Theorising Private Transnational Regulation: A New Framework of Analysis Dimitrios Katsikas∗
Department of International Relations, The London School of Economics and Political Science, Houghton Street, London WC2A 2AE, United Kingdom [firstname.lastname@example.org].
Abstract: This paper aims to demonstrate that traditional mainstream theories of international relations and international law have not paid enough attention to the growing importance of transnational Non-State actors (NSAs) for global economic governance. Based on the twin pillars of anarchy and the public/private dichotomy in law, these approaches have missed out on the increasing use of private transnational regulatory arrangements that organize and administer the daily transnational relations of a wide array of actors. Political, economic and societal changes in recent years have contributed to the gradual alteration of the nature of the public/private distinction and have reversed the implications of international anarchy for the role of NSAs. Non-state actors belonging to both the private corporate sector and the civil society movement are assuming an active part not only in the conduct of international and transnational activity, but also in the design and construction of the institutional framework for the governance of the global political and economic system.
Non–state actors (NSAs) have existed in the international system, playing an important role in international affairs, longer than international organizations or other inter-state multilateral institutional arrangements. Despite this fact, they have traditionally been treated by analysts and scholars of both international relations and international law as marginal actors. The part of the protagonist has always been kept for the nation-state. Based on a narrow view of the consequences of anarchy in the international system for the power and legitimacy of both states and non-state actors and on the assumption of a clear separation between a public and private sphere in law and regulation, international relations and international law scholars have traditionally treated the state as the only entity with the necessary legitimacy and power to determine the procedure and content of institutional and legal arrangements in international affairs. The traditional academic conception of NSAs however is now at odds with reality. A number of economic, social
Dimitrios Katsikas is a PhD candidate at the Department of International Relations, London School of Economics and Political Science. His thesis is on global economic governance and the politics of private transnational business regulation. His research interests focus on the politics of international/transnational finance and business, the role of Non-State actors in the international system and international and transnational law and regulation.
and political changes over the last few decades have blurred the public (state)/private dichotomy at both the domestic and international levels undermining the status of the state as the sole regulator of social and economic affairs. Globalization has altered the effects that the anarchical nature of the international system has traditionally been thought to impose on state and non-state actors. The purpose of this paper is to examine these changes and their impact on the concept of regulation itself and demonstrate how they bring about a new transnational regulatory role for private actors (the focus being on the private corporate sector). Non-state actors are now assuming an active part not only in the conduct of international and trans-national activity, but also in the design and construction of the institutional, legal and regulatory framework for the governance of the global political and economic affairs.
NSAs and International Relations
Even before the systematic study of international relations became an academic discipline, analysts had noted the proliferation of international organizations, both intergovernmental and non-governmental (Woolf, 1916) and their importance for the prosperity of the long 19th century. Despite this fact however, early approaches in international relations theory while debating heavily the relevance of international organizations did not really acknowledge the importance of NSAs. This was perhaps due to the fact that it was the devastation of the First World War that inspired the systematic study of international relations in the first place. Influential politicians and scholars alike, adopted the “federalist approach” to world peace, an effort to create an “international government”, which would have some real authority over states’ policies allowing it thus to ensure peace. In this context, as both these early idealists and their realist critics were concerned primarily with the preservation of peace and the avoidance of another great war, it is perhaps understandable that analysis did not take into account the role of NSAs. Even after the end of WWII however, the theoretical and academic prevalence of realism did not allow enough room for NSAs in the conduct of international relations. Influenced and reinforced by the constraints of a cold-war international context, realism stressed the importance of the nation-state as the primary actor of the international system and the quest of power as its paramount interest and primary objective. In such a world, NSAs were only allowed the occasional peripheral role states granted to them. This view of the international system however did not remain unchallenged for long. Approaches as diverse as David Mitrani’s functionalism and the complex interdependence theory of the 1970s, noted the changing circumstances in international relations and the increasing diversity of actors claiming a role in the shaping of the international system. In the 1970s the concept of international regimes emerged in a response to realism’s deficient account of developments in the international arena following the demise of the Bretton Woods system. Regime theory is not a unified theoretical framework; it is an acknowledgement that regimes do exist in the international arena and that they have a role to play in international cooperation. The classic definition of regimes as proposed by Krasner (1983 p.2) views regimes as “sets of implicit or explicit principles, norms, rules and decision-making procedures around which actors’ expectations converge in a given area of international relations”. The theory was put
forward by a liberal strand of thought, neoliberal institutionalism (Keohane 1982, 1984; Axelrod 1984; Stein 1982), which stressed the importance of regimes for international cooperation. Regimes facilitated cooperation by reducing uncertainty and transaction costs and by providing a legal framework and institutionalized liability. Unfortunately, despite the flexibility and potential inclusiveness of the concept and the wide acceptance it has gained during the last two decades in academic analysis, it has been “captured by a neorealist synthesis of realism and neo-liberalism” (Kahler 1997, p.35) and is now absorbed in an analysis of state behaviour in the context of inter-state regimes and the relative significance of absolute vs relative gains for the possibility of inter-state cooperation. Even constructivism which does not share the rationalist metatheoretical framework of neoliberal institutionalism and neorealism and is based on a sociological meta-theory which focuses on the socially constructed nature of international politics (Wendt, 1992) and therefore on an inclusive analysis of interests, seems to be increasingly involved in the age-old debate on the possibility and mechanics of inter-state cooperation.
