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Pistor: Contesting Property Rights

achieve greater equality had far reaching and arguably transformative social effects.

The glue that binds institutional regimes to a system is a common source of legitimacy for ordering multiple and frequently competing institutional regimes.11 Streeck and Thelen (2005) argue that legitimacy is foundational for institutional regimes. Extending their argument, I suggest that systems comprise institutional regimes that share a common source of legitimacy. This does not mean that constituencies of a given institutional regime relinquish their claim to self-ordering. It does, however, imply that they accept the terms on which their relation with other institutional regimes will be determined. Put differently, legitimacy assures compliance and third-party support not only for a given regime but for the ordering of institutions within a system. The source of legitimacy varies across systems and so does the priority given to some institutions over others, which explains why what may look like similar institutions take on quite different forms in different systems.

Max Weber distinguished different sources of legitimacy, such as tradition, affect, value, rationality, faith, and legality Weber (1980).12 More recently, social theorists have advanced the distinction between ‘input’ and ‘output’ sources of legitimacy, where input legitimacy refers to the process of decision-making and output legitimacy to the effectiveness of delivering results Scharpf (1999). Scharpf pointed out that the EU’s emphasis on output legitimacy seeks to dominate input legitimacy as the major source of legitimacy in democratic nation states. In a similar vein, I suggest that transnational institutional regimes also tend to emphasize output legitimacy. Given their narrow focus, they are typically better at delivering on their promises than are complex systems of social ordering. By the same token, they undermine the legitimacy of complex systems of social ordering and the norms that sustain them, including due process and equity.

The modern democratic nation state derives its legitimacy largely from legality, that is, compliance with procedures, respect for constitutionally enshrined rights and jurisdictional boundaries in the production and enforcement of law across many areas of social ordering. Emphasis on procedure is not necessarily empty formalism. Instead, procedures set the stage for contesting the allocation or the enforcement of rights. Norms or institutions that are produced in this fashion are accepted as binding, but can be contested within similar procedural constraints that were observed in their production.

11Hadfield and Weingast Hadfield and Weingast (2011) use the term “common logic” to describe a similar phenomenon. Specifically, they define a “common logic” as one that is accessible by all actors, is stable over multiple time period, and can help determine a given performance vector.

12See p. 36 in the English translation by Roth and Wittich, University of California Press, 1978.

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Identifying a common source of legitimacy does not rule out the coexistence of others, or competition among them. As will be further discussed in the next section, transnational property rights regimes frequently emphasize their efficacy in promoting investment and trade, which are equated with economic development prosperity. However, they also assert claims to property “rights” and rule-based systems, suggesting the promotion of a specific regime may employ more than one source of legitimacy: legality (input legitimacy) and effectiveness (output legitimacy). Similarly, a system, even one with a universal claim to legitimacy, such as the nation state, may tolerate multiple sub-systems with independent sources of legitimacy within it. The universal Westphalian nation state has never been quite as encompassing as its claim in the scope of social ordering or the source of legitimacy for sub-systems within it. Institutional regimes that pre-existed the nation state often continued to exist. Consider the autonomy left to guilds, religious organizations, or stock exchanges within the emergent nation state with different claims to legitimacy, such as religious authority, adherence to qualifications as defined by a craft, or membership in a trading club etc. New institutional regimes that derive their legitimacy from sources other than the legality of the state have sprung up within the nation state. Examples of new institutional regimes that challenge the scope of state ordering include non-governmental or civil society organizations that derive their legitimacy from their very status as outside of, and autonomous from, the state.

As long as institutional regimes endorse a system’s common source of legitimacy for determining their relation to other institutional regimes, even when this conflicts with their own preferences, they remain an integral part of that system. If and when this common source of legitimacy is openly challenged, the relation becomes more tenuous; and when they claim that their source of legitimacy is superior to that of legality, frictions occur that may weaken the commonality of legality as a source of legitimacy. Put differently, institutional regimes may weaken the legitimacy of existing systems not only by contesting a particular form of ordering (as suggested by Streeck and Thelen), but by offering alternative sources of legitimacy. This may, but need not, result in an explicit change of existing institutions. The various modes of gradual institutional change identified by Streeck and Thelen apply in this context. Neither does this necessarily result in the demise of the system. It does, however, change the relation between institutional regimes and the systems to which they relate.

