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Changing Sovereignty in the Light of WTO

Written by: Rittika Chhetri - I am a student of LLM 1st year of NALSAR University of law. I am specialising in Corporate law. I have finished my B.A.LLB from Bangalore Institute of legal studies, Bangalore.
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Sovereignty means the right of the nations to govern them. This concept has fostered world order by establishing legal protections against external intervention and by offering a diplomatic foundation for the negotiation of international treaties, the formation of international organizations, and the development of international law. At its core, sovereignty is typically taken to mean the possession of absolute authority within a bounded territorial space [i]. There is essentially an internal and external dimension of sovereignty. Internally, a sovereign government is a fixed authority with a settled population that possesses a monopoly on the use of force. It is the supreme authority within its territory. Externally, sovereignty is the entry ticket into the society of states. Recognition on the part of other states helps to ensure territorial integrity and is the entree into participating in diplomacy and international organizations on an equal footing with other states[1]

The concept of Sovereignty is in itself complex [ii].The growing depth, speed of change and adjustment required by "globalization” and growth of international organizations has further chipped away the traditional concept of Sovereignty as it has been generally accepted for centuries. Globalization is frequently discussed as a counterpoint to national sovereignty. It is commonly asserted that globalization has eroded national sovereignty or that it has rendered borders obsolete. The process described under globalization has compromised the basic idea of economic and political governance based on geographic jurisdiction.

It can be observed that with globalization and emergence of international institutions like WTO, States have abandoned or lost much of the border sovereignty they possessed for most of the 20th century. It is then argued that this loss of border sovereignty entails a loss of domestic economic sovereignty, so that states are constrained by the pressures of international capital markets to follow the neoliberal policy agenda of deregulation and privatization. The forces of globalization and interdependence poses increasing challenges to traditional concept of Sovereignty of nation states. This concept both in general sense and economic text is profoundly tested. With the emergence of international organization like WTO, there is a growing interdependence in world economic and political relationships, which means that events or circumstances in one part of the world can have remarkably large and often swift effects in distant parts of the World[iii].

There is no doubt that nation – state governments are facing greater difficulties than ever in “governing” in the sense of offering policies which can be adopted at the nation – state level which have a reasonable good chance of “delivering” benefits sought by other nations. With the world becoming interdependent there is increase in free movement across national’s borders and long distance in world of persons, goods, money, services and ideas. The potential utility and effectiveness of raising national barriers is increasingly doubtful and has put inevitable pressure to turn to international cooperation of various sorts like WTO. The problem that arises from international organization for states and state system are mainly, jurisdictional conflict and overlap including the problem of extraterritoriality; and a weakening of national control over economic matters. The question that arises is, Can a strict rule of “non- interference” in a nation–state’s sovereignty really work in this interdependent world.

Sovereignty And WTO

The Uruguay Round launched the first small step on the long and difficult path to a rules-based regime for a single global market and the WTO was created to provide the institutional infrastructure for this extraordinary undertaking. The issues the WTO deals with are fundamental to determining the trade-off between domestic and international objectives and the crucial issue of the state-market frontier[iv]. As Prime Minister Tony Blair said in 1999 speech in Chicago with regards to WTO “...We live in a world where isolationism has ceased to have a reason to exist. We are all internationalist now, whether we like it or not. We cannot refuse to participate in global markets if we want to prosper.

We cannot ignore the new political ideas in other countries if we want to innovate.” While internal sovereignty is absolute in theory, it is rarely absolute in practice. The ‘exclusive right to determine the framework of rules, regulations and policies within a territory’ is compromised every time a state enters into a bilateral treaty or agrees to conform to the rules of an international organization. While, again in theory, the absence of a central authority makes each state the final arbiter of whether or not it will abide by treaties and remain in an international organization, the interdependent world economy of the last half of the 20th century imposed serious constraints on states’ room for maneuver.

External sovereignty, on the other hand, is much closer to an absolute construct. In the modern interstate system economic and political governance are a function of borders and geographic jurisdiction. The defining principles of the system are mutually exclusive territorial sovereignty and mutual recognition by other nations. Compromising external sovereignty compromises the state and the system.

The concept of sovereignty is still very central to almost all thinking about international relations yet the concept in the context of a nation – states “right” to monopolize certain exercises of power with respect to its territory and its citizens is in many ways highly discredited.

No doubt with the emergence of WTO, the center of gravity in world politics has shifted from the public agencies of the state to private bodies of various kinds, and from states to markets and market operators. This has resulted in the weakening of the authority of the governments of all states and the integration of national economies into a single global economy. Since WTO is about world trade, it requires international cooperation which means that all states are bound by some minimum requirements of international law without being entitled to claim that their sovereignty allows them to reject basic international regulations. It is interesting to note that the criteria for membership in WTO are not limited to “sovereign entity”, but instead to a “State or separate customs territory possessing full autonomy in the conduct of its external commercial relations” [v] Many of the problems under WTO relate to treaty clauses that penetrate deeply into a nation-state’s “sovereignty” decisions about economic regulation. Thus, any international cooperative mechanism will, of necessity, clash with national “sovereignty,” and with special national interests whose own economic well-being will be affected by the international decisions.

