Content, Online Scholarship, Perspectives

“Contracting Out” Human Rights in International Law: Schrems II and the Fundamental Flaws of U.S. Surveillance Law

August 14, 2020

By: Genna Churches and Monika Zalnieriute

Introduction

In the midst of COVID-19 pandemic, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) in Luxembourg handed down a long-awaited judgement on international data transfers in the Schrems II case. The European Union (“EU”) Court found that U.S. law does not provide the “essentially equivalent” protection for personal data to that guaranteed by EU law, and therefore invalidated the key mechanism for EU-United States data transfers—this time known as Privacy Shield—for the second time in a decade. While the CJEU generally upheld the validity of another legal basis for international data transfers—Standard Contractual Clauses (“SCCs”), the Court also implied that these clauses are not an avenue for continued transfers of personal data from the EU to the United States.

Schrems II is a win for human rights in the EU and beyond, yet, the long-term political impact of this judgement in securing human rights in the digital economy is less certain in light of the $7.1 trillion transatlantic economic relationship at stake. Until now, U.S. companies, including Facebook, Amazon, and Google, have relied on private self-certifications schemes, such as Privacy Shield, to assure the EU of “essentially equivalent” protection for personal data of EU residents, despite the extensive scope of U.S. surveillance programs. The U.S. government maintains that the protection under its national security laws “meets” and “exceeds” the safeguards “in foreign jurisdictions, including Europe,” suggesting that structural changes in the U.S. legal system are unlikely. Instead, the European Commission (“EC”) and U.S. Department of Commerce may soon carve out another solution for EU companies to “contract out” the protection for human rights where public authorities are unwilling to ensure it.

International Data Transfers and U.S. Surveillance Law: Schrems I

Following the Edward Snowden revelations about mass surveillance programs in 2013, various privacy advocates in the EU opposed the exposure of their personal data to such regimes. Snowden revealed U.S. surveillance programs including PRISIM and UPSTREAM, which collect data directly from undersea cables or from providers. These programs were authorized by executive powers under the U.S. legal system and often failed to guarantee the basic constitutional rights for U.S. citizens, let alone foreigners. The long-running Schrems saga began when Austrian privacy activist, Maximillian Schrems, lodged one such complaint with the Irish Data Protection Commissioner (“DPC”) about Facebook Ireland’s transfer of data to the United States. His complaint highlighted the incompatibility of U.S. surveillance programs and existing EU law permitting transfers to the United States. Under EU law at the time, the EC’s Safe Harbor Decision created an arrangement where U.S. data importers could “self-certify” that they provided “essentially equivalent” to that guaranteed under EU law, including the protection of fundamental rights under the EU Charter of Fundamental Rights (“EUCFR”). Schrems challenged the adequacy of these arrangements in ensuring “essentially equivalent” protection in his complaint, which the DPC rejected. Schrems then took his complaint to the High Court of Ireland, which referred two questions to the CJEU in the case now known as Schrems I. In that case, the CJEU invalidated Safe Harbor, because it did not afford “essentially equivalent” protection for personal data to that guaranteed under EU law (¶¶ 98, 104–106).

Facebook and other companies then relied upon SCCs, a mechanism created under another EC adequacy decision (“SCC Decision”), which enabled data transfers where contractual arrangements could provide the “essentially equivalent” protection to that under the EU legal order. In 2015, the Irish DPC asked Schrems to reformulate his original complaint in light of the invalidation of Safe Harbor. The revised complaint focused on Facebook’s data transfers outside of the EU based on SCCs (Schrems II ¶¶ 151–153), claiming the reliance on SCCs could not be valid due to U.S. law obliging private companies to provide access to personal data to public authorities under U.S. surveillance programs. Following the reformulation of his complaint, the EC and U.S. officials replaced Safe Harbor with a new version of a “self-certification” regime for EU-United States data transfers—the EU-United States Privacy Shield.

Based on Schrems’ revised complaint, the DPC raised a number of questions before the High Court of Ireland, which then referred 11 questions to the CJEU in Schrems II. These questions turned the focus towards the suitability and validity of SCCs and, by inference, the validity of Privacy Shield under the General Data Protection Regulation (“GDPR”).

International Data Transfers Continued: Schrems II

The Schrems II judgement challenges the mechanisms for EU-United States personal data transfers based on fundamental inadequacy of U.S. law to ensure the “essentially equivalent” protection to that guaranteed by EU law. The CJEU found that in circumstances where adequate safeguards exist in third countries, or where contractual terms can provide the “essentially equivalent” protection to EU law, the use of SCCs is valid. The Court then chose to engage directly with the validity of EU-United States data transfers under Privacy Shield, finding it invalid due to the fundamental inadequacy of safeguards for personal data provided by U.S. law.

The CJEU first focused on the standard contractual clauses, finding the SCC Decision valid (¶ 105). However, the Court stressed that data controllers must assess the level of protection afforded across the agreed contractual clauses between the data controller and the third country importer/processor, any access by public authorities to the data, and the legal system of the third country (¶¶ 93, 105). The CJEU reiterated that the SCCs must afford appropriate safeguards, enforceable rights, and effective legal remedies (¶ 103), with data controllers/exporters obliged to act if there is a conflict between the SCCs and third country laws, including an incompatibility with national security laws, by suspending data flows (¶¶ 134–135). Where SCCs cannot provide an “essential equivalent” to EU law, and data controllers have not acted, the CJEU held that National Data Protection Authorities (“DPAs”) must suspend, limit, or even ban international data transfers (¶¶ 113, 121).

However, the CJEU held that DPAs cannot act to suspend, limit, or ban data transfers where there is an adequacy decision, such as Privacy Shield, in place. The Court asserted that DPAs “cannot adopt measures contrary to that decision, such as acts intended to determine with binding effect that the third country covered by it does not ensure an adequate level of protection” (¶ 118). The CJEU noted that DPAs must still investigate complaints received, and if concerned about the equivalence of protection under an adequacy decision, bring an action before national courts questioning adequacy. If the national court agrees, it can make reference for a preliminary ruling on the validity of an adequacy decision in question (¶¶ 120, 121).

The CJEU then moved on to assess the adequacy of protection under U.S. law to determine the validity of the Privacy Shield. The Court held it invalid because of the largely unrestrained surveillance regime, a lack of redress under those regimes, and the lack of independence for the ombudsperson (¶ 199). Noting the EC can only make a decision on adequacy if the third country’s legislation provides all the necessary guarantees to ensure an adequate level of protection (¶¶ 129, 162, 167), the CJEU assessed the level of protection afforded by the United States. It found that U.S. surveillance regimes like PRISM and UPSTREAM which collect data directly from undersea cables or from providers like Google and Facebook, permitted under section 702 of the Foreign Intelligence Surveillance Act (“section 702 FISA”), were not limited to what was strictly necessary for the purposes of foreign intelligence. In particular, the legislation did not lay down any limitations or scope of the programs nor impose any minimum safeguards (¶¶ 179, 180). The CJEU also assessed the Presidential Policy Directive 28 (“PPD-28”—a response to the Snowden revelations attempting to restrain mass surveillance) and Executive Order 12333 (“EO-12333”—a 1981 order permitting expanded surveillance powers authorized by the executive), finding they did not grant actionable rights against U.S. authorities (¶¶ 181, 182, 184). The CJEU noted that the EU legal order provides a right to a hearing before an independent and impartial tribunal (article 47 of the EUCFR) (¶ 186), and that Privacy Shield created a specific role of an ombudsperson for EU data transfers. However, the Court held that surveillance programs based on section 702 FISA and EO-12333, even when read in conjunction with PPD-28, do not provide data subjects with actionable rights, leaving them with no effective remedy (¶ 192). The CJEU also highlighted a lack of independence in the oversight systems of Privacy Shield, as the role of the ombudsperson was related to the executive (¶ 195). Thus, the Court concluded that the Privacy Shield Decision could not provide an “essentially equivalent” protection for personal data to that guaranteed under the EU legal order and, therefore, was invalid (¶ 199).

So How Can Data Be Transferred to the United States Now?

After this pronouncement, many are asking how can data be lawfully transferred from the EU to the United States? The SCCs (and for that matter Binding Corporate Rules) are also unusable because the CJEU in Schrems II ruled that U.S. law—as a whole—does not provide adequate protection required under EU law for international data transfers. The Court partially answered this question: “transfers of personal data to third countries may take place in the absence of an adequacy decision under Article 45(3) of the GDPR or appropriate safeguards under Article 46 of the GDPR.” (¶ 202). In other words, the Court has not prohibited data transfers to the United States where “essentially equivalent” safeguards are provided. However, data controllers and exporters now face the very real dilemma of having to contract for the impossible—to form contracts under SCCs or article 46 of the GDPR, which protect the rights of the data subject despite the scope of the U.S. surveillance programs. With the CJEU’s findings that because of the extensive U.S. surveillance regime, the United States does not afford essentially equivalent safeguards, and confirmation that SCCs cannot bind a public authority in the third country (¶¶ 123, 125), it now appears impossible to transfer data lawfully from the EU to the United States. Some commentators suggest that not all organizations are subject to the U.S. surveillance regime. However, given the scope of the surveillance programs, as discussed by the CJEU, and the possibility of surveillance access even before the data reaches the data importer, such as through the “tapping” of undersea cables (¶¶ 62–63), the adequacy of protection from surveillance by any company is doubtful.

Will “Contracting Out” Human Rights to the United States Be Possible?

In light of the fundamental inadequacy of U.S. surveillance law to guarantee the level protection required by EU law, the remaining avenue for data transfers points to the use of contracts under the SCC Decision. Contractual obligations between businesses can play a role in protecting human rights in international law, for example in ensuring workers are protected in supply chains and offshore manufacturing. However, these contracts do not bind the government or public authorities in foreign countries, and the local laws in those countries may still over-ride contractual terms. Therefore, contractual clauses to protect data transferred to the United States will not be adequate because of the extensive surveillance powers granted to public authorities under the U.S. legal system, which can easily override those clauses.

The U.S. surveillance regime shows no sign of contracting. Often, as the CJEU found, there is little specific legislation which limits foreign surveillance programs, instead, they are authorized by a supervisory body or through executive order. While the EU Parliament called to overhaul the U.S. foreign surveillance regime following the Snowden revelations, calls for amendment in the United States were reinvigorated in late 2019 following reported breaches of section 702 FISA. However, proposed reforms have now stalled. With U.S. comments in response to Schrems II that the U.S. safeguards for data protection under national security programs “meets” or “exceeds” those in European jurisdictions, the stalemate between the EU and the United States is set to continue.

The use of SCCs in light of the scope of the U.S. surveillance framework places an impossible burden on data controllers to attempt to “contract out” the protection of human rights. The Berlin DPC has already issued advice to data controllers to cease EU-United States transfers, reinforcing the importance of a valid legal basis for data transfers. Fines for breaching the GDPR can be up to four percent of a company’s global revenue. The CJEU was clear that the DPAs are obliged to act against unlawful transfers, so it seems a risky business for private companies to keep doing “business as usual” after Schrems II. “Contracting out” human rights protection will simply not work for the CJEU, where the local laws in third countries, such as the United States, fundamentally violate those rights.

Conclusion

Schrems II has lived up to the hype—the decision will have far reaching effects. In response to the judgement, the EC could act quick to negotiate another agreement with the U.S. counterparts, just like it did earlier with the Safe Harbor and Privacy Shield, again authorizing data flows to the United States. However, without changes in the U.S. surveillance regime, we can be certain that any future adequacy decisions will be challenged by privacy advocates, costing DPAs millions of Euros in further court costs. Similarly, attempts to “contract out” human rights protection under SCCs, given the inability of the United States to provide “essentially equivalent” protection, expose data controllers to fines under the GDPR. Yet, the high stakes of the transatlantic economy weaken the EU position, while the bargaining power of the United States suggests that structural changes—that would bring the United States in line with “essential equivalence”—are unlikely any time soon. Failing U.S. changes, tech companies might have to process personal data in Europe, as legally “contracting out” protection for human rights might be next to impossible.

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Content, Essays, Online Scholarship

Envisioning Foundations for the Law of the Belt and Road Initiative: Rule of Law and Dispute Resolution Challenges

August 6, 2020

By: Malik R. Dahlan

Abstract: China’s Belt and Road Initiative (“BRI”) is the largest transnational program of infrastructure investments in the world today. Works carried out under the rubric of BRI is expected to amount to several trillion United States (“U.S.”) Dollars by the 2030s and to take place in over 65 countries. This raises the question of how project disputes that arise with works carried out under the BRI will be settled, and whether a multilateral legal regime will arise to affect those settlements as an alternative to the usual methods of resolving investment disputes and enforcing international arbitration clauses supported by intergovernmental investment treaties. This Essay examines the increasing challenges facing investors and states given the lack of an overriding BRI authority nor multilateral framework. It seeks to provide a deeper legal understanding of how dispute resolution is carried out now; it further argues that the BRI will in time give rise to new legal norms and institutions, the outlines of which are already visible. One essential development will be the creation of a dispute resolution regime that responds to the array of challenges posed by projects carried out under the BRI badge, which may not be compatible with traditional dispute resolution mechanisms—most notably, investor–state dispute settlement.

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Introduction

President Xi Jinping laid out the concept of the Belt and Road Initiative (“BRI”) as a connector between cultures on the Eurasian landmass in 2013. The aim, he said, was to establish an “interest,” a “destiny” and “liability” community through existing bilateral or multilateral mechanisms and regional cooperation platforms. The goals were to promote bilateral cooperation, form collaborative relations with other developed countries, and utilize existing multilateral institutions in new ways.

