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THE ARCHITECTURE OF INTERNATIONAL COOPERATION

Kal Raustiala1 UCLA Law School [email protected]

January 2002

1 Acting Professor, UCLA Law School and Institute of the Environment. I thank the various officials at EPA, DOJ, FTC, and the SEC for their assistance, and Jose Alvarez, Jeff Atik, Steve Bainbridge, Eleanor Fox, Damien Gerardin, Andrew Guzman, Mark Lemley, Lisa Martin, Greg Shaffer, Chris Sprigman, Richard Steinberg, John Wiley, the members of the UCLA Juniors' Group, and especially Anne-Marie Slaughter for their comments on earlier drafts. Julie Remer, Cheryl Kelly, and Sean Goldstein of UCLA provided very helpful research assistance.

I INTRODUCTION

The future architecture of international cooperation is the subject of growing debate. Many scholars endorse liberal internationalism, the prevailing form of cooperation in the 20th century, in which formally-negotiated multilateral treaties, often coupled to international organizations, structure inter-state relations.2 Others question liberal internationalism’s reach, arguing that international organizations threaten national sovereignty and their growth ought to be stopped.3 Meanwhile in the streets—of Seattle, Washington, Genoa—these organizations are increasingly attacked. Yet another set of scholars suggests that the era of liberal internationalism is already ending. They claim that the structure of the international system is changing deeply-- deeper even than formulations like "the end of history" suggest.4 Notions of "neo- medievalism",5 and the end of the nation-state, call into question the traditional statist

2 The United Nations is the paradigmatic example. The enduring strength of the liberal internationalist program is reflected, for example, in calls for creation of a World Environment Organization. See e.g, Frank Biermann, The Emerging Debate on the Need for a World Environment Organization, 1 GLOBAL ENVN'L POL. 1 (2001). 3 The International Criminal Court is a salient recent example. On the general issues see Symposium: Trends in Global Governance: Do They Threaten American Sovereignty? 2 CHI. J. INT'L L. 1 (2000) (Proceedings of a conference at the American Enterprise Institute) 4 The End of History in Francis Fukuyama's sense was the end of ideological struggle: the triumph of liberal capitalism on the world stage. It said little about the structure of the international system, more about the particular geopolitical and ideological bipolarity of the Cold War. Francis Fukuyama, The End of History, NAT. INTEREST (1989). 5 E.g. Philip G. Cerny: “Government per se will essentially become privatized, losing much of its public character. The world will be a neo-feudal one, [with] overlapping and democratically unaccountable private regimes…” Cerny, Globalization and the Changing Logic of Collective Action, 49 INT’L ORG. (1995) at 624. The term originated in a classic work of international relations by Hedley Bull; HEDLEY BULL, THE ANARCHICAL SOCIETY (1977), esp. 264-281; see also ANTHONY CLARK AREND, LEGAL RULES AND INTERNATIONAL SOCIETY (1999) Chapter 5; Jessica Tuchman Mathews, Power –Shift 76 FOR. AFF. (1997). I discuss neo-medievalism further in Part II below.

2 foundations of liberal internationalism.6 As these competing views reflect, "this is truly a time of perplexity in international law."7 One notable response to this debate asserts the resilience of the state in a globalizing world. Proponents of this view argue that the state— for purposes of transborder cooperation--is in practice disaggregating into its functionally distinct parts. 8 Modern states are composed of legislatures, executives, agencies, and courts.9 These constituent parts--in particular, regulatory agencies tasked with elaborating and enforcing the laws that manage complex societies--are increasingly networking with their counterparts abroad. In the process they are sharing

6 See, e.g. KENICHI OHMAE, THE END OF THE NATION-STATE (1995); see also SUSAN STRANGE, THE RETREAT OF THE STATE: THE DIFFUSION OF POWER IN THE WORLD ECONOMY (1996); SASKIA SASSEN, LOSING CONTROL? SOVEREIGNTY IN AN AGE OF GLOBALIZATION (1996); Oscar Schacter, The decline of the nation-state and its implications for international law, 36 COLUM. J. TRANS. L. (double issue) 7 (disputing the decline of the state and arguing, inter alia, that the horizons of international law are simply expanding); (1997); THE DECLINE OF THE NATION STATE AND ITS EFFECTS ON CONSTITUTIONAL AND INTERNATIONAL ECONOMIC LAW, 38 CARD. L. REV. 903-1128 (symposium, 1996); WHAT FUTURE FOR THE STATE? 124 DAEDALUS 2 (special issue, 1995). 7 David J. Bederman, Constructivism, Positivism, and Empiricism in International Law, 89 Geo. L. J. 469 (2001) at 498. (Reviewing Arend, 1999, supra). As I discuss below, many of these claims had precursors in the 1970s. However, the current wave of interest in alternatives to the state-centric paradigm of liberal internationalism extends, sometimes markedly, these earlier ideas and often tweaks them in novel ways. 8 See in particular TRANSATLANTIC GOVERNANCE IN THE GLOBAL ECONOMY (MARK A. POLLACK AND GREGORY C. SHAFFER, EDS, 2001); Anne-Marie Slaughter, The Real New World Order, FOR. AFF. (1997); Anne-Marie Slaughter, Agencies on the Loose? Holding Government Newworks Accountable, in TRANSATLANTIC REGULATORY COOPERATION: LEGAL PROBLEMS AND POLITICAL PROSPECTS (George A. Bermann, Matthias Herdegen, and Peter L. Lindseth, eds., 2000); Anne- Marie Slaughter, Government Networks: The Heart of the Liberal Democratic Order, DEMOCRATIC GOVERNANCE AND INTERNATIONAL LAW (GREGORY FOX AND BRAD ROTH, EDS, 2000); David Zaring, International law by other means: the twilight existence of international financial regulatory organizations 33 TEX. INT'L L. J. 281 (1998); Renaud Dehousse, Regulation by networks in the European Community: the role of European agencies, 4 J. EUR. PUB. POL'CY. 246 (1997); Sol Piccioto, Networks in international economic integration: fragmented states and the dilemmas of neo-liberalism, 17 NW J. OF INT'L L. & BUS. 1014 (1996-7); Spencer Waller, The internationalization of antitrust enforcement 77 B.U. L. REV. 343 (1997); Scott Fulton and Lawrence Sperling, The network of environmental enforcement and compliance cooperation in North America and the Western Hemisphere, 30 THE INT'L LAWYER 111 (1996); Organization for Economic Co-operation and Development, REGULATORY CO-OPERATION FOR AN INTERDEPENDENT WORLD, (1994). Transgovernmental relations were first studied in Robert O. Keohane and Joseph S. Nye, Transgovernmental Relations and International Organizations, 27 WORLD POL. (1974); see also Keohane and Nye, Transnational Relations and World Politics: An Introduction, 25 INT’L ORG. (1971).

3 information, ideas, resources, and policies.10 As the problems policymakers address have gone global, this argument claims, so have the policymakers. But their chosen vehicle is not the formal liberal internationalist organization; it is increasingly the adaptable, and largely decentralized, network model.11 These networks of government officials are said to be "the optimal form of organization for the Information Age."12 As such, they represent "the blueprint for the international architecture of the 21st century."13 Proponents of this argument, most notably Anne-Marie Slaughter, claim that transgovernmental networks are expanding rapidly, especially in regulatory cooperation--itself a rapidly-growing sector of international law.14 They are "transgovernmental" because they

Througout this article I treat transgovernmentalism and liberal internationalism as distinct modes of international cooperation. This view is not without its critics, however; as Alvarez argues, "dichotomous descriptions of the respective worlds of 'traditional' versus 'transgovernmental' forms of law-making oversimplify complex realities." Jose Alvarez, Do Liberal States Behave Better? 12 EUR. J. INT'L L. (2001) at 245. I agree that this dichotomy is simple, but believe the simplification is valid and is worth employing in terms of expository and analytic gains. 9 And increasingly, constitutions to delineate and structure these powers and functions. See Bruce Ackerman, The rise of world constitutionalism, YALE LAW SCHOOL OCCASIONAL PAPERS (2nd series, #3, 1997). 10 Slaughter 1997, supra at 189 ("the densest area of transgovernmental activity is among national regulators."); Scott Jacobs, Regulatory cooperation for an interdependent world: issues for government, in OECD supra, at 15 ("Regulation knows fewer and fewer boundaries."); George Bermann, Matthias Herdegen, and Peter L. Lindseth, Introduction, in Bermann et al, 2000 at 1. (“while national authorities are still the principal actors in the regulatory arena, regulation is increasingly an international affair.” 11 Even within the context of the European Union, the network model has often supplanted more centralized alternatives; see Dehousse, supra at 254-55. 12 Anne-Marie Slaughter, Governing the Global Economy Through Government Networks, in THE ROLE OF LAW IN INTERNATIONAL POLITICS: ESSAYS IN INTERNATIONAL RELATIONS AND INTERNATIONAL LAW (MICHAEL BYERS, ED., 2000) at 204. 13 Slaughter 1997. at 197. It 14 See e.g. Paul B. Stephan, Regulatory Cooperation and Competition: The Search for Virtue, in Bermann et al 2000 at 202: “By almost any standard of measurement, international regulatory cooperation has grown significantly in the past two decades promises to expand even further.” and Kalypso Nicolaidis, Regulatory Cooperation and Managed Mutual Recognition: Elements of a Strategic Model in Bermann et al at 571. : "Regulatory cooperation deserves analytical attention both in its own right and as a forerunner for the effect of interdependenceon other policy areas and international governance in general." See also REGULATORY COMPEITION AND ECONOMIC INTEGRATION: COMPARATIVE PERSPECTIVES (DAN ESTY AND DAMIEN GERARDIN, EDS., 2001)

4 involve domestic officials directly interacting with each other, often with little supervision by foreign ministries.15 They are “networks” because this cooperation is based on loosely- structured peer-to-peer ties developed through frequent interaction. The claims of network proponents can be critiqued on various grounds. Transgovernmentalism may be important only in areas of “low politics,” such as antitrust, where broader international ramifications remain weak.16 Networks may limit transparency and reduce political accountability.17 They may also reinforce the dominance of major economic powers. While these critiques have surface plausibility, our understanding of transgovernmental cooperation is thin. Hence our ability to assess transgovernmentalism’s deeper significance, in particular whether it is truly the "architecture of the 21st century," remains limited. Understanding the operation and dynamics of these transgovernmental networks (hereafter "TGNs") is consequently a crucial task for international legal theory. This article assesses the future architecture of international cooperation by evaluating transgovernmentalism and exploring its likely influence on the primacy of liberal internationalism. It empirically examines TGNs in three substantive regulatory areas: securities, competition (antitrust), and environmental regulation. In each of these cases, TGNs are active and US regulatory agencies are playing key roles.18 My central claim is that transgovernmentalism is likely to bolster liberal internationalism as much—or more—than it

15 As David Andrews, former Legal Adviser in the State Department, recently wrote with regard to US participation in transatlantic regulatory cooperation, “[r]ealistically speaking, the State Department has a very limited role to play on substantive aspects of transatlantic regulatory cooperation. Since the political responsibility and technical expertis naturally reside in the specialized agencies of the US Government, the Department of State typically does not take the lead on such matters.” David R. Andrews, Listening in on the US-EU Legal Dialogue, in Bermann et al. 16 Another critique is that transgovernmental cooperation occurs in the shadow of an implicit veto by legislatures and/or foreign ministries,and hence is not as significant a change as it might seem. This critique is plausible, but hardly fatal for either transgovernmental theory or the arguments of this article. I am not centrally concerned with the claim that TGNs operate in a radically free manner. Rather, I am interested in exploring where and why networks arise, the nature of their impact of domestic regulation, proposing explanations for that process, and assessing its significance for more the future of international cooperation. 17 See e.g., Robert Howse, Transatlantic Regulatory Cooperation and the Problem of Democracy and Anne-Marie Slaughter, Agencies on the Loose? Holding Government Networks Accountable, both in Bermann, et al 2000; Philip Alston, The Myopia of the Handmaidens: International Lawyers and Globalization, 8 Eur. J Int'l. L. (1997); see also Alvarez, 2001. 18 See the discussion of methodology and case selection infra.

5 will undermine or displace it. In some situations, for example, the existence of TGNs should render liberal internationalist cooperation more effective. In other cases TGNs perform a gap- filling role: where liberal internationalist solutions are politically or economically precluded, TGNs provide an alternative approach to cooperation.19 TGNs also may reduce the need for some treaties and, to the degree they promote policy convergence, actually increase the likelihood of successfully negotiating others. Consequently, the most plausible prediction for the future is that transgovernmental cooperation will supplement and strengthen, rather than supplant, the traditional tools of international law and organization. The future architecture of cooperation, in brief, is likely to be multifaceted and institutionally heterogeneous. This broad evaluation of the architecture of cooperation of the 21st century builds on two subsidiary claims. First, in practice, TGNs appear to foster a process of "regulatory export": the export of regulatory laws, structures and procedures from the US and other major powers to developing states and economies in transition. While it is important not to overstate the case, this process is promoting policy convergence in several arenas of regulation.20 Processes of

19 For example, in competition policy; see e.g. Andrew T. Guzman, Is International Antitrust Possible? 73 NYU L. REV 1501 (1998) at 1504. ("The incentives facing individual countries maike it extremely difficult-perhaps impossible-to negotiate substantive international antitrust agreements.") In a recent article, discussed infra, Beth Simmons provides an overarching theoretical framework for understanding the process of regulatory harmonization in financial policy, an area where the US is highly dominant and therefore a regulatory innovator whose decisions about policy are determined largely internally; that is, without regard for international effects. She creates a two-by-two matrix with one dimension indicating the incentives of other jurisdictions to emulate, and the other the externalities this creates for the US. Her concern is whether harmonization occurs through market forces or through overt multilateral institutions. This framework is discussed further below; what is critical here is that her theory predicts that in many cases the role of such institutions is likely to be small because both the incentives to emulate and the externalities felt in the center are moderate. Here, she notes, without using the framework of transgovernmentalism, MOUs and other bilateral agreements are common. This prediction broadly accords with the gap-filling idea for TGNs that I suggest in this article. Beth A. Simmons, The International Politics of Harmonization: the Case of Capital Market Regulation, 55 INT'L ORG. 589 (2001). 20 There is a significant debate about the degree of policy convergence generally in the global economy. See e.g. Beth Simmons and Zachary Elkins, Globalization and Policy Diffusion: Explaining Three Decades of Liberalization (paper prepared for the Conference on Globalization and Governance, La Jolla, March 2001; Esty and Gerardin, supra; PAUL N. DOREMUS, ET AL, THE MYTH OF THE GLOBAL CORPORATION (1998); Geoffrey Garrett, Global Markets and National Politics: Collision Course or Virtous Circle, 52 INT’L ORG. 787 (1998); NATIONAL DIVERSITY AND GLOBAL CAPITALISM (SUZANNE BERGER AND RONALD DORE, EDS., 1996). I do not engage this vast literature directly; rather, I note points of tangency where relevant but focus on the role of TGNs

6 legal export are not unique to TGNs, and, as previous waves of legal export illustrate, the transfer of legal structures is neither simple nor necessarily successful.21 But TGNs are playing an important and unstudied role in a new wave of technocratic export, one that has significant implications for international cooperation.22 This article offers a theory of this process; this theory, elaborated below, builds upon the special qualities of networks and the role of network externalities. Second, while TGNs may thrive best where liberal internationalism fails, the two forms of cooperation interact. The convergence and capacity building aspects of TGNs in particular are significant because they can build-in the pre-conditions for better implementation and compliance with international treaty rules. Compliance is both an important component of effective treaties and an enduring concern of international lawyers.23 Treaties increasingly in promoting some degree of convergence (if only by promoting the creation of regulation in jurisdictions where none existed) and the specific efforts of US and other agencies at regulatory export. 21 Jacques deLisle, Lex Americana? United States Legal Assistance, American Legal Models, and Legal Change in the Post-Communist World 20 U. PA. J. INT'L. ECON. L. 179 (1999); MERILEE GRINDLE, GETTING GOOD GOVERNMENT: CAPACITY BUILDING IN THE PUBLIC SECTORS OF DEVELOPING COUNTRIES (1997); Mark Galanter and David Trubek, Scholars in Self- Estrangement, Wisc. L. Rev. 22 As Eleanor Fox notes in the competition law context, "convergence of law and pracitce has occurred and is occurring. Numerious meetings and workshops among competition officials, scholars, and practioners, and technical assistance especially by the United States, the European Union, and Germany to nations that are newly adopting competition laws, have provided cross- fertilization and produced increasingly higher levels of common understanding." Eleanor M. Fox, Antitrust and Regulatory Federalism: Races Up, Down, and Sideways, 75 NYU L. REV. 1781, at 1782. (2000). 23 Compliance and effectiveness are two distinct concepts that are often conflated. Compliance generally refers to a state of conformity or identity between an actor's behavior and a specified rule. While most common-sense notions of effectiveness relate to “solving the underlying problem,” the factors that may influence the solution of a complex international problem are myriad. In many cases disentangling them is impossible. Hence many analysts define and assess effectiveness in more modest terms: as observable, desired changes in behavior. Compliance is neither necessary nor sufficient for effectiveness. However, in general and ceteris paribus, more compliance yields more effectiveness--particularly when high compliance is not the result of a change in the legal standard but rather results from actual behavioral change aimed at meeting that standard or that results in meeting that standard. For more on these distinctions, see generally Kal Raustiala and Anne-Marie Slaughter, International Law, International Relations, and Theories of Compliance, in THE HANDBOOK OF INTERNATIONAL RELATIONS, WALTER CARLNAES ET AL, EDS, FORTHCOMING).

7 require complex processes of domestic implementation to be complied with.24 By fostering administrative capacity and learning in jurisdictions where regulators are new, weak, or both, TGNs improve domestic regulatory power and enhance treaty compliance. Thus there are good reasons to believe TGNs will, at least at the margin, frequently make treaties more effective, and, ceteris paribus, more desirable. This in itself would be a noteworthy effect. But TGNs may also foster liberal internationalism in other ways that I discuss below. In addition, some TGNs appear to rest on a foundation provided by liberal internationalism. This interaction is complex but should prove vitally important in coming decades. In sum, this article has three main tasks: it describes TGNs in three areas, in particular their role in promoting regulatory export; it develops causal hypotheses about transgovernmentalism; and, most importantly, it considers the implications of the foregoing for cooperation in the 21st century. My analysis is broad in scope and, by necessity, often speculative: while the literature on transgovernmentalism is growing, there is has been little sustained analysis of the implications of this novel phenomenon for international cooperation and organization generally.25 The analysis in this article hopefully will inform the emerging dialogue on TGNs and link it more directly to the broader study of international law and organization. The article is organized as follows. Part II lays out the core theoretical debate and the main claims of transgovernmentalists. It also highlights three factors that have given rise to contemporary TGNs: the changing nature of domestic regulation, increased interdependence (or globalization), and technological innovation. Part III presents three cases of TGNs--

24 See e.g. THE IMPLEMENTATION AND EFFECTIVENESS OF INTERNATIONAL ENVIRONMENTAL COMMITMENTS (David G. Victor, Kal Raustiala, and Eugene B. Skolnikoff, eds, 1998). The relationship between compliance and implementation is also not straightforward; see Kal Raustiala, Compliance and Effectiveness in International Regulatory Cooperation, Case West. Res. J. of Int’l L. (2000). But generally speaking implementation is a critical step toward compliance. 25 The topic is increasingly addressed in the public policy literature, less so in the legal literature. Bermann et al, supra, address networks in many chapters but do not focus explicitly on transgovernmental theory. A check of Westlaw journals database on August 20 2001 showed 2 articles containing the phrase "transgovernmental regulatory networks," (one by me), 9 articles containing the phrase "transgovernmental networks" and 15 with the phrase "regulatory networks" (some of these being articles with a domestic, rather than international, focus). The vast majority in all three categories mention the concept only in passing and/or merely cite Slaughter 1997.

8 competition, securities, and environment--with a focus on US agency involvement. The cases present three distinct "distributions of regulatory power." In securities law, the US is the dominant global regulator. In competition law, the middle case, regulatory power is more diffused: the US and the European Union each possess significant regulatory power. In environmental regulation, there are often public goods at stake that provide significant blocking power to otherwise weak states, thereby even more widely diffusing regulatory power. In all three cases, however, TGNs appear to be flourishing. Agencies in powerful states, moreover, are seeking to use these networks to export their regulatory models. The US Securities and Exchange Commission [SEC], for example, believes it can better control the effects of globalization, and can benefit US firms and investors, if the rest of the world's securities regulators resemble the SEC.26 Part IV then considers the phenomenon of TGNs and regulatory export in more detail, and advances an account that addresses its pattern and causality: why agencies like the SEC try to export their regulatory models, and why agencies in states like Chile appear to import them. I argue that TGNs exhibit some basic characteristics of "virtual networks" as these are understood in contemporary economic theory, including network effects.27 To the degree they exist, network effects create incentives to increase convergence.28 Because different regulatory

26 SEC Speaks in 1998, infra; Paul Mahoney, Securities Regulation By Enforcement: An International Perspective 7 Yale J. Reg. 305 (1990) at 320; James A. Kehoe, Exporting Insider Trading Laws: The Enforcement of US Insider Trading Laws Internationally, 9 Emory Int'l L. Rev. 345. (1995) 27 E.g Michael L. Katz and Carl Shapiro, Network externalities, competition, and compatability, AM. ECON. REV. 75, 2 (1985); Mark A. Lemley and David McGowan, Legal Implications of Network Economic Effects, 86 CAL. L. REV 479 (1998). A network effect exists when "the utility that a user derives from comsumption of a good increases with the number of other agents consuming the good." Katz and Shapiro, supra at 424. Lemley and McGowan distinguish network effects and network externalities, but for my purposes this distinction is not germane. See Lemley and McGowan, supra at 5, citing S.J. Liebowitz and Stephen Margolis, Network Externality: An Uncommon Tragedy, 8 J. ECON. PERSP. 133 (1994). 28 As Lemley and McGowan argue, the adaptation of network effects arguments to novel fields is fraught with peril. Id. at 11. Cognizant of this risk, I use the network effects concept metaphorically; (see id at 15, describing Liebowitz and Margolis, Uncommon Tragedy, as treating language as a "metaphorical network" in which there may be direct interaction with physical connections among network participants) . Future research may reveal more about the network effects that exist in social networks of the kind I describe here. And as I discuss below, there are obviously costs for regulators in converging on regulatory models that are inappropriate for their jurisdiction. On the advantages of "off-the shelf regulation" for

9 models confer distributionally-distinct benefits, competition in regulatory “standard-setting” should occur. The evidence to date is preliminary, but broadly consistent with this economic logic.29 Part V then examines the implications of TGNs for liberal internationalism and the future of international cooperation. I focus in particular on multilateral treaties, the primary building block of liberal internationalism. While some theories of treaty compliance imply little about the role of TGNs, "managerial" theories in particular imply that they may play a major, positive role in enhancing compliance with, and the effectiveness of, treaties. Where such treaties cannot be negotiated, TGNs provide an alternative mode of cooperation. And while TGNs may forestall the negotiation of some treaties, in essence acting as substitutes, in other cases the policy convergence they promote may make treaties possible where they were not before.30 On balance, I conclude that the rise of TGNs should improve treaties as a tool of global governance.31 A word on methodology: the three empirical cases of described in this paper are neither randomly selected nor are they “least-likely cases” for TGNs to be active.32 Rather, they represent regulatory arenas with significant global dimensions, which vary in some important ways, and in which TGNs are well-established and US agencies active. 33 This case selection is developing countries, see Nancy Birdsall and Robert Z. Lawrence, Deep Integration and Trade Agreements Good for Developing Countries? in GLOBAL PUBLIC GOODS: INTERNATIONAL COOPERATION IN THE 21ST CENTURY (Inge Kaul et al, eds., 1999). 29 As Simmons and Elkins note, gathering data on networks and their impact are "daunting tasks, and when they are complete, one is left with a sense of where governments may have gotten their menu of possible policy approaches, but with very little theory about how and why certain approaches were actually chosen over others." Simmons and Elkins, supra at 23. This paper proposes some hyptheses that take a step toward providing that theory, even if the data that would support these theories remains spotty and often anecdotal. 30 In some cases, as I discuss further below, treaties and international organizations are unlikely to ever arise and hence the impact of networks on liberal internationalism's reach is neglible. 31 Improve in the sense of change state behavior more effectively. Normatively, this is not a clearly advantaegous…to the degree treaties are collusive [macey etc.] 32 See GARY KING, ROBERT O. KEOHANE, AND SIDNEY VERBA, DESIGNING SOCIAL INQUIRY: SCIENTIFIC INFERENCE IN QUALITATIVE RESEARCH (1994), 209-210. For a case study of an issue in which TGNs have only minimally developed, see Marney L. Cheek, The Limits of Informal Regulatory Cooperation in International Affairs: A Review of the Global Intellectual Property Regime, 33 GEO. WASH. INT’L L. REV. 277 (2001). 33 Because the arguments in this paper largely address novel issues in the literature (while a rapidly growing literature exists on TGNs, very little of it explicitly addresses the issue of

10 useful for describing a novel phenomenon, but problematic for causal inference. As a result, I cannot make robust claims about variation in the existence of TGNs, the depth of regulatory convergence, or the influence of TGNs on the future of liberal internationalism.34 But I can and do use these cases descriptively (to chart transgovernmental cooperation), to probe the plausibility of various causal explanations, and to speculate deductively about TGNs’ larger impact. Further descriptive and causal claims will require additional research in new issue- areas.

