1. The CISG as a Tool for Improving Market Efficiency 24 April 2015
Dr. Lisa Spagnolo
Faculty of Law,
Monash University

2. WHEN do countries adopt the CISG?
1. Overview
WHEN do countries adopt the CISG?
What do we know about its rate of adoption?
WHAT effect does CISG have?
IS CISG efficient?
Can we measure this?
WHY do countries adopt CISG & do parties use it?
Any further POTENTIAL?
Is the CISG underutilized?
Lisa Spagnolo

3. 1. WHEN do countries tend to adopt the CISG
1. WHEN do countries tend to adopt the CISG? What do we know about its RATE of adoption?
from 2013 KLRI Report
Lisa Spagnolo

4. Figure 1: Total CISG Ratifications
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5. What we know about rates of CISG adoption
Seems like slight “domino effect” - countries more likely to adopt the CISG when other countries in their region adopt it
However this may be accelerated by the extent to which other legal/economic integration has already taken place
Prediction: Now Japan & South Korea have adopted CISG, we may see accelerated adoption rates remainder of the Asia Pacific
AEC of ASEAN, TPP may accelerate this process
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6. 2. WHAT effect does CISG actually have?
IS CISG Efficient?
Hypothetically.....
Framework: Ex Ante Costs, Ex Post Costs, Penalty Default Rules, Information Asymmetry, Least-Cost Avoiders, Positive Externalities, Network Effects
Substantive Efficiency: Stand Alone Assessment of CISG Features
Designed for international sales – Favor Contractus
Formation & Formalities
Need for Notice
Timing of Acceptance
Warranties & Notice
Type of Damages
Foreseeability Rule
Price Reduction
Limited Scope of Coverage, Ambiguity & Uncertainty [
Lisa Spagnolo

7. Substantive Efficiency: Relative to Competing Law in Market for Law
‘In Writing’ Requirement, Parol Evidence Rule
Foreseeability of Damages, Measure of Damages
Formation: Missing Terms, Battle of Forms
Favor Contractus and Notice
Preservation
Certainty
Quality
Non-Substantive Efficiency: Learning & Network Effects in the Market for Law
Information Costs
Negotiation and Drafting Costs
Market Access: Neutrality
Performance Costs
Choice of Law (Conflicts) Risk
Legal/Forum Risk
Litigation Costs
Competitiveness 


8. Measurable Economic Impact?
Design: Study of countries in which CISG adopted: comparing indicators (Trade v GDP) before and after adoption. Compare for same period with World/Region.
- From KLRI Report [
Lisa Spagnolo

9. Figure 2: National Trade vs GDP before & after CISG compared with World Trade vs GDP
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10. Figure 3: National Trade vs GDP before & after CISG compared with Regional Trade vs GDP
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11. Figure 4: Singapore Trade vs GDP before & after CISG compared with World & Regional Trade vs GDP
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12. Results: Overall improvement in most countries. Qualifications:
Many other economic variables can cause the observed effect & cannot hold all constant
“World” not good control baseline. Even if CISG has economic impact on a country, “World” not isolated from same impact. And as the number of CISG States rises, expect less stark contrast between adopting nation & World
There can be economic effect without adoption of CISG, and conversely, adoption without economic effect.... [
Lisa Spagnolo

13. Economic effect without adoption?
Non-adopting countries can benefit from CISG – it can apply to contracts entered by businesses within them (opt in or default)
CISG as model for domestic law reform
Adoption without economic effect?
Opt outs Art. 6 - Reasons
How it is applied
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14. What we know about the efficiency of the CISG
For business, the CISG IS an efficient choice of law, especially once ALL types of efficiencies are taken into account (substantive & non- substantive).
Critics often fail to address many efficiencies (especially non- substantive), rely on incorrect or outdated facts (eg lack of cases). Rarely conduct comparative basis – bypassing the real question facing business – what is the best choice?
Efficiency of choices of law does not explain (most) opt-outs.
There is a rise in trade in sample CISG countries after adoption, but we cannot attribute this to CISG
The economic impact of CISG cannot be measured in terms of comparative change to GDP.
Lisa Spagnolo

15. 3. WHY do countries adopt CISG & do parties use it?
Still new Contracting States
Used for domestic law reform
CISG being used by business: Usage rates vs Opt Outs
4. Any further POTENTIAL?
Is the CISG underutilized?
Familiarity
More adoptions & use
Network effects
Lisa Spagnolo

16. What we know of CISG adoption, how often it is used & untapped potential
Countries still signing up. It is one way they can signal their legal structure is suitable and predictable for global trade. They believe it improves efficiency.
CISG seen as gold standard for domestic reform.
Exclusion rates are declining. Latest global survey 13% “always” exclude; 32% sometimes exclude; 55% RARELY OR NEVER exclude.
Usage rates can be estimated from opt out rates-globally this could be as high as 60%.
To the extent exclusions are not based on rational substantive evaluations, CISG underutilized.
Increased familiarity is discernible
Network effects from increased use will improve efficiency
further adoption by States
from slowly rising usage rates
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17. Thank you! Please feel free to contact me: Faculty of Law, Monash University Acknowledgement: Korea Legislation Research Institute (Report, Spagnolo 2013)
Lisa Spagnolo