Sources of International Trade

Sources of International Trade
An international trade or an international business transaction, although involved in by states,

traders or any other actors, could be governed concurrently by several legal sources, such as
domestic law, and international law (including treaties, international mercantile customs and
usages, international cases) and other means.
Domestic Law
A. Various Sources of Domestic Law
Domestic law is very important in international legal practice. Domestic law in question, as
separate from international law, includes law of foreign countries. In reality, the understanding
and application of laws of other countries are always a ‘nightmare’ for both international traders
and lawyers.
The sources of domestic law are various and it could focus on some followings.
1. Legislation
Ancient international trade and business rules were created in order to protect foreign merchants
and govern international transport in goods. The first written rules existed in the Hammurabic
Code (2,500 BC), in which were stipulated the protections for foreign merchants and the breach
of contract issue.
In general, domestic rules applying to domestic business transactions would concurrently apply
to international business transactions. Besides, since states need to protect its national interests in
international trade and business transactions, it should regulate policy such as on trade in goods,
and on trading partners. Concretely, which goods/technologies would fall into the lists of
prohibited import-export or restricted import-export? Which trading partners would not be
beneficiaries of preferential treatment? Should it strictly regulate the strong foreign currency
transfers abroad? In which sectors should it restrict FDI?
2. Domestic Case Law
Another source of domestic law concerning international trade and business transactions is case
law. The case United City Merchants (Investments) Ltd v. Royal Bank of Canada [1983] passed
by an UK tribunal clarified the fraud exception of the principle of autonomy of the credit in the
field of international payment.
3. Other sources of domestic law
Domestic law includes national mercantile customs and usages as well as general principles ‘in
foro domestico’. These are the general principles found in domestic law and accepted by all legal
systems. It originated usually from Roman law or was formulated in Latin, such as ‘non bis in
idem’, ‘nemo judex in propria causa’, ‘ex injuria jus non oritur’, etc. Besides, the principles of
due process, proportionality, non-retroactivity, etc are quite familiar with most legal systems all
around the world.
Limits of Domestic Law in Governing International Trade and Business Transactions
The effect of the domestic law of a state is usually limited to governing acts done by subjects
who are its citizens and performed in its territory. The limit of domestic law in governing
international trade and business transactions sometimes conflicts with the issue of the
extraterritoriality of jurisdiction. The extra-territoriality of jurisdiction issue frequently leads to
incidents in diplomatic relation.
2. International Law
A. International Mercantile Customs and Usages
1. Concept of International Mercantile Customs and Usages
International mercantile customs and usages are a very significant legal source of International
Business Law. Traders, driven by economic goals, have always spoken in a common language,
that of international mercantile customs and usages. International mercantile customs and usages
could be understood as a whole of unwritten rules generated from the acts/behaviors of
merchants and were considered as ‘the law’ by them.
2. Lex mercatoria (‘Merchant Law’)
The true development of international trade and business law begun since Middle Ages, when
international mercantile customs appeared and developed in fairs in Europe on the late
seventeenth century. During the Middle Ages, merchants would travel with their goods to fairs
and markets across Europe and use their mercantile customs. Over time, emperors allowed
merchants from different countries and regions to use their mercantile customs for dispute
settlement, therefore these customs came into effect. From beginning, lex mercatoria (‘merchant
law’) was an ‘international’ law of commerce, since it existed independently of emperors’ law. It
was based on the general customs and practices of merchants, who were common throughout
Europe, and was applied almost uniformly by the merchant courts in different countries.
Concept of Lex Mercatoria
 Is transnational contract governance with socio-economic as well as legal feature.

 Is to safeguard contract enforcement.
 To create legal certainty for international commerce.
 Based on the principle of party autonomy.
3. International Chamber of Commerce (ICC) and Compilation of International

Mercantile Customs and Usages
The ICC is an international non-governmental organization serving world business. The ICC
plays a dominant role in ensuring harmonization through the compilation of international
mercantile usages for incorporation by those engaged in international business transactions. The
ICC has produced numerous uniform rules, adopted by incorporation into contracts. These fall
broadly into three groups: banking and insurance, international trade and international transport.
Many of these rules are based on what the merchants may have adopted as customs or standard
practices over time for their own convenience. For example, International Commercial Terms
‘INCOTERMS’
B. Treaties
Treaties are dominant source of international trade and business law. There are different means
of the classification of treaties. International trade and business treaties would be bilateral
agreements or multilateral agreements, including global and regional levels.
At the global level, good examples of international trade and business treaties include WTO
agreements; United Nations Convention on Contracts for the International Sales of Goods 1980
(‘CISG’); United Nations Convention on the Recognition and Enforcement of Foreign Arbitral
Awards 1958 .
At regional level, states usually conclude such as Free Trade Agreements, for instance, NAFTA
or Bilateral Trade Agreements etc. Treaties relating to international trade and business law
should have a direct effect or should be ‘nationalized’ into the domestic legal system.
C. International Cases
WTO cases and decisions/judgments passed by international jurisdictions, such as international

courts, international arbitrations, are very important in the legal source system. For example, the
WTO’s case Japan-Alcoholic Beverage [1996] clarified the concept ‘like product’ in litigation
concerning the application of the principle of national treatment, a cornerstone principle of
international trade law.
D. Other Sources
General principles of international law are significant for issues such as those relating to state
responsibility, or to fair and just compensation within the FDI’s field. One of these is the
principle of good faith, which controls the exercise of rights by states. General principles of
international law are, in principle, binding on all states.
‘Soft law’ is popularly mentioned by academics. ‘Soft law’ is rules which are not legally
binding, but which in practice will normally be adhered to by those who subscribe to them.
Examples include, most Resolutions and Declarations of United Nations General Assembly
The ‘Calvo Doctrine’ is a foreign policy doctrine which holds that jurisdiction in international
investment disputes lies with the country in which the investment is located. The Calvo Doctrine
thus proposed to prohibit ‘diplomatic protection’ practice or armed intervention by the investor’s
home country of the investor. An investor, under this doctrine, has to use the local courts, rather
than those of their home country. The Doctrine, named after Carlos Calvo, an Argentine jurist,
has been declared since the nineteenth century and applied throughout Latin America and other
areas of the world.
Although ‘soft law’ has no legally binding force, it would be worth recommending and highly
orienting for law-making by states as well as in the negotiation of international agreements.
It would be not unreasonable for developed countries s to consider that international trade and
business law reflects mainly the interests of developed countries. Lex mercatoria was born of the
Mediterranean Sea trade centre and European fairs of Middle Ages. Although the endeavour is to
harmonize the ‘trade rules of the game’ all around the world.

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Sources of International Trade

An international trade or an international business transaction, although involved in by states,

A. Various Sources of Domestic Law

2. Domestic Case Law

3. Other sources of domestic law

Limits of Domestic Law in Governing International Trade and Business Transactions

A. International Mercantile Customs and Usages

1. Concept of International Mercantile Customs and Usages

2. Lex mercatoria (‘Merchant Law’)

Concept of Lex Mercatoria

 Is transnational contract governance with socio-economic as well as legal feature.

3. International Chamber of Commerce (ICC) and Compilation of International

WTO cases and decisions/judgments passed by international jurisdictions, such as international

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