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Trade, Economics and Environment

Legally Distinct Corporate Entities and Agency Theory in Bauman v. Daimler AG and Kiobel

by Kenneth Anderson

Guest commentary here at OJ by Adam N. Steinman (Seton Hall) on the Supreme Court’s oral argument in Daimler AG v. Bauman, along with earlier comments on the case by John Bellinger at Lawfare, have been helpful to me – no expert in civil procedure, certainly – in understanding issues of jurisdiction in Daimler, Kiobel, and other such cases.  As Professor Steinman notes, although Daimler is an ATS case, the question for SCOTUS argument is much broader than merely the ATS statute alone.  The Court’s question runs to the kinds of contacts necessary to sustain jurisdiction not just across borders, but across legally distinct (though, through share ownership, economically interlinked) corporate entities that make up the contemporary multinational enterprise:

“[W]hether it violates due process for a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum State.”

This is a different question from that presented in Kiobel, which addresses so-called “foreign-cubed” ATS cases. It is instead to ask when it is proper for a US court to find jurisdiction over a foreign corporate entity on the basis of of a US corporate subsidiary.  Chief Justice Roberts flagged the importance of this further question at the very end of his Kiobel opinion, which relied upon the presumption against extraterritoriality; for something to “touch and concern” the United States, he said, sufficient to satisfy jurisdictional requirements under the ATS, contacts would have to be more than mere corporate presence.  Corporations are often

present in many countries, and it would reach too far to say that mere corporate presence suffices … a statute more specific than the ATS would be required.

Daimler offers a case premised on this issue.  What contacts, activities, and relationships across legally distinct corporate entities suffice?  What is merely “mere” and doesn’t? The Ninth Circuit’s ruling in favor of jurisdiction over Daimler AG (a foreign corporation – not its US, Delaware-chartered corporate subsidiary) relied upon an agency theory that had the effect, with respect to jurisdiction at least, of disregarding the separation of distinct corporate legal entities in favor of treating the multinational enterprise as a unitary enterprise.  The agency theory permitted the Ninth Circuit to find, in turn, “general jurisdiction” over Daimler AG.

Professor Steinman gives a much more nuanced account of this, but at a crude level, it’s a two-step process using agency theory to disregard the legal walls between corporate entities, and then a “general jurisdiction” assertion over the whole enterprise.  This means, however, that if the Court is inclined (as observers widely think it is) to rule for Daimler, it has a variety of ways and places where it could fault the Ninth Circuit’s steps to general jurisdiction, some broader than others.

In an essay on Kiobel for the most recent Cato Supreme Court Review, I remarked that it might turn out the real work of the Chief Justice’s Kiobel opinion might be done, less by the presumption against extraterritoriality, than by the answer to final, dangling question: how much “corporate presence” is enough?

In earlier days, ATS plaintiffs didn’t see themselves having to worry about questions contacts with the forum, jurisdiction over persons or the territorial locus of activities.  Jurisdiction was satisfied by having (only) a foreign plaintiff and a violation of the law of nations or a treaty of the United States. Sosa v. Alvarez-Machain put some (delphic) limits on the nature of the “law of nations” violations that had to be at issue, but those were in terms of subject matter, not where the alleged violations took place or by what kind of a defendant. Kiobel made territory, contacts, presence, nationality of defendants an issue running beyond beyond Sosa‘s subject matter constraints.  I added in my Cato essay, comparing Kiobel to Daimler:

[T]he questions [in Daimler] are not the same as an acknowledged “foreign-cubed” case [Kiobel] because at issue is whether and what contact are sufficient to establish perosnal jurisdiction.  Bauman [v. Daimler AG] is really an attempt by the plaintiffs to turn a foreign-cubed case into one by which agency theory provides a path to finding personal jurisdiction – and thus is no longer entirely “foreign” or premised purely on “universal” considerations.

Analysis and discussion of these ATS cases has mostly been in terms of cross-border jurisdiction. I’m pretty sure corporation law scholars have not taken note; I teach both Business Associations and International Business Transactions and don’t see stirrings among scholars of business organizations.  It’s tangential to corporate law, at one level, of course. Still, just under the surface of the jurisdiction issues is a question about the robustness of corporate form. (Note: Since posting this, I’ve been reading more extensively through the amicus briefs – the corporate questions were thoroughly discussed there, and they do show up throughout the oral argument; I’ve added one quotation from Justice Breyer in the oral argument, below.)

