4 th FotC on Strengthening Economic Legal Infrastructure Meeting

Transcription

1 2017/SOM1/EC/029 Agenda Item: 5b 4 th FotC on Strengthening Economic Legal Infrastructure Meeting Purpose: Information Submitted by: Hong Kong, China First Economic Committee Meeting Nha Trang, Viet Nam February 2017

2 FotC Strengthening Economic Legal Infrastructure (SELI) 4 th Meeting 25 February 2017 Nha Trang, Viet Nam Agenda Key Objectives of SELI 4 th Meeting: Discuss any project proposals relevant to strengthening economic legal infrastructure Explore collaboration with other APEC fora and international organizations Decide on the future direction 1. Welcome remarks (14:30-14:35) 2. Overview (including collaboration with other APEC fora) (14:35-14:45) - Updated Work Plan (Appendix 1) 3. Seminar on "Use of International Instruments to Strengthen Contract Enforcement in Supply Chain Finance for Global Businesses (including MSMEs) (Appendix 2) (14:45-15:00) 4. APEC-wide cooperative framework for online dispute resolution (ODR) (15:00-15:45) - Paper on APEC-wide Cooperative Framework for Online Dispute Resolution: Accelerating Justice, Accelerating Trade (Appendix 3) 5. Remarks and submissions from invited international organizations (15:45-16:05) (HCCH, UNCITRAL, UNIDROIT and World Bank) 6. Future direction of SELI (16:05-16:25) 7. Any other business and open discussion (16:25-16:55) 8. Concluding remarks (16:55-17:00)

3 Appendix 1 Strengthening Economic and Legal Infrastructure (SELI) Work Plan (as at December 2016) Name of the FotC: Strengthening Economic and Legal Infrastructure ("SELI") Coordinating Economy: Hong Kong, China Membership Principles: All member economies are invited to nominate designated legal advisors or officials with legal background from relevant authorities or agencies. Objectives: 1. To raise awareness of the role and importance of legal infrastructure for economic developments; 2. To promote understanding of relevant international standards and international instruments useful for strengthening the economic and legal infrastructure of member economies; and 3. To identify areas for technical cooperation and capacity building among APEC member economies (in collaboration with relevant international organizations such as HCCH and UNCITRAL). Scope of operation 1 : 1. SELI is to serve as a network of focal points for relevant legal advisors and officials: (i) To exchange information on legal infrastructure relevant to economic developments (including sharing of their law and practice in the relevant fields); (ii) To develop and enhance in-depth understanding of international economic law including relevant international instruments such as the Hague Conventions and UNCITRAL instruments; (iii) To share experiences and expertise on activities relevant to the implementation of these international instruments and to develop good practice guides in specific legal areas; (iv) To identify areas for capacity building and technical cooperation on the implementation of international instruments or improvement to legal infrastructure essential to economic developments; (v) To examine, when possible, the importance of legal infrastructure on trade and investment flows; (vi) To develop and review appropriate action plans, when necessary; and (vii) To do outreach and public relations to APEC Stakeholders on the achievements of the group as and when appropriate. 2. In collaborating with other relevant APEC fora and the legal sector in member economies, SELI will serve as a forum: (i) To coordinate and discuss as appropriate the implementation of cooperative initiatives such as but not limited to Structural Reform with other relevant APEC fora (including other FotCs) and relevant international organizations; (ii) To report progress and outcomes of each cooperative initiative to the EC, and when necessary make recommendations thereto; and (iii) To invite when appropriate other relevant APEC fora, such as ABAC, and/or other relevant experts to participate in/or observe the group s activities. 1 The specific activities are contained in the schedule to this work plan.

4 Schedule Operation Plan ( ) (Living document: to be updated and may be changed at any time in light of the latest developments and further inputs by members) Activity Proposing APEC Economy Other APEC Fora / Organizations Timeframe Completed project on Effective enforcement of business contracts and efficient resolution of business disputes through the Hague Choice of Court Agreements Convention Hong Kong, China HCCH UNCITRAL EC Completed project on Assessing APEC Getting Credit and Enforcing Contracts Frameworks according to International Best Practices (including UNCITRAL and Hague Conference Texts) USA FotC EoDB HCCH UNCITRAL Completed project on Alternative dispute resolution - the key to efficient settlement of business disputes Hong Kong, China UNCITRAL PCA EC Completed project on Supply Chain Finance and Implementation of Secured Transactions in a Cross- Border Context USA Hong Kong, China Mexico HCCH UNCITRAL UNIDROIT World Bank EC2 2016

