GLOBAL RULES

AND
PRIVATE ACTORS
 OVERVIEW

➢ Role of the TNCs in a globalized world;

➢ Corporate social responsibility;
➢ The problem of self-regulation;
➢ The question of legitimacy;
➢ New lex mercatoria and international arbitration and its
regulation in the global context.

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 GLOBALIZATION
the process of interaction and
integration among people,
companies, and governments
worldwide.
 TIMELINE
1492
with Columbus’s
voyage to the New
World
1940s
after WWII, many nations looked
to break down barriers of trade
between nations, promote free
trade, and set up global
organizations

1990s
1800s the invention and the
England fixed the value spread of the World
of its currency to Wide Web
specified amounts of
gold and many
countries followed it

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We discuss the role that transnational
corporations (TNCs) should play in
developing global governance, creating a
framework of rules and regulations for the
global economy.

The central issue is whether TNCs should

provide global rules and guarantee
individual citizenship rights, or instead
focus on maximizing profits.
 INTRODUCTION
The State determines the prerequisites and the regulations for the economic
activities and delineates the sphere of private freedom. Without such prerequisites
the market cannot flourish.

Nowadays, the dimension and the limits of State intervention are widely discussed.
Classical liberal and libertarian authors from economics agree that these rules can only
be created and enforced by the State, however in a globalized world is no longer a task
managed by the State alone. Indeed, today the transnational corporations (TNCs)
increasingly participate in the formulation and implementation of those rules that
once were the sole responsibility of the State or international governmental
organizations.

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 TNCs have set up their own “codes of
conduct”, outlining the humanitarian and
environmental standards of their business
practices, and extend the reach of such
codes to other in their areas of influence,
including contractors and subcontractors.

The issue now is whether business firms

should support initiatives like the UN
Global Compact or engage in other forms
of political self-regulation.

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Some management scholars hold that business firms should support philanthropic
projects, some others recommend CSR activities only if they contribute to the
firm’s profit. Nevertheless, within a context of globalization, many TNCs have
already assumed state-like roles because often the nation states and their agencies
are severely constrained in their ability to monitor and protect the rights of their
citizens and to provide sufficient public goods.

Therefore, it is necessary to propose an integrative concept of the firm as a private

and political actor. However, business firms and their managers are neither elected
nor democratically controlled, so we will discuss also about these emerging
problems.

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 Economic theory and free trade.
In mainstream economic
theory, the dominant
perception is that free trade
is the only avenue that will
allow worldwide economic
development and welfare to
flourish. Only under this
condition of free trade can
developing countries employ
their cost advantages.
Instead, a policy in favor of
worldwide harmonization
of social and environmental
standards would diminish
this advantage. Indeed, So from an economic point
Barro argues that economic of view, democratization and
development has to come social development may be
first, and then considered a result of
democratization or social economic development and
and environmental not a prerequisite.
standards.
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 “
The social
responsibility of
business is to
increase its profits.
Milton Friedman

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 Economic theory and the social responsibility of corporations

McWilliams and Siegel suggest that the economic
case is not to reject CSR activities entirely, but to
find an optimum level of CSR investments and
Husted and Salazar say that a strategic approach
to CSR may help business firms to improve
profitability and enhance social performance
at the same time. Therefore, they describe the
context in which it may be possible to maximize
“social profit” so that both society and business
firms benefit.
The social integration model is based on a
division of labor between the public (State)
and the private (Economy) spheres, where
the State sets the rule of the game and the
private firms pursue profits within these
rules, acting only as economic actors.

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 CORPORATE
SOCIAL
RESPONSIBILITY
With the advent of globalization, the situation has become even more
severe.
Economic activities inevitably cross the territory-bound validity of
state regulation and bureaucracy. Technological progress now also
enables companies to split their value-chain processes and distribute
their production sites worldwide. Companies are no longer subject to
the rules defined by a nation state.

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 In modern society, the state is incapable of recognizing and
anticipating all possible conflicts and coordination issues that can
arise from an increasingly interconnected and highly complex
environment.
Because of the dynamics of modern societies, social conflicts and
coordination issues cannot be solved by state-designed rules and
administration alone.

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 It has also been argued that instead of being regulated by their
governments, corporations have a considerable impact on the
formulation of national economic policy and international
negotiations over economic issues due to their increasing power.
In so doing, economic actors undermine the internal sovereignty of
nation states, namely the state's ability to independently set rules and
limit or regulate domestic private activities within its jurisdiction.

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 They conclude that this question can only be resolved within a
normative theory on the role of the firm within society; empirical
studies cannot adequately justify CSR because of the naturalistic
fallacy (i.e., deriving an "ought" from an "is").

