INTERNATIONAL ECONOMIC LAW

STATES – AS SUBJECT OF INTERNATIONAL

ECONOMIC LAW

PROFESSIONAL SKILL DEVELOPMENT ACTIVITY

SUMITTED TO: MR. VINAY JUNEJA

SUBMITTED BY: TUSHAR ARORA – 24117703820

CLASS & SECTION – 9 E

Vivekananda School of Law and Legal Studies

VIVEKANANDA INSTITUTE OF PROFESSIONAL STUDIES

Pitampura, Delhi- 110034

2024

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Introduction

International economic law is the branch of public international law that governs international
economic relations.1 Although the regulation of international economic relations has always
been a central aspect of international law, it has become a distinct field of the international
legal system since the end of WWII. In its aftermath, states representatives met at Bretton
Woods, New Hampshire, United States, motivated by the belief that a closer economic
integration among states could prevent economic warfare, enhance international peace, and
promote global welfare. The creation of international institutions dealing with international
trade, foreign direct investment (FDI), and foreign exchange was seen as a means to avoid
protectionism and foster peaceful and prosperous relations among nations.
During the negotiations, three international institutions were imagined to form the pillars of the
international economic order: the International Trade Organization (ITO), the International
Bank for Reconstruction and Development (World Bank), and the International Monetary Fund
(IMF). The ITO was to govern both trade and investment; the IMF was to provide short-term
finance to countries in balance of payment difficulties; and the World Bank was meant to
provide long-term capital to support development. Of the three institutions, only the IMF and
the World Bank were established. The ITO never saw the light of the day: its founding
instrument was adopted in Havana in 1948 but it failed to enter into force since the United
States Congress did not approve it, and other states could not establish an international trade
system without the largest economy in the world.2
Instead, the parties signed the much less ambitious, but perhaps more pragmatic General
Agreement on Tariffs and Trade (GATT 1947). 3 The GATT was not an international
organization nor did it have an international personality. Rather, it was a multilateral treaty
with an agile structure. Although the GATT was meant to have a provisional application, over
time, it became extremely successful, probably because of its practical and diplomatic nature.
It gradually developed some institutional and dispute settlement features, and after almost five
decades, an agreement was reached to establish the World Trade Organization (WTO).
Nowadays, international economic law is a well-developed area of law that includes
international monetary law, international investment law, and international trade law, as well

1
Georg Schwarzenberger, ‘The Principles and Standards of International Economic Law’ (1966)
2
Gerhard Loibl, ‘International Economic Law’,
3
General Agreement on Tariffs and Trade, 30 October 1947, 55 UNTS 194.

pg. 2
as elements of international financial law and international development law. This chapter
provides some sense of the various debates and trends in international economic law focusing
on two of its subfields, namely international trade law and international investment
law. Although each subfield could be treated in its own right, this book attempts to examine
the converging divergences between the two fields in relation to their interplay with cultural
heritage protection. The in-depth and holistic scrutiny of these two subfields of international
economic law enables the detection of the possible emergence of general principles of
international law mandating the protection of cultural heritage in peacetime. Such a holistic
approach also enables a better understanding of the international economic order and its various
parts. Finally, it allows the defragmentation of international law. 4 The chapter shows that
international economic law cannot be isolated from general international law. On the one hand,
international economic law can influence the development of general international law. The
jurisprudence of international economic courts can be informally considered by other
international courts and tribunals. Moreover, state practice and opinio juris developed under
the aegis of international economic law can contribute to the coalescence of customary law or
general principles of international law. On the other hand, as mentioned, international
economic law is rooted in general international law. Its sources are treaties, customs, and
general principles of law—the same sources of general international law. Moreover,
international economic law is gradually becoming permeable to the influence of other subfields
of international law, such as international cultural heritage law, albeit to a varying extent.
Therefore, general international law and its subfields should not be read in clinical isolation
from each other.
The chapter provides a brief overview of the features, aims, and objectives of international
economic law and dispute settlement mechanisms, thus setting the stage for illuminating the
linkage between cultural heritage protection and international economic law in theory and
practice. While international economic law can be approached from a variety of different
perspectives, 5 the chapter primarily adopts an international law perspective. Additional

4
Asif Qureishi and Andreas Ziegler, International Economic Law, II ed. (London: Sweet & Maxwell 2009)
5
John Haskell and Akbar Rasulov (eds), New Voices and New Perspectives in International Economic
Law (Heidelberg: Springer 2020). On the hegemony of economic analysis in international economic law, see
Oisin Suttle, ‘Poverty and Justice: Competing Lenses on International Economic Law’ (2014) 15 JWIT 1071–1086
(noting that ‘the hegemony of economic analysis, and in particular the power of comparative advantage in
trade scholarship, left little space for alternative theoretical approaches.’).

