Distributive justice in WTO

How to justify restriction against individual autonomy?

Cannot have discriminatory measures.
1. As a state when taking measure, how is it justifying state?
2. Exception Provision-Article 20-enabling restrictive measures to be imposed-already 3
violation is there, so that’s why we go for exception, you have proven measure is trade
restrictive, so cannot justify its existence other than under article 20. Thus, 20’s justification
is that when you have taken a restrictive measure then what it’s justification? Need to resolve
conflict b/w restrictive measure and its restrictive effect on autonomy of outsider-if you can
keep this balance-that would be basis of it? So Sutten brings concept of self-determination, he
says it provides an answer between will and coercive measure. Self-determination is only
explanation of 20, and not 3. 20 seems to resolve conflict b/w autonomous will and the
restrictive measure. 20 uses terminology to maintain this balance. It does not however tell
value being protected. Sutten tries to understand the value that is being protected while
maintaining the balance. Suttenn balances coercion and economy and only looks at equality
and NOT welfare.

Instead of taking approach of Sutten, alternative approaches are taken which come under
efficiency model. This is basically being used to find the explanation of 20. How to ensure
general welfare and interest of states and harmony?
TTT Model says that if you individually trade also and engage in transaction-justifies purpose
of GATT that multilateralism is bringing had it been the case that we did not have
multilateral regime? What are we losing if we do individually and not multilaterally? Terms
of Trade have to be protected essentially-is what is the purpose-maintain a certain kind of
difference b/w exports and imports, all states want exports to be more, national costs should
be balanced with earnings. So, if all states do that, then it will cause common interest to be
diluted. Multilateral way would therefore be to ensure multilateralism. That’s why Prisoner’s
Dilemma is being used to ensure balance. Here global costs are reduced.
PT Model comes from efficiency model and takes care of welfare and reduces efficiency
cost. There is another aspect coming out of GATT-remove protectionism and comparative
theory model-if everyone protects own domestic producers and not welcome outsiders, then
PT model says you are never going to be able to take benefit of others’ provisions. GATT
reduces his protectionism.
How are states losing out in bigger game if they focus on protectionism? E.g., A produces
capital products and B produces labour intensive products. Now this will create problems for
A and B individually, if they functioned unilaterally. Trade ensures that transactions take
place b/w both and saves costs of producing a different good, which may be done by using
the factors of production and goods of the other country. Basically, each state can focus on
what they produce best and take help of other state in what they are better at-so both benefits.
Now this won’t happen in unilateral structures, and will be possible in multilateralism.
Reduces local costs.

GATT is the best way-those who support efficiency standard-larger output with lesser costs.

Larger costs & output v/s autonomy & will focusing model
Criticism of efficiency is discussed, how it is not sufficient by Sutten. He looks at PT & TTT
models-and say we use Article 3. Efficiency standards says it reduces manipulation of TTT
and reduces protectionism, that’s why it’s good. Sutten says this cause issues. If full Art. 3
was protectionism-then 20 is not following it-exact opposite of 3. But 20 is exception but that
would also require some commonality has to be there. How can PT & TTT do that-this depth
not gone into. He says don’t base 3 solely on PT & TTT cause then you cannot explain
mutuality b/w 3 and 20. He also says that 20 has numerous measures which are protectionist,
there is nothing anti-protectionist. Efficiency model is not understanding 20 in its entirety and
need another way to do it, which he says that 20 is not just anti-protectionist, but brings self
determination to justify the measures. Also, another issue is we say why only certain
measures are there in 20, then Sutten has to question why only choices till h are there in 20.

Student said problem is self-determination is not being used as is prescribed-measure to

justify state measure, basis of providing a certain kind of right to state? Student objects that it
is basis to provide right to peoples and not state which is the main discussion internationally.
Sutten says-SD is double edged sword. No concept of statehood would mean no communal
self-state is nothing but a vehicle to realise will of people. State maintains balance b/w right
to make choice for self and coercing other people such that entire legal regime-autonomous
will of people is protected-libertarian approach. State as an entity-reconciling-UN charter
giving right to people but this is also exercised at state level. E.g., two people enter into
contract, it becomes justification to make obligations binding on parties-justification of
coercion and consent also given-so autonomy also respected. Community interaction at
international level-one community’s action can how claim another community’s rights? Self-
determination is like a contract at international level-where you can make claim and also say
communal will is also respected. This can be done as long as it is in domain of self-
determination, it is not disrespectful to another’s rights. Autonomy v/s coercion is very liberal
point of view as autonomous will had to be justified in that theory. Easier to justify self-
determination-state as a vehicle to express will of people. Communitarianism can have a
different view. This is coming from liberal point of view. In initial pages of book, he has
justified why he is a liberal.

In contract all this can be justified easily. But in international context?

Why limited political choices only respected under XX? So, have to understand those choices
too!

