VJIL Symposium: Hannah Buxbaum Comments on “Like Moths to a Flame? International Securities Litigation after Morrison: Correcting the Supreme Court’s ‘Transactional Test’”

by Hannah Buxbaum

[Hannah L. Buxbaum is Interim Dean and John E. Schiller Chair in Legal Ethics, Indiana University Maurer School of Law.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

Thank you to Opinio Juris for hosting this online discussion and to the Virginia Journal of International Law for putting this discussion together. I have the pleasure of commenting on Professor Marco Ventoruzzo’s recent Article, “Like Moths to a Flame? International Securities Litigation after Morrison: Correcting the Supreme Court’s ‘Transactional Test’.”

The transaction-based test that the Supreme Court adopted in the 2010 Morrison decision – which limits the application of U.S. antifraud law to transactions that occur on U.S. exchanges, or that otherwise take place within the United States – was intended to eliminate the uncertainty and unpredictability created by the previous conduct and effects tests. As Professor Ventoruzzo notes, and as post-Morrison litigation demonstrates, the “bright-line” test has not succeeded in eliminating much uncertainty, particularly when it comes to defining the location of non-exchange based transactions. Professor Ventoruzzo’s primary objection to the Morrison test, though, is that it is “too narrow, undermining the investor protection goals of the securities laws” (p. 408). He notes that the new transaction-based test bars not only claims of foreign investors based on foreign transactions (such as those involved in the Morrison case itself) but also certain claims of U.S. investors. For instance, U.S. investors who purchase securities in transactions that occur abroad lose the protection of U.S. antifraud law, even under circumstances in which the purchase was solicited by means of fraud within the United States. His solution to this problem – and to the other flaws of the Morrison test – is to advocate the adoption of an “effects only” test for the applicability of U.S. antifraud law. Under his proposed test, a plaintiff would have to establish that “illegal conduct … created direct, substantial, and reasonably foreseeable effects within the United States” in order to invoke the application of U.S. antifraud law (p. 441).

In Professor Ventoruzzo’s view, the “effects only” test is preferable to Morrison’s transaction-based test because it will protect the interests of U.S. investors defrauded within the United States – and it is preferable to the old “conduct and effects” approach because it will be consistent with jurisdictional approaches taken in other countries, and might therefore promote international agreement on private securities enforcement. However, his discussion leaves room for some uncertainty about whether an effects-only test would serve those ends. He states that a foreign-cubed action (foreign investor, foreign issuer, foreign investment transaction) could be brought under U.S. antifraud law as long as the illegal conduct also produced consequences in the United States. That would be the case, he suggests, if the securities affected by the fraud were also listed in the United States in the form of ADRs, or if there were other holders of the securities who were U.S. residents (p. 441). But this would permit precisely the kind of foreign-cubed litigation that had become so problematic pre-Morrison – litigation in which a large number of foreign investors in a foreign issuer’s securities attempted to piggyback on litigation in the United States brought by a small number of U.S. investors. He does note that U.S. courts would still have access to tools, such as the doctrine of forum non conveniens, that could be used to dismiss the claims of foreign investors. But as many pre-Morrison decisions reflect, courts do not always choose to use those tools, even in circumstances where the application of U.S. law would cause significant jurisdictional conflict. It is therefore an approach to legislative jurisdiction that remains viewed as overly expansive in many other countries.

Under Professor Ventoruzzo’s test, only fraud whose effects were felt exclusively abroad would fall outside the scope of U.S. law (p. 442). In this aspect, his argument highlights very nicely the difficulty that all categorical tests face. The more interconnected the world’s markets, the less likely that transactions – and their effects – can be cabined neatly within particular territories. If that is true, then it may turn out that what we really need, other than in the clearest cases of overreaching, is more, not less, of the messy flexibility that comity can provide.

