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Opinion: How a robust international arbitration framework can boost global trade and economic growth
By The Rt Hon Patricia Scotland QC, Secretary-General of the Commonwealth
A robust framework for resolving cross-border commercial disputes can help unlock valuable trade and investment opportunities for Commonwealth countries. Without it, there is the risk that millions of dollars that can help build inclusive prosperity and growth may be left on the table, and progress towards sustainable development hindered.
Our recent Commonwealth Secretariat research finds that agreeing frameworks for international commercial arbitration sends strong messages to foreign investors that the business environments of countries are stable, efficient and fair. It also helps to boost the confidence of local businesses when dealing with overseas suppliers and financiers.
The Study on International Commercial Arbitration we have undertaken shows that small-to-medium-sized-enterprises (SMEs) in the Commonwealth – which make up 95% to 99% of the private sector – are often reluctant to trade beyond national borders because of legal apprehensions.
Tackling commercial disputes with suppliers or buyers in another jurisdiction can seem daunting, complicated and expensive. Anxieties – based not only on perception but often on practical experience - tend to deter SMEs from engaging in otherwise appealing expansion of international trade, and result in reduced opportunities for growth or increasing prosperity.
So a system for dispute resolution that is accessible and affordable and can be mobilised speedily to maintain business relationships would be powerful in driving intra-Commonwealth trade upwards more swiftly towards the projected targets of US$700 billion by next year and $2 trillion by 2030.
Such a mechanism relates directly to discussions at the Commonwealth Trade Ministers Meeting which convened in London, UK, on 10 October 2019 with the theme ‘Advancing our Shared Prosperity’, and to those that will take place at the forthcoming Commonwealth Law Ministers Meeting in Colombo, Sri Lanka, 4-7 November 2019 under the theme ‘Equal Access to Justice and the Rule of Law’.
Our regular Commonwealth Law Ministers Meetings provide valuable opportunities for an array of legal issues, mutual support and cooperation to be considered within the context of comparable legislative, judicial and administrative systems that pertain in Commonwealth jurisdictions. Although our member countries are widespread geographically, and at many stages of economic and social development, they share remarkable similarities of governance and regulation, and close commercial and professional links.
The agenda for the 2019 meeting of Commonwealth Law Ministers in Sri Lanka includes consideration of the findings of our Study on International Commercial Arbitration, which draws on surveys conducted among a variety of representative practitioners and stakeholders in our 53 Commonwealth countries - arbitrators, lawyers, judges, business owners, academics and government officials.
Why consider arbitration?
The report highlights a number of key issues. Firstly, that while cross-border disputes are often dealt with in court, such lawsuits can be rendered less than optimal because of inconsistent or conflicting national laws, lack of relevant specialist expertise, and the very substantial demands made in terms of time and money.
There can also be risks that parallel proceedings on the same case may be instituted in different jurisdictions, or that lack of confidentiality and difficulties associated with enforcing judgments may combine to render international litigation less than satisfactory.
International commercial arbitration brings disputes before a neutral third party rather than a judge in court, and opens up possibilities for alternative methods of conflict resolution which may commend themselves to either or both parties as being swifter and more confidential, and can be agreed as final and binding.
Parties have the option of selecting the arbitrators, the place of arbitration and the legal or regulatory code under which proceedings will be conducted. The outcome of the process or ‘reward’ is final, and enforceable in any of the 161 countries (including 38 from the Commonwealth) that have signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
‘The New York Convention’, as it is generally known, is widely regarded as the cornerstone of international arbitration, and ratifying it offers businesses and investors operating in or with a jurisdiction the security of knowing that they have a process and mechanisms for protecting their rights.
One UN study found that while in the four years prior to signing the New York Convention a country may mark up an average of two per cent growth in foreign direct investment (FDI) inflows, this can typically increase five-fold to ten per cent in the four years following ratification. An earlier study had found that when countries accede to the New York Convention trade generally increased by 15 to 38 per cent.
Challenges and solutions
Notwithstanding the fact that international commercial arbitration is the preferred path for multinational firms, most SMEs still favour negotiation, which is more effective when operating within a single jurisdiction.
While the majority of Commonwealth countries have signed the New York Convention, more than half (58 per cent) have not yet put in place international arbitration frameworks that reflect current best practice. Such frameworks would require both that the treaty be ratified, and that this should be reflected in domestic laws.
Further challenges include outdated national laws that are not consistent with the New York Convention; the attitudes of members of the judiciary towards arbitration; businesses not being familiar with the concept and processes of arbitration; and lack of locally available expertise.
