International Economic Law

International economic law has been formed mainly through international bilateral and multilateral treaties. There also emerged international institutions which have had a great impact on shaping international economic law, especially within the last 50 years. They have led to the rapid development of international economic law. The International Monetary Fund (IMF), International Bank for Reconstruction and Development (World Bank), the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) became leading formations.

The International Sugar Union (1902) and its Commission was the first international institution to emerge in international trade, one of the main fields of international economic law. The founding convention also envisaged some rules, including incentives and common attitudes towards non-party states.

It is correct to start the birth and development of international economic law in the modern sense by the mid-20th century. After the Second World War, a new and settled order in the inter-State relations was proposed in not only in the political field but also in the economic field. Through a new world order, a system for building a more peaceful and prosperous world would be formed so as not to experience greater wars and devastations. There are, however, some who saw the new system as the path for certain States to control the rest of the world.

“International economic law is a branch of international law that regulates both the economic relations between States and the cross-border economic relations of non-State entities.”

Towards the end of the II. World War, the purpose of the United Nations Conference on Money and Finance, held at Bretton Woods between July 1st and July 22nd, 1944, was to lay down the foundations of a new and appropriate international economic order. The backbone of this system, which has been called “Bretton Woods System” for many years, is composed of some principles and international institutions established to ensure the implementation of these principles. The designs at Bretton Woods envisaged the establishment of a new “monetary payment system”; in other words, a system of payments among States around the world. The basis of this monetary system was an external payments system indexed to the US Dollar. According to this system, the value of the countries’ currencies would be expressed in US Dollars. Thus, the US Dollar was an accepted unit of value or price in international trade. On the other hand, the value of the dollar was linked to gold. As the dollar was demanded, the amount of gold determined for each dollar printed would be reserved at the US Central Bank. At that time, 1 ounce of gold was set at 35 US Dollars. 

The aim was to increase international trade and thus increase prosperity and development by reducing the problems arising from the difference in value between currencies.

The IMF was established officially in December 1945, when 29 countries ratified the treaty on the basis of decisions taken at Bretton Woods. It actually started working on 1 March 1947.

The primary source of the IMF’s fund consists of the quota paid by the member States when becoming a member, and then the increases they make on that quota, 25% of which should be made in reserve money and the rest can be made in national currencies. Countries’ vote weight and withdrawal rates are determined according to their quota. Countries such as the USA, Japan, England, and France, which have high quotas, have a great impact on the IMF policies.

The IMF is an institution with 189 members, employing staff from 150 different countries, currently executing 36 different support agreements, reaching to the lending capacity of 1 Trillion USD and carrying out internships, education and similar activities with a budget of more than 300 million US Dollars. In order to prevent economic crises in the world, it monitors the policies of the member countries through a formal system called “surveillance” and provides advice to all States on regional and global economic and financial developments.

Critics suggest that the IMF supports make the countries more dependent on IMF support rather than eliminating the economic problems of developing countries, creating debt spirals that cannot be extracted, and that the support plans do not take into account the peculiar circumstances of the countries.

• The International Bank for Reconstruction and Development: lends to middle-income and low-income countries eligible for loans.

• International Development Association: Established in 1960. Provides interest-free loans and grants to the poorest countries.

• International Finance Corporation: Founded in 1956. It is the largest development institution focused on the private sector. It provides financial support to the private sector and provides consultancy services to the private sector and governments.

• Multilateral Investment Guarantee Agency: Founded in 1988 and works to support foreign direct investment to developing countries. It offers political risk insurance to investors and financiers.

• International Investment Dispute Resolution Center. It provides international opportunities for the settlement of investment disputes, in particular using mediation and arbitration.

Two goals are declared as follows:

• To minimize as much as possible the number of extremely poor population trying to live at US $ 1.90 or less a day,

• To increase the income of the 40% of the world’s low-income group to ensure welfare spread.

The World Trade Organization is the only global organization charged with the cross-country international trade and trade-related rules. New rules are constantly drafted and approved through international agreements, which are negotiated among the member States of the Organization.

We may summarize the WTO roles as:

• A forum in which States negotiate trade agreements,

• It is a center where States try to solve commercial disputes,

• It is an institution that operates the trade rules

One of the characteristics of the functioning and decision-making mechanism of the WTO, of which 164 States are members today, is that decisions are made by consensus. The highest decision making body of the Organization is the Ministerial Conference which meets regularly every two years. The general administrative body is the General Council. All countries are represented in these two bodies. Specialized subsidiary bodies working under the General Council such as various councils, committees and sub-committees also exist.

Foreign direct investment, or sometimes referred to as international direct investment, means establishing a business or doing business by a person or a company in a foreign country through transferring the capital for commercial purposes.

• establishment of principles toward encouraging international direct investments,

• recognition and protection of the rights of the investor (capital owner),

• protection of some sensitive interests of the invested country,

• protection and transfer of foreign investor’s earnings,

• transfer of technology to developing countries

The International Centre for Settlement of Investment Disputes (ICSID) is one of the five organizations of the World Bank Group, along with the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The goal of the World Bank Group is to end extreme poverty within a generation and to boost shared prosperity. 

It was to further promote development (Garcia-Amador, 1980: 15). In 1960, the International Development Association was established to support the development efforts of the less developed countries. The World Bank was also active in order to increase production facilities and resources in less developed countries.

Understanding the legal framework of sanctions has become even more important today, simply because economic sanctions tend to expand in frequency, scope and kind. In particular, with the increasing intensity of sanctions, referred to as “smart sanctions”, the Security Council or States take and implement sanctions that affect a particular area or economy of a state, or even a particular company or person of a State. The most typical example of this is the decisions targeting certain companies of Iran, certain foreign companies or persons doing business with Iran and certain areas of activity of the Iranian economy due to its nuclear program. Recently, “smart sanctions” are taken either by UN Security Council resolutions or by states. These sanctions are aimed at affecting a certain region of a State or a certain area of its economy or even a certain company or person of a State.