6 October, 2020
What shape self-determination is being given?
Power to decide for yourself, self-autonomy.
3 aspects/ways of interpreting self-determination to see what value it represents
1. Intrinsic: self-determination (SD) is valuable as a concept because intrinsically it goes on
to realise self-autonomy. Because concepts are “intrinsically” connected. Participation and
providing own point of view-people’s rights. Participation and representation theory.
Through concept of self-determination people get to provide their point of view and get to
participate in the process as well as have that capability to have their interests represented-
gives them power to determine their goals. There are some limitations here (Article XX)-
insufficient in explaining ambit of choices available. What if an outsider is affected by choice
of state, how to justify? Not covered here. Enables community to make choices for itself-
intrinsically. This is important for us to realise some other values which we may not realise
otherwise-like (1) protecting cultural heritage and sensitivities, environmental activities. (2)
SD allows a country to protect natural reserves as well. (3) SD helps state protect its people in
terms of security concerns. This argument still falls short to justify SD to coerce outsiders. 2
main demands that SD provides for-
1. It protects power of people to realise their communitarian goals (instrumental argument)-
they are able to achieve their noted goals to maintain order in society-E.g., Art. XX (a)-
allows states to impose restrictive measure as long as it is imposed in name of protecting
public morals and therefore checks if measure is “in fact” doing the same whatever is being
referred to as public morals is shared in society is what is also seen.
2. sharing goals in international society.
SD -can achieve noted goals and allows to share goals with other communities by using
consent and autonomous will.
Article XX (a)-questions that arise-manner in which you identify public morals? As far as
GATT jurisprudence is discussed-right and wrong a community has established is to be seen
which says that they do not care about truthfulness of it. Some aspects have not been clarified
though. How to assess practice as sociologically and politically morally correct-demarcation
not clear. He mentioned EC Seals case and gave eg. of sati.
Protecting morals-can have various meanings. In the US, gambling considered immoral,
preclusion of public from gambling is protecting public morals, not enforcing moral values,
protecting individuals from it. In EC seals case-when ban was imposed, then the idea against
inhuman killing of animals was weighed with public morals.
If we take value of SD to realise a certain noted goal -instrumental way-
1. more local in its approach. Identifying moral standard exists in a community or local
society-is it a noted good to be protected-see sociological considerations of whether society
considered this as immoral-instead of political enquiry for identification-it’s more
sociological in nature. The other thing which will be seen is what is meant by public morals
as you’re seeing SD as an instrument to achieve public morals-not looking at a forceful or
vindictive/enforcing moral values-looking at it as a tool to protect the values-protective
understanding of SD.
Locally cannot enforce it, has to be protecting the value only as have to respect autonomy.
Internationally it is different, see whatever you’re trying to achieve is a “shared” goal-look at
international standard of defining public morals-most GATT judgements have not understood
this. Look at political aspiration/expression of a community. We are looking at enforcement
aspects of moral values internationally (we try to see global view, but GATT has usually
restricted itself to a local view of things).
Now depending on nature of measure and coercion arising out of measure, e.g., influencing
outsiders, then have to explain as per second line of justification of a measure as it is
affecting outsiders. But say measure does not directly influence outsiders, and as a side effect
only outsiders affected, then can justify based on local justification.
GATT is not seeing outside/local affecting aspects-no focus here. As an example, EC Seals
case-measure restricting consumption of seals which are being killed inhumanly, makes
exceptions for some. Canada challenged this measure saying it is against GATT, EU saying
this measure is in fact in consonance with GATT XX (a)-animal welfare to be taken -part of
EU community when we talk about consumption of animals. To this Canada raised that in
order for measure to be falling under XX (a)-need to identify risk involved and the manner in
which it is protecting it. Animal welfare was not considered as a matter of risk in EU political
community, so many animals killed inhumanly. App Body said-identification of public
morals-enquire only whether community considers it wrong and not how it is wrong. Only
statistical idea seen. So not gone into much deal, with respect to interpretation of Article XX.
Whether Suttle has moved away from GATT juris, still a Question! He gives a normative
EGC standard giving GATT a good interpretation and respecting its objective.
2. Expressive:
3. Instrumental

Suttle has looked at equality in international trade through EGC.

Anti-globalisation-right and left wing and centrist colours-how Stiglitz think about it-
economic international regime (covering international trade as well)-here it’ll be limited to
trade law only.

8 October, 2020
[Chapter II-Stiglitz book]
“Fair trade”-allow countries what they want or protectionism can result in fair trade in certain
areas? “Free trade” is actually fair trade or not? Very relevant in today’s time! One
opinion/analyst of free trade is Joseph Stiglitz. “fair trade for all”-book by Stiglitz which’ll be
discussed.
When we talk about economic development, the entire debate surrounding it has been more
towards the idea of how to ensure general welfare. The concept of welfarism has been closely
linked to the idea of development. Question about how to ensure and take care of political
and social concerns arises within this debate. The general idea of free trade means unfettered
way of transacting with other countries-reduction of barriers is understood as a fact to
determine freeness of trade. There are intuitive aspects of free trade which render the idea of
free trade quite appealing. The idea of two economic players being allowed to enter into any
kind of transaction is in favour of allowing members to decide for themselves-aspect of free
trade. There have been traditional advantage ideas like comparative trade and benefits also.
Stiglitz tries to differentiate 3 scenario-what are important lessons to learn from 3 scenarios.
They are:
1. East Asia development-how it became a success model
2. Latin American failure-what went wrong here in their trade policy + industrialisation
process
3. Mexico model-it had entered into NAFTA with Canada and US which has now been
revised.
These are starting points to analyse ideas of free trade and see if free trade can be seen as an
axiomatic principle to bring about development.
Free trade works for all or is there need of exceptions? -this has also been discussed in the
book.

