The rise of cross-border trade in the Asian region has led to a need within the business community for an increased convergence of laws, harmonised regulatory standards and uniform enforcement. Ranajit Dam looks at how an initiative in Singapore is aiming to start the process of bringing these about

No matter what state the world economy might be in, Asia continues to be a magnet for trade and investment. According to the United Nations Conference on Trade and Development, the region received close to $500 billion in FDI in 2014, up 9 percent from a year earlier. Deal-flow continues to remain strong: Asia (excluding Japan) deals surged to a record $640 billion in the first half of 2015, Reuters reported. And things could only get better, with initiatives like the China-led Asian Infrastructure Investment Bank as well as the soon-to-be launched ASEAN Economic Community (AEC).

All this growth is happening in spite of the fact that Asia remains a region with a wide variety of legal systems and infrastructures as well as regulatory standards, and the lack of legal convergence can be occasionally discouraging for businesses. “Companies look at Asia and see many different countries with many different laws, and that lack of coordination makes them nervous about trying to develop pan-Asian businesses,” says Stephen Revell, the Singapore managing partner of Freshfields. “They have to not only think of each country from a commercial sense, but also think about how they cover the legal aspects. Secondly, they worry about the rule of law, the sanctity of the contracts they enter into, and whether there’s going to be government interference in those contracts. And finally, there is the question of enforcement: How long will it take to get disputes heard? And if they’ve chosen arbitration, how do they get their judgments ultimately enforced?”

So what can be done to address these? The solution lies in the increased convergence of cross-border business laws, improved legal infrastructure and harmonisation of regulatory standards across Asia. To this end, the Singapore Academy of Law is organising an international conference on Jan. 21 and 22 next year that aims to provide critical insight and kickstart these discussions.

TOP DOWN, BOTTOM UP

One of the biggest challenges to the convergence of business laws comes from how governments across Asia might not always be on the same page when it comes to treating the issue as a priority. “Governments like their sovereignty, and governments are accountable to their own populations when they’re setting standards. They have their own domestic constituencies to pay attention to, or they’ve got their own regulatory issues,” says Simon Chesterman, dean of the Faculty of Law at the National University of Singapore (NUS). “They may be party to some treaties but not others. So for governments, they have an interest in participating in harmonization, but not in giving up their sovereignty.”

Revell agrees. “Governments are concerned about being told, ‘Here is the law, guys. You’ve all got to adopt it,’” he says. “I wouldn’t work with some governments, because you’ve got some very different legal systems around the region. Some are highly developed, and some are very much in an earlier stage of development, so to just try and drop a type of model law across the region is going to lead to a lot of governmental resistance.”

Chesterman and Revell say there are two approaches to bringing about legal convergence – a top-down approach and a bottom- up approach. “Examples of top-down approaches are intergovernmental organizations like the EU or trade bodies like the World Trade Organization,” says Chesterman. “The barrier there is that the difficulties of getting to agreement are high. On the other hand, the bottom-up approach involves the development of almost informal standards that can apply to multiple jurisdictions, and across trade associations. However, since they might not be formal government processes, they don’t have force of law, usually.”

Revell believes that a very powerful initiative could be the introduction of an Asian version of the United States’ Uniform Commercial Code (UCC). “For relatively lowlevel transactions, particularly for domestic deals across the U.S., agreements are made on UCC terms,” he says. “A pan-Asian UCC wouldn’t need legal change, as it’s on the basis of a contract between two consenting parties.”

He adds though, that buy-in from the judiciary will be vital. “We will need to get lawyers together – particularly those advising clients as to how to write contracts – but the judiciary will be more important,” he says. “The key thing about having a settled version of the commercial terms is not so much what it means between the parties – which is clearly important, as that is what would be written down. The most important thing is if you take a contract to a judge in say, Indonesia, is he going to reach the same conclusion as if you took it to a judge in Australia or Malaysia? And if we can reach that judicial engagement, which is key to the process, then you’ve made some quite fundamental change, and yet you’ve not had to pass a law.”

Chesterman says the case also needs to be made to governments. “At this meeting in January, we’re trying not just to involve the lawmakers and lawyers, but get business people there as well. Because in many ways, it’s businesses that can make the case most compellingly. And once you have the flexibility to operate across different jurisdictions, then there’s a virtuous circle which encourages greater integration of economies and probably harmonisation of laws,” he says.