Professional Documents
Culture Documents
49JWorldTrade117
49JWorldTrade117
Citations:
Please note: citations are provided as a general guideline. Users should consult their preferred
citation format's style manual for proper citation formatting.
-- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and
Conditions of the license agreement available at
https://heinonline.org/HOL/License
-- The search text of this PDF is generated from uncorrected OCR text.
-- To obtain permission to use this article beyond the scope of your license, please use:
Copyright Information
State Responsibility and
Government-Affiliated Entities in
International Economic Law
The Danger of Blurring the Chinese Wall between
'State Organ' and 'Non-State Organ' as Designed in
the ILC Draft Articles
Jaemin LEE*
This article addresses the issue of 'state organs' and 'non-state organs' in the 2001 ILC Draft
Articles on Responsibility of States for Internationally Wrongful Acts, and examines the basic
scheme contained in the instrument. It then examines recent disputes of international economic
law in which this issue has been extensively analysed, and shows how the basic scheme of the
ILC Draft Articles is not accurately reflected or incorporated in these disputes, thereby causing
confusion and stoking further disputes. The article argues that the conflation of state organs and
non-state organs in recent decisions of certain tribunals of international economic law constitutes
a deviation from the ILC Draft Articles and misapplies the established jurisprudence in this
area. The article then provides suggestions to address this problem in the future.
1 INTRODUCTION
Ph.D., LL.M., LL.B. (Seoul National University); LL.M. (Georgetown University Law Center); J.D.
(Boston College Law School). Associate Professor of Law, School of Law, Seoul National
University, Seoul, Korea. The author can be reached via e-mail at jaemin@snu.ac.kr.
The terms 'act' and 'action' are used interchangeably for the purpose of this paper. So are the
terms 'government' and 'state.'
2 Draft Articles on Responsibility of States for Internationally Wrongful Acts, adopted by the International
Law Conmuission at its fifty-third session (2001). Official Records of the UN General Assembly,
Fifty-Sixth Session, Supplement No. 10 (A/56/10), ch.IVE.1, 2 Y.B. Int'l L. Comm'n 31, at 84-85
(U.N. Doc. A/56/10) (November 2001). The Commentary to the 2001 ILC Draft Articles ('ILC
Commentary') is available at http://untreaty.un.org/ilc/texts/instrunients/engish/comnentaries/9
_6_2001.pdf (last visited on 15 Mar. 2014), at 42.
See State Responsibility: Titles and Texts of the Draft Articles on Responsibility of States for Internationally
Wrongful Acts Adopted by the Drafting Committee on Second Reading, U.N. GAOR, Int'l L. Comm'n,
53rd Sess., U.N. Doc. A/CN.4/L.602/Rev.1, (26 Jul. 2001), at para. 56.
See Kaj Hob&r, State Responsibility and Attribution, in Peter Muchlinski, Federico Ortino &
Christoph Schreuer, eds., 'The Oxford Handbook of International Investment Law', (Oxford
University Press, 2008), at 549, 582; Thomas W Wlde, Contract Claims Under the Energy Charter
Treaty's Umbrella Clause: Original Intentions Versus Emerging Jurisprudence, in C. Ribeiro, ed.,
'Investment Arbitration and The Energy Charter Treaty', (Huntington, NY: Juris Net, 2006), at 226
(arriving at the same conclusion: 'It may well be that in contract law terms the Impregilo contract
was not signed with the government of Pakistan, but with WAPDA. But if WAPDA's conduct can
be attributed to Pakistan - on lines that have been applied in Maffezini v. Spain, Salini v. Morocco
(jurisdictional award), and Nykomb v. Latvia, - then there could be, on the basis of an umbrella
clause, an assurance by Pakistan to respect that commitment.').
See supra note 2.
6 Daniel Bodansky & John R. Crook, Symposium: The ILC's State Responsibility Articles, American
Journal of International Law (October 2002), at 773, 791 ('For the invisible college of
international lawyers, the ILC's completion of the articles is a considerable success.'). Also, one
international investment arbitration tribunal opined that:
[w]hen assessing the merits of the dispute, the Tribunal will rule on the issue of attribution under
international law, especially by reference to the Articles on State Responsibility as adopted on
second reading in 2001 by the International Law Commission and as commended to the attention
of Governments by the UN General Assembly in Resolution 56/83 of 12 December 2001 (the
ILC Articles) as a codification of customary international law.
Jan de Nul NV and Dredging International NV v. Arab Republic of Egypt, ICSID Case No. ARB/04/13,
Decision on Jurisdiction, (16 Jun. 2006), at para. 89.
In this respect, Caron notes 'the paradox that [the ILC Draft Articles] could have more influence
as an ILC text than as a multilateral treaty.' In his view, it is 'this influence amid controversy that is
paradoxical' David D. Caron, The ILC Articles on State Responsibility: The Paradoxical Relationship
Between Form and Authority, 96 American Journal of International Law (2002), available at http:/
/works.bepress.com/davidcaron/35 (last visited on 15 Mar. 2014), at 857, 858; In addition, the
ILC Draft Articles has already been referred to in arguments before international tribunals, arbitral
panels, and municipal courts. With respect to municipal courts, for instance, U.S. federal courts
have made reference to the ILC Draft Articles for evidence of international law relating to state
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 119
that regard, the ILC Draft Articles offers detailed provisions as to what constitutes a
8
state action and when an action can be attributed to a state.
Notably, this very issue is increasingly being raised in the WTO dispute
settlement proceedings 9 and investment arbitrations, 10 where the application of
the relevant agreements requires existence of a governmental action or a 'measure.
The discussions of state responsibility in these international tribunals dealing with
international economic law, extensively referring to the ILC Draft Articles,
however, arguably do not seem to square with the original architecture set forth in
the instrument." It is true that states can deviate from the norms and customary
international law contained in the ILC Draft Articles when they so agree in a
relevant treaty.1 2 If, however, such intention is not clearly expressed and if tribunals
and parties themselves heavily rely on the ILC Draft Articles in interpreting the
treaty terms at issue, this instrument and the jurisprudence contained in it should
13
be regarded to be controlling or at least should be accorded significant weight.
International trade agreements and investment agreements viewed from discussions
14
in ensuing disputes arguably fall under this category
One of such examples of deviation can be found in the discussions of
international tribunals concerning 'state organ' under Article 4 of the ILC Draft
Articles. 15 It seems that they effectively discard a bifurcated and dichotomous
approach envisioned in the ILC Draft Articles, and instead adopt a composite and
responsibility. See Angel Enrique Villeda Aldana, et al. v. Fresh Del Monte Produce, Inc. d/b/a Del
Monte and Fresh Produce Company Compania De Desarrollo De Guatemala SA, 305 E Supp. 2d 1285,
(12 Dec. 2003). See also supra note 6, Symposium: The ILC's State Responsibility Articles, at 773,
783.
8 See Stephen Fietta & James Upcher, Public International Law, Investment Treaties and Commercial
Arbitration: An Emerging System of Complementarity?, 29(2) The Journal of the London Court of
International Arbitration (2013), at 192-193.
The list of WTO disputes with the name of direct parties and the covered agreements concerned
is available at http://www.worldtradelaw.net/dsc/dscpage.htm (last visited on 15 Mar. 2014).
10 See, e.g., Understanding on Rules and Procedures Governing the Settlement of Disputes ('DSU'), Annex 2
of the WTO Agreement, Arts 3.3, 4.4; Free Trade Agreement between the Republic Qf Korea and the
United States of America ('Korea-U.S. FTA'), Arts 1.4 (definition of a measure), 11.1, para. 1
(measures relating to the investment chapter), 22.4, para. (a) (measures subject to bilateral dispute
settlement proceedings).
11 See Karl-Heinz B6ckstiegel, Applicable Law to State Responsibility under the Energy Charter Treaty and
Other Investment Protection Treaties, in C. Ribeiro, ed., 'Investment Arbitration and The Energy
Charter Treaty', (Huntington, NY: Juris Net, 2006), at 259.
12 See Jan Paulsson, Denial of Justice in International Law, (Cambridge University Press, 2005), at
81-84.
13 See Salini Costruttori S.p.A. & Italstrade S.p.A. v. Hashemite Kingdom of Jordan, ICSID Case No.
ARB/02/13, Decision on Jurisdiction, (9 Nov. 2004), at para. 157.
14 Investment by domestic companies in a domestic market could also carry implication for the
international trade. Likewise, international trade policies could also carry similar implication for
domestic investment by domestic companies. For this chapter, however, the term 'investment' is
used only to mean and cover 'foreign investment': in other words, investment made by a foreign
investor in a domestic market of a state.
15 See ILC Commentary, at 40.
JOURNAL OF WORLD TRADE
16 See Noah Rubins & N. Stephan Kinsella, International Investment, Political Risk and Dispute
Resolution, A Practitioner's Guide, (Oceana Publications, 2005), at 110-113.
i See James Crawford, Treaty and Contract in Investment Arbitration, The 22nd Freshfields Lecture on
International Arbitration London, (29 Nov. 2007), available at http://is.muni.cz/el/1422/podzim2
011/MVV61K/um/20201574/Crawford-TreatyandContract-2.pdf (last visited on 15 Mar. 2014),
at 4-5.