II THEORIES OF TRANSGOVERNMENTAL NETWORKS

Contemporary transgovernmental theory offers a distinctive approach to international cooperation, one keyed to the empirical and theoretical context of the 21st Century. Grounded in the twin hallmarks35 of our era--"globalization" and "the information revolution"--it asserts the resilience of the state in the face of rapid change while it simultaneously reconceptualizes international cooperation. The notion of “disaggregated sovereignty” is at the center of this reconceptualization.36 Transgovernmentalists argue that the state is not disappearing as the major force behind international law. Rather, domestic regulators are reaching out to their foreign counterparts regularly and directly, through TGNs, rather than through the traditional regulatory export), I have chosen three cases that describe the phenomenon of interest: networks of regulators engaged in a process of regulatory export. The degree to which my descriptive claims are generalizable beyond these cases is unclear. But even if these cases represent the universe of TGNs they merit study. Antitrust, securities, and environment are issues-areas which are tremendously important as domestic policy, and increasingly important in international law. 34 See King, Keohane, and Verba, supra; Lee Epstein and Gary King, The Rules of Inference, U. CHI. L. REV. (forthcoming). Testing the hypotheses I advance will require new cases and new data. 35 “Buzzwords” may be more apt. 36 But see the seminal work of Robert O. Keohane and Joseph Nye, Transnational Relations and World Politics: An Introduction, 25 Int’l Org. (1971); Transgovernmental Relations and International Organizations, 27 World Pol. (1974). As Pollack and Shaffer note, "transgovernmental relations were the subject of intense interest for a brief period in the 1970s, when scholars began to challenge the unitary state model of international relations, and they returned to the scholarly agenda in the 1990s as a possible model for a "real new world order" of governance by transgovernmental networks of government experts." Mark A. Pollack and Gregory C. Shaffer, Transatlantic Governance in Historical and Theoretical Perspective, in Pollack and Shaffer, 2001, supra, at 5.

11 centralizing media of foreign ministries and international organizations.37 They further claim that TGNs will be a primary mode of international ordering in the future.38 Unbundling the state-- and reconnecting the constituent parts across borders--creates a reconfiguration of state power that, while markedly new, retains the state as the pivotal actor of the international system.

A. The Rise of TGNs

While transgovernmental cooperation, by all accounts, has expanded enormously in recent years it is not a new phenomenon. The 1936 Convention for the Suppression of the Illicit Traffic in Dangerous Drugs,39 for example, mandated that the parties create new national agencies to coordinate, with comparable agencies in other parties, international efforts at drug control.40 Such communications were to be carried out directly between these agencies, rather than through normal diplomatic channels.41 The 1936 Convention thus attempted to create a TGN for drug control. While this is a notable early example--and unusual in its explicit fostering of a TGN by a treaty--more limited networks likely have existed throughout history. For example, antitrust is an area where US regulators have a long history of promoting US-style laws abroad through peer to peer contacts that are broadly network-like. As Brian Portnoy describes, “a network of American antitrust regulators and their allies in foreign countries developed after [World War II]. Djelic (1998) labels them ‘missionaries’ and ‘modernizers’ respectively. They formed, collectively, a principled transnational network geared toward restructuring various national economies.”42 While there is little direct evidence, it seems reasonable to assume that in other 37 Slaughter, supra at 184 ("the state is not disappearing, it is disaggregating into its separate, functionally-distinct parts.") 38 Id. It is important to note that transgovernmentalism as a theory draws on what is known in international relations as "liberal theory." Liberal internationalism, as used in this article and in the work of Slaughter, is a specific normative vision; liberal theory is a positive approach to the study of world politics. See Andrew Moravcsik, Taking Preferences Seriously: A Liberal Theory of International Politics, 51 Int'l Org. (1997); Jose Alvarez, Do Liberal States Behave Better? A Critique of Slaughter's Liberal Theory 12 EUR. J. INT'L L. (2001). 39 L.N. Doc.C. 286(1). M. 174(1).1936.XI (January 1 1937) 40 S.K. CHATTERJEE, LEGAL ASPECTS OF INTERNATIONAL DRUG CONTROL (1981), 168-185. 41 Id. 42 Portnoy, 2000 at 64, citing MARIE-LAURE DJELIC, EXPORTING THE AMERICAN MODEL: THE POSTWAR TRANSFORMATION OF EUROPEAN BUSINESS (1998).

12 policy areas officials saw advantages in maintaining regular contact. Undoubtedly technology was a major limiting factor. Reliance on mail, telegraph, and ship and train travel placed severe bounds on extensive and recurrent long-distance communication in the pre-World War II period.43 The rise of the telephone, the jet, the fax and now email and the internet have progressively made international communication, and thus TGNs, far easier and, ceteris paribus, more prevalent.44 Indeed, in every interview with present and former US regulators, advances in information technologies were highlighted as a central permissive cause of the contemporary network phenomenon. Technological innovation is thus one major factor behind the rise of TGNs. A second factor is rising interdependence and the onset of globalization.45 Interdependence in turn interacts with the third factor, the great postwar expansion in domestic regulatory law. 46 Rising economic

43 Language barriers may have been important as well. While French and later English were common languages for diplomatic personnel, only in the last several decades has English become the lingua franca for educated persons. English is now the de facto standard for most international organizations when translators are not available; a shared language base allows decentralized contact--via networks--to develop and persist in the absence of formal, translated negotiations. 44 Good data on the prevalence of TGNs is unavailable. But there is little evidence of TGNs in the pre-World War II era, and anecdotal data indicates that network activity has grown in the last decade. 45 Indeed, an earlier incarnation of transgovernmental theory was developed by Keohane and Nye, who also pioneered the study of interdependence in modern international relations theory. Keohane and Nye, 1974, supra. 46 On the early development of the regulatory state in the U.S. see STEPHEN SKOWRONEK, BUILDING A NEW AMERICAN STATE: THE EXPANSION OF NATIONAL ADMINISTRATIVE CAPACITIES, 1877- 1920 (1982) and Robert L. Rabin, Federal Regulation in Historical Perspective, 38 STAN. L. REV. 1189 (1986). Wabash v. Illinois, 118 US 557 (1886) precipitated the creation of the first major federal regulatory agency, the Interstate Commerce Commission, in 1887. See generally GABRIEL KOLKO, RAILROADS AND REGULATION, 1877-1916 (1965). The history of U.S. regulation is presented via biography in THOMAS K. MCCRAW, PROPHETS OF REGULATION (1984) (presenting biographies of Adams, Brandeis, Landis, and Kahn). The New Deal and World War II introduced a marked acceleration of the creation of the regulatory state; see Rabin, supra at 1253 ("In historical perspective, the New Deal appears as a distinct break from the past...even the more traditional regulatory aspects of the New Deal conceived of government activity as a permanent bulwark against deep-rooted structural shortcomings in the market economy."); CHARLES SCHULTZE, THE PUBLIC USE OF PRIVATE INTEREST (1977) at 8 ("Even as late as the middle 1950s the federal government had a major regulatory responsibility in only four areas: antitrust, financial institutions, transportation, and communications. In 1976, eighty-three federal agencies were engaged in regulating some aspect of private activity. Thirty-four of those had been created since 1960 and all but eighteen since 1930."). Another, though distinct, fertile period

13 interdependence in the postwar period, coupled with the "compromise of embedded liberalism"47 that marked the Bretton Woods accords, compelled states to engage in ever-increasing amounts of international regulatory cooperation as they increasingly regulated at home. Globalization, a hallmark of the current era, remains an amorphous concept but that one that captures some important aspects of contemporary life: the world is growing smaller and more connected, and older forms of demarcation--such as territorial boundaries--appear to have diminished in importance. As globalization has accelerated, it has created further incentives for regulators to extend their reach abroad. It has also brought domestic regulatory differences to the forefront of world politics. One consequence is a greater level of participation in international cooperation by domestic regulators--who have issue-specific expertise--and a correspondingly lower profile for generalist diplomats than is typical of traditional international accords. The discovery of novel shared problems, such as transboundary environmental threats or money laundering, has added to this trend toward regulatory cooperation.48 In short, three core factors—technological innovation, increased interdependence and the rise of globalization and the changing nature of domestic regulation—have promoted the occurred beginning in the 1960s; see e.g. CASS R. SUNSTEIN, AFTER THE RIGHTS REVOLUTION: RECONCEIVING THE REGULATORY STATE (1990) at 24: "The most notable set of initiatives since the New Deal period occurred during the 1960s and 1970s. This period marked a revolution in the category of legally protected rights--a revolution that build on and materially expanded the New Deal;" also ADMINSTRATIVE LAW 9th ed. (Peter L. Strauss, Todd Rakoff, Roy A. Schotland, and Cynthia Farina, 1995) at 464 ("The Environmental Protection Agency, the Occutional Safety and Health Administration, the Consumer Product Safety Commission, and the Equal Employment Opportunity Commission all date from the 1960s-70s, a period of regulatory blossoming that rivaled the New Deal"). The "rights revolution" era agencies--with the exception of the EPA-- tend to be involved in transgovernmentalism to a far lesser degree than their New Deal era counterparts.

Internationally, the signal political achievement of the aftermath of World War II was what John Gerard Ruggie famously termed the "compromise of embedded liberalism." Modern western democracies sought international economic liberalism yet domestic economic stability achieved through the regulatory state. Liberalism was thus embedded in a structure of domestic interventionism and the welfare administration; regulation--both domestic and international--was central to the quest of avoiding the destructive unchecked liberalism of the 1930's. See John Gerard Ruggie, International regimes, transactions, and change: embedded liberalism in the postwar economic order, in INTERNATIONAL REGIMES (Stephen D. Krasner, ed., 1983) 47 Ruggie, 1983, supra. 48 The majority of international environmental treaties have been negotiated in the last three decades. See David G. Victor, Kal Raustiala, and Eugene Skolnikoff, Introduction, at 1 in Victor, Raustiala, and Skolnikoff, supra.

14 rapid expansion and deepening of TGNs. These factors are, to be sure, not wholly new. Indeed, the transnationalism/"sovereignty at bay" debates of the 1970s presaged much of the current debate.49 But they appear to be intensifying and perhaps even accelerating. Thus while technological advances have provided the means for TGNs to develop with greater frequency and at lower cost, the overarching rise in complex transboundary problems provides increasing incentives for domestic regulators to create and expand networks with their foreign counterparts. The incentives to create liberal internationalist regimes are not static, however; they vary across regulatory issue-areas. In many regulatory arenas these incentives are weak, either because substantive regulatory differences are large or (often relatedly) regulators do not want to compromise their own domestic systems. Regulators may be forced by the rise of the global economy to engage with foreign jurisdictions, but they often do not want to create full-blown liberal internationalist regimes. Competition law provides a good example: as described further below, the many efforts at creating a global competition treaty have foundered on strongly-held national differences.50 In securities regulation, the second area of law examined in this article, the US is so dominant a player that it faces almost no incentives to modify its own domestic regime in favor of foreign interests, an almost necessary component of any international treaty regime.51 In the last case, environment, there are frequently global or regional public goods at stake that motivate states to create liberal internationalist agreements.52 That is the main reason that, as I describe further below, the environmental arena is the best exemplar of a positive, facilitative relationship between TGNs (and their attendant regulatory export processes) and liberal internationalist treaties.

B. Transgovernmentalism in Theoretical Context:

49 Yet another analogous line of work looks at the impact on international cooperation of communities of experts who share positive and normative notions about a particular issue-area. These “epistemic communities” are not, however, solely or even mostly composed of government officials; rather, they typically comprise scientific experts drawn from academia, think tanks, and NGOs who, when able to gain access to policymaking positions, influence policy in line with their expert consensus. See in particular the work of Peter Haas: PETER M. HAAS, SAVING THE MEDITERRANEAN (1990); Peter M. Haas, ed., Knowledge, Power, and International Policy Coordination 46 Int’l Org. (1992). 50 Guzman, NYU, supra. 51 Simmons, 2001. 52 Kaul et al, Global Public Goods volume, supra.

15 Three Visions of International Cooperation

The dominant contemporary paradigm for international cooperation is liberal internationalism, in which states formally negotiate multilateral treaties and create international organizations. The core of the liberal internationalist project is the United Nations system and the Bretton Woods institutions: the World Bank, the International Monetary Fund, and now the World Trade Organization. While still robust, liberal internationalism is increasingly facing challenges. The deepest has been the persistent unwillingness of states to yield real power; 53 the most recent is the growing clamor against unaccountable and undemocratic international bureaucrats. The slow pace, formal procedures, and high bargaining costs of multilateral institutions increasingly discourage their use. To some, liberal internationalism is incapable of rising to the new challenges on the global agenda and subsequently will fade in importance.54 Neo-medievalism and transgovernmentalism present two prominent alternative visions of international order.55 Neo-medievalism signifies the radical idea that the world is reverting to a system of overlapping, non-territorial authority and political identity. The medieval order in Europe comprised multiple, layered power centers.56 Exclusive territoriality was not the primary principle it came to be under the institution of state sovereignty. 57 The Treaty of

53 Slaughter, "Real New World Order", supra. 54 Slaughter, "Real New World Order" at 183. 55Like most strains of international theory, neo-medievalism is not wholly new. The late Hedley Bull prophetically asked--over two decades ago (and well before the rise of the internet as a social phenomenon)--"[i]s there any evidence that the states system may be giving place to a secular reincarnation of the system of overlapping or segmented authority that characterized mediaeval Christendom?" Bull, supra at 264. 56 On the contingency of the transformation from the medieval and Renaissance systems of order in Europe to the modern (post-Westphalian) states system see e.g. HENDRIK SPRUYT, THE SOVEREIGN STATE AND ITS COMPETITORS (1995) and GIANFRANCO POGGI, THE DEVELOPMENT OF THE MODERN STATE: A SOCIOLOGICAL INTRODUCTION (1978). The parallel and fascinating rise of nationalism is explored in BENEDICT ANDERSON, IMAGINED COMMUNITIES (1983). A particularly illuminating study of the antecedents and birth of modern international law and diplomacy is Mattingly, supra. Most of these studies focus upon Europe, the birthplace of the modern nation- state. THE EXPANSION OF INTERNATIONAL SOCIETY (Hedley Bull and Adam Watson, eds., 1984), explores the gradual expansion of the sovereign states system beyond Europe and the integration of non-Western polities and territory into what is now a global system of political and legal order; see also MICHAEL W. DOYLE, EMPIRES (1986). 57 On the importance and history of territoriality for the concept of international sovereignty see John Gerard Ruggie, Territoriality and Beyond: Problematizing Modernity in International

16 Westphalia commonly denotes the extinguishment of medievalism and the birth of the system of territorially-based state sovereignty.58 Neo-medievalists believe that the information technology revolution is empowering individuals, connecting societies, and blurring territoriality, bringing back a pre-Westphalian political order.59 This view builds on more common claims that borders are being erased, the state is fading in importance, and power and allegiance are shifting to non- governmental and supranational institutions.60 It also parallels an earlier debate in international

Relations, 47 INT'L ORG. 139, 151 (1993) (" ...the distinctive feature of the modern system of rule is that it has differentiated its subject collectivity into territorially defined, fixed, and mutually exclusive enclaves of legitimate dominion. As such, it appears to be unique in human history"). 58 Leo Gross, The Peace of Westphalia, 1648-1948, 42 A.J.I.L. 20 (1948); see also KALEVI J. HOLSTI, PEACE AND WAR: ARMED CONFLICTS AND INTERNATIONAL ORDER, 1648-1989 (1991). The opening line of the leading international law casebook by Henkin, Pugh, Schacter and Smit presents the canonical view that Westphalia gave birth to international law as we know it: "Traditionally, international law is seen as the law of the international community of states, principally governing relations among states, the basic units of the world political system for more than 300 years." LOUIS HENKIN, ET AL, INTERNATIONAL LAW, 3RD. ED. (1993) at xvii. (But see Krasner, supra) 59 Mathews, supra; Arend, supra. But see Robert O. Keohane and Joseph S. Nye, Jr., Power and Interdependence in the Information Age, 77 FOR. AFF. 81, 81 (1998). 60 In my view the neo-medievalist view misperceives much. State power is still formidable and shows little sign of diminishment. Most importantly, state power and non/supra/sub state power are not necessarily at odds; these actors are not mutual claimants for a fixed supply of power or influence. Power, in an increasingly complex and interdependent society, is elastic and can often be created and shared as well as divided. See e.g. Kal Raustiala, States, NGOs, and International Environmental Institutions, INT'L STUDIES Q. (1997); Thomas Risse-Kappen, Structures of governance and transnational relations: what have we learned?, in Risse-Kappen, "Transnational Relations" supra; Janice E. Thomson and Stephen D. Krasner, Global Transactions and the Consolidation of Sovereignty, in GLOBAL CHANGES AND THEORETICAL CHALLENGES (1990); and M.J. Peterson, Transnational Activity, International Society, and World Politics, 21 MILLENNIUM 371 (1992) On the role of non-state actors in contemporary international law and politics generally see P.J. Simmons, Learning to Live with NGOs, 87 FOR. POLICY (1998); Kobrin, supra; Raustiala, "Participatory Revolution", supra; NGOS, THE UN, AND GLOBAL GOVERNANCE (Thomas Weiss and Leon Gordenker, eds., 1996); Steve Charnovitz, Participation of Nongovernmental Organizations in the World Trade Organization, U. PA. J. INT'L ECON. L. 17 (1996); Philip G. Cerny, Globalization and the changing logic of collection action 49 INT'L ORG. 595 (1995); Paul Wapner, Politics beyond the State: Environmental Activism and World Civic Politics, 47 WORLD POL. 3 (1995); Peter J. Spiro, New Global Communities: Nongovernmental Organizations in International Decision-making Institutions WASH.Q. 18 (1994); Lester M.

17 relations over the role of non-state actors, which first presented the notion that state sovereignty was increasingly under siege by non-state actors.61 For example, neo-medievalists claim that "the end of the Cold War has brought no mere adjustment among states but a novel redistribution of power among states, markets, and civil society."62 Technology is seen as a driving force behind this transformation. 63 Information technology has “literally made it possible to ignore borders and to create the kinds of communities based on common values and objectives that were once almost the exclusive prerogative of nationalism.”64 In short, neo-medievalists claim our traditional understanding of the state, with its territorial base, is obsolescent.65 Consequently, international cooperation in the 21st century will not revolve primarily around states. This view, like that of liberal internationalism, is challenged by transgovernmental theory.

Salamon, The Rise of the Non-profit Sector, 73 FOR. AFF. 4, 109 (1994); Benedict Kingsbury, Whose International Law? Sovereignty and Non-state Groups, 68 AM. L. SOC'Y INT'L L. PROC. 1 (1994); HENRY J. STEINER, DIVERSE PARTNERS: NON-GOVERNMENTAL ORGANIZATIONS IN THE HUMAN RIGHTS MOVEMENT (1991); THE ROLE OF NON-GOVERNMENTAL ORGANIZATIONS IN THE PROMOTION AND PROTECTION OF HUMAN RIGHTS (G. Castermans, et al, eds., 1990); PRESSURE GROUPS IN THE GLOBAL SYSTEM (Peter Willets, ed., 1982). 61 E.g. Vernon, supra; Keohane and Nye, supra; see also the discussion in Paul Wapner, Politics Beyond the State, 47 WORLD POL. 311 (1995) 62 Mathews, supra at 50. 63“the most powerful engine of change in the relative decline of the states and the rise of non- state actors is the computer and telecommunications revolution." Mathews, supra at 51. See also Stephen J. Kobrin, The MAI and the Clash of Globalizations, 87 FOR. POLICY 97 (1998) (discussing the power of non-governmental organizations in the debate over the proposed Multilateral Treaty on Investment). This claim is common to most challenges to state-centric paradigms; Thomson and Krasner, supra at 195-196 ( "One thread that runs through most of these arguments is that technological innovation is the most important factor explaining changes in the international system. Technological change is itself an exogeneous variable...The basic causal sequence is as follows: technological change leads to increased economic flows, which erodes state control.") 64 Leon Gordenker and Thomas Weiss, Pluralizing Global Governance, 16 Third World Q. 357, 365 (1995). 65 Mathews, supra at 75. For Mathews' and other neo-medievalists (see below) a critical assumption is that power gained by non-state actors is power lost by states: a zero-sum view of power. Yet many of the issues she identifies are fundamentally new (e.g. global environmental management). Moreover, it may be that states retain significant powers as non-state actors gain new powers--the loss then is to individual autonomy and sovereignty forced to accomodate a complex, crowded, and interdependent world. See Raustiala, "States, NGOs" supra.

