The CISG as a Tool for Improving Market Efficiency 24 April 2015

1. The CISG as a Tool for Improving Market Efficiency 24 April 2015 Dr. Lisa Spagnolo Faculty of Law, Monash University lisa.spagnolo@monash.edu

2. 1. Overview • WHEN do countries adopt the CISG? • What do we know about its rate of adoption? • WHAT effect does CISG have? • IS CISG efficient? • Can we measure this? • WHY do countries adopt CISG & do parties use it? • Any further POTENTIAL? • Is the CISG underutilized? Lisa Spagnolo

3. 1. WHEN do countries tend to adopt the CISG? What do we know about its RATE of adoption? • from 2013 KLRI Report Lisa Spagnolo

4. Figure 1: Total CISG Ratifications Presentation title

5. What we know about rates of CISG adoption • Seems like slight “domino effect” - countries more likely to adopt the CISG when other countries in their region adopt it • However this may be accelerated by the extent to which other legal/economic integration has already taken place • Prediction: Now Japan & South Korea have adopted CISG, we may see acceleratedadoption rates remainder of the Asia Pacific • AEC of ASEAN, TPP may accelerate this process Presentation title

6. 2. WHAT effect does CISG actually have? • IS CISG Efficient? Hypothetically..... Framework: Ex Ante Costs, Ex Post Costs, Penalty Default Rules, Information Asymmetry, Least-Cost Avoiders, Positive Externalities, Network Effects Substantive Efficiency: Stand Alone Assessment of CISG Features • Designed for international sales – Favor Contractus • Formation & Formalities • Need for Notice • Timing of Acceptance • Warranties & Notice • Type of Damages • Foreseeability Rule • Price Reduction • Limited Scope of Coverage, Ambiguity & Uncertainty • [ Lisa Spagnolo

7. Substantive Efficiency: Relative to Competing Law in Market for Law • ‘In Writing’ Requirement, Parol Evidence Rule • Foreseeability of Damages, Measure of Damages • Formation: Missing Terms, Battle of Forms • Favor Contractus and Notice • Preservation • Certainty • Quality Non-Substantive Efficiency: Learning & Network Effects in the Market for Law • Information Costs • Negotiation and Drafting Costs • Market Access: Neutrality • Performance Costs • Choice of Law (Conflicts) Risk • Legal/Forum Risk • Litigation Costs • Competitiveness

8. Measurable Economic Impact? Design: Study of countries in which CISG adopted: comparing indicators (Trade v GDP) before and after adoption. Compare for same period with World/Region. - From KLRI Report • [ Lisa Spagnolo

9. Figure 2: National Trade vs GDP before & after CISG compared with World Trade vs GDP Presentation title

10. Figure 3: National Trade vs GDP before & after CISG compared with Regional Trade vs GDP Presentation title

11. Figure 4: Singapore Trade vs GDP before & after CISG compared with World & Regional Trade vs GDP Presentation title

12. Results: Overall improvement in most countries. Qualifications: • Many other economic variables can cause the observed effect & cannot hold all constant • “World” not good control baseline. Even if CISG has economic impact on a country, “World” not isolated from same impact. And as the number of CISG States rises, expect less stark contrast between adopting nation & World • There can be economic effect without adoption of CISG, and conversely, adoption without economic effect.... • [ Lisa Spagnolo

13. Economic effect without adoption? • Non-adopting countries can benefit from CISG – it can apply to contracts entered by businesses within them (opt in or default) • CISG as model for domestic law reform Adoption without economic effect? • Opt outs Art. 6 - Reasons • How it is applied Presentation title

14. What we know about the efficiency of the CISG • For business, the CISG IS an efficient choice of law, especially once ALL types of efficiencies are taken into account (substantive & non-substantive). • Critics often fail to address many efficiencies (especially non-substantive), rely on incorrect or outdated facts (eg lack of cases). Rarely conduct comparative basis – bypassing the real question facing business – what is the best choice? • Efficiency of choices of law does not explain (most) opt-outs. • There is a rise in trade in sample CISG countries after adoption, but we cannot attribute this to CISG • The economic impact of CISG cannot be measured in terms of comparative change to GDP. Lisa Spagnolo

15. 3. WHY do countries adopt CISG & do parties use it? • Still new Contracting States • Used for domestic law reform • CISG being used by business: Usage rates vs Opt Outs 4. Any further POTENTIAL? • Is the CISG underutilized? • Familiarity • More adoptions & use • Network effects Lisa Spagnolo

16. What we know of CISG adoption, how often it is used & untapped potential • Countries still signing up. It is one way they can signal their legal structure is suitable and predictable for global trade. They believe it improves efficiency. • CISG seen as gold standard for domestic reform. • Exclusion rates are declining. Latest global survey 13% “always” exclude; 32% sometimes exclude; 55% RARELY OR NEVER exclude. • Usage rates can be estimated from opt out rates-globally this could be as high as 60%. • To the extent exclusions are not based on rational substantive evaluations, CISG underutilized. • Increased familiarity is discernible • Network effects from increased use will improve efficiency • further adoption by States • from slowly rising usage rates Presentation title

17. Thank you!Please feel free to contact me: Faculty of Law,Monash University lisa.spagnolo@monash.eduAcknowledgement: Korea Legislation Research Institute (Report, Spagnolo 2013) Lisa Spagnolo