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  The Most Dangerous Branch? WTO Appellate Body Jurisprudence on the Nature and Limits of the Judicial Power

  Robert L. Howse

  The creation of a judicial power at the World Trade Organization is now widely understood to be among the most fundamental and perhaps fateful innovations of the Uruguay Round of multilateral trade negotiations. Under the GATT, decisions of panels (increasingly) bore some of the marks of adjudication, but they remained, in the end, diplomacy by other means. The decisions were the product of ad hoc panels, mostly staffed by officials or retired officials of national governments, who, to some important extent, were guided in their rulings by an expert staff of international civil servants, the bureaucratic power of the GATT. Moreover, to have legal effect, of course, these rulings needed to be adopted by the membership of the GATT, and the practice was that such adoption must occur by consensus. With the WTO Dispute Settlement Understanding, the role of the panels remained much as it had evolved in GATT practice—but superimposed on that process was a new judicial power, that of the Appellate Body, a standing corpus of expert jurists, operating with a supporting professional staff, but clearly independent of the WTO political organs and the secretariat.) Moreover, reports of panels (to the extent not reversed or modified on appeal) and of the Appellate Body were to be adopted as a legal binding settlement of the dispute, unless a negative consensus existed against adoption (effective automaticity). Thus, with respect to the interpretation of the law in any particular dispute, the last word would now, normally, be that of the Appellate Body, an independent judicial tribunal, operating, however, in a world whose official culture remained dominated by the values of bureaucracy and diplomacy, not those of the law. Even strong proponents of the juridification of the multilateral trading system, such as John Jackson, had never gone so far as to advocate relinquishing altogether political or diplomatic control over the results of dispute settlement. As someone who came to the law after a first career in diplomacy and foreign policy-making, it has been fascinating for me to observe the clash of values that has manifested itself in the reactions of the official WTO culture to the first five years of WTO appellate jurisprudence. It has been equally fascinating to see the minds of practiced jurists on the AB puzzle over, and sometimes be manifestly exacerbated by, the way legal rules have been understood and employed within a bureaucratic and diplomatic culture. One kind of criticism that has been made of the Appellate Body within, or by those close to, official WTO culture is that, in certain cases, the Appellate Body has exceeded its authority, or its grant of power under the DSU. The notion that an adjudicative body has exceeded its authority or jurisdiction finds its place in the international law of arbitration (it is often one of the grounds on which an arbitral award may be challenged by appeal either to a domestic or an international tribunal4) and is present also in the municipal administrative law of some states. In practice, such a notion usually amounts to reconsideration of the substantive legal interpretations of the original adjudicator although it is purportedly a much more deferential standard than review for error of law. At the same time, since a finding of lack of jurisdiction essentially vitiates the bona fides of the original judgment altogether, it can lead to harsh and sometimes unfair consequences. Since, as will be discussed in the first section of the paper below, it is very unclear to whom one could take a complaint about excess of Appellate Body jurisdiction, given that the AB is a tribunal of last resort, one can question whether this notion can have any real legal meaning in the WTO system. From my own perspective as legal academic, given the kind of moral and intellectual ground from which I aspire to engage with the jurisprudence, the notion of excess of authority or jurisdiction is a troubling way of articulating disagreement with legal interpretations of the AB, including interpretations of the judicial function itself, for this idea buys into a highly positivistic, and quite problematic and contestable, view of the relationship between law and legitimacy. Judges have often acted abominably when they have viewed themselves, or justified themselves, in those terms (South Africa under Apartheid and antebellum America are examples explored in recent literature). Conversely, judges have often behaved admirably when they have pushed the formal limits of their authority as established in positive law. Indeed, there is a strong case that judicial review of government action against constitutional norms—a practice that is increasingly accepted as a requirement of liberal democracy—had its origins in a judicial self-assumption of power or authority with a weak foundation in pre-existing positive law. And it is far too simplistic to claim that, with its insistence on fidelity to the treaty texts, the AB has brought on itself criticism on the standards of narrow formalism or positivism. For, as I have argued elsewhere, from the very start, the AB balanced its emphasis on taking seriously the ordinary meaning of the exact words of the treaty with an equal emphasis on the interpretation of those words in light of context, object and purpose. In this paper, I argue that, in all of the prominent instances where the AB has been accused of exceeding its authority, it has based itself upon a defensible interpretation of WTO law, consistent with the interpretive rules and principles in the Vienna Convention on the Law of Treaties. However, in making its own legitimate interpretive choices, the AB has necessarily been influenced by a conception of the judicial process, and its place within the WTO system as a whole; the real debate ought to focus on this conception and its interrelationship with the interpretation of WTO law. The cases I consider are: Periodicals, Turtles, Steel (the amicus issue solely), India Balance of Payments, and Turkish Textiles.