These 3 models specifically chosen because of the impact that they have on policies globally.
Another feature of these models is that they are all distinct and this shows one particular
format is not always the best.
1. East Asia Model-After world war-expansion in the region, especially Japan performed
very well as against global exceptions. There was no GATT/WTO, these countries had
fascinating trade policies. Japan-had model of enhancing equality, reducing poverty +
ensuring growth. E.g., If you focus on GDP, growth will be quite good, if you focus on
distribution, returns would be slow-Japan exception and showed economic development can
take place + poverty can be reduced. As regards their trade policies, Japan had opened up
economy for foreign producers, but this was different from current understanding of
liberalising. They had policy of import protection and export promotion-protected domestic
producers in certain sectors, but in export market the government induced wealth-enough to
export. This policy worked in favour in initial few years. Distribution of wealth from import
to export sector and similarly for labour. There was significant amount of tariff reduction
also. There were numerous treaties they entered into with Western countries also. However,
at the domestic level, there was a lot of money being infused by government to promote
domestic industrialisation and development. There was some amount of protectionism-so not
per se a non-discriminatory approach. As a result of reduction of tariff barriers, in order to
protect domestic market, subsidised domestic produce. Spill over effect in East Asian region
was also seen. Not a move towards laissez faire here. Hence, protectionism to a certain level
can help.
2. Latin American Model-Very different from 1. Although they were following
protectionism too. They ended up suffering a lot of loss, so not considered as a success. This
model adopted import substitution. Model-1 focused on exports by infusing money. This
model 2 protected certain sectors of the economy. In order to protect own domestic
producers, they don’t do anything to promote exports. Those sectors in which you were not
competitive, you’re still producing goods, so not so efficient. this model is based on infant
industry model-your domestic economy cannot face competition, so you protect it and give
space for development-this was initially helpful but this caused economic shocks in the long
run. The main cause behind failure of the model was discussed-and many said it was
protectionism, but some said it was the amount of debt that Latin American countries were in
because of protecting their domestic economy (from international market). East Asian model
was different as not only protecting domestic scenario, they were focusing on exports also.

3.Mexican Model-impact of NAFTA which was entered with Canada and USA. This
agreement led to obligations/commitments. This caused Mexico to face economic losses.
When you reduce border taxes, lose out on revenue, so this caused less money for
infrastructure development for Mexico causing China to take over such market-as China
developed infrastructure. As a developing nation, Mexico had to reduce tariffs, thus causing
loss. NAFTA provisions were such that US heavily subsidised agricultural products-led to
unequal bargaining power for Mexico. The basic idea behind NAFTA was that Mexico could
not take advantage of NAFTA as much as US and Canada-the advantage expected was not
something that Mexico could obtain.

Link b/w free and fair trade-the above are 3 samples. This also helps to understand whether
free and fair trade is same. East Asian protectionism was there but there was reallocation of
resources too in the export market. It was a cautious way of liberalisation. When it comes to
Latin America, pure import substitution-infant industry development model-this caused it to
suffer losses, especially in certain sectors-this was against comparative advantage model
causing them to invest in not so competitive industries. The Mexican model which focused
on NAFTA’s impact-in terms of equal pedestal, had a daunting effect in terms of huge
economic losses in development structure. one important learning from Stiglitz’s
perspective-wrong to expect harmonisation to have development. Harmonisation should
not be attitude, rather it should be allowing country to take care of its on specificities
while making its trade policies. Why free trade as a model could not work so perfectly is
what he discussed and how certain amount of protectionism was alright too.
Link b/w free trade and economic development is to be studied. Once you open market –
(assumption) greatest benefit is that enables industry to be more efficient as economy is
exposed to competition-this has been questioned by Stiglitz as it depends on country.
Possibility of takeover of market by foreign producers is this there too. However, opening up
is still beneficial to country as it leads to reallocation of resources to more competitive
sectors of the economy-increasing efficiency-tells you which sector to invest in-giving you
an idea where to allocate labour. In that sense trade liberalisation is considered by those
who are in favour of free trade argument as a way to balance out costs with
development. Stiglitz however points that this is not always true-that allocation of
resources will take place from low to high productivity sector. It will not resolve issue of
unemployment, or using unused resources, if they exist. He also said export sector requires
time to increase capacity. It may also happen that domestic losses may not be covered as the
export market does not have capacity to cover the losses. This could lead to a situation of low
to zero productivity of a sector too. You can’t say as a general rule that free market
ensures effective distribution of resources.

9 October, 2020
Free market cannot be linked with development and free market as an idea -and the issues can
be seen in developing countries especially.

Why does free trade seem like a workable idea?

1. Average Efficiency-domestic producers get an incentive to better their quality-as they are
competing with others.
Even if it has daunting effect on market, gives government ability to reallocate resources in
the country.
Say 2 markers-pen-mostly for domestic and mobiles-mostly relied on for exports-so opening
up economy even if affects pen market, then that’s fine as you can focus on mobiles market
which is used for exports. It would balance out all losses and you can utilise the resources
better then.
This situation keeps a lot of factors constant and is subjectively dependent on country. So, in
the above example, pen market may completely disappear because of foreign competition and
then may also lead to unemployment. Assumption that decline in pen market can be utilised
in mobile market could go wrong. Plus, export market may require time to develop itself also.
What happens here as a result is that instead of relocating resources from low producing
market to high producing market, you do it to a zero producing market which furthers the
loss.
2. Price control in Free market-there is no overall/government control-distribution is
controlled by price. The price is controlled by demand and supply.
How appealing is this for developing nations? There is a need for development theory for
these models. So, there is nothing which can help to pump up industry. In all scenarios this
cannot be the case that it leads to development, you need to rely on governmental inputs in
certain sectors. E.g., Even in GATT-Art. XX and XVIII-developing nations allowed to
protect infant industry.
3. The other assumption -check-Growth Equality Conundrum
GDP leads to economic growth and development. Social costs are attached to growth in
economy. Can generate inequality and this will be expanded-labour wages for example.
Substituting unskilled labour with skilled labour. Transforming economy-adjusting to such
gaps-becomes difficult to be reduced in developing countries. This widening of gap is what is
intrinsic to globalisation-this is Stiglitz’s view that exponential rise in economy can have
social costs and result into inequalities within the economy-how to redistribute is the question
to be answered to balance the same.

12 October, 2020
One big difference b/w economic model of most political parties in India-growth & equality
plays an important role! GDP increase helps lower rungs of society v/s GDP increase does
not take care of division b/w rich and poor. Social costs aspects with economic growth also
need to be considered-helps to take care of divide of rich and poor which could widen as
economy of scale increases.

