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KLE LAW ACADEMY BELAGAVI
(Constituent Colleges: KLE Society’s Law College, Bengaluru, Gurusiddappa Kotambri Law College, Hubballi, S.A. Manvi Law College, Gadag, KLE Society’s B.V. Bellad Law College, Belagavi, KLE Law College, Chikodi, and KLE College of Law, Kalamboli, Navi Mumbai)
STUDY MATERIAL
for
LAW RELATING TO INTERNATIONAL TRADE
Prepared as per the syllabus prescribed by Karnataka State Law University (KSLU), Hubballi
Compiled by
Rashmi R., Asst. Prof.
Simona Waheed, Asst. Prof.
Varun P, Asst. Prof.
Bhargav G., Advocate
Reviewed by
Dr. Manojkumar V Hiremath, Asst. Prof.
K.L.E. Society's Law College, Bengaluru
This study material is intended to be used as supplementary material to the online classes and recorded video lectures. It is prepared for the sole purpose of guiding the students in preparation for their examinations. Utmost care has been taken to ensure the accuracy of the content. However, it is stressed that this material is not meant to be used as a replacement for textbooks or commentaries on the subject. This is a compilation and the authors take no credit for the originality of the content. Acknowledgement, wherever due, has been provided.
CONTENT
Laws Governing Finance and Investments; Foreign Collaboration and Investment Policy
Foreign Institutional Investors (FIIs): Investment by Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs)
- Syllabus Sl. No. Particulars Page No.
- Historical perspectives of International Trade
- UNCTAD
- UNCITRAL
- GATT (1947-1994)
- World Trade Organization-Objectives, Structure, Power
- Tariffs and Types of Tariffs
- Most Favored Nation Treatment
- National Treatment
- Safeguard measures
- Technical Barriers to Trade
- Sanitary and Phyto- sanitary measures
- Trade Related Investment Measures (TRIMs)
- Anti- Dumping
- Subsidies and Countervailing Measures
- Dispute Settlement Process
- International Sales of Goods
- Formation of International Contracts
- Performance of International Contracts
- Various Forms and Standardization of Terms
- 5 Acceptance and Rejection of Goods
- 6 Frustration of Contract
- 7 Invoices and packing
- 8 Product liability - Unit -
- Exports – Insurance of Goods in Transit; Marine Insurance and kinds
- Law on Carriage of goods by sea, land and air
- Container transport
- Pre-Shipment Inspection
- Licensing of Export and Imports
- Foreign Direct Investment in Industries and Governing Policies
- Foreign Collaboration Agreement- Foreign Technology Agreement
- Foreign Companies and Foreign Nationals in India.
UNIT - I
Synopsis
- Historical perspectives of International Trade
- Institutions – UNCTAD, UNCITRAL, GATT (1947-1994)
- World Trade Organization-Objectives, Structure, Power
- Most Favored Nation Treatment and National Treatment
- Tariffs and Safeguard measures.
HISTORICAL PERSPECTIVES OF INTERNATIONAL TRADE
A. Mercantilism B. Absolute Advantage C. Comparative Advantage The theory of international trade and commercial policy is one of the oldest branches ofeconomic thought. From the ancient Greeks to the present, government officials, intellectuals, and economists have pondered the determinants of trade between countries, have asked whether trade bring benefits or harms the nation, and, more importantly, have tried to determine what trade policy is best for any particular country. Since the time of the ancient Greek philosophers, there has been a dual view of trade: a recognition of the benefits of international exchange combined with a concern that certain domestic industries (or laborers, or culture) would be harmed by foreign competition. Depending upon the weights put on the overall gains from trade or on the losses of those harmed by imports, different analysts have arrived at different conclusions about the desirability of having free trade. But economists have likened free trade to technological progress: although some narrow interests may be harmed, the overall benefits to society are substantial. Still, as evidenced by the intense debates over trade today, the tensions inherent in this dual view of trade have never been overcome.
