State capitalism and sovereign wealth funds: finding a “soft” location in international economic law

Abstract

State capitalism has become a formidable force in the international economy. It takes many forms, one of which being sovereign wealth funds (SWFs). SWFs are used by state capitalists to earn profits overseas or to promote economic growth at home. One of the imperative questions about state capitalism is where to place it in the legal and regulatory framework of international (economic) law. International law, or, more precisely, international economic law, has not formed firm rules about state capitalism. This paper aims to examine this issue by looking for a regulatory framework for state capitalism, particularly SOEs and SWFs, at the international level. It argues that a soft law approach is, at this stage, the best way to put state capitalism under a legal umbrella at the international level. The paper first introduces the concept of soft law in international economic law and explains the advantages of the soft law approach, followed by an examination of the effect of current regulatory regimes on state enterprises which focuses, in particular, on the relevant rules of the World Trade Organization (WTO). It then critically analyzes the development of the Santiago Principles, which embody a soft law approach to regulating SWFs. Finally, it proposes an “inclusive soft law” approach for the international regulation of state capitalism vehicles such as the SWFs.