Asia's legal framework has to be trade-ready

THE launch of the Asian Infrastructure Investment Bank next year and the growing number of Asian nations signing on as its members is to be welcomed - not just for the reason that it will help address the immense infrastructure investment needs of Asia, but for the fact that a number of Asian governments are coming together, displaying a deepened spirit of collaboration and commitment towards a shared Asian growth agenda.

Such coordinated action will be essential to address a number of pan-Asian challenges. Over the next few decades, as Asia becomes an even more important engine of world growth and intra-Asian trade assumes significant proportions, one such challenge will be to significantly upgrade the legal infrastructure that supports and facilitates Asian cross-border trade and investment flows.

Asian legal diversity

It is common knowledge that there exists considerable diversity among Asian legal systems. There are countries whose legal systems are civil-law based (influenced by Roman-Dutch, German or French traditions) and those that are based on the common law (influenced by English traditions). Asian business laws vary considerably, with some countries having modern business laws compatible with commercial practices of the 21st century, and others still relying on colonial-era legislation.

To the business community, this diversity represents business risks arising from unfamiliarity with the laws, uncertain legal processes, unknown legal exposure and, most importantly, unpredictable legal outcomes.

To illustrate, a survey by The Economist of nearly 150 large multinationals operating in South-east Asia identified legal uncertainty as the most serious operational challenge to growing a regional business in the Asean region.

Another survey of nearly 500 business leaders with operations across the Asia-Pacific elicited a similar response; respondents cited regulatory and legal regimes in many economies as a barrier holding back private investors.

Top-down harmonisation

To a certain degree, there is an implicit recognition among many Asian nations that harmonisation of business laws is desirable. Harmonisation provides an opportunity not only to introduce uniform business laws that will be applicable to Asian countries, but to modernise the existing laws and create legal certainty and predictability.

Many Asian countries are therefore active in the work of UNCITRAL, the United Nations body that seeks to harmonise international business law through conventions and model laws. Closer to home, harmonisation efforts have been initiated within Asean through the putting in place of legal structures on competition, consumer protection and intellectual property.

But these efforts at harmonisation have remained ad hoc at best. In the absence of an overarching governmental or pan-Asian institution like the European Union or even Asean, any attempt to drive a top-down legislative harmonisation process takes considerable time to yield significant results.

Ground-up convergence

Ad hoc harmonisation approaches alone are unlikely to serve Asian interests. Given the imperatives of a sound business law infrastructure to Asia's growth, what is now required is a coordinated, ground-up approach that fosters region-wide participation, acceptance and implementation.

It is in this context that Singapore's Chief Justice Sundaresh Menon, in his address at the opening of the Singapore Legal Year 2015, issued a clarion call for meaningful convergence by observing that "diversity between legal systems, especially in Asia, can inhibit transnational commerce at a time when the boundaries continue to become increasingly porous in matters of trade and commerce. The legal fraternity must respond to this reality by proffering solutions that reduce avoidable legal diversity".

Chief Justice Menon's statement in this regard is timely. It is time for Asia to move away from debates over whether or not effort should be expended in promoting the convergence of business laws. Instead, it should focus on discussions as to how such convergence can be achieved. In such discussions, the legal fraternity, along with the business community, has a critical role to play by developing new and meaningful solutions that are market-driven and yet balance Asian sensitivities. Such solutions could take many forms:

One could be the development and drafting of Asian standard form contracts for specific sectors and industries, which could then become part of customary business usage.

Yet another solution could be to produce authoritative statements of what the major currents or trends of business law are as they exist in the Asian region. For example, in American jurisprudence, Restatements of the Law serve as model laws that are designed to clarify specific legal issues. Such authoritative statements or descriptions need not necessarily involve the endorsement of governments nor be binding instruments. Their acceptability will largely depend upon their persuasive scholarly authority and market relevance.

Judiciaries around the region can then contribute to the convergence of business laws by considering these authoritative statements carefully in arriving at their own decisions in accordance with their own laws. Such a process at a judicial level can help reduce legal uncertainty and be extremely beneficial for businesses, especially in a cross-border setting. Further, judicial convergence in the form of procedural harmonisation leading to structured, timely and orderly frameworks for resolving cross-border commercial disputes and enforcing contracts will go a long way in fostering cross-border business.

An Asian Business Law Institute

To accelerate the legal convergence process, two steps must be taken urgently. First, a forum should be created for relevant Asian stakeholders, including regional policy makers, representatives of the business community and members of the legal fraternity to participate and extend pragmatic solutions. Second, an institution must be set up to fortify these solutions and translate them into a set of model laws and practical legal guidelines that will appeal to Asian stakeholders.

To this end, an international conference titled "Doing Business Across Asia - Legal Convergence in an Asian Century" will be held in Singapore in January 2016, bringing together key stakeholders in the regional and international spheres to commence discussions on possible legal convergence solutions. In conjunction with the conference, the Asian Business Law Institute, aimed at promoting the convergence of Asian business laws, will be launched.

These are small but necessary steps. Any meaningful contribution in the construction of a credible Asian business law infrastructure will go a long way in unlocking the potential of the Asian region and bring with it greater trade and investment flows, which can only benefit our countries and communities.