CHICAGO JoHN M. OLIN LAW &z ECONOMICS WORKING PAPER NO 216 (2D SERIES) The economics of public international law Alan O. Sykes THE LAW SCHOOL THE UNIVERSITY OF CHICAGO July 2004 This paper can be downloaded without charge at TheChicagoWorkingPaperSeriesIndex:http://www.lawuchicago.edu/lawecon/index.html and at the Social Science Research Network Electronic Paper Collection http://ssrn.com/abstract_id=564383
CHICAGO JOHN M. OLIN LAW & ECONOMICS WORKING PAPER NO. 216 (2D SERIES) The Economics of Public International Law Alan O. Sykes THE LAW SCHOOL THE UNIVERSITY OF CHICAGO July 2004 This paper can be downloaded without charge at: The Chicago Working Paper Series Index: http://www.law.uchicago.edu/Lawecon/index.html and at the Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract_id=564383
The Economics of public International law Alan o. Sykes Abstract: This paper is a preliminary draft for eventual inclusion in the Handbook Law and Economics, A. Mitchell Polinsky Steven Shavell editors. It reviews and synthesizes the work of economists and lanv and economics scholars in the field of public international law. The bulk of that work has been in the area of international trade, but many of the ideas in the trade literature have implications for other subfields. Recent years have seen a significant increase in research on other topics as well. The paper begins with a general framework for thinking about the positive and normative economics ofpublic international law, and then proceeds to a treatment of specific topics including customary law, strategic alliances and the laws of war, international trade, international investment, international antitrust, human rights law, conflicts of law, and the international commons (fisheries) 1. Introduction International law has been recognized as a distinct field of study within the legal ademy for well over a century, but economically-oriented scholars have paid it elatively little attention. Dunoff and Trachtman(1999). By far the bulk of the law and economics research in international law pertains to the law of international trade Systematic work on other topics is limited at best, although research in the field generally is accelerating and the subject can properly be considered a growth area The relative dearth of prior work, especially formal work, and its concentration on international trade issues, poses a number of challenges for a survey of this sort. An excessive emphasis on international trade will mask the richness and diversity of the field, and obscure rather than illuminate the potential research agenda. Moreover, large segments of the economic literature pertaining to international trade law already receive attention in the three volume Handbook of International Economics series, especially in Staiger(1995a), and in a number of other extant and forthcoming volumes focuse WTO issues including Bagwell and Staiger(2002)and Grossman and Helpman(2002) Accordingly, I have limited the treatment of trade issues in this chapter, emphasizing topics that illustrate broader themes for the economic analysis of international law. Much of the chapter will instead be devoted to a general framework for thinking about international law, along with brief discussions of a number of topics outside the realm of Frank Bernice Greenberg Professor of Law, University of Chicago. I have received thoughtful comments on an earlier draft from Kyle Bagwell, Eric Posner, Steven Shavell, and participants in the Handbook of Law and Economics conference at Stanford law schoo
The Economics of Public International Law Alan O. Sykes* Abstract: This paper is a preliminary draft for eventual inclusion in the Handbook of Law and Economics, A. Mitchell Polinsky & Steven Shavell editors. It reviews and synthesizes the work of economists and law and economics scholars in the field of public international law. The bulk of that work has been in the area of international trade, but many of the ideas in the trade literature have implications for other subfields. Recent years have seen a significant increase in research on other topics as well. The paper begins with a general framework for thinking about the positive and normative economics of public international law, and then proceeds to a treatment of specific topics including customary law, strategic alliances and the laws of war, international trade, international investment, international antitrust, human rights law, conflicts of law, and the international commons (fisheries). 1. Introduction International law has been recognized as a distinct field of study within the legal academy for well over a century, but economically-oriented scholars have paid it relatively little attention. Dunoff and Trachtman (1999). By far the bulk of the law and economics research in international law pertains to the law of international trade. Systematic work on other topics is limited at best, although research in the field generally is accelerating and the subject can properly be considered a growth area. The relative dearth of prior work, especially formal work, and its concentration on international trade issues, poses a number of challenges for a survey of this sort. An excessive emphasis on international trade will mask the richness and diversity of the field, and obscure rather than illuminate the potential research agenda. Moreover, large segments of the economic literature pertaining to international trade law already receive attention in the three volume Handbook of International Economics series, especially in Staiger (1995a), and in a number of other extant and forthcoming volumes focused on WTO issues including Bagwell and Staiger (2002) and Grossman and Helpman (2002). Accordingly, I have limited the treatment of trade issues in this chapter, emphasizing topics that illustrate broader themes for the economic analysis of international law. Much of the chapter will instead be devoted to a general framework for thinking about international law, along with brief discussions of a number of topics outside the realm of * Frank & Bernice Greenberg Professor of Law, University of Chicago. I have received thoughtful comments on an earlier draft from Kyle Bagwell, Eric Posner, Steven Shavell, and participants in the Handbook of Law and Economics conference at Stanford Law School
