German Yearbook of International Law / Jahrbuch für Internationales Recht: Vol. 22 (1979) [1 ed.] 9783428446339, 9783428046331

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G E R M A N Y E A R B O O K OF I N T E R N A T I O N A L Volume 22

LAW

GERMAN YEARBOOK OF INTERNATIONAL LAW J A H R B U C H FÜR INTERNATIONALES R E C H T

Volume 22 · 1979

founded by RUDOLF

LAUN

· HERMANN

VON

MANGOLDT

Editors: Jost Delbrück · Wilfried Fiedler · Wilhelm Α . Kewenig Assistant Editor: Hans G. Rausch Institut für Internationales Recht an der Universität Kiel

DUNCKER

& HUMBLOT

/

BERLIN

The Editors and the Institut

für Internationales

Recht

do not make themselves in any way responsible for the views expressed by contributors

This Yearbook may be cited: G Y I L 22 (1979)

Communications should be addressed to: The Editors German Yearbook of International Law Institut für Internationales Recht an der Universität K i e l Olshausenstrasse 40/60 D-2300 K i e l 1

A l l rights reserved © 1980 Duncker & H u m b l o t , Berlin 41 Printed 1980 b y Vollbehr u. Strobel, K i e l , Germany I S B N 3 428 04633 1

CONTENTS I n Memoriam Eberhard Menzel

9

Articles

HANS W . BAADE: The Legal Effects of Codes of Conduct for Multinational Enterprises

11

HUGO J. HAHN: Value Clauses and International Monetary L a w

53

DAMIAN HUBBARD: The International L a w Commission and the N e w International Economic Order

80

CARL AUGUST FLEISCHER: The N o r t h e r n Waters and the N e w M a r i t i m e Zones

100

CHOON-HO PARK: China and Maritime Jurisdiction: Some Boundary Issues

119

JORGE A . VARGAS: The Legal Nature of the Patrimonial Sea — A First Step Towards the Definition of the E E Z

142

THOMAS A . CLINGAN, JR.: The U n i t e d States and Unilateral A c t i o n : Changing Patterns of Fisheries Conservation and Management

178

GEOFFREY S. YAREMA: The Impact of Cargo Preference Legislation on the International Obligations of the U n i t e d States

200

JEAN-PIERRE BEURIER: L a conservation des stocks halieutiques et la C E E

. .

221

UWE JENISCH: Probleme der Anwendung des Europäischen Rechtes in den Meereszonen der EG-Staaten

239

ATLE GRAHL-MADSEN: Decolonization: The Modern Version of a 'Just W a r '

255

Isi FOIGHEL: Grönlands Selbstverwaltung

274

PAUL P. HELLER: From Unification to Fragmentation i n International C i v i l Aviation KAY HAILBRONNER: Völkerrechtliche und staatsrechtliche Aspekte fiskalischer Immunität i m Sitzstaatabkommen des Europäischen Laboratoriums für Molekularbiologie MICHAEL BOGDAN: The International Legal Status of Governing Parties i n One-Party States

292

313

Political 335

Contents

6

YVES SANDOZ: Le d r o i t d ' i n i t i a t i v e d u C o m i t é i n t e r n a t i o n a l de l a C r o i x - R o u g e

352

Α . Α . CANÇADO TRINDADE: E x h a u s t i o n o f L o c a l Remedies under the U n i t e d

Nations International Convention on the Elimination of A l l Forms of Racial Discrimination

374

JOST DELBRÜCK: Menschenrechte i m S c h n i t t p u n k t zwischen universalem Schutz-

anspruch und staatlicher Souveränität

384

Reports SIEGFRIED M A G I E R A : D i e R e c h t s p r e c h u n g des I n t e r n a t i o n a l e n G e r i c h t s h o f e s

in

den Jahren 1977 und 1978 HANS-JOACHIM

SCHÜTZ: D i e

403 Tätigkeit

der

International

Law

Commission

i m Jahre 1978

414

JOACHIM K Ö N I G : D i e T ä t i g k e i t des E u r o p a r a t e s i m J a h r e 1 9 7 8

434

EIBE H . R I E D E L : D i e E u r o p ä i s c h e n G e m e i n s c h a f t e n i m J a h r e 1 9 7 8

455

LOTHAR BLATT: D i e T ä t i g k e i t der O r g a n i s a t i o n der Amerikanischen Staaten

(OAS) in den Jahren 1977 u n d 1978

478

WOLFGANG STEINIGER: D i e T ä t i g k e i t des Nordischen Rates i m Jahre 1978

. .

495

Book Reviews L a w o f the Sea a n d A n t a r c t i c a

508

Beiträge zur D r i t t e n Seerechtskonferenz der Vereinten N a t i o n e n

(Lagoni)

Modernes Seevölkerrecht. D i e Rechtsordnung der Gewässer u n d des Bodens des Weltmeeres (Lagoni) Recht über See. R o l f Stödter z u m 70. Geburtstag

(Lagoni)

SCHENK: K o n t i g u i t ä t als E r w e r b s t i t e l i m Völkerrecht

(Lagoni)

OTTMÜLLER: D i e A n w e n d u n g v o n Seekriegsrecht i n militärischen K o n f l i k t e n seit 1945 (Jenisch) BUTLER: Northeast A r c t i c Passage

(Auburn)

LOVERING / PRESCOTT: Last o f Lands . . . A n t a r c t i c a

( Auburn )

G l o b a l and Regional Aspects o f H u m a n Rights (Riedel) HENKIN : The Rights o f M a n T o d a y FLORETTA / ÖHLINGER: D i e Menschenrechtspakte der Vereinten N a t i o n e n JOYCE: H u m a n Rights — I n t e r n a t i o n a l Documents H u m a n R i g h t s : T h i r t y Years after the U n i v e r s a l D e c l a r a t i o n EGGERS: D i e Staatenbeschwerde Grundrechtsschutz i n E u r o p a D i e Grundrechte i n den Europäischen Gemeinschaften

521

Contents Volksgruppenrecht u n d Minderheitenschutz (Schütz)

529

VEITER: N a t i o n a l i t ä t e n k o n f l i k t u n d Volksgruppenrecht i m 20. Jahrhundert ERMACORA: N a t i o n a l i t ä t e n k o n f l i k t u n d Volksgruppenrecht System eines internationalen Volksgruppenrechts GÜTERMANN: Das Minderheitenschutzverfahren des Völkerbundes Arms C o n t r o l and Disarmament (Schütz)

534

Arms C o n t r o l : A Survey and Appraisal o f M u l t i l a t e r a l Agreements S I P R I Yearbooks 1978 u n d 1979 Europäisches Gemeinschaftsrecht ( Fiedler )

537

CONSTANTINESCO: Das Recht der Europäischen Gemeinschaften BLECKMANN:

Europarecht

KRÜCK: Völkerrechtliche Verträge i m Recht der Europäischen Gemeinschaften ZORGBIBE: Rechtliche Probleme der Einigung Europas Vertragsbeziehungen zwischen E G u n d R G W (Seiffert)

544

D i e Möglichkeiten vertraglicher Beziehungen zwischen E G u n d R G W KUZNEZOW: R G W u n d ,Gemeinsamer M a r k t ' Völkerrecht u n d Sozialismus (Seiffert)

545

SCHWEISFURTH: Sozialistisches Völkerrecht? KRÖGER U. a. : Sozialistische Staatengemeinschaft u n d Völkerrecht KRÖGER / SEIDEL: Freundschaftsverträge — Verträge des Sozialismus Nordischer Rat WENDT: Nordisk Rad

550 1952—1978

(Schütz)

SOLEM: The N o r d i c Council and Scandinavian Integration

(Hermann)

Positivismus i m Common L a w (Riedel)

552

L a w , M o r a l i t y , and Society. Essays i n honour of H . L. Α . H a r t DWORKIN, ed.: T h e P h i l o s o p h y o f

Law

CROSS: Precedent in English L a w *

Decisions o f German Courts Relating t o Public International L a w (Kausch)

. . . .

555

Digest of the Decisions o f the International Court o f Justice (Magier a)

556

DIETL / Moss / LORENZ : D i c t i o n a r y of Legal, Commercial and Political Terms (Riedel)

557

GELBERG: Normalisierung der Beziehungen zwischen der Volksrepublik Polen u n d der Bundesrepublik Deutschland (Pusylewitsch)

558

GIESE: Das Staatsangehörigkeitsrecht v o n Großbritannien (Riedel) GOLDSCHMIDT: Das Problem einer völkerrechtlichen Gefährdungshaftung (Willisch)

559 . .

560

KRÜGER: Fetwa und Siyar (Kewenig)

562

LAMMICH/ SCHMID: D i e Staatsordnung der Tschechoslowakei (Bernert)

564

VON MANGOLDT: D i e Schiedsgerichtsbarkeit als M i t t e l internationaler Streitschlichtung (Kewenig)

565

Contents

8 M E N Z E L / IPSEN: V ö l k e r r e c h t

(Kimminich)

567

ROGGEMANN / LAMMICH: D i e Verfassung der Volksrepublik Polen (Pusylewitsch)

. . .

568

SILAGI: V o n Deutsch-Südwest zu N a m i b i a (Meyer)

569

Verzeichnis rechts wissenschaftlicher Zeitschriften u n d Serien (Meyer)

570

*

Publications

of the Institute

for International

Law at the University

WILDBERG: D i e internationale Meeresbodenbehörde (ISA) (Graf SOYKE / WEHSER : Bibliographie des deutschen Schrifttums ausländischen Privatrecht 1945—1970 (Baade)

of Kiel

Vitzthum)

zum internationalen

570 und 573

Books Received

575

List of Contributors

579

In Memoriam Eberhard Menzel Eberhard Menzel, professor of constitutional and international law and former director of the Institute for International Law at Kiel University, passed away after long illness on June 1, 1979 at the age of 68. Since 1955 Menzel taught the subjects constitutional law, international law, and political theory at Christian-Albrechts-Universität and directed the Institute for International Law until illness compelled him to withdraw from his academic work in 1973. His acedemic career began while he was a student of Friedrich Giese in Frankfurt. Here he earned his doctorate w i t h a fundamental thesis on "The English Theory of the Essence of the International Law N o r m " . Following temporary practical court work as Justizassessor and further extensive research papers, — interrupted by military service in 1940 — Eberhard Menzel finished his Habilitation in the field of public law in 1943. Upon his return from an American prisoner of war camp in 1947, he took up his work again at the Research Center for International Law and Foreign Public Law in Hamburg. After his appointment to a professorship in Hamburg in July, 1952, he received tenure at Kiel University in the spring of 1955. Here Eberhard Menzel could develop his constitutional law and international law interests excellently. After only a few years of work at Kiel he finished his widely respected treatise on international law in 1962. The academic work of Eberhard Menzel covers an abundance of subjects of partly fundamental importance and partly current interest, such as the report before the German Association of Public Law Teachers in 1953 concerning the foreign affairs power, the commentary on the articles of the Basic Law w i t h reference to international law, and his numerous works which foresaw the current problems in the new law of the sea and the relationship of national and international administration. I n the area of constitutional law, Eberhard Menzel strongly took position on a variety of topical questions, such as the problem of reorganization of the civil service, the emergency provisions in the Basic Law, the control of public finances and legal questions of higher education. Characteristic of his work is on the one hand his critical acumen in analysis, including the sociopolitical environment and on the other hand his creative, careful outline of possible new solutions.

10

In Memoriam

Eberhard

Menzel

These elements characterize finally a further emphasis in Eberhard Menzel's research — the occupation w i t h the German Question and Ostpolitik. Critical in his analysis of the existing international law, constitutional law and political dogmas and taboos of official policy concerning Germany and the relations w i t h its neighbours to the East, he made himself an advocate of a policy of European security and cooperation, the nucleus of which consisted in the confirmation of Germany as a partner and good neighbour. I n the Festschrift by his students and colleagues honoring Menzel on his 65th birthday it is justly said that he has participated in the discussion of his time in a way which corresponds to his entire being: "Extremely critical towards the inside and protective towards the outside". A large number of students, doctoral candidates and research assistants received manifold stimuli from his world-open, interested function as a teacher. Beyond that, he dedicated his entire energy to the Institute for International Law, the respect of which he knew to expand at home and abroad according to the tradition set by Theodor Niemeyer, Walter Schücking and Hermann von Mangoldt. His close association w i t h international law practice and foreign politics became manifest in the years of his successful international law training of foreign service candidates and in his participation in many international conferences, including those of the Pugwash Movement, to which he had a strong allegiance because of its peace-oriented goals. A highpoint of the combination of research and practical work was his participation as adviser for the German agents in the N o r t h Sea Continental Shelf Case at the International Court of Justice in 1968. The German Yearbook of International Law is deeply indebted to Eberhard Menzel who dedicated to it so much of his energy and idealism during his years as a co-editor and editor until 1973. We have lost a profiled, scholarly personality, whose richness of ideas, constant readiness to step in and help, and tireless efforts beyond expectation w i l l always remain a model for his students and colleagues. Jost Delbrück

Wilfried Fiedler

Wilhelm Α. Kewenig

ARTICLES

The Legal Effects of Codes of Conduct for Multinational Enterprises Hans W . BaaderOutline I. The Legal Setting and the Basic Legal Issues A . The Setting B. The Issues 1. Non-State Actors as "Subjects" of International L a w and Objects of Regulation 2. The Characterization of Instruments as " V o l u n t a r y " and " N o t Legally Enforceable" 3. Codes o f Conduct as International Standards of Public Policy 4.

" V o l u n t a r y " Guidelines and International F o l l o w - U p Procedures

C. Summary and O u t l o o k I I . The Legal Effects of Government Declarations on M N E Conduct A . Good Faith as a Source o f Legal Obligations B. A Case in P o i n t : The Declaration and Guidelines o f June 21, 1976 1. " V o l u n t a r y and N o t Legally Enforceable" Guidelines as a Shield a. I m m u n i t y f r o m Domestic Enforcement? b. I m m u n i t y from B i n d i n g Rules of International Law? 2.

" V o l u n t a r y and N o t Legally Enforceable" Guidelines as a S w o r d : " L e g i t i m a t i o n "

I I I . The Affirmative Thrust o f International Public Policy A . Springboard for Legally Creative A c t i o n B. Standards and D a t a in A i d o f Interpretation I V . Conclusions and Prospects A . Conclusions B. A Preview: The Eclipse of Barcelona

Traction

* A German version, entitled "Verhaltensleitsätze für multinationale Unternehmen", was presented at the Center for Interdisciplinary Research at the U n i v e r s i t y of Bielefeld in January 1979, at the M a x Planck Institut für ausländisches und internationales Privatrecht in H a m b u r g and at the Institut für Internationales Recht i n K i e l i n March 1979, at a meeting of the German - American Lawyers' Association i n Munich i n M a y 1979, at the M a x Planck Institut für ausländisdies öffentliches Redit und Völkerrecht in Heidelberg i n M a y 1979, and at the University of Bremen i n June 1979. There remains the pleasant task of thanking the learned audiences w h o have suffered through the previous versions of this paper. Their critical comments have proved invaluable, but ultimate responsibility must rest, as always, w i t h the author.

12

Hans W. Baade

I.

The Legal Setting and the Basic Legal Issues A . The Setting

Multinational enterprises (MNEs) are enterprises which are directed from their countries of origin (or home countries) and engage in economically significant activities w i t h i n other states, known as host countries 1 . What distinguishes them from other business enterprises is their ability to exercise market power and influence in host countries by what may be termed remote control. I n a w o r l d divided into territorial sovereignties and thus compartmentalized jurisdictionally, such exercises of market influence and power are largely extraterritorial so far as the host countries are concerned, i. e., not subject to their supervision and regulation in the same manner as are the business decisions of domestic enterprises. Moreover, the decisional nerve centers of M N E s are subject to home country regulation and guidance even as to business decisions designed to take effect w i t h i n host countries. Codes of conduct for M N E s are, in essence, devices for the protection of the economy of the host country (and of host-country workers, customers, competitors, and creditors) from unilateral action by M N E headquarters, especially i f influenced by economic or policy factors indigenous to the home country 2 . The O E C D Guidelines for MNEs, for instance, are expressly intended "to ensure that the operations of these enterprises are in harmony w i t h the national policies of the countries where they operate" 3 . Almost identical terminology pervades the draft U N Code of Conduct for Transnational Corporations 4 . 1

John K. Galbraith, The Defense o f the M u l t i n a t i o n a l Company, H a r v a r d Business Review 1978, 83—93 (86). See also, e.g. Henri Schwamm , Origins, N a t u r e , Economic and Political Significance of Codes of Conduct, i n : Henri Schwamm and Dimitri Germidis (eds.), Codes of Conduct for M u l t i n a t i o n a l Companies: Issues and Positions (European Centre for Study and I n f o r m a t i o n on M u l t i n a t i o n a l Corporations), 1977, 1. 2 See Hans W. Baade, Codes of Conduct for M u l t i n a t i o n a l Enterprises: A n I n t r o d u c t o r y Survey (hereinafter cited as Baade Survey), to be published i n : Norbert Horn and E. R. Lanier (eds.), Legal Problems o f Codes of Conduct for M u l t i n a t i o n a l Enterprises, text at n. 9—12. 3 Annex to the Declaration of June 21, 1976 by Governments of O E C D Member Countries on International Investment and M u l t i n a t i o n a l Enterprises, Guidelines for M u l t i n a t i o n a l Enterprises (hereinafter cited as O E C D Guidelines), Department of State Bulletin ( D p t S t B u l l ) 1976, 83—87, I n t r o d u c t o r y Considerations and Understandings, § 6. I n the text distributed by the West German M i n i s t r y o f Economics, "countries where they operate" is translated, quite appropriately, as "jeweilige Gastländer" or host countries. B M W i Tagesnachrichten N o . 7251, J u l y 13, 1976, 4. 4

Commission on Transnational Corporations, Transnational Corporations: Code of Conduct; Formulations by the Chairman. U N Doc. E / C . 10 2/8, December 18, 1978. The expression there used is "countries i n which they [i. e., the transnational corporations] operate".

Codes of Conduct for Multinational Enterprises

13

The call for such a code of conduct was apparently first articulated by the International Confederation of Free Trade Unions in December 1970 5 . The term itself gained general currency in the ensuing decade, especially after being endorsed by the Group of Eminent Persons in M a y 1974 6 . Yet its legal significance continues to remain somewhat less than precise, even in United Nations practice. I t seems clear that a code of conduct is not as such incompatible w i t h the notion of legally binding obligations. This is demonstrated by a General Assembly resolution of December 1972, regarding a "convention or other multilateral legally binding instrument on a code of conduct for liner conferences" 7. On the other hand, as shown by the language just quoted, such a code is not, without more, a legally binding instrument. Otherwise, there would have been no need for a convention or other normative act in addition to the code itself. Indeed, it is this meta- or para-legal status that gained the concept of codes of conduct such ready acceptance in the practice of international organizations. I n the judgment of the Eminent Persons, there was an immediate need for the regulation of M N E conduct on a global scale8. The traditional device of multilateral conventions was regarded as too unwieldy for quick relief, and as too decentralized for pervasive coverage. A multilateral convention regarding the conduct of M N E s would have required protracted negotiation, followed by additional delays pending ratification or accession. Moreover, it would have bound only those states which ultimately chose to accede; and even inter partes, its uniformity might have been undercut by reservations. Especially some of the more prominent home countries of M N E s could be expected, in the end, to remain outside the treaty scheme, or to accept i t only subject to crippling reservations 9 . 5 I C F T U Executive Board, Resolution on Freedom o f Association and M u l t i n a t i o n a l Companies, December 8—10, 1970, reprinted as A p p e n d i x 2 i n I C F T U , The M u l t i n a t i o n a l Challenge, 1971, 63,64. ( I C F T U W o r l d Economic Conference Reports N o . 2). See Baade Survey (n. 2), text at n. 144—145. 6

U N Department of Economic and Social Affairs, The Impact o f M u l t i n a t i o n a l Corporations on Development and International Relations ( U N Doc. ST/ESA/6, Sales N o . E. 74, I I . A . S), 1, 52—57; Baade Survey (n. 2), text at n. 49. The Report is dated M a y 22, 1974. 7 U N G A Resolution 3035 ( X X V I I ) , December 19, 1972. The Convention drafted under the auspices o f U N C T A D and recommended for adoption on A p r i l 6, 1974, is reproduced i n International Legal Materials ( I L M ) 1974, 917—948. For analysis, see Klaus Grewlich , D i e U N - K o n v e n t i o n über einen Verhaltenskodex für Linienkonferenzen, Zeitschrift für ausländisches öffentliches Recht u n d Völkerrecht ( Z a ö R V ) 1975, 742—758. For a case where the term "guidelines" was used to describe an instrument designed t o m o d i f y treaty obligations, see infra , text at n. 137—140. 8 9

Supra , n. 6, at 54—55.

Theodor W. Vogelaar y Comment, i n : Paul-Marc Henry (ed.), Value and Limitations of Codes of Conduct as Regulating Instruments for M u l t i n a t i o n a l Corporations (European Centre for Study and I n f o r m a t i o n on M u l t i n a t i o n a l Corporations), 1978, 45.

14

Hans W. Baade

Conventions embodying definite legal obligations of the contracting states are — at least inter partes and i f compatible w i t h ius cogens — hierarchically the top layer of "hard" international l a w 1 0 . The major codes of conduct for M N E s currently in existence or close to the point of formal adoption do not belong to that category. I t is readily apparent that this is due not to any intrinsic defects of the international "legislative" process, but to a deliberate choice of the states concerned in the international norm-creating process, influenced in good part by the considerations just mentioned. For as shown by a comparison of the instruments adopted w i t h the norm-creating powers of the international organizations involved, at least the codes of conduct extant today have quite uniformly failed to make full use of these powers. The European Communities, for instance, have ample "legislative" powers 11 , and there is strong political support in the Commission and in the European Parliament for a binding and legally enforceable code of conduct for M N E s 1 2 . Yet when in 1977, the Communities adopted the Code of Conduct for Companies w i t h Interests in South Africa, this was accomplished not by a normative Community instrument such as a Regulation or a Directive, but by a decision of the Foreign Ministers of the member states that is formally not even an act of the Communities 18 . Similarly, the Principles Concerning Multinational Enterprises and Social Policy adopted by the International Labour Organisation ( I L O ) in 1977 are not embodied in a Recommendation of the General Conference (which would have automatically entailed reporting obligations based on treaty commitments already in effect) 14 but in a Declaration of the Governing Body — an instrument not contemplated in the Constitution of the I L O 1 5 . The O E C D Guidelines, finally, were adopted without formal use of the O E C D Council, which could have promulgated a Decision legally binding upon the member states or 10

See e. g., Ian Brownlie , Principles o f Public International L a w , 2d ed., 1973, 3—4.

11

See e.g., Derek Bowett , The L a w o f International Institutions, 3d ed., 1975, 185—189.

12

" M u l t i n a t i o n a l Untertakings and the C o m m u n i t y " , Communication from the Commission to the Council, November 8, 1973, B u l l e t i n o f the European Communities, Supplement 15/73; European Parliament, Debates, A p r i l 19, 1977, and Resolution, same date, § 1, O . J . 1977 C. 118/15. See generally Baade Survey (n. 2), text at n. 91—112. 13 Code o f Conduct for Companies w i t h Interests i n South A f r i c a , September 20, 1977, English text in Cmnd. 7233, 1978, 5—7, and B u l l e t i n o f the European Communities 9—1977, 2.2.4. 14

Pursuant to article 19 (6) (d) o f the Constitution of the International Labour Organisation, I L O members are obligated t o report to the Director-General o f the International Labour Office, " a t intervals as requested by the Governing Body, the position o f the l a w and practice i n their country i n regard to the matters dealt w i t h i n the Recommendation". See Bowett (n. 11), 127 et seq., 129. 15

The Declaration, which is dated November 16, 1977, is reprinted i n I L M 1978, 423—430.

Codes of Conduct for Multinational Enterprises

15

issued a formal Recommendation of the Organisation 16 . Additionally, they expressly state, in so many words, that their observance is "voluntary and not legally enforceable" 17 . B. The Issues There is, thus, a marked tendency on the part of the major state actors in the international norm-creating process to make less than full use even of the extant "legislative" competences of international organizations in connection w i t h the regulation of the conduct of MNEs. This leads to the conclusion that at least for some time to come, codes of conduct for M N E s w i l l not be adopted in the form of a multilateral convention or as normative acts of international organizations, i. e.y essentially as multilateral conventions once removed 18 . This does not, however, preclude the possibility of the substantive contents of such codes, or of parts thereof, rising to the quality of "hard" international law at a somewhat less august hierarchical rank. The primary "lesser" normative level of potential significance here is, of course, customary international law. (The next-lower level, "general principles of law recognized by civilized nations," is of limited intrinsic u t i l i t y for present purposes 19 , and in any event, of doubtful normative quality 2 0 ). Customary international law is authoritatively defined, in the Statute of the International Court of Justice, as "internaional custom, as evidence of general practice accepted as l a w " 2 1 . I t has been clear at least since "Sputnik", and was confirmed in the North Sea Continental Shelf Cases22, that the time element involved in the transformation of state practice into international custom is not necessarily a major factor. N o t so, however, w i t h the opinio necessitatis iuris, i. e., the acceptance of that practice as required by law. 16 O E C D Guidelines (n. 3) ; Convention on the Organisation for Economic Co-Operation and Development, of December 14, 1960, articles 5 and 6; Hugo J. Hahn and Weher, D i e O E C D , 1976, 93—100; Theodor W . Vogelaar , The O E C D Guidelines: Their Background, Scope, Legal N a t u r e and Recent Review, to be published i n : Horn and Lanier (n. 2). 17 O E C D Guidelines (n. 3), I n t r o d u c t o r y Considerations and Understandings, § 6. 18 Cf. Christoph Schreuer , D i e Behandlung internationaler Organakte durch staatliche Gerichte, 1977, 35—36, and sources there cited. 19 The O E C D Council has recently noted the persistence of " s t i l l differing attitudes" even w i t h respect to such centrally i m p o r t a n t areas as restrictive trade practices, see infra , text at n. 126. 20 Because of the hierarchical interrelationship o f the sources o f international l a w and the basic presumption o f the absence of restraints on sovereign states, see infra , text at n. 75, 77 and 101, general principles of l a w cannot prevail over contrary custom. For more detail, see Hans W. Baade, P r o v i n g Foreign and International L a w i n Domestic Tribunals, V i r g i n i a Journal of International L a w ( V a J I L ) 1979, 619 (633—634, n. 79). 21 Statute o f the International Court of Justice, article 38 (1) (b). 22 North Sea Continental Shelf Cases, I C J Reports 1969, 3 at 22, 32 et seq.; see also infra, text at n. 170—171.

16

Hans W. Baade

Especially in view of the virtual certainty that the U N Code of Conduct for Transnational Corporations w i l l be adopted in the form of a General Assembly Resolution or Declaration, there is some temptation to regard this issue primarily as a variant of the much-discussed question as to the legal effects of General Assembly resolutions 23 . Such an approach would, of course, have to take into account the constitutional structures of the other international organizations active in this field, especially of the O E C D and the I L O . Even w i t h this precaution, however, it would serve to distract attention from what might be called the four major specifics of codes of conduct for M N E s as a present-day phenomenon of international relations. These specifics are the attempt to regulate non-state actors; express reservations as to the legal nature of the instruments adopted; firm multilateral governmental pronouncements on an important subject of transnational legal relations; and last but hardly least, follow-up devices involving state action. 1. N o n - S t a t e A c t o r s as " S u b j e c t s " o f I n t e r n a t i o n a l L a w and Objects of R e g u l a t i o n Each of the seven chapters of the O E C D Guidelines starts w i t h the words, "Enterprises should". W i t h "transnational corporations" substituted, the vast majority of the provisions of the current U N draft are similarly addressed to M N E s directly, without the intermediaries of their home and host countries 24 . M N E s are, however, neither states nor public international organizations, and thus neither general "natural" nor "artificial" subjects of international law as presently defined 25 . Even i f their procedural role in follow-up proceedings should, in analogy to human-rights complaint mechanisms26, suffice to confer upon them "partial" or ad hoc international subjectivity, they would still lack at least one of the essential attributes of full international personality. This is the power to participate directly in the international norm-creating process. I t follows that the practice of M N E s in response to codes of conduct 23 Compare Richard Falk , O n the Quasi-Legislative Compentence o f the General Assembly, American Journal o f International L a w ( A J I L ) 1966, 782—791, w i t h Jochen Fr owein, Der Beitrag der internationalen Organisation zur Entwicklung des Völkerrechts, Z a ö R V 1976, 147—167; see generally Schreuer (η. 18), 129—149, where the pertinent literature is discussed. 24 The O E C D Guidelines (n. 3) contain chapters on General Policies, Disclosure o f I n f o r mation, Competition, Financing, Taxation, Employment and Industrial Relations, and Science and Technology. The expression "Transnational corporations should" occurs l i t e r a l l y i n at least 38 of the 58 provisions of the Formulations o f the Chairman (n. 4). This count is l i k e l y to increase substantially when, as currently envisaged, other draft codes and declarations on special subjects are incorporated b y reference i n t o the U N Code. 25 See generally Hans W. Baade, I n d i v i d u a l Responsibility, i n : C. E. Black and R. A. Falk (eds.), The Future of the International Legal Order, V o l . 4: The Structure o f the I n t e r national Environment, 1972, 290—327. 26

See, e. g., Brownlie

(n. 10), 557—558.

Codes of Conduct for Multinational Enterprises

17

or guidelines, quite irrespective of its motivations, cannot supply the element of opinio necessitatis iuris that remains an indispensable prerequisite for the development of customary international l a w 2 7 . 2. T h e C h a r a c t e r i z a t i o n o f I n s t r u m e n t s as " V o l u n t a r y " and " N o t Legally Enforceable" Secondly, there is the express self-characterization of codes of conduct for MNEs. This is most noticeable in the O E C D Guidelines already quoted. Their observance is stated to be "voluntary and not legally enforceable" 28 . While the legal quality of the I L O Declaration 2 9 has not been expressly defined, and although the legal nature of the U N Code of Conduct remains unresolved 30 , it seems highly likely that the latter instrument, in any event, w i l l be similarly characterized at least by appropriate reservations on the part of some major M N E home countries, or through statements made in explanation of their votes 31 . These t w o factors, taken together, pose formidable obstacles to the transformation of codes of conduct for M N E s into rules of customary international law. To quote from a statement of the representative of the United States at a meeting of the O E C D Council in July, 1977 3 2 : Voluntary guidelines followed by companies could not lead to the creation of customary international law as the Guidelines do not purport to be — and are not accepted as — law by companies or by states. Customary international law contains few, i f any, examples of obligations on entities other than states. Companies or individuals may have rights which inter27 North Sea Continental Shelf Cases, I C J Reports 1969, 3 at 28. As to the possibility o f p r i v i t y , see infra n. I l l and text thereat. 28

O E C D Guidelines (n. 3), I n t r o d u c t o r y Considerations and Understandings, § 6.

29

Supra y text at n. 14 and 15.

30

See, i n this connection, especially U N Commission on Transnational Corporations: Certain Modalities for Implementation o f a Code o f Conduct i n Relation t o its Possible Legal Nature, U N Doc. E / C . 10/AC. 2/9, Dec. 22, 1978 (hereinafter cited as the Modalities Paper), discussed infra , text at n. 60—61, 104—114, and 118—135. 31

See, e. g., the reservations by the U n i t e d States, West Germany, France, Japan and the U n i t e d K i n g d o m to the U N General Assembly Resolutions 3201 ( S - V I ) : Declaration on the Establishment of a N e w International Economic Order, and 3202 ( S - V I ) : Programme of A c t i o n thereon, reprinted i n I L M 1977, 744—766. 32

Since the minutes o f O E C D Council meetings are "restricted", no accessible reference can be supplied. E q u a l l y inaccessible, but relevant i n the present context, is a letter by Herbert Salzman, U . S. Delegation t o the O E C D , t o that Organisation's Secretary General, dated J u l y 6, 1977. T h a t letter also recorded U . S. objection to the " i n t e r p r e t a t i o n " o f the Guidelines by the O E C D Secretariat, and to the publication of the substance of the document cited infra n. 35 i n D r . Vogelaar's article, infra (n. 34).

2 G Y I L 22

18

Hans W. Baade

national [ l a w ] calls upon other states to observe, but not obligations vis-à-vis states. I t must be added, however, that this was not a balanced and scholarly summary of opinion then prevailing, but a post-hoc attempt to limit the precedential effects of the Badger case. That case had just then been resolved by the belated decision of the M N E concerned to comply w i t h the O E C D Guidelines — a decision prompted, in good part, not only by host-country pressure and exposure to the O E C D follow-up mechanism, but also, reportedly, by at least semi-official urgings on the part of the United States, which was the home country involved 3 3 . The authorized O E C D summary of that incident, against which the passage just quoted was directed, states that parts of the Guidelines, "though voluntary in origin, may . . . in the course of time — and when they have been frequently applied — pass into the general corpus of customary international law even for those multinational enterprises which have never accepted them" 3 4 . This was the prevailing view at the time, which continues to receive scholarly endorsement today 3 5 . 3. C o d e s o f C o n d u c t as I n t e r n a t i o n a l S t a n d a r d s of P u b l i c

Policy

That is so because the two remaining specifics of codes of conduct for M N E s here singled out for comment militate against, and largely neutralize, the effects of the lack of international legal personality of the primary addressees and of the assertedly voluntary character of the prescriptions laid down for their conduct. To take the latter point first: On the occasion of the review of the experience gathered in the first three years of the operation of the Guidelines for M N E s adopted in June 21, 1976, the Ministers of the O E C D member countries approved a report of the O E C D Committee on International Investment and Multinational Enterprises which stated that "While observance of the Guidelines is voluntary and not legally enforceable, they carry the weight of a joint recommendation by O E C D governments addressed to MNEs 33

For details, see Roger Blanpain, The Badger M u l t i n a t i o n a l Enterprises, 1977, 91—92, 121—126.

Case and the O E C D

Guidelines

for

34

Theodor W. Vogelaar , M u l t i n a t i o n a l Enterprises: The Guidelines in Practice, O E C D Observer, N o . 86, M a y 1977, 7 — 8 ; also reprinted in Blanpain (n. 33), 151—153. D r . Vogelaar was at the time, and continued to be u n t i l the end o f August 1978, Special Consultant to the O E C D Director General on International Investment and M u l t i n a t i o n a l Enterprises. 35 The passage quoted supra , n. 34, also occurs in Committee on International Investment and M u l t i n a t i o n a l Enterprises, Considerations on the Belgian Government's Communication of March 18, 1977 and the Issues Raised by the Committee i n its Discussions Regarding the Meaning of the Guidelines, N o t e by the Secretariat, June 8, 1977, O E C D Doc. I M E (77) 12, 5. See, to the same effect, Henri Schwamm , The O E C D Guidelines for M u l t i n a t i o n a l Enterprises, Journal of W o r l d Trade L a w 1978, 342—351 (350).

Codes of Conduct for Multinational Enterprises

19

which represent their firm expectation for M N E behaviour" 3 6 . This serves to underline that whatever their international-law effects on those ultimately sought to be regulated, codes of conduct and guidelines for M N E s are, at the state-to-state level, solemn high-level pronouncements of policy. As is well known since the Eastern Greenland (or "Ihlen Declaration") case and as was recently reaffirmed in the Nuclear Tests Cases, even unilateral declarations of policy, i f made at the ministerial level and in an international context, entail international-law obligations towards the states addressed 37. The fact that several of the pertinent texts now extant, such as the EEC Foreign Ministers' Code and the O E C D Guidelines, were not formally adopted as acts of the respective international organizations but as pronouncements of the Ministers of the member states 38 evidences the awareness on the parts of the states involved that these were issuing a joint international declaration at ministerial level, which entailed significant legal consequences both inter sese and in relation to third states. These consequences w i l l be spelled out in detail further below, but one of them might be briefly mentioned here because it is of crucial importance to our subject. This is the "legitimation" of the transformation of the substantive contents of codes of conduct for M N E s into binding and enforceable rules of domestic l a w 3 9 . Once they have been solemnly adopted, codes of conduct and guidelines for M N E s are thus neither irrelevant as between the adopting states as a matter of international law nor necessarily "voluntary" and legally non-enforceable against M N E s as a matter of domestic law. (The "Competition" chapter of the O E C D Guidelines did not, for instance, obligate the United States to transform a major part of its anti-trust law into mere moral obligations 40 .) M N E guidelines and codes of conduct are, thus, neither entirely non-binding internationally, nor entirely unenforceable domestically. But apart from that, is it not also true that " [ v j o l u n t a r y guidelines followed by companies could not lead to the creation of international l a w " 4 1 ? 36 Review of the 1976 Declaration and Decisions on International Investment and M u l t i national Enterprises, Report b y the Committee on International Investment and M u l t i n a t i o n a l Enterprises, O E C D Doc. 47580, § 37, 14, approved b y the Ministers of O E C D Member Countries on June 13, 1979 (hereinafter cited as Review Report).

87 Legal Status of Eastern Greenland Case, P C I J Series A / B , 1933, N o . 53; Nuclear Tests Case (Australia v. France), I C J Reports 1974, 253; Nuclear Tests Case ( N e w Zealand v. France), I C J Reports 1974, 457; see infra , text at n. 65—77. 38

See supra , text at n. 3, 13 and 16; Vogelaar

39

Infra , text at n. 104—114.

49

Infra , text at n. 92—95.

41

(n. 16).

See, to that effect, the statement of the U n i t e d States representative at an Council Meeting in J u l y 1977, quoted supra , n. 32.

2*

OECD

20

Hans W. Baade

4. " V o l u n t a r y " G u i d e l i n e s and Intergovernmental Follow-Up Procedures The assertion just quoted, which was made by the representative of the United States in an attempted second post-mortem on the Badger case42, rests on t w o basic propositions. First, i t is claimed, guideline compliance by M N E s cannot give rise to customary international law "because the guidelines do not purport to be — and are not accepted as — law by companies or by states". Secondly, it is asserted, customary international law imposes "few, if any" obligations on entities other than states: Individuals and companies may have international-law derived rights, but not obligations, vis-à-vis states. Both of these propositions are double-faceted. Their significance emerges more clearly when their make-weight facets are discarded. Whatever their status under international law, M N E s lack at least full international personality. Consequently, their compliance w i t h codes of conduct or guidelines, whether voluntary or not, cannot in and of itself give rise to customary international law. The question remains, however, whether the encouragement of guideline compliance by the home country in response to representations by the host country constitutes, or may in time develop into, "international custom, as evidence of a general practice accepted as l a w " 4 3 . Similarly, we may safely assume that international law contains "few" norms directly imposing obligations on entities other than states; the question-begging aspect of this proposition can be disregarded because there is little likelihood that the O E C D viewed M N E s as potential war criminals 44 . Nevertheless, there still remains the question whether the O E C D Guidelines, or some provisions thereof, can be transformed into customary international law by state practice, or whether the contents of this instrument are for some reason inherently incapable of such transformation. Once transformed, these provisions would then be applicable to M N E s in the same manner as rules of international law generally, i. e., through the intermediaries of their home and host states. What is arguably at issue here is a variant of a novel question currently confronting international legal theory: Are provisions of international instruments expressly self-described as voluntary and / or not legally enforceable, or 42

See generally, Blanpain (n. 33). Statute of the International Court of Justice, article 38 (1) (b); see supra , text at n. 21. 44 Quite the contrary, the first I n t r o d u c t o r y Consideration prefacing the O E C D Guidelines (n. 3), states: " T h r o u g h international direct investment, such enterprises can bring substantial benefits to home and host countries by contributing to the efficient utilisation o f capital, technology and human resources between countries and can thus fulfil an i m p o r t a n t role i n the promotion of economic and social welfare". As to international criminal law, see generally Baade (n. 25), and the sources there cited. 43

Codes of Conduct for Multinational Enterprises

21

as not constituting international agreements, capable of transformation into customary international law 4 5 ? ( I t should be added that this question arises only w i t h respect to instruments incorporating, or otherwise subject to, such qualifications). Since the rules determining the hierarchy of the sources of international law are themselves the product of customary international law, an affirmative answer seems to be indicated, although the evidence required as to the existence of the opinio necessitatis iuris would have to be quite clear and convincing 46 . For present purposes, speculations at this level of abstraction can fortunately be avoided, for the talismanic words just quoted have to be read in conjunction w i t h a Decision of the O E C D Council adopted as part of the "package" of June 21, 1976 47 , which regulates the "exchange of views on matters related to the guidelines and the experience gained in their application". I n contradistinction to the Guidelines, that Decision is legally binding on the member states 48 . To quote again from the Review Report adopted by the Ministers of Member States of that organisation in June, 1979: "The follow-up action provided in the Decision on inter-governmental consultation procedures on the guidelines is designed to enhance their effectiveness" 49 . As described in greater detail below particularly in relation to the Badger and Hertz cases50, a prominent variant of these follow-up actions is a host-country complaint of guideline violation by a specific M N E , formally couched in a request for an interpretation of the Guidelines w i t h respect to the fact situation presented. Since the O E C D Committee which has jurisdiction over these actions is itself composed of delegates of the member states (regularly including the representative of the home country concerned), the follow-up process is manifestly not inherently incapable of giving rise to customary international law. The follow-up process established by the U N General Assembly for the implementation of 45 The question last mentioned is currently debated m a i n l y i n connection w i t h the F i n a l A c t of the Conference on Security and Cooperation i n Europe, I L M 1975, 1293—1326. See e. g., Oscar Schachter, The T w i l i g h t Existence of N o n b i n d i n g International Agreements, A J I L 1977, 296—304, and sources there cited. 4 ® North Sea Continental Shelf Cases, I C J Reports 1969, 3 at 25—27. 47 O n June 21, 1976, the Governments of O E C D Member Countries adopted a Declaration on International Investment and M u l t i n a t i o n a l Enterprises, w i t h Guidelines for M N E s annexed thereto, see n. 3. The O E C D Council simultaneously adopted Decisions on InterGovernmental Consultation Procedures on the Guidelines for M u l t i n a t i o n a l Enterprises, N a t i o n a l Treatment, and International Investment Incentives and Disincentives, reprinted e. g., i n D p t S t B u l l 1976, 87—88. These instruments were interrelated, see Mark Feldman, Comment, Developing and Enforcing Guidelines for M u l t i n a t i o n a l Enterprises, Proceedings of the American Society of International L a w 1976, 16—24 (20—24); infra , text at n. 80; Vogelaar (n. 16). 48 See n. 16 and accompanying text. 4 » Review Report (n. 36), § 37, 14. 50 See Blanpain (n. 33); infra, text at n. 141—147.

22

Hans W. Baade

its 1960 Declaration on the Granting of Independence to Colonial Countries and Peoples surely contributed to the transformation of that instrument into part of the corpus iuris gentium , as expressly spelled out in the Namibia and Western Sahara cases51. Whether a similar process has already occurred w i t h respect to the O E C D Guidelines, or is taking place at the time, w i l l require more detailed examination. Even at this stage, however, it seems clear that a blanket denial of even the possibility of the development of norms of customary international law by this process is, to say the least, premature. C. Summary and Outlook Codes of conduct, guidelines, or other multilateral declarations for MNEs, we have seen, are essentially devices for the protection of the economies of host countries (and of host-country workers, customers, competitors, and creditors) from unilateral action by M N E headquarters, especially i f influenced by economic or policy factors indigenous to the home country. The pertinent instruments extant today or μΐ advanced stages of elaboration are neither multilateral conventions nor treaty law once removed, i. e., normative acts of international organizations authorized by their constituent instruments. This is so because there is, at the moment, no consensus among the major home and host countries involved that such firm legal commitments on the subject are required or, indeed, desirable. Furthermore, such codes of conduct, guidelines, or other multilateral declarations relating to the conduct of M N E s are not "instant international l a w " 5 2 , i. e., they do not rise to the level of customary international law by the mere fact of their adoption or even through being observed in practice by MNEs. For in adopting these instruments, the states concerned expressly disavow any attempt to create rules of international law, and the practice of M N E s is not state practice since M N E s are not states. O n the other hand, the instruments here discussed are multilateral declarations of policy, usually at the Ministerial level, relating to matters of international concern. As such, they have legal effects analogous to, but in view of their multilateral character stronger than, unilateral acts and declarations si Namibia (S.W.Africa) Advisory Opinion , I C J Reports 1971, 16 at 31—32; Western Sahara Advisory Opinion , I C J Reports 1975, 12 at 31—32; U N General Assembly Resolutions 1514 ( X V ) , December 14, 1960, and 1654 ( X V I ) , November 17, 1961. For an acerbic but nevertheless informative account, see Andreas Khol y The "Committee of T w e n t y - F o u r " and the Implementation of the Declaration on the Granting of Independence to C o l o n i a l Countries and Peoples, Revue des Droits de l ' H o m m e 1970, 21—50. 52 The expression is borrowed from Bin Cheng, U n i t e d Nations Resolutions on Outer Space: " I n s t a n t " International Customary Law?, I n d i a n Journal of International L a w 1965, 23—48.

Codes of Conduct for Multinational Enterprises

23

in international l a w 5 3 . Furthermore, the follow-up procedures expressly designed to make such codes of conduct, guidelines, or other multilateral declarations more effective are, to the extent that they involve the participation of the home and host countries, by definition state practice. Whether such state practice constitutes customary international law is ultimately a question of the legal intent of the states concerned, which requires separate analysis in the light of pertinent state practice. Disavowals of the initial intent to create "instant" international law operate to raise the requirements for the evidence needed to establish the requisite opinio necessitatis iuris. They do not, however, exclude the possibility of the emergence of customary international law on any issue of M N E conduct on which there is state practice, including such practice in the context of follow-up proceedings. I n the light of the above, it seems logical to start the more detailed discussion of our subject w i t h a description and analysis of pertinent state practice extant today. Such practice as is currently available relates almost entirely to the only instrument on M N E conduct that has been in effect for an appreciable period of time: the O E C D Guidelines for MNEs, which were adopted on June 21, 1976 54 . I t consists almost exclusively of proceedings before the Organisation's Committee on International Investment and MNEs, and of the statements made by the delegates of member states in the course of the Guidelines review process leading up to the instruments approved by the Council on June 13, 1979 55 . This task poses no mean challenge. I t is, however, greatly facilitated by Professor Blanpain's monographic account of the "leading case", and by his more recent report on subsequent O E C D practice relating to the "Employment and Industrial Relations" chapter of the O E C D Guidelines. A separate summary of the pertinent evidence would be redundant; and a reference to Professor Blanpain's work must suffice here 56 . We may, however, be permitted to make t w o brief remarks on this aspect of the subject. First, as already apparent, the present author basically agrees w i t h Dr. Vogelaar's proposition, originally expressed in 1977, that the Guidelines can, " i n the course of time — and when they have been frequently applied — pass into the general corpus of customary international l a w " 5 7 . Secondly, on the basis of the 53

See generally infra , text at n. 65—77, 138—140. As to unilateral acts, see Eric Suy , Les Actes Juridiques Unilatéraux en D r o i t International Public, 1962. 54 See supra , n. 3. 55 See Review Report (n. 36). B o t h the "case l a w " of the Committee on International Investment and M u l t i n a t i o n a l Enterprises and the deliberations i n the course o f the review process are summarized in that Report. 56 See Vogelaar (n. 16); Roger Blanpain , The O E C D Guidelines and Industrial Relations: Badger and Beyond, to be published in Horn and Lanier (n. 2). See also supra , n. 33 and 34. 57 Vogelaar (n. 34), and text thereat.

24

Hans W. Baade

evidence adduced by Professor Blanpain, it seems reasonable to assume that this process is already well-advanced today. I n more general terms, i t should be pointed out that the rules of customary international law emerging from the follow-up procedures instituted w i t h i n international organizations in connection w i t h their respective instruments relating to M N E conduct w i l l be of limited applicability and scope. They w i l l apply solely to those provisions as to which the requisite process of norm formation has taken place, and they w i l l bind only the member states of the organization concerned. I n the case of the United Nations, this latter limitation is of little significance. Even here, however, there might develop, at least as a transitional phenomenon, what has been called a "Zebra code", i. e.y an instrument that is composed of binding as well as non-binding rules. Certain provisions, especially those addressed to states and phrased in legal terms, are likely to find ready acceptance into customary international law, or may indeed be regarded as restatements thereof 58 . Others might be neglected altogether, or give rise to conflicting state practice. Thus, even i f the entire contents of an instrument subject to the same follow-up mechanism is eventually transformed into customary international law, this process w i l l not necessarily be simultaneous as to all of the provisions contained therein. This so-called intertemporal 5 9 aspect of our subject, too, w i l l not be pursued further w i t h i n the confines of the present study. I t largely depends on future events or rather, on conjectures regarding things to come. There is, however, a key international-law issue that arises immediately upon the adoption of multilateral instruments concerning the conduct of MNEs, irrespective of the legal nature of these instruments at that time. This concerns the legal effect of such codes, guidelines, or declarations as expressions of what a recent seminal paper of the U N Commission on Transnational Corporations calls "general principles of public policy, relevant to national as well as international legal action, accepted by each of the States that have adopted" the instrument in question 60 . That paper goes on to state 61 : 58

This applies especially to Code o f Conduct provisions relating to nationalization and to the revision o f state contracts, U N D r a f t Code (n. 4), §§ 52, 55. As to the latter, see Thomas Wälde, Revision of Transnational Investment Agreements : Contractual F l e x i b i l i t y and N a t u r a l Resources Development, L a w y e r o f the Americas 1978, 265 et seq. As to the "Zebra Code" phenomenon, see the Convention on a Code for Liner Conferences (n. 7), which contains, i n addition to so-called " s h a l l " provisions, a number o f so-called " s h o u l d " provisions, as e. g., articles 13 (1) and (2), and 19 (1) and (2). For comment, see Grewlich (n. 7), 749, 754. 59 See Hans W. Baade, Intertemporales Völkerrecht, Jahrbuch für Internationales Recht 1956, 229—256; Hersch Lauterpacht, International L a w , V o l . 1, (E. Lauterpacht Ed.), 1970, 129—134; Brownlie (n. 10), 131—133. 60 Modalities Paper (n. 30), 8. ei Id., 8.

