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CHAPTER-I: INTRODUCTION
International economic law, in its widest meaning, refers to those rules of public International
law which directly concern economic exchanges between the subjects of international law. Seen
from this angle, international economic law thus covers- only a part, albeit an important one, of
the discipline of public international law as a whole. This statement will be unwelcome to those
who maintain that international economic law is or should be a discipline of its own, separate
from public international law. Such a claim may be useful as a plea to increase the number of
academic posts in the field of international law, yet, in our opinion, international economic law
is so closely embedded in the discipline of public international law that the latter would be
crippled by such a separation. Peaceful relations between subjects of international law ate, after
all, to a very large extent directly concerned with economic exchanges1.
lf, on the other hand, one were to extend the notion of international economic law even to
all those aspects of international law as are indirectly affected by economic activities, this
envisaged new discipline would swallow-up the old discipline altogether. Law reflects the
interests of the ruling class and international law, in particular, reflects the interest of the most
prominent ("hegemonial") powers of the period concerned. These interests, in turn, are
influenced_ to a very large extent by the aim of obtaining material gains, and thus by economic
considerations. even if the actors concerned may not always be aware of the materialistic
background to then actions, which, ostensibly, may appear prompted by more idealistic motives.
Be that as it may, the present book will deal only with the rules of public inter-national law
directly concerned with economic exchanges. For example, presupposing the audience to be
familiar with the general problems of self-determination and of the use of force, we will discuss
only the right of economic self-determining and the use of economic force. However, the effect
of this reduction of the scope of the book is offset by the necessity at least to touch upon all
aspects of international economic law. We would fail to cope with the realities of present-day
international life, if we omitted to deal with phenomena like the existence of multinational
enterprises or of contracts concluded by States- with nationals of other States. Some authors still
may consider that international law should deal only with relations between States and possibly
with international organizations, thus giving priority to a preconceived doctrine over present
realities. We intend to follow the more modern doctrine which extends the categories of subjects
of international law so as to include individuals, and which takes into account the possibility of
other sources of international law than those enumerated in Article 38, paragraph 1, of the
1 NALSAR STUDY MATERIAL ON INTERNATIONAL TRADE LAW, Pg. 1
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Statute of the International Court of Justice (ICJ) or at least, the necessity of re-interpreting
these sources.
Consideration of these two factors may pave the way For the admission of new body of rules
into international economic law, the so-called `lex mercatoria". Comparative law shows that
traders all over the world are beginning to develop uniform conditions for doing business which
arc more or less cut loose from any national law and enforceable mainly by arbitration. Thus,
the "Law Merchant" of the Middle Ages seems to come alive again. By definition, the lex
mercatoria will apply merely between merchants. Joint inter-State enterprises9 may elect to base
their relations merely on the lex mercatoria. Non-profit making international associations,
likewise desirous of demonstrating their independence from any domestic law, cannot do
likewise. G. Van Heeke, shows that the basis of common practice of these entities is too small
for legal notions common to all of them to develop.
In its content, the lex mercatoria does not aim to regulate relations between States directly and
thus it does not fit into the classical notion of international law. On the other hand, by definition
the lee mercatoria does not form part of the nation-al law of any State. Yet domestic courts have
rejected the plea that awards based on mercatoria were not based on law and should therefore be
annulled. 10 If we extend the notion of subjects of international law so far as to include traders
as subjects at least of international economic law, the non-national lex mercatoria could be
counted among the sources of that law2.
The difficulties in practice of separating commercial from State activities are shown by the
development of the euro-dollar market. On this market. traders place for a limited period of time
amounts of currency (usually United States dollars) in a bank outside of the country where this
currency is issued and it is legally tender. These traders thus create payment facilities additional
to those offered by the hank of haute of the several States. earning higher interest than in the
United States, :is the hank granting the loan is not obliged to keep a corresponding interest-free
deposits with the US Federal Reserve Board) 1 The conditions for lending euro-dolars (Euroloans") have a great influence on the national interest raze. The almost unfettered circulation of
vast amounts of money exercises a great influence on the rate of exchange for national
currencies.

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By thus stretching the notion of international law in order to accommodate the facts of present
day international economic life, we are again confronted With such an unwieldy mass of
material that we are once more obliged to make a choice. Many inter-State economic relations
are today handled within the framework of the law of the particular international law. The law
and the activities of these organizations, concerning exclusively or, inter cilia, certain fields of
economic co-operation, arc relatively well covered by monographs. Where this is the case, we
will limit ourselves to discussing merely those of their activities, which we consider most
striking. Knowing, quite well how subjective such choice `will appear, it has nevertheless to be
made or else the present book would grow into multi-lateral treaties.
The same reasons of space prevent, a fortiori, any extension of the notion of international
economic law to include transnational (economic) law, i.e., to include all rules capable of
affecting human relations across national borders, without regard to the national or international
origin of such rules, thus including, e.g., national rules of conflict of laws.

