July 26-27, 1999
Montreal, Canada

Additional Paper: Some Comments On The "Country Of Origin" Rule Proposed By GBDe (Global Business Dialogue On Electronic Commerce): Issue Group Policy Paper Draft Version 4.0 (date: June 11, 1999)

Kazunori Ishiguro
Professor Of Law
The University Of Tokyo
Faculty Of Law

Contents:

1. Introduction
2. Freedom of Choice: Contract
3. Tort Issues
4. Choice of Jurisdiction
5. Conclusion

On July 8, 1999, the GBDe's new Draft (Version 8.0) was transmitted to me, and the latter seems a bit more modest than the former in that the latter abolishes the distinction between "active" and "passive" consumers (Line No. 376-381) and that the latter admits some room for "exceptions to the principle of freedom of contract [ie. freedom of choice]" (Line No. 257).

However, major points referred to in this ADDITIONAL PAPER seem to be still unchanged.

Although there are further possibilities for the GBDe's position to be dramatically changed before this Forum is held on July 26 & 27, 1999, I have determined to submit this ADDITIONAL PAPER in its original version the target of which is the GBDe's Draft Version 4.0 which clearly shows the supply-side voices. (July 8, 1999)

I. Introduction

The GBDe's arguments are typical "supply-side" ones which remind the present author of the OECD activities on the MAI (Multilateral Agreement on Investment) collapsed in 1998 because of the resistance of (European) "civil society"^[1].

The supply-side voices which favor the so-called "country-of-origin" rule must be weighed with the interest of consumer protection and other social or public interests, namely the demand-side voices.

There is an argument on the GBDe side that compliance with all legal regimes of all jurisdictions, based on the location of the consumer, will result in conflicting obligations and will create insurmountable trade barriers^[2].

However, the "location" or habitual residence of the relevant consumer is an important "connecting factor" for both jurisdiction and choice of law, especially for consumer contracts.

As seen in Lindberg's paper submitted to this Forum, the EU is, in general, willing to strengthen the consumer protection concerning both jurisdiction^[3] and choice of law^[4].

In this regard, Article 3(1) of the proposed directive on legal aspects of electronic commerce can be seen as an echo of the "country-of-origin" rule, but, as Lindberg states, that standpoint is "rather controversial", and "has been criticized ..... and will most likely be subject to discussion as the proposed directive goes through the European legislative process."

On the other hand, one should not forget that, as Lindberg states, "the principle of origin [of the proposed directive] only applies to the jurisdiction of the member states authorities^[5]." It is at least not clear whether the EU will apply the same rule with regard to the electronic commerce involving the US, Japan and other countries^[6].

The "country-of-origin" rule in the GBDe's draft is meant to be applied worldwide, and seems to be guarded, with regard to contract issues, by two-step discussions: First, the party autonomy (freedom of choice), and second, the otherwise applicable law (characteristic performance).

II. Freedom of Choice: Contract

With regard to the freedom of choice, the GBDe's draft goes on to state: "[I]ndustry-led groups in Europe, Asia, and the United States have called on the governments to remove any existing legal or statutory barriers and prevent any new regulations from reducing this freedom^[7]."

According to such a proposal, Article 120 (2) of the 1989 Swiss Code on Private International Law which clearly rejects the party autonomy^[8] for consumer contracts defined by Article 120 (1) will become the target of (trade) negotiations aiming at reducing "trade barriers".

However, according to the view of the present author, the legal development seen in this Swiss article which goes one step further than Article 5 (consumer contracts) of the 1980 Rome Convention is well-founded for the sake of consumer protection at the level of conflict of laws^[9].

The GBDe's draft states: "The country-of-origin rule provides the only workable solution that fosters the benefits and minimizes the risks of electronic commerce." However, these benefits and risks are clearly only supply-side ones. The GBDe's draft mentions there something about "bad actors", but does not directly answer the actual problem which should be posed there^[10].