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  Legal Capital Rules and the Structure of Corporate Law: Some Observations on the Differences Between European and U.S. Approaches

  Marcel Kahan

  Legal capital rules are just one element of the general legal regime of creditor protection. Even though the rules on legal capital in the United States are extremely lax, fraudulent transfer law addresses, in a more general way, the very issue addressed by legal capital rules: distributions by companies to shareholders which harm creditors. Unlike legal capital rules, however, fraudulent conveyance law uses flexible standards, rather than fixed accounting figures, to distinguish permissible from impermissible distributions. Such standards are more sensible than the one-size-fits-all approach of legal capital rules in addressing this complex issue. A similar standard-based approach is used in the U.S. to limit the ability of corporate boards to issue shares for improper purposes. In this area, as well, the high quality of the judicial system in the U.S. and the relative infrequency in which the issue arises probably makes a standard-based approach preferable, at least for the U.S. This commentary will address the two papers, by Professors Friedrich Kubler' and Eilis Ferran, presented at the conference on the Rules on Capital under the Pressure of the Securities Markets.

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  People and Boundaries: An “Internationalized Public Law” Approach

  Benedict Kingsbury

  The editors of this volume regard international law as an ethical tradition to be appraised alongside Confucianism or liberalism. Certainly it is a tradition of thought—its adherents are conscious of carrying on a shared enterprise, recognize canonical texts and modes of argument, identify a common (if changing) set of problems, and have a defined professional identity of mutual recognition and mutual defense. But is it an ethical tradition? Three features of the international law tradition muddy comparison with archetypal ethical traditions. First, international law is almost bound to aspire to universality: its normative propositions thus appeal to universalist ethical justifications, but seemingly universal justifications often prove to be particularist when probed in hard cases. Ethical justifications in international law thus move between universals stated very abstractly—the ethic of peace and effectiveness has been preponderant among international lawyers since 1945—and a plethora of unreconciled and often contested specific ethical structures. These can endure unreconciled because international law holds itself out not only as an ethical tradition, but as a means of bridging traditions and establishing widely-accepted criteria under which those from different ethical traditions can agree together on practical action. The discipline is thus in internal tension between this pull toward ecumenical neutrality and competing pulls of specific ethical traditions, above all the pull of the liberal ethical systems in which many of the dominant voices in international law are socialized. Second, international law is to some extent validated by practice, and continuous movement between theory and practice is essential to the argumentative pattern of international law. The concept of law involves both texts and behavior. Thus the internal criteria of the mainstream of the international law discipline require that it be explicated and evaluated not as pure theory or pure practice, but as a web spun between these poles. Third, the tradition has never quite successfully integrated the view of international law as being about rights and duties of states with a view of international law as being expressly and directly concerned with people. It thus contains both an ethic of order between states associated since the sixteenth century with European statecraft and since the nineteenth century with positivism, and an ethic of rights of individuals and collectivities associated with Enlightenment rationalism, the American and French Revolutions, socialism, anti-colonialism, and human rights. The lack of resolution between these ethical strands is evident in much of the law concerning boundaries and territory. Rather than ruminate in detached and abstract terms on these three tensions in international law as an ethical tradition, I will make a specific argument from within the tradition, and develop this argument by reference to illustrative subject matter in which these tensions are acutely evident. The argument I will make—a non-standard one, to be explained in Section 2—is for an internationalized public law approach, and the subject matter I will explore to illustrate it in Sections 3–7 is the relation between people and boundaries.

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  The International Legal Order

  Benedict Kingsbury

  This article assesses major themes and approaches in the recent scholarship of international law, and to identify likely future directions and problems. It proceeds from the starting-point that the Anglo-French focus on dispute settlement and litigation, and the US focus on managerial problem-solving, are manifestations of a recurrent feature of international law writing since two of its founding scholar-practitioners, Alberico Gentili (1552–1608) and Grotius (1583–1645). It is argued that the specific focus on disputes and on third-party settlement, with its associated positivist theory, has dovetailed with broader problem-solving approaches in encouraging the development of several useful legal concepts, but that the dominant positivist theoretical structure that has held international legal practice together now encounters so many internal critiques and external challenges that its viability is seriously in question, unless it can be deepened and renovated. A proposal for rethinking the concept of international law is outlined in summary fashion. It is argued that the Grotian integration of theory and practice is a valuable and distinctive feature of international law; that there are ethical arguments for the predominant positivist positions which this problem-solving engagement with practice has fostered; that problems such as moral injustice and lack of legitimacy now require a richer approach to international law rules and process in an era of deepening international governance; and that a Grotian conception of international law which integrates sources-based and content-based criteria provides a promising way forward.

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  Commercial Sex: Beyond Decriminalization

  Sylvia A. Law

  [In this Article, I] . . . explore what it would mean to treat commercial sex “as any other profession” or employment. If commercial sex were decriminalized women might work in an organized context, such as the ranches in Nevada or the brothels in Hawaii during World War II. . . . [F]irst [I] consider sex as work in an organized context and explore the rights and protections that the law provides to employees. I conclude that there are many obstacles to applying employee protection laws to sex workers and that the concrete benefits of these laws are likely to be minimal. Second, [I] explore the rights and protections that sex workers might enjoy as independent professionals.

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  Universal Banks Are Not the Answer to America’s Corporate Governance “Problem”: A Look at Germany, Japan, and the U.S.