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CHAPTER II: FACTORS OF INTERNATIONAL TRADE

Of all the economic activities, it is hard to imagine one more relevant to the prosperity of the
country than international trade. International trade allows countries to enjoy goods which they
would not have been able, for lack of indigenous raw materials or technology, to produce, and to
earn vital foreign exchange by selling goods which they are able to produce or manufacture at
an advantage over other countries. The mutual demand and supply for goods in turn stimulates
the economy, resulting in growth and employment. The fact is that no country is wholly selfsufficient. The movement of goods generates the movement of capital, and capital enables a
global financial system to remain stable. Indeed, despite some of the difficulties globalization
has brought into the international trading system, international trade by and large remains a
significant key to economic success and development.
The importance of international trading inevitably invites governments and international
organizations to want to develop laws to manage and control it. Indeed, there are many legal
rules, whether international, supra-national or national, that apply to the public or economic
aspects of international trade. These may include, for example, instruments such as the General
Agreement on Tariffs and Trade (GATT), bilateral Free Trade Agreements, the European Union
Treaty, customs law, etc. It is clearly needful, given the public and economic importance of
international trade, that such instruments are in place to ensure that factors which distort trade or
unfairly harm developing countries are properly controlled. There is however another aspect of
international trade which deserves no less recognitionthe private aspects of international
trade. Although inter-national trade is sometimes expressed in terms of trade between countries,
in reality, the majority of the traders are corporate entities or businesses. These entities or
persons make contracts for the sale and purchase of goods across borders which they would like
see recognised and enforced by nation states. Their relationship would only work if other
commercial arrangements were in place to facilitate the cross border sale and purchase of the
goods. These private commercial arrangements are essentially subject to national law. This
paper is thus primarily concerned with how English law governs these relationships and
transactions. In short, the subject under consideration is international commerce on English law
terms.
In particular, the paper will examine how English law facilitates and enforces the
international sale relationship. In any sale, it is imperative for the goods to be shipped or
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delivered. This is made all the more complex in international trade because of the distances
involved. The goods have to be transported, usually, by either the carrier. The carrier would
insist on a contract of carriage with 'net' the buyer or seller. It is therefore of some importance to
discuss this contract in some detail. In the meantime, the seller or buyer would wish to protect
themselves against any risk of loss, damage or delay caused to the goods as a result of the
distances the goods have to be carried over. The most conventional form of protection is the
insurance. The law relating to insurance contracts requires the insured person and the insurer to
act towards each other in good faith, and places a number of conditions on the insured person
before a claim would be paid out, given that abuse might arise. Other than the requirement to
pay for the goods, there may also be the need to raise finance (for both the seller and buyer)
from banks using the sale contract. Here, an evaluation of the law relating to payment and trade
finance is necessary. Last, but not least, disputes inevitably do happen. The book thus examines
the issue of where to sue and which country's laws will apply to the contract, in the light of the
international element in the contracts. There is also the ever important role alternative dispute
resolution methods play in helping commercial parties resolve their disputes. The book ends
with a chapter covering different methods of non judicial resolution of disputesin particular,
commercial negotiation and arbitration.
What Governs the Relationships in International Trade?
Without delving into the genesis of English international commercial law,3 it suffices to observe
that the following might be said to be its main characteristics:

to ensure certainty in the regulation of the parties' rights and obligations by ensuring

the law is consistent with precedent and predictable4;

to provide sufficient flexibility to the parties' need to do business by permitting the
recognition of trade custom and usage; to give primacy to the parties' agreement by
preferring not to re-write the terms of the contract without sufficient proof of the

parties presumed intention5;

to provide an efficient system for the resolution of commercial disputes through the
workings of the commercial court, the recognition and enforcement of arbitral

3 See C.M. Schmitthoff, Commercial Law in a Changing Economic Climate 2nd edn (London: Sweet & Maxwell, 1981),
Chs 1 and 2 for a general account of the historical development of commercial law.
4 2 As Lord Salmon said in Mardoif Peach & Co Ltd v Attica Sea Carriers Corp of Liberia (The Laconia) [1977] A.C. 850
at 878: "Certainty is of the primary importance in all commercial transaction
5 In Exxonmobil Sales and Supply Corp v Texaco Ltd [2003] EWHC 1964, for example, the court refused to allow proof
of custom or usage to override a contractual clause tacitly excluding such custom or usage. The problem though is always
one of construction of the clause but in that case, given the commercial background, the court was persuaded that the
clause (known as an "entire agreement" clause) was sufficiently wide to exclude custom and usage.

