Author Archive for
Susan Franck

A Response to David Zaring

by Susan Franck

First, I would like to thank David Zaring again for his comments on my essay: Empiricism and International Law: Insights for Investment Treaty Dispute Resolution. I was deeply humbled to read David’s thoughts about both the utility of the essay and the direction of my current research. David’s comments, however, raise a variety of issues worthy of a bit deeper exploration.

I wholeheartedly agree that empirical work in international law is decidedly not déclassé. As a proud alumna of the University of Minnesota Law School, I had the privilege of taking classes with Bob Hudec. I have profound respect for Hudec’s empirical exploration of international trade dispute settlement system and have been grateful to see others continue the empirical exploration of international economic law in the trade context. Perhaps more selfishly, as my research has developed, I have found myself wishing that Hudec was still with us so that I could benefit from his methodological insights related to the analysis of international economic dispute resolution. I would nevertheless hope that Hudec would have been pleased the development of empirical methodologies to areas of international law outside of the trade context. The work of junior scholars such as Oona Hathaway, Elena Baylis, Bill Burke-White, and Melissa Waters spring immediately to mind although there are certainly others engaging in research. In the meantime, I will look forward to hearing the remarks of David Trubek and my co-panelist Juscelino Colares at the forthcoming Society of International Economic Law as they both have critical observations about Hudec’s legacy to empirical assessment of international economic law phenomena.

David also makes an interesting point about how research in international investment law might evolve in the future. I am sympathetic to the reference to Wright & Miller’s recent exploration of content analyses and the value of using rigorous social science methodology to study the content of judicial decisions. No doubt this literature, and its underlying methodological rigor, will aid the evolution of methodological approaches involving the analysis of investment treaty arbitration awards. As the essay also suggests, there are other critical methodological approaches that could be likewise as this area evolves. For example, provided that scholars are sufficiently transparent in the description and analysis of their quantitative research, meta-analysis may be possible. As discussed eloquently in Jeremy Blumenthal’s article Meta-Analysis: A Primer for Legal Scholars, meta-analysis can synthesize empirical analysis across studies in order to summarize the research and identify variables influencing the findings of particular research. These additional methodological approaches only scratch the surface of potential ways to develop international law empiricism. One might even imagine – much like social science counterparts – the development of research methodologists, who are dedicated to the exploration and improvement of empirical methodologies, as a type of international law sub-specialty. But my suspicion is these last two evolutionary advances may be years in the offing.

Finally, in providing the cautionary observation about the need for training, David observes that inter-disciplinary collaboration can help bridge the methodological divide by providing much needed skills in this regard. I decidedly agree with David about the value that collaboration brings on the methodological side and offer two counter-points.

First, there are also practical benefits to be garnered from collaboration beyond methodological insights. Chief among these benefits is: sleep. Empirical research, while rewarding, can take time. The development of datasets can be labor intensive – even with the help of able research assistants (and I have been profoundly blessed in that department with the assistance of Melanie Neely and Jenna Perkins). Working in collaboration with others means that some of the most laborious aspects of empirical research – namely data collection – can be shared. In other words, it means that you are less likely to be sleep deprived and able to work more effectively. (And yes, there is empirical literature in related contexts to back up this claim.) Sharing of such tasks may also mean, provided proper research protocols related to inter-coder reliability are followed, that the reliability of data collection may be enhanced. It also means that research methodology choices can be considered with a view to considering multiple perspectives; and as none of us is perfect, the use of group-think to develop research and analysis can be invaluable. Collaboration also creates research efficiencies. For example, those with an expertise in or aptitude for the creation of graphs, tables and charts can develop them readily. I may, however, say this given my own graduate coursework at the University of Nebraska Law and Psychology JD/PhD program with Cal Garbin on multivariate research design and data analysis (see here and here) and the learning curve I have experienced in the creation of graphs during my work for Cal this summer.

