Opinion ID: 453521
Heading Depth: 2
Heading Rank: 2

Heading: The Treaty Exception

Text: 58 The act of state doctrine is premised not only on an unwillingness to apply American public policy to invalidate foreign laws but also on a pessimism about the competence of the judiciary to ascertain norms of international law. Potentially, international law as well as American public policy could serve as a touchstone for evaluating foreign acts of state: if an act of state were contrary to international law we could treat the act as invalid and adjudicate the plaintiff's claim. This approach would allow us to review foreign acts of state without engaging in the dubious practice of evaluating these acts against the potentially parochial norms of American public policy. 59 The Court, however, in large part foreclosed this avenue of review in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964). There the Court was asked to review the validity of Cuba's expropriation of a Cuban sugar company owned by United States residents. The Court declined to do so, holding that this country's response to Cuba's acts should be fashioned and implemented by the executive, not the judiciary. Id. at 431-32, 84 S.Ct. at 942. Although the Court admitted that Cuba's acts might have violated international law, it held that international opinion was sufficiently divided that international law did not provide a firm basis for adjudicating the validity of Cuba's acts. Id. at 428-31, 84 S.Ct. at 940-42. 18 In essence, the Court held that international law generally does not provide judicially discoverable and manageable standards for resolving cases. See Baker v. Carr, 369 U.S. 186, 217, 82 S.Ct. 691, 710, 7 L.Ed.2d 663 (1962); see also First National City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 787-88, 92 S.Ct. 1808, 1823, 32 L.Ed.2d 466 (1972) (Brennan, J., concurring) (validity of foreign act of state is political question because of lack of consensus on applicable international rules); Sharon v. Time, Inc., 599 F.Supp. 538, 547-48 (S.D.N.Y.1984) (comparing act of state and political question doctrines). 60 In Sabbatino, however, the Court recognized that the greater the degree of codification or consensus concerning a particular area of international law, the more appropriate it is for the judiciary to render decisions regarding it, since the courts can then focus on the application of an agreed upon principle to circumstances of fact rather than on the sensitive task of establishing a principle not inconsistent with national interest or with international justice. Sabbatino, 376 U.S. at 428, 84 S.Ct. at 940. On this basis, the Court elaborated an exception to the act of state doctrine under which the doctrine may not apply if there is a treaty or other unambiguous agreement regarding controlling legal principles. Id. 61 Here, the Callejos claim that the Mexican exchange control regulations violate the Articles of Agreement of the International Monetary Fund (Fund Agreement), Dec. 27, 1945, 60 Stat. 1401, T.I.A.S. No. 1501, 2 U.N.T.S. 39, as amended April 30, 1976, 29 U.S.T. 2203, T.I.A.S. No. 8937, ---- U.N.T.S. ---- (amendments effective April 1, 1978), to which Mexico is a party. In particular, they claim that the regulations violate Article VIII, Section 2(a), which forbids members from imposing exchange control regulations on current international transactions 19 without the prior approval of the International Monetary Fund (IMF or Fund). 20 The Callejos argue that because the Fund Agreement is a treaty or other unambiguous agreement, the act of state doctrine does not apply. 21 62 In the twenty years that have elapsed since its inception in Sabbatino, the treaty exception to the act of state doctrine has been applied sparingly, see, e.g., Kalamazoo Spice Extraction Co. v. Provisional Military Government of Socialist Ethiopia, 729 F.2d 422 (6th Cir.1984); American International Group, Inc. v. Islamic Republic of Iran, 493 F.Supp. 522 (D.D.C.1980), modified on other grounds, 657 F.2d 430 (D.C.Cir.1981); cf. Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1540-41 (D.C.Cir.1984) (en banc) (stating in dicta that treaty exception may apply), vacated on other grounds, --- U.S. ----, 105 S.Ct. 2353, 86 L.Ed.2d 255 (1985)--by this court not at all. Although Sabbatino refers merely to treat[ies] or other unambiguous agreements, treaties are not all of a piece; they come in different sizes and shapes, ranging from the Convention for the Unification of Certain Rules Relating to International Transportation by Air (Warsaw Convention), Oct. 12, 1929, 49 Stat. 3000, T.S. No. 876, which sets forth unambiguous rules governing the air carriage of passengers, baggage, and cargo, to the United Nations Charter, June 26, 1945, 59 Stat. 1031, T.S. No. 993, whose broad but vague pronouncements are more similar to those of the United States Bill of Rights. For this reason, the treaty exception was not stated in Sabbatino as an inflexible and all-encompassing rule, 376 U.S. at 428, 84 S.Ct. at 940; instead, its application depends on pragmatic considerations, including both the clarity of the relevant principles of international law and the potential implications of a decision on our foreign policy. Id. 22 63 In determining whether the Fund Agreement--and Article VIII, Section 2(a) in particular--warrant application of the treaty exception, we tread upon uncharted ground. Thus far, no court has passed on this issue, and commentators have made, at best, ambiguous pronouncements. See, e.g., 2 J. Gold, The Fund Agreement in the Courts 138-39 (1982) (The Articles of Agreement [of the IMF] could come within the treaty exception.); Paradise, Cuban Refugee Insureds and the Articles of Agreement of the International Monetary Fund, 18 U.Fla.L.Rev. 29, 67 (1965). Initially, we note that it is unclear to what extent the Fund Agreement is unclear. Article VIII, Section 2(a) applies by its terms only to exchange control regulations governing current international transactions (as opposed to capital transfers). Under Article VI, Section 3 of the Fund Agreement, members may validly impose restrictions on international capital movements. Thus, determining whether a set of exchange control regulations requires approval by the Fund pursuant to Article VIII, Section 2(a) depends in part on determining whether they apply to current or capital transactions. Given the substantial uncertainty regarding the meanings of these terms, 23 we are doubtful that Article VIII, Section 2(a) is the type of unambiguous agreement referred to in Sabbatino. See Paradise, supra, at 67 (Article VIII, section 2 of the Fund Agreement is the most complicated of the provisions of the Fund Agreement and clearly is not 'unambiguous.' ). 