The Scope of Autonomy in International Contracts And its Relation to Economic Regulation and Development

Philip J. McConnaughay*

Few principles are as widely recognized as the autonomy of parties to international contracts to designate the law that will apply to their transactions and the forum in which they will resolve their disputes.1 Traditionally, the scope of this autonomy has been confined to matters that otherwise would be governed by private law, which in the context of commerce, essentially means the main body of contract law.2 Within this context, parties to international contracts are free to designate the law or principles that will govern their transaction to the exclusion of all otherwise applicable law. They also are free to privately arbitrate any disputes that might arise between them to the exclusion of otherwise compulsory public court litigation.3 Matters governed by public law, such as antitrust, securities, and environmental laws, traditionally have been outside the scope of private autonomy of contract. Public law typically has applied irrespective of private choice, and claims arising under public law traditionally have been subject to resolution exclusively in the courts of the nation supplying the law.4

In recent years, U. S. courts have broken with this tradition extended autonomy in international contracts to public law matters. In support of their decisions, these courts have relied on the same justifications that support autonomy in private law matters: namely, that it would be unduly burdensome on international commerce, and unduly parochial of trading nations, if each nation affected by an international transaction were to insist that its public law apply to the transaction and that claims arising under those laws be resolved in its courts. It is now well-established, for example, that claims arising under most U.S. economic regulations – such as the Sherman Act, the Securities Acts,

* Associate Professor of Law, University of Illinois College of Law.

1 See e.g., Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS 13 (1999) (“Today the freedom of parties to an international contract to choose the applicable law is almost universally acknowledged.”)

2 See e.g., Andreas F. Lowenfeld, INTERNATIONAL LITIGATION AND ARBITRATION 1 (1993) (“Private law is concerned with contracts, with torts, with inheritance, with family matters, with disputes between property owners. Public law, in contrast, is concerned with economic regulation, with taxes, with securities transactions, with rules about competition, with exchange controls, embargoes, and expropriation.”), and Daniel A. Farber and Philip P. Frickey, In the Shadow of the Legislature: The Common Law in the Age of the New Public Law, 89 MICH. L. REV. 875, 886 (1991) (“Private law ” was that part of the legal system protecting the private ordering

3 See Part I, infra.

4 See note 2, supra, Part I, infra, and Philip J. McConnaughay, Reviving the ‘Public Law Taboo’ in International Conflict of Laws, 35 STAN. J. INT’L L. 255, 261-267 (1999).

RICO, and COGSA – are privately arbitrable in international transactions.5 Additionally, more recent decisions by U.S. Courts of Appeals in cases involving international transactions have extended to public law contractual autonomy to designate applicable law. These courts have ruled that otherwise applicable U. S. regulatory law may be completely displaced by private contractual election so long as the designated substitute is not “so deficient that the [complainant] would be deprived of any reasonable recourse.”6

The extension of private contractual autonomy to public law, and particularly the extension to public law of party autonomy to select a single applicable law, is too recent a development to know whether other major trading nations will follow suit. The fact that developed nations have overwhelmingly supported autonomy in international contracts during the past few decades suggests that they might.7 Developing nations, in contrast, seem resistant to further expansion, concerned, as they have been traditionally about the inconsistency between private autonomy and sovereign right, and about the extent to

5 In the United States, this statement is true for both domestic and international transactions. See e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, n. 26 at 25 (1991) (“It is by now clear that statutory claims may be the subject of an arbitration agreement. Indeed, in recent years we have held enforceable arbitration agreements relating to claims arising under the Sherman Act, 15 U.S.C.§ § 1-7

6 Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 723 (9th Cir. 1999) (suggesting the permissibility in an international transaction of a contractual choice of law that would displace otherwise applicable U.S. antitrust law: “[I]t is possible that the Swiss Tribunal might apply U.S. antitrust law to the dispute [but] even if Swiss law is applied to the dispute, there has been no showing that it will not provide Simula with sufficient protection.” Id., n.4.). Other Courts of Appeals have authorized the contractual displacement of U.S. Securities Laws in international transactions. See Stamm v. Barclay’s Bank, 158 F.3d 30 (2d Cir. 1998)

7 See Part 2, infra. See also e.g., Klaus Peter Berger, THE CREEPING CODIFICATION OF LEX MERCATORIA 76 (1999) (“One has to bear in mind that parties to an international contract may choose a law that has no connection to the transaction. The requirement [of] the past that the law chosen by the parties needs to have some ‘sensible connection’ with the case, has long been abandoned.”)

which contractual autonomy represents a vehicle for the imposition of Western values and practices by dominant corporate interests.8

The thesis of this article is that these sentiments should be reversed: the scope of autonomy in international contracts should be scaled back in developed nations to exclude public law matters, but expanded in developing nations to include public law matters. 9 The end result of both of these changes would be the same — more effective regulation of transnational business and more efficient promotion of economic development. In all nations, both developed and developing, full autonomy in international contracts should be accorded to matters that otherwise would be governed by private law. A summary of the rationale underlying this thesis follows.

Within the realm of private law, there can be little doubt that autonomy in international contracts has achieved its intended purposes in that it facilitates transnational commerce enormously. When taken advantage of, autonomy to designate a single applicable law and an arbitral forum eliminates: (i) forum shopping and all of its attendant costs and risks, (ii) the burdens attendant in complying with multiple and sometimes inconsistent contract law regimes, and (iii) the significant uncertainties that typically accompany the application of conflict of laws rules in the absence of a contractual designation of governing law.10 These benefits result from the willingness of

8 See e.g., Jeswald W. Salacuse, From Developing Countries to Emerging Markets: A Changing Role for Law in the Third World, 33 INT’L LAWYER 875, 879-881 (1999) (noting at 880-881 that, until changes in approach during the 1990s, “the [Third World] state increasingly limited the individual’s freedom of contract” “as a result of the growth of public law and regulation on everything from the price of rice to the ownership of land.”)

9 As I explain in the following text (two paragraphs infra), I distinguish between “developing” and “developed” nations for purposes of this article in a purely functional way: developing nations lack the legal infrastructure and capacity to effectively regulate commerce that developed nations possess.

10 Of the two prongs of autonomy of contract that I discuss in this article – i.e., choice of law and choice of forum – I will be confining my consideration of both to arbitral forums. My principal reason for this is that both the risks and the potential benefits of extending autonomy of contract to public law occur principally in the context of arbitral forums. The risks are essentially confined to arbitral forums because national courts, by and large, will neither entertain claims arising under the public law of a foreign nation, nor enforce foreign court judgments rendered pursuant to foreign public law (see e.g., Philip J. McConnaughay, Reviving the ‘Public Law Taboo’ in International Conflict of Laws, 35 STAN. J. INT’L L. 255, 261 to 267 and sources therein (1999)), even though they might, because of their obligations under the New York Convention, enforce foreign arbitral awards rendered pursuant to foreign public law. See notes 30 and 31, infra, and Philip J. McConnaughay, Rethinking the Role of Law and Contracts in East-West Commercial Relationships, 41 VA. J. INT’L L (notes 116 to 123 and accompanying text) (forthcoming 2001). The potential benefits of extending contractual autonomy to public law are confined largely to arbitral forums because, by definition for purposes of this article, developing nations, for the most part, lack systems of national courts that are capable of reliably enforcing public (and private) commercial laws

nations and national courts to effect a policy of noninterference and strict enforcement with respect to private arbitration agreements, contractual elections of applicable law, and international arbitral awards. This policy also results in another important benefit: the capacity of autonomy in international contracts to provide a basis upon which successful commercial relations can be established between Western and non-Western parties who do not share the same understanding of the role of law and contracts in the governance of commercial relationships. Although currently under-exploited, this capacity inheres in the complete openness of full autonomy to new and different methods of dispute resolution and to new and different rules and principles for the governance of commercial relationships and disputes. Part II of this article elaborates on this capacity. I n light of the burgeoning private trade between Western parties and parties from the non-Western traditions of Asia, it is difficult to overestimate the potential importance of this aspect of autonomy.

The extension of autonomy in international contracts to public law has divergent effects depending on whether the nation making the extension is a developed nation or a developing nation. The effects are detrimental to international commerce when developed nations make the extension, but potentially beneficial for international commerce, and for a nation’s economic development, when developing nations make the extension. This article distinguishes “developed” from “developing” nations in a purely functional way. Developed nations are those nations that enjoy fully developed legal infrastructures and the ability to effectively regulate commercial activity – i.e., principally the major industrialized trading nations of the West, perhaps along with the few most advanced industrialized nations of Asia. Developing nations are those nations whose judicial and commercial regulatory institutions lack capacity to perform their prescribed or intended functions effectively, whether because the institutions don’t exist, because they are under-developed, because they are under-funded, or because of some other disabling attribute, such as corruption.

With respect to developed nations, the extension of autonomy in international contracts to public law harms international commerce because it: (i) diminishes rather than increases certainty and predictability in the conduct of cross-border commercial affairs, (iii) risks serious under-regulation of transnational business, and (iii) threatens the continuing utility of international commercial arbitration as the preferred method of resolving disputes between parties from Western and non-Western commercial traditions. Part IV of this article elaborates on each of these effects. To summarize, the reduction in certainty and predictability in international commerce results from the fact that the extension of autonomy to public law has left international commercial parties uncertain about: (i) whether the arbitral procedures they use for the resolution of public law claims must now mimic public court adjudication, (ii) whether arbitral awards based on public

preferred method of international commercial dispute resolution even in comparison to a designated neutral (and well-established) national judicial forum. This preference results (even assuming equivalent neutrality) from (1) the greater procedural and evidentiary flexibility of arbitration in comparison to national court adjudication, (2) the greater flexibility in choice of applicable law available in arbitration in comparison to national court adjudication, and (3) the greater international currency of arbitral awards in comparison to national court judgments in terms of their enforceability in foreign jurisdictions. See generally, id., and id., n. 141 at 31-32.

law claims will enjoy the same international enforcement currency as awards based on private law claims, (iii) whether other trading nations will follow the U. S. lead in permitting the arbitrability of public law matters, and, (iv) the degree to which contractually designated public law must be similar to displaced public law before courts enforcing arbitration agreements or awards will honor the displacing designation.

The risk of under-regulation occurs because, when a developed nation’s otherwise applicable public law is allowed to be displaced by private contractual election, the likelihood is that the contracting parties will elect a lesser or even ineffective regulatory substitute. Commercial parties are not likely to opt into more stringent regulation. Thus, extending contractual choice of law to public law is likely to increase the risk of the precise public harm the displaced public law intended to prevent. The arbitrability of public law claims also promotes under-regulation by reducing the probability of legally correct resolutions of public law claims in comparison to probable outcomes in public courts.

Finally, the threat to the continuing utility of international arbitration for the resolution of West/non-West commercial disputes results from the arbitrability of public law claims, such as antitrust or securities fraud claims. The increased likelihood of adverse consequences to unrepresented third parties resulting from the wrongful denial of such regulatory law claims likely will (and should) result in greater judicial scrutiny of arbitral decisions regarding public law matters. Greater judicial scrutiny, in turn, likely will cause “Westernizing” procedural adjustments to international arbitration that will diminish its attractiveness and fairness to parties from non-Western traditions. These adjustments likely would eliminate the precise features of international arbitration that are most receptive to the resolution of cross-cultural disputes: (i) privacy and confidentiality, (ii) flexible rules of procedure, (iii) elastic notions of relevance, (iv) substantial presentational and decisional latitude, and (v) wide-ranging dispute resolution techniques. Accordingly, this article argues that developed nations should retract (or resist) the extension of autonomy in international contracts to public law.

Developing nations, in contrast, should take the opposite course of action: they should expand the scope of autonomy in international (and domestic) contracts to include public law. As Part V of this article explains, it is precisely the lack of working and reliable legal infrastructures in these nations that provides the rationale for the extension. The grant of contractual autonomy by developing nations can help provide the public law regulatory mechanisms that the grant of autonomy by developed nations enables private parties to avoid. For example, developing nations might refocus the earliest stages of their commercial lawmaking efforts from the time-consuming and expensive task of legislating new competition rules, environmental standards, securities laws, and other commercial regulatory rules, to simply establishing parameters for private contractual choice of law with respect to each of these subject matter areas. Similarly, the enormous costs and hurdles involved in establishing a system of public courts might be spread-out if a legal environment were first established in which private arbitration might reliably flourish. To be sure, relying on these private mechanisms for important aspects of public regulation introduces some of the same risks that support confining autonomy to private

law matters in developed nations. The risks of more expansive autonomy in developing nations, however, pale in comparison to the potential benefits. Expansive contractual autonomy in developing nations can help address the cruel “catch 22” in which their legal systems often wallow — the ability of developing nations to provide the regulatory and adjudicatory mechanisms upon which sustainable economic development depends cannot occur without the economic development that enables the provision of such public services.

In certain limited, but important respects, the challenge faced by developing nations in this regard is analogous to that faced by the international community during the decades following World War II when the international community struggled to provide a transnational regulatory and adjudicatory infrastructure for international commerce that otherwise did not exist. Like the international community during that period, developing nations today are struggling to devise legal institutions that: (i) transcend traditional methods of interaction within known communities and facilitate economic exchange among strangers, (ii) accommodate in some culturally neutral way transactions including parties from completely different legal systems or traditions, (iii) operate independently of government, and if possible, with the government’s promise not to interfere with the operations and decisions of these institutions, (iv) require little public investment, but that somehow are capable of providing in the near term some of the functions of a public legal infrastructure that typically take decades to fully mature, and that (v) despite all of these features, somehow leave each nation’s sovereignty intact. The international community solved this dilemma by turning to the principal institutions of autonomy in international contracts: private arbitration and contractual choice of applicable law. Part V of this article explores whether these same institutions of contractual autonomy, extended to matters governed by public law, might help developing nations achieve similar objectives.

Part I of the article briefly documents that the scope of autonomy in international contracts traditionally has been limited to matters governed by private law. Part II discusses the significant benefits for international commerce of contractual autonomy in that context. Part III reports the fact of and rationale behind the U. S. extension of autonomy in international contracts to public law. Parts IV and V then present this article’s principal thesis — namely, that the consequences of such an extension diverge depending on whether the nation making the extension is a developed nation, in which case the consequences are detrimental (Part IV), or a developing nation, in which case the consequences are beneficial (Part V).

I. The Traditional Scope of Autonomy in International Contracts

The autonomy of parties to international contracts to select private arbitration for dispute resolution to the exclusion of national courts has a somewhat shorter and more tumultuous history than that of the autonomy of parties to designate applicable law to the exclusion of otherwise applicable law. Both types of autonomy, however, have emerged from their respective pasts virtually unfettered by restriction

documented thoroughly in an abundant and growing literature.11 This article will confine its discussion of this history to two salient points. First, parties to international contracts traditionally have been able to exercise autonomy to elect private arbitration and designate applicable law only with respect to matters governed by private law

The traditional private law scope of autonomy in international contracts is well documented in both commentary and caselaw. “Contractual freedom and mandatory national laws are different sides of the same coin,” two experienced international lawyers once observed, “one begins where the other ends.”12 Thus, contractual designations of applicable law always have yielded to “imperative statutory requirements”1 3 and other “mandatory rules of law that otherwise would be applicable.”14 As Professor Battifol long ago explained, “it is [only] natural that the public law should prevail” over private

11 With respect to arbitration, see generally e.g., Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS, supra note 1, at 15-28

12 Bernardo M. Cremades and Steven L. Plehn, The New Lex Mercatoria and the Harmonization of the Laws of International Commercial Transactions, 2 B.U. INT’L L.J. 317, 325 n. 37 (1984). See note 15, infra, for an explanation of the essential interchangeability of “mandatory law” and “public law” in the context of international transactions, even though some provisions of private law may be “mandatory” in domestic transactions.