How much legal separation (that is, legal insulation) does legally distinct corporate existence confer, whether for purposes of jurisdiction or liability? Seen from within corporation law doctrines, the question is one of piercing the corporate veil, at least to get at other corporations that have links to each other through share ownership, even if not to get to ultimate shareholder-investors. The opening questions from Justice Scalia to the Daimler AG counsel ask, after all, about the legal effects of the “corporate form” (not corporate forum, as the initial oral argument transcript puts it). Late in the argument, Justice Breyer says to counsel to Bauman (the Argentine plaintiffs in the underlying ATS suit):

You’re seeing it through the lens of jurisdiction. I’m not. I’m seeing it through the lens of corporate law. Five shareholders get together from outside California and they set up a corporation in California. Why? To insulate themselves from liability, particularly lawsuits. Now, instead of those five shareholders, everything is the same, but now it’s a German corporation and suddenly, they can’t insulate themselves from the lawsuits in California. I think it unlikely that California would have such a corporate law, whether it goes by the name of jurisdiction or some other name. But that’s a State law question. So what am I supposed to do?

As I remarked in my Kiobel essay, Daimler AG is an attempt by plaintiffs to

sidestep the formal doctrine of legal separation of corporate entities; it asserts a view that multinational corporate enterprises are to be treated as essentially one economic entity.  This is, indeed, a plausible view of their globally unitary economic substance, but by arguing for economic substance over legal form, it renders impossible any real legal principle for why any particular national court should or should not hear a case.

Not to mention (as I forgot to do in that essay) that this agency theory would seem to be equally fatal to any legal form over economic substance basis for respecting corporate forms in US domestic settings as well – and that does not seem likely to be a result embraced by US courts any time soon. Justice Sotomayor asks why this case shouldn’t be settled on the economic substance over legal form argument of tax cases dealing with attribution of income; the response – correct, in my view – is that tax cases have consistently been viewed very differently from personal jurisdiction cases.  But the oral argument in this case leaves me wondering whether the next rounds of cases in the ATS and cross-border jurisdiction areas might be less about jurisdiction as such, and more about the strength of the walls that separate corporate entities across borders – at least as an essential underlying predicate to the jurisdictional issues as such.  How much will the corporate form be respected in establishing jurisdiction in cross border cases?

The broad agency theory embraced by the Ninth Circuit in Daimler will be swept away – I can’t imagine that it won’t – but there can much more nuanced approaches to it. The federalism issues of Daimler are complicated, certainly, and might mix up easy predictions about how justices will view the issues, certainly; they touch not just federal jurisdiction issues but also questions about state corporation law (including state-to-state issues, given that the US subsidiary is incorporated in Delaware).

Though I happen to think that there might be circumstances in which corporate form should not necessarily be treated the same in domestic situations as cross-border ones, I’m think the Court should not shift the understanding of the corporate form or increase – in the context of global investment and business activities – uncertainties surrounding its legal protections.  Certainly, judging by the amicus briefs, the United States’ trading partners abroad do not want to see increases in uncertainty over the separation of entities, whether in jurisdiction or liability.  On whatever ground the Court rules, however, broad or narrow, I’m pretty sure John Bellinger is right to say that the Court would not have accepted the case unless …

it plans to reverse the Ninth Circuit.  Conservative justices are loathe to miss an opportunity to try to curb the Ninth Circuit’s consistent efforts to be a world court, and the more liberal justices may have wanted to demonstrate (as Justice Breyer argued in his concurrence in Kiobel) that the extraterritorial reach of the Alien Tort Statute can be limited by other jurisdictional restrictions.

Book Symposium Investment Law: “Investment Lawyers are from Mars, Human Rights Lawyers are from Venus” – Comments on Hirsch

by Andreas Ziegler

[Andreas Ziegler is Professor at the University of Lausanne and Counsel at Blum & Grob Attorneys-at-law in Zurich.]

The reference to John Gray’s bestselling “Men Are from Mars, Women Are from Venus” which states that most of common relationship problems between men and women are a result of fundamental psychological differences between the genders certainly oversimplifies Moshe Hirsch’s argument in his Chapter. And yet a recurring idea in his contribution is that human rights lawyers refer differently to human rights treaties than investment lawyers because of their socialization. What he describes as the sociological perspective can be summed as the explanation of these different attitudes by the different career paths of those involved in investment cases and those involved in human rights cases. He holds “[w]hile most human rights lawyers work in legal divisions of NGOs of academia, foreign investment lawyers (and arbitrators) are predominantly senior lawyers/practitioners, legal scholars of former judges affiliated with major international firms.” (p. 90 in fine).

This is not the only argument in his contribution but I would like to focus on it as I find it particularly intriguing and worthwhile to be developed in more detail. There is certainly some truth in this statement. When it comes to the application of investment treaties we are traditionally confronted with lawyers who take a certain interest in the global economy and especially the role of investors (normally multinational enterprises). These were for a long time mostly civil servants negotiating such treaties and (national) business associations interested in the conclusion of such treaties with specific partner countries. More recently when these treaties (or chapters thereof – most prominently Chapter 11 NAFTA) were discovered for their practical use by practicing lawyers we got used to their arguments being heard by investment tribunals.