Codes of Conduct for Multinational Enterprises

25

A Code of Conduct on transnational corporations, whether in legally binding or non-binding form, represents an effort to formulate expectations which Governments collectively feel justified to hold w i t h regard to the conduct of transnational corporations. I t becomes thereby a "source" of law for national authorities as well as for the transnational corporations themselves, since both can rely on and utilize the Code to fill gaps in the relevant laws and practices. I n this manner, the Code may become a springboard for legally creative action by national courts and other authorities, and even by the transnational corporations themselves, to the extent that the latter may help to shape pertinent legal principles through their continuous practice. The statement just quoted is not likely to remain unchallenged, since it directly contradicts the basic "minimalist" notion of voluntary rather than enforceable guidelines for M N E s 6 2 . The United States delegation to the Intergovernmental Working Group on a Code of Conduct, which unwaveringly represents the minimalist position in that body, has nevertheless apparently failed to object to the Commission's paper in public session. I n the words of a spokesperson at a State Department briefing, that delegation nevertheless reported having experienced "considerable trouble w i t h the document", and as having made clear "to the Centre's staff and individual delegations that we were dissatisfied w i t h it and found it lacking in both balance and scholarship" 6 3 . The propriety of comments by government spokespersons at public briefings on the quality of scholarship need not concern us here, although the precedent that readily comes to mind is most distasteful 64 . A t the very least, however, the episode just referred to serves to underline that the "Modalities" paper, and its key passages quoted above, has exposed a raw nerve at the very center of the ongoing debate between the "minimalist" and "maximalist" positions on codes of conduct for MNEs. I t seems appropriate, therefore, to concentrate a major part of the present study on what for lack of a better term might be called the quasi-Ihlen Declaration aspects of the issue. 62 This has been the consistent position of the U n i t e d States. See, e. g., Feldman (η. 47), 23 and infra , n. 91. 63 Statement by Elinor Constable, Director, Office o f Investment Affairs, U . S. Department of State, i n State Department A d v i s o r y Committee on International Investment, Technology and Development, meeting o f W o r k i n g Group on U N / O E C D Investment Undertakings, January 23, 1979, minutes, 3. 64 O n J u l y 19, 1974, a Presidential spokesman o f unhappy memory reportedly "dismissed the Republican counsel of the (House) committee (on the Judiciary), A l b e r t E. Jenner, Jr., as a person of w h o m ' I ' v e never had a high opinion.' " Ziegler Condemns A 'Kangaroo Court,' N e w Y o r k Times, J u l y 20, 1974, p. 1, at p. 19. The Committee was at that t i m e considering, and M r . Jenner had just joined in recommending, the impeachment of President N i x o n , w h o resigned three weeks thereafter.

Hans W. Baade

26 II.

The Legal Effects A.

of Government

Declarations

on MNE

Conduct

Good Faith as a Source of Legal Obligations

The classic passage relating to the legal effects of the Ihlen Declaration reads as follows 6 5 : The Court considers it beyond all dispute that a reply of this nature given by the Minister for Foreign Affairs on behalf of his Government in response to a request by the diplomatic representative of a foreign Power, in regard to a question falling w i t h i n his province, is binding upon the country to which the Minister belongs. This referred to a verbal statement that N o r w a y would not make any difficulty in the settlement of Danish sovereign claims to all of Greenland. That communication was made in the course of diplomatic negotiations also involving Norwegian claims to Spitzbergen, which Denmark was willing to support. Commentators have generally viewed the Ihlen Declaration as, in effect, an informal international agreement, and have concentrated on the implications of this device for constitutional limitations on the treaty-making power 6 6 . This overlooks, however, that the Permanent Court of International Justice expressly extended its above-cited holding to apply " [ e ] v e n i f this interdependence — which, in view of the affirmative reply of the Norwegian Government, in whose name the Minister for Foreign Affairs was speaking, would have created a bilateral engagement — is held not to have been established" 67 . The "Ihlen Rule" extends, therefore, to communications that are not consensual at their inception. Some of these "unilateral" acts (or omissions) are nevertheless readily placed into the traditional framework of consensual inter-relationships because they affect pre-existing rights, duties, claims, or offers. The most prominent examples that come to mind here are estoppel and acquiescence68. The Ihlen Declaration does not, however, fit readily into this pattern. As no detrimental reliance was shown, there was no estoppel 69 . I n the absence of an affirmative duty to act, acquiescence, too, was not as yet involved 7 0 . (Either or both of these elements could of course have been readily 65 Legal Status of Eastern Greenland

Case, P C I J Series A / B , 1933, N o . 53 at 71.

66

E. g., Luzius Wildhaber , Provisions of Internal L a w Regarding Competence to Conclude a Treaty, V a J I L 1967, 94 (112—116). 67 P C I J Series A / B , 1933, N o . 53 at 7. 68 As to estoppel and acquiescence i n international law, see generally Jörg Müller , trauensschutz i m Völkerrecht, 1969; Brownlie (n. 10), 617—619 and sources there cited.

60 Cf. North 70

Sea Continental

See generally Müller

Shelf Cases, I C J Reports 1969, 3 at 26.

(η. 68), where the pertinent authorities are discussed.

Ver-

Codes of Conduct for Multinational Enterprises

27

supplied by subsequent conduct and the lapse of time.) The conclusion remains, therefore, that the Ihlen Rule extends to official declarations by, or on behalf of, governments that are neither originally nor subsequently encompassed by the principle of pacta sunt servanda 11. This was spelled out in the Nuclear Tests Cases72, which involved proceedings by Australia and N e w Zealand to restrain France from further nuclear tests in the South Pacific. There, it was held that public statements by the President of France and by the Ministers of Foreign Affairs and Defense acting on his authority to the effect that in the normal course of events, no future atmospheric tests would be carried out in the South Pacific, had rendered the matter moot: "The object of the claim having clearly disappeared, there is nothing on which to give judgment" 7 3 . The Nuclear Tests Cases starkly posed the issue of the effects of non-consensual government declarations in international law, for the French pronouncements in question were neither addressed to the applicant States, nor accepted by them as satisfactory. As the International Court of Justice said 74 : I t is well recognized that declarations made by way of unilateral acts, concerning legal or factual situations, may have the effect of creating legal obligations. Declarations of this k i n d may be, and often are, very specific. When it is the intention of the State making the declaration that it should become bound according to its terms, that intention confers on the declaration the character of a legal undertaking, the State being thenceforth legally required to follow a course of conduct consistent w i t h the declaration. A n undertaking of this kind, i f given publicly, and w i t h an intent to be bound, even though not made w i t h i n the context of international negotiations, is binding. I n these circumstances, nothing in the nature of a quid pro quo nor any subsequent acceptance of the declaration, nor even any reply or reaction from other States, is required for the declaration to take effect, since such a requirement would be inconsistent w i t h the strictly unilateral nature of the juridical act by which the pronouncement by the State was made. The Court then went on to point out that not all unilateral acts implied obligations. The key factor was the intention to be bound. This was to be ascertained through interpretation. I n this connection, the Court reiterated the basic rule first announced in the Lotus case: "When States make statements 71 Id. y 19—22. Professor Müller's w o r k proved to be exceptionally helpful to the present author. 72 Nuclear Tests Case (Australia v. France), I C J Reports 1974, 253; Nuclear Tests Case ( N e w Zealand v. France), I C J Reports 1974, 457. ™ I C J Reports 1974, 272 at 477. 74 Id.y at 267 and 472.

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28

by which their freedom of action is limited, a restrictive interpretation is called f o r " 7 5 . After pointing out, on the authority of the Temple of Preab Vibear case, that international law does not impose any strict requirements as to the form of government declarations 76 , the International Court of Justice addressed the basic question as to the legal derivation of the obligation here involved 7 7 : One of the basic principles governing the creation and performance of legal obligations, whatever their source, is the principle of good faith. Trust and confidence are inherent in international co-operation, in particular in an age when this co-operation in many fields is becoming increasingly essential. Just as the very rule of pacta sunt servanda in the law of treaties is based on good faith, so also is the binding character of an international obligation assumed by unilateral declaration. Thus interested States may take cognizance of unilateral declarations and place confidence in them, and are entitled to require that the obligation thus created be respected. I t follows that the principle of good faith is the "ground rule" of contemporary international law. I t is the basis not only of pacta sunt servanda — the cornerstone of consensual international obligations — but also of the "anti-inconsistency rule", i. e., the rule that unilateral declarations intended to create international obligations are legally effective as such. I n ultimate consequence, therefore, it covers all declarations attributable to sovereign states, whether formal or informal, consensual or unilateral, joint or individual, and lends legal effect to them whenever there is the requisite intent on the part of the declarant state or states. This latter, the intent to be bound, is thus the quintessence of international obligations based on declarations by states. Put somewhat less abstractly, the question whether (and i f so, to what extent) codes of conduct, guidelines, and other instruments relating to the conduct of M N E s adopted by or on behalf of states give rise to internationallaw obligations on the part of the declarant states does not depend on the form of such declarations. I t is ultimately a question of the intent of the declarant states, to be ascertained by means of interpretation. Here as elsewhere in international law, restrictions upon the independence of states w i l l not be presumed — in dubio pro libertate 78. This does not mean, however, that the lack of intent to be bound in one respect necessarily vitiates the intent to 75

Id. y at 267 and 473; see infra , text at n. 101.

76

I C J Reports 1974, at 267 and 473, citing Temple Objections, I C J Reports 1961, 17 at 31. 77

I C J Reports 1974, at 268 and 473.

78

See supra, text at n. 75; infra,

of Preah

Vihear

n. 101 and accompanying text.

Case, Preliminary

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be bound as to others. Just as there can be "Zebra Codes" 7 0 , there is no reason why there cannot also be "Zebra Declarations". B. A Case in Point: The Declaration and Guidelines of June 21, 1976 A n attempt w i l l be made to apply the anti-inconsistency rule, i. ethe rule that declarations of states create binding obligations in international law i f intended to do so, to the instrument normally referred to as the " O E C D Guidelines". A t the outset, it should be recalled that this is a misnomer: the Declaration and Guidelines were not adopted as a Recommendation or Decision of the O E C D , but as a "Declaration on International Investments and Multinational Enterprises" by the "Governments of O E C D Member Countries", i. e., as a joint declaration by the member states outside of the formal framework of the Organisation itself. The Guidelines themselves are the second part of the Annex to that declaration. They are prefaced by a series of "considerations and understandings" of the member states, which as stated in the Declaration are an "integral part" of the Guidelines 80 . There are eleven such "considerations and undertakings". The sixth, we know, contains the statement that "Observance of the guidelines is voluntary and not legally enforceable". The fifth Consideration, which of course immediately precedes the one containing this statement, specifies, however, that the Declaration and the (legally binding) three Decisions promulgated simultaneously by the O E C D Council are "complementary and interconnected". A n d the seventh Consideration provides in terms: Every State has the right to prescribe the conditions under which multinational enterprises operate w i t h i n its national jurisdiction, subject to international law and to the international agreements to which it has subscribed. The entities of a multinational enterprise located in various countries are subject to the laws of these countries. This has every appearance of a formal declaration of agreed-on principles of public international law, which could hardly be considered as of no legal effect for the declarant states. Even more significantly, the Declaration incorporates the following undertaking 8 1 : 79 See supra , n. 58. Declaration on International Investment and M u l t i n a t i o n a l Enterprises by the Governments of O E C D Member Countries, June 21, 1976, part I , D p t S t B u l l 1976, 83—84. 81 O E C D Guidelines (n. 3), I n t r o d u c t o r y Considerations and Understandings, § 11. The substance o f this section is given direct legal effect b y §§ 1 and 4 o f the Decision o f the O E C D Council on Inter-Governmental Consultation Procedures on the Guidelines for M u l t i n a t i o n a l Enterprises, reprinted i n D p t S t B u l l 1976, 87—88. This legal obligation to consult i n cases of conflicting regulations is traceable to a Council Recommendation of October 5, 1967 (C (67) 53), which led t o 110 inquiries b y governments between that date 80

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Member countries have agreed to establish appropriate review and consultation procedures concerning issues arising in respect of the guidelines. When multinational enterprises are made subject to conflicting requirements by Member countries, the governments concerned w i l l co-operate in good faith w i t h a view to resolving such problems either w i t h i n the Committee on International Investment and Multinational Enterprises established by the O E C D Council on 21st January, 1975 or through other mutually acceptable arrangements. I t seems clear beyond peradventure that the statement just quoted is an "undertaking . . . w i t h intent to be bound" and as such binding by virtue of the anti-inconsistency rule enunciated in the Nuclear Tests Cases82 (which, incidentally, were then of recent vintage, and had involved no less than three O E C D Members). Thus, the " O E C D Guidelines" turn out to be, at the very least, a Zebra Declaration. The Declaration as such was not inherently incapable of creating obligations under international law, and it is apparent from several provisions of the "general part" of the Guidelines themselves that the declarant states intended to give rise to such obligations. I t does not follow, however, that the Guidelines thereby became binding in toto under international law. What is involved here, then, is not a question as to the legal nature of the Declaration and Guidelines as such, but the much more limited issue of the legal quality and effects of particular provisions therein contained. I n the following, two major current policy perspectives w i l l be tested against the framework of reference just developed. The first one, on the "maximalist" side of the ledger, proceeds from the Understanding specifiying that the Guidelines "lay down standards for the activities of (multinational) enterprises in different Member countries" 83 , and assumes that the member states are legally committed to a policy of seeking to induce Guideline compliance, or at least legally constrained from obstructing it. This may be termed the "sword" theory of the Guidelines. The other, which is close to the core of the "minimalist" position, is that since observance of the Guidelines is expressly designated as "voluntary and not legally enforceable", the Guidelines are legally without effect. As the latter position, or the "shield" theory, would be dispositive of the subject here discussed, it is the first to be dealt with. and 1974. Jürgen Poecbe, M u l t i n a t i o n a l e Unternehmen in der Diskussion, 1977, 41, η. 82. See also Kurt Ε. Marken, Recent Developments i n International A n t i t r u s t Cooperation, A n t i t r u s t Bulletin ( A T B ) 1968, 355—372 (360—363); Walker Comegys, O E C D - A "Sleeper"?, A T B 1971, 317—328; Annelies Zisler, The W o r k o f the O E C D Committee of Experts on Restrictive Business, to be published in Horn and Lanier (n. 2). 82 I C J Reports 1974, at 267 and 472 et seq. 88

O E C D Guidelines (η. 3), I n t r o d u c t o r y Considerations and Understandings, § 6.

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1. " V o l u n t a r y a n d N o t L e g a l l y Enforceable" G u i d e l i n e s as a S h i e l d The sixth Understanding in the Declaration of June 21, 1976, starts w i t h the statement that the Guidelines are "recommendations jointly addressed by Member countries to M N E s operating in their territories", and that they "lay down standards for the activities of these enterprises in the different Member countries." This is followed by a statement by now amply familiar to the reader, which reads in full: "Observance of the guidelines is voluntary and not legally enforceable." The very next sentence goes on to say that, "however," the Guidelines "should help to ensure that the operations of these enterprises are in harmony w i t h national policies of countries where they operate." The seventh Understanding, which immediately follows that passage, has been reproduced further above 84 . I t spells out that subject to international law and to agreements to which it has subscribed, every State has the right to prescribe the conditions under which M N E s may operate w i t h i n its jurisdiction, and that the entities of M N E s are subject to the laws of the countries where they are located. The question arises immediately whether the seventh Understanding is subject to the proviso of the sixth, which would then serve to shield M N E s from the enforcement of the substantive contents of the Guidelines prefaced by these Understandings. As a fundamental proposition, the "shield" theory is tenable only i f the proviso of the sixth Understanding constitutes a binding obligation of the declarant states under international law: Minimalists must at least accept the concept of a "Zebra Declaration" to this extent. Once this small but crucial step is taken, the proviso w i l l have to be interpreted in the light of the fundamental rule first developed in Lotus and reiterated in the Nuclear Tests Cases y that " [ w ] h e n States make statements by which their freedom of action is to be limited, a restrictive interpretation is called f o r " 8 5 . For any "shield" effect of the proviso would necessarily limit the competence of host states to regulate local components and activities of MNEs, which is expressly acknowledged in the seventh Understanding 86 and follows, in any event, from the principle of territorial sovereignty, which is a basic rule of international l a w 8 7 . I f so intended by the declarant states, the proviso could operate as a shield against the enforcement of the substance of the Guidelines by rules of inter84

Supra , text before n. 81.

85

Supra y text at n. 75; infra , n. 101 and accompanying text.

86

Supra y text before n. 81.

87

S. S. Lotus Case, P C I J Series A , 1927, N o . 10 at 18—19.

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. Baade

national law, of national law, or perhaps, of both. Intent as to the effect of the Declaration and Guidelines on the domestic legislative and regulatory powers is readily established, and w i l l be discussed first. a) Immunity from Domestic Enforcement? O n the occasion of the adoption of the Declaration and Guidelines of June 21, 1976, the OECD Observer officially reported that while the Guidelines were directly recommended to companies jointly by all participating countries, "individual countries may follow up the guidelines w i t h legislation of their o w n " 8 8 . A prominent example of such follow-up legislation is the Foreign Corrupt Practices Act enacted by the United States on December 19, 1977 89 . This legislation supplies, in substance, the penal sanction for § 7 of the "General Policies" chapter of the O E C D Guidelines, which provides that M N E s should not render "any bribe or other improper benefit, direct or indirect, to any public servant or holder of public office" 9 0 . This act of domestic legislation might not suffice as evidence of the intent of the states party to the Declaration and Guidelines of June 21, 1976, even though the United States is both a prominent member of the O E C D and the leading exponent, there as elsewhere, of the "minimalist" position in regard to codes of conduct and guidelines for M N E s 9 1 . There is, however, equally clear and convincing evidence as to the collective understanding of O E C D members regarding the compatibility of the Guidelines w i t h follow-up measures of enforcement adopted at the national level. O n July 20, 1978, the O E C D Council adopted a Recommendation concerning "Action against Restrictive Business Practices affecting International Trade including those involving Multinational Enterprises" 92 . This instrument expressly cites the Declaration on International Investment and M N E s adopted by the Governments of O E C D member countries on June 21, 1976, as author88 Ministers Agree on Guidelines to Improve Investment Climate, O E C D Observer, N o . 82, July— August 1976, 12, 13. This item is unsigned; and i t is stated at p. 2 thereat that "Signed articles express the opinions of the authors and do not necessarily represent the opinion o f O E C D " . (Emphasis supplied). 8 ® 15 U . S. C. § 78 d d 2, reprinted i n I L M 1978, 214—219 (216); see also 22 U . S. C. § 2197 and, for background, Bruce Seymour , Legal Attacks on I l l i c i t Payments i n International Business, to be published i n Horn and Lanier (n. 2). 90

O E C D Guidelines (n. 3), General Principles, Guideline 7.

91

See supra , n. 62. I n a letter of August 19, 1976, by the U n i t e d States Secretaries of State, Treasury and Commerce, to more than 800 chief executives o f major U . S. corporations, D p t S t B u l l 1976, 403—404, it is stated that the U n i t e d States had, throughout the negotiations leading to the adoption o f the O E C D Guidelines (n. 3) " h e l d " that the Guidelines should be voluntary. 92

Reprinted i n I L M 1978, 1527—1529.

Codes of Conduct for Multinational Enterprises

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ity. I t recommends that the Governments of the member countries "consider", among other things, "the following action: to adopt new or supplement existing measures on restrictive business practices so as to prohibit or control effectively such practices." The seven restrictive practices expressly enumerated for such action are literally borrowed from the "Competition" chapter of the Guidelines 93 . Additionally, "whilst vigorously enforcing their legislation on restrictive practices," the member states are urged to make use, so far as possible, of the O E C D procedures for intergovernmental cooperation in this field 94. This Council Recommendation demonstrates that the states party to the Declaration and Guidelines of June 21, 1976, are unanimously 95 of the view that a key chapter of the substantive contents of the Guidelines not only can be, but indeed should be, made effective by domestic measures of prohibition or control. Therefore, the proviso of the sixth Understanding prefacing the O E C D Guidelines is not, in the unanimous view of its authors, regarded as a shield against the enforcement of the substantive contents of the Guidelines through acts of domestic legislation or regulation. b)

Immunity from Binding Rules of International Law?

I t thus appears that the reference to law in the proviso specifying that observance of the Guidelines is voluntary and not "legally" enforceable is not to the internal law of the O E C D members, but to international law: While enforceable in internal law, the substantive contents of the Guidelines is not to be enforceable under international law. Even this reading of the proviso is, however, subject to some qualifications. There is evidence suggesting that at least some of the contents of the Guidelines was considered to be appropriate for regulation by binding rules of international law. A t the O E C D Council meeting of June 21, 1976, which coincided w i t h the adoption of the Declaration and Guidelines, the Secretary of State of the United States characterized bribery and corruption as "a burden on international trade and investment." H e called for "strong collective measures to 93 O E C D Council Recommendation (n. 92), part I (1) (a) and (b) l i t e r a l l y corresponds t o O E C D Guidelines (n. 3), Competition, §§ (1) (a) — (e), and restates the substance of § (3) thereat. I t omits § (2), which relates t o the imposition o f unreasonable resale, export, purchase, and development restrictions on purchasers, distributors and licensees. For substantive comment, see generally Joel Davidow , Some Reflections on the O E C D Competition Guidelines, A T B 1977, 441—458. 94 O E C D Council Resolution (n. 92), part I , 5. As to these procedures, see also supra , n. 81 and accompanying text, and infra , n. 126 and accompanying text. 95 T u r k e y abstained on the O E C D "package" of June 21, 1976 (n. 3 and 47), and on the O E C D Council Recommendation of J u l y 20, 1978 (n. 92).

3 G Y I L 22

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34

eliminate corrupt payments," and reiterated the United States proposal for a "binding international agreement on corrupt practices," to be negotiated under the auspices of the U N Economic and Social Council 0 6 . While work on that agreement has not as yet been completed, it seems clear that neither the United States, nor the other O E C D members active in its elaboration view the "voluntary" and "not legally enforceable" character of the O E C D Guideline on corruption as a bar to the proscription of this practice by binding rules of international l a w 9 7 . I t thus appears that the proviso of the sixth Understanding prefacing the O E C D Guidelines was not as such intended to preclude, even as to O E C D members, the regulation of the substantive contents of the Guidelines by binding rules of international law to be established in the future, or as constituting a legal or even a policy commitment against the future development of such rules. The purpose of the proviso was much more limited: I t was to establish that the instruments adopted by the O E C D and by its member governments on June 21, 1976, did not at that time bring into existence a mechanism for the direct enforcement of the Guidelines against M N E s under O E C D auspices98. 2. " V o l u n t a r y a n d N o t L e g a l l y Enforceable" G u i d e l i n e s as a S w o r d : "Legitimation" We have seen that an express proviso in the Understandings prefacing the O E C D Guidelines, which specifies that their observance by M N E s is "voluntary and not legally enforceable", does not operate so as to shield M N E s from the enforcement of the substantive contents of the Guidelines by legislative or regulatory action of O E C D member states. Moreover, this proviso is also not tantamount to a legal or even a policy commitment of these states not to adopt legal instruments or rules transforming the substance of the Guidelines, or of some of them, into binding norms of international law. Especially the first of these t w o conclusions w i l l perhaps surprise specialists in the public regulation of business at the domestic level, who quite properly regard "voluntary" guidelines as incompatible per se w i t h legal enforcement 99 . This presupposes, however, a single source of law-making power, and one 96 D p t S t B u l l 1976, 73—88 (76—77). For an account of progress to date on the international convention thus referred to, see Seymour (n. 89). 97 98

See generally Seymour

(n. 89).

See e. g., Vogelaar (n. 56). For contemporary press reports, see especially those R. Cornwell and M. Lafferty , Financial Times, June 22, 1976.

of

99 Cf. / . Thomas Romans, M o r a l Suasion as an Instrument of Economic Policy, American Economic Review 1966, 1220—1226 (1221).

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that has, in effect, at least temporarily "bargained away" the employment of legal sanctions in exchange for a promise of voluntary compliance 100 . Whatever the utility and durability of such "concordats" or "national pacts" at the domestic level, international organizations cannot pose the same credible alternative of legal sanctions, and international-law sanctions would, in any event, be the lesser part of the bargain for those whose voluntary compliance is sought. A bargain comparable to that underlying successful voluntary guidelines on the domestic level would have to assure the absence not only of international, but also of domestic legal sanctions. Perhaps the matter is put into sharper focus i f recourse is had to first principles. As the Permanent Court of International Justice observed in the Lotus case 101 : International law governs relations between independent States. The rules of law binding upon States therefore emanate from their own free w i l l as expressed in conventions or by usages generally accepted as expressing principles of law and established in order to regulate the relations between those co-existing independent communities or w i t h a view to the achievement of common aims. Restrictions upon the independence of States cannot therefore be presumed. What was done here was to show that far from being overcome, the presumption in favor of the continued legislative competence of O E C D member states over the substantive contents of the Guidelines corresponds to the readily ascertainable intent of the member states of the Organisation. There is another aspect of the matter, and in the end, a more substantial one. While international law presumes the absence of restraints on the prescriptive and enforcement jurisdiction of sovereign states in their own territories, it also contains rules imposing such restraints, especially where (as here) the treatment of aliens and of their property is involved. The exact contents of these rules is not readily ascertained. Indeed, as the Supreme Court of the United States observed some time ago in a famous passage: "There are few i f any issues in international law today on which opinion seems to be so divided as the limitation on a State's power to expropriate the property of aliens" 1 0 2 . 100 Klaus ]. Hopt y Recht u n d Geschäftsmoral multinationaler Unternehmen, i n : J. huber (ed.), Festschrift der Tübinger Juristenfakultät, 1977, 279—332 (329).

Gern-

101 S. S. Lotus Case, P C I J Series A , 1927, N o . 10 at 18. Some authors continue t o criticize this principle, see e. g., Friedrich A. Mann, Studies in International L a w , 1973, 26—27, ("most unfortunate and retrograde"). Whatever one's personal preferences, there can be no doubt now, however, that i t is firmly established in international law. See supra , text at n. 75 and 78; Hans W. Baade y Book Review, American Journal o f Comparative L a w 1974, 793— 808 (804—808). 102 Banco Nacional de Cuba v. Sabbatino , 376 U . S. 398, 428 (1964) (footnote omitted).

*

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Yet claims under this heading are made w i t h some frequency. As sophisticated fiscal and regulatory legislation becomes increasingly universal, it seems likely that the assertion of "creeping expropriation" through taxation and regulation, in particular, w i l l figure prominently in this connection 108 . I f the adoption of codes of conduct, guidelines, or other instruments concerning the conduct of M N E s should operate so as to clarify that the domestic enforcement of the substantive contents of these instruments is not only unimpeded by these instruments themselves but also unrestrained by international-law rules restrictive of prescriptive and enforcement jurisdiction by territorial sovereigns, the scope for potential disagreement in this area would be narrowed substantially. This is known as the "legitimizing" or "legitimation" function of codes of conduct for MNEs. The proposition is stated most succinctly in the "Modalities" paper of the U N Commission on Transnational Corporations: "States which have adopted the Code would not be able to attack as inherently unlawful or improper any action by other states taken in accordance w i t h provisions of the Code" 1 0 4 . I t is also supported by what appears to be the communis opinio doctorum 105, and, even more remarkably, by those professionally representing the "minimalist" cause. Thus, U S A - B I A C (the United States branch of the Business and Industry Advisory Committee of the O E C D ) stated in a report issued in 1978: " I n any case, a host government has the power to legislate w i t h regard to any subject which may be found in a code of cond u c t " 1 0 6 . Or, to quote from a recent statement by a commentator speaking in his capacity as an official of the United States Department of Justice 107 : Western countries are fully aware, and reconciled to, the fact that even voluntary international guidelines can be promptly enacted as binding national law by any country that wishes to do so, or adopted as a sort 103 See especially Revere Copper & Brass , Ltd. v. Overseas Private Investment Corp ., A r b i t r a l A w a r d , 1978, I L M 1978, 1321—1383 (1348 et seq.). 104 Modalities Paper (η. 30), 7. J 05 Andres Aramburu y Mencbaca, M u l t i n a t i o n a l Firms and the Processess o f Regional Economic Integration, Recueil des Cours de l'Académie de D r o i t International 1976 I I , 337—479 (463); Daniel ]. Ρaine, The O E C D Guidelines for M u l t i n a t i o n a l Enterprises, I n t e r national Lawyer 1977, 339—346 (344); A. A. Fatouros, Problèmes et Méthodes d'une Réglementation des Entreprises Multinationales, Journal du D r o i t International 1974, 495—521 (514—515); Joel Davidow and Lisa Chiles, The U n i t e d States and the Issue o f the B i n d i n g or V o l u n t a r y N a t u r e o f International Codes of Conduct Relating to Restrictive Business Practices, A J I L 1978, 247—271 (256). 106

U S A - B I A C Committee on International Investment and M u l t i n a t i o n a l Enterprise, A Review of the O E C D Guidelines for M u l t i n a t i o n a l Enterprises: Employment and Industrial Relations, 1978, 9. 107 j oel Davidow, International A n t i t r u s t Codes of C o n d u c t : A Progress Report, Fordham Corporate L a w Institute, International A n t i t r u s t , November 1978, 14—15 (15). The author was then Director, Office of Policy Planning, A n t i t r u s t D i v i s i o n , U . S. Department o f Justice.

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of investment pledge which an enterprise must adhere to as a condition of doing business in a country. The legal foundations of the "legitimizing" effect of international declarations regarding the conduct of M N E s are most readily apparent where these declarations, or instruments adopted in reference thereto, affirmatively recommend the transformation of their contents into enforceable rules of domestic law. This, we have seen, has been the case w i t h most of the O E C D Guidelines on the subject of competition 1 0 8 , and more generally w i t h code-of-conduct or guideline provisions dealing w i t h bribery and corruption 1 0 9 . States which actively solicit a specific course of conduct by other states are estopped from later questioning the legality of the conduct thus induced 1 1 0 . Subject to the exceptions just mentioned, however, codes of conduct and guidelines for M N E s typically "recommend" a specific course of conduct not by other states, but by the M N E s directly. I n the absence of p r i v i t y , the conduct of these enterprises is not attributable to their home states 111 , and in any event, the typical international controversy w i l l involve acts not of the home but of the host country. The question arises, therefore, whether such recommendations of a specific course of conduct, addressed to M N E s without the intermediaries of their home or host countries, are implied recommendations for state action which, i f adhered to, w i l l give rise to estoppel. Since this is at base a question of intent, the answer must depend on the interpretation of the specific instruments at hand, and of the pertinent practice of the declarant states. The O E C D Guidelines, for instance, are "recommendations jointly addressed by Member countries to M N E s operating in their territories." They "lay down standards for the activities of these enterprises in the different Member countries," and are intended to "help to ensure that the operations of these enterprises are in harmony w i t h national policies of the countries where they operate" 1 1 2 . This alone may not be sufficient to constitute a direct inducement to the O E C D member countries to ensure compliance w i t h their national policies through legislative and regulatory schemes incorporating the substance of the Guidelines. Additionally, however, the 108 Supra , n. 93 and text at n. 92—94. See also Review Report (n. 36), § 53, 20: "supporting action by Member governments at national level is needed, together w i t h complementary arrangements and agreements for inter-governmental Cooperation". 109

Supra, text at n. 96—97; see also U N General Assembly Resolution 3514 ( X X X ) o f December 15, 1975: Measures against corrupt practices o f transnational and other corporations, their intermediaries and others involved, reprinted i n I L M 1976, 180—181. no See supra, text at n. 68—69; North Sea Continental Shelf Cases, I C J Reports 1969, 3 at 26. 111 Anglo-Iranian Oil Co. Case, I C J Reports 1952, 93 at 112; Barcelona Traction Case, I C J Reports 1964, 6 at 22—23. 112 O E C D Guidelines (n. 3), I n t r o d u c t o r y Considerations and Understandings, § 6.

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O E C D member countries have established a mechanism for follow-up actions on the Guidelines that is designed, as recently stated in an authoritative O E C D document, "to enhance their effectiveness" 113 . Being thus committed to the affirmative policy of enhancing the effectiveness of the Guidelines, the O E C D member countries are estopped from questioning the legality of legislation and of regulatory acts by member states pursuing the same objective. I n final analysis, however, member-state enforcement of the substantive contents of M N E guidelines and codes of conduct is legally privileged against representations based on international-law rules governing the protection of foreign private investment even where the technical requirements of estoppel are not fully met because there has been no affirmative inducement of enforcement action. For the approval of the substantive contents of the guidelines or codes of conduct as a proper and even a desirable object of national policy constitutes, in and of itself, a declaration concerning a legal situation which, under the anti-inconsistency rule laid down in the Nuclear Tests Cases, is binding upon the declarant states 114 . H a v i n g committed themselves to the legal view that the substantive provisions of the instruments adopted are proper and even desirable objects of national policy, the declarant states cannot in good faith subsequently adopt a legal position to the contrary. This, it would appear, is the ultimate reason for the "legitimation" effect of the adoption of guidelines or codes of conduct for MNEs. The development of privileged legal positions through the process just described is not so very different from that leading to the formation of customary international law, especially on a less-than-universal level. This intimate nexus between the operation of good-faith reliance situations and the emergence of "partial" international law is increasingly discussed by commentators 115 . For present purposes, this interconnection is not essential because what is at issue here is the current legal effect of the adoption of guidelines and codes of conduct which are concededly not transformed into "instant international l a w " solely by the act of being adopted. I t should be kept in mind, nevertheless, that national legislation and regulations enacted under the umbrella of the "legitimation" principle constitute state practice that must sooner or later affect the contents of rules of customary international law. I t would, however, not be justified to conclude that as a long-range proposition, the question whether guidelines or codes of conduct for M N E s constitute customary international law is an enterprise in logic comparable to 113

See supra , n. 49 and text thereat.

114

Supra , text at n. 65—77. 115 See especially Müller (η. 68), 77—103; see also George Schwarzenberger, International L a w , 5th ed. 1967, 33.

A Manual of

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the step-by-step analysis of the proverbial race between Achilles and a turtle. For the norms that are virtually certain to emerge by the process just described are refinements of rules of international law on the protection of foreign investment. They operate to circumscribe more accurately the permissible scope of state action in this area. This would not suffice to establish a rule of customary international law imposing an affirmative duty to enforce the substantive contents of the instruments involved. A rule of the latter type can only be developed through state practice supported by an opinio necessitatis iuris specifically acknowledging that very duty as a legal obligation. III.

The Affirmative

Thrust of International

Public Policy

We have seen further above that the codes of conduct, guidelines, or other instruments concerning the conduct of M N E s that are extant today or at advanced stages of preparation are not "instant international l a w " as that term is usually employed: They do not rise to the level of customary international law by the mere act of their adoption or even through being observed in practice by MNEs. Nevertheless, even i f expressly self-described as voluntary and / or not legally enforceable, these instruments, or specific provisions thereof, can be transformed into customary international law through state practice, particularly through the action of home and host states in intergovernmental follow-up proceedings. The norms thus developed would then be applicable to M N E s in the traditional manner, i. e.> through the intermedicries of their home and host states 116 . We have also seen, however, that even before or without such a process of transformation, these instruments relating to the conduct of M N E s are "instant international law" in a somewhat different sense. They are declarations of general principles of international public policy which the declarant states are legally obliged to respect by virtue of the basic principle of good faith and its concomitant, the anti-inconsistency rule. The principle of estoppel enhances this legal obligation whenever the instruments involved, or other instruments or state practice relating thereto, constitute an inducement to implementing action at the national level. Even where there is no such estoppel, however, codes of conduct, guidelines, or other instruments concerning the conduct of M N E s have a "legitimizing" effect: States which have adopted such an instrument are no longer "able to attack as inherently unlawful or improper any action by other states taken in accordance w i t h (its) provisions" 1 1 7 . ne Supra, text at n. 42—57, 88—98. 117 Modalities Paper (n. 30), quoted supra, text at n. 104; see generally supra , text at n. 104—115.

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Thus, the instruments here discussed do not shield M N E s from the enforcement of the substantive contents of these instruments by domestic measures of implementation adopted by the declarant states. Furthermore, they operate as a sword in the sense that they legitimize such implementation, and ultimately serve to refine international-law rules on the protection of foreign investment actually or potentially relevant to their substantive contents. But (to remain w i t h i n the metaphor) while guidelines or codes of conduct at least on occasion encourage the national sword arm and regularly serve to guide it once it has been raised, each sovereign state still decides for itself whether the sword shall be drawn. That basic proposition follows from the nature of international law as a set of rules restrictive of state sovereignty. The sword arm w i l l be activated by international law only when, and to the extent that, international law develops rules so specifying. Codes, guidelines, and like instruments constituting solemn high-level endorsements of preferred courses of conduct are nevertheless highly likely to have substantial effects on what we may be permitted to refer to, at least initially, as "transnational l a w " . Thus, the "Modalities" paper of the U N Commission on Transnational Corporations states that even a code of conduct adopted in non-binding form becomes "a 'source' of law for national authorities as well as for the transnational corporations themselves, since both can rely on and utilize the Code to fill gaps in the relevant laws and practices." I n this manner, the Commission's paper continues, "the Code may become a springboard for legally creative action by national courts and other agencies" 118 . The passage just quoted refers to two basic functions performed by the notion of public policy: gap-filling and creative development. The latter directly poses the fundamental issue as to the quality of the rules of "transnational" law thus to be developed, and w i l l be dealt w i t h first. A.

Springboards for Legally Creative Action

Perhaps the best example of the use of internationally agreed-upon principles of public policy for purposes of domestic adjudication in a transnational context is furnished by the Nigerian Cultural Property case, decided by the Federal (Supreme) Court of West Germany on June 22, 1972 1 1 9 . This was an action on a marine insurance policy contracted in Hamburg subject to German standard terms of insurance. The policy covered three crates of African masks and figures to be shipped from Port Harcourt to Hamburg, and it was alleged that six bronze figures therein contained had been lost in passage. The defense 118

Modalities Paper (n. 30), quoted supra , text at n. 61.

N» Entscheidungen des Bundesgerichtshofs i n Zivilsachen ( B G H Z ) 59, 82 (1972).

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was, among other things, the lack of an insurable interest because the transaction was in violation o f § 138 ( l ) o f the German C i v i l Code, which provides that legal transactions contra bonos mores are v o i d 1 2 0 . The "proper l a w " of the contract being German, export prohibitions imposed by Nigerian law fell under the West German private international law rule denying extraterritorial effect to foreign public l a w 1 2 1 . This reduced the transnational issue of the controversy to the proposition that the transaction was in violation of precepts of boni mores common to both Nigeria and West Germany. The Court found that there was as such a standard of public policy common to these two countries. This conclusion is based on t w o international instruments: a Recommendation on the Means of Prohibiting and Preventing the Illicit Export, Import and Transfer of Ownership of Cultural Property, adopted by U N E S C O in 1964, and a convention on the same subject, approved by the General Conference of U N E S C O in 1970 and recommended by it for adoption by member states. A t the date of the decision, Nigeria had ratified that convention, but West Germany had not. The convention contains a provision specifying that the unauthorized import, export, or transfer of ownership of cultural property as further defined "shall be i l l i c i t " 1 2 2 . The West German Federal (Supreme) Court regarded the instruments just referred to as demonstrating "certain fundamental convictions" of the international community: Every country had a right to the protection of its cultural heritage, and the practices condemned by the U N E S C O instruments as inimical to this right were of a reprehensible character. This led to the conclusion that " i n the interest of preserving decency in international trade of cultural objects," the export of cultural property in violation of prohibitions imposed by the country of origin was "not worthy of protection by private-law rules." The court below had found that in the past, deprivations of cultural property had been common, and had been tolerated. That, the Court held, "cannot be made the measure of what is compatible w i t h good morals t o d a y " 1 2 3 . This reasoning is readily extended to provisions of guidelines and codes of conduct for M N E s reflecting a comparable value judgment of the international 120 Id. y at 84; see generally Rudolph Schlesinger , Comparative L a w , 3rd ed. 1970, 384 et seq. and 424 et. seq., where the pertinent rules of German l a w are discussed. 121 B G H Z 59, 82 at 85; see generally Gerhard Kegel , Internationales Privatrecht, 4th ed. 1977, 504 et seq. 122 The pertinent text are reproduced and discussed i n Albert Bleckmann, Sittenwidrigkeit wegen Verstoßes gegen den ordre public international, A n m e r k u n g zum U r t e i l des B G H v o m 22. Juni 1972, Z a ö R V 1974, 112—132 (120—123). ™ B G H Z 59, 82 at 86—87.

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community. Bribery and corruption in international trade and investment is an obvious example 124 . Other provisions of the instruments here discussed may, however, not reflect the requisite unanimous moral judgment of the international community. The most important testing ground for the international contra bonos mores rule just described are likely to be transfer-of-technology contracts claimed to be subject to terms and conditions other than "reasonable" as required by the O E C D Guidelines 125 , and more generally, contracts assertedly contrary to code-of-conduct and guideline provisions concerning restraints of trade. The O E C D Council, we have seen, has shown particular concern for the latter subject, and has recommended the transformation of the pertinent Guideline provisions into the domestic law of the member states. Yet the same Recommendation also notes the "still differing attitudes adopted by countries towards restrictive practices," and neither its text nor its context suggests that these difficulties have now been overcome 126 . I t seems reasonable to expect, therefore, that the international contra bonos mores rule, i f it should gain general favor, w i l l operate at least initially as a variant of the "Zebra" phenomenon discussed further above 1 2 7 : I t w i l l apply only to some of the provisions of guidelines and codes of conduct for MNEs, depending on the nature and strength of the moral consensus therein reflected. Much more fundamentally, however, the rule itself is not, or at least not as yet, one of customary international law. There is at the present no general international-law obligation to refuse judicial or administrative recognition even to acts violative of international l a w 1 2 8 , and i f the Federal (Supreme) Court had decided the Nigerian Cultural Property case 129 differently, this would not 124 Supra, text at n. 89—90, 96—97; n. 109 w i t h accompanying text. Cf. Ignaz SeidlHohe?7veldern, Vermögensrechtliche Auswirkungen der politischen U m w ä l z u n g i m I r a n auf die Bundesrepublik Deutschland, Recht der Internationalen Wirtschaft ( R I W ) 1979, 149—156 (152). 125 O E C D Guidelines (n. 3), Science and Technology, § (3). I t seems l i k e l y that this term w i l l ultimately be interpreted harmoniously w i t h the pertinent provisions o f the U N C T A D Code on Transfer o f Technology, see Gabriel M. Wilner, Transfer of Technology: The U N C T A D Code of Conduct, to be published in Horn and Lanier (n. 2). For a similar process of harmonious interpretation, see infra, text at n. 141—147. i 2 « O E C D Council Recommendation of J u l y 20, 1978 (n. 92), preamble, § 7. This Recommendation is m a i n l y concerned w i t h alleviating "difficulties . . . in assembling necessary information held outside the jurisdiction of the country applying its law, in serving process and in enforcing decisions in relation to enterprises located abroad", id. § 6. T h a t passage has to be read against the background of Rio Τ into Zinc v. Westinghouse [1978] 1 A l l E. R. 434 ( H . L. 1977), where L o r d Wilberforce had occasion to observe: " I t is axiomatic that in anti-trust matters the policy of one state may be to defend w h a t i t is the policy of another state to attack". Id. at 440, 448. But cf. Davidow (n. 93), 455. 127 Supra, n. 58 and accompanying t e x t ; text at n. 79. * 2 8 Banco Nacional de Cuba v. Sabbatino, 376 U . S . 398, 422—23 (1964); Baade (n. 101), 798—800; Bleckmann (η. 122), 130. 129 B G H Z 59, 82 (1972), supra, text at n. 119, 123.

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have entailed the international legal responsibility of the Federal Republic of Germany. On the affirmative side, the application of the international contra bonos mores rule is of course privileged by the principle of legitimation 1 8 0 . Furthermore, international law currently tends in the direction of imposing at least some obligations not to recognize the effects of international illegalities 131 , and the rule just described is responsive to the needs of the international community and in harmony w i t h other domestic judicial authority 1 3 2 . I t may well be, therefore, that we are here witnessing a nascent rule of customary international law or an emerging "general principle (.) of law recognized by civilized nations" 1 3 3 . I n any event, the potentialities of the rule w i l l hardly escape notice by prudent counsel 134 ; and as the U N Commission on Transnational Corporations has noted, the MNEs, too, "may help shape pertinent legal principles through their continuous practice" 1 3 5 . The statement just quoted underlines once more, however, that the principles thus shaped w i l l be grounded in domestic law although they are of course strongly influenced by international instruments. B. Standards and Data in A i d of Interpretation A t least initially, then, guidelines and codes of conduct for M N E s w i l l not operate directly so as to invalidate transactions in violation of provisions thereof. This is so because of the specific contents of these instruments as viewed against the background of general international law, and not because of any inherent deficiencies of codes of conduct and of guidelines as instruments shaping or otherwise affecting international obligations at the state-to-state level. To cite a recent example of some prominence: O n August 15, 1971, the United States abandoned the convertibility of the dollar, and in the ensuing months, the major international trading nations "floated" their currencies, 130

Supra y text at notes 104—114. See especially Namibia (S. W. Africa) Advisory Opinion , I C J Reports 1971, 16 at 42—44; Brownlie (n. 10), 502—503. 132 English courts, for instance, w i l l not give effect to contracts violating the law of a friendly country, Regazzoni v. Sethia , Ltd. y [1957], 3 A l l E. R. 286 ( H . L . ) ; Foster v. Driscoll, [1929], 1 K . B. 470; and West German courts have refused to enforce contracts circumventing East-West trade embargo rules imposed by an allied country. B G H Z 34, 169 (1960); B G H , M a y 24, 1962, Neue Juristische Wochenschrift ( N J W ) 1962, 1436—1438. 131

133

Statute of the International Court of Justice, article 38 (1) (c); supra , text at n. 19—20.

134

See, e. g., Michael Brenscheidt, Neue Entwicklungen i m US-amerikanischen Wirtschaftsrecht m i t extraterritorialem Anwendungsbereich, R I W 1979, 88—97 (91), suggesting that M N E s promulgate internal codes o f conduct so as t o forestall v i o l a t i o n of the Foreign Corrupt Practices A c t of the U n i t e d States, (n. 89) and accompanying text. 135

Modalities Pater (n. 30), quoted supra , text at n. 61.

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i. e.y left their exchange values at least primarily to the forces of supply and demand. These actions were in palpable violation of the Articles of Agreement of the International Monetary Fund ( I M F ) , but efforts to re-establish the international monetary system along more or less traditional lines were unsuccessf u l 1 3 6 . I n September, 1973, the then Acting Director of the I M F called for "an internationally agreed set of rules or code of conduct" for relationships among national currencies pending the more formal and time-consuming process of amending the Fund's Articles of Agreement 137 . This was accomplished by the Guidelines for Management of Floating adopted by the Executive Directors of the I M F on June 13, 1974 1 3 8 . The legal nature of this instrument has been discussed recently by eminent authority, but still remains subject to debate 139 . I t is generally agreed, nevertheless, that once the Floating Guidelines were adopted, it was no longer open to members of the I M F who had approved or otherwise assented to these guidelines to insist on compliance w i t h the Articles of Agreement by Fund Members who acted in compliance w i t h the Floating Guidelines 140 . As a practical matter, then, the Floating Guidelines operated in the manner of an informal but nevertheless effective anticipatory amendment of the constituent instrument of a major specialized agency of the United Nations. I n legal theory, they constituted at the very least subsequent state practice controlling, as between the participants thereof, the interpretation of the treaty establishing the I M F . The practice of the O E C D and of the European Communities furnishes a parallel to this type of interaction between treaty texts and subsequent guidelines or other declarations. I n the Hertz case, the management of the Danish component of a well-known United States company sought to, in effect, break a local strike by importing labor from other EEC countries 141 . The case was referred to the O E C D Committee on International Investment and M u l t i national Enterprises by the host country and the union concerned. I t was also called to the attention of the European Parliament and the Commission of the 136

For details, see Ernst U. Petersmann, Völkerrechtliche Fragen der Weltwährungsreform, Wirtschaftliche D y n a m i k als Völkerrechtsproblem in der Praxis des Internationalen W ä h rungsfonds, Z a ö R V 1974, 452—502. 137

H. J. Witteveen , statement at I M F Board of Governors meeting 1973, quoted id. at 455.

we Reprinted in I L M 1974, 1021—1024. 139 Hugo J. Hahn, A u f w e r t u n g u n d A b w e r t u n g im Internationalen Recht, Berichte der Deutschen Gesellschaft für Völkerrecht, 1979, Bd. 19. 140 Consensus t o that effect emerged i n the course o f discussion of Professor Hahn's Report, supra n. 139, at the 1979 A n n u a l Meeting o f the German Society of International L a w . 141 Some of the pertinent documents are reproduced in Blanpain the European Parliament debates cited infra , n. 142.

