Sovereignty mismatch and the new administrative law.

• Author: Zaring, David
• Position: Introduction through II. The Sovereignty Mismatch Problem as a Problem of Domestic Administrative Law B. Delegation, p. 59-86

Abstract

In the United States, making international policymaking work with domestic administrative law poses one of the thorniest of modern legal problems--the problem of sovereignty mismatch. Purely domestic regulation, which is a bureaucratic exercise of sovereignty, cannot solve the most challenging issues that regulators now face, and so agencies have started cooperating with their foreign counterparts, which is a negotiated form of sovereignty. But the way they cooperate threatens to undermine all of the values that domestic administrative law, especially its American variant, stands for. International and domestic regulation differ in almost every important way: procedural requirements, substantive remits, method of legitimation, and even in basic policy goals. Even worse, the delegation of power away from the United States is something that our constitutional, international, and administrative law traditions all look upon with great suspicion. The resulting effort to merge international and domestic regulatory styles has been uneven at best. As the globalization of policymaking is the likely future of environmental, business conduct, and consumer protection regulation--and the new paradigm-setting present of financial regulation--the sovereignty mismatch problem must be addressed; this Article shows how Congress can do so.

TABLE OF CONTENTS Introduction I. The Problem As Promise A. Regulatory Cooperation Costs Little B. Regulators Like Regulatory Cooperation C. Regulatory Cooperation Institutionalizes Well D. Conclusion II. The Sovereignty mismatch Problem As a Problem of Domestic Administrative Law A. Procedural Challenges B. Delegation C. Appointments D. Due Process E. Conclusion III. Financial Regulation As a Way Forward? A. Reorganization and Proceduralization B. Domestic Financial Regulation's Deficiencies C. Sort of Solving Delegation D. Appointments and Due Process E. Finance's Unique Features IV. Improving the Sovereignty Mismatch Solution INTRODUCTION

The worst financial crisis in a generation has inspired both domestic and international reform--reform that the heads of state and chief financial regulators of the world's largest economies think should work together. "[G]iven the high interdependence among our countries in the global economic and financial system," the world's most important finance ministers have declared, "[o]ur cooperation is essential." (1)

The President appears to agree. Last year, he issued a new executive order directing his subordinates to pursue "international regulatory cooperation" to "meet[] shared challenges involving health, safety, labor, security, environmental, and other issues...." (2) Regulation by cross-border cooperation has become the priority, in short, both at home and abroad.

But in the United States, making international policymaking work with domestic administrative law is extremely challenging. (3) The two styles differ in procedural requirements, substantive remits, methods of legitimation, and even basic policy goals.

Moreover, their interplay is only proceeding over strenuous dissent. Justice Antonin Scalia has argued that, on constitutional grounds at least, the idea "that American law should conform to the laws of the rest of the world ought to be rejected out of hand." (4) Over two-thirds of Oklahoma voters voted to amend their state constitution to provide that "[t]he courts shall not look to the legal precepts of other nations or cultures," especially "international law or Sharia law." (5)

And yet, international policymaking and domestic administrative law have increasingly, and--as this Article argues--inevitably, been charged with complementing one another in a very particular way. Across the regulatory spectrum, the formulation of policy is being done at the international level, under the auspices of negotiated arrangements among a confederacy of agencies, while execution of policy remains the province of domestic regulators. It is a change that is having significant but unresolved effects on domestic law. This Article will examine those effects, which are substantial enough to, it argues, require legitimation by the legislature--an International Administrative Procedure Act, if you like.

The need for a congressional solution stems from the seriousness of the problem, as Justice Scalia and those Oklahoma voters have recognized, which is that the delegation of power away from the United States--the very definition of international regulatory cooperation--is something that our constitutional, international, and administrative law traditions all look upon with suspicion. (6) It is a suspicion that has only been exacerbated by the Supreme Court's recent, and controversial, willingness to entertain foreign precedents as guidance for domestic constitutional interpretation. (7)

The effort to merge the international and domestic regulatory styles represents what I call the sovereignty mismatch problem in modem administration. Sovereignty mismatch is a way of characterizing the fundamental challenge to the growing internationalization of domestic administrative law, putting a negotiated cross-border process, where sovereignty is exercised by dealmaking, on top of a routinized and regulated domestic one, where sovereignty is exercised by rulemaking. (8) As the globalization of policymaking is already the new paradigm-setting reality of financial regulation, and is the future of environmental, business conduct, and consumer protection regulation, the sovereignty mismatch problem must be addressed. (9)

But addressing it is very difficult. While domestic regulation must follow the rules of ordinary administrative law, the emerging new form of global regulation, where agencies cooperate with one another on basic policy approaches, is--and again, this is the mismatch--negotiated and informal, and so lacks procedural safeguards.

There is, for example, no judicial review on the international level, and only voluntarily offered administrative process. Judicial review is a paradigmatic feature of domestic administrative law, as are requirements such as publication in the Federal Register, concise statements of the basis for rules, and--at least as a matter of practice, if not one of formal doctrine--increasingly elaborate responses to comment. (10) International rulemaking dispenses with these requirements.

And therein lies a problem. Under American law, the fact that the international role is the prescriptive one implicates the nondelegation and delegation doctrines, due process concerns, Appointments Clause problems, and basic questions about whether notice and comment requirements are met if the important policymaking was done at the international level. (11)

Americans have particular reason to be worried about these developments. In a number of different contexts, the international delegation of policymaking authority has resulted in policy formulation that the United States has either traditionally opposed or carefully debated:

* America's global warming policy, rather than being expressed by commitment to a treaty like the Kyoto Protocol, is increasingly being set through informal comparisons with Chinese emission levels. (12) "The reality," then-Senator John Kerry (D-MA) has said, "is that a robust American partnership with China will do more than anything else to ensure a successful global response to the urgent threat of climate change." (13)

* American competition policy, with its traditional focus on consumer (and only consumer) protection, is under increasing pressure to be modified to comport with a more European standard that balances consumer interests with those of other interested parties. (14)

* Although both President Obama and the Chairman of the Federal Reserve, Ben Bemanke, have made noises about engaging in stricter executive compensation regulation, (15) the United States has traditionally taken a laissez-faire attitude towards the pay packages that companies offer their employees. (16) But the transnational Basel Committee on Banking Supervision ("Basel Committee") has instructed its member agencies, (17) including the Federal Reserve Board ("the Fed"), to adopt a laundry list of new tools to scrutinize executive pay. (18)

* The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), (19) designed to be the centerpiece of reform of the American financial system, requires bank regulators to develop alternatives to the use of credit ratings in evaluating the quality of bank reserve assets. (20) But such...