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Reproduced with permission of 23 Journal of Law and Commerce (2004) 117-142

New Trends in the Making of International Commercial Law [*]

Sandeep Gopalan [**]

I.   Background
        A. Harmonization Defined
i. Historical Context
        B. Need for an International Commercial Law
i. Divergent National Laws Cause Problems
ii. Modernization and Facilitation of International Trade
II.  The Growth of Regionalism
        A. Regional Endeavours Examined
        B. The European Union
i. The European Civil Code Debate
ii. The Principles of European Contract Law
iii. The Work of the Study Group on a European Civil Code
iv. The Trento Project
v. The CENTRAL Project
        C. The American Experience
i. NAFTA
        D. Other Regional Efforts
        E. Competition or Collaboration?
III. The Rise of Non-Binding Instruments
        A. International Conventions
        B. The Growth of "Soft Law"
i. The UNIDROIT Principles
ii. Efficacy of the UNIDROIT Principles
iii. Principles of European Contract Law
IV. Conclusion

There has never been a better time to be an international commercial law scholar. After decades of being held hostage to state-centered ideas, international commercial law has finally broken through to become more solution oriented. Increasingly, nation states are becoming less important in the creation of international commercial law with the growth of regional organizations, non-state actors, and international arbitration. This is spurred on by the march of globalization and the need for international commercial law. The term "harmonization will be used as a surrogate to discuss the creation of international commercial law as it is the primary means by which international commercial law is created. This article seeks to explore two preponderant trends that have become visible in the making of international commercial law. In Part I, I shall describe the background. In Parts II and III, I will highlight the growing role of regional endeavors at harmonization, and the rise of non-binding instruments. [page 117]

I. BACKGROUND

The end of the Cold War and the corresponding explosion of commerce between nations have provided an impetus to internationalism in the law that has never been seen previously in human history. There is more curiosity about the different solutions offered by the various national laws to the common problems of international commerce than ever before.[1] A simple testament to this curiosity and spirit of internationalism is the proliferation in efforts to harmonize the law that are currently in progress in areas as diverse as civil procedure,[2] receivables financing,[3] space asset financing,[4] and insolvency law.[5] Only a decade ago, it would have been unimaginable that it would ever be possible to have international conventions in areas under the remit of property law or civil procedure.[6] This was the product of a belief that these areas of the law embody aspects of national socio-political history and culture and that national sensibilities may be so strong as to render any [page 118] attempt at harmonization unsuccessful.[7] That belief has given way today. Aspects of property law are being attacked with great vigor, and international instruments are rapidly being honed. The Cape Town Convention of 2001 is one example.[8] Yet another is the recently concluded Hague Convention on conflict rules in respect to securities held by intermediaries.[9]

This heightened activity is but an aspect of globalization. In the decades prior to globalization becoming the shibboleth of our age, despite lofty ambitions there was nothing but paralysis. Just one example of this can be seen in the case of the grand idea of crafting principles of international contract law...; The Secretariat of the International Institute for the Unification of Private Law (UNIDROIT) [10] presented an idea for the drafting of general principles of international contract law in its Report to the United Nations Commission on International Trade Law (UNCITRAL) [11] on the "Progressive Codification of the Law of International Trade" as far back as 1971.[12] The Secretariat's ambition was as magnificent as it was unattainable:

"[i]nternational trade needs its own ordinary law with its own particular role and full range of functions .... The very fact that the legal relationships of international trade are international in character puts them outside the jurisdiction of municipal law and makes them governable by a law removed from any national contingencies, that is, an ordinary law of international trade, which alone can provide the legal framework which international trade needs in order to develop .... Consequently, international trade now, as much as ever, needs ... a material law that can govern international relations ... It would be unthinkable ... to allow international trade to continue to be governed by a host of national laws, since that places it in an impossible position, or to leave all the legal problems arising in international trade to be solved simply by practice ... [so] the [page 119] first task will be to prepare a draft for the general section containing the basic principles which will form the foundations and the framework of the unification."[13]

A. Harmonization Defined

While it is possible to get an intuitive idea as to the nature of harmonization in the commercial law area, it may be useful to consider some definitions. Ziegel writes that "[h]armonization in this field of law is a word with considerable elasticity. In its most complete sense it means absolute uniformity of legislation among the adopting jurisdictions."[14] According to Leebron, "[h]armonization can be loosely defined as making the regulatory requirements or government policies of different jurisdictions identical or at least more similar."[15] Harmonization has also been described as an attempt to reduce the differences among national laws.[16] Glenn writes that the harmonization process is an evolutionary process that results in ever "greater levels of uniformity and correspondingly greater levels of supranational governance."[17]

According to Zamora,

"Harmonization does not entail the adoption of a single, model set of rules, but instead implies a wide range of ways in which differences in legal concepts in different jurisdictions are accommodated. This accommodation can take place in many ways: by a process of law reform in one or more countries; reflecting influences beyond the jurisdiction's borders; by the mediation of private law concepts adopted by parties caught between two legal systems; or by a myriad of other contact points between legal regimes, [page 120] from academic writings, the conceits of law professors, to visits by government officials to neighboring countries."[18]

In Zamora's opinion, harmonization should not be confused with unification of laws, or with the "imposition of one legal model on all jurisdictions."[19] For Professor Boodman, "in a legal context harmonization is merely synonymous with the process of problem solving and is as infinite in its configuratins as are potential problems in law."[20] According to Professor Goode, harmonization has two distinct objectives.[21] "The first is to create a special regime for international transactions while [preserving]" national laws for purely domestic transactions, while "the second is to facilitate a common market or political or economic grouping by harmonising the national laws governing domestic transactions, so that state boundaries" do not affect commerce within the grouping.[22] Thus he draws a distinction between endeavors like the Vienna Convention and the European Economic Community (EEC) Directive on Consumer Credit, based on their motivations.

While each of these definitions is debatable, it would suffice for the purposes of this paper to formulate a working definition of harmonization in the field of commercial law: any attempt, by whatever instrument (international conventions, model laws, restatements, model contracts, standard form contracts, codes of practice, or usages) to minimize or eliminate discord between national commercial laws as they apply to international commercial transactions. That is the operating definition for this paper and must be borne in mind as the analysis progresses. [page 121]

i. Historical Context

Harmonization is not a new invention. Perhaps the clearest examples of formal harmonization in "[modern] legal history have been the European national codifications of the 19th and 20th centuries."[23] These attempts may be better categorized as "unification."[24] Thereafter, the growth of nationalism, and the corresponding nationalization of law in Europe accentuated European diversity. National laws emerged in many languages and different forms. Germanic codes differed greatly in structure and content from the codes of the other countries.[25] The civil and common laws grew side by side and diverged to such an extent that the differences were seen as insurmountable. While this may have been a mere European problem, and hence of little importance to the rest of the world, the impact of colonialism meant that the world's legal systems were divided along civil law and common law lines. Colonialism brought about a peculiar kind of harmonization with the colony acquiring laws based on those enacted in the mother country. In the nineteenth century, French law was diffused through all continents because of France's colonies.[26] Likewise, English law dominated North America, Asia, Australia, and parts of Africa. It is true to say that most countries derived their current formal legal order from Europe during the nineteenth century and the early twentieth centuries. Despite the death of colonialism and the independence of the former colonies, most countries continue to retain the core characteristics of the legal system they had received from the colonizers. One notable exception is that of the U.S., where the law has proceeded to develop independently of English law.[27]

Harmonization under colonialism is not to be confused with modern notions of harmonization which are based on respect for all legal systems. Colonial harmonization disregarded indigenous legal systems and imposed the [page 122] colonizers' law against the consent of the local populace.[28] This kind of harmonization in many cases crept into the colonies slowly. At first the transplanted European law applied only to the European population, while local people continued to be governed by local laws and customs. Criminal, tax, and administrative law was applied to the locals, whereas in family, inheritance, and commercial law situations amongst themselves, local law prevailed. This was the practice in many English colonies, including India, and the jurisdiction of the common law courts was only extended over time.[29] This brief historical context only serves to distinguish modern harmonization from its colonial counterpart, and to free it from any political taint. In the modern era, there is vigorous participation in the creation of international commercial law from all countries, and in many cases, such participation offers the opportunity to dispense of colonial laws.

B. Need for an International Commercial Law

Although it may seem that harmonization has innate intuitive virtues, it is important to understand the arguments advanced by its proponents. There is no consensus that indicates overwhelming appeal, and each argument must be individually examined and evaluated.

i. Divergent National Laws Cause Problems

Some scholars have argued that the mere existence of different national laws is a reason to engage in the harmonization process.[30] According to Ancel, "[t]he disparity of national laws is contrary to the requirements of [the] modern economy and inimical to the development of international relations; a uniform law is superior to a system of conflicts of law, which allows the existence of those specific differences on which it is based."[31] He equates the diversity in national laws to diversity of local customs within a single country, and argues that it is undesirable because it "compromises the soundness, the [page 123] general value, and the supremacy of the law,"[32] In his view, this diversity provokes stress, the elimination of which must be the aim. It is hard to agree with this extreme view.

Professor Stephan points out that divergences in national laws may cause "legal risk."[33] 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.[34] One of the pitfalls of the existence of "legal risk" is that at the dividing line between risky and non-risky transactions, many parties may desist from commercial activity.[35] Accordingly, there may be merit in reducing "legal risk" to foster commerce.[36]

Mere diversity in national laws is no reason to create international commercial law. National laws are founded on different policy assumptions and there is no reason to eliminate differences that stem therefrom unless those differences impede international commerce. Where differences in national commercial laws are an impediment, harmonization can create an "interface" that helps parties across the divide transact business.[37] In situations where differences in national laws are not material to the conduct of international commerce, there is little reason to create uniform law. It is important to emphasize this -- in the absence of strong reason, uniform laws stand very little chance of adoption and will result in wasted resources. Uniformity has very little innate value in this area. Uniformity has appeal only insofar as it eliminates or minimizes hurdles caused by disparity.

That divergent national laws can be an impediment to international commerce was well demonstrated in the European context by the European Commission's consultation exercise undertaken in 2001.[38] The joint response prepared by the Commission on European Contract Law (CELL), and the Study Group on European Civil Code (hereinafter the "Joint Response"), as expert a body on the state of European law as is likely to be found anywhere, [page 124] illustrated the difficulties posed even in a small economic region by disparities in the law. The Joint Response was clear about the fact that there was diversity:

"Contract laws across the EU show significant diversity on many fundamental points. Businesses cannot safely trade under the private law of another Member State in the supposition that it will be similar to their own. The impossibility within reasonable conditions for participants in the internal market to acquire essential knowledge about foreign law always entails the danger of substantial loss of claims or unsuspected liabilities."[39]

The experts opined that differences between the contract laws of the Member States can have negative repercussions for participants in the internal market in at least four ways. First, they thought that differences effectively prevent certain kinds of commercial activity in the European market.[40] Second, the Joint Response pointed out that businesses have to bear additional costs as a result of the differences because they have to invest in educating themselves about foreign law.[41] These costs are, where possible, passed onto consumers. If the costs are very great, a business may decide that it would not be worth entering into deals outside its own national boundaries and may choose to forego otherwise profitable economic activity. This can also adversely affect competition and frustrate the creation of the common market. Third, the differences may mean that legal relationships are entered into without a proper understanding of the legal consequences.[42] The experts point out that businesses do not always take into account the many peculiarities of foreign contract law and are taken by surprise when rules of private international law come into play. Fourth, the fear of adverse legal consequences in a foreign country may motivate businesses to not risk international trade.[43] This may apply with great force to deter small- or medium-sized enterprises (SMEs) for which such costs can have a telling effect.[44] [page 125]

The Joint Response points out that, in view of the many profound differences between the contract laws in the Member States, such a concern can often be justified. Even if the fear is unfounded, it can still deter businesses from engaging in trade.[45] Further, in their experience,

"[i]t is difficult and often impractical for parties entering into agreements or already bound by contracts to obtain cost-effective information about foreign law relevant to rights and liabilities under transactions they are contemplating or have entered into. The problems are particularly acute in the area of the law of obligations and property law because even in many of the legal systems where this area of the law has been codified the legislation is relatively old and its meaning cannot be established without grasping the significance of much judicial interpretation of its provisions. In relative terms the law is less apparent and more difficult to ascertain with assurance of its correctness."[46]

They concluded that there were substantial increases in costs for market participants that spring from the diversity both of mandatory contract law rules, and of dispositive contract law rules.[47] The parties also stood to incur additional costs if a legal dispute arose requiring them to take. recourse to the courts. In the opinion of the authors, litigation in cases that bring foreign law into play is particularly expensive, as foreign legal opinion has to be obtained, and witnesses may have to be prepared.[48]

The Joint Response also addressed the diversity of legal regimes that spring forth when some Member States sign an international convention and others do not. As is obvious, this results in harmonization for the signatory countries, but as regards the non signatories within the EU, it results in fresh legal diversity.[49] [page 126]

In contrast to their counterparts in America, the authors were convinced that divergent contract law makes it impossible to engage effectively in Europe and that businesses which do so are often burdened by costs which are either superfluous or unforeseeable, Further, "risks of liability are extraordinarily difficult to gauge; often they are simply absorbed and may make business unprofitable or loss-making."[50] From the Joint Response one gets the impression that very little trade happens because of these problems. However, this is not so, proven by the sheer magnitude of trade in the EU. The correct interpretation is perhaps that trade is conducted despite these great differences between the laws, and by incurring the costs that such differences impose. The elimination of these costs will immediately reduce legal costs and improve profit margins.

ii. Modernization and Facilitation of International Trade

This function of harmonization has long been neglected. Even though UNCITRAL was founded in 1966 with a mandate to further the harmonization of the law of international trade, motivated by the

"belief that the progressive harmonization and unification of international trade law, in reducing or removing legal obstacles to the flow of international trade, especially those affecting the developing countries, would contribute significantly to universal economic cooperation among all States on a basis of equality, equity and common interest and to the elimination of discrimination in international trade and, thereby, to the well-being of all peoples,"[51]

this goal has not assumed the importance it should have due to the paralysis of the Cold War years.

