Recent scholarship on international agreement design has almost exclusively focused on the public international law area. (1) The literature on regime design in the area of international private law (2) lacks a solid theoretical foundation. Academic writing on public international law's state-centric approach is only amenable to crude transplantation and poses several puzzles in the international private law context. Resolving these puzzles is important because of the proliferafion of transnational commercial agreements in areas that were traditionally the province of domestic law. (3) This paper attempts to provide a starting point to address this theoretical vacuum. Part II argues that functionalist, liberal, and realist theories cannot fully explain transnational commercial law agreement design. Part III puts forth a demandeur-centric approach with the aid of examples that span the spectrum from hard law to sort law. Part IV concludes that agreement design in transnational commercial law is premised on demandeur preferences and relative power. Ultimately, the choice of structure boils down to which parties are the demandeurs of the agreement. (4) All else being equal, when the demandeurs are confident in their ability to achieve agreement, and enforcement requires minimal state involvement, they will opt for non-convention vehicles. (5) The choice of the convention form is predicated on their ability to co-opt states, when enforcement power is necessary.
THE INAPPROPRIATENESS OF THE PUBLIC INTERNATIONAL LAW LENS
Institutions in the private law area traditionally favored international conventions, assuming that because international conventions are binding, they are the strongest vehicle available. (6) The use of conventions has been intrinsically linked to an emphasis on the binding quality of the obligations. In contrast, non-convention vehicles have been employed when the progenitors did not intend the agreement to be legally binding. (7) Non-convention vehicles have also been chosen when there was little need for state involvement. (8)
Accordingly, the scholarly literature has inextricably linked conventions as vehicles of international legislation with the question of compliance. (9) While this focus may make sense in the public international law context, compliance has very little meaning in the private law area because many so-called binding conventions are dispositive. (10) Dispositive means that an actor's subsequent actions can render a convention non-binding. Parties are free to exclude the binding convention entirely or in part. Thus, while the traditional international law scholar would have concluded that the choice of a convention would enhance the "normative strength of the agreement and ... a state's sense of obligation," (11) reality does not support such a conclusion.
For example, the Vienna Convention on Contracts for the International Sale of Goods (CISG) has been the law of the United States since 1988. (12) Yet, it has had very little impact because most international contracts routinely exclude the convention's application. (13) The conventional explanation advanced for failed binding conventions, that states violate agreements when their interests conflict with the obligations embodied in the agreement, has no explanatory power for the failure of the CISG; few state interests of the United States conflict with CISG obligations, and the state plays little role in the 'success of such conventions. One might argue, however, that the United States has an interest in preserving the application of its own law to international contracts that would be subjected to the CISG, and that interest would conflict with the interest to ratify the CISG. This argument overlooks the role of party choice. Even if the United States has an interest in the application of its own domestic contracts law, there is no guarantee that its forbearance from ratifying the CISG would ensure that its domestic law would be applied to international contracts. The matter tests entirely in the hands of the contracting parties. Subject to minor limitations they are free to choose the law that governs their contracts, and they are not bound to apply the law of the United States. Contractual choice, which is common across transnational commercial law, renders extremely problematic the applicability of conventional arguments from the field of public international law. (14)
The application of rational choice theory to contracting parties, rather than states, explains why conventions succeed or fail. If the convention is precise in its terms on the ambits of cooperative action, contracting parties will find it hard to behave opportunistically and then turn around and claim that the opportunistic conduct did not violate the requirements of a cooperative game. (15) The conclusion is similar in the context of coordination. Contracting parties subject themselves to a convention not because of its binding nature, but inter alia to assuage another party's fear of being subject to a foreign legal system, because their interests might be better protected by the convention, and to reduce transaction costs. The binding nature does not add much value to either party, except insofar as it imposes some obligations on courts if a dispute arises. (16) Routine exclusions of instruments like the CISG might be explained by path dependence (17) and network externalities. Thus, although the CISG might be a better solution, a suboptimal uniformity continues to persist because contracting parties are reluctant to change their existing practices. (18)
Public international law scholars argue that when structuring international agreements, states seek to enhance the credibility and enforceability of their agreements. (19) These scholars analogize states to private contracting parties: states structure their agreements as contracts because they desire to make their promises binding. Thus compliance is crucial. (20) This compliance is ensured by providing mechanisms that measure adherence and deviation. The conventional view argues that, unlike private parties in the contractual context, states do not pay damages for breaches of contract, but rather surfer reputational sanctions. (21) The private contract analogy crumbles because of the absence of symmetry between the breaching party's sanction and the non-breaching party's loss.
Despite this problem, scholars have focused extensively on monitoring mechanisms, sanctions, and sanction inflicting bodies. They have assumed that the dominant players are rational states who act to maximize contractual surplus. (22) In structuring international agreements, states are most concerned about the impact that the agreement will have in changing state conduct. It is this concern about impact that will influence whether a state chooses hard or soft law. If states desire to have low impact, then they are more likely to choose sort law. Conversely, if they desire a high impact, then they will elect hard law. However, the correlation between impact and form of several international agreements is not positive. (23)
The structuring of transnational commercial law agreements runs contrary to the assumptions of public international law scholars. To begin with, states are not the dominant actors in transnational commercial law. Even when states are significant actors, they worry less about compliance and monitoring than public international law scholars would admit. Indeed, most transnational commercial law conventions have no monitoring mechanisms whatsoever, and do not have unified dispute resolution mechanisms or tribunals. If states were interested in compliance, why would they desist from creating such mechanisms? The CISG's drafters, for example, could have provided for the constitution of an international tribunal for the disposition of CISG cases. However, the drafters left the task of dispute resolution to domestic courts. Three current theories attempt to explain regime design: functionalism, liberalism, and realism.
Scholars in the functionalist tradition have argued that drafters choose form based on desired results. (24) Thus, drafters choose soft law because of its greater flexibility, conduciveness to incrementalism, non-state party participation, and lack of need for ratification. (25) Some scholars assume that hard law impacts state behavior more than soft law. (26) States prefer soft law when uncertainty is high, states' interests diverge greatly, informational costs are low, and, consequently, reputational sanctions are low. (27) Soft law also offers flexibility, which is valuable in areas where states are strongly wedded to their preferences. For example, Abbott and Snidal argue that states choose soft law as a "way station" to hard law; it is preferred when the subject challenges state sovereignty. (28)
Functionalists argue that legalization is a means to increase the credibility of state commitments. States choose hard law when there are low domestic political costs, they desire to bind successive governments, and they need to modify the practices of their residents. (29) Legalization enhances credibility by limiting "self-serving auto-interpretation." (30) In the international system, the consequences of bad conduct within a particular convention or treaty regime can have negative consequences for the bad actor in other areas. (31) "Auto-interpretation" is limited by arbitral tribunals interpreting and applying hard-legal commitments, which is one reason to create or designate institutions that have the authority to bind the parties. (32) Abbott and Snidal espouse a narrow role for tribunals, to only apply and interpret hard law. This does not account for the ability of these tribunals to apply soft law. The tremendous success of soft law agreements like the UNIDROIT Principles and the Principles of European Contract Law (PECL) is attributable to their...
A demandeur-centric approach to regime design in transnational commercial law.
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COPYRIGHT GALE, Cengage Learning. All rights reserved.
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