5 Completed Joint PSG-SELI Policy Discussion on Improving Participation and Transparency in Policy-Making and Implementation Chinese Taipei Hong Kong, China HCCH OECD UNCITRAL PSG FotC EC ABAC Asia Pacific Financial Forum ABAC Annual Project on Assessing APEC Starting a Business according to International Best Practices USA Seminar on "Use of International Instruments to Strengthen Contract Enforcement in Supply Chain Finance for Global Businesses (including MSMEs) Hong Kong, China HCCH UNCITRAL UNIDROIT World Bank EoDB FotC EC APEC Workshop on Using Competition Assessments to Eliminate Unnecessary Barriers to Competition USA Peru Viet Nam New Zealand Hong Kong, China CPLG EC Possible project on International Workshop on Protection of Small Shareholders Interest and Rights in APEC Viet Nam Chinese Taipei Hong Kong, China Thailand 2017

6 Proposed project for APEC-wide cooperative framework for online dispute resolution (ODR) Chile Hong Kong, China New Zealand USA [SMEWG] [UNCITRAL] 2017 [2019]

7 Appendix 2 Seminar on Use of International Instruments to Strengthen Contract Enforcement in Supply Chain Finance for Global Businesses (including MSMEs) Nha Trang, Viet Nam February 2017 Organized by the Department of Justice of Hong Kong, China in collaboration with the Hague Conference on Private International Law (HCCH) and its Asia Pacific Regional Office, the United Nations Commission on International Trade Law (UNCITRAL) and its Regional Centre for Asia and the Pacific, and the International Institute for the Unification of Private Law (UNIDROIT) Day 1 Program Registration 9:00-9: Welcome Remarks Mr. Rory McLeod, Chair, Economic Committee, Director, Commercial and Consumer Branch, Ministry of Business Innovation and Employment, New Zealand Dr. James Ding, Convenor, SELI, Acting Principal Government Counsel, Department of Justice, Hong Kong, China International legal standards relevant to contract enforcement and supply chain finance - Keynote Speech Mr. Renaud Sorieul, Secretary, UNCITRAL The Enabling Environment for Supply Chain Finance in the Developing APEC Economies: Recent Progress and Challenges Mr. Jinchang Lai, Principal Operations Officer and Lead for Financial Infrastructure, International Finance Corporation, World Bank Group Questions and Answers Coffee Break Experience sharing by APEC member economies Moderator: Ms. Caroline Nicholas, Senior Legal Officer, UNCITRAL Panel of Experts: Professor Xiangyi Meng, Central University of Finance and Economics, China Mr. Chris Wohlert, Business Leader, Wells Fargo Commercial Distribution Finance, Hong Kong, China Ms. Pattaraporn Vejrungsri, Director of Legal Execution System Development

8 and Property Valuation Division, and Mr. Phatthara Watthanachai, Legal Officer, Ministry of Justice, Thailand Mr. Nicholas Klissas, APEC and Legal Reform Coordinator, USA Ms. Nguyen Thi Hong Anh, Deputy Manager, Trade Finance Center, Vietcombank, and Mr. Vu Hai Bang, Legal Specialist, Legal Department, Vietcombank, Viet Nam Questions and Answers Networking lunch International Instruments for MSMEs in Supply Chain Finance (including supply chain contract management) Moderator: Ms Huyen Thi Thanh Pham, Financial Sector Specialist, International Finance Corporation, World Bank Group Panel of Experts: Mr. Jae Sung Lee, Legal Officer, UNCITRAL Mr. William Brydie-Watson, Legal Officer, UNIDROIT Prof. Anselmo Reyes, Representative, HCCH Asia Pacific Regional Office Questions and Answers Coffee Break Contract enforcement and dispute settlement through the use of different international instruments Moderator: Ms Julie Nind, Principal Advisor, Trade and Regulatory Cooperation Team, Ministry of Business, Innovation & Employment, New Zealand Panel of Experts: Prof. Anselmo Reyes, Representative, HCCH Asia Pacific Regional Office Mr. Jinho Kim, Legal Expert, UNCITRAL Regional Centre for Asia and the Pacific Mr. William Brydie-Watson, Legal Officer, UNIDROIT Questions and Answers 17:55-18:00 Wrapping up of Day 1 Ms Michelle Fung, Senior Government Counsel, Department of Justice, Hong Kong, China Day Registration 9:00-9: Summary of Day 1 Ms Michelle Fung, Senior Government Counsel, Department of Justice, Hong Kong, China Online Dispute Resolution for MSMEs Moderator: Prof. Anselmo Reyes, Representative, HCCH Asia Pacific Regional Office Panel of Experts: Ms. Caroline Nicholas, Senior Legal Officer, UNCITRAL Mr. Michael Dennis, Executive Director, Advisory Committee on Private International Law, State Department, USA 10:15-10:30 Questions and Answers

