From Diplomacy to Law: The Juridicization of International Trade Relations

Northwestern Journal of International Law & Business, Dec 1997

This article deals with the development of law; i.e., the evolution of a legal regime in a field which prior thereto was not subject to law. It is my view that such a process took place in recent decades in the area of trade relations between sovereign nations. The period since World War II, and particularly recent years, is marked by the clear development of a conventional legal regime which regulates trade re- lations among the majority of countries of the world, as expressed by the multiplication of legal norms and the strengthening of the binding nature of these norms and the procedures for enforcing them. An in- depth examination of this phenomenon and an analysis of its political and economic causes may shed light on not only an important phe- nomenon in the field of international law, but also on the role of law generally in human society.

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From Diplomacy to Law: The Juridicization of International Trade Relations

Northwestern Journal of International Law & Business From Diplomacy to Law: The Juridicization of International Trade Relations Dr. Arie Reich 0 0 This Symposium is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons From Diplomacy to Law: The Juridicization of International Trade Relations I. INTRODUCrION A. Presentation of the Thesis This article deals with the development of law; i.e., the evolution of a legal regime in a field which prior thereto was not subject to law. It is my view that such a process took place in recent decades in the area of trade relations between sovereign nations. The period since World War II, and particularly recent years, is marked by the clear development of a conventional legal regime which regulates trade relations among the majority of countries of the world, as expressed by the multiplication of legal norms and the strengthening of the binding nature of these norms and the procedures for enforcing them. An indepth examination of this phenomenon and an analysis of its political and economic causes may shed light on not only an important phenomenon in the field of international law, but also on the role of law generally in human society. An international trade agreement will always be in the nature of a compromise by each of the State Parties between each State's aspiration to attain the economic benefits introduced by the agreement, * Lecturer, Faculty of Law, Bar Ilan University, Israel. S.J.D., University of Toronto, Canada (1994). This article is an English version of an article that is to be published in the Tel Aviv University Law Review. It is based on a paper first presented at a conference on "Law and History," organized by the Historical Society of Israel, that took place in July 1995 at Haifa University. An extended version was presented at the ASIL IELG conference in Bethesda in May 1996. The author is indebted to the participants of these conferences, as well as to Professor Joseph Weiler, Uriel Reichman, Samuel Sandier, and Joshua Krasna for their valuable comments. and each State's desire to preserve optimum sovereignty. On the one hand, every international agreement naturally contains limitations on the freedom of action of each State and constrains the policy options open to it. On the other hand, the economic benefits which each State wishes to attain through the trade agreement, will not be achieved in their entirety unless there is reciprocal honouring of the obligations contained in the agreement. The first consideration, the preservation of sovereignty and prevention of restrictions on courses of action, creates a tendency towards preferring non-binding agreements and agreements which leave the optimum freedom of action to the State, for example, by flexible or vague drafting, and use of "escape clauses" and weak enforcement procedures. Such agreements allow flexibility in honoring obligations and retain scope for diplomatic manoeuvring. This will allow the States to consider internal political interests which may arise in the future and which may require measures to be taken that are contrary to their commitments under the agreement. Such scope of action is, of course, open to exploitation by all parties. The more it is exploited, the greater is the uncertainty in international commerce. The greater the uncertainty, the more severe is the injury to the other parties to the Agreement. The greater the severity of injury, the higher are the chances that the economic goals of the agreement will be frustrated. In this constant conflict between opposing interests, in the past, the political scales tipped in favor of sovereignty and flexibility. The trade agreements, to the extent they existed, were limited in their contents and were less binding in their nature. Many governments saw these agreements not as a binding legal regime but as a DIPLOMATICPoLrricA. framework which could provide a "basis for negotiation between States for the purpose of attaining a balance between benefits and obligations."' In recent years, however, there is a growing demand by States to regulate their trade relations by using norms and enforcement procedures that are LEGAL in character, create significant limitations on the sovereignty of the States, and, in extreme cases, even exclude the States' power to determine policy in certain socio-economic fields. The most prominent examples of this latter 1 These statements were made in the past in relation to the GATT agreement. Cf. OLumR LONG, LAW AND ris LIMITATIONS IN Tim GATr MULTILATERAL TRADE SYSTEM 21 (1985). In the 1970s, Long was the Secretary General of GATr. He states: "These limitations reflect the difficulties inherent in any attempt to regulate within a legal framework something as dynamic and fluctuating as world trade, despite provisions for waivers, exceptions and a safeguard clause." See generally KENNETH W. DAM,Tam GAT: LAW AND INTERNATIONAL ECONOMIC ORGANIZATION 335-36 (1970); and in greater detail, see infra Part II,para.C:1. phenomenon are provided by the treaties establishing the European Community (EC).2 In other international frameworks, a similar trend is also apparent, even if it does not possess the extreme characteristics of the EC. This process is hereinafter termed the "juridicization process ' 3 of international trade relations, a term which is meant to encompass developments both on the substantive and procedural level. The writings in this field have hitherto concentrated on the institutional developments, particularly in connection with the new dispute settlement procedures of the World Trade Organization (WTO).4 In this context, commentators have spoken of "judicialization" of the General Agreement on Tariffs and Trade (GATT), a term that refers to the "judiciary," i.e., the mechanism entrusted with resolving disputes and ruling on questions of interpretation. This thesis, in contrast, argues for a more integrated perspective on the developments in the international trade arena-a perspective that views law as a general phenomenon composed of both substantive and institutional components and one that is not confined to the multilateral level alone. In our view, the procedural and institutional developments in the WTO form a specific part of a more general trend of world-wide proportions, which is reflected in significant developments both of the substantive law of international trade relations and of its institutional setting in the multilateral GATT agreements and in regional and bilateral trade arrangements. What we have here is a process of legal evolution, where a new international legal regime regulating the trade policies of governments is gradually evolving. 2 See, for example, the statements of the European Court in the famous case Costa v. ENEL, E.C.R. 585.593 (1964): "By creating a Community of unlimited duration, having its own institutions, its own personality, its own legal capacity and capacity of representation on the international plane and, more particularly, real powers stemming from a limitation of sovereignty or a transfer of powers from the States to the Community, the Member States have limited their sovereign rights, albeit within limited fields, and have thus created a body of law which binds both their nationals and themselves." 3 "Juridicization" deriving from the word "Juridicus',which means of, or pertaining to, courts or a legal system, and which also hints at the term "JureGentium", "the law of nations". The term "legalization", which some modem commentators use is less appropriate, as it pertains to the process of making something lawful; in other words, making lawful a phenomenon which prior thereto was against the law, a meaning which of course is not applicable to this discussion. Another important distinction, which will be used later, is betwenn "rule oriented" and "power oriented" relationships. See JOHN H. JACKSON, Tim WORLD TRADING SYSTEM: LAW AND POLICY OF INTERNATIONAL ECONOMIC RELATIONS 85 (1991). 4 See, eg., Ernst-Ulrich Petersmann, The DisputeSettlement System of the World Trade Or ganization and the Evolution of the GATT Dispute Settlement System Since 1948, 31 COMMON Mic. L REv. 1157 (1994); RoBERT HUDEC, ENFORCING INTERNATIONAL TRADE LAW: THE EVOLUToN OF THM MODERN GATT LEGAL SYsTEm (1991). In order to prove this claim, Part II of this article examines the evolution of the multilateral regime governing international trade relations known as GATT, over the last fifty years until the establishment of the WTO. Its transformation from a primarily diplomatic framework for coordination of trade policies to a legal regime imposing welfare-enhancing limitations on government intervention in the economy is described and analyzed. To illustrate the juridicization process in bilateral trade arrangements, Part III then examines developments in the international trade agreements of Israel, the author's home country. The various stages of development in these agreements-concluded with most of the major trading powers-also demonstrate very clearly an identical trend of juridicization as found on the multilateral level. In Part IV, I then attempt to offer explanations to the phenomenon by analyzing its economic and political roots, using'some of the theories and models developed within the discipline of international relations.- Finally, I shall attempt to tie the process of juridicization to the phenomenon of law as a whole and to what is known about the stages and causes of the development of law in human society. Prior to turning to a review of developments in this field, it is necessary to attempt to define the standards according to which the phenomenon will be examined. More specifically, according to which criteria will a particular arrangement be regarded as more "legal" than another? Legal scholars generally, and researchers in international law in particular, have conducted extensive discussions about the proper definition of the term "law,"6 and it has even been suggested (even if somewhat exaggerated) that the number of definitions of law is as many as the number of lawyers.7 For purposes of this article, I shall use the definition proposed by Professor Yoram Dinstein, a prominent Israeli scholar of International Law. Professor Dinstein defines law as "a binding normative arrangement which a society establishes in order to limit human behaviour."8 The characteristics which therefore identify the "legal" nature of any system, as already emphasized by Aquinas, 9 are their "binding" character and their power to "limit" the behavior of persons acting within their framework. 10 Accordingly, international arrangement "A" is deemed to be more "legal" than international arrangement "B," if and to the extent that arrangement "A" creates more severe limitations on th& behavior of States than does arrangement "B." This effect may occur because of the profusion of norms in arrangement "A," the stricter formulation of the provisions in arrangement "A," or the efficacy of the enforcement procedures in 8 Id. In accordance with this approach, Prof. Dinstein thereafter defines international law as "a binding normative arrangement which international society establishes in order to limit human behaviour." Id. at 26. Similar definitions have been offered by other prominent scholars of international law. Brierly's classical definition of international law refers to "the body of rules and principles of action which are binding upon civilized states in their relations with one another." J. BRIERLY, THE LAWv OF NATIONS 1 (H. Waldock 6th ed., 1963). The term "binding" implies both the mandatory character of international legal norms, as well as their restrictive impact on the states who are subject to them. See also J.G. Starke's definition of a legal norm, infra note 10. A contending definition would be that of John Austin, who defined law as the "command of the sovereign," and who regarded the existence of sanctions in case of disobedience as a crucial element of any legal system. See JOHN AuSITN, THE PROVINCE OF JURISPRUDENCE DETERMINED 12 (London: Weidenfeld & Nocolson, 1968). This approach, which is strongly influenced by Austin's perception of municipal legal systems-in particular the English one-has been widely criticized and cannot be employed in the field of public international law. See G. Williams, InternationalLaw and the Controversy concerningthe Word "Law," 22 BRrr. Y.B. INT'L LAW 146, 147-48 (1945). Indeed, Austin did not regard international law as "law, properly so called," but as "positive morality." Id. If experience has shown us that "almost all nations observe almost all principles of international law and almost all of their obligations almost all of the time"--as Louis Henkin has put it-that, in my mind, proves the inaccuracy of Austin's definition of "law," rather than the non-existence of international law. See LouIs HENKIN, How NATIONs BEHAVE: LAW AND FOREIGN POLICY 47 (2d ed. 1979). 9 Thomas Aquinas (1224-1274) in Summa Theologica,defines the nature of law as follows: "Law is a rule or a measure of action in virtue of which one is led to perform certain actions and restrained from the performance of others. The term "law" derives [etymologically] from "binding", because by it one is bound to a certain course of action." THOMAs AQUINAS, SUMMA THnOLooicA Qu. 90 (J.G. Dawson trans.), quoted in LORD LLOYD OF HAMPSTAD & M.D.A. FREEMAN, LLOYD'S INTRODUCTION TO JURISPRUDENCE 151 (5th ed. 1985). 