trade. with the understanding that an informal treatment is all that the existing literature has to offer on many of them Sections 2 and 3 of the chapter provide legal background on the field of international law, followed by a discussion of general economic considerations that cut across a range of possible topics. The analysis will encompass the various possible functions of international law, the challenges involved in realizing gains from international cooperation, the design and function of mechanisms for its enforcement, and the interface between domestic and international law. Sections 4-10 of the chapter consider particular topics, including strategic alliances and laws of war, international rade. international investment international antitrust. human rights law. conflicts of law and the international commons(fisheries) As a final, preliminary disclaimer, I have not undertaken to survey and incorporate the vast political science literature on public international law. Much of that literature is excellent, and the"rational choice literature in particular is often quite close in both spirit and method to the work of economists. I omit attention to it not because of any negative judgment about its quality, but to make the task at hand a manageable one Readers seeking a window into the rational choice perspective on international relations and institutions might wish to consult Snidal (1996)and(2002). Carlsnaes, Risse and Simmons(2002) provide a broader introduction to modern international relations work in political science 2. Legal background The field of international law is conventionally divided into two subfields: public"international law and"privateinternational law. "Public"international law refers to the body of law that governs relations between states or countries. " Private international law refers to the body of law that governs international relations between private citizens or companies. Most private international law relates to international b s transactions, and may be subsumed for analytic purposes under other topics such as contract law, corporate law and tax law that are the subject of other chapters the Handbook of Law and Economics. Accordingly, my focus in this chapter is almost exclusively on public international law. The genesis of public international law necessarily differs from that of domestic law. No international legislature exists to pass the equivalent of domestic statutes, and no international court exists with the power to create a general international common law Instead, public international law arises only by agreement among states
trade, with the understanding that an informal treatment is all that the existing literature has to offer on many of them. Sections 2 and 3 of the chapter provide legal background on the field of international law, followed by a discussion of general economic considerations that cut across a range of possible topics. The analysis will encompass the various possible functions of international law, the challenges involved in realizing gains from international cooperation, the design and function of mechanisms for its enforcement, and the interface between domestic and international law. Sections 4-10 of the chapter consider particular topics, including strategic alliances and laws of war, international trade, international investment, international antitrust, human rights law, conflicts of law, and the international commons (fisheries). As a final, preliminary disclaimer, I have not undertaken to survey and incorporate the vast political science literature on public international law. Much of that literature is excellent, and the “rational choice” literature in particular is often quite close in both spirit and method to the work of economists. I omit attention to it not because of any negative judgment about its quality, but to make the task at hand a manageable one. Readers seeking a window into the rational choice perspective on international relations and institutions might wish to consult Snidal (1996) and (2002). Carlsnaes, Risse and Simmons (2002) provide a broader introduction to modern international relations work in political science. 2. Legal Background The field of international law is conventionally divided into two subfields: “public” international law and “private” international law. “Public” international law refers to the body of law that governs relations between states or countries. “Private” international law refers to the body of law that governs international relations between private citizens or companies. Most private international law relates to international business transactions, and may be subsumed for analytic purposes under other topics such as contract law, corporate law and tax law that are the subject of other chapters in the Handbook of Law and Economics. Accordingly, my focus in this chapter is almost exclusively on public international law. The genesis of public international law necessarily differs from that of domestic law. No international legislature exists to pass the equivalent of domestic statutes, and no international court exists with the power to create a general international common law. Instead, public international law arises only by agreement among states