  Jonathan R. Macey and Geoffrey P. Miller

  Recent scholarship on the governance of the large, publicly held corporation has been critical of the American tradition. Our corporate governance is routinely depicted as having “sharply constrained the development of multidimensional governance relationships.” In particular, the U.S. is seen as offering mechanisms of monitoring and control of corporate managers that are grossly inferior to those operating in Germany and Japan. American firms are described disparagingly as “Berle-Means” corporations, with widespread share-ownership, separation of management and risk-bearing, and significant agency conflicts between managers and shareholders. Despite some protestations of agnosticism, the tome makes it clear that the American system of corporate governance is viewed as inferior because it does not foster the sort of “relational investing” that leads to effective monitoring by sophisticated intermediaries. This modern tendency to hold up for emulation the German and Japanese corporate governance systems turns on the role played by commercial banks. The dominant idea is that market forces, if allowed to function free of regulation, result in an economic system in which banks have great influence on the business affairs of borrowing corporations. However, U.S. law, “by restricting the size of banks and the scope and geographical range of their activities,” has caused bank influence to wane below the optimal level. Thus, for example, some commentators have been quite explicit in their view that, without major changes in American banking law and practice, “the United States is likely . . . to lag behind its European and Japanese competitors.” Focusing on the roles played by major German banks and Japanese main banks, critics suggest that American banks should play a much larger role in the management of the firms to which they loan money. U.S. banks are said to lack the “power and incentive” to monitor their borrowers. As a consequence, “the monitoring role in the American corporate governance system is relegated to those who provide the equity capital to the corporation – the shareholders. This characteristic has forced American governance institutions to follow a unique Berle-Means pattern of successive efforts, ranging from independent directors to hostile takeovers, to bridge the separation of ownership and management in the face of dispersed shareholdings." Our objective in this article is to cast doubt on the accepted wisdom concerning the desirability of commercial bank involvement in corporate governance. We argue that the current scholarship ignores important costs of the Japanese and German systems of bank-dominated corporate governance, as well as important benefits of the American system of equity-dominated corporate governance. Current theory also ignores critical differences between the monitoring incentives of debt holders. Much of the confusion in the current debate stems from a failure to appreciate the economics of commercial banking. We begin by describing the conflict of interest that exists within publicly held firms between the interests of banks and other fixed claimants on the other. Understanding this conflict is critical to analyzing the supposed advantages of the German and Japanese systems over the American system. We show that the core assumption of the current thinking about the role of banks in corporate governance – namely, that what is good for a nation’s banks is also good for the nation’s borrowers – is flawed. Using basic principles of corporate finance, we show that to the extent banks control the firms to which they lend money, their incentive are to reduce the levels of risk-taking below the levels that are optimal from a social perspective. Next, we discuss the German and Japanese systems of corporate governance in light of banks’ incentives as both lenders and stockholders. In both the German and Japanese systems, banks are far more influential in corporate decision-making than in the U.S. And, in both of these systems, the banks have used this influence to reduce risk-taking among borrowers and to suppress the market for corporate control. Current wisdom holds that the German and Japanese banking systems are a substitute for a robust market for corporate control in reducing agency costs and improving managerial performance. We argue that the Japanese and German bank-dominated systems of corporate governance are better viewed as the root cause of the lack of a robust market for corporate control in these countries. In the final part of the article, we explore the implications of our theory for the ongoing debate about American corporate governance. We argue that simply giving banks more power over borrowers is not the answer to the perceived problems in American corporate governance. Rather we argue that strengthening the “voice” of American equity holders by eliminating restrictions of the market for corporate control would be more effective in improving firm performance. Moreover, we argue that other U.S. laws – notably, environmental law, partnership law, and lender liability rules – reduce American banks’ ability to control moral hazard problems with borrowers to the same extent as European banks. Finally, we argue that the expected “convergence” among these three national corporate governance systems does not seem likely. Despite recent weaknesses, German and Japanese banks will continue to be successful in resisting the encroachments of local capital markets onto their turf. And, in the U.S., the recent proposals to liberalize Glass Steagall and the Bank Holding Company Act may encourage some banks to play a somewhat greater role in corporate governance. But the highly developed U.S. capital and corporate control markets will continue to ensure that such a role is a relatively small one.

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  Cultural Evidence and Male Violence: Are Feminist and Multiculturalist Reformers on a Collision Course in Criminal Courts?

  Holly Maguigan

  The American criminal justice system faces an important question: Can the courts permit defendants to introduce evidence of cultural background without condoning violence by men against women and children? In those trials in which cultural evidence is received, is the information entitled to such unquestioning deference that its receipt signals the recognition of a “cultural defense” to male violence?

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  Ethical Considerations in Class Action Practice

  Geoffrey P. Miller

  Prior edition of chapter in Class Action Litigation 2007: Prosecution & Defense Strategies.

