Understanding International Trade Law: Definition, Principles, and Evolution

International trade law is a complex field that governs how the buying and selling of goods and services across national borders are regulated. It includes the appropriate rules and customs for handling trade between countries. It is also used in legal writings as trade between private sectors. International trade law should be distinguished from the broader field of international economic law.

Within one country, such matters are governed by national law, but in order for transactions to occur between countries, there has to be agreement between the countries regarding matters such as taxation, safety and security, contracts between buyers and sellers, and methods for resolving commercial disputes.

The international trade law includes rules, regulations and customs governing trade between nations. International Trade Law is an aggregate of legal rules of "international legislation" and new lex mercatoria, regulating relations in international trade. International trade law is the tool used by the nation’s government for taking corrective actions against trade.

National laws, which are the fundamental source of international trade law. International sources, consisting of all international conventions relating to the fields of international commercial law.

International trade law is a vast topic with multiple layers. In general, it encompasses the rules and customs that apply to commerce across international borders (import/export), including various global, regional, and bilateral agreements. However, international trade law also touches on other areas of law, such as intellectual property (IP), foreign investment, and dispute settlement.

International trade regulates global economic relations and influences the interactions between countries, international organizations, multinational corporations and other commercial players. With globalization, trade now encompasses more than the exchange of goods and services, including investment, technology transfer, digital trade, intellectual property rights and financial transactions.

Key Principles of International Trade Law

The idea of these agreements (WTO and GATT) was to create an equal field for all countries in trade. This way all countries got something of equal value out of the trade. This was a difficult thing to do since every country has a different economy size.

Two fundamental principles underpin international trade law:

• Most Favored Nation (MFN) Principle: The MFN principles ensures that every time a WTO Member lowers a trade barrier or opens up a market, it has to do so for the like goods or services from all WTO Members, without regard of the Members’ economic size or level of development. The MFN principle requires to accord to all WTO Members any advantage given to any other country.
• National Treatment Principle: Imported and locally-produced goods should be treated equally-at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.

Evolution of International Trade Agreements

Historically, countries have tried to protect their own businesses against competition from foreign businesses by erecting trade barriers, commonly in the form tariffs, or taxes on imported goods and services. However, because keeping foreign businesses out of a country’s market typically means that that country’s businesses are also kept out of foreign markets, a basic focus of international trade law has been agreements between countries to lower trade barriers for mutual benefit. This is known as “trade liberalization.” If barriers to trade are removed completely, it is known as “free trade.”

The simplest level of international trade law is a bilateral agreement, or a trade agreement between two countries. The next level is a regional trade agreement, involving a number of countries in a particular geographic area. The highest level of international trade law is a multilateral agreement involving most of the countries of the world.

There are many kinds of regional trade agreements, or trade blocs, representing varying levels of economic integration among the members. A free trade area-such as North American Free Trade Agreement (NAFTA), which involves Mexico, the United States, and Canada-provides for the elimination of most or all barriers to trade among the parties to the agreement; it does not influence the individual members’ relationships with nations outside the agreement, however.

The next level is a customs union, which is a free trade area with a common set of trade barriers between all the members of the agreement and countries outside the agreement. An example of a customs union is the Andean Community, which includes the South American nations of Bolivia, Colombia, Ecuador, and Peru.

A single market is a more advanced form of free trade area in which not only finished goods, but also factors of production, such as labor and capital, move freely between borders. An example of a single market is the Caribbean Community (CARICOM), made up of fifteen nations in the Caribbean area.

An economic union is a single market with a customs union. The European Union is an example of an economic union. Trade blocs are typically formed among countries with fairly comparable levels of economic development, and higher levels of economic integration can also point to closer cultural and political ties as well.

Beyond regional economic agreements, there has been a movement since the mid-twentieth century to try to lower trade barriers between nations worldwide or at least provide a common forum for trade negotiations. The first global agreement of this nature was the General Agreement on Tariffs and Trade (GATT), signed in 1947 and intended to stimulate international trade in the years following World War II. Over one hundred nations eventually became GATT signatories, engaging in a series of lengthy rounds of trade negotiations, the last of which was known as the Uruguay Round; it began in 1986 and concluded in 1994 with the creation of the World Trade Organization (WTO), which replaced GATT.

In 1994 the World Trade Organization (WTO) was established to take the place of the GATT. This is because the GATT was meant to be a temporary fix to trade issues, and the founders hoped for something more concrete. It took many years for this to come about, however, because of the lack of money.

It does not specify the actual rules that govern international trade in specific areas. The purposes and structure of the organization are governed by the Agreement Establishing The World Trade Organization, also known as the "Marrakesh Agreement". In 2001, the WTO began another round of negotiations in Doha, Qatar, known as the Doha Development Round, which was ongoing as of 2013.

Key Organizations in International Trade Law

Several international organizations play crucial roles in shaping and enforcing international trade law:

• World Trade Organization (WTO): The World Trade Organization (WTO) serves as a global depository and referee of sorts in the arena of international trade. The WTO has served to define commercial rules, settle trade disputes and sustain global trade through comprehensive regulations since 1995. Most prominent in the area of dispute settlement in international trade law is the WTO dispute settlement system. The WTO dispute settlement body is operational since 1995 and has been very active since then with 369 cases in the time between 1 January 1995 and 1 December 2007. Nearly a quarter of disputes reached an amicable solution, in other cases the parties to the dispute resorted to adjudication.
• United Nations Commission on International Trade Law (UNCITRAL): The United Nations Commission on International Trade Law (UNCITRAL), established in 1966, is the principal legal body of the United Nations system in the field of international trade law. It is a legal body with universal participation specialized in the reform of the commercial law in the world for more than 50 years. UNCITRAL should not be confused with the World Trade Organization (WTO) created in 1995 and which follows on from GATT (General Agreement on Tariffs and Trade) activities. Each of these organizations plays a particular role in international trade law.

The Role of Lex Mercatoria

The Lex Mercatoria has long governed international trade relations between traders. It was a set of unwritten rules of law based on custom and usage. These include loyalty in the conclusion and execution of contracts, the rights of the defense, the rule of the word given.

• lex mercatoria - "the law for merchants on land".
• lex maritime - "the law for merchants on sea.

After the First World War, the rapid expansion of international trade revealed the need for a set of common standards and rules. International commercial law is the tool enabling the various economic actors to establish international commercial relations framed by the law.

Cross-Border Transactions and Taxation

Commercial activity that occurs among several jurisdictions or countries is called a cross-border transaction. Cross-border operations are subject to taxation by more than one country. Those involved in any international business development or international trade should be knowledgeable in tax law, as every country enforces different laws on foreign businesses.

Dispute Resolution

Apart from regulations, International Commercial Courts and Arbitration Courts are central to the resolution of commercial disputes. Arbitration is an alternative method of dispute resolution, the main advantage of which is that parties to a contract do not have to choose a national jurisdiction. Global arbitration rules provide a common framework for trade liberalization and effective dispute resolution.

Trade Remedies and Export Controls

Two main areas of international trade on the domestic side include trade remedy work and export controls/sanctions. Trade remedies are tools used by the government to take corrective action against imports that are causing material injury to a domestic industry because of unfair foreign pricing and/or foreign government subsidies.

Export control laws govern the exportation of sensitive equipment, software, and technology for reasons related to foreign policy objectives and national security. government agencies have the authority to issue export licenses, including: Department of State; Department of Commerce; and Department of Treasury.

On the international treaty front, companies may need advice on the rules of the World Trade Organization (“WTO”), which is a formal international organization that regulates trade.

Images gallery