VJIL Symposium: Introducing Marco Ventoruzzo’s “Like Moths to a Flame? International Securities Litigation After Morrison: Correcting the Supreme Court’s ‘Transactional Test’”

by Marco Ventoruzzo

[Marco Ventoruzzo is a Professor of Law at Pennsylvania State Dickinson School of Law.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

Thank you very much to Opinio Juris for hosting this online discussion of my recent Virginia Journal of International Law Article – “Like Moths to a Flame? International Securities Litigation After Morrison: Correcting the Supreme Court’s ‘Transactional Test’.”

Because of the broad jurisdiction American courts have asserted in cases arising under the Securities Exchange Act of 1934, they have been called a Shangri-la for “foreign-cubed” class actions with little connection to the United States. Over the past forty years, the standards used by American courts to determine their jurisdiction in international securities disputes have evolved, culminating in the U.S. Supreme Court’s Morrison decision of 2010. The new transactional test promulgated in Morrison replaced all of its predecessor tests, from a test measuring whether the conduct in question took place in the United States to a test measuring whether the effects of the conduct were felt in the United States, to a combined conduct-effects test. This new transactional test is unsatisfactory, however, because depending on how it is interpreted, it is either too narrow to protect American investors as Congress intended in Section 10(b) of the Securities Exchange Act, or too broad to resolve the ambiguities that plagued the conduct-effects test. This Article proposes a new effects test that will resolve ambiguities, protect American investors, and refrain from asserting American judicial jurisdiction overseas contrary to principles of international comity. Though the effects test would not grant private parties a cause of action against violators operating in the United States but who exclusively defraud those overseas, Congress has already granted authority to federal agencies to pursue such bad actors. The effects test is also in accordance with principles of other important jurisdictions, such as the European Union, and could serve as a basis for an international agreement on jurisdiction in international securities cases.

VJIL Symposium: Bâli Answers to Shambayati and Ginsburg

by Asli U. Bali

[Aslı Ü. Bâli is Acting Professor of Law at UCLA School of Law.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

Many thanks to Tom Ginsburg and Hootan Shambayati for their thoughtful responses to my Article – “The Perils of Judicial Independence: Constitutional Transition and the Turkish Example.” I am in agreement with many of their core points.

In his comments, Professor Ginsburg argues that the role of the Turkish judiciary as guardians against democratic reversal of founding ideological commitments “made it inevitable that the courts would either have to soften their stance or suffer corrective political action.” I agree but would like to distinguish my argument about the requirements of judicial accountability in transitional contexts from the more general debate concerning the balance between independence and accountability for courts in democratic systems. In particular, I am not arguing that the elected branches of government should hold the judiciary directly accountable. Nor do I oppose insulating judicial self-governance from partisan politics. Rather, I argue, self-governance mechanisms that are representative of the judiciary as a whole – not exclusively judges from the highest courts – are an understudied but important feature of institutional design in post-authoritarian transitions. More specifically, I argue that the concept of judicial “independence” should include independence from elite capture when transitioning from the rule of the few to the rule of the many. When mechanisms of judicial self-governance – such as judicial councils that govern appointments, promotions and discipline of judges – are dominated by apex courts, they may entrench a self-perpetuating judicial oligarchy that opposes democratic transition. As an example, I trace how the Turkish judicial council was subject to elite capture, maintaining a hierarchical appointments and promotions system that blocked changes to the composition of the judiciary that might reflect the political, social and economic diversity of the underlying society. The result was consistent judicial opposition to reform initiatives introduced by the AKP government.

