Module 8

Module 8
International Bodies Governing Trade and Commercial interactions between States

2.1 INTRODUCTION

The development of international trade law has seen an expeditious growth. In 2017, world
merchandise trade recorded its highest growth in six years. Similarly, there was a significant
increase in the ratio of trade growth to GDP, hitting 1.5, much higher than 1.0 which was the
recorded ratio after the 2008 financial crisis that shook the world. this growth is increasing at
an alarming rate. The reason for the development is the realization of the benefits that accrue
from international trade that was discussed in detail in module 1.

There has been a shift from the traditional principles of Lex Mercatoria –‘the law for
merchants on land’ and Lex maritime –‘the law for merchants on sea’ which governed and
sourced the rule and regulations of international trade in the medieval era, to more developed
bodies that are established to address a certain area of trade. The need for a more regularized
mechanism in place can be attributed to the increase in the commercial interactions between
states. This, therefore, warranted the establishment of a more stable world trading arena.
These newer methods of regulation took the form of trade agreements- bilateral or
multilateral, treaties, covenants or even the establishment of a more permanent body to
regulate trade. The effort to move towards a more regulated regime began as early as 1945
after World War II. What began as the establishment of a temporary solution by way of the
GATT, culminated in the establishment of the World Trade Organization in 1995, the
forerunner in the regulation and facilitation of world trade. The Bretton Woods twins the
International Monetary Fund and the World Bank are auxiliary bodies that help finance and
push a nation towards a more regimented trading sphere. These are however just some of the
organizations that partake in having a direct bearing on world trade, the OPEC, ACU, FAO,
BRICS and World Economic forum are also working towards the cause of creating a more
developed and neutral trading space for all the nations alike. This module therefore focuses
on the organizations that concern itself with world trade and seeks to bring to light certain
key features of these organizations by analyzing their effects in the world of trade.

2.2 GATT

The history of the setting up of the WTO dates back to pre-world war II era. After World War
II, The Bretton Woods Convention was held in New Hampshire, wherein three institutions
were sought to be formulated, -the International Monetary Fund(IMF), The World Bank and
The International Trade Organization(ITO). However, since this document never did get
ratified by the US Congress, the ITO never did get established. What started off as an
accidental or rather incidental formulation of the General Agreements of Trade and Tariffs,
1947 which was supposed to be a temporary agreement, continued to be in existence till 1995
when the Marrakesh Agreement was formed, establishing the World Trade Organization. The
GATT was a temporary agreement which remained in existence for nearly 47 years.

GATT marked a definite point in the international trade law network. GATT began with 23
contracting parties and embodied principles that were aped in the WTO network which will
be discussed subsequently. It contained both economic and technical features, seeking to
institute a common platform of behavior patterns to be followed by the players of
international trade. GATT consists of III parts that embody the rules and procedures as well
as the principles laid down for the conduct of trade by the contracting parties. Part I examines
the Most Favored Nation(MFN) principle and tariff concession obligations. Part II consists of
the major portion of substantive obligations (customs, procedures, quotas, subsidies, anti-
dumping, national treatment etc.) and Part III examines the procedural provisions (territorial
application, customs union, frontier traffic, acceptance entry, free trade areas, withdrawal,
contracting parties etc.) Following which, in 1965 a formal amendment to the GATT inserted
Part IV which took notice of the requirements of developing countries. Development was
seen to be the objective of this insertion.

Article I of the GATT provides for the Most Favored Nation (MFN) principle which states
that every trading nation under the GATT regime is to grant to a beneficiary of its MFN
obligation, treatments or privileges, equally. Therefore, no discrimination should take place
between countries. Only situations specifically stated in the agreement were exempted from
this (free trade areas, customs unions, collective security, public policy, international
commodity agreements).
Under the GATT, a principle to compliment that of MFN is that of National Treatment. MFN
and the National treatment principle go hand in hand. Under the latter, no special protection
shall be conferred to domestic goods, the treatment conferred to imports should not be less
favorable than what the nation confers to its domestic products. Taxes imposed internally on

imported goods should not be excessive unless an agreement was in force prior to the
establishment of GATT. Quantitative restrictions were barred. Anti-dumping was also
addressed in the GATT(Article VI) and provided for wherein a contracting party can levy
anti-dumping duty on a dumped product.

Further, the GATT provided for dispute settlement. However, no specific part of the
agreement relates to the Dispute Settlement procedure. These provisions are scattered and
therefore gave a serious cause of concern, often leading to ambiguity.