Often, agreement is manifest in an instrument known as a treaty. a treaty is an agreement executed by duly authorized officials of signatory states, evincing an intention to make it a binding legal obligation. Treaty obligations are themselves governed by over-arching treaty known as the Vienna Convention on Treaties, which supplies rules for their interpretation and enforcement. Note that the concept of a"treaty"is not necessarily the same in international and domestic law. The U.S. President, for example has the authority in many areas to bind the United States internationally through Executive Agreements, sometimes accompanied by formal Congressional approval and sometimes not. These agreements have the same status as treaties under international law even though they are not treaties under domestic law(which provides that treaties"must be approved by a two-thirds vote of the U. s. Senate) Agreement may also become manifest as customary international law, which is defined as ageneral and consistent practice of states followed by them from a sense of legal obligation. The traditional test for the emergence of customary law thus requires a high degree of consistency in state practice, and a belief that the practice has become a legal obligation. Both of these requirements are imprecise, and scholars often disagree about what practices have achieved the status of customary law. Some rules of customar international law are uncontroversial, however, such as those relating to aspects of diplomatic immunity. It is generally said that states may avoid an obligation to obey customary international law by"opting out" at an early stage of its evolution, but once they have manifested agreement with it through conforming behavior, any subsequent deviation is illegal International legal scholars also make reference to the concept of soft law. Soft law encompasses a range of things, including formal agreements that are understood not to be binding " under international law, as well as agreements that may be" binding" but that are essentially hortatory or aspirational. Examples of each abound-the Cuban Missile Crisis was settled by an informal agreement, for example, while numerous provisions in Wto treaty text encourage but do not require special trade treatment for developing countries The enforcement of international law to the extent that it is successful occurs in a variety of ways. The closest analog to the coercive enforcement powers often exercised by domestic courts is found in the United Nations. A serious breach of U N. obligation may result in the authorization of substantial sanctions by the Security Council, or in American Law Institute, Restatement(Third) of the Foreign Relations Law of the United States $102(2 (1987)
Often, agreement is manifest in an instrument known as a treaty. A treaty is an agreement executed by duly authorized officials of signatory states, evincing an intention to make it a binding legal obligation. Treaty obligations are themselves governed by an over-arching treaty known as the Vienna Convention on Treaties, which supplies rules for their interpretation and enforcement. Note that the concept of a “treaty” is not necessarily the same in international and domestic law. The U.S. President, for example, has the authority in many areas to bind the United States internationally through “Executive Agreements,” sometimes accompanied by formal Congressional approval and sometimes not. These agreements have the same status as treaties under international law, even though they are not treaties under domestic law (which provides that “treaties” must be approved by a two-thirds vote of the U.S. Senate). Agreement may also become manifest as customary international law, which is defined as a “general and consistent practice of states followed by them from a sense of legal obligation.”1 The traditional test for the emergence of customary law thus requires a high degree of consistency in state practice, and a belief that the practice has become a legal obligation. Both of these requirements are imprecise, and scholars often disagree about what practices have achieved the status of customary law. Some rules of customary international law are uncontroversial, however, such as those relating to aspects of diplomatic immunity. It is generally said that states may avoid an obligation to obey customary international law by “opting out” at an early stage of its evolution, but once they have manifested agreement with it through conforming behavior, any subsequent deviation is illegal. International legal scholars also make reference to the concept of “soft law.” Soft law encompasses a range of things, including formal agreements that are understood not to be “binding” under international law, as well as agreements that may be “binding” but that are essentially hortatory or aspirational. Examples of each abound—the Cuban Missile Crisis was settled by an informal agreement, for example, while numerous provisions in WTO treaty text encourage but do not require special trade treatment for developing countries. The enforcement of international law, to the extent that it is successful, occurs in a variety of ways. The closest analog to the coercive enforcement powers often exercised by domestic courts is found in the United Nations. A serious breach of U.N. obligations may result in the authorization of substantial sanctions by the Security Council, or in 1 American Law Institute, Restatement (Third) of the Foreign Relations Law of the United States §102(2) (1987)
