978-0132718974 Chapter 2 Solution Manual Part 2

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Insurance

Insurance is the contractual commitment by an insurer to indemnify an insured against specific

contingencies and perils. Both domestically and internationally, insurance is an important

business tool that can either supplement or take the place of litigation.

Private Insurers – A variety of insurance products for multinational enterprises are available

from private insurers, governments, and intergovernmental agencies. These include international

property insurance, international casualty insurance, coverage for overseas employees, and

special coverages.

Private insurers who offer international insurance include the Exporters Insurance Company of

Bermuda, the Dutch and British Nederlandsche Credietverzekering Maatsschappij, the French

Compagnie Française d’Assurance pour le Commerce Exterieur, Foreign Credit Insurance

Association, American International Group Global Trade & Political Risk Insurance Co., and

CNA Credit. Most of these insurers provide the full range of insurance products. However,

specialty coverage, especially political risk insurance, is often expensive or unavailable in

designated high-risk countries.

National Investment Guaranty Programs – Most developed countries provide insurance when

it is unavailable or too expensive from private insurers. They target their insurance offerings in

order to promote domestic exports to certain favored countries.

The United States Overseas Private Investment Corporation (OPIC)

OPIC’s mission is to mobilize and facilitate the participation of United States private capital and

skills in the economic and social development of less developed friendly countries and areas,

thereby complementing the development assistance objectives of the United States. OPIC runs

two basic programs: a political risk insurance program and a finance program. OPIC functions as

a bank as well as an insurer.

The political risk insurance program covers the political risk of expropriation, currency

inconvertibility, and various kinds of risks associated with political violence.

Expropriation: Demands for expropriation coverage have declined. Most claims are now for

creeping expropriation—that is, expropriation through a series of acts that individually might be

seen as administrative actions or general health, safety, or welfare measures undertaken by the

host government. This trend is attributable to at least three factors. First, most LDC governments

need to attract foreign investment. Second, LDC governments have become much more

sophisticated. Third, international transactions no longer consist mainly of agreements with a host

government for the extraction of minerals or other resources.

OPIC has defined creeping expropriation as any act, or series of acts, for which the State is

responsible, which are illegal under domestic or international law, and which have a substantial

enough adverse effect on either the enterprise or the investor’s rights under the enterprise.

Currency Inconvertibility: OPIC offers insurance that guarantees that an investor will be able to

convert local currency into dollars. OPIC’s coverage, however, only insures an existing legal right

to convert. In the absence of such a right, OPIC cannot offer this form of coverage.

State Responsibility and Environmental Regulation

Political Violence: OPIC offers insurance against losses due to political violence. Political

violence losses cover risks associated with wars, revolutions, civil strife, and terrorism. This

coverage is different from OPIC’s expropriation or inconvertibility coverage because the risk is

different. This risk is generally beyond the control of the host government. In addition, when

there is a claim, OPIC’s ability to salvage its losses is greatly reduced. OPIC protects itself both

by charging higher insurance rates for countries that are more susceptible to political violence and

by requiring investors to take actions to manage perceived risks.

Multilateral Investment Guaranty Programs (MIGA) – Since its inception in 1988, MIGA has

provided political risk insurance guarantees to private sector investors and lenders. Its

shareholders include most of the world’s nation-states.

Part of MIGA’s mission is to share its research and knowledge about risk in a variety of sectors

and geographic locations, with particular emphasis on investments in “difficult operating

environments” and in places where it can make the greatest difference. MIGA professes to

support only those investments that are developmentally sound and meet high social and

environmental standards.

Environmental Protection

In 1972, the Stockholm Conference on the Human Environment issued the Stockholm

Declaration, adopting a list of principles that define both new human rights and new state

responsibilities. Two of these are especially noteworthy.

Principle 1 proclaims:

Man has the fundamental right to freedom, equality, and adequate conditions of life, in an

environment of a quality that permits a life of dignity and well-being.