In the current global environment, modernization is a very powerful motivation for harmonization. This is especially true for countries that are moving from planned or mixed economies to a free market economy. Such a movement inevitably requires legal reform to facilitate free enterprise. While these nations may see the need to reform their laws, that may be easier said than done due to the absence of expertise in law as it works in a free market. One way out of this conundrum might be to copy the laws of a country or countries that have free markets. [page 127]

This is indeed a common practice. Legislators very frequently and unwittingly bring about harmonization through the process of copying. Drafters in various countries examine legislations in other countries and seek to implement them at home by copying from foreign legislations.[52] Glenn points out that Mexico created a law for non possessory security interests in moveable property that is substantially based on the laws of the U.S. and Canada.[53]" The Chilean legislature has similarly borrowed from Quebec.[54]

In the process of copying, legislators even seek to improve the foreign law by making changes.[55] The advantage may be that the legislator has a whole array of domestic laws to choose from and can choose the best law. Glenn calls this "legislative transnationalism."[56] Although at first blush this looks like a process of unintended harmonization, in fact it is not so. The, copying legislature is free to make whatever changes it deems fit, and harmony is lost as another version of the law springs up adding to the diversity. Even if the copy is identical, this kind of harmonization can at best be fragmented.

Copying is not an adequate solution for many reasons. Firstly, the law of that country or countries may itself be crying out for reform. Secondly, the copying of another country's law results in an absence of participation in the legislative drafting process. In copying another country's law, there will also be the unnecessary copying of the political, financial, and interest group compromises that resulted in the adoption of that law. This baggage is not only unnecessary, but is also undesirable. Harmonization may provide the answer. It provides these nations with ready-to-adopt legal instruments that reflect the requirements of international commerce, while allowing them to participate in the formulation of the individual clauses that form part of the instrument. The problem of many nations not possessing the expertise required to craft legal instruments on their own [57] is also alleviated to some extent. The harmonization process allows them to draw upon a wealth of [page 128] international expertise and build a body of scholarship for their own home markets.

One recent example of modernization being a motivation for harmonization is the case of aircraft financing. With the enormous growth in civil aviation, demand for aircraft has skyrocketed. This is especially true of developing countries which did not have an extensive aviation industry even a decade ago. A concomitant development has been the privatization of many national carriers, with the result that these new private operators have to fend for themselves in obtaining financing. The law has been left behind and, in the absence of a law that protects creditors' interests, the extension of credit to finance aircraft acquisitions is difficult.[58] The law has a direct impact on the availability of financing. The 2001 UNIDROIT Convention on International Interests in Mobile Equipment and its Aircraft Protocol were adopted with a view to achieve this direct impact, and countries with deficient legal regimes have a good reason to adopt it.[59] The sheer proliferation in attempts to harmonize and hence modernize the law on secured credit is an eye-opener to its importance -- while the European Bank for Reconstruction and Development (EBRD) has spearheaded such attempts in Eastern Europe,[60] in Asia it is under the umbrella of the Asian Development Bank (ADB). [61] The Organization of American States (OAS) has crafted a Model Inter-America Law on Secured Transactions for Latin America.[62] This is vigorous activity [page 129] by any standard.[63] It is a sure sign of the persuasiveness of harmonization as a tool for modernization, given the reality that the law of credit is directly related to the freeing up of markets and the expansion of trade.

An illustration of harmonization's modernization function can be seen in the Mexican experience with regard to secured transactions law. Before the enactment of the New Secured Transactions Law, Mexico's outdated law did not serve the purpose for which it was designed.[64] There were a number of security mechanisms which caused confusion. There was no concept of a uniform security interest and the existence of this menu of instruments was a severe obstacle to the extension of credit. Even if credit was extended, litigation was rampant. Observers claimed that the reluctance of foreign entities to lend in Mexico was a foregone conclusion in light of such pervasive legal confusion.[65] According to Sheppard, "the overwhelming majority of small and mid-size businesses failed to obtain credit at a reasonable cost because they did not possess land, the only collateral acceptable to skeptical lenders."[66] Mexican businesses were required to provide cash or property located in the U.S. as collateral before they were extended loans.[67] If collateral was not available, "then the ability of a Mexican company to obtain credit [was] severely limited because of concerns by U.S. banks as to their ability to obtain enforceable security interests in Mexico."[68] U. S. lenders were [page 130] reluctant to extend credit to Mexican entities.[69] Professor Sheppard cites experts who state that "[t]here are numerous lenders in the United States and elsewhere who would like to come into Mexico to do business if the Mexican laws were more supportive to the lenders."[70] He also quotes other experts who claim that the legal deficiencies in terms of secured lending actually contradicted the spirit of NAFTA. Although the trade agreement allowed U. S. and Canadian institutions to take part in lending transactions in Mexico, "they are constantly rejecting otherwise viable requests for loans from Mexican companies because of the inability to create security interests in assets located in Mexico.[71]

The New Secured Transactions law, based on Article 9, is a kind of harmonization achieved by borrowing and has served to modernize Mexico's secured tratisaction laws. The experience with regard to secured transactions law is as good a case for the need for harmonization brought about by market forces as there is ever likely to be. There is virtually a consensus in opinion that a modern secured credit law is a sine qua non for the availability and the lowering of the cost of credit.[72] Credit being the lifeblood of commerce, the flow-through benefits for international trade from harmonization are obvious. There is also a redistributive function to harmonization here -- no less a body than UNCITRAL believes that modern secured credit laws could alleviate the inequalities in the access to lower-cost credit between parties in developed countries and those in developing countries, with the resultant improvement in the share of developing countries in the fruits of international commerce.[73] [page 131]

Accordingly, modernization will not only be of legal systems, but also of other aspects of life, impacted as it is by the ability to afford high value equipment due to the extension of credit.

Harmonization serves the modernization function from a general systemic standpoint, too. Historically, the legal systems in developing countries have been criticized for numerous reasons. Their legal institutions are congested, poor, corrupt, and, in general, incapable of adequately performing the functions for which they exist. They are characterized by uncertainty derived from the ambiguity of the laws, which, is compounded by uncertain interpretation by the courts. Many of these problems are endemic to legal systems throughout the developing world. They are all characterized by insufficient resources to support courts and judges, inefficient and corrupt dispute resolution procedures, convoluted procedural laws, and outdated substantive laws. There may also be systemic inefficiencies that have crept in as a result of these factors, exacerbated by a lack of critical study and impetus to change. There can be no better solution than harmonization, in any of its myriad forms, to achieve modernization at a systemic level. It would be impossible for any system to acquire the knowledge and resources to take corrective action alone. Harmonization places the world's resources at the developing world's disposal, in terms of its intellectual capital, and also carries with it the legitimacy afforded to it by the reputations of the world's foremost experts.

II. THE GROWTH OF REGIONALISM

A. Regional Endeavours Examined

The growth of regionalism is another nail in the coffin of state sovereignty in the creation of international commercial law. It transfers sovereignty from nation states to regional bureaucracies and results in regional international commercial law. There are a multitude of regional harmonization efforts and it is well nigh impossible to examine every one of them. This paper contents itself with examining a few select efforts at regional harmonization that lend themselves to drawing broad themes for international harmonization. As can be seen from the following analysis, nation states are once again being pushed to the margins as regional bureaucracies craft international legal instruments. [page 132]

B. The European Union

The architects of the European Union thought that the establishment of a successful economic community would require harmonization of national laws. Accordingly, Article 100 of the Treaty of Rome calls for the harmonization of national laws as a means to help achieve a common market.[74] This has served as the mandate for harmonization of civil and commercial law.[75] European harmonization has proceeded on a sectoral basis with many instruments in certain areas and minimal efforts in others,[76] with the result that most areas of commercial law are still subject to divergent national laws. According to some experts, the current piecemeal approach of harmonization has resulted in, fragmentation and systemic incoherence. There does not appear to be a grand scheme for harmonization in the EU, perhaps for good reason, and in many ways harmonization is preceding on an ad hoc basis. This may itself have resulted in divergence in EU private law.[77] Ole Lando has argued that "optional Europeanization" has to give way to "mandatory Europeanization."[78]

That there is a need for harmonization in Europe is clear. This was clearly established by the results of the recent consultation process launched by the Communication on European contract law.[79] It yielded numerous contributions from governments, businesses, legal practitioners, academics and consumer- organizations.[80] The European Commission received 181 [page 133] responses to the Communication.[81] The consultation had sought information to determine whether problems were caused by divergences in contract law across the Member States. Its objective was to determine if the proper functioning of the internal market was negatively affected by problems in relation to the conclusion, interpretation and application of cross-border contracts.[82] Further, the consultation sought to pin down the oft-quoted anecdotal evidence that transaction costs sprung from different national contract laws, and whether this discouraged or increased the costs of crossborder transactions. With regard to the much debated issue as to whether the sectoral approach to harmonization that had been pursued so far by the Commission was advisable, it sought views as to whether it could lead to possible inconsistencies or to problems of non-uniform implementation.

The findings of the consultation were revealing. A large number of contributions during the consultation mention the divergence of national mandatory contract law provisions as a particular problem, which is accentuated by the growth of e-commerce.[83] A number of contributions, mostly stemming from export-oriented businesses, indicated that the problem could not be eliminated by the simple expedient of choosing the applicable law.[84] This answer has relevance for other issues that arise in this thesis and will be revisited accordingly. Several respondents were critical of the divergence of rules on even fundamental issues of contract law which posed problems and imposed higher transaction costs.[85] Many respondents pointed to divergences on simple matters such as requirements for the formation of [page 134] contracts that pose problems,[86] where for instance some laws required certain contracts to be concluded before a notary or necessitated the authentication of documents for certain contracts. There were also requirements imposed by certain laws,[87] such as that contracts be in writing or in a particular language. The consultation also revealed problems posed by the divergences in property laws, for example, concerning reservation of title, which is regulated differently from jurisdiction to jurisdiction. Respondents also pointed out that there were problems where the reservation of title also covers, for example, a claim for the purchase price that arises upon a resale of the sold goods by the buyer or over products made from the sold goods.[88] There was clear evidence of increased costs incurred by the divergence of rules in the case of the sale of goods with reservation of title, because the "security" contemplated by the contract became ineffective when the goods moved across the border.[89] This heightened the risk for the market participants and resulted in the seller trying to obtain additional security, thus resulting in the inefficient use of resources. In some cases, the risks may force the parties not to engage in otherwise profitable economic activity. The adverse effects of this are likely to be felt even more by small businesses. The cost of credit also goes up as the risk that the security interest will be ineffective goes up, and this gets passed on to the debtor. The consultation confirmed the findings of earlier survey by UNIDROIT (undertaken before embarking on the Convention on International Interests in Mobile Equipment) that some security instruments for movable goods were unknown in the legal systems of some Member States and vanish if the secured goods move into such jurisdictions.[90] Responses also revealed problems in the financial services sector for granting cross border credit.[91] Frequently this was only possible if the corresponding securities were guaranteed. The analysis of the validity of the cross-border transfer of securities also imposed expensive legal costs which had the potential to discourage or impede such cross-border transactions.[92] Further, legal analysis was time-consuming which, in cases of cross-border transactions to provide [page 135] finance for re-capitalization in order to prevent insolvency, can stymie the extension of finance.

The differences in rules on factoring were also a problem, as the assignment of receivables is necessary for the financing of export transactions. Respondents pointed out that some Member States restrict the assignment of future receivables, or the bulk assignment of receivables, while others take a much more liberal stand.[93] As a consequence, the factoring industry suffered from serious obstacles in some Member States, a factor that could lead to deleterious consequences for competition. The consultation found that factoring companies were prevented from offering their services outside the Member State of their establishment by using the same type of contract across the Community and had to bear the cost of examining different national laws.[94] There were also differences with regard to the validity of clauses contained in sales or service contracts that prohibit the assignment of claims stemming from those contracts.

There were difficulties faced by financial services firms due to divergences in national laws. Respondents stated that firms are unable to offer, or are deterred from offering, financial services across borders because products have to satisfy different local legal requirements which gave rise to excessive costs or unacceptable legal uncertainty.[95] Professor Drobnig argues that such discrepancies distort competition.[96]

After analyzing the responses to the consultation, the Action Plan concluded that

"[a]n improved EC acquis should enhance the uniform application of Community law as well as facilitate the smooth functioning of cross-border transactions and, thereby, the completion of the internal market. For example, it should avoid similar situations being treated differently without relevant justification for such different treatment. It should also avoid conflicting results and should define abstract legal terms in a consistent manner allowing the use of the same abstract term with the same meaning for the purposes of several directives. As such, it should indirectly remedy the fragmentation of national contract laws and promote their consistent application."[97]

This is a clear vote for the many arguments that divergences in national laws in Europe pose problems for international commerce, and that international law is necessary to overcome obstacles. That such differences [page 136] negatively impact commerce even in a small geographical area of developed countries, which have a history of trading with each other for centuries, is an indicator of the magnitude of the problem when one looks at the rest of the world.

Tempting as it is to buy into this view and succumb to the lure of a European Civil Code, or at least a European Contract Code, it may well be that such a codification is not absolutely necessary. The presence of multinational legal firms which have expertise in the various national laws means that there will not be much by way of additional legal fees that are incurred. Most of these firms are one-stop shops and the legal advice will form part of a general packet of questions. However, it must be remembered that such firms are beyond the reach of small businesses and consumers. Thus for all but large businesses, which can afford expensive expert legal advice, there may be some virtue in a European Contract Code.

i. The European Civil Code Debate

The European Parliament passed a resolution in 1989 in which it requested that preparatory work be carried out for a European Civil Code, or at least a European Code of Contract Law.[98] That plea was renewed by the European Parliament in a resolution in 1994.[99] The ambitious quest to construct a European contract code has attracted a lot of academic discussion, with academics ranged fiercely on either side.[100] This debate has also extended to the kind of instrument that is best suited to achieve such a code. For some experts, the vehicle of legislative harmonization is inappropriate for this task.[101] Some of their arguments are based on cultural factors, particularly, a legal system as embodying a culture. Private law, they argue, represents the accumulation of centuries of legal tradition as part of broader cultural and social tradition. According to them, merely looking through the trade lens and treating divergent national laws as mere distortions to trade is to ignore this cultural aspect. Accordingly, imposing legislative harmonization will insult the richness of this cultural diversity. [page 137]

Professor Jurgen Basedow has argued that an EU codification of the law of contracts is needed to harmonize the divergences in national contract laws.[102] According to him, codification of European private law would serve to create a single legal framework and foster the internal market, facilitate information about European law, provide a common point of reference for legal education, and create a professional identification for European lawyers. He argues that if the need for harmonization is deemed to be great enough, then the requirements of the principle of subsidiarity can also be satisfied.[103] With regard to the form that such harmonization should take, Basedow advocates the enactment of a "Community Contracts Regulation" that would be gradually phased in over a twenty- to thirty-year period.[104]

Mattei is clearly on the side of the harmonizers and he is convinced that the status quo, viz, no civil code, brings with it several costs.[105] He labels these "information costs" and believes that, despite a transaction being intra-Community, transaction costs must be set aside by businesses in order to obtain specialist advice on foreign law from local lawyers.

