[Rachel Brewster is Professor of Law at Duke Law]
One of the many virtues of Eric Posner and Alan Sykes’ new book, “Economic Foundations of International Law,” is that it provides the reader with a theoretically coherent and consistent overview of important international treaty regimes, substantive international rules, and state enforcement practices. The book is a lucid introduction to international law for students and also contains sophisticated analysis of the dynamics of international legal systems for academics and international lawyers.
A major theme of the book is that state compliance with substantive international rules is not always optimal. This will be controversial with many audiences, but is extensively defended in the text. Once the authors shift to this paradigm (where compliance with substantive rules is not the primary goal), then the question of remedies take center stage. Remedies serve an important sorting function by defining the consequences of breach, permitting (even encouraging) “efficient” breaches, and discouraging those that are inefficient. Remedy law thus receives its own chapter (rare for international law), as well as an extended discussion in the international trade and international monetary law chapters.
If remedies are properly calibrated, then they can support differing levels of enforcement. To deter any breaches of international law, remedies should seek to eliminate any gains to the breaching party (accounting for the likelihood of detection). To permit efficient breaches, the remedies need only provide expectation damages to the injured party. As the authors argue, the creation of a third-party adjudicatory system of limited remedies can actually create more opportunities for “cheating” than a system of unilaterally determined responses to breach.
How one assesses remedies and what is entitled to a remedy are thus important issues to maintaining optimal levels of compliance with international rules. Posner and Sykes maintain that the best means of operating international remedy regimes is through a
liability rule, where a court or arbitrator determines the level of damages, rather than through a
property rule, where a court would issue an injunction against a breach and the parties would renegotiate the relevant legal rule (either globally or for the particular case). Both approaches have costs. The liability rule may produce errors because the judge or arbitrator cannot correctly assess the level of damage to the injured party. The property rule allows the parties who have private information on the level of injury or gain to use this information in bargaining, but the property rule can have high negotiation costs and hold-out problems (if bargaining with multiple parties). The authors argue that the costs of the liability system should be lower in the international context.
Yet we can still debate whether the liability rule approach is really preferable in international law. First, in bilateral or regional treaties agreements, a property rule may be preferable because the negotiating costs may be relatively low compared to the possible error of a liability rule, and concerns about hold-outs decrease. Second, most disputes (if not most agreements) are bilateral. The vast majority of the time, only a few states will bring complaints even if the allegedly breaching policy affects many states. A number of factors, including power differentials and litigation costs, can prevent states from pursuing high quality cases. For instance, in the WTO Upland Cotton case, the US policy affected a wide group of cotton-producing states, but only Brazil brought a case against the US. If most cases are bilateral (or involve a small number of plaintiffs) then, again, negotiation costs and hold-out concerns are lower. In addition, the property rule may better mimic an optimal remedy. If only a small number of states bring claims, then a liability rule may be a very good filter for determining efficient versus inefficient breach. A property rule may (but not always will) be a better filter because one complaining state can bargain for compensation based on the worldwide effects of the policy.