(n. 33), 157—161. See also

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European Communities through a motion filed by a Danish member of the former body on November 15, 1976 1 4 2 . The Hertz case presented t w o distinct legal issues. The pertinent O E C D Guideline (Employment and Industrial Relations, § 8) did not then in terms cover the importation of labor in an industrial dispute, although it expressly condemns the literally obverse but closely related threat of the transfer of an operating unit from one country to another w i t h i n the context of a bona fide labor dispute. The question arising w i t h i n the ambit of the O E C D Guidelines was whether the conduct by the Hertz management was covered by analogy, or whether, in the alternative, the gap here existing should be filled by § 52 of the I L O Tripartite Declaration of Principles concerning M N E s and Social Policy, which expressly condemns the practice of importing strike breakers 143 . The question of European Communities law, which was in theory contingent upon an affirmative answer to either of these alternative submissions, was whether the freedom-of-movement guarantees of the EEC Treaty of 1957 1 4 4 prevailed over the O E C D Guidelines of 1976 or the I L O Declaration of 1977. (Since all EEC members are members of the I L O , the question as to the relationship between the EEC Treaty and the I L O Declaration could, in any case, not remain unresolved for long.) I n the O E C D Committee, there was consensus that the "gap" in the Employment and Industrial Relations chapter of the Guidelines was to be filled by reference to the appropriate provision of the I L C Declaration 1 4 5 . That view has been accepted on the occasion of the review of the Guidelines, and is now established 146 . The issue as to a potential conflict between the EEC Treaty and subsequent guidelines or declarations adopted by EEC member states, in turn, was considered by the Council of the European Communities at the request of Denmark on June 29, 1978. A t that date, the Council adopted a statement 142 E E C Doc. 424/76, November 15, 1976; European Parliament, Resolution of November 16, 1976, O . J . 1976 C. 293/12; Debates, same date, 46—51. 143 I L O Declaration (n. 15), § 52 reads as follows: M u l t i n a t i o n a l enterprises, i n the context of bona fide negotiations w i t h the workers' representatives on conditions o f employment, or while workers are exercising the right to organize, should not threaten to utilize a capacity to transfer the whole or part o f an operating u n i t from the country concerned i n order to influence u n f a i r l y those negotiations or t o hinder the exercise of the right to organize; nor should they transfer workers from affiliates i n foreign countries w i t h a view to undermining bona fide negotiations w i t h the workers' representatives or the workers' exercise of their right to organize. 144 E E C Treaty, articles 48 et seq. 145 Review Report (n. 36), §§ 30 and 70; 12, 24—25. A t 12 thereat, i t is stated that the principles set out i n the I L O Declaration can "be of use i n relation to the O E C D Guidelines to the extent that they are of a greater degree of elaboration". 140 O n June 13, 1979, the Governments o f O E C D Member Countries amended the O E C D Guidelines (n. 3) by adding to Employment and Industrial Relations, § 8, the clause, " n o r transfer employees from the enterprise's component entities i n other countries".

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emphasizing that "the freedom of movement provided for in . . . the Treaty constitutes a fundamental right for workers and their families . . . by which the worker is guaranteed the possibility of improving his living and working conditions and promoting his social advancement." The Council "considered that only in this positive spirit should the provisions concerning the free movement of workers be invoked." The statement concluded by drawing attention to, and stating the substance of, § 52 of the I L O Declaration 1 4 7 . I t thus appears that codes of conduct, guidelines, and like instruments adopted by or on behalf of sovereign states are legally relevant to the interpretation and application of prior treaties and other agreements concluded by the declarant states inter sese. As shown by the Floating Guidelines of the I M F , a subsequent guideline, at least when supported by appropriate practice, can even bring about a legal situation contrary to specific treaty provisions. As demonstrated especially by the European Communities phase of the Hertz case, codes, guidelines, and other declarations concerning M N E conduct generally apply to prior instruments — including treaties — more or less in accordance w i t h the lex posterior principle. I n particular, they define or refine general or ambiguous terms, and fill gaps in prior instruments. This function of codes of conduct, guidelines, and declarations concerning M N E s is illustrated by the recent case of Spiess v. C. Itoh & Co. and parallel litigation presently pending in the United States 148 . A key issue in these cases is whether a United States-Japanese treaty provision permitting companies of the other contracting state to "engage . . . executive personnel . . . of their choice" immunizes their employment practices from subsequent host-country legislation prohibiting racial discrimination in employment 1 4 9 . I n the Spiess case, it was argued, among other things, that the O E C D Declaration and Guidelines of June 21, 1976, to which both countries are parties, constitute subsequent state practice relevant to the interpretation of the treaty and, in any event, a declaration estopping the declarant states, inter sese, from objecting to the legislative implementation of the Guidelines by a state party 147

E E C Council of Ministers, Statement of June 29, 1978 (not officially published), here cited from N a t i o n a l and Regional Contexts, N o . 38, J u l y 12, 1978, 3. Spiess v. C. Itoh & Co., 469 F. Supp. 1 (S. D . Tex. 1979); Avigliano et al v. Sumitomo Shoji America , Inc., S.D.N.Y., 1979. 149 Treaty of Friendship, Commerce and N a v i g a t i o n , U n i t e d States-Japan, article V I I I (1), 4 U.S.T. 2063, 1953. A like provision w i l l be found i n article V I I I (1) of the 1954 Treaty of Friendship, Commerce and N a v i g a t i o n between the U n i t e d States and West Germany, B G B l . I I , 488 (491) (1956). This clause w o u l d seemingly have been at least of potential relevance to the decision o f the Bundesarbeitsgericht, November 9, 1977, N J W 1978, 1124—1125 where i t was held that the dismissal o f an executive-rank employee of a N e w Y o r k corporation i n West Germany was i n v a l i d because the Works Council had not been consulted as required by West German law.

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to the declaration. (Employment and Industrial Relations Guideline § 7 specifically condemns employment dicrimination w i t h the exception of affirmative action.) The Court disposed of the case on other grounds not directly of interest here 150 , and thus had no occasion to consider these points. I n a parallel proceeding involving substantially the same issue, however, another federal court had before it a communication from the State Department, stating that the treaty provision quoted further above did not, in the opinion of the Department, confer "any right to discriminate against a particular sex, religious, or minority group." The authority given for this conclusion was the following 1 5 1 : Both the Japanese and United States Governments have subscribed to a number of international declarations calling on multinational enterprises to respect human rights and avoid discrimination. See point 7 of the 1976 O E C D Guidelines for Multi-national Enterprises and the I L O Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy. These are not binding, but they reinforce our view that Article V I I I should not be read as conferring a license to discriminate. This suggests agreement w i t h the first of plaintiffs' submissions as to the relevance of the O E C D Guidelines in the Spiess case. I t would not be proper for the present author, however, to pursue this matter further at this point 1 5 2 . I n conclusion, an attempt w i l l be made to place the use of codes, guidelines, and other declarations for "interpretative" purposes in the proper analytical perspective. Where, as in the case of the Floating Guidelines of the I M F , the subsequent intergovernmental declaration directly changes the legal significance of a treaty, it is effective because (1) the parties to the treaty have remained the masters of its contents; (2) their subsequent practice is binding inter sese i f so intended; and (3) the later prevails over the former i f that is the intention

150 The Court held that pursuant to article X X I I (3) of the U n i t e d States-Japan Treaty (n. 149), I t o h & Co. (America) Inc., having been incorporated in N e w Y o r k , was a corporation not of Japan but o f the U n i t e d States. 469 F. Supp. at 6. See also, t o the same effect, United States v. R.P. Oldham Company , 125 F. Supp. 818, 823 ( N . D . Cal. 1957). Plaintiffs' arguments in Spiess as summarized here were submitted t o the Court i n a Memorandum of International L a w w r i t t e n by the present author. 151

Letter of L . R. Marks, D e p u t y Legal Adviser, U . S. Department o f State, to Abner W . Sibal, General Counsel, Equal Employment O p p o r t u n i t y Commission, October 17, 1978, 2, n. *, on file i n the A v i g l i a n o case (n. 148); also i n A J I L 1979, 281—284 (282—283) (footnote renumbered " 1 " ) . 152

See supra , n. 150.

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of those who speak last w i t h legal authority 1 5 3 . (This is probably, according to "pure" theory, a case not of interpretation but of novation.) Where the issue is one of interpretation of a concededly binding term susceptible to different interpretations, on the other hand, the declarations here discussed constitute either "subsequent state practice in the application of the treaty" or are at least analogous to "relevant rules of international law applicable in the relations between the parties" as these terms are used in the Vienna Convention on the Law of Treaties 154 . Interpretations contra and praeter legem are not, of course, always readily distinguished. I n final analysis, however, this is not decisive. For whenever the subsequent declaration is arguably in conflict w i t h prior law, it prevails by virtue of the anti-inconsistency rule, usually reinforced by the principle of estoppel 155 . I n the absence of such a conflict (or potential conflict) between the prior rule and the contents of the code, guidelines, or other intergovernmental declaration, the latter supplies what might be called reliable, agreed-upon data or criteria for the more accurate delimitation of the significance of general or potentially ambiguous terms. These data or criteria, too, become binding i f need be by virtue of the anti-inconsistency rule or of the principle of estoppel. O E C D members, for instance, are legally obligated to characterize compliance w i t h the O E C D Guidelines as "good practice for a l l " 1 5 6 . They may not take action contrary to this position by, e. g.y disallowing payments made pursuant to the Guidelines as not constituting ordinary and necessary expenses for tax purposes 157 . Siminarly, O E C D members who are also parties to the U N Convention on the Recognition and Enforcement of Foreign Arbitral Awards may not make use of the public policy reservation of that convention 1 5 8 to refuse recognition to awards rendered in other O E C D members party to that convention which 153 The classic case in point is the termination o f the legal existence of the League o f Nations by a unanimous League Assembly resolution, i n flagrant disregard o f the amendment procedures provided i n the League Covenant. See Denys Myers , L i q u i d a t i o n o f the League of Nations, A J I L 1948, 320—354 (330—332); and the pertinent documents i n Hans Aufriebt, Guide to League of Nations Publications, 1951, 597—649. 154

Vienna Convention on the L a w o f Treaties, article 31 (3) (a) and (b). Supra , text at n. 65—77.

156

O E C D Guidelines (n. 3), I n t r o d u c t o r y Considerations and Understandings, § 9.

157

The Review Report (n. 36), § 42, 15, i n effect endorsed the disposition o f the Badger case as "good management practice". 158

Pursuant to article V (2) (b) of the U N Convention on the Recognition and Enforcement of Foreign A r b i t r a l Awards, of June 10, 1958, 330 U N T S 38, 42, recognition and enforcement of an otherwise q u a l i f y i n g arbitral award may be refused i f such "recognition or enforcement w o u l d be contrary to the public p o l i c y " of the forum recognitionis or executionis.

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invalidate transactions as in violation of international boni mores distilled from the Guidelines 159 . This might fall somewhat short of transforming the public policy reservation of the Arbitration Treaty into a mere reflection of an international contra bonos mores standard derived solely from the maxims of international public policy laid down in the pertinent codes, guidelines, or other declarations. That is so because the parties to the instruments in question manifestly could not have intended, at the current stage of the development of private international law and the elaboration of instruments pertaining to MNEs, to transform the treaty notion of public policy in the conflict of laws into the exact equivalent of international public policy as declared in codes, guidelines, or other declarations concerning the conduct of M N E s 1 6 0 . Nevertheless, an arbitral tribunal sitting in a member state may treat the contents of the Guidelines as constituting public policy, and its decision to do so is privileged in the sense that it may not be subsequently drawn into question by the forum recognitionis or executionis 1β1. IV.

Conclusions and Prospects A.

Conclusions

Five major conclusions emerge from the present study. First, the codes, guidelines, and other declarations concerning the conduct of M N E s that are extant today or at advanced stages of elaboration are not "instant international l a w " in the sense that they are transformed into customary international law through the mere act of being adopted 1 6 2 . Secondly, however, these instruments are not inherently incapable of rising to that level through state practice, especially through host and home country participation in intergovernmental follow-up proceedings 163 . Thirdly, self-descriptive clauses, declarations, and reservations specifying that compliance w i t h such codes, guidelines, or declarations on the part of M N E s is voluntary and / or not legally enforceable do not shield M N E s from the domestic enforcement of the substantive contents of these instruments or from their transformation into treaties or customary international l a w 1 6 4 . Fourth, and most importantly, codes, guidelines, and other intergovernmental declarations concerning M N E conduct are declarations of international 159 See supra , text at n. 119—124, 130. 160

Being an emergency escape device, the public p o l i c y exception is almost b y definition incapable of being exhaustively circumscribed by any instrument, including codes o f conduct or guidelines. 161 See supra , text at n. 130. 162 Supra , text at n. 21—52. 163 Supra , text at n. 42—51. ιβ4 Supra , text at n. 88—98.

4 G Y I L 22

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policy which, by virtue of the anti-inconsistency rule (frequently reinforced by the principle of estoppel) "legitimize" the transformation of their substantive contents into domestic law at the option of the declarant states 165 . Fifth, these instruments also have legal effects as agreed-on data and criteria of internaional public policy and legal terminology. Their application by domestic courts so as to refuse recognition to transactions in violation of their substantive contents is legitimate, although not as yet required. Furthermore, their provisions are relevant to the interpretation of prior instruments in force between the parties, including treaty clauses of a general or potentially ambiguous nature 1 6 6 . I n analytical terms, intergovernmental codes, guidelines, and declarations are multilateral declarations affecting the rights and obligations of the declarand states inter sese by virtue of the anti-inconsistency rule and/or the principle of estoppel, both of which are ultimately derived from the ground rule of good faith 1 6 7 . These declarations affect the contents of customary international law because practice in conformity w i t h them is legitimate state practice which defines, or refines, international-law rules on the protection of foreign investment 1 6 8 . That alone is insufficient, however, for the transformation of the prescriptions contained in these instruments into rules of customary international law imposing affirmative duties of enforcement upon the declarant states. This can be achieved only through the transformation of the substantive contents of codes, guidelines, and other instruments concerning M N E conduct into international law by treaty or by state practice reflecting the requisite opinio necessitatis iuris as regards that particular obligation 1 6 9 . B. A Preview: The Eclipse of Barcelona Traction I n concluding, we might speculate as to the future development of our subject. The Declaration on the Granting of Independence to Colonial Countries and Peoples took slightly more than a decade to become part of the corpus iuris gentium , and parts of the Universal Declaration of Human Rights achieved at least equal dignity in perhaps twice that time span 170 . Both, it is ιβ5 Supra , text at n. 104—114. 166 Supra, text at n. 119—135, 141—155. 187 Supra , text at n. 65—77. 168 Supra , text at n. 102—103. 16» Supra , text after n. 115. 1 7 0 As to decolonization, see supra , n. 51; and as to human rights, Universal Declaration of H u m a n Rights, December 10, 1948, U N Doc. A / 8 1 1 and Barcelona Traction Case, I C J Reports 1970, 3 at 32, where the Court stated that some o f the basic rights o f the human person "have entered i n t o the body o f general international l a w " . I t is perhaps w o r t h noting that Khôl, (n. 51), 30, argued as late as 1970 that the Decolonization Declaration had no legal effect.

Codes of Conduct for Multinational Enterprises

51

true, had support in the language of the U N Charter. The continental shelf doctrine, which had no such backing, became recognized as a rule of customary international law w i t h i n less than three decades of President Truman's (unilateral) Proclamation 1 7 1 . The question whether we w i l l witness the transformation of the substantive contents of codes, guidelines, and other declarations concerning M N E conduct into rules of customary international law is likely to depend, in the main, on our own life expectancies. We may be permitted, therefore, to engage in some speculation as to the probable consequences of the emergence of a customary international law of MNEs, reflecting, more or less, the substantive contents of the pertinent instruments now extant or at advanced stages of elaboration. Our remarks w i l l be limited to a topic of central significance to the international law of foreign investment: standing to protect legal entities. Most M N E s operate in host countries through subsidiaries incorporated under host country law. I n some instances, such as the exploitation, from 1966 to 1976, of the British continental shelf, they are required to do so by host country law. I n most other situations, local incorporation is chosen for a variety of well-known reasons 172 . The International Court of Justice has decided, in the Barcelona Traction case, that the traditional rule "attributes the right of diplomatic protection of a corporate entity to the State under the laws of which it is incorporated and in whose territory it has its registered office" 1 7 3 . I f extended to the typical M N E subsidiary in a host country, that rule would have the consequence that the home country of the M N E would lack standing against the host country, which would be dealing w i t h its " o w n " legal entity. Such an application of the Barcelona Traction case is suggested by some passages in the Court's opinion, and not clearly excluded by others 174 . Commentators continue to be divided on the subject, but it would seem that those reconciled to an expansive application of the Barcelona Traction rule are in the ascendant 175 . 171 North Sea Continental Shelf Cases, I C J Reports 1969, 3 at 22 and 32 et seq. The T r u m a n Proclamation, which is dated September 28, 1945, is characterized id. at 32—33 as the "starting p o i n t " o f the continental shelf doctrine. 1 7 2 Especially tax advantages, protecting the parent corporation f r o m exposure to process and l i a b i l i t y , eligibility for government contracts, and indigenous image. See Hans W. Baade, Multinationale Gesellschaften i m amerikanischen Kollisionsrecht, Rabeis Zeitschrift für ausländisches u n d internationales Privatrecht 1973, 5—35 (7). As regards the British continental shelf, see Terence Daintith and G. D. M. Willoughby , A M a n u a l o f U n i t e d K i n g d o m O i l and Gas L a w , 1977, 23. 1 7 3 Barcelona Traction Case, I C J Reports 1970, 3 at 42. For background, see Brooks , Annals of Finance, The N e w Y o r k e r , M a y 28, 1979, 42. 174 See especially I C J Reports 1970 at 48; Lucius Caflish, The Protection o f Corporate Investments A b r o a d in the L i g h t of the Barcelona T r a c t i o n Case, Z a ö R V 1971, 162—195 (183—187).

*

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Hans W. Baade

The application of Barcelona Traction to M N E s of the type here described rests on three premises. First, as stated by the Court, "no generally accepted rules (for multinational corporations) have crystallized on the international plane" 1 7 6 . Secondly, as a matter of general legal principle, corporations are legally distinct from their shareholders 177 . Thirdly, international law does not protect mere interests as contradistinguished from rights, and shareholders have only interests in, but no rights to, the assets of corporations 178 . The first of these premises is the controlling one, as any pertinent rule of customary international law regarding multinational corporations would be dispositive. I f the substantive contents of codes, guidelines, or other declarations concerning the conduct of M N E s should be transformed into customary international law, there would now be "generally accepted rules" which the Court failed to find in 1970. Even cursory analysis w i l l show that the very essence of international instruments concerning the conduct of M N E s is the accountability of M N E headquarters for the conduct of components, irrespective of the form of their legal organization, in host countries. The O E C D Guidelines, for instance, are "addressed to the various entities w i t h i n the M N E (parent companies and / or local entities) according to the actual distribution of responsibilities among them" 1 7 9 . The most important case in O E C D practice to date, the Badger case, established the responsibility of a home country parent for guideline violations by host country subsidiaries pursuant to parent company direction 1 8 0 . I f the proposition that the liability of M N E s follows the "actual distribution of responsibilities" between parent and subsidiary corporations is transformed into customary international law, it must surely be conceded that the rights of MNEs, too, are to be allocated in a like manner. This means, at the very least, that the home country of an M N E has standing to protect the host country subsidiaries thereof in respect of all matters covered by the pertinent codes, guidelines, or other intergovernmental declarations concerning M N E conduct. Once the "control" principle is accepted in this area (which is manifestly the most important) it seems unlikely that the Barcelona Traction rule w i l l retain viability in others. 175 See Luzius Wildhaber, Multinationale Unternehmen u n d Völkerrecht, Berichte der Deutschen Gesellschaft für Völkerrecht, 1978, Bd. 18, 7, 45—46, and sources there cited. « « I C J Reports 1970 at 46—47. 1 7 7 Id. at 34—36. «8 Id. at 36—38. 1™ O E C D Guidelines (n. 3), I n t r o d u c t o r y Considerations and Understandings, § 8. As stated in the O E C D Review Report (n. 36), § 39 in fine , 14; " T o the extent that parent companies actually exercise control over the activities o f their subsidiaries they have a responsibility for the observance of the Guidelines b y those subsidiaries". 180 See Blanpain (n. 33).

Value Clauses and International Monetary Law Hugo J. H a h n * I n view of world-wide inflation, maintenance of value continues to be a necessity in international transactions. Under a system of managed currencies 1 and due to the effects of nominalism, neither national law nor charters and enactments of international and supranational organizations are capable of safeguarding the value of monetary liabilities. I.

Protection of Value as a Concomitant

of the Monetary

Regime

The modification of pertinent social data and the corresponding evolution in the purpose of monetary policy after the First W o r l d War rendered the so far rigid reliance on the movements of gold obsolete. Maintenance of purchasing power by exclusive recourse to the gold points' mechanism prevalent under the pre-war gold standard 2 and the accompanying balance of payments' equilibrium were replaced by an effort to secure economic growth and in particular full employment ("magic quadrangle") 3 . The various aims not always being compatible w i t h each other, States could take account of them in a certain order of priority only, and that sequence determined the weight of a specific tenet in the ultimate guidelines of monetary policy 4 . I f , therefore, currency authorities give preference to other criteria and condone * Expanded and annotated version o f the expose read i n German to the German B r a n d i of the International L a w Association at its annual meeting i n Heidelberg (15 June 1979). The author, chairman of the Committee on International Monetary L a w o f the I L A , w o u l d like to stress that this article reflects his personal views and does not involve the responsibility o f the Committee or o f any of its members. 1 O n the concept cf. Otto Veit, G r u n d r i ß der Währungspolitik, 1969, 161 et seq.; Johannes Welcher, D i e Organisation des Geld- und Bankwesens, 1977; Benjamin J. Cohen, Organizing the World's Money, 1977. 2

Veit (η. 1), 118 et seq.

3

Statutory acknowledgement of that concept i n Section 1 of the Federal L a w for the Promotion o f Economic Stability and G r o w t h , of 8 June 1967 (Gesetz zur Förderung der Stabilität u n d des Wachstums der Wirtschaft v o m 8. Juni 1967, B G B l . I , 581). 4 O n the failure o f the attempt to re-introduce the gold standard after W o r l d W a r I due to such a re-orientation o f monetary and economic policy, cf. Gottfried Haberler y D i e W e l t wirtschaft und das internationale Währungssystem i n der Zeit zwischen den beiden W e l t kriegen, i n : Deutsche Bundesbank (ed.), Währung u n d Wirtschaft i n Deutschland 1876—1975, 1976, 205—248 w i t h detailed data.

Hugo J. Hahn

54

a loss in monetary stability, this entails a considerable risk for the creditor of a monetary claim, and is particularly detrimental to longterm liabilities. Contrary to valorism 5 , the prevalent doctrine of nominalism 6 rejects an automatic adaption of the nominal amount to the lessening of purchasing power between conclusion and date of maturity, so that the redemptive effect of a monetary disbursement is determined only by its nominal amount, i. e., the sum to be discharged consists of the originally owed number of monetary units 7 . Public international law as well as private law still acknowledging a farreaching freedom of contract and an equally wide disposition of parties over the contents of their arrangements, protective and compensatory devices safeguarding monetary claims against depreciation due to currency erosion continue to be an obvious defence. The sustained experience in the interwar period (1919—1939) and after 1945 explain the very frequent recourse to such consensual maintenance devices which have thus become a standard feature of legal draftsmanship 8 . II.

The Economics of Purchasing Power Risk and Exchange Rate Risk

Depending on the territorial scope of the agreement t w o kinds of loss factors may entail attenuation of monetary claims. Nationally, by the volition of the parties or under statutory provisions, transactions between residents in the same monetary jurisdiction involve only local currency both as standard of value and as means of payment (legal tender). Accordingly, a monetary liability is subject to a qualitative deterioration equal to the rate of inflation suffered by the currency concerned, so that the loss of the creditor corresponds to the inflationary gain of the debtor. Economically, this hazard constitutes the purchasing power risk 9 . I n international transactions 10 , both under public international and private law, at least two currencies are economically pertinent, no matter whether the 5 Cf. Friedrich Carl v. Savigny , Das Obligationenrecht als T h e i l des heutigen Römischen Redits, V o l . I , 1851, 406; Felix Eckstein, Geldschuld und Geldwert i m materiellen und internationalen Privatrecht, 1932, 10 et seq. (3rd ed. 1971). 6 Hermann Fögen, Geld- u n d Währungsrecht, 1969, 137 et seq.; Dominique Carreau , Souveraineté et coopération monétaire internationale, 1970, 62 et seq.; F. A. Mann, The Legal Aspect of Money, 1971, 71 et seq. 7 T o that effect, Mann (η. 6), 71—77, referring to Georg F. Knapp, Staatliche Theorie des Geldes, 1923, 30—34, 439; Konrad Duden, Empfehlen sich gesetzliche Bestimmungen über die Wertsicherung?, i n : Verhandlungen des 40. Deutschen Juristentages 1953, 46 et seq. 8 Werner Dürkes, Wertsicherungsklauseln, 1972, 15 et seq. of fers a digest of forms; cf. also Peter C. Gutzwiller , Vertragliche Abreden zur Sicherung des Geldwertes, 1972, 86 et seq. 9 Christian Humbert, Internationale Anleihen, 1969, 138 et seq. 10 O n value maintenance i n international transactions, cf. Henri Guisan, Quelques aspects du droit monétaire contemporain, i n : The present State of International L a w , 1973, 261—281 (271—274); Stephan A. Silard y Maintenance-of-Value Arrangements in International Trans-

Value Clauses and International Monetary Law

55

standard of value and the means of payment are identical or, as in many cases, currency of account and currency of payment fall apart 1 1 . This holds true as well where the standard of value and the means of payment coincide as a matter of law, yet the inflationary internal depreciation of that currency makes itself felt in its exchange rate 1 2 , e. g. to the detriment of a German claimant converting into D - M a r k the amount payable to him in foreign currency. Thus, the actual value of a monetary claim is not only affected by the qualitative evolution of the national currency in the State of the claimant's residence which obviously interests him most, but also by the decisive economic impact that at least one further currency may have on a given transaction whose exchange rate expresses the difference in the domestic rate of inflation concerned 13 . This hazard is called the exchange rate risk 1 4 . Both categories of monetary depreciation are comprised in the concept of currency value risk 1 5 . III.

Value Clauses in the Law of International

Economic Transactions

A major possibility of conveniently allocating the disadvantages ensuing from the loss of purchasing power 1 6 exists in the recourse to specific contractual maintenance-of-value clauses, whose usefulness in international transactions is contingent on their suitability to protect the parties against the currency value

actions, L a w and Policy i n International Business 1973, 398—439; Hugo J. Hahn, Geldwertsicherung i m Recht der Internationalen Wirtschaft, i n : Festschrift für Johannes Bärmann, 1975, 395—426; Franz Zehetner, Geldwertklauseln i m grenzüberschreitenden Wirtschaftsverkehr, 1976, 11 et seq. 11 O n this distinction, Georges van Hecke , Problèmes Juridiques des Emprunts Internationaux, 1964, 165 et seq.; Georges van Hecke , International Encyclopedia of Comparative L a w , V o l . 3: Private International L a w , 1972, Chapter 36; Elias Krispis , Money in Private International L a w , Recueil des Cours de l'Académie de D r o i t International 1967 I , 191—311 (195). 12

Werner Albrecht, Wechselkurssicherung, 1977, 201 et seq.; Rudolph Graupner, Rechtliche Folgen der britischen A b w e r t u n g für den deutsch-britischen Wirtschaftsverkehr, A u ß e n w i r t schaftsdienst des Betriebsberaters 1968, 99—104. 13

Zehetner

(n. 10), 11 et seq.

14

Humbert (n. 9), 146 et seq.; Franz-Josef Trouvain, Bedeutung u n d Probleme internationaler Anleihewährungen, i n : Internationale Währungsordnung u n d K a p i t a l m a r k t , V o l . 3, 1972, 85—108 (95 et seq.). 15 T o be distinguished from the ordinary transactional risk of any business venture ensuing e.g. from insolvency of the creditor; to this effect also Humbert (n. 9), 100 et seq.y 138 et seq. 16 Another possibility of allocating such risk may be provided by f o r w a r d exchange operations extraneous to the agreement itself, usually arranged b y banks i n order to reduce the hazards encountered by their clients; cf. Robert Wittgen y Währungsrisiko u n d Devisenkurssicherung, 1975, 70 et seq.; Albrecht (n. 12), 89 et seq.y 268 et seq.

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Hugo J. Hahn

risk 1 7 . As the following expose intends to assess, in terms of monetary law, the safeguarding devices, the decisive traits of their most important categories w i l l be summed up in advance. 1. T h e

P r o t e c t i o n against the Exchange (Exchange Rate Clauses)

Rate

Risk

I n transactions between residents of different states w i t h proper currencies, reference to a specific currency in the invoiced amount always entails an allocation of the currency risk. a) Currency Clauses This category comprises essentially three sub-groups — single, combined, and optional currency clauses, the latter being traditionally identified as ff options de change 3,18. aa) Single Currency Clauses The significant trait of this type of clause which may refer to the currency of the creditor, or of the debtor, or to a third currency, is the determination of the amount due in one specific currency to the exclusion of any other one 19 . Accordingly, the quality of such an arrangement in terms of value maintenance is contingent on the stability of the currency it refers to. I f a party to an agreement succeeds in having the debt denominated in his national currency he does not incur any exchange rate risk, the clause putting him in the same position as i f the other party were a domestic contractant. The amount due only bears the risk of a decrease in the purchasing power of the currency concerned between conclusion and maturity of the monetary obligation 2 0 , a depreciation which may be taken into account by the insertion of a value guarantee arrangement. As to the advisability of single currency clauses it ought to be stressed in view of floating exchange rates, practiced for years and now legalized 21 , and 17 T o that effect, Norbert Horn , Der Einfluß monetärer Risiken auf den internationalen H a n d e l u n d Kapitalverkehr, i n : Norbert Horn (ed.), Montäre Probleme i m internationalen H a n d e l u n d Kapitalverkehr, 1976, 13—38 (19 et seq.). 18 Cf. Zehetner (n. 10), 11 et seq. i® Arthur Nußbaum, Das Geld i n Theorie u n d Praxis des deutschen u n d ausländischen Rechts, 1925, 187 et seq.; F. A. Mann, Das Recht des Geldes, 1960, 136 et seq. 20 Graupner (n. 12), 99 et seq. 21 B y the second amendment to the I M F Articles of Agreement, entered i n t o force 31 March 1978. English original w i t h official German translation: Gesetz zu dem Ubereinkommen über den Internationalen Währungsfonds i n der Fassung v o n 1976 ( I W F Gesetz) v o m 9. Januar 1978, B G B l . I I 13, 15—81. O n the second amendment cf. Albrecht Weber,

Value Clauses and International Monetary Law

57

the enormous exchange rate movements, as a rule concomitant w i t h that régime 22 , that the use of one currency only may entail considerable risk, since it has become virtually impossible to foresee w i t h a relevant degree of certainty future exchange rate developments, even in respect of currencies considered at present as eminently stable, such as the Swiss Franc, the Japanese Yen, and the German Mark. bb)

Combined Currency Clauses

This maintenance-of-currency-value arrangement determines the monetary obligation by the cumulative conjunction of amounts denominated in different currencies. Combinations of currencies entail a scattering of risk as compared w i t h single currency clauses. The size of the inflationary gain or loss does not depend on one currency only, but is spread among several currencies. As the share of each currency is at the disposal of the parties, almost unlimited combinatory possibilities are available providing the contractants w i t h considerable latitude for negotiation 23 . The formulae used in practice extend from the elementary combination of the creditor's and the debtor's currencies 24 , if convenient w i t h the inclusion of one or several third currencies 25 , to the complex official combination-of-currencies clauses of the International Monetary Fund ( I M F ) 2 6 and the European Economic Community (EEC) 2 7 . This sort of clause D i e zweite Satzungsnovelle des Internationalen Währungsfonds und das Völkerrecht, i n : Festschrift für F. A . M a n n , 1977, 807—846; Hugo J. Hahn y Elemente einer neuen W e l t währungsordnung, i n : Wilhelm A. Kewenig (ed.), Völkerrecht u n d Internationale Zusammenarbeit, 1978, 215—259; Dominique Carreau Πhiêhaut Flory l Patrick Juillard y D r o i t International Economique, 1978, 278 et seq.; Joseph Gold y The Second Amendment of the Fund's Articles o f Agreement, I M F Pamphlet Series N o . 25, 1978; Hugo J. Hahn y A u f w e r t u n g u n d A b w e r t u n g i m Internationalen Redit, Berichte der Deutschen Gesellschaft für Völkerrecht, H e f t 20, 1979, 1 ff. 22 Hermann J. Ahsy Handelsblatt, 23—24 June 1978, 3. 23 Hahn (n. 10), 410—412; lehetner (n. 10), 34 et seq. 24 E. g., an agreement between a French buyer and an Austrian steel producer concluded in 1969 states: " L e p r i x se répartit en francs français et en shillings autrichiens. 3 0 % , c'està-dire FF . . . payables en francs français, 70 °/o, c'est-à-dire le contrcvaleur de FF . . . payables en shillings autrichiens, convertis à un cours de change fixe de 1 FF = 5,2162 AS, c'est-à-dire AS . . .; cette somme a été acceptée par le vendeur. O n ne tiendra pas compte des modifications de cours de change". Report by the Committee on International Monetary L a w , N o t e on Value Clauses in International Practice by the Officers of the Committee, International L a w Association, N e w D e l h i Conference, 1974, 11 (hereinafter cited as N e w D e l h i Report, 1974). 25 Thus, i n 1957, the various branches of a credit by the International Bank for Reconstruction and Development to I n d i a were denominated i n 4 different currencies. U n i t e d Nations Treaty Series V o l . 288, 135 (12 J u l y 1957). 26 As to the present composition of the I M F Special D r a w i n g Right (SDR) and its standard basket, cf. Joseph Gold , SDRs, Gold, and Currencies, I M F Pamphlet Series N o . 26, 1979, 2—3. 27 As to the European Composite U n i t ( E U R C O ) and the European U n i t of Account

58

Hugo J. Hahn

is directly affected by value variations in only those currencies which are referred to in the composite arrangement and merely to the extent corresponding to the proportionate share of currencies thus modified in the entire amount due. Accordingly, i f the exchange rate of a currency included in the combination should rise or fall, the technique entails the increase or decrease of that currency's share as compared w i t h the other reference currencies, the volume of this compensatory operation being contingent on the proportionate part of the currency concerned in the entire composite unit. The advantage of the combination-of-currencies clause in relation to the single currency clause is obvious, as it lessens monetary hazards considerably. The maintenance-of-value risk regarding a monetary obligation is spread over a number of different currencies, so that the exchange rate loss of a currency in the basket can no longer affect the amount due in its entirety, but only in proportion to that currency's share in the composite unit. The risk-spreading effect increases w i t h the number of reference currencies. However, while monetary hazards may thus be increasingly reduced, the practicability of the combination technique is correspondingly reduced as well. Indeed single currency clauses usually determine the money of account and make the money of payment determinable, whereas combinations of currencies require the collection of pertinent exchange rates and complex mathematical operations to figure out, in terms of a money of payment, the value of an amount due in its entirety 2 8 . cc) Optional Currency Clauses (" options de change") Under an optional currency clause, the monetary obligation is alternatively denominated in fixed amounts of two or more currencies from which the obligee may choose the sum definitively payable 29 , e. g. 1.000 D M , or 2.000 FF, ( E U A ) , cf. Joseph Gold , Floating Currencies, G o l d , and SDRs, I M F Pamphlet Series N o . 19, 1976, 40 et seq.; the more recent evolution including the European Currency U n i t ( E C U ) of the European Monetary System is summarized, as of the end of M a y , 1979 i n : Commerzbank A . G. (ed.), Vergleich: Europäisches Währungssystem, Europäischer Wechselkursverbund u n d System v o n Bretton Woods (nach 2. Statutenänderung), 1978, 1—4; cf. also Hugo ]. Hahn, Das Europäische Währungssystem, Europarecht 1979, 337, 340 ff. 28 Franz 2ehetner y Konstruktionsprobleme kombinierter Währungsklauseln, K r e d i t u n d K a p i t a l 1978, 213—248 (218). The effort i n v o l v e d in the implementation of that technique entails considerable expenditure, in particular under a system of floating exchange rates. Accordingly, i t is h a r d l y surprising that border crossing economic transactions increasingly refrain from the use of composite arrangements w o r k e d out b y parties and rather prefer the combination-of-currencies clauses developed b y international monetary institutions. 29 " W h i l e being better than nothing, SDRs, i n the view o f the Committee, carry the risk that the weaker moneys drag d o w n the stronger ones. Though gold does not at present appear to be able to serve as basis of value clauses, basket devices were not the only maintenanceof-value arrangements available either, the t r a d i t i o n a l option de change, for example, still

Value Clauses and International Monetary Law

59

or 500 US-S 3 0 . Such monetary obligation thus constitutes an alternative promise as its significant trait is the variability of the money of account 31 . A t the time of payment, the creditor may reduce his inflationary loss by choosing from among the optional currencies the most stable one. Value maintenance by means of this sort of protective device thus depends exclusively on the strongest of the currencies available, as distinct from combinations of currencies. Where both clauses refer to the same currencies, the option de change offers better protection. I n addition, optional currency clauses are indeed much easier to implement. I f the roster of optional currencies includes the creditor's as well as the debtor's currencies, they offer an absolute exchange rate value maintenance. Moreover, an exchange rate profit becomes feasible, where the exchange rate of another optional currency has improved as compared w i t h the creditor's currency 32 . However, both option de change and other currency clauses may fulfil their function of maintaining the value of monetary obligations only, if the roster of currencies includes at least one stable currency 33 . b) Units of Account As distinguished from references to currencies, units of account are not attached to a specific currency, but offer a common denominator for amounts of varying size denominated in different currencies, yet equal in value, so that they are particularly well-suited for measuring and identifying uniform moneoffering practical remedies i n spite of all its shortcomings." Report by the Committee on International Monetary L a w , Value Clauses and the Changing International Monetary Scene, International L a w Association, M a n i l a Conference, 1978, 4 (hereinafter cited M a n i l a Report, 1978). 30 For an early assessment of the distinction between option de change and option de place cf. Arthur Nußbaum, Vertraglicher Schutz gegen Schwankungen des Geldwertes, 1928, 70 et seq. 31 " T h e essential feature of such promises lies in the fact that the subject matter of the obligation, i. e. the money of account, itself varies", Mann (n. 6), 198. 32 Albrecht (n. 12), 236 et seq.; Humbert (η. 9), 187 et seq. Such protective arrangements are obtainable only where the position of the monetary obligee is commensurately strong. They are rather frequent in connection w i t h international loans, as the issuer may be prepared to offer to the buyers of bonds a particularly sweeping safeguard against inflationary losses i n order to open the markets for the floating of the securities. Cf. Fernand Collin , Neue Formen v o n Internationalen Anleihen, Zeitschrift für das gesamte Kreditwesen 1963, 1127—1128; 1964, 67—68; Joachim Krink , Fremdwährungs-Anleihemodelle und Währungsparitätsänderungen, Zeitschrift für Betriebswirtschaft 1974, 31—46. 33 Thus, monetary obligees having relied in an optional currency clause on the stability of the U . S. dollar suffered enormous losses in the wake of the rapid decline in the exchange rate of the U . S. currency. Considering the present trends o f monetary policy, it stands to reason that today an option de change ought to include, among the optional currencies, at least one of the three having the reputation o f comparative stability so far — Swiss franc, Japanese yen, German mark.

60

Hugo J. Hahn

tary obligations and claims in several monetary jurisdictions. I n terms of present monetary usage, units of account are distinguishable from other combination-of-currencies clauses by the interposition of an artificial unit for the purpose of risk spreading. Apart from this trait, they entail essentially the advantages and disadvantages as to their exchange rate maintenance effect which have been noted w i t h regard to combinations of currencies. Accordingly, as already noted, the rather technical distinction between elementary combinations on the one hand, e. g. the conjunction of creditor's and debtor's currencies, and complex official composite currency clauses on the other hand, takes the form of a direct reference to currencies in the unsophisticated context of the first group of clauses, whereas in the second category a separate unit serves as intermediary in order to facilitate mathematical operations and, accordingly, wider use of the scheme34. This artificial unit is the significant trait of the elaborate combinations of currencies which are therefore denominated in the practice of monetary law as units of account 35 . This denotes a functional difference as well which may be of considerable concern in terms of exchange rate value maintenance. Where units of account are used, calculation of the amount due in the creditor's currency requires recourse to a specific money of account, whereas the more elementary combined clauses denominate the monetary obligations in the currencies of payment 3 6 . I f the money of account and the money of payment do not coincide, the value of the sum due and expressed in units of the currency of payment is contingent on the current exchange rate of the currency of account. Accordingly, the exchange rate of the currency of account, necessarily one of the currencies in the basket, has a two-fold incidence on the amount to be established, once in proportion to its share in the combination of currencies, and again when the sum payable is converted into that currency. Thus the unit of account and the money of account influence the value of the monetary obligation by assuming together the function of the money of account 37 . Whether any currency in the basket 38 or only one of them 3 9 may serve as the basis of conversion is of considerable interest to the creditor; only freedom of choice in respect of several or all currencies in the combination allows him 34 I n addition to the SDR and the E C U (n. 27), the examples set f o r t h i n the N e w D e l h i Report, 1974 (n. 24), 11 et seq. may be mentioned. 35 Zehetner (n. 28), 218. 36 T o its effect, Clive Schmitthoff, quoted i n a Diskussionsbericht, i n : Norbert Monetäre Probleme i m internationalen H a n d e l u n d Kapitalverkehr, 1976, 158. 37 Ibid.

Horn

(ed.),

38 I n the case of the European Composite U n i t ( E U R C O ) any of the currencies in the basket may serve as basis o f conversion; cf. N e w D e l h i Report, 1974 (n. 24), 12 et. seq. 30

I n the case of the SDR, the U . S. dollar is the only currency o f conversion.

61

Value Clauses and International Monetary Law

to profit from the exchange rate movements of specific currencies by using as money of account the most stable currency in order to increase the number of currency units in the weaker currency of payment. Accordingly, i f the monetary obligation is denominated in a unit of account, the incidence of the money of conversion requires due attention. 2. C o m p e n s a t o r y

Purchasing

Power

Clauses

Where complete reciprocity in the performance of international operations is to be attained, value guarantee clauses in the narrow sense of the term are required to eliminate the effect of domestic — basic — inflationary depreciation, in addition to exchange rate arrangements which are designed to compensate the decrease in purchasing power due to the different rates of inflation from currency to currency. Such value guarantee clauses presuppose the determination of the money of account 40 . As value guarantee clauses are to compensate the loss in purchasing power of specific currencies, this type of maintenance arrangement is particularly useful in connection w i t h single currency clauses and elementary combination clauses41, yet hardly advisable in the case of elaborate currency-baskets. Optional currency clauses render such value guarantee clauses largely superfluous where the purchasing power of the most stable currency has not significantly lessened and the compensatory effect of purchasing power maintenance is rather limited. Yet, value guarantee clauses may live up to their compensatory function i f pegged to the rate of inflation of the money of account. Otherwise, the creditor is likely to obtain undue inflationary gains or equally undue inflationary losses42. The most familiar arrangements are index- and price-adjustment-clauses which link the amount of a monetary obligation to the evolution of the general cost-of-livingindex or of specific cost factors which have an influence on the price at issue43. I n addition, quota and quantity clauses deserve to be mentioned. The former are arrangements destined to portion out among participants a monetary debt 40 O n compensatory purchasing power clauses cf. Dürkes (η. 8); Fögen (η. 6), 143 et seq.; Rolf Mittelbach y Wertsicherungsklauseln i m Z i v i l - u n d Steuerrecht, 1974, 32 et seq. O n compensatory purchasing power clauses in international transactions cf. Hahn (η. 10), 420 et seq.y and Zehetner (η. 10), 99 et seq.

41 T o this effect, Zehetner 42

(η. 28), 212, 215 et seq.

As acknowledged in the N e w D e l h i Report, 1974 (n. 24), 1—3.

43 For a representative array of practice and opinion under the relevant provisions i n the Federal Republic of Germany, cf. Werner Dürkes, Z u r Genehmigungsbedürftigkeit v o n Kostenelementeklauseln, Betriebs-Berater 1979, 805—813; for a more l i m i t a t i v e approach cf. Monatsberichte der Deutschen Bundesbank, Geldwertklauseln, A p r i l 1971, 25 et seq.y and Friedrich K. Willms / Bertold Wahlig y Z u r Genehmigungsbedürftigkeit v o n Wertsicherungsvereinbarungen nach § 3 W ä h r G und zur Neufassung der Genehmigungsgrundsätze der D e u t schen Bundesbank, Betriebs-Berater 1978, 973—978.

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whose amount in absolute figures is unknown when the key for the sharing of the common burden is determined or when the factors for the adjustment of that key are specified 44 . Contrariwise, quantity clauses are not designed to identify the monetary obligation but are to limit the contractual non-monetary performance of the debtor to the value of a maximum nominal amount in the currency of account at the rate of exchange prevailing when such performance falls due. The maximum nominal amount in the currency of account thus reduces the number of goods to be furnished or services as well as capital movements to be accomplished in proportion to the decrease of the domestic purchasing power of the currency of account due to price increases 45. IV. Value Clauses in the Evolution of National and International Monetary Policy Value maintenance arrangements thus appear as a flexible defense of border crossing trade and capital operations against the loss of purchasing power. Structure and functions of these protective devices, however, make them sensitive to changes in the framework of monetary policy determining their legal status. 1. T h e I n t e r n a t i o n a l S c o p e o f Enactments A b r o g a t i n g Protective Clauses Particularly frequent use of maintenance arrangements in an economy discloses lack of confidence as to the stability of the national currency 46 . Accordingly, it is hardly surprising that an additional inflationary effect has been attributed to such value clauses47. That alleged effect has given states a pretext to restrict or prohibit the clauses by legislation on the ground that in any event they would be understood as negative economic signals 48 . To those af44 Rather frequently used i n the financing o f common projects or i n the collection o f contributions for the maintenance o f intergovernmental organizations; cf. Hahn (η. 10), 422 et seq.; Zehetner (n. 10), 105 et seq. 45 Preferential field o f application is development aid, i n particular, in the content of the promise of financial aid. Cf. Hahn (η. 10), 422 et seq. and Zehetner (n. 10), 105 et seq. 48

" L a Banque nationale n'a cessé de s'opposer à emploi de la clause - or dans les transations intérieures, car l ' i n t r o d u c t i o n de cette clause implique u n sentiment de méfiance à l'égard de la monnaie nationale". Thus, in respect of gold value maintenance arrangements between Swiss residents, Banque N a t i o n a l Suisse, 29ème rapport, 1936, 21. 47 O n this qualification, cf. Norbert Euba y Der Einfluß v o n Geldwertrisiko u n d W e r t sicherungsklauseln auf die Vermögensdispositionen, 1973, 47 et seq.; Otmar Issing, Indexklauseln und Inflation, 1973, 3; Panel on "Probleme der I n d e x b i n d u n g " , K r e d i t u n d K a p i t a l 1974, Beiheft 7. 48 For an array of abrogating enactments, prevalent i n most industrial states w i t h the exception o f the U n i t e d K i n g d o m and Switzerland, cf. Mann (n. 6), 297 et seq.