18 C. Transgovernmentalism: Theory

Transgovernmental theory builds on several strands of research in international relations, most notably Robert Keohane and Joseph Nye’s pioneering work in the 1970s on transgovernmental relations.66 Keohane and Nye defined transgovernmental relations as "sets of direct interactions among sub-units of different governments that are not controlled by the policies of the cabinets or chief executives of those governments."67 Like neo-medievalists, contemporary exponents of transgovernmentalism believe international affairs are undergoing significant change.68 They also believe technological change is an important driver of this change. But transgovernmentalists argue the state has adjusted to change by functionally disaggregating. The result is less a shift in the locus of power--from states to something else-- than a shift in the modes by which state power is deployed and in the meaning of sovereignty itself. As Scott Jacobs claims,

[A]n interdependent world requires new forms of governance...Regulatory actors and processes are crossing national, regional, and local borders...As a result, a web of formal and informal intergovernmental regulatory arrangements is emerging in the OECD area (and beyond) that simultaneously empowers and constrains governments with respect to their ability to solve problems through regulation. Although it is as yet uneven and fragile, this web of regulatory relationships signals the evolution of the sovereign state toward a state that is, de facto, somewhat less sovereign, but is better adapted to promote its citizens' interests within the realities of the contemporary era.69

66 Keohane and Nye, 1974 supra. See also Peter Haas’ conception of “epistemic communities”. Haas, supra. Epistemic communities are communities of like-minded experts who foster policy coordination 67 Keohane and Nye, 1974 supra at 43. 68 E.g. Picciotto, supra, at 1020 ("The difficulty of reaching agreement, except at the most basic level of common state interests, means that general international law establishes only a very loose framework of coordination...An alternative, but in many ways complementary, response has been the construction of a complex maze of regulatory or administrative networks...); Slaughter, supra at 184 ("A new world order is emerging, with less fanfare but more substance than either the liberal internationalist or new medievalist visions."); 69 Jacobs, supra at 16-17

19 In this argument, rising transnational activity has led domestic regulators to follow their regulated entities as they have internationalized.70 This "globalization jeopardizes the effectiveness of domestic regulatory institutions,”71 creating new problems and new issues for regulators.72 At the same time, states themselves are increasingly organized in similar ways--not only Weberian rationalist bureaucracies, but corresponding functional divisions within the broader state bureaucracy.73 This development affords regulators counterparts in foreign jurisdictions. Technological change in turn has fostered the development of TGNs. For neo- medievalists, information technology enhances the decline of state power.74 Transgovernmentalists turn this argument on its head, positing that these same technological changes allow government officials to interact regularly, rapidly, and without direct oversight by their putative foreign policy gatekeepers.75 By introducing the notion of disaggregation, transgovernmentalism recasts the state as a supple actor able to capitalize on, rather than be circumvented by, the information age.

70 For an account for some early efforts at the regulation of transnational practices see Janice Thomson, Explaining the regulation of transnational practices: a state-building approach, in GOVERNANCE WITHOUT GOVERNMENT: ORDER AND CHANGE IN WORLD POLITICS (James N. Rosenau and Ernst-Otto Czempiel, eds., 1992) 71 Cheek 2001 at 277. 72 Rising world trade levels have made these issues more salient. Regulatory rules and procedures "have long been recongized to be potential impediments to international trade even when justified by legitimate national concerns." Jeffrey Atik, Science and International Regulatory Convergence, 17 Nw. J of Int'l L. & Bus. (1996-7) at 739. These changes are not trivial in the eyes of network theorists: Jacobs, for example, argues that "they are part of a profound and long-term change, stretching across a widening spectrum of policy issues, in the way governments define and solve problems." Jacobs, supra at 22 (emphasis in original). 73 See generally Martha Finnemore, Norms, Culture, and World Politics: Insights from Sociology's Institutionalism, 50 INT'L ORG. 2, 325 (1996). 74 Yet another take on the information revolution and the state is Keohane and Nye, "Power and Interdependence in the Information Age", supra. They suggest that the claims of technological "modernists" are overstated: "geographically based states will continue to structure politics in the information age, but they will rely less on material resources and more on their ability to remain credible to a public with increasingly diverse sources of information" Keohane and Nye, supra, at 94. 75 E.g. Slaughter, supra.

20 The technological changes of the information revolution also suggest new structures of political organization: decentralized networks of peers vs. hierarchical, stratified and linked organizations.76 Transgovernmentalists argue that regulators have created flexible new legal innovations keyed to the challenges of a more interdependent regulatory environment. "Positive comity," for example, reworks the traditional legal theory of comity of nations in a more dynamic manner.77 Rather than simply signifying deference to another sovereign and its laws, positive comity entails an active agreement to undertake investigations and employ state power and authority at the behest of a partner government.78 Non-legally binding "Memoranda of Understanding" [MOUs] structure much of transgovernmental cooperation. While regulators do employ Mutual Legal Assistance Treaties (MLATs), binding treaties that may address a wide array of legal issues,79 MOUs are frequently used to create a loose and adaptable framework in which to share information, ideas, procedural innovations, and resources. A 1993 MOU between the US SEC and its Chilean counterpart is representative. It contains principles for consultations, mutual exchange of information, enforcement assistance, confidentiality, and cost-sharing,80 and has an extensive section devoted to U.S. technical assistance.81 Regulators have also created their own transgovernmental organizations, which act as centers or focal points for TGNs. The Basle Committee on Banking Supervision, for example, consists of representatives of the world's twelve most important central banks; the

76 Echoing the work of sociologists such as Manuel Castells. CASTELLS, THE INFORMATION AGE: SOCIETY, ECONOMY AND CULTURE (three volumes, 1996-2000) 77 Comity was defined by the Supreme Court in Hilton v. Guyot as "the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation." 159 US 113, 163-4 (1895). 78 See Eleanor M. Fox, Toward World Antitrust and Market Access, 91 AMER. J. INT'L L. 1, 1 (1997) at 1; 14.; Eleanor M. Fox, Competition Law: Linking the World, in Bermann, et al (2000). (Fox 2000b); Slaughter, Agencies on the loose, at 538-9. 79 Regulators have also negotiated treaties that are specific to a particular subject, such as antitrust. For example, the US has legally binding executive agreements with Germany, Australia, Canada, the EU, Israel, Japan, Brazil, and recently Mexico. See ICPAC REPORT, Annex 1-C, US Experience with International Antitrust Enforcement Cooperation at 4; DOJ Press Release, DOJ and FTC Sign Antitrust Cooperation Agreement with Mexico (July 11, 2000) at www.usdoj.gov/opa/pr/2000/july/390at.htm 80 See "Memorandum of Understanding between the United States Securities and Exchange Commission and the Superintendcia de Valores Y Seguros of Chile on Consultation, Technical Assistance, and Mutual Assistance for the Exchange of Information," June 3 1993; SEC DOCKET vol. 54, no.5 (June 15 1993) at 542. 81 Ibid at 544.

21 International Association of Insurance Supervisors (IASC) comprises nearly 100 insurance regulatory agencies; and the International Organization of Securities Commissioners (IOSCO) over 100 securities commissions.82 These organizations are not international organizations under international law:83 they instead occupy a "twilight" legal existence.84 Transgovernmentalists point to these innovations as evidence of an important evolution in international law. Characteristically legal entities--domestic regulatory agencies--are engaging one another across political boundaries without using traditional international law. MOUs, for example, have only a quasi-legal authority; they are by their terms not legally binding.85 Groups like IOSCO fit none of the traditional categories of public international law. 86 The decisions of the Basel Committee are private, made by consensus, and purely advisory.87 TGNs are not only pervasive, proponents argue; they offer significant advantages. Multilateral organizations are cumbersome and bogged down by procedural rules. Fundamental concerns over sovereignty are endemic. TGNs, they argue, are by contrast flexible, adaptable, and dispense with the juridical equality and the time-consuming formality of traditional international organizations.88 The rise of TGNs is aided by the perception that many regulatory issues are technocratic. Much as the belief in agency expertise has reinforced judicial deference to agency decisionmaking in the US, political deference to agency actions in international affairs

82 Zaring, supra. See also Geoffrey R. D. Underhill, Keeping Government Out of Politics: Transnational Securities Markets, Regulatory Cooperation, and Political Legitimacy, 21 REV. INT'L STUD. 251 (1995). 83 The definition of international organization used by the Restatement (Third) of the Foreign Relations Law of the United States is an organization "created by an international agreement [with] a membership consisting entirely or principally of states." RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES S. 222; see also INTERNATIONAL LAW: CASES AND MATERIALS, 3rd Ed.(Louis Henkin et al, 1993) at 344: ("In international law, the term 'international organization' is generally used to refer to organizations composed entirely or mainly of states and usually established by treaty.") [but see Alvarez, draft] 84 Zaring, supra. 85 Cite to Aust on distinguishing bindingness. 86 As Jose Alvarez has pointed out to me, this characterization depends on a relatively traditional view of IOs, one that some more expansive contemporary visions of international organization reject. 87 The Basle Committee's recommendations nonetheless have significant regulatory impact. See e.g. ETHAN KAPSTEIN, GOVERNING THE GLOBAL ECONOMY 103-28 (1993) (discussing the 1988 Capital Adequacy Accord); Kapstein, 1992, supra . 88 Slaughter supra.

22 appears aided by a sense that the issues are narrowly technical--and thus appropriately controlled by a domestic agency--rather than broadly political, and thus best guided by the foreign affairs bureaucracy.89 Such cooperation is largely self-enforcing, in that each agency can better implement its domestic mandate as a result of the network. While incentives to "violate" "obligations" exist, common interests predominate.90 In short, transgovernmentalists argue that the liberal internationalist era is ending, but that neo-medievalists misread the legal and political landscape. TGNs, they claim, are an increasingly significant form of cooperation that is growing in importance in its central domain-- regulation--even as it expands into new areas like judicial cooperation. TGNs solve the paradox of an increased need for uniformity coupled with resistance to further international centralization.91 The result, transgovernmentalists argue, is the harnessing of state power to the flexible, decentralized forms employed by NGOs.92 For transgovernmentalists, this is the "real new world order."93 As Slaughter argues,

Disaggregating the state into its functional components makes it possible to create networks of institutions engaged in a common enterprise even as they represent distinct national interests. Moreover, they can work with their subnational and supranational counterparts, creating a genuinely new world order in which networked institutions perform the functions of a world- government--legislation, administration, and adjudication--without the form.94

III. TRANSGOVERNMENTAL REGULATORY NETWORKS: THREE CASES

89 The sense that regulatory law is technical and apolitical also fosters greater success in legal export efforts. See de Lisle, supra, at 285. 90 Slaughter, 1997. 217 91 Dehousse, supra at 259; Jacobs, supra 16-17. 92 And organized crime. On the generic advantages of the network model see DAVID RONFELDT, TRIBES, INSTITUTIONS, MARKETS, NETWORKS: A FRAMEWORK ABOUT SOCIETAL EVOLUTION (1996) and Mark Granovetter, The strength of weak ties, 78 AMER. J. SOC'LY ( 1973), cited in Phil Williams, The nature of drug-trafficking networks, 97 CURRENT HIST. 618, 154 (1998) at 155. 93 Id. 94 Id. at 195.

23 Transgovernmentalists consider regulation the leading edge of the network phenomenon. In this Part I examine three regulatory policy arenas in which TGNs have arisen.95 Each case comprises a wide array of regulatory agencies and jurisdictions. In each, US regulatory officials in particular have been actively involved. In the process, as I describe, US officials have promoted the export of US regulatory laws and practices. The underlying contexts of these cases vary in important ways. In competition policy, and in securities law, major multilateral treaties and organization do not exist. These areas represent "gaps" in the larger liberal internationalist project. In environmental regulation, the need to protect shared or public goods has resulted in the creation of numerous formal institutions to guide collective international action.96 The public goods nature of many environmental problems, however, grants significant blocking or veto power to otherwise weak states. Consequently, regulatory power is diffused. In competition policy, by contrast, extraterritorial applications of domestic law by major players (in particular the US) is common and regulatory power is concentrated in the US and EU, and to a lesser extent Japan. Multilateral solutions have not succeeded in part because of these fundamental differences in the economic and political bases of antitrust. In securities law, regulatory power is the most concentrated. The US is by far the dominant actor. Those international rules that do exist typically mirror US domestic rules.97 Despite these differences, each case suggests that transgovernmentalists have identified an important phenomenon: regulators are actively collaborating in information sharing and enforcement, as well as in technical and legal assistance. TGNs are a growing reality in these issue areas, though the path of growth varies.

A. Securities regulation

Securities regulation governs the sale and marketing of financial instruments, such as stocks in publicly-held corporations. Securities regulation was once an almost purely domestic

95 There is no clear and accepted definition of a network that would permit objective verification. But as the cases reveal, if networks do in fact exist, these surely fall within the class. 96 On public goods provision see KAUL ET AL, GLOBAL PUBLIC GOODS, supra 97 See the discussion infra.

24 concern. However, rising interdependence and the globalization of capital markets have made securities law increasingly international, to the point where "international cooperation...is blossoming among the world's regulators."98 Nonetheless, there are no major multilateral securities agreements or organizations on par with those found in monetary affairs (e.g the International Monetary Fund) or in trade (e.g. the World Trade Organization).99 In the US, the world's leading capital market, the SEC began to actively cooperate with agencies abroad in the 1980s as more enforcement actions involved foreign actors.100 At this time securities regulation did not exist in many foreign jurisdictions or, if it did, often was not well developed. While this is particularly true for developing countries and countries with economies in transition, even a state as economically advanced as Germany only recently established a securities agency.101 While the SEC is in practice at the center of a web of transgovernmental contacts and MOUs, the International Organization of Securities Commissions (IOSCO) is a forum for global securities cooperation that gives structure to the emerging network of regulators. IOSCO comprises over 130 member commissions and meets regularly. 102 IOSCO is not a traditional international organization--no members are states. Founded in 1984, 85% of the world's capital market is under IOSCO member supervision.103 Among IOSCO's main current activities are the promulgation of core principles for domestic securities regulation, the development of international accounting standards, and the regulatory impact of the internet.104 IOSCO provides an arena for discussion, policy coordination, and technical training for regulators in emerging markets. SEC officials note the importance of IOSCO as a forum for promoting greater cooperation and the spread and strengthening of securities law to new areas of the globe.105 The success of the IOSCO model has led to regional spinoffs; the Council of the Securities

98 Zaring, supra at 282. 99 Simmons, 2001, supra. 100 See Mahoney, supra. 101 James H. Freis, Jr., An Outsider's Look into the Regulation of Insider Trading in Germany: A Guide to Securities, Banking, and Market Reform in Finansplatz Deutschland, 19 B. C. INT'L AND COMP. L. REV. 1, 1996 102 See Underhill, supra; Zaring, supra. 103 Id. at 292. 104 THE SEC SPEAKS IN 1998: INTERNATIONAL DEVELOPMENTS (1037 PLI/Corp 149, February 1998) at 11. 105 Interviews.

25 Regulators of the Americas, formed in 1992, is a regional version of IOSCO, as is the Forum of European Securities Commissions, formed in 1997. Through IOSCO working groups, as well as through MOU’s and regular interaction, securities regulators share information, policy innovations, and enforcement resources, as well as coordinate research and responses to new regulatory challenges posed by globalization. In the process, securities regulators from the US are providing extensive technical advice, training personnel, and drafting legislation for regulators in emerging markets.106 While the EU is also active in technical assistance efforts, the SEC is the most important securities commission in this regard. In the words of one commentator, the SEC has responded to internationalization of the securities markets with calls for uniformity in securities regulation, a uniformity that is to be based on the American model. Internationalization has also provided the SEC with opportunities to use its enforcement powers as a lever to press for greater cooperation and uniformity among the world's securities regulators. As foreign markets grow and attract a greater share of worldwide investment, the SEC's desire to maintain the primacy of the American model of securities regulation may lead to an increase in the SEC's efforts to export regulation, resulting in greater friction between the SEC and foreign regulators.107

As of 1998, the SEC had entered into more than 30 MOUs with foreign authorities. 108 Many emerging market states have also been quite active in entering into similar MOUs; for example, Brazil has entered into in 23 MOUs as of 2000, including one with the SEC creating a

106As Joel Trachtman notes, "as securities law is a relatively immature area of law in most non- U.S. jurisdictions, their policies and methods may be more malleable than they might be, for example, in contract law." See Joel P. Trachtman, Unilateralism, Bilateralism, Regionalism, Multilateralism, and Functionalism: A Comparison with Reference to Securities Regulation, 4 TRANSNAT'L L. & CONTEMP. PROBS. 69, (1994) at 90. 107 Mahoney supra at 320. See also Policy Statement of the Securities and Exchange Commission on the Regulation of International Securities Markets, Securities Act Release No. 6807 (Nov. 1988), cited in Kehoe, supra, at 351. 108 THE SEC SPEAKS IN 2001: INTERNATIONAL AFFAIRS, 1235 PLI/Corp 977 (2001), at 1000. See also Faith Teo, "Memoranda of Understanding Among Securities Regulators: Frameworks for Cooperation, Implications for Governance" (unpublished paper, Harvard Law School, May 1998) at 14; Trachtman, supra at 88 ("MOUs are the leading example of international cooperation in securities regulation.")

26 joint monitoring system for companies traded in both jurisdictions.109 These MOUs describe the kind of assistance and cooperation that the parties intend to engage in. For example, the SEC MOU with the Superintendencia de Valores Y Seguros of Chile discusses the general need for cooperation, principles for assistance, and procedures for requests from one agency to the other.110 The MOU also discusses technical assistance from the SEC on a number of topics, including clearance and settlement mechanisms; trade recording and comparison systems; order handling systems; privatization of state-owned companies; regulatory mechanisms related to accounting and disclosure; and regulatory requirements relating to market professionals and capital adequacy.111 This list is suggestive, not exhaustive, and is typical of SEC MOUs. The widespread use of MOUs largely arose from functional regulatory imperatives. Existing treaty arrangements for judicial cooperation "were seen as inadequate because they are too general and inflexible for highly technical and rapidly evolving securities markets in which intense surveillance of legal activities is needed to detect illegal activities."112 Extraterritorial investigations or assertions of power were either difficult or, increasingly, diplomatically- troublesome. MOUs evolved as an attempt to circumvent these obstacles and introduce a more flexible, lower profile alternative.113 And by predicating SEC cooperation on reciprocal authority abroad, this approach helped replicate important informational features of US law. 114 MOUs provided the framework, for instance, within which Canadian and US regulators gained the legal authority to undertake investigations on behalf of a foreign regulatory body. 115 This

109 See MOU, at www.cvm.br/ingl/inter/mou-e.asp. The SEC notes that "cooperative arrangements modelled after the SEC's are now used by securiteis regulators around the world. Consequently, with growing ease, the SEC is able to obtain enforcement-related information from numerous jurisdictions, including emerging and developed markets." SEC Speaks in 2001 at 996. 110 SEC Docket 54, 5, (June 15 1993) at 542. 111 Id. 112 Porter, supra at 114. 113 See id; also Trachtman, supra at 88. 114 Former SEC Chair David Ruder stated in 1988 congressional hearings that the requirement of reciprocity provides " a substantial incentive for foreign securities authorities to enter into mutual assistance arrangements with the [SEC] or to make commitments to provide information in similar situations." 1988 Banking Comm. Hearings at 38, HR Rep. No. 100-1065 (1988). 115 Teo, supra, at 12-13. In the US, necessary provisions were enacted via the Insider Trading and Securities Fraud Enforcement Act of 1988, Pub. L. 100-704, 102 Stat. 4677 (1988) and the International Securities Enforcement Cooperation Act of 1990, Pub. L. 101-550, 104 Stat. 2714 (1990).

27 form of cooperation has since been extended to many other jurisdictions.116 The SEC has also employed MLATs, which permit the SEC to reach abroad more effectively in criminal prosecutions.117 Where "dual criminality" requirements have stymied the SEC, as in the case of Switzerland, the SEC lobbied effectively to alter Swiss law.118 The SEC view is that transgovernmental cooperation through IOSCO, MOUs and MLATs, and technical assistance all serve important US interests.119 The extend of SEC technical assistance is marked. The SEC hosts a major training program each year for foreign securities regulators, the "International Institute for Securities Market Development," which is taught by SEC officials and outside experts. As of 2000, nearly 800 participants from 101 countries had taken part.120 This training provides grounding in the basic principles and approaches employed by the SEC (such as the merits of disclosure-based vs. merit-based regulation and the importance of transparency) and provides opportunities for regulators to share problems and solutions. SEC also holds an International Institute for Securities Enforcement and Market Oversight, in which some 670 regulators from 65 countries have participated.121 In fiscal year 2000 alone, some 460 securities regulators from 71 countries were trained by the SEC.122 While the direct impacts of these SEC efforts are difficult to trace, it seems implausible that they have had no impact on the policies and practices of new and inexperienced regulators.123 These sessions also help to build important ties and contacts for future cooperation on concrete cases.124

116 Id. 117 MLATs tend to be negotiated with major banking centers and havens, such as Switzerland and the Caymans. See e.g. Treaty on Mutual Assistance in Criminal Matters Between the Swiss Confederation and the United States, May 25, 1973, US-Switz, 27 USTS 2019; Treaty Concerning the Cayman Islands Relating to Mutual Legal Assistance in Criminal Matters, July 3 1986, US-UK, 26 ILM 536. The SEC's efforts at negotiating agreements were aided by the International Securities Enforcement Cooperation Act of 1990, Pub. L. No. 101-550, 104 Stat. 2714. 118 Kehoe at 369. 119 Interviews, 2000. 120 THE SEC SPEAKS IN 2001 at 991. 121 Id. 122 Id. 123 Argentina's Comision Nacional de Valores's new rules on disclosure requirements, for example, specifically credit the SEC. Comision Nacional de Valores, Resolucion General 363 at http://www.cnv.gov.ar/Principal.htm. 124 Interviews.