The GBDe's arguments according to which a country-of-destination rule could divide the haves and have-nots of the electronic world^[11] are not persuasive to the present author. If such a rule is really "daunting"^[12] to small- and medium-sized enterprises (SMEs) and disadvantages the company as well as potential consumers worldwide, the same is true of the normal cross-border issues like product liability. At least, the problem posed there is not peculiar to electronic commerce or cyberspace. Whether the SMEs limit the availability of their goods to their country of origin or not depends on their entrepreneurship.

In the absence of any expressed choice of applicable law by the contracting parties, the GBDe's draft seems to rely on the approach of "characteristic performance (charakteristische Leistung)" as seen in Article 4 (2) of the 1980 Rome Convention^[13], and even goes on to say that governments are encouraged to provide for no exceptions to the presumption in favor of the law of the country of residence of the party carrying out performance of a contract^[14].

However, the approach of "characteristic performance (charakteristische Leistung)" which has its origin in the Swiss private international law^[15] tends to favor the law of supply-side party, and therefore, the presumption is always rebuttable, and Article 5 (and Article 6) was needed for consumer protection (and the protection of employee) within the framework of the Rome Convention^[16]. Again, further development in consumer protection at the level of conflict of laws should be recalled here^[17].

In the course of the GBDe's argument that the "country-of-origin" rule should be applied in cases of "B to C" contracts, the said draft even states: "Any other rule, such as a case-by-case determination of the applicable law or the application of the law of the location of the consumer, would create enormous burdens and uncertainty, especially for small businesses.^[18]"

A case-by-case determination of the applicable law is a good target of such discussions, sometimes accompanied by the needs of "cyber law"^[19], but it is needed for the sake of individual justice at the level of conflict of laws. It would be permitted here to refer to PART III (CONCLUSION) of APPENDIX I of the Paper submitted by the present author.

The GBDe side admits that large multi-national corporations are able to know and understand the meaning of all consumer-related laws in every jurisdiction, but still adheres to the "country-of-origin" rule, saying that enforcement of such laws across borders is impractical^[20]. However, in this respect, an attempt on the EU side as seen in the 1998 directive on injunction for the protection of consumers' interests^[21] should be viewed as a good example of cooperative activities among authorities across borders^[22].

III. Tort Issues

The GBDe side is willing to follow the "country-of-origin" rule also with regard to tort issues^[23], and seems to say that, if the country-of-destination rule can be applied, then "the victim may profit from forum shopping^[24]."

However, if one should refer to the "forum shopping", not only the victims, but also the supposed wrongdoers have equal opportunities. Even if the "country-of-origin" rule proposed by the GBDe is adopted worldwide without any exception, it would be quite easy for the latter to manipulate the very place of "origin".

IV. Choice of Jurisdiction

The GBDe side admits in this respect "the interests of consumers in being sued at home^[25]." However, if the consumer is a plaintiff, it actually admits such interests only for so-called "passive" consumers, and for the so-called "active" consumers, the GBDe adheres to the jurisdiction of the court of "the location of the business", namely the jurisdictional aspect of the "country-of-origin" rule^[26]. The distinction between "active" and "passive" consumers is undoubtedly not clear, and such an argument is not persuasive to the present author.

V. Conclusion

As stated at the beginning of this ADDITIONAL PAPER, the supply-side interests must be weighed with demand-side interests. One-sided voices would not be sustainable as seen in the collapse of the OECD activities on the MAI, though such voices still prevail in our world, especially with regard to trade negotiations after the establishment of the WTO.

Section 109 (Choice of Law) (b)(1) of the US Draft of Uniform Computer Information Transactions Act^[27] provides (in the absence of the contractual choice of law): "An access contract or a contract providing for electronic delivery of a copy is governed by the law of the jurisdiction in which the licensor is located when the agreement is made." And under Section 109 (a), mandatory rules in consumer protection laws of the licensor's location, not the licensee's location, prevails over different choice of law. At first sight, those provisions may be favorable to the GBDe.