Another expert opines that "diverse private law hampers the internal market" whether that can be proven by empirical evidence or not.[106] In response to the argument that private international law can solve the problem, he believes that this is not an adequate solution, and points out that in the long term the EU cannot function effectively with "more than 20 different regimes of private law expressed in different languages and deploying systematically different approaches."[107] This view is shared by Professor Lando.[108] Von Bar's vision is grand: he argues that the EU must not confine itself to a [page 138] sectoral approach, but must try to formulate a broad "single currency" of law.[109]

The other side of the debate points to the experience of the U.S. -- where contract law exists in fifty forms in the states -- to say that there is no need for a codification.[110] They point out that there is a lot of trade already happening between European countries, and this obviously means that legal costs are not that important. While it is true that trade is continuing to grow despite the differences between national laws, this cannot be taken to mean that the problems are insignificant. Nor is the comparison with the U.S. particularly helpful given the vast differences between the legal systems of the U.S. and Europe. Barring Louisiana, all the states in the U.S. have laws that are from the same family, unlike the situation in Europe. There is also a common language aid judicial decisions are cited across state borders in courts resulting in a great degree of harmony. Europe is unique in several ways: the many languages and legal families, the vast differences in development, and the varying sophistications of the legal systems all mean that a common code will have a great impact in reducing uncertainty. Businessmen can trade without fear, and there will be commercial certainty. Given the fact that the EU is a common market and, in many ways a federation of States, the union can be facilitated by a common code. Thus, even though a European Civil Code may not warrant the expenditure of resources at this point, there is definite virtue in trying to craft a European Contract Code, particularly as significant efforts have already been made to create European contract law [page 139] principles. A codification effort is thus spared much of the initial effort and can take as its starting point an instrument such as the Principles of European Contract Law.

ii. The Principles of European Contract Law

The Commission on European Contract Law (CECL), a nongovernmental group of lawyers from the fifteen European Union countries, none of which are selected or appointed by any government, have been working on drafting the PECL over the last decade.[111] None have sought or received instructions from government or community institutions. A majority of the members are academics, not practicing lawyers. Although the European Commission supported the work of the CECL in the early stages, this was short-lived.[112] Lando regrets that the Council of the European Communities has not shown any interest in their work. This is strange considering that the Commission has spoken out in favor of harmonization.

The CECL's work was animated by the belief that the growth of trade and communication within the European Union makes the unification of the law of obligations, and notably the law of contracts, imperative.[113] The Commission was convinced that the existing unified and harmonized laws of the European Union dealing with contracts were fragmented and uncoordinated, and did not contribute much uniformity. They were also concerned by the fact that there were severe problems caused by the lack of uniformity in interpretation, and believed that uniform interpretation can be guaranteed only by a common legal environment. It was felt that the absence of uniform rules hinders interpretation and further disharmony is created. One result of this lack of uniform legal environment is that, in case of doubt, the interpreters have no recourse but to fall back on their own law. Obviously, even though such interpretations may sit well with a particular national law, in the overall scheme of things, uniformity is compromised. Thus, the CECL embarked on the arduous task of inventing this common legal environment by formulating the Principles of European Contract Law (PECL). After [page 140] exhaustive comparative work, Part I of the PECL was published in 1995. It deals with issues of performance, non-performance, and remedies. A revised Part I, along with Part II, was published in 1998. Part III was published in 2003. Together, Parts I and II cover issues of contract law including formation, validity, interpretation, performance, remedies, and authority of agents. Part III covers issues including the effects of illegality, assignment, assumption, statutes of limitations, conditions, procedural issues involving plurality of parties, and capitalization of interest. The PECL has already been translated into Dutch, French, German, and Italian.

One of the most revolutionary features of the PECL is that the authors have not been content to just find common solutions. They have gone beyond that objective to invent the best solution to a given problem where necessary. The PECL is much wider in scope than the CISG or UNIDROIT Principles and can, therefore, form a complete regime for contract law, especially for arbitration.[114] This comprehensiveness is necessary if transacting parties are to take recourse to it. In the words of the CECL itself, the PECL has a number of purposes: the facilitation of cross-border trade, strengthening of the single European market, creation of an infrastructure for Community laws governing contracts, guidelines for national courts and legislatures, and construction of a bridge between the civil law and the common law.[115] It also lists five purposes for which the European Principles are designed: a foundation for European legislation, express adoption by the parties, a modern formulation of a lex mercatoria, a model for judicial and legislative development of contract law, and a basis for harmonization.[116]

The PECL will perhaps find its best use in international commercial arbitration, at least in the European context. It can facilitate interpretation where there are gaps. DiMatteo gives the example of such a use in an arbitration proceeding where "the arbitration panel cited article 5:101(3) of [the PECL] to interpret an ambiguous contract term to imply a duty of cooperation between parties in a contract of association.[117] [page 141]

DiMatteo also points out that the PECL could serve as "a template for a European Contracts Code or as a mechanism for drafting and harmonizing more specific EU Directives.[118] It could also be profitably employed by other countries that may be attempting to modernize their own domestic laws. DiMatteo raises apprehension as to whether the PECL may be condemned by its attempt at formulating so called "best solutions," in that courts and legislators may not be very willing to rely on such formulations that emanate from academics. In some respects, the crafting of "best solutions" is inevitable in this context. Given the vast divergences in the legal systems of so many countries, the many languages in which they are expressed, and the inability of translation to capture the full meaning of particular legal terms, it is impossible to merely distill a code that is just the "common core." In many cases such a thing may not exist, or the contradictions may be so great as to be impossible to resolve without the invention of a remedy substantially based on some laws. This may not be something that needs to be frowned upon.

It is perhaps in realizing this that the authors of the PECL unabashedly proclaimed that they would pursue the "best solutions" approach. Thus, at the very beginning they have signaled the fact that the PECL will have solutions that transcend any one single national formulation of a given rule or principle.[119]

iii. The Work of the Study Group on a European Civil Code

The Study Group on a European Civil Code commenced its work in the middle of 1999. The Group is a network of academics, from across the EU, who are conducting comparative law research in laws of the various jurisdictions of the Member States with the aim of producing a codified set of Principles of European Patrimonial Law. The Study Group is constituted as a non-political body solely to do scholarly research. It is addressing the law governing certain particular types of contracts (sales, services, credit agreements and credit securities, contracts of insurance, and long-term commercial contracts: agency, distribution and franchise contracts); the law [page 142] of non-contractual obligations such as tort law; the law of unjust enrichment and the law on negotiorum gestio; and those parts of the law of movable property which are particularly relevant to the functioning of the internal market such as credit securities in movables, transfer of ownership in movables, and the law of trusts.

The work of the Study Group is conducted by two principal sets of bodies. Its day to day affairs are conducted on a permanent basis by a number of discrete Working Teams with responsibility for research and proposals within the fields of private law assigned to them. A Coordinating Group, a body of some thirty professors from all the EU Member States, meets at regular intervals and is charged with the task of reviewing the content of submissions made by the Working Teams. The Working Teams, operating with an international membership and in consultation with recognized experts in the relevant field of study, produce proposals which are deliberated and, when satisfactory, adopted by the Coordinating Group.

The Working Teams are usually comprised of post-graduates from all or nearly all the jurisdictions of the European Union under the leadership of a professor. Sometimes the working teams consist entirely of professors. The teams craft the first rough drafts, which are then discussed with an advisory council comprised of a small group of leading experts in the area. Thereafter, these drafts are reviewed in the biannual week-long meetings of the coordinating group, a committee of some forty-five professors. The language issue is addressed at the very outset and translations are released to facilitate discourse. The objective is to publish the "Principles" with a comparative law introduction, complemented with a detailed commentary. The work of the Study Group is financed exclusively by various national research grant awarding organizations from several EU states.[120] The Study Group has already released draft articles on tort law, negotorium gestio, personal securities, sales, services, transfer of movable property, unjust enrichment, long-term contracts, and proprietary securities. This is impressive work by any standard. The importance of this work will be truly understood only when harmonization work is undertaken by the EU in any of the areas on which the Study Group has already formulated a draft. This can serve as the starting point and will obviate the need to undertake comparative research at that stage. The international reputations of the academics involved in this [page 143] endeavor will also ensure the quality of the drafting, and the Study Group's work is a lesson on the need for such efforts at the international level.

iv. The Trento Project

This is another effort at European harmonization. The Common Core Project is sponsored by the University of Trento, Italy and, according to two of the principals in that project, Ugo Mattei and Mauro Bussani, their task is that of cartography-charting the legal landscape of Europe.[121] Unlike the CECL, their confessed purpose is not normative. Recognizing that it would be profitable to involve non-Europeans in this endeavour as well, the organizers of the Trento project invited American scholars to join the group, and some of them act as general reporters. There is no doubt that this is a good idea, and there is no doubt that this should extend to non-American experts as well, at least as observers.

Although the progenitors of the common core project repeatedly state that their purpose is purely cartography [122] and that they are not concerned with the creation of a common or uniform solution if none exists, that purity of purpose has been contradicted in their own writings. The cartography analogy wears thin when they confess that in the process of creating a map their larger purpose is the creation of a "European legal culture."[123] Clearly, a "European legal map" cannot create the landscape, but can only chart what already exists. This seeming contradiction is more a failure of the cartography analogy than it is of the process that the authors of the common core project are attempting. There can be no denying the tremendous importance that the search for common solutions has for the harmonization process. Quite apart from creating a comparative law methodology for scholars, as the authors observe, it shifts the emphasis from the predominant legal systems to a comparison of every legal system.[124] It also unearths a rich mine of information about solutions adopted by different legal systems that harmonizing agencies can tap into in the process of drafting legal instruments.[125] [page 144]

In explaining the raison d'être for the common core project, Mattei has criticized projects like the UNIDROIT Principles and the Principles of European Contract Law as having ignored what in his view is the "basic question" of whether the legal traditions share something in common that can be restated, and if so, what it is that is common.[126] He argues that since all legal change entails costs insofar as actors in the legal market have to now familiarize themselves with the new law, the lowest cost that would stem from the change would be from a code that is a reflection of that which is common to the most number of legal systems.[127] According to him, the exercise to determine the existence or otherwise of a common core is a "prerequisite" if transaction costs have to be reduced in the European context.[128] He does concede, however, that even if there is no common core, a codification could still result in reduced transaction costs in some areas.[129] This argument is not very powerful as it is impossible to precisely quantify the costs incurred in educating oneself about a restatement that draws on an existing common core as opposed to one that does not. The differences may be very marginal even if quantifiable.

v. The CENTRAL Project

In 1996 the Center for Transnational Law ("CENTRAL") at Munster University published its list of Principles, Rules and Standards of the Lex Mercatoria.[l30] [page 145]

C. The American Experience

i. NAFTA

The North American Free Trade Agreement (NAFTA) experience is very different from that of the EU. Despite the conclusion of NAFTA, there is no Brussels and its attendant bureaucracy to actively pursue harmonization. There appears to be less emphasis on formal harmonization and certainly no feeling of urgent necessity. Harmonization appears to more of an informal process and seems to be encouraged more by U.S. dominance than any systemic endeavour to harmonize. To those used to the vigorous activity occurring in Europe, this seeming lack of activity is astonishing.

Professor Glenn opines that "[t]he law of the NAFTA countries is characterized by two broad phenomena: (1) an informal process of harmonization, as national institutions adjust to the increase in transborder flow brought about by NAFTA, and (2) ongoing unilateralism."[131] There appears to be a touch of one-upmanship in his argument that, unlike in Europe, lawyers in the NAFTA region act positively to avoid conflicts of laws by relying on the common law rule that the judge is required to apply a foreign law only when it is pled and proved.[132] He seems to imply that parties always agree to apply the law of the forum. He contrasts this with the law of a number of European countries which insist on "obligatory application of private international law rules, on the judge's initiative" and seems to think that this is a source of the problem.[133] According to him, this essentially constitutes a "presumption of conflict of laws, given an overriding notion of national sovereignty and formal differences in the articulation of national laws." Glenn implies that the American approach is smarter than the European one, noting that "all litigated trans-border cases must ... go through a complex ... process of determining their applicable law, even in the absence of clearly established conflict." It is unclear how the conflict can be avoided when one law can provide different results from the others that could potentially apply to the particular case. If there is any advantage to be derived from such divergences, it would appear that lawyers would raise the conflict. [page 146]

In Glenn's view, the approach taken by European lawyers, which encourages conflicts of law, is definitely a reason for the perceived necessity of harmonization of European law.[134] According to him, because of this constant invocation of the conflict of laws, formal top-down harmonization measures have become necessary in Europe. Professor Glenn lauds American lawyers for "[t]he North American way is one that allows conflict avoidance, where the parties and their lawyers understand how to bring it about."[135] Therefore, massive harmonization endeavours have not been demanded of comparable institutions inAmerica.[136] Professor Glenn surveys the landscape and concludes that most of the change in the conflict of laws has evolved spontaneously in nations.[137] These changes have not been imposed by any international organization. Not surprisingly, the examples of such an evolution that he provides involve modifications to the laws of Canada and Mexico which have been essentially the transplant of U.S. legal principles. This seems to be hegemonic, but is perhaps inevitable given the regional dynamics. The great increase in trade resulting from a free trade agreement, particularly between the U.S. and Mexico, has pushed the Mexican legal system to converge with that in the U.S.[138] Given that both Mexico and Canada want to increase trading opportunities with their more powerful neighbor, the U.S. can take a more indifferent approach to harmonization. Legal experts in the U.S. have been more than willing to export their own laws to Canada and Mexico and, indeed, the rest of the world, often with a take it or leave it attitude resting on their economic might. This is apparent by the fact that there is no evidence that U.S. law has gone to any lengths to undertake a harmonization that adopts principles from Canadian or Mexican law. Accordingly, it would be safe to say that harmonization within the NAFTA context is "Americanization." Although legislatures in Mexico and Canada could have resisted this, financial sense impels them to do otherwise.

