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2017/SOM3/EC/015 Agenda Item: 8c.iii

Vision for APEC ODR

Purpose: Information Submitted by: United States

Second Economic Committee MeetingHo Chi Minh City, Viet Nam

25-26 August 2017

VISION FOR APEC ODR

APEC EC Ho Chi Minh City

Vietnam August 25, 2017

Mike Dennis Attorney Adviser

Office of Legal AdviserPrivate International Law

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DEVELOPING A COOPERATIVE APEC ODR FRAMEWORK

iPhone Case Study

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DEVELOPING A COOPERATIVE ODR FRAMEWORK (FOR B2B)

APEC EC ODR Work Plan

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Continue to promote harmonization of the relevant laws for ODR using existing international instruments

Cross-APEC collaboration (with e.g. ABAC, ECSG, SMEWG, GOS, TELWG) Conduct relevant

research/information gathering Develop ODR procedural rules Build a pilot in conjunction with platform

host Capacity building Leverage private sector and academic

community support

WHAT RESEARCH SHOWSGlobal Trade Is Expanding

APEC’s total trade increased more than 6.7 trillion between 1989 and 2015.

WHAT RESEARCH SHOWSInternet Enables Trade Expansion

(Including for MSMEs)

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Internet highway provides MSMEs unprecedented access to international markets

WHAT RESEARCH SHOWSMany Cross-Border Disputes Unresolved

In APEC, dispute resolution one of the greatest challenges for MSMES trading across borders.

(Driving Economic Growth Through Cross-Border E-Commerce in APEC: Empowering MSMEs and Eliminating Barriers at 35, 69. http://ncapec.org/docs/ABAC%20Documents/USC%20Marshall%20ABAC%202015%20MSMEs.pdf (interviews with 506 business executives plus 244 survey responses)).

According to EU, for B2B – 28% of MSMEs involved in disputes over

3-year period. Businesses involved in disputes

averaged 6 disputes with other businesses. Average value of cross-border dispute

€44,300 35% of cross border disputes

unresolved.(Ecorys, Study on the use of Alternative Dispute Resolution for Business to Business disputes in the European Union at 6, 123, 125 (commissioned by the European Commission) http://www.adrcenterinternational.com/wp-content/uploads/2015/01/ADR-Final-Report-151012.pdf (based in part on Flash Eurobarometer 347: Business to Business Alternative Dispute Resolution in the EU (interviews with 10,840 businesses including MSMEs)); European Commission, DG Enterprise and Industry, Business Disputes Keep Businesses from Doing Business, at 4.)

423.2500.4

602708.4

821.2942.8

2012 2013 2014 2015 2016 2017

Worldwide E-Commerce disputes

per year (in millions)

3% to 5% of all transactions, online and offline, result in a dispute. See Ethan Katsh & Colin Rule, What We Know and Need to Know About Online

Dispute Resolution, 67 S.C. L. Rev. 329, 333 (2016).6

WHAT RESEARCH SHOWSDisputes Keep Small Businesses from

Doing Business

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[EU] SMEs estimated costs of unresolved disputes at 2.8% of turnover. (European Commission, Business Disputes Keep Businesses from Doing

Business, supra at 3)

Unresolved disputes lead to damaged client relationships and hurt sales.Especially serious for small businesses as they have fewer clients. (European Commission, Business Disputes Keep Businesses from Doing Business,

supra at 4.)

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WHAT RESEARCH SHOWSMSMEs Underdog By Definition

Majority of B2B disputes involving small businesses concern payments. (Study

on the use of Alternative Dispute Resolution for Business to Business disputes, supra, at 124; Business Disputes Keep Businesses from Doing Business, supra, at 5. (Finding in EU that “71% of the disputes of small enterprises and 44% of medium-sized enterprises are concerned with payments.”)

55% of small businesses face liquidity problems.

(Study on the use of Alternative Dispute Resolution for Business to Business disputes, supra at 12.)

Speedy dispute resolution “essential for small enterprises, which may lack the resources to stay in business while awaiting the outcome of a long court dispute.” (World Bank, Doing Business 2017, Regional Profile, Asia-

Pacific Economic Cooperation (APEC) at 215)

WHAT RESEARCH SHOWSCourts Not An Option

4 billion people lack access to well functioning judicial system. (Secretariat Note, Selected legal issues impacting microfinance, April 2012, UN Doc. A/CN.9/756, para. 24 citing

UNDP, Commission on Legal Empowerment of the Poor, Making the Law work for Everyone, available at: www.undp.org/legalempowerment).

APEC EODB indicator for Enforcing Contracts measures time, cost and procedural efficiency for resolving commercial domestic lawsuits.

