Theoretical Aspects of Commercial Law

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Theoretical Aspects of Commercial Law
Microeconomic Reform
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Basic Question
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What are legitimate objectives of Law?

• Guarantee individual freedom
• Equal rights
• Social Justice
• Enhance Societys Morals
• Public Safety
• Legal Empowerment of the Poor

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Laws are a set of legitimate rules developed
through agreed procedures.

• Caveat legitimate means different things to
  different people in different cultures at
  different times.

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For Economic Growth specialists, Legal Reform
should have a particular focus.

• The function of a commercial law framework is to
  provide an efficient foundation for conducting
  commercial transactions that allows members of
  society to RELIABLY and EFFECTIVELY engage in
  commerce, enforce contracts, and secure property
  rights.

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Rule of Law Economics
Rule of Law Historically Arose from the Long-Term
Consolidation of Economic Rights

• Magna Carta 1215

• US Constitution 1787

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Dickens on Law

• The one great principle of the English law is to
  make business for itself. There is no other
  principle distinctly, certainly, and consistently
  maintained through all its narrow turnings.

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Variations in Legal Systems Legal systems are
unique, shaped by culture, politics, economics,
and history. All legal systems are hybrid No
system does not incorporate some rule that did
not originate some-where else Most legal systems
are plural with more than one legal system
operating concurrently within a jurisdictions
boundaries Legal systems are harmonizing via
UNCITRAL, WTO, international bodies, like ASEAN
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• Is Law Immutable Truth?
• Religious law (Sharia Halakha)
• Roman Law (Justinians Codex)
• Civil Law

• Can We Change Laws under Changing Circumstances?
• Common Law

Emperor Justinian
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• Sharia (Islamic Law)
• Religious in nature based on the Koran and the
  Hadith
• Economic implications, particularly with respect
  to family law.
• No clear hierarchyseven legal schools of thought
  recognized.
• Increasingly relevant in many countries.

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• Avoid lawsuits beyond all things they pervert
  your conscience, impair your health, and
  dissipate your property.Jean De La Bruyere

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11 Core Commercial Laws

• All Commercial Law frameworks must address the
  following four things
• Property
• Contract
• Business Rights
• Dispute Resolution (Courts)

The 11 Core Laws address one or more of these
four pillars.
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Courts
Property
Business Rights
Contract
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Legal Best Practices

• Record, record, record!
• Simplify Standardize
• Off the rack v. couture
• Automate
• Recognize that technology in itself is not a
  panacea.
• Transparency
• Allow public access to records or judgments.
• Private Enforcement
• Court enforcement should be the last resort

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Property
A system of laws and regulations that creates,
recognizes, and protects rights in property.
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Property rights fuel Chinas and Vietnams Growth

• Granting property rights to rural farmers is
  credited with the great leap forward in Chinas
  and Vietnams economic growth.

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Secure Property Rights are essential to enhancing
access to credit
Sub-prime Lending Mass Foreclosures Bank
Losses U.S. Economic Recession
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Property is an elastic concept
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The distribution of property changes with
economic growth
Intangible Rights (IPR Contract rights)
Tangible Property (Movables)
Land (Real Estate Improvements)
LDCs MID-INCOME DEVELOPED
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Best Practices Property

• Simplify and streamline, then consolidate
  procedures at registry
• Linking the cadastre and the registry
• Allow for easy public access by making the
  registry electronic and by reducing charges.
• But, efficient courts and clear supporting
  legislation are the real backbone of securing
  property rights.
• Technology in itself is not a panacea.

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Contract
A system of creating, interpreting, and enforcing
commercial obligations between parties.
Contract
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Contracts Legal Systems

• Transition Economies Usually requires major
  overhaul or replacement, as the underlying legal
  framework simply did not support market
  activities.
• Civil law, post-colonial countries May be very
  inefficient as
• Framework based on antiquated theories, and/or
• Based on colonial control mechanism (Angola
  Indonesia).

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Business Rights
Enabling persons, groups, or things to be
recognized for participation in the economic
system.
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Business Rights Registration

• A good business registration system can
• Encourage entrepreneurship
• Facilitate the creation of small and medium size
  enterprises (SMEs)
• Formalize commercial activities within the
  economy
• Facilitate access to finance
• Promote overall investment in the economy

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Courts (Commercial Dispute Resolution)

• The process by which commercial disputes are
  resolved, e.g.,
• Contract interpretation and enforcement,
• liquidation rehabilitation of businesses,
• settlement of property rights disputes, and
• general adherence to the commercial law.
• End goal To promote the reliable, impartial,
  and efficient resolution of private commercial
  disputes

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Courts and CDR

• Issues
• Reliance Courts should make similar decisions
  when considering similar disputes
• Impartiality Outcomes should not be affected by
  who the parties are to the dispute
• Efficiency Disputes should be expeditiously
  resolved at low cost
• Includes laws and institutions handling
• Courts
• Binding Arbitration
• Mediation
• Conciliation

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Best Practices Courts

• Introducing court information systems and case
  management systems
• Removing non-dispute resolution transactions,
  like business registration, out of judges hands.
• Reducing procedural complexity.
• Small-claims courts and specialized commercial
  courts.
• Reducing abuse of appeals.
• Privatize enforcement

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Commercial Law Reform Typology
6000
Corporate Governance
Competition Policy
Competition Policy
2000
Bankruptcy
Bankruptcy
International Trade
International Trade
International Trade
Secured Transactions
Secured Transactions
Secured Transactions
Foreign Direct Investment
Business Registration
Business Registration
Business Registration
Business Registration
500
GDP per capita
Property Registration
Property Registration
Property Registration
Property Registration
Courts and CDR
Courts and CDR
Courts and CDR
Courts and CDR
Contract Law
Contract Law
Contract Law
Contract Law
Low Income Post Conflict
Middle Income
Transition Country
High Income
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Limitations on Economic Freedom?

• There is widespread international recognition
  that governing authorities can make exceptions to
  the recognition of property rights, freedom of
  contract, and providing dispute resolution
  services
• Preserve public safety
• Safeguard public health
• Protect national Security
• Enhance the moral welfare
• Others?

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Other considerations

• As a federal employee, I believe that the law is
  all we have. Its all that separates us from the
  savages.

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Efficiency Law Doing Business

• Commercial law reforms using microeconomic
  analysis enables the private sector to function
  more efficientlymaking it more competitive and
  stoking economic growth.
• Doing Business examines the cost of typical
  business transactions costs.
• Automation through web-based procedures
• Public administration changesmake processes
  quicker and cheaper
• Reducing numbers of approvals
• Does not explicitly measure the quality of the
  Rule of Law.

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Parting Thoughts

• Laws serve people.
• Laws need to accommodate societys needs.
• Laws should not only be based on theory, but on
  practice
• Laws will be administered by people, not by
  theoreticians.
• Legal framework should facilitate
  entrepreneurialism and positive-sum outcomes.

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Law is a blunt instrument

• Usually a product of consensus
• Doesnt directly involve itself in implementation
• Principles motivating the law may not be apparent
• Making instructions idiot-proof
• Culture plays role
• Competition through Doing Business comparisons
  helps!