The institutionalist implications of an odious debt doctrine

Law and Contemporary Problems

Volumn 70, Issue 3, 2007, Pages 212-232

  Stephan Jr , Paul B ^a  

^a U S DEPARTMENT OF STATE   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 38349118282     PISSN: 00239186     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (93)

1. For a good review of the doctrine, see Lee C. Buchheit, G. Mitu Gulati & Robert B. Thompson, The Dilemma of Odious Debts, 56 DUKE L.J. 1201 (2007).
2. For support from economists, see Seema Jayachandran & Michael Kremer, Odious Debt, 96 AM. ECON. REV. 82 (2006);
3. Joseph Stiglitz, Odious Rulers, Odious Debts, ATLANTIC MONTHLY, Nov. 2003, at 39.
4. For support from political activists, see sources infra note 23.
5. RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 102(2) (1987).
6. See, e.g., Oscar Schachter, Human Dignity as a Normative Concept, 77 AM. J. INT'L L. 848 (1983);
7. Oscar Schachter, The Invisible College of International Lawyers, 72 NW. U. L. REV. 217 (1977).
8. JACK L. GOLDSMITH & ERIC A. POSNER, THE LIMITS OF INTERNATIONAL LAW 21-78 (2005);
9. Curtis A. Bradley & Jack L. Goldsmith, Customary International Law as Federal Common Law: A Critique of the Modern Position, 110 HARV. L. REV. 815 (1997). This criticism in turn has prompted a massive response from the international-law establishment.
10. See, e.g., Symposium: The Limits of International Law, 34 GA. J. INT'L & COMP. L. 253 (2006).
11. See, e.g., Flores v. S. Peru Copper Corp., 343 F.3d 140, 156-58, 157 n.26 (2d Cir. 2003);
12. United States v. Yousef, 327 F.3d 56, 99-103 (2d Cir. 2003).
13. Cf. Sosa v. Alvarez-Machain, 542 U.S. 692, 733-34 (2004) (referring to "those sources we have long, albeit cautiously, recognized" as including "customs and usages of civilized nations; and, as evidence of these, to the works of jurists and commentators, who by years of labor, research and experience, have made themselves peculiarly well acquainted with the subjects of which they treat")
14. (quoting The Paquete Habana, 175 U.S. 677, 700 (1900)). Although the quoted language refers to "jurists and commentators" as just providing evidence of state practice, some have used this language as support for the claim that the aspirational statements of jurists are themselves evidence of state practice.
15. See Bradley & Goldsmith, supra note 5, at 838-40 (diescribing use).
16. Thug some commentators have explained the definition of opinio juris as a shorthand for a kind of state consent that implies voluntary choice. Maurice H. Mendelson, The Formation of Customary International Law, 272 RECUEIL DES COURS 155, 268-93 (1998);
17. George Norman & Joel P. Trachtman, The Customary International Law Game, 99 AM. J. INT'L L. 541, 544, 570-71 (2005).
18. Ryan Goodman & Derek Jinks, How to Influence States: Socialization and International Human Rights Law, 54 DUKE L.J. 621 (2004).
19. Collective-action problems, generally speaking, are those in which cooperation has a positive payoff but individual actors have an incentive to defect from the cooperative norm. For further discussion, see Paul G. Mahoney & Chris William Sanchirico, Norms, Repeated Games, and the Role of Law, 91 CAL. L. REV. 1281 (2003);
20. Duncan Snidal, Coordination Versus Prisoners' Dilemma: Implications for International Cooperation and Regimes, 79 AM. POL. SCI. REV. 923 (1985);
21. Paul B. Stephan, Redistributive Litigation - Judicial Innovation, Private Expectations, and the Shadow of International Law, 88 VA. L. REV. 789 (2002).
22. Eyal Benvenisti, Customary International Law as a Judicial Tool for Promoting Efficiency, in THE IMPACT OF INTERNATIONAL LAW ON INTERNATIONAL COOPERATION: THEORETICAL PERSPECTIVES 85 (Eyal Benvenisti & Moshe Hirsch eds., 2004).
23. For a sampling of scholarship about customary international law that assumes rationalism in the face of collective-action problems, see GOLDSMITH & POSNER, supra note 5;
24. Tom Ginsburg, Bounded Discretion in International Judicial Lawmaking, 45 VA. J. INT'L L. 631 (2005);
25. Andrew T. Guzman, A Compliance-Based Theory of International Law, 90 CAL. L. REV. 1823 (2002);
26. Norman & Trachtman, supra note 8;
27. Francesco Parisi & Vincy Fon, International Customary Law and Articulation Theories: An Economic Analysis, 2 BYU INT'L L. & MGMT. REV. 201 (2006);
28. Edward T. Swaine, Rational Custom, 52 DUKE L.J. 559 (2002);
29. Pierre-Hugues Verdier, Cooperative States: International Relations, State Responsibility and the Problem of Custom, 42 VA. J. INT'L L. 839 (2002).