To the best of our knowledge, no national nor international legal instrument has been established to indicate the legal nature of the BRI. One can trace some declaratory origins in the 2015 “Vision and Actions” to Promote the Co-Construction of a “Silk Road Economic Belt” and a “21st-Century Maritime Silk Road” (the “B&R Document”) and working reports presented at the National People’s Congress, and a series of related speeches delivered by Chinese authorities on occasions. However, the B&R Document is best seen as a kind of guidance,¹ as well as a form of proclamation paper. In 2017, at the inaugural Belt and Road Forum, another explanatory policy document, “Building the Belt and Road: Concept, Practice and China’s Contribution” (the “B&R CPCC”) was issued by the Office of the Leading Group for the BRI. The B&R CPCC is explicit in stating the cooperation goals, the focus on bilateralism, the importance of collaboration with other developed countries and the utilization of existing multilateral institutions, among other principles. In the words of one Chinese academic, the BRI is a “partnership-based approach,” which puts the emphasis on bilateral cooperation. This is fundamentally different from the usual basis of international economic cooperation carried out under multilateral treaties or shared rule-of-law principles. Some have gone as far as to argue that the vague legal status of the BRI might be one of its strengths, since soft law common aims are much easier to negotiate and agree upon than hard law treaties. This may help to alleviate concerns of the BRI Participating Members about doing business with a partner with China’s economic weight. It also suggests that China is learning by doing. How are disputes between contracting parties to BRI projects to be resolved? At present, the BRI is more a “grand strategy” than a coherent international program of investment overseen by overarching institutions. Rather, a particular program of Chinese investments in a particular country takes place as an ad hoc project or within the framework of an intergovernmental bilateral investment treaty (“BIT”) that does not provide a granular conceptualization of a rule of law construction or say how exactly conflicts are to be resolved on individual projects funded by Chinese investments. In particular, the BRI lacks: (1) a multilateral treaty covering all participating nation states; (2) a secretariat or other central body to standardize projects and provide a forum for deliberation and development; or (3) a dispute resolution system that offers an acceptable level of legal certainty.

Thus far, China has not provided legal determinacy in any theoretical context familiar to Western academia. Nor has the question of whether the BRI can continue to rely on existing legal instruments, or whether it requires its own institutional or legal arrangements, received much attention in the legal literature.

An added complication is the increasingly polarized international trade relations, within which BRI projects are taking place, particularly in Asia and Africa, where they are often portrayed as an expression of China’s attempts to gain influence, or even hegemony, over particular countries and regions. This polarization has, of course, been accelerated by the effects of the COVID-19 pandemic on the political economy of global trade and investment and has led to a further deterioration of relations between China and the United States (“U.S.”), with the latter still developing a clear articulation of its policy towards China. The breakdown in multilateralism and cooperation between the U.S. and China, which has disrupted investment and global supply-chains, adds extra political risk to many projects. It also places yet more emphasis on the need for legal certainty through dispute resolution.

At present, the designation of a project as “belonging” to the BRI does not have a great deal of substantive meaning beyond providing an incentive for China’s banks to provide it with funding. BRI schemes do not have to relate to the improvement of Eurasian trade routes, since a number of schemes have been carried out in Latin America. On the other hand, some projects, such as the $64 billion China–Pakistan Economic Corridor (“CPEC”), relate to vital geopolitical needs. In the first section of this Essay we put forward some reasons why the BRI should develop a more cohesive identity, above all through the implementation of a common framework of rules to resolve disputes. In the two sections that follow, we look at what that framework will be. In section two we argue that the use of mediation will increasingly replace international arbitration as the dispute resolution method “written in” to BRI contracts—a significant change to present practices. In section three we detail and evaluate Beijing’s attempts to establish an international commercial court system, following the example of the Delaware Court of Chancery and the London Commercial Court—but with Chinese characteristics.

I. The Urgent Need for an Overall Dispute Resolution Mechanism

The previous considerations may help us understand what makes a dialogic process attractive and what makes it unworthy. More specifically, those considerations may help us recognize what kind of dialogue could result worth pursuing in the area of International Human Rights Law. In what follows, I shall briefly illustrate these claims through three examples taken from the The Judicialization of Peace article.

At present, there is no set terms of BRI global engagement (accession) nor the mechanism to resolve disputes that arise out of such engagement. The use of national courts is possible, of course, but since BRI projects take place in countries with common law, continental, and Islamic hybrid legal traditions, many parties unfamiliar with these legal jurisdictions will be understandably nervous about allowing courts to safeguard their interests. The differences in Participating Members’ political, economic, and cultural environments mean that disputes could be resolved through a variety of mechanisms, which may lead to different outcomes for the same kinds of disputes. There is also a question of how experienced national systems are in handling large and complex construction cases. Projects carried out under the BRI mainly take the form of large-scale infrastructure ventures, so disputes can arise from a number of routes, such as market entry, the construction and financing of projects, and the implementation and coordination of environmental standards. Complications arise from the scale of projects, their many stakeholders (which may include the parties to the construction contract, the lender, the guarantor, and the host government), the complex technical issues thrown up by the construction process, and the operation of trade and maritime rules once the asset has been commissioned.

Meanwhile, and aside from the ongoing U.S.–China “trade wars,” challenges in establishing an effective dispute resolution mechanism are ever increasing with high stakes for wider conflict. These include time-consuming processes, a lack of transparency in decisions, dangers to state sovereignty, the high costs of international arbitration, and the inadequacy of the dispute resolution mechanism provided by the World Trade Organization (“WTO”).² For example, the rules of the WTO provide a guide to resolving trade disputes but they are not always clearly applicable, partly because of sector coverage and the nature of the parties (i.e. states). This means that WTO rules cannot fully resolve disputes between Participating Members, especially those that are not members of the WTO.³

Another channel for dispute⁴ resolution is provided by investor–state dispute settlement (“ISDS”) provisions, which are found in BITs or free trade agreements (“FTAs”). However, to date, China has yet to sign investment agreements with 12 of the countries along the Belt and Road.⁵ In the more than 30 BITs that China has concluded with Participating Members, the ISDS provisions only applied to compensation in the event of expropriation.⁶ As a result, the investor–state arbitration mechanisms are not applicable if the host country violated other provisions of the BIT, such as the principle of fair and equitable treatment.

The reluctance of parties to submit their disputes to national courts has led to a preference for writing arbitration clauses into international investment contracts. In terms of enforcement, among all the Participating Members of the BRI, around 60 are contracting parties of the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards” (the “New York Convention”). This allows arbitration awards from a tribunal in a signatory state to be enforced in any of the others, and some 92% of states involved with BRI projects are members of the New York Convention. As a result, international arbitration is the resolution mechanism of choice for many parties with complex, high-cost, high-risk projects. The question is whether international arbitration will remain so in the future, or whether BRI will lead to the rise of another legal system, with more pronounced Chinese characteristics.

Today, the legal protection for foreign direct investment (“FDI”) under public international law is guaranteed not by a multilateral framework but by a network of more than 3,000 BITs. Most of these legal instruments provide foreign investors with substantive legal protection (including the right to “fair and equitable treatment,” “full protection and security,” “free transfer of means,” and the right not to be directly or indirectly expropriated without full compensation) and access to ISDS for redress against Host States for breaches of such protection. But what about the protections for the Host States that sit across Chinese investors at the negotiation table?

Firstly, problems arise if the Host State wishes to have a foreign judgment enforced in a Chinese court. Until July 2019, in practice, there were only two ways for the Chinese people’s courts to recognize and enforce such rulings: namely, bilateral judicial assistance treaties or the application of the reciprocity principle.⁷ In the case of the former, China has signed BITs with almost 40 countries.⁸ However, these do not include some of those with which it has the close economic relationships, such as the U.S., Singapore, and South Korea. Among the more than 65 Participating Members of the BRI, fewer than 10 have signed civil (commercial) judicial assistance treaties with China. In other words, domestic judgments or decrees will neither be recognized nor enforced by other BRI Participating Members in most circumstances. As for the latter, only a few foreign judgments have been recognized and enforced in accordance with the reciprocity principle,⁹ because of the “factual reciprocity” requirement. This means that Chinese courts only consider recognizing and enforcing foreign judgments when courts from the applying country have previously recognized and enforced judgement made by Chinese courts. With the deepening and evolution of the BRI, these two methods are clearly unable to the meet the requirements of the Chinese economy.¹⁰ In the future, parties may also have recourse to the Hague Choice of Court Convention, which would allow for the recognition and enforcement of court decisions in a way analogous to the New York Convention. At present, China, like the U.S., has signed but not ratified the convention. This is discussed in more detail below.

Secondly, Participating Members of the BRI institutionalize and explain international rules differently. Normative and practical approaches to the legal and regulatory frameworks are often divergent and mismatched. Therefore, it is becoming clear that current dispute resolution mechanisms cannot match the distinct development and nature of the BRI and its diverse composition. We also note that, given the nature of the BRI and the cultural and sociopolitical characteristics of the Chinese approach to dispute resolution, any approach that does not include soft dispute resolution mechanisms such as mediation or dispute boards will be problematic.

The absence of an institutionally established dispute resolution system, soft or hard, will pose problems for the overall success of the BRI and its underlying raison d’être. Without a neutral means to resolve disputes, and a way of integrating that with a coherent set of legal principles accepted by the Participating Members, any decision reached by Chinese courts, or by courts in the country where the project is located, risks being seen as prejudiced by national interests or the interests of national companies.

II. The Rise of Mediation

For international construction projects, arbitration is presently seen as the best available process for resolving disputes. As a recent report by Queen Mary University London and Pinsent Masons puts it, the combination of “neutrality, confidentiality, flexibility and [the] commercial nature of the process along with the facility to choose who will determine their dispute are paramount factors that continue to influence their selection of arbitration.” As a result, 71% of the survey’s sample of international disputes went to arbitration. Nevertheless, this dispute resolution method is inevitably lengthy, expensive, and just as adversarial as a court case.

It is likely that if the BRI gives rise to a global facilitative method of dispute resolution, it will include the incorporation of mediation, rather than arbitration, clauses. This is partly because mediation implies mutual compromise rather than maximal evaluative claims, so there is a cultural “fit” with Chinese notions of restoring “harmony.” More practically, mediation is quick compared with arbitration and offers a better chance of preserving commercial relationships than arbitral awards, which are often winner-take-all and may have the added sting of a costly award.

This likelihood is also suggested by recent developments in China: the Chinese People’s Court has promoted mediation in its “Opinions of the Supreme People’s Court (“SPC”) on Further Deepening the Reform of the Diversified Dispute Resolution Mechanism of the People’s Courts” and “Provisions of the SPC on Invited Mediation by the People’s Courts” promulgated in June 2016.

This is further evidenced by the speed with which the Chinese government signed the United Nations Convention on International Settlement Agreements resulting from Mediation (the “Singapore Convention”), which is due to enter into force in September 2020. China was one of the first countries to sign, in August 2019, along with the U.S., India and Singapore. The convention will provide a legal basis for the right to invoke and enforce settlement agreements resulting from mediation and may give greater confidence to the parties that mediation offers them a sufficiently robust alternative to arbitration.

A third indication is the memorandum of understanding that was signed on January 24, 2019 by the Singapore International Mediation Center and the China Council for the Promotion of International Trade. This established a panel of mediators tasked with the resolution of BRI disputes. The International Chamber of Commerce (“ICC”) has also established a commission and published mediation guidance specifically for the BRI.

Finally, the wider legal environment is becoming more accepting of mediation as a way of handling large, complex claims. For example, the International Bar Association (“IBA”) Rules on Investor–State Mediation now provides a legal framework for mediation in the investor–state (“IS”) context. Mediation has also been included in free trade and investment agreements,¹¹ such as the EU–Canada Comprehensive Economic and Trade Agreement and the Trans-Pacific Partnership, and it also features in some BITs.¹² In July 2016, the intergovernmental Energy Charter Conference (“ECT”) published a Guide on Investment Mediation to lead governments and companies in the energy sector through the mediation process, and the International Center for Settlement of Investment Disputes (“ICSID”) has also embraced mediation as part of its dispute resolution process, recognizing that its traditional conciliation process too closely mirrors arbitration and that a more pragmatic approach is needed.¹³

Putting all this together, it seems advisable for participants and consultants involved in BRI-badged schemes to familiarize themselves with the mediation process and the strategies that parties can adopt when they undergo it. However, unlike arbitration, there is no guarantee that the process will lead to a definite result, so there has to be a hard law process to deal with unresolved cases. This is where China’s domestic court system may play an increasingly important role.

III. The China International Commercial Court (“CICC”)

On January 23, 2018, the Communist Party’s Leading Group for Deepening Overall Reform proposed the establishment of a BRI Dispute Resolution Mechanism and Institution by means of international commercial courts. These have since been set up in Xi’an and Shenzhen and have commenced operation. The court in Xi’an deals with disputes involving the “silk economic belt,” and Shenzhen handles disputes arising from the “maritime silk road.”

Following the example of the Singapore International Commercial Court, among others, the aim is to establish a mechanism that offers a choice between litigation, arbitration and mediation—a “one-stop-shop” dispute resolution mechanism that will work with international commercial mediation and arbitration institutions such as the WTO, the Asia International Arbitration Center, and so on.¹⁴ The general aims is to bring a new internationalism and openness to the Chinese domestic legal system; the specific goal is to devise a Chinese mechanism for the mutual recognition and enforcement of judgments, thereby helping, it is hoped, to achieve the paramount aim of laying the foundations of a legal system throughout the BRI area.

The CICC hears cases that have “significant nationwide impact,” such those that involve the unification of international adjudication standards, have great social impact, or are significant in interpreting international treaties and rules. To increase the capacity of the courts, the system includes five international commercial arbitration institutions and two international commercial mediation institutions, including:

The China International Economic and Trade Arbitration Commission (“CIETAC”)
The Shanghai International Economic and Trade Arbitration Commission
The Shenzhen Court of International Arbitration
The Beijing Arbitration Commission
The China Maritime Arbitration Commission
The Mediation Center of China Council for the Promotion of International Trade, and
The Shanghai Commercial Mediation Center

We should note that these institutions are essentially Chinese, located in China and act as branches of the Supreme People’s Court in Beijing. In order to enhance the international appeal of this nascent system, it would be advisable to include international commercial mediation and arbitration institutions from other jurisdictions when this list is expanded in the future.¹⁵

Although the CICC has been described as “China’s Belt and Road court,” the jurisdiction of the CICC is not limited to disputes related to BRI. The CICC will deal with any trade and investment disputes over a threshold value of about $50 million,¹⁶ but may only hear commercial cases when one or both parties are foreigners, stateless persons, foreign enterprises, or other organization.¹⁷ That said, they will perform a number of important functions for the BRI projects. As noted by Mark Feldman, the CICC will provide fair and impartial dispute resolution services by pursuing a party consent-based model,¹⁸ thereby advancing the CICC’s ambition to build a reputation for impartiality and to extend its international influence, as well as establishing the International Commercial Dispute Prevention and Settlement Organization.¹⁹

From the point of view of Chinese investors, the CICC offers a way to avoid the involvement of the courts in the country in which the project takes place, particularly if the host country has not yet developed a sophisticated commercial legal code. Rather, they will have access to proceedings carried out in accordance with Chinese civil law and in the Chinese language, with judges drawn from Chinese courts. The judgments will have the status of SPC judgments and be final, subject to an appeal to the Number Four Civil Division for a retrial.