NSAs and International Law
The criticism of an almost exclusive preoccupation with the state, applies even more strongly to international law. International law’s historical evolution is tied up with the concept of the state in a more direct way than that of the international relations discipline. Modern international law is guided by the principles of legal positivism, itself synonymous with the evolution of international law. It replaced natural law as the dominant theory of international law in an era when the ideals of Enlightment professed the creation of a legal discipline based on reason. Perhaps even more importantly, legal positivism and the modern theory of international law, begun taking form in a period of state-building and expansion of the liberal political economy (Cutler, 2003). Legal rationality, the urge to consolidate externally the power and status of the state and the doctrine of liberal economics which separated the economic sphere from the public realm, all had a distinctive effect on the development of international law. The effects of these guiding principles on the formation of international legal doctrine have been profound. Modern legal scholarship and practice are based on the doctrine of the “subject” and the doctrine of the “source” (Cutler, 2003). According to the first, only states are recognized as bearers of rights and obligations in international law. The only “legal subject” in the international realm is the state. Individuals or other private groups such as multinational or transnational corporations are only “objects” of the law: “they have no original rights or liabilities at international law; the only rights or liabilities they possess are derivative as nationals of a state, under the principles governing nationality” (Cutler, 2003 p.37). Although recently some exceptions to this rule have been introduced, these have not been reflected in legal theory where the norm continues to be that only the state can be a legal subject in the context of international law. As a direct result of the subject doctrine, legitimate sources of international law are only considered to be those legal instruments which are a product of consent by states. According to Article 38 (1) of the Statute of the International Court of Justice
(ICJ), the most authoritative and widely accepted definition of sources of international law, there are four sources of international law: a) conventions, b) international custom, c) general principles of law, d) judicial decisions. The first two categories are considered primary sources while the latter two secondary. This categorization is quite old and today other sources identified as international administrative law are now being considered as a source of international law (although such instruments refer mainly to procedural workings and self-administrative clauses of international organizations and not to substantive law agreements). The key characteristic of the above sources of law of course is that they all refer to legal instruments or customs created by the consent of states. The international community is a community of states and the conventions and treaties that are acknowledged as international law are those concluded among states. Similarly, the complementary sources of law such as international custom or general principles of law are only acknowledged if they are accepted by a majority of states. Another characteristic of the sources of law doctrine is that the primary sources of law fall in the traditional “hard law” variety. Other sources of international and mainly transnational regulation, usually characterized as “soft law”, are absent from Article 38. In mainstream legal theory, as in international relations theory, “soft law” instruments including model laws, guidelines, self-regulatory agreements and codes of conduct, are not considered “lawproper”, as they usually do not emanate from interstate agreements; even when soft law is the result of an inter-state agreement its non-mandatory, non-binding nature, deprives it in the eyes of formal theory from the status of law. This formalistic approach to international law remains strong until today and is nowhere more manifest than in the distinction between public and international private law. Traditionally international private law has been called “conflict of laws”, reflecting the view that private international transactions must always be under some national jurisdiction; the concept of transnational private law has not been considered possible for the majority of legal scholars despite the existence of a private form of international trade law, or Lex Mercatoria that goes back to the Middle Ages. A passage by a contemporary textbook on international law, characteristically states: “…there is no such thing (as transnational law). No legal order exists above the various national legal systems to deal with trans-border interactions between individuals” (Malanczuk, 1997 p.72).
Towards a new Regulation: NSAs and the Public / Private Dichotomy
As we just saw, international relations scholars have long professed the primacy of the state as the focal point of analysis in the international system. Moreover, they have largely ignored the internal structure of states treating them as unitary actors, implicitly sharing the assumption of legal theorists of a clear separation between public and private spheres. In this separated world, law and regulation fall clearly in the domain of public affairs where the state both domestically and internationally is the only legitimate actor. Based on this separation, international legal scholars have in turn similarly treated the state as the sole legitimate source of international legality. As soon as one starts examining the current reality of international and transnational relations however, it is evident that this dichotomy is being increasingly undermined by a number of social, technological and economic changes and is gradually giving its place to a much more
complex social, economic and regulatory environment both domestically and internationally. Indeed, a brief look at the history of regulation in the domestic setting will demonstrate how the foundation stone of modern international political and legal analysis, the assumption of a distinct legal sphere and its identification with state authority, is a social construct whose limits and even its existence have always been defined by the characteristics of the wider economic and political system. Law and the History of the Public / Private Distinction In his review of the history of the distinction between the public and private spheres in law, M.J. Horwitz (1982 p.1423) argues that “the distinction between the public and private realms arose out of a double movement in modern political and legal thought. On the one hand with the emergence of the nation-state and theories of sovereignty in the sixteenth and seventeenth centuries, ideas of a distinctly public realm began to crystallize. On the other hand, in reaction to the claims of monarchs and, later, parliaments to the unrestrained power to make law, there developed a countervailing effort to stake out distinctively private spheres free from the encroaching power of the state”. The advent of capitalism and the consolidation of “states” accompanied by mercantilist policies combined to create a public realm identified to a large degree with the state and a separate private realm of private activity. Sovereignty and the development of public law relating to it changed the way the economic and social affairs of the state were ruled. At the same time an identification of a private sphere as opposed to the public realm of the state started to emerge. According to Horwitz (1982 pp.1424-26) the political and economic liberalism of the 19th century was the primary cause of this development, especially in terms of the legal profession. On the other hand the influence of the liberal political economy meant that the liberal state, as understood by the dominant Dicean constitutional legal doctrine, was based on a clear separation from the activities of private actors which belonged to the market. The dual liberal movement of elevating the market as the paramount economic mechanism for production and distribution and the acknowledgement of a set of private rights for the individual whose protection was an overriding concern in order to avoid both the oppression of the newly formed state authorities and the oppression of the “tyranny of the majority” from an increasing number of democratic governments, led to the attempt by the legal profession to create a “… legal science that would sharply separate law from politics”, “…private law came to be understood as a neutral system for facilitating voluntary market transactions and vindicating injuries to private rights” (Horwitz, 1982 pp. 1425-26). It was not long however, before this distinction came under attack. Two developments contributed to this trend: on the one hand, the rise of the private power of large scale concentrations of capital, that rivalled in power the government itself, and on the other hand, the increasing appearance of market failures (Harden and Lewis, 1986 p.58) which had become all the more evident by the inequalities and failures of the industrialization process. The political movements that were created to a large degree in response to these failures (Marxism and the various Socialist variants) also put pressure