Free market is volatile and it introduces a form of perfect competition, allows country to
absorb efficiency. The developing nations-when there is no competition or risk, or market is
not volatile, domestic producer has a method of equalising output/balancing out price-
increase price if output decreases-recapitulate cost. But whenever volatile, many factors play
an important role in saleability of product. Price then gets affected by market price (generated
by market). Stiglitz says volatility of market goes on take a lot away from small producers’
control. Otherwise benefit small producer has in volatile market of influencing price (by
increasing/decreasing output/price)-this is taken away by market. So, this takes away the
incentive of increasing skills, makes the producer stay out of market. (this is a situation of
developing nations)-this is the reason why Stiglitz says Free trade is not development.
Freeness does not in itself leads to fairness, need equalisation for fairness in trade.

One those in favour of free market idea v/s those in favour of fair market
Stiglitz is not in favour of free trade only, risks and distortions by free market created
instead of being tackled. Jagdish Bhagwati also was not in favour of free trade.
(sir has not covered Doha rounds and other technical aspects of it in class)

Jagdish Bhagwati:
People started questioning free market system to handle market failures.
(take for this)

15 October, 2020
Initial free trade discussions where issues arose from concern that when a trade restriction is
imposed, how do you justify it. They were not concerned about general welfare angle under
GATT. Slowly debate turned from free trade to fair trade. The distributive justice
aspect of free trade-“invisible hand” -Adam Smith. The basic argument here was that when
it comes to control of market. Whenever there is a transaction happening, there is exchange
that takes place. You want to ensure a return that you’re also interested in. what happens
ultimately is that there would be an invisible force-where overall DD and SS forces would
determine demand and supply in market. The overall distribution in the scheme should ensure
proper distribution-and this would be related to what you demanded and your interest. The
real appeal of the market lies in the fact that it goes on to ensure that market prices are
reflective of market conditions. Or Market prices are reflective of social costs attached
in the society for producing goods. This argument of invisible hand was further argued by
David Ricardo in concept of “competitive advantage”. He said that this model allows you to
specialise in a factor of production and gives you an opportunity to develop the
specialisation. For those where you do not specialise, you can rely on other market players-so
free market regulates efficiency and ability to produce goods. These theories helped to
understand how free market societies are fair market societies in terms of distribution. Not
guided by an authority, so less imposition and distributive effective would also be seen. Also
helps to reinforce idea that you get what you deserve. It was seen as self-sufficient also to
bring equilibrium in economy-from a “distributive” sense, especially. Free market in both
theories was seen as the best way to collect and distribute wealth. Now overall what
happened (market failure/distortions which the economies are capable of, political issues)
was what caused such theories to actually be questioned. This basically cause scepticism on
free trade. International community realised that opening of market would cause imbalances
in economy also because of an overall international relation. This would also cause world
market price not reflecting social costs ad distortive effects that are being faced.
“Market price will be reflective of social costs”-main idea!
Scepticism against appeal of free market-The Great Depression-1930s! the effect of this
depression was so profound that it turned those who were in support of free trade against it.
So, an after effect of this depression was unemployment, disparity in wages, governments
finding problematic to come out of market failure and create jobs.

 Economists such as Keynes came and tried to justified tariff as the best way to
come out of market failure. The fact that imposition of tariffs could actually re-adjust
the overall loss in the aggregate demand. Through tariff you can adjust aggregate
demand of foreign products which could be shifted to domestic demand-because
you’re making foreign products more expensive for people within an economy.
Government intervention in trying to re-adjust demand according to economists was
going to help in re-adjustment of resources, especially in short term but would still be
helpful.

 Bhagwati gives 3 different examples to understand the free trade rhetoric. He did not
agree with imposition of tariffs. He said best way to deal with loss of aggregate
demand was by generating demand.
 Imperfect competition came into being also. Perfect competition is only utopia and
to factually realise it is very difficult, it requires too many assumptions like sectors are
all similar and that gains can be offset by loss. Proponents of free market who said
market price reflects costs, somewhere assumed that perfect competition existed.
Then they realised that no matter what you do, market will be imperfect. If perfect
competition existed, then it would have ensured costs are reflected in prices, but if
competition is imperfect, then overall price may not reflect costs.
  Early 20th Century-argument of anti-free trade-developing nations only, but now anti-
free trade has come from developed countries too. Bhagwati has tried to bring back
free trade. They argue on social costs and governmental costs incurred in the even
there is government intervention. This is basically what Bhagwati brings in to say
how free trade is better. No one can say free trade is best or intervention is best, both
have their own issues-so the main argument relies on which argument has profound
impact (this is the only argument that supporters of free trade have) Now it is said that
unilateral intervention (^tariff will generate diversions in market-causing gap to wide-
this is being countered by above). Bhagwati says free market is still the best
alternative, invisible hand may not be the best hand and interventionist hand is
crippled one. He tries to balance free trade argument by proposing a balanced one.
Suppose domestic market has distortions (like unemployment/slump), obviously
necessary for government to come up with fiscal reforms to deal with it (like labour
leg) but that does not mean you impose differential treatment and use quotas, etc.
Imposing domestic measures does not mean you go against free market principles. So,
impose tariffs but don’t provide differential treatment. His stand with respect to
preferential trade agreements (PTAs). Regional trade agreements (RTAs). FTA arises
out of free trade assumption. FTA gives platform to further free your relations with
certain countries. PTAs further FTA argument through reciprocity. So, it’s an
exception of MFN. Bhagwati is in favour of free trade, but he still believes that best
measure is free trade rather than protectionist. But he believes PTA is a threat to
further assumptions of free trade.
16 October, 2020
Network issue! Take from someone else!

19 October, 2020
Free trade v/s protectionism
Instead of being called protectionists, they like to call themselves stakeholders. So, colour of
fair trade has changed and focuses now more on specific share being received out of general
welfare. So now we look at new at rhetoric, American perspective, BREXIT rationale
also lies within this as per Sir.

