Contracting Around Treaties

By: Aaron Simowitz

PDF: Contracting Around Treaties

International commercial treaties are normally categorized as default or mandatory, rules that private parties can contract around or cannot. This dichotomous categorization misses an important element of treaty design and interpretation. The same considerations that determine whether a treaty is default or mandatory—transaction and error costs, paternalism, and externalities—should also determine how easy or difficult it is for private parties to contract around an international commercial treaty. The rules that establish the necessary and sufficient conditions for displacing a default, called “altering rules” by contract theorists, can be as important as the initial decision to label a treaty default or mandatory.

Treaty drafters, legislators, and interpreters have failed to develop a coherent theory of treaty altering rules. As a result, the altering rules for international commercial treaties have little logical consistency. Treaties that are designed to maximize party autonomy—like the United Nations Convention on Contracts for the International Sale of Goods—have become more difficult to contract around than treaties deeply concerned with offenses to national sovereignty—like the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. These errors run the risk of making default treaties practically mandatory and mandatory treaties into easily displaced defaults.

Treaty drafters, legislators, adjudicators, and lawyers should appreciate the various tools available to calibrate treaty altering rules, including setting necessary and sufficient conditions, altering menus, and altering penalties. These means can then be matched to treaty ends—minimizing party costs and error, maximizing positive externalities through promoting cooperation among sovereigns, or minimizing negative externalities produced by privately contracting parties. Each of these treaty ends counsels for different means—in other words, for different altering rules. A coherent theory of treaty altering rules can drive the development of more defensible choices for regulating treaty opt out or opt in by private parties and can reveal a whole range of treaty types—the “sticky default” treaty or the “quasi- mandatory” treaty—between the poles of default or mandatory.