From the point of view of the Chinese authorities, the CICC offers a means to establish the reputation of Chinese dispute resolution among foreign litigants, thereby providing an alternative to Western arbitral tribunals. It also provides a training ground for the Chinese personnel in the application of international legal principles,²⁰ both from contact with the International Commercial Expert Committee (“ICEC”), set up to offer advice to the CICC, international commercial arbitration institutions, international commercial mediation institutions, and from the SPC’s issuing of judicial interpretations and its disclosure of the details of significant individual cases.²¹

However, from the point of view of foreign litigants, what certainty do they have that the CICC will not give Chinese parties some kind of “home team advantage?” A recent report from President Trump’s Whitehouse included a number of criticisms of China’s “predatory” commercial practices, including a claim that Beijing is “seeking to arbitrate One Belt, One Road-related commercial disputes through its own specialized courts, which answer to the [Chinese Communist Party (‘CCP’)].” To some extent, perceived bias is a problem faced by all international commercial court systems, of which there are more than 10 around the world at the time of writing, and probably reflect the general opinion held about a political system (as in the above quote). To counter this, the CICC has set up the ICEC, made of up to 31 legal practitioners or academics chosen by the SPC from 14 foreign countries as well as Hong Kong, Macao, and Taiwan. The aim has been to choose leading figures in the areas of international trade and investment law with records of professionalism and neutrality. The panel will preside over mediation cases, provide advice on specialized legal issues, and offer policy advice to the SPC and the CICC. To reassure litigants of the court’s competence, the SPC chose 14 of its own judges based on their familiarity with international treaties, international practices, and international trade and investment practices, as well as their ability to hear testimony in English.²²

The question to be answered is whether foreign parties will choose to write clauses into their contracts providing for any disputes to be resolved in the CICC system rather than relying on international arbitration clauses. Furthermore, a weakness of the CICC is the question of whether their awards are enforceable outside China. While there are, as yet, only some 10 agreements on judicial cooperation, it is not clear if any BRI documents contain provisions requiring other governments to respect or enforce decisions from the CICC.

There are, however, some mechanisms that already exist: for example, in the Hong Kong Special Administrative Region of the People’s Republic of China (“P.R.C.”), domestic Chinese judgments could be enforced under the Mainland Judgments (Reciprocal Enforcement) Ordinance as well as the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region, a measure that was passed in 2019. China could also apply the Hague Convention on the Recognition and Enforcement of Foreign Judgments, of which it is a signatory. It has been reported that China is considering ratifying the Hague Convention on the Choice of Court Agreements, which it signed in September 2017. The problem here is that the Hague Convention only includes 29 states, less than 20% of the New York Convention, which means court decisions cannot be enforced between some B&R countries. China has signed bilateral judicial assistance agreements or treaties with 39 countries, of which 37 have entered into force. Among these, four do not provide for the recognition and enforcement of judgments of foreign courts: Singapore, South Korea, Thailand, and Belgium. Nevertheless, reciprocal agreements or bilateral agreements, to some extent, help to realize the mutual execution of court judgments. The enforceability of CICC judgments is likely to be an important criterion of international commercial parties when deciding which dispute resolution clauses to include in their contracts. Here, the Chinese system is indirectly competing with the New York Convention, which facilitates arbitration recognition and enforcement in more than 150 states and regions.

Meanwhile, a development that is likely to reassure parties is the 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the “2019 Hague Convention”), which was adopted by the delegates of the 22^nd Diplomatic Session of the Hague Conference on Private International Law (“HCCH”) on July 2, 2019. “[B]y offering certainty and legal security in cross-border transactions and litigation,” the 2019 Hague Convention “will inspire confidence in civil court judgments handed down in other member states.” “[A]n important gap in the landscape of private international law has finally been filled by the HCCH,” which has been signed by China, as noted by the Secretary General of the HCCH, Dr. Christophe Bernasconi. Nevertheless, it will take time for China to join the convention officially.

Conclusion

In the absence of a multilateral legal framework, an institutional organization (secretariat), and uncertainty regarding dispute resolution under the BRI, the rule of law is hardly visible. However, there are some promising signals made on the third front. On the one hand, there is visible progress in the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) which is the first free trade agreement ever concluded by the Mainland of China and Hong Kong. The main text of CEPA was signed on June 29, 2003 and, as of 2019, the Hong Kong Government has committed to train mediators and State officials under CEPA. This is key to this discussion as it demonstrates that China is already engaged in resolving investment disputes through mediation. BRI Participating States could equally make use of mediation in its B&R Agreements with China.

In addition, a breakthrough announcement, known as the Beijing Joint Declaration of BRI Arbitration Institutions, was made during the November 6–7 2019 Belt and Road Arbitration Institutions Roundtable Forum organized by CIETAC. In 2020, during the COVID-19 pandemic, CIETAC supplemented the declaration with the “Working Mechanism under the Beijing Joint Declaration” to expedite mediations. The Beijing Joint Declaration is a compact that states that the 47 undersigned institutions will work to speed up the construction of a sound legal and business environment for international arbitration services against the background of the BRI, establishing a platform for innovative legal cooperation and promoting the fusion and development of both legislation and enforcement in various jurisdictions, so as to construct the road towards the rule of law for the BRI and guarantee the steady and orderly advancement of the BRI.

Despite the widespread cynicism over its motives and criticisms of the indeterminacy of its rules and practices, the BRI offers little substantive challenges to the international order as we know it, because it is orientated towards increased trade and market access. In fact, what China seeks to capture are the twin benefits of improving its international environment through infrastructure and the employment of surplus capital in the form of FDI. In other words, Western scholars may have been essentializing a legal adversity with China without perhaps understanding or indeed defining other dimensions of challenges in China’s investment law and policy. The undefined BRI rules of engagement and other notions emanating from the Chinese national governance system may challenge rule of law notions accidentally, and this may have unintended consequences.

This notion is best explained by Lee Jones of Queen Marry University of London, who asks “Does China’s Belt and Road Initiative Challenge the Liberal, Rules-Based Order?” He states, “China seeks a way to cooperate across value divides by setting aside ideological and cultural differences and focusing on shared material gains.” He suggests that “the essence of the BRI as a spatial fix for Chinese capitalism, and party-state’s governance regime, will inevitably generate challenges to existing global rules, irrespective of the intentions of the authors of [the B&R Document] and [Building the Belt and Road: Concept, Practice and China’s Contribution (the “B&R CPCC”)] . . .”

This is not the end of the regionalism debate. It is not even the beginning of the end. Ever since it was put forward for the first time in 2013, the BRI has attracted attention, not just regionally, but all over the world. The BRI has been difficult to comprehend not only as a new kind of economic and political ordering created by the emergence of China as a regional hegemon, but also in terms of its classification within a spectrum of trade categories with a specific and technical meaning. The BRI is sui generisinitiative, focused mainly on infrastructure. It is governed, so far, by bilateral agreements and treaties backed up by a set of principles and guidelines that do not have an overall body of governing law or a coherent set of institutions to formulate, interpret, or enforce them.

The jurist John Jackson, who played a key role in the creation of the WTO, has argued that the international economic legal system can accommodate a multiplicity of systems and economic modalities. If this is so, then it can be argued that what the BRI would like to achieve is more than a free trade area but less than a common market. By providing an open, inclusive and balanced investment and trade cooperation platform, the BRI aspires to achieve a community of “common destiny.” During the construction process; investment, commercial, or trade disputes between individuals, undertakings, institutes, authorities, and states engaging within the BRI cannot be avoided. However, there is no simple dispute resolution mechanism that could efficiently resolve the above-mentioned conflicts.

Against the background of continuous controversy and massive investment flows, at a minimum, the BRI clearly requires an international dispute resolution mechanism. This could be affiliated with the Asian Infrastructure Investment Bank (“AIIB”), one of the few multilateral institutions within the BRI ecology, thereby giving it an international organization credibility, international law standards, and a form of governance that is not entirely Chinese.²³Mediation may provide the model form of dispute resolution for the BRI and the BRI Participating Members, deriving a spirit of access to justice and rule of law to accommodate their tremendous diversity, sensitivities, and peculiar political and legal complexities.

For the sake of renewed and enhanced internationalism, we should not expect that China will not remain the driver and engine behind the BRI. The time has come to define terms of engagement for this new spirit of pluralism even if anchored on the foreign-ness of traditional Chinese notions of “harmony” as long as they are smart, transparent, fair, and efficient. This needs to be premised on international standards and rules that allow for harmonization and the efficient resolution of disputes that arise along the BRI. Ultimately, grand strategies and visions must never jeopardize the long and promising road ahead for the future of a rule of law global order.

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Content, Online Scholarship, Perspectives

UK and Canada Domestic Courts’ Game-changing Rulings and International Custom: A Dress Rehearsal for Global Sustainability Law?

June 23, 2020

By: Anna Aseeva

Introduction

Just before most industrialized countries came to a standstill due to the 2020 Coronavirus (“COVID-19”) pandemic, two domestic courts in the United Kingdom (“UK”) and Canada issued groundbreaking judgments, which somewhat passed under the “radar” of public opinion relative to their importance in global sustainability. The two rulings were issued within 24 hours between February 27 and 28, 2020. These rulings outlined the foundation for sustainability obligations, including new obligations under international customary law. These obligations under international law concern environmental and human rights due diligence.

A rising number of voices suggest that the response to COVID-19 is bound to offer a dress rehearsal for global approaches to climate change and global inequalities. I cannot join those enthusiasts, for such a dress rehearsal might be mitigated in distributional terms, especially for people and regions outside the privileged bubbles of the Global North, for whom that dress rehearsal is not a matter of choice. Therefore, I submit that, while the primary role of domestic courts has not changed as such, their part in what I would call “sustainability litigation” is likely to positively influence the existing approaches to climate change and global inequalities in international law. In this post, I elaborate on that by analyzing the two most recent, crucial examples of such litigation.

R v. Secretary of State for Transport **(the Heathrow Ruling)**

In its decision on February 27, 2020, already baptized as “the Paris Agreement ruling,” the United Kingdom Court of Appeal (“UKCA”) ruled that climate change is a crucial concern before a state authority could consent to a climate-sensitive national policy. The environmental campaign groups Plan B and Friends of the Earth brought the case to the court arguing that the expansion of Heathrow Airport would jeopardize the UK’s ability to substantively reduce the greenhouse gas (“GHG”) emissions necessary to meaningfully fight climate change.

In ¶ 284 of its judicial review of the lower court’s ruling, the UKCA reaffirmed the unlawfulness in the conduct of the UK Secretary of State for Transport. The court found that the Secretary breached UK’s international obligations and domestic law, when he agreed to the expansion of Heathrow in the government’s 2018 Airports National Policy Statement described in ¶ 283.

Discussion

This judgment puts the obligations of the UK, and also of all parties to the Paris Agreement, to significantly reduce GHG emissions at the forefront of global and local sustainability policymaking. The ruling that the relevant authority’s administrative appraisal of the planned activity was not produced as the law required (¶ 283) drew on different sources. Those included national law, such as UK Strategic Environmental Assessment Directive, and the UK Government’s policy and international commitments on climate change, notably the obligations under the Paris Agreement, according to ¶¶ 222–238, 242–261.

Given that unincorporated treaties do not ordinarily produce direct binding effect in UK law, the Paris Agreement became relevant to the decision under UK law in a rather circuitous, yet pragmatic way. The UKCA refrained from identifying specific national planning or types of administrative assessment that may give rise to public authorities’ duties and accountability in case of lack of due diligence and/or other lacunae in the authority’s administrative appraisal of the planned activity. The ruling allows for its findings to be applied in a number of broad contexts, including climate change. The UKCA’s flexible and pragmatic approach is likely to allow future claimants, including climate advocates and broader civil society, to request that the planning procedures ensure that the dedicated authorities assess the climate impacts that are likely to result from the activities it approves in relevant national policies.

It is difficult to overestimate the court’s verdict in the context of Brexit. The judgment timely reaffirms the UK’s climate obligations under international law as the UK is leaving the European Union (“EU”). At the same, the ruling may have both short-term national and long-term global consequences for infrastructure and fossil fuel projects, since the global political economy still heavily relies on extraction. As Heathrow airport is a “bastion of the global fossil fuel economy,” the court’s stance may imply the UK Government’s obligation to reassess related national policies to ensure they are in line with the Paris Agreement. These could include revisiting subsidies offered to UK extractive and energy companies, or even reviewing and/or revoking licenses for the exploration for fossil fuel.

Last but not least, the ruling also arguably adds to the debate on establishing a particular obligation under customary international law for states to conduct a climate assessment. The climate assessment may differ from, or alternatively make part of, an environmental assessment invoked above, which is a proceeding to measure possible environmental consequences of relevant activities of national planning.¹ While in a transborder context, the obligation to carry out an environmental assessment is currently recognized as a general obligation under customary international law,² a similar obligation concerning climate assessment in the context of a global environmental harm, namely GHG emissions, does not seem to have been accepted as law. For example, unlike the rather clear states’ duties to perform environmental assessment, in the case of conducting climate assessment, one needs to first determine who owes such duty to whom and why. Following relevant international case law, climate change—plainly a global common concern—may make the duty to conduct climate assessment an erga omnes obligation owed to the international community as a whole (South China Sea, ¶ 927; Whaling in the Antarctic, ¶ 226). This erga omnes option is though far from undisputable (ILC 2018, conclusion 3, ¶ 4).

Nevsun v. Araya **(the Nevsun Ruling)**³

Across the pond, the Supreme Court of Canada (“SCC”) released its long awaited decision in Nevsun Resources Ltd. v. Araya (“Nevsun”) on February 28, 2020. Note that the numerous interveners in this case consisted almost exclusively of academia and civil society, including scholars, law clinics, and human rights litigation advocates. The suit was initiated in November 2014 in British Columbia by three Eritrean nationals, refugees in Canada, who sued Nevsun Resources Ltd., a Vancouver-based mining company, for its complicity in violent, cruel, inhumane, and degrading treatment at Bisha Mine, owned and operated by the Bisha Mine Share Company (“BMSC”) (Araya v.Nevsun Resources Ltd. (“Araya”), ¶ 33), where Nevsun held an indirect majority of a 60% interest and the other 40% being held by the national mining company, an arm of the Eritrean government (Nevsun, ¶ 7).

