Учебный год 2023 / phd

CHAPTER FOUR

EXTENT OF FACILITATION OF CROSS-BORDER TRADE AND INVESTMENT AND ITS IMPLICATIONS FOR CROSS-BORDER INSOLVENCY REGULATION IN SUB-SAHARAN AFRICA

4.1Introduction

There is extensive scholarship acknowledging that globalisation of trade and investment and the consequent increase in international business have enhanced the challenges for cross-border insolvencies in the world. However, there is a dearth of empirical or descriptive scholarship that has delved into the relationship between the two. In the same vein, while it is well known that the growth and expansion of international business in the recent times has largely been enabled by liberalisations of markets and investments, there is no scholarship that has dealt with the linkage between the prevailing arrangements for facilitation of trade and investment and cross-border insolvency; and explored the extent to which such arrangements implicates cross-border insolvency regulation.

This chapter examines various arrangements for facilitation of cross-border trade and investment in which SSA has been involved. It considers the extent to which, and how, they implicate cross-border insolvency regulation in SSA countries. It points to the policy space available to SSA countries in making policy choices commensurate with their situations, before considering a framework for crossborder insolvency regulation to which the implications of the arrangements for cross-border insolvency regulation point.

The chapter invokes theoretical aspects of the cross-border insolvency landscape in considering the nature and type of regulatory approach to which the prevailing situation points and issues for consideration that emerge. It consequently argues that the facilitation of cross-border trade and investment through such arrangements effectively pulls cross-border insolvency frameworks in SSA countries towards a universalist stance and away from territorialist approaches.

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The key finding of this study is that, although such arrangements do not explicitly provide for cross-border insolvency, their implications for cross-border insolvency regulation are essentially twofold. Firstly, they embody general principles of law which inform and determine the nature and content of SSA countries’ cross-border insolvency frameworks. This implication is reinforced by the requirements explicitly advanced by interregional economic arrangements for undertaking and maintaining liberalisation, rule of law and good governance. And secondly, the arrangements effectively enhance the interactions of SSA countries with the multinational enterprises involved in international business and hence the potential of SSA countries being involved in cross-border insolvencies.

4.2Overview of the Linkage between Cross-Border Insolvency and Facilitation of Trade and Investment

Insolvency law has traditionally evolved and developed as a means of facilitating trade and investment.1 The underlying policies and approaches have seemingly however tended to vary from time to time and from one jurisdiction to another. This historical fact is in itself evident of the link between insolvency and facilitation of trade and investment. The multitude of bilateral treaties concluded in the past to regulate cross-border insolvencies arising between jurisdictions with close cross-border trade and investment relations and the recent international initiatives reflect this fact.2

In modern times, the linkage is more pronounced and strengthened by the globalisation of trade and investment such that the role of cross-border insolvency regulation in the facilitation of cross-border trade and investment is considered in the global context. The underlying views are twofold. Firstly, that the absence of an orderly and effective insolvency system can exacerbate crises and render creditors unable to collect on their claims, which will consequently

1See generally, for instance, B Wessels, BA Markell and JJ Kilborn, International Cooperation in Bankruptcy and Insolvency Matters (Oxford, OUP 2009)

2Ibid

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affect the future availability of credit.3 Where there are cross-border trade and capital flows, the lack of an effective system, applied in a predictable manner, may render foreign creditors inadequately protected as they may be inequitably treated. Secondly, that an effective insolvency law that addresses the interests of all involved notwithstanding their nationality has the potential for fostering growth and competitiveness in cross-border trade and investment.4 It facilitates free trade and capital movements, and consequently enables allocation of savings and channelling of resources into productive uses.

It is not in dispute that SSA countries would need an effective cross-border insolvency regime to contribute towards facilitation of cross-border trade and investment.5 Rather, the debate seems to be focused on what is the best and appropriate approach commensurate with the level of development of SSA countries. Linked with the debate is the relatively limited involvement of SSA in cross-border trade and investment.6 Whilst the argument inherent in such a focus might be valid, the implication arising from market liberalisations and implementation of other trade and investment facilitation arrangements may suggest a different conclusion. Although SSA countries may not be seen to be in favour of universalist approaches to cross-border insolvency regulation, as it is

3See generally S Hagan, ‘Insolvency Reform and Economic Policy’ (2001-2002) 17 Conn J Int’l L 63; and IMF, Orderly and Effective Insolvency Procedures –Key Issues (IMF, Washington 1999)

4Ibid

5See J Stiglitz, Globalisation and its Discontents (Penguin Books, London 2002) 130-131 and 237, who maintains that ‘What is required is bankruptcy reform that recognizes the special nature of bankruptcies that arise out of macroeconomic disturbances….what is needed is a bankruptcy provision that expedites restructuring and gives greater presumption for the continuation of existing management. Such reform will have the further advantage of inducing more due diligence on the part of the creditors, rather than encouraging the kind of reckless lending that has been so common in the past. Trying to impose more creditor friendly bankruptcy reforms, taking no note of special features of macro-induced bankruptcies, is not the answer. Not only does this fail to address the problems of countries in crisis; it is a medicine which likely will not take hold

– as we have seen so graphically in East Asia, one cannot simply graft the laws of one country onto the customs and norms of another.’ Indeed, this view looks like an attempt to export debtor in possession from the US to the developing economies. It shows the ‘one-size-fits all approach’ mentality that is found even among those who are ostensibly critical of the approach.