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perspectives such as economics, political science, and history come into play when necessary,
to understand this complex field of study.
The chapter proceeds as follows. Section 1 briefly examines the content, aims, and objectives
of international economic law. Section 2 analyzes its sources. Section 3 discusses the interplay
between state sovereignty and international economic law. Section 4 investigates the settlement
of international economic disputes. Finally, Section 5 analyses and critically assesses the
current legitimacy crisis of international economic law. Final remarks sum up the key findings
of the chapter.

Content, Aims and Objectives of International Economic Law

International economic law governs economic phenomena, including but not limited to trade,
investment, services, currency, and finance when such activities cross national borders. 6 Due
to economic globalization, international economic law has expanded in breadth and width –
governing a growing number of fields and to an extent unknown before. While most fields of
international law have an economic dimension, such economic tools of governance formally
remain outside the normative ambit of international economic law.7
Rather, it is possible to identify ‘the core and the penumbra’ of international economic
law.8 The core of international economic law includes international trade, foreign investment,
and international monetary relations. Because of their centrality to the field, these areas have
been under the spotlight for decades and have become worthy of investigation in their own
right. Within the matrix of international economic law, international investment law and
international trade law are often examined together as the twin pillars of the system. They share
the general objectives of providing security and predictability to economic actors and
increasing world prosperity by reducing barriers to international flows of goods, services, and
investments. Foreign investments and international trade often interact in a globalized
economy, and there is some partial overlapping in their respective legal frameworks, as some
aspects of foreign direct investments are governed by relevant WTO agreements. Negotiations

6
John H. Jackson, William J. Davey, and Alan O. Sykes, Legal Problems of International Economic Relations (St.
Paul, MN: West Group 2002) 193–194.
7
For instance, Article 15 of the 1972 World Heritage Convention established a Fund for the Protection of the
World Cultural and Natural Heritage. The operation of such fund remains outside the formal borders of
international economic law, despite having an economic character.
8
Qureishi and Ziegler, International Economic Law, 14.

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on an Investment Facilitation for Development Agreement have been underway in
the WTO since September 2020; they are meant to conclude by the end of 2022. The
negotiations are far advanced and focus on a wide range of measures that governments can put
in place to facilitate the flow of FDI. In turn, some trade elements surface in relevant investment
arbitrations.9 Both regimes prohibit unjustifiable discrimination.10
Because of the expansive character of international economic law, this field has increasingly
interacted with other regimes of international law. International economic law has thus become
increasingly porous to noneconomic values including, but not limited to, human rights, public
health, environmental protection, and cultural concerns. 11 This interaction—the so-called
linkage issue—has attracted growing attention, but remains in a twilight zone, thus deserving
further scrutiny.
International economic law aims to promote peaceful and prosperous relations among nations,
thus enhancing global welfare. The participants to the Bretton Woods conference endorsed the
idea that by promoting a closer economic integration among nations, a mutual and better
understanding would follow. Accordingly, an economically close-knit international
community would develop a sense of interdependence, unity, and common destiny among its
members.

Because of its three-fold aim—namely, growth, welfare, and peace—international economic

law has multi-layered objectives, including both economic and noneconomic goals. Economic
objectives include ‘raising the standards of living, ensuring full employment, … the facilitation
of growth in real income.’ The most important undertakings that a country makes pursuant to
international economic law are the so-called mostfavored nation (MFN) treatment and national
treatment. MFN treatment requires generally that ‘any advantage, favor, privilege or immunity
granted by any contracting party’ to any foreign investor, investment, or product ‘shall be
accorded immediately and unconditionally’ to the like investor, investment or ‘product
originating in or destined for the territories of all other contracting parties’. In other words, the

9
See e.g. Anastasios Gourgourinis, ‘Reviewing the Administration of Domestic Regulation in WTO and
Investment Law’, in Freya Baetens (ed.), Investment Law within International Law Integrationist
Perspectives (Cambridge: CUP 2013) chapter 13.
10
See e.g. Nicholas DiMascio and Joost Pauwelyn, ‘Non-discrimination in Trade and Investment Treaties:
Worlds Apart or Two Sides of the Same Coin?’, (2008) 102 AJIL 48–89, 88.
11
Daniel Drache and Lesley A. Jacobs, Grey Zones in International Economic Law and Global
Governance (Vancouver: University of British Columbia 2019).