When it comes, however, to the arbitrators one must say that originally and still to a large extent today we see small group of specialists in international commercial arbitration being appointed to the respective arbitration tribunals. But there is an increasing number of arbitrators being appointed who are not specialized in international commercial law but come from public international law – not only international economic law. Some may remember the very early appointment of René-Jean Dupuy as sole arbitrator in Texaco Overseas Petroleum Company and California Asiatic Oil Company v. The Government of the Libyan Arab Republic (1977). It is certainly still true that it is more often the State appointing a specialist in public international law than the investor involved in a case. This is not surprising as the investor is focusing on his individual commercial interests and the State often invokes some public policy concern or constraint for his action. Also commercial law firms actively search for appointment by multinational firms and have traditional links to commercial lawyers they have worked with in the past. Yet, one can no longer claim that there would not be an increasing number of arbitrators appointed who do not have a commercial arbitration background. Among the academics being appointed there is an increasing number of academics who have a broader view of the applicable law and are open to consider the relevance of human rights treaties or other norms of public international law that should be taken into account when settling a dispute. This is also true for the other participants in the proceedings where Parties have normally the possibility to involve experts from other fields and NGOs are increasingly making contributions – be it officially in amicus curiae briefs or using the public domain. The same is obviously true for academia where non-investment specialists have only recently discovered the relevance of investor-State arbitral awards but now contribute considerably to the debate on how investment treaties should be interpreted- and more importantly negotiated in the future. (see my forthcoming volume “Towards Better BITs”)

A particularly interesting situation results from the case law of tribunals when their character as a human rights or an investment tribunal is not so clear. (more…)

Book Symposium Investment Law: Investment Tribunals and Human Rights Treaties – A Sociological Perspective

by Moshe Hirsch

[Moshe Hirsch is Professor of International Law at the Hebrew University of Jerusalem Faculty of Law.]

Sociology of international law involves the study of how social factors influence the development and enforcement of international law. As elaborated below, sociological analysis casts a new light on a significant dimension of the relationships between different branches of international law, and enriches our understanding of social factors involved in in legal decision-makers’ inclination to incorporate or reject legal rules developed in other branches of international law. This chapter aims to analyze the particular set of interactions between two branches of international law – human rights and investment treaties – from a socio-cultural perspective.

Analysis of investment tribunals’ decisions relating to human rights instruments reveals that while these tribunals often incorporate rules of general international law (particularly on state responsibility and treaty law), they adopt a quite consistent approach opposing the incorporation of international human rights law in investment disputes.  Investment tribunals have generally declined to thoroughly examine the specific provisions of international human rights instruments invoked by the parties, notwithstanding the various arguments raised during different stages of litigation by the various parties. In all cases dealing with the interaction between investment and human rights instruments, not one investment tribunal has absolved a party from its investment obligations or reduced the amount of compensation as a result of the consideration of human rights instruments.

Sociologists of law have long emphasized that law is “always rooted in communities”; and laws are considered by these scholars as expressive types of these communities.

The basic argument of this chapter is that legal interactions between branches of international law may also be analyzed as social interactions between the relevant communities. These legal interactions are affected by the particular features of relevant social settings, as well as by the mutual relationships between the relevant social groups. More specifically, the socio-cultural distance between the particular international legal settings affects the inclination of relevant decision-makers to incorporate or reject legal rules developed in other branches of international law. Generally, greater socio-cultural ‘distance’ between the involved social settings and groups decreases the prospects for mutual incorporation of legal rules developed in the other legal sphere.

The social settings in which international investment and human rights laws emerge and are interpreted, are very different. (more…)

Book Symposium Investment Law: Comments on Alschner and Tuerk

by Andrea K. Bjorklund

[Andrea K. Bjorklund is the L. Yves Fortier Chair in International Arbitration and International Commercial Law at McGill University Faculty of Law, Canada]

Mr. Alschner and Ms. Tuerk’s contribution very usefully highlights three areas where international investment law and sustainable development principles may intersect: climate change, industrial policy, and corporate social responsibility.  This precision is particularly valuable given the less-than-concrete nature of the idea of “sustainable development”. 

Two common threads running through each section are the essential participation of the host state in fostering sustainable development and the tension between the pursuit of short-term goals (such as rapid economic development and the influx of capital and immediate returns in investment) and long-term goals (such as fostering sustainable economic development).  Investment agreements, either individually or in the guise of a multilateral instrument establishing shared principles, can contribute only a limited amount to the furtherance of sustainable development goals unless their reach expands drastically.  That point is well illustrated in the area of climate change.  Investment agreements themselves do not require that states legislate in environmentally friendly ways, or that states prioritize fighting climate change over promoting robust short-term industrial growth.  Thus, amendments to existing investment agreements, or carefully drafted new agreements, can satisfy one side of the equation – they can eliminate whatever constraints investment agreements might impose on states’ desire regulate to combat climate change or to promote certain industrial policy goals.  Yet states must still want to enact those laws.

