July 26-27, 1999
Montreal, Canada

UNCITRAL and the Goal of Harmonization of Law

Jenny Clift
Legal Officer
UNCITRAL Secretariat*

I. Harmonization and Unification

Many claims are made about the importance of harmonization and unification for international trade and there are numerous organizations, both international and regional, inter-governmental and private, working on various aspects of harmonization and unification of trade, including law. But what do we mean when we talk about harmonization and unification and what are the benefits and limitations of the process?

Harmonization and unification are sometimes used interchangeably, but harmonization should be used to refer to the process of reducing, so far as is desirable and possible, the discrepancies between the national legal systems by inducing them to adopt common principles of law. Unification, in comparison, can be described as harmonization with a zero margin, where no, or minimal, differences are tolerated. Where differences are tolerated, it would be within a circumscribed area, such as a convention which provides for reservations. The difference between these two processes is often one of degree, and one indicator may be the effect of the instrument that is produced by the process and whether it is binding.

There are different ways in which, or different levels at which, harmonization can be achieved. These may not only involve different types of compromise and operate at different levels of government or inter-governmental organizations, but also vary in their tolerance of difference and in the ways in which they reflect a society's own social choices. In terms of implementation, they may vary as to the process of implementation and how implementation may be enforced. At some levels, such as rules, the harmonization effect will be easier to observe than at others, such as policies or principles.

These levels of harmonization would include:

1. specific rules which regulate, for example, the outcome, characteristics or performance of transactions or institutions. Negotiating such rules would require detailed policy choices to be made and compromises to be reached within the international forum. UNCITRAL conventions and model laws would fall within this category;
2. general governmental policy objectives, for e.g. that no new taxes should be levied on Internet commerce. Policy choices would be left to States, which would have broad discretion as to how the objective should be attained and the detail of the implementation;
3. adoption of agreed principles that are intended to influence or constrain the factors that are taken into account in making policies and rules e.g. ILPF international consensus principles for electronic authorization and the OECD Guidelines on Cryptography.

Harmonization or unification of law can also take place at different stages of business development. The long accepted view is that laws tend to lag behind business development and the process of harmonization often has been used to bring long-established practices closer together, to adjust the laws to new techniques as they have emerged, and to advance towards better or fairer balances between the parties. The UNCITRAL Hamburg Rules, for example, were a good example of these goals. UNCITRAL's work in electronic commerce, however, does not fit the classic model of unification or harmonization of disparate national laws, but could be classified as a "preventive" text which seeks to avoid divergence of emerging national laws. The same is true of the UNCITRAL Model law on International Credit Transfers (1992) which dealt with an area of law not, at that time, covered by national laws, namely electronic credit transfers. In fact, at that time, only one country was considering this issue and preparing law on the subject (the USA, to become article 4A of the UCC).

II. Justifications for Harmonization

1. Jurisdictional differences

The basic idea of harmonization is that it will enable participants from different jurisdictions to interact or communicate, particularly in transactions which occur directly between 2 jurisdictions. Harmonization will not always be required to actually make those interactions or communications possible, since direct conflicts of law are relatively rare, but it will often enable them to be conducted more efficiently. A single transaction involving multiple legal relationships (for example, a contract of sale which involves payment provisions, insurance, transportation, etc) may be subject to divergent rules of different national laws, seldom known in all their particulars to all the parties directly involved, and harmonized rules would clearly facilitate the commercial processes involved, saving time and cost in the process of negotiation. By adoption of a harmonized law, such as the United Nations Convention on Contracts for the International Sale of Goods (CISG), international contracting, and hence sales, would potentially be much easier.

In the case of the Internet, the means of communication, by its very speed and the extent of its use for commerce, may increase the impact of differences between jurisdictions, potentially increasing the disadvantages of legal diversity. This impact may extend beyond what would traditionally be regarded as "international trade", where issues of jurisdictional difference have commonly occurred and where commercial parties were accustomed to finding solutions.

In order to address jurisdictional differences, harmonization may not always require the adoption of similar or identical domestic rules. In a number of cases, a special regime for international transactions will suffice, without abolishing or overruling existing national law. These are sometimes described as interface laws. Many UNCITRAL texts, for example, are limited in their application to international commercial transactions (although in some cases they have also been adopted as domestic laws e.g. commercial arbitration), but there may be cases where it is hard to draw a clear distinction between the domestic and the international. This is particularly so in electronic commerce; The UNCITRAL Model Law on Electronic Commerce is not specifically limited to international transactions or data messages, although it does contain a footnote setting out appropriate wording for States that may wish to do so.