9 10:30-10:45 Coffee Break Capacity Building for member economies Moderator: Mr. Jinchang Lai, Principal Operations Officer and Lead for Financial Infrastructure, International Finance Corporation, World Bank Group Panel of Experts: Mr. Mark Walter, DCOP, Technical Director, US-APEC Technical Assistance to Advance Regional Integration (US-ATAARI) Mr. William Brydie-Watson, Legal Officer, UNIDROIT Prof. Anselmo Reyes, Representative, HCCH Asia Pacific Regional Office Mr. Jae Sung Lee, Legal Officer, UNCITRAL Questions and Answers Conclusions and Recommendations Dr. James Ding, Convenor, SELI, Acting Principal Government Counsel, Hong Kong, China Networking lunch

10 Appendix 3 APEC-wide Cooperative Framework for Online Dispute Resolution: Accelerating Justice, Accelerating Trade This paper focuses on the feasibility of developing an APEC-wide cooperative framework for online dispute resolution (ODR) of cross-border business to business (B2B) disputes involving micro, small, and medium enterprises (MSMEs). The ODR framework would build on the newly adopted UN Commission on International Trade Law (UNCITRAL) Technical Notes on ODR which provide a framework for implementation. 1 As UNCITRAL recognized in authorizing the work on online dispute resolution: [T]raditional judicial mechanisms for legal recourse do not offer an adequate solution for cross-border e-commerce disputes, and that the solution providing a quick resolution and enforcement of disputes across borders might reside in a global online dispute-resolution system UNCITRAL also emphasized that e-commerce cross-border disputes require tailored mechanisms that [do] not impose costs, delays and burdens that are disproportionate to the economic value at stake. 3 International arbitration has been credited with increasing crossborder transactions, but this positive impact has been mainly limited to larger entities that can afford using the traditional model. While international arbitration works very well for highvalue cross-border disputes, it is too expensive and time consuming for most transactions involving MSMEs. ODR could offer an effective solution, as it has the potential to provide a simple, fast, and low-cost computer-led resolution process for such disputes. Initially, ODR might be implemented in APEC on a pilot basis to resolve disputes resulting from the cross-border sale of goods involving MSMEs. To implement such a pilot ODR platform, a cooperative framework would have to be created, which would include: (i) harmonizing the laws of member economies using existing international instruments; (ii) building a sustainable common technological ODR platform; (iii) harmonizing ODR rules; and (iv) building capacity of stakeholders (including MSMEs). I. Introduction to Dispute Resolution Mechanisms for E-Commerce and MSMEs Cross-border movement of goods has reached unprecedented levels, approaching forty percent of global gross domestic product (GDP). 4 Today, one third of goods produced are traded 1 UNCITRAL Technical Notes on Online Dispute Resolution (2016), Report of UN Commission on International Trade Law, July 2016, A/71/17, Annex I, [hereinafter UNCITRAL ODR Technical Notes]. While the Technical Notes reference small-value electronic transactions as the types of contracts that they apply to, the framework is flexible and can be used for virtually any type of commercial transaction, offline or online. Both UNCITRAL and the UN General Assembly (Sixth Committee) recommended use of the Technical Notes on ODR in designing and implementing ODR systems for cross-border commercial transactions. See GA Resolution 71/138, Dec. 13, 2016 ( recommends that all States and other stakeholders use the ODR Technical Notes in designing and implementing online dispute resolution systems for cross-border commercial transactions. ). 2 Report of UN Commission on International Trade Law, July 2010, A/65/17, para. 254 (emphasis added), available at 3 Id. 4 See MISYS, Digitised trade: connecting markets and supply chain finance at 17 (Apr. 18, 2016), David Hennah, Crossing the Chasm, Trade & Forfaiting Review Digital Supplement at 29 (Sept. 2015),

