Closing International Law’s Innocence Gap

Over the last decade, a growing number of countries have adopted new laws and other mechanisms to address a gap in national criminal legal systems: the absence of meaningful procedures to raise post-conviction claims of factual innocence. These legal and policy reforms have responded to a global surge of exonerations facilitated by the growth of national innocence organizations that increasingly collaborate across borders. It is striking that these developments have occurred with little direct help from international law. Although many treaties recognize extensive fair trial and appeal rights, no international human rights instrument—in its text, existing interpretation, or implementation—explicitly and fully recognizes the right to assert a claim of factual innocence. We label this omission international law’s innocence gap. The gap appears increasingly anomalous given how foundational innocence protection has become at the national level, as well as international law’s longstanding commitment to the presumption of innocence, fair trial, and other criminal process guarantees. We argue the time has come to close this innocence gap by recognizing a new international human right to assert post-trial claims of factual innocence.

* L. Neil Williams, Jr., Professor of Law, Duke University School of Law and Director, Wilson Center for Science and Justice, Duke University School of Law. bgarrett@law.duke.edu.                 

† Harry R. Chadwick, Sr. Professor of Law, Duke University School of Law and Permanent Visiting Professor, iCourts: Centre of Excellence for International Courts, University of Copenhagen. helfer@law.duke.edu.                            

‡ Clinical Professor of Law, Director, International Human Rights Clinic, Duke University School of Law. huckerby@law.duke.edu.   

          

In Defense of International Comity – Article by Samuel Estreicher & Thomas H. Lee

Article | International Law
In Defense of International Comity
by Samuel Estreicher* & Thomas H. Lee

From Vol. 93, No. 2 (January 2020)
93 S. Cal. L. Rev. 169 (2020)

Keywords: International Comity, Federal Common Law, Republic of Argentina v. NML Capital

Abstract

A chorus of critics, led by the late Justice Scalia, have condemned the practice of federal courts’ refraining from hearing cases over which they have subject-matter jurisdiction because of international comity—respect for the governmental interests of other nations. They assail the practice as unprincipled abandonment of judicial duty and unnecessary given statutes and settled judicial doctrines that amply protect foreign governmental interests and guide the lower courts. But existing statutes and doctrines do not give adequate answers to the myriad cases in which such interests are implicated given the scope of present-day globalization and features of the U.S. legal system that attract foreign litigants. The problem is ubiquitous. For instance, four cases decided in the Supreme Court’s 2017 October Term raised international comity concerns and illustrate the Court’s difficulty grappling with these issues.

This Article cuts against prevailing academic commentary (endorsed, to some extent, by the newly-minted Restatement (Fourth) of the Foreign Relations Law of the United States) and presents the first sustained defense of the widespread practice of international comity abstention in the lower federal courts—a practice the Supreme Court has not yet passed on but will almost certainly decide soon. At the same time, we acknowledge that the critics are right to assert that the way lower courts currently implement international comity—through a multi-factored interest analysis—is too manipulable and invites judicial shirking. Consequently, we propose a new federal common law framework for international comity based in part on historical practice from the Founding to the early twentieth century when federal courts frequently dealt with cases implicating foreign governmental interests with scant congressional or executive guidance, primarily in the maritime context. That old law is newly relevant. What is called for is forthright recognition of a federal common law doctrine of international comity that enables courts to exercise principled discretion in dealing with asserted foreign governmental interests and clears up conceptual confusion between prescriptive and adjudicative manifestations of international comity.

*. Dwight D. Opperman Professor of Law & Codirector, Institute for Judicial Administration, New York University School of Law.

. Leitner Family Professor of Law, Fordham University School of Law.

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What’s in a Claim? Challenging Criminal Prosecutions Under the FTAIA’s Domestic Effects Exception – Note by Jay Kemper Simmons

From Volume 92, Number 1 (November 2018)
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What’s in a Claim? Challenging Criminal Prosecutions Under the FTAIA’s Domestic Effects Exception

Jay Kemper Simmons[*]

TABLE OF CONTENTS

Introduction

I. Legal Background

A. Historical Foundations of Extraterritoriality
in U.S. Competition Law

1. Extraterritorial Criminal Liability Under the
Sherman Act: Exploring the Shift from
Territoriality to Effects

2. Principles of International Comity and Fairness

B. The FTAIA’s Domestic Effects Exception

C. Hui Hsiung, Motorola Mobility, and Beyond

II. The FTAIA Does Not Authorize Extraterritorial Criminal Prosecutions

A. Textualism Foundationally Supports a Narrow Construction of the Domestic Effects Exception’s
“Claim” Language

B. Narrow Interpretation of the FTAIA Comports with International Comity Principles and Applicable
Canons of Construction

C. Distinct Remedies Reflect Distinct Treatment
of Civil and Criminal Actions Under the FTAIA

III. Implications for an Interconnected Global Political Economy

Conclusion

 

Introduction

O be some other name!

What’s in a name? That which we call a rose

By any other word would smell as sweet . . . .

                            William Shakespeare, Romeo and Juliet act 2, sc. 2

Americans recently awoke to a startling revelation: “Our country is getting ripped off.”[1] Indeed, the purportedly deleterious effects of international trade on the United States domestic economy have claimed top billing in President Donald Trump’s nascent “America First” agenda.[2] As the White House publicly excoriates international free trade for the first time in recent memory, global trade deals and domestic tariffs are cast in stark relief.[3] China and Mexico, along these lines, are cast as chief culprits in a system of international exchange allegedly designed to subjugate American workers to nefarious foreign interests.[4] Overall, recent politics underscore the practical importance of, and interdependence between, competition and cooperation in international economic regulation.[5]

In the arena of hard-nosed international competition, it’s all fun and games––until somebody starts a trade war.[6] But beyond the scope of trade deals and tariffs, sovereign states’ domestic antitrust laws are also critical regulatory levers. Americans at the Antitrust Division of the Department of Justice and the Federal Trade Commission have the power to influence incentives in markets across the globe. For example, although domestic by nature, U.S. antitrust laws do not exclusively apply to conduct in domestic markets—the Sherman Act may extend far beyond American shores to activities conceived and executed abroad.[7]

Although it is understood that extraterritorial antitrust liability may exist with respect to certain foreign conduct, courts, businesses, and practitioners have struggled to concretely define the contours of this liability in practice.[8] Judicial construction of the Sherman Act’s “charter of freedom”[9] currently permits civil actions and criminal prosecutions against foreign anticompetitive conduct based solely on American domestic law. In the United States, liability may attach to foreign conduct even if the allegedly anticompetitive acts occur entirely beyond the territory over which the United States exerts sovereign control.[10]

Moreover, given its impact on the interests of market participants and sovereign states, extraterritorial application of the Sherman Act remains highly controversial in academic and professional legal circles.[11] In part due to the emergence of modern global supply chains, which often span several sovereign jurisdictions,[12] debate about extraterritoriality in U.S. competition policy has reached a fever pitch.[13]

Enter the Foreign Trade Antitrust Improvements Act of 1982 (“FTAIA” or “the Act”).[14] In 1982, Congress passed the FTAIA, putatively in order to clarify the limits of the Sherman Act in reaching certain foreign and export activities.[15] In early 2015, however, the United States Court of Appeals for the Ninth Circuit upheld the convictions of a Taiwanese electronics-manufacturing firm, AU Optronics, and its executives for criminal price fixing, in part based on the FTAIA’s so-called “domestic effects” exception.[16] In a decision assessing several independent challenges to the defendants’ extraterritorial criminal convictions, the panel ruled that an “effects” theory was independently sufficient to support criminal price-fixing charges under the FTAIA, absent an allegation that any acts in furtherance of the conspiracy occurred in the United States:

The defendants . . . urge that . . . the nexus to United States commerce was insufficient under the Sherman Act as amended by the Foreign Trade Antitrust Improvements Act of 1982 . . . . The defendants’ efforts to place their conduct beyond the reach of United States law and to escape culpability under the rubric of extraterritoriality are unavailing. . . . The verdict may . . . be sustained under the FTAIA’s domestic effects provision because the conduct had a “direct, substantial, and reasonably foreseeable effect on United States commerce.”[17]

From one perspective, the defendants’ foreign collusive activities were fairly traceable to U.S. markets, and thus fully within the purview of American antitrust laws, based on its direct connection to some qualifying “effect” on nonimport domestic commerce.[18] This rationale rendered the defendants in United States v. Hui Hsiung subject to the weight of criminal antitrust penalties under the Sherman Act, although the entirety of the defendants’ underlying conduct occurred overseas. The court suggested that this criminal punishment was only fair, as the defendants’ wholly foreign anticompetitive activities entailed some “direct, substantial, and reasonably foreseeable effect on United States commerce,”[19] which was legally cognizable through overcharges paid by Americans for electronic goods that had incorporated the defendants’ price-fixed LCD-panel component parts.[20]

Regrettably, however, the final panel decision affirmed the defendants’ criminal convictions without substantively evaluating a critical merits inquiry[21]: whether the FTAIA’s “domestic effects” exception even authorizes the underlying extraterritorial criminal prosecution as a “claimunder the Sherman Act.[22] This Note posits, contrary to the Ninth Circuit’s amended decision in Hui Hsiung, that the FTAIA’s domestic effects exception does not authorize American regulators to prosecute wholly foreign conduct under the Sherman Act. In the three years since Hui Hsuing, both the Supreme Court and Congress have failed to meaningfully address how to properly read the FTAIA.[23]

This Note builds on published legal decisions, practitioner resources, and academic commentaries to paint a fuller picture of the FTAIA’s domestic effects exception and, in particular, its proper scope in the context of extraterritorial criminal prosecutions.[24] Part I explores the historical development of extraterritorial antitrust jurisprudence in the United States, the FTAIA’s substantive requirements, and recent cases evaluating extraterritorial enforcement under the Act. Part II evaluates the prevailing approach under Hui Hsiung and makes the case that the FTAIA does not independently authorize extraterritorial criminal antitrust prosecutions. Part III discusses criminal liability implications under Hui Hsiung and related antitrust jurisprudence for international businesses and their agents. In sum, through discussion of the FTAIA’s history, text, and teleological aspects, this Note aims to clarify the proper scope of extraterritorial criminal antitrust actions under the Sherman Act, as amended by the Foreign Trade Antitrust Improvements Act of 1982.[25]

I.  Legal Background

A.  Historical Foundations of Extraterritoriality in U.S. Competition Law

Before diving into the current state of criminal prosecutions under the FTAIA’s domestic effects exception, it is first critical to trace the development of American criminal antitrust prosecutions beyond the territorial borders of the United States. Prior to passage of the FTAIA (and arguably even after its codification),[26] courts—rather than legislators—primarily defined the extraterritorial contours of the Sherman Act. The following sections trace a series of seminal decisions regarding the proper scope of the Sherman Act in international commerce prior to and following the passage of the FTAIA. This historical foundation informs a narrow interpretation of the FTAIA’s domestic effects exception in criminal prosecutions.[27]

1.  Extraterritorial Criminal Liability Under the Sherman Act: Exploring the Shift from Territoriality to Effects[28]

The Sherman Act prohibits monopolization and unlawful restraints on “commerce . . . with foreign nations.”[29] Thus, the statute unambiguously applies to conduct with foreign actors and opens the possibility of government prosecutions for “bad apples” in the high-stakes game of global competition. Historically, however, federal courts hesitated to apply the Sherman Act’s provisions—along with related laws, such as the Clayton Act and the Federal Trade Commission Act—to conduct that occurred beyond the territorial boundaries of the United States.

Traditional notions of sovereignty largely informed the dominant, territorial conception of American courts’ narrow jurisdiction over foreign anticompetitive conduct. The territorial location of the underlying conduct, rather than the site of its fairly traceable effects, served as the relevant standard for determining jurisdiction over foreign anticompetitive conduct. Justice Holmes’ decision in American Banana Co. v. United Fruit Co., for example, reflects the historic presumption against extraterritorial application of the Sherman Act:

Words having universal scope, such as every contract in restraint of trade, every person who shall monopolize, etc., will be taken, as a matter of course, to mean only everyone subject to such legislation, not all that the legislator subsequently may be able to catch. In the case of the present statute, the improbability of the United States attempting to make acts done in Panama or Costa Rica criminal is obvious, yet the law begins by making criminal the acts for which it gives a right to sue. We think it entirely plain that what the defendant did in Panama or Costa Rica is not within the scope of the statute so far as the present suit is concerned.[30]

Although this prima facie territorial presumption applied seemingly to “all legislation” passed by Congress under Justice Holmes’ view, the jurisprudential tide steadily shifted to embrace the imposition of antitrust liability for conduct conceived or executed beyond U.S. borders.[31] Over time, the Supreme Court came to stray from a strict territoriality standard and adopted a much broader standard that granted courts antitrust jurisdiction over activities with certain “effects on competition in the United States.”[32]

Judge Learned Hand’s approach in United States v. Aluminum Co. of America (“Alcoa”) definitively established that foreign anticompetitive acts involving import commerce could be criminally prosecuted in American courts.[33] A unanimous panel of the United States Court of Appeals for the Second Circuit found a Canadian corporation to be in violation of Sherman Act section based on its agreement with European aluminum producers not to compete in the American market for virgin ingot.[34] The decision marked a notable shift in extraterritorial interpretation of the Sherman Act; Hand’s majority opinion not only served as the final decision in lieu of Supreme Court review,[35] but also significantly expanded the global reach of American antitrust laws to include activities with effects on import commerce.[36]

Rather than territoriality, the touchstone of extraterritorial antitrust liability shifted decidedly toward the tangible effects of foreign anticompetitive conduct on domestic markets. With respect to such effects, Judge Hand candidly noted, “[a]lmost any limitation of the supply of goods in Europe, . . . or in South America, may have repercussions in the United States if there is trade between the two.”[37] Shifting to an effects standard required reasonable limits; otherwise, American courts would adjudicate seemingly every global competition dispute.[38] Although the court in Alcoa embraced an effects test for extraterritorial Sherman Act violations, it also warned, “[w]e should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequences within the United States.”[39] Despite concerning only conduct directly involving import commerce, Alcoa’s non-territorial, effects-centered rationale has been generally incorporated into criminal antitrust precedents after passage of the FTAIA.[40]

Thus, courts historically hesitated to apply domestic law to activity beyond U.S. territorial borders, which traditionally delineated the outer bounds of American sovereignty. After Alcoa, however, courts’ antitrust jurisdiction would expand considerably to encompass criminal penalties for anticompetitive conduct involving direct import trade and commerce.[41]

2.  Principles of International Comity and Fairness

Another judicial innovation concerns the doctrine of international comity.[42] Despite finding sufficient anticompetitive effects targeting domestic commerce to support domestic jurisdiction, courts may nevertheless decline to apply U.S. law to foreign conduct under the judicial constructs of “international comity and fairness.”[43] To determine the propriety of invoking comity to bar an antitrust action, courts widely consider several factors, including: (1) the parties’ nationality, allegiance, or principal locations; (2) the relative importance of domestic and foreign conduct in the allegations; (3) the relative effects on all countries involved; (4) the clarity of foreseeability of a purpose to affect or harm domestic commerce; (5) foreign law or policy and degree of conflict with American policy or law; and (6) compliance issues.[44]

For example, in Timberlane Lumber Co. v. Bank of America, international comity factors suggested that the court “should refuse to exercise jurisdiction,” in part because “[t]he potential for conflict with Honduran economic policy and commercial law [was] great,” and “[t]he effect on the foreign commerce of the United States [was] minimal.”[45] The “jurisdictional rule of reason” embodied in the Timberlane opinion attempted to balance domestic concerns with the interests of foreign states in adjudicating legal disputes. Thus, in American antitrust law, the comity doctrine adds greater nuance to courts’ treatment of the domestic effects that stem from foreign anticompetitive conduct.[46]

The comity doctrine reinforces a norm of reasonableness when applying domestic laws to foreign actors—agents who, in many cases, may not be fair targets for enforcement actions under the Sherman Act. In that vein, the third Restatement on Foreign Relations Law of the United States characterizes comity as a “principle of reasonableness” that applies to a court’s authority to adjudicate disputes and enforce remedies.[47] The comity doctrine has historically empowered federal courts with a measure of discretionary authority over how far domestic authorities can reach abroad to target foreign defendants, as well as how far private plaintiffs can project domestic claims across national borders. These considerations remain critical even after passage of the FTAIA.[48] Without considering fairness and foreign sovereignty in applying domestic laws, U.S. courts would risk dangerously overreaching into the affairs of international partners, as well as upsetting the constitutionally ingrained separation of powers between judicial, legislative, and executive branches of government.[49]

The Timberlane test has been widely embraced by courts in extraterritorial antitrust actions.[50] The Ninth Circuit’s analysis built a compelling case for declining to extend domestic antitrust laws to a foreign transaction in which an American corporation, Bank of America, allegedly manipulated the Honduran national government to prevent its competitor, Timberlane, from exporting lumber into the United States.[51] Beyond the facts of Timberlane, however, Hartford Fire Insurance Co. v. California suggests an alternative approach.[52]

In Hartford Fire, the Supreme Court—without deciding whether federal courts may ever decline to exercise subject matter jurisdiction over Sherman Act claims concerning foreign conduct—determined that principles of international comity are not relevant in the absence of a “true conflict” between domestic and foreign law.[53] The petitioners in Hartford Fire claimed error based on the district court’s failure to decline to exercise antitrust jurisdiction under the principle of international comity.[54] As the petitioners did not allege that British law mandated that they act in violation of the Sherman Act, however, the Court found no direct conflict of law and therefore quickly concluded that there was “no need . . . to address other considerations that might inform a decision to refrain from the exercise of jurisdiction on grounds of international comity.”[55]

The Court further ruled that the plaintiffs’ civil antitrust action could proceed, despite concerns regarding the application of domestic laws to the defendants’ foreign acts, so long as such foreign acts “[were] meant to produce and did in fact produce some substantial effect in the United States.”[56] It remains unclear to what degree the rule in Hartford Fire governs comity decisions in extraterritorial criminal prosecutions under the Sherman Act. In the absence of clear guidance on this aspect of international comity in federal courts, principles of comity and fairness continue to play integral roles in extraterritorial antitrust analysis under either the Hartford Fire or Timberlane standards.

B.  The FTAIA’s Domestic Effects Exception

Although it remains unclear whether the FTAIA “amend[ed] existing law or merely codifie[d] it,”[57] courts have construed the statute to comport with the Sherman Act’s historical scope. The statute operates along with case law concerning how far plaintiffs may extend federal courts’ extraterritorial antitrust jurisdiction.[58] Prior to assessing the efficacy of the prevailing construction of the FTAIA’s “claim” language, however, it is helpful to discuss the language of the domestic effects exception, the intended purposes of the provision, and the early cases that largely ignored the statute in extraterritorial antitrust analysis.

The FTAIA facially excludes most foreign conduct from the scope of the Sherman Act. Two narrow exceptions bring wholly foreign activity back within the scope of domestic antitrust law.[59] Under the FTAIA’s “domestic effects” exception, the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations,” unless: (1) “such conduct has a direct, substantial, and reasonably foreseeable effect” on domestic trade or commerce, and that effect (2) “gives rise to a claim” under the Sherman Act.[60] Courts have clarified that conduct involving direct “import trade or import commerce” unambiguously falls within the scope of the Sherman Act under the FTAIA.[61]

In practice, the FTAIA applies when anticompetitive conduct is foreign in nature.[62] Courts have consistently noted since its passage, however, that lawmakers passed the Act primarily to “facilitat[e] the export of domestic goods by exempting export transactions that did not injure the United States economy from the Sherman Act and thereby reliev[e] exporters from a competitive disadvantage in foreign trade.”[63] Ironically, then, the FTAIA aimed to clarify when foreign anticompetitive conduct gives rise to domestic antitrust liability primarily in order to clarify that American firms can behave anticompetitively—so long as they only target foreign markets.[64] The notion that the FTAIA enables criminal prosecutions to remedy competitive harms in U.S. markets is notably absent in congressional findings related to the Act’s purpose, although the legislative history does broadly mention “Department of Justice enforcement.”[65]

The Act was further designed to provide appropriate “legislative clarification” of the antitrust laws, which presented “an unnecessarily complicating factor in a fluid environment” of international exchange, and allegedly caused many “possible transaction[s] [to] die on the drawing board.”[66] Despite endorsing the “situs of effects standard authoritatively articulated in Alcoa, the legislative history uncovers debate concerning the “precise legal standard to be employed” for assessing the requisite “effects” on domestic or import trade or commerce.[67] Lawmakers generally acknowledged, “it has been relatively clear that it is the situs of the effects as opposed to the conduct, that determines whether United States antitrust law applies.”[68] In line with judicial precedents, Congress intended to “enact[] . . . a single, objective test—the ‘direct, substantial, and reasonably foreseeable effect’ test” to clarify precisely which effects trigger extraterritorial antitrust liability for “businessmen, attorneys and judges as well as foreign trading partners.”[69]

The legislative history suggests primary consideration of domestic commercial interests in export markets—interests that were increasingly complicated by the extraterritorial application of the Sherman Act.[70] Yet the statute has by no means proven simple and straightforward for antitrust practitioners. In that vein, prevailing academic commentary strongly suggests that the Act, falling just short of an outright failure worthy of repeal,[71] has demanded more from the federal courts—tribunals that must now apply the complicated statute in tandem with an expansive terrain of Sherman Act precedents.[72]

The Supreme Court first tackled the FTAIA in Hartford Fire. The majority declined to apply the statute in an analysis of civil claims under the Sherman Act.[73] The Court declined to rest its section 1 ruling on the FTAIA’s effects language, and instead relied entirely on Sherman Act precedents.[74] Nevertheless, the effects-centered rationale imbued in the FTAIA’s legislative history and prior precedents carried into decisions rendered after passage of the Act, as in United States v. Nippon Paper Industries and F. Hoffman-La Roche, Limited v. Empagran S.A. Although Hartford Fire only addressed the limited role of the FTAIA in civil antitrust proceedings, these later decisions grappled with the thornier issue of how to interpret the FTAIA and Sherman Act in the context of criminal prosecutions.

The district court in Nippon Paper (Nippon I) reviewed the defendants’ motions to dismiss a criminal antitrust indictment.[75] The indictment targeted a Japanese fax paper manufacturer for participating in meetings, agreements, and monitoring activities that took place entirely in Japan.[76] Notably, the court “disagree[d] with [the U.S. government’s] suggested equating of the Sherman Act’s civil and criminal application” with respect to wholly foreign conduct.[77] Given a “strong presumption against extraterritorial application of federal statutes” in criminal matters, the district court reasoned that “the line of cases permitting extraterritorial reach in civil actions is not controlling” in determining whether the Sherman Act’s criminal provisions can reach wholly foreign conduct.[78]

Citing prior judicial treatment of the language of the Sherman Act, academic commentary on its extraterritorial reach, policies underlying antitrust and criminal law, and relevant legislative history, the court concluded that the “criminal provisions of the Sherman Act do not apply to conspiratorial conduct in which none of the overt acts . . . take place in the United States.”[79] Thus, on first impression, the court in Nippon I differentiated between the requirements of an extraterritorial civil claim and an extraterritorial criminal prosecution under the FTAIA.

The district court’s holding remained intact for 165 days. The United States Court of Appeals for the First Circuit swiftly reversed the judgment, holding in Nippon II that, under Hartford Fire, the defendants could be criminally liable for agreeing to employ retail price maintenance strategies with various firms that distributed paper in the United States (notwithstanding the FTAIA’s terms).[80] The court sidestepped Hartford Fire’s civil posture by emphasizing that “in both criminal and civil cases, the claim that Section One applies extraterritorially is based on the same language in the same section of the same statute.”[81]

Despite pausing to note the “inelegantly phrased” FTAIA, the panel’s decision nevertheless declined to “place any weight on it,” following Hartford Fire.[82] The majority also reasoned that, without meaningful distinction in the Sherman Act’s treatment of civil and criminal liability, “it would be disingenuous . . . to pretend that the words had lost their clarity simply because this is a criminal proceeding.”[83] The decision explained how

Hartford Fire definitively establishe[d] that Section One of the Sherman Act applies to wholly foreign conduct which has an intended and substantial effect in the United States. We are bound to accept that holding. Under settled principles of statutory construction, we also are bound to apply it by interpreting Section One the same way in a criminal case. The combined force of these commitments requires that we accept the government’s . . . argument, reverse the order of the district court, reinstate the indictment, and remand for further proceedings.[84]

In addition, despite ultimately arriving at the same conclusion regarding the applicability of the Sherman Act’s criminal provisions to wholly foreign conduct, the detailed concurrence in Nippon II provided greater historical context for courts’ broad “interpretive responsibility” in adjudicating Sherman Act claims:

The task of construing [the Sherman Act in a criminal context] is not the usual one of determining congressional intent by parsing the language or legislative history of the statute. The broad, general language of the federal antitrust laws and their unilluminating legislative history place a special interpretive responsibility upon the judiciary. The Supreme Court has called the Sherman Act a charter of freedom for the courts, with a generality and adaptability comparable to that found . . . in constitutional provisions.[85]

Thus, by the turn of the century, the FTAIA’s substantive provisions were manifested as mere legislative gloss on prevailing judicial principles. Both the district court and the appellate court in Nippon Paper declined to find the FTAIA dispositive of extraterritorial criminal antitrust prosecutions, instead falling back to traditional conceptions of liability under the Sherman Act.

Nevertheless, the notable contrast in the district court’s and the appellate courts treatments of the Sherman Act’s extraterritorial criminal provisions underscores a key development in extraterritorial antitrust jurisprudence. Although Nippon II stands for the proposition that wholly foreign conduct may give rise to criminal liability under the Sherman Act based on the plain language of the statute and its “common sense” application,[86] reasonable minds differ with respect to the proper extraterritorial limits on the antitrust jurisdiction of federal courts. For example, the district court’s reasoning in Nippon I stands against the dominant, casual assumption that indictments are interchangeable with civil “claims” when anticompetitive conduct occurs beyond U.S. borders, based on reasonable application of similar tools of statutory interpretation as the court in Nippon II. The fact that the appellate panel declined to endorse the district court’s handiwork, and instead crafted its own interpretive edifice with its preferred tools, is by no means dispositive of the merits of the district court’s reasoning.[87]

In 2004, the Supreme Court finally weighed in on the FTAIA’s domestic effects exception in F. Hoffman-La Roch, Ltd. v. Empagran. Two decades after the passage of the Act, the Court reasoned that its “claim” language refers directly to the “plaintiff’s claim, or the claim at issue.”[88] In Empagran, the Court held that foreign purchasers of vitamins could not recover under the FTAIA based merely on allegations that their own foreign harms from international price-fixing activity coincided with some domestic injury.[89] Thus, foreign purchaser plaintiffs in a civil antitrust action must now prove that the alleged anticompetitive effect on domestic trade or commerce itself gives rise directly and proximately to their own foreign injuries.[90] Foreign plaintiffs cannot “piggyback” on an indirect domestic effect to get into American courts on antitrust claims under the FTAIA. Following Empagran, the requisite domestic effect must proximately cause an antitrust plaintiff’s claimed injuries[91]—and it is the plaintiff’s burden of proof and persuasion to demonstrate proximate causation with respect to a domestic effect and his or her “claim.”