Professor Ginsburg refers to recent cases in which the courts have cracked down on government critics as reflecting a worrying trend. I share his concern about the wave of arrests over the last two years that have been directed against journalists, academics, publishers and graduate students for their political opinions, whether in opposition to the governing AKP party’s policies or in support of Kurdish rights. However, the capacity of the government to use the courts in this way reflects continuities between the AKP and prior Turkish governments rather than an embrace of the Iranian example. The use of counterterrorism powers to suppress freedom of speech and association are sadly a long-standing feature of the Turkish state tradition. The spectacle of a former Turkish Chief of the Army General Staff – Ilker Basbug – being prosecuted for terrorism-related charges is something new in Turkey. But the novelty derives neither from the charges nor the politicized use of the courts. Rather, what is new in the Basbug prosecution is that long-standing mechanisms of state repression once wielded to advance the interests of the Turkish military are now being used to prosecute former military officials.
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VJIL Symposium: Tom Ginsburg Comments on “The Perils of Judicial Independence”

by Tom Ginsburg

[Tom Ginsburg is the Leo Spitz Professor of International Law and Professor of Political Science at the University of Chicago Law School.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

In “The Perils of Judicial Independence: Constitutional Transition and the Turkish Example,” Asli Ü. Bâli provides an important review of recent constitutional developments in Turkey. Turkey has always provided something of a Rohrshach test in global geopolitics, and the dramatic series of constitutional events of the past few years have been no exception. Bâli provides a lucid and contextualized description of these events, which include the rise of the AKP and its survival of a constitutional challenge in 2008; the Constitutional Court’s rejection of an attempt to overturn the headscarf ban in 2008; and the 2010 series of constitutional amendments that changed the composition of the constitutional court and expanded the number of seats. For some, these amendments represent an attack on the judiciary and a threat to Turkish secularism; for others, they are an appropriate institutional recalibration after several years of democratic development. Bâli leans toward the latter view. Her argument is that Turkish constitutionalism is beset by deeply rooted genetic conflicts between high modernist Kemalism and the forces of religion and pluralism identify that Kemalism suppressed.

I am in agreement with Bâli’s basic analytic point that judicial independence is not an unqualified good. The optimal balance between independence and accountability in any society is highly contextual, and will change over time. Furthermore, as Nuno Garoupa and I argued some years ago, the judicialization of politics typically leads to the politicization of the judiciary at some point. In the Turkish case, the very visible role of the courts in defending the founding principles of secularism in the face of the sustained electoral victories of Islamic parties made it inevitable that the courts would either have to soften their stance or suffer corrective political action when those parties finally won. Corrective political action seems now to have occurred. There is no theoretical reason that this dynamic, which has been observed in many democracies both new and old, should be different in Turkey.

Surely the claim that the AKP is undemocratic seems to have little basis. But at the same time, popular support is not the only criteria for a normative evaluation. While it is understandable, and in some ways impressive, that the Erdogan government could successfully take on the military and judiciary in sequence, it now seems to be going a step further to bring the media under its thumb. Recent reports have indicated that some 100 journalists have been jailed on terrorism charges, sometimes simply for articles criticizing the government. Here one must fear that Turkey is learning lessons from its eastern neighbor, Iran, in which the Supreme Leader’s power is facilitated by his formal supervision of the military, judiciary and media. In the long run, Turkey’s democracy may not be best served by a kind of dominant-party model, even if one accepts that the short-term consequences have been positive in many spheres.

VJIL Symposium: Dr. Hootan Shambayati Comments on “The Perils of Judicial Independence”

by Hootan Shambayati

[Dr. Hootan Shambayati is an Assistant Professor, Division of Public Affairs, Florida Gulf Coast University.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

In the wake of the so-called “Arab Spring” of 2011, many commentators from within and without the Arab world have pointed to Turkey as a possible model to guide democratizers in countries like Egypt and Tunisia. Professor Bali’s insightful Article takes this debate a step further by focusing attention on the illiberal nature of the Turkish democracy and raises important questions about judicial independence in a democratizing polity.