10 The definition of the term "law" in the Oxford Dictionary, emphasizes these characteristics: "a rule enacted or customary in a community and recognized as enjoining or prohibiting certain actions and enforced by the imposition of penalties." CONCISE OXFORD DIctIONARY 670 (1990). This definition also explains that the enforcement of legal rules is exercised by means of sanctions and not by force, a stipulation which conforms with norms of public international trade law. The definition of a legal norm is also given by the renowned scholar of international law, J.G. Starke: "A norm... is a prescription enjoining a defined mode of action." J.G. Starke, Monism and Dualism in the Theory of InternationalLaw, 17 BRrr. Y.B. IN'L L. 66 (1936). arrangement "A." In all three cases, the result is that courses of action which were previously available to the State are now constricted, and certain actions may no longer be performed legitimately within the framework of the arrangement." The Politics and Economics of International Trade Agreements Although every international trade agreement has its own specific background anchored in the prevailing specific political and economic interests of the States involved, there are some general characteristics common to all trade agreements which may explain the need for these agreements and their similar content. The primary purpose of the trade agreements considered below is the dismantling of barriers to international trade. These barriers are found in different forms; tariffs and import charges, bureaucratic obstacles to imports, and subsidies are only a partial list of the various possibilities. Common to all of these forms of barriers is that they originate in government policy, the purpose or result of which is the protection of local industry against competition by foreign manufacturers.' 2 Some of the agreements also deal with trade barriers which do not originate in government interventionism but, rather, in anticompetition activities of private corporations. 13 11 The following is an illustration: if John Doe promises to give Richard Roe £100 "when I want to", no legal obligation is created, as his "promise" does not restrain him in any way whatsoever. Everything depends on his will, and so long he does not "want" to give the money-he is under no obligation to do so. Similarly, a State's undertaking not to place protective tariffs on certain products-where this undertaking is subject to the right of the State to claim the existence of various "special circumstances," or the existence of a situation where it has almost unqualified discretion to accept the complaint of a local manufacturer about imports being dumped, and to impose a levy on the said imports-is much less "legal" than where such reservations do not exist. 12 It is customary to divide trade barriers into two categories: custom tariffs (i.e., customs duties and charges equivalent to customs duties), and non-tariff barriers (NTBs). The latter category includes an almost endless list of methods of distorting the flow of trade, a list which is a extensive as the inventive powers of government officials around the world. They also include export incentives which aid local manufacturers to compete with foreign manufacturers in export markets. A GAIT Secretariat report prepared in the 1970s lists more than 600 non-tariff barriers. See Quantitative Restrictions and Other Non-Tariff Barriers, Nov. 30, 1984, GATr B.I.S.D. (31st Supp.) at 211 (1985). A list prepared by the United Nations Conference on Trade and Development in the 1980s reached a much higher number, see UNCTAD, Non-Tariff Barriers Affecting the Trade of Developing Countriesand Transparencyin World Trading Conditions: The Inventory of Non-TariffBarriers(Geneva: UNCTAD, 1983). 13 See Treaty Establishing the European Economic Community, Mar. 25, 1957 , arts. 85-86, 298 U.N.T.S. 11, 47-49 (1957); Convention Establishing the European Free Trade Association, Jan. 4, 1960, art. 15, 370 U.N.T.S. 3, 15-16 (1960) [hereinafter EFTA]; Agreement Between the European Economic Community and the State of Israel, May 11, 1975, 1975 O.J. (L 136) 3. Generally, these provisions prohibit anti-competition activities, such as co-ordination of prices, At the root of the trade agreements lies what is termed the liberal economic doctrine,' 4 which aims to reduce government intervention in the flow of trade between States, while recognizing that free trade is beneficial to the economies of all the acceding States. This doctrine originates in the theories of renowned economists of the 18t" and 191 centuries, led by David Hume,'5 Adam Smith,'6 David Ricardo, 7 and John Stuart Mill. 18 According to the "Theory of Relative Advantage," proposed by Ricardo,19 a State will always prefer to specialize in industrial sectors in which it has a relative advantage (in comparison with other industrial sectors) and permit free trade with foreign countries in the remaining sectors with the aim of importing those products which it needs in return for the fruits of its most efficient labor. Such an economic arrangement will lead to reciprocal benefits for all the participating States. Every obstacle which prevents this beneficial trade is detrimental to all the participating States, not only to the State which wished to export, but also to the State which was to gain from the import. This theory is, therefore, a refinement of the concept of specialization, referred to by Plato20 and developed by Smith and Ricardo. Ricardo's theory is still highly regarded by economists" and provides a powerful intellectual underpinning for the policy of free establishment of cartels, and exploitation of dominant positions of monopolies, in so far as such activities impair trade between the countries involved. 14 MICHAEL J. TREBILCOCK & ROBERT HowsE, THE REGULATION OF INTERNATIONAL TRADE 20 (1995). 15 In 1752, David Hume was the first to repudiate the claims of the mercantile economists of the 17" and 181 centuries, according to which governments should aim to limit imports and maximize exports with the purpose of increasing gold reserves. He showed the existence of a mechanism which always tends to equalize the international balance of payments of States. Hume's mechanism is described by Paul A. Samuelson. PAUL A. SAMUELSON, THE THEORY OF ECONOICS 648 (M. Eto trans.) (3d ed. 1963). 16 ADAM SMITH, AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS bk. IV, ch. 11 (1890) (1723-1790). 17 DAxIm RICARDO, THE PRINCIPLES OF PoLrnCAL ECONOMY AND TAXATION 77 (1911) (1772-1823). 18 Jom STUART MILL, PRINCIPLES OF POLrICAL ECONOMY (1848) (1806-1873). 19 RICARDO, supra note 17. 20 See PLATO, THE REPUBLIC (Francis MacDonald Cornford trans., Oxford University Press 1941). Plato uses the idea of specialization and the division of labour in order to explain the origins of human society: "So the conclusion is that more things will be produced and the work be more easily and better done, when every man is set free from all other occupations to do, at the right time, the one thing for which he is naturally fit... We shall need more that four citizens, then to supply all those necessaries we mentioned, For the farmer, naturally, will not make his own plough.. ." Ld. at bk. 2, 71-73. Thereafter, Plato also draws the inevitable conclusion, Le, the indispensability of international trade, at least for the purpose of supplying products which are not manufactured in that State. Id. 21 TREBILCOCK & HowsE, supra note 14, at 2-3. trade which is at the basis of international trade agreements. As the modem economist Paul Samuelson, winner of the Nobel Prize for Economics, phrased it: "In fact, the supporters of free trade have one reason only, but this reason is of pre-eminent weight: free trade promotes a mutually beneficial division of labour among nations, greatly increases the chance of growth in real national product, and enables a higher standard of living world-wide.' -". However, based on this rationale, States ought to adopt a unilateral policy of free trade, as England chose to do in the second half of the 19 ' century while relying on the theories of Smith and Ricardo 23 and without need for recourse to international agreements. The theory of free trade is unable to explain the necessity for reciprocity which underlies international trade agreements and characterizes most of the liberalization achieved in recent decades in international trade.24 Accordingly, commentators,25 while applying the Public Choice Theory, generally point to internal political failures which lead to a flawed decision-making process in which too much weight is given to the concentrated interests of protected industries, i.e., their owners and workers, at the expense of the thinly spread interests of consumers who are forced to bear the costs of protection.26 This situation is created by the superior organizational and lobbying power of the protected industries in comparison to the large consumer public, whose individual per capita interests are much smaller than those of the members of the protected industries. As a result, it is very difficult to politically break down trade barriers unless compensation is offered to industry in the form of new foreign markets. These markets can be opened up to them as a result of international trade agreements that are based on reciprocal, as opposed to unilateral, liberalization. Moreover, in this connection, every government is affected by the "prisoners' dilemma" arising out of the desire to dismantle barriers in export-markets in addition to liberalization at home.27 If it disbands its barriers unilaterally, it will not have the wherewithal to "pay" its partners for removing their barriers as well.28 Since the signing of the English-French trade agreement in 1860 (Cobden-Chevalier Treaty), it has been clear to modern statesmen that international trade agreements may be an extremely useful tool for liberalization in trade (an idea which was not easily accepted by the supporters of unilateral free trade policy in England). 29 These agreements in fact create an international system of regulation whose purpose is to deal with national systems of regulation; the latter restrict trade and protect local industry against foreign competition, whereas the former aspire to eliminate restrictions, promote trade, and expose industry to international competition. The international agreements also aim in this way to reduce uncertainty and instability existing in international trade, where every State is completely free to take measures against, and impose restrictions on, exports of other countries.3" The international trade agreements therefore implement the vision of the UN Charter to "employ international machinery for the promotion of the economic and social advancement of all peoples."''a Using the terminology of the New Haven School approach 27 The dilemma is created because every State is likely to prefer preserving its own trade barriers, while anticipating a unilateral lowering of barriers on the part of the other State on the basis of that country's own internal interests. 'Thus, the State which "holds out" longest will ultimately succeed in opening its export markets without needing to open its own markets for imports. When both countries adopt this policy, ultimately, both loose. In this situation, it becomes worthwhile for each country to aim for co-operation in the form of an international agreement for reciprocal liberalization. See Robert Axelrod & Robert 0. Keohane, Achieving Cooperation Under Anarchy, in CO-OPERATION UNDER ANARCHY 226 (Kenneth A. Oye ed., 1985); see also William R. Cline, "Reciprocity": A New Approach to World Trade Policy?, in TRADE Pouicy IN rHE 1980s 121, 152 (William R. Cline ed., 1983). 28 This is one of the reasons that the State of Israel, even within the framework of the Unilateral Exposure Program, retained customs at minimal levels and did not cancel them altogether, i.e., so as to enable "payment" in future negotiations with third countries. See Dismantle Trade Barriers,supra note 24. See also H.C.J. 1452/93 Igloo v. Minister of Trade and Industry 47(5) P.D.610, para. 5 of the judgment, where it was held by Israel's High Court of Justice that the requirement of reciprocity in international trade is a legitimate consideration on the part of the authorities, which justifies refusing an import permit. 29 For a comprehensive historical overview, see GILBERT R. WnIAM, Trm EVOLUTION OF INTERNATIONAL TRADE AGREEMENTS 15-20 (1992). 30 See id. at 12; Cf. ROBERT 0. KEoHANE, AFTER HErmONY 87-88 (1984). 31 U.N. CHARTER Preamble. to international law,3 2 international trade agreements act on the level of attaining "optimal order," and not only "minimal order," in the international community by maximizing the allocation of economic resources. II. THE PROCESS OF JURIDICIZATION OF THE GATT REGIME . A. Historical Background of the GATT Today, the GATT forms the most important multilateral framework for the regulation and coordination of the international trade policies of most of the countries of the world. The conception and birth of this agreement were inspired by the vision of "a new order" in the world economy based on cooperation and liberal principles and was led by the heads of Western States at the end of World War fI.33 The basic rules for this new order were laid down by an international economic conference, which took place in July 1944 in Bretton Woods, with the intention of structuring it around three international organizations-the International Monetary Fund (IMF), the World Bank (IBRD) and the International Trade Organization (ITO). The ITO was intended to operate as a permanent institution which would both promote the reciprocal removal of barriers and provide a forum for enforcing obligations in this connection and resolving disputes. 4 From 1946 to 1948 delegations from tens of countries labored over the preparation of a constitution for this organization. The constitution was finally signed in Havana in 1948 by 53 States.3 5 Concurrently, an ancillary agreement was drafted which provided for the substantive rules of trade, stating what was permitted and prohibited and to what extent each country undertook to reduce its tariffs. This agreement was called the General Agreement on Tariffs and Trade, or GATT.3 6 However, when the ITO Convention (known as the Havana Charter) was presented for ratification to the United States Congress, it was met by the vehement opposition of members of the Senate. They saw it as a serious threat to the sovereign power of the United States (as well as to the powers of Congress) to determine trade policy and economic policy as the United States saw fit without some inter32 See LUNG-CHu CmEN, AN INTRODUCTION TO CONTEMPORARY INTERNATIONAL LAW 8587 (1989). 33 See ANDREAS F. LowEN ELD, INTERNATIONAL ECONOMIC LAw, VOL. VI, PuBLIc CONTROLS ON INTERNATIONAL TRADE 15-16 (2d ed. 1983). 34 Id. at 16. 35 Id. at 20. 36 General Agreement on Tariffs and Trade, opened for signature on October 30, 1947, 55 U.N.T.S. 194; T.I.A.S. No. 1700 [hereinafter GATT]. national body deciding for it what was to be allowed and what was to be forbidden.3 7 When other countries in the world saw that the ITO would not be ratified by the U.S. Congress, they too refused to ratify it and, thus, the fate of the ITO was sealed. However, the GATT, which had been signed in November 1947, came into force by virtue of a Protocol of Provisional Application. 