Saturday, September 27, 2008

Article Recommendation - When Judges Make Foreign Policy

Just a quick note to recommend an article in the New York Times magazine.

When Judges Make Foreign Policy focuses on two decisions from the last Supreme Court term and how they reflect ongoing ideological conflicts in how Justices view international law and the U.S. Constitution.

The two decisions were Boumediene v. Bush & MedellĂ­n v. Texas. Both cases required the Court to consider the role of international law in the U.S. judicial system.

The article is interesting in that it endorses a court that acts in an 'activist' manner - looking for legal justifications that lead the country in different directions depending on what is 'good' for the country.

(It seems like I'm constantly referring to articles from the New York Times. They have had unusually good coverage of the legal aspects in international affairs lately.)

Wednesday, September 24, 2008

Can Soft Law Lead to Hard Financial Regulations?

President Nicolas Sarkozy of France called for a summit meeting to develop greater international regulations of financial markets at the recent opening of the United Nations General Assembly. This was done in response to financial turmoil in the United States stock & credit markets that has affected the global economy.

Will there actually be a summit?


Will the summit achieve any lasting international regulation?

Not a snowball's chance in the heart of the sun.

What are the issues?

Can comprehensive international regulation of the financial market exist? Yes, but history teaches us that it will be ineffective without universal participation.

International law works on states - in part - because they choose to be bound by international law.

A nation that refuses to sign a treaty is not bound by that treaty.

And the United States has refused to sign a lot of multilateral treaties. We've also failed to ratify even more.

With the U.S. holding regulatory control over the NYSE and its affiliated indexes, not having the U.S. as a signor is likely to have very little effect in the short term.

What is the controlling international law?

Stock exchanges tend to be regulated in two fashions, domestic regulation and domestic regulation that applies to corporations.

But stock exchanges also impose their own regulations on their listed members - even though the stock exchange is a private corporation.

What this means, is that stock exchanges help create a body of practice - given legal effect - even though the stock exchanges have no legislative abilities.

They cannot create real laws that are legally binding in a court. But they can create practices through contracts with their members that are so widespread they might as well be law.

In the practice of international law, these widespread types of self-regulation are called Soft Law.

Soft law is a controversial concept. Some legal scholars argue that soft law does not even exist. Many cite that lack of binding commitment or enforcement mechanisms mean that soft law cannot exist, except as a theory.

However, when state actors fail to take action, sometimes all we are left with is soft law.

It has been seen in areas relating to such as human rights law and environmental law that soft law can make a difference in the actions of non-state actors.

An example of soft law would be the Fair Trade Coffee initiative. There are few laws governing the purchase of coffee. The Fair Trade Coffee initiative has set standards followed by individuals and multinational corporations alike.

Soft law has the potential to affect the world.

What does this mean to the reader?

If the U.S. plays to type and refuses to sign any multilateral treaty with new obligations and financial regulations, soft law may the world's only method for creating new regulations and preventing future financial meltdowns.

Chances are pretty good that the U.S. will not sign such a treaty. Our track record says we will refuse.

So, it will be up to the stock exchanges and the countries regulating their own stock exchanges to impose regulations that might save the U.S. financial sector in the future.

Oddly, this may work through a survival-of-the-fittest model among companies.

For example, say the Toronto Stock Exchange required new types of reporting from its listed members. Companies that met this reporting standard would be considered a better investment. Their transparency would reduce the risks associated with the stock.

Those companies that are considered better would raise more capital, and potentially acquire companies that do not meet the new reporting standards.

To survive, companies would have to meet the new reporting standard or risk being acquired or driven out of business.

In this age of international business competition, even companies not listed on the Toronto Stock Exchange would have to compete with these new reporting requirements - even though they are not required.

Non-binding regulations, that affect actors around the world, that's soft law.

And it may be the only way to regulate future financial stability.

Monday, September 22, 2008

WWWTOD? - What would the World Trade Organization Do? U.S. Bailout Edition

What is the Issue?

Does the massive bailout of the U.S. financial services sector by the U.S. government violate international law?

We already know that the last series of bailouts has been viewed with skepticism by the rest of the world. The bailouts have been seen as either an example of U.S. hypocrisy when insisting on deregulated markets in treaties or an admission of the failure of the U.S. guiding financial policies.

But is the bailout illegal under an international law regime?

What is the controlling international law?

The World Trade Organization governs many obligations - including domestic regulation - relating to trade and business.

The United States is a member of the WTO - voluntarily assuming obligations imposed by the Marrakesh Agreement, signed in 1994 and entering force in the U.S. in 1995.

The section of the Marrakesh Agreement that applies to financial services - like banking - is the General Agreement on Trade in Services (GATS).

Annex 1B of GATS contains the following provision in Article XXIX; Annex on Financial Services; Paragraph 2(a):

"Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement."


The seems to clearly indicate that actions taken to prop up failing domestic financial service suppliers are exempt from the WTO limits.

This includes throwing unprecedented sums of money at financial institutions in the hope that investment banks land softly and they can then proceed to swim about like Scrooge McDuck.

All perfectly legal under international law.

