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IALS Conference:
The Law of International Business Transactions: A Global Pespective
___________________________________
International Association of Law Schools Conference
The Law of International Business Transactions: A Global
Perspective
Bucerius Law School
Hamburg, Germany
April 10 – 12, 2008
This Conference is supported in part by grants from
ZEIT-Stiftung Ebelin und Gerd Bucerius
and
The Wang Family Foundation
In addition,
LexisNexis has provided a grant to support global participation
in this Conference
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IALS Conference:
___________________________________
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IALS Conference:
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WELCOME
I am pleased to welcome you to the International Association of Law Schools’
Conference entitled “Learning from Each Other: Enriching the Law School Curriculum in an
Interrelated World.” This is only the second conference sponsored by the IALS, and it is the first
conference for professors of a particular subject. One of the major goals of IALS is to foster
discussion about the teaching of particular subjects and the similarities and differences in teaching
it in different cultures and legal systems. It is our hope that these conferences will result in not
only a better understanding among law professors about the teaching of particular subjects in
different legal systems, but will also enable participants and those who read the conference papers
to teach their students about how the subject is approached in those different legal systems.
IALS extends its profound gratitude to the Zeit-Stiftung Gerd und Bucerius, the Bucerius
Law School, the Wang Family Foundation, the Law School Admissions Council, and Lexis-Nexis
for their financial support that has helped make this conference possible.
I look forward to meeting you and working with you both at this conference, and future
IALS programs.
Sincerely yours,
Carl C. Monk
IALS President
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IALS Conference:
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TABLE OF CONTENTS
Page
Welcome………………………………………………………………………………..3
Table of Contents……………………………………………………………………...5
Program………………………………………………………………………………...11
List of Delegates………………………………………………………………………17
IALS Governing Board………………………………………………………………..25
Planning Committee…………………………………………………………………..31
IALS Members………………………………………………………………………...33
PARTICIPANT PAPERS (Papers by Subject Matter; alphabetical by last name)
Globalization and Its Impacts on the law of International Business……………….39
“Humanizing Our Global Order”: Perspectives on Globalization, South-North
Relations, and International Business transactions……………………………..41
Obi Aginam, Japan
The Implementing Environment Management in Indonesiafacing on
The Global Trading Through the Legal Aspect………………………………..51
Fachri Bey, Indonesia
The Business Transactions of Migrants: Remittances…………………………….57
Enrique R. Carrasco, United States
Plenary Session: Globalization and its Impact on the Law of International
Business………………………………………………………………………63
Cornelius Hagenmeier, South Africa
A Regional Co-operation: Trade, Security and Regulatory Convergence………….69
Maureen Irish, Canada
The Contribution of International Organizations to the Emergence of a
Supranational Legal Framework……………………………………………….77
Fetze Kamdem, Canada
Reflections on Globalization and its Impact on the Law of International
Business……………………………………………………………………….79
Tesfay Kumenit, Ethiopia
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Regulation of International Business Transactions Regional Institutions:
Developments in the South Pacific…………………………………………….83
Anne McNaughton, Australia
The Monetary System From Historical Perspectives (A Special Reference to the
Kingdom of Mamluk From the Period (872-922A.H./1468-1517A.D.
that utilizes Islamic Monetary System)…………………………………….…..89
Dr. Wan Kamal Mujani, Malaysia
Neither Global Nor National: Novel Assemblages of Territory, Authority and
Rights………………………………………………………………………….101
Saskia Sassen, United States
Laws Relating to International Business Transactions: A Third World
Perspective…………………………………………………………………….119
Dr. Gurjeet Singh, India
Remarks on Globalization and the Polish Legal System………………………….123
Dr. Jaroslaw Warylewski, Poland
Islamic Banking Transactions in Malaysia: An Overview of Some Legal
Considerations………………………………………………………………....127
Dr. Noor Inayah Yaakub, Malaysia
Globalization and Its Impact on the Law of International Business –
The Environmental perspective of Liberia…………………………………….137
Alexander B. Zoe, Liberia
Regulation of International Business Transactions………………………………….141
Material Adverse Change Clauses under Puerto Rico Law……………………….143
Luis Aníbal Aviles, Puerto Rico
International and National Laws Intertwined in Asia…………………………….147
Ljiljana Biukovic, Canada
Mapping Out Global Institutions Regulating International Business
Transactions: What Are at Stake? .................................................................................153
Sungjoon Cho, United States
The Protection Issue of African Companies Regarding the
International Trade’s Multilaterals Rules……………………………………….155
Pr. Roch Gnahoui C. David, Senegal
Sociedad Anónima Promotora de Inversión: A New Kind of
Company Doing Business in México…………………………………………..159
José Roble Flores Fernández, Mexico
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Regulation of FDI in Developing and Transitioning Economics: Trends and
Observations…………………………………………………………………..167
Xavier Forneris
The Moral Hazard Problem in Global Economic Regulation…………………….181
Frank J. Garcia, United States
Understanding the Role of Global Governance Institutions in the
Regulation of International Business Transactions…………………………….185
Claire R. Kelly, United States
Some Thoughts on the Regulation of Business Transactions in Europe…………191
Dr. Nicole Kornet, Netherlands
Problems of Enforcing Intellectual Property Laws in Indonesia…………………197
Afifah Kusumadara, Indonesia
The Altered Anatomy of an International Transaction in South Africa:
The Impact of Equity Laws……………………………………………………207
Kevin Malunga, South Africa
The Role of KPPU in Protecting Retail Business and Traditional
Market in Indonesia in the Era of Market Liberalization………………………211
Wasis Susetio, Indonesia
Migrant Protection Approach: Study on Protecting Indonesian
Migrant Worker………………………………………………………………..217
Dhoni Yursa, Indonesia
Intellectual Property……………………………………………………………….......223
Intellectual Property in the Light of the European Conflict of Laws…………….225
Nerina Boschiero, Italy
Industrial Property: Protection of Trademarks and other
Distinctive Signs in Litigation about Internet Domain Names…………………243
Miguel Pupo Correia, Portugal
International Business Transactions With Chinese Characteristics:
Fostering Cross Cultural Learning Experiences In the Law……………………247
Francis SL Wang, China
Foreign Investment…………………………………………………………………….255
International Investment and Islamic Financing………………………………….257
Jassim Ali Salem Alshamsi, United Arab Emirates
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Chile and Foreign Investment: An Example in the Latin American Context……..261
Roberto Guerrero V., Chile
Dispute Resolution…………………………………………………………………….265
Problems with Arbitration in the USA…………………………………………...267
Joseph L. Daly, United States
The Enforceability of ADR Clauses……………………………………………..283
Judd Epstein, Austrialia
Essay: Investor-State Arbitration and Intellectual Property……………………....287
Christopher S. Gibson, United States
The Privatization of Dispute Resolution in International Business
Transactions…………………………………………………………………...293
Stefan Kröll, Germany
Regional Organizations and Dispute Settlement: Court and Arbitration
Insitution at the Same Time? ………………………………………………….301
Thalia Kruger, South Africa
The WTO Dispute Settlement Procedure and the Participation of the
Developing Countries……………………….………………………………....305
Sandra C. Negro, Argentina
Arbitration: A New Alternative for Intellectual Property Dispute
Resolution in Thailand…………………………………………………………309
Orabhund Panuspatthna, Thailand
Jurisdiction and Choice of Law……………………………………………………….313
Remarks on the Autonomous Interpretation of the Brussels Regulation, in
Particular of the Concept of “place of delivery” under Art. 5(1) (b), and
the Vienna Sales Convention (on the Occasion of a Recent Italian Court
Decision)……………………………………………………………………315
Franco Ferrari, United States
Challenging Foreign Arbitral Awards: Reflections on the Indian Judiciary’s
Approach………………………………………………………………………331
Govindraj Hegde, India
Choice of Substantive Law: Real World Sale, Barter, or Lease of
Virtual Property………………………………………………………………..337
Sarah Howard Jenkins, United States
Jurisdiction And Choice Of Law: A European Perspective……………………....343
Alberto Malatesta, Italy
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Choice of Law Forum in International Commercial Contracts: Trends in
Common Law Jurisdictions (A Non-European Perspective)…………………...347
Megan Richardson, Australia
Recognition and Enforcement of Foreign Judgments in Thailand……………......353
Jantree Sinsuppraroek, Thailand
Beyond Lecturing: Other Methods of Teaching International Business
Transactions………………………………………………………………………..357
The Changing International Business Context and the Challenge It Poses
for the Education of International Business Lawyers………………………….359
Daniel D. Bradlow, United States
Expanding Jurisdiction and Expanding Immunities……………………………...363
Barry E. Carter, United States
Transactions…………………………………………………………………...367
Durand M Cupido, South Africa
Beyond Lecturing: Using Simulation as One of the Other Method of
Teaching International Business Transactions Law…………………………….373
Lafi Daradkeh, Jordan
Teaching Corporate Social Responsibility (CSR) in the Curriculum:
How Kanye West and JZ can do if for you…………………………………….377
Mustaqeem de Gama
IALS Conference: “The Law of International Business Transactions:
A Global Perspective”…………………………………………………………381
Aaron Xavier Fellmeth, United States
Pairing Law and Business………………………………………………………...387
Clifford Larsen, Germany
“Market-Based Solutions: Perspectives from Business Law and Law &
Economics” A Clinical Course at Yale Law School……………………………391
Jonathan Macey, United States
Company Law and Practice Curriculum and Teaching Methodology at the
Nigerian Law School…………………………………………………………..393
Tahir Mamman, Nigeria
Problem-Based Learning with Mandatory Teamwork Experience at
IE Law School………………………………………………………………...395
Gregory J. Marsden, Spain
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The “Law of the Other” in International Business Transactions-Foreign
Perspectives in International Business Transactions Courses…………………..399
James R. Maxeiner, United States
International Finance as International Business Transactions……………………401
Eric J. Pan, United States
Following the Trade-Winds – Teaching International Trade
Transactions Law………………………………………………………………407
Louise Parsons and Laurence Boulle, Austrilia
International Sales Transactions – A Series of Simulated Negotiation and
Drafting Exercises……………………………………………………………..413
Arie Reich, Israel
Transactions…………………………………………………………………...419
Elizabeth Snyman-Van Deventer, South Africa
Suzhou Program…………………………………………………………….........421
Karsten Thorn, Germany, and Francis SL Wang, China
International Investment Law in a Global Context: Preparing the Future
Jurist to the Challenges Ahead…………………………………………………425
Mehmet C. Uzun, Turkey
How the Class “International Arbitration” is Taught at Leuven Law
School…………………………………………………………………….........431
Dr. Hans van Houtte, Belgium
An Interdisciplinary Approach to Teaching International Business
Transactions in a Global Economic Environment…………………………….435
Kojo Yelpaala, United States
Editors:
Louis Del Duca
Professor
Penn State Dickenson School of Law, USA
Travis Hoagland
Student Assistant
Penn State Dickenson School of Law, USA
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IALS Conference:
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International Association of Law Schools
The Law of International Business Transactions:
A Global Perspective
Hamburg, Germany
April 10 - 12, 2008
This conference is supported in part by grants from
And
The Wang Family Foundation
In addition, LexisNexis has provided a grant to support global
participation in this Conference
Thursday, April 10, 2008
16:00 – 20:00
Registration
Forum Rotunde
Ground Floor
19:00 – 21:00
Opening Reception Sponsored by
Law School Admission Council
Forum Rotunde
Ground Floor
Welcome
Carl C. Monk, IALS President
Greetings from Law School Admission Council
Daniel O. Bernstine, President and CEO, Law School Admission Council,
United States
Greetings from ZEIT-Stiftung Ebelin und Gerd Bucerius
Markus Baumanns, Executive Vice President, ZEIT-Stiftung Ebelin und
Gerd Bucerius, Germany
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IALS Conference:
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Friday, April 11, 2008
9:00 – 9:15
Welcome
Heinz-Nixdorf Horsaal Room
3rd Floor
Introduction
Nerina Boschiero, University of Milan, Chair, Planning Committee for IALS
Conference on Teaching International Business Transactions Courses in the
Global Context
9:15 – 10:45
Globalization and Its Impact on the Law of
International Business
Economic
Thomas Straubhaar, President, Hamburg World Economic Institute, Germany
Social
Frank J. Garcia, Boston College, United States
Technological
Obi Aginam, Director for Program for Peace and Governance, United Nations
University, Japan
Moderator: Clifford Larsen, Bucerius Law School, Germany
10:45 – 11:15
Forum Rotunde
Refreshment Break Sponsored by
Ground Floor
and Bucerius Law School
11:15 – 12:15
Small Group Discussions
See the handout in your materials folder for your small group assignment
and its meeting room location.
12:30 - 13:45
Forum Rotunde
Luncheon Sponsored by
Ground Floor
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Friday, April 11, 2008 (Continued)
13:45 – 15:15
Regulation of International
Business Transactions
3rd Floor
Global Institutions
Sungjoon Cho, Chicago-Kent College of Law, Illinois Institute of Technology,
United States
Regional Institutions
Ljiljana Biukovic, University of British Columbia, Canada
National Institutions
James Li, Tsinghua University Law School, China
Moderator: Francis SL Wang, Kenneth Wang School of Law, Soochow University,
China
15:15 – 15:45
Forum Rotunde
Ground Floor
15:45 - 17:00
Small Groups
See the handout in your materials folder for your small group assignment
and its meeting room location.
17:00 – 17:45
Small Group Summation
3rd Floor
Moderator: Frank J. Garcia, Boston College, United States
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Saturday, April 12, 2008
9:00 - 10:15
Concurrent Sessions: Selected Trends in Global Business
Intellectual Property
3rd Floor
Public Law
Francis SL Wang, Kenneth Wang School of Law, Soochow Univeristy, China
Private Law
Nerina Boschiero, University of Milan, Italy
Moderator: Frank J. Garcia, Boston College, United States
Foreign Investment
Deutsche Bank Lecture Hall
Ground Floor
Xavier Forneris, International Finance Corporation, a member of the
World Bank Group, United States
Roberto Guerrero V., Vice Dean of Law School Pontifica Universidad Catolica de
Chile Santiago, Chile
Moderator: Mustaqeem de Gama, Stellenbosch University, South Africa
10:15-10:30 a.m.
Forum Rotunde
Ground Floor
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Saturday, April 12, 2008 (Continued)
10:30 – 11:45 a.m.
Concurrent Sessions: Selected Trends in Global Business
Dispute Resolution
3rd Floor
Edwini Kessie, Counsellor in the Technical Cooperation Division of the World
Trade Organization, Switzerland
Stefan Kröll, Visiting Lecturer at the Bucerius Law School, Germany and a Visiting
Reader at the School of Arbitration, Center for Commercial Law Studies, Queen
Mary College University of London, England
Moderator: Ljiljana Biukovic, University of British Columbia, Canada
Jurisdiction and Choice of Law
Deutsche Bank Lecture Hall
Ground Floor
Alberto Malatesta, Universitá Carlo Cattaneo (LUIC), Italy
Megan Richardson, Victoria University of Wellington, Australia
Moderator: Nerina Boschiero, University of Milan, Italy
12:00 – 13:45
Forum Rotunde
Luncheon Sponsored by
Ground Floor
13:45 – 15:15
Beyond Lecturing: Other Methods
of Teaching International Business
Transactions
3rd Floor
A “Role-Playing” Method of Teaching International Business Transaction
Sungjoon Cho, Chicago-Kent College of Law, Illinois Institute of Technology,
United States
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IALS Conference:
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Saturday, April 12, 2008 (Continued)
Pairing Law and Business
Clifford Larsen, Bucerius Law School, Germany
Summer Law Institute and IBT Simulation
Karsten Thorn, Bucerius Law School, Germany
Francis SL Wang, Kenneth Wang School of Law, Soochow University, China
Training Law Students to be International Transactional Lawyers ...
Daniel D. Bradlow, American University, United States
Using Yarmouk University Faculty of Law As An Example
Lafi Daradkeh, Yarmouk University, Jordan
Moderator: Carl C. Monk, IALS President
15:15-15:25
Closing Remarks
Nerina Boschiero, University of Milan, Chair, Planning Committee for IALS
Conference on Teaching International Business Transactions Courses in the Global
Context
19:00
Literaturhaus Cafe
Closing Dinner Sponsored by
Schwanenwik 38
ZEIT-Stiftung Ebelin und Gerd Bucerius22087 Hamburg
and Wang Family Foundation
*Buses will depart from the Radisson SAS and Baseler Hof hotels at 18:30
Greetings from ZEIT-Stiftung Ebelin und Gerd Bucerius
Markus Baumanns, Executive Vice President, ZEIT-Stiftung Ebelin und
Gerd Bucerius, Germany
Greetings from Bucerius Law School
Karsten Schmidt, President, Bucerius Law School, Germany
Greetings from Wang Family Foundation
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DELEGATES
Mohammad Al-moqatei
Kuwait University
Kuwait
[email protected]
Jassim Ali Salem Alshamsi
United Arab Emirates University
UAE
[email protected]
Luis Anibal Aviles-Pagan
University of Puerto Rico
Puerto Rico, USA
[email protected]
Laurence Boulle
Bond University
Australia
[email protected]
Daniel D. Bradlow
American University
USA
[email protected]
Enrique R. Carrasco
University of Iowa
USA
[email protected]
Barry E. Carter
Georgetown Univeristy
USA
[email protected]
Sungjoon Cho
Chicago-Kent College of Law
USA
[email protected]
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IALS Conference:
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Miquel Pupo Correia
Universidade Lusíada
Portugal
[email protected]
Durand M. Cupido
University of Stellenbosch
South Africa
[email protected]
Joseph L. Daly
Hamline Univeristy
USA
[email protected]
Lafi Daradkeh
Yarmouk University
Jordan
[email protected]
Roch C. Gnahoui David
University of Dakar
Senegal
[email protected]
Judd Epstein
Monash University
Australia
[email protected]
Aaron Xavier Fellmeth
Arizona State University
USA
[email protected]
José Roble Flores Fernández
Facultad Libre de Derecho de Monterrey
Mexico
[email protected]
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IALS Conference:
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Franco Ferrari
New York Univeristy
USA
[email protected]
[email protected]
Christopher Gibson
Suffolk University
USA
[email protected]
Govindraj Hegde
National Law School of India
India
[email protected]
[email protected]
Cornelius Hagenmeier
University of Venda
South Africa
[email protected]
Maureen F. Irish
University of Windsor
Canada
[email protected]
Sarah Howard Jenkins
University of Arkansas at Little Rock
USA
[email protected]
Innocent Fetze Kamdem
University of Ottawa
Canada
[email protected]
Claire R. Kelly
Brooklyn Law School
USA
[email protected]
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IALS Conference:
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Nicole Kornet
Maastricht University
Netherlands
[email protected]
Thalia Kruger
University of Cape Town
South Africa
[email protected]
Tesfay Kumenit
University of Gondar
Ethiopia
[email protected]
Afifah Kusumadara
Brawijaya University
Indoneisa
[email protected]
[email protected]
Jonathan Macey
Yale University
USA
[email protected]
Tahir Mamman
Nigerian Law School
Nigeria
[email protected]
James R. Maxeiner
University of Balitmore
USA
[email protected]
Kevin Mulunga
University of the Witwatersrand
South Africa
[email protected]
Gregory J. Marsden
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IALS Conference:
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Instituto de Empresa
Spain
[email protected]
Anne Margaret McNaughton
The Australian National University
Australia
[email protected]
Wan Kamal Mujani
Universiti Kebangsaan Malaysia
Malaysia
[email protected]
Sandra Negro
University of Buenos Aires
Argentina
[email protected]
[email protected]
Eric J. Pan
Yeshiva University
USA
[email protected]
Orbahund Panuspatthna
Chulalongkorn University
Thailand
[email protected]
Arie Reich
Bar Ilan University
Israel
[email protected]
Gurjeet Singh
Rajiv Gandhi National University of Law
India
[email protected]
Jantree Sinsuppraroek
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IALS Conference:
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Chulalongkorn University
Thailand
[email protected]
Wasis Susetio
Universitas Indonusa Esa Unggul
Indonesia
[email protected]
Mehmet Cengiz Uzun
Bahçeşehir University
Turkey
[email protected]
Hans Van Houtte
K.U. Leuven
Belgium
[email protected]
Jaroslaw Warylewski
University of Gdansk
Poland
[email protected]
Yu-Fang Wen
University of the Free State
South Africa
[email protected]
Noor Inayah Yaakub
Universiti Kebangsaan Malaysia
Malaysia
[email protected]
Kojo Yelpaala
University of the Pacific
USA
[email protected]
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IALS Conference:
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Dhoni Yusra
Universitas Indonusa Esa Unggul
Indonesia
[email protected]
C. Alexander B. Zoe
University of Liberia
Liberia
[email protected]
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IALS Conference:
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SPEAKERS, IALS BOARD MEMBERS, PLANNING COMMITTEE
MEMBERS AND REPRESENTATIVES OF
NON-VOTING ORGANIZATIONAL MEMBERS
Obi Aginam
United Nations University
Japan
[email protected]
Speaker
Markus Baumanns
Germany
[email protected]
Speaker
Daniel O. Bernstine
Law School Admissions Council
USA
[email protected]
Speaker, Organizational Member
Ljiljana Biukovic
University of British Columbia
Canada
[email protected]
Moderator, Planning Committee Member
Nerina Boschiero
University of Milan
Italy
[email protected]
Speaker, Planning Comimttee Chair
Daniel D. Bradlow
American University
USA
[email protected]
Speaker
Barry E. Carter
Georgetown Univeristy
USA
[email protected]
Speaker
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IALS Conference:
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Sungjoon Cho
Chicago-Kent College of Law
USA
[email protected]
Speaker
Xavier Forneris
International Finance Corporation
USA
[email protected]
Speaker
Frank J. Garcia
Boston College
USA
[email protected]
Mustaqeem de Gama
Stellenbosch University
South Africa
[email protected]
Roberto Guerrero V.
Pontifica Universidad Católica de Chile Santiago
Chile
[email protected]
Speaker
Michelo Hansingule
University of Pretoria
South Africa
[email protected]
Speaker
Edwini Kessie
Technical Cooperation Division of the World Trade Organization
Switzerland
[email protected]
Speaker
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IALS Conference:
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Stefan Kröll
Bucerius Law School
Germany
[email protected]
Speaker
Clifford Larsen
Bucerius Law School
Germany
[email protected]
Speaker, Planning Committee Member
James Li
Tsinghua University
China
[email protected]
Speaker
Alberto Malatesta
Universitá Carlo Cattaneo (LUIC)
Italy
[email protected]
Speaker
Carl C. Monk
USA
[email protected]
Moderator, IALS President
Megan Richardson
The University of Melbourne
Australia
[email protected]
Speaker
Saskia Sassen
Columbia University
USA
[email protected]
Speaker
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IALS Conference:
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Karsten Schmidt
Bucerius Law School
[email protected]
Germany
Speaker
Thomas Straubhaar
Hamburg World Economic Institute
Germany
[email protected]
Speaker
Karsten Thorn
Bucerius Law School
Germany
[email protected]
Speaker
Francis SL Wang
Kenneth Wang School of Law
Soochow University
China
[email protected]
Speaker, Planning Committee Member
Stephen Yandle
LexisNexis
USA
[email protected]
Organizational Member
Jenny Zhang
LexisNexis
USA
[email protected]
Orginizational Member
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IALS Conference:
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Governing Board
Mohammad A.A. Al-Moqatei, Kuwait University School of Law, Kuwait
Noor Aziah Haji Mohd Awal, National University of Malaysia, Malaysia
Roger Burridge, University of Warwick School of Law, United Kingdom
Michael Coper, Australian National University Faculty of Law, Australia
Norman Dorsen, New York University School of Law, United States
Vincenzo Ferrari, University of Milan, Italy
Chuma C. Himonga, University of Cape Town Faculty of Law, South Africa
John B.K. Kaburise, University of Development Studies, Ghana
Monica Pinto, University of Buenos Aires, Argentina
Flávia Piovesan, Catholic University of Sao Paulo Faculty of Law, Brazil
Craig Scott, Osgoode Hall Law School York University, Canada
Yoshiko Terao, University of Tokyo Graduate School of Law and Politics, Japan
Frans Vanistendael, K.U. Leuven Faculty of Law, Belgium
V.S. Elizabeth, National Law School of India University, India
Francis SL Wang, Kenneth Wang School of Law Soochow University, China
Carl C. Monk, President
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IALS Conference:
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IALS Conference:
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IALS Conference
The Law of International Business Transactions:
A Global Perspective
Planning Committee Members
Ljiljana Biukovic, University of British Columbia, Canada
Nerina Boschiero, University of Milan, Italy, Chair
Mustaqeem de Gama, Stellenbosch University, South Africa
Frank J. Garcia, Boston College, USA
Clifford Larsen, Bucerius Law School, Germany
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IALS Conference:
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IALS Conference:
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IALS MEMBERS
SCHOOLS
UNVERSIDAD DE BUENOS AIRES, ARGENTINA
UNIVERSIDAD DE PALERMO, ARGENTINA
AUSTRALIAN NATIONAL UNIVERSITY, AUSTRALIA
BOND UNVIVERSITY, AUSTRALIA
GRIFFITH UNIVERSITY, AUSTRALIA
UNIVERSITY OF MELBOURNE, AUSTRALIA
MONASH UNIVERSITY, AUSTRALIA
UNIVERSITY OF SYDNEY- SYDNEY LAW SCHOOL, AUSTRALIA
UNIVERSITY OF TASMANIA, AUSTRALIA
UNIVERSITY OF BAHRAIN – COLLEGE OF LAW, BAHRAIN
K.U. LEUVEN, BELGIUM
PONTIFÍCA UNIVERSIDADE DE CATÓLICA DE SÃO PAULO, BRAZIL
NEOPHYT RILSKY SOUTH-WEST UNIVERSITY, BULGARIA
UNIVERSITY OF BRITISH COLUMBIA, CANADA
MCGILL UNIVERSITY, CANADA
OSGOODE HALL LAW SCHOOL- YORK UNIVERSITY, CANADA
UNIVERSITY OF OTTAWA – CIVIL LAW SECTION, CANADA
UNIVERSITY OF OTTAWA-COMMON LAW SECTION, CANADA
QUEEN’S UNIVERSITY, CANADA
UNIVERSITY OF WINDSOR, CANADA
PONTIFICA UNIVERSIDAD CATÓLICA DE CHILE, CHILE
KENNETH WANG SCHOOL OF LAW, SOOCHOW UNIVERSITY, CHINA
NANKAI UNIVERSITY SCHOOL OF LAW, CHINA
MASARYK UNIVERSITY IN BRNO, CZECH REPUBLIC
UNIVERSITY OF AARHUS SCHOOL OF LAW, DENMARK
UNIVERSITY OF GONDAR, ETHIOPIA
CAUCASUS SCHOOL OF LAW, GEORGIA
TBILISI STATE UNIVERSITY, GEORGIA
BUCERIUS LAW SCHOOL, GERMANY
LUDWIG-MAXIMILIANS UNIVERSITY-JURISTISCHE FAKULTAET, GERMANY
NALSAR UNIVERSITY OF LAW, INDIA
NATIONAL LAW SCHOOL OF INDIA UNIVERSITY, INDIA
RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, INDIA
SYMBIOSIS LAW SCHOOL, INDIA
UNIVERSITAS BRAWIJAYA, FAKULTAS HUKUM, INDONESIA
UNIVERSITAS INDONUSA ESA UNGGUL, INDONESIA
DUBLIN INSTITUTE OF TECHNOLOGY, SCHOOL SOCIAL SCIENCES AND LAW, IRELAND
BAR ILAN UNIVERSITY, ISRAEL
TRENTO UNIVERSITY, ITALY
UNIVERSITÀ DEGLI STUDI DI FIRENZE, ITALY
UNIVERISTÀ DEGLI STUDI DI FOGGIA, ITALY
UNIVERSITÀ DEGLI STUDI DI MILANO, ITALY
SECONDA UNIVERSITÀ DEGLI STUDI DI NAPOLI, ITALY
UNIVERSITÀ DEGLI STUDI DI UDINE, ITALY
PHILADELPHIA UNIVERSITY, JORDAN
YARMOUK UNIVERSITY, JORDAN
HANDONG INTERNATIONAL LAW SCHOOL, KOREA
KUWAIT UNIVERSITY, KUWAIT
UNIVERSITY OF LIBERIA-LOUIS ARTHUR GRIMES SCHOOL OF LAW, LIBERIA
VYTAUTAS MAGNUS UNIVERSITY, LITHUANIA
UNIVERSITI KEBANGSAAN, MALAYSIA
FACULTAD LIBRE DE DERECHO DE MONTERREY, MEXICO
UNIVERSITY OF MAASTRICHT, NETHERLANDS
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TILBURG UNIVERSITY, NETHERLANDS
VRIJE UNIVERITEIT AMSTERDAM, NETHERLANDS
UNIVERSITY OF AUCKLAND, NEW ZEALAND
NIGERIAN LAW SCHOOL, NIGERIA
UNIVERSITY OF JOS, NIGERIA
UNIVERSITY OF THE PHILIPPINES, PHILLIPINES
UNIVERISTY OF GDANSK, FACUTLY OF LAW AND ADMINISTRATION, POLAND
UNIVERSIDADEUNIVERSIDADES LUSÍADA, PORTUGAL
ESCUELA DE DERECHO UNIVERSIDAD DE PUERTO RICO, PUERTO RICO
QATAR UNIVERSITY COLLEGE OF LAW, QATAR
UNIVERSITÉ CHEIKH ANTA DIOP DE DAKAR, SENEGAL
UNIVERSITY OF TRNAVA, SLOVAK REPUBLIC
UNIVERSITY OF CAPE TOWN, SOUTH AFRICA
NELSON MANDELA METROPOLITAN UNIVERSITY, SOUTH AFRICA
UNIVERSITY OF STELLENBOSCH, SOUTH AFRICA
UNIVERSITY OF THE FREE STATE, SOUTH AFRICA
UNIVERSITY OF VENDA SCHOOL OF LAW, SOUTH AFRICA
UNIVERSITY OF THE WITWATERSRAND, SOUTH AFRICA
INSTITUTO DE EMPRESA, SPAIN
LUNDS UNIVERSITETE, SWEDEN
UNIVERSITÉ DE FRIBOURG SUISSE, SWITZERLAND
UNIVERSITÄT ZÜRICH, RECHTSWISSENSCHAFTLICHEN FAKULTÄT, SWITZERLAND
NATIONAL CHIAO TUNG UNIVERSITY-INSTITUTE OF TECHNOLOGY LAW, TAIWAN
CHULALONGKORN UNIVERSITY, THAILAND
BAHCESEHIR UNIVERSITESI, TURKEY
HACETTEPE UNIVERSITY- LAW FACULTY, TURKEY
UNITED ARAB EMIRATES UNIVERSITY, UNITED ARAB EMIRATES
BRADFORD UNIVERSITY LAW SCHOOL, UNITED KINGDOM
UNIVERSITY OF WARWICK, UNITED KINGDOM
UNIVERSITY OF AKRON, USA
AMERICAN UNIVERSITY, USA
ARIZONA STATE UNIVERSITY, USA
UNIVERSITY OF ARKANSAS AT LITTLE ROCK, USA
UNIVERSITY OF BALTIMORE, USA
BOSTON COLLEGE, USA
UNIVERSITY OF CALIFORNIA – DAVIS, USA
UNIVERISTY OF CALIFORNIA – HASTINGS, USA
CALIFORNIA WESTERN, USA
CASE WESTERN UNIVERSITY, USA
THE CATHOLIC UNIVERSITY OF AMERICA, USA
CHICAGO-KENT COLLEGE OF LAW, USA
UNIVERSITY OF CINCINNATI, USA
CONCORD LAW SCHOOL, USA
UNIVERSITY OF THE DISTRICT OF COLUMBIA, USA
FLORIDA A&M UNIVERSITY, USA
FLORIDA INTERNATIONAL UNIVERSITY, USA
THE GEORGE WASHINGTON UNIVERSITY, USA
GEORGETOWN UNIVERITY, USA
HAMLINE UNIVERSITY, USA
HARVARD LAW SCHOOL, USA
UNIVERSITY OF HOUSTON, USA
UNIVERSITY OF ILLINOIS, USA
INDIANA UNIVERSITY-BLOOMINGTON, USA
UNIVERSITY OF IOWA, USA
ATLANTA’S JOHN MARSHALL LAW SCHOOL, USA
LEWIS AND CLARK LAW SCHOOL, USA
MARQUETTE UNIVERSITY, USA
UNIVERSITY OF THE PACIFIC- MCGEORGE SCHOOL OF LAW, USA
UNIVERSITY OF MINNESOTA, USA
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MISSISSIPPI COLLEGE, USA
UNIVERSITY OF MISSOURI, USA
UNIVERSITY OF NEBRASKA, USA
NEW ENGLAND SCHOOL OF LAW, USA
NEW YORK LAW SCHOOL, USA
NEW YORK UNIVERSITY, USA
NORTHEASTERN UNIVERSITY, USA
NOVA SOUTHEASTERN UNIVERSITY, USA
THE OHIO STATE UNIVERSITY, USA
UNIVERSITY OF OKLAHOMA, USA
OKLAHOMA CITY UNIVERSITY, USA
PACE UNIVERSITY, USA
THE PENNSYLVANIA STATE UNIVERSITY, USA
UNIVERSITY OF PITTSBURGH, USA
ST. JOHN’S UNIVERSITY, USA
ST. MARY’S UNIVERSITY OF SAN ANTONIO, USA
SANTA CLARA UNIVERSITY, USA
SOUTH TEXAS COLLEGE OF LAW, USA
STETSON UNIVERSITY, USA
SUFFOLK UNIVERSITY, USA
SYRACUSE UNIVERSITY, USA
TEMPLE UNIVERSITY, USA
THOMAS M. COOLEY LAW SCHOOL, USA
VALPARAISO UNIVERSITY, USA
VANDERBILT UNIVERSITY, USA
VERMONT LAW SCHOOL, USA
WASHBURN UNIVERSITY SCHOOL OF LAW, USA
WASHINGTON UNIVERSITY IN ST. LOUIS, USA
WILLIAM MITCHELL COLLEGE OF LAW, USA
YALE LAW SCHOOL, USA
YESHIVA UNIVERSITY, USA
UNIVERSITY OF ZIMBABWE, ZIMBABWE
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SUSTAINING MEMBERS
CORNELL LAW SCHOOL USA
HOFSTRA UNIVERSITY, USA
SEATTLE UNIVERSITY, USA
ORGANIZATIONS
AMERICAN BAR ASSOCIATION SECTION ON LEGAL EDUCATION, USA
ASSOCIATION OF AMERICAN LAW SCHOOLS, USA
DEUTSCHER JURISTEN-FAKULTÄTENTAG- GERMAN LAW FACULTIES ASSOCIATION,
GERMANY EUROPEAN LAW FACULTIES ASSOCIATION (E.L.F.A)
LAW SCHOOL ADMISSION COUNCIL, USA
INDIVIDUALS
DAVID BARKER, UNIVERSITY OF TECHNOLOGY, AUSTRALIA
MAREK BOYARSKI, WROCLAW UNIVERSITY, POLAND
FATOU CAMARA, UNIVERSITÉ CHEIKH ANTA DIOP DE DAKAR, SENEGAL
KYOUNGJIN CHOI, KYUNGWON UNIVERSITY DEPARTMENT OF LAW, KOREA
KRYSTIAN COMPLAK, WROCLAW UNIVERSITY, POLAND
KURT DEKETELAERE, UNIVERSITY OF LEUVEN, BELGIUM
GREGG S. GARRISON, SOUTHERN CALIFORNIA INSTITUTE OF LAW, USA
TERRY HUTCHINSON, QUEENSLAND UNIVERSITY OF TECHNOLOGY, AUSTRALIA
ANJANETTE RAYMOND, QUEEN MARY UNIVERSITY OF LONDON, UK
PAULA RHODES, UNIVERSITY OF DENVER – STURM COLLEGE OF LAW, USA
MARK E. WOJCIK, THE JOHN MARHSALL LAW SCHOOL, USA
FOUNDING BENEFACTORS
THE WANG FAMILY FOUNDATION, CHINA
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Partcipant Papers
(Papers are Listed by Subject Matter)
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Globalization and Its Impacts on the law of
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“Humanizing Our Global Order”: Perspectives on
Globalization, South-North Relations, and International
Business Transactions
By:
Obijiofor Aginam, Ph.D*
Prologue: Humanizing Our Global Order in a Divided World
Let me begin by copiously and generously quoting two prominent international
lawyers of our time: Mohammed Bedjaoui, former President of the International Court of
Justice, and Richard Falk, Albert G. Milbank Professor Emeritus of International Law at
Princeton University and Visiting Distinguished Professor in Global and International
Studies at the University of California, Santa Barbara.
Underdevelopment ravages three-quarters of the world. … [T]he scale of the imbalances is perfectly
well-known, and makes the head swim. The disparities are constantly growing. … To keep in line
with the predatory economic order, this international law was thus obliged simultaneously to assume
the guise of: (a) an oligarchic law governing the relations between civilized states, members of an
exclusive club; (b) a plutocratic law allowing these states to exploit weaker peoples; c) a noninterventionist law (to the greatest possible extent), carefully drafted to allow a wide margin of laissezfaire and indulgence to the leading states in the club, while at the same time making it possible to
reconcile the total freedom allowed to each of them…This classic international law thus consisted of a
set of rules with a geographical basis (it was a European law), a religious-ethical inspiration (it was
a Christian law), an economic motivation (it was a mercantilist law) and political aims (it was an
imperialist law) – Mohammed Bedjaoui,1
Integrative tendencies in international life, combined with the widely imagined future of a cyber world,
ensure that a global civilization in some form will take shape early in the twenty-first century. But
this probable world is a civilization only in a technical sense of being bound together by a high rate of
interaction and real time awareness, with reduced relevance being attached to distance, boundaries,
and the territorial features of the domains being administered by sovereign states. …The current
ideological climate, with its neo-liberal dogma…suggest that the sort of global civilization that is
taking shape will be widely perceived, not as fulfillment of a vision of unity and harmony, but as a
dysutopian result of globalism-from-above that is mainly constituted by economistic ideas and
pressures – Richard Falk2
The above grave charge by Bedjaoui and Falk respectively poses a challenge to scholars of
international law to explore the discourse of globalization in the context of glaring SouthNorth asymmetries. Deploring the hegemonic nature of international economic relations,
Bedjaoui deploys his thesis of “international order of poverty” and “poverty of the international
order” to argue that the contemporary international system has remained silent and nonresponsive to the evils of underdevelopment which ravages three-quarters of the world
population.3 As of 1979, when he wrote, Bedjaoui identified the power of multinational
1
Towards a New International Economic Order, 1979, pp 24, 26, 49-50
“The Coming Global Civilization: Neo-Liberal or Humanist”, in A. Anghie and G. Sturgess, eds., Legal
Visions of the 21st Century: Essays in Honour of Judge Christopher Weeramantry (The Hague: Kluwer,
1998) 15
3
Bedjaoui, supra
2
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corporations, structural inequality in the international monetary system and the
heavy indebtedness of undeveloped countries as some of the chronic issues facing
the international system. These structural economic inequalities – which still
confront the world today in many glaring ways - are maintained by hegemonic
international law’s posture of complacency and indifference.
Richard Falk’s well-founded indictment of economic globalization challenges,
among others, the globalized neo-liberal dogma of free trade to be more protective of
public goods and the capacity of the “sovereign state” to facilitate the delivery of these
goods to vulnerable populations.
In this paper, I offer four “broad” levels of inquiry on globalization, especially as
emerging technologies affect or would potentially shape the health and lives of populations
in the “Third World”. In doing so, I would generally remain a student of Bedjaoui and
Falk. Globalization, the buzzword of the dusk of the 20th, and dawn of the 21st centuries, is
multidimensional, multifaceted and multidisciplinary. It has a litany of multidisciplinary
definitions, a dense discussion of its precise dating, a deluge of academic and policy
discourses of its multiple dynamics, and how it affects humanity in different parts of the
world. In 2000, Jan Aart Scholte observed in the preface to his book Globalization: A
Critical Introduction4,
Not another book on globalization! No doubt many a
prospective reader will at first despair that a further title
has squeezed onto already overcrowded shelves. Has
this hype-propelled bandwagon not already slaughtered
to many trees.5
Because of globalization’s multidimensional facets and its anchorage on an uneven global
landscape, I shall argue, as has been argued by many scholars, that the process of
globalization paradoxically presents threats and opportunities across societies. The unequal
distribution of these threats and opportunities within and among nations raises a prima facie
rebuttal that a humane ‘global neighbourhood’ - where the dividends of health security are
equitably distributed as a global public good – will likely emerge in the near future. It is
therefore fallacious to assume that contemporary global governance architecture, when
applied to emerging global health/technological challenges, would have the capabilities to
radically re-distribute health opportunities and threats equitably across South-North
societies. Globalization, if managed humanely, will likely promote the health of humanity
across the world. How best can the fingerprints of equity and fairness be injected into the
phenomenon of globalization to promote human health well-being globally? Synthesizing
globalization and equitable distribution of the dividends of emerging health technologies
raises complex questions for the law of international business transactions. It raises even
more questions than answers on the framework for the re-distribution of the global
burdens on infectious and non-communicable diseases given the Professor Uppendra
4
5
(New York: St. Martins Press, 2000)
Ibid
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Baxi’s paradoxical puzzle of ‘global neighbourhood and universal otherhood’6 – the developmental
apartheid between industrialized and developing countries.
Since the 1990s, aspects of economic globalization, more than ever before, have
been premised on the fact that national boundaries are either disappearing or becoming
increasingly vulnerable. The implication of this is that investors through their capital
exporting multinational corporations in computer, telecommunications, energy, natural
resources, pharmaceutical and food industries must confront minimal or no barriers in
their bid to penetrate the economies of the Third World. The disappearance of
boundaries, especially in the Third World, provides an excellent opportunity for
multinational corporations to canvass a “sword and shield argument”. In this dynamic,
globalization becomes the sword used by foreign investors who are eager to exploit Third
World resources and a shield used by the global North via multilateral institutions against
agitation for global economic equity. After centuries of monopoly of global capital and
advanced technology by industrialized countries, the developing world of today has no
option but to follow religiously the prescriptions given by the developed world that call the
shots via the international financial, trade and development institutions.
1st Level of Inquiry: The Globalization of Intellectual Property Rights –
TRIPS, Pharmaceutical Technology and the Third World
The tension between trade liberalization and promotion of public health is in no
where more apparent than in some of the agreements enforced by the World Trade
Organization (“WTO”),7 especially the Agreement on Trade-Related Intellectual Property
Rights ("TRIPS”). The TRIPS Agreement seeks to harmonize certain aspects of
intellectual property rights at the global level. It sets a minimum standard of intellectual
property protection for all WTO member states’ national legislation. Patent protection for
pharmaceuticals is set for a minimum of 20 years. Although the TRIPS Agreement allows
parallel importation and compulsory licensing, legitimate efforts by a few developing
countries to pursue these measures even in the face of HIV/AIDS emergency were
rebuffed by a few indutrialized states led by the United States.8
On November 14 2001, after prolonged agitation by developing countries and
sustained advocacy by a coalition of civil society groups, the WTO ministerial conference
in Doha, adopted the Declaration on the TRIPS Agreement and Public Health.9 The
6
U. Baxi, “Global Neighborhood and the Universal Otherhood: Notes on the Report of the Commission on Global
Governance” (1996) Alternatives, p525
For a history of international trade and the evolution of the World Trade Organization including the agreements
within the mandate of the WTO, see John Jackson, The World Trading System: Law and Policy of International
Economic Relations (Cambridge, MA: MIT Press, 1997); M. Trebilcock and R. Howse, The Legal Regulation of
International Trade, 2nd ed. (London/New York: Routledge, 2001). On the tension between trade liberalization and
promotion of human rights in the global economy, see Robert Howse and Makau Mutua, Protecting Human Rights
in a Global Economy: Challenges for the World Trade Organization (Montreal: Rights and Democracy, 2000)
8
See for instance Caroline Thomas, “Trade Policy and the Politics of Access to Drugs” (2002) 23 Third World
Quarterly 251; Naomi A. Bass, “Implications of the TRIPS Agreement for Developing Countries: Pharmaceutical
Patent Laws in Brazil and South Africa in the 21st Century” (2002) The George Washington International Law
Review 191; Ellen `t Heon, “TRIPS, Pharmaceutical Patents, and Access to Essential Medicines: A Long Way from
Seattle to Doha” (2002) 3 Chicago Journal of International Law 27
9
World Trade Organization, Declaration on the TRIPS Agreement and Public Health, Adopted on 14 November
2001, available online <http://www.wto.org>. On the legal status of Doha Declaration, see James Thuo Gathii, “The
7
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Declaration affirmed that TRIPS can and should be interpreted and implemented in a
manner supportive of WTO Members’ right to protect public health, and in particular, to
promote access to medicines for all.10 The Declaration recognized that WTO Members
with insufficient or no manufacturing capacities in the pharmaceutical sector could face
difficulties in making effective use of compulsory licensing under the TRIPS Agreement.11
On 30 August, 2003, the General Council of the WTO adopted a decision on the
Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and
Public Health.12 The decision provides for the criteria aimed at facilitating access to
essential medicines, including anti-retrovirals for HIV/AIDS, by vulnerable populations in
the least developed and developing countries. Despite the WTO General Council Decision
in 2003, difficult questions still remain on the best ways to maximize access to essential
medicines, especially anti-retroviral drugs for HIV/AIDS. While the Decision imposes
certain key obligations on exporting and importing countries for these medicines, only two
industrialized countries: Canada and Norway have initiated legislative changes to patent
laws to allow domestic production of generic drugs for export to poor countries hit by
HIV/AIDS and other diseases. The Decision imposes an obligation on developing
countries to notify the WTO of an intention to become an eligible importing member, and
to notify the WTO specifically about the products and quantities.13
Part of the complexity of the WTO General Council Decision includes the fact
that well over 90% of developing countries lack a functional pharmaceutical sector with a
capacity for domestic production of anti-retroviral drugs, or even in most cases other
pharmaceutical products. As a result, these countries cannot issue compulsory license for
domestic production of generic HIV/AIDS drugs simply because they lack the functional
capacity to do so. In one sense therefore, the Decision amounts to offering a pair of
shoes to a person whose two legs are amputated, or eye drops to a blind person.
The only option for many such countries remains a dual process that involves importing
generics from an industrialized country that is willing to amend its patent legislation to
allow export of generics. This would depend on the willingness of such industrialized
countries to withstand the pressure, and rebuff the powerful lobby of global
pharmaceutical giants that own patent on essential HIV/AIDS drugs. If the experience of
TRIPS negotiations in the 1990s is anything to go by, industry lobby remains very
influential and powerful international economic relations. The entire gamut of
international trade and global economic relations is now shaped, as Falk observed, by the
“neo-liberal dogma of minimizing intrusions on the market, and ‘downsizing’ the role of
government in relation to the provision of public goods that compose the social agenda”.14
Thus “the sort of global civilization that is taking shape will be widely perceived, not as
fulfillment of a vision of unity and harmony, but as a dysutopian result of globalism-fromabove that is mainly constituted by economistic ideas and pressures”.15 The establishment
Legal Status of the Doha Declaration on TRIPS and Public Health Under the Vienna Convention on the Law of
Treaties” (2002) 15 Harvard Journal of Law and Technology 291
10
Paragraph 4 Doha Declaration
11
Paragraph 6 Doha Declaration
12
WTO
General
Council
Decision
WT/L/540,
1
September
2003
<http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm>
13
For a good discussion of the challenges of implementing the WTO General Council Decision, see Carlos Correa,
Implementation of the WTO General Council Decision on Paragraph 6 of the Doha Declaration on the TRIPS
Agreement and Public Health (Geneva: WHO Department of Essential Drugs and Medicines Policy, 2004)
14
Richard Falk, “The Coming Global Civilization: Neo-Liberal or Humanist”, supra, note 2 p15
15
Ibid
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of the WTO has challenged the actors in global governance (both states and non-states) to
take the task of balancing neo-liberal ideology with the promotion of global public goods
seriously.
2nd Level of Inquiry: The Globalization of Trade in Services
As one of the agreements that emerged with the paradigm shift from GATT to the
WTO framework, GATS seeks to progressively liberalize global trade in services through
four modes of supply: (i) cross-border supply of services, i.e. from the territory of one
WTO member into the territory of another member; (ii) consumption of services
abroad, i.e. movement of consumers to the home country of the service supplier;
(iii) supply of service by a WTO member, through the commercial presence in the
territory of another member, i.e. foreign investment and movement of capital; and
(iv) supply of service through the movement of natural persons across the
territories of WTO members, i.e. cross-border migration of skilled labour. Although
these four modes of supply of services under GATS, based on existing literature on
services trade, involves aspects of migration, it is Mode Four -“movement of natural
persons” that bears the most significant impact on outward migration of skilled health
professionals (doctors and nurses) from the developing to the industrialized countries.
In the past two decades at least, outward migration of doctors and nurses from
Africa has never been wholly a voluntary decision taken by these professionals in the
absence of “inducement” from the West. Highly skilled African nurses and doctors are
actively “poached” by Western countries that are eager to address the occupational
shortages and deficits in their national health sectors. It is estimated that there are
Malawian doctors in the city of Manchester that in Malawi, more Zambian doctors in the
city of Birmingham than in Zambia.16 Data from international organizations, and other
scholarly studies on migration of health professionals from developing to developed
countries is alarming. Rupa Chanda, an Indian scholar, and one of the leading policy
analysts on GATS and health services reported that as a result of the various visa schemes
implemented by the United States government aimed at recruiting skilled health migrants
from abroad, there were 150, 000 foreign-trained doctors in the U.S in 1993, and 110, 000
foreign-trained nurses living and working in the U.S. in 1996.17 The World Bank, in 1993,
estimated that developing countries accounted for 56% of all outward migration of
physicians.18 Using secondary data and collaborating the World Bank, a joint study
published by the United Nations Conference on Trade and Development (UNCTAD) and
the World Health Organization (WHO) in 1998 stated that 56% of all migrating physicians
come from developing countries, that the figure for nurses is likely to be higher.19 In
Ethiopia, it is reported that between 1984 and 1994, 55.6% of the pathology graduates
from the Addis Ababa Medical School left the country.20 In Ghana, of the 65 doctors that
graduated from the University of Ghana Medical School in 1985, only 22 remained in the
16
Ibid
Rupa Chanda, “Trade in Health Services”, Paper No. WG4:5, Commission on Macroeconomics and Health
(Geneva: WHO, June 2001) p64
18
World Bank (1993) World Development Report, 1993: Investing in Health, Washington, DC: World Bank
19
O. Adams & C. Kinnon, “A Public Health Perspective”, in S. Zarrilli & C. Kinnon, eds., International Trade in
Health Services: A Development Perspective (Geneva: United Nations/WHO, 1998) 37
20
S. Ababulgu, “Problem of Physician Migration in Ethiopia” (Unpublished Document) cited in O. Adams & C.
Kinnon, p37
17
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country by 1997.21 In South Africa, about 10, 000 health professionals emigrated from the
country between 1989 and 1997.22 It is estimated that more than 10, 000 Egyptian medical
and biotechnology experts have emigrated from the country.23 In 1997, it was estimated that
there are over 21, 000 Nigerian doctors practicing in the United States.24
Apart from Mode Four of services trade, Mode Three - supply of service by a
WTO member, through the commercial presence in the territory of another member, i.e.
foreign investment and movement of capital, would, if not humanely negotiated, lead to
scenarios where privatized hospitals could be set up in most of the health sectors of the
Third World by investors and corporate actors from the industrialized world. Although
this will arguably improve health services, the first rule of business is profit. Privatized
healthcare and the requirement of user-fees are often difficult to regulate. It follows
therefore that transnational business entities could easily capitalize on this mode of
services trade to impede universal access to healthcare and the “right to the highest
attainable standard of health” which is codified as a fundamental right in the Constitution
of the World Health Organization 1946 as well as some domestic constitutions across the
world.
3rd Level of Inquiry: Foreign Direct Investment and the Globalization
of Unhealthy Food and Other Products
International trade in unsafe and unhealthy food and other products has
blossomed astronomically in an age of globalization. Consider the example of tobacco.
The World Health Organization has negotiated the Framework Convention on Tobacco
Control (FCTC) as a legal and regulatory strategy to control the global epidemic of
tobacco. The FCTC is based on infallible scientific and epidemiological evidence that
tobacco is harmful to health, and therefore needs to be globally regulated because of the
global networks of multinational tobacco companies. The causal links between tobacco
and about twenty major categories of disease is now firmly established.25 Tobacco use is
now one of the leading causes of preventable deaths, and a leading contributor to mortality
and morbidity burdens of disease.26
The epidemic of tobacco addiction, disease, and death is shifting rapidly to
developing countries including. Leading tobacco multinationals have targeted growing
markets in Latin America in the 1960s, the newly industrialized economies in Asia in the
21
Volta Regional Research Team, “The Doctors Are Out – Where are They?”, Accra, Ministry of Health, 1997 cited
in O. Adams & C. Kinnon, p37
22
D. Kaplan, J. Meyer, and M. Brown, “Brain Drain: New Data, New Options” (unpublished paper), citied in Rupa
Chanda “Trade in Health Services”, p22
23
A. Khalil, “Unchecked Exodus” (Unpublished Paper, April 1999), cited in Rupa Chanda, “Trade in Heath
Services”, p22
24
A. Oyowe, “Brain Drain: Colossal Loss of Investment for Developing Countries” (Unpublished Paper), cited in
Rupa Chanda, “Trade in Health Services”, p22
25
P Jha & F. Chaloupka, eds., Curbing the Epidemic: Governments and the Economics of Tobacco Control
(Washington, DC: The World Bank, 1999)
26
CJL Murray & A.D Lopez, The Global Burdens of Disease: A Comprehensive Assessment of Mortality and
Disability from Diseases, Risk Factors in 1990 and Projected to 2020 (Cambridge, MA: Harvard School of Public
Health on behalf of the World Health Organization and the World Bank, 1996); CJL Murray & A.D Lopez,
“Alternative Projections of Mortality and Disability by Cause 1990-2020: Global Burden of Disease Study” (1997)
349 The Lancet 1498
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1980s, and have increasingly targeted women and young persons in Africa in the 1990s.27
As observed by Fidler, “Western tobacco companies succeeded in riding the waves of
international trade law, liberal triumphalism, and globalizing Western culture in penetrating
the markets and lungs of millions of people in the developing world”.28 In Nigeria, as in
many other developing countries, tobacco epidemic constitutes a transational problem
because of the transnational networks of leading tobacco companies.
In Nigeria, British American Tobacco (BAT) is currently one of the largest single
foreign direct investment outside foreign investments in the oil and gas sector. As a result
of the Memorandum of Understanding signed between BAT and the Federal Republic of
Nigeria on 24 September 2001, BAT has recently built and commissioned a $150 million
modern factory for the manufacture of various brands of cigarettes in Ibadan, Nigeria. At
the commissioning of the factory in June 2003, the Managing Director of BAT Nigeria
stated that,
this state-of-the-art-factory for which $150 million has been committed will
compare with any other world class factory in the tobacco industry.
…Result of research already conducted shows that products manufactured
in this factory are of the highest international quality.29
BAT (Nigeria) claims to be committed to the principles of sustainable development and
world class standards of environmental, occupational health and safety as well as helping
tobacco farmers through responsible tobacco leaf production.30 BAT (Nigeria) is now
actively involved in the sponsorship of major sports and music carnivals. Emerging facts
from its recent multi-million dollar investment strongly suggest that BAT has become the
dominant player/actor in the production, marketing and advertising of tobacco products
in Nigeria. Its billboards adorn the strategic locations in major Nigerian cities. BAT now
controls 78% of the tobacco market in Nigeria, its brand of cigarettes, especially Benson &
Hedges, Rothmans, St. Moritz, and Consulate is the most popular among the soaring number
of Nigerian smokers including young people under the age of 15.
4th Level of Inquiry: Foreign Direct Investment, Transnational
Corporations and Natural Resource Extraction in the Third World
The decades of the 1960s and 1970s marked the de-colonization and political selfdetermination for colonies and dependent territories in most of Africa. Soon after decolonization, the newly politically independent states realized that political independence
must be complemented by economic self-determination. This led to agitation by the G-77
for a new international economic order at the United Nations. The passing of resolutions
on Economic Rights and Duties of States and Permanent Sovereignty over Natural
Resources by the UN General Assembly witnessed an upsurge in foreign direct investment
in resource-rich developing countries. These countries lacked the technology to exploit
these resources.
27
G. N Connoly, “Worldwide Expansion of the Transnational Tobacco Industry” (1992) No.2 Journal of the
National cancer Institute Monographs 29.
28
David Fidler, “Neither Science nor Shamans: Globalization of Markets and Health in the Developing World”
(1999) 7 Indiana Journal of Global Legal Studies 191 at 201
29
Speech by Nick Hales, Managing Director BAT, Nigeria, at the Commissioning of the Ibadan Factory of BAT
(Nigeria), June 17, 2003 (Copy attached to the hard copy of this proposal)
30
See BAT Nigeria website <http://www.batnigeria.com>
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In the case of Nigeria, for instance, crude oil was first discovered in commercial
quantities in 1957. Prior to 1957, the Anglo-Dutch conglomerate Shell had complete
monopoly in oil prospecting 1914-1959.31 The 1960s and 1970s witnessed the arrival of
other influential oil multinationals like Gulf Oil (now Chevron), Mobil and Texaco, all
from USA; Elf and Total from France; and the Italian oil giant AGIP. These corporations
joined Shell-BP, an Anglo-Dutch oil conglomerate that maintained exclusive monopoly to
prospect for crude oil in Nigeria since 1937. After 50 years of oil discovery and intensive
exploitation, the requisite technology for oil operations in Nigeria remain largely in the
custody of multinationals. The colossal influence of Shell and other multinationals in
Nigeria’s oil sector is well-known in literature. This is not peculiar to Nigeria. All resourcerich countries in Africa and Latin America: Angola, Garbon, DR Congo, Sudan,
Cameroun, Chad, Ecuador, and Mexico are in a similar position. Although sovereignty
over natural resources rests with the host country, without the requisite technology,
transnational corporations will keep calling the shots.
Postscript: An Agenda for Humanizing Our Global Order
It is now widely perceived that economic globalization driven in part by the norms
of international trade liberalization is either going, or has simply has gone too far.32 As
Malhotra et al rightly observed,
Recent agreements under the trade regime commit members not just to
liberalizing trade in goods but also to making specific policy choices on
services, investment and intellectual property. These choices can affect
human development through their effects on employment, education,
public health, movements of capital and labour and ownership of and
access to technology.
Both critics and supporters of international trade, according to Mendoza, do not
see trade itself as a problem, because they all agree that trade has the potential to benefit
developing countries; they only disagree on the structure and arrangements for multilateral
trade.33 It is therefore not as simplistic as saying that globalization and economic
integration are inherently bad or innately good, especially given the divergent national
policies on public health and the broad social policy agenda as well as the disparities
between countries. What is needed first is a policy space to enable weaker nation-states
(especially the developing countries) strengthen their institutional capacity to generate and
promote public goods given each country’s present specific social and economic
31
Nigeria being a colony of Britain, section 6(1)(a) Mineral Oils Act 1948 provided that grants to search for and win
oil could only be made to British subjects and to those companies which had their principal place of business in
Britain or in its dominions and whose chairmen or whose majority shareholders and directors were British subjects.
See G. Etikerentse, Nigerian Petroleum Law (1985). For a recent account of transnational oil operations in the Niger
Delta including their human rights and environmental implications, see I. Okonta & O. Douglas, Where Vultures
Feast: Shell, Human Rights and Oil in the Niger Delta (San Francisco: Sierra Club, 2001); S. Gbadegesin,
"Multinational Corporations, Developed Nations, and Environmental Racism: Toxic Waste, Oil Exploration and
Eco-Catastrophe", in L. Westra & B.E Lawson, Faces of Environmental Racism: Confronting Issues of Global
Justice (Lanham: Rowman & Littlefield, 2001) 167.
32
Susan Esserman & Robert Howse, “The WTO on Trial” (January/February 2003) Foreign Affairs 130
33
Ronald U. Mendoza, “The Multilateral Trade Regime: A Global Public Good for All”, in Providing Global Public
Goods: Managing Globalization, Inge Kaul, et al, eds., (New York: Oxford University Press/UNDP, 2003) 455
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conditions. The extent to which this would likely occur largely depends on effective
proposal for quality control as free trade continues to erode national capacity for the
protection of public goods.
Although it is now almost 30 years since Bedjaoui developed his provocative thesis
of the international order of poverty and poverty of the international order, with the
widening disparities between developed and developing countries, the exclusion of the
world’s poor and vulnerable populations from the dividends of economic globalization,
and the rising influence of transnational corporations, Bedjaoui’s thesis remains infallible
in the 21st century discourse on globalization and international business transactions.
Deploring the modern-day South-North asymmetry and inequalities with the metaphor of
“global apartheid”, Falk observed that,
several characteristics of the global political economy shape the tactics
and aspirations of progressive social forces: extreme hierarchy and
unevenness of circumstances, acute deprivation and mass misery
among the poor; erosion of autonomy at the level of the state as a
consequence of the play of non-territorial capital forces. …If these
critical differences are appreciated, the global apartheid metaphor
seems useful. It confronts the moral and political complacency of the
North. …The metaphor of global apartheid, then, represents a
warning as well as a provocative line of critique, suggesting the
urgency of taking far more serious steps to overcome the NorthSouth cleavage.34
Every scholar of international business transactions in an age of globalization should take
heed this call.
34
Richard Falk, Predatory Globalization: A Critique (Cambridge: Polity Press, 1999) pp13 & 17
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The Implementing Environment Managemnet in
Indonesiafacing on The Global Trading through the legal
Aspect
By:
Fachri Bey
Introduction
The new paradigm of sustainable development requires environmental aspect to an
integrated part within development activities. The Global Trading System empowers
domestic market as a part of global market based on the global trading principles which
environmentally sight.
This principles has been implementing in Indonesia, not only in practice but also it is
adopted within Indonesia constitution UUD 1945 (the 3rd amendment), under section of
economic and welfare section, article 33 sub article 4 which stipulates that the democratic
economic activities should be carried out by considering environmental aspect
(environmentally sight). On the ground such constitutional provision , the government
proclaims 5 programs related environmental campaign :
1. To develop a system by the ecological economics approaching in term of
exploiting and utilizing of natural resources
2. To develop of the preventing environmental negative impact program (minimize
waste effect)
3. To develop a system of accounting, auditing and Economical Natural Resource
and environmental balance sheet
4. To develop an Information system to support global trading and its standard
5. To establish an information system of product eco-labeling database
Based on such points above, the government announce three mission on ecological
economic which drive out their apparatus and any business players deal with economic
activities :
1. Command and Control , is a tool that implemented by government through
environmental quality manual
2. Self Regulation, is an proactive measure in term of preventing in order to develop
an environmental friendly technology with suitable for company’s condition
3. Strengthen economic instrument which udertake through incentive, dicentive, and
treadable emission permit
The Devolopment Standard of Environment
The relation between business world and environmental aspct has been awared since
United Nation held the Conference on Human and Environment by !972 in Stocholm, the
it was continued in Nairobi in 1982. The conference iluminated the thought that
uncontrolable industrial development would be effecting business activities.
The thought was foolowed up by establishing the United Nations Environment Program
(UNEP) and World Commission on Environment and Development (WCED). The terminology of
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"Sustainable Development" was introduced within the report of dalam WCED in 1987, that
also included the meaning of effective program to industral environmental management
system. Furthermore, it had been taken place by UN, the Conference on Environment and
Development (UNCED)" in Rio de Janeiro in 1992.
To proceed the previous concept of sustainable development, UK issued the first
environmental managment sytem in Industry in 1992, namely, British Standard (BS) 7750.
The Eurepean Community began to implement Eco-Management and Audit Scheme (EMAS)
in 1993. By prevailing EMAS, BS 7750 was revised and restated in 1994. Some other
European countries also started to develop a standar of Eco-Management and Audit Scheme
At the international level, "International Standardization Organization" (ISO) and International
Electro-technical Commission (IEC) established "Strategic Advisory Group on the Environment"
(SAGE) on August, 1991. SAGE recommended Technical Committee (TC) to ISO, The
Committee has a special duty to develop a series of standardization within eco-management and
audit scheme which will be prevailed internationally
By 1993, ISO established TC 207 which particularly has duty to develop eco-management
standard is so called ISO series 14000. The developed standard encompass six aspects, as
follows :
1. Environmental Management System (EMS).
2. Environmental Auditing (EA).
3. Environmental Labelling (EL).
4. Environmental Performance Evaluation (EPE).
5. Life Cycle Analysis (LCA).
6. Term and Definitions (TD).
The ISO series 1400 based on some fundamental school, as bellows :
1. To provide element-element of effective eco-management system which is able to
be integrated with other management requires
2. To assist endeavour to achieve the ecological economic goal by empowering
environmental performance and to eliminate as well as prevent some handicaps
within global trading
3. It doesn’t go as a non-tariff trading obstacle or to change some legal provisions
which should be obeyed in global trading
4. It can be applied for the same type and scale of any organisation
5. To achieve its ecological aim and target properly, so it must be encouraged by
using The Best Practicable Pollution Control Technology and Best Available
Pollution Control Technology Economically Achievable
The developing ecological system by ISO adopts a model of "continual improvement" could
be define as :
"Process of enhancing the environmental management system, with the purpose of achieving
improvements in overall environmental performance, not necessarily in the areas of activity
simultaneously, resulting from continuous efforts to improver in line with the organization's
environmental policy".
The meaning of ISO serie 14000 is the System of eco-management which in its
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implementing is supported by supporting tools, such as :
1. Study on program performing of environment and Environmental Audits,
2. EnvironmentaI Performance Evaluation,
3. Environmental Labelling, and
4. Life Cycle Assesment of product from row material, process, to waste of unsubale
product
Some advantages which can be taken from the implementation of environment
management system, as follows :
1. Optimising cost and eficincy
2. Reducing environmental risk
3. Image Building of organization
4. Improving sensitivity on public perception
5. Adjusting decision making process
Environment Management System
Based on extensively experience and evaluation on current implementation of
environment, is needed to set up a new environment management system that will be
facilitatating structurly in reaching the target of management
Environment Management system can be difined as an intergration from organisation
structure, authority, and responsiblity, mechanism, and procedure/process, operasional
practice as well as resources to implement environment management. Environment
management encomapss all functional managment aspects to develop, to reach, and to
save the policy and organisation aims within environment issues.
Environment Managment System makes mechanism to catch and to show up a good
result in managing environment through the effort of waste control
In order to be able to implement such elements, the Environment Managment must be
covering some main elements, as follows :
1. Environmental policy, to state about the program aim and the principles which will
be using in the program
2. Planning : it includes identification of environmental aspects and its requirements
of related legislation,
3. Implementation : it covers organisation structure, authority, and responsibility.
Training. Communication, documentation, control and emergency rescue
4. Regulerly inspection and rectification, including: monitoring, auditing, and
measuring
5. Study on management : Study about compatibility and effectivity of the system to
achieve the goal and its revision that occured in public
Any organisation, regardless the scope of organisation’sactivities, scale, and legal standing
of organisation, in order to be able to carry out the system systematically. The implantation
of the system is voluntary and role as a tool of organization’s management manual
Analyse on The Impact of Environmental Waste (AIEW)
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Every single development activities is potentially has an impact to environment. Those
impacts should be studied to plan in making how to mitigate its impact to environment.
Government Regulation number 51 Year 1993 (GR 51/1993) about AIEW stipulates that
the study should be a part of feassibility study and deliver some documents, suc as :
1. Manual of AIEW,
2. Plan of Ecological management (so called RKL)
3. Plan of Monitoring
(so called RPL)
RKL and RPL are the mandatory requirements of GR51/1993), as a part of fulfillment of
AIEW documents, this fulfillment needed for obligatory AIEW, on the other hand, for
non obligatory, the overcoming of environmental waste impact requires:
1. Efforts of Ecological Management (UKL)
2. Efforts of Monitoring (UPL)
3. The Accountibility of audit implenetation
4. The counselling of audit
5. Audit competence
6. How the audit will be carried out
As the ground of Environmental Audit implementation in Indonesia, The Government
has issued The Decision of Ministery of Environment (DME) No. 42/MENLH/11/1994
about the principles and the general guide of environment audit. Whereas, in the annex of
DME No. 41/1994 sitpulates that :
Environment auidit is a tool of management which encompass evaluation sistematically
documented, periodic, and obyektive about how to facilitate control system in term of the
implementing of the system in order to suitable for environmental legislation. But
environment audit is not oficialy inspection which requisited by laws, instead it is
proactively effort which carry out conciously to identify environment problems that arouse
so it can be carried out some preventive efforts
That regulation underlines the importance of Environment management System to
encorage performance of organisation deal with environment suitable for ISO serie 14000.
Clean Product within Environment Management
Based on the experience of implementing the efforts of wnvironmental waste control up
till now, it can be assesed some importance things as bellows :
1. Waste products are increaseing
2. The characteristic of environments are complex hence it will be more complicated
3. The management budget is more and more expensive
4. Waste processing is more expensive than prevent a potential waste
5. Pollution is continuelly happened
6. Regulation on environment issues is still focus on the process and disposing system
and it is not yet to the preventive effort
7. The Impact of global competition in international product
Based on such matter above, so the impact of environment waste control must be patern
proactively by gradual priority, as follows :
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1. pollution prevention
2. pollution control),
3. remediation
The prevention efforts is systematically able to perform through the Cleaner Production
program. The terminology of Cleaner Production began to be introduced by UNEP on 23
Mei 1998 and proposed officially in September 1990 at the Seminar on the Promotion of
Cleaner Production" in Cantebury, lnggris.
UNEP defines a cleaner product is :
” Persistently efforts to reduce the polution sources integratedly in order to prevent
air, water, and soil pollution in production and product process and minimise risk
for human being ”
For the processing, clean product encompass efforts to economise row material and
energy, and it does not use dangerous and toxin material, reducing number of toxin for
any waste and emision which released prior a ready product
The advantages which can be taken by implementing clean product :
1. As the guidance of remediation and process
2. Economising row material and energy
3. Increasing competitivness through utilising new technology and/or upgraded
technology
4. Reducing necceseries of row material and
5. Reducing cost in long term
6. Good images in public
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The Business Transactions of Migrants: Remittances
By:
Professor Enrique R. Carrasco∗
In my IBT course, we typically study the international business transactions of
hypothetical individual entrepreneurs, major businesses and corporations. Among other
things, we study how these actors might use letters of credit, or pursue an international
franchise, or engage in foreign direct investment. Over the past few years, another actor
and business transaction have become prominent: migrants engaging in international
remittances. Although the practice of migrants in developed countries sending funds
home to family members still residing in developing nations has been occurring for many
decades, the magnitude of remittances has skyrocketed. This paper presents an overview
of this phenomenon.
I.
The Nature and Extent of Remittances
International remittances are transfers of funds by foreign workers—“remitters”-who are living and working in developed countries typically to their families who are still
living in their home countries. Examples include Middle Easterners living in Europe,
Latin Americans in the United States, and Koreans or Filipinos in Japan. Although the use
of remittance funds varies from country to country, the recipients of remittances
commonly rely on them for living costs, education, and investments.
The topic of remittances has become a popular one in the international financial
community in recent years as both the rate and volume of remittances have increased
exponentially. Gathering accurate data on international remittances has been very difficult
for a number of reasons, including the fact that a good portion of the transfers is made on
an informal basis. Some official statistics do exist, however, and they present startling
numbers. In 1995, remittances to developing countries totaled about $57.8 billion and
shot up to $96.5 billion by 2001. The World Bank estimated that in 2005 migrants sent
home approximately $167 billion, up 73% from 2001 (the true amount could be 50%
higher or more). In 2006, the World Bank reported that remittances grew to
approximately $206 billion; others put the figure at $298 billion. These flows have led
analysts to conclude that the growth of remittances has exceeded private capital flows and
official development assistance to developing countries. Moreover, remittances are a
reliable source of foreign capital; in the 1990s they were the least volatile source of foreign
exchange.
As these numbers indicate, remittances have developed into an important source
of income for many developing countries and, thus, have significant effects on their
economic stability and growth. To illustrate on a global scale, remittances now account for
almost a third of global external finance. For many of the developing nations they flow
into, remittances can increase the national gross domestic product (GDP) by a significant
percentage. For example, in 2000 the U.N. reported that remittances increased the GDPs
∗
Professor of Law, University of Iowa College of Law. Many thanks to Jane Ro, my research assistant,
for her assistance with this paper.
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of El Salvador, Jamaica, Jordan, and Nicaragua by 10%. The World Bank reported that in
2004 remittances accounted for approximately 31%, 25%, and 12% of Tonga’s, Haiti’s,
and Nicaragua’s GDP, respectively.
II.
Remittances in the U.S.--Latin American Corridor
Economists and policymakers have studied remittance trends between Latin
America and the United States extensively. Since this relationship has developed into one
of the largest volume remittance markets in the world, it offers important illustrations of
international remittances at work and how remittances create a vital tie between developed
and developing countries.
A significant study conducted by the Inter-American Development Bank (IDB) in
2004 provides useful insight into remittance and related migration patterns between Latin
America and the United States. The study reveals that over 60% of the 16.5 million Latin
American-born adults who resided in the United States at the time of the survey regularly
sent money home. The remittances sent by these 10 million immigrants were transmitted
via more than 100 million individual transactions per year and amounted to an estimated
$30 billion during 2004. Each transaction averaged about $150-$250, and, because these
migrants tended to send smaller amounts more frequently than others, their remittances
had a higher percentage of costs due to transfer fees.
Migrants sent approximately 10% of their household incomes; these remittances
made up a corresponding 50-80% of the household incomes for the recipients. Significant
amounts of remittances were sent from 37 U.S. states, but six states were identified as the
“traditional sending” states: New York (which led the group with 81% of its immigrants
making regular remittances), California, Texas, Florida, Illinois, and New Jersey. The high
growth rate of remittances to Mexico (not the total amount) is unlikely to continue. In
fact, according the Mexican central bank, remittances grew just 0.6 during the first six
months of 2007, as compared to 23% during the same period in 2006. Experts attribute
the slowdown to a contraction in the U.S. construction industry, tighter border controls,
and a crackdown in the U.S. on illegal immigration.
As the foregoing statistics illustrate, increased migration from Latin America to the
United States has resulted in a very significant amount of remittance activity. The
numbers also help us understand the dependence between a developed country and
developing countries: The United States needs Latin Americans to supply its labor
markets—the migration improves business profitability and reduces the costs of
production, while Latin American countries depend on the flows of remittances that result
from the migration of labor. This dependence has also resulted in what experts call
“micro-geographies,” tightly-knit networks that integrate U.S. communities with
communities throughout Latin America, such as migrants from Oaxaca, Mexico who have
settled in Venice Beach, California. Oaxacans not only send money back to their
communities, but they also travel back and forth extensively.
III.
Remittance Mechanisms and Their Costs
Migrants send money to their home countries through formal and informal
channels. Formal channels include major money transfer operators (MTOs), such as
Western Union and Money Gram, and banks, such as Bank of America. Some migrants
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use formal channels, but language barriers as well as related costs for these services may
deter remitters from using them. Consequently, most remittances occur through informal
channels. For instance, migrants may carry cash home themselves or send cash through
the mail or a friend.
Cost is not usually an issue for large remittances, such as those relating to trade.
However, cost is a significant factor for small, personal transfers. The IDB estimated that
the total cost of sending remittances to Latin America and the Caribbean approached $4
billion in 2002 (approximately 12.5% of the amount of remittances to this region). The
Pew Hispanic Center estimated that the total cost of the average remittance transfer ranges
between 15-20% of the total.
The costs typically include a fee charged by the sending agent and a currencyconversion fee—e.g., converting U.S. dollars sent by the remitter to Mexican pesos that
can be used by the recipient. In some cases, the recipient may have to pay an additional
fee to collect the remittance. Costs may be higher when the remitter is using an MTO
such as Western Union as opposed to a bank. Funds that have to be remitted quickly
through, say, an electronic transfer will involve higher costs as well. The amount of the
remittance will also factor into costs. For example, the World Bank has reported that
MTOs channeling money from the United States to Mexico charge more than 10% for
transfers of $100, as compared to less than 3% for $500. Moreover, sending agents’ fees
in many instances far exceed the costs they incur in making the remittance, which
translates into higher profits. For instance, in 2004 Western Union enjoyed an average
profit or $8 to $9 dollars per remittance transaction.
The World Bank has noted that reducing remittance costs and improving the
infrastructure would be beneficial in several ways. By reducing costs, remitters will have
more disposable income, which may translate into increased remittances. Reduced costs
will also increase remittance flows through formal channels, such as banks. And improved
infrastructure will promote better financial access among the poor in developing countries.
Given these significant benefits, in 2004 the G-8 (a governmental forum
comprised of Canada, France, Italy, Japan, Russia, the United States, and the United
Kingdom) met in part to come up with projects to help facilitate remittances by lowering
former-channel transaction costs. This led to the creation of a task force of experts, cochaired by the World Bank and the Bank for International Settlements, whose purpose was
to establish develop principles for international remittance services. In January 2007, the
task force published a report containing General Principles for International Remittance
Services, which focuses on the payment system aspects of remittances.
In addition to the high costs associated with remittances of smaller amounts, the
report notes that migrants may not have adequate access to remittance services if they do
not speak the local language or have the necessary documentation. Moreover, poor
financial infrastructure in some developing countries may make it difficult for the
recipients to collect the remittances. The services may be unreliable, the markets may not
be sufficiently competitive to reduce costs, or there may regulatory barriers that impede
the transmission of remittances.
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Accordingly, General Principle 1 stresses that the remittance markets should be
transparent and offer adequate consumer protection. General Principle 2 encourages the
improvement of payment system infrastructure in order to increase the efficiency of
remittance services. General Principle 3 focuses on the legal and regulatory framework by
encouraging soundness, predictability, non-discrimination, and proportionality (i.e., laws
that effectively address problems). General Principle 4 calls upon countries to create
competitive market conditions, including appropriate access to domestic payment
infrastructures. General Principle 5 focuses on remittance services and calls upon
governments to provide appropriate governance and risk management practices. The
report notes that remittance service providers and public authorities must work together to
implement the General Principles effectively. Although the Principles are not prescriptive
but rather provide guidance, their application “should help achieve the public policy
objectives of having safe and efficient international remittance services, which require the
markets for the services to be contestable, transparent, accessible, and sound.”
The effort to reduce remittance costs through competition has paid off. The
World Bank has reported that remittance costs in the United States-Mexico corridor have
declined considerably. For example, in 1999 it cost $26 to send $300 from the United
States to Mexico, whereas in 2005 it cost only $11—a 60% drop. The drop is attributable
to the break-up of exclusive dealing arrangements between one dominant MTO and its
distributors, allowing banks to enter the market.
IV.
The Effect of Remittances on Developing Countries
Most observers have concluded that on balance remittances are beneficial to
developing countries. An obvious benefit is that a portion of most funds sent to home
countries goes toward the welfare and improved livelihood of the families receiving them.
The recipients commonly spend the funds on necessities such as health, education, food,
and clothing. Remittances are also invested in businesses and infrastructure in developing
countries--e.g., a $10 million hospital in Touba, Senegal, a new international airport in
Kerala, India, and a metal bridge in Jomulquillo, Mexico.
On the broader macroeconomic plane, remittances may help recipient countries
cope with economic crises because migrants tend to send more money back to family and
friends during hard times. Remittances can also improve a receipt country’s
creditworthiness. This is because such inflows would effectively reduce the country’s
indebtedness relative to its exports (its income), thereby improving the country’s credit
ratings and lowering its borrowing costs on the international capital markets. And
remittances also help developing countries raise external financing through securitization.
In this type of transaction, developing-country banks that receive remittances can issue
bonds to foreign investors backed by the future flow of those remittances. Various
developing countries, led by Brazil, have raised billions of dollars through this technique.
Still, remittances are not hazard-free. For instance, large inflows into small
economies can cause the domestic exchange rate to appreciate (i.e., the domestic currency
becomes more expensive relative to foreign currency), thereby making tradable items, such
as cash crops and manufactured goods, less profitable. Also, governments may develop a
dependency on large flows of remittances, thus creating a disincentive to pursue aggressive
economic policies to promote sustained development. Moreover, a good portion of
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remittances might not be productively invested. A study done on twenty-two migrant
communities in Mexico in 2001 reported that only about 10% of remittance funds were
invested or saved. Instead, the bulk of the money went to raising the standard of living for
the receiving family—i.e. a new house, a car, a bigger T.V., etc. The study also theorized
that remittances created an “easy money” cycle where the receivers of remittances treated
the money like allowances and, thus, had little incentive to work. This resulted in
significant social costs, such as a reduction in the labor supply, which hinders economic
development. Thus, many developing countries are watching their best and brightest leave
to put their valuable human capital to use elsewhere—the “brain drain”, while the money
they earn and send home contribute little to the home country’s economic growth, despite
the resulting increased consumption.
This phenomenon is not inevitable, however. For example, although most
remittances go to individuals or families, some migrants participate in associations that
send collective remittances to their home communities. The funds are used for a variety
of investments, such as building schools and churches or dealing with local emergencies
such as hurricane devastation. The Latino Home Town Associations in the United States
are a well-known example of such a community association. In addition, in some
countries such as Guatemala, the recipients put the majority of their remittance earnings
into savings or towards investment, rather than spending it on consumption. Generally,
one should take into consideration that the net impact of remittances will vary greatly
between countries and even regions within countries, depending on the structure of the
local economy, the usage patterns of the funds by the recipients, and the availability of
invest opportunities. In many cases, well-intentioned efforts to invest remittances in
businesses in home communities have failed.
Overall, the relationship between remittances and economic growth is unclear
because of a lack of extensive research on this relationship at this point. Some analysts
and scholars argue that remittance benefits are only felt at the individual receiver’s level,
but some case studies suggest that the benefits of remittances to individuals have spill-over
effects that can translate into a positive impact on the local economy. One highly cited
study published in 2003, “Are Immigrant Remittance Flows a Source of Capital for
Development,” covering 113 countries found a negative effect that remittances had on
growth. The authors of the study attribute this negative effect on the moral hazard
problem that remittances create, which was alluded to above. Essentially, the study
concluded that income from remittances allows receiving families to decrease their own
work and productivity, which then translates into a reduction in the labor supply for the
developing country.
This study stands in stark contrast with others, such as a recent IMF study
covering 100 developing countries from 1975 to 2002 which indicated that remittances
enhanced growth in countries with less developed financial systems. In these settings,
remittances function as a means to finance investment where the limited domestic
financial system offers none. This same study found no such effect within countries that
have better functioning domestic financial markets.
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V.
Conclusion
As this paper suggests, incorporating a case study of how diasporic communities
contribute to international business transactions via remittances would significantly enrich
the study of IBT in the classroom.
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Plenary Session: Globalization and Its Impact on the Law of
International Trade in Legal Services: Admission Rules for Foreign
Attorneys in South Africa in the Light of GATS
By:
Cornelius Hagenmeier LL.M.
University of Venda School of Law
Thohoyandou, South Africa
Email: [email protected]
Phone: +27 15 962 8409
I. Introduction
Globalisation requires ever closer co–operation between legal professionals hailing from different
jurisdictions. Today, the legal practitioner cannot contend her- or him-self with the knowledge of
one’s own jurisdiction’s law only, but must be able to advise on issues which involve various legal
systems. Not only the commercial attorney has to be prepared to give profound advice on
transactions which span the globe, but increasingly practitioners in other fields are also
encountering growing numbers of cross–border problems. For example, in the field of the law of
succession problems evolving from split estates, that is estates which are situate in more than one
country, have to be resolved.
This interactive global environment has fostered growing international training and mobility
among legal practitioners. Traditionally, legal professionals mostly studied in the country in which
they intended to practise for the rest of their career and worked solely in that jurisdiction
thereafter. The trend to greater interdependence between the various national legal systems has
resulted in a gradual shift away from this situation. Increasing numbers of law students get trained
in other countries as part of their undergraduate degrees or even come to foreign shores to obtain
postgraduate law degrees. Major commercial law firms ensure that they can offer in–house
expertise on major foreign legal systems and co–operate with partner firms in other parts of the
globe. Some firms even expand internationally, founding branch offices abroad.
The need for a global regulatory response to the globalisation of the trade in legal services is
recognised by the General Agreement on Trade in Services35 (GATS) to which South Africa is a
party. Legal services fall within the scope of this agreement36, and South Africa is obliged to give
effect to the commitments it made in this Agreement. In this short paper I shall evaluate the rules
governing the admission of attorneys hailing from other countries in South Africa in the light of
South Africa’s obligations under GATS. The discussion will not be limited to the law as it stands
at the moment but will also consider the current proposal for reform of the rules on the admission
of attorneys in South Africa.
35
The General Agreement on Trade in Services was singed on 15 April 1994. South Africa was one of the
initial signatories, it has ratified this agreement.
36
Article 1 paragraph (2) defines the scope of services covered by the agreement in the widest terms, they
include the supply of a service supplier of one Member, through the presence of natural persons of a Member in
the territory of any other member (subparagraph d).
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II. GATS and its implications for national admission rules for attorneys
GATS has an impact on the regulatory framework which governs the admission of attorneys in
its member states37. GATS comprises generally applicable provisions as well as provisions
requiring future work concerning legal services. GATS requires all member states to grant all
other member states the ‘Most Favoured Nation Status’ within its scope of application38. This
means that every member state has to accord every other member state no less favourable
treatment than it accords any other member state. Exceptions form the ‘Most Favoured Nation
(MFN) Principle’ are only possible where a country has exempted itself from it39, where a
country has entered into ‘Mutual Recognition Agreement’ as contemplated in Article VII
GATS or where preferential treatment results from regional integration and proper notice has
been given40. To date, South Africa has not resorted to declaring any MFN exemption with
regard to legal services.
GATS furthermore imposes certain transparency requirements on the member states41, and
prescribes certain minimum standards concerning the domestic regulation of trade in service42.
However, the only mandatory minimum standard of general application is laid down by Article VI
(2) GATS, which requires Member States to maintain or institute procedures to have an objective
and impartial review of any negative decisions by a country to exclude foreign service providers.
Further obligations concerning the provision of a service arise under GATS when a member state
has made a specific commitment with regard to the provision of this kind of service. Depending
on the commitments made in a country’s ‘schedule of specific commitments’, the country will be
bound to apply further liberalising provisions laid down in GATS concerning the trade in the
service specified in the schedule. A GATS Member State can make specific commitments inter alia
with regard to ‘Market Access’43 , ‘National Treatment’44, and further ‘Domestic Regulation’
provisions45. South Africa has made certain specific commitments with regard to legal services. It
committed itself to applying the ‘Market Access’ and ‘National Treatment’ provisions of GATS
without limitation with respect to Commercial Presence, i.e. the establishment of permanent
business presence in South Africa, which would encompass for example the founding branch
offices in South Africa. Furthermore, it committed itself to apply the ‘Market Access’ provisions
37
A comprehensive analyses of the application of GATS to legal services can for example be found in Laurel S.
Terry, ‘GATS’ Applicability to Transnational Lawyering and its Potential Impact on US State Regulation of
Lawyers’, 34 Vanderbilt J. of Transnational Law 989 (2001) as revised 35 Vanderbilt J. of Transnational Law
1387 (2002) and Laurel S. Terry, ‘GATS General Agreement on Trade in Services, A Handbook for
International Bar Association Member Bars’. See also Sydney M. Cone III, ‘Legal Services in the Doha Round,
Journal of World Trade Law’, Volume 37, No. 1, pp. 29 – 47, 2003
38
Article II GATS
39
Article II (2) GATS
40
Article V GATS
41
Article III GATS
42
Article VI GATS
43
Article XVI GATS
Article XVII GATS
45
Article VI (1), VI (3), VI (5) and VI (6) GATS
44
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of GATS with respect to natural persons in South Africa provided such persons are intra–
company transferees46.
The consequence of South Africa’s specific commitments is that it has, inter alia, to ensure that
regulatory measures, including admission, are administered in a reasonable, objective, and impartial
manner47. Furthermore, in the absence of the relevant discipline contemplated in Article VI (4)
GATS, it has to ensure that it does not apply licensing and qualification requirements that nullify
or impair its specific commitments in a manner which does not comply with the following criteria:
(a) ‘that qualification requirements are based on objective and transparent criteria’, or (b) ‘are not
more burdensome than necessary to ensure the quality of the service’ and (c) ‘could not
reasonably have been expected of that Member at the time the specific commitments in those
sectors were made’48. Furthermore, it is obliged to ‘provide for adequate procedures to verify the
competence of professionals of any other Member’49.
III. South African law
Does South African law concerning the admission of attorneys comply with the obligations it has
to meet under GATS? At present the Law Societies in South Africa are still following the so–
called ‘re–qualification policy’ in respect of attorneys hailing from foreign jurisdictions who wish
to practise in South Africa. This policy is entrenched in the Attorneys Act50. In terms of section
15(1)(b)(iii) of the Attorneys Act it is in principle necessary that one holds a South African LL.B.
degree in order to be admitted to practise as an attorney in South Africa51. Furthermore, the said
Act makes permanent residency or citizenship prerequisite as well as the passing of the South
African Attorney’s Admission Examination prerequisite to the admission as attorney in South
Africa. It is submitted that the so–called ‘re-qualification policy’ as implemented through the
Attorney’s Act contravenes South Africa’s obligations under Article VI (5) in that the requirement
to obtain a South African LLB degree is more burdensome then necessary to ensure the quality of
legal service in South Africa and that it could not have reasonably expected of South Africa at the
time when the commitment in the legal sector was made.
However, there are certain exceptions to this rule. Firstly, the Attorneys Act itself relaxes
admission requirements with regard to candidates hailing from certain designated countries. In
terms of section 13(1) of the Attorneys Act certain candidates from countries which have been
46
South Africa’s schedule of specific commitments defines them to include Professionals–natural persons who
are engaged, as part of a services contract negotiated by a juridical person of another Member in the activity at a
professional level in a profession set out in Part II (this includes Legal Services since they are set out in said
Part II), provided such persons possess the necessary academic credentials and professional qualifications,
which have been duly recognised, where appropriate, by the professional association in South Africa.
47
Article VI (1) GATS
48
Article VI (5) GATS
49
Article VI (6) GATS
50
Attorneys Act, Act 53 of 1979
51
Only persons satisfying the following requirements are eligible to be admitted as attorneys:
(15)(1)(b)(iii) (aa) has satisfied all the requirements for the degree referred to in paragraph (a) of section 2 (1), or for
the degrees referred to in paragraph (aA) of that section, after pursuing for that degree or degrees a course of study
referred to in paragraph (a) or (aA) of that section, as the case may be; or
(bb) has satisfied all the requirements for a degree or degrees referred to in paragraph (aB) of section 2 (1) in respect
of which a certification in accordance with that paragraph has been done; or
(cc) has previously been admitted as an advocate.
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designated by regulation promulgated under the Attorneys Act do not have to serve as candidate
attorneys and can be exempted from the need to obtain a South African LLB degree as well as
from the need to sit for the South African Attorneys admission examination52. At present such
regulations have been promulgated with respect to candidates hailing inter alia from Zimbabwe
and Namibia53. Other isolated relaxation of admission requirements to the South African legal
profession under the Attorneys Act are the designations of Nigeria54 and the Kingdom of
Lesotho55 as countries whose nationals may enter into contracts of articles of clerkship for a
period of two years provided that their LLB degree has been certified to be equivalent to the
South African LLB qualification by a South African university. With regard to certain candidates
from the above countries the residency, degree and admission requirements have been further
relaxed in terms of other provisions of the Attorneys Act. Furthermore, admitted attorneys from
the Kingdom of Lesotho may apply for admission to practise in South Africa under section 17 of
the Attorneys Act56. The result of those incoherent provisions is that nationals of the respective
countries are being awarded preferential treatment compared to candidates from other GATS
member states. It is submitted that this is problematic in the light of South Africa’s obligation to
accord all other GATS Member states most Favoured Nation treatment.
Secondly, in terms of the now moribund Recognition of Foreign Legal Qualifications and Practice
Act57 persons of South African origin who were expatriated pursuant to circumstances related to
the apartheid system in South Africa and who obtained legal qualifications while living in exile
before 1994 were able gain admission to the South African attorney’s profession without having to
re – qualify in South Africa. This legislation has been repealed after its purpose had been fulfilled.
The said legislation could also not be easily reconciled with South Africa’s obligations under
GATS. It is an example of discriminatory legislation which was arguably justified by sound policy
52
(13)(1) Any person lawfully admitted to the Republic for permanent residence therein who is ordinarily resident in
the Republic and who has been admitted and enrolled as a solicitor or attorney of the supreme or high court of any
country or territory which has been approved for the purposes of this subsection by regulation made under section
81(1)(a)(a) shall(i) if he has practised for at least 5 years as a solicitor or an attorney, as the case may be, in the country or territory in
which he has been so admitted and enrolled and belongs to a class of persons (if any) which has been designated by
any such regulation; or
(ii) if the country or territory referred to has been designated for the purposes of this subparagraph by regulation
made under section 81 (1) (a), without his having practised as contemplated in subparagraph (i), and if he belongs to
a class of persons (if any) which has been designated by any such regulation,
be exempted from service under articles;
(b) shall, if a university in South Africa which has a law faculty has certified that an examination which he or she has
passed in any country or territory is, in so far as it relates to the syllabus of instruction and the standard of training,
together with a supplementary examination (if any) required by that university, the requirements of which have been
satisfied by that person, equivalent or superior to the examination which is required for the degree mentioned in
section 2 (1) (a) be exempted from satisfying the requirements for the degree mentioned in the said section 2 (1) (a);
(c) may, by regulation made under section 81 (1) (c), be exempted from the requirement to pass any examination
referred to in section 14 (1) (a), (b) or (c) or any part thereof.
53
Regulation No. R. 588 under section 81 of the Attorneys Act, 1979 dated 2 April 1993
Government Notice 1410 of Government Gazette 21927 dated 22/12/2000
55
Regulation No. R. 334 dated 28/2/2003
56
Regulation R. 1350 dated 30/6/1989 and Regulation R. 1813 dated 1/10/1993
57
Recognition of Foreign Legal Qualifications and Practice Act, Act 114 of 1993
54
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objectives. It could have been brought in line with South Africa’s GATS obligations had
corresponding MFN exemptions been notified when South Africa signed GATS in 1994.
Reform of the rule pertaining to the admission of foreign legal practitioners has been mooted for a
long time. The Legal Practice Bill of 200258 provides for a new approach to the admission of
qualified legal practitioners from other jurisdictions in South Africa. This bill provides that a panel
for the recognition of legal qualifications shall be established59. It is to be composed of three
persons appointed by the Minister of Justice, two of whom must be legal academics, and two
persons who are appointed by the National Legal Practice Council60. The said panel is tasked with
the following functions:
(a) developing criteria for recognising foreign and other legal qualifications;
(b) developing criteria for granting permanent or temporary exemptions; and,
(c) considering applications for exemptions or amendments to the terms of any exemption
and making recommendations on the merits of such applications. 61
The Minister of Justice may in consultation with the said panel determine categories of persons
who may be exempted from the citizenship and residency requirement or the qualification and
training requirements for the following purposes:
(a) for the purposes of giving effect to reciprocal inter-governmental agreements regulating
such matters; or
(b) if it is in the public interest to permit the person or category of person concerned to
expeditiously commence practising as a legal practitioner by virtue of his or her academic
qualifications or professional experience.62
It would also fall upon the Minister of Justice to determine the procedure under which the said
exemptions could be applied for63. The adoption of the Legal Practice Bill is in spite of repeated
promises from government64 still being delayed. The Law Society of South Africa has in
November 200765 in its draft of the Legal Services Sector Charter called for the finalisation of the
Legal Practice Bill in the following terms:
58
Final draft prepared by the Law Society of South Africa
Section 7 of the Legal Practice Bill
60
This Council is to be established in terms of Section 62 (1) of Legal Practise Bill and would be dominated by
legal practitioners. It however also comprises representatives of academia and the users of legal services.
Section 63 of the Legal Practise Bill sets out the composition of the said Council.
61
Section 7 (2) of the Legal Practice Bill
62
63
59
64
For example Barbara Whittle, ‘Justice DG urges the profession to debate Charter, Bill and liberalisation of
legal services’, De Rebus March 2006
65
Press Release of the Law Society of South Africa, website of the Law Society of South Africa dated 30
November 2006, available at http://www.lssa.org.za/LinkClick.aspx?link=LSC++4+DECEMBER+2007.doc&tabid=53&mid=412
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3.2
ii) In view of the current disparate requirements affecting access to the legal
profession and governance of the legal profession, the Legal Practice Bill must be
completed, approved and promulgated.
This call has yet to be responded to by the government. It is hoped that a new Legal Practice Act
based on the Legal Practice Bill, 2002 will enter into force in the near future. It would have the
potential to provide equal access to foreign practitioners subject to rules which have been
developed by the government in consultation with the legal profession. Unfortunately, especially
clause 6 of the legal practice Bill is worded in a manner which does not preclude conflict with
South Africa’s GATS obligations. It is submitted that it would be desirable that the wording would
be amended to require the contemplated reciprocal inter-governmental agreements to be ‘Mutual
Recognition Agreements’ notified under Article VII GATS or, in the alternative, form part of
Regional Integration as contemplated by Article V GATS.
IV. Concluding Remarks
Unfortunately, there appears to be a conflict between the domestic law of South Africa regulating
the admission of foreign lawyers and its obligations under GATS. Furthermore, the South African
legislation is at the moment protectionist and makes it very difficult for foreign attorneys to get
admitted as South African legal practitioners, to an extent which may, in the writer’s opinion,
infringe South Africa’s obligations under Article 6(5) GATS. It is hoped that the Legal Practice
Bill, which already in its present format constitutes a major step in the right direction, will be
amended before its promulgation to prevent any such clashes in the future. In order to become
progressive, the Legal Practice Bill has to be reconciled with GATS to such an extent that it
incorporates the relevant GATS provisions into domestic law.
GATS is not a static document and at present negotiations are ongoing both with respect to the
development of disciplines covering legal services and with regard to further specific
commitments66. South Africa has been requested by Australia, Canada, European Community,
Japan, New Zealand to liberalise access to the legal profession in South Africa and to make further
specific commitments concerning Legal Services under GATS.67 It is hoped that South Africa will
not only fully comply with its existing obligations under GATS in the future but that it will also
respond to the multilateral requests and make further commitments and thereby help to facilitate
the globalisation of trade in legal services.
66
E. Du Plessis, ‘WTO/GATS and SADC: Hong Kong and Beyond, Presentation made at SADC Lawyers’
Association Annual Conference and General Meeting, Birchwood Conference Centre, 23 – 26 November 2006,
available at http://www.lssa.org.za/Portals/0/SADC%20LAWYERS%20ASSOCIATION%20-%20WTOGATS%20AND%20SADC%20HONG%20KONG%20AND%20BEYOND%20%202325%20November%202006.pdf
67
E. Du Plessis, Seeking a balance in the liberalisation of legal services, De Rebus October 2006
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A Regional Co-operation: Trade, Security and Regulatory
Convergence@
By:
Maureen Irish68
This paper examines border security and economic relations between Canada and the
United States, arguing against major reform such as the proposal for a common security
perimeter. Regulatory convergence is discussed in the law of both NAFTA and the WTO,
and the paper presents a small suggestion for private party access to support recognition of
equivalence.
1. Proposals for Deepening NAFTA
Since the attacks of September 11, 2001 on the United States, Canadian exports to the U.S.
have been subject to more stringent security measures at the border. As over 76% of
Canada’s exports go to the United States,69 the change has presented a challenge. One
study in 2007 found that Canadian companies had internalized the extra costs of U.S.
border clearances in order to preserve export markets.70 The fear is that border delays and
expenses will encourage firms to establish in the United States rather than in Canada,
particularly since many manufacturers have adopted just-in-time systems for the
management of inventories.
