Harmonization of International Commercial Law

Harmonization of International Commercial Law SUMMATIVE ASSESSMENT Introduction The international commercial law has grown and modified in twentieth century. Technological advances made international transactions easy and more efficient for the merchants to buy and sale across state borders. The move towards globalization comes with it several problems both for lawyers and legal systems. Outdated legal rules are obstacle to economic growth and technological development. Due to the economic demands there has always been a heavy tendency in international commercial law to uniform and harmonise. This assessment focuses on discussing the methods to achieve harmonization of international commercial law and the reasons of many areas of commercial law remain unharmonised. Harmonisation Harmonisation, is a process which may result in unification of law subject to a number of (often utopian) conditions being fulfilled, such as, for example, wide or universal geographical acceptance of harmonising instruments, and with wide scope of harmonising instruments which effectively substitute all pre-existing law. Harmonising instruments have two objectives. The first purpose is unification of law and the second purpose is creating a law reform when the current law unable to deal with developing commercial practices. The harmonisation of commercial law is considered a key factor in reducing the cost of doing business as it provides the certainty and predictability for the parties of a contract in international transactions.[1] Methods of Harmonisation A considerable number of methods came out to achieve these goals. These methods are; legislative (conventions, model laws and model legislative or treaty provisions), explanatory (legislative guides and legal guides for use in legal practice), and contractual (standard contract clauses and rules)[2] International Treaties or Convention International treaties or conventions are binding forces and will be applied directly but they are not effective unless it ratified by the nations. Treaties or conventions which represents hard law methods of harmonisation are the primary instruments. They usually embody a uniform law. Due to the international treaty reservations the degree of the uniformity decrease. Interpretation differences or mistakes may be dangerous for the uniformity of international conventions. The rules of international convention would classify the law applicable to the controversy, and the judge would make the selection of the applicable law of the jurisdiction which is highly foreseeable, fair and adequate. Conventions provide certainty of law, flexibility and adaptability however, there are some arguments against conventions. Individual nations do not intent to negotiate conventions as an equal partners. Because of this sovereignty problem may arise in the context of international commercial regulations. The negotiation and drafting process of international conventions are slowly and expensive process. Worldwide impact of conventions on domestic law reform appears to be less important impact than model laws or other soft law instruments. It is assumed that conventions decrease the competition between legal systems and regulatory arrangements. Conventions are specific and fragmentary in character. They lack coherence and consistency. Delays in ratification of the convention means it may take for a long time before the convention comes into force. They still dont have ability to react changing circumstances. They may create issues about their scope. The subject of the courts are interpretation of the statutory law and there is no guarantee that harmonised law will be interpreted in harmonised manner. International conventions are hard to amend in instances requiring a place to economic change or progress of technology or practice. Rigidity of the conventions during the treaty making process and their lack of flexibility discourages nations from implementing to international conventions. They announce uncertainty that no uncertainty existed before. Some examples of harmonising conventions are Vienna Convention on Contracts for the International Sale of Goods , the Geneva Convention on Agency in the International Sale of Goods, UN Convention on International Bills of Exchange and International Promissory Notes, the Cape Town Convention on International Interests in Mobile Equipment. Model Laws Model laws are more flexible than treaties and have no legal force, so they have soft law character. Soft law, policy declarations, guidelines or codes of conduct that set standard of conduct and not directly enforceable. Therefore, they are advisory. Domestic legislation changed for international trade to provide solutions for the international transactions. The model laws are facultative harmonising instrument which are not legally operative. With or without amendment individual nations may adopt model laws entirely or partly. However, with respect to unification their use is limited as adopting countries are under no obligation either to apply the law or accept it without variation. Furthermore, model laws mainly benefit t those countries whose law is underdeveloped in the area covered by the model law.