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Anarchy, Order, and Trade: A Structuralist Account of Why a Global Commercial Legal Order is Emergin

The following blog post summarizes Professor Bryan H. Druzin’s Anarchy, Order, and Trade:  A Structuralist Account of Why a Global Commercial Legal Order is Emerging (47 Vand. J. Transnat’l L. 1049 (2014)). Read the full article here.

In the realm of commercial law, it really is a small world after all. An ongoing cause—or effect—of the increasingly integrated global economy has been the development of a system of transnational commercial law to resolve disputes. This new order arises at the macro level through complex, state-driven international agreements such as the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It can also be seen at the micro level in the form of private contracts employing customary law and arbitration. As a result, international trade is on a path toward “being partly or fully harmonized.”

Global commercial law has evolved much more rapidly than noncommercial areas of transnational law such as tort, criminal, or family law. The article Anarchy, Order, and Trade: A Structuralist Account of Why a Global Commercial Legal Order is Emerging, by Professor Bryan Druzin, Assistant Professor of Law at the Chinese University of Hong Kong, concludes that a reason for this may be found in the structure of commercial law itself. Commercial law, he says, is much better adapted to an international context because it is much less dependent on the state. Professor Druzin theorizes that the transnational commercial legal order “possesses built-in structural features that allow it to emerge, self-standardize, and sustain itself without a central authority, and it is this ability that helps explain the incongruous development of international legal order where in fact there is no such authority.” Continuing, he argues that “legal structures within the commercial sphere are able to advance at a swifter speed than other forms of legal order that lack these mechanisms . . . . [because] commercial legal order is able to evolve within what is a state of technical anarchy.”

Though national laws may reinforce it, three mechanisms within transnational commercial law have acted as major animating forces behind this standardization: reciprocity, the practical requirements of the market, and the existence of network effects. Trade, more so than most other areas of human endeavor, demonstrates how the prospects of mutual gain and reciprocity create superb self-reinforcing mechanisms. This “ensures a degree of willingness to come together and formulate a system of regulation to oversee this process” that renders external intervention largely unnecessary. The market in turn explains how private actors arrive at particular solutions through self-interest. For instance, market forces push modern day “Law Merchants” toward ever more efficient and pragmatic methods of dispute resolution.

Network effects are the most critical uniformity-creating structural elements of commercial law, however. Essentially, network effects exist when “the implicit value of a product increases as the number of other agents using the same product grows, which in turn draws more users.” Just as a language is more valuable to you if many people speak it, so too is a legal standard more attractive the more others subscribe to it. To the extent a single set of norms does not yet dominate the entire transnational commercial landscape, Professor Druzin argues that this is due to the continued insulation of some markets, within which localized network effects can still be seen.

Other important mechanisms in the homogenization of transnational commercial law include the inherent universality and inter-regionalism of trade, the relative ease of consensus in commercial relations, and the incentives for actors model their legal standards off of more successful competitors. Given the structural origins of the development of transnational commercial law, Professor Druzin concludes that we can expect it to become even more sophisticated and unified over time, far outpacing noncommercial international law. Soon there may exist a single transnational commercial order, even while such uniformity may be impossible for noncommercial areas.

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