13 Hessel E. Yntema, Autonomy in Choice of Law, supra note 11, 1 AMER. J. COMP. L. at 343 (“Private consents provides the law of the contract, except as restricted by imperative statutory requirements.”).

14 Hans Smit, The Future of International Commercial Arbitration: A Single Institution?, 25 COLUM. J. TRANSNT’L L. 9, 23 (1986) (“[T]he autonomy of parties in choosing the applicable law is not absolute

choice.15 Consequently, courts traditionally have refused to enforce private contractual choice of law clauses if enforcement would result in the displacement of the forum’s applicable public law.16 The same is true of choice of forum clauses — if the contractually designated forum would fail to apply the applicable public law of the forum before which the dispute has been brought, the latter forum will simply ignore the clause.17 The European Union’s Convention on the Law Applicable to Contractual Obligations is explicit about this limited scope of contractual autonomy.18

15 Henri Battifol, Public Policy and the Autonomy of the Parties: Interrelations Between Imperative Legislation and the Doctrine of Party Autonomy, in LECTURES ON THE CONFLICTS OF LAW AND INTERNATIONAL CONTRACTS 68, 79 (Hessel E. Yntema reprint ed., 1982) (quoting Ernst Rabel, 2 THE CONFLICT OF LAWS: A COMPARATIVE STUDY (1947)). The earlier references in this sentence to “mandatory law” and “imperative provisions of statutory law,” I believe, are (and were intended by their authors to be) synonymous with “public law,” and not inclusive of those elements of private law, such as statutes of frauds, restrictions on covenants not to compete, and usury restrictions, that also can be “mandatory” or “imperative.” This is because in the context of international transactions, mandatory elements of private law traditionally are subject to displacement by contractual choice of law principles, even though they remain mandatory in domestic transactions. See McConnaughay, Reviving the ‘Public Law Taboo, ‘ supra note 4, 35 STAN. J. INT’L L. at 304-305 (and sources cited therein). The private law/public law dichotomy also is more appropriate than “public policy” for demarcating the boundary between those matters that are permissibly within the realm of contractual autonomy and those that are not. See id., at 265-66.

16 See e.g., Knott v. Botany Mills, 179 U.S. 69, 71 (1900) (nullifying a contractual choice of law clause

that, if given effect, would have displaced mandatory provisions of the U.S. Harter Act of 1893 (codified as amended at 46 U.S.C. §§ 190-96 (1994))

17 See e.g., The Hollandia [1983] App. Cas. 565, 574-75 (H.L. 1982) (refusing enforcement of a choice of forum clause that would have displaced the applicable English Carriage of Goods By Sea Act (1971)). A more accurate statement of the principle in the above text probably would be that the forum selection clause is ignored because (rather than “if”) the foreign forum would refuse to enforce otherwise applicable public law because, typically, one nation’s courts will not enforce the public law of another nation. See e.g., Andreas F. Lowenfeld, INTERNATIONAL LITIGATION AND ARBITRATION 1 (1993) (“If the controversy before the court concerns a tax, a trade restriction, or any other matter that could be regarded as falling under public law, the thought that state A might apply the law of state B seems to be out of the question. In such cases, the forum either applies its own law, or if there is no basis for doing that, dismisses the action.”). With respect to the refusal to enforce forum selection clauses that would displace applicable public law, see also Weintraub, Functional Developments, supra note 11, 187 RECUIEL DES COURS at 296 (“If a forum’s mandatory rule would not yield to a clause choosing the law of another country, then it is inconsistent to permit forum law to be evaded by a clause requiring litigation in a court that would not apply the forum’s mandatory rule.”).

18 Article 7(2) of the Convention (see Convention of the Law Applicable to Contractual Obligations, opened for signature June 19, 1980, art. 7(2) O.J. (L266) 1 (EEC)) provides that, “[n]othing in this Convention [including autonomy to choose applicable law as stipulated in article 3(1)] shall restrict the application of the rules of law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract.” See also Mario Giuliano and Paul Lagarde, Report of the Convention

The traditional scope of private international arbitration is similarly restricted. Arbitrability and public law are also “different sides of the same coin,” with arbitrability ending where public law begins.19 Professor Carbonneau explains the relationship as follows: “Arbitrability serves as [the] instrument by which to exempt matters of vital national importance from the reach of private adjudication.”20 Thus, for example, before the relatively recent extension of contractual autonomy to public law by U. S. courts, this principle precluded prospective agreements to privately arbitrate claims arising under U. S. antitrust laws,21 securities laws,22 intellectual property laws,23 and most other economic regulatory legislation.24 Other nations continue to forbid the private arbitration of matters governed by public law.25 The assumption of the inarbitrablity of public law claims was so pervasive at the time of the drafting of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,26 in fact, that the Swiss delegate to the Convention proposed changing the reference to “Foreign Arbitral Awards” in the Convention’s title to “Arbitral Awards in Private Law.”27

At the same time that most nations have jealously guarded the private law/public law boundary between those matters within the scope of private contractual autonomy and those that are not, they also have resisted any temptation to interfere with the exercise of autonomy within the realm of private law. This difference presumably reflects the

on the Law Applicable to Contractual Obligations, 1980 O.J. (c282) 1, 28 (noting that, “The origin of [article 7(2)] is found in the concern of certain delegations to safeguard the rules of law of the forum (notably rules on cartels, competition and restrictive practices, consumer protection and certain rules concerning carriage) which are mandatory in the situation whatever the law applicable to the contract may be.”).

19 See note 12 and accompanying text, supra, and Filip de Ly, The Place of Arbitration in the Conflict of Laws of International Commercial Arbitration: An Exercise in Arbitration Planning, 12 Nw. J. Int’l L & BUS. 48, 61 n. 49 (1991-92) (“The issue of arbitrability is closely related to mandatory law.”).

20 Thomas E. Carbonneau, The Exuberant Pathway to Quixiotic Internationalism: Assessing the Folly of Mitsubishi, 19 VAND. J. TRANSNT’L L. 265, 295 (1986).

21See e.g., Applied Digital Tech. V. Continental Cas. Co., 576 F.2d 116 (7th Cir. 1978)

22 See e.g., Wilko v. Swan, 346 U.S. 427 (1953), overruled by Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484 (1989).

23 See e.g., Kamakazi Music Corp. v. Robbins Music Corp., 522 F. Supp. 125 (S.D.N.Y. 1981), aff’d 684 F.2d 228 (2d Cir. 1982) (copyright).

24 See e.g., Jacobsen v. Merrill-Lynch, Pierce, Fenner & Smith, Inc., 797 F.2d 1197 (3d Cir. 1986) (concerning the inarbitrability of claims arising under the U.S. Racketeer Influenced and Corrupt Organization Act, or RICO), and Indussa Corp. v. S.S. Ranborg, 377 F.2d 200 (2d Cir. 1967) (concerning the inarbitrability of claims arising under the U.S. Carriage of Goods by Sea Act, or COGSA).

25 See e.g., Soc. Audi-Nsu Auto Union A.G. v. S.A. Adelin Petit, Cour de Cassation, Belgium, June 28, 1979 (1 Pasicrisie Belge 1260) (concerning the inarbitrability of claims arising under Belgium’s Law of July 21, 1961 regarding the Unilateral termination of Exclusive Distributorship Contracts).

26 See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2518, 330 U.N.T.S. 38 (hereinafter, New York Convention), which provides the basic legal environment for international commercial arbitration, is well known (as “the New York Convention”) to all those familiar with international arbitration, and which I briefly discuss infra in note 30.

27 See U.N. Conference on International Commercial Arbitration, Summary Record of Twenty-Third Meeting, Monday, June 9, 1958, 3:30 p.m., in E/Conf.26/SR.23 12 September 1958, as reprinted in III INTERNATIONAL COMMERCIAL ARBITRATION, C.203 (G. Gaja, ed., 1979).

heightened level of public interest inherent in matters regulated by public law, together with a healthy respect and preference for private ordering in matters otherwise governed by private law.28 Thus, for example, most nations have all but abandoned any requirement that the law designated in a contractual choice of law clause bear some relationship to the parties or to their transaction, thereby freeing parties to international transactions to designate as singularly applicable whatever law they like for whatever reason.29 Similarly, in the context of international commercial arbitration, the New York Convention, modern national arbitration laws, and national judicial deference have combined to enable parties to international transactions to elect a virtually complete divorce between their private commercial arbitration procedures and awards, on the one hand, and any significant national “control mechanisms” or judicial review, on the other.30 Moreover, when contractual choice of law is exercised in the context of

28 See e.g., Carbonneau, The Exuberant Pathway, supra note 20, and McConnaughay, Reviving the “Public Law Taboo, ” supra note 4, 35 STAN. J. INT’L L. at 300-305 (and sources therein).

29 See e.g., Klaus Peter Berger, THE CREEPING CODIFICATION OF LEX MERCATORIA 76 (1999) (“One has to bear in mind that parties to an international contract may choose a law that has no connection to the transaction. The requirement [of]the past that the law chosen by the parties needs to have some ‘sensible connection’ with the case, has long been abandoned.”)

30 I document this readily available divorce in detail in McConnaughay, The Risks and Virtues of Lawlessness, supra note 7, 93 Nw. U. L. REV. at 463 to 470. To summarize briefly, the New York Convention (supra note 26), to which virtually all of the world’s trading nations have acceded (123 nations had acceded as of August 13, 2000

international commercial arbitration, the scope of autonomy becomes even greater. Unlike in most national courts, applicable “law” in an arbitration may include lex mercatoria, amiable composition, ex aequo et bono, or even rules or principles of the parties’ own making.31 Consequently, within the realm of matters otherwise governed by private law, it is fair to say that nations have largely ceded to parties to international commercial transactions virtually complete freedom and control over the law, rules or principles that will govern their relationship, and over the procedures and outcomes that will govern the resolution of their disputes.

II. The Benefits of Autonomy Within its Traditional Scope

court the business of hosting arbitrations by ensuring the greatest scope of party autonomy possible. See e.g., Code Judicature Art. 1717, Law of March 27, 1985 (Belgium)

31 National courts typically are far less willing than international arbitrators to entertain designations of general legal or equitable principles as the “law” applicable to an international transaction. In the context of international commercial arbitration, such designations effectively are insulated from judicial review by the New York Convention. See e.g., Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS 191-195 (1999) and at 195 (noting that courts in France, Austria, Italy, England and the United States “havenot viewed the application of general principles of law by arbitrators as an objection to the enforceability of the award”)

One wonders how international commerce today could proceed without the autonomy of parties to international transactions to designate applicable law and privately arbitrate commercial disputes. The exercise of autonomy is capable of resolving all uncertainty regarding prescriptive and adjudicative jurisdictional issues with respect to matters governed by private law — thereby eliminating the possibility within that realm of subjecting a cross-border transaction to multiple or inconsistent legal rules, or to simultaneous judicial proceedings in more than one jurisdiction with respect to the same issue or dispute.32 Contractual autonomy thus contributes enormously to the efficiency of international commercial transactions, both by enabling prospective planning and cost accounting to a degree otherwise unobtainable, and by preventing the destructive and costly litigation tactics and jockeying that otherwise would be possible in the absence of pre-existing contractual designations of applicable law and an arbitral forum.

These virtually indispensable benefits of autonomy in international contracts, of course, do not arise simply out of the parties’ contractual designations. The contractual selection of a single applicable law would provide little in the way of certainty and

benefit if circumvention were possible by filing suit in a forum that refused recognition of the selection. The same is true of contractual promises to privately arbitrate international commercial disputes and of the final awards that emanate from arbitrations. The value of autonomy lies in its universality, of which the New York Convention is a principal guarantor. By virtue of their accession to that Convention, 123 nations, to date, have agreed to honor written agreements to privately arbitrate international commercial disputes to the exclusion of national court jurisdiction, and to enforce the awards that result from these arbitrations to the exclusion of most national judicial review.33 Moreover, the judiciaries of these nations, by and large, have reinforced autonomy in the context of private law by acknowledging explicitly what is only implicit in the New York Convention — the complete freedom to designate applicable law, to the exclusion of otherwise applicable law, in the context of private arbitration.34 Thus, it is the virtually universal recognition of contractual autonomy in international transactions that enables

32 I use the words “prescriptive” and “adjudicative” in this sentence according to their conventional definitions: “prescriptive jurisdiction” concerns the authority of a state to make its law applicable to persons or activities, while “adjudicative jurisdiction” concerns the authority of a state to subject persons to its judicial process (i.e., in personam jurisdiction and subject matter jurisdiction). See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW §401 (a) – (c) (1988)

33 See note 30, supra.

34 See notes 29, 30 and 31, supra.

commercial parties to reliably select an applicable law and arbitral forum to the exclusion of all non-selected alternatives.

Autonomy in international contracts also offers another indispensable benefit for international commerce — the opportunity to create new principles and procedures for governance and dispute resolution in West/non-Western commercial relationships, where fundamentally different understandings often exist with respect to the role of law and contracts in the structure and governance of commercial relationships. This opportunity – which is increasingly important for international commerce in light of the burgeoning trade between Asia and the West – exists because contractual autonomy in international transactions enables commercial parties to elect a virtually complete divorce between their private arbitral procedures, choice of applicable “law,” and final arbitral awards, on the one hand, and any significant national “control mechanisms” or judicial review, on the other.35

The essential problem that confronts international transactions including parties from both Western and non-Western traditions is that law and contracts are determinative of commercial performance and dispute resolution outcomes in the Western tradition, but often subordinate to other values in several non-Western commercial traditions, particularly those of Asia. The result is that Western and non-Western parties sometimes have entirely different expectations with respect to their obligations and entitlements in the performance cross-border commercial transactions. To explain typical Western expectations first, it is clear that the “rule of law” that is at the core of the Western legal tradition translates in matters of commerce into the primacy of law and contracts in the

35 See note 30 and accompanying text, supra. Many leading commentators consider the absence of national judicial “control mechanisms” on international arbitration to be a source of major problems for international transactions rather than, as I suggest, a source of major benefit. These commentators believe that the primary objective of parties to international arbitrations is “legally correct” outcomes, and that the absence of judicial “control mechanisms” unacceptably diminishes the probability of such outcomes. See e.g., W. Michael Reisman, SYSTEMS OF CONTROL IN INTERNATIONAL ADJUDICATION AND ARBITRATION (1992)

Vignior ‘s Case to Mitsubishi: The Future of Arbitration and Public Law, 12 BROOKLYN J. INT’L L. 583, 626 (1986) (urging the standardization of arbitral procedures and rules of evidence). As I suggest implicitly in the following text, I believe that these proposals reflect value-laden Western notions of “commercial justice” that do not account adequately (if at all) for the dispute resolution expectations of non-Western participants in international commerce, particularly participants from East Asia. I consequently believe that such “Westernizing” proposals are more likely to defeat the purpose of international arbitration (i.e., to provide a truly neutral forum for the resolution of cross-cultural as well as international disputes) than they are to serve that purpose. See generally, McConnaughay, Rethinking the Role of Law and Contracts in East-West Commercial Relationships, supra note 10, notes 123 to 138 and accompanying text, and McConnaughay, The Risks and Virtues of Lawlessness: A ‘Second Look’ at International Commercial Arbitration, supra note 7, 93 Nw. U. L. REV. at 500-501.

