Author Archive for
Tai-Heng Cheng

Cheng Book Roundtable: Should ICJ Judgments Be Effective? (A Response to Professor Brown)

by Tai-Heng Cheng

I am grateful to Professor Brown’s careful summary of the thesis of When International Law Works.

I should, however, make a few clarifying points about my analysis of some international incidents. Professor Brown, with gentlemanly understatement, notes that “some will have their eyebrows raised” by my analysis.

Regarding Loewen v. United States, I confess I am rather ambivalent about the award. In earlier scholarship, I excoriated the NAFTA award. In that dispute, a Canadian company brought NAFTA claims against the United States after a Mississippi court permitted racial biases and other due process violations to infect the trial involving the Canadian company. Nonetheless, the Loewentribunal declined jurisdiction against the United States on highly technical grounds.

In When International Law Works, I revisited the Loewen award to see if it is completely beyond the pale under my justificatory theory. I concluded that if it is true that the U.S. judge appointed to the tribunal had ex parte communications with the U.S. Department of Justice, there can be no redemption for the award.

But if this allegation is untrue, and if one accepts that the tribunal’s legalist reasoning is not contrary to applicable laws (even if it strained their interpretation), then perhaps considerations about the long-term viability of NAFTA, as well as the impact of an adverse decision against the United States under the political climate prevailing at that time, might properly come into play.

Commentary on “Who is the Sovereign in Sovereign Debt?” by Odette Lienau

by Tai-Heng Cheng

My thanks to Opinio Juris and the Yale Journal of International Law for inviting me to comment on an excellent article by Odette Lienau titled “Who is the Sovereign in Sovereign Debt?” 33 YALE J. INT’L L. 63 (2008).

Odette addresses with aplomb the difficult problem of whether a government should be made responsible for the financial debts incurred by a prior despotic government. She accurately points out that this problem implicates two conflicting global policies: “financial workability” and “greater attention to states’ underlying populations.” (p. 110). Canceling debt risks damaging creditors’ balance sheets and credit markets, as well as limiting the state’s access to future capital. But imposing debts incurred by a despot on his victims after he is long gone seems unfair.

Odette looks back to move forward. She reinterprets Chief Justice Taft’s famous 1923 Tinoco arbitration award to propose a solution to balance the needs of credit markets and the formerly oppressed. Taft decided that Costa Rica would remain responsible for sovereign debts incurred by Frederico Tinoco, the former Minister of War who had seized power unconstitutionally. However, sovereign debts could only have been made in accordance with Costa Rican law and for governmental purposes. Thus, Costa Rica was not responsible for concessions that were never properly made under Costa Rican law. It was also not responsible for $200,000 in loans purportedly extended to Costa Rica but in fact lent to finance Tinoco’s trip abroad and an advance payment to his brother. Extrapolating this decision as “precedent for odious debt cancellation,” (p. 90) Odette proposes that governments today should be responsible for the sovereign debts incurred by their predecessor government even if that government was despotic and abusive. The only exceptions would be if the debts had not been incurred in accordance with the state’s domestic laws, or if they were not for legitimate government purposes.

Odette’s careful development of her thesis has many marks of good scholarship: the framing of an international problem; the identification of conflicting policy goals; the study of past decisions; and, importantly, the invention of an alternative approach to promote and harmonize the relevant policy goals. With some modesty, Odette states: “The . . . analyses presented here are insufficient to ground a strong policy proposal.” (p. 110). How might this be so?

Doctrinally, the Tinoco arbitration is not precedent for anything. Arbitrations, being privately sponsored systems of dispute resolution, derive their authority from the consent of parties to the arbitration. Thus, arbitral awards have long been held to bind only the parties and only in that dispute. An award may be persuasive, or even a subsidiary source of international law, as provided for by Article 38 of the Statute of the International Court of Justice codifying the customary law on sources of international law. However, to call it precedent strictu sensu is overstating its legal authority.

Further, contrary to what some scholars have asserted, the Tinoco arbitration does not support a doctrine of odious debt. The Tinoco arbitration concerned government succession, not state succession. The putative doctrine of odious debt could only apply to state succession, not government succession.

In state succession, there are no comprehensive rules as to whether the successor state continues to be bound by the obligations of its predecessor state. Thus, an odious debt doctrine, if it existed, could supply rules governing a narrow category of debt obligations to fill the interstices.

In government succession, international law has long held that a successor government is always responsible for the debts of its predecessor. As Odette reproduces Taft’s invocation of John Basset Moore: “Though the government changes, the nation remains, with rights and obligations unimpaired.” (p. 74).