Conversely, systems can and frequently do alter institutional regimes. By subscribing to a given system’s source of legitimacy, an institutional regime becomes part of a larger field of contestation in which different institutional regimes (and their stakeholders) compete with one another for primacy and challenge the norms that justify a given prioritization. Compromises need to be made to sustain the system, and this may change the scope and meaning of the

Pistor: Contesting Property Rights

institutional regime that ‘buys into’ that system. Any international institutional regime that needs the support of governments with strong veto powers will have to tolerate modifications to the regime. Those modifications in turn alter the institutional regime. As will be further discussed below, international norms regarding the recognition of customary land use by indigenous people as property rights were transposed into the constitutional framework of Belize by actions of the country’s supreme court. The precise scope of these rights and their relation with competing claims within that country will ultimately shape the realization of these norms within a complex social structure.

This account of institutional/system change emphasizes the ability of actors to contest both the form institutions take and the norms that sustain them. Contestation in this context does not necessarily mean open debates. Actions can speak for themselves. As Hirschman (1970) has pointed out, members of organizations often are unable to voice their preferences. As a result, their options are limited to loyalty – i.e. acquiescence into existing arrangements whatever their view on the legitimacy of such arrangements might be – or exit. Neither of these options, however, is likely to result in changes within the system from which these actors originate (or to which they are bound by loyalty) – lest the exit triggers a response by actors within that system. Within the framework Platteau et al. (2011) propose, a local judge charged with upholding local norms may alter those norms or their enforcement in response to exit pressures.

In sum, in an attempt to develop a new synthesis between institutional and system theories, I am suggesting to expand the Streeck/Thelen framework by recognizing that systems are not closed, but open and malleable to change by institutional regimes from both within and outside. In this conceptualization, system change does not come necessarily from insurrectionists or other change agents within a closed system. Neither does it come primarily or necessarily from continuous contestation within a given institutional regime. Instead, it results from the contestation over the systems’ legitimacy. This framework does not eliminate human agency. Instead, it situates human agency within multiple institutional regimes where contestation takes place. Change agents are both more constrained and more flexible than those envisioned by Mahoney and Thelen. They are more constrained in that the change they seek to accomplish may be limited to a particular institutional regime, which will translate into systemic change only if and when they can challenge the system’s source of legitimacy. That, however, requires more than individual action.

The greater flexibility stems from the fact that in a world in which systems are open, change agents can choose their space of contestation and influence among different institutional regimes and the systems with which they are associated. By exploiting this flexibility they can put pressure on multiple systems and achieve more change than they would within a single closed system.

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Multinational corporations, self-regulating transnational organizations, as well as NGOs have begun to exploit these possibilities as cosmopolitan agents of change. Their ability to effect system change is ultimately contingent upon their ability to change the perception of the system’s legitimacy. This in turn requires that the goals and means they pursue be open to and become a part of the process of contesting norms, policies, and social goals within that system.

IV. Transnational Property Rights Regimes: Two Case Studies

Property rights were chosen as the field of inquiry because of the paramount importance attributed to them by institutional and social theories alike. Karl Marx developed his theory of social change around the nature of property rights that dominate agrarian, feudal, capitalist or socialist societies. Institutionalists, particularly those of the economic stripe, have long argued that a clear allocation of property rights and effective institutions to enforce property and contractual rights are critical for economic development and growth. Property rights have also taken center stage in economic and institutional reform projects, as evidenced by extensive privatization programs since the 1980s not only in the former socialist world, but in other emerging markets as well. Additionally, international law has sought to strengthen property rights – whether those of indigenous people by way of protecting their property rights as human rights, or by allowing foreign investors to resolve property rights disputes with host countries in arbitration tribunals outside their sphere of influence.

This paper uses contests over transnational property rights as a heuristic device to explore the relation between institutional and system change. As the discussion in the previous section suggests, it is not always easy to differentiate between institutions and systems, between institutional change and system change, or to stipulate how they relate to one another. Occasionally, institutional and system change coincide. Revolutions tend to alter existing property rights regimes while they also upend power relations and other foundations of the social system Carruthers and Ariovich (2004). More frequently, property rights change in a gradual fashion, which involves complex interactions between institutional and system change. By locating property disputes in a transnational setting it is possible to delineate more clearly the interaction between system and institutional regime. Specifically, this section traces the impact of transnational property rights regimes on national legal systems to see whether they create new space for contestation within the receiving system. Admittedly, this particular framing overstates both the importance of law as compared to other institutions and the national system as target of change. However, it does have the advantage that it utilizes processes of contestation can actually be observed as they are written up

Pistor: Contesting Property Rights

in legal opinions. It also facilitates the identification of boundaries between institutional regimes and systems.