11 across borders, and APEC accounts for roughly half of that. APEC s total trade (goods and services) increased almost seven times to $20 trillion between 1989 and All the while, the internet infrastructure has made it much easier for companies across borders to trade with each other. Nearly half of the world s population over three billion people is now connected to the Internet, resulting in a corresponding rapid increase in e-commerce. 6 The Internet economy is expected to reach $4.2 trillion in 2016 in G-20 economies, 7 and APEC has a large role in that too, with ten out of the top twenty economies for internet use being APEC member economies. 8 Dispute resolution is an essential component of an enabling legal environment for businesses and MSMEs engaged in cross-border commerce. Conflicts between partners in the global supply chain are inevitable given different cultures, languages, and economic pressure within the international market. Indeed, it has been estimated that some 3 5% of commercial transactions generate a dispute. 9 It is therefore imperative to have a rapid way to resolve commercial disputes to avoid disruptions in the supply chain and damaging relationships. In 2016, in APEC it took on average over days to resolve a simple domestic commercial contract dispute at a cost of 33.9% of the value of the claim. Unfortunately, as the APEC Ease of Doing Business (EODB) Indicators on Enforcing Contracts have found, courts in APEC member economies do not resolve disputes in a timely or cost effective manner. In 2016, it took on average over days to resolve a simple domestic commercial contract dispute at a cost of 33.9 percent of the value of the claim. These numbers have continually increased since APEC EODB s inception in The problem with access to justice is not limited to APEC; as the United Nations (UN) has found, four billion persons lack access to effective judicial remedies, let alone in cross-border e-commerce transactions. 11 Moreover, in crossborder disputes, judicial relief is not only slow but it creates jurisdictional, choice of law, and enforcement difficulties gital%20supplement%20sibos%20september% pdf. 5 See APEC, Achievements and Benefits, APEC/Achievements%20and%20Benefits.aspx. 6 See Internet Users in the World by Regions, June 2016, UNCITRAL, Possible future work on online dispute resolution in cross-border electronic commerce transactions: Note by the Secretariat, 43rd Sess., UN Doc. A/CN.9/706, para. 8 (2010) (providing a report of the 2010 UNCITRAL Colloquium on ODR). 7 See APEC ICT Development Steering Group, Economic-and-Technical-Cooperation/Working-Groups/Telecommunications-and-Information. In the United States, it has been projected that the B2B digital commerce wil top $1.13 trillion and account for 12.1% of all B2B sales by Forrester, US B2B ecommerce Forecast: 2015 to 2020, available at 8 See Top 20 Countries with the Highest Number of Internet Users, 9 See Ethan Katsh & Colin Rule, What We Know and Need to Know About Online Dispute Resolution, 67 S.C. L. Rev. 329, 333 (2016). 10 See World Bank, Doing Business 2017, APEC at 13, In 2015, the average was 423 days and about a third of the value of the claim. In 2009, it took on average over days to resolve a simple domestic commercial contract dispute at a cost of 33.3% of the value of the claim. 11 UNCITRAL, Selected legal issues impacting microfinance: Note by the Secretariat, 45th Sess., UN Doc. A/CN.9/756, para. 8 (2012) (citing UNDP, Commission on Legal Empowerment of the Poor, Making the Law Work for Everyone, available at 12 See Born, International Commercial Arbitration Vol. 1, (2d. ed., Kluwer Law International, The Netherlands, 2014).

12 Traditionally, international arbitration is seen as the only practical recourse in cross-border disputes. 13 While international arbitration can work well for high value cross-border disputes, arbitration is too expensive and time consuming for many transactions involving MSMEs. Parties often have to travel for the dispute resolution process, and international arbitrators charge up to $600 per hour for cases that take eleven to eighteen months on average to resolve. 14 Consequently, the cost of arbitration can easily exceed the value of the claim, and parties may run out of money before the dispute is settled and the commercial relationship may be ruined anyway. Recent surveys show that cost and lack of speed were both ranked as among the worst characteristics of international arbitration. Nearly three-fourths of respondents to one recent survey favored inclusion of simplified procedures in institutional arbitration rules for claims under $500, This may be even more difficult for MSMEs in APEC, which account for 97 percent of businesses yet account for only 35 percent or less of direct exports. 16 Indeed, an ineffective dispute resolution process that favours those with time and money may incentivize big players to breach their agreements, since it is unlikely that MSMEs could handle such costs and delays. Speedy dispute resolution is therefore essential for small enterprises which may lack the resources to stay in business while awaiting the outcome of a long court dispute. 17 To effectively reach regional e-commerce markets, MSMEs need a legal environment that resolves disputes fast and creates confidence in cross-border commerce. Even if special courts were created, or systems were made more efficient, overseas MSMEs do not have practical access to the courts, given costs of local counsel and traveling, which are exacerbated by issues of culture and language. All of these factors make access to redress a fiction for MSMEs transacting with foreign companies. It is anticipated that, for smaller and start-up entities, the existence of a reliable online dispute resolution mechanism will have a similar effect to that of international arbitration for large businesses in promoting and increasing online transactions and bilateral trade by providing assurance that, if transactions fail to meet expectations, the disappointed party can obtain effective and inexpensive recourse. It is therefore essential to promote ODR in disputes involving MSMEs. II. Overview of ODR As the UN Commission on International Trade Law (UNCITRAL) and the UN General Assembly have recognized, one significant tool for resolution of disputes involving MSMEs is 13 According to one recent survey, 90% of respondents indicated that international arbitration was the preferred method of resolving cross-border disputes, either as a stand-alone method (56%) or together with other forms of ADR (34%). Queen Mary University of London and White & Case, 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration (2015), at 5, available at research/2015/. 14 See Markus Altenkirch, Costs and Duration of Arbitration A Survey of the SIAC, HKIAC, LCIA, and SCC Case Statistics, b2_anet_digest_of_digests-hero-11discussion%7esubject&trk =emb2_anet_digest_of_digests-hero-11- discussion%7esubject-null-58zr9u%7eixoyocdi%7ehs&_msplash=1; London Court of International Arbitration, LCIA Releases Costs and Duration Data (Nov. 3, 2015), available at (noting that the rate arbitrators charge is capped at 450 per hour and that the mean duration of proceedings is 20 months). 15 See 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, supra at 7, 10. The ICC has recently published its new Rules on Expedited Procedure, which apply automatically to disputes below US$ two million. The expedited procedure s default rule is that the arbitration will be conducted by a sole arbitrator. See ICC Court amends its Rules to enhance transparency and efficiency (Nov. 4, 2016), available at 16 See APEC Iloilo Initiative (2015). 17 World Bank, Doing Business 2016, APEC at 88. See also World Bank, Doing Business 2017, APEC at 251.

