Sovereignty causes problems when transactions cross borders • Which country’s laws apply • Which courts can take jurisdiction • “conflicts of laws” • Domestic courts useful, but there are efficiencies from finding common principles • Need to bridge different legal traditions, cultures, history MGT 3860Z -- Fall 2006

29. Private International Law International organizations and harmonization • The public intenational institutions we have been discussing so far (WTO) are primarily intergovernmental organizations, where governments are the main parties, governing the relationship between governments • In the private international law context the international institutions are often a government/private sector mixture • There are also purely private sector initiatives • Overlapping initiatives, but aiming at international harmonization MGT 3860Z -- Fall 2006

30. Private International Law United Nations Commission on International Trade Law (UNCITRAL) • “core legal body” within the UN system in the field of international trade law • Develops conventions and model laws to be adopted by countries • Conventions --Come into force when a sufficient number of countries ratify the convention • Model laws – international harmonization of domestic laws, can be done by countries individually or adapted to specific needs http://www.uncitral.org/en-index.htm MGT 3860Z -- Fall 2006

31. Private International Law Topics covered by UNCITRAL include: • Arbitration – convention on recognition awards, arbitration and conciliation rules, model law on international commercial arbitration • International sale of goods • Cross-border Insolvency • International payments • International transport of goods • Electronic-commerce • Public procurement and infrastructure development MGT 3860Z -- Fall 2006

32. Private International Law The International Institute for the Unification of Private Law (UNIDROIT) • “independent” intergovernmental organization, headquartered in Rome • originally established in 1926 under the League of Nations and re-established in 1940. Currently 59 member states • studies needs and methods for modernising, harmonising and coordinating private -- particularly commercial law --as between States and groups of States -- negotiates conventions http://www.unidroit.org MGT 3860Z -- Fall 2006

33. Private International Law Topics covered by UNIDROIT include • Uniform Law & Convention on the formation of contracts for the international sale of goods (1964) • Conventions on international financial leasing, international factoring (1988) • Principles of international commercial contracts (1994) • Convention on international interests in mobile equipment (2001) • Model franchise disclosure law (2002) MGT 3860Z -- Fall 2006

34. Private International Law Hague Conference • intergovernmental organization • work for the progressive unification of the rules of private international law • negotiation and drafting of multilateral treaties http://www.hcch.net/e/ MGT 3860Z -- Fall 2006

35. Private International Law Topics covered by the Hague Conference include: • Convention on the law applicable to international sales of goods (1955) • Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters (1971) • Convention on the Law Applicable to Products Liability (1973) • Convention on the Law Applicable to Certain Rights in respect of Securities held with an Intermediary (2000) MGT 3860Z -- Fall 2006

36. Private International Law World Bank Group • The World Bank is not a “bank” in the common sense. • It is one of the United Nations’ specialized agencies, and is made up of 184 member countries. • These countries are jointly responsible for how the institution is financed and how its money is spent. MGT 3860Z -- Fall 2006

37. Private International Law There are several related elements in the World Bank Group: • The "World Bank" is the name for the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Together these provide low-interest loans, interest-free credit, and grants to developing countries. • The International Finance Corporation (IFC) promotes private sector investment by supporting high-risk sectors and countries. • The Multilateral Investment Guarantee Agency (MIGA) provides political risk insurance (guarantees) to investors in and lenders to developing countries. • International Centre for Settlement of Investment Disputes (ICSID) settles investment disputes between foreign investors and their host countries. MGT 3860Z -- Fall 2006

38. Private International Law International Centre for Settlement of Investment Disputes (ICSID) • established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Convention) which came into force on October 14, 1966. • provides facilities for the conciliation and arbitration of disputes between member countries and investors who qualify as nationals of other member countries. • Recourse to ICSID conciliation and arbitration is entirely voluntary. However, once the parties have consented to arbitration under the ICSID Convention, neither can unilaterally withdraw its consent. • Moreover, all ICSID Contracting States, whether or not parties to the dispute, are required by the Convention to recognize and enforce ICSID arbitral awards. • NAFTA Chapter 11 cases have been conducted under the ICSID rules • Canada is not a Party to the ICSID Convention http://www.worldbank.org/icsid/ MGT 3860Z -- Fall 2006

39. Private International Law Organization of American States (OAS) • Department on International Law, plays a central role in the harmonization and codification of Private International Law in the Western Hemisphere. • Conferences on Private International Law, which are held approximately every four to six years. Known by its Spanish acronym -- CIDIP • Ultimately develops conventions for the members of the organization http://www.oas.org/ MGT 3860Z -- Fall 2006

40. Private International Law Some topics covered by the OAS include: • Inter-American Convention on the Law applicable to International Contracts. • Inter-American Convention on Conflicts of Laws Concerning Commercial Companies. • Inter-American Convention on Contracts for the International Carriage of Goods by Road. • Inter-American Convention on Conflict of Laws concerning Bills of Exchange, Promissory Notes and Invoices. MGT 3860Z -- Fall 2006

41. Private International Law Uniform Law Conference of Canada (ULCC) • founded in 1918 to promote harmonization of laws in Canada • Commercial Law Strategy to modernize and harmonize commercial law in Canada, • Recommendations for incorporation of international conventions into Canadian law – model laws MGT 3860Z -- Fall 2006