Reasons for dissatisfaction with free trade:

A new term-“fair trade” to bring out social agendas in trade policies. Free trade misses out on
taking care of differences that are there with different countries. E.g., labour-wage issue-
developed nations point of view-arises in the form of building trade relations with developing
nations, this leads to asymmetry and lowering of wages which the labour unions are insecure
of. Argument against free trade because of this labour-wage distinction (at which domestic
and foreign market is willing to function) -so basically free trade is held responsible for the
gap. Fair trade is now being argued by developed nations and not just developing nations.
Developed nations are also trying to bring their socialist agendas now. E.g., unilateralism UN
has started taking on a lot of issues. Restrictions are being imposed on products and
conditions on standards are being imposed. US against Mexico-that Mexico fails to enhance
its labour and environmental standards, so cheaper labour-NAFTA formation and they
accused Mexico for engaging in unfair trade and they forced Mexico to adopt certain
standards.
As a result of these rhetoric, those who were concerned by socialist issues, only 2 possible
solutions exists-import substitution (IS) and export protection (EP). IS-quota, because
essentially substituting domestic market for foreign market to stifle competition from foreign
market and this is seen as the best mechanism available. Causes isolation of own market from
foreign market. EP-start protecting your export market. E.g., Export bans on products.
Agenda again is protecting domestic market. This is happening a lot in Covid-19 regime.
Here you impose standard on your exports, you influence market of other country, it also
leads to intrusion into domestic economy of other nations in some ways.
What Jagdish Bhagwati says here? He says free trade is still the best solution, even though
he is not against concept of social justice. He thinks that social justice requires taking a step
away from free trade. He thinks both can co-exist together.
 He has a problem of targeting two birds with the same stones, meaning social agenda
and free trade and its after-effects cannot be targeted together. Trade now is started to
be used as a means to further social agendas. However, Bhagwati says that none of
these aims are being actually achieved either by IS or EP. So, he says that general
attitude that developing nations have developed over the years is that of mistrust
against developed nations. Number of negotiations get halted.
 He has problem that social issues require social actions and trade measures
cannot be used to resolve social problems. Gives examples of child rights issues and
labour rights issues, which are complex within themselves and trade agendas operate
 differently and are ill- equipped to handle such issues. It will only bring backwardness
in social issues and not resolve either issues.
Bhagwati’s solution against protectionism-provides an “alternative stone”, two separate
issues to be dealt with by separate stones. Address social concerns with social measures and
not economic measures. He says there are numerous institutions which exist to do that like
ILO. There are number of non-trade sanctions provided by ILO which can be imposed to deal
with social issues. Side by side free trade argument can be sustained according to him. So, he
feels social issues do not arises out of free trade argument but rather because of unwillingness
of countries to take social measures. So, he says “let there be as many institutions as
possible”, so have ILO and WTO, etc. for purposes of dealing with own issues, and for this
there is need of complimentary functioning b/w such institutions rather than protectionist
measures. He also feels there is no need to blame free trade for social issues. However, a lot
of people argue that this attitude of free trade forces raising to the bottom situation in
developing countries. This means the idea of encouraging foreign investors can force
developing nations to lower their environmental and labour standards. These arguments are
still being used in today’s age.

Debate on PTA-
Bhagwati is against the PTAs. He believes that any form of free trade which is based on
reciprocity will work against achieving common goal of enhancing welfare. Free trade is
connected with multilateralism. Freeness idea involved providing level playing field.
Preferentialism is directly against the GATT mechanism. For instance, he brings argument of
spaghetti bowl. So, whenever you import or export products, you have to identify origin as
PTA is based on origin, this results into a number of rules of origin being against each other.
So, things become very complicated and this creates problem of free riding.

Now Question arises if “free trade is fair trade, how do you apply it”, how do you structure
it? Is MFN the only mechanism is available? Can we use PTA/FTAs, labour unions?
20 October, 2020
PTAs
Free trade can be ensured through MFN or PTA form within the multilateral context. This is
ensured by providing a level playing field. Irrespective of which form free trade takes, there
are 2 inevitable consequences that arise. Both PTA and MFN have effect of internal
liberalisation and external
So as soon as countries says let’s come together and free trade between each other, the
counter effect seems to be that the more you free trade internally, the more restrictive you
become in terms of external arrangement. When you particularly locate within which you will
liberalise trade, a preferentialism exists. Within members trade is liberalised, but members
outside, restrictions are not removed.
MFN also does same thing as PTA but ambit is bigger. Intention behind both is to free trade
from interferences and liberalise trade. However, there might arise situations where they may
be in conflict with each other. So, Article XXIV of GATT becomes important in that context.
It covers PTAs. Para 4 and 8 important. The Article defines PTAs in two ways. It defines
PTAs as two types: custom unions (CUs) and FTAs. Difference b/w them is that CU-EU as
an example-XXIV (8). This is because CUs come together not just for liberalising trade but
for harmonising their external trade policies also. Integration w.r.t to domestic policies is
more in case of CU than FTA. FTA merely requires eliminating restrictions among member
nations and there is no harmonisation of policies. XXIV (5) talks about conditions on CUs
and FTAs. XXIV (4) provides for general purpose behind XXIV. It clarifies reasons behind
having PTA under GATT regime, lies behind closer integration of economies in the globe.
Purpose is not to distort economy, but integrate it and liberalise it. This should not lead to
restrictions in trade. The cost of internal liberalisation is sought to be maintained under
Article XXIV.
This gives rise to interpretative questions under Article XXIV.
(8)-clarifies conditions in detail for purpose of falling under definition of FTA and CU.
Eliminating restriction has been seen as a sign of liberalisation under CUs.
“substantially all trade” for elimination of restrictions. What this means and context in which
we are talking about it is important.
(a) w.r.t. products or originating in such territories or those not originating but being traded in
a territory.
Let’s say there are 3 countries A, B, C. A has imported pens from B but may not be
considered as trading in goods originating in B as they are originating in C. Similar wording
b/w (i) and (ii). Rules of origin have to be laid out for purpose of liberalisation. Rules of
origin also exist for MFN. Now every FTA will have to provide for its own rules of origin to
determine where goods are coming from. But in case of CU, they can have own rules or can
define trade/liberalisation as goods arising out of countries, option with members of CU.

