Why China Should Compensate Countries for the Coronavirus Pandemic

Why China Should Compensate Countries for the Coronavirus Pandemic

Luis Guillermo Vélez Álvarez

Economist

How the issue of support or help to businesses by governments to overcome the crisis has been raised is completely wrong, starting with the very ideas of support or help. Companies do not need to be helped or supported; they should be compensated for the expropriation to which they have been subjected. The quarantine is probably the largest act of mass expropriation ever practiced in human history. The companies are not closed by the decision of their owners, but by the decision of the governments that have deprived them of their right to decide what to do with their assets. They have stripped them of ownership over the income stream from those assets for the duration of the quarantine. That is the real truth, even though the expropriation was carried out for a good cause.

How the situation is being addressed at the international level is also wrong, or, more precisely, what the pandemic means for relations between the nation-states of the international community. The pandemic is not a natural disaster —like an earthquake, the eruption of a volcano, or the impact of a meteor— for which no one can be held responsible. We know that patient zero was in Wuhan and that China failed to prevent the virus from leaving that city and then its national borders, thus causing immense harm to other countries in the world. China must respond by compensating all affected countries.

Every national government that claims to be liberal must assume that quarantine amounts to a temporary disposition of property in response to a major calamity. The property must be restored as soon as possible, and the owners must be compensated for the losses suffered during this period. Broadly speaking, the income that companies and all owners have been deprived of should be considered as a prepaid tax, therefore, a debt of the government, which will be repaid over time as the tax is levied. Each country should establish a time horizon according to its circumstances.

China’s international responsibility is not a result of the commission of an unlawful act, which is not proven. It results from the production of damage as a consequence of a dangerous legal activity. In domestic law, this is equivalent to liability for risk, as in the case of a builder whose buildings collapse because of construction or design errors, or a clinic whose patients die because of misdiagnosis or poor treatment.

In positive international law, there are treaties and jurisprudence of liability for risk for specific hazardous activities such as oil transportation or off-shore exploitation, nuclear activities, transportation of radioactive material, nuclear submarines and ships, accumulation, and transportation of hazardous waste, etc. But there is only one convention that attributes exclusive liability sine delicto to the state: that concerning damage caused by objects launched into space.

However, we are witnessing such a dire event with catastrophic consequences that it is necessary to proceed by analogy to establish a jurisprudential precedent in international law. If we don’t do this, and if there isn’t adequate compensation, trade and diplomatic relations between countries will deteriorate drastically and may even threaten world peace.

Therefore, it is crucial to establish whether the virus originated in a wholesale wet market in Wuhan, as the Chinese authorities maintain, or in a laboratory in the same city. According to the U.S. authorities, two years ago, the U.S. Embassy in Beijing had warned about the insufficient security provisions in laboratories conducting experiments on the coronavirus in bats.

If the second hypothesis is true, the responsibility of the Chinese government is clear regarding the precedents of dangerous activities. But the first hypothesis also does not absolve it of responsibility for its apparent mishandling of the outbreak in its early days and for allegedly concealing information. China denied human-to-human transmission until mid-January. If this was clear earlier, it could have prevented the rapid spread of the virus.

Article 38 of the statute of the International Court of Justice, which is relevant to compensation claims against China, provides that, when deciding disputes submitted to it, the Court shall apply, in addition to international conventions, “the general principles of law recognized by civilized nations.” One of those principles is the “sic utere tuo ut alienum non laedas” —use your own property in such a manner as not to injure that of another— which orders the proper use of territory to prevent cross-border damage. In other words, it establishes the general obligation of a country to take precautions to prevent activities in its territory from causing damage to the territory, persons, or property of other countries. The Chinese government has violated this principle.

I believe that the precedent for large compensations is that of the reparations imposed on Germany and Austria in the treaties of Versailles and Saint-Germain-en-Laye, respectively, after the First World War. The difference in circumstances is enormous, as Germany and Austria were torn apart by the war, and indebted. China’s productive apparatus is intact, and the trade surpluses accumulated over the years enable it to hold a gigantic stock of assets -bonds and shares- which are claims on the world economy. China has the means to pay- both financial and real terms.

I want to conclude by talking about some practical things about what Colombia should do:

1. The national government should recognize as public debt the income that companies cease to produce during the quarantine. This would be based on an average of the net taxable income declared by the companies in the previous two or three years.
2. The government should issue internal or external debt securities to companies. The should be for payment of taxes due after two or three years. The Ministry of Finance can establish the exact date taking into account the tax situation. In any case, it should not be longer than three years so that the sale of the securities on the secondary market does not suffer a large reduction.
3. To obtain the required liquidity, companies will sell their securities on the secondary market. The securities will be more attractive and will have a wider market if they are convertible into Ecopetrol shares or other national assets.
4. The Ministry of Finance should prepare the collection account for the Government of China and immediately summon the ambassador to notify him and propose a direct settlement without recourse to the courts. The German newspaper Bild estimated the bill to be collected from China by the German government at 160 billion USD. As that is equivalent to 4% of Germany’s GDP, ours would be around 15 billion USD.
5. The Foreign Ministry must put its internationalists to work and start pushing the issue among the closest countries, starting with the United States.

LGVA

April 2020.