3.2.2. The private sector

The economic and political influence of the private sector in international relations, particularly that of multinational (or transnational) corporations (MNCs), exceeds that of many states. It is, after all, often noted that the sales revenue of the largest MNCs exceeds the GDP of mid-sized nations.[1] The private sector has accordingly begun slowly to win new rights of direct access to intergovernmental fora,[2] most relevantly including WSIS.[3]

The formal reception of input from private sector representatives into intergovernmental processes mirrors a process that is known in a domestic political context as corporatism (or neo-corporatism), defined as

a system that gives a variety of functional interest groups—most predominantly business organizations and trade unions—direct representation in the political system, defusing conflict among them and creating instead broad consensus on policies.[4]

The ILO is perhaps the archetypal example of modern corporatism.[5]

But the private sector also, of course, exercises considerable influence on government policy development outside of its formal representation in governmental or intergovernmental fora. On a domestic level, this may be done either directly, through lobbying and campaign donations[6] (or their illegitimate counterparts, political cronyism and bribery), or through more indirect means such as regulatory capture, whereby the behaviour of a regulatory authority is unduly influenced by the interests of the regulated industry,[7] and perhaps most significantly of all through control of the mass media.[8]

Another indirect means by which MNCs can influence the development of domestic law is simply in their choice of jurisdictions from which to operate, which may be based on where tax and labour conditions are most favourable.[9] The economic repercussions of MNCs’ choices in this regard exert an influence on the domestic law of nations vying for foreign investment in what is often described as a “race to the bottom,”[10] and which has been blamed for the dismantling of the domestic social safety nets of welfare states.[11]

On an intergovernmental level, some of the same effects are observed. For example, MNCs were instrumental in the passage of the WTO’s TRIPS agreement. The most active MNC in this endeavour was pharmaceutical MNC Pfizer, which engaged in a broad range of strategies to secure the acceptance of TRIPS, including lobbying, donations, sponsorship of think tanks, and the appointment of its CEO to chair a US government Advisory Committee on Trade Negotiation.[12]

A more broadly-based organisation representing private sector interests in international public policy development is the International Chamber of Commerce (ICC), headquartered in Paris.[13] The ICC has acted as a representative for the private sector to most United Nations organs, and to other intergovernmental bodies such as WIPO, the WTO (with whom its ongoing relationship is governed by an MOU), the OECD and the ITU (including most notably by chairing the Coordinating Committee of Business Interlocutors at WSIS).

The ICC’s work programme is divided between a number of specialised Commissions (currently 16) which formulate its policy and draft papers for submission to governments and intergovernmental organisations. Commissions in turn may contain a number of task forces; for example within the E-Business, IT and Telecoms (EBITT) Commission is the Task Force on Internet and IT Services, which specialises in Internet governance issues.

EBITT is also the policy development foundation for the work of BASIS, or Business Action to Support the Information Society; an initative of the ICC that emerged from WSIS as an umbrella for its post-WSIS programmes.[14] It is officially through BASIS that the ICC participates in the UN fora and activities that have emerged from WSIS, such as the IGF. The new law merchant

The private sector’s involvement in international public policy governance as described above is, by its nature, secondary to the primary lawmaking role of governments and intergovernmental organisations, since it is they who control the fora in which negotiations and drafting take place. But the contribution of the private sector to international public policy governance can also be understood as a primary lawmaking role, in which the tables are turned and the private sector exercises principal authority, with states receding into the background.

This is not as revolutionary a notion as it might sound. In medieval times, the “law merchant” or lex mercatoria was a system of law developed and enforced by merchants themselves, which enjoyed primacy over domestic law in the regions (mostly along trade routes) where it was applied.[15] The medieval law merchant did not derive its force from the consent of sovereign states, but operated independently and alongside the domestic law of the region. As Cutler explains,

[t]his gave rise to a dualistic system of commercial governance: the regulation of local transaction under the local systems of law and the regulation of wholesale and long-distance transactions under the autonomous law merchant system.[16]

This is not to say that domestic law of a particular region was suspended where the law merchant had effect. Rather, the authority of each legal system overlapped, and it is this characteristic of private lawmaking that is found also in its modern analogues. Jensen writes:

States and individuals may be members of different communities for different purposes. Just as we might understand the nation-state as an association between people who share a common language and cultural identity for the purposes of their mutual security and well-being, we might understand the various forms of transnational interaction (which include, but are not limited to, commerce and intellectual exchanges between citizens of different nation-states) as providing the germ for the emergence of numerous communities extending across state boundaries. Each of these communities would possess its own norms of conduct, expressed as either formal rules in treaties and commercial contracts or simply unexpressed mutual understandings. Such norms would enjoy legitimacy because their observance facilitates orderly interaction between members of the community and because they represent the opinion of the many rather than the rationally constructed will of the few.[17]

Thus there are today specialised transnational business communities that create and enforce their own transnational norms and rules, much as the merchants of medieval times did. Indeed these have been described as the “new law merchant.”[18]

As will be noted at Section 3.3.1, there are degrees of “legalisation” of international law. So too, there are degrees of legalisation within the new law merchant, ranging from the law-like rules of stock markets and financial networks such as Visa, to softer, more innately private orderings such as the rules of self-regulating professional communities.[19]

There are also degrees of institutionalisation within the new law merchant, ranging from informal industry norms and practices that are not institutionalised at all, through to private international regimes which provide “an integrated complex of formal and informal institutions that is a source of governance for an economic issue area as a whole,”[20] as in the case of international commercial arbitration.