In accordance with the analytical framework developed in the previous section, the transnational property rights regime can be defined as the space for contesting norms that determine the allocation of property rights in an international or transnational context. An international or bilateral treaty may announce the norms that call on the state to protect certain property rights. In this setting the state is both rule maker and rule taker, because it endorsed the norm in an international treaty, and as a party to that treaty is also bound by it. Other stakeholders are local and foreign stakeholders that are directly or indirectly affected by the transnational regime. Those whose property rights are protected can frequently contest infringements of these rights by state actors in a forum outside that state. This procedural device tends to strengthen the protected right. Whether or not it will have any impact on the system where the dispute originated, however, will depend on whether the new institutional regime creates a space for contestation within that system.

Many international norms, including those pertaining to property rights, have been on the books for a long time. Several international legal instruments declare the inalienability of property rights and affirm them as human rights.13 Similarly, the norm that property should not be expropriated without due compensation has been recognized in multiple international legal instruments. In the absence of a forum in which the scope of these norms could be established and contested, however, they had the effect of mere proclamations. This changed dramatically once an open forum for contesting such rights was established outside the infringing state’s boundaries. In the area of human rights, such supranational tribunals are still rare – with the notable exception of the European Court for Human Rights, the Inter-American Commission on Human Rights, and a few other regional human rights tribunals.14

Private-state disputes have also become much more common in the context of foreign investments. Bilateral investment treaties (BITs) have become the method of choice for foreign investors to charge host country governments with expropriation in international arbitration tribunals. In both cases – human rights and investor protection – the creation of dispute resolution mechanisms has made the contents and scope of these norms contestable. This in turn has mobilized other constituencies, such as lawyers or NGOs, to access this space, to

13Including, but not limited to, the International Covenant on Civil and Political Rights (ICCPR), the European Convention on Human Rights (ECHR), the Declaration of the Rights and Duties of Man by the Organization of American States, etc. Property rights are given the status of human rights that can be expropriated only against just compensation.

14Powerful state interests have prevented similar tribunals from being established at the international level.

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identify victims of violations of these transnational regimes and offer them support for bringing suit and advocating a particular interpretation of the relevant norms. In short, open contestability has created much more vibrant transnational property rights regimes. It has also triggered responses by national legal systems and in some cases has resulted in important and potentially system-transformative changes within these systems.

These trends confirm the thesis advanced by Streeck and Thelen that access to a forum for resolving disputes – whether a tribunal, committee or a court

– creates an open space for contestation where the interpretation of norms and their application to different fact patterns can be interpreted, amended, and changed over time. Two case studies are presented below to illuminate the interaction between transnational property rights regimes and the domestic legal systems with which they interface, and to investigate how the different manner of contesting property rights has affected the domestic system and/or the international institutional regime.

Human Rights as Enforceable Property Rights: The Case of Belize

The first case is a dispute between the indigenous people and the government of Belize over the right of the government to grant concessions to corporations for oil explorations over land on which the Maya live and which they use to sustain themselves, without compensation. The legal dispute first arose in 1996, when the Maya filed a petition to seek relief in the Belize constitutional court. This petition never resulted in a full legal review, but was allowed in the words of the Supreme Court of Belize to “inexplicably drop[…] out of sight”.15 By denying contestation (i.e. voice in Hirschman’s (1970) terms) in the judicial system, the government may have tried to pressure the Maya into submission. However, the transnational property rights regime offered an alternative forum for contestation. With the support of NGOs, including a human-rights clinic at the University of Arizona Law School, the Maya filed a complaint with the Inter-American Commission on Human Rights (IACHR). The IACHR allows victims of human rights abuse in any of the member states of the Organization of American States to bring a case to its attention if these actions violate the American Declaration of the Rights and Duties of Man. Before turning to the IACHR, claimants must have attempted to exhaust domestic remedies.16

In a lengthy report, the IACHR ruled in 2004 that the actions of the Belize government violated the Maya property rights as protected by this Declaration. Specifically, the IACHR stated that the rights protected “are not limited to those

15S.Ct. Belize Claim 171/2007 at recital 16.

16This requirement applies to human rights tribunals at the international level, but not to investor disputes under NAFTA or most bilateral investment treaties.

Pistor: Contesting Property Rights

property interests that are already recognized by States or that are defined by domestic law, but rather that the right to property has an autonomous meaning in international human rights law” (emphasis added).17 This confirms the autonomy of national law vis-à-vis the international legal system and the institutional regimes it comprises. By implication, institutional regimes that are rooted in international law – such as the protection of property rights – may differ from those at the national level. It is therefore interesting to ask what effect a conflict between international and domestic norms will have, how the conflict can be resolved, and how the conflict resolution may affect the (domestic) system.