BMSC subcontracted the construction of the Bisha Mine to the Engineering, Procurement, and Construction Manager (“EPCM”), and the EPCM then further outsourced to other subcontractors owned by members of the Eritrean military (Araya, ¶ 26). The former workers claimed that the subcontractors forced Eritreans conscripted into the country’s National Service Program (“NSP”) to provide their labour at the mine in degrading and inhumane conditions (Araya-Appeal, ¶¶ 3–4). They also sought damages on behalf of all Eritreans that had been forced to provide their labour at that mine since September 2008 (Araya, ¶ 48). Their claims were based on violations of peremptory norms of customary international law, namely, forced labour, slavery, cruel, inhumane or degrading treatment, and crimes against humanity (Araya, ¶ 2).

In its appeal to the SCC, Nevsun argued in part that the court should strike the portion of the respondents’ claim based on customary international law, as it did not on its own create a cause of action. Rather, the respondents’ claims would require the development of new torts, which is a task for the legislative, not the judiciary. (Araya, Appellant’s Factum, ¶ 61). In January 2019, the appeal ended up before the SCC.

On February 28, 2020, the SCC decided that, to the extent customary international law norms have been adopted into Canadian law, they bound Nevsun as a Canadian corporation (Nevsun, ¶ 132).

Discussion

In a 5 to 4 landmark judgment, the majority of the SCC recognized Canada’s international human rights obligation to provide an effective remedy (Nevsun, ¶ 119) and ruled that “it was not plain and obvious” that Canadian courts cannot develop a civil remedy in domestic law for corporate violations of customary international law that is part of Canadian law (Nevsun, ¶ 122). Moreover, this could be done either through the development of new torts or through a direct remedy for violations of customary international law (Nevsun, ¶¶ 127–128).

The SCC held that the civil lawsuit could go forward and that the British Columbia Supreme Court would have to decide in September 2021 whether Nevsun breached customary international law and, if so, how such harm should be remedied (Nevsun, ¶ 131). This decision opens the door for more cases to be brought in Canadian courts for violations of human rights or failure to engage with environmental due diligence against Canadian extractive corporations operating transnationally.

While Nevsun is a seminal judgment in terms of opening Canadian courts to these types of claims, it may also be persuasive in other common law jurisdictions. It is in many ways a landmark ruling that will surely be referred to in relevant future decisions. In that regard, it has the potential to take the international community where the Supreme Court of the United States’ Kiobel v. Royal Dutch Petroleum 2013 ruling was hoped to take it: to a creation of extraterritorial tort liability of corporations for serious environmental, fundamental rights, and related abuses. If more states recognize such new torts based on customary international law or direct liability in customary international law, it will contribute to state practice and opinio juris on this issue. That would make it much more difficult for states and businesses to contest the idea that corporations have international environmental and human rights obligations.

General Implications

Both rulings demonstrate that if a state (the Heathrow ruling) or a company (Nevsun) breaches the sustainability norms of international law, it may now be held liable under domestic law. Here, however, an important reservation is in order: whether international law—custom or treaty—may require obligations for states or corporations in domestic law is subject to each specific national jurisdiction. On the other hand, the participation and input made by non-state actors in both cases (environmental campaign groups in Heathrow; workers, local populations, and human rights advocates, including academia and non-governmental organizations, in Nevsun) may activate necessary developments in interstate practice that can end up generating custom.

What to Expect Next

Both rulings are expected to have significant implications in international law, in particular, international investment law and arbitration. Regarding the Heathrow decision’s climate change law dynamics, since the Maffezini v. Spain award, international investment arbitration has presented a heterogeneous set of precedents on domestic measures relating to environmental assessment. Overall, environmental assessment is likely to “inevitably be of great relevance for many kinds of major investments in modern times” (Bilcon v. Canada, ¶ 597). A customary obligation to conduct a climate assessment is about to emerge. Yet its complete acceptance faces scepticism that GHG emissions represent a global cumulative environmental harm, and thus, that the obligation to protect the atmosphere is an erga omnesobligation.

In the specific Heathrow case, the court did not explicitly mention anything related to the debate whether there was a clear obligation under customary international law to conduct a climate assessment. Nor has the UKCA relied on customary international law or said anything that would contribute to an opinio juris that such an assessment was required. However, if the Heathrow ruling activates the relevant preexisting decisions of domestic courts (Gray v. Minister for Planning; Greenpeace New Zealand v. Northland Regional Council), supports the ongoing climate lawsuits, such as Zoubek et al. v. Austria or Notre Affaire à Tous and Others v. France, and triggers new ones, I suggest that that would arguably create the necessary amount of evidence of acceptance of climate assessment as law through the element of the formation of international custom through the rulings of national courts (ILC 2018, conclusion 10, ¶ 2).

As to international human rights obligations of corporations, in the paradigmatic 2016 Urbaser v. Argentina (“Urbaser”) counterclaim, the investment tribunal held that, while the norms of customary international law provide for a duty to perform for certain rights, jus cogens norms lay down a universal obligation of “the international community of states in its entirety” to abstain from committing certain acts under Article 53 of the Vienna Convention on the Law of Treaties (“VCLT”). In Urbaser, the human right to water was determined as an obligation to perform, implying a state obligation to provide its population with water (¶ 1208). The arbitrators ruled that the situation would have been different in a case where an obligation to abstain, such as a prohibition against acts violating human rights, would have been at stake. Such an obligation can be immediately applied, not only on states, but equally on individuals and other private parties (¶ 1210). This assertion, it is argued, extends beyond human rights norms framed as customary international law to those human rights framed as prohibitions—jus cogens. While in Urbaser, the arbitrators did not specify which norms bound foreign investors, in the Nevsun ruling, the judges were quite clear that these prohibitions could apply to foreign private companies.

Although not in contradiction with the Urbaser tribunal’s reasoning, in Nevsun, the SCC goes far beyond regarding the obligations of companies under international law. It plainly concludes that there is no reason for customary international law (with no distinction between positive and negative obligations) to not directly apply to corporations for violations of obligatory, definable, and universal norms of international law (Nevsun, ¶ 113). It is even argued that, had the Urbaser tribunal followed Nevsun’s interpretation, the investor would have clearly been in violation of its duty to perform—a positive obligation to ensure citizens’ international human right to water. Nevsun’s logic would make it a direct obligation under international law instead of a mere contractual obligation.

Concluding Remarks

To conclude, the two rulings offer an alternative dress rehearsal to the one promoted by the proponents of the “COVID-19 dress rehearsal.” These judgments show how different actors and society at large deal with the conflicts of jurisdictions and clashes of norms regarding sustainability issues today. The rulings will shape how we understand state and corporate direct liability of human rights and environmental due diligence under international law.

More broadly, these rulings underline the importance, and, indeed, ways of going beyond a plain, unitary boundary to capture the different legalities in the global order, yet involving modern international law properly through the use of its primary sources. Besides, the two rulings offer a more balanced system that better integrates strategic litigation, aspirations for local participation and pluralistic legal representation, as well as concrete sustainability considerations. In sum, such law allows a less hierarchical and unequal, more horizontally applicable and definitely a more inclusive model of a “post-national” law that could be seen as emerging global sustainability law.

Editors: Natasha Nicholson Gaviria; Beier Lin

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Content, Online Scholarship, Perspectives

Security and Human Rights Challenges of Cyber Due Diligence

June 17, 2020

By: Adina Ponta

Editor’s Note: This article does not reflect the views of the American Society of International Law or its members.

Introduction

After states, international organizations, and international coordinating fora, including the United Nations Group of Governmental Experts on Developments in the Field of Information and Telecommunications in the Context of International Security (“UN GGE”), endorsed application of international law to cyberspace, the debate shifted to questions of how existing principles, rights, and obligations should be interpreted in regard to cyber activities.

As reaffirmed by the Tallinn Manual 2.0, several principles and rules of conventional and customary international law derive from the international law principle of sovereignty, including the “corollary” principle of non-intervention. Although states and scholars have different views regarding the legal qualification of sovereignty—either as an international law principle or as a rule —it is accepted that in cyberspace, sovereignty reflects states’ exclusive legal authority over their cyber infrastructure and activity associated with it, as well as jurisdiction over the persons engaged in cyber activity, including control of non-state cyber operations launched from their territory.

The modern due diligence principle derives from the ancient maxim sic utere tuo ut alienum non laedas, meaning use your own property in such a manner as not to injure that of others. In 2019, the Estonian President noted that “[s]overeignty entails not only rights, but also obligations,” reaffirming views expressed by Australia, France, Germany, and the Netherlands. In this regard, a state may be held responsible for the conducts of private persons if (1) upon attribution, these acts are considered to be acts of the state itself, or (2) if a state has violated its obligation “not to allow knowingly its territory to be used for acts contrary to the rights of other States,” as emphasized by the International Court of Justice (“ICJ”) in the Corfu Channel case.

Cyber Due Diligence

Deriving the obligation of due diligence in cyberspace from the principle of equal state sovereignty, Rule 6 of the Tallinn Manual 2.0. notes states’ obligation to ensure that the territory or cyber infrastructure under their control is not used for cyber operations that affect the rights of, and produce serious adverse consequences for, other states. The due diligence principle covers remote operations and operations conducted from or through state territory that affect the legal rights, and not mere interests, of other states. As mentioned by the director of the Tallinn Manual Process, this includes, for example, the right to be free from intervention by another state.

In the environmental law context, due diligence has been recognized as a principle of customary international law by international tribunals, including the ICJ, and in treaties, such as the UN Framework Convention on Climate Change. However, under lex lata, cyber due diligence has no binding nature, therefore, its scope and consequences of non-compliance are still grey areas of international law, as reflected by the 2015 UN GGE report. The vague language might indicate a lack of state endorsement that the due diligence duty is reflective of customary international law. The rejection of a mandatory due diligence rule within the UN GGE, which might as well represent valid opinio juris, mainly underlies fears of burdensome oversight obligations such a rule would impose on states with massive technological capabilities.

In contrast to the absence of consensus which determine the general language used in the statements of international organizations, individual states often chose to assert more granular statements. Official endorsement of due diligence as a rule of international law, by the Netherlands, France, Germany, Estonia, and Finland, translates into accepting the consequences of internationally wrongful acts, such as political or diplomatic actions, including those implemented via the U.N. Security Council. In the French view, non-compliance with the due diligence rule, including failure to terminate operations which violate the sovereignty of another state, may be followed by non-forcible countermeasures. Due diligence could be especially valuable in the assessment of legitimate responses to actions committed by non-state actors, as countermeasures can be lawfully applied only against states. The answer to this dilemma could be another question: did the host state of those actors breach its due diligence obligation?

The Preventive Component of Due Diligence

The application of the French maxim “Qui peut et n’empêche, pèche” (He who can and does not prevent, sins) in the cyber realm is very controversial. According to the International Law Commission (“ILC”), states are expected to employ vigilance on their territory, a duty that has developed in relation to their responsibility for private activities. Although it is agreed that due diligence is an obligation of conduct, there is no consensus on its content, nor on whether this duty also entails a preventive aspect, which in case of violation would constitute an internationally wrongful act. Prevention, the procedural component of due diligence, is reflected in the European Union (“EU”) General Data Protection Regulation (“GDPR”), and has been endorsed by the World Trade Organization (“WTO”), by the International Tribunal for the Law of the Sea (“ITLOS”), and, in the environmental context, by the ICJ. By analogy with international environmental law, states would have to assess the cyberactivities within their jurisdiction, similar to the obligation to conduct an environmental impact assessment, when there is a likelihood that transboundary harm would occur from these activities.

The Netherlands does not include mandatory cyber hygiene or network monitoring obligations for prevention of misusing cyber infrastructure in the scope of the due diligence duty. This approach is endorsed by the director of the Tallinn Manual Process, i.e. the due diligence principle would be limited to contexts of ongoing hostile operations, and is violated only if states have knowledge of the misuse of their sovereign territory. Some experts admit that the rule can be expanded to operations which are not ongoing, but very imminent, while the results have not yet materialized.

A major challenge to an enforceable obligation to prevent is different economic and technological state capabilities, although the fundamentals of state responsibilities are common. While the Estonian President implied the existence of preventive obligations on states, she included the development of assistive means to support target states in the attribution and investigation of malicious activities in the scope of “reasonable efforts,” depending on states’ capacities. Moreover, if the duty to prevent is regarded as encompassing an affirmative state obligation to enact domestic legislation, due diligence might also comprise obligations of result. Consequently, due diligence could act as a Trojan horse to justify mass surveillance that limits human rights and liberties, including the right to privacy.

States are not required to remedy all transboundary harm, but only the harm resulting in “serious adverse consequences,” a term borrowed from international environmental case law. Regarding the threshold of harm to trigger due diligence obligations, the Tallinn Manual 2.0. embraces the standard of “serious adverse consequences,” and specifies in Rule 4 distinct levels of harm which may result from a hostile cyberoperation. States’ obligation to prevent transboundary harm is conditioned by knowledge about the cyberoperations conducted using their territory or cyberinfrastructure. In line with the Corfu Channel judgement, this is broken down into “actual knowledge” delivered by domestic intelligence services or from warnings received from the target state, and constructive knowledge, i.e., if the state, in the normal course of events, would or objectively should have known about the harm. The “constructive knowledge” reflects the inherent characteristics of due diligence and good faith: hypothetical reasonable limits and assessment depending on feasibility of means.

Due diligence is an objective principle of law, but its assessment represents a sliding scale based on different factors, such as knowledge, capabilities, risks, and consequences, which confer the necessary flexibility and plasticity to evaluate whether the expected vigilance was met. In some views, when the standard of care is unclearly determined by a certain rule, states should resort to the ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts (“Draft Articles”), which suggests negligence as the standard of due diligence. According to the International Law Association (“ILA”) Study Group on Due Diligence in International Law, this requires states to act with care that is “generally considered to be appropriate and proportional to the degree of risk of transboundary harm in the particular instance.” Therefore, the standard of review should be in abstracto, i.e., whether another state would have reasonably known in similar circumstances. The main challenge remains to be the standard of proof victims have to meet when demonstrating that a state was aware about the hostile cyber operations conducted on its territory, and will likely become probatio diabolica for victims.