28 It is worth underscoring that foreign officials are not forced to attend training programs, nor to take part in the IOSCO network or MOU-based cooperation generally. 125 Indeed, SEC officials indicate that they are inundated with requests from foreign jurisdictions for training— and to date have only been able to satisfy about 10% of the requests.126 But the SEC has required that recipients of technical assistance have in place legislation that permits them the same margin of independence from legislators that the SEC possess in the US. 127 The SEC push for US-oriented securities law also extends to advanced industrial democracies. The SEC has pressured Japan and Switzerland, for instance, to develop insider-trading regimes similar to that in place in the US.128 The SEC has, since 1997, worked with the US Agency for International Development (USAID) to strengthen its overseas export effort. The two agencies entered into a five year agreement to share technical training duties, about which USAID Associate Administrator Sally Shelton-Colby noted "who better than the SEC and USAID to team up to export US expertise in this area and protect the interests of the US investor?"129 SEC officials point out several benefits for the US that flow from their participation in the TGN. The spread of securities law generally, and of US regulatory structures specifically, strengthens the rule of law abroad. It “exports capitalism” worldwide.130 And it promotes the stability and embeddedness of financial markets that American firms and investors covet. In the wake of the Asia financial crisis in particular, the stability of foreign markets has taken on new importance.131 An SEC official argued that the USAID program "reflects the SEC's commitment to strengthening global securities markets and making them safer for both American and foreign investors."132

125 But see Mahoney, supra, arguing that in enforcement actions with other advanced industrial states (such as the UK) the SEC may be coercive. 126 Interviews, 2000. In fiscal year 2000, SEC staff responded to 222 written technical assistance requests and provided analysis and commentary on securities laws in China, Croatia, Egypt, Ghana, Macedonia, Russia, and Trinidad and Tobago. SEC Speaks in 2001 at 993. 127 Slaughter, 2000 (Bermann) at 534. 128 Choi and Guzman at 1890. 129 Press Release, USAID and SEC to advise emerging securities markets across globe under new agreement signed today, September 2, 1997, at www.sec.gov/news/press/97-71.txt 130 I borrow this term from an interviewee, July 2000 131 Simmons, 2001. 132 Press release USAID and SEC to advise emerging securities markets across globe under new agreement signed today, September 2, 1997, at www.sec.gov/news/press/97-71.txt

29 All investors may be said to gain from the security and stability that strengthened securities law abroad represents. But the gains are not limited to such general ends; an important outcome of the SEC networking is the dissemination of what one interviewee termed the “regulatory gospel” of US securities law.133 As Paul Mahoney argues, this gospel includes the following elements: strict insider trading rules; mandatory registration with a governmental agency of public securities issues; a mandatory disclosure system; issuer liability regarding registration statements and offering documents; broad anti-fraud provisions; and government oversight of brokers, dealers, exchanges, etc.134 When foreign jurisdictions mirror or approximate these elements of US law, US firms, dealers, and investors are on familiar turf. Because they are knowledgeable about such a regulatory structure already, they can readily compete in new markets. In the SEC’s own words,

Because the world's markets are closely interwoven and cross-border securities transactions are commonplace, the SEC has forged an international approach to ensure high regulatory standards and protect against fraud in the US. The SEC has developed formal and informal relationships with foreign authorities for regulatory and enforcement cooperation, and has developed mechanisms for information-gathering so that international borders cannot be used to escape detection and prosecution. The SEC has entered into over 30 arrangements, generally known as "memoranda of understanding," with foreign authorities. Cooperative arrangements modeled after the SEC's are now used by securities regulators around the world...135

In addition to MOUs, the SEC uses other information-gathering mechanisms [including] direct contacts with foreign criminal authorities, and indirect contacts with criminal authorities through US mutual legal assistance treaties, administered by the Department of Justice...In 1997, the

133 I borrow this term from an interviewee, July 2000. 134 See Mahoney, at 305; also Theodore Levine and W. Hardy Callcott, The SEC and Foreign Policy: The International Securities Enforcement Cooperation Act of 1988, 17 Sec. Reg. L. J. 115, 123 (1989), cited in Kehoe, supra, at 354: "The SEC raised foreign consciousness about the harmful effects of insider trading, and this directly led to legislation criminalizing insider trading or increasing enforcement in countries such as Switzerland, Japan, Canada, and England." 135 SEC SPEAKS IN 1998: INTERNATIONAL ACTIVITIES, at 1

30 SEC made 240 requests for assistance to foreign regulators and responded to over 360 requests from abroad.136

The SEC conducts a comprehensive technical assistance and international training program for emerging and developed securities markets. The program is designed to benefit both the United States and recipient countries. Benefits to the US include an improved foreign investment climate and regulatory foundation for foreign offerings in the United States. The encouragement of US style market structures and regulatory principles also promotes open entry and competitive market conditions that may be enjoyed by US participants and service providers.137

In short, the securities TGN is active and growing. For the SEC, networking with foreign regulators is a conscious strategy aimed at enhancing its enforcement powers while at the same time promoting the institutionalization of US-style securities laws abroad. 138 The SEC's approach is to bring other jurisdictions into the US model, not to modify the US model. This is even true of the SEC's cooperative efforts with regulators from other advanced industrial states. The US/Canadian Multijurisdictional Disclosure System, for example, "does not evidence significant regulatory compromise on the part of the SEC...the principle of mutual recognition...is followed only to the extent that the foreign rules satisfy the SEC's regulatory goals...in some cases, other jurisdictions are changing their laws to get into a position to reach [similar] agreements with the SEC."139 SEC officials confirm that the SEC is far less interested in learning from its foreign counterparts than it is in imparting the accumulated wisdom of its many years regulating the world’s largest financial markets. A statement by Richard Breeden, then Chairman of the SEC, reflects the SEC's dim view of convergence as a two-way street: "I'm interested in knowing the capital rules in other countries to know how big their buffers are. I'm not at all interested in what the French think US capital standards ought to be." 140

136 Id. at 5 137 Id. at 17 138 Mahoney, supra; interviews. 139 Trachtman, supra, at 95. 140 Cited in Trachtman, supra, at 112. See also Mahoney; James R. Doty, The Role of the Securities and Exchange Commission in an Internationalized Marketplace, FORD. L. REV. 60 (1992).

31 B. Competition policy

Competition policy seeks to ensure that markets and competition are not subverted through private power and restraints on trade. Through selective intervention, it attempts to ensure that consumer welfare and economic efficiency are maximized.141 Like securities regulation, competition policy aims to regulate a central component of modern market economies. Rising economic interdependence in the 1980s and 1990s has led to a internationalization of many competition problems.142 One result has been increased cooperation and convergence (as well as conflict) among regulators, and the expansion of competition law itself to new jurisdictions.143 Like securities regulation, the existence of competition law is new for many states. Of the 80 states today with competition laws, more than half adopted their laws in the last decade, and over 20 have significantly reformed their competition systems.144 Similarly, of the 13 states with competition laws in the Western Hemisphere, the majority created their competition laws after 1990.145 Approximately 20 states are currently drafting

141 This is the dominant US view today, though in the past there was a strong element of protectionism toward small and medium-size firms. Eleanor M. Fox, Antitrust and Regulatory Federalism—Races Up, Down, and Sideways, 75 NYU L. Rev. 1781 (2000) at 1789-90 142 While the problem is not new, see American Banana v. United Fruit Co., 213 US 347 (1909), and led to the development of extraterritorial application of domestic competition law— in particular in the US, see US v. Alcoa, 148 F2d 416 (2nd Cir. 1945)—globalization has led to a marked increase in the international dimensions of competition law. 143 Fox, 2000b at 244-5.; Gary Horlick and Michael Meyer, The International Convergence of Competition Policy, 29 INT'L LAWYER (1995); Spencer Weber Waller, The Internationalization of Antitrust Enforcement, B.U.L. REV. 77,2 (1997) at 347 ("Most commentators have failed to note the extent to which harmonization has already taken place. Already, most nations have antitrust rules that are substantially similar on a textual level, and most do their best to enforce them.") 144 Fox, NYULR at 1782. ; Saskia Sassen, The Locational and Institutional Embeddedness of the Global Economy, in Bermann et al, 2000, at 86. The latter figure is from Portnoy, 2000 at 75. Portnoy argues that there are 83 states, as of 2000, with antitrust laws. Id. at 74. Some of these states are hardly developing; Italy first created its competition law in 1990. Id. at 77. Mark R. A. Palim claims that there as of 1996 there were 70 states with competition laws, and 79% of those dated from 1980 or later. Palim, The Worldwide Growth of Competition Law: An Empirical Analysis, 43 The Antitrust Bull. 106 (1998) at 109. 145 Robert H. Lande, Introduction, in SYMPOSIUM: CREATING COMPETITION POLICY FOR TRANSITION ECONOMIES, BROOK. J. OF INT'L L. 23,2 (1997) at 339-340. See also Susan K. Sell,

32 competition laws.146 Antitrust regulation is thus spreading around the globe rapidly. While this diffusion is broadly positive, it has created its own problems: more jurisdictions reviewing mergers,147 more extraterritorial assertions of domestic competition law,148 and more enforcement efforts to coordinate. And while "a consensus is beginning to emerge within the transnational community of lawyers and competition officials who have learned to think, speak, and write about competition issues in a similar way,"149 significant differences remain. The spread of competition law and its impact on international trade has led to proposals for a multilateral competition treaty, perhaps under the auspices of the WTO.150 At least five prior efforts at the creation of an multilateral regime have occurred--none successful.151 The development of an international treaty faces serious obstacles, not least of which is the myriad of principles and objectives, some contradictory, that undergird the competition laws of the main economic powers. While the push for a liberal internationalist solution is in stasis, enforcement- oriented cooperation and information sharing through TGNs is occurring with frequency.152 As in securities regulation, the US in particular is active in this regard.153 The US Dept. of Justice

Intellectual Property Protection and Antitrust in the Developing World: Crisis, Coercion, Choice, INT'L ORG. 49, 2 (1995). 146 Fox, NYULR at 1783. 147 Diane P. Wood, United States Antitrust Law in the Global Market, 1 Glob. Legal. Stud. J. (1994) 427-8. 148 The US in particular has asserted extraterritorial reach for the Sherman Act. See e.g. Hartford Fire Ins. Co. v. California, 113 S.Ct. 2891 (1993); U.S. v. Alcoa, 148 F. 2d 416 (2d Cir. 1945). 149 Waller, 1997 (BU) at 396. 150 E.g. Eleanor M. Fox, Toward World Antitrust and Market Access, AM.J. INT'L. L. 91,1 (1997), proposing a Trade-Related Aspects of Antitrust Measures (TRAMs) accord within the context of the WTO. 151 As Andrew Guzman notes, “At present…no meaningful international agreement exists to govern the application of antitrust policies to cross border activities.” Guzman, Is International Antitrust Possible? at 1535. The League of Nations, the ill-fated ITO, ECOSOC, the OECD, and UNCTAD have all tried and failed to harmonize competition law; Spencer Weber Waller, Neo-Realism and the Internationalization of Law: Lessons from Antitrust, KAN. L. REV. 42,2 (1994). One reason for the demise of the ITO was Congressional concern over the antitrust provisions. See Diane P. Wood, The Internationalization of Antitrust Law: Options for the Future, DEPAUL L. REV. 44, 4 (1995); also Ruggie 1995, supra, at 509. 152 See Symposium, BROOK. J. INT' L.; Wood, 1995; Waller, 1997 (BU); Nina Hachigian, International Antitrust Enforcement, ANTITRUST (Fall 1997). 153 "The US has committed a substantial amount of its prestige and resources to promoting greater enforcement cooperation. The other major players may not be as enthusiastic as the [US],

33 has over 20 MLATs in place, which permit and foster a range of cooperative activities with foreign regulators.154 MOUs are also a common networking tool of competition officials. As in securities regulation, enforcement actions with international dimensions have led the way to more cooperation with foreign jurisdictions. For example, DOJ prosecutions of international cartel activity in fiscal years 1997-1999 totaled over $1.3 billion--over 90% of the total fines DOJ obtained in that period.155 The Hoffman-La Roche vitamin prosecution alone netted a fine of $500 million in 1999; there were 2 other international cartel prosecutions that year with fines totaling $360 million.156 The development of a competition TGN has been aided, in the case of the US, by the passage of the International Antitrust Enforcement Assistance Act of 1994.157 The Act expanded the range of activity of the DOJ and FTC (for example, to share confidential information) to antitrust regulators in foreign jurisdictions. The Act authorizes the Attorney General and the FTC to conduct investigations and provide assistance to foreign authorities regarding a possible violation of the foreign antitrust laws (regardless of legality under US law) if US authorities are confident that the foreign authorities will reciprocate.158 This is a similar dynamic to that in securities law.159 Participating foreign agencies must give protection to antitrust evidence that is

but they do not have serious objections to cooperating on a case-by-case basis." Waller 1997 (BU) at 400. 154 Address by Doug Melamed, US DOJ, to the WTO, "International Cooperation in Competition Law and Policy: What Can be Achieved at the Bilateral, Regional, and Multilateral Levels (April 17 1999); Interviews, DoJ. 155 See USDOJ, Antitrust Division, Annual Report, FY 1999 at 5. See also Gary Spratling, Deputy Assistant Attorney General, "Negotiating the Waters of International Cartel Prosecutions" presented at the National Institute on White Collar Crime, 1999 (www.usdoj.gov/atr/public/speeches/2275.pdf. See also "Company Agrees to Pay $110 Million Fine for International Conspiracy: Fine is Largest in Antitrust History" Dept. of Justice Press Release of Tuesday, April 7 1998, cited in David M. Knight, "Global Antitrust Cooperation: The Role of Transnational Networks in Competition Policy Formation and Enforcement" (unpublished paper, Harvard Law School, 1998). 156 See USDOJ, Antitrust Division, Annual Report, FY 1999 at 7. 157 15 USC s.6201-6212. The Act is phrased in terms of US assistance to foreign competition offices, but cooperation cannot proceed unless an "antitrust mutual assistance agreement" has been negotiated with the state in question. In essence, states must agree to cooperate with the US in order to receive assistance from US antitrust officials. See also Waller, 1997 (BU) at 370-4. 158 Fox, 2000b at 247. 159 See discussion supra.

34 “not less than the protection provided under the laws of the [US].”160 In theory the passage of the Act will further accelerate the development of transgovernmental cooperation, though few states have taken advantage of its provisions to date.161 In addition to enforcement cooperation, US competition officials, like their SEC counterparts, routinely consult with foreign regulators about the structure and enforcement of their antitrust laws.162 DOJ and FTC officials have been stationed abroad to assist foreign regulators for extended periods of time.163 In the 1993-1998 period, the only period with complete data on these activities, the DOJ Antitrust and FTC Technical Assistance Programs spent an average of $787,473 and $585, 989 per year, respectively, in an average of 51 missions per year.164 Some 35 foreign regulators were trained in the US, on average, in each year of these programs.165 In some cases US technical assistance has been quite long-lived: US antitrust officials were in Poland for four years.166 There they provided extensive, hands-on advice concerning draft legislation as well as the interpretation and implementation of existing laws.167 More advanced economies receive similar treatment at times: when in 1998 New Zealand sought to reformulate sections of its antitrust code, for example, the New Zealand Ministry of Commerce elicited extensive commentary from the US DOJ and FTC.168 US officials also participate in a welter of regularized meetings and forums for antitrust discussion, such as the

160 ICPAC Report, Annex 1-C at 8. 161 Australia appears to be the only state to have signed such an agreement; Stuart M. Gerson, Extraterritorial Enforcement of US Antitrust Laws, SF63 ALI-ABA 187, 195 [date?] See also Fox 2000b at 247 (suggesting that “Nations have been reluctant [to cooperate under the Act], for they fear that the United States, not they, will be the beneficiaries, and they fear that the shared information might be used against their firms for purposes that go beyond the US request (e.g. for private class actions and treble damages cases)). 162Spencer Weber Waller, Comparative Competition Law as a Form of Empiricism, BROOK. J. INT'L L. 23,2 (1997). The US and the EU are particularly active in this regard; between 1991 and 1999, EU and US officials consulted each other in 689 different cases. See Youri Devuyst, Transatlantic Competition Relations, in Pollack and Shaffer, supra, at 127. 163 Id. See also DevTech report, 1996, supra. 164 As with the SEC, this is often budgeted out of USAID, but employs DOJ and FTC officials. These figures were calculated by Cheryl Kelly using data in the ICPAC Report, Appendix 6A. 165 Id. 166 Interviews, DOJ. 167 Devtech report, supra at 6-7. 168 Knight 1998, supra, at 30-31.

35 OECD Competition Law and Policy roundtables and the annual Fordham Law School conference. As Spencer Weber Waller notes, the rest of the world looks to the United States as one of the most important sources of learning about competition law. Foreign legislators considering antitrust legislation often turn to the US enforcement agencies and the American Bar for comments on the best path to choose. Foreign enforcement officials read U.S. cases...attend international conferences, and frequently interact with their foreign counterparts. Attorneys and experts, frequently Americans, are often involved in foreign competition proceedings at various levels. Foreign case reports and agency decisions are filled with citations to US cases, guidelines, and scholarly commentary.169

Like SEC officials, DOJ and FTC regulators claim that regular engagement with foreign regulators, technical assistance efforts, and the accompanying export of US regulation directly benefits the US. For example, former FTC Chairman Janet Steiger argued that the competition reforms pursued by the FTC and DOJ in developing economies "not only benefits the citizens of the region, but will enhance the competitiveness of American industry by helping to open new markets and investment opportunities."170 Technical assistance is generally seen as promoting the rule of law in economic affairs, which has positive spillovers for free markets and trade. US (and other) business interests often have a preference for convergence in competition law, both substantively and procedurally.171 The more familiar the competition laws in place in a foreign jurisdiction, the easier it is for US firms to compete and ensure that they are not disadvantaged vis-à-vis competitors who may have powerful political and economic connections.172

169 Id. at 457-8. See also "Justice Department, FTC Receive Funds to Support Competition Counseling Aid," Int'l Trade Rep.(BNA) 8, 871 (1991). Waller elsewhere claims that "national competition law systems do not easily transfer from place to place…" Waller 1997 (BU) at 348. 170 Id at 871. 171 Waller 1997 (BU) at 385-6. This is particularly so in the area of mergers, where differing rules and requirements can stymie transactions. But as Waller notes, some firms will not be advantaged by convergence because they want to engage in opportunistic behavior that will be blunted by the increased cooperation that is both cause and consequence of convergence. Id. at 387. 172 At least, many nations believe this to be the case and thus have created analogous competition laws. Fox, NYULR at 1784.

36 One important difference between competition and securities regulation is that in securities the US is tremendously dominant, while in competition the US is one of two or three major world markets. Consequently, while US is actively pursuing the export of its competition policy, so is the European Union. In Eastern Europe, which is particularly important for the EU, the EU has largely won this competition.173 As a precondition for consideration in EU enlargement the so-called “Visegrad states” have signed the "Europe Agreements," in which they agree to adopt or approximate EU competition law for any matters affecting trade or competition with the EU.174 Thus regulatory restructuring in these states is explicit and is driven by an EU, rather than a US, model. The US in particular has been criticized for its failures in Eastern Europe, where the zealousness of US efforts allegedly worked to their detriment.175 As Eleanor Fox argues, there is “a particular competition between the [US] and [EU] for expanding the geographic scope of their [antitrust] law.”176 Moreover, “this competition regards exporting law, not importing law. The dominant exporter will have the stronger position in the world if, and when, multinational businesses find it no longer tenable not to have one overarching set of

173 Fox, NYULR at 1799 ("In any event, the European Union is winning the competition. More nations are finding the EU model, in contrast to the US model, congenial to their economies and polities."). Not that the US didn’t try; see Kathleen McDermott, US Officials Provide Competition Counseling to Eastern Europe, ANTITRUST (Fall/Winter 1991) at 4. This effort involved $7.2 million in USAID funds and visits (often measured in months) by DOJ and FTC regulators. 174 Eleanor M. Fox, The Central European Nations and the European Union Waiting Room: Why Must the Central European Nations Adopt the Competition Law of the European Union?, BROOK. J. OF INT'L L. 23,2 (1997). 175 De Lisle, supra at 287. 176 Fox NYULR at 1799; see also Sassen, supra at 88; Karl M. Meesen, Competition of Competition Laws, 10 NW J. INT’L L. & BUS. (1989) As the Report of the ABA Sections on Antitrust Law and International Law on the Internationalization of Competition Law Rules: Coordination and Convergence (1999) notes, "The recent trend…is to adopt competition laws along the style either of the United States or the European Union, with variations that include a larger fairness component (fairness to weaker firms as against more powerful ones), as in the Asian economies. The EU model has attracted many more adherents than the US model." Id at 19. The EU has even influenced Mexican competition law; see Jorge Witker, Ley Federal de Competencia, BOLETIN MEXICANO DE DERECHO COMPARADO, (May-Aug. 1998) at 584. The competition notion is not completely accepted; see e.g. Waller, 1997 (BU) at 392 ("despite the United States' general geopolitical power, it does not appear to be a hegemon for antitrust purposes. If there is a competition between models of antitrust law, the United States is not winning.")

37 rules of the game.”177 At the same time, there is significant cooperation between the EU and the US on cases of shared interest. As one observer puts it, "the daily interaction between [competition] agencies…fostered increasingly cooperative attitudes among officials on both sides of the Atlantic as they came to redefine their roles as members of a transatlantic community of professionals dealing with common problems."178 Like the EU, Japan has distinctive views on competition policy that it has sought to disseminate through a process of networking, though less aggressively than the EU and US. The Japan Fair Trade Commission initiated in the mid 1990s what it termed a "familiarization plan," under the auspices of APEC, in which senior officials from APEC states were invited to training sessions run by Japanese antitrust regulators.179 Other international actors are also involved in competition law development. The OECD has issued several recommendations regarding cooperation on enforcement, and has created an OECD Outreach Program.180 In addition, the UN Conference on Trade and Development's Restrictive Business Practice code has been revitalized in recent years. "Since 1989, developing countries have been flocking to UNCTAD to learn more about the operation of antitrust policies."181 In short, competition regulators are interacting extensively, and regulation is spreading to new jurisdictions at a rapid rate. In particular, developing and transitional economies have readily adopted competition law and become engaged in the competition TGN with their more experienced counterparts.182 Despite this, no one model of competition law is predominant globally. As a recent ABA report argued, clusters of nations are tending to adopt one or another of the different models…[Mexican law] appears on its face to be quite close to US law. The laws of certain South American countries (Argentina, Brazil, Chile, Columbia [sic], Venezuela), adopted in recent years, combine aspects 177 Id. at 22. 178 Devuyst, supra, at 127-8. 179 JFTC Will Provide Training for APEC Officials, BNA ANTITRUST & TRADE REG. REP., Sept. 19, 1996. 180 E.g. OECD Doc. C(86)44(Final) (May 21 1986), cited in Hachigian, supra at 137. International conferences on competition law have begun to occur; in 1996, for example, a conference on "Competition Policies and the Economic Reform Process in Latin America" drew regulators from most Western Hemisphere states. Lande, 1997, supra. 181 Sell, supra at 317-318. 182 Portnoy, 2000 at 75.

38 of EC and US law, as do longer-established laws in Australia and New Zealand…On the European continent, EC law is the general standard…Many of the smaller, trade-oriented Asian nations tended to model their competition laws along the lines of the Japanese and Korean laws.183

As transgovernmental cooperation proliferates, competition among competition laws has developed. The leading economic powers are engaging in regulatory networks while seeking to export their preferred model into the regulatory bureaucracies of other, less powerful states, many of whom are only now creating competition laws as they liberalize their economies.