structure and governance of commercial transactions36 International commercial relationships between Western parties tend to commence with a detailed written contract that recites the parties’ respective rights and obligations (not only actual but contingent), and the parties fully expect to abide by this recitation during the course of their relationship. If a matter is not addressed in the contract, there is no obligation or entitlement

36 It is now generally recognized that it is appropriate to speak of a “Western legal tradition,” particularly for purposes of comparison to non-Western traditions (see note 38, infra, for an explanation of “non-Western traditions). I use the phrase “Western legal tradition” to refer to the common characteristics of the two great legal families of the Western world, the Romanic civil law and the English common law. See e.g., Harold J. Berman, LAW AND REVOLUTION: THE FORMATION OF THE WESTERN LEGAL TRADITION 2 (1983) and John Henry Merryman, On the Convergence (and Divergence) of the Civil Law and the Common Law, 17 STAN. J. INT’L L. 357, 358 (1981) (noting that, “Within each family [i.e., the civil law and the common law] the national legal systems share certain characteristics that, despite their many dissimilarities, mark them as participants in a common legal culture.”). The “rule of law” is the most important of these common characteristics. A.V. Dicey explained the rule of law as follows: ” Th[e] ‘rule of law’ means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, or prerogative, or even of wide discretionary authority on the part of the government. Englishmen are ruled by the law, and by the law alone.” A.V. Dicey, INTRODUCTION TO THE STUDY OF THE LAW OF THE CONSTITUTION 199 (10th ed. 1959). See also Richard H. Fallon, Jr., “The Rule of Law” as a Concept in Constitutional Discourse, 97 COLUM. L. REV. 1 (1997), for further refinement of the definition. The “rule of law’ becomes the “rule of law and contract” in the context of commerce. See e.g., Eric A. Posner, The Parol Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. PA. L. REV. 533 (1998) (“[W]hen a contract’s terms specify the obligations of the parties in the case of some contingency, and the contingency occurs, a court should enforce the terms.”), and Ian R. Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw.U.L.Rev. 854, 864 (1978) (noting that classical contract law “equatesthe legal effect of a transaction with the promises creating it.”). Obviously, the contract’s organizing force in this regard derives from and occurs in accordance with the law. As Lord Diplock observed in Amin Rasheed Shipping Corporation v. Kuwait Insurance Company [1983] 3 W.L.R. 241, 245, “[T]he purpose of entering into a contract being to create legal rights and obligations between the parties to it, interpretation of the contract involves determining what are the legal rights and obligations to which the words used in it give rise. This is not possible except by reference to the system of law by which the legal consequences that follow from the use of those words is to be ascertained.

37 The parol evidence rule is a good example. This rule essentially forbids the consideration in a commercial dispute of prior or contemporaneous writings or statements of the parties that contradict or supplement their contract as written. The rule thus places commercial parties at the risk of losing the benefit of any term not stated in the contract, and essentially restricts to the contract’s written terms the sources that may be considered in establishing the substantive content of a commercial transaction. See e.g., E. Allen Farnsworth, FARNSWORTH ON CONTRACTS 192 (2d ed. 1990), and John D. Calamari and Joseph M. Perillo, THE LAW OF CONTRACTS 122 (4th ed. 1998). See also K.M. Sharma, From “Sanctity” to “Fairness “: An Uneasy Transition in the Law of Contracts, 18 N.Y. L. Sch. J. INT’L & COMP. L. 95, 156 n. 216 (1999) (“Classical theorist[s] and judges, expressing strong faith in the objectivity of language, extolled the prudence of the parol evidence rule as a valuable incentive to reduce agreements to writing and, equally as an important safeguard against dissemblers.”). Merger clauses and a variety of interpretive rules and canons of construction of contract law have the same purpose and effect. See e.g., Calamari and Perillo, THE LAW OF CONTRACTS, supra this note, at 139-40

on a comparison of actual conduct to contractual prescriptions and demands. Breach, blame and liability follow, essentially uninfluenced by non-contractual values and circumstances. Law and contracts shape and reflect the commercial expectations of Western parties. Western parties expect no more, nor less, than law and contract prescribe.

Cross-border transactions including non-Western parties often commence with a written contract as well

appropriate meaning

38 As I explain in the following text, the relevant characteristic that these non-Western traditions tend to share (despite their rich diversity in many other respects) is the traditional subordination of law and contracts to other values in the context of commercial relationships. See e.g., René David and John E.C. Brierly, MAJOR LEGAL SYSTEMS IN THE WORLD TODAY 28-30 (3rd ed., 1985) (noting at 28 that, in these societies traditionally, “the very notion of law is rejected and social [and commercial] relations are governed by extra-legal means,” and at 30 that, “observations regarding [the subordinate role of law and contract in] the Far East apply as well to the black African countries.”). I do not intend to include within my use of the phrase “non-Western traditions” Muslim and Hindu traditions which, although not Western in origin, share with the West a belief in law’s organizing properties, even though the content of law in these traditions often is quite different from the content of law in the West. Id., at 28-29. My following observations about non-Western traditions are grounded primarily in personal observations and research regarding the leading non-Western trading nations of China, Japan, and Korea, which leading scholars consider somewhat substitutable for this purpose. See e.g., John Owen Haley, AUTHORITY WITHOUT POWER: LAW AND THE JAPANESE PARADOX 3 (1991) (“One can accurately substitute Korea or China for Japan for many observations [about the role of law in society].”). I believe that the general observations I make are relevant and appropriate with respect to Southeast Asia and other non-Western societies as well. See e.g., Adda B. Bozeman, THE FUTURE OF LAW IN A MULTICULTURAL WORLD 164 (1972) (“law is of minimal importance in all non-Western societies”)

characteristic of these non-Western traditions for purposes of this comparison is the frequent subordination of law and contracts in the governance of commercial relationships in favor of other values, such as mutual adjustment to evolving circumstances and contingencies. As Professor Arthur von Mehren once observed of Japanese commercial practices, “[despite] the tendency to use legal forms [such as written contracts], the parties do not contemplate the regulation of the relationship

thus initiated by formal legal standards, but rather seek a pattern of continuing association in which adjustment will be responsive to considerations the law [and contract] ignore.”39

This traditional subordination of law and contracts results primarily from two factors. First, unlike in the West, where the law carries great moral authority because of its popular association with deistic mandates,40 law in the East has never had a deistic or moral associational reference. Instead, law in the East was popularly understood as simply originating with arbitrary rulers — law was perceived as little more than the instrumental commands of those who possessed political power.41 Law in the East was not perceived as inspired by a “higher law,” and it offered no rights or protections against official arbitrariness. 42 In the mind of the public, law was subordinate to, rather than

within the non-Western world, particularly today, and I do not intend my following generalizations to contradict these important differences.

39 Arthur T. von Mehren, Some Reflections on Japanese Law, 71 HARV. L. REV. 1486, 1494 (1958). See the last four sentences of note 50 , infra, for citations to scholarship suggesting that contemporary commercial practices in Japan are becoming increasingly legalistic.

40 See e.g., John Owen Haley, AUTHORITY WITHOUT POWER: LAW AND THE JAPANESE PARADOX 24 (1991) (“In all Indo-European systems law originates in some sort of deistic command.”)

41 See e.g., Haley, AUTHORITY WITHOUT POWER, supra note 40, at 14 (“Japan inherited from China a much more ‘positivist’ view of law as a morality-free instrument of government control. Legal rules were nothing more nor less than commands by those who exercised political authority.”)

42 See e.g., John King Fairbank, CHINA 193 (1992) (“[T]he Chinese concept of law was fundamentally different from legal conceptions in the West. [T]he law was not regarded as an external and categorical element in society

reflective of, morality. Avoiding law’s prescriptions, consequently, was far more understandable and honorable than it was a departure from moral obligation.43 Second, law in the East traditionally mattered only in the public realm

As a result of these factors, private commercial transactions in the East and other major non-Western traditions traditionally were ordered primarily by means and values other than law and contract. For example, although written contracts with varying levels of detail often are used in East Asian commercial relationships,47 the traditional East Asian belief is that a contract memorializes the beginning of a business relationship rather than the conclusion of a business deal. The contract anticipates rather than defines the ensuing transaction

reasoned from daily life without the aid of any deity. It followed that legal rules were but one expression of this morality. So the breaking of such rules was a matter of practical expedience rather than of religious principle. Laws were subordinate to morality [rather than supposedly reflective of it]. This system avoided the unhappy dualism that grew up in the West between the letter of the law and the dictates of commonsense morality.”)

43 Se e.g., Fairbank, CHINA, supra note 42 (quoted passage), and Yosiyuki Noda, The Character of Japanese People in their Conception of Law, in THE JAPANESE LEGAL SYSTEM 301-310 (H. Tanaka, ed., 1976) (“We Japanese do not go so far as to consider a breach of contract to be a thing of virtue but we certainly are not very serious about honouring contracts. One might say that a breach of contract is not often accompanied by a sense of guilt. [A] contract is often regarded as sort of a tentative agreement [which must be reformed as circumstances change].”)

44 See e.g., A.F.P. Hulsewe, The Legalists and the Laws of Chi’in, in LEYDON STUDIES IN SINOLOGY 2 (W.L. Idema, ed., 1981) (“[T]hrough the ages ‘law’ to the Chinese always meant public law

45 Bodde and Morris, LAW IN IMPERIAL CHINA, supra note 40, at 4. See also Fairbank, CHINA, supra note 42, at 183-84, to the same effect.

46 Haley, AUTHORITY WITHOUT POWER, supra note 40, at 97.

47 See e.g., Whitmore Gray, The Use and Non-Use of Contract Law in Japan, 17 L. JAPAN 98, 112 (1984). Portrayals of contracting practices in the Far East range from a strong aversion to written contracts (see e.g., Takeyoshi Kawashima, The Legal Consciousness of Contract in Japan (trans. Charles R. Stevens), 7 LAW IN JAPAN 1, 6 (1974) “the existence is well-known of a custom in our country’s society that the drawing up of a written document incorporating the agreement is disliked”), to the use of contracts but with a strong preference for indefinite and flexible terms (id., at 16), to the use of highly detailed written contracts at least facially similar to those typical in the West (see e.g., Rosser Brockman, Commercial Contract Law in Late Nineteenth-Century Taiwan, in ESSAYS ON CHINA’S LEGAL TRADITION, supra note 41, at 83).

relationship that is expected to adjust responsively to future contingencies that may be ignored or even contradicted in the contract or codified law.48 Traditional East Asian practice rejects the notion that mere contractual predictions of contingencies and their consequences necessarily should prevail over actual events and circumstances.49

Relational and situational considerations also have shaped non-Western commercial dispute resolution practices. They help explain the traditional preference throughout Asia for conciliation over adjudication, and the preference for privacy and procedural flexibility characteristic of non-Western commercial dispute resolution.50 Relational

48 See e.g., Roderick W. Macneil, Contract Law in China: Law, Practice, and Dispute Resolution, 38 STAN. L. REV. 303, 327 (1986) (“[T]he Chinese regard contracts as relationships”) and 327, n.92 (noting “the Chinese concept of the contractual relation as an unfolding process”)

49 See e.g., Arthur von Mehren, Some Reflections on Japanese Law, supra note 39, 71 HARV. L. REV. at 1496 (“Japanese society does not wholeheartedly accept that a high degree of predictability is to be assured as to the consequences of particular conduct long before the conduct has occurred.”)

50 For the traditional preference for conciliation over adjudication see e.g., Stanley B. Lubman, Dispute Resolution in China After Deng Xioaping: Mao and Mediation Revisited, 11 COLUM. J. ASIAN L. 229, 295-96 (1997) (“Mediation is deeply rooted in traditional Chinese culture because it emphasizes the desirability of maintaining personal relationships. [P]eople do not want to use law to handle ordinary disputes and [thereby] injure relationships. Mediation offers opportunities for face-saving compromise as an alternative to an all-or-nothing outcome.”)

considerations also help explain the strong traditional preference throughout Asia for dispute resolution outcomes that restore working relationships and avoid attributions of fault and blame even if the outcomes are in no sense “legally correct.”51 All of these preferences and expectations, moreover, have currency in the sense that they continue to influence contemporary commercial practices and expectations.52

such as governmental policies and incapacities and the relatively low numbers of courts and lawyers, are better explanations of these “preferences,” at least in the context of whether or not private parties seek vindication of their legal rights in domestic courts. See e.g., Haley, AUTHORITY WITHOUT POWER, supra note 40, at 108 to 119

51 See e.g., John Gillespie, Law and Development in ‘The Market Place, ‘ in LAW, CAPITALISM, AND POWER IN ASIA 118, 128-129 (1999) (writing with reference to Vietnam, “In a society where adversarial dispute resolution reflects unfavourably on all parties, winner-take-all outcomes are particularly offensive. Outcomes rarely confor[m] to legal norms.”).

52 Even though most Asian nations now have modern commercial laws modeled after Western commercial laws (see McConnaughay, Rethinking the Role of Law and Contracts, supra note 10, at notes 12 to 17 and accompanying text, for a matching of Asian nations and Western sources of law), the persistent “normative gap” between written commercial law and commercial behavior in these nations is well-known and welldocumented. See e.g., Dan Fenno Henderson, The Japanese Law in English: Some Thoughts on Scope and Method, 16 VAND. J. INT’L L. 601, 607-612 (1983) (“[The Japanese now have “hundreds of years of experience with imported western justiciable law [and] the legal literature produced during this period – treaties, commentaries, and case law – is voluminous, systematic, and refined. [Nonetheless], [t]he mix of social and legal institutions remains subtle and elusive to the comparative lawyer with little exposure to Japanese society. [E]ven today, the role of law in Japanese society is minimized.”)

A principal virtue of autonomy in international contracts is that, precisely because of its effective divorce from parochial national legal concerns, it offers the opportunity for parties to international transactions to attempt to accommodate the fundamentally different views often held by Western and non-Western parties with respect to of the role of law and contracts in the governance of commercial transactions. For example, autonomy in the context of international commercial arbitration enables parties to adopt dispute resolution procedures that afford: (i) complete privacy and confidentiality, (ii) flexible rules of procedure, (iii) elastic notions of relevance, (iv) substantial presentational variations, and (v) wide ranging arbitrator responsibilities and dispute resolution techniques capable of outcomes that might deviate from conventional Western notions of commercial justice but that still yield (thanks to the New York Convention53) reliably enforceable final awards.54 Autonomy also enables contractual designations of governing law (at least in the context of international arbitration55) that is not “law” at all. Rather, parties may designate as the applicable rules of decision principles of equity or lex mercatoria which, precisely because of their openness to situational considerations and outcomes that subordinate legal rules to other values, offer the potential of articulating new rules and principles that are appropriate and fair in the unique context of West/non-West transactions.56

of law and organization continue to contend for dominance”) and at 376 (“The strength of traditional values presents a considerable obstacle to the deepening of legal consciousness and the strengthening of legal institutions.”)

53 See notes 30 and 31 and accompanying text, supra.

54 See generally, McConnaughay, Rethinking the Role of Law and Contracts, supra note 10, at notes 123 to 138 and accompanying text.