The concrete means employed by states to stop ongoing operations can be manifold. In the Netherlands’ view, the target state may “ask the other country to shut down the servers, regardless of whether or not it has been established that a state is responsible for the cyberattack.” Although the obligation of notification was clearly affirmed by the ICJ in the Corfu Channel case as a general principle of international law, according to the Tallinn Manual 2.0, it does not necessarily imply a specific obligation to notify the target state, as this would disclose the host state’s capabilities. The balance of interests is very delicate, if such a notification is the only means to end the ongoing hostile cyberoperation, or if the cyberoperation would harm fundamental human rights, as was the case during the recent cyberoperations against medical facilities. While in this case failure of notification could represent a breach of international human rights law, a reasonable accommodation of state interests and human rights shall be found in order for the states to comply with due diligence principle which is only breached by states when they are aware of certain harmful operations but are unwilling to end them.

Intersections with Human Rights Law

States’ obligations to safeguard human rights apply in relation to individuals located on their territory, and to states’ obligations under international law to prevent transboundary harm. Although application of international human rights law(“IHRL”) to cyberspace is widely recognized, the majority of states don’t regard the geographic scope of human rights treaty obligations as being “extraterritorial,” and consider themselves to have affirmative obligations to prevent and respond to human rights violations only on their territory. Transboundary obligations only arise when a state exercises real or de facto control and authority over another territory. I have argued before the complexity of establishing states’ responsibility to the hospitalized individuals who were injured or lost their lives as a consequence of a cyber act that could have been prevented. In relation to their own citizens, states’ obligation to provide cybersecurity will have to be integrated within the scope of the right to life, the right to health, and the right to freedom and security, in order to further trigger the relevant reparation mechanisms provided by regional and international human rights instruments. The right to health is safeguarded by the International Covenant on Economic, Social and Cultural Rights (“ICESCR”), which the United States has not ratified to date.

Human rights bodies have attached to the due diligence principle a duty to investigate and to prevent. Although the majority view is that this principle does not impose on states a general obligation of prevention, IHRL safeguards a specific duty of prevention, including the duty to limit and prevent human rights violations in cyberspace. Addressing the right to health, the UN Committee on Economic, Social, and Cultural Rights (“CESCR”) noted that “States parties [to the ICESCR] have to respect the enjoyment of the right to health in other countries.” Moreover, according to the Maastricht Principles on the Extra-Territorial Obligations of States in the area of Economic, Social and Cultural Rights, states should be held accountable for violating human rights of people outside of their own territories. Although this article does not intend to analyze the legal effects of the CESCR language, this logic implies that even if states do not recognize the application of the due diligence principle and its preventive component, their obligation to prevent transboundary harm, including the harm resulting from hostile cyberoperations on medical and testing facilities, could be derived from transboundary IHRL obligations, or the universality of human rights.

The theory that these positive duties under IHRL, including a reasonable due care requirement, can and should arise under international law in extraterritorial circumstances has already been discussed in other contexts, especially related to international law applicable to the environment. While reaching a balance between protection of individual rights and national security is very complex, states’ operational choices to comply with their obligations shall consider national resources, without derogating from absolute human rights. According to the European Court of Human Rights, this positive obligation to take preventive operational measures shall “not impose an impossible or disproportionate burden on the authorities.” Rule 36 of the Tallinn Manual 2.0. notes states’ affirmative obligation to ensure respect for human rights and to protect human rights from abuse by third parties. If the due diligence obligation will be interpreted as including a governmental duty to ensure backup power generators to medical facilities or testing databases, the scope of human rights in the artificial intelligence era will expand exponentially.

Conclusion

Although due diligence is not widely endorsed as a binding rule of international law, there is currently widespread support of this non-binding norm of responsible state behavior. There are still concerns that its clarification offers opportunities for states to allege more breaches of international law and increase the frequency of countermeasures, which ultimately hamper stabilization of this international law principle in cyberspace. Fortunately, for the purpose of protecting their national security, most states would act with due diligence simply because it is in their domestic and foreign policy interest. The challenge remains of how to legally address transboundary human rights violations of hostile cyberoperations in the absence of a unitary approach on transboundary effects of states’ human rights obligations and given the non-binding nature of due diligence. Customary international law, including parts of the Draft Articles, might be the answer in case of unlawful and attributable state actions, although their application to the cyber domain is also disputed.

Given the fact that the principle of sovereignty is under most pressure in this domain, and due diligence is one of the main means of applying pressure, development of state practice over the next few years is crucial. Cyberoperations are a reality the international community needs to face, and as there are no means of returning to the old status quo, it needs to find a modus vivendi with all implications of the new realities. For increased stability and accountability in cyberspace, and for a widespread understanding and agreement regarding the applicability and interpretation of lex lata, it is critical that states not only affirm the general applicability of international law in cyberspace, but also expressly label hostile cyber operations as violations of specific international law rules and principles, such as due diligence.

Executive Editor: Yixian Sun

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Comment, Online Scholarship

Regional Trade Agreements and Global Justice

May 1, 2020

By: Damjan Kukovec

Introduction

Regional trade agreements (“RTAs”) have become a fundamental mode of international trade negotiation and regulation. The further reduction of tariff and non-tariff barriers and general collaboration between nations in trade matters is now primarily negotiated within the setting of RTAs. Therefore, the number and the scope of RTAs since the early 1990s is unparalleled, due to the stalling of worldwide trade negotiations.

RTAs include the North American Free Trade Agreement (“NAFTA”), the Regional Comprehensive Economic Partnership (“RCEP”) between the Association of Southeast Asian Nations (“ASEAN”), the envisaged Trans-Pacific Partnership (“TPP”) between twelve Pacific-rim countries, the Canada-EU Comprehensive Economic and Trade Agreement (“CETA”), the envisaged Transatlantic Trade and Investment Partnership (“TTIP”) between the United States and the European Union, which would account for almost half of global GDP, and others. TTIP and CETA involve only advanced economies whereas RCEP and TPP are trade agreements between developed and developing countries.[1]

RTAs’ potential beneficial effects for national economies are highly contested.[2] Because of their immense scope and depth, RTAs have been termed “mega-regional agreements” and raise concerns of democratic governance, legality, and economic distribution. Moreover, RTAs exclude third parties, which poses concerns from the perspective of global justice. Market actors, including entire countries, excluded from deals struck by other parties can suffer economic hardship as a result of trade diversion caused by these agreements.

Daniela Caruso’s outstanding article, “Non-Parties: The Negative Externalities of Regional Trade Agreements in a Private Law Perspective,”[3] addresses the need for remedies from trade diversion by RTAs through the lens of private law. Contracts by their nature exclude third parties. Private law limits to contractual freedom thus offer analytical insights into possible remedies for harm to non-parties of RTAs. This analysis argues, however, that Caruso’s contentious starting point, that participation in an RTA is beneficial and an exclusion from an RTA harmful, puts into question the subsequent exploration of remedies based on this assumption.

After addressing the various challenges raised by RTAs and avenues for non-parties to challenge their legality, this analysis focuses on constructing remedies for harm resulting from trade diversion in view of “global justice.” It draws on lessons from antitrust law, another field of law foreseeing limits to freedom of contract in addressing global inequality, to show that remedying concerns understood as “social” does not necessarily contribute to the progressive distribution of resources. It concludes by arguing that the hierarchical structure of global production needs to be considered when addressing inequality perpetuated by trade diversion by RTAs as well as by the existing multilateral WTO trade regime.

Challenges of Regional Trade Agreements

Regional trade agreements historically played the role of an exception to the rule of multilateral trading negotiations. Today, instead, they are the driver of international trade liberalization. This raises several challenges of democracy and legality.

Historical Perspective

Trade policy under the WTO used to be agreed on in a multilateral negotiation setting. The WTO’s establishment in 1995, coupled with the Uruguay Round, maintained a profound impact because of the “single package” idea, whereby each WTO member accepts almost the entire package of trade rules.[4] Today, the commitment to multilateralism is now fading worldwide.[5] The largest trading powers, such as the United States and European Union, are abandoning multilateralism in international trade policy. While the United States and the European Union called for the conclusion of the Doha Round, the latest round of multilateral trade negotiations, developing countries expressed a desire to keep the agenda alive.[6]

The rise of China has been argued to have contributed to the demise of multilateralism and the WTO dispute settlement system.[7] The WTO possesses limited ability to resolve frictions between trading partners stemming from the specificities of the Chinese internal economic system.^[8] Thus, the advanced economies that set up the multilateral WTO system have turned elsewhere to cope with the rise of China.[9] For example, one of the goals of the TPP was to address the perceived trade imbalances between China and the United States.[10]

While RTAs do not pursue the goal of political integration,[11] they can have clear political and geostrategic goals. For the Obama administration, one of the main goals of the TPP was limiting Chinese influence in regional trade.^[12] By imposing a single legal regime on trade throughout a region, RTAs offer incentives to firms to partner with others in the region. As the dominant party in the TPP, the United States would have controlled future access to that zone. In comparison, those not participating in these large trading blocks are marginalized. Besides promotion of free trade, other parties’ marginalization can thus be one of the most important goals, or unintended consequences, of RTAs.

Recent RTAs: Mega-regionals’ Purpose and Critiques

Recent RTAs, which have been, due to their scope and geographical breadth, called ‘mega-regionals’, are not only free trade agreements entailing tariff reductions. The desire to write new rules is also an important driver of these agreements. As United States Vice President Joe Biden candidly said, the general aim is “to help shape the character of the global economy.”[13] These more recent RTAs, therefore, aim at harmonizing regulation, customs, and e-commerce. Additionally, they can address a range of other issues, including labor standards, environmental protection, foreign investment, and government procurement.

The new common rules also cover topics that include public health and product safety standards and setting limits to state-owned enterprises.[14] Amid rising concerns over intellectual property protection and cybercrime, one of the most important elements of RTAs may be their new rules for digital trade.[15]

According to Noah Chomsky, RTAs have little effect on reduction of tariffs, which are, in his words, already low between major trading partners.^[16] Instead of promoting free trade, he argues RTAs are highly protectionist, cementing the rights of investors and effectively raising tariffs by recognition of patents with enormous impact on economies.[17]

RTAs are expected to have a major effect on the regulatory powers of the participating states, as they touch almost all elements of economic life.[18] Hence, challenges to democracy by RTAs have been highlighted and resulted in calls for transparent processes that will ensure that the institutions set up by these agreements are sufficiently sensitive and accountable to all relevant stakeholders.[19]

RTAs’ Potential Legal Concerns

Furthermore, the breadth and scope of RTAs have also raised concerns about their legality. RTAs could be understood as a form of monopolized trading, due to the furthered collaboration that increases productivity internally between the contracting parties, simultaneously excluding other trading partners. The WTO system has traditionally been permissive of arrangements that provide more advantageous market access in the form of lower tariffs or related border measures to parties in a free trade area (like NAFTA) or in a customs union (like the European Union).[20] Specifically, Article XXIV of the General Agreement on Tariffs and Trade (“GATT”) provides an exception to the Most Favored Nation (“MFN”) obligation, with respect to border measures when it is necessary to create and maintain such preferential arrangements.^[21]

Despite the general permissiveness, there have been, however, cases when the WTO/GATT ruled that some arrangements went too far in excluding others when extending tariff reductions to a closed circle of members. In the case Turkey-Textiles, India filed a complaint against Turkey’s reinstatement of quotas on their textiles in light of Turkey’s entrance into the customs union with the European Community.^[22] The Appellate Body ruled that quota reinstatement was not necessary for Turkey’s privilege to enter the customs union.[23] Similarly, in the EC-Tariff Preferences case, India complained about being unduly left out of the European Community’s scheme granting special preferences to some developing countries in exchange for their collaboration in the fight against international drug trafficking.[24] The Appellate Body ruled that discrimination among similarly situated beneficiaries is not in line with the Enabling Clause 1979, which provides for preferential arrangements for developing countries.[25] Legal limits, therefore, currently exist under the WTO/GATT system to RTAs’ freedom to set up preferential tariff systems.

Furthermore, Robert Howse questions the legality of the elimination of non-tariff, i.e. regulatory, barriers by RTAs. He argues that Article XXIV of GATT, which sets out the requirement of an MFN, does not permit a regional trade agreement to result in an overall increase in trade restrictiveness by non-tariff barriers toward third parties who are WTO members outside of the preferential arrangement.^[26] This occurs when such an agreement shuts out third country producers who do not meet a certain standard and who, prior to the exercise of regulatory cooperation by an RTA, might have been able to sell their products to one or more countries within the free trade area.[27]

Non-tariff barriers would generally need to be justified based upon objective policy considerations for any differences in regulatory treatment.[28] Howse concludes that to be consistent with WTO norms, avenues of enhanced regulatory cooperation, specifically with regard to the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”) and Agreement on the Technical Barriers to Trade (“TBT Agreement”), must be opened up to all WTO members where the conditions are appropriate for their participation.[29]

There are two broad avenues open to potential litigants who wish to challenge the legality of trade diversion. The first avenue would be a claim for violation of WTO rules, as described by Howse. The second would be the so-called “non-violation” clause, which allows one GATT/WTO member government to seek compensation from another for adverse trade effects of the other’s policies; even though such policies would not violate specific GATT/WTO treaty obligations, there would be an “adverse change in competition.”^[30] In other words, the latter pathway, the “non-violation clause,” can be invoked in case of the violation of legitimate expectations held by harmed trading partners.[31] General trade conditions pre-dating the respondent’s conduct would be used as a measure to determine the existence and scope of the harm resulting from the change in patterns of trade. The analysis of the negative distributional impact of RTAs, the adverse change in competition, would then come to the foreground.