C. Environmental Regulation

Unlike the first two cases described in this article, environmental regulation is an area with widely diffused regulatory power and, correspondingly, a myriad of international treaties in place. Multilateral environmental agreements were negotiated at a rapid pace in the 1980s and 1990s.184 While accords continue to be developed, implementing existing commitments has become a major focus.185 This focus has drawn attention to the capacity—or lack—for environmental regulation that many states possess. A contemporaneous and related development has been the rise of TGNs. As in the securities law area, where IOSCO is the primary forum for networking, the emerging environmental network has been solidified— though not dominated or controlled by—a forum organization: the International Network for Environmental Compliance and Enforcement (INECE). The US EPA is at the core of INECE. INECE is jointly sponsored by the EPA and the Netherlands' Ministry of Housing, Spatial Planning and Environment (VROM), and began with the signing of an MOU between those two agencies in 1985.186 Requests to EPA by the Dutch government for technical training and assistance were followed by similar requests from Poland in 1991 and a plethora of other

183 ABA Report, 1999 at 36-7 184 See the partial list in the ENTRI database at www.ciesin.org 185 Victor, Raustiala, and Skolnikoff, 1998 186 See www.inece.org/history.htm One result of the MOU was a series of seminars in Washington for Dutch officials, introducing them to US techniques of enforcement and compliance assurance.

39 nations since.187 A series of international conferences were organized, the first held in Utrecht in 1990.188 INECE itself was christened in 1997, "to signal the commitment to an ongoing network and set in place an ambitious two year work program."189 While the conferences are a central part of INECE, and permit regulators to meet, exchange ideas, and make connections, information technology is expanding its reach. INECE maintains a website which will soon have streaming training videos that can be downloaded by regulators around the world.190 INECE conferences grew dramatically in scope during the 1990s, and the EPA's technical assistance and training activities followed suit. The EPA maintains a powerful presence in INECE, co-chairing the Executive Planning Committee and serving as a motive force behind the network.191 EPA itself has developed an elaborate series of technical training and capacity-building programs aimed at introducing US regulatory practices to foreign jurisdictions. EPA offers 24 "courses" for foreign regulators, touching upon a wide range of regulatory issues.192 In EPA's words,

EPA's international technical assistance, training, and information exchange programs play a key role in fulfilling the Agency's mission. Exchanging environmental management, regulatory, and technical expertise with other nations can help solve environmental problems around the world...In the 1990s, responding to an enormous need for environmental training and assistance 187 Id. 188 Id. Subsequent conferences were convened in Budapest, Hungary in 1992, Oaxaca, Mexico in 1994, Bangkok, Thailand in 1996, and Monterey, California in 1998. One outgrowth of the 1994 meeting was teh "Oaxaca Declaration" in which participants from the Americas commited themselves to work together to establish a regional network of regulators. 189 Id. There is now a twice-yearly newsletter, an elaborate internet presence, access to confidential lines of communication for regulatory officials, a databank and technical assistance to enable officials to maintain communication with other network members. 190 Interview, Cheryl Wasserman, Executive Planning Committee, INECE, and US EPA, July 2000. 191 The Executive Planning Committee membership at present includes representatives from a diverse group of domestic agencies, international organizations, and non-governmental organizations : inter alia, Nigeria; Mexico; US; the World Bank; India; South Africa; the United Kingdom; and the Environmental Law Institute. See www.inece.org/Structur.htm 192 www.epa.gov/oia/modules.htm. These courses include, inter alia, Chemical Safety Auditing at Industrial Facilities; Ecological Risk Assessment and Decision-making; Environmental Compliance and Enforcement: Principles; Managing an Environmental Organization; Economic Incentives for Environmental Decision-making; Principles of Pollution Prevention; and Principles of Risk Management for Hazardous Waste Sites.

40 in the emerging democracies of Central and Easter [sic] Europe, EPA developed an initial set of training modules to impart this information on key environmental management techniques employed in the United States. Using a facilitated, train-the-trainer approach, these modules have been successfully updated and supplemented with new training courses. The modules are now being successfully applied in other regions as well, including large parts of Africa, Asia, Latin America, and Russia and the Newly Independent States.193

In 1997, for example, EPA delivered 27 courses in 13 countries.194 Some are quite general: one course entitled "Principles of Environmental Enforcement" covers a wide array of regulatory issues, ranging from the basic ("What is Compliance?" ; "What are the Components of a Successful Enforcement Program?"; ) to the more advanced ("When Should Civil or Criminal Responses be Used?"; "What Enforcement Responses are Appropriate for Government-Owned and/or Operated Facilities?") to the structural ("Dividing Responsibilities Among Government Levels"; "Staffing Level").195 Courses such as these essentially provide a handbook--"environmental regulation in a nutshell"--that is closely tied to US practice. In addition to direct training, EPA officials actively showcase US environmental technologies to their foreign counterparts.196 By creating demand for US environmental services and products abroad, EPA nudges foreign regulatory rules and practices toward American ones. Indeed, EPA's export promotion activities are tied to the training programs described above. As EPA acknowledges, "increasingly, these training programs prepare the way for the introduction of US technologies."197 While EPA is assisting US firms through its technical assistance activity, it is also incrementally aiding its goal of greater convergence in foreign regulatory practices--convergence that is based explicitly on US regulatory approaches.

193 www.epa.gov/oia/modules.htm. 194 See US ENVIRONMENTAL PROTECTION AGENCY, EPA STRATEGY FOR PROMOTING US ENVIRONMENTAL EXPORTS: A REPORT TO CONGRESS, (Washington, DC, May 1998) available at www.epa.gov/oia/exp420.htm. In the same report, EPA claimed that its web site receives 5.5 million page requests per month, and that in January 1998 alone individuals from over 40 foreign nations used the site. Exactly what percentage were students researching third-year papers while on vacation abroad was not estimated. 195 US EPA, PRINCIPLES OF ENVIRONMENTAL ENFORCEMENT (EPA/300-F-93-001) (July 1992). 196 EPA Strategy for Export-Promotion, supra. 197 Id.

41 In addition to its activity within INECE, and its generalized training efforts, the EPA is actively involved in a more narrowly-focused TGN involving the parties to the North American Free Trade Agreement, or NAFTA. A North American network of environmental regulators began to develop bilaterally (with the US at the core), prior to NAFTA, through cooperation engendered by the La Paz and Boundary Waters Treaties.198 NAFTA, and its environmental side agreement, the North American Agreement on Environmental Cooperation (NAAEC), have given a significant political spur to this cooperation.199 Mexican environmental regulation was a major political issue in the NAFTA debate. The NAAEC provides important mechanisms to further environmental cooperation and help ensure compliance with NAFTA’s environmental goals. At the same time, in practice the NAAEC provides a medium through which a TGN has developed. US regulators, as described further below, have been actively cooperating with and training their Mexican counterparts, in the process shaping the structure and process of Mexican environmental regulation. Mexico's first major step in the wake of NAFTA was to create a new enforcement office, the PROFEPA. In 1992 Mexican and US environmental inspectors also announced their first coordinated effort at enforcement actions in the border area. Since then regulators from both federal agencies, as well as local and state officials, have met frequently to coordinate investigations and surveillance efforts. As a result, US observers believe Mexican enforcement and compliance programs have improved in sophistication.200 As Scott Fulton and Larry Sperling describe, between 1992 and 1994 the EPA conducted seven inspector training courses in Mexico as well as a train-the-trainer workshop.201 These efforts trained 561 PROFEPA inspectors--nearly all of Mexico's enforcement personnel--

198 The primary area of cooperation for the US and Canada is the Great Lakes Region, governed by the Treaty on Boundary Water, Jan. 11 1909, US-Can, 36 Stat. 2448. The International Boundary and Water Commission was established in 1944 by the Treaty on the Utilization of Waters of the Colorado and Tijuana Rivers, and of the Rio Grande (February 3 1944 US-Mex., 59 Stat 1219). In 1983 the Agreement on Cooperation for the Protection and Improvement of the Environment in the Border Area, Aug. 14 1983, US-Mex, TIAS No 10,827 (the La Paz Agreement) was signed, and since then five annexes to the accord have been negotiated. 199 See especially Scott C. Fulton and Lawrence Sperling, The Network of Environmental Enforcement and Compliance in North America and the Western Hemisphere, 30 THE INT'L LAWYER 1, 111 (1996). At the time of publication Fulton and Sperling were, respectively, Principal Deputy Counsel and Senior Attorney-Advisor, U.S. Environmental Protection Agency. 200 Personal Communication with Lawrence Sperling, supra. 201 Fulton and Sperling, 1996, supra at 120

42 and helped build Mexican inspector training capacity significantly.202 The EPA trained PROFEPA personnel in the use of aerial surveillance techniques, the preparation of environmental impact assessments (pioneered by the US through the National Environmental Policy Act of 1969),203 volatile organic compound inspection techniques, and other techniques of inspection and assessment.204 The EPA also created a bilingual training video for Mexican customs inspectors on compliance with the bilateral controls on hazardous waste movements developed under the La Paz agreements on border cooperation. By August 1995 bilingual training sessions on hazardous waste management had been conducted at several border customs sites.205 As Richard Steinberg argues,

Mexico appears to have drastically improved its environmental enforcement regime [in the wake of NAFTA]...Mexico has created a new agency, the Office of the Attorney General for Environmental Protection, which has built a staff of over five hundred inspectors operating out of ten regional offices. Almost all of these inspectors were trained with help from the US Environmental Protection Agency....This has led to at least a four-fold increase in the number of annual environmental inspections of firms operating in Mexico.206

EPA efforts at training Mexican officials in US enforcement and compliance assurance techniques has not been limited to lower-level inspectors. In May of 1995 the EPA presented a major training course on the "fundamental principles for designing and implementing environmental enforcement programs" for Mexican policymakers, held at PROFEPA headquarters.207 EPA presented their philosophy on the design of rational environmental regulatory instruments, and appropriate inspection, enforcement, and compliance assurance 202 Richard H. Steinberg, Trade-Environment Negotiations in the EU, NAFTA, and WTO: Regional Trajectories of Rule Development, AM. J. OF INT'L L. 91, 2 (1997). 203 42 U.S.C. Sec. 4321-4370d 204 Fulton and Sperling, 1996, supra at 120. Customs officials have also been trained in the identification of hazardous waste materials and ozone-depleted substances. Interview with Tim Whitehouse, Office of Enforcement and Compliance Assurance, EPA, Washington DC, March 25 1999. 205 Id. 206 Steinberg 1997, supra at 251. 207 Fulton and Sperling, 1996, supra

43 techniques. Revisions of Mexican environmental statutes have as a result been modeled on US statutes.208 More recently, EPA has been promoting the use of innovative hybrid enforcement- regulatory techniques, such as "supplemental environmental projects" (SEPs), to Mexican officials.209 SEPs essentially trade a penalty reduction from a specified compliance failure for an often unrelated but desired environmental project, such as a land set-aside.210 While its interest in deeper integration with the US is clearly a major factor behind Mexico's transformation of its environmental regulatory apparatus, it is noteworthy that the process has relied heavily on extensive regulator-to-regulator contact, personnel training, and exchange of laws and regulations, both bilaterally with EPA and under the auspices of INECE. To far lesser degree, regulators from the EPA and Environment Canada, the Canadian environmental ministry, have also cooperated for enforcement and inspection purposes.211 The Commission on Environmental Cooperation, created by the NAAEC, has also undertaken a number of activities aimed at promoting cooperation. The Commission has established a standing North American Working Group on Environment Enforcement and Compliance Cooperation, composed of regulators from the three NAFTA parties.212 The group has convened workshops on a number of topics, often with representatives of the public in attendance. 213 Thus NAFTA has provided a framework as well as an impetus for the emergence of an active TGN. As in the competition and securities cases, the emerging TGN in the environmental arena has served as a conduit for the export of regulation from the US and other developed states. And, as in the securities context, an organization of regulators (IOSCO, INECE) has 208 Interview at EPA, supra. 209 Interview at EPA, supra. 210 [citations from Farber in ELR 99] 211 Fulton and Sperling, 1996 supra at 120. 212 One frequent activity is the preparation of reports on environmental policy, e.g. North American Working Group on Environmental Enforcement and Compliance Cooperation, ENVIRONMENTAL MANAGEMENT SYSTEMS AND COMPLIANCE (June 1998). The Commission Secretariat itself also produces related studies; e.g, Secretariat of the CEC, VOLUNTARY MEASURES TO ENSURE ENVIRONMENTAL COMPLIANCE: A REVIEW AND ANALYSIS OF NORTH AMERICAN INITIATIVES (March 1998). 213 I was a participant in one of these workshops, on the development of indicators of effective environmental enforcement (convened in Puebla, Mexico in May of 1998). The meeting involved 3 days of presentations by government officials, NGO leaders, and academics. The top Federal-level environmental officials in attendance (who were members of the North American Working Group on Environment Enforcement and Compliance Cooperation) met privately on the last day.

44 developed to structure and promote the network. Here, the pattern of export and import was also strongly influenced by the NAFTA context. NAFTA provided additional incentives for regulatory cooperation and an institutional structure within which regulators' collaborative and capacity-building activities could be organized.

IV Transgovernmental Cooperation & Domestic Regulatory Regimes

The three cases described above illustrate the contemporary activities of TGNs. In each, US agencies are actively engaged in cooperative activities with foreign counterparts. This cooperation is guided by informal, non-binding agreements, and takes place through frequent peer-to-peer collaboration--sometimes in person and sometimes virtually. While there are differences among the cases, each embodies the kind of decentralized interaction highlighted by transgovernmental theorists. In each network there is also substantial technical assistance activity, through which US agencies assist partner jurisdictions in building capacity and creating regulatory frameworks. Many of the descriptive claims of transgovernmentalists are supported by the cases I have described. At a minimum, the antitrust, securities, and environmental cases described above are consistent with the claim that TGNs exist and that domestic regulators are actively engaged in them. However, it is not clear from this evidence alone that TGNs are a major component of international cooperation yet, or that TGNs are rapidly expanding to the detriment of more traditional forms of international law.214 In this Part I consider more closely the role of TGNs in the process of regulatory export and regulatory convergence, phenomena which have significant implications for international cooperation.

A. Regulatory Export & Transgovernmental Networks

A core aspect of the transgovernmental cooperation charted in this article is that national regulators are, through the practices associated with transgovernmentalism, exporting and importing regulatory rules and structures. This diffusion process is of potentially great

214 See also Mark A. Pollack and Gregory C. Shaffer, Who Governs?, in Pollack and Shaffer 2001 at 297 (arguing that their cases studies suggest "at best patchy support for Slaughter's ideal-type image of a transgovernmental world order.")

45 importance; as John Ruggie has argued, domestic regulation and restructuring "is what the trade policy agenda increasingly has come to be about."215 Although international trade law is often seen as the most powerful lever of regulatory convergence, TGNs may prove an alternative source. In TGNs, policy and institutional convergence occurs, to the degree it does, through a decentralized, incremental process of interaction and emulation, rather than an explicit, multilateral process of negotiation and agreement.216 This aspect of transgovernmentalism implies that TGNs represent a complement to, or perhaps even substitute for, the liberal internationalist model that has dominated international cooperation for most of the last century. The notion of legal export has many historical antecedents. The law and development movement in the 1960s and 1970s sought to transfer legal models to developing states, with limited success.217 The export of US law accelerated with the end of the Cold War, with former communist states at the forefront of the importing jurisdictions. This latter wave overlaps with the activities described in this article. As Jacques de Lisle has recently argued in a survey of US legal export efforts, two developments have accorded the US "a new and uniquely important role in international processes of legal change" in the 1990s: globalization and democratization. 218 According to de Lisle,

The opening of new areas (both geographic and substantive) to American influence, the removal of the principal rivals to US power and American-supported ideologies, and the seemingly sweeping embrace of principles that official and unofficial US actors have seen as congenial (or

215 John Gerard Ruggie, At Home Abroad, Abroad at Home: International Liberalisation and Domestic Stability in the New World Economy, 24 MILLENNIUM 510 (1995) at 516; BRUCE STOKES AND PAT CHOATE, DEMOCRATIZING US TRADE POLICY (Council on Foreign Relations Paper, 2001) at 37: "In the 21st century, trade negotiations and international commercial agreements are less and less about tariffs, quotas, and other formal at-the-border impediments to foreign commerce, and more and more about domestic regulatory environments and how they impede or enhance international competition." 216 See also Simmons and Elkins, 2000, supra (at 3), who argue that their data "provides strong prima facie evidence that liberalization is in some sense 'contagious.'" They later suggest that "social networks may complement or even supplant economic explanations in important ways, especially if we alter our assumptions about the nature of the information environment in which policy decisions are made…contacts at the intergovernmental level may reflect network effects: frequent intergovernmental meetings at multiple official levels can transmit information to policymakers about 'what works' in other settings." Id at 9-10. 217 Galanter and Trubek, supra. 218 De Lisle, 1999 supra at 180-1.

46 even as proprietarily American) thus have provided the setting for countless US legal export- promotion and advice-offering activities…219

These developments also suggest that, ceteris paribus, US legal export efforts should be more effective now than they have been in the past. With regard to the three cases I have described, the degree to which active efforts at regulatory export are the cause of observed policy change is uncertain--and will remain so in the absence of substantial empirical research and longer timescales to gauge impact. But it is implausible, and inconsistent with the evidence that does exist, that the export efforts of the SEC, DOJ, FTC, and EPA have had no impact on foreign regulators.220 Indeed, the one extensive empirical study of the impact of the US foreign technical assistance efforts relevant to this article, in the area of competition policy, found the impact to be sustained and significant.221 Other evidence, as described in Part III, is largely anecdotal but is consistent with the claim that TGNs incrementally re-cast and socialize domestic regulatory bureaucracies. Important components of Mexico's environmental enforcement and compliance assurance program are now modeled on that of the US; the securities regulatory structure of many emerging markets parallels that of the US in important respects; and both the US, EU, and Japanese models of competition have been embraced by various developing (and industrialized) states around the world.222 On the other hand, "importing" jurisdictions inevitably alter models from abroad. The Japanese Constitution, designed by the US during the occupation, clearly operates differently than intended. Other historical examples suggest that some export efforts are entirely wasted.223 The degree of indigenous adaptation will vary in each country and, in all

219 Id. at 181. 220 The DevTech evaluation, at supra note X, analyzed the activities of DOJ and FTC staff in Eastern and Central Europe. That report assessed the program very positively, calling it "extraordinarily effective" and have achieved a "very high degree of sustained impact." DevTech at i. Moreover, the report argued that "The American advisors' extensive role in helping draft or amend relevant laws was freely acknowledged and universally appreciated. In no country had there been a subsequent attempt to weaken or repeal the laws drafted with their help." Id at 7. 221 Id. 222 Part III, supra. As Fox notes with regard to export efforts by the US and EU, while different techniques are used in some cases, "the common vehicle is advocacy in the course of advice and technical assistance for implementing competition laws." Fox, NYULR at 1799. 223 De Lisle.

47 likelihood, over time as well. One critical factor, discussed further below, is the incentives importers face to emulate regulatory practices in the US and other powerful jurisdictions.224 The stronger these incentives, the more likely is successful regulatory export (or, at the limit, the less likely is the need for active export efforts).225 In the remainder of this Part I discuss the relationships between TGNs, regulatory export, and policy convergence. I then present an account of this process that draws on the concept of network effects in economics.

B. Mimesis in the International System

The international emulation of institutions has been analyzed in many other contexts. Arnold Toynbee long ago termed this "mimesis": "the reception and adoption of elements of culture that have been created elsewhere and have reached the recipient by a process of diffusion."226 Paul DiMaggio and Walter Powell influentially advanced several hypotheses relating to organizational homogeneity and "institutional isomorphism," many of which apply to international processes.227 Others have examined "policy bandwagoning" and "social learning."228 And, as noted, legal scholars have argued that the US has undertaken an

224 Simmons, 2001, supra. 225 Id. 226 ARNOLD J. TOYNBEE, A STUDY OF HISTORY: RECONSIDERATIONS (VOLUME 12, 1948) at 343. 227 Paul J. DiMaggio and Walter W. Powell, The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields, 48 Am. Soc. Rev. (1983). ("isomorphism is a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions." Id at 149). 228 G. John Ikenberry, The International Spread of Privatization Policies: Inducements, Learning, and "Policy Bandwagoning," in THE POLITICAL ECONOMY OF PUBLIC SECTOR REFORM AND PRIVATIZATION, (E. SULEIMAN AND J. WATERBURY, EDS., 1990). The social learning concept was first introduced by Ernst Haas. Haas, Why Collaborate? Issue-Linkage and International Relations, 32 World Pol. 357 (1980). The spread of Keynesianism in the mid-20th century has also been analyzed as a process of policy and ideational diffusion. THE POLITICAL POWER OF ECONOMIC IDEAS: KEYNESIANISM ACROSS NATIONS (PETER HALL, ED., 1989). More recently, students of advocacy have described "a model of transnational change that is not just one of 'diffusion' of liberal institutions and practices, but one through which the preferences and identities of actors engaged in transnational society are sometimes mutually transformed through their interactions with other." MARGARET KECK AND KATHRYN SIKKINK, ACTIVISTS BEYOND BORDERS (1998) at214.

48 "extraordinarily ambitious and multifaceted drive…to transplant laws and legal ideas and to foster legal reform or development abroad." 229 I draw on and extend these notions of diffusion by examining a specific, contemporary manifestation of diffusion: the export of regulation via TGNs. This form of legal export is similar to the more general legal export described by analysts such as de Lisle. 230 But much of the 1990s wave of legal export efforts focused on legislation rather than institutional capacity. 231 The activities described in this article address legislation, but go well beyond to touch on issues such as the structure of enforcement and the training of personnel. This an important distinction that previous analyses suggest may render the impacts of export much more lasting and consequential.232 Before going further, it is important clarify the relationships among three concepts referred to above: regulatory export, TGNs, and policy or institutional convergence. Regulatory export can occur without a TGN. Neither conscious emulation nor explicit attempts at regulatory diffusion are necessarily dependent upon the existence of TGNs. Nor is the existence of a network sufficient to produce efforts at export or import. But the cases described in Part III, as well as deductive reasoning, suggest that TGNs promote these dynamics. TGNs provide a means for transfer of ideas and policies. TGNs also, as I will argue further below, increase the gains for states to engage in mutual capacity-building efforts. Building capacity and disseminating regulatory approaches is particularly advantageous if both parties to the transaction plan to cooperate on regulatory matters and enforcement actions in the future. Institutional and policy convergence in turn is an outgrowth of regulatory export. But just as a TGN is neither necessary nor sufficient for regulatory export to take place, convergence can occur with or without a TGN, and with or without active efforts at regulatory export. Convergence is a controversial topic in international political economy.233 It is often attributed

229 deLisle, supra, at 180. 230 De Lisle, supra. 231 Id. In his survey of various US legal export efforts, de Lisle argues that four conditions accentuate the impact of legal export: the exercise of power by the US that presses the recipient state to conform to US standards; high regard in the importing state for the US law(s) in question; low political controversy over the substantive issues; and a relatively small gap between US-favored standards and pre-existing indigenous rules. Id. at 274 232 Id. 233 [cites

49 to broad pressures resulting from globalization, though some studies case considerable doubt on this claim.234 This article does not challenge any of these claims; rather, I argue that processes of regulatory export, which are facilitated and fostered by TGNs, aim to, and often succeed at, producing some convergence. The convergence that occurs may be simple, as when one jurisdiction creates a regulatory agency for the first time, and in so doing broadly converges its (previously implicit) policy and institutions with those of other states. Or convergence may be deeper, as when the Visegrad states explicitly adopted EU-style competition laws. Convergence is interesting in its own right, but it also has important implications for the future architecture of cooperation. These implications are considered in Part V below. In the remainder of this part, I focus on regulatory convergence in the context of TGNs.