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awards, the facilitation of other forms of alternative dispute resolution (including

mediation, conciliation, etc.) and the recognition and enforcement of foreign judicial

awards; and
to recognise the international dimension of commerce by the application of
specialised rules of conflict of laws, the admittance of practice and rules of
international organisations (such as the International Chamber of Commerce, i the
UNCITRAL) as guiding the interpretation and application of commercial law, and
the use of foreign law as a guide. The functions of international commercial law are
necessarily linked to their sources. One of its most important sources is the
commercial contract. That shall be the starting point in this next section. In turn, the
contract can only have existence and enforceability because it is underpinned by
national law. However, that relationship between the contract and national law must
not be treated in isolation. EU and international legal influences also have an
impact.

Contract
Where the performance of a duty is provided for by contract, unless the provision 1-contradicts
the law or public policy of the country, that contractual provision shall be binding as between
the parties. In the examination of the relationship between the parties, it is therefore necessary to
extract the contents of the contract and then properly to construe them to determine the extent of
that relationship. The contents of the contractual relationship may be found either in the
expressly stated terms of the contract or may be elicited by the court from the surrounding facts
or legal environment. The terms of the contract must be sufficiently certain; in Schweppe v
Harper [2008] EWCA Civ 442, whether there is certainty can sometimes be a difficult matter of
judgment. There, in a 2-1 decision, the Court of Appeal held that the financing contract was
uncertain given that there were no clear terms as to the amount of finance sought, the rate or
rates of interest and any other consideration to be provided, the length of the finance and how
repayment was to be made. In general, the courts would try to save a commercial deal as the
presumption is that there is intention to be legally bound in a commercial relationship. Indeed,
the courts, where appropriate, would imply reasonable terms into the contract to make it
enforceable. However, the contract also has to be capable of being performed and this is where
the courts might find the gaps in the "contract" too cavernous to fill.
Express terms (a) Generally It is customary practice in international commerce for parties 141 to
adopt commonly recognised or standard terms. These standardised contracts are very much the
result of the growth of large-scale enterprises with mass production and mass distribution.
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According to Kestrel: "The stereotyped contract of today reflects the impersonality of the
market. It has reached its greatest perfection in the different types of contracts used on the
various exchanges. Once the usefulness of these contracts was discovered and perfected in the
transportation, insurance, and banking business, their use spread into all other fields of large
scale enterprise, into international as well as national trade .. . "6
The benefits of using these standardized terms include:
i.

As far as the trader or businessman is concerned, the risk factor is extremely important in
any business venture. Hence with the uniformity of terms and predictability of
consequences from the contractual arrangement being made pellucid right at the outset,
he is able to calculate the precise risks involved. Take for example standard form
insurance con-tracts, the commonly used terms of the cover and excepted perils make the
computation of risks more efficient for both the insurer and the insured.

ii.

(Standard form contracts are also useful in excluding or controlling the "illogical factor"
of judicial reasoning in litigation: the conviction that being codified terms will make the
contract so limpid that the court or arbitrator will have little choice but to adhere to the
expressed terms. Clarity in standard form contracts is no less an important factor in its
appeal to the business person. Decision makers entrusted with the task of construing the
standard form contract can take comfort in the fact that these terms are not novel, but
have been addressed by precedent or practice.

iii.
iv.

The use of standard form contracts also contributes to the reduction in cost and increase
in efficiency of transaction. The time and cost saved from extensive negotiation and
personalized drafting of the contract are not insubstantial especially in respect of largescale enterprises.

6 Kestrel (1943) Col_ L.R. 629.

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CHAP III: SOVEREIGNTY IN INTERNATIONAL ECONOMIC LAW

I. BASIC NOTIONS
(A) ABSOLUTE SOVEREIGNTY Textbooks often declare "sovereign" States to be the only
original subjects of inter-national law. As opposed to other subjects of international law which
derive their status as subjects from sonic act of the original subjects, that is of States, concluding
a treaty to establish an international organization or granting to individuals direct access to
international instances, sovereign States arc subjects or international law by the mere fact of
their existence.
However, when is a State "sovereign"? The notion of sovereignty was developed in the
early Middle Ages us lection to the claims of the Emperors of the Holy Roman Empire to be the
temporal rulers or the globe, the Pope being its supreme authority in spiritual matters only. At no
time did these claims of the Emperors and Popes fully correspond to reality. Even so, these
claims were resented by nil other rulers as an impediment to their longing to be the master of
their own destiny a longing, which these rulers share with most individuals, whether physical
or juridical, Opposed as it was to claims to an overreaching imperial authority, sovereignty
could only be absolute a ruler either-is the master a his own destiny, recognizing nobody on
this earth as It is superiors or he is not. A sovereign ruler, master of his own destiny, cannot be
subjected to rules made and enforced by others, hence he must be freed from the observance of
the law - princeps legibus solutus.
(b) RELATIVE SOVEREIGNTY AND INTERDEPENDENCE It was the very purpose of the
doctrine of sovereignty to allow also other rulers than the Emperor to be the masters of their
own destinies, However, as soon as these various sovereigns entered into relations with each
other, there had to be some mutually recognized rules governing these relations. If a ruler,
relying on his claim to be the master of his own destiny, would insist on determining for himself,
what these rules should be, there are only two possibilities. In the unlikely case that the other
rulers would recognize his claim, they would recognize him as their sovereign. Should;
however, every ruler uphold his claim to be sovereign to the extent that he can establish his own
rules for his relations with his fellow-sovereigns, flu regulation of these relations could count on
general acceptance.