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  Rawls and Liberalism

  Thomas Nagel

  “Liberalism” means different things to different people. The term is currently used in Europe by the left to castigate the right for blind faith in the value of an unfettered market economy and insufficient attention to the importance of state action in realizing the values of equality and social justice. (Sometimes this usage is marked by the variants “neoliberalism” or “ultraliberalism.”) In the United States, on the other hand, the term is used by the right to castigate the left for unrealistic attachment to the values of social and economic equality and the too ready use of government power to pursue those ends at the cost of individual freedom and initiative. Thus, American Republicans who condemn the Democrats as bleeding-heart liberals are precisely the sort of people who are condemned as heartless liberals by French Socialists. Both of these radically opposed pejorative uses have some basis in the broad tradition of liberalism as a group of political movements and political ideas, sharing certain convictions and disagreeing about others. It is a significant fact about our age that most political argument in the Western world now goes on between different branches of that tradition. Its great historical figures are Locke, Rousseau, Constant, Kant, and Mill, and, in our century, its intellectual representatives have included Dewey, Orwell, Hayek, Aron, Hart, Berlin, and many others. With the recent spread of democracy, liberalism has become politically important in countries throughout the world.

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  Selected Supreme Court Cases 2001 Term (through April 30)

  Burt Neuborne

  Over the past several Terms, it has seemed to me as if the Justices treated government regulation with a cynical skepticism bordering on hostility. A combination of libertarian ideology, corrosive criticism of government by “public choice” theoreticians, the collapse of communism as an external threat, and a generation of sustained economic prosperity caused a number of brilliant social critics to question the very idea of government. The power of the critique led to a Supreme Court increasingly unwilling to grant deference to coordinate branches, or to state legislatures. Indeed, I believe that in recent Terms the rough intellectual compromise expressed in footnote 4 of the Carolene Products case was in serious jeopardy. Under Carolene Products, the judiciary was expected to defer to the judgments of the political branches unless an argument premised on democratic failure counseled greater judicial involvement. Thus, under Carolene Products, government interference with free expression called for vigorous judicial review because of the tendency of the majority to use law to keep itself in power. Certain equality settings involving government efforts to harm discrete and insular minorities also called for vigorous judicial protection. Everything else was the province of democratic governance, with the judiciary's role confined to enforcer and interpreter, but not second-guesser.

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  The Inherent Authoritarianism in Democratic Regimes

  Richard H. Pildes

  Authoritarianism is an inherent structural tendency of democratic regimes. Constitutional theory and constitutional courts would do well to recognize this fact. Although the United States is viewed as the democratic country that, over the longest period of time, has most avoided this tendency, that is not quite accurate. For most of the 20th century, an entire region of the country, the South, was a one-party political state. The Democratic Party had an unchallengeable, total monopoly on political power; there was no meaningful oppositional party, no likelihood that candidates from an opposing party would be able to challenge the existing exercise of political power, let alone be elected. Even today, a few states in the United States retain this character as one-party political systems. If democracy means accountability of public officials to voters in elections that involve meaningful electoral competition, portions of the United States, for extended periods of time, have effectively been authoritarian regimes. Nor was the absence of electoral competition the result of “natural” democratic processes or a mere reflection of the “preferences” of voters for one-party rule. It resulted instead from a fundamental characteristic that all democratic regimes should be recognized to face: the tendency of the partisan forces that gain temporary democratic control to attempt to leverage that control into more enduring and effective political domination. In the South for much of this century, this authoritarian control of politics was accomplished through techniques like the gerrymandering of election districts; the use of state law to shift electoral control back and forth from local to statewide level for various offices as doing so furthered the interest of the dominant party; the manipulation of the electorate through devices like poll taxes as pre-conditions to voting; and numerous others. In other contexts, the techniques by which existing political powers will, predictably, seek to entrench themselves can include regulation of how campaigns are financed; what qualifications candidates and parties must have to be eligible to compete in electoral politics; how political institutions are designed; and other process-defining choices. The specific mechanisms vary from country to country, but the fundamental paradox is the same: democratic processes must be structured through law, but those in control of designing those laws are themselves self-interested political actors. To be sure, constitutions seek to remove some of these issues from day-to-day democratic politics. But constitutions can provide only the skeletal frameworks for democratic institutions. Inevitably, ongoing regulation and oversight of democratic processes through further legal adjustment will be required. And inevitably, to the extent legislative bodies are the primary vehicle for designing those adjustments, the tendency to manipulate the laws of democracy to insulate existing political officials and parties from meaningful electoral competition will manifest itself. The accretion of anti-competitive electoral laws is one of the processes by which democratic regimes can slowly transform into authoritarian ones. This essay seeks to identify this tendency as a fundamental, but largely neglected one, for constitutional analysis. Drawing on the American judicial experience, it also seeks to show how conventional frameworks of constitutional analysis—especially the discourse of individual “rights”—are badly organized to recognize and address this tendency. I will propose an alternative framework, one that suggests that constitutional law conceive of democratic politics less in terms of rights and more in terms of structures of competition characteristic of economic markets. Politics shares with all markets a vulnerability to anti-competitive behavior. In political markets, this takes the form of alteration of the rules of engagement to protect the established powers that be from the risk of successful challenge. This market analogy may be pushed one step further by viewing the elected officials of today as a managerial class, imperfectly accountable through periodic review by a diffuse body of equity holders denominated the electorate. Like the managerial class well known to the laws of corporate governance, these political managers readily identify their stewardship with the interests of the corporate body they lead. Like their corporate counterparts, they will act in the name of the corporate entity to protect against outside challenges to their authority. Again like their corporate counterparts, they will use procedural devices implemented in their incumbent capacity to attempt to lock up their control. Antitrust and private corporate law recognize these tendencies in private markets. At some point, robust and appropriate competition transmutes into monopolistic domination, as the recent Microsoft litigation illustrates. In free markets, the state stands apart from that competition and regulates its ground rules through antitrust and other laws. We need to begin to see politics in terms similar to markets: the organizations that compete in political markets—principally, political parties—will similarly seek to dominate and eliminate their competition. This is an inevitable tendency of the good electoral competition democracy seeks to encourage. But here, unlike private markets, there is no state that can stand above the competitive arena and ensure that the ground rules of robust and appropriate competition are maintained, for the state at any one moment in time is controlled by the very political and partisan forces that the state, in theory, is supposed to monitor and check. This, then, is a central task for constitutional analysis: how can constitutional law be structured to provide the equivalent of antitrust law to ensure that the ground rules of democratic politics remain robustly and appropriately competitive?

