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Alternatives To Regulation

January 10, 2010

This week I attended a meeting sponsored by the European Economic & Social Committee (EESC) in Brussels. The Committee has significant influence over future regulation and law-making within the EU and the topic under discussion was “The 28th Regime – an alternative allowing less lawmaking”.

As we all know, reaching international consensus on any topic is hard. We have a remarkable propensity to believe that ideas which originate from anywhere ‘foreign’ must be bad. Such tendencies are especially strong in areas of law. Therefore, rather than trying to change national laws, the EESC has promoted an approach that creates an alternative. The meeting sought input on the idea of creating commercial terms that would allow contracting parties an alternative to their national regulations.

This idea is not new. The UNCISG is an example of a similar alternative system, but it has struggled to make significant progress in the major trading nations (although this may change as the power of emerging economies grows). And it seems inevitable that globalization will increase the pressure for greater fairness and balance.  Today, the nationally-based legal system has become a source of risk and expense in all international trading relationships and research has shown that the non-native litigant is disadvantaged in almost every legal system. This is especially true for consumers or other ‘less powerful’ parties. The law should provide predictability and create trust, thereby encouraging international trade. Increasingly, it does not.

This EU initiative is not the only current push for change in which IACCM is involved. There are also interesting developments in the Americas, with the Organization of American States this month due to debate consumer rights in on-line dispute resolution. One proposal is that consumers involved in cross-border trade could select the regulatory system of greatest benefit to them. Perhaps not surprisingly, the US (doubtless driven by its many international corporations) does not favor such a resolution.

The 28th regime faces many obstacles. And although its stated goal is ‘less lawmaking’, it is hard to see how an alternative system achieves such an objective. Yet the EESC is right to push for debate. If we cannot build formal alternatives, then informal methods will emerge. For example, I recently discovered that Paypal is now the world’s most used dispute resolution mechanism. It is fast and costs the appelant nothing. And it doe snot depend on laws or regulations.

Those of us who are involved in contract management and negotiation become accustomeed to complexity. It is easy to forget that a key part of our role should be to fight for simplification. Contracts should reduce risk and encourage trading relationships. Too often, we resist change or alternatives simply because we do not understand them or lack the time to explore their merits. The law does not belong to lawyers; it is a social asset that must adapt to meet and enable the needs of our times. If it does not, then business and society will find alternative ways to meet their goals – and make communities like ours increasingly irrelevant.

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