International trade explained

Several of Holman Fenwick Willan's practice areas work on matters related to international trade. Here's the lowdown on the sector.

The basics

At its heart, international trade is all about goods and services getting from A to B – with A and B being different countries. Just like commerce occurring within a country, international trade is governed by contracts: but with goods and services delivered across international borders, which country's law governs the contract? Under international law, the parties involved can specify which country's law will govern their contract and which country's courts will rule on any disputes. The same country doesn't have to be chosen in both instances: in theory, the contract could be governed by the laws of A, with disputes being heard in B's courts. Parties are also free to pick the laws of a completely unrelated third country.

What if B doesn't want to let A's goods into the country? If both countries are members of the World Trade Organisation (WTO), then a lawyer's role can be somewhat limited. If, for example, they're representing a company from country A, whose goods are being blocked from entering country B, then legal action can't be brought on behalf of the client directly. Only member states can access the WTO's dispute resolution mechanism, so the company in question would first have to lobby A's government to bring a case against B.

Dealing with disputes

Such disputes take a different course if there's a multilateral trade agreement in place. These can be: simple agreements that regulate trade between two states; complex treaties that set up international trading organisations like the European Union; or even agreements between different international bodies. Unlike the WTO system, most multilateral trade agreements include an Investor-State Dispute Settlement (ISDS) clause, which allows private entities (like the company above) to initiate disputes against state parties directly. Instead of being heard in a state's court, these disputes are resolved via arbitration. This effectively provides investors with a neutral forum in which to air grievances, but as a method it's also courted a fair amount of controversy: the hearings are often closed to the public, and critics claim that well-resourced corporations can abuse the system to thwart the adoption of policies they dislike.

Yet the use of ISDS clauses has proven popular: over half of the world's countries have been sued under them since 2000. And it looks like they're here to stay – proposed free trade agreements between the EU and the US and Canada include ISDS clauses, though the controverial US-EU trade deal, the Transatlantic Trade and Investment Partnership (TTIP) now looks like it may be dead in the water. Most of such trade agreements aim to virtually erase tariffs – which impose taxes on imported goods and alleviate other restrictive mechanisms (like quotas) to help increase trade between the two.

Brexit Britain

International trade is one of the practices most affected by Brexit. Previously, international trade law has not been much of a major area of work for lawyers and experts from Whitehall to the City – Britain's trade deals were all negotiated via the EU by Brussels Eurocrats – but that may be about to change. Post-Brexit Britain is set to go it alone and will have to (re)negotiateinternational trade deals that it previously enjoyed as part of the EU. This will mean negotiating new free trade agreements (FTAs) with both the EU itself and countries with which the Union already has FTAs which range from Switzerland and South Korea to Vietnam and Colombia. Recent speculation points towards the adoption of an FTA with the EU similar set up to that of Canada's free trade agreement, but exactly what can and will happen on this front remains to be seen.

The need for all these new trade deals creates a headache-inducing morass of complications for the EU's future trading relationships with every other country in the world. Suffice to say that international trade negotiators and lawyers will have to jump in to explain to both the government and businesses what the options are. For more detail on this we recommend reading this excellent briefing note written by former deputy prime minister and trade negotiator Nick Clegg, who is now EU spokesperson for the Liberal Democrats in parliament.