itl - sovereign.docx

SOVEREIGNITY ISSUES IN INTERNATIONAL LAW

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 Statute of the International Court of Justice (ICJ) or at least, the

necessity of re-interpreting these sources.

1 NALSAR STUDY MATERIAL ON INTERNATIONAL TRADE LAW, Pg. 1CHANAKYA NATIONAL LAW UNIVERSITY 1


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 (Euro-loans") 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.

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

2 NALSAR STUDY MATERIAL ON INTERNATIONAL TRADE LAW, Pg. 2CHANAKYA NATIONAL LAW UNIVERSITY 2


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.

CHANAKYA NATIONAL LAW UNIVERSITY 3


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 self-sufficient.

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 recognition—the 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 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 disputes—in

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 awards,

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

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

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 transaction5 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.



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.

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 large-scale

enterprises.

6 Kestrel (1943) Col_ L.R. 629.CHANAKYA NATIONAL LAW UNIVERSITY 7


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.

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 inter-State 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.

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 single-handedly 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 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

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 91.11 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).



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 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

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 176-77.15 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 Anne-Marie 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, 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.



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'.

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 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.



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, historically-

contingent 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."

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 self-government 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. 17 Id.18 Judith H. Bello, 'National Sovereignty and Transnational Problem Solving', 18 Cardozo L Rev. (1996), at 1029-30.



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 ‘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 exogenously-determined.

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 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

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).



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 system. In other words, there is both an 'internal' and an 'external' threat to sovereignty

that international institutions may ward against.



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.CHANAKYA NATIONAL LAW UNIVERSITY 17


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.



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


itl - sovereign.docx

Documents

subjects of international

aspects of international

sources of international

international law chapter

international trade

field of international

international organizations

economic activities