C.  Hui Hsiung, Motorola Mobility, and Beyond

Recent circuit court judgments in United States v. Hui Hsiung[92] and Motorola Mobility, LLC v. AU Optronics Corp.[93] endorse criminal prosecution of foreign anticompetitive conduct based on the FTAIA’s domestic effects prong. Further, in denying certiorari for these conspiracy cases,[94] the Supreme Court let the final circuit decisions lie undisturbed, even in light of potential analytical deficiencies.[95] Careful consideration of both decisions sets the stage for analysis of the FTAIA’s “claim” language.[96]

Hui Hsiung and Motorola Mobility stem from the same conspiracy to fix prices for liquid crystal display (“LCD”) panels,[97] component parts incorporated into electronics products sold in the United States and elsewhere.[98] Specifically, between 2001 and 2006, “representatives from six leading [LCD] manufacturers,” including defendant AU Optronics, met in Taiwan for a “series of meetings” that “came to be known as the ‘Crystal Meetings.’”[99] The Ninth Circuit explained that after these meetings,

participating companies produced Crystal Meeting Reports. These reports provided pricing targets for TFTLCD sales, which, in turn, were used by retail branches of the companies as price benchmarks for selling panels to wholesale customers. More specifically, [AU Optronics Corporation of America] used the Crystal Meeting Reports that [AU Optronics] provided to negotiate prices for the sale of TFTLCDs to United States customers including HP, Compaq, ViewSonic, Dell, and Apple.[100]

The government alleged that the foreign conspiracy constituted a textbook example of a concerted agreement among direct competitors to restrain trade: “[s]pecifically, the indictment charged that ‘the substantial terms’ of the conspiracy were an agreement ‘to fix the prices of TFTLCDs for use in notebook computers, desktop monitors, and televisions in the United States and elsewhere.’”[101] From 2001 to 2006, the United States constituted “one-third of the global market for personal computers incorporating [LCD panels],” and sales by conspirators into the U.S. market generated “over $600 million in revenue.”[102]

After being indicted in the Northern District of California for price fixing under section 1 of the Sherman Act, the defendants twice unsuccessfully attempted to dismiss the charges before proceeding to trial.[103] The panel suggests that “the reach of the Sherman Act to conduct occurring outside of the United States” marked “a contentious subject” in pretrial proceedings.[104] The district court instructed the jury that it may uphold the charges upon finding that the government proved “beyond a reasonable doubt . . . that the conspiracy had a substantial and intended effect in the United States,” even without a single action taken by a single member of the conspiracy in furtherance of the conspiracy within the United States.[105] The district court also instructed that the jury could uphold the charge separately upon finding that the government proved beyond a reasonable doubt that at least one member of the conspiracy took at least one action in furtherance of the conspiracy within the United States.”[106] Ultimately, the jury convicted the defendants and determined that combined gains derived from the conspiracy were in excess of $500 million.[107] Individual and corporate defendants appealed their convictions, and AU Optronics appealed imposition of a $500 million fine.[108]

On appeal, the Ninth Circuit initially declined to determine whether the government had satisfied its burden to convict based on the domestic effects prong, instead concluding narrowly that “the FTAIA did not bar the prosecution because the government sufficiently proved that the defendants engaged in import trade.”[109] The panel subsequently amended their initial opinion (“amended opinion”) and noted that whenever a case involves nonimport trade with foreign nations, the Sherman Act presumptively does not apply—unless the FTAIA’s domestic effects prong applies.[110]

But the panel’s amended analysis did not stop there. The decision independently sustained the defendants’ convictions based on “domestic effects.”[111] Despite a dearth of meaningful discourse regarding the FTAIA’s “claim” language,[112] the panel independently authorized criminal penalties amounting to $500 million against AU Optronics (matching “the largest fine imposed against a company for violating U.S. antitrust laws”), individual fines totaling $400,000, and a total of six years in federal prison.[113] In this sense, the amended opinion reasoned to the same conclusion as the initial opinion, but with considerably broader precedential scope.

The Ninth Circuit aimed to include within the scope of the Sherman Act only those acts that actually have a direct and proximate “effect” on domestic markets. The panel explains in great length that an effect must be “direct, substantial, and reasonably foreseeable” to trigger Sherman Act jurisdiction on the basis of alleged “domestic effects.”[114] Yet despite noting that the FTAIA presents additional substantive elements for a Sherman Act prosecution involving international commerce with domestic effects,[115] the panel declined to warrant its conclusion that the government proved an essential element of its case beyond a reasonable doubt––that AU Optronics’ conduct “[gave] rise” to the government’s so-called “claim” under the antitrust laws.[116]

A subtle aspect of the Ninth Circuit’s amended opinion underscores an important development in post-FTAIA extraterritorial antitrust jurisprudence: “[t]o allege a nonimport trade claim under the Sherman Act, the claim must encompass the domestic effects elements.”[117] Under the domestic effects exception, the government must now prove the existence of (1) a domestic effect that (2) “gives rise to” a “claim” as substantive elements of a criminal charge. Hui Hsiung reinforces the dominant interpretation of the FTAIA as providing additional substantive requirements of antitrust claims in the extraterritorial context, concomitantly placing additional burdens on all plaintiffs in such actions.[118] Viewing the FTAIA’s elements as substantive, rather than jurisdictional, requires that government plaintiffs’ allegations and, ultimately, direct proof must satisfy each of the “domestic effects” elements in cases not involving direct import commerce.[119]

In Motorola Mobility, the Seventh Circuit reviewed a judgment entered in a suit brought by Motorola, along with “its ten foreign subsidiaries,” which purchased liquid-crystal display panels and incorporated them into cellphones.[120] The panel first briefly explained the nature of the disputed panel sales in the civil action:

[a]bout 1 percent of the panels sold by the defendants to Motorola and its subsidiaries were bought by, and delivered to, Motorola in the United States for assembly here into cellphones; to the extent that the prices of the panels sold to Motorola had been elevated by collusive pricing by the manufacturers, Motorola has a solid claim under section 1 of the Sherman Act. The other 99 percent of the cartelized components, however, were bought and paid for by, and delivered to, foreign subsidiaries (mainly Chinese and Singaporean) of Motorola. Forty-two percent of the panels were bought by the subsidiaries and incorporated by them into cellphones that the subsidiaries then sold to and shipped to Motorola for resale in the United States. Motorola did none of the manufacturing or assembly of these phones. The sale of the panels to these subsidiaries is the focus of this appeal.[121]

Ultimately, the court concluded that Motorola’s “derivative” competitive claims were barred under the indirect-purchaser doctrine.[122] AU Optronics and related conspirators were therefore immunized from civil antitrust liability to indirect customers, like Motorola and its customers, although its subsidiaries could still pursue independent civil claims overseas.

The court stated that under the FTAIA’s “domestic effects” exception “[t]he first requirement, if proved, establishes that there is an antitrust violation; the second determines who may bring a suit based on it.”[123] Implicitly, the panel reasoned that Motorola—a party directly affected on its balance sheet by overcharges from the panel sales, despite integrating these technologies into final consumer products through foreign subsidiaries—was, unlike the United States government, not among the select few “who may bring a suit” involving foreign commerce under the Sherman Act.

The decision concluded by suggesting, “[i]f price fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the Act would not block the Department of Justice from seeking criminal . . . remedies.”[124] Although this statement stands as non-binding dicta with respect to the FTAIA’s domestic effects prong, its implications are straightforward: federal criminal prosecutions are “claims” under the domestic effects exception and may support a conviction under the antitrust laws if the government can satisfy proof beyond a reasonable doubt. Obtusely, however, the court barred civil recovery for an American corporation harmed directly by the conspiracy, reasoning that Motorola could better pursue such claims through its subsidiaries “direct” claims in foreign jurisdictions.[125]

The final circuit opinions include analytical deficiencies, particularly with respect to the threshold requirements for invoking “domestic effects.”[126] Neither decision identifies a clear reason for concluding that the “domestic effects” test supports criminal prosecutions under the Sherman Act, as both leave untouched the question of whether a criminal action may ever “give rise to” a “claim” under the antitrust laws. In that vein, Part II posits that the FTAIA’s “claim” language should be narrowly interpreted in line with its original meaning, which did not authorize international criminal prosecutions.

II.  The FTAIA Does Not Authorize Extraterritorial Criminal Prosecutions

Congress passed the FTAIA to limit the criminal justice authority of American antitrust authorities over nonimport foreign commerce—not to expand it. Part II argues the case for narrow construction of the FTAIA’s “claim” language with respect to extraterritorial criminal prosecutions. After presenting a case for departure from the approach laid out in Hui Hsiung, Part III considers various implications of the current state of the law on international businesses, multinational corporate executives, and their agents.

A.  Textualism Foundationally Supports a Narrow Construction of the Domestic Effects Exception’s “Claim” Language

Courts frequently begin an assessment of apparent ambiguities in statutory meaning based on “pure textual reliance.”[127] In some cases, American courts divine the “meaning of a statute . . . entirely from the words used in the law under consideration.”[128] The plain statutory language, authoritative definitions of terms in secondary source materials, and the ordinary or common usage of terms or phrases in the statute, as well as related sections of the law, may illuminate statutory meaning in the absence of clear legislative intent.[129] These engrained methods suggest that the FTAIA’s domestic effects prong does not support criminal prosecutions.

The Act ought to be interpreted in line with its unambiguous terms. Fortunately, the words “claim” and “prosecution” are terms with distinct meanings in the legal lexicon. At the outset, it is useful to note that the more general term “action” may encompass civil and criminal redress under the Sherman Act. By contrast, at least in the American legal system, plaintiffs asserting a “claim” under a given statute ordinarily would do so only with respect to the civil aspects of the statute––as where a civil plaintiff alleges “claims” against a civil defendant in adversary legal proceeding. This textual distinction is not accidental; it is reflective of fundamental underlying differences between civil and criminal actions under the FTAIA. The courts should treat it as such.

The Act does not expressly define the term “claim,” however. Thus, legal practitioners and jurists should typically import the plain or ordinary meaning of the term, as defined in secondary source materials. One source commonly relied upon is an authoritative definition in a legal dictionary. According to Black’s Law Dictionary, a claim may entail the “assertion of an existing right,” a “right to payment or to an equitable remedy,” or a “demand for money, property, or a legal remedy to which one asserts a right, esp[ecially] the part of a complaint in a civil action specifying what relief the plaintiff asks for.”[130] By contrast, criminal “prosecutions” ordinarily entail “criminal proceeding[s] in which an accused person is tried.”[131] From a textual standpoint, then, these terms entail distinct proceedings in statutory parlance. This observation strongly suggests that it would be erroneous to casually equate the term “claim” with any “criminal proceeding.”

Moreover, the sharp contrast between authoritative legal definitions of the terms “claim” and “prosecution” is accentuated by ingrained uses for the terms in distinct legal proceedings. In ordinary use, surely, the word “claim” would not be used to describe highly specialized terms in criminal procedure, such as “prosecution,” and “indictment,” and “plea.” Broad usage of “claim” would, in fact, more likely lead to greater confusion than clarity in the course of criminal proceedings. In other words, loosely speaking, the government may allege “claims” against alleged perpetrators in criminal proceedings. However, stretching the term “claim” so far as to encompass the government’s entire “prosecution” against the defendant would appear facially obtuse in most contexts—in large part based on the ordinary usage of the terms in distinct legal settings.

Such judgments about “plain meaning” and “ordinary usage” are naturally disputed. Yet the foregoing discussion rapidly approaches an alternative conclusion from that rendered by the panel in Hui Hsiung: the plain terms of the FTAIA’s domestic effects exception are unambiguous, but they authorize only civil “claims” under the Sherman Act. And, turning beyond the black letter of the statute, ordinary usage of the words “claim” and “prosecution” lends further credence to this view. Thus, claims and prosecutions can and should be understood to entail distinct legal meanings; criminal “prosecutions” do not fall within “claims” based on a textualist analysis of the FTAIA’s domestic effects prong.

To the extent that the Act’s terms are subject to multiple reasonable meanings, however, other interpretive canons suggest that its domestic effects prong does not extend to criminal actions under the Sherman Act where wholly foreign acts are concerned. The remainder of this Part evaluates arguments for and against extending the FTAIA to authorize extraterritorial criminal prosecutions based in non-textual interpretive canons, including: (1) extraterritoriality principles of comity and fairness; (2) applicable canons of statutory construction; and (3) consideration of the varied remedy schemes for criminal and civil Sherman Act violations.

B.  Narrow Interpretation of the FTAIA Comports with International Comity Principles and Applicable Canons of Construction

Extraterritoriality principles further counsel departure from the prevailing interpretation of the FTAIA’s domestic effects prong. Notions of comity and fairness undergird extraterritorial antitrust jurisprudence. These adjudicatory principles also clarify U.S. competition policy for foreign governments and firms, as courts share legal authority with the executive and legislative branches where extraterritorial liability is involved. This discussion reflects that adherence to these principles would be best advanced by interpreting the FTAIA to presumptively prohibit domestic criminal prosecutions of wholly foreign conduct under the domestic effects prong.

The international comity doctrine historically served a central role in limiting the extraterritorial jurisdiction of federal courts. And today, even under the far narrower “direct conflict” standard set forth in Hartford Fire,[132] American courts regularly invoke “reasons of international comity” while describing the FTAIA as limiting “the extraterritorial application of U.S. antitrust law.”[133] Judge Posner’s statement is characteristic:

[A]re we to presume the inadequacy of the antitrust laws of our foreign allies? Would such a presumption be consistent with international comity, or more concretely with good relations with allied nations in a world in turmoil? . . . Why should American law supplant, for example, Canada’s or Great Britain’s or Japan’s own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese or other foreign companies?[134]

Comity similarly counsels courts in criminal matters under the FTAIA. American laws should not presumptively supplant foreign governments’ judgments concerning criminal liability, particularly in an interconnected global marketplace. Application of criminal punishment thus warrants hesitation upon consideration of “good relations with allied nations in a world in turmoil.”[135] The principles of fairness and reasonableness help to outline a doctrinally consistent conception of the FTAIA’s domestic effects prong, as these principles have historically aided federal courts in crafting remedies and resolving international conflicts.[136]

Alternatively, however, comity may counsel in favor of enabling criminal remedies for extraterritorial antitrust violations. For example, leading antitrust commentator Robert Connolly notes, “there is a difference between actions brought by the DOJ and private class action damages,” particularly with respect to the extent to which government and private plaintiffs consider “comity considerations.”[137] Arguing that[n]o nation has objected to the DOJ’s successful prosecution of foreign companies and even citizens of that country in the LCD panel investigation,” and that “the DOJ seriously considers the views of foreign nations before bringing cases,” Connolly, an experienced practitioner with decades of experience at the Antitrust Division of the Department of Justice, projects confidence that past practice makes perfect.[138] This conception of the comity doctrine clearly influenced the court’s decision in Motorola Mobility:

[T]he . . . court should reach a decision that preserves the ability of the DOJ to protect American consumers and continue to lead the way in prosecuting international cartels—including appropriate component cartels. The court could also acknowledge the comity concerns of foreign nations and find application of [the indirect purchaser doctrine] a bar to foreign component civil damage cases.[139]

This view of comity appears highly limited, however, when cast against the principles underlying the doctrine and the weighty penalties associated with criminal antitrust actions under the Sherman Act. Neither the opinion in Motorola Mobility nor Connolly’s commentary acknowledge the limited nature of justifying the extension of American criminal penalties abroad based upon foreign states’ as-of-yet unstated approval of a single case arising from a single foreign conspiracy involving only several nations.

Under this view, to defend extraterritorial prosecutions beyond the Crystal Meetings conspiracy, something affirmative or principled is needed—something more than silence from foreign governments in the face of American action. Although coordination with foreign governments provides prima facie evidence that prosecutors can avoid chafing foreign sovereigns while applying the Sherman Act to wholly foreign conduct, the mere acquiescence of foreign states to such conduct should not temper characterization of American prosecutions as potential overreaching.[140] A more reasonable standard would presumptively limit the criminal domain of American prosecutors to domestic markets. This would encourage enhanced criminal enforcement activity by foreign governments, whose interests and authority are often more directly implicated in cases involving disputed extraterritorial conduct.

Fortunately, this is not a new concept. International comity already reflects an ingrained presumption against extraterritorial prosecutions under the Sherman Act. Generally, criminal law reflects social judgments regarding the proper magnitude of punishment acceptable for given violations in market competition and to consumer welfare. Different sovereign jurisdictions may make different judgments regarding whether to criminalize the same putatively anticompetitive conduct.[141] Moreover, different states punish offenders in different ways for the same crimes.[142] Variation in criminal punishment among developed nations reflects concomitant variation in social judgments regarding individual moral culpability and foundational precepts to systems of criminal justice. In this vein, from one dominant theoretical perspective, criminal liability confers a judgment of community condemnation of moral culpability.[143]

Amidst political uncertainty regarding norms of free trade and global economic cooperation,[144] American competition law should privilege the principles of reason and fairness imbued in the comity doctrine. Fairness lies at the heart of American criminal law––particularly when applied in the extraterritorial and criminal contexts.[145] Historical weighing of domestic and foreign sovereignty, which generally informs courts’ extraterritorial jurisdiction, should be imported into analysis of the FTAIA’s “claim” language in the context of criminal penalties. Certainly, the antitrust laws should not apply extraterritorially in criminal contexts when: (1) the parties are wholly foreign and foreign conduct constitutes the basis for the allegations; (2) direct effects are principally centered abroad; (3) there is a lack of foreseeable purpose to affect or harm domestic commerce; (4) foreign laws and policies conflict with American laws and policies to a high degree; and (5) simultaneous compliance with U.S. and foreign law is impossible.[146] The FTAIA’s “claim” language therefore naturally compliments the historically entrenched comity doctrine by barring criminal enforcement of the Sherman Act against foreign acts with effects on nonimport domestic commerce.[147]

Moreover, the strong presumption against extraterritorial application of federal law clearly applies in the case of criminal actions under the FTAIA. Courts presume that federal statutes do not apply extraterritorially in the absence of express legislative intent to the contrary.[148] To avoid this presumption against extraterritorial application of U.S. law, a plaintiff typically must bring a significant showing before the court of some “clear” expression of legislative intent to invoke the law beyond U.S. sovereign control.[149]

Relatedly, Morrison v. National Australia Bank Ltd. provides that the test of territoriality must look to the “focus” of a federal statute in determining the scope of a law.[150] In Morrison, for example, the Court held the territorial connections related to a statute’s “focus” may overcome the statutory presumption against territoriality.[151] Here, similarly, the focus of the FTAIA should guide federal courts in divining the extraterritorial scope of the statute’s criminal dimensions. Moreover, United States v. Bowman held that ambiguous criminal statutes generally should not apply extraterritorially, at least absent an extraterritorial intent clearly inferred from the nature of the offense itself.[152] Overall, these canons of construction reinforce comity considerations and counsel against interpreting the FTAIA to independently authorize criminal actions.

C.  Distinct Remedies Reflect Distinct Treatment of Civil and Criminal Actions Under the FTAIA

A final consideration concerns the distinct remedies that the overall statutory scheme envisions for civil and criminal antitrust violations. According to regulators’ conception of the Sherman Act and its penalties, violations “may be prosecuted as civil or criminal offenses,” and punishments for civil and criminal offenses vary.[153] For example, available relief under the law encompasses penalties and custodial sentences for criminal offenses, whereas civil plaintiffs may “obtain injunctive and treble damage relief for violations of the Sherman Act.”[154] Regulators also recognize that the law envisions distinct means of enforcing criminal and civil offenses under the Sherman Act. For example, the DOJ retains the “sole responsibility for the criminal enforcement” of criminal offenses and “criminally prosecutes traditional per se offenses of the law.[155] In civil proceedings, private plaintiffs and the federal government may seek equitable relief and treble damage relief for Sherman Act violations.[156]

These recognized remedial distinctions matter when assessing the FTAIA’s meaning. Along with the interpretive argument that the Sherman Act’s various provisions ought to be enforced in a way that is internally consistent, practical assessment of the varied remedies and parties that may pursue such remedies reinforces a narrow conception of the FTAIA’s language. The weighty power to seek imprisonment of offenders critically distinguishes criminal and civil remedies under the Sherman Act. The federal government alone retains such authority, predicated on principles of legality and sovereignty. For many reasons, it remains reasonable to permit civil redress—encompassing the full range of injunctive and damage relief—in extraterritorial proceedings under the Sherman Act. Aggrieved consumers and competitors targeted in American markets by foreign activities can sue for injunctive and treble damage relief under the Sherman Act’s civil provisions. Notably, the FTAIA permits as much by its own terms, at least where substantive elements under the Act are satisfied with respect to the requisite effect on domestic or direct import commerce.

In this sense, American law maintains a strong deterrent to foreign actors through a robust system of civil, as opposed to criminal, redress. Extraterritorial competitive injuries are left to the civil sphere under the FTAIA. Such civil remedies are more than sufficient to advance the objectives of the American competition regime abroad—namely, to prevent through legal means artificial distortions on the price and output of goods and services. American courts play a major role in the adjudication of disputes spanning distinct sovereign jurisdictions; that role is best maintained through established civil remedies. But criminal remedies—being reserved to the sovereign aloneshould not extend extraterritorially. The remedial distinctions under the Sherman Act reflect the aims of criminal and civil competition law—criminally, to vindicate public wrongs, and civilly, to remedy private injuries.

Criminal antitrust remedies are logically limited in the context of foreign sovereign jurisdiction. By contrast, the Sherman Act’s civil remedies provide injunctive and damage relief that may compensate victims despite traditional notions of foreign sovereign authority. Far from one sovereign intervening in the backyard of another, a civil action enables individually aggrieved parties to receive compensation from an antitrust offender. This is an intuitive remedial extension of basic principles of legality and sovereignty. Thus, far from the government’s current position—that the FTAIA’s claim prong empowers prosecutors to independently seek criminal remedies for extraterritorial antitrust offenses—the overall remedy scheme for antitrust offenses reinforces a limited conception of criminal redress, particularly where the FTAIA provides the basis for government action.

The preceding discussion substantiates a narrow interpretation of the FTAIA as cabining the extraterritorial criminal antitrust jurisdiction of federal courts. Based on the factors cited––along with substantial historical evaluation of the Sherman Act and FTAIA––this interpretation is consistent with the plain letter of the Act, engrained legal norms, and applicable canons of construction. The current state of U.S. antitrust law tacitly endorses potential executive overreach into criminal judgments of co-equal sovereigns, which is questionable even under consensual arrangements with such governments.[157] Such sovereigns’ domestic political and legal processes properly decide criminal judgments, absent American influence or legal process. In light of growing economic globalization, Part III briefly considers various implications of the prevailing construction of the FTAIA as independently supporting criminal prosecutions of foreign anticompetitive conduct.

III.  Implications for an Interconnected Global Political Economy

The foregoing analysis makes clear that the FTAIA was never intended to apply to criminal activity. Its drafters did not design the Act to reinforce American hegemony in the political economy of global competition policy. Rather, the statute provides express legislative guidance regarding the extraterritorial limits on criminal liability under the Sherman Act.

To date, the Supreme Court remains notably silent on the issue. In the meantime, Hui Hsiung and Motorola Mobility suggest that international businesses that participate in certain anticompetitive acts anywhere in the world should beware potential criminal redress in American courts. The chief implication of the “Crystal Meetings” cases is that anticompetitive conduct presents a massive criminal liability risk that may attach to commercial transactions that in many ways appear removed from American sovereignty. In particular, firms with foreign headquarters that deal significantly in American domestic commerce while operating abroad should consider the wide range of criminal remedies available to American prosecutors under the FTAIA.

In that vein, contractual agreements among segments of global supply chain networks should be drafted to avoid traditional areas of American criminal antitrust enforcement, such as price-fixing and bid rigging, territorial allocation mechanisms, and other naked collusive activities. Given thatat least in recent timesU.S. criminal enforcement actions are far more likely to stem from agreements between firms, rather than agreements enacted within a single entity, international businesses should factor antitrust enforcement concerns into assessing the relative risk of commercial dealings with partners. Owning subsidiaries, rather than dealing with others, may be a preferable alternative.[158]

Although vertical integration may shield firms from horizontal liabilities under section 1 of the Sherman Act, section 2 proscribes certain single-firm activities. Section 2 prohibitions include bans on attempted monopolization and the illegal maintenance or acquisition of monopoly power.[159] There are tensions inherent between self-dealing and dealing with others under U.S. antitrust law. Ironically, foreign firms may feel paralyzed by the vast scope of American antitrust law under courts’ expansive reading of the FTAIA in the criminal context—thus the Act may in fact fuel the type of commercial chilling effect bemoaned by legislators before its passage.[160]

Whereas the petitioners in Hui Hsiung failed to raise challenges to the criminal application of the domestic effects prong based on the FTAIA’s plain language and related arguments, future businesses and individuals targeted by criminal indictments should put the government to the test.[161] Multinational businesses play a major role in addressing the current conception of the FTAIA’s criminal dimensionsmost notably by challenging the U.S. government to prove the Act should apply to extraterritorial criminal acts. The plain text of the statute should give new life to extraterritoriality jurisprudence by reasonably limiting the domain of American authorities. This development is only possible, however, if foreign defendants raise facial challenges to the Act’s extraterritorial criminal application.

In the meantime, beyond reflecting the risk of criminal antitrust liability in international business transactions, multinational businesses should consider the panoply of behavioral and structural remedies available to federal prosecutors. In particular, behavioral remedies encompass fines, penalties, and potential prison time, as well as long-term monitoring and compliance regimes.[162] Foreign firms like AU Optronics, if caught in the crosshairs of a criminal prosecution, could lose control of certain areas of corporate governance altogether, in order to ensure such firms continuing compliance with American law.[163]

The range of behavioral remedies available to American competition authorities underscores the importance of avoiding criminal liability altogether by embracing a culture of prospective caution regarding potentially collusive conduct.[164] Foreign executives intending to maintain full control of corporate affairs and eschew long-term compliance monitors should craft deals as though American competition law operates globally, or otherwise entirely avoid collusive activities that could reasonably wash up on American shores.[165] Given the depth of consumer demand in American markets, caution appears to be the best policy at present for the vast majority of major global businesses.

Conclusion

The foregoing discussion indicates that domestic antitrust laws play a major role in modern global trade regulation. Arguably more than any time since the passage of the FTAIA, today the international dimensions of competition policy warrant careful consideration by lawmakers, businesses, and legal practitioners. Markets are increasingly global, and the application of domestic competition law to international business has necessarily become more complex.

Although global trade can unlock market efficiencies and enhance consumer welfare, it must be managed diligently among co-equal sovereign collaborators.[166] The FTAIA clarifies that U.S. antitrust law plays a limited role in managing foreign anticompetitive activities. Moving forward, the FTAIA’s effects exception should therefore not be permitted to independently support extraterritorial criminal prosecutions under the Sherman Act. The plain language of the FTAIA, in tandem with other traditional tools of statutory interpretation, suggests a limited range of legal redress for competitive harms stemming from wholly foreign acts. Such activities are cabined to the domain of civil redress and should not be subject to criminal prosecution under the FTAIA.

An interpretation of the FTAIA that would reduce reliance on American criminal law enforcement in favor of civil redress and enhanced criminal action by foreign governments in the competition sphere would be preferable, as this approach would reduce the risk of impolitic prosecutorial overreach. Spirited arguments can be made for rigorous domestic criminal enforcement where Americans face competitive injuries, but these arguments become less clearcut in the global marketplace. Yet one thing is clear: The FTAIA—a pronouncement designed by Congress to clarify the limited range of extraterritorial claims under the Sherman Act—did not speak clearly enough for federal courts. Absent judicial action, Congress should enunciate that criminal penalties are in fact authorized by the FTAIA’s plain terms.

In the meantime, American competition authorities are prepared to exercise every ounce of extraterritorial authority meted out by the federal judiciary.[167] This portends potential conflict where rigorous international competition is involved. Although the litigants in Hui Hsiung failed to fully raise arguments challenging a Sherman Act criminal prosecution under the FTAIA, the decision remains instructive. Criminal penalties under the Sherman Act are currently available to American prosecutors under a domestic effects theory.[168] Sherman Act remedies are structural and behavioral. Thus, international businesses and their agents may face U.S. competition remedies that directly interfere with corporate governance structures, including, but not limited to, compliance monitors, deferred-prosecution agreements, and non-prosecution agreements.[169]

This portends trouble in a world already plagued by political uncertainty surrounding global trade.[170] Businesses and individuals facing the current legal regime should challenge criminal enforcement of the Sherman Act under the FTAIA’s domestic effects exception. Given a lack of a clear controlling precedent, a domestic effects theory should not permit U.S. authorities to pursue criminal sanctions against wholly foreign activities, which fall more reasonably within the domain of foreign governments’ competition authorities.[171] By challenging the law in this way, businesses might topple the edifice of judicial inference that has resulted in uniform treatment of civil claims and criminal actions under the Sherman Act’s extraterritorial dimensions.

Given the proliferation of domestic competition laws worldwide in recent decades,[172] in particular, the Sherman Act should not be elevated to the status of global doctrine.[173] Nor should American jurists desire it to be treated as such.[174] The application of domestic criminal law to foreign activities demands propriety, which, in the immediate context, is best achieved by presumptively tempering domestic executive authority. To the extent short-term underdeterrence follows from respecting foreign governments’ criminal antitrust regimes, American law offers a robust range of civil redress.[175]

Trade talk has shifted from an overall cooperative tenor to a chorus of conflict.[176] The amended panel decisions will stand as good law for the time being. However, presumptive equivocal treatment of the civil and criminal provisions of the Sherman Act after the FTAIA demands meaningful justification from U.S. courts in the immediate future. For although American antitrust laws play a significant role in the contemporaneous global political economy, words matter: A rose by any other name may smell as sweet,[177] but an indictment does not a claim make.


[*] *.. Executive Senior Editor, Southern California Law Review, Volume 92; J.D. Candidate 2019, University of Southern California Gould School of Law; B.S., summa cum laude, Political Science and Economics 2016, Bradley University. I thank my mother, Barbara J. Simmons, for her steadfast support and dedication to the memory of my father, Brian S. Simmons. I also thank USC Professors Brian Peck and Jonathan Barnett for sparking my interest in transnational competition law. Lastly, I thank the Law Review staff and editors for their thoughtful work. All errors are my own.

