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New Mechanisms For International Contracting

April 4, 2010

Last week I chaired several sessions at a conference jointly hosted by UNCITRAL and Pace University Law School in the United Nations Center in Vienna.

The purpose of the event was to establish the level of support for new online dispute resolution mechanisms, building from proposals tabled by the United States ata recent meeting of the Organization of Amercian States.

The issue is that traditional legal recourse is not a viable option for low value sales and acquisitions, either in terms of time or cost. In effect, this means that weaker parties (small business, consumers) have no meaningful recourse if they engage in cross-border trade.

Most would agree that growth in international trade is a good thing – not only for the sake of the overall economy, but also in breaking down barriers and encouraging greater international collaboration. But of course, in order to trade, people must have trust in the underlying system. There are apparently signs that this has been diminishing recently and the growth of low-value, cross-border trade has slowed.

The definition of low value varies, but the US has been talking in terms of around $60,000 and the EU around 50,000 euros (both of course very large sums in some economies). These levels also imply that the system would not be limited to consumers, but would also offer alternative recourse to some business-to-business transactions.

The proposal is that there would be an arbitration service operating with independence from the courts and national governments. It is envisaged that this could be linked to the credit card charge-back system already operational in the US, but of varying applicability elsewhere (reliance on such an approach has the problem that it would have little meaning in many areas of the world where there is virtually no credit card penetration). Such a service would draw on an international panel of approved arbitrators and would be conducted entirely on-line, in order to ensure that it was both speedy and affordable.

There are certainly practical obstacles to be overcome, but the conference gave strong support to the development of such a system and the current Chairman of UNCITRAL voiced his belief that it should be sponsored as an UNCITRAL project. I found the universal nature of the support especially interesting. Delegates came from all world regions.

Debates of this type are likely to become steadily more common, as business and governments seek practical ways to work around the reluctance of national governments to cede powers or to univeralize legal principles. This development also has enormous potential for driving more and more disputes out of the courts and towards more robust and predictable arbitration and mediation services.

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  1. Financial Issues In Contracting « Commitment Matters

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