18 See Richard Happ, The Nykomb Case in the Light of Recent ICSID Jurisprudence, in C. Ribeiro, ed.,
'Investment Arbitration and the Energy Charter Treaty', (Huntington, NY: Juris Net, 2006), at 324.
19 For the reform measures taken by the Korean government since 1998 financial crisis, by way of
example, please refer to the annual 'Financial Supervisory System in Korea' during the period of
2000-2008, which is available at http://www.fsc.go.kr/eng/index.jsp. (last visited on 15 Mar. 20
14).
20 See Office of the United States Trade Representative, 2007 National Trade Estimate Report on
Foreign Trade Barriers, at 367-368.
21 See, e.g., Office of the United States Trade Representative, Summary of March 4, 2012 TPP
Negotiations in Melbourne, Australia, available at http://www.ustr.gov/about-us/press-office/blog/20
12/march/sunday-march-4-trans-pacific-partnership-negotiations-melbourn (last visited on 15 Mar.
2014); Office of the United States Trade Representative, USTR Michael Froman Welcomes Progress at
US.-China Strategic and Economic Dialogue, available at http://www.ustr.gov/about-us/press-office/
press-releases/2013/july/amb-froman-welcomes-progress-SandED (last visited on 15 Mar. 2014).
22 In many countries, the SOEs play an important role in the national economy. The SOEs' role in
the national economy, both in terms of quantity and quality, is most vividly highlighted in the
case of China. See Hongfei Zhong, Where is the future: Chinas SOEs reform, 1(1) Journal of the
Washington Institute of China Studies (Spring 2006), available at http://www.wics-usa.org/
journal/Papers/WICS2006-Spring/7Zhong.pdf (last visited on 15 Mar. 2014), at 107 (describing
the SOEs as 'the pillar of the [China's] national economy' and as key players to contribute to
'national growth in economic, social and even political strength'); Xiao Geng, Xiuke Yang &
Anna Janus, State-Owned Enterprises in China Reform Dynamics and Impacts, China's New Place in a
World in Crisis, available at http://globalcenters.columbia.edu/eastasia/files/beijing/content/pdf/20
09-SOEs inChina-Reform dynamics-and impacts Chinas NewPlace in aWorld inCrisis_200
9_0.pdf (last visited on 15 Mar. 2014), at 158-161; State Owned Enterprises in China: Reviewing the
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 121
investor-state arbitrations, where the nature of the entities at issue has been
23
extensively discussed in the context of investment agreement violation.
With this in mind, this article argues that the approaches taken by these
international tribunals do not necessarily reconcile with the basic scheme of the
ILC Draft Articles. It then suggests alternatives to ensure the application of the
initial scheme. This article is composed of four sections. After an introduction in
section 1, section 2 provides an overview of the jurisprudence on state
responsibility and state organ under the ILC Draft Articles, followed by discussions
on how the key provisions of the instrument have been interpreted and applied by
international tribunals. Section 3 then provides suggestions and ideas to clarify and
elaborate the meaning of state organ in the changing environment. Conclusion
then follows in section 4.
if an entity at issue is a state organ, Article 426 of the ILC Draft Articles applies and
state responsibility is automatically found. If it is not, then Articles 527 and 828
apply to determine if state responsibility should nonetheless be found as these
non-state organs may still be closely related to, tightly affiliated with, or originally
created by a state. 29 While the close relationship with the government may
colloquially label these entities as 'governmental entities,' it is not necessarily
accurate that they constitute 'state organs' as the term is used in the legal context
of state responsibility.30 It should be borne in mind that the ILC Draft Articles and
customary international law espoused in it have adopted a bifurcated approach
dividing state organs and non-state organs, as opposed to somewhat vague terms
such as 'governmental entities,' 'public entities,' 'public bodies,' or any other
31
variation for that matter.
This basic structure notwithstanding, actual disputes of international
economic law discussing this issue seem to blur the intended distinction and
instead mingle the analyses for state organs under Article 4 with those for
non-state organs under Articles 5 and 8 of the ILC Draft Articles. 32 In particular,
analyses under Article 4 have been apparently conducted as a virtual extension of
Article 5 and/or 8 analyses. This phenomenon largely reflects the fact that a
majority of disputes of international economic law involving the ILC Draft
Articles so far have been raised to determine when an action by a non-state organ
should be regarded as that by a state organ for the purpose of applying state
responsibility, which basically constitutes an Article 5 and/or 8 analysis. 33 The
rationale and logics developed there have then been transplanted to an Article 4
analysis, although Article 4 is by nature distinct from Articles 5 and 8 in the
original scheme.
As the International Court of Justice ('ICJ') has opined, Article 4 of the ILC Draft
Articles is one of the 'cornerstones of the law of State responsibility. 34 Article 4 of
the ILC Draft Articles provides that:
Article 4 Conduct of organs of a State
1. The conduct of any State organ shall be considered an act of that State under
international law, whether the organ exercises legislative, executive, judicial or any other
functions, whatever position it holds in the organization of the State, and whatever its character
as an organ of the central Government or of a territorial unit of the State.
2. An organ includes any person or entity which has that status in accordance with the
internal law of the State. (emphasis added).
Perhaps the beauty of Article 4 lies in the simplicity it espouses. It stipulates that
conduct of a state organ is regarded as an act of the state. 35- Thus, once it is proven
that an act has been performed by a state organ, the inquiry stops there and the act
is automatically attributed to the state at issue: of course, whether that act
constitutes violation of relevant international law is a separate issue, to be
determined by the substantive norms of that international law.3 6 Despite this
simplicity, however, the application of Article 4 could become treacherous if the
key operating term 'state organ' here were somehow adjusted or altered.37
Although the term 'state organ' is not defined in the provision, helpful guidelines
can be elicited from the 38 text and context of the ILC Draft Articles for proper
interpretation of the term.
First, paragraph 2 of the article indicates that the term is understood to be
determined by the domestic law (or sometimes domestic practice) of the state at
39
issue. The domestic law may stipulate whether an entity is a state organ or
another type of institution (i.e., a non-state organ) performing a specific statutory
task.40 While an entity may well be established by a government through an
34 Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and
Herzegovina v. Serbia and Montenegro) ('Application of the Genocide Convention'), Judgment, I.C.J.
Reports 2007, p. 43, at para. 385.
35 See Loic Conan, Risk Mitigation Issues in International Business Transactions and Project Financing with
State-Owned Enterprises: State Liability for Acts of State-Owned Enterprises in Emerging Markets, 1(3)
ILSP Law Journal, (Washington College of Law, 2009), at 150-151.
36 See ILC Commentary, at 42.
37 See Waste Management, Inc. v. United Mexican States, Award of the Tribunal, ICSID Case No.
ARB(AF)/00/3 (30 Apr. 2004), at para. 165.
38 See James Crawford, The International Law Commission's Articles on State Responsibility, Introduction,
Text and Commentaries, (Cambridge University Press, 2002), at 96.
39 See ILC Conmmentary, at 42; Gustav E W Hamester GmbH & Co KG v. Republic of Ghana,Award,
ICSID Case No. ARB/07/24, (18 Jun. 2010), at para. 183.
40 See supra note 34, Application of the Genocide Convention, at para. 386 ('When applied to the present
case, this rule first calls for a determination whether the acts of genocide cormmitted in Srebrenica
JOURNAL OF WORLD TRADE
enabling legislation for various purposes, this alone does not necessarily mean that
the entity automatically rises to the level of a state organ under Article 4.41 Mere
affiliation with a state or association with a government, in the absence of clear
statutory mandate to perform delegated national businesses, is not sufficient to find
a state organ within the meaning of Article 4.42 In fact, a close relationship with a
government notwithstanding, an enabling legislation itself may declare or clarify
that an entity is not part of the government organization. 43 Indeed, examples
abound where public corporations are established by legislations with significant
government shareholdings, but where they still stay outside the governmental
organizational structure. Of course, there may be an instance where, even if an
official status lacks, an entity should still be regarded as part of the governmental
organization under the totality of circumstances, such as where there is 'complete
dependence' on or the entity is 'equated' with the government 44 - exceptional
45
situations where a private cloak is used in disguise.
Second, as both paragraphs 1 and 2 include open-ended, broad terms such as
'any' or 'whatever' in describing state organs, it can be said that the scope ofArticle
4, as it currently stands, is designed to cover a wide range of entities. 46 In other
words, if an entity is a state organ, arguably it really does not matter what kind or
type of state organ it may be.
Third, paragraph 2 also indicates that the key criterion for the application of
Article 4 is the 'status' of an entity at issue as a state organ, as opposed to a
'function' the entity carries out: while the 'status' portion has a clear legal
parameter in the provision (i.e., to be examined 'in accordance with the internal
law of the State'), the 'function' portion has no such specification (i.e., carrying out
'any other functions').
were perpetrated by "persons or entities" having the status of organs of the Federal Republic of
Yugoslavia under its internal law, as then in force.').
41 See Bayindir Insaat Turizm Ticaret Ve Sanay A.S. v. Islamic Republic of Pakistan, Award, ICSID Case
No. ARB/03/29, (26 Aug. 2009), at paras 117-130.
42 The ICJ stated in Application of the Genocide Convention that: There is no doubt that the FRY was
providing substantial support, inter alia, financial support, to the Republika Srpska (cf. para. 241
above), and that one of the forms that support took was payment of salaries and other benefits to
some officers of the VRS, but this did not automatically make them organs of the FRY. See supra
note 34, Application of the Genocide Convention, at para. 388.