While many of these issues can be addressed by private agreement, there are many transactions where the contracting parties do not resolve them or they are issues that cannot be resolved by contract. The Model Law on Electronic Commerce, for e.g., addresses mandatory requirements that generally may not be subject to variation by agreement in domestic law.

It is also possible to suggest that the sheer volume of international transactions justifies the goal of harmonization.

2. Cost

Even where it may not be necessary to harmonize the legal regime in order to overcome interface barriers, harmonization may avoid uncertainty and transaction cost. As Thomas Vartanian¹ points out, the expense and effort entailed in monitoring and complying with the regulatory requirements of every jurisdiction that an entrepreneur or user may electronically touch could be enormous. Harmonization of substantive rules may reduce information and negotiation costs between parties who are ordinarily subject to the rules of different jurisdictions, and in the absence of clear choice of law rules, eliminate any need to decide which of the affected jurisdictions rules apply. This choice of law problem may in itself be a significant problem in the negotiation and settlement of disputes.

3. Limited application of unilateral rules

Unilateral imposition of rules, such as requiring goods and services entering a territory to conform to all requirements imposed in the jurisdiction, may involve significant enforcement costs to ensure that non-conforming goods do not pass the border. Laws recently developed to regulate the use of electronic authentication and the provision of certification services has tended to draw that same line between foreign and domestic signatures and services, creating a potential barrier to the use of electronic commerce. An alternative to trying to stop the entry of such goods or services into the territory is to harmonize the rules of all jurisdictions concerned. While that will involve balancing standards between jurisdictions to achieve harmonization, for those jurisdictions that may have to accept a lower standard than their own, there may be compensation in increased efficiency, as well as reduced border enforcement costs.

4. Economies of scale

Where a business faces significantly different requirements in each jurisdiction in which it wants to conduct business, whether the requirements relate to the product itself or to marketing aspects such as advertising, economies of scale beyond each individual jurisdiction will be hard to achieve.

5. Transparency

If everyone has the same rules and standards, there is less scope for policy choices that are made on illegitimate grounds, or that rely on a high degree of discretion.

III. Other Considerations

Harmonization cannot be evaluated solely on the basis of the goals at which the process is aimed. Equally important to any evaluation of the process of harmonization are factors such as the basic legitimacy of differences, the cost of the process and the impact of harmonized texts.

1. Legitimacy of difference

Differences between laws of different countries are generally legitimate on the basis that they are either justified by differences in the substantive concerns and values that inform policy, or by the process by which they are adopted in the first place.² Sources of difference in substantive concerns might include a number of factors such as the resources that might affect a countries productive capacity; the state of technological development and availability of technology; national preferences; institutional structures; and the ability of different interest groups to organize, formulate and represent policy objectives.

Since these sources of difference in the laws and policies nations adopt are also commonly identified as sources of a nations competitive advantage, there can be a complex relationship between differences in laws and comparative advantage in international trade. This may be seen clearly in the patterns of adoption of certain texts. In some cases, the countries adopting a text may be identified as sharing or representing a particular interest or concern which is not shared by the countries which do not adopt; in other cases, countries may not adopt a text because they view domestic laws as preferable to, or as representing policy concerns that are not amenable to the adoption of an international text which is a product of compromise. The more such a text is adopted, however, the more it may become an internationally recognized and accepted standard so that questions of preference and compromise may become increasingly marginal as reasons for non-adoption.

Difficulties that are associated with achieving uniformity and consensus at an international level are often a reflection of similar difficulties that occur domestically (particularly in a federal state) and involve the same process of compromise and balance.

2. Cost

If the cost associated with differences in law is relevant in terms of the burden placed upon international trade, then cost is also relevant to the question of whether harmonization of a particular law should be pursued. Cost is relevant in two ways. First, as the cost of actually carrying out the harmonization process and, negatively, as the cost of not embarking on the process.