Harmonization has also been achieved by all three countries acceding to multilateral conventions such as the Vienna Convention on the International Sale of Goods. This is in contrast to the situation in Europe, where some countries have not ratified the Vienna Convention. Professor Glenn argues [page 147] that informal harmonization characterizes both substantive law and choice of law rules,[139] In his view, given the fact that harmonization seems to proceed without much difficulty informally, and without the necessity for formal institutional measures, it is more important to have an independent and detached judiciary, rather than formal measures of harmonization.[140]

NAFTA experience also reveals greater judicial cooperation across national borders in contrast with Europe. Professor Glenn states that transnational meetings of judges are multiplying, under the sponsorship of Judicial Councils. One result of such judicial interaction maybe the growing tendency of judges to engage increasingly in "judicial parallelism," accompanied by a greater resort to transnational citation of judicial authority.[141] This is a soft kind of harmonization that results over a period of time.

A note that is quite different from that struck by Glenn is discernible in the writings of Etcheverry, who is categorical that the issue which most hinders businessmen from concluding cross-border transactions is the "difficulties, queries and uncertainties that both they and their lawyers will encounter in the legal systems of each country."[142] In his view, these uncertainties stem from the issue of the applicable law and the judge or arbitration tribunal that will be competent to hear the case if a conflict arises. Therefore, unless the uncertainty regarding the legal framework is eliminated, any process that is aimed at the establishment of a common market is not feasible.[143]

Some of the divergences may also have been a part of deliberate policy. Zamora gives political explanations for the diversity of national laws in the [page 148] region. Accordingly, Mexico's divergent laws were the product of the government's model of political economy, and of politics itself, which resulted in it being a "sui generis model."[144] He states that "Mexico wanted to protect itself from the harmful effects of U.S. influence," and did not want to copy the U.S. system despite the attraction of increased trade. He also strikes a chord when he explains the lack of harmonizing influences from abroad in the development of the U.S. system, which according to him stemmed from a deeply held belief in the U.S. that their way of doing things was the best.[145] This is probably true to this day and lawyers in America generally believe that their legal system is an exporter rather than an importer.

D. Other Regional Efforts

There have been harmonizing efforts undertaken on a regional basis by multilateral lending agencies like the World Bank, mainly in the secured transactions area. Although the results may be the same, this is not really harmonization as the objective of the lending agencies is not to harmonize. Their chief concern is the facilitation of structural reform in the borrowing countries and harmonization is, at best, incidental to this purpose. Accordingly, they cannot be construed strictly as harmonization endeavors.

E. Competition or Collaboration?

It is difficult to establish the precise linkages between regional harmonization and international harmonization. Although there are instances of individual instruments or provisions within instruments causing conflicts, it would be fallacious to say that the relationship is one of conflict. It is undeniable that in areas where there are vast divergences and difficulties in arriving at international harmonization, regional harmonization may be beneficial as a first step in the larger process of international harmonization. This is due to the simple expedient of crystallizing the national differences into a few broad regional groupings and, thereafter, international harmonization starts off on an inter-regional footing. The contrary view may be that regional harmonization leads to wasted resources when the real problem is a global one. I had started this chapter with such an idea, but have been forced to recant because of the evidence that regional harmonization is [page 149] indeed a beneficial. There are many areas where harmonization of certain areas of law may be unnecessary in certain regions but may be required in others. There is no need for the whole world to undergo the process, or for the affected region to wait for international action in such cases. A classic case is that of the contract code. Regions other than Europe have no interest in such a codification, and the absence of the EU as a forum to ventilate this need may well have resulted in the rest of the world being dragged into this debate.

Another area where regional harmonization can play an important role is the case where the floor is lower for certain regions than it is for the rest of the world. By this I mean that certain regions may not be ready to make the leap for the harmonization of certain kinds of law due to particular economic choices that characterize development in those regions, or even if they do make the leap, they may be constrained by domestic lobbies which are unprepared to make the transition in the form that the rest of the world wants. In such instances, dragging a reluctant region along will enervate the international instrument and it will be inadequate for all parties. The better solution is for that region to settle for a regional instrument that is a smaller attempt at harmonization in tune with its policy choices. This has the added benefit of pleasing both the members of the regional organization and potential signatories of the international instrument. This possibility was illustrated by the Organization of American States (OAS) consultation process where respondents pointed out that the OAS Model Law was more in tune with their requirements than the UNIDROIT Convention on International Interests in Mobile Equipment.[146]

Even in areas where there is an overlap of effort, there is scope for cooperation and collaboration. This can result in similar solutions being evolved due to the cross fertilization of ideas and experiences and, therefore, facilitates international harmonization. In fact, due to such close interaction, regions may be able to adopt a harmonizing instrument well before conditions have arisen for such an instrument to be adopted on a global scale. They can expedite work on drafts being honed by international harmonizing agencies and can adopt them for the region without waiting for the international organization to go through its labored processes which include meetings or government experts, many levels of consultation, and, finally, a diplomatic conference. [page 150]

Regional harmonization may also be attractive for states as it provides them with a greater voice. Many respondents who participated in the OAS consultation exercise were of the opinion that regional harmonization had a distinct role to play and that Latin American concerns were better addressed in the CIDIP framework than at international organizations.[147] The resources required for the organization of a regional instrument pale in comparison to those needed for an international convention and this is a tool that has to be better adopted to attain incremental harmonization. There is also the increasing participation of regional bodies in the work of international harmonizing agencies like UNIDROIT, and this may get even stronger if regional bodies accede to conventions en bloc. Regional organizations may be able to bind the member states to a convention by the organization itself ratifying the convention without any need for the individual member states to ratify. Professor Basedow points out that this is possible at the OHADA level whose Council of Ministers can unanimously adopt a convention and bind the member states without any further action being necessary.[148]

In sum, there is greater evidence pointing to the fact that regional harmonization can facilitate international harmonization than that it is in any way inimical to such. a process. As long as that remains the case, regional harmonization must be encouraged.

There is some thought that regional harmonization could be duplicative and hence a waste of resources, with opinion expressed that competition between regional and international agencies can actually result in a better product.[149] This argument will be rejected for the same reasons advanced when rebutting the argument against harmonization stemming from the idea that regulatory competition results in a "race to the top."[150] [page 151]

III. THE RISE OF NON-BINDING INSTRUMENTS

The foregoing analysis is clear evidence that nation states are not as important as they were prior to the end of the Cold War for the creation of international commercial law. The analysis can be concluded by looking at the evidence presented by two further aspects of the harmonization process: first, the shattering of the idea that international conventions are the be-all and end-all of international commercial law, and, second, evidence that the growth of "soft law" is hastening the demise of state sovereignty given its tremendous popularity.

A. International Conventions

Traditionally, it was thought that international conventions were the best method of formulating international commercial law. This is principally because international conventions are binding in nature, and, once ratified, have the great advantage that they usher in uniformity at the starting gate. Accordingly, where possible, this is the favored instrument adopted by harmonizing agencies when they seek to create binding law.

The binding nature of a convention as a vehicle for harmonization may itself be its Achilles heel. Countries which did not participate enthusiastically in the drafting of a convention, or which do not believe in the need for the convention, will not want to be bound and will take the easy option of not ratifying it. Further, due to the fact that conventions take very long to create and require protracted negotiations and compromise, they can remain petrified for a long time as the sponsoring agencies do not want to lose whatever harmonization has been achieved by embarking on amendment.[151] A brief [page 152] survey of some conventions and their acceptance rates illustrates the problems with this vehicle of international commercial law.

The 1964 Convention relating to a Uniform Law on the International Sale of Goods (ULIS) has only been ratified by eight countries.[152] The 1964 Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULFIS) has also been ratified by the same eight countries.[153] The 1970 International Convention on Travel Contracts has received a mere three ratifications [154] and three accessions.[155] The 1973 Convention providing a Uniform Law on the Form of an International Will has been ratified; by three countries[156] and acceded to by nine others.[157] The 1983 Convention on Agency in the International Sale of Goods has been ratified by two countries [158] and acceded to by three others.[159] The convention has not yet entered into force as it requires ten countries to accept it. The 1988 UNIDROIT Convention on International Financial Leasing has been ratified by four countries [160] and acceded to by five others.[161] The 1988 UNIDROIT Convention on International Factoring has been ratified by four countries [162] [page 153] and acceded to by two others.[163] The 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects has been better received. It has been ratified by eleven countries [164] and acceded to by ten others.[165] The Convention on International Interests in Mobile Equipment has been ratified by three countries to date.[166]

The Hague Conference has had a slightly better record in the uptake of its conventions. The 1986 Convention on the Law Applicable to Contracts for the International Sale of Goods, which has been ratified by Argentina and acceded to by Moldova, has not yet entered into force.[167] The 1985 Convention on the Law Applicable to Trusts and their Recognition has been ratified so far by Australia, Canada, Cyprus, France, Hong Kong, Italy, Luxembourg, Malta, the Netherlands, the United Kingdom, and the United States.[168] The 1978 Convention on the Law Applicable to Agency has been ratified by a mere four countries.[169] The 1971 Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters has been ratified by just four countries: Cyprus, Kuwait, Netherlands, and Portugal.[170] While this is the status of the Hague family of conventions on commercial matters, other conventions sponsored by the Hague Conference have met a much better fate. For instance, the Convention on the Civil Aspects of International Child Abduction has been ratified by or acceded to by seventy-four countries.[171] Similarly, the 1993 Convention on the Protection [page 154] of Children and Cooperation in Respect of Inter Country Adoption has been ratified by forty-three countries, and acceded to by fifteen others.[172]

UNCITRAL has the best record on adoption with regard to its international conventions, The 1958 New York Convention on the Recognition. of Foreign Arbitral Awards is perhaps the most successful convention ever with 134 ratifications.[173] A slightly lesser place in the UNCITRAL pantheon is taken by the 1980 Vienna Convention on Contracts for the International Sale of Goods which has been ratified by sixty-two countries.[174] The 1974 New York Convention on the Limitation Period in the International Sale of Goods (as amended by the Protocol of 1980) has been ratified by eighteen countries.[175] The 1978 United Nations Convention on the Carriage of Goods by Sea (known as the "Hamburg Rules") has been ratified by twenty-nine countries, with the latest ratification being that of Syria in 2002.[176] However, none of the major maritime nations have ratified this Convention, so in reality it is of little significance.

It is clear that the mere adoption of a convention does not achieve harmonization. As the preceding paragraphs show, despite the many years expended in creating these conventions, sovereign states have shown scant enthusiasm in many instances, prompting one to ask what ails the convention as a harmonization vehicle? One readily apparent fact is that in some non-commercial law areas, conventions have been readily ratified. This may be contrasted with the fact that the New York Convention has achieved great success. The conclusion from these two statements may be that the subject matter of the convention is the most important factor. In areas that states perceive to be important and desirous of harmonization, a crowded legislative [page 155] calendar has not deterred them from ratification. On the contrary, in arcane and highly specialized areas, legislators have chosen to disregard them.

B. The Growth of "Soft Law"

Soft law has attained tremendous significance as a vehicle for harmonization due to its flexibility. Parties can adopt it on a voluntary basis, and it serves, many important functions. For example, the UNIDROIT Principles are viewed as "neutral" contract law principles in that they reflect a balance of interests and have not been formulated by any government.[177] In cases where parties are unable to agree on the law that is to govern their contract, the UNIDROIT Principles provide a neutral law that both parties can adopt without losing face. In order to fully grasp the quality of restatements as vehicles of harmonization, it is essential to get an idea of how they are created. Restatements follow extensive comparative law research, examining the laws of different countries to show differences and similarities. After these have been identified, the restatement is not a distillation of the lowest common denominator. Rather, it is often an innovative solution that may not be from any one legal system.[178]

Restatements also escape that great problem that shadows international conventions-ratification. As the UNIDROIT Principles state: "[e]fforts towards the international unification of law have hitherto essentially taken the form of binding instruments, such as supranational legislation or international conventions, or of model laws. Since these instruments often risk remaining little more than a dead letter and tend to be rather fragmentary in character, calls are increasingly being made for recourse to non-legislative means of unification or harmonisation of law."[179]

This no doubt has contributed, at least in the European context, to the new enthusiasm for the use of restatements as vehicles for harmonization. The [page 156] Joint Response states the authors' belief that this is their preferred vehicle for European integration.[180] According to the Joint Response, it is only after undertaking a comparative study of the legal systems of Europe and after the crafting of a restatement that the need for harmonization can be shown.[181] In their view, this is due to the fact that the process will not only reveal divergences across national legal systems, but that it will also reveal commonalities. This is a very important point and one that has not been appreciated enough. In areas such as property law, where the differences are so great across national boundaries and where the sheer enormity of the law militates against the adoption of a binding text, starting off with a restatement can be very beneficial in that it narrows down the differences and winnows out the commonalities. It makes the task of subsequent codification in a binding form much easier and, more importantly, can contribute to harmonization on an incremental basis with countries having the liberty of using the restatement for law reform purposes.

One of the great virtues of a restatement is its flexibility. It is capable of modification, unlike an international convention, and countries can pick and choose rules from within a restatement depending on their comfort level.[182] In many instances, restatements can be the building blocks of national legislation, or at least can be a starting point for the national legislator.[183] As [page 157] noted by the Joint Response, national legislators in the EU are using the Principles of European Contract Law in reforming national legislation. They cite the role that the PECL has played in the reform of the German law of obligations, its use by the Scottish Law Commission in reports on contract law reform, and use by the Spanish law reform commission.[184] The Joint Response canvasses an innovative vehicle that is a "set of principles which may be moulded more freely than legislation, while still commanding the authority of a primary and binding legal source. This could be achieved by a process of continual restatement where the evolving jurisprudence of the courts in the development of the restatement is integrated, along with academic treatment, in the text of the code and accompanying explanatory commentary."[185] This is an excellent idea, as it exploits to the full the very essence of the idea of a restatement. Rather than remaining a monument to harmonization, it allows the restatement to move in sync with developments across jurisdictions, and also overcomes the problem posed by the fact that judges and arbitrators in all parts of the world cannot have access to decisions from everywhere else. The restatements can continually synthesize decisions on various issues from every jurisdiction, a luxury which no judge has. They could form the mine that judges and arbitrators go to when deciding international commercial cases.