43 See Eduardo Silva Romero, Are States Liable for the Conduct of Their Instrumentalities ICC Case
Law, in E. Gaillard & J. Younan eds., 'State Entities in International Arbitration, IAI Series on
International Arbitration No. 4', (Juris Publishing, 2008), at 35.
44 Military and ParamilitaryActivities in and against Nicaragua (Nicaragua v. United States of America),
Merits, Judgment, I.C.J. Reports 1986, pp. 62-63, at para. 110.
45 See supra note 34, Application of the Genocide Convention, at para. 393.
46 An example for an analysis of whether a certain conduct of an entity is attributable to the state is
AMTO LLC v. Ukraine, Decision, Arbitration Inst. of the Stockholm Chamber of Commerce,
Arbitration No. 080/2005, (26 Mar. 2008), at paras 101-102.
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 125
In sum, Article 4 basically stipulates that a state assumes state responsibility for
action taken by 'state organs', and 'state organs' are all entities that maintain the
status as such under the municipal laws of the state, regardless of the function they
carry out and the position they hold.47 This almost establishes a per se rule. In its
Commentary to Article 4, the ILC holds that the 'reference to a 'State organ'
covers all the individual and collective entities which make up the organization of
the State and act on its behalf.48 Other provisions relating to state organs in the ILC
Draft Articles are Article 7 which stipulates that ultra vires activity of a state organ is
still attributable to the state in question, 49 and Article 6 which stipulates that an
50
action of a state organ delegated to another state is attributable to the latter.
Articles 9 and 10, in turn, address special instances where a person or a group of
persons exercising governmental authority in exceptional situations such as
revolution, armed conflicts, or insurrectional movements. 51 To the extent these
two provisions also address particular instances of actions of state organs, they all
can be said to be extensions of Article 4, the basic provision for state responsibility
for state organs. Article 4, therefore, is arguably the key provision in analysing state
responsibility for state organs, while Articles 6, 7, 9, and 10 concern peripheral
52
situations of state responsibility for state organs.
Contrary to Article 4, now Articles 5 and 8 of the ILC Draft Articles address
situations where non-state organs are involved. 53 First, Article 5 stipulates that
when a governmental authority is delegated to a private entity through statutory
empowerment, the delegating government is held responsible for the action of
such private entity. Article 5 thus provides that:
Article 5: Conduct of Persons or Entities Exercising Elements of Governmental Authority
The conduct of a person or entity which is not an organ of the State under article 4 but which
is empowered by the law of that State to exercise elements of the governmental authority
shall be considered an act of the State under international law, provided the person or
entity is acting in that capacity in the particular instance. (emphasis added).54
In short, non-state organs that are still 'authorized by municipal laws or regula-
tions to exercise governmental authority' 5 5 are designed to be covered by
47 See Defense Industry of State X v. European Company, [CC 1991 Interim Award, unpublished, Case
No. 6465, (15 Aug. 1991), at 6-7.
48 See ILC Commentary, at 40. (emphasis in original).
49 See ILC Commentary, at 45.
50 See ILC Commentary, at 44-45.
51 See ILC Commentary, at 49-52.
52 See supra note 18.
53 See Michael Feit, Responsibility of the State under International Law for the Breach of Contract
Committed by a State-Owned Entity, 28 (1) Berkeley Journal of International Law, (2010), at 147.
54 See ILC Draft Articles, at Art. 5.
55 See ILC Commentary, at 42.
JOURNAL OF WORLD TRADE
5 is legislation-empowered,
Article 5.56 So, the key operating feature of Article 57
non-state organs carrying out governmental functions.
Article 8, in turn, aims to address a situation where a private entity is
controlled by the government to perform a function for the government. It thus
provides:
Article 8: Conduct Directed or Controlled by a State
The conduct of a person or group of persons shall be considered an act of a State under
international law if the person or group of persons is in fact acting on the instructions of,
or under the direction or control of, that State in carrying out the conduct. (emphasis
added).58
Thus, Article 8 captures a situation where a private entity (i.e., a non-state organ)
is directed or controlled by a government (i.e., a state organ), without
empowerment by law to exercise elements of the governmental authority. 59 As the
ILC itself explains, this is a provision that applies to SOEs that have been 61
subsequently privatized,
60
but still carry out governmental functions.
Considering the term 'in fact' is used here, this provision may still apply even if
direct or official instructions are not necessarily given. 62 At the same time, the ILC
Commentary suggests that there should exist a genuine linkage between the
56 In fact, a NAFTA investment dispute panel also noted the term 'empowered by law' in its analysis
by stating:
[t]he ILC's commentary describes the notion of a 'para-statal' entity as a narrow category: the
essential requirement is that the entity must be 'empowered by the law of the State to exercise
functions of a public character normally exercised by State organs, and the conduct of the entity
[which is the subject of the complaint] relates to the exercise of the governmental authority
concerned'.
Waste Management, Inc. v. United Mexican States, ICSID Additional Facility Case No. ARB(AF)/00/3,
(30 Apr. 2004), at note 23.
57 See Stephan W Schil, Enabling Private Ordering, Function, Scope and Effect of Umbrella Clauses in
International Investment Treaties, Minnesota Journal of international law (2009), at 1; Robert B. Von
Mehren & P. Nicholas Kourides, InternationalArbitrations between States and Foreign Private Parties:the
Libyan Nationalization Cases, 75(3) American Journal of International Law, (1981), at 476, 551.
58 See ILC Draft Articles, at Art. 8.
59 See Univ. Centre for Int'l Humanitarian Law, Expert Meeting on Private Military Contractors: Status and
State Responsibility for their Actions (2005), available at http://www.adh-geneve.ch/evenements/pdf
/colloques/2005/2rapportcompagies-privees.pdf (last visited on 15 Mar. 2014), at 18.
60 Abby Cohen Smutny, State Responsibility and Attribution: When Is a State Responsible for the Acts of
State Enterprises?, in Todd Weiler ed., 'International Investment Law and Arbitration', (Cameron
May Ltd., 2005), at 17.
61 To borrow the words of the International Law Commission in this respect:
The article is intended to take account of the increasingly common phenomenon of parastatalentities,
which exercise elements of governental authority in place of State organs, as well as situations
where former State corporations have been privatized but retain certain public or regulatoryfunctions.
(emphasis added)
62 See supra note 59, Expert Meeting on Private Military Contractors (2005), at 18-20.
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 127
government and the private action in question in order for the private action to be
attributed to the government under Article 8. The ILC Commentary thus states
that 'the principle does not extend to conduct which was only incidentally or
peripherally associated with an operation and which escaped from the State's
direction or control.' 63 Stated differently, what is necessary in this regard is some
sort of 'genuine64
association' between a government (i.e., a state organ) and a
private entity.
As shown above, Articles 5 and 8 are the two provisions that address the action
of non-state organs for the purpose of international state responsibility. 65 Article 5
states that the provision applies to instances that are outside the scope of Article 4
(situations involving state organs). Likewise, Article 8 pronounces that the
provision applies to instances where an entity is 'in fact' controlled by a state organ,
which by its own terms describes situations falling outside the scope of Article 4.
This mutually exclusive nature of the two sets of rules is critical in understanding
the core problems posed in actual disputes recently. In short, Article 4 on the one
hand and Articles 5 and 8 on the other are juxtaposed for the analysis of state
responsibility: the former applies to state organs and the latter to non-state organs.
As the provisions themselves declare, these two sets of provisions are designed, in a
bifurcated manner, to address two different and distinct situations.
As set forth above, Article 4 of the ILC Draft Articles contains an important
provision with respect to state responsibility for a 'state organ,' distinct from
Articles 5 and 8.66 Nonetheless, quite a few recent disputes tend to discuss and
apply this article in a way that arguably deviates from this basic architecture. 67 As a
consequence, confusion has been sown over the scope of Article 4 in particular
and state responsibility in general. More specifically, problems have arisen when
Article 4 analyses attempt to address (i) governmental ownership, (ii) relevant
societal or cultural contexts, and/or (iii) the function being carried out by the
entity in question. These three elements, though crucial and important in analyses
of Articles 5 and 8, are arguably not amenable to Article 4 discussions. Each of the
three elements is discussed in detail below.
As discussed, the entities to be covered by Article 4 of the ILC Draft Articles are
those under official governmental structure in accordance with the municipal
constitutional or legal scheme. 68 In light of this, discussion of governmental
ownership in the context of Article 4 is apparently misplaced,6 9 since such
discussion mainly relates to Article 5 and Article 8 examinations where non-state
organs are involved.
In an Article 5/8 inquiry, in order to confirm situations falling under either of
the two articles, governmental ownership is an important consideration factor,
though not decisive. What is critical in the inquiry is whether the governmental
ownership together with other circumstances shows that the entity at issue carries
out governmental function either explicitly (in the case of Article 5) or implicitly
(in the case of Article 8).70 This is hardly surprising because these two articles
presuppose non-state organs in the first place: the governmental ownership in the
entity may offer an important piece of evidence proving satisfaction of the
requirements set forth in Articles 5 and 8. With respect to Article 5, the ILC
Commentary thus explains:
The fact that the State initially establishes a corporate entity, whether by special law or
otherwise, is not a sufficient basis for the attribution to the State of the subsequent
conduct of that entity. Since corporate entities, although owned by and in that sense
subject to the control of the State, are considered to be separate, primafacie their conduct
in carrying out their activities is not attributable to the State unless they are exercising
elements of governmental authority within the meaning ofArticle 5.71 (emphasis added).