55 See note 31 and accompanying text, supra.

56 See generally, McConnaughay, Rethinking the Role of Law and Contracts, supra note 10, at note 138 to 178 and accompanying text. Professor Berthold Goldman’s definition of lex mercatoria as the “general principles and customary rules spontaneously referred to or elaborated” in the context of international trade is an apt description of the mechanism by which new principles might emerge for the structure and governance of West/non-West commercial relationships. Berthold Goldman, The Applicable Law: General

Thus, autonomy in international contracts within the realm of private law provides commercial parties not only with the opportunity to resolve all uncertainty with respect to applicable law and adjudicative jurisdiction, it also offers the opportunity to address what can be one of the most perplexing challenges facing West/non-West commercial relationships: accounting in the structure and governance of such relationships for traditions so different that law and contract are determinative of performance and outcomes in one but often subordinate to other values in the other.

III. The Extension of Autonomy in International Contracts to Public Law

The extension by United States courts of autonomy in international contracts to public law is well established with respect to the private arbitration of public law claims, but far more recent with respect to contractual choice of applicable public law. Each development is summarized separately below.

A. Autonomy to Arbitrate Public Law Claims

A trilogy of Supreme Court cases spanning twenty years leaves little doubt about the arbitrability of claims arising under U. S. public laws concerning commerce in the context of international transactions. In Scherk v. Alberto-Culver the United States Supreme Court authorized the international arbitration of claims arising under the Securities Exchange Act of 1934,57 in Mitsubishi v. Soler Chrysler-Plymouth the Court authorized the international arbitration of claims arising under the Sherman Act,58 and in Vimar Seguros Y Reaseguros v. M/V Sky Reefer the Court authorized the international commercial arbitration of claims arising under the Carriage of Goods by Sea Act.59 The Court reasoned that the availability of a single arbitral forum for the resolution of all claims between parties to international transactions, whether based on private or public law, promotes predictability in international commerce and avoids “unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages.”60 Additionally, the Court believed that, “concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the

Principles of Law – The Lex Mercatoria, in CONTEMPORARY PROBLEMS IN INTERNATIONAL ARBITRATION 113, 116 (Julian D.M. Lew, ed., 1987). Of course, the complete contractual autonomy of parties in the realm of private law also will permit the creation of new explicit terms of contract that are intended to help bridge the normative gap between West and non-Western commercial and legal practices. One can imagine, for example, new terms of contract that blur the distinction between dispute resolution and performance by articulating mutual executory promises to consider and adjust in good faith to evolving circumstances in a business relationship. Or, the articulation of general ongoing duties might assume far greater importance in the contract drafting process as the articulation of possible contingencies and their consequence recedes in importance. See generally, McConnaughay, Rethinking the Role of Law and Contracts, supra note 10, at notes 179 to 182 and accompanying text.

57 417 U.S. 506 (1974) (the relevant provision of the Securities Exchange Act of 1934 is codified at 15 U.S.C. §78j(b)).

58 473 U.S. 614 (1985) (the Sherman Act is codified at 15 U.S.C. §§ 1-7).

59 515 U.S. 528 (1995) (the Carriage of Goods by Sea Act, or “COGSA,” is codified at 46 U.S.C. App. §§ 1300-15.

60 Scherk v. Alberto-Culver, 417 U.S. 506, 516 (1974).

international commercial system for predictability in the resolution of disputes require that we enforce [agreements to arbitrate public law claims], even assuming that a contrary result would be forthcoming in a domestic context.”61 Although the doctrinal basis for the Court’s rulings in this regard may have been questionable,62 it has become abundantly clear that the Court contemplates no retreat from its rulings permitting the private arbitration of public law claims.63

B. Autonomy to Designate Applicable Public Law

The extension of autonomy in international contracts to prospective agreements to arbitrate public law claims clearly adds predictability to international commerce in the sense of eliminating the possibility of multiple dispute resolution forums between commercial parties depending on the nature of the claims between them. However, it does not address the “problem” of international commercial parties having to comply with the public laws of the possibly multiple nations that may have exercised prescriptive jurisdiction with respect to them and their transactions. The Supreme Court decisions outlined above authorized the displacement of otherwise applicable U.S. judicial forums for the resolution of U.S. public law claims, but they did not authorize the displacement of otherwise applicable U. S. public law. 64 The contemplated change was one of procedure, not substance.65

61 Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. 614, 619 (1985). Of course, since these cases, it has become abundantly clear that U.S. public law claims are arbitrable in a domestic context as well. See e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 n.26 (1991) (“It is by now clear that statutory claims may be the subject of an arbitration agreement. Indeed, in recent years we have held enforceable arbitration agreements relating to claims under the Sherman Act, the Securities Exchange Act of 1934, the civil provisions of the RICO Act, 18 U.S.C. § 1961 et seq., and § 12(2) of the Securities Act of 1933, 15 U.S.C. §77(2).”).

62 The Court predicated its rulings on the Federal Arbitration Act (9 U.S.C. §§ 1-14), section 2 of which provides in pertinent part that, “a written provision in a maritime transaction or a contract evidencing a transaction in commerce to settle by arbitration a dispute thereafter arising out of such contract or transaction shall be valid, irrevocable, and enforceable.” Although in 1984 the Court had declared that, “[A]lthough arbitration is well suited to resolving contractual disputes, it cannot provides an adequate substitute for a judicial proceeding in protecting federal statutory [claims],” (McDonald v. City of West Branch, 466 U.S. 284, 290 (1984)), in Mitsubishi v. Soler Chrysler-Plymouth, decided the following year, the Court decided that, “we find no warrant in the Arbitration Act for implying within every contract within its ken a presumption against arbitration of statutory claims. The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” 473 U.S. at 625. See McConnaughay, The Risks and Virtues of Lawlessness, supra note 7, 93 Nw. U. L. Rev. at 481-82 for a critical analysis of the Court’s statutory interpretation in this regard.

63 See note 61, supra.

64 Dicta in the two most recent cases of the Supreme Court’s trilogy made clear that the Court’s holdings were limited to the enforceability of prospective agreements to arbitrate public law claims and did not extend to agreements to displace otherwise applicable public law: “[I]n the event [that] choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation condemning the agreement as against public policy.” Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. 614, 637 n.19 (1985) and Vimar Seguros Y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 541 (1995).

65 See e.g., Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. at 627 (“By agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute

The extension of autonomy in international contracts to the displacement of otherwise applicable public law in favor of contractually designated public law has occurred at the level of U. S. Courts of Appeals In unanimous rulings by the Second, Fourth, Fifth, Seventh, Ninth, Tenth, and Eleventh U.S. Circuit Courts of Appeals, private parties to international commercial transactions have been allowed to contractually displace otherwise applicable U. S. securities law so long as the designated substitute “vindicates” similar rights and does “not subvert” the general policy of the displaced U. S. public law, even if the designated substitute is less protective of the complainants’ rights than the displaced U. S. public law.66 All of the cases involved: (i) investments by U.S. investors in the London-based Lloyd’s of London insurance market, (ii) allegations by investors that their investments had been fraudulently procured in violation of U.S. securities laws, and (iii) explicit contractual choice of law clauses designating the law of England as the law governing the investments.67 The policy rationale invoked by all of these courts in support of their respective rulings was the same

(1974) (“Our decision, of course, has no bearing on the scope of the substantive provisions of the federal securities laws.”).

66 See Richards v. Lloyd’s of London, 135 F.3d 1289 (9th Cir. 1998)

All of the Lloyd ‘s cases assumed (rather than finding) that U.S. securities law would have applied to the defendants’ conduct but for the contractual choice of law clause designating the law of England as applicable. See e.g., Haynsworth, 121 F.3d at 966

67 More elaborate statements of the facts of these cases are available in Richards, 135 F.3d at 1291 -92

as that which supports contractual choice in the private law context. The courts assumed that concurrent regulatory jurisdiction among several nations over the same transaction unduly burdens international commerce, and accordingly decided that, so long as contractually designated law provides some reasonable remedy to an allegedly aggrieved contracting party, sophisticated parties to international transactions should be held to arm’s-length agreements selecting a single applicable public law to the exclusion of otherwise applicable public laws.68 The Ninth Circuit recently extended this principle to the contractual displacement of otherwise applicable U. S. antitrust law.69 While the scholarly foundation for these judicial extensions of contractual autonomy to public law

is long-standing and impressive,70 the doctrinal foundation is not.71 The remainder of this

68 See e.g., the text accompanying note 66, supra, and Haynsworth, 121 F.3d at 969 (“The American system of securities law may be the broadest, most comprehensive of all. We refuse to accept the notion, however, that the sheer scope of U.S. securities law automatically renders that of other nations inferior.”)

clearly international in scope. Comity weighs in favor of enforcing the [choice] clauses.”)

69 Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 723 (9th Cir. 1999) (“[I]t is possible that the Swiss tribunal might apply U.S. antitrust law to the dispute [but] even if Swiss law is applied to the dispute, there has been no showing that it will not provide Simula with sufficient protection.”).

70 There is a large body of scholarship by many of the leading legal scholars of this and the last century urging the eligibility of public regulatory law for the choice of law considerations ( both conflict of laws and contractual choice of law) reserved traditionally for private law matters. These scholars have argued that it is a mistake “to separate the existence of authority [to apply public law] from the wisdom of applying it” (see Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 AM. J. INT’L L. 280, 299 (1982)), and on that basis have urged that “[p]ublic law [should be] eligible for the choice of law process.” See Andreas F. Lowenfeld, Public Law in the International Arena: Conflicts of Law, International Law and Some Suggestions for their Interaction, 163 RECUEIL DES COURS 311, 350 (1979). See also e.g., Donald T. Trautman, The Role of Conflicts Thinking in Defining the International Reach of American Regulatory Legislation, 22 OHIO ST. L. J. 586 (1961), and KINGMAN BREWSTER, JR., ANTITRUST AND AMERICAN BUSINESS ABROAD (1958). The Third Restatement of Foreign Relations Law also urges that the applicability of public regulatory law be limited not only by the interests of other sovereign nations, but also by the expectations (i.e., contracts) of the parties to international transactions. See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW §403 and §403(2)(d) (requiring an assessment of the appropriateness of prescriptive jurisdiction in light of “the existence of justified expectations that might be protected or hurt by the regulation’). See generally, McConnaughay, Reviving the ‘Public Law Taboo, ‘ supra note 10, 35 STAN. J. INT’L L. at 274 to 280.

71 The Lloyd ‘s courts relied exclusively on Supreme Court precedent in the private law context (The Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972) (breach of contract and negligent towage claims under maritime law) and Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (breach of contract and negligent passenger carriage claims under maritime law)) for the proposition that choice of forum and law clauses in international transactions are generally enforceable. The Lloyd ‘s courts either discounted or ignored: (1) the explicit antiwaiver provisions in the displaced U.S. securities laws (see note 83, supra, for the text of these provisions), (2) contrary Supreme Court precedent in the public law context (see Knott v. Botany Mills, 179 U.S. 69, 71 (1900), which nullified a contractual choice of law clause that would have displaced the U.S. Harter Act, a public law imposing certain duties on common carriers), (3) more recent Supreme Court dicta strongly suggesting the currency of the Knott v. Botany Mills rule (see M/V Sky Reefer, 515 U.S. 528, 540-41, and Mitsubishi, 473 U.S. at 637 n.19), and (4) the Supreme Court’s decision in Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993), which, in holding that application of the

article will focus on the likely impact of this extension, as opposed to the propriety of its occurrence by judicial rather than legislative decision.72

IV. The Extension of Autonomy to Public Law by Developed Nations

The United States judiciary’s extension of autonomy in international contracts to public law is singular in its clarity and scope.73 This section assesses the impact of this extension on international commerce, and considers the question of whether other developed nations should follow suit. First, though, a clarification of the definition of “public law” is in order.

A. Clarifying the Definition of Public Law

The outset of this article suggested a categorical definition of “public law” that includes regulatory laws such as antitrust, securities, environmental, exchange control, and tax law, in contrast to categories of “private law” such as contract, tort, and family law.74 Two important traditional characteristics of public law emerge from these

Sherman Act to British defendants may not be displaced by considerations of comity or the expectations of private parties in the absence of a “true conflict” making it “impossible” for the defendants to comply with all applicable regulatory law (id., at 798-99), clearly suggests that the Lloyd ‘s cases have it wrong in deciding that otherwise applicable U.S. securities law may be displaced because there is no true conflict with British regulatory law. See generally, McConnaughay, Reviving the ‘Public Law Taboo, ‘ supra note 10, 35 STAN. J. INT’L L. at 298-99, and McConnaughay, The Risks and Virtues of Lawlessness, supra note 7, 93 Nw. U. L. REV. at 490-93.

72 See note 71, supra, for a summary explanation of why, in the United States at least, the judicial extension to public law of contractual autonomy to displace applicable law is not proper. See note 81, infra, for an explanation of why autonomy to settle public law claims does not support prospective contractual agreements to displace otherwise applicable public law.

73 I am not aware of any nation other than the United States that has declared with equal scope and clarity that claims arising under its public economic regulatory laws are either arbitrable or subject to displacement by contractual choice of law principles. Most nations, it seems, adhere to traditional assumptions that public law is neither arbitrable nor subject to contractual choice of law principles. See notes 12 to 27 and accompanying text, supra.

74 See notes 2 to 4 and accompanying text, supra. U.S. lawyers and legal scholars, of course, unlike their European counterparts, do not ordinarily, at least in a domestic context, classify laws according to whether “public” or “private.” See e.g., John Henry Merryman, The Public Law-Private Law Distinction in European and American Law, 17 J. PUB. L. 3, 15 (1968) (“Conceptions of public law and private law have never figured greatly in the history of the common law.”). For U.S. lawyers and legal scholars, the public/private distinction more often suggests the difference between those matters that are appropriate for government attention and legislation and those matter that are outside the scope of legitimate government concern. See e.g., Symposium, The Public/Private Distinction, 130 U. PA. L. REV. 1289 (1982). In that sense, of course, “all law is public law.” (This phrase is Lenin’s. Letter from V. Lenin to Kurskii, 1922, in 20 SOVIET LEGAL PHILOSOPHY 292 (H. Babb trans., 20th Century Legal Philosophy Series Number 5, 1951), cited in Merryman, supra this note, at 13 n.36.) But the fact that all law serves to order or regulate relationships, in contrast to the completely autonomous ordering that occurs in the “private sphere,” does not mean that all law is equally public, or that all relationships ordered by law are equally public. As Dean Roscoe Pound explained of Roman law, “private law had to do with adjusting the relations and determining the controversies between man and man, while public law had to do with the frame of government, the functions of public officials, and adjustment of relations between individuals and the state.” Roscoe Pound, Public Law and Private Law, 39 CORNELL L. Q. 469, 470 (1939). Professor Maier elaborated on the distinction as follows: “[when] courts are considering the rights and duties of

categories. The first is that the public interest in the correct and effective enforcement of public law, by and large, is significantly greater than the public interest in the correct and effective enforcement of private law. As Professor Merryman has noted, the “driving consideration [behind public law is] the effectuation of the public interest.”75 Public law regulates private conduct in order to prevent public or societal harm76 even when a private citizen rather than the government seeks the public’s protection by securing private recovery.77 Although exceptions obviously occur around the edges of the distinction,78 the fact is that externalities (i.e., public harms) are far more likely to result from noncompliance with a public law (e.g., antitrust law) than from noncompliance with private law (e.g., contract law). Thus the significantly greater public interest in public law’s correct and effective enforcement.

