The National Security Exception in US-China FDI and Trade: Lessons from Delaware Corporate Law

Abstract

National security-based measures are increasingly invoked in a variety of contexts such as global trade and national screening of incoming foreign direct investment. While international economic law recognizes that States have discretionary power to act to protect national security, thwarting investment and imposing trade restrictions may implicate various international law obligations. The legal issue is in determining when nations unjustifiably extend that discretion by invoking national security spuriously to cover abuse such as protectionism. Against what benchmark should reviewing bodies evaluate national security inspired measures? It is of critical importance that an appropriate standard be employed when reviewing the use of the national security exception; balancing the rights of States to redress legitimate threats but without stifling international market development and cooperation among States. Too much deference will lead to encouraging the exception’s invocation and overuse. But overly zealous scrutiny will eviscerate the exception. The national security exception is a concept in need of a workable and flexible standard to address concerns in an age of hegemonic rivalry.¹ National security is no longer solely relegated to the realm of armed conflict; concerns are now focused on economic and technological security. Moreover, the exception’s conceptual underpinnings, such as the requirement of ‘necessity’, were developed in a prior era and need to be updated. This article seeks to fill a void and promote discussion with respect to a standard that has not been adequately addressed in the literature. Given the complex character of national security, its divergence across States, and its potential abuse, the need for a proper standard becomes stark. Rather than develop the standard in isolation, the national security exception standard should be developed within the larger context of rights and duties as embodied by globalization. This article uses a novel perspective: examining the standards used by Delaware courts in evaluating conduct to protect corporate security is a reasonable template for evaluating national security measures in the context of international economic law. Evaluating the standard in the context of a legal system empowering and simultaneously regulating corporate boards when directors are confronting corporate security issues provides a useful context in examining the issue.