In turn, with respect to Article 8, the ILC Commentary further states:
68 This was further elaborated by the ICJ in Application of the Genocide Convention, where it stated
that 'neither the Republika Srpska, nor the VRS were de jure organs of the FRY, since none of
them had the status of organ of that State under its internal law.' See supra note 34, Application of
the Genocide Convention, at para. 386.
69 The term 'government ownership' within the context of the SOEs usually covers both
government's whole ownership and partial ownership (shareholding). See supra note 22, State
Owned Enterprises in China, at 5-6 (For statistical purposes, China's SOEs have two different
categories: state-owned enterprises, which are wholly owned by the governments, and
state-holding enterprises, whose shares are partly held by the governments).
70 See, e.g., Bridas S.A.PI.C. v. Government of Turkmenistan, 345 E3d 347, United States Court of
Appeals for the Fifth Circuit, (9 Sep. 2003), available at http://caselaw.findlaw.com/us-5th-circuit
/1371043.html (last visited on 15 Mar. 2014).
71 See supra note 38, at 112.
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 129
Following are not decisive criteria for the purpose of attribution of the entity's conduct to
the State: the existence of a greater or lesser State participation in its capital; more
generally, the ownership of the assets.. 72 (emphasis added)
In other words, the fact that a government owns a corporation with majority
ownership interest 73 or maintains even the whole ownership does not necessarily
mean that the corporation as a private entity conducts 'elements of governmental
authority' or is 'controlled' by the state organ within the meaning of Articles 5 and
8 of the ILC Draft Articles.7 4 This provision thus clarifies that a general discussion
of dependence and support is 'insufficient' to justify attribution of the conduct to a
state. 75 Now, this understanding of Articles 5 and 8 provides an insightful guideline
for the inquiry of a state organ under Article 4 as well. Articles 5 and 8 basically
attempt to catch a situation where ostensibly non-state organs are still regarded as
de facto state organs76 because of identified and proven special relationship with
the government, including, most notably, government shareholding. Similar
approaches have also been taken in the OECD Guidelinesfor MultilateralEnterprises,
wherein private corporations and those in which the governments maintain
shareholdings are basically treated the same while the implications of the
77
ownership are duly taken into account as appropriate.
This inquiry into the relationship with a government and in particular the
government ownership, however, does not apply to state organs under Article 4: as
noted, an Article 4 situation is where a state organ is at issue. So, conceptually it is
inappropriate to examine if the entity has some relationship with the government
- an inquiry which is important in Articles 5 and 8 situations - because it is the
[D]espite the heavy subsidies and other support provided to them by the United States, there is no
clear evidence of the United States having actually exercised such a degree of control in all fields
as to justify treating the contras as acting on its behalf. Military and Paranilitary Activities in and
against Nicaragua (Nicaraguav. the United States), 1986 I.C.J. 14, at para. 109. The ICJ took a sinilar
view in In Armed Activities on the Territory of the Congo (DemocraticRepublic of the Congo v. Uganda).
Armed Activities on the Territory of the Congo (DemocraticRepublic of the Congo v. Uganda), ICJ Reports
2005, at 168.
76 See State X Helicopter Industries v. American company No. 1 and American company No. 2, ICC Case
No. 6406, (29 Jul. 1991), Interim Award, unpublished, at 7-8.
77 The OECD Guidelines for Multilateral Enterprises states in para. 10 as follows: 10. State-owned
multinational enterprises are subject to the same recomnendations as privately-owned enterprises,
but public scrutiny is often magnified when a State is the final owner. The OECD Guidelines on
Corporate Governance of State-Owned Enterprises are a useful and specifically tailored guide for these
enterprises and the recommendations they offer is intended to significantly improve governance.
JOURNAL OF WORLD TRADE
government (state) itself in the first place which is at issue in Article 4. In this
inquiry, therefore, governmental ownership arguably cannot become a criterion. A
'governmental agency' cannot maintain a shareholding in another 'governmental
agency' Nor can a governmental agency own another agency.7 8 There may be a
chain of command and organic relationship among various governmental agencies
of all sorts and levels, but certainly not the ownership structure as envisioned in
Article 4. Thus, looking into the governmental ownership in the course of Article
4 state organ discussions, does not fit into the basic structure embodied in the ILC
Draft Articles.
By way of example, this issue has been examined in the WTO dispute
settlement proceedings involving trade disputes where a complaining state alleges
that ostensibly private action of another state is indeed a disguised attempt to
circumvent otherwise applicable WTO Agreements.7 9 The WTO's Appellate Body
found that Articles 4, 5 and 8 are directly relevant to the interpretation of Article
1.1 of the WTO's Agreement on Subsidies and Countervailing Measures ('SCM
Agreement') which regulates government's provision of illegitimate subsidy to its
exporting corporations. 80 Article 1. 1(a) (1) of the SCM Agreement provides that:
7 See Christopher Greenwood, State Responsibility for the Decisions of National Courts, in Malgosia
Fitzmaurice & Dan Sarooshi eds., 'Issues of State Responsibility before International Juridical
Institutions', (Hart, 2004), at 55, 57.
79 The stature of the ILC Draft Articles has also been recognized by the WTO, and when an issue of
state action and private action is raised, the WTO Appellate Body looks to the ILC Draft Articles
for guidance. In US.-Line Pipe, also in the context of the application of a safeguard, the Appellate
Body emphasized the importance of the state responsibility rules which command the need for
proportionality when imposing countermeasures. It thus held:
We note as well the customary international law rules on state responsibility, to which we also
referred in US.-Cotton Yarn.We recalled there that the rules of general international law on state
responsibility require that countermeasures in response to breaches by States of their international
obligations be proportionate to such breaches. Article 51 of the International Law Commission's
Draft Articles on Responsibility of States for Internationally Wrongful Acts provides that
'countermeasures must be commensurate with the injury suffered, taking into account the gravity
of the internationally wrongful act and the rights in question'. Although Article 51 is part of the
International Law Commission's Draft Articles, which do not constitute a binding legal
instrument as such, this provision sets out a recognized principle of customary international law.
We observe also that the United States has acknowledged this principle elsewhere. In its
comments on the International Law Commission's Draft Articles, the United States stated that
'under customary international law a rule of proportionality applies to the exercise of
countermeasures'.
See Jiaxiang Hu, The Role of International Law in the Development of H/TO Law, 7(1) J. Int'l Econ. L.
(2004), at 149.
The WTO Appellate Body applied the following logic to apply the ILC Draft Articles in its
analysis. First, it considered that 'the question is whether the ILC Articles are 'applicable in the
relations between the parties," and it 'observe[d] that Articles 4, 5, and 8 of the ILC Articles are
not binding by virtue of being part of an international treaty,' but that 'insofar as they reflect
customary international law or general principles of law, these Articles are applicable in the
relations between the parties See World Trade Organization, Appellate Body Report, United
States-Definitive Anti-Dumping and Countervailing Duties on Certain Products from China
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 131
there is a financial contribution by a government or any public body within the territory of a
Member (referred to in this Agreement as 'government'), i.e. where... : (emphasis added).
The article then 'defines and identifies' the four types of 'governmental conduct
that constitutes a financial contribution.' 81 The analysis to be undertaken under
the provision is basically that of'attribution' to a state, the same inquiry under the
ILC Draft Articles. 82 As the above provision stipulates, Article 1.1(a)(1) of the
SCM Agreement puts a 'state organ (i.e., government)' and a 'public body' on the
same footing: thus, any financial contribution (i.e., monetary support) from a
public body as well as from a state organ 83 is regarded as satisfying the first element
of a subsidy (i.e., 'financial contribution by the government') 8 4 On its surface, the
concept of 'public body' in Article 1.1 (a)(1) of the SCM Agreement seems to
relate to the situations covered by either Article 5 or Article 8 of the ILC Draft
Articles to the extent the term refers to entities considered to be non-state
organs. 85 In addition, subparagraph (iv) of Article 1.1(a)(1) further provides that a
financial contribution can also be found where a state organ or a public body
'entrusts or directs' a 'private entity' to perform similar actions, 'and the practice, in
no real sense, differs from practices normally followed by governments.' 86 This
('US.-AD/CVD'), WT/DS379/AB/R, (11 Mar. 2011), at para. 308. In this case, the Appellate
Body said that before it would address 'whether the attribution rules reflected in the ILC Articles,
in particular Article 5, constitute customary international law or general principles of law, [it
would] consider to what extent these rules provide guidance for the interpretation of the term
'public body' in Article 1.1(a)(1) .'While first observing differences between the two sets of rules,
namely that the ILC Articles stipulate the conditions in which conduct shall be attributed to a
State while the SCM Agreement provision focuses on both the conduct and the type of entity,
the Appellate Body nonetheless noted that, despite these differences, 'our above interpretation of
the term 'public body' coincides with the essence of Article 5.' Emphasizing that it could see
'similarities in the core principles and functions of the respective provisions,' the Appellate Body
noted that its consideration of Article 5 of the ILC Articles 'does not contradict our analysis of
Article 1.1(a)(1) above,' and it 'lends further support to that analysis.' It finally concluded that
because the outcome of its analysis 'does not turn on Article 5,' it is unnecessary for the Appellate
Body to 'resolve definitively the question of to what extent Article 5 of the ILC Articles reflects
customary international law.' See Appellate Body Report, US.-AD/CVD, at paras 309-311.