The world trading regime witnessed a conflict in terms of trade policies. The debate on free
trade vs. protectionism was up once again, causing great conflict between countries. Trading
policies differed in accordance with the status of the country at that time as well as the aims
and objectives of the nations. Whilst some countries aimed to protect their home markets and
allowed different restrictions, others wanted to engage in trade to increase the revenues
arising from trade. This resulted in conflict of the national policies with international
obligation. A preferred resolve was resorted to by way of the imposition of bilateral
agreements or preferential agreements, however no benefit was given to any third party and
the Most Favored Nation status was conferred only to the negotiating party. Another issue
was that of tariffs, causing nations subject to these issues to revolt against the trading system.
The means set out in the GATT to achieve its objectives were seen to be inadequate.
Substantial reduction of tariffs and other trade barriers and the elimination of discriminatory
treatment in international commerce are provisions made in the GATT itself to achieve its
objectives. These objectives relate to raising standards of living, employment, growth,
development and expansion of the trading system. However, the means to achieve these
objectives were seemingly inadequate. These issues were discussed and deliberated upon in
the eight rounds instituted under the GATT regime. The final Uruguay Round continued for
more than seven years, culminating in the World Trade Organization, a more permanent body
to establish and regulate trade. The features of the WTO will be discussed further.

2.3 Organization of the Petroleum Exporting Countries (OPEC)

Founded in Bagdad in the year1960,- the headquarters of OPEC are situated in Austria.
OPEC is a permanent, intergovernmental organization created at the Bagdad Conference by

Iran, Iraq, Kuwait, Saudi Arabia and Venezuela(five founding members) During these years,
the world witnessed a transition in international economic and political landscaping. New
independent states were born and the international oil market that was once dominated by the
“Seven Sisters” saw a shift. To eradicate any sort of dominance over fuel and petrol, the
OPEC came about, establishing itself first in Geneva and then in 1965 in Vienna. The
objective of this organization is to coordinate and unify petroleum policies amongst its
members and to ensure that a fair and stable price for petrol exists. It aims to regulate and
facilitate a regular supply of petrol to the consuming nations and provide for returns on the
capital so invested. As of 2018, its 14 member countries account for forty-four percent of the
global oil production. This factor as well as the control over the proven oil reserves, gives
OPEC a major influence over oil prices across the world. This is so as the member countries
took control of their domestic production and acquired a major share of international
production. Prices rose steeply in 1973 and 1979 because of the Arab oil embargo and Iranian
Revolution which caused the first Summit of Heads of State and Government under the
OPEC to address the plight. This further led to the establishment of the OPEC Fund for
International Development. OPEC in subsequent years, addressed environmental concerns
and put forth the international energy agenda which was a result of the loss and subsequent
recovery of market share by OPEC, rising social and economic unrest directly affects supply
and demand of fuel price throughout. This is another factor that contributes to the uncertainty
of market holds that OPEC has. A major criticism of the OPEC is the influence and hold its
member countries have over a vast majority of crude oil reserves. Therefore, critics refer to it
as a cartel that would ensure high prices to maintain a share and control over the global
market. However, as technology develops, OPEC’s influence over the market lessens leaving
it in a volatile situation in terms of market control. Its influence on international trade is
periodically challenged by the expansion of non OPEC energy sources. Undeniably, as fuel is
the life blood of trade, the OPEC too has a direct bearing on international trade.

2.4 ASIAN CLEARING UNION

The Asian Clearing Union (ACU) was established with its head quarters at Tehran, Iran, on
December 9, 1974 at the initiative of the United Nations Economic and Social Commission
for Asia and Pacific (ESCAP). The main objective of the ACU is to secure a network of
regional cooperation for the settlement of monetary transactions amongst the members of the
union as specified, on a multilateral platform. It is a form of payment arrangements wherein
the members of the ACU nominate a central bank in their region to facilitate the process. This
helps to facilitate payments as well as to economize on the use of foreign exchange reserves
and transfer cost, lessening the costs associated with international trade. The ACU consists of
the Board of Directors, Secretary General and the agents. Each participant appoints one
director and one alternate director. The Board then collectively appoints a chairman and a
vice chairman from among the member countries. All decisions of the Board are taken by a
majority unless a special majority as stipulated is required. The Board also appoints a
Secretary General for tenure of three years. The agents in the organizations are the monetary
authorities or banks that these members elect in their home country to perform the requisite
functions in accordance with the terms and conditions of the ACU. Since the inception of the
ACU, there has been a rapid growth in transactions. There has also been zero default up till
now which is another indication to its success.

