WTO Law and Policy

A Political Economy Approach

Jae Sundaram

• Publisher: Routledge
• Year: 2022
• ISBN:
  9780429632693
• Edition: 1
• Topic: Droit
• Subtopic: Théorie et pratique du droit

WTO Law and Policy presents an authoritative account of the emergence of the World Trade Organization (WTO) and the basic principles and institutional law of the WTO. It explores how political economy has shaped the WTO's legal philosophy and policies, and provides insights into how international trade law at the WTO has developed.

This textbook examines the legal obligations of the Member States of the WTO under the multilateral trade agreements, the legal remedies available under the rules-based dispute settlement system, and incorporates the most relevant case laws from the WTO's jurisprudence. It outlines several key contemporary issues which the WTO faces as well as areas that need reforming. Each chapter covers a specific topic in relation to the framework and functionality of the WTO, with particular focus on the legal aspects of the multilateral trade order. The book is guided by the legal pronouncements of the Dispute Settlement Body (Panels and Appellate Body), and the commentaries on the interpretation of the provisions of the covered agreements.

This book is ideal for all students studying international trade law, including those coming to international law, international trade law, and WTO law for the first time.

Part I Trade Theory, Founding of the WTO, and Key Principles

1 Trade Theory and the World Trade Organization

DOI: 10.4324/9780367028183-2

Learning Objectives

1. Introduction

2. International Trade Theories

2.1 Mercantilism

3. Pre-Classical Theories

3.1 Pre-Classical: Physiocrats

4. Classical Economics: Adam Smith

4.1 Invisible Hand

4.2 The Division of Labour

4.3 Absolute Advantage and Factors of Production

5. Classical Economics: David Ricardo

5.1 Gold Standard

5.2 Theory of Diminishing Returns – The Corn Model

5.3 Theory of Comparative Advantage and Foreign Trade

6. Classical Economics: Karl Marx

6.1 Criticism of Classical Economics

6.2 Historical Materialism and Economic Theory

6.3 Labour Theory of Value

6.4 Theory of Rent, Money, and Surplus Value

7. Liberalism

8. The Keynesian Economic Thought

8.1 Historical Background and Writings

8.2 Keynes and Classical Economic Thought

8.3 The Theories

8.4 Keynes’s Legacy

9. Summary

Learning Objectives

This chapter aims to provide the students with

1. An introduction to international trade theories;
2. An introduction to the classical economic theories of Adam Smith, David Ricardo, and Karl Marx;
3. An introduction to liberalism, Keynesian economic thought, and Keynes’s legacy; and
4. An introduction to the economic theories that underpin the WTO.

1. Introduction

A study of the World Trade Organization and its laws presuppose an understanding of the underlying economic principles that shaped international trade in the twentieth century and how they continue to do so in the twenty-first century. While an overview of the economic principles of the post-World War II era of international trade – from the 1940s, as well as during the GATT era before the founding of the WTO in 1995 – will shed light on the underlying economic principles that drive the multilateral trade organisation’s objectives and operations, it may not suffice for the current discourse. As international trade has been an important feature of the world economy for centuries, it will serve our purposes to take a peek into the development of economic thoughts from the sixteenth century onwards, which coincided with the discovery of the ‘New World’. This discovery brought unheard of wealth to European shores in the form of gold, silver, and more. It was also a time when ‘mercantilist’ thought was fast emerging in Europe, supporting the expansion of empires and the founding of nation states, besides the development of international trade. The aforementioned approach will allow us to gain a deeper understanding and appreciation of the underlying theories, principles, and justifications of the international economic order which we currently have in place.

The WTO’s economic principles are based on the neoliberal model of capitalism, which is an extension of economic liberalism that emerged in the post-World War II era. The business-to-business (B2B) model of international trade is predicated on the economic principles driven largely by profits and the desire to earn foreign exchange. On the other hand, international trade as performed under the aegis of the WTO does not have the same narrow economic model, as the objectives of the multilateral trade body goes beyond mere profit making, as it has a much wider remit containing non-economic reasons.