And Principle 21 states:

States have, in accordance with the Charter of the United Nations and the principles of

international law, the sovereign right to exploit their own resources pursuant to their own

environmental policies, and the responsibility to ensure that activities within their jurisdiction or

control do not cause damage to the environment of other states or of areas beyond the limits of

national jurisdiction.

Among the recommendations of the Stockholm Conference was a proposal that the United

Nations General Assembly create a United Nations Environment Program (UNEP). Since its

beginning, UNEP has been active in monitoring Earth’s environment, drafting international and

regional treaties, and adopting recommended principles and guidelines.

Twenty years after the Stockholm Convention, the United Nations Conference on the

Environment and Development (UNCED) convened in Rio de Janeiro in June 1992. The Rio

Declaration reaffirmed the principles set forth in the Stockholm Declaration. It linked protection

of the environment and development as related goals.

Many other new principles were agreed to as well, such as:

the recognition of a “right of development,”

an assertion that “each individual shall have appropriate access to information concerning the

environment that is held by public authorities,”

the promotion of a “supportive and open international economic system to better address the

problems of environmental degradation,”

State Responsibility and Environmental Regulation

adoption of the precautionary approach to protecting the environment,

a statement that all states have an obligation to prepare an “environmental impact

assessment” whenever activities are proposed by a governmental agency that “are likely to

have a significant adverse impact on the environment.”

UNCED also adopted a statement called Agenda 21 that includes both developmental and

environmental goals. The former are to promote sustainable and environmentally friendly growth.

The latter are, in essence, to prevent pollution and to conserve and protect Earth’s natural

resources.

Regulation of Pollution – Efforts to minimize pollution have taken two approaches: a sectoral

approach regulating particular sectors of the environment and a product approach regulating

particular pollutants.

Sectoral Regulations

The main environmental sectors subject to international regulations are the marine environment

and the atmosphere.

Marine Pollution: The 1982 United Nations Convention on the Law of the Sea (UNCLOS)

imposes on all states the obligation “to protect and preserve the marine environment.”

States are to take measures to minimize to the fullest possible extent (1) the release of toxic,

harmful, or noxious substances from land-based sources, (2) pollution from vessels, (3) pollution

from the installations and devices used in the exploration or exploitation of the seabed and its

subsoil, and (4) pollution from other installations and devices operating in the marine

environment. To carry out these duties, states are required to “adopt laws and regulations” and

“take other measures” to “prevent, reduce, and control pollution.”

Several other international conventions and instruments deal with more particular problems of

ocean pollution.

Case 2-7: Southern Bluefin Tuna Cases: Provisional Measures

Facts: Australia and New Zealand sued Japan complaining that a Japanese experimental fishing

Issue: Does the precautionary principle apply?

Holding: Maybe.

Law: The precautionary principle or approach requires scientific certainty before a state may

Explanation: The Tribunal’s judgment does not cite precautionary principle, but requires the

State Responsibility and Environmental Regulation

Order: None of the parties are to do anything to aggravate the situation and each is to refrain

from participating in experimental fishing programs unless it obtains consent of the others.

Climate and Air Pollution: The principal international treaty dealing with the problem of global

warming is the United Nations Framework Convention on Climate Change (UNFCCC). The

ultimate objective of the UNFCCC is the “stabilization of atmospheric concentrations of

greenhouse gases at levels that would prevent dangerous anthropogenic interference with the

climate system.”

The principles adopted by the convention are meant to address two main political problems: (1)

how to distribute the burden of reducing emissions among different countries and (2) how to deal

with scientific uncertainty. The principles of equity and common but differentiated

responsibilities address the first problem. To deal with the problem of scientific uncertainty, the

convention adopts the precautionary principle.

The institutional structure set up by the convention consists of a Conference of the Parties, two

subsidiary bodies, and a secretariat. At the Conference of the Parties meeting in Kyoto, Japan, in

1997, the member countries drafted the Kyoto Protocol to the United Nations Framework

Convention on Climate Change.

