International Economic Law: Bretton Woods, WTO, and CISG
The Bretton Woods System and the IMF
1. Briefly explain the Bretton Woods system.
The Bretton Woods system was the international economic order created after the Second World War. Its aim was to avoid the economic chaos of the interwar period and to create stable international monetary and financial cooperation. It was based on cooperation between states, stable exchange rates, and new international institutions. The most important institutions were the IMF and the IBRD, later connected with the World Bank system. The general idea was to support monetary stability, reconstruction, development, and freer international trade.
2. Which international economic institutions were created?
The main institutions created at Bretton Woods were the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). The IBRD later became the main part of the World Bank system. An International Trade Organization was also planned, but it was not successfully established. Instead, GATT became the main framework for international trade in goods before the WTO.
3. What is the IMF and its essential purpose?
The IMF is the International Monetary Fund. Its essential purpose is to promote international monetary cooperation and exchange rate stability. It helps member states when they have balance of payments problems and can give financial support under certain conditions. In simple words, the IMF tries to keep the international monetary system stable.
4. Explain the IMF voting system.
The IMF voting system is not based only on the principle of “one state, one vote.” It is a weighted voting system. Voting power depends mainly on the quota of each member state. The quota is connected with the economic importance and financial contribution of the state. This means that economically stronger states have more influence in IMF decisions.
5. What are SDRs?
SDR stands for Special Drawing Rights. They are an international reserve asset created by the IMF. They are not a normal currency like the euro or the dollar, because private persons do not use them in daily payments. They are mainly used between states and the IMF. Their value is based on a basket of important currencies.
The World Bank Group
6. What is the purpose of the World Bank?
The purpose of the World Bank is to support reconstruction and development. At the beginning, after the Second World War, reconstruction was very important. Later, its main role became development, especially in developing countries. It gives loans and financial support for projects connected with infrastructure, education, health, agriculture, and economic development.
7. What organizations complement the World Bank?
The World Bank is complemented by institutions such as:
- IDA: Helps poorer countries with easier financial conditions.
- IFC: Supports private investment.
- MIGA: Gives guarantees against political risks.
- ICSID: Deals with the settlement of investment disputes between foreign investors and host states.
GATT and the World Trade Organization (WTO)
8. What is GATT and its purpose?
GATT stands for the General Agreement on Tariffs and Trade. It was created in 1947 as the main legal framework for international trade in goods. Its purpose was to reduce tariffs and other trade barriers, avoid discrimination between trading partners, and make international trade freer and more predictable. GATT was not originally a complete international organization, which was one of its weaknesses.
9. Explain the Most Favoured Nation clause.
The Most Favoured Nation (MFN) clause means that if a member gives a trade advantage to products from one country, it must give the same advantage immediately and unconditionally to like products from all other members. Its purpose is to avoid discrimination between foreign trading partners. It is one of the basic principles of GATT and WTO law.
10. Are there exceptions to the MFN rule under GATT?
Yes. The MFN rule is a basic principle, but it is not absolute. Important exceptions include:
- Customs unions and free trade areas: Members can give each other better treatment.
- Developing countries: Preferential treatment can operate as an exception.
- Special waivers: Granted in certain specific situations.
11. What problems did GATT encounter?
GATT had several institutional problems. It was not a real international organization with a strong structure. Decision-making was difficult, and dispute settlement was weak because losing states could block decisions. There were also problems with amendment procedures, the relation to national law, and the status of employees. Another problem was the tension between developed and less developed countries.
12. What were the main results of the Uruguay Round?
The Uruguay Round was very important because it led to the Marrakesh Agreement and the creation of the WTO in 1995. It made the trade system more complete. The main results included:
- GATT 1994 for goods.
- GATS for services.
- TRIPS for intellectual property.
- The Agriculture Agreement.
- The Dispute Settlement Understanding (DSU).
13. When was the WTO established and who can be a member?
The WTO was established on 1 January 1995 by the Marrakesh Agreement. Members can be states, independent customs territories (such as Hong Kong and Macao), and the European Union. The WTO became the central international organization for world trade.
14. Is the EU a member of the WTO?
Yes, the European Union is a member of the WTO. The EU member states are also WTO members. This is important because the EU has competences in trade matters and participates directly in the WTO system.
15. What are the main WTO agreements?
The main WTO agreements are:
- The WTO Agreement itself.
- GATT for trade in goods.
- GATS for trade in services.
- TRIPS for intellectual property rights.
- The Dispute Settlement Understanding.
- The Agriculture Agreement and plurilateral agreements (e.g., Government Procurement).
International Investment Law
16. What are the sources of international investment law?
The sources include Bilateral Investment Treaties (BITs), multilateral conventions, customary international law, general principles of law, national law, investment contracts, and arbitral awards. BITs are especially important because they are directly created to protect foreign investors.
17. What are the benefits and dangers for the investor?
For the investor, benefits include access to new markets and the possibility of making profit. The dangers include political risk (e.g., expropriation or nationalization) and legal uncertainty (e.g., changes in law or discrimination by the host state).
18. What are the benefits and dangers for the host state?
For the host state, benefits include foreign capital and economic development (e.g., jobs, technology, or infrastructure). The dangers include a loss of control over important economic sectors and possible disputes with foreign investors. Investment can also create environmental or social problems.
19. What was the Iran-US Claims Tribunal?
The Iran-US Claims Tribunal (IUSCT) was an international arbitral tribunal connected with claims between Iran, the United States, and their nationals. It is relevant for international investment law because it dealt with questions of expropriation, nationalization, compensation, and state responsibility.
20. What is ICSID and its function?
ICSID stands for the International Centre for Settlement of Investment Disputes. Its function is to provide arbitration and conciliation for investment disputes between foreign investors and host states. It provides a neutral forum outside the national courts of the host state.
