War's legacy in international investment law

International Community Law Review

Volumn 11, Issue 4, 2009, Pages 353-386

  Gathii, James Thuo ^a  

^a ALBANY LAW SCHOOL   (United States)

Author keywords

Bilateral investment treaties; Calvo doctrine; Drago doctrine; International investment Law; International law; Investor state arbitration; State responsibility for war damage; War

Indexed keywords

EID: 70450164224     PISSN: 18719740     EISSN: 18719732     Source Type: Journal    
DOI: 10.1163/187197409X12525781476088     Document Type: Article

References (212)

1. Symposium, 'Trade as Guarantor of Peace, Liberty and Security: The Role of Peace in the Bretton Woods Institutions', 20 Am. Univ. L. Rev. 1113 (2005
2. Donald Markwell, John Maynard Keynes and International Relations: Economic Paths to War and Peace (2006
3. For other views, see 'Symposium, War and Commerce', 31 Brook. J. Int'l L. (2006
4. Nathaniel Berman, 'Economic Consequences, Nationalist Passions: Keynes, Crisis, Culture and Policy', 10 Am. Univ. J. Int'l L. and Pol'y, 619 (1995
5. Padideh Alai, Tomer Broude and Colin B. Picker (Eds.) Trade as the Guarantor of Peace, Liberty and Security? Critical, Historical and Empirical Perspectives, (Am. Soc. Int'l Law Press, 2006), p. 97.
6. Luis M. Drago and H. Edward Nettles, 'The Drago Doctrine in International Law and Politics', 8 Hisp. Am. Hist. Rev. 204 (1928). There is some controversy regarding the purpose of this blockade. Some suggested it was not so much to protect bond-holder rights as to protect the lives, liberty, and property of British subjects, id. at 205-206.
7. However, the forcible collection of debts was undoubtedly the primary reason for the Drago doctrine.
8. Id.
9. Id. at 209.
10. Id. For a full exploration of this, Luis M. Drago, 'State Loans in their Relation to International Policy', Am. J. Int'l L. 692-726 (1907).
11. Drago, supra note 5, as quoted in Drago and Nettles, supra note 2, at 211.
12. Today, it is generally recognized that foreign states are not immune from jurisdiction in a judicial forum when they have engaged in commercial conduct equivalent to that which private actors engage in. There is therefore no absolute immunity for acta jure imperii, (acts of state of a commercial nature) because they will be regarded as acta jure gestionis thereby subjecting the State to suit.
13. See Sienho Yee, Towards an International Law of Co-Progressiveness, pp. 280-285 (2004).
14. See also Robert Wai, 'The Commercial Activity Exception to Sovereign Immunity and the Boundaries of Contemporary Legalism', in Craig Scott (Ed.), Torture as Tort: Comparative Perspectives on the Development of Transnational Human Rights (2001) p. 213.
15. Drago, supra note 5, at 725.
16. W.E. Hall, International Law (1880
17. T omas H. Lee, 'The Safe-Conduct Theory of the Alien Tort Statute', 106 Colum. L. Rev. 830, 821 (2006)
18. also argued that "[u]nder traditional state-based principles of international law - i.e., those from the eighteenth to the early twentieth centuries - the safe conduct promise was enforceable through the off ended sovereign's right to make war in the event of a breach," id. However, see Amos S. Hershey, 'Hague Convention Restricting the Use of Force to Recover on Contract Claims', 1 Am. J. Int'l L. 78 (1908)
19. Root's instructions to the 1906 Hague Conference, as cited in Drago and Nettles, supra note 5, at 218.
20. Convention Respecting the Limitation of the Employment of Force for the Recovery of Contract Debts, Oct. 18, 1907, Art. 1, 36 Stat. 2241, T.S. 537 [hereinafter Hague Regulations on Debt Recovery].
21. Id.
22. Case of Certain Norwegian Loans (Fr. v. Nor.) 1987 I.C.J. (July 6).
23. Id. (Lauterpacht, separate opinion).
24. Hague Convention for the Pacific Settlement of International Disputes, Oct. 18, 1907, 36 Stat. 2199, T.S. 233.
25. Case of Certain Norwegian Loans (Lauterpacht, separate opinion), at 38 ¶ 33.
26. Cited in James Brown Scott, 'The Work of the Second Hague Peace Conference', 1 Am. J. Int'l L. 15 (1908).
27. Article 2(4) of the United Nations Charter, which is regarded as a jus cogens norm under international law provides that "[a]ll members, shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations." In addition, UN General Assembly Resolution 3314(XXIX) of 1974, on the Defi nition of Aggression defined aggression as "the use of armed force by a State against the sovereignty, territorial integrity or political independence of another State, or in any other manner inconsistent with the Charter of the United Nations," (Art. 1) and further defined the "blockade of ports or coasts of a State by armed forces of another state" (Art. 3(c)) as constituting aggression. Notably, the Drago doctrine arose precisely out of this kind of a blockade. Article 5 of the Aggression Resolution provides that "No consideration of whatever nature, whether political, economic, military or otherwise, may serve as a justification for aggression," id. In addition, it is notable that although the use of force "must be avoided as far as possible" when it is inevitable "it must not go beyond what is reasonable and necessary under the circumstances," M.V. Saiga No. 2, (Saint Vincent and the Grenadines v. Guinea), Vol.10 Int'l Tribunal L. Sea Rep. ¶ 155 (1999).
28. One of the best articulations of this bias is Amr Shalakany, 'Arbitration and the Third World: A Plea for Reassessing Bias under the Specter of Neo-Liberalism', 41 Harv. Int'l L.J. 419 (2000
29. see also, M. Sornarajah, International Commercial Arbitration: The Problem of State Contracts (Longman, London, 1990).
