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VJIL Symposium: Jason Webb Yackee Responds to Bjorklund/Litwin and Wong

[Jason Webb Yackee is an Assistant Professor of Law at the University of Wisconsin School of Law.] This post is part of the Virginia Journal of International Law/Opinio Juris Symposium, Volume 52, Issue 3. Other posts in this series can be found in the related posts below. It’s a pleasure to receive such thoughtful (and in Professor Wong’s case, humorous) feedback on my short VJIL Essay, and I greatly appreciate their engagement with the piece. I intended the Essay to be provocative but not absurd in its policy recommendations. My main suggestion (that states should think seriously about incorporating “corruption defense” in their investment treaties) is, I think, not inconsistent with the views of either commenter. Neither is my more basic suggestion, which is that even in the absence of corruption-specific BIT language, the fact of an investor’s involvement in public corruption related to its investment is likely to be of legal relevance to the investor’s ability to fully access the procedural and substantive protections of BITs. In other words, I think that we would all probably agree that there is already a viable “corruption defense,” and also that it might be useful to better specify the contours of the defense through explicitly corruption-related treaty language. Where we primarily differ is on the desirable contours of the defense. My scheme is self-consciously pro-state. It imposes serious consequences on the investor who engages in corruption. It is, as Professor Bjorklund accurately points out, supply-side in its focus, just as are the U.S. Foreign Corrupt Practices Act and its non-U.S. equivalents. This supply-side focus bothers Professors Wong and Bjorklund. It seems unfair to them to exclusively punish investors when corruption, by its nature, takes two to tango. It doesn’t bother me as much to sanction one partner and not the other. My premise — unstated in the essay, I admit — is that the supplier of corruption (here, the investor) is probably in some meaningful sense the “least cost avoider” of corruption. The tort law equivalent is a liability regime that places the full cost of compliance on the person who throws a banana peel on the sidewalk, rather than on the inobservant pedestrian who slips on it and falls. My sense (and it is just that at this point) is that it is comparatively difficult for developing countries already afflicted with corruption to prevent it, let alone to eradicate it. It is hard for states to monitor and control the actions of their agents, or to adjust incentive structures to discourage corruption. In contrast, corporations have an advantage in implementing effective training and compliance programs, in disciplining corporate actors who violate corruption laws, and in rewarding those who abide by corporate anti-corruption policy. Indeed, corporations are already spending heavily to implement effective corruption-prevention programs in order to avoid violations of or liability under the US and UK anti-bribery statutes, the penalties for violation of which can be immense. I would suggest, in effect, that the BIT regime should piggyback on these efforts by imposing on companies whose compliance systems fail the additional cost of the loss of their BIT privileges, rather than insisting that the high-cost avoider — the state — be expected to successfully duplicate the already expensive anti-corruption investments of multinational corporations.

VJIL Symposium: Jarrod Wong Comments on “Investment Treaties and Investor Corruption”

[Jarrod Wong is an Associate Professor of Law at the University of the Pacific McGeorge School of Law.] This post is part of the Virginia Journal of International Law/Opinio Juris Symposium, Volume 52, Issue 3. Other posts in this series can be found in the related posts below. This intriguing Essay by Jason Yackee proposes that host states may well have a corruption defense against claims brought by investors under bilateral investment treaties (BITs) based on underlying investment contracts that, while facially unobjectionable, have been procured by bribing public officials. The argument extrapolates nicely from the denial of claims in an arbitration, decided in 1963 by Judge Lagergren, involving a politically well-connected Argentine seeking to enforce a “commission” contract guaranteeing some percentage of state contracts awarded by Argentina to the foreign investor, and in the World Duty Free ICSID case, in which the investor sought compensation for expropriation by Kenya of a concession acquired by bribing the then President of Kenya. While neither claim arose under BITs, both were denied on grounds of violating international public policy, which one --- or least these tribunals --- might conceivably extend to BIT claims. However, I wondered whether Yackee, in his determination to clear a path to the promised land, sufficiently acknowledges the perils on the road. For instance, neither tribunal above was expressly authorized to apply international law; indeed, ICSID tribunals --- which determine many BIT claims --- are to apply “applicable” international law only “in the absence of [the parties’ agreement on applicable law].” While noting this fact, Yackee was prepared to interpret the willingness of both tribunals to invoke (with how much deliberation?) international law as indicating an inherent authority to do so, rather than question the assumption. All the more troubling when the supposed “rule” of international law applied is of the nebulous variety conveniently labeled “international public policy.” (The wry among us might freshly inquire as to how this description differentiates other international law rules.) Shouldn’t we require such policy to crystallize into something akin to customary international law before permitting its application under these tenuous circumstances? Further, should the host state bear no responsibility when a state official accepts the bribe and is equally culpable? The World Duty Free tribunal neglected to weigh this fact in the context of international public policy, although it considered the issue under applicable national laws, only to hide behind Latin maxims ---- the in pari delicto and ex turpi causa principles --- in refusing to calibrate the equities more precisely. (Really? The President of Kenya walks off with $2 million, and the best the Tribunal’s got is a dead language?) Would the World Duty Free outcome not perversely incentivize host states to encourage bribery behind dummy anticorruption legislation since this gives license to flout BIT obligations?