Professor Bali finds the roots of Turkey’s illiberalism in the institutionalization of the social engineering projects known as Kemalism that were adopted in the early days of the Republic and have continued until the present. The Turkish political system has relied on guardian institutions, particularly the military and the courts, and an illiberal conceptualization of rights to protect the state-centered civilizing mission against opposing societal forces. Professor Bali welcomes the recent AKP initiated judicial reforms as attempts to liberalize the judicial and the political system and dismisses the critiques as self-interested Kemalist elites trying to safeguard their entrenched privileges. More generally, she raises important questions about the balance between judicial independence and accountability and warns against the tendency to equate an independent judiciary with one that protects a liberal conceptualization of rights.

Most studies of the Turkish judiciary agree that independence in the Turkish context has created a judicial system that sees its primary role as defending the Kemalist state against the society. But, it is this “illiberalism” that makes the Turkish model attractive to Arab political activists. For the Egyptian or Tunisian political activists the promise of the Turkish model is not the immediate creation of a liberal representative democracy but its potential in transforming the society. For the secular forces, the Turkish model protects them against the Islamists and “tames” political Islam, while for the Islamists, the AKP provides an example of how an Islamist party can gain the reins of power and use the institutions of the state to reshape the society through “democratic” means. Whether this image fits the AKP or not is open to debate. For Professor Bali it does not. Nevertheless, the various shades of Islamism and secularism in the Middle East and their foreign supporters see democracy as a transformative project that aims to reshape the Arab/Muslim societies not represent them. It is this transformative goal of the Middle Eastern democracy that makes the Turkish model appealing.
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VJIL Symposium: Introducing Aslı Ü. Bâli’s “The Perils of Judicial Independence”

by Asli U. Bali

[Aslı Ü. Bâli is Acting Professor of Law at UCLA School of Law.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

I am grateful to Opinio Juris for the opportunity to discuss my Article – “The Perils of Judicial Independence: Constitutional Transition and the Turkish Example.” Here I outline the critique I offer of the “Turkish model” of constitutionalism and the implications of my argument for democratizing transitions such as those currently underway in the Arab world.

Democratizing model or cautionary tale?

Turkey is sometimes invoked as a potential “model” for democratization in countries like Egypt and Tunisia. This article considers the features of the Turkish legal order that have impeded democratic consolidation. In particular, I analyze the role of the Turkish Constitutional Court and arguments about judicial independence in a series of constitutional crises from 2007 to the present. This focus on courts and constitutions is appropriate, I claim, because of the emphasis placed on “rule of law,” constitutionalism and an independent judiciary in the academic literature on democratizing transitions. In the context of the Arab Spring, such prescriptions have served an almost talismanic function – separating, in the eyes of external observers, legitimate calls for democratic change from troubling forms of political upheaval. In Egypt such observers view arguments for managed transition through constitutional reform as appropriate while political transformation through the ballot box is identified with the specter of political Islam. Yet, in the Turkish case, I argue that a strong and independent judiciary and the effort to insulate certain constitutional principles from democratic debate – particularly centered around the meaning of secularism in a Muslim majority country – has served to inhibit democratization and entrench legacies of authoritarianism. Indeed, as a result of the positions taken by traditional political elites through the courts, political Islamists in Turkey have emerged as democratizers and perhaps even (accidental) liberalizers.

Redefining judicial independence

Based on the Turkish case I argue that institutional design prescriptions for democratic transitions, including those related to judicial independence, should be revisited. In particular, the meaning of “judicial independence” should be understood differently in the context of a transition from minority rule to majority rule (through democratization). At present, judicial independence is conceived primarily in terms of separation of powers; while accompanied by the idea of “checks and balances,” the emphasis is on maintaining the autonomy of the courts rather than on subjecting them to political checks. Ran Hirschl has argued that this notion of judicial independence is particularly well suited to enabling authoritarian elites to manage transitional processes. The Turkish conceptions of constitutionalism and judicial independence exemplify the risk that constitutional provisions may serve to insulate elite privileges from democratic reversal through the courts. Through my analysis of recent Turkish constitutional crises – and their origins in institutional legacies from the founding of the republic – I argue that in cases of democratic transition, the best definition of judicial independence would be independence from elite capture rather than independence from the elected branches of government.
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VJIL Symposium: Sungjoon Cho Answers to Kelly, Shaffer, and Trachtman

by Sungjoon Cho

[Sungjoon Cho is currently a Visiting Professor of Law at Northwestern University School of Law. He is also Professor of Law and Norman and Edna Freehling Scholar, Chicago-Kent College of Law.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