30. Amos S. Hershey, 'Hague Convention Restricting the Use of Force to Recover on Contract Claims', 1 Am. J. Int'l L. 78 (1908), "arguing that every State which considers itself aggrieved enjoys the sole right to decide the redress which it shall exact and, also, whether in a given case it has exhausted all peaceful remedies it should pursue in order to secure redress. The use of force is a recognized legal remedy by which states may settle their diff erences." Id. at 85 (emphasis added).
31. Michael Tomz Reputation and International Cooperation: Sovereign Debt Across Three Centuries, (Princeton University Press, Princeton, NJ (2007), arguing that the use of force to collect Venezuelan debt was exceptional and not motivated solely by default
32. But see Michael Tomz, Reputation and International Cooperation: Sovereign Debt Across Three Centuries (Princeton University Press, Princeton, NJ, 2007) (arguing that the use of force to collect Venezuelan debt was exceptional and not motivated solely by default).
33. William I. Hull, 'Obligatory Arbitration and the Hague Conferences', 4 Am. J. Int'l L. 737 (1908).
34. Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (University of California Press, Berkeley, CA, 1985). Addressing the use of forcible interventions to address bond defaults notes, Britain's naval capacity and its diplomatic network were formidable. Direct and frequent interventions promised immediate and tangible gains. Yet such a course was both risky and costly. It was costly, even in the short run, if the desired results could be won diplomatically. It was risky in the long run because direct interventions undermined the basis of local political authority and social control. British policy in Latin America demonstrated a clear understanding of these alternatives. It was based on the idea that it was cheaper to hear the immediate costs of bond defaults than to risk sabotaging local governments by frequent interventions. Id. at 44-45 (emphasis added).
35. Peter Liberman, 'The Spoils of Conquest', 18 Int'l Security 125, 150 (1993) (also argues that the costs of imperial adventures, among other factors such as nationalism, now outweigh the benefits of such adventures).
36. See also Stephen Brooks, 'The Globalization of Production and the Changing Benefits of Conquest', 43 J. Conflict Resol. 646-670 (1999) (arguing that the central role of foreign direct investment in contemporary globalization may allow governments to substitute that instrument of external economic infl uence for older instrument of conquest).
37. 'Wars for Debt Collection', N.Y. Times, May 12, 1903, at 8.
38. Gerald Epstein, 'International Capital Mobility and the Scope for National Economic Management', in Robert Boyer and Daniel Drache (Eds.), States Against Markets: The Limits of Globalization, (Rout-ledge, 1996), pp. 211-224, 217.
39. World Bank, Can Africa Claim the 21st Century? (2000) (noting the significance of debt and aid dependence as one of the major constraints on Africa's development prospects in the twenty-first century).
40. Joseph Beale, an early classicist for example argued that there "are only two methods of reconciliation: force, and law. Either the will of the physically strongest, or of the mentally alertest, must prevail - the way of the beast; or conflicting wills must be restrained by law - the way of organized human society," cited in Jonathan Zasloff, 'Abolishing Coercion: The Jurisprudence of American Foreign Policy in the 1920's', 102 Yale L.J. 1689, 1698 (1993).
41. See Richard H. Steinberg and Jonathan M. Zasloff , 'Power and International Law' (Centennial Essay) 100 Am. J. Int'l L. 66 (2006).
42. Id. at 69. See also Robert Wai, 'Transnational Liftoff and Juridical Touchdown: The Regulatory Function of Private International Law in an Era of Globalization', 40 Colum. J. Transnat'l L. 209 (2002) (examining the benefits and challenges of international cooperation).
43. Steinberg and Zasloff , supra note 26, at 68; Zasloff , supra note 25.
44. Steinberg and Zasloff , supra note 26, at 72 (discussing realism in international law and international relations).
45. Duncan Kennedy, 'The Stakes of Law, or Hale and Foucault¡', XV Leg. Studies Forum 327 (1991) (arguing in part that early conservative economic rhetoric justified the existing capitalist system as being based on freedom in contrast to socialism, which replaced freedom with state coercion and how realists showed that freedom or agreement was a product of coercion "by which they meant that neither party got what the wanted (the whole joint product) and that each had the experience of being 'forced to settle for less,' " id. at 328.
46. Roberto Mangabeira Unger, The Critical Studies Movement, 70 (1983).
47. Michael J. Sandel, Liberalism and the Limits of Justice (1982) notes that "Unlike obligations voluntarily incurred, obligations arising under the ideal of reciprocity must presuppose some criterion of fairness independent of contract, some way in which the objective fairness of an exchange may be assessed," id. at 107-108
48. See also, Nagla Nassar, Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-Term International Commercial Transactions (1995), arguing that "If as claimed by classical theorists, legal rules are merely concerned with resource allocation, then the unfairness of the classical rule in denying adjustment is somewhat but not completely, justifi able. From a societal perspective, the adjustment rule, according to the classical model, is considered inefficient, for it wastes society's revenue on an unnecessary reallocation of resources. . . . The validity of the above argument is very doubtful. First, it is misleading to assume that society has no interest in the equitable reallocation of resources. . . . Secondly, arguing that the main concern of the rule of law is to maximize wealth is a misleading proposition. Laws have been created . . . to establish social peace and promote exchange. . . . This is particularly true of international society where actors come from different societies at different levels of economic development and with different legal rules. . . . In the absence of a strong institutional organization, actors need to be assured that their interests will not be sacrificed because of an event they could not have known about or controlled." Id. at 233-234
49. Antony Anghie, Imperialism, Sovereignty and the Making of International Law 239 (2005).
50. For a different view, see Duncan Kennedy, 'Distributive and Paternalist Motives in Contract and Tort Law, with Special Reference to Compulsory Terms and Unequal Bargaining Power', 41 Md. L. Rev. 563, 580 (1982) (arguing that the "real problem with freedom of contract is that neither its principles, nor is principles supplemented by common moral understanding, nor its principles supplemented by historical practice, are defi nite enough to tell the decision maker what to do when asked to change or even just to elaborate the existing law of agreements").