Value Clauses and International Monetary Law

fected by such restraints, however, it is of the utmost interest whether a pertinent enactment may indeed affect a monetary obligation safeguarded by a value clause. Among residents of a state, this does not give rise to any particular problems as their contract, devoid of any foreign element, is necessarily subject to domestic law which alone decides the propriety of the legislative interference w i t h the contractual maintenance device. The assessment w i l l be less elementary in the case of an international transaction whose scope transcends the territory of the state enacting the restraint. This makes it necessary to identify the border crossing effect of the abrogating legislation which is contingent on the canons of private international law, a view by no means confined to German practice and opinion 4 9 . As to the choice of the proper national law to be applied, four possibilities have been advanced — the law of the forum (lex fori), the law of the place of payment (lex loci solutionis), the proper law of the contract itself (lex contractus), and, finally, the lav/ of the state in whose currency the obligation is denominated (lex monetae). For reasons of space, the doctrinal controversy regarding the propriety of either solution under private international law cannot be discussed here 50 . Suffice it to stress the dissatisfactory result that the numerous pertinent judicial decisions betray a uniform assessment of the matter only to the extent that they were rendered in one and the same forum, whereas comparatively speaking the plurality of the answers provided by courts in different states is the significant trait of that casuistry 51 . Accordingly, due to such absence of international judicial unison, other possibilities of finding the proper law are to be considered including additional treaties 52 , their conclusion remains an important task for the future in spite of promising initiatives in that direction. As a general proposition, it should be stated that in the exercise of monetary sovereignty any state may implement the principle of nominalism in preference to freedom of contract and considerations of equity, even i f such abrogating enactment secures undue inflationary gains to the debtors of a monetary obli49 Cf. Rudolph Heiz y Das fremde öffentliche Redit i m internationalen Kollisionsrecht, 1959, 77 et seq. for further details. 50 Max Gutzwiller, Der Geltungsbereich der Währungsvorschriften, 1940, remains a major exposition of the subject. 51

Cf. Klaus-Alfred Ernst , D i e Bedeutung des Gesetzeszwecks i m internationalen Währungsu n d Devisenrecht, 1963, 57 et seq. for an array of pertinent judicial decisions, including holdings dealing w i t h the American " J o i n t Resolution" of 1933. O n the latter's repeal i n the wake of the abolition by the U . S. of the gold dollar standard, cf. Gold (n. 26), 46 et seq. Cf. Gerhard Kegel , Internationales Privatrecht, 1977, 59 et seq. 52 E. g. Conseil de l'Europe, Rapport explicatif sur la Convention européenne relative aux obligations en monnaie étrangère, Strasbourg, 1968; R a p p o r t explicatif sur la Convention européenne relative au lieu de paiement des obligations monétaires, Strasbourg, 1972; Guisan (n. 10), 274—281.

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gation 5 3 . However, whether and to what extent that prerogative may have extraterritorial effect is not indubitable. I n conformity w i t h judicial and executive practice as well as w i t h the doctrine of monetary law it should be recalled that legislative interference of that kind w i t h international transactions is binding in accordance w i t h and under the terms of treaties, as requirements and prohibitions of a state are devoid of direct border-crossing obligatory force under customary international l a w 5 4 , unless the parties have been concerned specifically w i t h a factual setting which in its entirety is subject to foreign governmental action 55 . Against the background of a growing number of interventionist enactments by states, attempts were made to limit the scope of these restraints so adverse to the development of international trade and capital movements, in particular, by efforts to exempt private international operations from those enactments. Thus, already in the early twenties, the concept of a third legal order was set forth in marked defiance of the then prevalent dichotomy, distinct and independent from domestic law as well as from public international l a w 5 6 and therefore devoid of any subjection to law-making by states 57 . Cautious expansion of such precepts has given rise to an "international commercial l a w " 5 8 which, according to the majority view, is available to parties expressly choosing that body of rules as proper law, yet not applicable in the absence of such a choice 59 . Moreover the "internationalization" of the contract affirmed by that choice of law is admitted only where a state or other subject of international law concludes an agreement w i t h a foreign national, as the appurtenance of one contractant to the domain of public international law entails the indispensable proximity of 53 Cf. infra , 68 f. 54 Milan R. Shuster y The Public International L a w o f Money, 1973, 47 et seq.; Mann (η. 6), 578. 55 α . . . the l a w o f the currency determines which things are legal tender o f the currency referred to, t o w h a t extent they are legal tender, and how, i n case of a currency alteration, sums expressed i n the former currency are to be converted i n t o the existing one, . . . " Mann (n. 6), 266. 5β I n the sense of the t r a d i t i o n a l view of the Permanent Court o f International Justice, in the cases i n v o l v i n g Serbian and Brazilian loans: " T o u t contrat qui n'est pas un contrat entre des Etats en tant que sujets de droit international a son fondement dans une l o i nationale". C P J I Série A N o . 20/21, 1929, A r r ê t N o . 14, 41; A r r ê t N o . 15, 121. 57 Cj.y i n particular, Günther S. Freund, Der Schutz der Gläubiger gegenüber auswärtigen Schuldstaaten insbesondere bei auswärtigen Staatsanleihen, 1910, 18; Edwin M. Borchard, The D i p l o m a t i e Protection of Citizens A b r o a d or the L a w of International Claims, 1927, 305. 58

T o this effect, Karl-Heinz Böckstiegel, Der Staat als Vertragspartner ausländischer Privatunternehmen, 1971, 102 et seq.; Hans-Werner Rengeling, Privatvölkerrechtliche V e r träge, 1971, 102 et seq.; Eugen Langen, Transnational Commercial L a w , 1974, 13 et seq. 5» Klaus G. Borchers, Verträge v o n Staaten m i t ausländischen Privatpersonen, 1966, 139 et seq.; George Schwarzenberger, Foreign Investments and International L a w , 1969, 5 et seq.; for an array o f practice and opinion, Johannes Bärmann, 1st Internationales Handelsrecht kodifizierbar?, i n : Festschrift für F. Α . Mann, 1977, 547—573.

Value Clauses and International Monetary Law

65

the arrangement to the intergovernmental setting 80 . That doctrinal evolution has considerably eased the problems regarding the international scope of application to which governmental enactments interfering w i t h relevant private international transactions may be laying claim as a matter of economic policy. I t therefore stands to reason that as a matter of positive l a w 0 1 , legislative abrogations of value clauses in border crossing transactions are unlikely to affect arrangements in the domain of public international law or in "internationalized" agreements. 2. T h e L e g a l S t a t u s Reference-to-Gold-Value

of Clauses

Monetary value maintenance clauses are not only affected by direct governmental interference, but also by other modifications of monetary policies and of the setting consequential to them. This holds true, in particular, for exchange rate arrangements directly or, like units of account, indirectly linked to specific currencies. I n that context a look at the legal status of reference-to-gold-value clauses following the demonetization of gold is of special interest 62 , as the abolition of the official gold price under the Second Amendment to the A r ticles of Agreement of the International Monetary Fund has done away w i t h this device as a maintenance arrangement. The coming into force of that amendment 63 has legalized the demonetization of gold, nationally and internationally, and thus, years after the factual demise of the official gold price, eliminated the latter in law as well, removing at the same time the very basis of that type of clause, as the legal extermination of par value and of the gold definition of the Special Drawing Right from the I M F Articles of Agreement has discarded the possibility of identifying the value of any national currency directly or indirectly in terms of gold weight. The entry into effect of the amendment also did away w i t h the very basis of the contention, upheld for years, that Fund practice was contrary to the letter and spirit of the Articles of Agreement and, accordingly, a look at the origins of that practice may be of interest. 60 T o that effect, as early as 1944, F. A. Mann, The L a w Governing State Contracts, British Yearbook o f International L a w 1944, 11—33, reprinted i n F. A. Mann, Studies i n International L a w , 1973, 179—210 (193). 61 As a matter o f legal policy, the I L A Committee on International Monetary L a w has submitted a number of proposals under consideration b y other instances i n the meantime as w e l l ; cf. infra , 72 ff. 62 O n the various kinds of reference-to-gold-value clauses, cf. Arthur Nußbaum, in the L a w — N a t i o n a l and International, 1950, 223 et seq.; Mann (η. 6), 134 et seq.

63 Cf. (η. 21), supra; comment b y Hahn references.

5 G Y I L 22

Money

(η. 21 A u f w e r t u n g u n d Abwertung) w i t h further

66

Hugo J. Hahn

The undermining of the function of gold as a standard of value and unit of account had begun in 1968 w i t h the splitting of the gold price 64 . I n 1971, the evolution continued w i t h the abolition of the convertibility into gold of the dollar by the U . S. 65 and the floating of exchange rates by a number of important national currencies in 1971 and 1973 66 . The terminal point was reached w i t h the disassociation of the Special Drawing Right from gold in 1974 67 . The continuous removal of the monetary functions of gold made the economic utility of gold value clauses increasingly dubitable, even before the definitive elimination of the measurement task of gold under the unequivocal provisions of the Second Amendment to the I M F Articles of Agreement, though it would hardly be possible to specify a precise date in this period from which on the expediency of gold value clauses had to be denied altogether on elementary grounds of risk-avoidance. The corresponding difficulty of determining the monetary value of gold has been considered in recent years in a number of judicial holdings, the majority of which continued to rely on the prevalence of the official gold price, no longer applied in practice, but not abandoned as invalid either 68 . Following the legal elimination of the official gold price, one solution might be the determination of gold value as set forth in such clauses by reference to the market price. Yet this approach appears to be questionable, considering that the gold market price has increased about eightfold as compared w i t h the last official quotation 6 9 . Having regard to the decrease in value of the US dollar by about 100 per cent since the abolition of its gold conver-

64 F o l l o w i n g the disappearance o f the gold pool in March 1968, the gold price split i n t o an official and a market price ( „ t w o tier m a r k e t " ) ; on this development cf. I M F A n n u a l Report, 1968, 83 et seq.; I M F A n n u a l Report, 1969, 121 et seq. 05 A b u n d a n t l y commented in the statements o f national and international monetary institutions; cf. 58th A n n u a l Report of the Board of Governors of the Federal Reserve System, 1971, 33 et seq., 52 et seq.; 23rd I M F A n n u a l Report on Exchange Restrictions, 1972, 447 et seq. For doctrinal comments cf. Dominique Carreau , L ' O r , Journal du D r o i t International 1972, 797—811; Franz Zehetner , Die Suspendierung der G o l d k o n v e r t i b i l i t ä t des Dollars, 1973. 66

Comments i n : Geschäftsberichte der Deutschen Bundesbank für 1970, 40 et seq.}\ for 1972, 30 et seq.; and for 1973, 46 et seq. 67 I M F Press Release of 17 June 1974, in the German translation by the Deutsche Bundesb a n k : Deutsche Bundesbank, Auszüge aus Presseartikeln 1974, N r . 42, 10 J u l y 1974. O n the gold weight definition o f the SDR under the first (1969) amendment to the I M F Articles of Agreement ( A r t . X X I 2), cf. Hugo }. Hahn, Das Geld i m Recht der parlamentarischen D i p l o matie, 1970, 34 et seq. 68 69

O n the significant traits of this judicial casuistry, cf. Gold (n. 26) w i t h further references.

35 U . S . dollars per ounce of fine gold ( I M F A n n u a l Report, 1978, 70). " D e r neue Bewertungspreis stützt sich auf 75 °/o des i m August 1976 verzeichneten niedrigsten G o l d preises der letzten f ü n f Jahre; in einer weiteren Relation entspricht der neue Wertansatz 5 0 % des für das abgelaufene Jahr ermittelten durchschnittlichen Goldpreises". Neubewertung des Goldes der österreichischen N a t i o n a l b a n k , Mitteilungen des Direktoriums der österreichischen N a t i o n a l b a n k , 1978, N r . 12, 874.

Value Clauses and International Monetary Law

67

t i b i l i t y 7 0 , the debtor would have to spend more than three times the purchasing power he had promised to furnish at the conclusion of the agreement. Accordingly, under the present monetary system, gold value clauses can no longer be understood as a category of value maintenance arrangements, but have become speculative covenants 71 . This explains w h y in practice, an effort is made to convert gold value clauses in border crossing contracts into references to official units of account independent of gold, particularly into Special Drawing Rights of the I M F 7 2 . The demise of the value maintenance function does not entail particular problems in the case of protective arrangements where the parties agree on an adaptation of the contract to changed circumstances by means of a new safeguarding device. However, failing such mutual consent, the effect of the abolition on the agreement remains to be assessed. The result is hardly in doubt: the court w i l l not be in a position to deny that the agreement has a gap, and, accordingly, requires a complement 73 . I t is more difficult to find a legal reasoning conclusively bearing out such a result. 3. V a l u e C l a u s e s R e f e r r i n g to the B r e t t o n Woods Par V a l u e System The abolition of the par value system by the Second Amendment to the I M F Articles of Agreement 74 also affects the arrangements which refer to the par value of a currency as set forth under the original version of those A r ticles 75 . A relatively recent judicial holding suggests that even before the entry into force of the Second Amendment, the factual disregard for the original exchange rate provisions of the still valid instrument as expressed by the contrary practice of the major national monetary authorities had a tangible legal incidence on private international transactions. 70

A t present (15 June 1979), the market price is quoted at 280 U.S. dollars per ounce. As for the rating of the U . S. dollar since 15 August 1971, compare the table at Geschäftsbericht der Deutschen Bundesbank, Statistische Beihefte 1971, 93, and a corresponding table i n M o natsberichte der Deutschen Bundesbank-Statistische Beihefte, Reihe 5: D i e Währungen der Welt, November 1978, N r . 4, 7. For a survey of central banking practice cf. Rüdiger von Rosen, Unterschiedliche Bewertung des Währungsgoldes innerhalb Europa, Zeitschrift für das gesamte Kreditwesen 1979, 276—278. 71 This counter-purposive result is equally criticized b y Horn (n. 17), 24 et seq., and Buxbaum, 267 et seq., 273—275. 72 For an array of pertinent practice cf. Gold (n. 26), 45 et seq. and Hahn (η. 21 A u f w e r tung u n d Abwertung). 73 Comment on an allied subject b y Tullio Treves, G o l d Clauses i n International Treaties — Current Practice and Problems, I t a l i a n Yearbook of International L a w 1975, 132—149 (146 et seq.). 74 A r t . I V leaves the choice of the exchange rate regime to each member State o f the I M F . 75 For an array of evidence, cf. Gold (n. 26).

5*

68

Hugo J. Hahn

I n Lively Ltd . ν . City of Munich , a 1976 English decision concerning a bond issue by the capital of Bavaria 7 6 , i t was admitted that, the relevant date being December 1,1973, the "par values" were still in force for limited purposes, such as the determination of a Member's quota in the I M F , the replenishment of the Fund's holding of a Member's currency, and the calculation of the contribution of a Member country to the EEC. Apart from these cases, according to the decision, " i f no margins are maintained, then par values become commercially meaningless". A t least as far as "treaty obligations by Governments to the I M F or inter se" are not concerned, par values cannot be deemed to have remained in force. "The fact that par values continue to exist does not necessarily mean that they remain in force". Even further when the Court of Justice of the European Communities in the case of 5. A. Générale Sucriere et al. ν. Commission of the European Communities (March 9, 1977) which noted quite appropriately that the factual abolition of par values had effect on the exchange rate regime under the pertinent rules of the European Economic Community so that exchange rate tables in budgetary provisions enacted by community bodies which had become outdated in the meantime could no longer be considered to be binding 7 7 : "Attendu . . . qu'en effet, les parités entre les différentes monnaies nationales . . . ne correspondant plus, dans la plupart des cas, aux réalités du marché, on ne saurait admettre qu'elles s'appliquent, par analogie, à des hypothèses qui, comme celle de l'espèce, ne sont expressément réglées par aucun texte; que si la Commission est habilitée à accepter des paiements dans une monnaie nationale de la Communauté autre que celle dans laquelle la dette a été établie, i l n'en reste pas moins qu'elle est tenue de veiller à ce que la valeur effective des versements effectués dans une autre monnaie corresponde à celle du montant en monnaie nationale fixé dans l'arrêt de la Cour; que, dès lors, la conversion entre les deux monnaies nationales en cause doit se faire au taux de change libre applicable le jour du paiement . . .". This approach can be endorsed where the reference to the Bretton Woods system is limited to the purpose of identifying the prevalent exchange rate of the money of account, as parties merely face the risk they agreed to accept when they linked the value of the monetary obligation to the exchange rate of that money on a specific date. The latter being indiscernible by the means set forth 76 Queens' Bench Division, 30 June 1976, 1 W L R (1976) 1004. 77 A r r ê t Nos. 41, 43, 44, 1973 — affaires jointes, paras. 21—24.

Value Clauses and International Monetary Law

69

in the contract, another process at present more practicable has to replace the original proviso in order to secure the implementation of the arrangement 78 . Yet a change in the general framework of monetary policy may also affect the contractual standard of value, as occurred for example in respect of gold clauses, and, unless the parties mutually consent to the required adaptation, they w i l l be confronted w i t h a genuine gap which may threaten the very life of the contract in its entirety 7 9 . 4. O f f i c i a l U n i t s o f A c c o u n t i n I n t e r n a t i o n a l Transactions and Special Arising Therefrom

Problems

The demonetization of gold has entailed recourse to official units of account as new standards of value, witness being not only payments agreements and other intergovernmental arrangements, but also private international transactions which so far referred to the value of gold as monetary measurement of the obligation 8 0 . I n view of their increased practical importance, the problems particularly affecting such combinations of currencies merit close attention, to begin w i t h those resulting from the exclusive power of a monetary institution to amend these baskets 81 . The same legal considerations applying to all centrally administered exchange rate clauses, their assessment may be demonstrated by that of the Special Drawing Right of the I M F which can serve all the better as a representative example because it is most frequently used internationally 8 2 . The provisions on definition and conversion of the SDR attribute to the Fund not only the task of eliciting and publishing the exchange rates of the currencies in the SDR basket, but also the power to modify its internal system of calculation, including the possibility of changing the number, and the proportionate share of each of the currencies in that basket, and even the abolition of the SDR altogether 83 . The first such modification after the separation of the SDR from gold and its replacement by the 78 T o that effect O L G Karlsruhe, Judgment of February 13, 1976 (Vereinigte Staaten v o n A m e r i k a ν. Indus G m b H ) , American Society of International L a w Societies International L a w Journal 1977, 145—146. The court opined the massive depreciation o f the dollar d i d not affect the binding force of the contract though the decrease o f the dollar exchange rate could not be foreseen b y the parties. Cf. Gold (n. 26), 98, note 208.

™ Cf. infra , 71 f. 80 O n this evolution cf. Gold (n. 27), 45 et seq.; Joseph Gold , Floating Currencies, SDRs, and Gold , I M F Pamphlet Series N o . 22, 1977, 24 et seq. 81

This is stressed by Zehetner

82

M a n i l a Report, 1978 (n. 29), 7—14 for a comprehensive assessment of the matter.

(n. 28), 225 et seq.

es A r t . X V Sec. 2 I M F Articles o f Agreement; cf. Gold (n. 26), 1—11; Stéphan A. Silard, Emergence of SDR as a Standard of Value is Transforming International L a w of Money, I M F Survey 1979, 159—161.

70

Hugo . Hahn

basket definition in July 1974, occurred in July 1978, as result of the evolution of economic data which determined the composition of the I M F combinationof-currencies clause. Similar modifications are to be expected from time to time in the future as well 8 4 . Most frequently used in practice are variable SDRs which acknowledge the amending powers of the I M F without any restriction. The decisive advantage of these SDRs results from the permanent control of the organization over the units which enables parties to refer at any time during the life of the SDR to the Fund for pertinent calculation. Where parties place particular emphasis on the maintenance of monetary value prevailing at the conclusion of the contract 85 , they have to prevent that such changes as the administering authority may introduce, i. e. in the case of the SDR of the Fund, become reflected in the combination of currencies at issue by "freezing" the composition in force at the relevant date 86 or at least by excluding specific modifications of structure or content of the basket 87 . SDRs thus evolving outside the Fund's jurisdiction may in due course represent another economic value than the variable SDRs after an amendment under the law of the I M F . I n such a case, parties are no longer in a position to refer to the calculations of the Fund, but w i l l have to establish the monetary value of the contractual unit of account themselves or entrust the task to another instance 88 . This potential additional cost factor has to be taken into account in assessing expenditure as an item in the negotiation of the contract. Apart from such economic consequences, "frozen" units of account, to be practicable, presuppose that the contract sets forth substantive or procedural safeguards which, in the eventuality of a deviation from the official basket formula, permit the irrefutable determination of the invariable unit's actual value 8 9 . 84

Cf. the tabular presentation of the former and the present composition of the SDR b y Gold (n. 26), 1—3. es Cf. Special D r a w i n g Right — M e t h o d of V a l u a t i o n (Decision N o . 5718 — (78/46) G/S): . . 3. The list o f the currencies that determine the value o f the special d r a w i n g right, and the amounts of these currencies, shall be revised w i t h effect on July 1, 1983 a n d ' o n the first day o f each subsequent period o f five years . . . (a) The currencies determining the value o f the special d r a w i n g right shall be the currencies of the 16 members whose exports of goods and services during the five-year period ending 18 months before the effective date of the revision had the largest value, provided that a currency shall not replace another currency included i n the list at the time of the determination unless the value of the exports and services o f the issuer o f the former currency during the relevant period exceeds that o f the issuer of the latter currency by at least 1 per cent." As quoted by Gold (n. 26), A p p e n d i x B, 75. 86 I n particular, i n agreements p r o v i d i n g for financial operations; cf. Gold (n. 26), 14. 87 I n this context, Gold (n. 26), 61 refers to "frozen SDRs". 88 Cf. Tullio Treves , La diffusion des clauses en droits de tirage spéciaux dans les traités internationaux, Annuaire Français de D r o i t International 1977, 700—708. 89 O n this point cf. Zehetner (n. 28), 225 et seq.

Value Clauses and International Monetary Law

5. G e n e r a l

and

Contractual

Adaptation

71 Devices

Subsequent changes in the determinant economic or legal circumstances as well as the conjunction of both factors may affect the original monetary value of the payment obligation, though a survey of pertinent national and international enactments shows that they fail to provide satisfactory criteria or procedural means for the proper adjustment of the conflicting substantive interests 90 . Faithful adherence to monetary nominalism by governments and the allocation of monetary risk 9 1 resulting from the precept explain the situation which permits exceptions only in cases where insistence on an unabridged performance of the terms originally agreed among parties would inflict an inequitable hardship amounting to an exaction 92 . To safeguard the implementation of the contractual equilibrium intended at the outset, a number of specific adaptation techniques need to be developed for the sake of contractants unduly affected by subsequent events and enabling them to obtain a review of the disadvantageous provisions or, at least, to terminate the agreement forthwith 9 3 . The particular advantage of this device is its flexibility, as the parties may define at their discretion the factual prerequisites releasing application of the hardship clause. The evolution of determinant economic circumstances being hardly foreseeable, it remains inadvisable to attempt an exhaustive enumeration of the elements of fact and of law which might give rise to a process of review and, eventually, amendment to contracts, as such an effort, to be comprehensive, of necessity could not avoid lacunae, it being highly improbable that any imaginable future handicap of that kind could be identified in advance by such a text. Though likely to entail considerable difficulties of drafting, a description in very general terms would be more suitable, setting forth the elementary traits of the mutually unforeseeable hardship situation which does not involve the liability of either party, a form of words, in short, whose w i d t h would comprise the variants of the basic setting 94 . The practicability of such a general proviso could be increased, 90 Cf. Eliyahu Hirschberg , The Impact of Inflation and Devaluation on Private Legal Obligations, 1976, 308 et seq. bears out the conclusions reached earlier b y Mann (n. 6), 275 et seq.

«ι Cf. supra , 53 ff. 02

German courts permit the revalorization of pension and o l d age commitments where inflationary losses transcend 40 °/o of the average cost o f l i v i n g expenses; cf. B A G 25, 146 et seq.; B G H Z 61, 31, 35 et seq. I n the meantime, federal legislation has acknowledged this evolution by § 16 B e t r A V G (Gesetz zur Verbesserung der betrieblichen Altersversorgung). 93 O n the details of this technique cf. Marcel Fontaine , Les Clauses de H a r d s h i p — Aménagement conventionnel de Pimprévision dans les contrats à long terme, D r o i t et Pratique du Commerce International 1976, 7—49. ö4 Ibid.

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Hugo J. Hahn

and a great number of undue exegetical problems might be avoided for monetary purposes, by establishing a quantitative limit of changes in the value of payment obligations permitting the invocation of hardship clauses. I n view of their flexibility, it is hardly surprising that the arrangements known as hardship clauses have been inserted increasingly in international longterm agreements 95. Their abstention from anticipated adaptation techniques enables them to contribute, together w i t h monetary maintenance arrangements, to the safeguarding of monetary equilibrium w i t h i n the scope of the respective agreements, as they render feasible an individualized adaptation, geared to the concrete change in the contractual context where the expectations of the parties regarding monetary stability or instability and as expressed in pertinent protective clauses do not materialize w i t h the result that these clauses lose their utility. Accordingly, on the strength of such conclusions hardship clauses may be considered as amounting to value maintenance arrangements in the wider sense of the term. V. The Committee on International Monetary Law of the International Law Association (ILA) and Contractual Value Maintenance Ever since its foundation, the Monetary Law Committee has been concerned w i t h the evolution of contractual monetary value maintenance in the law of international economic transactions. The first occasion to comment on such forms as used in practice arose in connection w i t h the issue of numerous international loans which offered an option de change to the buyers of bonds. Accordingly, the Committee felt it was relevant to submit a report on this subject to the 1962 I L A Conference in Brussels. The study concluded that the chances for the use of the optional currency clause were favorable, i f carefully drafted and thus unlikely to entail problems of interpretation, as states had generally accepted this protective device 96 . The growing erosion of the Bretton Woods system in the early seventies correspondingly increased the difficulties arising in the provision of adequate monetary value safeguarding arrangements for international economic transactions. The demonetization of gold, in particular, entailed, of necessity, the modification of agreements containing gold value clauses for units of accounts referring to gold and the replacement of these contractual provisos by new protective devices. Pertinent intergovernmental organizations proposed new categories of units of account which measure value in terms of a basket es Cf. 9 η. 93 supra. 06

Report o f the International Monetary L a w Committee, Report o f the 50th Conference, International L a w Association, Brussels Conference, 1962, 544—549, 551—574.

Value Clauses and International Monetary Law

73

of currencies. I n turn, such a basket is composed of cumulative amounts of different currencies each of which has from the outset a proportionate share in the combination as a whole 9 7 . The reports which the Committee submitted to the I L A Conferences in N e w Delhi (1974), Madrid (1976), and Manila (1978) deal, apart from the problems of reference-to-gold-clauses, especially w i t h the significant legal features of those novel combination-of-currencies arrangements 98 . 1. G o l d

Clauses

and their

Hazards

Considering the constant movement of the free gold price 9 9 , the Committee concluded in its 1976 Madrid Report that the value of the metal had become unsuitable as a reliable peg for measuring reference-to-gold value maintenance arrangements 100 . This holds true without reservation for gold clauses which took effect before the splitting of the gold price. Where reference to the metal's free market price was inserted after the latter's introduction, and at a time when the erratic trends in the market assessment of gold were rather foreseeable, there is hardly sufficient ground for discharging parties from a risk of which they were clearly aware 1 0 1 . The proper adaptation of other gold clauses ought to be encouraged. To fill the gap ensuing from the split of the gold price, consideration may be given, in addition to the scope of the agreement, to the number of currencies affecting the parties, to the combinations of currencies suggested by them and, in particular, to the official units of account of the I M F and the European Economic Community, as these basket formulae, similar in effect to the former gold value clauses and reference-to-gold units of account, only compensate for the average rate of inflation and thus correspond the closest to the retributive effect of arrangements linked to gold 1 0 2 . The solution increasingly adopted in practice to convert protective clauses in world-wide and other international agreements to the SDRs of the I M F therefore merits general endorsement 103 . However, parties may fail to concur, and in order to assess whether a convenient adaptation remains possible, there may have to be established the legal incidence of the abolition of the official gold price in its »7 ibid. 98

N e w D e l h i Report, 1974 (n. 24), 11 et seq.; Report b y the Committee on International Monetary L a w , International L a w Association, M a d r i d Conference, 1976, 4 et seq. (hereinafter cited M a d r i d Report, 1976); M a n i l a Report, 1978 (n. 29), 2 et seq. 99

A t present (15 June 1979), 280 U.S. dollars; cf. also n. 69, supra. 100 Supra (n. 98), 4 et seq.; to the same effect, M a n i l a Report, 1978 (n. 29), 3, note 1.

101

This is quite appropriately stressed b y Treves (n. 73), 145. 102 Cf. supra , 69 ff. 103 Cf. Gold

(n. 26), 35 et seq.

Hugo J. Hahn

74

function as a standard of measurement of the monetary obligation on the contract in its entirety. Refraining from a definitive comment on the questions of principle involving the law of international transactions, private and public, as a whole, w i t h which it has thus been confronted, the Monetary L a w Committee nonetheless sketched some guidelines for further thought. I t proposes that due consideration might be given to legal precepts such as the "rebus sic stantibus" doctrine, the canon of "Treu und Glauben" and private law tenets like "frustration" and "imprévision", in order to test them in furtherance of an adequate solution 1 0 4 . However, it is stressed that border crossing arrangements, whether subject to public international law or private law in terms of value maintenance, have so much in common that their adaptation should be based, wherever feasible, on the same legal criteria and a uniform practice thereunder. I n conclusion therefore, recourse to the "rebus sic stantibus" doctrine and the canon of "Treu und Glauben" is suggested in preference to private law concepts of one or several nations, because the two precepts just mentioned are acknowledged in the law of treaties as well. The contractants failing to agree even as to the continuation of their understanding, the ultimate decision — judicial or statutory adaptation, or termination of the entire set-up — w i l l be contingent on the proper law of the contract. Under the law of many, if not most states, such absence of mutual consent entails the cancellation of the agreement, because these rules exclude compulsory adaptation as contrary to the freedom of contract 1 0 5 . I n that context, the considerable practical importance of hardship clauses coupled w i t h the obligation to adapt 1 0 6 becomes evident, as the clauses force parties no longer interested in the life of the contract to continue the latter by means of an anticipated duty to participate in the venture. 2. S D R

Clauses

and N o n - M e m b e r s

of

the

IMF

Apart from the general problems discussed here so far, the Monetary Law Committee, in its Report to the 1978 I L A Manila Conference 107 , has dealt w i t h the allied, but distinct questions regarding the use of currency baskets in agreements to which non-members of the I M F — and mutatis mutandis , their nationals — are parties. 104 M a d r i d Report, 1976 (n. 98), 4 et seq. 105

For a comparative survey cf. Fontaine (n. 93), 45—48, Annex 1 w i t h references to the statutory and judicial solutions prevalent in these different States. O n the situation in the Federal Republic o f Germany, where judicial adaptation is admissible on such background, cf. Volker Emmerich y Das Recht der Leistungsstörungen, 1978, 223 et seq. Cf. A r t . 62 o f the Vienna Convention on the L a w of Treaties, not yet in effect, which in that context envisages termination of or w i t h d r a w a l from a treaty, but not adaptation. 106 Cf.

supray

7 1 f., η . 93.

107 Ibid. y 7—11.

Value Clauses and International Monetary Law

75

Advantageous as the adoption in an intergovernmental arrangement or other instrument of a combination-of-currencies unit that is managed by an international organisation may be, such adoption nonetheless is likely to entail difficulties for states participating in such arrangements or instruments but which are not members of that organisation. I t is hardly deniable that such difficulties are of some importance (especially as far as clauses in international conventions are concerned) as the non-member states have no possibility of influencing the management of the unit. (a) This problem has been considered in several recent agreements that use the SDR as the unit of account. I n those agreements different solutions have been adopted. — I n the Montreal Protocols of 1975 to the 1929 Warsaw Convention 1 0 8 , it is decided that — as far as states that are not members of the I M F are concerned — the values of their currencies expressed in terms of SDR shall be calculated in a manner determined by the contracting party that is not a member of the I M F . If, however, the domestic law of such a party does not permit the application of SDR clauses, the amounts expressed in SDRs are replaced by amounts in gold units. Obviously this last provision defeats the objective of uniformity pursued by the Protocols, as gold clauses coexist w i t h SDR clauses, for different states, in the same agreement and in order to express the same values! — I n the London Convention of 1976 as well as in the three Protocols adopted on the same date, on the Limitation of Liability for Maritime Claims 1 0 9 , Article 8 is a further elaboration of the Montreal Protocols' formula. Such a formula is reproduced — mutatis mutandis — in Secs. 1 to 3 of the Article. Sec. 4 adds, however, that the determination of the value of the national currency of a state that is not a member of the I M F in terms of SDR, as well as the conversion in domestic currencies of the gold amounts to which non-member states may resort, have to be made " i n such a manner as to express in the national currency of the State party, as far as possible, the same real value for the amounts in Articles 6 and 7 as is expressed there in units of account" (i. e. in SDRs). Such a clause gives rise to the main difficulty of determining what is the "real value" of given amounts of SDR. We must nonetheless recognize that this clause marks progress in comparison w i t h the Montreal clauses, as the need for uniformity of value is taken into account. 108 Revue française de droit aérien 1976, 66 et seq. 109

International Legal Materials 1977, 606—630.

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Hugo . Hahn

The 1976 Agreement on the International Fund for Agricultural Development 1 1 0 provides that the determination in terms of SDRs of the value of the currencies of states that are not members of the I M F has to be calculated by the I M F through a cross-rate system. This seems to be, so far, the best system. I t does not seem, however, to have overcome the objections of the states, in particular socialist ones, that are not members of the I M F . The great majority of the latter states are not signatories to the Agricultural Development Fund Agreement, while they participated, a few months later, in the London conference that elaborated the clause already considered on liability for maritime claims. (b) The reserved attitude towards SDRs, a position taken mainly by socialist governments, and the reasons underlying this attitude can be summarized as follows 1 1 1 : —

I t is felt by these governments that the disadvantages of flexible exchange rates weigh more heavily on countries w i t h planned economies due to the fact, primarily, that long-term planning is further complicated by unstable exchange rates.

—

Furthermore, although the SDR has become the central unit of value of the revised monetary system, assuming in that respect the role of gold, and constituting one of the reserve assets, it still cannot be deemed to be a means of payment, as it is not capable of being transferred for the direct discharge of obligations and may be held only by a limited number of institutions.

—

Owing to the role exercised by the U . S. dollar until the seventies as a standard means of payment in international transactions, as well as a reserve asset and source of international monetary liquidity, the position of the U . S. continues to be preponderant in the I M F system.

—

Finally, it is felt by these governments, that (i) the "demonetization" of gold, (ii) the legalization of floating exchange rates, (iii) the introduction of the SDR w i t h the complicated method of determining its value and the restriction of its use to arrangements between monetary authorities, fail to support the stability of a system which would be needed for the further development of world trade and for facilitating international payments, while at the same time increasing the number of elements adverse to border-crossing economic relations between states adhering to different schools of political thought.

no International Legal Materials 1976, 922—949. 111

This summary apparently continues to reflect the attitude of the governments concerned.

Value Clauses and International Monetary Law

—

77

I n the process of East-West rapprochement, both sides seem to be interested in reaching a mutually acceptable international monetary setting. The latter, however, could only be achieved if, on the one hand, processes of price formation were made compatible among C M E A countries and adjusted to the price structure on the world market, combined w i t h the objective of reaching at least partial convertibility and if, on the other hand, the regulations of a new monetary system would take into account the specific characteristics and needs of centrally-planned economies. I n other words, the scope of the provisions ought to be wide enough to encourage the participation of centrally-planned economies in such a set-up. I f these conditions were met, socialist states could in the long run conceivably become inclined to get their currencies into some weighted basket determining the value of SDRs as well.

3. P r o p o s a l s L i m i t i n g t h e I n t e r n a t i o n a l Scope of G o v e r n m e n t a l Enactments E n c r o a c h i n g on V a l u e Clauses The Committee has also advanced significant initiatives for the solution of substantive and choice of law problems regarding value maintenance in international transactions. I t stands to reason that its proposal to the 1974 N e w Delhi Conference to acknowledge as a general rule that "Where parties to an international contract have agreed upon provisions intended to secure the value of payments to be made in accordance w i t h its terms, such provisions shall remain valid and effective irrespective of their abrogation by any municipal system of law which may be applicable to the contract" 1 1 2 . may have gone too far. Though endorsed by the I L A gathering as a genuine recommendation only, that submission might have to suffer incisive critique i f it should be proved to be a variant of the French "paiement international" 1 1 3 112 N e w D e l h i Report, 1974 (n. 24), 6. n3 . . I t seems to be communis opinio i n France that the best definition of a 'paiement international· is that given b y the Attorney-General Paul Matter i n his argument i n the case resulting in the decision of the Cour de Cassation o f 17 M a y 1927, D . 1928, 1. 25 (Pélissier du Besset), when he said that ' i l faut que le contrat produise, comme un mouvement de flux et de reflux au-dessus des frontières, des conséquences réciproques dans un pays et dans u n autre* . . . . A t a later stage the Cour de Cassation seems to prefer the f o l l o w i n g f o r m u l a : 'le caractère international d'une opération ne dépend pas du lieu stipulé pour son règlement, mais de sa nature et des divers éléments qui entrent en ligne de compte, quel que soit le domicile des contractants, pour imprimer aux mouvements de fonds qu'elle comporte u n caractère dépassant le cadre de l'économie interne' (Cass. D i v . 14, Feb. 1934, D . P. 1934,

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Hugo J. Hahn

doctrine, a concept which has remained outside the realm of public international law. Apart from difficulties arising from the notion "international contract" 1 1 4 which could, however, have been coped with, the formula might have attracted critical comments because of its inclination to uphold the validity of protective clauses generally without distinction as to the interests involved, the structure of the contract and the purpose of the maintenance arrangement. I n assessing the u t i l i t y of value safeguarding devices, it has to be duly considered that the risk allocation inherent in them does not always flow from the mutual desire to secure equilibrium and equity to both parties, but rather, often expresses their respective negotiating strengths 115 , so that the distribution of risk may be indeed unwarranted 1 1 6 . Furthermore, it should not be disregarded that certain value clauses, by reason of unforeseen exchange rate developments, may result in "windfall profits" on the part of one party, i. e. counterpurposive surprise gains 117 , the volume of which underlines their utter unsuitability. The ethics of contract, however, only call for the protection of value clauses which guarantee the mutual equilibrium originally conceived and agreed on. The Committee soon took account of such considerations, not the least on the ground that its recommendation should be geared to facilitate concrete results of its work, by duly stressing the interest of governments in pertinent legislative and executive action. Indeed it generally appreciated that no state w i l l be likely to refrain from the exercise of its regulatory and administrative jurisdiction over an economic transaction in so far as it is performed within its territory. The Monetary Law Committee therefore submitted a modified draft to the next Conference in Madrid (1976) which was similarly accepted by the I L A gathering. That recommendation, to begin with, asks states to "maintain the v a l i d i t y " of specific "combinations-of-currencies units of account" set forth by the I M F or the European Economic Community in 1. 78, re Banque hypothécaire franco-argentine) Mann (n. 6), 151, note 3. " N o r is the unique French doctrine of the paiement international . . . a rule of international l a w . . . There is no privilege or i m m u n i t y that international law necessarily grants to loans on the ground of their international character". Id 486, note 1" . . . aussi paradoxalement que cela puisse paraître i l n'est pas exclu que la France puisse un jour être condamnée par une j u r i diction internationale du fait de cette théorie jurisprudentielle du "paiement international' unique au monde et rejetée universellement". Carreau (n. 6), 193. 114 A definition could be attempted on the lines set f o r t h in A r t . 1 o f the U n i f o r m L a w on the International Sale of Goods w i t h regard " t o contracts of sale of goods entered i n t o by parties whose places of business are in the territories o f different States"; U n i f o r m L a w on the International Sale of Goods from 17 J u l y 1973 (BGBl. I I , 885, 892). 115 The text follows Horn (n. 17), 31 et seq. 116 T o the same effect Horn , ibid. 117 Depending on the circumstances, the option de change may, or may not produce such results; cf. supra , 58 f.

Value Clauses and International Monetary Law

79

international agreements. Moreover, "States are invited to uphold existing value clauses in private international contracts" 1 1 8 . This compromise solution may have struck an equitable balance between the conflicting interests ensuing on the one hand from the responsibility and jurisdiction of governments, in principle without limitation, over the socio-economic development of their nations and, on the other hand, the desire of parties to see their commercial operations as unfettered as possible, including, in particular, the safeguarding of the creditor's claim to payment of a monetary debt against an abrogating enactment. The preference given to official units of account appears arguable, in particular, on the ground that this category of clauses, in line w i t h its proper typical exchange rate maintenance effect, is likely to entail an equitable allocation of inflationary losses between creditor and debtor. Moreover, the risk scattering inherent in its structure and functioning should by and large exclude the possibility of a " w i n d f a l l profit" 1 1 9 . I f states limit interference w i t h contracts, in the exercise of their monetary policy jurisdiction, to arrangements concluded after such an enactment came into force, that restraint on the freedom of contract would not seem to amount to an abuse of confidence against the contractants concerned, as the latter had to take into account the novel legal situation already in existence at the conclusion of their agreement. Accordingly, at its last Conference in Manila (1978), the I L A indeed had no motive to depart from this carefully contemplated line of argument. As the resolutions of an I L A General Conference 120 are devoid of binding effect on states, however, the task remains for the future to use the persuasive weight of legal expertise in conjunction w i t h the properly understood self-interest of governments in order to bring about the conversion of the Committee's proposal into a text having jural quality.

u s M a d r i d Report, 1976 (n. 98), 7. ne Cf.y supra, 69 f. 120 M a n i l a Report, 1978 (n. 29), 15.

The International Law Commission and the New International Economic Order Damian Hubbard 7.

Introduction

A t its 1978 session, the International Law Commission completed its work on the most-favoured-nation (m.f.n.) clause by approving thirty draft articles which clarify and elaborate this often used treaty provision. The Commission decided to submit its draft articles to the next United Nations General Assembly session and to propose that they be recommended by the Assembly as a basis for an international convention 1 . The m.f.n. clause is a treaty provision whereby one state undertakes the obligation to accord another state treatment that is not less favourable than the treatment accorded to any third state in an agreed sphere of relations. The clause is one of the more common ways of formulating the commitment of a state to accord equal treatment to other states. The uniformity principle which m.f.n. clauses implement conflicts w i t h t w o basic concepts of the N e w International Economic Order envisaged by the General Assembly, namely the principle of differential treatment , according to which the developed countries should grant "preferential and non-reciprocal treatment for developing countries, wherever feasible, in all fields of international economic co-operation whenever possible" 2 , and the principle of collective self-reliance , which calls for "the strengthening, through individual and collective actions, of mutual economic, trade, financial and technical co-operation among the developing countries, mainly on a preferential basis" 8 . I n its work on the m.f.n. clause the International Law Commission therefore faced squarely the question of whether or not to take into account the proposals for a new w o r l d order in which the rights and duties of states would depend on their stage of economic development. After long and intensive 1 Report of the International L a w Commission on the W o r k ( U N Doc. A/33/10) (hereafter " R e p o r t " ) , 27.

of its T h i r t i e t h Session

2 Declaration on the Establishment of a N e w International Economic Order, (Res. 3201/ S - V I ) , paragraph 4 (n). 8

Ibid.,

paragraph 4 (s).

ILC and New International

Economic

Order

81

debates the Commission decided to prepare t w o draft articles which reflect principles of the Declaration on a N e w International Economic Order. For the first time in its three decade history the Commission did not draft uniform, abstract rules that are in principle applicable to all states but rules that presuppose the existence of t w o distinct groups of countries and discriminate in favour of one of these. This departure from the uniformity principle caused members of the Commission to raise fundamental questions on the basic functions of the Commission and its relationship w i t h the General Assembly. Some members were concerned that the issue might affect "perhaps the very life of the Commission"; other members thought that the two draft articles should be the beginning of a series of new rules implementing principles of the N e w International Economic Order 4 . The purpose of this paper is to analyse the Commission's first effort to draft rules implementing principles of the Declaration on a N e w International Economic Order, to evaluate the practical impact of these rules should they be adopted, and to draw some general conclusions on the rôle the Commission could play in restructuring the international economic system. II.

The Commission's Proposals Implementing Principles of the New International Economic Order

1. G e n e r a l i z e d

Systems

of

Preferences

The principle of differential treatment embodied in the Declaration on a N e w International Economic Order is based on the idea that equal treatment of unequals is unjust and that therefore the same rules can not apply to countries at different stages of development 5 . The main practical application of this idea is the Generalized System of Preferences (GSP), which was established in 1970 through the adoption of "Agreed Conclusions" by the Special Committee of Preferences on the Trade and Development Board of the United Nations Conference on Trade and Development ( U N C T A D ) 6 . I n these "Agreed Conclusions", developed countries declared their intention to grant developing countries, for an initial period of ten years, tariff preferences on a legally non-binding basis. Following the adoption of the "Agreed Conclusions" preference schemes of varying scope and content were established by 4

Yearbook o f the International L a w Commission, 1975, V o l . I , ( U N Doc. A / C N . 4/ SER. A/1975), 203. 5

Cf. the references i n Report

6

( n . l ) , 17.

Report of the Special Committee on Preferences on the Second Part o f its F o u r t h Session, (hereafter "Report o f the Special Committee"), Suppl. N o . 6 A , ( U N Doc. T D / B / 3 2 9 / R e v . 1 and T D / B / A C . 5/36/Rev. 1), 3—12.

6 G Y I L 22

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Hubbard

nineteen developed market economy countries and six Eastern European states7. The purpose of the GSP, which is to grant trade benefits to poor countries selected by the donor countries, would be frustrated i f economically advanced countries or developing countries that have unsuccessfully demanded GSP benefits were to invoke their right to equal treatment under an m.f.n. clause in order to obtain GSP treatment. The "Agreed Conclusions" therefore state that "no country intends to invoke its rights to most-favoured-nation treatment w i t h a view to obtaining, in whole or in part, the preferential treatment granted to developing countries" 8 . The economically most important m.f.n. clause is contained in the General Agreement on Tariffs and Trade ( G A T T ) , to which 83 governments accounting for 85 per cent of world trade have subscribed. The Contracting Parties to the G A T T decided in 1971 to waive, for a period of ten years, the basic m.f.n. provision of the General Agreement so as to permit developed contracting parties to accord GSP treatment to T h i r d W o r l d countries without according like treatment to economically advanced contracting parties 9 . The International Law Commission felt that the basic idea underlying the declaration of intent made in U N C T A D and the waiver granted in G A T T , namely that no country should invoke m.f.n. rights to obtain special benefits granted by developed to developing countries, should become a general rule of law applicable not only to the GSP but to all preference systems recognized by the international community or adopted by a competent international organization. I t therefore proposed the following article for inclusion in the m.f.n. clause convention: Article 23: The most-favoured-nation a generalized system of preferences.

clause in relation

to treatment

under

A beneficiary State is not entitled under a most-favoured-nation clause to treatment extended by a developed granting State to a developing third State on a non-reciprocal basis w i t h i n a scheme of generalized preferences established by that granting State, which conforms w i t h a generalized system of preferences recognized by the international community of States as a whole or, for the States members of a competent international organization, adopted in accordance w i t h its relevant rules and procedures. 7

Cf. UNCTAD Secretariat , Operational Guide to the Generalized System o f Preferences (GSP), 1972 ( U N Doc. T D / B / A C . 5/41); Review and evaluation o f the Generalized System of Preferences, 1979 ( U N Doc. T D / 2 3 2 ) . 8

See Report of the Special Committee (n. 6), 6.

9

GATT , Basic Instruments and Selected Documents, Eighteenth Supplement, 24—26.

ILC and New International Economic Order

83

Under Article 23 only benefits extended "by a developed granting State to a developing third State" are exempted from the benefits covered by an m.f.n. clause, not however benefits extended by a developed to another developed state or by a relatively advanced developing state to another developing state at a lower stage of development. The organ applying Article 23 therefore has to determine whether the third state is developed or developing. There are no internationally agreed criteria for such a categorization of countries 10 . The Commission itself emphasizes that there is at present "no general agreement among States concerning the concepts of developed and developing States", quoting in support the 1977 report of the United Nations Committee on Contributions which notes "the absence of a single and universally accepted definition of countries to be designated as developing" 1 1 . A n international consensus on the categorization of countries into developed and developing would require a consensus as to which states should give aid and preferences to which states. This in turn would presuppose that a particular distribution of the global product universally regarded as just could be found. Such a consensus supported by both the contributory and beneficiary states is however inconceivable 12 . Moreover, even i f such a consensus could be forged, a country could not reasonably be designated as developing in general but only for particular purposes. Many countries are considered "developed" in one area but "developing" in another. Thus the oil-exporting countries are donors in financial aid schemes but beneficiaries of trade preference schemes. We may conclude that the term developing country is incapable of legal application because there is no agreement on a just distribution of the world's resources and because each country's external assistance requirements vary from one area to the other. The present aid and preference schemes are for this reason based on the principle of self-election, that is the donors select the beneficiaries among the countries that have declared their wish to become beneficiaries 13. According to state practice each country thus has the right to determine its status and the status of other countries under its own preference and aid schemes. This raises problems for the legal application of Article 23, which are illustrated by the following examples. Switzerland, which has the second 10 Cf. Sidney Golt , Developing Countries i n the G A T T System, Thames Essay o f the Trade Policy Research Centre, 1978, 28. Golt writes on his personal experience w i t h attempts to define the term "developing c o u n t r y " : " W e wrestled w i t h the problem i n the O E C D H i g h Level Group on Preferences over a decade ago and gave i t u p : and since then I have seen nothing which has seemed l i k e l y to be more successful. O u r pusillanimous conclusion at that time was to fall back on 'self election* to the status". n Cf. Report (n. 1), 162. 12 This w i l l be discussed i n further detail below. 1 3 O n the self-election principle under the GSP see: Golt (n. 10), 28.