2.5 FOOD AND AGRICULTURE ORGANISATION

Under the parentage of the United Nations, the Food and Agriculture Organization (FAO)
was established in 1945. It is a specialized agency of the UN, advanced primarily to combat
hunger and starvation as well as to facilitate agriculture development. The FAO is directed by
the Conference of Member Nations that meets every two years for review and revision of its
work as well as to plan out the budget of the next two years. The finance is mainly member
funded that provides for core technical woke, cooperation and partnerships. An inter-
governmental organization, the FAO currently has 194 member nations. Its objectives are set
forth in the division of its departments such as the Agriculture and Consumer Protection,
Climate, Biodiversity, Land and Water Department, Corporate Services, Economic and
Social Development, Fisheries and Aquaculture, Forestry Technical Cooperation and
programme Management. The main and fundamental areas of work, however, remain gender
and governance that are integrated into the workings of the departments. FAO has instituted
several programmes that have gained popularity. The “Codex Alimentarius Commission” in
1961 to develop food standards, guidelines and texts as codes of practice, the World Food

Summit, the recognition of the Right to Food in 2004 and its general response to the food
crisis in the world are just some of the examples of the way in which FAO has evolved to
meet its objectives. Further, online campaigns and well as the provision for plant patents,
agriculture investments and Globally Important Agriculture Heritage Systems have ensured
that the FAO is a forerunner in the field to combat hunger and deficits relating to agriculture,
forestry, fisheries and any such area that needs addressing as set out in its objectives. The
success of this organization makes it one of the most revered organizations of the UN.

2.6 WORLD TRADE ORGANISATION

What started off as an accidental or rather incidental formulation of the General Agreements
of Trade and Tariffs, 1947 which was supposed to be a temporary agreement, lead to be in
existence till 1995 when the Marrakesh Agreement was formed, establishing the World Trade
Organization. On April 15, 1994, representatives of the governments of the industrialized
world found themselves gathered in Marrakesh (Morocco) to sign the Final Act embodying
the results of the Uruguay Round multilateral trade negotiations. Launched by the Punta del
Este declaration of September 20, 1986, these "most complex negotiations in world history"'
had been going on during more than seven years within the framework of the General
Agreement on Tariffs and Trade (GATT). The negotiating partners eventually decided to
create a World Trade Organization (WTO), taking the place of GATT as an institutional
framework for the conduct of their trade relations with regard to all matters agreed upon in
the Uruguay Round. The intention was to have the WTO-Agreement ratified in most of the
participating countries so as to allow them to enter into force on January 1, 1995 or as early
as possible thereafter. For the realization of the economic benefits of trade, a well-developed
structure was needed to be in place, the ideology represented in the structuring and
composition of the WTO. The structure of the WTO is simple and well-drawn out. At
present, the WTO standing bodies and ad hoc bodies, who along with the members and
observes, strive to carry out the functions of the WTO. At the apex, is the Ministerial
Conference which as per Article IV of the Agreement, which would agree to meet once in
two years. It is also capable of taking decisions in matters of Multi-Lateral Trade
Agreements. It is composed of minister-level representatives from all members and has
decision making powers on all matters under any of the multi-lateral WTO agreements. The
decisions of this body are binding upon its members. The ministerial conference is a platform
wherein through political and diplomatic relations, through economic trade, advancement of

the country’s economy can be advanced. The Ministerial Conference works by way of
mandatory meetings that are to be held. The General Council of the WTO doubles up as the
Dispute Settlement Body and reviews Trade Policy under the Trade Policy Review function
of the WTO. Under the General Council, the council for trade, trade related aspects of
intellectual property rights and trade in services exist. Several committees are formed to
address specific issues under these council heads as well. The WTO is a member driven
organization having one vote per member. The general idea of consensus as laid down under
Article IX is used to make decisions. The organizational structure is well laid out in the WTO
Agreement to carry out the objectives of the WTO as set forth in the Preamble as well.
Members of the WTO are set to establish relations in trade and commerce to raise the
standards of living, employment, growth of the volume of real income, expand the production
of trade in goods and services and optimal use of the world’s resource. The four extensive
annexes of the WTO agreement are in furtherance of these ideas. These annexes consist of
the auxiliary agreements relating to Trade in Goods, Services, Intellectual Property, Dispute
Settlement, Trade Review Mechanisms and Plurilateral Agreements. As trade develops at a
rapid rate, the power to amend the WTO agreement so as to meet the new requirements of
development has been laid down under Article X. The WTO is a legal entity with a
Secretariat to conduct its administrative operations. WTO is an outcome of several trade
discussions and tough lessons learnt. However, political and economic uncertainty has posed
as a severe threat to the organization. The need and the positive effect that the WTO has on
the global trading regime is one which is undeniable.