extreme cases in a resolution authorizing the use of military force against the violator state. Much of international law falls outside the purview of U N. obligations, however, and thus outside its enforcement mechanism Some international legal regimes have their own tribunals with the power to adjudicate violations(such as NAFTa and the WTo), The International Court of Justice also has jurisdiction to hear a broad range of disputes The power to adjudicate disputes may or may not be accompanied by the power to authorize or impose sanctions however, and the nature of any sanctions may be tightly circumscribed. Formal sanctions for the violation of WTo obligations, for example, are limited to the withdrawal of benefits under Wto agreements. If international law is incorporated into domestic law, as quite often occurs, then the powers of domestic courts can be brought to bear on certain types of violations. This mechanism too has its limitations, as many international legal obligations are never incorporated into domestic law. Further, domestic courts are often limited in their jurisdiction to enforce international obligations that are so incorporated--principles of foreign sovereign immunity, for example, often insulate states from actions against them in foreign courts Finally, many international legal obligations exist as to which there is no formal enforcement or sanctioning mechanism at all Where some enforcement mechanism exists. a further issue arises as to who has standing to invoke it. Public international law governs relations among states and generally speaking, only states have standing to enforce it. Private citizens have no right pursue most claims under international law even if they have suffered substantial injury due to a violation. An important exception of sorts exists, however, if nations incorporate international law into their domestic legal systems. Private actors may ther be able rely on their access to domestic courts to enforce what originates as an international legal obligation. Finally, private citizens occasionally have standing to pursue claims before international tribunals, as in the case of the NAFTa investor rights provisions which allow investors access to NAFTA arbitration 3. Economic Aspects of International Law Public international law represents a number of distinct phenomena. Some"law' may be no more than a behavioral regularity in the practices of states, while other law may represent rules coercively imposed on less powerful states by more powerful states Still other types of law may arise to promote the domestic objectives of participating officials. But many of the more interesting and important pockets of international law may be seen as efforts to coordinate the behavior of states to address externalities. These
extreme cases in a resolution authorizing the use of military force against the violator state. Much of international law falls outside the purview of U.N. obligations, however, and thus outside its enforcement mechanism. Some international legal regimes have their own tribunals with the power to adjudicate violations (such as NAFTA and the WTO), The International Court of Justice also has jurisdiction to hear a broad range of disputes. The power to adjudicate disputes may or may not be accompanied by the power to authorize or impose sanctions, however, and the nature of any sanctions may be tightly circumscribed. Formal sanctions for the violation of WTO obligations, for example, are limited to the withdrawal of benefits under WTO agreements. If international law is incorporated into domestic law, as quite often occurs, then the powers of domestic courts can be brought to bear on certain types of violations. This mechanism too has its limitations, as many international legal obligations are never incorporated into domestic law. Further, domestic courts are often limited in their jurisdiction to enforce international obligations that are so incorporated—principles of foreign sovereign immunity, for example, often insulate states from actions against them in foreign courts. Finally, many international legal obligations exist as to which there is no formal enforcement or sanctioning mechanism at all. Where some enforcement mechanism exists, a further issue arises as to who has standing to invoke it. Public international law governs relations among states and, generally speaking, only states have standing to enforce it. Private citizens have no right to pursue most claims under international law even if they have suffered substantial injury due to a violation. An important exception of sorts exists, however, if nations incorporate international law into their domestic legal systems. Private actors may then be able rely on their access to domestic courts to enforce what originates as an international legal obligation. Finally, private citizens occasionally have standing to pursue claims before international tribunals, as in the case of the NAFTA investor rights provisions which allow investors access to NAFTA arbitration. 3. Economic Aspects of International Law Public international law represents a number of distinct phenomena. Some “law” may be no more than a behavioral regularity in the practices of states, while other law may represent rules coercively imposed on less powerful states by more powerful states. Still other types of law may arise to promote the domestic objectives of participating officials. But many of the more interesting and important pockets of international law may be seen as efforts to coordinate the behavior of states to address externalities. These