21. What is nationalization?
Nationalization is when a state takes private property or private economic activity and transfers it into public ownership. It can concern one company or a whole economic sector. It is not automatically unlawful, but it must respect international law regarding public purpose, non-discrimination, and compensation.
22. What is indirect nationalization?
Indirect nationalization means that the state does not formally take the property, but its measures have the same practical effect. The investor may remain the formal owner but loses the real use, control, or economic value of the investment. This is similar to indirect expropriation.
23. What are the criteria for lawful nationalization?
The main criteria are:
- Public purpose: The act must be for a legitimate public reason.
- Non-discrimination: It must not target specific nationalities.
- Compensation: Payment must be made to the investor.
- Due process of law: Legal procedures must be followed.
24. Name two mechanisms for investor protection.
Two important mechanisms are BITs (Bilateral Investment Treaties) and ICSID arbitration. BITs provide legal protection through treaties, while ICSID provides a neutral procedure for solving disputes.
25. What is a stabilization clause?
A stabilization clause is a provision in an investment contract that protects the investor against future changes in the law of the host state. It can “freeze” the legal regime or require compensation if later legal changes harm the investment.
26. What is an internationalization clause?
An internationalization clause connects the investment contract with international law, general principles of law, or international arbitration, rather than only the national law of the host state. This ensures the contract remains neutral.
27. What is MIGA and its function?
MIGA stands for the Multilateral Investment Guarantee Agency. Part of the World Bank Group, its function is to promote foreign investment by providing guarantees against political or non-commercial risks, such as war, civil disturbance, or expropriation.
28. What are BITs?
BITs are Bilateral Investment Treaties. They are agreements between two states for the protection and promotion of foreign investment. They typically protect investors of one state when they invest in the territory of the other, including protection against unlawful expropriation.
State Responsibility
29. What is an internationally wrongful act?
An internationally wrongful act exists when two elements are present. First, the conduct must be attributable to a state. Second, the conduct must be a breach of an international obligation of that state. The conduct can be an act or an omission. So, it is not enough that damage happened; the act must be connected to the state and must violate international law.
30. Which legal document contains rules applicable to State responsibility? And what is its legal nature?
The main document is the Articles on Responsibility of States for Internationally Wrongful Acts, prepared by the International Law Commission in 2001. They are not a treaty, so formally they are not binding like a convention. However, many of their rules reflect customary international law and are often used by courts and tribunals.
31. Can a State be responsible for acts of individuals who are not its organs?
Yes, but only in special situations. Normally, acts of private individuals are not automatically attributable to the state. However, a state can be responsible if individuals act under the instructions, direction or control of the state. A state can also be responsible if it later acknowledges and adopts the conduct as its own.
32. Why was it important to unify the international sales law?
It was important to unify international sales law because international trade involves parties from different legal systems. Different national laws create uncertainty, higher costs and legal risks. A uniform law makes international sales more predictable and easier. This supports international trade and reduces the need to study many different national sales laws.
33. Why were the ULIS and ULFIS not successful?
ULIS and ULFIS were the 1964 Hague Conventions on international sales law. They were not very successful because the earlier unification efforts had only limited success and did not become a truly universal solution. Because of this, a new and more accepted convention was later prepared by UNCITRAL.
34. Which institution prepared the CISG?
The CISG was prepared by UNCITRAL, the United Nations Commission on International Trade Law. UNCITRAL was created to promote the harmonization and unification of international trade law.
35. Explain the structure of the CISG.
The CISG has four main parts. Part I deals with the sphere of application and general provisions. Part II deals with the formation of the contract, especially offer and acceptance. Part III deals with the sale of goods, including obligations of the seller and buyer, remedies, damages, avoidance and risk. Part IV contains final provisions, including reservations.
36. Explain the sphere of application of the CISG.
The CISG applies to contracts for the sale of goods between parties whose places of business are in different states. It applies when both states are Contracting States, or when private international law leads to the law of a Contracting State. It does not apply to some sales, such as consumer sales, auctions, stocks, ships, aircraft and electricity. It also does not govern validity of the contract, property effects or liability for death or personal injury.
37. Explain the party autonomy as regards the CISG.
Party autonomy is very important under Article 6 CISG. The parties may exclude the application of the CISG or derogate from some of its provisions. This is called opting out. However, the exclusion must be clear. If the parties choose the law of a Contracting State, the CISG may still apply because it is part of that state’s law, unless they clearly exclude it.
38. How should the CISG be interpreted?
The CISG must be interpreted according to its international character. Courts should promote uniformity in its application and the observance of good faith in international trade. It should not be interpreted only through national legal concepts. The text, legislative history, Secretariat Commentary and decisions from other states can also be useful.
39. Does the CISG require that sales contracts it governs must be in writing?
No. Under Article 11 CISG, a contract of sale does not need to be concluded or proved in writing. It may be proved by any means, including witnesses. This reflects the principle of non-formality. However, there is an exception when a state has made a declaration under Articles 12 and 96 CISG. In that case, some formal requirements may still apply.
40. Which rules apply to international sales when the CISG is not applicable?
When the CISG is not applicable, the applicable rules are normally determined by private international law. This means that the court or arbitral tribunal must look at the conflict-of-law rules and at any choice of law made by the parties. The applicable law may be national sales law, another international convention, or rules chosen by the parties, such as lex mercatoria or UNIDROIT Principles.
3. What is IMF and which is its essential purpose?
The IMF is the International Monetary Fund. Its essential purpose is to promote international monetary cooperation and exchange rate stability. It helps member states when they have balance of payments problems and can give financial support under certain conditions. In simple words, the IMF tries to keep the international monetary system stable.