UNIT 1 : Concept of International

Trade Law

Krishna Bhandari
Unit 1 : Course Structure
1.1 Meaning and Concepts (Basics on International
Trade & International Trade Law)
1.2 Genesis (The Origin or Mode of Formation)
1.3 Importance
1.4 Sources
 1.1 Basics on International Trade / International Trade Law
Three what questions:
A. What is Trade?
• Trade is transfer of ownership over goods and services from one person/entity to another.

B. What is International Trade?

• International Trade is simply the exchange of goods, capital & services across the International borders or
territories.
• International Trade can be described as the sale of goods with its enlarged scope (i.e., Internationally).
• A trade in general becomes International Trade if the supply of goods/services is transborder.

The sale of Goods/Service become a bit complex if its transaction is done beyond the National territory.
Various aspects & risks get associated with this, like;

a) Physical Risk
Physical risk can arise due to the transportation of goods, which may be over a huge distance and conducted by various means such as
ships, train, truck, airplane. The goods transported are exposed to the risks inherent in the form of transportation, and for a substantial
amount of time may be totally out of the seller’s and/or buyer’s control. Carriage and insurance arrangements therefore become crucial.
These can be arranged so as to give the parties to the sale contract a reasonably secure position concerning their rights over the goods.
b) Financial Risk (relate with the use of LC in International Transaction)
Financial risks abound regarding exchange rate fluctuation and payment systems across more than one country. Most likely the contracting
parties have no knowledge of each other’s integrity, solvency and creditworthiness. Thus, neither will the seller want to dispatch the goods
without the buyer providing some sort of security for payment, nor will the buyer want to pay the price before he has some kind of legal right
over the goods. In addition, the parties may have to be careful not to block their cash flow whilst the goods are in transit. Therefore, payment
systems and credit facilities (such as letters of credit or bills of exchange) will have to be adopted to secure the interest of parties, taking into
account their individual needs and business relationship.

c) Legal Risk (relate it with Private International Law, choice of law, settlement risk, arbitration)
The Parties may be confronted with foreign jurisdictions and/or laws, or they may have to enforce a judgement or an arbitral award in a foreign
country. Cross-border dealings of the parties will automatically raise questions relating to the resolution of any disputes and may adversely
affect practically, length and costs of any proceedings. The parties would therefore be well advised to include ‘choice of law’ and jurisdiction
clause into their contract terms. They may also wish to opt for arbitration as a means of dispute resolution instead of litigation in the courts.

d) Political Risk (relate it with enemy state).

Political risks could amount to such serious situations as wars, embargoes and blockades. If trading in a politically unstable area, it might be
burden for the parties to trade.

To overcome these risks and various aspects associated in international trade, there is a need of a
specific law that helps to govern and regulate International Trade. This law if called the International
Trade law.
C. Why International Trade?
• Un-uniform distribution of Natural resources. (e.g. one part of the world rich in
greenery and the other part is rich in fossil fuel.)
• Every part of the world has its own uniqueness if the distribution/availability of
Natural Resource is concerned.

General aspects associated in International Trade (Sales of Goods Internationally)