States also must be the primary architects of their industrial policy, and certainly should strive to ensure that their investment agreements do not interfere with their pursuit of those goals. Yet, as Mr. Alschner and Ms. Tuerk note, many policies designed to foster municipal economic development can also lead to unjustified investment protectionism.  For example, the “infant industries” argument often offered by states (and by industries) seeking to facilitate the establishment of a national entrant into a competitive industry.  In the short term such policies are possibly beneficial.  In the long run, however, a state might be left with elderly infants who do not want to leave the shelter provided by policies, often somewhat costly, that insulate them from competition, particularly in the home market.

Insofar as fostering responsible investor behavior is concerned, again the host state’s laws are, at least in principle, the best vehicles for regulating and monitoring the activities of investors.  Host states can impose conditions on investors prior to granting concessions, ensure compliance with local laws prior to granting licenses, and generally police investors’ behavior.  Some states might lack the capacity effectively to ensure that investors follow those laws, but their strong commitment to requiring responsible corporate behavior is the ideal situation and without host states’ engagement and cooperation fostering that behavior will be very difficult.

The authors recognize potential impediments to active host-state regulation, and suggest a few alternatives.  One is to amend international investment agreements to include references to corporate social responsibility and to encourage their interpretation in a manner that gives effect to those principles; another is encourage states themselves to engage in their best endeavors to promote companies’ adoption of corporate social responsibility principles.  A third is to ensure that incoming investors, prior to their admission, be subject to a screening procedure identifying their corporate social responsibility practices.  The fourth, and most ambitious, would be to include corporate-social-responsibility obligations in international investment agreements themselves – in other words, ensuring that investors have rights as well as responsibilities.

Given my suggestion that host states are in the best position to impose and enforce obligations on corporations doing business in them, I query whether the recommended alternatives are adequate to compensate for deficiencies in regulation by host states.  (more…)

Book Symposium Investment Law: The role of International Investment Agreements in Fostering Sustainable Development

by Wolfgang Alschner and Elisabeth Tuerk

[Wolfgang Alschner is a PhD Candidate and Teaching Assistant at the Graduate Institute in Geneva, and Elisabeth Tuerk is Officer in Charge (OiC) of the Section on International Investment Agreements (IIAs) in UNCTAD's Division on Investment and Enterprise.] 

One of the policy tools typically aimed at attracting foreign investment has been the conclusion of international investment agreements (IIAs). Foreign investment is an important source of finance for sustainable development, especially in low-income countries. However, the benefits from foreign investment are not automatic and the link between IIAs and sustainable development is a complex one: whereas IIA may contribute to more attracting more (sustainable) investment, they also constrain regulatory action by host governments that seek to maximize the positive and minimize the negative effects of foreign investment on sustainable development.

This paper gives an overview of recent UNCTAD research on the nexus between IIAs and sustainable development in three areas of public policy-making. These include 1) combating climate change; 2) integrating investment and industrial policy; and 3) promoting responsible corporate behaviour. The paper concludes on the need for more inter-State cooperation to address the various challenges facing the IIA regime today and to enhance its sustainability dimension.

1) IIAs and climate change

When it comes to combating climate change, IIAs are a double edged sword. (more…)

Book Symposium Investment Law: A Reply to Gabrielle Marceau

by Mary Footer

[Dr Mary E. Footer is Professor of International Economic Law at the University of Notthingham, School of Law.]

First of all my thanks to Freya Baetens and Opinio Juris for hosting the Book Symposium on Investment Law and for giving me the opportunity to post details of my chapter. I would also like to thank Gabrielle Marceau for her generous praise of my piece but more importantly for her instructive comments.

In response I shall pick up on one of her comments concerning the issue of “cross-fertilisation” of WTO jurisprudence and investor-state arbitration to which I refer in my chapter. I was unaware of the recent review of a large number of decisions of international courts and tribunals, including investor-state arbitration decisions, that make reference to WTO case law in their findings. While this is an impressive undertaking, I am wondering to what extent those decisions have been analysed and what conclusions, if any, can be drawn from this exercise? For example, is there a trend in investment arbitration to reach out to WTO case law in dealing with principles common to both trade and investment such as the principle of non-discrimination? As I have noted in my chapter, with reference to Occidental v Ecuador not all investment arbitration tribunals have been sympathetic to the importation of WTO case law when interpreting the national treatment standard. Or is the trend more in the procedural sphere, for example with respect to things like the burden of proof – here again there may be limits on the cross-fertilisation of WTO jurisprudence, as was demonstrated in Thunderbird v Mexico.