For the Kyoto Protocol to come into force, it had to be ratified or acceded to by (1) 55 percent of

all member countries and (2) Annex I parties accounting for 55 percent of that group’s carbon

dioxide emissions in 1990.

Product Regulations

The principal product areas subject to international environmental regulation are toxic waste and

nuclear materials.

Toxic Waste: Toxic and other wastes are regulated by the 1989 Basel Convention on the Control

of Transboundary Movements of Hazardous Wastes and Their Disposal.

The convention forbids the export of “hazardous wastes and other wastes” to nonstates parties

and to states parties unwilling or incapable of safely accepting them, and it forbids states parties

to import wastes unless they can safely manage them. It also requires states parties to take

appropriate actions to minimize their own production of hazardous wastes.

Nuclear Materials: The International Atomic Energy Agency (IAEA) is the primary IGO

responsible for supervising the use of fissionable materials. IAEA is responsible for setting up

safety standards for the protection of health and for minimizing injury to life and property. One of

the IAEA’s main functions is to oversee compliance with the 1968 Treaty on the

Non-Proliferation of Nuclear Weapons.

Protection of Natural Resources – In October 1982, the United Nations General Assembly

adopted the World Charter for Nature. The charter declares that “nature shall be respected and its

essential processes shall not be impaired.”

The charter states that “living resources shall not be utilized in excess of their natural capacity for

regeneration” and that all “ecosystems and organisms, as well as the land, marine, and

atmospheric resources that are utilized by man, shall be managed to achieve and maintain

State Responsibility and Environmental Regulation

optimum sustainable productivity without endangering those other ecosystems or species with

which they coexist.”

Principle 11 of the World Charter for Nature also declares that states need to establish procedures

to control “activities which might have an impact on nature.” In particular, it calls upon states to

(1) avoid activities that are likely to cause irreversible damage to nature, (2) conduct “exhaustive”

examinations to demonstrate that the expected benefits outweigh the potential damage to nature

before proceeding with activities that are likely to pose a significant risk, and (3) prepare

environmental impact studies that include plans for minimizing potentially adverse effects before

undertaking activities that may disturb nature.

Over the years, a variety of conventions have been adopted that seek to protect both terrestrial

living resources and marine living resources and, in effect, to carry out the objectives of the

World Charter for Nature.

Liability for Environmental Damage – There are a few conventions that impose liability on

persons who cause damage to the environment. These conventions, in general, define the nature

of the liability, the persons who are liable, and the extent of their liability.

II. Chapter Questions

Imputable Acts and Nonimputable Acts

1. Students’ answers may vary. Possible arguments may include that Chiquitaland is not liable for

2. Students’ answers may vary. Some may argue that this is a case of state-sponsored or supported

3. Students’ answers may vary. Courts, sometimes, look to causation. They look into whether the

Expropriations

4. Students’ answers may vary. This is a case of expropriation post the major political change in

Ruraltania. Expropriation or nationalization is the state’s taking or deprivation of the property of

State Responsibility and Environmental Regulation

Students may argue that the concession may not be reinstated. Also, Ruraltania is not liable to

5. Students’ answers may vary. Possible arguments include that Country M may assert claims on

Creeping Expropriation

6. Students’ answers may vary. Some may argue that Needyland is correct because of the

agreement made by MNF that “MNF, Inc. will not seek the diplomatic assistance of Country C in

7. Students’ answers may vary. Some may argue that this is a case of creeping expropriation—that

is, expropriation through a series of acts that individually might be seen as administrative actions

or general health, safety, or welfare measures undertaken by the host government. According to

Objections

8. Students’ answers may vary. The arbitration tribunal may rule in favor of Country U since it

was acting as per its statute and may place the liability on the Crocodonian firm as it intentionally

mislabeled the cargo as cowhides.