[3] Modern Laws are more appropriate for the unification and modernization of national laws. Flexibility of the modern laws makes them easier to negotiate than a text containing obligations can not be changed. UNCITRAL Model Law on International Commercial Arbitration is a good example for model law. Large amount of jurisdiction have adopted it. In the modern global environment it is very powerful motivation for harmonization. Especially, for the developing countries which are moving from mixed or planned economies to a free market economy. Another successful instance in the area of international commercial law is the Model Law on Cross-Border Insolvency. Legislative Guides or Legal Guides They have soft law character. They can be very detailed but their effect is limited because of their non-binding nature. Governments and legislators are the users of legislative guides. Legislative guides are ideally suited to an organization like UNIDROIT. When it is not achievable or essential to develop set of rules, legislative guides may be an alternative for giving explanations in respect of contract drafting. International Business Practice Guides International business practice guides are addressed at professional and trade associations. Generally, guides are educational practices that discusses technical, economic and real background of legal problems. Also they explain and find available solutions for the legal concepts and concludes by making recommendations. International Trade Terms International trade terms promulgated by non-governmental organization. If they incorporated into a contract they can have the force of law. INCOTERMS rules codifying custom and usage such as the ICCs Uniform Custom and Practice for Documentary Credits. This is, obviously, a reference to codifications and restatements by international scholars and practitioners such as UPICC and PECL.[4] Restatements Its addresses and potential users are not only contract drafters, but national and international legislators, arbitral tribunals and courts as well. Restatements of contract law promulgated by scholars and experts. They are advisory and they have soft law character. Principle of European Contract Law (PECL) Principles of European Contract Law (PECL) was published by the Lando Commission in 1995. This commission consisted on European contract law academics. It aims   to   produce   European   Commercial   Code.   Principles   are   more   limited   in   scope   and   they dont   have   legal   force.   However,   contracting   parties   may   agree   to   give   their   contracts   binding   effect   about   their   contract   subject.   Many   countries   followed   their   instructions   as   a   model   law   reform   project   and   parties   to   a contract   chose   them   to   govern   their   contract.   They   contributed   a   key   role   to   the   development   of   European   Contract   Law. Unidroit   Principles   of   International   Commercial   Contracts   (UPICC) UPICC   represents   the   legislative   codification   of   restatement   of   a   law   of   international   commercial   contract,   but   do   not   have   the   force   of   law.   They   offer   a   set   of   rules   produced   by   scholars,   which   cover   all   important   areas   of   general   contract   law   and   appear   to   be   a   resource   for   those   courts   and   arbitral   tribunals   who   find   them   helpful.[5] Although   these   principles   are   not   binding,   they   have   managed   to   earn   recognition   around   the   world,   in   academic   circles   and   practice.   UPICC   can   response   the   questions   that   not   covered   by   the   CISG.   These   are   would   be   fraud,   authority   of   agents,   third   party   rights   and   others.   UPICC   is   more   comprehensive   instrument   than   CISG.   UPICC   often   applied   as   a   gap   filler   to   interpret   and   supplement   law   instruments   and   specifically   the   CISG. Institutions Intergovernmental   and   non-governmental   agencies   have   been   involved   in   the   harmonisation   process. International   Institute   for   the   Unification   of   Private   Law   (UNIDROIT) UNIDROIT   is   an   intergovernmental   agency   that   interested   with   not   only   commercial   law   but   also   whole   private   law.   Management   of   researches   and   drafting   conventions   are   the   purposes   of   UNIDROIT.   UNIDROIT   has   produced   conventions   which   designed   to   operate   besides   the   Vienna   Convention   on   Contracts   for   the   International   Sale   of   Goods   and   covering   international   factoring,   international   finance   leasing   and   agency.   UNIDROIT   consists   of   General   Assembly,   the   Governing   Council   and   the   Secretariat.   UNIDROIT   put   into   use   to   enforcement   of   international   agreement   or   convention   that   requires   the   approval   of   its   member   countries. The   problem   is   tha t   trade   law   rules   different   from   one   state   to another.   It   produced  Ã‚   a   Hague   Convention   which   uniform   law   on   international   sales. United   Nations   Commission   of   International   Trade   Law   (UNCITRAL) UNCITRAL   is   an   intergovernmental   agency   that   promulgates   conventions,   model   laws   and   other   instruments.   Especially,   it   shapes   a   model   law   which   implements   to   international   commercial   arbitration   when   each   party   to   the   arbitration   has  Ã‚   its   place   of   business   in   a   different   country.   UNCITRAL   also   organizes   the   activities   of   the   different   agencies   involved   in  Ã‚   international   trade   law.   UNCITRAL   aims   to   help   remove   barriers   to   international   trade.   The   most   important   product   which   is   constituted   by   UNCITRAL   is   the   Vienna   Convention   On   Contracts   for   the   International   Sale   of   Goods.   