24 64 In the context of the present case, however, we need not pass on this question in the abstract, since the IMF has itself clarified the meaning of the Fund Agreement as it applies to the Mexican regulations by indicating that they are consistent with the Agreement. On May 3, 1983, in response to an inquiry from Bancomer's counsel, the Director of the Legal Department of the Fund specifically stated that the 'provisions of Mexico's Currency Regulations (enacted in August and continuing in effect today) which require repayment of deposits in Mexican banks to be made in Mexican pesos regardless of the currency in which the deposits are denominated' ... do not violate and are not inconsistent with the Articles of Agreement of the International Monetary Fund. 2 Rec. at 428. 25 This determination at once renders the Fund Agreement unambiguous in its application to the present case, but also defeats, on the merits, the Callejos' Article VIII, Section 2(a) claim. 65 We consider the Fund's interpretations to be persuasive authority on the meaning of the Fund Agreement. 26 The Fund Agreement is a complex regulatory document whose sense is often obscure. In interpreting it, we defer to the greater expertise of the Fund. See J. Gold, supra note 26, at 43 (Information about whether regulations are imposed consistently with the Fund Agreement is of a kind that [is] likely to be available only to the Fund. It is virtually impossible for anyone else to make the determination of consistency, and it certainly cannot be derived from a perusal of the Articles.). This deference is akin to the deference that we accord to an administrative agency's interpretations of its own statutory scheme. See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, --- U.S. ----, ----, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984); NLRB v. Bell Aerospace Co. Division of Textron, Inc., 416 U.S. 267, 275, 94 S.Ct. 1757, 1762, 40 L.Ed.2d 134 (1974). Here, however, an additional policy counsels in favor of deference: promoting uniform interpretations of the Fund Agreement. In contrast to the domestic sphere, where the territorial reach of our jurisdiction is coextensive with that of the statutes that we interpret, here we cannot give interpretations of the Fund Agreement that are binding on other member nations. See Restatement (Second), supra note 12, at Sec. 148(2). If each member of the Fund were to interpret the Fund Agreement separately--deciding when and when not to follow the Fund's own interpretations--this would detract from the Fund Agreement's underlying policy of promoting uniformity in international finance. We do not believe that the act of state doctrine--the principal purpose of which is to prevent the courts from becoming embroiled in sensitive international disputes--would be served by challenging acts whose validity has not otherwise been questioned. The treaty exception was intended to allow courts to apply international law where consensus exists; it was not intended to allow courts to upset a preexisting consensus regarding the validity of a foreign act of state. 27 66 The exact basis for the Fund's conclusion that the Mexican regulations are consistent with the Fund Agreement is somewhat unclear. The Fund's conclusion could be based (1) on its view that the Mexican regulations govern capital rather than current transactions, in which case Article VIII, Section 2(a) approval was not required, and/or (2) on its granting approval of the regulations pursuant to Article VIII, Section 2(a). If the Fund's conclusion is based on the first ground, then, at most, we can only review the Fund's interpretation to determine whether it is reasonable, since we consider the Fund's interpretation to be highly persuasive authority. Here this standard is clearly met, particularly given the uncertainty that exists regarding the dividing line between current and capital transactions. If, however, the Fund's conclusion rests on the latter ground, then we are precluded from exercising even this limited level of review. Article VIII, Section 2(a) only requires that exchange control regulations receive the approval of the Fund; once such approval is given, the regulations are by definition valid. The decision whether to approve exchange control regulations is committed to the discretion of the Fund. We have no power to review the Fund's exercise of this discretion. Thus, even if we did not accept the Fund's interpretation of the Fund Agreement as persuasive authority, its decision to approve exchange control regulations pursuant to Article VIII, Section 2(a) would be final. 67 The Callejos attempt to avoid this result by arguing that even if the Fund did approve the Mexican regulations, it failed to do so prior to their promulgation. See Reply Brief of Appellants at 15-16. While such prior approval is technically required by Article VIII, Section 2(a), we do not believe that the violation of this requirement is of a magnitude sufficient to justify disregarding the act of state doctrine, particularly where approval is later given by the Fund. 28 The treaty exception to the act of state doctrine does not penalize a foreign country for every failure to go by the book. The same prudential considerations that underlie the act of state doctrine apply to the treaty exception as well. 68 For these reasons, we hold that the treaty exception does not render the act of state doctrine inapplicable to the Callejos' claims.