 [1]. See Jason Margolis, Trump’s Trade Policies Worry Economists, USA Today (July 25, 2016, 10:57 AM), https://www.usatoday.com/story/news/world/2016/07/25/donald-trump-trade-policies-china
mexico/87521852. In one of many regrettable juxtapositions in American history since June 16, 2015—the day Donald Trump announced his presidential candidacy—Mr. Margolis’s article portended calamitous results relatively well. See also David J. Lynch et al., U.S. Levies Tariffs on $34 Billion Worth of Chinese Imports, Wash. Post (July 6, 2018), https://wapo.st/2lTv5qz?tid=ss_tw-bottom&utm_term=.b5b9bb69b3be (“The conflict over U.S.-China trade has been brewing for years but has intensified rapidly in 2018. On April 3, the United States released a list of targets for proposed tariffs on $50 billion worth of Chinese imports, taking aim at high-tech and industrial goods. On April 4, China fired back.”). Entering October 2018, the United States and China, two leading jurisdictions in terms of the international sale of goods, have engaged in a disturbing series of retributory tariffs. Anna Fifield, China Thinks the Trade War Isn’t Really About Trade, Wash. Post (Sept. 24, 2018), https://wapo.st/2OMNyC7?tid=ss_tw&utm_term=.35afb21f7722 (reporting, in wake of announcement that China will “retaliate with tariffs on $60 billion of U.S. goods” in response to U.S. decision to “slap tariffs on an additional $200 billion worth of Chinese goods,” that Chinese officials view combative trade policy as part of a larger geopolitical threat from the United States); see also Robyn Dixon, China Accuses the U.S. of Holding a Knife to Its Neck and Rules Out New Talks to Resolve the Trade War, L.A. Times (Sept. 25, 2018), http://www.latimes.com/world/la-fg-china-trade-war-09-25-18-story.html (reporting Chinese officials considered “U.S. tariffs on $200 billion in Chinese goods . . . so massive that it made trade talks impossible”); Donald J. Trump (@realDonaldTrump), Twitter (Jul. 24, 2018, 8:29 AM), https://twitter.com/realdonaldtrump/status/1021719098265362432 (“Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, [the United States is] the ‘piggy bank’ that’s being robbed. All will be Great!”).

 [2]. Margolis, supra note 1; see also Dixon, supra note 1. See generally Issues: Foreign Policy, WhiteHouse.gov, https://www.whitehouse.gov/america-first-foreign-policy (last visited Nov. 28, 2018) (“The promise of a better future will come in part from reasserting American sovereignty and the right of all nations to determine their own futures.”).

 [3]. Remarks by President Trump to the World Economic Forum, WhiteHouse.gov (Jan. 26, 2018), https://www.whitehouse.gov/briefings-statements/remarks-president-trump-world-economic-forum (“We cannot have free and open trade if some countries exploit the system at the expense of others. We support free trade, but it needs to be fair and it needs to be reciprocal. Because, in the end, unfair trade undermines us all.”); see also Donald J. Trump (@realDonaldTrump), Twitter (Mar. 4, 2018, 4:10 PM), https://twitter.com/realDonaldTrump/status/970451373681790978 (“We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our . . . industries are dead. Sorry, it’s time for a change!”); Donald J. Trump (@realDonaldTrump), Twitter (Mar. 2, 2018, 2:50 AM), https://twitter.com/realdonaldtrump
/status/969525362580484098 (suggesting, in light of U.S. trade deficit of billions of dollars, “trade wars are good, and easy to win” (emphasis added)).

 [4]. See Margolis, supra note 1 (“Trump’s major policy positions [on trade] are primarily focused on two countries: China and Mexico.”); see also Phil Levy, Dumping, Cheating and Illegality: Trump Misleads the Public on Steel Tariffs, Forbes (Mar. 12, 2018, 2:59 PM), https://www.forbes.com
/sites/phillevy/2018/03/12/dumping-cheating-and-illegality-trump-misleads-the-public-on-steel-tariffs; accord Donald J. Trump (@realDonaldTrump), Twitter (Jun. 10, 2018, 6:17 PM), https://twitter.com
/realDonaldTrump/status/1005982266496094209 (“Why should [the United States] allow countries to continue to make Massive Trade Surpluses, as they have for decades, while our Farmers, Workers & Taxpayers have such a big and unfair price to pay? Not fair to the PEOPLE of America!”); Donald J. Trump (@realDonaldTrump), Twitter (Jun. 2, 2018, 2:23 PM), https://twitter.com/realDonaldTrump
/status/1003024268756733952 (“The U.S. has been ripped off by other countries for years on Trade, time to get smart!”); Donald J. Trump (@realDonaldTrump), Twitter (Mar. 5, 2018, 7:47 AM), https://twitter.com/realdonaldtrump/status/970626966004162560 (“We have large trade deficits with Mexico and Canada.”).

 [5]. Pankaj Ghemawat, Globalization in the Age of Trump, Harv. Bus. Rev., July–Aug. 2017, https://hbr.org/2017/07/globalization-in-the-age-of-trump (“The myth of a borderless world has come crashing down. Traditional pillars of open markets—the United States and the UK—are wobbling, and China is positioning itself as globalization’s staunchest defender.”); see also Josh Zumbrun & Bob Davis, Trade Tensions Intensify as Allies Rebuke U.S., Testing Trump Ahead of G-7, Wall St. J. (June 3, 2018, 8:02 PM), https://www.wsj.com/articles/global-trade-tensions-intensify-1528070538; cf. Gao Shangquan, U.N. Comm. for Dev. Policy, U.N. Doc. ST/ESA/2000/CDP/1, Economic Globalization: Trends, Risks, and Risk Prevention 1–4 (2000), http://www.un.org/en
/development/desa/policy/cdp/cdp_background_papers/bp2000_1.pdf (asserting economic globalization trends are “irreversible,” and forecasting developmental risks posed by economic globalization).

 [6]. Lynch et al., supra note 1; cf. Donald J. Trump (@realDonaldTrump), Twitter (June 2, 2018, 2:23 PM), https://twitter.com/realDonaldTrump/status/1003024268756733952 (“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War!”).

 [7]. See Sherman Antitrust Act, 15 U.S.C. §§ 1–7 (2018); see also Ian Simmons et al., Where to Draw the Line: Should the FTAIA’s Domestic Effects Test Apply in Criminal Prosecutions?, 29 Antitrust 42, 42–46 (2015) (evaluating debate over extraterritorial contours of Sherman Act in criminal context).

 [8]. See, e.g., Melinda F. Levitt & Howard W. Fogt, International Trade and Antitrust: Clarity Put on Hold as FTAIA Conflict/Confusion Continues, Foley (July 30, 2015), https://www.foley.com
/international-trade-and-antitrust–clarity-put-on-hold-as-ftaiaconflictconfusion-continues (“Maybe the ball is back in Congress’s court. . . . However, given the present level of functionality with the United States Congress, I don’t think we are going to see that in the near future, unfortunately. And so, anybody who treads in these waters needs to continue to be very careful and monitor the situation as we go forward.”) (Melinda F. Levitt, at 1:01:12–1:01:48). But see Simmons et al., supra note 7, at 46 (suggesting plain language and clear legislative intent permit only civil liability for foreign actors under the FTAIA’s “domestic effects” exception).

 [9]. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359–60 (1933) (“As a charter of freedom, the act has a generality and adaptability comparable to that found to be desirable in constitutional provisions.”); see also Directorate for Fin. & Enter. Affairs Competition Com., Roundtable on the Extraterritorial Reach of Competition Remedies – Note by the United States 3–4 (Dec. 4–5, 2017), https://www.ftc.gov/system/files/attachments/us-submissions-oecd-other-international-competition-fora/et_remedies_united_states.pdf (“[The Antitrust Division and DOJ] require relief sufficient to eliminate identified anticompetitive harm that has the requisite connection to U.S. commerce and consumers, even if this means reaching assets or conduct in a foreign jurisdiction.” (footnote omitted)).

 [10]. See, e.g., United States v. Hui Hsiung, 778 F.3d 738, 758–59 (9th Cir. 2015), cert. denied, 135 S. Ct. 2837 (2015) (upholding criminal sentence under FTAIA for foreign price-fixing conspiracy with “effect” on United States).

 [11]. Cf. Levitt & Fogt, supra note 8 (detailing ongoing debate over extraterritoriality in American antitrust jurisprudence after FTAIA).

 [12]. Concerns surrounding extraterritoriality in U.S. competition policy are heightened in light of businesses’ widespread embrace of lean methodology and global supply-chain management strategies, which increasingly distribute goods and services throughout a single firm’s transnational network to maximize profit and minimize waste. See generally Michael H. Hugos, Essentials of Supply Chain Management (3d ed. 2011). Specifically, the emergence of global supply chain networks has unleashed a variety of associated complications with respect to commercial regulations. Cf. U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for International Enforcement and Cooperation 16–25 (2017), https://www.justice.gov/opa/press-release/file/926481/download [hereinafter International Guidelines] (describing agencies’ extraterritorial prerogatives under the FTAIA); Joseph P. Bauer, The Foreign Trade Antitrust Improvements Act: Do We Really Want to Return to American Banana?, 65 Me. L. Rev. 3, 5 (2012).

While there is extensive disagreement about the specifics with respect to what behavior and structure the antitrust laws should seek to prohibit or permit, there is broad, general consensus on the goals of the antitrust laws. . . . [E]nhancement of consumer welfare, the promotion of competition, and compensation of the victims of antitrust violations. . . . [T]he FTAIA has significantly undermined the achievement of these goals.

Bauer, supra, at 5.

 [13]. Phillip Areeda et al., Antitrust Analysis: Problems, Text, and Cases ¶¶ 168–69 (7th ed. 2013) (“With ever-expanding globalization, instances of conflicting—as well of complementary—interests among jurisdictions involving multinational business activity will become increasingly frequent. . . . [I]n many individual cases an anticompetitive practice may well benefit some jurisdictions . . . [however,] the reciprocal nature of foreign trade suggests the existence of opportunities for mutual gain.”); see also Jennifer B. Patterson & Terri A. Mazur, Kaye Scholer, Recent Developments in the Extraterritorial Reach of the U.S. Antitrust Laws (2014), https://www.arnoldporter.com/-/media/files/ks-imported/20140813_r
_pattersonmazurinsidecounselarticleaugust132014pdf; Levitt & Fogt, supra note 8.

 [14]. Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a (2018). The statute’s language is overly formalistic and consequently complicated. Accord United States v. Nippon Paper Indus. (Nippon II), 109 F.3d 1, 4 (1st Cir. 1997) (describing the FTAIA as “inelegantly phrased”). In effect, its terms cabin the Sherman Act’s scope to activity beyond U.S. borders, providing that such conduct gives rise to domestic antitrust liability only if it: (1) involves “import commerce;” or (2) has a “direct, substantial, and reasonably foreseeable effect” on domestic trade or commerce, which “gives rise to a claim” under the Sherman Act. See 15 U.S.C. § 6a (emphasis added).

 [15]. F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 169 (2004) (“[T]he FTAIA’s language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act’s scope as applied to foreign commerce.”).

 [16]. See United States v. Hui Hsiung, 778 F.3d 738, 738, 756–60 (9th Cir. 2015).

 [17]. Id. at 743 (quoting 15 U.S.C. § 6a).

 [18]. See id.

 [19]. Id. at 743, 748, 750–53, 756–60 (providing the required test under the first prong of the “domestic effects” exception, as articulated under the FTAIA).

 [20]. See, e.g., id. at 743 (“Crystal Meeting participants stood to make enormous profits from TFT–LCD sales to United States technology retailers. . . . [T]he United States comprised approximately one-third of the global market for personal computers incorporating TFT–LCDs, and sales . . . generated over $600 million in revenue.”). For example, the conspiracy targeted commercial electronics retailers, like Motorola and Apple, which incorporated the price-fixed panel technologies in overseas production processes earlier in the supply chain. See id.

 [21]. See id. at 751–53 (“The FTAIA . . . provides substantive elements under the Sherman Act in cases involving nonimport trade with foreign nations.” (emphasis added)). See generally 15 U.S.C. § 6a(2) (“[S]uch effect gives rise to a claim under the provisions of [the Sherman Act] . . . .” (emphasis added)).

 [22]. The court’s final analysis lacks any substantive discussion of whether a criminal indictment may give rise to a domestic antitrust “claim” within the meaning of the FTAIA’s domestic effects prong, while concluding that the question of “what conduct [the FTAIA] prohibits is a merits question, not a jurisdictional one.” Hui Hsiung, 778 F.3d at 752 (internal quotation marks omitted). Colorable arguments exist to support a broad interpretation of the FTAIA as authorizing both civil and criminal “claims” if wholly foreign conduct has a “direct, substantial, and reasonably foreseeable” effect on nonimport domestic commerce, see, for example, infra text accompanying notes 6772, but the panel decision offers none. See, e.g., Simmons et al., supra note 7, at 42 (“[T]he amended opinion upheld the convictions . . . without any significant discussion of whether [the “domestic effects” prong] can independently support a criminal prosecution [under the Sherman Act].”). At the very least, the panel owed the public a legal justification for its implicit ruling that a criminal indictment constitutes a “claim” under the “domestic effects” exception. In reality, a more efficacious reading of the FTAIA’s exception would limit the reach of the Sherman Act to only civil claims, at least where nonimport “domestic effects” form the basis of an extraterritorial competition “claim.” See, e.g., infra Part II (arguing that the FTAIA facially prohibits extraterritorial criminal prosecutions on the independent “domestic effects” theory, in part because neither prosecutions nor indictments actually amount to “claims” within the plain meaning of the “domestic effects” exception).

 [23]. Accord Levitt & Fogt, supra note 8.

 [24]. See generally supra notes 723 (reviewing FTAIA’s “domestic effects” exception and Hui Hsiung).

 [25]. Moreover, in light of the proliferation of highly integrated global supply chain networks, see generally Hugos, supra note 12, as well as the emergence of a tense global political economy surrounding free trade and international competition, see supra notes 15, this subject appears increasingly relevant to federal courts, legal practitioners, and the tens of thousands of firms doing business in America.

 [26]. See, e.g., Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 n.23 (1993) (noting disagreement regarding whether the FTAIA’s “direct, substantial, and reasonably foreseeable effect” standard amends existing law or merely codifies it, but declining to take up the issue).

 [27]. See infra Part II.

 [28]. For rich academic discussion of foreign commerce and the complex relationships forged between foreign commerce and domestic antitrust laws, see generally Wilbur L. Fugate & Lee H. Simowitz, Foreign Commerce and the Antitrust Laws (5th ed. 1996 & Supp. 2018). Sections I.A.1–2 are designed to provide useful historical context for the FTAIA’s substantive provisions and recent judicial decisions; they are not intended to provide exhaustive review of the Sherman Act in international commerce.

 [29]. 15 U.S.C. §§ 1–2 (2018) (criminal antitrust violations). See also Areeda et al., supra note 13, ¶ 168 n.101 (discussing definitions of “commerce” and the extraterritorial reach of various antitrust provisions, including sections 1, 2, and 7 of the Sherman Act, as well as the Clayton Act, and the Federal Trade Commission Act).

 [30]. Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 357 (1909) (Holmes, J.) (holding the Sherman Act does not apply to acts taken in Panama and Costa Rica, which fall beyond territorial borders of United States); see also Edward D. Cavanagh, The FTAIA and Claims by Foreign Plaintiffs Under State Law, 26 Antitrust L.J. 43, 43–44 (2011) [hereinafter Cavanagh, The FTAIA]; Edward D. Cavanagh, The FTAIA and Subject Matter Jurisdiction over Foreign Transactions Under the Antitrust Laws: The New Frontier in Antitrust Litigation, 56 SMU L. Rev. 2151, 2153–56 (2003) [hereinafter Cavanagh, The New Frontier].

 [31]. See United States v. Aluminum Co. of Am. (Alcoa), 148 F.2d 416, 440–45 (2d Cir. 1945) (Hand, J.) (“[A]ny state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends.”); Cont’l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 705 (1962) (approving of the Second Circuit decision in Alcoa and finding jurisdiction where foreign defendants’ conduct abroad had an “impact within the United States and upon its foreign trade”).

 [32]. Bauer, supra note 12, at 8.

 [33]. Alcoa, 148 F.2d at 443–44. The panel noted, “[b]oth agreements would clearly have been unlawful, had they been made within the United States; and it follows from what we have just said that both were unlawful, though made abroad, if they were intended to affect imports and did affect them.” Id. at 444. Although the case is famous for its domestic implications and market share analysis, the decision also marks a key moment in extraterritorial antitrust jurisprudence. Under the panel’s view, criminal liability under the antitrust laws historically attached to wholly foreign conduct involving imports; foreign conduct that affected nonimport domestic commerce was historically only subject to civil liability, not criminal prosecution. Alcoa therefore provides only limited authority for extraterritorial criminal liability in nonimport contexts, as when foreign actors are prosecuted on the basis of downstream effects on domestic commerce.

 [34]. Id. at 443–44.

 [35]. An interesting aspect of the Alcoa case was simply its procedural posture. In 1944, the Supreme Court announced that it would not have a quorum to hear the case. Congress subsequently designated the case to the Second Circuit through a special act that stands to this day. See generally Act of June 9, 1944, 28 U.S.C. § 2109 (2018).

 [36]. See, e.g., Areeda et al., supra note 13, ¶ 168.

 [37]. Alcoa, 148 F.2d at 443.

 [38]. Cf. id. This inference appears reasonable given federal courts’ position as legal custodians in the United States, one of the foremost consumer markets in the developed world. Cf. United States v. Hui Hsiung, 778 F.3d 738, 743 (9th Cir. 2015) (noting “Crystal Meetings” conspiracy targeted leading firms in American consumer electronics market); Shangquan, supra note 5.

 [39]. Alcoa, 148 F.2d at 443 (emphasis added).

 [40]. See, e.g., United States v. Nippon Paper Indus., 109 F.3d 1, 2, 4–5 (1st Cir. 1997). Indeed, this widely-adopted standard for extraterritorial antitrust analysis has been referred to as the “effects doctrine” or “effects test” in civil and criminal actions. See John W. Head, Global Business Law: Principles and Practice of International Commerce and Investment 643 (3d ed. 2012); Developments in the Law: Extraterritoriality, 124 Harv. L. Rev. 1226, 1269–74 (2011).

 [41]. See, e.g., Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 (1993) (adopting Alcoa effects test following passage of FTAIA where it could be shown that conduct “was meant to produce and did in fact produce some substantial effect in the United States”); accord Filetech S.A. v. Fr. Telecom, S.A., 157 F.3d 922, 931 (2d Cir. 1998) (following Hartford Fire’s construction of the prevailing Alcoa effects test).

 [42]. See generally Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 Am. J. Int’l L. 280 (1982) (describing role of the comity doctrine in extraterritorial application of domestic laws). The Supreme Court recently clarified the doctrine of “international comity” with respect to a foreign government’s official statement concerning the meaning of its own domestic law. See generally Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 1865 (2018), vacating and remanding In re Vitamin C Antitrust Litig., 837 F.3d 175 (2d Cir. 2016). The Court suggested American courts are “not bound to accord conclusive effect to the foreign government’s statements,” in such instances, but declined to undertake the analysis itself and instead remanded the case for further consideration consistent with its opinion. Animal Science, 138 S. Ct. at 1869, 1875 (“The correct interpretation of Chinese law is not before this Court, and we take no position on it.”).

 [43]. See, e.g., Timberlane Lumber Co. v. Bank of Am. N.T. & S.A., 549 F.2d 597, 613 (9th Cir. 1977) (court may refrain from asserting “extraterritorial authority,” despite finding of some actual or intended effect, upon presence of factors implicating international comity concerns in rendering judgment), superseded by statute, 15 U.S.C. § 6a (2018), as recognized in McGlinchy v. Shell Chem. Co., 845 F. 2d 802, 813 n.8 (9th Cir. 1988).

 [44]. Areeda et al., supra note 13, ¶ 168(b) (citing Timberlane Lumber Co. v. Bank of Am. N.T. & S.A., 749 F.2d 1378 (9th Cir. 1984), cert. denied, 472 U.S. 1032 (1985)). The Timberlane court ultimately dismissed the plaintiff’s claim based on the legitimacy of the defendant’s foreign acts under Honduran law, as well as the meager effects on competition within the United States. Timberlane, 749 F.2d at 1384–86.

 [45]. Timberlane, 749 F.2d at 1386.

 [46]. Cavanagh, The New Frontier, supra note 30, at 2154. But see id. (“While one cannot fault these courts for attempting to develop comprehensive jurisdictional standards, it is undeniable that infusing the issue of comity into the jurisdictional analysis has generated more confusion than certainty and has created significant unpredictability in the law.” (emphasis added)).

 [47]. Restatement (Third) on Foreign Relations Law of the United States §§ 402–03, § 403 cmt. a (Am. Law Inst. 1987) [hereinafter Restatement].

 [48]. See, e.g., F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 165–69 (2004) (discussing prescriptive comity considerations in connection with FTAIA’s domestic effects exception and concluding that the Act did not apply given Congress’s adherence to principles of comity in international commercial relations).

 [49]. See Joel R. Paul, The Transformation of International Comity, 71 Law & Contemp. Probs. 19, 36, 38 (2008) (noting that courts’ application of comity doctrine reflects concerns for separation of powers, historical experience, and respect for foreign sovereignty in context of extraterritorial antitrust disputes).

 [50]. See McGlinchy v. Shell Chem. Co., 845 F.2d 802, 813 n.8 (9th Cir. 1988) (adopting Timberlane standard and noting that the FTAIA “did not change the ability of courts to exercise principles of international comity” in antitrust actions); see also Mannington Mills v. Congoleum Corp., 595 F.2d 1287, 1297–98 (3d Cir. 1979) (affirming Timberlane and listing ten comity factors relevant to “balancing process”); Pillar Corp. v. Enercon Indus. Corp., 694 F. Supp. 1353, 1360–61 (E.D. Wis. 1988) (discussing “concerns raised” by Mannington Mills and Timberlane courts); Dominicus Americana Bohio v. Gulf & W. Indus., 473 F. Supp. 680, 687 (S.D.N.Y. 1979) (following Mannington Mills analysis of ten factors relevant to comity analysis). But see Hartford Fire, Ins. Co. v. California, 509 U.S. 764, 796–99 (1993) (principles of international comity are only raised upon a “true conflict” between U.S. and foreign law).

 [51]. Timberlane v. Bank of Am. N.T.& S.A., 749 F.2d 1378, 1384–86 (9th Cir. 1984).

 [52]. Hartford Fire, 509 U.S. at 796–99.

 [53]. Id. at 798–99.

 [54]. Id. at 797.

 [55]. Id. at 799.

 [56]. Id. at 796.

 [57]. See id. at 796 n.23.

 [58]. However, it is essential to note at the onset of this discussion that, despite judicial treatment of the Act’s thornier components, compelling commentary has called for repeal of the FTAIA altogether. See generally Robert E. Connolly, Repeal the FTAIA! (Or at Least Consider It as Coextensive with Hartford Fire), CPI Antitrust Chron. (Sept. 2014), https://www.competitionpolicyinternational.com/assets/Uploads/ConnollySEP-141.pdf [hereinafter Connolly, Repeal the FTAIA!] (noting “[a] primary motivation behind the FTAIA was to give immunity to American exporters to engage in anticompetitive conduct—as long as it negatively affected only foreign consumers,” and arguing the FTAIA should not govern the extraterritorial reach of the Sherman Act). Connolly reiterates and extends portions of his argument in a companion article. Robert E. Connolly, Motorola Mobility and the FTAIA, CartelCapers (Sept. 30, 2014), http://cartelcapers.com/blog/motorola-mobility-ftaia.

 [59]. See 15 U.S.C. § 6a (2018).

 [60]. Id. (emphasis added).

 [61]. See id.; accord United States v. Hui Hsiung, 778 F.3d 738, 750–51 (9th Cir. 2015); Carpet Grp. Int’l v. Oriental Rug Imps. Ass’n, 227 F.3d 62, 71 (3d Cir. 2000) (citing Eskofot A/S v. E.I. Du Pont Nemours & Co., 872 F. Supp. 81, 85 (S.D.N.Y. 1995)) (noting the implication that the Sherman Act applies to “import trade and import commerce is unmistakable”). The import commerce prong likely applies where a defendant sells a finished product directly to American consumers in the United States. See Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 855 (7th Cir. 2012) (en banc), cert. denied, 570 U.S. 935 (2013).

 [62]. F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 163 (2004).

 [63]. See Carpet Grp. Int’l, 227 F.3d at 71.

 [64]. See Connolly, Repeal the FTAIA!, supra note 58.

 [65]. H.R. Rep. No. 97–686, at 2–3 (1982), as reprinted in 1982 U.S.C.C.A.N. 2487, 2491; see also 15 U.S.C. § 4001 (2018) (“It is the purpose of this chapter to increase United States exports of products and services by encouraging more efficient provision of export trade services to United States producers and suppliers, in particular by . . . modifying the application of antitrust laws to certain export trade.”).

 [66]. H.R. Rep. No. 97–686, at 6 (1982).

 [67]. Id. at 5.

 [68]. Id. (emphasis added) (citing Cont’l Ore Co. v. Union Carbide, 370 U.S. 690, 704–05 (1962) and Steele v. Bulova Watch Co., 344 U.S. 280, 286 (1952)).

 [69]. H.R. Rep. No. 97–686, at 2–3 (1982).

 [70]. Of critical importance to subsequent analysis in this Note—an unstated desire to protect U.S. commercial interests also pervades modern judicial interpretations of the FTAIA, at least with respect to civil actions. See, e.g., Bauer, supra note 12, at 24 (“Arguably, the courts are seeking to protect the interests of American companies doing business abroad and of foreign companies doing business in the United States, with the unstated assumption that somehow this will result in a net benefit to the American economy.”).

 [71]. See, e.g., Connolly, Repeal the FTAIA!, supra note 58 (proposing outright repeal of the Act).

 [72]. See, e.g., Cavanagh, The New Frontier, supra note 30, at 2159 (“It has therefore fallen to the courts to determine the precise meaning and scope of the FTAIA.”). Indeed, given prolonged legislative inaction on the subject, federal courts arguably must define the scope of the FTAIA to yield some measure of clarity for litigants. See Levitt & Fogt, supra note 8 (suggesting legislative revision of FTAIA is unlikely but may be necessary).

 [73]. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796–97, 796 n.23 (1993); see also supra Section I.A.2 (discussing comity concerns in Hartford Fire).

 [74]. Hartford Fire, 509 U.S. at 796–97.

 [75]. United States v. Nippon Paper Indus. (Nippon I), 944 F. Supp. 55, 57–58 (D. Mass. 1996) (dismissing criminal antitrust indictment for lack of jurisdiction under Sherman Act).

 [76]. See id. at 58. The thrilling basis for the government’s prosecution stemmed from Nippon Paper Industries’ corporate predecessor, “Jujo Paper,” allegedly agreeing with unnamed Japanese firms to “fix prices of jumbo roll thermal facsimile paper (‘fax paper’) sold in the United States,” in violation of section 1 of the Sherman Act. Id.

 [77]. Id. at 64.

 [78]. Id. at 65 (emphasis added) (construing United States v. Bowman, 260 U.S. 94, 97–98 (1922) as holding the presumption against extraterritorial application of federal law “carries even more weight when applied to criminal statutes”).

 [79]. See id. at 64–66.

 [80]. United States v. Nippon Paper Indus. (Nippon II), 109 F.3d 1, 2–3 (1st Cir. 1997) (detailing the essential “Fax” underlying the panel’s decision); Raymond Krauze & John Mulcahy, Antitrust Violations, 40 Am. Crim. L. Rev. 241, 278–79 (2003) (“[T]he First Circuit reinstated the indictment of a foreign-based defendant for conduct occurring wholly outside of the United States, and the case looks to be a harbinger of the Antitrust Division’s growing ability to combat international price-fixing.”); see also 15 U.S.C. §§ 1–2 (2018) (criminal antitrust violations for horizontal restraints of trade and monopolization practices).

 [81]. Nippon II, 109 F.3d at 5 (emphasis added).

 [82]. Id. at 4.

 [83]. Id. at 6. The panel further noted that although Nippon and its expert witnesses argued that this was “the first criminal case in which the United States endeavor[ed] to extend Section One to wholly foreign conduct,” an “absence of earlier criminal actions is probably more a demonstration of the increasingly global nature of our economy than proof that Section One cannot cover wholly foreign conduct in the criminal milieu.” Id. In the court’s view, the mere lack of precedent imposing criminal liability to wholly foreign conduct did not bar prosecutors from bringing charges under section 1. Id. Critically, in the view of the court, the language of the FTAIA itself also did not impact the ability of U.S. authorities to bring criminal prosecutions against solely extraterritorial conduct. See id. at 4–6.

 [84]. Id. at 9 (emphasis added).

 [85]. Id. at 9 (Lynch, J., concurring) (emphasis added) (quoting Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359–60 (1933)).

