Tag Archives: Law

流用

HOME
タグ : Law

Arbitration in Europe: Article 2 of the European Convention on International Commercial Arbitration

February 5, 2015
By 19692

Nērika Lizinska, a Sylff fellow at the University of Latvia, used her Sylff Research Abroad (SRA) award to research state participation in international commercial arbitration in 2014. She conducted her research at the Swiss Institute of Comparative Law. It was in Switzerland that the European Convention on International Commercial Arbitration—which plays a significant role on this issue—was signed. A summary of her research regarding Article 2 of the convention is presented below.

* * *

Introduction

Everything starts with an idea. Parties then enter into a commercial contract with the hope of profiting from it in an optimistic frame of mind. At this stage, unfortunately, not all parties think that a dispute might someday arise and that a mechanism would be needed to resolve it. However, international trade and commercial transactions are specific and linked to particular legal systems (which laws are to be applied and which court will hear the case, etc.), that need to be agreed upon between the parties in any contract.

Businesses mainly choose arbitration (arbitration is the “settlement of a dispute by the decision of a person or persons chosen and accepted as judges”)¹ as a mechanism for dispute resolution, instead of litigation (litigation is “a formal process whereby claims are taken through court and conducted in public. Judgements are binding on the parties subject to rights of appeal” ² ) due to its neutrality (parties can choose the seat of arbitration), flexibility (“parties may control the manner of the proceedings having regard to the nature of the dispute and to their precise needs”), ³finality (there is no appeal), confidentiality, and speed of resolution. “Parties in cross-border disputes may be unfamiliar with the complicated procedure of litigation and the language of the national court. . . . [M]ost businesses want a quick and efficient remedy and are reluctant to wait for an extended period for their disputes to be resolved through national courts.”⁴

Nowadays, it is internationally accepted that a state, too, can conclude international commercial contracts with a private party (for example, to purchase goods) and can choose arbitration as a dispute resolution mechanism by adding an arbitration clause in a commercial contract. This means that in the case a dispute that cannot be otherwise resolved between the parties (for example, by negotiation or mediation, which “is essentially a negotiation facilitated by a neutral third party”)⁵, a claimant can seek arbitration⁶ . Although a state can act like a private party and has similar rights, there are plenty of issues and risks for contracting parties. The main risk is that when a state becomes a contractual party, dispute resolution can take a considerably different course from general procedures. This is why the inclusion of an arbitration clause for a commercial party in such agreements has become a precondition for concluding a commercial contract with the state. The state, too, has many considerations in this regard.

History and Application

At the international level, a document governing the capacity of states to conclude arbitration agreements is the European Convention on International Commercial Arbitration⁷ (hereinafter called the European Convention), signed on April 21, 1961, in Geneva at a meeting convened by United Nations Economic Commission for Europe. More than 30 countries are currently party to the European Convention, including Cuba, Burkina Faso, the Russian Federation, and Turkey,⁸ which became contracting parties in accordance with the provisions of Article 10 (1) and (2) of the European Convention.

Provisions regarding the application of the European Convention are stated in Article 1 (1), according to which “this Convention shall apply: (a) to arbitration agreements⁹ concluded for the purpose of settling disputes arising from international trade between physical or legal persons having, when concluding the agreement, their habitual place of residence or their seat in different Contracting States; (b) to arbitral procedures and awards based on agreements referred to in paragraph 1 (a) above.” This means that if arbitration agreements concluded for the purpose of settling disputes arising from international trade between physical or legal persons having, when concluding the agreement, their habitual place of residence or their seat in countries that are not contracting states—such as the United Kingdom, the Netherlands, and Switzerland—the European Convention will not apply.

Historically, “the intention of the European Convention was to introduce the first uniform set of rules concerning international arbitration in order to remove the obstacles created by widely differing national arbitration laws. With its scope focusing on Europe, the aim was to facilitate and promote European trade between the (back then) Eastern and Western block.”¹⁰ “When the European Convention was signed, . . . Europe was still dominated by the East-West conflict. The different political and economic systems made trade between parties coming from the two blocks very difficult. Each side had little confidence in the courts of the other side with the consequence arbitration was often the only option for dispute settlement acceptable to all parties. . . . The main purpose of the European Convention was to overcome these psychological barriers and the legal problems which were affecting arbitration in the East-West trade in Europe.” ¹¹In addition, it should be noted that “in certain countries that were to become Contracting States of the European Convention, public corporate bodies were not allowed to enter into arbitration agreements. This led the draftsmen of the European Convention to include Article 2 (1).”¹²

Right of States to Resort to Arbitration

With regard to the historical circumstances, Article 2 (1) of the European Convention states as follows: “. . . legal persons considered by the law which is applicable to them as ‘legal persons of public law’ have the right to conclude valid arbitration agreements.” The term “legal persons of public law” is used here instead of “state” in order to cover a broader scope of state institutions, such as state agencies, public entities, and governmental institutions.