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Yet, the States on this globe are in many ways dependent on each other. Such
interdependence- requires the existence of rules concerning inter-State relations. These rules
cannot be those made by a single State. If every State claimed to make such to such rules then
inevitable non-acceptance by other States would lead to anarchy. By necessity, rules on interState relations can only be rules recognized by all States participating in these relations, that is,
in view of the present day world-wide inter-dependence, by all States of the globe. If a State was
to be allowed to disregard these rules of ink:in:1601ml law, in view of its claim to be the master
of its own destiny, there would no longer be any reliable basis for the inter-state relation
required by the fact of the interdependence of the several sovereign States.
Recognition of these facts had led States to discard the notion of absolute sovereignty in
favour of that of relative sovereignty. Any State now is said to he sovereign, if its acts me not
subject to any other lutes than those of international law. The absence of such "other rules", in
general, is tested mainly by 'formalistic criteria. Interdependence being as strong as it is, not
even the two super-powers could claim to be truly independent of each other, if independence
and sovereignty would be determined strictly according to material criteria. Only where
application of formalistic criteria would lead to a blatant contradiction with reality would the
claim of a State to be sovereign fail to be generally accepted. Such an exceptional situation has
arisen for, example in respect to the claims of Manchuria and Croatia (1941-1945) to be
sovereign. These "puppet States" failed to obtain general recognition us sovereign States.'
(c) SOVEREIGN EQUALITY It is the very essence of sovereignty that no State claiming to
be sovereign can recognize another State as having legal authority over it. According to the
doctrine of relative sovereignty, all sovereign States therefore must be equal before international
law. However, here as elsewhere, equality may be understood in different ways.
Formal equality treats all subjects of law in the same manner. This equality is meant when
Article 2, paragraph 1, of the United Nations Charter declares "the Organization is based on the
principle of sovereign equality of all its members". As a consequence voting in the General'
Assembly follows the "one State, one vote" rule. t 2" There is no chance that weighted voting
will replace this rule,1264 as the smallest member States contributing only 2,54% to the UN
budget,126b yet constituting the two-thirds majority required for votes on important matters,
could prevent such a change.

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However confronted with the Kassebaum Amendment,126c making continued US support

to international organizations depend on greater US influence in budgetary rnattersi2" a
compromise was found. Under a gentlemen's agreement the UN General Assembly, when
adopting the budget on the "one State, one vote" basis. will follow the recommendation of the
Committee for Programme and Coordination (CPC), where decisions will have to be taken by
consensus.
However, equality may also be understood ;Is material equality, granting equal treatment
only to subjects, which are materially each other's equals, according to a criterion chosen in
advance. In international law, the criterion for material equality of States can he, inter cilia, their
population, size, gross national product or military power.
SOVEREIGNTY, INTERDEPENDENCE, AND THE STATE - It has become
commonplace to argue that qualitative changes in the global economy have weakened the ability
of states to pursue autonomous policies or have at least markedly raised the costs of doing
so.7 International drug trafficking is a commonplace example. States may prohibit narcotics, but
in a globalized, integrated, and open economy they cannot effectively keep them from entering
their borders. Likewise with global public goods of the sort represented by stratospheric ozone
depletion: no state can protect itself from a deteriorating ozone layer, nor can any state singlehandedly save the ozone layer. These sorts of effects and externalities in turn create incentives
for states to cooperate through international institutions.8 The standard argument about the
sovereignty implications of this process has been addressed above. The alternative conception of
sovereignty I explore in this part draws on this broad transformation in the global political
economy to instead suggest that sovereignty is enabled rather than weakened by these
cooperative efforts.9 As one prominent scholar puts it, 'interdependence does indeed challenge
the effectiveness of purely national policy, but not the formal sovereignty of states ... on the
whole, international institutions reinforce rather than undermine formal state sovereignty.10 This