The second counterpoint suggests that there may be a gap to fill within legal education. More particularly, while there are benefits to collaborating in an inter-disciplinary manner, one wonders whether such collaboration may be even more fruitful if legal scholars had access – for example in law school – to methodological classes to provide basic training. There are certainly useful programs for professors such as the Northwestern/WashU “bootcamp” or programs for quantitative methods at the University of Michigan, University of Essex or the European Consortium for Political Research’s program at the University of Ljubljana. Nevertheless, the essay explores the unique benefit of systematically providing the next generation of research assistants, lawyers and law professors with training in the law school context. Some law schools, such as Berkeley, Cornell, Harvard, Illinois, Leiden University, Northwestern, Penn, Stanford, University of Chicago, Vanderbilt, Washington University, and Yale have classes related to the empirical methods and the law (and apologies for the lack of a complete list in this regard for other law schools with separate courses focused on empirical methods). A casebook with an accessible teacher’s manual, such as the one being developed by faculty at the University of Illinois, goes a long way to filling this particular gap in U.S. legal training. I understand Empirical Methods in Law (Aspen, forthcoming), written by Bob Lawless, Jennifer Robbennolt and Tom Ulen, should be available for Fall 2009; and based upon the draft chapters I have seen, I am looking forward to getting my copy.

Ultimately, if we are willing to take on the challenge, we are at the first step of a journey of empirical assessment of investment treaty dispute resolution. There are inevitably places where we can grow and develop in collaboration or consultation with others. And that, at least in my view, is certainly a worthy undertaking.

Empiricism and International Law: Insights for Investment Treaty Dispute Resolution

by Susan Franck

[Professor Susan Franck is Associate Professor of Law, Washington & Lee University School of Law. Please find her SSRN author page here.]

First, I want to take the opportunity to thank the editors of the Virginia Journal of International Law and Opinio Juris for an opportunity to discuss my recent essay, Empiricism and International Law: Insights for Investment Treaty Dispute Resolution. I would also like to thank David Zaring in advance for commenting on the essay. I look forward to a thoughtful and provocative discussion.

This essay develops ideas implicit in the work of certain international law, international relations and empirical legal scholars – namely that there are areas of international law deserving of and ripe for empirical analysis. More particularly, the use of empirical methodologies can create new facts, offer different perspectives and promote a more nuanced analysis of international law phenomena.

The potential benefits of such an epistemological approach are easily understood in the context of international investment law and dispute resolution.

The President of Bolivia, Evo Morales, has suggested that the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) is an international organization where no country, except perhaps the US, will ever win. The International Herald Tribune quotes Morales as saying “Governments in Latin America and I think all over the world never win the cases. The transnationals always win”. Although this assertion was used to justify Bolivia’s withdrawal from ICSID, quantitative data flatly contradicts Morales’ allegation.

Meanwhile, a March 2008 story in the Financial Times, referred to investment treaty arbitration awards involving: (1) “hundreds of millions of dollars in compensation,” (2) a claim by Mobil for “billions of dollars,” and (3) Bolivia’s “loss” in a case against Bechtel. Empirical information aids the contextualization of these claims. It is useful to consider that: (1) the average value of awards in one study was in the order of US$10 million, (2) the difference between amounts claimed and awarded was in the order of US$333 million, and (3) Bolivia’s “loss” at the jurisdictional phase actually resulted in a settlement where the investors dropped their claims and were paid nothing. Meanwhile, issues related to international economic law – particularly trade and investment – are becoming a focal point for politicians and the public.

Against this backdrop, this essay does three things to consider the potential integration of empirical methodologies into the analysis of international investment law and dispute resolution.

First, it explores the historical relationship with international law and empirical methods. Acknowledging the re-integration of international relations and international law as well as the increased appreciation for empirical legal studies in domestic law contexts, the essay suggests that the mutual interest in empirical methodologies – broadly defined – could be developed further. For example, this might involve international lawyers drawing upon the methodological debates and insights from the empirical legal scholars and adapting them to analyze international law phenomenon; likewise, empirical legal scholars can gain new areas of research that may provide a useful counterpoint to study of domestic (whether in the U.S. or broad) legal phenomenon.

Second, the essay adopts Professor Korobkin’s definition of empiricism and argues for a broad understanding of empirical methodologies in international investment law. The essay posits that quantitative, qualitative and mixed methods may all be usefully applied to the analysis of investment treaty dispute resolution and encourages debate on how different methodologies might be suitable for different research questions.