38 It began life without the institutional umbrella of the ITO and almost without administrative, supervisory or enforcement procedures, but primarily with substantive rules. The absence of this institutional framework has been felt strongly over the years, and there is no. doubt that it has impaired the effectiveness of the substantive rules. Despite this, the demands of reality led to the creation of some inferior substitutes to the institutions and procedures which were missing.3 9 Attempts made over the years to revive the ITO or other types of legal enforcement procedures were always met by opposition from numerous governments and so failed. 0 Only recently, in the last round of talks conducted within the GATT framework (the Uruguay Round) between 1986-1994, 4 1 half a century after the Bretton Woods Conference, was the historical circle completed and the necessary international agreement obtained to establish the WTO. This organization aims to provide the institutional framework for the substantive rules contained in the GATT agreements, rules which in the Meantime have grown and expanded immeasurably. 42 Towards the end of 1994 , the U.S. Congress ratified the new agreement creating the WTO, although it possessed characteristics similar to those of the agreement which the Congress had consistently refused to ratify since 1948. The fifty-year history of the GATT agreement, a world regime which is undoubtedly the most important and comprehensive of all international trade agreements, provides the most prominent example of the juridicization process argued for here. I will examine developments within this agreement in greater detail. The Multiplication and Strengthening of Substantive Norms As noted earlier, juridicization is expressed also by the multiplication and strengthening of substantive norms. Perhaps the most concrete example of this phenomenon is the fact that the GATr of 1947 has expanded from an agreement of about eighty pages to an agreement of some 26,000 pages in its most recent version signed in Marrakesh in 1994! It is not only the longest agreement in the world, but perhaps also the most important multilateral agreement since the signing of the UN Charter.43 From an agreement signed by twenty-three countries, GAIT has grown into an organizational framework currently uniting 124 countries and the EC,44 as well as a dozen of other countries which are in the process of joining. It has been transformed from a provisional, short-term agreement 45 into a permanent and complex framework comprising more than 200 multilateral trade 46 agreements. From the material point of view, an unmistakable process is taking place forging and spreading a system of norms which regulates the entire range of policy measures in international trade and even beyond. We shall briefly identify the main elements of this process. The Normative Regimes in relation to Non-TariffBarriers (NTBs) The original GATT agreement, in fact, contained numerous articles intended to deal with Non-Tariff Barriers (NTBs). However, many of these articles were drafted in an overly "weak" manner, allowing States to evade them and maintain various types of barriers without being deemed to breach the agreement. Further, the Protocol 43 Cf. Petersmann, supra note 4, at 1160. 44 Coomn, supra note 41. 45 See GATI', supra note 36. The GATr agreement was brought into temporary force in 1947 by the Protocol of Provisional Application with the hope that the Havana Charter would soon be ratified, together with the ancillary GATT agreement. 46 See GATI, Status of Legal Instrument, 1993 ed. (Geneva: GATT, 1993). of Provisional Application, which gave the agreement its legal validity, was subject to a "grandfathering" provision which protected legislation already in force in the acceding countries, even if that legislation was contrary to GATr. 47 Consider, for example, the issue of product-standards, which was often used as a convenient mechanism through which to implement a protectionist policy under the pretext of safeguarding consumer safety and product quality. Even though a mandatory product standard, whose principal purpose is none other than the protection of local products produced according to this standard, amounts to a "quantitative restriction" (which is expressly prohibited by Article XI of GAT), it falls within the special exception provided by subsection 2(b) of this Article, and would thus be permitted.48 Only at the end of the 1970s, during the Tokyo Round, did the developed countries recognize the urgent need to deal with this serious trade barrier, and an agreement ancillary to the GAIT was signed, namely "the Agreement on Technical Barriers to Trade," also known as "the Standards Code." This agreement created a new system of rules and norms in relation to the manner of creation and operation of standards with the purpose of ensuring that they would not be used as a disguised barrier to trade. However, only a minority of the GATT contracting parties, principally the industrial nations, acceded to the new code. This is also the reason why it was necessary to create a separate agreement, and it was not possible to simply add the new rules to the existing GATT. Most of the GAT parties opposed it, and it was not possible to amend the GATT without their consent.49 A similar process may be seen with regard to other NTBs, such as preferential treatment of local suppliers in government procurements, import licensing, the use of anti-dumping procedures, and the bestowment of subsidies. The original GAIT provisions enabled the continued use of these trade barriers, either because the issue was not 47 See GATI, supra note 36. See Article 1(b) of the Protocol of Provisional Application, which applies Part II of the GATr agreement (the part which contains the provisions relating to Non-Tariff Barriers) "to the fullest extent not inconsistent with existing legislation." 48 Art. XI ("General Elimination of Quantitative Restrictions"), para. 2(b) provides: "The provisions of paragraph lof this Article shall not extend to... import... restrictions necessary to the application of standards.. ." See GATr, supra note 36, art. XI(2)(b). 49 According to Article XXX of the GATT, amendments to the provisions of Part I of the Agreement require the acceptance of all the GATT contracting parties. See GAIT, supranote 36, art. XXX. The provisions of the rest of the Agreement can be amended by a majority of two thirds. It was usually impossible to gather even a two thirds majority, considering the fact that most of the contracting parties were developing countries, reluctant to accept the advanced liberalization sought by the industrialized parties. See JACKcSON, supra note 3, at 51-52. Northwestern Journal of International Law & Business referred to at all or because the rules which were established were too flexible and insufficiently "legal" (i.e., binding). Only during the Tokyo Round, which ended in 1979, did some countries set up new and separate normative structures for the purpose of regulating these matters. The process of juridicization in the field of norms did not end at this stage, it continued and took a large step forward during the negotiating round that ended in 1994. The progress is reflected on a number of levels: " The spread of the normative regime to numerous other countries and, in practice, to all the parties to the GAIT. This result was achieved by the transformation of the ancillary agreements from voluntary codes open to accession at will to obligatory agreements which form part of the so-called "single undertaking." Thus, it is not possible to be a member of the new GATT and the WTO without being bound by all the aforesaid agreements." What could not be done in the 1970s, in other words, the ability to persuade the majority of GAIT parties to agree to the strict rules in relation to NTBs, became feasible in 1994! " The creation of completely new normative regimes on NTBs, for example, the Agreement on Sanitary and Phytosanitary Measures,5 1 the Agreement on Preshipment Inspection, 2 the Agreement on TradeRelated Investment Measures (TRIMS),53 the Agreement on Safeguards,54 and more. " The improvement and widening of existing regimes. Under this heading we would include, inter alia:the Agreement on Government Procurement,55 the Standards Code,56 the Dumping Code,5 7 and the Subsidies Code.5 8 50 This is true of all the ancillary agreements mentioned here except for the Agreement on Government Procurement, which for a variety of reasons was left as a voluntary agreement (or according to the GAIT terminology a "plurilateral" agreement). See Arie Reich, The New GATT Agreement on Government Procurement: The Pitfalls of Plurilateralismand Strict Reciprocity (forthcoming in the April 1997 issue of the JOURNAL OF WORLD TRADE). 51 WTO Agreement, supra note 42, Annex 1A:4. 52 Id. Annex 1A:10. 53 Id. Annex 1A:7. 54 Id. Annex 1A:14. 55 Published in URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS, 31 LEGAL INs-RUMmENTs EMBODYING =HERESULTS OF =smURUGUAY ROUND (Geneva: GAIT Secretariat). On the GATT Agreement on Government Procurement, see Reich, supra note 50. 56 WTO Agreement, supra note 42, Annex 1A:6 (Agreement on Technical Barriers to Trade). 57 Id. Annex 1A:8 (Agreement on Implementation of Article VI). 58 Id. Annex 1A:13 (Agreement on Subsidies and Countervailing Measures). The Normative Regime in Relation to Subsidies Another field which amply illustrates the juridicization process, from the beginning of GATT in 1947 until today, is the international regulation of subsidies. Subsidies, the direct or indirect benefits given to business elements by the government, may artificially influence the flow of trade and distort the efficient allocation of economic resources, both by reducing imports and by increasing exports. Article XVI of the original GATT deals with this problem using a mixture of "soft law" and "hard law," the former being the clearly dominant component. The sole duty provided in this Article which applies to all types of subsidies affecting trade 9 is the duty to give notice in writing to the GATT Council on the existence of such a subsidy, its extent, nature, and estimated level of influence on trade, and on the circumstances making the subsidization necessary. (Even this limited obligation was seldom honored by the contracting parties.) The Article provides that if it is determined that serious prejudice to the interest of any other contracting party is caused or threatened by such subsidization, "discussions" may be held between the subsidizing State and the injured State concerning "the possibility of limiting" (but not eliminating!) the subsidization. This, therefore, is a clear example of the very diplomatic and non-binding formulations generally used by the GATT. The Article continues by concentrating on one category of subsidies - export subsidies. While the Article proclaims the Parties' recognition of the harmful effects which such subsidies may have for other contracting parties and recognizes their ability to hinder the achievements of the objectives of GATr, the Article does not introduce any operative provisions.6° The picture continues to narrow in turning to a sub-category of export subsidies for "primary products,"' 61 although here too the wording is qualified ("contracting parties shall seek to avoid.. ."). A real legal prohibition in fact only exists in relation to a very narrow band within the wide range of subsidies which distort trade. This very narrow band includes only those export subsidies within the range of primary products which result in the subsi59 That is, such a subsidy by one of the parties to the agreement "which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory" (from Article XVI:1). 60 Id. art. XVI:2. 61 "Primary products" are defined as "any product of farm, forest or fishery, or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade." See GATT, supra note 36, Annex I, art. XVI(B)(2) (Interpretative Note). dizing State acquiring for itself more than "an equitable share" of world export trade in that particular product.62 In the 1970s, within the framework of the Tokyo Code, great progress was made in this field, with the establishment of the Subsidies Code which set up a system of rules which were stricter and less diplomatic than the GATT rules. Here, export subsidies for all industrial products were decisively prohibited, without requiring any further conditions to be met.63 Similarly, an annex was attached to the agreement, providing an illustrative list of "export subsidies," in lieu of a comprehensive definition of this term.6' Nevertheless, there was still a wide range of subsidies which did not fall within the ambit of the list and which could not be classified as export subsidies. Some of these subsidies could potentially harm the trade of other countries and the efficient allocation of economic resources, even though they were not necessarily granted only in connection with export. The Subsidies Code of the Tokyo Round was still far from being an overall regulation of the subject. This was reflected in difficult and acrimonious controversies between the large countries regarding the definition of what was allowed or forbidden in this field and in disputes having far-reaching economic repercussions. The fate of entire industrial sectors were at stake, such as the civilian aircraft industry: the European Airbus Co., on the one hand, and the American Boeing and McDonnel Douglas companies on the other. The Americans accused the Europeans of unfair trade by awarding huge sums in subsidies to the Airbus company, a large number of whose aircrafts is exported to other countries, whereas the Europeans responded that Boeing enjoyed indirect governmental support in the form of military R&D contracts awarded by the U.S. Department of Defense. Resolving such disputes was extremely difficult in the absence of clear legal rules regarding subsidies and a binding legal mechanism for dispute settlement. Recently, during the Uruguay Round, the GATT parties succeeded in reaching agreement on a general and comprehensive regime of binding definitions and rules concerning subsidies, which would bind all the members of the WTO (and not just the few countries which had previously joined the Code).65 The agreement offers, for the first time, a comprehensive definition of the term "subsidy," while dividing all types of subsidies into three categories: "prohibited subsidies," 66 "actionable subsidies"'67 (i.e., subsidies which are actionable only in certain circumstances, such as when they cause injury to another Member State68), and "non-actionable subsidies" (i.e., permitted subsidies).69 Even if the new agreement is not complete in terms of content and will require extensive interpretation and implementation, there is no doubt that it represents a big step forward when compared to the earlier agreement and is an important milestone in the process of creating a stable and comprehensive legal system in a highly problematic and sensitive area of international trade relations. New Regimes in Services and Intellectual Property Up to 1994, the GATT regime dealt solely with trade in goods. However, additional economic resources exist which may be traded, such as services and intellectual property. The agreement reached during the Uruguay Round meets this deficiency by means of two new agreements which create a normative framework to regulate these areas. The General Agreement on Trade in Services (GATS)70 is the first step towards regulating the trade sector possessing the highest rate of growth in the developed countries, with the purpose of attaining gradual liberalization of this sector in the international arena. The agreement is built on principles which are very similar to those of GATT on goods. 