There have often been cases in which the state argues that in accordance with its domestic laws, it is not entitled (lack of capacity issue) to enter into an arbitration agreement, thus an agreement, even if legally concluded, does not have legal force. There have also been cases where a state party concludes an agreement but then relies on its national (internal) law to prove that a contract is null and void, as its national law prohibits resorting to arbitration. For example, Article 2060 of the Civil Code of France prohibits French state public bodies and institutions from concluding arbitration agreements.¹³ Article 487 of the Latvian Civil Procedure Law states, “any civil dispute may be referred for resolution to an arbitration court, with the exception of a dispute: . . . 2) in which a party, albeit even one, is a State or local government institution or the award of the arbitration court may affect the rights of State or local government institutions.”¹⁴ In Hungary, Act CXCVI of 2011 on National Assets, which came into force on January 1, 2012, states in Article 17 (3) that “in civil law agreements concerning national assets located on the territory of Hungary, the governing language may only be Hungarian, the governing law may only be Hungarian and the jurisdiction for the settlement of disputes may only be that of the Hungarian state courts.” ¹⁵At the same time, for example, Article 177 (2) of the Swiss Private International Act contains advanced regulation stating, “if a party to the arbitration agreement is a state, a stateheld enterprise or a state owned organization, it cannot rely on its own law in order to contest its capacity to be a party to an arbitration or the arbitrability of a dispute covered by the arbitration agreement.”¹⁶

Belgium also has special regulations.¹⁷ In fact, Belgium was involved in one of the first cases¹⁸ in which the court had to decide whether a state can invoke its domestic laws to avoid arbitral jurisdiction. “Benteler v. Belgium provides further authority for the proposition that a commercial arbitration between a [s]tate and a private party cannot be avoided simply by the [s]tate’s invoking a prohibition in its own law against arbitration by the [s]tate.”¹⁹ After this ad hoc decision, Belgium chose to use its rights provided in Article 2 (2) of the European Convention.

Declarations

Article 2 (2) of the European Convention stipulates, “On signing, ratifying or acceding to this Convention any State shall be entitled to declare that it limits the above faculty to such conditions as may be stated in its declaration.” “The content of Article II met strong opposition from Civil Law countries where public entities are, generally, prohibited from resorting to arbitration. To accommodate these States, which otherwise would have not ratified the Convention, a second paragraph providing for the possibility of a reservation was added to Art. II.”²⁰

One may say that to some extent the European Convention has reached the objective set out in its Preamble,²¹ because at the present time only Belgium has such a declaration, as provided for in Article 2 (2). After the Benteler v. Belgium case, Belgium stated that “in accordance with article II, paragraph 2, of the [European] Convention, the Belgian Government declares that in Belgium only the State has . . . the faculty to conclude arbitration agreements” ²²to avoid similar cases in the future.

When Latvia ratified the European Convention, it also made a declaration in accordance with Article 2 (2). It stated that Latvian state and local government authorities have no right to conclude arbitration agreements. At a time when there were discussions and debates about the withdrawal of the declaration, one of the draft laws stipulated that “local government authorities before concluding the arbitration agreement shall transmit a draft to the Ministry of Environmental Protection and Regional Development to obtain opinion from the State Chancellery that the arbitration agreement is in conformity with the state interest.”²³ Accordingly, if such a law were to be adopted, the State Chancellery would need to assess whether the arbitration clause included in international commercial contracts (between a local authority and a private party) is consistent with the public interest. The questions this gave rise to were, what is the state interest (common good), how to determine it, and is it possible only from the content of the arbitration agreement to determine whether the state interest will be protected?

On December 23, 2013, Latvia notified the Secretary General of the United Nations of its full withdrawal of the declaration under Article II (2), made upon accession in 2003. Accordingly, these fundamental changes can be considered a new page for Latvian state and local government authorities and practitioners to record their experiences in the history of international commercial arbitration and for scientific researchers to document new ideas and findings in the field of arbitration.

