法学资料集（英文）：国际法——以服从为基础的理论

University of California at Berkeley School of Law International Law: A Compliance Based Theory by Andrew T. Guzman UC Berkeley School of Law Public Law and Legal Theory Working Paper No. 47 April 2001 UC Berkeley Public Law and Legal Theory Working Paper Series UC Berkeley School of Law, Boalt Hall, Berkeley, CA 94720-7200 This paper can be downloaded without charge from the Social Science Research Network Paper Collection at http://papers.ssrn.com/paper.taf?abstract_id=260257 INTERNATIONAL LAW: A COMPLIANCE BASED THEORY Andrew T. Guzman ? April 2001 ? Assistant Professor of Law, Boalt Hall School of Law, University of California at Berkeley. I owe thanks to David Caron, Stephen Choi, Jack Goldsmith, Benedict Kingsbury, Eric Posner, Beth Simmons, John Yoo, and participants at the Boalt Hall International Law and Politics Workshop for helpful discussions and comments. Special thanks to Jeannie Sears and Nicholas James. Ryan Waterman provided excellent research assistance. I am grateful to the John M. Olin Foundation for financial assistance. Contact: guzman@law.berkeley.edu. Abstract This Article examines international law from the perspective of compliance. Using insights from international relations theory, the Article adopts a theory in which compliance comes about in a model of rational, self-interested states. Specifically, states are concerned about both reputational and direct sanctions for their conduct. The model allows us to consider international law in a new light. Most strikingly, one is forced to reconsider two of the most fundamental doctrinal points in the field – the definitions of customary international law (CIL) and of international law itself. A reputational model of compliance makes it clear that CIL affects the behavior of a state because other states believe that the first state has a commitment that it must honor. A failure to honor that commitment hurts a state’s reputation because it signals that it is prepared to breach its obligations. This implies a definition that turns on the existence of an obligation in the eyes of other states rather than the conventional requirements of state practice and a sense of legal obligation felt by the breaching state. Classical definitions of international law look to two primary sources of law – treaties and CIL. A reputational theory, however, would label as international law any commitment that materially alters state incentives. This includes agreements that fall short of the traditional definition, including what is often referred to as “soft law.” The Article points out that there is no way to categorize treaties and CIL as “law” without also including soft law. Agreements such as ministerial accords or memoranda of understanding represent commitments by a state which, if breached, will have a reputational impact. For this reason, these soft law agreements should be included in the definition of international law. The Article also calls for a refocusing of international law scholarship. Because international law works through reputational and direct sanctions, we must recognize that these sanctions have limited force. As a result, international law is more likely to have an impact on events when the stakes are relatively modest. The implication is that many of the topics that receive the most attention in international law – the laws of war, territorial limits, arms agreements, and so on – are unlikely to be affected by international law. On the other hand, issues such as international economic matters, environmental issues, and so on, can more easily be affected by international law. This suggests that the international law academy should focus greater attention on the latter subjects and less on the former. INTERNATIONAL LAW: A COMPLIANCE BASED THEORY I. INTRODUCTION.............................................................................1 II. EXISTING THEORIES OF INTERNATIONAL LAW.................5 A. Traditional Legal Theories ..........................................................6 B. International Relations Theories ................................................13 III. A THEORY OF COMPLIANCE.................................................18 A. A Theory of the Irrelevance of International Law.....................19 B. A Model of International Law ...................................................22 C. Applying the Model – Bilateral Investment Treaties.................29 D. Dynamic Issues ..........................................................................31 E. The Level of Commitment .........................................................34 F. International Law and Coordination ..........................................36 IV. VIOLATION AND COMPLIANCE ...........................................40 A. Reputational Sanctions ..............................................................40 B. Direct Sanctions .........................................................................45 C. When Will Sanctions Work Best? .............................................49 D. Acceptance of Sanctions ............................................................51 V. RETHINKING INTERNATIONAL LAW...................................53 A. Treaties ......................................................................................53 B. A New Definition of Customary International Law ..................54 C. A New Definition of International Law.....................................60 D. Revisiting Existing Theories .....................................................65 E. The Problem of Large Stakes .....................................................68 VI. CONCLUSION ............................................................................72 I. INTRODUCTION International law scholarship has only just begun to feel the influence of the sort of interdisciplinary research that has revolutionized much of the legal academy. Starting with Professor Abbott’s 1989 article, Modern International Relations Theory: A Prospectus for International Lawyers,1 scholars with interests in international relations and economics have begun to apply the tools of these other disciplines to international law.2 The resulting scholarship has presented international law in a new light, and posed new challenges for traditional international law scholars. Most legal scholars and practitioners believe that international law matters in the sense that it affects the behavior of states.3 Conventional theories advanced by legal scholars, however, are considered flawed because they are difficult to reconcile with modern international relations theory, rely heavily on axiomatic claims about national behavior, and lack a coherent theory of compliance with international law. It is fair to say that most conventional international law scholarship does not ask why there is compliance but rather simply assumes as much.4 International relations theory, on the other hand, offers a set of competing theories and a more satisfying account of national behavior. These theories are often skeptical of the role international law has to play in 1 Kenneth W. Abbott, Modern International Relations Theory: A Prospectus for International Lawyers, 14 YALE J. INT’L L. 335 (1989) (hereinafter Prospectus). 2 The most prominent interdisciplinary articles include Kenneth W. Abbott, International Relations Theory, International Law, and the Regime Governing Atrocities in Internal Conflicts, 93 AM. J. INT’L L. 361 (1999); Anne-Marie Slaughter, Andrew S. Tulumello & Stepan Wood, International Law and International Relations Theory: A New Generations of Interdisciplinary Scholarship, 93 AM. J. INT’L L. 367 (1998); Anne-Marie Slaughter Burley, International Law and International Relations Theory: A Dual Agenda, 87 AM. J. INT’L L. 205 (1993); Jack L. Goldsmith & Eric A. Posner, A Theory of Customary International Law, 66 U. CHI. L. REV. 1113 (1999); Jeffrey L. Dunoff & Joel P. Trachtman, Economic Analysis of International Law, 24 YALE J. INT’L L. 1 (1999); John K. Setear, An Iterative Perspective on Treaties: A Synthesis of International Relations Theory and International Law, 37 HARV. J. INT’L L. 139 (1996); Harold H. Koh, Why Do Nations Obey International Law?, 106 YALE L.J. 2599 (1997); John K. Setear, Responses to Breach of a Treaty and Rationalist International Relations Theory: The Rules of Release and Remediation in the Law of Treaties and the Law of State Responsibility, 83 VA. L. REV. 1 (1997); Edwin M. Smith, Understanding Dynamic Obligations: Arms Control Agreements, 64 S. CAL. L. REV. 1549 (1991). In addition, a recent issue of INTERNATIONAL ORGANIZATIONS (Summer 2000) is devoted to an international relations approach to questions of international law. 3 See LOUIS HENKIN, HOW NATIONS BEHAVE 46-48 (1979); Abram Chayes & Antonia Chayes, On Compliance, 47 INT’L ORG. 175, 176 (1993). 4 See e.g., ABRAM CHAYES & ANTONIA HANDLER CHAYES, THE NEW SOVEREIGNTY: COMPLIANCE WITH INTERNATIONAL REGULATORY AGREEMENTS 3 (1995) (“foreign policy practitioners operate on the assumption of a general propensity of states to comply with international obligations”). Compliance-Based Theory 2 the governance of the international system,5 and often ignore “international law” altogether.6 To date, neither conventional international law scholars, nor those adopting an international relations approach, has presented a satisfactory model that is capable of explaining why states comply with international law in some circumstances and violate it in others.7 International law scholarship assumes a high level of compliance and provides little theoretical framework within which to examine the compliance decision while international relations scholars largely ignore the role of international law in national decision making. The failure to understand the compliance decision is troubling because compliance is one of the most central questions in international law. Without a theory of compliance, we cannot examine the role of treaties, customary international law, of other agreements. Nor can we consider how to improve the functioning of the international legal system, or develop a workable theory of international legal and regulatory cooperation. This Article uses the insights of international relations scholarship to address the question of compliance. Unlike traditional international law scholarship, the Article adopts a comprehensive theory in which compliance with international law comes about in a model of rational, self-interested states. Compliance exists because states are concerned with the reputational implications and the direct sanctions of violating the law. The model explains not only why nations comply, but also why and when they violate international law. Using the tools of international relations theory and 5 See Beth A. Simmons, Money and the Law: Why Comply with the Public International Law of Money?, 25 YALE J. INT’L L. 323, 323-24 (2000) (“[L]egal scholars and practitioners believe that the rules at the center of their analysis do indeed matter . . . . Scholars of international relations . . . have been far more skeptical.”); George W. Downs, et. al., Is the Good News About Compliance Good News About Cooperation?, 50 INT’L ORG. 379 (1996). 6 See MICHAEL BYERS, CUSTOM, POWER AND THE POWER OF RULES: INTERNATIONAL RELATIONS AND CUSTOMARY INTERNATIONAL LAW 8 (1999) (“International Relations scholars have traditionally had little time for such questions. Instead, they have regarded international law as something of an epiphenomena, with rules of international law being dependent on power, subject to short-term alteration by power-applying states, and therefore of little relevance to how states actually behave.” ) 7 See, e.g., Robert O. Keohane, International Relations and International Law: Two Optics, 38 HARV. INT’L L. J. 487, 491 (1997) (“We do not yet have a well-specified or empirically tested instrumentalist theory of compliance with international commitments.”); Beth A. Simmons, Compliance with International Agreements, 1 ANN. REV. POL. SCI. 75, 76 (1998) (“far less attention has been devoted to understanding why governments actually comply with such agreements.”); Koh, supra note 2, at 2599 (“Why do nations obey international law? This remains among the most perplexing questions in international relations.”); Thomas M. Franck, Legitimacy in the International System, 82 AM. J. INT’L L. 705, 705 (1988) (“The surprising thing about international law is that nations ever obey its strictures or carry our its mandates.”); Benedict Kingsbury, The Concept of Compliance as a Function of Competing Conceptions of International Law, 19 MICH. J. INT’L L. 345, 345 (1998) (“‘Compliance’ is one of the central concepts in current and proposed research projects using social science methods to study the effect and significance of international law.”). Compliance-Based Theory 3 economics, the article focuses explicitly on international law, explaining why countries care about it, and why they will expend resources in order to avoid violating it (or being perceived to violate it). The Article offers a reply to critics who argue that international law does not matter. To the extent those arguments are based on a theoretical claim, this Article demonstrates that it is possible to construct a theory of rational self-interested states in which international law does, in fact, matter. Because the model is consistent with both conventional wisdom and empirical evidence showing that international law matters,8 as well as the observation that the law is sometimes violated, it offers support to the longstanding claims of international legal scholars that international law affects the behavior of states. On the other hand, the model also raises fundamental questions about international law as it is currently studied. By taking the question of compliance seriously, we gain a new perspective on international law, and that new perspective forces us to question some of the central issues in international law. First, the analysis suggests the need for a new definition of customary international law (CIL). The existing definition of CIL has been the subject of a great deal of criticism, and some have gone so far as to suggest that no such law exists.9 Rather than attempting to salvage the traditional definition, this Article proposes a new one that focuses on whether or not a rule of customary international law affects behavior. It is shown that the requirements of widespread state practice and a sense of legal obligation do not contribute to a useful understanding of CIL. By studying CIL within a reputational model, and with a focus on compliance, it is possible to achieve a deeper understanding of that form of international law. Second, the Article proposes a new, functional definition of international law. Once international law is considered from the perspective of compliance, it is clear that the classical definition of “international law” is under-inclusive, and should be broadened to include not only treaties and customary international law, but also agreements such as ministerial accords, memoranda of understanding, and so on. Like treaties and customary international law, these instruments affect the incentives of countries and, therefore, should be considered international law. Including them allows us to study the full range of international obligations within a single theoretical framework, and, unlike traditional theories, explains why such agreements exist and why they are so popular. Third, it is demonstrated that international law is most likely to affect outcomes when there are many repeated interactions and each of those interactions involves 8 See, e.g., Beth A. Simmons, Money and the Law: Why Comply with the Public International Law of Money, 25 YALE J. INT’L L. 323 (presenting empirical evidence that international law impacts government behavior). 9 See infra V.B. Compliance-Based Theory 4 relatively small stakes. Although this claim is not new, it leads to the conclusion that the topics which have traditionally held center stage in international law -- such as the laws of war, neutrality, arms control, and so on -- are precisely the topics in which international law is least likely to be relevant. This conclusion has two lessons for international law scholarship. The first is that international law scholarship may be unduly focused on these topics. The fact they are arguably the most important issues in international relations does not imply that they should form the centerpiece of international law because international law will often be unable to affect outcomes. Scholars may have a greater impact on human well-being if they devote more energy to areas in which international law can alter outcomes more reliably. These include a range of important areas including economic issues, environmental issues, labor issues, and so on. The second, somewhat more subtle, lesson is that the study of these issues, and the design of international institutions should proceed with an understanding of the limits of international law. International law can play a role in encouraging cooperation, but can only do so if obligations are structured in a fashion that reduces the importance of each compliance decision. For example, an arms treaty, by itself may have little success but a treaty that provides for periodic inspections by a neutral third party may stand a much greater chance of achieving the goal of arms control. Fourth, it is shown that sanctions for violations of international law are generally not optimal. Because sanctions consist primarily of weak military or economic punishment and reputational losses, they are often too weak to achieve optimal compliance.10 Under certain circumstances, however, sanctions can be rationalized and states can be given better incentives. In particular, states can at times be induced to voluntarily submit to dispute resolution procedures and accept sanctions. This is possible where a failure to accept a sanction leads to an even greater loss. The Article discusses the circumstance in which that can occur, and how international interactions can be structured to encourage it. Understanding how to encourage participation in dispute resolution procedures sheds light on the role of international organizations. These bodies have an important role because they can be used to coordinate international interactions in such a way as to increase the likelihood that states will submit themselves to the authority of dispute resolution bodies. The obvious example of this sort of behavior is seen at the World Trade Organization (WTO). Although certainly not a flawless process, the WTO is able to resolve disputes among members and impose sanctions closer to the optimal level. In summary, the Article seeks to address both critics and proponents of international law. It demonstrates to critics that the existence of international law does not present a theoretical problem, and that attacks on the discipline that proceed from a 10 See Chayes & Chayes, supra note 4, at 29-33. Even when they are effective, direct punitive sanctions such as embargoes may at time be too harsh, which also fails to generate optimal compliance. Compliance-Based Theory 5 theoretical perspective are not persuasive. On the other hand, the Article acknowledges that some of the views held by international law scholars are inconsistent with a theoretical model in which international law matters. It demonstrates to proponents of international law that we must devote greater attention to the compliance question, and we must rethink much of the discipline if we are to provide a coherent response to the claim that international law is irrelevant. The Article proceeds as follows. Part II discusses the most prominent theories of international law from both traditional legal scholarship and international relations perspectives. Part III presents the model of compliance. Any theory of compliance must come to terms with the fact that international law, however that terms is defined, has virtually no enforcement mechanism.11 When a state violates international law there are few formal procedures through which other countries can invoke sanctions.12 That is not to say, however, that the violation of international law is without cost. Two costs are of central importance and will be the focus of this Article. First, following a country’s breach of an international obligation, other states may choose to impose some form of sanction. This may range from criticism of the offending state to economic or even military sanction. The second cost of violating an international obligation is reputational. If a country violates international law, other states may refuse to enter into future agreements, may demand greater concessions when entering into such agreements, or may lose faith in the strength of existing agreements. Part IV presents a detailed discussion of how reputational and direct sanctions affect states and how the magnitude of those sanctions changes depending on the circumstances of the violation. Part V develops some of the implications of the theory, explaining how it affects our understanding of treaties and customary international law and explaining why the definition of international law should be expanded. The interaction of this theory of compliance with other theories of international law is also explored. Finally, the Article discusses the fact that some of the traditional topics of interest to international legal scholars are unlikely to be affected by international law, and calls for a refocusing of scholarship on other areas, where international law can have a greater impact. II. EXISTING THEORIES OF INTERNATIONAL LAW Compliance is central to international law and its role in regulating the interaction of nations. Unless international law provides an incentive toward 11 See Franck, supra note 7, at 707 (“Why should rules, unsupported by an effective structure of coercion comparable to a national police force, nevertheless elicit so much compliance, even against perceived self-interest, on the part of sovereign states?”). 12 See ABRAM CHAYES & ANTONIA HANDLER CHAYES, THE NEW SOVEREIGNTY: COMPLIANCE WITH INTERNATIONAL REGULATORY AGREEMENTS 2-3; 29-108 (discussing the weakness of punitive sanctions for violation of international law). Compliance-Based Theory 6 compliance, the time, energy and other resources devoted to the creation and maintenance of international legal structures is wasted and the study of that subject is a futile endeavor that should be abandoned. Despite the fundamental importance of the compliance question, and the deep faith that international legal scholars have in the importance of international law, the legal academy has failed to develop a satisfactory theory to explain it. This Part presents the most prominent attempts of the international law literature to explain compliance. It also presents theories from international relations that have begun to filter into the international law literature, including the institutionalist theory that this article builds upon. A. Traditional Legal Theories13 Although a great deal of ink has been spilled in the discussion of international law and its impact on states, international legal scholarship still lacks a satisfactory theory of compliance.14 This section presents four prominent theories advanced by legal scholars. The first, the managerial model, is a useful and well reasoned theory, but only applies to that subset of international agreements that resolve coordination problems. The remaining three theories are less useful and really do not offer sufficient theoretical structure to further our understanding of international law and compliance. 1. The Managerial Model Perhaps the most satisfying of the traditional legal theories of international law and compliance is provided by Chayes & Chayes.15 They argue that the “enforcement model” of compliance – in which compliance is achieved through coercive mechanisms such as sanctions – should be replaced with what they term the managerial model, which relies primarily on “a cooperative, problem-solving approach.”16 Chayes & Chayes claim that states have a general propensity to comply with international law that is the product of three factors. First, compliance avoids the need to recalculate the costs and benefits of a decision, and therefore, saves transaction costs, generating an efficiency based rationale for compliance.17 Second, they argue that treaties are consent-based instruments that, therefore, serve the interests of the participating states.18 Finally, they argue that compliance is furthered by a general norm of compliance. 13 For an account of “ancient and primitive” international law, which predates the traditional views described herein, see Koh, supra note 2, at 2604-2606 and corresponding notes. 14 See Dunoff & Trachtman, supra note 2, at 28 (“Past efforts to identify an underlying structure for the law of treaties have proven unsatisfactory”). Koh, supra note 2, at 2599-2560; Setear, supra note 2, at 147 (criticizing two theoretical justifications for the law of treaties). 15 See supra note 12. 16 Id. at 3. 17 See id. at 4. 18 “[I]f the agreement is well designed – sensible, comprehensible, and with a practical eye to probable patterns of conduct and interaction – compliance problems and enforcement issues are likely to Compliance-Based Theory 7 The managerial model presents a thoughtful and useful account of a certain class of treaties, but falls short of a general theory of compliance or a complete description of international legal agreements. The Chayes & Chayes model provides a satisfying account of agreements designed to resolve coordination problems, but does explain how international law assists in other situations. In the case of coordination games, it is true that states are likely to comply with an agreement if it is well specified. If that is the case, Chayes & Chayes are correct that there is no need to focus on enforcement. Resources are better directed at the sort of managerial issues that they recommend, including transparency to ensure successful coordination,19 dispute settlement,20 and capacity building.21 Each of these techniques, as described by Chayes & Chayes, assists coordination efforts. The managerial model, however, is less useful when considering the use of international law beyond coordination games. Consider first the explanation of why nations comply with the law. Although it is true that transactions costs are saved through a rule of compliance, these costs are not likely to be large and, in any event, there are many other strategies that can lead to similar cost savings. For example, a better strategy from the perspective of a state would be to make its compliance decisions based on the available evidence without any presumption in favor or against compliance. This would maximize the probability of making the appropriate choice, and avoid transaction costs. Other strategies would be better still. In general the best strategy is to invest in information gathering until the marginal cost of additional information is equal to the marginal benefit of that information in terms of its effect on the probability of making the correct choice and the cost of a mistake. Once the optimal amount of information is gathered, the optimal strategy is to base the decision on that information without a presumption in favor of compliance. The second explanation for compliance is the consent based theory which is discussed in Part II.A.2 below. As is stated in that section, the consent theory cannot explain why state behavior would be influenced by the existence of an international legal obligation. Finally, Chayes & Chayes makes a general appeal to norms in order to explain compliance. The claim that a norm exists in favor of compliance, however, is little more than an assertion that nations comply with the law. It provides no theoretical explanation, and is not helpful in understanding state behavior. be manageable. If issues of noncompliance and enforcement are endemic, the real problem is likely to be that the negotiating process did not succeed in incorporating a broad enough range of the parties interests.” Id. at 7. 19 See id. at 135-153. 20 See id. at 201-225. 