51. The Venezuelan Preferential Case (Germany, Great Britain, Italy, Venezuela et al.), in IX Reports of International Arbitral Awards, 103 (United Nations, ed., 1904).
52. Protocol between Germany and Venezuela for the Reference of Certain Questions to the Permanent Court of Arbitration at the Hague (signed at Washington, May 7, 1903) in International Arbitral Awards, supra note 34, at 105-06
53. Protocol between Great Britain and Venezuela Relating to the Settlement of the British Claims and Other Matters (signed Washington, Feb. 13, 1904) in International Arbitral Awards, supra note 34.
54. See 'In Fear of the Hague: Every Effort Making to Settle Venezuela Case in Washington', N.Y. Times Feb. 5, 1903, at 1 (noting in part that negotiations were proceeding and that referring the matter to the Hague would prolong the blockade and would be of no good).
55. The Venezuela Preferential Case: Award of the Tribunal of Arbitration, in IX Reports of International Arbitral Awards supra note 34, at 107-110
56. Id. at 108.
57. M.R. Garcia-Mora, 'The Calvo Clause in Latin American Constitutions and International Law', 33 Marq. L. Rev. 4, 205-206 (1950).
58. Id.
59. E.E. Seaton and S.E. Maliti, Tanzania Treaty Practice (1973).
60. See also M. Bedjaoui, Towards A New International Economic Order (1979), 110 (arguing that international law could not easily assume the task of transforming international relations because it had been "confi ned to protecting a type of international relations not yet purged of inequality and imperialism").
61. Antony Anghie, Imperialism, Sovereignty and the Making of International Law (2005) 196, 226-244.
62. Vienna Convention on Succession of States in Respect of States Property, Archives and Debt, Apr. 8, 1983, Arts. 32-36 (1983) 31:1 Select Documents on Int'l Aff. 10 (1983) [hereinafter Vienna Convention] (establishing the survival of State debts).
63. Sir Humphrey Waldock, 'General Course on Public International Law', 106 Rec. de Cours 1, 49-53 (1983). This rule is also reflected in Restatement (Third) of Foreign Relations Law of the United States § 102 (c) Commented.
64. See also, Norbett Horn, 'Normative Problems of a New International Economic Order', 16 J World Trade L. 343 (1982
65. Robert H. Jackson, Quasi-States: Sovereignty, International Relations and the Third World (1991), 202 (arguing that the NIEO was "unduly ambitious in that it attempted to replace free trade and cumulative justice with economic democracy and distributive justice").
66. Id.
67. Notably, in the interwar years, Soviet and Eastern European jurists of international law challenged international legal rules on foreign investor protection. These jurists argued that rules of international law could not regulate property relations within States. Within the socialist approach to economic governance, domestic law governed the rights of foreign investors and international adjudication of foreign investor rights was not permitted. Rules of international economic governance were also critiqued for being incompatible with a State-led model of economic governance. Thus, like Latin American jurists of the nineteenth century, these jurists contested the laissez faire underpinnings of the rules' international economic governance such as the inviolability of private property and the sanctity of contracts.
68. Guha-Roy, 'Is the Law of Responsibility of State for Injuries to Aliens a Part of Universal International Law', 55 Am. J. Int'l L. 863 (1961).
69. See also S.K.B. Asante, 'Stability of Contractual Relations in the Transnational Investment Process', 28 Int'l and Comp. L.Q. 401 (1979
70. S. Sell, Power and Ideas: North South Politics of Intellectual Property and Antitrust (1998).
71. See B.H. Weston, 'The Charter of Economic Rights and Duties of States and the Deprivation of Foreign-Owned Wealth', 75 Am. J. Int'l L. 441 (1981).
72. Garcia-Mora, supra note 39, at 205-206
73. F.H. Cardoso and E. Faletto, Dependency and Development in Latin America, (1978).
74. S. Amin, Accumulation on a World Scale: A Critique of the Theory of Underdevelopment (Brian Pearce trans., 1974).
75. See also Cardoso and Faletto, supra note 47.
76. For a critique that the agenda of the NIEO replicated the old rules, strategies and institutions of liberal modernity it sought to overcome and therefore could not promise fundamental change, see Dianne Otto, 'Subalternity and International Law: The Problems of Global Community and the Incommensurability of Difference', 5 Soc. and Leg. Stud. 348 (1996).
77. Banco Sabbatino De Cuba V. Sabbatino, 376 U.S. 398 (1964).
78. See Andrew T. Guzman, 'Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties', 38 Va. J. Int'l L. 639 (1998).
79. M. Sornarajah, 'ICSID Involvement in Asian Foreign Investmentedisputes: The Amco and AAPL Cases', 4 Asian Y.B. Int'l L. 69 (1994).
80. For a view of the particular variation of free markets in the rise of the East Asian economies, relative to the neoliberal model known as the Washington Consensus, see Alice Amsden, 'Why Isn't the Whole World Experimenting with the East Asian Model to Develop?: Review of World Bank's East Asian Miracle Report', 22 World Dev. 4 (1994).