As is clear from the description of the new WTO mandate, trade policy is not trade policy anymore. WTO negotiations now or will in the future cover many policies which are either under provincial or joint federal-provincial jurisdiction. These include services, government procurement, investment regulations, environment and food regulations, and perhaps labour market regulations[vi] WTO is supported by most nations of the world including economic super powers because the reason for deepening integration of the world economy is economic. Consumers would be able to buy the best products at the lowest prices anywhere and everywhere. The gains come not only from eliminating barriers and impediments to trade and investment but also, and more importantly, from dynamic efficiencies which increase growth and create new jobs as global competition forced firms to restructure, network, and innovate.

Furthermore, economic and political spaces no longer coincide. Markets are ‘larger’ than states and, more important, economies and economic actors are increasingly non-territorial. WTO includes many specialized agreements, all intended to limit governments’ capacity to restrain trade or to interfere with the investment decisions of transnational or domestic capital. Belonging to the WTO undermines national sovereignty. The argument that membership in the World Trade Organization does not undermine national sovereignty is not supported by the facts. The CRS report on the World Trade Organization (August 25, 1999) is explicit in its explanation: "As a member of the WTO, even United States does commit to act in accordance with the rules of the multi-lateral body. It is legally obligated to insure national laws do not conflict with WTO rules”.

The main criticism against WTO is "most favored nation" provision which requires all WTO member countries to treat each other equally and to treat all corporations from these countries equally regardless of their track record. Local policies aimed at rewarding companies who hire local residents, use domestic materials, or adopt environmentally sound practices are essentially illegal under the WTO. Developing countries are prohibited from creating local laws that developed countries once pursued, such as protecting new, domestic industries until they can be internationally competitive. Even when government measures are formally neutral vis-à-vis nationality, the WTO may strike them down if in practice they bias the competitive conditions in favor of domestic service providers (national treatment) or of particular foreign providers. The member nations have to make amendments in their municipal laws in compliance with WTO once they become members Unlike the normal amendments to statutes made by sovereign legislatures, which can further amend or revoke their acts in response to changing domestic considerations, statutory amendments incorporating international trade norms can be validly amended only if the external regime changes its rules by international agreement. In this respect not only has the political order been changed by the amendments, but the legal order has been altered by Parliament’s accepting legal and regulatory changes over which it loses sovereignty.

The antiquated notion that “sovereignty” is the state’s supreme absolute power and authority over its subjects and territory, unfettered by higher law or rule is no longer accepted. Yet sovereignty is deeply interwoven with the fabric of international law, and in order to abandon the whole cloth a very serious thought about the concept of sovereignty is required. But then what does “sovereignty” as practically used today signify?

The fundamentals of sovereignty are namely “equality of nations”, that all international norms nations must be based on consent of the affected nation state, the rule against outside interference and the belief that the sovereign has absolute control over its subjects and internal government control. Each of these propositions still has some merit but in constrained manner due to international norms not under each nation’s control.

The old concept of sovereignty no longer exists but sovereignty can be defined in 21st century as well. I would like to name the sovereignty that exists today as “sovereignty - modern [vii]” or “cooperative sovereignty [viii]”. It is a more “balanced and balancing” approach for “core sovereignty” for the new age. The concept has comes to mean and include “subsidiarity” which roughly means that nations states cooperate and the functions are allocated to those who can do the work best .The justification for WTO is exactly this that a higher level institution was required to manage the desired goals of world trade. It can be argued that state as an institution is not disappearing, but rather metamorphosis bought on by the structural change in world economy means that states are no longer entitled to make exceptional claims it once did.

There is definitely a compromise of formal sovereignty but it is important to understand that international organizations like WTO are an assemblage of national corporations and thus a creature of national jurisdiction, its very existence is “conditioned upon a grant from a state”. There is no doubt that WTO does constrain autonomy and control and has placed limitations on implementation of internal sovereignty. However any international agreement affects sovereignty, but also represents an exercise of sovereignty by an acceptance of commitments in exchange for a similar acceptance of commitments from the other signatories. This would not be possible if states had no sovereignty. For small countries in particular, rule of equality established for international trade by the WTO actually strengthens their sovereignty, because it protects their independence from bilateral bullying.

[i] Stephen J. Korbin, “ Sovereignty @ bay:Globalisation,multinational enterprise, and the international political system”
[ii], last visited at 12 p.m on 30th September.
[iii] John .J.Jackson , “Sovereignity, the WTO and the changing fundamentals of international law”,2006,s p.9
[iv] Kyle Bagwell and Robert Staiger, “National sovereignty in the world trading system” Harvard International Review, Cambridge, Winter 2001
[v] General Agreement on Tariffs and Trade, Oct. 30, 1947, Art. XXXIII, TIAS No. 1700, 55 UNTS 194 [hereinafter GATT]; Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, Art. XII, in WORLD TRADE ORGANIZATION, THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS (1999) [hereinafter WTO Agreement].
[vi] Dr. Slyvia Ostry, “Sovereignty and globalization”, James R. Mallory Annual Lecture in Canadian Studies, March 19, 1999
[vii] John H Jackson, “Sovereignty - Modern: A New Approach to an outdated concept”, 2002.
[viii] Samantha Besson,’ Sovereignty in conflict”, European Integration online Papers, Vol. 8 (2004)

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