The flexibility also extends to contracting parties who can choose to include it in their contracts, or can ignore it altogether. In the view of the authors of the Joint Response, party autonomy could be facilitated even more if the Rome Convention were to allow the application of restatements. They contend that

"[o]ffering an additional legal system to choose as the governing law for a contract would go a long way beyond merely offering terms that can be incorporated into an agreement. It would represent a very substantial and effective enhancement of the parties' autonomy because the law at their disposal would be one which is pan-European and non-partisan in nature and which will therefore have immediate appeal as an escape from the battle of choosing one or other of the parties' national laws."[186] [page 158]

However, all is not smooth sailing. Given that they have no binding force, restatements have the capacity of being reduced to mere ciphers. As the Opinion of the Economic and Social Committee on the Communication from the Commission to the Council and the European Parliament on European Contract Law concedes, "in Europe recognition of these private 'codes' by national judges when interpreting contract clauses, clarifying the intention of the parties or settling disputes is a problem, while elsewhere, non-State law can be taken into account, as is the case, for example, under the Mexico Convention ..."[187]

Professor Goode does not believe that the "soft" nature of restatements has been a "problem and opines that the PECL and the UNIDROIT Principles have been successful "precisely because they are not binding, have not been influenced by governments and do not pose any threat to national legal systems. Like the UNCITRAL Model Law on Arbitration they are designed to be a unifying influence and a resource, but it is left to legislatures, courts and arbitral tribunals to decide to what extent they assist in the solution of problems."[188]

i. The UNIDROIT Principles

The UNIDROIT Principles have been the subject of great scholarly and arbitral attention.[189] Much of the scholarly writing has been done by the authors of the UNIDROIT Principles themselves, giving the idea that there was some aspect of salesmanship to this.[190] The Principles were drafted by a working group that was specifically formed for the purpose, and its members -- who were from the different legal and socio-economic systems -- were leading experts.[191] They included academics, judges, and civil [page 159] servants. Typical of UNIDROIT, the members of the working group were appointed in their own capacity and not as representatives of their governments.[192]

Since their release, the UNIDROIT Principles have enjoyed great acclaim and have even served as a guide for the reform of the laws of some countries. They influenced the drafting of the Russian Civil Code, the Estonian Law of Obligations, and the Civil Code of the Republic of Lithuania.[193] The development of the new Chinese contract law was also significantly influenced by the CISG.[I94]

According to Professor Rosett, the greatest achievement of the UNIDROIT Principles is that they persuasively demonstrate that basic principles of contract law can be agreed upon by all major legal systems in a form that is, not "too vague and general to be useful in the resolution of specific disputes."[195] He notes that "[t]his fact alone is immensely valuable to those who seek a structure to commercial contract law that can provide predictable and harmonious outcomes everywhere."[196]

ii. Efficacy of the UNIDROIT Principles

It is one thing to say that the UNIDROIT Principles have received wide scholarly recognition, and quite another to opine that they have achieved acceptance in practice. The litmus test for any restatement is the respect accorded to it by courts and legislatures. At least in the arbitral arena, the UNIDROIT Principles have made a start. As the Principles state, they can have application either as the lex contractus or as a supplement to a national law or an international convention. The UNIDROIT Principles have also been used as the reflection of the state of modern contract law in many arbitral awards. This is true in many cases despite there being a national law [page 160] governing the contract. For instance, in ICC Case 9593, where the dispute was between two Ivory Coast companies who had agreed upon the law of the Ivory Coast, in deciding that one of the parties had breached its obligation to cooperate in the performance of contract, the arbitral tribunal referred to the UNIDROIT Principles and said: "Further in a comparative study, UNIDROIT came in the conclusion that the obligation to cooperate in good faith in the performance of a contract amounted to a general principle applicable to international trade."[197]

In another award, the tribunal said,

"The reasons why this Tribunal considers the UNIDROIT Principles to be the central component of the general rules and principles regulating international contractual obligations and enjoying wide international consensus, which constitute the proper law of the contracts, are manifold: (1) the UNIDROIT Principles are a restatement of international legal principles applicable to international commercial contracts made by a distinguished group of international experts coming from all prevailing legal systems of the world, without the intervention of States or governments, both circumstances redounding to the high quality and neutrality of the product and its ability to reflect the present state of consensus on international legal rules and principles governing international contractual obligations in the world, primarily on the basis of their fairness and appropriateness for international commercial transactions falling within their purview; (2) at the same time, the UNIDROIT Principles are largely inspired by an international uniform law text already enjoying wide international recognition and generally considered as reflecting international trade usages and practice in the field of the international sale of goods, which has already been ratified by almost 40 countries, namely CISG; (3) the UNIDROIT Principles are specially adapted to the contracts being the subject of this arbitration, since they cover both the international sale of goods and supply of services; (4) the UNIDROIT Principles have been specifically conceived to apply to international contracts in instances in which as it is the case in these proceedings, it has been found that the parties have agreed that their transactions shall be governed by general legal rules and principles; (5) rather than vague principles or general guidelines, the UNIDROIT Principles are mostly constituted by clearly enunciated and specific rules coherently organized in a systematic way ..."[198]

The Tribunal further explained that

"on the basis of at least two grounds, this Tribunal would not have been ... prevented from referring to the UNIDROIT Principles as a part of the law applicable to the contracts in absence of an express or implicit choice of law situation: (1) ... the contracts are governed as a result of a preliminary finding, by general rules and principles regarding international contractual obligations enjoying wide international consensus, [page 161] i.e., they are not governed by any discrete domestic or national law ... (2) the application of the UNIDROIT Principles does not depend on their self-given criteria of application, but on the powers vested in this Tribunal under article 13(3) of the ICC Arbitration Rules, which ... authorize it to directly determine the applicable law it deems more appropriate to govern the merits, i.e., in this case, the general legal rules and principles regarding international contractual obligations enjoying wide international consensus, including without limitation, the UNIDROIT Principles as an adequate restatement and expression of modern general legal rules and principles."[199]

Bonell, the chief architect of the UNIDROIT Principles, writes that their use for the proper interpretation of the otherwise applicable domestic law was not anticipated by the drafters.[200] According to him,

"the statement in the Preamble [201] according to which [the UNIDROIT Principles] may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law was intended to cover only those cases where it is extremely difficult, if not impossible, to determine the content of the applicable law because of the special character of the legal resources and/or the cost of access to them."[202]

Interestingly, Bonell points out that Article 14 of the Model Contract for the International Commercial Sale of Perishable Goods, adopted by the International Trade Center UNCTAD/WTO in 1999, allows for the use of the UNIDROIT Principles: "In so far as any matters are not covered by the foregoing provisions, this contract is governedby the following, in descending order of precedence: the United Nations Convention on Contracts for the International Sale of Goods, the UNIDROIT Principles ..."[203]

A survey of cases which have referred to the UNIDROIT Principles reveals that parties have subjected their dispute to the Principles after the [page 162] dispute commenced even though the contract itself did not refer to it. In one such case, an ad hoc arbitration in Paris, the dispute was between a Russian trade organization and a United States company concerning a loan agreement. Although the agreement did not contain a choice of law clause, after the dispute arose the parties agreed that the arbitral tribunal should apply Russian law, supplemented by the UNIDROIT Principles if necessary.[204] In another case before the Camera Arbitrale Nationale ed Internationale di Milano, involving a dispute between an Italian and American party, the parties agreed to the application of the UNIDROIT Principles even though the contract did not make any reference to it.[205] In an arbitration before the Court of the Lausanne Chamber of Commerce, the contract did not contain a clear choice of law clause and the parties argued for the application of Swiss law on the basis that it was a "neutral law." Since the contract contained a reference to "general principles of law applicable to international commercial contracts," application of the UNIDROIT Principles was accepted.[206] In another case before the same court featuring a partial award, the facts involved a Turkish company and a company incorporated in Anguilla, West Indies, with an office in the Philippines, which had entered into an agreement concerning highly sophisticated equipment. The contract contained two provisions on the choice of law that appeared to contradict each other, one applying English law and the other Swiss law. The arbitral tribunal suggested that the parties choose the UNIDROIT Principles as the applicable law, and the parties accepted.[207]

The application of the UNIDROIT Principles where the contract led to the application of the "general principles of law" is growing. There are twelve such cases on the UNILEX database. In Andersen Consulting Bus. Unit [page 163] Member Firms v. Arthur Andersen Bus. Unit Member Firms, the Tribunal held that the UNIDROIT Principles are a reliable source of international commercial law in international arbitration because they "contain in essence a restatement of those 'principes directeurs' that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice."[208] In a recent Russian arbitration where there were conflicting choice of law clauses, the Tribunal held that it would apply the general principles of law and further held that the UNIDROIT Principles were an expression of the general principles of the lex mercatoria.[209]

From the foregoing it is clear that the UNIDROIT Principles are here to stay. They have come to be seen as embodying principles of such quality that they may be safely used to settle disputes without either party complaining about the law being adverse to him or her. This alone is a huge contribution in international commerce. Further, the CENTRAL research project on transnational commercial law showed that parties were familiar with the UNIDROIT Principles and used them in many instances to overcome language barriers.[210] It confirmed many of the findings of UNIDROIT which had conducted a study of about 1,000 users of the UNIDROIT Principles to obtain information about the practical application of the Principles. Although the response rates are very low and may be skewed by the fact that many of the uses have been in the context of arbitration, it is definitely indicative of the fact that the sheer quality of the Principles are causing commercial players to resort to them.

iii. Principles of European Contract Law

The Principles of European Contract Law set forth general rules for contract law, in contrast to the UNIDROIT Principles which restrict their application to commercial contracts. Thus, the UNIDROIT Principles exclude [page 164] consumer contracts. The PECL, on the contrary, expressly include consumer contracts in their ambit. This is definitely important in the European context with the ever growing body of consumer law -- the PECL can serve as the context for these developments. The PECL has definitely been influenced by the UNIDROIT Principles as there was a process of exchange between the drafters.[211] Like the UNIDROIT Principles, the PECL is also premised on the assumption that the existence of different contract laws is inimical to international commerce. Since it is European, the PECL is aimed at the fostering of the single European market.

Although the PECL have not received the same kind of attention as the UNIDROIT Principles, it has also been referred to by arbitral panels in recent cases. In arbitral award no. 8128, at the ICC Court of International Arbitration, Basle, in awarding interest under Art. 78 of the CISG, the Arbitral Tribunal applied the average bank short term lending rate to prime borrowers, which is the solution adopted by Art. 7.4.9 of the UNIDROIT Principles [212] and by Art. 4.507 of the PECL. The Tribunal thought that these instruments fell under the rubric of the general principles on which the CISG is based.[213] [page 165]

In arbitral award no. 9474 before the ICC International Court of Arbitration at Paris, where the parties agreed to the Tribunal's proposal at the beginning of the proceedings to apply "the general standards and rules of international contracts," the Tribunal decided to apply along with the CISG "other recent documents that express the general standards and rules of commercial law[,]" such as the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law.[214] In another recent arbitration, the parties had entered into a series of agreements aimed at developing the defendant into an efficient cement producer. Despite the choice of law clause in the agreements expressly providing that Lithuanian law applied, the Claimant invoked the UNIDROIT Principles and the Principles of European Contract Law as a source of trade usages referred to in Article 17 of the ICC Rules of Arbitration. In the partial award on the issue of the applicable law, the Tribunal acknowledged that both the UNIDROIT Principles and the PECL represented the latest codification of international commercial trade usages, but thought that they were only persuasive and not mandatory as they were not incorporated in the agreement between the parties.[215]

The PECL have been referred to in decisions as far away as Australia. In GEC Marconi Systems Ltd. v. BHP Information Technology Ltd.,[216] the court ruled that the duty of good faith and fair dealing was to be considered an implied term of all contracts, relying on such expressions in the UNIDROIT Principles and the PECL, despite the absence of such a rule in Australian law.[217] The fact that the contract contained a "entire agreement" clause was not sufficient to preclude such an implication." This joint reference to the UNIDROIT Principles and the PECL is probably the forerunner of things to come as more tribunals use these instruments at the interstices of positive law. They have the great virtue of clear expression and embody a synthesis of international legal rules in a way that promotes dispute resolution. [page 166]

Apart from this trend, and unlike the UNIDROIT Principles, the PECL has one other advantage in that it could form the basis for a European Contract Code if work proceeds on that front in the EU.

IV. CONCLUSION

This article started off by examining the reasons for the creation of international commercial law and charted some dominant trends in its evolution. It revealed that traditional state-based approaches to the creation of international commercial law are becoming unsuitable as regional organizations play an increasingly important role in lawmaking at. the international level. There is a distinct transferal of sovereignty by nation states to regional organizations with the consequence that international lawmaking is not a game played purely by sovereign states any longer. Professor Basedow writes that nation states that transfer part of their legislative powers to regional organizations will be "less attractive to the international community as potential treaty-making partners."[219] He identifies the corollary as being that the regional organizations will gain in importance. According to him this will necessitate two changes to the present international system of making law: "first, supranational organizations such as the European Community would have to be integrated into the existing international law-making bodies, and second, they would have to be admitted as Parties to international Conventions."[220]

Although organizations like the EU are invited as observers at international negotiations and do not have voting rights, it is likely that such organizations have a powerful behind-the-scenes presence that belies their observer status.[221] It is also likely that individual member states have very little room to maneuver as all member states of an organization may have to move in lock-step and this could frustrate the whole bargaining process. It would also be unfair on other nation states apart from resulting in a waste of time. and resources. The solution may be to switch roles in cases where the regional organization has decided to take an active part in the negotiations and individual states have no power to enter into agreements on their own. In these cases, only the regional organization should be given voting rights, with [page 167] the individual member states being restricted to observer status. This would ensure that parties are bargaining with all their cards at the table and with the power to enter into binding commitments. Rather than waste time trying to convince individual member states of a regional organization that may not matter in case the regional organization has the power (exclusive or otherwise) to make binding legislative action, it would simplify the negotiating process. It would also have the added virtue of conserving time. It would reflect the true sovereign legislative powers at the negotiation stage rather than dummy players in cases where individual nation states cannot enter into binding obligations outside their regional structures. The caveat is that the regional organization should be obligated upon ratification to pass a law that would bind the member states and give effect to the ratification.

To effectuate this greater role for regional organizations, Professor Basedow has called for the overhaul of the statutes of the uniform law making institutions to free them of state-centered participatory processes.[222] He correctly points out that if regional organizations are admitted as members, the consequence would be that the voting rights would be adversely affected insofar as nations that are part of these regional organizations may have an additional vote.[223] This problem could be overcome if this author's suggestion that regional organizations be subrogated to the position of the member states in areas where they have the authority to legislatively bind their member states is accepted. Under such an arrangement, the regional organization would have as many votes as the individual member states would have had, and would have to exercise them en bloc. There would be no additional vote or influence conferred on the regional organization and it would merely be a sum of its parts.