It   aims   to   harmonise   the   rules   governing   the   design   of  Ã‚   rights   and   duties   under   international   sales   contract. The   difference   between   UNCITRAL   and   UNIDROIT   is   UNIDROIT   was   set   up   to   promote   the   dynamic   harmonisation   of   private   law   and   also   including   commercial   law   whereas   UNCITRAL   is   a   specialist   body   of   United   Nations   devoted   to   the   harmonisation   of   international   trade   law. International   Chamber   of   Commerce (ICC) ICC   which   has   an   non-governmental   body   promotes   trade   by   opening   markets   and   encouraging   the   flow   of   capital.   Having   a   non   law   producing   body,   ICC   deals   with   unifying   and   harmonising   commercial law   using   soft   law   methods.   Therefore,   ICC   does   not   focus   on   the   preparation   of   international   conventions   or model   laws.   ICC   promotes   uniform   trade   terms,   uniform   rules   and   model   forms   which   are   adopted   by   contracting   parties.   As   a   result   of   this   ICC   would   not   convenient   for   the   development   of   uniform   rules, preference of   competing   property   rights   or   the   jurisdiction   of   courts.   It   accomplishes   legal   studies   on   topic   and   provides    and   arbitration   service   for   disputes. It   represents   two   important   international   trading   instruments.   In   the   area   of   international   dispute   resolution   the   ICC   Court   of   International   Arbitration   is   a   leading   institutions.   These   are   INCOTERMS   and   The   Uniform   Customs and   Practice   for   Documentary   Credits.   They   do   not   have   any   legal  Ã‚   status   and   reach   their   legal   effect   through   contract..   INCOTERMS   sets   out   rights   and   duties   for   the   parties   of   international   contract.   ICC   rules   has   a   fairly   high   influence. New   Lex   Mercatoria New   lex   mercatoria   is   very   different   from   medieval   lex   mercatoria.   New   lex   mercatoria   can   be   derived   from   various   sources.   The   growth   of   international   trade   and   the   influence   of   mercantile   usage   have   led   several   influential   scholars   to   conclude   that   there   exist   a   body   of   uncodified   international   commercial law,   the   new   lex   mercatoria,   which   has   normative   force   in   its   own   right   and   is   dependent   neither   on   incorporation   by   contract   nor   on   adoption   by   legislation   or   judicial   reception   in   a   national   legal   system.[6] Now   both   professional   associations   and   legal   scholars are   working   for   the   codification   of   new   lex   mercatoria. It   is   suggested   that   new   lex   mercatoria   might   consist   of   international   trade   usages.   It   has   been   suggested   that   they   might   include   concepts   such   as   UNIDROIT   Principles   of   International   Commercial   Contracts   and   the   ICCs   Uniform   Custom   and   Practice   for   Documentary   Credits.[7] Reasons   of   Unharmonised There   may   be   some   obstacles   about   harmonisation   process   that   it   causes   international   commercial   law   to   remain   unharmonised.   These   obstacles   are   would   be   differences   in   political   view,   language   difficulties,   personality   clashes   and   one   sides   concern   about   another   side   that   taking   too   much   dominant   role. Harmonisation   is   lengthy,   slow   and   expensive   process.   Preparation   of   instruments   of   harmonization   requires   experience   of   the   time   and   hard   work.   This   is   also   correct   for   all   amendments   and   updates.   It   is   claimed   that   owing   to   the   trend   of   budgetary   constraints   cause   that   legal   harmonisation   may   lead   to   legal   fragmentation.   Economic   efficiency   needs   to   take   into   account. Sometimes   choosing   wrong   type   of   harmonising   instruments   is   also   another   reason   for   harmonisation   failure. Harmonising   efforts   have   limited   scope.   These   efforts   to   legislate   for   specific   topics ,   such   aspects   of   the   law   of   sale   or   unfair   contract   terms,   take   no   account   of   the   fact   that   the   treatment   of   such   topics   in   domestic   law   may   be   rooted   in   the   particular   legal   traditions   of   individual legal   systems.[8] Disparities   between   common   law   and   civil   law   traditions,   socialist   and   capitalist   systems   and   developed   and   developing   countries   creates   problem.   Differences   between   national   legal   systems   also   caused   international   commercial   law   to   remain   unharmonised.   Domestic   legal   systems   which   need   to   implement   the   harmonised   law   should   take into   account.   Although   the   approaches   to   contractual   interpretation   are   the   same,   the   exercise   in   practice   could   be   quite   contrary,   due   to   the   differences  Ã‚   between   civil   law   and   common   law   systems.   The   problem   is   distilliation   of   the   best   legal   rules   from   different   legal   systems   regardless   of   being   testedà ‚   in   the   laboratory   of   an   actual   system. International   contracts   that   considers   the   interests   of   both   parties,   needs   to   contribute   a   fair   balance   between   civil   law   and   common   law   systems   to   which   both   parties   belong   to.   