The second traditional characteristic of public law is that its protection ordinarily is not prospectively waivable (at least not until the Lloyd’s cases permitted the prospective displacement of U. S. public law). Unlike private law (such as the main body of contract law), public law does not operate simply in a default capacity in order to provide solutions only when the parties have not done so themselves.79 Rather, the restrictions and regulations imposed by public law are mandatory. 80 If those protected by public

private parties to each other the interests of governments are not directly engaged,” whereas “[a] government always has a direct interest in the outcome of a [public law] case, even when the governmental viewpoint is represented by a citizen-prosecutor seeking private recovery.” Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 AM. J. INT’L L. 280, 289 (1982). As I suggest in the following text, public law concerns public harm, private law private harm. See notes 75 to 78 and accompanying text, infra.

75 Merryman, supra note 74, at 12.

76 See e.g., Randy E. Barnett, Foreword: Four senses of the Public Law-Private Law Distinction, 9 HARV. J. L. & PUB. POL’Y 267, 268 (1994)

77 See Maier, supra note 74. See also Hans W. Baade, The Operation of Foreign Public Law, 30 TEX. INT’L L.J. 429, 447 (1995) (noting that public regulatory law “operates indirectly by channeling, penalizing, invalidating, or rewarding conduct between private parties.”).

78 Some scholars, for example, believe that much of the anticompetitive activity that is the focus of antitrust law (a public law) inflicts essentially private harms. See e.g., Barnett, Four Senses, supra note 76, at 273-74. Others point out that the traditional private law categories of contracts, torts and property law express regulatory, deterrent, and declaratory policies. See e.g., Louise Weinberg, Against Comity, 80 GEO. L. J. 53, 67 and 70 (1991) and Richard J. Bauerfield, Note, Efectiveness of Choice-of-Law Clauses in Contracts Conflict of Laws: Party Autonomy or Objective Determination?, 82 COLUM. L. REV. 1659, 1685 (1982) (“Often, too, regulatory schemes are partially effected through contract law.”).

79 See e.g., RESTATEMENT (SECOND) CONFLICT OF LAWS §187 cmt c (1971) (“[M]ost rules of contract law are designed to fill gaps in a contract which the parties could themselves have filled with express provisions.”), and Allan Philip, Mandatory Rules, Public Law (Political rules) and Choice of Law in the E.E. C. Convention on the Law Applicable to Contractual Obligations, in CONTRACT CONFLICTS (P.M. North, ed., 1982) (noting that private law “[exists] mainly to provide private parties with a solution to their disputes in case they have not done so themselves.”). It is typical of codified contract law to make its default function explicit. See e.g., UCC §1-105(1) and art. 2 (1997), and CISG art. 6, supra note 29. But cf., note 80, infra, with respect to domestic contracts.

80 Of course, there are mandatory provisions of private law (e.g., usury protections, prohibitions of covenants not to compete, statutes of frauds, and capacity restrictions in contract law), but by and large, mandatory provisions of private law are mandatory in a domestic context only

law’s mandates were able to waive the protection prospectively, the mandates could be avoided and the protection defeated.81 Thus, for example, the protections afforded by the Sherman Act are generally not regarded as prospectively waivable,.82 and the same restriction is explicit in other economic regulatory laws such as the U.S. Securities Acts,83 the Federal Bills of Lading Act,84 and the Carriage of Goods by Sea Act.85

B. The Purposes of the Extension and Whether They Have Been Achieved

The great virtue of autonomy in international contracts is that it is capable of resolving the considerable uncertainty in international commercial transactions that results from the fact that, at least two, and frequently several nations simultaneously enjoy prescriptive and adjudicative jurisdiction with respect to the same transaction. Without contractual autonomy to select a single arbitral forum and single governing law, the parties to an international transaction might be subject to multiple simultaneous lawsuits in several different nations with respect to exactly the same dispute or issue, and each of the lawsuits might be governed by a different applicable law. As discussed in Section II, autonomy in international contracts with respect to private law matters has solved this dilemma perfectly, thereby contributing enormously to predictability in international commerce. As summarized in Section III, U.S. courts intended to achieve the same solution for the problem of concurrent public law jurisdiction by extending autonomy in international contracts to public law. The arbitrability of public law claims was intended to enhance predictability in international transactions by ending forum shopping and its attendant “unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages,”86 and the extension of contractual choice of law to public law was intended to enhance predictability by holding commercial parties to arm’s-length agreements selecting for some or all of their transaction a single applicable public law to the exclusion of other public laws.87

waivable in the context of an international transaction. See e.g., Allan Philip, Mandatory Rules, Public Law (Political Rules) and Choice of Law in the E.E.C. Convention on the Law Applicable to Contractual Obligations, in CONTRACT CONFLICTS 83, 92-93 (P.M. North, ed., 1982), and McConnaughay, Reviving the ‘Public Law Taboo, ‘ supra note 4, at 304 n.237 (and cases cited therein).

81 This is not true of a post-claim compromise of a public law claim. A prospective waiver of public law protection frees the released party from the obligation to comply with the public law’s regulatory commands

82 See e.g., Minnesota Mining and Mfg. Co. v. Graham-Field, Inc., 96-3839, 1997 U.S. Dist. LEXIS 4457, at *7-9 (S.D.N.Y. Apr. 8, 1997), and Baade, The Operation of Foreign Public Law, supra note 77, at 433 (“Antitrust law is regulatory law [and] is necessarily mandatory.”).

83 See 15 U.S.C. § 77n for the antiwaiver provision of the Securities Act of 1933 and 15 U.S.C. § 78cc(a) for the antiwaiver provision of the Securities and Exchange Act of 1934, both of which declare void “any condition, stipulation, or provision binding any person to waive compliance” with any of the rights secured or rules imposed by these federal securities laws.

84 See 49 U.S.C. § 80113(a) (1994).

85 See 46 U.S.C. § 1303(8) (1994).

86 See note 60, supra.

87 See note 68, supra.

In my view, the U. S. extension of autonomy in international contracts to public law not only fails to achieve these benefits, it introduces new uncertainties into international commercial transactions that are likely to have adverse collateral consequences which strongly suggest the inadvisability of other developed nations following suit. These consequences include the under-regulation of transnational business and the modification of international commercial arbitration in ways that are contrary to the interests of non-Western participants. The following sections discuss: first, the assumption that the arbitrability of public law claims increases predictability for international transactions by eliminating forum shopping

1. Arbitrability, Public Law, and the Elimination of Forum Shopping

It is important to recognize that the problem of international forum shopping is dramatically smaller with respect to public law claims than it is with respect to private law claims, a fact not mentioned in any of the Supreme Court’s opinions extending autonomy in international contracts to prospective agreements to arbitrate public law claims. The reason is simple: public law claims traditionally may be adjudicated only in the national courts of the nation supplying the public law

Of course, even the availability of only one alternative forum for the resolution of a public law claim is enough to defeat the expectation of international parties that all claims between them will be resolved privately by arbitration. Here again, however, it is important to consider the likelihood of this expectation actually being defeated through the assertion of a public law claim. International commercial arbitrations almost always

88 See Lowenfeld, supra note 17. This is a long-standing principle. See Holman v. Johnson, 98 Eng. Rep. 1120 (K.B. 1775) (“no country ever takes notice of the revenue laws [i.e., public laws] of another.” For a more recent application of the principle see Roby v. Corporation of Lloyd’s, 996 F.2d 1353, 1361 (2d Cir. 1993) (where the court notes that, “neither an English court nor an English arbitrator would apply the

United States securities laws, because English conflict of law rules do not permit recognition of foreign tort or statutory law.”).

89 See Lowenfeld, supra note 17, at 1. But see Roby v. Corporation of Lloyd’s, supra note 88, with respect to England’s refusal to recognize and enforce claims arising under foreign tort law.

arise out of pre-existing contractual relations

Still, the arbitrability of public law claims offers the convenience, when such claims legitimately arise, of predictably consolidating in a single proceeding all of the claims between the parties.9 3 However, the attractiveness of this occasional additional predictability for parties to international transactions is substantially diminished by the considerable uncertainties that accompany the arbitrability of U.S. public law claims. For example, because the arbitrability of public law claims is clearly still the minority rule,94 parties to international transactions remain uncertain both about whether nations other than the U. S. will permit the arbitrability of claims arising under their public laws, and, more importantly, about whether those nations will recognize and enforce arbitral awards based on U.S. public law.95 Additionally, because U.S. courts to date have not provided guidance concerning the scope of judicial review that will apply to the enforcement of international arbitral awards based on U.S. public law, and particularly about whether the scope of review will be more strict than that which applies to awards based simply on private law (as one naturally might expect), parties to international transactions remain

90 See e.g., Lowenfeld, supra note 17, at 328 (noting that the antitrust claim at issue in Mitsubishi v. Soler Chrysler-Plymouth (supra note 58) was raised first as a counterclaim in a breach of contract action, and remarking that, “Since the typical private antitrust claim – by a firm squeezed out by its rivals, or a company that fears it will be overwhelmed by a merger among its competitors – will not involve contractual relationships between the plaintiff and the defendant, such cases will not, except in the rarest of cases, be submitted to arbitration.”). Presumably, securities fraud claims might arise more frequently in the context of a pre-existing contractual relationship than antitrust claims, but my central point is that there is no necessary relationship (and sometimes an inverse relationship, as Professor Lowenfeld points out) between a breach of contract giving rise to arbitration and an alleged violation of public law.

91 See note 90, supra.

92 See e.g., Federal Rule of Civil Procedure 11. If an inarbitrable public law claim were properly filed in a national court, an acceding nation’s obligation under the New York Convention (supra note 26) to refer to arbitration any claims subject to a written arbitration agreement (art. II (3)) presumably would forbid the joinder in the court, without the parties’ consent, of any arbitrable claims.

93 And, of course, certain efficiencies and economies would accompany the consolidation as well, as would the attainment of a non-national forum, but I consider these all within the “convenience” of private parties for purposes of a developed nation’s consideration of the arbitrability of public law claims.

94 See notes 19 to 27 and accompanying text, supra. See Part 3 of this section for a discussion of whether the arbitrability of public law claims would be more desirable even if it were the maj ority rule.

95 The New York Convention (supra note 26) does not compel the recognition and enforcement of foreign arbitral awards if based on matters not arbitrable in the enforcing nation (art. V (2)(a)), or if contrary to the public policy of the enforcing nation (art. V (2)(b)), and the long-standing refusal of most nations to enforce the public laws of other nations (see note 88, supra) suggests that the principle might be extended to arbitral awards based on foreign public law.

uncertain about how to conduct arbitrations including claims based on U.S. public law.96 Thus, because the scope and frequency of public law forum shopping is quite small, and because the Supreme Court’s solution to that problem – i.e., the arbitrability of U.S. public law claims – introduces at least as many uncertainties into international commerce as it solves, the arbitrability of U.S. public law claims has not achieved its intended purpose of enhancing the predictability of international transactions.

One possible response to these problems of uncertainty, of course, would be to urge that U.S. courts provide guidance about the nature and scope of judicial review to be applied to public law arbitral awards, and to urge that other developed nations follow the U. S. lead in recognizing the arbitrability of public law claims.97 Neither of these possible solutions, however, would address two potentially significant adverse collateral consequences of the arbitrability of public law claims: (i) the arbitrability of public law claims is likely to contribute to the under-regulation of international business, and (ii) the arbitrability of public law claims is likely to result in changes to international commercial arbitration that will undermine its neutrality in ways contrary to the interests of non-Western commercial parties. These effects are discussed in Part 3, below. Part 2 will first consider whether the extension to public law of contractual autonomy to designate applicable law achieves its intended purpose: to enhance predictability by reducing the obligation of parties to international transactions to comply with multiple public laws.

2. Contractual Choice of Law, Public Law, and Predictability

One might expect that the ability of parties to international transactions to designate the applicable public law would contribute significantly to the predictability of international commerce contending with a single applicable public law seems far more predictable than contending with many.98 Clearly this has been the case with contractual designations of applicable private law, which parties to international transactions are generally free to make without qualification or restriction.99 It is precisely the qualifications and restrictions that accompany the U.S. courts of appeals’ extension of contractual choice of law in international contracts to public law, however, that cause the extension to introduce rather than eliminate uncertainties in international transactions.

The contractual displacement of otherwise applicable U.S. public law, according to these courts of appeals, may occur if the contractually elected substitute “vindicates” the rights protected by the displaced U.S. law and does “not offend” or “subvert” the policies

96 It is clear that the scope of judicial review at the award enforcement stage of awards based on private law is extremely narrow and unsearching (see e.g., Parsons & Whittmore Overseas Co. v. Societe Generale De L’ Industrie du Papier (Rakta), 508 F.2d 512 (2d Cir. 1974), but it is not clear that the Supreme Court will permit the same deference to awards based on U.S. public law. See McConnaughay, The Risks and Virtues of Lawlessness, supra note 7, at 457.

97 After all, the uncertainties I’ve described result primarily from the lack of universal or even majority acceptance of the arbitrability of public law claims, not simply from the fact of arbitrability.

98 As Professor Beale commiserated, “If two laws were present at the same time and in the same place upon the same subject we should also have a condition of anarchy [!]” Joseph H. Beale, A TREATISE ON THE CONFLICT OF LAWS 46 (1935).

99 See notes 29-31 and accompanying text, supra.

of the displaced U.S. law,100 even if the designated substitute is less protective than the U.S. law. 101 This assessment thus requires a comparison of the strength and adequacy of the regulatory scheme and remedies available under the designated substitute to those available under displaced U.S. law.102 This comparison, however, is just as likely to upset private expectations as it is to serve them — thereby rendering international transactions less rather than more predictable.

The Supreme Court some time ago acknowledged the great difficulty of “conducting complex exercises in comparative law” in order to determine whether “the law applied by the alternative forum is as favorable as that of the chosen forum.”103 More recently, the U.S. Court of Appeals for the District of Columbia lamented, “We seriously doubt whether we could [ever] adequately chart the competing problems and priorities that inevitably define the scope of any nation’s interest in a legislated remedy.”104 These tasks are clearly no easier for private commercial parties, yet they are precisely the tasks that accompany the extension of contractual choice of law to public law.

Predictability adds value to international commerce because it represents knowledge in advance. In the context of public law, this means knowing at the outset of an international commercial transaction what regulatory requirements likely will be encountered so that the responsibilities and costs of compliance can be factored into the parties’ negotiations and subsequent commercial conduct. This knowledge is available relatively easily when the only question is the standard prescriptive jurisdictional assessment of whether the parties or their transaction will engage in conduct or cause substantial effects in a particular nation, and thus become subject to that nation’s public law.105 This knowledge may not be available beforehand, however, if the question is whether a contractually designated public law adequately “vindicates” the rights and policies of the otherwise applicable public laws that have been displaced by the contractual designation. The latter inquiry is essentially backward looking, occurring, as it does, only in the context of litigation that contests the applicability of non-designated public law. Even though this inquiry eventually may result in only a single nation’s public applying to an international transaction, that possibility occurs only after a complex and uncertain assessment that private parties, arbitrators, and courts are illequipped to make. The ex ante certainty that the public laws of even multiple nations will apply to an international transaction seems far preferable for international commerce

100 See e.g., Bonny v. Society of Lloyd’s, 3 F.3d 156, 160-61 (7th Cir. 1993) and note 66, supra.

101 Id.

102 See e.g., note 68, supra, and Allen v. Lloyd’s of London, 94 F.3d 923, 929 (4th Cir. 1996) (“We do not believe that enforcing the parties’ forum selection and choice of law provisions in this case will subvert the United States securities laws’ policy of prohibiting fraud. British law prohibits fraud and misrepresentations”).