 [86]. Id. at 4–6.

 [87]. Rather, along with the language and history of the FTAIA, Nippon I provides a helpful interpretive model for understanding the boundaries of U.S. law in the extraterritorial criminal context. In many ways, Nippon I challenges convention, as many courts have inferred substantially similar treatment of the Sherman Act’s criminal and civil provisions after Hartford Fire—a case in which only civil antitrust claims were at issue.

 [88]. F. Hoffman-La Roche, Ltd. v. Empagran S.A., 542 U.S. 155, 174–75 (2004) (internal quotation marks omitted) (quoting 15 U.S.C. § 6a(2) (2018)).

 [89]. Id.

 [90]. Id. at 173–75 (“Respondents concede that this claim is not their own claim; it is someone else’s claim. . . . “[T]hat is, the conduct’s domestic effects did not help to bring about that foreign injury.”); see also Empagran S.A. v. F. Hoffman-La Roche, Ltd., 417 F.3d 1267, 1270–71 (D.C. Cir. 2005) (noting on remand that the FTAIA codifies a proximate cause standard for Sherman Act claims involving foreign trade or commerce).

 [91]. See Empagran, 417 F.3d at 1270–71.

 [92]. United States v. Hui Hsiung, 778 F.3d 738, 750–51 (9th Cir. 2015).

 [93]. Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 824 (7th Cir. 2014), cert. denied, 135 S. Ct. 2837 (2015).

 [94]. Motorola Mobility, 135 S. Ct. at 2837 (denying petitions for certiorari in Motorola Mobility and Hui Hsiung). However, independent state-law actions have proceeded parallel to federal litigation surrounding the “Crystal Meeting” conspiracy. For example, consumer plaintiffs in the State of Washington will receive a total of $41.1 million in “overcharge” damages stemming from the conspiracy’s agreement to manipulate the supply of LCD panels to artificially increase prices. See Press Release, Wash. State Office of the Attorney Gen., More Than $41M Headed to Consumers in AG Ferguson’s LCD Price-Fixing Case (Sept. 14, 2017), http://www.atg.wa.gov/news/news-releases/more-41m-headed-consumers-ag-ferguson-s-lcd-price-fixing-case.

 [95]. But see Robert E. Connolly, Why the Supreme Court Refused to Hear the FTAIA Appeals, Law360 (June 16, 2015, 10:22 AM), https://www.law360.com/articles/668031/why-the-supreme-court-refused-to-hear-the-ftaia-appeals (arguing that Hui Hsiung and Motorola Mobility were correctly decided and that the cases were sufficiently factually dissimilar to avoid facial contradiction between the final Circuit opinions).

 [96]. See infra Part II.

 [97]. LCD panels sold above competitive prices were incorporated in laptops, desktops, and television screens purchased by American consumers. See Brandon Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 235–36 (2014) (describing “Crystal Meetings” conspiracy, harms to American consumers, and federal prosecution). One definition of “LCD” describes the technology as “an electronic display (as of the time in a digital watch) that consists of segments of a liquid crystal whose reflectivity varies according to the voltage applied to them.” LCD, Merriam-Webster’s Collegiate Dictionary (11th ed. 2017). LCD panels are increasingly incorporated into handheld technologies, such as smartphones, watches, telephonic displays, as well as computer screens and televisions, among many other products. See generally Joseph A. Castellano, Liquid Gold: The Story of Liquid Crystal Displays and the Creation of an Industry (2005) (tracing history of LCD panel technology and modern applications of technology).

 [98]. See Hui Hsiung, 778 F.3d at 743 (outlining “Crystal Meetings” conspiracy). The final judgment notes that affected panels were purchased by market leaders, including “Dell, Hewlett Packard (‘HP’), Compaq, Apple, and Motorola for use in consumer electronics.” Id.

 [99]. Id.

 [100]. Id.; accord Brent Snyder, U.S. Dep’t of Justice, Antitrust Div. Individual Accountability for Antitrust Crimes 6 (2016), https://www.justice.gov/opa/file/826721
/download (“High-level executives were also prosecuted in the . . . LCD investigations, including two chairmen/CEOs, four presidents, more than 20 vice presidents, and a number of managers and directors. Among these were the president and executive vice president of the third largest LCD maker in the world. . . . [A] jury convicted these two, and they are currently serving 36-month jail terms—the longest sentences ever imposed on foreign-national defendants for antitrust offenses.”); Dep’t of Justice, Antitrust Div., Antitrust Primer for Federal Law Enforcement Personnel 4 (2018) [hereinafter Antitrust Primer], https://www.justice.gov/atr/page/file/1091651/download (discussing LCD-panel price-fixing conspiracy proceedings in U.S. federal courts).

 [101]. Hui Hsiung, 778 F.3d at 757.

 [102]. Id. at 743.

 [103]. Id. at 744.

 [104]. Id.

 [105]. Id.

 [106]. Id.

 [107]. Id. at 745; accord Snyder, supra note 100, at 6; Antitrust Primer, supra note 100, at 4 (noting final fines in the LCD antitrust investigation and prosecutions “led to criminal fines totaling more than $1.39 billion and charges against 22 executives,” the majority of whom pleaded guilty or were convicted at trial before U.S. tribunals).

 [108]. H              ui Hsiung, 778 F.3d at 745.

 [109]. United States v. Hui Hsiung, 758 F.3d 1074, 1095 (9th Cir. 2014), amended by United States v. Hui Hsiung, 778 F.3d 738 (2015).

 [110]. Hui Hsiung, 778 F.3d at 743, 751, 756.

 [111]. Id. at 743, 751, 760.

 [112]. See, e.g., supra notes 2122.

 [113]. Press Release No. 12-1140, Dep’t of Justice Office of Pub. Affairs, Antitrust Div., Taiwan-Based AU Optronics Corp. Sentenced to Pay $500 Million Criminal Fine for Role in LCD Price-Fixing Conspiracy (Sept. 20, 2012), https://www.justice.gov/opa/pr/taiwan-based-au-optronics-corporation-sentenced-pay-500-million-criminal-fine-role-lcd-price. In total, the Department of Justice (“DOJ”) reported that “eight companies have been convicted of charges arising out of the . . . ongoing investigation” into the LCD-panel price-fixing conspiracy, which “have been sentenced to pay criminal fines totaling $1.39 billion.” Id. (emphasis added). As of September 2012, the DOJ boasted that twenty-two executives had been charged in the foreign conspiracy; twelve had been convicted and “sentenced to serve a combined total of 4,871 days in prison” in the United States. Id. (emphasis added). These weighty penalties associated with criminal antitrust prosecutions particularly warrant heightened judicial scrutiny of the FTAIA’s language, purpose, and scope in the criminal context. Accord Antitrust Primer, supra note 100, at 3–4 (summarizing total fines and penalties in LCD-panel cases).

 [114]. Hui Hsiung, 778 F.3d at 758–60 (evaluating defendants’ sufficiency of evidence challenges to government’s alleged “direct, substantial, and reasonably foreseeable” effect on U.S. nonimport trade or commerce).

 [115]. Id. at 752–53.

 [116]. See id. at 756–60. The court notes that “even disregarding the domestic effects exception, the evidence that the defendants engaged in import trade was overwhelming” and demonstrated that the defendants participated in direct import commerce under 15 U.S.C. § 6a, and that this “import trade theory alone was sufficient to convict the defendants of price-fixing.” Id. at 760. However, the court’s discussion notably lacks any analysis of the second substantive element of the FTAIA’s domestic effects prong. See id. at 756–60.

 [117]. Id. at 757.

 [118]. See Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 851–52 (7th Cir. 2012); see also Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 466–69 (3d Cir. 2011). The dilemma of whether the FTAIA presents additional merits or jurisdictional elements for extraterritorial Sherman Act claims is contentious, with different lower courts adopting different rules since the 1990s. See Hui Hsiung, 778 F.3d at 751–52, 752 n.7, 753 (holding that the FTAIA is “not a subject-matter jurisdiction limitation on the power of the federal courts but a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations,” and reviewing cases adopting and rejecting this rule); see also Edward Valdespino, Note, Shifting Viewpoints: The Foreign Trade Antitrust Improvements Act, a Substantive or Jurisdictional Approach, 45 Tex. Int’l L.J. 457, 457 (2009) (noting a shift from jurisdictional to substantive view). The source of contention is the burden-shifting effect of viewing the FTAIA’s terms as substantive elements: the “[e]xpense and shifting burdens of proof greatly increases settlement pressure.” Levitt & Fogt, supra note 8. Rather than being challengeable on the pleadings through a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, see Fed. R. Civ. P. 12(b)(1), a merits question requires courts to evaluate evidence and legal arguments, see Levitt & Fogt, supra note 8. Thus, viewing the FTAIA as a matter of “substantive liability” requires “resolution through motion[s] for summary judgment after . . . discovery or trial,” which may be extremely expensive in the context of extraterritorial antitrust actions. Levitt & Fogt, supra note 8. With that in mind, the trend in recent years is decidedly in favor of viewing the FTAIA as additional substantive elements. See id.

 [119]. See Hui Hsiung, 778 F.3d at 752.

 [120]. Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 817–18 (7th Cir. 2014) (describing procedural posture and factual basis of case). The panel decision, penned by economist and now-retired Judge Richard Posner, noted the criminal convictions entered in Hui Hsiung at the onset of its analysis. Id. (“We’ll drop ‘allegedly’ and ‘alleged,’ for simplicity, and assume that the panels were indeed price-fixed—a plausible assumption since defendant AU Optronics has been convicted of participating in a criminal conspiracy to fix the price of panel components of the cellphones manufactured by Motorola’s foreign subsidiaries.”).

 [121]. Id. (emphasis added).

 [122]. Id. at 821–25. Under the indirect-purchaser doctrine, only direct purchasers harmed by overcharging have cognizable antitrust claims under federal law. See Ill. Brick Co. v. Illinois, 431 U.S. 720, 723–26 (1977). Thus, the panel noted, “Motorola’s subsidiaries were the direct purchasers of the price-fixed LCD panels” whereas “Motorola and its customers [were the] indirect purchasers of the panels.” Motorola Mobility, 775 F.3d at 821 (emphasis added).

 [123]. Id. at 818 (emphasis added).

 [124]. Id. at 825 (emphasis added). Interestingly, the Seventh Circuit’s final opinion noted that the FTAIA has historically been interpreted to limit the extraterritorial application of domestic antitrust laws, in line with considerations of international comity, id. at 818, yet impliedly concluded that the Act’s “claim” language should be broadly construed to encompass civil claims and criminal indictments, see id. at 825.

 [125]. Id. at 824–25 (“The foreign subsidiaries can sue under foreign law—are we to presume the inadequacy of the antitrust laws of our foreign allies? Would such a presumption be consistent with international comity, or more concretely with good relations with allied nations in a world in turmoil?”). In response to Judge Posner—it seems readily discernible that American antitrust law does in fact presume the inadequacy of the competition laws of foreign collaborators, at least insofar as American prosecutors increasingly pursue criminal enforcement prosecutions involving foreign commerce. Moreover, in the wider array of international transactional regulation, the United States frequently dispatches with consideration of “good relations with allied nations” in pursuit of national economic objectives. See generally Head, supra note 40 (broadly surveying the role of U.S. law in regulation of international trade and investment).

 [126]. Notably, here, no petitioner raised this “claim” of error in Hui Hsiung or Motorola Mobility. Nevertheless, particularly if the FTAIA is to be construed as a series of additional substantive, non-jurisdictional requirements for Sherman Act claims, a full analysis of both parts of the two-part conjunctive domestic effects test is certainly warranted.

 [127]. Frank B. Cross, The Significance of Statutory Interpretive Methodologies, 82 Notre Dame L. Rev. 1971, 1971 (2013) (citing Jonathan R. Siegel, The Polymorphic Principle and the Judicial Role in Statutory Interpretation, 84 Tex. L. Rev. 339, 339 (2005)). For authoritative discussions of the interaction between textualism and other recognized statutory interpretive methodologies in American judicial opinions, see generally Cross, supra and Stephen Breyer, On the Uses of Legislative History in Interpreting Statutes, 65 S. Cal. L. Rev. 845 (1992). Part II begins from a textualist foundation and in subsequent sections, see infra Sections II.B–D, also considers alternative rationales for strictly interpreting the domestic effects exception to not authorize extraterritorial criminal prosecutions. Cross briefly notes that “[d]escriptive statistics reveal that textualism and legislative intent are [the] most common [interpretive methodologies], but all the approaches find material use in Court opinions.” See Cross, supra, at 1972; cf. id. at 1973–74 (“Textualism is broadly accepted as an interpretive methodology, the controversy is over its exclusivism. . . . Critics argue that there are many cases in which the plain meaning of the text does not offer a clear resolution and these difficult cases are . . . most likely to be taken by the . . . Supreme Court.” (citing Breyer, supra, at 862)).

 [128]. Cross, supra note 127, at 1972 (citing John F. Manning, Textualism and Legislative Intent, 91 Va. L. Rev. 419, 434 (2005)).

 [129]. See id. at 1972–74.

 [130]. Claim, Black’s Law Dictionary (10th ed. 2014).

 [131]. Prosecution, Black’s Law Dictionary (10th ed. 2014).

 [132]. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 799 (1993).

 [133]. See, e.g., Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 818 (7th Cir. 2014) (citing Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application 273(c)(2) (3d ed. 2006)).

 [134]. Id. at 825 (quoting F. Hoffman-La Roche, Ltd. v. Empagran, S.A., 542 U.S. 155, 165 (2004)). Of course, the court in Motorola Mobility dealt with civil claims. Comity holds the same, if not greater, weight in criminal prosecutions, where judgments of community condemnation and moral culpability are implicated to far greater degrees than in civil actions. Accord International Guidelines, supra note 12, at 49–51 (highlighting “Special Considerations” in connection with criminal investigations and prosecutions undertaken against international price-fixing cartels).

 [135]. Motorola Mobility, 775 F.3d at 825 (emphasis added).

 [136]. See Restatement, supra note 47 §§ 402–03, § 403 cmt. a.

 [137]. Connolly, Repeal the FTAIA!, supra note 58, at 3. Connolly seems to suggest that American federal prosecutors will always have a greater concern for international relations, foreign sovereignty concerns, and other attendant comity considerations, than will civil plaintiffs. See id.

 [138]. See id. at 4.

 [139]. Id. at 7. Notably, Judge Posner cited Connolly’s article at length in the final opinion, including the relevant portion cited herein. See Motorola Mobility, 775 F.3d at 826–27 (citing Connolly, Repeal the FTAIA!, supra note 58). This suggests that Connolly’s colorable conception of comity had at least a persuasive impact on the panel’s reasoning with respect to the domestic effects prong.

 [140]. Connolly relies in part on the fact that, as DOJ prosecutors noted in their Motorola Mobility briefs, before commencing with a case, the DOJ contemplates the views of foreign nations, whereas, in his view, “the comity considerations with private plaintiffs are quite different.” Connolly, Repeal the FTAIA!, supra note 58, at 4. For example, Connolly contends that private individuals seeking civil damage remedies may fail to exercise the “degree of self-restraint and consideration of foreign governmental sensibilities generally exercised by the U.S. Government.” Id. at 4–5 (emphasis added) (citing F. Hoffman-La Roche, Ltd. v. Empagran S.A., 542 U.S. 155, 171 (2004)). In defense of Connolly and the Court in Empagran, this praise of “self-restraint” and “consideration of foreign government sensibilities” in the American executive branch came prior to January 2017.

 [141]. In fact, “substantial differences . . . exist among various countries in respect of competition laws.” Head, supra note 40, at 643–45; see also id. at 634–54 (outlining American, Japanese, and EU competition regimes, multilateral competition policy efforts, and bilateral and regional competition policy efforts). In sharp contrast to imposition of criminal penalties for violations of competition policy, most countries of the world do agree on near-universal condemnation of “core international crimes,” such as “war crimes, crimes against the peace or aggression, crimes against humanity, and genocide.” Beth Van Schaack & Ronald C. Slye, International Criminal Law and Its Enforcement 205 (3rd ed. 2015). See id. at 205–581 (describing internationally recognized mechanisms for condemnation of war crimes, crimes against the peace, crimes against humanity, genocide).

 [142]. For instance, recent research suggests that criminal punishment in the United States is increasingly “harsh,” relative to peer nations. See generally James Q. Whitman, Harsh Justice: Criminal Punishment and the Widening Divide Between America and Europe (2003).

 [143]. See Paul H. Robinson, The Criminal-Civil Distinction and Dangerous Blameless Offenders, 83 J. Crim. L. & Criminology 693, 693–95, 698–710 (1993) (discussing interdependence between civil and criminal law, contrasting reasons for civil and criminal commitment, and arguing that “the distinctiveness of criminal law is its focus on moral blameworthiness”); Robert Cooter & Thomas Ulen, An Economic Theory of Crime and Punishment, in Law and Economics 454–84 (6th ed. 2016) (contrasting “traditional,” retributivist justifications for criminal punishment with utility-based “economic” approaches). Robinson traces first principles surrounding civil and criminal commitment to provide a robust take on the association between community values and the type of culpability associated with criminal condemnation. See Robinson, supra, at 693–95. Ultimately Robinson arrives at the conclusion that “it would be better to expand civil commitment to include seriously dangerous offenders who are excluded from criminal liability as blameless for any reason,” in part because American laws frequently set high standards for criminal commitment based upon offenders’ mental states and associated blameworthiness, as opposed to dangerousness. Id. at 716–17.

 [144]. See supra notes 16 and accompanying text (discussing the currently fractious political economy of international trade and international economic cooperation).

 [145]. See, e.g., EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991).

 [146]. Cf. Timberlane Lumber Co. v. Bank of Am. N.T. & S.A., 749 F.2d 1378, 1384–86 (9th Cir. 1984) (noting international comity factors traditionally applied by federal courts to assess propriety of exercising jurisdiction). But see Hartford Fire Ins. Co. v. California, 509 U.S. 764, 798–99 (1993) (suggesting comity factors only relevant in assessing jurisdiction upon finding of “direct” conflict between American law and foreign law).

 [147]. See Hilton v. Guyot, 159 U.S. 113, 164 (1895) (noting comity reflects “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation”).

 [148]. See Arabian Am. Oil Co., 499 U.S. at 248, 252 (“We assume that Congress legislates against the backdrop of the presumption against extraterritoriality. . . . [U]nless there is ‘the affirmative intention of the Congress clearly expressed,’ we must presume it ‘is primarily concerned with domestic conditions.’” (citations omitted)); see also Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247, 255 (2010) (quoting Arabian Am. Oil Co., 499 U.S. at 248) (“It is a ‘longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.’” (citations omitted)); Small v. United States, 544 U.S. 385, 388–89 (2005) (noting the “legal presumption that Congress ordinarily intends its statutes to have domestic, not extraterritorial, application” (emphasis added)); Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 173 (1993); Smith v. United States, 507 U.S. 197, 203 (1993); cf. The Antelope, 23 U.S. 66, 123 (1825) (“The Courts of no country execute the penal laws of another.”); United States v. Ballestas, 795 F.3d 138, 143–44 (D.C. Cir. 2015) (quoting Morrison, 561 U.S. at 255).

 [149]. See Labor Union of Pico Korea, Ltd. v. Pico Prods., Inc., 968 F.2d 191, 194 (2d Cir. 1992), cert. denied, 506 U.S. 985 (1992) (suggesting burden of overcoming presumption against extraterritorial application of U.S. law lies with the party asserting application of U.S. law to events that occurred abroad); United States v. Gatlin, 216 F.3d 207, 211–12 (2d Cir. 2000) (discussing burden on party seeking extraterritorial application vis-à-vis legislative intent). But see United States v. Bowman, 260 U.S. 94, 101–03 (1922) (suggesting there is no presumption against extraterritoriality when dealing with statutes prohibiting crimes against the U.S. government); Kollias v. D & G Marine Maint., 29 F.3d 67, 71 (2d Cir. 1994), cert. denied, 513 U.S. 1146 (1995) (holding Bowman should be read narrowly to only apply to “criminal statutes . . . and . . . only those relating to the government’s power to prosecute wrongs committed against it” and exempt such actions “from the presumption [against extraterritoriality]”).

 [150]. See Morrison, 561 U.S. at 266–67 (citing Arabian Am. Oil Co., 499 U.S. at 255 and Foley Bros. v. Filardo, 336 U.S. 281, 283, 285–86 (1949)) (suggesting the mode of analysis the Court applied concerned the “‘focus’ of congressional concern”).

 [151]. Id. at 266–67 (holding that the “focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States,” so section 10(b) of the Exchange Act only regulates “domestic transactions in other securities”); cf. Zachary D. Clopton, Bowman Lives: The Extraterritorial Application of U.S. Criminal Law After Morrison v. National Australia Bank, 67 N.Y.U. Ann. Surv. of Am. L. 137, 159–60 (2011) (noting, in the civil context, “cases like [Arabian Am. Oil Co.] have made it harder to overcome the presumption,” and “Morrison seems to have made it harder to avoid the presumption with claims of territoriality”).

 [152]. Bowman, 260 U.S. at 97–98; see also Clopton, supra note 151, at 161 (“Bowman and its progeny do not question the power of Congress to enact extraterritorial criminal laws. Instead, these cases ask whether a court should apply an ambiguous criminal statute extraterritorially. For centuries, the answer . . . was flatly ‘no.’” (emphasis added)). But see Clopton, supra note 151, at 166 (suggesting lower courts have interpreted Bowman as “merely restat[ing] the American Banana rule that statutes are presumed to apply territorially unless Congress has indicated otherwise,” while other courts have “suggested that Bowman created a limited exception to the presumption” (footnotes omitted)).

 [153]. International Guidelines, supra note 12, at 5.

 [154]. Id.

 [155]. Id.

 [156]. Id.

 [157]. There is a wide divergence in the “substance and enforcement” of competition law among leading jurisdictions—including the United States, Japan, and the European Union (“EU”). See Head, supra note 40, at 648–49. Leading commentary suggests that the values undergirding competition policy in the EU and United States “differ significantly,” in that the EU does not follow the United States’ unilateral “focus on ensuring competitive markets through limitations on abusive business practices.” Jerold A. Friedland, Understanding International Business and Financial Transactions 295–96 (4th ed. 2014). Moreover, Japanese law “does not begin with the premise of U.S. law that private agreements to regulate trade are injurious,” and, for many decades “cartels of the largest Japanese businesses were encouraged to stabilize the economy through practices that prevented unemployment and focused private economic activity on public goals.” Id. at 296.

 [158]. Nevertheless, the DOJ may maintain a focus on “individual accountability” in criminal antitrust enforcement, even in extraterritorial cases. Snyder, supra note 100, at 3–5.

 [159]. See 15 U.S.C. § 2 (2018).

 [160]. See, e.g., H.R. Rep. No. 97–686, at 6 (1982) (noting how extraterritorial application of the Sherman Act prior to the FTAIA caused many international business transactions to “die on the drawing board”).

 [161]. The government’s emphasis on “individual accountability” is underscored in the LCD investigation and eventual prosecutions. See Snyder, supra note 100, at 3–5; Antitrust Primer, supra note 100, at 4.

 [162]. Snyder, supra note 100, at 6 (“AU Optronics . . . pa[id] a then-record fine of $500 million and accept[ed] a compliance monitor, after the same jury convicted it.”). The former Deputy Assistant Attorney General’s remarks reinforce the importance of compliance monitors to maintain a long-term culture of antitrust enforcement—even cases involving foreign companies and extraterritorial application of criminal antitrust law. Id.

Corporate accountability is important as well because it incentivizes compliance with our laws. The Antitrust Division emphasizes that compliance with antitrust laws must be ingrained in a corporation’s culture—one that is established from the top down. And we insist on probation and corporate monitors in criminal resolutions, where corporate offenders fail to demonstrate serious compliance efforts.

Id. at 1–2.

 [163]. Id. at 6.

 [164]. See generally id. The fact that leaders among the DOJ antitrust enforcement community view compliance monitors and cultures of corporate compliance as essential to the U.S. criminal antitrust regime generally reinforces this point.

 [165]. Regrettably, this response arguably both reflects and reinforces American hegemony in competition policy.

 [166]. At least at present, the prospects for a truly global competition regime appear scant. See Head, supra note 40, at 641­–54 (discussing regimes regulating anticompetitive conduct beyond domestic laws). Since the 1990s, nearly 150 sovereign states have enacted competition regimes; these are predominately molded from American common law principles. See Levitt & Fogt, supra note 8. States, rather than intergovernmental organizations or non-governmental actors, simply retain principal authority over this aspect of international trade policy. Thus, efforts toward effective transnational regulatory frameworks should proceed from principles of collaborative management between coequal sovereigns. Accord id.

 [167]. See, e.g., International Guidelines, supra note 12, at 16–19 (broadly interpreting domestic effects standard based on cited precedents).

 [168]. Although in both cases the courts applied the direct import commerce prong as an independent basis for their respective decisions, each also noted that the domestic effects prong—if independently relied upon—would support the same outcome. These results are just as analytically problematic, albeit in a more attenuated sense, as a decision rendered solely upon application of the domestic effects prong.

 [169]. For example, in the case of AU Optronics, a criminal remedy included a long-term compliance monitor, on site at the company, to tackle a perceived culture of criminal corruption at the firm. See Antitrust Sanctions 2.0 – Evolving Views on Behavioral Remedies, Allen & Overy LLP, http://www.allenovery.com/publications/en-gb/lrrfs/us/Pages/Antitrust-sanctions-2.0-%E2%80%93-evolving-views-on-behavioral-remedies.aspx (last visited Dec. 4, 2018). Behavioral obligations for foreign individuals may be the next phase of the Antitrust Division’s shift toward behavioral remedies, as at least one major international law firm currently advises. Id. Given remedies available to prosecutors, foreign individual defendants may be more inclined to settle with U.S. authorities directly, in order to craft personally tailored monitoring remedies in lieu of more punitive mechanisms, such as a custodial sentence in the federal prison system. Id.

 [170]. See, e.g., supra notes 18, 12.

 [171]. Notably, Judge Posner substantively agreed with this observation in Motorola Mobility, drawing upon the seminal Empagran decision to suggest that it would be highly improper for courts to “presume the inadequacy of the antitrust laws of our foreign allies” and that doing so may constitute “unjustified interference with the right of foreign nations to regulate their own economies.” Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 824–25 (7th Cir. 2014) (citing F. Hoffmann-La Roche, Ltd. v. Empagran, S.A., 542 U.S. 155, 165 (2004)). Certainly, this logic should be imported into the criminal antitrust analysis to prevent interference with the rights of foreign sovereigns.

 [172]. International Guidelines, supra note 12, at 28 (“[M]ore jurisdictions have adopted and enforce antitrust laws that are compatible with those of the United States . . . .”).

 [173]. But see Developments in the Law: Extraterritoriality, supra note 40, at 1279. In the alternative, extensive criminal enforcement under the Sherman Act may be viewed as a positive, given

[t]he decrease in civil jurisdiction and the increase in criminal prosecution do more than cancel out each other’s downsides: the beneficial synergies between them can further the purposes of antitrust law. When viewed as a single trend instead of two, this shift involves the courts’ deferring to institutional competence and disengaging from foreign relations, more optimal deterrence attained by encouraging the preferred types of enforcement, and more international cooperation achieved without damaging reciprocity-based trade and foreign relations interests. . . . [I]t may represent a more coherent development in the law.

Id. Yet this proposed interpretation ignores the facial incongruence in “cutting back on protections afforded by the antitrust laws” in the civil context, see, for example, Bauer, supra note 12, at 26, while casually endorsing enhanced extraterritorial criminal enforcement under the FTAIA, see Developments in the Law: Extraterritoriality, supra note 40, at 1274–78 (describing increased criminal prosecutions of extraterritorial conduct under the Sherman Act in recent years).

 [174]. International Guidelines, supra note 12, at 16–19 (broadly interpreting domestic effects standard based on cited precedents) (citations omitted).

 [175]. As previously outlined, criminal laws and remedies canonically apply to delinquency that, within a given community, is adjudged morally deserving of condemnation. Cf. Robinson, supra note 143 (discussing justifications for punishment). This is not the case with respect to competition violations, at least in most instances.

 [176]. See, e.g., supra notes 17.

 [177]. William Shakespeare, Romeo and Juliet act 2, sc. 2.

Why the “Demolition Derby” That Seeks to Destroy Investor-State Arbitration? – Article by Judge Charles N. Brower & Jawad Ahmad

From Volume 91, Number 6 (September 2018)
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Why The “Demolition Derby” That Seeks To Destroy Investor-State Arbitration?[*]

Judge Charles N. Brower[† ]and Jawad Ahmad[‡]

Introduction

For nearly six decades, States have entered into approximately 3,000 bilateral investment promotion and protection treaties (“BITs”) and some multilateral treaties (“MITs”), which possess the same dual purposes as the North American Free Trade Agreement (“NAFTA”) and the Energy Charter Treaty (“ECT”). They have been signed, ratified, and entered into force for mutual benefit: investment in the States party to the BIT or MIT is mutually encouraged, in good part by each State party guaranteeing the other State party’s investors an acceptable level of legal protection, usually consisting of “fair and equitable treatment” (“FET”), “full protection and security” (“FPS”), specific rules governing compensation for expropriation, and, via a “most-favored-nation clause” (“MFN”), the same overall level of legal protection as is accorded to nationals of other States with whom the respondent State party to the BIT or MIT has similar treaties in force.