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best treatment extended to any has to be extended to all. National treatment requires equal
treatment of foreigners and locals.
Noneconomic objectives relate to the respect of community values such as the optimal
utilization of world’s resources ‘in line with the objectives of sustainable development and the
preservation of the environment.’ While the preamble of the WTO Agreement expressly refers
to sustainable development, preambles of investment treaties vary. Such noneconomic
objectives also include the respect of cultural diversity or public morals (ordre public) and
national and international security. While expressed in the form of specific or general
exceptions, noneconomic concerns should not be considered to be antithetical to international
economic law, but as a necessary component of the same. They constitute necessary limits to
economic freedoms, enabling a vital connection between international economic law and
general international law.

The Sources of International Economic Law

This section briefly maps the sources of international economic law and discusses their past
and contemporary relevance. The sources of international law are set forth in Article 38 of the
Statute of the ICJ.12 Such sources are international conventions, customary international law,
and general principles of law. 13 The decisions of international economic courts and the
teachings of the most highly qualified jurists constitute subsidiary means for the determination
of international law.14 As is known, the provision specifically empowers the ICJ to apply these
sources when deciding disputes in accordance with international law. Nonetheless, such
provision is generally interpreted as listing the sources of international law that international
courts and tribunals can use to detect, interpret, and apply international law. Therefore, this
provision is generally considered to constitute a roadmap of the sources of international law in
general and of its subfields in particular.
International economic law is mainly governed by a number of bilateral, regional, and
multilateral agreements and is composed of detailed rules. Examples of bilateral treaties
are BIT s. As there is no single comprehensive multilateral investment agreement, more than

12
United Nations, Statute of the International Court of Justice, 18 April 1946, 33 UNTS 993.
13
Article 38 Statute of the ICJ. The Statute of the International Court of Justice is annexed to the Charter of the
United Nations. Charter of the United Nations, 26 June 1945, in force 24 October 1946, 1 UNTS XVI.
14
ICJ Statute, Article 38(1)(d).

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3,000 international investment agreements (IIA s) define investors’ rights. The first BIT was
concluded between West Germany and Pakistan in 1959; the number of BIT s has grown
steadily since then. Such IIA s generally require states to grant foreign investors fair and
equitable treatment, full protection and security, and non-discrimination, in addition to
prohibiting unlawful expropriation and other forms of state misconduct. Regional agreements
include FTA s and agreements establishing customs unions.

Multilateral agreements include the Marrakesh Agreement establishing the WTO and its
covered agreements. 15 Contrary to the GATT 1947, which granted states some latitude in
signing up to the different agreements, creating a complex mosaic of commitments (GATT-à-
la-carte), the WTO obliges its members to accept a core package of multilateral agreements.
This includes GATT 1994, the General Agreement on Trade in Services (GATS), the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the Dispute
Settlement Understanding (DSU).
To date, the idea of governing both trade and foreign investments at a multilateral level has
been unsuccessful. 16 While the Havana Charter contained provisions on the treatment of
foreign investment, it was never ratified, and only its provisions on trade were incorporated
into the GATT 1947. 17 Later attempts to govern FDI at the WTO also proved unsuccessful.
For example, the 1996 Singapore Ministerial Conference decided to establish a new working
group on trade and investment, and the subject was originally included on the Doha
Development Agenda (DDA). According to the mandate, the negotiations would start after the
2003 Cancún Ministerial Conference, on the basis of a decision to be taken, by explicit
consensus, at that session. However, there was no consensus, and the item was therefore
dropped from the DDA in 2004. The United States and developing countries converged in their
desire to eliminate investment from the DDA, albeit for different reasons. Developing countries
opposed the insertion of investment governance on the negotiation table, fearing a race to the
top of investment protection standards and the consequent dilution of their regulatory
autonomy. Meanwhile, the US and other industrialized countries expected to achieve a greater
degree of liberalization for investment via bilateral and regional deals. Nowadays, negotiations
are under way to develop a Multilateral Agreement on Investment Facilitation for

15
Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement) 15 April 1994,
1867 UNTS 154, 33 ILM 1144 (1994).
16
See generally Pierre Sauvé, ‘Multilateral Rules on Investment: Is Forward Movement Possible?’ (2006)
9 JIEL 325–355.
17
General Agreement on Tariffs and Trade, adopted 30 October 1947, in force 1 January 1948, 55 UNTS 194.