on governments to extent their intervention to spheres of activity previously considered private (Clarke, 2000). After WWII a complex mixture of attitudes towards the public/private distinction occurred. This mixture was made up by three components. First there were the traumatic experiences of the Interwar years and the Second World War which led to a political and economic review of the relationship between the state and the individual. At the political level, democracy was reborn after the bitter memories of totalitarian regimes during the interwar years and the need to protect the individual from the state was very powerful after the horrors of WWII. This changed attitude towards individual rights was enshrined in constitution: “…the change in attitudes could be charted through constitutional reforms. These displayed a concern for human rights born of bitter wartime experience, and an awareness of the need to defend the individual against the power of the state” (Mazower, 1999 p. 291). At the economic level, economic security was once again linked with the memories of the past and the potential of economic malaise to lead to political upheaval and war. The “embedded liberalism” compromise (Ruggie, 1982) was aiming at economic growth and full employment. The economic gains of capitalism were to be distributed more equally using the apparatus of the emerging welfare state. On a second level the rebirth of democracy and the will to protect the individual from the potential abuse of state power was strengthened by the values of political liberalism itself. The inherent characteristics of liberalism and the individualism that it promotes led to an even greater emphasis on the rights of the individual not only at a political but also at an economic level. Ironically this effort to protect individual rights led to more government intervention as the government was the only legitimate guardian of the “public interest”. These changes served to fix in the conscience of people the duty of the state to protect individual rights, especially against market failures. This idea, now part of the public consciousness has been reinforced in recent years by the changing nature of capitalism itself. The economic growth of the last few decades created a whole new culture of “consumerism”, which is at the centre of modern capitalism (Clarke, 2000 p.15). The trust of the consumer is the basis for the success of “brand names” and “brand loyalty”. In this context the rights of the consumer have been further elevated as a crucial factor of the modern industrial society that have to be protected. Things have become even more complicated due to the policy turn towards neo-liberal economic orthodoxy in many industrial states in recent years and the ever intensifying competition on an increasingly global scale. These factors in combination with technological developments, have led to an increased use of primary and secondary capital and debt markets as compared to credit mechanisms. This in turn means that the rights of the anonymous, small investors that do not have the means or knowledge to accurately assess the risks involved with such markets, need public protection. Finally, technological development and “… the constant change and increasing complexity of the division of labour…” (Clarke, 2000 p.19), create new areas of potential risks for the individual, new demands for protection. Technology has created a whole new sphere of possible risks ranging from environmental hazards to consumer product safety to internet security and privacy issues. On the other hand, technology has allowed the proliferation and distribution of vast amounts of information and has also contributed to an increasingly complex division of labour. Different, functional spheres with their
own professional and cultural identity emerge that demand increasing clarification in their contact with other spheres. According to Clarke, these two changes combined with “…a sharply increased “consumerist” demand for security” (2000 p.19), have led to the rise of the “regulatory society”. This invasion of several aspects of economic and social life from both sides, continued in the last part of the century. The adoption of neo-liberal policies by an increasing number of states, including privatization and de-regulation have not actually led to a reduction of regulation. On the contrary, privatization has created a need for more regulatory agencies to control the conduct of the newly privatized industries and deregulation has usually meant re-regulation along more market-oriented policies, including self-regulatory mechanisms. Self-regulation however, does not mean complete autonomy for the market. Given the, by now, established societal demand of protection of the rights of the individual as either a producer or consumer of economic activity, these changes have led to an increase in the number of agencies, themselves of a quasi-public/quasiprivate nature, which are charged with the monitoring of the regulatory duties delegated to self-regulatory agencies. This stronger, governmentally mandated, type of self-regulation points to a new era of widely delegated public regulatory powers to an array of mechanisms mostly of self-regulatory nature, with the government keeping for itself a role of “high supervision”. In this wider context of self-regulation therefore, the private sector has acquired the legitimate role of a public regulator in a number of functionally distinct spheres of activity. This essentially means a publicly institutionalized mode of selfregulation, where part of the governmental authority has been passed on to a private association. In the context of the regulatory society the state recognizes its inability to directly implement the delegated policy patterns, and in its effort to avoid the costs of such a direct involvement without having to completely sacrifice its policy objectives, reaches this compromise of delegated self-regulation. This compromise falls within a wider policy trend of the modern state, which according to Harden and Lewis (1986), has raised in importance the bureaucratic legal model vs the liberal–democratic model. Given the continuous expansion of the regulatory needs of modern society, the state is not any more in a position to govern public life through statutes; administrative rules targeted at specific results tend to replace legislation. In the context of this administrative and resultoriented approach to law and regulation, self-regulation arrangements have been one of the preferred policy options of the state in recent years.
Regulation beyond the State
From the previous discussion the socially constructed character of the public/private dichotomy has become evident. As we have shown, technological, economic and political changes in the societies of advanced industrial states in recent decades have led to the increasing engagement in a variety of regulatory functions by private actors, resulting in a gradual blurring of the public/private divide. The same structural political, economic and technological changes have affected international affairs and the role of NSAs at the transnational level. In recent years the globalization debate has shown how these changes are transforming rapidly not only domestic societies and economies but perhaps even
more profoundly international and transnational affairs. It is exactly these developments within the wider process of globalization that now seem to alter the effects of the anarchic nature of the international system, and increasingly allow private actors to adopt a transnational regulatory role with increasing legitimacy. Indeed, our argument is that the inherent characteristics of the anarchical international system boost this process at a faster rate and with deeper consequences at the transnational arena. Before demonstrating how this change has come about however, let us first examine the effects of anarchy on international and transnational regulation. Regulation and the Anarchic International System Anarchy for most scholars of international relations is the defining characteristic of the international system. The difference is of course that neoliberals, constructivists and neorealists, all disagree about the implications of anarchy for international cooperation. The reason for this divergence in conclusions may partially lie with the different aspects of the concept of anarchy that each school of thought tends to emphasize. As Milner (1993) has noted, the concept of anarchy has often been used in a different way by different scholars. Thus, although most tend to define anarchy as the lack of an international common government, their understanding of what this actually means may be quite different. Realists tend to emphasize the absence of a central authority to manage and employ legitimate force in the international system; institutionalists focus more on the absence of institutions and laws to govern and regulate the behaviour of states; while