21 See id. at 197-201. Compliance-Based Theory 8 Because the managerial model envisions a coordination game, the proposed strategies to enhance compliance are not helpful in other contexts. For example, Chayes & Chayes believe that dispute resolution is a useful feature and can enhance compliance. They do not believe, however that dispute resolution needs to be mandatory or that there must be binding sanctions for a failure to comply. Their view of dispute resolution is supported by a belief that a failure to comply is the result of a mistake or a lack of communication. If that is true, dispute settlement only needs to serve as a forum in which information is shared and expectations clarified. In fact, more can be said under the managerial model. Because states are modeled as cooperative, there is no need for binding law of any kind. Simple statements if interest and intent, without any notion of commitment are enough to resolve most coordination games. There is, therefore, no need for international law, as conceived by this model, to be “binding” or irrevocable. It is precisely because states do not have to be compelled to act in a particular way that dispute resolution does not have to be compulsory or backed by sanctions. When a state violates the law because the law is contrary to its interests, however, this form of dispute resolution will fail. When the parties interests are at odds – as is true in instances of intentional violation – negotiations are conducted “in the shadow” of the ultimate sanction for violation. In the absence of such sanctions, the offending party has no incentive to accept a negotiated solution that involves any punishment or constraint on future behavior. This, in turn, implies that the law provides no incentive to comply. If one makes the dispute resolution mandatory, on the other hand, and provides some form of sanction for a failure to comply with the ruling, it is possible to increase compliance even outside of coordination games. The managerial model, then, is a useful but incomplete model of international agreements and compliance. As long as one is only interested in coordination games, it provides a good guide to compliance and national behavior. If one seeks to understand games in which states’ make agreements that call upon them to act against their own interests in exchange for concessions from other states, a different model is needed. That model is advanced in this Article. 2. Consent and Treaties The most commonly held rationale for the relevance of international law, and especially treaties, to national conduct is based on the notion of consent.22 The consent-based argument begins with the claim that sovereign states are not subject to 22 See Setear, Iterative Perspective, supra note 2, at 156; Smith, supra note 2, at 1565-66. Though most frequently discussed in the context of treaties, the use of consent as an explanation for the binding character of international law is also present in discussions of customary international law. See BYERS, supra note 6, at 7 (1999); M. O. Chibundu, Making Customary International Law Through Municipal Adjudication: A Structural Inquiry, 39 VA. J. INT'L L. 1069, 1122 (1999). Compliance-Based Theory 9 any obligation unless they have consented to it.23 For example, Louis Henkin states that “a state is not subject to any external authority unless it has voluntarily consented to such authority.”24 This claim is easily reconciled with the law of treaties which includes detailed rules concerning the question of consent and whether it has been given.25 The second, and more problematic, step in the consent-based theory invokes the oft- repeated statement that treaties are to be obeyed.26 Proponents of a consent-based view argue that consent to be bound generates a legal obligation and causes states to comply with those obligations. Critics of the consent-based theory argue that it cannot explain why international law is binding because it fails to explain why it prevents nations from simply withdrawing their consent.27 Treaties are of limited use if it is not possible for a nation to make an irrevocable commitment. Like domestic contracts, treaties are much more powerful if the law provides a mechanism for such commitments. In the absence of an ability to commit, a nation could simply withdraw its consent from any treaty found to be inconvenient. A consent-based view, therefore, might lead one to conclude that, as a theoretical matter, treaties should have no effect because nations need only comply when they would comply in the absence of the treaty.28 Although often repeated, this criticism is itself unsatisfactory. If one can assert that consent is enough to bind states, why can it not be similarly asserted that it is possible to consent to irrevocable commitments?29 The real problem with a consent-based view lies not with a state’s ability to withdraw consent, but with the theory’s failure to explain compliance. The theory states that consent creates a binding obligation, but it fails to tell us what makes the obligation binding. There is no explanation of why states comply. 23 “The rules binding upon states therefore emanate from their own free will . . . . Restrictions upon the independence of states cannot therefore be presumed” S.S. Lotus Case, 1927 P.C.I.J. (ser. A) No. 10, at 18. 24 Louis Henkin, International Law: Politics, Values and Functions, 216 RECUEIL DES COURS D’ACADEMIE DE DROIT INTERNATIONAL 27 (1989). 25 See Setear, Iterative Perspective, supra note 2, at 156-157 nn 71-79. 26 See Vienna Convention, art. 26 (“Every treaty in force is binding upon the parties to it and must be performed by them in good faith.”); Abram Chayes & Antonia Chayes, On Compliance, 47 INT’L ORG.175, 185 (1993) (“It is often said that the fundamental norm of international law is pacta sunt servanda (treaties are to be obeyed).”). 27 This criticism is widespread, and will not be elaborated in detail here. More complete versions of the criticism can be found in Smith, see supra note 2; Setear, Iterative Perspective, supra note 2, at 160; JAMES L. BRIERLY, THE LAW OF NATIONS: AN INTRODUCTION TO THE INTERNATIONAL LAW OF PEACE 51-54 (H. Walcock ed., 6th ed. 1963). 28 This is a slight exaggeration because even a treaty that can be revoked at will is useful to resolve coordination games. 29 Accord Setear, Iterative Perspectives, supra note 2, at 161 (“I see nothing casuistic in the argument that parties to a treaty consent not only to particular terms but also to the general notion that their consent must not be withdrawn.”). Compliance-Based Theory 10 Justifications for the consent-based approach fail because they confuse a (possibly) necessary condition for states to be bound with a sufficient condition. It is observed that states are only bound when they consent to be bound. This initial presumption, even if it is assumed to be correct,30 does not lead to the conclusion that the provision of consent is enough to bind a state. Consent by itself does not provide states with an incentive to obey the law. The standard rendition of the consent theory fails to address this point. Rather, advocates of the theory simply recite the maxim that “treaties are to be obeyed.”31 This statement, however, is either devoid of content or assumes the conclusion. If the statement is read to mean that treaties should be obeyed, as a normative matter, it says nothing about how states will actually behave. If, on the other hand, it is read to mean that states do, in fact, obey treaties, then it is simply assuming compliance without explanation. Thus, even if consent is thought to be an important element in the establishment of an international obligation, it offers no explanation for compliance. In addition to consent there must be some force that causes states to comply with the obligations to which they have consented. Because it fails to explain why the behavior of nations is changed by international law, the consent theory cannot claim to be a satisfactory explanation of compliance. 3. Legitimacy Theory Thomas Franck has advanced a general theory of international law that has come to be known as legitimacy theory.32 The theory attempts to explain why nations feel compelled to honor their promises. Unlike consent theory, legitimacy theory attempts to go beyond the statement that treaties are to be obeyed and seeks to explain why nations might obey them. In the end, however, that attempt takes the inquiry no further than does consent theory. The fundamental premise underlying legitimacy theory is that states obey rules that they perceive to have “come into being in accordance with the right process.”33 Franck argues that four factors determine whether a state complies with international obligations. These factors are determinacy, symbolic validation, coherence, and adherence.34 Where these four factors are present, legitimacy theory predicts a strong pressure toward compliance, and where they are absent it predicts a very limited impetus to compliance.35 30 I will argue below that it is not quite accurate. See infra Part III.E (discussing how states can be “bound” by informal agreements, custom, and practice). 31 See supra note 26. 32 Franck, supra note 2; THOMAS M. FRANCK, FAIRNESS IN INTERNATIONAL LAW AND INSTITUTIONS (1995). 33 Frank, supra note 7, at 706. 34 See FRANCK, supra note 32, at 49. 35 In more general terms, Franck describes legitimacy as “a property of a rule . . . which itself exerts a pull toward compliance . . . because those addressed believe that the rule or institution has come Compliance-Based Theory 11 In brief, determinacy refers to the clarity of the rule or norm;36 symbolic validation refers to the presence of procedural practices or rituals that provide a rule with symbolic importance and legitimacy;37 coherence refers to the connection between rational principles and the rule; 38 and adherence refers to the connection between the rule and those secondary rules used to interpret and apply the primary rule.39 Legitimacy theory does not, however, adequately explain why states do or should care about legitimacy. It leaves too many of the central questions regarding compliance and national behavior in the black box of “legitimacy.” The claim that nations violate international rules because of the “perceived lack of legitimacy of the actual or proposed rules themselves and of the rule-making and rule-applying institutions of the international system” begs the question. Why should we expect nations to honor rules that enjoy legitimacy while ignoring others? In any event, the claim that legitimacy is the driving force behind compliance is an assertion, rather than the result of a theoretical framework or empirical study.40 Despite its attempt to identify the reasons for compliance, legitimacy theory fails for the same reason that the consent based theory fails – it does not provide a model of compliance so much as an assertion that nations obey the law. It fails to explain why “legitimacy” leads to compliance, why the four factors discussed by Franck are important, how they interact with other measures of a nation’s self-interest, and why we see states violating laws with which they had previously complied. The concept of legitimacy in this theory, like the bald assertion that treaties are to be obeyed, begs the question of why states comply with international law.41 4. Transnational Legal Process Professor Harold Koh has advanced another theory of international law, termed transnational legal process. The theory focuses on how public and private actors interact in various fora at both the domestic and international level to make, interpret, enforce, and internalize rules of transnational law.42 into being and operates in accordance with generally accepted principles of right process.” FRANCK, supra note 32 at 24-25. 36 See id. at 52. 37 See id. at 90-95. 38 See id. at 150-53. 39 See id. at 184. 40 “To the extent rules exhibit [legitimacy] they appear to exert a strong pull on states to comply with their commands. To the extent [legitimacy is] not present, rules seem to be easier to avoid by a state tempted to pursue its short-term self-interest.” Franck, supra note 7, at 712. Notice here that Franck implies the existence of a tension between a states self-interest and its willingness to comply. In the model presented in this Article, states always act in their own self-interest. 41 Additional criticisms of legitimacy theory have been advanced elsewhere. Among the complaints are claims that the four factors involved are vague and difficult to evaluate, and that the theory does not tell us how to aggregate them. See Koh, supra note 2, at 2541-2645. 42 See Harold H. Koh, Transnational Legal Process, 75 NEBRASKA L. REV. 181, 183-84 (1994); Compliance-Based Theory 12 Professor Koh criticizes rational actor models of international law for their failure to incorporate the role of non-state actors. Rather than treating states as unitary actors, transnational legal process looks to a wider set of decision makers to explain conduct, including multinational corporations, non-governmental organizations, international organizations, private individuals, and others. Professor Koh argues that as transnational actors – including both state and non-state actors – interact, patterns of behavior and norms emerge which are internalized by the actors. The internalization of these norms leads to their incorporation within the domestic legal institutions of states which, in turn, leads to compliance.43 The transnational legal process claim can be divided into two components. The first is the claim that domestic legal institutions play a critical role. This claim is certainly correct. There is no doubt that the actual decision of whether or not to comply with or violate international law is made by domestic institutions. Nor is there any doubt that domestic politics matter to the compliance question. The extent to which a state complies with international law is influenced by domestic interest groups, the power of the executive relative to the legislature, the electoral cycle, the state of the domestic economy, and so on.44 The second claim of the transnational legal process theory is that domestic institutions somehow internalize transnational legal norms and that this leads to compliance. It is here that the theory becomes problematic. It has no explanation of why certain legal norms are internalized or how this internalization takes place. Even if one assumes, like Professor Koh, that international legal norms are internalized, one would expect domestic legal norms – in particular the norm of pursuing the interests of domestic decision makers – to be internalized more readily. When international legal norms are at odds with the self-interest of the state, it is difficult to explain why the international norms would triumph. If domestic concerns triumph, however, the internalization of legal norms has no impact on outcomes. In addition, it appears to be assumed that repeated interaction leads to the internalization of norms that are consistent with international law, but this assumption is not explained. It seems equally plausible that the internalized norms are unrelated to international law. For example, rather than internalize norms of international law, transnational actors might internalize the norm that powerful nations triumph over weaker nations, or that economic influence resolves international disputes. Koh, supra note 2. 43 See Koh, Legal Process, supra note 42, at 204 (“It is through this repeated process of interaction and internalization that international law acquires its “stickiness,” that nation-states acquire their identity, and that nations define promoting the rule of international law as part of their national self- interest.”) 44 See Part II.B.3. Compliance-Based Theory 13 Without an understanding of why domestic actors internalize norms of compliance in the international arena, and a theory of why this internalization tends toward compliance, the theory lacks force.45 Like the consent based approach and legitimacy theory, the transnational legal process approach is ultimately founded on as unsupported assumption that the law is followed. It differs from the prior theories in that it considers the relevant unit of analysis to be individuals and interest groups rather that the state, but then simply asserts that these actors follow international law. Without a more complete theory of why these actors follow the law, the theory remains unsatisfactory. Attempts to rescue the theory by arguing that law-abiding behavior is internalized because domestic institutions and actors observe the compliance of foreign states and foreign transnational actors is simply to assume the existence of compliance rather than explain it. Perhaps the most serious problem with the theory is that it does not provide any real theoretical structure. Ultimately, it is simply an assertion that internalization takes place and leads to compliance. Without a proper theoretical apparatus, the theory cannot explain why a particular legal norm may be respected in one context and ignored in another. Nor does it provide a model of decision making by the state.46 Without such a model, the theory cannot be applied to produce predictions about when states will comply with the law and when they will not, nor can it offer strategies to increase the level of compliance. Finally, because the theory boils down to a simple assertion about national behavior, it cannot explain why some states are considered law-abiding while others are considered pariahs. In fact, the theory suggests just the opposite – it suggests that states will move inexorably toward greater compliance.47 B. International Relations Theories Although traditional approaches to legal scholarship remain common, in recent years a new approach has emerged to challenge the traditional methodology. This approach comes primarily from political science and the theory of international relations, although it also has roots in the economics literature.48 A detailed taxonomy and review of the international relations literature is beyond the scope of this paper. Instead, this section offers a thumbnail sketch of the most relevant schools of thought.49 45 The assumption that states internalize a norm of compliance with international law is, in some sense, an assumption of the very conduct that the theory seeks to explain. 46 In fact, because the theory recognizes that state decisions are actually the result of an internal political process, what is needed is a public choice theory of state action. 47 “The process of interaction and internalization in turn leads a national government to engage in new modes of interest-recognition and identity-formation in a way that eventually leads the nation- state back into compliance.” Koh, Legal Process, supra note 42. 48 See supra note 1. 49 Professor Abbott has usefully categorized the international relations literature. See Abbott, Prospectus, supra note 1. Compliance-Based Theory 14 1. Neo-Realists Neo-realist theory, an outgrowth of classical realism,50 treats states as unitary actors and the relevant unit in international relations. Under these assumptions, international cooperation will exist only when it is in the interest of the affected states. The interests of states are believed to be power and security, and power is considered to be the primary influence on international behavior.51 Concerns about power and security cause states to focus not only on the absolute gains they might make from cooperation, but also on the relative gains. This is so because a state is always concerned that even if it gains from cooperation, another state may gain even more – making that other state a greater potential security threat. This concern makes states reluctant to engage in cooperation when its partners stand to gain more than it does. The conclusion of this literature, at least for some scholars, is that international law has little or no independent impact on the behavior of states.52 Compliance with international law is explained as a coincidence between international law – whose content is said to be largely controlled by powerful states in any event – and the self- interest of nations.53 International law, therefore, is simply an epiphenomenon. Criticism of neorealism can be found in the international relations literature, and it serves no purpose to reproduce all of that criticism here. For present purposes it is sufficient to simply identify some of the difficulties with adopting a realist perspective on international law.54 The realist conclusion that international law is irrelevant is difficult to reconcile with the observation that a great deal of time, energy, and money are spent in order to create international law. For example, the Uruguay Round negotiations that led to the establishment of the WTO lasted eight years and consumed enormous resources. It also affected the political fortunes of governments around the world. If it is the case that international law does not matter, why did states devote so many resources to these negotiations? Just as rational individuals would not expend resources in order to 50 For a discussion of classical realism, see E.H. CARR, THE TWENTY YEAR CRISIS 1919-1939; GEORGE F. KENNAN, AMERICAN DIPLOMACY 1900-1950 (1951); HANS J. MORGENTHAU, POLITICS AMONG NATIONS: THE STRUGGLE FOR POWER AND PEACE (1948); Hans J. Morgenthau, Positivism, Functionalism, and International Law, 34 AMER. J. INT’L L. 260 (1940). 51 See Joseph M. Grieco, Anarchy and the Limits of Cooperation: A Realist Critique of the Newest Liberal Institutionalism, 42 International Organization (1988). 52 See F.A. Boyle, The Irrelevance of International Law, CALIF. WEST. INT’L L. J. 10 (1980); R.H. Bork, The Limits of ‘International Law,’ 18 NATIONAL INTEREST 3 (1989-90). 53 See STEPHEN D. KRASNER, SOVEREIGNTY: ORGANIZED HYPOCRISY (199); Abbott, supra note 2, at 364-65; Slaughter Burley, supra note 2, at 217 (“For Waltz, norms of any sort, qua norms, lacked independent causal force.”). Hans Morgenthau, one of the great realists, conceded that international law is generally observed, but considered this to be the result of either power relations or convergent interests. See Simmons, supra note 7, at 79. 54 For detailed discussion of the problems with neo-realism see NEOREALISM AND ITS CRITICS (Robert O. Keohane, ed. 1986). Compliance-Based Theory 15 complete a contract that has no effect on behavior, there is no reason to think that states would spend resources in order to complete treaties and other agreements that have no impact on states. Nor would states or non-state actors expend resources in order to influence the status of customary international law, as has been done in such fields as foreign investment,55 human rights,56 and environmental law.57 In addition, when it is claimed that a law has been violated (though it is not clear why anyone would even bother to make such a claim), states would have no reason to proclaim their innocence as they so often do.58 Furthermore, empirical and anecdotal evidence has begun to emerge indicating that international law does, indeed, influence state behavior.59 2. Institutionalist Theory The second important category of international relations theories is that of institutionalists.60 Like neorealism, institutionalism views states as the primary international actors and treats them as rational unitary agents interacting in an anarchical world.61 Furthermore, like neorealism, institutionalism takes a game 55 See Andrew T. Guzman, Why LDCs Sign Treaties that Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 VA. J. INT’L . 639. 644-51 (1998). 56 FRANK NEWMAN & DAVID WEISSBRODT, INTERNATIONAL HUMAN RIGHTS LAW, POLICY, AND PROCESS 18 (2d ed. 1996). 57 See THE IMPLEMENTATION AND EFFECTIVENESS OF INTERNATIONAL ENVIRONMENTAL COMMITMENTS: THEORY AND PRACTICE (David G. Victor, et al. eds., 1998). 58 See LOUIS HENKIN, HOW NATIONS BEHAVE 43 (“While nations, generally, still deny that they are violating international law, often the denial merely falsifies the facts.”) 59 See, e.g., Beth A. Simmons, Money and the Law: Why Comply with the Public International Law of Money?, 25 YALE J. INT’L L. 323, 327 (2000) (presenting an empirical study of state compliance with IMF obligations and concluding that “international law has a significant impact on governments’ behavior.”); Stephen M. Schwebel, Commentary, in COMPLIANCE WITH JUDGMENTS OF INTERNATIONAL COURTS 39, 39 (M.K. Bulterman & M. Kuijer eds., 1996) (arguing that states tend to comply with the decisions of international tribunals.); Ronald B. Mitchell, Compliance with International Treaties: Lessons from Intentional Oil Pollution, 37 ENVIRONMENT 10 (1995). 60 See Abbott, Atrocities, supra note 2, at 365. Among the important and useful institutionalist contributions are Duncan Snidal, The Game Theory of International Politics, 30 WORLD POL. 25 (1985); Duncan Snidal, The Limits of Hegemonic Stability Theory, 39 INT’L ORG. 579 (1985); Duncan Snidal, Coordination Versus Prisoners’ Dilemma: Implications for International Cooperation and Regimes, 79 AM. POL. SCI. REV. 923 (1985); Arthur Stein, Coordination and Collaboration: Regimes in an Anarchic World, 36 INT’L ORG. 299 (1982); Robert Jervis, Cooperation Under the Security Dilemma, 30 WORLD POL. 167 (1978); Robert Jervis, Security Regimes, 36 INT’L ORG. 357 (1982); Kenneth Oye, Explaining Cooperation Under Anarchy: Hypotheses and Strategies, 38 WORLD POL. 1 (1985);, COOPERATION UNDER ANARCHY (Kenneth Oye ed., 1986); Stephan Haggard & Beth Simmons, Theories of International Regimes, 41 INT’L ORG. 491 (1987). 61 See Robert Axelrod, The Evolution of Cooperation 3 (1984); Robert Axelrod & Robert O. Keohane, Achieving Cooperation Under Anarchy: Strategies and Institutions, 38 WORLD POLITICS 226, 226 (1985). Many, and perhaps most institutionalists recognize that state decisions are the product of a domestic political process in which different interests compete for influence. Nevertheless, like this Article, institutionalists usually model the state as a single actor in order to simplify the analysis. See Compliance-Based Theory 16 theoretic approach to the study of international relations. This approach has significant promise for the study of international law, but it has yet to be widely applied by international law scholars.62 Unlike neo-realists, however, institutionalists believe that international cooperation is possible, and that international institutions can play a role in facilitating that cooperation. They argue that these institutions can help states overcome prisoner’s dilemma type problems that are often faced in international affairs. Specifically, institutionalists argue that institutions can reduce verification costs in international affairs, reduce the cost of punishing cheaters, and increase the repeated nature of games – all of which make cooperation more likely. This Article is in the institutionalist tradition in the sense that it argues that the institution of international law can play a role in influencing state behavior. It adopts a basic repeated game model of national behavior to demonstrate that international law can influence states. It is assumed that states are independent and that they act only in their own self-interest, consistent with both neorealism and institutionalism. Unlike most institutionalist discussions of international law, however, treaties do not represent the exclusive focus of the Article.63 Although treaties represent an important component of the international law that is being explained, many other forms of cooperation are also addressed. An institutionalist approach to international law not only reveals that international law matters more than realists claim, it also reveals that it matters less than many international law scholars seem to assume. It is shown that international law represents a force in state behavior, but one that is of limited power, and that is much more likely to affect outcomes in some cases than in others. As a result, international law scholars must take a fresh look at their discipline, reconsider the role of international law in contributing to international order, and reevaluate the manner in which international law is deployed by states. 3. Liberal Theories A third international relations theory, known as liberal theory,64 focuses on the interest group dynamics within each state. The liberal theory begins with the assumption that the key actors for the study of international relations are individuals and private groups, rather than states. Accordingly, the theory is interested in the Abbott, Governing Atrocities, supra note 2, at 365. 62 The theory has begun to find its way into the legal literature. See supra note 2. 63 See Abbott, Governing Atrocities, supra note 2, at 366 (“In practice, though, institutionalist scholarship focuses on treaties.”). 64 See Andrew Moravcsik, Taking Preferences Seriously: A Liberal Theory of International Politics, 51 INT’L ORG. 513 (1997); Anne-Marie Slaughter, International Law in a World of Liberal States, 6 EUR. J. INT’L L. 503 (1995); Anne-Marie Slaughter, The Liberal Agenda for Peace: International Relations Theory and the Future of the United Nations, 4 TRANSNAT’L L. & CONTEMP. PROBS. 