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  Right to Privacy and Gay/Lesbian Sexuality: Beyond Decriminalization to Equal Recognition

  David A. J. Richards

  Liberal constitutional democracies increasingly acknowledge that claims of gays and lesbians are based on fundamental constitutional rights that are, in turn, grounded in respect for human rights required by arguments of justice. Two kinds of arguments have been prominent: first, arguments appealing to basic liberties (including that to an intimate life); second, arguments for an equal respect free of irrational prejudices (such as racism and sexism) that dehumanize and degrade. For example, the European Court of Human Rights has found laws criminalizing gay sex to be unconstitutional violations of applicable guarantees of the right of private life; and the United States Supreme Court, which had earlier declined (5–4) to hold comparable laws unconstitutional, later found state constitutional provisions, that forbade all laws protecting gays and lesbians from discrimination, an unconstitutional violation of the right to be free of dehumanizing prejudice, a decision that casts doubt on the continuing authority of the earlier privacy decision. In this chapter I will first argue that a certain normative conception of how these rights are to be understood and related explains both the constitutional decriminalization of gay/lesbian sexuality and the more recent arguments for forms of legal recognition of same-sex partnerships; later, I will argue that a further elaboration of this argument explains why commercial sexual services should be decriminalized.

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  Coming to America? Venture Capital, Corporate Identity and U.S. Securities Law

  Edward B. Rock

  Venture capital is all the rage. The success of Silicon Valley across all the relevant dimensions has provided a vision of gold at the end of the rainbow. A region with no significant natural resources other than nice weather and a nontrivial risk of earthquakes became the richest borough in the land. Success breeds imitation. Now, in addition to Silicon Valley, we have Silicon Alley (NY), Silicon Bog (Ireland), Silicon Wadi (Israel), Silicon Fen (Cambridge, England), Silicon Glen (Edinburgh to Glasgow, Scotland), Silicon Alps (Carinthia, Austria), among others (Silicon Wannabes 1999). Social planners everywhere ask how they can establish a venture-capital–fueled startup sector with the dynamism and success of Silicon Valley. Indeed, perhaps worrisomely, it reminds one of the ambition of every nation, fifty years ago, to build a steel industry! As the burgeoning literature on Silicon Valley and its imitators makes clear, there is no single secret of success, and no obvious way to clone it. One finds more and less successful venture-capital–fueled “clusters” around the U.S. and abroad in very different contexts. While there are significant similarities, there are also different styles. In this essay, I want to focus on two main issues that have not been addressed in the literature, both of which revolve around the IPO exit option. First, I argue that Taiwan and Israel—the two most important non-U.S. clusters—represent two interestingly different models of international VC financing. As we know, venture capital depends sensitively on the existence of an exit strategy, with the two principal exits being sale to a larger firm and going public on a market that offers sufficient amounts of capital at satisfactory valuations. As I discuss in more detail below, in Taiwan the primary IPO exit route is the local Taiwan Stock Exchange, while in Israel the primary IPO exit route is the NASDAQ. Interestingly, casual empiricism suggests that one does not observe intermediary cases where, say, half of the IPOs are on the local exchange and half on NASDAQ. This pattern is consistent with several different explanations. It could be, I argue, the result of a “separating equilibrium” in which a single market emerges as the preferred exit option. In such a circumstance, high-quality offerings are likely to congregate in a single market, while firms raising capital in other markets will be perceived to be of lower quality. It could also, however, result from simple liquidity or clientele concerns: it could be that the greatest appetite for Taiwan issues has been on the Taiwan Stock Exchange while NASDAQ valuations for Israeli startups typically trump those available on other exchanges. Figuring out which explanation is correct is important in understanding the nature of international competition among stock exchanges. Second, I argue that for countries that choose (or end up with) the NASDAQ as their primary IPO exit, U.S. securities law assists this process in some surprising and little noticed ways. Using the NASDAQ as an exit option has implications for how a company presents itself to the investor community. In particular, it provides an incentive for firms to “pass” as regular U.S. companies. U.S. securities regulation draws a distinction between U.S. companies and “foreign private issuers,” and imposes reduced disclosure obligations on the foreign firm. Although the goal of this regulatory distinction was to make U.S. listings more attractive for existing foreign firms, a happy byproduct is a mechanism for identifying oneself as “American,” even when the company’s main centers of activity are off shore. As I detail below, this is an aspect of the structure that Israeli companies liberally exploit.