6*

84

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highest per capita income of the world, grants GSP treatment to Kuwait, which enjoys the highest per capita income of all states 14 . N o w suppose N o r w a y cited Switzerland before an international tribunal arguing that Norway's m.f.n. rights entitled it to the same treatment as Kuwait. Switzerland's rebuttal: N o r w a y has no such right because Article 23 of the m.f.n. clause convention entitles Switzerland to grant preferences to developing states without having to grant like treatment to other states. N o r w a y of course refutes this argument by saying that K u w a i t as the richest country in the world cannot be considered a developing country in the sense of Article 23. O r take the following case: N o r w a y grants GSP treatment to Bulgaria which is a poor country w i t h a per capita income near that of Latin American, Asian, or even African countries. When the GSP was agreed, Bulgaria had difficulties deciding whether to claim developed or developing status. Opting for developed country status would have meant giving up the economic advantages it hoped to derive from the preferences by Western states; choosing the developing country status would have meant foregoing influence in the T h i r d World. Bulgaria cut the Gordian knot by claiming both developed and developing status. I t declared in a joint statement of socialist countries that it would extend tariff preferences to the developing countries, but that it expected the developed market economy countries to accord preferential access to Bulgarian products in view of its own level of development 15 . N o w assume Switzerland cited N o r w a y before an international tribunal invoking a m.f.n. clause. The dispute would then be whether Bulgaria can be considered a "developing state" even though it grants itself preferences to other countries for development purposes. The tribunal could not determine in these cases the status of K u w a i t and Bulgaria because there is no opinio juris or state practice from which it could abstract the required criteria and because it would be absurd to give these countries one or the other status in general and hence for all purposes. The tribunal would have no alternative but to rely on the self-election principle and to decide that K u w a i t and Bulgaria are developing states in the sense of Article 23 because Switzerland and N o r w a y selected them to be developing states under their preference schemes. The practical consequence of Article 23 would thus be that states could select other states as beneficiaries under their preference systems without being constrained in their choice by the m.f.n. rule of equality or any other legal standard. Because of the use of the undefinable terms "developed" and "developing" state, Article 23 would eliminate the rule of law from a portion of 14 G A T T document L/3667, 53. 15

Report of the Special Committee (n. 6), 37.

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international relations and open the door to arbitrary discrimination. The terms are of a political nature and can serve practical purposes only in treaties complemented by an institutional structure for continuous consultation and negotiation. W i t h i n such a structure the donor country's exercise of discretion in the selection of beneficiaries can be moderated through political pressures, and a certain amount of predictability and stability can thereby be achieved. The terms have no place in an international convention which is not drafted for application by international political bodies but essentially for legal application and whose effectiveness therefore depends on the use of terms w i t h normative content. Article 23 covers only treatment extended "on a non-reciprocal basis". This wording creates problems because preferential treatment is in practice rarely granted without some quid pro quo. The EEC, for instance, granted benefits in the textiles area only to those countries that have signed the Arrangement Regarding International Trade in Cotton Textiles 16 . Japan excludes from its list of beneficiaries those countries that discriminate against it by invoking Article X X X V of G A T T 1 7 . Hungary requires that the beneficiary maintain "normal trade relations" w i t h i t 1 8 . The United States' legislation has made it explicit that One of the purposes of the GSP is to promote foreign policy goals unrelated to development and that GSP beneficiaries are to be selected accordingly 1 9 . Thus GSP benefits are to be used to discourage international commodity cartels, the nationalization of US property without compensation and international terrorism. As a consequence the OPEC states have been denied beneficiary status and the granting of GSP benefits to Somalia and Turkey was delayed until investment disputes were settled. Uganda was struck from the original list of eligible countries after having expropriated American property without payment of compensation. Uganda's President I d i A m i n then quickly settled the US claim. This was however in vain because the listing of Uganda was again blocked when Congress, following the Israeli raid on the Entebbe Airport, banned GSP eligibility for countries harbouring terrorists 20 . Are benefits granted on conditions such as those cited above "non-reciprocal" in the sense of Article 23? One might argue that there is in these cases non-reciprocity in the sense that the trade benefits are granted independently 16 UNCTAD

Secretariat

(n. 7), 40—43.

17 Ibid. is Cf. Report 19

(n. 1), 149.

For a detailed analysis of reciprocity under the U n i t e d States GSP see: Tracy Trade Preferences for Developing Countries, 1977, 36—50.

Murray ,

20 Barry H. Nemmers and Ted Rowland , The US Generalized System o f Preferences: T o o Much System, Too L i t t l e Preference, L a w and Policy i n International Business 1977, 857—9.

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of any counter-commitments by the recipient countries. However, this argument amounts to distinguishing, wholly artificially, implicit and explicit reciprocity. W h y should, in the context of Article 23, the case in which two countries explicitly exchange promises be treated differently from the case in which one country offers benefits on certain conditions and the other complies w i t h the conditions to obtain the benefits? Either the word "non-reciprocal" is interpreted to mean "unconditional", in which case Article 23 would fail to cover present preference schemes, or it is interpreted to mean "without counter-commitment" w i t h the consequence that it would establish merely the formal requirement that the behaviour expected by the donor country and upon which the preference is conditional must not be explicitly promised. The proposed m.f.n. clause convention can provide only a very limited solution to the problem of differential treatment for development and this for three reasons. Firstly, the convention is conceived by the Commission as an aspect of the general law of treaties and is therefore formulated to accord w i t h the 1969 Vienna Convention on the Law of Treaties 21 . The Vienna Convention applies only to treaties between states. Consequently, the proposed articles also apply only to treaties between states, and not to those involving a subject of international law other than a state 22 . However, a (perhaps the) major preference donor is not a state but a customs union, namely the EEC, and among the beneficiaries of the various national GSP schemes are over forty territories, such as H o n g Kong which is the origin of roughly seven per cent of all GSP imports 2 3 . H a v i n g chosen the proposed convention as an instrument for implementing the principle of differential treatment, the Commission is obliged to propose law which makes distinctions between states on the one hand and customs unions and territories on the other that have no justification whatever in present world economic realities. W h y should GSP treatment granted by the EEC be subject to different rules than that granted by Japan, and w h y should the law governing preferences received by Hong Kong differ from that governing preferences received by Singapore? The second reason w h y the proposed articles can only partially meet the concerns of the developing countries is that they can exempt differential treatment only from m.f.n. clauses (that is, treaty provisions calling for "treatment not less favourable than treatment extended to a third State" 2 4 ) but not from other types of treaty clauses providing for equality of treat21 Report of the International L a w Commission on the W o r k o f its T w e n t y - E i g h t h Session, ( U N Doc. A/31/10), p. 17. 22

A r t i c l e 1 of the proposed convention.

28

Cf.Murray

24

See Articles 1 and 3 o f the proposed convention.

(n. 19), 60—1.

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ment or non-discrimination. Such other clauses are quite common. Article V I I I : 3 of the I M F Agreement, for instance, declares that "no member State shall engage . . . in any discriminatory currency arrangements". Under Article 14 of the Bangkok Agreement, import restrictions imposed for balance-ofpayments purposes "shall apply . . . without discrimination". A provision that one could describe as "least-favoured-nation clause" is contained in Article X I I I of G A T T which reads in part: " N o restrictions shall be applied by any contracting party, unless the importation of the like product of all third countries is similarly restricted". A l l these provisions have essentially the same purpose as m.f.n. clauses, namely to ensure equal treatment of the trading partners concerned, but they do not fall under the ambit of the proposed articles because their formulations do not contain a reference to the more favourable treatment of a third state. Differential treatment is incompatible w i t h all types of equal treatment clauses, not only w i t h those that happen to be formulated on a m.f.n. basis. Under the proposed convention, however, the exemption of treatment favouring developing countries would depend not on the purpose and practical effect but on the formulation of the clause involved. The third factor which curtails the practical impact of Article 23 is its non-retroactivity. According to Article 28 of the proposed convention it would only apply to m.f.n. clauses in treaties concluded after the entry into force of the convention. Article 23 would therefore not apply to G A T T s m.f.n. clause which, as pointed out above, has been subscribed to by countries accounting for over 85 per cent of world trade and whose elimination would require unanimous agreement 25 . Due to G A T T s existence alone, the potential application of the proposed Article 23 would in the commercial field be limited to the relations among states representing less than 15 per cent of world trade. For these various reasons the proposed m.f.n. clause convention is an instrument ill-suited to the implementation of the principle of differential treatment. W i t h this convention as a tool, the International Law Commission is forced to make arbitrary distinctions between states and other entities and between different formulations of equal treatment commitments, and to propose new rules of a subsidiary character which, in the highly regulated field of international trade, can affect only an insignificant portion of international transactions. 2. T r a d e

among Developing

Countries

The principle of collective self-reliance is based on the idea that the developing countries should use their combined bargaining strength in international 25 A r t i c l e X X X of G A T T .

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economic relations and reduce their economic dependence on the industrialized countries, inter alia , by expanding trade among themselves 26 . One of the attempts to implement this principle is the 1971 Protocol Relating to Trade Negotiations among Developing Countries, a framework agreement concluded under the auspices of G A T T which permits countries of the T h i r d W o r l d to exchange among themselves trade concessions on a preferential basis 27 . The International Law Commission originally felt that, though a consensus recognizing the importance of the expansion of trade among developing countries was emerging, it had not yet crystallized to such an extent that it could be embodied in a clear legal rule. As yet the consensus appeared to be that m.f.n. clauses do cover benefits exchanged among developing countries but that the grantors and beneficiaries of m.f.n. rights should in this case endeavour to negotiate appropriate and equitable solutions 28 . This view was criticized by representatives of the T h i r d W o r l d in the General Assembly's Sixth Committee 29 . Subsequently the International L a w Commission reconsidered the matter and decided to propose the following provision for inclusion in the suggested m.f.n. clause convention: Article24: The most-favoured-nation between developing States .

clause in relation

to arrangements

A developed beneficiary State is not entitled under a most-favourednation clause to any preferential treatment in the field of trade extended by a developing granting State to a developing third State in conformity w i t h the relevant rules and procedures of a competent international organization of which the States concerned are members. The proposed rule would exempt only benefits exchanged among developing states from the benefits attracted by m.f.n. clauses, not those exchanged among developed states. For the reasons described in the preceding section there is no accepted definition of the term developing country; each state decides itself whether, and for which purposes, it considers itself developing or developed and how to categorize the other states for its own purposes. By granting special rights to developing states Article 24 therefore establishes a privilege not for

26 Cf. UNCTAD Secretariat , Economic Co-operation A m o n g Developing Countries, 1975 ( U N Doc. T D / 1 9 2 ) p. 1. 27

Reprinted i n : GATT , Basic Instruments and Selected Documents, Eighteenth Supplement, 11—18. 2 8 Seventh Report on the M o s t - F a v o u r e d - N a t i o n Clause, 1976 ( U N Doc. A / C N . 4/293/ A d d . 1) p. 35. 29 Cf. Official Records of the General Assembly, T h i r t i e t h Session, Sixth ( U N Doc. A / C . 6/SR. 1546), 101—4.

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a defined category of states but for states which choose to be beneficiaries of the privilege. The proposed provision would apply only to trade preferences, not to benefits granted in other fields. This contrasts w i t h Article 23 which applies to all types of preferences. The difference is striking because both the principle of differential treatment and that of collective self-reliance have been proposed as general concepts to be applied in all fields 30. The Commission's commentaries on the proposed m.f.n. convention do not explain the reasons for the limitation to trade. 3. T h e C o m m i s s i o n ' s P r o p o s a l s a n d R u l e s A d o p t e d by C o m p e t e n t I n t e r n a t i o n a l Organizations Articles 23 and 24 apply, as far as States members of a competent international organization are concerned, only to preferential treatment granted in conformity w i t h the relevant rules and procedures of that organization. I n its commentary on Article 24, the Commission explains that this requirement is intended to refer to the U N and to make the Article "conform w i t h the relevant provisions of the Charter of Economic Rights and Duties of States" 31 . The most elaborate set of rules on preferences for and among developing countries was not adopted in the U N but in the 1973—79 G A T T Multilateral Trade Negotiations in which 99 nations participated. The participants agreed on a G A T T enabling clause permitting contracting parties to grant differential treatment in favour of developing countries in respect of: (a) tariff preferences accorded under the Generalized System of Preferences; (b) non-tariff auspices;

measures governed by codes negotiated under

GATT

(c) tariff and, under certain conditions, non-tariff preferences granted to one another by developing countries in the framework of regional or global trade arrangements; (d) special treatment of least-developed countries. A n y action taken under the enabling clause must be designed to facilitate and promote the trade of developing countries and to respond positively to these countries' development, financial and trade needs. Arrangements providing for preferential treatment of developing countries are not to prevent the 30

See above note 2.

31 Report

(n. 1), 162.

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further reduction of trade barriers on a most-favoured-nation basis, nor to create obstacles to the trade of countries not parties to the arrangements. Trade preferences for and among developing countries, which have hitherto been dealt w i t h through temporary waivers, are now to become a permanent part of the G A T T legal system 32 . The reference in Articles 23 and 24 to the norms of competent international organizations and the existence of detailed rules on development preferences in G A T T raises a number of questions. The first ist whether the G A T T would qualify as a "competent international organization". The G A T T is a multilateral trade agreement without juridical personality and therefore not an international organization in the formal sense. A narrow interpretation of Articles 23 and 24 would exclude the G A T T . The Commission's commentaries surprisingly do not discuss the status of G A T T under the Articles at all. Suppose the G A T T would qualify as a competent international organization, what would then be the relationship between the G A T T rules and the rules adopted in other international organizations such as those contained in the U N Charter of Economic Rights and Duties of States? The new G A T T rules differ greatly from those adopted in the U N . The International Law Commission has created the obvious possibility of a conflict of rules without giving any indication how it should be solved. Finally, the question arises as to whether the stipulation of conformity w i t h the rules and procedures of competent international organizations might not be abused. The majority of the members of the United Nations categorize themselves as developing states and a resolution on preferences for or among developing countries could be adopted by these states. The conditions attached to the exercise of the privileges created by Articles 23 and 24 could thus be determined by the beneficiaries of those privileges without the consent of the states that carry the corresponding burdens. Although it is unlikely that the developing countries would in fact proceed in this manner, it does not seem wise to create that possibility. We may thus conclude that the stipulation that the preferences must conform to the norms established by competent international organizations is highly problematical. I t leaves the status of the rules of G A T T — the principal institution concerned — unclear, creates the possibility of a conflict of rules and gives the developing countries carte blanche to determine, through U N resolutions, to which preference schemes Articles 23 and 24 shall apply. 32 GATT , The T o k y o R o u n d of M u l t i l a t e r a l Trade Negotiations: Report by the DirectorGeneral of G A T T , 1979, 149.

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III. The Potential Rôle of the International Law Commission in Implementing Principles of the New International Economic Order The International Law Commission has t w o distinct — albeit often indistinguishable — tasks, namely the codification of international law, that is the drafting of existing customary rules for incorporation into a convention, and the progressive development of international law, that is the drafting of new rules of an exclusively conventional nature 33 . I n the section that follows we intend to examine the rôle the Commission could play in codifying rules that embody principles of the N e w International Economic Order. I n the section thereafter we shall analyse to what extent these principles could be implemented by the Commission through the development of new rules of international law. 1.

Codification

The basic idea underlying the quest for a N e w International Economic Order favouring developing countries is that the world economy be organized in a manner that makes it possible to assign particular shares of the world's product to particular countries. The world economic order created after the Second World War, by contrast, is based on the idea that peaceful economic relations could best be reestablished by giving each nation the same rights and duties and to create a system of abstract and general norms of just conduct whose principal purpose was merely to avoid that nations collide w i t h one another in their monetary and commercial policies. W i t h i n that abstract legal framework nations were free to conduct their economic policies and, as a precondition and consequence of that freedom, the results of their activities did not follow any planned or anticipated pattern. This is what is being criticized by the promoters of a N e w International Economic Order. They argue that, by giving all nations the same rights regardless of their level of development and by allowing unlimited competition among them, the global product increased but the poor and weak countries could secure only an insufficient share in that output. The equal treatment of unequal nations therefore led to an unjust distribution of wealth among them. They scoff w i t h Anatole France at "the majestic equality of the law that forbids the rich as well as the poor to sleep under bridges, to beg in the streets and to steal bread" 3 4 and demand that the principles governing 33 Paragraph 15 of the Statute of the International L a w Commission. See generally on the distinction between the codification and development o f international l a w Krystyna Marek, Thoughts on Codification, Zeitschrift für ausländisches öffentliches Recht und Völkerrecht 1971, 496. 54 Anatole France, Le Lys Rouge, 1894, 117.

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distribution in welfare states be internationalized by giving each nation different rights and duties depending on its stage of development 35 . There are a number of international lawyers who take the view that the current struggle for a restructured world economic order may lead to new international law incorporating the right of the poor nations to development assistance and a corresponding duty of the economically advanced countries to grant such assistance. Oscar Schachter, for instance, believes that the central feature of the contemporary international law of development is a "new conception of international entitlement to aid and preferences based on need" 36 . Harold D . Lasswell suggests that there may soon arise a corresponding obligation to assist poor countries in accordance w i t h "the emerging principle of capability". This principle had so far only become part of the international civic order but, as international declarations became more and more saturated w i t h words and phrases of obligation, the question arose whether the duty to give assistance might not soon become part of the international public order 37 . Bernt V. Röling writes that the legal concept of collective responsibility of the community for the social and economic well-being of its members is a general principle of law recognized by nations and he concludes from this that the demand to recognize this principle also in international law is properly founded 38 . Is it conceivable, as these authors appear to suggest, that we might one day move from the welfare state to a welfare world through a new international customary law under which each nation's rights and duties depend on its stage of development? W i t h i n the welfare states, ideals of distributive justice are implemented mainly by replacing rules of private law that are abstract and general and regulate conduct among equal citizens by rules of public law that are purposeoriented and subordinate citizens to authority 3 9 . The rules of private law 35 See for instance the f o l l o w i n g statement taken from UNCTAD Secretariat , A n International Code of Conduct on Transfer o f Technology, ( U N Doc. T D / B C . 6 / A C . 1/2 Suppl. 1/Rev. 1), 41 : "The most significant change in the evolution o f international understanding since the Second W o r l d W a r has been the acceptance of the principle of preferential or special treatment for developing countries. This stems from the recognition that the notion of legal equality of the essentially unequal is spurious. This recognition has for long constituted the cornerstone of national laws, regulations and policies, as embodied in policies for labour, taxation, transfer o f income, social welfare and many others. The post-war period has witnessed an increasing awareness of the need for the internationalization of these policies." 36 Oscar Schachter, The E v o l v i n g L a w o f International Development, Columbia Journal of Transnational L a w 1976, 9. H e has further developed this idea i n : Sharing the World's Resources, 1977, 1—34. 37 Harold D. Lasswell, The Relevance of International L a w to the Development Process, Proceedings of the American Society of International L a w 1966, 4. Bernt V. A. Röling, International L a w i n an Expanded W o r l d , 1960, 56—67. 3 ». Cf. Gustav Radbruch, Rechtsphilosophie, 1956, 126.

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implement also in welfare states the principle of formal equality. A l l citizens basically have the same rights and duties vis-à-vis one another. The distinctions individuals make in their conduct towards the well-to-do and the poor flow from love, friendship, sympathy, or moral ideals, but not from legal duties. The welfare states' public law, by contrast, aims not at formal but material equality and as a consequence the citizens' rights and duties vis-à-vis the state vary to a large extent w i t h their material positions. Thus people w i t h high incomes pay proportionately higher taxes than those w i t h low incomes; students w i t h poor parents receive scholarships but not those w i t h rich parents, etc. I n short, in welfare states the principle of equal treatment reigns in the private law relations among individuals and the principle of differential treatment in the public law relations between individuals and the state. To paraphrase Anatole France, welfare states do not improve the lot of the poor by according them the special right to sleep under the bridges, to beg in the streets and to steal bread but by giving them privileged access to state subsidized housing, to public welfare payments and to government food stamps. The purposes of the welfare state could not be efficiently realised by introducing the idea of differential treatment in the private law relations among citizens. This is because i f one group of individuals is granted a private law privilege the group upon which the corresponding burden falls w i l l tend to rearrange its behaviour until a new balance of interest is found and w i l l thereby nullify or at least impair the benefits the privilege was to confer. Take the following case as an example: Suppose a country introduces a provision in its civil code declaring that people w i t h an annual income below an officially determined poverty line need not repay their loans, the argument of course being that equal treatment of unequals is inequitable and that it is therefore unjust if the duty to repay loans falls on rich and poor alike. Obviously such a law would not have the desired distributional consequences. A few poor and indebted people would enjoy immediate benefits but in the aggregate and in the long run the material position of the poor would not improve as a result of the law because no one would grant them loans that they could then repudiate. As a matter of fact their position might even decline because they would have lost for all practical purposes their former right to borrow. These considerations make clear w h y an internationalization of welfare state principles could not emerge in the form of international customary law. A move from the welfare states to a welfare world would require a move from the national governments to international authorities and the replacement of international customary law regulating conduct among equally sovereign nations by international organizational legislation regulating the authorities'

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conduct towards subordinated nations. I f international customary law embodying privileges for a particular group of nations were to emerge, other nations would tend to rearrange their behaviour until a new balance of interest is found and such law could therefore not effectively redistribute the global product. If, for instance, a rule of customary law were to emerge according to which developing states had the inalienable right to conclude among themselves preferential arrangements without having to compensate developed states for any contractual benefits impaired, then the developed states would naturally take this into account in their relations w i t h developing states. I n the negotiations of treaties they would value any commitments by developing countries less and would offer correspondingly less in return. The developing nations would have lost contractual freedom without having attained additional benefits and it would therefore be unlikely that a consensus supporting such a customary law privilege could be sustained. A further reason why international customary law favouring poor countries cannot emerge is that it is impossible to determine a particular distribution of the global product universally regarded as just. Nations can agree on abstract general rules that give each a formally equal chance to compete for the global product, but in a debate on norms aiming at a distribution of the global product in favour of specific countries there are always as many views as governments. "Welfare", wrote Immanuel Kant, "has no principle neither for him who receives it, nor for him who distributes it . . . and is . . . therefore incapable of a general rule" 4 0 . As the contemporary philosopher John Rawls points out, social agreement on questions of distribution can only be secured indirectly: whatever distribution results from rules considered just is ipso facto just 4 1 . This may be attributable to the fact that the justice of abstract rules appeals to the nobler side of human nature whereas the determination of the justice of particular distributions involves that part of man which prevents him from being a fair judge in his own case42. 40 Immanuel Kant , Der Streit der Fakultäten, 1798, sect. 2, para. 6, note 2. The complete original text reads: " W o h l f a r t aber hat kein Prinzip, weder für den der sie empfängt, noch für den der sie austeilt (der eine setzt sie hierin, der andere darin); w e i l es dabei auf das Materiale des Willens ankommt, welches empirisch u n d so einer allgemeinen Regel unfähig ist". 41 John Rawls y Constitutional Liberty and the Concept of Justice, 1963, 102. H e writes that the "principles of justice do not select specific distributions of desired things as just , given the wants o f particular persons. This task is abandoned as mistaken in principle , and it is, in any case, not capable of a definite answer. Rather, the principles of justice define the constraints which institutions and j o i n t activities must satisfy i f persons engaging i n them are to have no complaints against them. I f these constraints are satisfied, the resulting distribution, whatever i t is, may be accepted as just (or at least not unjust)". (Emphasis supplied). 42 Jan Tumlir, Can the International Economic Order Be Saved?, The W o r l d Economy 1977, 20. T u m l i r attributes this explanation to Samuel Pufendorf.

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That Kant's wisdom applies also to the redistribution of the global product is perhaps best illustrated by Jan Tinbergen's report to the Club of Rome "Reshaping the International Order" 4 3 . This report contains a contribution by James Grant and Mahbub ul H a q on "Income Redistribution and the International Financing of Development" 4 4 . The two authors start out by saying that the goal of development assistance must be income redistribution: "Justice and effective world order require a substantial narrowing of the relative income disparity between the developed and developing countries". T w o pages later a completely different goal is asserted: "The stress must be on the equality of opportunity not the equality of income". They further declare that the aim of development financing should be "the satisfaction of minimum human needs". However, they add that simple income transfers, which tend to create permanent dependence, are not acceptable; the goal should therefore be "increasing the productivity of the poor". Grant and H a q believe that development financing should be linked to "increased transfers of resources from the richer and advantaged minority w i t h i n most T h i r d W o r l d countries to the poor majority", but they also think "that each developing country must shape its own pattern of development and its own life style". Development financing raises not only the question of distributional equity among nations but also that of intergenerational equity. The question used to be put in the following terms: " W h y should present generations have the duty to labour for the benefit of future generations?" Today the question is frequently reversed: " W h y should present generations have the right to use up the world's scarce resources at the expense of future generations?" O n this intriguing issue Tinbergen's report has the following to say: "The distribution of future resources should take account of the needs of future as well as today's generations" 45 . The authors of the report agreed that the present distribution of the world's wealth is unjust but, owing to the difficulties inherent in the subject, they could not arrive at a coherent concept for a just distribution of this wealth. They merely succeeded in establishing a list of worthwhile criteria for distribution each of which would lead to a different distribution favouring different countries. As far as international customary law is concerned the Kantian requirement that all laws must abstract from our ends and must be essentially negative and limiting principles which merely restrict our exercise of freedom 46 is not merely a test of justice. International customary law must be general and 43

Jan Tinbergen, Reshaping the International O r d e r : A Report to the C l u b o f Rome, 1976. Ibid., 210—221. 4 5 Ibid., 61. 46 O n the principle of "universalizability" see: Friedrich A. Hayek, L a w , Legislation and Liberty, V o l . 2, 1976, 27—29, 42—44, and the literature quoted there. 44

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abstract because it rests on consensus and no consensus can be reached on one-sided and purpose-oriented rules. I n short, international customary law must pass the Kantian test because universal consent presupposes universal applicability. Since international customary law — the only general law binding all nations — cannot comprise rules promoting specific purposes in the interest of specific states 47 , it seems misleading if academic writers herald "the emerging international law of development" and the International Law Commission, in a similar vein, includes a reservation in the proposed m.f.n. clause convention according to which its provisions are not to affect "the establishment of new rules of international law in favour of developing countries" 48 . I t would help statesmen come to a better assessment of their policy alternatives i f it were recognized that measures and arrangements designed to promote development do not have a legal but a moral or political basis, and i f formulations were avoided which nourish the illusion that, in the unorganized society of nations, special favours and the protection of general rules of law can be had at the same time. We may thus conclude that the essential aspects of the N e w International Economic Order could not be reflected in international customary law. The realization of this order in a legal framework would require the partial replacement of customary law by international organizational legislation. The International Law Commission therefore could not promote the N e w International Economic Order by performing its primary task of codifying international customary law. 2. P r o g r e s s i v e

Development

We finally turn to the question of whether the International L a w Commission could help restructure the w o r l d economy by progressively developing new law. A new international economic order could not be implemented without changing the legal instruments on which the present international economic 47 Agreed rules prescribing state conduct have to be distinguished from agreed principles influencing state conduct. W h i l e there cannot be generally applicable rules specifically favouring developing countries, there may be generally accepted principles benefitting these countries. The difference between rules and principles is analysed i n detail i n : Frieder Roessler, L a w , De Facto Agreements and Declarations o f Principle i n International Economic Relations, German Yearbook of International L a w 1978, 56—59. 48 A r t i c l e 30. I t is not clear which practical purpose the reservation could serve. N e w rules of international customary l a w are established through a process that is independent of the w i l l of i n d i v i d u a l nations and therefore escapes regulation. The establishment of new rules of international treaty l a w w o u l d in any case not be affected by the convention because i t w o u l d o n l y have subsidiary character, that is i t w o u l d o n l y a p p l y t o the extent nothing else has been agreed. (Cf. A r t i c l e 29).

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order rests, in particular the G A T T and the Fund Agreement. International conventions proposed by the Commission normally have a subsidiary character and could therefore not change these legal instruments. A n y new rules of economic policy conduct proposed by the Commission could in practice therefore only become effective for the very small portion of international transactions that is not governed by the G A T T or the Fund Agreement. Even i f conventions drafted by the Commission normally cannot change the law of the G A T T and the I M F , they can have an unsettling effect on it. I t is in practice difficult to distinguish between the development of new law and the codification of existing law, and the international conventions that have been drafted by the Commission do not indicate precisely for each individual article whether it creates law or simply has declaratory character. I n the proposed m.f.n. clause convention, this question also is left unanswered. I t contains, the Commission said, "elements of both progressive development as well as of codification of the law and, as in the case of several previous drafts, it is not practicable to determine into which category each provision falls" 4 9 . As a consequence, we normally cannot be certain whether a rule on economic policy conduct drafted by the Commission is meant to declare customary international law binding all nations and hence supersedes the I M F / G A T T law or merely constitutes law for the signatories in which case the highly intricate problem of the application of successive treaties relating to the same subject matter could arise. A n y attempt by the Commission to develop new rules of economic policy conduct would therefore inevitably create legal uncertainty in the existing world economic institutions. The purpose of the rules, namely to create legal security, would be achieved for the small portion of transactions conducted outside the legal framework of the G A T T and the I M F but at the tremendous expense of creating legal uncertainty for the transactions governed by the legal instruments of these institutions. O n balance the Commission would destroy, not create, legal security. For the reasons explained in the previous section, the restructuring of the world economic order in favour of the developing countries is in the first instance not a legal but a political task. I n this area the Commission could not confine itself to developing accepted principles and debating how a given goal can be reached in the most rational w a y ; without any guidance by a world-wide consensus, it would have to determine itself the specific goals to be attained. The Commission would turn from an expert into a negotiating body. However, a body whose procedures, composition and powers correspond to essentially legal tasks cannot fare well i f it takes over functions that can 49 Report of the International L a w Commission on the W o r k o f its T w e n t y - E i g h t h Session ( U N Doc. A/31/10), 22.

7 G Y I L 22

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effectively be performed only by political bodies. A n illustration of the consequences of such a change in rôles is the debate on the first draft of the proposed article on generalized systems of preferences in which the Commission members fruitlessly exchanged appeals to reason w i t h appeals to noble sentiments. Some members pointed to the impossibility of defining the term "developing country" to which others responded that "what was important in the fight against under-development was not to spend time on terminological questions but to . . . bring justice and equity into international relations" 5 0 , and that "the Commission's concern should be for the half to the world's population which was faced w i t h starvation" 5 1 . The appeals to noble sentiments were supplemented by appeals to perhaps not quite as noble institutional considerations such as the following: " I f the Commission adopted [the article on preferences] its work would w i n both the close attention and the appreciation of the Sixth Committee" 5 2 . A n d : "For the sake of its own survival the Commission should not balk at discussing problems . . . relating to developing countries" 53 . The problems w i t h which the Commission became entangled were well described by Commission member Sir Francis Vallat. H e said that "there was no general agreement, no practice or opinio juris on the basis of which [the proposed provisions for developing countries] could be seen as a general rule . . . The Commission had left an area of work in which it had dealt w i t h legal principles and entered a new field where it was . . . on unstable ground". This, in Vallat's view, had the consequence that "under the guise of working towards the codification and progressive development of international law, members of the Commission were vying w i t h each other to gain or preserve economic and political advantages". H e added that "he very much doubted whether that was the Commission's true function" 5 4 . We may thus conclude that the basic principles of the N e w International Economic Order can only be implemented through changes in existing treaties by political bodies and not through the progressive development of international law by an independent commission of legal experts. 50 Yearbook of the International L a w Commission, 1975, Volume I , 204. si Ibid., 203. 52 Ibid., 204. When introducing the proposals o f the Commission t o the Sixth Committee the Chairman of the Commission said that he "was happy t o see that at the current meeting there were more Asians and Africans present than representatives f r o m other nations and was certain that they w o u l d have a great influence on the development o f modern international law, which for centuries had been a monopoly o f Western chancelleries and European jurists." (Official Records of the General Assembly, T h i r t i e t h Session, Sixth Committee, U N Doc. A / C . G / S R . 1534, 37—38.

53 Ibid., 54 Ibid.

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Conclusions

The International Law Commission proposed for inclusion in a convention on the most-favoured-nation clause two provisions implementing principles of the Declaration on the Establishment of a N e w International Economic Order, one providing for preferential treatment favouring developing states and the other for preferential trade arrangements among developing states. The proposed provisions would establish privileges without defining the beneficiaries and without specifying legal standards for the exercise of the privilege. The practical effect would be to eliminate the rule of law from a portion of international economic relations. The proposals of the International Law Commission exemplify that the basic goals of the N e w International Economic Order cannot be achieved through the codification or progressive development of international law by the International Law Commission. I t is not possible to redistribute wealth in favour of poor countries through one-sided rules establishing legal privileges for these countries because such privileges tend to be nullified or impaired through the search for a new balance of interest by the nations that have to carry the corresponding burden. Such rules could not become part of the general law binding all nations because this law rests on consent and only universally applicable rules are supported by universal consent. I n welfare states the redistribution of wealth required the progressive displacement of rules of private law that are abstract and regulate conduct among equal citizens by rules of public law that are purpose-oriented and subordinate citizens to authority. The goals of the welfare state are not achieved by giving poor and wealthy citizens different rights and duties towards each other but by giving poor and wealthy citizens different rights and duties towards the organized collectivity of citizens, the state. I f the redistribution of wealth among nations is to take place in a legal framework, this would very similarly require the gradual substitution of universal rules of just conduct for equally sovereign nations by new international organizational law subjecting nations to an authority empowered to plan and organize the distribution of the global product. I n the absence of such an authority, aid and preferences granted by the advanced to the poor nations cannot flow from general legal obligations. The International L a w Commission, whose task is to promote the rule of law, can for these reasons not effectively support the international development efforts.

ν

The Northern Waters and the New Maritime Zones Carl August Fleischer"' Introduction : The Zones, the Geographical and the Strategical Situation The term "northern waters" is somewhat too wide in the context of the present article. What is intended, is to give a survey of the situation and the problems which have arisen as a result of extended coastal state jurisdiction in areas north of the mainlands of N o r w a y and the USSR. By extended coastal state jurisdiction reference is here made both to the development concerning the continental shelf and to the establishment of 200 mile economic zones or fishery zones, by N o r w a y and by the Soviet Union 1 . As for the rights of the coastal state over the shelf, they are of course not as such to be regarded as a recent creation in international law. The continental shelf doctrine is of long standing, w i t h its history connected to such highlights as the 1945 Truman proclamation 2 , the 1958 Geneva Convention on the Continental Shelf 3 and the 1969 Judgment by the International Court of Justice 4 . The Court clearly recognized the coastal state's sovereign rights over the "natural prolongation" 5 of its land territory. Because of the flexibility of the exploitability criterion 6 , however, later years have witnessed a development in regard to the outer limit of the shelf, and thereby an extension of the areas * The views presented i n the article are those o f the author personally and do not necessarily coincide w i t h those o f the N o r w e g i a n Government or the N o r w e g i a n delegation at the U n i t e d Nations L a w o f the Sea Conference. 1 Cf., in the case of N o r w a y (economic zone), A c t o f 17 December 1976 on N o r w a y ' s economic zone. I n the case of the USSR there is no economic zone, but a 200 mile fishery zone, which was declared b y A c t of 10 December 1976 o f the Praesidium o f the Supreme Soviet of the USSR. 2 Presidental Proclamation no. 2667, 28 September 1945; see, inter alia , U n i t e d Nations Legislative Series, Laws and Regulations on the Regime of the H i g h Seas (St/LEG/SER. B / l 1951), 38. 3 Convention on the Continental Shelf, done at Geneva 29 A p r i l 1958, U N T S , vol. 499, 311. 4 North Sea Continental Shelf Cases, I C J Reports 1969, 1 et seq. 5 Ibid., 37 etc. (see η. 53, infra). 6 See, inter alia y A r t i c l e 1 o f the 1958 Geneva Convention, defining the continental shelf according to where the depth of the superjacent waters "admits of the exploitation of the natural resources of said areas".

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which are subject to the exclusive jurisdiction of the coastal state. I n the waters north of N o r w a y and of the Soviet Union this development seems to be particularly significant, including the entire area between the mainlands and the islands of Spitzbergen, Franz Josef's Land and Novaya Zemlya under the regime of coastal state jurisdiction. The 200 mile zone in regard to the living resources of the sea stands in contrast to the continental shelf, in that it seems to be based on a new rule of law, which has been established in very recent state practice following upon the views advocated at the T h i r d United Nations Law of the Sea Conference (UNCLOS). The 200 mile economic zone has here emerged as the only possible solution which might achieve general acceptance. States have acted upon this recognition without waiting for a formal Law of the Sea (LOS) Convention or for agreement on all items concerning the jurisdiction which is to be exercised in the new zone. Even i f the extended 200 mile zone may now be regarded as having a basis in customary law — at least according to the view of the present writer 7 — a number of questions concerning the rights and duties of coastal states and of others may be looked upon as unsettled. Uncertainty may prevail in matters concerning fisheries, but even more so when we come to cases where a coastal state on the basis of an "economic zone" w i l l exercise jurisdiction in matters not directly related to the management of the living resources, e. g. in regard to marine pollution. The new 200 mile zone puts both the USSR and N o r w a y in the position of what has been termed a "zone-locked" state. That means, according to U N C L O S terminology, that ships coming from the ports of the state in question must pass through the economic zones of some other state or states to reach the open oceans8. To what extent an "economic zone" w i l l indeed constitute an impediment to free navigation — for military as well as for non-military purposes — w i l l depend on the outcome of U N C L O S and on the future evolvement of doctrine and practice concerning coastal state powers. Obviously, the establishment of a full 200 mile "economic zone" may pose more problems 7

See, in further detail, Fleischer , The right to a 200-mile economic zone or a special fishery zone, San Diego L a w Review 1977, 548 et seq. For a different opinion see / . C. Phillips , The exclusive economic zone as a concept i n international law, I C L Q 1977, 585, where it is stated that "the concept of an exclusive zone . . . has no present standing i n international l a w " . The official view of the USSR seems t o be that international l a w does not at present a l l o w for a 200 mile zone, and that one must regard the 1976 Soviet 200 mile l i m i t merely as a provisional protective measure based on necessity, because o f other extensions, see F. Kovalyov i n Mezhdunarodnaya Z h i z n 1979, no. 1 (translated i n t o English in International Affairs, Feb. 1979). 8 There are some stretches in both the Barents and the N o r w e g i a n sea, which w i l l be more than 200 miles from the nearest coastline, and therefore not subject to economic zone jurisdiction. H o w e v e r , those are clearly the lesser parts, as opposed to the areas covered b y the 200 mile extensions, and do not constitute any outlet to the A t l a n t i c Ocean.

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for a party interested in free navigation than w i l l a mere fishery zone extending up to the same distance. The area between Spitzbergen and the Norwegian mainland is, of course, not a strait in the usual meaning of the word. Still, the problems connected to international straits and other "international highways" may have a certain analogy in the present case. The so-called "Svalbard passage", w i t h its vast areas of ocean between the Northern part of Norway's mainland and Spitzbergen, represents the Soviet Union's most important outlet to the oceans. As is well known, the Soviet Union has got four main outlets to the sea. However, the three others can in a sense be regarded as virtually "bottled i n " . Passage from the Baltic coastline to the oceans has to go through the öresund or the Belts, i. e. through Danish or Swedish waters. From the Black Sea the outlet is through the Bosporus and the Dardanelles, subject to Turkish sovereignty. Ships from Vladivostok must go through narrow sea areas partly under the control of countries as Japan and South Korea. I n W o r l d War I I the passage by convoys from the West on the sea routes to Murmansk played a major role and supported the Soviet Union's efforts to withstand and eventually defeat the armies of Hitler. This part of history is, of course, not likely to repeat itself. But the sea route from the important naval base of the Kola Peninsula to the high seas remains an important factor. I n particular this comes as a result of the present balance of powers, which is based on the possession of nuclear weapons carried by submarines. From the Soviet angle the sea areas between Norway's mainland and Spitzbergen may be seen as an essential element both in self-preservation and in a possible attack against the West, and in particular the United States. I n view of the realities of power politics it is not possible to distinguish between the two. For a super-power in the present situation the retention of the so-called "second strike capability" must be looked upon as a necessary condition for survival. There is a certain interest which is common to both of the t w o super-powers, namely to avoid the sudden upsetting of the strategic situation in sensitive areas. On this background we may presume that there is a large degree of common interest between the USSR, the United States and N o r w a y w i t h regard to the Norwegian mainland, Spitzbergen and the waters in between. Stability in the area is paramount, and none of the parties involved is likely to provoke any drastic change in the present situation. Norway's

and the Soviet Union's Earlier Limits of Maritime Jurisdiction

Traditionally, N o r w a y has had a territorial limit of one so-called geographical mile, which in practice is equal to 4 nautical miles. This territorial limit, based on Royal Decree of 22 February 1812, is still in force. Earlier, the

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territorial limit was also the limit applicable for fisheries. I n 1961 Norwayestablished a special fishery zone, going out to 12 nautical miles from the baselines0. The territorial l i m i t of the USSR has been 12 miles since 1921 10 . This 12 mile limit was earlier the source of conflict between the Soviet Union and Western powers, who claimed that the 12 mile limit represented an encroachment upon the freedom of the high seas11. Today, when both the Soviet Union and the United States, together w i t h a large majority of participating states at the U N C L O S 1 2 , advocate 12 miles as the maximum limit, it may seem that the opposition to the 12 mile territorial sea is mainly of historical interest. I t should, however, be noted that the US still maintains its position of principle, namely, that existing law does not allow an extension of the territorial sea beyond 3 nautical miles. The delimitation between the USSR 12 mile and the Norwegian 4 mile territorial sea — in the Varangerfjord area — has been agreed in a treaty of 1957 13 . This treaty also provided an "imaginary" dividing line w i t h regard to future extensions. This latter line went from the intersection between the Norwegian 4 mile limit and the Soviet 12 mile limit up to the point which is midway between Cape Niemetsky on the USSR side and Kibergnes on the Norwegian side. This line was applied 1 4 when N o r w a y extended the fishery limit to 12 miles in 1961, even following the same direction slightly longer than provided for in the 1957 treaty (as this line did not extend a full 12 nautical miles to sea, measured from Norwegian baselines). The Economic Zone off the Norwegian

Mainland

The Act of 17 December 1976 on Norway's economic zone promulgates the establishment of an economic zone in the waters outside the coasts of the "Kingdom of N o r w a y " , extending up to 200 nautical miles from the baselines. The term "Kingdom of N o r w a y " includes the Norwegian mainland 1 5 , Spitz9

A c t of 24 March 1961, see now A c t of 17 June 1966. Decree of 24 M a y 1921 by the Council of the People's Commissars, concerning the protection of fish and w i l d l i f e resources i n the A r c t i c Ocean and the W h i t e Sea, cf. inter alia y Jens Evensen y Etendue des eaux territoriales, résumé de la pratique des états, L a H a y e 1951, 122—23. 11 See, inter alia } Reinkemeyer, D i e Sowjetische Zwölfmeilenzone i n der Ostsee u n d die Freiheit des Meeres, K ö l n 1955. 12 See the I n f o r m a l Composite Negotiating Text ( I C N T ) , A r t i c l e 3; it is supported by both the USSR and the U S A . 13 "Norges T r a k t a t e r " no. 708, St. prp. no. 63 (1957), U N T S , vol. 312, no. 289. 1 4 R o y a l Decree of 18 August 1961. 15 Which term, in this article, includes also the islands along the coast, the so-called skjaergaard (cf. I C J Reports 1951, 127 et seq.). 10

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bergen and Jan Mayen. But the Act was — by Royal Decree of 17 December 1976 — only put in force w i t h regard to the mainland. I t is worth noting that this mainland zone so far has been implemented as a fishery zone only. According to the general rule of sect. 3 non-Norwegians may not fish in the zone except as authorized by specific provisions, in accordance w i t h international agreements or otherwise. N o r w a y has, e. g., concluded an agreement w i t h the USSR on a reciprocity basis, allowing Norwegian vessels the right to fish in the 200 mile zone of the USSR, and vice versa 16 . I t should, further, be observed that the "mainland zone" extends northwards to a full 200 miles; reaching almost up to Bear Island, which is juridically part of the Spitzbergen archipelago and covered by the Spitzbergen Treaty. The mainland zone is not being curtailed by the special fishery protection zone around Spitzbergen 17 . Questions of Jurisdiction in the Economic Zone in Matters Other than Fisheries As such the economic zone concept is very well adapted to accommodate the paramount interests which exist in regard to the areas between Norway's mainland and Spitzbergen. The overriding principle, which lies behind the proposals worked out at the U N C L O S in the form of "Negotiating Texts" 1 8 , is a balance of interests between the coastal state and the international community. The coastal state is permitted to extend its jurisdiction in order to protect and to exploit the natural resources of the sea and of the sea-bed and subsoil, while other states are to continue to enjoy the freedom of navigation as on the high seas, for commercial as well as for military purposes 19 . I n principle, the extension of coastal state jurisdiction to 200 miles in the areas which are here discussed should therefore not impose any difficulties upon the maritime interests of other countries. There are, however, certain complicating factors. One is that the idea of the economic zone is not limited strictly to jurisdiction over natural resources alone, but contains a certain element of jurisdiction for other purposes, inter alia in regard to marine pollution. Another is that the rules on the economic zone, as they are being developed in the practice of individual states rather than in the context of a formally binding international convention, may tend 16 Agreement of 15 October 1976 between N o r w a y and the USSR (cf., inter alia y St. prp. no. 74, 1976—77, Oslo 1976). 17 Cf. infra , at n. 30 and 31. 18 See the I n f o r m a l Composite N e g o t i a t i n g T e x t ( I C N T ) of 1977 (earlier the I n f o r m a l Single Negotiating Text 1975, and the Revised Single N e g o t i a t i n g Text, 1976); in particular I C N T Articles 56 and 58 on the powers of the coastal state, and on the rights and duties of other states. See also I C N T / R e v . 1 of 28 A p r i l 1979. 19 See I C N T Articles 56, 58 and 59. O n preservation of the marine environment see Articles 193 t o 238 ( I C N T / R e v . 1 Articles 192 to 237).