81. On this, see Deepak Lal, The Poverty of 'Development Economics,' pp. 24-36 (2000).
82. Sornarajah, ICSID Involvement, supra 49 note at 69-70. Clearly, developing countries had a love-hate relationship to international law; they loved its promise of autonomy but criticized its continuation of colonial inequalities. One of the best examples of this attitude is Bedjaoui, supra note 42.
83. For a further discussion, see James Gathii, 'A Critical Appraisal of the International Legal Tradition of Taslim Olawale Elias', 21 Leiden J. Int'l L. 317 (2008) (arguing that a defining question for the first generation of scholars from the former colonies after World War II was "how to establish a doctrinal basis or a set of principles to address not only their frustration with international law, but also how its rules and institutions could contribute to the challenges of the newly independent states," id. at 318-19).
84. Id. at 70 n. 4.
85. For example, M. Sornarajah, International Law on Foreign Investment (1994)
86. Ibironke Odumosu, 'Locating Third World Resistance in the International Law on Foreign Investment', 9 Int'l Community L. Rev. 427 (2007).
87. For a view skeptical of these reservations, see Amazu A. Asouzu, International Commercial Arbitration and African States: Practice, Participation and Institutional Development (2001).
88. Texas Overseas Petroleum Co. v. Libyan Arab Republic, 17 I.L.M. 1 (1978). The outcome in this case contrasts sharply with that in the Sabbatino case discussed above, supra note 54 and accompanying text.
89. Id. at ¶ 85.
90. Id. He also noted that a number of developing countries abstained on this question and attributed their abstention to their disagreement with disregarding international law on compensation for nationalizations.
91. G.A. Res. 1803 (XVII) U.N. Doc. A/RES/1803 (Dec.14 1962) (declaring in Article 4 that "[n]ationalization, expropriation or requisitioning shall be based on grounds of public utility, security or the national interest . . . [and] in such cases the owner shall be paid appropriate compensation").
92. Id. at ¶ 84.
93. Id. at 87.
94. Sabbatino, 376 U.S. at 429. For another decision indicating a limited rather than expansive view of the duty of compensation in international investment law, see Case Concerning Barcelona Traction, Light and Power Co. (Belg. v. Swed.) 1970 I.C.J. 4 (Feb. 5) (holding that shareholder interests are indirect interests that do not qualify for international legal protection, and a claimant State cannot espouse the claim of its nationals who have invested in foreign corporations absent treaties or agreements providing for such protections).
95. For perhaps this reason in Sabbatino, supra note 54, Justice Harlan in similar circumstances as those in the Libyan case declined to invoke international law as Arbitrator Dupuy. Justice Harlan instead held that, "[w]e decide only that the Judicial branch will not examine the validity of a taking of property . . . in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the complaint alleges that the taking violates customary international law." Sabbatino, 376 U.S. at 428; see also Richard Falk, The Status of Law in International Society (1970) pp. 409-13
96. Richard Lillich, The Protection of Foreign Investments (1978) pp. 77-78
97. Jordan Paust, 'Correspondence', 18 Va. J. Int'l L, 601-03 (1978).
98. The "prompt, adequate and effective compensation" formulation of the Hull diplomatic note has been rejected by many capital-importing States. For example, Mexico rejected it in 1938.
99. See 1938 Correspondence between United States and Mexico, excerpted in 5 G. Hackworth, Dig. Int'l L. 655-65 (1942
100. see also Oscar Schachter, 'Compensation for Expropriation', 23 Colum. J. Transnat'l L. 615, 616 (1985) (arguing that there is a dispute as to whether the Hull formula represents customary international law). In addition, three UN resolutions have embraced the view that national treatment rather than prompt adequate and effective compensation is the rule governing expropriations.
101. See G.A. Res. 3171, U.N. GAOR, 28th Sess., Resolution on the Permanent Sovereignty over Natural Resources, G.A. Doc. 3171/XXVII (1973)
102. G.A. Res. 3201, Declaration on the Establishment of a New International Economic Order, 29th Sess., G.A. Doc. 3201/VI-6 (1974
103. G.A. Res. Charter of Economic Rights and Duties of States, 30th Sess., G.A. Doc. 3281/XXIX (1975).
104. (1994) (exploring the various compensation standards in a variety of BITs and concluding there is no universally agreed standard because the practice evidences "so much uncertainty and contradiction" as well as "so much fluctuation and discrepancy," id. at 372).
105. For an overview of various standards applied in a variety of contexts, see R. Doak Bishop, James Crawford and W. Michael Reisman, Foreign Investmentedisputes: Cases, Materials and Commentary 1298-1325 (2005).
106. Other notable examples here include the North American Free Trade Agreement (NAFTA), which includes an investment chapter that effectively guarantees investors compensation for losses arising from a regulatory measure that a NAFTA member may take to protect the environment. On this, see Frederick M. Abbot, 'The Political Economy of NAFTA Chapter Eleven: Equality Before the Law and the Boundaries of North American Legal Integration', 23 Hastings Int'l and Comp. L. Rev. 303 (2000).
107. Jose Alvarez, 'North American Free Trade Agreement's Chapter Eleven', 28 U. Miami Inter-Am. L. Rev. 303, 308 (1996-1997) (also arguing that NAFTA is a "bilateral investment treaty on steroids," id. at 304).
108. This theme is further echoed in Philippe Sands, Lawless World: America and the Making and Break-ing of Global Rules from FDR's Atlantic Charter to George W. Bush's Illegal War (2005) pp. 117-142 (noting the tendency to interpret international investment rules in isolation of other international law rules and to give priority to investor rights over rules that protect human rights and the environment).
