Tuesday, December 6, 2011

Basis of WTO obligations - Constitutional or Contractual?

An extremely lucid and clear article by Joanna Langille in the New York University Law Review November 2011 issue  titled "Neither Constitution nor Contract:Understanding the WTO by examining the legal limits on contracting out through Regional Trade Agreement" brings to the fore the legal character of the WTO regime especially with reference to the growing trend of Regional Trade Agreements (RTAs).

The article concludes that the WTO regime is neither strictly constitutional nor contractual but a hybrid combination of the two. The RTAs pose a serious challenge to the constitutional jurisprudence of "hard, irrevocable" law. 

However, the WTO regime does not allow complete "contracting out" by retaining an element of constitutionalism in the system. The Dispute Settlement mechanism is also responsible for maintaining a degree of "constitutionalism" in the trading regime by drawing the perimeters of contracting out by RTAs. Certain fundamental principles of "non-discrimination" cannot be violated by creating RTA. WHile the creation of RTAs itself, militates against the concept of a non-discriminatory free trade regime, the extent to which RTAs can abrogate from multilateral trade principles is not uninhibited. However, the impact it has on the principle of non-discrimination and an effective multilateral trading system is debatable.

She concludes by stating,

"This new understanding of the WTO challenges some current concepts. First, the fact that the WTO is neither a purely constitutional nor a purely contractual regime has important implications for legal theory. Legal regimes have generally been understood by common law scholars as either public regimes, where contracting out of obligations is impermissible (such as a domestic criminal law regime), or private regimes, where parties are generally free to set their own obligations (such as a domestic contractual regime). This analysis supports the view that legal regimes can be much more complicated. They can contain elements of both public-style constitutional regimes and private-style contractual regimes. The nature of a legal regime is best understood by analyzing the extent to which parties are free to contract out of their obligations. 

Second, this analysis questions the WTO’s reputation as a hard law regime. The WTO is the paradigmatic hard law regime at the global level, as it has a much-touted dispute settlement system with legally binding obligations imposed on members. Hard law regimes are notable for their ability to ensure compliance with legal obligations through coercive legal rules. Since the WTO is widely considered to be a hard law regime, it is assumed to have significant ability to make member states comply with its laws. However, the fact that the WTO is a hard law regime may be less relevant, since parties have the power to contract out of their WTO obligations to a large extent.Those who point to the power of the WTO’s legal system may wish to reconsider their optimism."

However, the issue of the efficacy and multilateral nature of the WTO needs to be seriously analysed in the context of the RTAs. Though theoretically not antithetical to the multilateral trading system, RTAs do pose serious questions to the very edifice of a single, non-discriminatory trading regime.

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