What, for example, are the costs associated with establishing an international working group which travels to and meets in a particular country for a number of weeks every year and where the proceedings are simultaneously translated into numerous languages? What are the costs in the time required to develop some harmonized laws, both in the length of the time required and the timeliness of the resulting text. The CISG took some 50 years to be completed and one commentator suggests that by the time it was completed, the substantive anomalies that had existed were so reduced that the result was less essential than it had been at the beginning of the 50 years.³ Can the same be said of current efforts on electronic commerce, given the speed at which technology is advancing in comparison to the time that is required to develop international consensus on a particular topic? Could the Model Law on Electronic Commerce be developed today in the same time period and with the same successful result?

The costs of not pursuing harmonization might include cost burdens on business such as those cited by Vartanian⁴ in a company seeking to conduct its activities on the Internet in such a manner that avoids commercial transactions with citizens of a forum with unfavourable laws. This might require the incorporation of features into a website that screen out certain jurisdictions, so that the location of potential customers could be determined and transactions attempted by customers in certain jurisdictions rejected, or otherwise cancelling transactions and returning funds where orders are received and processed from customers in those jurisdictions. Aside from complicating administrative processes, such action involves the cost of determining which jurisdictions have unfavourable laws and the loss of potential revenue by limiting the jurisdictions in which one conducts business, undermining the benefits offered by electronic commerce. 3. Impact of harmonized laws

Can harmonized laws cover every difficulty that arises? Harmonized texts may be considered to be of reduced impact in a number of circumstances:

1. where they do not address certain aspects of transactions, for example consumer related issues or liability. Many UNCITRAL texts expressly stipulate that they do not override domestic laws intended for the protection of consumers, and consumer issues are not specifically considered during the development of the text. Nevertheless, the Guide to Enactment of the Model Law on Electronic Commerce, for example, indicates that there is no reason why situations involving consumers should be excluded from the scope of the Model Law by way of general provision, particularly since the provisions of the Model Law might be found appropriate for consumer protection. The issue of what is a consumer is left to applicable law outside the Model Law. Another issue, liability, was not addressed in the context of Model Law on Electronic Commerce, where the closest thing to a rule on liability is article 13, which addresses attribution of a data message. In the context of the draft Uniform Rules on Electronic Signatures, the issue continues to be contentious and while there may be agreement on circumstances where liability ought to occur, what the consequences of that liability should be remains at issue;
2. where they do not override rules of domestic law, which may be mandatory or not. The CISG has provisions which do not override domestic law governing the validity of the contract or any of its provisions. Article 11 of the Model Law on Electronic Commerce is not intended to interfere with the law on formation of contract but rather to promote international trade by providing increased legal certainty as to the conclusion of contracts by electronic means. In respect of other articles, it is clearly stated that the Model Law is not intended to impose the use of electronic means of communication, but to validate their use; a number of articles provide for the enacting State to specify exceptions to the general principle of equivalence, e.g., articles 6-8;
3. where the rules of the instrument are not themselves mandatory and may be varied by agreement. UNCITRAL texts, both conventions such as the CISG and model laws such as the Model Law on Electronic Commerce, provide for varying degrees of party autonomy. The Model Law on Electronic Commerce contains both types of provisions, those which are regarded as mandatory are not subject to variation by agreement (except to the extent that national law might allow parties to vary such provisions), and others which allow parties complete autonomy.

A further impact of a harmonized text is its scope for amendment and updating, should the need arise. Where the text is in the form of a convention, the process for amendment is complex and may lead to a series of overlapping, and potentially confusing, regimes, such as has occurred with the Hague Rules, amended Hague Rules and Visby Protocol. In another example, various proposals have been made to update the requirements for writing in the New York Convention on the Recognition and Enforcement of Arbitral Awards (1958). One proposal is that the best way is to leave it to the courts to continue the flexible interpretation that is occurring in a number of jurisdictions; another view is that adoption of the Model Law on Electronic Commerce or the use of it as a tool of interpretation could resolve the limitation of the Convention; a further view is that a new instrument, such as a protocol to the Convention, is required. None of these proposals is free from difficulty.