Mercantilism
The theory of mercantilism attributes and measures the wealth of a nation by the size of its accumulated treasures. Accumulated wealth is traditionally measured in terms of gold, as earlier gold and silver were considered the currency of international trade. Nations should accumulate financial wealth in the form of gold by encouraging exports and discouraging imports. The theory of mercantilism aims at creating trade surplus, which in turn contributes to the accumulation of a nation’s wealth. Between the sixteenth and nineteenth centuries, European colonial powers actively pursued international trade to increase their treasury of goods, which were in turn invested to build a powerful army and infrastructure. The colonial powers primarily engaged in international trade for the benefit of their respective mother countries, which treated their colonies as exploitable resources. The first ship of the East India Company arrived at the port of Surat in 1608 to carry out trade with India and take advantage of its rich resources of spices, cotton, finest muslin cloth, etc. Other European nations—such as Germany, France, Portugal, Spain, Italy—and the East Asian nation of Japan also actively set up colonies to exploit the natural and human resources. Mercantilism was implemented by active government interventions, which focused on maintaining trade surplus and expansion of colonization. National governments imposed restrictions on imports through tariffs and quotas and promoted exports by subsidizing production. The colonies served as cheap sources for primary commodities, such as raw cotton, grains, spices, herbs and medicinal plants, tea, coffee, and fruits, both for consumption and also as raw material for industries. Thus, the policy of mercantilism greatly assisted and benefited the colonial powers in accumulating wealth. The limitations of the theory of mercantilism are as follows: i. Under this theory, accumulation of wealth takes place at the cost of another trading partner. Therefore, international trade is treated as a win-lose game resulting virtually in no contribution to the global wealth. Thus, international trade becomes a zero-sum game.
Presently, the terminology used under this trade theory is neo-mercantilism, which aims at creating favourable trade balance and has been employed by a number of countries to create trade surplus. Japan is a fine example of a country that tried to equate political power with economic power and economic power with trade surplus.
Absolute Advantage
Economist Adam Smith critically evaluated mercantilist trade policies in his seminal book An Inquiry into the Nature and Causes of the Wealth of Nations, first published in 1776. Smith posited that the wealth of a nation does not lie in building huge stockpiles of gold and silver in its treasury, but the real wealth of a nation is measured by the level of improvement in the quality of living of its citizens, as reflected by the per capita income. Smith emphasized productivity and advocated free trade as a means of increasing global efficiency. As per his formulation, a country’s standards of living can be enhanced by international trade with other countries either by importing goods not produced by it or by producing large quantities of goods through specialization and exporting the surplus.An absolute advantage refers to the ability of a country to produce a good more efficiently and cost- effectively than any other country.Smith elucidated the concept of ‘absolute advantage’ leading to gains from specialization with the help of day-today illustrations as follows: It is the maxim of every prudent master of a family, never to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way which they have some advantage over their neighbours. What is prudence in the conduct of every private family can scarce be folly in that of great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry. Thus, instead of producing all products, each country should specialize in producing those goods that it can produce more efficiently.
Such efficiency is gained through: i. Repetitive production of a product, which increases the skills of the labour force. ii. Switching production from one produce to another to save labour time. iii. Long product runs to provide incentives to develop more effective work methods over a period of time. Therefore, a country should use increased production to export and acquire more goods by way of imports, which would in turn improve the living standards of its people. A country’s advantage may be either natural or acquired. Natural: Natural factors, such as a country’s geographical and agro-climatic conditions, mineral or other natural resources, or specialized manpower contribute to a country’s natural advantage in certain products. For instance, the agro-climatic condition in India is an important factor for sizeable export of agro-produce, such as spices, cotton, tea, and mangoes. The availability of relatively cheap labour contributes to India’s edge in export of labour- intensive products. The production of wheat and maize in the US, petroleum in Saudi Arabia, citrus fruits in Israel, lumber in Canada, and aluminium ore in Jamaica are all illustrations of natural advantages. Acquired Advantage: Today, international trade is shifting from traditional agro-products to industrial products and services, especially in developing countries like India. The acquired advantage in either a product or its process technology plays an important role in creating such a shift. The ability to differentiate or produce a different product is termed as an advantage in product technology, while the ability to produce a homogeneous product more efficiently is termed as an advantage in process technology.
