1 The politics of private transnational governance by contract
Introduction and analytical framework
A. Claire Cutler and Thomas Dietz
Abstract
The introductory chapter defines the term âprivate transnational governance by contractâ and develops the analytical framework for the volume. It argues that contracts present the dominant mode of governance in the global economy. However, conventional theories of both disciplines, international relations and international law, fall short of understanding the political and economic implications of contractual governance. Largely unregulated by states, contracts determine winners and losers in the global economy and thus have profound distributional consequences. The introductory chapter argues that these consequences only become evident when one conceptualizes contractual governance as a determinative vector of power in the global political economy. Accordingly the discussion develops the concept of power as the essential element in understanding the politics of private transnational governance by contract.
Introduction
This volume brings together leading scholars from a variety of disciplines to assess and critically reflect upon the interplay between politics and law in an increasingly transnationalized global political economy. The specific focus is upon contract as a dominant mode of regulation in the global political economy. Indeed, the chapters reveal that contractual governance is not only dominant in regulating the global political economy, but it is a crucial vector of power determining winners and losers and âwho gets whatâ in global commercial and economic relations. The contributions infuse legal understanding of contractual governance with insights drawn from the study of power and political economy in international relations. The optic of the political economy of contractual power adopted here allows us to generate new fascinating insights into such central topics as the legitimacy of global governance, justice in the global political economy, and the exercise of authority by private actors. The specific focus is on new forms of governance that are developing through a variety of transnational contractual practices, institutions, and laws in multiple sectors and areas of economic activity. While private transnational governance by contract is defined below, this volume identifies important instances of governance that constitute hybrid forms of public and private authority. The focus on the political foundations of transnational contractual governance is both original and path-breaking in placing power at the center of the analysis, revealing the heterogeneous landscape of contemporary lawmaking and the different kinds of politics giving rise to this form of global ordering. As many of the contributors note, this new form of governance requires a different type of political theory and legal theory. The various chapters provide valuable contributions to new theory in law and politics. This Introduction begins by setting contractual governance in the broader historical context of conceptions of private contractual rights that developed through the reception of Roman law, Western imperial and colonial expansion, and the power of the great trading companies. The discussion reviews different theoretical approaches that might shed light on the rise and nature of private transnational governance by contract. Next the central analytics of private transnational governance by contract are identified and the term is defined. The discussion then defines the many faces of power and considers how the optic of power might capture the political foundations of this specific form of governance that are neglected by the dominant analytical and theoretical approaches. The chapter then goes on to propose how inadequacies in dominant approaches might be remedied to produce a more comprehensive and accurate account of this increasingly significant form of governance. In addressing the analytical, theoretical, and normative dimensions of contractual governance the discussion explores a political economy approach to understanding the politics of private transnational governance by contract. The concluding section summarizes how the various chapters contribute to this endeavor.
Historicizing private contractual governance and the global political economy
Historically, contractual governance has been a central vector of power in the development of the world economic and political systems. Indeed, there is much historical continuity in the regulation of trade and finance evident in the medieval law merchant and commercial practices governing overseas economic relations that pre-date the development of the modern states system.1 Contemporary maritime transport and shipping contracts, maritime insurance contracts, financial contracts, and dimensions of corporate law may be traced back in time to the activities of the great trading companies engaged in the expansion of Western power into the Americas, Africa and Asia, their roots even further back in earlier and even ancient commercial practices.2 As Martti Koskenniemi3 notes, âempireâ entered into international law âas part of international law itselfâ through the incorporation into international law of a variety of private rights to property, contract and exchange that derived from Roman law by jurists like Francisco de Vitoria. Others note the significance of contract practices in dispute settlement operations of the medieval fairs and markets.4 The universalization of Roman conceptions of private property rights (dominium) was achieved through their treatment as part of ius gentium or the law of nations.5 These rights were then enforced and transmitted throughout the world by the expansion of empires and theories of bellum iustum or just war: âThe world was an empire, but an empire of âprivate rightsââ.6 Koskenniemi7 further notes that it was Francisco SuĂĄrez who developed distinctions between ius gentium, common to all nations, and local laws, created to regulate commercial and other activities between individuals, which evolved through the contributions of theorists such as Hugo Grotius, into the distinction between public and private international law, respectively.