377 (1995). Compliance-Based Theory 17 particulars of domestic politics in addition to the interaction of states. A focus on sub- national entities leads to the study of institutions such as courts, legislatures, and administrative agencies.65 Although a more realistic view than the state-actor approach of realists and most institutionalists, the liberal approach leads to a much more complex methodology. The most prominent advocate of the liberal theory within the legal academy is Professor Anne-Marie Slaughter. She argues that compliance with international law is determined in significant part by the domestic structure of a country. She claims that states with a “liberal” structure, by which is meant representative government, protection of civil and political rights, and a judicial system guided by the rule of law, tend to follow international law, at least among themselves.66 Liberal theories of international law, like public choice theories in the study of domestic law, are hampered by the complexity of a model that rejects the assumption of unitary state actors. An examination of compliance within a liberal framework is really an examination of the domestic politics of countries that might lead to a decision to comply with international law. The problem is that interactions among domestic interest groups are unpredictable and the results may not be stable over time. Because of the complexity of interest group politics, it is difficult to generate predictions about how nations behave.67 Instead, the constitutional and political realities of each country must be considered. The problem with liberal theories, then, is that they are overly complex. Because they are better suited to positive accounts of behavior rather than predictions, they do not lead to a general model of compliance.68 Although this Article does not adopt a liberal approach, it is not in conflict with that school. The theory advanced here and the liberal school are best viewed as complementary.69 The assumption herein is that states are unitary actors engaged in the pursuit of national goals. Left unspecified are the particular goals of the country. Liberal theory is one way of studying these goals. Thus, one can view liberal theory as a methodology whose output – the policy desires of states – is used as an input for the theory of compliance presented here. 65 See Laurence R. Helfer & Anne-Marie Slaughter, Toward a Theory of Effective Supranational Adjudication, 107 YALE L.J. 273 (1997). 66 See Anne-Marie Burley, Law Among Liberal States: Liberal Internationalism and the Act of State Doctrine, 92 COLUM. L. REV. 1907, 1920-21 (1992); Slaughter Burley, Dual Agenda, supra note 2; Slaughter, supra note 64. 67 See ROBERT O. KEOHANE, AFTER HEGEMONY: COOPERATION AND DISCORD IN THE WORLD POLITICAL ECONOMY 25 (1984) (“Parsimonious theory, even as a partial ‘first cut,’ becomes impossible if one starts analysis [at the sub-national level], amidst a confusing plethora of seemingly relevant facts.”). It should, however, be noted that liberal theorists are attempting to generate general theoretical claims despite the challenge of doing so within a liberal model. See Helfer & Slaughter, supra note 65. 68 The complexity of liberal theories, of course, is an asset in certain circumstances – such as attempts to explain the results of case studies. 69 See Part V.D.2. Compliance-Based Theory 18 III. A THEORY OF COMPLIANCE This Part presents the basic theory of compliance with international law. A good theory should be able to explain both instances of compliance and instances of breach. As discussed in the previous Part, traditional legal theories of compliance with international law do not provide a constructive way to think about compliance in part because they cannot explain instances of breach. On the other hand, a model also must be able to explain how international law can act as an independent force toward compliance. Realists do not deny that nations often act in a manner that is consistent with international law. They argue that the existence of international law has no effect on national behavior and that instances of “compliance” are merely cases in which the nation’s policy happens to be consistent with international law. A model of compliance in which international law matters, therefore, must explain how national behavior is changed by the existence of the law. The presentation of the model proceeds in two steps. First, a one period model is developed in which international law is irrelevant. The assumption of a single period is then relaxed and it is shown how in a model with repeated play one can develop a theory in which international law matters. The model makes standard assumptions about government behavior. It is assumed that states are rational and act in their own self-interest, and that they are aware of the impact of international law on behavior.70 Notice that although it is assumed that states act in a self-interested fashion, no assumption is made regarding the way in which states identify their self-interest. The traditional way of modeling national interest is to assume that the government pursues the public interest. An alternative view, public choice theory views government decisions as the product of interest group politics and argues that these decisions will not, in general, lead to behavior that is consistent with the national interest. Under this public choice or liberal view, decision makers are modeled as individuals pursuing their own objectives rather than as the faithful agents of their constituencies.71 The advantage of a public choice approach is its ability to provide a positive account of government activity that is difficult to explain through more traditional models of government behavior.72 The difficulty in applying public choice to normative analyses, however, is that the outcome of interest group politics is very difficult to predict.73 For the purposes of this article it is not necessary to 70 See Abbott, Prospectus, supra note 1, at 349; ROBERT O. KEOHANE, AFTER HEGEMONY: COOPERATION AND DISCORD IN THE WORLD POLITICAL ECONOMY 27 (1984). 71 See Michael E. Levine & Jennifer L. Forrence, Regulatory Capture, Public Interest, and the Public Agenda, 6 J.L. ECON. & ORG. 167 (special issue 1990) (“[Public choice] analysts postulate that people should be expected to act no less rationally or self-interestedly as politicians or bureaucrats than they do in the course of their private exchanges in markets.”); George J. Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. & MGMT. SCI. 3 (1971); DANIEL A. FARBER & PHILLIP F. FRICKEY, LAW & PUBLIC CHOICE: A CRITICAL INTRODUCTION 17 (1991). 72 See Part V.D.2.. 73 See Abbott, Prospectus, supra note 1; Goldsmith & Posner, supra note 2. Compliance-Based Theory 19 choose between the public interest and public choice models. This is so because the Article does not attempt to model the process by which national goals are determined. Rather, national goals are assumed to be given and the model explains the conditions under which the pursuit of such goals leads to compliance with international law. For this reason, the Article can accommodate both theories of government behavior.74 A. A Theory of the Irrelevance of International Law The first step in understanding the theory of compliance with international law is to understand a theory of the irrelevance of international law. This is so because the simplest rational actor model of country behavior leads to the conclusion that international law does not matter. Just such a model is presented in this section. Once that basic model is understood, it is possible to identify the assumptions of the model that lead to the irrelevance result. By relaxing those assumptions, as is done in the next section, a model of compliance is generated in which international law matters. The most basic model of country behavior is a one-shot game in which states decide whether or not to comply with a particular rule of international law.75 For concreteness, suppose that two countries have agreed to a ban on satellite-based weapons and the decision at hand is whether or not to comply with the ban. Assume that each country is better off if it violates the agreement while the other country complies. Furthermore, assume that both are better off if they both comply than if they both violate. This situation is represented in Figure I. The game is simply the prisoner’s dilemma and the well known equilibrium is for both countries to violate their international obligation. 74 See infra Part V.D.2. 75 The basics of game theory are available in many other sources, and will not be repeated here. For relevant discussions in the context of international law, see Setear, supra note 2; Abbott, Prospectus, supra note 1; Goldsmith & Posner, supra note 2. For more comprehensive presentations of game theory, see DOUGLAS G. BAIRD, ROBERT H. GERTNER, & RANDALL C. PICKER, GAME THEORY AND THE LAW (1994); ERIC RASMUSSEN, GAMES AND INFORMATION: AN INTRODUCTION TO GAME THEORY (1989); DREW FUDENBERG & JEAN TIROLE, GAME THEORY (1991), Compliance-Based Theory 20 Figure I76 Country 2 Comply Violate Comply 5,5 2,6 Country 1 Violate 6,2 3,3 If Figure I is an accurate depiction of international relations, however, we would expect to see a world of chaos in which there is no cooperation and no compliance with international law. Such an observation is clearly at odds with what we observe in the world because, as observed by Louis Henkin, “almost all nations observe almost all principles of international law and almost all of their obligations almost all of the time.”77 International law scholars have cited the widespread compliance with international commitments as evidence that international law matters. A simple extension of the above model, however, shows that a high level of compliance need not imply that international law affects national behavior. Adding an additional round to the game explains how countries can regularly act in a manner that is consistent with their international obligations even if those obligations have no impact on state behavior. Imagine that the above game is unchanged, but that it represents only a sub- game, meaning a portion of a larger game. In the larger game, there is an initial period in which the state of nature is determined. Assume that there are two possible states of nature, which are labeled “good” and “bad.”78 The bad state of nature is represented by Figure I and the above discussion. In the example of a treaty regulating the development of space-based weapons the bad state corresponds to a situation in which 76 The first entry in each cell represents the payoff to country 1 while the second entry represents the payoff to country 2. 77 HENKIN, supra note 58, at 47. 78 Limiting the number of states to two makes the exposition simpler, but does not affect the results. Compliance-Based Theory 21 the parties have an incentive to develop space-based weapons because, for example, doing so enhances their security. The good state corresponds to the situation in which the parties have an incentive to comply with the treaty provisions independently of their international obligation. Imagine, for example, that the technology for the construction of a satellite- based weapons system is too primitive to make the system effective and the cost is prohibitive, making it a poor use of government resources. In this situation, neither party would develop satellite-based weapons, even if there were no treaty in force. Figure II represents the good state, in which the treaty is irrelevant. Figure II Country 2 Comply Violate Comply 10,10 6,8 Country 1 Violate 8,6 4,4 In Figure II, if both countries violate the treaty they are both worse off because, for example, they will have spent a large sum of money for a system that is unreliable. If Country One violates the treaty, that country is worse off as a result of the money spent and the other country also suffers a loss because even an unreliable weapons system in the hands of a potential enemy is undesirable. If both comply with the treaty, however, both enjoy the maximum possible payoff. More importantly, compliance is the dominant strategy for both parties. Regardless of the action taken by the other party, each country is better of if it complies with the treaty. Combining the good and bad outcomes yields a theory of national behavior that is consistent with the observation that countries obey their international obligations much of the time. The analysis is also consistent with the view that international law does not matter. Rather than consider international law, countries simply do what is in their interest. Sometimes this happens to be consistent with their international obligations and other times it is not, but the existence of an obligation plays no role in Compliance-Based Theory 22 the outcome. This model – in which international law is irrelevant – has been advanced by the neo-realist school in international relations.79 The above model has the merit of being simple and elegant, and is able to explain instances of both observed compliance with international obligations and violations thereof. The theory cannot, however, explain other observed behavior. It cannot explain, for example, why countries conclude treaties in the first place. The negotiation of international treaties and other international legal instruments consumes resources that could be used in other ways. If international law does not have any impact on behavior, there is no reason for a country to waste resources on international legal conventions and negotiations. The same funds, human capital, and political energy could be devoted to other governmental objectives. Nor can it explain why countries invest resources to demonstrate that they are in compliance with international law. If international law has no impact on behavior, countries should ignore it. What we observe, however, is attempts by countries to justify their actions under international law. The model also fails to explain the existence of international law dispute resolution processes to which nations sometimes submit their disputes. If international law does not matter, there is no reason for such procedures. Finally, the theory is contradicted by empirical data suggesting that international law does, indeed, influence state behavior.80 B. A Model of International Law In a finitely repeated prisoner’s dilemma, like that presented in the previous section, the irrelevance of international law is inevitable. By adopting a finitely repeated game, one ensures that the equilibrium in a prisoner’s dilemma context is defection. This amounts to an assumption that cooperation will fail and that international law does not matter. In a domestic setting even one shot prisoner’s dilemmas can yield the cooperative outcome through the use of contract. Imagine, for example, that two individuals agree to swap vacation homes for the summer. They each agree to care for the other’s home, including certain regular maintenance chores. While on vacation, however, maintenance is time consuming, expensive, and boring, so there is an incentive to avoid doing so. The standard prisoner’s dilemma model predicts that neither party will honor their promise to care for the other’s home. If, however, the agreement is enforceable, then a party that fails to do so must pay damages. If the damages are high enough, both parties can be induced to carry out the promised maintenance. The prisoner’s dilemma is solved by the addition of a penalty for the party that fails to honor its obligation. In other words, law changes the payoffs received by the parties. To change the equilibrium, the penalty must change the payoffs enough to make cooperation a dominant strategy for each party. 79 See supra Part II.B.1. 80 See supra note 59. Compliance-Based Theory 23 Just as compliance with promises at the domestic level requires the existence of damages, a model of compliance with international law requires a mechanism through which nations are sanctioned for violations thereof. The finitely repeated game of the previous section can generate a model of effective international law only if there exists an entity that can credibly commit to sanctioning those who violate international law, much like courts sanction domestic violations. Those who argue that international law has little or no impact on national behavior, therefore, are actually making the claim that the existing penalties for a violation of international law are insufficient to change the equilibrium of the game. As mentioned, the use of a finitely repeated game without a coercive compliance mechanism, is equivalent to assuming that result. To generate a model in which international law matters, then, it is necessary to identify a mechanism through which violations are sanctioned in some fashion. Even those who believe that international law plays an important role in regulating conduct in the international community must concede that there is at best a weak system of meting out punishments for violations of law. Nevertheless, a model of international law must turn on the impact of sanctions on states.81 It is important to note, however, that the term sanction as used above encompasses more than just direct punishments resulting from a failure to live up to one’s international obligations. It includes all costs associated with such a failure, including the punishment or retaliation by other states and reputational costs that affect a state’s ability to make commitments in the future. To take the role of reputation into account, we adopt an infinitely repeated game model.82 Before laying out the model in detail, it is useful to remember one of the most basic elements of contract theory. It is well established that in the absence of transaction costs, parties to a contract will generally negotiate to the most efficient outcome.83 This implies that the best possible rule – both for individuals in the domestic context and for states in the international context – is to give the parties complete freedom of contract, including the ability to make irrevocable commitments. In the domestic setting, the power to commit oneself exists because the courts stand ready to enforce contracts. In the international setting, states must rely on the imperfect system 81 If one relaxes the assumption of a rational state that is pursuing the national interest, the model could also turn on the consequences of violations on interest groups and decision makers. See Part V.D.2. 82 International relations theorists are aware of how an infinitely repeated game can affect the analysis and have used such models to advance theories of international cooperation. The model presented here resembles some of these theories. See Michael Taylor, The Possibility of Cooperation (1987); KEOHANE, supra note 70, at 75. Others have used infinitely repeated games to model international law, though not in the way it is used here. See Duncan Snidal, Coordination Versus Prisoners’ Dilemma: Implications for International Cooperation and Regimes, 79 AM. POL. SCI. REV. 923 (1985); Duncan Snidal, The Game Theory of International Politics, 38 WORLD POL. 226 (1985); Setear, Iterative Perspective, supra note 2. 83 See A. MITCHELL POLINSKY, AN INTRODUCTION TO LAW AND ECONOMICS 31 (1989). Compliance-Based Theory 24 of international sanctions and reputational effects. Recognizing that states are not able to make fully irrevocable commitments, it is clear that the greater a state’s ability to commit itself, the better off it is.84 The model of international law used in this Article operates as follows. Any given international obligation is modeled as a two-stage game. In the first stage, states negotiate over the content of the law and the level of commitment.85 In the second stage, states decide whether or not to comply with their international obligations. A state’s compliance decision is made based on an assessment of its self-interest. That self-interest can be affected by international law in two ways. First, it can lead to the imposition of direct sanctions – such as trade, military, or diplomatic sanctions.86 Second, it can lead to a loss of reputational capital in the international arena.87 If the direct and reputational costs of violating international law are outweighed by the benefits thereof, a state will violate that law. Figure III presents the international law game. In the first period, states decide whether or not to enter into a legal obligation. For present purposes, an obligation is defined as a promise to other states. Put aside for the moment the precise form of the promise, which could be a treaty, an informal agreement, customary international law, or any other forms of promise. If no promise is made, the state is free to engage in whatever conduct it chooses in period 2 without suffering any sanction. In period 2 the state of the world is revealed. In the “good” state, the interests of the relevant countries converge and those that comply with the agreement receive a higher payoff than if they had violated the agreement. As a result, all countries comply and each receives a payoff of 10 in this period and 10 in each period thereafter.88 Letting “r” represent the 84 There are some circumstances in which the ability to commit may be harmful. For example, a country that is being asked by an ally to promise military aid in the event of war may be better off if it is simply unable to make such a commitment because it can then avoid the risk of involvement in a war without angering the requesting country. An inability to commit, however, is only beneficial in exceptional cases. As a general matter states, like private parties, are better off if they are able to make irrevocable commitments. 85 The term “negotiate” is used as a shorthand. This stage represents the decision of one or more countries to enter into an international agreement, regardless of whether the terms of that agreement are bargained over at the time. For example, in the case of customary international law, there is no process of formal negotiations. Nevertheless, a country can seek to reduce its obligation by remaining a persistent objector. Another example would be the decision by a state to join (or not join) an existing agreement. For example, if Poland were invited to join the EU, its decision to accept or decline the invitation would qualify as “negotiation” for present purposes. 86 It can also lead to a sanction through formal dispute settlement mechanisms, such as those of the WTO. Under appropriate circumstances, these sanctions are especially likely to be successful, as is discussed infra Part IV.B. 87 I am not the first to identify reputation as an important issue in international law. See HENKIN, supra note 58, at 46-59 (listing factors in a country’s decision to observe international law, including reputational consequences); Keohane, supra note 7, at 496-499. 88 For simplicity it is assumed that the state of the world does not change after the first period. Compliance-Based Theory 25 discount rate – that is, the extent to which the country values benefits today over benefits later – each country receives a payoff stream of 10 + 10/(1+r) + 10(1+r)2 + …. = 10(1+r)/r.89 To simplify further, let R=(1+r)/r. We can then represent the payoff to each country as 10R. In the good state countries behave in the same way whether there is an agreement or not, indicating that international law does not affect the behavior of states. [FIGURE III GOES HERE] If the countries find themselves in the “bad” state, however, they face a prisoner’s dilemma. If there is no agreement in place, countries behave in a non- cooperative fashion (they “defect” in game theoretic parlance), and receive the corresponding payoff of 3 in this period and every period thereafter, which translates into a total payoff of 3R. This is the realist result, presented in Figure I and the accompanying discussion, which leads to the conclusion that international law has no effect. Now consider how reputation can alter the equilibrium. For simplicity, begin by assuming that countries will only enter into agreements with countries that have a good reputation. A good reputation is maintained as long as a country honors all its previous international commitments. A country that has a good reputation stands to earn a payoff of 5 in the current period by complying with its international obligation, and a payoff of 5 in each future period (assuming the other country also complies). If the state violates its commitment, while the other country complies, it earns 6 in the current period and three in each period thereafter.90 Thus, the country must choose between two possible payoff streams: If it continues to comply: 5 + 5/(1+r) + 5/(1+r)2 + …. If it does not comply: 6 + 3/(1+r) + 3/(1+r)2 + …. Put another way, if an agreement is in place, “cheating” carries with it a reputational sanction. In the example given, we can represent the subgame in which the parties are in the bad state of the world and have a legal obligation as follows: 89 Calculation of the payoffs in Figures III and IV is straightforward once it is recognized that x + x/(1+r) + x/(1+r)2 + … = x(1+r)/r. 90 That is, it earns 6 in this period because the other party complies while it violates the agreement, but in each period thereafter there is no agreement in place so both parties defect and the country earns 3. Compliance-Based Theory 26 Figure IV Country 2 Comply Violate Comply 5R, 5R 3R-1, 3 + 3R Country 1 Violate 3+3R, 3R -1 3R, 3R The payoff to a country that cheats, therefore, is 3+3R91 if the other country complies and 3R if the other country cheats. The payoff for a country that complies is 5R if the other country complies and 3R-1 if the other country violates the law. Figure IV demonstrates how the reputational effect of a violation alters the decision process. An equilibrium in which both countries comply in every period is sustainable in this game for a sufficiently low discount rate (corresponding to a sufficiently large R). In other words, for a sufficiently low discount rate a country will comply with its international obligation even when it would not have done so in the absence of that obligation. It complies in order to avoid the reputational loss that would come with a violation of international law. Reputation, therefore, causes future relationships to be affected by today’s actions.92 A decision to violate international law will increase today’s payoff but reduce tomorrow’s. Notice that this model does not merely explain why nations comply with international law despite the weakness of existing enforcement mechanisms. It also explains why they sometimes choose to violate the law. Unlike some existing theories of international law, it is able to reconcile the claim that international law affects behavior with the fact that the law is not always followed. The existence of a reputational effect impacts country incentives, but in some instances that impact will be insufficient to alter country behavior. The use of numbers in the above examples and throughout the Article should not be taken to imply that the calculation of costs and benefits takes place in an 91 Note that because R=(1+r)/r, R is always greater than 1. 92 The impact of direct sanctions are put to the side for the moment. These also increase the cost of violating international law and provide an additional incentive to comply. Compliance-Based Theory 27 environment of great certainty. Because reputational sanctions (and, indeed, non- reputational ones) are uncertain, it is rarely the case that one can predict the precise consequences of an action. This fact does not, however, undermine the theory presented. It is the role of the decision maker to assess these future costs and benefits before choosing a course of action.93 The subjective nature of this process is one reason why the identity of national leaders is important. In the absence of other enforcement mechanisms, then, a state’s commitment is only as strong as its reputation. In entering into an international commitment, a country offers its reputation for living up to its commitments as a form of collateral.94 The value of that collateral, of course, varies from country to country. It may also vary depending on the identity of the country on the other side of the agreement. Thus, for example, a treaty between Canada and the United States benefits from a very high level of reputation and trust. The two countries have a long history of cooperative dealings, and to violate a promise would have a negative effect on many other interactions. As a result, the violation of a treaty commitment between the countries requires that the benefits from such a violation be extremely high. A treaty between the United States and Iraq, on the other hand, would enjoy a lower level of reputational collateral. Iraq, and Saddam Hussein in particular, is not considered a reliable treaty partners – in large part because of earlier violations of international legal commitments.95 A country that develops a reputation for compliance with international obligations signals to other countries that it is cooperative. This action allows the state to enjoy long-term relationships with other cooperative states. Among the benefits are both a greater ability to make binding promises and a reduction in the perceived need for monitoring and verification. The development of a reputation for compliance, therefore, provides benefits to a country. A failure to live up to one’s commitments harms one’s reputation and makes future commitments less credible. As a result, potential partners are less willing to offer concession in exchange for a promised course of action.96 For example, during the early negotiations prior to the Uruguay Round of 93 In more formal terms, the decision maker uses the available information in order to determine the probability distribution of costs and benefits. Based on that probability distribution the expected costs and benefits can be determined. 