4. Input

Does representation in groups drafting uniform law represent a broad enough range of expertise? Does representation adequately balance the various interests, economies, regions etc. that may exist in terms of a particular topic in international trade? One commentator⁵ has suggested that both UNCITRAL and Unidroit draft and propose with no power of their own to give legislative force to their proposals. Their influence depends in part on their reputation for technical expertise, which depends, in turn, upon quality of representatives, who represent a synthesis of domestic views and opinions. Given the number and diversity of representatives and the logistics of international meetings, is the efficiency of meetings less than it would be in a comparable domestic forum and does this impose a time constraint that would not exist in the domestic forum? Language may impose some difficulties, both for representatives at meetings even where the proceedings are translated, and also for home country experts.

5. Output

A number of criticisms can be made of some harmonized or unified texts, since invariably they are the result of compromise between a number of competing considerations, not only relating to law but also public policy, that may vary across different subjects. These considerations would include those between civil and common law systems; between countries needs and requirements, especially when they are at different stages of development; different languages result in different meanings, especially with the use of some words such as "representation", "material" and "indicate"; different legal systems sometimes means different concepts e.g., what might be regarded as a signature in some jurisdictions, creates difficulties in others; and policy choices often require compromise, such as between the public interest in protecting minors from pornography transmitted on the Internet and the burden placed on electronic commerce.

To suggest that having identical law everywhere would unify the law may ignore the extent to which legal rules operate in a very particular social and political setting. There is often likely to be a different result produced when the text is applied in different systems, and the process of adoption is anything but uniform. For example, many countries have now ratified the New York Convention, but implementation is not uniform and there are still signatory countries where you could not be certain that your arbitral award could be enforced under the terms of the Convention. Where the text is a model law, there will be differences in the detail of the laws adopted by different jurisdictions, even if the principles of the law are adhered to. The Model Law on Electronic Commerce has been or is being adopted in a number of jurisdictions, each of which has made their own adaptations; the same is true of the Model Law on International Commercial Arbitration, although here there is a much greater level of adherence to the terms of the text.

IV. The Role of International Organizations

UNCITRAL was set up to be the core legal body within the United Nations system on international trade law to facilitate harmonization of international trade law and remove legal barriers to international trade. At the time of its establishment, there was support for the view that what was needed to give greater impetus to the harmonization process was broader representation and participation which would include all regions of the world, and represent the different economic and legal systems — what is often described as "universal representation".

Performance of this role involves the study areas of law where harmonization would be appropriate, desirable and feasible, followed by the development and promotion of harmonized legal texts. This process always involves a constant balancing of the factors mentioned above, both before the project is undertaken and while it is in process. The difficult question in each project is achieving a balance between what aspects of the law of a particular subject should be similar and which different in order to create an appropriate relationship. How much do you need to achieve the goal of harmonization in a particular area of law? If specific topics have to be left out in order to achieve consensus, does this invalidate the whole process or should you take a more philosophical approach and achieve what is possible at the time? As Allan Farnsworth suggests " [...] of necessity unification and harmonization proceed slowly, by small steps, with by imperfect achievement."⁶ The role of the international organization is to guide and, where necessary, push the process to achieve this end. How many times have we heard delegates say that they could not possibly agree to a certain provision or that in their jurisdiction they could never accept a proposed compromise and asked ourselves, "Then, what are we here for?"

There have been some significant successes in the harmonization of private international law — the New York Convention, the CISG, the UNCITRAL Model Law on International Commercial Arbitration and, most recently, the UNCITRAL Model Law on Electronic Commerce, while others have not been so successful. Ultimately, success is a question of whether, and how, the factors mentioned above can be balanced to produce an instrument that is both timely and effective.

Endnotes

* The views expressed in this paper are personal ones and do not necessarily reflect the views of the organization.

1. Vartanian, Thomas P, "A US Perspective on The Global Jurisdictional Checkpoints in Cyberspace", Internet Law and Policy Forum, 1999 Conference "Jurisdiction: Building Confidence in a Borderless Medium", Montreal, 26-27 July 1999, p3;
2. Leebron, David W., "Claims for Harmonization: A Theoretical Framework", Canadian Business Law Journal, (1996), pp63-106, at p91;
3. Farnsworth, Allan E., "Unification and Harmonization of Private Law", Canadian Business Law Journal, Vol 27,(1996), pp48-62, at p52 referring to an article by Arthur Rosett, "Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods" (1984), 45 Ohio St. L.J. 265;
4. Vartanian, p4;
5. Farnsworth, p57;
6. Farnsworth, p62.