Optimal Protection of International Law Navigating between European Absolutism & American Voluntarism Prof. Joost Pauwelyn Graduate Institute, Geneva

The Question How binding should international law be?

The Answer Optimal protection of international law is variable protection

Methodology Calabresi & Melamed, Property rules, Liability rules and Inalienability, 1972 ‘Critical’ law & economics Ideal types of European absolutism & American voluntarism Normative analysis checked against current international law on the books & in action

Three Steps I.Allocation of entitlements (treaty, ruling) consent II.Protection of entitlements - property rule (computer) - inalienability (kidney) - liability rule (car accident) III.Back-up enforcement in case of breach de-centralized

Property Protection Is & Should Be The Norm Contractual freedom & welfare maximization Diversity between states Requires least amount of intervention Current international law requires specific performance & cessation Can be achieved with “mere” compensation & 1:1 retaliation Formal & informal remedies (community costs)

Inalienability & Liability Protection Higher & lower level of protection In case of market failures: INALIENABLELIABILITY externalitieshold-out moralismsfree-ride paternalismtransaction costs Require collective intervention To maximize welfare (Pareto optimal) Liability rule v. efficient breach

Caveats for Inalienability Attract participation & prevent exit Incomplete contracting & flexibility Legitimacy of international law Objective analysis (not because value is important) Community obligations require community enforcement (not currently the case)

Caveats for Liability Protection Need third-party adjudication and collective valuation No under- or over-valuation Unique goods & incommensurability Stability, trust & credible commitment Equal opportunities for weak players? Do states internalize costs? Protect non-state actors

Back-up Enforcement (Sanctions) Expect it to vary with level of protection In international law, more or less uniform Paradox 1: highest level of protection risks weakest back-up enforcement Paradox 2: how ensure property protection with “mere” compensation, 1:1 retaliation? Kicker of community costs triggered based on outsiders belief of level of protection (price/sanction) Level of protection (step 2) determines back-up enforcement (step 3) (no reverse engineering)

Example of the WTO Liability rule for some entitlements (hold-out, transaction costs, flexibility, DSU) Property protection for all others (stability, credible commitment, equality) Equivalent retaliation generally achieves compliance (community costs keep running) Not inalienable or collective (settlements) Importance of collective adjudication, valuation & cap on retaliation Add remedy of compensation? (sanction, not price)

Example of the Kyoto Protocol Emissions cap as inalienable Within cap trade permitted (property) Can pollute & pay (liability) Importance of collective verification (CDM) & back-up enforcement (30%) Liability protection does not mean less law or less important Liability rules for cross-border environmental damage (allow risk), IP

Example of Foreign Investment Protection Expropriation & other breaches require compensation, not specific performance (liability) Investment as fungible good (reduce risk premium) Compensation as price (no/less community cost) v. sanction (community costs keep running) Importance of correct calculation & payment of damages (ICSID enforcement) Protect non-state actors through private standing

Future Research 1.What is optimal level of back-up enforcement (sanctions)? 2.Getting collective valuation right (calculation of damages v. retaliation) 3.Protection of non-binding, soft law ? (informal remedies, role of international law) 4.Collective action without consent (networks, equivalence) 5.Develop liability/inalienability schemes