6L Hoffmann, ‘Cross-Border Insolvency: A British Perspective’ (1995-1996) 64 Fordham L Rev 2507, 2510; F Tung, ‘Fear of Commitment in International Bankruptcy’ (2000-2001) 33 Geo Wash Int’l L Rev 555, 576-577; JAE Pottow, ‘Greed and Pride in International Bankruptcy: The Problems of and Proposed Solutions to Local Interests’(2005-2006)104 Mich L Rev 1899, 1902; and IF Fletcher, ‘Maintaining the Momentum: The Continuing Quest for Global Standards and Principles to Govern Cross-border Insolvency’ (2006-2007) 32 Brook J Int’l L 767, 774

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likely they will have no local traders and investors beyond their borders, they have, over the years, been involved in massive liberalisations of their markets and investment, both domestic and foreign, which may be regarded as reaffirmation of their support for a universalist approach.7 Indeed, this may make it difficult for them to intelligently object to the universalist approach in the regulation of cross-border insolvency, which basically encapsulates standards they have already accepted. The following part looks at the market liberalisation strategies and how they potentially implicate regulation of cross-border insolvency in SSA countries.

4.3 Liberalisation and Reform of the Supporting Legal Environment

The market liberalisation of the SSA countries undertaken since the mid 1980s and early 1990s significantly enhanced integration of the economies of these countries to the global market. The liberalisation was implemented under the structural adjustment programme sponsored by the IMF and World Bank. The debt crisis of 1980s which had its origins in the oil crisis of 1970s facilitated implementation of the liberalisation measures within the broad context of the Washington Consensus policies pioneered by the World Bank and the IMF.

The implementation of the reform prescriptions by the SSA countries, which has since provided policy and legal infrastructure that facilitates a flow of multinational enterprises into SSA resources and forces significant redeployment of regional resources from domestic to specialised foreign uses, was a precondition for obtaining loans from the Multilateral institutions.8 The main aspects of the liberalisation initiatives are privatisation, deregulation in import and export and domestic commodity price, and liberalisation of capital flows. Realisation of such aspects in SSA countries has opened their economies for international trade and foreign investment through multinational enterprises from

7See BS Masoud, ‘Transnational Aspects of Tanzania’s Corporate Insolvency Law: Challenges and Prospects’ (2006) 14 IIUMLJ 119; and JW Salacuse, ‘From Developing Countries to Emerging Markets: A Changing Role of Law in Third World’ (1999) 33 Int’l L 875

8A Anghie, Imperialism, Sovereignty, and the Making of International Law (Cambridge, CUP 2004) 245, 258-262

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the developed countries and more recently emerging economies. In this sense, the SSA economies were opened for challenges of potential cross-border insolvencies.

4.3.1Market Liberalisation

The radical changes resulting from the liberalisation drive meant that SSA countries have to embark on enhancement of the role of the market, especially the participation of, and dependence on, private sector and in particular foreign investment. Accordingly, SSA countries have now to seriously and competitively attract and promote foreign investment which had, prior to the liberalisation, been regarded as a threat to national independence and development.9 Unsurprisingly, such countries have been involved in putting in place a wide range of measures ranging from institutionalising tax incentives for foreign investment to machinery for property rights protection and enforcement. It would seem that this endeavour also reflected the need for SSA countries to do much to create a good impression and ‘overcome the perceptions that they are “unsafe” destinations for foreign capital.’10 It is in this context that there has been a proliferation of bilateral investment treaties concluded by SSA countries with mainly developed countries in their attempt partly to remedy local institutional deficiencies and governance.11 The need for foreign capital was considered significant given the low level of technological and industrial development,

9 BS Masoud (n 7) 125; TJ Moss, V Ramachandran and MK Shah, ‘Is Africa’s Skepticism of Foreign Capital Justified? Evidence from East African Firm Survey Data’ (2004) Centre for Global Development Working Paper 41/2004 < http://ssrn.com/abstract=1112683 > accessed 15 August 2011[12]; and D Himbara, ‘The Failed Africanization of Commerce and Industry in Kenya’ (1994) 22(3) World Development 469-482; and B Mihyo, Non-Market Controls and the Accountability of Public Enterprises in Tanzania (Macmillan, London 1994) 127 & 128. Notably, concerns of developing countries on foreign investment and their demand that their particular needs and circumstances be taken into account as to the manner in which they would deal with foreign investment was in 1970s incorporated into the United Nations Charter of Economic Rights and Duties of States 1974, Art 2

