Harmonization of International Commercial Law
ID NO€¦€¦€¦€¦…: 21296864
MODULE€¦€¦€¦.: International Commercial Law
COURSE€¦€¦€¦..: International Business and Commercial Law
LECTURER€¦€¦.: Yarik Kryvoi
The international commercial law has grown and modified in twentieth century. Technological advances made international transactions easy and more efficient for the merchants to buy and sale across state borders. The move towards globalization comes with it several problems both for lawyers and legal systems. Outdated legal rules are obstacle to economic growth and technological development. Due to the economic demands there has always been a heavy tendency in international commercial law to uniform and harmonise. This assessment focuses on discussing the methods to achieve harmonization of international commercial law and the reasons of many areas of commercial law remain unharmonised.
Harmonisation, is a process which may result in unification of law subject to a number of (often utopian) conditions being fulfilled, such as, for example, wide or universal geographical acceptance of harmonising instruments, and with wide scope of harmonising instruments which effectively substitute all pre-existing law. Harmonising instruments have two objectives. The first purpose is unification of law and the second purpose is creating a law reform when the current law unable to deal with developing commercial practices.
The harmonisation of commercial law is considered a key factor in reducing the cost of doing business as it provides the certainty and predictability for the parties of a contract in international transactions.
Methods of Harmonisation
A considerable number of methods came out to achieve these goals. These methods are; legislative (conventions, model laws and model legislative or treaty provisions), explanatory (legislative guides and legal guides for use in legal practice), and contractual (standard contract clauses and rules)
International Treaties or Convention
International treaties or conventions are binding forces and will be applied directly but they are not effective unless it ratified by the nations. Treaties or conventions which represents hard law methods of harmonisation are the primary instruments. They usually embody a uniform law. Due to the international treaty reservations the degree of the uniformity decrease. Interpretation differences or mistakes may be dangerous for the uniformity of international conventions. The rules of international convention would classify the law applicable to the controversy, and the judge would make the selection of the applicable law of the jurisdiction which is highly foreseeable, fair and adequate.
Conventions provide certainty of law, flexibility and adaptability however, there are some arguments against conventions. Individual nations do not intent to negotiate conventions as an equal partners. Because of this sovereignty problem may arise in the context of international commercial regulations. The negotiation and drafting process of international conventions are slowly and expensive process. Worldwide impact of conventions on domestic law reform appears to be less important impact than model laws or other soft law instruments. It is assumed that conventions decrease the competition between legal systems and regulatory arrangements.
Conventions are specific and fragmentary in character. They lack coherence and consistency. Delays in ratification of the convention means it may take for a long time before the convention comes into force. They still don’t have ability to react changing circumstances. They may create issues about their scope. The subject of the courts are interpretation of the statutory law and there is no guarantee that harmonised law will be interpreted in harmonised manner. International conventions are hard to amend in instances requiring a place to economic change or progress of technology or practice. Rigidity of the conventions during the treaty making process and their lack of flexibility discourages nations from implementing to international conventions. They announce uncertainty that no uncertainty existed before.
Some examples of harmonising conventions are Vienna Convention on Contracts for the International Sale of Goods , the Geneva Convention on Agency in the International Sale of Goods, UN Convention on International Bills of Exchange and International Promissory Notes, the Cape Town Convention on International Interests in Mobile Equipment.
Model laws are more flexible than treaties and have no legal force, so they have soft law character. Soft law, policy declarations, guidelines or codes of conduct that set standard of conduct and not directly enforceable. Therefore, they are advisory. Domestic legislation changed for international trade to provide solutions for the international transactions. The model laws are facultative harmonising instrument which are not legally operative. With or without amendment individual nations may adopt model laws entirely or partly. However, with respect to unification their use is limited as adopting countries are under no obligation either to apply the law or accept it without variation. Furthermore, model laws mainly benefit t those countries whose law is underdeveloped in the area covered by the model law.
Modern Laws are more appropriate for the unification and modernization of national laws. Flexibility of the modern laws makes them easier to negotiate than a text containing obligations can not be changed.
UNCITRAL Model Law on International Commercial Arbitration is a good example for model law. Large amount of jurisdiction have adopted it. In the modern global environment it is very powerful motivation for harmonization. Especially, for the developing countries which are moving from mixed or planned economies to a free market economy. Another successful instance in the area of international commercial law is the Model Law on Cross-Border Insolvency.
Legislative Guides or Legal Guides
They have soft law character. They can be very detailed but their effect is limited because of their non-binding nature. Governments and legislators are the users of legislative guides. Legislative guides are ideally suited to an organization like UNIDROIT. When it is not achievable or essential to develop set of rules, legislative guides may be an alternative for giving explanations in respect of contract drafting.
International Business Practice Guides
International business practice guides are addressed at professional and trade associations.
Generally, guides are educational practices that discusses technical, economic and real background of legal problems. Also they explain and find available solutions for the legal concepts and concludes by making recommendations.
International Trade Terms
International trade terms promulgated by non-governmental organization. If they incorporated into a contract they can have the force of law. INCOTERMS rules codifying custom and usage such as the ICC’s Uniform Custom and Practice for Documentary Credits. This is, obviously, a reference to “codifications” and restatements by international scholars and practitioners such as UPICC and PECL.