30. Schooner Exchange v. M'Faddon, 11 U.S. 116 (1812) (holding that a vessel belonging to the French navy was not subject to attachment by U.S. courts).
31. In limiting this assertion to cases over which courts otherwise have jurisdiction, the statement in text takes into account the position that customary international law does not, simply by its status as customary international law, constitute federal law for purposes of federal-court jurisdiction under Article III of the Constitution or 28 U.S.C. § 1331.
32. For the assertion that customary international law is federal law in both the constitutional and statutory jurisdictional senses, see RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW §§ 111, 115 (1987);
33. LOUIS HENKIN, FOREIGN AFFAIRS AND THE CONSTITUTION 219 (1972).
34. For a critical response, see Bradley & Goldsmith, supra note 5;
35. A. M. Weisburd, State Courts, Federal Courts, and International Cases, 20 YALE J. INT'L L. 1 (1995).
36. For responses to this criticism, see Ryan Goodman & Derek P. Jinks, Filartiga's Firm Footing: International Human Rights and Federal Common Law, 66 FORDHAM L. REV. 463 (1997);
37. Harold Hongju Koh, Is International Law Really State Law?, 111 HARV. L. REV. 1824 (1998);
38. Gerald L. Neuman, Sense and Nonsense About Customary International Law: A Response to Professors Bradley and Goldsmith, 66 FORDHAM L. REV. 371 (1997);
39. Beth Stephens, The Law of Our Land: Customary International Law as Federal Law After Erie, 66 FORDHAM L. REV. 393 (1997).
40. Paul B. Stephan, Courts, the Constitution, and Customary International Law: The Intellectual Origins of the Restatement (Third) of the Foreign Relations Law of the United States, 44 VA. J. INT'L L. 33 (2003) (linking academy's support for judicial enforcement of customary international law to growing dismay with U.S. foreign policy and policymakers during the 1970s).
41. Cf. LOUIS B. BOUDIN, GOVERNMENT BY JUDICIARY (1932) (attacking the institution of judicial review as a means of resisting liberty-oriented constitutional jurisprudence of the contemporary Supreme Court).
42. For articulation of just such a critique of the customary international law of investment protection, see M. SORNARAJAH, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT (2d ed. 2004).
43. For fuller discussion of sovereign debt and its restructuring, see William W. Bratton & G. Mitu Gulati, Sovereign Debt Reform and the Best Interest of Creditors, 57 VAND. L. REV. 1 (2004).
44. For more on the distinction between formal enforcement of obligations based on rules announced ex ante and ex post informal enforcement, see SCOTT & STEPHAN, supra note *, at 4, 98-101.
45. Gr. Brit. v. Costa Rica, 1 R.I.A.A. 375 (1923) [hereinafter Tinoco Arbitration].
46. ALEXANDER SACK, LES EFFETS DES TRANSFORMATIONS DES ÉTATS SUR LEURS DETTES PUBLIQUES ET AUTRES OBLIGATIONS FINANCIÈRES (1927).
47. For recent commentary see Anna Gelpern, What Iraq and Argentina Might Learn from Each Other, 6 CHI. J. INT'L L. 391 (2005).
48. Jackson v. People's Republic of China, 794 F.2d 1490 (11th Cir.1986). The precise holding of the court - that the Foreign Sovereign Immunity Act's concept of restrictive immunity did not apply to claims arising before the Act's enactment - later was repudiated by the Supreme. Court. Republic of Austria v. Altmann, 541 U.S. 677 (2004).
49. See Joseph Hanlon, Defining "Illegitimate Debt": When Creditors Should Be Liable for Improper Loans, in SOVEREIGN DEBT AT THE CROSSROADS: CHALLENGES AND PROPOSALS FOR RESOLVING THE THIRD WORLD DEBT CRISIS 109 (Chris Jochnick & Fraser A. Preston eds., 2006).
50. Krishna Guha, Norway Debt Cancellation Hailed by Activists, FIN. TIMES, Oct. 4, 2006, at 43.
51. The loans involved ships built by Norwegian firms, and a skeptic might interpret Norway's debt forgiveness as a price rebate in a tight market.
