christopher wakem - us and uk domination of cross-border business coming to an end?
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8/12/2019 Christopher Wakem - US and UK Domination of Cross-Border Business Coming to an End?
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US, UK, and Cross-BorderBusinessChristopher Wakem
8/12/2019 Christopher Wakem - US and UK Domination of Cross-Border Business Coming to an End?
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Though emerging markets now account for
over half the world’s GDP at purchasing-power
parity, and trade between them is booming, just
two developed countries retain a strangleholdon cross-border finance, investment, mergers
and acquisitions.
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Just as America benefits from issuing the
world’s reserve currency, America and its
former colonial master, Britain, enjoy the
exorbitant privilege of issuing the world’s
“reserve law”. A recent survey of general
counsels and legal-department heads found that
40% most frequently did business using
English law and another 22% American,
generally the law of New York state. No other
country’s law got a significant share.
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America and Britain reap large rewards from their legal dominance. Of the world’s
100 highest-grossing law firms, 91 have their headquarters in one of the two.
America’s legal sector is bigger than the GDP of Peru; though much of that is
because of Americans’ litigiousness, a good chunk comes from foreign work. The New York offices of American firms earn around $1.8 billion annually from
international-dispute resolution. Almost two-thirds of litigants in English
commercial courts are foreign. At 1.5%, the legal sector’s share of British GDP is
nearly double that in other big European countries.
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Other bits of both countries’ economies feel the ripples, too. Foreigners visiting for legal
hearings stay in hotels and eat in restaurants. Aspiring lawyers from around the world pay
to attend their universities and spread goodwill when they go home. Dependence on
American and British law firms makes it harder for dealmakers to move from New Yorkand London to Hong Kong or Frankfurt. Britain’s government describes lawyers as
“central to the export of other professional services” such as accounting, asset
management and banking.
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The competition is often weak: much of
China’s commercial law was written by
Communist Party officials and is riddled with
errors; and though India adopted much of
English common law, its courts are notoriously
slow. But the incumbents’ biggest advantage is
that they have common-law systems with
centuries of binding precedent. In civil-law
countries such as France, Portugal and Spain,
and their ex-colonies, judges have wide latitude
to interpret statutes, increasing the risk of nasty
legal surprises. Common law also permits
almost any terms in a contract. Civil systems
place more restrictions on acceptable clauses,and often consider the interests of third parties,
such as workers or consumers.
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Many other countries would like to break this
duopoly. But even those with good laws on
paper would take decades to train enoughlawyers and judges to make them stick. The
immediate threat to American and British law
comes from a trend that dispenses with courts
altogether.
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Parties to a cross- border deal must decide not only which country’s law governs it but
how disputes should be resolved. Firms are increasingly opting for private arbitration,
which promises confidentiality, speed and lower costs than going to court — and here
London and New York are less dominant. The Paris-based International Chamber ofCommerce is among the world’s biggest centres, and Stockholm was a popular venue
during the cold war.
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More recently, new entrants have made inroads. Among the most successful is
Singapore, whose dedicated arbitration venue, SIAC, opened in 1991. Singapore’s
government exempts arbitrators from income tax and expedites entry for participants
in hearings. SIAC’s caseload has quadrupled in the past decade, with Indian firms
particularly keen. Last year they were parties to a third of its 259 new cases.
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In the long run, developing countries may be
bigger losers. Local arbitration may facilitate
deals and bolster short-term growth. But if it
reduces the pressure from multinationals andlocal firms for simpler laws, better courts and
less political corruption, it may delay attempts
to establish legal systems that work not just for
businesses but for everyone else too.
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