From a formal legal point of view the answer to this question depends on whether or not a country accepts rulings of international tribunals or similar bodies as exerting direct effect within its jurisdiction.18 Thus, it is possible, and quite common, that a sovereign state is condemned by an international tribunal for violating an international treaty, but that within that state plaintiffs are denied the right to enforce norms of international law when they conflict with those of the domestic system. A victory in an international tribunal therefore does not translate immediately into a change in the domestic regime. That change needs to be fought for within the constraints of the national regime. Nonetheless, as the present case demonstrates, a victory in an international forum can shape the debate within the national legal system and, importantly, persuade key actors to switch sides. As a matter of formal law, therefore, the Maya’s victory at the IACHR was not sufficient to make any difference for the Maya in Belize. The government faced moral sanctions for failing to follow the recommendations of the Commission; not, however, legal enforcement.19 The Maya therefore turned once more to the Supreme Court of Belize. The fact that they had won a legal case in a supranational tribunal ultimately made a difference. This time, their petition was not allowed to fizzle out, but resulted in a landmark ruling.

The Supreme Court ruled that the Maya held ‘an interest’ in the land on which they live and, indeed, had lived long before Belize was colonized and subsequently released into independence; and that interim changes of sovereignty had had no effect on such rights. The Court was influenced in this ruling by the Australian Case “Mabo v. Queensland”,20 which had ruled in 1992 on a similar matter with similar results. In a similar vein, the Supreme Court of Belize now

17See Maya Indigenous communities v. Belize (2004) at recital 171.

18Those countries are labeled “monists” in international law parlance, whereas countries that require the transposition of international into domestic law as a prerequisite for its effect within the domestic legal order are called “dualists”.

19These are largely absent in international law, and those that exist, such as resolutions of the UN Security Council, have many strings attached to them. A partial exception to this rule is the European Union, where the Commission is explicitly charged with the power to challenge the failure of member states to transpose EU directives into national law.

20Mabo v. Queensland [No. 2] (1992) 175 CLR 1.

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held that the extension of the Crown’s sovereign power to new territories for the purpose of settlement alone did not and could not deprive indigenous people of their legal rights to the land absent an explicit act of Parliament to that effect. It also argued that communal rights to usus fructus constituted property rights even if similar practices may not be recognized as property rights by the common law. And finally, the Supreme Court of Belize argued that these customary land rights fall within the protection of property rights under the Constitution of Belize – i.e. the domestic legal system, the interpretation of which falls within its jurisdiction. The conceptual leap for recognizing customary land use practices as property rights was anticipated by developments in international law, including a UN declaration on the recognition of the rights of indigenous people,21 by the ruling of the IACHR in this case, and by several national tribunals in countries such as Australia, New Zealand, and Canada.

The Supreme Court took pains to clarify that its primary task was to interpret the Constitution, not to apply international norms.22 In fact, the government as the defendant in the dispute reminded the Court that it “cannot merely adopt any findings of facts and law made in another case unrelated to any alleged breach of the provision of the Constitution” as such action would be “nonjusticiable.”23 This reminder notwithstanding, the Court asserted its right to find the pronouncements of the IACHR “persuasive” in light of the fact that Belize is a member of the OAS and as such party to the American Declaration of the Rights and Duties of Man. Indeed, on several occasions, the Court referred directly to the Commission’s report. After laying out its own argument based on evidence established at trial that the Maya have an “interest” in the land in the form of “customary land tenure” the Court stated that it was “fortified in this conclusion” by the IACHR’s report. Similarly, after asserting that this ‘interest’ constitutes a property right that is protected by the Constitution of Belize, the Court once more cited the IACHR’s report and expressed satisfaction that it too had come to the same conclusion.24 Specifically, the Court pointed to the similarities in the wording of the Belize Constitution and the Declaration of the Rights and Duties of Man. The Court also made extensive references to decisions of the Privy Council, including ones dating back to the heydays of the British colonial empire. In these cases, the Privy Council had recognized customary law as property rights worthy of protection notwithstanding the fact that the common law had a much more individualist concept of property rights. References to these sources had

21Such a declaration is technically non-binding, but can exert substantial normative appeal.

22In Belize, as in many other countries, norms of international law are not immediately enforceable as a matter of domestic law but require an active transposition into domestic law, and are then enforceable as domestic, not as international law.

23Written submission by the defendants as cited in Claim 171/2007 at para. 20.

24Ibid at para. 100.