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to be somewhat obscure or diffuse at the moment; therefore the possibility of "creeping jurisdiction" cannot be excluded. From the viewpoint of maritime nations it may be argued that it is still uncertain whether and to what extent the economic zones now created may affect the interests of navigation in practice, in the near or the more distant future. I n this connection it may have a certain relevance that the economic zone is not considered as part of the "high seas" by the U N C L O S majority; in itself merely a matter of terminology, but still a factor which may add to the apprehensions which are here felt by some states20. The Act of 17 December 1976 on Norway's Economic Zone is not limited to fisheries or in general to the utilization of natural resources. The powers conferred upon Norwegian authorities include also other matters in conformity w i t h the general trends emerging from the debates at the United Nation's Law of the Sea Conference. The Act takes account of, and is to a large extent in conformity with, the provisions on the exclusive economic zone in the Revised Single Negotiating Text from the March to May 1976 session of the LOS Conference 21 . I t is well known that the term "exclusive" economic zone is a term of art, as the U N C L O S texts do not provide for the exclusion of all foreign activities w i t h i n the zone, or even the limitation of the exercise of jurisdictional activities to those of the coastal state. I n particular, the competence in matters concerning pollution is not left exclusively w i t h the coastal state. The I C N T contemplates a rather complex system, where competences are vested both w i t h the coastal state and w i t h the flag state of a vessel. I n certain cases the coastal state w i l l be competent to pass a regulation and to take measures of enforcement, in other cases a vessel w i l l be subject to the exclusive jurisdiction of the flag state. As for the present state of general international law, which may in these matters not necessarily coincide w i t h the proposals of the U N C L O S texts, it is probably rather uncertain how far a coastal state may go in making its laws applicable to the economic zone, i f there is indeed any special right of jurisdiction to be exercised in pollution matters in this zone, as opposed to the rights which may be exercised by virtue of other and more traditional principles of law (such as the competences of the coastal state in relation to the exploration and the exploitation of the continental shelf). The 1976 Act on Norway's economic zone does not go into any detail as regards the measures to preserve the marine environment. A l l that has been said, is that the K i n g is 20

Cf. i n more detail, Fleischer (n. 7), 567 to 570. Cf., now, the corresponding provisions of the 1977 I n f o r m a l Composite Negotiating Text ( I C N T ) . 21

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empowered to pass regulations for this purpose, but " i n accordance w i t h international l a w " . The Legal Situation of Spitzbergen (Svalbard) The legal position of Spitzbergen may seem complicated; yet it is clear enough. The point of departure is that Spitzbergen is a part of the Kingdom of N o r w a y and subject to Norwegian sovereignty and jurisdiction, w i t h certain limitations, which are laid down in the Spitzbergen Treaty of 9 February 1920 22 . By Article 1 of the Treaty the contracting parties recognized Norway's " f u l l and absolute sovereignty" over the archipelago. Besides, the basis for Norwegian sovereignty can today be found in Norwegian legislation and in the long-term exercise of authority over the islands. I t follows from the sovereignty of N o r w a y that the Norwegian Parliament, the Storting, has the power to legislate and that the Norwegian authorities and not the authorities of other countries are competent to enforce the law in the area. According to section 2 of the Norwegian Act on Svalbard of 17 July 1925, however, all Norwegian laws are not automatically to be applied at Spitzbergen. Norwegian civil and penal law and the legislation relating to the administration of justice apply to Svalbard, where nothing to the contrary has been provided; while other statutory provisions apply only where it has been specifically provided. The Spitzbergen Treaty does not only form a basis for Norwegian sovereignty and exercise of jurisdiction. I t also creates certain special rights for the other contracting states, in particular by giving their nationals the right to carry on economic activities on a footing of absolute equality. H u n t i n g and fishing is dealt w i t h in Article 2, while Article 3 covers "all maritime, industrial, mining and commercial operations". " M i n i n g " would seem to include oil. There shall be no discrimination in favour of Norwegian nationals, nor among the nationals of the other contracting states. As is the case for the right of establishment in the European Communities the rights given to the nationals of the parties to the Spitzbergen Treaty do not imply any immunity from the legislation of the territorial sovereign. But this legislation shall not discriminate against or among the foreigners who avail themselves of the opportunity given 23 . Another important restriction on the rights which would otherwise follow from Norwegian sovereignty is found in Article 8. By this article N o r w a y 22

The text is found in, inter alia , League of Nations Treaty Series 1920—21 vol. 11:1, 8; Recueil des Traités de la Norvege vol. I I , 988; Overenskomster med fremmede stater 1925, 551 and Norges Lover 1685—1977. The French and the English text are authoritative. — Cf. also η. 25, infra , on the interpretation of the Treaty. 23 Cf. the definition of the right (or "freedom") of establishment i n E E C Treaty, Article 52.

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undertook to provide mining regulations for Svalbard. Further, the article laid down certain limitations as to the contents and the elaboration of these regulations. W i t h regard to the substance it is provided that "all privileges, monopolies or favours" for the benefit of the state or of the nationals of one of the contracting parties shall be excluded. "Taxes, dues and duties" levied shall be devoted exclusively to the territories of Spitzbergen and shall not exceed what is required for that purpose. Another important restriction on the competence to establish mining regulations considers the procedure. Draft regulations should be submitted to the other contracting parties three months before the date fixed for their entry into force. I f the other contracting parties put forward proposals for modification these should, i f necessary, be considered and decided upon by a commission composed of representatives from the contracting parties. The commission should take its decision by majority. Mining regulations in accordance w i t h Article 8 of the Treaty were issued by Royal Resolution of 7 August 1925 24 . Prior to this consultations had been going on between N o r w a y and other countries whose interests would be affected by the regulations. As there was no disagreement in regard to the proposed text the provision on proposals for modification and decision by an international commission was not applied. Whether or not future amendments to the mining regulation would also have to follow the procedure of Article 8 has not been said expressis verbis in that article. The answer would seem to depend on the interpretation of the Treaty: Should Article 8 here be applied also to amendments, or should the accent be put on Article 1 on Norway's sovereignty, as a basis for all action not prohibited by the Treaty 2 5 ? Do the Rights Accorded to other States under the Spitzbergen Treaty Apply to the Continental Shelf? The general law concerning the continental shelf does not contain any regulation as to whether treaty obligations earlier entered into shall extend to the shelf. Consequently, it seems that the answer to our question must be found in the Spitzbergen Treaty itself or in its interpretation. The ordinary principles 24 The text is found in Norges Lover 1685—1977, and N o r w e g i a n Laws etc., an English translation by the N o r w e g i a n M i n i s t r y for Foreign Affairs (1963), and has also been published separately, w i t h French and English translation. 25 The present writer has dealt in more detail w i t h the contents and the interpretation of the regime provided by the Spitzbergen Treaty in Fleischer , O i l and Svalbard, N o r d i s k Tidsskrift for International Ret 1976, 7 et seq.; Le regime d'exploitation du Spitsberg, Annuaire Francais du D r o i t International 1979, 275; and the question of earlier Treaty rights applied to new maritime zones; Spitzbergen and the L a w of the Sea, i n : The L a w of the Sea, Iranian Review o f International Relations, no. 11—12, 1978, 245 et seq.

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of treaty interpretation are to be followed. I t must be observed that the Treaty as such is an instrument between sovereign states, establishing rights and obligations in their mutual relations. I t may be noted that Article 1 on Norway's sovereignty is the main provision, while Articles 2, 3 and 8 must be considered as specific exceptions which cannot be subject to any extensive interpretation. That restrictions on sovereignty must be construed in a restrictive manner is in conformity w i t h international jurisprudence 26 . A n d it follows from the wording of the Treaty itself: I f a question is not covered by any specific article on the rights of foreign nationals such as Articles 2, 3 or 8, it w i l l fall under Article 1 and be subject to the rule contained therein without any specific limitation, namely the " f u l l and absolute sovereignty of N o r w a y " . This was also the intention when the Treaty was drafted 2 7 . The answer to our question must then be that the Treaty rights apply to the islands plus their territorial waters, which go out to 4 nautical miles from the baselines. The continental shelf is subject to the ordinary Norwegian legislation on the shelf, in particular the Royal Resolution of 8 December 1972, and does not fall under the specific regime of Spitzbergen w i t h the rights therein provided for in regard to other parties. There are two legal grounds for this position, both of which are sufficient. First, there is nothing in the Treaty which gives N o r w a y special obligations in respect of the continental shelf. The limitations on Norwegian sovereignty and the rights accorded to other parties in Articles 2 and 3 on fishing, hunting, mining etc. concern only the islands and their "territorial waters". Even i f there should be a special "Spitzbergen continental shelf" it would fall under Article 1 of the Treaty, which would retain the full freedom of the Norwegian 26 Cf., in particular, the decision b y the Permanent Court of International Justice in the Memel Case, Interpretation of the Statute of the Memel Territory , P C I J 1932 Ser. A / B no. 49. A f t e r W o r l d W a r I Lithuania was given sovereignty over the territory of Memel, which at the same time was given wide powers of self-government. I t was held by the Court that the autonomy of Memel and the sovereign powers of Lithuania were not of the same order, and that the latter must apply where nothing specifically had been said i n the relevant documents: " I t follows that the sovereign powers of the one and the autonomous powers of the other are of quite a different order in that the exercise of the latter powers necessitates the existence of a legal rule which cannot be inferred from the silence of the instrument from which the autonomy is derived, or from an interpretation designed to extend the autonomy by encroaching upon the operation of the sovereign p o w e r " (p. 23). Cf. also, inter alia , Oppenheim, International law, 8th ed. 1955 by Lauterpacht, 953. 27

See Report of the Spitzbergen Commission, Conference de la Paix 1919—1920, Recueil des actes de la Conference, part V I I , C, 60: "toutes les dérogations à la souveraineté se trouvent dans le Traité en préparation; pour le surplus i l y a lieu d'appliquer la souveraineté de la Norvège" (statement by M . Laroche, president of the Conference's Spitzbergen Commission).

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legislature 28 . Second, there is a single continuous continental shelf which stretches from the Northern coast of N o r w a y up to and around Svalbard. The provisions of international law for delimitation of the shelf by a median line or by agreement apply only to the case where the continental shelf is adjacent to two different states. Svalbard is not "another state" in relation to N o r w a y . There is, in consequence, no specific "Spitzbergen shelf" which could, in theory, be subject to a specific Spitzbergen regime. I t is a matter of Norway's continental shelf contiguous to its mainland territory and territorial waters, and subject to the general principles of continental shelf law as opposed to the specific rules of the Spitzbergen Treaty. Do Treaty Rights Earlier Accorded Apply

to the Economic

lone?

This question must be answered on the same legal basis as the preceeding one, i. e., according to the wording of the specific Treaty itself and the interpretation thereof. A n d it would seem that the result must be the same. The exclusive economic zone must also be considered as a new concept, which has now become a part of general international law. Both the economic zone and the continental shelf have been made subject to the "sovereign rights" 2 9 of the coastal state by virtue of later development of international law. They are not covered by the specific restrictions on Norwegian jurisdiction in the Spitzbergen Treaty of 1920 30 . There are, however, certain points which may be argued against this conclusion, and which may make the legal position a bit more uncertain in regard to the economic zone than in regard to the shelf. I t may be said that the similarity to "territorial waters" is greater where the economic zone is concerned. This zone is also measured to a certain distance from the baselines; consequently, there should be a better basis for an analogy from the Treaty provisions on "territorial waters". One may argue that there has been a functional split-up in regard to the limit of territorial waters, some of the functions being transferred to the outer limit of the economic zone. Further, the "second argument" of the Norwegian Government concerning the shelf, 28 Cf. the arbitral decisions i n the Abu Dhabi and Qatar cases, where i t was found that concessions earlier given concerning all land and sea areas of these states d i d not include the continental shelf, which at a later date had become subject to the state's sovereign rights. See I . L . R . 1951, 144 et seq. and 161 et seq. Cf. also the article by / . Peter A. Bernhardt , Spitzbergen: Jurisdictional F r i c t i o n over Unexploited O i l Reserves, California Western International Law Journal 1973, 61 to 120, i n particular 115; where it is found, on reasons similar to those of the Abu Dhabi decision, that the treaty rights concerning Spitzbergen cannot be regarded as having been extended to the continenal shelf. 29 Cf. Geneva Convention on the Continental Shelf, art. 2, and I C N T art. 56 and 77. 30 Cf. the views taken i n the Abu Dhabi and the Qatar arbitrations (see supra , n. 28), as w e l l as the position o f the P C I J in the Memel Case {supra, n. 26).

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viz. that there is one single Norwegian shelf adjacent to the mainland as well as to the Spitzbergen archipelago, cannot be advanced in regard to those parts of the economic zone which are measured from Spitzbergen and which are at a distance of more than 200 miles from the Norwegian mainland. But none of those counter-arguments would seem to be sufficient. Spitzbergen is subject to Norwegian sovereignty according to Article 1 of the Treaty, and the exclusive economic zone is a new concept of international law different from that of the territorial sea. There should therefore be no basis for an extensive interpretation of the specific restrictions on Norwegian sovereignty in "territorial waters" in Articles 2 and 3 of the Treaty to cover also the sovereign rights deriving from this new development in the rules of general international law. The Government has, however, for the time being limited itself to the establishment of a non-discriminatory fishery protection zone beyond the 200 mile "mainland zone" 3 1 . This is as a result of practical rather than legal considerations. The need for an exclusive zone is not the same as in the waters off the mainland, where extensive fisheries are carried out by the coastal population; while non-discriminatory regulations are needed around Spitzbergen to prevent over-exploitation in areas w i t h stocks of young and maturing fish. I t may, further, have seemed convenient — at the present stage of legal development, negotiations and uncertainties in regard to the economic zone in general — to avoid any specific dispute or legal discussions concerning the particular questions relating to the Spitzbergen Treaty in matters of fisheries. According to what has become known in the press, the USSR has formally declared itself opposed to the view that N o r w a y has a right to an exclusive economic zone around Spitzbergen, without application of the non-discriminatory regime provided for in the Spitzbergen Treaty to the zone. The Soviet Union has, further, advocated the view that even the non-discriminatory zone of 1977 — regarded as "unproblematic" by N o r w a y , as it should be acceptable to other parties even i f Article 2 of the Spitzbergen Treaty is considered applicable in the 200 mile zone — is contrary to the 1920 Treaty. Delimitation between Norway and the USSR of the Continental Shelf and of the 200 Mile Economic Zone or Fishery Zone To the east the continental shelf of N o r w a y , and partly also the economic zone, must be delimited in relation to the areas which appertain to the Soviet Union. Negotiations have been carried out from 1974 to 1977 and are expected to continue. The exercise of maritime jurisdiction by N o r w a y and the USSR in vast areas of continental shelf and in 200 mile zones stretching both from the 31

R o y a l Decree of 3 June 1977, w i t h effect from 15 June 1977.

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mainlands and from the islands of Spitzbergen, Franz Josef's Land and Novaya Zemlya w i l l necessarily raise problems of great importance concerning delimitation, between opposite as well as adjacent areas. I t has been estimated that the difference between the Soviet position based on a "sector principle" and the Norwegian position of a median line delimitation is approximately of the same magnitude as the entire Norwegian part of the continental shelf in the N o r t h Sea, w i t h fields such as Ekofisk, Frigg and Statfjord 8 2 . Even i f the questions of delimitation concern maritime areas of extreme strategic importance some caution should be exercised in order not to overrate this aspect. Though it goes without saying that a more westerly dividing line is more favourable to the interests of the USSR than a more easterly one, no system of delimitation and no dividing line w i t h i n what is theoretically possible could solve the strategic problems which are connected to the need for unimpeded access to the high seas. However westerly a dividing line might eventually be situated, vessels coming from the USSR would still have to pass through areas subject to foreign jurisdiction in respect of the 200 mile zone or the continental shelf. Possibly, the types of jurisdiction which may in time be exercised in the 200 mile zone may have a certain bearing on the questions of delimitation; but no system of delimitation is in itself sufficient to guarantee the freedom of military and non-military navigation. Both N o r w a y and the USSR are parties to the Continental Shelf, which is based on the special circumstances and to other solutions concerned. The relevant provisions are found which read as follows:

the 1958 Geneva Convention on median line principle, subject to being agreed between the states in Article 6, paragraphs 1 and 2,

1. Where the same continental shelf is adjacent to the territories of two or more States whose coasts are opposite each other, the boundary of the continental shelf appertaining to such States shall be determined by agreement between them. I n the absence of agreement, and unless another boundary line is justified by special circumstances, the boundary is the median line, every point of which is equidistant from the nearest points of the baselines from which the breadth of the territorial sea of each State is measured. 2. Where the same continental shelf is adjacent to the territories of t w o adjacent States, the boundary of the continental shelf shall be determined by agreement between them. I n the absence of agreement, and unless another boundary line is justified by special circumstances, the boundary shall be determined by application of the principle of equidistance from the nearest points 32 The latter t w o are median line fields straddling the d i v i d i n g line between the U n i t e d K i n g d o m and the N o r w e g i a n part o f the shelf.

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of the baselines from which the breadth of the territorial sea of each State is measured. I t should be observed that the median or equidistance line is in force already according to Norwegian legislation 33 . As for the law of the USSR, it follows closely the wording of the Geneva Convention, including the "special circumstancesw formula 3 4 . The parties are, however, not in agreement as to how the "equidistance-special circumstances" rule is to be interpreted in the present instance; the Norwegian view being that equidistance is the natural point of departure, the Soviet one being that delimitation should be traced along the "sector line" extending from the earlier western border of the Union up to the N o r t h Pole, as in the 1926 Sector Decree of the Soviet Government 35 . Though the Decree relates to sovereignty over islands, discovered or undiscovered, w i t h i n the two sector limits (at the 1926 Western border of the USSR, and at the East Siberian one), it is claimed to be relevant also in regard to the continental shelf. While the continental shelf is not at present being exploited in the areas which are the subject of negotiations and of differing views between N o r w a y and the USSR, the extension of the limits for fisheries to 200 miles has demonstrated a more imminent need for some solution in regard to where each state may exercise its jurisdiction. As the Soviet Union and N o r w a y have agreed on a reciprocity arrangement, whereby a vessel from one country may fish for quotas in the 200 mile zone of the other country 3 6 , the need for an arrangement on delimitation was mainly felt in regard to the exercise of jurisdiction, in particular vis-à-vis third countries. A provisional agreement has been made for an "adjacent area in the Barents Sea"; which area does not coincide w i t h the area between the Soviet sector claim and the Norwegian median line claim, but covers even a part of the sea west of the sector line, as well as a much smaller one to the east of the median line. This so-called "grey zone" agreement 3 7 , entered into as late as 11 January 1978, shall according to its wording not prejudice the views of either party on delimitation, and is intended as purely provisional 3 8 . 33 A c t of 21 June 1963 and R o y a l Resolution of 31 M a y 1963. 34

A c t of 6th February 1968 b y the Praesidium of the Supreme Soviet of the USSR, sect. 2.

35 The text o f this Decree of the Praesidium of the Central Executive Committee of the USSR is found, i n English translation, in, inter alia , Hackworth, Digest o f International L a w , vol. I , 1940, 461, and Whiteman , Digest of International L a w , vol. 2, 1963, 1268. 3« Agreement o f 15 October 1976 between N o r w a y and the USSR (cf. supra, n. 16). 37 See St. prp. no. 70, 1977—78 (Oslo 1977). 38 According to its o w n text i t should run u n t i l 1 J u l y 1978. I t has been prolonged u n t i l 1 J u l y 1979, b y an exchange o f notes on 30 June 1978, and u n t i l 1 J u l y 1980 b y notes o f 26 June 1979.

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Zones

Turning now to the substantive aspects of delimitation it must first of all be stressed that the Geneva Convention, to which both parties have adhered, does not lay down a line equidistant to the baselines as an absolute rule w i t h no exception. Article 6 provides for the application of the median line where there are not special circumstances which justify another boundary. That the parties can agree on a departure from the median line, and that another line can be the consequence of agreement, is self-evident. I t is, however, also stated in Article 6, according to which the median line-special circumstances rule is applicable " i n the absence of agreement". Thus, when Article 6 of the Geneva Convention is sometimes referred to solely as "the median line principle" this is not entirely accurate. A more correct wording, which has been applied by the International Court of Justice, is the "equidistance-special circumstances principle" 3 9 . I t may be said that even this formula is not entirely in accordance w i t h what the article actually says, as long as "agreement" is not added as a third element. Personally I would, however, be inclined to stress very strongly that "agreement" is not an element of the same character or on the same level as those of "equidistance" and "special circumstances". While the latter give the indications as to how the boundary shall be drawn — although admittedly not w i t h any admirable precision as far as the "circumstances" are concerned — "agreement" is merely one of the methods for the peaceful settlement of disputes (or more generally, for the solution of problems) in the relationship between sovereign states. I t has per se nothing to do w i t h substantive law. This is so even if it must be recognized that there is an obligation to negotiate and to do so for some time and in good faith. As an important stage in the development of the law relating to delimitation of continental shelves one may regard the 1969 Judgment by the International Court of Justice in the North Sea Continental Shelf Cases, between the Federal Republic of Germany and Denmark, and between the Federal Republic and the Netherlands 40 . The Court built its decision on the idea of a certain dichotomy in continental shelf law; one body of law being based on the Geneva Convention, the other on customary law. The equidistance-special circumstances rule of Article 6 was considered as not applicable vis-à-vis the Federal Republic, which had not ratified the Convention. Some of the views of the Court may, however, seem to be related to continental shelf law in general and relevant also to the interpretation of the Convention.

39

See, for instance, I C J Reports 1969 at p. 243 ( North

40 I C J Reports 1969, pp. 1 et seq.

8 G Y I L 22

Sea Continental

Shelf Cases).

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I n particular, the Court built its conclusions concerning customary law in regard to delimitation on: " . . . certain basic legal notions which, as has been observed in paragraphs 48 and 55, have from the beginning reflected the opinio juris in the matter of delimitation; those principles being that delimitation must be the object of agreement between the States concerned, and that such agreement must be arrived at in accordance w i t h equitable principles" 4 1 . I n its further observations concerning the application of the substantive norm of "equity" in different cases, the Court stressed the relationship to the even more fundamental considerations which are at the very basis of coastal State rights in regard to the continental shelf. The Court first stated that certain "criteria, though not entirely precise, can provide adequate bases for decision 42 adapted to the factual situation" 4 3 . Following immediately upon that the Court said: "The institution of the continental shelf has arisen out of the recognition of a physical fact; and the link between this fact and the law, without which that institution would never have existed, remains an important element for the application for its legal regime. The continental shelf is, by definition, an area physically extending the territory of most coastal States into a species of platform which has attracted the attention first of geographers and hydrographers and then of jurists" 4 4 . The Court went on to mention the notion of "appurtenance", and the principle that "the land dominates the sea" 45 . I n other words, the Court here relied upon the coastal State's rights as they derive from Articles 1 and 2 of the Geneva Convention — on the sovereign rights over the areas adjacent to the territorial sea — which provisions (as opposed to Article 6) were also considered to be parts of general customary law. Even i f the Court thus confirmed the need to apply the fundamental norm of Article 1, and that the continental shelf is the natural prolongation of the land domain, in matters of delimitation, it also pointed out that "adjacency" was not an entirely precise criterion. I n particular "adjacency" was not necessarily the same as " p r o x i m i t y " 4 6 . The Court distinguished sharply between the case of adjacent and the case of opposite States. I t was pointed out that the 41 I C J Reports 1969, 46. 42 7. e.y decision in regard to the tracing o f a boundary. 43 Ibid., 51. 44 Ibid. 45 I C J Rep. 1969, 51. Cf. Fisheries Case ( United Kingdom v. Norway ), I C J Reports 1951, 133: " I t is the land which confers upon the coastal State a right t o the waters o f f its coast". 4β I C J Reports 1969, 30.

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International Law Commission in preparing its draft, which later became Article 6 of the Geneva Convention, had felt, "less difficulty over the median line boundary between opposite States", although that too is an equidistance line. "For this there seems to the Court to be good reason. The continental shelf area off, and dividing, opposite States, can be claimed by each of them to be a natural prolongation of its territory. These prolongations meet and overlap, and can therefore only be deliipited by means of a median line" 4 7 . As for the later development of the general law on continental shelf delimitation, the proposals put forward in the texts of the U N C L O S may merit some attention. The I C N T has the following provisions in article 74, paragraph 1 : "The delimitation of the exclusive economic zone between adjacent or opposite States shall be affected by agreement in accordance w i t h equitable principles, employing, where appropriate, the median or equidistance line, and taking account of all the relevant circumstances". Similar provisions are found in article 83 on delimitation of the continental shelf between adjacent and opposite States. The texts are in accordance w i t h the earlier provisions of the Revised Single Negotiating Text (RSNT) of 1976, articles 62 and 71. I t must, of course, be remembered that what we have here before us in the form of texts concerning delimitation, are only to be regarded as proposals. They must be regarded as a hypothetical or possible future conventional regulation, not as binding instruments of international law. I t may, however, be of a certain interest to note that even these parts of the LOS text have in effect been advocated as arguments in relation to the legal situation of today. This was done in legal proceedings before the Court of Arbitration which was set up to decide the course of the boundary in certain areas of continental shelf between France and the United Kingdom. I n those proceedings it was argued on behalf of France that the developments stimulated by the LOS Conference, and in particular the extension of coastal state jurisdiction to economic zones of 200 miles, had rendered the Geneva Convention "obsolete" and therefore not applicable. This contention was rejected by the Court. Both France and the United Kingdom were parties to the Geneva Convention. A n d delimitation must, subject to certain French reservations at the time of accession to the Convention, be effected according to its provisions 48 . 47 Ibid. y at 36. 48

399.

8*

A w a r d rendered on 30 June 1977, para. 48, International Legal Materials ( I L M ) 1979,

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The arbitral tribunal had, as a result of the contentions advanced by the Parties, also occasion to pronounce upon the general relationship between the conventional rule of Article 6 and the customary law otherwise applicable, and further on the relationship between existing law and the delimitation articles of the proposed LOS Convention. The tribunal found: ". . . no reason to suppose that, i f they 4 9 were applicable they would make any difference to the determination of the course of the boundary in the present case. . . . . . . Since it is the geographical circumstances which primarily determine the appropriateness of the equidistance or any other method of delimitation in any given case, the Revised Single Negotiating Text would not appear to visualise the solution of cases like the present one on principles materially different from those applicable under the 1958 Convention or under general international l a w " 5 0 . O n the other hand, the Court of Arbitration did not overlook that under Article 6 the equidistance principle ultimately possesses an obligatory force which it does not have in the same measure under the rules of customary law; "for Article 6 makes the application of the equidistance principle a matter of treaty obligation for Parties to the Convention" 5 1 . But it was also pointed out that the "combined character" of the equidistance-special circumstances rule meant that the obligation to apply the equidistance principle "is always one qualified by the condition 'unless another boundary line is justified by special circumstances' " 5 2 . I f we now turn to an examination of the I C N T as such, it may seem that such an examination w i l l also to a certain extent substantiate the conclusion that there is not necessarily any material difference between the results of its provisions and those which follow from the application of the Geneva Convention. On the other hand, the wording of the proposed articles 74 and 83 of the I C N T obviously tends to reduce the equidistance element somewhat: "Equidistance" is mentioned solely as part of and subject to the "equitable principles", which have taken the place of the main rule, and it is specifically stated that the median or equidistance line is to be employed "where appropriate". The position taken by different states at the U N C L O S would seem to confirm that the pre-eminence given to "equitable principles" may lead to results different from those following from the present Geneva Convention, 49

I. e., the new provisions of I C N T Articles 74 and 83. so A w a r d (n. 48), para. 96. 51 Ibid., 52 Ibid.

para 70.

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as there is a clear division between states according to national interests, and according to whether they would profit from "equity" or from "equidistancespecial circumstances"; or, rather, according to whether they believe that the one or the other w i l l be the case. I t may be argued that the placing of one of the fundamental elements of continental shelf law, viz. "agreement", in connection w i t h the t w o other elements is somewhat illogical in articles 74 and 83 of the I C N T . I t is being said that the delimitation shall be effected by agreement " i n accordance w i t h " equitable principles, including equidistance where appropriate. I t may be said that this text confounds the procedural element — the method of settlement — w i t h the substantive norm. While the Geneva Convention sets out the obligation to reach (or, rather, to t r y to reach) agreement in a separate sentence, and has another sentence for the substantive norm which is applied in the absence of agreement, the I C N T has linked the clause on "equitable principles" and "equidistance" to the obligation to agree. As the text stands, the references to "equitable principles" and "equidistance" contain no more than a regulation of the considerations which are to be taken account of by the two states during their negotiations. This is further borne out by the last words of the paragraph — on "taking account of all the relevant circumstances". A n even more serious deficiency caused by the linking of the substantive norm on "equitable principles" etc. to the obligation to conclude agreement is that the articles according to their wording are virtually without any regulation where a substantive norm is most needed: i. e., where there is no agreement between the states concerned. I t is only being said what principles are to be employed in the processes of negotiation and of agreement. Both the I C N T and the 1969 Judgment are based on the fundamental consideration that the continental shelf is the "natural prolongation" of the coastal state 53 . Delimitation would thus have to be effected according to the principle that each coastal state has the right to the part of the continental shelf which is the natural prolongation of its land territory. This may also be regarded as inherent in the notion of "adjacency", which is found in the basic provision of Article 1 of the Geneva Convention. I t seems that there must be important limitations as to the considerations which may be relevant in relation to the assessment of what is a "special circumstance" justifying a departure from the median line, or even "equitable" according to the I C N T . The question is one of "delimitation", as opposed to an "apportionment" de novo of an area 54 . A country cannot claim any "just 53 See thus I C N T A r t i c l e 76 and I C J Reports 1969, 36, 37, 47, 53. 54 Thus I C J Reports 1969, 22.

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and equitable share" of the shelf according to the size of its population, its state of development, etc. The contention advanced by the Federal Republic of Germany that it was entitled to a "just and equitable share" in the N o r t h Sea, rejected by the International Court in 1969 55 , is not tenable. There is a close relationship between the physical facts which underlie the whole doctrine of the continental shelf, and the method of delimitation. The Barents Sea is a case of adjacent as well as of opposite areas. While the mainland coasts are adjacent, the islands present us w i t h opposite coasts, in the relationship between N o r w a y and the USSR. The 1969 dictum concerning the application of the median line between opposite states may therefore be relevant, together w i t h the view that the geographical realities in the case of adjacent states may be such that an irregularity of the coastline may cause particular inequity i f the equidistance line is to be applied without modification, leaving " t o one of the states concerned areas that are the natural prolongation of the territory of the other" 5 6 . I t may seem that i f no such irregularity can be shown to exist, the median line must apply. I t may further seem that the views quoted, which are built on the very fundamental elements which are at the base of coastal state rights in regard to the shelf, namely "adjacency" and "natural prolongation", must lead to a delimitation according to the character of the coastlines and the areas to be delimited; as opposed to the unilateral Decree of 1926, which purports to extend a line in the direction of the N o r t h Pole and thereby to a point which lies far beyond the areas in question.

55 I C J Reports 1969, 22 to 23. 5β I C J Reports 1969, 37. Reference may here also be had to paras. 233 et seq. of the A r b i t r a l A w a r d of 30 June 1977, concerning the delimitation of the boundary between France and the U n i t e d K i n g d o m in areas extending westwards into the A t l a n t i c Ocean (n. 48).

China and Maritime Jurisdiction: Some Boundary Issues Choon-ho Park L

Introduction

On the limits of its maritime jurisdiction, the People's Republic of China has been basically unspecific to date. The law of the sea itself, as it relates to the delimination of maritime boundaries between adjacent and opposite states, is not yet specific enough to be readily applicable in geographically complicated circumstances such as in the China seas1. Thus far, China has been under no great economic pressure to move to the sea to develop resources more readily available onshore. Furthermore, the political relations between China and some of its neighbors have not been conducive to negotiation of sea boundaries. From its own standpoint, therefore, it has been practically unnecessary for China to pronounce its maritime jurisdiction in specific terms. I n the other coastal states of the China seas, however, the demand for sea resources — oil in particular — has been much more pressing than in China, hence their persistent efforts to negotiate bilateral or multilateral boundaries w i t h China. I n the case of Northeast Asia, for instance, the sea-bed oil controversy took place in 1970 among the five claimants, including N o r t h Korea and Taiwan; but the issue still remains unresolved between China and the other parties involved, the decade-long "war of nerves and battle of mouths" notwithstanding. I n the relatively small enclosed or semi-enclosed seas of East Asia, therefore, it w i l l become increasingly difficult for China or any other coastal state to continue to ignore the interests of its maritime neighbors. For these reasons, China w i l l eventually have to delimit by agreement its sea boundaries w i t h Japan, N o r t h and South Korea, Malaysia, the Philippines and Vietnam. O n the strength of its claims in the South China Sea w i t h respect to the ownership of the Spratly Islands, China might even find it necessary to do the same w i t h Britain (or Brunei, due to become independent of Britain in 1983) and Indonesia as well. W i t h the above assumption in mind, the present study attempts to analyze hypothetically the problems of maritime jurisdiction in the China seas w i t h 1

" T h e China seas" as used in this Study refers to the Y e l l o w Sea, the East China Sea, the South China Sea, the G u l f of T o n k i n , and the Sunda Shelf, collectively or selectively, as the case may be.

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particular reference to the continental shelf and 200-mile zone boundaries between China and its adjacent and opposite states. Since the baseline for the measurement of the limit of a coastal state's territorial sea is also used for the measurement of its other maritime jurisdictions, it is necessary to take a brief look at Chinese practices relating to its territorial sea and contiguous zone. This, in turn, makes it necessary to identify some relevant geographical facts of the China seas. Thus, as general background, this introduction summarizes China's geographical circumstances, territorial sea and maritime military jurisdictions, and the territorial disputes in the East and South China Seas. 1. T h e

Geographical

Circumstances

Unlike other continental countries, China, w i t h a coastline of approximately 6,000 nautical miles on the mainland alone, does not border on an ocean, except marginally on the Pacific side of Taiwan; it borders on a number of relatively small seas that are also enclosed or semi-enclosed by other states whose maritime interests are as serious as China's own. Its geographical circumstances are further complicated by the fact that its coastline is not only deeply indented, but also fringed w i t h some 3,500 islands, including Taiwan and those under ownership dispute, the length of their coastlines totalling another 5,000 miles 2 . The area of the three China seas should also be noted w i t h interest. The Yellow Sea, the East China Sea and the South China Sea are approximately 400,000 square kilometers (sq. km), 700,000 sq. kms. and 3,400,000 sq. kms. respectively in size, each of them comparing w i t h the N o r t h Sea's 500,000 sq. kms. Nevertheless they are all studded w i t h so many offshore and mid-ocean islands that nowhere in the three seas does the distance from one headland or island to another approach 400 miles. I n view of the stated or anticipated claims of the coastal states to the regime of a 200-mile zone, this is an important factor, even i f many of the islands, especially those in the South China Sea, may not be large enough or otherwise likely to meet the legal definition of an island. I n depth, each of the China seas varies from one another. The depth of the Yellow Sea is approximately 55 meters on the average and nowhere exceeds 125 meters. The East China Sea is also shallow, its sea-bed sloping gently from the Chinese coast and, to a lesser extent, from the Korean coast, until it drops abruptly into the Okinawa Trough whose depth reaches nearly 2,300 meters at its deepest (see Map A). I n the South China Sea, the 200-meter contour line 2

For the geographical circumstances of China, see 7. Hu, Zuguode H a i y a n g (The fatherland's ocean), 1956, 3; S. J. Yeh and H. T. Liu , Zhongguo Z i r a n D i l i Zonglun (The natural geography of China), 1959, 37; and Huang Jiu-shun , Zhongguo D i l i G a i l u n ( I n t r o d u c t i o n to the geography o f China), 1978, 78—87. A " m i l e " i n this study refers t o a nautical mile.

China and Maritime

Map A :

Boundary

Issues

The contours i n fathom i n the Y e l l o w and East China Seas (based on E C A F E Technical Bulletin, V o l . 2, 1969). Source: Choon-ho Park y Continental Shelf Issues i n the Y e l l o w Sea and the East China Sea, Occasional Paper N o . 15, L a w o f the Sea Institute, University of Rhode Island, 1972.

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runs relatively close to the Chinese, Vietnamese, Malaysian and Philippine coasts, w i t h the central parts of the Sea dropping to an abyssal depth. H o w ever, the depth of the China seas is not likely to be an important factor in the delimitation of the continental shelf and 200-mile zones should the relevant provisions of the revised Informal Composite Negotiating Text ( I C N T ) of the current T h i r d United Nations Law of the Sea Conference ( U N C L O S I I I ) be adopted as the new criteria. 2. T h e T e r r i t o r i a l

Sea

Limit

China declared a 12-mile limit of its territorial sea on September 4, 1958 3 . The timing of this declaration had to do w i t h Taiwan's plan in the late summer of that year to defend Quemoy and Matsu, the mainland's two offshore islands under its control, w i t h United States support 4 . For the purpose of this Study, it is important to note that China adopted the straight baseline method for the delimitation of its territorial sea. According to Paragraph 2 of the Declaration: China's territorial sea along the mainland and its coastal islands takes as its baseline the line composed of the straight lines connecting basepoints on the mainland coast and on the outermost of the coastal islands . . . The water areas inside the baseline , including Pohai Bay and the Chiungchow Straits , are Chinese inland waters, (emphasis added) The mouth of Pohai Bay is approximately 45 miles wide, but, under the 12-mile limit, the presence of islands situated at the entrance would determine it as internal waters. The Chiungchow Straits, which separate the Liuchow Peninsula and the Gulf of Tonkin by a distance of less than 20 miles at its widest 5 , would also satisfy the definition of internal waters. China's adoption of straight baselines, however, does not appear to have been substantiated through geographical coordination of points or clear indication on charts; at least no apparent publicity thereto has been made externally. The Chinese position in this connection was expounded in one of the t w o 3

For the Chinese text, see People's D a i l y , Sept. 5, 1958; for the English text, see Peking Review, Sept. 9, 1958, 21; and for a brief comment on the Declaration, see Liu Tse-yung , A M a j o r Step to Protect China's Sovereign Rights, Peking Review, Sept. 9, 1958, 11—13; for an analysis o f China's territorial sea problems, see Fu Zhu, Guanyu Woguode L i n g h a i W e n t i (Concerning the question of our country's territorial sea), 1959: the English translation in Jerome A. Cohen and Hungdah Chiu y People's China and International L a w , V o l . I , 1974, 470—487. 4 Cohen and Chiu (n. 3), 469. 5 Tao Cheng, Communist China and the L a w of the Sea, American Journal of International L a w ( A J I L ) 1969, 47—73 (61). For further details and a map, see Limits i n the Seas, N o . 43, People's Republic of China, Office o f the Geographer, US Dept. of State, 1972, 3.

China and Maritime

Boundary

Issues

Working Papers which the Chinese delegation presented to the Geneva session of the United Nations Sea-Bed Committee in July 1973 e . Paragraph 2 of its Territorial Sea section reads: A coastal State is entitled to reasonably define the breadth and limits of its territorial sea according to its geographical features and its needs of economic development and national security and having due regard to the legitimate interests of its neighboring countries and the convenience of international navigation , and shall give publicity thereto . (emphasis added) This provision would obligate the coastal state to give publicity to the defined breadth and limits of its territorial sea, but not necessarily to the charts showing its straight baselines or, alternatively, to the geographical coordinates of the basepoints, as provided in the 1958 Geneva Convention on the Territorial Sea and the Contiguous Zone, Article 4 (6), or in the I C N T , Article 16(2), for example. Compared to what is commonly observed by most other coastal states concerning publicity of their straight baselines, the Chinese practice cannot be said to be sufficiently specific in terms of "due regard to the legitimate interests of its neighboring countries and the convenience of international navigation." W i t h respect to the delimitation of its straight baselines, China could not have been unspecific without reason. First, among the adjacent and opposite states of the China seas, the N o r t h and South Korean coastline is more irregularly and deeply indented than the Chinese coastline, so that any method of delimitation adopted by China can possibly result in greater advantage to Korea than to China itself, i f reciprocally applied along the Korean coast. Second, by the same token, another more important reason is conceivable, this one relating to the legal status of offshore and mid-ocean islands situated in the China seas. I f , as provided in the 1958 territorial sea declaration of China, all the outlying islands of China — regardless of their size or merit — are connected to compose its straight baselines7, Korea and the other coastal states w i t h obscure islands farther offshore would be likely to do the same on their sides. Ultimately, the Chinese portion of the continental shelf and the 200-mile zone can be adversely affected by such possibilities. I n other words, whatever China may have to gain from having longer segments of straight baselines can be easily outweighed by what it may have to lose in the delimitation of its continental shelf and 200-mile zone w i t h its maritime neighbors. 6 U n i t e d Nations, Report of the· Committee on the Peaceful Uses of the Sea-Bed and the Ocean Floor beyond N a t i o n a l Jurisdiction, V o l . I l l , General Assembly Official Records: T w e n t y - E i g h t h Session, Supplement N o . 21 (A/9021), 1973, 71—74 (72). 7 For China's hypothetical straight baselines, see the map in Limits in the Seas (n. 5), N o . 43.

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I n such circumstances, from China's point of view specificity would not appear to serve its interests as well as ambiguity. I n the case of the East and South China Seas, the territorial status of some islands has also been a source of serious disputes over sea boundaries. The complexity as well as the particular nature of the territorial issues makes it necessary to deal w i t h them separately 8 , though the island disputes have more immediate impact on the delimitation of the claimants' territorial sea limits. 3. T h e

Military

Jurisdictions

I n A p r i l 1955, a non-governmental fisheries agreement was signed in Peking between the private fisheries associations of China and Japan 9 ; in the absence of diplomatic relations between the t w o countries, a formal agreement was not possible. I n the course of the three-month-long negotiations, the Japanese negotiators were astonished to be notified by their Chinese counterparts that, in the interest of defense security and military needs, the Chinese government had designated three offshore areas of China as military zones, namely: The Military Warning Zone, situated in the north-western part of the Yellow Sea, into which Japanese fishing vessels would not be admitted except by permission of the Chinese government; The Military Navigation Zone, situated in the Hangchou Bay south-east of Shanghai, into which Japanese fishing vessels would not be admitted at all; and The Military Operations Zone, situated south of the 29th northern latitude and north of Taiwan, which Japanese fishing vessels would enter only at their own risk. The M i l i t a r y Warning Zone, enclosed by a straight line roughly connecting the estuary of the Y a l u River and the eastern end of the Shandong Peninsula, reaches far beyond China's 12-mile territorial sea limit proclaimed in 1958. The M i l i t a r y Navigation Zone is a relatively small area covering most of the Chousan islands but only marginally reaching out beyond 12 miles from what 8

See section 4, T e r r i t o r i a l Disputes over Offshore Islands. For the Chinese text, see Zhonghua Renmin Gongheguo Tiaoyueji: T Y J (The People's Republic of China treaty series), V o l . 4, 1958, 265—278; for the English translation (the principal text only), see B. McChesney , International L a w , Situation and Documents, V o l . L I , 1956, 368—370; for the German translation w i t h a brief remark, see Verträge der Volksrepub l i k China mitNanderen Staaten ( V d V R C ) , Schriften des Instituts für Asienkunde in H a m b u r g , I X X - 1 , 1962, 150—160, and for the Japanese text, see N i t c h u K a n k e i Shiryoshu (Documents on Japan-China relations), N i t c h u K o k k y o K a i f u k u Sokushin G i i n Renmei (The; parlamentarians' association for the restoration of Sino-Japanese relations), 1945—1970, 1971, 325— 334. 9

China and Maritime

Boundary

Issues

\ 25

would be the nearest basepoint of China. The M i l i t a r y Operations Zone is indeterminate in terms of its spatial extent, because the above-mentioned Chinese notification given to the Japanese negotiators in 1955 did not indicate the eastern l i m i t ; by a State Council decree of July 26, 1957, the northern limit of the Zone has been moved southward to the current 27th northern latitude 1 0 . Although, due to apparent absence of publicity thereto, the exact sources and dates of these military measures are not ascertainable, they are known to have been proclaimed sometime in 1950 when, w i t h the outbreak of war in Korea, tension began to mount fearfully in the Yellow and East China Seas. I n their private capacity, therefore, the Japanese negotiators found it difficult to refute the legality of zones formed by China supposedly for the security of its national defense. Consequently, in the interest of Japanese fishing in the offshore waters of China, Japan had to agree to observe China's military restrictions, on the understanding that they would be applied indiscriminately to all foreign fishing vessels11. The Sino-Japanese non-governmental agreement was renewed in 1963 12 and 1965 13 and, w i t h their relations normalized in 1972, a formal fisheries agreement was finally signed in August 1975 14 , which still remains in effect to date. A t each renewal of the non-governmental arrangements in 1963 and 1965, the military measures were carried over virtually without change. Upon signing the formal agreement of 1975, however, it was made clear by Japan that, while Japan could not admit the Chinese position w i t h respect to the military zones, " i n consideration of the necessity for preserving fishery resources in [the zones]," Japanese fishing vessels would refrain from entering them for purposes of conducting fishing operations. The formal agreement of 1975 is silent on the previous M i l i t a r y Navigation Zone, making it unclear whether it has been abolished, simply left to lapse, or whether it still remains in force. 10

Choon-ho Park y Fishing Under Troubled Waters: The Northeast Asia Fisheries Controversy, Ocean Development and International L a w Journal, 1974, 93—135 (maps at 112— 113). n Park (n. 10), 114—115 and 120—121. 12 For the Chinese text, see T Y J (n. 9), V o l . 12, 1963, 254—272; for the English translation, see Current Background, N o . 724, Dec. 6, 1963, 1—2 and 4—16; for the German translation, see V d V R C (n. 9), X I I - 4 , 1968, 168—178; and for the Japanese text, see N i t c h u K a n k e i Shiryo (n. 9), 345—355. 18 For the Chinese text, see People's D a i l y , Dec. 18, 1965; for the English translation, see Survey o f China M a i n l a n d Press (SCMP), N o . 3613, 1966, 27—42; for the German text, see V d V R C (n. 9), X I I - 4 , 1968, 178—183; and for the Japanese text, see N i t c h u K a n k e i Shiryo (n. 9), 355—369.

1 4 For the English text and a map (revised), see Limits i n the Seas, N o . 70 (n. 5); and for subsequent revisions, see Sankei Shinbun, morning ed., Dec. 10, 1978, 3.

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The maritime security measures of a coastal state taken as a military expedient would not be expected to outlast the causal situation from which they originated. However, w i t h Korea ideologically divided and still under the 1953 armistice, of which China itself is a signatory, and w i t h Taiwan under its own leadership, China probably regards the chronic tension in the Yellow and East China Seas as a raison d'être for its military zones. I n the South China Sea, Vietnam added a 12-mile contiguous zone beyond its 12-mile territorial sea in May 1977 15 , one of its purposes being "to see to its security and [other] interests." Furthermore, due to the deterioration of relations between China and Vietnam in recent years, tension is building up again in this part of the China seas. I n the Yellow and East China Seas, regulation of foreign fishing has often been a source of serious political issues between and among the coastal states, especially in time of local tension; Japanese fishermen's experience w i t h the now defunct Clark Line (1952—1953) 16 , a sea defense zone proclaimed around the Korean peninsula during the war (1950—1953), is a classical example. Sea-bed activities to seek or develop mineral resources would not escape the watchful eyes of the adjacent and opposite coastal states w i t h the degree of security-sensitivity commonly seen in this region. I n such circumstances, it would appear impractical for a coastal state to consider its maritime economic jurisdiction and its security jurisdiction as entirely separate issues. I n fact, "to reliably safeguard its economic sea zone," N o r t h Korea put into force a 50-mile military boundary zone 17 , in August 1977, whose outer limit in the Yellow Sea coincides w i t h that of its economic zone. Consequently, in the northern part of the Yellow Sea China's M i l i t a r y Warning Zone and N o r t h Korea's M i l i t a r y Boundary Zone have left only a narrow strip of "nonmilitary" waters. 4. T h e T e r r i t o r i a l

Disputes

over

Offshore

Islands

I n the East China Sea, the ownership of eight uninhabited islands situated northeast of Taiwan and west of Okinava (called the Senkaku in Japanese and the Tiaoyutai in Chinese) is seriously contested by China, Japan and Taiwan. Territorial disputes easily fire the national sentiments of the parties involved, but there is another particularly important reason w h y the SenkakuTiaoyutai case remains one of the most sensitive political issues primarily 15

For details, see chapter I I , section 3. ie Mark W. Clark , From the Danube to the Y a l u , 1954, 150; Choon-ho Park , The 50-Mile M i l i t a r y Boundary Zone of N o r t h Korea, A J I L , 1978, 866—875 (872—873); and on the m i l i t a r y uses o f the sea i n general, see Uwe Jenisch , Das Recht zur Vornahme militärischer Übungen u n d Versuche auf H o h e r See in Friedenszeiten, 1970. 17 Park (n. 16), 866—875.

China and Maritime

Boundary

Issues

between China and Japan since 1969. Neither party w i l l easily compromise its claims due to the oil supposedly underlying the sea-bed areas of the islands. Currently, the islands are not in full control of either claimant. I n the South China Sea, an island group called the Paracel Islands situated southeast of China's Hainan Island and east of Vietnam (called the Xisba in Chinese and the Hoang Sa in Vietnamese) is claimed by China, Taiwan and Vietnam 1 8 . Since January 1974, when China and the now defunct South Vietnam held a two-day blitzkrieg , the islands have been under Chinese control. Subsequently, in A p r i l 1975, the socialist regime of Vietnam inherited the burden of contesting the Chinese claims, in observance of what the former Saigon government defined as "the Vietnamese tradition" [whereby] "the temporary loss of physical control over a territory does not mean the relinquishing of a legitimate r i g h t " 1 0 . Also in the South China Sea, there is another territorial dispute, which is far more complicated than the Paracel Islands case. The Spratly Islands (called the Nansba in Chinese and the Truong Sa in Vietnamese) cover the southern expanse of the South China Sea, and are claimed by China, the Philippines, Taiwan and Vietnam 2 0 . I n fact, w i t h the exception of China each claimant is in control of some islands in the group consisting of over 70 islands altogether (see Map B). Furthermore, the Philippines is reported to have been successful in its efforts to locate oil in the Reed Bank area, albeit in modest quantity as yet.

