The Delicate Balance between Sovereignty and International Obligation Especially with Regard to Economic Integration

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  • 5 years ago
  • Posted: January 22, 2015 at 3:15 pm

Do You Believe in the East African Community?

Two hypothetical situations stand at your scrutiny, using well-known international treaty situations; it will help you consider the Kenyan Question and the dynamics of the idea of the EAST AFRICAN COMMUNITY (EAC) with regard to its international trade treaties or any other treaty applicable:

One of the scenarios is the government of the United Kingdom, a member state of the WTO as well as the European Union, would like to independently negotiate and enter into a Free Trade Agreement with the United States and Canada, member states of the WTO but not the European Union.

Is this possible? Why or why not?

The second hypothetical is U.S. Company, TunaVivo, Inc., deals in the tuna fish business. They catch wild tuna and also farm tuna in processes they deem as both organic and non-organic. They also have many packaging options for their product – canned in oil, canned in water, packaged in plastic pouches filled with water, and for their freshly caught tuna they package whole cuts on ice. Ulysses, Inc. exports their tuna across the globe and typically does not encounter issues with trade restrictions. Recently, the United Kingdom decided that they would impose a blanket tuna tariff on all U.S. tuna due to concerns that cheap American tuna oversaturated the U.K. market. The U.K. government has retained separated tariff rates for canned/plastic packaged and “on-ice whole” (i.e., tuna that is most suitable for restaurants) with regard to all other WTO members that the U.K. does not have Free Trade Agreements with. The tariff rate has not changed for canned/plastic packaged tuna and is equal for all WTO, non FTA nations, including the U.S. This tariff is higher than the “fresh” tuna tariff. The “fresh” tuna tariff rate also has not changed, except for the U.S., which the U.K has lumped together to provide an “all-tuna” tariff rate for the U.S.
What are the legal issues in this scenario? Should the U.S bring a claim against the U.K.?

The UK trade aspects are fundamentally affected by its membership in the European Union. Under the membership, it is guaranteed the four freedoms, but the question begs of sovereignty when it comes to independent negotiations of the UK with non-EU members, in this case Canada and the United States. The most vital of the effects arise from the Single Market under which the four freedoms are guaranteed, but the economic impact also occurs in other areas of policy, too, as earlier outlined; the EU has got exclusive competence to negotiate trade and investments to countries outside the EU and tends to act as a customs union with a common external tariff on imported goods. The World Trade Organization is geared to promote Fair Trade amongst its members by extending sound rules of trade. Additionally, there is also the fiscal consequence to the UK in terms of contributing to the EU’s budget, not to mention consumer prices are affected through the Common Agricultural Policy and common external tariffs imposed on imports.
Notably, UK’s membership in the EU may influence investor decisions when it comes to choosing the UK as an investment destination.

Understanding these impacts helps in developing a framework within which the cost-benefit analysis is feasible to understanding the long-term impacts of UK’s membership to the EU, but it might not depict whether its membership might be revoked, especially in the short-term. Thus, an intellectual balance arises between understanding the economic impacts of membership and the probable implications of alternative undertakings. If the UK were to withdraw from the union, its subsequent relations would have to be the result of negotiations, being unlikely to reflect situations of the other country. To have a concrete clarification of the membership effects, study of other countries’ relations with the EU, from the non-EU states to those located within the European Economic Area who tend to adopt the majority of European law in a bid to access the Single Market.

The free movement of goods, services, capital, and people has been a fundamental tenet of the European Union since the Treaty of Rome was signed in 1957. Nevertheless, the achievement of the complete harmonization of the law and economic integration has been a daunting task, revealing complications that have become commonplace in today’s world. Theoretically, the EU framework would work perfectly, benefiting all Member States, however this is not always so, especially in the movement of goods. Because, the benefits derived from trade creation may be counteracted with the onset of trade diversion by countries outside the EU. This happens because of the barriers to trade for goods and services, tariffs that are levied when goods from non0mebers enter the country.