Key to the nationals of each State party who invest in the other State is the mechanism for enforcing those protections, which is known as investor-State arbitration, or investor-State dispute settlement (“ISDS”). As most treaty parties do not wish their nationals investing abroad to be compelled to dispute with the host State over whether the involved treaty has been breached decided by a national court of the host State, the parties agree in the BIT or the MIT that any dispute between a national of one party investing in the other party will be decided by, typically, a three-person arbitral tribunal, to which each party to the dispute—the investor and the host State—appoints one arbitrator. The third person, who is to chair the arbitration, is appointed by the other two arbitrators, or by the parties to the dispute, or—failing success in that effort for a stated period of time—by an agreed “appointing authority.” All three members of the arbitral tribunal are required and pledge to be independent and impartial to the arbitrating parties.

“Demolition Derby”[1]takes several forms:

States, particularly those which have lost ISDS arbitrations or are appalled at the notion that the host States’ national policies can be judged by foreigners even though the host States are acting pursuant to a treaty in force between them and the States of foreign investors, in recent years have:

(1) “Interpreted” a MIT in a way that effectively removed an essential protection and was decried “as an attempted amendment” by a former President of the International Court of Justice (bilateral “interpretations” of BITs are also pursued);[2]

(2) Denounced the Washington Convention, which established a World Bank International Centre for Settlement of Investment Disputes (“ICSID”) as a special regime for ISDS to which 162 States are today Signatory and Contracting Parties[3] and is written into many BITs and some MITs;[4]

(3) Denounced BITs and MITs to which they have been parties;[5]

(4) Offered and negotiated new BITs and MITs that went so far as to eliminate FET or reduce the scope of its protection to the presumably lesser level of protection afforded to aliens by customary international law; eliminate MFN; limit FPS to physical protection, thus excluding “legal” protection; or eliminate ISDS altogether;[6] and

(5) Reserved to the host State the ability to prevent implementation of ISDS even where it is included in a BIT and allowed the two States to abort the process where an arbitral tribunal has already been constituted.[7]

I.  Why Do The Strongest Rule-of-Law States Insist On Destroying The Rule Of Law Protecting Their Nationals Investing Abroad?

A.  Pope & Talbot Inc. v. Canada

Perhaps what opened the eyes of the international arbitration community the earliest was what happened in the NAFTA case of Pope & Talbot Inc. v. Canada. The American Claimant commenced arbitration against Canada, claiming that Canada had violated the NAFTA Chapter 11 requirement that investment in Canada be given “fair and equitable treatment.”[8] Actually, as Professor Kenneth J. Vandevelde, a former attorney in the Legal Adviser’s Office of the U.S. Department of State who was much involved in negotiating treaties on behalf of the United States, has stated in his book, U.S. International Investment Agreements,

Full protection and security had been identified as an element of customary international law since the interwar FCNs, [that is, treaties of Friendship, Commerce and Navigation] though it was then called “most constant protection and security.” During the 1950s, with the concept of an international minimum standard under attack, the United States had moved away from references to customary law in its FCNs and sought to establish new standards of a requirement of fair and equitable treatment and a prohibition on arbitrary and discriminatory treatment to complement the most constant protection and security standard.[9]

However, the Canadian Government argued to the Pope & Talbot Tribunal that, as written in NAFTA, FET could mean no more than the lower level of treatment accorded to alien investors under customary international law.[10] The Tribunal, deciding whether or not Canada had breached its NAFTA obligation to accord Pope & Talbot “fair and equitable treatment,” ruled unanimously for the Claimant, expressly rejecting Canada’s argument as “patently absurd.”[11] Just over three months later, that “patently absurd” interpretation was adopted by the three NAFTA State parties as an official interpretation binding under NAFTA[12] pursuant to Articles 2001 and 1131, which promptly was denounced by Judge Sir Robert Jennings, then recently President of the International Court of Justice, “as an attempted amendment that has no binding effect.”[13]

In the end, very little, if anything, was achieved by the NAFTA State parties adopting the official interpretation prompted by the Pope & Talbot case. Both “fair and equitable treatment” and “customary international law” are what Professor W. Michael Reisman has described as “‘evaluation rules, . . . . [which] establish a goal that is expressed at some level of generality.”[14] Evaluation rules are contrasted with “[v]erification rules:”

[B]inary, “either-or rules.” Beyond that binary information, the factual and normative universe to which the person charged with applying the rules may turn is strictly confined to a few explicit variables, none of which includes general evaluative concepts such as fairness, equity, justice, minimum order, efficiency, or even common sense.[15]

Professor Reisman further concluded that “[b]ecause each instance of application of evaluation rules such as FET and MST [that is, minimum standard of treatment] re-instantiates them in different contexts, they can scarcely avoid evolving, a fortiori, as social, economic, technological, moral, and ethical variables change.”[16] In other words, the community of States is constantly making and remaking customary international law. Subsequent NAFTA ISDS tribunals have felt bound to pay official lip service to the so-called “interpretation.”[17] But as was said later in Mondev v. United States by Professor James Crawford, Judge Stephen Schwebel, and The Right Honourable Sir Ninian Stephen—an unusually distinguished Tribunal—customary international law evolves:

The Respondent noted that there was some common ground between the parties to the present arbitration in respect of the FCT’s [sic] interpretations, namely, “that the standard adopted in Article 1105 was that as it existed in 1994, the international standard of treatment, as it had developed to that time . . . like all customary international law, the international minimum standard has evolved and can evolve . . . the sets of standards which make up the international law minimum standard, including principles of full protection and security, apply to investments.” Moreover in their written submissions, summarised in paras. 107–108 above, both Canada and Mexico expressly accepted this point. . . .

The Tribunal agrees. For the purposes of this Award, the Tribunal need not pass upon all the issues debated before it as to the FTC’s interpretations of 31 July 2001. But in its view, there can be no doubt that, by interpreting Article 1105(1) to prescribe the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party under NAFTA, the term “customary international law” refers to customary international law as it stood no earlier than the time at which NAFTA came into force. It is not limited to the international law of the 19th century or even of the first half of the 20th century, although decisions from that period remain relevant. In holding that Article 1105(1) refers to customary international law, the FTC interpretations incorporate current international law, whose content is shaped by the conclusion of more than two thousand bilateral investment treaties and many treaties of friendship and commerce. Those treaties largely and concordantly provide for “fair and equitable” treatment of, and for “full protection and security” for, the foreign investor and his investments. Correspondingly the investments of investors under NAFTA are entitled, under the customary international law which NAFTA Parties interpret Article 1105(1) to comprehend, to fair and equitable treatment and to full protection and security.[18]

In fact, as will be seen, Canada, the United States, and the European Union (“EU”) are the chief sponsors today of the ISDS “Demolition Derby.”

B.  Anti-ISDS Activities Around the World

First, however, there are further examples of various other States’ contributions to the ISDS “Demolition Derby.”

In Bolivia, the Evo Morales government rejected investor-State dispute settlement at its core, and in 2007, Bolivia became the first State to withdraw from the ICSID Convention.[19] In 2009, language was introduced into the country’s Constitution authorizing the denunciation of all international treaties contrary to the constitutional text within a four-year period.[20] And, as promised, by 2013, all twenty-one of Bolivia’s BITs had either expired or been denounced.[21]

Venezuela, the second most frequent Respondent State in ISDS cases[22] since the rise of the Hugo Chávez (now Maduro) regime, denounced the ICSID Convention on January 24, 2012.[23] Prior to that, it denounced its BIT with the Netherlands on November 1, 2008.[24]

In 2017, Argentina, Brazil, Paraguay, and Uruguay, as Mercosur members, signed a Protocol on Investment Cooperation and Facilitation, which contains no ISDS provision, leaving their foreign investors to the tender mercies of the host States’ national courts, State-to-State negotiations or, ultimately, State espousal of their nationals’ claims in State-to-State arbitration.[25] For the first time in 15 years, Argentina has negotiated a new BIT, however, with Qatar, which, while providing for ISDS,[26] expressly restricts FET and FPS to the customary international law standard of such protection.[27]

Australia has eschewed the inclusion of ISDS in its Free Trade Agreements (“FTA”) with Japan,[28] Malaysia,[29] and the United States,[30] but has included it in BITs with both China[31] and Korea.[32] Moreover, a case has been reported of a U.S. investor requesting the Government of Australia to agree to ad hoc arbitration, despite the absence of ISDS provisions in the U.S.-Australia FTA.[33]

Brazil, which has a long history of never entering into BITs, has started to negotiate Cooperation and Facilitation Agreements that do not provide ISDS.[34] It recently negotiated one BIT with India that eliminates FET and MFN.[35]

In contrast, Indonesia has remained a Contracting Party to the ICSID Convention but publicly announced in 2014 that it would terminate or renegotiate its investment treaties.[36] To date, Indonesia has terminated or let expire twenty-nine of its eighty-three BITs.[37]

Ecuador, perhaps the most extreme case, denounced the ICSID Convention in 2009.[38] In addition, it has denounced twenty-six BITs.[39] Its most recent wave of BIT denunciations was based on a 668-page report the Ecuadorian government had requested on the subject from the Ecuadorian Citizens’ Commission for a Comprehensive Audit of Investment Protection Treaties and of the International Arbitration System on Investments (“CAITISA”), a “‘citizens’ commission’ established by President Correa in 2013 to perform an audit of the country’s BITs.”[40] The CAITISA report recommended the termination of all of Ecuador’s BITs. The report noted that Ecuador has not benefited from the BIT regime and has been held liable to pay investors billions of dollars in damages. The BITs in their current form, according to the report, were biased toward investors. The report also recommended the exclusion of ISDS from new treaties, creation of a permanent investment court, exclusion of FET, FPS, and MFN from new treaties, and the inclusion of substantive obligations of investors to respect international human rights and social rights.[41]

CAITISA’s findings may be questioned, especially considering that at least two members of the commission are renowned critics of ISDS.[42] The commission was chaired by none other than Cecelia Olivet, a non-Ecuadorian who co-authored Profiting from Injustice (a 2012 anti-ISDS diatribe of Dutch and Belgium non-governmental organizations). Another member of CAITISA, Professor Muthucumaraswamy Sornarajah, is an Australian national, a notoriously anti-ISDS academic, and the C. J. Koh Professor at the National University of Singapore.[43]

Ecuador’s recent move to terminate its BITs “does not, of course, sweep away pending arbitration claims against the government.”[44]

Commentators have criticized the legal justifications behind Ecuador’s recent move to terminate its BITs. In 2008, Ecuador enacted a new Constitution that included Article 422: “Treaties or international instruments where the Ecuadorian State yields its sovereign jurisdiction to international arbitration, in contractual or commercial disputes, between the State and natural persons or legal entities cannot be entered into . . . .”[45]

Ecuador’s new constitution and local law require both a binding favorable opinion of Ecuador’s Constitutional Court and approval by the State’s National Assembly in order for Ecuador to denounce certain treaties.[46] According to Jaramillo and Muriel-Bedoya, “[t]his process was followed and the Constitutional Court considered that all the BITs were incompatible with article 422, a flawed conclusion that would apparently legitimize the termination proceedings.”[47] Article 422 forbade Ecuador from entering into international treaties that relinquished jurisdiction to international arbitration, but only with respect to “contractual or commercial disputes.”[48] Thus, according to Jaramillo and Muriel-Bedoya:

[T]he Constitutional Court did not consider that international investment arbitration is a very different animal from international commercial or contractual arbitration. In general terms, the former addresses breaches of international law, particularly of international standards protected by a BIT (e.g. fair and equitable treatment, full protection and security, most-favored-nation treatment, etc.), while the latter focuses on contractual breaches of a commercial nature, which do not necessarily derive in breach of international law. Tribunals have historically pointed out these differences in several awards.

. . . . 

The National Assembly replicated the Constitutional Court’s unconstitutionality argument without distinguishing that the Constitution does not forbid international investment arbitration. Likewise, the National Assembly considered that the 2008 Constitution represents a fundamental change of circumstances and, misunderstanding article 62 of the Vienna Convention on the Law of Treaties, it also justified the termination of the BITs under that provision.[49]

Jaramillo and Muriel-Bedoya note that, contrary to the National Assembly, local Ecuadorian law “does not entirely replace the international obligations that a treaty protects, even if similar standards are conceived.”[50] Furthermore, they argue that “a neutral dispute resolution mechanism is of utmost importance for foreign investors and, when it comes to Ecuadorian courts, unfortunately they are not particularly known for their celerity, and neither for not being politicized or interventionist.”[51]

There are signs that Ecuador now is backpedaling. Ecuador’s new Minister for Foreign Trade, Pablo Campana, has said: “[i]n order to secure private direct investment, we must have BITs.”[52] Thus, Ecuador has sent a proposal to fifteen countries inviting them to renegotiate the cancelled bilateral investment treaties “and urging them to accept a new model BIT that requires resolution of disputes by arbitration in the region.”[53] Also, Ecuador launched a website that highlights the damages it has avoided in every arbitration since 2008:[54] “[f]rom 2008 to date, the state says it has avoided 83% of the total amount claimed against it – a total of US$14.7 billion.”[55] The extent to which Ecuador will reverse its investment protection policy remains to be seen.

India reacted quickly to its loss in White Industries Australia Limited v. Republic of India, which determined that the Indian judicial system had not afforded the Australian coal mining claimant “effective means” for enforcing an approximately US$6 million award from an International Chamber of Commerce (“ICC”) arbitral tribunal.[56] Most recently, a slew of claims concerning retroactive tax measures have garnered much attention.[57] India is currently defending twenty-four investment cases as respondent.[58]

India sent “notices of termination” to fifty-eight countries with which it has BITs and proposed to twenty-five other State Parties with which it also has BITs that they issue a “joint interpretation” of those BITs so as to align them with a new Indian Model BIT formulated in 2015.[59] The Indian Model BIT eliminates FET, applies instead the customary international law standard of treatment of aliens, limits FPS to physical protection (not legal security), and permits ISDS only if local remedies are exhausted and produced no result within five years.[60] To date, twenty-two Indian BITs have been effectively terminated.[61]

India’s move to terminate its network of BITs arguably conflicts with the current administration’s campaign to attract foreign investment. India’s Prime Minister, Narendra Modi, announced his “Make in India” campaign in September 2014, which was pitched as “a new major national programme designed to transform India into a global manufacturing hub.”[62]

South Africa, a respondent in only two ISDS proceedings,[63] has denounced nine BITs[64] with Western European countries while looking to revise its policy regarding such treaties. In December 2015, the South African President approved the Protection of Investments Act, 2015 (No. 22) as part of its new policy regarding foreign investments,[65] raising parallels with the ongoing European debate concerning the Transatlantic Trade and Investment Partnership (“TTIP”).

While South Africa has moved to terminate its BITs with Western European countries, such actions should not necessarily be interpreted as a broader revolt against investor-State arbitration. Thus far, no termination policy has been adopted in respect of South Africa’s BITs currently in force with other African States including the South Africa-Zimbabwe BIT,[66] the South Africa-Mauritius BIT,[67] the South Africa-Nigeria BIT,[68] the South Africa-Senegal BIT,[69] and the SADC Investment Protocol.[70] There are also a number of South African BITs signed with other African countries that at present have not entered into force.[71] The South African Government has not, to date, announced a negative position regarding these BITs either.

Because South Africa is a heavy capital-exporter to neighboring countries,[72] its Government may conclude that its investors in the African region should have the right to investor-State arbitration. These considerations may not be the same with respect to the Western European treaties it terminated because it may have feared being on the receiving end of an investment treaty claim. In this regard, the South African Government’s behavior does not differ from some of the historically strongest capital-exporting States that have made an “about-face” and are now abandoning the investment legal system they always supported prior to themselves becoming respondents in investor-State arbitrations. This shift exemplifies a larger Zeitgeist with States across the macroeconomic spectrum now adopting a “bunker” mentality and denouncing the entire notion of international dispute resolution solely to ward off potential liability.[73]

EU Member States also have retreated from their dispute settlement obligations under investment promotion and protection treaties. In May 2015, the Italian Government announced its withdrawal from the ECT effective January 1, 2016.[74] Italy’s withdrawal coincided with an increasing wave of ISDS claims against Italy under the ECT challenging modifications to Italy’s solar energy programs.[75] In February 2016, Poland, which has sixty BITs in force[76] and was at the time involved in eleven reported ISDS arbitrations with claims against it totaling as much as US$2.3 billion,[77] announced that it was seeking to cancel its BITs with other EU Member States on the ground that such treaties drive up legal costs.[78] In March 2016, Denmark, which has forty-seven BITs in force[79] and which is not involved in any reported arbitrations, proposed mutual termination to its European BIT counterparties.[80] News reports indicate that Denmark is motivated by fear of future cases against it and that the Danish business community does not, to a large extent, depend on BITs for its foreign investments.[81] So far, both Estonia and Slovenia have indicated that in principle they are agreeable to mutual termination of their BITs with Denmark.[82]

C.  The 2012 United States Model BIT

Going back to the chief villains in this “Demolition Derby,” we have already mentioned the egregious action of the United States, Canada, and Mexico in issuing the famous “interpretation” calculated to bind NAFTA tribunals to apply the interpretation of FET that was unanimously rejected as “patently absurd” by the Pope & Talbot Tribunal.

The United States also produced a new Model BIT in 2012 notwithstanding the fact that it has never (thus far) lost a NAFTA arbitration.[83] Annex B, titled “Expropriation,”[84] covers an entire page and defines “direct expropriation,”[85] “indirect expropriation,”[86] and what “cannot constitute an expropriation.”[87] Moreover, while Article 21(2) titled, “Taxation,” provides that “Article 6 [Expropriation] shall apply to all taxation measures,”[88] claimants alleging that a taxation measure constitutes expropriation are barred from arbitrating their claim unless they first submit the dispute to the two State parties’ respective “competent . . . . authorities”[89] (in the case of the United States, the Assistant Secretary of the Treasury (Tax Policy)), and those authorities fail to “agree that the taxation measure is not an expropriation” within 180 days.[90] In other words, if the two States agree within 180 days that the claimant has not been subject to expropriation, that is the end of the claim and the claimant is wholly deprived of impartial and independent third-party arbitration of its claim.

Furthermore, Article 14 invites each State Party to list in Annexes I, II, and III any existing measures in that State that do not conform to the BIT’s requirements of most-favored-nation treatment and national treatment, its prohibition of certain performance requirements, and its prohibition of certain interferences with senior management and boards of directors.[91] Those listed measures then are exempted from application of the BIT. Worse still, Article 31, labeled “Interpretation of Annexes,”[92] provides that a tribunal “shall, on the request of the respondent, request the interpretation of the Parties on the issue” whenever “a respondent asserts as a defense that the measure alleged to be a breach is within the scope of an entry set out in Annex I, II or III.”[93] The Article further provides that the Parties “shall submit in writing any joint decision declaring their interpretation to the tribunal within 90 days”[94] and that any such joint decision “shall be binding on the tribunal”[95] whose “decision or award . . . must be consistent”[96] with it. Thus, once more, the power of decision is returned to the States. Finally, Article 30(3) allows the States party to the BIT to issue a “joint decision” through each State’s respective representative “declaring their interpretation of a provision of this Treaty [that] shall be binding on a tribunal, and [which] decision or award issued by a tribunal must be consistent with that joint decision.”[97] And those are only three of the more egregious anti-investor provisions in that Model BIT.[98]

D.  The European Union and Canada

Canada and the EU are responsible for giving life to the proposed Investment Court System employing fifteen “Judges,” all to be appointed by the States party to the Comprehensive Economic and Trade Agreement (“CETA”)—so far, other than Canada, only Vietnam has agreed to this type of court with the EU. Of the fifteen Judges, five must be from Canada, five from EU Member States, and five from other States. Moreover, only those five from other States are eligible to serve as President and Vice President. The Investment Court System would include a tribunal of first instance whose decisions on the law and the facts would be subject to review by an appeals tribunal. The tribunal of first instance would consist of three Judges, all selected by the President of the Tribunal—not by the litigants—from the roster of fifteen Judges. There would be increasingly strict requirements for those arbitrators selected to serve on the roster—including a requirement that candidates refrain from participating in other arbitrations in most capacities—and additional third-party rights, including the right to intervene through amicus curiae submissions.[99]

Not all Canadians believe that this entirely State-appointed Court is a good idea. Investors have preferred ISDS for decades because they have an equal voice with the Respondent State in composing the tribunal that will decide their claim. As the Honorable Marc Lalonde, holder successively of four Ministerial portfolios in the Cabinet of Prime Minister Pierre Elliott Trudeau (who is the father of Canada’s current Prime Minister Justin Trudeau), declared in 2015,

Canada, which is very keen to achieve a major trade agreement between the EU and Canada before the U.S.—TTIP.  And Canada caved in before the EU demands for structural reforms in the decision-making process regarding foreign investors’ claims under investment treaties. . . . For Canada, trade trumped investments.[100]

Not all States are enchanted by a permanent court either. For example, according to a Factsheet published by the European Commission on July 10, 2017, the United Nations Commission on International Trade Law (“UNCITRAL”) “has agreed to initiate work on possible multilateral reform of investment dispute settlement including the possible establishment of a multilateral investment court.”[101] In an unofficial report of the Fiftieth Session of the UNCITRAL on July 10, 2017 in Vienna, Nikos Lavranos reported that the United States “and in particular Japan, strongly questioned the need for such urgent work on reforming the ISDS in such a radical manner.”[102] Japan views the proposed permanent court as “a ‘world legislator’ being in a position to decide highly sensitive and important issues without any accountability.”[103] Besides the United States and Japan, there were a handful of States “that, while not openly opposing the mandate, were lukewarm—at least at this point in time—about the idea of moving towards a MIC [Multilateral Investment Court].”[104] These States were “China, Russia, Singapore, South Korea, Thailand, Vietnam, New Zealand and Australia,” and they “all stress[ed] that the outcome of the efforts of the UNICTRAL [sic] Working Group should not be prejudged towards the MIC and that all options should be considered.”[105] Russia and South Korea cautioned against throwing away years of ISDS experience, only to replace it with “something which may create new problems.”[106] The United Kingdom (“U.K.”), while not opposing the new UNCITRAL mandate, “was considerably more cautious towards moving forward the reform efforts compared to the other EU member states.”[107]

It should be pointed out that the selection of international judges by States or a combination of States is an intensely political affair. In the EU’s overall concept of an International Investment Court, as reflected in CETA, the EU appoints five judges, its treaty partner appoints five, and together they appoint five from other countries. In CETA itself, with ten Provinces in Canada, from the Maritimes to the intensely francophone Québec, through Ontario to the prairie Provinces, all the way to Vancouver, the jockeying for “one’s own” to be appointed, the political trade-offs potentially involved, and the incidental connections that may propel a candidate of little suitability for the appointment to the fore, all bespeak a highly political process. How much more so when the EU’s twenty-seven (after Brexit is complete) Member States compete for five seats on the Court? And the rest of the world, namely, all the countries that are neither Member States of the EU nor its treaty partner? Where will those judges come from? The fact that only the five appointees from outside the EU Member States and the EU’s treaty partner can serve as President or Vice-President of the Court or preside over the three-member tribunals of first instance, gives to such countries a powerful hand within the Investment Court. Make no mistake about it: if you are an investor, you prefer your traditionally equal role in the formation of the tribunal that will judge your case, and do not want your case decided by the retired national judges, retired civil servants, out-of-office politicians, and their friends, who, in the authors’ considered view, are the persons most likely to be selected by States at the end of the process.

 

II.  Cutting off the nose to spite the face

On May 31, 2017, in the British Virgin Islands, John Beechey, a former Secretary-General of the International Chamber of Commerce’s International Court of Arbitration, described the efforts by himself and Lord Goldsmith QC—representative of the London Court of International Arbitration (“LCIA”) and the Chartered Institute of Arbitrators, as well as a former Attorney General of the United Kingdom—to persuade the EU institutions to give consideration to the arbitral community’s views on ISDS. Paraphrasing Lord Goldsmith QC’s remarks, Beechey said,

a “depressing feature” of the debate was that “no one at the European Commission or at the European parliament was even prepared to give the arbitral community a hearing. Their minds were closed. Any solution was weighted in favour of the clamour of an anti-arbitration lobby long on inflammatory rhetoric and emotion and very short on fact and substance.”[108]

So why is all of this happening? Why are States selling out their own nationals desirous of traditional legal protections when they invest abroad? The answer is that this is a populist trend inspired by fear, by some countries’ and their citizens’ objections to a rule of law that is not “home-grown,” and determinedly by left-wing intellectuals and allied non-governmental organizations who are proceeding in the face of the established facts.

There is also much ado about “fake news” of late that exacerbates certain issues. To be accurate, one must define their terms if they expect to be understood with precision. So-called “fake news” is a label attached to an undeniable truth by a person who refuses to accept that truth. There is also “genuinely fake news” that aims to distract the public as well as legislators and treaty negotiators from the real truth by advancing myths and fairy tales that all too frequently plague the ISDS reform dialogue. Before addressing those tall tales, however, what are the established facts?

A.  Statistics Show that States Win a Majority of ISDS Cases

From 1987 through 2017, 548 ISDS cases were concluded.[109] Of those cases, 37% were decided in favor of the State (the claims were dismissed either for lack of jurisdiction or on the merits) and 28% were decided in favor of the investor.[110] Furthermore, 23% of the 548 cases were settled, 10% were discontinued, and in 2% of the cases there was a finding of liability, but no damages were awarded.[111]

Statistics from ICSID based on cases it administered in the half-century from the first case it registered in 1972 until June 30, 2017 reveal a similar result. Of all of the disputes submitted to ICSID under the ICSID Convention and Additional Facility Rules, claims were upheld in part or in full in 30.6%, all claims were dismissed on the merits in 17%, jurisdiction was declined in 16.2%, the claims were found to be manifestly without legal merit in 0.6%, the parties settled by way of an agreement which was embodied in an award in 5%, the proceedings were discontinued at the request of both parties in 16.8%, the proceedings were discontinued at the request of one party in 9.1%, the proceedings were discontinued for lack of payment of the required advances in 3.2%, the proceedings were discontinued at the initiative of the Tribunal in 0.2%, and 1.3% of the cases were discontinued for failure of the parties to act.[112] Thus States came away scot-free in 33.8% of the cases, claimants succeeded (wholly or partially) in 31.3% of cases, while the remaining 35.6% of the cases submitted either resulted in settlements (5%) or were discontinued (30.6%) (which in some cases may have reflected a settlement).

The statistics are even more favorable for EU Member States. Of all of the disputes submitted to ICSID under the ICSID Convention and Additional Facility Rules involving an EU Member State as of April 30, 2017, the tribunal dismissed all claims in 36.6%, the tribunal upheld claims in part or in full in 24.4%, the tribunal declined jurisdiction in 17.1%, the proceedings were discontinued at the request of both parties in 7.3%, the proceedings were discontinued at the request of one party in 2.4%, a settlement agreement was embodied in an award at the parties’ request in 4.9%, the proceedings were discontinued for lack of payment of the required advances in 4.9%, and in 2.4% of disputes the proceedings were discontinued for failure of the parties to act. In other words, in 53.7% of disputes the respondent-EU State succeeded in persuading the tribunal either to decline jurisdiction or to dismiss the claims on their merits, whereas claimants succeeded in less than half that number of cases (24.4%), while 21.9% were either settled (4.9%) or discontinued (17%) (which in some cases also may have reflected a settlement).[113]

B.  Overreacting to Cases

Despite these statistics confirming that States win in a majority of investment cases, there frequently is an overreaction whenever a State is sued under an investment agreement. One example of such an overreaction was the first NAFTA arbitration under Chapter 11 against Canada, Ethyl Corporation v. Government of Canada. That case involved a bill that was introduced in the Canadian Parliament in May of 1995 and was enacted as the Methylcyclopentadienyl Manganese Tricarbonyl (“MMT”) Act on April 25, 1997. It prohibited the commercial importation of, and interprovincial trade in, MMT, a fuel additive. Ethyl commenced NAFTA arbitration proceedings in April 1997, arguing that the measure was illegitimate and discriminatory. Canada argued that while MMT was designed to increase octane in gasoline, it affected emission control on automobiles, thereby presenting an environmental hazard due to manganese becoming airborne.[114]

The arbitration was short-lived. Following the Tribunal’s unanimous ruling in June 1998 confirming its jurisdiction,[115] the case was settled for US$13 million.[116] The decision confirming the Tribunal’s jurisdiction came less than two weeks after a domestic Canadian panel convened under Canada’s Agreement on Internal Trade (“AIT”) (concluded by the national Government with its Provinces and Territories) undermined Canada’s position in defending the Ethyl case. The Government of Alberta had commenced proceedings under the AIT alleging that the MMT Act failed to comply with Canada’s obligations under the AIT. The Governments of Québec, Nova Scotia, and Saskatchewan intervened as complainants in support of Alberta. A majority of the AIT panel hearing the case ruled that the MMT Act was inconsistent with certain provisions of the AIT and recommended that Canada remove the inconsistencies and, pending such removal, “that [Canada] suspend the operation of the Act with respect to interprovincial trade.”[117] Canada was left without a leg on which to stand vis-à-vis Ethyl. Hence, it entered the US$13 million settlement.

