National Regulation of Multinational Enterprises: An Essay on Comity, Extraterritoriality, and Harmonization

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Despite the economic importance of multinational enterprises (“MNEs”), there is a surprising paucity of law governing foreign direct investment (“FDI”), especially in comparison with the abundance of law governing trade. There is no multilateral legal arrangement governing FDI that is similar to the General Agreement on Tariffs and Trade (“GATT”), no organization similar to the World Trade Organization, and almost no courses in law schools on FDI law. The goal of this Article is to begin to remedy this state of affairs by proposing a conceptual model for analyzing the application of the national laws of home and host countries to MNEs operating within their territories. This Article also seeks to explain the extraordinary difficulties in reaching consensus on a multilateral agreement on investment similar in scope to the GATT, and to suggest an approach to negotiating such an agreement in a new multilateral forum, the World Investment...

NAFTA Article 1105 and the Principles of International Economic Law

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Recognizing that it is common practice by international lawyers to cite the decisions of other international tribunals in support of their cases, this Article sets forth an analytical framework for doing so within the area of international economic law. For the purposes of the Article, international economic law is construed as the quasi-constitutional regulation of the actions of public authorities pursuant to obligations undertaken by States through treaty or custom. The Article explains how certain basic principles can be drawn from various sources of international economic law which would allow for different tribunals, interpreting similar provisions in different treaties, to arrive at a coherent conclusion. Using NAFTA Article 1105 as an example, the author demonstrates how this approach will provide clarity and certainty for the operation of what may seem to be amorphous treaty...

Re-reading the Preamble to the 1919 ILO Constitution in Light of Recent Data on FDI and Worker Rights

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The Preamble to the 1919 Constitution of the International Labor Organization (“ILO”) makes two major claims: (1) that universal peace can be established only if it is based upon social justice, and (2) that the failure of any nation to adopt humane labor standards may be an obstacle in the way of social justice improvements in other nations. For some time, these two claims have been read together as providing one rationale for the existence of the ILO. But this received wisdom must now be re-assessed in light of recent evidence of the positive relationship between a nation’s respect for core labor rights and its ability to attract foreign direct investment (“FDI”). New and better interpretations of the Preamble’s two claims are both required and available. These new interpretations not only provide a more satisfactory explanation of the ILO’s role, but also call for a fundamental rethinking of the reasons for much of what it...

Local Institutions, Foreign Investment, and Alternative Strategies of Development: Some Views from Practice

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This Essay summarizes the major insights gained from a panel discussion with legal practitioners about the relevance of local institutions to foreign direct investors. The Essay offers a critique of policy conclusions drawn from empirical studies that suggest a positive correlation between legal institutions and foreign investment flows. It points out that the data used in these studies are far too general to allow policy conclusions and that neither the data nor the policy conclusions are sufficiently attuned to the challenges or opportunities that foreign direct investment projects face on the ground. According to the results of the panel discussion, greater emphasis should be placed on the diversity of institutions that may support different investment projects and the local conditions and constituencies that are necessary for successful investment...

Investment Agreements and International Law

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This Essay addresses two related questions, though the answers may turn out to be inconsistent. First, why is it that multilateral agreements concerning international investment or multinational enterprises are impossible to achieve, while bilateral investment agreements multiply like fruit flies? Second, has the large number of almost identical bilateral investment agreements—more than 2000 as of the summer of 2003—resulted in a change in the substance of international...

Rights, Responsibilities, and Regulation of International Business

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This essay discusses the paradox of the emergence of corporate codes of conduct in the 1990s, following pressures from consumer and labor activism, in a period of more general liberalization of international investment leading to deregulation. It suggests that the advantages of flexibility and adaptability to specific circumstances offered by such codes are counterbalanced by their self-selected content and inadequate enforcement. Rejecting the assumption that there is a sharp distinction between voluntary standards and binding law, the essay analyzes various ways of grounding codes in legal obligations. It proposes that a safer and more dependable environment for international investment could be provided by a framework agreement, which would link binding standards for corporate social responsibility in key areas, such as combating bribery and cooperation in tax enforcement, with traditional investor rights based on investor protection and liberalization...

Judging Corporate Accountability in the Global Economy

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As foreign victims and human rights advocates increasingly turn to U.S. courts to hold multinational corporations accountable for violations of international law and related abuses arising from their global operations, an international clash of jurisdictions is intensifying. The growing role of U.S. courts in defining standards of corporate conduct in the global economy represents a direct challenge to U.S. foreign policy leadership. But legislative, judicial or even executive efforts to restrict access to relief in the United States are neither wise nor effective policy, this Essay argues. Rather, U.S. policy makers should recognize that U.S. national interests are advanced by corporate accountability in the global economy. They should seek to leverage what will be an inevitable litigation to advance these interests. The Essay identifies three pillars on which a U.S. strategy to promote accountability should be based. First, the U.S. should encourage local accountability and promote resolution of disputes in the jurisdictions where alleged abuses have occurred. Second, U.S. policy should create soft law “safe harbors” to shield companies that take effective action to prevent abuses or correct them when they are discovered. Finally, the United States should support the development of multilateral efforts to create accountability, with the experience of the OECD Bribery Convention as a...

Regulatory Expropriation under NAFTA Chapter 11: Some Lessons from the European Court of Human Rights

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Following the Metalclad decision, a lively academic debate has ensued about the wisdom of requiring compensation for regulatory activity that incidentally diminishes the value of property. This Note suggests that it would be prudent of the parties to the North American Free Trade Agreement (“NAFTA”) to look to the regulatory expropriation jurisprudence of the European Court of Human Rights (“ECHR”) for guidance. While the text of the two treaties may differ, this Note introduces a viable interpretation of NAFTA’s expropriation provision that would yield results similar to those reached by the more experienced ECHR. Moreover, the Note contends that the jurisprudence of the European Court is more sensible than that reached thus far by independent NAFTA tribunals, and, as such, an interpretation yielding more analogous results is to be...

The Impact of Post-Enron Information Disclosure Requirements Imposed Under U.S. Law on Foreign Investors

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The recent revelations of unprecedented corporate fraud in companies such as Enron and WorldCom were like a virus that ate at the heart of the integrity of the U.S. financial market. Through the Sarbanes-Oxley Act (the “Act”), Congress made a good faith effort to restore confidence in the U.S. financial market by applying the usual remedies for corporate fraud–an increased level of disclosure and harsher penalties for non-compliance. Although the Act’s provisions may be, on the whole, beneficial to U.S. investors and the U.S. public, it is a bitter pill for foreign investors. This is because Congress deviated from the traditional mutual recognition approach, which permits foreign investors to satisfy regulations through compliance with equivalent corporate governance standards of their home countries. Instead, the Act uses a unilateralist approach that compels foreign companies to abide by the same rigorous disclosure requirements as U.S. companies. As a result, the Act imposes duplicative and costly governance reforms on foreign issuers that are listed on U.S. stock exchanges and is tantamount to an unintended tax on foreign corporations. While the consequences of Congress’ unilateralist approach may be costly, the solution is simple; Congress need only amend the Act and adopt a mutual recognition...