Distributional Concerns and Participation in RTAs

RTAs create winners and losers and thus raise important overtly distributional concerns. The concern that third parties, especially developing countries, suffer harm from trade diversion caused by recent RTAs warrants an exploration of a more robust protection than currently envisaged by the WTO system, notably by creating new remedies or by increased participation of third parties in RTAs.[32]

RTAs’ Potential Distributional Concerns

In her article, Daniela Caruso is concerned that RTAs’ exclusive reduction of tariff- and non-tariff barriers vis-à-vis a limited number of countries may lead to trade diversion and, therefore, harm third parties. Should the legal system foresee remedies which would allow third parties to request internalization of costs by the contracting parties?^[33] Looking outside the article, Ronald Coase’s reply would be that internalization of costs by contracting parties may not be necessarily the most socially desirable; instead, an assessment of the total social arrangement needs to be made.^[34]

Yet, maximization of overall wealth is not Caruso’s goal. Caruso’s aim is global justice and increased global equality. She fears that trade diversion may be antithetical to the “progressive distribution of resources.” She argues for remedies to harm from trade diversion from the perspective of the global South.^[35] Developing countries excluded from RTAs are likely to suffer losses in trade and competitiveness. Should RTAs redirect trade flows, these countries could also have a harder time accessing capital and technology.^[36]

There have been several suggestions for risk management of RTAs. Bohnenberger has called for an extension of mutual recognition of norms and technical standards to non-member country producers. ^[37] Companies from third countries would thus be allowed to sell throughout the mega-regional provided they meet the standard of any member in the agreement.^[38] He also suggests that the threshold at which inputs are considered domestic to contracting parties should be set as low as possible.^[39] This would enable third countries to keep participating in existing value chains.^[40]

How does private law analysis add to the discussion addressing the negative externalities of RTAs? Caruso argues that when fully articulated, the analogy with private law calls for a heightened focus on contracts’ negative externalities and on the crucial policy questions that are involved in letting a system of discrete contracting replace multilateralism in world trade.^[41] She contends that from a global justice perspective, the negative externalities suffered by struggling economies as a result of new RTAs are a worthwhile subject of investigation, and private law allows for some progress in this line of inquiry.[42]

As a starting point of her analysis, Caruso uses the private law assumption that each sale of goods—a contract between a given seller and her customers—takes wealth away from that seller’s competitors in the context of regional trade agreements.[43] In short, they divert trade from non-participant to participant countries.^[44] The resulting harm is assumed to be antithetical to justice concerns and to progressive distribution of resources.^[45] Remedies, therefore, need to be found to accommodate non-parties.

The starting point of the analysis is contentious, however, which puts into question the subsequent exploration of remedies based on this assumption. Under this private law assumption, a transaction is deemed beneficial and exclusion from a transaction is understood as harmful. Harm, however, does not only result from non-participation in the free trade system, but also from participation in the system.^[46] Harm arguably always results from creative destruction in a capitalist economic system.^[47] For example, innovation and new practices destroy the old, employment patterns change, and productivity is increased.[48] It is a never-ending process of destruction and creation that should allegedly weed out the sluggish and the inefficient. Every competitive practice has victims and every free trade change or preservation of status quo has winners and losers. Creative destruction and consequential trade diversion thus occurs constantly in the global trading system. It occurs by opening up markets to competition as well as, though differently, inside closed markets. It occurs in an inclusive multilateral as well as in an exclusive regional trading system.

There are benefits and costs for developing and developed economies to both joining and not joining RTAs. President Trump pulled out of the TPP because of its alleged potential for damage to the United States manufacturing industry and its workers.[49] That said, Welch’s grape juice, Tyson’s pork, and California almonds will remain subject to tariffs from participants in the TPP, while competitors’ products from participating countries will eventually be duty-free.^[50] There are absolute and relative winners and losers of trade regulation and consequential diversion within countries and between countries.^[51]

Whether trade diversion and its consequences makes for good policy also depends on decision-makers’ view of economic development. Scholars from the Global South might not assume that participation in any trading regime is necessarily beneficial.[52] Many scholars have been critiquing the global free trade system for not being attuned to the needs of the developing world. This scholarship has often understood free trade as empowering Global North multinational corporations to continue—with minimal interference and tacit approval from Global South governments—the unequal trade they developed with the Global South during colonialism.^[53]

Dangers From Participating in RTAs

There are several specific dangers of participation in RTAs. Developing countries that do not want to be left behind their export competitors may feel increasing pressure to agree to liberalization in more areas covered in mega-regional agreements.^[54] RTAs confront developing countries with commitments on intellectual property rights, state-owned enterprises, investor protection, and e-commerce. Some of the developing countries, such as Pakistan or Bangladesh, affected by Vietnam’s improved market access to the US—should Vietnam and the US both join the TPP—could seek to join the TPP to protect their export competitive industries, despite not being ready to adopt many of the agreement’s provisions and having had no opportunity to help shape it.^[55] The haste of negotiators to conclude such deep agreements could impose ill-conceived constraints on domestic regulators’ access to policies such as domestic taxes, subsidies, and regulations which are frequently the first policies to address local externalities and market failures.^[56]

The WTO system already recognizes the potentially negative consequences of participating in the free trade regime by providing for a special regime for less developed countries. There are provisions in some WTO agreements, for example, which provide developing countries with longer transition periods before they are required to fully implement the agreement, further proving that trade liberalization may not always benefit them.

A country or a company from the developing world may thus be better off not transacting on the terms of the regional free trade agreement. It may be preferable not to join an RTA and to continue trading on existing terms of the multilateral WTO rules. In other words, what matters from the perspective of progressive distribution of resources are the specific terms of a transaction, not participation in an RTA, as Caruso suggests. Consequently, participation in a particular trade regime does not automatically work toward the aim of progressive distribution of resources.

This assumption helps to explain why Caruso’s focus on private law as an aid to weaker parties does not necessarily achieve its purpose. Caruso explores two traditional private law approaches to address social inequality: first, the expansion of contractual autonomy of weaker parties, as suggested by Oliver Wendell Holmes in the context of labor organization; second, constraining the contractual autonomy of stronger actors, as suggested by Angelo Sraffa.[57] However, she concedes that the expansion of the contractual autonomy of the Global South in the context of RTAs may not adequately protect it against the harm of the regional trade agreements of powerful countries.[58] The reasons for the limits of this particular analysis are not provided. These reasons should, however, be traced back to the basic underlying assumption of the debate—that non-participation is harmful and participation in a transaction is beneficial.

For the purposes of progressive distribution of resources, the starting point of the analysis cannot be a distinction between beneficial participation and harmful non-participation,[59] or between beneficial multilateralism of the WTO and harmful unilateralism of RTAs.[60] Every participation in RTAs entails rights and obligations and it cannot be considered as a priori beneficial to weaker parties. Hence the limits of Caruso’s suggestion that private law principles could aid the Global South through expansion or reduction of contractual freedom.

Lessons from Antitrust Law

Caruso’s exploration of limiting contractual freedom of stronger parties or of providing remedies for violations of social interests for purposes of equality in private and trade law mirrors similar arguments made in antitrust law.[61] Several economists and lawyers have suggested that stronger, consumer-oriented antitrust law enforcement, limiting contractual freedom and thus the market power of corporations, would lead to increased social equality.[62] Jonathan Baker and Steven Salop, for instance, argued, relying on Thomas Piketty’s analysis, that because the exercise of market power tends to raise the return to capital, it can contribute to the development and perpetuation of inequality.[63]

Yet, increased limitation of contractual freedom does not necessarily lead to increased equality or progressive distribution of resources.[64] Analysis based on the relationship between abstract producers who contract to the detriment of abstract consumers fails to account for the fact that “consumers” and “producers” find themselves in diverse situations in the global production of goods and services.[65] By challenging abstract “market power” without specifically addressing the concentration and reproduction of power in society, the discussion remains at a purely conceptual level. Such a discussion never addresses the necessary economic, social, and ethical issues, which lawyers should engage in the pursuit of advocacy for the most vulnerable.[66]

It is far from certain that antitrust violations systematically redirect wealth from the poor to the rich. Monopoly rents do not only end up in the hands of the wealthy executives; they are distributed in various complex ways throughout the firm, including workers.[67] Endowing a remedy to rich consumers against poorer and structurally disadvantaged corporations would thus be antithetical to progressive distribution of resources.[68]

A deeper jurisprudential lesson for the analysis of RTAs and progressive distribution of resources follows from discussion of inequality in antitrust law. Many have assumed that a stronger enforcement of social claims, such as of consumer protection and limitation of contractual freedom of stronger parties for the sake of the weaker parties, would contribute to equality. Similarly, Caruso engages with Ian Smits, who considers interests worthy of a legal remedy as “social.” He mentions labor rights in sweatshops and concludes that judges should prevent enforcement of contracts when they would cause egregious humanitarian harm.[69]

The distinction between economic and social considerations, however, is tenuous,[70] and Smits’ net could catch only exceptional cases of harm. Moreover, while the emphasis on enforcement of social considerations may hold an important moral valence, remedies for social claims alone do not necessarily lead to increased equality.[71] Reliance on “social” or “protectionist” considerations of seemingly unprivileged consumers, as opposed to contractual freedom of corporations in antitrust law, does not guarantee change for the benefit of those who find themselves in structurally unprivileged positions in society.[72] Likewise, in the context of trade diversion by RTAs, honoring the social, protectionist claim at the expense of contractual autonomy claim risks reinforcing existing asymmetries, rather than leading to equitable results.

Hierarchical Structure of Global Production

The legal profession has only started to grasp law’s contribution to the perpetuation of the divide between included and excluded groups in society.[73] A remedy provided to all third parties might only strengthen existing exclusions. The focus of regulation aimed at greater equality should not be the type of the claim, but the hierarchical structure of global production.

The analysis proposed below, based on my previous exploration of law and inequality in EU law and antitrust law,[74] is necessarily a sketch. The task is articulating the harm inflicted on unprivileged actors in the global hierarchical structure of production, including the global value chains,[75] and offering them a remedy for this harm against privileged actors.^[76]

It should first be explained why extending a general, universal remedy for trade diversion may not contribute to global equality. One of the reasons for this phenomenon is that trade diversion very often, though not exclusively,^[77] occurs between countries on a similar level of economic development. For example, in the wake of the establishment of the European Economic Community’s (“EEC”) customs union in 1957, the EEC purchased wine from Southern Italy instead of Algeria.[78] Diversions of trade from India to Turkey,[79] or from India to Pakistan in the textile cases before the WTO confirm the same pattern.[80] Actions for trade diversion may thus pit developing countries against each other rather than contribute to progressive distribution of resources.

Trade diversion also distributes between equally developed advanced economies. Howse’s often-cited example of Japanese goods driven out of the European Union market due to TTIP’s proposed changes in technical standards indicates that trade in advanced electronic equipment could be diverted from Japan to the EU or to another equally-developed participating country producing such advanced electronic goods; yet, developing countries may not be able to create such products.[81] Moreover, in the Citrus case, trade in the product was diverted from the United States to poorer Mediterranean countries.[82] Offering remedies for trade diversion to all countries may thus work counterproductively in terms of progressive distribution of resources and may breed new disputes between equally (un)developed countries without contributing to global equality.

There are several reasons why specific protection should be given to those lower on the hierarchical value chain of production – developing societies – who are producing less complex goods or services with smaller added value. The developing world suffers differently than developed economies with regard to free trade, creative destruction, and changing global trading patterns. Gunnar Myrdal has argued that market forces tend to produce an upward spiral of economic development in developed regions and a downward spiral in less advanced regions with people leaving as a consequence of job losses and tax increases.[83] Furthermore, Roberto Unger has argued that in a relatively more advanced economy, it will be in principle easier to compensate workers and firms for the loss imposed on them by freer trade than in a developing economy.[84] More importantly, he argues that a loss of trade can elicit a productive response in advanced economies, turning a short-term loss into a long-term gain, due to their wealth of human capital, education, and clusters of firms and networks of production.[85] Developing economies suffer from opposite developments. There is no entrance of firms and workers in emerging economies into lines of production in which relatively more advanced economies enjoy entrenched positions.[86]

Moreover, developing countries may be less diversified than advanced economies and, thus, likely more reliant on a particular industry, such as the textile industry or on a particular agricultural product.[87] Trade diversion, just as changes to multilateral trading relationships, could have serious negative consequences for national economies. In the context of international trade, it could be argued that a concentrated externality on a predominant industry of a developing country makes for a stronger case for a remedy for trade diversion.[88]

Finally, because participation in RTAs does not necessarily alleviate harm, developing countries’ engagement in them should not be considered by definition as a sufficient remedy. Nor should the adequate remedy be a reduction of contractual freedom of the strong and expansion of the contractual freedom of the weak. An emphasis on social considerations is equally unpromising. From the perspective of progressive distribution of resources, the global trading regime should generally endow actors from developing countries or regions with remedies that match the specific harm imposed on them due to multilateral international trade regulation or RTAs.

Law does not provide ready-made conceptual solutions for global justice,[89] including in the context of RTAs. At this crucial step of analysis, private law is silent in identifying particular situations that would warrant a cause of action in cases of trade diversion as well as in other instances of harm imposed by existing multilateral WTO trade arrangements. Identification of potential new trade remedies requires engagement of political theory, political economy, and other sciences.[90] New tools need to be continually constructed to address the ever-changing harm sustained in the process of creative destruction.[91] Harm and justice in international trade needs to be articulated casuistically and detached from conceptual distinctions of existing legal fields.[92]

Conclusion

RTAs have now largely replaced negotiations within the WTO framework, with unprecedented consequences for world trade and for global social life. There is no legal panacea in the struggle for global justice – no legal field, no concept or theory alone could be adequate in the pursuit of progressive distribution of resources. As analyses of antitrust law, international trade, and private law theory show, these fields of law have not been devised with a hierarchical structure of society in mind. Moreover, they were conceived based on the idea of law as a medium to solve disputes, not of law as a vehicle for a progressive distribution of resources.[93]

Nor should one’s thinking be guided by an assumption that participation in a transaction such as an RTA is beneficial and exclusion from participation harmful. Harm to the Global South in international trade should not be considered as exceptional, and not exclusive to trade diversion. Addressing the specific harm caused by RTAs and the multilateral trading regime requires further work of articulating the unjust harm sustained by actors from developing countries in the global economy. This endeavor needs involvement of legal voices from the world’s periphery who will experience and challenge existing understandings of harm. It requires the legal profession to play a fundamental role in the struggle for global justice.[94]

Damjan Kukovec (L.L.M., S.J.D., Harvard) is a Senior Lecturer at Middlesex School of Law in London.

[1] See Christian Riffel, Mega-regionals, in Max Planck Encylopedia of International Law (2016), https://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-e2177.

[2] Dani Rodrik is most concerned with rent-seeking consequences of the regional trade agreements. See generally Dani Rodrik, What do Trade Agreements Really Do?, 32 J. Econ. Persp. 73 (2018). Adam Davidson argues that both adherence and retreat from the TPP results in a minor distributional impact on the United States economy. Adam Davidson, What the Death of the TPP Means for America, The New Yorker (Jan. 23, 2017), https://www.newyorker.com/business/adam-davidson/what-the-death-of-the-t-p-p-means-for-america.