¹A.S. Hornby & Ruse, Oxford ESL Dictionary, Oxford University Press, 1997, p. 30.
²Peter Fenn, Commercial Conflict Management and Dispute Resolution, Spon Press, 2012, p. 12.
³Ibid, p. 89.
⁴Sameer Sattar, “National Courts and International Arbitration: A Double-edged Sword?” Journal of International Arbitration, 27 (1), Kluwer Law International, 2010, pp. 51-52.
⁵What is mediation? Detailed information available at http://adr.findlaw.com/mediation/what-is-mediation-.html.
⁶State participation in international arbitration can be analyzed from various aspects, for example, whether arbitration as a dispute resolution mechanism is suitable for state contracts in general, is it possible to properly protect state interests in arbitration, and whether an arbitration clause in a state contract automatically implies a waiver of state immunity from jurisdiction and enforcement, etc.
⁷European Convention on International Commercial Arbitration, available at https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-2&chapter=22&lang=en.
⁸Full list of contracting states available at https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-2&chapter=22&lang=en.
⁹Article 1 (2) of the European Convention gives the following definitions: (a) the term “arbitration agreement” shall mean either an arbitral clause in a contract or an arbitration agreement being signed by the parties, or contained in an exchange of letters, telegrams, or in a communication by teleprinter and, in relations between States whose laws do not require that an arbitration agreement be made in writing, any arbitration agreement concluded in the form authorized by these laws; (b) as the term “arbitration” shall mean not only settlement by arbitrators appointed for each case (ad hoc arbitration) but also by permanent arbitral institutions; (c) the term “seat” shall mean the place of the situation of the establishment that has made the arbitration agreement.
¹⁰Alice Fremuth-Wolf, “Issues Specific to Arbitration in Europe: The European Convention on International Arbitration as a Tool to Remedy Pathological Arbitration Agreements—There’s Still Life in the Old Dog Yet!” in Chapter 1 of C. Klausegger, P. Klein, et.al. (eds.), Austrian Yearbook on International Arbitration 2013, pp. 60–61.
¹¹Stefan Michael Kroll, “Issues Specific to Arbitration in Europe: The European Convention on International Commercial Arbitration—The Tale of a Sleeping Beauty,” in Chapter 1 of C. Klausegger, P.Klein, et al. (eds.), Austrian Yearbook on International Arbitration 2013, p. 3.
¹²Nikolaus Pitkowitz, “Issues Specific to Arbitration in Europe: Is There Still a Scope of Application of the European Convention on International Commercial Arbitration?” In Chapter 1 of C. Klausegger, P. Klein, et.al. (eds.), Austrian Yearbook on International Arbitration 2013, p. 106.
¹³Article 2060 of the Civil Code of France, Title XVI of Arbitration Agreements, states, “One may not enter into arbitration agreements in matters of status and capacity of the persons, in those relating to divorce and judicial separation or on controversies concerning public bodies and institutions and more generally in all matters in which public policy is concerned, (Act no 75-596 of 9 July 1975), however, categories of public institutions of an industrial or commercial character may be authorized by decree to enter into arbitration agreements,” available at http://www.legifrance.gouv.fr/Traductions/en-English/Legifrance-translations.
¹⁴Latvian Civil Procedure Law, Civilprocesa likums. 14th edition. Rīga: TNA, 2010.
¹⁵Gabor Bardos, “The Award and the Courts, Hungary: New Rules on Arbitration Related to National Assets” in Chapter 4 of C.Klausegger, P.Klein, et al. (eds), Austrian Yearbook on International Arbitration 2013, p. 181.
¹⁶Swiss Private International Law Act available at https://www.swissarbitration.org/sa/en/rules.php.
¹⁷See Article 1676.2 of Belgium Code Judiciaire, May 19, 1998, available at http://www.jus.uio.no/lm/belgium.code.judicature.1998/1676.2.html.
¹⁸Ad Hoc Award of November 18, 1983, Benteler v. Belgian State, Journal of International Arbitration, 1984, pp.184–90.
¹⁹Jan Paulsson, “May a State Invoke Its Internal Law to Repudiate Consent to International Commercial Arbitration? Reflections On the Benteler v. Belgium Preliminary Award,” Arbitration International, Vol. 2, No. 2 (1986), p. 95.
²⁰Albert Jan Van Den Berg (general ed.), Yearbook Commercial Arbitration, Volume XX, 1995, Kluwer, p. 1017.
²¹The Preamble of the European Convention states as follows: “. . . desirous of promoting the development of European trade by, as far as possible, removing certain difficulties that may impede the organization and operation of international commercial arbitration in relations between physical or legal persons of different European countries, have agreed on the following provisions.”
²²Declarations and reservations are available at https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-2&chapter=22&lang=en
²³Draft law available in Latvian, “Grozījums likumā ‘Par Eiropas konvenciju par Starptautisko komercšķīrējtiesu,’” available at http://titania.saeima.lv/LIVS11/saeimalivs11.nsf/0/ED4CEB6E5CF3B1A5C22579A00044FB8C?.

HOME
タグ : Law

Portland State Fellow Makes Presentation at Waseda University Conference

November 5, 2013

Bryan Matthew Thompson, a Sylff fellow from 2009 to 2010 at Portland State University, delivered a presentation at the 3rd International Conference on Government Performance Management and Leadership (www.icw2013.org) at Waseda University in Tokyo.

The conference was held on the theme of governance, leadership, and performance (“Accelerating Innovation in Government Performance through International Partnership”) and took place in September 2013 at the International Conference Center of Waseda University.

Bryan analyzed the controversial lay judge system in Japan that was launched in 2009, comparing it to the jury system in the United States and pointing out that the strict confidentiality restrictions in Japan may not be in tune with the democracy-enhancing aims of the system.

Bryan recently earned his juris doctor (JD) at Lewis and Clark Law School in Portland, Oregon (USA). He received a Sylff fellowship in 2009–10 and earned a master’s degree in political science from Portland State University in 2010.

HOME
タグ : Law

Japan’s Ratification of the Rome Statute of the International Criminal Court

May 20, 2013
By 19657

Salla Garský,¹ a Sylff fellow at the University of Helsinki, used her Sylff Research Abroad (SRA) award to research the process of Japan’s ratification of the Rome Statue of the International Criminal Court (ICC). She presents an objective explanation of why Japan’s ratification was prolonged until 2007 after voting for the Statue in 1998.

* * *

Salla Garský, in front of the Okuma Auditorium at Waseda University’s main campus.

The Rome Statute creating the International Criminal Court (ICC) was adopted in 1998 by 120 countries, including Japan. Since 2002, when the Rome Statue came into force, the ICC has been a permanent and independent institution. Its establishment was a historical achievement that permanently conferred jurisdiction to punish the masterminds behind heinous crimes, including genocide, war crimes, crimes against humanity, and the crime of aggression. No one who commits these crimes will thus be able to escape the consequences.

However, the power of the ICC depends entirely on member states because it has no resources of its own to make arrests and is financed by the state parties. Therefore, it is important to study the ratification process of the Rome Statute and explore potential obstacles for states’ decision to join the ICC.

Japan acceded to the Statute fairly late. While most ICC member states had ratified it by 2003, Japanese ratification did not come until July 2007². The objective of my research in Japan was to gather empirical evidence to answer the question: Why did it take almost 10 years for Japan to join an institution that it presumably supported from the beginning? Literature on Japan’s accession to the ICC has thus far focused on the legal aspects³. My research is aimed at contributing a political aspect to this literature by analyzing different political motivations behind the ratification process. This short article discusses some of the findings of my research in Japan.

Although I am interested in the political aspects of the ratification process, it is impossible to deny the role of the legal aspects. When countries consider joining the ICC, amendments to national laws are usually necessary. The Japanese legal system is a mix of civil and common law, with civil law characteristics, adopted from the German legal system, dominating the system⁴. Japan’s ratification of the Rome Statute required the deliberation of three main legal issues.

