United States: The New Global Community

Sitting in my home on a sunny March morning in the year 2000 I vividly recall a day in November, 1991 when I received a telephone call asking me, an American lawyer, to volunteer my time and legal skills to assist the government of Lithuania in its transition from a Communist, centrally-planned economy, to a democratic, market economy. Since that time, I’ve spent just about as much time in Central and Eastern Europe as I’ve spent at home in the United States. Cities such as Vilnius, Tirana, Sofia, Bratislava, Kiev and Moscow, which in the past, to the extent I had heard of them at all, were only names on a map, came alive to me during those years.

Why did I agree to go to Lithuania in the first place? How did I end up working with the governments of fifteen countries in Central and Eastern Europe over the next nine years? The answer to these questions is in some ways tied to the fact that at that time (and continuing into the present) a new phenomena had begun to overtake the globe — one can’t pick up a newspaper or turn on the television without hearing about socialists embracing capitalism, governments selling off companies they had previously nationalized, and countries seeking to entice back multinational corporations that they had expelled just years earlier. What did these changes mean for me and my children?

Participating in a unique moment in history and rubbing shoulders with the new revolutionaries in Eastern Europe who had overthrown Communism, was, of course, in and of itself, a motivating factor. Equally important, however, was my belief that if the West and its advisors could bring about the desired material improvements in everyday life for these long-suffering people, then democracy would follow and the world would be a better place for my children. To achieve such material improvements, however, required not only significant changes in financial institutions, but also a complete reconstruction of these countries’ legal systems---the place where I fit in.

I believed then, and now, that if one wants to understand the post-Cold War world, you have to start by understanding that a new international system has succeeded it, that is, globalization. Globalization has meant the spread of free-market capitalism to almost every country in the world. Additionally, globalization has brought about the integration of markets, countries and technologies in ways that have never before been seen.

The end of the Soviet Union and communism has redrawn the map of world politics and has eliminated ideology as a dominating factor in international affairs. The growth of capital markets and the continued lowering of barriers to trade and investment has further tied markets together. The symbol of the Cold War system was a wall which separated Eastern and Western Europe for over forty years and which divided everybody. The current symbol of globalization is the Internet.

Globalization is the embodiment of speed – speed of commerce, communication and innovation brought about by new technologies such as computers, satellites, fiber optics and the Internet. Globalization has also given rise to a new set of economic rules – rules that revolve around opening, deregulating and privatizing a country’s economy.

As a result, future historians may look back at these times and come to the conclusion that the great divide between the twentieth and twenty-first centuries was the change in the nature of the nation-state and the opening of the doors of many formerly closed countries to trade and investment, vastly increasing, in the process, the effective size of the global market facilitated by revolutionary changes in technology.

I learned about the speed of globalization and the revolution in communications early on in my travels. Although my first serious interaction with a computer and the Internet occurred only a week before I left on my kickoff trip to Eastern Europe (I was a late starter), communicating with my office in New Jersey, whether from Vilnius, Lithuania, Warsaw, Poland or Tirana, Albania was a relatively simple matter. Not only was I able to stay in touch with my U.S. clients, review their documents and handle their legal problems on a daily basis, no matter where I was located, but I was also able to communicate directly with development experts throughout the world with one click of a mouse. Moreover, no matter where I traveled the Internet provided me with a powerful and portable development tool because it made laws and legal materials of all types readily available to me for reference, adoption, adaptation and dissemination.

Capital now moves across countries at breakneck speed; manufacturing and the generation of services move more easily across borders; and, markets are supplied from a continually changing set of sources. New ideas and techniques also move among countries with increasing ease.

The integration of financial markets is particularly significant. Information and communications technology has, of course, provided the framework for globally-connected capital markets. Increasingly, however, investors around the world are using the same approach and criteria to make their decisions, and often are looking at the same pool of companies. The distinctions among national markets is diminishing.

These changes are opening up new prospects and new opportunities throughout the world. This shift is also creating new anxieties and insecurities for many caught up in the process. Editors of newspapers in Ukraine, Malaysia and Ecuador write about their fear that their governments will no longer be there to protect their citizens as their countries become increasingly intertwined in a global economy that seeks to ignore national borders. Demonstrations and riots around the world have ensued as people express unease about the price that the market demands of its participants. Dislocations and turmoil in international capital markets, such as those that occurred in Latin America in 1995 and in Asia in 1997, turn that disquiet into fundamental questions about the dangers and even the legitimacy of markets.