Therefore,   it   is   difficult   to   provide   international   consensus. In   contract   law area   there   is   a   lack   political   support   of   harmonising   instruments   in   national   law. Some   scholars   have   argued   that   the   mere   existence   of   different   national   laws   is   a   reason   to   engage   in   harmonization   process.   Professor Stephan points out that divergences in national laws may cause legal   risk. In   his   view,   such   legal   risk   can   encourage   opportunism   by   commercial   parties   who   may,   for   instance,   race   to   litigate,   in   a   forum   that   will   suit   their   interests   in   case   something   goes   wrong   with   the   transaction.   One of the   pitfalls   of   the   existence   of  Ã‚   legal risk   is   that   at   the   dividing   line   between   risky and   non-risky   transactions   many   parties   may   desist   from   commercial.   Accordingly,   there   may   be   merit   in   reducing   legal risk   to   f oster.   commerce[9] However,   harmonisation   does   not   aim   to   bring   a   mechanical   lowering   of   risk.   It   may   optimize   the   risk,   rather   than   its   elimination. Domestic   law   is   capable   of   easy   amendment,   once   a   harmonised  Ã‚   instrument   has   been   accomplished,   signatories   are   locked   into   it   until   a   new   instrument   comes   into   force.   Unless   whole   individual   nations   adopt   the   new   instrument,   there   may   be   more   divergence   then   there   was   previously.   Harmonising   institutions   needs   to   deal   with   this   problem.   They   need   to   prevent   the   crystallization   of   harmonisation.   There   are   two   aspects   about this   problem.   First   of   all,   excessive   time   taken   to   create   international   legal   instruments.   Secondly,   it   is   excessively   takes   long   time   for   nations   to   ratify   the   harmonized   law. Many   lawyers   remain   doubtful   and   hostile   to   the   harmonisation   attempts.   Lawyers   and   legal   systems   are   unwilling   to   give   up   their   own   laws.   It   is   considered   by   them   that   their   own   laws   are   superior.   It   is   probably   they   also   scare   that   their   national   laws   would   lose   their   dominant   position. Due   to   the   differences   in national   laws   cross-border   transactions   are   limited.   Also   nations   which   have   a   strong   sense   of   superiority   of   their   own   laws   might   unwilling   to   changes   where   these   are   limited   to   transactions   between   businesses   in   different  Ã‚   states. Issues   of   sovereignty   may   arise   in   the   context   of   international   trade   regulation.   Also   some   language   difficulties   creates   obstacles   for   harmonisation   process.   Accurate   and   clear   drafting   is   very   important   to   prevent   misunderstandings.   Planning   and   management   project   of   harmonisation   process   is  Ã‚   not   easy.   Meetings   may   not   be   successful   to   make   essential   progress. Problems   with   Institutions There   are   some   arguments   about   harmonization   interests   the   very   nature   of   the   bodies   that   play   a   role   in   this   area.   These   institutions   are   bodies   of   experts   and   can   not   please   with   traditional   democratic   standards   imposed   on   national   legislatures.   They   are   not   accountable   like   national   bodies.   This   is   the   weakness   of   institutions.   Lobbies   and   interest   groups   may   influence   the   law   in   favour of   themselves.   The   less   powerful   ones   would   not   be   able   to   say   any   things   in   the   drafting   process   so,   international   conventions   and   legislatures   are   saddled   with   a   take   it   or   leave   it   options.   Duplication   of   efforts,   co-o rdination   of   work,   inconsistency   of   policy   and   waste   of   resources   are   the  Ã‚   other   problems   that   institutions   need   to   deal   with   during   the   legal   harmonisation   process. Conclusion The   harmonisation   of   international   commercial   law   does   not   completely   eliminate   conflicts   but   it   helps   to   reduce   them. A   proper   reform   of   our   commercial   law   requires   a   careful   study   of   developments   in   other   jurisdictions   in   both   civil   law   and   common   law.   It   is   assumed   that   perfect   harmonisation   is   not   an   achievable   target.   All   states   have   different   national   strategic   interests   therefore,   full   harmonisation   is   politically   impossible  Ã‚   in   certain   areas   of   law. 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Do We Still Need a Convention In The Field Of Harmonisation Of The International Commercial Law ,   FESCO Transportation Group, (Moscow, Russia) 2014 Gopalan, S. , From Cape   Town   to   the   Hague: Harmonization   Has   Taken   Wing, August   2015 [1] L. Mistelis,   Is Harmonisation a Necessary Evil? The Future of Harmonisation and New Sources of International Trade Law,   2001,   p.4 [2] J.A.E Faria, Future   Directions   of   Legal   Harmonisation   and   Law   Reform : Stormy   Seas   or Prosperous   Voyage , 2009, p.8 [3] P.J. Osborne, A   Critical   Analysis   of   the   United   Nations   Convention   on   Contracts   for   the   International   Sale   of   Goods   1980,   August   2006,   p.6 [4] R.   Goode,   H. Kronke,   E. 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