Along with the growth of regionalism, this article has also shown that another blow to the state-centered approaches of making of international commercial law is being dealt by the growth of soft law. This is likely to become even more prevalent as states do not have either the competence or the inclination to move at the speed that modern day commercial parties require. Private lawmaking will fill the vacuum and is to be welcomed. Highly sophisticated commercial parties do not need national legislatures and the fiction that the imprimatur of the state is required for international lawmaking is best laid to rest. [page 168]


FOOTNOTES

* Editor's Note: Foreign source citations are based upon the author's recommendation. The Journal of Law and Commerce adheres to The Bluebook Uniform System of Citation, but the Journal of Law and Commerce has created uniform citations for certain sources not addressed by the Bluebook. Moreover, with respect to foreign language sources for which the Journal of Law and Commerce was not provided an English translation, the editors have relied on the author for the veracity of the statement drawn from such sources.

** B.A., LL.B. (National Law School of India); B.C.L. (Oxon); D. Phil. candidate, The Queen's College, University of Oxford. I wish to record my thanks to Sir Roy Goode, Emeritus Professor of Law at the University of Oxford for his insightful comments and to Jared Hawk for his excellent editorial work. I am entirely responsible for any errors.

1. ROY GOODE, COMMERCIAL LAW IN THE NEXT MILLENNIUM 88 (1998) (noting that there is an increasing movement away from domestic international trade law to what has become known as "transnational commercial law." This, according to Professor Goode, is that body of law that "result[s] from the harmonisation or convergence of national laws, whether by international convention, conscious or unconscious judicial parallelism, uniform rules ..."). Professor Goode first defined the term in his article Usage and its Reception in Transnational Commercial Law, 46 INT'L & COMP. L.Q. 1, 2 (1997), as:

" 'Transnational commercial law' is conceived as law which is not particular to or the product of any one legal system but represents a convergence of rules drawn from several legal systems or even, in the view of its more expansive exponents, a collection of rules which are entirely anational [sic] and have their force by virtue of international usage and its observance by the merchant community. In other words, it is the rules, not merely the actions or events, that cross national boundaries."

See also Roy Goode, Insularity or Leadership? The Role of the United Kingdom in the Harmonisation of Commercial Law, 50 INT'L & COMP. L.Q. 751 (2001).

2. The American Law Institute (ALI) and the International Institute for the Unification of Private Law (UNIDROIT) are working on drafting procedural rules that a country may adopt for the adjudication of disputes stemming from international commercial transactions.

3. See United Nations Convention on the Assignment of Receivables in International Trade, G.A. Res. 56/81, U.N. GAOR, 6th Comm., 56th Sess., Agenda Item 161, at 1, U.N. Doc. A/Res/56/81 (2002), available at <http://www.uncitral.org/stable/res5681-e.pdf> (last visited Mar. 27, 2004).

4. UNIDROIT is currently in the advanced stages of transmitting a draft Space Protocol to the Cape Town Convention of 2001.

5. See United Nations Commission on International Trade Law (UNCITRAL): Model Law on Cross-Border Insolvency, 1997.

6. See Ronald C.C. Cuming, The Internationalization of Secured Financing Law: The Spreading Influence of the Concepts UCC, Art 9 and its Progeny, in MAKING COMMERCIAL LAW: ESSAYS IN HONOR OF ROY GOODE 499 (Ross Cranston ed., 1997) (noting that "[s]ecured financing law has traditionally been viewed as an area which is ill suited to internationalization.").

7. Cf. American Law Institute (ALI) and UNIDROIT Working Group, Draft Principles of Transnational Civil Procedure with Comments (2003), available at <http://www.unidroit.org/english/procedure/study/76-10-e.pdf> (last visited Nov. 21, 2003). See also Harold Burman, Symposium, Ten Years of the United Nations Sales Convention: Building on the CISG: International Commercial Law Developments and Trends for the 2000's, 17 J.L. & COM. 355, 357 (1998) for a similar argument about insolvency law.

8. The Convention on International Interests in Mobile Equipment (2001) was signed by twenty-six nations as of June 2003.

9. Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary, 2002.

10. The International Institute for the Unification of Private Law is an inter-governmental agency with its headquarters in Rome, Italy.

11. The United Nations Commission on International Trade Law was formed to foster the progressive unification of trade law and is headquartered in Vienna, Austria. Its website is available at <http://www.uncitral.org/en-index.htm>.

12. Progressive Codification of the Law of International Trade: Note by the Secretariat of the International Institute for the Unification of Private Law (UNIDROIT),1 Y.B. UNCITRAL 285, U.N. Doc. A/CN.9/SER.A/1970.

13. Id. at 286. It stated that the first task was to prepare a draft for the general section containing the basic principles that would form the foundations and the framework of the unification effort. The Report called for a combined effort from all institutions such as UNIDROIT, UNCITRAL, and UNCTAD, and emphasized the compelling need for developing principles and rules of international contract law which could serve as a reference point for the construction of contracts and international conventions without recourse to domestic laws.

14. Jacob Ziegel, Harmonization of Private Laws in Federal Systems of Government: Canada, the USA, and Australia, in MAKING COMMERCIAL LAW: ESSAYS IN HONOUR OF ROY GOODE 133 (Ross Cranston ed., 1997).

15. David Leebron, Claims for Harmonization: A Theoretical Framework, 27 CAN. BUS. L.J. 63, 66 (1996). He also argues that "the term 'harmonization' is something of a misnomer insofar as it might be regarded as deriving from the musical notion of harmony, for it is difference, not sameness, that makes for musical harmony." Id. at 67.

16. American Law Institute (ALI)/UNIDROIT, Principles and Rules of Transactional Civil Procedure, Study LXXVI-Doc. 10, at 2 (Apr. 2003).

17. H. Patrick Glenn, Harmony of Laws in the Americas, 34 U. MIAMI INTER-AM. L. REV. 223, 246 (2003).

18. Stephen Zamora, NAFTA and the Harmonization of Domestic Legal Systems: The Side Effects of Free Trade, 12 ARIZ. J. INT'L & COMP. L. 401, 403 (1995). According to Professor Zamora's article, the harmonization of law in an "inter-jurisdictional and international transaction" context is "value neutral and cannot be justified in and of itself" Harmonization of any legal domain especially by "legislative reform requires specific justification as to the desirability of harmonization and model upon which it is based. The justification cannot be found in any attribute of harmonization." He recognized that due to the increasing contacts between citizens of different countries, the trend towards harmonization and accommodation of legal differences is likely to continue. Id. at 404-05 (quoting Martin Boodman, The Myth of Harmonization of Law, 39 Am. J. Comp. L. 669, 708 (1991)).

19. Id. at 405.

20. Martin Boodman, The Myth of Harmonization of Laws, 39 AM. J. COMP. L. 699, 707 (1991).

21. Roy Goode, Refection on the Harmonisation of Commercial Law, 9 UNIF. L. REV. 54 (1991).

22. Id.

23. Glenn, supra note 17, at 224. Daniel Berkowitz, Katrina Pistor & Jean-Franeois Richard, The Transplant Effect, 51 AM. J. COMP. L. 163, 173 (2003). The French pioneered the first comprehensive national civil, commercial and criminal codes between 1804 and 1811. The Napoleonic codes consolidated legislation operating before the French revolution and codified existing business practice in a systematic manner. Berkowitz points out that the other major codification of the nineteenth century was the German civil code which had been preceded by commercial, criminal, civil and criminal procedure codes.

24. Glenn, supra note 17, at 224.

25. Berkowitz, Pistor & Richard, supra note 23, at 173.

26. Rodolfo Sacco, One Hundred Years of Comparative Law, 75 TUL. L. REV. 1159, 1161 (2001).

27. Berkowitz, Pistor & Richard, supra note 23, at 174.

28. Legal systems that were well developed included Hindu law, Islamic law, and Chinese law.

29. It was only after the British government took over control from the East India Company in 1858 that the general jurisdiction of the common law was established. Courts were created with the Privy Council as the highest court of resort. English common law was also codified, which greatly accelerated the application of the common law to India and later to other parts of the empire.

30. Marc Ancel, From the Unification of Law to its Harmonization, 51 TUL. L. REV. 108, 114-16 (1976).

31. Id. at 109.

32. Id. at 110.

33. Paul Stephan, The Futility of Unification and Harmonization in International Commercial Law, 39 VA. J. INT'L L. 743, 746 (1999).

34. Id.

35. Id.

36. Id.

37. Leebron, supra note 15, at 75.

38. Communication on European Contract Law: Joint Response of the Commission on European Contract Law and Study Group on European Civil Code, available at <http://www.sgecc.net/media/download/stellungnahme_kommission_s final1.pdf> (last visited Mar. 19, 2004) [hereinafter Joint Response].

39. Id. at 113.

40. Id. at 111.

41. Id.

42. Id.

43. Id.

44. Id. "This difficulty in finding essential information about foreign law on a cost-effective basis creates the very real danger that participants in the European market will trade on the basis of false assumptions as to their legal position or be dissuaded from commercial activity because of the legal uncertainties involved." Id. at 13.

45. "The fact that substantially the same legal wine may be found indifferent shaped bottles as business activity moves from jurisdiction to jurisdiction is not enough to create the right environment for business in a continental market; apparent differences can be as damaging to confidence as real ones." Id. at 11.

46. Id. at 13.

47. Id. at 14.

48. Id. Although the authors did not undertake any empirical study to assess the magnitude of any of these costs, they felt that it was a safe assumption, supported by anecdotal evidence, that significant cost is incurred in these situations. Furthermore, they also believed that private international law does not ameliorate that problem. Id.

49. Id. The answer is simple -- the non-signatories can accede to the convention, or the EU as a whole can enter into the convention. The authors wanted a coordinated approach of the international policy of Member States in signing, ratifying and implementing international agreements unifying private law and thought that Member States should sign such conventions en bloc. Id. at 16. One example of this is article 3 of the Council Decision of February 19, 2002 authorizing Member States, in the interest of the Community, to sign or ratify the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001. This is an approach that has great merit and would be welcomed wholeheartedly by the harmonizing agencies also as it would increase the number of signatories.

50. Id. at 21.

51. Report of the UNCITRAL on the work of its thirty-fifth session, January 21, 2003, A/Res/57/17 available at <http://www.uncitral.org/en-index.htm> (last visited Mar. 27, 2004).

52. Glenn, supra note 17, at 242.

53. Id.

54. Id.

55. Id.

56. Id. at 242-43. According to Glenn, the process of "legislative transnationalization" can be aided by the creation of Model Laws. In his view, this would at least provide a unity at the starting point as states would only diverge for good reason. Id.

57. Farnsworth notes that smaller and poorer countries often are unable to field experts even for meetings. While this may be because these countries do not consider a particular harmonization endeavor to be of sufficient political significance to justify the costs involved in sending experts to meetings, it nevertheless indicates the disparity in distribution of expertise amongst nations. See Allan Farnsworth, Unification and Harmonization of Private Law, 27 CAN. BUS. L.J. 48, 59 (1996).

58. Terena Penteado Rodrigues, International Regulation of Interests in Aircraft: The Brazilian Reality and the Unidroit Proposal, 65 J. AIR L. & COM. 279, 281 (2000). One indicia of the growth in the aircraft sector can be seen by the fact that, over the next twenty years, Airbus Industrie and Boeing Company estimate a total delivery of 30,650 aircraft. See David Clancy & Gregory Voss, Facilitating Asset Based Financing and Leasing of Aircraft Equipment through the Proposed Unidroit Convention: Manufacturers' Perspective, 23 AIR & SPACE LAW 288 (1998).

59. Id.

60. In 1993, the European Bank for Reconstruction and Development published a Model Law on Secured Transactions, designed to be a guide for those states of Central and Eastern Europe that were interested in-modernizing their securities and financial laws. It was also meant to spur harmonization of the law among these states. In the words of its drafters, the principle which has guided the drafting of the Model has been to produce a text which is compatible with the civil law concepts which underlie many central and eastern European legal systems, and at the same time, to draw on common law systems which have developed many useful solutions to accommodate modern financing techniques.

An Introduction to the European Bank's Model Law on Secured Transactions, available at <http://www.ebrd.com/country/sector/law/st/modellaw/modlaw0.htm> (last visited Mar. 27, 2004).

61. Guillermo A. Moglia Claps & Julian B. McDonnell, Secured Credit and Insolvency Law in Argentina and the U.S.: Gaining Insight From a Comparative Perspective, 30 GA. J. INT'L. & COMP. L. 393, 398 (2002).

62. Id. at 398-99.

63. This could be explained by Professor Goode's view that

"[w]ithout an adequate legal regime for personal property security rights, it is almost impossible for a national economy to develop. Indeed, the World Bank considers the role of security so central in promoting economic growth that before making a loan to a developing country it will normally seek to establish to what extent a sound legal system for the creation and protection of security interests is or will be in place."

He notes the impetus as stemming from the growth of the private sector in countries that had a predominant public sector, with the resulting conversion of sovereign risk to enterprise risk, the gowth in asset-based financing of high value equipment, and the evolution of multinational syndicates to finance loans that are too large to be handled by the banks of any one country. Also significant are the fact that collateral extended by multinational companies may not be in just one country, the growth of securitization, and the globalization of securities markets. See generally Roy Goode, Security in Cross Border Transactions, 33 TEX. INT'L L.J. 47 (1998).

64. Hale E. Sheppard, Overcoming Apathetic Internationalism to Generate Hemispheric Benefits: Analysis of and Arguments for Recent Secured Transactions Laws in Mexico, 10 J. TRANSNAT'L L. & POL'Y 133 (2001); see also Boris Kozolchyk, What To Do About Mexico's Antiquated Secured Financing Law, 12 ARIZ. J. INT'L & COMP. L. 523, 526-28 (1995).

65. Todd C. Nelson, Receivables Financing to Mexican Borrowers: Perfection of Article 9 Security Interests in Cross-Border Accounts, 29 U. MIAMI INTER-AM. L. REV. 525, 546 (1998).