7 It is now a platitude that the ability of governments to attain their objectives through individual action has been
undermined by international political and economic interdependence.' Keohane, 1993, above at 92. See also Robert 0.
Keohane, 'Hobbes's Dilemma and Institutional Change in World Politics: Sovereignty in International Society' in H. H.
Holm and G. Sorenson (eds), Whose World Order: Uneven Globalization and the End of the Cold War (1995). New York
Times columnist Tom Friedman coined the widely-quoted phrase 'Golden Straitjacket' to describe this phenomenon.
Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (LOC: Anchor Books, 1999), Ch. 6.
8 Kal Raustiala, 'Law, Liberalization, and International Narcotics Trafficking', NYU J. Int'l L. and Policy (1999).
9 Edward Parson, Protecting the Ozone Layer: Science and Strategy (Oxford: Oxford University Press, 2003).
10 Keohane, 1993 at 91.

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broad conception of sovereignty reinforcement has elsewhere been termed 'the new
sovereignty'.11 In the words of two leading proponents:
The largest and most powerful states can sometimes get their way through sheer exertion of
will, but even they cannot achieve their principal purposes security, economic well-being, and
a decent level of amenity for their citizens without the help and cooperation of many other
participants in the system ... That the contemporary international system is interdependent and
increasingly so is not news. Our argument goes further. It is that, for all but a few of self-isolated
nations, sovereignty no longer consists in the freedom of states to act independently, in their
perceived self-interest, but in membership in good standing in the regimes that make up the
substance of international life. To be a player, a state must submit to the pressures that
international regulations impose ... Sovereignty, in the end, is status the vindication of the
state's existence as a member of the international system. 12 The concept of a 'new sovereignty'
builds on a recognition of the many changes in the international system and in domestic politics
in the twentieth century.
The key change is increasing interdependence: the rise of `globalization', 'complex
interdependence', and a raft of novel trans boundary and common problems, such as
stratospheric ozone depletion.13 More and more, states cannot 'exert effective supremacy over
what occurs within their territories'.14 The broad point is that these developments, which are now
deeply embedded, profoundly intertwine the interests and fortunes of states and societies. States
can no longer fruitfully act autonomously, if they ever could. Or, more profoundly, most states
no longer desire complete autonomy because autarky cannot provide them with the goods and
outcomes they and their societies now require. The latter formulation points toward a second,
closely related change, one particular to the postwar democratic order: the shift in state-society
relations in advanced industrial democracies. This shift concerns the nature of the economic and
social order and the state's role within it. Political authority represents a fusion of power and
11 Abram Chayes and Antonia Handler Chayes, The New Sovereignty: Compliance with International Regulatory
Agreements (Cambridge, MA: Harvard University Press, 1995). See also Antonio Perez, `Who Killed Sovereignty? Or
Changing Norms Concerning Sovereignty in International Law', 14 Wisc. Int'l L J. 463 (1993) (reviewing Chayes and
Chayes, above).
12 Chayes and Chayes, id, at 27.
13 The concept of complex interdependence shares some similarities with globalization: 'the notion of globalization
differs from that of interdependence in that it refers to qualitatively different conditions. Whereas the notion of
interdependence refers to a growing sensitivity and vulnerability between separate units, globalization refers to the
merging of units ... nevertheless, the causal mechanisms mentioned in connection with the driving forces and the ongoing
change in world politics are quite similar in both fields.' Michael Zurn, 'From Interdependence to Globalization', in Walter
Carlsnaes, Thomas Risse, and Beth A. Simmons, The Handbook of International Relations (London: Sage, 2002), at 235.
See also Robert Keohane and Joseph Nye, Jr, Power and Interdependence (Glenview, IL: Scott, Foresman, 1989); Philip G.
Cerny, 'Globalization and the Changing Logic of Collective Action', 49 International Organization (Autumn 1995).
14 Keohane 1995 above n 59 at 176-77.

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legitimate social purpose.15 The legitimate social purposes for which state power could be
wielded changed in the West (and elsewhere) after the Second World War. The postwar
international economic order reflected what John Ruggie famously termed the compromise of
'embedded liberalism'. This order was multilateral in character, so as to avoid the ruinous
economic unilateralism of the interwar period. But, unlike the old nineteenth-century gold
standard liberalism, it was predicated upon domestic intervention into the economy. There are
many arguments about the transformation to embedded liberalism. The important point here is
simply that societal objectives and expectations about the government's responsibility to ensure
domestic economic and political stability had changed markedly." This transformation meant
that as a political matter only certain kinds of international legal regimes could be sustained. It
also meant that those legal regimes were now important vehicles for states to fulfill their new
social purposes. Linking these arguments together helps make sense of the claim that
international institutions in the contemporary context are in fact the medium through
which sovereignty is created or practiced rather than a restraint upon it. In this view, the 'only
way most states can realize and express their sovereignty is through participation in the various
regimes that regulate and order the international system. Isolation from the increasingly dense
international context 'means that the state's potential for economic autonomy because autarky
cannot provide them with the goods and outcomes they and their societies now require. The
latter formulation points toward a second, closely related change, one particular to the postwar
democratic order: the shift in state-society relations in advanced industrial democracies. This
shift concerns the nature of the economic and social order and the state's role within it. Political
authority represents a fusion of power and legitimate social purpose.68 The legitimate social
purposes for which state power could be wielded changed in the West (and elsewhere) after the
Second World War. The postwar international economic order reflected what John Ruggie
famously termed the compromise of 'embedded liberalism'.