[3] Daniela Caruso, Non-Parties: The Negative Externalities of Regional Trade Agreements in a Private Law Perspective, 59 Harv. Int’l L.J. 389 (2018).

[4] See Richard Pomfret, The Economics of Regional Trading Arrangements 156 (1997).

[5] There is a general tendency of failing commitment to international law on both sides of the Atlantic, if not worldwide. The European Union’s and European powers’ proverbial commitment to multilateralism has also been questioned in international legal scholarship. See Gráinne de Búrca, The European Court of Justice and the International Legal Order After Kadi, 51 Harv. Int’l L.J. 1 (2010).

[6] See Fabian Bohnenberger, Mega-regional Agreements and Global Trade Governance: Ensuring Openness and Inclusiveness in an Increasingly Complex System, Bridges Afr., May 2016, at 21, https://www.ictsd.org/bridges-news/bridges-africa/news/mega-regional-agreements-and-global-trade-governance-ensuring.

[7] See Mark Wu, The “China, Inc.” Challenge to Global Trade Governance 57 Harv. Int’l L.J. 261 (2016).

[8] See id. at 300–14.

[9] See id. at 314–22.

[10] For this reason, some analysts argue that leaving the TPP may be “the biggest strategic mistake the United States has ever made.” Olivia Gazis, Top China Expert: U.S.’ “Biggest Strategic Mistake” Was Exiting TPP, CBS News (Oct. 3, 2018), https://www.cbsnews.com/news/top-china-expert-u-s-biggest-strategic-mistake-was-exiting-tpp/.

[11] See Riffel, supra note 1, at 6.

[12] See Kevin Granville, What is TPP? Behind the Trade Deal That Died, N.Y. Times (Jan. 23, 2017), https://www.nytimes.com/interactive/2016/business/tpp-explained-what-is-trans-pacific-partnership.html.

[13] Eyal Benvenisti, Democracy Captured: The Mega-Regional Agreements and the Future of Global Public Law (Institute for Law and Justice, Working Paper No. 2016/2, 2016).

[14] See Chad P. Bown, Mega-Regional Trade Agreements and the Future of the WTO, Council on For. Rel. (Sep. 2016).

[15] See, e.g., Katie Lobosco, Trump Pulled Out of a Massive Trade Deal. Now 11 Countries Are Going Ahead Without the US, CNN (Dec. 30, 2018), https://edition.cnn.com/2018/12/29/politics/tpp-trade-trump/index.html.

[16] See Channel 4 News, Noam Chomsky Full Length Interview: Who Rules the World Now?, YouTube (May 14, 2016), https://www.youtube.com/watch?v=P2lsEVlqts0.

[17] See id.

[18] See Jan Klabbers, Megaregionals: Protecting Third Parties? 3 (Institute for Law and Justice, MegaReg Forum Paper 2016/1, 2016), http://iilj.org/wp-content/uploads/2016/08/Klabbers_IILJ-MegaRegForumPaper_2016-1.pdf.

[19] See Benvenisti, supra note 13, at 23.

[20] Peter Van Den Bossche and Werner Zdouc, The Law and Policy of the World Trade Organization 673-74 (2017).

[21] See Robert Howse, Regulatory Cooperation, Regional Trade Agreements, and World Trade Law: Conflict or Complementarity?, 78 L. & Contemp. Probs. 137 (2015).

[22] See Appellate Body Report, Turkey — Restrictions on Imports of Textile and Clothing Products, ¶ 63, WTO Doc. WT/DS34/AB/R (adopted Oct. 22, 1999).

[23] See id.

[24] See Panel Report, European Communities — Conditions for the Granting of Tariff Preferences to Developing Countries, WTO Doc. WT/DS/246/R (adopted Dec. 1, 2003).

[25] See Appellate Body Report, European Communities — Conditions for the Granting of Tariff Preferences to Developing Countries, WTO Doc. WT/DS246/AB/R, 76 (adopted Apr. 7, 2004).

[26] See Howse, supra note 21, at 142.

[27] Howse gives an example of Japanese producers selling certain advanced electronic equipment to the United States but not to Europe, where interconnectivity standards are inconsistent with Japanese products. If under TTIP, the standard were harmonized to match Europe’s, Japanese producers would lose access to the U.S. Id.at 142.

[28] See id. at 150.

[29] See id. at 151.

[30] The “non-violation” clause has not been without its critics. Sung-joon Cho has argued its arbitrariness undermines the WTO dispute settlement process. See Sung-joon Cho, GATT Non-Violation Issues in the WTO Framework: Are They the Achilles’ Heel of the Dispute Settlement Process?, 39 Harv. Int’l L.J. 311, 318 (1998).

[31] Marion Panizzon, Good Faith in the Jurisprudence of the WTO: The Protection of Legitimate Expectations, Good Faith Interpretation and Fair Dispute Settlement 127–96 (2006).

[32] See Klabbers, supra note 18, at 2.

[33] This question is at the heart of Caruso’s article. See Caruso, supra note 3, at 1.

[34] See Ronald H. Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960).

[35] See Caruso, supra note 3, at 391.

[36] See Bohnenberger, supra note 6, at 2; Caruso, supra note 3, at 402.

[37] See Bohnenberger, supra note 6, at 2.

[38] See id. at 3.

[39] See id.

[40] See id.

[41] See Caruso, supra note 3, at 394.

[42] See id.

[43] See id. at 390.

[44] See id.

[45] See id.

[46] See Damjan Kukovec, Hierarchies as Law, 21 Colum J. Eur. L. 131, 192 (2014).

[47] See Joseph Schumpeter, Capitalism, Socialism, and Democracy 81 (1942).

[48] See id.

[49] See Trump Executive order Pulls Out of TPP Trade Deal, BBC News (Jan. 24, 2017), https://www.bbc.com/news/world-us-canada-38721056.

[50] See Lobosco, supra note, 15.

[51] See Damjan Kukovec, Law and the Periphery, 21 Eur. L. J. 406 (2015); Damjan Kukovec, A Critique of the Rhetoric of Common Interest in the EU Legal Discourse (2012), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2178332.

[52] See Bhupinder S. Chimni, Capitalism, Imperialism and International Law in the Twenty-First Century, 14 Or. Rev. Int’l L. 17 (2012).

[53] Chimni, for example, argues that the principle contention of Global South legal scholarship is that there is an intimate relationship between capitalism, imperialism, and international law that accounts for the fact that it has always disadvantaged Global South peoples. See id.; see also Geoff Gilbert, Enough “Free Trade.” We Need Solidarity Economies and Reparations (2019), https://www.resilience.org/stories/2019-02-27/enough-free-trade-we-need-solidarity-economies-and-reparations/.

[54] See Bohnenberger, supra note 6.

[55] See id.

[56] See Bown, supra note 14.

[57] See Caruso, supra note 3,. at 404–08.

[58] See id.

[59] See Kukovec, supra note 46, at 192.

[60] See Jose E. Alvarez, Multilateralism and its Discontents, 11 Eur. J. Int’l L. 393 (2000).

[61] See Damjan Kukovec, Economic Law, Inequality, and Hidden Hierarchies on the EU Internal Market, 38 Mich. J. Int’l L. 1 (2016).

[62] Joseph Stiglitz has called for “stronger and more effectively enforced competition laws” to help address inequality. Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future 40 (2012). Luigi Zingales has argued that “the most powerful argument for antitrust law” is that “it reduces the political power of firms.” Luigi Zingales, A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (2012). Paul Krugman and Anthony Atkinson have also claimed that monopoly and anticompetitive market conditions are among the root causes of wealth inequality. See id at 3–4.

[63] See Kukovec, A Critique, supra note 51, at 6.

[64] See id. at 6–14.

[65] See id.

[66] See id. at 7.

[67] See Daniel A. Crane, Antitrust and Wealth Inequality, 101 Cornell L. Rev. 1171, 1174 (2016).

[68] The same dilemmas are present in the European Union’s internal market. Remedies available to actors from countries and regions higher on the hierarchical chain of production have to be matched by remedies available to those lower on the value chain to produce more equitable results in the market. See Kukovec, supra note 53; Kukovec, supra note 46, at 192. The “weaker party” cannot be posited as an abstraction of a “worker” or “consumer” or “a country suffering from trade diversion,” but needs to be constructed every time anew along the hierarchical structure of society. Damjan Kukovec, Taking Change Seriously: The Rhetoric of Justice and the Reproduction of the Status Quo, in Europe’s Justice Deficit 319 (Kochenov, de Búrca and Williams eds., 2015).

[69] See Jan Smits, The Expanding Circle of Contract Law, 27 Stellenbosch L. Rev. 227 (2016).

[70] See Kukovec, supra note 61; Damjan Kukovec, Whose Social Europe? The Laval/Viking Judgments and the Prosperity Gap (Apr. 2010), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1800922.

[71] See id.

[72] See Kukovec, A Critique, supra note 51, at 7.

[73] For the argument that global governance and law should be understood as a set of hierarchical relationships, which should serve as a starting point of social transformation, see Kukovec, supra note 46.

[74] See id.; Kukovec, supra note 51.

[75] See, e.g., Bernard Hoekman, Supply Chains, Megaregionals and Multilateralism: A Road Map for the WTO (2014); Gary Gereffi and Karina Fernandez Stark, Global Value Chain Analysis: A Primer, Duke Center for Globalization, Governance and Competitiveness (2016).

[76] See Kukovec, supra note 61; Kukovec, supra note 51.

[77] See Report of the Panel, European Community — Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, L/5776 (Feb. 7, 1985).

[78] See Caruso, supra note 3, at 418.

[79] See Turkey — Restrictions on Imports of Textile and Clothing Products, supra note 22.

[80] See European Communities — Conditions for the Granting of Tariff Preferences to Developing Countries, supra note 24.

[81] See Howse, supra note 21, at 142.

[82] See European Community — Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, supra note 77 at 13.

[83] See Gunnar Myrdall, Economic Theory and Underdeveloped Regions (1957).

[84] See Roberto Mangabeira Unger, Free Trade Reimagined, 124–48 (2007).

[85] See id.

[86] See id.

[87] The United Nations Conference on Trade and Development reports that 67% of developing countries (91 out of 135 countries) are dependent on commodities, a situation that has changed little in the last two decades. Commodity-Dependent Countries Urged to Diversify Exports, UNCTAD (2019), https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2058. For the argument that developing countries are less diversified and rely on a limited set of products or industries, see Ozzie G. Simmons, Perspectives On Development and Population Growth in the Third World (1988).

[88] Bagchi argues that the smaller the number of persons affected by some private action, the more concentrated the externality and the stronger the case for a private law remedy. See Aditi Bagchi, Other People’s Contracts, 32 YALE J. REG. 211, 229 (2015). In the context of trade diversion, a concentrated externality should be understood as an externality which disproportionately affects a particular economy. See Caruso, supra note 3, at 413–14.

[89] See Kukovec, supra note 46.

[90] See id.

[91] For the argument that law and life should be understood as a constant struggle and that new tools need to be constructed to address it, see Kukovec, supra note 46.

[92] See Kukovec, supra note 68.

[93] See Kukovec, supra note 46.

[94] See Mark Galanter, More Lawyers than People: The Global Multiplication of Legal Professionals, in The Paradox of Professionalism: Lawyers and the Possibility of Justice 68–89 (Scott L. Cummings ed., 2011); Damjan Kukovec, The Legal Profession’s Responsibility for Brexit, in On Brexit (E. Fahey and T. Ahmed eds, 2019).

Essays, Online Scholarship

The Materiality of Data as Property

April 24, 2020

By: Jannice Käll

This Post is the sixth in a new Frontiers series that critically explores the connection between international law and emerging technology, featuring the writing of scholars from a variety of disciplines affiliated with the Institute for Global Law and Policy (IGLP) at Harvard Law School.

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Today, we can barely remember a time when data was not thought of as a thing, both in a rhetorical sense and as something endowed with its own materiality. Yet now, it is already considered to be the new oil. Seeing data as an object of trade also connects to broader shifts in production and business models—from value chain orientation, to value networks, and, in its most popularized form, platform-based business models. In this shift, both in relation to production and in relation to the organization of economic value creation, data is understood and exploited as an economic resource. Such exploitation poses new questions for law. This is especially so because data is pursued as a capital asset in different and new ways, as compared to the currently dominant ways of conceptualizing things in general and property specifically through law.

In this article, I will examine some of the specificities of how data is being actively formed into a separable object, as well as an object of property. The aim is to denaturalize the stage that legal research and practice may find itself in when encountering the effects of data as a business asset—for example, by re-erecting boundaries to protect individual privacy. I will subsequently argue that data, just like other objects of property, did not become an object that could be captured as property alone. Instead, I will argue, data is consistently dematerialized and produced in order to be captured in ways that make it seem to be a coherent object for the economy, as well as law.

In doing so, I will follow what can broadly be described as a new materialist stream of theory. New materialist theory is often described to include many recent theoretical novelties where matter is foregrounded.[1] Examples of such streams are object-oriented ontologies and new realisms.[2] The stream of new materialist theory followed here is, however, the new materialism developed through and after Gilles Deleuze and Félix Guattari.

The significance of this stream of new materialism is that it combines a new focus on how matter comes into being with a critical endeavor to visualize which forces produce such materialization.[3] To put it simply, when new technologies are invented, one needs to be able to outline how they come into being and for whom. The question of how a technology materializes and which effects it has on society in a wider sense is therefore a vital new materialist question. In new materialist research, this has been expressed as a need to find ways to visualize how matter comes to matter.[4] Research relevant to opening up matters of digitalization from a new materialist angle has been carried out in media studies, for example.[5] This article’s emphasis on legal theory provides an example of how one can trace the materialization processes of digital phenomena as a shift in the balance between personhood, intellectual property rights, and law.[6]

The aim is to formulate a more radical starting point than other recent focuses on privacy or regulations of “personal data.” This point is to treat data as something that does not even need to have its own materiality. Subsequently, it is useful to compare data with oil—what would happen if oil stayed in the ground and thus did not become an object of property at all? The first question following new materialist theory therefore is: how can one theoretically show that data came from somewhere and subsequently did not need to be treated as an object of property at all? I argue that this is an important starting point from all perspectives of regulating data, whether one finds privacy laws pertinent or not, because it sheds light on what has already been compromised when we get to such a state. When personal data become part of regulation, the much bigger market that feeds on data as an object of trade is already there. Privacy laws can subsequently, at best, stop some of the minor intrusions that have already occurred. The materiality of data as an object is not questioned. The reason for this is that the commodification process of data in itself dematerializes it from the so-called natural person from which it is derived.[7] The same also applies when data is “extracted” from objects and spaces.[8] Individual rights, such as privacy rights, can only limit certain uses of said data, not the exploitation and trade in the data itself.

