The Single European Act and 1992:

V. The SEA - A Model for World-Wide Trade Relations?

The SEA and the completion of the internal market are attributable to many factors which reflect a unique European economic and constitutional history. Hardly any other region of the world has experienced as dramatic an erosion of national economic sovereignty and the growing of reciprocal interdependence as the European continent. Needless to say that the SEA, responding to the specific needs of European integration, cannot be a perfect example for other regions in the world.

However, two aspects of recent European integration merit further analysis. First, the SEA was passed against the backdrop of an existing supranational legal structure which assured all of its participants of the strict observance of rules and procedures agreed upon. The international trade order still lacks a similar system which could furnish this degree of legal certainty and reliability in order to become effective. Second, from a European point of view, the SEA could well turn into a successful example of the regionalization of world trade. If so - what will be the destiny of the world's multilateral trading system?

1. The Role of Law in the Process of European Integration

Law and political psychology: the apparent success of the SEA is to be found in both. Integration through law remains at the foundations of the EC, at least with regard to its internal relations. But in addition to a sound legal footing, it has taken a large amount of political determination to fill the legal structure with substance. Community law alone was not able to prevent the many crises during the first 30 years of the history of European integration. However, without a reliable system of law, guaranteeing that reciprocal expectations will be met by means of an effective judicial control, the Community and its Member States could not have agreed on the creation of a liberalized internal market without frontiers. Political psychology in itself might bring about short-term effects. Any long-term results, however, which are pivotal to ensuring the economy's timely adjustment, can only be achieved by using a firm and reliable legal framework.

Will this undeniable experience from the internal integration process guide the Community in its conduct of foreign trade relations with third countries? Will the internal liberalization unavoidably inspire the Community to follow a similar approach in international relations - this following from the preamble to the EEC Treaty and the objectives of the CCP as defined in Art. 110 ?

The concept of parallelism between internal and external trade policies is, at least, unhistoric. The constitutional law of many countries tells us that the main function of the constitution consists in outlining the foundations for a stable internal legal order. Constitutional law hardly ever limits executive authority to conduct foreign affairs vesting it with large discretionary powers. Frequently, parliaments have little influence on the determination of foreign policies, nor may courts exercise any effective judicial control.

Interestingly, the constitutional law's traditional self-restraint in foreign affairs has been challenged recently in view of the ever increasing importance of the fundamental rights of the citizens.⁹⁰ The rights of property, of the free choice and exercise of a profession, or of non-discrimination may not be unduly restricted by states' actions in the field of foreign affairs.⁹¹

Also important is the growing interdependence of the economies of all states. Within the EC Member States are aware of the strong impact which the process of integration has had on the respective national constitutional orders. Under national constitutional law the transfer of powers and governmental functions to the EC would have been held inadmissible if the respect of basic constitutional principles and rights would not have been guaranteed with respect to the process of integration.

These considerations do not yet apply, however, to the international trade order as constituted under the GATT and other bi- and multilateral agreements. The world's trading partners are still very reluctant to sign binding arrangements for the settlement of disputes and for the protection of fundamental rights of individuals.⁹² Neither the Court of Justice of the European Communities nor the courts in other jurisdictions have held - with a few exceptions - GATT law to be directly applicable.⁹³ The dispute settlement procedure within the GATT continues to be based on consensual solutions to be found for the relevant interstate disputes.

Recent developments, however, have mirrored a growing concern about the international trading system's fragility. Ceterum censeo: one of the major reasons explaining this feature of the international trade order remains the lack of efficient judicial control of signed international agreements and the lack of enforcement of rights of the individual with respect to foreign trade matters. It is promising, though, to note the current preoccupation with a more efficient legal framework for the international trading order. Important indications are

- the topics agreed upon for negotiations in the Uruguay Round, especially the improvements of the rules on dispute settlement which have already been earmarked for provisional application from 1 January 1989 onwards.⁹⁴ The Mid-Term Review Conference expressly recognized the improved dispute settlement system as a central element in providing the multilateral trading system with security and predictability;⁹⁵