18

Hungdah Chiu and Choon-ho Park , Legal Status of the Paracel and Spratly Islands, Ocean Dev. and I n t e r n a t ' l L a w J., 1975, 1—28; and Choon-ho Park , The South China Sea Disputes: W h o Owns the Islands and the N a t u r a l Resources, Ocean Dev. and I n t e r n a t ' l L a w J., 1978, 27—59. 19 White Paper on the H o a n g Sa (Paracel) and T r u o n g Sa (Spratly) Islands, M i n i s t r y o f Foreign Affairs, Republic o f Vietnam, 1975, 85. 20 Chiu and Park , and Park (n. 18); also see Rodney Tasker, T e r r i t o r i a l Claims: Stake-Out in the Spratlys, Far Eastern Economic Review, Feb. 24, 1978, 11—12.

128

Map B:

Choon-ho

Park

The Spratly Islands under divided control (base map from John M a r r , Fishery and Resource Management in Southeast Asia, Resources for the Future, Inc., Washington, D . C., 1976, 6—7). Source: Choon-ho Park , The South China Sea Disputes: W h o Owns the Islands and the N a t u r a l Resources, Ocean Development and International L a w Journal, 1978, 27—59 (29).

China and Maritime

Boundary

Issues

As most of them are uninhabited banks, rocks, shoals and coral outcroppings 21 , the tiny islands in dispute are virtually negligible in physical value. I n enclosed or semi-enclosed seas, however, even an obscure island large enough or otherwise qualified for a basepoint could substantially affect boundary delimitation between or among the coastal states in favor of its owner(s). For this reason, none of the parties to the above three disputes would confine its interests to the physical value of the islands claimed, but would count on the economic value of what it might be entitled to by virtue of the ownership of the "fly-specks". The seriousness of the Chinese claims to the islands in the South China Sea may be seen, for example, from the fact that the 1958 declaration of its territorial sea limit provided (in Paragraph 4) for the adoption of straight baselines to be drawn around the four archipelagoes, including the Paracel and Spratly Islands. I n passing, it may also be noted w i t h interest that one of the four mid-ocean archipelagoes that China claims is only comprised of a group of 29 under-water elevations called the Macclesfield Bank (the Zhongsha in Chinese) situated in the middle of the South China Sea. According to some Chinese sources, however, 'the submerged atolls w i l l eventually surface, coral reefs growing at a pace of some 10 centimeters a y e a r 2 2 ! These territorial disputes are basically legal issues and are, in fact, argued in the polite and inoffensive language of law and diplomacy. Each disputant bases its contention on history, geography, international law and even geology, but nevertheless the disputes are political problems that would have to be settled accordingly. China and Japan have already experienced the difficulty of resolving political questions of this nature over the Senkaku-Tiaoyutai dispute 23 , and China and the other parties to the South China Sea disputes are likely to face a similar difficulty. I n enclosed or semi-enclosed waters 21 For a list of the Chinese and English names of the South China Sea islands, see Zheng Zi-yue , N a n h a i Zhudao D i l i Zhilue, 1948, 83—94. O n the South China Sea islands i n general, see Chen Dongkang , Woguode N a n h a i Zhudao, 2nd ed. 1964 (the English translation: O u r Country's South Sea Archipelagoes), i n : Joint Publications Research Service — JPRS, US Dept. of Commerce, N o . 18—424, 1963; and Dieter Heinzig, Disputed Islands i n the South China Sea, 1976. 22

Zheng (n. 21), 85—87; and Chen (n. 21), 31—32; and Huang

23

(n. 2), 85.

Chinese Vice-Premier Deng Xiao-Ping was reported to have said i n T o k y o i n Oct. 1978: "The present generation is not wise enough to settle such a difficult issue. I t w o u l d be an idea to count on the wisdom of the f o l l o w i n g generation t o settle i t * (author's translation; Sankei Shinbun, Oct. 26, 1978, morning ed., 3 : 1). For the contentions o f China and Japan, see Choon-ho Park, O i l Under Troubled Waters: The Northeast Asia Sea-Bed Controversy, H a r v a r d International L a w Journal, 1973, 212—260 (253—258). O n the Japanese attempt at j o i n t development of o i l f r o m the disputed area, see Sankei Shinbun, J u l y 24, 1979, morning ed., 4 : 1 ; and Aug. 2, 1979, morning ed., 1 : 5.

9 G Y I L 22

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troubled w i t h ownership of offshore islands, therefore, delimitation of boundaries as well as development of resources could be delayed indefinitely, pending settlement of the territorial issues, as has happened in the East China Sea over the Senkaku-Tiaoyutai dispute. II.

Maritime

Boundary Issues between China and its Adjacent and Opposite Coastal States

Against the foregoing background, the current and potential maritime boundary problems between China and the other coastal states in its neighborhood may now be analyzed w i t h particular reference to the delimitation of their continental shelf and 200-mile zone boundaries.

China

and

1. B o u n d a r y I s s u e s b e t w e e n Japan, China and South Korea, Japan and South Korea24

and

I n early 1969, based on a geophysical survey of the Yellow and East China Seas25, the United Nations Economic Commission for Asia and the Far East (ECAFE) 2 6 hinted at a potentially high promise of oil in some offshore areas between China, Japan and Korea. Excited by the sensational report of oil, Japan, South Korea and Taiwan — three of the coastal states heavily or totally dependent on imported oil — tried, in a flurry of competition, to grab as much of the sea-bed area as possible. By September 1970, each had staked out unilateral claims to most parts of what it regarded as its own share of the continental shelf, including one area claimed by the then R y u k y u government under United States administration. As many as 17 sea-bed oil zones had been established, w i t h 13 of them overlapping partly or substantially w i t h one another (see Map C).

24 M a r i t i m e boundary issues o f these countries are so closely interrelated that i t is appropriate to discuss them together. The 200-mile fishing zone of Japan came i n t o force in J u l y 1977 ( L a w N o . 31, M a y 2, 1977: English text i n U N Doc. S T / L E G / S E R . B/19, Preliminary issue, 1978, 226—240). Since the provisional measures do not apply i n waters beyond Japanese territorial sea and certain specified areas on the west ( t o w a r d China and Korea), i t is not discussed here. For details w i t h a map, see Seiichi Yoshida y 2 0 0 - K a i r i J i t a i : W a g a k u n i Gyogyo Suiekinimo (The 200-mile era [has arrived] i n our seas as well), T o k i n o H o r e i (Current laws), N o . 974, 1977, 11—19 (15). 25 E C A F E (see also n. 26), Geological Structure and Some Water Characteristics o f the East China Sea and Y e l l o w China Sea, Technical B u l l e t i n V o l . 2, Technical A d v i s o r y Group, 1969. 20

Retitled as Economic and Social Commission for Asia and the Pacific (ESCAP) in 1974.

China and Maritime

Map C:

Boundary

Issues

131

U n i l a t e r a l claims and concessions i n the Y e l l o w Sea and East China Sea (based on U S State Dept. Office o f the Geographer map no. 261 7—71). Source: Choon-ho Park, H a r v a r d International L a w Journal, 1973, 212—260 (219).

The three coastal states also hastened to enter into concessions or other forms of contract w i t h Western oil interests for the purpose of exploring their seabed zones 27 . I n doing so, Japan, having no sea-bed mining law, had to apply mutatis mutandis its general mining law of 1950 28 . South Korea hastily enacted a submarine resources development law in January 1970 29 , as did Taiwan in 27 Park (n. 23), 218—225. 28 For an English summary o f this L a w , see Summary o f M i n i n g and Petroleum Laws of the W o r l d , V o l . 2, East Asia and the Pacific, Bureau o f Mines International Circular I C 8514-1971, US Dept. of the Interior, 1971, 47—50. 29 For the Korean and English texts of the L a w , see L a w for the Development of Submarine Mineral Resources, M i n i s t r y o f Commerce and Industry, Republic o f Korea, 1970.

9*

132

Choon-ho

Park

August 1970 30 . A t the same time, the Taiwan government also initiated domestic procedures to ratify the 1958 Geneva Convention on the Continental Shelf; by depositing the instrument of ratification w i t h the United Nations in October 1970 31 , Taiwan became the forty-third party to the Convention. I n laying unilateral claims to the continental shelf, each coastal state applied a different principle of international law. Japan adopted the median-line principle as defined in Article 6 (1) of the Geneva Convention. Taiwan adhered to the natural prolongation of land territory principle as suggested by the International Court of Justice (ICJ) in its 1969 judgment of the North Sea Continental Shelf Cases32. South Korea relied on a hybrid of the Japanese and the Taiwanese approach, by applying the median-line principle toward China in the Yellow Sea and the natural prolongation of land territory principle toward Japan in the East China Sea. When none of them showed the slightest inclination to compromise its claims, it was rightly feared that, in the face of debilitating oil shortage, their efforts to confirm the presence of oil in their own backyard would have to be suspended, pending agreement on their continental shelf boundaries. I n search of a breakthrough in what appeared to be an endless legal scramble, a three-party (Japan, South Korea and Taiwan) development scheme was conceived in July 1970, whereby oil would be jointly developed and shared among them, leaving the continental shelf boundary issues for future negotiation 33 . However, by late 1970, when Japan, South Korea and Taiwan had agreed to proceed w i t h the scheme, Peking came forward w i t h a strong protest 34 , which had a chilling effect not only on the three partners themselves but also on the foreign licensees involved. Practical as it appeared to be under the circumstances, the first attempt at joint development was thus stalled even before the practicality of the idea was put to test. Subsequently, a second attempt was made by Japan and South Korea alone in 1974, as is noted later in this section. I n the meantime, the law of the sea itself was undergoing some basic changes, especially w i t h respect to the continental shelf. As a result of the 1969 I C J judgment in the North Sea Continental Shelf Cases, the applicability of the median-line principle was substantially undermined by the emergence of 30 For the Chinese text of this L a w , see L i f a Chuan-kan (Journal o f legislation), N o . 30, 1970, 70. 31 For the text o f Taiwan's ratification, see International Legal Materials, 1971, 452. 82 I C J , The N o r t h Sea Continental Shelf Cases, 1969, 53. 33 34

Park

(n. 23), 227—229.

People's D a i l y , Dec. 4, 1970; Peking Review, Dec. 11, 1970, 15—16; and also quoted i n Park (n. 23), 230.

China and Maritime

Boundary

Issues

the natural prolongation of land territory principle. Because of the depth and sea-bed topography in the East China Sea, therefore, the above judgment could hardly have been more timely to China (and, to a lesser extent, to South Korea), and more untimely to Japan. I n its above-quoted Working Paper 35 , presented to the U N Sea-Bed Committee in July 1973, China even 'localized' the term "natural prolongation of land territory" to read the "natural prolongation of continental territory." (emphasis added) Furthermore, the legal definition of the continental shelf itself is now being changed at U N C L O S I I I . I n the successive versions of the negotiating texts 36 , a 200-mile limit has emerged in place of the 200-meter depth criterion and the exploitability test. As a specific case, under this new definition the Okinawa Trough could cease to be a limiting factor on Japan in the delimitation of the East China Sea continental shelf. The regime of a 200-mile economic zone also represents another important development that has emerged in the law of the sea since the sea-bed controversy took place in the Yellow and East China Seas. W i t h i n 200 miles from the baseline, the depth of the sea would be irrelevant to delimitation of economic jurisdiction, the latter being a new form of maritime sovereignity which a coastal state would be entitled to claim even more comprehensively than its continental shelf jurisdiction. First presented by Kenya 3 7 to the U N Sea-Bed Committee in August 1972 following a consensus at regional levels 38 , the proposed regime has since become the new maritime order of the day — and so rapidly that, as of January 1979, as many as 76 independent coastal states out of 131 were known to have adopted a 200-mile limit for fishing or other economic purposes 39 . As a new criterion to define the continental shelf and as the extent of an exclusive economic zone, the 200-mile limit now threatens, in turn, to under35

U N Sea-Bed Committee Report (n. 6), 74. 6 I n f o r m a l Single Negotiating Text, U N Doc. A / C O N F . 62/WP. 8/Part A r t i c l e 62; Revised Single Negotiating Text, A / C O N F . 62/WP. 8/Rev. 1/Part Article 64; I n f o r m a l Composite Negotiating Text, A / C O N F . 62/WP. 10/Corr. A r t i c l e 76; and Revised I C N T , A / C O N F . 62/WP. 10/Rev. 1, A p r i l 28, 1979, 3

I I , M a y 7, 1975, I I , M a y 6, 1976, 2, J u l y 20, 1977, A r t i c l e 76 (1).

37 U N Sea-Bed Committee Report (n. 6), Twenty-Seventh Session, Supplement N o . 21 (A/8721), 1972, 180—182 (180). 38 For the Declaration of Santo D o m i n g o by Caribbean countries o f June 7, 1972, see U N Sea-Bed Committee Report (n. 37), 70—73; for the Yaunde Report of the A f r i c a n states regional seminar on the l a w o f the sea, see op. cit., 73—78; and for a comparative analysis of these t w o and the Kenyan versions, see Douglas Johnston and Edgar Gold, The Economic Zone in the L a w of the Sea: Survey, Analysis and Appraisal of Current Trends, Occasional Paper N o . 17, L a w o f the Sea Institute, University o f Rhode Island, 1973 and Jorge A. Vargas, The Legal N a t u r e of the Patrimonial Sea — A First Step Towards the Definition o f the EEZ's Legal Nature, in this issue. 39 Limits in the Seas (n. 5), N o . 36, N a t i o n a l Claims to M a r i t i m e Jurisdictions (Jan. 18, 1979, update).

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mine the natural prolongation of land territory principle as applicable between China, Japan and South Korea. Consequently, this chain of events attending the law of the sea would enhance the likelihood of the median-line principle regaining its applicability between these three coastal states. The emergence of the 200-mile limit as applicable in the East China Sea would, therefore, appear to be definitely advantageous to Japan rather than to China and South Korea. I n extra-regional terms, however, it would not necessarily be so, because of Japan's global interest in the use of the sea and its resources. Also it should be pointed out that adjacent and opposite coastal states would determine their maritime boundaries not by mechanical application of legal principles but by negotiated agreement based on legal principles as guidelines or points of departure. A t the present time, it would be difficult for the coastal states of the Yellow and East China Seas even to get together for sea boundary negotiations, largely because of political relations between China and the divided Korea. Japan and South Korea have in fact voiced their willingness to seek negotiated agreement w i t h China, their overtures only to be met w i t h silence. Hereupon, a second attempt at joint development of the continental shelf was made, this time between Japan and South Korea alone, when they signed an agreement in January 1974 40 . Subject to abrogation at or after the expiry of its 50 year mandatory period (Article 31: 2—3), the agreement froze the surface boundary issue (Article 28) and stipulated the conditions under which the t w o parties would develop mineral resources believed to underlie the disputed waters. As expected, Peking registered its displeasure, warning Japan and South Korea against " [ i ] n f r i n g i n g on Chinas sovereignity," when " i t [sjtood to reason that the question of how to divide the continental shelf in the East China Sea should be decided by China and the other countries through consultations" 41 . South Korea ratified the agreement in December 1974, but it was not until June 1978 that Japan finally did so after four and a half years of procedural manipulation 4 2 . The reluctance of the Japanese parliament to approve a pact 40 For the English text and a map, see Limits i n the Seas (n. 5), N o . 75, Continental Shelf Boundary and Joint Development Zone: Japan-Republic o f Korea, 1977; and for a p o l i t i c a l background of the agreement, see, (anon.) Kokusai K e i z a i (International economy) Feb. 1977, 39—45; and for a general comment, see Chiyuki Mizukami y D a i r i k u Dana M o n d a i (Continent a l shelf problems): N i k k a n D a i r i k u Dana K y o t e i o Keikitoshite ( O n the occasion of the Japan-South Korea agreement), Jurisuto (Jurist), N o . 647, 1977, 60—67. 4 * Shinhua Weekly, Feb. 11, 1974, 27. 42 Under Japanese parliamentary procedures (The Constitution of Japan, A r t i c l e 61), the Lower House approval is sufficient for the ratification o f a treaty, provided that the D i e t remains i n session for a m i n i m u m o f 30 days beyond such approval. I n M a y , 1977, the D i e t had to extend its session i n any event to approve the Japan-USSR fisheries agreement, and the extension automatically ( w i t h o u t any action by the Upper House) effected the approval o f

China and Maritime

Boundary

Issues

the government had signed w i t h South Korea may be ascribed to both China's protest and, more importantly, to the fact that virtually the entire sea area to be jointly developed is situated on the Japanese side of what would quite likely be the median-line between China and Japan as well as between Japan and South Korea 4 3 . Rightly or wrongly, opponents of the pact in Japan might have counted on the potentiality that under the emerging 200-mile limit the agreement area would eventually fall under Japanese jurisdiction, hence w h y foreclose such a potentiality by hastily effecting an agreement that might possibly remain in force for a minimum of 50 years? The supporters of the pact, on the other hand, might have been somewhat uncertain about the prospect of the 200-mile limit, hence the urge to secure what might otherwise fall under South Korean jurisdiction on the strength of the natural prolongation of land territory principle. Over eleven years have passed since the possible presence of oil in the Yellow and East China Seas was hinted at in the 1969 E C A F E report. Nevertheless, the coastal states have yet to confirm a sniff of oil in their troubled waters. I f oil is found in quantities, the joint development scheme w i l l prove to be more than an alternative in default. I n case of no oil, however, the scheme w i l l , for Japan and South Korea, turn out to be much ado about nothing. I n either case, the fact w i l l remain as a reminder that Japan has agreed to develop what lies on its own side of the median-line jointly w i t h a competing claimant, a fact that may imply its compromise of the medianline principle. Consequently, i f Japan seeks to apply this principle toward China in an adjacent part of the same waters, China may refuse to accept it on the grounds of Japan's inconsistency, among other reasons. Although, as stipulated in its Article 28, the joint development pact does not concern itself w i t h the surface boundary, this point cannot be entirely moot, for the reasons that a coastal state's sovereign rights over its continental shelf are exercised for the exploitation of the resources in it and that its sovereignity over a depleted part of the continental shelf would be basically meaningless or even unnecessary. Furthermore, in the case of China and Japan, the settlement of the Senkaku-Tiaoyutai dispute could be prerequisite to the delimitation of their sea boundary or even to the development of resources to be found in that part of the East China Sea. the Japan-South Korea continental shelf agreement. For a comment on the Sino-Japanese relations w i t h respect to the agreement, see Jerome A. Cohen and Choon-ho Park , China's O i l Policy, Post-Mao China and U S - C h i n a Trade, Shao-diuan Leng, ed., 1977, 129—133; and a chronology o f events on the agreement, see Y o m i u r i Shinbun, June 15, 1978, morning ed., 9 : 1. 43 For a map of the hypothetical median-lines, see Potential M a r i t i m e Zones of N o r t h e r n East Asia, Office o f the Geographer, US Dept. of State, map no. 503591 12—77.

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2. B o u n d a r y

Issues

between

Park

China

and

North

Korea

O n July 1, 1977, N o r t h Korea announced its decision to put into force an exclusive economic zone to a limit of 200 miles from August 1, 1977 44 . Among China's maritime neighbors, N o r t h Korea thus became the second to claim a 200-mile economic zone, the first being Vietnam whose zone was declared on M a y 12, 1977 45 . For the purpose of this Study, it is important to note that, in the Yellow Sea, which is not wide enough for China and N o r t h Korea to apply their 200-mile limits toward each other, N o r t h Korea defined the outer limit of its economic zone by adopting "the half-line of the sea". N o r t h Korea has been as unspecific as China w i t h respect to the baseline from which its territorial sea is to be measured, so that it is not possible for outside observers to determine exactly how far the median-line as referred to in its declarations would extend toward China from "the starting line of [its] territorial waters." For practical purposes, N o r t h Korea would also need to draw t w o lateral sea boundaries w i t h South Korea on the east and west coasts, but, for political reasons, no reference appears to have been made thereto. Neither is it clear how the lateral sea boundary w i t h the Soviet Union would be drawn in the Sea of Japan. O n the other hand, N o r t h Korea did enhance the exclusivity of its economic zone by simultaneously declaring a 50-mile military boundary whose outer limit, in the Yellow Sea, coincides w i t h that of its economic zone, as is noted earlier 46 . The relatively small northern part of the Yellow Sea is the only area where China and N o r t h Korea need to draw a sea boundary — a lateral one — but no agreement seems to have been reached to date, or at least no external publicity thereto seems to have been given. Whatever the position, in delimitation of sea boundaries w i t h adjacent or opposite states China would have insisted on the natural prolongation of land territory principle and N o r t h Korea on the median-line principle, as may be seen from their official statements. I n the area of the sea between China and N o r t h Korea, not only are the geographical circumstances relatively more simple than in other parts of the Yellow Sea or in the East and South China Seas, but also no offshore territory is reported to be under dispute between them. I f the two political allies were nevertheless to disagree on the delimitation of their sea boundary or were to decide to give no publicity to the agreement reached, some circum44 For the English text of the "Decree on the Establishment of [the] Economic Sea Zone", see Pyongyang Times, J u l y 9, 1977; and Foreign Broadcast I n f o r m a t i o n Service (FBIS), V o l . I V , Asia and Pacific, J u l y 1, 1977, D 2; and an analysis on the zone, see The People's Korea, J u l y 13, 1977.

« 46

For the text and details, see FBIS (n. 44), M a y 24, 1977, Κ 5 — Κ 6. See chapter I , section 3; Park (n. 16).

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Boundary

Issues

stantial reasons would be conceivable for their contention or silence. China would not easily accept the median-line principle or, i f it did decide to under particular circumstances, it would feel no practical need to give publicity thereto, because its position could be potentially weakened w i t h Japan, South Korea, and possibly other coastal states w i t h which it has sea boundary problems. By the same token, N o r t h Korea would be careful not to imply compromise of its stated adherence to the median-line principle, unless its position toward South Korea and the Soviet Union would remain thereby unaffected. 3. B o u n d a r y

Issues

between

China

and

Vietnam

O n May 12, 1977, the government of the Socialist Republic of Vietnam made a 7-point proclamation relating to the maritime jurisdiction of the unified Vietnam 4 7 . The 12-mile limit of territorial sea, which was originally declared by N o r t h Vietnam in September 1964 48 , was reaffirmed, and a 12mile contiguous zone was established "to see to its security and [other] interests". A n exclusive 200-mile economic zone was established, w i t h the sovereign rights of Vietnam specified broadly along the lines of the 1976 Revised Single Negotiating Text of U N C L O S I I I . The continental shelf of Vietnam was defined in a similar way, i.e., w i t h reference " t o the natural prolongation of the Vietnamese land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles . . . where the edge does not extend up to that distance." The proclamation also specifically provides that " [ t h e ] islands and archipelagoes, forming an integral part of the Vietnamese territory and beyond the Vietnamese territorial sea . . . have their own territorial sea, contiguous zones, exclusive economic zones and continental shelves." As a whole, the proclamation is generally comprehensive, but even more unspecific than China's or N o r t h Korea's w i t h respect to the delimitation of baselines. By comparing the maritime jurisdictions of China and Vietnam, it is now possible to identify the points of conflict that would arise in the delimitation of their sea boundary in the Gulf of Tonkin and the South China Sea. First, for the delimitation of the continental shelf, both of them would seek to apply the natural prolongation of land territory principle. I n the Gulf of Tonkin, this principle would be more advantageous to Vietnam than to China because of the sea-bed topography. I n fact, as was reported in September 1978, China was concerned that its Hainan Island would hardly be left w i t h a 12-mile 47 For the text, see FBIS (n. 45). Limits in the Seas (n. 39), 221 ; and for the now-defunct South Vietnam's 3-mile territ o r i a l sea l i m i t (Decree N o . 81, A p r i l 27, 1965), see op. cit., 222. 48

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limit of territorial sea under measures Vietnam would press on China for the delimitation of the sea boundary in the G u l f 4 9 . The very formula believed to be advantageous to China in one situation — in the Yellow and East China Seas — would thus threaten to undermine its position in another — the Gulf of Tonkin. I n its unilateral claims in the Gulf of Tonkin, however, Vietnam does not appear to have been consistent. When, in A p r i l 1973, N o r t h Vietnam reportedly reached an agreement w i t h Ente Nationale Idrocarburi ( E N I ) , the Italian state oil company, for drilling in the Gulf, the outer limit of the area specified in the agreement was approximately the median-line toward China 5 0 . Vietnam's subsequent emphasis on the natural prolongation of land territory principle may have originated from its belief that this principle would be advantageous for itself in relation to China in the Gulf of Tonkin and in relation to Indonesia in the Sunda Shelf. I n this regard, a reference in China's 8-point peace proposal to Vietnam following the Sino-Vietnamese conflict of February 1979 should be noted w i t h interest 51 : 4. Each side shall respect the other side's sovereignity over its twelvenautical mile territorial sea, and the t w o sides shall demarcate their respective economic zones and continental shelves in the Beibu Gulf and other sea area in a fair and reasonable way in accordance w i t h the relevant principles of present-day international law of the sea. Second, China has neither declared an exclusive 200-mile economic zone, nor formally defined its continental shelf, whereas Vietnam has done both and has, w i t h its proclamation of May 1977, further provided the legal status of what it regards as its own islands and archipelagoes, a provision that may have been prompted by the fact that Vietnam has serious territorial disputes w i t h China, the Philippines and Taiwan in the South China Sea and w i t h Kampuchea in the Gulf of Thailand 5 2 . For these reasons, negotiations for sea boundary delimitation in the Gulf of Tonkin and the South China Sea would not be possible, unless the maritime claims of China as well as the other coastal states involved were specified, the disputes over the ownership of the islands were settled, and the legal status of the islands were agreed on among the coastal states. 49 Chinese Vice-Premier Li Xian-nian as quoted in Sankei Shinbun, Sept. 29, 1978, morning ed., 5 : 1 1 . 50 For a map and subsequent developments, see Petroleum N e w s : Southeast Asia, V o l . 7, N o . 10, Jan. 1977, 46—47 (46); and for further details, see Selig Harrison , China, O i l , and Asia: Conflict Ahead?, 1977, 204. 51 Beijing Review, M a y 4, 1979, 10—18 (17). "Beibu G u l f " is the Chinese name for the G u l f of T o n k i n , which is called V i n h Bac Phan i n Vietnamese, both meaning the "northern bay." 52 For the territorial disputes between Kampuchea and Vietnam, see Nayan Chanda , That's far enough, say s H a n o i , Far Eastern Economic Review, Aug. 19, 1977, 11—13.

China and Maritime

III.

Boundary

Issues

Observations

The decade-long sea-bed controversy in Northeast Asia betokens the difficulty of delimiting the continental shelf and the exclusive economic zone between adjacent and opposite states. This also can be seen from the deadlock in Negotiating Group 7 of U N C L O S I I I 5 3 , to which this topic was assigned as one of the outstanding hard-core issues, as well as from the indeterminate language in Articles 74 and 83 of the Revised I C N T . By the end of its Resumed Eighth Session, U N C L O S I I I w i l l have been in session for a total of 63 weeks since 1973, but the relevant provisions — Articles 74 (1) and 83 (1) — simply read: The delimitation . . . between adjacent or opposite States shall be effected by agreement in accordance w i t h equitable principles, employing, where appropriate, the median or equidistance line , and taking account of all the relevant circumstances, (emphasis added) A t U N C L O S I I I , Negotiating Group 7 was baffled by the futile exchanges between the advocates of "equitable principles" and the "median-liners". Since U N C L O S I I I can only provide general criteria at best on issues as complicated as the present ones, China and its maritime neighbors of the enclosed and semienclosed seas may eventually find themselves in an endless scramble to solve such questions as, for example, what these "equitable principles" and "relevant circumstances" actually are, and in what situations it is "appropriate" to take "all the relevant circumstances" into account. From the definitions of the continental shelf and the exclusive economic zone as given in the Revised I C N T , it would also be technically possible to conceive of a situation in which the sea-bed (continental shelf) boundary between two adjacent or opposite states might not necessarily coincide w i t h that of their surface (economic zone) boundary, if, in the sea areat in question, either side should decide to opt for the mineral resources at the expense of the non-sedentary living resources. Apart from such legal technicalities, boundary delimitation in the China seas can be further complicated and delayed by the difficulty of settling the politically sensitive territorial issues. For example, when, in the summer of 1979, Japan sought to confirm Chinese intent to develop oil jointly w i t h i n the disputed Senkaku-Tiaoyutai area, China was reported to have responded affirmatively, on the condition that the joint attempt would in no way affect its stand on the territorial issue. Hereupon, the Japanese government decided to suspend further action, in order not to fall into what China was careful to avoid 5 4 . Thus, in a region where the nations have yet to engender the 53 U S Delegation Report, Eighth Session, U N C L O S I I I , Geneva, M a r d i 1 9 - A p r i l 27, 1979, 3 and 33. 54 Sankei Shinbun, August 2, 1979, morning ed. 4 : 1 .

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tradition of resolving their disputes by means of adjudication, arbitration or other forms of third-party involvement, territorial issues are likely to remain a negative factor in sea boundary delimitation. Among China's maritime neighbors, only N o r t h Korea and Vietnam have each declared an exclusive 200-mile economic zone, and, in the case o f Japan, its provisional 200-mile fishing zone does not apply in waters beyond its territorial sea and certain specified areas on the west, thereby to avoid conflict w i t h China, N o r t h and South Korea. Both in Northeast and Southeast Asia, the other coastal states seem to find it impractical for any one of them alone to extend its maritime jurisdiction into areas that would demand multilateral arrangements. Partly because of this interlocking situation, China itself appears to have been reluctant to declare a 200-mile zone, and, i f it does, the declaration would have to be as unspecific as its territorial sea declaration of 1958, for example. I n view of the fact that China, ever since 1971 when it replaced Taiwan in the United Nations, has been most active in its support of the 200-mile regime, it is ironic to realize that, in the enclosed and semienclosed seas it borders on, there is not a single spot where a 200-mile limit can be applied without overlapping w i t h those of the other coastal states. A measurement shows that even on the Pacific side of Taiwan, the Chinese or Taiwanese sector would reach hardly 115 miles before it was wedged in by the Japanese and the Philippine sectors 55. Such interlocking situations need not always be a negative factor; they could, after all, urge the coastal states to seek multilateral delimitation in the interest of expediting resources development. Since, at the present time, the political relations between China and some of the coastal states in the region are unfavorable to the negotiation of multilateral sea boundaries, it would still be premature to expect the boundary and territorial issues to be resolved in the near future. W i t h the demand for food and energy resources becoming more and more pressing in all the coastal states including China itself 5 6 , however, it would be difficult for any one of them to turn a deaf ear to the plight of its maritime neighbors indefinitely. I n spite of the afore-mentioned negative factors, then, there are also some positive ones that w i l l move the coastal states to face the issue in a spirit of cooperation or compromise. First, in an enclosed or semi-enclosed sea, the conservation of living resources cannot be successful without multilateral arrangements among the coastal states. Second, 55

Letter, to the author, o f Robert Smith, Office of the Geographer, US Dept. of State, J u l y 16, 1979. 56 For o i l development activities taking place i n the China seas, see Petroleum Intelligence Weekly, June 11, 1979, 1—2; and N e w Y o r k Times, Aug. 4, 1979, 1 : 2. For an annual report of such activities taking place throughout N o r t h - and Southeast Asian seas, see the January (feature) issues o f Petroleum N e w s : Southeast Asia.

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Boundary

Issues

the exploitation of unitized oil and gas deposits would require cooperation between or among the claimants in the interest of economic recovery; otherwise, there might be little, i f anything, left to reap in the way of the noncooperator's benefit. Third, in few other enclosed or semi-enclosed seas are multilateral measures for marine pollution control so deficient, i f not entirely absent, as in the China seas; whereas the hazards arising from intensified use of the sea and its resources are thought to be on the increase. I t is to be hoped that, for these reasons, the nations so intransigent over land issues may be brought together by the sea.

The Legal Nature of the Patrimonial Sea: A First Step towards the Definition of the Exclusive Economic Zone Jorge A . Vargas I. Introduction I I . Regional O r i g i n of the Exclusive Economic Zone 1. The 1974 Chilean Presidential Declaration 2. The 1952 Santiago Declaration 3. The Partrimonial Sea Concept a. Its Emergence b. The Santo D o m i n g o Declaration of 1972 c. The 1973 T r i p a r t i t e Proposal (Colombia, Mexico and Venezuela) 4. Legal N a t u r e of the Patrimonial Sea I I I . The T h i r d U N C L O S and the E E Z 1. Proposals i n the U N

Sea-Bed Committee concerning the 200-mile

Doctrine

2. Transformation of the Patrimonial Sea into the E E Z I V . The Emerging Legislative Trend i n L a t i n America V . Conclusions

I.

Introduction

I n the last few decades, the international law of the ocean space has undergone profound and even revolutionary transformations 1 . I n certain areas (in particular those associated w i t h the doctrine of the freedom of the seas) the revisionist trend has been so drastic that i t has radically changed the classic conceptions of the law of the sea, first formulated by Grotius in his brilliant allegation De Mare Liberum 2 and later on recognized and then applied by the international community, principally for the benefit of the major 1 See B. H. Oxman y The T h i r d U n i t e d Nations Conference on the L a w o f the Sea. The Seventh Session (1978), American Journal o f International L a w ( A J I L ) 1979, 1—41, as w e l l as his previous articles on the same topic w r i t t e n w i t h John R. Stevenson. 2 Hugo Grotius , Mare Liberum sive de Jure quod Batavis competit ad Indicana Commercia, Dissertatio. O x f o r d University, Press, Carnegie Endowment for International Peace, N e w Y o r k , 1916.

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maritime powers. Thus, it is understandable w h y some authors now question the very existence of this doctrine 3 . Important as these transformations are, this trend has been characterized by the formulation of new principles and innovative institutions, mainly designed to respond to the vigorous challenges introduced by man's science and technology into the hydrosphere of our planet. The notion of the archipelagic state, the principle of the optimum utilization of the living resources of the sea, the definition of the outer boundary of the continental shelf, the right of access of land-locked states to and from the sea and, especially, the notion of the sea-bed and ocean floor as the common heritage of mankind, and the exclusive economic zone constitute some of the most typical new contributions to the progressive development of the law of the ocean space. I n this respect, the international law of the sea, in order to respond to the needs and interests of the contemporary international community, has been virtually forced to change its structure and, more importantly, its content. I n some areas, this progressive development was long overdue, as was the case w i t h respect to the establishment of the maximum w i d t h of the territorial sea, w i t h the definition of the outer boundary of the continental shelf and w i t h more limited interpretation of the freedom of the seas doctrine, to give a few examples. I n these cases, the legal development process was slow and gradual; it did not produce any outstanding contributions to the law of the sea but it merely completed what should have been done about two decades ago. A t this moment the interests of the international legal ocean community are centered upon those exceptional changes in the law of the sea which are transforming its nature and content. Unlike the previously mentioned category, the principles and institutions derived from this trend are not the result of a gradual or natural process but the outcome of a rapid and profound revision of the traditional norms of the law of the sea. Instead of a process of simple codification 4 — as was largely the case w i t h the four 1958 Geneva Conventions on the law of the sea —, the international community has been engaged (at least since 1970) in a "norm-creating process" concerning the law of the ocean 3 D u r i n g the w o r k of Subcommittee I I of the U n i t e d Nations Committee on the Peaceful Uses of the Sea-Bed and the Ocean Floor beyond the Limits o f N a t i o n a l Jurisdiction, a number o f delegations from developing countries started t o question the classic doctrine o f the high seas as absolute, w i t h no l i m i t a t i o n whatsoever. For a new reformulation o f this doctrine, see the contributions of Ambassadors Jorge Castaneda and Julio Cesar Lupinacci in a Seminar on the L a w o f the Sea convoked b y the I t a l i a n - L a t i n American Institute i n Rome i n 1975: Mesa Redonda sobre Derecho del M a r (La Zona Econômica). I n s t i t u t o I t a l o - L a t i n o Americano. Roma, 12—15 mayo 1975, 1978, 60—70, 91—96 and 98. 4 International l a w authors generally recognize that the 1958 Geneva Conventions on the L a w of the Sea simply codified existing international l a w principles applicable to the oceans, w i t h the exception of the Continental Shelf Convention.

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space5. The international areas of the seabed, the ocean floor and the exclusive economic zone are outstanding examples of this new trend. I n the emergence of these new legal ocean institutions, the T h i r d World countries have played a decisive role. The general impression among these countries was that the traditional law of the sea (as contained in the 1958 Geneva Conventions) did not respond to their interests and expectations. Rather, it was construed as a body of law formulated by the major maritime powers to protect their rights and interests so they could continue to exploit — and in no few occasions even to over-exploit — the living resources of the sea, located in most cases off the coasts of the technologically disadvantaged states. Therefore, T h i r d W o r l d countries considered it to be imperative to formulate a new law of the sea. Three major causes impelled the T h i r d W o r l d countries towards the formulation of this new law of the ocean space: First, the extraordinary progress of science and technology affecting all uses and activities relating to the marine environment, coupled secondly w i t h the political awareness achieved by most developing countries, manifested in a variety of political, economic and diplomatic arenas. Rapidly, these countries learned the great value of political cohesiveness in certain diplomatic fora, such as the U N General Assembly or the Third U N Conference on the Law of the Sea ( U N C L O S I I I ) , where they have utilized "bloc strategies" and other means of political solidarity commonly used in parliamentary diplomacy®. Whereas only 86 countries participated at the First U N C L O S in the spring of 1958, this figure had almost doubled at U N C L O S I I I only twenty years later. The third factor — perhaps the most important one — was the vigorous political w i l l unanimously manifested by the T h i r d W o r l d countries to exercise full sovereignty over their natural resources 7, protecting them against any foreign instrusions. I t was common policy shared by these countries that these resources — whether renewable or non-renewable, marine or terrestrial — should be utilized in a 5 The year 1970 refers to the approval by the U N General Assembly o f Resolution 2749 ( X X V ) concerning the seabed and ocean floor as the common heritage of mankind. H o w e v e r , certain legal innovations could be traced back to the speech made b y A r v i d Pardo before the First Committee on November 1st, 1967. 6 Edward Miles , Dynamics of Conference D i p l o m a c y . A n Interpretation of the Caracas Proceedings i n : Francis T . Christy, Jr. et al. (eds.) L a w o f the Sea. Caracas and Beyond, Cambridge, Mass. 1975, 37—94. 7 For a legal analysis of this topic from a L a t i n American perspective, see Cesar Sepnlveda , Permanent Sovereignity over the N a t u r a l Resources, R a w Materials and the Charter of Economic Rights and Duties of States (in Spanish). Derecho Economico Internacional, Mexico, 1976, 384—394. See also the Resolution on the Preservation o f the N a t u r a l Resources approved by the Inter-American Specialized Conference on the Preservation o f N a t u r a l Resources: the Continental Shelf and the Marine Waters, held i n C i u d a d T r u j i l l o , D o m i n i c a n Republic, March 15—28, 1956.

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rational manner for the socio-economic benefit of their peoples8. These ideas were to precipitate the formulation of the new law for the ocean space. A l l the efforts displayed by the T h i r d W o r l d countries favoring the formulation of a "new law of the sea" converged at the T h i r d U N C L O S 9 . The importance of this conference does not reside in its complexity, dimensions or duration, unparalleled in the history of diplomacy in international law, but in its ambitious objective to produce a new legal regime for the oceans of the world. The basic idea is to create a new law of the sea more in alignment w i t h the interests, needs and expectations of the developing countries which form the majority of the members of the international community. From this angle, the new law of the ocean space should be construed as a universal and democratic body of legal principles formulated w i t h the clear purpose of contributing to the establishment of a new international order 1 0 . I t is virtually impossible to talk about the new law of the sea without referring to the exclusive economic zone (EEZ). Indeed, the EEZ is the most typical institution of the powerful trend which revolutionized the public order of the oceans. Most diplomats and doctrinarians agree that this new legal figure — probably because it represents a compromise formula — constitutes the central piece of the new law of the sea11. Legally delineated in the Informal Composite Negotiating Text ( I C N T ) , the international legal community is waiting for a more elaborate and precise definition of the legal nature of the EEZ. The purpose of this article is to contribute to the clarification of the legal nature of this new ocean space by analyzing the juridical features of the Latin American "Patrimonial Sea" concept, considered to be the clearest predecessor of the EEZ in the world. Some attention is also paid to the work and results of the T h i r d U N C L O S ' Second Committee concerning the EEZ, as reflected in the I C N T . Finally, a simple comparison is made between the pertinent 8 This principle has been the central issue in a l l statements made by developing countries, principally from L a t i n America. I t constitutes the basic part o f the 1952 Santiago Declaration signed by Chile, Ecuador and Peru. 9 See the comments made by John Norton Moore at the opening session of the N i n t h A n n u a l Conference o f the L a w of the Sea Institute, January 6—9 1975 i n : L a w of the Sea. Caracas and Beyond. Proceeding, (n. 6), 4—17. 10 See Jorge Castaneda , Fishing Activities and the International Economic Order. Doc. C O F I / 7 7 / I n f . 8, Eleventh session of the Committee on Fisheries of F A O , Rome, A p r i l 19—26, 1977; Elisabeth Mann Borgese and Arvid Pardo, The N e w International Economic Order and the L a w o f the Sea. A Projection, Occasional Papers Series, International Ocean Institute, M a l t a 1976; and Alberto Szekely , The L a w of the Sea and the Charter o f Economic Rights and Duties of States (in Spanish), Derecho Econômico Internacional (n. 7), 340—383. 11

Jorge Castaneda , The N e w L a w o f the Sea (in Spanish), i n : Mexican M i n i s t r y for Foreign Affairs (ed.), Seis Afios de Relaciones Internacionales de Mexico (1970—1976). Tlatelolco, D . F., 1976, 194—195 (Mimeo).

10 G Y I L 22

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articles of the Composite Text defining the excluisve economic zone and some domestic Latin American legislation which has recently appeared on this topic. II.

Regional Origin of the Exclusive Economic Zone

The significant transformations which are presently affecting the shape and substance of the law of the sea are attributable to a large extent to a number of Latin American countries. By means of unilateral declarations, domestic legislation and regional diplomatic meetings, Latin America initiated (and kept alive in the field of international law) a legal and political process directed incisively against the traditional principles enshrined a few decades ago in the then existing public order of the oceans12. I n a way, it was a duel fought by a young and unexperienced, albeit audacious, D a v i d against the old and powerful Goliath. 1. T h e

1947 C h i l e a n

Presidential

Declaration

The Chilean President Gabriel Gonzalez Videla in 1947 added the concept of the 200-mile maritime zone for the first time in history to the maritime code of the world 1 3 . On June 23, 1947, in an official declaration which was never incorporated in a legal document, he confirmed and proclaimed the national sovereignty over the continental shelf adjacent to the continental and insular coasts, regardless of its depth, including the adjacent seas, in the w i d t h necessary to reserve, protect, conserve and utilize the resources and natural riches of any k i n d to be found in those areas. The major concern in this declaration was the protection of the living resources off the Chilean coasts, in particular whales 14 . I n its third resolutive point the declaration established "zones of protection for hunting and fishing purposes" extending up to 200 nautical miles from the coast, under "the protection and control" of the Chilean government in order to impede illicit activities threatening to reduce or extinguish the living resources of the sea, "indispensable to the well-being and progress of their respective peoples, 12 Myres S. McDougal and William T. Burke , The Public Order o f the Oceans. Contemporary International L a w of the Sea, N e w H a v e n and London, 1965.

A

13 A n English translation of this declaration appears i n U n i t e d Nations Legislative Series. Laws and Regulation on the Regime of the H i g h Seas. V o l . I . U N Doc. ST/LEG./Ser. B / l , 6 (1951). M. Whiteman , Digest o f International L a w , V o l . 4, 1965, 794—796. The original text i n Spanish may be found i n Francisco Orrego Vicuna. Chile y el Derecho del M a r , Santiago de Chile 1972, 10—11 and 33—34. 14 I n the second and t h i r d resolutive points, the declaration refers to "fishing and whale hunting activities in the continental and insular seas". For a detailed description o f the genesis of this declaration, including an explanation concerning the interests o f the Chilean whaling interests, see Ann L. Hollicky The origins o f 200 M i l e Offshore Zones, A J I L 1977, 494—500.

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purposes whose justice is undisputable" 1 5 . I n its last paragraph, the declaration clearly stated that it did not intend to affect similar legitimate rights of other states, on a reciprocity basis, nor to interfere w i t h the freedom of navigation on the high seas16. The close legal symmetry that exists between this presidential declaration and the EEZ concept is remarkable. Perhaps the only difference is that the declaration applies basically to living marine resources whereas the EEZ embraces both types of resources, renewable and non-renewable. Apparently very little progress, i f any, has been made by U N C L O S I I I regarding the definition of the legal nature of the 200-mile maritime zone since the Chilean Presidential declaration. President Gonzalez Videla's pronouncement precipitated the adoption of a somewhat similar maritime policy by Peru. By Presidential Decree N o . 781 of August 1, 1971, the Peruvian government declared that "national sovereignty and jurisdiction are extended to the submerged continental or insular shelf adjacent to the continental or insular coasts of the national territory, whatever may be the depth and extension of this shelf" 1 7 . Peru's national "sovereignty and jurisdiction" was also extended "over the sea adjoining the coasts of the national territory, whatever its depth, in the extension necessary to preserve, protect, maintain and utilize natural resources and wealth of any kind which may be found in or below those waters" 1 8 , to be applied in a maritime "zone of control and protection of natural resources", controlled by the Peruvian government and extending to a distance of 200 nautical miles 19 . I n this final article, this decree established that "the right to free navigation of ships of all nations according to international l a w " was not affected 20 . I t has been rightly pointed out that although the Chilean and the Peruvian pronouncements had common objectives and were couched in similar terms 21 , the differences between them reflected "the different national goals that each was seeking to f u l f i l l " 2 2 . I t is true that Chile was more interested in protecting 15

Preambular part. para. 2. F o u r t h resolutive point. 17 Published i n E l Peruano: D i a r i o Oficial, August 11, 1947. A n English translation appears i n U n i t e d Nations Legislative Series. Laws and Regulations on the Regime of the H i g h Seas. V o l . I. U N Doc. ST/LEG./Ser. B / l , 16 (1951) (Hereinafter cited as U N Laws and Regulations). 4 M. Whiteman , Digest of International L a w V o l . 4, 1965, 797—798. is A r t . 2. io A r t . 3. 20 A r t . 4. 18

21 See Francisco V. Garcia Amador , The L a t i n American C o n t r i b u t i o n to the Development of the L a w o f the Sea, A J I L 1974, 35—50 (36). 22 See Hollick (n. 14), 499.

10*

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its whales (cachalotes) and Peru its "anchoveta" fishing grounds; however, it is clear that both countries were interested in protecting and utilizing the living resources off their coasts for their own benefit. This common objective and the text of the pronouncements support the interpretation that these t w o countries, rather than establishing a 200 mile territorial sea, created a vast "resource area", an incipient exclusive economic zone for the utilization of marine resources extending to 200 miles measured from the coasts, in which area the freedom of navigation was not impeded. The emphasis in this "resource or economic area" was more on the marine living resources, considering that at that time, given the technological advances of the epoch, the fishing and whale-hunting activities were commercially more attractive than any other sea-exploitation activity in the austral seas. However, the control exercised by Chile and Peru over the 200 mile maritime jurisdictional zone extended also to any mineral resources. I n this sense, this maritime area already contained the basic legal elements which thirty-two years later now characterize the EEZ notion. 2. T h e

1952 S a n t i a g o

Declaration

Like the 1945 Truman Proclamation N o . 2667 on the Continental Shelf 23 , which produced such an extraordinary impact on contemporary law of the sea, the Santiago Declaration of 1952 on the Maritime Zone 2 4 represents the doctrinarian basis upon which the Latin American interpretation of the law of the ocean space has been structured. This declaration constitutes the first subregional document, generated in Latin America, through which the process of revision of the traditional principles of the law of the sea is initiated, in a clear attempt to find new legal conceptions in this field. From a different perspective, this pronouncement represents the first multilateral instrument enshrining the then-incipient 200 mile doctrine vis-à-vis the international community 2 5 . 28

Presidential Proclamation N o . 2667 (September 28, 1945), concerning the policy of the U n i t e d States w i t h respect to the natural resources of the subsoil and seabed of the continent a l shelf, 59 US Stat 884 (1945); Department o f State Bulletin 1945, 485. Also in U N Laws and Regulations (n. 13), 38. 24 Agreements between Chile, Ecuador and Peru, signed at the First Conference on the E x p l o i t a t i o n and Conservation of the M a r i t i m e Resources o f the South Pacific, Santiago, 18 August 1952 (a) Declaration on the M a r i t i m e Zone. A n English translation appears i n U N Laws and Regulations (n. 13), 723—724. The original Spanish text i n Convenios y otros Documentos 1952—1969, Conferencia sobre Explotacion y Conservacion de las Riquezas Maritimas del Pacifico Sur. Secretaria General, L i m a , 1970 (tercera edicion), 31—32. Also i n Orrego Vicuna (n. 13), 34—35. 25 For a more detailed analysis of this declaration, see Jaime Rivera Marfan. The 1952 Declaration on M a r i t i m e Zone (in Spanish), Santiago 1968; and Jorge A. Vargas , The Declaration of Santiago. A N e w Marine Philosophy (in Spanish), E l D i a , 22 August 1977, Mexico C i t y , 19.