• Carriage
• Insurance
• Payment & Credit Arrangements
• Export/Import Duties
International trade involves the flow of goods (trade in goods) and services (trade
in services) across national frontiers.
D. What is International Trade Law?
• International trade law comprises of set of laws, rules and regulations that
regulate cross boarder flow of goods and services.
• International trade law is also a framework of law that enables countries to
integrate their domestic market into international market.
• International trade law refers to the body of rules and agreements that regulate
commercial transactions and trade between countries. It includes international
treaties, such as the World Trade Organization (WTO) agreement, as well as
national laws and regulations that govern the import and export of goods and
services. International trade law aims to promote free and fair trade by addressing
issues such as tariffs, trade barriers, and intellectual property rights.
1.2 Genesis (The Origin / the Mode of Formation) of
International Trade / International Trade Law
How International Trade originated and developed?
How did Nepal step into International Trade?
Development of International Trade law is closely associated with International Trade, so the history
of International Trade Law is closely interlinked with International Trade.
The History/Development of Inter International Trade law can be broadly divided based on different
time period:
a) Before 1st World War
b) After 1st World War
c) GATT - Establishment WTO
d) WTO - Till date
Subsequently, the development of International Trade law is associated with the development of:
e) GATT (1947)
f) ITO (Havana Charter-1948)
g) WTO (Agreement to establish WTO-1995)
 How was International Trade governed prior to GATT?
International trade was governed by a series of bilateral treaties and
agreements before the General Agreement on Tariffs and Trade (GATT). The
most notable of these was the system of imperial preference that existed
among some British Commonwealth countries. The lack of a comprehensive,
multilateral framework for trade often led to unequal treatment and trade
barriers, which reduced the volume and efficiency of global trade. GATT was
established in 1947 as a temporary agreement to reduce tariffs and promote
freer trade among its signatory countries. It later evolved into the World Trade
Organization (WTO) in 1995.
 a) General Agreement on Tariff & Trade (GATT-1947)

Fortunately, as mentioned above, at earlier meeting of Havana conference held in Geneva from
April to October 1947, a multilateral tariff negotiation the GATT had been drafted concurrently
with ITO Charter. The GATT incorporated agreed tariff reduction with code of conduct. The code
aimed to restrict certain government practices that would operate to circumvent the tariff
commitments. The code of conduct was a part of ITO and never implemented. It, however, forced
to bring Provisional Protocol, and the signatory eight countries agreed to apply the GATT
provision until ITO came into operation. The draft ITO charter was ambitious covering world
trade disciplines, rules on employment, commodity agreement, restrictive business practices,
international investment, and services. When ITO had totally collapsed, the GATT became full of
sound.
So, the GATT became the only multilateral instrument governing international trade from 1948
until the WTO was established in 1995. The General Agreement on Tariffs and Trade 1994 as
specified in Annex 1A is legally distinct from the General Agreement on Tariffs and Trade, which
came into force at 30 October 1947.
From 1948 to 1994, the GATT provided the rules for much of world trade and over the periods
saw some of the highest growth rates in international conference. In fact, during these 47 years, it
remained as a provisional agreement and organization.
 b) General Agreement on Tariff & Service (GATS-1947)

GATS is an acronym that stands for General Agreement on Trade in Services, which is an international treaty
administered by the World Trade Organization (WTO). It aims to promote the liberalization of trade in
services, such as telecommunications, financial services, and transportation services, among member countries.
The agreement sets the legal framework for the regulation of trade in services and includes provisions for
market access and national treatment.
• The creation of the GATS was one of the landmark achievements of the Uruguay Round, whose results
entered into force in January 1995. The GATS was inspired by essentially the same objectives as its
counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT): creating a credible
and reliable system of international trade rules; ensuring fair and equitable treatment of all participants
(principle of non-discrimination); stimulating economic activity through guaranteed policy bindings; and
promoting trade and development through progressive liberalization.
• While services currently account for over two-thirds of global production and employment, they represent no
more than 25 per cent of total trade, when measured on a balance-of-payments basis.  This — seemingly
modest — share should not be underestimated, however.  Indeed, balance-of-payments statistics do not
capture one of the modes of service supply defined in the GATS, which is the supply through commercial
presence in another country (mode 3).  Furthermore, even though services are increasingly traded in their
own right, they also serve as crucial inputs into the production of goods and, consequently, when assessed in
value-added terms, services account for about 50 per cent of world trade.
International Trade Organization (Havana Charter-1948)
The US government issued a document entitled “Proposals for the expansions of World
Trade and Employment” in November 1945. Trade Liberalization and reducing customs
tariffs talks had begun by 1945, The first round of negotiations resulted in a package of trade
rules and 45,000 tariff concessions. The ECOSOS of the United Nations that took up the
proposal in 1946, subsequently appointed a committee of 19 countries. The Havana
Conference began on 21st November 1947, less than a month after GATT was signed. The
committee produced its first to third drafts in London, Network and Havana respectively in
1947. The General agreement was opened for signature on Oct 30, 1947 and entered into
effect provisionally on January 1, 1948. The final Act of Havana Conference embodying the
International Trade Organization (ITO) Charter was signed on March 24, 1948 on behalf of
53 states but it came into effect only on 30 June 1948 that the signatories should accept some
of the trade rules of the draft. The ITO had full package of the trade principles i.e. MFN
treatment, Prohibition of quantitative restriction, limitation of subsidies, prevention of
cartels, guidelines for customs valuation and forum for settlement of dispute.
Even though the US government had been one of the diving forces for the ITO, the most
serious opposition was the US Congress for its ratification. In 1959, unfortunately, the
United States government announced that it would not seek Congressional ratification of the
Havana Charter, and the ITO was effectively dead.
 World Trade Organization (Agreement to establish WTO-1995)