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  Greenhorns, Yankees, and Cosmopolitans: Venture Capital, IPOs, Foreign Firms, and U.S. Markets

  Edward B. Rock

  What is the connection between a venture capital industry, a well-developed stock market, and a nation’s securities regulation and corporate law? Bernie Black and Ron Gilson, in a comparative look at the USA, Germany, and Japan, observe that the USA has both an active venture capital industry and a well-developed stock market, while Germany and Japan have neither. This, they suggest, is far from accidental. Rather, they argue, ‘venture capital can flourish especially—and perhaps only—if the venture capitalist can exit from a successful portfolio company through an initial public offering (IPO), which requires an active stock market’. Israel provides an important and revealing case study for this theory, because Israel has an extremely active venture capital industry but a relatively undeveloped local stock market, at least for IPOs. Over the last decades, two exit options for Israeli venture capital have developed: IPOs on the NASDAQ and acquisition by foreign firms. In this chapter, I use the Israeli experience to gain insight into the connection between national venture capital and national stock markets in a globalizing economy. The ability of Israeli companies to go public on the NASDAQ is a striking and important phenomenon that has important implications in a number of areas. First, as mentioned, it casts light on the issue flagged by Black and Gilson, namely the link between venture capital and domestic capital markets. Second, it provides insight into the structure of global capital markets and, in particular, the relatively small magnitude of cross-border transaction costs. The Israeli case demonstrated that those costs are not so high that firms cannot tap foreign capital markets routinely, and even change their ‘citizenship’, without changing their operations. Third, it demonstrates the inevitability of interjurisdictional choice for corporate charters at the start-up margin. Finally, a striking conclusion of this case study is that Israeli firms can and do ‘pass’ as US firms. If Israeli firms can do so, so can German and Japanese firms, once they learn how.

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  Access Remedies in High Technology Antitrust Cases

  Daniel L. Rubinfeld

  A number of recent US mergers involving high technology have raised both horizontal and vertical antitrust issues. Purely horizontal mergers that raise antitrust concerns can often be resolved though divestiture or by the licensing of intellectual property. When there are vertical concerns, however, finding a suitable remedy can often be quite difficult. While still relatively rare, antitrust remedies requiring access to networks have been increasingly utilized by US competition authorities in vertical cases. Two prominent examples are the AOL Time Warner merger, in which the US Federal Trade Commission (FTC) required, as a condition for the merger to be consummated, that AOL offer several Internet Service Providers (ISPs) access to its cable broadband network; and US v. Microsoft, in which the US Department of Justice proposed a remedy requiring Microsoft to give Original Equipment Manufacturers (OEMs) the opportunity to replace Microsoft’s Internet browser (Internet Explorer) on the desktop with a competing browser of the OEM’s choice. The two cases were procedurally distinct, the first arising from a merger, and the second from a non-merger investigation. Moreover, the cases were predicated on very different theories. The AOL Time Warner case and the associated remedies requested by the FTC were motivated in part by two theories of vertical foreclosure: the first relating to the cable ‘conduit’ and the second relating to AOL’s control of content. The Microsoft remedy, on the other hand, was motivated substantially by the US Government’s argument that Microsoft had engaged in a series of practices whose goal was to maintain its monopoly in the market for desktop PC operating systems. While not arising from a merger, the debate over whether access remedies were appropriate in the Microsoft case has immediate relevance to the treatment of similar remedies in merger cases. In this chapter I will review both AOL Time Warner and Microsoft, emphasizing access remedies and the theories of liability that motivated them. In doing so, I hope to make clear that, while access remedies are likely to be applicable only in a relatively narrow set of circumstances, such remedies can be especially appropriate in high-technology cases where the goal of restoring competition is unlikely to be achieved by other means. Nonetheless, even in such cases, it is important that the access remedy be directed towards the particulars of the antitrust injury and limited accordingly.