C. Incentives for Diffusion and Convergence

Policy externalities, fed in part by expanding economic interdependence, create much of the need for TGNs. From the perspective of US regulators, enforcement is the major driver of transgovernmental cooperation.235 Cooperating directly with peer regulators in other jurisdictions permits US and other regulators to maximize their ability to fulfill their domestic mandates and enforce domestic law. Transgovernmental cooperation helps to preserves regulators' power in the face of increasing economic interdependence.

1. Leaders and Followers.

Beth Simmons has recently proposed a framework for the study of harmonization in financial markets which usefully categorizes the incentives of regulators in areas in which regulatory power is asymmetric.236 Simmons’ analysis treats the US as a dominant player who innovates in capital market regulation based purely on domestic concerns.237 Other jurisdictions

234 Simmons and Elkins, supra. 235 Interviews. 236 Simmons 2001. 237 "US regulators can be thought of as unconditional first movers: financial regulatory innovation will be motivated by and respond to internal regulatory needs and politics." Id at 595, emphasis in original.

50 react to this innovation based on the degree to which they face functional incentives to emulate it; these reactions then produce policy externalities for the dominant player. How the dominant regulator in turn reacts to these externalities helps explain the type of cooperation that occurs. The following figure illustrates Simmons’ core argument:

insert Simmons matrix here.

Simmons' framework explains many aspects of capital market regulation. It also has important implications for transgovernmental theory. Consider first the cases Simmons identifies as falling in Quadrant I. In these cases, TGNs, by facilitating information flow and technical assistance among jurisdictions, may play a role alongside some forms of liberal internationalist institutions. In Quadrant II TGNs are unlikely to be important because of the need for more overt political pressure to stem the incentives of weaker jurisdictions to reject the dominant jurisdiction's regulatory choice. Simmons' primary example here is money laundering. In Quadrant III her analysis predicts that TGNs may play a subsidiary role in propelling what is largely a market driven process. Accounting rules are an example: firms eager to be listed on US exchanges will adopt US accounting practices on their own. As the number of firms doing so grows, the incentives for other states to codify the US standard grows. TGNs can provide some political cover for this convergence process by masking the emulation of US rules in a quasi-multilateral framework (that of IOSCO).238 Quadrant IV is where TGNs are most likely to be significant. While Simmons' framework predicts a minimal role for multilateral institutions and no policy harmonization, she in fact finds this area is the "most uncomfortable fit" for her model.239 In her words,

238 Id. at 611. 239 Id. 616.

51 The framework suggest little harmonization and a minimal role for multilateral institutions. The first part of this expectation is not quite met here: the issue area is in fact characterized by a series of bilateral agreements that represent a segmented form of harmonization. The prediction for the role of multilateral institutions does hold up. The relevant institution in this case is [IOSCO], a relatively passive organization whose primary role has been to encourage regulators to negotiate and fulfill bilateral information-sharing agreements. It also provides technical advice where necessary and offers "model agreements" to interested parties…240

Moreover, she notes that despite her expectations

Clearly, there are some moderate externalities associated with the prosecutorial practices in other jurisdictions…the key point here that negative externalities are easily targeted; it makes sense in this case to negotiate agreements that constitute bilateral "club goods" that provide benefits (mutual access to information) for members only.241

Simmons’ amended analysis is broadly consistent with the analysis of this article. In situations where the incentives to create traditional international institutions are very low, Simmons' schema predicts little cooperation or policy harmonization. Yet empirically she finds a higher level of cooperation. The best account of that fact is that globalization, by increasing externalities, has also increased the gains from certain forms of cooperation and policy convergence—in particular enforcement efforts that involve the assistance of foreign jurisdictions. The rise of TGNs--for all the reasons elucidated in Part II, and as Simmons argues in part--provides a new and attractive form for this cooperation to take. Hence in practice the chosen cooperative response in securities law is a moderate degree of transgovernmental cooperation, broadly guided by IOSCO, and organized around technical assistance and bilateral MOUs. Put differently, TGNs appear to perform a gap-filling role where the incentives for liberal internationalist solutions are weak. In situations that fall within Simmons' Quadrant IV,

240 Id at 613-614. 241 Id at 613-614.

52 rather than little or no cooperation, as a straightforward focus on international institutions would suggest, there is a moderate degree of transgovernmental cooperation. But an equally important point is that this TGN activity is concentrated in particular issue-areas, not spread across the spectrum of potential cooperative issues. As Pollack and Shaffer note in the transatlantic context, the "new world order of governance by [TGNs] is limited to specific issue areas…" 242 These issue-areas are those that fit within Quadrant IV, and to a lesser degree within Quadrants I and II. Elsewhere, this logic suggests, TGNs are unlikely to arise, and if they do are unlikely to play important roles. This is hypothesis is testable; such testing will help to better establish the limits of transgovernmental cooperation.

2. Convergence.

US regulators believe that regulatory convergence generally improves and fosters transgovernmental cooperation. For example, Douglas Melamed of the US DOJ Antitrust Division recently stated that "cooperation in specific cases 'can be successful only among countries which have relatively similar legal systems [and] common economic experience and trust each other.'"243 In Melamed's view, cooperation can in turn encourage the evolution of “common views and understandings” about substantive and procedural issues, facilitating shared enforcement responsibility and leading to still deeper cooperation.244 Similarly, a top FTC official stated that "the constant contacts [with foreign regulators] enable us to understand each other's analysis, lead to convergence in our approaches toward competition matters--in some

242 Pollack and Shaffer, Who Governs?, in Pollack and Shaffer, 2001 at 298. 243 Melamed (WTO address), quoting Frederic Jenny, at 20. 244 Id at 5. As the DevTech study describes with regard to antitrust regulation, "A Lithuanian staff professional described, for example, how the American advisors had "opened her eyes" to the difference between regulation or prevention of price 'speculation,' versus assuring that the prices advertised were not deceptive. This type of change in 'mentality' or outlook, resulting from interaction with the American advisors,was described frequently by staff in respect to their understanding of key competition and consumer protection concepts, such as product and geographic market definition, barriers to entry,price collusion [etc.]. Its importance for sustainability lies first in the fact that these concepts underpin the fundamental re-orientation of the public sector institutions being assisted. Second, it was clearly the case that the persons who described their understanding of the concepts conveyed by the American advisors were quite capable of training other staff in these concepts." DevTech supra at 8.

53 measure due to an increasingly common economic analysis--and benefit parties insofar as we are often able to arrive at complementary remedies."245 Consequently, for jurisdictions like the US regulatory export is likely to be beneficial because it permits greater and deeper cooperation across borders, which in turn renders US regulators' domestic tasks easier.246 To be sure, US regulators do not always favor convergence. But often convergence is attractive. Differences in procedural rules, for example, can be major impediments to regulatory cooperation. Different requirements and timelines for merger review, for instance, inhibit cooperation among competition regulators.247 Convergence in environmental regulations can reduce transboundary spillovers that exacerbate local pollution problems, if the convergence is broadly upward. (Convergence downward would create more spillovers). Differences in confidentiality rules similarly constrain the degree to which US regulators can actively cooperate with foreign regulators.248 As the Department of Justice ICPAC Report notes with regard to a US-Australian competition agreement, “from a US perspective, it was feasible to enter into such an agreement with Australia because of two features of the Australian system. First, Australia has a strong regime of confidentiality laws that will protect non-public information obtained from US companies. Second, its laws authorize entry into agreements under which such information may be exchanged in antitrust matters.” Perhaps the most basic, but highly important, issue of policy convergence in practice is the requisite legal authority to cooperate meaningfully with foreign regulators. In securities, for example, the US enacted legislation in the late 1980s that permitted the SEC to provide information and assistance to foreign regulators pursuing fraud enforcement actions.249 Hong

245 Debra Valentine, General Counsel of the FTC, commentary at a 1998 American Bar Association panel, cited in Knight, supra, at 30. 246Melamed address at 5 supra. As the DOJ ICPAC Report notes, “Substantive and procedural differences between the US and non-US legal systems can also generate frictions between nations.” ICPAC Report, Annex 1-C at 3. See also Slaughter, Agencies on the loose at 540 ("[MOUs] have led not only to greater cooperation between states, but also to more effective enforcement of the antitrust statutes of both parties.") 247 Merit Janow, 'Soft Harmonization' and Multilateralism, in Bermann, et al 2000 at 258. 248 The ICPAC Report, Annex 1-C, notes that the US entered into it’s first and only IAEAA agreement with Australia in 1999: 249 the Insider Trading and Securities Fraud Enforcement Act of 1988, Pub. L. 100-704, 102 Stat. 4677 (1988) and the International Securities Enforcement Cooperation Act of 1990, Pub. L. 101-550, 104 Stat. 2714 (1990).

54 Kong did the same in the early 1990s;250 the United Kingdom in 1990.251 “Numerous jurisdictions have enacted legislation that has facilitated cooperation among securities regulators; these enactments are similar, to varying degrees, to the facilitating legislation in the [US].”252 These enactments typically require reciprocity by the requesting jurisdiction. While regulatory convergence can enable regulators to better achieve their domestic mandates, it may also benefit firms.253 Convergence benefits firms and investors to the degree it renders disparate regulatory landscapes similar, and provides regularity and predictability across borders.

3. Distributional and Other Issues.

It is important to underscore that the strategic interactions Simmons presents is not the entire story of regulatory convergence: US regulators also typically believe in the efficacy of their own regulatory models and seek to diffuse them for this reason. Indeed, interviewees at times spoke of the “gospel” of their regulatory system and the normative desire to export that gospel.254 Thus both the belief in substantive regulatory superiority and the advantages of regulatory convergence for domestic regulatory needs appear to drive regulatory export processes. A second, and more critical point, is that in practice the common understandings that US regulators refer to are not neutral: they reflect specific national practices and thus have distributional implications. As Saskia Sassen argues:

[A]n enormous amount of government work has gone into the development of standards and regimes to handle the new conditions entailed by economic globalization. Much work has been

250 Teo, supra at 39. See also Speech by Helen Lee, Director of Enforcement, Hong Kong Securities and Futures Commission, 18 August 1997, at http://www.hksfc.org.hk/eng/press_releases/html/index.html (visited Nov. 2 2001). 251 Id at 41 252 Id. At 43 253 This is not to ignore the losses, from a social perspective, inherent in convergence. Regulatory competition has many advantages; for an example of a pro-competitive argument relevant here see. eg. Stephen J. Choi & Andrew T. Guzman, Portable Reciprocity: Rethinking the International Reach of Securities Regulation, 71 S. CAL. L. REV. 903 (1998). 254 Interviews…

55 on competition policy and on the development of financial regulations, and there has been considerable willingness to innovate and to accept whole new policy concepts by governments around the world. The content…is clearly shaped by the frameworks and traditions evident in the North Atlantic region…[but] we cannot simply speak of “Americanization” since in some cases Western European standards emerge as the ruling ones.255

As regulators in the US or EU persuade other jurisdictions to develop or modify regulatory laws and practices, they frequently encourage the replication of their regulatory structures. Regulators in developed jurisdictions may benefit from learning about innovations abroad. 256 But the degree to which the US (or the EU, or Japan) is an importer rather than exporter appears quite limited. What incentives exist for weak jurisdictions to import regulation? In a complex and uncertain economic environment, the strategy of adopting successful foreign models reduces costs.257 As Birdsall and Lawrence argue, importing jurisdictions do not bear the (often considerable) costs of creating the regulatory institutions they adopt.258 While these institutions “may not match domestic conditions precisely…[they] are ready-made, pre-tested, and provide international compatibility.”259 Foreign regulatory rules and systems also may come "pre- interpreted"--with a body of case law and other decisions that have elaborated and improved the rules over time.260

255 Sassen, 2000 at 96. Paralleling the argument made here, Portnoy asserts that “For the most part, LDCs [Less Developed Countries] imitated western competition rules. However, imitation implies independent choice…Instead, antitrust ideas and institutions were transferred through a well-organized transnational dialogue between antitrust experts and willing LDC policymakers.” Portnoy, 2000 at 108-9. 256 The EPA, for example, has argued that "EPA staff…benefit from working with partners outside of the US. International capacity-building programs expose staff to alternative approaches to environmental management and, in turn, help inject creativity and innovation into our domestic programs." EPA, Best Practices for EPA's International Capacity Building Programs: Report of an EPA Task Force (November 1999) at 8. 257 Giandomenico Majone, Cross-National Sources of Regulatory Policymaking in Europe and the United States, 11 Journal of Public Policy (1991) 258 Birdsall and Lawrence, 1999, supra at135-6. 259 Id. Birdsall and Lawrence do not discuss networks per se. 260 I thank Damien Gerardin for making this point.

56 To be sure, when the costs of regulatory change are high, the benefits to importers may not suffice to justify change. But where the costs of change are low--or zero, as in the case of a newly created regulatory system--there can be substantial gains from choosing off-the-shelf regulatory models. "The costs of independent invention (including the 'trial and error' of pursuing blind alleys already explored by others or the expenses of devising genuinely new laws and institutions) can easily outweigh the expected marginal gains from an indigenously crafted arrangement that might better suit local needs and circumstances."261 Regulators also gain power and prestige through their association with foreign regulators.262 As they do so, they may consciously or unconsciously import regulatory models. DiMaggio and Powell argue that "organizations tend to model themselves after similar organizations in their field that they perceive to the more legitimate or successful."263 In their early work on transgovernmentalism, Keohane and Nye argued that "coalition building" was a central aspect. By coalition-building, they meant agencies building "coalitions with like-minded agencies from other governments against elements of their own administrative structures."264 The prestige that foreign regulators can offer can help regulators, particularly those in newly- created agencies, to increase their own political power. Perhaps most importantly, in some cases regulators in foreign jurisdictions will import innovations from leading jurisdictions because of market pressures, as Simmons’ analysis argues. Firms in a global market will foster convergence on particular regulatory rules, such as accounting rules, in order to reduce the transaction costs of multinationality. They may also pressure governments toward a perceived optimum rule. And they respond to assertions of extraterritoriality from jurisdictions such as the US--a particular issue in the competition law context.265 The debate on races to the bottom and the top is long; the key point here is simply that where races to the top do occur, regulators are often "importing" regulatory rules.266 Where 261 De Lisle, supra at 289; see also Birdsall and Lawrence. 262 Simmons and Elkins, supra, note a process of "social emulation" that is related to that discussed here. Most interestingly, that claim that states that share the same religion (a proxy for many social and cultural ties) also share many policy orientations. Id. at 19. 263 DiMaggio and Powell, supra at 152. They also stress the importance of professionalization and professional norms--for example, among economists involved in securities regulation. Id. 264 Keohane and Nye, 1974 at 44. 265 See e.g Fox, NYULR at 1799. The US has a long history of asserting extraterriorial effect for the Sherman Act. See e.g Hartford Fire [x] 266 Vogel on the california effect.

57 these kinds of market pressures are neutral or uncertain, the factors discussed above will play a larger role in driving the choice to import regulatory rules. Collectively, these varied incentives to import help offset some important countervailing concerns—such as sovereignty costs—that surely exist.267

4. The Theory of the Regulator

The preceding discussion of regulatory export and transgovernmentalism does not rest explicitly on a specific motivational theory of regulators, such as the public choice conception of regulators as self-interested utility maximizers.268 Rather I have presented a wide-ranging set of reasons why regulators from both putative exporting jurisdictions and putative importing jurisdictions might participate in TGNs and might seek to try to export or import regulatory models. While my approach has been catholic in terms of motivation, it is not inconsistent with either a public choice or a public interest theory of regulators.269 The public choice approach, for example, suggests that regulators create and participate in TGNs to strengthen their power vis-à- vis political rivals and regulatees--and perhaps to collude among themselves in the process. (Regulators even might engage in TGNs, and specifically technical assistance programs, because they represent nothing more than a nice travel perk.)270 The public interest approach suggests that

267 I borrow this phrase from Kenneth Abbott and Duncan Snidal, Hard and Soft Law in International Governance, INT'L ORG. (2000). As Giandomenico Majone argues, “an agency that sees itself as part of a transnational network of institutions pursuing similar objectives and facing analogous problems…is more motivated to defend its policy commitments and professional standards against external influences.” By external, Majone means actors outside the regulator’s field of expertise, such as politicians or other agencies. Giandomenico Majone, International Regulatory Cooperation: A Neo-Institutionalist Approach, at 138-9 in Bermann, et al, 2000 supra 268 Macey. 269 A public choice approach might push toward even more focus on the venal motives that regulators may have. Tto be sure, for example, some measure of participation in a transgovernmental network, and specifically in technical assistance programs, is likely generated simply by the desire to interact with foreign officials and travel to other countries. But that incentive, while casting doubt on the motivations of putative importers, does not necessarily imply that legal export is unlikely to succeed. 270 This might underlie a sizeable chunk of international law-making in many areas; as John Jackson wrote about the international trade order, for example, "the chance to go 'tooting off in private jets to negotiate with other national leaders at comfortable locations or three-star restaurants' is a key plum of otherwise dull government jobs, a high government ex-official once

58 regulators, as rational problem-solvers, use TGNs to address the negative externalities of economic interdependence. Both these approaches are broadly consistent with the case studies I have described.

D. Explaining Transgovernmentalism and Regulatory Export

Despite the connection between TGNs and central issues on the global agenda such as regulatory convergence, there are few positive theories of transgovernmental regulatory cooperation.271 Building on the cases charted above, I propose an account of the pattern and process of transgovernmentalism and regulatory export. This account builds on theories of network effects in economics.272 I do not claim to fully "explain" transgovernmental cooperation--a task that requires extensive and difficult cross-national research. Moreover, the research design of this article--in which I have selected cases where TGNs (and US regulatory agencies) are active--does not permit any firm causal claims.273 Rather, in order to advance our understanding of transgovernmentalism, I present an explanatory schema that is suggestive and, in principle, testable. This account addresses the causality of regulatory export through TGNs. This account is not inconsistent with the framework Simmons’ presents; it presents an alternative and largely complementary set of incentives that are operate most powerfully when the incentives to create liberal internationalist solutions to interdependence problems are weak.

1. The Economic Theory of Network Effects

indicated." JOHN H. JACKSON, THE WORLD TRADING SYSTEM: LAW AND POLICY OF INTERNATIONAL ECONOMIC RELATIONS (1989) at 84. 271 Exceptions include Slaughter 1997; Zaring, 1998. 272 Michael L. Katz and Carl Shapiro, Network externalities, competition, and compatability,75 AM. ECON. REV. 2 (1985). 273 This paper has explored a relatively new and largely unstudied phenomenon. As a result, the paper has both descriptive and causal goals. For the latter, because I have in effect selected on the dependent variable (networks in which regulatory export has been promoted or taken place) my claims are necessarily limited to proposing plausible causal arguments that could be tested through future cases. See generally King, Keohane and Verba, supra, Chap 4.

59 My account is based on the thesis that the attributes of networks--in particular, the role of network effects as they are understood in contemporary economics—can help explain why states engage in regulatory export and import. 274 In other words, the form of organization has specific attributes that help explain behavior within it. Network effects exist when "the utility that a user derives from the consumption of a good increases with the number of agents consuming the good."275 Networks can be evaluated along a continuum, with actual (literal) networks at one extreme, simple positive-feedback loops at the other, and "virtual" networks in between.276 The telephone system is an actual network: one phone is worthless, only valuable when directly linked with others. The more phones, the more valuable each phone is. Actual networks are empirically rare. Positive feedback loops are essentially economies of scale. Virtual networks exist when increasing numbers of members increases the utility of other members, even though a single item or member is not useless. Computer software exhibits virtual network externalities: a program on its own is useful to the owner, but one shared by millions of other is far more useful. Credit cards and languages also exhibit virtual network characteristics.277 For the purposes of article, the notion of virtual networks is most applicable. But it is worth underscoring that TGNs are at the limit of what we might consider virtual networks. While analogizing TGNs to the general class of virtual networks involves a high degree of abstraction, it yields some interesting insights.

274 This account is basically functional. "Functional explanations in social theory are generally post hoc in nature. We observe such institutions and then rationalize their existence. Rational- choice theory, as applied to social institutions, assumes that institutions can be accounted for by examining the incentives facing the actors who created and maintained them. Institutions exist because they could have reasonably been expected to increase the welfare of their creators." Keohane, 1984, supra at 80. 275 Katz and Shapiro, 1985 supra. 276 Lemley and McGowan, supra, 13-23; Michael L. Katz and Carl Shapiro, Systems Competition and Network Effects, 8 J. ECON. PERSP.1 (1994). 277 See Lemley and McGowan, supra at 15, 20. As with other virtual networks, languages demonstrate a quasi-standard-setting dynamic when coupled with interdependence. As global interdependence has grown, two noteworthy effects have occurred: English has become the de facto international standard, and many of the world's languages have begun to disappear as potential new speakers instead learn more widely spoken languages such as Spanish. More than 50% of the world's languages are in danger of dying out in the next century. See Cultural Loss Seen as Languages Fade, NEW YORK TIMES (May 16 1999 A12, Nat. Ed.)

60 The concept of network effects is important because it challenges a central tenet of economic theory: that returns to scale diminish.278 In a setting characterized by network externalities returns to scale increase rather than decrease. The more individuals that have the same or compatible software, for example, the more useful that software is. Networked markets as a result exhibit "lock-in," or "tipping" effects: once a standard emerges it can rapidly dominate a market. Once that occurs there is little incentive for actors to change standards, even if a more efficient alternative exists.279 This set of claims has important implications for international cooperation and the rise of TGNs.

2. Tipping, Standard-Setting, and Policy Convergence in Transgovernmental Cooperation.

The notion of tipping or lock-in is central to network economics. For example, the videotape market is a virtual network. VHS and not Betamax is the dominant standard in videotape. This is not because VHS is the superior technology, but because VHS secured more "members" in its network--more owners of VHS-compatible VCRs, more films, and so forth-- and tipped the market in its favor. While an entirely new technology, DVD, may dislodge videotape altogether, it is unlikely that another videotape standard will dislodge VHS. Similarly, the continued dominance of the QWERTY keyboard has frequently been taken to demonstrate (with some controversy) that in networked markets inferior technologies can thrive and persist if they attain sufficient market dominance.280 Consequently, one hypothesized result of this form of pathdependence is first-mover advantages. As Lemley and McGowan claim, when network effects are present, "being the first seller in a market may confer an important advantage over later entrants."281 Transposed to international law, the concept of network effects helps illuminate why both powerful and weak jurisdictions which are members of TGNs might engage in regulatory export and import. TGNs are characterized by extensive sharing of information, coordination of

278 Lemley and McGowan at 23. 279 Id at 26-27. 280 Paul A David, Clio and the Economics of QWERTY, 75 Am Econ. Rev. 332 (l985); but see SJ Liebowitz and Stephen Margolis, The Fable of the Keys, 33 J. L. & Econ. (1990). 281 Lemley and McGowan at 24. As they note, this may make risky strategies, such as predation, rational.