Trade relations are a core aspect in UK’s fiscal policy. However, its membership to the EU curtails independent bilateral trade agreements. Ergo, it cannot sign a Free Trade Agreement with either Canada or United States, because EU only has the exclusive mandate to negotiate bilateral trade agreements. External trade relations are coordinated at the EU level via the Common Commercial Policy. Thusly, the EU Trade Commissioner acts as a negotiator in multilateral and bilateral discussions, in this case the UK’s considerations of Canada and United States. The council and parliament makes certain formal decisions regarding the commencement and mandate of the negotiations, having the right to approve the eventual result.

Restrictions on imports generally take two forms: tariffs and quantitative. Tariffs are taxes imposed on imports upon entry in a country. Quantitative restrictions are meant to limit access to imports by making them scarce, subject to the law of supply and demand, creating the desired effect of nascent pricing. The UK imposing a blanket tariff on US tuna exports was geared at raising the prices of the cheap tuna that was flooding the UK market according to it and needed to control those imports internally. UK’s action had to consider the WTO’s rule of engagements, especially GATT, EU Law, and Sovereign Law. U.S legal recourse would have to be subject to WTO regulations and the Sovereign regard, too. Under the GATT Agreement, the second core principle is that members endeavor to make commitments in which members state the maximum charge of import duty or other charge or restriction that they will apply to imports of specified imports. The commitments or ‘bindings’ may initially result from bilateral negotiations, in which, for example, the government has agreed to another country’s request that it reduce the import duty on certain products, the U.S could have made such a request regarding UK’s actions. However, these commitments tend to be rationalized into the national schedule through the provision of Article II of the Agreement, which could explain why UK took the action against the US imports of tuna.

The provisions of Article II, in league with the technical stipulations of Article XXVIII on the modification of schedules would have provided the basis upon which the UK government could have acted. Non-discrimination is at the very core of EU Law and WTO Law, not to mention that UK is a signatory of both legal regimes. Generally, two forms or discrimination occur, direct and indirect discrimination. The two layers of governance integrate commonalities in addressing the operation of the principle, importantly banning distinctions based upon the origin of persons and products. They both share the functionalities of preventing and correcting state failures in enacting undue protection to domestic products and nationals or in granting privileges. Nevertheless, functional differences will remain and require recognition. Upon a closer inspection, vital differences emerge which are attributed to differing constitutional functions of the WTO and widely ambitious and expansive scope of EU law, inclusive of which is the explicit pursuit of other policy aims and the guarding of human rights. In so doing, it draws closer to the framework defining non-discrimination at the regional level in the EU which UK is a member. In fact, global regulatory trajectories indicate that the WTO will need to expand and offer recognition to a sizeable range of legitimate policy goals. Emphatically, proportionality and compelling interests offers a bridge over which to surmount some of the divergence, contributing to the aggregate coherence of multilayered governance that assures sovereignty and reasonable subjectivity to International Law.

International Law has been built on the principle of the sovereignty of states, stipulating that all States shall be equal members of the international community, notwithstanding differences of a social, economic, political characteristic or of any other kind. It is a customary principle; however, it does not entail equality with regard to treaty relations and policies. Extensively, sovereignty entitles States to discriminate among their peers and to prefer some over others in unilateral policies and bilateral relations; in this case UK could claim justification in imposing the blanket tuna tariff to the US, enforcing the status quo regarding the other countries.

Non-discrimination emerged as a particular feature of treaty-based international law and it is the leading WTO law today. However, the US could argue from the standpoint of most-favored-nation, either conditional or unconditional and national treatment principles where it is to be argued on the premise of reciprocal advantages, governments accepted contractually to limit their sovereign rights to discriminate and converge upon the obligations of equal treatment, in effect implementing the principle of substantive equality in international relations. Substantially, the United States had legal issues upon which to take up against the UK action, the latter formulating its legal rejoinder all the same. The issue would be solved by a balance of reasonable sovereignty and reasonable subjectivity to International Law. My two-pence worth!

So, when the EAC fully launches the Optimum Currency Area, then the issues I have raised in this hypothetical will be constantly at play, the key thing is how the member states will manage the delicacies and sensitivities of such integration.

What is your opinion on the topic?
Stefan Wolf
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