First of all, I would like to thank Profs. Shaffer, Trachtman and Kelly for their valuable comments my Article, “Beyond Rationality: A Sociological Construction of the World Trade Organization.” I feel fortunate to have these rich and provocative exchanges on this important issue.

Let me start my response to their comments by reiterating that I do not intend to question the merits of Profs. Shaffer and Trachtman’s substantive arguments. The authors’ institutional scrutiny is analytically clear, rhetorically powerful, and offers a simple yet powerful heuristic on the WTO and its affairs.

My critique centers on their methodological framework, which many International Relations (IR) scholars, such as Robert Keohane and Alex Wendt, would categorize as “rationalism.” Profs. Shaffer and Trachtman basically draw on the “comparative institutional analysis” developed by Neil Komesar, which focuses on the availability of alternative choices in understanding the development of a particular institution. In general, this approach belongs to the school of “new institutional economics” espoused by Douglas North and Oliver Williamson. According to this theory, all institutions are invariably accompanied by transaction costs and therefore can be replaced by alternatives. In the same vein, the WTO is a welfare-maximizing contract within this theoretical framework (Shaffer & Trachtman, p. 111).

As the authors might agree, no framework is perfect and rationalism is no exception. Rationalism inevitably leaves some paradigmatic blind spots, which tend to obscure a more complete understanding of the WTO. I maintain that we need to identify those blind spots, and that an alternative framework, such as the one I propose here, could brighten our picture of the WTO. I do not argue for “taking sides.” In fact, I also employed a law and economics methodology in another paper addressing a different issue.

Granted, Profs. Shaffer and Trachtman do acknowledge the value of ideational (non-rationalist) parameters, such as “ideas” and “community.” In fact, their mission statement explicitly aims for the exploration of a “law and society” perspective. Nonetheless, their work gives only passing attention to social dynamics. It does not appear that their analysis seriously engages the social, or sociological, aspects of the decision-making process. For example, when they mentioned the “interpretive community” they could have engaged in substantive discussions that involve judicial internalization or the role of interlocutors and norm sponsors. In contrast, those “choices” correspond to consequentialist considerations informed by efficiency concerns. Therefore, it is hard to accept that they view WTO norms as a discursive device powered by the WTO members’ shared understandings or behavioral expectations.
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VJIL Symposium: Gregory Shaffer and Joel Trachtman Comment on Sungjoon Cho’s “Beyond Rationality”

by Gregory Shaffer and Joel P. Trachtman

[Gregory Shaffer is the Melvin C. Steen Professor of Law at the University of Minnesota Law School. Joel P. Trachtman is the Professor of International Law at the Fletcher School of Law and Diplomacy at Tufts University.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

We are grateful to Professor Cho for writing this Article (Beyond Rationality: A Sociological Construction of the World Trade Organization) as a critique of our earlier Article (Interpretation and Institutional Choice at the WTO). Our article examined the choices in WTO interpretation in terms of their institutional implications, which in turn affect social welfare and participation in social decision-making. Cho’s main point is that our approach is “blindsided” by failing to understand WTO rules and interpretations from the standpoint of a discourse-based constructivist or sociological approach. He contends that norms at the WTO arise from discourse, and that actors judge the behavior of others and formulate their own behavior on the basis of these constantly evolving norms.