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  Distributive Justice and Economic Desert

  Samuel Scheffler

  What is the relation between distributive justice and desert? According to one familiar view, which many people find intuitively plausible, distributive justice requires that each person be given the economic advantages that he or she deserves, as judged by a standard of individual merit or desert that is prior to and independent of the principles of justice themselves. I will refer to this as the view that justice requires distribution in accordance with ‘prejusticial economic desert’. Notwithstanding the widespread appeal of this view, some prominent contemporary theories of distributive justice reject it. These theories, which I will refer to as ‘non-desert’ theories, deny that justice consists, even in part, in distribution on the basis of prejusticial economic desert. Because the idea of distribution in accordance with economic desert seems intuitively compelling to many people, and because the concept of individual merit or desert plays an important role in our practice of treating one another as responsible agents, non-desert theories are sometimes viewed as being intolerably revisionist in character. In this chapter, however, I will argue that the idea of economic desert—that is, of deserved economic advantages—does not play an indispensable role in moral thought. This means that the important role of desert in other areas of morality does not suffice to rule out a non-desert theory of distributive justice. It is possible to accept such a theory while acknowledging the central role of desert in moral thought and practice. My discussion will be organized as follows. In section 1, I will briefly explain the way in which I take the concept of desert to be implicated in our practice of treating one another as responsible agents. In section 2, I will argue that the specific concept of economic desert does not play a crucial role in that practice, despite the fact that people do make claims of economic desert, and despite the popularity of the view that distributive justice consists in giving people the economic advantages they deserve. In light of this conclusion, I will argue in section 3 that there is room in principle for revisionism about the idea of distribution in accordance with desert. At the same time, I will contrast two types of revisionism in moral philosophy, one of which is more defensible than the other. Whether revisionism about the idea of distribution in accordance with desert is an example of the more defensible type depends on its underlying motivations. I will discuss some of those motivations in section 4. Finally, in section 5, I will explain why a theory of distributive justice that rejects distribution in accordance with desert can nevertheless attach significance to considerations of individual effort and contribution.

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  The Story of Kirby Lumber: The Many Faces of Discharge of Indebtedness Income

  Deborah H. Schenk

  Surely United States v. Kirby Lumber Co. is one of the shortest Supreme Court opinions ever to pack such a wallop. The Court's opinion is only two paragraphs long, and the first is largely a recitation of the facts. Despite its length (or maybe because of its length), it has spawned seven decades of controversy. The holding of the case is concise—the cancellation of a debt creates taxable income—but the reasoning is obscure and has produced many exceptions and much uncertainty. The situation that gives rise to the Kirby Lumber issue can be stated very simply. Suppose Lender lends Borrower $10,000. Then some time later, because B is unable to repay the full amount of the loan, L agrees to accept $3,000 in satisfaction of the loan. Kirby Lumber holds that B has $7,000 of income. But what if B had taken the $10,000 and lost it all in his business or in gambling so that he did not make any money in the transaction? Or what if at the time L discharged the loan, B was insolvent or had declared bankruptcy? What if L was B's mother who lent the $10,000 to help B pay medical school tuition and on graduation day forgave the loan? What if L had lent B the $10,000 as the sales price of a used car, which turns out to be a lemon, and L accepts $3,000 as payment for the car? The resolution of these cases turns in large part on why the borrower in the simple case has $7,000 of cancellation of debt (“COD”) income. The story begins with Kirby Lumber.

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  The Story of Knetsch: Judicial Doctrines Combating Tax Avoidance

  Daniel N. Shaviro

  “I shall not attempt further today to define [it] . . . . and perhaps I should never succeed in intelligibly doing so. But I know it when I see it.” Perhaps inevitably, Justice Stewart’s famous statement about pornography has indeed been cited in the context of defining impermissible tax avoidance—and with approval notwithstanding its requiring the exercise of “intuitive judicial judgment” that may be unpredictable in advance. No case looms larger as a cornerstone of the doctrine defining impermissible tax avoidance than Knetsch v. United States. In this case, an individual, with the help (and at the solicitation) of the Sam Houston Life Insurance Company, set up a circle of cash on December 11, 1953, whereby he purported to borrow $4 million from the company at 3.5% interest rate so that he could invest this money, with the same company, in deferred annuity bonds that offered only a 2.5% return. He thereby arranged to earn about $100,000 per year at a cost of about $140,000 per year. On balance, therefore, he could expect to pay Sam Houston about $40,000 per year while the transaction lasted, along with a $4,000 upfront fee, for the privilege of getting it to pay all that money.

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  Reconstructing Climate Policy: The Paths Ahead

  Richard B. Stewart and Jonathan B. Wiener

  The governance of the global environment is one of the major policy issues of the new century. Global environmental problems are increasingly important because of their impact on industrial activities, infrastructures, ecosystems, natural resources, biodiversity and human health. These problems can be managed and solved only through international co-operation, policy co-ordination, voluntary, widespread and equitable participation in the decision making process. This authoritative new collection analyses these issues from several different viewpoints. Political scientists, economists and lawyers provide ideas and analytical frameworks to deal with global environmental problems. Applications to climate changes, biodiversity, acid rains and ozone layer depletion are also discussed, thus providing inputs to both academic researchers and policymakers.