- the growing practice in bilateral agreements to include binding forms of judicial dispute settlement such as the relevant rules in the American-Canadian Free-Trade Agreement⁹⁶ or the arbitration clause in the EC Switzerland Agreement on Insurance signed on 10 October 1989,⁹⁷ and

- the detailed rules on binding dispute settlement in the multilateral Convention on the Law of the Sea of 1982.⁹⁸

It may be worth noting that on 22 June 1989, the ECJ, in the first case decided on the basis of the New Instrument - FEDIOL III⁹⁹ -, has - at least in an indirect manner - applied and interpreted GATT rules in order to uphold the Commission's decision not to take protective measures. The Court reasoned that the contested practices of Argentina in the field of export of soya meal did not violate the relevant GATT rules (Art. III, XI, XX and XXIII). The ECJ justified the application of GATT rules by arguing that the Council regulation on the New Instrument expressly refers to "rules of public international law or to other generally accepted rules."¹⁰⁰ Because of this express reference to the rules of international trade law, the Court of Justice felt to be bound to apply GATT and other international trade law in order to establish whether the Commission had acted in accordance with these provisions referred to in the New Instrument being part of secondary Community law. This, in terms of international trade law, precedential case demonstrates that even the GATT with its many generalities is precise enough to be interpreted and applied by courts and that judges are not overburdened by complex economic assessments when dealing with GATT disputes.

Thus, the European experience with the rule of law as a decisive factor in economic integration may contribute to a more rule-oriented approach in world trade relations. At present, the Community certainly has no reason to repent, having bound its protective New Instrument to the observance of international legal obligations. It is only to be hoped for that this example will be followed by the EC's trading partners. One of the issues in the Uruguay Round could be to oblige the contracting parties to insert into their domestic law provisions which guarantee an effective application of the rules of international trade law. On a more limited sector such a provision can already be found in Art. X(3)b) GATT. Another solution could be to provide for a procedure to ask for preliminary rulings by GATT institutions as to the interpretation of GATT rules.¹⁰¹ A more stringent dispute settlement procedure resulting in more precise and predictable solutions for trade disputes would be one of the preconditions for a more effective framework of world trade.

2. The SEA and the Regionalization of World Trade

European integration, as it is conceived by the SEA, has encountered suspicions and fears abroad of a forthcoming "fortress" closing in on itself behind walls of protectionism. As mentioned in Part IV there are a number of possible developments which point to the opposite direction: given the experience of creating the "common market", the internal market with its liberalizing and deregulating objective will, from the third countries' vantage-point, be more trade-creating than trade-diverting. In any case, final conclusions may only be possible in the period after 1993. Too much depends on the attitudes adopted by third countries in response to the internal market and the final results of the Uruguay Round. If the future world trade order was to become subdued by protectionism, the EC as a region most dependent on international trade, would be its first victim.

The SEA makes a further attempt at integrating the European region. The principles underlying the creation of the European market are very similar to the GATT's basic notions on world trade. Art. XXIV GATT acknowledges the desirability of closer integration, provided that no new trade barriers between the contracting parties are raised (para. 4).¹⁰² It has never been conclusively stated by the Contracting Parties of GATT whether the EC fulfills all the requirements of Art. XXIV GATT.

Meanwhile, other regional free trade areas are being contemplated.¹⁰³ A rather astonishing example is the concept of an American-Japanese Free Trade Area which would no more be regional, but transcontinental comprising two of the largest economic powers. Given the text of Art. XXIV GATT, there would be no obstacle to the creation of such a FTA. Art. XXIV (3)(a) GATT refers explicitly to "adjacent territories" which may agree on certain advantages to facilitate frontier trade. Art. XXIV (4) GATT, in contrast, only mentions "countries." However, it is debatable whether the underlying principle of Art. XXIV (4) GATT focuses exclusively on specific regional agreements of closer integration. At any rate, a substantial deterioration of the multilateral trading system cannot be ruled out when two of the major pillars of the system "write the rules off in a corner alone."¹⁰⁴

It will be the task of future contributions to this Journal to judge whether the final outcome of 1992 had indeed liberal and trade-creating effects vis à vis third countries which allowed for further agreements on closer integration to follow the European model and to avoid its shortcomings.