And what, if anything, can WTO panels and the Appellate Body understand from investor-state arbitration? Are there lessons to be learnt from the way in which investment arbitration tribunals interpret and apply ‘any relevant rules of international law’ in the sense of Article 31(3)(c) of the Vienna Convention on the Law of Treaties? What about the customary international law rule on attribution in the field of state responsibility – in particular where it concerns organs that exercise elements of governmental authority – as suggested by Santiago Villalpando? Could the interpretation of investment treaty-based defences in the form of exceptive clauses for the environment and consumer health and safety or the doctrine of necessity, including ‘economic necessity’, offer any guidance in WTO dispute settlement? Likewise, could the application by investment arbitration tribunals of broader principles of international law, such as good faith, equity and the doctrine of legitimate expectations in investment law yield insights for WTO jurisprudence?

There are of course a host of other contentious issues in the relationship between WTO dispute settlement and investor-state arbitration involving inter alia competing jurisdictional issues, competing fora (giving rise to parallel investment and trade disputes) and the challenge of WTO-inconsistent measures in investment, to name but a few. Many of them are based on systemic differences and structural variations between investor–state arbitration and WTO dispute settlement that I have discussed elsewhere. Instructive in explaining some of the broader issues in this respect is Anthea Roberts who frames the relationship between the investment treaty system and other areas of public and public international law, including international trade law, as a ‘clash of paradigms’.

Book Symposium Investment Law: Comments on Mary E. Footer’s Chapter

by Gabrielle Marceau

[Gabrielle Marceau is Counsellor in the Legal Affairs Division of the WTO and Associate Professor at the Faculty of Law in the University of Geneva. Opinions expressed are personal to the author and do not bind WTO Members or the WTO Secretariat.]

In her chapter “International Investment law and trade: the relationship that never went away Mary E. Footer explores the relationship between the international investment and trade regimes, from various perspectives. Mary’s chapter is a must read; in a few pages you will learn about the history of the evolution of investment and trade agreements and understand their natural interaction. The term “interaction” is important because trade and investment remain two distinct legal systems or legal regimes that interact with each other in various ways.

Mary’s historical analysis of the essentially bilateral nature of investment rules seems quite persuasive and offers a very insightful background for the discussions which follow.  When the author compares this system of bilateral deals with the multilateral nature of the WTO/GATT regime, the reader is provided with informed explanations.

Then Mary E. Footer makes an excellent comparative study of the investment and trade regimes with the purpose of examining the similarities and differences in their approach towards multilateralism.  With respect to what she calls the “investment regime,” she acknowledges that it may be true that the extraordinary number of individual BITs constitute a special juridical regime. Footer highlights that even though the BITs have a similar structure, they nevertheless differ in details. In fact, they differ in detail to such an extent that it would be difficult to argue that they are capable of giving rise to customary international law principles.

With respect to differences and similarities between trade and investment, Footer points out two grounds of divergence: First, the trade regime, through MFN, promotes multilateral liberalization. A majority of BITs, on the other hand, offer controlled entry that reserve the right of the host state to regulate the inflow of foreign investment into its territory. Second, while the investment regime is left with clusters of individual BITs which bind only two states, the WTO represents a common agreement among all Members.  One similarity between the two regimes she argues, is that both proceed with negotiations that are bilateral in character. I would add that another important similarity is that both systems prohibit unjustifiable discrimination. The two systems have, however, adopted slightly divergent approaches on when discrimination is justifiable and when it is not.   In any case, I believe the impact of those similarities and differences should be further analysed and understood.

Of course I can only agree with Mary Footer’s conclusion that the WTO is much more than the sum of its parts and is a dynamic and evolving institution which operates in a more complex regime of norms, decision-making activities and procedures than the GATT. In contrast, the relatively uncoordinated system of bilateral, regional and plurilateral instruments in the field of investment represents something different from the full-fledged multilateral trade regime.

Ultimately, on the basis of her analysis, Mary Footer comes to the following conclusions:

  • The “living apart together” (LAT) relationship between international investment and trade is as strong today as it ever was.
  • In international relations, there is the emergence of different but interconnected treaty regimes in investment and trade.
  • The challenge would lie in determining the extent to which the interaction between international investment and trade is going to lead to either greater convergence or a possible divergence.

The trade and investment debate is not new.  It is important to try to understand why the trade and investment matter was rejected in Cancun. Certainly the investor-state relationship is an extremely difficult issue.  But trade and investment interact naturally.  Investments can be impeded by restrictive trade discrimination for example, and often trade needs investment to start with and to grow. We cannot deny that the interaction between trade and investment is necessary for sustainable development, but it is a complex and multidimensional relationship. And with this chapter, Footer throws light on the different perspectives of this interaction between trade and investment systems or regimes.

I believe that the dispute settlement of both trade and investment systems can learn a lot from each other.  (more…)

Book Symposium Investment Law: International Investment Law and Trade – The Relationship that Never Went Away

by Mary Footer

[Dr Mary E. Footer is Professor of International Economic Law at the University of Notthingham, School of Law.]