94 See KEOHANE, supra note 70, at 26 (“International regimes alter the information available to governments and the opportunities open to them; commitments made to support such institutions can only be broken at a cost to reputation. International regimes therefore change the calculations of advantage that governments make.”) 95 The invasion of Kuwait is the most obvious such violation, but it is not the only one. The continued refusal to honor the terms of the peace agreement that followed the Persian Gulf War, the perception that Iraq has sponsored international terrorist activity, and earlier treaty violations such as the 1981 unilateral “cancellation” of the 1975 border agreement between Iran and Iraq all represent instances in which Iraq has shown itself to be an unreliable partner. See UNITED NATIONS, YEARBOOK OF THE UNITED NATIONS, 1981, vol. 35 (United Nations 1985) at 238-39. 96 See Simmons, Law of Money, supra note 5, at 325 (“Governments comply with their legal commitments largely to preserve their reputation.”). Compliance-Based Theory 28 trade talks, the United States and other western states faced resistance to the idea of expanding GATT’s authority because those countries were not honoring their existing commitments.97 Similarly, when the United States government abducted Mexican citizens in violation of international law in the Alvarez-Machain incident,98 the negotiations of the NAFTA agreement were negatively affected.99 The point here is that a country’s reputation has value, and a country will hesitate before compromising that reputation. If a country suffers a loss of reputation, it must rebuild the reputation by demonstrating a pattern of compliance with international law. If a country’s reputation is sufficiently tarnished, of course, attempts to rebuild the reputation may not be worthwhile.100 It is worth noting that the development of a strong reputation for compliance with international agreements is, itself, subject to a cost-benefit analysis by nations. The development and destruction of a reputation occurs over longer periods of time than do individual decisions regarding compliance with an obligation, but they are nevertheless the result of government decisions. Nothing in the theory advanced in this Article suggests that all countries will want to preserve a reputation for honoring their commitments. Countries that decide against developing a strong reputation for compliance with international obligations choose short-term benefits over long-term gains. Those countries are more likely to ignore international commitments and, as a result, are less likely to find partners willing to rely on such commitments. In the extreme case of a country that has zero 97 See RAY AUGUST, INTERNATIONAL BUSINESS LAW 359 (2000). 98 United States v. Alvarez-Machain, 504 U.S. 655 (1992). 99 See Koh, supra note 42, at 203. In this example it may be the case that the reaction of Mexican authorities was a form of retaliation rather than a reaction to a change in the reputation of the United States. Even if this is true, however, reputation is in the background because the reason to retaliate for misconduct by the U.S. is to establish a reputation for such retaliation in the hope of influencing future behavior. For a discussion of Alvarez-Machain see William J. Aceves, The Legality Of Transborder Abductions: A Study Of United States v. Alvarez-Machain, 3 SW. J.L. & TRADE AM. 101 (1996); Andrew L. Strauss, A Global Paradigm Shattered: The Jurisdictional Nihilism of the Supreme Court's Abduction Decision in Alvarez-Machain, 67 TEMP. L. REV. 1209 (1994); Kristin Berdan Weissman, Comment, Extraterritorial Abduction: The Endangerment of Future Peace, 27 U.C. DAVIS L. REV. 459 (1994); Manuel R. Angulo & James D. Reardon, Jr., The Apparent Political and Administrative Expediency Exception Established by the Supreme Court in United States v. Humberto Alvarez-Machain to the Rule of Law as Reflected by Recognized Principles of International Law, 16 B.C. INT'L & COMP. L. REV. 245 (1993). 100 I should note at this point that international legal scholars have long understood that reputation matters. Although the effect of reputational constraints have not been explored as formally and fully as this Article tries to do, one can find comments scattered throughout the international law literature implying that these scholars understood all along that reputation and repeat play were important in the international legal system. See, e.g., Ian Johnstone, Treaty Interpretation: The Authority of Interpretive Communities, 12 MICH. J. INT’L L. 371 (1991) (reprinted in INTERNATIONAL LAW ANTHOLOGY 121 (Anthony D’Amato, ed. 1994) (“Because all states have a stake in maintaining a reputation for good faith compliance with treaty commitments, they will hesitate before publicly announcing a construction likely to be branded as improper or far-fetched.”). Compliance-Based Theory 29 reputational capital, international law acts as an independent force only to the extent that it generates direct sanctions, as discussed in Part IV.B. Finally, note that reputation, when examined in all its dimensions, need not always be a force toward compliance with international law. Nations prefer a reputation for compliance with international law so that they are better able to bind themselves in the future, but they are also concerned about other aspects of their reputation. For example, a reputation of siding with allies can be valuable, as can a reputation for toughness.101 For example, during the Cold War, the United States at various times sought to establish a reputation for adherence to a policy of containment of communism. Such forces can provide incentives either for or against compliance, depending on the circumstances. These other aspects of reputation, therefore, must be taken into account when considering the compliance question. This observation does nothing to undermine the theory being advanced as long as it is recognized that this Article focuses on only one aspect of reputation. Rather than undermine the theory, this point reminds us that the reputational issues discussed herein have limited force – they cannot prevent all violations of international law and in some circumstances, may not prevent any such violations.102 C. Applying the Model – Bilateral Investment Treaties The reputational theory of international law can be applied to a wide range of state behavior. For reasons discussed below, it predicts that international law will have a greater impact on economic matters than on military and security matters.103 To illustrate how the theory can be applied to a specific topic, this section discusses bilateral investment treaties (BITs) and how they affect country behavior.104 Consider a country that has signed a BIT in which it promises not to expropriate foreign investment.105 Assume for the purposes of this example that the country makes this promise because doing so increases the flow of foreign direct investment into the country.106 Even after making the promise, of course, the country could choose to 101 See Keohane, Two Optics, supra note 7, at 497; Kingsbury, supra note 7, at 352-53. 102 See Part V.E, discussing circumstances in which international law is unlikely to have substantial effect. 103 See Part V.E. 104 For a detailed discussion of BITs, see Andrew T. Guzman, Why LDCs Sign Treaties that Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 VA. J. INT’L L. 639 (1998); Kenneth J. Vandevelde, U.S. Bilateral Investment Treaties: The Second Wave, 14 MICH. J. INT’L L. 621 (1993). 105 Other examples could obviously be chosen here. Bilateral investment treaties are selected because the costs and benefits are more easily understood and evaluated in the context of such treaties than in many other examples. It is important to note, however, that difficulty expressing costs and benefits in dollar terms does not represent a problem for the theory presented. 106 The expropriation of foreign owned assets occurred numerous times in the twentieth century. Some examples include the Mexican expropriation of agrarian and oil properties between 1915 and 1940; the Soviet expropriations following the Russian revolution; the Egyptian expropriations that led to the Compliance-Based Theory 30 expropriate the local assets of foreign firms. To make the example concrete, assume that the available assets have a total value to the country of $100 Million. This potential gain of $100 Million must be weighed against the cost of an expropriation, which might include several components. First, the violating country loses the benefits currently being provided by foreign firms including, for example, the tax revenues from these firms, technological transfers provided, employment, and so on.107 Suppose that this loss amounts to $40 Million.108 Second, the country is likely to suffer a reputational loss in the eyes of foreign investors. The act of expropriation signals a willingness to seize the assets of foreigners, and reduces the attractiveness of the country to potential future investors. Foreign investors are less likely to invest if they believe the host country may expropriate their investment. Suppose that the reputational loss translates into a loss of future investment, which the country values at $40 Million. Finally, the country will suffer a loss of reputational capital with respect to other countries. Potential treaty partners will view the country as a less reliable partner and will be less willing to enter into future agreements. Assume that this loss is equivalent to $30 Million. Notice that only a portion of the above costs can be attributed to international law. Benefits that are lost because existing foreign firms either stop operating or operate less efficiently after expropriation are not affected by the legal commitments of the country. The loss of reputation in the eyes of other states, however, is the result of a violation of an international obligation. The act of expropriating in the face of a treaty promising not to do so demonstrates a willingness on the part of the country to violate international commitments. Other countries will take this into account when dealing with the country. Finally, the reaction of potential foreign investors is partially, though not entirely, a function of the existence of international law. Even in the absence of an international legal commitment,109 a decision to expropriate will have a chilling effect on future investment. This effect is independent of the existence of an international legal commitment. To the extent that investors view the legal obligation contained in the BIT as a credible commitment, however, the country becomes more attractive to investors and may enjoy higher levels of investment. If expropriation undermines this Suez crisis; Cuban expropriations following the rise to power of Fidel Castro; the taking of partial ownership in copper mines in Chile in 1971; and expropriations by Iran following the fall of the Shah. See LIPSON, STANDING GUARD, PROTECTING FOREIGN CAPITAL IN THE NINETEENTH AND TWENTIETH CENTURIES (1985); Burton & Inoue, Expropriation of Foreign-Owned Firms in Developing Countries, 18 J. WORLD TRADE L. 396 (1984); Detlev Vagts, Foreign Investment Risk Reconsidered: The View from the 1980’s, 2 ICSID REV. 1 (1987). 107 It is true that the expropriating country may be able to generate some of these benefits by continuing to operate the expropriated firms. Unless the government can operate the firms as efficiently and introduce innovations as quickly as the former owners, however, the expropriation involves some loss. 108 All of the costs in this example should be treated as the present discounted value of the lost future stream of revenue. 109 And putting aside, for simplicity, the fact that there may be a rule of customary international law which prohibits expropriation without full compensation. Compliance-Based Theory 31 confidence, a portion of the lost investment can be attributed to a reputational effect resulting from the violation of international law. Future promises not to expropriate will lack credibility, making it difficult to recapture that investment. In deciding whether or not to violate its international commitment, the country compares the total costs of doing so to the total benefits. Using the numbers given above, it is clear that the country prefers to honor its commitment. A violation of the treaty would impose a loss of $110 Million and yield a gain of only $100 Million – a net loss of $10 Million. Notice also that the outcome is changed as a result of international law. In the absence of a legal obligation, the expropriating country would not suffer the $30 Million reputational loss in the eyes of other states so its total loss from the expropriation will be no more than $80 Million. Because the benefits from expropriation are $100 Million, the expropriation would cause a net gain absent the international commitment.110 This example demonstrates that a reputational loss can affect decisions even when the loss is considerably less than the total potential gains from the action. This is so because there will typically be other costs that the country must take into account. The reputational consequences of an action can alter the outcome if they are enough to tip the balance of costs and benefits in favor of compliance. If we make different assumptions about the numbers, of course, we can generate different results. For example, if the gain from expropriation is $200 Million while the other numbers are unchanged, the country will choose to expropriate even though doing so is a violation of international law. If, on the other hand, the gain from expropriation was $20 Million and the other numbers again remained the same, the country would choose not to expropriate, regardless of whether or not a BIT was in place. D. Dynamic Issues A country’s decision to follow international law reflects a judgment that the costs of a violation outweigh the benefits. Because the opportunities and risks facing a country vary both over time and across contexts, however, it is to be expected that a country may choose to follow a particular law at one time or in one context and violate it at another time or in another context. The dynamic aspect of compliance with international law can be illustrated with the bilateral investment treaty example from the previous section. Suppose that a country anticipates that the expropriation of foreign investment will lead to a complete 110 Strictly speaking, one should include the fact that the BIT caused an increase in investment – meaning that absent a BIT, the country would have less investment to begin with, reducing the attractiveness of expropriation. This detail can easily be added to the above example without changing the results. It is omitted only for simplicity. Compliance-Based Theory 32 halt in the flow of investment into the country.111 Assume that the expropriated investment is worth $100 Million to the country if it is left in the hands of investors, and that it is worth $200 Million if it is expropriated. The benefit from expropriation, therefore, is $100 Million. To evaluate the cost of the expropriation the decision makers must also consider the value of future investment if it expropriates (which by assumption is zero) as compared to the value of future investment if it does not expropriate. If the expected value of future foreign investment changes over time, a country may choose to abide by its BITs for a period of time but, when conditions change, it may decide to violate those commitments. Imagine that times are good and the country is enjoying high levels of foreign investment that are expected to increase further in the years to come. Future investments are expected to yield benefits valued at $200 Million. Under these conditions, expropriation is unattractive. The country can do better by encouraging more foreign investment and by treating that investment well. Benefits in the form of tax revenues, employment, technology transfers, and so on, are larger than the benefits from expropriation. Now suppose that the political mood in the country changes as the leader of a populist party emerges to national prominence by blaming the country’s troubles on foreign capitalists. He points to the high level of foreign investment in the country and the substantial profits being made by investors, contrasting this with the low wages paid at some of the facilities of foreign firms. Widespread hostility develops toward foreign interference in the local economy, and foreign residents are targeted for kidnapping by newly formed leftist rebel groups. Despite its best efforts, the government cannot provide sufficient security to ensure the safety of all foreign residents and visitors, and it fails in its attempts to deflate the popularity of the opposition leader. From the perspective of a potential investor, these developments greatly reduce the appeal of the country. Not only are employees at risk from violent rebels, but there is no way of knowing if the current pro-investor regime will win the next election or if the country will be consumed by violence and possibly even civil war – an outcome that would almost surely destroy any investment. As a result of these events, the expected level and value of future investments falls to the point where the expected stream of benefits to the country is worth, say, $50 Million. The country’s expropriation decision is affected by this lower level of expected future investment. By expropriating, the country still stands to gain $200 Million. If it does not expropriate, it gains $100 Million from the investment that is in place plus $50 111 This extreme assumption is used to make the illustration clear. It is not necessary for the results. Compliance-Based Theory 33 Million from future investment for a total of $150 Million.112 The reduction in future investment has made expropriation the country’s best strategy.113 Consider how the above dynamic issues might affect debt repayment decisions. Imagine a country that seeks to borrow funds from international markets. When it borrows, the sovereign debtor pledges to repay the funds plus interest. A decision to violate this international commitment represents a judgment that the costs of a failure to repay are outweighed by the benefits. Among the costs facing the country if it does not repay is a reputational impact that makes future borrowing more difficult or perhaps impossible. If the country in question expects to borrow a great deal in the future – perhaps because it is growing rapidly and has many uses for the funds – a failure to repay would be very costly. A country in this situation, therefore, is likely to do everything within its power to repay its loans. If, on the other hand, the country does not expect to undertake any future borrowing, it faces a much lower cost if it does not repay the loans. The fact that international markets are unwilling to make additional loans does not impose much of an incentive because the country does not want (or is already foreclosed from obtaining) future loans. To be sure, the reputational loss will affect the country in other ways, but the important point is that the cost of a violation is lower for the country with no future borrowing needs The history of Russian and Soviet debt in the twentieth century demonstrates exactly this sort of behavior. When the Soviet Union came into being, it immediately repudiated debts from the prior Russian Czarist regime.114 The new Soviet Union was based on a political philosophy that was hostile to the established sources of capital and the USSR, therefore, stood little chance of securing large foreign loans in the foreseeable future.115 In that environment, a refusal to pay is easy to understand because the country had little to lose by offending international capital markets. When the Soviet Union collapsed, however, the situation was different. The new Russian government was in need of large capital infusions, including loans from other states and the IMF. In an effort to improve its reputation among potential creditors, the Russian state pledged 112 These calculations ignore the fact that foreign investments are sure to be less profitable in the unstable new environment. If this fact were taken into account the temptation to expropriate would be even greater. 113 In analogous way a country’s compliance decision may vary depending on the context. For example, a country that has BITs with two different partners may choose to violate one treaty but not the other if the gains from violating the first are larger than the costs while the costs outweigh the benefit in the case of the second treaty. 114 Barry Eichengreen & Richard Portes, Debt and Default in the 1930s: Causes and Consequences, 30 EUR. ECON. REV. 599, 613 (1986). 115 The United States did not even recognize the Soviet government until the 1933 Litvinov Assignment. See United States v. Pink, 315 U.S. 203 (1942). Compliance-Based Theory 34 to repay not only Soviet debts, but also promised at least some compensation to the holders of Russian bonds repudiated by the Soviet Union in 1918.116 E. The Level of Commitment The above discussion demonstrates that a model of rational states is consistent with the existence of international law. This result is important because, just as the ability to bind oneself through contract is valuable to private parties, the ability to commit to a particular action is valuable to states. A state’s ability to signal its commitment more credibly through an international agreement – whether a treaty or other form of promise – is welfare increasing because it allows that state to enter into a broader range of potential agreements. In other words, the ability to make irrevocable commitments makes states better off.117 In the absence of transaction costs, the parties to an agreement would specify the precise conditions under which they will perform and those under which they will not. Agreements would list every possible state of the world and the obligations of the parties in each state. In a domestic context, such a contract would then be enforceable in court. In the international context, such a contract would be backed by reputation. As events unfolded, one could simply refer to the contract in order to identify the obligations of each party. Notice that a complete specification of terms in this way would allow countries choosing to develop reputations for honoring their commitments to make agreements that are fully specified and that make it unnecessary to ever violate their obligations. By specifying the precise conditions under which they plan to perform, states also specify the conditions under which they plan to refuse performance. The agreement itself, therefore, would excuse performance in some situations, and a country could make agreements that it would never violate. If such agreements were possible, there would be no reason for the many different types of international commitments. Rather than sign a “non-binding agreement” for example, a state could simply specify the conditions under which it promises to carry out the requirements of the treaty and those under which it will not do so. The agreement could then be included in a binding treaty under whose terms one or both parties would be excused from performance in certain circumstances. In practice, of course, substantial transaction costs prevent international agreements from specifying every possible future contingency. First, it is often impossible to know in advance the range of possible future states of the world, let alone to list them all in an agreement. For example, in the mid 1980s it would have been very 116 Uli Schmetzer, Russia to Pay Off Old Bonds; After 78 Years, the Czar's Markers Are Worthless No More, CHI. TRIB., Nov. 28, 1996, at 1. 117 The value of a good reputation for states can be compared to the value of a high bond rating. Just as a good rating increases investor confidence and, therefore, allows the firm to raise money more cheaply, a strong reputation increases the confidence of counter-parties to an international agreement, allowing a state to extract more in exchange for its own promises. Compliance-Based Theory 35 difficult to predict the collapse of communism and the state of Eastern Europe and the former Soviet Union in the early 1990s. Second, even if the range of possible states of the world is known, the probability of being in any given state of the world is not. For example, it is conceivable that a Free Trade Agreement of the Americas will be signed within the next ten years, but the probability of such an event is difficult to estimate. Third, identifying the state of the world at any given moment is controversial and subject to dispute. Countries may disagree, for example, about whether certain practices constitute protectionist barriers or reasonable health measures. This lack of consensus introduces questions of interpretation that can lead to a dispute even in the case of a well-specified treaty. Finally, a long list of contingencies and conditions can make ratification of international agreements much more difficult. Domestic opposition to an agreement can choose from the many conditions to advance the argument that the agreement is contrary to the national interest. Even where an agreement, taken in its entirety, is a good one, groups opposed to it would have more ammunition with which to rally public opinion in opposition.118 As a result of these, and other, transaction costs, international agreements do not list every possible contingency. Instead, the parties recognize that there is a risk of violation. The problem is that the violation of a treaty leads to a loss of reputation that is costly. A country that wants to make a promise, but recognizes that there is a high probability that it will violate that promise, may not want to put too much reputation on the line. Of course, if the reputational risk is too great, a country can always choose to simply not make the promise. This strategy is not ideal, however, because the country may want to make at least a weak promise in order to extract some form of concession from the other side. Having the ability to either “commit” or “not commit” is valuable, but the ability to choose from a range of commitment levels is even more valuable. By varying the form of its promise, a state is able to choose its level of commitment and signal that commitment to other states.119 It is possible to identify at least two dimensions along which international agreements can range in order to adjust the level of commitment. The first dimension, which is the primary focus of this Article, is what might be termed the formality of the commitment. Treaties, for example, bind more than informal agreements. The second dimension is the clarity of the agreement. Where a nation’s commitment is clear, a breach is more easily observed and the reputational cost is higher. When possible, therefore, countries that wish to increase the level of 118 In some circumstances an agreement will, in fact, not be in the national interest. In those cases, the ability to oppose its ratification may be good for a country. Those who draft an agreement, however, almost always want the agreement to be adopted. Because it is these parties who determine the level of detail included in the treaty, they are able to keep the agreement simple in order to improve the chances of adoption. 