103 Piper Aircraft v. Reyno, 454 U.S. 235, 251 (1981).

104 Laker Airways Ltd. V. Sabena, Belgian World Airways, 731 F.2d 909, 950 (D.C. Cir. 1984).

105 See e.g., RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW §402 (1988)

than any multi-faceted ex post test for identifying (if the test is met) only a single applicable public law.106

3. The Collateral Efects of Extending Autonomy to Public Law

Once again, one possible response to these problems of uncertainty would be to urge that other developed nations follow the U.S. lead in extending autonomy in international contracts to public law.107 Even the universal acceptance of the U.S. position, however, would not cure the probable adverse collateral effects mentioned above of the extension of autonomy in international contracts to public law: (i) the underregulation of transnational business, and (ii) the modification of international commercial arbitration in ways that would undermine its purpose of providing a truly neutral forum for the resolution of international commercial disputes.

The Problem of Under-Regulation. Clearly, parties to international transactions are unlikely to contractually designate public law that imposes more stringent or burdensome regulation than the public law displaced by the designation.108 Instead, the designation likely will substitute less burdensome regulation. No “reasonably parallel [public] law,” Professor Weinberg has pointed out, likely “springs into place” following the displacement of otherwise applicable public law.109 In fact, one reasonably might expect the contractual displacement of otherwise applicable public law to promote the occurrence of precisely the public harm the displaced public law was intended to prevent.110 Moreover, the greater the number of developed nations that permit such

106 Even the U.S. courts of appeals cases extending contractual choice of law principles to public law exposed considerable difference of opinion and uncertainty about whether the contractually designated law actually did “vindicate” the rights protected by the displaced public law and not subvert the policies of the displaced public law. Compare e.g., the majority opinion in Richards v. Lloyd’s of London, 135 F.3d 1290, 1296 (9th Cir. 1998) (“English law provides a variety of protections for fraud and misrepresentations in securities transaction”) with the dissent, id., at 1299 (“English law recognizes no remedy for the failure to register securities as required by section 12(1) of the Securities Act of 1933. Nor is there any English remedy against Lloyd’s for negligent misrepresentation as provided by section 12(2) because the Lloyd’s Act expressly immunizes Lloyd’s from any claim for ‘negligence or other tort’ unless bad faith was involved.”). Obviously, identifying a single applicable public law would be preferable to complying with multiple public laws if the latter required impossibly inconsistent conduct, but other judicial mechanisms are available for relief in that presumably unusual circumstance. See e.g., RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAW §40 (1965)

107 Although, depending on the test used for determining whether a contractually designated public law may displace an otherwise applicable public law, serious predictability problems still might remain even if all nations permitted the contractual displacement of otherwise applicable public law.

108 See e.g., Richards v. Lloyd’s of London, 135 F.3d 1290, 1300 (9th Cir. 1998) (“[T]he choice [of law] clauses [and their designation of English law] afford a level of protection far lower than the remedies the [U.S. Securities] Acts provide.”).

109 Weinberg, Against Comity, supra note 78, 80 GEO. L.J. at 61 (referring to displacement by principles of comity).

110 As I mentioned earlier, this is a probable consequence of making public law’s regulatory mandates prospectively waivable. See note 81 and accompanying text, supra. See also Weinberg, supra note 78, at 60 (“[I]f the forum refuses to take unilateral responsibility for law enforcement, there is a finite risk of system-wide failure to govern injurious behavior.”), and Joel R. Paul, Comity in International Law, 32 HARV. INT’L L.J. 1, 71 (1991) (“By allowing transnational business to choose legal systems imposing a

contractual elections of applicable public law, the more pervasive under-regulation and potentially injurious commercial behavior are likely to become. 111 This phenomenon is improbable in the context of contractual election of private law, which does not serve a similarly strong protective regulatory purpose.112

Although the adverse impact on public law’s regulatory efficacy is most direct as a result of a developed nation’s extension of contractual autonomy to designate applicable public law, the arbitrability of a developed nation’s public law is also likely to contribute to the under-regulation of international commerce. This results from the reduced likelihood of legally correct outcomes in the arbitral resolution (as opposed to public court resolution) of public law claims, and from the shielding from public scrutiny by arbitral privacy of alleged violations of public regulatory law. International commercial arbitration is typically a secret affair that is purposefully anational and completely flexible in terms of the qualifications of arbitrators, rules of procedure, rules of evidence, and all of the other presentational and decisional variables that contribute to the outcomes of disputes. The result is a renowned lack of predictability, at least in the sense of arbitration’s ability to render the “legally correct” outcomes expected by those from Western legal traditions. “Arbitration sometimes involves perils that surpass those of the sea,” warned Learned Hand.113 As Lord Jefferey famously complained a century before, “[An] arbitrator may believe what nobody else believes, and he may disbelieve what all the world believes. He may overlook or flagrantly misapply the most ordinary principles of law, and there is no appeal for those who have chosen to submit themselves to his despotic power.”114 Contemporary commentators are no less scathing in their appraisals.115

lower regulatory burden than the United States, U.S. courts have effectively lowered regulatory standards.”).

111 This subordination of national regulatory objectives to private contractual preference also reduces the information available to regulating nations about the costs and benefits of compliance with their regulatory laws (see McConnaughay, Reviving the “Public Law Taboo, ‘ supra note 4, at 286), and compromises their ability to negotiate transnational allocations of regulatory jurisdiction and/or harmonization of law. See Russell J. Weintraub, The Extraterritorial Application of the Antitrust and Securities Laws: An Inquiry into the Utility of a “Choice of Law” Approach, 70 TEX. L. REV. 1799, 1817 (1992) (“Our bargaining chips will have been given away before we could use them.”), and William S. Dodge, Extraterritoriality and Conflict-of-Laws Theory: An Argument for Unification, 39 HARV. INT’L L.J. 101, 163-65 (1998) (collecting examples of politically negotiated agreements regarding prescriptive jurisdiction).

112 Although a similar motivation might lie behind contractual choice of law in a private law context, similar regulatory consequences are unlikely because of the different subj ect matter of private law. See e.g., Weintraub, supra note 111, at 1818 (“The sovereign’s interest in enforcing its regulatory rules is of a different order than the ‘interest, meaning the social policy, underlying the rules of torts and contracts.”), and Maier, Extraterritorial Jurisdiction, supra note 70, at 289 (“A government always has a direct interest in the outcome of a regulatory case, even when the governmental viewpoint is represented by a citizen prosecutor seeking private recovery. In this sense, they are distinguishable from non-regulatory choiceof-law cases in which the issue is which of two or more conflicting governmental policies shall be applied to private persons, none of whom functionally serves as a government surrogate.”).

113 Canadian Gulf Line v. Continental Grain Co., 98 F.2d 711, 714 (2d Cir. 1938).

114 Mitchell v. Cable (1848) 10 D. 1297, as cited in E.J. Cohn, Commercial Arbitration and the Rule of Law – A Comparative Study, 4 U. TORONTO L.J. 1, 5 (1941).

115 See e.g., Paul D. Carrington & Paul H. Haagen, Contract and Jurisdiction, 1996 SUP. CT. REV. 331, 346 (1997) (“[T]here is inherent in the institutions of private dispute resolution an endemic disinclination to enforce legal rights seriously.”) and F.A. Mann, Lex Facit Arbitrum, in INTERNATIONAL

Arbitration’s contribution to under-regulation results from its relative unpredictability. Even though private arbitration clearly is capable of rendering (and presumably occasionally does render) legally correct results in public law cases, the higher probability of incorrect results still seriously impairs the regulatory efficacy of public law whether because of incorrect results, or because the low probability of correct results reduces the likelihood of settlements requiring substantial compliance with the law. 116 In either event, the consequence is the under-regulation of international commerce. And once again, the greater the number of developed nations that permit the private arbitration of public law claims, the greater and more pervasive the underregulation. It is little wonder that this downward spiral has given rise to a chorus of demands by scholars and practitioners of international commercial arbitration for international arbitration’s reform. The “principal challenge” facing arbitration, wrote Martin Domke decades ago, is achieving “predictability of result.”117 Reformers urge the replacement of arbitral secrecy with greater transparency, 118 the standardization of evidentiary and procedural rules,119 the publication of reasoned final awards,120 strict adherence to stare decisis,121 and basically, the adoption of whatever additional “control mechanisms” are necessary in order to ensure legally proper results.122 In light of the significant public interest ordinarily present in the correct resolution of public law claims, it seems reasonable to expect judicial pressure for similar reforms of arbitration in the form of judicial refusals to enforce arbitral awards based on incorrect applications of public law.123

ARBITRATION: LIBER AMICORUM FOR MARTIN DOMKE 174 (Pieter Sanders, ed., 1967) (arguing that arbitration is “liable, almost bound, to produce a dangerous lack of certainty and predictability, arbitrariness and injustice, grievance and dissatisfaction.”)

116 I believe the assumption is justified that parties measure the acceptability of settlements of public law claims in comparison to probable adjudicated resolutions, and that, because arbitral resolutions are less likely to be legally correct than judicial resolutions, settlements “in the shadow” of arbitration are less likely to require substantial compliance with the public law at issue than are settlements in the shadow of public court adjudication. See generally McConnaughay, The Risks and Virtues of Lawlessness, supra note 7, at 495-98.

117 Martin Domke, COMMERCIAL ARBITRATION 14 (1965).

118 See e.g., Richard M. Buxbaum, Introduction, 4 INT”L TAX & BUS. LAW 205, 208 (1986).

119 See e.g., Charles N. Brower, Evidence Before International Tribunals: The Need for Some Standard Rules, 28 INT’L LAW. 47, 58 (1994) and Robert von Mehren, From Vignior ‘s Case to Mitsubishi: The Future of Arbitration and Public Law, 12 BROOKLYN J. INT’L L. 583, 626 (1986).

120 See e.g., Julian D.M. Lew, The Case for the Publication of Arbitration Awards, in THE ART OF ARBITRATION (Jan C, Schultz and Albert Jan van den Berg, eds. 1982), and Thomas E. Carbonneau, Arbitral Adjudication: A Comparative Assessment of its Remedial and Substantive Status in Transnational Commerce, 19 TEX. INT’L L. J. 33, 39 (1984) (“It is the thesis of this article that reasoned awards are the appropriate instruments by which to fulfill the normative potential of transnational arbitration.”).

121 See e.g., Bernardo M. Cremades and Steven L. Plehn, 2 B.U. INT’L L.J. 317, 336-337 (1984) (suggesting “the formation of institutions which give arbitrators access to prior arbitration awards and require them to follow a more or less strict rule of stare decisis.”).

122 See generally, W. MICHAEL REISMAN, SYSTEMS OF CONTROL IN INTERNATIONAL ADJUDICATION AND ARBITRATION 46 (1992), and William W. Park, Control Mechanisms in the Development of a Modern Lex Mercatoria in LEX MERCATORIA AND ARBITRATION 109 (Thomas E. Carbonneau, ed. 1990).

123 Heightened judicial scrutiny of arbitral awards based on public law claims would be a significant departure from existing practice based on awards involving private law claims (see e.g., Parsons &

To be sure, the implementation of these reforms would increase the probability of legally correct outcomes of public law claims, and thereby decrease the risk of underregulation and injurious externalities. The reforms, however, also would Westernize international commercial arbitration in ways that would undermine its neutrality and be contrary to the interests of commercial participants from non-Western traditions.

The Problem of the Westernization International Arbitration. As discussed in Part II, a significant virtue of autonomy in international contracts is a capacity to accommodate the emergence of new principles and procedures for dispute resolution in Western/non-Western commercial relationships in light of the fundamentally different understandings that often exist in such relationships with respect to the role of law and contracts in the resolution of disputes.124 In the context of international commercial arbitration, this capacity arises from and depends on the very features arbitral reform would eliminate complete privacy and confidentiality, flexible rules of procedure, elastic notions of relevance, substantial presentational and decisional latitude, and wideranging arbitrator responsibilities and dispute resolution techniques. These are the features of arbitration essential to the expression and recognition of non-Western commercial dispute resolution traditions

In summary, the U.S. extension of autonomy in international contracts to public law has not achieved its objective of adding predictability to international commerce. Instead, it has introduced significant uncertainties that reduce the ability of parties to international transactions to account for prospective regulatory compliance responsibilities during the negotiation and structuring of their transactions. Further, even if these new uncertainties were reduced by the universal adoption in other developed nations of the extension of contractual autonomy to public law, two unacceptable adverse consequences of the extension would remain: (i) the under-regulation of transnational business, and (ii) the probable modification of international commercial arbitration in ways that would undermine its purpose of providing a culturally neutral forum for the resolution of commercial disputes involving parties from both non-Western and Western traditions. For these reasons, the U.S. should retract its extension and other developed

Whittemore Overseas Co. v. Societe General De L’Industrie du Papier (Rakta), 508 F.2d 512 (2d Cir. 1974)), but there is nothing inconsistent in such an approach with the New York Convention (the “public policy” review permitted by article V (2)(b) would allow such scrutiny), and the heightened public interest in the correct resolution of public law claims would seem to justify the heightened scrutiny.

124 See Part II (notes 36 to 56 and accompanying text), supra.

125 In my view, the correct resolution of public law claims is the only basis on which the proposed reforms can be justified. There simply is no need to increase “legal predictability” in the Western sense in the context of the resolution of private law (principally contract) claims. In that context, the benefits of flexibility are extraordinary (see Part II, above) and the risk of externalities from legally incorrect outcomes is small. See also note 112, supra.

nations should refrain from making the extension. Developing nations, however, should pursue exactly the opposite course.

V. The Extension of Autonomy to Public Law by Developing Nations

The extension of contractual autonomy to public law by developing nations is likely to facilitate international commerce and to promote economic development by serving as a substitute for economic regulatory and dispute resolution mechanisms that otherwise are deficient or unavailable in the public sector, and by facilitating a domestic transition to the rule of law that will increase the probability of sustainable economic growth. For many developing nations, such an expansion of autonomy will require a change of policy and opinion, for autonomy in international contracts has traditionally been viewed by many as a threat to sovereignty and national regulatory objectives rather than as a way of securing them.126 To be sure, that assessment is not without logic. The relationship between autonomy and regulation, as Part IV argues with respect to developed nations, typically is inverse the greater the autonomy, the less the regulation.127 In developing nations, however, the relationship can be made direct. A higher degree of autonomy in international contracts in developing nations can work to increase rather than reduce a nation’s regulatory and adjudicatory capacities.

126 See e.g., Amr A. Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias Under the Spector of Neoliberalism, 41 HARV. INT’L L.J. 419, 437 (2000) (referring to “arbitration’s disempowerment of Third World national regulatory objectives”)

127 I do not intend in this article to engage the long-standing and lively debate about whether, as a matter of economic policy, autonomy is better than regulation as a means of promoting economic growth and/or protecting market participants from injurious behavior. See generally e.g., Thomas O. McGarrity, The Expanded Debate Over the Future of the Regulatory State, 63 U. CHIC. L. REV. 1463 (1996). I am assuming the need for protective regulation of market activity (e.g., competition rules, securities regulation, environmental regulation), and for adjudicatory mechanisms for the resolution of commercial disputes, and discussing one possible way (autonomy in international contracts) in which developing nations might deliver aspects of those public goods. I also am assuming (and believe there to be) a direct and positive relationship between a reliable national legal infrastructure and economic development. See e.g., Richard A. Posner, Creating a Legal Framework for Economic Development, 13 THE WORLD BANK RESEARCH OBSERVER 1 (February, 1998) (“[The] vigor [of markets] may depend on the establishment of an environment in which legal rights, especially property and contractual rights, are enforced and protected – an environment that is taken for granted in wealthy nations.”), and Jonathan R. Hay, Andrei Shleifer, Robert W. Vishny, Toward a Theory of Legal Reform, 40 EUROPEAN ECONOMIC REVIEW 559 (1996).