In response, in Canada, there have been numerous proposals for reform to guarantee the
access to U.S. markets that Canadian exporters thought they had achieved in the CanadaUnited States Free Trade Agreement of 1989 and the North American Free Trade
Agreement of 1994. In 2002, Wendy Dobson examined the possibility of a customs union,
a full common market, or another “Big Idea” such as a strategic bilateral bargain that
would involve cooperation in customs procedures, immigration, energy trade and
defence.71 In 2003, Danielle Goldfarb surveyed 15 studies and reports published from
2001 to 2003, including suggestions for enhanced border cooperation and infrastructure, a
common security perimeter, common refugee and visa policy, harmonization of external
tariffs to eliminate internal rules of origin, harmonization or mutual recognition of
standards, enhanced dispute resolution, common competition policy, natural resource
security, greater cooperation in defence, common currency and institutional reforms.72
68
Professor, Faculty of Law, University of Windsor, Windsor, Ontario, Canada, © Maureen Irish 2008. I
am grateful for funding from the Law Foundation of Ontario. This draft is provided for discussion at the
conference. Comments would be welcome, addressed to [email protected].
69
Statistics Canada. Imports, Exports and Trade Balance of Goods on a Balance-of-Payments Basis, by
Country (2007).
70
Conference Board of Canada, Reaching a Tipping Point? Effects of Post-9/11 Border Security on
Canada’s Trade and Investment, by Danielle Goldfarb, June 2007.
71
Wendy Dobson, Shaping the Future of the North American Economic Space: A Framework for Action,
The Border Papers, C.D. Howe Institute, Commentary No. 162, Toronto, April 2002 at 24 – 27.
72
Danielle Goldfarb, Beyond Labels: Comparing Proposals for Closer Canada-U.S. Economic
Relations, The Border Papers, C.D. Howe Institute, Backgrounder, No.76, Toronto, October 2003.
Further reports followed, including: Gary C. Hufbauer & Jeffrey J. Schott, The Prospects for Deeper
North American Economic Integration: A U.S. Perspective, C.D. Howe Institute Commentary No. 195,
Toronto, January 2004;William B.P. Robson, The North American Imperative: A Public-Good
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In 2005, a Task Force co-chaired by John P. Manley, Pedro Aspe and William F. Weld
presented a set of ambitious recommendations to establish a North American security and
economic community by 2010. The recommendations included a common security
perimeter for the movement of people, cargo and vessels, the harmonization of visa and
asylum regulations, investment in border infrastructure, law enforcement and military
cooperation, support for economic development in Mexico, a North American energy
strategy, a common external tariff, a permanent North American tribunal for dispute
resolution, a unified approach to anti-dumping and countervailing duty actions, a
trinational competition commission, a North American approach to regulation, labour
mobility between Canada and the United States, mutual recognition of professional
standards and degrees, a North American education programme, an annual North
American summit meeting of the leaders of government, a North American Advisory
Council and a North-American Inter-Parliamentary Group.73
2. Smart Border and SPP
Governmental actions since 2001 have not been as far-ranging as the Task Force or other
recommendations.
On December 12, 2001, Canada and the United States signed a Smart Border Declaration
to enhance cooperation in identifying security threats and high-risk goods while facilitating
low risk passage across the border. The Declaration was accompanied by a 30-point
Action Plan covering secure biometric identifiers for persons, advance passenger
information on airline flights, cooperation on refugee and asylum claims, customs
preclearance away from the border, customs data exchange and joint facilities,
infrastructure improvements, integrated border enforcement teams, information-sharing
and coordination of anti-terrorism efforts, counter-terrorism legislation, freezing of
terrorist assets and joint counter-terrorism training of personnel. On customs matters, the
Declaration announced the Free and Secure Trade (FAST) programme of speedy
clearances for low-risk companies and shipments. On movement of persons, the
Declaration confirmed the expansion of the NEXUS programme of simplified entry and
dedicated lanes for pre-approved, low-risk travellers.74
On March 23, 2005, the three NAFTA governments signed the Security and Prosperity
Partnership of North America (“SPP”) which involves an enhanced level of cooperation
Framework for Canada-U.S. Economic and Security Cooperation, C.D. Howe Institute, Commentary
No. 204, Toronto, 2004; Michael Hart, “A New Accommodation with the United States: The Trade and
Economic Dimension,” no. 2 of Thinking North America, edited by Thomas J. Courchene, Donald J.
Savoie and Daniel Schwanen, The Art of the State, vol. 2, Montreal, Institute for Research on Public
Policy, 2004.
73
Building a North American Community, Report of an Independent Task Force (John P. Manley, Pedro
Aspe, William F. Weld co-chairs), sponsored by the Council on Foreign Relations with the Canadian
Council of Chief Executives and the Consejo Mexicano de Asuntos Internacionales, New York, Council
on Foreign Relations, 2005.
74
The Smart Border Declaration built on a history of cooperative arrangements between Canada and the
United States including the Accord on Our Shared Border of February 25, 1995. The United States and
Mexico signed a similar arrangement, the United States-Mexico Border Partnership Agreement, in
March 2002.
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not tied to border matters. The Prosperity part of the SPP added to previous initiatives by
including regulatory cooperation, sectoral collaboration especially in energy, transportation,
financial services and telecommunications, environmental stewardship, food safety and
public health. On August 21, 2007, the three governments supplemented the SPP with a
voluntary framework intended to improve regulatory cooperation through transparency,
information exchange and use of best practices in order to eliminate redundant testing and
certification processes.
3. Regulatory Convergence
The SPP advances some ideas for the deepening of NAFTA that are not limited to border
issues. Michael Hart has recommended an ambitious Canada-U.S. initiative of regulatory
harmonization. He suggests an obligation of bilateral consultation prior to the adoption of
new regulations, along with a determination that any divergences serve important public
purposes.75 The goal is to combat the “tyranny of small differences” between Canadian
and U.S. regulations, such as the requirement of a prescription for certain pharmaceuticals
in one country when they are sold over the counter in the other.76 The material below
reviews aspects of regulatory convergence within NAFTA and the WTO.
“Behind the border” trade issues are dealt with in NAFTA in Chapter 7B on sanitary and
phytosanitary (“SPS”) measures and Chapter 9 on technical barriers to trade (“TBT”). SPS
measures relate to the health of humans, animals and plants. The TBT chapter covers all
other standards-related measures. Both SPS and TBT provisions in NAFTA contain
obligations for equivalence.77
For SPS matters, Article 714 provides that an importing Party shall treat another NAFTA
country’s SPS measure as equivalent to its own if the exporting country demonstrates
objectively that the measure achieves the importing Party’s appropriate level of protection.
The importing Party may decide, on a scientific basis, that the measure does not achieve
that level of protection and, on request, shall provide reasons in writing for this decision.
The exporting country is to facilitate access to its territory for relevant inspection and
testing (Art. 714(1),(2),(3)). NAFTA Parties are to consider each others’ SPS measures
when developing their own (Art. 714(4)). This framework already encourages convergence,
although on specific measures rather than in the more general top-down fashion envisaged
in the SPP. Article 714 would presumably lead to recognition of equivalence for a specific
measure. A general bilateral mutual recognition agreement (“MRA”) recognizing
equivalence of SPS measures across a range of goods might raise a possible argument of
discrimination against the other NAFTA Party. Article 712(4) states that SPS measures
75
Michael Hart, Steer or Drift? Taking Charge of Canada-US Regulatory Convergence, C.D. Howe
Institute Commentary No. 229, Toronto, March 2006 at 21. He also recommends the development of a
large database of federal and provincial regulations along with U.S. comparisons in order to select
priorities for negotiation (Ibid. at 19).
76
Ibid. at 3.
77
Neither go as far as the Cassis de Dijon decision in the EC, which interprets the ban on measures
equivalent to quantitative restrictions on the free movement of goods as requiring that any products
lawfully produced or marketed in the Community must also have free access to the rest of the
Community unless they would harm legitimate interests in the importing state, such as public health and
consumer protection: Case 120/78, Rewe-Zentrale AG v. Bundesmonopolverwaltung für Branntwein
[1979] ECR 649.
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may not discriminate arbitrarily or unjustifiably between goods from a NAFTA party and
like goods from any other country. The question would be whether the duty of nondiscrimination in Article 712(4) adds an obligation such as good faith or due process to the
provisions of Article 714 on equivalence. A blunt refusal to negotiate a similar wideranging MRA with the other NAFTA Party would probably breach Article 714 in any
case.78
For TBT matters, the obligation of equivalence relates solely to technical regulations of
other NAFTA governments, measures with which compliance is mandatory. Other
standards-related measures (i.e. standards and conformity assessment procedures) are not
subject to this obligation.79 Article 906(4) provides that an importing Party shall treat
another NAFTA country’s technical regulation as equivalent to its own if the exporting
country demonstrates to the satisfaction of the importing Party that the technical
regulation adequately fulfills the importing Party’s legitimate objectives. The importing
Party must provide reasons in writing, on request, if it decides not to treat the technical
regulation as equivalent (Art. 906(5)). As the TBT chapter also contains an obligation to
treat NAFTA goods no less favourably than the goods of any other country (Art.
904(3)(b)), the same question might arise of whether a general MRA recognizing a range of
technical regulations of one NAFTA Party would generate additional good faith or due
process obligations regarding the other NAFTA Party.80
On eliminating unnecessary testing, NAFTA is supportive of the SPP goal. The NAFTA
Parties are to accept the results of conformity assessments conducted elsewhere in
NAFTA wherever possible (Art. 906(6)) and shall give sympathetic consideration to the
development of mutual recognition agreements for conformity assessment procedures
(Art. 908(6)).81 The specific mention of MRAs for conformity assessment in Article 908(6)
would make it less likely that a wide-ranging bilateral MRA would be criticized for leaving
out goods of the other NAFTA Party. Shirley Coffield, an experienced trade lawyer, called
mutual recognition of testing “[o]ne of the success stories in the NAFTA,” as it would
permit a manufacturer to submit to one accrediting agency and get an approval valid
elsewhere in the NAFTA territory.82
For SPS measures and TBT technical regulations, it might be useful to give private parties
the right to demand reasons if denials of equivalence are a significant problem. This
suggestion is inspired by the doctrine of direct effect,83 but would not reflect actual direct
78
Although NAFTA Article 712(4) appears to use language drawn from GATT Article XX, care should
be taken in interpretation, as Chapter 7B is intended to apply independently and not as an elaboration of
GATT Article XX. NAFTA Article 710 provides that GATT Article XX(b) as incorporated into NAFTA
Article 2101 is inapplicable to SPS measures.
79
See the definitions in NAFTA Art. 915.
80
The TBT chapter differs from the SPS provisions in NAFTA, in that the exemptions of GATT Article
XX as incorporated into Article 2101 apply.
81
As well, Article 913 establishes a Committee on Standards-Related Measures, with a duty to facilitate
the process of making measures “compatible,” a concept that includes harmonization, equivalence and
permitting goods to fulfill the same purpose or to be used in place of one another (Art. 915).
82
Shirley Coffield, “Commonality of Standards – Implications for Sovereignty – A U.S. Perspective”
(1998) 24 Canada-United States Law Journal 235 at 239.
83
See Armand de Mestral and Jan Winter, “Giving Direct Effect to NAFTA: Analysis of Issues” in no. 6
of Thinking North America, edited by Thomas J. Courchene, Donald J. Savoie and Daniel Schwanen,
The Art of the State, vol. 2, Montreal, Institute for Research on Public Policy, 2004.
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effect as NAFTA gives this right solely to governments. There might be some concern
over allowing private parties to attack domestic standards,84 but such a right to reasons
would only involve arguing that specific goods meet the level of SPS protection or the
TBT legitimate objective of the country of import. Using private parties in this manner
could be a relatively simple way to identify small differences that are suitable for
recognition as equivalent. On the other hand, private access rights would not be workable
for the recognition of other NAFTA conformity assessments, since the treaty obligations
are too hedged. As well, NAFTA Article 908(2) already provides a national treatment
obligation for the recognition of conformity assessment bodies of other NAFTA Parties,
which should be sufficient.
As all three NAFTA governments are WTO Members, SPS and TBT measures of Canada,
the United States and Mexico are also governed by WTO Agreements. In the WTO, the
SPS Agreement contains an obligation of equivalence, while the TBT Agreement contains
a less onerous duty to consider a request. A GATT Panel decided in 1981 that EEC
recognition of U.S. but not Canadian conformity assessments for exports of beef to the
Community breached Canada’s right to MFN treatment in GATT Article I.85 This
summary of “behind the border” issues in the WTO relates to equivalence and MRAs, as
well as GATT Article XXIV on regional agreements.
In the WTO SPS Agreement, Article 4.1 requires a Member to treat another Member’s
SPS measure as equivalent if the exporting country objectively demonstrates that the
measure achieves the importing Member’s appropriate level of protection. There is no
obligation to give reasons for a refusal, but Article 4.2 contains a duty to consult. The SPS
committee has adopted several decisions to implement the equivalence provision.86
Concerning wide-ranging MRAs, the MFN obligations of GATT Article I and SPS Article
2.3 might add or reinforce further duties such as good faith and due process treatment
owed to other WTO Members. The SPS Agreement is intended as an elaboration of
GATT Article XX(b).87 Should there be a conflict between the SPS Agreement and
GATT 1994, the SPS Agreement would prevail.88
In the WTO TBT Agreement, Article 2.7 requires Members to give positive consideration
to accepting technical regulations of other Members as equivalent if the importing
Member is satisfied that the regulations adequately meet its objectives. Under Article 6.1,
Members are to accept the results of conformity assessment from other WTO countries
whenever possible, if the importing Member is satisfied that the conformity assessment
offers assurance equivalent to its own conformity assessment procedures. Article 6.3
encourages the formation of MRAs on recognition of conformity assessments. Article 10.7
84
Robert Wolfe, “Where’s the Beef? Law, Institutions and the Canada-US Border” in no. 6 of Thinking
North America, edited by Thomas J. Courchene, Donald J. Savoie and Daniel Schwanen, The Art of the
State, vol. 2, Montreal, Institute for Research on Public Policy, 2004.
85
GATT Panel Report, European Economic Community – Imports of Beef from Canada, adopted 10
March 1981, L/5099, BISD 28S/92. Most-Favoured-Nation (“MFN”) treatment in Article I requires that
any advantages and benefits granted be made available immediately and unconditionally to like products
of all other GATT member countries.
86
G/SPS/20, G/SPS/19/Add.1, G/SPS/19/Rev.2. See further Joel P. Trachtman, “Regulatory Jurisdiction
and the WTO” (2007) 10 JIEL 631.
87
SPS Agreement, Preamble.
88
General Interpretive Note to Annex 1A, Marrakesh Agreement Establishing the World Trade
Organization.
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provides for notification of MRAs and encourages their formation, including agreements
relating to technical regulations and standards. TBT Article 2.1 provides an MFN
obligation for like products originating in any other countries, which might add to or
reinforce the duties owed to all other WTO Members.89 The TBT Agreement exists
separately from GATT 1994 and any GATT exemptions. Should there be a conflict
between the TBT Agreement and GATT 1994, the TBT Agreement would prevail.90
There are differences between the WTO provisions and the NAFTA regime for SPS and
TBT measures. GATT Article XXIV permits the formation of regional agreements that
would otherwise breach GATT Article I. There may be an issue over whether a distinctive
regional SPS/TBT regime is permissible in a free trade agreement, since Article XXIV:5(b)
states that an FTA may not impose on outside WTO Members “duties and other
regulations of commerce” that are higher or more restrictive than the duties and
regulations prior to formation of the FTA. As well, to meet the definition of an acceptable
free trade agreement, “duties and other restrictive regulations of commerce” must be
eliminated on substantially all the internal trade among the FTA members, in accordance
with GATT Article XXIV:8(b).91 In the Turkey – Textiles decision, the Appellate Body
adopted a rather strict interpretation of Article XXIV, deciding that it authorized only
measures that were necessary to the formation of a regional agreement, a view that
probably would not cover a separate SPS/TBT regime.92 The necessity interpretation is,
however, controversial.93 Assuming the separate NAFTA regime remains in place, there
may be a possibility that non-NAFTA countries might use it as the basis for MFN claims
to supplement their rights under the WTO SPS and TBT Agreements.94
4. Trade and Security
It now seems clear that a common NAFTA security perimeter would be very difficult to
establish due to developments in Canada, quite apart from any views or preferences of
Mexico and the United States. Within Canada, there have been challenges to parts of the
Smart Border Declaration dealing with the movement of people and information sharing.
In 2006, a Commission of Inquiry reported on the actions of Canadian officials in relation
to Maher Arar, a Canadian citizen who was detained by U.S. officials in September 2002
while transferring on a flight through a U.S. airport and then sent to Syria, his country of
89
See further Lorand Bartels, “The Legality of the EC Mutual Recognition Clause under WTO Law”
(2005) 8 JIEL 692.
90
General Interpretive Note to Annex 1A, Marrakesh Agreement Establishing the World Trade
Organization.
91
The internal trade requirement is subject to a few listed exceptions, none of which are likely to help
significantly to justify a separate regional regime. There is controversy over whether the list of
exceptions is exhaustive. It does not mention Article XXI on national security, although it is hard to
imagine that the drafters would have intended to block internal national security measures within a
regional agreement.
92
Appellate Body Report, Turkey–Restrictions on Imports of Textile and Clothing Products,
WT/DS34/AB/R, adopted 19 November 1999.
93
Joost Pauwelyn, “The Puzzle of WTO Safeguards and Regional Trade Agreements” (2004) 7 JIEL
109.
94
NAFTA Article 2005(4) provides that the responding Party can require any dispute settlement to be
under NAFTA procedures rather than the WTO for SPS or TBT matters relating to the environment,
health, safety or conservation, but this provision would be inapplicable to non-NAFTA Parties.
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birth, where he was held in custody until October 2003. The Commission found that an
RCMP unit established in the fall of 2001 had given U.S. authorities inaccurate and
unfairly prejudicial information on Mr. Arar, had shared information without the usual
review for relevance and reliability and had handed over an entire investigative database
consisting of three compact discs without screening the information or attaching written
caveats.95 As recommended by the Commission, a further inquiry has been established
concerning the detention of three other individuals in similar circumstances. That inquiry
is expected to report in September 2008.96 In addition, the Federal Court of Canada
recently invalidated the designation of the United States as a safe third country to which
refugee claimants could be returned. As the United States was in breach of international
treaties relating to the protection of refugees and the prohibition of torture, the court
found that the designation was not in accordance with the relevant legislation or with the
Canadian Charter of Rights and Freedoms.97 The Safe Third Country Agreement,98 which was a
major part of the Smart Border Declaration, continues in operation while the judgment is
under appeal, but faces an uncertain future.
The proposal for a common security perimeter is in some respects contrary to parts of the
Smart Border Declaration. If the internal border is expected to disappear soon, it makes
little sense to invest in the infrastructure, administration and technology required for
speedy clearances.99 It now appears that border procedures are likely to remain and the
need to facilitate clearances for low-risk entries will be a top priority for some time. There
is no particular reason to link regulatory convergence to security as in the SPP, but support
for equivalence and MRAs may be a sensible objective, assuming due attention is directed
to possible MFN claims under NAFTA and the WTO. A goal of harmonization to
uniform regulations in one borderless market would be overly broad, however. Societies
do not have to be the same in order to trade with each other. In Canada-U.S. economic
relations at the moment, there is really no need for Big Ideas, although there is always
room for small practical ones.
95
Commission of Inquiry into the Actions of Canadian Officials in Relations to Maher Arar, Report of
the Events Relating to Maher Arar, Analysis and Recommendations (Justice Dennis O’Connor,
Commissioner), 2006. The Commission found as follows (p.9): “Mr. Arar has never been charged with
any offence in Canada, the United States or Syria. Indeed, although RCMP officers conducting a
terrorism-related investigation were interested in interviewing Mr. Arar, they did not consider him a
suspect or a target of that investigation. They wished to interview him as a witness because of his
associations with certain other individuals. I have heard evidence concerning all of the information
collected about Mr. Arar in Canadian investigations, and there is nothing to indicate that Mr. Arar
committed an offence or that his activities constitute a threat to the security of Canada.”
96
Internal Inquiry into the Actions of Canadian Officials in Relation to Abdullah Almalki, Ahmad AbouElmaati and Muayyed Nureddin, established December 11, 2006, Honourable Frank Iacobucci,
Commissioner.
97
Canadian Council for Refugees v. Canada [2007] F.C.J. No. 1583, 2007 FC 1262, stayed while under
appeal [2008] F.C.J. No 131, 2008 FCA 40. See further Emily Carasco, “Canada-United States ‘Safe
Third Country’ Agreement: To What Purpose?” (2003) XLI Canadian Yearbook of International Law
305.
98
Agreement between the Government of Canada and the Government of the United States of America
for Cooperation in the Examination of Refugee Status Claims from Nationals of Third Countries, Can.
T.S. 2004 No. 2, in force 29 December 2004.
99
Rey Koslowski, “Smart Borders, Virtual Borders or No Borders: Homeland Security Choices for the
United States and Canada” (2005) 11 Law and Business Review of the Americas 527.
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The contribution of international organizations to the
emergence of a supranational legal framework
By:
Fetze Kamdem
Short presentation :
In order to encourage the enhancement of trade in the planetary ladder, it appeared
necessary to reduce difference between national norms by means of a juridical integration.
Traditionally, this juridical integration is carried by multilateral treaties.
This classical mean is exemplified by efforts made to govern the carriage of goods by sea.
Here, the research of an integrated legal regime drew away adoption and application not of
a single international convention, but two conventions and two protocols. Consequently,
they met with not less than four international regimes at the same time applicable to the
carriage of goods by sea. These are:
-
The Hague Rules100
The Hague/Visby Rules101,
The Hague/Visby Rules 1968/1979102
The Hamburg Rules103
Each of these international set of rules, amended or not, is nowadays applied by a certain
number of states. These several regimes show the difficulty to enact a global uniform law.
In the light of this observation, since about thirty years, model laws and sets of legal
principles are very appraised. Yet, because of their nature, such instruments cannot be
adapted to new realities without generating a multiplication of juridical regimes which are
then in competition with each other. That is the case of the UNIDROIT Principles of
International Commercial Contracts whose revised edition of 2004 does not technically prevent
the use of its previous version dating from 1994.
100
The Hague Rules, 1924 Bills of Lading Convention, Brussels, 25 August 1924), entered into force 2
June 1931.
101
The Hague-Visby Rules come from The Hague Rules as amended by the 1968 Protocol to Amend the
Bills of Lading Convention, Brussels, 23 February 1968), entered into force 23 June 1977.
102
The Hague/Visby Rules 1968/1979 come from The Hague/Visby Rules as amended by the Protocol
of 21 December 1979 in respect of Special Drawing Rights, entered into force 14 February 1984.
103
The Hamburg Rules were enacted by the United Nations Convention on the Carriage of Goods by
Sea, Hamburg, 31 March 1978 that entered into force on 1 November 1992.
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It is therefore necessary to innovate, to conceive a new instrument likely to evolve while
preserving the unity of integrated norms.
Within the United Nations Organization (UNO), subjects having a transnational scale,
following the example of trade, are already subject to a particular treatment. That is how it
is of health, maritime navigation and civil aviation.
Nevertheless, unlike the commercial activities whose regulation was entrusted to the
United Nations Commission on International Trade Law (UNCITRAL), the regulation of
health, maritime navigation and aeronautics is devolved upon specialized organizations of
the UNO. It is respectively about the World Health Organization (WHO), about the
International Maritime Organization (IMO) and about the International Civil Aviation
Organization (ICAO).
In accordance with their constituent texts, each of these specialized organizations is
entitled to issue supranational rules. In fact, such provisions have authority to come into
force in Member States without national authorities having to intervene there.
With regard to what precedes, in our point of view, it seems appropriate today to wonder
which are the conditions, what is the functioning and what are the effects of these
generative mechanics of a world-wide legislation. From this perspective, it would be
necessary to answer following questions distinctly :
To what conditions did States subscribe at provisions which deprived them of a plot of
their sovereignty ? How accurate do these specialized organizations use their legislative
power? What is the quality of the persons who represent States during the adoption of this
supranational legislation ? What is the reaction of national authorities during the
application of these supranational rules? More particularly, what type of reception do
national tribunals reserve to such adopted texts? What are precautions taken to assure an
interpretation otherwise uniform, at least converging of such an issued supranational
legislation ? In what measure can the ongoing experience within the WHO, the IMO and
the ICAO be adapted for an efficient and global regulation of international commercial
transactions ?
Such is the questioning to which it is henceforth urgent to answer to speed up the
installation of a structured world-wide governance.
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Reflections on Globalization and its impact
On the Law of International Business
By:
Tesfay Kumenit, Faculty of Law, University of Gondar, Ethiopia, 2008
The term globalization did not become popular until the 20th century. Then onwards, it has
become a typical issue understood to affect the whole socio-economic and political life of
states throughout the world. Besides, the discourse on globalization is complex with farreaching effects on national and international laws and policies pertaining to the social,
economic and political matters.
It is commonsense knowledge that issues related to globalization are open to debates, as
various people have varying perceptions about it. At one extreme, we have those who see
globalization as an irresistible and benign force for delivering economic prosperity in
economically underdeveloped areas. On other extreme, we have those who blame it as a
source of all contemporary ills.
Those people taking the latter line of argument emphasis on the negative impacts of
globalization from various dimensions. Specially, they make frequent reference to the
difficulties faced by small enterprises in underdeveloped areas in taking advantage of the
benefits of globalization. As the result, the rural and informal economies remain on the
margin, which in turn leads to persistent poverty. Besides, the industrial restructuring in
force of competitive markets is highly probable to insecure jobs and dramatically affects
the working conditions and rights of workers in some countries.
In most developing countries, globalization has undermined traditional livelihoods,
changed the traditional social security systems and increased rural-urban and intra-regional
inequalities. Moreover, some multi-national investment have been exacerbating
environmental degradation and generated pressures for cheaper and more flexible labor in
order to retain competitiveness which in effect could erode the values of democracy and
social justice. In relation to this, the accountability of these institutions engaged in business
is debatable. In reality, some people feel that transnational bodies are unaccountable which
usually disregard the local perspectives of cultural, linguistic, and other diversities.
The other extreme argument is on the positive impact of globalization. To this effect, it is
widely accepted that the key characterstics of globalization have been the liberalization of
international trade, the expansion of FDI, and the emergence of massive cross-border
financial flows. This resulted in increased competition in global markets. It is also widely
acknowledged that this has become about through the combined effect of different
understanding factors mainly policy decisions, to reduce national barriers to international
economic transactions and the impact of new technology. Due to the effect of the latter,
the natural barriers of time and space have been vastly reduced. At present, the cost of
moving information, people, goods and capitals across the glop has fallen dramatically
which in turn vastly expanded the feasibility of economic transactions across the world. As
to this, people believe that markets can be global in scope and encompass an expanding
range of goods and services.
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With the intention to benefit international communities on equal footing, various
institutions were created. Among others, UN, ILO, WTO, GATT and IMF are the most
influential ones. These institutions set certain preconditions that states shall fulfill to get
membership. Beyond that, a number of laws are issued to liberalize international business
transactions. By this, it is sought that regional cooperation in trade and finance could
increase stability.
As it is mentioned above, globalization can have both direct and indirect impact on states.
It would also inevitably affect the laws of international business transactions either
negatively or positively. As to the former, the challenges against globalization may dictate
the revision of these laws in a manner which may equally benefit the poor and the rich.
The question that must be capitalized is whether these laws are in positions to treat the
north and the south as there is unbridgeable gap between them. If states are to be
benefited from the globalization, most argue that there must be fair laws which consider
the local realities in developing countries.
Hence, some argue that the present laws to this end do not take the realities at ground in
to account specially in third world countries. the fact that the market is highly competitive,
the poor would be pushed out of game and this would even increased income disparities
with in the industrial countries .the multi-national institutions which have small capital in
industrial countries, may transfer to the countries with lower cost. These institutions would
easily make profits in the expense of the poor. Then power would be shifted from local
institutions to trans-national ones.
Many agree that globalization by itself is not a problem. But, laws which are designed to
regulate the global transactions shall consider the existing realities the failure of which may
rise various impediments against globalization. Institutions like IMF, The World Bank,
The WTO, The ILO, and other specialized agencies as well as business, trade unions and
other NGOs are in a lead to guide the process to this effect.
To be beneficiaries of these institutions, sates have to revise their domestic laws in
conformity with the guiding principles and regulations of the above institutions. In the due
course, they are expected to enhance social infrastructures and respect human rights. The
other face of this achievement would enable poor countries to get assistance and
donations from these powerful donor institutions. As a result, limitations on free trade
would be minimized and this in turn may lead to the flow of foreign direct investment
which directly or indirectly add to efforts of poverty eradication and promote sustainable
development. These measures would make states to think of common laws regulating
business transactions. By this, there would be free trade with no or little barriers across the
borders.
But this does not mean that multinational corporations are free to exploit resources for the
sole purpose of profit maximization. Rather, they have to have social responsibility as well.
In fact, it is debatable as to what responsibilities these institutions assumed to have. The
debate in this regard largely revolve around the conduct of multi-national corporations and
other large private companies which ,due to their sizes, have the ability to significantly
influence domestic and international policy and the communities in which they operate.
Central to the debate is the perceived deficiency of national and international law remedies
regarding corporate accountability, particularly the ability of available regulations to
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successfully regulate a corporate’s conduct in jurisdictions outside their home state.
Moreover, most people agree that the efficient functioning of the global markets depend
on socially responsible business conduct. To this end, organizations, such as UN, the
International Labor Organization (ILO) have developed compacts, declarations,
guidelines, principles and other instruments that outline norms for acceptable corporate
conducts.
To sum up, though there are the divided idea as to how all states benefit from
globalization, at present, most agree that issues in relation to human rights, environmental
maters etc are the common concerns of international communities which have to be
respected and promoted by the joint efforts in every corner of the world. Moreover, since
international business transactions directly or indirectly related to these common concerns,
it is believed to be a common concern as well. There fore, laws of international business
transactions have to be in a position to respect and promote principles and guide lines
provided to regulate other global concerns. From this, it is easy to understand, how much
the laws of international business directly or indirectly are under the influence of
globalization.
References
1) Globalization and Its Impacts,www.ilo.org
2) Thomas L. Friedman, The World is Flat, a Brief History of the Globalized World in the TwentyFirst Century, Allen Lane, 2005
3) The African Economist.Vol.11, No. 35.2005
4) The Eye on Ethiopia and the Horn of Africa, Vol. xxxv, No. 128, 2006
5) Kim Kercher, Corporate Social Responsibility-Impact of Globalization and
International Business, Bond University.2006
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Regulation of International Business Transactions
Regional Institutions: Developments in the South Pacific
By:
Anne McNaughton
Introduction
The South Pacific is not an area of the world with which people are as familiar as, say Europe or
North America. Sometimes it is referred to as Oceania104; sometimes it is included in the term ‘AsiaPacific’ although more often than not, this expression actually only refers to the Pacific Rim States,
ie. those States surrounding the Pacific Ocean. 105 So, it is best to begin with a definition. In using
the term ‘South Pacific’ I am referring to those States located in the southern part of the Pacific
Ocean but not necessarily all south of the Equator. Specifically, I am referring to the South Pacific
Island States of: The Cook Islands; East Timor (Timor L’Este); The Federated State of Micronesia;
The Republic of Fiji; Kiribati; The Marshall Islands; Nauru; Niue; Palau; Papua New Guinea;
Samoa; The Solomon Islands; Tonga; Tuvalu; Vanuatu;
These are not the only islands in this part of the world. Other islands are: American Samoa106;
Easter Island107; French Polynesia108; Guam109; Hawai’i110; New Caledonia111; Norfolk Island112;
Northern Marianas113; Pitcairn114; Tokelau115; Torres Strait Islands116; Wallis and Fortuna117; West
Papua118; and, of course, Australia (the world’s largest island and smallest continent) and New
Zealand.
The fifteen states to which I referred earlier are, however, sovereign states. It is these states to
which I refer in using the term ‘Pacific Island States’. Each of these States can trace a historical
relationship over centuries with Member States of the European Union. Since the 1960s,
collectively they have had a relationship with the European Communities that has been governed
by a series of conventions. The most recent iteration of this convention arrangement is the
Cotonou Agreement.119 The earlier treaties, the Yaoundé Conventions of 1963 and 1969, followed
104
“In geographical and anthropological terms, as well as for many others, Oceania refers to all of Melanesia,
Micronesia, Polynesia and Australia. It is also used in this sense by most United Nations and other international
agencies, and by a number of governments in their international relations, which deal with Oceania as a region, in
the same way as they deal with Latin America, the Middle East or Sub-Saharan Africa as regions. When used in this
‘international relations’ sense, it usually includes New Zealand and often Australia, but it does not include West
Papua, Hawai’I or Easter Island, or any other island which is fully incorporated into a metropolitan power. Some
people reserve the term for the tropical Pacific Islands. Others use it to refer only to independent nations, or only to
islands settled by indigenous people, or with other connotations.”, Crocombe, R., The South Pacific. 2001, Suva,
Fiji: Institute of Pacific Studies, 19.
105
The term ‘Pacific Basin’ “includes all countries on the Rim of the Pacific Ocean and the Island states and
territories within the ocean.” Crocombe, n.1 above.
106
Territory of the United States of America
107
Province of Chile
108
External Territory of France
109
Self-governing territory of the United States of America
110
50th state of the United States of America
111
Self-governing territory of France
112
External territory of Australia
113
Self-governing Commonwealth in union with the United States of America
114
Dependent territory of the United Kingdom
115
Self-governing territory administered by New Zealand
116
Part of the Australian state of Queensland
117
Overseas territory of France
118
Province of Indonesia
119
Partnership Agreement between the members of the African, Caribbean and Pacific Group of States (ACP) of the
one part, and the European Community and its Member States of the other part, signed in Cotonou on 23 June, 2000
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by successive Lomé Conventions (I – IV-bis, concluded between 1975 and 1995) framed the
cooperation and development assistance provided by the European Communities to their partner
developing States.
Lomé remained the most far-reaching, elaborate, and complex North-South contractual agreement
among its contemporaries. During most of [it’s] 25-year history, it was widely held as the undisputed
flagship of the EU’s development initiative120…
These States, together with Australia and New Zealand, are also members of the Pacific Islands
Forum. This Forum, originally established in 1971 under the name South Pacific Forum121 ‘is the
region’s premier political and economic policy organisation.’122 The Forum has its Secretariat in
Suva, Fiji. The ACP States collectively have a Secretariat in Brussels
The purpose of this paper is to consider the institutional framework within which international
business transactions might be regulated in these States. Binding on these States is a set of treaties
that seek to assist the development and integration of these Pacific Island States regionally and
internationally. The novel aspect of this and the reason for making it the focus of this paper is the
explicit identification of the private sector as one of the actors in working towards these aims (of
development and integration). In the treaty between the EU and the Pacific Island States, the role
of the private sector in this regard is highlighted. The significance of the private sector in this
region had already been recognised in 1997. At that time, the Forum Economic Ministers held
their first meeting and recognised ‘that Private Sector Development…is central to ensuring
sustained economic growth…’123 In 2004, the Trade and Investment Division of the Pacific
Islands Forum Secretariat drew up the Private Sector Development (PSD) Strategy Document. This
document sets out ‘a vision for private sector development in the Forum Island Countries.’ One of
the intriguing things about this document is that it seems to be a blueprint for creating a private
sector ‘from scratch’. This does not appear to be an end in itself however but rather a means of
improving development and assisting these States to integrate economically at least, at a regional
and an international level. Before discussing these treaties, it is useful to consider the term
‘regulation’.
Defining ‘Regulation’
In a sense, what is focussed on in this discussion depends on how the term ‘regulation’ is defined.
At one level, for example, one could say that, in these States, international business transactions are
regulated generally, much as they are in the rest of the world: by agreement between the parties and
litigation or arbitration if the agreement breaks down. At a higher level, however, such transactions
will increasingly be circumscribed by treaty provisions, particularly if they involve the provision of
goods or services.
Regulation is not a settled concept. The term has no single, agreed meaning, ‘but rather a variety of
definitions in usage which are not reducible to some platonic essence or single concept.’124 Indeed,
most writing that deals with this area begins with a disclaimer or qualification that the term is
120
Gerrit Faber Olufemi Babarinde, (ed) The European Union and the Developing Countries: The Cotonou
Agreement (2005), 4.
121
The Forum changed its name in October, 2000.
122
“Key Facts about the Pacific Islands Forum and its Secretariat” (2006) 1 Niu Pasifika, 3.
123
Trade and Investment Division, Pacific Islands Forum Secretariat, A Vision for Private Sector Development in the
Forum Island Countries: Private Sector Development (PSD) Strategy Document, Pacific Islands Forum Secretariat,
May, 2004, Suva, Fiji, p.4.
124
Robert & Cave Baldwin, Martin,, Understanding Regulation: Theory, Strategy and Practice (1999), 2.
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‘contestable’125 and defined in different ways across disciplines126 and within disciplines. Regulation
has developed into a distinct field of academic inquiry but ‘it is often difficult to obtain a holistic
sense of its contours and the nature of its terrain.’ In her work on regulation, Professor Julia Black
has developed a concept of ‘decentred regulation’. Essentially, this approach removes the State
from the centre of the discussion of regulation. Instead, the State is just one of a number of
institutions and bodies that ‘regulates’ ie exerts influence to achieve particular outcomes. In this
context, Black defines regulation as:
the sustained and focused attempt to alter the behaviour of others according to defined standards or
purposes with the intention of producing a broadly identified outcome or outcomes, which may involve
mechanisms of standard-setting, information-gathering and behaviour-modification.127
She herself favours this ‘essentialist’ definition as it
delimits ‘regulation’ as an intentional, systematic attempt at problem-solving, so marking it out as a
specific site of social activity and thus of investigation…. Regulation is an activity that extends beyond
the state, thus regulation may on the basis of such a conceptualisation embrace a variety of forms of
relationship between state, law and society. It thus enables the identification, creation and analysis of
regulatory arrangements that involve complex interactions between state and non-state actors, and
enables each to be identified as both regulators and regulatees128
This ‘essentialist’ definition of regulation, and Black’s comments on it, are particularly apt in the
context of the framework of treaties discussed below.
Framework of Treaties
The Pacific Island States are parties to a number of treaties which, when considered together are
directed at assisting these States to integrate at a regional and at an international level. The main
treaties are the Cotonou Agreement and its attendant Economic Partnership Agreements (EPAs) between
the European Union and the Pacific Island States.129 The other treaties are the Pacific Island Countries
Trade Agreement (PICTA) and the Pacific Agreement on Closer Economic Relations (PACER). In one
sense, the Cotonou Agreement in 2000 was the catalyst for the Pacific Island Countries Trade
Agreement (PICTA), concluded in Nauru on 18 August, 2001130; and the Pacific Agreement on Closer
Economic Relations (PACER), also concluded on 18 August, 2001 in Nauru131. In addition to these
treaties, in 2005 the Pacific Island States, together with Australia and New Zealand, endorsed a
strategic arrangement called the Pacific Plan. This Plan is ‘a living document’ that ‘ensures flexibility
[and] provides a mechanism as a ‘springboard’ for discussing and shaping the region’s longer-term
future in an open and inclusive manner.’132 As noted above, the aim of the Pacific Plan is to
‘enhance and stimulate economic growth, sustainable development, good governance and security
125
Bronwen and Yeung Morgan, Karen, An Introduction to Law and Regulation: Text and Materials
(2006), xiii.
126
Anthony Ogus, Regulation: Legal Form and Economic Theory (2004), 1.
127
Julia Black, 'Critical Reflections on Regulation' (2002) 27 Australian Journal of Legal Philosophy 10 26.
128
Ibid., 26
129
African and Caribbean States that, together with these Pacific States make up the ACP States are also signatories
to the Cotonou Agreement. However, the EPAs are between the countries in these regional groupings and the EU. In
other words, The African and Caribbean States are not parties to the EPAs between the EU and the Pacific Island
States and vice versa.
130
To which Australia and New Zealand are not parties.
131
To which Australia and New Zealand are parties.
132
Pacific Island Forum Secretariat, Pacific Plan: for strengthening regional cooperation and integration October,
2006, para.25, p.10
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for Pacific countries through regionalism.133 This coincides largely with the aims of the Cotonou
Agreement, aims that are to be given effect through the EPAs.
The Cotonou Agreement
Consistent with its predecessors, this agreement is an ‘aid and development’ agreement. Article 1
sets out the objectives of the partnership: the alleviation and eradication of poverty ‘consistent
with the objectives of sustainable development and the gradual integration of the ACP countries
into the world economy.’134 What is novel, if not unique about this agreement is that it defines the
‘actors of cooperation’ as including non-state actors: the private sector; economic and social
partners, including trade union organisations; and Civil Society in all its forms according to national
characteristics.135
The Cotonou Agreement has been described as resting on five pillars.136 These pillars are: a
political dimension; the promotion of participatory approaches; development strategies and priority
for poverty reduction; the establishment of a new framework for economic and trade cooperation;
and reform of financial cooperation. One significant aspect of the Cotonou Agreement is the
explicit acknowledgement of the role of the private sector and of civil society in developing and
integrating these states regionally and internationally. In article 10(2) of Cotonou, the parties
‘recognise that the principles of the market economy, supported by transparent competition rules
and sound economic and social policies, contribute to achieving the objectives of the partnership.’
In setting out the development strategies, the agreement refers to the aim of ‘developing the
private sector’ (art.20)(1)(a)).
At a meeting of the Pacific ACP ministers and the EC Commissioners for Trade and for
Development held in Brussels on 2 October, 2007, it was agreed that it would not be possible to
conclude the complete EPAs by the end of 2007. As a result, the meeting agreed to conclude an
interim agreement which would enter into force on 1 January, 2008 while continuing to negotiate
the EPAs. It is intended that the latter agreements will be concluded by the end of 2008. The
interim agreement was initialled on 23 November, 2007 between the EU and Papua New Guinea
and Fiji. Whether or not other Pacific Island States will sign this agreement remains to be seen.
So, if we were to look again at Professor Black’s definition of ‘decentred regulation’, we could say
that there is an attempt, through the provisions of the Cotonou Agreement, to alter the behaviour
of others, the ‘defined standards’ perhaps being those of a market economy and a liberal
democracy and the outcome, that of economic integration at a regional and an international level.
The regulatory arrangements that flow from this are in part, captured in the interim agreement
concluded between the EU and Fiji and Papua New Guinea in the first instance, in November,
2007; and the continuing negotiation of the complete EPAs. Similarly, the Private Sector Strategy
document sets out a strategy of regulation that impacts not only on private actors but on the public
sector as well.
133
Pacific Island Forum Secretariat, Pacific Plan: for strengthening regional cooperation and integration October,
2006, para.2, p.4
134
These objectives are echoed in the PACER agreement (see article 2 of that agreement); and in the Pacific Plan
(see paragraph 4, p.2 of that document). Underpinning all these instruments is the requirement that measures be
WTO-compatible.
135
See Partnership Agreement between the members of the African, Caribbean and Pacific Group of States (ACP)
of the one part, and the European Community and its Member States of the other part, signed in Cotonou on 23 June,
2000, art.6
136
Cotonou Agreement at:<< http://www.europa.eu.int/scadplus/leg/en/lvb/r12101.htm>> accessed, 20 May, 2004;
Olufemi Babarinde and Gerrit Faber, The European Union and the Developing Countries: The Cotonou Agreement.
Martinus Nijhoff Publishers, Leiden, 2005, p.29
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The PACER Agreement
In 2001, Australia and New Zealand concluded the Pacific Agreement on Closer Economic Relations
(PACER) with the Pacific Island States (not including Timor L’Este). This treaty came into force
on 3 October, 2002. According to art.6(3)(a) of that agreement, if a Pacific Island State ‘enters into
formal negotiations for free trade arrangements which would include one or more developed, nonForum country [the European Union, for example] then that Forum Island Country shall offer to
undertake consultations as soon as practicable with Australia and New Zealand, whether
individually or jointly, with a view to the commencement of negotiation of free trade
arrangements’. This obligation has now been triggered for Fiji and Papua New Guinea by the
conclusion of the interim agreement with the EU.
At the same time in 2001, the Pacific Island States concluded an agreement intended to establish a
free trade area among them and, among other things, intended to ‘further the development and use
of the resources of the Pacific region with a view to the eventual creation of a single regional
market among the Pacific Island economies in accordance with the respective social and economic
objectives of the Parties, including the advancement of indigenous peoples.’137
Clearly, this area is a rich, scholarly lode to mine. It is an area that has been rather
neglected by legal scholars. There is much that they can contribute to the existing
scholarship engaged in by other disciplines.
137
Pacific Islands Trade Agreement, (PICTA), art.2(e). available at: <<
http://www.forumsec.org/_resources/article/files/PICTA%20-%20endorse%20&%20sign(18-8-01).pdf>> accessed,
2 March, 2008. Neither Australia nor New Zealand is a party to PICTA.
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The Monetary System From Historical Perspectives
(A special reference to the Kingdom of Mamlūk From the
Period (872-922A.H./1468 -1517A.D. that utilises Islamic
monetary system)138
By:
DR WAN KAMAL MUJANI
Senior Lecturer, Dept of Arabic Studies & Islamic Civilisation,
Faculty of Islamic Studies, National University of Malaysia, UKM
ABSTRACT
The purpose of this article is to discuss the situation of the monetary system and the factors which affected
its stability during the fifty years before the fall of the Mamlūk kingdom in 922A.H./1517A.D. The
discussions are based on textual sources, numismatic evidence and modern analysis. In order to explore the
issue comprehensively, the article begins with discussing the monetary situation before
872A.H./1468A.D. This is followed by an account of the situation of the monetary system during the
period under review and finally, an analysis of the factors that affected the monetary system. The article
reveals that the monetary systems during the period under consideration were frequently in an unstable
situation. Numismatic evidence attests to the fact that the rulers reduced the weight of coins and their
fineness and manipulated the exchange rates. One of the main reasons for this was the increasing financial
needs of the government which had to cover various expenses including some for their own personal benefits.
Another reason which affected the monetary system during that time was the adulteration of the coinage.
INTRODUCTION
In Islamic history the word ‘Mamlūk’ means a slave, more specifically a white slave, used
in the military establishment. In the Ayyūbid kingdom, the Mamlūks served as the armies
and later took the throne and appointed themselves as the sultans. For more than two
hundred and fifty years they ruled Egypt, Syria, Jordan and Palestine. The era of Mamlūk
rule can be divided into two periods. The first is from 648A.H./1250A.D. until
783A.H/1381A.D. and is known as the ‘Turkish Mamlūk’ period. The second period
covers from 784A.H./1382A.D. to 922A.H./1517A.D. and is known as the ‘Circassian
138
The author wishes to thank the British Society for Middle Eastern Studies (BRISMES) for the Research Award in
2003 which enabled him to obtain a number of necessary materials for his Ph.D. research on which this article is
based. The author would also like to thank Dr. Ron P. Buckley at the School of Languages, Linguistics and Cultures,
The University of Manchester for his valuable comments on this manuscript.
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Mamlūk’ period. It is widely accepted among historians that the Mamlūk kingdom reached
its zenith under the Turkish sultans and then fell into a prolonged phase of deterioration
under the Circassians. The Circassian Mamlūks experienced a critical economic period
before their downfall. Internal and external problems have been identified which caused
the economic difficulties. The instability of the monetary system was one of the internal
factors which affected Mamlūk economy.
THE MONETARY SYSTEM IN THE MAMLŪK KINGDOM
BEFORE 872A.H./1468A.D.
The Mamlūk sultans maintained the traditional Islamic coinage and their currency
consisted of dīnārs (gold coins), dirhams (silver coins) and fulūs (plural of fals) (copper
coins). Thus, they continued the currency of their predecessors, the Ayyūbids, taking pride
in their relationship with that famous dynasty (al-Maqrīzī 1967: 30-31). The numismatic
evidence confirms al-Maqrīzī’s statement that the coins of the first Mamlūk sultans
resembled those of the last Ayyūbid. The dīnārs of Shajar al-Durr, al-Mu‘izz Aybak, alMansūr ‘Alī and al-Muzaffar Qutuz were struck and engraved in the same style as those of
Sālih Ayyūb (Balog 1964: 12). The Mamlūk rulers minted these coins at the two
establishments of the Dār al-Darb, one of which was in Cairo and the other in Alexandria.
The mint in Cairo, however, was the most important in the realm (al-Maqrīzī 1972, 4: 305;
Schultz 1999: 184).
i) The Dīnār
The dīnār was a gold coin and the standard unit of the monetary system. Its legal weight
was a mithqāl i.e. about 4.25 grams (al-Zahrānī 1993: 16; Tarawnih 1994: 137).139 The
Mamlūk dīnār, however, was produced in different weights and it was used as a money of
account (Rabie 1972: 184). One dīnār was usually worth about twenty to twenty-eight
dirhams (al-Qalqashandī 1987, 3: 509; Ziadeh 1970: 143).
Among the dīnārs that circulated before the period under review were:
a) The sālimī dīnār. This gold coin was issued by Amīr Yalbughā al-Sālimī (d. 811A.H.
/1408A.D.), a majordomo of the Sultan al-Nāsir Faraj, on 20 Jumādā al-Ūlā 803A.H/6
January 1401A.D., during the latter’s absence in Damascus. It was minted in Cairo and
weighed a full mithqāl i.e. 4.25 grams (al-Maqrīzī 1972, 3: 1041; Broome 1985: 130). In
addition, a quarter, a half, a one-and-a-half, and a two and a three mithqāl coins were
produced (Balog 1964: 46). The sālimī dīnārs were not circulated for long, being withdrawn
from circulation in 813A.H./1411A.D. (Shoshan 1978: 129).
139
It is well-known that the first truly Islamic coinage, established after the reforms of the Umayyad caliph ‘Abd alMalik b. al-Marwān (in 77A.H./696A.D.) were the dīnār which weighed a mithqāl (4.25 grams) and the dirham
which weighed the equivalent of 2.97 grams. See Schultz, “Mamlūk Metrology and the Numismatic Evidence,” p.
59.
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b) The nāsirī dīnār. This was of two types. The first was coined by Sultan al-Nāsir Faraj in
808A.H./1405-1406A.D. and weighed about 3.55 grams (al-Sayrafī 1971, 2: 276-277;
Popper 1957: 48). It was the first Egyptian dīnār weighing less than the traditional standard
dīnār (al-Qalqashandī 1987, 3: 508). The second, a sequin-type gold coin, was issued in
810A.H./1407A.D. and weighed only 3.40 grams (Balog 1964: 13).
c) The ashrafī dīnār. This coin was introduced by Sultan al-Ashraf Barsbāy on 16 Safar
829A.H./28 December 1425A.D. and weighed about 3.45 grams. It was made of the finest
gold and continued in circulation throughout the century as the preferred gold coin in
trade (Ibn Tūlūn 1973: 32; Ashtor 1976: 323). Indeed, it was able to drive out the ducat
(Shoshan 1978: 129-130).
d) The zāhirī dīnār. This dīnār was struck by Sultan al-Zāhir Jaqmaq (842-857A.H./14381453A.D.). Its weight was similar to that of the ashrafī dīnār (Popper 1957: 50).
e) The mansūrī dīnār was coined during the reign of Sultan al-Mansūr Uthmān in Safar
857A.H./February-March 1453A.D. and weighed only 3.186 grams (al-Nabarāwī 1993: 8687).
Besides the above dīnārs which were issued by the Mamlūk rulers, there were also foreign
gold coins circulating in Egypt. The ifrantī is the ordinary Arabic word for the foreign gold
coins current in Egypt at the time, including both the ducat and the florin.140 These gold
coins weighed about 3.5 grams (Shoshan 1978: 127). The ifrantī, especially the ducat,
dominated Egyptian markets from the end of the eighth/fourteenth century. al-Maqrīzī
(1972, 4: 305) in his al-Sulūk under the year 818A.H./1415A.D., states that the European
coins had been circulating since 790A.H./1388A.D.. The ifrantī became the most preferred
coin in transactions in many cities and regions of the world, such as Cairo, Fustāt, Syria,
Asia Minor, the East, the Hijāz and Yemen. For the next twenty-five years, literary
references to European coins are frequent (Bacharach 1994: 95-96). A large quantity of
ifrantīs spread to Egypt when the European merchants brought their coins during their
trade with the Mamlūks. One ifrantī was worth seventeen dirhams (al-Qalqashandī 1987, 3:
509; Shoshan 1978: 126-127).
Some of the Mamlūk rulers tried to counteract the domination of the ifrantī by issuing
dīnārs with various weights (al-Sayrafī 1971, 2: 276-277). Thus, the sālimī dīnār was struck in
803A.H./1401A.D. and had a standard weight of a mithqāl, but failed to displace the ifrantī.
The nāsirī dīnār also failed to meet the challenge (Bacharach 1973: 85-90). Eventually, the
ashrafī dīnār which was issued by Sultan al-Ashraf Barsbāy and contained the finest gold
140
al-Qalqashandī says that this gold coin had one face with the picture of the king in whose time the coin was struck
and the picture of two men on the opposite side. See al-Qalqashandī, Subh al-A‘shā, 3: 508.
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was successful in replacing the ifrantī. From that time, the ifrantī almost disappeared from
Mamlūk chronicles.141
The Mamlūk historians say that the failure of the dīnār (before the issue of ashrafī dīnārs) to
meet the challenge of the ifrantī was due to the gold coins being under weight (al-Maqrīzī
1972, 4: 165; al-Qalqashandī 1987, 3: 508-509). The well-known numismatist Jere L.
Bacharach (1994: 100) says that the domination of the ifrantī was due to its high quality and
distinct shape, this giving it a good reputation among merchants, shopkeepers and money
exchangers. It was also available in large quantities and was in circulation for a number of
years. At the same time, the people and merchants also lost confidence in the
government’s coinage and the overvalued foreign currencies.
The ashrafī dīnār was successful in facing the challenge of the ifrantī because the
government had enough financial resources and absolute political power to force the
money markets to reverse an existing relationship between currencies. Sultan Barsbāy was
able to flood the markets with large numbers of ashrafī dīnārs because he had enough gold
to issue them (Bacharach 1994: 100). Eventually, however, there is a report that the weight
of the ifrantī decreased from 3.5 grams to about 3.30 grams during the ninth/fifteenth
century when it ceased to be the dominant currency (Shoshan 1978: 135-136).
ii) The Dirham 142
The standard Mamlūk dirham weighed about 2.975 grams i.e. seventy per cent of a mithqāl
of 4.25 grams (Popper 1957: 51). It was originally composed of two thirds silver and one
third copper. This was a continuation of the Ayyūbid practice (al-Maqrīzī 1967: 60-61).
There were many silver coins produced before 872A.H./1468A.D., but these individual
dirhams were issued in different weights (Balog 1961: 140).
The dirhams in circulation before the period under review include:
a) The zāhirī dirham was issued by Sultan al-Zāhir Barqūq in 789A.H./1387A.D., and was of
the earlier standard type (al-Nabarāwī 1993: 15; Broome 1985: 128).
b) The nawrūzī dirham was struck by Amīr Nawrūz in Damascus in 815A.H./1412A.D. (StEli 1939: 62). It weighed 1.48 grams i.e. one-half the weight of the old standard dirham
(Bacharach 1971: 323).
c) The mu’ayyadī dirham was coined by Mu’ayyad Shaykh in Shawwāl 817AH./December
1414A.D. It was introduced into circulation on 24 Safar, 818A.H./5 May 1415A.D. (al141
The present writer disagrees with the statement of Hasanayn Rabie that the ashrafī dīnār failed to displace the
Italian gold coin. Indeed, many scholars and numismatics such as Boaz Shoshan and Jere L. Bacharach conclude that
the ashrafī dīnār was a success in replacing the ducat for the reasons given. At the same time, the limited reports in
the Mamlūk chronicles about the circulation of ducats after the issue of the ashrafī dīnār show that this foreign coin
was not as well known as before. See Rabie, The Financial System of Egypt, pp. 194-195.
142
The dirham was a silver coin and its legal weight was 2.97 grams. See Qāsim, ‘Asr Salātīn al-Mamālīk, p. 80.
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Maqrīzī 1967: 63). It weighed 2.6 grams and its silver content was ninety to ninety-five per
cent (Balog 1961: 145). Besides the full mu’ayyadī dirham, Sultan Mu’ayyad Shaykh also
struck halves (1.3 grams) and quarters (0.64 grams) (Balog 1964: 47).
d) The ashrafī dirham, coined by Sultan Barsbāy in Rabī‘ al-Awwal 835A.H./NovemberDecember 1403A.D. weighed 2.47 grams. It was 94.5 per cent silver and was intended to
replace the then current foreign silver coins. In general, the silver content of Barsbāy’s
coins was high. During his reign the dīnār was worth 28 1/2 dirhams (Popper 1957: 58;
Balog 1961: 133).
e) The zāhirī dirham was issued by Sultan al-Zāhir Jaqmaq in Dhū al-Hijja 843A.H./May
1440A.D. It was 94.5 per cent silver. Half and quarter zāhirī dirhams were also issued (alMaqrīzī 1972, 4: 1190; Shoshan 1978: 147).
f) The īnālī dirhams were produced in two different issues during the reign of Sultan Īnāl
between 857A.H./1453A.D. and 865A.H./1461A.D. The first was struck in Aleppo and
Damascus, and also circulated in Egypt. This dirham contained only one half of silver or
less. The second issue, which was chiefly of half dirhams and some quarter dirhams,
contained ninety-six per cent good silver (Balog 1964: 48; Popper 1957: 59).
In addition to the above dirhams which were introduced by the Mamlūk rulers, there was a
foreign silver coin that circulated in Egypt, i.e. the Venetian dirham or bunduqī. This had a
high silver content and weighed between 1.85 and 2.00 grams (al-Maqrīzī 1967: 82;
Bacharach 1971: 272-274).
iii) The Fals
The fals was a copper coin and its standard weight was a mithqāl i.e. 4.25 grams (Tarawnih
1994: 138). This currency was coined for use in small commercial transactions. Its
purchasing power was very limited and exclusively served the needs of daily life. The fals
circulated generally by weight (al-Maqrīzī 1957: 66-67; Popper 1957: 67).
The copper coins during the Turkish Mamlūk period remained similar to those of the
Ayyūbids. Initially, the engraving was of high quality and the minting was well done. After
a certain period, however, the quality of the copper coins decreased, especially towards the
end of the Turkish Mamlūk period. These later fals coins were issued in large numbers and
were very poorly manufactured. Their weight became completely inconsistent (Balog 1964:
42). During the Turkish Mamlūk period also, the sultans flooded the markets with new
copper coinage and manipulated its exchange rates. In the early ninth/fifteenth century, the
weight of the fals ranged between only 1.50 and 3.00 grams (Shoshan 1978: 160).
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THE MONETARY SITUATION (872-922A.H./1468 –1517A.D.)
There was a decrease in the fineness of coins at each successive striking. Neutron
activation analysis indicates that the debasement began during Sultan Qāytbāy’s reign and
this is supported by textual sources and numismatic evidence.143 During this period, the
rulers still issued gold, silver and copper coins but they did not necessarily follow a minting
policy in regard to weight. The usual procedure of the government was to try to keep the
weight and value relatively constant and to decrease the degree of fineness (Bacharach
1971: 267 and 279).
This and other problems with the Mamlūk monetary system naturally had an adverse
effect on the economy. This was understood by contemporary historians who blame the
monetary policy of the rulers for the frequent disorder of the country and for its
bankruptcy (Allouche 1994: 3). al-Maqrīzī (1957: 41), for example, considers the monetary
policy of the Circassians to be one of the factors in the economic difficulties of his time
and remarks that Egypt’s chaotic condition was the result of the widespread circulation of
copper fulūs (Darrāj 1968: 109). al-Sayrafī (1970: 143), Ibn Iyās (1963, 3: 237, 4: 20) and
Ibn Tūlūn (1962, 1: 63) also refer to the disorderly monetary system during the period
under consideration as a cause of hardship for the populace and as affecting the economy.
A modern scholar is of the opinion that the policy of the Mamlūk sultans to manipulate
the weight of the coinage, its purity and exchange rates for their own interests caused the
economic difficulties (‘Atā’ n.d.: 240-242; Qāsim 1994: 79). Indeed, the monetary system
during the period under review can be described as ‘frequent disorder’.
i) The Dīnār
As was the case with other coins, there was a debasement of dīnārs during the period under
review (Ibn Iyās 1963, 3: 121). Thus, during the reign of Sultan Qāytbāy, the weight of
dīnārs was less than 3.40 grams, but this declined even more to 3.20 grams at the end of
the Mamlūk sultanate. The percentage of gold in the dīnār also dropped to below ninetyfive per cent (Bacharach 1973: 89). The value of gold was determined by the silver dirham,
a currency which gradually lost some of its purchasing power. As a consequence, the rate
of exchange for gold rose (Balog 1964: 41).
ii) The Dirham
The information on the dirham coins during the period under review is as limited as that on
the dīnār. In this period, the weight and purity of the silver coins decreased from the
previous standard (Ibn Iyās 1963, 3: 121). The many endeavours to encourage the
circulation of dirhams according to their face value failed and therefore the dirhams
continued to circulate by weight only (Ibn Khalīl Ms. Hunt. 610: f.274a). For example, in
Ramadān 881A.H./December 1476-January 1477A.D., the silver coinage had become very
light and could only be traded by weight because of the continual filing and cutting around
the edges of the coins (Ibn Iyās 1963, 3: 121). During the reign of al-Nāsir Muhammad b.
Qāytbāy the weight of the dirham decreased from 1.50 to 1.42 grams, while during the reign
143
For further information about neutron activation analysis see Bacharach & Gordus, “Studies on the Fineness of
Silver Coins,” pp. 299-317.
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of Sultan al-Ghawrī the weight was further reduced to 1.20 grams (Tarawnih 1994: 142;
Bacharach 1971: 278). This occurred because of the poor administration of the
government.
iii) The Fals
The history of late Mamlūk copper currency can be described as a succession of
recoinages. A large number of fulūs were struck in Egypt, but the value of these copper
coins was low because of their debasement and adulteration (zaghal) (al-Sakhāwī n.d.: 77;
Meloy 2001: 317; Bacharach 1976: 43). Moreover, the weight of the individual copper
coins was not based on a specific standard. Sometimes the weight of the whole fals was
very low at 2.10 grams or even less. The decrease in the weight of copper coins caused this
currency to be used by weight rather than by number (Balog 1962: 243; Bacharach 1976:
44-45).
Contemporary historians frequently mention the lightness of copper coins, their reduced
purity and their devaluation. Examples of this can be seen in Rabī‘ al-Awwal
874A.H./September-October 1469A.D., Dhū al-Hijja 879A.H./April-May 1475A.D.,
Ramadān 886A.H./October-November 1481A.D. and Dhū al-Hijja 903A.H./July-August
1498A.D. (al-Sayrafī 1970: 143; Ibn Iyās 1963, 3: 105-106).
During the reign of Sultan al-Ghawrī, Ibn Iyās reports on the frequency of the striking of
new copper coins such as in Safar 907A.H./August-September 1501A.D., Rajab
907A.H./January-February 1502A.D., Dhū al-Qa‘da 907A.H./May-June 1502A.D., Dhū alHijja 917A.H./February-March 1512A.D. and Dhū al-Hijja 918A.H./February-March
1513A.D. (Ibn Iyās 1963, 4: 20-29 and 295).
THE CONSEQUENCES OF THE PROBLEMS OF THE MONETARY
SYSTEM
FOR THE ECONOMY
Documentation on the economic implications of the problems of the monetary system is
very limited, and the primary sources do not provide information beyond stating, for
example, that “this caused difficulties among the populace” (al-Sayrafī 1970: 143; Ibn Iyās
1963, 3: 121 and 189; Ibn Tūlūn 1962, 1: 63). Contemporary historians similarly provide
no information about the effect of the debasement of coinage on imports and exports and
government taxation. Probably as a result of this lack of information, modern works are
more focused on metrology and numismatic aspects and there is no extensive research
discussing the economic consequences. There can be little doubt, however, that problems
with the monetary system had a pronounced effect on the economy. Indeed,
contemporary historians mention that the markets were frequently inactive in buying and
selling because of the new coins. There were also riots and protests from the populace on
the minting of ‘new currency’, and merchants and shopkeepers often closed their stores
and shops to avoid losses. These situations in turn inevitably disrupted the smooth
running of the economy (Ibn Iyās 1963, 3: 121 and 189, 4: 20-24).
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FACTORS WHICH AFFECTED THE MONETARY SYSTEM
Some of the major factors that affected the monetary system will now be described.
1) The Increasing Financial Needs of the Government
One of the reasons which caused problems with the monetary system during the Mamlūk
period was the government’s increasing financial needs. During the period under review,
the government needed extra funds to cover the costs of military campaigns, the nafaqa
(payment) of the armies, the demand for new Mamlūks, and the increasing scale of
pensions paid to the unemployed, out-of-service and retired Mamlūk officers and soldiers.
At the same time, the government had to cover the cost of the extravagant tastes and
requirements of the imperial court and the households of great amīrs (Ayalon 1958: 56 and
287-289; Petry 1981: 26).
The revenues from the agricultural, industrial and commercial sectors were not sufficient
to cover all state expenses (Ibn Iyās 1963, 4: 359). This caused the Mamlūk sultans to
manipulate the currency in order to achieve fiscal advantage in the short term. Thus they
found it necessary to lower the weight of the individual coins as well as to debase them.
Meanwhile, the sultans saw that setting of official exchange rates could bring them an
immediate profit on the difference between the old rates and the new ones by calculating
salaries in a coin with a low exchange rate and then paying with a coin which had a higher
exchange rate. This policy demanded constant interference in the market (Bacharach 1973:
82-90).
2) The Adulteration of the Coinage
The practice of adulterating coins with low value material was another factor that affected
the monetary system during the Circassian Mamlūk period. At the same time, the
reduction of the weight of individual coins was also quite common (al-Zahrānī 1993: 3337). An example of the adulteration of individual coins and the decrease in their weight or
fineness that caused difficulties to the populace and affected economic activities can be
seen during the reigns of Sultan al-Zāhir Barqūq (784-791A.H./1382-1389A.D.),144 Sultan
al-Nāsir Faraj (801-815A.H./1399-1412A.D.)145 and Sultan Mu’yyad Shaykh (815824A.H./1412-1421A.D.).146
144
The decrease of the weight of copper coins as well as their fineness interrupted the commercial activities in
markets during his reign. See al-Maqrīzī, Shudhūr al-‘Uqūd, p. 61; al-Zahrānī, Zayf al-Nuqūd al-Islāmiyya, pp. 3337.
145
During his rule, the weight of fals as well as its quality became low. This was because it was struck illegally
outside the Dār al-Darb (the Mint). See al-Maqrīzī, al-Sulūk, 4: 165.
146
The fals during his reign contained a high percentage of inferior metals (iron and lead) and very little copper. See
al-Zahrānī, Zayf al-Nuqūd al-Islāmiyya, pp. 33-37.
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During the period under consideration, the master of silver coins in the Damascus mint
was imprisoned in Cairo in 877A.H./1472A.D. because he had been accused of mixing a
0.05 dirham weight of other metals with each silver dirham (al-Sayrafī 1970: 477). In
889A.H./1484A.D., a high ranking officer called Mithqāl al-Tawāshī was exiled to Mecca
because he had set up a private mint at his home and produced debased dirhams. A little
later in 901A.H./1496A.D., a group of eight men who forged adulterated coinage were
apprehended, the authorities cutting off their hands as punishment (Ibn Iyās 1963, 3:
211,318). In 912A.H./1507A.D., the viceroy of Damascus, Sībāy, arrested Ibn al-Dimashqī,
the chief of the counterfeiters (ra’s al-zaghliyya) together with other counterfeiters because
debasement had been on the increase in Damascus at that time (Ibn Tūlūn 1962, 1: 312).
The main factor behind the financial problems in the Mamlūk kingdom was that the
Mamlūks did not have a standard coin in circulation. This loosely organised monetary
system seems to have been responsible for an increased adulteration of the coinage
(Tarawnih 1994: 138-140). Every sultan struck his own coins of a different weight and
with a different degree of purity. They tried to achieve fiscal advantages on every issue of
coins by reducing their weight or fineness or manipulating the exchange rate. al-Sayrafī
(1970: 143), who showed his dissatisfaction with the monetary system during his days,
describes the dishonest officials who worked at the mint as “devils” (shayātīn). At the same
time, the Mamlūk sultans were sometimes unable to control the illegal coins struck by
forgers, and the circulation of these adulterated coins disturbed economic activities in
Egypt (al-Zahrānī 1993: 38).
CONCLUSION
The last fifty years of the Mamlūk sultanate witnessed to the instability of the monetary
system in Egypt. Numismatic evidence attests to the fact that the rulers reduced the weight
of coins and their fineness and manipulated the exchange rates. One of the main reasons
for this was the increasing financial needs of the government which had to cover various
expenses including some for their own personal benefits. This manipulation of the
monetary system understandably caused difficulties for the merchants and shopkeepers
and therefore affected economic activities. The markets were often inactive in buying and
selling because of the new coins. There were also riots and protests from the populace
against the re-minting of ‘new currency’.
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REFERENCES
Allouche, Adel. 1994. Mamlūk Economics – A Study and Translation of al-Maqrīzī’s Ighāthah.
Salt Lake City: University of Utah Press.
Ashtor, Eliyahu. 1976. A Social and Economic History of the Near East in the Middle Ages.
London: William Collins Sons & Co. Ltd.
‘Atā’, ‘Uthmān ‘Alī Muhammad. N.d. al-Azamāt al-Iqtisādiyya fī Misr fī al-‘Asr al-Mamlūkī wa
Atharuhā al-Siyāsī wa al-Iqtisādī wa al-Ijtimā‘i 648-923H./1250-1517’. N.p.: al-Hay’a alMisriyya al-‘Amma lil Kitāb.
Ayalon, David. 1958. The System of Payment in Mamlūk Military Society. Journal of
Economic and Social History of the Orient. 1: 37-65 and 257-296.
Bacharach, Jere L. 1994. The Ducat in Fourteenth Century Egypt. Itineraires d’Orient:
Hommages a Claude Cahen. Edited by Raoul Curiel & Rika Gyselen. Bures-surYvette: Groupe pour l’Etude de la Civilisation du-Moyen-Orient. Pp. 95-102.
1973. The Dīnār Versus the Ducat. International Journal of Middle Eastern Studies. 4: 77-96.
1971. Circassian Monetary Policy: Silver. The Numismatic Chronicle. 11: 267-281.
1976. Circassian Monetary Policy: Copper. Journal of the Economic and Social History of the
Orient. 19: 32-47.
Bacharach, Jere L. & Gordus, Adon A. 1968. Studies on the Fineness of Silver Coins.
Journal of the Economic and Social History of the Orient. 11: 299-317.
Balog, Paul. 1964. The Coinage of the Mamlūk Sultans of Egypt and Syria. New York: The
American Numismatic Society.
1961. History of the Dirhem in Egypt from the Fātimid Conquest until the Collapse of the
Mamlūk Empire, 358-922 H./968-1517 A.D. Revue Numismatique. 3: 109-146.
1962. I. A Hoard of Late Mamlūk Copper Coins, and II. Observations on the Metrology
of the Mamlūk Fals. Numismatic Chronicle. 2: 243-273.
Broome, Michael. 1985. A Handbook of Islamic Coins. Great Britain: Butler & Tanner Ltd.
Darrāj, Ahmad. 1968. al-Hisba wa Atharuhā ‘alā al-Hayāh al-Iqtisādiyya fī Misr alMamlūkiyya. al-Majalla al-Tārīkhiyya al-Misriyya. 14: 109-141.
Ibn Iyās al-Hanafī, Muhammad b. Ahmad. 1960-1975. Badā‘i al-Zuhūr fī Waqā‘i al-Duhūr. 5
vols. Edited by Muhammad Mustafā. al-Qāhira: Dār Ihyā’ al-Kutub al-‘Arabiyya.
Ibn Khalīl b. Shāhīn al-Malatī, ‘Abd al-Bāsit. Nayl al-Amal fī Dhayl al-Duwal. (Ms.
Huntington 610). Oxford: The Bodleian Library.
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Ibn Tūlūn, Shams al-Dīn Muhammad. 1962. Mufākahat al-Khillān fī Hawādith al-Zamān
(Tārīkh Misr wa al-Shām). Pt. 1. Edited by Muhammad Mustafā. Egypt: Dār Ihyā’ alKutub al-‘Arabiyya.
1973. I‘lām al-Warā bi Man Waliya Nā’iban min al-Atrāk bi Dimashq al-Shām al-Kubrā aw
Tārīkh al-Shām min Qiyām Dawlat al-Mamālīk fī Misr ilā Sadr al-‘Ahd al-‘Uthmānī.
Edited by ‘Abd al-‘Azīm Hāmid Khattāb. al-Qāhira: Matba‘at Jāmi‘at ‘Ayn Shams.
al-Maqrīzī, Taqī al-Dīn Ahmad b. ‘Alī b. ‘Abd al-Qādir. 1967. al-Nuqūd al-Islāmiyya alMusammā bi Shudhūr al-‘Uqūd fī Dhikr al-Nuqūd. Edited by Muhammad al-Sayyid
‘Alī. Najaf: al-Maktaba al-Haydariyya.
1942-1973. Kitāb al-Sulūk li Ma‘rifat Duwal al-Mulūk. 4 vols. Edited by Muhammad Mustafā
Ziyāda & Sa‘īd ‘Abd al-Fattāh ‘Āshūr. al-Qāhira: Matba‘at Lujnat al-Ta’līf wa alTarjama wa al-Nashr.
1957. Kitāb Ighātha al-Umma bi Kashf al-Ghumma. Edited by Muhammmad Mustafā Ziyāda &
Jamāl al-Dīn al-Shayyāl. al-Qāhira: Matba‘at Lajnat al-Ta’līf wa al-Tarjama wa alNashr.
Meloy, John L. 2001. Copper Money in Late Mamlūk Cairo: Chaos or Control. Journal of the
Economic and Social History of the Orient. 44(3): 293-321.
al-Nabarāwī, Ra’fat Muhammad. 1993. al-Sikka al-Islāmiyya fī Misr ‘Asr Dawlat al-Mamālīk
al-Jarākisa. Giza: Markaz al-Hadāra al-‘Arabiyya lil I‘lām wa al-Nashr.
Petry, Carl F. 1981. The Civilian Elite of Cairo in the Later Middle Ages. Princeton: Princeton
University Press.
Popper, William. 1957. Egypt and Syria Under the Circassian Sultans 1383-1468 A.D. –
Systematic Notes to Ibn Taghrī Birdī’s Chronicles of Egypt. Berkeley: University of
California Press.
al-Qalqashandī, Ahmad b. ‘Alī. 1987. Subh al-A‘shā fī Sinā‘at al-Inshā. Vol. 3. Edited by
Muhammad Husayn Shams al-Dīn. Beirut: Dār al-Kutub al-‘Ilmiyya.
Qāsim, Qāsim ‘Abduh. 1994. ‘Asr Salātīn al-Mamālīk. al-Qāhira: Dār al-Shurūq.
Rabie, Hassanein. 1972. The Financial System of Egypt, A.H. 564-741/A.D. 1169-1341.
London: Oxford University Press.
al-Sayrafī, al-Khatīb al-Jawharī ‘Alī b. Dāwud. 1971. Nuzhat al-Nufūs wa al-Abdān fī
Tawārīkh al-Zamān. Vol. 2. Edited by Hasan Habashī. N.p.: Matba‘at Dār al-Kutub.
1970. Inbā’ al-Hasr bi Abnā’ al-‘Asr. Edited by Hasan Habashī. al-Qāhira: Matba‘at alMadanī.
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Schultz, Warren C. 1999. Mamlūk Monetary History: A Review Essay. Mamlūk Studies
Review. 3: 183-205.
2003. Mamlūk Metrology and the Numismatic Evidence. Al-Masāq – Islam and the Medieval
Mediterranean. 15: 59-75.
1998. The Monetary History of Egypt, 642-1517. The Cambridge History of Egypt – Islamic
Egypt, 640-1517. Vol. 1. Edited by Carl F. Petry. Cambridge: Cambridge University
Press. Pp. 318-338.
Shoshan, Boaz. 1978. Money, Prices and Population in Mamlūk Egypt, 1382-1517. Unpublished
Ph.D. Princeton University.
Al-Sakhāwī, Shams al-Dīn Muhammad b. ‘Abd al-Rahmān. N.d. al-Tibr al-Masbūq fī Dhayl
al-Sulūk. al-Qāhira: Maktabat al-Kulliyyat al-Azhariyya.
St-Eli, Anastase-Marie De. 1939. al-Nuqūd al-‘Arabiyya wa ‘Ilm al-Nummiyyāt. al-Qāhira:
Librairie Louis Sarkis.
Tarawnih, Tāhā Thaljī. 1994. The Province of Damascus during the Second Mamlūk Period
(784/1382-922/1516). Mu’tah University: Publications of the Deanship of Research
and Graduate Studies.
al-Zahrānī, Sayf Allāh b. Yahyā. 1993. Zayf al-Nuqūd al-Islāmiyya min Sadr al-Islām hatā
Nihāyat al-‘Asr al-Mamlūkī. N.p.: Matābi‘ al-Safā.
Ziadeh, Nicola A. 1970. Urban Life in Syria under the Early Mamlūks. Connecticut:
Greenwood Press.
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NEITHER GLOBAL NOR NATIONAL: NOVEL ASSEMBLAGES OF
TERRITORY, AUTHORITY AND RIGHTS.1
By:
Saskia Sassen
Columbia University
ABSTRACT
The central argument developed in this essay is that today we are seeing a proliferation of
normative orders where once state normativity ruled and the dominant logic was toward
producing a unitary normative framing. One synthesizing image we might use to capture
these dynamics is that we see a movement from centripetal nation-state articulation to a
centrifugal multiplication of specialized assemblages. This multiplication in turn can lead to
a sort of simplification of normative structures: these assemblages are partial and often
highly specialized formations centered in particular utilities and purposes. The valence of
these particular utilities and purposes can range from the search for justice (the ICC) to
narrow self-interest (Lex constructionis). While this is still a minor process in the larger
scale of our geopolity, it signals the beginning of a multi-sited, though partial, disruption of
its existing formal architecture. This raises questions about the future of crucial
frameworks through which modern societies, economies, and polities (under the rule of
law) have operated: the social contract of liberal states, social democracy as we have come
to understand it, modern citizenship, and the formal mechanisms that render certain
claims legitimate and others illegitimate in liberal democracies. These frameworks have
held together complex interdependencies between rights and obligations, power and the
law, wealth and poverty, allegiance and exit.
keywords
Assemblages, normative, globalization, denationalization, centripetal, centrifigual, utilities, logics, liberal
state, claims
Correspondence may be sent to Saskia Sassen via e-mail: [email protected].
A key yet much overlooked feature of the current period is the multiplication of a broad
range of partial, often highly specialized, global assemblages of bits of territory, authority
and rights that begin to escape the grip of national institutional frames.2 These assemblages
cut across the binary of national versus global. They continue to inhabit national
institutional and territorial settings but are no longer part of the national as historically
constructed. They exit the national through a process of denationalization that may or may
not lead to the formation of global arrangements.
These assemblages are enormously diverse. At one end we find private, often very
narrow, frameworks such as the lex constructionis – a private “law” developed by the major
engineering companies in the world to establish a common mode of dealing with the
strengthening of environmental standards in a growing number of countries, in most of
which these firms are building.3 At the other end of the range they include far more
complex (and experimental) entities, such as the first ever global public court, the
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International Criminal Court; this court is not part of the established supranational system
and has universal jurisdiction among signatory countries.4 Beyond the fact of the diversity
of these assemblages, there is the increasingly weighty fact of their numbers – over 125
according to the best recent count.5 Their proliferation does not represent the end of
national states, but it does begin to disassemble the national.
Central to the argument in this paper is that although for now these are still mostly
incipient formations, they are potentially profoundly unsettling of what are still the
prevalent institutional arrangements—nation-states and the supranational system—for
handling questions of order and justice. One of the consequences of the sharpening
differentiation among domains once suffused with the national, or the supranational, is
that this can enable a proliferation of temporal and spatial framings and a proliferation of
normative orders where once the dominant logic was toward producing unitary spatial,
temporal, and normative framings. One synthesizing image we might use to capture these
dynamics is that we see a movement from centripetal nation-state articulation to a
centrifugal multiplication of specialized assemblages. This multiplication in turn can lead to
a sort of simplification of normative structures: these assemblages are partial and often
highly specialized formations centered in particular utilities and purposes. The valence of
these particular utilities and purposes can range from the search for justice (the ICC) to
narrow self-interest (Lex constructionis).
What distinguishes these novel assemblages is that they can de-border, and even
exit, what are today still ruling normative orders. Further, and equally important if not
more so, they can constitute particularized “normative” orders internal to each assemblage
which easily amount to mere utility logics. These assemblages are not only highly
specialized or particular, they are also without much internal differentiation, thereby
further reducing normative orders to somewhat elementary utilities. This is still a minor
process in the larger scale of our geopolity. But it may well be the beginning of a multisited disruption of its existing formal architecture. It is a process that lifts a variety of
segments (involving dimensions of territory, authority and rights) out of their nation-state
normative framing, thereby reshuffling their constitutional alignments. Not even wellfunctioning states with their powerful raison d’etat can quite counteract the particularized
normativities of each of these assemblages, and their easy slide into narrower utilitarian
logics.
This slide into utilitarian logics is not always bad. In the case of a single-minded
pursuit of human rights, we can see many positive outcomes. There is, then, multivalence
in this process of multiplying lower-order normative framings. But whether good or bad,
the de-bordering of national normative frames is a change, and it carries implications for
how we are to handle the often complex interactions of larger normative issues.
My argument is then that these developments signal the emergence of new types of
orderings that can coexist with older orderings, such as the nation-state and the interstate
system, but nonetheless bring consequences that may well be strategic for larger normative
questions. These developments are both strategic and particular, and hence often illegible,
requiring particular modes of decoding.
Emphasizing this multiplication of partial assemblages contrasts with much of the
globalization literature. That literature has tended to assume the binary of the global versus
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the national, and hence to focus on the powerful global institutions that have played a
critical role in implementing the global corporate economy and have reduced the power of
“the state.” I rather emphasize that the global can also be constituted inside the national,
i.e. the global city, and that particular components of the state have actually gained power
because they have to do the work of implement policies necessary for a global corporate
economy. Thus my focus in the larger project (2006) and in this particular paper opens up
the analysis of what is described as “globalization” to a far broader range of actors, and it
repositions the powerful global regulators, such as the (reinvented) IMF or the WTO as
bridging events for an epochal transformation, rather than as the transformation itself. The
actual dynamics getting shaped are far deeper and more radical than such entities as the
WTO or the IMF, no matter how powerful they are as foot soldiers. These institutions
should rather be conceived of as powerful capabilities for the making of a new order –they
are instruments, not the new order itself. The multiplication of partial asemblages
examined in this paper signals a new ordering that begins to unsettle older frameworks
that have held together complex interdependencies between rights and obligations, power
and the law, wealth and poverty, allegiance and exit –albeit always imperfectly..
In what follows I first develop the argument and its conceptual underpinnings, and
then discuss the characteristics of some of these assemblages and their normative and
political implications.
AVOIDING OLD BINARIES.
A major methodological, theoretical and political implication of the type of analysis I am
proposing is that it is insufficient to focus on the nation-state and the global system as two
distinct entities. The transformations afoot criss-cross this binary, and enter the national
and even the state apparatus itself.
To historicize both the national and the global as constructed conditions, I have
taken three transhistorical components present in almost all societies and examined how
they became assembled into different historical formations. (This is fully developed in the
larger project on which this paper is based (2006)).6 These three components are territory,
authority, and rights (TAR). Each can assume specific contents, shapes, and
interdependencies across diverse historical formations. The choice of these three rests
partly on their foundational character and partly on the contingency of my fields of
knowledge. One could choose additional components or replace one or another of these.
Territory, authority, and rights are complex institutionalizations arising from
specific processes, struggles, and competing interests. They are not simply attributes. They
are interdependent, even as they maintain their specificity. Each can, thus, be identified.
Specificity is partly conditioned by levels of formalization and institutionalization. Across
time and space, territory, authority, and rights have been assembled into distinct
formations within which they have had variable levels of performance. Further, the types
of instruments and capabilities through which each gets constituted vary, as do the sites
where each is in turn embedded—private or public, law or custom, metropolitan or
colonial, national or supranational, and so on.
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Using these three foundational components as analytic pathways into the two
distinct formations that concern me in the larger project --the national and the global-helps avoid the endogeneity trap that so affects the globalization literature. Scholars have
generally looked at these two complex formations in toto, and compared them to establish
their differences. This is not where I start. Rather than comparing what are posited as two
wholes—the national and the global—I disaggregate each into these three foundational
components (territory, authority, and rights). They are my starting point. I dislodge them
from their particular historically constructed encasements—in this case, the national and
the global—and examine their constitution and institutional location in these different
historical formations, and their possible shifting valence as the global grows. I develop
some of this empirically in the next section, but a quick example would be the shift of
what were once components of public authority into a growing array of forms of private
authority. One thesis that arises out of this type of analysis is that particular national
capabilities are dislodged from their national institutional encasement and become
constitutive of, rather than being destroyed or sidelined by globalization.7
This type of approach produces an analytics that can be used by others to examine
different countries today in the context of globalization or different types of assemblages
across time and space.8 In the modern state, TAR evolve into what we now can recognize
as a centripetal scaling where one scale, the national, aggregates most of what there is to be
had in terms of TAR. Though never absolutely, each of the three components is
constituted overwhelmingly as a national domain and, further, exclusively so. Where in the
past most territories were subject to multiple systems of rule, the national sovereign gains
exclusive authority over a given territory and at the same time this territory is constructed
as coterminous with that authority, in principle ensuring a similar dynamic in other nationstates. This in turn gives the sovereign the possibility of functioning as the exclusive
grantor of rights. Territory is perhaps the most critical capability for the formation of the
nation-state, while today we see ascend a variety of assemblages for which it is not; thus
for the global regulators authority is more critical than territory.
Globalization can be seen as destabilizing this particular scalar assemblage. What
scholars have noticed is the fact that the nation-state has lost some of its exclusive
territorial authority to new global institutions.9 What they have failed to examine in depth
is the specific, often specialized rearrangements inside the highly formalized and
institutionalized national state apparatus aimed at instituting the authority of global
institutions. This shift is not simply a question of policymaking –it is about making a novel
type of institutional space inside the state. In overlooking such rearrangements it is also
easy to overlook the extent to which critical components of the global are structured inside
the national, producing what I refer to as a partial, and often highly specialized,
denationalizing of what historically was constructed as national.
Thus today particular elements of TAR are becoming reassembled into novel
global configurations. Therewith, their mutual interactions and interdependencies are
altered as are their institutional encasements. These shifts take place both within the
nation-state, for example, shifts from public to private, and through shifts to the inter- and
supra-national and global levels. What was bundled up and experienced as a unitary
condition (the national assemblage of TAR) now increasingly reveals itself to be a set of
distinct elements, with variable capacities for becoming denationalized. For instance, we
might say that particular components of authority and of rights are evincing a greater
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capacity to partial denationalization than territory; geographic boundaries have changed far
less (except in cases such as the disintegration of the Soviet Union) than authority (i.e., the
greater power of global regulators over national economies) and rights (the further
institutionalizing of the international human rights regime). It points to possibly sharp
divergence between the organizing logics of the earlier international and current global
phases; these are often seen as analogous to the current global phase, but I argue this
understanding may be based on a confusion of analytical levels. In earlier periods,
including Bretton Woods, that imperial logic was geared toward building national states,
typically through imperial geographies; in today's phase, it is geared toward setting up
global systems inside national states and national economies, and in that sense, at least
partly denationalizing what had historically been constructed as national. This
denationalizing can take multiple concrete forms: to mention two critical ones, global cities
and specific policies and institutions within the state itself.
The scholarship on the state and globalization contains three basic positions: one finds the
state is victimized by globalization and loses significance; a second one finds that nothing much
has changed and states basically keep on doing what they have always done; and a third, a variant
on the second, finds that the state adapts and may even be transformed, thereby ensuring that it
does not decline and remains the critical actor. There is research to support critical aspects of each
one of these three positions, partly because much of their difference hinges on interpretation. For
some, states remain as the key actors no matter how the context has changed, and hence not much
has changed about states and the interstate system.10 For others, even if states remain important
there are today other key actors, and globalization has changed some important features of states
and the interstate system.11 But notwithstanding their diversity these scholarships tend to share the
assumption that the national and the global are mutually exclusive.
A second line of argumentation concerns what has changed. Thus for Mann, the present
era is merely a continuation of a long history of changes that have not altered the fundamental
fact of state primacy.12 Both the “strong” and the “weak” version of neo-Weberian state theory13
share certain dimensions of this conceptualization of the state. While acknowledging that the
primacy of the state may vary given different structural conditions between state and society, these
authors tend to understand state power as basically denoting the same conditions throughout
history: the ability successfully to implement explicitly formulated policies. A second type of
literature14 interprets deregulation and privatization as the incorporation by the state of its own
shrinking role. In its most formalized version this position emphasizes the state's
constitutionalization of its own diminished role. In this literature economic globalization is not
confined to capital crossing geographic borders as is captured in measures of international
investment and trade, but is in fact conceptualized as a politico-economic system. A third, growing
literature emphasizes the relocation of national public governance functions to private actors both
within national and global domains.15 Key institutions of the supranational system, such as the
World Trade Organization, are emblematic of this shift. Cutting across these types of literatures
are the issues raised earlier as to whether states are declining, are remaining as strong as they have
ever been, or, have changed but as part of an adaptation to the new conditions rather than a loss
of power.
Given my effort to expand the analytic terrain within which to map the question of global
and the national, the larger research and theorization agenda needs to address aspects of
globalization and the state which are lost in these dualized accounts about their relationship. In
these accounts, the spheres of influence of respectively the national and the global are seen as
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mutually exclusive. While there are indeed many components of each the national and the global
that are mutually exclusive, there is a growing, often specific set of components that does not fit in
this dual structure.
Factoring in these types of conditions amounts to a fourth position alongside the three
referred to above. While this fourth type of approach does not necessarily preclude all
propositions in the other three, it is nonetheless markedly different in its foundational
assumptions. For instance, in my own research I find that far from being mutually exclusive, the
state is one of the strategic institutional domains where critical work for developing globalization
takes place. This does not necessarily produce the decline of the state but neither does it keep the
state going as usual, or produce merely adaptations to the new conditions. The state becomes the
site for foundational transformations in the relation between the private and the public domains,
in the state’s internal balance of power, and in the larger field of both national and global forces
within the which the state now has to function.16 One feature of the larger field of forces is the
multiplication of specialized assemblages described earlier. I now turn to this in greater detail with
a particular focus on the political and normative implications of this development.
NORMATIVE AND POLITICAL IMPLICATIONS.
The centrifugal multiplication of specialized and/or particular assemblages of territory,
authority and rights is a partial rather than all-encompassing development. Yet its character
is strategic in that it unsettles existing normative arrangements and produces a new type of
segmentation. One way of formulating the consequences is in terms of novel types of
systemic inequality and novel locations for the normative.
We can begin with the novel types of systemic inequality that are being produced.
These are kinds of inequality that can cut across every scale, nation-state, major city, and
state apparatus. It is not the kind of intra-systemic inequality that emerges from inside a
unitary, albeit highly differentiated system, such as a nation-state. Nor is it the kind of
inequality that exists between developed and less developed regions of the world. These
are two types of recognized and named inequalities, and we have developed massive
institutional and discursive domains to address them; although all this effort has only
partly reduced those inequalities, they are a recognized target for existing efforts and
resources.
In contrast, the proliferation of specialized assemblages that exit the grip of
existing normative frames and cut across countries produces a kind of inequality we might
conceive of as multiplying particular types of intersystemic segmentations, where the
systems are these particularized assemblages. It is, then, also a kind of inequality that can
coexist with older and recognized forms of differentiation inside countries and among
countries. But it is to be distinguished from these.
Secondly, on the locations for the normative, these assemblages tend to have rules
for governance wired into the structures of their system in a way reminiscent of how free
markets function. That is to say, these are not explicated rules and norms. The new forms
of unaccountable power within the executive branch of government and in global markets
illustrate this; but so does the world of NGOs, perhaps especially when they function
internationally. This wiring of rules and norms in the structure itself of the system can be
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distinguished from formalized systems for governance where rules and norms are meant to
be explicated and are located both inside and outside the system itself in that they are
accountable to external authorities. 17
We can see here a disaggregating of the glue that for a long time held possibly
different normative orders together under the somewhat unitary dynamics of nation-states.
The multiplication of partial systems, each with a small set of sharply distinctive
constitutive rules produces a proliferation of simple systems. This also brings with it a
reshuffling of constitutive rules. Not all of these new specialized assemblages contain such
constitutive rules, but it is evident in a number of those that constitute themselves
precisely as disembedded from state authority and normativity and as systems of justice
and authority (for instance the ICC), including private systems of justice (for instance,
international commercial arbitration).18
Perhaps it is tempting to see in these trends arrangements akin to European
feudalism, a period marked by the absence of centralized national states. Some of the
globalization literature positing the weakening, and even “disappearance” of the nationstate has made this type of argument. I see this as a mistake (2006: Part One). In
identifying a multiplication of partial orders I find a foundational difference with the
medieval European period, one when there were strong broadly encompassing normative
orders (the church, the empire) and the disaggregations (the feuds, the cities) each
contained within them a fairly complete structure involving many if not most aspects of
life (different classes, norms, systems of justice, and so forth). Today these assemblages are
highly specialized, partial, and without much internal differentiation. In contrast, the
localized and limited world of the manor or the fief of the medieval lord was a complex
world encompassing constitutive rules that addressed the full range of spheres of social
life.
The multiplication of partial, specialized, and applied normative orders is unsettling
and produces distinct normative challenges in the context of a still prevalent world of
nation-states. Just to mention one instance, we can deduce from these trends that
normative orders such as religion reassume great importance where they had been
confined to distinct specialized spheres by the secular normative orders of states, and thus
posit this is part of a new modernity rather than a fallback on older cultures. It is a
systemic outcome of cutting-edge developments. In brief, this can then be shown to be
not pre-modern but a new type of modernity, arising out of the partial unbundling of what
had been dominant and centripetal (secular) normative orders into multiple particularized
segmentations. 19
This incipient formation of specialized or particularized orders extends even inside
the state apparatus. I argue that we can no longer speak of “the” state, and hence of “the”
national state versus “the” global order. There is a novel type of segmentation inside the
state apparatus, with a growing and increasingly privatized executive branch of
government aligned with specific global actors, notwithstanding nationalist speeches, and a
hollowing out of the legislature whose effectiveness is at risk of becoming confined to
fewer and more domestic matters.20 A weak and domesticated legislature weakens the
political capacity of citizens to demand accountability from an increasingly powerful and
private executive, since the legislature gives citizens stronger standing in these matters than
the executive. Further, the privatizing of the executive partly has brought with it an
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eroding of the privacy rights of citizens –a historic shift of the private-public division at
the heart of the liberal state, even if always an imperfect division.21
A second critical divergence is between the increasing alignment of the executive
with global logics and the confinement of the legislature to domestic matters.22 This results
from three major trends. One is the growing importance of particular components of the
administration, such as ministries of finance and central banks (respectively Treasury and
Federal Reserve in the US), for the implementing of a global corporate economy; these
components actually gain power because of globalization. Secondly, the global regulators
(IMF, WTO, and others) only deal with the executive branch; they do not deal with the
legislature. This can strengthen the adoption of global logics by the executive. A third
becomes evident in such cases as the Bush-Cheney Administration’s support for the Dubai
Ports attempted acquisition of several major port operations in the US. In contrast to
these trends, the legislature has long been a domestic part of the state, something which
begins to weaken its effectiveness as globalization expands over the last two decades. This
then also weakens the political capacity of citizens in an increasingly globalized world.
This participation of the state in the implementation of a corporate global economy
engenders a particular type of authority for the state. But for now the deployment of this
authority has largely been confined to supporting private corporate interests. This raises a number
of issues. What type of state authority is this mix of public and private components? Does the
weight of private, often foreign, interests in this specific work of the state become constitutive of
that authority and indeed produce a hybrid that is neither fully private nor fully public? My
argument is that, indeed, we are seeing the incipient formation of a type of authority and state
practice that entail a partial denationalizing of what had been constructed historically as national.
This denationalizing consists of several specific processes, including importantly, the re-orienting
of national agendas towards global ones, and the circulation inside the state of private agendas
dressed as public policy.
Such a conceptualization introduces a twist in the analysis of the state and corporate
economic globalization because it seeks to detect the actual presence of private agendas inside the
state, rather than the more common focus in the globalization literature on the shift of state
functions to the private sector and the growth of private authority.23 Further, it differs from an
older scholarly tradition on the captured state, which focused on cooptation of states by private
actors.24 In my own research I emphasize the privatization of norm-making capacities and the
enactment inside the state of corporate private logics dressed as public norms.25
An issue in all of this is the considerable illegibility, ultimately, of this shift from a
centripetal to a centrifugal logic. We cannot quite see that this centrifugal logic has
replaced important segments of the centripetal logic of the nation-state. This is partly
because the national state continues to be the dominant ordering institution and because
war and militarized border controls mark the geopolitical landscape and have mostly been
sharpened rather than diluted in much of the world. This leads many observers to
overlook the fact that these conditions can coexist with centrifugal logics. Even more
difficult to apprehend is the fact that through processes of denationalization some of the
components of the nation-state and the state apparatus are themselves part of the new
centrifugality. Elsewhere I have shown how this trend holds even for particular segments
of the executive branch of government,26 no matter nationalist speech-acts. The ongoing
prevalence of strong state politics and policies may well increasingly be a matter more of
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raw power than the more complex category that is authority—as the new types of wars,
whether “civil” or international, suggest. Even as the raw power of national states in many
cases has increased, this may not necessarily mean that sovereign territorial authority has
become more significant. This distinction is critical to the analysis in the larger project on
which this essay is based.27
If you see through the eye of the national state, these assemblages look like
inchoate geographies. But they are actually the bits of a new type of ordering, a reality in
the making. Perhaps starting with some actual elementary spatial instances might help
illuminate some of the issues for politics and normative questions to which I return in the
second half of this essay. These are instances where we can detect a process of at least
partial denationalizing of territory, authority and rights. Here, then, follow some of these
instances.
Important to my argument is that some of the most complex meanings of the
global are being constituted inside the national, whether national territories and institutions
or national states. A good part of globalization consists of an enormous variety of subnational micro-processes that begin to denationalize what had been constructed as
national--whether policies, laws, capital, political subjectivities, urban spaces, temporal
frames, or any other of a variety of dynamics and domains.28 This argument can perhaps
be developed most persuasively at this time through an examination of the critical role of
national states in setting up the basic conditions, including governance structures, for the
implementation of a global economy.29 Ministries of finance, central banks, legislatures,
and many other government sectors have done the state-work necessary to secure a global
capital market, a global trading system, the needed competition policies, and so on. I
develop these issues later in this paper.
As the unitary character of the nation-state becomes disaggregated, even if only
partially, sovereign authority is itself subject to partial disaggregations. As this centripetal
dynamic of the nation-state becomes less significant, we also see exit options for the
disadvantaged. Denationalization is the category through which I attempt to capture this
foundational difference. This is a historicizing categorization with the double intent of deessentializing the national by confining it to a historically specific configuration and
making it a reference point by positing that its enormous complexity and large capture of
society and the geopolity make it a strategic site for the transformation—the latter cannot
simply come from the outside. What this categorization does not entail is the notion that
the nation-state as a major form will disappear but rather that, in addition to being the site
for key transformations, it will itself be a profoundly changed entity.
For the purposes of this essay it matters whether this participation by the state in global
processes and the consequent partial, often highly specialized or at least particularized,
denationalization can also take place in domains other than that of economic globalization.
Among these are recent developments in the human rights regime which make it possible to sue
foreign firms and foreign dictators in national (rather than international) courts. Can
denationalization be extended to aims other than those of global corporate actors -- including an
attempt to develop a global economy with broader social justice aims, and aims other than
economic ones.30 Elsewhere31 I have argued that yes, like globalization, denationalization can, thus,
be multivalent: it can include the endogenizing into the national of the global agendas of diverse
actors, not only corporate firms and financial markets, but also human rights and environmental
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agendas. The existence of a dynamic and growing transnational sphere32 becomes critical at this
juncture as it can sustain this entry by national actors using national instruments into global
struggles.33 Sometimes these processes of denationalization allow, enable, or push the
construction of new types of global scalings; other times they continue to inhabit the realm of
what is still largely national.
