Christopher Wakem - US and UK Domination of Cross-Border Business Coming to an End?

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



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.



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.



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.



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.



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.



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.



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.



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.



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.

Christopher Wakem - US and UK Domination of Cross-Border Business Coming to an End?

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