81 See ibid., at para. 284.
82 See ibid.
83 See World Trade Organization, United States-Countervailing Duty Investigations on Dynamic Random
Access Memory Semiconductors from Korea, WT/DS296/R (21 Feb. 2005) ('U.S.-DRAMs'), at paras
7.6-7.8, 7.49-7.50, 7.59; World Trade Organization, European Communities-CountervailingMeasures on
Dynamic Random Access Memory Chips from Korea, WT/DS299/R (17 Jun. 2005) ('EC-DRAM'), at
paras 7.38-7.46; Anna Fifield, OECD tells Korea to Reform Economy, Financial Times, (20 Jun.
2007). For similar claims of the United States against Japan in 1990s, see Japan - Measures Affecting
Consumer Photographic Film and Paper,WT/DS44/R, (22 Apr. 1998), at paras 10.43-10.46.
8 See SCM Agreement, Art. 1.1(a)(1). World Trade Organization, Panel Report, United States -
Imposition Of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
Originating in the United Kingdom, WT/DS138/R, (23 Dec. 1999).
85 See Appellate Body Report, US.-AD/CVD, at paras 284, 288, 290, 291 & 293.
In particular, sub-para. (iv) of Art. 1.1(a)(1) of the SCM Agreement provides that a financial
contribution exists where:
JOURNAL OF WORLD TRADE
92 Panel Report, US.-AD/CVD, at paras 2.1-18; Appellate Body Report, US.-AD/CVD, at paras
271-272.
93 See World Trade Organization, Panel Report, Japan - Trade in Semi- Conductors, (4 May 1988),
(L/6309 - 35S/116), at para. 51; World Trade Organization, Canada - Certain Measures Concerning
Periodicals,WT/DS31/R, (14 Mar. 1997), at para. 5.36.
94 See Appellate Body Report, U.S.-AD/CVD, at para. 277.
95 See ibid., at paras 320-322. The underlying panel put a significant emphasis on the government
ownership in the SOEs at issue in finding these entities as public bodies. See ibid., at para. 278.
96 See ibid., at para. 321.
97 See ibid., at para. 347.
98 See World Trade Organization, Panel Report, United States-Measures Treating Exports Restraints as
Subsidies ('US.-Export Restraints'),WT/DS194/R and Corr.2, (23 Aug. 2001), DSR 2001:XI, 5767,
at para. 8.134.
99 See Appellate Body Report, US.-AD/CVD, at para. 310 ('The ILC Commentary also states that
the existence of a greater or lesser State participation in its capital, or ownership of its assets are
not decisive criteria for the purpose of attribution of the entity's conduct to the State').
'00 See ibid., at para. 320.
JOURNAL OF WORLD TRADE
State ownership are relevant to government control. Nor did the Panel sufficiently analyze
the interpretative elements that served as the basis for its finding that State ownership
10 1
or
control is in itself sufficient to establish that an entity constitutes a public body.
The Appellate Body's clear denunciation of the government ownership-only
approach, overturning its positions in previous decisions, represents an important
development ofjurisprudence on state responsibility at the WTO, generally in the
right direction. But at the same time, what is noteworthy is the fact that the
government ownership still remains one of the core factors in this inquiry. 10 2 For
instance, the ownership structure played an important role in the Appellate Body's
finding that the USDOC's public body determination concerning SOCBs was
consistent with the SCM Agreement. Unlike its finding regarding SOEs, the
Appellate Body upheld the panel's finding in this respect by confirming that the
evidence shows 'the [USDOC]'s public body determination in respect of SOCBs
was supported by evidence on the record that these SOCBs exercise governmental
functions on behalf of the Chinese Government." 0 3 The Appellate Body further
opined that China has not established that the USDOC' public body
determination in respect of SOCBs in the CVD investigation is inconsistent with
Article 1. 1(a) (1).1 04 Thus, with respect to the SOCBs, the governmental ownership
in fact played a critical role in finding public bodies.' 0 5 But, as discussed above, the
ownership-determinative analysis does not necessarily square with an inquiry on a
state organ in the context of the ILC Draft Articles. Therefore, it is indeed
questionable whether the same ownership-determinative approach can be
accepted in the virtually same public body discussion in the SCM Agreement
context.
More specifically, in US.-AD/CIVD the Appellate Body assumes that there are
two kinds of entities here - 'governmental bodies' and 'private bodies. 10 6 By using
the term 'governmental,' the Appellate Body seems to put state organs and
non-state organs possessing relationship with the governments in the same
category, which are then treated as if they were all state organs under Article 4.107
The Appellate Body thus opined:
Joining together the two terms under the collective term 'government' thus implies a
sufficient degree of commonality or overlap in their essential characteristics that the entity
in question is properly understood as one that is governmental in nature and whose
conduct will, when it falls within the categories listed in subparagraphs (i)-(iii) and the
first clause of subparagraph (iv), constitute a 'financial contribution' for purposes of the
SCMAgreement. 10 8 (emphasis in original).
State-Owned Limited Companies Private Shareholding Foreign-Invested Collective Hong Kong, Other
Enterprises Liability Limited by Enterprises Co-operatives Enterprises Enterprises Macau
Companies Shares Enterprises
Source: MOFCOM.
The Appellate Body's own statement in US.-AD/CVD further sheds helpful light
on how the term 'public body' was understood in relation to 'government' or 'state
organ.' It thus held that 'the concept of"public body" shares certain attributes with
the concept of "government.' The fact that the term 'public body' was
understood to be virtually identical to 'state organ' can further be confirmed by
107 See ibid., at para. 284. In Canada-Dairy,the Appellate Body held a similar view. World Trade
Organization, Appellate Body Report, Canada-Measures Affecting the Importation of Milk and the
Exportation of Dairy Products ('Canada-Dairy'), WT/DS103/AB/R, WT/DS1 13/AB/R and Corr.1,
(27 Oct. 1999), DSR 1999:V, 2057, at para. 97; Panel Report, US.-Export Restraints, at para. 8.49.
108See Appellate Body Report, US.-AD/CVD, at para. 288.
109See Appellate Body Report, Canada-Dairy,at para. 97.
110See Ken Davies, China Investment Policy: an Update, OECD Working Papers on International
Investment, (January 2013), available at http://www.oecd.org/china/WP-2013-l.pdf (last visited
on 15 Mar. 2014), at 8, 74.
.. See Appellate Body Report, US.-AD/CVD, at paras 294 ('...the requisite attributes.. .are common
characteristics of both government in the narrow sense and a public body.'), 317.
JOURNAL OF WORLD TRADE
the Appellate Body's statement in the same dispute that 'a public body within the
meaning of Article 1.1 (a)(1) of the SCM Agreement must be an entity that
possesses, exercises or is vested with governmental authority' 1 12 Notably, this
statement of the Appellate Body puts 'possession,' 'exercise' and 'vesting' of
governmental authority on the same footing in an analysis of a public body, which
indicates that existence of any of the three may lead to the finding of a public
body. This is obviously a departure from Articles 5 and 8 of the ILC Draft Articles
where exercise of the authority instead of mere possession is deemed to be a critical
barometer. 113 An entity that possesses, exercises or is vested with governmental
authority whose conduct is always attributed to a state is, in a nutshell, a state
organ under Article 4.114 These statements of the WTO's highest adjudicator thus
further show that the concept of public body is actually identical to or equivalent
with a state organ within the meaning of Article 4 of the ILC Draft Articles.
In this regard, the Appellate Body does explain the distinction between the
ILC Draft Articles and the SCM Agreement noting the different connecting
factors in the two instruments: 'while the connecting factor for attribution in the
former is the particular conduct, that in Article 1.1(a)(1) of the SCM Agreement are
both the particular conduct and the type of entity."'1 5 Contrary to the Appellate
Body's rationale, however, the ILC Draft Articles also offers its discussion based on
both conduct and the type of entity, as set forth above. At the same time, the Appellate
Body's own analysis and discussion are heavily based on the ILC Draft Articles, in
which it explores whether its own interpretation 'coincides with' or 'corresponds
to' the ILC Draft Articles. 116
Consequently, despite the recent development in the subsidy jurisprudence of
the SCM Agreement, a question mark still looms large in this area of public body
and government. An Article 4 inquiry and an Article 5/8 inquiry have been
arguably conflated in the application of the SCM Agreement, in a way that does
not dovetail with the basic structure of the ILC Draft Articles. In particular,
government ownership consideration seeps into a state organ analysis,
inappropriately expanding the scope of Article 4. The apparent disregard of the
dichotomy approach envisioned in the ILC Draft Articles was apparently caused by
the lack of appreciation of the basic architecture of the instrument: analyses in a
series of disputes under the SCM Agreement were mainly focused on clarification
of the dictionary meaning of the term 'public body' insulated from the general
117
scheme of the ILC Draft Articles.