Despite that fact that it was the AIT panel’s preceding decision adverse to the Canadian Government that made the case effectively indefensible, the Ethyl case attracted widespread media attention and evoked a vociferous public backlash at the time. The Financial Post described the reactions of the supporters of the MMT Act as follows:

Ethyl’s opponents in the auto sector were more forthcoming. The NAFTA claim is “a bullying tactic,” said Mark Nantais, president of the Motor Vehicle Manufacturers’ Association. “It’s an attempt [by Ethyl] to intimidate the cabinet of Canada.”[118]

The Globe and Mail wrote in 2001 in How Free Trade Threatens Democracy,

[t]hey’re going to be marching on the streets at Quebec City’s Summit of the Americas within a couple of weeks because, among other things, they oppose “investor-state rights.” To free-trade critics, nothing more starkly illustrates the imbalance of power that transnational corporations have acquired over democratically elected governments.

The investor-state rights provision, Chapter 11, of the North American free-trade agreement, permits corporations to challenge governments’ sovereignty to make policy regarding public health, the environment, labour standards and other public services.

. . . .

Here is how Chapter 11 works:

The U.S. Ethyl Corp. sued the Canadian government for $250-million (U.S.) and obtained, in 1998, a settlement of $13-million for the government’s ban on the gasoline additive MMT, labelled a known nerve toxin by reputed scientists. The ban was reversed.[119]

In another article in The Globe and Mail, NAFTA Chapter 11 proceedings were blamed for the settlement:

The chapter has also been used by Virginia-based Ethyl Corp. to force Canada to overturn a ban on gasoline additive MMT that had been motivated by environmental concerns. The Canadian government also paid Ethyl $13-million in an out-of-court settlement.[120]

At the time, the media maintained that NAFTA Chapter 11 proceedings constituted a “regulatory chill” restricting Canada’s sovereignty, as demonstrated by the settlement with Ethyl and the repealing of the MMT Act. Contrary to this widespread misconception, Canada was motivated to settle the Ethyl case because the MMT Act was inconsistent with the AIT. The complaint against the MMT Act was maintained by four provinces. Faced with the AIT’s decision scuttling the MMT Act, Canada had no alternative but to settle with Ethyl. This is confirmed by Canada’s official governmental website in which it describes the outcome of the Ethyl case as follows:

Settlement of the claim

Further to a challenge launched by three Canadian provinces under the Agreement on Internal Trade, a Canadian federal-provincial dispute settlement panel found that the federal measure was inconsistent with certain provisions of that Agreement. Following this decision, Canada and Ethyl settled all outstanding matters, including the Chapter Eleven claim.[121]

Despite the Canadian Government’s straightforward explanation as to why it settled the Ethyl case, local politicians have continued, even decades later, to “remember” the ordeal differently. Elizabeth May, leader of the Green Party of Canada and MP for Saanich-Gulf Islands, held a press conference in September 2012 in which she warned against the adoption of the Canada-China Foreign Investment Promotion and Protection Agreement.[122] During the press conference, she highlighted the controversy that the Ethyl case had caused in Canada:

We know the experience of Chapter 11 of NAFTA. Everyone believed and including all the groups fighting NAFTA, that Chapter 11 was innocuous. It was never raised in the fight over NAFTA and yet the investor-State provisions of NAFTA have proven to be the most corrosive of democracy, the most undermining of Canadian laws. It’s only under Chapter 11 of NAFTA that a U.S. corporation had the right to claim damages against Canada and cause our Governments to repeal laws passed in our Parliament. It was bad enough when it was a US multinational, like Ethyl Corporation of Richmond, Virginia, getting laws against its toxic gasoline additive MMT cancelled. But how much worse is it to imagine that the Communist Chinese Government out of Beijing through its various tentacles of Sinopec and PetroChina and CNOOC will be able to trump Canadian law through complaints in this process that set out in this agreement.[123]

Despite Elizabeth May’s efforts, the Canada-China Foreign Investment Promotion and Protection Agreement retained an ISDS provision, and was signed and entered into force on October 1, 2014.[124]

As explained above, Canada settled the Ethyl case because of the AIT decision. “Genuinely fake news” about the Ethyl case nonetheless has persisted, twenty years after the event, in a report published by the Canadian Centre for Policy Alternatives (“CCPA”) in January 2018 in which it revived the same mythical hue and cry against NAFTA that followed the Ethyl case.[125] The report warns against the “chilling effect” NAFTA’s ISDS has on public policy and regulation,[126] describes Canada’s 1998 settlement with Ethyl Corporation as “regrettable”[127]and dispenses the following misinformation to buttress its outlandish claims:

In one of the starkest examples, the Canadian government repealed its ban on the import and interprovincial trade of the gasoline additive MMT (a suspected neurotoxin) after being sued by the Ethyl Corporation. After a preliminary NAFTA tribunal judgment sided with the company, the Canadian government reversed the MMT ban, paid Ethyl $19.5 million to settle the case and formally apologized.[128]

As laid out above, this description of Ethyl is fatally incomplete, incorrect, and grossly misleading. It is simply baffling that the same truly fake news continues to be regurgitated and circulated two decades later.

Importantly, no ISDS tribunal has ever found that a legitimate environmental or health law or regulation of a State breached a BIT or a MIT. We of course know why the Ethyl case was settled. In SD Myers, Inc. v. Government of Canada, Canada issued an order banning the export of polychlorinated biphenyl (“PCB”), and of substances containing PCBs, an environmentally hazardous chemical compound. The American company, S.D. Myers, Inc.—which engaged in the disposal of PCBs found in other substances—commenced NAFTA proceedings in October 1998 against Canada. The Tribunal ruled that Canada had breached Article 1102 (“National Treatment”) and Article 1105 (“Minimum Standard of Treatment”) of NAFTA, concluding that Canada’s prohibition of PCB exports was motivated not by environmental considerations, but rather to protect the then-budding Canadian PCB disposal industry from its more experienced U.S. competitors:

193. Having reviewed all the documentary and testimonial evidence before it, the Tribunal is satisfied that the Interim Order and the Final Order favoured Canadian nationals over non-nationals. The Tribunal is satisfied further that the practical effect of the Orders was that SDMI and its investment were prevented from carrying out the business they planned to undertake, which was a clear disadvantage in comparison to its Canadian competitors.

194. Insofar as intent is concerned, the documentary record as a whole clearly indicates that the Interim Order and the Final Order were intended primarily to protect the Canadian PCB disposal industry from U.S. competition. CANADA produced no convincing witness testimony to rebut the thrust of the documentary evidence.

195. The Tribunal finds that there was no legitimate environmental reason for introducing the ban. Insofar as there was an indirect environmental objective—to keep the Canadian industry strong in order to assure a continued disposal capability—it could have been achieved by other measures.[129]

Further comfort that legitimate environmental measures of States are respected by ISDS tribunals can be found in Chemtura Corporation v. Government of Canada, in which a unanimous NAFTA Tribunal composed of Cambridge University Professor James Crawford, now a titular Judge of the International Court of Justice, Professor Gabrielle Kaufmann-Kohler of Switzerland (as Presiding Arbitrator), and a co-author of this Article (Judge Brower) ruled that Canada had in no respect breached any provision of NAFTA when it banned the pesticide lindane from use in respect of canola.[130]

The results of the tobacco labeling cases—Philip Morris Brands Sàrl v. Oriental Republic of Uruguay and Philip Morris Asia Limited v. Commonwealth of Australia—further confirm that no health-protection legislation or regulation has been found by any ISDS tribunal to have breached any provision of any investment treaty. The tobacco cases have attracted particular attention from critics of investor-State arbitration despite the fact that both States—Australia and Uruguay—won those cases. Even when cases come out in favor of States, the critics disregard the result and emphasize the alleged bias toward investors in the ISDS system. When a majority of the tribunal in Philip Morris Brands Sàrl v. Oriental Republic of Uruguay found in favor of the State, rather than recognize that ISDS works, the critics turned their attention to the hefty fees collected by ISDS lawyers and how the case should not have been brought in the first place.[131] They look right past the unchallengeable fact, as illustrated by the NAFTA cases cited above and the tobacco cases, that States’ “policy space” universally has been preserved by ISDS tribunals.

Nevertheless, prominent people and publications have spoken out emphatically against ISDS.[132] The EU itself has not been honest about the situation. In June 2013, EU Member States formally mandated that the EU Trade Delegation include investment protections and ISDS in TTIP.[133] All the while, however, opposition to ISDS was gaining ground. By January 2014, the outgoing EU Trade Commissioner Karel De Gucht responded to this growing opposition by deciding to “pause” the TTIP negotiations concerning ISDS in order to prepare a public consultation on the issue.[134] In presenting the results of the consultation approximately one year later, the EU Trade Commissioner Cecilia Malmström asserted that “[t]he consultation clearly shows that there is a huge skepticism against the ISDS instrument.”[135] That “consultation,” however, could hardly be called representative. It was accurately described to Reuters by two EU officials as follows:

[O]ver 95 percent [of the almost 150,000 responses] were from supporters of a small group of organisations hostile to a deal with Washington and who submitted identical or very similar responses . . . . [This was a] hijacking of the online consultation . . . . Many responses to the EU survey appeared to be automated or generated by forms filled in on campaign websites, encouraging EU citizens to reject arbitration policy in [TTIP].[136]

III.   Leading International arbitration actors Encourage This “Demolition Derby”

What is doubly baffling is that prominent international arbitrators who have led the field for years appear to encourage this “Demolition Derby” and currently do so in league with the UNCITRAL Commission, whose Working Group III considered the pros and cons of a permanent investment court at its session in Vienna from November 27 to December 1, 2017. According to the UNCITRAL Commission Report on the Fiftieth Session in July 2017, Working Group III was entrusted to consider ISDS reform “so as not to burden Working Group II unduly while it continued to fulfil its mandate [of its work on the enforcement of settlement agreements resulting from international commercial conciliation].[137] It is curious that this task has been assigned by UNCITRAL to Working Group III—which previously has dealt with international legislation on shipping, transport law, and, only most recently, online dispute resolution—and not to Working Group II, which for decades has dealt extensively with arbitration, conciliation, and dispute settlement, and in which, inter alia, the 2010 UNCITRAL Arbitration Rules and the 1985 UNCITRAL Model Arbitration Law were incubated. Furthermore, the Commission emphasized that delegations to Working Group III should be government representatives, not the technicians and professionals traditionally attending Working Group meetings, which are largely charged with technical work.[138] One asks: What is the reason that the UNCITRAL Commission has assigned consideration of the EU-inspired International Investment Court proposal, not to the Working Group with by far the most extensive experience with international arbitration, but rather to one whose exposure to the field has been limited to online arbitration, along with shipping and transport law? Why is it charged to have predominately government delegations? Are the dice being loaded?

It would appear so, as a close look at the relevant UNCITRAL Commission report reveals. The UNCITRAL Commission report of its Fiftieth Session held in July 2017 states:

While a few suggested that Working Group II should be tasked with investor-State dispute settlement reform upon completion of its work on the enforcement of settlement agreements resulting from international commercial conciliation, it was generally felt that it would be preferable to assign that work to another working group so as not to burden Working Group II unduly while it continued to fulfil its mandate.[139]

Working Group II, however, at that moment was on the verge of completing that mandate at its session held in February 2018. Thus, the UNCITRAL Commission proudly has announced the following:

Working Group II (Dispute Settlement) completed its work on the preparation of a draft convention and a draft amended Model Law on international settlement agreements resulting from mediation. Both draft instruments will be considered for finalization by the Commission at its upcoming session in New York (25 June–13 July 2018).[140]

So, what was the rush? Why did the UNCITRAL Commission “support for work to be undertaken with priority in 2017”?[141]

Indeed, Working Group III’s Vienna session from November 27 to December 1, 2017 revealed a telling picture that the work now is political rather than technical—the traditional domain of Working Groups. In two of the five days, the meeting attendees fought over who should chair the meeting, an issue hitherto always resolved by consensus.[142] Incredibly, the many EU Member State Delegations present carried the day for the election of a senior official of Canada,[143] who by definition is bound to CETA, and hence to the EU International Investment Court imbedded in CETA. There can be no doubt that the dice, in fact, have been loaded. Nevertheless, reluctant delegates grappled with the monumental task of reforming ISDS, and Part I of the Working Group III Report from that session emphasized concerns of some States over the cost and duration of the proceedings.[144] Several of the more sober-minded participants in the session argued that deliberations relating to duration and cost should be fact-based.[145] Working Group III ultimately settled on a compromise, recording that perceptions are also relevant in maintaining the “legitimacy” of ISDS, the ubiquitous buzzword that Professor Christoph Schreuer recently decried as “one of those Humpty Dumpty words designed to arouse pleasurable emotions without conveying meaning” in his keynote address at the Investment Treaty Arbitration Conference in Prague on October 26, 2017.[146] Some less radical reforms, including those clarifying a tribunal’s powers of cost apportionment and to order claimants to post security for costs in certain scenarios, were also discussed,[147] mirroring recommendations by Professor Schreuer in his speech.[148]

The proposal to eliminate ISDS arbitration, which gives investors an equal voice with host States in forming a tribunal to decide their treaty dispute, began with Professor Jan Paulsson, a former President of both the London Court of International Arbitration and the International Council on Commercial Arbitration. In his Inaugural Lecture as holder of the Michael R. Klein Distinguished Scholar Chair at the University of Miami School of Law in April 2010, he proposed the abolition of party-appointments of co-arbitrators (and, at least inferentially, abolition of investors’ and host States’ equal roles in the appointment of tribunal chairpersons). Subsequently, he published his article titled Moral Hazard in International Dispute Resolution[149] (the “Moral Hazard article”) based on that lecture. Professor Paulsson’s arguments were addressed in the article titled The Death of the Two-Headed Nightingale: Why the Paulsson-van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded[150] (the “Nightingale article”) that was co-authored by one of the authors of this Article, Judge Brower, and his former law clerk, Charles B. Rosenberg. In a public discussion of an earlier draft of the Nightingale article under the auspices of the Institute for Transnational Arbitration, Professor Paulsson commented on the article. The Global Arbitration Review report of the event revealed Professor Paulsson retreating from his original position:

Paulsson also said that he does not dispute the right of parties to agree to appoint arbitrators if they so choose. His primary suggestion, he explained, is that the existing LCIA rules should be emulated across the board “to the effect that if the parties stipulate unilateral appointments that is what they get, but otherwise the default rules [sic] is that all three are chosen by the LCIA”.[151]

Since then, Professor Paulsson published his book titled The Idea of Arbitration in 2013[152] and recently delivered two lectures further fanning the flames of the debate over unilateral appointments by arbitrating parties and the investors’ equal role in selecting a tribunal chairperson.[153]

Professor Paulsson’s latest example of why unilateral appointments are undesirable concerns the dissenting opinion of the arbitrator appointed by the claimant in Supervisión y Control, S.A. v. Republic of Costa Rica, Joseph P. Klock, Jr., who was sitting in his first ICSID arbitration ever. The dissenter took issue with the ICSID party-appointment procedure, apparently citing his own sensation as a first-timer at ICSID, that party-appointed arbitrators face an awkward tension in distancing themselves from the party that appointed them. The relevant parts of his dissent are set out below:

[A]s far as the impartiality of the panel is concerned, I believe that ICSID should more carefully consider the issue of panel selection. . . . [T]he arrangement whereby two of the panel members are selected by the parties to the agreement creates an uncomfortable aura of conflict which permeates, in my view, the proceedings. It creates a true ethical burden on these other two parties [that is, “panel members”] to separate themselves from the interest of those who have selected them to serve. I know that I have worked hard to neutralize this factor as I am sure my esteemed colleague [co-arbitrator] has done.

 However, the dignity and integrity of an ICSID proceeding would be much better served by the selection of panelists from lists where the selection is made wholly by ICSID and where careful screening is done to make sure that any selected panelists do not have conflicts, not only real conflicts which should be identified in the screening process done, but perceived conflicts as well, either by issue or relationship. It ill-behooves ICSID to have anyone unfairly suggest that it is a club where the result can be influenced by relationships that exist by those who serve variously as advocates or arbitrators.

 Composition Of The Panel. This panel was assembled in accordance with the terms of the agreement between the parties, with one panelist appointed by each of the parties and the third, by the Chair of ICSID. To the extent that ICSID has the ability to direct the composition of panels that are to arbitrate its claims, I believe that it should consider prohibiting this arrangement. Of the three of us, the only panelist who did not have an inherent conflict was [the Tribunal President], and I know that both of the remaining two of us were honored to serve under his chairmanship. He also was the only panelist who did not labor under any type of conflict burden.

 However, as someone who has served on a number of arbitral panels, I find an appointment by a party of a judge to rule on the party’s claim creates an unnecessary barrier to pure objectivity, except in situations where a high degree of technical or scientific skill and knowledge of a discipline is needed. That clearly is not the case in terms of a contract dispute. If the desire is to have three judges decide an issue, then there should be three completely impartial judges appointed, judges who are no [sic] related to the parties or to their counsel. Those procedures were not in effect in this case, and if they were, perhaps the painful process of reviewing conflict could have been avoided.[154]

Professor Paulsson finds that the arbitral community should take the dissenter’s comments “to heart, recognize [them] as not being an isolated phenomenon, and take [them] as a compelling reason to consider ways in which this kind of unease can be alleviated.”[155] It would seem more pertinent to conclude that the dissenting arbitrator should have resigned from that Tribunal as soon as he became uncertain as to whether he could, fully and without reservation, comply with the mandate laid on him by Articles 14 and 40 of the ICSID Convention[156] and Rule 6 of the ICSID Arbitration Rules, which required him to “be relied upon to exercise independent judgment.”[157] Considering that the dissenter had, as he wrote, “served on a number of arbitral panels,” presumably commercial ones formed in the same way as ICSID tribunals, he should have stopped accepting party-appointments as co-arbitrator long before he accepted appointment to the ICSID Tribunal.

Despite Professor Paulsson’s continued push, “[s]even years on, arbitration users have responded to Professor Paulsson’s call for the practice of unilateral appointments to be removed with a resounding no: far from being removed, the practice of unilateral appointments remains standard practice in international arbitrations,”[158] as the arbitral community continues to regard the unilateral right of appointment as the preferred method of appointment. The 2012 International Arbitration Survey by Queen Mary University of London revealed that, for three-member tribunals, 76% of those responding to the survey (consisting of arbitrators, private practitioners, and in-house counsel) preferred the “selection of two co-arbitrators by each party unilaterally. This method of selection was favoured by all three categories of respondents, but more by private practitioners (83%) than by in-house counsel (71%) and arbitrators (66%).”[159] The same survey was conducted in 2015, in which respondents were asked “[w]hat are the three most valuable characteristics of international arbitration?” in response to which “‘enforceability of awards’ and ‘avoiding specific legal systems/national courts’ were most frequently chosen, followed by ‘flexibility’ and ‘selection of arbitrators’.”[160] The support for the right of party-appointment was affirmed in the 2017 Berwin Leighton Paisner survey of 151 participants consisting of “arbitrators, corporate counsel, external lawyers, academics, users of arbitration and those working at arbitral institutions.”[161] 66% of the participants found the “retention of party appointments to be desirable”[162] and 59% of the participants “believed that not all institutions can be trusted to maintain an inclusive and well-qualified list of arbitrators from whom all appointments to the tribunal can be made.”[163]

All the signs point to the value of the unilateral right of appointment. So “how then can it be said that this practice undermines the legitimacy of the arbitral process or its outcome?”[164] Maintaining the unilateral right of appointment allows “all parties to enter international arbitration with an equal sense of confidence in the neutrality of the system.”[165] Arbitration has become truly international to the extent that no arbitral institution, no group of governments, and no international organization could ever fully appreciate the intricate cultural, societal, and political sensitivities that go into the selection of arbitrators. It is thus artificial to imagine a single list of arbitrators from which all appointments would be made that would be acceptable to all arbitral disputants. This is especially so for those parties who have no knowledge of or familiarity with those on the list.[166]

In fact, there has been serious opposition to the ICC’s recent incorporation into its Arbitration Rules of Expedited Procedure Provisions effective as of March 1, 2017 of a new provision enabling the ICC to override the parties’ agreement on appointments to the tribunal.[167] These procedures shorten the deadlines for the filing of submissions and the scheduling of hearings, apply to arbitration agreements concluded after March 1, 2017,[168] and apply automatically to disputes involving US$2 million or less.[169]

The new Article 2(1) of Appendix VI of the ICC Arbitration Rules permits the ICC Court to override the parties’ agreement on the number of arbitrators: “The Court may, notwithstanding any contrary provision of the arbitration agreement, appoint a sole arbitrator.”[170]Such expedited procedures have become “the flavor of the year” with other arbitral institutions worldwide.[171]

Fabian Bonke, for example, opines that the ICC’s reform “took a step too far when empowering the ICC Court to override a contrary agreement between the parties in expedited proceedings.”[172] Overriding party agreement may prompt set-aside proceedings that risk prolonging the final resolution of the dispute, which defeats the purpose behind expedited procedures.[173] This exemplifies—as does the 59% of participants distrusting institutions’ ability “to maintain an inclusive and well-qualified list of arbitrators” in the 2017 Berwin Leighton Paisner survey discussed above—Professor Paulsson’s “Kryptonite,” which he describes as follows:

[T]he one argument [that] will defeat me every time . . . . [Y]ou look me in the eye and sayI don’t trust the institution, and so long as I can name one of the arbitrators I feel that I will reduce the risk of a runaway tribunal doing something crazy—but unappealable.”[174]

Ancillary to the assault of Professor Paulsson on unilateral appointments, Professor Albert Jan van den Berg, likewise a past President of the International Council on Commercial Arbitration and General Editor for many years of its Annual Yearbook, has called on “party-appointed arbitrators [to] observe the principle: nemine dissentiente.”[175] Professor Van den Berg maintains this view on the ground that in the 22 of 150 published awards and decisions in investment arbitration cases he surveyed in which a dissenting opinion had been issued, it almost invariably had been issued by the arbitrator appointed by the losing Party. He concluded that “dissenting opinions [in investment arbitration] barely serve a legitimate purpose in a system with unilateral appointments”[176] and that “investment arbitration would function better and be more credible if party-appointed arbitrators observe the principle: nemine dissentiente.”[177] Professor Van den Berg believes that dissents should be “reserved for those cases where serious procedural misconduct or a violation of fundamental principles occurs; for example, where an arbitrator commits fraud.”[178]

The Nightingale article, which was published three years later in 2013, responded to Professor Van den Berg’s observations on dissenting opinions.[179] Two years later, in 2015, Van den Berg published his réplique titled Charles Brower’s Problem with 100 Per Cent—Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration.[180]

While Professor Van den Berg took issue with a variety of the arguments in the Nightingale article, his key response is that the Nightingale article has been “unable to give a convincing explanation for the fact that 100 per cent [sic] of the separate opinions issued in investment arbitrations by party-appointed arbitrators have been rendered by the arbitrator appointed by the losing party.”[181]

Essentially, our response has been “so what?” As the Nightingale article explained, 78% of the approximately 150 cases reviewed by Van den Berg resulted in no dissenting opinions at all, thus “[t]his figure alone serves to minimize any concerns regarding dissenting opinions in investment arbitration.”[182]

The newest and most directly serious threat to ISDS as presently known and favored overwhelmingly by its users, however, comes in the form of a 115-page “research paper . . . prepared for . . . UNCITRAL [at its request] within the framework of a project of the Geneva Center of International Dispute Settlement (“CIDS”)”[183] (“CIDS Report”) by Professor Gabrielle Kaufmann-Kohler, the Center’s Co-Director, and Dr. Michele Potestà, a Senior Researcher at the Center. The CIDS Report was presented to the UNCITRAL Commission on May 24, 2016,[184] and was discussed extensively at the UNCITRAL Commission’s Fiftieth Session in Vienna, held July 3–21, 2017[185] following the holding of an “UNCITRAL-CIDS Government Expert Meeting” in Geneva March 2–3, 2017.[186] Doubtless it will continue to provide a critical frame of reference for the meetings of UNCITRAL’s Working Group III, to which the subject of “Investor-State Dispute Settlement Reform” only very recently has been assigned. The first sessions, following receipt of the Commission’s mandate, was held from November 27 to December 1, 2017.[187]

The opening paragraph of the Executive Summary of this “research paper” summarizes its mission as follows:

This research paper seeks to analyze whether the Mauritius Convention on Transparency could provide a useful model for broader reform of the investor-State arbitration framework. To this end, it proposes a possible roadmap that could be followed if States were to decide to pursue a reform initiative aimed at replacing or supplementing the existing investor-State arbitration regime in international investment agreements (IIAs) with a permanent investment tribunal and/or an appeal mechanism for investor-State arbitral awards.[188]

Notwithstanding the “research” character of the CIDS Report commissioned by UNCITRAL, it appears to lend considerable support in substance to the “Demolition Derby” threatening ISDS as it presently exists and to point toward the EU’s goal of establishing an Investment Court System, otherwise termed a fifteen-Judge International Investment Court.[189] Specifically, the CIDS Report focuses primarily on whether an award by a hypothetical permanent court could be enforced under the New                mentions awards by “permanent arbitral bodies.”[190] By considering the travaux préparatoires of “permanent arbitral bodies” under Article I of the N.Y. Convention, the Iran-United States Claims Tribunal (“IUSCT”) and sports-based “arbitral” institutions, the CIDS Report opines that awards by such institutions may be enforced under the N.Y. Convention despite the fact that those bodies were not formed by appointments of the respective nationals who presented the vast bulk of the claims subject to the IUSCT’s jurisdiction and of athletes whose complaints are subjected to the jurisdiction of special sport-based arbitral institutions.[191]

Turning, then, from what had been posed as an enforcement issue, the CIDS Report concludes that because the IUSCT is an example of “arbitration” in which the U.S. claimants had no say in the appointment of the arbitrators deciding their cases,[192] it justifies more broadly the envisaged International Investment Court. Enforcement of IUSCT awards did not raise issues “about the fact that [the Tribunal’s] composition did not reflect traditional methods of appointment in international arbitration.”[193] Rather, it was debated whether the IUSCT awards were rendered under the Dutch lex arbitri or were “a-national” and whether there was an arbitration agreement in writing.[194] The CIDS Report notes that

[i]f anything, the nature of the Iran-U.S. Claims Tribunal as true arbitration could have been disputed—and has indeed been disputed—in connection with the element of compulsion it entailed, as American claimants had no other choice than to pursue their claims before the Tribunal and were barred from initiating or continuing actions in U.S. courts. But the Tribunal’s arbitral nature was never disputed for reasons linked to its composition.[195]

This leap from enforceability to per se justification of investor-State arbitration as presently known (not being changed by its replacement by an International Investment Court), however, wholly disregards the fact that the IUSCT was established through negotiations to solve a major international crisis that began only in early November 1980 and ended just two and a half months later with the conclusion of the Algiers Accords on January 19, 1981. The negotiations were conducted via Algeria (as intermediary) and involved English, French, Arabic, and Farsi languages—the principal object of the negotiations was the release of fifty-two American hostages who were held captive for 444 days and all but two of whom were U.S. diplomatic or consular officers.[196] Iran’s seizure of the hostages had resulted in two United Nations Security Council Resolutions,[197] an order of the International Court of Justice[198] compelling the hostages’ release but ignored by Iran, and a failed U.S. Army Delta Force raid at Desert One in Iran which had been mounted to free the hostages.[199] This hostage seizure triggered the severance of diplomatic relations between the two countries. To rely on such a hurried solution of a serious international crisis as a model for normal investor-State arbitration is beyond reason.