109. See also Upendra Baxi, The Future of International Human Rights (1999) p. 235 (noting the ascendance of a trade-related, market-friendly approach to human rights under the aegis of globalization).
110. For an analysis, see Igacio Vincentelli, The Uncertain Future of ICSID in Latin America, available at http://ssrn.com/abstract=1340816. On Bolivia's denunciation, see International Centre for Settlement of Investmentedisputes (ICSID), List of Contracting States and Other Signatories to the Convention (as of Nov. 4, 2007), available at http://icsid.worldbank.org/ICSID/FrontServlet? requestType=ICSIDDocRHa ndactionVal=ContractingStatesandReqFrom=Main (last visited Jan. 25, 2009). In addition, note that Venezuela in 2008 denounced its BIT with the Netherlands. In addition, the Venezulean Supreme Court has decided that any decision of an ICSID Tribunal inconsistent with Venezuelan law would be unenforceable in Venezeula, see Vincentelli, supra note 71.
111. The immediate reason relating to U.S. concern about Chapter 11 of NAFTA arose from a suit filed against the United States by Methanex, a Canadian company claiming $970 million compensation for business it would lose because of California's plan to phase out the use of methyl tertiary butyl ether (MTBE), an oxygenate that cleans gasoline, because of concerns the additive was contaminating drinking water supplies. Methanex argued that the ban was not based on scientific evidence, and the water pollution could be solved by fixing leaking underground storage tanks at gas stations. California was the largest market for Methanex and was important because it sets environmental standards that are adopted by other states. Methanex alleged in the suit that the ban was necessitated by political considerations including the financial contributions to the campaign of Governor Gray Davis of California by Archer Daniel Midlands Corporation, which produces a competing oxygenate from corn. In August 2002, a binational panel decided not to proceed with the case since there was inadequate evidence to make a determination. See Allen Dowd, NAFTA Panel Says Cannot Rule on Methanex MTBE Case Reuters (Aug. 7, 2002) available at http://www.mindfully. org/WTO/Methanex-MTBE7aug02.htm.
112. For an excellent view, see Ibironke T. Odumosu, 'Locating Third World Resistance in the International Law on Foreign Investment', 9 Int'l Community L. Rev. 427 (2007).
113. See also Ibironke T. Odumosu, 'The Antinomies of the (Continued) Relevance of the ICSID to the Third World', 8 San Diego J. Int'l L. 345 (2007).
114. One of the best-known retaliatory threats is Super 301 contained in the Trade Act of 1974, 19 U.S.C. § 2242 (2000), amended by Omnibus Trade and Competitiveness Act of 1988, Pub. L. No.100-416, 102 Stat. 1105. Under this section, the United States Trade Representative (USTR) is required within thirty days after the submission of the annual National Trade Estimates (foreign trade barriers) to report to Congress those foreign countries that (1) "deny adequate and effective protection of U.S. intellectual property rights" and (2) those countries under (1) "that are determined by the USTR to be priority foreign countries." Id. The USTR identifies as priorities only those countries "that have the most onerous or egregious acts, policies, or practices that . . . have the greatest adverse impact on the relevant United States products and that are not entering into good faith negotiations or making significant progress in bilateral or multilateral negotiations to provide adequate and effective intellectual property rights" protection. Id. The United States blacklisted India and Brazil leading up to the conclusion of the Uruguay Round of negotiations thereby effectively ending their opposition to the Uruguay Round bargain. See James Gathii, 'Construing Intellectual Property Rights and Competition Policy Consistently with Facilitating Access to Affordable Aids Drugs to Low-End Consumers', 53 Fla. L. Rev. 756 (2001).
115. In a challenge at the World Trade Organization (WTO), this provision of U.S. law was sustained. See World Trade Organization Report of the Panel, United States-Sections 301-310 of the Trade Act of 1974, WT/DS152/R ¶ 7.22 (Dec. 22, 1999).
116. Asian Agric. Prod. Ltd. v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/87/3, available at http:// www.worldbank.org/icsid (follow "cases" hyperlink; then follow "List of Cases" hyperlink; then follow "Concluded Cases" hyperlink; then scroll to "Asian Agricultural Products Limited v. Democratic Socialist Republic of Sri Lanka (ICSID Case No. ARB/87/3)") [hereinafter AAPL v. Sri Lanka].
117. Id. at ¶ 9. The Tribunal's majority opinion found that in light of the failure of the parties to agree on a choice of law, during the arbitration proceedings, they had presented their case in a manner that showed that they mutually agreed that the provisions Sri Lanka-UK BIT was "the primary source of the appli- cable legal rules," id. at ¶ 20. However, the dissenting opinion of one member of the Tribunal, S.K.B. Asante took issue with the tribunal's finding that the treaty was the primary source of rules for determining the dispute, see dissenting opinion of S.K.B. Asante in ICSID Rev.-Foreign Inv. L.J. 576-578 (1990).
118. AAPL v. Sri Lanka, supra note 75, at ¶ 26 (A), where AAPL argues argued that "the ordinary meaning of the words 'full protection and security' points to an acceptance of the host state of strict or absolute liability." Further AAPL argued that under the treaty, the "full protection and security clause" had to be read as "autonomous in character and independent of any link to customary international law." Id. at ¶ 26(B).
119. Id. at ¶ 23.
120. Id. at ¶ 32.
121. Id. ¶¶ 48-55.
122. Id. at ¶ 4 (Asante, S.K.B., dissenting).
123. AAPL v. Sri Lanka, supra note 75 at ¶ 65. Under the treaty, liability would be remediable by "restitution, indemnification, compensation or other settlement," id. at ¶ 66.