61 enforcement efforts, and joint policymaking activities. These activities plausibly exhibit network effects: the more regulatory agencies that participate in coordinating and reciprocating enforcement efforts, for example, the better off are all the other agencies. To the degree these network effects exist, they create incentives for weak jurisdictions to import regulatory models in line with the emerging international "standards" in regulation, and for powerful jurisdictions to try to export their standards. By adopting the emerging standards (understood here as rules, policies, enforcement practices, and the like), regulators maximize the depth of their engagement with other regulators and the effective reach of their own regulatory efforts.282 As de Lisle argues, for seemingly technical, apolitical regulatory laws and standards, "[e]mulating US examples or following US prescriptions can seem to involve either making no choice at all or making the only instrumentally rational choice."283 As Simmons demonstrates, the dominance of the US in a given policy arena is one reason this can be true; the existence of network effects is another. These two arguments are not mutually exclusive, but rather are complementary. US dominance (or any marked asymmetry in regulatory power) can be reinforced by the presence of network effects. For powerful jurisdictions--the regulatory standard-setters--export efforts increase the number of jurisdictions with which the powerful state can usefully cooperate. If US officials like Melamed are correct that "cooperation in specific cases can be successful only among countries which have relatively similar legal systems," then the more jurisdictions resemble the US, the more cooperation can take place. (Adding to these incentives is the belief that regulatory export increases the welfare of national firms.)284 For weak states, and especially for states newly adopting regulation in a particular area, the import of regulatory rules and structures in line with those in dominant states may be "the price of admission" to the valuable benefits provided by the TGN. Particularly when regulatory bodies are new, the costs of change may be neglible (or zero, or even negative, if the jurisdiction is introducing regulation for the first time). These costs are likely to be outweighed by the benefits of rough harmonization with others in the TGN.

282 See [this part, subsections b/c supra] 283 De Lisle, supra at 286. 284 See Part III, supra.

62 It is important to underscore that network effects arguments highlight tipping and convergence, but they do not imply that multiple regulatory standards are impossible. In fact, the more a network is virtual rather than actual, the more likely are multiple standards.285 But they do imply that convergence on one or more standards is likely and this convergence is likely to be relatively sticky. Once actors in a network setting adopt a standard, switching to a new standard requires extensive and costly (and hence rarely achieved) collective action. Network tipping or lock-in effects suggest at least two additional things. One, even if switching regulatory structures and processes to approximate a new potential international "standard" is beneficial on balance for a given state, processes of tipping may occur in which a less efficient standard dominates a more efficient one. That is the stylized Betamax story (or, in the view of many Mac users, the Macintosh-wintel story): network externalities permit inferior technologies to defeat superior technologies.286 Consequently, and this is vitally important, the stickiness network effects produce is, in aggregate welfare terms, indeterminate. Two, as the term lock-in implies, deviation from the standard is costly for an individual actor. Thus unlike a international institution in which defection from the agreed standard is a central problem,287 if network effects exist cooperation in TGNs may resemble coordination games, which are largely self-enforcing. Slaughter, for example, has previously argued that agreements to cooperate among regulators are self-enforcing. 288 Network effects help explain why that is likely to be true.

3. Distributional Issues

In short, in this account, regulatory export within TGNs occurs because of the gains to reaped through a regulatory analog of "interoperability.” The existence of a TGN creates incentives for jurisdictions to seek convergence. Powerful jurisdictions compete as standard-

285 Lemley and McGowan at 173. Moreover, the note that "Network effects are not always absolute; sometimes multiple products can each build a core of users with its own partial network effect." id. 286 But it is still often superior, from a welfare perspective, to an inferior standard than to have no standard at all. Arguably that is the case in both these examples, though it may not be so in other cases. 287 [some IR cite] 288 Slaughter, 1997?

63 setters; weak jurisdictions often import these standards. This account can help explain why TGNs form and persist,289 while it also helps explain why convergence occurs among members. Exporting jurisdictions reap the gains of convergence around their preferred outcome (avoiding the costs of change in the process) and the gain the benefits of access to a wide array of peer regulators. Importing jurisdictions gain access to peer regulators, but bear the costs of change. Yet, because they are often newly formed or in the process of formation, importing jurisdictions can gain rather than lose from the adoption of tested, off the shelf regulatory rules and processes.290 Moreover, the import of US regulation not only assists a new jurisdiction in cooperating with the US; by extension, it promotes cooperation with other, similarly-situated jurisdictions that also embrace US approaches. Consequently, this account addresses the distributional consequences flowing from the choice of one regulatory "standard" over another. Functional theories of international institutions have been criticized for overly-concentrating on "the cheating problem," failing to account for distributional concerns, and thus failing to explain where on the Pareto frontier cooperation ultimately rests.291 But a network economics-based theory of TGNs suggests that first-mover advantages can help explain observed distributional outcomes. In markets with network effects, being first in a market and establishing the dominant standard often provides important advantages over later would-be standard-setters.292 Transposed to international

289 In transaction cost-based functional theories of international institutions, such as that of Keohane, the institutions of interest are international. Here, while networks are in some sense international, the institutions of interest are largely domestic. Because the institutions involved in networks are domestic and have a dual role--both internal and external--the costs of change are much higher than for purely international institutions. If this is true, the policy changes associated with network-induced regulatory export may be more robust--or rigid--than comparable policy adjustments associated with the operation of traditional international regimes for two reasons. First, networks promote lock-in around a standard. Second, because the location of the change is domestic regulatory bureaucracies, institutional stickiness may be greater than the institutional stickiness associated with international institutions. 290 As Ikenberry argues, often the guiding rule for states is "copy what works." Ikenberry 1990 supra at 103; see also Birdsall and Lawrence; supra; Di Maggio and Powell, supra. 291 Krasner, 1991 292 Stanley Besen and Joseph Farrell, Choosing How to Compete: Strategies and Tactics in Standardization, 8 J. ECON. PERSP. 1 (1994). Because the returns to the standards-winner will be higher in a network market than in normal markets, risky strategies such as predation can be rational in a networks market where they would irrational elsewhere. Mark A. Lemley, Antitrust and the Internet Standardization Problem, CONN. L. REV. 28, 4 (1996)

64 relations, first-mover advantage implies that those regulators who engage in TGNs and seek to export their regulatory models first will set the international regulatory standard and reap whatever distributional gains that come from being the standard-setter. In this conception, regulatory bureaucracies in other states are converging on US or EU regulatory models via the operation of TGNs not only because those models are the most efficient, or because the US is using its power directly to coerce other regulators, but also because US and EU regulatory agencies are the most actively engaged in TGNs and are exporting their models to foreign regulators. Lastly, the incentives to export or import regulatory structures described above revolve around the advantages of convergence. They ignore the possibility that the exported regulatory rules are objectively, normatively superior. To the degree that US regulatory rules are objectively superior--an obviously contested notion, but one that might garner significant assent in the US--the global benefits of regulatory export are even greater.293

* * *

To be sure, regulatory "standards" are different than software standards; TGNs are certainly a very weak form of virtual network. Consequently, the arguments above are largely metaphoric. But nonetheless there are comparable elements in TGNs and virtual networks, and both deductive arguments and empirical evidence suggest that regulatory agencies are likely to be better able to cooperate on a wide range of issues if they are similarly-structured than if they are differentially-structured. Given this, an assumption of weak network effects is plausible. Analogizing to network economics provides a theoretical basis for a novel account of TGNs and regulatory export. Clearly there are other possible accounts; the pattern described in Part III of this article is also consistent with many aspects of realist as well as constructivist theories in international relations.294 But the network-effects-based account advanced here, which reflects the particular organizational form highlighted by transgovernmentalists--networks, not hierarchies--provides a fruitful range of hypotheses for future research.

293 The belief that US antitrust, environment, and securities rules are generally the best in the world appears common both among regulators and among US-based scholars. 294 On realism and constructivism see Hasenclever et al, supra.

65 V The Implications of Transgovernmentalism for Future Cooperation

Transgovernmental cooperation is an evolving phenomenon. For the foreseeable future, whatever development of TGNs takes place will occur against a rich backdrop of liberal internationalist cooperation.295 Consequently, a key question is whether liberal internationalism will remain the dominant form of cooperation in the 21st century, or whether alternative architectures, such as transgovernmentalism, will move to the fore. As Mark Pollack and Gregory Shaffer ask in the context of transatlantic economic cooperation, "are we witnessing the development of a new form of governance by transgovernmental networks?"296 The cases in this article, as well as the growing body of research on transgovernmentalism, suggest that the answer is a guarded and qualified yes. If so, what are the implications for international cooperation as we now know it? Treaties are the core of contemporary international law. They are the foundation for liberal internationalist cooperation, and hence an important site for consideration of transgovernmentalism's influence. Do TGNs improve the effectiveness of treaties? Will TGNs reduce the importance of treaties as a cooperative tool, or even replace them? Or do they encourage the negotiation of even more treaties? In this Part I explore these questions in order to better assess the impact of TGNs on traditional international law and organization.

A. Transgovernmentalism and International Treaties

Treaty compliance is a central, enduring, and contested topic in international law.297 Compliance is often considered one of the primary weaknesses of the international legal system, a system which by definition lacks a centralized enforcement mechanism. Some scholars claim

295 Alvarez, 2001 at 212. Even major proponents of transgovernmental theory, such as Slaughter, do not claim that networks are currently the major form of international cooperation; rather, they are asserted to be the leading form of the future. 296 Pollack and Shaffer, "Transatlantic Governance in Historical…" at 29. 297 Raustiala and Slaughter, forthcoming. Scholars of international law and of international relations increasingly focus on compliance as a central issue in international law. See e.g. John Norton Moore, Enhancing Compliance with International Law: A Neglected Remedy, 39 Va. J. Int'l L 881 at 884. (" I believe that the greatest challenge for the future of the rule of law internationally is to enhance rates of compliance")

66 that compliance with international law is far more prevalent than commonly believed; others concur but suggest there is less significance to this than meets the eye. 298 But nearly all analysts agree that compliance is an critical aspect of international cooperation.299 There are many theories of compliance with treaties.300 Consequently, an analysis of the influence of transgovernmental cooperation on compliance with treaty commitments depends heavily upon the particular theory of compliance one embraces. I consider four leading theories: legitimacy theory; transnational legal process; enforcement theory; and managerial theory. While most of these theories are agnostic about the impact of TGNs on compliance, managerial theory in particular suggests that the influence of TGNs may be significant. As I argue below, this bolsters the claim that transgovernmentalism and liberal internationalism are better thought of as mutually beneficial, rather than oppositional, modes of cooperation.

1. Legitimacy Theory

Legitimacy theory, most associated with the work of Thomas Franck, emphasizes the intrinsic qualities of international legal rules and their influence on compliance. The core idea is that compliance is largely a product of rule legitimacy. Rule qualities (such as pedigree and determinancy), in conjunction with the process by which states arrive at rule-based solutions to collective problems, determine compliance levels. Rule qualities and “right process” create legitimacy, which then creates "compliance pull" for states.301 For Franck, each legal rule or

298 Downs, Rocke, and Barsoom; 1996. While more compliance with international treaties is almost universally viewed as preferable to less, even that basic claim is not universally true. See Id.; Raustiala, "compliance and effectiveness;" 299 See e.g. David Kennedy, The International Style in Postwar Law and Policy, UTAH L. REV 7 (1994) at 70: "the problem of 'compliance' with international norms and the importance of dispute resolution mechanisms in the process of rule implementation has become a central preoccupation of the public international law field." In previous work I have been critical of the prevailing focus in international law scholarship on compliance; see Raustiala, compliance and effectiveness. However, as I discuss below, the major problems with compliance as a normative concept are less present in the context of this article. Moreover, compliance is empirically of great concern to the international legal community, and hence an analysis of the impact of TGNs on compliance a necessary topic. 300 Raustiala and Slaughter, forthcoming. 301 Id.

67 obligation has "an inherent pull power that is independent of the circumstances in which it is exerted, and that varies from rule to rule."302 Thus legitimacy theorists argue that states comply more with rules and treaties that are legitimate and exhibit right process, less with rules that lack these qualities. While legitimacy theorists do not claim that qualities like coherence are the only factors that may influence compliance (no matter how legitimate an obligation may be, they acknowledge that obligations may ultimately be ignored), they do identify legitimacy as the primary determinant of compliance-pull.303 One implication of the theory is that these key characteristics cannot be altered ex post without creating a new agreement or rule: once a rule is developed, it either does, or does not, exhibit the requisite qualities that create compliance-pull. Similarly, the process of creating a rule either did, or did not, exhibit right process. Ex post, that process by definition cannot be changed, except to create a new rule or treaty. Consequently, legitimacy theory implies that transgovernmental cooperation is not particularly relevant to treaty compliance. Whatever cooperation might occur between governments at the agency level cannot directly effect the variables the theory identifies as critical for treaty compliance. Nor would processes of regulatory export and import that TGNs might promote be particularly relevant for treaty compliance. Both the existence of TGNs and the process of regulatory export might raise or lower the costs of compliance with existing treaties in similar issue areas, but they could not alter the "right process" (and resulting legitimacy) by which the treaty rules in question were formed. Moreover, legitimacy theory casts doubt on the likelihood that MOUs, and transgovernmental cooperation in general, will exhibit high compliance. MOUs, because they are flexible and often vague, frequently lack the indicia of determinancy, coherence and so forth that legitimacy theory identifies as important. Because many of the "obligations" that exist in TGNs are avowedly non-legal, it may be a category mistake to apply legitimacy theory at all. But the interesting point is that the formal, procedural thrust of legitimacy theory is in tension with the nature of cooperation embodied in transgovernmentalism.

2. Enforcement Theory

302 Franck 1988 at 712. 303 Id.

68 Enforcement theories take a fundamentally different, more economistic, approach to treaty compliance.304 States are conceptualized as rational utility-maximizers that enter into agreements willingly ex ante but often act opportunistically ex post. Compliance, for enforcement theorists, is a function of state interests, and their interests are determined by the relative costs and benefits of compliant and non-compliant behavior. Whereas legitimacy theory focuses on norms and rule-specific factors such legitimacy, here enforcement and deterrence are central to ensuring compliance.305 Different states face different cost-benefit structures, partly determined by the level and certainty of enforcement; they will in turn comply at different rates. Consequently, a marked distinction between legitimacy theory and enforcement theory is that legitimacy theory focuses on rule-specific characteristics which largely apply to all relevant states equally; enforcement theory, conversely, shifts the focus to state-specific factors.306 As a result, the enforcement theory of compliance suggests a greater role for TGNs than does legitimacy theory. By altering the domestic structure through which international commitments are implemented, the operation of TGNs might change the cost-benefit calculus of compliance with a treaty rule, leading to a change in behavior. In other words, to the degree the incentive structure facing a state is dependent upon or shaped by domestic variables, change in those variables will in turn change the incentive structure and hence compliance. For example, enforcement theory suggests that incentives to comply with a particular treaty rule, such as "do not permit transboundary toxic pollution releases," will be higher if compliance with a domestic regulation on toxic chemicals production is improved. If this improvement in the enforcement of domestic toxics laws is the result of information-sharing through a TGN, or regulatory techniques imported from foreign jurisdictions, then participation in the TGN would have altered the cost-benefit calculation for treaty compliance and hence altered observed levels of compliance.

304 See e.g. George Downs, David Rocke, and Peter Barsoom, Is the Good News about Compliance Good News about Cooperation? 50 Int'l Org. (1996) 305 See Downs, Rocke and Barsoom, supra at 397: "It is possible, of course, that deeper cooperation (e.g. stricter arms control or environmental regulation) can be ensured without much enforcement. This can occur whenever the underlying game changes in such a way that there is less incentive to defect from a given agreement." 306 See Raustiala and Slaughter, forthcoming.

69 More generally, transgovernmental efforts at regulatory export involve a large measure of technical training and assistance. This is likely to upgrade the professional capacity of a regulatory body, improving its ability to perform many tasks, at least some of which will be related to treaty compliance. The more these export efforts are successful, the more compliance should improve, ceteris paribus.307 As a result, on balance enforcement theory implies a positive, compliance-enhancing role for TGNs.

3. Managerial Theory

In contrast to enforcement theory, which stresses the incentives to defect from cooperation and the need for coercion, the managerial theory of compliance, most associated with the work of Abram and Antonia Handler Chayes, argues that states have a propensity to comply with their international commitments. 308 Managerialists argue that coercive enforcement is rarely available and, more importantly, rarely useful. In many treaties, in particular regulatory treaties, the primary drivers of non-compliance are rule ambiguity and especially lack of capacity. Consequently, managerialists argue that compliance is best promoted through assistance and encouragement, not deterrence and punishment. When assistance fails, states can be coaxed back into compliance through an interactive, facilitative process that focuses on the primary drivers of non-compliance. Because managerial theory emphasizes bureaucratic capacity as a key variable, it suggests a significant role for transgovernmental cooperation--even more significant than does enforcement theory. If indeed, as managerialists argue, the most effective methods to improve treaty compliance are facilitative, interactive, and discursive, than TGNs should often improve 307 All these factors have the potential to improve treaty compliance. It is plausible, though arguably less likely, that these factors might also inhibit treaty compliance. If, in a treaty with weak enforcement, transgovernmental cooperation leads to changes in domestic rules, these changes may oppose as well as support pre-existing treaty commitments. If so, they will make compliance less likely. But because many contemporary regulatory treaties are broadly multilateral, it seems less likely than not that the key states involved in TGNs—such as the US-- would promote policies that run counter to multilateral treaty rules. 308 See ABRAM CHAYES AND ANTONIA HANDLER CHAYES, THE NEW SOVEREIGNTY (1995); Abram Chayes and Antonia Handler Chayes, On Compliance, International Organization 47 (1993); Ronald Mitchell, Compliance Theory: An Overview, in IMPROVING COMPLIANCE WITH INTERNATIONAL ENVIRONMENTAL LAW (JAMES CAMERON, JACOB WERKSMAN, AND PETER RODERICK, EDS., 1996)

70 treaty compliance--especially when they involve technical assistance that upgrades or improves existing regulatory standards and practices at the domestic level. Much of the managerialists' proposed process for managing non-compliance is aimed at rectifying domestic shortcomings, in particular a lack of administrative resources or information. Both of these factors seem far more likely to be promoted, rather than inhibited, by TGNs. Moreover, the compliance management process itself, if it is to be effective, is explicitly cooperative and interactive. If TGNs serve to bring regulators from diverse jurisdictions together on a regular basis, and to foster convergence as regulators adopt rules, techniques and methods pioneered elsewhere, then TGNs may perform--or facilitate--much of the what passes for non-compliance management without intending it to be doing so.309 Preemptive or “preventative management” of this sort--propelled by TGNs, but not necessarily intended to influence treaty compliance per se--may successfully forestall many episodes of non-compliance with international treaties. Generalized efforts to reform and strengthen regulatory administrations can serve this compliance role even if there is not an explicit intent to do so. In the securities law and competition law contexts, of course, there are currently no major multilateral treaties that participation in a TGN might be said to prevent non-compliance of. Nor, given the incentives facing regulators, are such treaties likely.310 But given the continuing interest in the development of future multilateral rules, which is particularly strong in competition policy, existing TGNs may ultimately improve compliance with any future treaty that is negotiated. More importantly, transgovernmentalism may make such treaties more likely. By narrowing the differences between national systems, TGNs may make the negotiation of treaties more feasible--in particular regional or "minilateral" agreements.311 Consequently, the impact of TGNs on international treaties in competition and securities fields is likely to be varied but perhaps

309 Chayes and Chayes 1995 discuss three core tasks of compliance management: 1] reviewing and assessing the performance of parties and discrimination between intentional and inadvertant violations; 2] ensuring that appropriate responses to non-compliance produce and maintain an acceptable overall compliance level; and 3] adjusting the rules of a regime to improve regime performance. Of these three, networks are most likely to influence #2, though without the explicit tie to a regime rule or set of rules implied by the authors' formulation. Capacity- building, which is central to their approach, and most closely tied to the activities of networks, need not take place only in the wake of a compliance failure; it can, as they indeed discuss, occur in a preventative fashion or have a preventative effect. 310 See the discussion supra… 311 [On minilateralism see Miles Kahler]

71 positive, in the sense that existing treaties may work better and new treaties may become more numerous. It is in the third case I have examined, the environmental context in North America, that the immediate potential for such preventative compliance management for existing treaties is highest. The North American environmental network that Fulton and Sperling describe has been strongly influenced by the existence of NAFTA.312 The TGN in turn strengthens compliance with NAFTA. NAFTA and the NAAEC contain a number of provisions aimed at maintaining high domestic environmental standards and ensuring that those standards are adequately enforced.313 Subject to certain qualifications, for example, a "persistent failure to enforce" domestic environmental law constitutes non-compliance with the NAAEC.314 The primary political reason for this legal standard was the belief that Mexico's environmental laws, while nominally strong, were underenforced, sometimes dramatically so.315 Any improvement in the regulatory capabilities of a NAFTA party--such as Mexico--will, ceteris paribus, reduce the likelihood that persistent enforcement failures will occur and thus reduce the likelihood of non- compliance with the NAAEC While not overwhelming, there is certainly evidence that the cooperative and technical assistance activities of the North American TGN have bolstered Mexico's regulatory capacity while also inducing changes in its regulatory approach and organization. 316 These changes should, if managerial theory is correct, create the preconditions for greater Mexican compliance with the environmental provisions of NAFTA and the NAAEC. This link is particularly strong because of the special structure of the NAAEC's obligations. Because a critical portion of those obligations are based themselves upon a standard of effective enforcement--subject to an exemption for bona fide resource-based or prosecutorial discretion317--a network whose activities are focused on the improvement of enforcement will have a high likelihood of positive influence upon compliance with that standard.318

312 Fulton and Sperling, supra. 313 See e.g. Thomas and Tereposky, supra; Saunders, supra. 314 See NAAEC at www.cec.org 315 Raustiala, "Political Implications," supra. 316 Steinberg, supra; 317 See NAAEC at www.cec.org 318 Fulton and Sperling characterize the network explicitly as an enforcement network, and that is also the focus of INECE. See Fulton and Sperling, supra; INECE webpage, supra. EPA