Compared to the analysis conducted under Articles 5 and 8, which requires
putting significant weight on government ownership," 8 the necessary analysis
within the context of Article 4 arguably excludes consideration of such ownership.
Since a state organ itself means a governmental agency and vice versa, it follows that
there hardly is a place for a government ownership inquiry in Article 4. Again, a
government owning a government or a government agency possessing a
government agency is not only impractical but also illogical. Nor is it consistent
with the language in Article 4. Application of the criterion developed in Articles 5
and 8 is not appropriate for the analysis of a state organ under Article 4.
122 See supra note 43; As for the unique cooperative structure between the governmental sector and
the SOEs, see Brandon Wang, Business Negotiation with China's SOE (State Owned Enterprises), BW
Advisers, (November, 2009), available at http://bwadvisers.com/yahoo-site-admin/assets/docs/
SOE.60104842.pdf (last visited on 15 Mar. 2014), at 5.
153 See supra note 43.
124 See Appellate Body Report, US.-AD/CVD, at paras 317-319. The Appellate Body also
commented in footnote 230 that 'the analysis of whether the conduct of a particular entity is
conduct of the government or a public body or conduct of a private body is indeed multi-faceted
and that an entity may display characteristics pointing into different directions!
125 See ibid., at para. 318.
126 See ibid., at paras 352-355.
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 139
Finally, the third element of Articles 5 and 8 analyses that is questionably inserted
to Article 4 discussions is the erroneous focus on the functions being carried out
127 See generally the arguments raised by the governments of the United States, European Union and
Japan in the WTO disputes of US.-DRAMs, EC-DRAMs, and Japan-DRAMs, respectively. The
underlying thinking of these countries' arguments is basically the same.
121 See ILC Commentary, at 42; supra note 39, Gustav F W Hamester GmbH & Co KG v. Republic of
Ghana, at paras 185-187.
JOURNAL OF WORLD TRADE
by an entity. One of the recent developments that affect the analysis of state
responsibility is the continuing expansion of the governmental functions. A
government is now participating in a wide range of activities and carries out a
variety of functions that do not necessarily fall under the conventional category of
governmental roles.' 29 Obviously, this is commensurate with the changing nature
of the society: as the society becomes ever more complex, the function required of
a government to regulate activities in the society equally changes.
Therefore, what are being observed are the instances where governmental
agencies carry out a wide range of functions. Whether a particular activity carried
out by a governmental agency falls under a typical category of governmental
functions is not critical in the inquiry of a state organ under Article 4, because
what matters here is the 'status' of the entity (organ) at issue, rather than the
'function' it carries out. Thus, if a governmental agency carries out a function that
is outside the scope of the traditional governmental functions, 130 the action or
inaction of the entity is still attributed to the state under the scheme of Article 4,
since regardless of the function it carries out it is a state organ in the first place.
Here again, an inquiry whether a function of the entity at issue falls under the
traditional governmental functions is what is raised in the context ofArticles 5 and
8.131 This inquiry is relevant and appropriate there because, as noted, the entities
involved are private entities (non-state organs) that are somehow being alleged to have
conducted a role, officially or behind the scenes, for the government. For these inquir-
ies, it is and should be important to look into whether the private entity at issue in fact
carries out a function that is normally conducted by a government.' 32 It may well be a
crucial piece of evidence in this respect.That inquiry, however, is not amenable to the
situation arising underArticle 4, because anything a state organ conducts is automati-
cally attributable to the state under the article.Therefore, in the course of conducting
anArticle 4 analysis, putting an emphasis on the function being played does not neces-
sarily lead to a proper conclusion. It should be noted that Article 4 itself recognizes a
broad range of functions by state organs by specifically including the term 'any other
function' in the provision.
Nonetheless, examples abound where the function being played turns out to
be a critical criterion in an Article 4 analysis. In Paushok v. Mongolia, for instance, an
international investment arbitration tribunal accorded a crucial weight on the
function an entity carries out in the course of determining whether it fell under
the category of state organs. 133 In the dispute, the arbitration tribunal examined
whether the Bank of Mongolia constituted a state organ within the meaning of
Article 4 of the ILC Draft Articles. The critical question posed there was whether
the Bank of Mongolia performs activities that only a state can perform. Given the
function being played by the bank such as exclusive right to issue currency,
formulation and implementation of monetary policy, acting as the government's
financial intermediary, supervising activities of other banks, and holding and
managing the state's reserves of foreign currencies, the answer to the question was
in the affirmative.1 34 While the decision in the dispute to determine the bank as a
state organ may have been an appropriate conclusion under the circumstances, the
extensive focus on the role the entity in question plays does not comply with the
basic structure ofArticle 4.
In the dispute, the tribunal attempted to differentiate the functions being
played by different entities. It stated that a huge difference exists between public
authorities established to operate and maintain a navigational canal or to construct
and maintain highways, and a central bank charged with the issuance of the
currency. 135 According to the rationale of the tribunal, an entity performing the
former function is not a state organ but that performing the latter function
constitutes a state organ. An emphasis on the function being played has apparently
stemmed from similar conflation of Article 4 and Article 5. Apparently, that the
tribunal uses the term 'state entities' to describe entities falling under Article 5 in
and of itself evidences the conflation. 136 The term 'state entities' appears to be
indeed vague and is not clear whether it means a state organ under Article 4 or a
non-state organ under Article 5, or both. In any event, in the tribunal's assessment
the distinction between 'state organs' and 'state entities' was primarily based on the
function they carried out. 13 7 So, according to the tribunal, both state organs and
state entities are established by the municipal law to carry out a specific
function. 138 If the function is a governmental one, then it becomes a state organ
under Article 4.139 If, on the other hand, it simply exercises a governmental
authority, it becomes a state entity under Article 5.140 This line of conflated
analysis invites critical confusion over the respective parameters of Article 4 and
Article 5 of the ILC Draft Articles.
133 Sergei Paushok, CJSC Golden East Company, CJSC Vostokneftegaz Company v. Government of Mongolia,
Awards on Jurisdiction and Liability, (28 Apr. 2011), at para. 583.
134 Ibid., at para. 582.
131 See ibid.
136 See ibid., at para. 585.
137 Ibid.
138 Ibid.
139 Ibid.
140 Ibid.
JOURNAL OF WORLD TRADE
It was also the functions being carried out by the entity at issue which was
one of the key consideration factors in treating public bodies as governmental
bodies (i.e., 'state organs' within the meaning of Article 4) in US.-AD/CVD.'4
Examination of the functions being carried out by an entity thus apparently
overrode its confirmed status.
Above discussions on three elements relating to non-state organs being
inappropriately stretched to state organs apparently show the discrepancy between
the scheme of the ILC Draft Articles and the actual application of the
jurisprudence to disputes of international economic law. While extensive
jurisprudence has been accumulated on when a private entity is regarded as a de
facto governmental agency within the meaning ofArticles 5 and 8 of the ILC Draft
Articles, discussions have been relatively rare as to when a state organ exists, thus
Article 4 applies. This poses a potentially important question, because then one
could bring an entity within the ambit of Article 4 relatively easily compared to
Articles 5 or 8 where one would have to prove the existence of necessary
requirements. Using the concept of a state organ or its equivalent such as a public
body, one could as easily circumvent satisfying such requirements. As for a state
organ, an inquiry into the government ownership is not appropriate, because it is
not logical that a state organ owns another state organ or a governmental agency
possesses another governmental agency. An entity should be either a state organ or
a non-state organ based on the municipal laws - mere ownership does not turn a
non-state organ into a state organ. Likewise, consideration of cultural and societal
contexts and functions being carried out for state organ analyses does not comply
with the general scheme of the ILC Draft Articles either.
The question then becomes how to ensure that the term 'state organ, is
interpreted and applied in conformity with the original architecture of Article 4 of
the ILC Draft Articles in the future. This is a task to be done by states in
negotiating treaty texts and by international courts in hearing disputes and
interpreting treaty texts containing the term based on Article 31 of the Vienna
Convention, in order to confirm 'the ordinary meaning' of the terms of a relevant
treaty 'in their context and in the light of the treaty's object and purpose.' 142 In
this process, given the problems identified above, following issues can be
considered to clarify the meaning and scope of Article 4.
In many instances, state parties have resorted to the ILC Draft Articles for
guidance on state responsibility. Thus, all in all the jurisprudence pronounced in
the ILC Draft Articles should provide a meaningful and concrete guidance to
address various issues in this context. Even assuming an absence of prior
discussions on the ILC Draft Articles exactly on point in specific cases, the ILC
instrument still stands ready to play a pivotal role in discussing this issue, as it
arguably reflects customary international law in this respect.1 43 At the same time,
states are entitled to choose special rules anyway in the formulation of rights and
obligations of the contracting parties, even if they somehow deviate from the
ordinary norms of international law. 144 This is particularly the case for a so-called
self-contained regime such as the WTO, 145 where disputes are raised and settled
through designated dispute settlement proceedings, exclusively based on the terms
and conditions of the treaty at issue. As such, states, if they so wish, will be able to
fine-tune 'state organ' and its equivalent in their treaty texts in a way that is
consistent with the overall design of the ILC Draft Articles. In other words, while
an agreed-upon, pronounced deviation is always an option, this is not a practical
one for the treaties of international economic law because they all declare, as
shown in recent cases, that they follow the ILC Draft Articles regarding this
particular issue. If so, fine-tuning of the term, including its adjustment and
elaboration, in the course of formulating, implementing and interpreting treaty
texts would offer a prudent solution.
interpretative issues arising in WTO dispute settlement are to be resolved through the application
of customary rules of interpretation of public international law. It is well settled in WTO case law
that the principles codified in Arts 31 and 32 of the Vienna Convention on the Law of
Treaties . . . are such customary rules.').