7 It also adopts the gradual approach of GAIT, employing protracted negotiations for the opening of selected service sectors to international competition on the basis of reciprocity. 72 Under this approach, every State is obliged to grant "national treatment" to the other GAT Member States in those service sectors which it has agreed to open as aforesaid.7 3 Similarly, every State is bound to the principle of "transparency," which requires it to publish all the statutes, regulations, and administrative guidelines regulating the right to supply services within its territory, and supply all the necessary information in this regard.7 4 In this way, every foreign supplier of services (such as banks, insurance companies, communications companies, architects, or lawyers) will be able to know its rights and obligations, and it will be possible to maintain surveillance on the parties' implementation of their commitments. As noted, the agreement is only a first step in the process of liberalizing this area, but it will clearly become the future arena for the continuation of the juridicization process. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)75 also regulates a field of major importance in the modern economy. The agreement provides appropriate standards and rules for the protection and exploitation of intellectual property rights, such as patents, copyrights, trademarks, industrial designs, geographical indications, trade secret and integrated circuits.76 The agreement was signed on the backdrop of widespread infringements, particularly in the Far East, of intellectual property rights of Western manufacturers, and the emergence of a huge counterfeiting industry, which, in the opinion of many economists, seriously impairs the profitability of investments in research and development of new inventions and creations. The agreement is intended to ensure appropriate protection for these intellectual property rights by means of binding internal legislation in all GATT States. Inter alia, the Member States are obliged to ensure the existence of legal enforcement procedures to enable effective action against infringement of intellectual property rights.77 Similarly, they are obliged to enable judicial review of all administrative decisions relating to intellectual property rights.78 In this field, a number of international conventions have in fact been in existence for many years.7 9 However, these agreements lacked the strong enforcement mechanism of the WTO and were, therefore, powerless in dealing with infringements.80 Similarly, many developing countries, which had preferred not to accede to these conventions in order not to harm their local industry, could now no longer afford not to become members of the WTO. C. The Evolution of GATT's Enforcement Mechanism The juridicization process of trade relations is probably most clearly reflected in the enforcement and dispute settlement mechanism of GATT. The reason for this is evident; the ability to enforce a norm or to impose a sanction for failure to obey it, is what largely distinguishes "soft law" from "hard law." In the context of international trade, the clash between the sovereignty of the State and the international norm will be most apparent and publicly visible. On one side will be the State's particular national interest (at least as perceived by its government); on the other side will be the global economic interest in the success of the international regime. tion policy, the audiovisual sector, education and culture.255 There are also provisions relating to social matters, such as guaranteeing the rights of workers employed in the other State, and more.256 As a rule, the approach adopted by the agreement in numerous areas, particularly in the "new" areas, is the establishment of goals and frameworks for the continued development of the regime. This approach is similar to that occasionally found in the internal legislation of States; primary legislation posits the goals, the basic rules and the authority to promulgate detailed regulations for the achievement of the goals, while these regulations are later settled by secondary legislators who fill the framework with real content. b. Supervisory and Dispute Settlement Mechanism Finally, consideration should be given to the institutional provisions of the agreement, which also reflect the greater sophistication of this international trade regime. Here, too, it is evident that the regime bears much resemblance to that found in the multilateral WTO/ GATT agreement of the same period. The agreement establishes an "Association Council" which shall meet at the ministerial level at least -once a year.257 In addition, in order to enable more regular and efficient handling of the numerous matters covered by the agreement, an "Association Committee" is set up which shall consist of officials.258 The Committee will have the power to make decisions for the management of the agreement, as well as in those areas in which the Association Council has delegated its powers to it. In both these bodies, decisions can be taken by consensus only.259 However, once the decisions are reached by agreement, they shall be binding on the parties and the parties are requireded to take the necessary measures to implement the decisions.26° Contrary to the old agreement with the EC, the new agreement enables the referral of a dispute connected to the application or interpretation of the agreement to arbitration.26' Contrary to the 255 See generally id. arts. 45-61. 256 See id. arts.63-66. 257 Id. art. 67. 258 Id. arts. 70-71. 259 See id. art. 69:2 (regarding the Association Council); see also id. art. 72:2 (regarding the Association Committee). 260 Id. arts. 69:1, 72:1. 261 Id. art. 75:4. Such a referral will take place where the Association Council fails to settle the dispute by agreement. In such a case, each party may notify the other of the appointment of an arbitrator, the other party must then appoint a second arbitrator within two months (for this purpose the EC and the Member States are deemed to be one party to the dispute). The Associagreement with the United States, here, the decisions of the arbitrators (which may be reached by a majority vote) are binding.262 In addition to the resemblance on this last issue with the WTO dispute settlement mechanism, it is interesting to note similar trends in the stance toward non-legal grounds of complaint under both regimes. It will be recalled that the 1985 FTA with the United States of 1985 recognized grounds for a complaint arising otherwise than by virtue of a violation,263 as did the GATT agreement of 1949.2 4 In contrast, it does not appear that. the new agreement with the EC recognizes such grounds of action. Rather, the general relief provided by arbitration and the imposition of sanctions is limited solely to cases of violation of the provisions of the agreement. 265 This development is consistent with the process of juridicization considered in relation to GATT, and in particular the Uruguay Round, which significantly restricted the use of non-legal grounds of action.26 6 One must, however, note one significant shortcoming in the new dispute settlement mechanism of the Association Agreement, and that is the absence of an exclusivity and primacy clause, similar to the provision found in the WTO.2 67 The referral of a dispute to the Association Council is a right, not an obligation, 268 and the agreement does not seem to proation Council will appoint a third arbitrator. Here there is a certain flaw in the procedural provisions relating to the establishment of the panel of arbitrators, as a defending party may prima facie suspend his agreement to the appointment of the third arbitrator, or reject every candidate proposed, and thereby block the proceedings, since every decision of the Association Council must be unanimous. In view of this, the parties have issued a joint declaration concerning Article 75 to the effect that "the parties shall endeavor to ensure that the Association Council shall appoint the third arbitrator within 2 months of the appointment of the second arbitrator." 262 Article 75:4 provides: "Each party to the dispute must take the steps required to implement the decisions of the arbitrators." Id. art. 75:4. 263 Article 19(a) of the 1985 Agreement, supranote 204. 264 See supra note 83, and accompanying text. 265 Article 75 of the agreement provides that it is possible to refer "any dispute relating to the application or interpretation of this agreement" to the Association Council, and thereafter to arbitration. Association Agreement, supra note 236, art. 75. There is no reference whatsoever to "nullification or impairment of benefits", or to a "serious distortion of the balance of trade advantages," or "undermining the purposes of the agreement", such as may be found in the other agreements mentioned. Similarly, Article 79:2, which refers to taking counter measures, applies only when it appears to one of the parties that the other party "has failed to fulfil an obligation under the agreement." 266 The ground of "nullification or impairment of benefits" does still exist, but in cases of "non-violation nullification or impairment of benefits" numerous limitations apply; inter alia, there is no longer an obligation to order the revocation of the injurious measure. See infra Sect. C, para. 3.2.7. On the other hand, proof of a violation creates a presumption of "nullification or impairment of benefits", so that the cumulative result of these changes is a return to the more legal category of "violation." 267 The DSU, supranote 118, art. 23. 268 The Association Agreement, supra note 236, art. 75:1. hibit unilateral action not authorized by arbitrators.269 This may prove to be a problem in the future. Other Third Generation Trade Agreements In addition to the new agreement with the EC, the State of Israel is currently negotiating additional trade agreements. For example, negotiations have been advanced with Canada27 ° and Turkey, as well as with several East European countries. In many cases, the drafts of the agreements have already been finalized, although they have not been signed or ratified. These agreements, even where they are first-time agreements between Israel and the above countries, also reflect an advanced level of substantive and procedural legal sophistication.271 They, therefore, support the existence of a process of juridicization, as put forth in this article. Abundant evidence of this process may also be adduced from bilateral and regional trade agreements entered into by other countries, such as the NAFTA agreement between the United States, Canada and Mexico,27 2 trade agreements in South European agreements, and more. THE CAUSES OF THE JURIDICIZATION PROCESS How may this phenomenon be explained? Why have governments gradually abandoned the flexible, diplomatic model for regulat269 On the contrary, art. 79 allows any Party to take "appropriate measures," if it considers that the other Party has failed to fulfill an obligation under the Agreement. While it is required to supply the Association Council with all relevant information, in order to enable the Council to seek an acceptable solution, it is not obliged to wait for such a solution before taking measures. 270 On August 1, 1996, shortly before the completion of this article, a new FTA was signed between Canada and Israel (not yet published). The FTA has still to be ratified, but is expected to come into force on January 1997, if all procedures are completed. A brief analysis of the agreement shows that it fits very well into the thesis of this article. It establishes a broad and advanced FTA regime in relation to trade in goods, with several innovative and liberalizing provisions with regard to rules of origin (Tolerance, Fungibility, Minor Processing, and Transhipment - see chapter 3). It incorporates many of the "modem" provisions of the GATT, and includes provisions on new areas not yet covered by GATT, such as competition policy (chapter 7). Finally, it features a sophisticated and binding dispute settlement mechanism (chapter 8), based on standards of due process and transparency, which strongly resembles the WTO mechanism in this field. 271 This analysis is based on conversations conducted by the author with senior government officials involved in the negotiations. As these agreements have still not been completely finalized and have not been published, it is not possible to discuss them more fully here. 272 -Compare North American Free Trade Agreement, Dec. 17, 1992, Can.-Mex.-U.S., 32 I.L.M. 60 5 (1993 ), with Free Trade Agreement, Dec. 23, 1987, Can.-U.S., 27 I.L.M. 293 (1988). 273 See generally Sam Laird, Latin American TradeLiberalization,4 MINN. J. GLOBAL TRADE 195 (1995). ing trade relations in favor of a stricter, legalistic model? Why are we now witnessing a greater sophistication and expansion of all the international trade regimes, both on the multilateral and bilateral levels? There are a number of possible answers to these questions. A. "Natural" Evolution It is possible to argue that the States learned from experience and saw that the flexible model could not guarantee the efficient functioning of the trade regimes, and that their economic interests required the establishment of a distinct and strong regime which could be enforced. Indeed, there are legal schools of thought which hold that norms and legal mechanisms evolve in a manner partially analogous to natural evolution as propounded by Darwin. 74 The norms and mechanisms which serve certain social goals best are the ones which will ultimately be selected and disseminated. On its own, this approach may, at best, supply a conceptual framework for considering the phenomenon, but it cannot explain its causes. Why is the legal model the preferred model for regulating trade relations in the opinion of the GAT parties? If this is indeed the case, why did they not evolve fifty years ago? B. Similar to the evolutionary approach is the functionalist theory regarding processes of political integration developed by David Mitrany2. 