Ch. II State Responsibility Sec. I standard of care

1. Ch. II State Responsibility Sec. I standard of care • State responsibility: liability of a state for the injuries it causes to aliens and foreign business. • Two points: conduct consisting of an action of omission attributable to the state under international law; constitute a breach of an international obligation of the state.

2. Doctrine of imputability : a state is only responsible for actions that are attributable or imputable to it, that is “acts within the scope of the official’s authority; acts outside their scope of authority if the state provided the means or facilities to accomplish it”

3. Sec. ii Different Standards of care • International standard: a state shall be responsible for the injuring an alien when the state’s conduct violates international law, which is often applied to expropriation or nationalization of foreign property by western states. • Requirements : legitimate public purpose; full,effective and prompt compensation. • Full/adequate means the value of the undertaking at the moment of dispossession, plus the interests to the date of judgment. Effective means the recipient of the compensation must be able to make use of it, that is paid in free-exchange currency. Prompt means immediately without any unreasonable delay.

4. Objections: • Lack of standing : doctrine that objection which may be made to an international tribunal’s exercise of jurisdiction when a plaintiff is not qualified to appear before the court. • Lack of nationality • Lack of Genuine link

5. Domestic standard: mainly supported and invoked by developing states, which means a state can conduct nationalization or expropriation of a foreigner for public purpose and make adequate compensation for that. the developing states don’t accept full, effective and prompt compensation standard. • Requisite for appearance before a international tribunal: Exhaust of local remedies. Administrative remedy and juridical remedy. • Relief :kinds of relief can be obtained for injuring an alien: restitution in kind, satisfaction and compensatory damage

6. Other objections: • Delay in bringing a claim • Dirty hands: illegal conducts • Relief: 1, restitution (return) in kind 2.satisfaction: restore the honour of a state (seldom applied to nationalization ) 3.Compensatory damages

7. Sec. iii Insurance • E Insurance: contractual commitment by an insurer, either private or public, to indemnify an insured against special contingencies and perils, which are involved political factors, say political risks. • Private insurers: the Dutch and British nederlandsche Creietverzekering Maatsschappij, US Roreign Credit Insurance Association , American Credit Indemnity, American International Group Global and Political Risk Insurance

8. National Investment Guarantee Programs Private international insurance is not available for companies doing business in high-risk countries. Generally, the government-sponsored insurance agencies are created to provide investment coverage. Because the private insurers are for profit, and reluctant to cover political risks. • The US overseas private investment corporation 1, date back to 1948 Marshall plan 2. Overseas private investment corporation: an independent government agency in corporate form, beginning its business in 1971. 3.Mission: p.91 4. Coverage : political risk of expropriation, currency inconvertibility, and various kinds of risks associated with political violence.

9. Expropriation:The taking of private property for public use or in the public interest. The taking of U.S. industry situated in a foreign country, by a foreign government. Expropriation is the act of a government taking private property; eminent domain is the legal term describing the government's right to do so. • Creeping expropriation: a series of administrative acts that in combination result in depriving foreigners of their property. • Reason: 1. attract foreign investment and avoid discourage investment; 2. avoid outright nationalization and undesirable repercussions.3. various forms of foreign investment, not only agreement relating to minaral development but also joint venture and other forms of cooperative entities involves both home and host nationals. • Currency inconvertibility • Political violence

10. MIGA • Multilateral investment guaranty programs: MIGA • Objective and Purposes The objective of the Agency shall be to encourage the flow of investments for productive purposes among member countries, and in particular to developing member countries, thus supplementing the activities of the International Bank for Reconstruction and Development (hereinafter referred to as the Bank), the International Finance Corporation and other international development finance institutions.

11. Coverage: 1.Currency Inconvertibility and Transfer Restriction ; 2.expropriation; 3.War, Terrorism, and Civil Disturbance ; 4.Breach of Contract ; 5.Non-Honoring of Sovereign Financial Obligations

12. Functions of MIGA • Creation of good investment environments • Elimination of the disadvantages of bilateral investment treaties. • Innovation of procedural rules for dispute settlement • Promotion for the developing countries to introduce foreign investment

13. The multilateral organization • The parent company The national multinational enterprise (p.193) The international multinational enterprise (p.194) • The subordinate structure (p.197) 1.Agent 2. branch 3. subsidiary 4. joint venture 5. holding company

14. Sec. IV International regulation of MNE • Rules of ethical behavior or MNE OECD: Organization for Economic Cooperation and Development. Convention of combating bribery of foreign public officials in international business transactions. OECD guidelines of MNE UN: Guidelines for MNE( still in draft) ILO: international labor organization WBG: world bank group, actually promulgated by world bank

15. Home states regulations of MNE • The regulation of competition • Products liability • Prohibition of sharp sales practices • Regulation of security • Regulation of labor and employment • The establishment of account standards • The regulation of taxation • Unfair competition

16. Host states regulation of MNE • Host states regulate MNE in the similar way as Home states do • Consent to the jurisdiction of the host state (p.231) • Common enterprise liability: each member of a common enterprise will have liability for conduct of the entire enterprise, taking the following factors into consideration: (a) sharing of profits and losses, (b) sharing in the management and (c) joint ownership of the business

17. Piercing the company veil (**) • This topic concerns the allocation of debt and liability of a subsidiary between its parent company and itself. • Doctrines of piercing the company veil • The controlled company: corporate status will be ignored if (a) a company’ s financing and management is controlled by its parent and has no independent decision-making authority (b) it is induced to enter into a transaction beneficial to the parent and detrimental to it and to third party. • The alter ego company: the company is not treated as an independent, separate juridical entity by its shareholders, but as only a agent of the shareholders, that is alter ego.

18. Undercapitalization • Personal assumption of liability: with regard to a new or a small company, shareholders often assume liability for the obligation of a company.

19. Chapter Questions for review • 1. the doctrines for piercing the company veil • 2.overseas investment guarantee programs. • Multilateral investment guarantee • Functions of MIGA