The essential problem that expansive contractual autonomy can help developing nations address is the incapacity of their legal institutions to perform their prescribed functions. The causes of incapacity are numerous. In some nations legal institutions simply do not exist, in other nations they are under-funded, or lack trained personnel, or suffer some other disabling attribute, such as corruption. As Professor Jefferey Sachs has noted, “In many parts of the world, the state is too weak even to meet basic needs roads, bridges, power, public health facilities – much less to adjudicate private commercial disputes.”128 What little in the way of legal infrastructure is provided in these nations often is provided primarily through the efforts of humanitarian and other non-governmental organizations (NGOs), whose limited success depends on their independence from governmental incapacity.129 In other developing nations a rudimentary legal infrastructure might exist, but its efficacy is denied by a lack of resources, inaccessibility, or corruption.130 Moreover, even though all developing nations might strive to correct their legal infrastructure deficiencies, the expense of the correction (and the consequent diversion of resources from other development initiatives) often is prohibitive requiring commercial law reform, the creation of a judiciary and other public agencies, the training of judges, regulators, and lawyers, and so forth.131 Thus the cruel “catch-22” in which many developing nations wallow: their ability to provide the legal regulatory and adjudicatory mechanisms on which economic exchange and sustainable economic development depend cannot occur without the economic development that enables the provision of such public goods and services.132

This dilemma is exacerbated by the fact that, for most developing nations, no

amount of money or physical resources alone would create the sort of legal infrastructure

128 Jefferey D. Sachs, Globalization and the Rule of Law, YALE LAW SCHOOL OCCASIONAL PAPERS, Second Series, Number 4, at 8 (1998).

129 See e.g., NGOs AND HUMAN RIGHTS: PROMISE AND PERFORMANCE (Claude E. Welch, Jr., ed. 2000)

130 See e.g., Stanley B. Lubman, Dispute Resolution in China After Deng Xiaoping: ‘Mao and Mediation’ Revisited, 11 COLUM. J. ASIAN L. 229 (1997) (“As China’s influence in the international community grows, other nations must be concerned about the capacity of Chinese legal institutions to perform their declared functions.”).

131 See e.g., Jeswald W. Salacuse, From Developing Nations to Emerging Markets: A Changing Role for Law in the Third World, 33 INT’L LAWYER 875, 882 (1999) (quoting a high ranking Asian official as explaining, “We have painfully learned that the state cannot do everything. It cannot house everyone, feed everyone, or give everyone a job. We need to let other institutions in society do these things.”)

132 See the last sentence of note 127, supra. See also Posner, supra note 127, at 3 (“[A] poor country may not be able to afford a good legal system, but without a good legal system it may never become rich enough to afford such a system.”).

sufficient to support economic growth and stability

is necessary as well. Whether for purposes of facilitating domestic economic exchange outside of traditional communities, or for purposes of providing a basis for exchange with the international business community, adaptation to the rule of law seems essential.134 The adaptation that is necessary, however, is to the role of law in the ordering of private affairs

133 See notes 38 to 56 and accompanying text, supra.

134 See e.g., Salacuse, supra note 131, at 888 (“In short, effective and efficient markets require a “Rule of Law” and the courts essential to its existence.”), and Philip M. Nichols, A Legal Theory of Emerging Economies, 39 VA. J. INT’L L. 229, 278 (1999) (“emerging economies seek to transform existing institutions or develop new institutions that will facilitate relationships among strangers rather than only among parties with preexisting relationships.”).

135 See e.g., Salacuse, supra note 131, at 889 (noting that unless “new law [is] sufficiently adapted to Third World societies, it may in the end prove too weak a reed to support economic development.”), and McConnaughay, Rethinking the Role of Law and Contracts, supra note 10, Part III (suggesting that the content of law might change in ways that elevate the importance of certain non-Western values – e.g., imposing duties to adjusting responsively to contingencies in commercial relationships – that are not inconsistent with the basic elements of the rule of law).

136 I believe that the protection of human rights and generally the establishment of law-limited (i.e., law abiding) governments in developing nations also depend on worldwide convergence around the rule of law. I should note that I believe that there is nothing inconsistent about my suggestion in Part II about the importance of accommodating through the creation of new laws and contractual mechanisms the fundamental differences that exist between West and non-West traditions with respect to the role of law and contracts in the structure and governance of commercial relationships (see text between notes 34 and 35, supra, and McConnaughay, Rethinking the Role of Law and Contracts, supra note 10), and my prediction that, ultimately, only the rule of law will provide a stable foundation for global commerce. The time involved in achieving the rule of law alone suggests the necessity of accommodation in the meantime, but just as importantly, nothing inherent in the rule of law demands laws of exclusively Western content.

137 See e.g., John V. Orth, Exporting the Rule of Law, 24 N.C. J. INT’L L. & COMM. REG. 71 (1998) (“The achievement of the Rule of Law in Western Europe and North America took place over centuries and decades, not months and weeks.”), and Frederick Pollock and Frederick W. Maitland, THE HISTORY OF ENGLISH LAW 184 (2nd ed, vol.2, 1968) (“Many centuries must pass away before [the law of contract] wins that dominance which we at the present day concede to it.”).

138 It is the lack of a popular appreciation in non-Western nations of the role of law (i.e., the primacy of law) in governing associational affairs that I believe accounts, far more than differences in content, for the typical “non-transferability” of Western law to developing nations: “transplanted law will only by an unlikely coincidence induce the same behavior in both places.” See Ann Seidman and Robert B. Seidman, STATE AND LAW IN THE DEVELOPMENT PROCESS 46 (1994). See also e.g., Lawrence E. Harrison, Why Culture Matters, in CULTURE MATTERS xvii, xxxi (Lawrence E. Harrison and Samuel P. Huntington, eds. 2000) (“If some cultural values [“in the sense of the inner values and attitudes that guide a population” (see David Landes, Culture Makes All the Diference, in CULTURE MATTERS 20] are fundamental . to progress then there is no alternative to the promotion of cultural change [in nations not possessing those values]. It need not, indeed should not, be viewed as a Western imposition.”)

fundamental differences between Western and non-Western traditions with respect to the role of law in the structure and governance of commercial relationships will simply result in a significant distortion of the challenges, and gross underestimation of the time, involved in transitioning to the rule of law in non-Western nations.139

These overwhelming challenges suggest certain characteristics that new legal institutions in developing nations must possess if they are going to contribute to solutions. Existing institutional incapacities and the lack of funds and resources, for example, suggest the need for institutional substitutes that somehow are available in the near-term, perhaps on an interim basis while permanent institutions mature, and that require little or no initial investment. The problem of corruption suggests the need for institutional substitutes that somehow are able to exist and function independently of government. The essential requirements of commerce suggest the need for institutions capable of delivering rules and principles for the governance of commercial relationships

Autonomy of contract to designate applicable law and to privately arbitrate disputes, when extended to both private law and public law by developing nations, offers the institutional characteristics just described. The success of international commercial arbitration and contractual choice of law in providing a legal infrastructure for international commercial transactions (even though largely limited in that context to matters governed by private law), strongly indicates their potential to provide similar infrastructures for commerce in and with developing nations. Private arbitration and contractual choice of law in the international context have proved capable of thriving independently of government and without governmental subsidy. They are available in the near-term and are not facility- or location-dependent. They are capable, at least in a private law context, of delivering both the rules of commercial engagement and an

Senyo B-S. K. Adjibolosoo, The Significance of the Human Factor in African Economic Development, in THE SIGNIFICANCE OF THE HUMAN FACTOR IN AFRICXAN ECONOMIC DEVELOPMENT 1 (S. Adjibolosoo, ed., 1996) (arguing that the “human factor” is essential to the establishment of an sustaining the rule of law). See also Brian Z. Tamanaha, The Lessons of Law-and-Development Studies, 89 AM. J. INT’L L. 470, 484 (1995) (“Only with deep roots and a stable existence can the law serve as an effective restraint on government actions, and can judges develop the legal ethics and exercise the independence necessary to serve their essential role.”).

139 My focus in this article is limited to commercial relationships, but clearly, the same sort of deep and abiding reception of the rule of law is essential to the establishment of effective constraints on governmental actions, including human rights abuses, in developing nations. See e.g., Tamanaha, supra note 137.

effective means of resolving disputes. Additionally, they have the capacity to contend fairly with the transition from relational to rule of law-based commercial practices. Even without an extension to public law, these private mechanisms of ordering and dispute resolution offer tremendous promise to those developing nations whose public legal infrastructures are incapable of the same functions. The promise of these private mechanisms will be even greater, however, if their availability is extended by developing nations to public law.

The basic conclusion of the comparison this article makes is quite simple and straightforward: when a developed nation extends autonomy in international contracts to public law the extension likely will reduce predictability in international commerce and decrease protective regulation of transnational business. The same extension by a developing nation is likely to increase predictability in international commerce and enhance protective regulation of transnational business. The difference in outcome results primarily from the change in baseline: reliable and effective public law regulatory and adjudicatory systems are the alternative to autonomy in developed nations, while unreliable and ineffective public law regulatory and adjudicatory systems are the alternative to autonomy in developing nations. To be sure, the extension of contractual autonomy to public law by developing nations creates some of the same problems that the extension creates in developed nations (e.g., uncertainty will remain regarding the enforcement of arbitral awards based on public law), but the extension is highly preferable to an incapacitated public sector for purposes of promoting beneficial commercial activity and economic development. The concluding sections of this article summarize some of the issues developing nations should consider with respect to the extension of autonomy in international contracts to public law, including the nature of the domestic legal environment that is necessary in order for a developing nation to achieve the benefits of the extension. The first section discusses the extension to public law of contractual autonomy to designate applicable law, the second section the arbitrability of public law, and the final section the issues pertaining to the nature of the domestic legal environment necessary for developing nations to secure the benefits of these extensions.

1. Contractual Choice of Law and Public Law

Professor Salacuse has written of a tremendous recent shift in developing nations from state planning and public ordering to contractual mechanisms and private ordering for the promotion of commercial activity and economic development.140 Two of his conclusions are especially relevant to the potential role of autonomy in international contracts in the development process. The first is that this shift from state planning to contract is making new and often heavier demands on the legal infrastructures of developing nations: “Developing countries require institutions capable of supporting [private ordering]. In particular, the judiciary, [which was] the neglected or suppressed

140 Jeswald W. Salacuse, From Developing Countries to Emerging Markets: A Changing Role for Law in the Third World, supra note 131.

institution [during state planning], is crucial.”141 The second is that the shift to private ordering does not displace the need for effective economic regulation

Markets as a means of allocating society’s resources require a minimum level of regulation not only to protect participants but to maintain society’s confidence in those markets as fair and efficient resource allocators. [But] [w]hereas the role of regulation [during state planning] was essentially to direct transactions in particular ways that the government judged necessary, the role of regulation [with the private ordering of commerce] is to protect participants in the market from fraud, coercion, and abuse by other participants. [The] shift [is] from directive regulation to protective regulation, from governmental marching orders to defensive governmental oversight.142

A critical question confronting developing nations is whether they are abdicating or advancing their sovereign protective regulatory authority and responsibilities by extending to public law contractual autonomy to designate applicable law. If a developing nation enjoys a full portfolio of completely articulated regulatory codes that reflect the nation’s interests and requirements with respect to typical matters of commercial regulation (e.g., competition rules, securities regulation, environmental standards, and so forth), then the extension might be an abdication. But if a developing nation’s regulatory laws, as more typically is the case, are nonexistent, incomplete, uninterpreted, not transparent, or otherwise inaccessible, extending contractual choice of law to public law might provide substantive rules for ensuring the integrity of commerce that otherwise are unavailable. If the contractually designated regulatory law is clear, thoroughly interpreted, and time-tested in terms of the substantive balance it strikes between the facilitation and integrity of commerce, its availability as a standard of commercial conduct might help offset some of the deficiencies in the developing nation’s law enforcement and adjudicatory capabilities.143

But would autonomy lead to such beneficial choices? This depends on the parameters of choice autonomy need not be complete. A developing nation need not completely turn over to private election the nature or range of substantive standards it is willing to tolerate in different substantive areas

141 Id., at 888. See also id., at 877 (“[increased reliance on private ordering in developing countries] is shaping and making new demands on national legal infrastructures.”).

142 Id., at 887-88.

143 Cf., Hay, Schleifer, and Vichny, supra note 127, at 559 (“[I]n the transition stage, good legal rules should enable highly imperfect courts to verify violations of law and tell courts what to do when such violations occur.”).

no less protective than (a) some specified international protocol,144 or (b) some specified corporate code of conduct,145 or (c) the most protective counterpart law of the principal place of business of any of the parties to the transaction”). The parameters might narrow or enlarge or reflect some combination or variation of these approaches depending on the subject matter and national interests at stake. The benefits of such an approach for developing nations could be substantial, perhaps dramatically simplifying near-term commercial law reform efforts,146 accelerating the availability of protective regulations,147 and allowing the reallocation of scarce resources to other development projects and goals.148 Additionally, designating parameters for the private contractual choice of public law clearly would represent the exercise rather than the abdication of the developing nation’s sovereign regulatory authority. Although analogies to the recognition and enforcement of foreign public law might be tempting,149 in the end, the

144 See e.g., U.N. ENVIRONMENT PROGRAMME, REGISTER OF INTERNATIONAL TREATIES AND OTHER AGREEMENTS IN THE FIELD OF THE ENVIRONMENT, U.N. Doc. UNEP/GC15/INF4 (1993)

145 See e.g., DEVELOPMENT AND INTERNATIONAL ECONOMIC CO-OPERATION: TRANSNATIONAL CORPORATIONS, U.N. Doc. E/1990/94 (1990)

146 See e.g., Ann Seidman and Robert B. Seidman, Drafting Legislation for Development: Lessons From a Chinese Project, 44 AMER. J. COMP. L. 1, n.16 at 4 (1996) (listing legislation drafting priorities in a commercial law reform project), and U.N. CONFERENCE ON THE ENVIRONMENT, supra note 144, at 24 (“While there is a continuous need for law improvement in all countries, many developing countries have been affected by shortcomings of laws and regulations.”).

147 Legislation drafting and enacting, understandably, often is a very lengthy process. I served as a foreign advisor to a 1993-94 arbitration law reform effort in Indonesia, the final draft of which was not enacted until 2000. See also e.g., STANDING COMMITTEEE ON ENVIRONMENTAL LAW, ABA, ENVIRONMENTAL REGULATION IN PACIFIC RIM NATIONS 162-63 (1993) (quoting a Thai observer as saying, “it takes too long to deal with environmental problems because it takes so long to pass legislation. [There] is a three year delay to pass legislation in Thailand. [I]t can take anywhere from three months to five years to enact legislation in Hong Kong. Somehow, it seems that all over the world, the more important the problem, the longer it takes to enact legislation.”), cited by Edward D. McCutcheon, Think Globally, (En)Act Locally: Promoting Efective Environmental Regulatory Infrastructures in Developing Nations, 31 CORNELL INT’L L. J. 395, n.230 at 438 (1998).