The relationship between international investment law and trade has been a constant, if not consistent, one throughout the history of international economic relations. Drawing on the evolution of these two areas of economic activity over the course of six decades, this relationship is examined with a view to understanding its historical and contextual antecedents. The same relationship is also explored from a contemporary perspective. On the one hand, there are similarities and differences in the ‘multilateralisation’ of international investment law and trade. On the other hand, the contemporary jurisprudential nexus between investment and trade demonstrates some linkages on substance and some cross-fertilisation in the interpretative sphere.

Historically speaking, there have been numerous attempts by states, beginning with bilateral treaties of friendship, commerce and navigation (FCN treaties) through to the failed multilateral instrument – Havana Charter for an International Trade Organisation (ITO) –  that have sought to regulate international investment within the context of a broader trade or commercial treaty regime. Sometimes states have used fora like the UN General Assembly, the OECD or UNCTAD, or have turned to other, ‘soft’ law instruments in order to maintain the relationship. Some of these instruments were aimed at the protection of foreign property, others at disciplining the activities of transnational corporations (TNCs) in the matter of investment and trade.

Proceeding along parallel, but separate tracks, from the late 1940s in the case of international trade law, and the late 1950s in the case of foreign investment, the two are bound by inter-connected developments in both regimes. The GATT 1947 multilateral trading system – emasculated and with shortcomings in its means for resolving trade disputes – eventually matured into a vastly expanded World Trade Organization (WTO). Subsequently, the WTO regulates some aspects of cross-border investment in the General Agreement on Trade in Services (GATS) together with trade-related investment measures (TRIMs) in the goods regime, supported by a rules-based dispute settlement system with strong enforcement powers.

By contrast, international investment law has been shaped by a burgeoning network of bilateral investment treaties (BITs) and customary international law. Both the network of BITs and the customary international law regime of investment focus on the protection of foreign property and strong investor protection standards. There is also strong reliance upon a decentralised system of investor-state dispute resolution, circumscribed only by the limits of state responsibility.

It has been argued elsewhere that this network of BITs forms a dense treaty-overarching legal framework for international investment, based on uniform principles, the functions of which are analogous to a truly multilateral system for investment. This view is disputed by the current author on the grounds that international investment and trade are based on different organising principles, display dissimilar approaches to the reciprocal nature of investment and trade obligations, and are governed by separate treaty regimes.

Such similarities and differences notwithstanding, the contemporary relationship between investment and trade is still significant. In terms of substantive provisions this can be seen with the principle of non-discrimination, as exemplified by the standards of MFN and national treatment, which is common to both investment and trade. In the interpretative sphere there has been a move towards some cross-fertilisation of WTO jurisprudence in investor-state arbitral practice and vice-versa.

The foregoing analysis leads to the conclusion that the link between international investment law and trade has never gone away. It also raises questions about the future of that relationship. In particular, it enquires as to the extent to which the interaction between international investment law and trade is leading to either greater convergence or possible divergence between the two in terms of rule-making and dispute settlement.

Book Symposium Investment Law: A Reply to van Aaken

by Anastasios Gourgourinis

[Dr Anastasios Gourgourinis is Lecturer in Public International Law at the National and Kapodistrian University of Athens Faculty of Law, and Research Fellow at the Academy of Athens]

I am very grateful to Anne van Aaken for her challenging and insightful comments on my chapter “Reviewing the administration of domestic regulation in WTO and investment law: the international minimum standard as ‘one standard to rule them all’?”, as well as for providing me the opportunity to further expand and explain my argument. She essentially poses two questions: whether the simultaneous qualification of traders as investors and vice versa, is feasible; and whether the arbitral interpretations of the fair and equitable treatment standard (FET) contained in international investment agreements (IIAs) reconfigure the content of the customary minimum standard of treatment of aliens (MST).  Based on the above, van Aaken questions my conclusion that, under the influence of MST  permeating the trade and investment disciplines, the same set of facts regarding the administration of domestic regulation may indeed give rise to successful challenges brought before either the WTO dispute settlement body or investment arbitration tribunals. I will hence attempt to address these concerns.

Traders qua investors and vice versa

From the outset, I must note that the chapter’s analysis was founded upon (rather than intending to scrutinize and put to the test) the working hypothesis that foreign traders may qualify as foreign investors under IIAs, and vice versa. In other words, this constituted a scenario which is plainly feasible, rather than omnipresent, in so far as the realities of international trade and investment are concerned.

Anne van Aaken, on the one hand, suggests taking a functional view, based on economic and management theory, so as to further explain and expand on this proposition, and rightly so: I do agree that there is much more to be written in this respect, deserving special treatment in a separate study where multidisciplinary perspectives may indeed contribute significantly.