My personal experience with such demonstrations and riots occurred when I was counsel to the liquidators of the pyramid schemes in Albania. These Albanian investment funds had attracted as their investors ordinary Albanian citizens who placed their life savings in these risky (and sometimes fraudulent) investment schemes in the anticipation of reaping high returns. When these funds collapsed, the resulting anger of ordinary Albanians brought down a government, resulted in the looting of the Albanian national armories, the arming of its ordinary citizens, and the further impoverishment of its people. When markets are freed up without the necessary checks and balances in place, large sums of money can be moved in short order and many innocent people can get hurt. Moreover, the global expertise that was needed to trace these looted assets was in itself emblematic of the new age. Among the group of experts recruited to handle this daunting task of tracing and liquidating assets originally amassed in Albania, were a team of American, British, French, German, Italian, South African, Australian and Hungarian nationals.

What’s more, governments which are required to modernize, streamline and privatize in order to succeed in the global marketplace must, at the same time, find a way of dealing with historic disputes over who owns a particular piece of land and who did what to whom many centuries ago. Nowhere was this anomaly more apparent to me than in my work in the Balkans where globalization, the transition to market economies and armed warfare originating in ancient hatreds proceeded side-by-side. The need to find a healthy balance between preserving a sense of identity, home and community and doing what it takes to survive in the global economy is a daunting task for any government and its people.

When I assisted the Government of Bulgaria to design a program for the isolation and recovery of its then 70 largest loss-making enterprises which employed over 200,000 workers, I couldn’t help but be aware of the heavy price that ordinary people in Bulgaria were being asked to pay to meet the market’s demand. I was encouraged, however, when a porter at the Sofia Airport, after learning that I was an American, refused to accept payment from me for carrying my bags. He told me that he wanted to do his part to help Bulgaria take its place in the global community. He hoped that by encouraging Americans to visit and work in his country that Bulgaria’s global dreams would be come a reality.

As I learned the hard way, the lawyer, whether in government or private practice, finds himself or herself increasingly confronted by situations requiring some knowledge of and confidence in dealing with different cultures and foreign legal systems. As laws have multiplied and communication has intensified, reference to foreign law has become part of the normal background necessary in the contemporary practice of law.

From the perspective of international law and regulation, the heart of the current problem lies in the fact that we have global markets, but only domestic laws and regulations. There is no agreed upon international legal system. There are, instead, worldwide cultural, legal, economic and historic differences in standards, rules, regulations and laws. As a consequence, modern global markets have very sophisticated structures that provide for the trading of property rights via antiquated legal and regulatory frameworks, uneven accounting standards, and a mix of slow paper-based and high tech, high speed computer systems and processes. Such structures are neither consistent within markets, nor among markets.

Historically, there had been a clear distinction between common law, which developed in England and spread to the English colonies, such as the United States, and civil law, which originated on the continent of Europe. Courts made common law as they decided individual cases; civil law was made by kings or legislatures issuing decrees or passing bills.

As time has passed, however, legislatures and government agencies in the U.S. have made more and more laws and regulations. The courts, in turn, have interpreted these laws and regulations as parties have argued about what they mean. That is the sort of procedure one finds in Europe, but vast differences in practice have developed that have less to do with the traditional common-civil law dichotomy than with historical government-citizen (or subject) relationships and attitudes.

The issues are particularly complex because of the related aspects of globalization, such as the impact of pollution, disputes over water, and other rights that transcend national borders, and the like. Even in areas where one would have thought standards would be simple, such as accounting standards, there are huge worldwide differences in interpretation, adjudication and enforcement.

Moreover, the process of globalization has negative effects in that the ease of modern communications assists criminals, particularly in allowing more extensive and more complex cross-border crime to take place. Cyberspace crime is on the increase. International mobility also makes it correspondingly much more difficult to trace and eradicate corruption.

On the other hand, globalization has provided new job opportunities to many former enemies. Much of the security work done in emerging markets is being performed by teams of former KGB and CIA operatives. Whether securing a pipeline or undertaking due diligence prior to making an overseas investment, global companies are hiring those most familiar with the local setting.

