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

WHEN do countries adopt the CISG? 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

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

Figure 1: Total CISG Ratifications Presentation title

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 accelerated adoption rates remainder of the Asia Pacific AEC of ASEAN, TPP may accelerate this process Presentation title

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

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 


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

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

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

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

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

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

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

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

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

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