Except for the most superficial and self-evident instances (e.g. globalized consumer
markets), this constituting and shaping of global dynamics inside the national generally gets coded,
represented, formulated or experienced through the vocabularies and institutional instruments of
the national as historically constructed. This is to be expected insofar as nation-states and national
states are enormously complex organizations, with often very long histories of developing the
needed capabilities. In contrast, the current phase of global institutions and processes is young and
constitutes an as yet thin reality. Part of the research task is then decoding, and, more generally,
discovering and detecting the global inside the national.34
These and other denationalizing dynamics (e.g. the insertion of human rights in national
judiciary decisions) have additional consequences. They begin to disassemble bits and pieces of the
nation-state and the state apparatus itself as containers. This disassembling is one dynamic feeding
the multiplication of partial, often highly specialized, cross-border assemblages of bits of territory,
authority and rights once lodged inside the national. Many of these are beginning to function as
formal or informal entities for both operational and governance tasks in a growing range of global
processes functioning across nation-states.
Next I develop some of these issues empirically by focusing on emergent
articulations of territory, authority, and rights that unsettle what has been the dominant
articulation, that characterizing the modern state
SPECIALIZED ASSEMBLAGES AS NEW TYPES OF TERRITORIALITY.
I will use the concept of territoriality, usually used to designate the particular articulation of
TAR marking the modern state. Here I denaturalize the term and use it to capture a far
broader range of such articulations. But the national state is the standard against which I
identify the following four types of territoriality assembled out of “national” and “global”
elements, with each individual or aggregate instance evincing distinct spatio-temporal
features. These four types of instances unsettle national state territoriality –the territory of
the national is a critical dimension in play in all four. (In the larger project, 2006, I examine
yet other emergent assemblages).
A first type of territoriality is being constituted through the development of new
jurisdictional geographies. Legal frameworks for rights and guarantees, and more generally
the rule of law, were largely developed in the context of the formation of national states.
But now some of these instruments are strengthening a non-national organizing logic. As
they become part of new types of transnational systems they alter the valence of older
national state capabilities. Further, in so doing, they are often pushing these national states
to go against the interests of national capital. A second type of instance is the formation of
triangular cross--border jurisdictions for political action, which once would have been
confined to the national. Electronic activists often use global campaigns and international
organizations to secure rights and guarantees from their national states. Furthermore, a
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variety of national legal actions involving multiple geographic sites across the globe can
today be launched from national courts, producing a transnational geography for national
lawsuits.
The critical articulation is between the national (as in national court, national law)
and a global geography outside the terms of traditional international law or treaty law. A
good example is the lawsuits launched by the Washington-based Center for Constitutional
Rights in a national court against nine multinational corporations, both American and
foreign, for abuses of workers' rights in their offshore industrial operations, using as the
national legal instrument the Alien Torts Claims Act. In other words, this is a global threesited jurisdiction, with several locations in at least two of those sites –the locations of the
headquarters (both the US and other countries), the locations of the offshore factories
(several countries), and the court in Washington. Even if these lawsuits do not quite
achieve their full goal, they signal it is possible to use the national judiciary for suing US
and foreign firms for questionable practices in their operations outside their home
countries. Thus, besides the much noted new courts and instruments (e.g. the new
International Criminal Court, the European Court of Human Rights), what this example
shows is that components of the national rule of law that once served to build the strength
of the national state, are today contributing to the formation of transnational jurisdictions.
Another instance is the U.S. practice of “exporting” prisoners to third countries
(rendition), de facto to facilitate their torture. This is yet another instance of a territoriality
that is both national and transnational. Finally, diverse jurisdictional geographies can also
be used to manipulate temporal dimensions. Reinserting a conflict in the national legal
system may ensure a slower progression than in the private jurisdiction of international
commercial arbitration.35 Diverse jurisdictional geographies can also be used to manipulate
temporal dimensions. Reinserting a conflict in the national legal system may ensure a
slower progression than in the private jurisdiction of international commercial arbitration.
In their aggregate these jurisdictional geographies contribute to produce an operational
space that is partly embedded in particular components of national legal systems that have
been subjected to specialized denationalizations (chapters 4 and 5); thereby they become
capabilities of an organizing logic that is not part of the national state.
A second type of specialized assemblage that is contributing to a novel type of
territoriality is the work of national states across the globe to construct a standardized
global space for the operations of firms and markets. What this means is that components
of legal frameworks for rights and guarantees, and more generally the rule of law, largely
developed in the process of national state formation, can now strengthen non-national
organizing logics. As these components become part of new types of transnational systems
they alter the valence of (rather than destroy, as is often argued) older national state
capabilities. Where the rule of law once built the strength of the national state and national
corporations, key components of that rule of law are now contributing to the partial, often
highly specialized, denationalizing of particular national state orders. For instance,
corporate actors operating globally have pushed hard for the development of new types of
formal instruments, notably intellectual property rights and standardized accounting
principles. But they need not only the support, but also the actual work of each individual
state where they operate to develop and implement such instruments in the specific
context of each country. In their aggregate this and other emergent orderings contribute to
produce an operational space that is partly embedded in particular components of national
legal systems which have been subjected to specialized denationalizations36; thereby these
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orderings become capabilities of an organizing logic that is not quite part of the national
state even as that logic installs itself in that state. Further, in so doing, they often go against
the interests of national capital. This is a very different way of representing economic
globalization than the common notion of the withdrawal of the state at the hands of the
global system. Indeed, to a large extent it is the executive branch of government that is
getting aligned with global corporate capital and ensuring this work gets done.
A third type of specialized assemblage can be detected in the formation of a global
network of financial centers. We can conceive of financial centers that are part of global
financial markets as constituting a distinct kind of territoriality, simultaneously pulled in by
the larger electronic networks and functioning as localized micro-infrastructures for those
networks. These financial centers inhabit national territories, but they cannot be seen as
simply national in the historical sense of the term, nor can they be reduced to the
administrative unit encompassing the actual terrain (e.g. a city), one that is part of a nationstate. In their aggregate they house significant components of the global, partly electronic
market for capital. As localities they are denationalized in specific and partial ways. In this
sense they can be seen as constituting the elements of a novel type of multi-sited
territoriality, one that diverges sharply from the territoriality of the historic nation-state.
A fourth type of assemblage can be found in the global networks of local activists
and, more generally, in the concrete and often place-specific social infrastructure of
“global civil society.”37 Global digital networks and the associated imaginaries. But this
does not preclude that localized actors, organizations, and causes are key building blocks
of global civil society as it is shaping up today. The localized involvements of activists are
critical no matter how universal and planetary the aims of the various struggles—in their
aggregate these localized involvements are constitutive. Global electronic networks actually
push the possibility of this local-global dynamic further. Elsewhere I have examined38 the
possibility for even resource-poor and immobile individuals or organizations to become part
of a type of horizontal globality centered on diverse localities. When supplied with the key
capabilities of the new technologies—decentralized access, interconnectivity, and
simultaneity of transactions—localized, immobilized individuals and organizations can be
part of a global public space, one that is partly a subjective condition, but only partly
because it is rooted in the concrete struggles of localities.
In principle we can posit that those who are immobile might be more likely to
experience their globality through this (abstract) space than individuals and organizations
that have the resources and the options to travel across the globe. Sometimes these
globalities can assume complex forms, as is the case with first-nation people demanding
direct representation in international fora, bypassing national state authority—a
longstanding cause that has been significantly enabled by global electronic networking.
Other times they are more elementary, as is the case with various Forest Watch activists in
rain forests around the world. We can see here at work a particular type of interaction
between placeless digital networks and deeply localized actors/users. One common pattern
is the formation of triangular cross-border jurisdictions for political action which once
would have been confined to the national. Local activists often use global campaigns and
international organizations to secure rights and guarantees from their national states; they
now have the option to incorporate a non-national or global site in their national struggles.
These instances point to the emergence of a particular type of territoriality in the context
of the imbrications of digital and non-digital conditions. This territoriality partly inhabits
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specific subnational spaces and partly gets constituted as a variety of somewhat specialized
or partial global publics.
While the third and fourth types of territoriality might seem similar, they are
actually not. The subnational spaces of these localized actors have not been denationalized
as have the financial centers discussed earlier. The global publics that get constituted are
barely institutionalized and mostly informal, unlike the global capital market, which is a
highly institutionalized space both through national and international law, and through
private governance systems. In their informality, however, these global publics can be seen
as spaces for empowerment of the resource-poor or of not very powerful actors. In this
sense the subjectivities that are emerging through these global publics constitute
capabilities for new organizing logics.
Although these four types of emergent territorialities are diverse, each containing
multiple, often highly specialized and partial instances, all three evince specific features.
First, they are not exclusively national or global but are assemblages of elements of each.
Second, in this assembling they bring together what are often different spatio-temporal
orders, that is, different velocities and different scopes. Third, this can produce an eventful
engagement, including contestations and the frontier zone effect to which I alluded
above—a space that makes possible kinds of engagements for which there are no clear
rules. The resolution of these encounters can become the occasion for playing out
conflicts that cannot easily be engaged in other spaces. Fourth, novel types of actors can
emerge in this assembling, often with the option to access domains once exclusive to older
established actors, notably national states. Finally, in the juxtaposition of the different
temporal orders that come together in these novel territorialities, existing capabilities can
get redeployed to domains with novel organizing logics.
These emergent assemblages begin to unbundle the traditional territoriality
of the national, albeit in partial, often highly specialized ways. In cases where the global is
rich in content or subject to multiple conditionalities, its insertion in an institutional world
that has been historically constructed overwhelmingly as a national unitary spatio-temporal
domain is eventful. It is the combination of this embeddedness of the global along with its
specificity. Although these four types of emergent assemblages that function as
territorialities are diverse, they all share certain features. First, they are not exclusively
national or global but are assemblages of elements of each. Second, in this assembling they
bring together what are often different spatio-temporal orders, that is, different velocities
and different scopes. Third, this can produce an eventful engagement, including
contestations and what we might think of as a “frontier zone” effect —a space that makes
possible kinds of engagements for which there are no clear rules. The resolution of these
encounters can become the occasion for playing out conflicts that cannot easily be played
out in other spaces. Fourth, novel types of actors, initially often informal political or
economic actors, can emerge in the processes through which these assemblages are
constituted. These novel actors tend to be able to access cross-border domains once
exclusive to older established actors, notably national states. Finally, in the juxtaposition of
the different temporal orders that come together in these novel territorialities, an existing
capability can get redeployed to a domain with a different organizing logic. These
emergent assemblages begin to unbundle the traditional territoriality of the national,
historically constructed overwhelmingly as a national unitary spatio-temporal domain.
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CONCLUSION
Both self-evidently global and denationalizing dynamics destabilize existing meanings and
systems. This raises questions about the future of crucial frameworks through which
modern societies, economies, and polities (under the rule of law) have operated: the social
contract of liberal states, social democracy as we have come to understand it, modern
citizenship, and the formal mechanisms that render certain claims legitimate and others
illegitimate in liberal democracies. The future of these and other familiar frameworks is
rendered dubious by the unbundling, even if very partial, of the basic organizational and
normative architectures through which we have operated, especially over the last century.
All of this points to at least three distinct subjects for further research and
theorization. One concerns the degree of specificity of these emergent assemblages that
result from partial disassembling of unitary nation-state framings. That is to say, what is
the extent of their normative and analytic legibility? The second concerns what level of
complexity and power these assemblages can assume given their as yet elementary
character compared to the internal diversity, organizational complexity, and social
thickness of the national. A third subject concerns the move away from unitary normative
and spatio-temporal alignments inside nation-states resulting from this proliferation of
multiple assem blages. In brief what are normative and political implications of these
moves toward centrifugal dynamics, and away from the centripetal dynamics that have
marked the development of nation-states
1
This is based on a larger project published as Territory, Authority, Rights: From Medieval to Global
Assemblages (Princeton University Press 2006). There readers can find full bibliographic elaboration of
the issues raised here.
2
This is clearly an analysis that emerges from European history , with all the limitations that entails.
Critical here is Gayatri Spivak’s thinking about the diverse positions that can structure an “author's”
stance. The Spivak Reader. Ed. Donna Landry and Gerald MacLean. (New York and London:
Routledge, 1996) .
3
See generally Teubner, Gunther ed. 1997. Global Law without a State. Aldershot, UK: Dartmouth
Publishing; Fischer-Lescano, Andreas and Gunther Teubner. 2004. “Regime-Collisions:
The Vain Search for Legal Unity in the Fragmentation of Global Law.” Michigan
Journal of International Law 25(4): 999-1046.
4
See Sadat, Leila Nadya, and S. Richard Carden. 2000. “The New International Criminal
Court.” Georgetown Law Journal 88(3): 381–474.
5
See http://www.pict.org
Saskia Sassen, 2006, Territory, Authority, Rights: From Medieval to Global Assemblages, (Princeton,
NJ: Princeton University Press).
7
In the larger project (Ibid., chapters 1, 8 and 9) there are lengthy discussions of questions of method and
interpretation. I propose a distinction between capabilities (for example, the rule of law) and the
organizing logics (the national, the global) within which they are located. Thus capabilities are
multivalent: they can switch organizing logics, with the latter shaping their valence.
6
8
I use the concept assemblage in its most descriptive sense. However, several scholars have developed
theoretical constructs around this term. Most significant for the purposes of this book is the work of
Deleuze and Guattari, for whom “assemblage” is a contingent ensemble of practices and things that can
be differentiated (that is, they are not collections of similar practices and things) and that can be aligned
along the axes of territoriality and deterritorialization. More specifically, they posit that particular mixes
of technical and administrative practices “extract and give intelligibility to new spaces by decoding and
encoding milieux”. Deleuze and Guattari, 1987, A Thousand Plateaux: Capitalism and Schizophrenia,
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(Minneapolis: University of Minnesota Press), pp. 504-5. There are many more elaborations around the
concept assemblage, including not surprisingly, among architects and urbanists (vide the journal
Assemblages). While I find many of these elaborations extremely important and illuminating, and while
some of the assemblages I identify may evince some of these features, my usage is profoundly
untheoretical compared to that of the above-cited authors. I simply want the dictionary term. I locate my
theorization elsewhere, not on this term.
9
For a number of critical scholars, even if states remain important there are today other key actors, and
globalization has changed some important features of states and the interstate system. Phillip G. Cerny,
2000, "Structuring the Political Arena: Public Goods, States and Governance in a Globalizing World."
Pp.21-35 in Global Political Economy: Contemporary Theories, edited by Ronen Palan. London:
Routledge. Phillip G. Cerny, 1990, The Changing Architecture of Politics. London and Newbury, CA:
Sage. Yale H. Ferguson and R. J. Barry Jones, (eds.), 2002, Political Space. Frontiers of Change and
Governance in a Globalizing World, (Albany, NY: SUNY Press); Susan Strange, 1996, The Retreat of
the State, (Cambridge: Cambridge University Press); Cutler, A. Claire, Virginia Haufler, and Tony
Porter. (1999). “Private Authority and International Affairs.” In Cutler, A. Claire, Virginia Haufler,
andTony Porter, editors, Private authority and international affairs. Albany, N.Y.: State University of
New York Press. For others more centered in canonical propositions, states remain as the key actors no
matter how the context has changed, and hence not much has changed about states and the interstate
system. Stephen Krasner, 2003, “Globalization and the State” in Edwards and Sisson (eds)
Contemporary Debates in International Relations (Ohio University Press); Eric Helleiner, 1999,
“Sovereignty, territoriality and the globalization of finance.” in D.Smith, D.Solinger, and S.Topic, eds.,
States and Sovereignty in the Global Economy (London: Routledge).; Pauly, 2002, “Who Governs the
Bankers,” Rodney Bruce Hall and Thomas J. Biersteker, eds., The Emergence of Private Authority in
Global Governance (Cambridge: Cambridge University Press, 2002), op.cit
10
Krasner, “Globalization and the State”; Pauly, “Who Governs the Bankers”; Helleiner, “Sovereignty,
territoriality and the globalization of finance.”
11
E.g., Cerny, “Structuring the Political Arena”; Cerny, The Changing Architecture; Strange 1996;
Cutler et al. 1999; Ferguson and Jones, Political Space.
12
Michael Mann, 1997, “Has Globalization Ended the Rise and Rise of the Nation State?” Review of
International Political Economy. 4(3): 472-496.
13
Skocpol, Theda. 1985. “Bringing the State Back In: Strategies of Analysis in Current Research.” In
Bringing the State Back In, edited by Peter Evans, Dietrich Rueschemeyer, and Theda
Skocpol. Cambridge and New York: Cambridge University Press. Evans, Peter. 1997. “The Eclipse of
the State? Reflections on Stateness in an Era of Globalization.” World Politics 50(1): 62-87.
14
Panitch, Leo. 1996. "Rethinking the Role of the State." Pp. 83-113 in Globalization: Critical
Reflections, edited by James Mittelman. Boulder, Colorado: Lynne Rienner Publishers. Gill, S. 1996.
Globalization, democratization, and the politics of indifference. In Globalization: Critical perspectives,
edited by J. Mittelman, 205-228.; Mittelman, James H. 2000. The Globalization Syndrome:
Transformation and Resistance. Princeton: Princeton University Press.
15
(e.g. Hall and Biersteker 2002; Cutler et al. 1999
16
Sassen, TAR, Chapters 4 and 5.
17
I inted this to capture a considerable diversity of formations. For instance, Hezbollah in Lebanon can
be seen as having shaped a very specific assemblage of territory, authority, and rights, that cannot be
easily reduced to any of the familiar containers—nation-state, internal minority-controlled region, such
as the Kurdish region in Iraq, or a separatist area such as the Basque region in Spain. It intensifies the
difference with the “home country” and in fact extends beyond the latter through specific translocal
networks and more difuse subjectivities. This type of development strengthens types of territorial and
authority fractures that the project of building a nation-state sought to eliminate or dilute.
18
I develop these issues at length in TAR, chs 5, 6, and 8.
We also see these incipient novel mixes of territory, authority and rights in far less visible or noticed
settings. For instance, when Mexico’s (former) President Fox met with undocumented Mexican
immigrants during his visit to the US in May 2006, his actions amounted to the making of a new
informal jurisdiction. His actions did not fit into existing legal forms that give sovereign states specific
types of extraterritorial authority. Nonetheless, his actions were not seen as particularly objectionable;
19
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indeed, they were hardly noticed. Yet these were, after all, unauthorized immigrants subject to
deportation if detected, in a country that is now spending almost 2 billion dollars a year to secure border
control. No INS or other police came to arrest the undocumented thus exposed, and the media barely
reacted, even though it was taking place at a time when Congress was debating whether to criminalize
illegal immigrants. Or when Chavez, seen as an “enemy” of sorts by the US government, is somehow
enabled (through the state-owned oil enterprise) to bring oil to the poor in a few major cities in the US.
All of these are minor acts, but they were not somehow acceptable or customary even a short time ago. I
see these practices as producing novel types of mostly informal jurisdictions.
20
Ibid., TAR, chapter 4.
This is a complicated issue that I do not address here, but see (TAR, chapter 6). One question is
whether there is a necessary relationship between an increasingly privatized executive branch and the
erosion of citizens’ privacy rights.
22
An issue here is the relationship between this executive branch alignment with global logics, on the
one hand, and, on the other, the proliferation of various nationalisms. I address this in TAR, chapters 6
and 9. Helpful here is Calhoun’s (1998) proposition that nationalism is a process articulated with
modernity; this makes room for the coexistence of globalization and nationalization. Calhoun and T K
Oommen, “Citizenship, Nationality, and Ethnicity”, American Journal of Sociology, 103(5): 1414.?
23
(e.g. Cutler 2000) Cutler, C. (2000). Globalization, law, and transnational corporations: A
deepending of market discipline. In Cohn, T. H., McBride, S., & Wiseman, J. (Eds.), Power in the
global era: Grounding globalization (pp. 53-66). London: Macmillan.
24
Panitch, “Rethinking the Role of the State.” op.cit. Cox
25
Sassen, TAR, chapters 4 and 5; Saskia Sassen,1996, Losing Control? Sovereignty in an Age of
Globalization, (New York: Columbia University Press), chapter 2.
26
Ibid., TAR chapter 4.
27
Ibid.
28
A focus on such subnationally based processes and dynamics of globalization requires methodologies
and theorizations that engage not only global scalings but also subnational scalings as components of
global processes, thereby destabilizing older hierarchies of scale and conceptions of nested scalings.
Studying global processes and conditions that get constituted subnationally has some advantages over
studies of globally scaled dynamics, but it also poses specific challenges. It does make possible the use of
long-standing research techniques, from quantitative to qualitative, in the study of globalization. It also
gives us a bridge for using the wealth of national and subnational data sets as well as specialized
scholarships such as area studies. Both types of studies, however, need to be situated in conceptual
architectures that are not quite those held by the researchers who generated these research techniques and
data sets, as their efforts mostly had little to do with globalization. I develop this in Saskia Sassen, 2007,
A Sociology of Globalization (New York: W. W. Norton).
29
E.g. Alfred C. Aman, 1998. "The Globalizing State: A Future-Oriented Perspective on the
Public/Private Distinction, Federalism, and Democracy." Vanderbilt Journal of Transnational Law 31:
769-870. Giselle Datz, 2007, “Global-National Interactions and Sovereign Debt-Restructuring
Outcomes.” Pp. 321-350 in Deciphering the Global: Its Spaces, Scales and Subjects, Edited by S.Sassen,
(New York and London: Routledge); Rachel Harvey, 2007, “The Sub-National Constitution of Global
Markets.” Pp. 199-216 in Deciphering the Global: Its Spaces, Scales and Subjects, Edited by S.Sassen,
(New York and London: Routledge); Sassen, TAR, chapters 1 and 2; Balakrishnan Rajagopal, 2003,
International Law from Below (Cambridge: Cambridge University Press).
30
E.g. Lourdes Beneria, 2003, Global Tensions: Challenges and Opportunities in the World Economy.
(New York: Routledge); Max Kirsch (ed), 2006, Inclusion and Exclusion in the Global Arena, (New
York: Routledge).; Kate E. Tunstall (ed), 2006, Displacement, Asylum, Migration: The 2004 Amnesty
Lectures, (Oxford: Oxford University Press.); Linda Lucas (ed), 2005, Unpacking Globalisation:
Markets, Gender and Work. Kampala, Uganda: Makerere University Press.; Natalia Ribas-Mateos, 2005,
The Mediterranean In The Age Of Globalization: Migration, Welfare, And Borders, (Somerset, NJ:
Transaction).; Rami Nashashibi, 2007, “Ghetto Cosmopolitanism: Making Theory at the Margins.” Pp.
241-262 in Deciphering the Global: Its Spaces, Scales and Subjects. Edited by S.Sassen. New York and
London: Routledge
21
31
Sassen, TAR, chapters 8 and 9.
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32
E.g. S. Khagram, J. V. Riker, and K. Sikkink (eds), 2002, Restructuring World Politics:Transnational
Social Movements, Networks, and Norms, (Minneapolis, MN: University of Minnesota Press).; Valentine
M. Moghadam, 2005, Globalizing Women: Transnational Feminist Networks, (Baltimore: Johns Hopkins
University Press.); Nancy A. Naples and Manisha Desai, 2002, Women’s Activism and
Globalization: Linking Local Struggles and Transnational Politics, (New York; Routledge).
33
Sassen, TAR, chapter 6.
Ibid.
35
Ibid., chapter 5.
36
Ibid., chapters 4 and 5.
37
This term remains underspecified in the view of many. But there is now a vast scholarship that has
documented various features, measures and interpretations. See for instance the Annual Global Civil
Society volumes published by Oxford University Press.
38
Sassen, TAR, chapter 7.
34
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International Association of Law Schools Conference: The Law of International Business Transactions:
A Global Pespective
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LAWS RELATING TO INTERNATIONAL BUSINESS
TRANSACTIONS:
A THIRD WORLD PERSPECTIVE
BY
DR. GURJEET SINGH
RAJIV GANDHI NATIONAL UNIVERSITY OF LAW
PATIALA (PUNJAB) INIDA
Free trade and international commodities agreements; import and export transactions;
cross border investments; international franchising contracts; electronic funds transfers
and e-commerce; technology licensing and transfer; exchange control; enforcement of
morals in gray market transactions; transfer pricing and issuance of letters of credit and of
bankruptcy; joint ventures, mergers and acquisitions; protection of foreign direct
investments; tax concessions and tax consequences of international transactions; regulation
of aliens; tackling of corrupt business practices; conflict of laws; corporate social
responsibility; and international commercial arbitration and dispute resolution are, inter alia,
some of the prominent issues relating to international business transactions in the postglobalized world. One can write a lot on any one of the aforementioned issues.
In the present paper, however, I have endeavoured to highlight some of the crucial issues
that concern developing countries in the third world and emerging economies, especially
when it comes to their presence and dealings in the arena of international business
transactions with their counterparts from the developed countries. These issues relate,
firstly to the openness of the markets of the developing nations; secondly, to the
comparative disadvantage faced by the developing nations due to lack of measures of
quality control and safety standards; and thirdly, to the production and marketing of substandard and hazardous goods produced by the newly industrialized countries and
resultant exploitation of consumers in their counterparts due to the lack of adequate and
effective laws on the subject. These issues, seen from the third world perspective definitely
need immediate attention as these are very crucial from the viewpoint of dynamics of
relationship between the developed and the developing countries. I would, therefore,
briefly touch upon each one of these crucial issues referred to in the above paragraph.
As a matter of fact, during the last three decades or so, the world economy has undergone
a sea change. Today, due to rapid industrialization, urbanization, and globalization, the
distances between the nations have sunk, boundaries have been reduced, and the barriers
have been removed. As a result thereof, the modern world has become a global village
where leaving aside a few exceptions, information, people, goods and services move freely
without any much restriction. The rapid development of science and technology as well as
heavy migration of capital, labour and other factors of production from one nation to
another have resulted in an enormous increase in production, distribution and
consumption.
Greater access to the developed country markets and technology transfer promises
improved productivity and a higher standard of living. However it has also blown out the
problems of rising inequalities amongst the nations and throwing a majority of the
developing nations out of competition.
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Today a nation producing quality products and offering those at reasonable prices often
has competitive edge and advantage over its counterparts in the global market. The same
logic applies to the service sector also. Thus the ‘Theory of Comparative Advantage’
encourages the countries to go in for international trade in goods and services that in turn
leads to the flourishing of trade and commerce between the nations and across the globe.
Here it would be worthwhile to mention that even Adam Smith’s followers supported the
application of the criterion of comparative advantage for trade because it promotes growth
through increased specialization and efficient resource allocation and also facilitates
diffusion of international knowledge through heightened domestic and international
competition. However, the problem arises when either due to the complete absence of
laws and regulatory mechanism in one of the trading nations or due to the ineffective
implementation and redressal mechanism therein, the rich, the advanced and the highly
industrialized nations tend to exploit their trading partner in the entire process of trading.
In the 1970s, the governments of the UK and the USA were of the view that their national
interests would be best served by forcing other countries of the world to open up their
markets for them. They were the ‘market leaders’ in most of the trade transactions and so
they gained enormously from their competitive advantage. The integration of the world
economies also intensifies interdependence and competition between them as regards the
trade in goods and services and the inflow of capital. As a consequence, development
criterion is influenced more by the international policies than by domestic conditions. This
in some sense might cast its spell on the political autonomy of the governments of the
developing nations. There is, therefore, a need for the harmonization of international
business standards.
The second issue relates to the quality controls and safety standards, that is, the advanced
and developed nations often tend to keep their quality control and safety standards quite
higher. The poor and less developed countries, howsoever efficient those may be in the
production process, often are still unable to meet and match the quality controls and safety
standards laid down by their advanced counterparts. As a result thereof, these rigorous
quality control measures and rigid insistence on safety standards quite often prevent the
entry of the developing nations in the trading market of the developed nations. However,
on the contrary, the developed nations tend to flood the domestic market of the
developing nations with their products, thereby acclimatizing the consumers in the latter
countries for the regular use of the products produced and marketed by the former,
thereby almost ruining the entire industry of the developing nations. The reasons are
obvious, that is, the less developed countries cannot often match the standards and quality
of products marketed by the developed nations and, therefore, the developing countries
are often the losers in the international commercial transaction. Very obviously, a sizeable
market of the developing world is cornered, monopolized and mostly exploited by the
developed world. Amongst others, non-availability and in some cases, the ineffective
implementation of the existing legislative enactments, inter alia, are also the reasons for the
edge of the rich and developed nations over the poor and less developed countries.
Surprisingly enough, this trend has been going on unabated for long. In fact, the
developed countries try to sell their products in the international market by providing full
information about the attributes of their products. It is the ignorant consumers of
developing countries who are willing to purchase imported risky products under
ignorance. In other words, the consumers of developing countries have the misperception
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about the risky products of the foreign origin. Therefore, there is no denying the fact that
the developing countries are the worst sufferers in this entire business.
The third issue relates to the consumer safety and welfare. In this context I would like to
refer to the provisions of the one consumer protection laws and its helplessness to protect
the consumers from the danger caused by the marketing, sale and supply of the hazardous
goods. Let me come to it briefly. We have in India a new law, that is, the Consumer Protection
Act, 1986. This Act is one of the most benevolent pieces of socio-economic legislation.
One of the prominent features of this Act is that it aims at promoting and protecting the
following important and acknowledged consumer rights: (i) The Right to Safety; (ii) The
Right to Information; (iii) The Right to be Heard; (iv) The Right to be Redressed; (v) Right
to Access to Goods and Services at Competitive Prices; and (vi) Right to Consumer
Education. Due to the space constraints, I would like to refer only to the first consumer
right, namely, the right to safety. This broadly means “right to be protected against
marketing of goods and services that are hazardous to life and property.” Now as far as
the manufacturing, marketing and sale of the hazardous products in the domestic Indian
market is concerned, we have laws, be it on the issue of safety, expiry, or of product
information. However, the problem arises when products manufactured in the foreign
countries are marketed in the Indian market and are purchased by the consumers in a large
quantity. When, for instance, a product is found to be indeed hazardous to the health and
safety of the consumer, nobody is aware of the fact as to whom to approach? The seller,
on being approached, says that he has not manufactured it, nor he knows who has actually
manufactured it. The dealer or the whole-sale supplier, too, most often has the same
answer. As a matter of fact, this is the product that has been manufactured in a foreign
country and no one knows as to who imported it or marketed it or even as to whether the
aforesaid product was actually legally imported and marketed or was it smuggled in the
country and was then marketed. There are a large number of cases that have come up
before the Consumer Disputes Redressal Agencies established under the Consumer Protection
Act, 1986 from the consumers complaining of the hazardous or unsafe products. In all
these cases, the consumers as litigants have had to face humiliation and defeat as there is
no one who could identify the actual manufacturer and seller of the product. Very
obviously, law is silent over this issue. And the victim has got no remedy against the
products manufactured abroad and marketed in India. This is peculiar with the Chinese
products that have flooded the Indian market and truly speaking the market of all the
SAARC countries. And if I am not wrong, the Chinese products are also being marketed
and sold with impunity even in the commodity markets of the western countries, too.
They are cheap products, available at very low prices and in a huge variety, but these
products are indeed very poor in quantity, quality, purity and potency. Many of these
products, especially the children toys as well as electronics items have proved to be
hazardous for the consumers and there are a large number of complaints pending before
the Consumer Disputes Redressal Agencies against these products. However, there is no
one who could be identified for fixing the product liability etc. etc. Non-availability of the
relevant, appropriate, and effective laws on the issue are the sole reasons for consumer
exploitation in the developing countries. Any more delay either in enactment of law
directly on the subject or taking up of the stringent measures to regulate the unrestricted
supply and sale of these products, especially the ones who are indeed hazardous and are
potential threats to the life and safety of the consumers would cause irrepairable loss to the
inhabitants in the developing countries. This issue, like the other ones also need a serious
attention.
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Thus there are a large number of issues that are related to the topic of international
business transactions that one can discuss and debate. However, due to the space
constraints, I have touched upon only a few important issues that concern the trading in
goods and services through the international business transactions. We need to give
immediate attention to these issues. They concern all of us as consumers and we should
give whole-hearted attention to the resolution of each one of the issues discussed above.
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Remarks on Globalization and the Polish Legal System
By:
Prof. Dr Jaroslaw Warylewski
Dean of the Faculty of Law and Administration
University of Gdansk
Poland
Globalization in economic terms is the process of progressive integration of the
isolated national markets of capital, commodities and labor into a single world global
market. Globalization is not possible without a liberalization of economy and trade in
individual countries. Since 1989 (the year when in Poland communism ended) Poland is
increasingly integrated into the world economy and international business transactions. In
the last 15 years trade opens (defined as the ratio of the import value to the value-added in
each sector; the imports referred to are those produced by foreign producers in the same
sector), labor mobility and financial flows picked up several times, and in the same time
costs of cross-border transactions fell. We can say that these all positive changes are
connected with the globalization. We can look at the globalization as the mechanism of codependence which integrates states and people. Globalization has many dimensions, not
only economic, but also legal, political and social. That process of integration has alas a
“dark” side – which is fact that some countries are marginalized and pushed aside. The
benefits of international trade can be both - positive and negative, since its impact on
economic activity produces both winners and losers.
At present Polish situation in the globalization process is quite good. Poland is
located in north-central Europe at the Baltic Sea, between still widening European Union,
of which Poland is a member since 1st May 2004, and the eastern European countries Ukraine, Russia and Belarus, and that geographic location can bring strong position in the
international business, especially in transportation of goods, as cars, electronic products
(computers, TV sets), oil, wood, food, etc.
So how does it look the Polish commercial and business law regulations? First of
all it’s important to understand that Polish legal system is based on the civil law system
developed in Europe over many years. Poland has codified law and that is why the main
sources of that law are Constitution, codes, statues and international treaties. The Polish
legal system is divided into public and private law categories. Public law, mainly which is
constitutional, criminal and administrative laws, is a type of law where exists relation
between some government department or agency and people and their organisations.
Private law regulates relations between private individuals and organisations. Commercial
(trade) law is a part of private law. Sources of commercial law in Poland are:
•
•
•
•
The Freedom of Business Activity Act
Commercial Companies Code
Civil Code
European Community law
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•
•
•
International treaties and conventions, for example the Convention on Contracts
for the International Sale of Goods (CISG) of 1980 or Convention on the
Contract for the International Carriage of Goods by Road (CMR) of 1956.
International terms used in business, such as Incoterms and customs
Legal decisions of European Court of Justice in Luxemburg
The fundamental term of Polish commercial (trade) law is the entrepreneur
(przedsiebiorca in Polish), which is according to the Freedom of Business Activity Act a
natural person, legal person or unincorporated organisational unit but with a legal capacity
and running business activity on its own behalf. Natural person is every human, and legal
persons are the State Treasury and organisations with legal capacity granted by special
provisions. The Act also gives a definition of business activity as any activity made for
profit in the fields of trade, production, services, construction, surveying and exploring
minerals from deposits.
In Poland there is an obligation to register all entrepreneurs. We have the Polish
Court Register and the Business Activity Register. In accordance with the Freedom of
Business Activity Act, an entrepreneur can start business activity upon his registration into
The Polish Court Register, which is build of three types of registers:
•
•
•
The Entrepreneur Register (includes for example: European economic interest
groups, professional partnerships, general partnerships, limited partnerships,
European companies, joint-stock companies, limited liability companies, stateowned enterprises, foreign entrepreneurs, branch offices of foreign enterprises
running these business activity in Poland, insurance institutions)
The Non-Profit Entrepreneur Register (for example: foundations, associations,
employers associations, chamber of handicrafts, charitable organisations, chambers
of commerce)
The Register of Insolvent Debtors (register of debtors unable to repay their debts)
The Business Activity Register is for individuals (natural persons) who want to start
business activity in the legal form of a proprietorship.
For foreigners and foreign entrepreneurs very important are regulations of the
Freedom of Business Activity Act and the Act of Principles of Conducting Small-Scale
Manufacturing Activities in the Territory of by Foreign Legal and Natural Persons of 6
July 1982. Foreigners from European Union and states – members of the European Free
Trade Association can start and conduct business activity in Poland under the same rules
as Polish entrepreneurs. The same situation is for foreigners who have been granted
refugee status in Poland. But the other foreign entities may commence business activity in
Poland only in the form of a limited partnership, a partnership limited by shares, a jointstock company or limited liability company.
Because of the globalization process, Poland needed to transform its legal system
to be more coherent with international relations. That’s why currently it is not hard to run
business activity in Poland for foreign entities. Also the Polish International Private Law
had to be transformed. The International Private Law includes principles of conflict of law
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which state will be used to a certain situation. Nationality, place of residence / seat,
situation of the object will affect on the choice of using concrete legal system.
Poland is a member of European Union, which comprises a single market created
by a system of European laws which apply in all 27 member states, guaranteeing the
freedom of movement of people, goods, services and capital. This “regional” European
globalization maintains a common trade policy, fisheries policy, agricultural policy and a
regional development policy. In EU there is also a common currency - euro, which has
been adopted by 15 member states for now. There are serious legal consequences for
Polish legal system because of judgments from the European Court of Justice, especially
from the Inspire Art. judgment, according to which, corporations can move their head
office to a different European member state to run their main business activity. For
example such situation may occur because of tax issues (higher taxes in on state, and lower
in another). Of course it’s not favorite regulation for some countries, but it’s a perfect
example of positive aspects of globalization – every member state of EU try to make a
good tax system for corporations and other companies to keep them and their business
activity and to be more competitive than the other country.
We can say that the European Union is one of the best examples of positive
aspects of globalization – 27 countries try to cooperate, to work together, and to unite.
And maybe the way chosen by European countries is one the best way for the whole
world? Twenty seven states with democratic political system, with solid economy, with
strong and effective human rights laws, and the place without wars.
And last but not least – I am sure that we should treat globalization process not as
a danger or some kind of a threat but as an opportunity for better economic, social,
technological and financial situation for all of us.
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ISLAMIC BANKING TRANSACTIONS IN MALAYSIA: AN
OVERVIEW OF SOME LEGAL CONSIDERATIONS
By:
ASSOCIATE PROFESSOR DR NOOR INAYAH YAAKUB
&
ASSOCIATE PROFESSOR DR FARIDAH JALIL
FACULTY OF LAW, NATIONAL UNIVERSITY OF MALAYSIA (UKM)
Scope of the Paper
This paper seeks to highlight some legal problems and issues of Islamic banking
transactions in Malaysia and offers some flexible proposals to overcome them.
The Law of Islamic Banking in Malaysia
The main legislation that governs the Islamic Banking transaction in Malaysia is the Islamic
Banking Act 1983. It is unique piece of legislation which provides for the setting up and
licensing of “Islamic banks”. The Act came into force on 19 March 1983 and applies
through out Malaysia.
Dispute Resolution in Islamic Banking Cases
The dispute resolution in Islamic Banking cases comes within the jurisdiction of civil
courts which was modelled on the English system and not under the Syariah (Islamic)
court system. This means that such dispute resolution in Islamic banking cases apply the
civil court procedures. Thus, the issue of conflicts between the civil laws and Islamic law
might arise.
The Definition of “Islamic bank” and “Islamic Banking Business”
Section 2 of the Islamic banking Act 1983 defines “Islamic Bank” as “any company which
carries on Islamic banking business and holds a valid licence and “Islamic banking
business" as “banking business whose aims and operations do not involve any element
which is not approved by the Religion of Islam”.
However, the term “banking business” itself is not defined and the Islamic Banking Act
1983 does not stipulate how that term is to be understood in the context of Islamic
banking.
The definition of “Islamic banking business” in the Act also appears to be confusing. The
expression “any element which is not approved by the Religion of Islam” is blurred. Is the
phrase of the “Religion of Islam” similar to the word Syariah? Syariah could carry a wider
concept of the practice of Islam and it is quite misleading to equate the religion of Islam
with the word Syariah.
Procedures in Civil Courts of Malaysia
Rules of the Court
There are two important Rules on procedures of Civil Courts in Malaysia as far as Islamic
Banking transactions are concerned namely; The Rules of the High Court 1980 and the
Subordinate Courts Rules 1980. These two Rules however, were before Islamic banking
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was introduced into Malaysia and, naturally, the peculiarities of claims made and actions
filed under Islamic financing were not taken into account.
English law vs Syariah Law for Islamic Banking?
Another danger zone may be considered can be seen from two perspectives as follows:
First; is the uncertainty in the law a lack of specification as to the law applicable to resolve
Islamic banking disputes. The Syariah imposes certain requirements for a contract to be
valid under it. But these requirements may not all be the same under all the schools of
jurisprudence of Islam. So it is possible for a contract to be valid under the tenets of one
madhab of the Syariah and not under another madhab. If the civil court has to determine
the validity of such a contract, how should the court if the validity of such a contract falls
to be determined by a civil court, how should the court decide it? What sources would a
judge deciding the case refer? If there is a conflict between Islamic law and the civil laws
applicable to the matter, which one should prevail?
Second; since there is no Islamic Contracts Act is enacted, the Contract Acts 1950 which
based on English law should be made applicable as long as it does not contravene the
principles of Syariah but to what extent?
One might also argue that sections 3 and 5 of the Civil Law Act 1956 allow the application
of English law to fill the gaps in existing laws in Malaysia; this include Islamic banking.
Moreover, since there are many identical provisions in Malaysian Contracts Act 1950
which are pari materia with provisions of Indian Contract Act 1872 (since there is no
difference between the law of undue influence in Indian Contract Act 1872 and English
law, the proposal to adopt English law and principles to reform this area should not be a
problem).
It is also not inconsistent with the provisions in Civil Law Act 1956 to apply English law
on issues pertaining to undue influence in Malaysia. The Civil Law Act 1956, for instance
through sections 3 and 5 permit the application of English law in Malaysia. Historically, it
is through the first Charter of Justice 18071 that English law was first imported into the
colony.2 The Second Charter of Justice 1826 introduced into the Straits Settlements, which
then comprised the states of Penang, Malacca and Singapore3, the law of England as it
stood in 1826, including all English statutes of general application. However, it was
officially introduced into these states so far as the several religions, manners and customs
of the inhabitants will admit.4 From here British rule, either direct or indirect, began to be
extended to the other areas,5 which consisted of several political units each ruled by a
1
In 1786, Penang was surrendered to the British. Since this first charter of 1807, the lex loci of Penang has been
English Law. See Re Loh Toh Met, Deceased; Kong Lai Fong & Ors v Loh Peng Heng [1961] MLJ Lexis 44.
2
The Sultan of Johore v Tunku Abu Bakar & Ors 1949 MLJ Lexis 90.
3
Singapore has the Application of English Law Act (Cap 7A), in particular, ss 4(1), 5(1), 6(1) for the limitation of
application of English law in Singapore. Section 4(1) provides, inter alia, that certain English enactments to the
extent as specified in the first schedule to the Act shall with the necessary modifications apply in Singapore. Section
5(1) states that no English enactment shall be part of the law of Singapore except as provided in the Act. All these
sections are discussed in the case of Re Will in Loke Soh Lui (decd), 1997 SLR Lexis 253 at 18 and 34; also available
in 1999 3 SLR 370.
4
The Sultan of Johore v Tunku Abu Bakar & Ors 1949 MLJ Lexis 90; Mong Binte Haji Abdullah v Daing Mokkah
Bin Daing Palamai 1935 MLJ Lexis 48 1935; Khalik v Thai Craft Ltd 1965 MLJ Lexis 20.
5
Johore was the last part of the Malay States to receive English law. See case of Re Dato’ Bentara luar, Deceased;
Haji Yahya Bin Yusof & Anor v Hassan Bin Othman & Anor Federal Court Civil Appeal 1982 MLJ Lexis 418.
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despotic Malay Ruler called “Sultan”.6 Similarly, the Law of Sarawak Ordinance 1928
introduced the English law into Sarawak and the Civil Law Ordinance 1938 provided for
the reception of English law in Sabah.
Section 3 (1)(a) of the Civil Law Act 1956 provides that the Court shall:
‘in West Malaysia or any part thereof, apply the common law of England and the rules
of Equity as administered in England on 7 April 1956’.
Section 3(1)(b) of the same Act continues:
“in Sabah, apply the common law of England and rules of equity, together with
statutes of general application, as administered or in force in England on 1st day of
December 1951”
Section 3(1)(c) further states:
equity,
in
“in Sarawak, apply the common law of England and the rules of
together with statutes of general application, as administered or in force
England on 12th day of December 1949…”
The above dates are important because the English common law and rules of equity as
administered in England only on that date are applicable in West Malaysia (7 April 1956),
Sabah (1 December 1951) and Sarawak (12 December 1949).
Is it interesting to note that the pattern of this historical background has instigated
numerous cases7 dealing with the extent of the application of English law in Malaysia.
Hence, it is arguable that section 3 in its proviso restricts the application of English
common law and rules of equity in Malaysia. This is especially true as s 3 of the Civil Law
Act 1956 concerning the application of the common law of England and rules of equity
provided that the said ‘common law and rules of equity shall be applied so far only as the
circumstances of the states and settlements and their respective inhabitants permit and
6
Mohd Yunus, Mohamad Hishamuddin, ‘An Essay on the Constitutional History of Malaysia (Part 1),’ Malaysian
Current Law journal, 3 (1995, xiv).
7
Examples are Haji Salleh bin Haji Ismail & Anor v Haji Abdullah bin Haji Mohamed Salleh & Ors 1934 MLJ
Lexis 31, Re Maria Huberdina Hertogh v Inche MansorAdabi v Adrianus Petrus Hertogh & Anor [Court of Appeal]
1951 MLJ Lexis 74, Khalik v Thai Craft Ltd 1965 MLJ Lexis 201, Reidel-de Haen Ag v Liew Keng Pang 1989 MLJ
Lexis 390, also available in [1989] 2 MLJ 400, N S Narainan Pillay v The Netherlandsche Handel Maatschappij
[Appellate Civil Jurisdiction] 1915 MLJ Lexis 1; Sithambaran Chettyar v Chong Fatt [1938] MLJ Lexis 55, Yong
Joo Lin, Yong Shook Lin And Yong Loo Lin v Fung Poi Fong 1941 MLJ Lexis 72, John Kershaw Tattersall Pickup v
Bertha Florence Pickup Otherwise Godfrey 1941 MLJ Lexis 43, Husdi v PP Federal Court Criminal 1980 MLJ
Lexis 358; Lam Kok Trading Co (Pte) Ltd & Anor v Yorkshire Switchgear & Engineering Co Ltd 1975 MLJ Lexis
316, Tan Mooi Liang v Lim Soon Seng & Ors 1974 MLJ Lexis 322, N V DE Bataafsche Petroleum Maatschappij &
Ors v The War Damage Commission 1956 MLJ Lexis 86, In The Matter of TheTrusts Of The Will Of Hadjee Haroun
Bin Tamby Kechik (Deceased) 1949 MLJ Lexis 141, S P Ponniah Pillay v Senthamarai D/O Vellasamy 1954 MLJ
Lexis 53, Tan Mooi Liang v Lim Soon Seng & Ors 1974 MLJ Lexis 322.
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subject to such qualifications as local circumstances render necessary’, if there was a lacuna
in the law8 and if there was no other written law in force.9
However, a closer look at the provision reveals that the application of English law is
permitted in this country, especially when there is a lacuna in the law or if there is no other
written law in force. Furthermore, in the recent case of PL Narayanan & Anor v PL
Subramaniam & Ors,10 it was stated that ‘A court shall administer the common law of
England and the rules of equity so far only as Malaysian circumstances and Malaysians
permit.’
Section 5 of the same Act further provides for the application of English law in
commercial matters. The section reads:
(1) In all questions or issues which arise or which have to be decided in the States
of West Malaysia other than Malacca and Penang with respect to the law of
partnerships, corporations, banks and banking, principals and agents, carriers by
air, land and sea, marine insurance, average, life and fire insurance, and with
respect to mercantile law generally, the law to be administered shall be the same as
would be administered in England in the like case at the date of the coming into
force of this Act, if such question or issue has arisen or had to be decided in
England, unless in any case other provision is or shall be made by any written law.
(2) In all questions or issues which arise or which have to be decided in the States
of Malacca, Penang, Sabah and Sarawak with respect to the law concerning any of
the matters referred to in subsection (1), the law to be administered shall be the
same as would be administered in England, in the like case at the corresponding
period, if such question or issue had arisen or had to be decided in England, unless
in any case other provision is or shall be made by any written law.
Section 5(1) above introduces into the states11 of West Malaysia other than Malacca and
Penang (namely Pahang, Selangor, Kelantan, Terengganu, Kedah, Perak, Johore, Negeri
Sembilan and Perlis) the principles of English commercial law as it stood on 7 April 1956
in the absence of local legislation. In contrast, section 5(2) above which applies to the
states of Penang, Malacca, Sabah and Sarawak, introduces English commercial law at the
date on which the matter has to be decided. Thus, there exist certain differences in
applying English commercial law between the first group of Malay states and Penang,
Malacca, Sabah and Sarawak. In the latter group of states there is a continuing reception of
English commercial law in the absence of local legislation.
It is thus clear that under the Civil Law Act 1956, in West Malaysia, the common law of
England and the rules of equity and certain statutes as administered in England on 7 April
8
Bagher Singh v Chanan Singh (1961) MLJ 328.
HG Warren v Tay Say Geok & Ors (1965) MLJ 44.
10
PL Narayanan & Anor v PL Subramaniam & Ors 1996 MLJ Lexis 1290 at 15.
11
The division of states was due to historical reasons. See also Sinnadurai, Visu, Law Of Contract, (Lexis Nexis
Butterworths: 2003) at 1.02-1.07.
9
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1956, Sabah (1 December 1951) and Sarawak (12 December 1949) shall be applied so far
only as the circumstances of the States of Malaya and their respective inhabitants permit
and subject to such qualifications as local circumstances render necessary.
Generally, in Polygram Records Sdn Bhd v The Search & Anor,12 it was stated that there are
number of identical provisions in the Contracts Acts that are in pari materia with the
provisions in the Indian Contract Act 1872.
Gopal Sri Ram JCA in the local Court of Appeal’s decision in Jurutera Consultant (SEA) Sdn
Bhd & Ors v Eddie Lee Kim Tak & Ors,13 stressed the Indian Contract Act 1872 on which
Malaysian Contracts Act of 1950 is based. Since Malaysian Contract Act 1950 is a replica14
of the Indian Contract Act 1872, the Indian authority, though not binding in Malaysia,
would have been useful; how the Indian courts deal with certain similar issues should have
been investigated. For instance, the case of Lec Contractors (M) Sdn Bhd (formerly known as
Lotteworld Engineering & Construction Sdn Bhd) v Castle Inn Sdn Bhd & Anor Court of Appeal
(Kuala Lumpur)15 referred to several Indian cases to see the approach of Indian courts to
similar problems. Cases referred to were United Commercial Bank v Bank of India; Damatar
Paints (P) Ltd v Indian Oil Corp;16 Pesticides India v State Chemicals & Pharmaceuticals Corp of
India17 (1982) AIR 78 on issues of performance bond.18 Indeed, Indian decisions to a
certain extent constitute the main source of law in this country. This is obvious where, in a
general context, Indian authority serves as useful guidance for various areas of contract
law19 such as a definition of coercion,20 difference between penalty and liquidated
damages,21 estoppel,22 illegality,23 forfeiture of deposits24, time is of the essence,25 banking
12
1994 MLJ Lexis 396.
1998 MLJ Lexis 589 at [7] (CA).
14
Khoo Yoke Wah & Ors v Lee Choo Yam Holdings Sdn Bhd & Ors Supreme Court (Kuala Lumpur) 1991 MLJ
Lexis 94, Syarikat Perumahan Pegawai Kerajaan Sdn Bhd v Bank Bumiputra Malaysia Bhd 1990 MLJ Lexis 364,
Linggi Plantations Ltd v Jagatheesan [Privy Council appeal No 22 of 1970] 1971 MLJ Lexis 135, Jaya Jusco Stores
Sdn Bhd v Sime Darby Security Services Sdn Bhd & Ors 1999 MLJ Lexis 419, Kewangan Usahasama Makmur Bhd
v Hew Tian Soong 1993 MLJU Lexis 818; Chemsource (M) Sdn Bhd v Udanis bin Mohammad Nor 2002 MLJ Lexis
389, s 97 is identical to s 144 in Sime Bank Bhd v Wu Chin Leng and another appeal Federal Court (Kuala Lumpur)
2000 MLJ Lexis 557, s 229 of the Indian Contract Act which is in pari materia with s 182 of Malaysian Contracts
Act 1950 in Win Sin (M) Sdn Bhd v Lembaga Penduduk dan Pembangunan Keluarga Negara (LPPKN) 1999 MLJ
Lexis 417, s 24 of the Contracts Act, it is obvious that this section was taken from s 23 of the Indian Contract Act in
Lori (M) Bhd (Interim Receiver) v Arab-Malaysian Finance Bhd Federal Court 1999 MLJ Lexis 667, s 71 is in pari
materia with s 70 of the Indian Contract Act in Sediperak Sdn Bhd v Baboo Chowdhury 1998 MLJ Lexis 606.
15
2000 MLJ Lexis 810.
16
(1982) AIR 57.
17
(1982) AIR 78.
18
Khoo Yoke Wah & Ors v Lee Choo Yam Holdings Sdn Bhd & Ors Supreme Court (Kuala Lumpur) 1991 MLJ
Lexis 94.
19
Abdul Rahim bin Syed Mohd v Ramakrishnan Kandasamy (Wan Ahmad Azlan bin Wan Majid & Anor,
Interveners) and another action 1996 MLJ Lexis 1037 referred to Jamshed K Irani v Burjorji Dhunjibhai (1915) LR
43 IA 26, Reliance Shipping & Travel Agencies v Low Ban Siong Court of Appeal (Kuala Lumpur) 1996 MLJ Lexis
100 referred to Bhai Panna Singh v Bhai Arjun Singh AIR 1929 PC 179, Standard Chartered Bank v Kuala Lumpur
Landmark Sdn Bhd 1990 MLJ Lexis 338 followed Re HEH The Nizam's Jewellery Trust AIR 1980 SC 17, Hsu Seng
v Chai Soi Fua [1990] 1 MLJ 300 referred to Jamshed K Irani v Burjorji Dhunjibhai (1915) 1A LR 43 2 and
Muralidhar Chatterjee v International Film Co Ltd (1942) IA LR 70 35 IA 35, Sethia Financial Services Ltd v
Nicholas Chu Fai Hung & Mak Siau King (As Claimant) 1985 MLJ Lexis 472, Eduljee v Cafe John Bros AIR 1943
nag 249.
20
Che Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors 1988 MLJ Lexis 546 referred to Kanhaya Lal v
National Bank of India Ltd (1913) ILR Vo1 XL (Calcutta series) 598.
21
Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy Federal Court (Kuala Lumpur) 1995 MLJ Lexis 726,
Bhai Panna Singh v Bhai Arjun Singh AIR 1929 PC 179, Fateh Chand v Balkishen Das [1964] 1 SCR 515; AIR
1963 SC 1405, Maula Bux v Union of India [1970] 1 SCR 928.
13
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aspects such as payment of cheques,26 third party security,27 guarantee,28 promissory
notes,29 distinction between mortgage and pledge,30 and payment on demand.31
Gopal Sri Ram JCA in the above Jurutera Consultant (SEA) Sdn Bhd & Ors v Eddie Lee Kim
Tak & Ors32 referred to large numbers of Indian cases such as Anant Das v Ashburner &
Co,33 Protap Chunder Dass v Arathoon,34 Rameshwardas v New Jooria Bazar Sugar Co35 and
Kedarnath v Sitaram,36 and including the case of Moonshee Amir Ali v Maharanee Inderjeet Singh37
which was decided by the Judicial Committee of the Privy Council before the coming into
force of the Indian Contract Act 1872 on the issue of contractual agreement.
More specifically, Edgar Joseph Jr J (as he then was) in the Malaysian case of Saw Gaik
Beow v Cheong Yew Weng & Ors38 had this to say:
‘In Poosathurai v Kannappa Chettiar & Ors (1911) LR 47 IA 1 (1920) AIR 65,
Lord Shaw . . . indicated that there was no difference on the subject of undue
influence between the Indian Contract Act 1872 and the English law. Accordingly,
22
Perwira Habib Bank Malaysia Bhd v Pengkalan Enterprise Sdn Bhd 1991 MLJ Lexis 318 referred to Kurella
Ramamurti v Nalam Subbarao AIR (1939) Madras 481 and Jyoti Cold Stores v PF Corp AIR (1973) P & H 38 and
followed Dawsons Bank Ltd v Nippon Menkwa Kabushihi Kaish (Japan Cotton Trading Co Ltd) AIR (1935) PC 79.
23
Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor Supreme Court (Kuala Lumpur) 1990 MLJ Lexis 7
referred to Firm, Pratapchand v Firm, Kotrike AIR 1975 SC 1223, Singma Sawmill Co Sdn Bhd v Asian Holdings
(Industrialised Buildings) Sdn Bhd Federal Court 1979 MLJ Lexis 245 referred to Kuju Collieriesv Jharkhand
Mines AIR 1974 SC 1892 and Moti Chandv lkram-Ullah AIR 1916 PC 59.
24
Sun Properties Sdn Bhd & Ors v Happy Shopping Plaza Sdn Bhd Supreme Court 1987 MLJ Lexis 337 referred
Fateh Chand v Balkishan Dass (1963) SC AIR 1405 at 1411.
25
Peter Ng Teck Joo v Vincent Ponniah 1984 MLJ Lexis 663 referred to Jamshed Khodaram Irani v Burjorji
Dunjibhai (15) 43 IA 26.
26
Bank Bumiputra (M) Bhd v Hashbudin bin Hashim 1998 MLJ Lexis 200 where the court referred to the Privy
Council in Sri Sri Shiba Prasad Singh v Maharaja Srish Chandra Nandi & Anor (1949-50) 75 LR 244 at p 254 on
payment of cheque.
27
Badiaddin bin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd referred to Gendsingh v Gowardhan 1938
AIR Nag 451, Giraj Baksh v Kazi Hamid Ali (1886) ILR 9 All 340 and Devi Prasad Mehdi Hasab 1940 AIR Pat 41.
28
The case of Len Min Kong v United Malayan Banking Corp Bhd and another appeal Court of Appeal (Kuala
Lumpur) 1997 MLJ Lexis 637 referred the case of Ayyanna v Veerabhadram (1926) AIR 62; Bank Bumiputra
Malaysia Bhd v Fu Lee Development Sdn Bhd & Ors 1990 MLJ Lexis 334 followed MS Amiruddin v Thomco’s
Bank, Ltd (1963) SC AIR 746, Syarikat Perumahan Pegawai Kerajaan Sdn Bhd v Bank Bumiputra Malaysia Bhd
[1991] 2 MLJ 565 followed United Commercial Bank v Bank of India (1981) SC AIR 1426, Damatar Paints (P) Ltd
v Indian Oil Corp (1982) Delhi AIR 52, Pesticides India v State Chemicals & Pharmaceuticals Corp of India (1982)
Delhi AIR 78; Ooi Boon Leong & Ors v Citibank NA Privy Council 1984 MLJ Lexis 449 referred to Sheikh
Mahamad Ravuther v British India Steam Navigation Co Ltd (1908) 32 ILR Madras 95, KR Chitguppi & Co v
Vinayak Kashinath Khadilkar AIR 1921 Bom 164, Lakhaji Dollaji & Co v Boorugu AIR 1939 BOM 101, Irrawaddy
Flotilla Co v Bugwandass (1890) 18 IA 121, Perbadanan Kemajuan Negeri Selangor v Public Bank Bhd 1979 MLJ
Lexis 276 referred to Ram Narain v Lt Col Hari Singh AIR (1964) Rajasthan 56.
29
Aw Yong Wai Choo & Ors v Arief Trading Sdn Bhd & An 1991 MLJ Lexis 269 referred to Palanivelu v Neelavathi
& Anor (1937) Journal 50.
30
Seow Mui Kim v Perwira Habib Bank & Ors 1985 MLJ Lexis 541 referred to Arjun Prasad v Central Bank of
India AIR 1956 Pat 32.
31
Kong Ming Bank Bhd v Sim Siok Eng Privy Council 1982 MLJ Lexis 404 referred to Tricomdas Cooverji Bhojav
Gopinath Jiu Thakur [1916] 44 IA 65.
32
1998 MLJ Lexis 589 at 7.
33
(1876) ILR 1 All 267.
34
(1882) ILR 8 Cal 455.
35
1926 AIR Sind 202.
36
1969 AIR Bom 221.
37
(1871-2) 14 Ind App 203.
38
(1989) 3 MLJ 301 at 307 was referred to in Chemsource (M) Sdn Bhd v Udanis bin Mohammad Nor 2002 MLJ
Lexis 389 at [49].
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the general principles of equity as illustrated by the English authorities would
afford considerable assistance in resolving problems concerning undue influence in
our courts.’
It is therefore arguable that Civil Law Act 1956 through its sections 3 and 5 appears to be
wide enough to cover areas which the existing local legislation has failed to address.39 But
to hold that view would not be in consistent with Malaysian current judicial approach.40
This was clearly set out in the case of Hong Leong Equipment Sdn. Bhd. v. Liew Fook Chuan41
which offers a caution when adopting the views of foreign courts and thus, by analogy,
foreign legislation. In this case, Gopal Sri Ram JCA at page 531 said:
‘However eminent an English or an Australian judge may be, it is not to be
forgotten that the views he expresses are coloured by the needs of the society of
which he is a member. We, on the other hand, have to address the needs of a
society quite differently structured, with different aspirations based on an entirely
different set of values. Our courts should therefore adopt an approach that is best
suited to our own needs and values paying such respect as is due to the approach
adopted by the courts of countries whose values upon particular subjects may be at
variance with our own.’
This denotes that Malaysia should adopt an approach that is best suited to the local needs
and values, although it does not prohibit the application of English law in Malaysia. What
Gopal Sri Ram JCA actually stressed was the limit and extent of its application in Malaysia.
It is more appropriate to state that he merely suggested that it should be the right of
Malaysian courts to modify the English principles to suit local needs. The Court of
Appeal’s case of Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd
& Ors and other appeals42 supports this viewpoint. Gopal Sri Ram JCA welcomes the right to
modify principles of the common law and doctrines of equity that have their historical
origins in England, to suit domestic needs of another jurisdiction, as being recognised by
the judicial committee of the Privy Council in Invercargill City Council v Hamlin,43 an appeal
from New Zealand. Lord Lloyd of Berwick, when delivering the advice of the board, said:
“But in the present case the judges in the New Zealand Court of Appeal were
consciously departing from English case law on the ground that conditions in New
Zealand are different. Were they entitled to do so? The answer must surely be yes. The
ability of the common law to adapt itself to the differing circumstances of the
countries in which it has taken root, is not a weakness, but one of its great strengths.
Were it not so, the common law would not have flourished as it has, with all the
common law countries learning from each other.”
39
Privy Council in Seng Djit Hin v Nagurdas Purshotumdas & Co (1923) AC 444 (1919) 14 SSLR 181 (CA) (PC)
and Shaik Sahied bin Abdullah Bajerai v Sockalingam Chettiar. (1933) AC 342; See also Rai Bahadur Singh & Anor
v Bank of India 1992 SLR Lexis 528 at 2.
40
Standard Chartered Bank v Boomland Development Sdn Bhd & Ors 1997 MLJU Lexis 496.
41
[1996] 1 MLJ 481 C.A.
42
Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other appeals 1996 MLJ
LexisS 988 at 112.
43
[1996] 1 ALL ER 756.
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It is on this basis that Gopal Sri Ram JCA when discussing whether Unfair Contract
Terms Act (UCTA) in the case of Standard Chartered Bank v Boomland Development Sdn Bhd &
Ors44 should be applied, had clearly observed that:45
“Now, the UCTA was enacted by the British Parliament in 1977. It is fair, I think,
to say that it was done so in response to the need of that country. Meanwhile, the
Civil Law Act 1956, which is being projected as the vehicle to bring in UCTA, has
been in existence even before our independence. It is now 1997. Over the years we
have been formulating our own laws to suit the needs of our society. That includes
the Act which also deals with the law on surety. Surely, the Legislature, in its
wisdom, would have responded to the need of our society, if there was any, by
including provisions similar to those in UCTA, into the Act. The fact that it did
not should be a clear indication that the Act in its present form is sufficient for our
present needs without having to resort to UCTA.”
He continued:
‘To adopt UCTA in some States (as Section 5 (2) of the Civil Law Act 1956 sets
the limitation) while excluding the others, would surely create an undue disparity
and inequality in such law amongst the States of this country. That would not be
conducive to business activities. For that would mean that in some States a
different standard or approach is expected when setting down the terms of a
contract. This problem might not arise if Section 5 (2) applies to the whole
country.’
The Shariah Advisory Council Under S. 124
The role and fuction of Shariah Advisory Councils should be made clearer. More experts
from other than legal background should be included. An expert should not only possess
Islamic jurisprudence knowledge but must also posses some comparative knowledge on
conventional banking law. This is relevant since Islamic Banking Act 1983 originates from
English law. What would be the position if the advice of Syariah Advisory Council on the
same issue differ? How would a court be expect ed to resolve such differences in opinion
if a matter in respect of which there are differences between these bodies reaches the civil
court?
Some Flexible Proposals
The Law
The following must be taken into considerations:
a) The law applicable to Islamic banking has to be made certain.
b) Guidelines on the law applicable should be made clear.
c) Islamic law shall prevail where there is a conflict between Islamic law and the civil
laws in relation to Islamic banking transactions.
44
45
[1997] MLJU Lexis 496.
[1997] MLJU Lexis 496 at [43].
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d) Islamic Banking Act and the Banking and Financial Institutions Act 1989 shall be
amended to clarify-the position of Islamic law in Islamic banking transactions.
e) There shall be amendments to the existing laws such as the Contracts Act 1950,
the National Land Code 1965, the Stamp Act 1949, the Companies Act 1965, the
Malay Reservations Enactment of the various States of Malaysia, The Rules of the
High Court 1980 and the Subordinate Courts Rules 1980 and others.
f)
The provisions in Islamic banking Act shall be amended (“Islamic financial
business” means any financial business, the aims and operations of which do not
involve any element which is not approved by the Religion of Islam.” ). We agree
with one writer (Muhammad Ismail, 2003) since this section empowers
conventional financial institutions to carry on Islamic banking business to the same
extent as an Islamic bank, removing in the process the prohibition against the
carrying on of Islamic banking business by any person not in possession of a
license under the IBA.6 Indeed, the latter can do more since s. 124 (1) also
authorises them to do Islamic financial business, although considering the
definition of the latter term (which is identical to that of Islamic banking business),
it is difficult to see what would come with in that term that is also not within the
term Islamic banking business.
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Globalization and Its Impact on the Law of International
Business–
The Environmental Perspective of Liberia.
By:
C. Alexander B. Zoe
The Louis Arthur Grimes School of Law
University of Liberia, Monrovia, Liberia, West Africa
Introduction
The topic under discussion brings to mind that since all nations form part of an artificial
sphere on whose surface is drawn a map of the earth , the attempt by man to gather all
business activities of human kind in a round mass as a unit in the global village is indeed
possible. Therefore, Laws enacted to regulate business activities must be of international
standard to ensure that corporations, be it foreign or domestic, conform to generally
accepted international practices without negatively impacting on the environment in which
they operate.
Notwithstanding the obligation imposed on corporations of contemporary Liberia to
ensure that they practice international business transactions within their respective
designated environment without causing any impairment to the environment of operation,
there are few cases involving foreign corporations whose presence in Liberia have
somehow caused some impairment to their designated environment and as a result, the
country suffered the loss of both human lives and property.
The case of the erstwhile National Iron Ore Company (NIOC), then operating in
the Mano River Area, the erstwhile Liberia Mining Company (LMC), then operating in
Bomi County, the erstwhile Liberia American Mining Company (LAMCO),then
operating in both Buchanan, Grand Bassa County and Yekepa, Nimba County and the
Firestone Rubber Plantation Company are few of the several multinational
corporations whose operations are being made subjects for discussion.
Moreover, the discussion of the environment and the ecosystem services being relevant,
we will however make same a subject for discussion to cover trade and environment.
The Operation of NIOC, LMC, LAMCO and Firestone In Liberia
It is a known fact that following the commencement of operation in Liberia by the NIOC,
LMC, LAMCO and Firestone, the unemployment rate at the time was reduced to some
extend by the employment of many Liberian citizens by these multinational corporations.
During the period under review, the Environmental Protection Agency (EPA) now
existing and operating under the laws of Liberia had not been created and perhaps the Law
for the protection of the environment now in vogue had also not been enacted, although
the law of international business transactions was then in existence.
While from a global perspective, Liberia did experience growth in its economy, the
operation of these multinational corporations did impact on the environment negatively.
For instance, the washing of iron ores by LAMCO directly polluted the St. John River and
thus deprived citizens living in the environment from fetching safe drinking water from
the River as was normally done prior to the operation of LAMCO. Also, the case of
NIOC is a classic example of how globalization does impact the environment. In the area
of Mano River where the NIOC did operate at the time in Liberia, the Country witnessed
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a landslide which resulted into the death of many Liberians. It is noted that the landslide
witnessed for the first time in the country was the result of the compilation of huge dirt by
NIOC from its mining operation in that part of the country.
As already stated, there being no environmental law and agency to ensure the enforcement
of such law of the environment, the environments in which these multinational
corporations operated were left unprotected, thus affecting the citizens, although they
were employed and earned wages and salaries.
Environmental and Ecosystem Services
It is no secrete that in view of the dawns of the twenty-first century, goods, money,
people, ideas and pollution are making travels around the world with uncontrollable speed
and scale (French 2000). This trend which is most times referred to as globalization does
impact peoples all over the world and thus raise several questions which require answers.
From a global perspective, nations have over the last decade witnessed growth in their
economy. Notwithstanding, it seems that the production and consumption patterns have
made no success in satisfying the basic needs of the people of the world, particularly in
developing countries. The use of the natural resources of nations without efforts exerted
to sustain them has caused great damage to the environment and thus impact on the law
of international business transactions. Instead of being managed to satisfy the fundamental
needs of human kind as intended by the law of international business, the natural
resources are being used to satisfy a selected few. From studies conducted in this respect,
one can reliably say that Economic Globalization has brought negative impacts that are
evident in the trade-related loss of natural resources and abrupt investment shifts that have
negative results (UNEP, WSSD, 2002). The Third Global Environmental Outlook report
(GEO3) is clear on the point that the forces of globalization continue to present a
challenging new context for the implementation of environmental policy, presenting new
opportunities but also posing risks of poverty and marginalization for a large segment of
the world’s population.
While we agree that the dominance of economic globalization processes are viewed as the
root causes of the damaging effects on the environment, it may also be seen as having
both devastating and beneficial outcomes (AMOI).
As a result, one can certainly say that economic globalization has indeed contributed to
positive changes in increasing access to goods and services, foreign investment and local
employment and integrating the economy and the environment by employing market
based instruments (UNEP, WSSD, 2002).
The 55/2 United Nation Millenium Declaration did highlight the concern that the central
challenge we face today is to ensure that globalization becomes a positive force for all the
world people. The Declaration is clear that while globalization offers great opportunities, it
however at present gives benefits that are not shared equally. Also, the costs of
globalization are unevenly distributed. Therefore, it is only through broad and sustained
efforts to create a shared future, based upon our common humanity in all its diversity, can
globalization be made fully inclusive and equitable.
Trade and Environment
There is a need to point out that the problem for the environment posed by globalization
and the rapid growth of international trade are of some concerns. UNEP has therefore
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enhanced its working relationship with both the World Trade Organization(WTO) and the
United Nations Conference on Trade and Development(UNTAD) to address the crucial
nexus between trade and environment, including through the UNEP-UNCTAD Capacity
Building Task Force on Trade Environment and Development (CBTF).
The Trade and Environment Review intended to give analysis to the relationship between
environmental requirements and market access for developing countries was prepared in
2006 by the UNCTAD. As a result, the UNCTAD has been exploring the trade and
sustainable development opportunities arising from emerging markets for environmentally
preferable products. Important UNCTAD initiatives in this area include the International
Task Force on Harmonization and Equivalence in Organic Agriculture Organization of
the United Nations(FAO), as well as ongoing and planned activities under the UNEPUNCTAD Capacity Building Task Force on Trade, Environment and Development
(CBTF).
The CBTF is a joint initiative of UNEP and UNCTAD, launched at UNCTAD in
Bangkok in 2000. Its overall objective is to help strengthen the capacities of interested
developing countries to effectively address trade.
Conclusion
In concluding, it is proper to note that while we agree that investment activities undertaken
by multinational corporations in developing countries do contribute to their economic
development, those investment activities should not contravene the commercial and
environmental laws of those countries, as to so do negatively impact on the law of
international business. Moreover, since it is of public knowledge that laws enacted to
regulate business activities must meet international standard to ensure that corporations
conform to generally accepted international practice without negatively impacting on the
environment in which they operate, the institution mandated to enforce the environmental
law must be allowed to first conduct environmental survey prior to the commencement of
operation by corporations.
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Regulation of International Business
Transactions
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Material Adverse Change Clauses under Puerto Rico Law
By:
Luis Aníbal AVILES
University of Puerto Rico School of Law
Mergers and Acquisition (M&A) attorneys in Latin America too often receive
requests for legal opinions under their national laws regarding long and complex
acquisition agreements drafted by New York attorneys (mainly for domestic acquisitions)
and transplanted to the new international acquisition under the time pressure of closing
the transaction imposed by their clients. Needless to say, the legal opinions are issued and
the transactions are executed. However, local opinion attorneys quietly hope that their
legal opinions are never tested in local courts of law. That is because the acquisition
agreements are oftentimes filled with concepts that are foreign to local laws and most
judges are not trained in the subtleties of international M&A practices. One such concept
is the so-called Material Averse Change (MAC) or Material Adverse Effect (MAE)
clauses46. MAC Clauses are drafted to give buyers the right to walk away from the
acquisition before the closing if and when certain events occur that are detrimental to the
seller company. In this work, I study what tools a court in Puerto Rico would have in
order to deal with a litigation where a buyer refuses to close a transaction invoking a MAC
clause.
A MAC clause would allow the buyer a free walk away right not to close the
transaction on the occurrence of an “event, change, or occurrence which individually, or
together with any other event, change, or occurrence have or would have or would be
reasonably likely to have or would be reasonably expected to have or could reasonably be
expected to have or insofar as can be reasonably foreseen, is likely to result in a Material
Adverse Effect or a Material Adverse Change on the financial position, prospects,
business, properties, assets, or results of operations of the company and its subsidiaries
taken as a whole.” 47 This term is commonly used in acquisition agreements in connection
with a closing condition48 whereby the buyer has the benefit of a walk away right if the
target company experiences a serious adverse change between the date the contract is
signed and the transaction closing date.
The MAC clause language is certainly ambiguous and open to a host of
interpretations. Despite these and other ambiguities, the typical MAC produced little
litigation perhaps because businesspeople saw these clauses as lawyer subtleties.
Nevertheless, litigation over MAC clauses has increased in recent years49. Acquisition
46
Other concepts include, Letter of Intent, breakup fees and complex indemnity clauses.
Arthur Fleischer, Jr., Contract Interpretation in Acquisition Agreements: The Content of Material
Adverse Change, 15 Insights 2, 4 (Sept. 2001).
48
Most acquisition transactions require a period of time between the execution of the acquisition
agreement and the actual exchange of considerations or closing. Such time delay is mainly due to
regulatory filings and approvals needed for shareholders to vote and approve the transaction. Prior to the
closing, the buyer and the seller continue operating their respective companies and market and other
forces may dramatically change the circumstances of seller.
49
See, In Re IBP, Inc. Shareholders Litigation, IBP, Inc. v. Tyson Foods, Inc, 789 A.2d 14 (2001).
47
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attorneys spend endless hour negotiating the extent and effect of these clauses, assuming
the real possibility that the buyer will in fact use such clause to walk away from the deal.
Puerto Rico’s case law is silent about the interpretation of MAC clauses. Even
though Puerto Rico’s corporation law has closely followed the Delaware General
Corporation Law since 1954, MAC clause litigation is generally a matter of contract law.
As such, we need to take a look at Puerto Rico’s Civil Code (Civil Code) for guidance.
Puerto Rico’s Civil Code codifies obligations and contracts in its fourth (4th)
subtitle. Article 1044 of the Civil Code50 states that the obligations arising from a contract
binds its proponents to act according to their proposed statements. Article 1207 of the
Civil Code states that the parties involved in a contract can freely establish contractual
clauses and conditions deemed convenient unless these are against the law, moral
principles or the public order.51 Moreover, Article 1208 of the Civil Code establishes that
the validity and fulfilling of a contract is not in the discretionary judgment of one of its
parties.52 Unless stated otherwise in the contract, the party’s responsibility ends with the
satisfaction of the contract.
On the other hand, the Civil Code underwrites the impact of a significant and
unexpected change in the performance of a contractual transaction. The centuries-old rebus
sic stantibus doctrine (latin for “things thus standing” and short form of the phrase contractus qui
habent tractum succesivum vel dependentiam de futuro rebus sic stantibus intelligimtur), offers an exceptional remedy in
extraordinary circumstances.53 When the doctrine is raised as an affirmative defense in a
breach of contract litigation, a careful and conscientious judicial discernment is required.
Any contract projecting its efficacy into the future is rendered with the implicit premise
that “things should stay as they are”54. However, the rebus sic stantibus doctrine permits to
significantly change or end a contractual relationship when there are major and unforeseen
circumstances that render the contract satisfying impossible or extremely burdensome for
any of its parts.
Rebus sic stantibus is an extraordinary remedy only applied in extreme situations
where the court wants to assure an equitable solution. The determining factor in order for
the court to acknowledge the doctrine is the clear evidence that the circumstances altering
the contract where completely unforeseen. In these circumstances, the burden of proof
rests on the contracting party unable to comply with its side of the bargain. The courts
have the mission to provide a fair and equitable remedy adequate for the particular
circumstances of the case, including, although not limited to, the temporary suspension of
the contract’s effect, its rescission, re-statement of prices, suspension or moratorium, and
others if the concurrence of all the circumstances justifying application of the rebus sic
stantibus clause are present.55
The Puerto Rico Civil Code does not codify the doctrine of rebus sic stantibus.
However, that Puerto Rico Supreme Court has demonstrated its willingness to apply the
doctrine under the appropriate circumstances. In Casera Foods v. ELA, the Puerto Rico
Supreme Court applied the doctrine by stating that: ‘The "rebus sic stantibus" clause
50
Article 1044, Código Civil de Puerto Rico, 31 P.R. Laws Ann. § 2994.
52
53
3 Castán, Derecho Civil Español, Común v Foral 548 (1974).
54
José Puig Brutau, Fundamentos de Derecho Civil, 3ra ed., Barcelona, Bosch, 1971, T. II, vol. I, pags.
348374.
55
See, Calderón, Jr., La Claúsula Rebus Sic Stantibus y el Riesgo Imprevisible en el Derecho
Puertorriqueño, XIX Rev. Col. Abog. 6-7 (1958).
51
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counterbalances the strictness and absolutism involved in the practice of sustaining, at all
costs and under any circumstances, the contractual will of the parties, symbolized in the
well-known maxim pacta sunt servanda which appears in art. 1044 of the Civil Code. [31
P.R. Laws Ann. § 2994] Its existence is justified as follows: "Sometimes, however, and
most of all in times of economic crisis or when it is a matter of long-term or installment
contracts, such a change of circumstances beyond the parties' control may make it
extremely burdensome for one of the parties to perform the agreement or may turn the
contract into an objectively unfair one." [citing with approval 3 Castán, Derecho Civil
Español, Común v Foral 548 (1974)]. In such cases, ". . . equity must come into play in
order to restore the unbalance or, at least, attenuate the damages assessed. . ." [citing with
approval J. Sánchez del Valle, Sugerencias a la Doctrina de la Claúsula Rebus Sic Stantibus,
27 Rev. Crítica Derecho Inmobiliario 262 (1954)]’. 56
The Supreme Court (again, citing Castán with approval) continues on to say that:
“In order for review to be admissible, it is necessary that very special and extraordinary
circumstances be present among them the following: a) the unforeseeable nature of the
event which has taken place; b) that performance of the contract be extremely difficult or
burdensome, so that it would represent for the promisor an injury out of proportion with
the profit he anticipated from the contract; c) that the contract not be aleatory or purely
speculative, with which the parties intended to take preventive measures for any possible
occurrence.”57
As we can see, the rebus sic stantibus doctrine may provide a legal framework in
Puerto Rico on which to interpret MAC clauses, for it considers circumstances where an
unforeseeable event may excuse the faithful compliance with the letter of the contract and
may force the interruption or re-negotiation of the contract. Boilerplate MAC clauses are
often too general and ambiguous and courts may not be able to discern the intention of
the parties in interpreting such clauses. Buyers wanting to walk away from the closing of
acquisition agreements may have to invoke the rebus sic stantibus doctrine to excuse their
non-performance. However, buyers will face the risk of courts not finding the alleged
MAC events to rise to the level of unforeseeability that the doctrine has historically
required. Thus, acquisition attorneys in Puerto Rico must be wary of boilerplate MAC
clauses and draft termination right clauses that are fact-specific to the nature of the
proposed transaction.
56
Casera Foods, Inc. v. E.L.A., 108 D.P.R. 850 (1979), 8 P.R. Offic. Trans. 914 (1979) (Holding that the doctrine
does not apply to the fact of the case).
57
Casera Foods, Inc. v. E.L.A., 108 D.P.R. 850 (1979), 8 P.R. Offic. Trans. 914 (1979)
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International and National Laws Intertwined in Asia*
-DRAFT – PLEASE DO NOT CITEBy:
Ljiliana Biukovic
To conduct business activities in any jurisdiction today requires not only a
knowledge of the relevant domestic laws but also an understanding of a complex
multilevel legal framework that includes a myriad of international and regional rules and
standards. The process of market globalization is inevitably linked to globalization of the
legal rules that regulate the global markets, with result that national legal systems are
distinguished more by local institutional practices that by differences in the substantive
legal norms. In other words, it is important to understand that international laws can
acquire a variety of local meanings that call for an understanding of the local history and
culture in addition to knowledge of the local economy and local laws. This brief article
aims at discussing the importance of the learning about the multifaceted regulatory
environments of business practices through examination of not only the massive web of
national, regional and international rules that frame business practices in a particular
country, but also the unique historical, political and cultural context in which local laws
and institutions have emerged.
A decision to do business in Asia, for example, is often based on the economic
attractiveness of that market. Despite the financial crisis in late 1997 and early 1998, the
past performance of the Asian market has been remarkably strong. Most of the Asian
economies are export-oriented and their export power is growing. Asia’s share of world
trade was 34 percent in 2006 and accounted for about 40 percent of the total increase in
world trade over that period.58 Since 2004 when it overtook Japan, China has been the
world’s biggest exporter. The only countries with higher exports are Germany and the
United States, and 20 percent of China’s export goes to the US.59 The strong economic
growth in the whole region (approximately 6 percent to 12 percent in 2007)60, the vast
market (Asia is the largest continent), the enormous labour resources (close to 3 billion
people in China and India alone), a good work ethic based on traditional obedience and a
sense of hierarchy, low labour costs, the dominance of the private sector (except in China),
the diverse levels of economic development of the countries in the region (some are
developing while others, such as Japan and Korea, are already developed), and the
* Dr. Ljiljana Biukovic, Faculty of Law, University of British Columbia ([email protected]). The research for
this article is supported by the Major Collaborative Research Initiative Grant of the Social Science and Humanities
Research of Canada and it is a part of the project on Cross-Cultural Dispute Resolution. It is a part of an initial draft
of the chapter in the book L.Biukovic & P. Potter, Doing Business in Asia (forthcoming in 2008, LexisNexis
Canada). Comments welcome.
58
P. Gruenwald and M. Hori, See P. Gruenwald and M. Hori, “Intra-regional Trade Key to Asia’s Export Boom”,
IMF Survey Magazine, February 6, 2008, available at
http://www.imf.org/external/pubs/ft/survey/so/CAR02608A.htm (last visited March 17, 2008).
59
IMF report, (2007) Vol. 44:3 Finance and Development, available at
http://www.imf.org/external/pubs/ft/fandd/2007/09/amiti.htm (last visited March 17, 2008).
60
In general, economic growth throughout the region has been steady. Japan reached only 2.1% GDP growth in
2007, but Taiwan, Singapore, and Indonesia grew at 6% GDP per year, South Korea 7%, Malaysia and Thailand 8%,
India 10%, and China 11.5%. See: www.wto.org and OECD at www.oecd.org.
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booming intra-regional trade despite a significant lack of complementarily among the
goods and services traded61, are some of the factors normally considered by foreign
investors in deciding whether to do business in Asia.62
One other factor, the importance of which is sometimes underestimated in this
decision making process, is the system of legal rules in effect in the various countries.
Regardless of the form that the business is to take, the regulatory power of governments,
how and how well the court system functions, specific legislation on ownership, including
intellectual property rights, and on investment, acquisitions, financing, employment,
taxation, cross-border trade and dispute settlement, are all important elements that should
be considered in deciding whether to conduct business in any foreign jurisdiction.
The question of whether a country’s substantive legal rules are good for foreign
investors can be translated into questions about justice and fairness of the legal system and
equality for all business actors in the market. Do the legal rules provide equal rights to
foreign and domestic businesses, and to small, medium size and big businesses? Are they
easy for everybody to understand? Are the rules certain and predictable? Do they protect
businesses from arbitrary decisions by local authorities and do they actually hold local
authorities accountable for their actions? Are the stated rules actually applied by local
institutions and are the procedures for their application and enforcement transparent and
sufficiently accessible to all business actors? Finally, would the rules be more reliable if
they were to assimilate principles and standards based on the models of Western law
familiar to foreign investors?
The legal studies have emphasized the importance of legal reforms in the
development of the region’s market economies. Some legal scholars have focused on the
reforms undertaken following Asia’s 1997/1998 financial crisis in order to determine how
strengthening the rule of law and building institutional infrastructure have influenced
economic prosperity and business development in the region.63 Other studies, considering
the multi-layered legal framework to be a complex relationship among international,
regional and national laws in the region, have attempted to find out whether local laws and
standards comply or conflict with international agreements.64 Yet other studies have
analyzed legislation against the backdrop of the customary rules and values of the local
societies and have tried to find out whether any observed lack of compliance is the result
of a lack of understanding of state laws by the local communities and institutions.65
61
Intra-regional trade in Asia in 2006 accounted for 51.9 percent of total trade in Asia. See P. Gruenwald and M.
Hori, “Intra-regional Trade Key to Asia’s Export Boom”, supra note 1.
62
C. Campbell, Legal Aspects of Doing Business in Asia and the Pacific, vol. 3 (The Hague: Kluwer Law
International, 1998) at 2.
*Faculty of Law, University of British Columbia. The research for this article is supported by the Major
Collaborative Research Initiative Grant of the Social Science and Humanities Research of Canada and it is a part of
the project on Cross-Cultural Dispute Resolution.
63
See for instance C. Antons and V. Gessner, eds., Globalisation and Resistance, Law Reform in Asia since the
Crisis (Portland: Hart Publishing, 2007).
64
See for example C. Wu, “One Country, Two Legal Systems, and Three Memberships: Legal and Economic
Integration between China and its Two SARs” (2007) 7:3 Global Jurist (Advances), Article 7 available at
http://bepress.com/gj/vol7/iss3/art7 , M. Ulric Killion, “China and Neo-liberal Constitutionalism” (2003) 3:2 Global
Jurist Frontiers, Article 3, available at http://bepress.com/gj/ , K. Pistor and P.A. Wellons, The Rule of Law and
Legal Institutions in Asian Economic Development: 1960-1995 (Oxford: Oxford University Press, 1999).
65
See D. Nelken and J. Feest, eds., Adapting Legal Cultures (Portland: Hart Publishing, 2003), D. Martiny,
“Traditional Private and Commercial Law Rules under the Pressure of Global Transactions: The Role for an
International Order” in R. Appelbaum, W. Felstiner and V. Gessner, eds., Rules and Networks; The Legal Culture of
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After the financial crisis in Asia numerous organizations and institutions, including
banks, NGOs, academic and research centers, and Western law firms, offered Asian states
and their governments technical and financial assistance in their quest to transform local
laws and institutions.66 That help came with a handful of ready-to-use models of Western
laws and institutions—essentially, a shortcut to establishing market economies.
International institutions and organizations such as the 1947 General Agreement on
Tariffs and Trade (GATT),67 the agreement establishing the World Trade Organization
(WTO),68 the World Bank, the International Monetary Fund (IMF) 69 and the Organization
for Economic Cooperation and Development (OECD)70, have fostered the creation of
common rules for globalized trade that inevitably minimize state intervention in economic
development. For example, this has been done both through the framework for
international trade built around the GATT and WTO agreements that regulate state
obligations and through the great number of international conventions that regulate
specific private business transactions such as the international sale of goods, the bills of
lading and leasing contracts, or determine mechanisms of disputes related to international
trade and investments.71 It is noteworthy that most of the earlier mentioned legal studies
have found that, since 1998, economic development in Asia has been facilitated by specific
legal regimes built on an interesting mix of state regulatory power and the increasing
influence of the international institutions assisting Asia in its legal and socioeconomic
changes.72 The state remains an important actor in regulating (and, in some cases, even in
managing) the economic sector, usually by borrowing Western laws and Western practices
in order to achieve fast modernization of local societies and economies.
As a result of the above mentioned national and international regulatory attempts,
legal reforms in Asia appear to rely on a continuing series of borrowings of Western legal
principles, either through accession to and internalization of international treaties or
Global Business Transactions ((Portland: Hart Publishing, 2007) 123-159, and D. Cass, B. Williams and G. Barker,
eds., China and the World Trading System; Entering the New Millennium (Cambridge: Cambridge University Press,
2003)
66
For analysis of the Asian financial crisis that hit Korea, Indonesia, Thailand, Malaysia, Philippines and to a less
extent Singapore see in K. Jomo ed., Southeast Asian Paper Tigers?—From Miracle to Debacle and Beyond
(London: RoutlageCurson, 2003).
67
General Agreements on Tariffs and Trade, 30 October 1947, 55 U.N.T.S. 187.
68
Marrakesh Agreement Establishing the World Trade Organization , opened for signature 15 April 1994, 1867
U.N.T.S. 3 (entered into force 1 January 1995) (“Marrakesh Agreement”). See the WTO official web site
http://www.wto.org.
69
For more on the International Monetary Fund see http://www.imf.org/external/ .
70
For more on the OECD see http://www.oecd.org/pages/0,3417,en_36734052_36734103_1_1_1_1_1,00.html. In
brief, the OECD contributes to convergence of business laws by encouraging national regulators to adopt particular
models of legislation endorsed by the organization. Currently, the OECD is involved in legislative reforms of over
70 developing countries.
71
The International Trade Centre (ITC), an agency of the WTO and the UNCTAD, maintains a data base on
ratification of international trade instruments by country (LegaCarta available online at www.legacarta.org). A
compiled data refers to the term “international instruments” which is broader than a term “treaty” because it includes
not only international trade treaties (or conventions) but also model laws and trade usages. According to the ITC
data, each country in the world ratifies at average 74 of 217 international instruments related to trade. A country in
Asia ratifies at average 63 of 217 international instruments. For example, China ratified 102, India 92, Indonesia 70,
Japan 118, and Korea 94 of 217. The first on the list is the Netherlands with 155 ratified international instruments.
But note that Singapore, the first on the World Bank Doing Business Report list of the easiness of doing business,
ratified “only” 82 of 217 international instruments. It is noteworthy that Canada ratified 98, the United States 107,
and the United Kingdom 138 of 217 international instruments.
72
See, for example, all contributions to the volume by C. Antons and V. Gessner, eds., Globalisation and
Resistance, supra note 6.
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through the adoption of Western-style laws by national legislatures.73 In either case—the
adoption of well-known and already-tested laws of other states, or of the accession to
international treaties—borrowing is appealing. It is a time and cost efficient shortcut to
legal reforms and an immediate response to the need foreign investors have to operate
within a certain, predicable legal environment. Similarity of national business laws and the
acceptance of international standards are viewed as important elements of the
harmonization of business laws upon which international business and cross border
transactions depend while diverse laws are usually seen as obstacles to regional business
and even more so to international business. However, that borrowing is usually selective
and filtered by the local cultural, historical, religious, social and political context.
Ultimately, rules that appear similar and harmonious on the books become interpreted and
applied differently by different communities. Adoption of the WTO rules and disciplines
certainly leads to the harmonization of trade rules and, as long as those rules are uniformly
interpreted and applied in each member state, brings certainty and predictability to the
legal framework for business. However, uniform interpretation and application of the
WTO rules depends not only on the political will of the member states to comply with the
rules but also on the complexity of their domestic legal and political systems, on whether
they posses the financial resources to introduce the reforms necessary to support
application of the WTO rules, and on the ability of the local legal culture to absorb the
Western ideas of trade liberalization and the rule of law.74
Thus, despite the apparently significant similarity between Asian and Western
business laws, the decision to conduct business in Asia should also take into consideration
the “procedural dimension” of legal rules, or the way in which similar or even the same
legal rules are actually interpreted and enforced locally,75 and the effectiveness of local
institutions in securing the interests of the business community. Each year the World Bank
investigates business regulations around the world and publishes country evaluations in its
Doing Business report.76 The Doing Business 2008 Report suggests, for example, that
requirements for complicated, multi-stage processes of incorporation and registration of
business, which also tend to be costly and time-consuming, are the most cumbersome
ones. These processes are daunting to businesses, which could lead to the development of
an informal or grey economy. They are also burdensome to the ultimate consumer because
the higher transaction costs usually result in a higher final price of products. Moreover, the
cumbersome (rules and) procedures create ideal conditions for a culture of bribery of the
local authorities in charge of registering and approving business start-ups. Thus, the
73
K. Pistor and P.A. Wellons, The Rule of Law and Legal Institutions in Asian Economic Development, supra note
7. Indeed, Pistor and Wellons found that China, Hong Kong, India, Japan, Korea and Taiwan all received Western
laws during their colonial past in the second half of the nineteenth century – Hong Kong and India received English
common law while other received primarily French and German legal systems.
74
For more on adoption of the rule of law principle in Asia see R. Peerenboom, ed., Asian Discourses of Rule of Law
– Theories and Implementation of Rule of Law in Twelve Asian Countries (London and New York,
RoutladgeCruzon, 2004).
75
K. Pistor and P. A. Wellons, supra note 7.
76
Doing Business 2008 Report compares 46 Sub-Saharan, 31 Latin American and Caribbean, 28 Eastern European
and Central Asian, 24 East Asian and Pacific, 17 Middle East and North African, and 8 South Asian countries
against the benchmark consisting of 24 OECD high income economies. See http://www.doingbusiness.org (last
accessed on February 9, 2008). The study is based on the analysis of data collected until June 1, 2007. The report
focuses on the legal rules and procedures governing: (a) starting a business; (b) dealing with licencing; (c) employing
workers; (d) registering property; (e) getting credit; (f) protecting investors; (g) paying taxes; (h) trading across
borders; (i) enforcing contracts; and (j) closing a business. The data generated for each country, taken together, is a
measure of the “ease of doing business” in that country.
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preferred is a simplified but transparent process. However, the Doing Business the World
Bank report does not address the end goal of the laws that mandate these complex
procedures. Therefore, the possibility does exists that some such procedures and a
significant level of governments’ restrictions on private economic freedoms might have as
their objective to provide legal security, certainty and better screening by government of
business activities. They might be intended to protect business from arbitrary actions on
the part of local officials and they might even be transparent and non-discriminatory. The
2007 Word Bank Institute paper on the rule of law and economic growth finds that, over
the past three decades, Japan, South Korea and China have consistently recorded high
economic growth (at least 5 percent per year) despite the fact that they impose significant
restrictions on economic freedoms and have governments that actively intervene in the
economy. 77 Similarly, Pistor and Wellons in their study of the influence of the role of law
and legal institutions in economic development in Asia during the period from 1960 to
1995 suggest that the state and strong bureaucracies have played a more important role in
their development and that the states have adopted Western business laws as a means of
promoting state control over economic resources in addition to jump starting economic
development.78 Thus, substantively similar laws have been used in the West and in Asia but
by different institutions and in significantly different procedures; and, yet they brought
about a similar result—that is, economic development.
The liberalization of trade at the multilateral and regional level makes it easier for
national businesses to trade with and invest in other markets but it also intensifies the
influence of international law on private business transactions in each country. On the
other hand, there is not the chance that even businesses that operate within the confines
of a single state are not affected by the myriad of legal provisions normally enacted in
order to implement and to give meaning to international treaties locally. Thus, teaching the
law of international business transactions should address a global perspective as much as
the ways in which such a perspective gets transposed locally.
77
D. Kaufmann, A. Kraay and M. Mastruzzi, “Governance Matters VI: Aggregate and Individual Governance
Indicators 1996-2006”, World Bank Research Policy Working Paper WPS 4280, July 2007.
78
K. Pistor and P.A. Wellons, supra note 7.
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Mapping Out Global Institutions Regulating International
Business Transactions: What Are at Stake?
By:
Prof. Sungjoon Cho
Chicago-Kent College of Law,
Illinois Institute of Technology (USA)
Prologue
The urgency of global intervention in major regulatory areas, ranging from climate change
to financial services, has recently been mounting against the backdrop of a number of
depressing developments, such as the melting of ice in the Artic region and the
international financial turbulence originating from the U.S. sub-prime mortgage crisis.
These global regulations, which are public responses to these various, old and new,
regulatory challenges, affect directly and indirectly international business activities. In this
brief presentation, I would like to offer a cognitive lens through which we can structure
these challenges and responses from the standpoint of global institutions which connote
norms and organizations.
Challenges
In a borderless world consisting of both online and offline reality where money and
products can travel at the speed of light, all economics is international, as Peter Drucker
once observed. Undoubtedly, this technology-driven globalization which denotes everincreasing level of interdependence and integration of once isolated national markets is
bliss to international businesspeople that are relentlessly searching for new markets and
new opportunities. They may wish for care-free operations and transactions unhampered
by trade barriers. Yet there exists no Hayekian paradise. Domestic governments regulate
whatever they think should be regulated. Even a global market can fail for many reasons,
including the emergence of market abusers which might attempt to manipulate the global
market at the expense of global competition. The international market should not be left
to a total anarchy.
The problem, however, is that different countries have different regulations. This
regulatory heterogeneity imposes painful costs to international businesses. For example,
some governments want to ban internet gambling for socio-political reasons (e.g., the
recent U.S. “Unlawful Internet Gambling Enforcement Act (UIGEA)”) while others just
want to regulate (e.g., European countries). Even if national regulations are legitimate
(non-protectionist) on their own terms, those divergent regulations stemming from
different values (e.g., Washington consensus v. European way v. Asian value) incur often
insurmountable transaction costs to global businesspeople who desire to capitalize on the
borderless economy. Finally, there are also “developmental” concerns to this regulatory
heterogeneity. Poor countries lacking capacity (resources and technology) cannot meet all
the sophisticated regulatory standards imposed by rich countries. Thus, poor countries’
businesses are often marginalized from the mainstream of the global trading community.
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Responses
The plethora of international (regulatory) organization nowadays represents governments’
enlightened responses to the aforementioned challenges. International organizations (IOs)
are “public goods” designed to tackle an increasing number of collective problems of both
trade failure and regulatory failure. These IOs operate in two different vectors: deregulatory and re-regulatory. First, many IOs aim to persuade member countries to
eliminate red tapes and privatize inefficient public sectors. For example, the Organization
for Economic Cooperation and Development (OECD) encourages member governments
to implement various regulatory reform programs to create more business-friendly
(transparent) regulatory environment. Second, other IOs exist to address shared regulatory
challenges, such as the environmental protection or international financial stability.
Domestic regulations alone are sub-optimal in responding to these global challenges. The
International Monetary Fund (IMF) and the Bank for International Settlements (BIS) are
to regulate, and re-regulate, domestic financial policies which in turn affect international
financial transactions.