15 68 John Gerard Ruggie, 'International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar
Economic Order', in Stephen D. Krasner: International Regimes (Ithaca: Cornell University Press, 1983). See also AnneMarie Burley (Slaughter), 'Regulating the World', in John Gerard Ruggie, Multilateralism Matters (New York: Columbia
University Press, 1993). She argues that much of the postwar multilateral system of international institutions can be
understood as a projection of the New Deal regulatory state. 69 Edward Hallett Carr, The Twenty Years' Crisis, 19191939,- An Introduction to the Study of International Relations (London: Macmillan and Co, 1939). 70 This is not to say
uniformly; there is considerable variation in the structure of capitalism and the role of state in the major economies of the
world. See, e.g., Peter Hall and David Soskice (eds), The Varieties of Capitalism: The Institutional Foundations of
Comparative Advantage (2001). 71 'In sum, efforts to construct international economic regimes in the interwar period
failed not because of the lack of a hegemon. They failed because, even had there been a hegemon, they stood in
contradiction to the transformation of it in the mediating role of the state between market and society, which altered
fundamentally the social purpose of domestic and international authority.' See Ruggie, above n 42, at 208. 72 See Chayes
and Chayes, above, at 27.

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This order was multilateral in character, so as to avoid the ruinous economic unilateralism
of the interwar period.16 But, unlike the old nineteenth-century gold standard liberalism, it was
predicated upon domestic intervention into the economy. There are many arguments about the
transformation to embedded liberalism. The important point here is simply that societal
objectives and expectations about the government's responsibility to ensure domestic economic
and political stability had changed markedly." This transformation meant that as a political
matter only certain kinds of international legal regimes could be sustained. It also meant that
those legal regimes were now important vehicles for states to fulfill their new social purposes.
Linking these arguments together helps make sense of the claim that international institutions
in the contemporary context are in fact the medium through which sovereignty is created or
practiced rather than a restraint upon it. In this view, the 'only way most states can realize and
express their sovereignty is through participation in the various regimes that regulate and order
the international system'. Isolation from the increasingly dense international context 'means that
the state's potential for economic growth and political influence will not be realized'.17
Far from being threats to sovereignty, international institutions ought to be understood as
instruments that strengthen or instantiate state sovereignty, given a particular, historicallycontingent contemporary state of the world. Indeed, as one scholar argues, given the current
world economic system 'the United States can better promote economic growth, prosperity, and
job creation through international cooperation, specifically the WTO, than it can acting alone. ...
United States sovereignty is not diminished by such participation, and the accountability of
democratically elected officials to the people is not reduced.18 Given a world in which largely
irrevocable changes in the global economy have destroyed the ability of states to prosper under
autarchy, and in which states must achieve social objectives to be legitimate, international
institutions are now the primary means by which states may prosper and achieve social
objectives. Consequently, they are the primary means by which states may reassert or express
their sovereignty. Institutions actively aid states in this reassertion of sovereignty."
16 Edward Hallett Carr, The Twenty Years' Crisis, 1919-1939,- An Introduction to the Study of International Relations
(London: Macmillan and Co, 1939). 70 This is not to say uniformly; there is considerable variation in the structure of
capitalism and the role of state in the major economies of the world. See, e.g., Peter Hall and David Soskice (eds), The
Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (2001). 71 'In sum, efforts to construct
international economic regimes in the interwar period failed not because of the lack of a hegemon. They failed because,
even had there been a hegemon, they stood in contradiction to the transformation of it in the mediating role of the state
between market and society, which altered fundamentally the social purpose of domestic and international authority.' See
Ruggie, above n 42, at 208. 72 See Chayes and Chayes, above, at 27.