119 See Charles Lipson, Why are Some International Agreements Informal?, 45 INT’L ORG. 495, 508 (Autumn 1991) (stating that countries use treaties to “signal their intentions with special intensity and gravity.”) Compliance-Based Theory 36 commitment prefer detailed agreements. For example, trade negotiations often feature schedules of commitments that provide a precise enumeration of commitments and obligation.120 At the other extreme, vague statements regarding national intent lead to relatively low levels of commitment, in part because it is very difficult to determine when a country has violated the agreement. The ability to modulate the level of obligation should not be mistaken for a system of truly enforceable promises. By choosing one form of international agreement over another, countries are varying the reputational stake that they have in the obligation. A violation will impose a higher reputational cost in the case of a treaty than it will in the case of a non-binding agreement. In neither case should one conclude that the country “cannot” turn away from its obligation. The strength of reputation remains limited and even the strongest commitments will sometimes be ignored. On the other hand, it is a mistake to discount the importance of reputation altogether. As discussed above, a reputation for compliance with agreements is valuable to a country, so countries will only compromise that reputation if they receive something else of value in exchange.121 F. International Law and Coordination When states cooperate in order to resolve straightforward coordination games, it is fair to say that international law has a limited role to play. Imagine, for example, that two countries wish to shut down an international organized crime syndicate. By cooperating, the countries stand a good chance of success. Neither country is willing to pursue the syndicate by itself, however, because a single country acting alone stands very little chance of succeeding. Figure V illustrates such a game. If both countries pursue the crime syndicate, the expected payoff for each country is 5 – reflecting the high probability of success. If both ignore the syndicate, both countries must endure the associated crime, but can use the freed resources to combat other problems, yielding a gain of 2. If one state pursues the syndicate alone, it expends resources in doing so, but stands little chance of success, yielding a loss of 3. A state that ignores the syndicate while the other state pursues it can divert resources to other concerns while still enjoying at least some chance that the syndicate will be shut down. The total payoff for a country in this situation is 3. 120 See, e.g., The North American Free Trade Agreement and related documents, available online at http://www.nafta-sec-alena.org/english/index.htm. 121 See Lipson, supra note 119, at 511. Compliance-Based Theory 37 Figure V Country 2 Pursue Ignore Pursue 5,5 -3,3 Country 1 Ignore 3,-3 2,2 In this game, one would expect the countries to reach an agreement in which each promises to pursue the syndicate. Once such an agreement is reached, neither country has an incentive to violate its commitment and no threat of sanction is needed to achieve cooperation. Furthermore, the form of the agreement is not terribly important. The countries could sign a treaty agreeing to pursue the crime syndicate, but a treaty is not necessary. It would be equally effective to reach an informal agreement between the countries or between the relevant law enforcement agencies. It would also be sufficient for one country to declare its intention of pursuing the crime syndicate in a public and credible way by, for example, expending funds to do so. The other state, seeing that the first state was pursuing the syndicate, would have an incentive to do the same. Because this game is resolved through simple coordination and without the need of a sanction in the event of a violation, one can question whether it is an example of international law at work.122 Although international law may facilitate the selection of a focal point in cases where there exist multiple equilibria, it does little else.123 If one adopts a more realistic model of a coordination game, however, international law can play a significant role. There are at least two extensions of the simple coordination game that make international law important. First, it may be the case that the parties do not know one another’s payoffs with certainty. In that situation, even if the actual payoffs are as indicated in Figure V, the countries may not be certain 122 See Goldsmith & Posner, supra note 2, at 1127-28. 123 The resolution of coordination games is one explanation for informal agreements among states. Because coordination games need only a focal point in order to achieve the desired equilibrium, there is no need for a formal and detailed agreement. Once the focal point is identified, no state has an incentive to “cheat.” Compliance-Based Theory 38 that coordination is sufficient to ensure the desirable outcome. Country 1, for example, may mistakenly believe that the payoffs are as shown in Figure VI rather than Figure V. Figure VI Country 2 Pursue Ignore Pursue 5,5 -3,6 Country 1 Ignore 3,-3 2,2 If country 1 believes that Figure VI represents the payoffs, it will expect country 2 to ignore the syndicate. In this situation, country 1 will not expect mere coordination to be sufficient to ensure that both countries pursue the syndicate. As a result, country 1 will not pursue the syndicate unless it has some assurance that country 2 will do the same. The easiest solution, of course, is an international agreement. If the parties sign a treaty pledging to pursue the crime syndicate, the reputational cost of a failure to do so may be enough to make country 2’s promise credible to country 1. If so, both countries will sign the treaty and pursue the syndicate. The lesson here is that if the payoffs are not common knowledge, international law may help achieve the value-maximizing outcome in a coordination game. A second extension of the basic coordination game recognizes that states face circumstances that change over time. Imagine, for example, that in period 1 everybody expects the crime syndicate to concentrate its operations in one state during period 2 and simultaneously reduce them in the other state. Once the syndicate has turned its focus to only one of the countries, the other has no incentive to pursue it. Nobody knows, however, which state will face a growth in activity and which will witness a decline. Because neither state is likely to succeed in controlling the syndicate alone, both are willing to commit to a cooperative effort to defeat the syndicate in the future rather than risk being the focus of its activity. In this example, both states are better off ex ante if they are able to commit to a joint crime fighting effort, but once the uncertainty is resolved, one state will have an Compliance-Based Theory 39 incentive to ignore the syndicate. Both states, therefore, prefer to commit, in period one, to working together, but once the uncertainty is resolved one of them will have an incentive to ignore that commitment. Figure VII Country 2 Pursue Ignore Pursue 5,1 -5,4 Country 1 Ignore -1,-1 -2,3 If commitment is not possible, however, the period 2 payoffs are those given in Figure VII, which assumes that the crime syndicate concentrates its efforts in country 1. If both countries pursue the syndicate, country 1 gains 5, just as in Figure VI. Country 2, however, gains only 1 because the crime syndicate’s activities in country 2 have been reduced, making a successful crime fighting effort less valuable than it is in Figure VI. If both countries ignore the syndicate in period 2, country 1 suffers a loss of 2 as a result of the crime. Country 2, however, enjoys a gain of 3 because it can devote its resources to other priorities. If only country 1 pursues the syndicate, it suffers a loss of 5 because it is unlikely to succeed in defeating the syndicate, and it uses up valuable resources trying to do so. Finally, if only country 2 pursue the syndicate, it receives a payoff of -1 because it uses up resources. Country 1 receives a payoff of –1 if only country 2 pursues the syndicate because it suffers from the crime but can at least use resources in other areas. Notice that in period 2, ignoring the crime syndicate is a dominant strategy for Country 2. Regardless of what country 1 does, country 2 is better off if it chooses to ignore the syndicate. Knowing this, country 1 will also choose to ignore and we end up with payoffs of –2 for country 1 and 3 for country 2. Compliance-Based Theory 40 If international law allows the countries to commit to a particular course of action, however, they can agree in period 1 to pursue the syndicate.124 Notice that this result maximizes the payoffs to the countries. The point here is that although international law has little role to play in a pure coordination game, the dynamics of international relations may cause countries to enter into formal agreements even when they appear to face a simple coordination game. Incomplete information and changes in circumstances can turn a coordination game into a game in which the ability to commit to a particular course of action has value. Even when the game at hand appears to be a coordination game, therefore, there may be reasons to make use of international law and the ability to pledge reputational capital. IV. VIOLATION AND COMPLIANCE This section seeks to examine violations of international law in greater detail. It provides insights into why states sometimes violate their international commitments and when they can be expected to do so. A. Reputational Sanctions The primary benefit of a rational actor model of international law is its ability to provide predictions about when countries will choose to violate international legal obligations. The decision to honor or breach a promise made to another state imposes costs and benefits upon a country and its decision makers. It is assumed in the model that decision makers behave in such a way as to maximize the payoffs that result from their actions.125 Where the benefits of breach outweigh its costs, we expect a country to violate international law. International law succeeds when it alters the payoffs in such a way as to get compliance with international law when, in the absence of such law, states would behave differently.126 Put another way, international law succeeds when promises made by states generate some compliance pull. 124 It is assumed that a commitment at period one is sufficient to achieve compliance – meaning that we assume the reputational cost of a violation is large enough that country 2 prefers to honor its commitment. 125 As previously mentioned, the precise set of payoffs that an actor maximizes need not be the one that maximize the country’s payoff, it may instead be the one that achieves the leader’s personal objectives. Decision makers whose goals differ from those of their countries may be more likely to violate international law because they do not bear the entire cost of such a violation. Such a situation would generally reduce the role of international law, but does not present a problem for the theory presented in this Article. 126 Notice that in contrast to the domestic context, most international law cannot hope to achieve optimal deterrence. In most cases all that can be hoped for is movement in the direction of optimal deterrence. Conditions that can promote optimal deterrence are discussed in Part III.C. Compliance-Based Theory 41 To generate predictions about state behavior, one must have a theory about the magnitude of the reputational loss as a result of violations of law. It seems clear that the reputational impact of a violation of international law varies depending on the nature of the violation. For example, a failure to comply with a minor international obligation that is a result of oversight or human error and that is promptly corrected without damage to other states is unlikely to have a major reputational impact. In contrast, an egregious and intentional violation such as support of terrorist activities against another state is likely to have a profound impact on a nation’s reputation. A list of factors that influences the reputational impact of a violation, therefore, should include the severity of the violation, the reasons for the violation, the extent to which other states know of the violation, and the clarity of the commitment.127 The discussion that follows outlines some of these factors and discusses the possibility that states may suffer a reputational loss even when implicit obligations are violated. The level of commitment taken on by a state is not discussed below because it is addressed in detail in Part III.E. It should also be noted that although this Article tends to speak of “a state’s reputation,” it is important to keep in mind that the reputation of a state may vary from one issue area to another and may depend on the identity of its counterparty. 1. Severity of the violation The reputational consequence of a violation is most obviously affected by the severity of that violation. A minor, technical violation will have a small impact compared to a major violation of an international obligation.128 Related to the severity of the violation is the magnitude of the harm suffered by other states. A violation that causes substantial and widespread harm does greater damage to a state’s reputation than a violation that is “victimless” or that imposes only slight harms. Consider, for example, the impact of violating the territorial waters of another state. If ships of one state sail through the waters of another in disregard of a policy requiring permission for such voyages, international law has been violated.129 If those ships simply pass through the waters without causing any harm to the offended state or any other state, the violation is unlikely to have major reputational consequences.130 If, on the other hand, the ship in question is a fishing vessel that catches fish in the other state’s waters, the consequences are likely to be greater. The impact on the offending state’s reputation is greater still if the harm is felt by more than one country. It may be the case, for example, that the relevant waters for fishing 127 This list is not intended to be exhaustive. Other factors may also be relevant. 128 See CHAYES & CHAYES, supra note 12, at 18 (“Flouting a cease-fire under a peace agreement or refusing to allow inspection of nuclear reactors under the NPT would be expected to evoke very different responses from a failure to meet the reporting requirements of an environmental treaty.”) 129 For simplicity and clarity, assume that the ships in question are owned by the state. 130 Repeated violations of this type may have greater consequences. Compliance-Based Theory 42 purposes cross national boundaries.131 If this is so, by fishing in the waters of one country the offending state is imposing a harm on all countries whose fishing industries might be affected. The act of fishing in those waters, therefore, may harm the interests of several states at once. 2. Reasons for violation The reason for a violation of international law may also play a role. When entering into an agreement, states hope that their counter party will honor its obligations. They also recognize, however, that compliance with international obligations is imperfect and that violations occur. It is understood that under certain conditions a state will choose to ignore its obligations. For example, violation of a human rights treaty is viewed in a different light when it takes place under conditions of great national crisis than if the violation occurs during a period of normalcy.132 A state that breaches such a treaty in time of crisis may be able to retain a reputation for compliance with treaties during normal times. When normalcy returns, and the state seeks to participate in further human rights negotiations, its reputation may not be unduly compromised. If the violation took place during a period of normalcy, however, future negotiations will be tainted by the past failure to honor international obligations. It will be much more difficult, and perhaps impossible, for the country to use its reputational capital in the human rights arena. 3. Knowledge of the violation The extent to which a violation is known affects the reputational consequences of a violation. Obviously if a violation takes place without the knowledge of any other state, there is no reputational loss. For example, if the ships of one country fish illegally in the territorial waters of another without that country (or any other) being aware of the violation, there will be no reputational consequences. A more dramatic example might be the secret violation of a nuclear non-proliferation treaty. The reputational consequences will also be less if only a small number of countries know of the violation. For example, if the ships of one country fish in the waters of another, but only the offended country becomes aware of the incident, the offending country may only suffer a reputational loss in the eyes of that other country. As no other country knows of the violation, there is no loss of reputation with respect to those countries. Even if the county who suffered the violation attempts to publicize it, the offending country may be able to deny the accusations in a credible fashion. This explains, for example, why countries often deny that they have violated international law despite the accusations of another state. 131 For example, the Northeast coast of the United States represents a fertile fishing ground that is shared with Canada in the sense that the fish inhabit an area that crosses the Canada-US boundary. 132 Note that this is a claim about how nations view a violation, not how traditional conceptions of international law view it. Compliance-Based Theory 43 4. Clarity An issue closely related to the question of states’ awareness of a violation of international law is the matter of clarity. Because reputational loss is triggered by a failure to live up to an international obligation, the clarity of both the obligation and the violation are important factors. The reputational consequences are most severe when the obligation is clear and the violation is unambiguous. Where obligations are uncertain, the reputational cost from a violation is reduced. The relationship between the reputational cost of a violation and the certainty of that violation may explain why battles over the content of customary international law (CIL) are fought. If the existence of a rule of customary law is in doubt, the reputational cost of a violation will be smaller. Thus, for example, debates over the role of CIL in human rights issues can be explained by the desire of each side to control the content of CIL. If a particular set of human rights issues is deemed norms of CIL, states that violate those rules will pay a higher cost for doing so. This is so because at least the uncertainty regarding the existence of an obligation is eliminated. The force of the rule may remain weak, of course, because there may remain uncertainty regarding the exact content of the rule, the exceptions to the rule, the identity of any persistent objectors, and so on. 5. Implicit Obligations Because reputation plays a central role in the compliance question, one must consider the possibility that a state may suffer a reputational loss for actions that are consistent with its explicit international obligations. Stated in contractual terms, do the actions of states create implicit commitments in addition to the explicit commitments that are agreed to? If so, violation of these implicit promises may also lead to a loss of reputational capital. Putting aside the semantic question of whether it makes sense to call such actions violations of law, the consequences for such actions may affect state behavior. For example, if a state withdraws from a treaty in a fashion that is consistent with that treaty but that is contrary to the expectations of other states, there may be reputational consequences. A withdrawal of this sort may be perceived as a breach of an implicit promise to honor the treaty for the foreseeable future. To see why this is so, imagine the United States announcing its intention to withdraw from NAFTA. Under the terms of the NAFTA agreement, any party can withdraw “six months after it provides written notice of withdrawal to the other Parties.”133 The United States would be entirely within its rights, under the terms of the agreement, to take such an action. Nevertheless, Canada and Mexico, having relied on the presence of NAFTA, having gone through a period of economic dislocation and adjustment following the adoption of 133 NAFTA art. 2205. Compliance-Based Theory 44 NAFTA, and having made plans – in both the private and public sectors – that rely on the continued existence of the treaty are sure to suffer losses as a result of the decision. In addition, politicians in both Canada and Mexico supported NAFTA and staked their own political reputations on the deal. These individuals would be personally affected, and may feel betrayed by American policymakers. Although the countries did not explicitly commit themselves to NAFTA for more than six months, each country may believe that there is an implicit promised to honor the treaty for a longer period. One would expect that an American withdrawal from NAFTA would dampen enthusiasm in Canada and Mexico for further trade agreements and for reliance on American commitments. In other words, withdrawal from NAFTA imposes reputational costs on the United States that resemble those imposed for a violation of the treaty.134 In fairness, it should be noted that the reputational impact in the above example is limited by the fact that the United States complied with its formal obligations. An American announcement of an immediate cancellation of the treaty would presumably increase the reputational cost of a withdrawal from the treaty. One reason for the different reactions may be that withdrawal in a fashion that is consistent with the treaty may not signal a willingness to take actions that are contrary to a country’s express commitments. Furthermore, it may be possible for a country to suffer a reputational loss as a result of acting contrary to the terms of an agreement to which the state has not consented. For example, the Basle Accord establishes minimum capital-asset ratios for banks. The Accord enjoys widespread compliance, not only among signatory countries, but also among countries that did not sign and were not involved in the negotiations. Imagine that Country A chooses to comply with the Basle Accord, even though it was not a signatory. If country A, after several years of compliance, changes its policies and decides to ignore the Accord, it might suffer a reputational loss. While country A was in compliance, other countries may have assumed that it would continue to comply, and they may have adjusted their policies in reliance. 6. Regime Changes The above discussion treats each state as an entity that is permanently tainted by its violations of international law. This is something of an overstatement because not only will the passage of time reduce the reputational consequences of any particular act, but the state may be able to neutralize the reputational consequences of prior actions through a change in leadership. Imagine, for example, that a government continually 134 This example demonstrates in a graphic way the difficulty of separating “legal commitments” from international relations in general. A country that habitually enters into international obligations only to withdraw shortly thereafter is a less desirable partner regardless of whether the withdrawals are consistent with the terms of the agreements or not. It may be the case that violations of explicit commitments are more costly in terms of reputation than violations of implicit commitments, but both kinds of actions come with a reputational price tag. Compliance-Based Theory 45 ignores its international commitments as part of a domestic political platform of isolation and independence. The government will most likely be unable to obtain concessions from other states in exchange for its own promises. If that government falls and is replaced by one that openly favors closer ties with the outside world, compliance with international legal obligations, and openness, the reputational impact of the past policies may be partially or even entirely erased. Something very much like this took place with respect to the flow of foreign direct investment into Chile during the early 1970s. During the Allende regime foreign investment was expropriated and conditions were generally unfavorable to foreign investors, with the predictable result that foreign investment fell virtually to zero.135 Although some of the investment decisions were surely based on pessimism about the Chilean economy, it seems certain that some were based on concerns about the potential for future expropriations. Following the successful coup by Pinochet, however, foreign investment returned in short order. By 1975, the flow of foreign investment reached USD 50 million, the first time in the decade that it was positive. By 1978, foreign investment was USD 181 million.136 Again, some of the increase inflow must be attributed to the fact that the Pinochet regime created a more favorable economic climate for investment. Nevertheless, it is clear that the reputational concerns that arose as a result of expropriation and other acts under Allende largely disappeared when Pinochet rose to power. The ability of a new regime to avoid the reputational stigma of past actions by the state will, of course, depend a great deal on the particular circumstances of the case. If the new administration is perceived to be similar in ideology to prior ones, it will probably be difficult to shed a negative reputation. In addition, if the former regime is likely to regain power in the near future, its reputation will continue to affect the behavior of other states. B. Direct Sanctions Up to this point the Article has focused on the reputational impact of violations of international law. This approach is quite different from the usual way in which domestic rules are studied. In the domestic setting, it is sanctions imposed by government that receives the primary focus while reputational effects, if any, are normally considered to be secondary.137 The weakness of direct sanctions in the 135 In fact, foreign investment during the period was negative because some firms removed their investments. 136 Source: IMF Balance of Payments Statistics. 137 In recent years there has been a renewed interest in the question of how social norms, including reputational sanctions, affect behavior. See ERIC POSNER, LAW AND SOCIAL NORMS (June 2000); ROBERT C. ELLICKSON, ORDER WITHOUT LAW: HOW NEIGHBORS SETTLE DISPUTES (1991); Symposium, Law, Economics, & Norms, 144 U. PA. L. REV. 1697 (1996); Symposium, Social Norms, Social Meaning, and the Economic Analysis of Law, 27 J. LEGAL STUD. 537 (1998); Lisa Bernstein, Opting Out of Compliance-Based Theory 46 international arena, however, makes reputational sanctions more important. That is not to say that direct sanctions are irrelevant. In certain instances they can have an important impact on a country’s incentives and behavior. This section examines direct sanctions and discusses when these sanctions are likely to be most effective. 1. Direct Sanctions and Retaliation The first point to note is that optimal compliance with international law is more likely if states face direct sanctions for such violations. This is so because reputational sanctions are generally, though not always, weaker than an optimal sanction. Once again, analogy to contract law is useful. Just as compliance with a contract is not always optimal, one hundred percent compliance with international law is not the optimal level of compliance. This is so because nations are unable to anticipate all possible situations in their agreements. In certain circumstances the total costs associated with compliance outweigh the costs associated with a violation of the law. On these occasions, violation of the law is preferable to compliance. This point is understood in contract law, where it is well established that expectations damages lead to “efficient breach.”138 In other words, by adopting expectation damages, contracts are breached if and only if breach is the value maximizing outcome. The same result holds in international law. When the total benefits of a violation of international law outweigh the benefits of performance, it is preferable that there be a violation.139 A regime in which violations of international law lead to expectation damages will, as in the contracts analog, lead to violations of the law only when such violations are efficient. In other words, expectation damages lead to optimal deterrence.140 The most commonly used form of direct sanction consists of retaliatory measures taken by one or more states against another. For example, following the enactment of the Hawley-Smoot Tariff Act of 1930, which increased U.S. tariffs dramatically, other countries retaliated with tariff increases of their own.141 In some cases direct retaliation the Legal System: Extralegal Contractual Relations in the Diamond Industry, 21 J. LEGAL STUD. 115 (1992); Robert Cooter, Normative Failure Theory of Law, 82 CORNELL L. REV. 947 (1997); Steven Hetcher, Creating Safe Social Norms in a Dangerous World, 73 S. CAL. L. REV. 1 (1999); William K. Jones, A Theory of Social Norms, 1994 U. ILL. L. REV. 545; Jody S. Kraus, Legal Design and the Evolution of Commercial Norms, 26 J. LEGAL STUD. 377 (1997). 138 See A. MITCHELL POLINSKY, AN INTRODUCTION TO LAW AND ECONOMICS 31 (2d ed. 1989). 139 This is not meant to suggest that there is any simple way to aggregate the interests of states in order to determine when the benefits of a violation outweigh the costs. The point is simply that this will be true in some circumstances, implying that infinite sanctions for violations of the law are inappropriate. 