446.2 days on average to enforce contracts in APEC.

33.9 percent of claim on average taken by administrative fees.

(APEC’s Ease of Doing Business: Baseline for Second EoDB Action Plan (Feb. 2017) APEC Policy Support Unit; Doing Business 2017 (APEC), supra, at 254-55.)

In cross-border disputes, traditional judicial relief not only slow but creates jurisdictional, choice of law, and enforcement difficulties. (Myburgh, A., & Paniagua, J., The Impact of UNCITRAL on FDI, (2017) (Section 2) available at http://www.uncitral.org/uncitral/en/commission/colloquia/50th-anniversary-papers.html; Born, G, International Commercial Arbitration, 579 (2009).) 9

In-person arbitration predominant form of dispute resolution in cross-border trade. (Queen Mary University of London and White & Case, 2015 International Arbitration Survey https://www.whitecase.com/publications/insight/2015-international-arbitration-survey-improvements-and-innovations (90% of respondents prefer international arbitration to resolve cross border commercial disputes))

“Surveys find that firms are attracted to arbitration due to the expertise and neutrality of the decision maker, confidentiality of the proceedings, a lack of familiarity with the courts and laws in foreign countries, and enforceability.” (Myburgh, A., & Paniagua, J., The Impact of UNCITRAL on FDI, supra, Section 2)

But according to multiple sources, including the World Bank, arbitration is too expensive/slow for e-commerce/supply chain disputes. ((Myburgh, A., & Paniagua, J.,The Impact of UNCITRAL on FDI, (2017), supra); 2015 International Arbitration Survey, supra (to reduce the time and cost associated with international arbitration, 92% of respondents favored inclusion of simplified procedures in institutional rules for claims under a certain value).

WHAT RESEARCH SHOWSArbitration Not An Option

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WHAT RESEARCH SHOWSODR A Better Option

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(GA Resolution 71/138, UNCITRAL Technical Notes on ODR, December 13, 2016)

WAY FORWARD FOR ODR IN APECUNCITRAL ODR Notes

General Assembly Resolution 71/138, UNCITRAL Technical Notes on ODR:

“reflect the principles of impartiality, independence, efficiency, effectiveness, due process, fairness, accountability and transparency.”

“are expected to contribute significantly to the development of systems to enable the settlement of disputes arising from cross-border low-value sales or service contracts concluded using electronic communications.”

“will significantly assist all States, in particular developing countries and States whose economies are in transaction, online dispute resolution administrators, online dispute resolution platforms, neutrals and the parties to online dispute resolution proceedings in developing and using online dispute resolution systems.”

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WAY FORWARD FOR ODR IN APECAPEC EC ODR Work Plan

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Continue to promote harmonization of the relevant laws for ODR using existing international instruments

Cross-APEC collaboration (with e.g. ABAC, ECSG, SMEWG, GOS, TELWG)

Conduct relevant research/information gathering Design ODR platform Develop ODR procedural rules Build a pilot in conjunction with platform

host Capacity building Leverage private sector and academic

community support

Effective use of ODR across APEC requires adoption of relevant laws and treaties by member economies:

New York Convention implemented by 20 APEC membereconomies;

UNCITRAL Model Law on International Commercial Arbitration (revised in 2006) followed by 18 APEC economies;

UNCITRAL Model Law on Electronic Commerce followed in 14 APEC economies;

UN Convention on the Use of Electronic Communication in International Contracts ratified by 2 APEC economies;

UN Convention on Contracts for the International Sale of Goods (CISG) ratified by 13 APEC member economies.

“In Writing” must include electronic communications.

WAY FORWARD FOR ODR IN APEC Harmonizing Law Using Existing Instruments

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157 Parties

WAY FORWARD FOR ODR IN APECNew York Convention

83 jurisdictions

WAY FORWARD FOR ODR IN APECUNCITRAL Model Law on International

Commercial Arbitration

WAY FORWARD FOR ODR IN APECEC ODR Work Plan: Platform

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Continue to promote harmonization of the relevant laws for ODR using existing international instruments

Cross-APEC collaboration (with e.g. ABAC, ECSG, SMEWG, GOS, TELWG)

Conduct relevant research/information gathering

Design ODR platform Develop ODR procedural rules Build a pilot in conjunction with platform

host Capacity building Leverage private sector and academic

community support

“ODR requires a technology-based

intermediary” UNCITRAL ODR Technical Notes, para 26

WAY FORWARD FOR ODR IN APECSustainable ODR Platform

ODR Ecosystem

ODR Platform

Handles All Communications

Problem Diagnosis/Negotiation

Tools

Buyer

Arbitrator

WAY FORWARD FOR ODR IN APECSustainable ODR Platform

Common technological platform needed to offer ODRAll communications in ODR proceedings should take place via the ODR platform. The ODR platform should meethighest standards of data security, privacy, integrity, and preservation as well as fraud detection and prevention.