10V Mosoti, ‘Bilateral Investment Treaties and the Possibility of a Multilateral Framework on Investment at the WTO: Are Poor Economies Caught in Between?’ (2005-2006) 26 Nw J Int’l L & Bus 95, 114

11T Ginsburg, ‘International Substitutes for Domestic Institutions: Bilateral Investment Treaties and Governance’ (2005) 25 Int’l Rev L & Econ 107

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dependence on primary commodity export, and slow long term growth characterised by price instability.12

4.3.2Reform Challenges and Problems

Notably, the creation of the supporting and conducive environment for the liberalised market has largely been characterised by importation of programmes, Western legal rules and standards which in some instances have arguably tended to have adverse impact on the societies that have been required to embrace them, mainly because they are designed and implemented with little, if any, regard for specific needs and context of the countries concerned.13 Consistent with such adverse effect is the divergent opinions as to whether or not the liberalisation programme as a whole has been beneficial to SSA economies.14 One view is that the market liberalisation has had its achievements in SSA albeit to a limited extent and accordingly the recent gains have been claimed to be a result of market liberalisations in the region.15 This view argues that the limited economic growth attained thus far in SSA is however largely due to scepticisms and policy choices that restrict competitiveness.16

Other scholars who subscribe to the second view have labelled the market liberalisations in SSA countries as a complete failure. They argue, inter alia, that the limited growth in SSA is due to the problems of the ‘one-size-fits all’ prescriptions of the multilateral institutions which the developing countries have

12 KJ Vandevelde, ‘Investment Liberalization and Economic Development: The Role of Bilateral Investment Treaties’ (1998) 36 Colum J Transnat’l L 501; and JMM Akech, ‘The African Growth and Opportunity Act: Implications for Kenya’s Trade and Development’ (2001) 33

International Law and Politics 651, 656

13See text to n 23 in chapter 1. See also, TA Kelley, ‘Exporting Western Law to the Developing World: The Troubling Case of Niger’ (2007) 7 Global Jurist (Frontiers) Article 8 < http://wwwbepress.com/gj/vol7/issu3/art8 > accessed 01/06/2010, noting that this trend ‘has the potential to create at least as much social unrest as economic policies’ and that it is wrong to maintain that poor countries must reshape their legal systems to make them compatible with Western conception of law and justice.’

14Text to n 23-26 in chapter 1

15A Arieff, MA Weiss, and VC Jones, ‘The Global Economic Crisis: Impact on Sub-Saharan Africa and Global Policy Responses’ ( Congressional Research Service Report 24 August 2009) < www.crs.gov > accessed 23/01/2010; J Stiglitz (n 5 ) 16, 80-88

16TJ Moss, V Ramachandran and MK Shah (n 9 ); and A Arieff, MA Weiss, and VC Jones (n 15)

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pursued since the mid 1980s and early 1990s.17 This view, considers the success of the East Asian countries as a result of effective state intervention during East Asia’s early development.18 It is accordingly argued that ‘the state directed policies helped mobilize and effectively allocate resources in the calculated direction of domestic industry, while extracting high performance through incentive schemes.’19 Insofar as cross-border insolvency reform is concerned, the above observations seem to point to the need for SSA countries to make informed policy choices commensurate with local circumstances and the demand for economic growth and development.

This debate is beyond the scope of this work. Nonetheless, what is crucially relevant here is twofold. First is the fact that the market liberalisation has increased the interaction between the SSA economies and the multinational enterprises through trade and foreign investment. This interaction means potentialities for cross-border insolvency which has grown as a result of globalisation. Clearly, the involvement and operations of multinational enterprises in SSA means that they will potentially have assets and creditors in several countries and in their home countries. Such situation places SSA countries in a fertile environment for the challenges of potential cross-border insolvencies. Additionally, the commercial activities of the multinational enterprises in SSA countries provide a possibility of their interaction with local entrepreneurs and creation of interdependence and possibly debtor-creditor relationships. All these add towards exposing SSA countries to the problems of cross-border insolvencies. The second is the fact that the liberalisation has contributed in constraining the policy space of SSA countries in making choices corresponding with their own needs, priorities, culture, history and political and socio-economic situations.