It is equally true that neither the American merchant shipowners whose vessels were sunk by Confederate States’ armed raiders during the Civil War, in particular by the CSS Alabama, nor the American cargo owners whose goods were thereby lost, were allowed to appoint any of the arbitrators in the post-Civil War “Alabama Arbitration” between the United States and the United Kingdom. That arbitration forestalled incipient hostilities between the two countries provoked by the United Kingdom’s having allowed those raiders to be built in England in patent violation of the laws of neutrality—the United Kingdom having declared itself neutral in the Civil War.[200] Similar to the IUSCT, the United States and the United Kingdom appointed one arbitrator each and agreed that three others would be appointed from Brazil, Italy, and Switzerland.[201] It is simply illogical and unreasonable to cite a tribunal formed to resolve an ongoing international crisis between two nations at daggers’ points to justify the deprivation of arbitrating parties’ historic enjoyment of the right to appoint arbitrators and collaboration in the selection of a tribunal chairperson.

No less inapposite is the CIDS Report’s reliance on certain rules that “provide for the institution’s sole power to appoint the arbitrators, without any input from the parties.”[202] As examples, however, the CIDS study cites only[203] the Court of Arbitration for Sport (“CAS”) Arbitration Rules for the Olympic Games, which state that the President of the ad hoc Division will appoint one or three arbitrators from a preselected list without the disputing parties’ input[204] and the Arbitration Rules of the Basketball Arbitral Tribunal (“BAT”), which provide that “all disputes before the BAT will be decided by a single Arbitrator appointed by the BAT President on a rotational basis from the published list of BAT arbitrators.”[205] The CIDS Report states that

[a]lthough the parties have no say in the composition of the panels either before the CAS ad hoc division or before the BAT, it is undisputed that these mechanisms are in the nature of arbitration, which was actually confirmed by the Swiss Federal Tribunal, which is competent to review their awards as a consequence of their seat being in Switzerland.[206]

With respect, these are regulatory and disciplinary bodies whose authority the athletes involved necessarily accept as a condition of competing in the relevant sporting events. They are much like the national or regional authorities regulating the conduct of lawyers, physicians and other professionals. Obtaining a professional license or entering into a competitive sporting event subject to the regulation of CAS or BAT, brings with it automatic subjection of oneself to the relevant regulatory authority. Those subject to CAS or BAT have no more expectation of enjoying the benefits of ISDS as presently known than does a member of the Bar of any country to be able to appoint someone to the disciplinary authority that exists for the profession when that body considers a grievance lodged against that professional. All in all, the CIDS Report dwells principally on what can be termed “arbitration,” rather than on the distinctions of genesis, character, and subject matter of the various fora.[207]

Within the context of enforcement under the N.Y. Convention, the CIDS Report concludes that the unilateral right of appointment is not as important as the parties’ consensual submission to arbitration.[208] There is no denying that party freedom is paramount and if parties choose to do away with their right of appointment, that is their prerogative. But the CIDS Report’s conclusion in relation to enforceability does nothing to undermine the long-established right of unilateral appointment, which is a fundamental—if not crucial—feature of arbitration, especially of investor-State arbitration.

The CIDS Report also draws its conclusions within the confines of the N.Y. Convention, which is an important treaty in the history of arbitration but cannot be representative of all that is regarded as “arbitration.” There are a litany of treaties and rules demonstrating the value of the unilateral right of appointment. The N.Y. Convention’s scope being limited to the recognition and enforcement of arbitral awards and arbitration agreements, it “does not provide for any obligation to be met by the parties as to the number of arbitrators or the method of their appointment.”[209] Facilitating the recognition and enforcement of arbitral awards and arbitration agreements is undoubtedly vital if arbitration is to have teeth. What constitutes “arbitration” and how the tribunal is to be constituted are, however, equivalently important. These were intentionally left open in the N.Y. Convention. To go from awards by “permanent arbitral bodies” being enforceable under the N.Y. Convention, to concluding that party-appointment is not an essential feature of arbitration goes too far. The party-appointment procedure—let alone other features of the arbitral process—were simply not in the contemplation of the drafters of the N.Y. Convention.

This is supported by the drafting history of the N.Y. Convention. The Secretary-General of the United Nations Economic and Social Council (“ECOSOC”) recognized that the N.Y. Convention was only one aspect of international arbitration and more work had to be done on arbitration procedures:

It should be noted, however, that the recognition and enforcement of foreign arbitral awards is but an aspect of international commercial arbitration. It has long been recognized that progress in the development of arbitration as a means to settle international commercial disputes between persons has been hampered mainly by the existing differences in the legislation of the various countries on the subject of arbitration procedures and the effect of arbitration, the lack of uniformity in the rules of arbitral tribunals, and the complications deriving from conflict of laws in this area. Thus, in addition to dealing with the recognition and enforcement of foreign arbitral awards, several public and private organizations interested in the increased use of arbitration in international trade have been actively engaged in promoting the unification of arbitration laws, encouraging the conclusion of arbitration treaties and advocating the standardization or at least the co-ordination of the rules and procedures of existing arbitral bodies.[210]

The N.Y. Convention was one initiative amongst others spearheaded by the ECOSOC and others. “The evolution of an effective and trustworthy private international arbitration system over the last half a century has had three major strands,”[211] of which the N.Y. Convention was but one. The 1976 (and 2010) UNCITRAL Arbitration Rules and the 1985 Model Law on International Commercial Arbitration were the others,[212] and both expressly provide for the unilateral right of appointment by disputing arbitrants.[213]

To its credit, the CIDS Report recognizes the fact that appointment of judges to an International Investment Court solely by States or the EU alone necessarily raises justified doubts on the part of investors as to the true impartiality of such judges, and, therefore, emphasizes that the process should not be politicized. They query whether it is desirable that only States participate in the election process or whether the investors should also have a say:

Starting with the election of the members of the ITI, several considerations must come into play. First, speaking of a multilateral tribunal, it is important to provide for an election procedure acceptable to the greatest number of States while preserving the workability of the ITI. In other words, while every State will not have “its” member on the ITI, the composition should nevertheless be acceptable to all States joining the system. One could thus contemplate entrusting the election to a body that is representative of the international community as a whole, so in particular the U.N. General Assembly. In that sense the election would then resemble that of the ICJ judges.

This said, one should mention in this respect the risk that such an election system may become affected by political considerations. This would constitute a step back from the often-praised depoliticization of investment arbitration, one facet of which is the decision-makers’ distance from politics. In this connection, it would also seem important that the selection process be transparent and susceptible of being clearly monitored by the various constituencies. Keeping in mind the criticism towards the alleged democratic and transparency deficit of investor-State arbitration, solutions avoiding to the greatest extent possible any opacities in the selection process should be favored. Indeed, transparency in the process would also reduce the risks for politicization.

Furthermore, one can ask whether it is desirable that only States participate in the election process or whether investors should also have a say. Without reintroducing the system of party appointment of arbitrators, which is currently considered objectionable, a consultation of business organizations, i.e. organizations representative of investor interests, may have its advantages. Indeed, it would mitigate the risk of shifting from the current model that resembles commercial arbitration to the other extreme, that is to an interstate paradigm. This shift would neglect the fact that investor-State dispute settlement is asymmetric, i.e. the disputes are between an investor and a State and not between two States.

Such a solution would also strengthen the view that the dispute settlement body meets the characteristics of arbitration and must be treated as such especially for purposes of enforcement.[214]

With respect, the CIDS Report wrongly presumes that the United Nations General Assembly or any other international organization, including the EU, will act utterly devoid of political considerations, in contrast to States themselves making the appointments to an International Investment Court.

One of the co-authors of this Article, apart from experience in the U.S. Senate, the U.S. Department of State, and the White House, has for decades, in The Hague and at the United Nations in New York City, been observing elections to the International Court of Justice (“ICJ”), which in fact are highly political and, hence, do involve tradeoffs and “deals.” From its establishment as the judicial branch of the United Nations in 1946 until the 2017 elections, it was an unbroken practice that each of the five Permanent Members of the Court would have a seat on it. In the last election, however, even that sacred (if unwritten) rule was broken, with the failure of the sitting U.K. Judge to be re-elected.[215] Thus it is, now more than ever, an illusion to think that the process can be de-politicized.

It is equally misguided to think that “a consultation of business organizations, i.e., organizations representative of investor interests,” will have a significant influence that will reduce the political character of such appointments. There is no obligation on States to follow any recommendation by such organizations on the composition of the hypothetical permanent investment court. It is further presumptuous to think that these organizations would give any consideration to the issue in the first place. Arbitral disputes are not at the top of these organizations’ agendas vis-à-vis their respective governments and any international organizations—let alone individual investors. Disputes may not even transpire until many years later, and there is nothing to suggest that any of the recommendations of business organizations now would be representative of the putative investor that may end up before the permanent investment court in the future. While investors themselves may have a degree of influence, it is not worth much. A right to be consulted is equivalent to a ballot paper with a disclaimer that the vote may not be counted.

In November 2017, the authors of the CIDS Report published a Supplemental Report (“Supplemental Report”). The authors of the Supplemental Report augment their initial paper by providing further analysis of the composition of a hypothetical permanent court.[216] In their Supplemental Report, the authors explain that their proposal in their initial CIDS Report “presuppose[s] the creation of multilateral permanent adjudicatory bodies, the ITI [i.e., International Tribunal for Investments] and/or the AM [i.e., Appeals Mechanism], whereby the former would provide an alternative to the current ad hoc system of investor-State arbitration and the latter would supplement it.”[217]

The Supplemental Report identifies three consequences of transitioning from the current “ad hoc system”—which is understood to refer to a dispute resolution body constituted on a case-by-case basis for a single dispute[218]—to a permanent or semi-permanent body on the arbitrator-selection process. Of those three, the first is relevant for our purposes. The Supplemental Report acknowledges that the unilateral right of party-appointment would be eliminated if the appointing power rests on exclusively on States:

The first consequence is the transition from a disputing party framework to a treaty or contracting party framework. Transitioning from an ad hoc system that allows virtually complete control over composition by the disputing parties to a permanent or semi-permanent system necessarily reduces the role for disputing parties and conversely increases that of treaty parties. As the dispute resolution body must exist before the investment dispute arises, it must necessarily be established ex ante by the treaty parties. This entails moving beyond the “historical keystone” of arbitration, namely disputing party appointment, to a different selection method placed entirely or predominantly in the hands of the parties to the instrument establishing the new adjudicatory bodies. Such dilution of powers concerns all disputing parties, including respondent States who lose the “right” to influence the composition of the body as disputing parties. However, in practice, it will be perceived as affecting the investor-party more heavily, as States will be able to contribute to the composition of the body in their capacity of treaty parties.[219]

The Supplemental Report acknowledges that the tilting of the scales in favor of States is in no way diminished by the fact that the respondent-State in an investment dispute is also deprived of the opportunity to select an arbitrator once the dispute is afoot.

Furthermore, the Supplemental Report seems to acknowledge more clearly the particular hurdles involved in a “selection” process of this type and magnitude:

The guarantees for judicial independence in existing courts provide helpful starting points in this respect. However, they may not be sufficient or at least not entirely transposable as such to investor-State dispute settlement, in which the asymmetric nature is such that only one type of the future disputing parties controls the selection process. Designing an appropriate selection process that, inter alia, ensures the requisite independence of the adjudicators thus appears to be of even greater concern in a setting of this kind.

As the practice at existing permanent international courts and tribunals shows, the involvement of States (and, within the State apparatus, in particular of State governments) may lead to risks of politicization of the selection process. . . . Appointment on the basis of political considerations rather than competence and merit may undermine the quality of the decisions and, ultimately, the perception of the adjudicatory body’s independence, credibility and legitimacy.[220]

Ensuring that the “selection” process is multi-layered, open to all stakeholders, and transparent sounds good in theory, until one realizes that in substance what is being proposed is that States constitute an advisory panel to sign off on the qualifications of potential candidates and “consult[] . . . national parliaments” to “reinforce the democratic element in the process.”[221]

IV.  The Future

A.  The European Union and Its Battle Against ISDS

The “Demolition Derby” targeting ISDS is flourishing, doubtless confident of victory thanks to the UNCITRAL Commission’s welcoming attitude toward the EU’s relentless campaign to sell to the world its Investment Court System. In our view, however, it is questionable whether this “Demolition Derby” will result in a successful International Investment Court. As Nikos Lavranos’s unofficial report of the Fiftieth Session of the UNCITRAL Commission of last July 2017 confirmed, the proposal to replace the current ISDS regime with a permanent investment court has not to date received the glowing endorsement of all States as the EU and Canada have hoped.[222]

On September 13, 2017, the Council of the EU “authorised [sic] [the European Commission] to open negotiations, on behalf of the [EU], for a Convention establishing a multilateral court for the settlement of investment disputes.”[223] Recent developments, however, suggest that there may be some insurmountable obstacles ahead for the EU Commission.

For example, the European Commission experienced a setback in respect to the EU-Singapore Free Trade Agreement (“FTA”). As initially with CETA, the European Commission was confident that the EU-Singapore FTA and all future EU trade and investment treaties would fall within its exclusive competence (Article 207 of the Treaty of the European Union (“TFEU”)). This appears no longer to be the case in light of an opinion of the Court of Justice of the European Union (“CJEU”) that issued in May 2017. The issue before the CJEU was “whether the envisaged agreement [that is, the EU-Singapore FTA] [could] be signed and concluded by the European Union alone or whether, to the contrary, it will have to be signed and concluded both by the European Union and by each of its Member States (a ‘mixed’ agreement).”[224] The CJEU “handed a significant victory to the European Union” insofar as it found that the EU had “exclusive competence over almost all aspects of the EU-Singapore FTA, which paves the way for them to enter into such agreements without requiring the approval of all of the Member States.”[225] The CJEU, however, carved out two notable exceptions: First, the EU has exclusive competence over direct foreign investment, but not over indirect investments, which are investments undertaken without the intention to influence the management of a company.[226] Second, and most significantly, the EU and its Member States share competence of, inter alia, Section B (Investor-State Dispute Settlement) of Chapter 9 of the EU-Singapore FTA.[227] The CJEU noted that the ISDS regime removes disputes from the jurisdiction of the national courts of the Member States and thus is not “of a purely ancillary nature . . . and cannot, therefore, be established without the Member States’ consent.”[228] The outcome of the opinion, in the view of one commentator, makes “[o]ne thing . . . clear: the European Commission did not obtain the full exclusive competence [for] which it was hoping.”[229] The ruling means that EU free trade treaties containing provisions for an International Investment Court “must now be ratified not only by the national parliaments of the 28 EU Member States, but also by nearly a dozen regional parliaments.”[230]

On July 6, 2017, the EU and Japan signed an agreement in principle on the main elements of the Japan-EU Economic Partnership Agreement (known as “JEEPA”), which was finalized on December 8, 2017.[231] The agreement in principle excludes investment,[232] noting that no agreement has been reached on the whole chapter and that ISDS remains fully open.[233] The agreement in principle notes that the EU has tabled its permanent investment court proposal in its negotiations with Japan and that “[t]he EU continues to insist that there can be no return to old-style ISDS. Under no conditions can old-style ISDS provisions be included in the agreement.”[234] In a factsheet published on July 1, 2017 by the EU, it added “[f]or the EU ISDS is dead.”[235]

Such rhetoric by the European Commission should be taken with a pinch of salt. Japan has included conventional ISDS in its investment agreements. For example, in 2016 Japan signed BITs with Kenya[236] and the Islamic Republic of Iran[237] and, on January 23, 2018, following negotiations in Tokyo, Japan announced its agreement with ten countries for the Comprehensive and Progressive Agreement for Transpacific Partnership (“CPTPP”).[238] Moreover, Japan may be reluctant to pay for the European Commission’s permanent investment court, which may set a precedent for future treaties whereby State-appointed judges may rule on claims by Chinese or Korean investors against Japan.[239] Japan, thus, may not be easily persuaded to sign up to the European Commission’s proposal in its current form.

We can expect more from the EU’s existential crisis on ISDS. On September 6, 2017, Belgium formally asked the CJEU to assess the compatibility of the CETA’s “Investment Court System” with EU law. Specifically, Belgium has asked whether the “Investment Court System” is compatible with EU citizens’ right of access to courts, the “general principle of equality,” and the CJEU’s exclusive competence over EU law and how the proposed court would affect the “right to an independent and impartial judiciary.”[240]

After a little more than two weeks following Belgium’s formal request to the CJEU, the EU Advocate General Melchior Wathelet rendered a non-binding (but persuasive) opinion in a parallel proceeding that likely will weigh heavily in the disposition of Belgium’s request. The Advocate General’s opinion was rendered with respect to a request for a preliminary ruling brought by the German Federal Court of Justice in May 2016 before the CJEU concerning the Netherlands-Slovakia BIT.[241] The German court had referred a series of questions concerning the compatibility of intra-EU BITs with EU law. The German court’s questions arose in the context of an application by the Slovak Republic to annul an arbitral award issued in favor of Achmea (formerly Eureko), a Dutch investor, under the Netherlands-Slovakia BIT.[242]

The Advocate General opined that the ISDS provision in the Netherlands-Slovakia BIT was compatible with EU law,[243] which, if confirmed by the CJEU, could have implications for numerous intra-EU BITs.[244] The intriguing features of the opinion, however, were the Advocate General’s observations on the European Commission’s and some EU Member States’ contradictory ISDS practices.

First, the Advocate General noted that several EU Member States intervened in the proceedings and made both oral and written submissions. He noted that the intervening EU Member States could be divided into two groups. The first group consists of States that “are essentially countries of origin of the investors and therefore never or rarely respondents in arbitral proceedings launched by investors.”[245] These States are the Federal Republic of Germany, the French Republic, the Kingdom of the Netherlands, the Republic of Austria, and the Republic of Finland. The second group consists of States that “have all been respondents in a number of arbitral proceedings relating to intra-EU investments.”[246] These States are the Czech Republic, the Republic of Estonia, the Hellenic Republic, the Kingdom of Spain, the Italian Republic, the Republic of Cyprus, the Republic of Latvia, Hungary, the Republic of Poland, Romania, and the Slovak Republic.

The Advocate General noted that it was “hardly surprising” that the second group of EU Member States “intervened in support of the argument put forward by the Slovak Republic, which is itself the respondent to the investment arbitration at issue in the present case.”[247] Yet he found it “surprising” that the same States, with the exception of Italy, had not moved to terminate their respective intra-EU BITs, which, thus, remained in force in whole or in part.[248] When Slovakia was asked at the hearing why it had not terminated its other BITs with the States in the second group, Slovakia admitted “that its objective was to ensure that its own investors would not be the victims of discrimination by comparison with investors from other Member States in the Member States with which it would no longer have BITs.”[249]

Second, the Advocate General noted the European Commission’s inconsistent position on ISDS. He noted that “the argument of the EU institutions, including the Commission, was that, far from being incompatible with EU law, BITs were instruments necessary to prepare for the accession to the Union of the countries of Central and Eastern Europe.”[250] The Advocate General was unmoved by the European Commission’s attempt to explain its inconsistent position at the hearing:

At the hearing, the Commission attempted to explain that change in its position on the incompatibility of BITs with the EU and FEU [i.e., Treaties on the Functioning of the European Union] Treaties, maintaining that the agreements in question were necessary in order to prepare for the accession of the candidate countries. However, if those BITs were justified only during the association period and each party was aware that they would become incompatible with the EU and FEU Treaties as soon as the third State concerned had become a member of the Union, why did the accession treaties not provide for the termination of those agreements, thus leaving them in uncertainty which has lasted more than 30 years in the case of some Member States and 13 years in the case of many others?[251]

Third, the Advocate General opined that “the systemic risk” that, according to the European Commission, “intra-EU BITs represent to the uniformity and effectiveness of EU law is greatly exaggerated.”[252] For support, the Advocate General referred to UNCTAD statistics that revealed “that out of 62 intra-EU arbitral proceedings which, over a period of several decades, have been closed, the investors have been successful in only 10 cases.”[253] Moreover, the Advocate General also noted that the EU Member States in the second group and the European Commission could only name a single example “which resulted in an arbitral award that was allegedly incompatible with EU law,”[254] namely, the Ioan Micula v. Romania ICSID matter, which is still ongoing. The Advocate General noted that “the fact that there is only a single example reinforces [his] opinion that the fear expressed by certain Member States and the Commission of a systemic risk created by intra-EU BITs is greatly exaggerated.”[255]

Yet, the Advocate General’s opinion fell on deaf ears as the CJEU ruled on March 6, 2018 that ISDS provisions in intra-EU BITs are incompatible with EU law.[256] The decision prompted the Netherlands—one of the States falling under Advocate General Wathelet’s first group[257]—to announce reluctantly its decision to terminate all twelve of its intra-EU BITs.[258]

The full implications of the CJEU’s opinion in Achmea are unclear, but it could be viewed as the CJEU forcing EU investors in other EU Member States to accept the EU Commission’s proposal to resolve all investment disputes through the permanent investment court. Other EU actors may have heard the rallying cry because their efforts to establish the permanent court were amped up following the Achmea decision.

Two weeks after the Achmea decision, the Council of the EU issued a negotiating directive for establishing a permanent investment court for the settlement of investment disputes with the EU Commission designated as the authorized representative.[259] All analysis and discussion concerning the proposal, according to the directive, “should be conducted under the auspices of the United Nations Commission on International Trade Law (UNCITRAL).”[260]

Less than a month later, the EU Commission presented a final text of its agreement with Singapore to the Council of the EU as well as a new FTA, the latter of which displaces the previously agreed ISDS provision with the Investment Court System promoted by the EU and adopted in CETA.[261] The Council of the EU will now adopt and sign the agreements before obtaining the EU Parliament’s consent.[262] While the FTA will take effect in 2019, the investment protection agreement will take effect following the ratification by each EU Member State[263]—a move necessary in light of the CJEU’s ruling concerning the EU-Singapore FTA discussed earlier.

On the heels of announcing the final EU-Singapore agreements, the EU and Mexico unveiled an “agreement in principle” in which the Contracting Parties agreed to establish a permanent investment court to resolve investment disputes.[264]

It may be wrong to presume that the CJEU is a promoter of the EU Commission’s permanent investment court. As discussed earlier, the CJEU has yet to issue an opinion on the compatibility of the CETA’s “Investment Court System” with EU law. Thus, it remains to be seen whether the CJEU truly joins its fellow EU institutions in preferring the EU-proposed permanent court.

Moreover, the TTIP talks between the EU and the United States are currently on hold pending further clarity from the new U.S. administration on the position of Washington’s trade policy priorities.[265]

B.  The United States’ Place in the ISDS Debate

The United States’ efforts to renegotiate NAFTA may well result in the removal of ISDS from the treaty. Despite early indications from the current administration that ISDS is here to stay,[266] doubts among affected businesses have grown, and on August 8, 2017, a score of associations “representing millions of small, medium and large companies across every major sector of the U.S. economy employing tens of millions of U.S. workers” wrote to the Administration urging it to retain ISDS.[267] Moreover, minor attacks on ISDS in NAFTA have been intensifying in frequency as renegotiation talks concluded their penultimate round in late January 2018. In addition to the CCPA report debunked above, 230 Professors and six U.S. Senators have added themselves to the phalanx against ISDS. Specifically, on October 25, 2017, 230 law and economics professors sent a letter to President Trump urging him to remove ISDS from NAFTA.[268] Their plea was shared and advanced by six U.S. Senators in a February 2, 2018 letter to President Trump in which they stated the “[ISDS] system and the foreign investor protections it enforces . . . must be eliminated.”[269]

The above letter reveals an alarming collective nationalistic bias to bring investment in-house without considering its consequences. The professors suggest that American investors “purchase risk insurance or look for safer jurisdictions” when investing abroad.[270] Not only does this stunt international growth and development by restricting available venues, it embraces elitism by ensuring that only the financially best endowed corporations can afford to invest in high-risk territories while simultaneously shutting the front door to foreign investment for certain developing countries. The Senators’ stilted argument similarly wobbles under closer scrutiny. The crux of their argument against ISDS in NAFTA is stated as follows:

The investor outsourcing protectionism at the heart of NAFTA incentivizes companies to relocate production to low wage venues by locking in preferential treatment. These terms empower multinational corporations to sue governments before tribunals of three private-sector lawyers who can award the corporations unlimited sums to be paid by America’s taxpayers, including for the loss of expected future profits, when corporations claim that our environmental and health policies undermine their NAFTA privileges. Already multinational corporations have extracted hundreds of millions from North American taxpayers using the ISDS regime.[271]

Treaties such as NAFTA reduce investment risk by protecting investment abroad. There is no preferential treatment as the same level protection is afforded equally to all covered foreign investors and investments. Furthermore, NAFTA does not restrict the tribunal’s composition to “private-sector lawyers.” Public figures, in so far as they satisfy the good character and expertise requirements necessary of arbitrator, are welcome to sit on the bench. Notably, Respondent States consent to all or the majority of any uneven number of appointed arbitrators.[272] Moreover, it is plainly preposterous that a tribunal could award “unlimited sums,” as awards of damages adhere to party agreement or basic principles of international law.[273] Furthermore, insofar as the United States is concerned, it is flatly untrue that “multinational corporations have extracted hundreds of millions from North American taxpayers under the ISDS regime,” as not one NAFTA arbitration case against the country has been lost.[274] As stated earlier, too, no ISDS tribunal has ever found a legitimate environmental or health law or regulation of a State to breach an international investment agreement. Accordingly, NAFTA does not grant “privileges” to corporations.

Amusingly, one of the six U.S. Senators mentioned above, Senator Elizabeth Warren, has directly benefited from ISDS, earning in the neighborhood of US$90,000, while acting as an Expert Witness on bankruptcy law for the U.S. Government in the Loewen v. United States NAFTA case.[275]

More alarming is the effect these attacks may be having on NAFTA ISDS renegotiations. In advance of the November 2017 round, the United States uncharacteristically introduced a second set of objectives on ISDS,[276] which promoted an enhanced skeptical view toward ISDS, including a proposal to introduce an “opt-in” system and a culling of the substantive standards of protection.[277] Following this fifth round of negotiations, Mexico proposed a permanent investment court mirroring the one found in CETA. Mexican Economy Minister Ildefonso Guajardo explained that Mexico is “considering alternatives by putting the European model on the table to see if it works in North America.”[278] Canadian foreign minister Chrystia Freeland similarly acknowledged differences between Canada and the United States on a number of key chapters and stated Canada’s position is to “hope for the best and prepare for the worst.”[279]

In advance of the sixth round of negotiations in Montreal during  January 23–29, 2018, President Donald Trump called NAFTA a “bad joke”[280] on his Twitter account and stated to the media that “if [NAFTA] doesn’t work out, we’ll terminate it.”[281] In turn, Mexico strengthened its position by becoming the 162nd country to sign the 1965 ICSID Convention[282] and Canada signaled that NAFTA was not an exclusive source for trade protection, making public its December 2017 World Trade Organization complaint aimed at the United States’ use of anti-dumping and anti-subsidy duties.[283] The political charges against inclusion of ISDS in NAFTA have reached a critical point, and Canada is set to propose its elimination, with the expectation that the United States will echo this pitch.[284]

Despite this NAFTA ISDS renegotiation rollercoaster, Mexico and Canada are now flirting with the notion of excluding the uncooperative United States from their own ISDS arrangement,[285] and Canada has demonstrated its willingness to move forward without the United States when it concluded the CPTPP on January 23, 2018, just one year after the United States withdrew its participation in the negotiations of the mega-regional treaty.[286]

C.  The Permanent Investment Court Will Hamper Investment

Even if the proposal for a permanent court were to become an opt-in institution along the lines of the Mauritius Convention on Transparency, it is possible that not many States would opt in.[287]

In any event, a permanent court to replace the current ISDS regime would be unlikely to succeed, as major investors would reject it. They would find other ways to protect themselves when negotiating foreign investments. They would return to the days of the 1960s and ‘70s, even to earlier days, negotiating contracts that would provide satisfactory dispute resolution mechanisms. Or they would not make any investments at all, or would make them at a higher price to the host country in order to cover the risk involved, all to the disadvantage of host States. It is only smaller investors who, lacking the negotiating strength to conclude contracts with host States containing the protection of conventional ISDS clauses, would be materially disadvantaged by their potential subjection to their fate being decided by an International Investment Court composed solely of State-appointed judges. Like so many radical movements devoid of a proper understanding of just how the world really works, the EU’s permanent investment court, if it comes about, will not affect the wealthy investors, but will work hardship on “the little guys,” who under conventional ISDS are given the treaty right of direct access to international arbitration before tribunals that they have an equal right to constitute. Why does anyone think this is just?

 


[*]*. This Article is an extended and updated version of the Annual Justice Lester W. Roth Lecture given by Judge Brower at the University of Southern California Gould School of Law on October 12, 2017. It also includes portions of Judge Brower’s Keynote Address delivered at the Twelfth Annual Fordham International Arbitration Conference on November 17, 2017. . The authors express deep appreciation to A. Devin Bray, Milena Tona, and Ivaylo Dimitrov for their contributions to this Article              .

[† ] †.. Judge ad hoc, International Court of Justice; Judge, Iran-United States Claims Tribunal; Member, 20 Essex Street Chambers, London; and former Judge ad hoc, Inter-American Court of Human Rights.