13 ODR. 18 ODR relies on the same legal framework as offline dispute resolution and arbitration, but has the potential to provide a simple, fast, flexible and effective option for the resolution of such disputes, in particular when they relate to low-value transactions. ODR could serve as a more efficient alternative to dispute resolution mechanisms currently available for cross-border transactions. As such, ODR represents significant opportunities for access to dispute resolution by buyers and sellers concluding cross-border commercial transactions, both in the developed and developing world, and may help MSMEs effectively reach more regional commercial markets, both online and offline. ODR is a mechanism for resolving disputes facilitated through the use of electronic communications which helps resolve issues arising out of cross-border commercial transactions, namely the fact that traditional judicial mechanisms for legal recourse may not offer an adequate solution for cross-border commercial disputes. 19 To that end, ODR could apply to disputes arising out of sales and service contracts, for both electronic and paper based transactions. 20 The parties would just need to consent to resolve the dispute with the help of an online platform. ODR systems can be designed to facilitate communications in an efficient and user-friendly manner, in order to resolve a dispute without the need for physical presence at a meeting or hearing. The use of technology enables communications to happen within a structured online platform, without the intervention of a neutral person unless the dispute advances to a more formal stage. It also allows communications to be either synchronous or asynchronous, offering participants the flexibility to engage in the process at the time and place that best suits their needs. Most importantly, ODR is meant to be simple, fast, and efficient in order to be used in a real world setting : meaning that it should not impose costs, delays, and burdens that are disproportionate to the economic value at stake. In that way, for most low-value commercial disputes, ODR is not just an alternative, in most circumstances it may be the only redress option especially for disputes arising out of cross-border, low-value e-commerce transactions.. The use of ODR can provide the means to maintain strong relationships for partners in the supply chain. It also helps provide stability in the marketplace by creating a practical and realistic forum to ensure the rule of law. An effective system will result in real economic advantages for everyone, reducing transaction costs for both sellers and buyers in the supply chain. The potential of ODR confers even more benefit to smaller business enterprises. In this respect, ODR may be able to help foster trade relations in regions or among jurisdictions that are politically unstable. As UNCITRAL has recognized, an effective ODR mechanism can (i) foster economic growth, (ii) create markets where none exist, (iii) build trust in individuals across the globe, and (iv) promote peace in conflict areas. 21 III. Requirements for ODR ODR encompasses a broad range of approaches, including the potential for hybrid processes with both online and offline elements. ODR may therefore be implemented using different process administrators, and may evolve over time. 22 However, the goal remains the same: to provide a more cost-effective alternative to traditional approaches, the latter of which in some cases may be overly complex, costly, and time-consuming in light of the nature and value of the dispute. Regardless of 18 See GA Res. 71/138, supra. 19 Report of UN Commission on International Trade Law, July 2010, supra, at para See note 1 supra. 21 See UNCITRAL, Possible future work on online dispute resolution in cross-border electronic commerce transactions: Note by Secretariat, 43rd Sess., UN Doc. A/CN.9/710, at 3 (2010). 22 See UNCITRAL Technical Notes on ODR, supra, at para. 2.