producing automobiles. In this case, the United States might export automobiles in exchange for imports of shirts—even though it can produce shirts more efficiently than Mexico. The practical import of the doctrine is that a country may export a good even if a foreign country could produce it more efficiently if that is where its relative advantage lies; similarly, a country may import a good even if it could produce that good more efficiently than the country from which it is importing the good. From Mexico’s standpoint, it lacks an absolute productive advantage in either commodity, but has a relative advantage in producing shirts (where its relative disadvantage is least). This trade is beneficial for both the United States and Mexico. The comparative advantage proposition is incredibly counterintuitive: it states that a less developed country that lacks an absolute advantage in any good can still engage in mutually beneficial trade, and that an advanced country whose domestic industries are more efficient than those in any other country can still benefit from trade even as some of its industries facing intense import competition. As developed by Adam Smith and the classical economists, the theory of international trade is an enormously powerful one due to its generality. Just like trade between citizens within a nation’s borders, international trade was an efficient mechanism for allocating resources and for increasing national welfare, regardless of the level of a country’s economic development. Any impediments to trade would detract from the gains from trade and therefore harm the economy. Smith and the classical economists made a powerful case for liberalizing trade from government restrictions (such as import tariffs and quotas) and moving toward free trade. At the same time, these economists recognized that there may be situations in which a government might wish to sacrifice economic gains for some other political objective. There might be non-economic objectives that are so desirable that they are worth incurring economic losses.
INTERNATIONAL TRADE INSTITUTIONS
UNCTAD - The United Nations Conference on Trade and Development
The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. UNCTAD is the part of the United Nations Secretariat dealing with trade, investment, and development issues. The organisation’s goals are to: "maximise the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis". UNCTAD was established by the United Nations General Assembly in 1964 and it reports to the UN General Assembly and United Nations Economic and Social Council. The primary objective of UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology. The conference ordinarily meets once in four years; the permanent secretariat is in Geneva. Globalisation, including a phenomenal expansion of trade, has helped lift millions out of poverty. But not nearly enough people have benefited. And tremendous challenges remain. We support developing countries to access the benefits of a globalised economy more fairly and effectively. And we help equip them to deal with the potential drawbacks of greater economic integration. To do this, we provide analysis, facilitate consensus-building, and offer technical assistance. This helps them to use trade, investment, finance, and technology as vehicles for inclusive and sustainable development. Working at the national, regional, and global level, our efforts help countries to:
- Comprehend options to address macro-level development challenges
- Achieve beneficial integration into the international trading system
- Diversify economies to make them less dependent on commodities
- Limit their exposure to financial volatility and debt
- Attract investment and make it more development friendly
- Increase access to digital technologies
to formulate modern, fair, and harmonised rules on such commercial transactions. Its work includes conventions, model laws, and rules which are acceptable worldwide; legal and legislative guides, and practical recommendations; updated information on case law and enactments of uniform commercial law; technical assistance in law reform projects; and regional and national seminars on uniform commercial law.
UNCITRAL Members
UNCITRAL's original membership comprised 29 states, and was expanded to 36 in 1973, and again to 60 in 2004. Member states of UNCITRAL are representing different legal traditions and levels of economic development, as well as different geographic regions. States includes 12 African states, 15 Asian states, 18 European states, 6 Latin American and Caribbean states, and 1 oceanian state. The Commission member States are elected by the General Assembly. Membership is structured so as to be representative of the world's various geographic regions and its principal economic and legal systems. Members of the commission are elected for terms of six years, the terms of half the members expiring every three years.
UNCITRAL - The United Nations Commission on International Trade Law
- The United Nations Commission on International Trade Law (UNCITRAL) is a subsidiary body of the U.N. General Assembly (UNGA) responsible for helping to facilitate international trade and investment.
- Established by the UNGA in 1966, UNCITRAL's official mandate is "to promote the progressive harmonisation and unification of international trade law" through conventions, model laws, and other instruments that address key areas of commerce, from dispute resolution to the procurement and sale of goods.
- UNCITRAL carries out its work at annual sessions held alternately in New York City and Vienna, where it is headquartered.
- The United Nations Commission on International Trade Law is the core legal body of the United Nations system in the field of international trade law. A legal body with universal membership specialising in commercial law reform worldwide for over 50 years, UNCITRAL's business is the modernisation and harmonisation of rules on international business.
UNCITRAL Activities
- Coordinating the work of active organizations and encouraging cooperation among them.
- Promoting wider participation in existing international conventions and wider acceptance of existing model and uniform laws.
- Preparing or promoting the adoption of new international conventions, model laws and uniform laws and promoting the codification and wider acceptance of international trade terms, provisions, customs and practice, in collaboration, where appropriate, with the organizations operating in this field.