140 Note that the damaged referred to here include reputational loss. For this reason, even if there were a mechanism to impose, say, monetary sanctions, it would be appropriate for these to be somewhat less than the level of expectations damages so that total damages, including both reputational and direct sanctions, represent expectation damages. 141 See Thomas D. Grant, Foreign Takeovers Of United States Airlines: Free Trade Process, Problems, And Progress, 31 HARV. J. ON LEGIS. 63, 139-40 (1994); RAY AUGUST, INTERNATIONAL BUSINESS LAW 354 (2000). Compliance-Based Theory 47 amounts to a decision by the counter-party of the offending state to terminate its own compliance with the relevant agreement. This action has the advantage that it imposes a cost on the offending state and it is often in the interest of the retaliating state. For example, imagine that country A and country B agree on the implementation of pollution controls in border areas. Assume that neither country would implement the controls by itself, but each is willing to do so in order to get the controls imposed by its neighbor. Suppose that country A violates the agreement by failing to properly monitor and enforce the new controls. Country B may react by refusing to continue its own compliance with the agreement. This is a likely reaction by country B because, by assumption, it agreed to the controls only because it expected country A to do the same. Compliance was the price country B was willing to pay in order to have country A change its behavior. Without country A’s compliance, it is in country B’s interest to ignore the terms of the agreement. This form of retaliation is relevant to country A’s decision to violate its international obligation, and in some cases will be enough to prevent such a violation. In many cases, however, the simple abrogation of the treaty is not enough to prevent a violation and, more importantly, is not an optimal sanction. To give a simple example, imagine that countries A and B each expect to receive gains of 5 as a result of the pollution agreement, but neither is certain of the actual gain. Despite the uncertainty, both countries consent to the deal in good faith. Suppose that after the agreement is signed, country A learns that it actually faces a loss of 1 as a result, rather than a gain of 5, while country B stands to gain 5 from the agreement, as expected. If country A honors its commitment, the total benefit is 4 (5 for country B, minus 1 for country A). If country A violates its commitment and B in turn abrogates the treaty, the total gain is zero. Country A will nevertheless violate the agreement (assuming there is no sanction other than abrogation) precisely because it is better off without it. The threat of abrogation is insufficient to provide optimal deterrence. Optimal deterrence would require that country A face a sanction of 5 as a result of its violation of the law. In this example, the withdrawal of benefits conferred is an inadequate sanction because it bears no relation to the loss caused by the violation and, therefore, does not lead to optimal compliance. In other cases, the sanction consists of actions that are intended to punish the offending state. That is, rather than a withdrawal of benefits conferred upon the offending state, sanctions can represent the imposition of a penalty. For example, in retaliation for Iraq’s actions against Kuwait and its refusal to accept liability for damage claims arising from the gulf war, western countries placed an embargo on Iraqi oil. Sanctions of this sort have the advantage that they need not be directly related to the violation and, therefore, can more easily be tailored to resemble optimal sanctions. Iraq’s actions were only indirectly related to its oil sales or oil revenues, but the embargo represented an available and relatively powerful sanction. Putting aside the question of whether the embargo is appropriate in this instance, it demonstrates that sanctions of this sort can be severe. Compliance-Based Theory 48 There are two important problems with the imposition of this sort of penalty. First, without a dispute settlement procedure,142 it is difficult to distinguish appropriate sanctions from inappropriate ones. While it is true that punitive sanctions have the potential to be used as optimal sanctions, they are generally not imposed by neutral third parties but rather by injured states. There is, therefore, the risk that the sanctions will be excessive. Second, the imposition of these sanctions imposes costs on both the sanctioned and sanctioning states. The embargo has hurt Iraq, but it has also hurt participating countries because it has reduced the number of potential suppliers of oil. Because imposing a sanction hurts a country, the incentive to impose optimal sanctions is often weak, leading to penalties that are too lenient. Despite their shortcomings, the relevance of punitive sanctions should not be dismissed too quickly, especially when they are compared to the alternative international mechanisms for compliance. In some situations it is possible to have such sanctions imposed and, as a result, provide more efficient incentives to states. Consider first a one-shot game in which country A violates international law and country B must decide whether or not to expend resources punishing country A. Assuming that the punishment is the last play of the game, country B has no incentive to impose the punishment. Country A realizes that country B will not impose the punishment, and so country A is not deterred from violating its obligations.143 In a one- shot game, therefore, countries will not impose sanctions on other countries when doing so is costly. It is elementary game theory that the same result holds for any finitely repeated game.144 The situation changes, however, in an infinitely repeated game. Where states interact repeatedly over time, it may be worthwhile for states to develop reputations for punishing offenders. By punishing offenders today, states increase the likelihood of compliance tomorrow because the threat of future punishment is credible. To sustain such an equilibrium with punishment it must be worthwhile for a state to punish today’s violation in order to achieve future compliance. These conditions will be met when (i) the states have relatively low discount rates; (ii) the cost to the punishing state is not too large relative to the benefit received when other states follow the law; and (iii) the benefits from violations of the law are not too large relative to the payoff from following the law. 142 There are, of course, some dispute settlement bodies in the international community, including the International Court of Justice and the dispute settlement procedures available at the WTO. There are put to one side for the moment. They are discussed below. 143 Note how different this case is from the withdrawal of benefits conferred, discussed above. If it is costly for country B to honor its obligations to A, it will stop doing so once it becomes clear that country A has not kept its own promises. 144 See ERIC RASMUSSEN, GAMES AND INFORMATION: AN INTRODUCTION TO GAME THEORY 88 (1990). Compliance-Based Theory 49 C. When Will Sanctions Work Best? The above discussion of sanctions describes the working of direct sanctions. Recognizing these incentive effects allows us to consider the circumstances in which sanctions are most likely to be imposed. This section addresses two dimensions along which the effectiveness of a sanction, whether direct, reputational, or both, is likely to vary. Specifically, one would expect such penalties to be imposed more often in the form of bilateral rather than multilateral sanctions; and in ongoing relationships more than in short term relationships. 1. Bilateral v. Multilateral Sanctions A bilateral sanction signals a willingness to punish illegal conduct within the bilateral relationship. Because many of the factors that determine a country’s willingness to impose a sanction – including the relative power of the two countries, the frequency of their interactions, and the general state of relations between the states – are slow to change in a bilateral relationship, a reputation for punishing violations is valuable, relatively easy to establish, and relatively easy to maintain. It is valuable because it yields benefits in a wide range of interactions. It is easy to establish and maintain because the sanctioning party enjoys the full benefits of the sanction in the form of greater compliance by its counter-party. It is, therefore, more likely to be worth the cost of establishing such a reputation. These factors mean that sanctioning violations are a relatively attractive strategy in a bilateral relationship. The use of punitive sanctions is much more difficult in the multilateral context. Faced with a violation, all countries have an incentive to free-ride on the sanctioning efforts of others. A country that imposes a sanction gains only a portion of the benefits from that act – other members of the group also benefit. Since all countries have an incentive to free-ride, one would expect too little use of these sanctions. This is one explanation of why international sanctions are so often considered to be ineffective. The most high-profile sanctions are typically multilateral sanctions which, even once they are in place, are less likely to be maintained. The lesson here is that it is difficult to achieve multilateral sanctions. Notice that the distinction being discussed turns on the nature of the sanction, not the nature of the underlying obligation. It is not a question of whether the entire relationship is bilateral or multilateral. Rather, it is a question of whether the punitive sanction is imposed bilaterally or multilaterally. If, for example, a country has a policy of sanctioning any violation of a multilateral agreement – regardless of who suffers the harm, that is a multilateral situation. If, on the other hand, a country sanctions only violations that impact itself, that is a form of bilateral sanction. The free-rider problem is present only in the multilateral situation and not in the bilateral situation. The problem with multilateral sanctions, therefore, need not undermine all multilateral efforts are cooperation. Multilateral agreements and organizations should take note of the problems with multilateral sanctions and tailor their dispute resolution and Compliance-Based Theory 50 enforcement mechanisms accordingly. For example, dispute settlement within the WTO relies on rules permitting an offended party to sanction a violating state when other attempts to resolve the dispute have failed. This is a more sensible strategy than one in which all member countries are asked to impose a sanction even when only one country is injured.145 2. Complex, Ongoing Relationships v. Simple, Short Term Relationships The role of reputation implies that international law is more powerful in complex, multifaceted relationships than in simple, one-dimensional ones. In a complex, bilateral relationship, individual interactions between the countries are normally of modest value when compared to the accumulated reputational capital and goodwill that exists between the countries.146 Bilateral relationships of this sort might include Canada and the United States, France and Germany, the United States and Japan, and so on. When states interact in many different areas and in many different ways over time, a reputational loss to one of those countries can be extremely costly. To see why this is so, compare the case of an ongoing complex bilateral relationship to the case of a one-time interaction.147 As shown in Figure I and the accompanying discussion, international law cannot affect a country’s behavior in a one-shot game because there are no consequences when international law is violated. Specifically, no future interactions are affected by the violation. Precisely the opposite is true in the case of complex bilateral relationships, where a blow to a country’s reputation will be felt in many future interactions – making the cost of violating the law higher. Even without an explicit sanction, a country has a strong incentive to honor its commitments in such relationships because any individual interaction is of limited value relative to the entire relationship. Actions which have a positive impact on a country’s payoff in a single interaction but that harm the overall relationship are unattractive because the one time benefit is usually outweighed by the costs imposed on all future interactions.148 145 The WTO provides a dispute settlement mechanism under which, if all else fails, a complaining party may impose sanctions on a party found to have violated its WTO obligations. Uruguay Round Understanding on the Rules and Procedures Governing the Settlement of Disputes, art. 22. 146 Cf. Simmons, Law of Money, supra note 5, at 325 (“there is suggestive evidence that the more a polity has invested in such a reputation, the less willing a government will be to tarnish its reputation through non-compliance.”). 147 It may be considered something of a fiction to imagine a one-time interaction among states in the modern world. For expositional purposes, however, it is convenient to assume that states can have such a relationship. The point that emerges from the analysis is not limited to simple one-shot interactions versus complex ongoing ones. The more complex a relationship is, and the more the parties expect a close relationship in the future, the greater is the effect of international law. 148 This conclusion must be qualified slightly because the reputational loss from a single violation may be less severe in a relationship with many interactions. That is, states in a complex bilateral relationship may already have definite views about the other state’s willingness to comply with Compliance-Based Theory 51 Even complex, bilateral relationships of course, are not free from violations of international law, and the theory presented in this Article does not predict perfect compliance. The model predicts that such violations will be less common in a complex bilateral relationship than in simple or multilateral relationships. Finally, notice that countries engaged in many interactions with one another, and facing a high cost for violations of international law, have a great deal to gain from a system in which they are able to select from a menu of commitment levels. States in a close relationship sometimes prefer to have the most reliable commitment possible – in the form of treaties. In other cases, they prefer to leave themselves the ability to change their minds. They may, therefore, enter into a less binding agreement such as an “understanding” or some other such commitment. By adjusting the level of commitment, states are able to signal their willingness to honor their promise in the future and, therefore, can control the amount of reputational capital they stake as collateral. This flexibility allows states that enjoy a high level of mutual trust to enter into agreements that come with only low levels of commitment. Without the ability to modulate the level of reputational capital pledged, states would sometimes choose to make no deal at all rather than accept an obligation that they may not keep. An ongoing relationship obviously has an important influence on the usefulness of punitive sanctions. As already discussed, there is no incentive to apply such sanctions in a one-shot or finitely repeated game. The more the relationship between two countries resembles a one-shot, or short-term interaction, the less likely it is that punitive sanctions will be used. This is so because short-term interactions cause the participants to have a high discount rate – making it less likely that they will impose a penalty that is costly to themselves in order to achieve greater compliance in the future. D. Acceptance of Sanctions States that violate an international obligation can, under certain conditions, be induced to accept a sanction voluntarily. If states are willing to submit to a penalty, it is possible to make the sanction much more effective. Rather than simply imposing a reputational sanction plus whatever direct sanctions are available, the punishment can be tailored to the precise violation. The benefits of such a system include the opportunity to resolve disputes through arbitration or some other form of dispute resolution, a lower cost imposed on complaining states than is the case with retaliatory sanctions, the ability to adopt optimal sanctions, and the potential to choose sanctions that are less disruptive to the international community. international law. Because reputations have been formed over many, many interactions, a single violation may have only a small impact. Nevertheless, a complex relationship increases the value of developing and maintaining a reputation for compliance because the benefits from such a reputation can be felt in all the different facets of the relationship. Compliance-Based Theory 52 A state will submit to punishment when the costs of that punishment are exceeded by the costs of a failure to accept the punishment. Thus, for example, countries that have signed a bilateral investment treaty (BIT) typically are willing to submit to arbitration in order to resolve disputes with investors because a failure to do so may lead to a cancellation of the relevant BIT (and perhaps other BITs) and such cancellation would be more costly than the sanction imposed by the dispute settlement process.149 Within the WTO, a state that violates its obligations is expected to voluntarily bring its conduct into conformity with WTO obligations. If it fails to do so, the parties to the dispute are to negotiate an appropriate compensation for the injured party. Finally, if these efforts fail, the injured party can seek authority from the dispute settlement body to impose retaliatory measures. The offending party is expected to accept the imposition of these measures.150 Within the European Union, states that lose decisions before the European Court of Justice comply with those rulings because a failure to do so imposes too great a risk for the success of the European Union and the place of the country within the Union.151 More generally, a country is likely to accept established procedures for dealing with violations of international law when it faces a severe sanction for a failure to accept punishment (such as expulsion from a treaty or organization), when the consequences of a failure to accept punishment imposes large costs on the country (such as actions that risk tearing down the EU), and when a failure to accept punishment imposes large reputational costs (such as a reputation for ignoring established dispute resolution procedures).152 If states submit disputes to some form of dispute resolution and agree to abide by the sanction that is handed down, it becomes possible to construct a more effective and efficient set of rules. In particular, it is possible to specify sanctions that are consistent with sound contract principles, the most prominent of which is expectations damages.153 It is well established in the domestic contracts literature that the preferred measure of 149 Even if no BIT is cancelled, a failure to honor the dispute settlement obligation under a BIT will harm the country’s efforts to attract new investment. 150 Uruguay Round Understanding on the Rules and Procedures Governing the Settlement of Disputes, art. 21-22. 151 The notion that states may comply with international law because they do not want to undermine the international legal system has been advanced Professor Trimble. A country “may decide to forego the short-term advantages derived from violating rules because it has an overriding interest in maintaining the overall system.” Phillip R. Trimble, International Law, World Order and Critical Legal Studies, 42 STAN. L. REV. 811, 833 (1990). The claim in this Article is more modest. It is merely asserted that within an organization – especially one that is still being formed – individual states that value the organization may comply with the rules of that institution even when doing so imposes some short term costs. 152 See Charles Lipson, Why are Some International Agreements Informal?, 45 INT’L ORG. 495, 506 (Autumn 1991). 153 The actual identification of appropriate damages for any given offense will be difficult because it is hard to determine the value of damages caused by violations of international law. Compliance-Based Theory 53 damages is expectation damages. This is so primarily because it leads to efficient breach. If countries accept sanctions handed down by a dispute settlement procedure, a system of expectation damages can be established within the international legal system. As in the domestic context, this will lead to breach if and only if breach is efficient.154 V. RETHINKING INTERNATIONAL LAW In this Part the Article uses the theory developed up to this point in order to take a fresh look at international law. CIL and treaties, the traditional sources of international law, are reconsidered, as are international obligations that fall short of the classical definition of international law. The Article then discusses how the theory advanced herein affects existing theories of international law and compliance. Finally, the appropriate role of international law is discussed. It is demonstrated why many of the topics upon which international law has focused the most attention are precisely the areas in which international law is least likely to influence outcomes. The implications of this fact are then explored, including the need to redirect some of the energies of international law scholars. A. Treaties The most formal and reliable form of international commitment is the treaty.155 Treaties offer several advantages in addition to signaling a high level of commitment. They represent clear and well-defined obligations of states, they can provide for explicit dispute resolution,156 and define rules for accession and exit.157 In addition, third parties can observe their content with relative ease. Treaties can also provide for sanctions, the most obvious of which are the ability of counter-parties to cancel the treaty if it is 154 It should be noted that reputation may interfere with the theory of efficient breach in the international context. To the extent that a country which violates an international commitment and subsequently submits to the relevant dispute settlement process nevertheless suffers a loss of reputation, expectation damages would over-deter, causing too little violation of international law. On the other hand, a regime in which a violating state fully compensates other states for a breach may reduce the role of reputation. When states agree to a commitment, the reliability of one’s counter-party is less important if it is known that the counter-party can be sanctioned for a violation. The provision of expectation damages implies that the party who suffers from a violation of international law will do no worse in the event of a violation than if the law were complied with. For this reason, that state need not concern itself with the reputation of other states. 155 Treaties are also the focus of most theories of compliance with international law. See Koh, supra note 2; Oscar Schacter, Toward a Theory of International Obligation, 8 VA. J. INT’L L. 300, 301 (1968). 156 See e.g., NAFTA. 157 There are various other costs and benefits involved in treaties that are not directly relevant to the question of how treaties impact behavior. These include, for example, the fact that treaties often take longer to negotiate than less formal agreements and that they must be approved by signatory governments (which may increase the chances that the treaty will be honored because it increases the level of domestic support and may entrench the agreement in domestic laws). Compliance-Based Theory 54 violated, the potential for a sanction imposed by the treaty itself, and the reputational impact of a violation. States agree to an elevated level of commitment in the form of a treaty because doing so is required in order to obtain an elevated level of commitment from others. A treaty, therefore, should be viewed as a contractual commitment by a group of states. By using the treaty mechanism states are able to increase one another’s reputational stake and thereby increase the costs of breach.158 Within traditional international law, all treaties are considered equivalent in the sense that they are all “binding.”159 Without a theory of compliance, however, it is impossible to consider the circumstances under which violations take place or to develop strategies to improve the compliance pull of a treaty. When viewed through the lens of a reputational model of international law, it is clear that not all treaties have the same impact on national incentives or the same chance of influencing a country’s behavior. At least two dimensions are critical to an understanding of treaty compliance. The first is the reputational impact of a violation, which has already been discussed. The second dimension is the cost of compliance, which is informed by the subject matter of the treaty. Treaties that implicate critical issues of national security and other issues of central importance to states are less likely to succeed in tipping the scales in favor of compliance. These treaties implicate issues of profound national importance and it is unlikely that reputation will be enough to change a country’s course of action from violation to compliance. In other words, the decision of whether to act in accordance with the treaty will most likely be made based on costs and benefits that have nothing to do with international law, but instead relate to questions of national security.160 B. A New Definition of Customary International Law Customary international law is the second form of international law that is recognized by traditional scholars. Unlike treaties, however, CIL is not the product of explicit bargaining and formal ratification. Under the traditional interpretation, it arises instead from widespread state practice and opinio juris – a sense of legal obligation. The theory advanced in this Article suggests that the standard understanding of CIL needs to be rethought. This section outlines some of the changes that should be made in how CIL is understood. 158 See Lipson, supra note 152, at 508. 159 See Vienna Convention on the Law of Treaties, May 23, 1969, U.N. Doc. A/Conf. 39/27 (1969), art. 18. 160 One can certainly imagine cases in which the decision to honor or violate a military treaty is such a close one that the reputational consequences will make a difference. The more important the issues at stake, however, the less likely it is that such a case will come about. Compliance-Based Theory 55 Most international law scholars acknowledge that our understanding of CIL suffers from a variety of well known problems.161 First, there is no agreement on how widespread a custom must be in order to satisfy the “state practice requirement” and, indeed, there is not even a consensus on what counts as state practice. Among the instruments that are sometimes considered as evidence of state practice are treaties (both bilateral and multilateral), national laws, and governmental statements of policy. The required duration of the state practice is similarly difficult to pin down. Related to the question of duration is the question of continuity. It is difficult to know if a single act, inconsistent with the practice, is enough to undermine that practice. If it is not, there is no agreement on how much discontinuity is enough. Second, the opinio juris requirement fares no better as a theoretical matter than does the state practice requirement. Professor D’Amato refers to the circularity of opinio juris as its “fatal defect.” “How can Custom create law if its psychological component requires action in conscious accordance with preexisting law?”162 The lack of a sound theoretical foundation for CIL makes it difficult to identify how CIL comes into being and how it changes over time.163 The problems with CIL have led many to question whether it exists at all as a relevant force in international law.164 Among the recent critics of CIL are Professors Goldsmith and Posner, who have offered a forceful challenge to its relevance.165 The basic model advanced by Goldsmith & Posner is essentially the realist model presented Part III.A.166 They adopt a one period model, which means that they are assured of establishing the theoretical result that international law has no independent effect.167 They note that some people believe reputation serves to encourage compliance, but express considerable skepticism about the role of reputation.168 They suggest that other 161 See ANTONY D’AMATO, THE CONCEPT OF CUSTOM IN INTERNATIONAL LAW 6-10 (Cornell Univ. Press, 1971). 162 Id., at 66. 163 See BYERS, supra note 22, at 180-83 (1999). 