How does this affect the readers?

Readers can expect that many countries around the world will not contest the U.S. bailout in WTO tribunals. Get ready for your cash to help pay for executive golden parachutes.

Instead, foreign banks - like UBS - will be lining up to receive U.S. taxpayer cash. We're already seeing it happen.

The next question is, are we obligated to pay money to foreign banks as well as domestic ones?


Wednesday, September 17, 2008

America's Latest Failing Export - Law

The New York Times has a fascinating article on how the international legal community is no longer looking to the U.S. for legal guidance.

Courts around the world have looked to the United States' Supreme Court decisions and modeled their own legal systems based on those outcomes.

There were several reasons listed for this. For example, the rise of constitutions after World War II, in countries whose legal traditions had never functioned with anything larger than a civil code, left foreign courts seeking guidance. The court systems in these countries suddenly found themselves weighing constitution challenges - something the U.S. Supreme Court has been doing since Marbury v. Madison. That's two hundred years of detailed legal analysis that these courts relied on again and again.

But this is not the case anymore. With U.S. diplomacy waning and our human rights approach conflicting with the civil liberties policies of other democracies, foreign courts have turned away from American jurisprudence and are seeking guidance elsewhere.

More often, these foreign courts are looking to the Canadian Supreme Court, the Constitutional Court of South Africa, and the European Court of Human Rights.

The world no longer looks to the U.S. as a model for how to behave or how to protect their own citizens. I find that profoundly depressing.

What does this mean to you, the reader?

If U.S. law becomes increasingly disparate and isolated from legal trends in the rest of the world, we will find it difficult to convince other countries to cooperate with us in a variety of matters.

We've already had past difficulty getting suspected criminals extradited to the U.S. from other countries due to our use of the death penalty. Here's one example from the BBC, about the difficulties of extraditing a narcotics criminal from Brazil.

The farther we let the our legal norms diverge from the norms of the rest of the world, the more the rest of the world will turn their back on the U.S.

What can we do? Are we to blindly copy the legal decisions of the rest of the world, replacing our own law with theirs?

No. That is an abdication of the responsibilities voluntarily assumed by judges and lawmakers to uphold the Constitution and laws of the United States.

But what we can give serious consideration to the legal reasoning of foreign courts. Let our legal scholars and lawmakers weigh the logic and ideas of foreign courts. Let's use the knowledge of the whole world to test our ideas of justice and fairness.

Justice can be found in a court room on the other side of the world, and we would be blind not to acknowledge a new and novel way of finding that justice just because of where it was uncovered.

The U.S. used to lead the world in tackling the difficult legal problems of the modern age. Just because we are no longer the only place to which the world looks for guidance, is no reason to let ourselves be left behind.


Friday, September 12, 2008

South Diplomat Row Continues

The New York Times has a nice article explaining the diplomatic maneuvers between the U.S., Bolivia, & Venezuela and some of it's implications.

Especially interesting is the Treasury Department accusal of Venezuelan intelligence officials of aiding Colombia's largest rebel group - FARC.

Read the article here.

Newsflash: Diplomatic Strife between the U.S., Boliva, & Venezuela!

The U.S. and Venezuela have both declared each other's diplomats persona non grata - which is the legal term for 'get the hell out.'

According to this article, this diplomatic showdown started after Bolivia asked the U.S. envoy in La Paz to leave. Bolivia accused the U.S. ambassador of instigating violent protests amongst the lower class.

What's the controlling international law?

The Vienna Convention on Diplomatic Relations of 1961 controls - well - diplomatic relations. It ensures safe passage for diplomats and their goods and codifies the inviolability of embassies and consuls. This inviolability existed before the Convention as customary law, but controls now.

The U.S., and Venezuela are both signatories to the Convention. Bolivia has acceded to the Convention.

Article 9 of the Convention states:

"The receiving State may at any time and without having to explain its decision, notify the
sending State that the head of the mission or any member of the diplomatic staff of the mission is
persona non grata or that any other member of the staff of the mission is not acceptable. In any such
case, the sending State shall, as appropriate, either recall the person concerned or terminate his functions
with the mission."

This means that any state that may at any time may withdraw recognition of a diplomats credentials and ask them to leave the country. There does not have to be a reason for a state to do this.

Expelling diplomats is a move often used in brinkmanship between countries.

What does this mean to you?

The expulsion of diplomats is hardly a reason to panic. Theoretically, new diplomats could be sent to replace the ones expelled. No country appears to have severed all diplomatic relations.

Still, such brinkmanship from South American countries is troubling. The U.S. relationship with many countries south of its border have become tense. Decades of intrusive narcotic policies, support for toppling local governments, and rising rhetoric by the U.S. towards South America has created an increasing sense of mistrust.

The implications from this is that the U.S. will find itself increasingly unable to influence policy in this area. From drug trafficking to mining and oil sales, South American countries may find reasons to go against the interests of the U.S. If only out of spite for decades of ill treatment.

As world politics shift to accommodate the rising economic might of China & Russia, the U.S. should be seeking to strengthen relationships, especially with it's neighbors.