Globalization also raises many other practical issues and concerns. In addition to implying a different nature of economic transactions and a diverse set of players, globalization of markets causes the individual firm to operate within a more complex political, legal-regulatory, and cultural framework on a daily basis.

In a market economy, courts are the final arbiters of conflict among private actors in the economy. Moreover, courts ensure that government officials obey the law and stay within the bounds of discretion accorded them by legislation. The proper functioning of markets and the private sector necessitate the existence of clear rules that will be respected by government as well as private actors. As a consequence, effective and efficient markets contemplate the existence of a "rule of law."

The rule of law can be defined as a system in which the laws are public knowledge, are clear in meaning, and apply equally to everyone. Moreover, they should uphold the political and civil liberties that we have come to know as our universal human rights. The courts are essential to this process.

The rule of law can be impacted adversely by corrupt governments and by such simple problems as the absence of available funds to print and distribute newly enacted laws. In my earliest days in Eastern Europe, the inaccessibility to actual printed copies of ever-changing legislation by judges, lawyers and the general public created as great a stumbling block to democracy and economic growth as had the prior central planning system! Today’s use of computers (now that assistance dollars have been used to purchase computers for courts and others involved in the administration of justice) has gone a long way to solving this problem, but seemingly small dislocations in legal infrastructure can still cause significant problems for establishing the rule of law in a particular country.

For courts to play the role required by a global economy, many countries have undertaken judicial reform programs to strengthen the independence of the judiciary, improve the training of judges and court personnel, provide courts with the necessary material resources, modernize judicial procedures, increase access to justice, and develop alternative methods of dispute resolution.

The specific goals of judicial reform efforts have included increased efficiency in handling cases, removing the appointment and promotion of judges from the political process, the reduction of corruption among judicial personnel, and judicial training programs which focus on the sophisticated transactions of a global economy. Similarly, private attorneys have had to assume new and expanded roles to serve the new players in the private sector. They too have needed to develop new skills to plan, negotiate and structure transactions on behalf of their clients.

Many countries in Asia, the former Soviet Union, Eastern Europe, Latin America, sub-Saharan Africa and the Middle East are engaged in a wide range of rule of law reform initiatives. Rewriting constitutions, laws and regulations is the easy part. Far-reaching institutional reform, also necessary, is difficult and slow. Judges, lawyers, and bureaucrats must be retrained, and fixtures like court systems must be restructured. Citizens must be brought into the process if the society’s understanding of law and justice are to be truly transformed.

A rule of law initiative requires more than just the re-writing of a country’s laws. Such a program should include: an examination of the written laws to see if they provide a workable framework for carrying out the tasks to be regulated; and, an analysis of the legal infrastructure to see if a country’s laws are not being implemented in practice due to infrastructural weaknesses. Additionally, rule of law advisors need to examine a country’s legal system to determine if the absence of appropriate incentives (or the existence of inappropriate disincentives) in the implementation of a particular law may result in a situation where the intended "benefits" of the regulatory scheme at issue are perceived as unavailable so that no one uses the procedures.

An example of an infrastructure weakness which limited various rule of law programs was (and still is) the often low pay and prestige of judges in many developing countries. An example of a disincentive we found in a country’s liquidation scheme was the requirement that cash bidders at liquidation auctions provide written documentation for their source of cash, thereby removing many potential bidders from the auction process and ultimately decreasing returns to creditors who couldn’t find people willing to purchase their debtor’s property.

The impact of globalization has motivated developed countries to think about regional trade blocs and harmonization of laws. It has also motivated developing countries to think of adopting new laws based on major western models. Important questions face each country as to which models of law and regulations are best in an era of globalization.

Illustrations of expanding regional trade blocs include the European Union (EU), Mercosur and NAFTA. Many such groups are involved in legal harmonization as well as in removing trade barriers within their region, with the EU being the most compelling example of the harmonization and integration of national legal systems undertaken on a voluntary basis.

Moreover, numerous international organizations have developed agreed minimum principles and standards for individual nations to implement in order to encourage and improve confidence in and viability of domestic and international financial systems. For example, the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) have served as forums for the development of international cooperation and information-sharing among securities and insurance regulators, respectively. The Organization for Economic Cooperation and Development’s (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions is another example of a multinational approach to the global marketplace. The United Nations Commission on International Trade Law (UNCITRAL) has also developed prototypes for national laws, such as those affecting cross-border insolvencies.