Can FTA thrive under PTA or not?

How do we define preferential rules of origin? Should they be similar to MFN’s rules or
how? Do we mandate for rules of origin? What this can lead to is that all countries have their
own rules for origin. How to go about providing rules of origin has not been provided for
under GATT regime.

Second aspect of “substantial all trade” context-qualitative or quantitative?

Qualitative-means all important economic sectors would be liberalised-sector specific
liberalisation
Quantitative-quantifies a limit below which it is not substantial and so on.
The text is not clear w.r.t this question, i.e., how to interpret “substantial all trade”. In Turkey
Textile case, AB had come close to discussing this, they said it means not all but substantial
trade.

22 October, 2020
XXIV (8)- intricacies involved in this article. (See bare act also)
Duties and other restrictive measure in commerce-nature of measures to be eliminated.
Except for
Let us say can make an exception for health of plant/animals, under Art. XX, can you bring
into under substantially trade? First view says, purpose of XXIV is to liberalise trade it
should also exist for the bracketed part but bracketed part does not qualify as duties. But
another interpretation is that such measures can be substantial in nature. These have been
exempted because their nature is such to balance right of sovereign state and trade. If there is
a duty under XXIV having restrictive effect, if substantial in nature, cannot be maintained.
But exception measures if substantial will be allowed as per GATT.
There are products which are not ORRC but happen to fall within exceptions. Liberalisation
only wrt duties being imposed.
XXIV talks about CU in para 8 (part a)

23 October, 2020
General structure of Art XXIV being discussed and how PTAs have been structured under
GATT regime. PTAs exist as an exception to MFN rule.
Para 8, 5 and 4 are important under this article.
Essential point of “substantially all trade” means elimination of restrictions. What are we
eliminating in name of restrictions has to be seen.
External trade-second aspect of para 8 (a)-eliminate restrictions within member states. b/w
CU and FTA -In CU external trade policies also need to be harmonised as against in FTA. If
we say A, B, C are part of FTA/CU, then within them how to liberalise trade-8 (a)(i) and 8
(b) talk about. What about those who are not part of FTA/PTA but are members of the WTO
mechanism. So, with respect to those countries-they are 3rd parties -with respect to their
external trade policies, as per para 8, need to be harmonised while forming a CU but this is
not present in FTA. Let’s take example of NAFTA and EU. EU-liberalised trade within
member of EU and also non-EU members (but WTO members) but in NAFTA, liberalisation
is within each other however when it comes to their external trade policies can differ. (lost
network, check)
Wrt CU, they need to be substantially same. Term used is “substantially same” leading to
inference, there can be some amount of (ORRC) restrictive measures (duties/regulations of
commerce). So, regulations can be there so long as they do not fall within ambit of
“substantial”. Some can ORRC can be left non-harmonised, some amount of independence is
there. In FTA, this mandate of harmonisation wrt external trade policies is not there, meaning
they can differ.
Para 5-important question-what do you mean by substantial (No, goes case by case) and what
happens in a situation
GATT-MFN obligation and NT, apart from that there is bound rate concept-from Art.2 -
quotas-prohibited but when it comes to tariffs, can impose them. But if tariff is such that it
tantamount to quota, there is another article which prohibits from doing that-art 2. Members
are required to enter into negotiations and bind their tariff rates (literally means fixing them -
beyond which you cannot go when transacting). Each state can have its bound rate which it
follows and you can always go lower than the rate but not above it.
Para 8, part 2-CU-country A, B and C-tariff B is imposing is lower in comparison to bound
rate of A and C, does that mean harmonisation obligation cause B to increase it? Now using
XXIV (5)-additional conditions upon CU/FTA imposed. See bare act also.
(a)-prior to FTA A, B, C have their own policies, situation should not arise that because of
arrangement entered into i.e., CU, it should not impose more restrictions than existed before.
Pre and post regulator measures-what does it mean it should not be higher?
As a whole and general incidence means not checking every duty imposed on an individual
level-now what’ll be done is a general understanding on accumulation of products that you’re
transacting in. Binding of rate over which you promised not to go is very individualistic in
nature. As long as general aggregate is not higher-that’s what this article envisages.
Situation 1: where countries A, B, C-they are in CU-external trade policies being
harmonised. Before B was charging 1 unit of tariff, A was charging 3 units of tariff, and C
was charging 3 units. So now because they have fixed external tariff, B is falling shot of A
and C and if so happens that amount of goods falls under substantial trade criteria, they have
to harmonise tariff policies with and C-cause B to increase its tariff. What para 5 says is that
aggregate trade of all products that you trade in -all restrictions trade should not be more than
what was being charged before. B will take aggregate products of country A, B and C-
aggregate; post should not be more than what B had before or what A was charging before or
C was charging and now everyone will be having similar aggregate restrictions. Basically,
GATT is ensuring that increase of burden does not take place for other members of GATT.

FTA-because each country has its own external trade policies, harmonisation only wrt
internal trade policies, similar obligation is that after should not be higher than before but
terms “as a whole “general incidence” not there. Term used is “corresponding”.

In CU-the rule is internal liberalisation where what we take “substantially all trade” and
parameter is elimination of restrictions (duties or others). Mandate of external harmonisation,
understood in substantive context, not identical. In FTA, only internal liberalisation. Again,
substantive and removal of restrictions, only w.r.t products originating in member states. Para
5 conditions. General rule after should not be higher than before. CU-looking at aggregate
level, in case of FTA-corresponding level.