66. Sheppard, supra note 64, at 145-46.

67. Id.

68. Id.

69. Id. at 176.

70. Id.

71. Id.

72. UNCITRAL Draft Legislative Guide on Secured Transactions, Report of the Secretary General, A/CN.9/WG.VI/WP.9, available at <http://www.uncitral.org/en-index.htm> (last visited Mar. 27, 2004). UNCITRAL noted that deficiencies in the law in this area could have major negative effects on a country's economic and financial system, and observed that an effective and predictable legal framework had both short- and long-term macroeconomic benefits. In the short term, namely, when countries faced crises in their financial sector, an effective and predictable legal framework was necessary, in particular in terms of enforcement of financial claims, to assist the banks and other financial institutions in controlling the deterioration of their claims through quick enforcement mechanisms and to facilitate corporate restructuring by providing a vehicle that would create incentives for interim financing. In the longer term, a flexible and effective legal framework for security rights could serve as a useful tool to increase economic growth. Indeed, without access to affordable credit, economic growth, competitiveness and international trade could not be fostered, with enterprises being prevented from expanding to meet their full potential. Id.

73. Id. They cautioned, however, that "such laws needed to strike an appropriate balance in the treatment of privileged, secured and unsecured creditors so as to become acceptable to States." Id.

74. "The Council shall, acting unanimously on a proposal from the Commission ... issue directives for the approximation of such provisions laid down by law, regulation or administrative action in Member States as directly affecting the establishment or functioning of the common market." Treaty of Rome, art. 100, 1 C.M.L.R. 573, 633.

75. Ulrich Drobnig, Creating International Legislation for the Twenty-First Century: Unified Private Law for the European Internal Market, 106 DICK. L. REV. 101, 103 (2001).

76. Id. at 103. Drobnig writes that the "vast majority of private law instruments are focused on relatively small topics that ... have attracted the attention of the European legislature." He points out that "[e]xcept in the fields of corporations, consumer contracts and intellectual property, European private law is a patchwork of individual measures aimed at specific economic or social needs." Id. at 105.

77. Larry A. DiMatteo, Recent Development: Contract Talk: Reviewing the Historical and Practical Significance of the Principles of European Contract Law, 43 HARV.INT'L L.J, 569, 579 (2002).

78. Ole Lando, Optional or Mandatory Europeanization of Contract Law, 1 EUR. REV. PRIVATE L. 59, 59 (2000).

79. See generally Commission of the European Communities, Communication from the Commission to the European Parliament and the Council, A More Coherent European Contract Law: An Action Plan, COM 68 (2003), available at <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/com_2003_68_en.pdf> (last visited Mar. 27., 2004).

80. See generally Commission of the European Communities, Communication from the Commission to the Council and the European Parliament on European Contract Law, Consumers' Association response, COM 98 (2001), available at <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/comments/3.2.pdf> (last visited Mar.27,2004). The Europa website also contains the responses and comments from institutions and experts in Europe. The Communication, a response from the Consumers' Association, proposes four options for the future development of contract law in Europe: (1) leaving solutions to "the market," (2) developing "non-binding common contract law principles," in Restatement-like form, (3) improving and refining existingEuropeanlevel law, and (4) adopting a new code-like instrument at the European level.

81. Id.

82. Id.

83. Id. at 127.

84. Id. at 28. This was due to two reasons: (1) only the economically stronger party is in a position to impose its own familiar law; and, (2) the mere fact that there is an unknown law that could become applicable imposed prohibitive legal costs. See id. at, 27-30.

85. Id. at 134. One example concerned the diverging rules on representation of foreign companies and the consequences thereof for the validity and recognition of documents. Local legal advice had to be sought in order to ensure the validity of documents and thepower to bind another, clearly an avoidable cost for an everyday management act.

86. Id. at 35.

87. Id.

88. Id. at 42. In the case where the reservation of title also covers a claim for the purchase price which arises upon a resale of the goods sold by the buyer, such clause appeared to be effective only in France and Germany. In the case where it arose from products made from the sold goods, the clause according to respondents appeared to be effective only in Germany.

89. Id. at 43.

90. Id. at 45.

91. Id. at 144.

92. Id.

93. Id. at 46.

94. Id.

95. Id. at 47.

96. Id. at 59 n.33.

97. Id. at 57.

98. European Parliament Resolution on Action to Bring into Line the Private Law of the Member States, 1989 O.J. (C 158) 400.

99. See European Parliament Resolution on the Harmonization of Certain Sectors of the Private Law of the Member States, 1994 O.J. (C 205) 518.

100. See Stephen Weatherill, Can There be Common Interpretation of European Private Law?, 31 GA. J. INT'L & COMP. L. 139, 156 (2002).

101. Id.

102. Jurgen Basedow, Codification of Private Law in the European Union: The Making of a Hybrid, 9 BUR. REV. PRIVATE L. 35, 43 (2001).

103. The subsidiarity principle of Article 3 of the E.C. Treaty states that "in areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States." See George A. Bermann, Taking Subsidiarity Seriously: Federalism in the European Community and the United States, 94 COLUM. L. REV. 331, 346 (1994).

104. Id. at 35.

105. Ugo Mattei, The Issue of European Civil Codification and Legal Scholarship: Biases, Strategies and Developments, 21 HASTINGS INT'L &COMP. L. REV. 883, 892 (1998).

106. Christian V. Bar, From Principles to Codification: Prospects for European Private Law, 8 COLUM. J. EUR. L. 379, 385 (2002).

107. Id.

108. Ole Lando, Principles of European Contract Law and UNmROIT Principles: Moving from Harmonisation to Unification?, UNIF. L. REV. 2003-1/2,123-24.

109. Bar, supra note 106, at 385-86. Bar notes that the situation is entirely different from that of the United States, as there are multiple legal systems that work in different languages in Europe, and unlike in the U.S., it is not possible to build on a shared legal tradition. He cautions that Europe should prevent a repetition of the 19th century-type "national compartmentalization, solitary codification and splendid isolationism." While conceding that cultural issues are relevant, he appears to be a firm internationalist and romantically argues that it should be the culture of a truly European private law that must motivate harmonization. Id.

110. See Communication on European Contract Law: A position paper on behalf of the Law Reform Committee of the General Bar Council of England and Wales, available at <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/comments/4.14.pdf> (last visited Mar. 27, 2004). The paper suggested that concerns about cross-border trade being hampered by the existence of different systems of national contract law are often more imaginary than real. In the United States, the different states have different systems of private contract law. This has not hindered cross-border trade within the US. The reason why the difference in national contract laws are not a real impediment to inter-state trade (whether in the US or the EU) is because the parties to a cross-border transaction can currently stipulate for a choice of law clause to govern their relationship, and effect will generally be given to that choice of law clause.

Id. at 15-16.

111. Ole Lando, The Common Core of European Private Law and the Principles of European Contract Law, 21 HASTINGS INT'L & COMP. L. REV. 809, 810 (1998).

112. Id.

113. Mattei, supra note 105, at 889. Mattei thinks that the problem with both the UNIDROIT Principles and the PECL is that they offer restatements without having thoroughly looked at the basic question that must be approached by every restatement -- i.e., whether there is something common to be restated and what it is. Id.

114. Michael J. Bonell, The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purposes?, 26 UNIF. L. REV. 229, 238 (1996). The CISG applies only to the commercial sale of goods. UNIDROIT Principles apply to all forms of contracts, including sale of goods and service contracts, but are also limited to commercial transactions, In contrast, the PECL not only applies to all forms of contracts, but also applies to both commercial and consumer contracts.

115. DiMatteo, supra note 77, at 576.

116. Id.

117. Id. at 577. Arbitration of Andersen v. Andersen, 10 Am. Rev. Int'l Arb. 451 (1999).

118. DiMatteo, supra note 77, at 577.

119. DiMatteo goes even further to point out another layer to this issue. According to him, these "best solutions" must also form part of the coherent whole. Accordingly: "the adopted or formulated solution needs to satisfy a two-step approval process. First, the best rule has to be chosen, whether it is transplanted from a particular national law, melded from various national approaches, or is a purely anational [sic] creation. Second, the rule needs to fit into the overarching framework of the code; best solution or not, it has to support the unified whole." Id. at 578.

120. Bar, supra note 106, at 386-87. Bar points out that the problem of finances is one which confronts the Study Group. According to him, the coordinating group is reaching the limits of its ability to carry on its work. He believes that a long term solution might be to create a European Law Institute and a European. Law Academy.

121. Mauro Bussani & Ugo Mattei, The Common Core Approach to European Private Law, 3 COLUM. J. EUR. L. 339, 340-42 (1998).

122. Id. at 347 (noting that "[t]he fundamental characteristic of the common core research is that it analyzes the existing situation without trying in anywayto force uniform solutions; its purpose is to provide with the highest degree of precision a map of the relevant elements of different legal systems.").

123. Id. at 341.

124. Id. at 343 (noting that "it focuses on all European legal systems, de-emphasizing (as does the other project) the ones that are or could be considered leading or paradigmatic.").

125. Bussani and Mattei seem to disavow this purpose as a "policy implication" beyond the scope of the common core project, which according to them is merely information gathering. See id. at 347.

126. Mattei, supra note 105, at 899.

127. Id. at 900.

128. Id. at 901. Mattei contends that in addition it would stimulate the development of a common methodology.

129. Id. at 902.

130. Klaus Peter Berger, The New Law Merchant and the Global Market: A 21st Century View of Transactional Commercial Law, INT'L ARB. L. REV. 3(4), 97 (2000). The list, together with comprehensive references from arbitral case law, international uniform law, doctrine and domestic statutes will be available as an online database in early 2001.

131. H. Patrick Glenn, The Morris Lecture: Conflicting Laws in a Common Market? The NAFTA Experiment, 76 CHI.-KENT. L. REV. 1789, 1792 (2001).

132. Id. at 1797.

133. Id.

134. Id. at 1798.

135. Id.

136. Professor Glenn goes as far as to say that "the American experience stands for the proposition, however, that a successful free trade association does not, in principle, require any formal measures of private law harmonization whatsoever." Glenn, supra note 17, at 232.

137. Glenn, supra note 131, at 1799.

138. Glenn, supra note 17, at 231.

139. Glenn, supra note 131, at 1805-06. He gives the example of Mexico, has which accepted the principle of party autonomy in amendments to the Federal Civil Code in 1988. Id.

140. Id. at 1811.

141. Glenn, supra note 17, at 243-44. He gives the example of a practice of transnational judicial collaboration which has developed in the NAFTA region in international bankruptcy cases, as a result of which joint judicial protocols and even joint, teleconferenced judicial hearings are undertaken. Glenn calls for the encouragement of such practices in a broader range of cases wherever parallel proceedings are present or likely, noting that the judicial contribution to informal harmonization is possible if the UNIDROIT Principles and Rules of Transnational Procedure are voluntarily adopted in cases of transnational litigation, or used as a suppletive source of "generally recognized standards of civil justice." Id. at 242-44. See also A.M. Garro, On Some Practical Implications of the Diversity of Legal Cultures for Lawyering in the Americas, 64 REV. JUR. U.P.R. 461, 476 (1995) (asserting that an independent, powerful, and effective administration of justice is crucial to foster serious expectations of free trade and sustained economic development in the Americas).

142. Raul Etcheverry, International Academy of Commercial and Consumer Law: Joint Ventures in South American Integration, 107 DICK. L. REV. 101, 113 (2002).

143. Id.

144. Zamora, supra note 18, at 406.

145. Id.

146. See Carlos Vazquez & Joao Rodas, Introduction to CIDIP-VII, available at <http://www.oas.org/main/main.asp?sLang=E&sLink=../../documents/eng/oasinbrief.asp> (last visited Mar. 27, 2004).

147. See id. (noting that "[b]ecause there are fewer legal systems at the regional level than at the global level, and because the legal systems within any given region are less diverse, it may be possible to tackle a problem in greater depth at the regional level than at the global level.").

148. Jurgen Basedow, Worldwide Harmonisation of Private Law and Regional Economic Integration-General Report, UNIF. L. REV. 2003-1/2, 31, 35.

149. See Vazquez & Rodas, supra note 146 (noting that "some respondents indicated that duplication of effort is not a problem because competition between regional and global entities engaged in the same activity is more likely to produce a better end product. See, e.g., Response of Gamboa Bernante, at 8. While this maybe true in other contexts, however, in the field of harmonization of laws, the production of multiple products is counterproductive. See, e.g., Response of Nathalie Sutter of UNIDROIT, at 1 (stating that "[d]uplication of work should certainly be avoided.")).

150. See Part I.

151. As the response submitted by the Society of Public Teachers of Law in Great Britain and Northern Ireland (SPTL) states:

"commentators on legal harmonization have observed that rigid harmonization measures, such as international treaties, are often inappropriate. Preparation of such instruments tends to be a long process, involving, as it does, a search for common principles and the reconciliation of established principles from different legal systems and traditions. Moreover, treaties and similar instruments have been criticized as tending to be over rigid, lacking the flexibility to accommodate changing commercial practices and respond to new problems. The United Nations' Vienna Convention on Contracts for the Sale of Goods offers a prime example, having taken over ten years to prepare."

Response submitted on behalf of the Society of Public Teachers of Law in Great Britian and Northern Ireland (SPTL) to the Communication from the European Commission on European Contract Law, at 15, available at <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/comments/5.21.pdf> (last visited Mar. 27, 2004) [hereinafter SPTL Response]. They also state that the CISG is "uncertain." Id.

152. UNIDROIT Convention relating to a Uniform Law on the International Sale of Goods (ULIS), July 1, 1964, available at <http://www:unidroit.org/english/implement/i-64ulis.htm> (last visited Mar. 27, 2004). Ratifications include the United Kingdom, San Marino, Belgium, Israel, Netherlands, Italy, Federal Republic of Germany, Luxembourg, and one accession, Gambia. The Convention has been denounced since by Italy, the Federal Republic of Germany, the Netherlands, Belgium, Luxembourg and Israel.

153. Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULFIS), July 1, 1964, available at <http://www.unidroit.org/english/implement/i-64ulf.htm> (last visited Mar. 27, 2004). The ULFIS has been denounced by the same countries as the ULIS.

154. International Convention on Travel Contracts, Apr. 23, 1970, available at <http://www.unidroit.org/english/implement/i-70.htm> (last visited Mar. 27, 2004). The treaty has been ratified by Belgium, Togo, and Italy. Belgium denounced the treaty in 1994.

155. Id. The accessions include Benin, Cameroon, and Argentina.

156. Convention providing a Uniform Law on the Form of an International Will, Oct. 26, 1973, available at, <http://www.unidroit.org/english/implement/i-73.htm> (last visited Mar. 27, 2004). Ecuador, Belgium, and France have ratified the treaty.