The Tinoco award is consistent with exclusion of a doctrine of odious debt from government succession. Taft stated that restorationist Costa Rica government was responsible for the debts of the Tinoco government. The successor Costa Rica government was not responsible for the concession in question not because it was nullified by odiousness, but because it was improperly executed under the law applicable to the concession. The successor government was not responsible for the debt incurred by Tinoco for his personal use not because it was a state debt invalided by odiousness, but because it was never a state debt to begin with, even if it was dressed up in sham words to disguise it as such. Under the award, had the Tinoco government incurred debts under Costa Rican law to buy arms or pay soldiers to murder, rape and plunder resistance fighters, the resistance could have found themselves responsible for those debts when they formed the restorationist government.

Ultimately, however, since Odette is concerned with the invention of law, doctrinal irregularities of her proposal under existing law are of less import. What matters most is whether the proposal does what it says it will do.

Here the devil is in the details. Odette states that one advantage of her proposal is that “it presents a coherent framework for understanding internationally valid sovereign action on the basis of a state’s internal rule of law.” (p. 81). But if the rule of law in this context means simply that tyrants will have to enter into loans or concessions with foreigners by complying with proper domestic legal procedures, this proposal does not go very far in protecting the oppressed. One of the hallmarks of tyrants is their ability to change laws to suit their whims.

Another potential advantage of Odette’s proposal is that it is supposed to “pay greater attention to a state’s underlying populations.” (p. 110). When ravaged by a despot, a state desperately needs money: to rebuild its roads; educate its children; care for its injured. There is no nexus between the injustices of the past and the financial needs of the future. Canceling loans that financed oppression in the past does not necessarily account for the impact on access to fresh loans and damage to business relationships. Conversely, respecting debts incurred legitimately does not account for their financial burden on the population. If the policy goal is to stabilize and develop transitional states, then the law we recommend should not fixate on old grievances. Instead, the legal principle guiding renegotiation should focus on the effect of termination or continuity of obligations on the state moving forward.

One of the joys of membership in the international college of jurists, along with Odette and others, is the intellectual exchanges that unite us in the search for better laws. Opinio Juris has enhanced this experience by providing an opportunity here to debate, discuss, and disseminate. I look forward to vigorous responses from Odette and others, after which I hope we will have a drink together.

The Succession of Kosovo and Minimum Public Order

by Tai-Heng Cheng

[Tai-Heng Cheng is Associate Professor of Law at New York Law School. His most recent book is State Succession and Commercial Obligations.]

I am grateful to Roger Alford for inviting me to share some thoughts on the recent developments in Kosovo.

On February 17, 2008, Kosovo’s parliament voted to declare independence from Serbia. This unilateral declaration accelerated the international decision-making process on the status of Kosovo, and requires a collective international response.

As Julian Ku noted on Opinio Juris earlier this week, decision-makers and scholars should examine their “policy preferences” regarding whether to support the succession of Kosovo from Serbia. I would add that should the international community decide to accept Kosovo’s succession claim, international actors should manage the consequences of succession to minimize disruptions to world public order and protect the human rights of all parties involved.

Appraising Kosovo’s Succession Claim. Chris Borgen has accurately pointed out that states have to decide whether or not to recognize Kosovo as an independent state. If I understand Professor Borgen’s post, in his view such recognition is merely declarative and not constitutive. If Kosovo meets the criteria for statehood, then non-recognition does not invalidate its statehood. This view might find some support in the Convention on Rights and Duties of States, concluded on December 26, 1933 in Montevideo. Article 1 of the Montevideo Convention suggests the criteria for statehood: “The state as a person of international law should possess the following qualifications: a ) a permanent population; b ) a defined territory; c ) government; and d) capacity to enter into relations with the other states.” None of these four criteria explicitly depend on recognition.

As a practical matter, however, if a substantial number of states reject Kosovo’s succession claim by withholding recognition, these states would be hard pressed (although not absolutely precluded, if the unique status of Taiwan provides any indication) to enter into diplomatic relations with Kosovo, to conclude treaties with it, or to grant it sovereign immunity independently of Serbia. In such a situation, regardless of whether scholars think Kosovo has become a state, it would not be able to fully function as a state in the international system. The reality is therefore that recognition serves a key constitutive function in the process of succession.