42. INCOTERMS INCOTERMS • First published in 1936 by the International Chamber of Commerce (ICC) Since that time, there have been six different revisions and updates to the Incoterms. • ICC -- “voice of world business championing the global economy as a force for economic growth, job creation and prosperity” • INCOTERMS -- “Rules at the core of world trade” • "Incoterms" -- abbreviation of “International Commercial Terms” • 13 standardized terms for when the property and the risk transfer from the seller to the buyer MGT 3860Z -- Fall 2006

43. INCOTERMS • Intended to alleviate or reduce confusion over interpretations of shipping terms, by outlining exactly who is obliged to take control of and/or insure goods at a particular point in the shipping process, including obligations for the clearance of the goods for export or import, and requirements on the packing of items. • Incoterms are used quite frequently in international contracts, and a specific version of the Incoterms should be referenced in the text of the contract. • they are not meant for every type of contract. Incoterms define the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities and clarify when the ownership of the merchandise takes place. They are used in conjunction with a sales agreement or other method of transacting the sale. • the terms used in a contract state exactly when the shipper unloads and relinquishes obligation, and when the buyer takes over for carriage and insurance. They are not meant to replace statements in a contract of sale that outline transfers of ownership or title to goods. Therefore, the Incoterms may not be of use when looking to resolve disputes that may arise regarding payment or ownership of goods. MGT 3860Z -- Fall 2006

44. XW -- EX WORKS (…named place)* FCA -- FREE CARRIER (…named place) FAS -- FREE ALONGSIDE SHIP (…named port of shipment)* FOB -- FREE ON BOARD (…named port of shipment) CFR -- COST AND FREIGHT (…named port of destination) CIF -- COST, INSURANCE AND FREIGHT (…named port of destination)* CPT -- CARRIAGE PAID TO (…named place of destination) CIP -- CARRIAGE AND INSURANCE PAID TO (…named place of destination)* DAF -- DELIVERED AT FRONTIER (…named place)* DES -- DELIVERED EX SHIP (…named port of destination) DEQ -- DELIVERED EX QUAY (…named port of destination)* DDU -- DELIVERED DUTY UNPAID (…named place of destination)* DDP -- DELIVERED DUTY PAID (…named place of destination)* INCOTERMS MGT 3860Z -- Fall 2006

45. INCOTERMS • “ex works” means that the seller delivers when he places the goods at the disposal of the buyer at the seller’s premises or another named place and (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle • Minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises MGT 3860Z -- Fall 2006

46. INCOTERMS • “Free on Board” means that the seller delivers when the goods pass the ship’s rail at the named port of shipment • Buyer bears all costs and risks of loss or damage to the goods from that point. • Seller must clear the goods for export • only used for sea or inland waterway transport MGT 3860Z -- Fall 2006

47. INCOTERMS • “delivered duty paid” means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport, at the named place of destination. • Seller bears all the costs and risks involved in bringing the goods to the buyer, including any customs formalities, customs duties, taxes and other charges for import in the country of destination • Represents maximum obligation on the seller MGT 3860Z -- Fall 2006

48. INCOTERMS • EXW - Ex Works -- Title and risk pass to buyer including payment of all transportation and insurance cost from the seller's door. Used for any mode of transportation. • FCA - Free Carrier -- Title and risk pass to buyer including transportation and insurance cost when the seller delivers goods cleared for export to the carrier.Seller is obligated to load the goods on the Buyer's collecting vehicle; it is the Buyer's obligation to recieve the Seller's arriving vehicle unloaded. • FAS - Free Alongside Ship --Title and risk pass to buyer including payment of all transportation and insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export clearance obligation rests with the seller. • FOB - Free On Board and risk pass to buyer including payment of all transportation and insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway transportation. • CFR - Cost and Freight -- Title, risk and insurance cost pass to buyer when delivered on board the ship by seller who pays the transportation cost to the destination port. Used for sea or inland waterway transportation. • CIF - Cost, Insurance and Freight -- Title and risk pass to buyer when delivered on board the ship by seller who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation. • CPT - Carriage Paid To -- Title, risk and insurance cost pass to buyer when delivered to carrier by seller who pays transportation cost to destination. Used for any mode of transportation. MGT 3860Z -- Fall 2006

49. INCOTERMS • CIP - Carriage and Insurance Paid To --Title and risk pass to buyer when delivered to carrier by seller who pays transportation and insurance cost to destination. Used for any mode of transportation. • DAF - Delivered at Frontier -- Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation. • DES - Delivered Ex Ship -- Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation. • DEQ - Delivered Ex Quay (Duty Paid) -- Title and risk pass to buyer when delivered on board the ship at the destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation. • DDU - Delivered Duty Unpaid -- Title, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point. Used for any mode of transportation. Buyer is obligated for import clearance. • DDU - Delivered Duty Unpaid -- Seller fulfills his obligation when goods have been made available at the named place in the country of importation • DDP - Delivered Duty Paid -- Title and risk pass to buyer when seller delivers goods to named destination point cleared for import. Used for any mode of transportation. • Note: EXW, CPT, CIP, DAF, DDU and DDP are commonly used for any mode of transportation. FAS, FOB, CFR, CIF, DES, and DEQ are used for sea and inland waterway. MGT 3860Z -- Fall 2006

50. INCOTERMS • Here are three examples of correct use of Incoterms: • FCA Kuala Lumpur Incoterms 2000 • FOB Liverpool Incoterms 2000 • DDU Frankfurt Schmidt GmbH Warehouse 4 Incoterms 2000 MGT 3860Z -- Fall 2006