52. E.g., SOVEREIGN DEBT AT THE CROSSROADS, supra note 21;
53. PATRICIA ADAMS, ODIOUS DEBTS: LOOSE LENDING, CORRUPTION, AND THE THIRD WORLD'S ENVIRONMENTAL LEGACY (1991);
54. Soren Ambrose, Social Movements and the Politics of Debt Cancellation, 6 CHI. J. INT'L L. 267 (2005);
55. Kevin H. Anderson, International Law and State Succession: A Solution to the Iraqi Debt Crisis? 2 UTAH L. REV. 401 (2005);
56. David D.Caron, The Reconstruction of Iraq: Dealing with Debt, 11 U.C. DAVIS J. INT'L L. & POL'Y 123 (2004);
57. Anupam Chander, Odious Securitization, 53 EMORY L.J. 923 (2004);
58. Detlev F. Vagts, Sovereign Bankruptcy: In re Germany (1953), In re Iraq (2004), 98 Am. J. INT'L L. 302 (2004).
59. U.S. 398 (1964).
60. Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845 (2d Cir. 1962).
61. Sabbatino, 376 U.S. at 424-37. Within months, Congress repudiated Sabbatino's holding by directing federal courts to consider whether an expropriation of property by a foreign sovereign violated customary international law regardless of the official nature of the expropriation: Notwithstanding any other provision of law, no court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other right to property is asserted by any party including a foreign state (or a party claiming through such state) based upon (or traced through) a confiscation or other taking after January 1, 1959, by an act of that state in violation of the principles of international law, including the principles of compensation and the other standards set out in this subsection: Provided, That this subparagraph shall not be applicable (1) in any case in which an act of a foreign state is not contrary to international law or with respect to a claim of title or other right to property acquired pursuant to an irrevocable letter of credit of not more than 180 days duration issued in good faith prior to the time of the confiscation or other taking, or (2) in any case with respect to which the President determines that application of the act of state doctrine is required in that particular case by the foreign policy interests of the United States and a suggestion to this effect is filed on his behalf in that case with the court. Pub. L. No. 88-633, § 301(d), 78 Stat. 1013, amending Section 620(e) of the Foreign Assistance Act of 1961, codified at 22 U.S.C.S. § 2370(e)(2) (2001).
62. For a review and critique of this position, see Bradley & Goldsmith, supra note 5.
63. For the Supreme Court's recent endorsement (in dicta) of the power of federal courts to develop a federal common law, of foreign relations, see Sosa v. Alvarez-Machain, 542 U.S. 692, 714-20 (2004).
64. For the argument that Sosa confirms the point that federal courts lack a general power to recognize customary international law absent a statutory directive to do so, see Curtis A. Bradley, Jack L. Goldsmith & David H. Moore, Sosa, Customary International Law, and the Continuing Relevance of Erie, 120 HARV. L. REV. 869 (2007).
65. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
66. I will not discuss here the applicability to sovereign-debt contracts of the act-of-state doctrine articulated in Sabbatino, although in some cases it may be relevant. U.S. courts generally have-regarded the act-of-state doctrine to be inapplicable to loans payable outside the territory of the debtor sovereign. Allied Bank International v. Banco Credito Agricola de Cartago, 757 F.2a 516 (2d Cir. 1985), cert. denied, 473 U.S. 934 (1985). There remains, however, some conceptual tension between the odious debt doctrine, which calls on adjudicators to sanction illiberal states, and the act-of-state doctrine, which insulates the official acts of illiberal states from conventional choice-of-law review by foreign courts. See Anne-Marie [sclaughter] Burley, Law Among Liberal States: Liberal Internationalism and the Act of State Doctrine, 92 COLUMN. L. REV. 1907 (1992).
67. State v. Morgan Stanley & Co., 459 S.E.2d 906 (W. Va. 1995) (basing judgment against broker on state customer's legal incapacity);
68. Hazell v. Hammersmith & Fulham London Borough Council, 2 W.L.R. 372 (H.L. 1991) (holding debt contract unenforceable because Borough Council lacked legal capacity to enter into it).
69. U.S. at 415 n.17.
70. The core problem is that bad behavior by the debtor is an externality that cannot be captured by contract. The odious debt doctrine imposes a sanction that falls on'the creditor. Bad regimes have no incentive to inflict this sanction on creditors (who will charge them for the ex ante risk), and good regimes have no mechanism for rewarding their creditors. Proposals to institute the odious debt doctrine through contract fail to account for the externality. E.g., Adam Feibelman, Equitable Subordination, Fraudulent Transfer, and Sovereign Debt, 70 LAW & CONTEMP. PROBS. (forthcoming Autumn 2007).