- Promoting ways and means of ensuring a uniform interpretation and application of international conventions and uniform laws in the field of the law of international trade.
- Collecting and disseminating information on national legislation and modern legal developments, including case law, in the field of the law of international trade.
- Establishing and maintaining a close collaboration with the UN Conference on Trade and development.
- Maintaining liaison with other UN organs and specialized agencies concerned with international trade.
GATT - The General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade (GATT) was a free trade agreement between 23 countries that eliminated tariffs and increased international trade. As the first worldwide multilateral free trade agreement, GATT governed a significant portion of international trade between January 1, 1948 and January 1, 1995. The agreement ended when it was replaced by the more robust World Trade Organization (WTO). Purpose The purpose of GATT was to eliminate harmful trade protectionism. That had sent global trade down 66% during the Great Depression. GATT restored economic health to the world after the devastation of the Depression and World War II.
NAME START DURATION COUNTRIES SUBJECT ACHIEVEMENTS
Geneva Switzerland 🇨🇭 April 1947 7 Months 23 Tariffs Signing of GATT, 45,000 tariff concessions affecting $ billion of trade Annency🇫🇷 April 1949^ 5 months^34 Tariffs^ Countries exchanged some 5,000 tariff concessions Torquay 🇬🇧 Sept 1950^ 8 Months^34 Tariffs^ Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25% Geneva II 🇨🇭 January 1956 5 Months 22 Tariffs, admission of Japan $2.5 billion in tariff reductions Dillon 🇨🇭 Sept 1960 11 Months 45 Tariffs Tariff concessions worth $4.9 billion of world trade Kennedy 🇨🇭 May 1964 37 Months 48 Tariffs, anti- dumping Tariff concessions worth $40 billion of world trade Tokyo Sept 1973 74 Months 102 Tariffs, non- tariff Tariff reductions worth more than
🇯🇵 measures, "framework" agreements $300 billion achieved Uruguay 🇺🇾 Sept 1986^87 Months^123 Tariffs, non- tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc. The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights. Doha 🇶🇦 November 2001 ? 159 Tariffs, non- tariff measures, agriculture, labor standards, environment, The round has not yet concluded. The last agreement to date, the Bali Package, was signed on 7 December 2013.
Dillon Round: 1960– 62 The fifth round occurred once more in Geneva and lasted from 1960–1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC). Kennedy Round: 1964– 67 The sixth round of GATT multilateral trade negotiations, held from 1964 to 1967. It was named after U.S. President John F. Kennedy in recognition of his support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority. As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it became clear, long before the Round ended, that a more comprehensive approach was needed to deal with the emerging challenges resulting from the formation of the European Economic Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international trader more generally. Tokyo Round: 1973– 79 Reduced tariffs and established new regulations aimed at controlling the proliferation of non- tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $19 billion worth of trade. Formation of Quadrilateral Group: 1981 The Quadrilateral Group was formed in 1982 by the European Union, the United States, Japan and Canada, in order to influence the GATT.
Uruguay Round: 1986– 94 The Uruguay Round began in 1986. It was the most ambitious round to date, as of 1986, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role. Agriculture was essentially exempted from previous agreements as it was given special status in the areas of import quotas and export subsidies, with only mild caveats. However, by the time of the Uruguay round, many countries considered the exception of agriculture to be sufficiently glaring that they refused to sign a new deal without some movement on agricultural products. These fourteen countries came to be known as the "Cairns Group", and included mostly small and medium-sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New Zealand. The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade liberalisation agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to improve market access for agricultural products, reduce domestic support of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export subsidies on agricultural products and to harmonise to the extent possible sanitary and phytosanitary measures between member countries. Doha Round: 2001 The Doha Development Round began in 2001. The Doha Round began with a ministerial-level meeting in Doha, Qatar in 2001. The aim was to focus on the needs of developing countries. The major factors discussed include trade facilitation, services, rules of origin and dispute settlement. Special and differential treatment for the developing countries were also discussed as a major concern. Subsequent ministerial meetings took place in Cancún, Mexico (2003), and Hong Kong (2005). Related negotiations took place in Paris, France (2005), Potsdam, Germany (2007), and Geneva, Switzerland (2004, 2006, 2008). Progress in negotiations stalled after the breakdown of the July 2008 negotiations