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Development. However, such agreement does not cover market access, investment protection,
and investor-state dispute settlement.
Most international economic instruments include internal mechanisms of interpretation and
dispute settlement that tend to reach pragmatic rather than strictly judicial settlement. Given
the abundance of international economic legal instruments, conflicts can arise, and have arisen,
between such instruments. While some multilateral instruments explicitly include an exception
enabling states to achieve closer forms of economic integration,18 other instruments do not
specifically govern such interaction, and in some instances, parallel litigations have taken place
before different fora.
Customary international law has developed in the area of international economic law.
Historically, customary law principles of the freedom of communication (jus communicationis)
and freedom of the sea (mare liberum) played a significant role in promoting freedom of
commerce in the past centuries. Despite its historic importance, customary law now plays a
residual and limited role in international economic relations because of the abundance of
treaties and their detailed provisions. Nonetheless, customary law remains the bedrock of
international economic law, and the norms of the former still constitute fundamental threads of
the fabric of the latter. Important rules of customary law pertain to treaty interpretation, the
treatment of aliens, diplomatic protection, and the principle that agreements must be kept
(pacta sunt servanda). 19 Despite the existence of many international treaties, recourse to
customary law enables the system to be flexible, and to adapt to changing circumstances and
the evolving needs of states. Nonetheless, customary law presents distinct challenges due to
the possible lack of consensus among states as to the customary law nature and extent of given
norms.
General principles of law also play an important role in international economic relations.20 As
is known, these can have a domestic or international origin. Because international law has
promoted standardization in domestic law, in turn such harmonization can foster the emergence
of general principles of law.21 As for customary law, the identification of general principles
of international law can be challenging. While universal consensus is not needed, a careful
scrutiny of various legal systems is required.

18
GATT 1994, Article XXIV.
19
Qureshi and Ziegler, International Economic Law, 27.
20
Georges Abi-Saab, ‘General Principles of Law in International Economic Law’, in Thomas Cottier and Krista
Nadakavukaren Schefer (eds), Encyclopedia of International Economic Law (Cheltenham: Elgar 2017) 42–43.
21
Qureshi and Ziegler, International Economic Law, 28.

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The decisions of international economic courts and the teachings of the most highly qualified
jurists constitute subsidiary means for the determination of international economic
law. 22 Although there is no binding precedent in international law, 23 the decisions of
international courts and tribunals have played an important role in clarifying, interpreting, and
even developing international economic law. The teachings of jurists also significantly appear
in the jurisprudence of international economic courts. While this can contribute to the
development of international economic law, commentators have called for more diversity
within the field in order to enable different perspectives to emerge and contribute to the
evolution of international economic law.
The incidence of each type of source inevitably varies in each subfield of international
economic law, depending on the development of the same. For instance, in international
monetary law, soft law in the form of nonbinding instruments still prevails. Instead, both
international trade law and international investment law are characterized by a significant
number of treaties, expressing a clear preference for a rule-based system. More importantly,
‘the manner in which these sources are elucidated, for example with or without a positivist or
natural orientation, serves the goals of certain interest groups better than others.’

State Sovereignty and International Economic Law

Sovereignty is an elusive concept that has different meanings depending on context. A flexible
notion, it mainly refers to ‘the power of a state freely and autonomously to organize itself and
to exercise a monopoly of legitimate power within its territory.’24 It also forms the basis for the
state’s external relations.25 In discussing sovereignty, scholars generally distinguish between
internal sovereignty, that is, ‘governing authority within the state’, and external sovereignty,
that is, ‘sovereignty as between states.’26
Internal sovereignty refers to the capacity of the country to govern itself regardless of its form,
and to pursue the achievement of its own destiny. It indicates a geopolitical entity with its own
rules, its own administration, and the monopoly of force within the state. Internal sovereignty

22
ICJ Statute, Article 38(1)(d).
23
ICJ Statute, Article 59.
24
Qureshi and Ziegler, International Economic Law, 31.
25
See PCIJ, The Case of the S.S. Lotus (France v Turkey), Judgment, 7 September 1927, 1927 PCIJ (ser. A) No. 9,
at 18 (stating that ‘[i]nternational law governs relations between … states.’).
26
James Crawford, ‘Sovereignty as a Legal Value’, in James Crawford and Martti Koskenniemi (eds), The
Cambridge Companion to International Law (Cambridge: CUP 2012) 117–133, 120.