[‡] ‡.. Associate of Mayer Brown International LLP in London. Previously, he was a private law clerk for Judge Charles N. Brower, 20 Essex Street Chambers, London, and was physically based in Washington, D.C., where he acted as a tribunal assistant in both investor-State and commercial arbitrations. He was previously Judge Brower’s Legal Adviser at the Iran-U.S. Claims Tribunal in The Hague, where he worked on State-to-State arbitrations. He is an Associate Editor of the Kluwer Arbitration Blog and an Editor of Arbitration International. He co-authored this Article prior to joining Mayer Brown International LLP. The opinions expressed in this Article are those of the co-author, and they do not reflect in any way that of the law firm with which he is affiliated. Any errors remain those of the co-authors.

 [1]. “Demolition Derby” is defined as “a motorsport . . . . [typically consisting] of five or more drivers competing by deliberately ramming their vehicles into one another. The last driver whose vehicle is still operational is awarded the victory.” Demolition Derby, Wikipedia, https://en.wikipedia.org
/wiki/Demolition_derby (last updated Sept. 14, 2018, 1:41 AM) (footnotes omitted).

 [2]. See Second Opinion of Professor Sir Robert Jennings, Q.C. at 6, Methanex Corp. v. United States, (NAFTA Ch. 11 Arb. Trib. Sept. 10, 2001); NAFTA Free Trade Comm’n, North American Free Trade Agreement: Notes of Interpretation of Certain Chapter 11 Provisions, SICE Foreign Trade Info. Sys. (July 31, 2001), http://sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp (“The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.”); infra Section I.A.

 [3]. Database of ICSID Member States, Int’l Ctr. for Settlement Inv. Disps., https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx (last visited Sept. 20, 2018).

 [4]. See Energy Charter Treaty, art. 26(4), Dec. 17, 1994, 34 I.L.M. 381; North American Free Trade Agreement, Can.-Mex.-U.S., art. 1120(1), Dec. 17, 1993, 32 I.L.M. 289; infra Section I.B.

 [5]. See infra Section I.B.

 [6]. See infra Section I.B.

 [7]. See infra Section I.C.

 [8]. Pope & Talbot Inc. v. Canada, Award on the Merits of Phase 2, ¶ 105 (Apr. 10, 2001), 7 ICSID Rep. 102 (2001).

 [9]. Kenneth J. Vandevelde, U.S. International Investment Agreements 263 (2009). See also Todd Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context 250–75, 129–240 (2013).

 [10]. Pope & Talbot Inc., 7 ICSID Rep. ¶¶ 108–09.

 [11]. Id. ¶ 118.

 [12]. NAFTA Free Trade Comm’n, supra note 2.

 [13]. Second Opinion of Professor Sir Robert Jennings, Q.C. at 4, Methanex Corp. v. United States, (NAFTA Ch. 11 Arb. Trib. Sept. 10, 2001).

 [14]. W. Michael Reisman, Canute Confronts the Tide: States vs. Tribunals and the Evolution of the Minimum Standard in Customary International Law, 109 Am. Soc. of Int’l L. Ann. Meeting Procs. 125, 125 (2015).

 [15]. Id.

 [16]. Id. at 127.

 [17]. See, e.g., ADF Grp. Inc. v. United States, ICSID Case No. ARB(AF)/00/1, Award, ¶ 178, (Jan. 9, 2003), 6 ICSID Rep. 470 (2003); Grand River Enters. Six Nations, Ltd. V. United States, Award, ¶¶ 175–76, (Jan. 12, 2011), https://www.state.gov/documents/organization/156820.pdf; Apotex Holdings Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award, ¶¶ 9.3–9.4 (Aug. 25, 2014), IIC 661 (2014).

 [18]. Mondev Int’l Ltd. v. United States, ICSID Case No. ARB(AF)/99/2, Award, ¶¶ 124–25 (Oct. 11, 2002), 6 ICSID Rep. 192 (2004) (footnotes omitted).

 [19]. Damon Vis-Dunbar, Luke Eric Peterson & Fernando Cabrera Diaz, Bolivia Notifies World Bank of Withdrawal from ICSID, Pursues BIT Revisions, bilaterals.org (May 9, 2007), https://bilaterals.org/?bolivia-notifies-world-bank-of&lang=fr.

 [20]. Constitución Política del Estado Feb. 7, 2009, transitory provision IX (Bol.) (“The international treaties existing prior to the Constitution, which do not contradict it, shall be maintained in the internal legal order with the rank of law. Within the period of four years after the election of the new Executive Organ, the Executive shall renounce and, in that case, renegotiate the international treaties that may be contrary to the Constitution.”), translated in Constitute: Bolivia (Plurinacional State of)’s Constitution of 2009, Constitute Project (Jan. 17, 2018, 3:49 PM), https://www.constituteproject.org
/constitution/Bolivia_2009.pdf?lang=en.

 [21]. Aldo Orellana López, Network for Just. Global Inv., Bolivia Denounces Its Bilateral Investment Treaties and Attempts to Put an End to the Power of Corporations to Sue the Country in International Tribunals 6 (2014), http://justinvestment.org/wp-content
/uploads/2014/07/Bolivia-denounces-its-Bilateral-Investment-Treaties-and-attempts-to-put-an-end-to-the-Power-of-Corporations-to-sue-the-country-in-International-Tribunals1.pdf.

 [22]. UNCTAD, Investment Dispute Settlement Navigator, Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/ISDS/FilterByCountry (last visited Sept. 21, 2018). As of August 2018, Venezuela has appeared as the respondent in forty-four cases, exceeded only by Argentina, which has appeared as the respondent in sixty cases. Id.

 [23]. Vera De Brito de Gyarfas & Alberto F. Ravell, Venezuela’s Exit from the ICSID Convention Casts a Shadow on Foreign Investment, Lexology (Sept. 1, 2012), https://lexology.com/library
/detail.aspx?g=5ed0fd84-f857-4935-ab6f-d011b7eb8a93.

 [24]. UNCTAD, Netherlands – Venezuela, Bolivarian Republic of BIT (1991), Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/IIA/mostRecent/treaty/2668 (last visited Sept. 21, 2018).

 [25]. Damien Charlotin & Luke Eric Peterson, Analysis: In New Mercosur Investment Protocol, Brazil, Uruguay, Paraguay and Argentina Radically Pare Back Protections, and Exclude Investor-State Arbitration, Inv. Arb. Rep. (May 4, 2017), https://iareporter.com/articles/analysis-in-new-mercosur-investment-protocol-brazil-uruguay-paraguay-and-argentina-radically-pare-back-protections-and-exclude-investor-state-arbitration.

 [26]. The Reciprocal Promotion and Protection of Investments Between the Argentine Republic and the State of Qatar, Arg.-Qatar, art. 14, Nov. 6, 2016, http://investmentpolicyhub.unctad.org
/Download/TreatyFile/5383.

 [27]. Id. art. 3(4)–(5).

 [28]. Japan-Australia Economic Partnership Agreement, Austl.-Japan, July 8, 2014, https://dfat.gov.au/trade/agreements/in-force/jaepa/full-text/Documents/jaepa-chapters-1-to-20.pdf.

 [29]. Malaysia-Australia Free Trade Agreement, Austl.-Malay., May 22, 2012, https://dfat.gov.au
/trade/agreements/in-force/mafta/Documents/Malaysia-Australia-Free-Trade-Agreement.pdf.

 [30]. Australia-United States Free Trade Agreement, Austl.-U.S., May 18, 2004, https://ustr.gov/sites/default/files/uploads/agreements/fta/australia/asset_upload_file148_5168.pdf.

 [31]. Free Trade Agreement Between the Government of Australia and the Government of the People’s Republic of China, Austl.-China, art. 9, June 17, 2015, https://dfat.gov.au/trade/agreements/in-force/chafta/official-documents/Documents/chafta-agreement-text.pdf.

 [32]. Korea-Australia Free Trade Agreement, Austl.-S. Kor., ch. 11, Apr. 8, 2014, https://dfat.gov.au/trade/agreements/in-force/kafta/official-documents/Documents/KAFTA-chapter-11.pdf.

 [33]. Douglas Thomson, Florida Investor to Ask Australia to Arbitrate, Global Arb. Rev. (Oct. 6, 2016), http://globalarbitrationreview.com/article/1069026/florida-investor-to-ask-australia-to-arbitrate.

 [34]. Paulo Macedo Garcia Neto, Investment Arbitration in Brazil: The Landscape of Investment Arbitration in Brazil and Why Brazil Should Become a More Important Player in the Investment Arbitration Arena, in Investment Protection in Brazil 3, 4–8 (Daniel de Andrade Levy et al. eds., 2013).

 [35]. Joel Dahlquist, Brazil and India Conclude Bilateral Investment Treaty, Inv. Arb. Rep. (Nov. 28, 2016), https://iareporter.com/articles/brazil-and-india-conclude-bilateral-investment-treaty.

 [36]. Ben Bland & Shawn Donnan, Indonesia to Terminate More than 60 Bilateral Investment Treaties, Fin. Times (Mar. 26, 2014), https://ft.com/content/3755c1b2-b4e2-11e3-af92-00144feabdc0.

 [37]. UNCTAD, Indonesia: Bilateral Investment Treaties (BITs), Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/97 (last visited Sept. 21, 2018). Indonesia is, however, revising its model BIT and has maintained several negotiations for bilateral and multilateral economic agreements. See Int’l Trade Admin., U.S. Dep’t of Trade, Indonesia – 2-Bilateral Investment Agreements, export.gov (Aug. 1, 2017), https://export.gov/article?id=Indonesia-bilateral-investment-agreements.

 [38]. Tom Jones, Ecuador Bids Goodbye to BITs, Global Arb. Rev. (May 17, 2017), http://globalarbitrationreview.com/article/1141801/ecuadorbidsgoodbyetobits [hereinafter Jones, Bids Goodbye].

 [39]. See id. In 2008, Ecuador “terminated BITs with Romania and eight Latin American and Caribbean states.” Id. On May 16, 2017, Rafael Correa, the former President of Ecuador, signed a series of decrees that terminated sixteen BITs with Argentina, Bolivia, Canada, Chile, China, France, Germany, Italy, the Netherlands, Peru, Spain, Sweden, Switzerland, the United Kingdom, the United States and Venezuela. Id. Correa had also previously terminated a BIT with Finland in 2013. Id. See also Javier Jaramillo & Camilo Muriel-Bedoya, Ecuadorian BITs’ Termination Revisited: Behind the Scenes, Kluwer Arb. Blog (May 26, 2017), http://kluwerarbitrationblog.com/2017/05/26/ecuadorian-bits-termination-revisited-behind-scenes.

 [40]. Jones, Bids Goodbye, supra note 38.

 [41]. Id.

 [42]. Id.

 [43]. For examples of Olivet’s and Sornarajah’s anti-ISDS views, see generally Pia Eberhardt & Cecelia Olivet, Profiting from Injustice (Helen Burley ed., Nov. 2012) and Muthucumaraswamy Sornarajah, The Case Against a Regime for International Investment Law, in Regionalism in International Investment Law 275 (Leon E. Trakman & Nicola W. Ranieri eds., 2013).

 [44]. Zoe Williams, Ecuador Round-up: As Remaining Bilateral Investment Treaties Are Terminated, New Developments Come to Light in ICSID and UNCITRAL Cases, Inv. Arb. Rep. (May 22, 2017), https://iareporter.com/articles/27453.

 [45]. Jaramillo & Muriel-Bedoya, supra note 39.

 [46]. Id.

 [47]. Id.

 [48]. Id. (emphasis in original).

 [49]. Id.

 [50]. Id.

 [51]. Id.

 [52]. Tom Jones, Ecuador in Treaty U-turn Under New Leader?, Global Arb. Rev. (Oct. 17, 2017), https://globalarbitrationreview.com/article/1149016/ecuador-in-treaty-u-turn%E2%80%8E-under-new-leader [hereinafter Jones, U-turn].

 [53]. Tom Jones, Ecuador Begins Talks Over New BITs, Global Arb. Rev. (Feb. 23, 2018), https://globalarbitrationreview.com/article/1159285/ecuador-begins-talks-over-new-bits [hereinafter Jones, Begins Talks].

 [54]. Procesos Internacionales: Arbitrajes de Inversión; Comerciales y Juicios Internacionales, Procuraduría General del Estado, http://www.pge.gob.ec/index.php/2014-10-01-02-32-39/cifras-relevantes-2 (last visited Sept. 21, 2018).

 [55]. Id.; Jones, Begins Talks, supra note 53.

 [56]. White Indus. Austl. Ltd. v. Republic of India, IIC 529 (2011), Final Award, ¶¶ 11.4.19–20, 16.1.1(a) (Nov. 30, 2011).

 [57]. Alison Ross, India’s Termination of BITs to Begin, Global Arb. Rev. (Mar. 22, 2017), http://globalarbitrationreview.com/article/1138510/indias-termination-of-bits-to-begin.

 [58]. UNCTAD, supra note 22.

 [59]. Ross, supra note 57.

 [60]. Id.; Gov’t of India Ministry of Fin. Dep’t of Econ. Aff. Inv. Div., Office Memorandum (Feb. 8, 2016), http://indiainbusiness.nic.in/newdesign/upload/Consolidated_Interpretive-Statement.pdf; Joel Dahlquist & Luke Eric Peterson, Analysis: In Final Version of Its New Model Investment Treaty, India Dials Back Ambition of Earlier Proposals—But Still Favors Some Big Changes, Inv. Arb. Rep. (Jan. 3, 2016), https://iareporter.com/articles/analysis-in-final-version-of-its-new-model-investment-treaty-india
-dials-back-ambition-of-earlier-proposals-but-still-favors-some-big-changes.

 [61]. UNCTAD, India: Bilateral Investment Treaties (BITs), Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/96 (last visited Sept. 24, 2018).

 [62]. Modi’s “Make in India”: Bold Policy or a Mere Rebranding?, Economist: Intelligence Unit (Oct. 31, 2014), http://country.eiu.com/article.aspx?articleid=1862448770&Country=India
&topic=Economy&subtopic=Forecast (internal quotation marks omitted). See also Nicholas Peacock & Nihal Joseph, Mixed Messages to Investors as India Quietly Terminates Bilateral Investment Treaties with 58 Countries, HSF PIL Notes (Mar. 16, 2017), http://hsfnotes.com/publicinternationallaw/2017
/03/16/mixed-messages-to-investors-as-india-quietly-terminates-bilateral-investment-treaties-with-58-countries.

 [63]. Engela C. Schlemmer, An Overview of South Africa’s Bilateral Investment Treaties and Investment Policy, 31 ICSID Rev. 167, 188–89 & n.108 (2016) (identifying these proceedings as a confidential arbitration in terms of the Switzerland–South Africa BIT, terminated 31 August 2014, and Foresti v. Republic of South Africa, ICSID Case No. ARB(AF)/07/01, Award (August 4, 2010), http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C90/DC1651_En.pdf)

 [64]. UNCTAD, South Africa: Bilateral Investment Treaties (BITs), Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/195 (last visited Sept. 24, 2018). Africa terminated BITs with Austria on Oct. 31, 2014, with Belgium-Luxembourg on Mar. 13, 2013, with Denmark on Aug. 31, 2014, with France on Oct. 31, 2014, with Germany on Oct. 31, 2014, with the Netherlands on Apr. 30, 2014, with Spain on Dec. 22, 2013, with Switzerland on Oct. 31, 2014, and with United Kingdom on Oct. 31, 2014.

 [65]. UNCTAD, Protection of Investment Act Approved, Inv. Pol’y Hub (Dec. 13, 2015), http://investmentpolicyhub.unctad.org/IPM/MeasureDetails?id=2828&rgn=&grp=&t=&s=&pg=&c=&dt=&df=&isSearch=false.

 [66]. UNCTAD, South Africa, supra note 64 (entered into force on Sept. 15, 2010).

 [67]. Id. (entered into force on Oct. 23, 1998).

 [68]. Id. (entered into force on July 27, 2005).

 [69]. Id. (entered into force on Dec. 29, 2010).

 [70]. UNCTAD, South Africa: Treaties with Investment Provisions (TIPs), Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/195#iiaInnerMenu (last visited Sept. 24, 2018) (entered into force on Apr. 16, 2010).

 [71]. UNCTAD, South Africa, Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/iia
/countrybits/195#iiainnermenu (last visited Sept. 24, 2018). South Africa has signed BITs that have not yet entered into force with Mozambique, Sudan, Yemen, Ethiopia, Guinea, Madagascar, Congo, United Republic of Tanzania, Gabon, Angola, Democratic Republic of Congo, Equatorial Guinea, Libya, Tunisia, Rwanda, Algeria, Uganda, Egypt, and Ghana. Id.

 [72]. GAR Know-How: Investment Treaty Arbitration 2016 South Africa, Global Arb. Rev. § 11, http://globalarbitrationreview.com/jurisdiction/2000154/south-africa (last visited June 26, 2018).

The termination process will likely follow a regional pattern, starting with BITs with EU States. BITs with Austria, Denmark, France, the UK, Belgium/Luxembourg, Spain, Germany, the Netherlands and Switzerland have recently been terminated and terminations of other EU BITs are expected. There is, however, uncertainty over the fate of South Africa’s BITs with other African States as South Africa is a capital exporter to Africa. A political decision on its African BITs has not yet been made.

Id.

 [73]. See generally Charles N. Brower & Sarah Melikian, “We Have Met the Enemy and He Is Us!” Is the Industrialized North “Going South” on Investor-State Arbitration?, 31 Arb. Int’l 1 (2015) for the proposition that the current atmosphere of fear and hysteria recalls the New International Economic Order movement, which caught hold but then quickly dissipated over forty years ago.

 [74]. Gaetano Iorio Fiorelli, Italy Withdraws from Energy Charter Treaty, Global Arb. News (May 6, 2015), http://globalarbitrationnews.com/italy-withdraws-from-energy-charter-treaty-20150507; Italy No Longer Member of Energy Charter Treaty, Hopes to Avoid More Arbitrations, Global Inv. Protection (June 1, 2016), http://www.globalinvestmentprotection.com/index.php/italy-no-longer-member-of-energy-charter-treaty-hopes-to-avoid-more-arbitrations.

 [75]. Fiorelli, supra note 74.

 [76]. UNCTAD, International Investment Agreement Navigator, Inv. Pol’y Hub, http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu (last visited Aug. 24, 2018).

 [77]. Marta Waldoch & Maciej Onoszko, Poland Plans to Cancel Bilateral Investment Treaties with EU, Bloomberg (Feb. 25, 2016), https://www.bloomberg.com/news/articles/2016-02-25/poland-seeks-to-end-bilateral-investment-deals-with-eu-members.

 [78]. Id.

 [79]. UNCTAD, International Investment Agreement Navigator, supra note 76.

 [80]. Joel Dahlquist & Luke Eric Peterson, Investigation: Denmark Proposes Mutual Termination of Its Nine BITS with Fellow EU Member States, Against Spectre of Infringement Cases, Inv. Arb. Rep. (May 2, 2016), https://www.iareporter.com/articles/investigation-denmark-proposes-mutual-termination
-of-its-nine-bits-with-fellow-eu-member-states-against-spectre-of-infringement-cases.

 [81]. Id.

 [82]. Id.

 [83]. See generally Office of the U.S. Trade Representative, Exec. Office of the President, 2012 U.S. Model Bilateral Investment Treaty (2012).

 [84]. Id. Annex B.

 [85]. Id. Annex B, para. 3.

 [86]. Id. Annex B, para. 4.

 [87]. Id. Annex B, para. 2.

 [88]. Id. art. 21(2).

 [89]. Id. art. 21(2)(a).

 [90]. Id. art. 21(2)(b).

 [91]. Id. art. 14.

 [92]. Id. art. 31.

 [93]. Id. art. 31(1).

 [94]. Id.

 [95]. Id. art. 31(2).

 [96]. Id.

 [97]. Id. art. 30(3).

 [98]. See generally Brower & Melikian, supra note 73.

 [99]. Press Release, European Commission, Commission Proposes New Investment Court System for TTIP and Other EU Trade and Investment Negotiations (Sept. 16, 2015), http://europa.eu
/rapid/press-release_IP-15-5651_en.htm.

 [100]. Marc Lalonde, Address at the American Society of International Law Annual Meeting: Arbitrating the Public Interest, (Mar. 30–Apr. 2, 2016), https://www.asil.org/resources/audio/2016-annual-meeting.

 [101]. European Comm’n, Factsheet 1 (2017), http://trade.ec.europa.eu/doclib/docs/2017/July
/tradoc_155744.pdf. See also Douglas Thomson, UNCITRAL to Examine Further Reforms of ISDS, Global Arb. Rev. (July 12, 2017), http://globalarbitrationreview.com/article/1144340/uncitral-to-examine-further-reforms-of-isds.

 [102]. Nikos Lavranos, The Outcome of the UNCITRAL July 2017 Meeting: The First Steps Towards a Multilateral Investment Court (MIC), Wöss & Partners Newsletter (Wöss & Partners, Washington, D.C.) Aug. 7, 2017, at 5.

 [103]. Id. at 6.

 [104]. Id.

 [105]. Id.

 [106]. Id.

 [107]. Id. at 7.

 [108]. Dark and Light Mood Music, Global Arb. Rev. (June 20, 2017), https://globalarbitrationreview.com/article/1143291/dark-and-light-mood-music.

 [109]. UNCTAD, Investor-State Dispute Settlement: Review of Developments in 2017, at 5 (2018), http://unctad.org/en/PublicationsLibrary/diaepcbinf2018d2_en.pdf.

 [110]. Id. at 6.

 [111]. Id.

 [112]. Int’l Ctr. for Settlement Inv. Disp., The ICSID Caseload – Statistics: Issue 2018-2, at 14 (2018), https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%202018-2%20(English).pdf.

 [113]. Int’l Ctr. for Settlement Inv. Disp., The ICSID Caseload – Statistics, Special Focus –European Union: April 2017, at 14 (2017), https://icsid.worldbank.org/en/Documents/resources
/ICSID%20Web%20Stats%20EU(English)April%202017.pdf.

 [114]. Luke Eric Peterson & Kendra Magraw, Looking Back: Ethyl v. Canada Case Drew Early Public Attention to Previously Obscure Arbitration Process, and Settled After Tribunal’s Jurisdiction Ruling, Inv. Arb. Rep. (Mar. 21, 2017), https://www.iareporter.com/articles/looking-back-ethyl-v-canada-case-drew-early-public-attention-to-previously-obscure-arbitration-process-and-settled-after-tribunals-jurisdiction-ruling. See also John Geddes, Ethyl Sues Ottawa for US$200M over MMT Ban, Fin. Post, Sept. 11, 1996, at 6.

 [115]. See generally Ethyl Corp. v. Gov’t of Canada, Award on Jurisdiction (June 24, 1998), 7 ICSID Rep. 12 (1998) (affirming jurisdiction over Canada’s objections).

 [116]. Michael Valpy, How Free Trade Threatens Democracy, Globe and Mail (Apr. 9, 2001), https://www.theglobeandmail.com/opinion/how-free-trade-threatens-democracy/article760604.

 [117]. Agreement on Internal Trade: Report of the Article 1704 Panel Concerning the Dispute Between Alberta and Canada Regarding the Manganese-Based Fuel Additives Act 13 (1998) [hereinafter Agreement on Internal Trade], https://www.cfta-alec.ca/wp-content/pdfs/English/DisputeResolution/PanelReports/8_eng.pdf (emphasis in original).

 [118]. Geddes, supra note 114.

 [119]. Valpy, supra note 116.

 [120]. Mark Mackinnon, NAFTA Members to Talk Reform, Globe and Mail (Apr. 9, 2001), https://www.theglobeandmail.com/report-on-business/nafta-members-to-talk-reform/article1179774.

 [121]. NAFTA – Chapter 11 – Investment: Cases Filed Against the Government of Canada, Ethyl Corporation v. Government of Canada, Global Aff. Can., http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/ethyl.aspx?lang=eng#archived (last visited Sept. 24, 2018). The authors note that the official Canadian Government website describing the Ethyl Corp. v. Government of Canada case identifies “three Canadian provinces.” But according to the AIT Panel decision, four provinces were Complainants:

The Government of Alberta (the Complainant) contends that the Act fails to comply with Canada’s (the Respondent) obligations under the Agreement on Internal Trade (the Agreement), and that the inconsistencies cannot be justified by reference to the Agreement’s provisions for measures associated with legitimate objectives. The Complainant contends that the Act has impaired internal trade, caused injury to Alberta refiners, and is inconsistent with general and specific provisions of the Agreement. The Governments of Québec, Nova Scotia and Saskatchewan (also Complainants) intervened in support of Alberta. The Government of Nova Scotia did not file a written submission or present oral arguments.

Agreement on Internal Trade, supra note 117, at 1 (emphasis in the original and added).

 [122]. Since Elizabeth May’s statement, the treaty entered into force on Oct. 1, 2014 and retained an investor-State arbitration provision. See Trade and Investment Agreements, Global Aff. Can., https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/index
.aspx?lang=eng&country_pays=China&menu_id=147 (last visited Sept. 24, 2018).

 [123]. Green Party of Canada, Elizabeth May: Red Carpet for China (Press Conference Q and A), YouTube (Sept. 27, 2012), https://www.youtube.com/watch?v=SjwjBe8tlAo. The authors have transcribed the block quotation manually by listening to the YouTube clip. Thus, the block quotation is not an official transcription.

 [124]. Trade and Investment Agreements, supra note 122.

 [125]. Scott Sinclair, Canada’s Track Record Under NAFTA Chapter 11: North American Investor-State Disputes to January 2018, at 11 (2018), http://res.cloudinary.com
/lbresearch/image/upload/v1516620972/nafta_dispute_table_report_2018_220118_1137.pdf; Lacey Yong, NAFTA Claims Have Cost Canada More Than US$300 Million, Says Report, Global Arb. Rev. (Jan. 22, 2018), https://globalarbitrationreview.com/article/1152937/nafta-claims-have-cost-canada-more-than-ususd300-million-says-report.

 [126]. Sinclair, supra note 125, at 8–10.

 [127]. Id. at 10.

 [128]. Id. at 11.

 [129]. SD Myers, Inc. v. Government of Canada, NAFTA/UNCITRAL, Partial Award, ¶¶ 193–95 (Nov. 13, 2000), http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs
/disp-diff/myers-18.pdf (footnote omitted).

 [130]. Chemtura Corp. v. Government of Canada, NAFTA/UNCITRAL, Award, pt. V (Aug. 20, 2010), http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/disp-diff
/chemtura-14.pdf.

 [131]. See Cecilia Olivet & Alberto Villareal, Who Really Won the Legal Battle Between Philip Morris and Uruguay?, Guardian (July 28, 2016), https://www.theguardian.com/global-development/2016/jul/28/who-really-won-legal-battle-philip-morris-uruguay-cigarette-adverts.

 [132]. See Behind Closed Doors, Economist (Apr. 23, 2009), http://www.economist.com
/node/13527961; Elizabeth Warren, The Trans-Pacific Partnership Clause Everyone Should Oppose, Wash. Post (Feb. 25, 2015), http://wapo.st/1BwJA7H?tid=ss_tw-bottom&utm_term=.2dad5c8d1898; Bill Moyers, Trading Democracy: A Bill Moyers Special, PBS (Feb. 1, 2012), http://www.pbs.org
/now/transcript/transcript_tdfull.html (“Today, foreign companies are exploiting Chapter 11 to attack public laws that protect our health—and our environment—even to attack the American judicial system.”).

 [133]. Council of the European Union, Directives for the Negotiation on the Transatlantic Trade and Investment Partnership Between the European Union and the United States of America ¶¶ 22–23 (2013), https://www.laquadrature.net/files/TAFTA%20_
%20Mandate%20_%2020130617.pdf.

 [134]. Press Release, European Comm’n, Improving ISDS to Prevent Abuse – Statement by EU Trade Commissioner Karel De Gucht on the Launch of a Public Consultation on Investment Protection in TTIP (Mar. 27, 2014), http://europa.eu/rapid/press-release_STATEMENT-14-85_en.htm.

 [135]. Press Release, European Comm’n, Report Presented Today: Consultation on Investment Protections in EU-US Trade Talks (Jan. 13, 2015), http://trade.ec.europa.eu/doclib/press/index.cfm
?id=1234.

 [136]. Robin Emmott & Philip Blenkinsop, Online Protest Delays EU Plan to Resolve U.S. Trade Row, Reuters (Nov. 26, 2014), https://reuters.com/article/us-eu-usa-trade/exclusive-online-protest-delays-eu-plan-to-resolve-u-s-trade-row-idUSKCN0JA0YA20141126.

 [137]. United Nations, Gen. Assembly, Report of the United Nations Commission on International Trade Law: Fiftieth Session (3-21 July 2017)  260 (2017), http://www.uncitral.org/pdf/english/commissionsessions/unc-50/A-72-17-E.pdf.