constructivists see anarchy as the absence of a central authority that can provide uniform norms of behaviour and a common sense of identity. In this study, since we are interested with regulation, our definition of anarchy tends to be closer to the one usually identified with neoliberal institutionalism: anarchy is defined here as the absence of a common international government, itself conceived as a lack of a central coordinating authority enjoying global legitimacy in creating laws for the global community, having judiciary mechanisms to arbitrate disputes relating to these laws and an administrative infrastructure to administer and enforce these laws and the decisions of the judiciary. As evident, there are some important differences with neoliberal institutionalism. In the above definition we refer to global and not international community and legitimacy in order to ensure the inclusion of non-state actors, usually excluded from both neorealist and neoliberal cooperation theories. Moreover, the insight of constructivism regarding the importance of norms and the intersubjective nature of international institutions is particularly important for our definition of anarchy and its consequences in terms of regulation. Finally, since we are interested in non-state transactions and contacts across borders, the analysis will focus on the effects of anarchy on the capacity of non-state actors to carry out their transnational operations and manage them in an efficient manner. Examining the first of the functions absent in an international anarchic environment, that of a legislature, it is obvious that at the international level there is no central mechanism endowed with the powers to initiate and create law. As we saw earlier, international law can only be created through the cooperation of states. A consensus must be reached and states must give their consent for any new international legal
arrangement. This means that the potential for international regulation is not promising. This is because international law is devoted to a large degree to issues relating to governmental actions and behaviour. That is why international law is generally known as international public law, as opposed to international private law which deals with “…trans-border relationships between individuals…” (Malanczuk, 1997 p.72). We previously noted that according to the dominant doctrine of legal positivism, only states can be proper subjects of international law, while individuals and other non-state entities derive any rights they may have from their nationality; as Professor Brownlie notes (1998 p.48): “…it still cannot be said that the individual per se is a subject of international law. The principal connection between the individual and the system of international law is still via the status of nationality”. This consequently means that issues relating to private sector activities usually fall outside the domain of international law. The problem with this kind of treatment of course, is that in an increasingly integrated and interpenetrated global economic environment, the rising volume of transnational business relationships and disputes is left unaddressed by international law. This leaves an institutional and legal gap across most of private business activities at a global level. Things are not much better at the judiciary level. With no common central system to arbitrate disputes between states, arbitration is largely an issue of interpretation. In private sector disputes, things are much worse. For, if at the inter-state level the public arbitration of legal disputes is inefficient at the transnational level it is absent. Since international private commercial law is treated as a conflict of laws issue, private actors embark on a search for the most favourable jurisdiction to decide their dispute. Courts must decide first in which jurisdiction the dispute should be settled. Once this is established the dispute will have to be judged according to the national laws of that jurisdiction. Given the problems, delays and costs involved in such procedures, private transnational arbitration has increased rapidly in recent years. According to Cutler (2003 p.225): “…there has been such a tremendous explosion in both institutional and normative structures facilitating arbitration that most trade experts would agree that private arbitration has eclipsed national adjudication as the preferred method for resolving international commercial disputes”. States have actually widened the institutional gap of inter-state business arbitration by providing support for private arbitration mechanisms. States in recent years have been encouraging the use of private arbitration through the development of laws for the enforcement of foreign arbitral awards. Moreover, states while unable to reach substantive inter-state agreements for the arbitration of business disputes have been able to reinforce the delegation of judicial authority to the private sector. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) obliges the signatory states to acknowledge and enforce such arbitration awards. According to the latest available data, 134 countries have now adhered to this convention1. Moreover the United Nations Commission on International Trade Law (UNCITRAL) developed in 1976 its Arbitration Rules and in 1985 the Model Law on International Commercial Arbitration, which lay down rules to be used in private arbitration procedures. Many countries have already put into effect the Model Law while the Arbitration Rules are used alongside other sets of private arbitration rules in
Data from the UNCITRAL internet site. Available from:<http://www.uncitral.org/en-index.htm> [Accessed July 19th, 2004].
international private arbitration institutions such as the International Chamber of Commerce (ICC) Court of Arbitration, the American Arbitration Association and the London Court of Arbitration. It should be noted here that private arbitration is quite different from the normal judicial process: “Unlike in judicial proceedings where judges are bound to produce judgments and reasons and have a duty to admit interested parties as interveners, private arbitrations are concluded in secret with no publication requirement or rights of public access” (Cutler, 2003 p.233). Moreover, the parties to a dispute usually have the right to choose the arbitration rules, the arbitrator, the procedures of the arbitration and even the national laws applicable to the case. The final institutional dimension of a central government absent at an international level is an administrative infrastructure to administer and enforce international legal agreements. Again, this is more evident in the case of transnational business relations. Since international private commercial law is viewed as a conflict of laws issue, in arbitration cases, once the appropriate jurisdiction has been agreed upon, the national authorities of that jurisdiction have the power to enforce the rules applying to the dispute. Generally in the absence of a dispute, given that a commercial entity always has to operate within the boundaries of a state, it is subject to the laws of that state. Notwithstanding the reality of a territorial operational base for business, this approach apart from the efficiency problems that were discussed earlier also runs into a completely new category of problems such as multiple jurisdictions for transnational corporations (TNCs), which are notoriously difficult to resolve and often result in spectacular international regulatory failures2. These new regulatory challenges are a quite recent phenomenon and are mainly attributed to the process of globalization. From the above analysis it is evident that anarchy places a number of constraints on the capacity of non-state actors to conduct their cross-border relations. These constraints create an institutional and legal gap which increasingly forces private actors to address it by creating private institutional and regulatory arrangements (e.g. the private arbitration schemes mentioned above). Anarchy thus, plays a key role in undermining the authority of the state in the international system as it leads to a diffusion of authority to an array of non-state actors. In a sense it is ironic that the anarchical nature of the international system, traditionally used as the basis of the state-focused mainstream theories should have such an effect on state authority. As mentioned earlier, this transformation of the consequences of anarchy for the role of the state is mainly due to the recent changes introduced by the process of globalization. Regulation in a Globalizing World When changes occur at a global level that greatly increase the inter-connectedness and interdependency of states, societies and markets, while the international political system remains inherently anarchic, it is inevitable that this absence of central authority will not result in a bolstering of state power but rather in a diffusion of authority to a multitude of
The failure of the Bank of Credit and Commerce International (BCCI), with headquarters in Luxembourg, operations in London and ownership in Abu Dhabi is one of the most celebrated examples (see Kapstein, 1994).