75 According to this theory, modem times have seen the increasing importance of apolitical technical problems, the resolution of which requires international cooperation between "technicians," rather than cooperation between politicians. Mitrany's theory includes the doctrine of "ramification," according to which the development of cooperation in one technical area leads to similar conduct in other technical areas as a result of the need to widen the cooperation and transfer the successes to additional related areas. So far, this theory has been implemented primarily in the context of the integration of 274 See LLoYD, supra note 9, at 551-52. The leading proponent of this view was Herbert Spencer (1820-1903) who believed that natural evolution was the key to understanding social and legal developments. He regarded this approach as highly scientific, and in his view it justified an attitude of laissezfairein all fields of economics as well as severe limitations on governmental interventionism. Today there is renewed interest in this theory. See e.g., R. Clark, The InterdisciplinaryStudy of Legal Evolution, 90 YALE L. J. 1238 (1981); M.B.W. Sinclair, Evolution in Law: Second Thoughts, 71 U. DEr. MERCY L. REv. 31 (1993). 275 See generally D. MrrnmA, A WoRXXNG PEACE SYSTEM (1966). the EC.276 It explains how the integrated regimes expand outwards from the pure field of trade toward policy issues relating to investments, transport, taxation, social policy and monetary policy. Applying this theory in the context of GATF, it is possible to explain the substantive element of the juridicization process, i.e., the phenomenon of the multiplication of norms and the expansion of the areas regulated within GATT. One may, therefore, argue that, as the process of reciprocal elimination of tariffs under GATT made progress and enjoyed successful results, the problem of NTBs as the major obstacle to international trade liberalization became more evident. Likewise, the more successful the regime was in the area of trade in goods, the greater the need to expand it to trade in services and to deal with trade distortions originating from the protection of intellectual property rights.277 The next issue of importance, which is akin to the above matters, is undoubtedly investments, and voices are already heard suggesting that this matter be dealt with in the next round of GATT negotiations. 278 However, it would seem that, on its own, the functionalist theory is incapable of explaining the procedural juridicization process, which has led to the creation of legal mechanisms for enforcing the agreed rules. When a trade dispute arises and there is an open clash between the interests of the States involved, there are often strong domestic and external political interests involved, and the questions go beyond pure "technical" issues. One must therefore consider why, in recent years, States have suddenly agreed to make themselves subject to enforcement procedures which were, in earlier years, completely unacceptable to them. C. The Decline of American Hegemony Numerous scholars have pointed out that many international regimes in the world economy were established and maintained in the period following World War II by virtue of the existence of the clear hegemony of the United States in the world order. The hegemonic power of the United States served as the central force behind the es276 JAMES E. DOUGHERTY & ROBERT L. PFALZGRAFF, CoNTIENDiNo TIEomms OF INTERNATIONAL RELATIONS 432 (3rd ed. 1990). 277 See supra Part II, para. B:3. 278 In the Singapore Ministerial Conference of the WTO, held in December 1996, it was decided to establish a working group "to examine the relationship between trade and investment." Article 20 of The Ministerial Declaration <http://www.wto.org.>. 'his was a compromise between the developed countries' demand for negotiations in this field and the opposition of the developing countries. tablishment of these regimes. 279 Examples are provided by all the Bretton Woods institutions, including GATT, which were integrated into the Pax Americana of the 1940's. Nevertheless, as Professor Keohane has shown, these regimes may continue to flourish on the basis of more equal cooperation between the States, even after the decline of American hegemony, by virtue of the joint interest of all parties in their continued existence.28 0 Utilizing game theory and the Coase theorem,28 1 Keohane explains how these regimes reduce the transaction cost involved in achieving agreements and cooperation between the States and raise the costs of violating them.' This result is achieved by the transformation of the parties into "repeat players" and intertwining different reciprocal interests which are subject to one regime. Thus, a measure which harms a certain State is no longer a one-time action per se without general significance but is, rather, a violation of GATT with significant repercussions on a wide number of issues and interests of the violating State. The temptation to "cheat" declines, whereas the value of reputation rises. In this way, the regime succeeds in anchoring the mutual expectations of the parties on stable foundations and in reducing the uncertainties of international trade. Similarly, it reduces the costs involved in achieving new Pareto-optimal transactions between the States, since the forum and framework already exist and the rules of the game are known. This line of thought leads to the following possible explanation. During the period of American hegemony, which lasted until the end of the 1960's, there was no need for a strong enforcement procedure and an expansive regime. The power of American influence came in lieu thereof, and it ensured that the contracting parties of GATr would also honor their commitments for the benefit of the regimes established by it. Indeed, when the United States itself was not inter279 Robert Gilpin has put it thus: "the Pax Britannica and Pax Americana, like the Pax Romana, ensured an international system of relative peace and security. Great Britain and the United States created and enforced the rules of a liberal international economic order." RoBERT GILPIN, WAR AND CHANGE IN WORLD PoLITrcs 145 (1981). See also CHARLES P. KINDLEBERGER, THE WoRLD IN DEPRESSION: 1929-1939 305 (1973). 280 See generally ROBERT E. KoHANE, AFTER HEGEMONY: COOPERATION AND DIscoRD IN INTERNATIONAL ECONONuc RELATIONS (1984). 281 This theorem was first formulated in Ronald Coase, The Problemof Social Cost, 3 J. L. AND ECON. 1 (1960). The theorem states that a Pareto-optimal corrective transaction can only be ensured under three conditions: a legal system which determines liability for actions and which may be enforced by the State; full information; and zero transaction costs. Keohane concludes from this that the creation of a regime which determines clear rules of liability and supplies information at a low cost to all the parties, will inevitably assist in achieving efficient solutions which are based on co-operation between the parties. KoHANE, supranote 280, at 87. 282 KEoHANr, supra note 280, at 85-109. Northwestern Journal of International Law & Business ested in the promotion of the regime in a particular area, the regime was not established in that area. Thus, for example, the establishment of the International Trade Organization was torpedoed by the United States Senate. Similarly, in the 1950's, agricultural regulation collapsed completely as a result of being abandoned by the United States.2 83 With the decline of the United States hegemony in the 1970's and the rise in power of new economic centers, such as the EC, Japan, Canada and, recently, other Far East countries, including Taiwan, Korea and China, there was a greater need for a strong and autonomous regime with effective and independent enforcement mechanisms. It is interesting that in this period it was actually the United States that utilized the GATT dispute settlement procedures more than any other country.28 4 Accordingly, it was also the United States which was the principal advocate of strengthening the GATT enforcement mechanism, whereas the other parties ultimately preferred that mechanism to the unilateral retaliatory measures which the United States could adopt under the notorious Section 301.285 On this basis, it is also possible to explain the phenomenon of the expansion of the GATr regime to new areas, such as services and intellectual property.28 6 Because of the decline of American hegemony, there was a growing need to base the regime on a wider consensus of mutual benefits. For this purpose, it is necessary to identify suitable "exchange transactions" which will be beneficial to all those involved, and, in particular, which will be able to bridge the adverse interests of the developed States viz a vis the developing States. Expanding the application of the agreement to a greater number of areas will naturally increase the scope for identifying such transactions. 283 JOHN. H. JACKSON, WORLD TRADE AND THE LAW OF GATr 718 (1969). 284 Between the years 1948-1989, the United States filed 71 official complaints within the GAT' framework, with only a small percentage of complaints being filed before the 1970s. The European Community, which is next in line, filed only 30 complaints and even if the individual complaints of the States comprising the EC are added to this figure, the total does not match the number of complaints filed by the United States. (It is noteworthy that Japan filed only 4 complaints during this entire period). HUDEC, supra note 4, at 395-404. 285 See CROOME, supra note 41, at 279. In contrast to this analysis, compare the contrary assessment made in 1991 (which ultimately proved to be mistaken) to the effect that "GAIT died" because of the impossibility of maintaining such a system with the hegemonic power of the United States. Lester C. Thurow, GATT is Dead,JOURNAL OF ACCOUNTANCY, Feb. 1991. This article was written during the period of crisis in negotiations in late 1990, with the failure of the Ministerial Committee in Brussels. 286 It should be pointed out that there are already initiatives on the part of the EC and the United States to commence negotiations to expand GATT to such important new matters as investments, workers' rights, and fair competition rules. Thus, for example, in the Uruguay Round, the developed countries28 7 finally agreed to reduce protective measures for the agriculture and textile industries and open them to imports from the developing countries. This agreement could be reached only by virtue of the consent of the developing countries to sign agreements in the fields of services and intellectual property, where the developed countries see great potential for trade. 88 There are also examples outside the North-South equation. Contrary to the position taken by the United States, France achieved protection for "geographical indications" within the framework of the TRIPs agreement28 9 for the benefit of such well-known products as champagne and cognac.290 The French, however, had to agree to reduce subsidies on agriculture. The fact that the final agreement was part of a "package deal" (or, according to GATT jargon, a "single undertaking"), which comprised many and varied components, was what finally enabled its successful completion. The Declining Importance of the Security Factor Another phenomenon which characterizes the period since World War II, and which has occurred concurrently with the juridicization process, is the gradual process of normalization in relations between the non-communist States (such as the GATT contracting parties), the strengthening of peaceful ties, and the declining fear of military attack by one of these States against another. Over the years, the advanced 2S7 With regard to agriculture, this was true primarily for Japan and the European States, which followed a highly protectionist policy in this area and opposed liberalization, whereas the United States was one of the countries which urged the elimination of the protective measures and subsidies. 288 See CROOME, supra note 41, at 254-55. 289 See TRIPs Agreement, supranote 75, arts. 22-24. "Geographical indications" are terms or other indications which identify the product with a specific geographical source-such as a certain State or region within the State having a reputation in respect of quality or special characteristics. The agreement requires the GATT contracting states to supply internal legal measures to a party interested in preventing the presentation of a product as a product manufactured or produced in a geographical area other than its true place of origin. With regard to wines and alcoholic beverages, such as "champagne" and "cognac" which are in fact names of places in France possessing a reputation in the production of these prestigious beverages, these provisions apply even where the word "like" or "imitation" is added to the term. Thus, it is prohibited to sell Israeli sparkling wine, for example, under the name "champagne like wine," etc. 290 See Jim Chen, A Sober Look atAppellations of Origin:How the United States will Crash France'sWine and CheeseParty,5 MiNN. J. GLOBAL TRADE 29,55 (1996), which emphasizes that the United States had no interest in acceding to the agreement related to the protection of appellations of origins, and that its accession was solely the result of the agreement being part of the GAIT package deal. Nevertheless, the author is not convinced that the TRIPs agreement will give the French the protection they seek. See generallyLouis Lorvellec, You've Got to Fight for Your Right to Party:A Response to ProfessorJim Chen, 5 MrNN. J. GLOBAL TRADE 65 (1996) (responding to Jim Chen's article). democracies have been transformed into prosperous States, less oriented towards military might and more oriented towards economic growth and social security.2 91 How does this development affect the nature of trade relations between these countries? First, security concerns lead to the need to ensure independence from external sources of supply. To guarantee the survival of domestic suppliers with comparative disadvantage, trade protection may be required. Countries with serious security concerns may therefore be reluctant to take upon themselves international obligations which may limit their freedom of action in this regard.292 Another explanation is based on the distinction between absolute and relative gains from trade. There is widespread agreement that free trade is beneficial to the economies of all participating countries. Nevertheless, trade does not necessarily benefit all the States to the same extent; it is certainly possible that State A might gain greater benefit than State B. In a situation where there is concern for national security, a State must not only ensure that its absolute gain is maximized, but also that its relative position compared to its neighbors is maximized. Increasing economic disparity between two States might create a strategic threat for the future.2 93 Accordingly, it is possible that State B may prefer "managed" trade over free trade and a weak trade regime which would allow the State to conduct managed trade. On the other hand, when this consideration becomes less important, States gain greater freedom to strengthen the cooperation amongst themselves in order to ensure their mutual economic growth and improve the standard of living of their citizens.294 To this end, a strong and predictable regime is needed. 