IOs’ missions, which are to address these challenges by designing various institutional
responses, tend to bestow themselves an aura of authority. IOs can enjoy a certain level of
operational autonomy vis-à-vis their member countries to the extent that IOs achieve their
goals. This operational authority manifests itself in two major forms: adjudication and
harmonization. First, some IOs, such as the World Trade Organization (WTO), boast
well-developed dispute resolution system which produces rich jurisprudence. This
jurisprudence (case law) has direct and indirect effects on international businesspeople,
such as importers and foreign producers. Second, IOs often house various issue-specific
“transgovernmental networks.” Comprising public, and often private, experts in sectorspecific regulatory areas, these transgovernmental networks produce regulatory standards,
guidelines and other regulatory prototypes which are not binding per se yet highly
respected and observed. Domestic statute often “hardens” this “soft law.”
Admittedly, IOs’ operational autonomy is not without criticisms. Critics often raise the socalled “democracy deficit” of IOs. While substantially affecting international businesses,
neither those adjudicators nor transgovernmental network participants have been elected.
For example, Kal Raustiala criticized that the WTO produce “quasi-constitutional” rules
(“generativity”) flowing from the confidential WTO tribunal (“insularity”). Nonetheless, it
is IOs’ member states themselves which accord IOs their legal personality and autonomy
in the first place. The fact that members have ratified charters of IOs via democratic
processes tends to warrant IO’s professional accountability, albeit not democratic
legitimacy in a domestic analogy.
How the IALS Helps
The IALS can make its own contribution to the achievement of IOs’ missions. As a global
association of legal educators, it can help nurture future global regulators by assisting law
schools to develop curricula on IOs and equipping students with sensitivities on
international socialization among like-minded regulators. In ideal situations, the IALS can
team up with willing IOs in launching internships and training programs. Practical steps in
this regard would include signing Memoranda of Understanding (MOUs) with prominent
IOs such as the WTO and the World Intellectual Property Organization (WIPO).
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THE PROTECTION ISSUE OF AFRICAN COMPANIES
REGARDING THE INTERNATIONAL TRADE’S MULTILATERALS
RULES.
By :
Pr. Roch Gnahoui David
Université Cheikh Anta Diop de Dakar – Sénégal.
The Liberalization and globalization have convince everyone about the role that
companies must play in African economies’ development. The private companies,
especially, are initially indexed.
They are founded with foreign or national capital and need perennity to constitute an
engine of development. But the internal, economic, legal and political environments in
which they exchange are not very favourable for a good evolution of their activities and
their expansion beyond the borders.
On that we can add the competing, forcing and devastator international environment.
In any event, it is useless for a company to hope to sell a product abroad if it does not
have a real competing advantage. A company that wants to extend its activity abroad faces
many choices: choice of the target market, the appropriate structure to reach it etc. Some
legal and economic criteria are determining in the option of export or establishment.
Legally speaking and for African companies, it is advisable to have a practical and realistic
vision of applicable texts. It is not always the case, because in the international order, the
proliferation of the texts makes the task difficult. Moreover some texts are edited and
claim to apply to them without taking into account their interests and their survival.
Developing countries, especially African countries can aspire to ensure an
economic development only if their companies manage to integrate the international trade
in a certain proportion.
They try to do it but commercial obstacles used here and there slow down the dashes and
put on the agenda the sharp question of protection, especially regarding the international
trade’s rules.
The obstacles to the international trade, in particular technical regulations, sanitary and
phytosanitary measurements represent a major concern for the developing countries. In
any case a protection of the African companies proves to be essential. It already exists but
requires reinforcement by a certain number of actions. On the first hand, this protection
implies a comprehension of the rules, knowledge and a popularization of the of the trade’s
multilateral rules and it leads in the search of a more efficient strategy of strengthening on
the second hand
I: The comprehension of the multilateral rules’ dynamics
It is initially necessary to evoke the rules’ knowledge and the popularization then the
abuses that can be caused by their application in the international order showing at the
same time the law transgressing.
A. Preliminary Knowledge and popularization of the international trade’s
multilateral rules
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No subjective right under consideration to the glance of the human receives a
better protection from the administrative and legal institutions if the holder of the
right knows it.
The same assertion can be made concerning the companies. The private companies
which can and must increase the economic development in the African States are
not always impregnated of the international trade rules.
It is like this because apart from the economic operators action who create a "lex
mercatoria" to control the international economic exchanges, there are States that
negotiate international conventions and agreements whatever their objects are.
For example WTO (World Trade Organization) agreements were adopted by the
States and their implementation draws the attention of the same States.
Talking about the quantitative restrictions or the plant health rules, companies are
initially interested in and not the States.
As soon as they have negotiated for them and in their interests, the rules which
regulate the international trade, it is necessary to make them understand the
content of the adopted law.
But facing the growing number of the concluded commercial agreements, one can
easily be lost. The first symposium of the ICC (Geneva) in 2005 about the
international agreements and the developing countries revealed that, in the various
international trade sectors, commercial multilateral conventions multiply in a burst
way, accentuating the difficulties of information and follow-up.
There would be an advantage to simplify and harmonize trade’s rules if one wishes
to encourage their application. The companies want this harmonization for a better
circulation of the goods and services.
That is primarily based on the development of multilateral commercial agreements
and standard laws that the States must popularize to the first concerned:
companies.
B. Ambiguity in the application of the multilateral rules of the international
trade
It is enough to take support on some rules in their application to realize that
certain developed States do not make things easy for companies of the developing
countries.
Indeed, the strict standards which currently regulate the agricultural products and
food were mainly established by the industrialized countries.
They aim to protect consumers, but sometimes the standards are so high that they
become non tariff obstacles. That is why in order to obtain a better access to the
markets, the developing countries must influence the international standards and
benefit from the Agreement on the application of medical and plant health
measurements.
The obstacles to the international trade, in particular technical regulations and
medical and plant health measurements, represent a major concern for the
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developing countries. But as liberalization opened the world trade to the free
competition, some measurements were taken at the national level to stop the
access to the market with the reason that the prices of the exporters are unfair.
Steel, iron and the chemicals from the developing countries and economy of
transition were aimed more and more by these "commercial corrective
measurements". But it exists, within the WTO framework, a system to prevent the
governments to abuse it, but the consequences are always annoying for an exporter
or a country which is subjected. The charge of dumping used involves a sanction
which it is however difficult to overcome. In any event, it is a question of
reconsidering all the existing strategy in order to strength it in order to get a better
participation in the development of the international trade rules and an
effectiveness in the protection of the African companies.
II. Strategy of strengthening African companies’ protection
The reinforcement of negotiation capacities and a participation in the development
process of the rules indicate the way to be followed to get African economies and
their companies out the non protection
A. Reinforcement of negotiation capacities
How can African countries consolidate their expertise in order to more effectively
promote their interests during trade negotiations and benefit from the commercial
system? The solution obviously comes trough the negotiators capacities
reinforcement. Defending companies interests requires for this purpose, to
establish a public-private dialogue and associate small business, informal sector and
other groups of the company. The Government must then associate these various
actors in the negotiation by giving them the means to defend their rights within
negotiation authorities. If the developing countries want to profit from the world
commercial system, their public and private sectors must work together,
government and negotiators establishing a common strategy. Thus we could reach
a cohesion able to inflect the rules of the international trade.
B. The participation in the development process of the rules
The African farmers and entrepreneurs underlined the harmful potential effects
on the incomes of the markets opening, a long time protected from goods and
services of developed countries and the new restrictions concerning public support
for their own export industries. What to do, if established rules must lead into
developing countries and their company marginalisation? The answer comes by the
way. It is already necessary to try to help the commercial organizations of the
developing countries to better communicate with their members and especially
with the government for a consequent and influential participation during the texts
edition. Which illustrations can better show this option.
Malaysia set up a national committee and 12 local committees which reflect the
national interest in certain committees of the " Codex Alimentarius ". The industry
representatives take an active part, especially the Malayan Group of the food
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manufacturers. That helps Malaysia to play an important role in the development
of several standards of the Codex.
India, showed a real dynamism during the formulation of an international standard
relating to the tea, by preparing the preliminary discussions of the committee. Thus
the International Standardization Organization (ISO) adopted an international
standard (ISO 3720:1986, black Tea - Definition and basic characteristics) which
take into account India point of view in its contents.
African States may find it beneficial by taking these cases as a starting point to
establish a real policy of participation which the effects will be beneficial for
companies.
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Sociedad Anónima Promotora de Inversión:
A new kind of company doing business in México.
By:
*
José Roble Flores Fernández
A new Securities Law (Ley del Mercado de Valores) (the “New LMV”) was published on
December 30, 2005 in the Official Gazette of the Federation. The New LMV became
1
effective on June 28, 2006.
Among other things, the New LMV creates a legal framework for new, non-listed
corporations called sociedades anónimas promotoras de inversion (“SAPIs”). (Investment
Promotion Corporations).
The new legal framework exempts SAPIs from certain obligations under the General Law
of Business Corporations (Ley General de Sociedades Mercantiles) (the “LGSM”). Under the
LGSM, shareholders of traditional Mexican corporations (sociedades anónimas- hereinafter
“SA”) have more limited rights than those granted under the New LMV.
SAPIs are not subject to the surveillance of the National Banking and Securities
2
Commission (CNBV). So, strictly speaking, this new kind of company may not be
regulated by securities law. Moreover, as mentioned above, SAPIs are not listed.
The purpose of this new legislation governing privately-held companies is to apply some
of the best practices of corporate governance to non listed companies; to grant certain
statutory exceptions to entities incorporating under the LGSM; and to offer greater
incentives for investment.
In this paper, I will describe the most significant differences between the SA, under the
LGSM, and SAPIs, under the New LMV. I will focus on the three most critical aspects of
each entity structure: Characteristics, Corporate Governance and Capital Structure.
I. Characteristics
A. Legal Form.
SAPIs are Mexican corporations. They have two options for purposes of formation.
They can be incorporated as a SA under the LGSM, and then voluntarily submit
themselves to the legal regime of SAPIs, as set forth under the New LMV. In the
3
alternative, they can be incorporated as an SAPI from the start.
*
Dean and Professor of Commercial Law and Corporations at the Facultad Libre de
Derecho de Monterrey.
1
The New LMV replaced entirely the Old LMV, which had been in effect since 1975.
2
Article 10, New LMV.
3
Article 12 New LMV.
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B. Rights.
The Shareholders of both a SA and a SAPI have essentially two kinds of rights: economic
4
rights and corporate rights.
a. Economic Rights
The main economic right of a shareholder of either a SA or a SAPI is the right to get a
5
dividend.
Under the LGSM, generally speaking, a shareholder of a SA has the right to receive
6
dividends in proportion to the amount of the legal capital contributed. The only
exception to this principle is for preferred stocks. Preferred shareholders have rights to a
7
higher dividend, but have limited voting rights.
Under the New LMV, the By-Laws may create different classes of shares, each one with
8
different rights. The right to a higher dividend or a different way to calculate it can coexist with full voting rights.
b. Corporate Right.
The main corporate right of a shareholder is the right to vote and participate in the
9
shareholders’ meetings.
The shares of a SA must give the shareholders the right to vote. There is only one
exception, which are the limited voting shares. Even owners of limited voting shares,
however, must have the right to vote in certain matters, as set forth under law, at the
extraordinary shareholders meeting. The LGSM provides for six instances in which such
shareholders have a statutory right to vote: (i) where the corporate duration will be altered
or made perpetual; (ii) premature dissolution; (iii) change in the purpose; (iv) change of
10
nationality; (v) conversion; and (vi) merger of the company.
The SAPIs, on the other hand, are allowed to issue shares with rights to vote on any
matter. SAPIs may also issue shares with limited votes on certain matters. Finally, SAPIs
can issue shares with no right to vote on any matter. Under the New LMV, all these classes
11
of shares can be defined and set forth in the Bylaws.
4
BARRERA GRAF, Jorge. Instituciones de Derecho Mercantil. 1st ed. México, Porrúa,
1989 p. 521; RODRIGUEZ RODRIGUEZ, Joaquín. Tratado de Sociedades
Mercantiles. 7 ed. México, Porrúa, 2001. p. 365.
5
BARRERA GRAF, Jorge. supra n. 4. p. 525; MANTILLA MOLINA, Roberto.
Derecho Mercantil. 22nd ed. México, Porrúa, 1982. p. 337; RODRIGUEZ
RODRIGUEZ, supra n. 4. p. 367.
6
Article 16 LGSM.
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7
SALINAS MARTÍNEZ, Arturo. Sobre la Pretendida Ilicitud de las Acciones
Preferentes DE Voto Limitado no Totalmente Participantes. At Estudios Jurídicos en
Memoria de Roberto M. Mantilla Molina. México, Porrúa, 1984. p. 702.
8
Article 13, III, New LMV.
9
BARRERA GRAF, Jorge. supra n. 4. p. 536; RODRIGUEZ RODRIGUEZ, supra n. 4.
p. 384.
10
Article 113 LGSM.
11
Article 13, III, New LMV.
c. Other Rights
i. Preemptive Rights
An existing shareholder of a SA has a statutory right to purchase new shares whenever
12
they are issued to increase the legal capital. Because this right arises by operation of law,
an SA may not limit or eliminate preemptive rights in the Bylaws, or in any shareholder
13
actions.
The New LMV leaves all these decisions to the SAPI. In their corporate bylaws, SAPIs
14
may limit preemptive rights or even eliminate them altogether.
ii. Shareholders’ Agreements.
The LGSM provides that any agreement that limits the rights of the shareholders to freely
vote their shares is null and void. The Law has limited the matters that may be negotiated
in Shareholders’ Agreements of Mexican corporations.
The New LMV permits shareholders of SAPIs to enter into Shareholders’ Agreements
governing the following matters: (i) non-compete provisions; (ii) option rights (e.g., right of
first refusal, tag and drag along rights, call option and put option); (iii) sale and transfer of
15
shares; (iv) exercise of preemptive rights; and (v) vote pooling provisions.
iii. Minority Shareholders Rights
The LGSM grants certain rights to minority shareholders.
Most rights granted to SA shareholders require a 33% interest to attach. These include:
16
asking to call a general shareholders meeting; legal opposition to resolutions of general
17
18
19
meetings; voting postponement; and civil suits against directors. Legal opposition is
the right of shareholders who represent at least 33% of the company to bring a suit before
a judge to decide the legality of resolutions taken at a shareholders meeting.
Other rights granted to SA minority shareholders require only a 25% ownership interest by
shareholders in order to exercise them. These include opposition to the nomination of a
member of the board of directors or the appointment of a statutory examiner
20
(“Comisario”).
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12 Article 132 LGSM.
BARRERA GRAF, Jorge. supra n. 4. p. 529; FRISCH PHILIPP, Walter. La Sociedad
Anónima Mexicana. 2nd ed. México, Porrúa, 1982. p. 404; RODRIGUEZ
RODRIGUEZ, supra n. 4. p. 647. p. 147. “Amparo directo” 94/90. María Eugenia
Velderráin Jordán. May 18, 1990. “Tribunales Colegiados de Circuito”. Second Tribunal
Colegiado from 12th Circuit. “Semanario Judicial de la Federación”. VII, January, 1991. 13
14 Article 13, V, New LMV.
15 Article 16, VI New LMV.
18
Article 199 LGSM.
19
Article 163 LGSM.
20
Article 144 and 171 LGSM.
The New LMV reduces the percentage of ownership interest required to exercise minority
rights.
Under the New LMV, 10% of the shareholders can elect a member of the board of
directors or designate a statutory examiner. 10% is also sufficient to call for a general
shareholders meeting or to request that a vote be postponed. 15% of the shareholders can
bring a shareholders derivative suit. 20% can oppose any resolution of general meetings,
21
and have standing to bring their dispute before a judge, as explained above.
These minority rights are not just default rules. SAPIs may not limit or eliminate them in
their corporate bylaws. The key difference between the SA rules and the SAPI rules in this
regard is that a SAPI shareholder has standing to bring a claim with a lower stake than that
required of a SA minority shareholder.
II. Corporate Governance
The former LMV included rules that applied exclusively to publicly-traded companies and
their corporate governance. Between 1990 and 2005, the Mexican Congress increasingly
amended the former LMV, for these purposes. The CNBV, the regulatory agency with
jurisdiction over publicly-traded companies, mentioned above, also promulgated various
rules over this period.
In contrast to all this rule-making governing listed companies, Mexico had not significantly
addressed corporate governance issues of privately-held companies under legislation or
regulation.
The New LMV enforces Corporate Governance for SAPIs even though they are not listed
on a public exchange.
Some of the main differences between a SA and a SAPI, for purposes of corporate
governance are:
A. Shareholders Meetings
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The LGSM provides for two kinds of shareholder meetings for an SA: general and special.
22
The general shareholder meeting can be ordinary or extraordinary, depending of the
23
purpose. LGSM rules on special shareholder meetings arise when there are different
24
classes of shares with diverse rights.
21
Article 16 New LMV.
MANTILLA MOLINA, Roberto. supra n. 5. p. 381.
23
Article 179 LGSM. MANTILLA MOLINA, Roberto. supra n. 5. p. 381. SALINAS
MARTÍNEZ, Arturo. Criterio de Distinción entre las Asambleas Ordinarias y
Extraordinarias en el Derecho Mexicano. At Cuadernos del Instituto de Investigaciones
Jurídicas. Year 1, number 3, September-December, 1986. p. 937.
24
Article 195 LGSM.
The New LMV does not regulate shareholder meetings by type of meeting or class of
shares. SAPIs, however, are subject to the following special rules regarding shareholder
meetings:
22
1. The limited voting shares will only count in the quorum when the shareholder
25
meeting is going to discuss a matter where those shares have a right to vote.
2. 10% of the shareholders can ask to call to a shareholders general meeting or just ask
26
to have a vote postponed.
B. Board of Directors.
Under the LGSM, the administration of a SA can be entrusted to one or more directors.
28
When there are two or more directors, they will form a board of directors.
27
There are no special rules under the LGSM about the composition of the board.
Under the New LMV, all SAPIs must set up a formal Board of Directors.
29
SAPIs may adopt the same rules as the mandatory ones governing publicly-traded
companies. If they do so, they are not required to have independent directors on their
30
board, however. .
Under the alternative rules set forth in the New LMV, SAPIs must have no more than 21
Board Members. These board members may be shareholders and / or corporate officers,
but need not be. The Board of Directors may include at least 25% independent directors.
31
The Independent Directors will not be major shareholders or officers, of course. Both
types of Directors, however, must be approved by the shareholders.
Under the LGSM, the regime of duties and responsibilities for members of the board are
32
not clear. The New LMV concepts such as ‘duty of diligence,’ and ‘duty of loyalty,’
33
however, now apply to SAPIs.
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C. Statutory Examiner (“Comisario”).
34
The LGSM requires the existence of a Comisario, who is appointed by the shareholders.
One of the Comisario’s key legal duties is to provide a statement to the stockholders on the
35
accuracy of the financial statements of the corporation.
25
Article 13, III New LMV.
Article 16, III New LMV.
27
Article 142 LGSM.
28
Article 143 LGSM
29
Article 14 New LMV.
30
Article 15 New LMV.
31
Articles 15 and 24, New LMV.
32
Articles 157 and 158 New LMV.
33
Articles 29 to 37 New LMV.
34
Article 91, V LGSM.
35
Article 166 LGSM.
Under the New LMV, the board of directors of a SAPI can establish an Audit Committee
36
and appoint an independent external auditor that will assume the duties of the Comisario. .
26
The freedom to choose to have an Audit Committee, is a way of applying Corporate
Governance practices at the board level, instead of depending on the old figure of the
Comisario, whose power-base was the shareholders.
SAPI shareholders have an option for purposes of the financials. They may adopt the
corporate governance rules required of public companies. Doing so requires an affirmative
act; they must formally adopt these rules. If they exercise this option, there is no
difference, for purposes of corporate governance rules, between public companies and
SAPIs, except for the fact that SAPIs are not required at any moment in time to have
37
independent board members. In the alternative, SAPI shareholders may opt for the rules
set forth under the LGSM with a Comisario and without Board Committees.
III. Legal Capital Structure
The legal capital of a SAPI is the same as the one as for a SA. The minimum legal capital is
$50,000.00 (fifty thousand Mexican pesos). Either entity may decide, in its bylaws, to
38
require more legal capital. Both entities may, under law, adopt the regime of variable
capital.
39
In both cases the capital invested must be evidenced by shares. As was mentioned
before, the shares may grant different rights to different classes of holders.
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The main difference between a SA and a SAPI, for purposes of legal capital rules, is that
40
Under the New LMV, by
under the LGSM, a SA may not repurchase its own shares.
contrast, a SAPI may repurchase its own shares, and keep them as treasury shares. SAPIs
may also re-issue shares they have bought back. The law allows the Board to decide all
buy-back issues. Shareholders do not have to be consulted for these purposes. Thus, SAPI
41
rights are allocated the same as in a public company in this regard.
In summary, the SAPI is a new legal alternative for privately-held companies. All investors,
controlling and non-controlling, acquire rights and obligations which allow them to have
much more control and transparency than before, while allowing for a better alignment of
interests among shareholders. It also creates incentives for founders and / or controlling
groups to attract outside private equity, and even lets incoming venture capitalists establish
42
rules to secure their equity.
36
Article 15 New LMV.
37
Article 15 New LMV. PODOLSKY, Sam. Mexico’s Corporate Governance Practices in
Non-Listed Companies. At http://www.oecd.org/dataoecd/18/9/37329952.pdf
38
Articles 89 and 1 LGSM and 10, 12 and 13 New LMV.
39
Article 111 LGSM and 13 LMV.
40
Article 134 LGSM.
41
Article 17 New LMV.
42
PODOLSKY, Sam. supra. n. 37.
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Regulation of FDI in Developing and Transitioning Economies:
Trends and Observations
By:
Xavier Forneris
Senior Legal Advisor and Investment Policy Officer, FIAS,
World Bank Group
I was invited to discuss trends and developments in the regulation of FDI, with a focus on
developing and transitioning countries.
A few words about my organization and myself: FIAS is a joint unit of the World Bank
and the International Finance Corporation (IFC). We provide advisory services, that is
technical (i.e., non-financial) assistance to governments in developing countries that want
to improve the investment climate with a view to fostering private investment, both
domestic and foreign. We work at the request of national and sub-national governments
and we help them to:
•
•
•
•
simplify administrative procedures and other regulatory burden on businesses
reform the corporate taxation system to make it more simple, transparent and
efficient
design and implement investment promotion strategies and agencies
address other constraints that affect the business environment and the productivity
of the private sector.
Our core activity since our inception about 20 years ago has been to advise these
developing countries on how to reform their investment policies and legislation, with a
strong focus on FDI.
As for myself, a business lawyer by training, I have been with FIAS for 8 years and I have
worked on the reform of investment policy and legislation in about 30 countries in Africa,
the Middle East, Latin America, East Asia – Pacific, and the former Soviet Union.
What I will present today is initial “lessons of experience”, trends, and observations based
on the practical experience we have gained as a group and individually through this advisory
work, through our constant interactions with policy-makers and with foreign investors. A
great measure of subjective views and so-called “anectodal” evidence is thus to be
expected from the presentation.
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I have organized my presentation around 3 simple questions:
•
•
•
WHAT?
WHY?
HOW?
WHAT: what is FDI? How much do FDI flows represent? Where do they go? And
most importantly, what is happening in the area of FDI policy?
WHY: why is this happening, in other words what “drives” the reform movement?
HOW: how is the liberalization of the FDI regime done? This refers to the
instruments utilized by countries to carry-out the changes.
WHAT?
Foreign Direct Investment: to put it in very simple terms, FDI is an investment realized
by a national or company from country A into a project or company located in country B.
The investment can be made into an existing local company (to restructure or modernize
it) or through the establishment of new business/project in the country in question. It is a
direct investment in the sense that the investor has a certain share of the equity (and of
voting rights and profits)79, is “in” for the medium to long term, and intends to exercise
direct control over the management of the said company. This form of investment is thus
different from portfolio (or indirect) investment, which is a shorter-term, more liquid and
speculative form of investment with no involvement in the management of the company.
FDI used to be an industrial investment, for instance the establishment of a manufacturing
facility, a factory. This form of foreign investment still exists but FDI in nonmanufacturing projects, for instance in the service sector, is becoming increasingly
important and in certain countries already represents the majority of FDI projects.
Consider for instance a foreign company that invests into a hotel resort or a private clinic.
These are clearly not industrial facilities. But these are definitely FDI projects (so long as
the management involvement criteria is met. Remember the simple test: no managerial
involvement = portfolio investment).
WHAT IS HAPPENING IN THE FIELD OF FDI?
Many things! Too many in fact for such a short presentation…but I will focus on two
major developments.
1) The first development is the spectacular global growth in FDI flows and its uneven
“North-South” distribution. Over the past 20 years, we have observed a dramatic
increase in global FDI. The general public is probably not aware of the fact that FDI flows
79
The most commonly accepted definition provides that the investor must have at least 10% of equity
participation for the investment to be a direct investment. Countries can decide on a different threshold.
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grow at a faster pace than world trade and world production. Or that FDI flows into
developing countries have surpassed, and for quite some time, official development assistance
(ODA)! There are, as in the stock market or for that matter any human activity (including
wine production), “good years” and “bad years”. But the trend is clear and going in the
upward direction. As a matter of fact last year (2007) global flows of FDI have reached
the highest level ever recorded, estimated by UNCTAD (U.N. Conference on Trade
and Development) at $1.5 trillion.
Most of these FDI flows (about $900 billion) continue to go into the industrialized,
developed economies.
The U.S. was the No. 1 “recipient” (or host country to use the legal term) of FDI, with
about $193 billion, followed by the U.K., France, Belgium and China.
The 25 European Union countries together represented about 40% of global FDI flows.
But developing countries are capturing a share of FDI flows that is not symbolic or
insignificant (about $400 billion). And that share grew at healthy paced (+21% in 2007).
Africa as a continent attracted $36 billion in FDI, largely driven by the high oil and gas
prices and the global demand for commodities. Egypt, Morocco and South Africa were
the top African continent recipients in 2007.
In Latin America and the Caribbean, FDI also reached record levels: $125 billlion. Main
beneficiaries remain the largest economies (Chile, Mexico, Brazil).
FDI in Asia-Pacific also reached a new high of $277 billion, with China-Hong Kong
being the top recipient ($67 billion and $54 billion respectively).
FDI in South-East Europe and the CIS also came at a record level of $98 billion.
Russia, the largest FDI destination in the region, doubled its FDI inflows.
All these figures are from UNCTAD80. I do not want to provide too many figures and
statistical data, or go into complex discussions about why FDI is growing in certain
countries and sectors and not in others, what are the determinants of FDI (factors that
influence FDI), what are the benefits or spillovers of FDI into the local economies…and
so forth. An there are other interesting developments (for instance two are the emergence
of South-South and South-North FDI, i.e. FDI by Developing Countries Multinationals;
and the emergence of FDI by SMEs – no longer just the large transnational
corporations).But all these issues would take us too far and would probably be a more
appropriate discussion for a gathering of development economists.
Given that this is a conference by lawyers for lawyers, I would like to quickly move to the
second development I wanted to discuss as part of the “What is happening in the world of
FDI?” section of the presentation, that is the increasing relaxation or liberalization of
80
UNCTAD Investment Brief, No. 1 of 2008. See www.unctad.org. For more data on FDI and TNC
activities, also visit http://stats/unctad.org/fdi
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FDI policies. As we will see this development has a direct effect on investment legislation
and is highly relevant for lawyers.
2) Increased movement towards the liberalization of FDI Policy and Legislation
Historically, all governments, even in the most “capitalist, free-market” economies have
been suspicious of foreign investors, and have therefore tried to exercise some control or
to place restrictions on foreign investment. Such control was and is still widely seen as
an attribute of sovereignty, recognized as such under international law.
In every society, at given times, inward FDI has raised economic and political concerns
and has often generated “nationalistic” reactions (“we can’t let foreigners control our [I let
you complete the sentence with the name of the industry in question: mining, oil, gas,
electricity, telecommunications, finance, media, etc.] sector”).
The issue of FDI and foreign participation in the national economy has been
particularly sensitive in developing countries after they acceded to independence.
Allowing FDI, particularly in extractive industries, was seen as letting the “foreign
colonialists” regain control of the newly independent economies.
Although such reaction is understandable, this sensitivity is not just a “developing country
phenomenon”. Some of you may remember the “patriotic” reactions in the U.S. a few
decades ago when Japanese investors wanted to purchase such American icons as the
Rockefeller Center in New York or motion picture studios in Hollywood. Or in much
more recent times, you may recall similar reactions in Europe when an Indian
conglomerate (Mittal) started the process to take control of a European steel company
(Arcelor); or when an investor from the Middle East (Dubai Ports) attempted but failed to
take over the management of several port operations on the U.S. Eastern seaboard.
In both instances, we saw a resurgence of protectionist arguments, under the more
respectable justification of “economic patriotism”, and this happened in what are
supposed to be very “liberal” and open Western economies (but not the point of blocking
these investments – Mittal succeeded and Dubai Ports abandoned its project in the face of
the growing controversy in the U.S.; but it was not technically blocked or rejected by the
U.S. authorities).
The point I want to make is that ambivalent attitudes about FDI have existed and will
probably continue to exist in every economy, even the most open ones.
As attitudes translate into official government policy and ultimately into domestic
legislation, we have often observed within a single country, a “pendulum” movement with
alternating phases of “relaxation of FDI policies” at some point in time and phases of
“controlling or restrictive policies” at other times, often dictated by a changing domestic
political context.
If we look at the FDI debate in a “North–South” context, the North was where foreign
investors (multinationals) came from and the South where they invested, seeking natural
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resources, cheaper production inputs, and new markets for their products. Against that
background the debate was the following (to simplify):
•
In the “North” (industrialized countries), the position and mantra of “free market”
governments were that FDI is positive and should be encouraged all over the
world. These governments essentially demanded that developing countries relax
their policy towards FDI and adopt rules offering greater protection for foreign
investment, focusing particularly on the risk of expropriation and nationalization.
•
While in the “South” (developing countries) governments felt that FDI was
harmful, exploiting their ample natural resources and giving nothing back, and
maintaining developing countries in a state of economic dependence. In the past,
these countries have been resisting the North’s pressure for liberalization and
greater investor’s rights, and insisted instead on the adoption of a “new international
economic order” which would include binding rules to control the behavior of
multinational corporations.
If we consider the FDI debate under this angle, the big shift that we have observed over
the past two decades is that developing countries have started to embrace FDI and as
a result have adopted more liberal policies and legislation.
But what is considered a good FDI policy and legislation? Most FDI experts agree
on the fact that a good FDI policy and legislation should:
-
Impose few or no restrictions and performance requirements and
-
Provide strong rights and guarantees for foreign investors, including at
least:
o Equal treatment of foreign and domestic investors (national
treatment)
o Strong degree of protection against expropriation (only for public
purpose, with due process, and against prompt and adequate
compensation).
o Guarantee of profit/revenue transfer
o Access to arbitration, at least domestic, but ideally domestic and
international.
As mentioned above, a growing number of countries, including developing countries, are
now offering these “ingredients” of good FDI policy, with varying degrees of quality and
protection, but these have come to be seen as “good principles and practices” for the
treatment of FDI.
This is a global phenomenon: most countries around the world have substantially relaxed
restrictions on inward FDI or are currently doing it.
If truth must be told, some important restrictions remain in force in many countries.
Almost every country has some kind of restriction be it sector-specific or general, on
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foreign ownership; many countries still try to block or limit FDI in services in general, in
the retail sector, in banking/finance, or in the media in particular.
One could also argue that State monopolies also constitute in effect a barrier to FDI entry
(although a State monopoly also prevents domestic private investment and is not
specifically aimed at blocking foreign investment/investors…).
To focus on developing countries, where we work on a daily basis on these issues, our
observation is that most developing countries, even those that were once highly
suspicious or even hostile towards foreign investors (Syria, Libya, Vietnam…), are
now actively competing to attract FDI and, in that pursuit, have reformed or are in
the process of reforming their legislation to adopt the principles and the key
guarantees that foreign investors now expect to find in every country they operate in.
WHY?
WHY THIS SHIFT FROM FDI CONTROL TO OPENNESS? WHAT HAS
BEEN THE DRIVER OF THE REFORMS?
The answer is quite simple and can be summarized in one word: globalization. The
growing influence (not to say the triumph) of the “free trade/free market” orthodoxy has
had a deep impact on FDI policies and on the legal regime governing FDI.
The liberal ideology has made huge inroads everywhere. The widely publicized
protectionist or nationalist reactions observed in “Western” economies recently (around
the Arcelor and Dubai Port deals for instance) are very unusual. They typically occur when
a foreign investors attempts to take over a highly visible (sometimes iconic) or highly
strategic facility (such as running port operations in America in the post 9-11 era). These
episodic events should not hide the reality and the trend which is the rapid propagation
of liberal principles and their introduction into the legal framework of a large and
rapidly growing number of countries around the world.
Many countries are facing economic difficulties, with budget and trade deficits, slow
growth, high unemployment, rising poverty, etc. A growing number of governments
around the world, including in the developing world, have come to recognize the many
benefits that FDI can bring, among which:
-
capital transfer;
jobs for local workers;
tax revenues;
market access and exports; and
transfer of technology and managerial practices for local companies,
contributing to making them more competitive domestically and internationally.
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HOW?
HOW LIBERALIZATION OF THE FDI POLICY HAS BEEN REALIZED
AND INTRODUCED INTO THE LEGAL SYSTEM OF THE COUNTRIES
THAT ADOPTED THIS PRO-FDI STRATEGY?
This is about the instruments of the pro-FDI reforms. And this section should be of
particular interest to lawyers. At this point of the presentation, one has understood that
shifting from a policy of control and restrictions to FDI to a policy of openness to and
protection of FDI is not a legal issue or a decision for lawyers. This is essentially an
economic, a political, and a strategic decision, to be taken by governments at the highestlevel. But once the decision has been taken, how is the shift realized and implemented,
how are the changes introduced into domestic legislation?
There are, in our view, 4 or 5 main options or paths to liberalize the FDI regime.
Countries can do it through:
-
A multilateral approach
A regional approach
A bilateral approach
A unilateral or national-level approach
o Through domestic legislation
o Through contracts with investors.
There may be other avenues, but these are probably the main ones to consider, or the ones
that an audience of lawyers would find most interesting and relevant.
Multilateral Approach
• Conceptually, countries that want to promote FDI and liberalize FDI policies,
introduce more protection of investors and less restrictions to FDI, could come
around a (large) negotiation table and agree on a global treaty such as was
developed for trade under GATT (and now WTO).
•
But there is no multilateral agreement governing foreign direct investment or
even private investment, nothing like a “WTO for FDI”. WTO remains largely
about trade liberalization, not FDI. The WTO itself only peripherally addresses
foreign investment essentially through 2 of the agreements that came out of the
Uruguay Round of negotiations in 1994:
o The General Agreement on Trade in Services (GATS)
o The agreement on Trade - Related Investment Measures (TRIMS). It
extends national treatment from trade to trade-related investment
measures. It prohibits 5 performance requirements.
But these two agreements are limited in scope and number of countries that have
adhered to them. They are “plurilateral adds-on” to a truly multilateral agreement
(WTO).
•
Efforts at the OECD to develop a Multilateral Agreement on Investment
(MAI) failed in the late 1990s amidst a great deal of controversy. These efforts
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were resisted by a coalition of developing countries (which were not invited at the
“table of negotiation”) and of anti-globalization and environmental NGOs. The
process was abandoned entirely in October 1998 after France withdrew from the
negotiations81.
•
There does not seem to be any appetite today, at the OECD or elsewhere, to
revive such an effort.
•
However, as mentioned earlier, the free market ideology has driven the transfer
(or leakage) of legal principles from trade to investment. Without a Multilateral
Agreement on Investment being concluded, we have witnessed and continue to
observe the adoption of many of the key principles of trade liberalization (such as
national treatment, non discrimination or Most Favored Nation, etc.) by many
countries around the world including a large number of developing countries.
•
There are some international conventions signed by a large number of countries
that are highly relevant for foreign investment/investors but they either concern a
specific sector (such is the case of the “Energy Charter Treaty”) or they only
concern one particular aspect of the foreign investment regime (for instance, in the
area of dispute resolution, there is a major international treaty: the 1965
Washington Convention on the Settlement of Investment Disputes Between
States and Nationals of other States (also called the “ICSID Convention”).
Similarly, the “MIGA Convention” pertains to insurance against political (noncommercial risks) taken by investors in developing countries.
But there is very little at the multilateral level, or at least very little that is binding, “hard
law”. There are many efforts to develop international guidelines and principles on the
treatment of foreign investment (by the World Bank, the UN, the OECD, mainly) but
these are, as their name suggests, non-binding instruments, a form of “soft law”, that has
some influence but not as much as a “hard” legal instrument, such as a binding treaty,
would. The OECD remains very active and influential in the dissemination of good
practices on the treatment of FDI, through its series of Codes, Decisions, Guidelines, and
more recently the Policy Framework for Investment (“PFI”). The PFI is essentially a
non-prescriptive and non-binding checklist of issues and generally accepted
principles for the treatment of foreign investment. It is a useful tool to assess the quality
of the FDI policy in a given country. Egypt has recently gone through a PFI selfassessment exercise and Vietnam is launching one. Such a self-assessment requires a high
capacity and a very thorough investigation (and may be difficult to utilize for many
developing countries, especially the least developed).
Some of the first and most famous OECD instruments were the OECD Codes on
Liberalization of Capital Movement and Current Invisible Operations (1961, frequently updated).
The OECD has also contributed efforts to improve the behavior of transnational
corporations. For instance, one can cite the OECD Guidelines on Multinational Enterprises of
1976 (revised several times).
81
France withdrew because it wanted and was not able to obtain a “cultural exception” that would
exempt the culture sector from the MAI rules.
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As a World Bank Group employee, I do not want to appear as “preaching for our own
church” but one of the very influential instruments at the international level has been the
“World Bank Guidelines on the Treatment of Foreign Direct Investment” (1992)
developed by a group of eminent scholars and practitioners under the leadership of the
late Ibrahim Shihata, former vice president and general counsel of the World Bank Group.
The Guidelines have inspired a lot of reforms at the national level (adoption of investment
codes embodying these principles).
But none of this amounts to a truly multilateral regime for FDI such as the WTO
agreements for trade. Until now, most of the deep legal developments on FDI have taken
place at the regional, bilateral and national level.
Regional Approach
• We are seeing more action at the regional level. This is a pluri-lateral rather than
“multilateral” approach in the sense that there are several countries involved but
the number of participants remains quite limited. These are usually neighboring
countries, part of a given region of the world, that get together and conclude a
Regional Integration Agreement (RIA).
• Several Regional Economic Integration agreements or initiatives have a chapter or
section on foreign investment, with rules that are binding for the countries
participating in the regional agreement. For instance, NAFTA – the North
American Free Trade Agreement completed in 1992 between the U.S., Canada
and Mexico (whose investment chapter was modeled on the U.S.-Canada Free
Trade Agreement) is going further than any other regional trade agreement in
developing specific rules for investment.
• In the European Union, we have put in place a single market and free circulation
of capital is one of the key tenets of the EU integration efforts. The various treaties
and their revisions essentially establish unlimited, unrestricted FDI between
Member States (subject only to the Rules on Competition and certain issues with
agriculture). And several EU legal instruments directly affect investors and foreign
investment: such is the case of the norms on direct and indirect taxation.
• In Africa, a lot of regional integration agreements exist (COMESA, SADC, EAC,
UEMOA). Some of these arrangements address intra-regional foreign investment,
usually through a Memorandum or a set of non-binding guidelines. EAC is
developing a “model Investment Code” for the Region. In West Africa, the
UEMOA has also attempted to develop a regional investment code but
negotiations have stumbled on the sensitive issue of incentives offered by
governments to attract foreign investors. The COMESA (Common Market for
Eastern and Southern Africa) went the farthest on the continent with a “Common
Investment Area” that aims at establishing a free investment area by 1
January 2010.
• In Asia-Pacific, we can mention the APEC “Non-Binding Investment
Principles” (of 1994) and, more ambitiously, the ASEAN Investment
Agreement (AIA) that aims at removing all barriers to investment within
ASEAN by 2020 (similar to the COMESA C.I.A. in Africa).
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Bilateral Approach
This has been one of the most active and dynamic level. In fact, until the 1960s most of
the efforts to provide greater security and protection to foreign investment and investors
took place on a bilateral basis, between two governments. Bilateral efforts have mainly
taken three forms as follows:
o Bilateral Investment Treaties (BITs).
o Bilateral Free Trade Agreements (FTAs)82
o Treaties on the Avoidance of Double Taxation.
Let’s focus on the first form (bilateral investment treaties) as trade and taxation would
deserve another (much longer) discussion.
BITs became very common in the 1970-80s. In Europe, the U.K. and Germany (the
country hosting this conference) have been very active in negotiating such BITs83. At the
end of 2006 the number of BITs in the world was 2,573 including 73 BITs concluded that
year.
Typically BITs provide for the following guarantees:
• Fair and equitable treatment
• Full protection and security
• Referral of investment disputes to arbitration mechanisms (ICSID
or ad hoc)
• Some degree of protection against expropriation
As such these BITs can be viewed as one of the efficient vehicles to introduce and
disseminate “good principles” on the treatment of foreign investors. But the drawback
of this approach is that it offers these guarantees only for investors from countries that
have signed BITs with the given country (when an Investment Code could extend these
rights and guarantees to all foreign investors). It would take a long time and lots of efforts
for a host country to negotiate, sign and ratify BITs with all or most countries around the
world. It therefore seems to be, first and foremost, an instrument by which a country
shows to another that it wants to have a privileged level of economic cooperation with it
and its investors.
There is no consensus in the FDI literature concerning the impact that such BITs may
have had on FDI levels between signatory countries, nor on their impact on customary
international law. They can be, and are regularly, invoked in arbitration or court
proceedings. As such, one can say that they are influential.
Sometimes we (FIAS) also refer to these BITs in the course of our advisory work. For
instance, let’s assume that we are advising a developing country on the introduction of a
82
One that is often cited for having had strong provisions and impact on bilateral FDI is the US-Canada
Free Trade Agreement of 1988.
83
See for instance the German-Pakistan BIT of 1959. At end 2006, Germany had concluded a total of
134 BITs, followed by China (120) and Switzerland (114). We have not received the figures at end 2007.
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given right, guarantee or standard of protection in its Investment Legislation; and that the
government representatives are hesitant about such introduction. Let’s further assume that
the country has already agreed to such principle or guarantee in a BIT that it has
concluded with another country. In such a scenario, we could advise this government
client that introducing the very same principle in its FDI legislation (or omnibus
investment code if it covers both domestic and foreign investment) for all foreign
investors would be very appealing to the foreign investor community, therefore serving the
strategy of FDI promotion; and that it would also reduce the dichotomy in the country’s
FDI regime and the distortion that exists in the treatment of foreign investors from
various countries.
National-level Approach
1) Reform of the Country’s Investment Policy & Legislation
In our experience, national-level reform remains the instrument of choice for
governments, particularly in developing and transition economies, willing to promote FDI
or, on the contrary, to control and restrict FDI. A reform of the domestic legislation on
FDI (or on private investment) can go both ways. Fortunately, the reforms we observe
around the world tend to go in the direction of liberalization, increased opening, and
removal of restrictions.
FIAS provides regular advice and assistance to governments in developing countries that
want to improve and modernize their FDI or omnibus investment legislation. Most of
them want to extend basic, fundamental guarantees to foreign investors such as:
-
National treatment
Access to arbitration
Protection against expropriation and nationalization
Profit transfer
Some countries want to go further and offer additional guarantees (such as access to land,
or guaranteed right to bring expatriate workers) but the above are indeed the fundamental
guarantees that most foreign investors will expect to find in a host country’s legal
framework for investment (if not in the Investment Code in other norms – e.g. the
Constitution or special laws, statutes and regulations dealing with expropriation, foreign
exchange, or dispute resolution).
Without indicating here what we have advised to individual country clients in the course of
our reform-support work, we can indicated that in recent years and months we have been
advising and assisting a range of very diverse countries, all of them willing to improve their
legal framework for FDI. These countries included:
-
Libya, Syria, and Yemen in the MENA region
Burundi, Liberia and Mauritania in Africa
Cambodia, Fiji, Indonesia (federal and provincial level), Lao PDR, Samoa, and
Vietnam in Asia-Pacific
Albania, Armenia, Azerbaijan in Central Europe and the CIS.
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We are a little less active in Central Europe where most countries have already fully or
largely liberalized their FDI regime. A very powerful driver of reforms in the region has
been, obviously, the EU accession or association process. We tend to receive more
requests from the former Soviet republics of Central Asia, which are not as advanced in
their legal and economic reform process but do want to participate to the regional and
even global competition for FDI. We are also less active in Latin America, where countries
have either well liberalized their FDI regime (Brazil, Chile) or are currently having
ambivalent attitudes towards FDI or the private sector in general (for instance, the
Venezuelan government stated as recently as last week that it wants to nationalize or take
control of 3 foreign-owned cement businesses – from Mexico, France and Switzerland.
This follows the nationalization of oil projects last year). This also shows that the trend
toward liberalization of FDI policy is not even and irreversible. Governments can and will
re-introduce controls and restrictions over FDI when they deem appropriate. And again
the instrument of choice will be unilateral” or “national-level” reforms rather than
bilateral, regional, or multilateral efforts.
2) The Contractual Approach
There is another channel that governments have used and continue to use to extend
guarantees or to introduce restrictions to FDI projects and that is the conclusion of
“individual contracts” with a specific investor, what we call in French “une Convention
d’Etablissement”. This is an area where I find myself in disagreement with fellow lawyers
who work in private practice and advise investors. They tend to see this as a wonderful
option and some even seem to consider this as the “greatest invention since sliced
bread”…
Although we realize that these contracts may be absolutely necessary in very specific cases
(e.g. an oil production project for instance), we in the development community tend to be
much less enthusiastic about this “contractual approach”. Why? First of all, we regret the
fact that the contract resolves (at least potentially, on paper) issues for one investor only. A
good Investment Code can resolve issues and offer protection to all investors. It has to be
implemented and enforced of course but at least the framework, the rights and obligations
are the same for all investors and this is much more satisfactory from a fairness or levelplaying field perspective.
More importantly, our concern is that this negotiated approach leaves much excessive
room for discretion on the part of the government. There is no transparency over the
specifics of the “deal” (as these contracts are often confidential, in part or in whole, and
not subject to external review). In developing countries, particularly those affected by low
income and weak governance systems, such room for discretion can easily lead, in the best
case scenario, to errors in judgment and, in the worst case scenario, to favoritism,
nepotism or even outright bribery and corruption of public officials responsible for
negotiating with the foreign investor the “special conditions or terms” under which the
investor can realize its project.
For these reasons, we tend to advise against this “contractual approach” and recommend
to our client countries that they spell out in clear terms in the overall FDI or investment
legislation, or in a sectoral legislation, all the terms and conditions to invest in the country
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/ sector, and all the rights and guarantees to which all investors are eligible. In our view,
the approach we recommend serves the public interest and the country’s interest much
better than the contractual approach. But we have to acknowledge that this is a very
difficult message to convey and that many governments continue to negotiate such
“special deals” and “investment contracts”, particularly for larger projects, or projects in
certain industries. The World Bank and other development agencies work with civil
society, NGOs, and developing countries to introduce greater transparency in extractive
industries (Extractive Industry Transparency Initiative or EITI).
To conclude, and at the risk of displeasing my fellow lawyers, I think we should neither
underestimate nor overestimate the importance of law and legal issues in the decision
of foreign investors. They do look at it and pay particular attention to a number of very
specific guarantees they expect (for instance, a restriction on profit transfer or a weak or
inexistent protection against expropriation are very likely to be seen as a strong deterrent
by many if not most foreign investors). However, when direct surveys of foreign
investors are conducted asking them to rank various locational factors according to their
weight in their decision to invest or not to invest in a given country84, the first and most
important factors they usually mention are:
-
Macroeconomic stability
Political stability
Quality of telecommunications
Availability and cost of skilled labour
Corporate taxes
Quality of the banking and financial services…
Not overestimate. But not underestimate either. When these foreign affiliates CEOs are
asked in the same survey to indicate what host country governments should do to make
the country more attractive to FDI, the most frequently mentioned policy area (33% of the
respondents) is “strengthening the legal and regulatory framework”.
Foreign investors do not see any contradiction in these two responses and neither should
we. An improved legal and regulatory framework actually addresses many of the concerns
of the foreign investors.85
X. Forneris.
84
See for instance the “Worldwide Survey of Foreign Affiliates” jointly conducted by UNCTAD and
WAIPA, summarized in the “Occasional Note” of 5 November 2007. UNCTAD/WEB/ITE/IIA/2007/5.
85
See the list of locational factors and their perceived importance in the above-mentioned UNCTADWAIPA Survey of Foreign Affiliates.
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The Moral Hazard Problem in Global Economic Regulation
By:
Professor Frank J. Garcia
Boston College Law School
Global regulation of international business transactions presents a particular form
of the moral hazard problem. Global firms use economic and political power to
manipulate state and state-controlled multilateral regulation to preserve their opportunity
to externalize the social costs of global economic activity with impunity. Unless other
actors can effectively counter this at the national and global regulatory levels, globalization
re-creates the conditions for under-regulated or “robber baron” capitalism at the global
level. This model of economic activity has been rejected at the national level by the same
modern democratic capitalist states which currently dominate globalization, creating a
crisis of legitimacy and, ultimately, security for the international economic system.
Enlightened self-interest dictates that home countries and their citizens address this
dualism underlying contemporary globalization.
I.
Definition of Globalization
One of the most common definitions of globalization is the elimination of time
and space as a factor in human social relations. Due to revolutions in computing and
telecommunications, it is now the case that information and ideas (and even money) can
move with unprecedented speed around the world, creating the possibility of virtually
instantaneous real time global exchanges. Understanding the implications of this shift is
one of the chief tasks of the liberal arts and social sciences today.
Transposing that to our present context, we might say that globalization involves
the elimination of time and space as factors in international economic relations, specifically
in international business transactions. Now, at first glance, this would seem fanciful, if not
mistaken. Who better than global entrepreneurs knows that time and space are still factors
in the global production, transportation and sale of goods, services, capital, labor, and even
knowledge. Certainly, the travel weary global executive is very much aware of the
immediate personal effects of time and space. However, I would assert that the definition
is still relevant, and suggestive, for international business transactions in two ways, one
affecting markets and one affecting regulation.
When one looks at economic globalization one can distinguish two core aspects:
“market globalization” and “regulatory globalization.” Market globalization focuses on the
increased volume of transactions in which goods, services, labor and capital cross national
boundaries, facilitated both by technological change and decreasing tariff and non-tariff
barriers, such that these transactions taken as a whole begin to resemble those of a single
market spanning the globe. This characterization of globalization begins with the fact that
there has always been transboundary economic activity, and argues that such activity is
increasing both in scope and scale such as to warrant a new name: "globalization." Thus
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market globalization asserts in essence that globalization is a quantitative rather than a
qualitative change.
This common approach to defining economic globalization, however, represents
only one aspect of economic globalization. Another definition, which shall be termed
"regulatory globalization," includes the quantitative changes highlighted in market
globalization, but emphasizes a qualitative change in the nature of our regulation of
markets. In particular, regulatory globalization focuses on the complex social processes
which have led to the regulation of markets for goods, labor, capital and services at new
levels, levels which require formalized interstate cooperation through new and powerful
institutions like the WTO, and which may, in certain cases, transcend nation-state control
to a significant degree, as in the case of the European Union.
II
Regulatory Globalization and the Moral Hazard Problem
It is this aspect of globalization, regulatory globalization, and its effects on
international business transactions, which I would like to focus on in these brief
observations. The move to a global market has highlighted shortcomings in the
Westphalian system of national regulation, as well as deficiencies in the current level of
multilateral or global regulation.
The central social problem posed by market-led globalization is that of
externalities. Historically, regulation is the chief restraint on firms’ tendencies to
externalize costs. However, when markets outstrip regulation, as they are doing in current
forms of globalization, we create the conditions for increased externalization by
multinational firms of the social costs of economic activity, increasing the demand for
effective regulation at the global level. For example, we need multilateral regulation of
foreign investment to address problem host states face in seeking to regulate the social
costs of foreign investment, such as the regulation of labor and employment conditions
However, this is precisely what host states by themselves cannot do. States face a
collective action problem as long as they are forced to attempt individually to regulate the
conditions for multinational economic activity. Thus territorially-based jurisdiction is
inadequate to address many of the challenges of economic globalization. However, global
regulation today is underdeveloped. Existing multilateral regulatory bodies such as the
WTO and the IMF have to a significant degree been captured by precisely those states
which also are the home states of the powerful multinational enterprises. When regulation
is directly or indirectly in the hands of a few powerful home states, there is the risk of self
serving regulation.
This is the moral hazard of global regulation today: powerful multinational
enterprises are essentially regulating themselves, through the interventions of the states
which they influence in the multilateral regulatory bodies which such states have captured.
In private law, we generally think of moral hazard as a perverse effect of certain contracts,
such as insurance contracts, which can incentivize insured parties to engage in risky
behavior they otherwise might not engage in but for the insurance itself. In the global
economic regulatory context, I am suggesting the same dynamic is at work: powerful
global firms use their leverage over home state regulation, and over the multilateral
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institutions which their home states dominate, to create rules which eliminate the legal
risks to their activities. Since host jurisdictions already face almost insurmountable
collective action challenges to effective regulation of foreign firms, this means that
powerful global firms are essentially regulating themselves.
This creates a problem of legitimacy, in addition to the problems which
externalities themselves create (pollution, social welfare costs, etc) for those who suffer
them. This legitimacy problem has two aspects. First, as long as regulation is controlled
by powerful home states and their firms, and the rest of the world consists of host
jurisdictions without the power to effectively regulate by themselves, economic
globalization means that most of the world will be subject to forms of economic activity
which they have not in any meaningful way consented to. Under the liberal principles of
justice which powerful home countries claim allegiance to, this is a serious compromise to
the legitimacy of the resulting global regulatory system.
Second, the global market is currently being regulated by the market actors
themselves. Globalization thus re-creates the conditions for under-regulated or “robber
baron” capitalism at the global level. This model of economic activity has been rejected at
the national level by the same modern democratic capitalist states which currently
dominate globalization. This is a further challenge to legitimacy: there is no effective rule
of law when the powerful make their own rules. Moreover, it is a form of hypocrisy
unfortunately common in international relations: we export what we reject at home.
Enlightened self-interest dictates that home countries and their citizens address
this dualism underlying contemporary globalization. The nature of globalization not only
intensifies problems of externalities and the challenge of legitimate, effective regulation,
but also the public perception of externalities, the firms which create them, and the host
countries which facilitate this. Put short, information globalization means there are fewer
and fewer places to hide externalities from your shareholders, your customers, and the
citizen/consumers of your home jurisdiction.
The changes in telecommunications and information flow which propel
globalization, have also influenced our understanding of the economic effects of
globalization on those far from the power centers. In the same way that television during
the Viet Nam war permanently altered the domestic US politics of war, information
globalization is permanently changing the politics of global business. Problems of
development, inequality and justice are not “safely” behind transportation and
communication barriers – they are immediately present in the news and on the Internet.
This means that, contrary to past practice, firms and countries cannot as easily externalize
social costs with impunity. However, therein lies an opportunity; as traditional folk
wisdom says, “the medicine is in the poison.”
III
Strategies
In order to address this moral hazard problem, we must bypass the institutions
which themselves are embroiled in it, and alter the economics and politics of regulation at
the national and global levels. One set of strategies is itself market-based. Attempts to
mobilize consumers in powerful home jurisdictions to incorporate social concerns into
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their consumption decision, can affect the market incentives for multinational
corporations to alter their externalization policies.
Another set of strategies involves domestic politics in both home and host
jurisdictions. Like-minded citizens can organize networks between consumer-citizens in
both home and host jurisdictions, bypassing territorial political boundaries to create global
constituencies. These constituencies can coordinate efforts to influence domestic
regulation in both home and host jurisdictions, and alter the incentives for states to act at
the global regulatory level as well. Multinational corporations should not be able to profit
from information asymmetries and territorial jurisdictional boundaries; instead, networks
of citizen-consumers can themselves use globalizing information flows to counter the
information advantages of multinational corporations and eliminate the veils of secrecy
which shield overseas externalities from affluent citizen consumers in home jurisdictions.
Such networks can also support coalitions among host jurisdictions which can
effectively demand global regulation addressing the social costs of global capitalism. This
approach can minimize collective action problems so host jurisdictions can become rule
makers and not just rule takers.
IV
Conclusion
Externality-driven globalization clearly threatens the social well-being of the many
people trapped in host jurisdictions. The current international climate demonstrates how
economic exploitation and failures of legitimacy threaten the stability and security of the
entire global system - home and host jurisdictions alike. Information globalization makes
it clearer to home country citizens how this current model of globalization threatens their
security and well-being as well: their profits as mutual fund shareholders, their prosperity
as workers, their affluence as consumers. To the extent that citizens of home jurisdictions
mobilize, they are, in the end, only helping themselves.
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Understanding the Role of Global Governance Institutions in
the Regulation of International Business Transactions
By:
Claire R. Kelly*
Assessing the authority of global governance institutions facilitates the study of the
international business law. The regulation of international business transactions occurs
through a dispersed, diverse and incomplete system of governance at the national,
transnational and international levels. Moreover, the various institutions of global
governance at the international level take different forms and develop different regulatory
products. The authority of these institutions spans a spectrum as well, from those that
claim legitimacy by virtue of the consent of states, to those that stake their legitimacy
claims on effective products, representative rules or procedurally sound systems for norm
development. This diversity poses challenges and opportunities for studying international
business transactions law. The continually evolving sets of rules sometimes compete with
each other, often overlap, and are subject to different interpretations. We can sort through
these complexities by identifying the goals of international business transactions law.
Thereafter, assessing the legitimacy of the governance institutions can aid us in better
fulfilling those goals.
Global Institutional Types
Students of international business transactions, on both sides of the podium,
confront various types of global governance institutions: governmental regulatory bodies,
quasi-governmental norm-creating forums and private norm-creating forums. Each of
these institutional types develops different products that ultimately may regulate
international business transactions and raise different questions and challenges.
Governmental Regulatory Bodies. States sometimes commit themselves ex ante to
governmental regulatory bodies that have the power to generate norms and rules that will
bind the members. These institutions derive authority from their membership.86 States
may make this ex ante commitment for various reasons. These institutions sometimes
possess efficiencies that make membership appealing.87 For example, economic benefits
that accrue to WTO members make membership a must.88 Likewise, states may enhance
their standing in the community of nations through membership in various regulatory
bodies.89
*
Associate Professor of Law and Associate Director of the Dennis J. Block Center for the Study of International
Business Transactions Law, Brooklyn Law School.
86
Margaret P. Karns and Karen A. Mingst, INTERNATIONAL ORGANIZATIONS: THE POLITICS AND PROCESSES OF
GLOBAL GOVERNANCE 4-5, 8-10 (2004).
87
Kenneth W. Abbott and Duncan Snidal, Why States Act Through Formal International Organizations, 42 J.
CONFLICT RES. 1, 4-5 (1998).
88
See Claire R. Kelly, Realist Theory and Real Constraints, 44 VA. J. INT’L L. 545 (2004).
89
Edward D. Mansfield and Jon C. Pevehouse, Democratization and International Organizations, 60 INT’L ORG.
137, 161 (2006). For example, institutional membership helps leaders sustain domestic democratic reforms. Id.
Mansfield and Pevehouse note democratizing countries may find that membership in international institutions lends
credibility to the leaders of those countries. Id. at 141. See also Robert Howse, The Legitimacy of the World Trade
Organization 356 in THE LEGITIMACY OF INTERNATIONAL ORGANIZATIONS, (discussing how “sovereigns use
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Quasi-Governmental Norm-Creating Forums. Some norms in international business
transactions are generated within global institutions constituted by states and then adopted
ex post. For example, the United Nations Commission on International Trade Law
(UNCITRAL) creates conventions, model laws and legislative guides.90 The International
Institute for the Unification of Private Law (UNIDROIT) also has member states work on
harmonizing substantive private law issues91 through conventions, principles, uniform laws
and guides.92 The Hague Conference on Private International Law includes 67 member
states which work towards the “progressive unification of the rules of private international
law.”93 None of these bodies are legislatures or law-creating bodies, rather they are
institutions that develop rules and make policy choices that only become law once states
choose to adopt them.
Private Norm-Creating Forums. An extremely important set of venues for international
business transactions lawyers is outside government entirely. International private normcreating forums generate rules or standards that private parties or individual states choose
to adopt if they think the rules or standards will be useful.94 These rules may not be “law”
in the traditional sense, they may only become law through the adoption of parties or the
continued use as trade practices of industries, but they are a major part of the rules that
govern international business transactions. For example, the ICC sets standards that will
facilitate business should individual parties choose to adopt them.95 Among its most
notable successes are the Uniform Customs and Practice for Documentary Credits (UCP
500 & UCP 600), which banks routinely adopt to govern their letters of credit, and ICC
Incoterms, which parties frequently adopt as a matter of course when engaging in the sale
of goods.96 Similarly, the Institute for International Banking Law & Practice has developed
the ISP 98 which is considered essential for those using standby letters of credit.97
The Legitimacy of Global Governance Institutions
international organizations as a means of legitimizing their own power” but questioning who in turn legitimizes the
international organization.)
90
The UNCITRAL Guide: Basic Facts about the United Nations Commission on International Trade Law United
Nations, 29-47 (2006), available at http://www.uncitral.org/pdf/english/texts/general/V0650941.pdf (last visited
August 15, 2007).
91
See Statute of the International Institute for the Unification of Private Law art. 1, Mar. 26, 1993, 15 U.S.T. 2504.
See also Int'l Inst. for the Unification of Private Law, About UNIDROIT at http://www.unidroit.org (last visited
92
Id.
93
Statute on the Hague Conference on Private International Law (Hague Statute) art. 1., formulated Oct. 9-31, 1951,
15
U.S.T.
2228,
220
U.N.T.S.
121
Also
available
at
http://www.hcch.net/index_en.php?act=conventions.text&cid=29 (last visited December 1, 2007).
94
See, e.g., Alan Schwartz and Robert E. Scott, The Political Economy of Private Legislatures, 143 U. PA. L. REV.
595 (1995) (examining “large private law making groups.”)
95
ICC
Constitution,
Art.
1
available
at
http://www.iccwbo.org/uploadedFiles/ICC/ICC_Home_Page/pages/Constitution8101907E.pdf, last visited August 9,
2007.
96
See generally Henry Gabriel, International Chamber of Commerce Incoterms 2000: A Guide to Their Terms and
Usage, 5 VINDOBONA J. INT’L COMM. L. & ARB. (2001).
97
See Institute for International Banking Law and Practice, home page http://www.iiblp.org/ (last visited August 9,
2007). Another example of a private norm creating institution is the Comité Maritime International Comité Maritime
International which promotes the unification of maritime law. Home Page, available at
http://www.comitemaritime.org/ratific/ratitle.html (last visited August 9, 2007). Still another is the International
Standards Organization. See ISO Standards Home page available at http://www.isostandards101.com/ (last visited
August 20, 2007).
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Where multiple institutions develop norms to regulate international business
transactions, institutional legitimacy questions arise. Given the increasing number of
global institutions that regulate international business transactions and the breadth of
issues that they now address, it is not surprising to see that these institutions sometimes
compete and sometimes collaborate to address complex problems. Which norms should
govern a particular dispute is a question faced by business people, dispute resolution
panels and students alike. Legitimacy analysis can help us answer this question.
The sources of institutional legitimacy vary. Legitimacy may come from the
consent of those bound by the rules. Thus, UNCITRAL’s Convention on Contracts for
the International Sale of Goods (CISG) binds those states that have acceded to it.98 WTO
members are bound to the WTO treaties because they have acceded to them. Likewise
private parties that adopt Incoterms 2000 will find it difficult to complain that they should
not be bound, absent some indication that their consent was not truly voluntary.99
Consent as the basis of legitimacy may exist in connection with any of the three types of
institutions above.
Nevertheless, sometimes states and individuals who have not consented to
particular rules or norms will be affected by them. For example, norms that regulate
cross-border insolvency may effectuate policy choices that impact states and parties that
have not consented to those norms. Or, as in the case of intellectual property, competing
normative prescriptions may emanate from different institutions with different
constituencies.100
Alternative legitimacy criteria are available where affected parties have not
consented to the application of an institution's norms. One can claim legitimacy by
assessing the effectiveness of the institution, (i.e., whether it promulgates norms that are
useful, and that are indeed used.) Using effectiveness, or output criteria, as some call it, to
assess the legitimacy of an institution requires a normative prescription as to what is a
good or effective outcome. Alternatively, one may claim legitimacy because the institution
is representative of countries, or because it employs good procedures. These input criteria
may or may not lead to more effective rules, but they may lead to rules that are perceived
as authoritative.
Institutional Legitimacy and the Study of International Business Transactions Law
The basis of institutional legitimacy matters because it informs how we resolve the
conflicts and ambiguities that naturally flow from multiple global governance norms. The
various sources of global norms create both conflict and ambiguity. Students must reflect
upon the goals of international business law. Such goals may include fairness, stability,
efficiency or flexibility. We may have different views concerning which global institutions
98
Although as we know, it may also, through its choice of law provision, bind a non contracting party if the rules of
private international law would point to the law of the member state.
99
Although sometimes the ICC’s Incoterms may be assumed as a matter of trade usage. See St. Paul Guardian
Insurance Company, 2002 U.S. Dist. LEXIS 5096 (S.D.N.Y. 2002).
100
Thus, while the Trade Related Aspects of Intellectual Property Agreement (TRIPS) may require strong protection
for patents, such protection may conflict with norms set under the International Covenant on Social, Economic and
Cultural Rights. Patrick Wojahn, Comment, A Conflict of Rights: Intellectual Property Under TRIPS, The Right to
Health, and AIDS Drugs, 6 UCLA J. Int'l L. & Foreign Aff. 463, 466 (2001/2002).
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are more likely to achieve these goals. I suggest that assessing institutional legitimacy may
aid our inquiry.
Conflicts and interpretive challenges in international business law stem from the
various sources of law. Any time there is more than one source of authority that purports
to provide rules to govern transactions there is a chance of conflicts between the
alternatives. Thus, The Hague Rules and the Hamburg Rules on carrier liability differ and
carriers need to know when one set of rules rather than the other might apply. Likewise,
the norms promulgated by the UNIDROIT might conflict with those adopted by
UNCITRAL.101 Interpretive questions are also prevalent in international business
transactions law. Naturally, as international norm-generating institutions struggle to
develop widely-acceptable and effective norms, they compromise. One consequence of
such compromise is ambiguity. Thus, for example, although states may consent to the
CISG, questions of validity are specifically excluded from the scope of the CISG and the
parameters of validity are left ambiguous.102
Conflicts and interpretative questions cause us to reflect upon what it is that we
want from international business transactions law. We may want fairness. Where parties
feel they are treated fairly or that rules which may put them at a disadvantage were
nonetheless developed fairly, they may be more supportive of international business
transactions governed by these rules. Or, we may value predictability most highly.
Knowing how to predict costs allows parties to insure for them effectively and plan their
affairs. Predictability also promotes efficiency. Efficiency might also be promoted by
rules that employ cost benefit analysis or impose burdens on the least cost avoider. Where
parties believe a rule or norm is predictable and therefore efficient, they may be willing to
follow it even in those instances where they find themselves disadvantaged. Or, we may
want flexibility. Global institutions need to be able to respond to the changes that are
currently unimaginable. Containerization, the internet, sovereign wealth funds, all
challenge global institutions to keep up with business or become irrelevant. Where parties
can see the flexibility in rules or norms governing international business transactions, they
may be willing to tolerate their ambiguities.
The challenge, of course, is that different global institutions may better facilitate
some values than others because of the basis of their authority. Institutions that claim
authority by virtue of consent may be more “fair” than others. But both governmental
regulatory bodies and quasi-governmental norm-generating forums that rely on consent
may also lack flexibility. Institutions that claim legitimacy on the basis of output criteria
may be effective, efficient, and flexible, but they may also undermine fairness especially
where the rules have not been consented to by all those affected by them. Institutions that
rely upon input criteria (representation or process) may be fair but they may be neither
effective nor flexible. Thus, a preference for one institution’s norms over another may
reveal a preference for one particular set of goals for international business transactions.
Neither teachers nor students need to prioritize a particular set of goals, but we should
learn how to navigate the conflicts and make persuasive arguments in favor of one
approach or another.
101
102
Not to mention the possible conflicts with national laws.
CISG, Art. 4.
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Conclusion
The range of norm-setting global institutions for international business law
provides opportunities to develop flexible, efficient and fair rules to govern conduct.
Students and scholars can, and should, critically examine claims by these institutions of
flexibility, efficiency and fairness. I believe that one part of that critical analysis must
include an inquiry into the legitimacy of the promulgating global institution.
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SOME THOUGHTS ON THE REGULATION OF
BUSINESS TRANSACTIONS IN EUROPE
BY:
Dr. Nicole Kornet LL.M.103
When businesses transact an important question will be what rules are applicable
to their contract. In the absence of a solution provided by the contract itself, the relevant
default rules of the applicable contract law will be applied to settle a conflict that arises.
This becomes more complex when businesses enter into cross-border transactions, since
more than one set of rules could potentially apply. In the European Union, contract law is
characterized by its diversity; each of the 27 Member States has its own contract law
system. The diversity of contract law systems is often regarded as problematic because a
business wanting to transact with another business in a different EU member state may be
deterred from doing so because of the differences in legal systems. It is consequently
claimed that private law, and in particular contract law, which is seen to form the
backbone of economic activity, must be harmonized in order to facilitate economic
integration within the EU.104 Proponents of comprehensive harmonization of contract law
in Europe argue that the creation of a uniform European contract law that is at least
applicable to all cross-border transactions, would eliminate the variety of transaction costs
associated with legal diversity, and facilitate cross-border transactions, in particular among
small and medium-size businesses, thus promoting competition and the proper
functioning of the internal market. The focus in Europe is currently on new developments
in the direction of regulation of contract law at a European level, e.g. the Common Frame
of Reference, Principles of European Law, the Acquis principles, and on the possible
creation of an (optional) European contract law code. Although many of these
developments are currently directed at consumer transactions, there are also calls from
various stakeholders to develop an (optional) instrument that applies to cross-border
business transactions.
The harmonization of private law relating to business transactions raises many
questions, including whether it is feasible to create a single contract law instrument in light
of the divergent legal traditions within the EU. Would such uniform rules be tailored to
the preferences of businesses? And even if uniform contract rules are created, will that
resolve the alleged problems faced by contracting parties due to legal diversity? It is
questionable whether a uniform contract law could have the desired harmonizing effect.
Despite the existence of uniform rules, the differences in implementation and application
103
Department of Private Law, Maastricht University. This is a paper for the International Association of Law
Schools Conference: The Law of International Business Transactions: A Global Perspective, 10-12 April 2008,
Hamburg.
104
In general, Communication from the Commission to the Council and the European Parliament on European
Contract Law, Brussels, 11.07.2001, COM(2001) 398 final. Also see Smits, Jan, The Making of European Private
Law. Toward a Ius Commune Europaeum as a Mixed Legal System (Antwerp-Oxford-New York: Intersentia, 2002),
p. 2; McKendrick, Ewan, 'Harmonisation of European Contract Law: The State We Are In', in Stefan Vogenauer and
Stephen Weatherill (eds.), The Harmonisation of European Contract Law. Implications for European Private Laws,
Business and Legal Practice (Oxford and Oregon, Portland: Hart Publishing, 2006), 5-29, p. 14. Vogenauer, S. and
Weatherill, S., 'The European Community's Competence to Pursue the Harmonisation of Contract Law - an
Empirical Contribution to the Debate', in Vogenauer, S. and Weatherill, S. (eds.), The Harmonisation of European
Contract Law: Implications for European Private Laws, Business and Legal Practice (Oxford and Portland, Oregon:
Hart Publishing, 2006), 105-148.
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of the norm from one member state to another could lead to legal uncertainty, promote
forum shopping, raise transaction costs and thus negatively impact on cross-border trade.
Another relevant question is whether the intended users of such European
measures will actually use them. There is some evidence in the United States that seems to
suggest that despite the creation of uniform law, businesses may prefer to substitute
(uniform) public regulation with private regulation. In the US, private law is a matter
regulated by the individual states. To deal with uncertainty caused by the diversity in the
existing commercial laws of the various states and to create uniform commercial law
among the various jurisdictions, the Uniform Commercial Code (UCC) was developed.105
However, in a number of empirical studies, Bernstein has shown that various trades and
industries opted out of the UCC, substituting it with their own private regulatory
framework.106 Business transactions are then governed by the private regulatory framework
as opposed to the UCC. In light of this experience from the US, it becomes relevant to
examine private regulation as a response to the obstacles encountered by businesses
caused by divergent contract law systems in the EU. Private regulation may be more suited
to simplifying dealings, reducing transaction costs, and overcoming existing legal diversity
thus encouraging cross-border transactions within certain sectors. That being said, there
are concerns inter alia in the area of competition law and policy.
For private regulation to work as a “bottom-up” alternative to a European contract
law, groups of businesses (contracting communities) that enter into the same type of
transactions with each other on a regular basis need to work together. The members of a
particular trade, industry or business sector share specialist, technical knowledge about the
characteristics of the product or service, and through repeated interaction, they accumulate
collective knowledge and experience about what can typically go wrong, and how typical
problems are usually dealt with, leading to the development of shared understandings and
practices .107 Within the contracting community a trade, industry or sectoral organization is
responsible for facilitating transactions, disseminating information and representing the
interests of its members. Through these organizations the members of the contracting
community can combine efforts to develop a private regulatory framework that provides a
comprehensive set of detailed contracting solutions for the members of the contracting
community reflecting the shared understandings and practices of the contracting
community. An important entrepreneurial role can therefore be set aside for European
trade, industry and sectoral organizations in order to provide a forum for the creation of
comprehensive private regulatory frameworks.
105
The UCC has been enacted in 49 states (with some local variations), as well as partially in Louisiana. §1-103
provides that the underlying purposes and policies of the UCC are: ‘(1) to simplify, clarify, and modernize the law
governing commercial transactions; (2) to permit the continued expansion of commercial practices through custom,
usage and agreement of the parties; and (3) to make uniform the law among the various jurisdictions’.
106
Bernstein, Lisa, 'Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business
Norms', University of Pennsylvania Law Review, 144 (1996), 1765-1821; Bernstein, Lisa, 'The Questionable
Empirical Basis of Article 2's Incorporation Strategy: A Preliminary Study', University of Chicago Law Review, 66
(1999), 710-780; Bernstein, Lisa, 'Private Commercial Law in the Cotton Industry: Creating Cooperation through
Rules, Norms, and Institutions', Michigan Law Review, 99 (2001), 1724-1790.
107
Wightman, John, 'Beyond Custom: Contracts, Contexts, and the Recognition of Implicit Understandings', in
David Campbell, Hugh Collins, and John Wightman (eds.), Implicit Dimensions of Contract. Discrete, Relational
and Network Contracts (Oxford and Portsmouth, Oregon: Hart Publishing, 2003), 143-86, p. 150; Epstein, Richard
A, 'Confusion about Custom: Disentangling Informal Customs from Standard Contractual Provisions', University of
Chicago Law Review, 66 (1999), 821-35, p. 828. Also see Cooter, Robert D, 'Decentralized Law for a Complex
Economy: The Structural Approach to Adjudicating the New Law Merchant', University of Pennsylvania Law
Review, 144 (1996), 1643-1696, p. 1646, ‘Wherever there are communities, norms arise to coordinate the interaction
of people.’
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The private regulatory frameworks created by these European organizations could
combine the following elements: model contracts, sets of general conditions, sectoral
regulations and alternative dispute resolution mechanisms. The model contracts provide
the members of the contracting community with assistance for drafting their own
individual contracts, and provide the parties with alternative solutions from which they are
able to choose the solution that is best suited to their individual transaction. These model
contracts can also leave room for the parties to complete the contract in order to
customize it to their particular transaction. In this sense, the parties are not restricted to
one set way of conducting business. Sets of general conditions can be applied in a
standardized way to all transactions of a particular type. These general conditions should
balance the typical needs of the parties involved and can be used as standard documents,
without the parties having to complete or adjust the terms. The sectoral regulations would
contain general rules, practices, and common definitions that are applicable within the
particular trade, industry or business sector. These sectoral regulations are to be viewed as
specialist ‘statutes’ that incorporate the shared understandings and practices of a particular
contracting community.108 These sectoral rules would address general issues such as
formation, interpretation, performance and non-performance, remedies and excuse. A
final element of the private regulatory framework could be to adopt an alternative form of
dispute resolution. For instance, the contracting community may choose to settle disputes
through arbitration by a sectoral panel. By creating such a comprehensive private
regulatory framework, businesses transacting within the particular sector are likely to
prefer private regulation to the less tailored and comprehensive European contract law.
A number of advantages of private regulation by the contracting community can
be identified:
1. Tailored solutions: the private regulatory framework is tailored to the needs, interests
and preferences of the members of the contracting community.109 After all, the
objective of the private regulatory framework is to channel the collective knowledge
and experience, shared understandings, customs and usages, into the model
contracts, general conditions and sectoral regulations. In contrast, a uniform contract
law will by its nature contain open-ended and general rules that are not tailored to
the specific needs of the particular business community.
2. Flexibility: the model contracts, general conditions and sectoral regulations are
capable of change in light of changing needs and practices and developments within
the particular contracting community. If a particular term no longer serves the best
interests of the contracting community, it can be replaced with another, more
suitable solution. A uniform contract law would be much harder to adapt to new
developments.
3. Simplified dealings and transaction cost reductions: Individual contracting parties are
not required to ‘re-invent the wheel’ every time they transact. Instead, through
membership of the contracting community, they can benefit from the collective
108
See Kraus, Jody S, and Walt, Steven D, 'In Defense of the Incorporation Strategy', in Jody S Kraus and Steven D
Walt (eds.), The Jurisprudential Foundations of Corporate and Commercial Law (Cambridge: Cambridge
University Press, 2000), 193-237, p. 225; Kornet, Nicole, Contract Interpretation and Gap Filling: Comparative and
Theoretical Perspectives (Ius Commune Europeaum, nr. 60; Antwerp - Oxford: Intersentia, 2006), chapter 11,
section 4.2.2.
109
Livanos Cattaui, Maria (2001), 'Harmonising Commercial Law: Keeping Pace with Business', in Ian Fletcher,
Loukas Mistelis and Marise Cremona (eds.), Foundations and Pespectives of International Trade Law (London:
Sweet & Maxwell, 2001), 37-42, p. 39, refers to ‘rules by users for users.’
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knowledge and experience accumulated within the contracting community.
Businesses are able to trade at short notice, because they no longer have to conduct
extensive negotiations on the terms of their transaction. With a uniform contract
law, the rules would not be tailored and may require businesses to enter into further
negotiations to obtain the solutions they desire.
4. Balanced solutions: the private regulatory framework balances the interests of
various parties within a particular trade, industry or sectoral organization. For
instance, the interests of both buyers and sellers within a particular market should be
represented within the organization. Through the representation of all participants in
the particular market within the organization, the private regulatory framework
should aim to address and balance the interests and expectations of the different
members of the trade, and incorporate their understandings, needs, and practices.
Furthermore, if the private regulatory framework is set up by representatives of all
the participants of a particular contracting community, i.e. buyers and sellers, the
bargaining power of both ends of the transaction will remain balanced, thus reducing
the likelihood of collusion and price-fixing (see below).
5. Increased certainty and predictability: by incorporating relevant practices and usages
in the private regulatory framework, reliable evidence of the relevant commercial
norms and practices is provided by the contracting community itself.
Despite these advantages, it is necessary to recognize that there are concerns
relating to private regulation.110 Economists in particular warn of:111
1. Dangers of barriers to entry: trade organizations that operate as closed networks
create barriers to entry to newcomers, who must for instance establish a good
reputation to gain entry to the contracting community. This problem does not exist
in the case of an open network, allowing open entry and exit. The private regulatory
framework should therefore be available to new members of the relevant contracting
community. They can opt into the private rules by using the model contracts, and
including a specific provision in their contract rendering the sectoral regulation and
dispute resolution mechanism applicable. The contracting community should not,
however, unduly restrict the possibility of members to adopt alternative contracting
solutions. It can be assumed, however, that if the private regulation responds to the
needs of the members of the contracting community, they will adopt them.
2. Potential for collusion and monopolistic price-fixing: where the relative bargaining
power between buyers and sellers is altered or pushed ‘out of balance’ the possibility
of collusion and monopolistic pricing can arise. The power to fix prices will depend,
however, on the nature of the organization. Collusion and monopolistic pricing will
in particular take place if the organization is one-sided, favouring (usually) sellers
110
See for instance, Ogus, Anthony, 'Rethinking Self-Regulation', Oxford Journal of Legal Studies, 15 (1995), 97108, p. 98; Ogus, Anthony, 'Self-Regulation', in Boudewijn Bouckaert and Gerrit De Geest (eds.), Encyclopedia of
Law and Economics (Edward Elgar; University of Ghent, 1999), 587-602, p. 587; Pirrong, Stephen Craig, 'Selfregulation of private organized markets', in Peter Newman (ed.), The New Palgrave Dictionary of Economics and the
Law (London: New York: MacMillan; Stockton Press, 1998), 433-438.
111
McMillan, John, and Woodruff, Christopher, 'Private Order Under Dysfunctional Public Order', Michigan Law
Review, 98 (2000), 2421-2458, p. 2454-2458; Richman, B.D., ‘Firms, Courts and Reputation Mechanisms: Towards
a Positive Theory of Private Ordering’, Columbia Law Review, 104 (2004), 2328-2367, p. 2346-2347. Also see
Posner, Eric A, 'The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action',
University of Chicago Law Review, 63 (1996), 133-197, who doubts whether private group norms are efficient due to
externalities, strategic behaviour, information asymmetries, human nature and appeal to other moral values. Also see
Katz, Avery, 'Taking Private Ordering Seriously', University of Pennsylvania Law Review, 144 (1996), 1745-1763,
p. 1749.
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over buyers. But collusion becomes more difficult when the number of participants
increases and the organization includes (representatives of) all sides of the
transaction, i.e. both buyers and sellers as members.112 If there are competing
organizations performing similar functions, collusion will also be reduced.113
In the context of the discussion on the harmonization of contract law in Europe,
private regulation could constitute an effective mechanism to deal with the additional costs
associated with legal diversity and to encourage cross-border transactions if Europeanwide contracting communities or private regulatory organizations developed.114 This could
occur through cooperation between national sectoral organizations, or through the
creation of sectoral organizations that address the needs of the members of a particular
trade or industry who transact on a European level. They can use their collective
knowledge and resources to adapt model contracts, general conditions and sectoral
regulations to cross-border transactions. In the European context, the effective use of a
private regulatory framework may be threatened, however, if national legal systems
continue to have divergent mandatory laws concerning general conditions.115 In the
context of business transactions, however, freedom of contract should play a decisive role
and mandatory rules should be kept to a minimum, in particular if there is a private
regulatory framework created by a contracting community that has balanced the relevant
interests of all the parties involved. At the same time, the warnings of the dangers of
monopolies and price-fixing should not be neglected. This will require measures to be
undertaken to address concerted practices and anti-competitive behaviour and to promote
competition between contracting communities. In this way, there is an important role for
public regulation, in the form of competition law (articles 81 and 82 EC Treaty), to
establish the boundaries of private regulation by businesses.
112
Richman (2004), above fn. 9, p. 2347; McMillan & Woodruff (2000), above fn. 9, p. 2456; Epstein (1999),
above fn. 5 , p. 829.
113
McMillan & Woodruff (2000), above fn. 9, p. 2456.
114
Also see Katz (1996), Above Fn. 9, p. 1748, 1753 ff., who explains that choice between state and private
regulation, following the Coase Theorem depends on a comparison of the relevant transaction costs, which will
usually be less for private institutions than public ones. From this perspective, the jurisdiction to make rules should
be allocated to ‘the institution that is best able to recognize and respond to transactional problems.’
115
Also see Bernitz, U., 'The Commission's Communications and Standard Contract Terms', in Vogenauer, S. and
Weatherill, S. (eds.), The Harmonisation of European Contract Law. Implications for European Private Laws,
Business and Legal Practice (Oxford and Portland, Oregon: Hart Publishing, 2006), 185-195.
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Problems of Enforcing Intellectual Property Laws in Indonesia
By:
Afifah Kusumadara
Faculty of Law, Brawijaya University, Indonesia
A. Background
Although intellectual property law had been a relatively quiet and neglected area
within the Indonesian legal order in the decades following Indonesian independence in
1945, that situation changed abruptly towards early of 1990s.There was at that time a
sudden interest in the protection of intellectual property rights in Indonesia and a
corresponding flurry of political and legislative activity.1 Since that time, intellectual
property law has become the fastest growing field of law in Indonesia and the Indonesian
government has launched massive legislative reforms in the area.2
The government introduced the Copyright Act in 1987 to amend the Copyright Act
1982. A Patent Act followed in 1991 and in 1993 a new Trademark Act replaced the old
Trademark Act 1961. These developments were accompanied by a large number of
government regulations, ministerial decrees, and other administrative decrees to support
the implementation of the new intellectual property laws. Around this time, the Indonesian
government also made bilateral agreements for the protection of copyright with several
Western countries, including the US, the EU countries, Australia, and the UK.3
These developments culminated in the ratification of the Trade Related Aspects of
Intellectual Property Rights (TRIPs) Agreement, as part of the Agreement Establishing the
World Trade Organisation by the Indonesian government in 1994.4 As a result of the
TRIPs Agreement, the Indonesian government once again reformed the country’s
intellectual property laws by amending the existing statutes, the Copyright Act, Trademark
Act, and Patent Act with the Copyright Act No. 19/2002, Trademark Act No. 15/2001, and
Patent Act No. 14/2001. Moreover, to comply with the TRIPs Agreement, the Indonesian
government also enacted new intellectual property laws, namely, the Industrial Design Act
No. 31/2000, Layout-Designs of Integrated Circuits Act No. 32/2000, Trade Secret Act No.
30/2000, and Protection of Plant Varieties Act No. 29/2000. The Indonesian government also
ratified several international conventions on intellectual property law, among others, the
Berne Convention, WIPO Copyright Treaty, Patent Cooperation Treaty, and Trademark
Law Treaty. All were done in 1997 following the ratification of the TRIPS Agreement.
Despite these rigorous and extensive legislative reforms in the field of intellectual
property law, however, it has become clear that intellectual property laws remain very
difficult to enforce in Indonesia and protection of intellectual property rights is still weak.
Ignorance of these rights and their legal status is still very widespread. Indonesia remained
on the United States “Priority Watch List” until November 2006 when the US Trade
Representative upgraded Indonesia to “Watch List”.5 Piracy of literary and artistic works is
still rampant and trademark counterfeiting is still widespread. Rental shops that rent
pirated films and computer rentals that use infringed software, can be found everywhere in
Indonesia.
There are several factors that contribute to the difficulties of enforcing intellectual
property laws in Indonesia, among others:
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1. The origins of the existing intellectual property regime in Indonesia does not lie and
has never been developed in Indonesia, but rather in Western countries that have
different economic interests and cultural norms from those of Indonesia.
2. The intellectual property laws are incompatible with Adat (an extensive system of
Indonesian customary norms) that does not recognise ownership in intellectual works
or inventions. Adat is still strongly held by most Indonesians.
3. The weak legal enforcement in the field of intellectual property law.
4. The laws are not appropriate to the stage of economic and technological development
in Indonesia.
B. Analysis
The following section of this paper gives some brief analysis of each of those
factors mentioned above.
1. The origin of Indonesian intellectual property laws/regime does not come from
Indonesia’s interests.
The origin of the intellectual property regime in Indonesia is not from
Indonesia, but from more economically developed and industrialised Western
countries - originally the Dutch colonial government, and more recently, the United
States and European Union.
Intellectual property laws were brought for the first time into the Indonesian
archipelago by the Dutch colonial government in 1844 when they occupied the
archipelago that they called the Netherlands East Indies. In spite of this, the laws were
not known to or enforced against most native Indonesians. This was because of the
law segregation policy imposed by the Dutch colonial government.6 Pursuant to the
Constitution of the Netherlands East Indies (Regerings Reglement of 1920 and Indische
Staatsregeling of 1926), the civil law applicable to Indonesian natives was Adat7 that did
not recognise intellectual property rights. Therefore, the Patent Act 1911, Copyright Act
1912, and Trademark Act 1913 of the Netherlands East Indies were not enforced to
native Indonesians.
Only after Indonesia got its independence in 1945, were most Indonesians
introduced to intellectual property. This happened, because of a transitional provision
in the Indonesian new constitution. To avoid a vacuum of law in Indonesia after its
independence, the Sukarno government added Article II of the Transitional Provisions
into the Indonesian Constitution 1945 which provided that “all existing state
institutions and regulations remained effective, as long as the new ones had not yet
been provided under this Constitution.”8 With this constitutional provision, the
Indonesian government adopted all Dutch Acts, including Dutch intellectual property
Acts, into the Indonesia’s legal system and imposed them to all Indonesians.
Efforts to develop an indigenous legal system which was based on Adat and
Indonesian values finally, always failed, because of both the continuing struggles
against the Dutch, and frequent political as well as economic crises in Indonesia. For
practical purposes and to avoid the legal complexity of Adat laws which were not
codified and unified, the Indonesian government kept enforced all Dutch laws for all
Indonesians, with the exception of marriage and family law.9 It meant that the Dutch
intellectual property laws were kept enforced to Indonesians, something that never
happened during the Dutch colonial rule in the Netherlands East Indie.
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Because most Indonesians still hold to Adat norms that do not recognize
private-sector, individual ownership in intellectual works or inventions, intellectual
property laws became a neglected field of law and did not have any practical
importance in Indonesia. The only exception to this situation was in the area of
trademark law, where the government gave special attention to it by enacting
Indonesia’s own Trademark Act in 1961. There was an understanding and acceptance of
the nature and function of trademarks among most native Indonesians. For them,
trademark law was not exclusively related to the protection of intellectual property
rights, but rather to the protection of the public as consumers, from being injured by
counterfeit goods. This law was deemed fit with the communal culture of Adat norms.
This situation continued to the beginning of 1990s under Indonesia’s second
president, Mr. Suharto, when the US government started facing a problem of
increasing trade deficit against Asian countries, including Indonesia. Along with the
governments of European countries, they became concerned with the fact that the
newly industrializing countries in Asia, were capable of producing high-quality
imitations and pirated products. In September 1986, the US-based Intellectual
Property Alliance, filed a petition against Indonesia with the USTR (the United States
Trade Representative) under Section 301 of the Trade Act of 1974, as amended, 19
U.S.C. 2411. They demanded that, in retaliation for violation of American patents and
copyrights, the US government end its Generalised System of Preferences (GSP)
privilege for Indonesia.10 In the next year, the European Economic Community
accepted a similar petition from the Geneva-based International Federation of
Phonogram and Videogram Producers (IFPI) against the violation of intellectual
property rights on foreign sound recordings.11
Based on the Intellectual Property Alliance’s petition, the US government
threatened to remove the Indonesia’s GSP privilege12 if there was no improvement in
the field of intellectual property law. Facing this economic threat, the Suharto
government made an extensive reform of intellectual property laws by enacting
consecutively the Copyright Act in 1987, Patent Act in 1991, and new Trademark Act in
1993.
Having regard to the limited research and development capabilities in Indonesia,
very few indigenous inventions, patent and trademark holders, the Suharto
government’s interest in intellectual property laws during early 1990s was largely due to
economic pressure from Western countries, rather than a genuine interest in
intellectual property protection.13
Therefore, the enforcement of intellectual property laws in Indonesia was
hampered by the ignorance among most of Indonesians, as the concept of intellectual
property rights was not supported by Adat norms and the laws were not derived from
Indonesia’s interests, but the interests of Western industrialized countries.
As a result of ratifying the WTO Agreements14, that also covers the TRIPs
Agreement, the Indonesian government once again reformed the country’s intellectual
property laws in early 2000s by amending the existing statutes, the Copyright Act,
Trademark Act, and Patent Act, and by enacting new legislation on industrial designs,
integrated circuits, trade secret, plant variety protection, and by ratifying several
international conventions for the protection of intellectual property rights.
Despite Indonesia’s accession to the TRIPs Agreement, the intellectual property
laws remain very difficult to enforce in Indonesia and protection of intellectual
property rights is always weak. This reality can be linked to the fact that the ratification
of the TRIPs Agreement was never genuinely intended by the Indonesian government
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to provide better intellectual property protection. Rather, it was intended as a
bargaining chip for Indonesia (and also other developing countries) during the
Uruguay Round negotiations, to obtain more liberated markets in developed countries
for Indonesia’s textiles, apparel, and agricultural products.15 The accession to the
TRIPs Agreement was also a bargained -for protection from unilateral trade sanctions
by the US and other powerful Western industrialised countries. 16
Besides that, Indonesia’s accession to the TRIPs Agreement occurred after
Indonesia was hard hit by the severe political and economic crisis that stroke Asia in
1997. Until now, Indonesia has not yet recovered from the economic crisis that
impoverish most Indonesians. Therefore, the new intellectual property regime laid
down by the TRIPs Agreement becomes incompatible with economic, cultural and
social conditions in Indonesia and are not in the interests of the majority of Indonesian
people.
In conclusion, the failure of the implementation of intellectual property laws in
Indonesia can be attributed to the fact that the origins of the existing intellectual
property regime in Indonesia does not lie and has never been developed in Indonesia,
but rather in Western countries that have different economic interests and cultural
norms from those of Indonesia. With the ongoing economic and social crisis in
Indonesia, the laws are also incompatible with the present economic, cultural and
social conditions in Indonesia and are not in the interests of the majority of Indonesian
people.
2. The intellectual property laws are incompatible with Adat norms.
Historically and culturally, most Indonesians still hold to Adat norms that do
not recognise private-sector, individual ownership in intellectual works or inventions.
This factor contributes to the denial of rationales for protection of intellectual property
rights, acknowledged in many Western countries. Although Adat recognises individual
possession of material goods, it does not allow individual rights of possession to
override principles of the public interest and the social function of goods. In Adat
norms, the focus of law protection is not on individuals, but on communities.17 This
helps explain why, before Dutch colonisation, the concept of a monopoly over
intellectual works was unknown in Indonesian society, as intellectual works were
important not only for individual owners, but also for the communities to which they
belonged.
Many artistic and literary works had been created by Indonesians long before it
was discovered by European traders in the sixteenth century. The Indonesian
archipelago already developed a diverse and rich amalgam of religions and cultures. It
had cities, temples, irrigation systems, orchestras, shipping, art and literature. In fact,
the Indonesian archipelago was not at all “underdeveloped” if compared to Europe of
that time.18 In apparent contradiction to the tenets of the incentive theory currently
used to justify intellectual property rights, creativity flourished in Indonesian
archipelago even though there was no intellectual property protection. Indonesian
artists and authors created many artistic and literary works without try to retain their
works as their own private properties. Traditionally, artists and authors did not put
their names or signatures on their works. Other people could freely use the artists’ and
authors’ works and the works were part of the public domain. Because of this practice,
Indonesia became famous for its folklore that included dances, songs, stories,
sculptures, batik, architecture and paintings. Even though Indonesian society could
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freely use the works, it did not mean that there was a lack of respect for or recognition
of the works and their creators. For example, Balinese traditionally know that certain
artistic works belong to certain artists, painters, sculptors, or dancers, even without the
artists’ signature sealed on their works.19 All Indonesian people recognise that
“Negarakertagama” (Guidelines to Govern A Country) was written by Empu Tantular
(a Javanese spiritual leader). Indonesian teachers keep telling their students of who are
the authors of Indonesian famous works.20 Because of cosmic and communal culture,
Indonesian artists and authors would be happy if their works became part of the public
domain and benefited other people.21
Like in many other third world countries, societies in Indonesia were not
organized around individuals or the nuclear family as such, but around a clan or other
extended family unit, beyond the nuclear family. Therefore, the forms and definitions
of “ownership” were crafted in different conceptions from those in Western legal
structure.22 For them, ownership of intangible goods as well as other goods meant the
right to be recognised as “owner”, not the right to exclude other members of the
society from the use of the goods. “Ownership” for these nations was rather a form of
stewardship.23 This situation also happened in Indonesia, where most Indonesian
artists, because of their strong communal sense, were not assertive enough to claim
copyright for their works.24
In Adat, rights in intellectual property are not known, as intellectual property is
something intangible, not concrete. Adat will only recognise tangible, visible works that
have been produced by an individual. Only on a material work (per se), can its creators
claim ownership and can trade the work. But the creator cannot trade his or her
intellectual property, because it is not real, not concrete.25 Adat gave a form of
intellectual property monopoly protection to a work only to preserve the religious
value or the noble nature of the work. For example, sculptures made by members of
the Asmat tribe in West Papua,26 or batik design of Parang Rusak that could be worn
only by members of Javanese royal family.27
In Indonesian Adat society, knowledge was regarded as public property, because
it related to the public benefit and interest.28 Considerable knowledge about medicine,
traditional herbs and cultivation technologies was passed from generation to
generation in Indonesia. Knowledge was an intangible good and therefore, according
to Adat that based its norms on real and visible juridical construction, there was no
ownership in knowledge.29 As was the case in many other countries, both historically
and even in the modern era, knowledge in Indonesia was regarded as the common
heritage of mankind that should be freely available to all.30 The more it is used, the
more, on one way of looking at it, valuable knowledge is.31 As part of the cosmic and
communal culture, Adat society did not rely on intellectual property protection to
foster innovation. Instead, they relied on rapid dissemination of knowledge to the
society.32
Adat itself has been so well established that it has survived successive waves of
imported religious and social beliefs -Hinduism, Buddhism, Islam and 350 years of
Dutch colonialism- and remains today a power in Indonesian culture and a unifying
factor for Indonesians.33 The survival of Adat for such a long period of time is partly
attributable to the fact that Adat is not immutable, but willing to adopt new ideas as
long as those ideas are consonant with the pre-existing complex of beliefs and norms.
In summary, given the strong and pervasive influence of Adat on Indonesians,
and that system’s lack of recognition to a modern intellectual property system of rights,
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the enforcement of intellectual property laws among Indonesians becomes a very
difficult and problematic task for the government.
3. The weak legal enforcement in the field of intellectual property laws.
Historically, since the Indonesian independence, law development had never
been the main priority for the Indonesian government. Political stability and economic
development were the main priorities for the government,34 while law reform was
conducted only to support economic development and political stability35 and also to
comply with the demand made by international communities, for example, the reform
of investment laws, intellectual property laws, company laws, stock market laws,
parliament laws, general election law, and press law.36 Without real democracy, which
was eliminated by the policy of political stability, law enforcement became the main
problem in Indonesia. Although the government had conducted law reform, at the
same time they ignored the legal system to run their own policy and political interests.37
This situation has somewhat changed since the fall of Suharto government that
ruled Indonesia for 32 years in 1998. With the new euphoria of democracy,
Indonesians expect a stronger enforcement of law. Nevertheless, although there has
been some improvement, the law enforcement is still ineffective in Indonesia because
of frequent intervention in legal system made by politicians who are still affiliated to
the Suharto government.38 The present Indonesian government seriously enforces the
law mostly in cases that attract national or international concern, such as, human right
violation, corruption, and deforestation.
In the field of intellectual property laws, the legal enforcement remains very
weak. Because of the economic crisis that is still continuing in Indonesia, the
government does not have significant human or financial resources to either improve
or enforce its intellectual property laws.39 Indonesian legal authorities mostly ignore the
presence of shops or street vendors that trade pirated works, fake products or
infringed software. The crack-down against piracy, counterfeiting and other violation
of intellectual property rights is carried out only after there is pressure from foreign
governments or foreign intellectual property owners, most often after Indonesia is
named by the USTR in their priority watch list countries that could lead to trade
sanction against Indonesia. The Indonesian courts generally also do not support the
enforcement of intellectual property laws. They often set free the sellers of
counterfeited or pirated goods and impose criminal sentence only to the counterfeiters.
In the case of copyright piracy, the courts mostly hand down probationary sentence to
copyright counterfeiters, with only very few cases of judges deliver less than a year
prison sentence.40 While in the case of trademark counterfeit, the sentences delivered
by Indonesian courts to the counterfeiters are normally slightly higher, up to four year
prison sentence.41 The Indonesian courts normally consider trademark counterfeit to
be more serious crime than copyright piracy because it harms public as consumers,
while copyright piracy only injures individual copyright owners.