14 how it is implemented, any ODR process rests on the fundamental principles of fairness, transparency, due process, and accountability. 23 ODR processes require a technology-based intermediary. To enable the use of technology to facilitate a dispute resolution process, ODR requires a system for generating, sending, receiving, storing, exchanging, or otherwise processing communications. Such a system is referred to as an ODR platform. 24 As the UNCITRAL Technical Notes on ODR explain, a common technological platform must be established in order to offer ODR as a turnkey solution for commercial disputes. 25 Such a platform is already used in a number of commercial platforms, 26 and we believe that this approach provides the basis for our work in APEC in assisting MSMEs and promoting supply chains. The UNCITRAL Technical Notes recommend that ODR be implemented through phases, including through negotiation, facilitated settlement, and arbitration. 27 The various stages are intended to act as a funnel so that only a small fraction of the cases would have to be resolved by an online arbitrator. This reflects the common understanding that, in most cases, disputes can be resolved by negotiation or facilitated settlement, but that there is still a need for the element of final and binding arbitration for a small percentage of cases that could not be resolved otherwise. 23 See id. at para Id. at para See id. para See, infra notes UNCITRAL Technical Notes on ODR, supra at paras. 2,

15 The negotiation phase is intended to be managed entirely by software, without requiring the intervention of a human case manager. It is also intended to be efficient, using software to move the process along. Studies have shown that buyers want e-commerce resolution processes to be completed expeditiously, and that drawn-out procedures create dissatisfaction, even if they eventually work out in the buyer's favor. If there is no settlement, the case may escalate to third-party resolution. The ODR provider selects the neutral/online arbitrator from the list of approved neutrals. The neutral achieves resolution, via online facilitated settlement (mutual agreement) or via online arbitration. An ODR platform, with binding arbitration as a backstop, serves as a strong incentive to move the parties to voluntary resolution. As noted, under ODR, most cases will be resolved amicably through negotiation or facilitated settlement. If not resolved amicably, the parties need the option of online arbitration. IV. Implementation of ODR ODR in the global marketplace is a dynamic but fragmented field; several different ODR models have been developed by the private sector, such as the platforms created by ebay, 28 Alibaba, 29 Modria, 30 CIETAC, 31 and the International Arbitration Center in Hong Kong (HKIAC). 32 However, the number of businesses offering ODR has been limited in light of the expenses associated with building a secure ODR platform. Moreover, the available dispute resolution mechanisms are restricted to the particular business or region in which they are implemented. The mechanisms have also been limited given their focus on high-value cross-border disputes; lower-value disputes may not be thought to generate enough revenue to be viable. Some economies in APEC have also developed models for ODR platforms; Mexico, the Republic of Korea, and China have achieved success with their domestic ODR models for consumer 28 ebay s online dispute resolution process is described here: 29 Available at (this ODR platform was launched by Alibaba for its Taobao Marketplace). 30 Available at 31 Available at 32 Available at

16 transactions. Mexico s Concilianet provides an economy-run ODR platform for business-toconsumer (B2C). Participation is mandatory for domestic vendors. 33 The Republic of Korea s e- commerce dispute resolution committee also mediates disputes in e-commerce transactions between consumers and providers. 34 China, on the other hand, offers e-courts in Hangzhou Province for e- shopping, copyright, and online financial services disputes. All materials are filed online, and the courtroom is replaced by three-way video conference. 35 However, these programs are primarily domestic because it is very difficult for an economy to build ODR that reaches cross-border transactions. Moreover, so far, none of these initiatives has provided a solution for MSMEs in commercial transactions; nor do they typically apply to B2B transactions. The European Union (EU) and the Organization of American States (OAS) have also considered models for regional online ODR platforms. The EU ODR regional platform was implemented in February 2016 and allows submission of complaints within the EU via an online form, which are then referred to a competent national ADR entity that provides online mediation and arbitration. 36 Similarly, an ODR regional platform has been proposed in the OAS. It would establish a model law/cooperative framework and procedural rules to govern ODR proceedings including arbitration of disputes. 37 But again, neither the OAS nor EU models apply to MSMEs and B2B transactions, nor do they cover the APEC supply chains. V. Building An APEC-wide Cooperative Framework For ODR The proposal for establishing a cooperative ODR framework for supply chain and MSME B2B dispute resolution includes four main elements: (i) harmonizing the laws using existing instruments; (ii) building a sustainable ODR platform; (iii) harmonizing ODR rules; and (iv) building capacity. The initial focus of the framework would not include B2C transactions considering that: (i) the amounts at issue in these cases are very small and outcomes are difficult to enforce cross-border; (ii) laws for protection of consumers vary widely and therefore many private international law texts exclude consumers; 38 and (iii) there are ongoing efforts in some economies in the APEC region to develop ODR mechanisms for B2C disputes (as discussed above). 33 See Procuraduría Federal del Consumidor, How to complain in Profeco (2011), available at 34 The Republic of Korea s e-commerce dispute resolution mechanism is available at 35 E-courts promise online justice for Chinese shoppers, CHINA DAILY (Dec. 12, 2012), 36 See Regulation No. 524/2013 on online dispute resolution for consumer disputes, available at See also Directive 2013/11 on alternate dispute resolution for consumer disputes, available at 37 See Draft [Model Law/Cooperative Framework] for Electronic Resolution of Cross-Border E-Commerce Consumer Disputes, available at Recently, the OAS Inter-American Juridical Committee has adopted a resolution focusing on issues relating to mechanisms for online settlement of disputes arising from cross-border consumer transactions. Inter-American Juridical Committee, International Protection of Consumers, CJI/RES. 227 (LXXXIX-O/16) (Oct. 13, 2016). The Commission urges countries to consider the recommendations of international organizations for the adoption of appropriate principles and mechanisms in the areas of applicable law, dispute settlement procedures and best business practices for the providers of goods or services destines for consumers in cross-border transactions. Id. 38 For example, the UN Convention on Contracts for the International Sale of Goods (CISG), Hague Convention on Choice of Court Agreements, the Hague Principles on Choice of law in International Commercial Contracts, and the UNIDROIT Contract Principles all exclude consumers.