actors that try to manage their everyday operations. Globalization is a complex and multifaceted phenomenon. In this study we are interested in several aspects of globalization which contribute to the gradual change of the mechanisms of global governance and in particular their legal dimension. In this context, Cutler (2003) identifies three such changes: juridification, pluralization and privatization of law at the transnational and international level. While privatization is not analytically distinct from pluralization, we shall use the same classification here, as it makes clearer the regulatory role of non-state actors. Juridification The phenomenon of juridification is defined by Cutler in relation to international commerce: “…legal and juridical concepts, institutions and ideologies are used with increasing intensity, in terms of both their expanded scope and their deep penetration into local/legal/social orders, to substantiate and legitimate claims to political authority” (2003 p.18). This definition is different from the definition of legalization of international politics, adopted by the authors of the special issue of International Organization in 2000 on the legalization of world politics: “…a particular form of institutionalization characterized by three components: obligation, precision, and delegation” (Abbott, et al., 2000 p. 401). Both approaches seek to demonstrate the increasing frequency of legal arrangements in the conduct of international affairs. The approach adopted here, shares some of the attributes of both approaches but in accordance with our definition of regulation, is closer to the definition of Cutler which is more open, encompassing a variety of legal instruments and even ideas that go beyond the traditional state-centric view of international law, and explicitly addresses both the scope and depth of penetration of legal arrangements in the national domain. Moreover, these arrangements are linked with new sources of authority and legitimacy. In order to understand this process, we need to look at its causes and consequences. The reasons behind this increasing reliance on legal–type arrangements are to be found in the parallel processes of globalization. A variety of processes have contributed to an increasingly integrated world. Two such processes identified by Frankel are most relevant here: “The two major drivers of economic globalization are reduced costs to transportation and communication in the private sector and reduced policy barriers to trade and investment on the part of the public sector” (2003 p.45). In relation to the latter, Helleiner (1994) has argued that three important policy decisions made by states after the 1950s concerning expanding liberalization policies, capital mobility and the prevention of major financial crises have contributed to globalization. This policy trend which, if anything, has strengthened in recent years, has led to an increasing liberalization of trade, finance and investment. The immediate implication in terms of juridification is that international liberalization is a process that has to be agreed upon and coordinated by states. It is no accident that in recent years we have seen the evolution of the GATT into the World Trade Organization (WTO), a formal organization with an internationally agreed legal status which expanded liberalization and legal reform in a number of new policy areas such as services (General Agreement on Trade in Services) and intellectual property rights (Trade-Related Intellectual Property Rights). Moreover,
WTO has an explicit, unique, formal mechanism for dispute settlement among its members that entails specific obligations for member-states, backed by sanctions. In addition to the proliferation of multilateral legal arrangements in recent years we have also witnessed an explosion of regional economic agreements. According to the ICC Policy Statement on “Regional Trade Agreements and the Multilateral Trading System” (2002)3: “A total of 162 regional trade agreements notified under the GATT and the WTO are in force today. Between 100 and 200 new regional trade formations are anticipated by 2005. Regional or bilateral agreements may bring faster results than the multilateral process, may enable parties to conclude levels of liberalization beyond the multilateral consensus, and may be able to address specific issues that do not register on the multilateral menu”. It is thus, the proliferation of multilateral, regional and bilateral legal agreements that contributes to the growing juridification of international affairs. In this increasingly liberal, open global economic environment, TNCs, transnational financial institutions, and financial markets enjoy a dominant role. These actors’ capability to influence the world economy is further enhanced by technological progress. In addition to lower costs to transportation and communication which have led to an exponential growth of transnational economic activity, intra-firm trade and financial transactions, technological innovation itself has created entirely new opportunities for transnational actors such as the increasing adoption of a network organization form by TNCs, and the gradual migration of markets to cyberspace (Kobrin, 2002). Such organizational and operational changes in international business and finance, combined with an increasingly liberal and open global economic system have led to the penetration of national financial, product and services markets by transnational companies and investors. This in turn has resulted in a high degree of interconnectedness and interdependence among national economies. The implications of this situation for global economic governance at an inter-state level are twofold: First, governments are not entirely autonomous in the conduct of their economic policy, which means that they have to cooperate more closely in order to ensure an efficient global economic system. Secondly, the risk of contagion of a crisis originating in one part of the world to the rest of the world economy is now very high, as became evident in the late 1990s by the East Asian Crisis. Such crises stimulate cooperative initiatives by states in order to ensure the global financial and economic stability. The Financial Stability Forum (FSF) was created in 1999, in the wake of the East Asian Crisis, to promote international financial stability through “information exchange and international co-operation in financial supervision and surveillance”4 by bringing together national financial regulatory authorities, international financial institutions, international organizations of regulators and supervisors, transnational non-governmental organizations and central bank officials. It has endorsed twelve standards characterized by the FSF as “internationally accepted as important for sound, stable and well functioning financial systems” and “deserving of priority implementation taking account of country circumstances”5. From the above
ICC Policy Statements (2002), ICC internet site. Available from: <http://www.iccwbo.org/home/statements_rules/statements/2002/Regional%20trade%20agreements_ multilateral%20trading%20system.asp> [Accessed July 19th, 2004]. 4 Home page, FSF internet site. Available from:<http://www.fsforum.org/home/home.html> [Accessed July 19th, 2004]. 5 The Compendium of Standards, FSF internet site. Available from: <http://www.fsforum.org/compendium/about.html> [Accessed July 19th, 2004].
analysis, it becomes clear that juridification is really the result of legal arrangements accompanying increased inter-state cooperation, progressively perceived as necessary in the context of an increasingly open and integrated world economy. Pluralization Juridification however is not limited to inter-state cooperative arrangements and institutions. A distinct feature of the integrating global economy is the emergence of a variety of sources of rule–making arrangements. Despite the varying levels of formal legality of such arrangements (soft law) they remain important for the regulation of the conduct of the participating parties. The multiplicity of sources for such rules lies at the heart of the pluralization of transnational law. As Teubner observes the source of global law is: “… the proto-law of specialized, organizational and functional networks which are forming a global but sharply limited identity” (1997 p.7). Such alternative sources of transnational law can be trans-governmental organizations or organizations comprised of public national regulators which often have statutory independence from governments, like the International Organization of Securities Commissions (IOSCO), the Basle Committee on Banking Supervision of the Bank for International Settlements (BIS) and the International Association of Insurance Supervisors (IAIS). These organizations have increasingly been used as the main sources of transnational supervisory regulation especially in the area of finance and as the driving force for the harmonization of different national regulatory frameworks. Their expertise in the context of a global and rapidly changing economy is deemed crucial for the efficient supervision of private actors and markets and the harmonization of national regulations to ensure a sounder but nonetheless more open and interconnected world economy. Despite the fact that the participating bodies in these organizations are public bodies in their national jurisdictions, this does not always mean that they are part of the government. Indeed in many cases these bodies (for example central banks), are independent in the performance of their public functions from government intervention. Of course it would be naïve to assume that these organizations are entirely free from national governments’ influence but their arm’s length relationship with government and most importantly their “monopolistic” status as owners of expertise in the area they regulate, make their decisions independent to a considerable degree. Indeed, their desire to avoid the politicization of their sphere of influence is evident: “We don’t deal directly with governments…we did not want to make this a political organization…[W]e felt if there was a governmental international organization, then we would get involved in all the politics of the government instead of dealing with the issues…”(Underhill, 1995)6. Privatization Most importantly, pluralization is also promoted by the global reach of corporate transnational actors in need of a framework of reference in order to communicate with each other, to make transnational commercial alliances and to resolve disputes. The need
The quote is from Paul Guy, at the time Secretary General of IOSCO.