164 See, e.g., Francis A. Boyle, The Irrelevance of International Law: The Schism Between International Law and International Politics, 10 CALIF. WESTERN INT’L L.J. 193, 198 (“International law is therefore irrelevant to those matters which count the most, or more forcefully, to those matters which count for anything in international relations.”) 165 See Godlsmith & Posner, supra note 2; Jack L. Goldsmith & Eric A. Posner, Understanding the Resemblance between Modern and Traditional Customary International Law, 40 VA. J. INT’L L. 639 (2000). 166 See Goldsmith & Posner, supra note 2, at 1121-28. 167 See Part III.A and page 22 (showing that assuming a one shot game is equivalent to assuming that international law is irrelevant). To be fair to Goldsmith & Posner, they leave open the possibility of cooperation in an infinitely repeated game, see Goldsmith & Posner, supra note 2, at 1124-27, though they give this case very limited attention and clearly doubt its impact on behavior. See Goldsmith & Posner, supra note 165, at 641 (“CIL as an independent normative force has little if any impact on national behavior.”). 168 See Goldsmith & Posner, supra note 2, at 1135 (“it is hard to see why reputation would play an important role in explaining compliance with CIL norms beyond the limited sense in which it describes a tit-for-tat and related strategies in the repeat bilateral prisoner’s dilemma.”). Compliance-Based Theory 56 concerns – specifically the desire to violate international law when compliance would injure local interests – trumps reputational concerns.169 This response to a reputational argument is unpersuasive, however, because a sophisticated appeal to reputation must recognize that it operates only at the margins. Where there is a powerful domestic incentive to violate the law, it is clear that reputation will be insufficient to cause compliance. On the other hand, reputational concerns may be enough to tip the scales in favor of compliance in close cases. This argument does not deny the relevance of national objectives in addition to reputation. Rather it points out that reputation is an additional factor that must be taken into account.170 Though skeptical of the role of reputation as a theoretical matter, they concede that it seems to matter in the actual behavior of states.171 Their attempt to explain this fact leads them close to the position adopted in this Article. They state that “[o]ne plausible equilibrium is one in which state i keeps its promises even if the promises are against its immediate interest.”172 Thus, although the tone of Goldsmith & Posner’s CIL article, along with the main theory they advance, suggests that they view CIL as irrelevant to international law, they stop short of claiming that CIL has no impact on national behavior.173 In later writing, however, Goldsmith & Posner adopt a stronger and simpler position, stating that “[t]he faulty premise is that CIL – either the traditional or the new – influences national behavior.”174 Although I have disagreements with the conclusions Goldsmith & Posner draw, they deserve praise for bringing the analytical tools of international relations and economics to the study of CIL. Like them, I believe that this approach to the study of international law offers considerable potential and we share the hope that its use will continue to grow. 169 See id. at 1135. 170 Goldsmith & Posner themselves do not seem to disagree with this claim, stating “[o]ne might conclude that all things equal, nations will strive to have a reputation for compliance with international law, but a reputation for compliance will not always be of paramount concern because all things are not equal.” Id. at 1136. This statement is essentially the same as the observation in the text that reputation is a factor relevant to decision making. Goldsmith & Posner also make reference to the fact that states may have reputational concerns that do not lead to increased compliance. For example, states may seek a reputation for toughness. This Article has already addressed this point, see supra, TAN 101, explaining that even in the presence of these other factors, the cost of a reputational loss will affect the payoffs felt by states and, therefore, their incentives. 171 Id. at 1136 (“states seem to care about their reputations under certain circumstances”). 172 Id. at 1137. 173 The concluding sentence in the piece states that “CIL has real content, but it is much less robust than traditional scholars think, and it operates in a different fashion.” Id. at 1177. 174 See Jack L. Goldsmith & Eric A. Posner, Understanding the Resemblance Between Modern and Traditional Customary International Law, 40 VA. J. INT’L L. 639, 640 (2000). Compliance-Based Theory 57 Turning to the substance of their writing, to the extent that they claim CIL is irrelevant to national conduct, they appear to have gone beyond what either the theory or the evidence suggest. As the general theory advanced in this Article suggests, it is possible for CIL to influence state behavior through both reputational and direct sanctions. Even if direct sanctions are weak – as they surely are with respect to CIL – reputational sanctions may be enough to generate compliance. Goldsmith & Posner restrict their claims to CIL, resisting the temptation to apply their model to treaties and other international agreements. In their view, treaties “record the action that will count as cooperative moves in an ongoing prisoner’s dilemma or the actions that achieve the highest joint payoff in a coordination game.”175 This description is consistent with the reputational model of compliance presented in this Article. They go on to state, however, that “[o]n this view, the treaty itself does not have independent binding force.”176 On this point we disagree. By allowing states to establish clear rules and pledge their reputation, treaties cause the behavior of states to change, which I term independent binding force. Our disagreement, however, may be no more than semantics as we appear to agree that the use of treaties can alter outcomes. My definition of “independent binding force” looks to whether or not state incentives are changed. Their definition requires that states feel a legal obligation. My objection to their brief discussion of treaties is focused primarily on the relationship between their theory of CIL and treaties. The distinction that they draw between treaties and CIL seems to turn on the greater clarity and precision of treaties. If clarity is the key difference between treaties and CIL, however, it seems that Goldsmith & Posner’s realist theory would apply to treaties in the same way as it applies to CIL. Admittedly clarity would make it easier to identify a “law” under a treaty than under CIL, but it is not clarity that drives their theory of CIL. Rather, their theory relies on the assumption that the proper model is a one-shot game.177 To distinguish treaties from CIL, therefore, it is necessary to explain why CIL should be modeled with a one-shot game and treaties should not. Goldsmith and Posner note that “[s]tates refrain from violating treaties (when they do) because they fear retaliation from the treaty partner(s), or because they fear a failure of coordination.”178 Their message is that CIL does not lead to retaliation because its content is too uncertain to cause retaliation and coordination through CIL is doomed from the outset. An alternative interpretation of CIL – one that addresses the theoretical difficulties with the traditional approach without denying the existence of CIL – is suggested by the theory advanced in this Article. Under that theory, CIL represents a 175 Goldsmith & Posner, supra note 2, at 1171. 176 Id. 177 See Goldsmith & Posner, supra note 2, at 1121-28. 178 Id. at 1171. Compliance-Based Theory 58 form of legal obligation that countries have toward one another, even without explicit agreement on their part. That much is consistent with the traditional view of legal scholars. When viewed more carefully, however, the traditional perspective on CIL begins to look incomplete. Most obviously, CIL suffers from severe problems of clarity because it arises from the practice of states rather than explicit commitments, there is no clear rule about the number of states required to satisfy the practice requirement, and the opinio juris concept is difficult to define satisfactorily and even more difficult to apply in practice. Furthermore, violations of CIL are difficult to identify because the rules themselves are often vague. Even when violations take place and are unambiguous, they can sometimes be justified through the use of the persistent objector exception to CIL.179 The problem of clarity has predictable consequences.180 It weakens the abilities of states to identify violations, and it reduces the incentive to sanction violators. In other words, CIL represents a weak form of international law. Viewing customary international law as a weak form of international commitment is consistent with both the existence of CIL and all of its “problems.” Indeed, under this view, the problems of CIL are not problems at all, but rather factors that either cause CIL to be a weak form of commitment or represent the product of that weakness. For example, the ambiguity regarding the content of CIL makes it a much weaker mechanism through which to pledge reputational collateral. Because the content is uncertain, states can often claim to have complied even when they have ignored the content of CIL. In other words, the commitment to CIL is more easily avoided than the commitment to a treaty. Like a contract that can be revoked at any time, an international commitment that can be avoided has very limited force. To demonstrate that even the limited force of CIL can matter, however, consider the example of diplomatic immunity. The immunity of diplomats from the jurisdiction of local courts was a longstanding principle of CIL,181 and was widely, though not universally respected. This is what one would expect because the cost of providing diplomatic immunity is normally small when compared with the reputational cost of violating it. The above discussion suggests a new definition of CIL. Under the model developed in this Article, international law (including CIL) consists of norms whose violation will harm a country’s reputation as a law-abiding state. Compare this view to the traditional definition of CIL. The practice requirement, present in traditional accounts of CIL, is not an explicit factor under a reputational account of international 179 See IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW 512-15 (4th ed. 1990). But see Jonathan I. Charney, Universal International Law, 87 AMER. J. INT’L L. 529, 538-39 (1993) (arguing that the persistent objector rule is rarely used and may not be effective in practice.”). 180 See supra at 43. 181 See IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW (3d ed. 1979) 345-59. Compliance-Based Theory 59 law. The practice requirement becomes important indirectly, however, if it is the only way in which a particular norm comes to be seen as an obligation. The traditional definition of CIL requires that the opinio juris requirement be satisfied. Unlike the traditional conception of opinio juris, what matters under the theory advanced in this Article is that countries other than the offending state believe that there is such an obligation. That is, a state faces a norm of CIL if other states believe that the state has such an obligation and if those other states will view a failure to honor that obligation as a violation. Only under these circumstances will a violation by the state lead to a reputational loss. If, for example, respect for the principles of diplomatic immunity is considered a legal obligation, then a violation of those rules will be viewed by other states (or perhaps only the offended state) in a negative light, and cause them to doubt the reliability of the offending state -- making them less prone to trust state A in the future. One should not exaggerate the impact of such an action, of course. If the violation is viewed as minor and of little impact on the offended state, the reputational consequences should be small. The good news for traditional international law scholars is that this Article offers a theoretical model that is consistent with the existence of CIL. The bad news, however, is that the model does not predict that CIL represents a powerful legal constraint. Problems of clarity and a lack of explicit commitment on the part of states make CIL weaker than treaties. CIL looks even less potent when one remembers that reputational constraints have limited power even under ideal circumstances. Thus, while it is true that the existence of CIL is consistent with the theory presented herein, the actual impact of CIL on decisions is an empirical question, the answer to which is left for future research. Therefore, although I do not agree with the claim of Professors Goldsmith and Posner when they assert that CIL does not matter, I believe that it is a weak force on international law and may only affect outcomes infrequently.182 If reputation plays a small enough role, simply ignoring it and adopting a realist model may be appropriate. Of course, if the reputational impact of a violation of CIL is significant, the realist model should not be used. Unfortunately, we simply do not know how much reputational capital is at stake with respect to CIL. It is clear that CIL is weaker than treaties because CIL is typically not clearly specified – making its boundaries ambiguous. There is often debate about whether a particular norm of CIL exists at all, and countries normally have not consented to CIL in an explicit way – making their commitment to it uncertain. For all of these reasons, the possibility that CIL is so weak as to be negligible cannot be dismissed until some form of empirical evidence becomes available.183 182 To the extent that the theory advanced by Professors Goldsmith and Posner is extended beyond CIL to treaties or other agreements, my disagreement with their theoretical claims becomes more vigorous. 183 Goldsmith & Posner offer some case studies of CIL in support of their theory. See Goldsmith & Posner, supra note 2, at 1139-67. This evidence, of course, suffers from the usual problems with case Compliance-Based Theory 60 Regardless of the empirical importance of CIL as a category, the reputational model provides a more satisfactory framework within which to view CIL than does the realist model. Under a realist model one must either treat all international law as irrelevant – a position that is, to my knowledge, not advocated by any legal scholar – or treat CIL as different in kind from other forms of international obligation. The latter option leads to an awkward framework in which each form of international obligation is explained through a separate theory and it becomes difficult to consider the many different forms of obligation together. That theory also fails to explain behavior in those circumstances in which CIL seems to matter, such as diplomatic immunity. The reputational model, on the other hand, views the many different forms of international agreement as points on a spectrum. CIL is perhaps the weakest form of international law, but it is nevertheless part of the general framework. As the level of state commitment increases, the reputational stake is raised and the commitment becomes more credible. The theory not only explains CIL, but all forms of international commitment. It also explains why nations choose one form of commitment over the other and why states expend resources in order to comply, or appear to comply, with their commitments. C. A New Definition of International Law The previous section proposed a new definition of CIL that turns on the question of whether a state is perceived, by other states, to have a legal obligation and whether a failure to live up to that obligation harms the state’s reputation. This section proposes a broadening of the definition of international law to more explicitly include obligations that are neither treaties nor CIL. In the domestic law of contracts, it makes sense to use the term “law” to distinguish promises that are enforceable from those that are not.184 In that context, a party to an agreement takes on a legal commitment only if the contract is enforceable. A legal obligation, therefore, is a promise that is backed by the coercive power of the studies. First, without observing how countries would behave in the absence of CIL it is difficult to draw conclusions about how they actually behaved. For example, violations of the three-mile territorial sea rule that existed during the nineteenth and early twentieth centuries cannot be cited as examples of the failure of CIL unless one knows that no states were ever affected by the rule. It is impossible to determine if there would have been more violations in the absence of a rule of CIL. Second, periodic violation of international law is consistent with the reputational model advanced herein and should be consistent with any sensible model of compliance. As a result, pointing to incidents of a failure to comply does not distinguish one theory from another. Finally, if one is trying to support the realist position that CIL has no effect, one must provide more than evidence that it is sometimes ignored. Rather, one must show that it is always ignored and that state behavior is never changed by CIL – a task that simply cannot be accomplished through case studies. On the other hand, even a single example in which CIL can be shown to influence behavior would be sufficient to disprove the realist theory. 184 Under standard common law principles, for example, a promise without consideration is not enforceable. Compliance-Based Theory 61 state. Absent a legal commitment, there is no legal requirement that a promise be honored. When using the term “law” in the international context, however, analogies to domestic contract law are difficult. In particular, it makes no sense to restrict the use of the term “law” to promises that are legally enforceable because the international arena lacks a coercive enforcement mechanism. One cannot, therefore, analogize international promises to domestic promises in order to distinguish promises with a legal obligation from those without. If one were to pursue an analogy to domestic law closely, it is difficult to see what would qualify as “law” in the international context. The associated conclusion that very little of international law qualifies as law, however, does nothing to help us understand the operation of international law. A vocabulary is needed to distinguish promises made by states that affect incentives and behavior, and the term law seems to be sufficient for that purpose. 1. Soft Law The classical definition of international law limits that term to treaties and customary international law.185 This definition excludes promises made by states through instruments that fall short of a full scale treaty such as memorandum of understanding, executive agreements, nonbonding treaties, joint declarations, final communiqués, agreements pursuant to legislation, and so on. The place of such commitments, sometimes referred to as “soft law,” within the framework of international law is uncertain.186 What is clear is that soft law is considered less “law” than the “hard law” of treaties and custom. The focus of international legal scholars is often exclusively on treaties and custom, as if soft law either does not exist or has no impact.187 Although only occasionally stated explicitly, the general presumption appears to be that soft law is in some sense less binding than the traditional sources of international law, and states are accordingly less likely to comply.188 185 Strictly speaking, the most traditional definition of international law also includes “general principles of law recognized by civilized nations;” and “judicial decisions and the teachings of the most highly qualified publicists of the various nations, as a subsidiary means for the determination of rules of law.” See art. 38, Statute of the International Court of Justice. 186 For more about "soft law," see Wellens & Borchardt, Soft Law in European Community Law, 14 EUR. L. REV. 267 (1989); A Hard Look at Soft Law, 82 ASIL PROC. 371 (1988); Gruchalla-Wesierski, A Framework for Understanding 'Soft Law," 30 McGILL L. J. 37 (1984). The term “soft-law” is used herein to denote law that falls short of the classical definition of international law. This is a common usage of the term, but it is not the only one. Some use the term to describe rules that meet the classical definition but that are imprecise of weak. See Prosper Weil, Toward Relative Normativity in International Law, 77 AM. J. INT’L L. 413, 414 n. 7 (1983) (“It would seem better to reserve the term “soft law” for rules that are imprecise and not really compelling, since sublegal obligations are neither “soft law” not “hard law”: They are simply not law at all.”). 187 See Steven R. Ratner, Does International Law Matter In Preventing Ethnic Conflict?, 32 N.Y.U.J. INT’L L. & POL. 591, 652 (2000). 188 Pieter van Dijk, Normative Force and Effectiveness of International Norms, 30 GERMAN Y.B. Compliance-Based Theory 62 Confusion over the role of soft law is due in part to the fact that discussions of compliance have, by and large, failed to address the question.189 As a result, soft law remains largely outside the theoretical framework of international legal scholars.190 This is a curious fact because many instruments that are not considered “law” under the classical definition have a substantial impact on the behavior of states.191 If the term “law” is used to identify promises that are particularly difficult to break, there is nothing to distinguish treaties and CIL from memoranda of understanding, ministerial accords, executive agreements, non-binding treaties, joint declarations, final communiqués, agreements pursuant to legislation, and other informal agreements. The latter should also be considered forms of international law.192 If one is to defend a definition of international law that is limited to treaties and CIL, it is necessary to argue that other forms of international commitment have no impact on country behavior. This claim, of course, faces the same problem as realist claims that international law is irrelevant. It cannot explain why agreements that are not treaties are concluded at all, why countries want to be seen as being in compliance with these obligations, or why a country would ever refuse to join a “non-binding” agreement.193 This view is also challenged by the fact that experts in many fields believe that agreements that fall short of the classical definition of international law have a substantial impact on the behavior of states. Like treaties, non-binding agreements benefit from a high degree of clarity and are often drafted by specialists with deep technical knowledge. Because these agreements are not treaties, they are often relatively easy to change and can be concluded more quickly and with less attention. Unlike treaties, however, they do not represent a complete pledge of a nation’s reputational capital. The agreements are made with an understanding that they INT'L L. 9, 20 (1987). Perhaps the most traditional position views agreements other than treaties as nothing more than evidence of custom. See Pierre-Marie Dupuy, Soft Law and the International Law of the Environment, 12 MICH. J. INT’L L. 420, 432 (1991). Under another view, soft law “tends to blur the line between the law and the non-law, be that because merely aspirational norms are accorded legal status, albeit of a secondary nature; be that because the intended effect of its usage may be to undermine the status of established legal norms” Remarks by Professor Handl, A Hard Look at Soft Law, 82 Am. Soc’y Int’l L. Proc. 371, 371 (1988). 189 Ratner, supra note 187, at 654. But see INTERNATIONAL COMPLIANCE WITH NONBINDING ACCORDS (Edith Brown Weiss ed., 1997); COMMITMENT AND COMPLIANCE: THE ROLE OF NON-BINDING NORMS IN THE INTERNATIONAL LEGAL SYSTEM (Dinah Shelton, ed. 2000) (analyzing 'soft law' in environment and natural resources, trade and finance, human rights, and multilateral arms control). 190 Handl, supra note 188, at 372. 191 “A wide variety of instruments, declarations, joint statements, and expressions, loosely categorized as “soft law,” are accepted and enforced as constraints by processes that differ little from those applicable to formal legal undertakings” CHAYES & CHAYES, supra note 4, at 2; Handl, supra note 188, at 372. 192 Lipson, supra note 152, at 502. 193 See supra TAN 80. Compliance-Based Theory 63 represent a level of commitment that falls below that of a treaty. The violation of such an agreement, therefore, carries a less severe reputational penalty than would be the case if it were a treaty. That said, a failure to honor the terms of such an agreement is not costless. The reputational costs imposed on violations can take two forms. First, there is the reputational loss to the country itself. A state that routinely ignores promises that fall short of treaties will find that it cannot extract concessions in exchange for such promises. Second, an additional reputational cost is present when the agreement in question is negotiated and agreed to by government ministers or other agents of the state. If the commitments of these individuals are not honored by their countries, they will be handicapped in their future attempts to enter into such agreements. For example, the Basle Accord was negotiated and agreed to by the central bankers of 12 countries.194 Although this Accord is not a treaty and, as a result, is not considered binding under traditional definitions of international law, a central banker whose country failed to supervise banking activity in a manner consistent with the Accord would surely face a loss of influence in the international regulation of banking and make it more difficult to enter into future negotiations. The individual government officials making the promises, therefore, have an incentive not to promise too much and to encourage their government to honor promises that are made. Failure to do so will lead to a reduction in international influence for both themselves and their countries.195 One can hardly doubt the important role that these agreements play in the coordination of international activity. The Basle Accord demonstrates how these agreements can change state behavior. The Accord was adopted in 1988,196 and provided for a transition period that expired in 1992. At that time, most international banks in major industrial countries were in compliance.197 Japan, in particular, made significant changes to its capital adequacy rules.198 194 The countries are: Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States. See Duncan E. Alford, Basle Committee Minimum Standards: International Regulatory Response To The Failure Of BCCI, 26 GEO. WASH. J. INT'L L. & ECON. 241, 241 n. 1 (1992). 195 It should be noted that agreements that fall short of treaties and that are negotiated by government agents are often implemented by the same agents that negotiated them. For example, the Basle Accord was negotiated by central bank governors and bank supervisors. These same individuals and their institutions had the authority to bring domestic regulations into compliance with Accord. This is an additional reason why, as a practical matter, these agreements are able to influence the behavior of states. 196 See Frederick M. Struble & Norah Barger, International Capital Standards for Banking Institutions, in 1 REGULATION OF FOREIGN BANKS (Michael Gruson & Ralph Reisner, eds.). 197 See HAL SCOTT & PHILIP WELLONS, INTERNATIONAL FINANCE: TRANSACTIONS, POLICY & REGULATION (5th ed. 1998). 198 In 1986, Japan had a ratio of tangible equity to total assets of 1.9 percent. In 1992, four years after the Accord came into being, that ratio was 3.42 percent. Compliance-Based Theory 64 Indeed, the reputational cost of a failure to honor the Basle Accord could easily extend beyond the banking arena. To the extent that such action is perceived as a signal that a country does not take the promises of its negotiators seriously in the absence of a formal international legal commitment, such action could undermine all efforts to negotiate non-binding agreements. 