Our Commonwealth objective is for there to be a robust international arbitration framework available so that business in all our jurisdictions can consider it as a means for dispute resolutions. If this can be achieved, we would expect it to make a considerable contribution towards boosting economic growth and intra-Commonwealth trade and investment.
Our recent Commonwealth Secretariat research finds that agreeing frameworks for international commercial arbitration sends strong messages to foreign investors that the business environments of countries are stable, efficient and fair. It also helps to boost the confidence of local businesses when dealing with overseas suppliers and financiers.
The Study on International Commercial Arbitration we have undertaken shows that small-to-medium-sized-enterprises (SMEs) in the Commonwealth – which make up 95% to 99% of the private sector – are often reluctant to trade beyond national borders because of legal apprehensions.
Tackling commercial disputes with suppliers or buyers in another jurisdiction can seem daunting, complicated and expensive. Anxieties – based not only on perception but often on practical experience - tend to deter SMEs from engaging in otherwise appealing expansion of international trade, and result in reduced opportunities for growth or increasing prosperity.
So a system for dispute resolution that is accessible and affordable and can be mobilised speedily to maintain business relationships would be powerful in driving intra-Commonwealth trade upwards more swiftly towards the projected targets of US$700 billion by next year and $2 trillion by 2030.
Such a mechanism relates directly to discussions at the Commonwealth Trade Ministers Meeting which convened in London, UK, on 10 October 2019 with the theme ‘Advancing our Shared Prosperity’, and to those that will take place at the forthcoming Commonwealth Law Ministers Meeting in Colombo, Sri Lanka, 4-7 November 2019 under the theme ‘Equal Access to Justice and the Rule of Law’.
Our regular Commonwealth Law Ministers Meetings provide valuable opportunities for an array of legal issues, mutual support and cooperation to be considered within the context of comparable legislative, judicial and administrative systems that pertain in Commonwealth jurisdictions. Although our member countries are widespread geographically, and at many stages of economic and social development, they share remarkable similarities of governance and regulation, and close commercial and professional links.
The agenda for the 2019 meeting of Commonwealth Law Ministers in Sri Lanka includes consideration of the findings of our Study on International Commercial Arbitration, which draws on surveys conducted among a variety of representative practitioners and stakeholders in our 53 Commonwealth countries - arbitrators, lawyers, judges, business owners, academics and government officials.
Why consider arbitration?
The report highlights a number of key issues. Firstly, that while cross-border disputes are often dealt with in court, such lawsuits can be rendered less than optimal because of inconsistent or conflicting national laws, lack of relevant specialist expertise, and the very substantial demands made in terms of time and money.
There can also be risks that parallel proceedings on the same case may be instituted in different jurisdictions, or that lack of confidentiality and difficulties associated with enforcing judgments may combine to render international litigation less than satisfactory.
International commercial arbitration brings disputes before a neutral third party rather than a judge in court, and opens up possibilities for alternative methods of conflict resolution which may commend themselves to either or both parties as being swifter and more confidential, and can be agreed as final and binding.
Parties have the option of selecting the arbitrators, the place of arbitration and the legal or regulatory code under which proceedings will be conducted. The outcome of the process or ‘reward’ is final, and enforceable in any of the 161 countries (including 38 from the Commonwealth) that have signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
‘The New York Convention’, as it is generally known, is widely regarded as the cornerstone of international arbitration, and ratifying it offers businesses and investors operating in or with a jurisdiction the security of knowing that they have a process and mechanisms for protecting their rights.
One UN study found that while in the four years prior to signing the New York Convention a country may mark up an average of two per cent growth in foreign direct investment (FDI) inflows, this can typically increase five-fold to ten per cent in the four years following ratification. An earlier study had found that when countries accede to the New York Convention trade generally increased by 15 to 38 per cent.
Challenges and solutions
Notwithstanding the fact that international commercial arbitration is the preferred path for multinational firms, most SMEs still favour negotiation, which is more effective when operating within a single jurisdiction.
While the majority of Commonwealth countries have signed the New York Convention, more than half (58 per cent) have not yet put in place international arbitration frameworks that reflect current best practice. Such frameworks would require both that the treaty be ratified, and that this should be reflected in domestic laws.
Further challenges include outdated national laws that are not consistent with the New York Convention; the attitudes of members of the judiciary towards arbitration; businesses not being familiar with the concept and processes of arbitration; and lack of locally available expertise.
Our Commonwealth objective is for there to be a robust international arbitration framework available so that business in all our jurisdictions can consider it as a means for dispute resolutions. If this can be achieved, we would expect it to make a considerable contribution towards boosting economic growth and intra-Commonwealth trade and investment.