17 Id.
18 Judith H. Bello, 'National Sovereignty and Transnational Problem Solving', 18 Cardozo L Rev. (1996), at 1029-30.
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This is a fundamentally transformationalist argument: it rests on the claim that both the
international system and state-society relations were transformed by events of the twentieth
century. As a result, the nature of sovereignty itself is said to be transformed. Whatever its other
virtues, this argument rightly highlights the importance of economic and political context for
conceptions of sovereignty. Sovereignty, in other words, is an evolutionary rather than a static
concept. The ancient Greek belief in the virtues of the small city-state was partly predicated on a
particular world. In this world, nearly all political decisions could not only be made, but be
made effectively, within the sphere of the city-state. As a result, institutions above the state were
basically functionally superfluous. In a highly interdependent world, however, the disparity
between political boundaries and economic or ecological boundaries renders effective selfgovernment highly problematic on a purely national scale, even for large and populous nations.
Effective government may now not only tolerate but require some institutions above the state. It
is this process of rising interdependence leading to decreased national governance capacity that
has undermined national policy responses. This along with a shift to more demands by
citizens upon the state underpins the concept of the new sovereignty and gives it its
transformationalist flavor. A corollary of this argument is that sovereignty in this new sense is
most pronounced in the liberal West. It is the states of the West, tightly integrated economically
and closely tied politically, that best embody the concept of the new sovereignty. The EU
represents the apotheosis of this 'logic of the West'. There is also an implicit representational
element in this conception of sovereignty. On the one hand, the idea of a 'new sovereignty' is
predicated on the satisfaction of domestic preferences, which implies some principal-agent
relationship between society and state. On the other hand, by arguing that `sovereignty, in the
end, is status the vindication of the state's existence as a member of the international system',
proponents suggest that societal demands fare secondary: what matters for sovereignty is
participation in international society.
A state is sovereign when it is an active player in the system, rather than an autonomous and
unfettered actor. This line of argument, uniquely among the claims examined in this article,
touches on the relational aspects of sovereignty. It highlights the importance of sovereignty as a
status that other states in the international system supply. An entity can declare itself a state,
print money, and own territory, but if the rest of the states do not recognize it as such it lacks
sovereignty. The focus on the relational aspects of statehood is evocative of the English School
of international relations theory, which broadly argued that states live in an anarchical society.
The canonical English School definition of an international society is a group of states that
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conceive themselves to be bound by a common set of rules in their relations with one another,
and share in the working of common institutions. States exist prior to international society;
international society is a system that waxes and wanes. One can interpret the new sovereignty
argument through this prism to mean that, under current circumstances (globalization, economic
interdependence), an international society exists. Given an interdependent world, a state that
fails to be an active participant in international society fails to be fully sovereign. It will not be
recognized as such by its peers.
The macro changes in the international system such as increasing globalization or
interdependence that I have thus far stressed are of course not simply exogenouslydetermined. International economic institutions have shaped and fostered the rise of
interdependence even as they help to manage and channel it. In this sense international
institutions play a dual role. They are tools that states use to reassert and regain sovereignty; yet
they also promote processes that help erode state autonomy and power. In closing, it is
important to underscore that the idea of a new sovereignty does not directly address the
accountability concerns that animate much of the contemporary debate over international
economic institutions. This debate is often about deficits in the processes of global governance:
in creating increasingly powerful international institutions to help us achieve the aims we desire,
have we harmed the democratic values that lay at the heart of the modern liberal state?
Reconceptualizing sovereignty as membership in good standing in the society of states does not
directly address this issue. The move to international institutions can be done in ways that are
more or less accountable, more or less transparent and open. However, if state legitimacy is
partly grounded in effectiveness, effective international economic institutions may be legitimate
because they are instrumentally useful even though they lack accountability in the usual
sense. (A domestic analogy is central bank independence.) Of course, it is not clear that a lack of
democratic pedigree correlates with greater effectiveness, though in the trade context this may
well be true. In short, proponents of a new sovereignty claim that, state-society relations have
been transformed in a manner that is significant for conceptualizations of sovereignty.
Democratic governance entails responsiveness to growing societal demands. While states
could once be relatively autarchic, today interdependence and globalization make it impossible
for states, acting alone, to provide the policy outcomes that publics desire. Sovereignty in its
traditional autarchic sense is thus lost because of broad changes in the international system as
well as broad changes in the demands of citizens. International institutions, far from a threat to
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sovereignty, are now said to be the means by which states satisfy these new and more extensive
demands. International institutions are, paradoxically, saviors of sovereignty.
SOVEREIGNTY AND PUBLIC CHOICE The second strand of arguments about
strengthening sovereignty through global governance takes a quite different tack, though there is
significant overlap in some respects. There are two variants of this argument. Both build on
public choice theory, and hence both begin with the presumption that politics and law are arenas
of struggle in which actors seek private gain.19 Public choice theorists have illustrated the many
ways in which public institutions may be used for private ends. Public choice analyzes political
actors and activities using the same set of tools and assumptions deployed for economic actor
and activities; the theory views politics and economics as shared pursuits, theoretically and
empirically. Public choice theory 'presumes that governmental policy reflects the equilibrium
outcome of a rivalrous process among competing interest groups who try to cause governmental
policy to further their own ends.20 As a result, the state is a normatively problematic entity
perhaps necessary to realize certain aims of a good society, but highly prone to rent-seeking and
capture. Though this link is not always made explicit, traditional public choice models of
legislation imply that as rent-seeking diverts resources and policies toward special interests,
democratic processes and popular sovereignty are undermined. Rather than act as faithful
agents, state actors will use state power for their own personal ends: to enhance their power or
secure private goods. Public choice theory suggests that international economic institutions may
enhance rather than erode national sovereignty in two different ways. First, international
economic institutions can strip certain policy choices away from the state, thereby stripping
them away from the rent-seeking private actors that accumulate around state power like so many
moths to a flame. The result is policy that is, counter-intuitively, more faithful to popular
preferences. Sovereignty is strengthened because citizens are understood in this argument to be
the repository of sovereignty. The second argument claims that regulatory officials use
international economic institutions to preserve sovereignty and their personal and
institutional power in the face of exogenous and destabilizing change in the international
19 This can be said of rational choice theories in the social sciences generally; See, e.g., Donald P. Green and Ian Shapiro,
Pathologies of Rational Choice Theory (New Haven: Yale University Press, 1994), ch 1.
20 Enrico Colombarto and Jonathan R. Macey, 'A Public Choice Model of International Economic Cooperation and the
Decline of the Nation State', 18 Cardozo L. Rev. (1996), at 931. For a general overview see Daniel A. Farber and Philip P.
Frickey, Law and Public Choice: A Critical Introduction (Chicago: University of Chicago Press, 1991). Public choice
theory in the international trade context is described in Kenneth Abbott, 'The Trading Nation's Dilemma', 26 Harv. Intl L. J.
(1985).