The weak legal enforcement of intellectual property laws can also be
contributed to the legislative culture in Indonesia in which the Indonesian government
often leaves important areas in laws, including intellectual property laws, open to
further regulation by way of administrative provisions, such as, Presidential Decrees,
Government Regulations, Decrees of the Ministry of Law and Human Rights and
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Circular Letters.42 The failure to issue these implementing regulations led to the delays
and even suspension of investigation by the law enforcement authorities.43
The other constrain is a lack of appreciation among law enforcement
authorities of the value of intellectual property rights.44 For example, in his Circular
Letter No. Pol. STR/ 706/ VII/2005, the Head of Police of the Republic of Indonesia
did not list violation of intellectual property rights as the priority case to be
investigated, unlike the cases of terrorism, gambling, drug trafficking, corruption,
smuggling, thug, illegal logging, illegal fishing, illegal mining. Indonesian police
normally considers violation of intellectual property rights does not have serious
negative impact to the society. 45
Economic factor also plays a role in difficulties of enforcing the intellectual
property laws.The prolonged economic crisis in Indonesia has increased incidence of
piracy and counterfeit.46 Indonesian consumers with diminished buying power prefer
to buy cheaper pirated or fake products, irrespective of the inferior quality. More
people also engage in the trade of pirated and fake goods, because as they claim, it is
the only job they can do to support their families.47 Others say that selling pirated and
fake goods are better than stealing.48
The law enforcement authorities had learned a bitter lesson in May 2000, when
the police raided street vendors at Glodok shopping area in West Jakarta to confiscate
illegal VCDs. Unexpectedly, the raid created severe rioting, burning and looting in
Glodok area, that reminded people of the mass unrest in Jakarta that brought down
President Suharto in May 1998. Those street vendors supported by thousand of people
fought the police, as they did not want to lose their job as vendors of pirated VCDs
because it was the only job they could find during the severe economic crisis.49
The police admitted that the enforcement of intellectual property laws against
them must be in line with the poor economic conditions suffered by those small
vendors. They understand that those people sell pirated and fake goods as well as rent
pirated products mostly to survive the economic hardship that hits Indonesia. The
police avoid shutting and cracking-down their business to prevent them shifting to
other types of more serious crimes, such as, stealing, robbery, gambling, drug dealing.50
The lack of financial resources provided by the Indonesian government for
the law enforcement authority is also another factor that makes the enforcement of the
laws ineffective. In some cases, police have to stop their investigation on counterfeiter
suspects because they prefer to save their budget to investigate more serious criminals.
Indonesian courts also sometimes cannot continue their trial against counterfeiter
suspects because of lack of budget to bring expert witnesses to the courts.51
The other constraint to enforce intellectual property laws in Indonesia is a lack
of qualified law enforcement officials who fully understand intellectual property laws.
For example, many police, judges and prosecutors do not know the concept of rental
right in copyright law.52 Only very few of them also know the concept of breeder’s
right in plant variety protection law. The courts in Magetan, Kediri and Nganjuk did
not apply the Plant Variety Protection Act No. 29/2000 to cases that involved the use
of a plant variety by small farmers in those cities. Instead, the courts applied Consumer
Protection Act and Plant Cultivation Act.53
In summary, even though there has been some improvement in law reform
and enforcement in Indonesia, but in the field of intellectual property laws, the law
enforcement remains weak and ineffective. The law enforcement authority in
Indonesia does not give priority on the protection of intellectual property rights. Most
of them regard the violation of intellectual property rights does not have serious
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negative impact to the society, and therefore hardly ever take serious action against it.
Economic factor also plays a role in difficulties of enforcing the intellectual property
laws. Law enforcement authorities, especially police, realize that people trade pirated
and counterfeit goods to survive the economic hardship that hit Indonesia and
shutting their business could lead to worse situation, such as, forcing them to shift to
more serious crimes in society. The lack of financial resources, qualified law
enforcement officers who understand intellectual property laws and lack of
implementing regulations in that field of the laws also makes the enforcement of the
laws become ineffective.
4. The laws are not appropriate to the stage of economic and technological development in
Indonesia.
In the case of Patent Act No. 14/2001 and Layout-Designs of Integrated Circuits
Act No. 32/2000, it is clear that the contents of those Acts are not appropriate to the
stage of economic and technological development in Indonesia. Therefore, who
benefit from those Acts are foreign intellectual property owners who mostly come
from countries that already have advanced economic and technological stage of
development.
The data from the office of Directorate General of Intellectual Property shows
that 91.43% of standard patent applications in Indonesia are lodged by foreigners.54
Meanwhile, there are only three integrated circuit layout applications since the LayoutDesigns of Integrated Circuits Act was enforced in 2000, and none of them so far has been
granted the protection right as there is still lack of implementing regulations to process
the registration of those three applications.55
It is admitted that in the beginning, there was opposition to the drafting of the
Layout-Designs of Integrated Circuits Act because some government officials in the Ministry
of Law and Human Rights argued that with the present technological development in
Indonesia, the Act was regarded useless for Indonesians.56 The similar argument was
also uttered during the drafting of the first Indonesian Patent Act 1989. Mr. Aberson
Marle Sihalolo, a member of the Indonesian Parliament, and Mr. Kayatmo, the Head
Deputy of the Indonesian Academy of Sciences (LIPI), both admitted that the Patent
Act was not needed in Indonesia for the purpose of encouraging innovation, but
rather was needed to attract foreign investors who wanted protection for their works.57
So far, it is hard to see the real benefit of having patent protection in Indonesia, except
to attract foreign investors and avoid trade sanctions from Western countries, the US
particularly. The patent protection that had been granted to many multinational
companies in Indonesia was intended to persuade them to transfer their technologies
to their Indonesian counterparts. However, the multinational companies only
transferred kinds of low level technologies that were also commonly exploited in other
developing countries. These kinds of technologies only required imitative capability to
work in order to produce simple and low-technology products, such as, radios,
watches, textiles, cosmetics, foodstuffs. The technologies transferred to Indonesia and
other developing countries also tended to be significantly older than the technologies
transferred to industrialised countries.58
The fact that the laws are considered useless for Indonesian interests can
contribute to the difficulties of enforcing the laws in Indonesia.
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C. Conclusion
The goal of the TRIPs Agreement and the extensive reform of intellectual
property laws to improve the protection of intellectual property rights in Indonesia so
far has failed to be achieved. This failure is caused by the combination of several
factors, namely:
1. The origins of the existing intellectual property regime in Indonesia does not lie and
has never been developed in Indonesia, but rather in Western countries that have
different economic interests and cultural norms from those of Indonesia.
2. The intellectual property laws are incompatible with Adat (an extensive system of
Indonesian customary norms) that does not recognise ownership in intellectual
works or inventions. Adat is still strongly held by most Indonesians.
3. The weak legal enforcement in the field of intellectual property law.
4. The laws are not appropriate to the stage of economic and technological
development in Indonesia.
The failure of the implementation of intellectual property laws, backed by the
TRIPs Agreement in Indonesia gives a lesson that there has been mismatch between 1)
the developed countries’ idea of the value and concept of intellectual property rights,
2) the Indonesian government’s political interest in reforming intellectual property
laws, and 3) the reality in the cultural, economic, and technological development
among Indonesian people that cause them to ignore the existence of intellectual
property laws.
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The altered anatomy of an international transaction in South
Africa-the impact of equity laws.
By:
Kevin Malunga, University of the Witwatersrand,
Johannesburg, South Africa.
Introduction
The South African law of contract and international business transactions regime is
steeped in the common law tradition. For many decades it has been business as usual with
individuals/companies having liberty to enter into transactions or hire employees
regardless of whether their actions are unfair or prejudice the native populations of the
country. The facts of South Africa’s history of economic inequality and the legacy it
presents are well known and its effects will be discussed here. In an attempt to address this
anomaly the post-apartheid government has made it a priority to enact a number of equity
laws that mandate businesses in various sectors to have a certain percentage of their equity
in the hands of black people. This situation behoves the questions whether or not these
laws have a negative effect on international transactions in South Africa and whether or
not changes should be made in this regard?
Legal and Political Background
The most well publicized legal interventions to South Africa’s income and social inequality
have come through the Reconstruction and Development Programme (RDP) of 1994 and
Broad Based Black Economic Empowerment Act 53 of 2003116popularly known as
“BEE”.
Recent statistics provided by both the South African Institute of Race Relations117,
Statistics South Africa point to a renewed intensity in economic inequality in spite of
fervent attempts to redress this anomaly. Palpable marginalization of black people remains
in all key sectors of the economy118.Let us use the example of mining as a
microcosm.119Historically major mining houses had a monopoly over the mining industry.
The official apartheid laws meant that black people and mining communities were
excluded from participating in the mainstream of the economy. Post-apartheid the mining
industry formally declared its intention to adopt a proactive strategy of change, to foster
and encourage BEE and transformation at the tiers of ownership, employment equity,
skills development and management120. Stakeholders in this industry stressed that it was
116
This came into effect on 9 January 2004
Frans Cronje, Project Manager, South African Institute of Race Relations writing in the Business Day
28 November 2007
118
South Africa has a multifaceted economy but key sectors include mining, energy,tourism,agriculture
and manufacturing in different specialties.
119
Darryl Levitt –Structuring Black Economic Empowerment(BEE) Transactions in the Mining Sector in
South Africa-Working Paper from Fasken Matineau DuMollin LLP
120
supra
117
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imperative to address historical and social inequalities as stated by the Constitution of the
Republic of South Africa121
The current framework and its effect on transactions.
The new framework basically means that there are a number of benefits that come with
being an empowered company such as access to government funding and preferential
procurement status. There are a variety of forms of BEE enterprises which have forever
altered the anatomy of a typical South African transaction whether it involves local or
external companies operating in the republic.122 They are as follows;
(a)Black Owned and Black Controlled Enterprise (b) Black Empowered Enterprise
(c)Strategic Partnerships(d)Black Women-owned Enterprise(e)Broad- based
Empowerment .The different categories indicate the different thresholds which qualify a
company as being “empowered”.
Certainly a company doing business in South Africa cannot avoid its equity obligations
under the BEE Act or a plethora of other laws dealing with employment equity.123A
company operating in South Africa therefore finds itself faced with a social responsibility
in spite of its over-arching intention to make a profit. There have been comments
comparing BEE Charter requirements to those of India in the 1970s124 during which
period the socialist government feared that the country’s economy would be dictated by
multinational companies. All MNCs were required to either sell 60 per cent of their equity
to local investors or disinvest with the result that Coca-cola and IBM were forced to
disinvest125.The issue becomes whether transacting in this environment is worth the effort
and whether this has a negative impact on Foreign Direct Investment(FDI) in South
Africa.
Based on constitutional principles and statistical figures I aim to prove that BEE laced
transactions and companies are not a hindrance but rather a positive development for
investment and the lofty aspirations of reducing poverty and inequality.
First, the South African empowerment charters are not nearly as severe as the Indian
regulations of the 1970s. The main objective of South Africa’s equity laws is to reverse the
inequalities of the past. The concerns over vagueness and lack of clarity and consistency
with regard to BEE Charters and Regulations are obviously justified.
Second, global constitutional and international law principles point to a trend where the
impunity of the past where businesses were able to conduct business and transact in a
particular country regardless of the consequences for locals has been unequivocally
rejected126. South Africa’s business framework has generally been pro human rights post121
Act 208 of 1996
See note 4
123
E.g. the Employment Equity Act ,1998
124
www.southafrica.info/doing_business/investment-survey
125
Empowerdex Working paper-The Effects of Black Economic Empowerment(BEE) on Foreign Direct
Investment(FDI) accessible at www.empowerdex.com
126
Among others these conventions affirm the rights of individuals to a worthy livelihood;
122
CEDAW:
Convention on the Elimination of All Forms of Discrimination against Women
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apartheid to the point where there is an express prohibition on “sweat shops’ and other
violations of international labour law principles127.
Third, despite the apparent perceived negativity surrounding BEE and its perceived
negative effects on FDI the sheer volume of transactions on the South African business
landscape continues to soar128.The most recent statistics available point to the fact that
there has been a significant rise in transactions in all sectors. The value of mergers and
acquisitions (M&A) involving South African companies climbed by R103-billion[Exchange
rate is US$1=R8) or 63%, from R165.5-billion in 2004 to R269.1-billion in 2005, according
to Ernst & Young's 2006 review of Mergers &Acquisitions activity worldwide.
Crucially, according to Business Day South Africa’s leading business daily newspaper, R57billion of this was "inward investment" - an amount equal to the foreign direct investment
(FDI) in South Africa of the previous five years combined - helping the country to edge
past India for the first time ever in the FDI stakes. British bank Barclays bought a majority
stake in South African bank Absa for close on £3-billion (around R30-billion) in 2005 - the
biggest single foreign direct investment ever in the country. 129
Not long afterwards, British communications giant Vodafone concluded a US$2.4-billion
(around R21-billion) deal that gave it an 84% stake (and 90% effective voting interest) in
South African investment firm VenFin, and through this access to VenFin's 15% stake in
South African mobile phone operator Vodacom. 130
According to Ernst & Young, these two deals "potentially represent the beginning of a
new era of investment [in South Africa] that should send strong signals of confidence to
other potential investors." At the same time, the value of black empowerment (BEE) deals
in South Africa reached their highest level ever - R56-billion - in 2005 even though the
number of BEE transactions dipped slightly, from 243 in 2004 to 238 in 2005.
According to Business Report, the biggest BEE deal of the year - and South Africa's
biggest to date - was struck when resources giants Anglo American and Kumba Resources
announced a R25.7-billion deal establishing the country's largest wholly black owned,
controlled and managed company. 131
CRC:
Convention on the Rights of the Child
ICCPR: International Covenant on Civil and Political Rights
ICERD:
International Convention on the Elimination of All forms of Racial Discrimination
ICESCR:
International Covenant on Economic, Social and Cultural Rights
127
Incorporated in the Labour Relations Act,1995 and the Basic Conditions of Employment Act,1998
Foreign Direct Investment Soars 5 April 2006 accessed on
www.southafrica.info/doing_business/investment/fdi
129
As quoted on http://www.southafrica.info/doing_business/investment/fdi-m&a2006.htm
128
130
Ibid
131
Ibid
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The table below is illustrative of the positive trend
Fourth, a report released by McKinsey Global Institute in 2004 found that both
the incentives used to attract foreign direct investment and the restrictions placed on it do
not affect levels of foreign investment.McKinsey’s studies show that the primary
considerations of multinational companies (MNCs) when investing abroad are the
following; quality of infrastructure and labour force, size and growth of the domestic
market and the accessibility of the location. Thus FDI has a stronger correlation to
business and economic confidence than the regulatory framework. Therefore the point is
made that incentives such as costly tax breaks, import duty exemptions and other
incentives do not necessarily work.
Conclusions
The advent of equity legislation regulating business in South Africa is not a development
to be feared by the international business community or treated with suspicion and
loathing. It is a welcome development which makes South Africa (Africa’s largest
economy) a very useful conduit for doing business with the rest of the African continent.
Furthermore it affirms South Africa’s constitutional transition as not just empty political
rhetoric but as quantifiable in real terms that affect the poorest of the poor. Therefore the
altering of the nature of a transaction to cater for marginalized communities is a step in the
right direction to be emulated by other affected jurisdictions in countries with large income
gaps.
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The Role of KPPU in protecting retail business and
traditional market in Indonesia in the era of market
liberalization
By:
Wasis Susetio132
Introduction
In the era of globalization, every country has been preparing or even ready yet to heading
for market liberalization. As we know, the globalization lead to a new economic order and
also influence social, legal, and cultural change globally, including in Indonesia. In this
paper, I distress about the regulation on the protecting of small medium business facing on
market liberalization, particularly, in the retail or consumer business, such as traditional
market against modern consumer goods business tycoon which nowadays spread out in
the big cities in Indonesia.
Recently, The Indonesian government has actively carried out liberalization within
economic sector. This policy was set up due to the global economic climate that boost out
the world to implement a mainstream of open economic system, including in retail
business. One of the consequences is nowadays in Indonesia there are more than 10
famous worldwide brands of retail business, such as Mark & Spencer, Sogo, Carrefour,
Seibu, Metro, Food Lion, etc. Beside that, the government has permitted foreign
investment in the sector of retail business, in particular to build hypermarket or
supermarket which has dimension around 1.200 m2, and department stores that is more
than 2000m2. Obviously, it will lead market aggressively expand into the metropolis
lifestyle.
In fact, The open gate policy is regarded with the whole concept of a new policy in the
Investment policy of Indonesia. Like just other Asian countries which thrust their
economic sector by adopting liberalization, Indonesia has the same reason to do that, as
Prof. Charles Himawan133 said “To encourage domestic and foreign investors to invest in
Indonesia, especially in the big cities, a variety policies and regulations have been issued by
government and also local government”. These are the most characteristics of these
policies and regulations:
1. Foreign investors are allowed to run territory industries such as : department stores
and supermarket in the new area
2. A free trade zones will be established
3. Foreign investors people may establish financial institutions such as banks,
financial companies and insurance companies
1
This paper made for IALS conference, Hamburg, 10-13 October. The writer is The Deputy Dean of
Faculty of Law, Indonusa Esa Unggul University, Jakarta, Indonesia
133
Charles Himawan, The Foreign Investment Process In Indonesia. Jakarta: Gunung Agung,1980
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4. The central government has granted more decision-making power to local
government and regulated it by law (The Law number 32 year 2004 about The
autonomy of Local Government) to encourage business investors in suburb region
The government said that decision to open the retail business in Indonesia has been
considered thoroughly, especially between the President regulation on the traditional
market, stores, and modern marketplaces, and the President Regulation number 77 year
2007 about Negative investment list.
However, data of the Indonesian Statistic Bureau (ISB) on the comparison of traditional
market and modern marketplaces, showed that fast growing modern market places have
exceeded traditional markets. According to the local company owned by the Jakarta
government, the growth of modern marketplaces by 1995 was ten times of traditional
market. Also in Surabaya, the second largest city in Indonesia, the number of traditional
markets had been shrinking from 81 to be less than 20 traditional market in 2005,
succeeded by modern marketplaces which is growing very fast134.
On the contrary, that phenomenon has actually shown a better condition of economic and
lifestyle that makes people enjoy hygiene and leisure sphere of mall, supermarket, and
department stores that nice and clean. But, anyhow, it evokes anxiousness and distrustful
around the business people who think those modern marketplaces will become a threat for
traditional market existence. They convince sooner or later, small enterprises will be
shoved aside by big companies or giant owner equity. As reported by ISB, in 2006, the
modern marketplaces and other big retail business were soaring up in its growth over 70%
compare to 1996 which was only 21,4% throughout the country, meanwhile the traditional
marketplaces only grew steadily around 30% in certain areas, especially, in suburbs135.
New Law on Investment
On April, 26th 2007, the Indonesian Government enacted the new law on investment
which adopt many international provisions on investment and carry out the principle of
global rules of investment measures (TRIMS), such as fairness treatment, non tariff barrier,
non discrimination, capital repatriation, and open market system. Due to such instruments,
the Indonesian government has revised the prior law (The Law number 1 year 1967 about
foreign Investment and The Law number 7 year 1969 about domestic Investment) become
a single law (The Law Number 25 year 2005), which did not differ between foreign and
domestic investor in the terms of handling, except the form of company of foreign
investor which should be under Indonesian corporate law
The new law was issued due to the declining number of investors since monetary crisis in
Indonesia by 1998. The figure of such situation had been stated by Prof. Erman Rajaguguk
who said that “ The Indonesian development practitioners clearly identified a poor
implementation of the foreign investment law as one of the causes of drastic decline of
foreign investment. They also knew that improvement through law in regard to the
application procedure and investment incentive is needed if substantial foreign capital
134
135
Biro Pusat Statistik, Jurnal Tahunan, Jakarta, BPS Press. 2006
http://www.smecda.com/kajian/files/jurnal/Hal_85.pdf
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influx is to be assured, and if Indonesia wishes to be a significant competitor against other
developing countries. Recent research indicates that Indonesia is in the last position
within ASEAN in terms of being a most favorable host country. Vis-à-vis all other
countries in the world, including developed countries, Indonesia ranks 35 out of 45
countries. Clearly, a serious reform is needed”136
Therefore, the government urged Parliament to pass the Bill of Investment Law, and
convinced them that the new law will attract foreign investor to cultivate their capital in
Indonesia. According to The Government, a new policy must be executed to solve the on
going monetary crisis. The government believes that if Indonesia follows the International
rule on global economic and law, by applying international investment principles,
Indonesia will be assisted by international business community.
The law number 25/2007 at last issued and prevailed for any business players in Indonesia
regardless the original of Business Company come from. Nevertheless, many people, in
particular, small business players worry about the impact of such rules which is clearing
away and impact to their business or jobs. It is understandable, due to the pass experience
that there was no law enforcement could protect them against a big companies, although
the law number 1 year 1967 (a prior law) had a strict rule in protecting national interest by
implementing closed system of Negative Investment list (very limited sector could be
permitted for investor).
On the other hand, the new law implements the loosen system to broaden sector and
coverage of business, including small business sectors. As a result, people become skeptic
in responding the new law; they believe many small companies will be gradually eliminated
in the global business competition.
Unfair competition
Theoretically, in the global competition, the small business are able to take advantages of
global situation to be a worldwide small business class through collaboration and business
network. By making synergic cooperation with foreign or big national companies, the
small business will be able to thrust their capital, market, skill, etc. Hence, this cooperation
will improve their capability in global competition. In fact, many small companies have
been taken over by big companies, and the latter took advantage from small business in
term of product knowledge, labor cost and other cost.
Since facing the economic crisis, Indonesia has actively issued some regulation to
anticipate economic global trend, including toward small business activities. A particular
law concerning to small business were made namely: the law number 9 year 1995, and the
law on anti-trust practice (Law number 5 year 1999).
The Law number 9 year 1995 about small business, regulates the status, rights and other
assistant to empower small enterprises, meanwhile The Anti-Trust Practice law constitute a
protecting and guardianship to small business practitioners against big equity owner, so
both such laws concern on the effort to how protect small enterprises.
136
Erman Rajaguguk, Hukum Investasi dan Permasalahannya, Surabaya, Airlangga,2005
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The Law number 5 Year 1999 also formed a business competition commission (anti-trust
commission) called “Komisi Pengawas Persaingan Usaha” that has authority as follows 137:
1. To accept complain from business practitioners about presumption of unfair
competition or anti-trust practice
2. To carry out scrutinizing or investigating on presumption of unfair business, which
is able to be misconduct in business
3. To carry out an investigating on the case of anti-trust by summon up the suspects,
witness, experts, or other related people
4. To make inquiries from government regarding the investigation on the suspects
5. To collect, to observe, and to adjust documents or letter, or other evidence in
order to support the investigation
6. To decide and to declare whether the anti-trust practice has been done or hasn’t
been done by suspects
7. To inform the decision of the commission to related business practitioners who
suspect commit anti-trust practice
8. To impose sanction to wrong-doing business perpetrator who against the law on
anti-trust practice
By those authorities, KPPU has capability to protect small medium business in doing
business or making agreement with foreign investors, on the other hand, the investors also
will be secure to make a deal with small medium business practitioners. The Law No.
5/1999 regulates about two kind of anti-trust activities, The first is about forbidden
agreement between business practices, such as:
1. Oligopoly;
2. pricing decision;
3. zoning market;
4. boycott;
5. cartel;
6. trust;
7. oligopsoni;
8. vertical integrated;
9. secrecy agreement
The second is related to wrong doing or misconduct in business practices, such as :
1.
2.
3.
4.
5.
6.
7.
Monopoly;
monopsoni;
conspirator;
market control;
dominant position;
double position;
cross ownership;
Obviously, the law describes in detail of the meaning of those forbidden business, so that
KPPU also can monitor and control any business circumstances around small and medium
137
Undang-undang Nomor 5 Tahun 1999, Pasal 36
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scale of business. If any business misconduct happened and damaged or inflicted a
financial of small medium business company, it can be filed to the KPPU. If the case have
been proved that the big company is guilty, hence The KPPU has authority to impose the
sanction. There are two kind of sanction are: administration sanction ( article 47) and
criminal sanction (article 48 and 49).
Finally, performing the law consequently and consistently will lead the Indonesian business
to be ready to compete with other countries. Hopefully KPPU has the capability to resolve
the problem of unfair competition, or other wrong-doing business, including in retail
business.
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Migrant Protection Approach:
Study on Protecting Indonesian Migrant Worker
By:
Dhoni Yusra, INDONUSA Esa Unggul School of Law
Jakarta-INDONESIA
A. Background.
Because of globalization, the dramatic expansion of cross-border trade, investment
and policy, there has been an increased mobility of international labor. Falling costs of
transportation and communication have reduced the distances between people, and the
drive for a better standard of living has motivated workers to move to areas where jobs
and higher pay are available. Motivation of Indonesian worker seeks another job in other
country usually because of poverty. It could be said that in many cases migration is not a
voluntary process, but is motivated by a natural need of people to secure their livelihood.
Besides, by placing Program of Indonesian Worker to other country, is representing one of
effort to settle unemployment problem in Indonesia. Governmental role in this program is
on construction aspect, and also protection and give various amenity to related/relevant
party, especially to Indonesian migrant worker.
B. Placing of Indonesian migrant worker Program
Placing Program of Indonesian Worker to other country, is useful to lessen the
unemployment138 pressure, this program also give benefit to family prosperity through
salary accepted or remittances and upgrade skill of Indonesian migrant worker because its
job experience abroad. For state, the benefit that accepted is increased of foreign
exchange, because most of migrant worker paid in the form of foreign currency.
The role of Indonesian government in this program, is arranging the regulation
that can protect of Indonesian worker who work abroad. By arranging Law Number 13
Year 2003 about Manpower, at CHAPTER of VI Section 31 mentioning that:
Every labor have the same opportunity and rights to chosen, to getting, or move
occupation and obtain; get decent income in home country or abroad.
This Law is basic principle in accordance to protect Indonesian migrant worker. And to
avoid of an action that can harm of Indonesian worker furthermore at abroad, the
government enact Law number 39 Year 2004 about Placing and Protection of Indonesian
worker abroad (UU PPTKILN) which have been agreed in Plenary Conference of House
of Representative date of 29 September 2004 and signed by President Megawati
Soekarnoputri date of 18 October 2004139.
C. The Regulation
The enacted of Law No. 39 Year 2004 about Placing and Protection of Indonesian
worker abroad (UU PPTKILN), caused by during the time, the law that govern placing
and protecting Indonesian worker is Ordonnansi about Conscription of Indonesian people
to Do/Conduct the Work outside Indonesia (Staadblad Year 1887 No.8) and Ministerial
Decree of Labor and Transmigration No.Kep.104A/Men/2002 about Placement of
Indonesian Worker abroad and also its execution regulation, is assumed cannot fulfill the
138
According to Indonesian Statistic Bureau, the sum of unemployment in year 2007 proximately 10,1
million people from 200 million people of Indonesia, see http://www.bps.go.id/releases/New,
139
Majalah Nakertrans Edisi 05 TH.XXIV-Desember 2004, hlm. 1
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requirement of arrangement of placing and protection of Indonesia Worker who work
abroad, completely and comprehensive. The Arrangement through Ministerial Decree of
Labor and Transmigration in the reality not able to solve the problem that occurred in
placing Indonesian worker abroad, especially in preventing illegal migrant worker
placement.
According to data which can be obtained from Data and Information of
Manpower Minister Office, in the year 2007, Placement of Indonesia Migrant worker in
Asia-Pacific and in middle east area shall be as follows140 :
DESTINATION
COUNTRY
NO
AMOUNT
1
Malaysia
151.998
2
Singapura
23.613
3
Brunei
4
Hongkong
21.282
5
Taiwan
35.222
6
South Korea
7
Japan
49
8
Macau
102
9
US America
861
10
Other
137
4.321
2.175
TOTAL AMOUNT
239.760
Table 1
Data of Placement of Indonesian Migrant Worker at Asia-Pacific region Year (Source:
BNP2TKI, August 2007)
Destination
Country
NO
1
Saudi arabia
2
Kuwait
3
UEA
4
Bahrain
5
Qatar
140
Formal
Male
Informal
Female
Male
Amount
Female
1,579
1,145
9,788
137,723
150,235
-
-
25
16,817
16,842
93
17
8
5,504
5,622
5
-
-
16
21
145
20
9
828
1,002
http://www.nakertrans.go.id/pusdatinnaker/tki/index_tki.php, Januari 8, 2007, time 09.15
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6
Yordania
7
Tunis/Oman dll
Total Amount
-
-
-
2,081
2,081
282
729
39
166
1,216
2,104
1,911
9,869
163,135
177,019
Table 2
Informal and Formal Indonesia worker Placement at Middle-East Region by State and
gender Year 2005
Source: Manpower Minister Office - Ditjen PPTKLN s / d December 2005.
The enacted of Law No. 39 is relevant to Law No.13 Year 2003 about Manpower, as in
Section 34 of Law No.13 that order the rule of labor placement abroad regulated
separately. In another word, Law No. 39 represents the mandate of UU No.13 year 2003
about Manpower to protect the Indonesia migrant worker.
The enacted of those laws is related to Section 27 Sentence (2) Constitution of
State of Republic Of Indonesia Year 1945, This Law no. 39, was expected can give
protection for Indonesian migrant worker to use their right to get occupation abroad, so
that they can obtain; get the service of labor placement fast and easy and still give priority
to safety of migrant worker weather are physically, morality and also dignity. The law No.
39 was expected to be able to formulate norms that protecting Indonesia migrant worker
from various exploitative effort and treatment from anyone.
The consequence from existence of Law no. 39 is appearance of National Body of
Placement and Protection for Indonesian migrant worker (BNP2TKI) which arranged in
Section 94 up to Section 99. As for duty from this body, is arranged in Section 95 Article 1
as follows:
National Body of Placement and Protection for Indonesian migrant worker as referred to
in Section 95 have it function to implant placement policy and protection for Indonesian
migrant worker abroad coordinative and integrated.
To make realize function as in Section 95 Article 1, hereinafter BNP2TKI own the duty in
the form of:
1.
Conducting migrant worker placement on the basis of agreement between
Government of destination country or Legal entity User at destination country
as referred to in Section 11 sentence (1).
2.
Giving service, coordinating, and do the observation for:
a. Document;
b. final provisioning of departure;
c. Problem Solver;
d. Financing source;
e. Departure until repatriating
f. Upgrading of quality of migrant worker candidate;
g. Center of information;
h. Quality of placement executor of migrant worker; and
i. Upgrade of migrant worker prosperity and their family.
D. Problem that occurs
From the picture above, Placement of Indonesian migrant worker to abroad
should be no problem, because there is guarantee from constitution, labor act, and even
made a special law (Law No. 39) to protect migrant worker abroad and existence of
National Body of Placement and Protection for Indonesian migrant worker (BNP2TKI).
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But in the reality, there are so many cases occurs with proves that there is torturing
(physical abuse) experiences by Indonesian migrant worker who abroad, for example case
Nirmala Bonat, who was abuses by her employer in Malaysia, and in Saudi Arabia,
Housemaid from Indonesia tortured till death by her employer.
These realities indicate that lower protection for migrant worker from government
of destination country and the government of Indonesia who have already enacted the law
to protect Indonesian worker.
According to data that observed by Migrant Care141, NGO which care to Migrants
Worker, level of death of Indonesian migrant worker in Malaysia during year 2007
reaching 71 persons or 35% from totalizing 206 death of entire/all migrant worker over
there. The root cause that migrant worker death is work accident 25%, pain 24%,
mysterious death 24%, falling from height 13%, torturing 11%, the rest suicide.
Malaysia is country that threats Indonesian citizen (WNI) who work as migrant
worker with the capital punishment namely as much 297 people, later; then Saudi Arabia
as much 4 person, Singapore as much 1 person, and Egypt as much 1 person.142 If related
into Section 33 International Convention on the Protection of the Rights of All Migrant
Workers and Members of Their Families, required all Party State (that ratified the
convention) to take the steps to guarantee migrant worker and its family member have
been given the information as many as possible, by request or without with no charge.
Furthermore, on Section 37 of the Convention specified the rights of migrant
worker and its family member to get the information before departure, or at least when
they enter destination country, about all condition going into effect at the time they enter,
and also the conditions that they must fulfill in destination country, and authoritative party
that they must contact for all changes in the conditions.
Most of cases that appear, indicating that a large amount of Indonesian migrant
worker do not get the information, and do less preparation in face of life and work in
foreign State. Most of them do not realize the existence of protection of human right and
basic freedom, which guaranteed them according to international law and national law.
E. Effort that has been done to protect migrant worker
Indonesia at this time has not yet ratified International Convention on the
Protection of the Rights of All Migrant Workers and Members of Their Families. So
cannot protect its migrant worker in an optimal fashion. As for the time being that can be
done/conducted by Indonesia Government is do the inter-states agreement as obliged in
Section 7 Law No. 39 that said:
In executing duty and responsibility as referred to in Section 5 and Section 6 Government
[is] obliged to:
a. guarantying of fulfilling of rights of migrant candidate /migrant worker, both for
leaving through/ passing placement executor, and also leaving independently;
b. Observe placement execution of migrant candidate;
c. Create and develop the information system of placement migrant candidate abroad;
d. Conducting diplomatic effort to guarantee the accomplishment of
rights and protection of migrant worker in an optimal fashion
[in] destination country; and
141
http://www.migrantcare.net/mod.php?mod=publisher&op=viewarticle&cid=3&artid=70, January 8,
2007, Time 21.30
142
ibid
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e.
To give protection for migrant worker during period before departure, period of
placement, and a period of repatriating.
From Section 7 at Letter (d) above, we can take a conclusion whereas Indonesian
Government will conduct bilateral or multilateral agreement with the destination country.
According to W. R. Bohning143, Director of South-East Asia and the Pacific
Multidisciplinary Advisory Team, There are three kinds of approaches to protect migrant
worker: the national, bilateral and multilateral approach.
On national approach, States can lay down in their own laws as basic principles of
treatment to which their citizens should be entitled when they move abroad, whether
temporarily or permanently. They may want to buttress broad principles with detailed
standard or model employment contracts to be respected. This approach is used by
Indonesian government by enacting Law No. 39.
Bilateral approach (ordered on Section 7 Letter (d) Law No. 39 as mentioned
above) is States can negotiate the treatment to be accorded to their nationals and lay down
the agreed principles and procedures in a bilateral treaty or an instrument of a lesser status
or effect, such as a declaration of intent or a framework agreement, This approach has
already been done by Indonesian government, by making an agreement/treaties with
several country like Malaysia. Treaties have the advantage of being subject to the
jurisdiction of the courts of the countries involved and to such international jurisdiction as
the contracting parties may agree to.
The multilateral approach is where States can - going beyond national measures
and bilateral negotiations - attempt to protect their citizens abroad through the promotion
of multilateral minimum standards at the regional or global levels; through ratifying and
applying them; and through putting pressure on States on whose territories their citizens
are, to ratify and apply them as well. By this means, too, migrants can enjoy protection. If
Indonesian government ratified International Convention on the Protection of the Rights
of All Migrant Workers and Members of Their Families, the protection of Indonesian
migrant worker will be optimal.
F. Conclusion
Indonesian Government has already enacted Law No. 39 Year 2004, this is a
national approach to protect Indonesian migrant worker, and also made several agreement
with several country (Malaysia, Singapore, Japan, Kuwait, and Saudi Arabia144) for bilateral
approach. Although there are so many cases that happen to Indonesian migrant worker,
most of the cases caused of lack of information or less socializations by National Body of
Placing and Protection for Indonesian migrant worker. To optimize the protection for
Indonesian migrant worker in another country which have not made an agreement with
government of Indonesia, Indonesian government need to ratified International
Convention on the Protection of the Rights of All Migrant Workers and Members of
Their Families.
143
W.R. Bohning, Protection, International Norms and ILO Migrant Workers Standards, Petaling Jaya,
Kuala Lumpur, Malaysia, 6-8 December 1999.
144
http://www.tki.or.id/memo/ln.php, time 17.15 date 19 Februari 2008
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Intellectual Property
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Intellectual Property in the light of the European conflict of
laws
By:
Nerina Boschiero
1.
Private international law and intellectual property have a long history of neglected
or even avoided relationships. An historical explanation is that as far back as the late
nineteenth century the vast majority of intellectual property disputes were wholly domestic
in nature: ownership or infringement issues hadn’t the potential of reaching the whole
world, concerning parties established within a single national territory and rights conferred
by the law of that territory and infringements that mostly took place there. Cross-border
or transnational IP disputes, involving foreign elements, were rare and resolved by the
courts through the standard principles embodied into the multinational treaties
establishing an international protection system for intellectual property, namely the
principle of territoriality reinforced by the principle of national treatment and
independence of national rights. The principle of territoriality provides that the scope of
intellectual property rights is limited to the territory for which they have been granted.
Even if “parallel” rights relating to identical intangible objects may exist in various
countries, they are “independent” of one another (principle of independence). The
historical roots of intellectual property, that in most European countries came into
existence through a progressive development of systems of individual privileges, strictly
limited to the territory of the State granting them, explain therefore why IPRs are only
protected wherever the legal requirements for protection are satisfied, having no legal
existence in all other countries. According to the view prevailing in most jurisdictions,
choice of law had therefore hardly been perceived as a necessity in intellectual property
law, particularly in the light of the principle of assimilation of foreigners to nationals
(“national treatment”), mostly understood (in private international law terms) as asserting,
at least implicitly, that protection of IP rights in foreign country should have been
evaluated according to the country’s domestic law where the foreigner is allowed to
enforce his or her right.
However, in the last 30 years (since 1990’s) things dramatically changed. The
international intellectual property law, firmly rooted on the notion of territoriality, started
to face new challenges: national boundaries have lost their significance as a consequence of
the emergence of new forms of technology; specifically, the digital networked
environment (after the satellites) has put the spotlight on the “international” aspects of
IPRs, that have been neglected too long time, by transcending and sweeping the
territorialism inherited from the historical tradition of privileges. It has changed the nature
of intellectual property litigations by creating scope for multiterritorial simultaneous
communication of protected works and trade symbols, and consequently increasing the
risk of ubiquitous infringements of intellectual property rights and of globally widespread
piracy. The clash between the territorially fragmented world of intellectual property and
the global universe of cyberspace, where there are no separate national territories, is
evident. The potential impact of the alleged infringement of unregistered intellectual
property rights over the five continent and in every State of the world, combined with the
greater flow of patented inventions and other registered industrial property rights,
increased thereby transnational cases that require courts to adjudicate the effect of foreign
activities or to interpret foreign laws.
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The exponential increase in conflicts involving trans-border elements in the
contemporary world characterized by global trade and global medium, have therefore
forced the two areas of intellectual property and private international law (historically
characterized by very little interaction) to confront each other. Conflict rules are much
more needed now to resolve the conflicts of laws in this area than in the past.
Notwithstanding the very high level of international cooperation in intellectual property
matters, which brought to the adoption of an important group of multilateral treaties
harmonizing the substantive laws between a huge number of countries throughout the
world (184 States are parties to the convention establishing the World Intellectual Property
Organizations; 172 States are party to the Paris Convention of 1883 for the protection of
industrial property; 163 to the Berne Convention of 1886 for the protection of literary and
artistic works; 163 to the World Trade Organization and the ancillary Agreement on Trade
Related Aspects of Intellectual Property-TRIPs), substantive harmonization does not
cover all areas of intellectual property and does not encompass the most protective
measures of intangible goods.
The difficulty to formulate appropriate substantive solutions to be adopted by the
international community at large, the persistent diversity of laws in different countries on
many issues of intellectual property combined with the pressing necessity to master the
growing problems on a global level, have produced as fundamental consequence a “fresh”
awareness not only of the importance to examine closely the private international law
problems raised by the exercise of intellectual property rights on an international level, but
also to develop a truly “private international law” of intellectual property at international
and regional level: a private international law system better adapted to the increasingly
supranational character of exploitation of intellectual property rights than the traditional
schemes.
2.
Efforts to develop a truly private international law of intellectual property are
therefore recent, both at international than regional level.
At international level, WIPO, for example, has been especially (and closely)
involved in the on-going international debate to shape new standards for progressive
development of international intellectual property law, especially for copyright protection
in cyberspace. 1 From December 16 to 18, 1998, WIPO organized a meeting of a Group of
Consultants on the Private International Law Aspects of the Protection of Works and Objects of Related
Rights Transmitted through Global Digital Networks, commissioning two studies from leading
experts in the field (proff. Ginsburg and Lucas WIPO documents on “Private
International Law Aspects of the protection of Works and Objects of Related Rights
Transmitted through Global Digital Networks”). In June 1999, the WIPO Standing
Committee on Trademarks, Industrial Design and Geographical Indications (SCT)
addressed aspects of jurisdiction, choice of law and enforcement in the context of the use
of trademarks in Internet (WIPO Document SCT/2/9); the Assembly of the Paris Union
for the Protection of Industrial Property and the General Assembly of WIPO at the
Thirty-sixth Session of Meetings of the Assemblies of the Member States of WIPO,
adopted on September 24 to October 4, 2001 a Joint Recommendation concerning the
protection of marks and other industrial property rights in signs on the Internet
(hereinafter referred to as the “Joint Recommendation”). In May 2000, WIPO published a
Primer
on
Electronic
Commerce
and
Intellectual
Property
Issues
(WIPO/OLOA/EC/Primer) which, also, provide - inter alia- an overview of issues
concerning jurisdiction, applicable law and enforcement. In 2001, from January 30 and 31,
the WIPO organized in Geneva a Forum on Private International Law and Intellectual Property,
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asking its Member States to undertake an examination of private international issues
relating to IP and to identify possible issues for international cooperation, commissioning
eight studies to the subject, among which (inter alia) an earlier version of the
Dreyfuss/Ginsburg proposal on a “Draft Convention On Jurisdiction And Recognition
Of Judgments In Intellectual Property Matters”, based on the same approach of the classic
Hague conventions but confined to disputes involving intellectual property.
Another effort made at international level to develop a public private international
law for intellectual property has been made by the Hague Conference on Private
International Law which has negotiated at length a Convention on Jurisdiction and
Foreign Judgments in Civil and Commercial Matters. This convention, based on the idea
to extend beyond Europe the basic rules of the Brussels Convention of 1968, originally
should have fully covered also intellectual property disputes. Those efforts partially failed
in 2000-2001, when it became apparent that the scope of the draft convention was too
broad and there was a persistent disagreement on the full application of the convention to
intellectual property. The lack of consensus forced the negotiators to scale down the
original project in favour of a “bottom-up” approach and to confine the conventional
scope to exclusive choice of court agreement in business-to-business contracts. As regard
intellectual property rights, such clauses normally appear only in contracts that deal with
those rights; consequently, it is only in such proceedings that the possibility of applying the
Hague Convention on Choice of Court Agreements, adopted at the twentieth session of
the Hague Conference on June 30, 2005 (hereinafter Hague Convention), not yet in force,
is likely to arise.
The balanced approached reached during the negotiation process (and approved by
the intellectual property community) on the best way to deal with the extremely “sensitive”
issue of intellectual property consisted in making a distinction between copyrights and
related rights, on the one hand, and others intellectual property rights (such as patents,
trade marks, designs etc) on the other hand. The former are fully covered by the
Convention, even with regard to disputes as to validity or infringement. The latter are
excluded from the scope of the Convention (even those not yet invented and irrespective
of whether or not they are registered) if their validity is challenged as main subject/object
of the proceeding. Among the excluded matters, several of which of special governmental
interest or subject to regional or international treaties, figure in fact the validity of
intellectual property rights other than copyrights and related rights, proceedings regarding
infringements of IPRs (other than copyright or related rights) not related to a contractual
relationship (Art.2.2 (n)-(o)). As regard to the industrial property rights the choice made
by the Convention is that, in principle, disputes concerning these rights (in particular their
validity) should remain subject to the jurisdiction of the country whose national law
created and conferred the right. The only exception to this principle is provided in Article
2 (3) which, while not being specific to intellectual property, nevertheless allows (in
practice) the chosen courts to deal also with invalidity issues relating to industrial property
rights, if raised merely as an “incidental” or “preliminary” question.
At regional level, most notably in the European Union before the entry into force
of the Amsterdam treaty, the main efforts have been made to pursue a much tighter
convergence of norms than those resulting from multilateral treaties, providing for higher
and more extensive substantive minimum standards. The principal EU instruments on
intellectual property have been devoted to the harmonisation of substantive legal norms,
the creation of supranational rights, such as the Community Patent, Community Design
and Community Trademark, and to the development of a truly European judicial and
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administrative infrastructure in order to render less acute the delicate problems raised at
private international law level.
It has been only after the entry into force of the Amsterdam treaty that the
European institutions had actively pursued the idea to establish a truly European private
international law. The agenda has involved (inter alia) efforts to transform into EU
regulations (formal EU instruments) the two existing European private international law
convention, i.e. the Brussels convention on jurisdiction and recognition and enforcement
of judgements in civil and commercial matters (Brussels I Regulation) and the Rome
convention on the law applicable to contractual obligations (Rome I Regulation), and to
create a new EU legal instrument on the law applicable to non contractual obligations (
Rome II Regulation).
The idea of addressing tort conflicts finally took the form of a new Regulation
adopted and published in July 2007.
3.
Article 8 of the European Parliament and the Council of European Union
Regulation (EC) No 864/2007 on the Law Applicable to Non-Contractual Obligations,
universally known as Rome II Regulation, which lays down a special Community rule for
non-contractual obligations arising out of an infringement of intellectual property rights, is
therefore the most recent expression of a truly “public private international law” of
intellectual property law.
The new Regulation, which will enter into force on 11 January 2009, has been
enacted by the European Community (a unique example of Regional Organization which
constitutes a new legal order in international law), pursuant to a long series of political and
institutional decisions taken by the European Council and further endorsed by the
Community Institutions (Council and the Commission). The Community competence to
adopt measures in matters of private international law is based on an international
agreement, precisely the Treaty establishing the European Community, as amended by the
Treaty of Amsterdam and by the Nice Treaty: Articles 61 (c) and 67 of the Treaty provide
the proper “new legal basis” for the adoption of “measures in the field of judicial
cooperation in civil matters”, moved by the Amsterdam Treaty from the “areas of
common interest to the Member States of the European Union” into the Community
context in order to encourage the developing and maintaining the Union as an area of
freedom, security and justice and progressively establishing a genuine “law-enforcement
area”. Article 65 (which is referred to in Article 61 (c)) expressly allows for the adoption
of measures “promoting the compatibility of the rules applicable in the Member States
concerning the conflict of laws and of jurisdiction” (lett. b), provided that they are taken
“insofar as necessary for the proper functioning of the internal market” (first part of
Article 65). The second limitation, posed by Article 65, which requires that those measures
have “cross-border implications”, seems superfluous, since conflict of laws is by definition
devoted to cases containing foreign elements.
The new conflict-of-law rule on infringement of intellectual property rights, as
well as all the other common conflict-of-law rules for non contractual obligation, has
therefore been enacted for a “public purpose”: precisely in order to answer the “need”
created by the proper functioning of the internal market; according to the Community
Institutions, this need demands “for the conflict-of-law rules in the Member State to
designate the same national law irrespective of the country of the court in which an action
is brought” (recital No 6).
The ratio behind this last effort of unification of the tort conflict-of-law rules of the
Member States is, therefore, the same that inspired any other previous Community
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initiative in the filed of private international law: to enhance the mutual trust among the
Member States on which the mutual recognition principle, i.e. the real cornerstone of
judicial cooperation, on which the Union is based. Given the fact that the “Brussels I”
Regulation, that superseded the Brussels Convention, still contains a number of options
enabling claimants to bring their proceedings in front of the courts of one member State
rather than another, the absence of unification of rules of private international law relating
to non-contractual obligations in civil and commercial matters in the Community favours
the forum shopping, letting the parties to choose the forum whose conflict-of-laws rules
point to the more favourable law applicable to them. Therefore, in the light of the relevant
differences in the substantive scope between Brussels I Regulation and the current
Proposal for a Regulation of the European Parliament and the Council on the Law
Applicable to Contractual Obligations (Rome I), that will supersede the Rome
Convention (the former covering both contractual and non-contractual obligations,
whereas the latter covers only contractual obligations), the new common rule on
intellectual property rights inserted into the Rome II Regulation should (in principle) serve
the purpose to complete the existing European rules on private international law and
international civil procedure, in order that the disputes before the courts of the Member
States should be adjudicated according “to one and the same applicable substantive law”,
irrespective of the country of the court in which the action is brought. This will boost the
foreseeability of solutions and certainty as to the law applicable for settling cross-border
disputes within the “European area of justice”. The complementarity and the need of
consistency between this Regulation and Brussels I Regulation, as well as with the future
Community instruments dealing with the law applicable to contractual obligations, is being
referred to expressly in recital No 7.
4.
According to Recital 26 of Rome II Regulation, for the purposes of this Regulation
the term “intellectual property rights” means “for instance, copyright, related rights, the sui
generis rights for protection of databases and industrial property rights”. The Article
adopted a unitary approach, only distinguishing between intellectual property rights
granted under national law and “unitary” Community intellectual property rights. The
applicable law for the former is “the universally acknowledged principle of the lex loci
protectionis”, meaning the law of the country for which protection is claimed. As to the
latter, Article 8 paragraph 2 introduces a special choice-of-law rule to fill the gaps left by
Community legislation, referring to the law of the country in which the act of infringement
of the unitary Community rights was committed (lex loci delicti commissi). Paragraph 3 does
not allow the parties to agree on which law will govern their rights and obligations
resulting from an intellectual property right infringement, either before or after the
infringement.
This rule, absent in the preliminary draft prepared by 2002, has been inserted in the
Commission’s Proposal published in 2003, after an intense debate which had opposed (in
the course of preparatory work) academic contributors to many other commentators
(some governments, industry groups, stakeholders), the latter almost unanimously
demanding to exclude any IP-issues from the scope of the Regulation in order to preserve
the “principle of territoriality” embodied into the nineteenth century international
intellectual property system, e.g. the historic multilateral treaties assuring protection for,
inter alia, copyright and industrial property, like the Berne Convention for Protection of
Literary and Artistic Works of 1886 and the Paris Convention for the Protection of
Industrial Property of 1883.
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At the end prevailed the opposite (academic) view and a specific article on
infringement of IPRs was included in the 2003 Proposal, with the aim to confirm the
“territorial principle” as “an exception” to the basic solution for non-contractual
obligations, (now provided in Article 4), generally acknowledged (according to the
Commission’s opinion, but without any further “explanation) as incompatible with the
specific requirements in the field of intellectual property rights.
It’s quite impressive that the purpose, the “politics” and the effect of the new
codified community conflict-of-law rule relating to non contractual obligations arising
from an infringement of intellectual property rights, resulting from earlier steps that date
back almost 30 years (when the E.C. commissioned to Eugen Ulmer an authoritative
study on the law applicable to intellectual property rights), have been confined by the
Community legislator to few Recitals and other “poor” materials produced in the
Community legislative process, as the an Explanatory Memorandum to an earlier Draft
Proposal of the Rome II Regulation, rightly defined as “extremely unlikely to prove as
helpful”. This conclusion is especially disconcerting in the light of the complexities of the
“traditional” territoriality principle in itself and of the still highly controversial question (in
legal doctrine) as how to interpret (from a conflict-of-law’s perspective) the country-ofprotection principle, which is universally recognized as underlying the “public international
law” of intellectual property.
Some explanations of the reasons underling the choice-of-law approach chosen by
the European Institutions for the specific issue of IPRs’ infringement could be found in
the Hamburg Group for Private and International Law’s Comment of 23 September 2002
on the European Commission’s Draft Proposal, that proved to have been most influential
on the negotiation process.
In suggesting the insertion into the Draft Regulation of a new Art. 6(a) on
“Infringement of Industrial and Intellectual Property Rights”, the Hamburg Group
reminded the European Commission of the wide consensus (at least, among the most
Member States) on the lex loci protectionis rule (and not the lex loci delicti) as the “special”
conflicts rule for the infringements of national industrial and intellectual property rights, as
confirmed by their private international laws. The Group also suggested that no choiceof-rule should have been adopted in contradiction with this principle representing the
foundation of the substantive public international law on intellectual property, even if not
stated “in explicit words” in the international conventions on industrial property rights or
still much in dispute as regard other international instruments, in particular for the Berne
Convention on copyright law. Precisely that reason, the persisting uncertainty over the
private international law implications of these conventions, urged the Hamburg Group to
support the inclusion of a specific Community choice-of-law rule in favour of the law of
the country for which the protection is claimed: the provision on the relationship of the
Rome II regulation with the existing international conventions (now Article 28), stating
that the Regulation “shall not prejudice the application of international conventions to
which one or more Member States are parties at the time of its adoption and which lay
down conflict-of-law rules relating to non-contractual obligations”, was in fact considered
“insufficient” either to ensure the acceptance of “ world-wide system of national industrial
property rights” or “to provide for the non-application of the general rules of the EC
Draft proposal”.
The fact that the European Commission simply accepted the Hamburg Group’s
reasoning, does not eliminate the necessary “preliminary” problem that the European
Institutions should have deepened. Article 28 states clearly that the Regulation is
“inapplicable” in field where prior “international conventions…lay down conflict-of-law
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rules relating to non-contractual obligations”, thus allowing Member States to go on
applying choice-of-law rules (if existing) which are laid down in intellectual property
treaties to which they are parties at the time of the adoption of the Community
Regulation. This brings inevitably to only question that the European Commission, first,
and the European Parliament and Council after, should have tried to answer: whether or
not the international conventions in the field of intellectual property lay down any “public
private international law” prescribing rules that compel the choice of laws applicable to the
infringements rights in the field. The answer to this question is obviously necessary to
assess the “wisdom” of the insertion of a new conflict-of-law rule on IPRs’ infringement
in the new Community Regulation, as all the Member States bound by it or subject to its
application are also parties to these intellectual property international instruments.
According to the Hamburg Group, the international conventions in the field of
registered rights (the Paris Union Convention for Industrial Property of 1883 in
particular), have affirmed without any doubt “the authority of the principle of
territoriality”, with the private international law consequence that “ownership and
infringement are a matter for legislation in the country where protection is claimed”. The
same argument has been referred by the same Group to the Berne Convention, considered
analogously built on “the principle of territorial protection”, mentioned in “explicit words”
in its art. 5. 2 and 14.2 (a). The European Commission simply adopted this point of view:
in its comments of art. 8. 1 of the 2003 Draft Proposal, it recalled that both the Paris and
Berne convention are built on the “universally recognized principle” of the lex loci
protectionis and that the rational of the new Community rule is “to enshrine” the same
principle.
If the reasoning developed by Hamburg Group, and accepted by the European
Institutions, is deem to be correct, than Article 8.1 providing for the application of the
same rule could be considered at least “superfluous”. Community Regulations, as a matter
of fact, “are not taking place in a vacuum”: if the existing multilateral conventions already
solve the problem of private international law of intellectual property rights infringements,
providing for a coherent conflict-of-laws principle for the matter in question, it’s rather
difficult to see the “need” for a specific Community rule, in any case destined to be
superseded by the international norms. Vice versa, if the Hamburg Group and European
Commission’s reasoning is wrong, in the sense that the international conventions on
intellectual property, or at least the Berne convention, provide for a different rule, Article
8.1 and 8.2 should be considered in fragrant violation of international law.
In conclusion, a specific Community choice-of-law rule prescribing the lex loci
protectionis principle could find a positive justification only if no conflict-of-law rules could be
found in the existing instruments of public international law on intellectual property. In
any case, whatever says the new Community rules, the retained new Community specific
rule for IPRs infringement must comply with the conventional requirements, even if they
do not speak to the issue of choice of law.
5.
Whether, and to what extent, the substantive principles embodied into these
international instruments ordain or imply any particular choice-of-law rules is a matter of
much debate, among academics and national courts, particularly in the field of copyright
and related rights, as rightly recognized even by the Hamburg Group itself.
All the international conventions forming the “public international law” of
intellectual property are built around two pillars: namely the so called national treatment
(or principle of assimilation) and minimum substantive standards of protection, operating
in tandem. The reason is simply: the former principle without the latter could imply that an
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inadequate level of protection afforded by a member country to its own rightholders could
be extended (for example) to foreigners authors, in a way fully consistent with the
principle of national treatment: an undesirable result that the international conventions
avoid, precisely by imposing a minimum level of protection for foreigners. Everybody
agree in reading the core international conventional obligation of national principle as
implicating a principle of territoriality, but views diverge on the point if this “territoriality
principle” has also a choice-of-law meaning.
According to one interpretation the national treatment clause simply implies a duty
of non discrimination: it only requires the application of the same substantive law to
foreigners and to the nationals, thus coming into play after the applicable law has been
defined in application of the national conflict of laws rules. According to others, the
national treatment principle operates “in advance”, in the sense that it has to be applied by
the competent courts “before” investigating the applicable law; according to this
interpretation, it implies a duty of non discrimination in applying choice-of-rules. For the
most part, commentators agree on a choice-of-law understanding of the national
treatment principle, but they adopt diverging views on the final solution as to which law
this principle requires the application of. According to some distinguished scholars it
should be interpreted as demanding the application of the law of the country of origin. Some
others scholars and courts, on the contrary, have read the national treatment (embodied in
Article 5.1 of Berne Convention, in Article 2 of Paris Convention and Article 3.1 of the
TRIPs Agreement) as implicating an opposite choice-of-law principle, precisely that one
directing the courts to apply the law of the country-of protection (lex loci protections). The
idea that Article 3.1 of the TRIPs Agreement mandates a particular choice-of-law rule is
defended also by a leading academic treatise, according to which the WTO Member
States’ have lost their autonomy in adopting the choice of law rules they prefer as a
consequence of the national treatment principle: “all convention provisions must be
interpreted as adhering to the general rule that the law of the protecting country is the
applicable law… Any alternative interpretation favouring the application of the country of
origin or the law of the forum as a general rule is no longer acceptable”.
Such an approach has been contested by others commentators who have
denounced the “confusion” between the status of foreigners and the conflict of laws,
remarking that a basic principle of private international law is that the issue of enjoyment
of rights by foreigners does not “take the precedence over the choice of the law applicable
to the substance”. Scholars who deny that the national principle has a particular choiceof-law meaning, directing the national courts to apply the law of a particular country
instead of another, being essentially concerned only with the principle of non
discrimination, bring as prove a simple illustration: the requirement could be easily
satisfied by applying to foreign and domestic authors the same rule, irrespective of the fact
that it could be the lex fori, the law of the country of origin or the lex loci protectionis. If one
“constraint” should be inferred from Article 3.1 of TRIPs Agreement, and from similar
provisions contained in other international conventions, on the choice-of-law rules that a
Member State may adopt, it is a very limited one: the impossibility to rely on “nationality”
as a proper connecting factor, because this could lead to different degree of protection
granted to national and foreign rights owners.
The central question: “which law applies” in infringement proceedings, still deserve
an answer.
This conclusion, that the national treatment principle fail to provide any guidelines
on the issue of choice of law in international intellectual property rights disputes, has been
also recently expressed by the European Court of Justice, which in its Tod’s Judgement
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has expressed the view that “as is apparent from article 5.1 of the Berne Convention, the
purpose of that convention is not to determine the applicable law”. The same idea is
shared also by WIPO, the International Organization which administer the intellectual
property conventions, according to which: “neither does the national treatment principle
reflect a private international law approach, as it does not purport to designate the law of
any particular country that is to govern an intellectual property issue involving a foreigner,
but merely states that foreigners should not be treated differently than nationals with
respect to intellectual property issues”.
The same discussion had taken place regarding the interpretation of art. 5.2 of the
Berne Convention as a truly choice-of-law provision. Again, many authors have directly
inferred from this norm a conflict of law’s rule pointing to the lex loci protectionis, (helped in
their conviction by the fact that the norm is, undoubtedly, cast in a language that could
resemble to a conflicts rule). Others have argued that it implies the application of lex loci
delicti. Others, again, have interpreted it as an invocation of the law of the forum.
According to the WIPO Guide to the Convention, the rationale of its Article 5.2
is to regulate the enjoyment of the “rights that are claimed by virtue of the Convention”,
i.e. the convention minima. In this respect art. 5.2 concerns itself only with two areas: (1)
the extent of protection, and (2) the means of redress. The Guide indicates that in those
two areas “the law of the country where protection is claimed” shall govern exclusively,
unless the parties have agreed that another law should applies, by the way of a forum
selection clause. As regard an action of infringement, it notes that “an author suffering
infringement usually picks a court in the country in which his rights where infringed”. The
logical consequence is that he or she need not to, being permitted to choose another court,
particularly another country where no infringing acts occurred, but where ( for example)
the defendants has his assets. In such cases the Guide indicates that “it would be a matter
for the courts to apply the appropriate private international law to resolve any conflict that
arises”.
This authoritative explanation strongly supports the most logical conclusion to our
initial problem: the provisions resembling conflict principles found in all the international
instruments of substantive public international law on intellectual property do not
address purposefully the private international law question of which law to apply to IPRs
infringements, thus having no impact at all (or a very limited one) on choice-of-law
questions. The provisions of these conventions had been adopted without having in mind
any general and coherent international private of law principle. The drafters simply hadn’t
thought of the possibility to claim for protection of intellectual property rights in a State
distinct from that in which the act of violation had been substantiated. As a consequence,
where infringement did occur in a different State, or in several States, the obvious
conclusion was that suits had typically to be filed in each separate national courts, seeking
relief for each national infringement. The conflict-of-law question was therefore very easy
to answer: by far, the most common case in which intellectual property rights disputes
arose regarded situations in which the alleged infringing acts (the reproduction, the use,
the sale, the publication without the appropriate authorizations) occurred in the country
where the plaintiff sued and where enforcement was claimed. The normal situation was
that of a perfect coincidence between the lex loci commissi delicti, the lex loci protectionis (the
law of the country for which protection was claimed) and the law of the forum.
This coincidence could also explains the “imprecision” of the wording of art. 5.2
of the Berne convention, referring to the “country where protection is claimed”, for long
time read as claiming the application of the lex fori. According to a very common
understanding, this interpretation of the rule could be read as a sort of “variation” of the
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lex loci protectionis principle, mandating a “rule of private international law which made the
lex fori (law of the country before whose courts the case has been brought) applicable”.
Also the term “means of redress” seems to suggest, if narrowly interpreted, as designating
the lex fori. In our opinion this interpretation cannot be upheld. Interpreting art. 5.2 of the
Berne convention as designating the lex fori could not be seen as a simple third “variant” of
the major private international law controversy relating to the choice between the law of
country of origin and the law of the country of protection. Without denying that the lex fori has
always a role to play, particularly regarding procedural matters and provisional measures,
the interpretation of Article 5.2 of Berne Convention as designating the lex fori amounts (in
our opinion) to a simply negation of any conflict of laws reasoning for intellectual property
issues, due to the perfect inutility of prospecting (in this field) the existence, or the need,
for a “unilateral” and “negative” choice-of-law rule that does not direct the application of
the law of any country other than that the forum.
Much more sophisticated is another doctrinal construction, developed by some
distinguished scholars, according to which it’s impossible to interpret the principle of
territoriality underlying the international discipline of intellectual property rights as an
expression of a private international law principle. From a public international point of
view, it simply represents the legislative competence of each State to regulate, within the
boundaries of its legal order, the intellectual property matters in an exclusive way. This
exclusivity is intrinsically correlated to the extension of each country’s territory, deriving
from the monopolistic nature of the intellectual property rights, and their reciprocal
independence. The “territorial limitation” in scope of national IPRs, their being
“resolutely” territorial in nature, is to be seen as something “inherent” in the way each
legal order grant these rights, with the consequence that there could no be such thing as
an “international” copyright, even under “international” copyright law, neither a truly
“international” trademark or an “international” patent. At private international law level,
these characteristics of the different national IPRS necessarily imply the “lack” of the
necessary “presupposition” for the operation of any choice-of-law rule, i.e. the existence of
different national laws abstractedly eligible to regulate the “same” juridical relationship.
From this theoretical premise, these scholars have deduced the conceptual impossibility of
the operation of “any” choice-of-law rule, with the consequence that (at least) the content,
creation and extinction of any national intellectual property right must be submitted to the
law of the State that granted that right. In such cases, no foreign laws could be applied at
all.
This position, according to which the fundamental premise of “classical”
international intellectual property law’s system of the ninetieth century, i.e. the “territorial
principle”, eliminated the normal operation of the choice-of-law process had long inspired
the “traditional” attitude of nationals courts, both in U.S and elsewhere, towards the
possibility to adjudicate disputes involving foreign intellectual property rights. For a long
time, the implication (at a jurisdictional level) of a “strong” view of territoriality was that
a party was not allowed to sue in the United States or in Europe neither for infringement
nor he has the possibility to question the validity of registered foreign intellectual property
rights (mostly without any explanation given). Sometimes this “negative” approach was
founded on the “act of state” doctrine which impeded the courts to review the acts of
foreign governments, acting within their territory, or grant any form of relief in order not
to interfere “with the judicial proceedings of others sovereign nations”. The same solution
was almost always adopted in transnational copyright infringement actions. Thus, even if
jurisdictional issues must be always kept distinct from choice of law problem, i.e. the law
applicable to the dispute, the “traditional” attitude of nationals courts, both in U.S and
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elsewhere, had been that to decline to hear cases in which they couldn’t apply their own
law: the question of applicable law and the power to adjudicate lumped together.
The fact that the issue of conflict of laws in the field of intellectual property has
long been neglected, does not eliminate the problem, particularly in the light of the
adduced reasons that appear not at all conclusive. In Europe, the preceding traditional
attitude and its theoretical justifications entered in crisis with the development of
European rules on international civil procedure, precisely with the adoption of the
Brussels Convention in 1968 which had the undoubted merit to have definitely clarified
that the coincidence between the lex fori and the law of protection is not at all
unavoidable, as the plaintiff can institute proceedings before the courts of a member State
other than that of the country of infringement.
Thus, the ambiguous wording of Article 5.2 of the Berne Convention referring to
the country where protection is claimed should be understood as simply underlying a
frequent and factual conjunction between the forum and the country of protection.
Nothing more. This conjunction could also explains the ambiguous “characterization”
suggested by Eugene Ulmer, who defined it as “ not a complete rule of conflict”. Its
incompleteness derives precisely from the fact that “although it adequately describes which
law is to be applied in the event that an infringement occurs in the country whose courts
are seized of a matter, it says nothing regarding infringements elsewhere”. The choice-oflaw question of which law should be the applicable in cases to which the domestic law of
the forum does not apply remains (therefore) to be solved. We personally share the
opinion of the ECJ, WIPO and of most commentators, according to which, although
the purpose of the international conventions on intellectual property law is to regulate
most international situations, these conventions simply do not address “at all” the
problematic of private international law of intellectual property , with the consequence that
the Member States are free to apply their own national conflict-of-laws rules.
As a consequence, the Hamburg Group and the Commission were wrong in
assuming that the intellectual property law conventions mandate a particular conflicts rule
and that the rationale of the inclusion into the Rome II Regulation of an IPR specific
choice-of-law rule, based on the country-of-protection principle, was deem to preserve the
current international instruments. Paradoxically, the exact contrary conclusion, i.e. the
fact that there is almost no “public private international law” of intellectual property law,
only supports and justifies such an inclusion.
6.
However, the question remains whether the absence of a uniform set of conflict
of laws’ rules at the international level entails also at Community level a lack of uniformity
and legal certainty as to the applicable law to IPRs infringements demanding to lay down a
Community uniform rule for the subject matter. Again, if all the Member States’ private
international law systems provide for the same country-of-protection principle there would
have been no necessity (under art. 65 (b) EC) to insert into the Regulation exactly the same
choice-of-law rule. In any case, even if national conflict rules on IPRs infringements
present differences, there is the need to analyse them in the context of the rules governing
international jurisdiction of the courts, in order to ascertain if there are numbers of forums
available to the claimant that could generate a risk of forum shopping, allowing the parties to
take advantage of their cases’ connecting factors to various legal systems, in order to
escape the law normally applicable to them. As correctly pointed out “ diverging choiceof-law rules alone do not create a danger of forum shopping”.
As to the very first question, a recent comparative study of a number of European
States’ private international law systems has identified two major tendencies pointing both
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to the lex loci protectionis and to lex loci commissi delicti. Examples of specific choice-of-law
rules for IPRS applying the lex loci protectionis, are Article 110 (1) of 1987 Swiss Private
International Law Act, Article 93 the 2004 Belgian Private International Law Act and
Article 54 of 1995 Italian Private International Law Act. A case apart seems to be that of
the 1974 Spanish Private International Law, whose Article 10 is redacted in a negative
and unilateral way, simply stating that the intellectual and industrial property rights shall be
granted protection on the Spanish territory by application of the Spanish law. Such a rule
could be easily “bilateralized” by applying the lex loci protectionis to all the questions not
covered by the article. In other systems the law applicable to infringements of IPRS is to
be inferred from the more general choice of law rule for torts: according to Article 34 (1)
of the 1978 Austrian Private International Law Act, Article 38 of the 1996 Lichtestein
Private International Law Act and Article 3(1) of the 2001 Dutch Private International
Statute on Torts, the governing law is lex loci delicti. It has also been suggested that, due to
the particularities of the enforcement of IPRS, the doctrine and the national courts of
these latter Member States have also interpreted their respective tort choice-of-law rules as
referring to the law of the State for which the protection is claimed, at least with respect to
trademark and copyright infringements.
Notwithstanding this conclusion, the situation in the field of private international
law for copyright law is commonly recognized to be far more complex. Article 67 of the
1993 Greek Copyright Act sets out the principle that “copyright in published works shall
be governed by the law of the State in which the work has been lawfully made accessible
to the public for the first time”. The Portuguese Private International Law Act refers to
the law of the country of origin for the acquisition of rights, but applies the lex loci commissi
delicti to infringements. The French Law is silent on the point, but a leading judgement of
the French Supreme Court in the well known case “Rideau de fer” has been considered by
the majority of French doctrine as having fixed “ the state of art”, consisting (precisely) in
applying the law of the country of origin for the issues of existence, originality and initial
ownership of works, whereas the lex loci protectionis to the content of the rights and the
scope of protection. An exception to the country of origin principle (as well to the lex
protectionis principle for those countries resorting to this choice-of-law rule) has been
envisaged for the author’s moral rights. From a choice of law point of view, in fact, moral
rights could be seen as personality rights linked to the person of the author of the work,
thus forming part of the personal law of the author. Alternatively, some authors have
argued that moral rights should be seen as fundamental human rights that protect the
author against the abuse of his work. It has been suggested that - from the point of view
of UK’s approach- moral rights should form part of its “public policy” principles. Some
countries, as France, consider the author’s moral rights of such a particular importance to
consider the French provisions on this issue as “internationally mandatory”, with the
consequence that French courts apply the forum’s rules even if the author has no moral
rights or has assigned all its rights on the work under the law of the country of origin of
the work.
Such a scenario reveals not only a current mosaic of private international law
Member States’ systems, among which the two possible alternative choice-of-law solutions
(lex loci protectionis and lex loci delicti commissi) still coexist, but also a persistent disagreement
on the “scope” of the law of the country for which protection is sought.
In some countries, courts apply the lex loci protectionis only to the issue of
infringement itself, its proof and its sanctions. These countries consider that as far as
copyright law is concerned, before analyzing the infringement in itself, it is necessary to
solve a “preliminary” question, consisting in determining whether the work is protected by
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a copyright and who the owner of the work is. All these issues are envisaged in the light of
the country where the work has first been published, as defined under art. 5(4) of the
Berne convention, i.e. the so-called law of the country of origin. This conclusion is also
supported by some prominent American authors, such prof. Ginsgurg and Ricketson,
according to which the Berne Convention does not cover issues of ownership, nor it
supplies a choice of law rule for determining authorship, except for Article 14ter which
deals (very incompletely) with rights in cinematographic works, with the consequence that
there can be no automatic claim to the law of the country where protection is claimed.
Other European countries, on the contrary, consider that all these issues should be
governed by the law of the country where the protection is sought and reject all
application of the country of origin. The German Supreme Court, for example, had
affirmed the principle that if protection under German copyright law is sought, the lex loci
protectionis (i.e. the German Law) applies to questions of ownership, origin, scope and
content of copyright, as well as to exhaustion of rights, transfer, rights of use and
consequences of copyright infringements. This is also the case under Italian Law, Swiss
law.
Even if the comparative analysis of the rules of conflict of laws and the
jurisprudence of the Member States’ highlights the opportunity to promote a better
compatibility of conflict-of-laws rules on IPRs infringement in the Union, the issue of the
applicable law still deserves a further analysis, precisely in the light of the preliminary
question regarding jurisdiction. There, is in fact, a diffuse and correct convincement
among European commentators (also shared by the European Legislator) that choice-oflaw issues cannot be dealt in isolation and that mere differences between national laws on
the choice-of-law solution for IPRs infringements are not sufficient to justify a need of a
“uniform” Community choice-of-law rule in the Rome II regulation. Diverging choice-oflaw rules must also cope with a danger of forum shopping.
Conflict of jurisdiction in civil cases, including IP disputes, are now dealt within the
European Union under the Brussels I Regulation, also applicable in relations between
Denmark and the rest of the EC, due the recent entry into force of and international
Agreement between the European Community and the Kingdom of Denmark on
Jurisdiction and the Recognition and Enforcement of judgments in civil and commercial
matters.
Since the adoption of the Brussels Convention in 1968, superseded in 2002 by the
Brussels I Regulation, the European rules on international jurisdiction have “shaken and,
in significant respects, destroyed” what has been with efficacy described as the “parochial
approach to intellectual property litigation”, serving as a basis for courts of many Member
States to assert jurisdiction in matters concerning foreign intellectual property rights. The
rules of the “Brussels system” (in the sense that the Brussels’ rules have been extended to
EFTA States via Lugano Convention of September 16, 1988, currently under revision)
have in fact dramatically changed the way these rights were litigated, in primis by reducing
considerably the “traditional” scope of exclusive jurisdiction in IPRS matters. Courts in
the contracting States are in fact required to exercise jurisdiction over foreign IPRs when a
basis for jurisdiction is provided under the Convention/Regulation system.
The general head of jurisdiction in international litigation is the domicile of
defendant (Article 2.1 of the Brussels I Regulation and 2 of the Convention). Thus, as a
principle, the court where the infringer is domiciled has jurisdiction, regardless of his
nationality or where the infringement took place, obviously even if committed abroad. As
a results, courts in the European Union have been forced to apply foreign law to
intellectual property cases. Art. 2 (1) of Brussels I Regulation also enables the plaintiff to
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litigate before the court of the domicile of the defendant multiple infringements of his
intellectual property rights, thus allowing a consolidation of several claims against the same
defendant before the court of his domicile. The Brussels system also enables the plaintiff
to consolidate claims against several defendants before the courts in the country where
only one of them is domiciled (ex. art. 6 (1)). Proceedings relating to infringement of IPRs
may also fall within the scope of Article 5. 3 which provides a special forum in matters
relating to torts, delicts and quasi-delicts, by providing that a defendant domiciled in a
Member State may be sued in the courts for the place where the harmful event occurred
or may occur. Since the ECJ’s interpretation of this Article, in a very famous defamation
case, as giving the plaintiff the option to sue either in the member State where the editor is
domiciled (in order to obtain damages for the entire prejudice that has occurred in all the
States where the publication had been distributed), or in any Member States in which the
publication was distributed (but only to obtain damages for the “localized” prejudice
occurred in that State), this decision has been regarded as stating a very general principle
applying also in different area from defamation. French courts have, for example,
implemented this principles in the context of copyright infringement. This opinion has
been confirmed also by some German courts with regard to patent law.
There is only one rule of exclusive jurisdiction in matters of IPRs, set out in
Article 22.4 of the Regulation (ex Article 16.4 of the Convention),
referring to
proceedings having their object, or mainly concerned with, the registration or validity of
registered intellectual property rights, according to which only the courts of the Member
State in which the deposit or registration has been applied for, or has taken place, have
jurisdiction in those proceedings. This provision initially interpreted by the ECJ in a
narrow sense, has been recently interpreted by the ECJ in a way that altered significantly
the functioning of the intellectual property litigation machinery as it has worked for many
years in Europe. Among the various reasons, the system has entered into crisis mostly
because the question has arisen as to what extent nationals courts of Member States (other
than those located in the country of registration) might exercise jurisdiction, in particular
when the disputes does not itself concern directly the validity of the registered right or
the existence or the deposit or registration. This issue has become “topical” in cases of
proceedings brought for infringements of registered rights in the defendant’s country of
domicile (art. 2) or (in case of multiple defendants) before the court in the country where
one of them is domiciled (art. 6.1), giving rise to diverging practice in the courts of
member States. By two judgments both handed down on July 17, 2006, the ECJ took the
view that Article 16.4 (22.4 of the Regulation) should apply whatever the form of
proceedings in which the patent’s validity issue is raised, be it by the way of an “action” or
by a “plea in objection”; secondly, that, irrespective of the presence of the so-called
“spider-in-the-web” criteria elaborated by the Dutch courts, it is not longer possible for
European courts to assert jurisdiction over claims against affiliated companies for
coordinated infringement of European bundle patents. Both practices has been judged by
the ECJ “irreconcilable” with the old Brussels Convention, and obviously with the
Brussels I Regulation.
As a consequence, in proceedings concerning the registration and validity of
registered rights, the exclusive jurisdiction provided by the Brussels I Regulation exclude
the possibility of any forum shopping. The same solution is provided, since July 2006, for
infringement proceedings involving the validity of registered rights as an incidental matter,
i.e. even if invalidity is (as usually happens) it brought forward as a defence. The possibility
to choose the competent court according to the most favourable applicable law is only left
in “pure” infringement proceedings regarding registered intellectual property rights, i.e.
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when issue of invalidity is not raised at all, or in case of copyright and related rights
infringement proceedings, which by definition do not raise any question of “validity”.
In those cases the plaintiff has still the possibility to sue the defendant either in the
courts of his domicile or before the courts for the place where the harmful event occurred
or may occurred. But, again, when a registered right is in question, the exclusive
jurisdiction rule stipulated in Article 22.4 of Brussels I Regulation “absorbs” the special
forum in matters relating to torts provided in Article 5. 3, as the locus delicti can be located
in no other place or country other than that of registration or deposit of the
patent/trademark/design/ or other similar rights required to be deposited or registered,
due to the territorial limitation of industrial (registered) rights. The only remaining choice
given to the rightholder is to sue in the defendant’s domicile, in accordance with the
general head of jurisdiction. Whether or not in such cases is really possible to speak of a
possibility of forum shopping, is open to question, being this choice “immanent” in the
structure of the Regulation. This eventuality is in any case real “remote”, as the
“normality” is that the national courts and the parties very rarely separate the adjudication
of industrial registered rights’ infringements from the assessment of their validity. The
result is that these infringements proceedings would be invariably confined to the courts of
the States in which the registration has taken place, thus barring the recourse to the general
rule of article 2 or the possibility to consolidation of claims against infringers of parallel
industrial property rights existing in several Member States (art. 6.1).
What is the real impact of the GAT-Roche twin decisions on European litigation
over copyright cases is still an unresolved question. It has been affirmed that the GAT
decision’s impact should be rather limited, as the exclusive jurisdiction of article 16.4/22.4
of the Brussels Convention/Regulation is definitely not relevant in the case of copyright.
Different could be the impact of the Roche decision as - where the application of the
exclusive jurisdiction does not come into place- litigations of IPRs should follow the same
rules, whether these rights are registered or not. It is possible therefore, that the Roche
ruling will have a significant impact on cross-border infringement cases involving multiple
defendants.
Besides that, in intellectual property matters the interpretation given by the ECJ of
the special head of jurisdiction provide in Article 5.3 of the Brussels
Convention/Regulation, as conferring the right the right to the plaintiff to sue either in the
place of the event giving rise to the injury or in the place where the damages occurred,
does not provide for a “real” alternative. The well known distinction in “complex” torts
between the place of conduct and place of injury does not work in IPR infringement cases.
An intellectual property right is granted as a monopolistic right for the territory of the
granting State; the monopoly being “territorial”, ends at the frontier. Therefore an Italian
intellectual property right, patent or copyright, cannot be infringed by producing or
distributing goods in another State that does not protect the same right, i.e if the
prerequisite for the application of Article 5.3 is not fulfilled. Preparatory acts for
infringement do not matter in term of jurisdiction for intellectual property rights as the
principle of territoriality imposes that a IPR cannot be infringed where it does not exists;
therefore, in infringement proceedings, Article 5.3 can only allows courts in the State for
which a right is granted to exercise jurisdiction over the action, on the premise that this is
where the event giving rise to the damage and where the damage occurs. Analogously,
when the plaintiff bases its claim for a declaratory judgment, i.e, for a declaration of noninfringement, Article 5.3 should be interpreted as providing a basis of jurisdiction only for
activity taken place in the State of the court seized. , thus solving the notorious “torpedo”
problem, impeding claims for declaration of non-infringement raised before a court in a
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country known of slow proceedings, in order to block subsequent claims for remedies in
other fora.
In conclusion, according to this analysis, the possibility for forum shopping are
very limited and confined to copyright infringements. Consequently it’s quite difficult to
state, as the Commission did, that the diverging choice-of-law rules in the Member States
“create a legal imbalance between plaintiff and defendants to the disadvantage of the
latter”, such as giving rise to a problem that can be address only by a uniform European
choice-of-law rule in the field of intellectual property in the light of art. 65 (b) EC.
The rationale of Art. 65 (b) applied in the field of intellectual property should have
been explain better by the European Institutions. For example, the choice for the lex loci
protectionis principle instead of the law of the country of origin for copyrights, should have
been explained by rejecting the main argument advanced by the tenants of the lex originis:
the need of legal certainty and the advantages of using a conflict rule that identifies a
single governing law instead of a multitude of laws applying simultaneously. It could have
explained that this argument (in favour of a simpler, more legible and more certain
solution) would be conclusive only if the country of origin could be easily identified, which
is less and less the case; secondly, that in the long lasting debate between territorialists
versus universalists, which correspond to a preference for the lex protectionis and the lex
originis respectively, the first prevailed as demonstrated by the way in which the
international intellectual property system have developed. In the debates leading up to the
adoption of the Berne convention, some delegations advanced this “alternative” notion of
a “universal copyright law” but were defeated by the prevalent pragmatic demand of
greater national control over the course of copyright law. The Commission could have
explained that the preference for the lex protectionis stems form the fact this is the only
law available in matter of IPR infringements, being the truly expression of the territoriality
that characterizes these rights and that implicitly organizes the coexistence of parallel laws
and distinct rights. That no national intellectual property law purports to grant IPRs
abroad. And that if jurisdiction is exercised in relation to the alleged infringement of an
intellectual property right abroad, the member courts should apply the only law having an
interest in the matter. According to an authoritative opinion, this conclusion relies not at
all on question of sovereignty, being simply the consequence of the “logic and the function
of the choice-of-law process”, i.e not to make applicable another law that cannot in “its
own terms” be applied, thus have rendering the choice-of-law process “incoherent”.
As regarding protection of intellectual property it could be said that the lex loci
protectionis principle coincide with the criterion of the lex loci delicti commissi, i.e. the law of the
country where the right of intellectual property has allegedly been violated, with the
fundamental clarification that the latter should be applied even if the infringing act
occurred in a country different from that whose courts know the case. The country of
protection and the country of infringement do not necessarily coincide: by and large, the
main argument in favour of inserting a specific choice-of-law rule for IPR infringements
in the Rome II Regulation was to fill the gap left by the Berne Convention, by providing a
uniform choice-of-law solution for the cases in which the domestic law of the forum does
not apply.
It’s worth to note that, notwithstanding the clear wording finally adopted in
Article 8, referring to the law of the country for which protection is sought, i.e. the country for
the territory of which protection is claimed, the Commission interpreted this expression in
its 2003 commentary in a slight ambiguous way, precisely as “the law of the country in
which protection is claimed”. According to the Commission, the territorial principle, as used in
the Berne and Paris Conventions, should be understood in copyright cases as “the law of
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the country where the violation was committed”; on the other hand, for the counterfeit of
an industrial property right the applicable law is that “of the country in which the patent
was issued or the trademark or model was registered”. In the words of the Commission,
this solution would enable “each country to apply its own law to an infringement of an
intellectual property right which is in force in its territory”, thus confirming “that the rights
held in each country are independent”.
This interpretation of the special rule for intellectual property in Article 8 seems to
suggest that the law applicable to a non-contractual obligation resulting from an
infringement of an intellectual property right should always be interpreted as the law of the
country before the courts of which the claim is brought, in which protection is sought
and in which the act of infringement was committed. In other words, as a consequence of
the view expressed by the European Commission the universally recognized principle of
the lex loci protectionis could still be interpreted by the national courts in member States in a
very “strict” way, as inevitably pointing to the law of the seized court (the lex fori). This
suggestion is misleading, because the Protecting State is not necessarily the State where the
proceeding is pending, at least under Community civil procedure law. Brussels I
Regulation, which covers jurisdiction for claims in intellectual property sets out as a basic
rule (Article 2 of the Regulation) that the courts in the country of defendant’s domicile are
competent to adjudicate “all” claims raised against him or her, including any action
involving the infringement or the validity of a copyright under the law of another EU
country or any action involving “pure” infringement cases of registered rights. In addition,
in cases of torts, if the plaintiff chooses the courts at the place where the harmful event
has occurred or is threatening to occur, only the latter courts – and not the courts in the
country of defendant’s domicile – must apply their own substantive law when considering
the merits of the case, being the courts at the place where the harmful event has occurred,
the unauthorized use of the protected subject matter has made, and the courts of the
country for the territory of which protection is claimed.
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INDUSTRIAL PROPERTY: PROTECTION OF TRADEMARKS AND
OTHER DISTINTIVE SIGNS IN LITIGATION ABOUT INTERNET
DOMAIN NAMES
By:
Miguel Pupo Correia145
1. This paper aims to be a simple input information about the situation in Portugal,
concerning a matter of the current Information Technology Law, which has created major
problems with regard to the organisation of the Internet and the development of
electronic commerce: I refer to conflicts between registers of domain names and the rights
of Industrial Property for trademarks and other signs.
2. In highly competitive and increasingly globalised markets, the identification of the
company and its products is of fundamental importance, because much of its success in
dealing with its various interlocutors depends basically of the sharpness and attractiveness
of its image. Therefore, the image of the company is formed by its distinctive signs, protected
by the Industrial Property Law, in particular the commercial names, the trademarks and service
marks, and their domain names on the Internet.
Indeed, the traditional cast of commercial distinctive signs is being enriched with new
legal shades legal: that is what happens with the domain names on the Internet, generating
problems of growing variety and complexity, hand in hand with the expansion of the
Internet, in which tend to reproduce themselves and gain new outlines the human
activities, especially economic activities. This means that the Internet not only gives to
companies new ways to act in the market of their products, but also creates or facilitates
the globalization of markets, in non-traditional economic terms.
In this context, may not cause surprise that the legal treatment of distinctive signs is a
largely moving ground, where there is a lack of mechanisms for compatibility between
their respective legal regimes and litigation resolution means. Also under this point of view
must be noted that the traditional shortcomings of "bridges" between the protection of
traditional signs - such as between the corporate names and trademarks, to quote just one
example of potential minefield of conflicting events - were now increased with a field that
is revealing inexhaustible of confrontation of interests between those traditional
commercial signs and the newcomer domain names.
All this context is aggravated with the diversity of legal deployment of those signals: the
Internet domain names legal rules are out of the field of the Industrial Property Law,
where belong, among others, the trademarks and commercial names.
But, in general terms, all these signals, in addition to the specific functions of each of
them, have the same capability to satisfy a general aim of such transcendent importance as
145
Faculty of Law - Universidade Lusíada, Lisboa, Portugal.
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is the protection of the legitimate interests of companies in the field of fair competition,
that is, in promoting and defending their activities within the open and widespread
markets that today face.
Generally, these distinctive signs are legally regarded as intangible assets, subject to
ownership rights and which may be alienated, what gives them an economic value. This
value is based on the importance of these assets to safeguard the interests of the relevant
business organization, including, as has been emphasized, the promotion of the corporate
image.
3. The structure and regulation of the registration of domain names, although conform to
certain basic common principles, imposed by ICANN – Internet Corporation for
Assigned Names and Numbers, have different legal frameworks. Regarding generic Top Level
Domains (gTLD’s), the system created by ICANN with the cooperation of WIPO, aimed to
reduce and solve the conflicts between the holders of domain names and trademarks,
giving rise to the Uniform Domain Name Dispute Resolution Policy (UDRP), of 26.8.1999, and
the Rules for Uniform Domain Name Dispute Resolution Policy ("Rules"), approved on
24.10.1999.
Concerning the national / territorial country code TLD’s (ccTLD’s), the regulatory and
organizational solutions adopted can basically be grouped in two categories:
(i) those in which a State adopts its own rules, and
(ii) those where the political and administrative authorities refrain from interfering
in the matter, which usually leads to the adoption of a model contract identical to the one
adopted by the international domain names registrars.
At Portugal, the existing solution is hybrid: the management of the national domain
names ccTLD .pt was assigned by ICANN to FCCN - Foundation for National Scientific
Computing, which issued the "Rules of the Registration Service of Domain Names of
.pt", whose most recent version has been in force since 1.3.2006. But while FCCN has
been empowered by ICANN, the Portuguese Government published the Resolution of
the Council of Ministers nº 69/97, 10.4.1997, which, besides to recognize and confirm the
function of FCCN as managing body of the system of domain names under ".pt",
instructed the Minister of Science and Technology to prepare legislation on the matter.
What until now has not been met...
4. The technical and economic function of domain names has been evolving over time.
Initially mere name addresses, freely constructed, they became, due to the explosive
development of the Internet, veritable distinctive signs of people, companies and other
entities, for their own identification or to publicise the content of the reports their Web
sites. Hence come also the widespread practice to building the domain names on the basis
of the reproduction of other distinctive signs, such as trademarks and commercial names,
geographical names, names of individuals and legal entities, names of literary works, etc..
From here follows a marked trend of the doctrine, jurisprudence and legislation to
address some of the domain names in identical terms to those distinctive signs of business
activity, as a kind of brand or trade name sui generis, for the specific purposes of the
Internet.
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So they have now a hybrid nature: a technical means such as URL address, and a
distinctive sign (atypical) of the company or other kind of owner as to the projection of its
activity on the Internet.
For now, however, seems to me that the registration of a domain name gives a specific
exclusive right over itself, within the technical and identification function on the Internet
that is intended. An ownership right which may be sold pursuant the rules of the system of
registration. A right of which the holder can not be arbitrarily deprived by the entity
responsible for the register (or any other), besides that emerging legal standards could
protect the use of the constitutive expression of the domain name for commercial
purposes or others.
The source of this ownership right varies, of course, depending on the support of its legal
subsystem of regulation and registration of domain names. So, concerning those registered
under general international gTLD’s, such right is generated by the registration agreement,
according to the regulatory structure built by ICANN and, in addition, by the general
principle of law "pacta sunt servanda".
A similar solution is possible to those countries in which, for lack of legislative discipline
that creates a different legal framework, the implementation of the registration of each
domain name has a contractual basis. Obviously, concerning the countries that have
legislated on the subject, that specific legal framework will give the answer to this question.
In Portugal, the issue has been very controversial, given that, despite the silence of the
law, there is a demonstration of political will in the cited Resolution of the Council of
Ministers nº 69/97, which seems to reveal the intention of attracting this theme for the
under the rules of administrative law.
For now, in the opinion of DIOGO FREITAS DO AMARAL, rules on domain names
would be "technical standards issued out from any source of law recognized as such",
which would be enforceable by integrating the gap in the law, for application of art. 10, nº
3, of the Civil Code, through a standard reception rule created by the interpreter.
A third view characterizes the Rules of FCCN as general contractual terms (subject to the
rules on unfair clauses, established in the Decree-Law nº. 446/85, 25.10), based, therefore,
on a merely private law design of the system of domain names under '.pt', whose nature
and support would be contractual.
"De jure constituendo", it seems to me preferable a legal framework based on a solution
similar to that of art. 1303 of the Civil Code of Portugal, as a right of ownership which
object is an immaterial asset, similar to the rights of industrial property and the rights of
author.
5. The regime established by ICANN's UDRP has proved to be of great effectiveness to
fight cybersquatting and other practices about domain names registration affecting the rights
of industrial property on trademarks.
But the UDRP requires as a prerequisite for the submission of a complaint the
complainant’s ownership of a trademark to which the domain name subject of dispute is
equal or confusingly similar. Thus remain unprotected the holders of other distinctive
signs that deserve a similar protection to the marks, such as commercial names,
geographical names, etc.
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This omission presents serious drawbacks. First, because it implies a violation of art. 8 of
the Paris Convention (1967), which establishes the protection of commercial names
regardless of registration, because such protection is often refused on the ground of the
domain names litigation. Moreover, it implies that a company can only obtain protection
for its commercial name if it is also registered as a trademark, or if invoking their use as a
"de facto trademark" (or common law trademark), which is sometimes impossible. And also
the internal rules of the laws of several countries on the domain names, or the managing
bodies of national areas, often omit the protection of commercial names.
So often happens that a company which commercial name is registered by others as
domain name and does not have it also registered as a trademark can not present a
complaint based on the UDRP to resolve the dispute, and so is compelled to resort to the
ordinary courts, which can generate complex problems of jurisdiction and big expenses, in
addition to be dependent on standards of a legal foreign system.
The discussions on this issue led by WIPO have proved inconclusive, in the absence of
sufficient consensus, as noted in the "Report of the Second WIPO Internet Domain Name
Process" October 2001 and the decision of the Meeting member states of WIPO,
1.10.2002. Although the same report recognized that a huge part of the litigation on
domain names involve violation of rights on commercial names, it concluded that the
protection of domain names should be treated at the level of regulation of ccTLD's. This
conclusion seems somewhat incoherent, because the commercial names remain
unprotected in what concerns domain names registered under gTLD's.
Moreover, the difficulties raised are the same as for trademarks, and this has not been
considered as an obstacle to the construction and successful implementation of the
UDRP. So it remains not understandable the reluctance to extend the application of this
system to commercial names.
6. With regard to the means of resolving disputes over domain names, the regulatory
system established by ICANN - UDRP and its Rules has influenced the evolution in
Portugal. So the art. 52 of the Rules of FCCN (version 1.3.2006) bind their holders to use
institutionalized voluntary arbitration, in accordance with art. 38 of the Law No. 31/86,
29.8 (that rules voluntary arbitration). The entity chosen should be able to proceed to
arbitration on the issue.
Meanwhile, FCCN announced in December 2007 that will become soon in force a
change in its Rules – that is expected to happen by the middle of 2008 -, by which the
arbitration system will be strengthened through the introduction of criteria for the decision
of conflicts on the domain names that, in essence, match the constants of the UDRP, but
allow the protection of rights on other distinctive signs, such as personal names,
commercial names, geographical names, etc.. It will even be created a specialized
arbitration centre on this matter.
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International Business Transactions
With Chinese Characteristics
Fostering Cross Cultural Learning Experiences
In the Law
Summer Law Institute At
The Kenneth Wang School of Law
Soochow University
Suzhou, China
By:
Francis SL Wang and Laura WY Young
Professors of Law
Kenneth Wang School of Law
Soochow University
Suzhou, China
Summer Law Institute – International Business Transactions with Chinese
Characteristics146
Purpose:
In 2003 we embarked upon a project to create an educational experience where
law students from China and the West will come together to learn the basic techniques of
problem solving in an international business setting while learning from each other the
variations in approach, reasoning and expression which they will confront as lawyers in
international practice.
Background:
In 2003 there were approximately 10 international summer law programs hosting
foreign law students in China. These were mainly organized by American law schools for
their students. These programs followed a variety of formats. Some were taught by the
sponsoring school’s faculty. Others were taught by a more diverse faculty including
practitioners and faculty from other schools. On the whole, the majority of students came
from the organizing school with the remainder coming from other American law schools.
Some programs provided a Chinese law perspective, on the whole taught by an American
faculty. Some included a few Chinese faculty members. Other programs had very little of
a China law component. Instead, they were standard law school doctrinal classes. The
cultural aspects of these pioneering programs consisted mainly of visiting the standard
146
The Summer Law Institute is a multi-institutional undertaking. It is formed by 3 partner schools which are
primarily responsible for the administration of students entering the program from their jurisdiction. Cornell
University Law School is the American partner, Bucerius Law School is the European partner and the Kenneth
Wang School of Law is the Chinese partner. In addition, the institute is supported by four cooperating institutions –
University of California – Hastings College of Law, Tsinghua University Law School, Pacific/McGeorge School of
Law and the University of Milan School of Law. Each institution provides faculty and students. Financial support
for the program is shared by the Wang Family Foundation and the Zeit Stiftung Ebelin und Gerd Bucerius.
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tourist sites as well as visits to judicial and administrative venues. There was limited
interaction with the environment or the people of China.
While benefiting from the experiences of these pioneering programs, we decided
to give special emphasis on fostering a robust cross cultural experience for our Chinese
and Western students as well as faculty.147 We, therefore, insisted on having a balance of
Chinese and Western students. We incorporated Chinese faculty along with Western
faculty.148 To force an interaction among the students we divided them into teams
maintaining a balance of approximately one half Chinese and one half Westerners on each
team. While the language of instruction is English, we presented some materials in our
hypothetical package in Chinese. This, once again, forced team members to rely on each
other in understanding the problem, as well as working with each other.
Course Structure:
The course is a problem solving exercise based upon a hypothetical international
business situation. In the hypothetical, three high-tech companies (Chinese, American and
German), each meet at the Shanghai Hi-Tech Trade Show. The students have been hired
as summer associates to work in the legal counsel’s office of their respective companies.
Instructions from the General Counsel are provided as general guidelines of the tasks the
summer associates must perform.
147
The Summer Law Institute at the Kenneth Wang School of Law is now the largest and most complex summer
program in China. Each year it hosts approximately 100 law students. 50 are from various law schools in China
(this past year over 34 Chinese law schools were represented). The other half is split between American law
students (this year representing about 14 different American law schools), and European law students (this year
representing 8 European law schools).
148
This past year, 2007, the program had close to 30 faculty members in the three weeks. We had our full-time
faculty consisting of Barbara Holden-Smith, Associate Dean Cornell Law School, Karsten Thorn, Professor of Law,
Bucerius Law School, the authors from the Kenneth Wang School of Law, Leo Martinez, Professor of Law,
University of California, Hastings College of Law, James Li, Professor of Law, Tsinghua University. These full
time faculty members were the core of the program, tying together each individual unit. The part time faculty would
be engaged from periods of a day to a week. They may give a lecture or conduct a class on their specific area of
expertise. Some would participate in panel discussions on specific topics. This put faculty and students in the
challenging and stimulating environment which results from a high degree of intellectual exchange among the
participants.
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You’ve Been Hired
Work Rules
•
You’ve been Hired
– Associates in the General Counsel’s
Office to work for a division of a large
company.
– General Counsel and other Attorney’s
are on Summer Holiday.
– You’ve been asked to “mind the store”
while they are away.
– You will be working in a team of other
associates also hired for the summer.
– You will be dealing with various
business people
– You have an opportunity to “hire”
experts . However, you will need to
keep within a budget. The experts
will not give you the answers to your
questions, Rather, they will assist in
guiding you.
Each day, students are presented with a new package of materials (emails,
contracts, documents, memos, etc.) which lay the foundation for the specific problem of
the day. Each day’s unit explores a different aspect of International Business Transactions.
Each day’s morning session is focused on the doctrinal area of law around which that day’s
problem focuses. During the course of the three week program, the students are
presented with 5 separate team tasks. These include drafting a memo, making a
presentation to the board of directors, negotiating a joint venture arrangement, drafting a
brief, and finally appearing for oral argument before both a Chinese court and an
American court. The students work on these tasks in the afternoons and evenings.
Team Structure:
The students are divided into 12 separate teams, each of which represents one of
the three companies in the hypothetical. The 12 teams are divided into 6 Red teams
(Chinese company), 3 Blue teams (U.S. company), and 3 Gold teams (German company).
Each team has approximately one-half Chinese members and one-half Western members.