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Approved on August 18, 1952, at the closing session of the First Conference on the Exploitation and Conservation of the Maritime Resources of the South Pacific, held w i t h the participation of Chile, Ecuador and Peru 2 6 , this declaration proclaimed as a principle of the signatories' international maritime policy, "that each of them possess sole sovereignty and jurisdiction (sic) over the area of sea adjacent to the coast of its own country and extending not less than 200 nautical miles from said coast", including the sea floor and subsoil thereof 27 . As usual, one of the final paragraphs stated that the declaration "shall not be construed as disregarding the necessary restrictions on the exercise of sovereignty and jurisdiction imposed by international law to permit the innocent and inoffensive passage (sic) of vessels of all nations" through the 200 mile maritime zone 28 . Based upon the consistent interpretations by authorized representatives of the three signatory countries made before multilateral conferences, this paragraph consecrates in essence the freedom of navigation. The explicit reference to "the innocent and inoffensive passage", which is the only exception applicable to the legal regime of the territorial sea, was made in a very unorthodox manner, considering that the 200 mile maritime zone established by the Santiago declaration was by no means a territorial sea. I n an interesting work written in 1970 by Garcia Sayan, one of the legal architects of Peru's maritime policy and at that time Secretary General of the Permanent Commission of the South Pacific, he stated that "the revindicated rights — sovereignty, jurisdiction, control — are neither absolute nor unrestricted. Even i f enunciated as exclusive, they respect the principle of free navigation and tend, in sum, towards the exercise of a pre-eminent competence of the coastal state which does not exclude the possibility that, w i t h its authorization, nationals of other states may participate in the exploitation of the resources existing in the adjacent seas, thus segregated from the old high seas notion, formulated w i t h all its attributes by the ancient major powers" 2 9 . This assertion is fully supported by the Ecuadorian government when it recently stated that "the Declaration of Santiago . . . does not in any way affect the freedom of communication of the seas which, on the contrary, has been duly enacted in the text" of said declaration 30 . 26 I n addition to the official representative from Chile (the host country), Ecuador and Peru, the government of Colombia sent an Observer. 27 Arts. 2 and 3. 2 ® A r t . 5. 29 See Enrique Garcia Sayan , Progression of a Thesis (in Spanish), L i m a 1970, Convenios y Otros Documentos (n. 24), 14. 30 See the booklet entitled Ecuadorian Position on the L a w o f the Sea, M i n i s t r y o f Foreign Affairs, Republic of Ecuador, September 1971 (in English).

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I f the drafting team of the Santiago document intended to create confusion or to disconcert the international legal ocean community, in particular the legal scholars from the developed countries, they should be openly congratulated because they certainly succeeded. Indeed, the use of certain expressions in the text of the declaration — such as "sole sovereignty and jurisdiction" or "innocent and inoffensive passage" —, introduced some confusion w i t h respect to the maximum w i d t h of the territorial sea, a delicate and controversial issue which, at that time as it is now, was legally unresolved. As pointed out by Orrego Vicuna 3 1 , this confusion was aggravated w i t h the "territorialist" interpretations given by Ecuador and Peru to the Tripartite instrument. By Decree N o . 1542 of November 10, 1966, which amended the C i v i l Code, Ecuador established a 200 mile territorial sea32. Although the Peruvian legislation is somewhat unclear and even contradictory on this matter, apparently a 200 mile territorial sea concept has found its way into certain legal provisions 33 . One of the most controversial points of the Santiago declaration has been the use of the expression "sovereignty and jurisdiction", which appears in its key second resolutive paragraph. Certainly, one can agree that the use of such an expression is most unorthodox, to say the least, and denotes a rather poor handling of technical legal terminology. However, one should also consider the use of those two terms, in an apparently contradictory expression, w i t h a deliberate purpose. W i t h i n the context of the South American pronouncement, the disturbing expression was supposed to be interpreted in the following manner: the con31

See Orrego

Vicuna

(n. 13), 11.

32

Published i n the Registro Oficial N o . 158, 11 November 1966. The first paragraph of A r t i c l e 633 o f the C i v i l Code, as amended, reads: "The territorial sea under national jurisdiction shall comprise the adjacent sea to a m i n i m u m distance of 200 nautical miles measured f r o m the l o w water mark o f the outmost points of the Ecuadorian coast, and the inner waters of the gulfs, bays, straits and channels included w i t h i n a line d r a w n such points". The previous paragraph was reproduced from U n i t e d Nations Legislative Series. N a t i o n a l Legislation and Treaties relating to the T e r r i t o r i a l Sea, the Contiguous Zone, the Continental Shelf, the H i g h Seas and to Fishing and Conservation of the L i v i n g Resources of the Sea U N Doc. St/LEG/SER. B/15, 1970, 78. 33 This seems to be the case w i t h respect to the N a v y L a w and L a w N o . 15720 of 11 November 1965 on C i v i l Aeronautics whose article 2 reads: " T h e Republic of Peru shall exercise sole sovereignty over the air space above its t e r r i t o r y and jurisdictional waters w i t h i n a distance of 200 miles" (Reproduced f r o m U n i t e d Nations Legislative Series. N a t i o n a l Legislation and Treaties relating to the L a w of the Sea. U N Doc. S T / L E G / S E R . B/16, 1974, 28). D r . Garcia A m a d o r , a L a t i n American legal expert, has stated that "apparently, there is no legislation that fixes the breadth o f the territorial sea" i n Peru. H o w e v e r , D r . Andres A r a m b u r u y Menchaca, a Peruvian international lawyer, claims that his country has a 200 mile territorial sea.

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cept of sovereignty was intended to apply to a rather narrow marginal belt of territorial sea, where the powers of the coastal state are absolute. During the process of negotiation, the participants at the First Conference on the Exploitation and Conservation of the Maritime Resources of the South Pacific agreed on the premise that each of them, independently of the vast and revolutionary maritime zone about to be created, was going to have a typical territorial sea. Consequently, the term "jurisdiction" was to be applied to a "maritime zone" whose outer limit was to be found not less than 200 miles away from the coast but adjacent to the territorial sea. The principal concern of the coastal states in this zone was the "conservation, development and utilization" of the natural resources existing there. According to this interpretation, the 200 mile maritime zone established by the Santiago declaration was composed of two parts: 1) a narrow belt of territorial sea strictu sensu, subject to the traditional legal regime applicable to this ocean space; and 2) a maritime zone, adjacent to the territorial sea and extending to 200 miles, where the coastal state would exercise exclusive jurisdiction over any kind of marine resources found therein. Evidently, this type of 200 mile maritime zone offers the exact legal model of the atypical notion of the 200 mile territorial sea concept (also known as "territorial sea w i t h plurality of regimes") which is currently followed by Uruguay 3 4 . This interpretation of the Santiago declaration offers perhaps one of the less-known sides in this long standing controversy. I t appears to add a new dimension which clarifies at least some of the legal substantive inconsistencies contained in the tripartite South American document. Additionally, it puts the content of the declaration in closer legal parallel to the current EEZ notion. Formulated in 1971 by Sr. Ponce Miranda, it is likely that this interpretation w i l l be subject to a more detailed scrutiny on the part of the Latin American legal ocean community 3 5 . I t seems that at least three considerations contributed to the confusion of the issue from a legal standpoint: i) the indiscriminate use of certain law of the sea terms in the Santiago declaration, as noted above; ii) the deliberate policy of the three declaration signatories to avoid formulation of a precise and uniform interpretation of this document; and, iii) the inflexible and strict interpretations given to the declaration by legal experts, in particular from developed countries. I t is evident that it was impossible for them to detect the appearance of a new emerging concept in the law of the ocean space.

34 L a w 13 833 of December 23, 1969, published i n the D i a r i o Oficial o f January 5, 1970. 35

See Nef tali Ponce Miranda , M a r i t i m e D o m i n i o n (in Spanish), Q u i t o , 1971.

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The conclusion should be clear; the Santiago declaration did not purport to establish a 200 mile territorial sea. Rather, i t created a special 200 mile maritime zone in front of the coasts of each of the three signatory parties, where the respective coastal states exercised certain rights for specific purposes; these purposes were the protection, conservation and utilization of all the natural resources existing w i t h i n such zone, principally living resources 30. Clearly, in this vast oceanic area the original intention of Chile, Ecuador and Peru was not to project the territorial sovereignty of the state in its entirety — as it is characteristic in the generally narrow marginal belt of the territorial sea —, but only to extend limited jurisdiction directed at the protection and control over the marine resources. This interpretation is also supported by the fact that in this maritime zone the freedom of navigation was respected; the legitimate use of such a freedom should in no way affect the coastal state's authority over the resources. I f one were to use the terminology currently employed in the law of the sea, the 1952 maritime zone could be characterized as an incipient EEZ, considering the presence of the following common elements: a) The coastal state does not exercise full sovereignty in the EEZ/maritime zone, unlike the legal regime applicable to the territorial sea. b) Consequently, in the EEZ/maritime zone the coastal state exercises certain authority and control (e. g., "sovereign rights", jurisdiction for specific purposes, extension of specialized competences, etc.) over the resources in the area. The authority of the coastal state limited to the resources, whether renewable or non-renewable, and wherever they may be w i t h i n the zone (water column, seabed and subsoil), but does not embrace the zone itself. c) I n the EEZ/maritime zone the freedom of navigation is to be respected, as well as any other freedoms whose exercise do not affect the marine resources w i t h i n the zone. d) Economic considerations are the primary and major objective for the establishment of the EEZ/maritime zone. The appearance of the EEZ notion should be considered as a result of the progressive development of the international law of the sea. The Santiago declaration and the patrimonial sea concept, innovative legal notions originated in Latin America, constitute t w o important steps in this process.

38

14.

A m o n g others, this opinion is shared b y Garcia Amador

(n.21), 37; Garcia

Sayân (n. 29),

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Concept37

a) Its Emergence The expression "patrimonial sea" appeared in 1970 in Latin America and is attributed to Gabriel Valdés, then Chilean Minister for External Affairs of the Salvador Allende government. I n a speech made in commemoration of an anniversary of the establishment of the Chilean Antarctic Institute, Sr. Valdés rejected the N i x o n proposal for a Trusteeship Area for the seabed and ocean floor and pointed out that the maritime zone under coastal state jurisdiction, in addition to a bathymetic criterion, should include "a patrimonial sea up to 200 miles where the freedoms of navigation and overflight should exist" 3 8 . However, Vargas Carrefio was one of the first to formulate a legal enunciation of this emerging concept, first in a lecture delivered in 1970 before the Law of the Sea Institute 3 9 and later in a legal report submitted to the InterAmerican Juridical Committee in A p r i l 1971. I n this report, the patrimonial sea is defined thusly: " U p o n the basis of the 1970 Lima declaration, the patrimonial sea is . . . the maritime space in which the coastal state has the exclusive right to explore, conserve and exploit the natural resources of the sea adjacent to its coasts, its seabed and subsoil thereof, including the continental shelf 37 Particularly in L a t i n America, the legal literature on the p a t r i m o n i a l sea concept has been abundant. See, for instance: 1) André Aguilar , The Patrimonial Sea or Economic Zone Concept, San Diego L a w Review 1974, 579—602; and, The Patrimonial Sea i n : L. M. Alexander (ed.), The L a w o f the Sea: Needs and Interests o f Developing Countries. Proceedings o f the Seventh A n n u a l Conference of the L a w o f the Sea Institute, Kingston, R. I. 1972, 161—165; 2) Jorge Castaneda , The Concept o f the Patrimonial Sea as a Regional Concept, in Caribbean Study and Dialogue, M a l t a 1974, 341—365; 3) Ricardo Mendel Silva , The Patrimonial Sea i n L a t i n America (in Spanish), 1974; 4) L.D.M. Nelson , The Patrimonial Sea, International and Comparative L a w Quarterly 1973, 668—686; 5) Jorge A. Vargas , Significance for Mexico of a 200 M i l e Patrimonial Sea (in Spanish), Comercio Exterior, October 1975, Mexico, 1146—1155; and, 6) Alfredo Vazquez Carrizosa , The N e w L a w o f the Sea (in Spanish), Bogota 1976. For a specialized bibliography on this topic, see Jorge A. Vargas , Bibliography on the Patrimonial Sea (in Spanish), Ciencia y Desarrollo, Mexico, D . F., j u l i o agosto 1975, 82. 38 Quoted by Edmundo Vargas Carreno in L a t i n America and the L a w of the Sea (in Spanish), Mexico 1973, 74. This author mentions that Eduardo Palma and he participated w i t h Valdés in the formulation of the concept. 39

Concerning this specific issue, the lecturer said: " T h a t is w h y Chile and other L a t i n American countries that maintain a maritime jurisdiction o f 200 miles call this zone not 'territorial sea*, but a patrimonial sea which considers all the k n o w n liberties o f the high seas (including the liberty of maritime and air navigation) (sic) except, of course, the liberty t o fish". Text reproduced from Lewis M. Alexander (ed.), The U n i t e d Nations and Ocean Management. Proceedings of the F i f t h A n n u a l Conference of the L a w o f the Sea Institute, Kingston, R. I . 1970, 348.

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and its subsoil up to the limit determined by such state according to reasonable criteria, and paying attention to its geographic, geologic and biologic characteristics and to the needs posed by the rational utilization of its resources". The purpose of this maritime space is . . . to promote the maximum development of the coastal states' economies and, consequently, to elevate the living standards of their peoples. Thus the name proposed: patrimonial sea40. I t is evident that the patrimonial sea concept, like the EEZ, was born to the international legal ocean environment motivated by economic considerations. I n a way, its raison d'être is to preserve the maritime patrimony off the coasts of the state, in order to use its resources for the benefit of the state's inhabitants. The extension of coastal state jurisdiction to vast expanses of the ocean beyond the territorial sea, based upon defense and security interests, or even customs, migratory or sanitary considerations, has long been recognized by customary international law 4 1 . I n recent years, this trend has also taken into account environmental aspects, especially in certain areas (such as the polar casquettes42) where the ecological balance is quite delicate. Therefore, as these jurisdictional extensions are based upon the need to protect and utilize the maritime resources in such oceanic areas, the reasonableness of their existence appears to be more than fully justified. Some of the reasons supporting the establishment of maritime zones of special or protective jurisdiction include the insufficient w i d t h of the traditional 40 Preliminary report presented b y its Rapporteur, Sr. E d m u n d o Vargas Carrefio, on the T e r r i t o r i a l Sea and the Patrimonial Sea (in Spanish) before the Inter-American Juridical Committee, A p r i l o f 1971. The f u l l text of this report appears i n Orrego Vicuna (n. 13), 137—150. 41 See, for instance, Philip M. Brown , Protective Jurisdiction, A J I L 1940, 112—116; Ch. Fenwick , The Declaration of Panama, A J I L 1940, 116—119; W. Bishop, Jr., The Exercise o f Jurisdiction for Special Purposes in H i g h Seas Areas beyond the Outer L i m i t o f T e r r i t o r i a l Waters, lecture before the Inter-American Bar Association, M a y 1949; William E. Masterson , The Hemisphere Zone of Security and the L a w , American Bar Association Journal 1940, 860. For a detailed analysis of this type of claims, see McDougal and Burke , Claims to A u t h o r i t y in Ocean Areas adjacent to the T e r r i t o r i a l Sea (Chap. 6), (n. 12), 565—729. 42 I n 1970, Canada enacted legislation creating in the A r c t i c a special prevention zone, extending to 100 nautical miles from the coastline, against possible p o l l u t i o n threats caused by shipping activities. See J. Y. Morin , Les Progrés technique, la pollution, et l'évolution recente du D r o i t de la Mer au Canada, Annuaire Canadien 1970, 158; A. E. Gotlieh and C. M. Dalfen , N a t i o n a l Jurisdiction and International Responsibility: N e w Canadian A p proaches to International L a w , A J I L 1973, 229—258; Donat Pharand , The L a w of the Sea of the A r c t i c : W i t h Special reference to Canada, O t t a w a 1973; Richard Bilder , The Canadian Arctic Waters P o l l u t i o n Prevention A c t : N e w Stresses on the L a w of the Sea, Michigan L a w Review 1970—71, 1 (5); and Barbara Johnson and Mark W. Zacher , Canadian Foreign Policy and the L a w o f the Sea, Vancouver, B. C. 1978.

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concept of the territorial sea43, normally confined to a rather narrow marginal belt along the state's coastline; the advances in ship construction, fishing gear and fishing technologies; the progress and scientific discoveries in marine biology, ocean currents, upwelling zones, etc.; the m y t h that the living resources of the sea are inexhaustible and, in particular, the need to strengthen the coastal states' national economies by means of rational utilization of their marine resources. The exercise of the coastal state's sovereign rights over the marine resources, renewable and non-renewable, constitutes the central principle in the patrimonial sea notion. Certainly, this economic function is one of the most powerful elements in the definition of its legal nature. This "economic function" of the patrimonial sea is clearly spelled out in the following definitions given by t w o Latin American jurists prior to the Declaration of Santiago. I n August 1971, before the U N Sea Bed Committee, the Venezuelan delegate, Dr. Andres Aguilar, stated: A n economic zone, called the patrimonial sea, not more than 200 miles in breadth from the baseline of the territorial sea. I n that zone, there would be freedom of navigation and overflight but the coastal state would have an exclusive right to all resources 44. I n a speech made at the opening session of the Preparatory Committee 4 5 of the Specialized Conference of the Caribbean Countries on the Problems of the Sea, held in Bogota, Colombia, in February 1972, Dr. Alfredo Vazquez Carrizosa, then Minister of Foreign Affairs of Colombia, expressed that: . . . the territorial sea should be maintained for purposes of the security of the territory at a reasonable limit which for us is 12 miles, without eliminating or avoiding the admission of an adjacent patrimonial sea wherein the coastal state would have special jurisdiction to explore and 43

I n this respect, most L a t i n American countries have systematically expressed their unwillingness to accept less than a 12-nautical mile territorial sea. See, in particular, the "Principles of M e x i c o " of 1956 and the legal opinion of the Inter-American Juridical Committee of 21 July 1965, stating that a coastal state "has the right to establish the w i d t h o f its territorial sea up to a 12-nautical mile l i m i t , measured from the applicable baseline". 44 45

U N Doc. A / A C . 138/SR. 64 of August 12, 1971, 47.

The Santo D o m i n g o Conference was preceded by t w o preparatory meetings: i) A n I n f o r m a l Consultative Meeting of Coastal Caribbean Countries, convened by Venezuela and held in Caracas, November 24—26, 1971. I n addition to the host country, Barbados, Colombia, Costa Rica, D o m i n i c a n Republic, E l Salvador, Guatemala, H a i t i , Jamaica, Mexico, Nicaragua, Panama and T r i n i d a d and Tobago attended this meeting; and, ii) the meeting o f the Preparatory Committee held in Bogota, Colombia, February 2—10, 1972, w i t h the participation of the same countries which attended the Caracas meeting plus Honduras. For a detailed narration of these meetings, including the Santo D o m i n g o Specialized Conference see Kaldone G. Nweihed , La Vigencia del M a r , V o l . I I , Caracas, 1974, 514—527.

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exploit for its own benefit and that of its people, the marine resources and those of the seabed and subsoil of the sea46. This statement has close similarities to the document presented by the government of Colombia as a proposal for the formulation of the final document to be produced at the Santo Domingo Specialized Conference. I n the Colombian proposal, entitled "Bases for a Sub-Regional Agreement on the Patrimonial Sea" 47 , paragraph five reads: The coastal state may also exercise a special jurisdiction in a zone commencing at the outer limit of the territorial sea and which may extend, i f the geographic circumstances allow it, up to a distance of 200 nautical miles. This zone is denominated patrimonial sea and both its extension and its delimitation w i l l be made in conformity w i t h the international law principles, international conventions, regional agreements and public treaties 48 . Based upon the declaration of Santo Domingo, the author of this article defined the new notion of the law of the sea as follows: Patrimonial sea or exclusive economic zone . . . is the oceanic zone adjacent to the territorial sea, up to a distance of 200 nautical miles, where the coastal state exercises sovereign rights over all marine resources, renewable and non-renewable, which may be found in the water column, in the sea-bed and in its subsoil, for their adequate utilization and conservation. The exercise of these sovereign rights or the projection of these competences should not in any way interfere w i t h the three classic freedoms of the high seas, namely: the freedoms of navigation, overflight and laying of submarine cables and pipelines. The freedom of fishing is obviously not included since it affects the marine resources in the patrimonial sea. I t is precisely the recognition of these traditional freedoms that is the distinct legal feature of the patrimonial sea vis à vis the territorial sea. Therefore, in the patrimonial sea the coastal state merely projects its specialized competences w i t h the specific purpose of protecting the marine resources from any foreign intervention 4 9 . 46 Doc. C C M / C P - 1 4 : Comité Preparatorio de la Conferencia Especializada de los Paises del Caribe sobre Problemas del M a r , Bogota, Colombia, Feb. 2, 1972. Reproduced in Spanish in the book of Alfredo Vazquez Carrizosa (n. 37), 217—222. 47 Reproduced in Vazquez Carrizosa (n. 37), 215—216. I n a d d i t i o n to the Colombian proposal, the Santo D o m i n g o Declaration was formulated by a Legal Committee on the basis of similar projects presented by the D o m i n i c a n Republic and Venezuela. 48 The complete text o f the Colombian proposal appears in Vazquez Carrizosa (n. 37), 215—216. 49 See Jorge A. Vargas , The Patrimonial Sea (in Spanish), Ciencia y Desarrollo, noviembrediciembre 1975, 31. See also, from the same author, Mexico's Patrimonial Sea (in Spanish), Revista Conexiôn, Sept. 10, 1975, 39—43; and: W h a t is the Patrimonial Sea (in Spanish), Revista Técnica Pesquera, junio de 1975, 24—27.

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b) The Santo Domingo Declaration I t is extraordinary how fast the patrimonial sea concept was accepted by the Latin American legal ocean community. Coined in A p r i l of 1971, the term is included in the Santo Domingo Declaration 5 0 in one of its most complete and systematic definitions, appearing in June of 1972. According to this declaration: The coastal state has sovereign rights over the renewable and nonrenewable natural resources which are found in the waters, in the seabed and in the subsoil of an area adjacent to the territorial sea called the patrimonial sea. The breadth of this zone should be the subject of an international agreement, preferably of a world-wide scope. The whole of the area of both the territorial sea and the patrimonial sea, taking into account geographic circumstances, should not exceed a maximum of 200 nautical miles. I n the zone, ships and aircraft of all States, whether coastal or not, should enjoy the right of freedom of navigation and overflight w i t h no restrictions other than those resulting from the exercise by the coastal state of its rights w i t h i n the area. Subject only to these limitations, there w i l l also be freedom for the laying of submarine cables and pipelines 51 . The influence of this declaration was so powerful that it prompted Vargas Carreno to amend his own definition, simplifying it thusly: the patrimonial sea is "the maritime space in which the coastal state has the exclusive right to explore, conserve and exploit the natural resources of the sea adjacent to its coasts, including the seabed and the subsoil of the said sea, as well as to exercise in general all the competences resulting from its permanent sovereignty over such resources" 52 . There were two basic changes introduced in this second definition: first, the consideration of the patrimonial sea as a "zone located beyond the territorial sea up to rational limits, unilaterally determined by the coastal state", according to a variety of criteria 5 8 (which is the currently accepted notion), rather 50

Signed on June 9th, 1972 at the Specialized Conference o f Caribbean Countries on Problems o f the Sea, held in Santo Domingo, D o m i n i c a n Republic, w i t h the participation o f the f o l l o w i n g 15 countries, from M a y 31 to June 9: Barbados, Colombia, Costa Rica, D o m i n i c a n Republic, E l Salvador, Guatemala, Guyana, H a i t i , Honduras, Jamaica, Mexico, Nicaragua, Panama, T r i n i d a d and Tobago, and Venezuela. Neither Cuba nor the U S A were i n v i t e d t o participate. The f o l l o w i n g five countries d i d not sign the declaration: Barbados, E l Salvador, Guyana, Jamaica and Panama. 51 Reproduced f r o m the Report o f the Committee on the Peaceful Uses o f the Sea-Bed and the Ocean Floor beyond the Limits of N a t i o n a l Jurisdiction General Assembly, Official Records: Twenty-Seventh Session. Supplement N o . 21 (A/8721), 1972, 70—73. The complete text of the Santo D o m i n g o declaration appears also in A J I L 1972, 918—920, and International Legal Materials ( I L M ) 1972, 892—893. 52 See Vargas Carreno (n. 38), 75—76. 53 Ibid., 76.

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than the concept of a patrimonial sea formed by both the territorial sea area and the oceanic zone outside but adjacent to the territorial sea, as originally contemplated in his first definition 54 . This legal clarification was most necessary. The second change was to exclude, as an essential element of the patrimonial sea concept, "the exercise of the coastal state competences over the continental shelf" 5 5 . Apparently, Vargas Carrefio rushed to the conclusion that two separate regimes were about to be established as a result of the work of U N C L O S I I I : One for a "200 mile maritime zone" (regardless of its denomination) and another for the continental shelf w i t h i n such a zone. As it is known, the legal regime of the EEZ is applicable to both the continental shelf or seabed and its subsoil, as well as to the superjacent waters, whereas a separate legal regime applies to the continental shelf which extends beyond the 200 mile outer limit. Therefore, the legal principles encompassed in the first definition resulted in being the closest to the EEZ concept as now contained in the Informal Composite Negotiating Text 5 6 . The Santo Domingo declaration served a dual purpose: 1) to enunciate the legal and diplomatic position of the Caribbean countries in the light of the forthcoming U N C L O S I I I ; and, 2) to articulate in a systematic fashion the basic legal elements of the just born patrimonial sea concept 57 . W i t h i n the Latin American context, this declaration served to couch in legal terms the balanced position adopted on the law of the sea by countries such as Colombia, Mexico and Venezuela — called "patrimonialists" —, vis à vis other Latin American states such as Brazil, Ecuador and Peru — known as "territorialists" —, favoring a 200 mile territorial sea. I n this respect, the Santo Domingo declaration contrasts w i t h the Montevideo 5 8 and the L i m a 5 9 declarations. 54 Orrego Vicuna (n. 13), 149. Juridically speaking, the territorial sea and the p a t r i m o n i a l sea constitute t w o distinct and independent areas. See, i n this respect, the book of Jorge A. A ja Espil, The L a w o f the Sea (in Spanish), Bogota 1977, 52. 55

Vargas Carreno

(n. 38), 76, n. 22.

56

Arts. 55, 56 para. 3 and 76 of the I n f o r m a l Composite Negotiating Text/Revision 1. U N Doc. A / C O N F . 62/W. P. 10/Rev. 1 of 28 A p r i l 1979. T h i r d U N C L O S , Eighth session, Geneva, 19 March to 27 A p r i l 1979 (hereinafter cited as I C N T / R e v . 1). 57 See Jorge A. Vargas , Terminology on the L a w o f the Sea (in Spanish), Mexico 1979 (in p r i n t ) . 58 A p p r o v e d by the Montevideo Meeting on the L a w o f the Sea, held M a y 4—8th, 1970. The Delegations from Chile, Peru, Ecuador, Panama, E l Salvador, Argentina, Brazil, N i c a ragua and Uruguay signed this declaration. The meeting approved four resolutions. Argentina, Chile and E l Salvador; Brazil, Panama, Peru, Nicaragua and Ecuador made statements. The complete English text of this declaration appears i n I L M 1970, 1081—1083. 59

Produced by the L a t i n American Meeting on Aspects o f the L a w of the Sea held i n Lima, Peru, August 4—8, 1970. The f o l l o w i n g 14 countries voted i n f a v o u r : Argentina, Brazil, Colombia, Chile, D o m i n i c a n Republic, Ecuador, E l Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru and Uruguay. V o t e d against i t : Bolivia, Paraguay and Venezuela, w i t h one abstention : T r i n i d a d and Tobago. A l l the L a t i n American countries were represented,

he Legal Nature

of the Patrimonial

Sea

159

I n conclusion, the Santo Domingo declaration acquires its value because it presented the new legal notion of the patrimonial sea to the international community. I t exerts a most profound and direct influence on the appearance of the EEZ concept created by the African countries. c) The Tripartite Proposal After its emergence, the patrimonial sea notion was rapidly accepted by those countries (such as Colombia, Mexico and Venezuela) which were clearly in favor of a profound revision of the traditional law of the sea in Latin America, but which did not share the opinion that the 200 mile territorial sea — as proposed by other states from the same region —, offered the right approach to the problem. Recognized for their respect of existing international law, those three countries represented at that time a balanced or middle-of-theroad position in law of the sea matters. Consequently, the entrance of the patrimonial sea concept at the diplomatic and legal fora in their geographical region offered immediately the hope of finding a compromise solution. The only proposal supporting the patrimonial sea notion before the SeaBed and Ocean Floor Committee was the one jointly presented by Colombia, Mexico and Venezuela 60 on A p r i l 3, 1973. According to this draft treaty: The coastal state has sovereign rights over the renewable and non-renewable resources which are found in the waters, in the seabed and in the subsoil of an area adjacent to the territorial sea called the patrimonial sea. The outer limit of the patrimonial sea shall not exceed 200 nautical miles from the applicable baselines for measuring the territorial sea. I n the patrimonial sea, ships and aircraft of all states, whether coastal or not, shall enjoy the right of freedom of navigation and overflight w i t h no restrictions other than those resulting from the exercise by the coastal state of its rights w i t h i n the area. Subject only to the limitations established in the preceding article the coastal state shall respect the freedom to lay submarine cables and pipelines. except H a i t i . Costa Rica sent an Observer. Barbados and Jamaica were absent during the voting. Argentine, Chile, and E l Salvador; Bolivia, Brazil, Colombia, D o m i n i c a n Republic, Ecuador, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, U r u g u a y and Venezuela made statements. The meeting approved six resolutions. The complete English text of this declaration appears in I L M 1971, 207—214. βο See U N Doc. A / A C . 138/SC. I I / L . 21 of 2 A p r i l 1973. The complete text of the draft articles proposed b y the three L a t i n American countries appears in I L M 1973, 570—572.

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The coastal State shall exercise jurisdiction and supervision over the exploration and exploitation of the renewable and non-renewable resources of the patrimonial sea and over allied activities 61 . The major legal features of the patrimonial sea contained in this proposal coincide substantially w i t h the same legal notion described in the Santo Domingo declaration. I n the transformation and development of the law of the ocean space, as an integral part of an international law process, regional approaches 62 have demonstrated their effectiveness and intrinsic value. Regarding the law of the sea in general, or more specifically, the development of the law relating to the exploration, exploitation, conservation and protection of the natural resources of the sea, the contribution made by the Latin American countries to this body of law "has no parallel in any other group of countries or region. This contribution has been not only fruitful but extremely varied" 6 3 . The patrimonial sea notion is but one example. 4. L e g a l

Nature

of

the

Patrimonial

Sea

The patrimonial sea's distinct characteristic is its perfect, legally balanced symmetry. I t emerges as a compromise formulation combining in the right proportion the interests of the international community regarding the oceans, w i t h the national, but unquestionable, marine interests of the coastal state. From a juridical viewpoint, the patrimonial sea may be categorized as a hybrid concept since it blends, in an innovative legal notion, the classical principles of the territorial sea strictu sensu (e. g. : sovereign rights over the natural resources) w i t h the legal features associated w i t h the doctrine of the freedom of the seas (e. g., respect of all the traditional high seas freedoms, except the freedom of fishing). Therefore, its legal architecture is most delicate. The balanced nature of this notion also appears when construed as an intermediate trend between the two extreme positions adopted by most developed countries and the so-called territorialist states. I t represents the result of the clash of interests between, say, the United States of America and Ecuador, Japan and Peru, the U . K . and Brazil. Furthermore, as asserted before, this compromising formulation could also be interpreted as the legal alternative offered to the international community by a reduced number of moderate ei Arts. 4, 8, 9, 10 and 11. β2 See Mark W. Janis y The Roles of Regional L a w of the Sea, The San Diego L a w Review 1975, 553. 63 See F. V. Garcia Amador (n. 21), 33; and Jorge A. Vargas , The Contributions of L a t i n America to the L a w of the Sea (in Spanish) Estudios del Tercer M u n d o , Mexico, D . F., septiembre 1978, 139—166.

The Legal Nature

of the Patrimonial

Sea

161

countries (such as Colombia, Mexico and Venezuela), as opposed to the drastic attitute adopted by other Latin American states (such as Brazil, Ecuador or Panama). W i t h i n this context the patrimonial sea notion is the logical and perhaps the expected answer to the Montevideo and the Lima declarations; i t represents a further step — certainly a step ahead — in the progressive development of the law of ocean space. To fully understand the legal significance of this law of the sea concept, i t must be examined against its political and diplomatic background. Politically, at the time of its inception, most developing countries recognized the oceangap that separated them from the technologically-advanced countries: for those poor states it was very simple to see how foreign, technologicallyadvanced ships systematically exploited and over-exploited the marine living resources off their coasts, w i t h no benefits whatsoever accruing to these coastal communities. This type of international behavior, legally accepted and even condoned by the traditional principles of the law of the sea, generated an intense nationalism directed toward the sovereign reaffirmation and protection of all the natural resources w i t h i n the boundaries of their respective countries. This was the genesis of the economic foundation of the patrimonial sea notion. From a diplomatic angle, the Latin American claims for a so-called 200 mile territorial sea (even i f de facto such claims did not establish a territorial sea per se) provoked in the international arena an avalanche of protest from the developed countries, complaining against the outright violations that such oceanic zones apparently posed against customary international law of the sea principles. Generally, these protests openly attacked the obstacles that such "territorial sea areas" erected against the doctrine of the freedom of the seas. I n many respects, this could be described as a severe diplomatic confrontation that developed w i t h i n the context of a regional oceanic arena. Consequently, this was the origin of the respect for the principal freedoms of the high seas (except one in the patrimonial sea concept; it is one of the outstanding merits which led the patrimonial sea notion to its universal acceptance, although under a different name. The legal nature of the patrimonial sea should be construed taking as its basis the most complete and systematic definition of this concept, as given in the Santo Domingo declaration and in the tripartite proposal. N o author offers a better definition. One should start by underlining the economic motivation behind this legal notion, leading naturally to its distinctive name. The purpose of the patrimonial sea is to protect, conserve and utilize the coastal state's marine resources for the benefit of its inhabitants. I t was created as a political and legal extension of the coastal state's sovereign rights over its natural resources, as a means of contributing to the development of its national eco-

11 G Y I L 22

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nomy. Therefore, in its simplest connotation, the patrimonial sea notion should be considered as a kind of "legal tool" designed to stimulate the socio-economic progress of the coastal state, attempting to avoid at the same time the confrontation or friction generated by the ambiguities and confusions of the other type of 200 mile claims. Unlike the complex and sophisticated interests shared by certain maritime powers, generally described in terms of strategic or military nature 64 , such as intelligence purposes, naval mobility through international straits, etc., the patrimonial sea states' major concern was the economic significance and the commercial benefits accruing to them from the utilization of the marine resources located off their coasts. A l l other interests were considered to be peripheral or subordinate to the economic motives. Hence, in its early stages of formation, some legal authors referred to the patrimonial sea as a "resource area" or "economic area", where the common denominator was the exercise of "economic rights" 6 5 . From a philosophical dimension, the patrimonial sea has to be construed as linking the ocean and its resources w i t h the issues posed by an unequalled degree of national development. Thus, ocean and socio-economic development are the t w o key elements in this notion. Concerning the fundamental question of the nature and scope of the rights in the patrimonial sea, the coastal state exercises "sovereign rights over the renewable and non-renewable natural resources which are found in the waters, in the seabed and in the subsoil of an area adjacent to the territorial sea . . .". I n explaining this concept, as contained in the Santo Domingo declaration, Ambassador Andres Aguilar stated that the expression "sovereign rights" was chosen "because it was considered the most appropriate to indicate that the coastal state would enjoy over those resources the same full powers it enjoys over the resources in its own territory" 6 6 . Commenting on the draft articles of a treaty jointly proposed by his country, Colombia and Venezuela before the U N Seabed Committee in 1973, Mexican Ambassador Jorge Castaneda asserted that this expression meant that "the coastal state has the right to exploit those resources and, in principle, to impede its exploitation by foreigners" 67 . 64 See Rex J. Zedalis, M i l i t a r y Uses of the Ocean Space and the Developing International L a w of the Sea: A n Analysis i n the Context o f Peacetime A S W , San Diego L a w Review 1979, 575. 65 See, for instance, the concepts expressed by D r . Reynaldo Galindo Pohl in his banquet address before the Sixth A n n u a l Conference o f the L a w o f the Sea Institute i n L. M. Alexander (ed.), The L a w of the Sea. A N e w Geneva Conference. Proceedings of the Sixth A n n u a l Conference of the L a w o f the Sea Institute, Kingston, R. I . 1971, 207.

66 See Aguilar

(n. 37), 1.

67 A m b . Castaneda's statement appears in U N Doc. A / A C . 138/SC. I I / S R , 59 of 6 A p r i l 1973, 5.

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Sea

163

I t is important to point out that the patrimonial sea does not constitute an integral part of the coastal state's territory, in contrast to the legal regime applicable to the territorial sea which assimilates this maritime space into the territory of the state. As a direct legal consequence of this situation, it follows that the coastal state is not free to impose arbitrary restrictions on the activities undertaken by other states in its patrimonial sea. This was explicitly recognized in article 11 of the tripartite proposal, stating that in the exercise of its jurisdiction and supervision over the exploration and exploitation of the resources of such new ocean space, "the coastal state shall take appropriate measures to ensure that such activities are carried out w i t h due consideration for other legitimate uses of the sea by other states" 68 . I t should be recalled that the expression "sovereign rights" appears for the first time in article 2 of the 1958 Geneva Convention on the Continental Shelf 69 . I t appears that the influence exercised by this convention upon the patrimonial sea notion also extends, mutatis mutandis , to certain activities associated w i t h the legal regime of the high seas, in particular the restrictions referred to in Articles 3 to 5 of the aforementioned convention. I n a way, the legal model established by this international instrument to regulate the interactions between the regimes applicable to the continental shelf and the doctrine of the high seas certainly inspired some aspects of the patrimonial sea notion. The patrimonial sea should not be confused w i t h the classic concept of the territorial sea. These legal notions are quite different. I n the patrimonial sea, the sovereign rights enjoyed by the coastal state refer only to the resources but not to the maritime zone itself; such rights are confined or circumscribed to the marine resources. I n the territorial sea, the coastal state's sovereignty extends to cover the zone itself, including its resources. Another distinct legal feature of the patrimonial sea is the recognition and respect in this oceanic area of the following three freedoms of the high seas: navigation, overflight, and pipelines 70 . The only exception is the freedom of fishing, whose exercise would obviously affect the resources of the area. H o w ever, the exercise of these freedoms would have to be compatible w i t h the sovereign rights vested in the coastal state. To a large extent, the respect for these three freedoms paved the way for the global acceptance of the patrimonial sea notion. 68

T r i p a r t i t e proposal (n. 60), A r t . 11, para. 2.

69

Convention on the Continental Shelf, adopted by the First U N Conference on the L a w of the Sea, A p r i l 29, 1958 ( U N Doc. A / C O N F . 13/L.55). Its A r t i c l e 2, para. 1, reads: "The coastal state exercises over the continental shelf sovereign rights for the purpose o f exploring it and exploiting its natural resources". 70 A r t i c l e 2 o f the Convention on the H i g h Seas ( U N Doc. A / C O N F . 13/L. 53).

il·

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Jorge A. Vargas

W i t h respect to the breadth of 200 miles, the patrimonial sea notion introduces what may be characterized as a major innovation: the consideration of this breadth only as a maximum limit, not as a compulsory one. Previous Latin American claims to a 200 mile maritime zone made through national legislation or subregional declarations referred to this limit as a fixed breadth and, at least in one case, as a minimum outer limit. The innovation offered by the patrimonial sea concept allows each coastal state to determine the maximum breadth of this maritime zone up to a limit of 200 nautical miles, taking into account the peculiar geographic circumstances applicable to each coastal state. Thus, from a fixed and uniform outer limit, the 200 mile breadth was transformed into an adjustable but maximum figure. Regarding its spatial area of application, the patrimonial sea encompasses the oceanic area beyond the outer limit of the coastal state's territorial sea up to a maximum 200 mile limit. W i t h i n this maritime space, the sovereign rights exercised by the coastal state over the natural resources would be fully operative. However, from a traditional viewpoint, the waters located beyond the outer limit of the territorial sea lose their legal character as high seas; they would be subject to a new and special legal regime. The patrimonial sea's legal nature should be categorized as sui generis. I t is neither a territorial sea in a strict sense, nor a part of the high seas. I t represents a new legal institution w i t h its own legal nature. When this new notion of the law of the ocean space started to be discussed, first at the U N Sea-Bed Committee and later on under its new denomination of EEZ at U N C L O S I I I , three major positions concerning its legal nature were rapidly delineated: at one extreme, the position adopted by the major maritime powers, which maintained that this new space should be regarded as high seas, w i t h limited exceptions in favor of the coastal state; at the other extreme, the position adopted by a reduced group of states known as "the territorialists" — led by Brazil, Panama and Peru — in favor of a 200 mile territorial sea. The "patrimonialist" countries occupied the intermediate, more reasonable position. These countries did not perceive the usefulness of the rigidity of the 200 mile territorial sea thesis which, by reducing unnecessarily the freedoms of the high seas (in particular the freedom of navigation), was doomed to failure, given the strong opposition of the major naval powers. O n the other hand, i f the coastal state's major preoccupation was centered upon the exercise of its "sovereign rights" over the marine resources — which constitute the essence of the patrimonial sea doctrine —, such rights were clearly guaranteed and protected through the patrimonial sea notion. This was an eclectic trend asserting a new legal concept to be integrated by a homogeneous combination of the appropriate elements of the other t w o positions.

The Legal Nature

of the Patrimonial

Sea

165

According to this intermediate position, the patrimonial sea is certainly not a portion of the high seas; in this new oceanic area the coastal state exercises sovereign rights over the natural resources. Thus, this legal regime is totally incompatible w i t h the classic notion of the high seas, which includes the freedom of fishing as an integral part of it. I t is not a territorial sea since the freedom of navigation prevails in the patrimonial sea area. I t could be easily argued that the patrimonial sea concept is an atypical territorial sea, or a most unorthodox high seas concept. However, these characterizations do not respond to the dynamic considerations inherent in the process of the progressive development of international law. They fail to recognize the emergence of a new legal institution since they are only attuned to traditional concepts. The patrimonial sea probably represents the most valuable contribution of Latin America to the international law of the sea71. Adopted in its entirety by the African jurists — in particular in the conclusions of the Yaounde Seminar 72 , in the Kenyan proposal before the U N Sea-Bed Committee 7 8 and in the Declaration of the Organization of African U n i t y on the Issues of the L a w of the Sea74 —, this notion rapidly attained global support until its formal acceptance by U N C L O S I I I , as included in the I C N T under the denomination of the EEZ. The passage of time has accentuated the enormous influence of the patrimonial sea notion in speeding up the process of progressive development of the law of the ocean space. While the years elapsed since 1971, when the notion first emerged in Latin America, have diluted the usage of the term patrimonial sea, they have at the same time contributed to the delineation of the special legal contours of this marine notion under its new name of EEZ.

71 See Vargas (n. 63), 139—166. 72 The text of the A f r i c a n States Regional Seminar on the L a w of the Sea (held i n Yaounde, Cameroon, June 20—30, 1972), appears in the Report o f the Sea-Bed Committee 1972 (n. 51), 80. O r i g i n a l l y published as U N Doc. A / A C . 138/79.

73 See U N Doc. A / A C . 138/SC. I I / L . 10 of 7 August 1972: D r a f t Articles on Exclusive Economic Zone Concept. 74 See U N Doc. A / C O N F . 62/33: Declaration of the Organization of A f r i c a n U n i t y on the Issues of the L a w o f the Sea of 19 J u l y 1974. Official Records. T h i r d U n i t e d Nations Conference on the L a w of the Sea. Documents of the Conference, V o l . I l l , 1975, 63—65.

166

orge A. Vargas

III.

before

The Third UNCLOS

and the EEZ

1. P r o p o s a l s the U n i t e d N a t i o n s Sea-Bed C o m m i t t e e C o n c e r n i n g the 200-Mile D o c t r i n e

Already by the middle of 1972, the regional trends which made their appearance w i t h i n the law of the ocean space in favor of a 200-mile doctrine — first developed in Latin America and later adopted by the African countries — were solid, organized and irreversible. Among other international fora, this was made evident during the 1972 and 1973 sessions of Subcommittee I I of the Committee on the Peaceful Uses of the Sea-Bed and Ocean Floor beyond the Limits of National Jurisdiction 75 . The discussions which took place during the 1972 and 1973 sessions of Subcommittee I I of the U N Sea-Bed Committee are of exceptional importance since they started the process leading to the determination of the legal nature of a new concept in the law of the ocean space: the 200 mile maritime zone, adjacent to the coastal state's territorial sea, characterized as an area of special jurisdiction where the coastal state exercises sovereign rights over all natural resources, whether renewable or non-renewable, located in the water column, the seabed and the subsoil of said area. Legally different from the traditional concepts of the territorial sea and the high seas, this new oceanic zone is also characterized by its respect for the principal freedoms of the high seas, except, of course, the freedom of fishing. O f a total of seventy proposals, declarations, working papers, etc. presented during its mandate, fourteen addressed the topic of a 200 mile maritime zone under a variety of denominations and approaches 76. None of these proposals had the same degree of comprehensiveness: some consisted of a single article, whereas another — intended to be a draft treaty — contained about twenty articles. Table 1 shows the major legal characteristics contained in each of these proposals, as well as their juridical peculiarities, w i t h the purpose of giving a general idea of the possible legal nature of the oceanic zone proposed. The proposals presented by Kenya 7 7 ; Colombia, Mexico and Venezuela 78 ; Ecuador, Panama and Peru 7 9 ; Australia and N o r w a y 8 0 ; Argentina 8 1 and the

75 See Report o f the Committee (n. 51); and Report of the Committee on the Peaceful Uses of the Sea-Bed and Ocean Floor beyond the Limits of N a t i o n a l Jurisdiction. V o l . V : General Assembly, Official Records: T w e n t y - E i g h t h Session, Supplement N o . 21 (A/9021), 1973. 76

The list of these proposals appears as an Annex

at the end of this article.

The Legal Nature

of the Patrimonial

Sea

167

Fourteen-powers 82 merit special consideration since all of them reproduced the fundamental legal features of the patrimonial sea notion. The proposal of Kenya, submitted in August of 1972, contained draft articles on the "exclusive economic zone", a new legal notion which was regarded by a number of delegations "as a starting point for serious negotiations" 83 . I n this proposal the name of "exclusive economic zone" was substituted for the expression patrimonial sea, possibly in an effort to dilute its Latin American origin. However, the EEZ, as contained in the Kenyan proposal, was only a slightly modified version of the Santo Domingo declaration, enacted t w o months before the African proposal. The new law of the sea notion enshrined in the Caribbean pronouncement (e. g. : the patrimonial sea) found its way into the Kenyan proposal through an intermediate step, the document produced by the African States Regional Seminar on the Law of the Sea 84 , held in Yaounde, Cameroon, from 20—30 June 1972. The ink on the Declaration of Santo Domingo was still fresh when the Yaounde Seminar started the analysis of its content. The points of legal parallelism between these two regional pronouncements are multiple; however, it is of interest to recall that the patrimonial concept — under the denomination of "Economic zone" — was literally reproduced in the conclusions of this African Seminar, couched in the following terms: The African states have equally the right to establish beyond the territorial sea an Economic Zone over which they w i l l have exclusive jurisdiction for the purpose of control, regulation and national exploitation of the living resources of the sea and their preservation for the primary benefit of their peoples and their respective economies, and for the purpose of the prevention and control of pollution. The establishment of such a zone shall be without prejudice to the following freedoms: Freedom of navigation, freedom of overflight, freedom to lay submarine cables and pipelines. The limit to the Economic Zone shall be fixed in nautical miles in accordance w i t h regional considerations taking duly into account the resources 77 The Kenyan proposal is contained in U N Doc. A / A C . 138/SC. I I / L . 10 o f 7 August 1972. 78 The T r i p a r t i t e proposal (Colombia, Mexico and Venezuela) i n U N Doc. A / A C . 138/ SC. I I / L . 21 of 2 A p r i l 1973. 7» U N Doc. A / A C . 138/SC. I I / L . 27 of 13 J u l y 1973. so U N Doc. A / A C . 138/SC. I I / L . 36 o f 16 J u l y 1973. 81 U N Doc. A / A C . 138/SC. I I / L . 37 o f 16 J u l y 1973. 82 U N Doc. A / A C . 138/SC. I I / L . 40 o f 16 J u l y 1973. 83 See the Report of the Sea-Bed Committee (n. 51), 11. 84 Supra (n. 72).

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Jorge A. Vargas G Λ

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