The Peace Bell, which Salla rang on her trip to Hiroshima.

First, Japan had to consider whether and how to accommodate the crimes under the jurisdiction of the ICC with the national Criminal Code, which is very specific and, as such, takes time to amend. As Arai et al. point out, Japan decided not to amend the Criminal Code because almost all crimes under the ICC’s jurisdiction, with a few, rather irrelevant exceptions, are already covered by Japanese laws.⁵

As Meierhenrich and Ko elaborate, another legal issue, related to the jurisdiction of the ICC, was Article 9 of the Japanese Constitution:

“Aspiring sincerely to an international peace based on justice and order, the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes. In order to accomplish the aim of the preceding paragraph, land, sea, and air forces, as well as other war potential, will never be maintained. The right of belligerency of the state will not be recognized.”⁶

Because of this paragraph, legislating war-related laws was initially complicated, as this would imply the hypothetical possibility of Japan engaging in war-related activities. This obstacle, however, was overcome in 2004, when the Diet adopted a package of emergency legislation that enabled Japan to ratify the 1977 Additional Protocols of the Geneva Conventions.⁷

The last important legal issue was cooperation with the ICC, which Japan resolved by adopting the ICC Cooperation Law, consisting of 65 articles⁸. Altogether, the elaborate legal review of national laws and the Rome Statute, as well as the preparation of the ICC Cooperation Law, slowed down Japan’s accession to the ICC.

Besides legal questions, according to the interviews I conducted in Japan, the US policy on the ICC also delayed ratification. While the Bill Clinton administration was not enthusiastic about the ICC, the George W. Bush administration was openly opposed, starting a global campaign against the ICC and not hesitating to voice its dismay about the institution in bilateral and multilateral forums⁹. Since the United States is Japan’s most important ally, this US policy affected Japan’s willingness to join the ICC. The US opposition against the ICC started to ease after 2005, though, when the UN Security Council referred the situation in Darfur to the ICC. Shortly thereafter, Japan started to consider ratifying the Rome Statute.¹⁰

Another aspect that delayed Japan’s ratification of the Rome Statute was money. Due to its high gross domestic income, Japan was slated to become the main contributor to the ICC. Article 117 of the Rome Statute, defining the assessment of the contribution, left some room for interpretation, and Japan initially calculated that its contribution to the ICC would be 28% of the total budget.

Japan wanted to apply the UN ceiling of 22% to its ICC contribution, but the European Union hesitated to accept the proposal. Eventually, the ICC Assembly of States Parties approved the 22% ceiling, and ratification began to materialize.¹¹

Words of Pope John Paul II to the people of Hiroshima, which have been the beacon guiding Salla's research.

To conclude, unlike the European countries, most of which wanted to join the ICC quickly in order to show their support for the new Court, Japan was not in a hurry to ratify the Rome Statute. Rather, Japan wanted to wait and see how the newly established ICC would develop before it joined. In general, there was not much political pressure in Japan to join the ICC, but the UN Security Council’s referral of the Darfur case to the ICC clearly had a positive influence on Japan’s decision.

The impact of the Jun’ichiro Koizumi administration on the ratification process has not yet been researched in depth, and this will be the subject of my future research. Tentatively, the delay in ratification can be explained in terms of the Japanese way of dealing with international treaties, which was described in many of the interviews I conducted.

Today, Japan is an active member of the ICC, and one of the Judges, Kuniko Ozaki, is Japanese. I hope that in the future, Japan will start to actively promote the ICC in Asia, as the region is clearly underrepresented in the organization.