Third, the essay argues that the benefits of using empirical methodologies outweigh the costs and suggests five steps for developing an empirically infused research agenda in investment treaty dispute resolution. These steps may include, but not be limited to: (1) building research capacity, (2) obtaining data, (3) designing research methodology, (4) conducting research, analyzing the results, and contextualizing the findings properly, and (5) disseminating the results to stakeholders for consideration.

As befits an essay, it concludes on a note designed to spark conversation as much as it is to articulate a particular position. In particular, the essay argues that while empirical methodologies may not work for every research area or question, the use empirical methodologies can infuse international investment law with information to inform normative choices. Particularly for investment dispute resolution, systematically gathered and properly analyzed empirical data can correct misperceptions about existing dispute resolution processes, permit considered analysis of legal issues affecting the public, and could – for example – facilitate informed decisions about the negotiation and revision of investment treaties.

Particularly in the United States, Latin American countries such as Ecuador and even in Norway, there is a hot political dialogue about the proper terms of investment treaties. The issue is sufficiently compelling that the American Society of International Law’s International Economic Law Interest Group is going to be hosting a conference in November 2008 to discuss the intersection between the political dimensions of the debates about trade and investment. (A previous Opinio Juris post is here, and the call for papers is here.) Given this context, there is particular utility in examining what opportunities there might be to infuse scholarship with empirical methodologies to generate information that can form part of a dialogue to promote a more informed discourse on international investment law.

It is too early to know whether the approach I recommend will provide utility in the long run. There are inevitable challenges and practicalities that will be difficult to ignore that we might discuss here in greater detail. Nevertheless, I do believe that there is tangible, potentially useful research that can be done with relative inconvenience in the short term. These small, foundational projects can form the basis for replicating, developing and converging research in the hopes of ultimately creating a more dynamic and informed tapestry of international investment law. And after all, if we do not at least try, we will never know what might have been.

Investment Protection in Extraordinary Times: A Response

by Susan Franck

The recent article by Burke-White and von Staden raises critical and timely issues about international economic law and treaty interpretation. The paper acknowledges challenges posed to the institutional legitimacy of investment treaty dispute resolution (which I have written about elsewhere) that are caused by different tribunals coming to different interpretations of the same or similar treaty provisions. It also considers the difficulties for international law when tribunals interpret treaty provisions in a manner that negates agreed areas of state responsibility and instead shifts to an analysis based on customary international law. In a day and age when rights-based adjudication depends on the interpretation of negotiated international agreements, these concerns are no small matter.

Using the Argentinean economic crisis of 2002 as a launching point, the article makes an important contribution to the doctrinal evolution and emerging jurisprudence related to international investment agreements. The paper offers a balanced analysis of Non-Precluded Measures (NPMs) provisions in investment treaties, which arguably permit states to use their police powers to regulate without imposing treaty-based liability, and contrasts this with the necessity defense customary international law. While acknowledging a similarity between the legal issues, Burke-White and von Staden explain the micro and macro implications of confounding the lex specialis analysis of the terms of an investment treaty with the interpretation of the necessity defense under customary international law. The article convincingly argues that tribunals, parties and policy makers ignore the distinction between these different concepts at their peril.

Rather than leaving readers without a paradigm for the future, the article provides a useful framework for analyzing NPM provisions. The analysis calls for a particularized consideration – on a treaty by treaty basis – of: (1) the nexus between the state action and a treaty’s particular scope [i.e. does the NPM clause require state action to be “necessary for” or “directed to” a particular end], and (2) the permissible objectives articulated by the treaty [i.e. “security” or “public health”]. Acknowledging state conduct may require independent evaluation by an arbitral tribunals, a more controversial aspect of the article argues that tribunals should use the European Court of Human Rights “margin of appreciation” to grant deference to a state’s internal determination of what circumstances fall within the scope of an NPM clause. As applied to Argentina’s financial crisis, this could mean that tribunals give a degree of deference to Argentina’s determination that the civil unrest related to its economic situation from 2001-2002 (that included a run on the banks, violent protests and the imposition of a state of emergency – see here) created a state of emergency covered by the NPM clause. The article also contains a useful flow chart [p86] that recommends how future tribunals should approach issues related to NPM clauses and necessity.