143 See supra note 4, Kaj Hob&r, at 533; Noble Ventures, Inc. v. Romania, Award, ICSID Case
No. ARB/01/11, (12 Oct. 2005), at para. 69 ('While those Draft Articles are not binding, they are
widely regarded as a codification of customary international law.').
... By way of example, the WTO Members have agreed upon to defer the occurrence of state
responsibility to the date of expiration of the reasonable period of time ('RPT') which is usually
well after the occurrence of actual violation of the WTO Agreements: the lapse of the RPT
usually arrives fifteen months (at the latest) after the adoption of the panel or the Appellate Body
reports. Given that the completion of the panel or the Appellate Body proceedings in turn takes
two to three years and that a Member initiates a panel proceeding quite some time after the
actual violation of the WTO Agreements, the expiration of the RPT in fact could mean four to
five years after the actual violation takes place. Thus, the WTO Members could choose special
rules for themselves, although different from the general rules of international law. This
qualification is further evident when one reads Art. 55 of the ILC Draft Articles. The article
stipulates: 'These articles do not apply where and to the extent that the conditions for the
existence of an internationally wrongful act or the content or implementation of the international
responsibility of a State are governed by special rules of international law.'
145 See supra note 6, Symposium: The ILC's State Responsibility Articles, at 773, 780.
JOURNAL OF WORLD TRADE
See Noble Ventures, Inc. v. Romania, Award, (12 Oct. 2005), ICSID Case No. ARB/01/ll,
reproduced in this volume as Annex 4, available at http://ita.law.uvic.ca/documents/Noble.pdf (last
visited on 1 Jan. 2014), at 69.
147 See, e.g., Ch. 11 of the Korea-U.S. FTA. Arts 11.6, 11.18 and Annex 11-B of the Chapter
attempt to protect the legitimate concern and policy considerations of the host state's government.
148 That is, one of the principles of treaty interpretation is that when the relevant provisions are
unclear, a treaty should be strictly interpreted in a manner that minimizes restrictions on national
sovereignty. See, e.g., Free Zones of Upper Savoy and District of Gex (Fr. v. Switz.), 1932 P.C.I.J. (ser.
A/B) No. 46 (June 7), at 167; The Case of the S.S. 'Lotus' ('The Lotus case'), 1927 EC.I.J. (ser. A)
No. 10 (September 7), at 18; Report of the Working Group of the International Law Commission:
Conclusions of the International Law Commission relating to UnilateralActs of States, U.N. GAOR, 58th
Sess., at 4, U.N. Doc. A/CN.4/L.703 (2006) (para. 7) ('A unilateral declaration entails obligations
for the formulating State only if it is stated in clear and specific terms. In the case of doubt as to
the scope of the obligations resulting from such a declaration, such obligations must be interpreted
in a restrictive manner.'); World Trade Organization, Appellate Body Report, EC-Measures
Concerning Meat and Meat Products, WT/DS26/AB/R and WT/DS48/AB/R, (16 Jan. 1998), at
para. 165, n. 144 ('The principle of in dubio mitius applies in interpreting treaties, in deference to
the sovereignty of states. If the meaning of a term is ambiguous, that meaning is to be preferred
which is less onerous to the party assuming an obligation, or which interferes less with the
territorial and personal supremacy of a party, or involves less general restrictions upon the
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 145
It bears repeating that conceptually the ILC Draft Articles takes a categorical,
bifurcated approach regarding the attribution of an entity's action to a state., 5' It is
either a state organ, in which case Article 4 applies, or a non-state organ, in which
case Articles 5 and 8 come into play. As it is logically impossible for an entity to
become both a state organ and a non-state organ at the same time, Article 4 and
Articles 5/8 cannot apply simultaneously. In actual litigation, alternative arguments
may be presented covering both situations - i.e., arguing the entity is a state organ
under Article 4, and if not, a non-state organ under the control of the government
under Article 8 - but the two situations are mutually exclusive at least
conceptually.
Bearing this in mind, one way to address this problem would be to accord
critical weight on the official legislative scheme and governmental structure of the
state at issue. The executive, judicial and legislative branches of a government, both
at the central and regional levels, in accordance with the constitutional and
12
statutory regime of a state, should be the subjects of scrutiny in this regard. 5
They should then constitute state organs under Article 4 and any action or
omission conducted by them is automatically attributable to the state. Disputes
parties.'); Gami Investments, Inc. v. The Government of the United Mexican States, NAFTA Ch. 11 Arb.
Trib. (15 Nov. 2004), 44 ILM 545 (2005), at para. 41.
149 See generally ibid.
1S0 See Report of the Working Group of the International Law Commission: Conclusions of the International
Law Commission Relating to Unilateral Acts of States, U.N. GAOR, 58th Sess., at 4, U.N. Doc.
A/CN.4/L.703 (2006), at para. 7.
1si See French Corporation v. Ministry of Defense of State X, ICC Case No. 8646, (22 Jun. 1998 Award),
15(2) ICC BULL., (2004), at 20-21.
152 The change in the regulatory regime for foreign investment sometimes requires an overhaul of the
existing judicial or administrative regime applicable to the area. This task is obviously quite
daunting. One scholar once commented that 'Law is a form of cultural expression and is not
readily transplantable from one culture to another without going through some process of
indigenization. French law is as much a reflection of the French culture as Russian law is a
reflection of Russian culture: See Mary Ann Glendon, Michael Wallace Gordon, and Christopher
Osakwe, Comparative Legal Traditions in a Nutshell, (St. Paul, Minn.: West, 1982), at 10.
JOURNAL OF WORLD TRADE
may arise as the parties sometimes have different views on the legislative scheme.
One way to reduce or avoid such differences in perceptions would be to elaborate
'state organs' as detailed as feasible in the treaty text.1 53 State organs should be
154
identified or identifiable early on - preferably at the time of treaty conclusion.
Indeed, the ILC Draft Articles is a default rule and parties may agree to adopt
more detailed provisions of their own choosing.' 55 Although this would entail
logistical burden in negotiation and application, such burden would not be too
much to manage, as a similar approach has already been experimented elsewhere,
though in somewhat different context, including WTO's Agreement on
Government Procurement where covered governmental entities are positively
enumerated. A mechanism of this sort would arguably enable state parties to clarify
the meaning of state organs and the scope of the treaty application. Abuse or
misapplication of the provision by parties could be prevented as much as
156
feasible.
As evidenced in recent disputes, the distinction between private action and
governmental action is becoming ever more complex and controversial. 157 For
instance, recent disputes involving China are laden with factual complexities,
which stem from a myriad of overlapping domestic laws and regulations.' 58 The
complexity is further exacerbated by the vagueness of the terms contained in
153 See, e.g., Korea-U.S. FTA, Art. 11.1, para. 3; footnote 4 attached to Art. 9.10; footnote 8 attached
to Art. 11.12, para. 1; Annex 17-A (Government Procurement).
114 See supra note 17, Treaty and Contract in Investment Arbitration, at 11.
's Article 55 of the ILC Draft Articles in fact provides:
Lex specialis
These articles do not apply where and to the extent that the conditions for the existence of an
internationally wrongful act or the content or implementation of the international responsibility
of a State are governed by special rules of international law.
It should be borne in mind, however, that although the articles are general in coverage, they represent
only default or residual rules; they do not necessarily apply in all cases. Particular treaty regimes or
rules of customary international law can establish their own special rules of responsibility - for
example, regarding remedies - that differ from those set forth in the articles. Supra note 38, at 336.
156 Socit6 Gn~ral de Surveillance S. A. v. Philippines, Decision of the Tribunal on Objections to
Jurisdiction, ICSID (W Bank) Case No. ARB/02/6 (2004), at para. 140-141. Also for instance,
Art. 42(1) of ICSID Convention stipulates that:
The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the
parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State
party to the dispute (including its rules on the conflict of laws) and such rules of international law
as may be applicable.
... See supra note 136; Eduardo Silva Romero, ICC Arbitration and State Contracts, 13(1) ICC BULL.,
(2002), at 34.
is For instance, the claimant in this dispute stated that key terms and criteria of the Chinese
measures are quite vague and undefined. The complexity of the factual situation is also evidenced
by the fact that fifty-seven pages out of ninety-three pages of the First Written Submission of the
United States are devoted to the factual explanations of the challenged measures. See the First
Written Submission of the United States in US.-AD/CVD, available at the USTR's website of
www.ustr.gov (last visited on 15 Mar. 2014), at paras 196, 340.
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 147
159 See World Trade Organization, Panel Report, United States-Countervailing Duty Investigations on
Dynamic Random Access Memory Semiconductors from Korea, WT/DS296/R (21 Feb. 2005), at paras
7.6-7.8, 7.49-7.50, 7.59; EC-DRAMs, at paras 7.38-7.46.
s0 See Hyun-Hoon Lee, Donghyun Park & Jing Wang, Different Types of Firms, Products, and Directions
of Trade: The Case of the People's Republic of China, ADB Working Paper Series on Regional
Economic Integration, No. 101, (Aug. 2012), at 3.