Formative level but once FTA/CU has been formed already, you cannot go on to impose
measure in violation of GATT mechanism.
Interim agreements-in order to arrive at CU/FTA-further development needed-position to
comfortably enter into FTA, so interim measures are taken to be able to eventually enter into
them. Such interim agreements also covered under XXIV. If measures taken to facilitate
developing countries, it is applicable there also.

Preferentialism has limitations under GATT-its implications and how it pans out in
international arena and its distributive principles-does it keep free trade system intact
 3 November, 2020
Article 38 of the Constitution gives idea about distribution of socio-economic resources under
Indian governance-but this is incomplete in a certain sense so cannot understand the
ideological stance that India is taking. Socialist/capitalist/communalist thinking/direction has
not been defined under 38. Article 38 does not define it, even in draft article/debates-
constituent assembly-number of members advocated use of term “socialism” within this
provision but the advice to add this term at that point of time was rejected. Wanted to remain
“neutral” about what stance to take. India chose to remain “silent”. The ends they are trying
to seek chosen but means to achieve them were not demarcated. For e.g., we seek to do away
with economic inequality but it is not enough to talk about which form of inequality is being
spoken about. But what it means to be equally is what is the sphere where socialist would
differ from communist or capitalist. But as we progressed, socialist policies were being
maintained even though we were opening up economy but nowhere explicitly was India a
socialist country.

Socialism and communism-idea reflected by Marx and he differentiated the terms. He

considered S as a means to C, and both were considered as separate stages of development.
As part of the revolution, first comes S and then comes C. S stage of eco distribution is where
means of production is collectively held by workers of society and distribution of this
collective output will be articulated as per “to each acc. to his labour”. When it talks about
equality-receive as much as you contribute. This plays an essential role in the distribution of
resources. So, the labour input is what is focused on.
C talks about distribution in context of need-to each acc. to abilities and to each acc. to needs.
The idea of need per se is not represented in socialism in distinction made by Marx. “From
each according to his ability, to each according to his needs”.
S is more concerned about contribution, C is more concerned about need of individual. Let’s
assume everyone’s needs are met by keeping forces of free market independent of
intervention are dictating distribution, then S would not have problem with free market. In
technical terms, S and C are viewing 2 different ideals/purposes when talking about
distribution schemes, but if free market was to take both of them into consideration, as long
as the ideal is being met.
Emphasis in S is freeing from exploitation-everyone getting as per contribution. Distribution
also has to account for needs in C.
Take for 5th Nov.

6 November, 2020
Indian PoV-model of governance adopted-differentiated socialist, capitalist and communist
form of govt. How freedom of trade has been incorporated in India. How free trade is viewed
in India. Commercial and economic rights in India have been limited, freedom in this regard
does not exist in absolute sense. Right of property is not strictly there and we have a
balancing of economic right with public interest in India.
An important question in this respect is how to do we view freedom of trade? We know
GATT views it as freeness in terms of intra-boundaries’ restrictions. It looks at trade in terms
of transferability of goods from one-member state to another with restrictions provided. It
looks at integration in respect of trade policies at an overarching level. Balancing individual
country’s choice with a harmonized framework. But when we talk about freedom of trade in
India (Art. 19 (1)(g)) it is understood as a right and it is a different paradigm altogether.
Freedom of trade is looked at a fundamental right- “protecting a right” rather than integrating.
Protecting an individual from society’s arbitrary action. Article 301 of Constitution also talks
about freedom of trade. But here it it’s not used in context of right of an individual, but is
providing for a mandate against the state to free its trade with respect to each other and even
within a particular state. Here it is in context of integration and not FR. Freedom of trade thus
exists in
1. concept of right under Art. 19 (understanding of which lies in freedom from arbitrary
action of majority)
2. Art. 301-different concept-we are freeing the trade from any kind of arbitrary restrictions-
movement of commodities within a state or from 1 state to another-to have an integrated set
of regulations to govern trade and commerce. Ideal of harmonisation is again reflected within
constitution.
Another interesting aspect is restriction in 19 and not in 301 and 19 explains to whom right is
available, 301 is silent on that aspect (so citizen is not the only 1 here). Another thing is when
freedom of trade is being spoken about in 19, they are not explaining in what sense freedom
of trade is being spoken about, which is explained in GATT mechanism through
goods/services angle, etc. subject matter of ambit of trade is not defined in our Constitution.
Q. Does that mean everything and anything as long as it is matter of exchange can be covered
under definition of trade?
A.
1. Since there is no limitation provided to the term “trade”, we can very include everything
and anything under it.
2. If we were to have a broad def. of “trade”, it would mean constitution is not making a
judgement with respect to a transaction being entered into. So, unless and until state goes on
to enact exercise power under exception, you cannot limit a transaction. This is a very
slippery argument. If this were to be a construction, then even say a contract killer would be a
trade transaction (lol). This would essentially treat a contract killer as a teacher/professor-
difficult to conclude this understanding!
Given socialist underpinnings, we have touched certain ideals and have differentiated good
and bad-in our constitution. There are some other eco transactions which have not been given
any weight as against some ideals which we consider important to be achieved.
Case law on this point-whether Art. 19 and 301 encompass every product
(SC) State of Bombay v. R MD Chaugarbala-matter of gambling can be considered trade?
There was a petitioner A-promoter of Co. B and he was running lottery business in Calcutta.
He also had his transactions in Mysore & Bombay also. Co. used to publish lottery in a
newspaper and lottery ticket selling was involved here. A sales tax was imposed by state of
Mysore on the co. the profit margins reduced due to taxes. Similarly, tax in Bombay against
sale of lottery ticket, finally situation was so difficult that petitioner could not function due to
tax. He filed an appeal that these taxes being imposed are against his freedom of trade under
Art. 19 and 301 as it tantamount to restrictions against freedom of trade.
 While discussing this case, court looked at restrictions-whether it can qualify as a
reasonable restriction under the constitution?
 In passing, it also went on to explore whether first of all selling of lottery ticket as a
matter of gambling-is it a good for purpose of trade?
 Whether each and everything which is matter of economic transaction-is a matter of
trade and commerce? Especially if transactions go against socialist underpinnings of
constitution!
Held-gambling should not be construed as trade. With respect to distribution of resources,
there are certain resources which should fall outside of distributive scheme in context of trade
and commerce.