I often find that a quality, well-written and thought-provoking article leaves me with more questions than when I started. This article exemplified that experience. It left me wondering about the proper intersection of international economic and human rights law. It caused me to question the proper role of canons of construction in light of the Vienna Convention. I could go on. But for now, I will confine myself to three issues that intrigued me, perhaps because of my own scholarship and experience in practice with investment treaty dispute resolution.

First, the authors describe international investment agreements as risk allocation devices. While they may not intend to suggest this is the exclusive function of investment treaties, the analysis does not consider other potential purposes of investment treaties. Treaties also serve to signal a host state’s interest in foreign investment; and treaties can provide an incentive for domestic reforms that expand the “rule of law enclave” (see here) from an international investment agreement to the domestic setting. Framing investment treaties as a “risk allocation device” alone could improperly suggest that investment treaties are akin to a form of insurance. The merits decision in Maffezini emphatically disputed this point and explained it “must emphasize that Bilateral Investment Treaties are not insurance policies against bad business judgments.” [Para 64] If investors are really looking to manage their investment-related risk more effectively, perhaps the key is to procure more appropriate political risk insurance rather than relying on the potentially uncertain adjudicative outcome of arbitral tribunal (or other type of dispute resolution). Given the uncertainties of adjudication exemplified by the Argentine cases, one might reasonably expect that investors will take these risks into account and extract a financial premium for future foreign investment. As a result, one wonders whether the substance of the article’s analysis would change if other functions of investment agreements came to the fore.

The authors also construe NPM clauses as an “exception” to liability. [p80] One wonders whether this is the case in all treaties. If, for example, a treaty’s NPM provision were structured as an exclusion from liability (rather than an exception), perhaps the analysis of an NPM provision would be different. Although the results may be functionally equivalent (i.e. a tribunal renders an award that either obligates a state to pay or not), the distinction could be important. The general default under customary international law has been that, except in particular cases (state agreement to be bound, violations of the minimum standard of treatment, jus cogens and the like) states are not liable to individuals for their conduct. This means, prior to creating an affirmative liability on behalf of a state through a treaty and a forum for enforcement, the default is sovereign immunity. This means that investors should generally expect to carry the risk of investments and take precautionary measures – such as the purchase of political risk insurance or engaging in other risk diversification strategies. It also means that where states have excluded coverage of the substantive rights through an NPM clause, no affirmative cause of action accrues under the lex specialis of the investment treaty. This should mean that, unless an investor is alleging that a cause of action under customary international law, analysis of the affirmative defense of necessity under customary international law should be unnecessary. Irrespective of whether an NPM provision is an exclusion from or exception to liability, the authors usefully explain that: (1) a lex specialis exclusion should be analyzed separately from customary international law, and (2) a proper textual understanding of these matters is critical to the international economic legal order and sovereignty of states negotiating investment treaties.

Finally, as the article’s title suggests, the Argentinean situation does seem somewhat extraordinary. One wonders therefore how representative the Argentinean experience is of the investment treaty dispute resolution in general and the interpretation of NPM clauses in particular. The later is harder to ascertain, as there does not yet appear to have been extensive interpretation of these clauses in other cases. Nevertheless, the former is somewhat easier to assess. Preliminary analysis does suggest that Argentina’s experience may be akin to a statistical outlier (see here). If Argentina’s case is not representative, it may be that we are less concerned about the collateral effects of the current situation. Nevertheless, as hard cases can still make bad law, even statistical outliers offer information about institutional integrity that can be used to formulate structural improvements.

Ultimately, this article is a must-read for those who are interested in international investment agreements and the potential defenses that host states can raise in connection with investment disputes. Its framework for future analysis is worthy of attention by scholars, lawyers, arbitrators and policymakers who have an interest in ascertaining the scope of governmental authority and the balance of interests with the rights of private investors. I am grateful to have been selected as a commentator for this article, as it has provided me with an excuse to delve deeply into an excellent paper that involves an intellectually stimulating issue with implications for the real world.