90 See Henkin, `Human Rights and United States Foreign Policy', in J. Jeckewitz et al.(eds.), Festschrift K. J. Partsch (1989) 233.

91 See Petersmann, `Wie kann Handelspolitik konstitutionalisiert werden? Verfassungsrechtliche Bindungen der Außenhandelspolitik', 44 Europa-Archiv (1989) 55, at 56, 58.

92 For further discussion see Hilf, `International Trade Disputes and the Individual: Private Party Involvement in National and International Procedures Regarding Unfair Foreign Trade Practices', in H. Hauser (ed.), Protectionism and Structural Adjustment (1986) 279.

93 For exceptions in US Law see Hudec, `The Legal Status of GATT in the Domestic Law of the United States', in M. Hilf, F. Jacobs and E.-U. Petersman, The European Community and GATT (1986) 187. Courts in Italy have abandoned their affirmative jurisprudence as to the direct applicability of GATT law, following now the line of the ECJ in its judgement of 16 March 1983, case 267-269/81 [1983] ECR 801 (SPI and SAMI); see Panebianco, `Die Anwendung des GATT im italienischen Recht', in M. Hilf and E.U. Petersmann, GATT und Europäische Gemeinschaft (1986) 313. The ECJ's case law has provoked both a number of fervently supporting and highly critical comments: see the summarizing assessments by J. Burgeois and P. Pescatore, in P. Demaret (ed.), supra note 11, 177 and 228.

94 See GATT-Focus News Letter, 62 (1989) 1; see the contributions of M. Hilf and E.-U. Petersmann, in E.-U. Petersmann and M. Hilf (eds), The New GATT Round of Multilateral Trade Negotiations (1988) 33, 285 and 323, as well as the Appendix at 499.

95 See MTN. TNC/7 (MIN), 26, in World Trade Materials (Vol. 1 ) (January 1989) 30.

96 Parker, `Dispute Settlement in the GATT and the Canada-U.S. Free Trade Agreement', JWT (1989) 83. For a critical evaluation of the Canada-U.S. Free Trade Agreement from a European standpoint see Bierwagen and Hegemann, `Das Freihandelsabkommen zwischen Kanada und den Vereinigten Staaten. Eine Bestandsaufnahme aus europäischer Sicht', RIW (1989) 33-42; see also Walton, `International Trade, U.S.-Canada Free Trade Agreement', 29 Har.J.Int'l L. (1988) 572-580, taking a generally positive view of the agreement.

97 See Agence Europe No 5108 of 11 October 1989, 7-8.

98 See Jaenicke, `Dispute Settlement under the Convention of the Law of the Sea', ZaöRV (1983) 813.

99 Case 70/87, not yet reported; for a first comment see Bronckers, `The Potential and Limitations of the Community's New Trade Policy Instrument', Report for the Colloquy of Bruges on The New Trends in EC and US Trade Laws (September 1989) 18.

100 See Art. 2(1) of the New Instrument, Regulation No 2641/84 of 17 September 1984 OJ L 252/1.

101    For more detailed proposals see Hilf, `Settlement of Disputes of International Economic Organizations', in E.-U. Petersmann and M. Hilf, The New GATT Round (1988) 285, 319.

102    It is the basic philosophy of Art. XXIV GATT that the creating of unified markets will almost lead automatically to a general expansion of world trade: see R. S. Imhoff, Le GATT et les Zones de libre-échange (1979) 35.

103    For an overview of the free trade areas examined under Art. XXIV GATT see Imhoff, supra note 102, 109. The more recent projects concern inter alia the establishment of common market for East Africa and Eastern Europe; for the latter see Agence Europe No 5153 of 14 December 1989, 16, concerning a single market within the COMECON by 1995.

104    See `Pros and Cons of Initiating Negotiations with Japan to explore the Possibility of a U.S.-Japan Free Trade Area Agreement', USITC Publication 2120 of September 1988, in World Trade Materials (Vol. 1) (January 1989) 49. See also C. Cova, supra note 23, 431, qualifying the respective project as a warning against a possible "Fortress Europe."

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