However, one should be careful that, even for Section 109 (b)(1) which is applicable in the absence of an enforceable choice-of-law term, there are some safeguards for the U.S. citizens provided in Section 109 (c) for the protection of a party not located in that jurisdiction. And, in the case of consumer transaction which involves delivery of tangible copies, even when the agreement was made over the network, the default rule is that the law of the jurisdiction in which the delivery was or should have been made (i.e., usually the consumer's location) applies, and its mandatory rule prevails over different contractual choice. In sum, UCITA adopts the "country-of-origin" principle only in a limited manner to protect the U.S. citizens.

The present author sincerely hopes that well-balanced discussions will be held throughout this Forum for the sustainable development of the Internet law and policy!

Notes:

1. See II of APPENDIX II of the Paper submitted by the present author.

2. GBDe (GLOBAL BUSINESS DIALOGUE ON ELECTRONIC COMMERCE): ISSUE GROUP POLICY PAPER DRAFT VERSION 4.0 (DATE: JUNE 11, 1999), Line No. 48-50. The word "trade barriers" can be found also at Line No. 253-254.

3. Agne Lindberg, Internet Jurisdiction and Applicable Law in European Statutory Law [paper submitted to this Forum], at "1.3" (the proposed financial services directive, article 12 (4A)).

4. Id. at "2.1" (the proposed financial services directive, article 11 (3); the distance selling directive, article 12 (2)).

5. Id. at "1.4".

6. Compare this situation with those surrounding the discussions on the rule of lex originis as seen in APPENDIX I, PART II, 1 (1), especially the text following note [55], of the Paper submitted by the present author, although the intellectual property aspects are excluded in the GBDe's arguments. See GBDe, supra note 2, at Line No. 90.

7. GBDe, supra note 2, at Line No. 106-109.

8. "Eine Rechtswahl ist ausgeschlossen[!]." See Anton Heini et al., IPRG Kommentar, at 990ff (Keller/Kren Kostkiewicz) [1993 Schulthess].

9. See Ishiguro, Kokusai-Shihou [Conflict of Laws], at 86 [1996 Shinsei-sha]. See in this respect Lindberg, supra note 3, at "2.1" ("The above provisions [in directives] are stricter than the consumer protection provisions provided in article 5 of the Rome Convention, ... .").

10. GBDe, supra note 2, at Line No. 153-158.

11. Id. at Line No. 163-164. See also the GBDe's discussions at id. Line No. 244-246.

12. For another example in which the word "daunting" is used in a similar situation see APPENDIX I, PART I, 1. Note 13 and its text of the Paper submitted by the present author.

13. GBDe, supra note 2, at Line No. 204ff.

14. Id. at Line No. 226-229.

15. See Ishiguro, supra note 9, at 271.

16. See A.E. von Overbeck, "Contracts: The Swiss Draft Statute Compared with the E.E.C. Convention", in: P.M.North (ed.), Contract Conflicts: The E.E.C. Convention on the Law Applicable to Contractual Obligations: A Comparative Study, at 277 (1982 North-Holland).

17. See notes 8 and 9 of this Additional Paper and their text.

18. GBDe, supra note 2, at Line No. 244-246. Concerning the positions of SMEs see supra note 12 and its text of this Additional Paper.

19. See APPENDIX II, Part I, 1 of the Paper submitted by the present author.

20. GBDe, supra note 2, at Line No. 254-256.

21. See Lindberg, supra note 3, at "1.2".

22. In this respect see IV of the Paper submitted by the present author.

23. GBDe, supra note 2, at Line No. 277ff.

24. Id. at Line No. 294-295.

25. Id. at Line No. 317-318.

26. Id. at Line No. 328ff.

27. National Conference of Commissioners on Uniform States Laws, Draft for Approval: Uniform Computer Information Transactions Act with Preparatory Note and Reporter's Notes (Meeting in Its One-Hundred-And-Eighth Year, Denver, Colorado, Jury 23-30, 1999).