17 (i) Harmonizing the laws using existing instruments First, in order for ODR to work cross-border throughout APEC, the relevant rules, procedures and the enforcement of online arbitration awards must be harmonized. APEC can use the enthusiasm over MSME growth, and therefore ODR, to promote harmonization of the relevant instruments including the (i) New York Convention enforcement mechanisms, (ii) commercial law agreements, and (iii) international arbitration regulations and rules. This means that member economies that have not yet implemented the relevant instruments should consider doing so, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (implemented by 19 APEC economies), the UNCITRAL Model Law on International Commercial Arbitration (implemented by 17 APEC member economies), the UNCITRAL Model Law on Electronic Commerce (followed in 14 APEC economies), the UN Convention on the Use of Electronic Communication in International Contracts (implemented by two APEC economies), and the UN Convention on Contracts for the International Sales of Goods (CISG) (implemented by 13 APEC member economies). Significant progress has been made, but more needs to be accomplished. Presently, the treaty with the fewest number of ratifications is the Convention on the Use of Electronic Communications in International Contracts. It has been implemented by Singapore and Russia in APEC. However, China, the Philippines, the Republic of Korea and the United States have signed the treaty, while Australia and Viet Nam are considering becoming parties. 39 Again, this is a shift in the right direction, but more APEC economies should consider implementing these treaties to provide a harmonized body of rules. One key issue is the interpretation of the in writing requirement in arbitration instruments, since ODR agreements and awards are often concluded online. UNCITRAL has recommended that the in writing requirement in the New York Convention be applied flexibly to include electronic communications, and also encouraged adoption of Article 7 of the revised UNCITRAL Model Law on International Arbitration, which recognizes that the in writing requirement of an arbitration agreement may include electronic communications. 40 APEC economies would benefit by following UNCITRAL s recommendations in that respect. (ii) Building a sustainable ODR platform In order to offer ODR as a turnkey solution, a common technological platform must also be established. APEC could consider three possibilities: (i) using an existing platform that is efficient, secure, and customizable to meet APEC s needs; (ii) building a new platform, which would require identifying a hosting organization and considerable funding; or (iii) a hybrid approach. Possible champions include individual APEC economies with special interests in alternative dispute resolution, private sector interests, or a consortium of regional law faculties or ADR providers. Sustainability is particularly important: Could at least the initial stages of an ODR case be handled on a fee-free basis with the help of private or public funds? Or should some small fee be charged for early stages, with later stages of cases requiring human intervention demanding still affordable fees that reflect costs? Crucially, the ODR platform should meet the highest standards of data security, privacy, integrity, and preservation as well as fraud detection and prevention. Moreover, all communications in 39 See Status, UN Convention on Use of Electronic Communications in International Contracts, Australian Government, Attorney-General s Department, UN Convention on the Use of Electronic Communications in International Contracts, ts.aspx; Vietnam Considers Joining UN e-commerce convention, April 11, 2014, Also in the United States, the President has recently sent the treaty to the U.S. Senate for advice and consent to ratification. 40 Additionally, Article 20 of the Convention on the Use of Electronic Communications in International Contracts stipulates that electronic communications may be used to form or perform contracts, including those under the New York Convention. It operates as an amendment to the NY Convention in this respect.

