The Rise of Extraterritorial Regulation

Most of the discussion so far has been about the constitutional parts of Kal’s book, which is appropriate given its title. But the part I found most fascinating has nothing to do with the Constitution. In Chapter 4, Kal tries to explain why the United States began aggressively to apply its regulatory statutes extraterritorially after World War II and not before. He makes a number of important points. First, it was not simply a matter of more transborder effects because of economic interdependence. The global economy was more integrated in 1909 when the Supreme Court decided American Banana than in 1945 when the Second Circuit decided Alcoa. Kal identifies a number of other factors that explain the timing, including the rise of the regulatory state (you need regulations before you can apply them extraterritorially), the decline of formalism in legal thought, and a post-war order in which legal conflict did not lead to military conflict.

I would put more emphasis than Kal does on changes in legal thought, particularly the effect of changes in the conflict of laws, which justified departures from territoriality to judicial minds. Kal downplays the impact of American conflicts law, stating that it “simply reflected prevailing international legal concepts rather than the reverse.” (p. 100). This may be true for the nineteenth and early twentieth centuries, when the Supreme Court had a tendency to adopt and even constitutionalize international concepts of jurisdiction. But conflicts thinking remained an important influence on extraterritoriality from Alcoa to Timberlane, even as American conflicts parted ways with international law. Timberlane certainly does not illustrate the effect of international law on American conflicts—if anything, it illustrates the reverse. A decade ago, I tried to trace the impact of conflicts thinking on extraterritoriality, which those who are interested can find here.

While Kal does a good job of explaining why extraterritorial regulation based on effects did not develop earlier, he is less explicit on why it was initially only the United States that asserted it. American hegemony is not the answer. In the post-war world, the United States would have been no more inclined to go to war with Britain over an issue of extraterritorial regulation than Britain was inclined to go to war with the United States. The answer, I think, lies in a point that Kal makes at several other points in the book (pp. 95, 113-14, 229) but not in this context, the presence of foreign assets in the United States. The ability of any nation to apply its law extraterritorially depends critically on rules of personal jurisdiction and the enforcement of judgments—what I have called the “structural rules of transnational law.” Smaller countries like the U.K. had less ability to enforce antitrust judgments against foreign companies, and so were less likely to regulate them in the first place.

Of course, the United States is no longer the only big country in the regulatory game. For many years the EU has been enforcing its competition law extraterritorially, and China has blocked or conditioned three mergers involving foreign firms in just the first year of its Antimonopoly Law’s operation. The future of extraterritorial regulation is likely to look quite different from the past.