¹ I want to thank the Tokyo Foundation for making my research in Japan possible. I also wholeheartedly thank my Japanese advisor, Professor Mariko Kawano of the Waseda University’s School of Law, for allowing me to visit her institution and for her warm and most helpful guidance with my research in Japan. I am also grateful to Professors Shuichi Furuya (Waseda University), Akira Mayama (Osaka University), Osamu Niikura (Ayoama Gakuin University), and Hideaki Shinoda (Hiroshima University) for discussing and sharing their experiences regarding Japanese policy on the ICC with me and Keita Sugai (Tokyo Foundation) for his helpfulness. Furthermore, I am indebted to the Embassy of Finland in Tokyo, in particular Ambassador Jari Gustafsson and First Secretary Jukka Pajarinen, and the Delegation of the European Union to Japan. Lastly, I want to thank Juha Hopia, Suvi Huikuri, Sergey Kryukov, Riikka Rantala, and Asaka Taniyama for making my stay in Japan unforgettable. Unless otherwise mentioned, the opinions expressed in this paper are solely my own.
² United Nations Treaty Collection, “Status of Treaties,” Multilateral Treaties Deposited with the Secretary-General, 2012. Available at: <http://treaties.un.org/Pages/ParticipationStatus.aspx> (visited March 8, 2013).
³ Kyo Arai, Akira Mayama, and Osamu Yoshida, “Accession of Japan to the International Criminal Court: Japan’s Accession to the ICC Statute and the ICC Cooperation Law,” Japanese Yearbook of International Law, 51 (2008): 359–383; Kanako Takayama, “Participation in the ICC and the National Criminal Law of Japan,” Japanese Yearbook of International Law, 51 (2008): 348–408; Yasushi Masaki, “Japan’s Entry to the International Criminal Court and the Legal Challenges It Faced,” Japanese Yearbook of International Law, 51 (2008): 409–426; Jens Meierhenrich and Keiko Ko, “How Do States Join the International Criminal Court? The Implementation of the Rome Statute in Japan,” Journal of International Criminal Justice, 7/2 (2009): 233–256.
⁴ Veronica Taylor, Robert R. Britt, Kyoko Ishida, and John Chaffee, “Introduction: Nature of the Japanese Legal System,” Business Law in Japan, 1 (2008): 3–8; CIA, The World Factbook: Legal System, March 5, 2013. Available at: <https://www.cia.gov/library/publications/the-world-factbook/fields/2100.html> (visited March 8, 2013).
⁵ Arai, Mayama, and Yoshida, “Japan’s Accession,” p. 365ff.
⁶ The Constitution of Japan, November 3, 1946. Available at: <http://www.kantei.go.jp/foreign/constitution_and_government_of_japan/constitution_e.html> (visited March 8, 2013).
⁷ Meierhenrich and Ko, “Rome Statue in Japan,” p. 237ff.
⁸ Takayama, “Participation in the ICC,” p. 388.
⁹ John R. Bolton, “Letter to UN Secretary General Kofi Annan,” Digest of United States Practice in International Law 2002, Sally J. Cummins and David P. Stewart, eds., 148–149, Office of the Legal Adviser, United States Department of State (Washington, D.C.: International Law Institute, 2002); H.R. 4775, Title II, American Service-Members’ Protection Act (Washington D.C.: Congress of the United States of America, January 23, 2002); H.R. 4818, Consolidated Appropriations Act, 2005. Washington D.C.: Congress of the United States of America, January 20, 2004; Human Rights First, “U.S. Threatens to Cut Aid to Countries That Support the ICC,” December 7, 2004. Available at: <http://www.iccnow.org/documents/HRF_Nethercutt_07Dec04.pdf> (visited March 8, 2013); John R. Bolton, “American Justice and the International Criminal Court: Remarks at the American Enterprise Institute,” Washington, D.C., November 3, 2003; Philip T. Reeker, “Press Statement: U.S. Initiative on the International Criminal Court,” U.S. Department of State, June 13, 2000.
¹⁰ Masaki, “Japan’s Entry to the ICC,” p. 418ff.
¹¹ Ibid., p. 415ff.

HOME
タグ : Law

Why Regulate Hedge Funds? : Comments on the Brazilian Experience

August 20, 2012
By 19674

In June 2007, two hedge funds linked to Bear Stearns, a major American investment bank, announced losses of US$16 billion, forcing the bank to inject that amount to prevent the collapse of both funds. These funds operated with a high degree of leverage, based on derivatives financed with funds borrowed from large banks, guaranteed with securities backed by mortgages and other debts: the Collateralized Debt Obligations (CDO). The funds together accounted for approximately US$18 billion in bonds (of which US$16.2 billion had been purchased with borrowed funds), which led Bear Stearns Asset Management to play a prominent role in the CDO market.

The losses represented the first signs of the serious financial crisis that would reach its peak the following year, in 2008, when Bear Stearns itself was bought by JP Morgan Chase in a deal for only US$236 million, aimed at avoiding bankruptcy.

Despite its seriousness, this was not the first time that the failure of a hedge fund triggered panic on international financial markets and weakened them. Ten years earlier, in 1998, the collapse of Long-Term Capital Management (LTCM) forced the Fed, along with 14 financial institutions, to orchestrate a recapitalization of US$0.6 billion. Like Bear Stearns, LTCM had borrowed large amounts from the banking sector, allowing it to take bets that exceeded the notional value of US$1.5 trillion, while shareholders capital was no more than US$4.8 billion. This fund was, arguably, the most active user of interest rate swaps in the world, with contracts that totaled US$750 billion. The magnitude of the two events and the similarity of strategies used to obtain high returns—high degree of leverage and loans from banks—have raised questions about the effectiveness of regulatory initiatives to avoid the recurrence of systemic crisis.

Debate on Regulation

Traditionally, supporters of “laissez faire” argue that hedge funds increase the efficiency and liquidity of the financial system, either by spreading risk among a large number of investors or by improving the pricing of the traded assets, thus removing any space for more restrictive regulations. Not coincidentally, in the last 10 years, mainly in the United States and Europe, the notion that financial regulatory institutions should interfere minimally and only in situations involving the general public has preponderated. Along this line, the hedge funds, as private investment structures targeting high-income investors—and treated in a different way from regular investors—were placed outside the direct jurisdiction of regulators.

Following this line of thinking, regulatory efforts in the period focused on improving the ability of banks and other financial institutions to monitor and manage risks by individually managing exposure to these funds. The promotion of transparency about the risks assumed by those investment companies would be sufficient, it was argued, to enforce an adequate market discipline, with no need for a more direct regulation.

The predominance of this view has hindered the adoption of a more restrictive regulatory framework, especially with regard to the systemic aspects of these funds in financial markets. Even in the context of the last global crisis, the belief that hedge funds played a limited role in the genesis of the systemic turmoil has prevailed, in spite of the substantial losses they have suffered.

In this scenario, hedge funds have fed paradoxes with serious implications for the dynamics of the international financial system. First, they present themselves as managers of large private fortunes, mainly for large institutional investors; however, they usually take loans with the formal banking system, and thus they naturally transfer the risk of their positions to the entire credit system, that is, they transform the operations of private funds into operations throughout the investing public. Second, they claim to be able to deliver high absolute returns, in any condition, exploiting price anomalies in the market; however, they often suffer significant losses in situations of turbulence, as seen in the last global crisis. Third, while they remain largely outside the scope of regulations, they are undoubtedly channels of transmission of systemic risk. Fourth, despite the large number of these agents and the diversity in their investment strategies and objectives, they present a noticeable similarity in their risk exposures and the securities they trade, which tends to cancel any eventually positive effect of a possible heterogeneity of these agents.