2. A Functional Definition of International Law Under the model proposed in this Article, the difference between the traditional sources of international law and promises made by states that traditionally are not viewed as sources of law is one of degree. Different types of agreements among states represent different points on a spectrum of commitment. The same reputational issues influence such promises regardless of the form in which they are made. This theory implies that the traditional separation of treaties from soft law is difficult to maintain because there is no clear distinction between treaties and other promises. The classical formulation is even more problematic when one considers customary international law. The reputational capital at stake with respect to many rules of CIL is almost certainly less than what is at stake with some soft law agreements, such as the Basle Accord. The classical definition of international law, therefore, identifies the relatively powerful instrument of treaties and the relatively weak instrument of CIL, but does not recognize obligations whose force often lies between these two extremes. In other words, tension exists between the classical theory of international law and its practice. Reconciling theory and practice requires a new theoretical approach. The most straightforward way to do so is to revise the definition of international law. It should be one that is functional rather than doctrinal. Rather than simply a list of what is and is not considered international law, the new definition should describe the characteristics of international law. Instruments that fit that definition should then be considered international law. The question of interest in this Article is whether the practice of making an international commitment alters the behavior of countries. It is tempting, therefore, to define international law in an outcome-based fashion – applying the label of international law to those international obligations that change behavior and denying it from obligations that do not. A definition of this sort, however, ignores the fact that laws, even domestic laws, can do nothing more than alter the incentives of actors. The law itself cannot determine outcomes. For example, a law against speeding is no less a law when people speed. It is a law because it increases the expected cost of speeding. A definition of international law that turns on changed outcomes is also problematic because an international commitment may be respected in one context but not in another. Imagine, for example, a state’s commitment to honor certain territorial boundaries between itself and its two neighbors. The state may choose to violate the agreed upon boundary between itself and one neighbor, but refrain from violating the Compliance-Based Theory 65 boundary with its other neighbor. A definition that turns on outcomes would have to label the commitment international law with respect to one neighbor, but not the other. In fact, until the moment at which a country decides whether or not to honor the commitment it would be impossible to determine whether there was an applicable international law at all. In other words, the term international law would be reduced to a synonym for honoring commitments. The definition of international law, therefore, should turn on the impact of a promise on national incentives. With that in mind, this Article defines international law to be those international commitments that make compliance materially more attractive than would be the case in the absence of a commitment. In some instances this change in incentives will affect outcomes. In other cases, however, it will not. The term international law, therefore, should be expanded to include a wider range of international agreements and obligations. Just as domestic legal instruments that fall short of statutes – including court rulings and administrative regulations -- can reasonably be referred to as law, so can international instruments such as MOUs and accords that do not constitute formal treaties. One can analogize the various instruments of international law to domestic contracts with different liquidated damages clauses. In the drafting of a contract, the parties can choose to specify the damages owed in the event of breach. In a similar fashion, by choosing a particular form of international agreement, states can moderate the amount of reputational capital that they are pledging and, therefore, control the resulting loss of reputation if they fail to live up to the agreement. The proposed functional definition of international law reflects the fact that international obligation comes in many different forms, with varying levels of compliance pull. This is a significant departure from the conventional view of international law which simply declares law to be binding. The new theory recognizes the discrete categories of treaties, CIL, and soft law, though perhaps useful, do not themselves define international law or represent the only possible levels of commitment. Rather, they are attempts to describe the spectrum of commitment from which states choose the level that suits their purposes at the time. D. Revisiting Existing Theories The theory presented in this Article allows us to revisit traditional international law scholarship. With the perspective of a reputational model in mind, several of the existing theories of international law can be better understood, critiqued, and appreciated. 1. Legitimacy Theory Franck’s legitimacy theory, for example, becomes more powerful and more insightful once one understands the reputational model. Using that model, it is possible Compliance-Based Theory 66 to add a more satisfying theoretical foundation to legitimacy theory. Legitimacy, as Franck defines it, should be viewed as one of the factors that influence a nation’s perceived level of commitment. Recall that the reputational sanction for a failure to abide by international law depends on the extent to which other states believe a violation is evidence of a state’s willingness to ignore the law. Franck’s definition of legitimacy encompasses variables that determine whether a country is perceived to have made a serious commitment (what Franck calls symbolic validation and coherence), and whether that commitment is sufficiently clear for a violation to be unambiguous (determinacy and adherence in Franck’s terms). Legitimacy, therefore, can be considered a proxy for the existence of reputational collateral and the clarity of the rule. Once legitimacy is understood in these terms, the entire framework presented in this Article can be brought to bear. It becomes possible to understand why states sometimes violate even the most legitimate laws, anticipate when states are most likely to violate the law, and consider ways to increase the force of laws.199 Although Franck’s discussion of legitimacy is useful for what it says about commitment, it is less successful in discussing the motives for compliance. If legitimacy theory is embedded in a reputational model, however, the motives for compliance become clear. As international commitments become more clearly defined, they are perceived to be more binding, thereby increasing the reputational stake of participating countries. Thus, as the level of legitimacy rises, the costs of violation also rise, making compliance more attractive. Although legitimacy theory can be understood within the reputational model, it is important to recognize that even when viewed through the less of this model, it does not provide an exhaustive account of how nations commit themselves. It would be a mistake to simply use legitimacy theory, without more, in order to determine the level of commitment because other factors – the existing relationship between the states, for example – are also relevant. Nevertheless, if it is viewed as a proxy for the amount of reputational collateral that is pledged with a promise, legitimacy theory can be useful. 2. Liberal Theories The liberal theory championed by Professor Anne-Marie Slaughter can also be incorporated within a reputational model. Recall that the liberal theory focuses on the individual decision makers within a state rather than the state itself. Focusing on individuals rather than states has the advantage of greater realism, but the disadvantage of greater complexity. Critics of rational choice models featuring a unitary state are correct when they point out that non-state actors are important. Recognition of this fact affects the way in which one evaluates government actions. For example, if one views national decisions as the product of domestic politics and interest groups, one can 199 Franck makes a brief allusion to the consequences of violating rules that are considered to be legitimate, but does not develop that analysis. See Franck, supra note 7, at 708. Compliance-Based Theory 67 no longer assume that countries pursue the well-being of their citizens. Instead, they pursue whatever objectives emerge from the domestic political struggle. Although this “public choice” approach to international law provides a coherent and rich theory, it fails to provide clear predictions about national behavior.200 Without such predictions, of course, it is impossible to develop a complete model of international law. One is left with a dilemma. One can ignore the public choice issues and proceed with a model of benign governments pursuing the national interest, or one can incorporate the fact that governments do not always pursue the interests of their citizens and accept that the theory will be unable to provide useful predictions. This Article recognizes the dilemma of public choice issues, and deals with them by segregating the analysis of national behavior from the analysis of a country’s policy goals. The theory presented here predicts how countries will behave in an effort to achieve their goals, but it does not predict what those goals will be or how they will be identified. Whether the objectives are determined by the national interest, by interest groups, or by the whims of a despot, the country faces the same set of questions when it considers compliance with international law. Respect for international law leads to a good reputation that allows the country to pursue its goals – whatever those goals are – more effectively. On the other hand, compliance may impose costs that the country would prefer to avoid – again, depending on its goals. This Article has not assumed that governments always pursue those policies that are best for the nation. No such assumption is necessary because neither the model itself nor the conclusions drawn from it depend on that assumption. The manner in which national policies are chosen is not specified, and lies outside the theory. Liberal theories, unlike the theory presented here, seek to understand how national policies are made. That is, they are interested in the political process that generates state objectives. Once those objectives are identified, the theory presented in this Article becomes relevant. Liberal theories, therefore, are best viewed as complements to the reputational theory of compliance. While those theories offer an explanation of how national goals are determined, the reputational theory explains how pursuit of those goals interacts with international law. As Professor Slaughter has stated, “once state interests are determined, governments do pursue them in a rational unitary fashion.”201 200 For writings using a public choice approach to international law see, e.g., Warren F. Schwartz & Alan O. Sykes, Toward A Positive Theory Of The Most Favored Nation Obligation And Its Exceptions In The WTO/GATT System, 16 INT'L REV. L. & ECON. 27 (1996); Alan O. Sykes, Protectionism As A "Safeguard": A Positive Analysis Of The GATT "Escape Clause" With Normative Speculations, 58 U. CHI. L. REV. 255 (1991). For a thoughtful critique of public choice, see Steven P. Croley, Theories of Regulation: Incorporating the Administrative Process, 98 COLUM. L. REV. 1, 41-56 (1998). For a more extensive discussion of how public choice concerns can be integrated into a model of country behavior, see Andrew T. Guzman, Choice of Law: New Foundations, mimeo (2000). 201 See Slaughter Burley, supra note 2, at 227. Compliance-Based Theory 68 There are, of course, problems with separating domestic political decisions about policy goals from decisions about compliance. For example, the ability of a country to commit depends not only on the overall reputation of the country, but also on the individuals and institutions making decisions. For example, commitments by the United States to pay its international debts are generally credible, but in the case of its obligations to pay dues to the United Nations, the commitment is not credible because the chairman of the Senate Committee on Foreign Relations has tremendous influence over the issue and is disinclined to have the payments made. In order to deal with these problems one must use any theory of state behavior cautiously. It must be understood that although the theory is generally reliable, it sometimes fails to take important variables into account. As a result, reliance on the theory must be tempered with judgment.202 E. The Problem of Large Stakes All else equal, it is reasonable to expect that the compliance pull of international law will be the weakest when the stakes at issue are large. This is so because reputational effects have limited power. The likelihood that reputational effects are sufficient to ensure compliance grows smaller as the stakes grow larger. For example, the decision to use military force against another state is a serious one for any nation. Both the costs and benefits from such an action are typically very large.203 Because the stakes are so high, a country is unlikely to take an action that is otherwise contrary to its interests in order to preserve its reputation. The value of a reputation for compliance with international commitments is rarely large enough to affect the outcome when decisions are of such great magnitude.204 Imagine, for example, that a country must decide whether or not to invade a neighbor’s territory in violation of international law. Invading promises to provide 202 The interplay between domestic institutions and international law is a rich area of research that is beyond the scope of this Article. The topic is being tackled by both international relations scholars and legal scholars who are asking questions such as: are commitments made by and within the control of the executive more reliable than those that rely on Congress? If private actors have a strong role in shaping policy, does this make policy more short-sighted (which would reduce the value of reputation) or more long-sighted? How should non-state actors be treated in the international legal system? 203 By this I mean that the costs of going to war – including human, economic, political, and social – are large and a country will only choose to do so if it has strong reasons, which represent large benefits. 204 Formally, it is not merely the magnitudes of the costs and benefits that matter, but also the state’s discount rate at the time. The reputational cost of a violation of international law is something that is felt over time. It is the loss of future agreements, opportunities, or good will that hurts a country when it compromises its reputation. In order to evaluate such costs, a decision-maker must account for the fact that they are in the future. That is, the present discounted value of those benefits must be calculated. The discount rate that is applied to future losses varies based on the circumstances. In times of war, for example, a country will weigh the present much more heavily than the future because there is no guaranty that the state will continue to exist in its present form. Compliance-Based Theory 69 benefits in the form of greater territory, resources, and a reduction in the strategic threat from that neighbor. Label these benefits B.205 The cost of entering into the war includes loss of life, economic costs, social costs, and so on. Label these costs C. In addition, a decision to go to war would bring about a reputational loss in the international community. Label this cost R. The reputational consequences of going to war will only affect the decision if 0<B-C<R. That is, reputation is enough to prevent a war only if the country would otherwise have gone to war, but the decision to do so was sufficiently close that the reputational cost tips the balance in favor of peace. When the costs and benefits of a particular action are small, there is a good chance that the reputational consequences will tip the balance in favor of compliance with international law. Where the costs and benefits other than reputation are relatively large, however, it is less likely that reputational costs will be enough to alter the outcome. The above discussion implicitly assumes that the reputational cost of violating an international obligation is fixed. Under this assumption, international law has less effect as the magnitudes at stake increase. Although convenient to demonstrate the point that the most important issues are less likely to be affected by international law, the assumption of a constant reputational cost for violations of such law is unrealistic.206 That being said, it remains true that reputation plays a more important role when the costs and benefits of a particular action are small. This is so for at least two reasons. First, there is an upper bound to the reputational cost that a country can suffer as a result of a decision. Even a complete loss of reputation has a limited cost for a country, and the reputation can be rebuilt over time. Furthermore, a single decision to violate international law is unlikely to cause a complete loss of reputational capital. Faced with a matter of great importance to a country, therefore, even the most severe reputational sanction is unlikely to affect national behavior. Second, although the reputational cost of a violation of international law can vary based on the circumstances, it does not necessarily increase with the importance of the issue. For example, a country’s decision to violate an arms control agreement may impose reputational costs only in the area of arms control. Other states may recognize that military and national security issues are central to a country’s identity, and that treaties in that area are not particularly reliable.207 As a result, the violation of this sort of treaty may not call into question the willingness of the state to honor a treaty in another area, such as economic matters. Remember that violations of international law impose a reputational cost because they have a negative impact on other countries’ 205 To represent the risk that the war will be lost, B can be thought of as the benefits from a war multiplied by the probability of victory. 206 See Lipson, supra note 152, at 509 (“Not all violations discredit equally”). 207 See RICHARD BAXTER, INTERNATIONAL LAW IN “HER INFINITE VARIETY,” 551 (stating that treaties to declare alliances, establish neutral territories, or announce broad policy guidelines are “merely joint statements of policy which will remain alive only so long as the states concerned see it to be in their mutual interest to concert their policies. One simply cannot think of ‘violations’ of such instruments.”) Compliance-Based Theory 70 perception of a state’s willingness to accept short term costs in order to protect long term relationships and trust. When compliance with international law would impose extreme losses on a country, violation of that law may not have much impact on reputation. Such a violation sheds little light on the willingness of a state to violate agreements when the costs of compliance are smaller. These implications are significant for the study of international law. Most obviously, the theory predicts that international law will have the smallest impact in those areas of greatest importance to countries. This observation suggests that many of the most central topics in traditional international law scholarship are the most resistant to influence. Thus, for example, the laws of war, territorial limits (including territorial seas), neutrality, arms agreements, and military alliances are among the areas least likely to be affected by international law. Although agreements with large stakes can be stable, this will rarely be the result of the obligations imposed by international law. Adherence to such agreements is more likely to be the result of a game in which international law plays a small part, if any. The existence of an international legal obligation may be consistent with the outcome, but it is unlikely to alter behavior. The message for scholars is twofold. First, international law scholars may be focusing their efforts in the wrong place. Rather than concentrating on those topics that are of greatest importance to states, they may be better off to devote more attention to those areas in which international law can yield the greatest benefits. The most promising fields of study, therefore, are those in which reputational effects are likely to affect behavior. Some international law scholars may be disheartened by this message. After all, international law is an interesting subject in part because it concerns itself with great questions of war, peace, alliances, human rights, and so on.208 To focus on more mundane questions may be perceived as a diminution of the grandeur of the field of study. On the other hand, there is also an optimistic side to this conclusion. International law is often criticized for being irrelevant. By turning the attention of scholars to areas in which international law matters most, the importance of the subject can be demonstrated. Furthermore, those areas in which international law matters are themselves of great importance. These include, for example, the entire range of international economic issues, from trade to the international regulation of competition law to environmental regulation. The livelihood and sometimes the lives of millions of people depend on the effective resolution of international economic issues. Surely this is a worthwhile subject for international law scholars. This discussion is not intended to imply that international law scholars must or should completely abandon the field when it comes to the sort of large stakes questions that have occupied so much of the discipline in the past. They have a role to play in 208 See e.g., Steven Ratner, Does International Law Mater in Preventing Ethnic Conflict?, 32 N.Y.U.J. Int'l L. & Pol. 591, 592 (“ The ability of international law to make a difference in ethnic disputes also goes to the heart of contemporary debates about the pertinence of international law to state decision- making.”) Compliance-Based Theory 71 important international agreements because they are uniquely qualified to evaluate the structure of the institutions that are relevant to those questions and the manner in which agreements are struck. International law can be used to strengthen national commitments, but its value depends on the context. Scholars must focus not only on the legality of state actions, they must study the way in which international law can be structured to improve compliance. For example, issues involving large stakes can sometimes be influenced by international law, but this is most likely to be achieved through an indirect use of international commitments. For example, an agreement not to develop nuclear weapons is, by itself, unlikely to have much relevance. If it is combined with obligations whose stakes are lower but that cumulatively achieve the desired goal, success is more likely. For example, if it is possible to monitor compliance through regular inspections, countries are less likely to violate their obligation. Monitoring allows violations to be detected early, which both reduces the benefits of violation – a nuclear weapons program that is detected early provides fewer benefits to the violating state – and increases the costs – early detection might cause other countries to withdraw their own promises, denying the violating country the benefit of compliance by others. The point here is that when large stakes issues are studied, they should be approached with compliance in the front of one’s mind, and scholars should be searching for institutions and agreements that achieve the desired objectives through a series of discrete, low stakes compliance decisions rather than through a single large stake decision. Second, there is also a message for critics of international law. Following the lead of international law scholars, critics point to the failure of international law in areas where it is unrealistic to expect success. The use of the easiest cases to criticize international law, makes attacks on the subject unpersuasive. These attacks should be aimed at those areas in which international law plays a larger role. Although a discussion of all the ways in which international agreements can be designed to improve compliance is beyond the scope of this Article, one example provides a flavor of how international law scholars can improve the level of compliance with such agreements. To the extent possible, international obligations should take the form of many small, low cost, and observable steps toward compliance rather than a single major obligation. This, combined with thorough monitoring and verification of compliance, can make international promises more binding. A reliable verification mechanism will bring violations to light early in the relationship, giving the counter- party a justification for abandoning its own commitment, thereby undermining the benefit of cheating. The reaction of a treaty partner need not, of course, rely on international law but if detection takes place early, it will also impose a reputational cost and perhaps a cost in the form of a direct sanction. These costs will result from the violation of the law itself. Where a relatively minor violation is likely to be caught and can hurt a country’s reputation and its future negotiations, international law can help to prevent such minor violations. The presence of a monitoring mechanism helps Compliance-Based Theory 72 countries to identify violations while they are still minor and while reputational costs can serve to deter them. VI. CONCLUSION This Article seeks to achieve several goals. First, it lays out a theory of international law and compliance in which national behavior is influenced by law. It does so within the framework of a rational actor model in which states value a reputation for compliance with international obligations. Along with the possibility of direct sanctions, it is reputation that provides an incentive for states to comply with their obligations. By developing and preserving a good reputation, states are able to extract greater concessions for their promises in the future. Because reputational sanctions are limited in their magnitude, the Article points out that they will not always provide sufficient incentive for nations to comply with the law. This observation explains why one sees violations of international law in some instances. It also suggests that scholars of international law should keep the limits of the law in mind. In particular, when individual states decisions are made regarding issues of fundamental importance to the state, it is unlikely that international law can influence behavior with any frequency. Where individual decisions are of more modest impact however – a situation that arises frequently in, for example, the world of international economic and regulatory cooperation – international law may be able to alter outcomes more frequently. The Article also offers a new definition of customary international law. The theoretical problems with CIL stem from the commitment of legal scholars to the traditional definition that emphasizes jus cogens and opinio juris. A more useful definition turns on the extent to which other states believe that a country has a legal obligation and the extent to which that country’s reputation is harmed by a failure to honor that obligation. Taken seriously, a reputational model of compliance leads to important changes in the way we view international law. It forces us to reject the classical definition of international law, which considers only treaties and CIL to be “law.” Instead, it leads us to a more functional definition, in which any international obligation that has a substantial influence on national incentives is consider to be law. It also forces us to recognize in an explicit way that not all international law is created equal. Some obligations are more binding than others, and states choose the level of commitment against this background fact. We can no longer be satisfied with the conclusion that “treaties are to be obeyed.”209 Instead, we must consider international obligations in a more contextual fashion in order to evaluate their impact. 209 See supra TAN 26. Compliance-Based Theory 73 Above all, the theory advanced in this Article offers a more realistic model of international law -- one in which both instances of compliance and instances of violation can be understood, in which the full spectrum of agreements negotiated by states is explained and in which the role of international law can be understood within a model of self-interested states. FIGURE III (10R, 10R) Comply Ignore (2+4R, 4+4R) Comply State 1 Ignore Comply (4+4R, 2+4R) (good) Ignore (4R, 4R) State 2 Obligation (bad) Comply (5R, 5R) Comply Ignore (3R-1, 3+3R) Ignore Comply (3+3R, 3R-1) Ignore No (3R, 3R) Obligation Comply (10R, 10R) State 1 Comply Ignore (6R, 8R) (good) Comply (8R, 6R) Ignore State 2 Ignore (bad) (4R, 4R) Comply Comply (5R, 5R) Ignore Ignore (2R, 6R) Comply (6R, 2R) Ignore (3R, 3R)