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 The supplementing function exerted by the private firm is the
result of a republican political model.
In contrast to the liberal model of society, in the republican model the
citizen has a double role as a private citizen ("bourgeois") and as a
citizen of a state or a community ("citoyen").
In the republican business ethics model, it is assumed that the role of
the corporation resembles this double role of a citizen in a state. In
addition to the economic responsibilities of private business firms,
republican business ethics recognizes a republican co-responsibility
of the business company.

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 The problem of self-regulation.
Due to globalization,
established mechanisms of According to republican
democratic governance are conception of business ethics by
eroding due to the involvement Steinmann et al., the transnational
of new actors such and TNCs vacuum of legal regulation has to
and NGOs. be filled by processes of collective
self-regulation that include TNCs
as participants.
The problem is that, in doing so,
stable democracies are
surrendering their key aspects to
the arbitrariness of the
corporate actors whose
commitment remains fragile.

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 The problem of self-regulation.
Some TNCs have started
dealing with self-regulation
since the early 1990s due to
public pressure, especially
regarding labour conditions.
These self-imposed standards are
often implemented without any
form of third-party control and
they’re pursued as a way to make
profit.

Self-regulation without sanctions

leads to corporate
opportunism.

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 The question of legitimacy.
TNCs and NGOs are not
democratically elected and
their activities are seen as
private, yet they decide on the
development of a global
framework and influence its
general conditions.
Even initiatives like the UN
The question is: if
Global Compact just trust
corporations act in a
blindly the corporations
political way, wouldn’t it be
without sufficient control
appropriate that their
mechanisms. Especially when
internal structures and
corporations exerts their
processes were open for
power to define global rules in
public control?
ways that serve their economic
interests through political
lobbying.
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 The question of legitimacy.
According to his deliberative
model of democracy,
Habermas gives fundamental
importance to the practice of
discourse to give justification
to political decisions:
deliberative participants, who
must be equals, have to
presuppose that anyone can
take part in discourse and
anyone can introduce and
challenge claims that are made
there.
Corporate political legitimacy
refers to the link between
corporate decision-making
and discursive processes of
public-will formation that
express the democratic
sovereignty of the
transnationally expanding civil
society.
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Only the democratization of
corporate activities, through
continuous discourse
participation and enlarge
mechanisms of transparency,
monitoring and reporting,
can close the legitimacy gap of
the corporation as a political
actor.
In a global sense, the concept of legitimacy:
is weaker than in the
traditional understanding
because it refers to
transnational soft law instead
of national hard law and it
refers to the discourses of a
globalizing civil society as the
source of legitimacy instead of
a nationally defined
community.
An example of the importance of CSRs is the global labour rights.
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is broader because it includes
non-state actors as objects of
legitimacy claims and expands
the understanding of
responsibility beyond the
classical concept based on the
assumption that actors can be
held responsible for “an action
that caused a harm even if they
did not intend the outcome”.
 Prospects.
The role of public authorities and international organizations (such as the UN, the ILO and the
WTO), in a global context, should be to facilitate discourse and guarantee the required
transparency and monitoring.

What is the scope of
corporate responsibility?
We cannot expect firms to be
responsible for taking care of all
human misery but there needs to
be a “fair allocation of duties”
based on various factors, among
which, for example, the firm’s
capacity to remedy the problem.
How can this new political
role of the corporation be
implemented?
Through new model for
organizing that involves
participation, transparency and
symmetric communication.
What are the consequences
for the theory of the firm?
The point is not to reject the
economic objective of the firm
but to domesticate economic
pressure in a world where nation-
state power is on the decline and
where a proper world order has
not yet been established.

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 “
The new “lex
mercatoria” and
International
arbitration.

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 Lex mercatoria is the Latin expression for a
body of trading principles used by merchants
throughout Europe in the medieval period.
Literally, it means “merchant law”.

It evolved similar to English common law as

a system of custom and best practice, which
was enforced through a system of merchant
courts along the main trade routes.