The recent, post-crisis initiatives on the regulation of hedge funds, both in United States and Europe, have exhibited superficial and still timid proposals to effectively counter the contradictions listed above. On the other hand, unlike most countries that are still discussing and trying to adopt their laws, in Brazil it has already become a reality. Interestingly, most of the claims for stricter rules on the behavior of hedge funds are particularly familiar to the Brazilian financial markets, and Brazil may be able to make a significant contributions to the design of a more effective regulatory framework at the international level.

The Example of the Brazilian Experience

Traditionally, the Brazilian capital market has been marked by the presence of restrictive regulatory and supervisory structures. Particularly in the segment of investment funds, while the offshore vehicles enjoy wide freedom in conducting its operations, onshore funds must conform to strict standards of regulation and supervision. These standards, although targets of criticism by those who advocate a more flexible market, recently have received worldwide attention because of the low vulnerability demonstrated by domestic financial institutions during the unfolding of the international financial crisis, initiated in the subprime mortgage market in the United States.

Among the major domestic requirements, all investment funds based in Brazil must be registered with the Comissão de Valores Mobiliários (CVM, or the Securities Commission) that acts as the primary regulator and supervisor of funds and investment firms in the country. In accordance with CVM instructions, all funds, including hedge funds, must provide daily liquidity reports and disclose, also daily, the value of their quotas and assets to the general public. Moreover, managers must monthly deliver to CVM statements with the composition and diversification of the portfolio, as well as a summary trial balance of their funds. Additionally, every year they have to send to CVM a consolidated balance sheet approved by an independent auditor. At the same time, the Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais (ANBIMA, or the Brazilian Association of Financial and Capital Markets Entities), which pools the institutions that manage funds in Brazil, also plays an important self-policing role.

In addition to these requirements that provide more transparency to the public, an important restriction applied to the funds in Brazil is that these entities are prohibited from contracting and receiving loans from financial institutions. This limitation establishes an important difference between domestic and offshore funds, since it reduces the possibility of highly leveraged funds being supported by third parties and eliminates a disturbing channel of exposure of the formal banking system to hedge funds, which proved to be particularly disruptive to the international financial market in the last crisis.

On this point, it is important to note that Brazilian authorities do not officially consider hedge funds to be a different family of investment funds and usually subject them to the same regulatory rules that are applied to other funds. Another specificity of the Brazilian financial sector involves the over-the-counter market, in which all financial derivative instruments and securities traded are recorded with the Central de Custódia e de Liquidação Financeira de Títulos (CETIP, or the Central Securities Depository), an agency supervised by the Central Bank of Brazil and whose activities are regulated by CVM. Thus, all securities exchanged between private investors outside the regulated market (São Paulo Stock Exchange) are subject anyway to observation by national regulatory authorities. Again, in the context of both the international financial crisis and the collapse of LTCM in the United States, the absence of such information was particularly harmful in assessing the real extent of risk exposure between different financial institutions.

All these restrictions have been relatively successful in preventing and avoiding the propagation of systemic risk within the domestic financial market, although they are not fully able to prevent the contagion of crisis in the unregulated global markets. Amid the recent turmoil, the defense of more direct, coordinated, and continuous supervision of financial institutions in different countries has gained importance in international forums, making it increasingly more urgent. In this scenario, the Brazilian experience on the regulation of the investment fund industry can be a relevant reference in guiding these discussions at the international level.

The opinions expressed in this paper are those of the author and do not necessarily reflect the views of any organization with which she is or has been affiliated.

HOME
タグ : Law

Japan’s Lay Judges and Implications for Democratic Governance

May 11, 2012
By 19600

On a sunny January morning in 2010, I sat high above the bustling streets of Tokyo in the central offices of the Japan Federation of Bar Associations (JFBA), speaking with a professor and noted scholar of Japan’s newest judicial incarnation, the saiban-in seido, or “lay judge system.” As I listened and learned more about the Japanese lay judge system that January morning, I found it amazing that it was my position as a Sylff fellow that had led me here.

The sign in front of the Supreme Court of Japan.

In May of 2009, Japan began formal operations of the saiban-in seido, a quasi-jury method of trial adjudication that blends elements of the Anglo-American jury and the European lay assessor adjudicatory systems. Mandated by the Lay Judge Act of 2004, this system represents the first time that Japanese citizens have been asked to formally participate in the criminal adjudicatory processes of the state since 1943. At its core, the Lay Judge Act established a form of criminal trial adjudication where citizen jurists serve with and work alongside their professional counterparts on trials where the offense falls within a limited range of high crimes.

Under the saiban-in seido, in cases where the defendant contests his or her guilt, the judicial bench is composed of three professional judges and six lay civilians chosen from the population at random. These mixed tribunals are charged with not only determining the guilt of the defendant but also the sentence to be imposed. Decisions and judgments by the lay judge panel are based on majority vote, although any valid verdict is required to include the votes of at least one professional judge and at least one lay jurist. On a sunny January morning in 2010, I sat high above the bustling streets of Tokyo in the central offices of the Japan Federation of Bar Associations (JFBA), speaking with a professor Continue reading →

HOME
タグ : Law

From Temporary Residents to Immigrants: Some Issues concerning Brazilians in Japan

February 8, 2011
By 19671

Early years of Japanese immigration to Brazil

The history of Japanese immigration to Brazil dates from 1908, when the first steamship arrived in Santos carrying the first immigrants to an unknown tropical land located on the other side of the globe. At that time, there was a shortage of labour force in coffee plantations in Brazil, and Japan decided to establish an emigration policy to cope with an increasing population and lack of natural resources that could feed their citizens.