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important legitimating power for the ruling, as until 2010 the Privy Council was Belize’s court of last instance.25

Winning a court case is only the first step in effecting institutional change. In this regard it is interesting to note that in Australia the Mabo case triggered a legislative change – the Natives Title Act – that explicitly recognized customary land use rights of indigenous people as property rights. This did not happen in Belize, which suggests that the authority of the court, and arguably more generally the power of law, differs in the two countries. In fact, the Belize government continued to grant concessions for oil exploration in territories that had not been made explicitly part of the original proceedings. The Maya therefore sued again with many more tribes joining in the proceedings. In June 2010, the Belize Supreme Court confirmed the findings of the 2007 ruling as to facts and law.26 This is unlikely to put the issue to rest – and indeed, the government already announced its intention to appeal the ruling. If confirmed, it would force the government to pay compensation for expropriating the Maya should it wish to nationalize their land.27 Moreover, the ruling has forced the government to pursue legal action in order to preserve its interests – an important contrast to the attempt to simply suppress earlier attempts by the Maya to litigate their interests.

This case illustrates the complex interface between institutional regimes and systems. The development of a transnational property rights regime that recognized customary land rights as property rights under international law was critical for the Maya to advance their case first in the IACHR and subsequently in the Belize legal system. As noted, their first attempt to enforce their rights under the Belize Constitution went nowhere. The political system had not changed dramatically in the meantime. The major impetus for change came from institutional regimes outside Belize, specifically from the increasing recognition of (collective) customary land use practices as enforceable property rights. By appealing to law and legality as the source of legitimacy for resolving the dispute, the plaintiffs and their representatives created an opening for the Supreme Court of Belize to follow international and foreign examples (not precedents in any formal sense) and to embrace similar legal arguments, notwithstanding political pressure to the contrary.

The victory in the Supreme Court of Belize cannot be attributed to a hierarchical relation between international and national law. As explained above,

25It is unclear whether the timing of this transfer of this authority from the Privy Council to the Caribbean Court of Justice is related to the present case.

26See Claim No. 366 of 2008 in the Supreme Court of Belize, between THE MAYA LEADERS ALLIANCE and THE TOLEDO ALCALDES ASSOCIATION on behalf of the Maya villages of Toledo District et al., and the Attorney General of Belize and the Minister of Natural Resources and Environment, 28 June 2010, available at http://www.belizelaw.org/supreme_court/judgements/.

27Palacio (2009).

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such a relation does not exist. It would therefore have been perfectly legal for the Court to ignore the findings of the IACHR entirely. Instead, it chose to endorse as “persuasive” the arguments advanced by the transnational tribunal and developed parallel arguments using authoritative sources within its own system, including decisions of the Privy Council, to justify them. The Court also reminded the government that it had by its own choice ratified international treaties that made Belize part of an international order with norms and principles (i.e. institutional regimes) which – even if they can’t exert direct effect under domestic law – the government should not willfully ignore.

The government may not have anticipated that these international norms would carry teeth once enforcement procedures were created, and that constituencies beyond its reach, such as international NGOs, or clinics of foreign law schools28 with legal and financial resources, would begin to populate this new space of contestation. The landmark rulings by the Supreme Court of Belize not only fortified legal principles about the property rights of indigenous people that had first been developed outside its jurisdiction. Moreover, because the Court derived its conclusions from an interpretation of the Belize Constitution, i.e. domestic law, it created within the domestic legal system an opening for contesting property rights – and possibly other rights – that did not exist before.

Local Land Use Rules and NAFTA

The second case study addresses the question of local land use rules and their interface with the North American Free Trade Agreement. NAFTA created a free trade zone between Canada, Mexico and the United States. It established state-to- state arbitration, but also allows investors to bring a case against a foreign host state if alleging expropriation without compensation, or unfair or discriminatory treatment. These ‘chapter 11 proceedings’ have been more widely used than anticipated29 and have raised important issues about how this transnational regime and its interpretation affect the domestic legal systems of NAFTA member states. The government of the host country can be held liable even if under domestic law it does not have jurisdiction over the subject matter. In fact, NAFTA cases have done just that – and ironically in cases where the central government was trying to promote the foreign investments, but local governments opposed it.30

28The University of Arizona Law School’s faculty and students helped prepare the case. See http://www.uanews.org/node/32579 (last visited 13 December 2010).

29For a survey of the evolution of BITs and the introduction of state-investor dispute settlement mechanisms, see Elkins, Guzman, and Simmons (2004).

30For a review of these cases see Olsen (2007).