Teams are judged on the effectiveness of their representation of the client. The teams
work with, and compete with, each other in negotiations, depth of analysis, client relations,
and strategic approaches to issue definition and problem solving.149
Pedagogical Rationale:
149
In order to ameliorate some of the economic differential between the Chinese and Western students, each team is
provided a stipend of RMB 1,000 at the beginning of the institute to spend as they as each team decides. The
restaurants, bars and coffee shops on Shi Chuan Street have been delighted by this boost to the local economy. It is a
team building device. Another device we used has been a treasure hunt. While a small minority of the western
students (particularly a few world-weary, cynical, twenty-something American students) criticized the exercise as
“too summer camp”, it did provide for team cohesion and enabled each student to coordinate with their team
members as well as discover the city of Suzhou. This was a particular hit with the Chinese and European students as
well as most of their American colleagues.
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The focus is not to teach, nor test, the students on substantive areas of law.
Rather, it is to familiarize them with the intricacies and vagaries of international legal
practice in a hypothetical international business transaction. They will need to develop
sensitivity to various issues of law and culture which impact this hypothetical fact pattern.
As the course continues, the fact pattern changes, and they will learn how these changes
affect their legal analysis. They are forced to work with law students from different legal
traditions (civil vs. common) as well as distinct cultural traditions.
We decided on a simulation, problem-solving pedagogy as the one which would
lend itself best to foster the interactions we believed would yield the most robust
educational results for the participants. Aware of the discourse among legal educators that
more than a single pedagogy is needed to educate law students, we employed a variety of
approaches in teaching the doctrinal components of the course. Lectures, panel
discussions, as well as case–dialogue and Socratic methods were utilized to supplement the
written materials in developing the issues in the hypothetical. Company memos and emails
knit together a light hearted narrative which moves through each unit providing texture
and meaning to the written documentation presented. This “narrative” approach was
important to give the students a sense of “real life” practice. The recent concern
expressed in current literature about the need to “contextualize” the training of lawyers
sharpens the importance of introducing more simulation-problem solving approaches to
our law schools150.
Course Materials:
Students are provided with two sets of materials: 1) background reading materials
for each unit, and 2) the hypothetical case materials as the foundation of their assignments.
These readings consist of articles, summaries and other reading materials, including short
summaries of various substantive areas to provide the students with a general background
for each topic. Students are expected to prepare for class by reviewing these materials.
The hypothetical materials contain the facts upon which students must base their analyses,
and include company profiles, business memos, emails, business plans, sales contracts,
licensing agreements, commercial invoices, correspondence, internal memos, etc. The
hypothetical materials are distributed during the progress of the course, to be used by the
students in analyzing the issues in the hypothetical.
Class:
Each day’s class begins with a review of the prior day’s hypothetical problem
followed by distribution of new factual materials, such as memos, emails, or form
contracts from business partners, announcement of new regulations and/or news events.
These new materials will set the stage for that day’s problem. Each day’s new material is
added to the students’ respective case files. Teams are expected to sit together in class,
and are called upon to answer questions or participate in discussions as a team.
After the review and setup for the current day’s problem, a very general summary
of the relevant legal subject area along with the changing hypothetical fact pattern is
presented in lecture, with a panel discussion on the relevant law as it impacts the
hypothetical case. The Faculty leads the discussions to compare and contrast the
150
See generally, Todd D. Rakoff and Martha Minow, A Case for Another Case Method (Scheduled for Publication
in 60 Vand. L. Rev. 587 (2007), and William M. Sullivan, et al, Educating Lawyers (2007).
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substantive law across different jurisdictions, along with its interplay with the facts of the
hypothetical. Faculty act as ”expert consultants”, making themselves available to teams on
some afternoons, as needed. The experts’ purpose is not to provide the students with
answers, but rather, to assist them in the organization, research and presentation of their
work. They will also grade each team’s performance.
Teams are called upon to provide their input to the day’s lecture and discussion,
and student questions and insights are encouraged. Incentives for classroom participation
are provided. The purpose of the morning discussions, and the summaries of law, is not
to provide answers to the hypothetical, but to provide an overview of the area of law
which each team should explore to determine the issues for analyzing that day’s
hypothetical.
Problem Solving and Team Work:
Using the resources in the case file, as well as information and materials obtained
from the resource website, background readings, the library, as well as Internet research,
the students will work in teams to prepare the assignments. Students are expected to
search the web for relevant statutes, agreements and background materials. To encourage
participation by all the students, some of the materials are in only one language: English or
Chinese, requiring that the team members work together to find the issues. Some of the
materials will have translations, but the translations may or may not be accurate and will
require review. Each team has different materials with some overlap, e.g., contracts
between two of the companies, etc. Initial analysis and negotiations are based upon
incomplete information. At the litigation portion of the exercise, the students may face
US-style discovery requirements, including the need to turn over materials which may
compromise their original positions.
The entire multi-cultural exercise, from attending class to preparing assignments
with teammates and faculty from other cultures, is intended to encourage the students to
confront their own assumptions, and ultimately to realize that the absolutes of values are
not absolute, but dependant upon a multiplicity of factors.
Measuring Outcomes
Working with the U.C. Berkeley Culture and Cognition Lab and its director, Prof.
Kaiping Peng, we are studying the outcomes of the program over the last four years.151
We tested two sets of issues in this study. The first issue we tested was for cultural
differences, and how members of different cultures view themselves, their relations with
others, and their judgments of legal issues. We examined whether these groups react to
cultural values and legal judgments in similar ways. This set of questions builds upon the
existing scholarship in the field, and establishes the base line of cultural differences to help
us to address the second issue.
The second issue we tested in this study focuses on the effects of cross-cultural
interactions and learning: How do culturally diverse people respond to cross-cultural
learning? What factors affects the outcomes of cross-cultural learning? By focusing on
151
We must emphasize that the “results” reported in this paper are very preliminary, as much work still needs to be
done in analyzing the accumulated data.
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quantifiable data in this study, we can empirically test some of the most fundamental
questions in cross-cultural education.
Informed by the existing scholarship, we predicted that Americans would be
more individualistic in their judgments of values and to be more legalistic in their
judgments of legal cases while Chinese would be more likely to endorse collectivistic
values and to more likely to chose equitable rather than technically correct legal judgments.
We also predicted that cross-cultural legal education would fundamentally alter students’
value orientations and their ways of judging legal questions, but the magnitude and scores
of these effects were the subject of the empirical tests we devised.152
For the legal judgment questions, we presented the students with four factual
scenarios which represent common examples of legal disputes. The scenarios are designed
to approximate varying types of legal cases. All these cases were tested in a previous crosscultural study on law and psychology (Levenson & Peng, 2004) that had shown crosscultural compatibility and validity. Students were asked to evaluate a variety of situations.
While the study is continuing, preliminary results confirm the cultural differences
found in prior studies, even though the subjects in this study have legal training. American
law students were more individualistic in their self-image than their Chinese counterparts.
The concentration on self revealed itself in legal judgments made by the American
students that tended to assume more individual control of circumstances, and contrasted
with the responses of the Chinese students, who tended to assume individuals had less
ability to act on individual free will. 153 Given that base line, we looked at the second issue
– the effects of cross-cultural training on our students.
152
A 2x2 Culture by Time Between Subject Design was utilized in this study. Both groups received the test before
and again after, the cultural training.
Subjects were presented with two forms of questionnaire; both forms were matched to test the same
psychological variables in questions. Materials were created in English with consideration for cross-cultural
understanding of the concepts. The survey was translated into Chinese and translated back into English by separate
translators. The authors resolved the few discrepancies that emerged.
We used the most famous individualism-collectivism scale as a measurement of cultural values (Triandis
et al, 1988). Individualism, as a psychological concept, is defined by three behavioral components - emotional
distance from one’s in-group (e.g., parents, siblings, relatives, etc.), personal goals having primacy over in-group
goals, behavior regulation by attitudes and cost-benefit analyses, and little avoidance of confrontation (Triandis et
al., 1988; 1990). Collectivism, on the other hand, is defined by family integrity, a homogenous in-group along with
strong in-group/out-group distinctions, the self being defined in in-group terms, and regulation of behavior by ingroup norms, and hierarchy and harmony within an in-group. Previous research has shown that individualismcollectivism affects people’s self-concept, (Triandis, McCusker, & Hui, 1990), conflict resolution, (Triandis et al.,
1988), and attribution (Morris & Peng, 1994).
153
Once again, we designed two forms for the same kind of legal scenarios. The first kind of scenario
involved individual responsibility and the second kind concerned group responsibility. Form A was administrated at
Time One before cultural interaction and knowledge training and Form B was administrated at Time Two after
cultural interaction and knowledge training.
The first case in Form A described psychological research indicating that the perceived moral culpability
of an actor affects a lay person’s casual determination. Mark Alicke conducted studies in order to show that when
multiple potential causes are present, people most frequently select the most morally blameworthy cause as the
likeliest cause. In Alicke’s studies, when presented with a hypothetical fact pattern relating to a car accident,
subjects cited the driver (the actor) as the primary cause of the accident more frequently when his reason for
speeding was to hide a vial of cocaine than when it was to hide his parents' anniversary gift. Perceivers also
consistently selected the actor as the primary cause of the accident despite the presence of other causal factors, such
as an oil spill or tree branch blocking a traffic sign. Alicke described this effect as Culpable Causation, “the
influence of the perceived blameworthiness of an action on judgments of its causal impact.”
The second case in Form A teased out cultural differences in causal explanation. In a series of studies
testing cultural differences in attribution, Peng and his colleagues (Morris & Peng, 1994; Morris, Nisbett, & Peng,
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In the Suzhou study, we tested the base line difference between the two cultural
groups by examining Chinese students and the American students’ responses in a before
and after test. We found that before cultural interaction and training, there were indeed
cultural differences on individualism-collectivism, such that the American students were
measurably more individualistic (M = 3.73) than the Chinese students (M = 3.36).
We then tested the cultural difference after the cultural interaction and knowledge
training. We found not only that there were changes, but that the difference was
somewhat reversed. While both groups had moved towards each other, the American
students’ responses had become even less individualistic (M = 3.33) than those of the
Chinese (M = 3.49)!
Figure 1 Effects of Cultural Knowledge Training on Chinese and American Students’
Beliefs on Individualism
3.8
3.7
3.6
3.5
Americans
3.4
Chinese
3.3
3.2
3.1
Before
After
We note that the difference between the two groups narrowed by more than 56% (from
.37 to .16). This demonstrates a pronounced movement by both groups towards the
mean. What was most compelling was the movement among the students – American
students’ attitudes of individualism moved three times as much as the Chinese students.
We theorize that this large movement owes much to removing the American students
from their original environment and placing them in an entirely different cultural setting.
The movement of Chinese students to a more individualistic self-perception demonstrates
the effects of cross cultural interactions even when remaining in one’s original
environment, but interacting with a different population. This measurable change
1995; Peng & Nisbett, 1997) used descriptions of recent mass murders committed by either a Chinese or an
American as the stimuli, and asked American and Chinese college students to explain these events. They found that
Chinese indeed place more weight on situational, social, and global causes, as compared with American students.
Such cultural differences were also shown to exist in people's counterfactual reasoning about the cause and effect
relations of mass murders, as well as in the media reports in a Chinese newspaper (The World Journal) and an
American paper (The New York Times). Such findings are significant as well as provocative, because social
psychologists and cognitive psychologists have long argued that there is a strong universal tendency for people to
attribute behaviors of humans and objects to internal dispositions of an individual or object, which has been called
the “correspondence bias.” It is well documented that such a bias exists even when situational influences are
obvious, leading to the so-called “fundamental attribution error.”
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occurred within a three week period of intense multi-cultural interaction. We expect an
even greater movement in students who engage in a longer program or have greater
opportunities for education abroad programs.
These preliminary “results” will assist in focusing our continuing research. That
research will enrich our understanding of how culture and perspectives of law are
intertwined. We, as teachers of the law, must inculcate in our students a sensitivity to the
vagaries of cultural influence on the legal perspectives and outcomes in this interrelated
but diverse world. The research suggests that such a sensitivity can be fostered by intense
cross cultural interactions in a simulated real world legal environment where students from
different legal and social cultures must work with each other. It is one way of preparing
our students for the world they will inherit and shape. It is a beginning.
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Foreign Investment
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International Investment and Islamic Financing
By:
Jassim Ali Salem Alshamsi
The future trend of banks focuses on Islamic banking, as a result of increasingly doubled
banking profits earned by banks offering products (services) corresponding with Islamic
Sharia more than those offered by traditional banks. These profits are the result of making
use of customers attitude to go for Islamic banking, hence increasing the profit margin to
be doubled.
Islamic banking professionals support their views by the fact that Islamic banking is
increasingly growing at a range of 15% – 20% annually, and the volume of their industry
all over the world reached around 260 billion dollars in 267 financial institution. GCC
countries share is about 25% of this market. (Arab International Newspaper, Issue 10492,
21 August 2007).
In a report from the Information Centre of Abu Dhabi Chamber of Commerce &
Industry, Islamic finance volume exceeded 750 billion dollars, while Islamic banks assets
(All of them) exceeded 265 billion dollars, their investments exceeded 400 billion dollars
and their deposits exceeded 200 billion dollars.
Various studies confirmed that Islamic banking system is distinct by the principle of
consolidating cooperation of capital and expertise in the development field, hence the
money owner gets fair profit which encourages Muslims to deposit and invest their monies
with these institutions.
Islamic financing is also distinct in ensuring the principle of partnership and considering
work as the source of earnings instead of considering the money as the only source of
earnings, in addition to freeing people from the negative attitude as opposed to the
depositor who deposits his money waiting the returns, also reforming the function of
Capital to serve the society instead of being an independent entity.
The Islamic economic expert (Dr. Zaid Alramani) regards Islamic banks as not a renaming
of reshaping or just the addition of the word "Islamic" to a bank's name, nor banks who
do not use the principle of interest, but they are contractual institutions established to
substantiate and support the Islamic economy in practicing thee function, and have the
right to invest and make profit at the same time bear development responsibility towards
societies.
Dr. Alramani's statement is supported by the IMF statement in its recently published
document which contained the following: "Islamic Banks system is more effective and
balanced than Western countries financial systems, especially in handling financial crisis".
The economic scholar Tharwat Walers of the OFCD stated that "Islamic Banks are
considered as banks of the few established genuine banks, and I believe that these banks
system could have an effective role in developing and flourishing the economy, particularly
during prevailing crisis because their major target is directed towards productive
investments".
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This concept is also supported by the fact that there are major Western (European)
financial institutions started to adopt, in some of their portfolios, the Islamic banking
system to name, but not limited to, Swiss Banks Union, Kleinwort Nation. Islamic banks
are operational in London, Luxemburg and Switzerland. It is anticipated that Amana
Islamic Fund in USA get approval to establish an Islamic bank. Approval has been given
to establish the first Islamic bank in the Ninkshia district in China.
A report anticipates that Dubai Financial Center plays a primary role in the growth and
development of the Islamic banking industry in the forthcoming years. A report made by
the Information Center of Abu Dhabi Chamber of Commerce & Industry indicates that
the Islamic Banks sector in the UAE is remarkably growing and also that Dubai Financial
Center promotes the Islamic banking solutions. Not to forget taking in consideration that
Dubai is working to establish itself as a regional center and a base for Islamic banking
industry and the financial environment.
The report adds that the framework and the financial support in Dubai International
Financial Center plays a primary role in establishing the environment that leads to the
development and growth of creative financial methods. (Middle East – Arab International
Newspaper, issue 10402 22 July 2007.)
Islamic Economic System Philosophy:
The philosophy of the Islamic economic system stands on the base of increasing the
efficiency of capital markets since it creates a sort of balance among production factors.
Additionally, Islamic banks function on the base of participation and interaction between
the capital and work according to the Islamic speculation system or partnership leading to
full possession, as this cooperation between capital and effort has its social, humanitarian
and investment benefits as related to moving capital and its flow among various projects
and urging others to work.
Islamic economy cares about activating its role in the production process. It has its role in
the development of Islamic countries bearing in mind that Islamic banks replacing with its
system the usurious loans operate in its majority in economically underdeveloped
countries. This puts a heavy burden on their shoulders for employing the Islamic system
to rescue these countries from retardation and dependence into progress and growth.
Islamic banks work on extending their customer sector base and pay attention to free
profession owners, handicraftsmen and small merchants. As their functions are based on
participation leading to full ownership through financing minor and intermediate projects.
Additionally, Islamic financial system rationalizes the production costs to make enticing
profits, which result in increased buying power of the money, thereby fighting inflation,
and disseminates income and wealth among community members, contrary to the
traditional economic system, which transfers wealth to one side of the community.
Islamic financial system opens wide horizons for economic thought in the world and
rescue from exploitation, domination, extortion and extraction of wealth and capital by
economic plans.
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Islamic banks take in consideration the investment of their own monies and those
deposited by others for making 'permissible' profit, common benefit to the society and
financing projects.
The bank accepts money because of 'speculation contract' which means sharing profit
between capital and work. This contract is signed between investors (investment account
owners) and the bank "speculator" who announces the general acceptance of those monies
for the purpose of investing them and sharing the profit in accordance with the contract
conditions while the loss to be borne by the capital owner unless, in certain cases, when
the bank intentionally commits a mistake (the speculator or investor) or deviating from the
contract conditions. In such cases the bank bears the consequences.
Profit distribution in accordance with the contract with the investor is as follows:
-
-
The bank, being a speculator or investor, manages the investment of others'
monies against a set percentage of the profit materialized from the investment.
This profit becomes due to the bank only if a profit is gained, otherwise, if no
profit is gained, the bank loses its efforts and the investor loses the lost money.
The bank also performs management of others' investments against a fixed
amount or a percentage of the invested amount on the basis of "Agency Contract
with pay". The agreed amount becomes due in either cases, profit or loss.
(Accounting Concepts of Islamic Financial Institutions, paragraphs 8–10.
From the above it becomes obvious that Islamic banking has a philosophy completely
different from the traditional banks philosophy, as these banks trade in money by selling
and buying credit and making gains from the differences. They are based on usury, not on
dealing with commodities or services, except current banking services free from any risks.
Islamic banks abide by the role of money, which is meant to facilitate the flow of
commodities and services and avoid usury in both directions. Instead they perform
partnership in monies (capital companies) or effort with capital (Sharia speculation) since
from Sharia point of view profit may not become due without money (such as exchanges
and capital companies) or effort (such as leasing, manufacturing companies or speculation)
or security.
Part of the philosophy of Islamic banking is the expectation and bearing of risks while
working hard to decrease them, while traditional banks do not take any risks, but only take
benefit secured transactions in accordance with the origin and nature. Force Maejeure
cannot be considered as risks. All risks are put on the borrowers shoulder enforcing a
benefit from the loan. Borrower is obliged to settle the loan amount in spite of any
circumstances, failing which the bank confiscates the bond as a profit irrespective of the
outcomes of the business of the borrower.
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Chile and Foreign Investment:
An Example in the Latin American Context
By:
Roberto Guerrero V.
Professor of Corporate Law
Pontificia Universidad Católica de Chile
School of Law
The relationship between Latin America and foreign investment has been difficult.
We are not only famous for the Calvo doctrine. We are also famous for the adequate
standard of compensation of the 1930s, and for “el No de Tokyo” to which our
governments greeted the ICSID Convention in the 1960s. We are famous, as well, for the
espousal of the principle of permanent sovereignty over natural resources and the new
international economic order during the 1960s and 1970s. Things changed, however, a
couple of decades ago. International politics and economics were overtaken at the end of
the 20th century by liberal, free-market policies. In this context, Latin American
governments, traditionally reluctant towards foreign investment, enacted domestic statutes,
concluded treaties to promote and protect it, and ratified the ICSID Convention. Chile is
one of these countries. And this is its story in brief.
While our country was part of the Spanish empire, trade was restricted to the
metropolis and its colonies. After our independence in the 1810s, the new republican
government opened Chile to international trade and foreign investment. Both policies
survived up to the 1930s, when restrictions on trade and investment began to emerge
progressively in Chilean law. The Andean Pact and its Decision 24 crowned this process in
the early 1970s. Decision 24 imposed screening procedures and other controls on foreign
direct investment and technology transfer on its members, one of which was Chile. Decree
Law Nr. 600 changed all this. Enacted in 1974, this statute opened our country to foreign
investment once again. It also meant our withdrawal from the Andean Pact and its
nationalistic policies, derived from the economic theory of dependency. Later in the 1990s,
Chile was a pioneer among Latin American countries in promoting the negotiation of free
trade and investment agreements with other countries throughout the world. The
conclusion and ratification of bilateral investment treaties (BITs) and free trade agreements
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(FTAs) was one of the main instruments by which this policy of integration with the
globalized world was achieved.
Entering into BITs has also been a way for Chile to protect foreign investors’
rights and to attract foreign investment. Chile became a signatory of the Washington
Convention that created the International Center for Settlement of Investment Disputes
(ICSID) in 1991. Since then, Chile has negotiated a large number of BITs. As of 2006,
Chile had negotiated 51 BITs, 37 of which were in force at that time154.
As is customary in this kind of international agreements, each contracting State
commits itself to provide fair and equitable treatment to investments legally materialized in
its territory by investors of the other contracting State. They also guarantee the principles
of “national treatment” and “most favored nation status”. Moreover, BITs protect private
property rights through the establishment of basic principles and minimum standards in
case of expropriations. Likewise, they guarantee that any expropriation or measure with
similar effect will be adopted in accordance with a law based on public good or national
interest, in a non-discriminatory manner. They state that expropriatory measures must be
accompanied by the provisions of prompt, adequate and effective compensation. Through
BITs, the contracting States guarantee the free transfer of capital, of profits or interest
generated by foreign investments, and, in general any transfer of funds related to
investments. Some restrictions may apply, in accordance with national laws.
BITs and FTAs include mechanisms for the settlement of investment disputes.
These mechanisms are generally similar to one another. They allow the foreign investor to
lodge a claim directly before an international arbitral tribunal. As a consequence, the
foreign investor does not need to wait for the exercise of the right of diplomatic
protection by his state of nationality. Investment arbitrations under BITs and FTAs are
normally settled through the procedure set-up by the ICSID Convention or the
UNCITRAL Arbitration Rules. Chile or Chileans have been involved in seven ICSID
arbitrations, so far. Víctor Pey is one of the oldest arbitrations under ICSID and is still
pending. MTD was settled in 2004. Our government was found responsible in it for
breaching the Chile-Malaysia BIT. Lucchetti, on the other hand, referred to a Chilean
investor in Perú. The panel in this case concluded that it lacked jurisdiction. No decision
on the merits was awarded, therefore. Enersis, Metalplar, and Química e Industrial del Borax
also refer to Chilean investors abroad and are all pending before ICSID tribunals. Sociedad
Anónima Eduardo Vieira involved our state and was recently settled. The panel concluded
that it had no jurisdiction under the applicable BIT.
The protection provided by these agreements applies both to investments made
after the agreement comes into force as well as to those made before that date. These
BITs, however, do not apply to disputes which arise prior to their entry into force or to
disputes directly related to events which occurred prior to their entry into force.
Also, Chile has also entered into a number of free trade agreements which usually
contemplate provisions in protection of foreign investment, even though these agreements
are mainly focused on trade issues.
154
Source: Chile Foreign Investment Committee
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As a matter on internal law, the Political Constitution of the Republic of Chile of
1980 (the “Chilean Constitution”) provides for clear, non-discriminatory and nondiscretionary rules. According to the Chilean Constitution, no authority may have other
attributions than those stated in the Chilean Constitution or in the law. Moreover, It grants
a number of civil rights to “all the persons”, without distinction as to whether they are
Chilean or foreigners. This way, foreigners have the same rights than Chilean citizens. The
Chilean Constitution also provides a strong protection to private property and to the right
to develop any economic activity that is not against moral, public order or national
security. It also states that the Chilean state cannot arbitrarily discriminate anybody in
economic matters. Any person has a constitutional action against any act that threatens or
violates any of these rights. This is a special action that may be filed in an Appellate Court
and that must be solved in an especially short term.
According to Chilean law, contained in different statutes and in constitutional
principles, foreign investors in Chile can own up to 100% of a Chilean-based company,
and there is no time limit on property rights. They also have access to all productive
activities and sectors of the economy, except for a few restrictions in areas that include
coastal trade, air transport and the mass media. The State has a very minor productive role
in Chile. Only a few strategic activities –such as exploration and exploitation of lithium,
liquid and gaseous hydrocarbons deposits in coastal waters under national jurisdiction or
located in areas classified as important to national security, and the production of nuclear
energy– are restricted to the State. However, under certain circumstances, foreign
companies can invest even in these sectors.
For purposes of materializing their investments in Chile, foreign investors may
choose to submit themselves to the so called Foreign Investment Statute (Decree Law 600
of 1974 or “D.L. 600”) or to make the investment under the rules of Chapter XIV of the
Central Bank's Compendium of Foreign Exchange Regulations. More than 81% of
materialized foreign investment between 1990 and 2004 entered the country through D.L.
600, for a total of US$ 53.6 billion155. Based on constitutional principles, the Foreign
Investment Statute guarantees non-discriminatory and non-discretionary treatment of
foreign investors.
D.L. 600 is a very simple piece of legislation based on two principles: non
discriminatory treatment to foreign investors and free access to various markets and
economic sectors. D.L. 600 establishes certain rights and obligations of the investor, which
are evidenced in a foreign investment contract executed among the foreign investor and
the State of Chile in the form of a public deed. The State of Chile cannot unilaterally
modify the content of the contract, accordingly called “Contract Law”, through which the
investor gets the maximum reassurance of fixed rules during its investment in Chile.
Investors may, at any time, request the amendment of the contract to change its purpose
or assign its rights to another foreign investor.
Among other rights, such contract guarantees:
a) the right to bring capital into Chile in different forms including goods and
technology.
155
Source: Chilean Foreign Investment Committee.
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b) the right to repatriate invested capital after one year from the date in which it
was brought into Chile, with the proceeds of the total or partial sale or
liquidation of the investment. (Note: Once all relevant income taxes have been
paid, investors are assured access to freely convertible foreign currency without
any limits on the amount, for both capital and profit remittances);
c) the right to remit or reinvest profits, when obtained, at any time and without
any limit;
d) the right to acquire foreign currency in the Formal Exchange Market (see
Foreign Exchange Aspects) in order to repatriate profits and capital; and
e) an optional fixed general income tax rate, in the terms discussed under “General
Tax Aspects”, hereafter.
Chile was the first country to call for a new international economic order in the
1950s. Today, it is active member of the old order that prevailed. The days when foreign
investment was seen with suspicious by our governments are long gone. As in the other
areas of the law of nations, Chile is now completely re-integrated to the international
society.
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Dispute Resolution
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PROBLEMS WITH ARBITRATION IN THE USA156
By:
Joseph L. Daly
Professor of Law
Hamline University School of Law
St. Paul, MN 55104 USA
© 2008
A.
Adhesive Nature of the Contract
Arbitration has advanced dramatically since 1925 when the US Congress passed
the Federal Arbitration Act. It has now advanced to the point where some contracts
contain arbitration provisions for which the parties did not really negotiate. These
contracts are “take it or leave it.” For example, credit card companies, including Visa,
Master Card, and Discover Card, now have arbitration clauses in their member agreements
specifying arbitration as the mechanism to resolve any claim or dispute that arises; neither
party has the right to litigate the claim in court.157 Consumers have challenged such
adhesion arbitration clauses, arguing that they had no choice but to accept the clause since
virtually all credit card company agreements contain arbitration clauses.158 And the courts
have refused to call these contracts of adhesion.
Arbitration clauses are increasingly included in employment contracts. Employees
may not realize they are waiving their right to a trial by signing the agreement. When an
offer of employment is conditioned upon the signing the employment contract with
contains an arbitration agreement, the employee may have no choice but to sign if he/she
really wants the job. Most courts will say this is not a contract of adhesion, even though it
can be argued the clause is the very definition of “adhesion contract”.159
B.
The Problem of Neutrality
156
This article was adapted from an article written by Joseph L. Daly, “Artbitration: The
Basics,” 5 The Journal of American Arbitration 1(2006). The concept for Problems with Arbitration
came from an article written by Scott Atlas, Chair of the Section of Litigation of the American Bar
Association. See Scott Atlas, Have You Ever Tried to Make Up Your Mind – About Arbitration?, 29 NO.
1 LITIGATION 1 (Fall 2002).
157
See Discover Card, Discover Platinum Card Important Information, at
https://www.novusnet.com/acqs/stdapp/req?cmd=impInfoDefault&cardType=PLAT (2005).
The Cardmember Agreement provides that we may choose to resolve a claim relating
to your Account by binding arbitration, in which case, you will not have the right to
have that claim resolved by a judge or jury. You may reject the arbitration provision
with respect to your new Account within 30 days after receiving your Card.
Id.
158
Nefores v. Branddirect Marketing, Inc., 2002 WL 31057387, 7 (Ohio Ct. App. 2002).
Cardmember argued that “the subject arbitration clause is unenforceable since ‘one-sided arbitration
clauses forced on the consumer via an adhesion contract are unenforceable in Ohio as against public
policy.’” Id.
159
Adkins v. Labor Ready, Inc., 303 F.3d 496, (4th Cir. 2002) (citing Circuit City Stores, Inc. v.
Adams, 532 U.S. 105 (2001)). Many commentators argue that employees should have the choice to
arbitrate after a dispute has arisen. The assumption that post-dispute arbitration agreements are better for
employees assumes that the employer would agree to arbitrate at that point. However, once a dispute has
arisen, the employer may often see a tactical benefit from litigating the claim. For example, if an
employer knows that an employee does not have a large enough claim to retain an attorney, the employer
will not agree to arbitrate. Lewis Maltby, Private Justice: Employment Arbitration and Civil Rights, 30
Colum. Hum. Rts. L. Rev. 29, 43 (1998).
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The neutrality of the arbitration proceeding is a concern. The manner in which
arbitrators are chosen; the potential for bias on the part of a party-appointed arbitrator;
institutional bias; the “repeat player effect”; and the potential for bias of arbitrators who sit
on permanent panels are all situations which can affect the neutrality of an arbitrator. The
U.S. Supreme Court stated “any tribunal permitted by law to try cases and controversies
not only must be unbiased but also must avoid even the appearance of bias.”160 An
unbiased arbitrator is critical for a fair arbitration, especially because an arbitrator’s
decision is subject to limited review.161
First, there is concern that the arbitrators on an agency list are not chosen by a
balanced neutral process.162 The choice of an arbitrator from a pool is meaningless if the
system of choosing arbitrators for the pool is biased.163 How does someone get on an
agency’s list of approved arbitrators? Is diversity part of the mix?
Second, arbitration proceedings involving party-appointed arbitrators can raise
questions of neutrality of the proceeding. A party-appointed arbitrator may feel obligated
to the party who chose him/her. The arbitrator may be closely allied to the industry by
experience and training. 164 Yet this “industry bias” is permissible bias under the AAA
rule.165 Parties might favor experience in an industry over impartiality, "[F]amiliarity with a
discipline often comes at the expense of complete impartiality."166
A third concern involves institutional bias. Institutional bias refers to a “tendency
for arbitration outcomes to favor one class of participants over another.”167 Institutional
bias is alleged in internet domain name arbitration and in securities arbitration.168
Institutional bias can occur because of the “repeat player effect.” Evidence shows that an
arbitrator may render a decision in favor of an institutional client because the arbitrator
160
Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 150 (1968).
Lewis Maltby, Paradise Lost – How the Gilmer Court Lost the Opportunity for Alternative
Dispute Resolution to Improve Civil Rights, 12 N.Y.L. Sch. J. Hum. Rts. 1, 18 (1994).
162
Id. at 21 (stating that “[b]efore a court can legitimately defer to the decision of an arbitrator,
it must know that the pool from which the arbitrator was chosen was not biased”).
163
Id.
164
Robert D. Taichert, Why Not Provide for Neutral Party-appointed Arbitrators?, 57-JAN
DISP. RESOL. J. 22 (Nov. 2002– Jan. 2003).
165
AAA, Code of Ethics, at Cannon X (A)(1), cited in Sunkist Soft Drinks, Inc. v. Sunkist
Growers, Inc., 10 F.3d 753, 759-60 (11th Cir. 1993). The AAA Code of Ethics provides that “arbitrators
may be predisposed toward the party who appointed them but in all other respects are obligated to act in
good faith and with integrity and fairness.” Id.
166
Morelite Construction Corp. v. New York City Dist. Council Carpenters Benefit Funds, 748
F.2d 79, 83 (2d Cir. 1984)
167
Roger J. Perlstadt, Timing of Institutional Bias Challenges to Arbitration, 69 U. CHI. L. REV.
1983, 1985-86 (Fall 2002).
168
Id. The Internet Corporation for Assigned Names and Numbers (ICANN) deals with
disputes over domain names. Id. Under ICANN’s dispute resolution policy, trademark holders may
institute a claim against a person who has registered a domain name (the registrant may not bring a claim
against a trademark holder). Id. Because only four arbitration companies can administer ICANN
disputes, the companies have an incentive to find for the trademark holder to secure their repeat business.
Id. According to two studies, trademark holders prevail approximately 60% of the time in front of a
panel of arbitrators and 83% of the time before a single arbitrator who was chosen by the arbitration
provider. Id. at 1987. The securities arbitration system is often criticized, because the majority of the
arbitrators are older, white men who are former securities industry executives; however, in spite of this
criticism, there is some evidence that employees in securities arbitration fare better than in litigation.
Maltby, Private Justice: Employment Arbitration and Civil Rights, supra note 4, at 50.
161
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wants to repeat business from the client.169 In employment cases, the employer may
arbitrate many claims, often using the same arbitrator.170 On the other hand, the employee
is not likely to need the services of this or any other arbitrator after the resolution of the
claim.171
Fourth, there is concern that an arbitrator who sits on a permanent panel is less
likely to be impartial. In labor disputes between an employer and a union a permanent
arbitrator may unconsciously or consciously keep the number of decisions balanced so
neither the employer nor the union wins too often. The arbitrator may want to keep the
decisions balanced for fear of being removed from the panel by the union or the employer.
An arbitrator on a permanent panel becomes quite familiar with the advocates.
Until recently arbitrators have rarely been removed for bias. Partiality of the
arbitrator is a more recent basis to challenge an arbitration award.172 A court can vacate an
award if the arbitrator has had substantial past communications with one of the parties, or
fails to disclose past dealings which may present a conflict of interest.173 But, failure to
disclose a conflict will not necessarily result in the vacatur of an arbitral award on the basis
of evident partiality.174 U.S. Supreme Court Justice White cautioned courts to “minimize
169
Stuart H. Bompey, Michael Delikat, & Lisa K. McClelland, The Attack on Arbitration and
Mediation of Employment Disputes, 13 LAB. LAW. 21, 37 (Summer 1997). See Lisa B. Bingham, On
Repeat Players, Adhesive Contracts, and the Use of Statistics in the Judicial Review of Employment
Arbitration Awards, 29 MCGEORGE L. REV. 223, 234 (1998). According to one study of 270 arbitration
awards, employees bringing claims against one-time player employers win over 70% of the time. Id.
When employees bring claims against repeat player employers, the win rate drops to 16%. Id. In
addition, in repeat player arbitrations, plaintiffs recovered approximately 11% of the amount demanded.
Id. In non-repeat player arbitration, the amount recovered was 48% of the amount demanded. Id.
170
See Samuel Estreicher, Predispute Agreements to Arbitrate Statutory Employment Claims, 72
N.Y.U. L. REV. 1344, 1355 (1997). It has been suggested that the lawyers for both plaintiff and
defendant are the true “repeat players” rather than the employers themselves.
171
Alternative explanations other than bias exist to explain the repeat player effect. For
example, it is possible that cases that go to mandatory arbitration have little merit, because employers
settle stronger claims earlier. Lisa B. Bingham, Self-determination in Dispute System Design and
Employment Arbitration, 56 U. Miami L. Rev. 873, 900 (2002). Repeat players enjoy a number of
advantages over non-repeat players: “(1) experience leading to changes in how the repeat player
structures the next similar transaction; (2) expertise, economies of scale, and access to specialist
advocates; (3) informal continuing relationships with institutional incumbents; (4) reputation and
credibility in bargaining; (5) long-term strategies facilitating risk-taking in appropriate cases; (6)
influence over rules through lobbying and other use of resources; (7) playing for precedent and favorable
future rules; (8) distinguishing symbolic and actual defeats; and (9) resources invested in getting rules
favorable to them implemented.” Bingham, supra note 169, at 223.
172
Lee Korland, What an Arbitrator Should Investigate and Disclose: Proposing a New Test for
Evident Partiality Under the Federal Arbitration Act, 53 CASE W. RES. L. REV. 815 (Spring 2003).
However, the Federal Arbitration Act does not establish guidelines for determining if there is a conflict,
so guidelines are distilled from case law and the recommendations of various organizations. Id. at 821.
For example, the American Bar Association’s Code of Ethics for Arbitrators in Commercial Disputes
provides that an arbitrator must reveal any “‘financial or personal interest in the outcome of the
arbitration,’ as well as business, professional, familiar, or social relationships with any party, counsel, or
witness that might impugn their own impartiality.” Id. at 822.
173
Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 150 (1968)
(holding that it is improper “to authorize litigants to submit their cases and controversies to arbitration
boards that might reasonably be thought biased against one litigant and favorable to another”).
174
Korland, supra note 172, at 821-822. In ANR Coal v. Cogentrix of North Carolina, Inc., the
Fourth Circuit set fourth four factors to consider when an arbitrator fails to disclose a potential conflict of
interest: “(1) the extent and character of the personal interest, pecuniary or otherwise, of the arbitrator in
the proceeding; (2) the directness of the relationship between the arbitrator and the party he is alleged to
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[their] role... as judge of the arbitrators' impartiality. . . . That role is best consigned to the
parties, who are the architects of their own arbitration process, and are far better informed
of the prevailing ethical standards and reputations within their business.”175 The AAA has
become so concerned with potential conflicts of interest that it requires a detailed check
sheet and cautions if there is an allegation of conflict of interest the arbitrator will be
removed from the list of arbitrators until the matter is settled.176
C.
Limited Discovery for Even Complex Cases
The arbitration process limits discovery. One of the key objectives of arbitration is
to avoid the complex procedures and costly and time consuming discovery which seems
part of even the most ordinary of U.S. lawsuits. “[A]s a general rule”, said a Colorado
court, “discovery as to arbitrable disputes is denied except upon a showing of need.”177
The Court went on to say that discovery may be permitted “where the taking of discovery
would not unnecessarily delay the arbitration proceedings and the plaintiff could obtain
evidence to prove its case to the arbitrators that was otherwise unavailable.”178 In complex
commercial and international arbitration cases there may be more than minimal discovery
necessary, but the extent of discovery is still limited and not as expansive as U.S. court
litigation would allow.179 Arbitrators are not inclined to grant extensive discovery even
when the advocates think it may be necessary.180 Extensive discovery is contrary to the
“quick, efficient, economical and fair” objectives of the arbitration process. Some
arbitrators see discovery as inimical to the very reason for arbitration. The parties can
favor; (3) the connection of that relationship to the arbitration; and (4) the proximity in time between the
relationship and the arbitration proceeding.” Id. at 828 (citing ANR Coal v. Cogentrix of North Carolina,
Inc., 172 F.3d 493, 500 (4th Cir. 1999)). Rule 16 of the AAA’s Commercial Arbitration Rules provide:
(a) Any person appointed or to be appointed as an arbitrator shall disclose to the AAA
any circumstance likely to give rise to justifiable doubt as to the arbitrator’s
impartiality or independence, including any bias or any financial or personal interest in
the result of the arbitration or any past or present relationship with the parties or their
representatives. Such obligation shall remain in effect throughout the arbitration.
(b) Upon receipt of such information from the arbitrator or another source, the AAA
shall communicate the information to the parties and, if it deems it appropriate to do
so, to the arbitrator and others.
(c) In order to encourage disclosure by arbitrators, disclosure of information pursuant
to this Section R-16 is not to be construed as an indication that the arbitrator considers
that the disclosed circumstance is likely to affect impartiality or independence.”
Id. (citing American Arbitration Association, Commercial Arbitration Rules and Mediation
Procedures, Rule 16 Disclosure, at http://www.adr.org/sp.asp?id=22440 (July 1, 2003).
175
Commonwealth Coatings Corp., 393 U.S. at 151 (White, J. concurring).
176
AAA, Code of Ethics, at Cannon II. AAA Rules, at R-17, 18.
177
Block 175 Corp. v. Fairmont Hotel Management Co., 648 F. Supp. 450, 453 (D. Colo. 1986).
178
Id.
179
AAA Rules, at L-2(c). “The parties may conduct such discovery as may be agreed to by all
the parties provided, however, that the arbitrator(s) may place such limitations on the conduct of such
discovery as the arbitrator(s) shall deem appropriate. If the parties cannot agree on production of
documents and other information, the arbitrator(s), consistent with the expedited nature of arbitration,
may establish the extent of the discovery.” Id.
180
See Maltby, Private Justice: Employment Arbitration and Civil Rights, supra note 6, at 33.
In an employment discrimination claim, limited discovery is more likely to hurt the plaintiff-employee
than the employer. Id. The plaintiff carries the burden of proof, and the employer is likely to have
information that the employee cannot easily get access to. Id. The employer maintains employee records
and has access to other employees who may be witnesses. Id.
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include in the arbitration clause language which permits extensive or limited pre-arbitration
discovery. Such language will be binding on the parties.181
D.
Process Too Complicated, Too Slow, Too Expensive
As the use of arbitration has increased, the process has become more complicated,
legalistic, expensive and slow.182 The complexity of the arbitration procedure has
increased. Rules have developed almost like rules of civil procedure. The process can be
much too slow. The Federal Mediation and Conciliation Services (FMCS) reported that in
2007, 385.27 days was the average time for an arbitration to reach resolution once a
grievance was filed.183 The arbitration hearing itself averaged 317.14 days from panel
request to final award.184 This may be faster than getting to trial, but not that much faster
in many states.185
The arbitration process can be too expensive. One of the often cited benefits of
arbitration is that it saves money.186 Yet, there is no scientific evidence to prove that
litigation is actually more costly than arbitration.187 Arbitrators in large commercial
disputes and important labor disputes are well paid. It is not unusual for well-known
arbitrators in the United States to charge two to three thousand dollars per day.188
International arbitrators charge fees in excess of their domestic counterparts.189 The
181
See Champ v. Siegel Trading Co., 55 F.3d 269, 274 (7th Cir. 1955) (holding that the court
“must rigorously enforce the parties’ agreement as they wrote it”).
182
See Frank E. Massengale and Karen Kaler Whitfield, Arbitration: Be Careful What You Wish
For, 44 La. B.J. 120, 121 (1996). See also Alain Frécon, Delaying Tactics in Arbitration, 59 Disp. Resol.
J. 40 (2004).
183
Federal Mediation and Conciliation Service, Arbitration Statistics Fiscal Year 2007, at
http://www.fmcs.gov/internet/itemDetail.asp?categoryID=196&itemID=21224 (January 2, 2008).
184
Federal Mediation and Conciliation Service, Arbitration Statistics Fiscal Year 2004, at
http://www.fmcs.gov/assets/files/AverageDays.doc (Oct. 5, 2004).
185
U.S. District Court for the District of Minnesota, Rules of Procedure for Expedited Trials
(effective July 2, 2001), at http://www.mnd.uscourts.gov/ (2005) (expedited trial rule is separate from
U.S. District Court for the District of Minnesota Local Rules L-1 thru L-83 (effective May 16, 2005)).
186
Bompey, Delikat, & McClelland, supra note 169, at 34.
187
Elizabeth Hill, Due Process at Low Cost: An Empirical Study of Employment Arbitration
Under the Auspices of the American Arbitration Association, 18 OHIO ST. J. ON DISP. RESOL. 777, 784
(2003).
188
Richard M. Alderman, Pre-dispute Mandatory Arbitration In Consumer Contracts: A Call
for Reform, 38 Hous. L. Rev. 1237, 1250 n. 53 (2001).
189
See ICC Rules, Appendix III B. In the following table one can see that an arbitrator handling a $100
million case for the ICC would be compensated between $61,750 and $285,800. Id.
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nature and complexity of disputes submitted to arbitration have increased. The costs of
arbitrating highly complex claims are similar to the costs of litigation.190 Yet, in favor of
arbitration it is said "[a]daptability and access to expertise are hallmarks of arbitration".
Maybe for these reasons, arbitration today is favored.191
E.
Non-Lawyer Oriented
The arbitration process uses both lawyer and non-lawyer arbitrators and advocates.
In labor arbitration, it is not unusual for a non-lawyer, business representative to act as the
advocate in a grievance arbitration hearing. Because of business expertise, business
experts are chosen as arbitrators. The AAA rules do not require an arbitrator to have a
legal background. “They are experts in their own fields, they are known for their good
judgment, they are respected for their fairness, and they are honored for putting time and
talent at the disposal of others without thought of personal gain.”192
But, non-lawyer arbitrators may lack the legal knowledge to deal with the dispute
and the procedural knowledge needed to run a fair hearing. The United States Supreme
Court recognized that “the specialized competence of arbitrators pertains primarily to the
law of the shop, not the law of the land.”193 The various arbitration agencies maintain lists
of arbitrators who have both legal and procedural knowledge. It is possible for even an
experienced arbitrator, especially a non-law trained arbitrator, to lack the specific legal
knowledge involved in the conflict.
The consequences of an arbitrator’s lack of legal knowledge can have serious
consequences in cases that implicate important institutional and legal matters such as Civil
190
Kelly Burton Beam, Administering Last Rites to Employee Rights: Arbitration Enforcement
and Employment Law in the Twenty-first Century, 40 HOUSTON L. REV. 499, 530 (Spring 2003)
191
Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985).
192
American Arbitration Association, A Guide for Commercial Arbitrators, at
http://www.adr.org/sp.asp?id=22016 (2004).
193
Alexander v. Gardner-Denver Co., 415 U.S. 36, 57 (1974).
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Rights, Antitrust, RICO, intellectual property, tax disputes, etc.194 Yet such disputes can
be heard by lawyer and non-lawyer arbitrators. In these cases, the arbitrator may have to
take into account the law and social policy. Application of legal and public policy
considerations may be particularly problematic for an arbitrator who has not received legal
training.
F.
Arbitrability of Statutory Rights
Some argue that disputes which implicate a party’s statutory rights should be dealt
with only by courts and not by arbitrators, especially non-lawyer arbitrators.195 Yet, the
US Supreme Court has repeatedly held that such disputes -even thought they involve a
party’s statutory rights - are arbitrable.196 The important question becomes whether an
arbitrator should examine the law before making the decision or whether an arbitrator
should strictly interpret the “four corners” of the contract without regard to statutory law.
The question frequently arises in employment dispute cases because many employment
disputes involve civil rights, such as racial discrimination, disability discrimination, or age
discrimination. In an employment arbitration, the arbitrator is often required to deal with
socially sensitive areas where Congress has enacted specific laws.
Critics of arbitration argue that arbitration is not the appropriate forum for dealing
with these sorts of conflicts. The critics contend arbitration of such disputes hinders the
development of the law, that arbitration will affect the Equal Employment Opportunity
Commission’s ability to enforce the law;197 that arbitration is too expensive; and that
arbitration does not have sufficient procedural safeguards to allow effective vindication of
194
Thomas Carbonneau, Cases and Materials on the Law and Practice of Arbitration 49, 2445246 (ver. 3.d ed. 2003) See Shearson/American Express v. McMahon, 482 U.S. 220 (1987)(holding
disputes under the Securities Exchange Act of 1934, and the Racketeer Influenced and Corrupt
Organizations Act (RICO) are arbitrable); Cole v. Burns Int’l Security Services, 105 F.3d 1465 (D.C.
Cir. 1996)(dismissing complaint under Title VII of the Civil Rights Act of 1964 and compelling
arbitration).
195
Thomas E. Carbonneau, Arbitral Justice: The Demise of Due Process in American Law, 70 Tul. L.
Rev. 1945, 1958 (1996):
The Court's unbridled support for arbitration is at once surprising and
unnecessary. The Court's willingness to curtail major constitutional and political
interests--such as states' rights and federalism, civil rights, federal regulatory authority
over the marketplace, and generally, due process guarantees--to bolster arbitration
benefits neither the legal culture nor, in the long run, the institution of arbitration itself.
In addition, the quality of the Court's reasoning in these cases detracts from the
credibility of the announced doctrine. To have the highest court in a legal system
dominated by the technicalities of legal procedure state that arbitration is a "mere form
of trial" that does not affect the content of the statutory rights submitted to arbitration,
is incredible and preposterous. Foreign and even domestic arbitrators will view legal
claims arising under U.S. statutes differently than federal judges and will conduct
hearings in a different fashion.
Id.
196
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (holding that claims under
the Age Discrimination in Employment Act are arbitrable); Rodriguez de Quijas v. Shearson/American
Express, Inc., 490 U.S. 477, 483 (1989) (holding that claims under the Securities Act of 1933 are
arbitrable).
197
See EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) (holding that while employee was
compelled arbitrate, EEOC was not barred from pursuing enforcement action and victim specific relief
on behalf of employee).
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such claims.198 Opponents of arbitration argue that some mandatory pre-dispute
agreements are inherently unconscionable because there is unequal bargaining power
between the parties.199 Even the critics do not oppose agreements to arbitrate employment
disputes after the dispute [post-dispute] has arisen.200
The US Supreme Court has held that statutory rights are arbitrable. The Court
stated that arbitrators can, and should if the contract demands, apply substantive law in
disputes that deal with statutory rights.201 In Gilmer, the Court said “by agreeing to
arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the
statute; it only submits to their resolution in an arbitral, rather than a judicial forum.”202
The Gilmer court held, “[a]lthough all statutory claims may not be appropriate for
arbitration, ‘[h]aving made the bargain to arbitrate, the party should be held to it unless
Congress itself has evinced an intention to preclude a waiver of judicial remedies for the
statutory rights at issue.’”203
G.
Lack of Transparency
If arbitration involves a socially sensitive area, should the arbitration be open to
the public?204 An arbitration hearing is closed, open only to parties, advocates and
198
David Sherwyn, Because It Takes Two: Why Post-Dispute Voluntary Arbitration Programs
Will Fail to Fix the Problems Associated with Employment Discrimination Law Adjudication, 24
BERKELEY J. EMP. & LAB. L. 1, 22 (2003). Despite criticism that arbitration will affect the EEOC’s
ability to enforce laws against discrimination, employees can file a claim with the EEOC even when they
are forced to arbitrate their claims. Id. at 24. The EEOC can still litigate on behalf of an employee, and
the employees can be awarded all statutory remedies. Id. It should also be noted that the EEOC has
taken the position that employees bringing Title VII claims should not be subject to mandatory predispute arbitration agreements. Id. at 5 (citing EEOC Notice No. 915.002 (July 10, 1997)).
199
Samuel Estreicher, Predispute Agreements to Arbitrate Statutory Employment Claims, 72
N.Y.U. L. REV. 1344, 1353 (1997).
200
Id. at 1344. If employees could choose whether they wished to engage in arbitration,
employers would be forced to either design a fair arbitral scheme or litigate all claims brought against
them. Maltby, Private Justice: Employment Arbitration and Civil Rights, supra note 6, at 37.
201
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). It should be noted,
however, that a party does forfeit certain procedural rights by agreeing to submit a dispute to arbitration.
Employees who are forced to arbitrate their claims give up right to a jury trial. Maltby, Private Justice:
Employment Arbitration and Civil Rights, supra note 6, at 37. The right to a trial by jury is such an
important right that many argue that employees should not be forced to waive it as a condition of
employment. Id. However, a trial is not a reality for most employees. Id. at 57. A plaintiff must have
approximately $60,000 in provable damages before a lawyer will accept the case on a contingency basis.
Id. In addition, many attorneys charge a retainer of about $3,000 and require the plaintiff to pay all out
of pocket expenses (estimated between $10,000 and $25,000) as they occur. Id. Approximately 95% of
employees who seek legal representation for an employment discrimination claim are not able to retain
legal counsel. Id. at 58. Due process may also be compromised when the employer has the ability to
choose the only arbitrator. Id. at 33. In 1994, the American Bar Association developed a due process
protocol for arbitration which has been adopted by the AAA and JAMS/Endispute. Id. at 39. The
American Civil Liberties Union, National Employment Lawyer's Association, and the AFL-CIO were
involved in the development of the protocol. Id. A fair arbitration process includes: “(a) a neutral and
unbiased arbitrator; (b) right of the employee to an equal role in selecting the arbitrator; (c) right to
counsel; (d) right to reasonable discovery; (e) identical remedies to those available in court; and (f) a
written opinion.” Id.
202
Gilmer, 500 U.S. at 26 (quoting Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 628 (1985)).
203
Id.
204
Maltby, Private Justice: Employment Arbitration and Civil Rights, supra note 6, at 42-43.
When employers know that an arbitration proceeding will remain private, they have less incentive to
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witnesses except by agreement of the parties that it be open to the public. Arbitration
matters are not transparent. But this can be a problem. A particular arbitration decision
might have a dramatic impact on society. Lack of transparency can mean a decision is
made where the pubic is affected but the public does not know about the decison because
it is confidential.
H.
Arbitrator’s Lack of Power and Control
In some respects, arbitrators lack the power and control needed to carry on an
effective adversarial proceeding. The arbitrator has no authority to impose fines or
sanctions on an advocate, as a judge does under Rule 11 of Civil Procedure.205 The filing of
frivolous cases, bad behavior or unethical actions by an advocate are not sanctionable by
the arbitrator.
An arbitrator lacks the power to compel a person to comply with a decision or a
subpoena.206 The arbitrator has no power or authority to order the decision to be
implemented. The arbitrator has no authority to enforce a subpoena. A subpoena or a
decision rendered in an arbitration proceeding is only enforceable in a court of law. “A
right without a remedy is not a legal right; it is merely a hope or a wish."207 Of course, the
parties in their contract can agree to give the arbitrator the power to impose sanctions.
I.
Punitive Damages are Unusual Even when the Facts Warrant
An arbitrator has the power to award equitable remedies.208 “To deny arbitrators
the full range of remedial tools generally available under the law would be to hamstring
arbitrators and to lessen the value and efficiency of arbitration as an alternative method of
dispute resolution.”209
What if one side intentionally and maliciously did something wrong? In a civil
lawsuit, punitive damages might be permitted.210 While punitive damages are legally
permitted in arbitration, arbitrators are hesitant to use them.211 Perhaps arbitrators should
use punitive damages in egregious circumstances. “Punitive damages are damages . . .
awarded against a person to punish him for his outrageous conduct and to deter him and
others like him from similar conduct in the future.”212
change discriminatory policies, because there is not a risk of adverse publicity. Id. However, employees
may also benefit from the privacy aspect of arbitration if the claim involves a sensitive personal matter.
Id.
205
Rule 11 allows a judge to sanction an attorney, law firm or party who bring a lawsuit for
purposes of harassment or who brings a frivolous suit. FED. R. CIV. P. 11.
206
Section 7 of the Federal Arbitration Act grants an arbitrator the power to “summon in writing
any person to attend before them or any of them as a witness and in a proper case to bring with him or
them any book, record, document, or paper”. 9 U.S.C. § 7 (2004).
207
Donald H. Zeigler, Rights Require Remedies: A New Approach to the Enforcement of Rights
in the Federal Courts, 38 HASTINGS L. J. 665, 678 (1987).
208
Willoughby Roofing & Supply Co. v. Kajima International, Inc., (N.D. Ala. 1984), aff'd, 776
F.2d 269 (11th Cir. 1985). See Uniform Arbitration Act § 21 (2000).
209
598 F. Supp. at 362
210
Restatement (Second) of Torts § 908 (2004).
211
Frank Elkouri and Edna A Elkouri, How Arbitration works 307, 1216-1217 (noting that
punitive damages may adversely affect continuing working relationships, or may expose an award to
vacation by the courts if it is believed the arbitrator exceeding his authority by awarding punitive
damages).
212
Restatement (Second) of Torts § 908 (2004). See Mastrobuono v. Shearson Lehman Hutton,
Inc. 514 U.S. 52, 53 (1995) (holding that the “decision in Allied-Bruce, Southland, and Perry make clear
that if contracting parties agree to include claims for punitive damages within the issues to be arbitrated,
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J.
No Better Result Than Litigation
There is no proof that arbitrators’ decisions and awards are superior to judge and
jury awards. Research has shown that employees are more likely to win in arbitration but
that they receive lower awards than if they had won in litigation.213 Some argue the reason
for such a result is the tendency on the part of arbitrators to split the decision, but
empirical study of this phenomenon is scarce and conflicting.214 It may be easier to split
the difference rather than make a principled decision, especially if the arbitrator hopes to
be picked again.215
K.
No Review or Appeal
One of the strengths of arbitration is that, once an arbitrator issues an award, the
decision is final.216 But what if the arbitrator is wrong? Case law has allowed incorrect
factual and incorrect legal analysis by an arbitrator to stand.217 There are limited grounds
for appeal of an arbitration decision.218 The standard for overturning an arbitration award
is very high and difficult for the parties to meet.219 “An arbitrator, in absence of any
the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law
would otherwise exclude such claims from arbitration”). However, if an arbitration agreement or the
rules governing the arbitration require the arbitrator to follow the substantive law, the arbitrator exceeds
his power if he fails to apply the substantive law. As a result, the award may be vacated. Buchele &
Rute, The Changing Face of Arbitration: What Once Was Old Is New Again, 72 J. Kan. B.A. 36, 44
(2003).
213
See Maltby, Private Justice: Employment Arbitration and Civil Rights, supra note 4, at 48,
Table 1. According to one study, employees won 68% of cases submitted to arbitration, but received
only 25% of the amount of damages requested. Id. In litigation, employees won only 14.9% of claims
brought, but prevailing employees received 70% of the relief requested. Id.
214
Christopher R. Drahozal, 67 Law & Contemp. Probs. 105, 114-118 (2004).
215
Alan Scott Rau , Integrity In Private Judging, 38 S. Tex. L. Rev. 485, 523 (1997).
216
Maltby, Paradise Lost – How the Gilmer Court Lost the Opportunity for Alternative Dispute
Resolution to Improve Civil Rights, supra note 6, at 25. Employees are often unable to bear the cost of
litigation. Arbitration is supposed to address this problem “by providing a final decision in an affordable
tribunal.” Id. However, “[t]his solution is diluted if the wealthier party can afford to initiate expensive
judicial review.” Id.
217
See Local Union 59, Int’l Brotherhood of Electrical Workers, AFL-CIO v. Green Corp., 725
F.2d 264, 268 (5 th Cir. 1984). “The promotion of the national policy favoring the resolution of labor
disputes by arbitration eliminates searching judicial review of the factual and legal accuracy of
arbitrators' findings.” Id.
218
See supra notes 41-48 and accompanying text for a discussion on the appealability of an
arbitration decision.
219
9 U.S.C. § 10.
Section 10. Same; vacation; grounds; rehearing
a. In any of the following cases the United States court in and for the district wherein
the award was made may make an order vacating the award upon the application of
any party to the arbitration
1. Where the award was procured by corruption, fraud, or undue means.
2. Where there was evident partiality or corruption in the arbitrators, or either of
them.
3. Where the arbitrators were guilty of misconduct in refusing to postpone the
hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by which the rights of any
party have been prejudiced.
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agreement limiting his authority, is the final judge of both law and fact, including the
interpretation of the terms of any contract, and his award will not be reviewed or set aside
for mistake of either law or fact in absence of fraud, mistake in applying his own theory,
misconduct or other disregard of duty.”220
L.
Is the Process of Arbitration to Achieve a Final Decision or to Seek Truth and
Find Justice?
Justice Marshall proposed that, "the governing principle of a humane society and a
good legal system . . . is to recognize the worth and importance of every person . . . and be
perceived by all the people as providing equal justice."221 Ultimately, what should an
arbitrator do? Is an arbitrator only to interpret the four corners of the contract? Or, is the
arbitrator’s role to find truth and justice? Is the process of arbitration simply a process to
lead to a final decision; or is it a process to seek truth and find justice?
1
Antons, Christoph, “Intellectual Property Law Reform in Indonesia” in Lindsey, Timothy (ed),
Indonesian Law and Society (Sydney: The Federation Press, 1999) at 304
Antons, Christoph, Intellectual Property Law Reform in Indonesia, Paper presented at “Indonesian Law:
The First 50 Years” a Conference held at the Asian Law Centre, the University of Melbourne, 28
September 1995, at 1
2
For comparison, the Indonesian government almost never puts any effort to reform other important
laws, such as: the Civil Code (Burgerlijk Wetboek voor Indonesie 1847), the Criminal Code (Wetboek
van Strafrecht 1915), and the Civil Procedure Code (Het Herziene Indonesisch Reglement 1848, 1941)
that were already enforced since the Dutch colonial rule.
3
See the Presidential Decree No. 17/1988 to ratify the agreement between Indonesia and the EC on
copyright protection in sound recording; Presidential Decree No. 25/1989 to ratify the agreement
between the US and Indonesia on copyright protection in books, sound recording, films, computer
software and other creative works; Presidential Decree No. 38/1993 to ratify the agreement between
Indonesia and Australia on copyright protection; 1993 agreement on copyright protection between
Indonesia and the United Kingdom.
4
See the Act No. 7/1994
4. Where the arbitrators exceeded their powers, or so imperfectly executed them
that a mutual, final, and definite award upon the subject matter submitted was not
made.
5. Where an award is vacated and the time within which the agreement required
the award to be made has not expired the court may, in its discretion, direct a
rehearing by the arbitrators.
Id. For enforcement under international law, reference the requirements of New York Convention.
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V
(1958).
Parties have begun to include provisions in their arbitration agreements that provide for
expanded judicial review of an arbitrator’s award. Both the courts and commentators are divided on
whether such a provision is valid. See Lee Goldman, Contractually Expanded Review of Arbitration
Awards, 8 HARV. NEGOT. L. REV. 171, 174 (2003). Proponents of expanded review argue that since
arbitration is a creature of contract, parties should be able to contract for more expansive grounds for
review. Id. at 175.
220
Ehlert v. W. Nat’l Mut. Ins. Co., 207 N.W.2d 334, 336 (1973) (quoting Cournoyer v. Am.
Television & Radio Co., 83 N.W.2d 409, 411 (1957)).
221
Michael Green, Preempting Justice Through Binding Arbitration of Future Disputes: Mere
Adhesion Contracts or a Tray for the Unwary Consumer, 5 L.YCLR 112 (1993) (citing Mr. Justice
Marshall Lives on in His Words, Nat'l L.J., Feb. 8, 1993, at 8 (Statements by Justice Thurgood Marshall
at the Eighth Conference on the Law of the World, (1977) .
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5
See the US Embassy Press Release November 2006 as cited in the official website of the Indonesian
Embassy in Singapore, http://www.kbrisingapura.com/news_1107_2006_1.php (8 February 2008)
6
Based on the Constitution of the colony, according to first article 109 Regerings Reglement of 1920,
and later article 163 Indische Staatsregeling of 1926, citizens in the Netherlands East Indies were
divided into three legal groups with different civil laws for each group: Indonesian natives, Europeans,
and Foreign Orientals (that included Chinese, Indians or Arabs living in the Netherlands East Indies).
Article 131 Indische Staatsregeling confirmed that Adat together with native religious rules remained
the civil law applicable to Indonesian natives. For Europeans, the civil law applicable to them was the
Dutch law. Foreign Orientals were partially subjected to the Dutch Civil and Commercial Acts
7
Characteristically, Adat is not codified and not unified in Indonesian archipelago
8
Antons, Christoph, “Indonesian Intellectual Property Law in Context” in Taylor, Veronica (ed), Asian
Laws through Australian Eyes (Sydney: LBC Information Services 1997) at 403
9
The exception was Book I of the Dutch Civil Code, as this Book governed marriage and family law
which were mostly unacceptable for native Indonesians who had different belief from Dutch.
10
Lepp, Alan W, “Intellectual Property Rights Regimes in Southeast Asia” (1990) 6 Journal of Southeast
Asia Business at 30
Gingerich, Duane J. and Hadiputranto, Sri Indrastuti, “Indonesia Amends its Copyright Law”
(November 1987) East Asian Executive Reports at 7-8
MacLeod, Dylan A, “U.S. Trade Pressure and the Developing Intellectual Property Law of Thailand,
Malaysia and Indonesia” (1992) 26 University of British Columbia Law Review at 354
11
Lepp, Alan W, above n10 at 30
12
Nio, Threes, “Pertentangan RI-AS Soal Hak Milik Intelektual [Indonesia - US Dispute Over
Intellectual Property Rights]” KOMPAS (12 February 1987) at iv
13
Antons, Christoph, “The Development of Intellectual Property Law in Indonesia: From Colonial to
National Law” (1991) 22 International Review of Industrial Property and Copyright Law at 374
Antons, Christoph, above n1 at 84
14
With the Act No. 7/1994
15
Emmert, Frank, “Intellectual Property in the Uruguay Round – Negotiating Strategies of the Western
Industrialised Countries” (1990) 11 Michigan Journal of International Law at 1389
16
Gutowski, Robert J., “The Marriage of Intellectual Property and International Trade in the TRIPs
Agreement: Strange Bedfellows or a Match Made in Heaven?” (1999) 47 Buffalo Law Review at 756
17
Soepomo, Bab-bab tentang Hukum Adat [Chapters of Adat Law] (Jakarta: Pradnya Paramita, 2nd ed,
1977) at 113
18
International Commission of Jurists and the Netherlands Institute of Human Rights, Indonesia and the
Rule of Law: Twenty Years of ‘New Order’ Government edited by Thoolen, Hans (London: Frances
Pinter (Publishers) Limited, 1987) at 5
19
Anak Agung Gede Rai, “Seniman, Karya Seni, dan Permasalahannya (pergeseran nilai idealism ke
komersialisme)” [Artist, Artistic Work and its Problems (the shift from idealism to commercialism)],
the official website of Bali provincial government,
http://www.baliprov.go.id/media/index.php?op=tabloid&ed=2&th=07&id=13 (8 February 2008)
20
Kesowo, Bambang, The WTO Business Summit Indonesia Inc & Era WTO, Ketentuan-ketentuan GATT
yang Berkaitan dengan Hak Milik Intelektual (TRIPs) [The WTO Business Summit Indonesia Inc & the
WTO Era, the GATT Rules that Relates to the TRIPs] (Jakarta: Ministry of Trade, 1994) at 9
21
Heliantoro, “Undang-undang Paten Berwawasan Nasional dan Internasional” [Patent Law with
National and International Perspective] (1987) 4 Hukum & Pembangunan at 372
22
Gana, Ruth L, “Has Creativity Died in the Third World? Some Implications of the Internationalization
of Intellectual Property” (1995) 24 Denver Journal of International Law and Policy at 132, 136
23
Id, at 132-133
24
Also see the cases of: Emha Ainun Nadjib, a famous Indonesian artist and Islamic scholar, who did
not take any legal action when his popular cassette “Kado Muhammad” was widely pirated in Java.
Sales of pirated cassettes of “Kado Muhammad” had exceeded the sales of authorised cassettes.
Inul Daratista, a very popular dangdut singer (a genre of Indonesian popular music that is partly
derived from Arabic, Indian, and Malay folk music) owes much of her fame to piracy of her VCDs.
See Inul’s Rules, TIME magazine (17 March 2003). She does not complain too much about the piracy
of her VCDs. The same happens to Iwan Fals, a famous ballad singer and song writer. See “Bagian
Terakhir dari Polemik Inulitas Dangdut Eksotisme, Kesederhanaan, dan Konsistensi” [The Last
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Chapter of the Polemic of Inul’s Dangdut, Exoticism, Simplicity, and Consistency], Jawa Pos (3
November 2002)
25
Mahadi, Uraian Singkat tentang Hukum Adat Sejak RR Tahun 1854 [A Brief Analysis of Adat Law
since RR 1854] (Bandung, Indonesia: Alumni, 1991) at 71- 73
26
Heliantoro, “Undang-undang Paten Berwawasan Nasional dan Internasional” [Patent Law with
National and International Perspective] (1987) 4 Hukum & Pembangunan at 372
27
C Wahyu Haryo PS dan Sonya Hellen Sinombor, “Batik Solo yang Mulai Tergerus” [Solo Batik Loses
Competition] KOMPAS Cyber Media, http://64.203.71.11/kompas-cetak/0602/17/jateng/31651.htm
(17 February 2006)
Batik, http://it.wikipedia.org/wiki/Batik
28
Thalib, Sajuti, Politik Hukum Baru : Mengenai Kedudukan dan Peranan Hukum Adat dan Hukum
Islam dalam Pembinaan Hukum Nasional [New Legal Policy: Concerning the Position and Role of
Adat Law and Islamic Law] (Bandung: Binacipta, 1987) at 17
29
Mahadi, above n25 at 119, 126
30
Brenner-Beck, Dru, “Do As I Say, Not As I Did” (1992) 11 UCLA Pacific Basin Law Journal at 87
31
Vaver, David, “Some Agnostic Observations on Intellectual Property” (1991) 6 Intellectual Property
Journal at 151
32
Braga, Carlos A.P. and Fink, Carsten, “Reforming Intellectual Property Regimes: Challenges for
Developing Countries” (1998) 1(4) Journal of International Economic Law at 538
33
The Indonesian government until now is still employing Adat to settle conflicts among Indonesian
diverse ethnics that can threat the unity of Indonesia
34
The Suharto government named their strategy of development as “Trilogi Pembangunan” (Trilogy of
Development) which consisted of even distribution, development, and political stability.
35
Nusantara, Abdul Hakim Garuda, Politik Hukum Indonesia [Indonesian Legal Policy] (Jakarta: the
Indonesian Legal Aid Foundation (YLBHI), 1988) at 18
36
“Produk dan Lembaga Hukum Masih Seperti Dipasung” [Legal Product and Institutions are
Suppressed] KOMPAS (12 July 1993) at 1
37
The Indonesian Society for Transparancy, “Keppres-Keppres Sarat dengan KKN” [Presidential
Decrees Full with Corruption, Collusion, and Nepotism (KKN)] (October 1998) 1 Media Transparansi
38
Politicians of Golkar, the ruling party during the Suharto’s regime, still dominate both the present
Indonesian parliament and ruling coalition government.
39
Embassy of the United States of America, Jakarta, Indonesia, Foreign Trade Barriers 1999 –
Indonesia, http://www.usembassyjakarta.org/econ/ftb3.html#ipr
40
“Seniman Bersatu Melawan Pembajak” [Artists United against Piracy], Republika Online,
http://www.republika.co.id/koran_detail.asp?id=204939&kat_id=306 (10 Juli 2005)
41
“Pemalsu Lem Divonis” [Adhesive Counterfeiter Sentenced] Sinar Harapan,
http://www.sinarharapan.co.id/berita/0608/10/jab05.html (10 August 2006)
“Pemalsu Merek Cardinal Divonis 2 Tahun” [Counterfeiter of Trade Mark Cardinal Sentenced for 2
Years] Suara Merdeka, http://www.suaramerdeka.com/harian/0502/22/pan17.htm (22 February
2005)
42
Antons, Christoph, “Indonesian Intellectual Property Law in Context” in Taylor, Veronica (ed), Asian
Laws through Australian Eyes (Sydney: LBC Information Services 1997) at 416
43
Yenny Eta Widyanti, Implementasi Pasal 2 ayat (2) UU No. 19 Tahun 2002 tentang Hak Cipta (Studi
Yuridis Sosiologis Penerapan Hak Penyewaan Terhadap Pelaku Usaha Penyewaan Karya
Sinematografi Dalam Bentuk VCD di Kota Malang) [Implementation of Article 2(2) UU No. 19/2002
of Copyright (Juridical-Sociological Studies on the Enforcement of Rental Right on Owners of
Cinematographic VCD Rental Business in Malang] (2005) Postgraduate Thesis, Postgraduate
Program, Brawijaya University at 88
Gingerich, Duane, “Department of Justice to Increase Assistant Investigators of Copyright Cases”
(March 17, 1989) IP Asia at 28
44
“Poor Enforcement Subject of Panel Discussion” (February 27, 1992) IP Asia at 36
“Editorial: Asia: Legal Culture and Enforcement of Rights” (March 18, 1988) IP Asia at 3
Gingerich, Duane, “New Compulsory Copyright Licensing Regulations” (March 17 1989) IP Asia at
28
45
“2,462 Pirated Tapes Seized” The Jakarta Post (16 May 1997)
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46
Embassy of the United States of America, Jakarta, Indonesia, “2005 USTR National Trade Estimate
Report
on Foreign Trade Barriers - Indonesia (PART II)”, http://jakarta.usembassy.gov/econ/annual/NTEReporti2005-2.html#ipr
47
“Vendors of Pirated VCDs Say Police Raid was Unjust” The Jakarta Post.com, http://www.
thejakartapost.com:8890/isep_render?menu_name=hitlist_details&id=988787 (19 May 2000) at 2
“Ekonomi, Motif Pelanggaran HAKI” [Economy, the Reason for Violation of IPR] KOMPAS Cyber
Media, http://208.150.216.210/kompas-cetak/0006/04/UTAMA/ekon11.htm (4 June 2000)
48
“Price the Selling Point for VCDs” The Jakarta Post.com, http://www.thejakartapost.com:8890/iscp_
render?/menu_name=hitlist_details&id=657747 (21 January 2000) at 1
“Trade in Pirated VCDs, CDs Unchecked by Laws” The Jakarta Post.com, http://www.thejakartapost.
com:8890/iscp_ render?/menu_name=hitlist_details&id=657746 (21 January 2000) at 1
49
“Razia di Glodok Dilakukan Tanpa Koordinasi” [The Glodok Raid was without Coordination]
KOMPAS Cyber Media, http://208.150.216.210/kompas-cetak/0005/14/UTAMA/razi01.htm (15 May
2000)
“Polisi Tahan Delapan Orang setelah Glodok Rusuh: Reaksi Massa Harus Dipertimbangkan” [The
Police Arrest Eight People after the Riot in Glodok: The Mass Reaction must be Considered] Suara
Pembaruan Daily, http://www.suarapembaruan.com/News/ 2000/05/14/Utama/ut01/ut01.html (14
May 2000)
50
Yenny Eta Widyanti, above n43 at 54
51
Yenny Eta Widyanti, above n43 at 61, 65
Hermas E Prabowo, “Korban Diminta Dana Operasional Akan Digunakan Polisi Menahan
Tersangka” [Victims Asked for Operational Funding by Police to Arrest Suspects] KOMPAS Cyber
Media, http://64.203.71.11/kompas-cetak/0507/23/metro/1918777.htm (23 July 2005)
52
Yenny Eta Widyanti, above n43
53
“Paten Benih Menyeret Petani Jagung ke Meja Hijau” [Patent on Seed Bring Farmers to Court]
Lembar Info WALHI http://www.walhi.or.id/kampanye/psda/050928_benihjagung_cu/ (22 September
2005)
Sulistiono Kertawacana, “Hak Paten vs Petani Kecil “ [Patent vs Small Farmers], Sinar Harapan
http://www.sinarharapan.co.id/berita/0510/24/opi02.html (24 Oktober 2005)
54
See the statistic information available in the Directorate General’s site, http://www.dgip.go.id
55
The information obtained from the interview with a staff at the Directorate General of Intellectual
Property Rights, Indonesia, February 2008
56
Id
57
“Ditinjau dari Segi Inovasi, UU Hak Paten Belum Perlu” [From the Innovation Side, the Patent Act is
not Necessary] KOMPAS (23 June 1989) at 6
“UU Paten Bisa Memberi Jaminan Para Investor” [The Patent Act can Give Security to Investors]
KOMPAS (19 June 1989)
58
Maskus, Keith E., “The Role Of Intellectual Property Rights in Encouraging Foreign Direct
Investment and Technology Transfer” (1998) 9 Duke Journal of Comparative and International Law at
146
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Source: http://www.lonelyplanet.com/maps/asia/indonesia/
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THE ENFORCEABILITY OF ADR CLAUSES
BY:
ASSOC PROF JUDD EPSTEIN
Monash University, Melbourne Australia
For Session: DISPUTE RESOLUTION
International Association of Law Schools Conference
Law of International Business Transactions: A Global Perspective
The major method of resolving disputes in Commercial International Business
Transactions is via Arbitration. If the parties have failed to enter into an Arbitration
Agreement or a Submission Agreement, then litigation in the national courts of one of the
parties is the fallback method of resolution. In the past decade a growing trend has been
to use methods of Alternative Dispute Resolution (ADR) including Mediation, Early
Neutral Evaluation, or Case Appraisal. There has been some hesitation to insert an ADR
clause in a contract, rather than an arbitration clause, for a number of reasons, not the least
of which has been a fear that the clause will not be enforced by a national court. As a
result of recent decisions, this fear now appears misplaced.
Why are commercial entities increasingly turning to Mediation as the favoured method of
dispute resolution? When compared to either Arbitration or Litigation, there are a number
of advantages. Mediation is simply a form of assisted or facilitated negotiation, allowing
the parties to reach a commercial resolution to their dispute. A mediation usually lasts
hours or, at most, days. It is therefore much faster, costs less and is highly flexible. The
location, the date and time, the language and the degree of formality is completely within
the choice of the parties. The solution to the dispute remains with the parties who may
not have a resolution imposed upon them. In instances where the parties hail from
different cultures – business, legal, or otherwise – the choice of an appropriate mediator or
mediators may help bridge the differences and open up avenues of communication. The
solution reached need not be a solution which could be reached by a Court. Creativity and
commercial reality may feature in a way not possible before a judge. Especially in the case
of an ongoing relationship, mediation is not confrontational in the way that both
arbitration and litigation are, leaving the possibility of continuing cooperation between the
parties in the future. Finally, mediation is held in private and the matters are kept in
confidence between the parties and the mediator, rather than held publicly where the
affairs of the parties may be the subject of media comment.
Why in the light of these advantages are ADR or mediation clauses not used more by
commercial entities, especially by European corporations? A simple answer may be simple
lack of familiarity with the process. Another may well be that entities are seeking the
enforceability of an arbitral award or a judicial decision, rather than another contractual
agreement. For a successful mediation, the parties have to take an open approach,
divulging information and sharing documents. Should a mediation session fail to reach a
complete agreement, this may both add another level of costs and delay ultimate
resolution. There may also be doubt as to whether the clause itself would be given effect
before the national courts in many countries.
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Arbitration is a much more familiar method of resolving disputes. It shares with
mediation the feature of allowing the parties to have a say in the selection of the neutral, in
this case, the arbitrator. It also allows the parties to choose location, hours, and the rules
which are to be used to decide the dispute. Those factors surely explain the preference by
many international commercial concerns for arbitration over litigation. Arbitration suffers
some of the disadvantages of litigation. The decision is taken out of the hands of the
parties and turned over to the arbitrator. Arbitration, like litigation, tends to require
months or years to reach an award. The costs of arbitration reflect the time consumed, the
presence of trained legal professionals, and the fees of the arbitral panel. Of course both
arbitration and litigation are intended to produce an enforceable decision. Arbitration
through the New York Convention has the advantage of both finality and the great
likelihood of enforceability. Litigation depends more upon bilateral or multilateral treaties
for enforcement, and the availability of means of review, such as appeals or recourse to
cassation, may mean that a final decision may not be reached for a considerable period of
time.
In Common Law countries, one of the fears of the use of ADR clauses calling for
mediation was that they might not be given recognition or enforcement by national courts.
A number of decisions were reached that held that “an agreement to negotiate” was too
uncertain and would not be enforced against an unwilling party. Where parties used a
staged or escalating clause which called for mediation, and then, should the mediation
session fail to produce a complete settlement, recourse to arbitration, if the ADR part of
the agreement was held to be unenforceable, the whole clause was held unenforceable.
Parties then had no alternative but recourse to a national court. For reasons of language,
fear of preferential treatment of the local party, foreign law and the like, being forced to
litigate rather than to arbitrate was certainly a result to avoid.
Within this decade, the danger of lack of enforcement of a properly drafted ADR clause
has receded. The decision of the High Court in England in Cable & Wireless v IBM (2002)
demonstrated a common sense judicial acceptance of mediation. The Court found that
there was a contractual clause committing the parties to mediation and ordered them to
mediation before any litigation could be held. This decision is in line with contemporary
notions of case management. Courts throughout the Common Law world have followed
this commendable step.
The decision has shown that a competently drawn ADR clause will be given effect,
minimizing the danger that an escalating clause will fail for uncertainty. The ingredients
for such a clause now appear relatively clear. The clause must be in the form of a Scott Avery clause, that is, the jurisdiction of a court or an arbitration is not ousted. The holding
of a mediation session is a condition precedent to bringing a matter to arbitration or to the
court. Secondly, there must be an unqualified reference to mediation with sufficient
certainty, and with a definable minimum duty of participation. The mechanism of holding
the mediation must be clearly defined both as to the way in which the mediator is to be
chosen and the rules which will govern the mediation, including rules regarding mediator
remuneration. Most major mediation organisations provide a standard mediation clause
on their websites which will satisfy the requirements for enforceability.
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The ADR clause will be enforced by the court either by staying its proceedings if a party
attempts to bring litigation, or by granting an injunction if litigation or arbitration is
attempted before the mediation session is held.
The frequency of mediation clauses and the practice of mediation is not yet uniform
globally. Many organisations throughout the Common Law world promote the insertion
of ADR clauses in international contracts as a matter of course. Even in contracts where
no ADR clause has been included, the Rules of Court may provide for routine compulsory
reference to mediation before either a private mediator or a court official. Only after an
attempt at mediation will the hearing of the case takes place. On the European continent,
the process of mediation is well known but concepts of jurisdiction and tradition have
limited its widespread acceptance. The insertion of an ADR clause in international
contracts in not prohibited but its frequency is not common. The attitude of continental
courts to the enforcement of ADR clauses is considerably less clear than in the Courts of
England, the United States and Australia.
Globally, the goal of quick, efficient and inexpensive resolution of disputes is widely
shared. The use of arbitration and/or litigation to resolve disputes will continue to be a
major method of the disposition of conflict. Mediation is not a panacea. With resolution
rates approaching 80%, its user friendly nature, and with its acceptance by a previously
sceptical judiciary, mediation is likely to further spread. A diminution of doubt regarding
the enforceability of ADR clauses is a strong step in favour of its wider dissemination.
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ESSAY: INVESTOR-STATE ARBITRATION AND INTELLECTUAL
PROPERTY
BY:
Christopher S. Gibson∗
Suffolk University School of Law
My essay explores an area of law that has been recently called by Professors
Michael Reisman and James Crawford one of the more remarkable developments in
international law in the past 40 years. I am referring to the widespread pattern by
which countries, through international investment treaties, have given their consent –
in advance – to participate in international arbitration. This situation can arise when an
investor from one of the contracting States to an international investment treaty brings
a claim alleging that his rights under the treaty have been violated by the other
contracting State where his foreign investment was actually made. Recently, there has
been a surge in the number of disputes between investors and such host States. The
focus in this brief paper is on a particular type of investor-State dispute involving
investments comprised of intellectual property-based assets, protected by intellectual
property (IP) rights. To date, there have been no publicly reported decisions
concerning IP-centered investments. However, I predict that this may change.
Following the long-honored tradition of predicting the path of the law,1 I refer to a
time, perhaps not far off, when the general economic shift to “ideational content” in
the larger economy will be matched in foreign direct investment (FDI), and may result
in an increasing number of international investment disputes in which IP rights are the
focus. If these disputes arise, we can ask the following questions: how will
enforcement of the IP rights take place, and how will existing standards in
international investment agreements be applied in relation to IP rights?
The legal infrastructure is now in place that would enable a significant shift in the
enforcement of both (i) private IP rights, and (ii) a public IP rights as viewed through a
country’s implementation of international IP norms. This shift can take place through
the mixed private-public model of investor-State arbitration. The World Trade
Organization’s (WTO) 1995 Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) established far-reaching international protection for IP, while
IIAs accord investors direct “private attorney-general” rights to bring claims against
Host States. Thus, while this IP enforcement shift has not yet begun to occur, the
international legal infrastructure is in place. If you combine this legal framework with
fundamental changes in the world economy that bring more focus to IP rights
(explained below), this may result in more IP-based investor disputes. In order to
explain this shift, let me first explain certain transformational changes in the economy
∗
Associate Professor of Law, Suffolk University Law School; BA, University of Chicago; MPP,
Kennedy School of Government, Harvard University; JD, Boalt Hall, University of California, Berkeley.
1
Oliver Wendell Holmes, Jr., The Path of the Law, 10 Harv. L. Rev. 457, 457-458 (1897).
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and in FDI, and then address investor-State IP disputes and important changes
brought about by IIAs.
FDI AND THE MOVE TOWARD A CONCEPTUAL ECONOMY
We live in a time in which foreign direct investment has been characterized as
the “cutting edge of globalization.”2 The rate of growth in FDI for the two decades
prior to 2000 exceeded comparable growth rates for world economic output and trade
over the same period. In 2006, global FDI flows approached historic highs.3 In
academic and international policy-making circles, the importance of FDI is often
considered in connection with develop country and technology transfer issues.4 For
businesses large and small, on the other hand, FDI represents a strategic option among
alternatives (such as direct exports, distribution agreements or licensing) for expansion
into foreign markets – to gain market share, out-source the manufacture of products
or supply of certain services, or even locate new research and development (R&D)
facilities.
While FDI continues to expand, another powerful trend is transforming a central
part of many economies.
Modern economies are becoming predominantly
“conceptual,” reflecting the vital role of ideas in common and highly valued products
and services, and shifting the emphasis in asset valuation from physical to intellectual
property. Alan Greenspan, former chairman of the Federal Reserve Board, has spoken
repeatedly about the irreversible and accelerating shift in the United States to a
“conceptual economy,”5 observing that over the past half-century, “the increase in the
value of raw materials has accounted for only a fraction of the overall growth of U.S.
gross domestic product (GDP).” The rest of the growth in economic output, he
explains, has become predominantly “conceptual,” reflecting the embodiment of ideas
in the products and services that consumers value. Of course, the common expression
for the legal property rights associated with such “ideas” is intellectual property.
As this trend continues, one can observe that a similar change is occurring in
FDI: foreign investments reflect an increasing concentration of intellectual capital
invested in knowledge goods and realized through technology transfer protected by IP
rights. While the historic focus of FDI has been on physical assets such as buildings,
equipment, or large infrastructure projects (e.g., roads, energy or power), the subject
matter of FDI today is highly diverse. It encompasses not only traditional assets, but
also investments in sectors where IP forms a core basis for asset value, such as high
technology, health care, pharmaceuticals, bio-technology, telecommunications, and the
2
See Economic Intelligence Unit, World Investment Prospects to 2010: Boom or Backlash, at 22 (2006).
See UNCTAD, World Investment Report 2007: Transnational Corporations, Extractive Industries and
Development, at xi (2007).
4
See John Barton, New Trends in Technology Transfer: Implications for National and International
Policy (2002).
5
See Alan Greenspan, Intellectual property rights, Stanford Institute for Economic Policy Research
Economic Summit (Feb. 27, 2004).
3
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creative industries, as well as the corresponding trademarks and brand names and the
R&D investments intended to spur innovation. While it is difficult to isolate the IP
element in trade flows and FDI,6 there is no denying the increasing significance of IP
in an increasingly globalized world in which science and technology, as well as creative
works and international branding, are generating enormous economic value.7 As the
shift toward a conceptual economy continues, FDI will more typically involve
investments comprised of substantial IP-based assets.
INCREASE IN INVESTOR-STATE DISPUTES
The number of IIAs, primarily in the form of bilateral investment treaties (BITs),
has grown remarkably since the early 1990s. As of the end of 2006, there were almost
5,500 assorted international investment agreements (“IIAs”), comprised of 2,573
bilateral investment treaties (“BITs”), 2,651 double taxation treaties, and 241 free trade
agreements and economic cooperation arrangements containing investment
provisions, between more than 175 countries. While IIAs, and in particular BITs, have
generally reflected a North-South pattern between the countries entering into them,
developing countries are becoming much more important participants in investment
policy, partly reflecting growing South-South flows of FDI. By 2006, there were
approximately 680 BITs concluded between developing countries, accounting for 26
percent of all BITs. This pattern contributes to the view that the proliferation of IIAs
has profoundly transformed international investment law.
Many of these agreements contain dispute settlement provisions permitting
investors to bring claims directly against contracting States to enforce the standards of
protection guaranteed for their investments under these agreements. In particular, the
agreements reflect a widespread pattern in which governments give their consent that,
should an investment dispute arise with a qualifying private investor from another
contracting country, they will submit to international arbitration.8 This form of “preconsent” is a powerful mechanism which, working in tandem with the dramatic
increase in the number of IIAs, has already produced a sharp rise in the number of
disputes. With the increase in IIAs since the early 1990s, it is simple to appreciate that,
as investors have more investments treaties they can rely on to bring claims against
States, the number of disputes will increase. The substantial increase has resulted in
more than 258 known investor-State arbitration cases as at the end of 2006, with the
number of pending cases before the International Center for the Settlement of
Investment Disputes (ICSID) reaching an all-time high of approximately 120.
6
Daniel Gervais, Intellectual Property, Trade and Development: State of Play, 74 Fordham L. Rev. 505,
524 (2005).
7
Francis Gurry, The Evolution Of Technology and Markets and the Management of Intellectual
Property Rights, 72 Chi-Kent L. Rev. 369, 370 (1996).
8
See R. Doak Bishop, James Crawford & W. Michael Reisman, FOREIGN INVESTMENT DISPUTES, CASES,
MATERIALS AND COMMENTARY, at 1 (2005) (“The field of foreign investment law is rapidly changing,
with a veritable explosion of foreign investment disputes being resolved through international
arbitration.”).
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Taken one step further, a confluence of powerful forces, including the growth in
FDI, the proliferation in IIAs and related surge in investment disputes, and the shift to
a conceptual economy, are all working together to increase the likelihood that investorState disputes centered on IP issues will be on the rise. Until recently, there were no
effective enforcement mechanisms in place to confront government conduct that may
have a direct or indirect adverse effect on an investor’s IP-based investment.
“[F]oreign investors had limited options for redressing international law violations.”9
The investor could attempt to bring a claim in the host State’s courts, possibly facing
sovereign immunity objections, or it could petition its own government to render
assistance through diplomatic protection. As regards the latter, the investor would rely
on its own government to resolve the dispute, although the government’s motivation
to do so would be subject to the vagaries of other pressure points in the relations
between the two countries. Similarly, the investor could request that its government
invoke WTO dispute settlement procedures, as long as the host State is a member of
the WTO and the relevant allegations bear on that State’s obligations under TRIPS.
Again, this approach would rely on the willingness of the investor’s government to
take action. With the expanding network of IIA’s, however, there may be an
investment treaty between the countries concerned: if a claim arises under the
protective standards of the treaty, the investor may choose to act directly.
Francis Gurry, Deputy Director General of the World Intellectual Property
Organization (WIPO), has suggested that most international IP disputes can be classified
as having either “a private-law or public law nature.”10 On the private side, if an IP dispute
arises between two internationally diverse parties, they may not wish to submit to the
jurisdiction of the courts of the opposing party. Instead, they can choose an arbitration
procedure to be located in a neutral venue and decided by arbitrators who are expert in the
field. The data suggest that the referral of private IP disputes to arbitration is increasing.
For example, in 2007, 375 IP cases were filed with the American Arbitration Association,
while the International Chamber of Commerce estimates that 10-15 percent of its annual
caseload involves an IP element.11 WIPO has received approximately 100 requests for
arbitration and 70 requests for mediation since its establishment in 1994, along with some
10,000 international domain name disputes since 2000.12
On the public law side, an IP dispute may arise in response to a country’s violation
of international norms established by TRIPS. TRIPS secures Member countries’
obligations to protect and enforce IP rights within their territories. Should a country fail to
fulfill its obligations, the WTO Understanding on Rules and Procedures Governing the
Settlement of Disputes (DSU) provides a mechanism for the resolution of disputes arising
9
Susan D. Franck, Integrating Investment Treaty Conflict and Dispute Systems Design, 92 Minn. L. Rev.
161, 172-73 (2007); see also William S. Dodge, Investor-State Dispute Settlement Between Developed
Countries: Reflections on the Australia-United States Free Trade Agreement, 39 Vand. J. Transnat’l L. 1,
5-14.
10
Id., supra note 7, at 382.
11
Sophie Lamb, Alejandro Garcia, Arbitration of Intellectual Property Disputes, Global Arbitration
Review: The European & Middle Eastern Arbitration Review 2008, Int’l J. of Public and Priv. Arb., at 1.
12
See WIPO Arbitration and Mediation Center website at
http://arbiter.wipo.int/amc/en/center/caseload.html.
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out of alleged non-compliance. As noted above, if a private actor is adversely affected by a
WTO member’s non-compliance, that party can petition its government to initiate dispute
settlement proceedings before WTO. In the investment context, investors whose IPbased investments are harmed by such government conduct that has a direct or indirect
adverse effect on the investment can be faced with a difficult set of choices:13

consider withdrawing from the foreign market and thereby incur the looses;
seek relief by litigating within the legal system of the host State, where the defense of
sovereign immunity may be asserted;
assert contract-based dispute settlement rights and procedures (e.g., arbitration) if
the host State or one of its agencies is a party to the contract; or
petition the investor’s own government for assistance, requesting that WTO dispute
settlement procedures be invoked if the host State is a member of the WTO and the
relevant allegations bear on the host State’s obligations under TRIPS. However, the
private actor’s government will nonetheless weigh “the diplomatic pros and cons of
bringing any particular claim.”14
All of these options may be considered unsatisfactory to investors whose IPinvestment suffers a serious loss due to government conduct. However, with the
machinery of investor-State arbitration, a third category of international IP dispute can
be added to the dual classification of private and public law disputes: mixed privatepublic disputes arising by virtue of a host State’s alleged violation of an investment
treaty and thereby falling within the prerequisites of investor-State arbitration.
Investment treaty arbitration has been characterized as a “mixed” system, one that
“grafts a traditionally private dispute resolution system onto an international treaty
between Sovereigns.”15 Investment treaty arbitration arises as a result of a negotiation
of rights between two Sovereigns often implicating “a number of public and
governmental interests.”16 This form of arbitration, by which a private party can bring
a claim against the host State pursuant to rights under a treaty, is significantly different
from international commercial arbitration founded on “freedom of contract”
principles and involving private law issues.17 When an investor-State dispute arises
involving IP rights, not only are governmental interests implicated under the
investment treaty, but also in relation to the IP rights themselves. Fundamental to the
IP ownership right is the right to exclude third-parties from use of a particular
intellectual creation. In his book on IP disputes, David Plant emphasizes that “[t]he
powerful exclusionary rights associated with intellectual property are often granted,
13
See Susan D. Franck, supra note 9, at 190-191.
Outcome of the Summit of the Senate, Americas and Prospects for Free Trade in the Hemisphere,
Before Subcomm. On Trade, H.R. Ways and Means Committee, 107th Cong. 1st Session., Serial 107-22,
93 (2001) (statement of Daniel M. Price, Member, U.S. Council for International Business).
15
Susan D. Franck, The Nature and Enforcement of Investor Rights Under Investment Treaties: Do
Investment Treaties Have a Bright Future, 12 U. Cal. Davis L. Rev. 47, 69 (2005); Bernardo M.
Cremades & David J.A. Cairns, The Brave New World of Global Arbitration, 2 J. World Inv. 173, 183185 (2002).
16
Bart Legum, Trends and Challenges in Investor-State Arbitration, 19 Arb. Int’l 143, 144-45, 147
(2003).
17
Susan D. Franck, supra note 15, at 70-73.
14
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administered or controlled by a government agency. They are considered to be matters
of substantial public concern.”18
CONCLUSION
An IP claim brought by a private investor against a host State under an
investment treaty implicates public policies (e.g., investment, IP and other laws) that
could be either complimentary or cross-cutting. The balance to be maintained between
IP and other public policies is one that has recently received growing attention.19 Will
the alignment of investment treaty obligations and IP laws create needed privately
enforceable rights to facilitate a fair and efficient system of governance for IP-based
FDI, or will it establish a bulwark of legal protections in favor of the investor, to the
detriment of other important public policies?20 At a time when countries such as
Bolivia, Cuba, Ecuador, Nicaragua and Venezuela have recently demonstrated
dissatisfaction with the international regime for the settlement of investment
disputes,21 it may be considered controversial to identify IIAs as an untapped and
potentially powerful new means of IP enforcement. Indeed, there has been a longbrewing debate about IP’s role in the socio-economic development of developing
countries, a debate which now embraces what some have called an anti-intellectual
property movement in relation to IP’s role in the modern economy.22 Despite the
heightened attention and intensified tensions these issues may inspire, they are
nonetheless of growing importance for the 21st century, to be ignored only at one’s
peril. Discussing IP in his recent book, Thomas Friedman put the issue in a larger
context: “’Who owns what?’ is sure to emerge as one of the most contentious political
and geopolitical questions in a flat world…”23
18
David W. Plant, RESOLVING INTELLECTUAL PROPERTY DISPUTES, at 13 (1999).
See Francis Gurry, Seeking Balance for Intellectual Property, Presentation at Fédération Internationale
des Conseils en Propriété Industrielle World Congress (May 23, 2006).
20
See Carlos M. Correa, Bilateral Investment Agreements: Agents of New Global Standards for the
Protection of Intellectual Property Rights?, at 2 (Aug. 2004).
21
Bolivia and Ecuador have formally notified ICSID of their intention respectively to withdraw or limit
their acceptance of certain claims under the ICSID Convention. See ICSID, Bolivia Submits a Notice
under Article 71 of the ICSID Convention (May 16, 2007); ICSID, Ecuador's Notification under Article
25(4) of the ICSID Convention (December 5, 2007); Michael D. Nolan and Frederic G. Sourgen, A
Preliminary Comment – The Interplay Between State Consent to ICSID Arbitration and Denunciation of
the ICSID Convention: The (Possible) Venezuela Case Study, Transnational Dispute Management (Sept.
2007).
22
See UK Commission on Intellectual Property Rights, Integrating Intellectual Property Rights and
Development Policy (Sept. 2002); Geneva Declaration on the Future of WIPO (March 4, 2005).
23
Thomas L. Friedman, THE WORLD IS FLAT: A BRIEF HISTORY OF THE TWENTY-FIRST CENTURY, 218
(2005).
19
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The Privatization of Dispute Resolution
in International Business Transactions
By:
Dr. Stefan Kröll, LL.M.
Visiting Lecturer, Bucerius Law School
The importance of dispute resolution in international transactions
In international business transactions the question of how and where disputes are resolved
is of much greater importance than in purely national transactions. First, there is obviously
a greater potential for disputes and misunderstandings. The parties come from different
cultural and legal backgrounds resulting often in different expectations as to the conduct
and content of their business relationship. In addition they communicate in a language
which is at least for one of them not the mother tongue. Second, and even more
important, are the differences in the various national approaches to dispute resolution in
general. Greatly diverging procedural laws, the quality of the court system, national bias
and the enforceability of decisions in other countries can pose considerable problems in
practice. As a consequence in international transactions the mode and the place of dispute
resolution is often one of the decisive factors in determining whether a party can enforce
its rights or not.
These particularities of international transactions in relation to dispute resolution have
long since been recognized. Legislation and courts in many countries have treated
agreements pertaining to dispute resolution in international transactions different from
those in pure national transaction. The US-Supreme Court for example held in Mitsubishi
Motors Corp v. Soler Chrysler – Plymouth Inc., its landmark decision on the arbitrability of
statutory antitrust claims, that
“…we conclude that concerns of international comity, respect for the capacity of
foreign and transnational tribunals, and sensitivity to the need of the international
commercial system for predictability in the resolution of disputes require that we
enforce the parties’ agreement, even assuming that a contrary result would be
forthcoming in a domestic context.” 24
The quote alludes to both, the major problem of dispute resolution in the international
arena and the best possible answer to it – the lack of predictability, resulting from the
existence of numerous fora with jurisdiction to hear the case on the one hand and the need
to strengthen party autonomy on the other hand.
Increasing role of party autonomy
In light of the above it is not surprising that most important and overarching trend in
international dispute resolution over the last decades has been the increasing importance
of party autonomy. This trend has been supplemented and reinforced by the continuing
efforts to reach a certain harmonization of the legal framework of dispute resolution. The
latter have been particularly successful in the area of “privatized” dispute resolution, i.e.
arbitration. There the UNCITRAL Model Law, emphasizing party autonomy in
24
Mitsubishi Motors Corp v. Soler Chrysler – Plymouth Inc., 473 U.S. 614, 629.