Its addresses and potential users are not only contract drafters, but national and international legislators, arbitral tribunals and courts as well.
Restatements of contract law promulgated by scholars and experts. They are advisory and they have soft law character.
Principle of European Contract Law (PECL)
Principles of European Contract Law (PECL) was published by the Lando Commission in 1995. This commission consisted on European contract law academics. It aims to produce European Commercial Code. Principles are more limited in scope and they don’t have legal force. However, contracting parties may agree to give their contracts binding effect about their contract subject. Many countries followed their instructions as a model law reform project and parties to a contract chose them to govern their contract. They contributed a key role to the development of European Contract Law.
Unidroit Principles of International Commercial Contracts (UPICC)
UPICC represents the legislative codification of restatement of a law of international commercial contract, but do not have the force of law. They offer a set of rules produced by scholars, which cover all important areas of general contract law and appear to be a resource for those courts and arbitral tribunals who find them helpful. Although these principles are not binding, they have managed to earn recognition around the world, in academic circles and practice. UPICC can response the questions that not covered by the CISG. These are would be fraud, authority of agents, third party rights and others. UPICC is more comprehensive instrument than CISG. UPICC often applied as a gap filler to interpret and supplement law instruments and specifically the CISG.
Intergovernmental and non-governmental agencies have been involved in the harmonisation process.
International Institute for the Unification of Private Law (UNIDROIT)
UNIDROIT is an intergovernmental agency that interested with not only commercial law but also whole private law. Management of researches and drafting conventions are the purposes of UNIDROIT. UNIDROIT has produced conventions which designed to operate besides the Vienna Convention on Contracts for the International Sale of Goods and covering international factoring, international finance leasing and agency. UNIDROIT consists of General Assembly, the Governing Council and the Secretariat. UNIDROIT put into use to enforcement of international agreement or convention that requires the approval of its member countries. The problem is that trade law rules different from one state to another. It produced a Hague Convention which uniform law on international sales.
United Nations Commission of International Trade Law (UNCITRAL)
UNCITRAL is an intergovernmental agency that promulgates conventions, model laws and other instruments. Especially, it shapes a model law which implements to international commercial arbitration when each party to the arbitration has its place of business in a different country. UNCITRAL also organizes the activities of the different agencies involved in international trade law. UNCITRAL aims to help remove barriers to international trade. The most important product which is constituted by UNCITRAL is the Vienna Convention On Contracts for the International Sale of Goods. It aims to harmonise the rules governing the design of rights and duties under international sales contract.
The difference between UNCITRAL and UNIDROIT is UNIDROIT was set up to promote the dynamic harmonisation of private law and also including commercial law whereas UNCITRAL is a specialist body of United Nations devoted to the harmonisation of international trade law.
International Chamber of Commerce (ICC)
ICC which has an non-governmental body promotes trade by opening markets and encouraging the flow of capital. Having a non law producing body, ICC deals with unifying and harmonising commercial law using soft law methods. Therefore, ICC does not focus on the preparation of international conventions or model laws. ICC promotes uniform trade terms, uniform rules and model forms which are adopted by contracting parties. As a result of this ICC would not convenient for the development of uniform rules, preference of competing property rights or the jurisdiction of courts. It accomplishes legal studies on topic and provides and arbitration service for disputes.
It represents two important international trading instruments. In the area of international dispute resolution the ICC Court of International Arbitration is a leading institutions. These are INCOTERMS and The Uniform Customs and Practice for Documentary Credits. They do not have any legal status and reach their legal effect through contract.. INCOTERMS sets out rights and duties for the parties of international contract. ICC rules has a fairly high influence.
New Lex Mercatoria
New lex mercatoria is very different from medieval lex mercatoria. New lex mercatoria can be derived from various sources. The growth of international trade and the influence of mercantile usage have led several influential scholars to conclude that there exist a body of uncodified international commercial law, the new lex mercatoria, which has normative force in its own right and is dependent neither on incorporation by contract nor on adoption by legislation or judicial reception in a national legal system. Now both professional associations and legal scholars are working for the codification of new lex mercatoria.
It is suggested that new lex mercatoria might consist of international trade usages. It has been suggested that they might include concepts such as UNIDROIT Principles of International Commercial Contracts and the ICC’s Uniform Custom and Practice for Documentary Credits.
Reasons of Unharmonised
There may be some obstacles about harmonisation process that it causes international commercial law to remain unharmonised. These obstacles are would be differences in political view, language difficulties, personality clashes and one sides concern about another side that taking too much dominant role.
Harmonisation is lengthy, slow and expensive process. Preparation of instruments of harmonization requires experience of the time and hard work. This is also correct for all amendments and updates. It is claimed that owing to the trend of budgetary constraints cause that legal harmonisation may lead to legal fragmentation. Economic efficiency needs to take into account.
Sometimes choosing wrong type of harmonising instruments is also another reason for harmonisation failure.