124. Id. at ¶ 69.
125. Id. at ¶ 73.
126. Id. at ¶ 73.
127. Id. at ¶ 79.
128. Id. at ¶ 82(a).
129. Id. at ¶ 82(b)-(e).
130. Id. at ¶ 85(a).
131. Id. at ¶ 85(b).
132. Id.
133. Id.
134. Id. ¶¶ 86-87.
135. Id. at ¶ 4 (Asante, S.K.B., dissenting).
136. Id. at ¶ 5.
137. Id. at ¶ 3.
138. Id. at ¶ 4.
139. Article 4 (Compensation for losses) (1) Nationals or companies of one Contracting Party whose investments in the territory of other Contracting Party suffer losses owing to war or other armed conflict, revolution, a state of national emergency, revolt, insurrection or riot in the territory of the latter Contracting Party shall be accorded by the latter Contracting Party treatment, as regards to restitution, indemni-fication, compensation or other settlement, no less favorable than that which the latter Contracting Party accords to its own nationals or companies of any third State; (2) Without prejudice to paragraph (1) of this Article, nationals and companies of one Contracting Party who in any of the situations referred to in that paragraph suffer losses in the territory of the other Contracting Party resulting from (a) requisitioning of their property by its forces or authorities, or (b) destruction of their property by its forces or authorities which was not caused in combat action or was not required by the necessity of the situation, shall be accorded restitution or adequate compensation. Resulting payments shall be freely transferable.
140. Asante's dissenting opinion proceeded on the view that because Article 4 was more specific to issue in dispute than the full protection and most-favored nation clauses, it applied to the situation. Noted Asante, "Article 4(2) is crucial, first, because as the lex specialis between Sri Lanka and the U.K. spelling out specific grounds of liability in the particular situations defined in Article 4(1), it must prevail as the definitive source of liability in respect of the conduct of the armed forces of the host State." Supra note 57, at 585 (Asante, S.K.B., dissenting).
141. AAPL v. Sri Lanka, supra note 75, at Art. 4(2).
142. Dissenting opinion of Asante, supra note 57, at 585-586
143. Id. at 588. Asante notes that such an interpretation of Article 4(1) of the Treaty was more consistent with the understanding of the most favored nation (MFN) provision and as such, the majority opinion had in effect obliterated "the juridical distinction between the concept of most favored nation treatment, a creature of treaty, and the general requirements of customary international law," id. at 589.
144. Id. at 589. It is not unusual for commercial or trade treaties to have security exceptions. Article 21 of the General Agreement on Tariffs and Trade, 1948 as amended in 1994 embodies such an exception.
145. Id. at 592.
146. Id.
147. Id. at 593.
148. Id. at 594.
149. Id. at 594-595
150. For critical commentary on the AAPL v. Sri Lankan case, see Stephen C. Vascianne, 'Bilateral Investment Treaties and Civil Strife: The AAPL/Sri Lanka Arbitration', 39 Neth. Int'l L. Rev. 332 (1992) (noting respects in which the decision of the Tribunal would reduce its utility as a precedent in future cases)
151. and A. Rohan Perera and Noel Dias, 'Asian Agricultural Products Ltd v. The Republic of Sri Lanka', 2 Am. Rev. Int' l Arb. 217 (1991) (discussing the Tribunal's misinterpretation of Article 4(1)).
152. ICSID Case No. ARB/93/1. Award of Feb. 21, 1997, 36 I.L.M. 1531 (1992), available at http:// www.worldbank.org/icsid (follow "cases" hyperlink; then follow "List of Cases" hyperlink; then follow "Concluded Cases" hyperlink; then scroll to "American Manufacturing and Trading, Inc. v. Democratic Republic of the Congo (ICSID Case No. ARB/93/1)" [hereinafter Am. Mfg. and Trading, Inc. v. Republic of Zaire].
153. Id. at ¶ 7.01, 7.09.
154. The Tribunal found that Zaire had "manifestly failed" to comply with its duty of vigilance and care by its failure to take precautionary measures to protect the investors property, id. at ¶¶ 6.04-6.11.
155. The Tribunal found that the protection and security obligation in Article II of the BIT was reinforced by "a special Article IV on compensation for damages due to war, or similar events, including riots and acts of violence." Id. at ¶¶ 6.12-6.14.
156. Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4; 41 I.L.M. 896 (2002).
157. Id. at ¶ 84.
158. See also CME Czech Republic B.V. (The Netherlands) v. The Czech Republic, Partial Award, Sept. 13, 2001
159. and Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award, July 14, 2006, which show how ICSID Tribunals have heightened the responsibility of States under the full protection and security clauses of BITs to go beyond the kind of security that may be provided by security forces and in particular to include a secure investment environment - arguably much superior to that enjoyed by domestic investors.
160. For another example, see Occidental Exploration and Prod. Co. v. The Republic of Ecuador, Award, July 1, 2004 at ¶ 187, where Ecuador's amendment of its tax laws was found to constitute a violation of its obligation to provide full protection and security to investors.
161. E.g., supra note 112, at ¶ 84.
162. Case Concerning Armed Activities on the Territory of the Congo (Dem. Rep. Congo v. Uganda), 2005 I.C.J. 116 at ¶ 304 (Dec. 19).
163. Richard Lillich and Paxman, 'State Responsibility for Injuries to Aliens Occasioned by Terrorist Activities', 26 Am. Univ. L. Rev. 217 (1977).