for such a framework, itself a reflection of the failure of an anarchic international system to provide the required legal and institutional arrangements for the conduct of transnational affairs, has resulted in the proliferation of private transnational standardsetting organizations. The work of these organizations ranges from technical standards,7 to commercial standards,8 to the harmonization of diverse national commercial legal frameworks9. In addition, increasingly important is the emergence of an ever more active global civil society movement. The global civil society movement, itself made possible through the development of communication and transportation technologies, is having a significant influence on the processes of both inter-state juridification and non-state legal pluralization. Both contributions are the result of the pressure of civil society organizations (CSOs) to governments, international organizations, TNCs and transnational financial institutions which have to increasingly expand their range of regulatory arrangements to include issues concerning among other things the environment, human rights, child labour, corruption and economic development. In terms of privatization this pressure has led to the current debate on corporate social responsibility. Pressurized by the growing public awareness of their operations, TNCs are producing with increasing frequency individual codes of conduct which include explicit covenants on the social, cultural and moral responsibilities of the company irrespectively of the country in which its operations may be located and which in many instances can be used as the basis for formal legal action in national courts10. Globalization, Global Governance and the Theoretical Treatment of NSAs We have demonstrated how the constraints of the anarchical international environment, combined with the structural changes of globalization have resulted in a increasing juridification of international affairs, itself characterized by a pluralization and privatization of the sources of the emerging regulatory schemes. Despite the changes that globalization has introduced for the creation and use of regulatory arrangements however, the treatment of non-state actors in the context of the globalization debate has not been unproblematic; most of the scholars engaged in the debate, have not treated NSAs as autonomous actors in the international realm capable of having a legitimate place as transnational actors alongside states and international organizations. Generally the literature on NSAs within the globalization debate has been divided into studies examining “civil society” actors and research concentrating on corporate sector actors. In the first category the focus is on the creation of a new global civil society movement conscious of itself and a number of shared global concerns, which usually operates
International Organization for Standardization (ISO); European Telecommunications Standards Institute
(ETSI); Internet Society (ISOC); Internet Engineering Steering Group (IESG).
Internet Corporation for Assigned Names and Numbers (ICANN); International Chamber of Commerce (ICC); International Association of Classification Societies (IACS). 9 International Accounting Standards Board (IASB); Comite Maritime International (CMI). 10 See Maitland and Murray (2004), for the recent example of Nike being sued for false reporting on the “social” part of its annual report and the pressure on companies to produce a social responsibility account of their operations.
through lobbying of national governments or international organizations. On the corporate side of NSAs, multinational and transnational companies have been the centre of attention. Again however, their influence is usually examined through the lenses of state authority treating their activities as a lobbying exercise targeting the attention of governments and IOs. Alternatively, they are viewed, particularly by the globalist school of thought, as carriers of technological and economic change by empowering business operations and transactions across borders. Without clear jurisdictional authority or liability and unconstrained from the limits that national borders are traditionally thought to impose, they bring about the gradual weakening of the state. Even in this radical role however, which directly undermines the authority of the state, NSAs are not conceptualized as politically autonomous actors, acting decisively to shape and guide the formation of governance structures for the global economy. As the globalization debate progressed and the theme of global governance emerged, scholars and analysts started to address the issue of NSAs more systematically. In 1999 Cutler, Haufler and Porter, who had previously addressed the issue of NSAs and the operation of private regimes (Porter, 1993; Haufler, 1993, 1997; Cutler, 1995, 1997, 1999), edited a volume that focused specifically on the under-researched role of corporate sector NSAs as legitimate autonomous actors that are gradually becoming an integral part of the global governance system. In recent years other important contributions followed in the form of edited volumes (Higott, Underhill and Bieler, 2000; Josselin and Wallace, 2001; Hall and Biersteker, 2002) and texts examining specific aspects of governance structures created by private actors (Haufler, 2001; Cutler, 2003). This new literature brought to light the variety of tools and channels of influence that NSAs employ in their everyday operation forming a web of transnational activities and structures. This diversity of operations, alliances and institutional arrangements demonstrates the paucity of traditional inter-state analysis of international affairs which misses out on a wealth of insights from a variety of non-state sources. Non-State Actors and Transnational Regulatory Arrangements Private transnational regulation, despite the fact that it is neglected by conventional approaches of both international relations and law, is one of the main tools in the hands of NSAs in their effort to provide guidance and regularity to their transactions. Soft law instruments such as codes of conduct, standards and guidelines, increasingly determine and shape the governing institutions and arrangements on which the operation of the global economy rests. The remedy of this mismatch between reality and theory has been one of the main drives of the recent, emerging literature on NSAs. As Cutler notes in her conclusions: “Processes of juridification, pluralization and privatization are transforming structures of authority….”, “This is producing a growing disjunction between the theory and the practices of the Westphalian system. This disjunction suggests that the fields of international law and organization,….. are experiencing a crisis” (2003 p.241). This “legitimacy crisis”, becomes evident as soon as we start taking a look at the reality of transnational regulation. Since WWII there has been a dramatic increase in international legal arrangements, instruments and institutions. There has also been a huge growth of transnational private legal arrangements. Von Ziegler (2000) points to the