On the other, van Aaken cautions about the normative aspects of my hypothesis, i.e. whether foreign traders may, in principle, qualify as investors under IIAs, especially in view of the very recent Apotex v. USA Award on Jurisdiction and Admissibility  under Chapter Eleven of the North American Free Trade Agreement (NAFTA). This is where we disagree, for a number of reasons.
(more…)

Book Discussion Investment Law: Comments on Gourgourinis

by Anne van Aaken

[Prof. Dr. Anne van Aaken is Professor of Law and Economics, Legal Theory, Public International Law and European Law at the University of Sankt Gallen, Switzerland.]

Freya Baetens has done a terrific job of collecting and editing papers by young as well as very versed scholars on a timely topic; namely the integration of international investment law in public international law. Lurking behind is the more general discussion on fragmentation of international law; an issue considered so seriously by the international community that the International Law Commission constituted a study group led by Martti Koskenniemi which issued its report in 2006 and still sets the basic frame for discussion. Surely, investment law was never meant to exist in clinical isolation, and detailed accounts on the relationship between investment law and other law are always helpful. Part IV of the book deals with international investment, international trade and developing countries. I comment on one article: “Reviewing the administration of domestic regulation in WTO and Investment Law: The International Minimum Standard as ‘one standard to rule them all’?” by Anastasios Gourgourinis.

Gourgourinis aims to show that although trade and investment regimes are different on many accounts, they share a common core: the customary international law standard of minimum standard of treatment of aliens (MST). By juxtaposing equitable treatment provisions he submits that “the same set of facts regarding the administration of domestic regulation can give rise to successful challenges brought before either the WTO or investment arbitration tribunals.” He rightly points out that trade and investment cannot be viewed separately from each other in a globalized economy. His conclusion, drawing on case law especially in investment law, is that traders can also qualify as investors. I have two comments on that. First, I would suggest that this argument could be strengthened by – based on economic and management theory – taking a more functional view on why – with a view on domestic regulation – it is partially irrelevant for economic activity whether domestic regulation is targeting trade or investment. Both kinds of regulation are, depending on the sector and the type of investment/trade, partially substitutable from a business actor´s point of view. Second, I would caution about the normative conclusion of the simultaneous qualification of traders also as investors. Whether traders qualify as investors has been discussed for a long time (just as the other criteria for an investment), but the question is especially delicate in the light of the Apotex v United States tribunal (NAFTA, Decision from June 2013, that is after publication of the book). The tribunal stated that Apotex’s “activities with respect to the contemplated sales of its . . . products in the United States are those of an exporter, not an investor,” declining jurisdiction. Regardless of whether this decision is right or wrong, what is important is to discuss the consequences (economic and otherwise) of granting investor status to traders, conflating trade and investment regimes through the back-door. Economic as well as political economy reasons might exist why states don’t treat traders and investors alike, in spite of functional partial equivalence.

What follows is an in-depth and thorough analysis of MST as custom as well as the norms and case-law of WTO law and investment treaties. Gourgourinis argues that the MST, since it applies to all aliens and since it is custom, applies to investors and traders alike. It constitutes a “floor” of treatment and permeates, in his view, the proper administration of justice of domestic regulation vis-à-vis aliens. He does a tremendous job in selecting the norms in the WTO agreements which have MST cores for transparency and procedural justice, e.g. Art. X: 3 GATT or Art. VI GATS, uncovering minimum due process guarantees inherent in those norms. He does the same for norms containing the prohibition of arbitrariness, e.g. Art. XX GATT and Art. XIV GATS. He then attempts to demonstrate that those “provisions of the WTO agreements as minimum standard of treatment of foreign traders are essentially identical to the (customary) international minimum standard of treatment of foreign investors,” thereby zooming up the MST. He then looks at the “fair and equitable treatment” standard (FET) and its interpretation in investment law, although he acknowledges that depending on the respective treaty FET is either referring to MST or it is viewed as s self-standing standard.

I take issue with equating the MST with FET or rather the other way around: redefining the MST through certain interpretations of the FET or the WTO provisions. (more…)

Book Symposium Investment Law: The International Minimum Standard of Treatment of Aliens and Administration of Domestic Regulation under WTO and Investment Protection Law

by Anastasios Gourgourinis

[Dr Anastasios Gourgourinis is Lecturer in Public International Law at the National and Kapodistrian University of Athens Faculty of Law, and Research Fellow at the Academy of Athens]

Let me start by extending a warm thanks to Freya Baetens for her overall care, diligence and patience as the editor of Investment Law within International Law: Integrationist Perspectives, the publication of which is very timely and indeed. I am also grateful to Opinio Juris for hosting this Book Symposium, as well as to Anne van Aaken, who I am privileged to have as commentator of my chapter entitled “Reviewing the administration of domestic regulation in WTO and investment law: the international minimum standard as ‘one standard to rule them all’?”. In this post, I briefly summarize the chapter’s key points.