The question I pose here subsequently forms an attempt to instead start from a more fundamental question of how to make such materialization processes of data as property visible. Or in other words: which discourses contribute to the understanding of data as an object, or even as suggested more recently, a raw material?[9]

This is naturally a very broad question, and this short article will only offer brief answers. However, the aim is to refocus the idea about data as a separable legal object by pointing at questions of materiality and differences in relation to data, that to this stage are more or less lost to legal conceptualizations of data. By this, I further argue that a reconsideration and possible rematerialization of data, for means other than the market, demands ways to identify and avoid the discourses and processes utilized for market purposes. To achieve such a rematerialization, I subsequently here retrace some of the ways that data is produced as a conceptual category under advanced capitalism, and some of the broader challenges that law faces if a critical intervention is to be carried out.

Dematerialization

“…a defining characteristic of the present cultural moment is the belief that information can circulate unchanged among different material substrates.”[10]

Bodily disconnect is a prerequisite for considering data as an object separate from persons. Such disconnection, or dematerialization, is continuously produced in modern cultural narratives where the mind is considered to be separate from the body. The so-called Cartesian split makes for a pervasive philosophical basis for dividing the human mind from the body to prove that existence and superiority is based just on the capacity of the human mind. In more modern narratives, the mind takes on an even more expansive independent existence through sci-fi narratives where the mind is turned into a substrate that can circulate freely on its own, as N. Katherine Hayles argues.[11]

In the cultural sphere of the law, the concept of the legal subject sustains the old modern idea of the split between mind and body in several instances of the Western legal order. Legal subjectivity is in its simplest form founded on the idea that when someone may be considered as a human, that person’s actions can be transformed to produce legally binding commitments. When such human consciousness is lacking, contracts can be disregarded and other otherwise illegal acts can be left unpunished or ignored.

A similar tract can be found in the general ideas of intellectual property law. All intellectual property laws build on the premise that knowledge can be separated from the human mind and controlled (while limited in time, space, and other embodiments). An invention is here understood as a dematerialized form from the human mind that can be patented or copyrighted. In the ensuing debates to delimit proprietary control over code (which was made into a copyrightable work), famous narratives furthermore include popular slogans such as: information wants to be free![12] Yet, what is constantly reiterated also in these narratives is that information, indeed, has the capacity to be free. In this way, both knowledge and information are also continuously dematerialized in more recent discourses in law. The latest move in such dematerialization of knowledge and information is then to consider data as something that is not connected to something material. It is a resource that can be “extracted,”[13] or it is an object that can belong to a data subject (while of course being balanced against the “free flow of personal data”).[14]

In a similar manner, the dominant narratives of data, including those considering data as a raw material, tend to disconnect data from other types of physical matter—such as geological ones.[15] Subsequently in the construction of data as an individual object, it is dematerialized both from the human mind, as well as from other processes that are required for its production. However, as Jussi Parikka points out, the geology of data can be detected from the fact that cloud computing has very little to do with the cloud itself and everything to do with keeping servers cool.[16] Abstract metaphors of the seemingly immaterial kind—the data is in the cloud—can in this way be reconnected back to the way that data and the digital economy are thoroughly dependent on so called natural resources, just like any other commodity. When data is pictured as a resource that can be extracted in itself, such infrastructures necessary for its objectification are made invisible. This dematerialization of data is furthermore picked up through law when law related to data does not deal with, for example, the exploitation of minerals or labor.

Commodification

Dematerialization processes, where data becomes a separable object from the human, precedes, as well as are entangled with, how data is turned into a commodity. As Karl Marx expressed in Capital, the separation of something into a commodity is connected to perceiving the commodity as having vitalist capacities.[17] However, commodification is still distinct from dematerialization—it is the stage at which something becomes coded as property in law. This coding, in its simplest understanding, makes it possible to trade with an object and convert it into capital value. The exact expressions of data commodification are not obvious, as the legal concepts of data commodification are still being created.

However, data is also already commodified through ever-expanding intellectual property laws, as well as through contracts packaging pieces of data into pieces of trade. In intellectual property law, we have by now gotten used to thinking of computer programs—built up on code—as objects of copyright, and genetic information as something that can be extracted and captured as a patentable invention, as long as enough creativity can be invented so as to fulfill patent law’s criteria of moving the object from a discovery to an invention. The creation of data as an object of property is however also established through contracts, where companies in boilerplate contracts one-sidedly stipulate that individuals agree to data collection to access the service being offered. Property in data also comes about discreetly when it is stipulated that the free flows of data need to be weighed against privacy rights of data subjects.[18]

Subsequently, in the commodification of data, it is further distanced from the processes that are required for its production. This implies a flattening out of differences between the objects that may be considered as data, through law. If we think about copyright again, there is generally no difference made in law between whether a literary work is of core interest to the society and its cultural bindings, or if it is a work that no one will ever open. Copyright is granted to both works equally. This implies an equalizing between these two types of works, as they are made into objects of intellectual property.

Dematerialization of data is furthermore a process that should not necessarily lead to legal conceptualization of data as a property object. As is widely known, there are elements that have become dematerialized from personhood, but are not considered property. Examples of such objects include aspects related to the human body such as organs, which are not necessarily traded. Intellectual property law also teaches that objects can be private property first, but then return to a state of communal holding, such as when works pass over to the public domain as intellectual property rights expire. When data is treated as an object of property, just as it is not placed under any clear property category, there are no such specific ways of returning that data to a non-property state.

Affective Control

Another characteristic of data as a possible form of materializing property is that it is endowed with a capacity which is at least in theory unknown to traditional property objects. This characteristic can be described as “affective control.”[19] While humans often perceive physical things and property objects as passive, their liveliness in the market sphere is produced through marketing, including branding. Data, however, is an object that can produce and govern effects at the same time. This is apparent in the way that data is often collected to be repackaged as information about the consumer’s behavior in order to further nudge that behavior in a certain direction. As Brian Massumi argues, this type of person-product-marketing continuum is characteristic of an intangible economy where “[l]ife movements, capital and power become one continuous operation – check, register, feed-in, processing, feedback, purchase, profit, around and around.”[20] Furthermore, digital techniques facilitate how the product and the marketing sphere can converge. Not only are the feeds of social media personalized after one’s “personal” data, but influencers, who are neither just private persons nor strict commodities or advertisers, populate digital spheres to create both commercial and political effects.

Subsequently, data as an object has a clear capacity to transgress typical ideas about property objects. Data’s status as both an object and a means for affective control will provide novel legal challenges.

Rematerialization

The recent discourses on bringing back power to citizens over “their” data in the form of personal data protection could be understood as an answer to the dematerialization of data from those who produce it. The forms of law enabling such rematerialization, such as the General Data Protection Regulation (“GDPR”), can furthermore be understood to construct a legal concept that makes this possible. However, the question will still be whether such concepts can disrupt the processes of dematerialization, commodification, and affective control that currently make data into a very specific form of property (or property-to-be). Some will answer the question in affirmative, pointing at the strong potential that lies in privacy rights under, for example, the GDPR.[21] However, in relation to such quests for regulation of data privacy, we need to remember that this type of data regulation significantly iterates already taken for granted concepts of persons and things vested in the dominant concepts of law. As Roberto Esposito points out, entrance of objects “intermingled with human elements, solidified and made interchangeable for others,”[22] as “people are in their turn traversed by information, codes, and flows arising from the continuous use of technical objects,”[23] implies that a crack between persons and things might be appearing, putting into question fundamental assumptions about modern law and society.[24] A reification of personhood in the form of, for example, privacy rights as a boundary against things or commodifiable objects, may therefore only approach on a surface level the more fundamental challenge the digital economy poses.[25]

Subsequently, data, even when pictured as an object, has to be understood as much more pervasive in the way that it becomes both the prerequisite for, and result of, new materializations of our life-worlds. Accounting for such aspects of materiality of data is a primary role for law if the aim is to provide a response to the continuous dematerialization and commodification of information. A rematerialization of data as a critical response to the current technological and economic trends that run through existing forms of law can therefore only imply a partial change in how data is produced as a property object. A more critical form of rematerialization needs to be able to understand both the prerequisites for the production of data as well as its mechanisms for producing affective control.

Conclusion

Ironically, the idea that data is the new oil might not be a bad metaphor from the perspective of critical studies of law. Just like oil, data is perceived of as something that is merely out there to be extracted for the human good, producing new materialities of value for society. In critical hindsight, we know that oil has carried both colonialist and destructive effects on life. In the same way, data as an object may further the end of what we consider as human subjectivity by producing a posthuman life-form as persons and things become increasingly mixed together.[26] As a possible property object, data furthermore has a pervasive capacity to produce positions of control over thinking as well as life, which may render legal ideas of the sovereignty of the free individual obsolete. The affirmative aspect of this development is that it may help us reconnect with those that suffered from preceding forms of colonialism and capitalism; that is, those who were previously considered non-human, and those who still remain as such.[27]

Jannice Käll is a post-doctoral fellow in Law and Artificial Intelligence in the Department of Sociology of Law at Lund University, Sweden.

[1] See, e.g., Rick Dolphin & Iris van der Tuin, New Materialism: Interviews & Cartographies (2012).

[2] For more on the similarities and differences between new materialist streams from the perspective of jurisprudence, see Andreas Philippopoulos-Mihalopoulos, Spatial Justice: Body, Lawscape, Atmosphere 3 (2014).

[3] For an example of such theoretical work based on Gilles Deleuze and Félix Guattari’s philosophy for our current conditions, see Rosi Braidotti, The Posthuman (2013).

[4] See id.; Karen Barad: Meeting the Universe Halfway: Quantum Physics and the Entanglement of Matter and Meaning (2007); Karen Barad, Posthumanist Performativity: Toward an Understanding of How Matter Comes to Matter, 28 Signs 801, 803 (2003).

[5] Jussi Parikka, A Geology of Media 1-28 (2015).

[6] Jannice Kall, Converging Human and Digital Bodies: Posthumanism, Property, Law (2017)

[7] See, e.g., Jannice Käll, A Posthuman Data Subject? The Right to Be Forgotten and Beyond, 18 German L. J. 1145 (2017).

[8] C.f. Nick Couldry and Ulises A. Mejias, The Costs of Connection: How Data is Colonizing Human Life and Appropriating It for Capitalism 88-91 (2019)

[9] See, e.g., Nick Srnicek, Platform Capitalism 39 (2016)

[10] N. Katherine Hayles, How We Became Posthuman 1 (1999)

[11] See id.

[12] The expression is almost impossible to give one source to, as it is used widely online and functions more as a meme or general critique of intellectual property than anything else. However, the expression has been credited to Stewart Brand for using it at a conference for hackers in 1984. Steven Levy, Hackers at 30: “Hackers” and “Information Wants to Be Free”, Wired, (Nov. 21, 2014), https://www.wired.com/story/hackers-at-30-hackers-and-information-wants-to-be-free/.

[13] Srnicek, supra note 9, at 40.

[14] Regulation 2016/679 of Apr. 27, 2016, on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC (General Data Protection Regulation), 2016 O.J. (L 119) 1 (EU) [hereinafter GDPR].

[15] See generally Parikka, supra note 5.

[16] See id. at 24

[17] Karl Marx, Capital 46-47 (Wordsworth Classics 2013) (1867).

[18] See GDPR, supra note 14, at 3-6.

[19] Sarah Keenan puts forward a similar position of how property in general can be understood as holding up bodies as space, which implies a theory of affective belonging between bodies as a form of control rather than picturing property as ownership over a specific thing. Sarah Keenan, Subversive Property: Law and the Production of Spaces of Belonging (2014)

[20] Brian Massumi, Politics of Affect 28 (2015)

[21] See GDPR, supra note 14.

[22] See Roberto Esposito, Persons and Things: From the Body’s Point of View 136 (2015)

[23] Id.

[24] See id. at 3

[25] See Esposito, supra note 22.

[26] See generally Käll, supra note 6.

[27] See Braidotti, supra note 3, at 1; Donna Haraway, Simians, Cyborgs, and Women: The Reinvention of Nature 178 (1991)

Author name: bakcan

“Contracting Out” Human Rights in International Law: Schrems II and the Fundamental Flaws of U.S. Surveillance Law

By: Genna Churches and Monika Zalnieriute

Introduction

International Data Transfers and U.S. Surveillance Law: Schrems I

International Data Transfers Continued: Schrems II

So How Can Data Be Transferred to the United States Now?

Will “Contracting Out” Human Rights to the United States Be Possible?

Conclusion

Envisioning Foundations for the Law of the Belt and Road Initiative: Rule of Law and Dispute Resolution Challenges

By: Malik R. Dahlan

Introduction

I. The Urgent Need for an Overall Dispute Resolution Mechanism

II. The Rise of Mediation

III. The China International Commercial Court (“CICC”)

Conclusion

UK and Canada Domestic Courts’ Game-changing Rulings and International Custom: A Dress Rehearsal for Global Sustainability Law?

Introduction

R v. Secretary of State for Transport (the Heathrow Ruling)

Discussion

Nevsun v. Araya (the Nevsun Ruling)3I am grateful to Penelope Simons for her insightful comments on my analysis of this case.

Discussion

General Implications

What to Expect Next

Concluding Remarks

Security and Human Rights Challenges of Cyber Due Diligence

Introduction

Cyber Due Diligence

The Preventive Component of Due Diligence

Intersections with Human Rights Law

Conclusion

Regional Trade Agreements and Global Justice

Introduction

Challenges of Regional Trade Agreements

Historical Perspective

Recent RTAs: Mega-regionals’ Purpose and Critiques

RTAs’ Potential Legal Concerns

Distributional Concerns and Participation in RTAs

RTAs’ Potential Distributional Concerns

Dangers From Participating in RTAs

Lessons from Antitrust Law

Hierarchical Structure of Global Production

Conclusion

The Materiality of Data as Property

Dematerialization

Commodification

Affective Control

Rematerialization

Conclusion

R v. Secretary of State for Transport **(the Heathrow Ruling)**

Nevsun v. Araya **(the Nevsun Ruling)**³