VJIL Symposium: Andrea Bjorklund and Daniel Litwin Comment on “Investment Treaties and Investor Corruption”

[Andrea K. Bjorklund is currently the Visiting Professor (Guest of the L. Yves Fortier Chair in International Commercial Arbitration), McGill University Faculty of Law; she is also a Professor of Law at the University of California, Davis. Daniel Litwin is a B.C.L./LL.B. Candidate, McGill University Faculty of Law.] This post is part of the Virginia Journal of International Law/Opinio Juris Symposium, Volume 52, Issue 3. Other posts in this series can be found in the related posts below. Thank you very much to the Virginia Journal of International Law and Opinio Juris for hosting this series of discussions. We are very happy to participate. Jason Yackee’s Essay takes what might be described as an orthodox position on corruption. It rests on a long line of international commercial arbitration precedents whose focus has consistently been on the “supply” side of corruption and not on its “demand” side. (We are grateful to McGill student David Rapps for this nomenclature). This focus on the “bribe payer” (supply side) is reminiscent of the approach taken by the US Foreign Corrupt Practices Act and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Professor Yackee adopts this same focus in suggesting that an investor’s corrupt or fraudulent behavior should prevent it from taking advantage of the protections afforded by any applicable investment treaty. Yet experience in the fight against drug trafficking suggests that seeking to limit supply without eradicating demand will never be successful. The UK apparently takes this view: its recently-adopted Bribery Act penalizes both bribing (supply side) and receiving bribes (demand side). The same even-handed approach to fighting corruption is present in the anti-bribery laws of Germany and of China. We too believe that if both an investor and a host state engage in corrupt behavior, sanctioning both is the best way to achieve the goal of eradicating corruption that has animated the international community (at varying levels of enthusiasm) for the past several decades. Like Professor Yackee, we agree with the position taken by the tribunal in World Duty Free v. Republic of Kenya that corruption is properly viewed as a violation of transnational public policy or truly international public policy. We cannot, however, agree with his refusal to adopt a balanced approach that would proportionally ascribe blame to all parties involved in a corrupt exchange. Penalizing only the party actively committing the wrong is reminiscent of the approach taken in the investor misconduct cases cited by Professor Yackee. But in both Inceysa Vallisoletana S.L. v. Republic of El Salvador and Plama Consortium Ltd. v. Republic of Bulgaria the investors were guilty of misrepresentation, a unilateral offense involving a single guilty party. Since corruption is normally bilateral, any parallels between cases involving misrepresentation and corruption should be properly nuanced.

VJIL Symposium: Introducing “Investment Treaties and Investor Corruption”

[Jason Webb Yackee is an Assistant Professor of Law at the University of Wisconsin School of Law.] This post is part of the Virginia Journal of International Law/Opinio Juris Symposium, Volume 52, Issue 3. Other posts in this series can be found in the related posts below. Thank you very much to the Virginia Journal of International Law and Opinio Juris for...

VJIL Symposium: Alvaro Santos Responds to Professors Howse and Lang

[Alvaro Santos is currently an Associate Professor of Law at the Georgetown University Law Center.] This post is part of the Virginia Journal of International Law/Opinio Juris Symposium, Volume 52, Issue 3. Other posts in this series can be found in the related posts below. I am grateful to Professors Robert Howse and Andrew Lang for their comments on my Article. I am an avid reader of their work and am honored for the opportunity to have this exchange. My Article argues that contrary to the commonly held assumption that WTO legal obligations overly restrict countries’ regulatory autonomy, there is still flexibility in the system for countries to carve out regulatory space and pursue heterodox domestic economic policies. The Article seeks to show that often the biggest obstacles to experiment in domestic economic policy are not the trade legal obligations but the beliefs that assign to the WTO a specific form of trade liberalization. These habits of thought assume a determinate meaning in what constitutes a trade distortion when these determinations are in fact the result of policy and value-laden choices. One concrete implication is that contrary to what is often assumed, the hands of the policy decision-makers in developing countries are not tied. Both Professors Howse and Lang seem to agree with the Article’s thesis about the existence of greater policy flexibility in the WTO and raise important points about its implications. I would like to respond by highlighting three themes that stem from their comments: the role of technical expertise, the institutional strength of the WTO’s Dispute Settlement Body (DSB) and the conceptual scope of policy autonomy. First, let me say a word about technical expertise. Professor Robert Howse’s work has been at the forefront of showing the wider range of policy choices available under the WTO agreements. In his response Howse provides an excellent example of narrowing down of policy flexibility using the TRIPs agreement. Although compulsory licensing is often interpreted as being available only in cases of emergency, it is indeed generally available. Howse emphasizes the importance of independent expertise on WTO law for developing countries. A kind of expertise that does not take for granted the conventional wisdom prevalent in the global trade policy elite, the WTO Secretariat or powerful interest groups but that looks instead at how to serve the needs of developing countries. This point relates to the concept of “development legal capacity”, which I use to argue that knowledge and expertise can be deployed to contest dominant interpretations of WTO to experiment domestically with heterodox economic policies. Howse makes clear that different political, social and philosophical views animate different interpretations of what the WTO obligations mean. Here, as in much of his work there is an impetus for the democratization of the global trade regime and for a vibrant public debate about the values we want the system to embrace that I find compelling. Similarly, Professor Lang notes that if developing countries are to be successful in advancing their economic agendas they ought to pay attention not only to their legal capacity in litigation but to the structural conditions that influence the receptivity or the impact that their arguments will have on legal interpreters. I agree and indeed regard countries’ developmental legal capacity as encompassing that kind of work. Lang points to the role of public criticism in the environmental cases. Similarly, one could see the access to medicines campaign in the context of the AIDS epidemic as another important example. Developing countries like South Africa and Brazil, as well as many NGOs, managed to reframe the understanding of TRIPs so that it could not be read to limit states’ rights to pursue their public health objectives. Thus, I agree that countries’ legal capacity and lawyering strategies can’t be limited to litigation. Countries need to devise strategies that would make their arguments gain traction in Geneva and among the trade policy network. This could include very visible work like public campaigns and forging political coalitions as well as the less visible and more gradual work of WTO committees, as Lang has examined elsewhere.