164. Id. This view is also confi rmed by the International Law Commission's Draft Articles on Prevention of Transboundary Harm from Hazardous Activities, which discusses the duty of due diligence and spe-cifically explains that the degree of due diligence expected of a State differs from a State that has a "well-developed economy and human and material resources and with highly evolved systems and structures of governance is different from States which are not so well placed. Even in the latter case, vigilance, employment of infrastructure and monitoring of hazardous activities in the territory of the State, which is a natural attribute of any Government, are expected," International Law Commission, Draft Articles on Prevention of Transboundary Harm from Hazardous Activities, at 395, available at http://untreaty.un.org/ilc/ texts/ instruments/english/commentaries/9-7-2001.pdf (last visited Aug. 16, 2006).
165. Lillich and Paxman, supra note 117.
166. LGandE Energy Corp. v. Argentine Republic, ICSID Case. No. ARB/02/1 (Decision on Liability), Oct. 3, 2006. Other victories outside the context of the war destruction clause in BITs include Patrick Mitchell v. Democratic Republic of Congo, ICSID Case No. ARB/99/7 (Decision on the Application for Annulment of the Award, Nov. 1, 2006) where an award was annulled on the grounds that the investment that had been the subject matter of the claim did not fall within the defi nition of an investment in a United States-Zaire BIT.
167. Supra note 120, at ¶ 238. In this case Argentina prevailed in showing that it faced a severe economic crisis that threatened its economic and political survival that precluded it on the basis of a state of necessity from being responsible for measure taken (these included freeing gas distribution tariffs and abandoning calculation of tariffs in dollars) to address the crisis that also occasioned losses to LGandE Energy Corporation investments in Argentina, id. at ¶¶ 236 and 266.
168. See also In re CMS Transmission Co. and the Argentine Republic, Case No. ARB/01/08 (Award of May 12, 2005) (where the tribunal concluded that a State is free to adopt emergency measures "it consider appropriate without requesting the views of any court" pursuant to a provision of a BIT authorizing a State to adopt measures in response to threats to its security interests, id. at ¶ 373).
169. For further analysis, see William W. Burke-White, 'The Argentine Financial Crisis: State Liability Under BITs and the Legitimacy of the ICSID System', 3 Asian J. WTO and Int'l L. and Policy 199 (2008) (this article analyzes four ICSID Tribunal rulings arising from Argentina's response to its financial crisis in 2001-2002. The author argues this jurisprudence is deeply problematic because the four tribunals gave different interpretations of Argentina's response, whereas in fact Argentina made the same arguments in all four cases). Inconsistent arbitration rulings in similar cases is not all that unusual
170. see Susan D. Franck, 'The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistentedecisions', 73 Fordham L. Rev. 1521 (2005)
171. See also Andrea K. Bjorklund, 'Reconciling State Sovereignty and Investor Protection in Denial of Justice Claims', 45 Va. J. Int'l L., 809 (2005) (arguing that denial of justice standard is malleable and may therefore not result in a well-reasoned body of jurisprudence).
172. Anne Van Asken, 'Perils of Success? The Case of International Investment Protection', 9 Eur. Bus. Org. L. Rev. 1-27, (March 2008), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1020959 Even better would be having international investmentedecisions made in a manner that takes into account the circumstances in a country in the same way social and economic rights under international law are conditioned on availability of resources or on the principle of progressive realization.
173. For further analysis, see Emily A. Alexander, 'Taking Account of Reality: Adopting Contextual Standards for Developing Countries in International Investment Law', 48 Va. J. Int'l L., 817 (2008)
174. See Anne Van Asken, supra note 122 at page 13.
175. Art. XXI(b)(iii) of GATT provides that: "Nothing in this Agreement shall be construed . . . to prevent any contracting party from taking . . . in time of war or other national emergency in international relations . . . any action which it considers necessary for the protection of its national security interests." Remarkably, this security exception in the GATT regime is very similar in substance to the doctrine of
176. suspension that allowed belligerents to confiscate private property in war but to return it on cessation of hostilities.
177. Exec. Order No. 12,513, 3 C.F.R. 342 (1985). The only exception to this ban was goods intended for the democratic resistance. The order also banned air and naval transportation to and from Nicaragua to the United States. This ban was issued under the expansive authority the U.S. President enjoys under the International Emergency Economic Powers Act (IEEPA)
178. see Dames and Moore, 453 U.S. at 699 noting that the language of the IEEPA is "sweeping and unqualifi ed," id.
179. Report of the Panel, United States - Trade Measures Affecting Nicaragua (L/6053) (Oct. 13, 1986).
180. Id. at ¶ 4.5.
181. Id. Further, Nicaragua's argument in this case that "GATT did not exist in a vacuum but was an integral structure of international law" foreshadowed the Treaty Establishing the WTO of 1994, which affirmed this position.
182. Id. at ¶ 4.9.
183. Id. at ¶ 4.15.
184. Id. at ¶ 4.16. This argument is completely analogical to the one made by Zaire in Am. Mfg. and Trading, Inc. v. Republic of Zaire, supra note 109.
185. Id. at ¶¶ 5.2, 5.3.
186. CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8 (May 12, 2005), available at http:// www.worldbank.org/icsid (follow "cases" hyperlink; then follow "List of Cases" hyperlink; then follow "Concluded Cases" hyperlink; then scroll to "CMS Gas Transmission Company v. Argentine Republic (ICSID Case No. ARB/01/8)").
187. Id. at ¶ 373. For further analysis see William W. Burke-White and Andreas von Staden, Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties, 48 Va. J. Int'l L., 307 (2008).