H Anraj v. State of TN-did not specifically overrule above judgement, but did reverse
judgement on sale of lottery ticket to be considered as a good (as against previous
judgement). Did not accept nor deny aspect of whether it should be part of trade and
commerce.
Facts involved State of TN imposing sales tax on lottery tickets in the state on the dealer.
Question before court was whether sale of lottery ticket can be considered as a good. Needs
to be a good for sales tax to be imposed. It also has to be tradeable in nature for tax to be
imposed. Q was whether restriction is going against confines of Art. 301. Court said sale of
lottery ticket is an invitation to participate in lottery scheme-it is a good-it can fall under Art.
301’s scheme. But restriction is justified under Art 304 (A)-allows state to impose restrictions
based on certain requirements.
Although we have ideal of freedom of movement, we are not exactly in favour of freedom of
trade -in that perfect sense-India has more balance with other ideals and focus is not just on
free trade.

Difference b/w India and US Constitution (Commerce Clause)-CC -state has right to regulate
commerce b/w states and union but no explicit mention of limitation or exception provided,
similarly in Australia. But in India, integrated trade-Art. 301-but subjected aspect of trade
both under Art. 19 and Art. 301 to certain powers of the parliament. Art. 301 imposes
obligation on state to not disturb trade and commerce within states and b/w states.

9 November, 2020
Inter and intra state freedom of trade-Art. 301, Constitution of India. Largely powers with
Union and not state to restrict freedom of trade in exceptional circumstances. Why is it that
power is with Union and not states because it concerns intra or interstate trade? Art. 304
empowers legislature to impose restrictions. For a state legislature to impose any restrictions,
they have to be approved by the President. Thus, scheme is heavily bent towards empowering
Union govt. the rationale behind this has been reiterated in judgements.
Automobile case-J. Subba Rao-clarified that as far as scheme of Art. 301 is concerned, it is to
ensure economic integrity of nation is maintained. Drafters were scared about how states
would function as per own needs and requirements and wanted to ensure regional intricacies
do not affect national growth and development. Thus, wanted unity to be maintained-
culturally and economically. Thus, ultimate power to regulate trade was given to the Union
government. Part XIII also allows states powers but subject to final vesting of powers with
Union. Public interest-Union is supposed to protect. States are also bound by assent of
President (Union).
(end of course)
Revision now!

10 November, 2020
Debate b/w Justice and Efficiency-justice model v/s efficiency perspective. For justice
model-Osen Suttle. Justice from a libertarian POV-how international trade -inherent conflict
b/w autonomy and coercion-beginning point. Art. 3, 1, MFN principle, non-reciprocity-
GATT.
Distributive concern-basic purpose
Identity v/s conflict
Resources collected together-expectations from distributive arrangement-how to go about
justifying a social arrangement, what kind of societal and political conditions are required.
Once we have decided to form a multilateral arrangement for ourselves, the large question
remains -rules of game-how to distribute within trading regime. 2 questions that arise within
process-can we have a pattern where all members are equally responsible to state. Can we
even have a distributive model and how would it look like in global context?
Objections against having the need for justice at a global level-arguments where scholars
were of the opinion, distributive justice concerns cannot arise-so entire need to have
distributive justice arises from a pre-existing relationship of coercion. A state commands
certain amount of obedience from subjects-taxation for example. Now if we take this scheme
as an instance, a need to distribute these resources arises because a state when taxing
members coerces them and exercise some amount of power on them. A lot of people who’re
sceptical about it as there is 0 amount of coercion in the international set up. So, the need to
justify should not even arise. A number of provisions which allow states to impose
tariffs/quotas-basic point which scholars want to make is the amount of coercion imposed by
international organisations. The crux of the mater lies in how Intl. orgs can justify coercive
measures. For this criterion of EGC has been proposed. This provides for an egalitarian
basis/concern for international context. (so, question will be related to coercion essentially)
Why has John Rawls adopted difference principle because he’s trying to justify measures to
those who are least advantaged. Ultimately even though there are egalitarian concerns that
can be raised from his model, but he is a libertarian, the formulation may be different. Nozick
is also a libertarian, but their methods of proposing for it are different. Self-autonomy of an
individual and how it can be respected are different. Entire argument is centred around how
to justify state measures. Immanual Kant/John Rawls, especially Kant-takes contractarian
principles. Kant links aspects of rights and duties with consent (even Rawls does similar
thing). Why or how can state be unequal? No, state is not illegitimate in being unequal in a
manner. Difference principle ensures that at the end of the day-whatever is being distributed-
goes into equal share. Individual as an end should be protected. Most of the critics of
distributive scheme in international regime.
ETM can be justified as long as it provides for equal distribution of economic rights and
opportunities such that they fulfil demands of self-determination. ETM may disturb the
quality of opportunity-but should be justified to be in the ends of self-determination. State is
in a position to justify itself to outsiders-that is the reason behind EGC.
Protectionism v/s non-protectionism-requirement of justice differs from
1. Requirement of GATT is there to ensure restriction balances state coercion with self-
autonomy.
2. How well can general welfare be justified.

12 November, 2020
(revision of Ossen Sutell article)
13th November, 2020-sir did not teach
Missed on 16th November, 2020