This last case provides perhaps the clearest example of the private sector’s development of its own quasi-legal rules, as international commercial arbitration is now the dominant method for the resolution of transnational commercial disputes.[21] The market leading arbitration provider is none other than the International Chamber of Commerce, though it has numerous competitors.

Although each arbitration provider applies its own sets of substantive and procedural rules in resolving disputes, they almost universally incorporate the UNCITRAL Model Law on International Commercial Arbitration[22] or a derivative of this, along with substantive law drawn from international and domestic sources, and unwritten commercial norms.[23]

Whilst the use of international commercial arbitration is normally restricted to business-to-business (B2B) transactions, there are analogous private fora for the resolution of consumer disputes, such as the credit card chargeback system that operates as a private dispute resolution mechanism between consumers and merchants,[24] eBay’s Dispute Console for disputes relating to its online auction service,[25] and numerous generic third party mediation and arbitration services such as SquareTrade[26] and Cybersettle.[27]

To be sure, there are differences between the new law merchant and the old. One is that the success of the medieval law merchant in prevailing over domestic law owed more to the feudal nature of society in those times than to the power of medieval capital, whereas the position is now reversed. Another important difference is that the effects of the new law merchant now extend in many cases far beyond the boundaries of the communities that developed them and thus take on a character closer to that of public international law. An example is the role of credit rating agencies such as Moody’s and Standard & Poor, which assess not only their members’ credit, nor only that of private sector entities, but of entire national economies, with consequences often comparable to those of trade sanctions imposed by an intergovernmental authority such as the WTO.[28]

Is the new law merchant, however, accurately described as law? It is easy enough to argue that it should be law. One scholar from the school of law and economics argues that if norms represent the consensus of the community that developed them, and if they are aligned with the broader public good (which the author examines in terms of economic efficiency, but could equally be analysed by reference to alternative paradigms), such norms should be “elevated” to the level of law by “issuing an authoritative statement of the norm and backing it with the state’s coercive power.”[29]

Whether such norms can be described as already amounting to law is more contentious. Some have argued that the new law merchant amounts to customary international law,[30] but empirical evidence to support this is lacking.[31] On a narrow view, that may be enough for the question to be answered in the negative: that the new law merchant is not international law. But the consequences of that conclusion are as profound as the converse would be. It means that entire private international regimes, by which some of the most significant institutions in our economic and social lives are governed, are entirely invisible to international law.[32] This is surely not a conclusion that should be reached lightly or through the application of overly formalistic criteria. The question will therefore be revisited at Section



Cavanagh, John & Anderson, Sarah, Top 200. The Rise of Corporate Global Power (2000); though the comparison is imperfect, as GDP and corporate sales are not directly commensurable.


Cutler, A C, Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy (2003), 198–199


See Section 5.1.


Ottaway, M, Corporatism Goes Global: International Organizations, Non-Governmental Organization Networks, and Transnational Business (2001), 277.


See Section, and compare consociationalism at Section


Ota, Alan K, Disney in Washington: The Mouse That Roars (1998)


As allegedly in the case of Australia’s Accounting Standards Review Board (ASRB): Walker, R G, Australia’s ASRB: A Case Study of Political Activity and Regulatory “Capture" (1987).


Herman, Edwards S & Chomsky, Noam, Manufacturing Consent: The Political Economy of the Mass Media (1994)


Strange, Susan, Territory, State, Authority and Economy: A New Realist Political Ontology of Global Political Economy (1997)


Kahler, Miles, Modeling Races to the Bottom (1998)


Mishra, Ramesh, Globalisation and the Welfare State (1999)


Drahos, Peter & Braithwaite, John, Who Owns the Knowledge Economy?: Political Organising Behind TRIPS (2004), 8–9, 11; Sell, Susan K, Private Power, Public Law: The Globalization of Intellectual Property Rights (2003)


See http://www.iccwbo.org/.


See http://www.iccwbo.org/basis/.


Cutler, A C, Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy (2003), 108–140


Cutler, A C, Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy (2003), 109


Jensen, Darryn M, The Transformation of International Law (2004), 42


But also as transnational commercial law, transnational economic law, the law of private international trade, and international business law: Cutler, A C, Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy (2003), 1.


Cooter, Robert D, Structural Adjudication and the New Law Merchant: A Model of Decentralised Law (1994), 216


Cutler, A C, Haufler, Virginia, & Porter, Tony, Private Authority and International Affairs (1999), 13


Dezalay, Yves & Garth, Bryant, Merchants of Law as Moral Entreprenuers: Constructing International Justice from the Competition for Transnational Business Disputes (1995)


UNCITRAL, Arbitration Rules (1985)


Drahozal, Christopher R, Commercial Norms, Commercial Codes, and International Commercial Arbitration (2000)


Perritt Jr, Henry H, The Internet is Changing the Public International Legal System (2000), 945


See http://pages.ebay.com/help/tp/using-dispute-console.html.


See http://www.squaretrade.com/.


See http://www.cybersettle.com/.


Sassen, Saskia, Losing Control?: Sovereignty in the Age of Globalization (1996), 16;Sinclair, Timothy J, Passing Judgment: Credit Rating Processes as Regulatory Mechanisms of Governance in the Emerging World Order (1994)


Cooter, Robert D, Structural Adjudication and the New Law Merchant: A Model of Decentralised Law (1994), 226


Goldman, Berthold, The Applicable Law: General Principles of Law—The Lex Mercatoria (1986)


Zamora, Stephen, Is There Customary International Economic Law? (1989)


Johns, Fleur, The Invisibility of the Transnational Corporation: An Analysis of International Law and Legal Theory (1994); Cutler, A C, Private International Regimes and Interfirm Cooperation (2002) , 33