Introduction - International Regulatory Harmonization

Because we live in a world of national laws and international business activity, the regulation of a single transaction can be affected by several different legal regimes. Within domestic systems, even if sub-units such as the states of the United States exist, there is a central government authority that can regulate such transactions.1 In the international arena, the problems are more difficult. There is no supranational authority able to impose international standards; attempts at harmonization must overcome greater differences in culture and legal tradition; and national lawmakers are often resistant to any form of international rulemaking. How, then, should international cooperation proceed? There is no simple answer to this question. Different legal issues require different solutions, and even within a single issue there is often strong disagreement about how to proceed. Nevertheless, the business of international cooperation must proceed. Business activity crosses national borders, and the law has no choice but to deal with that activity. Even if there is no international cooperation or coordination, domestic laws will interact with international activity affecting business decisions and human welfare. Under this laissez-faire system, each jurisdiction proceeds as it wishes, without concern for the policies of other jurisdictions. Without some coordination on choice of law rules, however, a system of this sort will almost always lead to overlapping jurisdictions, conflicting legal regimes, and over-regulation. The existing antitrust law regime fits this description. International transactions are subject to the simultaneous regulation of domestic regulators in many countries,2 and each national IMAGE FORMULA5 regulator operates independently. States could avoid the problem of over-regulation by limiting their jurisdiction to a narrow territorial basis, but this would instead lead to the under-regulation of many activities.3 The best way to overcome the problems with these non-cooperative outcomes, however, is difficult to identify-in part because cooperation is difficult to achieve, difficult to enforce and sustain, and at times generates an additional layer of bureaucracy between citizens and decisionmakers.4 My own view, then, is that we should seek strategies that require as little cooperation as possible while still achieving a reasonably efficient regulatory outcome. In any given area, increasing the degree of cooperation can only be justified on the grounds that it will yield a better outcome. Starting with a low level of cooperation, note that effective international regulation can at times be achieved through unilateral choice of law rules. The appeal of this approach is that it does not require any explicit cooperation. To work, it must be the case that each state has an incentive to adopt a choice of law rule that is globally desirable.5 I have argued elsewhere that this is the case in the international bankruptcy context.6 If unilateral choice of law rules do not yield an efficient international regulatory regime, states may be able to agree on a better choice of law system through negotiation. The advantage of addressing a problem through a choice of law rule, rather than through a substantive legal rule, is that each state remains free to adopt its preferred substantive law, reducing the conflict among legal systems and, hopefully, making agreement easier to achieve. If choice of law rules prove insufficient to achieve a desirable international regulatory regime, the next level of cooperation is harmonization. This approach has many challenges to overcome, one of the greatest being the difficulty of reaching an agreement to begin with. Nevertheless, harmonization has promise when applied in a limited way. For example, harmonization seems like a sensible approach (for at least IMAGE FORMULA8 some groups of countries) to problems such as environmental issues and health and safety matters. …