predominance of private arrangements in the particular case of international trade law. Most international trade law has been created by private NGOs. In these private attempts, the private sector is the initiator, creator and user of the rules. Of course according to the traditional doctrine these rules are non-law. “The distinction between law and non-law is based on a hierarchy of legal rules where the higher rules legitimate the lower ones” (Teubner, 1997 p.xiii). Globalization breaks this frame and we have heterarchy instead of hierarchy and consequently decentralization of political law–making. Teubner argues that: “…global law will grow mainly from the social peripheries, not from the political centres of nation-state and international institutions” (1997 p.7). This is in essence a theory of legal pluralism. Moreover, these rules are not only used for consultation or as spheres of functional knowledge, constitutive of a transnational, functional identity. As the example of private transnational trade law and the accompanying practice of private commercial arbitration described earlier show, these rules are often accompanied by specific obligations and sanctions which are being implemented by the parties concerned and often are even adopted or accepted by governments as legal instruments. Indeed it is this regulatory function that turns them into private, transnational law; “…it is the implicit or explicit invocation of the legal code (legal/illegal) which constitutes phenomena of legal pluralism” (Teubner, 1997 p.14). Therefore, despite the absence of formal legality as defined by conventional international public or private law, these instruments do have a legal character, since they are accepted by the regulated parties as legitimate rules, clearly defining permissible and non-permissible behaviour. The soft-law qualities of NGOs regulations are often attributed to the fact that most NGOs produce technical standards, which are market-based, voluntary standards that national legislations seldom aim to regulate anyway. This however is misleading, because in technologically advanced industries (e.g. internet and telecommunications), these standards can determine the future course of technological innovation and can have important long-term economic and political consequences. Generally, the growth of transnational regulation is more evident in newly formed industries brought to life by technological progress such as the internet or biotechnology. Developing rapidly, based on continuously growing knowledge and expertise, they create legal vacuums in issue areas that are highly political and controversial (e.g. human cloning, privacy of information). In these industries NSAs regulation is proving the norm, as national state apparatuses are too slow and bureaucratic and lack the necessary expertise to follow the progress of the industry. However it is not just in new industries that governance is increasingly provided by the private sector. Indeed in a number of well established industries, transnational regulation has started replacing earlier forums of inter-state law formation such as the United Nations’ specialized agencies. In the pharmaceuticals industry, until the 1980s it was the World Health Organization (WHO), operating under the auspices of the UN that was seen as the most promising avenue to international cooperation and coordination of pharmaceuticals’ regulation. In the 1990s though, WHO has largely been replaced by a mixed membership organization (states and manufacturers’ associations participate with equal voting power) the ICH (International Conference on Harmonization). Moreover, NSAs often regulate areas of a clearly political and non-technical nature. In a number of industries NGOs produce regulation which affects important
policy issues and principles that are usually dealt with in national legislations (e.g. the shipping conventions of the Comite Maritime International (CMI) concerning safety at sea and financial liability rules in case of accidents; the ICH drug approval guidelines; IASB’s accounting standards). Furthermore, while in most industries the standards made by NSAs are voluntary and non-binding, it is often the case that these standards are adopted by governments as binding national legislation. Indeed standards produced by the three organizations mentioned above (shipping standards produced by the CMI, harmonization guidelines promoted by ICH and the International Accounting Standards produced by the IASB) have been adopted as national legislation (often replacing previous legislation) by a number of governments.
The preceding analysis has highlighted the shortcomings of the traditional approaches of both international relations and international law scholars in relation to Non-State Actors and their capacity to have a significant influence on both the form and content of transnational regulatory arrangements. The main objection traditional approaches would have with such a role for non-state actors would be that the arrangements they conclude do not constitute proper legal instruments. However, this is a statement to be proved and not to be taken for granted based on previous scholarship and theoretical constructs that do not fit well with the transforming reality of a globalizing world. As evidenced by changes at both the domestic and transnational environment, the traditional public/private separation in law and the identification of the capacity to make rules solely with the state, are being undermined. New legal instruments are increasingly needed in an interdependent and interconnected world. The authority vacuum created by international anarchy leads under the pressure of an increasingly globalizing world to a shift of governance initiatives from the states to NSAs. The multiplicity of the sources that these instruments emanate from and the diversity of their form do not negate their significance as regulating arrangements clearly ordering and directing the behaviour of actors in their transnational activities. Moreover, these instruments are not limited to technical standards but can address substantive issues with great economic and political significance. Indeed the tolerance or even adoption by states of regulation created by private transnational organizations for issues formerly regulated through national legislatures, has reinforced the role of NSAs as part of the global governance apparatus and makes the reluctance of formal mainstream theory to acknowledge them as legitimate organs of transnational regulation even more outdated. In view of these developments a new, inclusive approach to international law and regulation is needed. This approach will break free of the sterile public/private dichotomy, it will focus on the actual reality of non-state schemes regulating the behaviour of transnational and often national actors and it will be able to analyse and shed light to the potential consequences of private transnational regulation for the efficiency, equity and democratic accountability of the global governance structure.