Law of the Sea: Precautionary Principle

9. Students’ answers may vary. Some may argue that Rustbucket will be successful and deserves

III. Key Terms

Agenda 21—A schedule of developmental and environmental goals for the period leading up

to the year 2000 and beyond. These include the promotion of sustainable and environmentally

friendly growth, the elimination and prevention of pollution, and the protection and

conservation of the earth’s natural resources.

State Responsibility and Environmental Regulation

Calvo Clause—A clause in an agreement between a host state and a foreign investor that says

that the investor will not seek the diplomatic assistance of his, her, or its home state in

resolving disputes with the host state.

Causation—(From Latin causa: “reason.”) The act or agency that produces an effect, result,

or consequence.

Compensatory damages—Money is to be paid for the cost of the injury suffered.

Creeping expropriation—A series of administrative acts that in combination result in

depriving persons of their property.

Culpa—(From Latin: “fault or error.”) Responsibility for wrongdoing.

Denial of justice—A gross deficiency in the administration of justice.

Dirty hands—The plaintiff took inappropriate steps in attempting to recoup a loss prior to

bringing a claim.

Expropriation—(From Latin expropriare: “to take away one’s own.”) Taking of private

property by a government.

Failure to exhaust remedies—Objection that may be made to an international tribunal’s relief

from the defendant state.

Imputable—(From Latin imputare: “to charge.”) To attribute something done by one person,

such as an act or crime, to another.

Insurance—The contractual commitment by an insurer to indemnify an insured against

specific contingencies and perils.

International Atomic Energy Agency (IAEA)—IGO responsible for supervising the use of

fissionable material, developing safety standards, and promoting the peaceful use of atomic

energy.

International standard of care—Doctrine that a state is responsible for injuring an alien when

the state’s conduct violates international norms.

Kyoto Protocol—Supplemental agreement to the UN Framework Convention on Climate

Control drafted in 1997. It requires developed member countries of the convention to reduce

greenhouse gas emissions by 5.2 percent below 1990 levels.

Laches—(From Latin laxus: “loose” or “lax.”) Negligent delay in asserting a right or a claim.

Lack of a genuine link—Objection that may be made to an international tribunal’s exercise of

jurisdiction when there is no real and bona fide relationship between the state bringing the

suit and the person on whose behalf the suit is brought.

Lack of nationality—Objection that may be made to an international tribunal’s exercise of

jurisdiction when the state bringing suit is doing so on behalf of a person who is not a

national of that state.

Lack of standing—Objection that may be made to an international tribunal’s exercise of

jurisdiction when a plaintiff is not qualified to appear before the court.

National standard of care—Doctrine that a state must treat aliens the same way that it treats

its own nationals.

Precautionary approach—Maxim that states should not delay in taking action to correct a

threat of serious or irreversible damage to the environment merely because there is a lack of

scientific certainty that injury will result.

Restitution in kind—The item taken is to be returned.

Rio Declaration—Issued by the United Nations Conference on the Environment and

Development at Rio de Janeiro in June 1992. It links protection of the environment to the

need for sustainable development.

Satisfaction—The honor of the injured state is to be restored.

State Responsibility and Environmental Regulation

State responsibility—Liability of a state for the injuries that it causes to aliens and foreign

businesses.

Stockholm Declaration—Issued by the United Nations Conference on the Human

Environment in Stockholm in 1972. It asserts, among other things, that a healthy environment

is a human right and that states have a responsibility not to damage the environment of other

states.

Terrorism—(From Latin terror: “to frighten.”) The sustained clandestine use of violence for a

political purpose.

United Nations Framework Convention on Climate Change (UNFCCC)—Multilateral

convention adopted in 1992 and in force since 1994. It seeks to stabilize and diminish

greenhouses gases in the atmosphere.

World Charter for Nature—UN General Assembly Resolution 37/7, adopted October 28,

1982. It states that all states have a duty to respect the essential processes of nature and not to

impair them.