Geopolitics for lawyers.
Law, what is it good for?
Welcome to this week’s edition of Not in Dispatches, where we look at why keeping up to date with international relations matters for lawyers (and global citizens, law-abiding or not).
Law and world order.
International relations and international law are often two sides of the same coin.
Treaties reflect agreements reached between leaders. Customary international law mirrors the habitual behaviour of states. And global organisations – and the rules that underpin them – are the result of intense negotiations between governments.
International law is the long paper trail of governments trying to find ways to cooperate – all while jostling for influence, advancing their national interests, countering their adversaries, and trying to shape international rules in their own constitutional image.
International law is the scaffolding of world order.
It’s thus unsurprising that the world has no shortage of international law.
There are over 250,000 treaties governing almost every conceivable subject – from human rights to maritime security, from the environment to arms control.
And despite geopolitical tensions rising and international cooperation seeming out of vogue, the wheels of diplomacy continue to spin.
Today’s multilateral treaty agenda includes cyber security, plastics pollution, climate change, taxation and e-commerce among many others. Smaller groups are meanwhile trying to govern areas critical to the private sector, such as supply chains, artificial intelligence and other advanced technologies.
But most corporate lawyers can safely ignore the bulk of treaties past, present and future. Few except those governing trade and finance have any significant economic effects. An even smaller portion contains enforcement mechanisms.
And, most fundamentally, the subjects they govern are sovereigns, not corporations. Since the Peace of Westphalia in 1648 – when warring European states essentially crafted what we now define as international relations – international law has mostly remained procedural, not substantive, and deferential to the primacy of the state.
Written by former diplomats and industry specialists, Geopolitical Dispatch gives you the global intelligence for business and investing you won’t find anywhere else.
Exceptions to the rule(s).
But there are some important exceptions.
Some treaties recently agreed, or still under discussion, could have enormous impacts for companies, even if they only technically govern relations between states.
OECD members agreed to a global minimum effective tax rate of 15% to come into effect in 2024. WTO members are creating new rules on how governments should regulate the burgeoning e-commerce sector, including on sensitive subjects like cross-border data flows and data localisation.
One area of international law has even more direct relevance to corporate geopolitical risk management.
Bilateral investment treaties and trade agreements with investment chapters provide protection to foreign investors. They often create rights for companies to take a government to arbitration in the case of expropriating assets or unfairly discriminating against foreign companies. And, while notoriously slow and expensive, governments almost always recognise arbitral awards and payout when they lose a case.
Corporate counsel should read investment arbitration awards (when publicly available) not only for their mellifluous prose and debatable jurisprudential weight. Transaction lawyers will see warnings of just how badly geopolitical developments can affect companies. Litigators will see options for redress.
Investor-state dispute settlement cases recount Hugo Chavez nationalising oil companies in Venezuela, Russia expropriating Ukrainian assets as part of its annexation of Crimea, Argentina defaulting on its debts during its economic crisis of the early 2000s, and Germany abruptly deciding to phase out its nuclear power plants - to name a few.
Each is a sordid tale of geopolitical risk. Some a story of eventual corporate relief.
Force majeure clauses in commercial contracts can be an important source of protection against geopolitical risk. This is especially so in the case of war and conflict, which are well understood to void a contract if they render performance impossible.
Less clear is the legality of relying on force majeure clauses in lower-order geopolitical events.
Legal cases are ongoing considering whether the rapid imposition of sweeping sanctions against Russia constituted a force majeure event. Equally unclear would be a similar response to, say, China invading Taiwan.
Any legal question, of course, depends on the governing law.
For decades, international commercial contracts have tended to be governed by either English or New York law. Widespread use of the English language, US-dollar-denominated transactions, and perceived fairness in common law systems have all contributed to these jurisdictions’ dominance.
But these factors are also bywords for the relative international power of the “Anglosphere” which, by certain measures, may appear to be waning.
As alternative trading blocs solidify, more trades are denominated in the yuan, and as China’s economic weight grows, corporate counsel might also fret whether over time the customary choice of law may increasingly move from New York and London to Beijing.
However, the slow and seemingly inexorable exodus of lawyers from Hong Kong (often to Singapore) suggests international companies do not want to be subject to Chinese law. And for good reason.
With the brevity of a media digest, but the depth of an intelligence assessment, Daily Assessment goes beyond the news to outline the implications.
Goodness v Grotius.
But it is geopolitical competition, more than international cooperation, that can directly affect companies’ legal rights and duties most.
Take trade, which has increasingly been “weaponised” in service of geopolitical goals – as well as ideology, domestic politics, and protection of local industry.
The West’s response to China’s rise has led to new tariffs, restrictions on foreign investment and cumbersome supply chain due diligence imperatives. Russia’s invasion of Ukraine prompted the creation of complex new sanctions, often differing in scope and application across jurisdictions. And, more subtly, since 2008, countries have resorted with increasing frequency to protectionist policies to promote their domestic industries against foreign competitors.
Unlike under international investment law, companies have few means to challenge protectionist economic policies or legislation introduced under the (never defined) rubric of “national security”.
A company adversely affected by – say, a government unfairly subsidising its domestic industry, or shutting out a foreign technology – has little relief other than to petition its home government to try to do something about it, whether through diplomatic or legal means.
But most of the time nothing happens. While a company may have a financial interest in a policy reversal, a state may not have a clear national interest to challenge a foreign country’s discriminatory measure.
Often, a state will have a protectionist agenda of its own. Sometimes, they simply may not want to expend precious diplomatic capital on raising the issue. And, since the World Trade Organization’s dispute settlement system remains out of action, they may not even be able to have a case heard or enforced.
The fate of the WTO’s dispute settlement system mirrors a larger trend in international affairs – the gradual weakening of the international rule of law.
Just as some thought the end of the Cold War meant the end of history, so too did a belief in the idea that international relations would be governed more by law than by force.
War crimes tribunals were set up to prosecute perpetrators of humanitarian disasters in Rwanda and the former Yugoslavia. An International Criminal Court was established, albeit without the major powers ratifying the treaty. And the creation of the WTO in 1995 and its early agreements signalled a willingness for states to cede some sovereignty to judges in arbitrating trade disputes.
But then came the end of the end of history.
American-led military interventions in Iraq and Libya eroded the most sacrosanct principles of international law. Western governments began speaking less of “international law” and more of a “rules-based order”. And rising and revisionist powers interpreted this as double-speak: a euphemistic plea for governments to hang on to the liberal international order created by Western states at the peak of their power following the Second World War.
Ever since, the world order’s legal scaffolding has begun to rust. Some states, like Russia, have delighted in flagrantly breaking well-established norms – such as not poisoning traitors with radioactive weapons on foreign soil or invading their neighbours.
The most powerful, like the US and China, tend to do as they like. And as the world has become more multipolar – with power shifting from West to East, and new institutions like the China-led New Development Bank being formed – international law appears to have lost some of its force.
While it is not all bleak – most states respect most laws, most of the time – the greatest geopolitical risk for companies is if the major powers violate the most important law the world has got: the prohibition on the use of force.
Lawyers able to grasp the geopolitical direction of travel, follow bilateral dynamics and understand trends in economic statecraft will be better placed to advise on geopolitical risk allocation – whether in drafting international contracts, assisting in mergers and acquisitions, or litigating disputes.
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Michael, Cameron, Damien, Yuen Yi, Andrea and Kim.
Emailed each weekday at 5am Eastern (9am GMT), Daily Assessment gives you the strategic framing and situational awareness to stay ahead in a changing world.