291 See MrTrRi , supra note 275, at 41-42, 95-96, 136-137, 144-145. See also Edward S. Morse, The TransformationofForeignPolicies,22 WORLD POtrrcs 371,383-85 (1970); ROBERT 0. KEoHANE & JOSEPH S.NYE, JR., POWER AND INTERDEPENDENCE: WORLD Pou-rxcs IN TRANsrnION 227 (1977). 292 Although all international trade agreements include exception provisons for such cases, see, e.g., GATT, supranote 36, art. XXI, these provisions may not be broad enough for countries with serious security concerns, and they may also be reluctant to subject themselves to the decision of international tribunals in this regard. 293 See Joseph M. Grieco, Anarchy and the Limits of Co-operation:A Realist Critiqueof the Newest LiberalInstitutionalism,42 Irr'L ORG. 485, 487 (1988). 294 Id. at 490. See also Ernst B. Haas, Technology, Pluralism,andthe New Europe,in JOSEPH S. NYE, JR., INTERNATIONAL REGIONAUISM 149, 158 (1968) (stating that "the argument is no longer over the slice of the pie to go to each; it is increasingly over the means for increasing the overall size of the pastry"). This explanation offers greater clarification of the linkage between peace, trust and trade relations. In this light, one may also understand why, so long as the Soviet superpower and its satellites in Eastern Europe were perceived to be a strategic threat to the United States and Western European countries which controlled GATT, there was no room on the geopolitical level for the accession of the former States to the GATT framework. 295 Instead, these States established a competing trade organization known as the Council for Mutual Economic Assistance (CMEA). 29 6 E. The Influence of Ideological Changes Recent decades have witnessed the increasing prominence of liberal-economic ideas among intellectuals, politicians and constituencies.2 97 Contemporaneously, socialist and communist regimes are collapsing one after another, along with their underlying ideologies. Appreciation of the benefits of a free economyopen to competition from within and without is spreading along with the recognition of the damage caused by protectionist trade policies. Consequently, it is only reasonable to expect the strengthening of trade regimes based on liberal economic ideas, both institutionally and substantively. It is easier today than in the past to "sell" this type of regime to governments and members of parliament, as well as to members of the business community. 295 Another reason was, of course, the fundamental difference between the communist economic system which was built on a government monopoly over trade and the capitalist system which is based on free market forces. The GATT agreement is based on the assumption that in the absence of government trade barriers, private market forces will be able to act on the basis of commercial considerations alone. 296 This organization was established by the Soviet Union, Bulgaria, Hungary, Poland, Czechoslovakia and Romania in 1949, contemporaneously with the establishment of GATI. In 1950, Albania and East Germany joined; in 1962, Mongolia; in 1972, Cuba and in 1978, Vietnam. Other socialist countries have observer status in the organization. See IvAN SZAsz, THm CMEA UNIFORM LAV FOR INTERNATIONAL SALES 33 n.68 (2nd. ed. 1985). 297 For documentation of the process, see Francis Fukuyama, The End of History?, 16 NAT'L INTEREsr 3 (1989), and FRANcis FuKUYAmA, THm END OF HISTORY AND THE LAST MAN 42 (1992), where Fukuyama declares the ultimate victory of liberal ideology: "Privatization and free trade have become the new watchwords in place of nationalization and import substitution... As mankind approaches the end of the millenium, the twin crises of authoritarianism and social central planning have left only one competitor standing in the ring as an ideology of potentially universal validity: liberal democracy, the doctrine of individual freedom and popular sovereignty." F. The Increase of Economic Interdependence of States Without derogating from the importance of the other factors, it appears that the most important cause of the juridicization process in international trade is the increasing economic interdependence of States. This is one of the most prominent characteristics of world economic developments in recent decades29 8 and, undoubtedly, has direct -ramifications for the trade policy of all States.299 As a result of technological developments in recent decades, modes of transport and communication between States have improved unrecognizably. The time and cost needed for the transport of goods have been greatly reduced, and channels of electronic communication enable the instantaneous ordering of goods and transmission of payments. A sharp rise is taking place in the mobility of all economic resources, starting with merchandise, services and capital and ending with technology and manpower, which, in the absence of government intervention, could flow freely between countries. Thus, for example, international trade in merchandise has multiplied twelve-fold since the 1940's, many times more than the world rise in gross national product.30 In many countries, including Israel, more than fifty percent of GNP originates from international trade.30' As a result, the economic state of the country is ,highly dependent on what is done in foreign lands. On the one hand, the interdependence of States has brought about great prosperity and a rise in the standard of living because merchandise is manufactured in the most cost-effective States, utilizing their comparative advantages, and increased competition improves choice and quality and lowers prices. On the other hand, it has become more difficult for national governments to control their own economies and implement economic programs independently, since critical elements such as interest rates and export and import performances are dependent on numerous foreign factors which are outside the governments' control.302 For example, even an economic superpower such as the 298 Cf. MrrRANY, supra note 275, at 131-37; Haas, supra note 294, at 161-62; KEOHANE & NYE, supra note 291, at 228. 299 See also JACKSON, supranote 3, at 3, who quotes Martin Feldstein, one-time senior advisor to the American Administration, who wrote in 1985: "The experience of the past few years has underlined the interdependence of the world economy. Sharp changes in international trade, in capital flows and in exchange rates have affected all major economies. The rise in real interest rates everywhere reflects the close link among capital markets." 300 The value of merchandise trade rose from about $57 billion in 1947 to $3,500 billion in 1991. GATr, INTERNATIONAL TRADE 1983/84 (1984); GArr, INTERNAMONAL TRADE 1990/91 (1991). 301 The OECD Member Countries, 145 OECD OBSERVER 17, 22-23 (1987). 302 JACKSON, supra note 3, at 2-3; see also 1992 A.S.I.L. PRoC. 69 (Jackson's statements). United States appears to be dependent on the automobile marketing policy applied in Japan, and changes in this sector have ramifications for the rate of the dollar and unemployment levels in the United States.303 In such a situation, supreme importance is attached to establishing a strong and broadly based world trade regime which will ensure coordination of policies and cooperation on the basis of stability and certainty." 4 Stability and certainty are of critical importance in international trade as the trade system itself is anarchic. The trade system is characterized by the absence of a central government where the States are sovereign. In the absence of legal restriction, the States will endeavour to promote their own immediate interests.3 0 5 On the other hand, clear norms and strong enforcement procedures increase certainty and, by means of a system of sanctions in case of violations, reduce to a minimum the steps which can be taken by foreign governments which are injurious to other States. Such a regime also helps to overcome internal political market failures, which lead politicians to prefer welfare-reducing short-term gains over long-term benefits and stability.30 6 Politicians may rely on international obligations in order to overcome internal pressures for trade protection, and, in that sense, the WTO regime serves as an international constitutional restraint on the abuse of foreign policy powers. 0 7 In conclusion, the more the world is transformed into a "small global village," the greater is its need for "municipal by-laws" and "local courts" which will regulate its affairs. V. ANALOGUES TO THE EVOLUTION OF LAW IN HuMAN SOCIETY A. The Origin of Law According to Hobbes So far this article has dealt with the process of formation of a substantive and procedural legal system which regulates the mutual 303 See supra note 50 and accompanying text. 304 Historical testimony as to the influence of this consideration on the support of the EC for the strengthening of the GATT regime, may be found in the statements of Christopher Bail, who was the advisor to the President of the European Commission, Jacques Delors, in the beginning of the 1990s, as well as the legal advisor to the EC Delegation to GATT"between 1985-1991, the years during which the Uruguay Round agreement was being prepared. See A.S.I.L. PROC., supra note 302, at 74. 305 See WNI-A, supranote 29, at 23; see also HEDLEY BULL,THE ANARCHICAL SOCIETY: A STUDY OF ORDER IN WORLD PoLrrcs (1977). 306 See TREBILcocK, supra note 26, and accompanying text. 307 See E.U. Petersmann, Why Do Governments Need the Uruguay Round Agreements, NAFTA and the EEA?" 1994 AussEnvR scHrAFr 31. rights and obligations of sovereign States within the field of international trade relations. Nevertheless, it is natural to seek analogues between this process and its possible causes and what we know about the formation of legal systems in general and, in particular, systems which regulate the mutual relations of individuals. This comparison is particularly appropriate under the Hobbesian theory of the origin of law, a theory whose starting point is the "natural" state of anarchy of "man eat man," which is remedied by means of the "social charter. ' 30 8 Contrary to the "natural condition" in Hobbes' writings, which refers to no more than a hypothetical situation which may or may not have existed in the distant past, in inter-State trade relations, the anarchic condition is a very tangible reality, a fact which was undoubtedly appreciated by the officials and statesmen who brought about the GATr agreements. This state of affairs existed, inter alia, in the 1930's during the recession when the international trade system collapsed completely, and the attempt to establish even minimal cooperation within the framework of the Geneva Convention on the Restrictions of Imports and Exports in 1927, the work of that year's World Economic Committee, failed. 30 9 This collapse led to a drastic increase in protectionist measures on the part of all the Western countries, including England. As a result, world trade between the years 1929-1939 was reduced by about sixty-six percent, and the world sank into a deep economic recession.310 The danger of another similar collapse has never actually passed, and of particular importance was the serious crisis in negotiations during the Uruguay Round in 1990311 when it appeared to many that the world trade system was on the verge of disintegration. 312 Against this background, the achievement of the "social charter," in the form of the WTO 308 THOMAS HOBBES, LEviATHAN (1651). See also LLOYD, supranote 9, at 116-17. Inter alia, Hobbes expressly refers there to the influence of the anarchy of the "natural condition" on the economy and on international trade, because of the problem of uncertainty: "In such condition, there is no place for Industry; because the fruit thereof is uncertain: and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by sea... and which is worst of all, continuall feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short..." Id. at 156 (emphasis added). It is clear that the positivist theory of Austin, to the effect that law is "the command of the sovereign", provides a less comfortable basis for comparison with public international trade law, which is entirely the fruit of conventions and understandings between States and not of norms issued by a supreme legislator-who does not exist. 309 For a detailed description, see WiNLAm,supra note 29, at 26-27. 310 Id. at 30. 311 See CROOME, supra note 41, at 275-84. 312 See Thurow, supra note 285; see also BHAGWATI, supra note 160; cf. WnIAM, supra note 29, at 107-17. Agreement, prevented the outbreak of anarchy. The States could be said to have created a new legal world trade regime which possessed roots and characteristics similar to EVERY legal system in human society according to the views of such great thinkers as Hobbes, Rousseau and Grotius.3 13 At first glance, the analogy to Hobbes' theory does not seem fully applicable, as Hobbes uses the concept of the social charter to justify totalitarian government.314 This is borne out of the unconditional duty of the citizens to obey the ruler and place their security and wellbeing in his hands, in contrast to the international arena of GATT where there is no sovereign other than the States. Instead, particularly in the post-hegomonic period, the actual model is one of cooperation between sovereign States within the framework of an agreed regime and subject to that regime and not to a supra-national body. However, in the more ambitious regime of the EC, which too was founded on the principles of trade liberalization and economic integration and which to a certain extent was a source of inspiration for GATT,315 the Member States chose a type of Hobbesian model of transferring sovereignty in certain areas to a supra-national governing body, while undertaking to obey its authority.316 Indeed, there are some who regard the WTO, together with its enforcement mechanisms and decision-making procedures, as the harbinger of "supra-nationalism,' '317 even though the difference between the WTO and the EC (even in its original version before the Maastrict Treaty) are enormous. B. The Evolution of Law According to Anthropological Studies Turning to anthropological studies in relation to the evolution of law in primitive societies, one again finds interesting analogues to the processes which have affected international trade law and the causes 313 See LLOYD, supranote 9, at 115-17; see also HAm H. COHEN, TmE LAW 35 (1992). Of the same generation as Hobbes, Grotius was the greatest originator of international law, and he constructed his pholosophy, inter alia, on the basis of the theory of the social charter. 314 In fact, later thinkers used Hobbes' assumptions in order to support a liberal and democratic government. See GEORGE W. PATON, A TExTBOOK OF JURISPRUDENCE 107-08 (4th ed. 1972). 315 One example of this is the liberalization of trade in services. Another example is the opening of government markets to international competition. See Reich, supranote 216. 