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system. In other words, there is both an 'internal' and an 'external' threat to sovereignty that
international institutions may ward against.

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CONCLUSION
At the outset of these papers, it can be argued that international trade and international
economic activities generally, have been over looked by the field of the international law. This is
because the very notion of statehood itself intended to marginalize activity that was not
perceived to be the activity of the sovereign state, or activity of sovereign states, or activity that
was seen as occurring independently of those States.
It can also be suggested that there are two models for viewing international trade law. One
perceives international trade law in terms of the economic logic of comparative advantage. This
is the underlying rationale for the international trading regime and for the law on which it is
based. And much of international trade law is from the perspective of the nation state. In this
light international trade law can be viewed as responding to the exigencies of sovereignty. It
reflects States exercising the authority over areas of domestic jurisdiction. This, too provides a
way of understanding certain areas of international trade law.
Although both of these models provide an insight into international trade law, in fact the
former is gaining more ground at the expense of the latter. That is, there has been a steady
encroachment of the disciplines of international trade law into areas that might otherwise have
been considered to be within the domestic jurisdiction of states. And, at the same time, there has
been an encroachment of international law. This reduction in the domestic jurisdiction of States
has gone in hand with an increasing globalization of economic activity. The present-day reality
of an international economy characterized by increasing cross border movement of the factors
of production require a fundamental rethinking of the relevance or even the existence of any
idea of economic sovereignty.
The idea that the sovereignty is no longer what it once might have been is not new to those
in the fields of political economy and international relations. As Professor Susan Strange has
written: There is world economy and a world society, but territorial states still claim a
sovereignty that they are not, for the most part, capable of exercising as they used 21. In short,
the traditional way in which we have viewed States and perceived their roles and functions may
now have to be reassessed.

21 The Defective State, (1995) 124 Daedalus 55 at 70.

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One consequence may be that we have to think of states not just in terms of territory,
population and capacity to enter into international relations, but also in terms of their functions
in respect of enhancing economic welfare.
But this implies, some limitations as well. The notion of sovereignty, the idea of plenary
jurisdiction and control, does not fit well in the economic field. And this is a consequence of
what I have described as globalization, whereby economic activity is no longer local or national,
and economic effects within states are often the consequence of actions or decisions taken
outside its borders over which it has no effective control. It is also consequence of the
disciplines that have been steadily increasing under the framework of the GATT and now are
embodied in the WTO. These disciplines, as we have seen, reach into areas that might otherwise
be regarded within the domestic jurisdiction of states. Economic sovereignty exists neither in a
practical nor a legal sense.

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BIBLIOGRAPHY
Debashis Chakraborty & Amir Ullah Khan: The Wto
Deadlocked: Understanding the Dynamics of
International Trade, Sage India, Print 2008
Petros C. Mavroidis & Alan O. Sykes, The WTO And
International Trade Law / Dispute Settlement,
Edward Elgar Publishing, 2005
NALSAR, STUDY MATERIAL ON INTERNATIONAL
TRADE LAW

INTERNET SOURCES
www.lawteacher.net

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