148 See note 131, supra, and THE ECONOMIST, November 13, 1999, at 86 (“But poor countries might be better off if their countries listed on rich countries’ stock exchanges instead of their own. This would save them the costs of developing new regulatory structures and accounting rules.”).

149 See e.g., Nygh, supra note 1, at 218-19

TEX. INT’L L. J. 429, 466-72 (1995)

interests being served would be those of the developing nation establishing the parameters, not of the foreign nations whose laws fall within the parameters.150

Whether or not the extension of contractual choice of law to public law achieves a developing nation’s regulatory objectives, of course, depends as much (or more) on available enforcement mechanisms as it does on the contractual designations of regulatory law made in accordance with legislated parameters. This issue is discussed in the next section regarding the arbitrability of public law claims.

2. The Arbitrability of Public Law

As detailed at length in Part IV, above, the arbitrability of a developed nation’s public law: (i) introduces uncertainties into international commerce by jeopardizing the international currency of arbitral awards, (ii) threatens the utility of international arbitration for non-Western parties by promoting value-laden procedural reforms, and (iii) contributes to the under-regulation of international commerce by reducing the likelihood of legally correct outcomes. The arbitrability of a developing nation’s public law, in contrast, enhances predictability in international commerce and has pro-regulatory effects because of the unavailability, incapacity, or unpredictability of alternative public adjudicatory mechanisms. The likelihood of disadvantageous arbitral procedural reforms resulting from the arbitrability of a developing nation’s public law seems low because of (i) the absence of a public court procedural benchmark against which to compare the resolution of such claims, (ii) the presumably lower incidence of such claims, and (iii) because, in the end, the incentive for reform would be less — the arbitrability of a developing nation’s public law likely would increase rather than decrease in the law’s regulatory efficacy.

To be sure, the arbitrability of a developing nation’s public law will not result in a regulatory environment as predictable, reliable, or efficacious as that which typically exists in a developed nation. Arbitration, by its nature, is less uniform than a mature public judiciary, and in that sense arbitration regularly yields considerably less predictable results. Additionally, the incentive of a disgruntled party to a commercial contract to insist on another party’s compliance with any given regulatory law often will be quite different from that of a non-contracting injured member of the public, yet only the contracting party likely would be able to secure the arbitral enforcement of the regulatory law given that the existence of a contractual relationship ordinarily is a precondition of participating in the arbitration. Additionally, arbitration is secret, thereby further affecting the incentives of the parties to insist on (or agree to) law compliance.

150 An analogy might be to the French doctrine of contractual incorporation, whereby the designated law becomes a term and obligation imposed by the contract but not a submission by the parties to the legal system of the designated law. See e.g., Nygh, supra note 1, at 174. Of course, some sacrifice of sovereignty is inherent in entrusting non-nationals with the adjudication of national regulatory interests, as presumably would occur in the context of international arbitration, but that would seem a small price to pay for the increase in domestic regulatory capacity. It is important to note with respect to the issue of sovereignty that it is not unusual for developing nations ultimately to model their protective regulatory legislation after that of developed nations. See e.g., McCutcheon, Think Globally, (En)Act Locally, supra note 147, n.229 at 437.

Some of these deficiencies and incentives might be changed by legislation. For example, a developing nation might require the public registration of choice of law clauses in commercial contracts, and permit non-contracting parties (e.g., private citizens or NGOs) or the government to initiate or join an arbitration against a contracting party for an alleged violation of the contractually designated (or other applicable) public law perhaps with an entitlement to attorneys’ fees if successful. 151 A developing nation’s decision to engage in such leveraging of private mechanisms for public purposes, however, would have to be carefully weighed against its desire to facilitate rather than discourage beneficial investment by foreign parties. Moreover, such leveraging still would fall short of achieving the degree of compliance an identical regulatory law might achieve in a developed nation.

The fact that developing nations are not able to achieve comparable regulatory efficacy through the private arbitrability of public law claims, however, should not mask the enormous benefits of the increased use of private arbitration in these nations. In addition to the enhanced commercial predictability and regulatory efficacy likely to result from the arbitrability of public law claims while the development of permanent legal institutions is underway, other transitional benefits also are likely. For example, because of its inherent flexibility and openness to new and different procedural, presentational, and decision-making practices, private arbitration has the capacity to transcend its primarily adjudicative purpose and provide private parties with quasi-administrative functions and guidance that might be essential during a developing nation’s transition from state planning to private contract.152 Private arbitration also has the capacity, particularly if its availability is extended by a developing nation to domestic as well as international matters, of promoting a greater popular understanding of the rule of law,

151 Although nonconsensual arbitration obviously is not consistent with arbitration’s contractual origin and purpose, the idea of nonconsensual interventions in arbitration, and the idea of the court-ordered joinder of parties to an arbitration and/or the consolidation of arbitrations, has, in fact, been the subject of legislation and scholarship in the context of multiparty disputes in which necessary or desirable parties are not parties to the same arbitration agreement. See e.g., Isaak I. Dore, THEORY AND PRACTICE OF MULTIPARTY COMMERCIAL ARBITRATION 23-65 (1990) (summarizing and discussing the approaches of different national legal systems). See Barton H. Thompson, Jr., The Continuing Innovation of Citizen Enforcement, 2000 U. ILL.L.REV. 185 (2000) (for a discussion of traditional and innovative methods of encouraging citizen enforcement of regulatory laws). Of course, developing nation legislation permitting nonconsensual intervention in or initiation of arbitration probably would raise award-enforcement issues outside of the enacting jurisdiction.

152 By “quasi-administrative functions and guidance” I have in mind the instrumental directives of government agencies typical of state planning and public ordering, but without the government involvement. Stanley Lubman has noted that, following the Cultural Revolution, arbitral bodies in China experienced confusion with respect to their administrative versus adjudicative roles. See Lubman, supra note 50, at 304 (“As new commercial transactions were defined by legislation, arbitrations bodies were created on an ad hoc basis to deal with a growing number of disputes. Confusion between administration and dispute settlement grew, and contradictory views of the function of arbitration contended with each other.”). I am suggesting only that, during the transition from state planning and public ordering to contract and private ordering, arbitrators might be confronted by the expectation of administrative guidance and directives that, although not typical of their roles, they have the capacity to provide. A contemporary example of such arbitral guidance, albeit outside of the context of a developing nation, is the IBM/Fujitsu Arbitration, in which the parties contractually opted out of otherwise applicable national regulatory schemes in favor of arbitrator-imposed regulation. See the last sentence of note 31, supra.

and of instilling an incipient belief in the capacity of institutions to administer justice

impartially. 153

To secure these benefits, however, a developing nation must provide a domestic legal environment in which arbitration might flourish. That is the topic of this article’s final section.

3. The Legal Environment Required for Autonomy’s Benefits

Because it is the incapacities of public sector legal institutions in developing nations that provide the principal justification for these nations to extend autonomy in international (and domestic) contracts to public law, it should be the incapacities of these institutions that inform and determine the characteristics of the domestic legal environment necessary for autonomy of contract to provide an institutional substitute. The overarching characteristic must be the separation of private arbitration from oversight and interference by local government and the judiciary. Obviously, private arbitration (and private commerce generally) cannot survive a concerted attempt by a corrupt government or judiciary to deny arbitration’s utility and effectiveness whether by frustrating the efficacy of locally occurring arbitrations or by refusing to enforce foreign arbitral awards. Further, no amount of legislation can cure the devastation, destruction, and famine that plague some developing nations. But a well-constructed domestic legal environment can provide a means for autonomy of contract to avoid the more benign incapacities, incompetence, and corruption that often afflict a developing nation’s government and judiciary.

The essential components of such an environment must be accession to the New York Convention and the enactment of a national arbitration law, such as the UNICITRAL Model law, that appropriately constrains national judiciaries with respect to matters in arbitration.154 Just as these components provide the basis of the international legal infrastructure in which international commercial arbitration and autonomy thrive, so

153 I believe that, if extended by a developing nation to domestic matters, and if supported by an appropriate legal environment (see section 3 of this section, in the immediately following text) and by communitybased private arbitral institutions patterned after the hundreds of private centers for international arbitration that now exist, arbitration’s potential to facilitate a transition to the rule of law is enormous. See e.g., Thomas M. Franck, The New Development, 1972 WISC. L. REV. 767, 797 (1972) (“[I]n every society the quality of justice, as perceived by the common man, is most directly shaped by the instrument of law most likely to touch him directly.”)

154 See notes 26 and 30 for a brief description of the New York Convention. The UNCITRAL Model Law, which is familiar to scholars and practitioners of international commercial arbitration, is the UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW: MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION, U.N. Doc. A/40/17. ANNEX I. See the text accompanying note 157, infra, for the Model Law’s initial statement of its constraints on national judiciaries. See Nygh, supra note 1, at 24, for a discussion of the emerging international consensus that the New York Convention and UNCITRAL Model Law together provide an international legal infrastructure appropriately supportive of autonomy.

too can they assist the productive exercise of autonomy in developing nations.155 Certain adjustments to this scheme, however, might help secure these benefits. For example, developing nations might wish not to make reciprocity and commercial subject matter reservations when acceding to the New York Convention in order to reduce the opportunity for judicial contest when matters in domestic litigation are subject to arbitration agreements and should be referred to arbitration, and when foreign arbitral awards are presented to domestic courts for enforcement.156 Modifications to the UNCITRAL Model Law for similar purposes also might be useful. This section will conclude by mentioning a few objectives that should guide developing nations considering the implementation of or changes to the UNCITRAL Model Law.

The objective that should inform the content of almost every provision of a developing nation’s national arbitration law should be to exclude, or to clearly define and limit, any opportunity for local court involvement with respect to arbitration. Article 5 of the UNICITRAL Model Law sets the stage for specific applications of this objective: “In matters governed by this law, no court shall intervene except where so provided in this law.”157 Malaysia completely excludes its courts from involvement with arbitrations occurring at the Kuala Lumpur Regional Arbitration Centre, and this approach, at least in all pre-award-enforcement stages of arbitration, clearly should be considered as a model by all nations with under-developed or unreliable judiciaries.158 Where the qualities of judiciaries vary, Article 6 of the UNCITRAL Model Law suggests an alternative approach: specifying with particularity the only court or courts competent to hear justiciable matters pertaining to arbitrations.159 The specification of justiciable matters

155 See notes 30 and 31, supra, for a summary of how this international legal infrastructure permits autonomy to thrive.

156 Article I (3) of the New York Convention permits acceding nations to declare upon their accession that they will not apply the Convention to awards rendered in nations that are not also parties to the Convention (i.e., the reciprocity reservation), and that they will not apply the Convention to matters that are not considered “commercial” under their law (i.e., the commercial matter reservation). Not making these reservations reduces the opportunities for challenges to an arbitration agreement or award as not within the auspices of the Convention. Several African nations and Thailand are among the nations that have made neither reservation. See http://www.uncitral.org/en-index.htm, supra note 30, and Amazu A. Asouzu, African States and the Enforcement of Arbitral Awards: Some Key Issues, 15 ARB. INT’L 1, 27 (1999).

157 UNCITRAL Model Law, supra note 154, art. 5.

158 Arbitration Act, art. 34 (Malay.). I do not intend this as a comment on the quality of Malaysia’s judiciary. An analogous, but not quite as complete, severing of international arbitrations from local judiciaries is available by way of exclusion agreement under the national arbitration laws, for example, of Belgium and Switzerland. See Code judicature Art. 1717, Law of March 27, 1985 (Belg.), and Loi Federale de Droit Internationale Prive {L.D.I.P.], art. 92 (Switz.). I believe that, for many developing nations, a complete severance is preferable to leaving open the availability of interim measures of protection from local courts, for the simple reason that arbitrators ordinarily have leverage and means enough to compel protective measures from parties appearing before them, and any option of judicial action in many developing nations poses risks of completely frustrating the arbitral process. See e.g., text accompanying note 161, infra.

159 UNCITRAL Model Law, supra note 154, art. 6. Article 6 explicitly suggests specifying the court only for specified matters of judicial supervision of arbitration, leaving unspecified, for example, courts that might issue interim measures of protection pursuant to Article 9. I believe that developing nations should specify (and strictly limit) in their national arbitration laws the court or courts with competence to hear any matter pertaining an issue within the scope of the arbitration law. This is the approach local Indonesian counsel and I recommended to the Indonesian government/ USAID ELIPS (“Economic Law and Improved

should be equally clear and precise perhaps fewer in number and more restricted in scope than the justiciable matters contemplated by the UNICITRAL Model law.160 For example, the provisions in the UNCITRAL Model Law pertaining to interim measures of protection might be completely reworked to restrict the judicial issuance of such measures to requests from arbitrators

Conclusion

This article argues that the extension of autonomy in international contracts to public law is detrimental to international commerce when undertaken by a developed nation, but beneficial to international commerce and to economic development when undertaken by a developing nation. The difference lies in the alternative to autonomy: effective and reasonably fair public sector regulatory and judicial institutions in developed nations, incapacitated and frequently unfair public sector regulatory and judicial institutions in developing nations. In developed nations, the extension permits transnational commercial actors to opt out of protective regulatory law thus increasing the risk of precisely the public harm the regulatory law intended to prevent. Further, the arbitrability of public law either reduces the probability of correct applications of public law and thereby contributes to under-regulation, or increases the risk of arbitral procedural reforms that threaten the continued utility of international arbitration for non-Western parties. Finally, because the exercise of autonomy with respect to public law

Procurement Systems”) commercial law reform project in Indonesia. See ELIPS Project Academic Draft Relating to Arbitration (1994) (on file with author).

160 Once again (see note 159, supra), I would recommend specifying (for purposes of strictly limiting) an exclusive list of issues and matters within the competence of specified local courts.

161 Articles 9 and 17 of the UNCITRAL Model Law pertain to these issues. The point of the restrictions I hypothesize, of course, would be to give arbitrators effective control over when a party may go to court for a protective measure, or, if a party already has gone to court, its effect on the arbitration. The restrictions I suggest in the above text are those that local Indonesian counsel and I recommended to the Indonesian government/USAID ELIPS Project. See note 159, supra.

162 See Articles 34, 35, and 36 of the UNCITRAL Model Law.

163 The UNICITRAL Model Law treats all international arbitrations identically, including those occurring domestically (art. 1(3)), but I am suggesting that developing nations consider a single legal regime for all arbitrations, including exclusively domestic matters. This could be a particularly important aspect of arbitration serving to promote a transition to the rule of law.

matters invites greater judicial supervision than exercises of autonomy with respect to matters governed by private law, the extension decreases rather than increases predictability in international commerce.

The opposite is true of the extension when undertaken by developing nations. The extension of contractual autonomy to public law by developing nations can help these nations provide the public law regulatory and judicial mechanisms that the extension enables private parties to avoid when made by a developed nation. Autonomy to designate applicable public law can serve in developing nations as a means of supplying otherwise unavailable or incomplete protective standards for commercial activity. In addition, autonomy to privately arbitrate public law disputes can serve as a means of enforcing the standards. A developing nation’s sovereignty can remain intact by legislating the parameters of autonomy. Although the efficacy of this regulatory scheme hardly matches that of a developed nation, the near-term potential of private autonomy for facilitating commerce and promoting the rule of law is significant.