WAY FORWARD FOR ODR IN APECDevelop ODR Procedural Rules

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Continue to promote harmonization of the relevant laws for ODR using existing international instruments

Cross-APEC collaboration (with e.g. ABAC, ECSG, SMEWG, GOS, TELWG)

Conduct relevant research/information gathering

Design ODR platform Develop ODR procedural rules Build a pilot in conjunction with platform

host Capacity building Leverage private sector and academic

community support

APEC rules should provide fast-track ODR procedures that comply with due process requirements.

Major challenge to building an ODR system for low-value disputes involving supply chain/MSMEs is keeping costs low.

By making the ODR process more structured, easier, faster, and less expensive to complete, ODR improves redress and access to commercial justice.

Accelerates Justice, Accelerates Trade

WAY FORWARD FOR ODR IN APECDevelop ODR Procedural Rules

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“The General Assembly recommends that all States and other stakeholders use the Technical Notes in designing and implementing online dispute resolution systems for cross-border commercial transactions.” (GA Resolution 71/138, supra)

“…why it is crucial that a global harmonizing instrument or set of principles be created … to support online dispute resolution systems that can handle cross-border disputes across the commercial spectrum...”

(Note supporting work on online dispute resolution by UNCITRAL, Institute of International Commercial Law, UN Doc. A/CN.9/710 at 2-3 (2010) (co-sponsored by 35 organizations.))

WAY FORWARD FOR ODR IN APECDevelop ODR Procedural Rules

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WAY FORWARD FOR ODR IN APECDevelop ODR Procedural Rules

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Facilitated Settlement

Negotiation

Arbitration

Enforcement

Diagnosis ODR Provider/Arbitrator

Buyer/Seller

Each phase acts like a filter, resolving a percentage of disputes

WAY FORWARD FOR ODR IN APEC Capacity Building

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Continue to promote harmonization of the relevant laws for ODR using existing international instruments

Cross-APEC collaboration (with e.g. ABAC, ECSG, SMEWG, GOS, TELWG) Conduct relevant research/information

gathering Design ODR platform Develop ODR procedural rules Build a pilot in conjunction with platform

host Capacity building Leverage private sector and academic

community support

WAY FORWARD FOR ODR IN APECCapacity Building

Key implementation issue is getting businesses to agree to ODR.

Requires businesses to understand and trust ODR.

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APEC could take the lead in explaining ODR to private sector, governments, and legal community and build capacity by leveraging support from trade associations and chambers, donors, law facilities and corporate social responsibility programs.

WAY FORWARD FOR ODR IN APECBuild a Pilot

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Continue to promote harmonization of the relevant laws for ODR using existing international instruments

Cross-APEC collaboration (with e.g. ABAC, ECSG, SMEWG, GOS, TELWG) Conduct relevant research/information

gathering Design ODR platform Develop ODR procedural rules Build a pilot in conjunction with

platform host Capacity building Leverage private sector and academic

community support

Outreach to Regional Arbitration/Mediation Centers to determine possible partners for hosting ODR platform

Collaborate with ABAC to identify businesses to participate in ODR pilot

Task SELI to work with Regional Arbitration/Mediation Centers and ABAC to identify online arbitrators and create set of ODR rules.

SELI host 2-day workshop at next EC meeting with interested participants concerning implementation of ODR pilot.

WAY FORWARD FOR ODR IN APECBuild a Pilot

VISION FOR APEC ODR

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VISION FOR APEC ODRBeyond Dispute Resolution

3. Technology may notify parties of

problems in performance of

contracts or provide automated contract

enforcement/penalties (e.g. smart contracts)

VISION FOR APEC ODRBeyond Dispute Resolution

Promote and maintain strong

relations with business partners in

global supply chain

Promote and maintain strong

relations with business partners in

global supply chain

Provide MSMEs with opportunity to compete and flourish

in supply chain

Provide MSMEs with opportunity to compete and flourish

in supply chain

Build capacity for economic

growth based on trade, not

aid

Build capacity for economic

growth based on trade, not

aid

Empower women to participate

more fully in the global

chain

Empower women to participate

more fully in the global

chain

Accelerate and extend real access

to justice for all

Accelerate and extend real access

to justice for all

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CONCLUSION

Implementation of a Cooperative APEC ODR Framework will:

THANK YOU

Mike Dennis Attorney Adviser

Office of Legal AdviserPrivate International Law

U.S. Department of Statedennismj@state.gov