316 See TREBILCOCK & HowsE, supra note 14, at 49. 317 Ralph Nader & Lori Wallach, GATr, NAFTA and the Subversion of the Democratic Process, at 3 (unpublished article on file with author). thereof, as discussed above.3 18 For example, researchers have found a clear correlation between the level of economic development of a particular society and the level of development of its legal institutions.3 19 The researchers also point to the interaction and interdependence of different elements of society, a factor which is referred to above in the context of GATT320 as leading to the development and greater sophistication of the legal system.321 Other researchers have pointed to this factor as the reason for the repeal of the right to self-help and the replacement of that right by independent judicial and enforcement systems. 322 As in the GATT framework, the principle of reciprocal duties to which the members of the community are subject and the expectation that this principle be applied have been found to lie at the basis of every primitive legal system.32 Prior to the creation of efficient judicial and enforcement institutions, enforcement in such a legal system relies on the self-help of the victim acting with the consent or encouragement of society. The more the system develops and central government strengthens, the more the right to self-help is restricted and becomes subject to legal review on the part of the sovereign. Ultimately, it is eliminated altogether.324 Serious violations, which injure the fabric of society, are 318 The comparison between law in primitive societies and public international law is not new. Even Paton, in his book on jurisprudence, refers to the development of primitive law and considers it appropriate to draw an analogy between this and public international law "today." PATON, supra note 314. This analogy also underlies Barkun's thesis. MICHAEL BtARuN, LAW WrmoTU SANCTIONS: ORDER INPRIMnIvE SocIETms A1ND Trm WORLD CoMUrrES (1968). See also E. ADAMSON HOEBEL, TnE LAW OF PRIMITvE MAN: A STuDY IN CoMPARAx=VE LEGAL DYNAMIcs 331-32 (1967). This point of view perceives the international arena as a community of sovereign States which live together and which require the regulation of the interaction between them in the absence of a sovereign, in exactly the same way as individuals in a primitive, pre-autocratic, society. The absence of legislative authorities and central enforcement, and the "primal" nature of international law as a whole, provide the inspiration for this type of comparison. 319 A particularly thorough study collated immense quantities of information in respect of more than 400 different tribes, and found that most of the societies in advanced stages of economic development also possess developed legal systems. L.T. HOBHOUSE ET AL, THm MATERIAL CULTURE AND SOCIAL INsTrrTrmONs OF THE SIMPLER PEOPLES (1915), cited in PATON, supra note 314, at 47. 320 See infra Part IV. 321 See Lucy MAIr, AN INTRODUCTION TO SOCIAL ANTRoPOLOoY 141 (2nd ed. 1972), relying on the study undertaken by Prof. Bronislaw Malinovski, infra note 323. See also HOEBEL, supra note 318, at 316. 322 See MAiR, supra note 321, at 148. 323 BROMSLAW MALrNOVSm, CRIME AND CUSTOM IN SAVAGE SoCIETY 67-68 (1932); and in his introduction to HERBERT IAN HOGBIN, LAW AND ORDER IN POLYNESIA Xxxvi, xl(1972). See also PATON, supra note 314, at 49. 324 HOGBIN, supranote 323, at 230. punished by excommunication and expulsion from the community.325 Even after the establishment of courts for the settlement of disputes, the enforcement measures applied by them are primitive. Under Roman law, for example, the plaintiff himself was required to ensure the appearance of the defendant.32 6 As has been seen above, international trade law too is largely based on self-help on the part of the States, i.e., unilateral sanctions against violations injurious to them. This formula is evident particularly in "first-generation" free trade agreements, such as the agreement between Israel and the EC of 1975.327 That agreement contains no procedure at all for making an objective, independent determination in relation to a dispute arising between the parties, even where the violation is clear. Instead, enforcement is completely dependent on unilateral "defensive steps," i.e., self-help on the part of the State which has been affected. 28 As we have seen,3 29 prior to the completion of the Uruguay Round, GATT allowed an objective dispute settlement procedure to be conducted, but also required a significant level of cooperation on the part of the defendant State in order to allow the procedure to go ahead., Its consent was required to the adoption of a panel decision, as well as to its enforcement. An effective, sophisticated and binding dispute settlement mechanism was introduced only in the latest round of talks, but even there the enforcement measures in the event of disobedience continue to be based on self-help with the consent of the "community" (the States of the organization). 3 If the law of international trade will evolve in the manner of ancient law, the future will witness a gradual lessening of the right to self-help and its replacement by sanctions on the part of the "community," i.e., the organization. Such a process is already taking place today within the framework of the EC.331 325 PATON, supra note 314, at 49-50. 326 See HERBERT FELIX JoLowicz, HISTORICAL INTRODUCTION TO THE STUDY OF ROMAN LAW 175 (1932). See also PATON, supra note 514, at 50-51. 327 1975 Agreement, supra note 173, at 1-3. 328 Id. arts. 16, 25, at 5-8. 329 See supra Part II.C.1. 330 See supra Part II.C.2.h. 331 From the beginning, the European Community has possessed supra-national prosecutory and judicial authorities. The European Commission was granted authority by the Treaty of Rome of 1957, supra note 178 (the Treaty which established the EEC) to supervise the implementation of the provisions of the Treaty, including filing claims against States which do not fulfill their obligations. Id. art. 169. The claims are filed in the European Court of Justice, which too is a supra-national body. However, up to the signing of the Maastricht Treaty in 1992 (the European Union Convention), the Court did not have independent enforcement powers against States, -and at the most could declare that a Member State had not fulfilled its obligations. Id. Another interesting analogy concerns the character of the substantive law. It appears that primitive systems of law (and this is also true of English law in the 13th century) are characterized by flexible and lenient rules. Only after long development have the rules become stricter and the drafting more decisive and occasionally formalistic. 332 A process similar to this has been seen in the developmental stages of GATT, as discussed above.333 Perhaps the most important lesson to be learned from anthropological studies is that most of the laws of ancient societies reflect some sort of logical-biological reality or functional and important socialeconomic purpose.334 This is particularly true of laws which develop over a period of many years and which, therefore, express and serve the needs of the community. Accordingly, compliance with these laws is obtained not only by threat of sanctions in the event of violation, but also, and primarily, by virtue of the recognition among the members of the community of the inherent benefits derived from obedience to laws and the legal system as a whole.335 This recognition was, undoubtedly, also the decisive factor in the GATT world trade regime, and it explains, more than the fear of sanctions, the fundamental willingness of States to obey this regime, even where in the short term this may entail a conflict with certain national interests.336 This is borne out by the relatively small number of cases in which there has been a need for sanctions in order to enforce clear norms of the GATT regime. It should not be concluded from this that there is no need for sanctions at all. It is important that sanctions be available and be "put in writing" in case of need. But more important is the ability to achieve a clear and objective determination.of the contents and significance of international norms of conduct, on the assumption art. 171. The Maastricht Treaty, amended Article 171, and conferred on the Court power to fine a State which refuses to abide by the decision of the Court. See Treaty on European Union, 1992 O.J. (C224) 1, 61-62. See also LEv, supra note 184, at 48-49. The fines may be collected by means of deductions from allocations payable to the State from the Community budget. Id. 332 See FREDERICK POLLOCK & FREDERICK WILLIAM MArTLAND, THM HISTORY OF ENGLISH LAW BEFORE THE TIM OF EDWARD 127 (2nd ed. 1899). See also PATON, supranote 314, at 5354. 333 See supra Parts II.B.1-B.2. 334 MALr/movsKi, supranote 323. 335 The classical expression of this 1iosition is, of course, found in the words of Socrates in prison, when his friend tried to persuade him to escape and thereby save his life. See Crito, in THE COLLECrED DIALOGUES OF PLATO 27 (Edith Hamilton & Huntington Cairns eds. & Hugh Tredenick trans., 1982). 336 See JACKSON, supra note 3, at 83. See also Louis IHNiN, How NA-nONs BEHAVE: LAW AND FOREIGN POLICY 49-68 (2d ed. 1979) (analyzing why States generally obey international law). that States generally respect the rule Pactasunt servanda337 and are interested in the proper functioning of the world trade regime.338 VI. CONCLUSIONS In this article, I have doumented the process of juridicization of international trade relations within the framework of GATT and have attempted to explain its causes. This process, particularly as reflected in its most recent and sharply delineated form in the dispute settlement procedure of the WTO agreement and "third generation" FTAs, has finally refuted the classic "realist" theory concerning the nature and limits of international trade agreements. This realist approach viewed international trade agreements as essentially diplomatic arrangements and assumed that they could never be more than that.339 Today, the GATT regime is purposefully constructed in such a way as to offer clear rules of conduct regarding trade relations, as well as to achieve decisive, speedy and objective legal determinations in the event of trade disputes between States. In this way, international trade law has apparently reached a level of development which is so far unprecedented in most other fields of public international law,340 except in regional arrangements, such as the European Union. From the above analysis, it is apparent that, in recent years, a "world society," a society which is characterized by increasing crosssector interaction (i.e., between States, corporations and individuals) and by the construction of a legal-organizational regime to regulate this interaction, has begun to coalesce within the arena of international economics. It is a society characterized by the increasing economic interdependence of its members, which possesses a relatively high level of ideological homogeneity, at least in so far as touches the fundamental rules of its common economic regime. Liberal economic perceptions, giving priority to achieving economic prosperity and social security as opposed to building military power and advancing expansionist aspirations, and reliance on peaceful relations together are 337 "Agreements must be observed"; this rule is also entrenched in Article 26 of the Vienna Convention on the Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331, 339. Similarly, the rule is entrenched in the internal legal systems of all the GATT Member States, and this fact too strengthens the sense of duty to fulfil the obligations which the State takes upon itself. 338 See HENKIN, supra note 336. 339 See supra note 1 and the accompanying text. See also Robert Hudec, The GATT Legal System: A Diplomat'sJurisprudence,4 J. WoRu TRADE L. 615, 665 (1970). 340 Daniel K. Tarullo states: "the international trade system looks more like a legal system than do the areas of international law traditionally denominated public." Daniel K. Tarullo, Logic, Myth andInternationalEconomic Order,26 HARv. IVrr'L Li. 533, 533 (1985). what provided the appropriate platform for the creation of the legal trade regime. The catalyst was the vital need for stability and certainty in world trade on the basis of clear and enforceable rules. Leaders of the "global village," therefore, recognized their need for law no less than the primitive villagers of ancient times. The new regime has affected areas previously untouched in public international law, although this interstate regime can still not compare, of course, to domestic legal systems of normal countries. The States still strive to preserve their sovereignty and, in the absence of an autonomous enforcement mechanism (such as an execution office), compliance is still ultimately dependent on the acquiescence of the State itself. The legal regime of the WTO will therefore have to be tested, first and foremost, on the ground and, over the course of time, not only on paper. Much will depend on the ability of the WTO institutions to isolate the dispute settlement procedures from political influence and win the confidence of the international community as independent and objective bodies. But this is still not enough. Leaders of States too must show maturity and respect the rulings, even where they are inconvenient politically. Failure to do so may lead to the collapse of the world trade regime, as has already happened in the past.341 The identification and mapping of the elements creating the new regime may help us evaluate the future of the world trade regime and the risk of its collapse. The factors considered above indicate that there is no immediate danger of an impending breakdown. There is no reason to suppose that the level of economic interdependence will lessen, or that the process of globalization of the world economy will halt in the near future. On the other hand, the sudden outbreak of a military conflict or the creation of a new strategic-security threat against one of the economic powers may easily affect the international climate and the spectrum of considerations and preferences. Even an ideological climate is something which may change. Already, voices may be heard, both in the North and in the South, opposing the liberal-capitalist concepts underlying GATT. It is claimed that GAT allows the continued colonial exploitation of developing countries and the promotion of swifter economic development at the price of serious harm to the environment. If the heads of the WTO and State leaders fail to heed these voices and find suitable solutions to the criticisms raised within the framework of the regime, then one may expect 341 See PETERsMANN, supra note 307 and accompanying text. th*r.eats on the continued success of the new legal regime from this direction as well. Moreover, if the WTO is intended to fulfil the function of leading the "global village" in the area