Policy-makers in each state should consider the consequences of granting or denying recognition to Kosovo. The Security Council reaffirmed in Resolution 1244, a Chapter VII decision, an international commitment to “substantial autonomy and meaningful self-administration for Kosovo.” Withholding recognition might encourage Serbia to resist this international decision. Granting recognition would compress the time frame for a negotiated settlement on the international consequences of Kosovo’s succession, thereby probably precluding seamless transition like the disintegration of Czechoslovakia in 1991, or the transfers of Hong Kong and Macau to China in 1997 and 1999, respectively. But it would achieve the policy-goal of providing Kosovo with autonomy and self-administration.

Managing the Impact of Kosovo’s Succession. Should the world community generally accept Kosovo’s claim to statehood, the international community must manage the disruptions to preexisting international arrangements.

There are currently few, if any, crystallized rules regarding the effects of state succession on preexisting international obligations. Every succession has unique variables and intense political pressures that have precluded the formation of customary law through consistent state practice and opinio juris. The Vienna Convention on Succession in Respect of Treaties of 1978 has entered into force, but lacks widespread ratification and binds only its handful of signatories. The Vienna Convention on Succession in Respect of State Property, Archives and Debts of 1983 was so controversial that it never entered into force.

Human Rights. In the absence of international legal rules on succession, Kosovo should rapidly accede to preexisting multilateral treaties, especially constitutive human rights treaties. This would minimize disruptions to the international human rights program, affirm Kosovo’s commitment to prevent the repetition of human rights abuses inflicted on Kosovars, reassure its Serbian minority, and, importantly, confirm its capacity to enter into treaties and its status as a state.

Investment Treaties. Serbia’s Investment and Export Protection Agency reports that Serbia has entered into 34 bilateral investment treaties, including with the USA, UK, Germany, France, Austria, Italy, and Greece. In 2007, it also ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Kosovo should rapidly confirm through bilateral exchanges of diplomatic notes that Serbia’s BITs bind Kosovo, subject to modifications that may be necessary to accommodate Kosovo’s economic circumstances. If the World Bank will permit it, Kosovo should also confirm the continuity of the ICSID Convention. This strategy will help to further consolidate Kosovo’s attainment of statehood, and help minimize disruptions to the international economy.

External Debt. There is also the thorny issue of Serbia’s debt, estimated at $25 billion in November 2007. In the current volatile global economy, markets will need reassurance that this debt will be repaid. In past successions, such as the dissolutions of the Soviet Union and the Socialist Federal Republic of Yugoslavia, creditors have initially proposed that the successor states assume joint and several liabilities for preexisting debt. Eventually, however, they accepted in negotiated settlements proportional allocations of debt among successor states, and substantial debt reduction or rescheduling to accommodate the limited economic capacities of the new states.

Annex VI of the Ahtisaari Plan, to which Professor Borgen has referred in his prior blog post, proposes a negotiated settlement between Kosovo and Serbia. Under this negotiated settlement, “allocated external debt shall become a liability of Kosovo where the final beneficiary is located in Kosovo; non-allocated external debt shall be apportioned to the parties according to a proportional key to be established by agreement between the parties, in cooperation with the International Monetary Fund.” In a statement before the House Committee on Foreign Affairs, U.S. Under Secretary for Political Affairs Nicholas Burns assumed that Kosovo would share a burden of Serbia’s debt. He also noted that that the President’s 2008 budget included $151 million in aid to Kosovo, and anticipated three times that amount in international contributions from other donors.

Kosovo would be well-served by commencing debt negotiations with Serbia’s creditors immediately, regardless of whether Serbia is willing to negotiate with Kosovo at this point in time. This would signal to capital markets that Kosovo is a responsible sovereign state and help ensure access to further funds, which will be critical for Kosovo’s sustainable development. The risk that Serbia’s debts will debilitate Kosovo is limited by the availability of substantial international aid, as well as the trend in recent successions to negotiate debt repayment on reasonable terms. Creditors ultimately have no interest in imposing such onerous conditions that the successor state defaults.

In making these recommendations, I acknowledge Robert Sloane’s warning, in his thoughtful essay, “The Policies of Self-Determination: Harmonizing Self-Determination and Global Order in the Twenty-First Century, 30 Fordham Journal of International Law 1288, 1316 (2007), that policy-makers should not allow a focus on the global commercial dimensions in state succession to “obscure or minimize other fundamental values at stake.” The analysis here of next steps in the Kosovo situation is necessarily preliminary. Nonetheless, I hope I have outlined what Henry Perritt has described in 25 Wisconsin International Law Journal 129 (2007) as “a constructive approach to working out the complicated succession issues embedded in a decision over the final status of Kosovo.”