71. For the argument, institutional issues aside, that an odious debt doctrine is unlikely to enhance welfare, see Albert H. Choi & Eric A. Posner, A Critique of the Odious Debt Doctrine, 70 LAW & CONTEMP. PROBS. 33 (Summer 2007).
72. Robert E. Scott & George G. Triantis, Anticipating Litigation in Contract Design, 115 YALE L.J. 814 (2006).
73. The statement in text assumes that odious regimes cannot invoke the doctrine to discharge their debts. As noted below, under certain assumptions this actually becomes an undesirable restriction.
74. Jayachandran & Kremer, supra note 2;
75. Stiglitz, supra note 2. As a substantive matter, this solution departs from the conventional description of the doctrine by making debts contracted by odious regimes unenforceable, even in the absence of a succession. This extension is necessary to make bad regimes fully internalize the cost of their misconduct.
76. For an instance of grounding "national" law (here an EC Council Regulation) on a mandate received from the Security Council, see Case T-315/01, Kadi v. Council, 2005 E.C.R. II-03649 (upholding freeze of assets as part of antiterror program in response to Security Council Resolution 1333).
77. For a refusal by the German Constitutional Court to regard a Security Council resolution as a sufficient basis for a national law implementing an E.U. framework decision, see Re Constitutionality of German Law Implementing the Framework Decision on a European Arrest Warrant (2 BvR 2236/04), [2006] 1 C.M.L.R. 16.
78. See generally Paul B. Stephan, Courts, Tribunals, and Legal Unification - The Agency Problem, 3 CHI. J. INT'L L. 333 (2002).
79. Paul B. Stephan, Accountability and International Lawmaking: Rules, Rents and Legitimacy, 17 NW. J. INT'L L. & BUS. 681, 692-93 (1996-97).
80. West v. Multibanco Comermex, S.A., 807 F.2d 820 (9th Cir. 1987), 482 U.S. 906 (1987).
81. Erica R. Could, Money Talks: Supplementary Financiers and International Monetary Fund Conditionality, 57 INT'L ORG. 551 (2003).
82. Note that a comparable situation is presented by the International Criminal Court (ICC), which exercises the power otherwise held by the Security Council to decide when to prosecute criminal violations of international law. Paul Stephan, U.S. Constitutionalism and International Law: What the Multilateralist Move Leaves Out, 2 J. INT'L CRIM. JUST. 11 (2004). As of this writing, a majority of the great powers, and four other states that possess nuclear weapons, have refused to accede to the treaty establishing the ICC.
83. Bradley & Goldsmith, supra note 5, at 839-40.
84. E.g., Chris Jochnick, The Legal Case for Debt Repudiation, in SOVEREIGN DEBT AT THE CROSSROADS, supra note 21, at 133, 147.
85. See A NEW INTERNATIONAL ECONOMIC ORDER: SELECTED DOCUMENTS 1945-1975 (2 vols.) (Alfred George Moss & Harry N.M. Winton eds., 1977);
86. THE NEW INTERNATIONAL ECONOMIC ORDER: THE NORTH-SOUTH DEBATE (Jagdish N. Bhagwati ed., 1977);
87. OSWALDO DE RIVERO B., NEW ECONOMIC ORDER AND INTERNATIONAL DEVELOPMENT LAW (1980);
88. THE CHALLENGE OF THE NEW INTERNATIONAL ECONOMIC ORDER (Edwin P. Reubens ed., 1981);
89. FOREIGN TRADE IN THE PRESENT AND A NEW INTERNATIONAL ECONOMIC ORDER (Detlev Chr. Dicke & Ernst-Ulrich Petersmann eds., 1988);
90. Seymour J. Rubin, Economic and Social Human Rights and the New International Economic Order, 1 AM. U. J. INT'L L. & POL'Y 67 (1986);
91. Burns H. Weston, The Charter of Economic Rights and Duties of States and the Deprivation of Foreign-Owned Wealth, 75 AM. J. INT'L L. 437 (1981).
92. Antiterrorism and Effective Death Penalty Act of 1996, § 221(a)(1), Pub. L. No. 104-132, 110 Stat. 1214 (codified at 28 U.S.C. § 1605(a)(7)).
93. Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, § 302(h)(1)(B), Pub. L. No. 104-114, 110 Stat. 788 (codified at 22 U.S.C. § 6082(h)(1)(B)).