Another crucial change also occurred in the last 50 years. For
the first time in history, growth in world merchandise exports has
completely outpaced growth in world output. Merchandise trade
increased 18-fold while world merchandise output grew eightfold.
Between 1990 and 2001 alone, world merchandise exports grew by 6%,
while total merchandise production increased by only 2.4%.
The main legal problem for companies in these cross-border times
is that goods and services flow across borders but do not erase
them. Businesses have to cope with a much more complex legal mosaic
now than 50 years ago. No one - at least in the legal world -
foresaw these events. The UN's founders instructed the architects
of the UN buildings in New York to allow for an expansion to some
70 members only. Similarly, no systematic way to cope with
transborder trade law was planned. Business people tend to think
that lawyers complicate issues. But they fail to understand that,
in the absence of an international legislature, there is no such
thing as a truly "international law".
Twenty years ago, business law was essentially associated in
people's minds with a particular nation. Every exporter has to
realize that this is no longer the case. A variety of international
rules - often outside the scope of national law - are also shaping
the way trade is conducted.
Six new types of international trade rules and
practices
Although the existence of some 200 legal systems has made
international business more complex, the legal landscape is not so
bleak as one might imagine. Through trial and error, at least six
different processes have developed to harmonize the conduct of
international business. These are international trade usages,
commercial treaties, model contracts, model laws, regional trade
laws and out-of-court dispute settlements.
International trade usages
International Commercial Terms, known as Incoterms, were the
first major achievement in standardizing trade practices. Developed
in 1936 by the International Chamber of Commerce (ICC), Incoterms
guide the buyer and seller by allocating transport costs and risks,
as well as determining responsibility for insurance and customs.
The current version, Incoterms 2000, contains 13 terms and will
probably not be revised before 2010.
In the banking sector, ICC has also standardized the practices
for international letters of credit through its rules known as the
Uniform Customs and Practice for Documentary Credits (UCP 500). The
current version was released in 1993.
These are only two of the standardized trade practices developed
by ICC, which are extensively used by international sellers and
buyers. Further information can be found on ICC's web site: http://www.iccwbo.org
Model contracts
Model contracts are growing in number and in use. They serve to
standardize legal approaches across countries and cultures and
answer frequently-asked questions when drafting international
business agreements.
In the 1950s, standard contracts were used mainly in the
commodity sector, where they are part and parcel of daily practice.
The Grain and Feed Trade Association, for example, proposes 80
different contracts, all drawn up by trade members, for the sale of
wheat, rice, beans and other cereals.
In non-specialized areas, model contracts were scarce. However,
hundreds of thousands of small and medium-sized enterprises (SMEs)
were entering into international contracts, often without legal
assistance. The need arose, therefore, to provide model contracts
in an ever-widening circle of activities. Thus the ICC, again a
pioneer in the field, proposed a Model Contract for the
International Sale of Manufactured Goods, while ITC presented a
Model Contract for the International Sale of Perishable Goods. The
texts of over 150 model contracts are published by ITC on its Juris
International web site (http://www.jurisint.org).
Trade treaties
A third set of common ground rules is found in trade treaties.
Governments and national trade promotion organizations need to know
which are the most basic treaties that a country should ratify to
encourage trade. These treaties set out the basics for
international sales, arbitration, patents, trademarks, transport
and other issues. Ratifying them sends a signal that the country is
adopting an internationally-recognized, safe legal context in which
to conduct trade.
The UN treaty section alone contains over 40,000 treaties
published in over 1,900 hard-copy volumes. The most important trade
treaties signed in the last 50 years, however, number about 200.
These can be found on Juris International web site.
Model laws
Treaties are not very flexible. (A treaty is drafted through
lengthy diplomatic conference meetings. It comes into force only
when a certain number of countries have ratified it and it is not
easily modified.) To provide flexibility, the United Nations
Commission on International Trade Law (UNCITRAL) has developed a
groundbreaking process to harmonize trade laws through "model
laws". UNCITRAL creates a model, and then govern-ments simply
incor-porate that model into the laws of their respective
countries. For example, in order to harmonize laws on arbitration,
UNCITRAL developed a model law on international commercial
arbitration that has been adopted by 45 countries on all
continents.
Harmonizing regional laws
Standardizing and harmo-nizing trade laws on a regional basis
can stimulate intra-regional as well as other international
trade.
The success story in this case is in Africa, a continent that is
too often depicted simply as a recipient of foreign aid. Through
its pioneer harmonization of trade laws in 16 west African states,
OHADA (Organization for Harmonization of Business Law in Africa)
has set a pattern for several countries to follow: one business
law, one company law, one accountancy law and one supreme court are
used by a set of countries. Incidentally, this also means
considerable economies of scale. And it works!
From courts to arbitration
Out-of-court settlement is also an enduring trend in modern
business. Most countries are creating arbitration centres within
their chambers of commerce for various pragmatic reasons, not the
least of which is the impressive backlog of cases.
The Permanent Arbitration Court of the Croatian Chamber of
Commerce has to face an enormous challenge, considering the number
of cases before the Croatian courts; over 1.3 million court cases
for a population of about 4 million. As Brendan Francis, an Irish
author, said: "The best way to escape a problem is to solve
it."
From trials to contracts
Nowadays many business lawyers never actually work in the
courtroom, but instead focus on drafting contracts for businesses
that aim to avert disputes before they occur. This change of
direction can draw a parallel with changes in the mindset of
quality controllers. Quality specialists like to recall a 1982
incident that made news throughout the United States: a
nine-year-old girl failed to find a toy in the popcorn package she
had purchased. The maker of the popcorn explained that this was
impossible since every package underwent three inspections to make
sure it contained a surprise toy. Today, the emphasis has shifted
from "inspection" to "prevention". The shift to prevention in the
legal field also requires a change of attitude on the part of
businesses. An investment in legal advice before a contract is
ready to be signed may be more appropriate than "throwaway"
expenses in a court dispute.
Who really invented the telephone?
A snapshot of today's legal landscape would not be complete
without mentioning intel-lectual property issues such as patents
and licensing agreements.
On 12 June 2002, the US Congress recognized an impoverished
Italian immigrant genius as the inventor of the telephone, rather
than Alexander Graham Bell. Antonio Meucci found that sounds could
travel through copper wire. In 1860 he rigged a telephone to link
his workshop to his paralysed wife's bedroom. Meucci was unable to
commercialize his invention, nor to pay his way through the patent
application process. When Alexander Graham Bell, who conducted
experiments in the laboratory where Meucci's materials had been
stored, was granted a patent, Meucci moved to annul the patent
issued to Bell. He died in 1889 and the case was discontinued a few
years later.
Had Meucci benefited from a training course on how to negotiate
a licensing agreement, he might have thought of various contractual
options to commercialize his invention, even without filing a
patent.
Jean-François Bourque is ITC Senior Advisor on Legal Aspects
of International Trade. He can be contacted at bourque@intracen.org