157. Id. The accessions include Niger, Portugal, Canada, Libya, Yugoslavia, Cyprus, Italy, Slovenia, and Bosnia.

158. Convention on Agency in the International Sale of Goods, Feb. 17, 1983, available at <http://www.unidroit.org/english/implement/i-83.htm> (last visited Mar. 27, 2004). Italy and France have ratified the treaty.

159. Id. South Africa, Mexico, and the Netherlands have acceded to the treaty.

160. UNIDROIT Convention on International Financial Leasing, May 28,1988, available at <http://www.unidroit.org/english/implement/i-88-1.htm> (last visited Mar. 27, 2004). France, Italy, Nigeria, and Panama have ratified the treaty.

161. Id. Hungary, Latvia, Russia, Belarus, and Uzbekistan have acceded to the treaty.

162. UNIDROIT Convention on International Factoring, May 28, 1988, available at <http://www.unidroit.org/english/implement/i-88-f.htm> (last visited Mar. 27, 2004). France, Italy, Nigeria, and Germany have ratified the treaty.

163. Id. Hungary and Latvia have acceded to the treaty.

164. UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects, June 24, 1995, available at <http://www.unidroit.org/english/implemerit/i-95.htm> (last visited Mar. 27, 2,004). Lithuania, Paraguay, Romania, Peru, Hungary, Bolivia, Finland, Italy, Croatia, Cambodia, and Portugal have ratified the treaty.

165. Id. China, Ecuador, Brazil, El Salvador, Argentina, Norway, Spain, Azerbajan, Slovakia, and Guatemala have acceded to the treaty.

166. Convention on International Interests in Mobile Equipment, Nov. 16, 2001, available at <http://www.unidroit.org/english/implement/i-2001-convention.htm> (last visited Mar. 27, 2004). Panama, Ethiopia, and Nigeria have ratified the treaty.

167. Convention on the Law Applicable to Contracts for the International Sale of Goods, Dec. 22, 1986, available at <http://www.hcch.net/e/status/stat3le.html> (last visited Mar. 27, 2004).

168. Convention on the Law Applicable to Trusts and on Their Recognition, July 1, 1985, available at <http://www.hcch.net/e/status/stat30e.html> (last visited Mar. 27, 2004).

169. Convention on the LawApplicabletoAgency, Mar. 14,1978, available at <http://www.hcch.net/e/status/stat27e.html> (last visited Mar. 27, 2004). Argentina, France, Netherlands, and Portugal have ratified the treaty, with the last of the ratifications going as far back as 1992.

170. Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, Feb. 1, 1971, available at <http://www.hcch.net/e/status/stat16e.html> (last visited Mar. 27, 2004). Kuwait acceded to the convention in December 2002.

171. Convention on the Civil Aspects of International Child Abduction, Oct. 25, 1980, available at <http://www.hech.net/e/status/abdshte.html> (last visited Mar. 27, 2004). The treaty has been ratified by Argentina, Australia, Austria, Belgium, Bosnia, Canada, Hong Kong, Macau, Croatia, Czech Republic, Denmark, Finland, Macedonia, France, Germany, Greece, Ireland, Israel, Italy, Luxembourg, Netherlands, Norway, Portugal, Serbia, Spain, Slovakia, Sweden, Switzerland, Turkey, United Kingdom, United States, and Venezuela.

172. Convention on Protection of Children and Cooperation in Respect of Intercountry Adoption, May 29, 1993, available at <http://www.hcch.net/e/status/adoshte.html> (last visited Mar. 27, 2004). The treaty has been ratified by Mexico, Romania, Sri Lanka, Cyprus, Poland, Spain, Ecuador, Peru, Costa Rica, Burkina Faso, Philippines, Canada, Venezuela, Finland, Sweden, Denmark, Norway, Netherlands, France, Colombia, Australia, El Salvador, Israel, Brazil, Austria, Chile; Panama, Italy, Czech Republic, Albania, Slovakia, Germany, Slovenia, Bolivia, Bulgaria, Latvia, Luxembourg, Switzerland, United Kingdom, India, Belarus, Uruguay, and Portugal.

173. See <http://www.uncitral.org/en-index.htm> (last visited Feb. 16, 2004) (provides a full list of ratifying countries).

174. Id.

175. Id.

176. Id.

177. See SPTL Response, supra note 15.1. The response further states that the UNIDROIT Principles could form the basis of a legal "restatement" of contract principles to which contracting parties could subscribe on a voluntary basis on a European level. According to them, an English court would give effect to a contractual agreement to apply the UNIDROIT Principles in place of the general rules of English law. Id. at 20.

178. The Joint Response notes the need for comparative law research and categorically asserts that it would not suffice to start off with one national law and make changes to it. In their own words, they "aim not to adopt the lowest common denominator, but rather to suggest the best solution to the most important issues." Joint Response, supra note 38, at 62.

179. UNIDROIT, Principles of International Commercial Contracts, Introduction, vii (1994), available at <http://www.unidroit.org/english/principles/fulltext.pdf> (last visited Mar. 27, 2004).

180. See Joint Response, supra note 38, at 161 (noting that "[t]he preparation of a restatement of European private law is an indispensable foundation for further European legal integration.").

181. Id.

182. See ICC Comments on the "Communication from the European Commission to the Council and the European Parliament on European Contract Law COM (2001) 398 Final," available at <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/comments/2.5.2.pdf> (last (last visited Mar. 27, 2004).

"Although ICC would like to express concerns as to whether non-binding principles are sufficient, it would like to also emphasize the importance that such principles are an effective first step towards harmonization. Important attempts already exist, such as the UNIDROIT Principles of International Commercial Transactions, which are increasingly referred to in international contracts and in arbitration. Another example is the Principles of European Contract Law, which ICC considers could serve as an excellent starting point for the harmonization of European contract law."

183. See Communication from the Commission to the Council and the European Parliament on European Contract Law, Response of COMBAR, available at <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/comments/4.4.pdf> (last visited Mar. 27, 2004)

"In our view, the work of the Commission on European Contract Law, and the Study Group on a European Civil Code is valuable, and should be supported. A 'Restatement' of contract law, which is what we would expect to be the end result, though not in itself binding, may be expected to 'harden' into law, for example, by influencing the judicial process. At the least, where a provision of national contract law diverges from those as stated in principles, courts may be encouraged to consider whether such divergence is in fact justified by reference to conditions obtaining in the country concerned."

Id. at 110.

184. See Joint Response, supra note 38, at 74.

185. Id. at 96.

186. Id. at 71. The Joint Response further argues that

"[i]t would provide a neutral body of law which as a composite would be equidistant from the parties' own legal systems and yet have roots in both of them and with its dispositive and mandatory rules fundamentally reflect the same economic, liberal and social values underpinning all the national legal systems in the EU."
Id.

187. Opinion of the Economic and Social Committee on the Communication from the Commission to the Council and the European Parliament on European Contract Law, 1.4, available at <http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/c_241/c_24120021007en00010007.pdf> (last visited Mar. 27, 2004).

188. Roy Goode, Communication on European Contract Law, Professor Goode's Response to the European Commission's Communication on a European Civil Code. Professor Goode notes that the UNIDROIT Principles have been "widely applied by arbitral tribunals, and even by some courts, and have influenced national legislation in a number of countries." Id.

189. See generally Unilex on CISG & Unidroit Principles International Case Law & Bibliography, available at <http://www.unilex.info/> The Unilex database contains hundreds of articles and books which discuss the UNIDROIT Principles, and it would take a few pages to even provide a snapshot view here.

190. Id. The Unilex database contains sixty articles by Bonell alone!

191. The members of the working group (part II) included Bonell (UNIDROIT), Baptista (Brazil), Crepeau (Canada), Date Bah (Ghana), Di Majo (Italy), El Kholy (Egypt), Farnsworth (United States), Finn (Australia), Fontaine (Belgium), Furmston (U.K), Hartkamp (Netherlands), Huang (China), Jauffret Spinosi (France), Komarov (Russia), Lando (Denmark), Schlechtriem (Germany), and Uchida (Japan).

192. Gesa Baron, Do the UNIDROIT Principles of International Commercial Contracts Form a New Lex Mercatoria? (June 1998) (essay submission, Pace University), available at <http://www.cisg.law.pace.edu/cisg/biblio/baron.html> (last visited Mar. 27, 2004).

193. Michael Joachim Bonell, AN INTERNATIONAL RESTATEMENT OF CONTRACT LAW 236 et seq. (2d ed. 1997).

194. Mark Williams,An Introduction to General Principles and Formation of Contracts in the New Chinese Contract Law, 17 J. CONTRACT L. 13 (2001).

195. Arthur Rosett, The UNIDROIT Principles of International Commercial Contracts: A New Approach to International Commercial Contracts, 46 AM. J. COMP. L. 347, 347 (1998).

196. Id. at 347-48.

197. Case 9593, ICC Int'l Ct. Arb., Paris, 12/1998, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004).

198. Case 7110, ICC Int'l Ct. Arb., Paris, 04/1998, 10:2 ICC Int'l Ct. Arb. Bull. 39, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13618&x=1> (last visited Mar. 27, 2004).

199. Id.

200. Michael Joachim Bonell, The UNIDROIT Principles as a Means of Interpreting and Supplementing International Uniform Law, ICC INT'L CT. ARB. BULL. 29, 29 (2002).

201. Preamble (Purpose of the Principles):

"These Principles set forth general rules for international commercial contracts.

They shall be applied when the parties have agreed that their contract be governed by them.

They may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like.

They may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law.

They may be used to interpret or supplement international uniform law instruments.

They may serve as a model for national and international legislators."

202. Bonell, supra note 200. He contrasts this situation with the role of the UNIDROIT Principles to assist in interpreting and supplementing international conventions, which was contemplated by the drafters. Such a view is also espoused by Professor Rosett. See Rosett, supra note 195, at 354.

203. BONELL, supra note 200.

204. Ad hoc Arb., Paris, 21/04/1997, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1 (last visited Mar. 27, 2004). In giving its verdict, the arbitral Tribunal referred to Arts. 3.12 and 4.3(c) of the UNIDROIT Principles.

205. Case A-1795/51,Camera Arbitrale Nazionale ed Internazionale di Milano, 1/12/1996, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004).

206. Arb. Ct. of the Lausanne Chamber of Commerce and Indus., 25/01/2002, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27,2004). The arbitral tribunal was helped in its decision by the fact that the application of the UNIDROIT Principles did not offend mandatory rules in Switzerland, Belgium or Spain. Further, as the products in question in the case should have been marketed in many countries, the tribunal found it reasonable to apply the UNIDROIT Principles rather than a specific domestic law.

207. Arb. Ct. of Lausanne Chamber of Commerce and Indus., 17/05/2002, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004). In the final award, the arbitral tribunal referred to Arts. 7.4.2 and 7.4.7 of the Principles in order to justify a reduction of the compensable harm, as part of the harm was due to the conduct of the aggrieved party. It also used Arts. 7.4.9 (2) and 7.4.10 to grant interest on the amount due.

208. Anderson Consulting Bus. v. Arthur Anderson Bus., Case 9797, ICC Int'l Ct. Arb., Geneva, 28/07/2000, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004).

209. Case 11/2002, Int'l Arb. Ct. at the Chamber of Commerce and Indus. of the Russian Federation, 05/11/2002, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004). Professor Rosett is one believer in this argument: "The Principles are said to be a Restatement of international commercial law and what is being restated is the lex mercatoria. The UNIDROIT Principles thus provide substance to international practice as a source of law; they give content to the claimed existence of a Lex Mercatoria." See Rosett, supra note 195, at 354.

210. Berger, supra note 130, at 3(5), 145-56.

211. Martijn W. Hesselink, The PECL: Some Choices Made by the Lando Commission, 1 GLOBAL JURIST FRONTIERS, No. 1, at 8 (2001), available at <http://www.bepress.com/gj/frontiers/vol1/iss1/art4/> (last visited Mar. 27, 2004). Hesselink notes that Professors Joachim Bonell, Ulrich Drobnig, Arthur Hartkamp, Ole Lando, and Denis Tallon were members of both Commissions.

212. Article 7.4.9 (Interest for failure to pay money)

"(1) If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non- payment is excused.

(2) The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment.

(3) The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm."

213. Case 8128, ICC Int'l Ct. Arb., Basle, 1995, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004). The facts showed that a Swiss buyer entered into a contract with an Austrian seller for the supply of chemical fertilizer in order to fulfill a contract with a third party. The seller had a contract with an Ukrainian supplier to obtain part of the fertilizer. The buyer sent the Ukrainian supplier sacks that it had manufactured under the seller's instructions to be used for delivery. These sacks did not conform with the technical rules of the Ukrainian chemical industry, and the supplier could not make use of them, leading to the goods not being delivered within the time fixed in the contract. The buyer wanted to avoid the contract in respect of goods not delivered and asked the seller when it expected to deliver. The seller's reply was not satisfactory and the buyer had to make a substitute purchase at a higher price to be able to perform the contract with the third party. The buyer commenced arbitral proceedings demanding damages, including the cost of the sacks it had supplied as well as the loss deriving from the substitute purchase.

214. Case 9474, ICC Int'l Ct. Arb., Paris, 2/1999, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004).

215. Case 10022, ICC Int'l Ct. Arb., 10/2000, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004).

216. GEC Marconi Systems Pty. Ltd. v. BHP Info. Tech. Pry. Ltd., Case NG733 of 1997, Fed. Ct. Austl., 12/02/2003, available at <http://www.unilex.info/dynasite.cfn?dssid=2377&dsmid=13621&x=1> (last visited Mar. 27, 2004).

217. Id. The court referred to Article 1.7 of the UNIDROIT Principles and Article 1:201 of the PECL.

218. Id.

219. Jurgen Basedow, supra note 148, at 43.

220. Id. Bazinas writes that UNCITRAL has not provided for its conventions to be ratified by regional organizations. See Spiros Bazinas, Harmonisation of International and Regional Trade Law: The UNCITRAL Experience, UNIF. L. REV. 2003-1/2, 53, 62.

221. Id.

222. Id. at 44. See Spiros Bazinas, supra note 220, at 56 (pointing out that UNCITRAL adopts a "catholic" approach to participation and that observers can participate on the same footing as member states in the decision making processes of that body).

223. Id.


Pace Law School Institute of International Commercial Law - Last updated July 30, 2004
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