Cho’s article, in our view, does not engage with our central focus — which is to increase understanding of what is at stake in WTO drafting and interpretation in terms of the implications for not only social welfare, but also (and relatedly) for participation in social decision-making processes. We did not aim with this article to take sides in the rationalist-constructivist debate. We rather believe that our framework is open to addressing the role of both ideas and interests, and is by no means “textualist determinist” (p. 325) and “rationally predetermined” as Cho contends (pp. 325, 334, 347, 353). Readers of our article and users of our analytic framework can decide for themselves.

To turn to Cho’s sociological approach, it seems to imagine a closed discursive community endogenously or autopoetically generating norms. Our approach highlights instead the exogenous consequences of interpretive choices, however those interpretive choices are informed, including by norms developed interactively, or by interests and perspectives that are not endogeneous to the “WTO community.”

We question what it could possibly mean for welfare (however one views it) for the world to be structured as Cho conceives of it, as a place where international organizations such as the WTO have an internal discourse that determines norms which in turn determine behavior. How would these norms be judged? Cho argues for some independent “values”-based metric, but seems to fail to recognize that different individuals have different values, perspectives, and priorities; that different states represent different constituencies; and that what people value and prioritize affects welfare. Our framework, in contrast, makes clear how interpretive choices allocate authority to different institutional decision-making processes, which mediate expressions of diverse values and priorities in different ways (each of them imperfect, but some better than others in different contexts).
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VJIL Symposium: Doctor, Heal Thyself – A Commentary on Professor Sungjoon Cho’s Critique of Shaffer and Trachtman

by Claire Kelly

[Claire Kelly is a Professor of Law at Brooklyn Law School.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

Thank you very much to Opinio Juris for this opportunity to comment on this set of Articles recently published in the Virginia Journal of International Law.

To address rationalism’s failings, Professor Cho prescribes a constructivist or sociological lens in his Article, “Beyond Rationality: A Sociological Construction of the World Trade Organization.” While I wholeheartedly agree with Professor Cho’s desire to supplement the rationalist account with a sociological perspective, I would challenge him to address the same normative biases of powerful countries in that sociological framework. Indeed, concerns regarding “participation, transparency, accountability, and legitimacy” are perhaps more pronounced in the sociological account. It is not clear to me that the sociological account adequately addresses them either.

In response to Gregory Shaffer and Joel Trachtman’s “Interpretation and Institutional Choice at the WTO,” Professor Sungjoon Cho aptly reminds us to consider the sociological framework in international law as it sheds light on “institutional evolution and development concerns” largely overlooked by the rationalist framework. Professor Cho makes several important points. First, rationalism like any theory is not perfect. It cannot explain everything. Although it attempts to predict what rational actors might do, it can overlook what real actors “whose rationality is in fact bounded” do. Second, rationalism’s preference for textualist interpretation undervalues the possibility of endogenous change. Third, the rationalist lens fails to account for the normative biases inherent in a system where powerful countries bargain with less powerful ones. This normative blind spot along with normative concerns of “participation, transparency, accountability, and legitimacy” are given little attention by the rationalist framework.

Sociological communities can indeed “change what WTO members think of themselves and the nature of their perceived interests through “frames of reference.” But those frames of reference are dominated by the powerful and developed states. So while the constructivist framework is useful; it too has blind spots. The same questions of transparency, accountability, participation and legitimacy arise when one looks through a constructivist lens as when one looks through a rationalist one. Those questions are all the more important in this framing because the discursive dimensions of the WTO or any other institutional setting are often hidden from sight. Admittedly, the constructivist account acknowledges that the social discourse is symbiotic. No actor is immune from the influence of others. But one must suspect that some actors are more influential than others in constructing social norms.
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VJIL Symposium: Introducing Sungjoon Cho’s “Beyond Rationality: A Sociological Construction of the World Trade Organization” – A Critique of “Interpretation and Institutional Choice at the WTO” by Professors Shaffer and Trachtman

by Sungjoon Cho

[Sungjoon Cho is currently a Visiting Professor of Law at Northwestern University School of Law. He is also Professor of Law and Norman and Edna Freehling Scholar, Chicago-Kent College of Law.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

Thank you to Opinio Juris and the Virginia Journal of International Law (VJIL) for putting together this discussion on my recent VJIL Article – “Beyond Rationality: A Sociological Construction of the World Trade Organization,” which critiques the approach taken by Professor Gregory Shaffer and Professor Joel P. Trachtman in their VJIL Article, “Interpretation and Institutional Choice at the WTO.”