The interaction between the legal standards established under the World Trade Organization (WTO) agreements and international investment agreements (IIAs) has steadily and increasingly become important in international judicial practice. Perhaps the most recent and controversial illustration of this interaction can be found in the plain packaging disputes against Australia, currently ongoing in parallel before the WTO dispute settlement panels (see here, here, here and here), as well as arbitral tribunals established under bilateral investment treaties (see here). For, what all these disputes share in common is the set of the underlying facts complained of, i.e. Australia’s Tobacco Plain Packaging Act 2011, and related laws and regulations, allegedly in violation of Australia’s obligations both under the WTO covered agreements and the Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments of 1993.

Hence, in the greater context of the debate regarding the relationship between WTO and investment protection law, Nicholas DiMascio and Joost Pauwelyn have undertaken a thorough study on non-discrimination standards in the WTO covered agreement and IIAs. They persuasively concluded that ‘investors cannot assume that they will prevail on a national treatment claim before an investment tribunal even if their country has earlier prevailed on the same claim at the WTO, and vice versa’ (p. 88).

But does the same apply also with respect to equitable standards of treatment also found both in WTO agreements and IIAs? (more…)

Book Symposium Investment Law: Comments on Ambach

by Howard Morrison

[Judge Howard Morrison is a Judge at the ICTY and the ICC]

Dr. Philipp Ambach deals with a topic that is contemporary and contentious.

In a world where the globalisation of most aspects of human life and endeavour is readily apparent it cannot be that case that those who engage in commercial, and often highly profitable, enterprises that have an impact upon the commission of serious crimes have no responsibility and affected communities no redress.

The author deals with the historical foundations of the concept of transnational corporate actors and notes the lacunae in the statutes of the UN ad hoc tribunals in respect of dealing with ‘legal persons’ as opposed to individual liability and potential guilt.

Dr Ambach points out that the exploitation of natural resources in conflict zones can easily further destabilize such situations and may be funding one or more parties to a conflict. Indeed if one examines the ongoing situation in the DRC it is arguable that the conflict is not parallel to such commercial activity but is generated by it and the territorial disputes that surround it. Resource wars, most particularly in a world of exponentially increasing human population, are with us and likely to increase, a situation not lost on the UN bearing in mind UN SC Resolution 1856 (2008). It is ironic that human rights may decrease proportionally with population growth.

The author examines how crimes against humanity and war crimes may be perpetrated by international corporate actors including in internal armed conflicts and cites relevant judgements of the ICTY and ICTR. He focuses on the war crime of pillage which has especial resonance, in particular noting that the ICC requires a qualitative requirement of personal or private use in contradistinction to the definition in the ad hocs.

Dr Ambach also examines genocidal liability and points out the potential although rightly noting the difficulty imposed by the requirement to possess a relevant specific destructive intent. He goes on to examine the crime of aggression and its current limitations.

The author makes a careful analysis of criminal responsibility distinguishing between those of corporate and individual actors  examining the legal requirements in differing national jurisdictions. He makes the important point that whilst there is yet to be a clear or common position in international law regarding the liability of international corporations for international crimes  there is a logical, if sometimes evidentially difficult, route top the liability of individual corporate officials and, perhaps, most obviously CEOs. It is important to remember that at its base level any corporation is simply an assembly of like minded individual pursuing a common commercial enterprise. The prosecution of just one senior director or executive sends a powerful message to the commercial world and should have practical and ethical consequences.

Dr Ambach goes on to examine modes of liability and discusses the vexed question of joint criminal enterprise as against co-perpetration. Making a specific analysis of Article 25 of the Rome Statute he goes on to point out the more obvious practical evidentiary obstacles and the position of an accessory by a virtue of being a corporate representative. It is important to examine Article 25 in all its parts. Dr Ambach takes the reader through the wording and interpretations with useful clarity.

He points out that the representatives of corporations may well have the sufficient mens rea to found liability under the statutes of both the ad hoc tribunals and the Rome Statute of the International Criminal Court. He makes the important point that the law relation to aiding and abetting such offences is far from clear and settled; indeed it is an aspect of the modes of liability that needs to be clarified and standardised to provide both a route to indictment and clarity for legitimate commercial actors.

This is an interesting and well thought through contribution by Dr Ambach which provides a very useful route into this important arena of international law for both the scholar and practitioner alike. He, in my view, rightly concludes that it is time to adjust the system on international criminal justice to the ‘modern landscape of perpetrators of the worst crimes in armed conflict’. This is a proposition difficult to argue against at any level. The reticence of some States to move this area of law forward in a decisive common international endeavour is, at the least, worrying for many tens of thousands of predominantly powerless citizens who are seriously, and too often fatally, affected by the activities of sometimes cynical corporate actors.