Prescriptive authority: global markets as a challenge to national regulatory systems.

• Author: Gerber, David J.
• Position: Transatlantic Business Transactions: Choice of Law, Jurisdiction, and Judgments

1. INTRODUCTION

   As economic activity becomes increasingly global, its normative context remains largely state-based. The resulting tension between private economic conduct and the normative claims of foreign states challenges both economic actors and national regulatory systems. With increasing numbers of states and institutions seeking to influence conduct on global markets, conflicts among jurisdictional claims increase. These conflicts, in turn, create uncertainties and costs for both private businesses and public institutions and often impede the effectiveness of both. Moreover, global markets present opportunities for jurisdictional law to play new roles in creating value on and from those markets. Understanding and responding to this challenge is thus fundamental to attaining both private and public goals.

   The challenge centers on one question: Who can legitimately prescribe norms for economic conduct? The core issue is jurisdiction. Nevertheless, although the conflict between global markets and state claims is often noted, the role of international jurisdictional law in it is often neglected. Even among lawyers, that role is often misunderstood and its significance overlooked.

   This paper explores that challenge. It has three main objectives. One is to identify the key components of international jurisdictional law. We need to know where we are in order to see more clearly where we want to go and how we might get there. A second is to identify some of the ways in which global markets challenge the effectiveness of current jurisdictional tools. There is much general discussion of global markets and economic globalization, but here we will look specifically at the characteristics of global markets as they impact international jurisdictional tools. The third is to assess the adequacy of those jurisdictional tools. Are they appropriate: i.e., are they likely to be effective in responding to the challenge of global markets? Where there are deficiencies, how might they be remedied?

   The paper is presented as part of a conference that includes two main categories of participants, and it seeks to address the interests of both. One includes faculty with little experience in the area. For them, the paper includes some basic material about current jurisdictional tools, but it also sketches issues that face scholars in the area. A second group of participants is experienced even expert--in the subject matter. For them, I can only hope that the paper brings some ideas and insights that they might find valuable--or at least worthy of thinking about.

   An underlying theme in this analysis is that the current tools of international legislative jurisdiction are inadequate to meet the challenge of global markets. They were developed in response to economic and political circumstances that global markets have changed and are likely to continue to change. Their primary function has been to reduce the likelihood of state conflicts regarding jurisdiction, but that is no longer the only function for which jurisdictional guidance is needed. Global markets create or intensify economic and political pressures on the jurisdictional scheme, but they also create opportunities for jurisdictional law to perform new and potentially valuable functions.

   I look first at the basic doctrines of international jurisdictional law and how they are used. These are the tools used to determine which polities are authorized to prescribe norms for economic conduct. I then explore the development of these tools, focusing on the role of the United States in that process. This provides a basis for both understanding the operation of the principles and assessing their appropriateness. The section following identifies the challenges that global markets pose for current jurisdictional law. Finally, I offer some thoughts as to how these tools may be improved.

   The scope of the paper is limited by its place in the conference of which it is a part. First, I refer here only to issues of prescriptive jurisdiction. Judicial and enforcement jurisdiction are often related to prescriptive jurisdiction in practice, but they present different issues, and these topics are treated elsewhere in the conference. Second, the paper looks at these issues only insofar as they relate to business regulation--the subject of this conference and the most prominent context in which they operate. Third, I focus on U.S. law and experience. These issues often have important comparative dimensions, particularly relating to the role of jurisdictional norms in domestic legal systems, but I do not treat them here.

2. THE CURRENT FRAMEWORK OF PRESCRIPTIVE JURISDICTION

   The central idea of international prescriptive jurisdiction is that the international community distributes authority for states to make prescriptive claims on private conduct and thereby helps to maintain legal order among states. It assigns authority on the basis of norms created either through binding custom applicable to all states or by agreements among states.

   1. The Conceptual Framework

      The conceptual mechanism is simple enough. It permits a state to prescribe norms with respect to conduct where two conditions are met. The state must have a relationship to the conduct that international law recognizes as sufficient (a so-called "jurisdictional base"), and the claim must not violate legally-protected interests of one or more other states.

      The concept of "jurisdictional base" refers to a nexus between a state and private conduct that justifies the state in prescribing norms relating to that conduct. Three bases of jurisdiction are relevant here.

      One is territory. Where conduct occurs within a state's territory, the state is authorized to prescribe norms relating to it--with limited exceptions, such as for diplomatic personnel. The nexus here is close, obvious, and uncontested.

      A second nexus is nationality. A state may prescribe norms for its nationals and for corporations organized under its laws. The nexus here is also obvious. A state that confers its nationality must be in a position to establish rules for those whom it supports. The principle is uncontested, although conflicts about its scope are not uncommon. In the business context, the most prominent example is conflicts over the circumstances under which State A may extend its prescriptive jurisdiction to a corporation that is organized under the laws of State B, but subject to control by a corporate national of State A.

      The third principle relates to the effects of conduct. It is now generally accepted that a state may prescribe norms where conduct has particular kinds of effects within its territory, regardless of where the conduct takes place. There is no longer serious discussion of the legitimacy of the principle, but as we shall see, its scope remains a subject of much controversy.

      Prescriptive authority is, however, constrained in two ways. The central constraint is territorial sovereignty: a state may not prescribe norms for conduct occurring within another state, except where authorized to do so. A second constraint is more vague: a state is required to consider the interests of other states in its assertion of jurisdiction. This is sometimes referred to as an obligation of "comity" or "reasonableness."

      The traditional concept of sovereignty undergirds this system. Jurisdictional principles flow from traditional conceptions of the rights and duties of "sovereign" states in relation to each other. In this view, states are independent and unconstrained, except by the rights of other states.

   2. The Function of the Jurisdictional System

      The main function of this system has been to avoid conflicts among states and the potential harms--including war--that such conflicts may entail. It serves to maintain international order by specifying spheres of authority for states, thereby minimizing the likelihood that more than one state will seek to regulate the same conduct.

      Three main factors impair its capacity to perform that function effectively. First, the principles are often too vague to provide effective guidance in specific situations. For example, the scope of the effects principle is a source of frequent controversy. Second, the effects principle and, to a lesser extent, the nationality principle create the possibility of concurrent jurisdiction. If more than one state has a jurisdictional basis relating to specific conduct, each may prescribe norms for that conduct. Third, business decision makers often doubt the practical impact of the system.

   3. Legislative Jurisdiction and Private International Law

      The focus here is on public international law, but that system is closely related to another set of norms and procedures referred to as private international law (in the United States, "conflict of laws"). Where a jurisdictional conflict is raised in a national court, the court must decide which law to apply, and national legal systems provide rules and procedures for making those decisions. These are not governed by customary international law, but national laws typically refer to public international principles in deciding which laws to apply. (1) The national and international systems are thus functionally related, and as we shall see, responding to the challenge of global markets may call for integrating them more effectively.

3. INTERNATIONAL JURISDICTION AND INTERNATIONAL BUSINESS: U.S. EXPERIENCE

   Against this background, we can look more closely at international jurisdiction in the context of international business regulation. Here the focus is on U.S. law and its role. The section has two objectives: one is to understand more clearly where we are and how we got there, and the other is to provide a basis for...