The dominant paradigm under which one can comprehend an international organization, such as the World Trade Organization (WTO), has been “rationalism.” Under a rationalist framework, the WTO is an instrument (institutional arrangement) that its creators (states) programmed ex ante to promote freer trade by facilitating interstate cooperation, reducing transaction costs and stabilizing their expectation. In a nutshell, all that the WTO is about and it does is somehow reduced to its members’ (rational) “choice” informed by material interests, such as power and utilities. Rationalism, which connotes both neorealism and neoliberal institutionalism, provides a powerful heuristic of the operation of the WTO. Its characteristic parsimony has also generated a number of excellent research projects, including the one provided by Professors Joel Trachtman and Gregory Shaffer.

Nonetheless, rationalism does not exhaust perspectives on the WTO. States are not mere sophisticated machines, analogous to the Architect in the movie Matrix. They are also “social” actors that “interpret,” not necessarily calculate, others’ behaviors and mold their own based on their interpretation. Their actions are in fact deeply embedded in their socio-cultural surroundings, including the institutional sphere given by the WTO. Under this sociological (“constructivist” under the International Relations theory) framework, the WTO is defined not as a contract (Gesellschaft), but as a “community” (Gemeinschaft). Within the WTO’s community, its members convey their thoughts and arguments (ideas) through an iterative and ritualized process (discourse) and eventually institutionalize those ideas as norms. These two different frameworks – rationalism and constructivism – may generate two different explanations on the WTO and its operation. For example, under the conventional (rationalist) framework, the recent failure of the Doha (Development) Round is simply a deal fell apart. Under the constructivist framework, however, one might say that the cause of “development” never morphed into the WTO’s social structure based on which WTO members self-evaluate their particular behaviors as appropriate or not.

Finally, a word of caution. I am not arguing that the new sociological paradigm should supplant the rationalist approach. Nor do I suggest that the blind spots of the rationalist framework render it obsolete. No paradigm is perfect. What I attempt to do is to contribute to a more complete understanding of the WTO by providing an alternative paradigm and narrative. Notably, it is also important to identify a zone of convergence where the two paradigms may harmonize.

VJIL Symposium: Gregory Shaffer and Joel Trachtman Answer to Brewster, Howse, and Pauwelyn

by Gregory Shaffer and Joel P. Trachtman

[Gregory Shaffer is the Melvin C. Steen Professor of Law at the University of Minnesota Law School. Joel P. Trachtman is the Professor of International Law at the Fletcher School of Law and Diplomacy at Tufts University.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

We were delighted to learn that Profs. Brewster, Howse, and Pauwelyn had agreed to comment on our article, Interpretation and Institutional Choice at the WTO, on Opinio Juris. Their comments add to our understanding of the important question of how drafting and interpretive choices made by treaty-writers and judges can be understood in terms of allocation of authority. Rachel Brewster adds some important dimensions to this study, asking whether we can identify pro-liberalization or majoritarian impulses in Appellate Body decision-making. Rob Howse illuminates these questions by noting that the Appellate Body seems determined to resist pressure from other branches of the WTO. Howse also highlights the delicate and evolving line that the Appellate Body seems to tread between referring to non-WTO international law in circumstances where it may be jurisprudentially questionable to do so, and avoiding the challenge to the legitimacy of the WTO legal system that might arise if the Appellate Body were to ignore non-WTO international law in its decision-making.