Cross-border transactions continue, however, to a large extent, to be subject to national laws which not only vary considerably in content, but may not be suited to the special needs of international trade. In an attempt to remedy these problems, the UNIDROIT Principles of International Commercial Contracts were developed by the International Institute for the Unification of Private Law. These Principles are a sort of restatement of the law of international commercial contracts. Other forms of international solutions to cross-border transactions include the use of INCOTERMS and the Uniform Customs and Practices for Documentary Credits prepared by the International Chamber of Commerce and the principles established in the United Nations Convention on Contracts for the International Sales of Goods.

Although one could categorize a good portion of these development as "soft" law because such guidelines leave wide latitude in their implementation and effectiveness in individual countries, this limitation does not diminish the legal significance of these initiatives for the twenty-first century.

While no international consensus has evolved in respect of what is the best underlying legal infrastructure for a country in the current globalization era, the concentration of bilateral and multilateral legal assistance to developing countries seems to have focused on an identifiable number of core areas to be improved, including the development of clear and defined laws governing: property rights; contracts; companies and corporate governance; secured transactions; rules governing foreign investment; bankruptcy; and taxes.

An example of another trend, over the past 20 years, is that international commercial arbitration has been transformed and institutionalized as the leading contractual method for the resolution of multinational commercial disputes. It is effective, however, only if the award and written agreement to arbitrate are enforceable.

Arbitration awards rendered in a foreign country generally are enforced via a system of bilateral and multilateral treaties. The most important is the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention. This Convention requires each signatory country to recognize and enforce written arbitration agreements and awards of all other signatory countries.

Another instance of a private regulatory system is represented by bond rating agencies which have come to play an increasingly important role in the global economy. These and other multinational institutions and commercial undertakings raise questions about the relationship between state sovereignty and the governance of global economic processes.

International commercial arbitration in its various guises is basically a private justice system and credit rating agencies are private gate-keeping systems. Along with other such institutions that have emerged as important governance mechanisms whose authority is not centered in the state, we are seeing the creation of legal institutions that negotiate between national sovereignty and the multinational practices of corporate economic players.

The euphoria that I shared with the rest of the world as the Iron Curtain rose was sadly short-lived. The end of the Cold War removed the fear of imminent nuclear destruction and added the hope of a peace dividend, money that could be spent on social progress instead of weapons. While the world was still thrilled by such positive ideas, the Persian Gulf and Balkan wars made it clear that there would be no peace yet, and certainly no peace dividend.

At the same time, Eastern Europe and the emerging economies of Asia and Latin America have become painfully aware that the road to a successful market economy is going to be a long and difficult one. For many, the luxuries of the West are still unavailable. These emerging economies and fledgling democracies are getting much less help than they had expected, needed and wanted from the West. Moreover, worldwide ethnic, nationalist and linguistic conflicts have been worsening.

At the same time, the international financial revolution has brought its own challenges to the sovereignty of the state. The border-less world implies a certain surrender of a country’s control over both its own currency and its fiscal policies. Although very different in form, various trends such as increased air and water pollution and 24-hour stock trading are multinational by nature, crossing borders all over the globe, affecting distant societies, and reminding us that the world is a single unit.

These trends are largely out of the control of the authorities of the traditional state, both in the direct sense that countries cannot prevent incoming pollution, such as the arsenic spill in Romania which affected not only the locality in which it occurred, but also all of the countries on the Danube, and in the indirect sense that if a country banned such activities as genetically- engineered foods and foreign exchange dealing, such ban would not stop these activities from operating elsewhere and still affecting its citizens.

Another challenge to the sovereignty of the state comes from the Internet itself. Perhaps the most distinguishing feature of the Internet is that it is not susceptible to the same physical and regulatory controls which had been applied to prior technology, such as the telegraph, telephone, radio and television, because the Internet combines global reach with very low barriers to entry. Few communities are now shut off from the rest of the world because computers and the Internet allow individuals access to data, opinions and ideas, regardless of location.

Perhaps the most important legal challenge in the new global economy is to find answers to the following questions: who will set global legal standards? who will implement and interpret these laws? who will enforce these laws? and, last, but not least, who will adjudicate disputes? How the law will evolve to define and protect property rights in our very flexible, volatile, and changing global environment is the real legal challenge in the twenty-first century—a challenge that we and future generations of lawyers will need to address.