2. International Trade Theories

Although international trade’s origins can be traced back thousands of years in human history, it is not to be understood that it was performed on the back of a well-thought-out economic policy or even a business plan, for that matter. In the early millennia, there was scepticism about trading with ‘foreigners’, and the Greek and Roman writers took differing views on the use of the sea to pursue trade, with some being ambivalent about the advantages of being close to the sea. Writers like Plutarch, though, held the view that in the absence of the sea, man would be “savage and destitute”, as it promoted exchange amongst different nationalities.¹ Plutarch’s words highlight the interdependence of human cultures and how trade helps by not only being beneficial to the trader but also facilitating a more important function, viz., exchange of resources, ideas, cultures, etc. The Greek philosopher Aristotle had his reservations about international trade, or trading overseas, and condemned the use of ‘money’ in trade (as opposed to barter), branding the same as ‘justly discredited’ – for it is not in accordance with nature, but involves men’s taking things from one another.²

The theory of international trade concerns itself with the causes, the structure, and the volume of international trade and is essentially microeconomic in approach and outlook. The theory of international trade proceeds on the assumption that trade takes place in the form of barter, or money, and the international accounts of a country vis-à-vis all the others always balance, which means that no balance-of-payment problem exists. International trade theory is contained in three main models, which are (i) the classical theory (Torrens-Ricardo), which states that the determinants of trade are to be found in technological differences between countries; (ii) the Heckscher-Ohlin theory, which stresses the differences in factor endowments between different countries; and (iii) the neoclassical theory, according to which these determinants are to be found simultaneously in the differences between technologies, factor endowments, and tastes of different countries (Gandolfo, 2014).

2.1 Mercantilism

Mercantilism was a school of thought that emerged in sixteenth- to eighteenth-century England and amongst the key nation states of continental Europe. It is considered as a long chapter in the history of European economic thought that shaped national economic policies roughly between 1500 to 1800 (Allen, 1991) and is viewed as the precursor to the classical school of economic thought. The term système mercantile was first used in 1763 by French writer de Mirabeau in a passage in his work Philosophie Rurale, in which he overtly attacked the idea that a nation may profit from the importation of money (Magnusson, 2015). In the 1860s, German writers used the expression Merkantilismus to refer to this particular school of thought, and corresponding terms such as ‘mercantilism’ in English were used (Viner and Irwin, 1991).³ It is also to be borne in mind that the word ‘mercantilism’ has been used in a number of ways and does not have a standard definition.

Although mercantilism was the major economic thought spanning over three centuries, no major theoretical treatises are to be found on the subject. It should be noted that the precepts of mercantilism were the economic components of state building, which provided much of the justification. Vaggi and Groenewegen note that the discovery of the New World and the establishment of colonies in the fifteenth century by European states witnessed a large flow of gold and silver into Europe from Mexico and Peru, which resulted in semi-barter exchanges in markets giving way to more widespread use of money.⁴ Most of the gold from the New World was flowing into Spain, which applied bullionist restrictions over a lengthy period of time and imposed the death penalty for exporting gold and silver. Although prohibited from being exported, Spanish gold found its way all over Europe and to some extent was responsible for the long period of inflation.

The cornerstone of mercantilism was the notion that a nation’s wealth was through the accumulation of gold and silver, and that nations without gold and silver mines could obtain them only by selling more goods than they bought from abroad. England did not have any gold or silver mines, and an export of goods and services to provide for an accumulation of bullion was seen as the way forward, with a unilateral gain in foreign trade and in specie inflow.⁵ Hence, the earliest phase of mercantilism was referred to as ‘bullionism’. Mercantilists measured national wealth as the amount of ‘international reserves’ at the disposal of a state, which in their view could be increased by bringing in more gold and silver within the jurisdiction of a state or preventing the ‘outflow’ of the same.⁶ Under the doctrine, a great deal of emphasis was placed on maintaining an excess of exports of goods and services over imports, as the objective was to promote production and commerce, which in turn contributed to the prosperity and power of the nation state. Manufacturing activities were gradually brought within the nation state, which necessitated taking protectionist measures from foreign competitors, leading to the end of the age of ‘bullionism’ and the birth of new mercantilist thinking.⁷ In short, mercantilism was to steadily grow into an economic theory and political movement which advocated utilising the state’s military power to ensure internal markets and their supply sources were protected.

Only with the publication of Wealth of Nations, in which Adam Smith interpreted mercantilism as the opposite of the ‘free trade system’, was mercantilism constructed into a coherent system (Magnusson, 2015).⁸ Later, mercantilism was also to be portrayed as ‘protectionism’. The authors of mercantilism were businessmen or government officials on the Continent who were keen on self-promoting their policies, rather than being dispassionate scholars advocating for a sound economic policy based on principles. The works were often short and took the shape of pamphlets and were designed to convince the public and the government to implement the policies most favourable to their trading companies. The work of Thomas Mun, published ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Preface
• List of abbreviations
• List of abbreviated cases
• Part I Trade Theory, Founding of the WTO, and Key Principles
• Part II General Exceptions, Non-Tariff Barriers, Subsidies, CVDs, and AD Measures
• Part III GATS, TRIPS, TBT, and SPS Agreements
• Part IV RTAs, Environment, Human Rights, and Reform of the WTO
• Index