ITL - M2

MODULE 2

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.1 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 today. 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

1 https://www.wto.org/english/res_e/statis_e/wts2018_e/wts2018_e.pdf

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 II examines the procedural provisions (territorial application, customs
union, frontier traffic, acceptance, free trade, withdrawal 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, n 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. Quantative restrictions were barred. Anti-dumping was also addressed
in the GATT and provided for wherein a contracting party can levy an 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 of fee trade
vs. protectionism was up once again, causing great conflict between countries. Trading policies
differed in accordance to 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,1960 the headquarters of OPEC are situated in Austria. OPEC is a
permanent, intergovernmental organization created at the Bagdad Conference. 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,
raising social and economic unrest directly effects supply and demand of fuel price throughout.
This is another factor that contributes to the uncertainty of market hold 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
Under the fourth Ministerial Conference of United Nations Economic and Social Commission
for Asia and the Pacific (ESCAP), the Asian Clearing Union(ACU) was established in Tehran,
Iran in 1974. 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 a 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 meet 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 in 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 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 Plulilateral 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. It is a much needed and warranted organization 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 ha son 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,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 help
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 propones the view that IMF needs to have a better understanding about 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 it can be conclude 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 FIANNCIAL INSTITUIONS 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.

REFERENCES

1. "About FAO". fao.org. 2016. Retrieved 3rd July,2019
2. "Amid BRICS' rise and 'Arab Spring', a new global order forms" Retrieved 03 July, 2019
3. "Intergovernmental Organizations". United Nations. Retrieved 03 July 2019
4. "The Agreement Establishing the OPEC Fund for International Development" (PDF). OPEC. 27 May

1980. Retrieved 02, July 2019
5. (asianclearingunion.org) <https://www.asianclearingunion.org/> accessed July 3, 2019
6. . "Glossary of Industrial Organization Economics and Competition Law" (PDF). OECD. 1993. p. 19.
7. “Brief History” (OPEC) <https://www.opec.org/opec_web/en/about_us/24.htm> accessed July 2, 2019
8. “FAO Reform" . fao.org. 28 February 2011. Retrieved 3rd July, 2019
9. “International Monetary Fund Home Page” (IMF) <https://www.imf.org/external/index.htm> accessed

July 3, 2019
10. “The World Economic Forum” (World Economic Forum) <https://www.weforum.org/> accessed July 3,

2019
11. “WTO | The History of Multilateral Trading System” (WTO | Trade Statistics - World Trade Statistical

Review 2017) <https://www.wto.org/english/thewto_e/history_e/history_e.htm> accessed September 20,
2018
12. Agreement Establishing the World Trade Organisation 1995
13. All Answers ltd, 'The Failure of GATT – Analysis' (UKEssays.com, July 2019)
<https://www.ukessays.com/essays/economics/the-failure-of-gatt-and-wto-agreements-economics-
essay.php?vref=1> accessed 8 July 2019
14. Ayenagbo, Kossi & Kimatu, Josphert & Jing, Zhang & Nountenin, Sidime & Rongcheng, Wang. (2011).
Analysis of the importance of general agreement on tariffs and trade (GATT) and its contribution to
international trade. Journal of Economics and International Finance. 3. 13-28.
15. Conclusions and resolutions adopted at the Ministerial Meeting of GATT Contracting Parties (1963).
Basic Instruments and Selected Documents, p. 12.
16. Financial Times, 'Waning Expectations: Agreement On Trade Remains Remote As Time Trickles Away'
(2005).
17. Hancock, Graham (10 January 1994). "The Lords of Poverty: The Power, Prestige, and Corruption of the
International Aid Business". Atlantic Monthly Press
18. Hoekman, Bernard, et al. “Eliminating Excessive Tariffs on Exports of Least Developed Countries.”
(2002) 16 The World Bank Economic Review. 22
19. Julien B (2005). Effectiveness Of Dispute Settlement Mechanism Of The Wto: Towards A Better
The Multilateral Trading System Predictability. Kojima K (1977). Japan and a New World
Economic Order, Croom Helm, London, quoted in Robertson, p. 25.
20. Munir and others, “From GATT to WTO: A Legal Analysis” (SSRNAugust 16, 2011)
<https://poseidon01.ssrn.com/delivery.php?ID=36709910206800011307107009512602610703804904
80230790450900900870250291240241140311120530490380420590990451040760651060971150310
20036071089003016118013113098089092052093054078127026111016094123004002122123126026
071093067024077096078122075064119069117&EXT=pdf> accessed July 3, 2019
21. Olivier de Schutter (2010) "Countries tackling hunger with a right to food approach. Significant progress
in implementing the right to food at national scale in Africa, Latin America and South Asia" United
Nations Special Rapporteur on the Right to Food, Briefing Note 01, 14 May 2010.