of international economic relations, then it would be appropriate for this leadership and for the rule-making function which it fulfills to be carried out in accordance with the democratic principles of leadership accepted in modern States. One would then argue for the process of "legislation" to be carried out by representatives elected in a democratic manner, by means of a system which reflects all the interests involved and all those who may be affected by the rules to be established. The current situation, in which the debates on trade rules are conducted under cover of secrecy and far removed from the scrutiny of the public, where non-governmental organizations (voicing important interests not always properly represented in governmental mechanisms) have no right to participate, is creating an estrangement between large sectors of the public and the multilateral regime.34 2 This regime is likely to be perceived as the fruit 342 Recently, this issue has given rise to intense debate, both on the political and academic level, particularly, in connection with the issue of environmental protection vis-d-vis free trade. See eg., Patti A. Goldman, Resolving the Tradeand Environment Debate: In Search of a Neutral Forum and Neutral Principles,49 WAsH. & LEE L. Rnv. 1279 (1992). The author criticizes the secrecy surrounding the dispute settlement process of GATT, and calls for the establishment of a neutral forum for the settlement of trade disputes with the right of participation and locusstandi given to representatives of both governments and non-governent organizations (NGOs). Id. at 1285-87, 1296-98. In her view, the GATT principle of "transparency" should be implemented not only in relation to the trade policy of the Member States, but also in relation to GATT proceedings themselves, so as to "practice what you preach." See also Steve Charnowitz, Participation of Nongovernmental Organizationsin the World Trade Organization,17 U. PA. J. IrNrr'L EcoN. L. 331 (1996), who also advocates granting NGOs the right to participate in the construction of rules (the "legislation") and in dispute settlement proceedings (the "adjudication") of the World Trade Organization; a right which had existed under the Havana Charter for the establishment of the International Trade Organization. See also Richard Shell, The Trade Stakeholders Model and Participationby Nonstate Partiesin the World Trade Organization,17 U. PA. J. INT'L ECON. L. 359 (1996). This author argues that it is actually the "legalization" of the dispute settlement process of the WTO which requires steps to be taken to ensure the public legitimacy of the organization. Accordingly, in his view, all the interests and bodies operating in international trade (and not only governments) should be allowed to participate in the decision-making process. Nevertheless, there are also some who oppose this view, and believe that granting locus standi to non-governmental bodies and excessive transparency in the proceedings of the organization can only harm the organization by bringing the international trade disputes to the center of media attention. In their view, this is likely to encourage nationalist sentiments and increase political sensitivity. Similarly, it is feared that only groups possessing sufficient means will be able to exercise the right of locus standi,and they will make use of this right to promote their private interests and not the interests of the collective. See Philip M. Nichols, Extension of Standing in World TradeOrganizationDisputesto Nongovernment Parties,17 U. PA. J. INT'L ECON. L. 295 (1996). This author proposes that instead of extending the right of standing, wider participation should be allowed in the dispute settlement panels, so as to include experts in fields other than international trade, such as experts in environmental protection-in disputes relating to of the labors of unelected technocrats and capitalist interests, a sort of supra-system which undermines the internal democratic system of the State. This is also true of the adjudication process conducted within the framework of the panels, which some argue are not sufficiently open, do not give sufficient consideration to interests which are not economic in nature and do not give a right of hearing to non-governmental bodies, such as environmental organizations and labor organizations.343 The greater the influence of international trade agreements and the further the juridicization process advances, the more will the "democratic deficiency" of these regimes be apparent, to the detriment of their legitimacy in the eyes of the public. A similar process occurred in the EC,3" and the continued existence and development of the EC was only made possible by efforts to resolve these types of problems.4 5 Within the framework of the WTO too it will be necessary to solve the problem of the "democratic deficiency," and to find the right balance between the promotion of economic prosperity, on the one hand, and the interest in protecting the environment and other social concerns, on the other. The first steps in this direction have already been taken.346 If such a balance is achieved, it will be possible to exthis matter-or representatives of the International Labour Organization-in disputes relating to trade restrictions on products manufactured by child labor. In his view, the authority to do so exists under the new DSU. See supra note 84, art. 8(1). 343 Id. and accompanying texts. 344 See, eg., J.H.H. Weiler, The Transformation of Europe, 100 YALE L. J.2403, 2466-74 (1991). See also J.H.H. Weiler with U.R. Haltem & F.C. Mayer, EuropeanDemocracy and its Critics - Five Uneasy Pieces, HARvARD JEAN MoNrNT WORmNG PAPER No. 1/95. 345 Thus, for example, it was decided to strengthen the standing of the European Parliament, which is the only body in the European system which is directly elected by all the citizens of the Community. Indeed, it was only decided to proceed with direct elections to the European Parliament in the 1970s, and they were first conducted in 1979. Similarly, the Single European Act 1985 gave the European Parliament, for the first time, the opportunity to take part in the legislative process (which is primarily controlled by the Council of Ministers and the Commission) by means of the "co-operation" procedure. The Maastricht Treaty of 1992 widened this power by establishing the "joint decision" procedure. See T.C. HAR=_Y, THm FoU1NArONS OF EUROPEAN CoMMuNrTY LAW 32-34 (1988); see generally Paul Marquardt, Deficit Reduction: Democracy, Technocracyand Constitutionalismin the EuropeanUnion, 4 DuKE J.Coup. & INr'L L. 2 65 (1994 ). 346 As a result of public criticism, the World Trade Organization has already introduced certain changes for the purpose of promoting transparency. Thus, for example, the Organization now publishes studies prepared by the Secretariat earlier than it did before, and the Secretariat staff conducts informal consultations with non-governmental organizations. See Benedict Kingsbury, The Tuna-Dolphin Controversy, the World Trade Organization and the Liberal Project to ReconceptualizeInternationalLaw, 5 Y.B. INT'L E v. L. 1,14 (1994). Similarly, the new memorandum of understanding permits States to make public their positions in disputes conducted within the framework of the Organization. It should also be noted that the World Trade Organization opened a site on the Internet in 1995, for the purpose of supplying routine and up-to-date 5 See infra Part D. On the use of this discipline to understand international law, see generally Kenneth W . Abbott, Modern InternationalRelationsTheory: A Prospectusfor International Lawyers , 14 YALE J. INT'L L . 335 ( 1989 ); Anne-Marie Slaughter Burley, InternationalLaw and InternationalRelations Theory: A DualAgenda, 87 AM . J. INT'L L . 205 ( 1993 ). 6 See, e.g., Glanville L. Williams, InternationalLaw and the Controversy Concerning the Word " Law" , 22 BRrr. Y.B. INT'L L . 146 ( 1945 ). 7 YORAM DINsTEiN, INTERNATIONAL LAw AND ThE STATE 14 ( 1971 ). 22 SAMUELSON, supra note 15. 23 See G. CURZON, MULTILATERAL COMMERCIAL DIPLOMACY: GATT AND ITS IMPACT ON NATIONAL COMMERCIAL POLICIES AND TECHNIQUE ch . I ( 1965 ) ; see also SHEPARD B . CLOUGH & CHARLES W. COLE , ECONOMIC HISTORY OF EUROPE 473 ( 1941 ). 24 Most of the liberalization was achieved through the GATT agreement, which is discussed below, and through regional agreements, such as the European Community, EFTA, and bilateral free trade areas. Examples of unilateral liberalization are sparse and are exceptions to the rule; one is the "Program to Expose the Economy to Imports from Third Countries." See Israeli FinanceandIndustry MinistersAgree to Dismantle TradeBarriersover Seven Years , 8Int'l. Trade Rep. (BNA) 395 (Mar. 13 , 1991 ) [hereiafter Dismantle TradeBarriers]. 25 ARTHUR DowNs, AN ECONOMIC THEORY OF DEMOCRACY ( 1957 ) ; MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION ( 1965 ); Charles K. Rowley & Robert D. Tollison , Rent Seeking and TradeProtection,in THE POLITICAL ECONOMY OF RENT SEEKING 217 ( Charles K. Rowley et al. eds., 1988 ). 26 For an extensive discussion of the politics of trade protection and the various economic models which have been developed to explain the political process in this connection, see MICHAEL J. TREBILCOCK ET AL., TRADE AND TRANSITIONS: A COMPARATIVE ANALYSIS OF ADTUSTMENT Poucras 171-92 ( 1990 ). 37 Cf.LoWFrLD, supranote 33 , at 20; William Diebold , The End of the I.T.O. , PRINcETON ESSAYS IN INTERNATIONAL FINANCE, No. 16 ( 1952 ). 38 See GATT , supra note 36. 39 Thus, for example, even though there is no reference in the GATT agreement to any organizational structure, it is stated therein that decision in connection with the agreement will be made by "the parties acting together", and not by any organization or body (see Article XXV) . This provision formed the basis for the de facto establishment of the "GATT Council" which gathered at least once every six months to make decisions and settle trade disputes. In the beginning GATT also had no secretariat and this problem too was resolved by a fiction; after the Havana conference a temporary commission was set up to establish the international trade organization (ICITO) (which in fact was never established), and the secretariat of this commission in practice served the needs of GATT. For details , see JACKSON, supra note 3 , at 37-38. 40 Id. at 38. 41 For a detailed historical review of the measures taken in the Uruguay Round, see JOHN CROOME, RESHAPING THE WORLD TRADING SYsTEM: A HISTORY OF THE URUGUAY ROUND (Geneva: World Trade Organization, 1995 ). 42 Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations , Agreement Establishing the World Trade Organization, 33 I.L.M. 1 ( 1994 ) [hereinafter WTO Agreement] . 62 See GATT , supra note 36, art . XVI( 3). In relation to interpretation and application of this requirement, see French Assistance to Exports of Wheat and Wheat Flour , GATT B.I.S.D. (7th Supp.) at 46 ( 1958 ) , for the decision of the Panel of 1958 on Australia's complaint against France regarding a French subsidy for the export of wheat and wheat flour . 63 See Article 9 of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade , GATT B.I.S.D. (26th Supp.) at 56 (this agreement is commonly referred to as the Tokyo Round Subsidies Code) . 64 "Annex: Illustrative List of Export Subsidies". The Annex forms an integral part of the agreement . See Article 19 : 10 . Id . 65 Agreement on Subsidies and Countervailing Measures, Annex 1A : 13 of The Agreement Establishing the World Trade Organization, reprinted in TIm RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS: TiH LEGAL TExTs 1- 46 ( 1994 ). 66 Id. This category contains two principal types: A. Subsidies, as defined in Article 1, contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance, including those set out in the Illustrative List of Annex 1; B . Subsidies which are contingent as aforesaid upon the use of domestic over imported goods . 67 Id. pt. III. 68 Id. art. 5. This category refers to all types of subsidies, including those which are not export incentives. The article prohibits use of such a subsidy if it has "adverse effects" on the interests of other States, such as injury to the domestic industry of another Member, or "nullification or impairment of benefits" acruing directly or indirectly to other Members under GATT 1994 . For the interpretation of the above term, which has been a key term in GATT dispute settlement since its inception, see infra Part II, para . 3.1. 69 Id. pt. IV. This category includes subsidies which are not "specific" within the definition of the agreement, as well as subsidies awarded to assist research and development (subject to certain limitations), to assist disadvantaged regions, and to provide assistance to promote adaptation of existing facilities to new environmental requirements, which result in greater constraints and financial burdens on firms . 70 WTO Agreement, supra note 42 , Annex 1B [hereafter GATS Agreement] . 71 Compare GATS Agreement, supra note 70, art. II (Most-Favoured Nation Treatment), art . XIV ( General Exceptions), and art. XVII (National Treatment) with GATT, supranote 36, art. I, art . XX, and art . III, respectively. 72 See GATS Agreement, supra note 70, art . XIX. 73 See id . art. XVII. 74 See id . art. III. 75 General Agreement on Tariffs and Trade - Multilateral Negotiation (the Uruguay Round), Agreement on Trade-RelatedAspects of IntellectualProperty Rights, Including Trade and Counterfeit Goods , Dec. 15 , 1993 , arts. 22 - 24 , 33 I.L.M. 81 , 91 - 93 ( 1994 ) [hereinafter TRIPs Agreement] . For discussions on the TRIPs Agreement, see generally,Jasna Arsic, Combatting Trade in CounterfeitGoods - The GATT and the ECApproaches, 18 WoRLD CoMPETInoN LAW & ECON . Rnv. 75 ( Mar . 1995 ); Paul E. Geller, IntellectualPropertyin the GlobalMarketplace:Impact of TRIPS Dispute Settlements , 29 INr'L LAW . 99 ( 1995 ) ; J.H. Reichman , UniversalMinimum Standards of IntellectualPropertyProtectionUnderthe TRIPs Componentof the WTO Agreement, 29 IN''L LAW. 345 ( 1995 ). For a discussion on the influence of TRIPs on the developing countries , see Marco C.E.J. Bronckers , The Impact of TRIPs: IntellectualPropertyProtectionin the Developing Countries,31 COMMON MKT . L. REv. 1245 ( 1994 ). 76 Uruguay Round Trade Agreement Draft Implementation Proposal , June 29, 1994 , at B( 16 ), availablein LEXIS Intlaw Library, GATT File. 77 See TRIPs Agreement, supra note 75, art. 41 ( 1 ). 78 Id. art. 41 ( 4 ). 79 For example, the Paris Convention for the Protection of Industrial Property was last amended in 1967, and the Berne Convention for the Protection of Literary and Artistic Works was last amended in 1971. 80 Lars-Henrik Knutrud , TRIPs in the Uruguay Round , in TBm NEw WoRLD TRADING SYsTEM: READINGS 193 ( 1994 ). 2.


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Arie Reich. From Diplomacy to Law: The Juridicization of International Trade Relations, Northwestern Journal of International Law & Business, 1997,