Kate Miles8 traces investment contracting, addressed in the chapters by Claire Cutler, David Lark and Edward Cohen, to unequal treaties or treaties of capitulation and European conceptions of property imposed through colonial expansion. Similarly, Laura Benton9 associates the emergence of European legal institutions âwith capitalist relations of production through repetitive assertions of power and responses to powerâ. Miles10 echoes this view: âGrotius framed his arguments for the VOC (Vermigde Oostindishe Compagnie, the Dutch trading company for whom Grotius worked) in such a way that a threat to private commercial interests became a legitimate legal basis for the state to go to war â and in so doing, ensured that the historical trajectories of warfare, commerce, and the development of international law would be inextricably intertwined.â In the contemporary context, Neil Browne and Jennifer Coon11 observe that âtransnational contract law is not the product of the Immaculate Conception; it is the anachronistic progeny of certain European laws that emerged during the Industrial Revolution.â
While the roots of contractual governance thus extend back in history, this volume takes the position that contractual regulation today has a distinctiveness that is specific to the contemporary character of capitalism. While contracts have always distributed value through power relations between the contracting parties, the scope and ambit of private international law is both quantitatively and qualitatively expanding in a way the world has never seen before. Contractual governance characterizes more fields, processes and subjects than in the past. In addition, private ordering is spilling over into the public domain, causing a blurring of distinctions between public and private international law that is captivating the interest of many today. As the contribution by Edward Cohen addresses: âtransnational contracting practice sits at the intersection between the freedom of commercial actors to structure their relationships and the state-based legal orders that empower and limit that freedom ⌠contractual governance is constituted by, and in turn serves a constitutive role in, relationships of private and public powerâ. This volume seeks to capture the significance of contract as a site of both contestation and cooperation between public and private powers as historically grounded, but specific to the contemporary global political economy. There are three dimensions to the specificity of contractual governance today.
First, contracts have become dominant mechanisms of organizing transnational economic transactions as forms of economic governance. As the example of global value chain contracting suggests, with the advent of Post-Fordism, the organization of production has shifted from hierarchical governance within firms to flexible contractual agreements, which â due to the far-going reductions of trade barriers â expand today increasingly across national borders.12 Note that not only firms but also states have been replacing vertical forms of economic governance with horizontal structures by privatizing formerly state-owned industries and contracting out the production of public services, including security, to private firms and public-private partnerships.13 In addition, states have deregulated their domestic markets most profoundly in the financial sector. By doing so, they have eliminated rules, such as the separation of commercial and investment banking, which, in turn, has triggered the emergence of new types of markets and forms of contracts. During the so-called phase of âembedded liberalismâ â roughly the first three decades after the Second World War â politics strongly interfered in the realm of party autonomy and freedom of contract. Political and economic elites doubted the virtues of party autonomy, spontaneous contractual ordering and the capacity of markets to regulate themselves, but rather believed in hierarchical economic organizations, strong regulations, international trade restrictions, and central economic planning.14 Since the 1980s, however, the role of contractual economic governance has been steadily growing. Today, markets and contracts stand in the heart of global economic life.
Second, contracts have become a dominant mode not only of economic governance but also of institutional governance, i.e., they not only specify the economic terms of the transaction, but also the broader institutional framework in which the transactions take place.15 The development and expansion of private modes of dispute settlement, as in the case of international commercial arbitration in the trade and investment regimes, evidence the centrality of contractual forms and decentralized organization to the ordering of economic relations.16 An examination of the rise of international commercial arbitration is thus crucial to understanding this extended role of contracts in the global political economy.17 Cross-border contracts usually contain arbitration clauses. Disputes are thus kept away from public courts and delegated to private international arbitral tribunals. Unlike public court proceedings, which must follow fixed rules of procedure and apply the laws of the land, arbitral tribunals provide loose and flexible organizational frameworks for dispute resolution. The parties are otherwise free to choose whatever procedural rules and substantive laws they consider most suitable to govern their contractual relation, including non-state lex mercatoria norms. Party autonomy is thus far greater in globalized transactions than in domestic transactions. International arbitration allows the parties to opt out of national contract laws and to create the institutional framework by which they want to have their contracts governed.18
Third, this institutional dimension of contract governance extends to regulatory governance. According to a growing literature, transnational contracts increasingly include so-called extracontractual clauses.19 Firms might, for example, use such clauses to contractually commit their suppliers in emerging market economies and developing countries with ineffective public regulations to conform to fundamental labor and environmental protection norms. In doing so, private contracts increasi...