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arbitration, has been more or less adopted in over 50 jurisdictions and has influenced the
legal developments in numerous other countries which have not adopted it.25
The increasing role of party autonomy is the result of two closely related and
interconnected developments. First, and quasi as a necessary prerequisite, courts and
legislators have constantly enlarged the room given to party autonomy over the years. The
endorsement of party autonomy in the above statement by the US Supreme Court is not
limited to the issue of arbitrability or arbitration in general but also extends to other ADR
mechanisms and forum selection agreements. Legal or practical obstacles to such
agreements have been gradually removed by the courts or statutes. Previously existing
reservations or hostility in particular towards binding out of court dispute resolution have
vanished or are in the process of vanishing. Arbitration and other forms of ADR such as
mediation, adjudication or expert determination are promoted not only for international
disputes but also for national disputes.
Second, and in part also driving the first development, parties are making increasing use of
their newly gained freedom in dispute resolution. At least the major players in international
business take a much more active role in pre-planning the resolution of their disputes.
Two of the most obvious signs for that are the increasing use of multi-tier dispute
resolution clauses and the adoption and implementation of internal dispute resolution
policies by numerous companies which operate internationally. These multinationals are
also no longer willing to accept perceived pitfalls of previously preferred dispute resolution
mechanisms and thereby become themselves driving forces in the further developments of
such dispute resolution mechanisms.26
There are numerous examples for the first element of the above described trend, in
particular in relation to the treatment of arbitration. One of the most obvious
developments in this context is the increasing number of disputes which are arbitrable, i.e.
may be submitted to arbitration by the parties. Other fairly recent examples of this trend
are provided by the treatment of arbitration agreements and multi-tiered dispute resolution
clauses by the English courts. For the second element of the trend, the German
multinational Siemens provides a very good example.
Developments as to the arbitrability of disputes
A very good indicator of the general approach of a given legal system to party autonomy in
dispute resolution is what limit it imposes to the parties’ freedom to contract out of the
state court system and to provide for binding private dispute resolution, the results of
which will be enforced by the courts. The less faith the legislator or the courts have in the
adequacy of chosen private mechanism, in particular arbitration, the more disputes will be
reserved for the courts and vice versa.
Over the last decades one could witness in many legal systems a development of a
constant increase of the number of disputes which could be submitted to arbitration.
Particularly obvious was that development in the US in relation to disputes arising out of
25
For the implementation of the Model Law in various countries see the list on UNCITRAL’s website at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html; see
also Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law
Jurisdictions, Sweet & Maxwell, 2nd ed. 2005, p. 7 et seq; see also St. John Sutton/Gill/Gearing, Russell
on Arbitration, Sweet & Maxwell, 23rd ed, 2007, para 1-049 for the influence on the Arbitration Law in
England, where the decision was made not to adopt the Model Law.
26
See for example the article by three counsel of Siemens, Hobeck/Mahnken/Koebke, Time for Woolf
Reforms in international construction arbitration, [2008] Int.ALR 84.
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securities transactions. In 1953 the US Supreme Court had held in Wilko v. Swan27 that
claims under the Securities Act 1933 were not capable of being resolved by arbitration and
had to be referred to the state courts, despite the existence of an arbitration agreement.
The underlying rationale was that arbitration offered the parties less protection of their
statutory rights than court proceedings. Since then the legal position has changed
completely. In 1974 in Scherk v Alberto-Culver Co28 the US Supreme Court recognised the
arbitrability of federal securities claims with an international element, to extend these to
purely national transactions in Shearson v McMahon.29 Finally two years later, in 1989, in
Rodriquez de Quijas v Shearson/American Express Inc,30 the Wilko rationale was overruled, and
all federal securities claims were declared arbitrable regardless of the nature of the
transaction.
Comparable developments took place in other areas, such as competition law and antitrust
law and in other countries.31 The German legislator, for example, when largely adopting
the UNCITRAL Model Law in 1998 has extended the already broad scope of arbitrable
disputes to an extent which has even led some authors to question the constitutionality of
the extension in light of the limits to party autonomy.32 Section 1030 (1) of the German
Code of Civil Procedure, containing the arbitration law, provides under the heading of
“Arbitrability”:
Any claim involving an economic interest ("vermögensrechtlicher Anspruch") can
be the subject of an arbitration agreement. An arbitration agreement concerning
claims not involving an economic interest shall have legal effect to the extent that
the parties are entitled to conclude a settlement on the issue in dispute.
As a consequence that nearly all claims in business transactions involve an economic
interest, very few disputes are exclusively reserved for the state courts while all the others
may be referred to arbitration.33 The underlying rationale of that, reiterated in the
legislative commentary,34 is that in principle arbitration is considered to be a true and equal
alternative to court proceedings offering the same amount of legal protection to the parties
involved.
Construction of arbitration agreements
Another example of the above described trend to strengthen party autonomy is provided
by the developments in relation to the construction of narrowly worded arbitration
27
Wilko v Swan, 346 US 427 (1953).
417 US 506 (1974); as justification the Supreme Court held that …” a parochial refusal by the courts
of one country to enforce an international arbitration agreement […] would damage the fabric of
international commerce and trade and imperil the willingness and ability of businessmen to enter into
international commercial agreement”
29
Shearson/American Express Inc et al v McMahon et al, 482 US 220 (1987).
30
490 US 477 (1989).
31
For a detailed account of the developments see Lew/Mistelis/Kröll, Comparative International
Commercial Arbitration, Kluwer Law International, 2003, paras 9-42 – 9-62; Poudret/Besson,
Comparative Law of International Arbitration, Sweet & Mawell, 2007, paras 346 - 366.
32
Hesselbarth, Schiedsgerichtsbarkeit und Grundgesetz, 2004, p. 131 et seq; Voit, Privatisierung der
Gerichtsbarkeit, Juristen Zeitung 1997, 120 (124 et seq.).
33
For a more detailed account of section 1030 ZPO see Trittman/Hanefeld, § 1030 paras 8 et seq ,in:
Böckstiegel/Kröll/Nacimiento, Arbitration in Germany – The Model Law in Practice, Kluwer Law
International 2007.
34
See Bundestagsdrucksache 13/5274 p. 34.
28
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agreement. For a long time courts in England and other common law countries have
construed such clauses restrictively. This reflected to a certain extent the scepticism with
which arbitration agreements were seen, as they “ousted” the jurisdiction of the courts.
The Australian Supreme Court, for example, adopted such a narrow interpretation in HiFerty Pty Ltd v Kiukiang Maritime Carriers in relation to an arbitration clause contained in
charter party referring to all disputes which “arise from the charter”. The case concerned
a contract for the shipment of fertilizer from the US to Australia. When the Australian
Quarantine Inspection Service denied unloading for contamination the claimant initiated
court proceedings for negligence, breach of contract and a violation of section 52
Australian Trade Practice Act in respect of misleading and deceptive conduct. The
defendant challenged the jurisdiction of the court invoking an arbitration clause which
provided for arbitration in London. The Supreme Court held that only the claims for
breach of contract were covered by the arbitration clause and had to be arbitrated in
London. The other pre-contractual and non-contractual claims did not “arise from the
charter” and therefore could be determined by the Australian courts.35
In its recent decision in Premium Nafta Products Limited and others v. Filli Shipping Company
Limited and others36 the English House of Lords, at least for the English law, broke this
tradition of narrow interpretation. The case concerned several charterparties which
allegedly contained very favourable terms for the charterers. According to the owners
these charterparties were only entered into because the latter had bribed on of the senior
officials of the owners. According to the relevant dispute resolution clause in the
charterparties “any dispute arising under this charter” could be referred to arbitration. The
owners applied to the English Courts for a declaration that the charterparties had been
validly rescinded for the alleged bribery. The charterers in turn applied for a stay of
proceedings under section 9 of the English Arbitration Act 1996. For the stay to be
granted the courts had to decide two questions: first, did the reference in the arbitration
clause to “disputes arising under the charter” also cover disputes as to whether the charters
were procured by bribery? Second, could the arbitration clause also be rescinded for
bribery? The owners had alleged that without the bribe they would never have entered into
any charterparty with the charters and thus would never have concluded the arbitration
clause.
While at least the first question directly only deals with the construction of an arbitration
agreement, Lord Hoffmann indicated, in his speech, that the whole decision is also about
the “attitude of the courts to arbitration”.37 Concerning the issue of construction, Lord
Hoffmann after briefly describing the previous authorities referred to, which largely
favoured a narrow interpretation, held that
“…the time has come to draw a line under the authorities to date and make a fresh
start. I think a fresh start is justified by the developments which have occurred in
35
36
37
Hi-Ferty Pty Ltd et al v Kiukiang Maritime Carriers Inc et al, (1999) 159 ALR 142, 12(7) Mealey's
IAR C-1 (1997) (Federal Court of Australia); excerpts also in XXIII YBCA 606 (1998) which do not,
however, include the relevant part; but see the more recent decision of Federal Court of Australia in
Comandate Marine Corp. v Pan Australia Shipping Pty Ltd. [2006] FCAFC, paras. 164 et seq.,
favouring a more liberal approach to interpretation.
[2007] UKHL 40; for the judgement of the Court of Appeal see Fiona Trust & Holding Corporation
& ors v. Yuri Primalov & ors [2007] EWCA Civ 20.
Ibid, para. 5.
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this branch of law in recent years and in particular by the adoption of the principle
of separability by Parliament in section 7 of the 1996 Act”.38
At first sight the fresh start suggested seems to be nothing more than the recognition of
commercial reality when Lord Hoffmann says that in his opinion
“…the construction of an arbitration clause should start from the assumption that
the parties, as rational businessmen, are likely to have intended any dispute arising
out of the relationship into which they have entered or purported to enter to be
decided by the same tribunal”.39
The different starting point, however, also reveals a different attitude of to arbitration, as
also indicated by Lord Hoffmann. The previous narrow construction was based on the
underlying concept that the natural forum for all disputes is the national court system
while arbitration constituted an exception. As a consequence the parties had to more or
less explicitly contract out of the court system for every single dispute they wanted to refer
to arbitration. Arbitration clauses were to a certain extent treated like “exemption clauses”.
By contrast the new approach is based more on the idea that arbitration is just an
alternative to court proceedings, if not even the natural forum for international disputes.
Therefore, once it has been established that the parties in principle wanted dispute
resolution by the parties there is a presumption that all disputes should be referred to
arbitration.
Use of party autonomy by the parties: multi-tiered dispute resolution clauses and
dispute resolution policies
The above described developments of increasing legal recognition and endorsement of
party autonomy by courts and legislators go hand in hand with a greater use of the
possibilities offered by the parties.
Not long ago the contractual clauses dealing with dispute resolution were largely limited to
more or less standard arbitration clauses or forum selection clauses. In recent years,
however, with increasing emphasis on the various ADR modes, contracts contain more
and more sophisticated dispute resolution clauses. They are often no longer limited to a
single mode of dispute settlement but provide for the use of different forms of ADR at
different stages. Such multi-tiered clauses or escalation clauses can take different forms.
Their common feature, reflected by the name “escalation clauses”, is that the same dispute
is submitted to a sequence of different modes of dispute resolution with an increasingly
binding nature for the parties.40 In general, the parties are required to have first fulfilled
one stage before they can make use of the mechanism at the next stage. Such clauses can
require the parties to negotiate for a certain time before they can and must then resort to
mediation, followed by expert determination and then arbitration.
These clauses are already long since used in the construction industry, in particular for
international projects but also on the national level.41 Due to the frequency of disputes and
38
Ibid, para. 12.
Ibid, para. 1
40
For such clauses see only Melnyk, The Enforceability of Multi-Tiered Dispute Resolution Clauses: The
English Law Position, [2002] Int. A.L.R. 113; Lew/Mistelis/Kröll, (Fn 8), paras 8-62 et seq.
41
See Jenkins/Stebbings, International Construction Arbitration Law, Kluwer Law International, 2006, p.
55 et seq.; a famous example is the clause in the Channel Tunnel contract, Chaannel Tunne Group v.
Balfour Beatty Ltd. [1993] 1 All E.R. 664, 672 a-e.
39
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their peculiar nature there was always a considerable need for sophisticated and tailor made
dispute resolution provisions. As a consequence, the internationally widely used FIDIC
Model Contracts from their early beginnings provided for multi-tiered dispute resolution.
Disputes firstly had to be referred to the engineer, in later editions replaced by disputes
review boards, whose decision could then be appealed to an arbitral tribunal.42 Today such
clauses can also be found in other types of contracts which are particularly prone to
disputes.
For a long time the enforceability of the non-determinative stages of such multi-tiered
clauses was doubtful. In particular in England, agreements to negotiate were considered to
be non-enforceable agreements to agree.43 By now, with the increasing recognition of the
practical value of structured negotiations with or without the intervention of a third party,
the verdict of a non-enforceable “agreement to agree” is rendered less frequent and
agreements to mediate are by now enforced as a matter of course.44
In light of these developments and a greater awareness of the various forms of dispute
resolution and their benefits, numerous major international companies have even gone a
step further. They have adopted particular dispute resolution policies which are intended
to ensure that appropriate use is made of all existing forms of dispute resolution before the
case goes to arbitration or court proceedings. For example, the dispute resolution circular
of Siemens stipulates:
To avoid lengthy and expensive arbitration/court procedures, the dispute
resolution provisions should include a modern conflict management system in
which the parties attempt to reach a resolution through negotiation. If no solution
is reached through negotiation, the dispute resolution agreement should as a rule
provide for an ADR (alternative dispute resolution) proceeding suitable for the
respective conflict. In case the ADR proceeding fails, the jurisdiction of a
recognized international arbitration tribunal in a (suitable) third country – outside
the country of the contract partner – should be agreed on.45
To accommodate that need, most of the leading arbitration institutions have added to their
traditional arbitration rules numerous rules for other forms of disputes resolution. The
ICC for example has supplemented its arbitration rules with rules for adjudication, for
conciliation and for pré-arbitral referees just to mention the most important ones. In
Germany, the German Arbitration Association is presently preparing special rules and
clauses for multi-tiered dispute resolution after having long since supplemented its
arbitration rules by a set of conciliation rules.
Relevance of these trends for the teaching of dispute resolution
At present, however, the above described active management of dispute resolution is
largely limited to multinationals with their own legal departments, such as Siemens or
others. In medium size or small companies, which form the backbone of the international
42
For the developments under the FIDIC Rules see Jenkins/Stebbings, (Fn 18), p. 111 et seq
E.g. Courtney & Fairbairn Ltd. v. Tolaini Bros (Hotels) Ltd. [1975] 1 All E.R. 716; Walford v. Miles
[1992] 1 All E.R. 453.
44
Melnyk, The Enforceability of Multi-Tiered Dispute Resolution Clauses: The English Law Position,
[2002] Int. A.L.R. 113
45
The circular and the annexes to it are attached to the above cited article by the the Siemens Counsel
Hobeck/Mahnken/Koebke, Time for Woolf Reforms in international construction arbitration, [2008]
Int.ALR 84, 96.
43
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economy, knowledge of the various forms of dispute resolution is in general still very
limited. In contracting, little attention is paid to the regulation of how potential dispute
should be resolved. Companies still live according to the old adage that when you are
getting married you should not talk about divorce. As a consequence, either no provisions
for dispute resolution are included into the contracts or the clauses included are so
pathological, that instead of helping the parties to solve their disputes they lead to new
disputes about where and how to solve the main dispute.
The lack of knowledge is to a considerable extent due to the teaching of dispute resolution
at law schools. While it may be true that specific contracts are often concluded without the
involvement of lawyers, the latter either prepare the models used as a starting point, the
general conditions of the companies are at least become involved when a dispute has
arisen. Unless there has been a private interest in dispute resolution the “average” lawyer
regularly lacks the required knowledge for active dispute resolution management. The
exposure of the average student to problems of dispute resolution will often be limited to
classes in civil procedure in the national courts and at best conflict of jurisdiction in the
area of conflicts of laws . Lectures on arbitration or even other ADR methods will either
not be offered at all or not be part of the normal curriculum.
It would probably be exaggerated to postulate that full courses on arbitration or other
forms of ADR should become part of the mandatory curriculum of the law schools.
However, in light of the above developments, the increasing role and room for private
dispute resolution, and the globalization, what should be required is that every student
should at least get an overview on the various methods of dispute resolution. Before
discussing in depth in classes on national procedural law of how disputes are resolved by
the national courts, students should be made aware that court proceedings are not the only
way to deal with disputes and definitively not the best in relation to international
transactions. An overview about the different modes of disputes resolution and their
particular benefits and shortcomings as a separate course or at the beginning of the
existing classes on dispute resolution would probably also be beneficial for the students in
understanding the existing classes on civil procedure and to put them into the right
perspective.
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Regional Organisations and dispute settlement: court and
arbitration institution at the same time?
By:
Thalia Kruger
University of Cape Town
March 2008
Regional organisations are on the increase as is the process of regional integration. While
the European Community was for a long time rather peculiar, colleague organisations are
increasingly in the making. An essential part of a regional organisation is its dispute
settlement body. In order to achieve the goals of integration, (partial) harmonisation of
laws, facilitation of trade and investment, etc, it is necessary that a tribunal guards over the
organisation’s policy and principles. There must be an effective mechanism to address
disputes.46 Without such mechanisms, the risks are that organisations lose the respect of
their Member States or of individuals because they cannot enforce their policies; that the
process of harmonisation of laws become flawed because harmonised laws are interpreted
and applied differently in different Member States; plainly that the rules become ineffective
due to the lack of effective remedies in the case of breach.
Most regional organisations seem to have some sort of tribunal. The functions and
capacities of these bodies vary greatly, however. Some organisations have tribunals which
function as appellate courts for the judgments of national courts. An example is the
Caribbean Court of Justice.47 The Common Court of Justice and Arbitration of the
Organisation for the Harmonisation of Business Law in Africa (OHBLA, more commonly
known by its French acronym OHADA48) also has this function, but only to the extent
that disputes concern OHADA legislation, i.e. the application of their uniform acts.49
Some regional bodies also facilitate arbitration. An example is once again the OHADA
Common Court of Justice and Arbitration, as its name suggests. This Court operates as an
arbitration institution. Its functions and capacities are similar to those of the International
Chamber of Commerce (ICC) regarding arbitration.50 Thus, it is a regional arbitration
institution. This innovation has been praised.51 It indeed seems positive to arbitration.
46
This experience has also emerged at the GATT-WTO level: an effective dispute settlement mechanism
is essential.
47
Established by the Agreement Establishing the Caribbean Court of Justice (2001). The Agreement has
been signed by Antigua & Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St Kitts &
Nevis, St Lucia, St Vincent & The Grenadines, Suriname, and Trinidad & Tobago. See CARICOM
website: http://www.caribbeancourtofjustice.org.
48
OHADA was established by the Traité relatif à l'Harmonisation du Droit des Affaires en Afrique
(1993, Port Louis). Its current Member States are Benin, Burkina Faso, Cameroun, Central African
Republic, Chad, Comoros, Congo (Brazzaville), Gabon, Guinea, Guinea-Bissau, Equatorial Guinea,
Ivory Coast, Mali, Niger, Senegal, and Togo.
49
OHADA passes uniform acts on various aspects of business law. These are directly applicable in the
Member States.
50
M Lecerf & G Blanc, ‘The arbitration in the Treaty for the Harmonisation of African Business Law
(OHADA): a new common law for institutional arbitration’, (1999) 16(2) The International Construction
Law Review, 287-293 at 289.
51
R Boivin & P Pic, ‘L’arbitrage international en Afrique: quelques observations sur l’OHADA’ (2002)
32 Revue générale de droit 847-864 at 858.
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Yet, without denying this, it might be useful to look into this dual function more carefully.
Before pursuing this analysis, it is probably useful to point out that one of OHADA’s
uniform acts concerns arbitration.52 This uniform act has the effect of unifying the
arbitration laws of all the Member States. It applies when the seat of arbitration is in any of
the Member States. An interesting feature is that it does not distinguish between national
and international arbitration.53 This makes sense in this particular regional context, where
the law is increasingly harmonised and there is a single currency, so that the distinction
between national and international trade becomes blurred. Logically, the domiciles,
nationalities, and habitual residences of the parties involved are irrelevant. Parties from
outside this area may become subject to the uniform act by choosing arbitration in any of
the OHADA States.
Function of arbitration institution
When drawing up an arbitration clause, parties can decide whether they would like to have
their arbitration in the framework of an institution or rather by way of ad hoc arbitration.54
An arbitration institution has the advantages of containing a set of rules for the conducting
of the procedure and possibly aiding with the administration of the arbitration and with
the appointment or confirmation of the arbitrator(s).
Some institutions also have the power to review draft arbitral awards regarding their form.
The OHADA Common Court of Justice and Arbitration has this capacity.55 Thus, before
an award becomes final, it has to pass thought the hands of the Court.
Normally the function of an arbitration institution would end here.
Function of court
The OHADA Common Court of Justice and Arbitration is also a court in the true sense
of the word. It is the highest court of appeal when it comes to the interpretation of
uniform acts, and thus also of the uniform act of arbitration. Furthermore, it also has a
function in institutional arbitration.
Let us start with non-institutional, or ad hoc arbitration. Such procedures take place under
the auspices of the national courts. This is determined by the Uniform Arbitration Act,
which at various instances refers to the competent judge in a Member State.56 However, as
52
Acte uniforme sur le droit de l’arbitrage dans le cadre du traité OHADA.
Many national arbitration acts do make this distinction, with the exception of Quebec; see R Boivin &
P Pic, ‘L’arbitrage international en Afrique: quelques observations sur l’OHADA’ (2002) 32 Revue
générale de droit 847-864 at 854.
54
See A Redfern, M Hunter, N Blackaby & C Partasides, Law and Practice of International Commercial
Arbitration (London: Sweet & Maxwell, 2004) para 1-100 – 1-120, discussing the advantages and
disadvantages of these different types of arbitration.
55
Arts 2.2 and 23 of the Règlement d’arbitrage de la Cour commune de justice et d’arbitrage.
56
For instance art 5 regarding the composition of the arbitral tribunal, art 12 on the determination of time
limits, art 14 regarding evidence, art 25 on annulling the award, and art 30 on recognition and
enforcement.
53
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highest court of appeal, the Common Court of Justice and Arbitration has an important
role. That is where the parties would appeal a national court decision refusing the
enforcement of an arbitral award.57 In the case of ad hoc arbitration, this capacity of the
Court does not directly come in conflict with its role as arbitration institution. However,
an arbitration institution might be more prone to grant enforcement than to refuse it.
Whether the Court’s function as arbitration institution would influence it in the fulfilling of
its role as court of appeal, will have to be pointed out by practice.
Regarding institutional arbitration, a party wishing to contest the validity of the arbitration
award, must do so by application to the Common Court of Justice and Arbitration. This
provision,58 as well as the bases upon which the arbitral award can be annulled, are
enumerated in the Règlement d’arbitrage, which is the instrument in which the procedure is
regulated, including issues such as the appointment and confirmation of the arbitrator(s),
and notification, communication, delays, confidentiality, seat of arbitration etc. Here the
Court’s dual role becomes apparent. Efficient, some would say. Indeed, but let us for a
moment turn away from the gains for the process of arbitration to the losing party. If
there were a real concern of invalidity, such party would be able to have recourse to a
court to annul the award. This remedy in fact does not exist under OHADA arbitration:
the losing party can only turn to the arbitration institution itself, even though the
institution is clad in another set of robes.
The same can be said regarding the enforcement of an arbitral award. Normally a
declaration is sought from a court in the country where enforcement should take place. In
the OHADA system, this function is granted to the Common Court of Justice and
Arbitration. This function is also found in the same Règlement.59 Moreover, enforcement is
granted not only for one specific country, but simultaneously for the entire OHADA
region. Once again, no second bite at the cherry, which is advantageous for the arbitration
process in general, but not necessarily for an (rightfully) aggrieved party. When the award
is given, it has effect throughout the region. Its enforcement is only dependent on the
stamp of the arbitration institution, which has already checked its formal validity as a draft.
This efficiency might turn out to work well. On the other hand, the abundant power in the
hands of a single institution might have the effect of turning potential arbitrators away
from OHADA institutional arbitration. It is early days.
In conclusion, OHADA has set up an interesting way of dealing with arbitration, both
national and international. Its Member States have unified arbitration legislation and an
arbitration institution has been set up. The procedures enacted seem effective and to the
benefit of arbitration generally. On the other hand, arbitration has had a fundamental
history as separate from court systems. Hopefully the OHADA Common Court of Justice
and Arbitration will be able to wear its two hats without confusion (to itself and to others).
57
Art 32 of the Uniform Act. Note that a decision to enforce cannot be appealed. See also R Boivin & P
Pic, ‘L’arbitrage international en Afrique: quelques observations sur l’OHADA’ (2002) 32 Revue
générale de droit 847-864 at 855-856.
58
Art 29.
59
Art 30.
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THE WTO DISPUTE SETTLEMENT PROCEDURE AND THE
PARTICIPATION OF THE DEVELOPING COUNTRIES
By:
Sandra C. Negro60
The World Trade Organization61 –WTO- legal order has an advanced dispute settlement
system – compared to other mechanisms in international public law. It integrates
diplomatic and non diplomatic stages and arbitration procedures with an efficient
implementation of rulings.
The WTO dispute settlement was created as a response to the need to improve and
complement articles XXII and XXIII of GATT 194762. The General Council, acting as the
Dispute Settlement Body –DSB- plays a fundamental role to secure implementation of the
rules and procedures, as stated in the Understanding on rules and procedures governing
the Settlement of Disputes63 –DSU.
The system implemented from 1995 through the DSU aims to secure the rights of the
Members under agreements covered by the WTO. Members recognize that one function
of the DSU is to preserve their rights and obligations as well as the recognition that the
recommendations and rulings of the DSB cannot add to or diminish the rights and
obligations provided in the covered agreements64. In addition, with the purpose of
constraining Members discretion to apply unilateral sanctions, the mechanism
contemplates previous authorisation from the DSB for the imposition of compensatory
and retaliatory measures.
371 disputes were submitted to the WTO between January 1st 1995 and February 7th 2008.
Members have been highly engaged. From 1995 to April 23rd 2007, 134 disputes were
submitted by developed Members against other developed Members whereas 86 were
Doctor in Law (Buenos Aires University – UBA). Professor of Integration Economic Law and
International Public Law (UBA). Deputy Director and main researcher of Interdisciplinary Study Centre on
Industrial and Economic Law (CEIDIE-UBA).
60
61
To find more about the system created by the Marrakesh Agreement, see: Avila, A. M.; Castillo Urrutia, J.A. and
Díaz Mier, M.A., (1994), Regulación del Comercio Internacional tras la Ronda Uruguay, TECNOS, Madrid;
Culot H.(2005)., « Soft law et Droit de l´OMC », in Revue Internationale de Droit Economique, t.XIX, N. 3 ,
Editions de Boeck Université, Bélgique, Díaz Mier (1996), Del GATT a la Organización Mundial del Comercio,
Serie Economía Actualidad, Editorial Síntesis, Madrid, Jackson J. (1997), The World Trading System-Law and
Policy of International Economic Relations, 2nd ed., Cambridge (MA), Londres, MIT Press.
62
For a revision of the dispute settlement procedure between 1948-1994 see Montañá Mora M.(1997), Chapter II in
La OMC y el reforzamiento del sistema GATT, Mc Graw Hill, Madrid. It includes analysis of articles XXII and
XXIII and the evolution of the system after the Tokio Round, as well as the Ministerial Declaration of 1982, the
1984 CONTRACTING PARTIES Decision, the Ministerial Declaration of 1986, the 1988 GATT Council Decision
and the 1989 CONTRACTING PARTIES Decision.
63
See Agreement Establishing the World Trade Organization, Articles III. 3 and IV.3.
64
See DSU article 3. 2.
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against developing Members. On the other hand, developing countries submitted 80
disputes against developed Members and 57 against developing Members65.
The United States, the European Communities, Canada and Japan are the most active
Members among developed countries. Brazil and Argentina in South America, Mexico and
Guatemala in Central America and India and Korea in Asia are the most active developing
countries.
Mexico, Brazil and Argentina, among others, have designed their own institutional
infrastructure and increased their specialized staff to manage WTO controversies.
Nevertheless, it is important to highlight that developing and least developed countries
have faced implementation of the DSU with scarcity or even complete lack of financial
and human resources. The international cooperation plays a key role in this issue, through
capacity building aimed to reduce inequality in the implementation of the DSU and the use
of the system.
One characteristic of the DSU is its search for acceptable solutions for its Members. It is
neither in the articles nor in the spirit of the mechanism to issue a ‘condemnatory
sentence’. ‘The aim of the dispute settlement mechanism is to secure a positive solution to
a dispute’ (article 3.7 DSU). It indicates explicitly that the use of the procedure ‘should not
be intended or considered as contentious acts’ (article 3.10 DSU). In addition, it
establishes a need for ‘the prompt settlement of situations in which a Member considers
that any benefits accruing to it directly or indirectly under the covered agreements are
being impaired by measures taken by another Member’ (article 3.3 DSU).
Another distinctive element of the procedure is its preference for mutually agreed
solutions rather than the setting up of the quasi legal stage66 (the privilege for diplomatic or
negotiation mechanisms among the parties was inherited from GATT 194767). However, if
a mutually agreed solution cannot be reached and a Panel is established, the option of
restarting negotiations remains existent throughout the procedure.
In addition, special rules have been incorporated for different cases, such as the
intervention of least developed countries (article 24 DSU), the composition of the Panel in
a dispute between a developed and a least developed country (article 8.10 DSU), and the
acceleration of the proceedings in urgency cases, including those which concern perishable
goods (article 4.9 DSU).
It is essential to indicate any dispute must be based on international trade and can only be
submitted under the DSB by Members of the WTO. The rules and procedures to solve the
65
See ‘Update of WTO Dispute Settlement Cases’ Document WT/DS/OV/30 April 25th 2007.
Pérez Gabilondo, José Luis (2004), analyses the coexistence of Diplomatic Oriented and Rule Oriented measures
in the DSU in Manual sobre Solución de Controversias en la Organización Mundial del Comercio (OMC)
Principios+procedimiento+Práctica Argentina, Universidad Nacional de Tres de Febrero Editions, Buenos Aires,
pp. 54.
67
Regarding the diplomatic procedure for dispute settlement during GATT 1947 see Hudec, R.(1970) “The GATT
legal system: A Diplomat´s Jurisprudence” in Journal of World Trade, num 4, pp. 615-655. Regarding the reasons
because of the Europpean Communities did not agree to negotiate a dispute settlement system which would not
include power-oriented or diplomatic approach see Montañá Mora, op. Cit, chapter III, footnote n°8, pp.101.
66
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disputes are well established in the DSU and must be founded on any covered
agreements68.
The dispute settlement mechanism is a significant contribution from the Uruguay Round
negotiations. The choice of numerous Members to defend their interests successfully
under the system is proof of its acceptance and efficiency. The Panel and Appellate Body
reports include the findings, resolutions and recommendations to be put into practice by
the party that loses the case. Crucially, implementation of a ruling must respect the agreed
timetable (an innovation introduced in the DSU).
The DSB authorization for compensation, suspension of concessions or retaliatory
measures implies the imposition of constraints to the unilateral actions of more powerful
Members and, at the same time, stresses the temporary nature of such measures. These
measures do not authorize the persistence of the infraction - the main aim of the
mechanism is to secure a positive solution to a dispute.
Even if the imposition of retaliatory measures (which were imposed arbitrarily in many
cases before 1995) depends on the authorization of the DSB to prevent unilateral actions
of powerful Members, it is imperative to recognize the existence of asymmetries among
the parties in a dispute. This is evident in those cases where the successful complainant is a
developing country and the respondent a developed country, with the latter refusing to
apply the rulings after the DSB determines an infraction has occurred. For example in the
dispute European Communities- Bananas69 the US, Honduras, Guatemala, Ecuador and
Mexico were complainants. Even when the reports confirmed the infractions by the EC,
the EC refused to implement the rulings. In this situation, the DSB authorized the
imposition of retaliatory measures by the complainants. However, only the US was able to
impose them, because of the lack of power of the developing countries involved.
Therefore, the disparity in the development level among the parties in the dispute can
frustrate the expectations of a developing country to make a powerful Member follow its
obligations under the WTO, given its lack of resources to impose retaliatory measures until
the rulings are implemented.
In this sense, all the advances that can still be made to consolidate the objective of ‘prompt
compliance’ of the rulings will provide a higher credibility and level of participation for
developing countries.
However, the existence of asymmetries among the Members of the WTO has to be
considered beyond the inclusion of rules that recognize explicitly the differences in
development levels and include special and differential treatment. The WTO and
developed countries have much to do on this subject: to increase their efforts to build
human resource capacity in developing countries in order to avoid further widening of
inequalities in their ability to draw on the system. In the past decade, universities in
Argentina and Brazil have established interesting initiatives designed to disseminate
68
However, as stated in article 1 of the DSU, some multilateral agreements such as Agreement on the Application of
Sanitary and Phytosanitary Measures (SPS), Agreement on Textiles and Clothing (ATC), Agreement on Technical
Barriers to Trade (TBT) and others mentioned in Apendix 2 of the DSU, establish special or additional rules and
procedures. If there is a conflict between the additional rules and procedures and those in the DSU, article 1.2
indicates that the additional rules and procedures shall prevail.
69
See WT/DS27.
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information and educate students about the WTO rules and, in particular, the dispute
settlement mechanism.
Therefore, the multilaterally agreed rules are instruments to further integrate countries into
international markets. However, it is necessary to leverage these rules with the impact they
have in the economic growth and development of the each country.
The current revision of these legal instruments - after 10 years of use - (for instance the
revision of the DSU) is very important to prevent the recurrence of crisis or the
abandonment of negotiation rounds. Additionally, it is imperative to evaluate and design
strategies to overcome conflicts which threaten to lead to opposite positions in the
negotiations, such as in agriculture. Evidently, the current legal frame in the WTO has
improved the former existent in the GATT era. However, there is still much work to be
done to make the system respond to the requirements and interests of the majority of the
WTO Members, given that two-thirds are developing countries.
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Arbitration : A New Alternative for Intellectual Property
Dispute
Resolution in Thailand
By:
Orabhund Panuspatthna
∗
Introduction
The objective of this article is to demonstrate that arbitration is a worthy new
alternative for intellectual property dispute resolution apart from normal litigation in court.
The article is based upon the author’s personal experience in handling with a dispute
referred to the Office of Intellectual Property Dispute Prevention and Settlement for
proper arbitration. This article is divided into three parts as follows:
- Part I : Roles of the Department of Intellectual Property on
Alternative Dispute Resolution
- Part II : Dispute Settlement by Way of Arbitration under the
DIP’s Role
- Part III : Concluding Remarks
Part I : Roles of the Department of Intellectual Property on
Alternative Dispute Resolution
Currently, intellectual property plays an important role and is used as a tool for
development of the country’s trade and economy. In trade competition, traders in various
fields attach greater importance to intellectual property exploitation in order to create
value added to their goods and services. Intellectual property disputes are, consequently,
risen. In the past, the disputes were settled through lawsuit in court, which was time
consuming and resulted in high costs, pressure and deterioration of business relationship
between parties to dispute.∗∗
The Department of Intellectual property, as an government agency whose
responsibilities cover both administration and development of intellectual property, has
realized of these difficulties. It, therefore, set up the Office of Dispute Prevention and
Settlement of Intellectual Property in June 2002 in order to introduce the internationally
accepted and widely used mediation and arbitration systems as supplementary mechanism
for intellectual property dispute resolution in Thailand.
In July of the same year, the Ministry of Commerce issued the regulation on
Intellectual Property Arbitrator and the Regulation on Intellectual Property Mediation. In
∗
LL.B (Hons) , Chulalongkorn University , Thailand
LL.M , Harvard Law School , U.S.A.
Associate Professor , Faculty of Law , Chulalongkorn University, Bangkok, THAILAND
∗∗
Kanissorn Navanugraha , Settlement of Intellectual property disputes , (Bangkok : Department of
Intellectual property , 2004 ), Preface
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addition, in December the department published a list of intellectual property arbitrators.
A list of arbitrators in intellectual property capitalization was, later, published in July 2004.
Since its establishment, the Office of Intellectual Property Dispute Prevention
and Settlement has successfully handled 2 arbitration cases and compromised over 100
intellectual property disputes.
Part II : Dispute Settlement by Way of Arbitration under the DIP’s
Role
Arbitration is a type of dispute resolution for civil cases. The parties to dispute
voluntarily refer their case to a third party called arbitrator who will arbitrate and give the
award in accordance with all evidences presented to him. The award is required to be
observed by the parties.
Normally, dispute settlement by way of arbitration takes only 90 – 180 days from
the appointment of arbitrator. Unlike court proceeding, arbitration procedures lie in
absence of complicated formalities. Moreover, intellectual property expertise held by
arbitrators makes dispute settlement expeditious, fair and satisfiable to all concerned
parties. Since arbitration procedures are conduced in undisclosed proceeding ; parties to
dispute, who normally are traders, can protect their reputation and secret. Confrontation
between the parties is rarely found and enables them to continue their good relationship.
In addition, arbitration proceeding is economical ; only normal expenses, for instance
transportation and arbitrator’s allowances, are required, which are less than those incurred
in normal court litigation.
In order to demonstrate whether arbitration is a worthy new alternative for
intellectual property dispute resolution ; the author would like to present and discuss on a
case which was voluntarily referred to the Office of Intellectual Property Dispute
Prevention and Settlement and of which she had an opportunity to be in charge as its
arbitrator.
The fact of the case can be summarized as follows. In December of the year 2002,
the infringer reproduced 1,000 animal pictures which are copyrighted works of the author
and uploaded these pictures on his internet website. The infringer informed the author of
his pubic communication through e-mail ; he also identified the author’s name on the first
page of his website. Once the author visited the website, he gave notice to infringer to take
down those pictures by posting his warning in the guest book on that website. But no
avail was made. On September 29th 2003, the author submitted a complaint to the Director
of the Department of Intellectual Property and requested to have this dispute settled
through the channel provided by the Department.
Subsequently, the office of Intellectual Property Dispute Prevention and
Settlement invited both parties to give statement and preliminary explanations. At the first
place, both parties agreed to have the Office to handle this dispute as their mediator. On
December 30th 2003, the mediation meeting was held; but the parties failed to reach and
agreement on the amount of damages. On July 7th 2004, they therefore furthered their
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dispute in to the process of proper arbitration. A week later, a list of 9 qualified persons
was sent to the parties for their consideration in order to select an arbitrator. After
carefully selection, both parties agreed and appointed their arbitrator on December 2nd,
2004. On the same day, arbitrator determined the issues of dispute. Since the authorship
and copyright of the work fallen under the legal presumption that those pictures were
copyrighted works of the author ; there were only two issues of dispute that required
hearing. First issue regarded Copyright infringement and the second issue regarded the
amount of damages. The hearings were conducted in undisclosed proceedings with nonformalities and without legal counsellors. After 3 hearings with 6 witness, the award was
rendered on February 25th , 2005. It instructed the infringer to pay the compensation to
the author for 380 pictures as testified at the hearing. In assessing damages, the arbitrator
took into her account prevailing royalty rates for public communication of pictures
through media; which are varied depend upon amount of works, duration of time, purpose
of public communication, benefit earning, media popularity as well as reputation of author.
In this case, although the author had well reputation, the internet website of the infringer
was not well known to the public and was operated for non-profit purpose. The pictures
were also made available to public for a short period of time. Consequently, the royalty
fee in this case could not be granted as high as that in the case of public communication
through television or newspaper.
Part III : Concluding Remarks
From the above mentioned dispute, the author would like to make concluding
remarks on arbitration proceeding as follows :
This dispute was referred to the Office of Intellectual
1. Rapidity of Proceeding
Property Dispute Prevention and Settlement in late 2003 . It took the Office 3 months to
handle the mediation which turned out to be unsuccessful. The dispute was furthered to
arbitration proceeding 2 years later. The delay, however, was the result of late submission
of the parties’ claim and answer as well as their disagreement on selection of a proper
arbitrator. Eventually, the award for this dispute was delivered within 90 days after the
commencement of arbitration proceeding.
The Announcement of the Arbitration Commission on Rates
2. Low Costs
of arbitrator’s Allowances and Expenses in Arbitration proceeding stated that the
arbitrators’ allowances are at 1-1.5 percent of the amount in dispute, but not less than
5,000 Baths and not more than 120,000 Baths. Other expenses are :- cost of tea for each
meeting : 50 Baths per head ; stationery cost : 50 Baths for each tape cassette, 150 Baths
for each of transcribing, 150 Baths for transcribing of each recorded video ; and
transportation allowance for arbitrators : 500 per trip per person.
The above dispute costed 5,000 Baths for arbitrator’s allowance, 4 trips were made
and 5 tape cassettes were used for 4 meetings. The total costs is, therefore, lower than
normal costs incurred in court litigation.
Since arbitration proceeding was
3. Good Relationship Between Parties
conducted undisclosely with non-formality in a simple meeting room ; confrontation
between parties and stress are rarely found.
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The greatest merit of arbitration
4. Fairness and Satisfaction of the Parties
proceeding is that the parties to dispute are in capability to select arbitrator to their
satisfaction. In the above cast, the parties spent 5 months to select a proper acceptable
arbitrator. Satisfaction with arbitrator would, certainly, lead to the parties’ willingness to
be bound by the award. Although the compensation for damages awarded in this cast was
not as high as the amount that the author expected ; once the proper remedy was
reasonably granted, it could be regarded as fair to the parties.
From the above demonstration, the author would like to conclude that
arbitration is a proceeding with rapidity, low costs, fairness, parties’ satisfaction and
continuation of good relationship of parties. These consequences should convince us that
arbitration is a new alternative for intellectual property dispute resolution that is worth a
try.
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Jurisdiction and Choice of Law
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Remarks on the autonomous interpretation of the Brussels
Regulation, in particular of the concept of „place of delivery”
under Art. 5(1)(b), and the Vienna Sales Convention
(on the occasion of a recent Italian court decision)
By:
Franco Ferrari*
I. Introduction
It is common knowledge that the so-called „communitarization“1 or
„Europeanization”2 of private international law and international civil procedure has led,
among others3, to the Council Regulation (EC) No 44/2001 of 22 December 2000 on
jurisdiction and the recognition and enforcement of judgments in civil and commercial
matters4 (hereinafter: Brussels I Regulation ), that has taken the place of the 1968 Brussels
*
Professor of International Law, Verona University School of Law; former Legal Officer, United
Nations Office of Legal Affairs, International Trade Law Branch.
1
For the use of this expression, see BASEDOW, The Communitarization of the Conflict of Laws
under the Treaty of Amsterdam, Common Law Market Review, 2000, p. 687 ff.; GEIMER, Salut für die Verordnung
(EG) Nr. 44/2001 (Brüssel I-VO). Einige Betrachtungen zur “Vergemeinschaftung” des EuGVÜ, Praxis des
Internationalen Privat- und Verfahrensrechts, 2002, p. 69 ff.; MOURRE, Chronique de droit international privé
appliqué aux affaires: la communautarisation de la coopération judiciaire en matière civile, Revue de droit des
affaires internationales, 2001, p. 770 ff.; NUYTS, La communautarisation de la convention de Bruxelles, Journal des
tribunaux, 2001, p. 913 ff.; POCAR, La comunitarizzazione del diritto internazionale privato: una “European
Conflict of Laws Revolution?, Rivista di diritto internazionale privato e processuale, 2000, p. 873 ff.; TAGARAS, La
révision et communautarisation de la Convention de Bruxelles par le règlement 44/2001, Cahiers de droit européen,
2003, p. 399 ff.; Vergemeinschaftung des europäischen Kollisionsrechts: Vorträge aus Anlaß des fünfzigjährigen
Bestehens des Instituts für Internationales und Ausländisches Privatrecht der Universität zu Köln (Mansel ed.,
Cologne/Berlin/Bonn/Munich, 2001); WEBER, Die Vergemeinschaftung des internationalen Privatrechts (Berlin,
2004).
2
For this expression, see HEß, Die Europäisierung des internationalen Zivilprozessrechts durch
den Amsterdamer Vertrag, Neue Juristische Wochenschrift, 2000, p. 23 ff.; KREUZER, Die Europäisierung des
internationalen Privatrechts - Vorgaben des Gemeinschaftsrechts, in Gemeinsames Privatrecht in der Europäischen
Gemeinschaft (Müller-Graff ed., Baden-Baden, 2nd ed., 1999), p. 457 ff.; LEIBLE, Die Europäisierung des
internationalen Privat- und Prozessrechts: Kompetenzen, Stand der Rechtsvereinheitlichung und Perspektiven, in La
cooperación judicial en materia civil y la unificación del derecho privado en Europa (Sánchez Lorenzo/Moya
Escudero ed., Madrid, 2003), p. 13 ff.; SCHNYDER, Die Europäisierung des Internationalen Privat- und
Zivilverfahrensrechts: Herausforderung auch für die Schweiz, in Festschrift für Erik Jayme (Mansel ed., Munich,
vol. 1, 2004), p. 823 ff.
3
See, among others, Council Regulation (EC) No 805/2004 of the European Parliament and of the
Council of 21 April 2004 creating a European Enforcement Order for uncontested claims, Official Journal L 143, of
30 April 2004, p. 15 ff.; Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and
the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility,
repealing Regulation, Official Journal L 338, of 23 December 2003, p. 1 ff.; Council Regulation (EC) No 1206/2001
of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or
commercial matters, Official Journal L 174, of 27 June 2001, p. 1 ff.; Council Regulation (EC) No 1347/2000 of 29
May 2000 on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and in matters of
parental responsibility for children of both spouses, Official Journal L 160, of 30 June 2000, p. 19 ff.; Council
Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings, Official Journal L 160, 30 June 2000, p.
1 ff.; Council Regulation (EC) No 1348/2000 of 29 May 2000 on the service in the Member States of judicial and
extrajudicial documents in civil or commercial matters, Official Journal L 160, of 30 June 2000, p. 37 ff.
4
See Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters, Official Journal L 12, of 16 January
2001, p. 1 ff.; Commission Regulation (EC) No 1937/2004 of 9 November 2004 amending Annexes I, II, III and IV
to Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil
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Convention5. The “communitarization of the Brussels Convention”6 is, however, only a
partial one7, as can easily be derived from the Brussels I Regulation itself, namely from its
Article 1(3)8 as well as from consideration n. 219. Accordingly, as also pointed by the
Tribunale di Padova in its decision of 10 January 200610 to be commented on here, in
Denmark the Brussels Convention will still be applicable11, and this, at least partially, even
after the coming into force of the Agreement between the European Community and
Denmark12 aimed at extending to Denmark the provisions of the Brussels I Regulation13.
The aforementioned decision is worth being commented on not as much,
however, for its reference to the fact that the communitarization of the Brussels
Convention is only a partial one, but rather for its exemplary interpretation of the Brussels
I Regulation, in particular of the concept of “place of delivery” referred to in Article
5(1)(b) Brussels I Regulation.
The Tribunale di Padova had to decide whether it had jurisdiction over a dispute
relating to a contract for the delivery of two merry-go-rounds concluded between a
plaintiff with place of business in Italy, who sued for the purchase price, and a defendant
with place of business in England, where the merry-go-rounds had been delivered and
assembled. Since the defendant did not enter an appearance, the Italian court dealt ex officio
with the issue of whether it had jurisdiction, as required by Article 26 Brussels I
and commercial matters, Official Journal L 334, of 10 November 2004, p. 3 ff.; Commission Regulation (EC) No
2245/2004 of 27 December 2004 amending Annexes I, II, III and IV to Council Regulation (EC) No 44/2001 on
jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, Official Journal L
381, of 28 December 2004, p. 10 ff.
5
See Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in
Civil and Commercial Matters, Official Journal, 1978 L 304, p. 36 ff., as amended by the Convention of 9 October
1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern
Ireland, Official Journal, 1978 L 304, p. 1 ff., and (– amended version – 77 ff.), by the Convention of 25 October
1982 on the Accession of the Hellenic Republic, Official Journal, 1982 L 388, p. 1 ff., by the Convention of 26 May
1989 on the Accession of the Kingdom of Spain and the Portuguese Republic, Official Journal, 1989 L 285, 1 ff.,
and by the Convention of 29 November 1996 on the Accession of the Republic of Austria, the Republic of Finland
and the Kingdom of Sweden, Official Journal, 1997 C 15, p. 1 ff.
6
BESSE, Die Vergemeinschaftung des EuGVÜ, Baden-Baden, 2001; MICKLITZ/ROTT,
Vergemeinschaftung des EuGVÜ in der Verordnung (EG) Nr. 44/2001, Europäische Zeitschrift für Wirtschaftsrecht,
2002, p. 15.
7
See CZERNICH/TIEFENTHALER, Einleitung, in Kurzkommentar. Europäisches Gerichtsstand- und
Vollstreckungsrecht (Vienna, 2nd ed., 2003), p. 9.
8
See Article 1(3) Brussels I Regulation: “In this Regulation, the term "Member State" shall mean
Member States with the exception of Denmark.”
9
See Consideration n. 21: “Denmark, in accordance with Articles 1 and 2 of the Protocol on the
position of Denmark annexed to the Treaty on European Union and to the Treaty establishing the European
Community, is not participating in the adoption of this Regulation, and is therefore not bound by it nor subject to its
application.”
10
See Tribunale di Padova, 10 January 2006, Giurisprudenza italiana, 2006, p. 1013 ff., also
published on the internet at <http://cisgw3.law.pace.edu/cases/060110i3.html>.
11
See DROZ/GAUDEMET-TALLON, La transformation de la Convention de Bruxelles du 28
septembre 1968 en règlement du Conseil concernant la compétence judiciaire, la reconnaissance et l'exécution des
décisions en matière civile et commerciale, Revue critique de droit international privé, 2001, p. 614 f.
12
See Proposal for a Council Decision concerning the conclusion of the Agreement between the
European Community and the Kingdom of Denmark extending to Denmark the provisions of Council Regulation
(EC) No 44/2001 on jurisdiction and the recognitions and enforcement of judgments in civil and commercial matters,
COM(2005)145 def., of 15 April 2005; Council Decision of 20 September 2005 on the signing, on behalf of the
Community, of the Agreement between the European Community and the Kingdom of Denmark on jurisdiction and
the recognition and enforcement of judgments in civil and commercial matters, Official Journal L 299, of 16
November 2005, p. 61 f.
13
V. JAYME/KOHLER, Europäisches Kollisionsrecht 2005: Hegemonialgesten auf dem Weg zu
einer Gesamtvereinheitlichung, Praxis des Internationalen Privat- und Verfahrensrechts, 2005, p. 485 f.
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Regulation14. In doing so, sitting as a sole judge, Judge Alessandro Rizzieri, known to those
focusing their research on the United Nations Convention on Contracts for the
International Sale of Goods15 (hereinafter: CISG16) for having rendered some of the most
famous decisions concerning this Convention17, one of which18 is considered to be
“impressive” “an example of how the international character of the United Nations
Convention on Contracts for the International Sale of Goods ("CISG") can be
achieved”19, grasped the occasion to extensively analyze and “autonomously” interpret
some of the key concepts of the Brussels I Regulation. The most innovative parts of the
decision are not those, however, in which the court interprets these concepts
“autonomously”, since courts had already done so previously20, but rather that in which
Judge Rizzieri, in order to interpret the Brussels I Regulation in general and its concept of
„place of deliver“ in particular, resorts to international substantive law instruments, namely
the CISG, the Unidroit Principles of International Commercial Contracts21 as well as the Principles of
European Contract Law22.
II. Temporal and substantive sphere of application of the Brussels I Regulation
It is common knowledge, and Judge Rizzieri has pointed this out, too, that the
Brussels I Regulation’s temporal sphere of application is defined by Article 66 Brussels I
Regulation23. According to this provision, which is based on the principle of “nonretroactivity”24, “this Regulation shall [generally] apply only to legal proceedings instituted
and to documents formally drawn up or registered as authentic instruments after the entry
into force thereof”. Since the legal proceedings Judge Rizzieri had to deal with had been
instituted on 9 August 2004, i.e. undoubtedly after the Regulation’s coming into force on
14
It should be noted that the court did not expressly refer to Article 26 Brussels I Regulation;
nevertheless, it is to be presumed that it is this provision which led the court to deal with the issue of jurisdiction.
15
For the text of the Convention, see International Legal Materials, 1980, p. 668 ff.
16
For a reference to the various abbreviations used for the United Nations Convention on Contracts
for the International Sale of Goods, see FLESSNER/KADNER, CISG? Zur Suche nach einer Abkürzung für das Wiener
Übereinkommen über Verträge über den internationalen Warenkauf, Zeitschrift für europäisches Privatrecht, 1995,
p. 347 ff.
17
See Tribunale di Padova, 11 January 2005, Rivista di diritto internazionale privato e
processuale,
2005,
p.
791
ff.,
also
published
on
the
internet
at
<http://www.unilex.info/case.cfm?pid=1&do=case&id=1005&step=FullText>; Tribunale di Padova, 31 March 2004,
Giurisprudenza di merito, 2004, p. 1065 ff., also published on the itnernet at <http://www.cisgonline.ch/cisg/urteile/823.pdf>; Tribunale di Padova, 25 febbraio 2004, Giurisprudenza italiana, 2004, p. 1403 ff.
,also published on the internet at <http://www.cisg-online.ch/cisg/urteile/819.pdf>.
18
See Tribunale di Vigevano, 12 July 2000, Giurisprudenza italana, 2001, p. 280 ff., also
published in English on the internet at <http://www.cisg-online.ch/cisg/urteile/493.htm>.
19
MAZZOTTA, The International Character of the UN Convention on Contracts for the
International Sale of Goods: An Italian Case Example, Pace International Law Review, 2003, p. 438; see also
FERRARI, Problematiche tipiche della Convenzione di Vienna sui contratti di vendita internazionale di beni mobili
risolte in una prospettiva uniforme, Giurisprudenza italiana, 2004, p. 1407.
20
See Tribunale di Rovereto, 28 August 2004, International Lis, 2005, p. 132, also published on
the internet at <http://www.cisg-online.ch/cisg/urteile/902.pdf>.
21
See Unidroit Principles of International Commercial Contracts, published on the internet at
<http://www.unidroit.org/english/principles/contracts/principles2004/blackletter2004.pdf>.
22
See Principles of European Contract Law, published on the internet at
<http://frontpage.cbs.dk/law/commission_on_european_contract_law/Skabelon/pecl_engelsk.htm>.
23
See also THORN, Gerichtsstand des Erfüllungsorts und intertemporales Zivilverfahrensrecht,
Praxis des internationalen Privat- und Verfahrensrechts, 2004, p. 354.
24
See STAUDINGER, Einleitung, in Europäisches Zivilprozessrecht. Kommentar (Rauscher ed.,
Munich, 2004). p. 15; TIEFENTHALER, Art. 66, in Kurzkommentar. Europäisches Gerichtsstand- und
Vollstreckungsrecht, supra note 7, p. 369.
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1st March 2002, it cannot surprise that Judge Rizzieri stated that “the Regulation’s
temporal applicability requirements have certainly been met”25. Consequently, Judge
Rizzieri did not see it necessary to discuss which procedural law governs the issue of when
proceedings can be considered as being instituted. In this author’s opinion, this issue is to
be solved on the basis of the procedural law of the forum26, not unlike under the Brussels
Convention27. One should not, as suggested by some commentators28, resort to Article 30
Brussels I Regulation to solve the issue, as this would contrast with the wording of this
provision29, according to which it merely applies to provisions of Section 9 of the Brussels
I Regulation, i.e. the provisions dealing with lis pendens and related actions30.
While the Brussels I Regulation’s temporal sphere of application is defined by its
Article 66, its substantive sphere of application is to be derived from Article 1; according
to this provision, it applies, as also pointed out by Judge Rizzieri in his decision, “in civil
and commercial matters whatever the nature of the court or tribunal.” “Thus, what is
decisive is the qualification of the subject matter. The type of court seized, on the other
hand, is completely irrelevant”31.
The Brussels I Regulation does not define the concept of „civil and commercial
matters“32; this, however, should not lead the interpreters to resort to domestic definitions,
as also pointed out by Judge Rizzieri who, citing ECJ case law issued in application of the
equivalent provision of the Brussels Convention33 in order to ensure, where possible34,
25
For case law that applied the Brussels Convention instead of the Brussels I Regulation due to the
latter’s Article 66 requirements not being met, see BGH, 6 October 2005, Internationales Handelsrecht, 2005, p. 259
ff.; BGH, 28 September 2005, Neue Juristische Wochenschrift Rechtsprechungs-Report, 2005, p. 1593 f.; Cass. civ.,
12 January 2005, Giustizia civile Massimario, 2005, p. 1; BGH, 7 December 2004, Neue Juristische Wochenschrift
Rechtsprechungs-Report, 2005, p. 581 ff..
26
For this opinion see also MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in der
neuen EuGVO, Internationales Handelsrecht, 2002, p. 45 note 3; STAUDINGER, Art. 66 Brüssel I-VO, in
Europäisches Zivilprozessrecht. Kommentar, supra note 24, p. 487; in case law see OLG Düsseldorf, 30 January
2004, Internationales Handelsrecht, 2004, p. 108 ff.
27
See BGH, 28 February 1996, Neue Juristische Wochenschrift, 1996, p. 1411 ff.
28
See SCHLOSSER, EU-Zivilprozessrecht. Kommentar. EuGVVO, EuEheVO, EuBVO, EuZVO, (2nd
ed., Munich, 2003), p. 330; TIEFENTHALER, Art. 66, in Kurzkommentar. Europäisches Gerichtsstand- und
Vollstreckungsrecht, supra note 7, p. 370.
29
See Article 30 Brussels I Regulation: “For the purposes of this Section, a court shall be deemed
to be seised:
1. at the time when the document instituting the proceedings or an equivalent document is lodged with the
court, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have service
effected on the defendant, or
2. if the document has to be served before being lodged with the court, at the time when it is received by
the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps he was
required to take to have the document lodged with the court.” (emphasis added by the author)
30
For this conclusion, see also STAUDINGER, Art. 66 Brüssel I-VO, in Europäisches
Zivilprozessrecht. Kommentar, supra note 24, p. 487.
31
MANKOWSKI, Art. 1 Brüssel I-VO, Europäisches Zivilprozessrecht. Kommentar, supra note 24, p.
47; in case law, see ECJ, 14 October 1976, case 29/76 (LTU Lufttransportunternehmen GmbH & Co.
KG/Eurocontrol), European Court Reports, 1976, 1541, sub 3.
32
For this statement see, e.g., LUPOI, Conflitti transnazionali di giurisdizione (Milan, vol. 1, 2002),
p. 279 f.
33
In its decision, the Tribunale di Padova referred to the following ECJ decisions: ECJ, 22
February 1979, case 133/78 (Henri Gourdain/Franz Nadler), European Court Reports, 1979, 733, sub 3; ECJ, 21
April 1993, case C-172/91 (Volker Sonntag/Hans Waidmann), European Court Reports, 1993, I-1963, sub 18; ECJ,
15 May 2003, case C-266/01 (Préservatrice foncière TIARD SA/Niederlande), European Court Reports, 2003, I4867, sub 20.
See also ECJ, 14 October 1976, case 29/76 (LTU Lufttransportunternehmen GmbH & Co.
KG/Eurocontrol), European Court Reports, 1976, 1541, sub 3; ECJ, 16 December 1980, case 814/79
(Niederlande/Reinhold Rüffer), European Court Reports, 1980, 3807, sub 7.
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“continuity between the Brussels Convention and [the Brussles I] Regulation”35, stated, not
unlike other Italian judges before him36, that the concept of “civil and commercial matters”
“should not be interpreted as a mere reference to the internal law of one or other of the
States concerned. The concept referred to must therefore be regarded as an independent
concept to be interpreted by reference, first, to the objectives and, secondly, to the general
principles which stem from the national legal systems as a whole”37.
Since in the case to be decided by the Tribunale di Padova the Italian party sued
for payment of the purchase price, Judge Rizzieri correctly considered the matter a “civil
and commercial” one, and, consequently, that the Brussels I Regulation’s substantive
applicability requirements were met. And since the matter to be dealt with was obviously
not one of those excluded from the Regulation’s substantive sphere of application by
virtue of Article its 1(2)38, Judge Rizzieri correctly decided to apply the Brussels I
Regulation.
III. The general head of jurisdiction (Article 2(1) Brussels I Regulation)
Not unlike the Brussels Convention, the Brussels I Regulation provides for a „very
detailed and thought through system of heads of jurisdiction“39; thus, under the Brussles I
Regulation as well, the general head of jurisdiction provided for in Article 2(1) has to
compete with special heads of jurisdiction; on the other hand, just like the special heads of
jurisdiction, the general one has to give way to the exclusive heads of jurisdiction40; thus,
34
See also STAUDINGER, Einl Brüssel I-VO, in Europäisches Zivilprozessrecht. Kommentar, supra
note 24, p. 25; SILVESTRI, L’interpretazione del “luogo di consegna” ai sensi del novellato art. 5, n. 1, lett. b) Reg.
44/2001: qualche osservazione sui limiti del criterio fattuale, International Lis, 2005, p. 133.
35
Consideration 19; for a reference in ECJ case law to this need for “continuity” and consistency,
see ECJ, 1st October 2002, case C-167/00 (Verein für Konsumenteninformation/Karl Heinz Henkel), European Court
Reports, 2002, 8111, sub 49: “Finally, Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction
and the recognition and enforcement of judgments in civil and commercial matters (OJ 2001 L 12, p. 1), while not
applicable ratione temporis to the main proceedings, is such as to confirm the interpretation that Article 5(3) of the
Brussels Convention does not presuppose the existence of damage. That regulation clarified the wording of Article
5(3) of the Brussels Convention that the new version of that provision resulting from that regulation refers to the
place where the harmful event occurred or may occur. In the absence of any reason for interpreting the two
provisions in question differently, consistency requires that Article 5(3) of the Brussels Convention be given a scope
identical to that of the equivalent provision of Regulation No 44/2001. This is all the more necessary given that that
regulation is intended to replace the Brussels Convention in relations between Member States with the exception of
the Kingdom of Denmark, with that convention continuing to apply between the Kingdom of Denmark and the
Member States bound by that regulation.”
For a detailed analysis of the interpretation of the Brussels I Regulation in light of the Brussles
Convention, see BONADUCE, L'interpretazione della Convenzione di Bruxelles del 1968 alla luce del regolamento n.
44/2001 nelle pronunce della Corte di giustizia, Rivista di diritto internazionale, 2003, p. 746 ff.
36
See Tribunale di Brescia, 28 December 2004, International Lis, 2005, 132; Tribunale di
Rovereto, 28 August 2004, supra note 20, p. 131 and 132.
37
ECJ, 14 November 2002, case C-271/00 (Gemeente Steenbergen/Luc Baten), European Court
Reports, 2002, I-10489, sub 28.
38
See Article 1(2) Brussels Regulation: „The Regulation shall not apply to:
(a) the status or legal capacity of natural persons, rights in property arising out of a matrimonial
relationship, wills and succession;
(b) bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons,
judicial arrangements, compositions and analogous proceedings;
(c) social security;
(d) arbitration“.
39
MANKOWSKI, Vorbem Art 2 Brüssel I-VO, in Europäisches Zivilprozessrecht. Kommentar, supra
note 24, p. 61.
40
For a case summarizing the Brussels I Regulation’s system of heads of jurisdiction, see BGH, 1st
June 2005, Neue Juristische Wochenschrift Rechtsprechungs-Report, 2005, p. 1518.
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for instance, a person domiciled in a Member State cannot be sued in the courts of that
Member State if the parties have, in compliance with Article 2341, agreed upon a different
court where to start the proceedings. Since, however, the plaintiff had not relied upon any
such agreement, Judge Rizzieri stated that in the case at hand the only heads of jurisdiction
that could establish his jurisdiction were either the general one (of Article 2(1)) or a special
one.
In respect of the general possibility to sue a party in the courts of the Contracting
State in which it is domiciled provided for in Article 2(1)42, which is, as often pointed out
both in legal writing43 and in case law44, based upon the principle „actor sequitur forum
rei“ which supposedly “makes it easier, in principle, for a defendant to defend himself”45,
Judge Rizzieri stated that it could not serve as a basis for jurisdiction in the case at hand.
Judge Rizzieri justified his conclusion by stating that this head of jurisdiction required the
defendant to be domiciled in Italy (at the time the law suit was brought46), but that this was
not the case, since none of the three connecting factors alternatively47 listed in Article 60
41
See FERRARI, L’interpretazione autonoma del Regolamento CE 44/2001 e, in particolare, del
concetto di „luogo di adempimento dell’obbligazione“ di cui all’art. 5, n. 1, lett. b, Giurisprudenza italiana, 2006, p.
1019.
42
It has often been stated that the jurisdiction of the courts of the Contracting State in which the
defendant is domiciled constitutes a general principle; in ECJ case law (rendered in application of the Brussels
Convention), see, e.g., ECJ, 1st March 2005, case C-281/02 (Andrew Owusu/N. B. Jackson), European Court
Reports, 2005, I-1383, sub 24; ECJ, 20 January 2005, case C-27/02 (Petra Engler/Janus Versand GmbH.), European
Court Reports, 2005, I- 481, sub 42; ECJ, Corte di Giustizia, case C-464/01 (Johann Gruber/BayWa AG), European
Court Reports, 2005, I-439, sub 32; ECJ, 10 June 2004, case C-168/02 (Rudolf Kronhofer/Marianne Maier),
European Court Reports, 2004, I-6009, sub 12 f.; ECJ, 5 February 2004, case C-265/02 (Frahuil SA/Assitalia SpA.),
European Court Reports, 2004, I-1543, sub 23; ECJ, 13 July 2000, case C-412/98 (Group Josi Reinsurance
Company SA/Universal General Insurance Company (UGIC)), European Court Reports, 2000, I-5925, sub 35; ECJ,
7 October 1999, case C-420/97 (Leathertex Divisione Sintetici SpA/Bodetex BVBA), European Court Reports, 1999,
I-6747, sub 17; ECJ, 17 November 1998, case C-391/95 (Van Uden Maritime BV/Kommanditgesellschaft in Firma
Deco-Line u.a.), European Court Reports, 1998, I-7091, sub 4; ECJ, 27 October 1998, case C-51/95 (Réunion
européenne SA/Spliethoff's Bevrachtingskantoor BV), European Court Reports, 1998, I-6511, sub 16; ECJ, 17 June
1992, case C-26/91 (Jakob Handte & Co. GmbH/Traitements mécano-chimiques des surfaces SA.), European Court
Reports,, 1992, I-3967, sub 14; ECJ, 15 February 1989, case 32/88 (Six Constructions Ltd/Paul Humbert), European
Court Reports, 1989, 341, sub 18; ECJ, 8 March 1988, case 9/87 (SPRL Arcado/SA Haviland), European Court
Reports, 1988, 1539, sub 9; ECJ, 22 March 1983, case 34/82 (Martin Peters Bauunternehmung GmbH/Zuid
Nederlandse Aannemers Vereniging), European Court Reports, 1983, 987, sub 7.
43
See CZERNICH, Art. 2, in Kurzkommentar. Europäisches Gerichtsstand- und Vollstreckungsrecht,
supra note 7, p. 49; DE CRISTOFARO, Convenzione di Bruxelles sulla giurispdizione e l’esecuzione delle sentenze in
materia civile e commerciale (1968). Regolamento CE .n 44/2001 sulla giurisdizione e l’esecuzione delle sentenze in
materia civile e commerciale, in Le convenzione di diritto del commercio internazionale. Codice essenziale con
regolamenti comunitari e note introduttive (Ferrari ed., 2nd ed., Milan, 2002), p. 243; SIANI, Il regolamento CE n.
44/2001 sulla competenza giurisdizionale e sull'esecuzione delle sentenze. Parte prima. La cooperazione giudiziaria
in materia civile e commerciale: dalla Convenzione di Bruxelles al regolamento (CE) n. 44/2001, Diritto
comunitario e degli scambi internazionali, 2003, p. 469.
44
See ECJ, 19 February 2002, case C-256/00 (Besix SA/Wasserreinigungsbau Alfred Kretzschmar
GmbH & Co. KG (WABAG)), European Court Reports, 2002, I-1699, sub 52; ECJ, 13 July 2000, case C-412/98
(Group Josi Reinsurance Company SA/Universal General Insurance Company (UGIC)), European Court Reports,
2000, I-5925, sub 35
45
ECJ, 17 June 1992, case C-26/91 (Jakob Handte & Co. GmbH/Traitements mécano-chimiques
des surfaces SA.), European Court Reports, 1992, I-3967, sub 14.
46
supra note 7, p. 49; MANKOWSKI, Art 2 Brüssel I-VO, in Europäisches Zivilprozessrecht. Kommentar, supra note 24,
p. 73 f.; contra SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 52.
47
For this qualification of the connecting factors listed in Article 60 Brussels I Regulation, see
BERTOLI, La disciplina della giurisdizione civile nel regolamento comunitario n. 44/2001, Rivista di diritto
internazionale privato e processuale, 2002, p. 633; DE CRISTOFARO, supra note 43, p. 249; HAUSMANN, The Revision
of the Brussels Convention of 1968. Part I: International Jurisdiction, European Legal Forum, 2000/2001, p. 43;
MICKLITZ/ROTT, Vergemeinschaftung des EuGVÜ in der Verordnung (EG) Nr. 44/2001, supra note 6, p. 327;
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Brussels I Regulation (namely the statutory seat, the central administration and the
principal place of business) “to make the common rules more transparent and avoid
conflicts of jurisdiction”48 and to promote an autonomous interpretation49 of the concept
of place of business of a legal person50 allowed him to consider the defendant a legal
person with place of business in Italy. It is for this reason that Judge Rizzieri rightly
concluded that jurisdiction could not be based on the defendant's domicile, but had to be
based, if at all, on a special head of jurisdiction.
IV. The “autonomous” concept of “matters relating to a contract” referred to in
Article 5(1)(a) Brussels I Regulation
Judge Rizzieri correctly stated that he had jurisdiction only if it could be based on
Article 5(1) Brussels I Regulation, i.e. the provision that allowed, „in matters relating to a
contract”51, to sue a person domiciled in a Member State in another Member State “in the
courts of the place of performance of the obligation in question”52. Judge Rizzieri justified
his conclusion by stating that the matter was one „relating to a contract “, which is
undeniable. The claim for the purchase price certainly qualifies as a “matter relating to a
contract”, a concept which, not unlike its Brussels Convention equivalent53, it to be
interpreted autonomously54, as expressly pointed out also by Judge Rizzieri. Citing ECJ
case law relating to the Brussels Convention’s concept of „matter relating to a contract“55,
STAUDINGER, Art 60 Brüssel I-VO, in Europäisches Zivilprozessrecht. Kommentar, supra note 24, p. 476;
SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 322.
48
Consideration 11.
49
See BERTOLI, La disciplina della giurisdizione civile nel regolamento comunitario n. 44/2001,
supra note 47, p. 633; CARBONE, Giurisdizione ed efficacia delle decisioni in materia civile e commerciale nello
spazio giudiziario europeo: dalla Convenzione di Bruxelles al Regolamento (CE) N. 44/2001, Diritto processuale
civile e commerciale comunitario (Carbone/Frigo/Fumagalli, Milan, 2004), p. 15; MERLIN, Novità sui criteri di
giurisdizione nel Regolamento CE «Bruxelles I», International Lis, 2003, p. 40; POGGIO, Vendita internazionale di
beni e foro speciale contrattuale ai sensi del Regolamento (CE) 44/2001 del Consiglio dell’Unione Europea, in
Giurisprudenza italiana, 2005, p. 1008 note 3; STAUDINGER, Art 60 Brüssel I-VO, in Europäisches Zivilprozessrecht.
Kommentar, supra note 24, p. 475.
50
For the definition of the place of business of natural persons recourse is to be had to Article 59
Brussels I Regulation, which, unlike Article 60, does not provide an autonomous definition, but rather requires resort
to a private international law approach; see DE CRISTOFARO, supra note 43, p. 243; STADLER, From the Brussels
Convention to Regulation 44/2001: Cornerstones of a European law of civil procedure,
Common Market Law Review, 2005, p. 1645.
51
Article 5(1)(a) Brussels I Regulation.
52
Id.
53
For the autonomous interpretation of the concept of “matter relating to a contract” under the
Brussels Convention, see in ECJ case law ECJ, 5 February 2004, case C-265/02 (Frahuil SA/Assitalia SpA),
European Court Reports, 2004, I-1543, sub 22; ECJ, 27 October 1998, case C-51/97 (Réunion européenne
SA/Spliethoff's Bevrachtingskantoor BV), European Court Reports, 1998, I-6511, sub 15; ECJ, 17 June 1992, case C26/91 (Jakob Handte & Co. GmbH/Traitements mécano-chimiques des surfaces SA.), European Court Reports, 1992,
I-3967, sub 10; ECJ, 8 March 1988, case 9/87 (SPRL Arcado/SA Haviland), European Court Reports, 1988, 1539,
sub 11; ECJ, 22 March 1983, case 34/82 (Martin Peters Bauunternehmung GmbH/Zuid Nederlandse Aannemers
Vereniging), European Court Reports, 1983, 987, sub 1 and 10.
54
See CARBONE, Giurisdizione ed efficacia delle decisioni in materia civile e commerciale nello
spazio giudiziario europeo, supra note 49, p. 18; CZERNICH, Art. 5, in Kurzkommentar. Europäisches Gerichtsstandund Vollstreckungsrecht, supra note 7, p. 64; LEIBLE, Art 5 Brüssel I-VO, in Europäisches Zivilprozessrecht.
Kommentar, supra note 24, p. 93; SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 64 f.
55
In his decision, Judge Rizzieri cited the following ECJ decisions: ECJ, 20 January 2005, case C27/02 (Petra Engler/Janus Versand GmbH.), European Court Reports, 2005, I- 481, sub 51; ECJ, 5 February 2004,
case C-265/02 (Frahuil SA/Assitalia SpA), European Court Reports, 2004, I-1543, sub 24; ECJ, 17 June 1992, case
C-26/91 (Jakob Handte & Co. GmbH/Traitements mécano-chimiques des surfaces SA.), European Court Reports,
1992, I-3967, sub 15.
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which in light of the aforementioned need to ensure “continuity between the Brussels
Convention and this Regulation” remains relevant insofar as it relates to provisions and
concepts that the Brussels I Regulation has adopted without change56, Judge Rizzieri stated
that a matter “for sure” relates to a contract when there is a “legal obligation freely
consented to by one person towards another and on which the claimant’s action is based”.
The fact that Judge Rizzieri expressly stated that a matter “for sure” related to a
contract where the aforementioned requirements were met, allows one to assume that
Judge Rizzieri was aware of the fact that the Brussels I Regulation’s concept of „matter
relating to a contract“, not unlike that of the Brussels Convention, is much wider57. In light
of the abovementioned need to ensure “continuity between the Brussels Convention and
this Regulation” the obligations which are based on the affiliation between an association
and its members must be regarded as contractual for the purpose of the Brussels I
Regulation as well, “on the ground that the membership of a private law association
creates between the members close links of the same kind as those which are created
between the parties to a contract”58. Moreover, since the setting up of a company is the
expression of the existence of a community of interests between the shareholders in the
pursuit of a common objective who, in order to achieve that objective, are assigned, as
regards other shareholders and the organs of the company, rights and obligations set out in
the company’s statutes, under the Brussles I Reguolation as well59 the company’s statutes
must be regarded as a contract covering both the relations between the shareholders and
also the relations between them and the company they set up.
It should also be mentioned that under the Brussels I Regulation, too, the contract
does not have to be valid in order for Article 5(1) to applicable. In effect, not unlike under
the Brussels Convention, “that provision is therefore applicable even when the existence
of the contract on which the claim is based is in dispute between the parties”60; “if that
were not the case, Article 5(1) [. . .] would be in danger of being deprived of its legal effect,
since it would be accepted that, in order to defeat the rule contained in that provision, it is
sufficient for one of the parties to claim that the contract does not exist.”61
V. New Article 5(1)(b) and its limited sphere of application
Even though, as mentioned, the Brussels I Regulation’s concept of „matter relating
to a contract“ compares to that of the Brussels Convention, the application of Article 5(1)
Brussels I Regulation does not necessarily lead to the same results as the application of
Article 5(1) Brussels Convention. This is due to the introduction of Article 5(1)(b) which,
within its limited sphere of application, has done away with the two-step-approach
56
For this statement, see also Tribunale di Rovereto, supra note 20, p. 131.
For a very thorough analysis of the “wide” concept of “matter relating to a contract”, see
MANKOWSKI, Die Qualifikation der culpa in contrahendo – Nagelprobe für den Vertragsbegriff des europäischen
IZPR und IPR, Praxis des internationalen Privat- und Verfahrensrechts, 2003, p. 129 ff.
58
ECJ, 20 January 2005, case C-27/02 (Petra Engler/Janus Versand GmbH), European Court
Reports, 2005, I- 481, sub 47 (in relation to the Brussels Convention); see also ECJ, 22 March 1983, case 34/82
(Martin Peters Bauunternehmung GmbH/Zuid Nederlandse Aannemers Vereniging), European Court Reports, 1983,
987, sub 13 and 15.
59
For a similar statement in respect of the Brussels Convention, see ECJ, 10 March 1992, case C214/89 (Powell Duffryn/Petereit), European Court Reports, 1992, I-1769, sub 16.
60
ECJ, 20 January 2005, case C-27/02 (Petra Engler/Janus Versand GmbH), European Court
Reports, 2005, I- 481, sub 46.
61
ECJ, 4 March 1983, case 38/81 (Effer SpA/Hans-Joachim Kantner), European Court Reports,
1983, 825, sub 7.
57
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required under the Brussels Convention, which obliged the courts to first determine the
obligation which in concreto forms the basis of the claim62, and to then identify the place of
the performance of the obligation in question by resorting either to the conflict rules of
the court seized63 or to the applicable uniform substantive law rules (such as those of the
CISG)64. Under new Article 5(1)(b) Brussels I Regulation, only one place of performance is
relevant, namely that of the characteristic contractual obligation65. That place of
performance is relevant for all claims arising in connection with a contract66, provided that
the contract is the type to which the new rule of article 5(1)(b) applies; ultimately, within
the limited sphere of application of new Article 5(1)(b) Brussels I Regulation this means
that there is no need to determine the obligation which in concreto forms the basis of the
claim67.
The goal behind the introduction of new Article 5(1)(b) Brussels I Regulation was,
however, not only to do away with the need to identify the obligation which in concreto
forms the basis of the claim, but also to avoid to have to determine the law applicable for
the purpose of identifying the place of performance of that obligation68. This is why, as
regards the two types of contract that, from a commercial point of view, are the most
important ones69, namely the contract for the sale of goods and that for the provision of
services, Article 5(1)(b) Brussels I Regulation defines the place of performance in an
62
See ECJ, 6 October 1976, case 14/76 (A. De Bloos, SPRL/Société en commandite par actions
Bouyer), European Court Reports, 1976, 1497, sub 9/12 ff.; ECJ, 15 January 1987, case 266/85
(Shenavai/Kreischer), European Court Reports, 1987, 251, sub 20; ECJ, 29 June 1994, case C-288/92 (Custom Made
Commercial Ltd/Stawa Metallbau GmbH), European Court Reports, 1994, I-2913, sub 23; ECJ, 5 October 1999,
case C- 420/97 (Leathertex Divisione Sintetici SpA/Bodetex BVBA), European Court Reports, 1999, I-6747, sub 31;
ECJ, 19 February 2002, case C-256/00 (Besix SA/Wasserreinigungsbau Alfred Kretzschmar GmbH & Co. KG
(WABAG)), European Court Reports, 2002, I-1699, sub 44.
63
See ECJ, 6 October 1976, case 12/76 (Industrie Tessili Italiana Como/Dunlop AG), European
Court Reports, 1976, 1473, sub 15; ECJ, 29 June 1994, case C-288/92 (Custom Made Commercial Ltd/Stawa
Metallbau GmbH), European Court Reports, 1994, I-2913, sub 26; ECJ, 28 September 1999, case C-440/97 (GIE
Groupe Concorde/Kapitän des Schiffes "Suhadiwarno Panjan"), European Court Reports, 1999, I-6307, sub 13;
ECJ, 5 October 1999, case C- 420/97 (Leathertex Divisione Sintetici SpA/Bodetex BVBA), European Court Reports,
1999, I-6747, sub 33; ECJ, 19 February 2002, case C-256/00 (Besix SA/Wasserreinigungsbau Alfred Kretzschmar
GmbH & Co. KG (WABAG)), European Court Reports, 2002, I-1699, sub 33.
64
See ECJ, 29 June 1994, case C-288/92 (Custom Made Commercial Ltd/Stawa Metallbau GmbH),
European Court Reports, 1994, I-2913, sub 27 ff.
65
See MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in der neuen EuGVO, supra
note 26, p. 47.
66
For this conclusion see CAMPEIS/DE PAULI, Luogo di adempimento del contratto di
compravendita come titolo di giurisdizione europea tra Convenzione di Bruxelles del 1968 e Regolamento UE n.
44/2001, Nuova Giurisprudenza civile commentata, 2003, p. 238; ELTZSCHIG, Art 5 Nr lit b EuGVO: Ende oder
Fortführung von forum actoris und Erfüllungortbestimmung lege causae, Praxis des internationalen Privat- und
Verfahrensrechts, 2002, p. 492; FRANZINA, Obbligazioni di non fare e obbligazioni eseguibili in più luoghi nella
Convenzione di Bruxelles del 1968 e le regolamento (CE) n. 44/2001, Rivista di diritto internazionale privato e
processuale, 2002, p. 404; HAGER/BENTELE, Der Lieferort als Gerichtsstand – Zur Auslegung des Art. 5 Nr. 1 lit. b.
EuGVO, Praxis des internationalen Privat- und Verfahrensrechts, 2004, p. 73; JAYME/KOHLER, Europäisches
Kollisionsrecht 1999 – Die Abendstunde der Staatsverträge, Praxis des internationalen Privat- und
Verfahrensrechts, 1999, p. 405; MERLIN, Novità sui criteri di giurisdizione nel Regolamento CE «Bruxelles I», supra
note 49, p. 41; MICKLITZ/ROTT, Vergemeinschaftung des EuGVÜ in der Verordnung (EG) Nr. 44/2001, supra note 6,
p. 328; SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 72.
67
For this conclusion, see FERRARI, supra note 41, p. 1021.
68
See FRANZINA, Obbligazioni di non fare e obbligazioni eseguibili in più luoghi nella
Convenzione di Bruxelles del 1968 e le regolamento (CE) n. 44/2001, supra note 66, p. 403; GSELL, Autonom
bestimmter Gerichtsstand am Erfüllungsort nach der Brüsseler I-Verordnung, Praxis des internationalen Privatund Verfahrensrechts, 2002, p. 485.
69
For similar statements, see CAMPEIS/DE PAULI, Luogo di adempimento del contratto di
44/2001, supra note 66, p. 237 f.; SILVESTRI, L’interpretazione del “luogo di consegna” ai sensi del novellato art. 5,
n. 1, lett. b) Reg. 44/2001, supra note 34, p. 133.
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“autonomous”70 way, i.e. independently from the lex causae71. This should not come as a
surprise, since the new Article 5(1)(b) Brussels I Regulation has been specifically drafted72
to „unify the concept of place of performance for the purposes of the European law on
jurisdiction and to avoid the difficulties created, and the unreasonable results reached, by
the case law initiated by the Tessili-decision”73.
In light of the fact that this new rule merely applies in a very limited line of cases
(i.e., where contracts for the sale of goods or contracts for the provision of services are
concerned) and only where certain requirements are met, it must be doubted, however,
whether the new rule really has simplified things74.
As regards the aforementioned requirements, it must be pointed out that the rule
only applies where the place of performance identified in Article 5(1)(b) Brussels I
Regulation in relation to the two types of contracts referred to is located in a Member
State as defined by Article 1(3) Brussels I Regulation. Where this requirement is not met or
where the contract in connection of which the claim arises is neither one for the sale of
goods nor one for the provision of services, courts have, as pointed out by Judge Rizzieri,
70
BERTOLI, La disciplina della giurisdizione civile nel regolamento comunitario n. 44/2001, supra
note 47, p. 637; CARBONE, Giurisdizione ed efficacia delle decisioni in materia civile e commerciale nello spazio
giudiziario europeo, supra note 49, p. 20; DE CRISTOFARO, supra note 43, p. 251; FRANZINA, Obbligazioni di non
fare e obbligazioni eseguibili in più luoghi nella Convenzione di Bruxelles del 1968 e le regolamento (CE) n.
44/2001, supra note 66, p. 403; HAGER/BENTELE, Der Lieferort als Gerichtsstand – Zur Auslegung des Art. 5 Nr. 1
lit. b. EuGVO, supra note 66, p. 73; HAU, Der Vertragsgerichtstand zwischen justizieller Konsolidierung und
legislativer Neukonzeption, Praxis des Internationalen Privat- und Verfahrensrechts, 2000, p. 359; HEß, Die
Europäisierung des internationalen Zivilprozessrechts durch den Amsterdamer Vertrag, Neue Juristische
Wochenschrift, 2000, p. 27; Der Vertragsgerichtstand zwischen justizieller Konsolidierung und legislativer
Neukonzeption, Praxis des Internationalen Privat -und Verfahrensrechts, 2002, p. 377; JAYME/KOHLER,
Europäisches Kollisionsrecht 1999 – Die Abendstunde der Staatsverträge, supra note 66, p. 405; KOFLER, Il forum
destinatae solutionis nelle azioni di accertamento negativo del credito e di nullità del contratto, Corriere giuridico,
2004, p. 217; KUBIS, Gerichtsstand am Erfüllungsort, Zeitschrift für europäisches Privatrecht, 2001, p. 749 f.;
LORENZ/UNBERATH, Gewinnmitteilungen und keine Ende? - Neues zur internationalen Zuständigkeit, Praxis des
internationalen Privat- und Verfahrensrechts, 2005, p. 222; MERLIN, Novità sui criteri di giurisdizione nel
Regolamento CE «Bruxelles I», supra note 49, p. 42; MICKLITZ/ROTT, Vergemeinschaftung des EuGVÜ in der
Verordnung (EG) Nr. 44/2001, supra note 6, p. 328; SIANI, Il regolamento CE n. 44/2001 sulla competenza
giurisdizionale e sull'esecuzione delle sentenze. Parte prima, supra note 43, p. 472 and 474; THORN, Gerichtsstand
des Erfüllungsorts und intertemporales Zivilverfahrensrecht, supra note 23, p. 356.
In case law see Tribunale di Rovereto, 28 agosto 2004, supra note 20, p. 132.
71
DE CRISTOFARO, supra note 43, p. 252; DROZ/GAUDEMET-TALLON, La transformation de la
Convention de Bruxelles du 28 septembre 1968 en règlement du Conseil concernant la compétence judiciaire, la
reconnaissance et l'exécution des décisions en matière civile et commerciale, supra note 11, p. 634; ELTZSCHIG, Art
5 Nr lit b EuGVO: Ende oder Fortführung von forum actoris und Erfüllungortbestimmung lege causae, supra note
66, p. 493; FRANZINA, Obbligazioni di non fare e obbligazioni eseguibili in più luoghi nella Convenzione di
Bruxelles del 1968 e le regolamento (CE) n. 44/2001, supra note 66, p. 403 f.; GSELL, Autonom bestimmter
Gerichtsstand am Erfüllungsort nach der Brüsseler I-Verordnung, supra note 68, p. 486 f.; KOFLER, , Il forum
destinatae solutionis nelle azioni di accertamento negativo del credito e di nullità del contratto, supra note 70, p.
217.
72
See Proposal for a Council Regulation (EC) on jurisdiction and the recognition and enforcement
of judgments in civil and commercial matters, COM (1999), 348 def., p. 14: “The Brussels Convention rule
regarding contractual obligations is maintained. But to remedy the shortcomings of applying the rules of private
international law of the State whose courts are seised, the second subparagraph of Article 5(1) gives an autonomous
definition of the place for enforcement of “the obligation in question”.
73
MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in der neuen EuGVO, supra
note 26, p. 46
74
Doubts have been expressed also by DROZ/GAUDEMET-TALLON, La transformation de la
reconnaissance et l'exécution des décisions en matière civile et commerciale, supra note 11, p. 634; GSELL, Autonom
bestimmter Gerichtsstand am Erfüllungsort nach der Brüsseler I-Verordnung, supra note 68, p. 486; MAGNUS, Das
UN-Kaufrecht und die Erfüllungsortzuständigkeit in der neuen EuGVO, supra note 26, p. 46.
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to resort to the aforementioned two-step-approach and apply the rules laid down by the
De Bloos-decision as well as the Tessili-decision75.
VI. The “autonomous” concept of “contract for the sale of goods” (Article 5(1)(b)
Brussels I Regulation)
As mentioned, the new rule contained in Article5(1)(b) applies provided that the
claim arises in connection with either a contract for the sale of goods or one for the
provision of services. As regards the former, which is the only one to be dealt with here,
the Brussels I Regulation does not define it76. In order not to endanger the uniformity
aimed at by introducing the new rule, this should not lead one to resort to domestic
definitions77; rather, one should interpret this concept as well “autonomously”78. In this
author’s opinion, this “autonomous” interpretation can be achieved by resorting to the
(“autonomous”) definition of contract for the sale of goods elaborated in respect of the
CISG79, and this despite the fact that the CISG has not yet entered into force in all
Member States.
In recent Italian case, this approach, based upon what in academic circles is being
labelled as “inter-conventional interpretation”80, has been criticized, on the grounds that an
international procedural law instrument of European origin, such as the Brussels I
Regulation, cannot be interpreted in the light of a substantive law instrument of “extraEuropean” origin such as the CISG81.
In this author’s opinion82, this criticism has to be rejected, among others, because,
as also pointed out by Judge Rizzieri, the concept at hand (contract for the sale of goods)
constitutes a substantive law concept, and not a procedural one; therefore, it has to be
defined on the basis of substantive law rules; moreover, if one considers the need for an
“autonomous” interpretation of the concept at hand, there is no reason not to have
75
For this conclusion, see also BERTOLI, La disciplina della giurisdizione civile nel regolamento
comunitario n. 44/2001, supra note 47, p. 637 and 639; DROZ/GAUDEMET-TALLON, La transformation de la
reconnaissance et l'exécution des décisions en matière civile et commerciale, supra note 11, p. 634;
LORENZ/UNBERATH, Gewinnmitteilungen und keine Ende? - Neues zur internationalen Zuständigkeit, supra note 70,
p. 223; SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 74; contra MICKLITZ/ROTT, Vergemeinschaftung des
EuGVÜ in der Verordnung (EG) Nr. 44/2001, supra note 6, p. 329.
76
See FERRARI, supra note 41, p. 1022; MAGNUS, Das UN-Kaufrecht und die
Erfüllungsortzuständigkeit in der neuen EuGVO, supra note 26, p. 47.
77
For this statement, see also CZERNICH, Art. 5, in Kurzkommentar. Europäisches Gerichtsstandund Vollstreckungsrecht, supra note 7, p. 71.
78
For this conclusion, see FERRARI, supra note 41, p. 1022; see, however, FRANZINA, Obbligazioni
di non fare e obbligazioni eseguibili in più luoghi nella Convenzione di Bruxelles del 1968 e le regolamento (CE) n.
44/2001, supra note 66, p. 404, where the author expresses some doubts.
79
For this suggestion see also MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in
der neuen EuGVO, supra note 26, p. 47; SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 73
80
See BASEDOW, Konventionen und ihre Auslegung, in 50 Jahre Bundesgerichtshof – Festgabe aus
der Wissenschaft (Tübingen, vol. 2, 2000), p. 786 f.; FERRARI, I rapporti tra le convenzioni di diritto materiale
uniforme in materia contrattuale e la necessità di un'interpretazione interconvenzionale, in Rivista di diritto
internazionale privato e processuale, 2000, p. 669 ff.; MAGNUS, Konventionsübergreifende Interpretation
internationaler Staatsverträge privatrechtlichen Inhalts, in Festschrift 75 Jahre Max-Planck-Institut für Privatrecht
(Tübingen, 2001), p. 571 ff..
81
See Tribunale di Rovereto, 28 August 2004, supra note 20, p. 132.
82
See FERRARI, supra note 41, p. 1022.
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recourse to the CISG to define the concept de quo, as the CISG constitutes a substantive
law convention83 that has to be interpreted “autonomously”, too84.
In this author’s opinion, the CISG’s non-European origin does not preclude
recourse to the CISG either. Although it is true that the CISG does not formally constitute
an “European” instrument and that there are Member States, namely England and
Portugal, that have not yet entered it into force85, it is important on a European level, even
in those Member States that have not entered it into force, as (implicitly) acknowledged by
the European legislator itself, when it used the CISG as a model for the Directive
1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain
aspects of the sale of consumer goods and associated guarantees86.
Thus, it is correct to define, as did Judge Rizzieri, the sales contract referred to in
Article 5(1)(b) Brussels I Regulation in light of the definition of sales contract elaborated
by commentators87 and courts88 under the CISG; consequently, under the Brussels I
83
In case law, the CISG has often been qualified as a substantive law convention; see, e.g.,
McDowell Valley Vineyards, Inc. v. Sabaté USA Inc. et al., U.S. District Court, Northern District of California, 2
November 2005, published on the internet at <http://cisgw3.law.pace.edu/cases/051102u1.html#iii>; Cass. civ., 20
April
2004,
published
on
the
internet
at
<http://www.unilex.info/case.cfm?pid=1&do=case&id=975&step=FullText>; Tribunale di Padova, 25 February
2004, Giurisprudenza italiana, 2004, p. 1403; HG Zürich, 26 April 1995, published on the internet at
<http://www.unilex.info/case.cfm?pid=1&do=case&id=166&step=FullText>; Tribunal de Commerce de Bruxelles,
5
October
1994,
published
on
the
internet
at
<http://www.unilex.info/case.cfm?pid=1&do=case&id=176&step=FullText>.
84
For references to the need to interpret the CISG autonomously, see, e.g., ACHILLES, Kommentar
zum UN-Kaufrechtsübereinkommen (CISG) (Berlin, 2000), p. 28; AUDIT, La vente internationale de marchandises
(Paris, 1991), p 47; BONELL, La nouvelle Convention des Nations-Unies sur les contrats de vente internationale de
merchandises, Droit et pratique du commerce international, 1981, p. 14; BONELL, Art. 7, Nuove leggi civili
commentate, 1989, p. 21; DIEDRICH, Maintaining Uniformity in International Uniform Law Via Autonomous
Interpretation: Software Contracts and the CISG, Pace International Law Review, 1996, p. 303; FELEMEGAS, The
United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation,
Review of the United Nations Convention on Contracts for the International Sale of Goods, (CISG), 2000/2001, p.
235; FERRARI, Interprétation uniforme de la Convention de Vienne de 1980 sur la vente internationale, Revue
internationale de droit comparé, 1996, p. 827; FERRARI, Vendita internazionale di beni mobili. Art. 1-13. Ambito di
applicazione. Disposizioni generali (Bologna, 1994), p. 130; HACKNEY, Is the United Nations Convention on the
International Sale of Goods Achieving Uniformity?, Lousiana Law Review, 2001, p. 475; JAMETTI GREINER, Der
Vertragsabschluss, in Das Einheitliche Wiener Kaufrecht (Hoyer/Posch ed., Vienna, 1992), p. 57; KAROLLUS, UNKaufrecht. Eine systematische Darstellung für Studium und Praxis (Vienna/New York, 1991), p. 11; LIGUORI, La
convenzione di vienna sulla vendita internazionale di beni mobili nella pratica: un'analisi critica delle prime cento
decisioni, Foro italiano, 1996, IV, c. 148; MAGNUS, Wiener UN-Kaufrecht – CISG (Berlin, 2005), p. 171; NAJORK,
Treu und Glauben im CISG (Bonn, 2000), p. 53; SCHLECHTRIEM, Internationales UN-Kaufrecht (Tübingen, 2nd ed.,
2003), p. 39; SCHMITT, "Intangible Goods" in Online-Kaufverträgen und der Anwendungsberich des CISG,
Computer und Recht, 2001, p. 147; VAZQUEZ LEPINETTE, The interpretation of the 1980 Vienna Convention on
International Sales, Diritto del commercio internazionale, 1995, p. 387.
85
For
an
updated
list
of
Contracting
States
of
the
CISG;
see
<http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>.
86
For papers discussing the relationship between the CISG and the directive referred to in the text,
see, e.g., GRUNDMANN, Verbraucherrecht, Unternehmensrecht, Privatrecht - warum sind sich UN- Kaufrecht und
EU-Kaufrechts- Richtlinie so ähnlich?, Archiv für die civilistische Praxis, 2002, p. 40 ff.; JANSSEN, Das
Rückgriffsrecht des Letztverkäufers gemäss der Verbrauchsgüterrichtlinie und das schwierige Verhältnis zum UNKaufrecht, European Legal Forum, 2003, p. 181 ff.; MITTMANN, Einheitliches UN-Kaufrecht und europäische
Verbrauchsgüterkauf-Richtlinie: Konkurrenz und Auslegungsprobleme (Frankfurt, 2004); NIETZER/STEIN, Richtlinie
zum Verbrauchsgüterkauf - Auswirkungen in Deutschland und Frankreich - Vergleich zum UN-Kaufrecht, Zeitschrift
für vergleichende Rechtswissenschaft, 2000, p. 41 ff.; SCHROETER, UN-Kaufrecht (CISG) und VerbrauchsgüterkaufRichtlinie, Gemeineuropäisches Privatrecht, 2005, p. 173 ff.
87
See CHIOMENTI, Does the choice of a-national rules entail an implicit exclusion of the CISG?,
European Legal Forum, 2005, p. 143; ENDLER/DAUB, Internationale Softwareüberlassung und UN-Kaufrecht,
Computer und Recht, 1993, 601; HERBER/CZERWENKA, Internationales Kaufrecht. Kommentar zu dem
Übereinkommen der Vereinten Nationen vom 11 April 1980 über Verträge über den internationalen Warenkauf
(Munich, 1991), p. 16; LANCIOTTI, Norme uniformi di conflitto e materiali nella disciplina convenzionale della
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Regulation as well, it can be defined as the contract “pursuant to which one party - the
seller - is bound to deliver the goods and transfer the property in the goods sold and the
other party - the buyer - is obliged to pay the price and accept the goods“89. As correctly
stated by Judge Rizzieri when dealing with the obligation of the seller to assemble the
merry-go-rounds in England, the circumstance that a contract also obliges the seller to
supply labour or services does not exclude that it can be qualified as a sales contract90,
unless “the preponderant part of the obligations of the party who furnishes the goods
consists in the supply of labour or other services”91.
In this author’s opinion, the concept of “goods” referred to in Article 5(1)(b)
Brussels I Regulation also has to be defined in light of the definition of the CISG’s
equivalent concept92, which is why, not unlike under the CISG, under the Brussels I
Regulation, too, only moveable and tangible goods are considered “goods”93. Under the
Brussels I Regulation, however, the exclusions from the CISG’s substantive sphere of
application listed in to Article 2 CISG are irrelevant for the purpose of determining what
constitutes a “contract for the sale of goods”94; consequently, the Article 5(1)(b) rule also
applies where the claim relates, for instance, to the sale of ships, hovercrafts or airplanes,
the sales excluded from the CISG’s sphere of application by virtue of its Article 2(e).
VII. The “autonomous” determination of the place of performance of the delivery
obligation arising from a contract for the sale of goods under Article 5(1)(b)
Brussels I Regulation
compravendita (Naples, 1992), p. 120; MAGNUS, Wiener UN-Kaufrecht - CISG, supra note 84, p. 66-67; PILTZ,
Internationales Kaufrecht. Das UN-Kaufrecht (Wiener Übereinkommen von 1980) in praxisorientierter Darstellung
(Munich, 1993), p. 23; THIELE, Das UN-Kaufrecht vor US-amerikanischen Gerichten, Internationales Handelsrecht,
2002, p. 10.