188. See Carl Schmit, The Nomos of the International Law of Jus Publicum Europaeum, p. 99 (G.L. Ulmen trans., 2003) (noting a "historical and structural relation between such spatial concepts of free trade, and free world economy, and the idea of a free space within which to pursue free competition and free exploitation").
189. This would, of course, include the right to self-defense. However, my point here is less the self-defense exception than that the GATT regime, although intended to promote peaceful commerce following the experience of the World War II, nevertheless permitted a zone of discretion on States to unilaterally decide when to depart from this regime of trade rules to protect their national security as they perceived it.
190. 2003 I.C.J. 90 (Nov. 6), available at http://www.icj-cij.org (follow "Cases" hyperlink; then follow "List of All Cases" hyperlink; then follow "More..." hyperlink under "1992: Oil Platforms (Islamic Republic of Iran v. United States of America)") [hereinafter Iran v. United States].
191. The Court also observed that at the time of the attacks there was a U.S. oil embargo against Iran.
192. Iran v. United States, supra note 137, at ¶ 92.
193. Id.
194. For a discussion of restitution and compensation for unlawful, tortuous, and delictual conduct, see Bishop, Crawford and Reisman, supra note 68, at 1278 ff (for methods of valuing losses see 1331 ff ).
195. Iran v. United States, supra note 137, at ¶ 93.
196. See Iran v. United States (Al-Khasawheh, dissenting; Elarany, dissenting; Simma, separate opinion) supra note 137.
197. Separate Opinion of Judge Simma id. at ¶ 3.6. Notably the court's interpretation also excluded commerce with third parties other than the two contracting parties. Yet, Article VIII of the treaty seemed to contemplate such a broader view of commerce. That clause provided that in part that the treaty was intended to cover "products of the other High Contracting Party, from whatever place and by whatever type of carrier . . . by whatever route.
198. Iran v. United States, Preliminary Objections, 1996 I.C.J. Rep. at ¶ 819.
199. In the Kenyan case, see Gary Wasserman, 'The Independence Bargain: Kenya Europeans and the Land Issue, 1960-62', 11 J. Commonwealth Pol. Stud. 99-120 (1973).
200. Edward Said, Orientalism (1979) p. 123. This is also the thesis in Ugo Mattei and Laura Nader, Plunder: When the Rule of Law is Illegal (2008) (arguing that colonial relationships are now embodied in contemporary legal doctrines and approaches to economic reform including neoliberalism).
201. See James Gathii, 'International Law and Eurocentricity', 9(1) Eur. J. Int'l L.184-211 (1998).
202. For an extensive analysis, see James Gathii, 'The Sanctity of Sovereign Loan Contracts and Its Origins in Enforcement Litigation', 38 Geo. Wash. Int'l L. Rev. 251 (2006).
203. See also Robert Wai, 'The Commercial Activity Exception to Sovereign Immunity and the Boundaries of Contemporary International Legalism', in C. Scott (Ed.), Torture as Tort: Comparative Perspectives on the Development of Transnational Human Rights Litigation (2001), 213.
204. James Gathii, 'The Sanctity of Sovereign Loan Contracts and Its Origins in Enforcement Litigation', 38 Geo. Wash. Int'l L. Rev. 251 (2006).
205. Id.
206. See Commercial Bank of Kuwait v. Rifi dian Bank and Central Bank of Iraq, where the Second Circuit held that a default occasioned by war, economic sanctions and the freezing of its assets making it impossible to obtain foreign currency to repay its debts did not preclude it from finding that Iraq had willfully defaulted, 15 F.3d 238, 242-243 (2d Cir. 1994).
207. Susan Strange refers to this ability to set "the rules of the game" as structural power See Conversation with Susan Strange, available at http://www.geocities.com/jtrevin041/STRANGE.DOC (last visited June 4, 2003). Note, she gives the following example of the exercise of structural power: "An individual like the Pope has structural power because he manages the Catholic Church, and the Catholic Church, for example, prevents some Catholics from contraception or abortion in their range of options; so he is exercising structural power." Id. Further, she argues that it is "only by looking at the structural power exercised - often unconsciously - over other states, markets, private individuals, and firms by the agencies of the United States can the extent of the asymmetries of state power be appreciated." Susan Strange, 'The Defective State', 124 Daedulus 55, 64 (1995).
208. See e.g., Norbett Horn, 'Normative Problems of a New International Economic Order', 16 J World Trade L. 343 (1982)
209. In World Duty Free Co. Ltd. v. The Republic of Kenya (ICSID Case No. ARB/00/7) Award, Oct. 4, 2006, the arbitration tribunal was presented with convincing evidence of payment of a cash bribe to the then sitting head of state to procure a contract. The tribunal held that the contract was legally unenforceable because it was an aff ront to the public conscience.
210. See Kenneth J. Vandevelde, 'The Economics of Bilateral Investment Treaties', 41 Harv. J. Int'l L. 469 (2000) (arguing that BITs are inefficient in promoting foreign investment because they focus on "controlling and protecting the desired investment flow rather than on maximizing productivity through market allocations of capital," id. at 491.). Vandavelde argues that BITs merely "shift control of an asset from a local investor to a foreign investor without increasing the productive capacity of the asset" and this is occurs because these investors are more interested in controlling the movement of the capital rather than it's the promotion of its movement, id. at 492.
211. United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2001: Promoting Linkages (2001). This trend has continued because of the boom in natural resources in recent times
212. see UNCTAD, World Investment Report: FDI from Developing and Transition Economies - Implications for Development (2006). However as a share of global FDI flows, least-developed countries still receive a miniscule percentage.