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also includes a state’s permanent control over its natural and cultural resources, self-
determination, and general jurisdiction over activities within its own territory.
External sovereignty refers to the capacity of states to operate externally as the main actors of
international law. It indicates that states owe authority to no other ruler (rex superiorem non
recognoscens); rather, they are considered to be perfect communities, complete in and of
themselves (communitates perfectae).27 As states are independent and equal, they have the duty
not to interfere in the domestic affairs of other states under international law.28
The two types of sovereignty are in fact closely connected, as polities ‘act in international
relations by virtue of [their] authority in internal relations.’29 The concept of sovereignty is thus
at the heart of international law, and how sovereignty is theorized is relevant to the theory and
practice of international law. Only sovereign states are independent subjects of international
law. The reason of state—in the form of cultural, security, public health, and public morals
exceptions—qualifies a number of international law provisions. In turn, international law also
deeply interacts with, and seeks to limit, the reason of state. In fact, the main role of
international law is to restrain the scope of state action. Therefore, ‘the apparently clear
distinction between internal and international tends to break down … depending on the
development of international relations.’
Much ink has been spilled on the vexed question as to whether global economic governance
threatens state sovereignty. International economic law traditionally imposed only narrow
limits on national autonomy, by restricting measures at the border such as tariffs and quotas
and prohibiting export subsidies. It ‘did not traditionally address regulation with more
prudential purposes … except to require that it be applied to imported and domestic goods on
a non-discriminatory basis.’ Since the inception of the WTO in 1995, however, as tariffs and
other forms of protection were sensibly reduced, other forms of protection arose and domestic
regulation came to be seen as ‘the next frontier of protection.’ Nowadays,
the WTO administers a number of agreements that contain detailed rules regulating economic
activity that reach behind the border and affect the regulatory autonomy of states. In parallel,
international investment law has pervasive effect on domestic policies, thus raising the question
as to whether policymakers truly retain regulatory autonomy after signing IIA s.

27
Crawford, ‘Sovereignty as a Legal Value’, 123.
28
United Nations, Charter of the United Nations, signed on 26 June 1945, published on 24 October 1945,
1 UNTS XVI, Article 2(7).
29
Crawford, ‘Sovereignty as a Legal Value’, 128.

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Although international economic governance supposedly requires economic and technical
changes, such changes ‘shape the policy choices available to governments, alter existing
constitutional and political arrangements, … thus affecting functions that go at the heart of
political and constitutional authority.’ In other words, ‘the shifting of decision-making
authority from governments to international economic institutions affects …
sovereignty.’ Critics have cautioned that economic globalization can even lead to a race to the
bottom, that is, a leveling down of human rights, labour, environmental, and cultural standards,
and that ‘transnational corporations often overpower national … regulators with self-interested
interpretations of international economic law.’
Nonetheless, global economic governance ‘depends in part on the willingness of sovereign
states to constrain themselves.’ By entering into treaty obligations, states necessarily exercise,
if not cede, some sovereignty. States voluntarily join international economic organizations
because of growing interdependence in international relations. Membership of such
organizations does not affect state sovereignty because states can generally withdraw from
international economic agreements. Rather, international economic law constitutes a tool for
safeguarding if not strengthening sovereignty and helping states to maintain their clout in
unstable, uneven, and perennially changing international relations.
Because of the pervasiveness of international economic law, the national economic system is
then subjected to international legal scrutiny and the purview of international economic courts.
Nonetheless, states generally comply with international economic law because of reputation,
reciprocity, and self-interest—only by participating in the system can they contribute to
shaping global economic governance and achieve common aims and objectives such as growth
and sustainable development. Only by maintaining their commitments can they attract growing
investment flows and participate in global trade. By participating in international economic
agreements, especially those of a multilateral character, countries may minimize the risk of
power-based relations and maximize the benefits of a rule-based system.

More substantively, the meaning of international economic law and consequently the policy
space left to national governments are strongly shaped by interpretation. While investors tend
to advance interpretations of international economic law that challenge unfavorable regulation,
states have the capacity to uphold their own interpretations, defending the legality of their
cultural policies. Finally, much of the interpretation and construction of international economic
law will occur before international economic courts.

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