It functioned as the international law of

commerce, emphasizing contractual freedom,
alienability of property, while avoiding legal
technicalities and deciding cases ex aequo et

bono*.
*In the context of arbitration, it refers to the power to dispense
what they consider to be fair and equitable in the case at hand. 25
 WHAT WAS THE NEED OF REGULATING THE MARKET
Medieval trade community had to
overcome the obsolete rules of feudal and
Roman law which could not respond to the
needs of the new international commerce.
Merchants created a superior law, which
constituted a solid legal basis for the great
expansion of commerce in the Middle Ages
that resisted for 800 years.
A distinct feature was the reliance by
merchants on a legal system developed and
administered by them for them.
Towards the end of medieval times, after the adoption
of national commercial law codes, merchant law
declined as a cosmopolitan and international system
of merchant justice.
The result of the replacement of lex mercatoria codes
with national governed codes was the loss of autonomy
of merchant tribunals to state courts.
but...
The nationalisation of lex mercatoria did not neglect
the practises of merchants or their trans-border
trade. Some institutions continued to function, and
state judges also were appointed for their merchant
expertise, just as modern commercial arbitrators.
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WHAT ABOUT THE PRESENT AND FUTURE COMMERCIAL LAW?
● Nation states somewhat fragmented the medieval lex mercatoria but it is far from destroyed.
Local interests triumphed in the medieval ages, just as national interests do today.

● A modern variant of the lex mercatoria is the evolving law and dispute resolution in
cyberspace. Internet traders are the fastest growing body of merchants in history.

● In a virtual court documents are filed and examined online, arguments are made online and
decisions are published online – seldom challenged before traditional courts of law. ICANN's
(Internet corporation for assigned names and numbers) and its proposals for Rapid Suspension.

● The medieval, the modern and cyberspace merchant laws face comparable issues of enforceability.
They solve the problems somewhat differently, but the reaction of the market is the main incentive to
comply with a ruling.

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 WHAT ABOUT THE OTHER PERSPECTIVES?
Further, lex mercatoria is sometimes used in international disputes between commercial entities. Most often
those disputes are decided by arbitrators which sometimes are allowed (explicitly or implied) to apply lex
mercatoria principles. Therefore, some legal practitioners assume that there is a whole set of legal principles named
"lex mercatoria" in international or transnational commercial law.

From a consumer perspective there are two choices the opt-in and opt-out approach, and this depends
positively on the content of the rules of the best way to protect consumer interests. It is doubtful whether
consumers will make the effort to investigate the pros and cons.

Enterprises selling their products and services to consumers might also select an opt-out approach. This would be
advantageous for them since they would then have to deal, and become familiar, with only one single law instead of
the great variety of contract laws in Europe with which they currently have to cope. Hence, it can be assumed
reasonably that both parties to a B2C contract are likely to have a preference for the automatic application

The choice of non national law cannot replace mandatory rules of the otherwise applicable law.

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 JUDGES AND ARBITRATION

How would the choice between an opt-in and an opt-out instrument be decided by
judges and arbitrators? The interpretation by the courts of the requirements for the
exclusion of the CISG* according to Article 6 is extremely stringent. This conclusion is
based upon three commonly acknowledged conditions:
➢ Second, the choice of the ➢ Third, even the
national law of a exclusion of the old
➢ First, parties need to Hague Uniform
contracting State does
express their clear Sales
not exclude the
intention to opt out
application of the CISG
of the CISG.
since it is also part of the
national law.

*CISG The contract for international sale of goods

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 ARBITRATION AND ITS ROLE ON THE MARKET
International arbitration is a voluntary and binding method of dispute resolution that allows parties
from different countries, legal systems and cultures to settle their disputes outside of traditional
legal channels. When disputes arise from international business transactions or other international
relationships, an arbitrator, who is a neutral third party, reviews both sides of the conflict and then
renders a decision in the matter. The disputing parties are legally bound by the decision.

Arbitration is voluntary and is created by contract. Parties either agree to submit future disputes to
arbitration during initial contract negotiations, or they agree to enter into an arbitration agreement
after a dispute arises.

International arbitration also provides stricter confidentiality than the legal system, which can be
especially important in commercial settings. Finally, arbitration awards are binding and often easier
to enforce than national court judgments.

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APPLICATIONS OF NON NATIONAL SUBSTANTIVE LAW IN CASE OF
ARBITRATION

In general, the possibility for the parties to influence various aspects of arbitration by their agreement
is inherent in international commercial arbitration law and practice.

The UNCITRAL Model Law on International Commercial Arbitration of 1985, on which almost
all modern arbitration laws are based, allows the parties to subject their contract to the “rules of law”
which they wish.

It is widely recognized that arbitrators may apply “rules of law” which they consider appropriate,
including the Contract Principles, which have been considered frequently as general rules of
contract law or as part of the lex mercatoria.

In the case of court litigation, judges should also apply such commercial “codifications” as the lex
contractus since the Contract Principles are designed specifically for international transactions.

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Thank you
for the attention!
Cristiana Stante
Livia Manca
Cynthia Messore
Laurentiu Mitruti