161 See Yuan Ding, Hua Zhang & Junxi Zhang, Private v. State Ownership and Earnings Management:
Evidence from Chinese Listed Companies, 15 (2) Corporate Governance: An International Review,
available at http://www.ceibs.edu/facultyCV/dyuan/Publications/corg-556.pdf (last visited on 15
Mar. 2014), at 228.
162 See W Richard Frederick, Enhancing the Role of the Boards of Directors of State-Owned Enterprises,
OECD Corporate Governance Working Papers No. 2, (2011), available at http://78.41.128.130/
dataoecd/14/4/47782032.pdf (last visited on 15 Mar. 2014), at 3.
163 See Hua Wang & Yanhong Jin, Industrial Ownership and Environmental Performance: Evidence from
China, World Bank Policy Research Working Paper 2936, (Dec. 2002), available at http://
ehbrary.worldbank.org/doi/pdf/10.1596/1813-9450-2936(last visited on 15 Mar. 2014), at 3.
164 See Ping Wang, Understanding Working with Chinese State-Owned Enterprises, (1 Mar. 2011), available
at https://www.ventureoutsource.com/contract-nianufacturing/understanding-working-chinese-state
-owned-enterprises (last visited on 15 Mar. 2014).
,65 See supra note 30, at 151, 170.
JOURNAL OF WORLD TRADE
protection does not attach and the government can be sued in the court of other
countries as well. 16 8 In other words, the government virtually becomes the same as
a private entity to the extent this commercial contract is concerned: if a state
apparatus operates as if it were a commercial entity, it should be treated as such in
all respects of the contract concerned, unless compelling reasons exist.
The basic idea behind this concept may offer a meaningful guideline in the
discussion of state organs as well. When a question is raised as to the status of an
entity under the constitutional and organizational structure of a state for the
purpose of an Article 4 inquiry, one may analyse the nature of the function the
entity performs, as opposed to canvassing the examples of normal governmental
activities, borrowing the similar concept from the restrictive state immunity
jurisprudence. Depending upon whether the function is commercial or regulatory
in nature, different outcomes may follow.
In this regard, it should be noted that the ILC Commentary states that 'it is
irrelevant for the purposes of attribution that the conduct of a state organ may be
classified as 'commercial' or as acta iure gestionis.' 169 This statement is an accurate
reflection of the issue because state responsibility should attach as a result of a
conduct of a state organ regardless of the nature of the conduct at issue. Under
Article 4, all conduct by a state organ lead to the establishment of state responsibility.
This basic principle, however, does not necessarily mean that the function - more
general and broader term than conduct - should not be considered in the course of
determining what a state organ is and what kind of status an entity being
70
examined possesses under the governmental structure of the state.1
Thus, if necessary, adding an analysis of this line would help introduce a more
systematic and persuasive mechanism to look into the function of an entity in an
Article 4 analysis. Incorporation of such analytical tools into the discussion of state
organs would help further clarify the exact meaning of state organs within the
meaning ofArticle 4 of the ILC Draft Articles.
Although there are some exceptions, international law basically regulates the
action of a state and its government. As a corollary, private action which does not
Stephen M. Schwebel, On Whether the Breach by a State of a Contract with an Alien Is a Breach of
International Law, in 'International Law at the Time of Its Codification: Essays in Honour of
Robert Ago', (1987), at 408-409.
169 ILC Commentary, at 41; see also Sergei Paushok v. Mongolia, supra note 133, at para. 584.
70 See Surya P. Subedi, International Investment Law: Reconciling Policy and Principle, (Hart Publishing
Co., 2008), at 160.
JOURNAL OF WORLD TRADE
have close relevance to a government stays outside the realm of international law.
One of the instances of private entities' possessing close relevance to a
governmental sector is the situation where ostensibly private action should in fact
be treated as governmental action because the private entity in question exercises
governmental authority or it acts under the control of a government. Both
conceptually and practically, this jurisprudence is crucial to catch and prevent a
circumvention effort by a certain government to avoid the reach of an
international treaty by hiding behind the backs of the private entity proxies.
Articles 5 and 8 of the ILC Draft Articles reflect this aspect of the issue and offer
an effective safeguard to enforce international legal obligations in all spectrums. As
such, focus has been so far placed on clarifying Articles 5 and 8 for the purpose of
interpreting and applying the ILC Draft Articles.
What has been relatively silent in this area, however, is the equally important
discussion on Article 4 and 'state organs' for the purpose of applying state
responsibility. The structure of the ILC Draft Articles indicates that Article 4
coverage constitutes one of the two pillars: Article 4 covering state organs while
Articles 5 and 8 covering non-state organs. Although Article 4 explicitly addresses
different and distinct situations, analyses developed from and relevant to Articles 5
and 8 have been still transplanted and applied in the Article 4 discussions without
any proper modification. Such an overlap would only confound the discussions on
state organs. It is true that sometimes governments attempt to circumvent their
treaty obligations by creating various disguised entities and proxies, and that having
a flexible concept of state organ may help deter this phenomenon. However, these
instances are in fact designed to be captured and regulated by Articles 5 and 8, not
Article 4. Expanding the rationale applicable to Articles 5 and 8 to Article 4 which
is designed to address a different scenario, is apparently not consistent with the
basic structure of the ILC Draft Articles and further complicates the discussions on
state responsibility. Arguably, state organs under Article 4 are confined to formal
arms or organs of a government and exclude government-owned or
government-controlled entities. These entities will be captured by Articles 5 and 8
as long as these provisions are effectively enforced. Nonetheless, recent disputes of
international economic law addressing state organs apparently conflate and mingle
Article 4 situations and Article 5/8 situations.
This problem is further exacerbated by the increasing close interaction
between the governmental sector and private sector in many states.' 7 ' In a world
where governmental sector and private sector are closely intertwined, it is not
171 See supra note 6, Symposium: The ILC's State Responsibility Articles, at 773, 782 ('The degree to
which states should be held responsible for conduct involving private actors is an increasingly
significant contemporary issue, as non-state actors such as Al Qaeda, Somali warlords, multinational
corporations, and nongovernmental organizations play greater international roles, and as
STATE RESPONSIBILITY AND GOVERNMENT-AFFILIATED ENTITIES 151
clear when private entities exercise the governmental function. Such uncertainty
then leads to the complication and intensification of disputes among states. The
increasing Sino-U.S. disputes over the Chinese SOEs at the WTO and the
development in TPP negotiations offer a vivid example.' 72 In China, often times it
is difficult to distinguish, with clarity, individual roles of the government, SOEs
and the private sector.17 3 Often times, both SOEs and private enterprises engage
in collective economic activities to attain the policy objectives of the
government, 174 and the interaction between SOEs and private enterprises also
takes place robustly.175 Perhaps, the division becomes more blurry as
government-led 'reform' efforts are recently being made to bring the SOEs in line
with the private enterprises' practice. 176 Abiding by the structure of ILC Draft
Articles would arguably ensure that uncertainties and ensuing disputes can be
avoided as much as feasible. Considering the sensitivity the state responsibility
jurisprudence may raise with respect to state sovereignty, 177 it is imperative that
the basic architecture of the ILC Draft Articles be preserved as it is originally
designed unless parties' intention otherwise is clear and unambiguous in a
particular treaty.
One should remain mindful that depending upon how the term 'state organ'
is defined, the scope of the treaty application and resulting state responsibility
fluctuate by wide margin. While looking at the same treaty text, the two state
parties may possess starkly different views on the scope of obligation arising from
the treaty at issue.
governments privatize some traditional functions and enter into a variety of public-private
collaborations with international organizations and private actors:).
172 See Xuejun Xie, /TO Rules on State-Owned Enterprises and Implicationsfor Chinese SOE Reforms,
(3)6 Overseas Young Chinese Forum (2001), available at http://www.oycf.org/oycfold/httpdocs/
Perspectives/18_093002/WTO_Rules.htm (last visited on 15 Mar. 2014).
173 See China's Reform Challenges, available at http://www.mrglobalization.com/globalisation-winners/
466-chinas-reforim-challenges (last visited on 15 Mar. 2014).
174 See Charles Wang & Dr Lianfa Li, State-Owned Enterprise Reform in China, Economic System
Reform in China, Peking University, China, (28 Jul. 2010), available at http://people.ischool.
berkeley.edu/-charleswang/Articles.pdf (last visited on 15 Mar. 2014), at 1.
175 See Ruilong Yang & Yongsheng Zhang, Globalization and China's SOEs Reform, in Clement Allan
Tisdell ed., 'Globalisation and World Economic Policies: Effects and Policy Responses of Nations
and Their Groupings', (Serials Publications, 2005), at 7.
See Jonathan R. Woetzel, Reassessing China's State-Owned Enterprises,The McKinsey Quarterly, (Jul.
2008), available at http://relooney.fatcow.com/00 New_2476.pdf (last visited on 15 Mar. 2014), at
3.
177 See World Trade Organization, Appellate Body Report, US.-Softwood Lumber IV, at para. 64;
Appellate Body Report, US.-DRAMS, supra note 83, at para. 115.