The World Trade Organization (WTO) is an international organization that deals

with the rules of trade between nations. Its main function is to ensure that trade
flows as smoothly, predictably and freely as possible. The WTO sets and enforces
rules for global trade, provides a forum for negotiating and monitoring trade
agreements, and offers technical assistance and training for developing countries.
It was established in 1995 and is headquartered in Geneva, Switzerland.
The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations. At its heart are the
WTO agreements, negotiated and signed by the bulk of the world’s trading nations
and ratified in their parliaments. The goal is to ensure that trade flows as
smoothly, predictably and freely as possible.
1.3 Importance of International Trade /
International Trade law
1. No country is solitarily standing; economy of one country is dependent on the
economy of another country. e.g. Global financial crisis.
2. Global integration of international trade.
3. Regional trade integration: Free trade areas, Economic Union: ASEAN,
SAFTA, NAFTA, EU.
4. A consequential fall out global integration of international trade law: UN
Convention on Contract for International Sale of Goods; UNCITRAL Model
Law on Procurement; UNCITRAL Model Law on Arbitration.
5. Governs trade between countries.
6. Rule based regulation of trade.
7. Prescribes corrective actions in case of breach.
1.4 Sources of International Trade Law
• There is no world government and neither a World Congress nor Parliament to make International Law, the way domestic Legislature frame laws for individual
countries.
• As such, there can be considerable difficulty in precisely defining what international Trade law is.
• However various sources are considered as authoritative statements of trade law. At the same time, as stated in the statute of the International Court of Justice
(ICJ), rules of international law can be found in customary state practice, general principles of law common to many countries, domestic judicial decisions, and the
legal scholarship, and the world trade law is no exception to this fact.
• In lite of this following can be discussed as the underlying sources of International Trade law:
1. Treaties
2. Customs
3. General Principles of Law
4. Judicial decisions
5. Legal Texts
1. Lex mercatoria
2. International conventions and treaties, which largely is codification of lex mercatoria.
 UNCISG
 The Warsaw Convention, 1929
 Hague-Visby Rules (International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, 1924)
 WTO Agreement
 SAFTA.
3. Rules framed by international organizations and bodies. Eg. International Chamber of Commerce and UNCTAD (United Nations Conference on Trade
and Development) and UNCITRAL (United Nations Commission on International Trade Law). These organizations are involved in harmonization and
formulation of uniform law texts.
 ICC Uniform Customs and Practice for Documentary Credits.
 ICC Incoterms.
 UNCTAD/ICC Rules for Multimodal Transport Documents.
 UNCITRAL Arbitrations Rules, UNCITRAL Model Law on Arbitration.
4. Domestic Statutes:
 Export-Import (Control) Act, 2013 (1956).
 Multimodal Transportation of Goods Act, 2063 (2006).
 Customs Act, 2064 (2007).