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  Authority for Officials

  Jeremy Waldron

  In philosophical discussions of authority, we often have in mind a confrontation between an official and a subject. Some ordinary citizen with views of his own about how to behave confronts an official directive which purports to steer him on a path he would not have chosen had he been left to his own devices. Can submission to such directives ever be justified? Joseph Raz's work on authority has consisted in elaborating the conditions that would have to be satisfied, in terms of the subject's reasons for action, before an affirmative answer could be given. However, not all questions of authority are of this type. They do not all involve subjects' responses to directives from officials. This chapter considers authority as between officials or institutions. The principle of institutional settlement is also discussed, along with public settlement, coordination and salience, respect and compliance, pre-emption and dependence, and Raz's normal justification thesis.

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  Locke

  Jeremy Waldron

  This chapter discusses and defends the relevance of John Locke’s writings as political philosophy. Because historical research by Pere Laslett, John Dunn, and others into the circumstances of the composition of Locke’s major political writings has been so productive, it has become fashionable to play down the philosophical aspect of these writings and emphasize their function as pieces written for particular political occasions. I believe this is a mistake, and in the chapter that follows, I associate myself with those (like A. John Simmons, for example) who see the historical dimension more as a complement to, than as a substitute for, serious philosophical analysis. Locke’s political philosophy continues to have an immense impact on the framing and the pursuit of liberal ideas in modern political thought – ideas about social contract, government by consent, natural law, equality, individual rights, civil disobedience, and private property. The discussion and application of Locke’s arguments is thus an indispensable feature of political philosophy as it is practised today.

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  Mill as a Critic of Culture and Society

  Jeremy Waldron

  Since its first publication in 1859, few works of political philosophy have provoked such continuous controversy as John Stuart Mill’s On Liberty, a passionate argument on behalf of freedom of self-expression. This classic work is now available in a new edition that also includes essays by distinguished scholars in a range of fields. The book begins with a biographical essay by David Bromwich and an interpretative essay by George Kateb. Then Jean Bethke Elshtain, Owen Fiss, Judge Richard A. Posner, and Jeremy Waldron present commentaries on the pertinence of Mill’s thinking to current debates. They discuss, for example, the uses of authority and tradition, the shifting legal boundaries of free speech and free action, the relation of personal liberty to market individualism, and the tension between the right to live as one pleases and the right to criticize anyone’s way of life.

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  Property Rights and Welfare Redistribution

  Jeremy Waldron

  Applied or practical ethics is perhaps the largest growth area in philosophy today, and many issues in moral, social, and political life have come under philosophical scrutiny in recent years. Taken together, the essays in this volume—including two overview essays on theories of ethics and the nature of applied ethics—provide a state-of-the-art account of the most pressing moral questions facing us today. Provides a comprehensive guide to many of the most significant problems of practical ethics Offers state-of-the-art accounts of issues in medical, environmental, legal, social, and business ethics Written by major philosophers presently engaged with these complex and profound ethical issues.

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  Teaching Cosmopolitan Right

  Jeremy Waldron

  Jeremy Waldron’s essay centers around Martha Nussbaum’s ideas on cosmopolitan education: Nussbaum argues that we should make ‘world citizenship, rather than democratic or national citizenship, the focus for civic education’. The essay provides just a few examples to illustrate the concrete particularity of the world community for which we are urged by Nussbaum to take responsibility, with the aim of refuting the view of those who condemn cosmopolitanism as an abstraction. The arguments for and against Nussbaum’s idea (universalism vs particularism) are presented, and one of the opposing views highlighted: that cosmopolitan moral education is not just an education in moral ideas; it is (or ought to be) an education in the particular ways in which people have inhabited the world (rather than the purely local aspects of their inhabiting particular territories). The different sections of the chapter look at how a society becomes multicultural, the infrastructure of cultural interaction, the identification of citizenship (citizenship in relation to civic responsibility, exclusivity, subjection), the language of citizenship, and its concrete reality and its cosmopolitan dimensions.

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  Toleration and Reasonableness

  Jeremy Waldron

  The idea of toleration as the appropriate response to difference has been central to liberal thought since Locke. Although the subject has been widely and variously explored, there has been reluctance to acknowledge the new meaning that current debates on toleration have when compared with those at its origins in the early modern period and with subsequent discussions about pluralism and freedom of expression. This collection starts from a clear recognition of the new terms of the debate. It recognises that a new academic consensus is slowly emerging on a view of tolerance that is reasonable in two senses. Firstly of reflecting the capacity of seeing the other's viewpoint, secondly on the relatively limited extent to which toleration can be granted. It reflects the cross-thematic and cross-disciplinary nature of such discussions, dissecting a number of debates such as liberalism and communitarianism, public and private, multiculturalism and the politics of identity, and a number of disciplines: moral, legal and political philosophy, historical and educational studies, anthropology, sociology and psychology. A group of distinguished authors explore the complexities emerging from the new debate. They scrutinise, with analytical sophistication, the philosophical foundation, the normative content and the broadly political implications of a new culture of toleration for diverse societies. Specific issues considered include the toleration of religious discrimination in employment, city life and community, social ethos, publicity, justice and reason and ethics. The book is unique in resolutely looking forward to the theoretical and practical challenges posed by commitment to a conception of toleration demanding empathy and understanding in an ever-diversifying world.