Also, the limitation imposed by an amendment to the immigration law in the United States caused the impossibility of Japanese people to immigrate to that country, inciting the search for other places in the world where Japanese could temporarily work and return with enough savings to secure a better life.

These factors contributed to the immigration flow to the American continent, specifically to countries such as Mexico, Peru, Bolivia, Paraguay, Argentina and Brazil. However, life outside Japan was extremely arduous, due to somewhat precarious work conditions in the beginning of the last century, foreign language, different food and habits, among others.

Even though Japanese people had emigrated temporarily, debts related to the long journey from Japan to South America, as well as living expenses, made it hard for them to save enough to return to their original country. Also, the World War II and consequently Japan’s defeat were critical factors that made them settle and change their status from temporary to permanent residents.

One hundred years had passed and in the verge of celebrating this occasion, around the 1990s, the situation was reversed and Japanese descendants from South America started taking the opposite route to work temporarily in Japan, one of the greatest economies in the world, at that time suffering labour shortage and offering better conditions and salaries, and therefore, perspectives of life.

Japanese descendants return to Japan

In 1990, Japan enforced an amendment to the Immigration Control and Refugee Recognition Act to include a long-term resident visa for Japanese descendants who wished to come to Japan to visit relatives and spend time in their country of ethnical origin.

The long-term visa opened a possibility for Japanese descendants to engage in any type of activity, including non-skilled jobs, since there was no restriction in terms of what kind of activities they could pursue during their stay in Japan.

At that time, there was a shortage of labour force in some industrial sectors and even though the preference for hiring same ethnic people was never openly discussed in public, there was a trend to accept Japanese descendants who would adapt and interact more easily with other Japanese colleagues.

Combining the need of labour force in Japan and economic crisis in Brazil and the possibility of long-term visas to stay in Japan, a large number of Japanese descendants decided to try their luck in the land of their ancestors. At the peak of this diaspora, in 2007, the Japanese Ministry of Justice registered 316,967 Brazilian residents (included in this figure are Japanese-Brazilians, non-descendant spouses and children until the third and fourth generations).

With the recent economic crisis that affected many countries worldwide, causing huge cuts in expenditure and thus unemployment, and also the release of funds from the Japanese government to support the return of migrant workers who did not have the means to purchase a return air ticket, the number of Brazilians residing in the country dropped to 267,456, according to the latest available statistic from the Japanese Ministry of Justice (December 2009).

Being the third largest group of foreigners, most of them unable to speak the language and having different habits and perspectives of life and culture, it was inevitable that problems would occur.

It is worth mentioning that the first two groups of foreigners living in Japan are of Chinese and Koreans, respectively, most of them already integrated in Japanese society, due to the easiness of learning and communicating in Japanese in the case of Chinese and of being born and raised in Japan, the case for many Koreans. Therefore, cultural shocks, language problems and others are less visible within these groups.

In the beginning of this migration wave, like the Japanese who went to Brazil in the last century, Japanese-Brazilians planned to spend a couple of years in Japan, save enough money to go back and open small businesses, buy real estate, finance their children or their own studies and so on.

Both strategies and goals were quite immediate and the plan was to return to Brazil as soon as possible. However, the lack of experience as business managers resulting in failure of entrepreneurship attempts, or lack of knowledge as to where to invest and other unexpected factors contributed to make Japanese-Brazilians to either return to Japan or extend their stay.

Settling trends: from temporary residents to immigrants

After some years, the pattern of men and women migrating by themselves, leaving their families behind, changed to include spouses and children. Soon later, issues regarding Brazilian children education, bullying stories, adaptation problems and others started to circulate and even though these are far from being completely solved, certain stability was achieved.

Asked whether their stay was still temporary after long years in Japan, Brazilians were categorical to reply that they would return to Brazil. However, as their children started attending Japanese schools, some following until university, opened small businesses directed to the Brazilian community, to mention few developments, the will to return started fading and the discourse changed to include plans to go back to Brazil after retirement.

Some signs of this trend to stay can be seen in the increase of permanent visa and naturalization requests, as well as long-term loans to buy real estate. Because of these, scholars and media have been referring to this group of people not anymore as dekasegi, which originally alludes to people who leave their home temporarily to work somewhere else, but as immigrants.

This shift in the provisional status of temporary workers to immigrants needs to be accompanied by new analysis and possible change of policy towards this group of foreigners.

Long-term vision and strategies are necessary to address current but future problems as well. In this sense, the signature of the first bilateral agreement Japan signed with an emerging country on social security issues demonstrates that there is a concern that involves problematic issues with future impact. Through this agreement, Brazilian and Japanese workers alike may contribute to the social security in the country they are currently residing and later count the years of contribution in order to obtain pension and other benefits.

On the other hand, the Japanese government has also been intensifying the assistance to foreign workers through its Public Employment Security Offices and Hello Work agencies, by posting announcements for jobs, one of their primary roles, but also offering language courses and training programmes, in an attempt to facilitate employment.

Despite of the economic crisis, these measures that aim to absorb this workforce are extremely important, considering that Japan’s population growth rate is already negative and it is predicted that it is one of the countries that will face severe shortage of labour force in the near future.

Some legal problems and possible solutions

Although some issues are being taken care of, there are other matters that urgently need attention and that will most certainly have repercussions for the future. One of them is the judicial cooperation between the two countries in civil and criminal matters, an issue that has been in the negotiation agenda for quite some time.