17J Stiglitz (n 5) 16, 80-88; A Anghie (n 8) 259; Chossudovsky, The Globalisation of Poverty: Impacts of IMF and World Bank Reforms (London, Zed Books 1997) and J Hari, ‘There's real hope from Haiti and it's not what you expect’ The Independent 5/02/2010 <http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-theres-real-hope- from-haiti-and-its-not-what-you-expect-1889958.html> accessed 10 February 2010

18D Katona, ‘Challenging the Global Structure Through Self-Determination: An African Perspective’ (1999) 14 Am U Int’l L Rev 1439, 1451

19D Katona (n 18) 1451, 1452 & 1453

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UNCITRAL’s work on insolvency undertaken within its obligation of fostering progressive harmonisation, unification and modernisation of international trade law augur well for the WTO’s endeavours of facilitating trade and investment and the reverse is also true.22 Indeed, UNCITRAL’s undertakings aim to facilitate international trade through elimination of such obstacles as divergences arising from the laws of different states in matters relating to international trade. The WTO, as is also for UNCITRAL, is mandated to cooperate and work closely with other multilateral institutions to achieve greater coherence in global economic policy making and implementation.23Accordingly, cross-border insolvency implications abound, but only a few merit the attention of this study.

Firstly, the effectiveness of the WTO regime would potentially expect member states to comply with international insolvency standards administered by the other multilateral institutions. The potential is that a WTO member state with obstructionist domestic policies that shun the internationally accepted standards, such as the international insolvency standards, might in future run the risk of corporate flight as the very nature of the multinational enterprises is to be internationally mobile and adaptable. This effectively provides an incentive for states to have most favourable and competitive policies that are compliant with international standards as a means of attracting cross-border trade and investment. Thus, in addition to the incentives from such institutions as the IMF and World Bank, SSA countries may unsurprisingly also experience some kind

‘[b]eyond [BITs’] obligations non-discrimination on basis of citizenship [in insolvency proceedings] is a general principle that has evolved in modern international law, especially in international trade under GATT (now the WTO). Thus, at a minimum…discrimination on the basis of foreignness would be presumptively wrong.’

22See General Assembly Resolution 2205(XXI),U.N. Doc. A/RES/2205 (Dec. 17, 1966); and S Block-Lieb and TC Halliday, ‘Incrementalism in Global Lawmaking’ (2006-2007) 32 Brook J Int’l L 851, 856

23DK Mbogoro, Global Trading Arrangements and Their Relevance to Tanzania Economic Development: Challenges and Prospects (Friedrich Ebert Stiftung, London 1996) 17; and S Block-Lieb and TC Halliday (n 22) 857-859. Two of the eight ways through which UNCITRAL is to further the progressive harmonisation and unification of the law of international trade which is in the Resolution establishing UNCITRAL provides that UNCITRAL may proceed by ‘(a) Coordinating the work of organisations active in this field and encouraging co-operation among them; ………..(g) Maintaining liaison with other United Nations organs and specialized agencies concerned with international trade.’

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of ingenious pressure from the WTO and its member states for compliance with the international insolvency best practices.

Secondly, the capacity of member states (including SSA member states) to make policy choices commensurate with their circumstances is arguably circumscribed by the WTO obligations.24 Such obligations could effectively be construed to accommodate insolvency and especially cross-border insolvency regulation as reflected in the existing international insolvency standards.25 Consistent with this argument is that insolvency laws are known for having discriminatory measures based on protectionism and inward stance which would ordinarily affect foreign commercial interests in a cross-border insolvency scenario.26 Indeed, the requirement to refrain from resorting to a wide variety of discriminatory state measures -such as bailout/state aids, tariff increases, trade defence measures, and if one were to add ‘grab rule’-some of which have been used in SSA to protect local industries or public enterprises, would mean that SSA countries need to have effective insolvency system. Such a system could effectively be used to rescue a viable business in financial difficulties as opposed to protecting it through discriminatory state measures and other politically motivated initiatives.

4.4.1The Proposed Role of WTO in Financial Crisis Resolution and the Cross-Border Insolvency Implications Involved

Some considerations that have been given on the role that WTO can play during economic crises suggest a number of measures. The suggested measures seem to have the potential to strengthen the implication of the WTO regime for cross-

24SJ Evenett, ‘The Role of the WTO During Systemic Economic Crisis’ (A Background paper for Round Table 4: WTO rules at the Inaugural Conference of Thinking Ahead on International Trade (TAIT) organized by the Centre for Trade and Economic Integration 17-18 September 2009) < www.wto.org/english/res_e/statis_e/tait_sept09_e/evenett_e.doc > accessed 23/2/2010

25Ibid. In line with this reasoning, see also, R Parry and H Zhang, ‘China’s New Corporate Rescue Laws: Perspectives and Principles’ (2008) 8 JCLS 113, 123 observing how China’s insolvency law reform process ‘escalated in recent years, with the requirements associated with accession to the World Trade Organization (WTO)’

26SJ Evenett (n 24)

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