Harmonising efforts have limited scope. These efforts to legislate for specific topics , such aspects of the law of sale or unfair contract terms, take no account of the fact that the treatment of such topics in domestic law may be rooted in the particular legal traditions of individual legal systems.
Disparities between common law and civil law traditions, socialist and capitalist systems and developed and developing countries creates problem. Differences between national legal systems also caused international commercial law to remain unharmonised. Domestic legal systems which need to implement the harmonised law should take into account. Although the approaches to contractual interpretation are the same, the exercise in practice could be quite contrary, due to the differences between civil law and common law systems. The problem is distilliation of the best legal rules from different legal systems regardless of being tested in the laboratory of an actual system.
International contracts that considers the interests of both parties, needs to contribute a fair balance between civil law and common law systems to which both parties belong to. Therefore, it is difficult to provide international consensus.
In contract law area there is a lack political support of harmonising instruments in national law.
Some scholars have argued that the mere existence of different national laws is a reason to engage in harmonization process. Professor Stephan points out that divergences in national laws may cause “legal risk.” In his view, such legal risk can encourage opportunism by commercial parties who may, for instance, race to litigate, in a forum that will suit their interests in case something goes wrong with the transaction. One of the pitfalls of the existence of “legal risk” is that at the dividing line between risky and non-risky transactions many parties may desist from commercial. Accordingly, there may be merit in reducing “legal risk” to foster. commerce However, harmonisation does not aim to bring a mechanical lowering of risk. It may optimize the risk, rather than its elimination.
Domestic law is capable of easy amendment, once a harmonised instrument has been accomplished, signatories are locked into it until a new instrument comes into force. Unless whole individual nations adopt the new instrument, there may be more divergence then there was previously. Harmonising institutions needs to deal with this problem. They need to prevent the crystallization of harmonisation. There are two aspects about this problem. First of all, excessive time taken to create international legal instruments. Secondly, it is excessively takes long time for nations to ratify the harmonized law.
Many lawyers remain doubtful and hostile to the harmonisation attempts. Lawyers and legal systems are unwilling to give up their own laws. It is considered by them that their own laws are superior. It is probably they also scare that their national laws would lose their dominant position. Due to the differences in national laws cross-border transactions are limited. Also nations which have a strong sense of superiority of their own laws might unwilling to changes where these are limited to transactions between businesses in different states.
Issues of sovereignty may arise in the context of international trade regulation. Also some language difficulties creates obstacles for harmonisation process. Accurate and clear drafting is very important to prevent misunderstandings. Planning and management project of harmonisation process is not easy. Meetings may not be successful to make essential progress.
Problems with Institutions
There are some arguments about harmonization interests the very nature of the bodies that play a role in this area. These institutions are bodies of experts and can not please with traditional democratic standards imposed on national legislatures. They are not accountable like national bodies. This is the weakness of institutions. Lobbies and interest groups may influence the law in favour of themselves. The less powerful ones would not be able to say any things in the drafting process so, international conventions and legislatures are saddled with a take it or leave it options. Duplication of efforts, co-ordination of work, inconsistency of policy and waste of resources are the other problems that institutions need to deal with during the legal harmonisation process.
The harmonisation of international commercial law does not completely eliminate conflicts but it helps to reduce them.
A proper reform of our commercial law requires a careful study of developments in other jurisdictions in both civil law and common law. It is assumed that perfect harmonisation is not an achievable target. All states have different national strategic interests therefore, full harmonisation is politically impossible in certain areas of law.
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-Goode, R. , McKendrick, E. , Goode On Commercial Law; Edited And Fully Revised
By Ewan McKendrick, 4th Edition, Penguin Books, 2010
-Bradgate, R. , Commercial Law, Oxford,Oxford University Press, 2005
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– Korzhevskaya, A. “Do We Still Need a Convention In The Field Of Harmonisation Of The International Commercial Law” , FESCO Transportation Group, (Moscow, Russia) 2014
–Gopalan, S. , “From Cape Town to the Hague: Harmonization Has Taken Wing”, August 2015
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 J.A.E Faria, “Future Directions of Legal Harmonisation and Law Reform : Stormy Seas or Prosperous Voyage “, 2009, p.8
 P.J. Osborne, “A Critical Analysis of the United Nations Convention on Contracts for the International Sale of Goods 1980”, August 2006, p.6
 R. Goode, H. Kronke, E. McKendrick, Transnational Commercial Law; Text, Cases and Materials, 1st edn. , Oxford University Press, 2007, p. 169
 A.Korzhevskaya, “Do We Still Need a Convention In The Field Of Harmonisation Of The International Commercial Law”, FESCO Transportation Group (Moscow, Russia) , 2014, p.89
 Goode and E. McKendrick, Goode on Commercial Law, Edited and Fully Revised by Ewan McKendrick, 4th edn. , Penguin Books, p.20
 R. Bradgate, Commercial Law, 3rd Edition, Oxford University Press, 2005, p.17
 R. Bradgate, Commercial Law, 3rd Edition, Oxford University Press, 2005, p.17
 S. Gopalan, “From Cape Town to the Hague: Harmonization Has Taken Wing”, August 2015, p.12