It is worth emphasising that the two areas are equally important, because although criminal matters receive a lot of media attention, particularly in Japan, related issues in both areas affect real people, children and families in Japan and in Brazil.

During the past years, victims’ families of the crimes committed by Brazilians have been exerting pressure on the Japanese government to negotiate an extradition agreement with Brazil. This is due to the elusion of criminal offenders to that country, where, like others including Japan, extradition of nationals is prohibited, unless special circumstances occur (in the case of Brazil, if the crime was committed before naturalization; and in the case of Japan, if there is an extradition agreement that establishes otherwise).

The only possibility thus left to take offenders to trial is making a formal request to the Brazilian government to prosecute them in Brazil by providing evidence and all other necessary materials.

Notwithstanding the inexistence of a specific criminal cooperation agreement, Brazilian authorities have been cooperating with Japanese authorities so far, but differences in both countries’ legislations and penalties are causing some distress. For example, death caused by traffic accident in Japan is punished with prison that may range from 7 to 20 years depending on aggravating circumstances, while in Brazil, if it is an involuntary homicide, the penalty can vary between 2 to 4 years, but if there is aggravating circumstances, it can be increased up until 6 years, together with the suspension or prohibition of obtaining a driver’s license. For Japanese people it is inconceivable that Brazilian law seems to be lenient in these cases. However, unlike in Japan, where there are special facilities for those who committed this type of crime, in Brazil there is nothing similar.

The way in which a society defines and punishes crimes may differ considerably according to their own interpretation and perspectives of life, culture, values that should be protected or discouraged and so on. However, albeit crimes classification and penalties might be different, it should not be an obstacle for both countries to find a way to cooperate with each other and pursue the task of punishing crimes.

A clear need of an agreement that addresses judicial cooperation is apparent, not only to speed up the process, in some cases delayed due to the lack of knowledge concerning the appropriate procedures, but most importantly to shape the cooperation according to specific requirements, in suitable and acceptable ways for both Brazil and Japan.

Regarding cooperation in civil matters, there is a simple agreement based on an exchange of notes in 1940. At that time, there were many Japanese residing in Brazil due to the immigration flow that started in 1908 and evidently, there was a need of a cooperation agreement that could assist Japanese authorities to reach their citizens in Brazil, mostly in case of inheritances at that time.

More than half a century later, a large number of Brazilians is now residing in Japan and the same problem surfaces. The bilateral agreement of 1940 does not address anymore all the issues concerning civil cooperation, although the current exchanges are being based on that document. Procedural and substantial differences in both countries’ legislations cause some frictions that could be mitigated with a deep understanding of social, cultural, historical and institutional legacies.

Notwithstanding, ongoing negotiations have been occurring for some years and certainly there are many aspects that are yet to be distilled, but as mentioned, government officials must keep a clear focus and objective in their minds: legal issues have a major impact in someone’s life and one that may affect an entire existence, change people’s and especially children’s future.

In the case of civil cooperation, spouses and children who live either in Japan or in Brazil are in need of alimony for survival, former spouses are trying to obtain divorce in order to marry again, sometimes with a new partner with whom they already live a de facto family situation, and many others.

Therefore, a concrete effort towards overcoming differences and pre-conceived notions shall be made to positively influence the settlement of these legal issues, a matter of concern for both governments, but of extreme importance for their citizens.

Aurea Tanaka in front of the former Kobe Emigration Center, where Japanese who were about to emigrate to Brazil spent a couple of days before boarding in early 1900s.

It is a matter of creating priorities and making difficult choices as regards what rights to protect. If the fear is a transformation of legal consciousness and eventual social unrest, the solution is not to leave these matters unresolved but be proactive and anticipate the establishment of rules that will address the problems in a systematic and comprehensive way, nurturing a legal stability that will only benefit all parties involved. In this sense, it is important to offer a clear sign that both governments are concerned and upholding their citizens’ interests by taking the necessary measures to tackle problems that affect their lives.

If the temporary migrants of the past are becoming the immigrants of the future, it is also time to replace the short-term vision when thinking about immediate problems and searching for solutions, look into the future and the challenging achievements that still need to be pursued.

The history of the Japanese immigration to Brazil has completed 100 years in 2008. During the celebrations, it was mentioned that the most important aspect of both countries’ relations was the human bond that brought Japanese to Brazil and Brazilians to Japan. It is unrealistic and unlikely that this tie will break during the next 100 years and that shall gives us all one more stimulus to continue collaborating and joining efforts in accommodating both countries’ specific features and interests when looking for common problem’s solutions.

The opinions expressed in the articles are those of the respective authors and do not necessary represent the views of the Tokyo Foundation.

Aurea Christine Tanaka

Aurea Christine Tanaka was a Sylff Fellow in 2004 while finishing her Ph.D. dissertation submitted to the Department of International Law of the Faculty of Law of the University of São Paulo, Brazil. For her Ph.D. she addressed issues related to International Family Law, focusing on divorce cases involving Brazilians living in Japan. Attorney-at-law, she has advised Brazilian and Japanese in legal problems involving both countries’ legal systems and since 2008 has been working for the Education for Sustainable Development Programme at the United Nations University Institute of Advanced Studies. She is currently interested in research involving the correlation between law and development, especially the impact and influence of legal instruments in changing behaviour and guiding sustainable practices, as well as partnerships in education for sustainable development. E-mail: tanaka[at]ias.unu.edu. The author would like to express her gratitude to Professor Masato Ninomiya of the University of São Paulo and Mr. Isamu Maruyama from the Tokyo Foundation, for their valuable comments.