18 ODR proceedings should take place via the ODR platform. The platform and its administrator would be responsible for process issues, including fairness, due process, transparency, accountability, neutral appointment or selection, and the performance capabilities of the ODR platform. These are no small tasks, and require the administrator to have integrity, expertise, and discretion. Training of ODR staff would therefore be essential. (iii) Harmonizing ODR rules Different applicable laws create uncertainty in cross-border trade, which then translates into additional costs to manage contracts and resolve disputes. Consequently, the third matter that APEC should consider in conjunction with building a sustainable ODR platform is developing corresponding rules of procedure. ODR must follow a rule-based approach to ensure that the parties are afforded the same standard of due process regardless of where they are located. APEC could therefore design a common set of principles and procedural rules to support online dispute resolution systems for B2B cross-border commercial transactions within the APEC region. The APEC rules need to be able to address low-value disputes involving MSMEs and comply with due process requirements. Since cost is a major challenge to building such a fast-track ODR system, these rules need to provide for a process that is fast, fair, flexible, and inexpensive. To that end, existing rules for commercial arbitration, such as the UNCITRAL Arbitration Rules, could be carefully adapted for ODR using the framework provided by the UNCITRAL ODR Technical Notes. Initially, ODR might be implemented on a pilot basis to resolve disputes resulting from the cross-border sale of goods under the CISG. This would avoid addressing complex conflict of law determinations inherent in cross-border transactions. The CISG is the most successful treaty in the history of modern transactional commercial law with a majority of APEC economies already party to it. It provides uniform rules for business transactions between parties in different economies and is designed to enhance certainty, reduce risks, and lower the cost of international transactions. It can even be used where a state is not party to the treaty, as rules of law that the parties agree to. 41 The CISG is also of great importance to MSMES, as most of the cases reported on the CISG refer to comparatively small contracts concluded by one or both MSMEs. Creating a platform for CISG disputes would create clear parameters around the applicability of the platform. The platform would benefit from an extensive international collection of CISG cases and arbitral awards from UNCITRAL and other databases to feed into the platform. 42 Regardless of how the rules are developed, by making the ODR process more structured, easier, faster, and less expensive to complete, ODR will improve redress and access to commercial justice. It will also accelerate trade by making transactions more efficient, driving down risk, and making MSMEs more competitive by lowering costs. (iv) Capacity culture building Lastly, a main difficulty will be to inform and educate small businesses so that they embrace ODR and become part of the culture of contract. This is where APEC has a role to play in promoting ODR to MSMEs, governments, and the legal community. APEC could take the lead in explaining ODR to the private sector, governments, and legal community and build capacity by leveraging resources from donors, law facilities, corporate social responsibility programs, among others. The 41 See United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N. Doc. A/CONF.97/18, Annex I, reprinted in 19 I.L.M. 668, art. 1(b). 42 The development of the Case Law on UNCITRAL Texts (CLOUT) system and UNCITRAL s Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods (CISG Digest) is of immense importance. The process utilizes the private sector in maintaining uniformity through a network of national correspondents that generate case abstracts in the six official languages of the United Nations. The UNCITRAL CLOUT system currently has 857 CISG cases. See UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, (last visited Oct. 31, 2016). The Pace CISG database is even more extensive with over 3,152 cases. See Albert H. Kritzer, CISG Database, Institute of International Commercial Law, (last visited Nov. 1, 2016).

19 work could include drafting model contract clauses and developing some kind of simple guidebook on use of the system. VI. Conclusion The ways in which an ODR cooperative framework can promote and increase online transactions and bilateral trade for MSMEs is threefold. First, ODR ensures efficiency and speed in resolving disputes in a way that is largely impossible with traditional arbitral proceedings, but essential for thriving e-commerce, particularly among smaller enterprises. Second, ODR eliminates the often significant expenses that attend traditional arbitral proceedings, including costly lawyers, experts, and comparative legal research, administrative costs, etc. Third, ODR reduces the importance of domestic law (and the complexities of conflict-of-laws questions that often arise), and instead promotes international consensus and unanimity on trade practices among merchants in an e- commerce environment. The challenge to build APEC-wide ODR is unquestionably formidable; but it is nonetheless doable and worth the effort. As we have seen, ODR e-justice is an essential component of economic growth, and ODR can help create markets for MSMEs where none currently exist. Such a platform will be of substantial benefit to APEC member economies and the millions of small businesses who do not have access to effective dispute resolution remedies. APEC economies are therefore uniquely positioned to undertake this next step and create for themselves a new e-justice system that will help their business sectors and economies grow.