88
See, e.g., Juzgado de primera instancia e instrucción no. 3 de Tudela, 29 March 2005, published
on the internet at <http://www.uc3m.es/cisg/sespan45.htm>; Tribunal Cantonal du Jura, 3 November 2004,
published on the internet at <http://www.cisg-online.ch/cisg/urteile/965.pdf>; Tribunal Cantonal du Valais, 19
August 2003, published on the internet at <http://www.cisg-online.ch/cisg/urteile/895.pdf>; Tribunal Cantonal de
Vaud, 11 April 2002, published on the internet at <http://www.cisg-online.ch/cisg/urteile/899.pdf>; Kantonsgericht
Schaffhausen, 25 February 2002, published on the internet at <http://www.cisg-online.ch/cisg/urteile/723.htm>; Cor
d’Appel de Colmar, 12 June 2001, published on the internet at <http://witz.jura.unisb.de/CISG/decisions/120601v.htm>; Cour d’Appel de Paris, 12 October 2000, published on the internet at
<http://witz.jura.uni-sb.de/CISG/decisions/121000v.htm>; Audiencia Provincial de Navarra, 27 March 2000,
published on the internet at <http://www.uc3m.es/cisg/sespan11.htm>; Tribunal Cantonal de Vaud, 11 March 1996,
published on the internet at <http://www.cisg-online.ch/cisg/urteile/333.pdf>.
89
Oberster Gerichtshof, 10 November 1994, published on the Internet at <http://www.cisgonline.ch/cisg/urteile/117.htm>; for this exact same definition, see also Tribunale di Padova, 11 January 2005,
Rivista di diritto internazionale privato e processuale, 2005, p. 791 ff.; Tribunale di Padova, 25 February 2004,
Giurisprudenza italiana, 2004, p. 1404; Tribunale di Rimini, 26 November 2002, published on the internet at
<http://www.unilex.info/case.cfm?pid=1&do=case&id=823&step=FullText>.
90
For this conclusion see also CZERNICH, Art. 5, in Kurzkommentar. Europäisches Gerichtsstandund Vollstreckungsrecht, supra note 7, p. 72.
91
Article 3(2) CISG.
92
For this suggestion see also SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 73.
93
In CISG case law, see, e.g., Tribunale di Padova, 25 February 2004, Giurisprudenza italiana,
2004, p. 1404; Tribunale di Rimini, 26 November 2002, Giurisprudenza italiana, 2003, p. 903; KG Zürich, 21
October 1999, Internationales Handelsrecht, 2001, p. 45; Tribunale di Pavia, 29 December 1999, Corriere giuridico,
2000, 932 f.; OLG Köln, 21 May 1996, published on the internet at <http://www.cisgonline.ch/cisg/urteile/254.htm>; Oberster Gerichtshof, 10 November 1994, Zeitschrift für Rechtsvergleichung, 1995,
p. 79 ff.; OLG Köln, 26 August 1994, published on the internet at <http://www.cisg-online.ch/cisg/urteile/132.htm>.
94
For a similar statement see MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in
der neuen EuGVO, supra note 26, p. 47.
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According to Article 5(1)(b) Brussels I Regulation, “the place of performance of
the obligation in question shall be [. . .], in the case of the sale of goods, the place in a
Member State where, under the contract, the goods were delivered or should have been
delivered”. It has already been mentioned that by introducing this new rule, the European
legislator wanted to create an “autonomous” rule, independent of the lex causae; but where
does this new rule lead to in concreto?95
It is this question that Judge Rizzieri has tried to answer, in part by using very
innovative arguments. The starting point of Judge Rizzieri’s analysis was the consideration
that the answer differs according to whether the delivery has actually taken place. Where it
has, the place of performance relevant for the purposes of establishing jurisdiction under
Article 5(1)(b) Brussels I Regulation is that where the delivery has physically occurred96.
Generally, this place of delivery corresponds to that agreed upon by the parties97, albeit not
necessarily so. Where the buyer accepts delivery of the goods with the intention to free the
seller from its obligation to deliver the goods at a place different than the one agreed upon,
it is this place of delivery that will be relevant for the purposes of establishing jurisdiction
under Article 5(1)(b) Brussels I Regulation98; Judge Rizzieri has justified this on the
grounds that there is a new agreement on where delivery has to occur.
In respect of sales contract that involve carriage of the goods, as well, recourse is
to be had to the place where delivery actually occurred. One has to wonder, however,
whether this is always the place of final destination of the goods, as suggested by an Italian
court99 as well as by some commentators100, or whether the relevant place is that where the
goods are handed over to the first independent carrier. Since the Brussels I Regulation
itself does not allow one to infer an answer from either its legislative history or its wording,
and since recourse to the lex causae is to be avoided in favour of an “autonomous”
interpretation, Judge Rizzieri (rightly)101 resorted once again to the CISG102, and this
independently from its applicability in the case at hand; rather, Judge Rizzieri justified his
recourse to the CISG by referring to its “autonomous” character as well as the importance
attributed to it by the European legislator. Consequently, where the contract of sale
involves carriage of the goods, by virtue of Article 31(a) CISG the place of delivery
relevant for the purposes of establishing jurisdiction is that where “the goods [are handed]
over to the first carrier for transmission to the buyer”103. This solution also corresponds to
the one to be found in both the Unidroit Principles of International Commercial Contracts (Article
95
GSELL, Autonom bestimmter Gerichtsstand am Erfüllungsort nach der Brüsseler I-Verordnung,
supra note 68, p. 486.
96
LEIBLE, Art 5 Brüssel I-VO, in Europäisches Zivilprozessrecht. Kommentar, supra note 24, p.
111.
97
MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in der neuen EuGVO, supra
note 26, p. 47.
98
See FERRARI, supra note 41, p. 1023; LEIBLE, Art 5 Brüssel I-VO, in Europäisches
Zivilprozessrecht. Kommentar, supra note 24, p. 111.
99
See Tribunale di Brescia, 28 December 2004, International Lis, 2005, p. 132.
100
See DE CRISTOFARO, supra note 43, p. 252; KOFLER, Il forum destinatae solutionis nelle azioni di
accertamento negativo del credito e di nullità del contratto, supra note 70, p. 217; MERLIN, Novità sui criteri di
giurisdizione nel Regolamento CE «Bruxelles I», supra note 49, p. 42.
101
For favorable comments see FERRARI, supra note 41, p. 1024 f.; RAGNO, Forum destinatae
solutionis e regolamento (CE) n. 44 del 2001: alcuni spunti innovativi dalla giurisprudenza di merito,
Giurisprudenza di merito, 2006, p. 1430 f.
102
For statements exclduing the possibility to resort to the CISG in the line of cases referred to in
the text, see HAGER/BENTELE, Der Lieferort als Gerichtsstand – Zur Auslegung des Art. 5 Nr. 1 lit. b. EuGVO, supra
note 66, p. 76.
103
For this conclusion, see also CZERNICH, Art. 5, in Kurzkommentar. Europäisches Gerichtsstandund Vollstreckungsrecht, supra note 7, p. 72 f.
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6.1.6(1) and the Principles of European Contract Law (Article 7:101(1)), as also104 pointed
out by Judge Rizzieri who referred to these two non-binding “autonomous” instruments
to corroborate his conclusion based on the CISG.
Where, however, delivery has not occurred at all or where it has occurred at a place
different from the one agreed upon (and the buyer has not accepted delivery with the
intention to free the seller from its obligation to hand over the goods), the relevant place
of performance for establishing jurisdiction under Article 5(1)(b) Brussels I Regulation is
that agreed upon by the parties105 (for instance, by referring to Incoterms106), provided that
they have not agreed upon, “with the sole aim of specifying the courts having jurisdiction,
a place of performance having no real connection with the reality of the contract at which
the obligations arising under the contract could not be performed in accordance with the
terms of the contract”107.
Where no actual delivery occurred and no agreement exists on the place of
performance, Article 5(1)(b) Brussels I Regulation is not applicable; by virtue of Article
5(1)(c), this leads one to apply subpara. (a) with the consequence that one has to resort to
the rules applicable under the Brussels Convention, i.e., the rules laid down by the ECJ in
the De Bloos-decision and the Tessili-decision108. Consequently, even after the entry into
force of the Brussels I Regulation, it may be necessary to first determine the obligation
which in concreto forms the basis of the claim and to then identify the place of the
performance of the obligation in question by resorting either to the lex causae or to the
applicable uniform substantive law rules.
104
For this approach, see also GSELL, Autonom bestimmter Gerichtsstand am Erfüllungsort nach
der Brüsseler I-Verordnung, supra note 68, cit., p. 491.
105
CAMPEIS/DE PAULI, Luogo di adempimento del contratto di compravendita come titolo di
giurisdizione europea tra Convenzione di Bruxelles del 1968 e Regolamento UE n. 44/2001, supra note 66, p. 238;
CZERNICH, Art. 5, in Kurzkommentar. Europäisches Gerichtsstand- und Vollstreckungsrecht, supra note 7, p. 74;
KIENLE, Eine ökonomische Momentaufnahme zu Art. 5 Nr. 1 lit. b) EuGVVO, Praxis des internationalen Privat- und
Verfahrensrechts, 2005, p. 114; THORN, Gerichtsstand des Erfüllungsorts und intertemporales Zivilverfahrensrecht,
supra note 23, p. 356.
106
supra note 7, p. 73; MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in der neuen EuGVO, supra
note 26, p. 48 and 52; contra POGGIO, Vendita internazionale di beni e foro speciale contrattuale ai sensi del
Regolamento (CE) 44/2001 del Consiglio dell'Unione Europea, supra note 49, p. 1008, stating that a reference to
Incoterms is insufficient.
107
ECJ, 20 February 1997, case C-106/95 (Mainschiffahrts-Genossenschaft eG (MSG)/Les
Gravières Rhénanes SARL), European Court Reports, 1997, I- 911, sub 31.
For similar statements in legal writing see BERTOLI, La disciplina della giurisdizione civile nel
regolamento comunitario n. 44/2001, supra note 47, p. 639; MERLIN, Novità sui criteri di giurisdizione nel
Regolamento CE «Bruxelles I», supra note 49, p. 43.
108
For this conclusion, see CAMPEIS/DE PAULI, Luogo di adempimento del contratto di
44/2001, supra note 66, p. 238; DROZ/GAUDEMET-TALLON, La transformation de la Convention de Bruxelles du 28
septembre 1968 en règlement du Conseil concernant la compétence judiciaire, la reconnaissance et l'exécution des
décisions en matière civile et commerciale, supra note 11, p. 636; ELTZSCHIG, Art 5 Nr lit b EuGVO: Ende oder
Fortführung von forum actoris und Erfüllungortbestimmung lege causae, supra note 66, p. 492; LORENZ/UNBERATH,
Gewinnmitteilungen und keine Ende? - Neues zur internationalen Zuständigkeit, supra note 70, p. 223; PILTZ, Vom
EuGVÜ zur Brüssel-I-Verordnung, Neue Juristische Wochenschrift, 2002, p. 793; POGGIO, Vendita internazionale di
beni e foro speciale contrattuale ai sensi del Regolamento (CE) 44/2001 del Consiglio dell'Unione Europea, supra
note 49, p. 1009; SCHLOSSER, EU-Zivilprozessrecht, supra note 28, p. 74; contra CZERNICH, Art. 5, in
Kurzkommentar. Europäisches Gerichtsstand- und Vollstreckungsrecht, supra note 7, p. 74; HAGER/BENTELE, Der
Lieferort als Gerichtsstand – Zur Auslegung des Art. 5 Nr. 1 lit. b. EuGVO, supra note 66, p. 76 f.; JUNKER, Vom
Brüsseler Übereinkommen zur Brüsseler Verordnung - Wandlungen des Internationalen Zivilprozessrechts, Recht
der Internationalen Wirtschaft, 2002, p. 572; LEIBLE, Art 5 Brüssel I-VO, in Europäisches Zivilprozessrecht.
Kommentar, supra note 24, 111 f.; THORN, Gerichtsstand des Erfüllungsorts und intertemporales
Zivilverfahrensrecht, supra note 23, p. 357.
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From the above, one can easily derive that the simplification aimed at by drafting
new Article 5(1) Brussels I Regulation has not been achieved109. The new rule is only
applicable in relation to two types of contract and only where the place of performance is
located in Member State. Consequently, there are instances to which the old rules are still
applicable; this leads to inconsistency110 and to a multiplication of the applicable rules111. In
this author’s opinion, this is to be deplored at least as much as the old regime that led the
European legislator to Article 5(1)(b) Brussels I Regulation.
109
See also CZERNICH, Art. 5, in Kurzkommentar. Europäisches Gerichtsstand- und
Vollstreckungsrecht, supra note 7, p. 63; DE CRISTOFARO, supra note 43, p. 251.
110
For this criticiscm, see LEIPOLD, Zuständigkeit am Erfüllungsort – das Neueste aus Luxemburg
und Brüssel, in Gedächtnisschrift für Alexander Lüderitz (Schack ed., Munich, 2000), p. 451.
111
See MAGNUS, Das UN-Kaufrecht und die Erfüllungsortzuständigkeit in der neuen EuGVO, supra
note 26, p. 52.
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Challenging Foreign Arbitral Awards: Reflections on the
Indian Judiciary’s Approach
By:
Govindraj Hegde
Assistant Professor of Law, National Law School of India University,
Bangalore, Karnataka, India
I.
Introduction
The recent judgment rendered by the Supreme Court of India in Venture Global
Engineering (Appellant) v. Satyam Computer Services Limited & Another (Respondents)’ case is the
latest in a series of Indian judgments which failed to address the significance of
international commercial arbitration and delimit the scope of role of courts in setting aside
arbitral awards, in particular when such an approach by the court interferes with the
enforcement of foreign arbitral awards. The judgment, which reminds the once established
judicial hostility of the Indian courts to the subject of international commercial arbitration,
is unwelcome for the following reasons. First, the court by extending the application of
Part I of the Indian Arbitration & Conciliation Act, 1996 to foreign arbitral awards even
when the award in question is sought to be enforced out side India has raised serious
doubts as to Indian judiciary’s receptiveness to and acceptance of arbitration as viable
mode of settlement of international commercial disputes. Second, the judgment has in one
stroke nullified the effective implementation of the New York Convention on Recognition
and Enforcement of Foreign Arbitral Award, 1958 in India. Third, the judgment will
definitely have negative implication for foreign trade and investment as it would be
susceptible to more abuse by recalcitrant parties. Finally, the case reveals the unwillingness
on the part of the Indian judiciary the need to appreciate the complimentary, not
confrontationist, role of courts in effective integration of international commercial
arbitration into the domestic legal system.
II.
The Case
Facts in Brief
On 10 January 2008, a two judge bench of the Supreme Court handed down a decision
on a plea made by Venture Global Engineering (VGE) that the award rendered against it by
the sole arbitrator was set aside as Part I of the Arbitration Act was applicable to all
arbitrations, domestic, international and foreign. VGE, a Michigan based company, and
Satyam Computers Services Limited (SCSL), an Indian company, entered into a joint
venture agreement and floated a company by the name Satyam Venture Engineering
Services Limited (SVESL). The agreement provided that each contracting party was
entitled to hold 50 per cent equity shares in SVESL. The contract contained an arbitral
clause and the parties had agreed for Paris as place of arbitration under the rules of
London Court of International Arbitration (LCIA). There was a dispute between the
parties with regard to the transfer of shares, which VGE held in SVESL, to SCSL.
Subsequent to the dispute
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SCSL invoked the arbitration clause against VGE. The sole arbitrator in his award directed
the VGE to transfer its shares in SVESL to SCSL. When SCSL sought enforcement of the
award in the District Court of Michigan, VGE unsuccessfully raised objections to the
enforcement of the award.
In the meanwhile, VGE instituted legal proceedings against SCSL before the City Civil
Court at Secunderabad, State of Andhra Pradesh, India. It sought declarations from the
court that the award be set aside under Section 34 of the Arbitration Act and a permanent
injunction be issued against the transfer of the shares under the award on the grounds that
the award was against Indian public policy and in violation of the provisions of ‘Foreign
Exchange and Management Act (FEMA)’. The Court granted an ad-interim ex-parte order
restraining SCSL from seeking or effecting the transfer of shares under the award. On
appeal by SCSL, the High Court of Andhra Pradesh directed interim suspension of the
Order by the trail Court. Aggrieved by the trail Court’s order rejecting its plaint, VGE filed
an appeal before the High Court of Andhra Pradesh. The High Court once again rejected
the contention of VGE and held that the award cannot be challenged before an Indian
court even though the award was in contravention of Indian statutory provisions and
against public policy of India. VGE preferred appeal before the Supreme Court and
requested the Supreme Court to adjudge and declare that the award was set aside and a
permanent injunction was granted for restraining transfer of shares to SCSL as per the
arbitral award.
The Legal Issue Raised
In its appeal before the Supreme Court VGE relied on an overriding contractual
stipulation in the ‘Shareholding Agreement’ which required the parties at all times to be
bound by the laws of India even though the governing law (proper law) of the contract
was Michigan law. Most important, it placed heavy reliance on an earlier judgment of the
same court in Bhatia International vs. Bulk Trading S. A., a case decided in 2002 by a three
judge bench of the Indian Supreme Court. In that case the legal issue was “whether Indian
courts had the power to grant interim measures in an international commercial arbitration
held outside India”. In other words, the question was ‘whether Part I of the Indian
Arbitration and Conciliation Act, 1996 would, save as specifically provided in Part I, apply
to international commercial arbitrations taking place abroad’.
The above claims of VGE were resisted by SCSL mainly on the following grounds: (1)
that as per Section 44 (Part II, Chapter I- New York Convention Awards) of the
Arbitration Act Indian courts have no jurisdiction to entertain a suit to set aside an arbitral
award which was foreign arbitral award; (2) that Section 34 (Part I) of the Arbitration Act
was inapplicable to the present award; (3) that the contractual stipulation in ‘Shareholders
Agreement’ dealt with the rights and obligations of the parties while acting as shareholders
of joint venture SVSL and as such did not prevent SCSL from seeking enforcement of the
award in the court of Michigan. Hence, the legal issue was, ‘whether the present arbitral
award is covered by the judgment in Bhatia International case, and consequently the award
is amenable to Section 34 (setting aside of awards) in Part I of the Arbitration Act of
1996’? The controversy, in essence, centered not so much on matters falling under Part I
of the Arbitration Act, rather, it centered on the effect of Part I of the Arbitration Act on
matters falling under Chapter I, New York Convention Awards, in Part II of the
Arbitration Act.
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The Decision
The Supreme Court allowed the appeal and held that the arbitral award in question,
though it was a foreign award, was amenable to challenge under Section 34 of the
Arbitration Act except where parties have expressly or impliedly decided to exclude the
application of Part I. The Court reached this conclusion by extending the ratio in Bhatia
International case. In that case, the three judge bench of the Supreme Court had ruled that
Part I of the Arbitration Act applies to arbitrations held within India as well as
international arbitration held out side India. Accordingly, it had set aside the ‘Order’
passed by the High Court of Andhra Pradesh. Further, parties were directed by the
Supreme Court to maintain status quo with regard to transfer of shares. The Supreme
Court gave direction to concerned court to dispose of the suit on merits within a period of
six months. The decision of the Supreme Court was primarily based on the decision in
Bhatia International case as also the specific clause in the shareholders agreement.
III.
Comments
The implication of the judgment by the Supreme Court is that the grounds available to
a party to challenge and set aside an arbitral award under Part I of the Arbitration Act are
also available to challenge foreign arbitral awards. Setting aside of arbitral awards resulting
in an international commercial arbitration is a subject which is the domain of the ‘New
York Convention’ to which India is a party. The judgment is in direct conflict with India’s
obligations under the Convention as well as the stated objectives of UNCITRAL Model
Law on International Commercial Arbitration, 1985.
The decision of the Supreme Court needs to be further examined at the backdrop of
the Indian legal framework, albeit very briefly, applicable to arbitration. India enacted its
new Arbitration and Conciliation Act, which is modeled on the UNCITRAL Model Law
on International Commercial Arbitration of 1985, in 1996. The Act which has come into
force on January 25, 1996 has amended and consolidated the law relating to domestic
arbitration, international commercial arbitration and enforcement of foreign arbitral
awards. Though based on Model Law, the Indian Act has made significant departures
from certain provisions of the Model Law. Most important, while Model Law permits
Articles 8, 9, 35 and 36 to apply to arbitrations held outside the state the Indian Arbitration
Act is conspicuous by not including this aspect. On the other hand, the Indian Act in Para
2 of Section 2 in Part I states that “this Part shall apply where the place of arbitration is in
India”. Part II of the Act is titled “Enforcement of Certain Awards” and it provides in
Chapter I (New York Convention Awards) provisions for the recognition and
enforcement of foreign arbitral awards. The New York Convention, 1958 as implemented
by India designates only two courts, the court of the state where the arbitration took place
or the court of a state under whose law the arbitral award is made, competent to set aside
the awards governed by the New York Convention. The UNCITRAL Model Law
expected States that have adopted it to accord harmonious interpretation of the provisions
in aid of international commercial arbitration that includes including the ‘New York
Convention’.
The subject of applicability of Section 9 (interim measures) in Part I of the Indian
Arbitration Act to international commercial arbitration held outside India had been the
most contentious issue that had come up before various Indian High Courts. Accordingly,
there were conflicting Indian High Court judgments. The uncertainty surrounding the
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exact legal position of this issue was put to rest by the Supreme Court in Bhatia
International case through a construction that Section 2, Para 2, must be read in the
context of the expression ‘all arbitrations’ appeared elsewhere in Part I itself. The main
concern of the Supreme Court, to put it simply, was to plug the gap in the Indian
Arbitration Act so that a party would not go remediless while involved in an international
commercial arbitration held outside India. A commendable approach then, indeed! All that
the Supreme Court said was that the expression “all arbitration” for the purpose of
application of Part I of the Act must include international commercial arbitration that
takes place outside India.
The Supreme Court in Global Venture Engineering case overstretched the meaning of
“all arbitrations” to include foreign arbitral award. First, the Supreme Court conveniently
ignored the context in which Bhatia International case was decided. It was, one may recall,
intended to bail out a party in an international commercial arbitration taking place abroad.
Otherwise, that party would have subjected to some serious injustice because Indian
Arbitration Act was silent on the issue. Second, in any case Bhatia International case did not
involve a delicate question of India’s obligations under the New York Convention. Third,
one may say that there existed enough justifications for the Supreme Court in Bhatia
International case to resort to gap filling exercise. Fourth, the approach taken by the Court,
no doubt, goes against the well established judicial practice which overwhelmingly held the
view that the New York Convention does not sanction such challenges to foreign arbitral
awards. Finally, the judgment would open up the floodgates for challenging foreign arbitral
awards just on the basis that one of the parties to the dispute is an Indian party. In modern
times the role of the court is to facilitate international commerce, to ensure finality of
foreign arbitral awards, to minimize court’s intervention in arbitration and to respect the
awards rendered by international commercial arbitration experts. The judgment has
mocked at the meaningful role for the court in arbitration
IV.
Conclusion
The decision in Venture Global Engineering has come at a time when international
businessmen and practitioners of international commercial arbitration have begun to think
that the Indian judiciary is responding to the needs of international business community.
Ironically it came at a time when out of court settlement is favored and emphasized by
successive Chief Justices of India as the Indian courts have become too crowded.
The approach taken by the Indian Supreme Court is retrogressive and appalling, to say
the least. It has sent wrong signal to the international commercial community. The
decision which represents the dubious interpretation of the provisions of the Indian
Arbitration Act, 1996 has the potential of inflicting disastrous consequences for
international commercial transactions and settlement of international commercial disputes
through arbitration. One may expect parties rushing to the Indian courts to set aside an
international or foreign arbitral award. The role of the court should complement the
arbitral tribunal and not to interfere with the arbitral autonomy. The danger with decisions
like Venture Global Engineering is that they undermine the foundations of international
commercial arbitration which is built over several decades of persistent international and
national efforts. The Indian courts in order to regain the confidence of the people
involved in international commercial transactions must show judicial statesmanship and
must refrain from unwarranted interference in arbitration matters. Again, one should not
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lose sight of the fact that it is time suitable amendments be made to the Indian Arbitration
and Conciliation Act, 1996.
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Choice of Substantive Law: Real World Sale, Barter, or Lease
of Virtual Property
By:
Sarah Howard Jenkins112
In 2002, Economist Edward Castronova estimated that several million individuals
held accounts in multiplayer online games. A Massive Multiplayer online game is the
virtual experience of the game Nintendo amplified by modern cinematic action, sound and
visual content, coupled with on-line chatting among as few fifty or as many as thousands
of real players from various nations. Each of these individuals logs on to a company
provided server that creates the visual context for the game. Unlike Nintendo, many of
the games never end. New chapters, new episodes or conquests are released by the game
provider with new challenges. A player begins by creating an online account, assenting to
the terms of a user agreement and downloading the game from the game provider’s
website. The player selects or creates a physical self or avatar, “an electronic image that
represents and is manipulated by a computer user.”113 The player then spends an average
of ten hours a week “running about in the game world, chatting with others, undertaking
various tasks, purchasing, producing, and consuming goods”114 to develop the game story.
Guildwars, Entropia,115 Everquest, and World of Warcraft116 are several of the more
popular multiplayer games. In Guildwars, each player creates a character from eight
distinct professions. This game has a story and players complete a quest, kill an evil
intruder or squelch the advances of a foe to advance the story.117 During the game, skills
and weapons may be purchased with game money as part of the interaction within the
game. Weapons of warfare such as a shield, a bludgeon, swords, and other computer
images to enhance the player’s performance and success in the game may be earned or
purchased. Magical charms, powers, and shawls with endowments of power can be found,
purchased, or stripped from a conquered foe as part of the game. If not acquired through
a successful conquest, member content or game content can be purchased or exchanged as
112
Charles C. Baum Distinguished Professor of Law at the University of Arkansas at Little
Rock, William H. Bowen School of Law; B.A., 1969 Hanover College; M.A., 1970, J.D., 1982,
University of Kentucky. The author wishes to thank the members of the University of Pittsburgh School
of Law Faculty and the University of Arkansas at Little Rock, William H. Bowen School of Law Faculty
for their thoughtful comments on the original ideas presented at faculty colloquia in Fall of 2006,
Professors Michael Flannery and Terrance Cain for their comments on a prior draft, and research
assistant Maryna Jackson.
113
Merriam-Webster, 11th Collegiate Dictionary, electronic dictionary (2003).
114
Edward Castronova, On Virtual Economies 2 (July 2002), CESifo Working Paper Series No.
752. Available at SSRN: http://ssrn.com/abstract=338500 (last visited February 28, 2008).
115
The User Agreement states the law of Sweden governs without the applicability of
Sweden’s conflict of laws.
116
The laws of Delaware without regard to its principles of conflict of laws govern the user
agreement.
117
For a description of the various game themes see, generally, David P. Shelton, Comment,
Claiming Ownership, But Getting Owned: Contractual Limitations on Asserting Property Interests in
Virtual Goods, 54 UCLA L Rev. 751, 756 (2007).
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part of the game in the virtual world with game money or, increasingly, these virtual assets,
computer images, are available for purchase in the real world – for real dollars – on game
provider websites118 or those operated by independent sellers.119
On July 30, 2005, in a posting entitled Virtual Economies, Real Cash, the author
reported that through GamingOpenMarket.com, over $2,190,000 United States dollars had
been traded in that system in Lindens, the currency of the game Second Life.120 An
estimated $3 million in real world exchanges occurred in 2003,121 in 2005 game providers
and economists estimated that $100 million was spent on virtual goods.122 As a result of
pressure from some game providers both eBay and Yahoo! announced the discontinuation
of the sale or exchange of game content on their cites in 2005. Yet, isolated posting can
be found on eBay.
What law governs these real world transactions of virtual assets? What rights are
conveyed? Of the two prevailing views of the property interest of the player or member
content, each results in an interest that can be “sold” or “leased.” Some game developers
view the virtual property created by its players or members as being inseparable from the
underlying computer code or data that produces the image that appears as an object on the
video screen. Because of the inseparability of the object or image, the game developer
“owns” the property created or submitted in the game service area.123 Consequently, the
member has, at least, the right to use the content it created and the right the transfer the
privilege to use the content. In contrast to this first view, players and some game
developers view virtual property in terms of functionality “each item has a purpose and
function within the video game and can be traded for another item”124 within the virtual
world. Because the assets are the byproduct of player time and money within both the
virtual and real world, players are free to sell or exchange these assets on real world trading
blocks. Regardless of the view of the property interest held by the player, a U.S. forum
118
http://stationexchange.station.sony.com/faq.vm#WhatIsStationExchange. Sony
announced the introduction of an “official” trading website for real world acquisition of virtual
assets. Sony will charge the selling player a “nominal listing fee” of $1 for goods and coins and
$10 per character and a service fee of 10% of the transaction price.
119
Real world sites for acquisition or sale of virtual property or accounts include:
www.ige.com, www.uotreasures.com.
120
http://www.davesite.com/themag/073005virtualecon.shtml.
121
Dibbell, The Unreal Estate Boom, Wired, Issue 11.01 (January 2003), available at
http://www.wired.com/wired/archive/11.01/gaming_pr.html.
122
Richard Raysman and Peter Brown, Novel Legal Issues in Virtual Property, 8/9/2005
N.Y.L.J. 3, col. 1.
123
Indeed, the User Agreement for Quildwars distinguishes game content, the visual content
provided by the game provider’s server such as the graphics, sound effects, music, animation-style video,
content, layout, design, files, data, and characters from member content – images submitted or created by
the player. Guildwars, User Agreement ¶ 6 (a) (last updated January 2008). The provider reserves all
rights under copyright law to the game content and the member grants a “non-exclusive, universal,
perpetual, irrevocable, royalty-free, sublicenseable right to exercise all rights of any kind or nature
associated with” member content when it is submitted or created in a “service area.” Guildwars, User
Agreement ¶ 6 (c) (last updated January 2008).
124
Richard Raysman and Peter Brown, Novel Legal Issues in Virtual Property, 8/9/2005
N.Y.L.J. 3, col. 1.
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court may deem the application of its Uniform Commercial Code appropriate125 and a
European forum court pursuant to the EC Convention on the Law Applicable to
Contractual Obligations126 may apply the UCC in a transaction if a player in the U.S. is
selling its creation of a computer generated image.
1.
Analogical Development or Extension of the UCC
First, the drafters of the UCC intended the expanded applicability of the UCC to
commercial transactions that were neither transactions for services nor transactions in real
estate. Second, the term “goods” refers to personalty, personal property which of necessity
includes software and computer images. Both Revised Article 1, now codified by 29
states, and unrevised Article 1, recognize as the primary policies in construing the UCC the
modernization of the law governing commercial transactions and the continued expansion
of commercial practices through custom, usage, and the agreement of the parties. The
UCC was not designed as an exhaustive statement of all commercial law with the
concomitant task of addressing every potential occurrence and every foreseeable
transaction or issue and requiring the plugging of every foreseeable gap with rules.127
Courts were expected to: 1) develop the UCC through analogical development of the text
– the application of the delineated purposes and policies – as unforeseen and new
circumstances and practices were confronted;128 and 2)“recognize the policies embodied in
an act as applicable in reason to subject-matter . . . not expressly included in the language
of the act” or intentionally excluded if reason and policy require[d].”129 Barco Auto Leasing
Corp. v. PSI Cosmetics,130 and Advent Systems Ltd. v. Unisys Corp.,131 both presented new types
of transactions, Barco the long term lease of goods for the useful life of the goods in 1984
before the codification of Article 2A governing the lease of goods and Advent Systems the
licensing of software in 1991. In both instances, existing articles provided an analogous
context for resolving the issues when the transaction was a lease and not a sale and when
the subject of the transaction was not a traditional good.
125
Except as provided hereafter in this section, when a transaction bears a reasonable
relation to this state and also to another state or nation the parties may agree that the
law either of this state or of such other state or nation shall govern their rights and
duties. Failing such agreement this Act applies to transactions bearing an
appropriate relation to this state. (emphasis added)
U.C.C. § 1-105 (2000), codified in some fashion as Revised U.C.C. § 1-301 by the 29 states that have
codified Revised Article 1.
126
Article 4, ¶ 2 (a presumption that the contract is most closely connected with the country
where the party who has the characteristic performance of the contract maintains his/her habitual place
of residence).
127
Robert S. Summers, General Equitable Principles Under Section 1-103 of the Uniform
Commercial Code, 72 NW. UNIV. L. REV. 906, 907 (1978). See also, William D. Hawkland, Uniform
Commercial “Code” Methodology, 1962 U. ILL. L.F. 291 (discussing the Prussian Code of 28,000
sections to address every foreseeable problem).
128
Mitchell Franklin, On the Legal Method of the Uniform Commercial Code, 16 LAW &
CONTEMPORARY PROBLEMS 330, 333 & 340 (1951 ). Accord, U.C.C. § 1-102, comment 1 (2000).
129
U.C.C. § 1-102, cmt 1 (2000).
130
478 N.Y.S.2d 505 (1984) (lease of personal property).
131
925 F.2d 670 (1991) (licensing of software).
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The scope provisions of Articles 2 (Sales) and 2A (Leases) reinforce this expanded
view of the applicability of the UCC. “Unless the context otherwise requires, this Article
applies to transactions in goods . . . .”132 Similarly, Article 2A states a principle of broad
applicability. “This Article applies to any transaction, regardless of form, that creates a
lease.”133 Section 2A-103(j) defines lease to mean a transfer of the right to possession and use
of goods for a term in return for consideration . . . . Unless the context clearly indicates
otherwise, the term includes a sublease. In both instances, we observe the expansive scope
of both articles to include transactions, not merely sales or leases, reflecting the envisioned
flexibility of the UCC, the “machinery” or mechanism for the expansion of commercial
practices.
However, at first blush, the stated limitation of transactions in goods appears
problematic. The term “goods” means all things which are movable at the time of
identification to the contract other than the money in which the price is to be paid,
investment securities and things in action.134 The focus is upon movability to distinguish
transactions for services or real property from transactions for personalty. If the subject
of a transaction is personalty, personal property, the goods definition is satisfied. First, a
threaded distinction exists in Article 2 between personalty and real property. We see this
distinction in sections 2-107135and 2-304.136 Second, case authority reveals an expansive
definition of goods to include software,137 stock in a cooperative housing corporation,138
and electricity.139 The drafters did not intend for Article 2 to become obsolete or
antiquated but rather its scope was to expand as commercial transactions expanded and
evolved. The subsequent expansion should then be memorialized in a revised
promulgation by the relevant quasi-legislative bodies. Although the 2003 amendments to
Articles 2 and 2A expressly exclude information from the definition of goods, no
jurisdiction has codified the amendments. Finally, the recent draft of Principles of the
Law of Software Contracts by the ALI excludes the exchange of digital art from its scope.
Consequently, Articles 2 and 2A should be extended to govern the real world sale, barter,
132
Unamended U.C.C. § 2-102 (2002).
133
Unamended U.C.C. § 2A-102 (2002).
134
U.C.C. § 2-105 (2002).
135
U.C.C. § 2-107 (2002) (a transaction for minerals and the like is a transaction in goods if the
seller is to sever or extract the goods).
136
U.C.C. § 2-304 (2002) (applicability of Article 2 to transactions involving an exchange or
barter of goods for something other than money including real estate or services).
137
Twenty-two jurisdictions include software within the definition of goods. Of these twentytwo, three exclude custom designed software distinguishing service from personalty. Likewise, courts
have held that transactions for software, other than custom designed software, are within the scope of the
Vienna Convention on Contracts for the International Sale of Goods.
138
In New York this sale was the sale of personalty governed by Article 2. Silverman v. Alcoa
Plaza Associates, 37 A.D.2d 166, 323 N.Y.S.2d 39 (1971). But see ALH Properties Ten, Inc. v. 306100th Street Owners Corp., 191 A.D.2d 1, 600 N.Y.S.2d 443 (1993) (Article 8 more appropriate for its
facts).
139
See, e.g., Helvey v. Wabash County REMC, 151 Ind.App. 176, 278 N.E.2d 608 (1972)
(electricity held a good).
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exchange, or lease of virtual assets acquired or created as part of Massive Multiplayer
Online Role-playing games.
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Jurisdiction and Choice of Law:
A European Perspective
By:
Alberto Malatesta
Professor of International Law, Law School, University Carlo Cattaneo of
Castellanza, Italy
1. This paper covers the most significant trends in the European PIL with a special look at
the global transactions, that is to say to the external dimension and effects of European
regulations.
In dealing with such issues, both in the field of jurisdiction and choice of law rules the
starting point is the so called process of Communitarisation of private international law, that is
the increasing competence of the European Community in this area from the Amsterdam
Treaty in 1999 onwards, upon which the European Community can adopt measures in the
field of PIL.
In particular, two relevant acts come under special consideration for our purposes:
- the Brussels I Regulation (No. 44/2001 of 22 December 2000) unifying jurisdiction rules and
the treatment of foreign judgments;
- and the 1980 Rome Convention, which was intended to complete the Brussels system by
ensuring that the same law is applied irrespective of the State in which a decision is given and
that is being in its turn transformed into a Community regulation (Rome I). Its adoption is
expected in the next meeting of the Justice and Home Affairs Council, to be held in a few days
and the final text is already available in the internet.
From a general standpoint, it is submitted that some recent developments show the
creeping out of a rigid approach in dealing with jurisdiction and choice of law rules and in
building a European PIL. Efficiency and predictability seem to be the prevailing concerns and
objectives pursued by the ECJ as well as by the EC institutions while on the contrary the quest
for other goals, such as the search for appropriate results in every single case, is mainly set
aside.
In the following pages I’ll try to give adequate proof of this trend.
2. Let’s start with jurisdiction. Some leading cases from the ECJ are of paramount
importance in this field.
In the Owusu judgment, rendered under the Brussels Convention, but clearly applicable also
within the Regulation (1 March 2005, case C-281/02), the ECJ took the view of a somewhat
universal application of the rules on jurisdiction.
In the case, the plaintiff, Mr. Owusu, was injured while swimming during a vacation in
Jamaica and brought suit in the UK, naming as defendants an individual from whom he had
rented the vacation home - domiciled in the UK – and several Jamaican companies allegedly
responsible for not giving proper notice of the hazardous conditions that led to the accident.
Therefore, the case was an international case, but there was not connection with another
European State, as the only defendant from within the European Community was from the
same State as was the plaintiff.
In the second place, the issue at stake was whether the convention prohibited to dismiss
the relief on the forum non conveniens motion on the ground that Jamaica was the more
appropriate forum. The Court held that “the convention precludes a court from a contracting
State from declining the jurisdiction conferred by art. 2 on the ground that a court of a non
contracting State would be a more appropriate forum for the trial of the action even if the
jurisdiction of a non Contracting State is in issue or the proceedings have not connecting
factors to any other Contracting State”.
As a consequence the doctrine of forum non conveniens is in principle banned from the
Brussels system.
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However, it is not clear – and is indeed much debated - whether forum non conveniens can still
operate, by the way of national relevant rules, under some other circumstances.
This is the case of parallel proceedings, where identical or related proceedings are pending
in a member State and before a court of a third State and the defendant is domiciled in a
European State so that the a European court should have jurisdiction under the Regulation.
This situation is actually not expressly covered by the Owusu judgment.
The same rigid approach is taken by the Court also in other fields, such as the forum
selection.
In this area the Brussels I Regulation is considered to expand greatly the role of party
autonomy, thereby reducing the control of the State in private affairs.
In particular, art. 23 provides that the courts chosen by the parties shall have exclusive
jurisdiction, if one of the parties is domiciled in a member States, and that such jurisdiction
shall be exclusive unless the parties have agreed otherwise.
This rule prevails over the general jurisdiction of art. 2 and the special rules of art. 5 but is
subject to the exclusive rules of jurisdiction in art. 22 and to some protective rules for
insurance, consumer and employment contracts (art. 8 through 20 ).
However, albeit these liberal principles, sometimes unexpected limitations can be imposed
upon parties. Two situations are here envisaged.
a) The first is taken from the much criticized Gasser case, decided by the ECJ in 2003 (case
C-116/02), that involved the application of the rules on parallel litigations.
The case was about a transaction between an Austrian seller and an Italian buyer where the
Austrian company brought a suit for payment in Austria according to a clause providing for
jurisdiction of Austrian courts. However, the Italian party had already brought a suit before an
Italian tribunal and the Court affirmed that the rule on lis pendens in art. 21 should have applied
and prevailed over the choice of court agreement. Therefore, Austrian courts had to dismiss
the case in favor of litigation in Italy.
Such a rigid adherence to the temporal rule in favor of the court first seized is to be
respected even when the jurisdiction clause comes out to be valid and thereby provides for
exclusive jurisdiction.
The quest for predictability here shows many limits, insofar as the judgment clearly
promotes inappropriate parallel proceedings by encouraging negative declaratory actions
intended to frustrate litigation in the forum chosen by the parties.
b) The second situation that I would like to deal with covers jurisdiction agreements in
favor of non European judges.
Europe accepts different treatment of such clauses as they are in principle outside the
scope of the Regulation and left to the national PIL rules of each member State so that the
deference to them may vary according to the court seized.
In principle, such agreements are capable of depriving the courts of a member State of
jurisdiction conferred on them by the Regulation. This view finds support in a case decided by
the ECJ in 2000 (Coreck Maritime).
However, some limitations upon the freedom of Member States to apply their own law can
be flawed by the Brussels system that can interfere also in these situations.
As a matter of fact, the need of applying protective rules regarding insurance, consumer
and employment contracts as well as some exclusive rules contained in art. 22 may lead to
some exceptions and to a frustration of the choice of a non European judge. To the extent that
the latter has jurisdiction under the mentioned protective and exclusive rules, it is not
permitted to decline jurisdiction on the ground that a court of a non member State has
exclusive jurisdiction under a choice of court agreement. Such a clause is destined not to
deploy any effect.
Recently in this sense in England, Court of Appeal (Civil Division), 12 July 2007, SamengoTurner, disregarded a jurisdiction clause in favor of a New York court in an employment
dispute as it held applicable Section 5 of the Brussels I Regulation providing that EU domiciled
employees can only be sued before the courts of the State where they are domiciled and that
jurisdiction can be agreed only “after the dispute has arisen”.
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3. Also within the choice of law rules, a more rigid line seems to prevail, at least compared
with the recent past.
The Rome Convention, as it stands now, is inspired by a certain degree of flexibility.
Art. 3 states that a contract shall be governed by the law chosen by the parties. The choice
of law can be either express or implied and is of course subject to public policy and mandatory
rules, according to the general principles of PIL.
When the parties do not select any applicable law, the general rule is that the contract is
governed by the law of the country with which it is most closely connected, with a
presumption in favor of the law of the residence (or the main place of business in commercial
affairs) of the party that has to carry out the characteristic performance of the contract (art. 4).
As a matter of fact, case law proves that courts are allowed to put more or less weight on this
presumption.
Some further flexibility may result from the application of art. 7.1 that is from the relevance
of the mandatory rules of a country other than the country providing the applicable law of the
contract.
The conversion of the Rome convention into a regulation is about to step back.
This is especially true when deciding the law applicable to contractual obligations in the
absence of a choice of law by the parties.
The new art. 4 of the Regulation becomes a hard rule followed by an escape clause. In
principle, the law governing the contract is now determined in accordance with specific rules
for particular types of contacts (sale of goods, provision of services, franchising, distribution
and so on), all of them inspired by the principle of the characteristic performance. Only when
it is clear from all the circumstances of the case that the contract is manifestly more closely
connected with a country other than those indicated, the law of that other country shall apply.
In other words, the presumptions under the characteristic performances theory have been
spelled out and elevated to strict rules. This detraction from flexibility explains why UK has so
far chosen to opt out from the Regulation.
Some other modifications of the Convention go along the same line.
This is the case for the – indeed slight – restriction of the admissibility of an implied choice
of the applicable law (see the new version of art. 3.1 where the choice demonstrated “with
reasonable certainty” has been replaced with a choice “clearly demonstrated”).
Or is also the case of the decreased scope of the mandatory rules of the law other than the
law governing the contract. The new art. 9 (former art. 7) states now that effect may be given
to the overriding mandatory provisions only of the law of the country where the obligations
arising out of the contract have to be or have been performed insofar as those provisions
render the contact unlawful.
But, above all, it seems to me that the most significant trend is the increasing of
Community public policy principles. These principles tend to become more and more uniform
in the member States, as a consequence of the growing European harmonization of national
laws.
This is reflected by the need to insert in the Regulation the new art. 3.4, aiming at
safeguarding the Community not derogable provisions, to the same extent as the
corresponding national rules are protected in the foregoing rule (Art. 3.3). Therefore, “where
all other elements relevant to the situations at the time of the choice are located in one or more
Member States, the parties’ choice of applicable law other than that of a Member State shall
not prejudice the application of provisions of Community law, where appropriate as
implemented in the Member State of the forum, which cannot be derogated from an
agreement”.
The effects of public policy or similar considerations may be indeed even more far
reaching.
For example, in the Ingmar Case (2000), the ECJ, even without discussing conflict of laws
provisions and techniques, stated that the choice made by a Community agent and an
American principal to make Californian law applicable could not be followed because the
requirements provided by the Commercial Agents Directive and the consequent harmonized
set of rules must be respected in any case. These rules were considered by the Court a
“minimum requirement throughout the EU”.
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4. Which are the perspectives for the future? And in particular does the Communitarisation
leads to harder rules and more rigid policies, especially with regard to relationships connected
with third States?
In spite of the described trends, it is difficult and too soon to give a general answer. A clear
common policy has not yet been defined. From this point of view, the comparison with the
recent Rome II Regulation on the law applicable to non contractual obligations is quite
puzzling as it adopts flexible rather that strict solutions.
However, at least a direction seems to be undertaken, that is to say a more harmonized
approach with regard to global transactions.
This touches indeed only jurisdiction (apart from the recognition of judgments), as choice
of law rules have already universal application.
As to jurisdiction, with regard to situations involving individuals or companies domiciled in
a non Member States, under Brussels I Regulation States – subject to the Owusu case - remain
in principle free to apply their national rules over defendants domiciled in third countries (art.
4.1). Save the case of Italy, national rules are normally wider, and many States make use of
improper fora, with the goal to broaden the possibility to bring proceedings against persons
domiciled in third States.
After the Lugano Opinion (2006), where the ECJ stated that the Community enjoys
exclusive competence in signing and ratifying the new Lugano Convention on jurisdiction and
enforcement of judgments, further replacements of national rules and international
conventions entered by States by Community acts are expected.
This is assumed to be beneficial for intercontinental transactions, even if it is far from sure
that this trend would lead to more liberal rules than the new existing now at national level.
On the contrary, the development of Community improper fora is very probable in order
to protect individuals and companies domiciled within the European Union as a whole
rather that as national or domiciled of a specific State.
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Choice of Law and Forum in International Commercial
Contracts: Trends in Common Law Jurisdictions (A NonEuropean Perspective)
By:
Megan Richardson and Richard Garnett
Melbourne Law School, the University of Melbourne
In common law jurisdictions, it is often said, international contracting parties are generally
free to decide the law and forum for resolving their disputes. For instance, in 1989 Cooke
P of the New Zealand Court of Appeal observed that:140
It is well known that for a decade and more there has been a strong trend in common
law countries towards giving greater rein to party autonomy, partly in emulation of
other systems of law and especially in international commercial arbitrations.
In 1999 Peter Nygh wrote of the ‘triumph of autonomy’ as giving parties broad powers to
select both the law and forum to resolve disputes.141 In 2000 Friedrich Juenger also noted
that the ‘policy of freedom of contract’ has been extended to freedom over matters of law
as well.142 However, it should be acknowledged that the principle of autonomy is a limited
one, albeit less in the case of arbitration.143
In general, courts in common law jurisdictions (leaving aside the position of the UK under
the Rome and Lugano Conventions and Brussels I Regulation):
(1) accept that parties are free to select the law governing matters of substance which
they are generally free contract about anyway, as well as matters of validity to the
extent not qualified by (2) and (4) below;
(2) refuse to cede ultimate control over matters they consider within their own domain
as the forum for dispute resolution, including ‘procedure’ (broadly construed,
although in many jurisdictions now statutes of limitations are not included),
remedies (to some extent) and choice of law rules;
(3) accept that parties may select the forum for resolution of their disputes but
maintain their discretion to exercise jurisdiction in cases before them if they
140
CBI NZ Ltd v Badger Chyoda [1989] 2 NZLR 669 at 675.
Autonomy in International Contracts (Oxford, Clarendon Press, 1999) ch 1.
142
‘The Problem with Private International Law’, Jürgen Basedow, Isaak Meier, Anton Schnyder, Talia Einhorn and
Daniel Girsberger (eds), Private Law in the International Arena: From National Conflict Rules Towards
Harmonization and Unification: Liber Amicorum Kurt Siehr (TMC Asser Instituut 2000) 289 at 306.
143
See generally Michael Whincop, Policy and Pragmatism in the Conflict of Laws (Aldershot, Ashgate/Dartmouth,
2001), Richard Garnett, ‘Book Review - Policy and Pragmatism in the Conflict of Laws by Michael J Whincop and
Mary Keyes’ (2002) 26 Melb U L Rev 236; and Megan Richardson, 'Policy versus Pragmatism? Some Economics of
Conflict of Laws' (2002) 31 Com L W’ld Rev 189.
141
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consider themselves the more convenient forum (or, in the case of Australia, a not
clearly inappropriate forum) – and although it is said that strong reasons are
required to do so in the face of an exclusive foreign court clause, in practice the
approach may be ‘rather different’.144
(4) maintain that, in any event, neither they nor parties can derogate from the
mandatory laws and general public policies of the forum,145 and in the absence of
express pronouncements by legislatures take upon themselves to determine which
laws fit within these categories.
The language in cases may vary. For instance, in the United States, under the influence of
legal realism and its associated emphasis on policy, courts may talk of ‘government
interests’ in resolving the disputes. However, since they generally place great weight on
freedom of contract, they are bound to give this some accord (and not surprisingly, when
it comes to actual cases, the government interests they are most concerned with are those
of the forum).146 In Commonwealth countries, the starting point is ostensibly the principle
of freedom of contract but a similar result can be achieved through the language of (the
forum’s) mandatory law and public policy as limiting factors – and the scope and
malleability of the latter should not be underestimated.147 Thus the principle of party
autonomy is a principle that is significantly qualified by considerations of judicial control.
In short, courts allow parties to international contracts to exercise only partial and
incomplete autonomy when it comes to resolving their disputes.
The partial exception is arbitration where the prevailing philosophy, since at least the mid
1990s, and under the influence of the New York Convention and UNCITRAL Model
Law,148 has been more one of giving effect to the parties’ agreement and reducing the
control of national law and courts. Thus in this context at least parties may be allowed to
choose their own procedural law, may be permitted at least some control over the range of
remedies to be awarded and enforced if need be by courts, have limited recourse to
national courts, and are generally unconstrained by the substantive law of the particular
place in which the arbitration may happen be held (except in cases where mandatory law
144
As noted by Adrian Briggs, ‘Jurisdiction Clauses and Judicial Attitudes’ (1993) 109 LQR 382, 383. See also
Richard Garnett, ‘The Enforcement of Jurisdiction Clauses in Australia’ (1998) 21 UNSWLJ 1 and generally Andrew
Bell, Forum Shopping and Venue in Transnational Litigation (OUP, 2003) ch 5.
145
Including via jurisdiction clauses: Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 418.
146
See, for instance, Symeon Symeonides, ‘Choice of Law in the American Courts in 2000: As the Century Turns’
(2001) 49 Am J Comp L 1 at 37-38 (few cases of choice-of-law clause not enforced in 2000, the two most notable
where chosen law was repugnant to the public policy of otherwise applicable law of forum).
147
Cf Garnett above n 143 at 238 (interest groups seek protective legislation and governments provide such
protection, supported by courts who see their role as implementing legislative purpose).
148
The first (adopted by the UN in 1958) setting standards for recognition and enforcement of arbitral awards in 142
member states, the second (adopted in 1985) a basis of legislation in inter alia Australia, New Zealand, Canada and
some US states and influential on standards in other states, including the Arbitration Act 1996 (UK). It has also been
incorporated to some extent in the rules of the American Arbitration Association and London Court of International
Arbitration (as well as the ICC Court of Arbitration in Paris).
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may actually invalidate the arbitration clause itself).149 Moreover, parties’ autonomy on
substantive law may include the freedom to choose rules of law that have no
correspondence in national law but rather accord with principles of law that have been
developed specifically for international commercial contracts, as for instance the
UNIDROIT principles of international commercial contracts150 – something that is less
clearly the case for court-based dispute resolution.151 The exceptional treatment of
arbitration derives both from its history as a method of dispute resolution that predated
and operated independently of nation states, and its widely acknowledged benefits in
permitting a flexible and neutral system of dispute resolution to flourish for international
commercial contracts.152 That said, neither nation states nor their courts have been nearly
so willing – at least in the experience to date - to accord similar freedom when it comes to
deferring to the courts of other nation states and the laws which those courts might apply,
seeing this as more clearly a matter of derogating from national sovereignty.
Do recent cases show the balance between party autonomy and judicial control shifting in
favour of autonomy in the non-arbitral context? Certain decisions of New Zealand,
Australian and Canadian courts might seem to suggest so:
1
Rimini Ltd v Manning Management and Marketing Pty Ltd153 – in an action for breach
of a commercial cleaning franchise contract made between parties based in New
Zealand and Sydney, to be performed in East Sydney and specifying New Zealand
law but silent on jurisdiction, Randerson J in the New Zealand High Court
declined to exercise jurisdiction on the basis that the natural forum was New South
Wales. As to whether the provisions of the Contractual Remedies Act 1979 (NZ)
could be applied by a New South Wales Court, Randerson J said:154
I do not consider in this day and age that Courts in New Zealand or Australia
should shy away from applying the laws of the other country, including statute
law. There are very substantial commercial dealings between the two countries
and, as far as possible, Courts should seek to give effect to the laws of the other
country unless it would be contrary to the law and policy of the lex fori to do so.
In the process, an argument that remedies would be viewed by a New South Wales
Court as forum law was rejected on the basis that they could equally construed as
part of substantive law of the contract. Moreover, Randerson J rejected an
149
.See especially Model Law Art 5 (extent of court intervention), Art 8 (arbitration agreement and substantive claim
before court), Art 19 (rules of procedure), 28 (rules applicable to substance of dispute), 34 (setting aside) and 36
(recognition and enforcement); and also Convention Arts II, III and V.
150
See Model Law Art 28(1) and further Art 28(3) (choice of ex aequo et bono or amiable compositeur) and, for a
detailed discussion of the options afforded, Gonzalo Parra-Aranguren, ‘Choice of Law Applicable to the Dispute in
Recent Legislation on International Commercial Arbitration’ in Basedow et al above n 142 557.
151
As noted by Juenger above n 142 at 306 (suggesting this is a reason why arbitration may be preferred).
152
See Richard Garnett, ‘International Arbitration Law: Progress Towards Harmonisation’ (2002) 3 Melb J Int L 400
and, as to a distinctive ‘legal culture’ of international commercial arbitration, Leon Trakman, ‘”Legal Traditions”
and International Commercial Arbitration’ (2006) 17 Am Rev Int’l Arb 1.
153
[2003] 3 NZLR 22.
154
Ibid [47].
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argument that the Contractual Remedies Act must be applied, pointing out that the
Act does not purport to be a code and allows parties to determine remedies, as had
been done in this case.
2
Neilson v Overseas Projects Corporation of Victoria Ltd 155– in a action in tort by an
Australian national against an Australian company for an injury sustained in
Wuhan, China in accommodation provided for plaintiff’s husband (who was
employed as a consultant by defendant on a two year project), a majority of the
Australian High Court held that Australian law governed the parties’ relations. The
basis was that although Australian choice of law rules referred the matter to
Chinese law as lex loci delicti, this law included Chinese choice of law rules which
allowed the matter to be determined under Australian law. (Thus a Chinese
limitation period which would have precluded the claim did not apply.) As Gleeson
CJ said, consistent with the premise that different outcomes should not follow
from the selection of forum, ‘the objective ought to be to have an Australian court
decide the present case in the same way as it would be decided in China’.156
However, it was left open whether parties should be held to the same result in a
contract case. Gummow and Hayne JJ suggested rather that the issue could be
determined by the contracting parties:157
Choosing a single overarching theory of renvoi as informing every question
about choice of law would wrongly assume that identical considerations apply in
every kind of case in which a choice of law must be made. But questions of
personal status like marriage or divorce, questions of succession to immovable
property, questions of delictial responsibility and questions of contractual
obligation differ in important respects. Party autonomy must be given more
emphasis in questions of contract than in questions of title to land. Choice of
governing law may be important in creating private obligations by contract but
less important when the question is one of legal status.
(In fact it is common practice for contracting parties in Australia, as elsewhere, to
exclude renvoi in their choice of law provisions.)158
3
Impulsora Turistica de Occidente SA de CV v Transat Tours Canada Inc159 – in an action
seeking an injunction in aid of enforcement of a contract between Quebec and
Mexican parties for the lease of rooms in a Puerto Vallarta hotel, which specified
Quebec as the jurisdiction and Quebec law as the choice of law, the Supreme
Court of Canada held that jurisdiction should not be declined by a Quebec court as
forum non conveniens on the basis that Canadian courts lacked the power to issue
155
(2005) 221 ALR 213.
Ibid [13]. Query what that signifies for application of the forum’s mandatory law.
157
Ibid [99]. Contrast O'Driscoll v J Ray Mcdermott, SA [2006] WASCA 25 where it was assumed that the Neilson
position on renvoi applied in a contract case as well. But there both parties accepted this for the purposes of the
appeal and there was no contractual choice of law provision. Thus the question of excluding (or including) renvoi by
agreement of the parties did not clearly arise in the circumstances of the case.
158
And the UNCITRAL Model Law expressly provides for this as the default position: see Art 28(1).
159
2007 SCC 20.
156
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injunction orders with extraterritorial effects. To the contrary, the Court agreed
with Dussault JA in the Quebec Court of Appeal that the Superior Court, District
of Montreal, had power to grant an injunction and other incidental relief (and
whether such an order might be enforced in Mexico was a separate question) and
therefore that jurisdiction could be exercised.
These cases can indeed be taken to show some acceptance by the courts concerned of two
broad policies – first, that the same law should apply regardless of forum to the maximum
possible extent (including on procedure, remedies and choice of law); and, second, that
contracting parties should be free to make their own decisions on the law and forum for
their disputes and courts should strive to give such decisions (especially as to law)
maximum possible effect. Whether they can be taken to indicate a more general trend
remains to be seen. Perhaps it is to be expected, given the truly multi-jurisdictional
character of many modern contracts. But it also depends upon courts conceiving
themselves as participants in a global network of adjudication and not simply as
functionaries of nation states.160 And so far there are only patchy indications of that.
160
See Anne-Marie Slaughter, ‘A Global Community of Courts’ (2003) 44 Harv Int’l L J 191, also arguing (perhaps
optimistically) that modern courts are in the process of re-conceiving themselves in this way.
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RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS
IN THAILAND
By:
Jantree Sinsuppraroek
*
I. Introduction
The problem of recognition and enforcement of foreign judgments is closely
linked to Private International Law. Beginning with the principle of territorial sovereignty
that prevents foreign judgments from having any effect in any of the other countries,
however, we have found that various doctrines have been propounded to explain why a
country should show respect to the recognition and enforcement of foreign judgments.
The principal doctrines have been those based on comity, reciprocity, obligation and
acquired rights or vested rights.
It is mostly due to a matter of an increase contact between the citizens of different
countries in the world with rapid transportation and communication especially in the
sphere of international trade and business transactions which mainly requires prompt,
certainty and effectiveness. Businessmen are generally concerned with the various
impediments which may be placed in the way of the recognition and enforcement of their
claims. Without security of transactions, which appears as the underlying policy of major
importance in this field of Private International Law, commercial transactions between
citizens of different countries would be greatly lessened. Apart from these commercial
relations, the question of recognition of foreign judgments, merely a declaratory judgment,
one declaring the status of a person; a decree of divorce or nullity and all judgments
dismissing an action becomes more crucial at present.
Therefore, a policy question to be considered is how rigidly or how easily a foreign
judgment should be recognized and enforced in any of the other countries without
endangering its local interest.
It has been found that there must be some controls
available to enforcing court, in order that it can protect not merely a particular party, but
more importantly, its domestic legal order.
Generally speaking, these controls or criteria comprise some basic requirements :
- The foreign rendering court has jurisdiction, this being measured by jurisdiction
in the international sense or international jurisdiction.
- The foreign judgments which is sought to be recognized or enforced must be
final and conclusive.
- A foreign judgment, if in personam, must be for a definite sum.
- A foreign judgments was not obtained by the perpetration of fraud.
- The recognition and enforcement of the foreign judgments would not contrary
to the enforcing court’s notion of public policy.
- The foreign judgment was not obtained by a violation of the rule audiatur et
altera pars, i.e. either that the foreign court refused to hear one of the parties or that no
notice or no adequate notice of proceedings was given to the defendant.
Basically, there are two methods of the recognition and enforcement of foreign
judgments.
The first method is to bring a new action in the foreign country where
*
Associate Professor of Law, Chulalongkorn University, Bangkok.
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recognition or enforcement is sought. This action will normally be based on the judgment
which has been obtained and not on the original cause of action between the parties.
Secondly, it may be possible to register the judgment under reciprocal enforcement
legislation in the foreign country where it is sought to be executed and then to enforce it
directly in the same manner as a judgment given in the court of that country. The method
of bringing an action upon the judgments is dilatory and cumbersome. The reciprocal
enforcement regime is generally more expeditious and less expensive than an action on a
foreign judgments
II. Thailand and the Recognition and Enforcement of Foreign Judgments
There are currently no provisions in the Civil Procedural Code or in the Conflict
of Laws Act B.E. 2481 (1938) which deal specifically with the recognition and
enforcement of foreign judgments. Besides, Thailand has not, as yet, entered into any
relationships, bilateral or otherwise, for the reciprocal enforcement of judgments. 1
However, one can find a reported case, Supreme Court Decision No. 585/2461 (1918),
which dealt with enforcement of foreign judgment in Thailand. Considering that the
doctrine stare decisis is observed in the Thai judicial system, the case may be cited as the
only judicial authority available on the subject of enforcement of foreign judgments.
The fact of the case were as follows. The plaintiff, a Fam Thi Lian, a Vietnamese
citizen entered into a contract of sale with the defendant, a Tan Wan Neo, also of
Vietnamese subject whereby the defendant sold 15 rickshaws and two bicycles to the
plaintiff. The plaintiff claimed that he had paid the defendant for the price but the
defendant failed to deliver the goods. The contract was concluded in Saigon. The plaintiff
then sued the defendant in Saigon Civil Court. The Court gave judgments for the plaintiff.
The defendant fled to Bangkok where the plaintiff sought enforcement of Saigon Civil
Court judgment. The Supreme Court of Siam, reversing both the Bangkok Civil Court
and the Court of Appeal, held that:
The principle underlying recognition and enforcement of foreign
judgments is one of mutual respect among nations. The court of Siam will
recognize and enforce judgment rendered by a foreign court provided that the
judgment was given by the court of competent jurisdiction. The judgment must
also be final and conclusive on the merits of the case. In this case, the plaintiff and
the defendant were both Vietnamese citizens and thus, the Saigon Civil Court
enjoyed competent jurisdiction over the case. However, the judgment of the
Saigon Civil Court was given in default. The plaintiff failed to prove the
Vietnamese Civil procedure law concerning the finality and conclusiveness of the
judgment given in default. Under the Civil Procedural Act B.E. 2452 (1909) of
Thailand, the defendant who had been declared by the court to be in default of
1
In 1980 negotiations were held between the Governments of Thailand and France on the
judicial cooperation in civil matters. The French delegations had initiated reciprocal enforcement of
judgments in civil matters into the agenda, but the Thai counterparts did not think it was in the best
interest of the country to enter into such an agreement at the time and thus the negotiations were
concentrated on judicial cooperation prior to judgment which unfortunately left uncompleted. In 1996
Australia and Spain have express interest in negotiating an agreement on reciprocal enforcement of civil
judgments with Thailand but the negotiations only succeeded in so far as the cooperation prior to
judgment.
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appearance and against whom a judgment had been given, may apply for a new
trial within fifteen days from the date of judgment. Upon failure to prove
otherwise, the Court of Siam will hold that judgment given in default is not final
and conclusive.
The plaintiff’s claims were dismissed. However, the Supreme Court ruled that the
plaintiff was entitled to bring a new action in Siam on the same cause of action against the
same defendant.
It should be noted that the decision was heavily influenced by English law since
Phrya Debvidura (Bovnchuay Vanikul), the President of the Supreme Court, who
wrote the opinion of the Court was educated in England. Nonetheless, this seems to be
the position of Thai law on the recognition and enforcement of foreign judgments.
III. Final Remarks
It seems that Recognition and Enforcement of Foreign Judgments is a complicated
topic which has not received sufficient attention in Thailand. This may be due to the rarity
of cases concerning this topic and the paucity of Supreme Court decisions related thereto.
Besides, Thailand is not a party to the international agreements relating to Recognition and
Enforcement of Foreign Judgments. There is no statutory law on the topic, and the state
of Thai law concerning this is opaque. Although there have been some initiatives at the
international level to encourage Thailand to accede to this international agreements,
Thailand has refused to commit herself. The reason is her lack of readiness and uncertain
attitude concerning the benefits to be derived therefrom.
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Beyond Lecturing: Other Methods of Teaching
International Business Transactions
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The Changing International Business Context and the
Challenge It Poses for the Education of International Business
Lawyers2
BY:
Daniel D. Bradlow3
Introduction: Three Factors Affecting International Business
There are 3 factors that are changing the way international business is practiced and which
therefore need to be taken into account in the education of future international business
lawyers. These factors are:
Transnationalization of Economic Activity: The rapid growth in the amount of crossborder economic activity over the past twenty years is affecting the balance of power
between the state and the market in the regulation of such activity. The ability of economic
actors to escape national regulation by structuring their operations to take place in
jurisdictions that they find congenial and to avoid those that they find unsatisfactory is
undermining the regulatory role of the state. It is also creating demand for lawyers who
can help their clients exploit these opportunities for private ordering of economic
transactions.
Increased Concern about the Environment: The growing recognition that human
activity is adversely affecting our physical environment imposes on all actors whose actions
will affect this environment an obligation to account for all the costs and benefits that
their activity is likely to cause. Since the impacts of these activities can extend over large
areas and over long periods of time, a full accounting for their effects is also blurring the
geographical and temporal boundaries that have historically circumscribed our concepts of
legal responsibility and liability. This in turn is challenging us to adapt these concepts to
new environmental realities and to the requirements of social and environmental
sustainability and inter-generational equity.
Increased Attention to the Human Rights Obligations of Actors Other Than States:
The growing scale of operations of transnational corporations is resulting in changing
perceptions of the rights and obligations of all economic actors, including in regard to
human rights. To date, this has initially manifested itself in two ways. First, it has
stimulated the development of soft law standards of conduct for corporations—such as
corporate codes of conduct, the UN Compact, IFC Performance Standards -- and an
increased emphasis on corporate social responsibility. The second is the increased
willingness of consumers, non-state actors, and international bodies to hold corporations
accountable for the social consequences of their actions. These two developments are
2
Prepared for the International Association of Law School’s conference on “The Law of International
Business Transactions: A Global Perspective”, Hamburg, Germany, April 10-12, 2008.
3
Professor of Law and Director, International Legal Studies Program, American University Washington
College of Law, Washington DC. and Research Associate, Centre for Human Rights, University of
Pretoria. Email address: [email protected]
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causing businesses and their lawyers to become much more sensitive to the human rights
implications of their actions.
The Role of Law and Lawyers
Given the complex ways in which the above factors affect international business
transactions, lawyers can most effectively serve their international business client’s needs
by developing an expanded vision of the value they add to their clients’ business
operations. This means that, in addition to offering their clients specific technical legal
expertise, lawyers need to see themselves as member of the multi-disciplinary teams that
help their client’s negotiate and structure international business transactions. Given the
economic, social and environmental impact of these transactions, the lawyers should also
recognize that, de facto, they act as agents for social change.
In order to play this expanded legal role, international business lawyers, in addition to
knowledge of their own legal systems, need:
1. A better understanding of the social, environmental and economic context in
which the law operates. This knowledge will enable them to assist their clients
assess and manage the legal risks associated with their proposed plans of action. It
will also ensure that they function effectively as members of the cross-cultural and
multi-disciplinary teams that drive most international business transactions.
2. Cross-cultural negotiating and drafting skills so that they can help their clients
structure and negotiate international transactions that both meet the needs of all
relevant stakeholders and that creatively exploit the opportunities that currently
exist for the private ordering of cross-border business relations. This suggests
that effective international business lawyers need an understanding of diverse
cultures and the ability to communicate in different languages.
3. Sufficient knowledge of international and comparative law and international
affairs that they are able to advise clients and other stakeholders on the municipal
and international legal implications of proposed actions that have cross-border
impacts.
4. Sufficient knowledge of legal ethics to understand their own responsibilities when
advising their clients about their transnational activities. Lawyers need to see that
their advice and actions will influence how their clients and the transactions they
help structure and negotiate impact the process of social change and development
in their host societies and to understand the responsibilities that this imposes on
them. These responsibilities extend beyond their client’s narrow transactionspecific interests to include a concern about the environmental and social impacts
of these activities.
Challenges for Training Lawyers For This New Role
Legal education is not currently designed to provide lawyers with the broad perspective
and planning and counseling skills described above. Instead it tends to training lawyers to
be “backward looking” dispute resolvers rather than “forward looking” problem avoiders.
Further, it focuses on educating lawyers to function in a single national legal system. In
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many countries it also encourages lawyers to see law as a technical discipline that reacts to
rather than shapes either business transactions or social and economic policy.
In order to produce this new kind of international business lawyer, legal education needs
to produce lawyers who have the ability to help their clients understand and evaluate the
practical effects of the legal choices they face and to minimize their negative impacts. This
means law students, in addition to the standard domestic law curriculum, need to learn
something about the social, environmental and economic contexts in which law operates.
They also need to develop expertise in international law, including soft international law,
like de facto global regulatory regimes, and comparative law. Legal education should also
provide students with opportunities to devise legal solutions that mitigate risks and
advance their clients’ business interests.
Law schools can provide this training to their students in a number of different, and nonmutually exclusive, ways. They can include more non-legal subjects in the basic legal
training; they can offer joint degree or post-graduate degree options; and they can
introduce innovative teaching techniques – such as simulation and drafting exercises-- in
business law courses.
These changes pose challenges to law schools which face personnel and financial
constraints on their capacity to deliver legal education. Most law with these constraints,
operate with relatively large class sizes and limited access to materials. Both of these
constraints undermine the ability of professors to innovate in their teaching. While these
issues are often symptoms of deeper social problems, there are some steps that can be
taken to deal with them. For example, law schools can engage in revenue generating
activities, like commissioned research for government and other paying entities and CLE
programs, that will increase the resources available for innovations in legal education.
These activities offer the added benefit of improving relations between the practicing bar
and legal academics. This in turn should help promote legal education that is responsive to
the demands of the practicing bar and ensures that practitioners remain aware of the latest
legal scholarship. It can also stimulate legal academics to do research that is grounded in
the demands of the profession and is related to the needs of society. Another way to
overcome these constraints is for law schools to cooperate with each other in joint degree
programs.4
Conclusion
The rapidly changing global environment in which international business takes place has
created a demand for lawyers who are capable of functioning as problem avoiders rather
than dispute solvers; who understand how to use their skills and knowledge in a
multidisciplinary and cross-cultural team; and who have the sense of professional
responsibility to make sure that their clients enter into socially and environmentally
sustainable transactions. In order to meet this demand, law schools need to change the
ways in which they educate lawyers and socialized them into the legal profession. The
4
One good example of this is the LLM for African Lawyers established by the Universities of Pretoria
and Western Cape with the participation of American University Washington College of Law and the
University of Amsterdam.
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requisite change can be resource intensive and so may be beyond the capacity of most law
schools in the developing world to implement. However, with creativity and the
cooperation of more fortunate law schools, they can overcome these limitations.
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Expanding Jurisdiction and Expanding Immunities
By:
Barry E. Carter5
Note: This paper is relevant for several sessions at the IALS conference, including the
Saturday morning ones on Dispute Resolution and on Jurisdiction and Choice of Law.
The United States has expanded considerably the prescriptive jurisdiction reach of
its laws in the past 20 years. Similarly, there has been a growth in the immunities available
to foreign officials and states. These developments have widespread implications for
litigation in U.S. courts—e.g., the reach of the courts has been extended, but foreign
officials and states are provided more protection. Some of the same developments,
especially regarding the expansion of prescriptive jurisdiction, might be found in other
states.
A good starting point for a survey of the international law of jurisdiction and
immunities, at least in U.S. courts, is the American Law Institute’s Restatement of Foreign
Relations Law (Third) (1986).
1. Jurisdiction
In the 20+ years since the Restatement, the bases or principles have substantially
grown for when a state might have the jurisdiction to prescribe—i.e., “the authority of a
state to make its substantive laws applicable to particular persons and circumstances.”6
Specifically, the United States and other countries have resorted increasingly to the
prescriptive principles of passive personality and universality in dealing with such
problems as terrorism and international crime.
The principle of passive personality asserts that a country may apply its law “to an
act committed outside its territory by a person not its national where the victim of the act
was its national.”7 This principle, which was disfavored by the United States at least
through the 1970s, is now reflected in many laws passed since the Restatement (Third). For
example, 18 U.S.C. §2333, passed in 1992 with related amendments since, provides that
“[a]ny national of the United States injured in his or her person, property, or business by
reason of an act of international terrorism . . . may sue therefore in any appropriate [U.S.]
district court . . . and shall recover threefold the damages he or she sustains.” The law
does not require that the act occur in the United States or that it have any effect here;
rather, it requires only that a U.S. national is injured. Similarly, to the Foreign Sovereign
Immunities Act of 1976, Congress added a new subsection 1605(a)(7), which was first
passed in 1996 and amended several times since. That subsection allows U.S. nationals to
sue certain foreign states designated as supporting terrorists for damages for personal
5
Professor of Law and Director of International and Transnational Programs, Georgetown University Law
Center, Washington, DC, USA. The author wishes to thank David P. Stewart for his many helpful comments on the
ideas here.
6
Restatement (Third), Part IV, Introductory Note at 230.
7
Id. at §402, cmt. g.
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injury or death caused by an act of torture, extrajudicial killing, hostage taking, and aircraft
sabotage. The personal injury or death can occur outside of the United States. Both these
laws have been invoked successfully in many lawsuits in the United States, especially
subsection (a)(7). While the central issues in most of these cases under these new laws
involve terrorist activity, many banks and corporations have been drawn into these suits
because of allegations of aiding and abetting and similar theories.
The principle of universality provides that a country can prescribe punishment for
certain offenses that are recognized as matters of universal concern by the community of
nations. Piracy and slave trade have long been considered subject to this principle. In
recent years, the range of the offenses has been expanded and the principle invoked more
frequently—e.g., in several new U.S. statutes that criminalize certain acts, such as hostagetaking, aircraft hijacking, and aircraft sabotage, and that permit prosecution of perpetrators
even when the acts are committed outside the United States by citizens of other countries.8
2. Immunities
The law regarding immunities of foreign individuals and states has also evolved
considerably since 1986. At that time, the Foreign Sovereign Immunities Act of 1976
(FSIA) was interpreted to cover only foreign states, their political subdivisions, and their
agencies and instrumentalities—all inanimate objects. Individuals—whether government
officials or not—were not covered. Rather, for immunity from U.S. jurisdiction (if any
might be available), foreign officials looked to the protections afforded foreign diplomats
or consuls under the relevant Vienna Conventions or to the head-of-state doctrine that
could be found in international law and U.S. common law.
The past 20+ years have witnessed many changes in immunity law, dealing not
only with diplomatic and consular officials but especially with the coverage of the FSIA
and the scope of the head-of-state state doctrine.9 Besides the case law developments
regarding the immunity of foreign states under the FSIA,10 many U.S. courts—but not
all—have interpreted the FSIA to include government officials operating in the scope of
their official capacity.11 Bringing some foreign officials under the FSIA raises issues of
how to mesh that scope of immunity with the head-of-state doctrine. The overlap creates
some confusion as to who is immune from jurisdiction. It also raises an important
question of whether the immunity for foreign officials should be allowed to expand—
which arguably has happened with the recent FSIA interpretation.
In addition to the recent FSIA cases, the U.S. courts have shown increasing
acceptance of the state secrets privilege, which is an evidentiary rule that permits the
Executive Branch to avoid providing information about military, security, or diplomatic
8
See also United States v. Usama Bin Laden, 92 F. Supp. 2d 189 (S.D.N.Y. 2000) (court relies in part on the
universal jurisdiction principle to interpret certain U.S. statutes to reach conduct by foreign nationals in foreign
countries).
9
See, e.g., Tachiona v. U.S, 386 F.3d 205 (2nd Cir. 2004), cert. denied, 126 S.Ct. 2020 (2006).
10
E.g.,Permanent Mission of India to the United Nations v. City of New York, 127 S.Ct.2352 (1957)
(addresses an immunity exception of the Foreign Sovereign Immunities Act (FSIA)); Republic of Austria v. Altmann,
541 U.S. 677 (2004) (retroactivity of FSIA); see also Powerex Corp. v. Reliant Energy Services, Inc., 127 S.Ct. 2411
(2007) (vacating and remanded an FSIA case because of a statutory bar on appellate review in the circumstances).
11
E.g., Velasco v. Government of Indonesia, 370 F.3d 392 (4th Cir. 2004); Jungquist v.Nahyan, 115 F.3d
1030 (D.C. Cir. 1997); Matar v. Dichter, 500 F. Supp. 284 (S.D.N.Y. May 2, 2007).
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secrets during discovery in civil trials. Because the privilege is absolute, successful
assertion of the privilege can defeat a plaintiff’s case or a specific claim in a case. This
privilege can arise in a variety of situations—e.g., an action against a telephone company
because of its assistance to the federal government’s electronic surveillance or an action
against the U.S. government for kidnapping and torture.12
The resulting expansion of immunities has made it more difficult to bring suits
against foreign governments and their officials in a wide range of cases, including in cases
involving government-owned entities such as banks and airlines.
New developments might well affect the present situation. A potentially important
international treaty, the U.N. Convention on Jurisdictional Immunities of States and their
Property, was adopted by the U.N. General Assembly in December 2004. The
Convention covers not only the states, but also individuals who are “representatives of the
State acting in that capacity.” The Convention is now awaiting the required 30 ratifications
to come into force. U.S. ratification is not imminent during the present Bush
administration, in part because of concerns about the lack of some exceptions, such as
regarding terrorism. However, in the next few years, the Convention might well come into
force and/or the U.S. position might change.
Other legal developments that could have future implications for U.S. litigation are
the proliferation of new international judicial tribunals (e.g., the ad hoc tribunals based on
specific conflicts such in Yugoslavia and Rwanda and the broader International Criminal
Court), the use of hybrid international-national tribunals (e.g. in Sierra Leone), and the
developments in mass claims processing (e.g., the U.N. Compensation Commission for
claims relating to the 1990-1991 Gulf War and the various international arrangements
established to handle claims arising from the Holocaust). These entities have raised new
issues of jurisdiction in international law, as well as questions of overlapping or concurrent
jurisdiction with domestic law (including obligations to cooperate or assist through
extradition or mutual legal assistance).
3. Future Research
Further analysis is needed about the implications of these significant and
widespread developments in U.S. law in the general area of jurisdiction and the related
question of the immunities of foreign states and foreign officials. Moreover, given the
many situations where jurisdiction is overlapping or concurrent among the courts of
different countries, analysis about developments in jurisdiction and immunities in other
major states would provide helpful comparisons and could also suggest new areas for
cooperation among the states.
12
El-Masri v. United States, 479 F.3d 296 (4th Cir.), cert. denied, 128 S.Ct. 373 (2007) (alleged international
kidnapping and torture).
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BEYOND LECTURING: OTHER METHODS OF TEACHING
INTERNATIONAL BUSINESS TRANSACTIONS
By:
DURAND M CUPIDO
INTRODUCTION
Any account of legal teaching methods should have the function of law as a starting
premise. More in particular, the function of regulation and the promotion of order should
be paramount in ascertaining the success of legal training. Viewed in this manner, the law
functions as a tool with which societies, in the face of irreconcilable moral, political,
economic and other differences, attempt to regulate themselves and thus to promote
order.
The efficiency of this tool very often depends on the abilities of the wielder thereof which
abilities, in turn, depend on the training and experience of said wielder. Therefore, the
correct training is a non-negotiable element in the arsenal of the university graduate
venturing into the field of International Business Transactions, be it as an attorney, or legal
adviser for a large multi-national corporation. However, the question of appropriate
teaching methods for producing well rounded participants in the field of International
Business Transactions remains to be answered.
TEACHING METHODOLOGY AND COURSE CONTENT
At the outset, one should distinguish between methods of teaching law and the contents of
syllabi on International Trade. Teaching methodology is often informed by the very
subject-matter being taught but, for the purpose of this discussion, I will attempt to steer
clear of the evaluation and assessment of courses to be offered in an International
Business Transactions syllabus. Suffice it to say that modern university syllabi tend to be
rather uniform in this regard, perhaps because of the ever growing importance and
globalization of trade. One would typically find courses on international sales contracts
and other contracts of international significance, the international carriage of goods,
insurance, payment methods, dispute resolution, and then courses dealing with the
traditionally, but also changing, public law aspects of international trade law. This paper
will however focus on the teaching of International Business Transactions.
TEACHING METHODS
It is submitted that the demands of industry should play a substantial role in the
determination of the most efficient teaching methods. However, this should not be at the
expense of, or divorced from, the traditional view of the university student as a reader and
critical thinker of his subject. In fact, in very many ways, the traditional qualities of a
university education are relevant to the industry.
The demands of industry?
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One could safely assume that universities and other institutions of higher learning, offering
programmes in International Business Transactions, would attempt to supply the kind of
graduates that would successfully apply themselves in the field, and thus meet the demands
of industry. A cursory glance at the web pages of most universities offering courses in
International Business Transactions will reveal the emphasis often placed on the industry
or professional relevance of their respective courses. However, what are these demands?
A job advertisement for a junior international trade attorney required the following skills
of applicants:
“Candidates must have outstanding academic achievements, along with great
writing, research, and interpersonal skills…”
This advertisement, compared to others, is short but sweet, and requires skills (save for
interpersonal skills perhaps) that one would typically expect from the traditional university
graduate.
An advertisement for a relatively entry level appointment listed the following
requirements:
“…Your qualifications will be evaluated on the basis of your level of
knowledge, skills, abilities and/or competencies in the following
areas:
Knowledge of the trade show industry sector (both domestic and foreign).
Ability to manage a trade promotion program;
Ability to work in a team environment;
Ability to develop and maintain system(s)….”
From the above, and many other job advertisements, one can distill the following general
demands of industry on university trained graduates:
• Knowledge, which presumably is more than technical subject knowledge;
• communication, writing, research and people skills;
• analytical thinking; and
• team work.
Therefore, the typical programme in International Business Transactions should aim to
promote the cultivation of these skills.
The South African experience
The South African higher learning environment has undergone changes over the past
years, in an attempt to equip university graduates with the skills demanded by industry. In
order for universities to remain relevant for professional purposes, a paradigm shift
regarding tried and trusted teaching methods had to be made. As a result, the traditional
distinction between universities, typically employing the traditional method of highly
theoretical formal lecturing, and technikons (also known as polytechnics) with their more
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practical and applied approach, was eroded. The result of this erosion was the attempt at a
more balanced use of the traditional highly theoretical university approach to teaching and
the more practically orientated and applied approach of the technikon.
A number of approaches to prepare students for industry have thus become apparent. The
idea is ultimately, to retain the traditional theoretical approach of universities, with a
healthy dose of industry exposure through various means. These means include, without
being being limited thereto, legal aid clinics, moot court competitions, student internships,
exchange programmes, and (importantly so), lecturers from industry to illustrate the
relevance of university studies to practice. The question of industry relevance of studies is
often a vexing one for students.
An integrated approach?
It is clear that industry demands an integrated approach to the teaching of International
Business Transactions. In fact, if one looks at job advertisements in general, it becomes
quite apparent that no single teaching method would sufficiently address the demands of
industry. What is called for is an integrated approach, not only in terms of subjects studied,
but also in terms of teaching methods employed, to produce the kind of graduate capable
of succeeding in practice. An integrated approach is the only viable teaching method to
ensure the continued relevance of university based training for industry.
It is hard to imagine how the practice of asking a series of questions surrounding a central
issue and answering questions of others involved in a discourse (the Socratic Method),
could possibly have turned Michael Schumacher into a Formula 1 champion. For that, as a
part of his training, he had to use a racing simulator. The ability of the lawyer engaged in
International Business Transactions to navigate the twists and turns of international transboundary negotiations could similarly be honed by the students’ engagement in moot
courts and trade simulations. This would facilitate a much smoother transition to practice.
It is, however, also difficult to imagine any simulation turning Haile Gebrselassi into the
world-beating athlete he had become. He actually had to put in the hard yards. Similarly,
the hard-yard component of legal training can be addressed by the typical university legal
aid clinic, as well as meaningful co-operation between law firms and universities,
internships with the relevant industry players and international student exchange
programmes.
The knowledge of those engaged in International Business Transactions, besides spanning
the disciplines of politics, economics and law, should as a rule include an awareness of the
important social and cultural differences between themselves and those with whom they
trade. This can only be taught effectively through exposure to other cultures via
meaningful exchange programmes and international internships.
It is clear that, in addition to the often hailed traditional teaching approaches of
universities, any meaningful methodology for the teaching of International Business
Transactions should seek to meet the demands of industry. This does not mean that the
traditional, and probably less time consuming, lecture should be jettisoned, but rather that
the focus on knowledge for the mere sake thereof should be reassessed. If one considers
the influence of the Socratic Method on the dynamics of societies of old, it is indeed
doubtful whether knowledge for the mere sake thereof was ever the true aim of lecturing.
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It is a fact however, that our societies have become more complex, our world smaller,
faster and less tolerant of long lectures under a tree in the sun at the feet of a master. We
have the necessary technology, know-how and need to employ a more outcomes-based,
multi-faceted teaching method.
Challenges facing the integrated approach?
The integrated approach is ultimately time consuming, while there is also the ever-present
old faithful, financial constraints. In order to produce capable graduates, effective teaching
needs to balance the issues of educating well informed analytical students with the
concomitant financial and time constraints. In a country like South Africa, as well as other
developing nations of the world, the financial issue is indeed paramount. One could only
imagine the substantial expenses of running the kind of integrated training programme
advocated here in an efficient manner. Despite education in South Africa attracting the
lion’s share of government spending13, higher education remains in dire need of funding.
Even a rationalization and merging process, which saw a reduction in the number of
separate institutions of higher learning,14 failed to address this concern adequately. Given
that doubt exists about the possibility of South African institutions meeting South African
skills demands15, and also the substantial levels of development needed in other important
areas, the extent of this balancing exercise between integrated teaching and limited
financial means becomes more obvious.
It is here that the old adage, it takes two to tango, becomes relevant. The tango of
International Business Transactions has more than two parties dancing, and it is more than
probable that the financing of teaching initiatives in poorer parts of the world will benefit
not just those poorer parties, but also those that have the means to assist with the effective
teaching of International Business Transactions. A basic premise of world trade is the
facilitation, liberalization and promotion thereof. The more developed and educated your
trading partner, the more efficient trading will become, with a more than likely overall
drop in transaction costs. There is thus an incentive, for those with the means of assisting
with the proper implementation of integrated teaching programmes in the field of
International Business Transactions, to assist not only out of altruistic concern but also
because it will benefit them in the long run as well. If we truly believe in the benefits of
free and effective trade, then the concept of co-operation should indeed be the buzzword.
International co-operation in the field of legal education, therefore, is necessary. Besides
co-operation between nations, there is also the need for co-operation between universities,
faculties, industries, and trade organizations such as the WTO and others. This kind of cooperation will facilitate more than just a streamlining of teaching methods, but also further
other aims in the field of International Business Transactions such as uniformity and,
ultimately, economic growth.
13
Jet Education Services “Education in South Africa Today” http://www.jet.org.za/page.php?p_id=30
(2007); The education budget was increased by R4.6 billion in the 2007/8 thus constituting a R105.5
billion share of government’s total budget of R475.8 billion. This extra funding is for spending on higher
education subsidies, curriculum development and teacher bursaries.
14
ibid
15
Ibid
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CONCLUSION
Besides the practical demands of industry, the requirements for the modern university
graduate to effectively engage in the ever growing field of International Business
Transactions still substantially revolve around issues of knowledge, critical thinking and
research. These valuable skills are traditionally the forte of university education. However,
in order to remain relevant, teaching should add to the traditional lecture those skills
needed to make a smooth transition to practice. Here other institutions, like technikons,
have distinguished themselves over time. The only teaching method that could possibly
ensure this is an integrated approach. Such an integrated approach requires that the
acquisition of knowledge and skills of critical analysis is more than just academic. In order
to achieve this, one would need co-operation between all the relevant role-players with
their respective strengths and weaknesses, so as to provide an integrated and
comprehensive training regime. In respect of the realities of time and financial constraints,
co-operation between the haves and the have-nots, is needed for an equitable spread of the
costs of teaching International Business Transactions effectively.
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Beyond lecturing: using simulation as one of the other method
of teaching International Business Transactions law (Yarmouk
University Faculty of Law simulation courses as an example)
By:
Dr. Lafi Daradkeh∗
1. Introduction:
Although many law schools incorporate International Business Transactions law into their
curriculum for undergraduate law students, it is recognized that some law schools do not
do so and are still teaching International Business Transactions law only for postgraduate
(graduate) law students whether in LL.M program or in PhD program. It will be of little
use to teach International Business Transactions law for postgraduate students, while it is
not taught for undergraduate students. Therefore, it is important to recognize the fact that
International Business Transactions law is becoming very important to our livers as
teachers and practitioners that we can no longer dismiss this idea as one that is
controversial.
Recently in Jordan, since 2006 many law schools in Jordan have been participating in the
USAID International Business Transactions moot court competition (sponsored by the
Ministry of Justice). Therefore, it is found that an introductory level of International
Business Transactions law should strengthen the faculty’s International Business
Transaction law moot court team and increase students' interest in the school’s curriculum.
However, as we intend to teach International Business Transactions for undergraduate
students, the only way we have to prepare our students to participate in the moot court
competition is by offering them some simulation courses. Fortunately, the simulation
courses were successfully enough to enable our team win the competition of 2006.16
Therefore, I would Like to use Yarmouk University school of law simulation course as a
an example in order to focus on the fundamental concepts that must be taught in an
International Business Transactions law simulation course, as well as the mechanics of
offering and teaching International Business Transactions law simulation course as an
introductory level for the moot court team who will participate in USAID International
Business Transactions law moot court competition.
∗
Assistant Professor of International Commercial Law, Yarmouk University Faculty of Law. The writer
is currently involved in preparing the Faculty of law team to participate in the Ministry of Justice of
Jordan International Business Transactions moot court competition.
16
The current curriculum of our faculty of law does not contain the course of International transaction
law. This course is recently added by the faculty governing board -of which I am a member-to the new
curriculum which will be activated as of the first semester of the academic year of 2008.
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We can categorize the process of simulation courses into three main stages, the students'
selection process, course materials, and class room exercises.17
II. The student selection process
Students are different in their interest regarding studding international business
transactions law, some students wish to study this course, while other have no interest
whatsoever in this area. Therefore, we offered the international business transactions law
simulation courses to all law students regardless the year of their study. Then, the
interested students attended for presentation on the international business transactions
law. At that meeting, students were told about the basic differences between the traditional
courses and the international business transactions law. This is because students are
required to search sources of law substantially different from the traditional courses. The
greatest challenge to the students who elect to participate in an international business
transactions law simulation program is the complete control of the sources of international
business transactions law. The students of international business transactions law
simulation course must become comfortable with international law (treaties), the domestic
law of the states concerned, resolutions of international organizations and international
custom.
III. Course materials
The students can not be familiar with the basic concepts and structures of international
business transactions law unless they are provided with supplement include materials on
practicing international business transactions law, structures of courts or international
arbitral tribunals and organizations and basic readings on the sources of international
business transactions law.18 In addition, the supplement should also contain a list of web
resources and a variety of research and writing exercises. We organized class sessions in
order to enrich the knowledge of the students regarding the issues of international
business transactions law and to make sure they grasp enough information upon which
they will build their working knowledge of the law of international business transactions
legal concepts and structures.
In class discussion we concentrated on the nature of international business transactions
law which is different from other tradition laws, and we concentrated on the hierarchical
structure of the sources of international business transactions law and the weight put on
theses sources by international institutions that concern with international business
transactions law .We also introduced students the guiding principles of international
business transactions law, such as international contract, states contracts, soft law, lex
mercatoria, Icoterms, international arbitration…etc, as these and other important principles
are unknown to the students. We also discussed with the students the role played by
17
This paper is inspired by the Edelman's article published in Brooklyn Journal pf International Law.
Vol.XXVII. 2002, No 2.PP 415-442.
18
In our example, the supplement is already prepared by team of the USAID and we handed it to students
and discussed all its materials with the students. It contains materials on practicing international business
transactions, judgments of courts, judgments of international arbitral tribunals and basic readings on the
sources of international business transactions.
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international institutions, such as the UN, WTO, ICC and others. Once the students start
to understand how these principles of international business transactions law interact with
each other, we noticed that they become more energetic and their work more effective.
Moreover, we also focused on teaching the students how to use the library and search for
materials of international business transactions law. Therefore, we introduced the students
with general introduction of the variety of international business transactions law resources
available at the library. We made a library tour to show the students in practice how to find
the material concerned, and it helped the students physically to find the location of the
materials and familiarize them about the wide variety of available international business
transactions law resources both in print and electronically.
Additionally, we found it is import to teach the students how to cite international material
correctly. In this regards, students when exercise simulation in classroom, they need to
prepare their own memorial and they should know how to cite for example treaties, UN
documents, decisions of international arbitral tribunals and law review articles. We found it
is advisable that we design exercises that teach students the basics of constructing
persuasive arguments.
We also advise students to have benefit from Yarmouk University faculty of law
international business transactions moot court team who previously practiced international
business transactions law simulation courses. Students would consider this as another
valuable resource that can help them with additional background on the concepts and
mechanics of international business transactions law.
IV. Classroom Exercises
In this stage, we divided the students into small groups, with each group representing a
different party in the dispute. Before practicing the simulation, students are allowed to
meet outside the class to discuss how the facts and international business transactions law
principles can be effectively organized into persuasive arguments for their side of dispute,
and then students came to the next class prepared to practice their group’s findings by
using simulation. The practice of the students show how the different groups choose to
shape the facts in favor of their party (client).
V. Conclusion
From our humble experience, we can conclude some facts and suggestions regarding
using simulation in teaching international business transactions law, which are:
1- Incorporating international business transactions law into the curriculum
of undergraduate law students is highly important as this course will be
essential to their practice of law. Therefore, our faculty of law updating its
curriculum to contain 3 hours credit to teach international business
transactions law.
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2- Using a simulation in teaching international business transactions law is
not a great challenge, it needs a good planning and willingness from both
the professors and the students.
3- Using simulation proved its success in encouraging more law students to
participate in the competition and then to study international business
transactions law, and it proves that students are looking for other method
of teaching beyond lecturing.
4- Simulation is a good method to assess the motivation and the
perseverance of the students in obtaining the objectives of studding
international business transactions law.
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Teaching corporate social responsibility (CSR) in
the curriculum: How Kanye West and JZ can do it for you
By:
Professor Mustaqeem de Gama
University of Stellenbosch
Faculty of Law
1. Introduction
It is often said that the ‘business of doing business is business’. This notion, most
established in Anglo-Saxon systems, is peripheral to the challenges of corporate
governance and it relationship to wider social responsibility of corporations. It has led to
the belief that the sole purpose of business is to create shareholder value. There is broad
consensus that corporate obligations to shareholders must be balanced by contributions to
the broader public good. Paradoxically, shareholder value may be compromised if
corporations do not take corporate social responsibility (CSR) into account.
Corporations must incorporate social and political trends into their corporate strategy.
Issues such as privacy; health regulations and dietary concerns (obesity); safety of products;
demands for cleaner fuels and safer environmental standards, the issues of outsourcing
(off shoring) and labour standards are just a few trends that have impacted on corporate
approaches to social and political issues. Social pressures often indicate the existence of
unmet social needs or consumer preference; hence CSR has emerged as both a challenge
and an opportunity for corporations.
2. The social contract
Corporations have always been part and parcel of societal needs and expectations.
However, globalization has intensified the pressure on business to take heed of such
expectations. Societal expectations about its relationship with business can be translated
into a “social contract”. This notion is based on Rousseau’s social contract and implies
that parties to this contract have both rights and obligations. The social contract also
implies a broader constituency of stakeholders that need to be accommodated when
corporations go about their business. Many corporations merely address CSR issues as a
risk or an irritation that needs to be managed and don’t see CSR as an opportunity to
mobilize or engage public opinion. It is no longer sufficient for corporations to relegate
CSR issues to their public relations (PR) departments.
As demonstrated above, it is indeed true that corporations have always had a social
contract with society - part of this contract is formalized by laws and may be said to
represent “explicit expectations” of the parties thereto.1 Violating such legal or formal
norms may have direct legal ramifications. However, it is not sufficient for corporations to
argue that because their activities fall within the bounds of the ‘law’, that there is no case to
be argued outside such bounds or limits. It is clear that the social contract extends beyond
legal or formal norms and also incorporates ‘semi-formal’ norms. These norms are either
1
These norms may include some of the following issues: product liability, tax policy, intellectual property rights, competition
policy, consumer protection etc.
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formal norms that have been “deregulated” or may consist of “implicit” expectations of
stakeholders.2 Violation of such norms may lead to serious harm of a corporation’s
reputation and decrease consumer demand for its products or services.3 Many of these
informal norms eventually migrate and become formal norms, and for this reason may
warrant close attention from corporations. There are also other peripheral issues that may
over time evolve into social expectations thus becoming part of the social contract matrix.
3. Corporate social responsibility in a curriculum
CSR has only recently made into curriculums of law schools. Many schools teach it as a
stand alone course – however, most schools may offer it as one of the topics within a
corporate governance course. The latter approach means that limited time is available to
deal with CSR issues in a curriculum that may already be crowded out with other “hot”
topics. It is also possible that CSR is taught in other courses that are not part of a law
program. The problem with transnational business transactions (TBTs) is that they operate
in environments where different legal, social, religious or other norms and expectations
exist. Teaching formal (black letter) law does not always alert a student to the fact that
legal compliance is not the only factor one must consider when conducting a legal risk
assessment. Nike may legitimately move its production operations offshore to take
advantage of wage and production differentials. However, as part of this strategic decision,
Nike must also factor in the interest of other stake holders. If it fails to do so, it may
become a victim of consumer expectations regarding the way in which its products are
produced.4 Placing the law in context of a greater socio-political framework demonstrates
why corporations must consider CSR as a necessary part of their core business. In recent
times popular media has been at the forefront of exposing corporate practices that do not
comply with CSR ethics.
4. Popular media and CSR
Since most students do no actively follow mainstream news media reports on corporate
practices, it may be better to use popular media to drive the CSR message home. I don’t
know of many students who are unaware of Kanye West, JZ or even Leonardo diCaprio.
In at least one TBT course I teach, the emotive issue of “blood diamonds” is used to
demonstrate fluid nature of the social contract and the embedded CSR issues inherent to
this topic. Students are generally surprised when I start the lecture with a song by Kanye
West called “Diamonds from Sierra Leone”5, which was adapted from Shirley Bassey’s
theme song for the 1971 James Bond film “Diamonds are Forever”. Kanye West also
recorded a remix of this song with JZ.
The issue of blood diamonds is also dealt with in a recent film released by the name
“Blood Diamond” staring Leonardo diCaprio. For many students this introduction would
have been the first time that the hidden meaning of Kanye West’s song becomes apparent.
It is then quite simple to explain the problems around blood diamonds, and how the
2
Some of the implicit expectations may include: adherence to industry standards and codes of conduct, adherence to global labour
and environmental standards, human rights etc.
3
Think of Nike and its trouble with child labour, price discrimination which involved Amazon, ‘fair trade coffee’ involving Costa
Coffee and Cafédirect.
4
The host country may have no laws that prohibit child labour, sets minimum wage or limi

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