72 This line of argument implies that TGNs should also help create the preconditions for compliance with future treaties. Competition law may present such a situation. The terms of a multilateral competition treaty are hard to predict given the widely varying foci of the leading economic powers' competition laws. But if substantive rules emerge, managerial theory suggests that the existence of competition TGNs will enhance the operation of the treaty and compliance with it. Greater convergence in competition law principles and practices, greater familiarity with the laws and practices of foreign jurisdictions, and enhanced capacity and professionalization in new regulatory bodies should serve to bolster the robustness of compliance with a wide array of potential substantive treaty norms. More generally, the impact of transgovernmental cooperation on domestic regulation raises important questions about the fundamental drivers of international cooperation. As Downs, Rocke, and Barsoom note, "[o]ne of the points too rarely made by either the managerial or political economy (i.e. enforcement) school [of compliance] is that changes in technology, relative prices, domestic transitions, and ideas have inspired more international cooperation and regulatory compliance than have all efforts at dispute resolution and enforcement combined."319 TGNs, by facilitating the export of ideas, technologies, and procedures, would seem to further these cooperative forces. Part of what makes the proliferation of TGNs an important phenomenon from the perspective of international law is their potential impact on "non-legal" and contextual factors. If enforcement theorists are right that the depth of cooperation in any given issue-area is endogenous and that deeper cooperation will require more enforcement--and if managerialists are right that effective enforcement tools are rarely available--then the prospects for improving treaty compliance through conventional efforts are dim. Consequently, the significance of tapping into the alternative bases of cooperation Downs, Rocke, and Barsoom describe may be powerful. Transgovernmentalism is one pathway for the influence of these alternative bases, and one that can, subject to the many normative critiques raised against transgovernmentalism, be used prescriptively.320 officials are aware of the links between the network’s activities and NAFTA and NAAEC norms, though they are hesitant to denote this linkage an explicit strategy. This hesitancy is politically-motivated; the more this activity is implicit rather than explicit, the less it should raise the sovereignty concerns that often plague US-Mexican relations. 319 Downs, Rocke, and Barsoom, supra at 397-398. 320 E.g. Alston, Handmaidens; Alvarez, 2001, supra

73 4. Transnational Legal Process

The fourth and last theory of compliance examined here, that of "transnational legal process," looks to the interface between international norms and domestic legal processes. 321 Developed primarily by Harold Koh, transnational legal process theory focuses not on "right process" at the rule-generative stage, as in legitimacy theory, but rather on the incorporation of international rules and norms into domestic legal systems.322 Transnational legal process has three components: interaction, interpretation, and internalization. States comply with international rules because of variations in this process of "vertical internalization"--vertical because rules that are articulated at the international level are incorporated and internalized at the national level. Full domestic incorporation of these rules produces "obedience" rather than simply compliance.323 Much of the inspiration for the theory, and many of the examples, derive from the arena of international human rights law.324 In addition, while the theory applies to treaty rules, its scope includes international norms that are not codified in a treaty.325 Transnational legal process is frequently catalyzed “norm entrepreneurs” and “issue- networks.”326 Norm entrepreneurs seek to mobilize issue networks—networks of advocacy groups and other interested actors—to promote the adoption and diffusion of new norms. These transnational actors require stages upon which to interact--"law-declaring fora"--and it is in these courts, legislatures, and international organizations that an “interpretive community” develops. This interpretive community has some surface similarities to a TGN. Once such an interpretive community construes a norm, and collectively comes to view a state to be in violation of the

321 See e.g. Harold H. Koh, "Bringing International Law Home" Houston Law Review 35, 3 (Fall 1998) at 628; see also Koh, Why Nations Obey… 322 While these rules and norms may be articulated in an international treaty, they need not be. 323 Koh, Why Nations Obey. 324 See id; Harold H. Koh, Transnational Legal Process, NEB. L. REV. 75 (1996)s 325 For example, the relevant norms may be customary law norms, or may even be norms that have not yet attained customary status. The role of transnational legal process and customary international law norms is discussed in passing in Harold Koh, Is International Law Really State Law? 111 HARV. L. REV. 1824 (1998) 326 Keck and Sikkink, supra. ]

74 norm, “a complex process occurs, whereby international legal norms seep into, are internalized, and become embedded in domestic legal and political processes."327 One implication of the transnational legal process approach is that treaty compliance is driven by the efficacy of domestic law and the degree to which international norms become embedded in this law. What creates compliance with an international rule is its transformation into a domestic rule. However, like legitimacy theory, transnational legal process theory argues that the effectiveness of norm internalization depends primarily on the characteristics of the rule in question, not on the domestic institutions.328 Like managerial theory, transnational legal process theory can be read to imply that TGNs will largely promote compliance with international treaty rules. First, TGNs may promote the sort of transnational legal process Koh describes. Interaction is a central attribute of cooperation by network and a central part of Koh’s theory; ceteris paribus, more TGNs should provide more opportunities for transnational legal processes to take place. Moreover, if, as the theory suggests, a key part of the transnational legal process is socialization--the engagement of governments, on a regular basis, in the articulation, interpretation, and promotion of norms and rules--then it is plausible and even likely that TGNs will generally assist and strengthen that process. A world with many active TGNs is one in which "law declaring fora" should be common and "norm entrepreneurs", at least those within government agencies, able to work more readily. With those key features in place, Koh's theory implies that improved compliance (perhaps even obedience) should follow. On the other hand, TGNs may undermine transnational legal processes. Many of the examples employed by legal process proponents, such as the spread and incorporation of international human rights norms, rely heavily on the actions of norm entrepreneurs that are part of the global NGO community. To the degree that TGNs exclude these private actors, and render intergovernmental policymaking opaque, transnational legal processes may be inhibited rather than fostered.329 On the whole, however, the best assessment is that transnational legal

327). 328This emphasis has been critiqued on the grounds that it ignores the central role of domestic politics and institutions; see e.g. Robert Keohane, When Does International Law Come Home?, HOUSTON L. REV. 35,3 (1998) 329 This argument reflects a larger set of normative concerns about TGNs, which primarily revolve around their perceived lack of accountability and secrecy. See e.g Alston, supra.

75 process suggests a mild positive influence for transgovernmentalism. Treaties should exhibit somewhat higher compliance the more TGNs exist and flourish, because TGNs strengthen transnational legal processes.

* * *

Treaty compliance is a highly contested topic, and few broad generalizations can safely be made. As the preceding demonstrates, however, there is good reason to believe that, at least under several prominent theories of compliance, transgovernmentalism will prove a positive force for those who favor stronger international institutions and agreements. TGNs will continue to operate most strongly in areas where international legal agreements are precluded. Thus the dominant pattern is one of gap-filling rather than direction interaction. But in many cases there is scope for some interaction, and at times, as in the North American context, the interaction between TGNs and existing treaty rules can be significant. Given this, it is difficult to argue convincingly that , at least with regard to treaties, transgovernmentalism and liberal internationalism are competitive architectures. Rather, transgovernmentalism is best seen as a complementary form of cooperation and that will often enhance treaty compliance and effectiveness.

B.. The Cooperative Architecture of the Future

Proponents of transgovernmentalism assert that "an interdependent world entails new forms of governance."330 Liberal internationalists counter that "much of [TGN] activity arises under the shadow of an intricate web of obligations arising from obligations assumed under treaties and international organizations."331 In the near term, to be sure, formal, multilateral treaties will continue to increase in number and political saliency, and TGNs will continue to "coexist and interact with traditional international agreements."332 But ultimately,

330 Scott H. Jacobs, Why Governments Must Work Together, OECD OBSERVER NO. 186 (Feb./Mar. 1994) at 16. 331 Alvarez, 2001 at 212. 332 Slaughter, "Government networks" at 217

76 transgovernmentalists argue, TGNs represent the "real new world order."333 For example, Slaughter claims that:

The United Nations cannot function effectively independent of the major powers that compose it, nor will those nations cede their power and sovereignty to an international institution. Efforts to expand supranational authority, whether by the UN Secretary-General's office, the European Commission, or the World Trade Organization, have consistently produced a backlash among member states.334

Conversely,

Dissagregating the state into its functional components makes it possible to create networks of institutions engaged in a common enterprise even as they represent distinct national interests. Moreover, they can work with their subnational and supranational counterparts, creating a genuinely new world order in which networked institutions perform the functions of a world government--legislation, administration, and adjudication--without the form.335

In other words, transgovernmentalists assert that the primacy of the liberal internationalist tools of the multilateral treaty and the international organization will gradually be displaced in the face of rising interdependence by greater reliance on TGNs.336 This does not contradict the

333 Slaughter, "Real New World Order" supra. See also Portnoy, 2000, supra (“…the network is creating the institutional foundations for modern global capitalism…contrary to popular wisdom, the state remains an important actor in the world economy.”) Jacobs, supra; 334 Slaughter, "Real New World Order" supra at 183. 335 Id. at 195. 336 Neo-medievalists largely concur in this critique of liberal internationalism, arguing that "if current trends continue, the international system 50 years hence will be profoundly different. During the transition, the Westphalian system and an evolving one will exist side by side." ( Mathews, supra. Fascination with the evolution of the state is growing within the legal academy as well; THE DECLINE OF THE NATION-STATE was the title of a recent symposium in the Cardozo Law Review). The neo-medievalist vision, however, is one in which the state recedes from its central place of power, to be replaced by overlapping, non-territorial forms of political organization. While alternative forms of global governance appear to be on the rise, in many respects the state's role is also growing and evolving, not receding, as globalization gathers steam and the shared nature of many social problems becomes apparent. (See e.g. Raustiala, "States, NGOs" supra; In most advanced industrial states, the state's presence in the economy

77 arguments I have made about treaties above; it does, however, suggest that the golden age of the treaty may be ending. This is one possible outcome for the 21st century; there are others. Below I briefly chart five different ways to think about how transgovernmentalism and liberal internationalism may interact and influence one another. Much like the discussion above, these are hypotheses rather than claims, generated both from the premises of transgovernmental theory and from the cases described in this article.

1. Changing "Market Shares" of Cooperation

Throughout the 20th century liberal internationalism expanded rapidly. The number of formal international organizations rose from 123 in 1951 to 251 in 1999. 337 In the area of environmental protection alone, the number of multilateral treaties (often with accompanying secretariats and other organizations) grew from a handful in the pre-World War II period to several hundred today.338 While the growth rate of multilateral environmental agreements is quite rapid, a perusal of the United Nations treaty database illustrates that liberal internationalism has expanded across many fronts.339 The current era is the golden age of the treaty.340

has remained constant at somewhere between 30%-50% percent control over GDP. See Keohane and Nye, "Information Age," supra at 82.) For this reason, because neo-medievalism is a much more radical prediction, and because the focus of this article is on transgovernmentalism and its connection to liberal internationalism, I do not consider neo-medievalist visions of the future further in this article. But the neo-medievalist claim is worth noting because it underscores the degree to which the form international cooperation will take in the first decades of the 21st century is contested. 337 Eric Stein, International Integration and Democracy: No Love at First Sight, 95 AM. J. INT'L L. (2001) at 489. 338 The precise number of environmental treaties is unclear largely for definitional reasons. The UN Environment Programme’s ENVIRONMENT AND TRADE: A HANDBOOK uses the figure of “about 200.” See http://iisd1.iisd.ca/trade/handbook/5_10.htm. 339 http://untreaty.un.org/English/treaty.asp 340 Indeed, the rapid growth of treaties has led many conservatives to reconsider underlying doctrines and assumptions of foreign relations law in the US; see in particular the special issues of the Chicago Journal of International Law (2000 and 2001) for many essays on this and related topics.

78 One plausible scenario of the future is that liberal internationalism will remain the primary form of global cooperation, but the rise of transgovernmentalism will (perhaps increasingly) reduce the growth rate of liberal internationalist institutions. In other words, the number of treaties and formal international organizations may continue to grow, but at a slower pace as TGNs reduce the need for future multilateral treaties and institutions. This argument does not rely on the displace existing treaties. But by encouraging convergence in domestic regulatory structures and practices, TGNs could decrease the incentives for the creation of new treaties. If policy goals can be met through decentralized processes, then centralized solutions will not be created, for it is costly to do so. In this scenario, liberal internationalism and transgovernmentalism exist in conjunction, though liberal internationalism is of decreasing importance as a share of overall international cooperation. Transgovernmentalism, by contrast, would claim a growing share.

2. TGNs as Cooperative Gap-Fillers

A second scenario, related to the first and discussed at length above, is the continued expansion of transgovernmental cooperation in a largely gap-filling role. TGNs will be most prevalent in those areas in which liberal internationalism is politically infeasible. 341 Regulatory frictions, for example, may arise in issue-areas marked either by deadlock among states (where no agreement is possible because of oppositional preferences) or where one or two states is highly dominant and faces few incentives to modify its domestic regime yet, because of its relative power, strongly influences the regulatory environment of other states.342 Securities law is an example of the latter; competition policy of the former. In these kinds of cases, TGNs may thrive where liberal internationalist institutions cannot. Rather than low or no cooperation, the rise of TGNs provides an alternative form of cooperation that governments—or specific administrative agencies—face incentives to embrace. This prediction does not imply any quantum leap in the role of TGNs in the future; rather, as states become more closely knit economically, and as domestic regulatory arenas increasingly take on international implications, TGNs should play an important and growing, but

341 See the discussion infra… 342 See e.g. Simmons 2001 supra.

79 in many respects subsidiary, role in international cooperation. In this sense this scenario is similar to the first:: both imply the co-existence of liberal internationalism and transgovernmentalism, and a rising share of transgovernmental cooperation, but for subtly different reasons.

3. More, and More Effective, Treaties

A third scenario is suggested by the discussion of treaty compliance above, in particular the claims of managerial theory. Managerialism is consistent with the claim that transgovernmental cooperation will lead to improved compliance with treaty rules. By improving administrative capacity and providing much needed technical assistance, treaty implementation should, if managerialists are correct, be enhanced and overall compliance promoted. Ultimately, these trends should increase treaty effectiveness. (More compliance does not equal greater effectiveness. If effectiveness is understood in terms of changes in state behavior, however, then improved compliance produced by more thorough implementation and enhanced regulatory capacity will in fact produce a more effective treaty.)343 This suggests that TGNs can strengthen treaties; this argument was made at greater length above. While this is a potentially significant outcome in its own right, it has impacts beyond treaty compliance and effectiveness. If effectiveness is what states seek from international treaties—that is, treaties are attempted solutions to international problems--ceteris paribus, treaties should be a more attractive option the more effective they are in practice. This outcome should at the margin encourage further creation of treaties. In other words, if TGNs enhance the operation of treaties, this logic suggests increased demand for treaties. Thus transgovernmentalism may feed liberal internationalism rather than undermining it, encouraging its growth. This argument is distinct from, but not inconsistent with, the changing “market share” scenario.

4. Treaty Growth and Regionalization

343 On these distinctions see Raustiala, Compliance and Effectiveness, supra. Compliance per se does not improve effectiveness, because compliance has many potential causes. But compliance produced by better implementation and enforcement should improve effectiveness as conventionally understood.

80 Fourth, TGNs may help create the underlying circumstances that permit the negotiation of future treaties. I argued that TGNs, by improving the effectiveness of treaties, may promote the robustness of liberal internationalism. But TGNs may also strengthen liberal internationalism by narrowing the substantive differences that in many issue-areas currently preclude the negotiation of treaties. A salient example is competition law. Multilateral competition treaties have not been successfully negotiated to date. Yet if many states have, as Spencer Weber Waller argues, "look[ed] to the United States as one of the most important sources of learning about competition law,"344 and some states have even changed their laws in response,345 they should be more likely to embrace a treaty that substantively reflects US norms and practice than they would had they not modified their domestic regulatory regime. Such a treaty should also be correspondingly easier to negotiate and implement, and, ceteris paribus, should exhibit higher levels of compliance.346 Even without the explicit importation of US law, if EU-US cooperation transgovernmental cooperation continues to grow it may create more trust and more understanding across the Atlantic.347 This process should at the margin make a truly multilateral competition agreement more likely. Alternatively, because there are in practice several competing international "standards" for competition policy, the impact of processes of regulatory export upon the negotiation of a multilateral competition treaty could be the opposite. As the respective domestic regulatory standards of the EU and US are extended to more and more jurisdictions, and grow more entrenched, the costs of change will grow. This may result in greater resistance, rather than greater receptivity, to a universal, substantive set of rules codified in a multilateral treaty regime. Rather than agree on a "global standard," competing standard-setting states may simply chose to fight it out in the "marketplace"--or, draw a different analogy, engage in peaceful coexistence within their respective spheres of regulatory influence.348

344 Waller, supra. 345 Id.; DevTech Report, supra. 346 The more a treaty maps onto preexisting state practice, the higher compliance is likely to be. See Raustiala, 2000. 347 See e.g. Devuyst, supra, on the current extent of transatlantic cooperation. 348 On regulatory competition generally see Esty and Gerardin, 2001, supra.

81 Regionalization is a widespread phenomenon in international relations and in particular in international trade. If regulatory interdependence and the corresponding growth of TGNs is linked to depth of trade ties, the result may be regionalized diffusion of specific models of regulation, drawn from and reflective of the dominant regional power. The EU's success in spreading its competition model in Eastern Europe--which is clearly linked to its desiderata for the admission of new states--is emblematic of the potential for regionalized convergence. Some regional trade treaties also contain specific language about policy harmonization. For example, NAFTA Chapter 15 contains four articles addressing competition policy. (NAFTA parties must, inter alia, "adopt or maintain measures to proscribe anticompetitive business conduct" and must "cooperate on issues of competition law enforcement policy, including mutual legal assistance, notification, consultation, and exchange of information relating to the enforcement of competition laws in the free trade area."349) TGNs may promote more use of traditional treaty and organizational forms in the future, but to the degree they do, these may increasingly reflect regional or other groupings of states rather than the broad-based or even universal institutions frequently seen today. In short, many more multilateral treaties may be one outcome of rising transgovernmental cooperation.

5. Liberal Internationalism and the Promotion of TGNs.

Fifth and lastly, liberal internationalism can itself promote more transgovernmental cooperation. The NAFTA-environment network described by Fulton and Sperling might have arisen without NAFTA's passage, but it is clear that NAFTA gave a substantial impetus to the TGN and promoted--and continues to promote--a wide array of regulator-to-regulator ties in North America.350 The NAFTA environmental side agreement, for example, created the Commission on Environmental Cooperation, which organizes meetings and working groups among environmental and trade officials.351 In so doing, the emergent North American TGN has been strengthened and has expanded as regulators interact more and more frequently. This

349 ICPAC Report, Annex I-C at 9. 350 Fulton and Sperling, supra. See also Alvarez 2001 at 211-213 for a similar kind of argument. 351 Id.

82 example illustrates that liberal internationalist institutions can provide a foundation upon which transgovernmental cooperation arise and flourish.

* * *

The preceding five scenarios describe, without being exhaustive, some of the ways that transgovernmentalism and liberal internationalism may in practice interact. On balance, and in consideration with the analysis presented in this paper, they suggest that the most plausible prediction about the future is that liberal internationalism and transgovernmentalism will be mutually supportive forms of cooperation. TGNs should largely supplement and strengthen, rather than supplant, the traditional tools of international law and organization. The promotion of treaty compliance and effectiveness is of major importance, and is perhaps the most striking way that TGNs may promote more traditional modes of international cooperation. But the other interactions describe above, such as TGN's gap-filling role, are also significant: as globalization deepens the connections among states, TGNs may thrive where liberal internationalist institutions cannot. While the preceding analysis has not addressed the many normative concerns that TGNs raise,352 it provides a positive basis on which to rest any normative evaluation. In all, the varied claims made above point toward a complex future for international cooperation, in which institutional heterogeneity, and interaction among different cooperative architectures, is commonplace.

VII Conclusion: Transgovernmentalism and the Evolution of International Cooperation

This article has sought to extend the rapidly growing literature on transgovernmental cooperation by describing TGNs empirically and evaluating a number of important theoretical issues they raise. This analysis supports the broad claims of transgovernmentalism's proponents that the development of linkages among regulators from diverse jurisdictions—peer-to-peer,

352 See e.g. Robert Howse, Transatlantic Regulatory Cooperation and the Problem of Democracy and Anne-Marie Slaughter, Agencies on the Loose? Holding Government Networks Accountable, both in Bermann, et al 2000; Philip Alston, The Myopia of the Handmaidens: International Lawyers and Globalization, 8 Eur. J Int'l. L. (1997); see also Alvarez, 2001.

83 using informal, often non-binding agreements, and without extensive oversight by foreign ministers--is now an important component of international cooperation in several policy arenas. The rise of transgovernmentalism is also demonstrative of the resilience of the state in an evolving international order. Moreover, it appears to be accelerating in depth and in importance, as regulatory issues rise higher on the global agenda. The chief underlying factors driving the move to transgovernmentalism--globalization, regulatory expansion, and the information revolution—show little sign of abatement. Consequently, the key question for the future is whether transgovernmentalism is truly the cooperative architecture of the 21st century or merely a sidelight modality confined to a relatively small number of technocratic areas. While it is too soon to answer this question conclusively, there is much suggestive evidence already. One important facet of this inquiry is the role of TGNs in shaping domestic regulatory policies. Contemporary international affairs are marked by a tremendous intersection with traditionally domestic areas of law and policy. Transgovernmental cooperation in regulatory affairs, as the cases presented in this article demonstrate, often involve efforts at fostering the convergence of domestic law and institutions. In this article I have described this process with a particular emphasis on the legal export efforts of US regulatory agencies, and advanced an account of this process that draws upon theories of network effects in economics. The analogy to virtual networks and network effects is I believe at least plausible, and generates hypotheses that may help explain both the pattern of regulatory export and the incentives facing regulators in differing jurisdictions. The ultimate depth and breadth of the resulting policy convergence, and the propulsive role of TGNs, nonetheless remain topics for future research. The potential impact of transgovernmentalism on broader issues of international law, while quite unclear today, may be marked in years to come. This article has suggested several ways that transgovernmentalism and liberal internationalism may interact. Most notably, existing theories of compliance imply that by promoting capacity-building and more thorough implementation, TGNs will in some cases enhance compliance with existing treaties. This improvement in compliance, moreover, is not subject to the selection bias critique leveled by social scientists, because it stems from changes in domestic capacity and commitment rather than the easing of legal standards.353 Transgovernmentalism should also continue to fill gaps in the international regulatory system, permitting cooperation in situations of asymmetric

353 Downs, Rocke and Barsoom, supra.

84 regulatory power, such as securities regulation, where liberal internationalism cannot flourish or is highly unlikely to provide a meaningful and lasting solution. The impact of TGNs on the negotiation of future treaties--whether there will be more or fewer treaties as a result of the rise of TGNs—nonetheless remains indeterminate. On balance, then, transgovernmentalism appears to be an important development in international law, one that is as likely to supplement liberal internationalism as it is to supplant it. In their prescient article 25 years ago, Keohane and Nye sought to demonstrate--against those who saw the early rise of transgovernmentalism as the death of the international institution--the significance of international organizations as arenas for and members of transgovernmental coalitions.354 This article argues that the obverse is also true. A dynamic transgovernmentalism is significant, not only in its own right, but for the efficacy and evolution of international law and institutions.

354 Keohane and Nye, 1974, supra; cf. Huntington 1973, supra.

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