The commentators capture our aim to provide an analytic framework for helping lawyers, judges, scholars, students, and policy makers understand and evaluate institutional choices in the drafting and interpretation of the WTO agreements. These choices have welfare and distributive consequences, which are mediated by how the choices delegate and allocate authority to different social decision-making processes. In the article, we apply the framework both to choices in the drafting of the WTO agreements and their interpretation in case law.

Our goal in writing the article was to provide an analytical template in order to highlight the ways in which different drafting and interpretive choices may be understood in terms of their allocation of decision-making to different institutions, including the market, ultimately affecting social welfare and participation.

Some lawyers and legal scholars may feel uncomfortable with the social science convention that positive assessment is not to be influenced by normative analysis, but is rather to inform it. In our article, we follow this convention and avoid providing our own normative assessment of the interpretive choices made by treaty-writers and judges. Our comparative institutional analysis is rather intended to illuminate the consequences of choice by providing a template for analysis. For example, interpretive choices include the decision to limit the role of non-WTO law in WTO dispute settlement, or to defer to certain standard-setting bodies in WTO dispute settlement. We do not engage in empirical analysis of the impact of these choices in particular cases. Rather, we draw suggestive links between these choices and dependent variables that can be understood as normative desiderata: principally, welfare enhancement and participation in social decision-making. We explicitly note that there are tradeoffs in these institutional choices, and that the tradeoffs must be evaluated both generally and on a case-by-case, contextually-situated, basis.
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VJIL Symposium: Joost Pauwelyn Comments on “Interpretation and Institutional Choice at the WTO”

by Joost Pauwelyn

[Joost Pauwelyn is Professor of International Law at the Graduate Institute of International and Development Studies in Geneva, Switzerland.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

Thank you to Opinio Juris and the Virginia Journal of International Law for inviting me to participate.

This Article, by Greg Shaffer and Joel Trachtman, makes the important point that choices in treaty drafting and judicial interpretation allocate authority. For example, a choice for rules (instead of standards) or reference to non-WTO norms and expert advice (instead of WTO law only) allocates authority, respectively, to negotiators (instead of the judiciary) and to other bodies or experts (instead of the WTO). This is clear and convincing. From there, however, the authors make an extra and less convincing step: after (descriptively) linking choice to authority they then (normatively) link type of authority to welfare and participation levels arguing, for example, that treaty drafters (setting rules) can be presumed to “maximize welfare” and offer more “transparency, accountability, and legitimacy” than the judiciary (applying standards) (p. 111). A similar hierarchy is presumed putting the WTO above standard-setting bodies such as Codex or the ISO, on the view that the latter “evade the need for consensus within the WTO” (p. 113) and are “subject to capture by certain interests” (p. 114).

I find it extremely difficult to make such generalizations about which type of authority is “better” in welfare and participation terms (Instead of gauging the consequences of interpretative choices it may be more productive to think about the underlying reasons for such choices, as I tried to do here with my co-author Manfred Elsig).

Today’s reality is that authority flows from an increasing diversity of sources (national & international; public & private; political, judicial & expertise etc.). Unless one makes the broadest of assumptions (e.g., “if we ignore strategic problems and asymmetric allocation of power”, at p. 111; elsewhere, equating all of WTO law to trade liberalization and on that basis implying that the WTO is more “efficient”, p. 132), it no longer makes sense to presume that one source is, by definition, “better” than another (e.g. that negotiators or the WTO do a “better job” than judges, experts or other institutions). It all depends on the task at hand (for some things politicians are better; for others, judges, experts or the market) and the detailed set up of the authority in question (how does it operate; who is included; what is its reputation and support?), rather than its type. Nor do we have to make a binary choice between this or that authority: the WTO can refer to outside standards yet at the same time exercise judicial control over those standards (as the recent Panel on US – Tuna Label did, checking the inclusiveness and transparency of the standard); it can refer to scientific or economic experts for factual matters, defer to national authorities for appropriate levels of protection but leave decisions on legal criteria in the hands of WTO panels.
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