Bibliography Abbott, K. W., Keohane, R. O., Moravcsik, A., Slaughter, A. M. and Snidal, D. (2000) The Concept of Legalization. International Organization, 54, (3), pp.401-419. Axelrod, R. M. (1984) The Evolution of Cooperation. New York, Basic Books. Baldwin, R., Scott, C. and Hood, C. eds. (1998) A Reader on Regulation. Oxford, Oxford University Press. Basedow, J., Meier, I., Schnyder A. K., Einhorn, T. and Girsberger, D. eds. (2000) Private Law in the International Arena – Liber Amicorum Kurt Siehr. The Hague, T.M.C. Asser Press. Black, J. (1996) Constitutionalising Self-Regulation. The Modern Law Review, 59, January, pp. 24-55. Brownlie, I. (1998) The Rule of Law in International Affairs, International Law at the Fiftieth Anniversary of the United Nations. Kluwer Law International, The Hague. Cerny, P. G. (1993) Finance and World Politics: Markets, Regimes and States in the Post-Hegemonic Era. Aldershot, E. Elgar. Clarke, M. (2000) Regulation: the Social Control of Business between Law and Politics. Basingstoke, Houndmills, Hampshire and London, Macmillan. Cutler, A. C. (1995) Global Capitalism and Liberal Myths: Dispute Settlement in Private International Trade Relations. Millennium: Journal of International Studies, 24, (3), pp.377-397. Cutler, A. C. (1997) Artifice, Ideology and Paradox: the Public/Private Distinction in International Law. Review of International Political Economy, 4, (2), pp.261-285. Cutler, A. C. (1999) Locating Authority in the Global Political Economy. International Studies Quarterly, 43, (1), pp. 59-81. Cutler, A.C. (2003) Private Power and Global Authority. Cambridge, Cambridge University Press. Cutler, A. C., Haufler, V. and Porter, T. eds. (1999) Private Authority and International Affairs. Albany, State University of New York Press. Frankel, J. (2003) Globalization of the Economy. In: Nye, J. S. Jr. and Donahue, J. D. eds. (2003) Governance in a globalizing world. Washington, D.C., Brookings Institution Press. Garten, J. E. (1997) Business and Foreign Policy. Foreign Affairs 76, (3) May/June, pp. 67-78. Gessner, V. and Budak, A. C. eds. (1998) Emerging Legal Certainty: Empirical Studies on the Globalization of Law. ONATI International Series in Law and Society, Brookfield USA, Aldershot UK, Dartmouth Ashgate. Haggard, S. and Simmons B. A. (1987) Theories of International Regimes. International Organization 41, (3) Summer, pp. 491-517. Hall, R.B. and Biersteker T.J. (2002) The emergence of Private Authority in Global Governance. Cambridge, Cambridge University Press. Harden, I. and Lewis, N. (1986) The Noble Lie: the British Constitution and the Rule of Law. London, Century Hutchinson Ltd. Hasenclever A., Meyer P. and Rittberger V. (2000) Integrating Theories of International Regimes, Review of International Studies, 26, (1), pp. 3-33.
Haufler, V. (1997) Dangerous Commerce: Insurance and the Management of International Risk. Ithaca N.Y., Cornell University Press. Haufler, V. (1993) Crossing the Boundary between Public and Private: International Regimes and Non-State Actors. In: Rittberger, V. ed. (1993) Regime Theory and International Relations. Oxford, Clarendon. Haufler, V. (2001) A Public Role for the Private Sector: Industry Self-Regulation in a Global Economy. Washington, D.C., Carnegie Endowment for International Peace. Held, D. and Archibugi, M. K. (2003) Taming Globalization: Frontiers of Governance. Oxford, Polity. Helleiner, E. (1994) States and the Reemergence of Global Finance: from Bretton Woods to the 1990s. Ithaca and London, Cornell University Press. Higgott, R., Underhill, G. R. D. and Bieler, A. eds. (2000) Non-State Actors and Authority in the Global System. London, Routledge. Horwitz, M. (1982) The History of the Public/Private Distinction. University of Pennsylvania Law Review, 130, (6), pp.1423-1428. Josselin, D. and Wallace, W. eds. (2001) Non-State Actors in World Politics. Basingstoke, Palgrave. Kahler, M. (1997) Inventing International Relations: International Relations Theory after 1945. In: Doyle, M. W. and Ikenberry, G. J. eds. (1997) New Thinking in International Relations Theory. Boulder, CO, Westview Press. Kapstein, E. B. (1994) Governing the Global Economy: International Finance and the State. Cambridge, Mass., Harvard University Press. Keohane, R. O. (1982) The Demand for International Regimes. International Organization, 36, (2) Spring, pp. 325-355. Keohane, Robert O. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton, N.J., Princeton University Press. Kobrin, S. J. (2002) Economic Governance in an Electronically Networked Global Economy. In: Hall, R. B. and Biersteker, T. J. (2002) The Emergence of Private Authority in Global Governance. Cambridge, Cambridge University Press. Krasner, S. D. ed. (1983) International regimes. Ithaca and London, Cornell University Press. Kratochwil, F. V. and Mansfield E. D. International Organization: a Reader. New York, HarperCollins College Publishers. Maitland, A. and Murray, S. (2004) The Trouble with Transparent Clothing. The Financial Times, 12th May, p. 13. Malanczuk, P. (1997) Akehurst's Modern Introduction to International Law. 7th rev. ed., London, Routledge. Mazower, M. (1999) Dark Continent. London, Penguin Books. Milner, H. (1993) The Assumption of Anarchy in International Relations Theory: A Critique. In: Baldwin, D. A. ed. (1993) Neorealism and Neoliberalism: The Contemporary Debate. New York, Columbia University Press. Mitrany, D. (1975) The Functional Theory of Politics. London, Robertson [for the] London School of Economics and Political Science. Mitrany, D. (1948) The Functional Approach to World Organization. International Affairs, 24, (3) July, pp. 350-363.
Nye, J. S. Jr. and Donahue, J. D. eds. (2003) Governance in a Globalizing World. Washington, D.C., Brookings Institution Press. Porter, T. (1993) States, Markets, and Regimes in Global Finance. New York, St. Martins Press. Rittberger, V. ed. (1993) Regime Theory and International Relations. Oxford, Clarendon. Ruggie, J. G. (1982) International Regimes, Transactions, and Change: Embedded Liberalism in the Post-war Order. International Organization, 36, (4), pp.379-415. Stein, A. A. (1982) Coordination and Collaboration: Regimes in an Anarchic World. International Organization, 36, (2) Spring, pp. 299-324. Teubner, G. (1997) Global Law without a State. Aldershot, Dartmouth Publishing. Underhill, G. R.D. (1995) Keeping Governments out of Politics: Transnational Securities Markets, Regulatory Cooperation and Political Legitimacy. Review of International Studies 21, (3) July, pp. 251-278. Von Ziegler, A. (2000) Particularities of the Harmonization and Unification of International Law of Trade and commerce. In: Basedow, J., Meier, I., Schnyder A. K., Einhorn, T. and Girsberger, D. eds. (2000) Private Law in the International Arena – Liber Amicorum Kurt Siehr. The Hague, T.M.C. Asser Press. Wendt, A. (1992) Anarchy is what States Make of it: The Social Construction of Power Politics. International Organization, 46, (2) Spring, pp. 391-425. Woods, N. ed. (2000) The Political Economy of Globalization. New York, St. Martin's Press. Woolf, L. (1916) International Government: Two Reports. Westminster, Fabian Society.
Words: 8,685 Presentation Date: 9th September, 2004.