2.7 INTERNATIONAL MONETARY FUND

The International Monetary Fund was rerated at the Bretton Woods conference held in New
Hampshire in the year 1944. The major aim of the conference was to establish economic
cooperation and development that would provide stability after World War II. Along with the
IMF, the International Bank of Reconstruction and Development was also formulated, thus
often referring to both these institutions as the Bretton Woods twins. The IMF has grown to
become an organization of 189 member countries that work together to promote and facilitate
monetary cooperation in order to propone financial stability. This in turn facilitates trade,

employment, poverty alleviation and sustainable economic growth that are central goals for
most economies across the world. The main purpose of the IMF is to provide a platform
wherein countries can transact with each other and to establish a system of exchange rates
and international payments to further the cause. Due to the political and economic stability
over the years, the IMF has brought within its purpose the inclusion of global stability and
macroeconomic and financial sector issues as well. Its fundamental mission is to ensure the
stability of the international monetary system. The workings of the IMF can be classified into
three broad heads that relate to Economic Surveillance, Lending and Capacity Development.
The IMF in its first function seeks to monitor the international monetary system which
includes economic and financial polies. It also suggests changes in the policies if need be and
highlights any such risks to stability. An example of this can be seen in the case of Vietnam.
The second function of the IMF is that of lending which loans member countries
experiencing a deficit in the balance of payments to help rebuild their economy. IMF helped
Ireland in this cause. Capacity Development is the unction of the IMF wherein it works with
the governments around the world to ensure that their policies and institutions move ahead
with the times. They also provide training services. To conduct these operations, the IMF has
a managing director who is the head of the staff and also the Chairperson of the Executive
Board. Most resources of the IMF are provided by member countries. Having Quota
Subscriptions, Special Drawing Rights and Gold Reserves along with Borrowing
Arrangements allows the IMF to finance its activities. However, critics of this institution seek
to find this organization too severe at times. Maybe a time conditions placed on the loans
given to countries are too intrusive and often compromise their economic and political
sovereignty. Structural adjustments in the fiscal and monetary policies of these countries are
practically impossible to keep up with for many of them. This proposes the view that IMF
needs to have a better understanding of the distinct nature and characteristics of different
countries and should not seek to confuse a homogenous objective with homogeneity between
the countries of the world. Therefore, barring these criticisms can be concluded that IMF is
one of the most indispensable organizations of the UN.

2.8 WORLD BANK

The World Bank is an international financial institution that aims to end poverty and promote
shared property in a sustainable way. The World Bank, part of the Bretton Woods twins, was
instituted to provide interest free loans and grants to governments in order to enable them to

undertake capital projects. Formerly known as the International Bank for Reconstruction and
Development (IBRD), as the scope of the bank increased, it was re christened to World Bank.
Under the World Bank come five financial organizations’ collectively referred to as the
World Bank Group. These are namely the IBRD, the International Development Association
(IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee
Agency (MIGA), and the International Center for Settlement of Investment Disputes
(ICSID). The IBRD and IDA focus mainly on public sector work whereas the later seek to
promote investment and interaction amongst various private sector players. The governance
of the World Bank is almost similar to that of the IMF. Annual contributions to the institution
determine its voting rights. Together with the IMF, certain common goals are also shared and
worked towards. One such example is the setting up of the 2030 development agenda
wherein new initiatives were brought to light within their scope. A stronger tax system is one
such proposal in this system. The IMF and World Bank go beyond mere financial assistance
and seek to provide a common platform for countries to engage in a stale trading atmosphere.

2.9 BRICS

BRICS is an association of five major national Economies-Brazil, Russia, India, China and
South Africa that have a significant influence on regional affairs. The first summit of BRIC
was held in Yekaterinburg in 2009 reforming financial institutions and a renewed
commitment for future cooperation was the main aim. Another agenda was to have more
influence on the global affairs of the world. In 2010, South Africa became part of the summit
therefore remained to BRICS. It is an independent organization that encourages commercial,
political and cultural cooperation between the nations. One of the major driving forces
towards its formation so the common rivalry against western states that seek to impose
dominance in the various spheres of global trade. As of 2019, BRICS has had 11 Summits,
for the implementation of the interest and causes of its member nations.

2.10 WORLD ECONOMIC FORUM

The World Economic Forum is a non for profit organization founded in 1971, headquartered
in Switzerland. It is an “other international body” committed to improving the state of the
world by engaging actors to promote global public interest whilst maintain high standards of
governance. It has public, private, international and academic institutions as actors to

promote these agendas. The main aim of this institution is to promote harmony between
public and private institutions.

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