REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG 2008

USAID WTO ACCESSION PLUS PROJECT Implemented by Booz Allen Hamilton Contract No. AFP-I-00-04-00005-00 Task Order No. 6 Ethiopia WTO Accession Plus

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

TABLE OF CONTENTS

I. INTRODUCTORY REMARKS .........................................………………..............................4 II. THE NEW YORK CONVENTION …...............................................................…..………..5 A.General Background ........................................................................................................5 B. Rationale for Joining the New York convention..........................................................7 C. Limitations of the New York Convention...................................................................10 D. Ethiopian law and Its Compatibility............................................................................11 E. Legal and Institutional Frameworks Required for Implementation………….…..15 F. Ratification of the Convention, and Trade and Investment : The Nexus…….…..17 G. Potential Setbacks for ratification………………………………………...…..……....18 H. Conclusions…………………………………………………………………………....19 III. THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS..........................................................................20 A.General Remarks…………………………………………………………………..…...20 B. Benefits of Ratification…………………………………………………………...…....22 C. Ethiopian Law and Its Compatibility……………...………………………………....25 D. Legal and Institutional Frameworks Required for Implementation…………......26 IV. Assistance with Treaty Implementation…………………………………………………27

ACRONYMS 2

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

WTO- World Trade Organization THE NEW YORK CONVENTION- The New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards, 1958 THE CISG- the United Nations Convention on Contracts for International Sale of Goods, 1980 UNCITRAL – United Nation Commission on International Trade Law

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

I. Introductory Remarks Effective integration into the multilateral trading system requires more than simply earning of mere membership to the WTO. In fact, no single factor alone is adequate enough to achieve such integration. Ethiopia‘s intention to be an active player in the global economy as evidenced through its bid to accede to the WTO needs, therefore, comprehensive reform measures. Strengthening the commercial law framework, among a host of other measures, would contribute profoundly to realizing such intention. The ratification of pertinent conventions geared towards the reinforcement of the commercial law of the country forms part of this reform process. In that regard, the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter the New York Convention) and the United Nations Convention on Contracts for International Sale of Goods (hereinafter CISG) in particular deserve special attention since they play a crucial role in facilitating international commerce. It is now a well established business practice that parties to international commercial contracts would prefer to settle any dispute arising from such contracts through arbitration. Any final arbitral award would not, however, be worth the paper it is written on, unless the judgment creditor was able to enforce such award in the country of his choice. The impetus to address this concern of international commerce gave rise to the preparation and its subsequent enforcement of the New York Convention. It now suffices to look into the growing number of states who have ratified this Convention to appreciate its prominent role in facilitating international commerce. 142 countries have thus already ratified this Convention. The Convention remains far from being universal, albeit. Hence, not so few countries are yet to ratify it and Ethiopia finds itself in this block. Although younger in age than the New York Convention, the CISG, too, has received no less attention. Premised on the need to increase legal certainty and reduce the 4

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

transaction costs of international buyers and sellers, the CISG has served as a milestone instrument in the effort to harmonize international sale law. This position paper is, therefore, intended to serve as a background document to make a case for Ethiopia‘s ratification of these instruments. Accordingly, this paper examines the prospect of Ethiopia‘s adoption of the New York Convention and the CISG as measures complementary to Ethiopia‘s existing commercial law reform efforts. Included here is an explanation of what each treaty intends to accomplish, the benefits and costs of treaty implementation, technical aspects of ratification, descriptions of the treaties‘ alignment with current Ethiopian domestic law, and a summary of resources available to assist with adoption and implementation.

II. The New York Convention A. General Background The New York Convention is a landmark instrument that has received a growing recognition over the course of the years. The Convention entered into force on 7 June 1959 and, as already stated, 142 countries have ratified it. Highly acclaimed for facilitating international commercial transactions, the New York Convention has inspired confidence in the rule of law, in the absence of which international trade may not thrive. Indeed, it is an inescapable reality that international commercial disputes arise from time to time. How different countries‘ legal systems guide the resolution of such disputes, however, may vary substantially. The New York Convention was created to reduce the complexity of commercial dispute resolution between businesses located in countries with unique legal systems. To this effect, State parties to the New York

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

Convention agree to recognize and enforce arbitral awards made in the territories of other state parties, wherever the losing party has assets. 1 The New York Convention is widely recognized as a cornerstone of international trade and investment law. State parties to the Convention represent all legal traditions and levels of economic development. States parties include all of Ethiopia‘s major trading partners, as well as, among regional partners, Djibouti, Egypt, Kenya, Tanzania, Uganda, Saudi Arabia and the United Arab Emirates. On the level of recognizing and enforcing international arbitral awards, the businesses in these countries share a common platform on which to base their operations, and the accompanying benefits of subscribing to a transparent and predictable arrangement. The New York Convention applies to awards granted in any State other than the State in which recognition and enforcement is sought. It also applies to awards that are ―not considered as domestic awards‖. The central obligation imposed on Parties is to recognize all arbitral awards within the scheme as binding, and enforce them if requested to do so under the lex fori. Each Party may determine the procedural mechanisms that may be followed where the Convention does not prescribe any requirement.

The Convention also contains

provisions on arbitration agreements. This aspect of the Convention was developed recognizing that an award could be refused enforcement on the grounds that the agreement on which it was based might not be recognized. The Convention defines five grounds on which recognition and enforcement of an award may be refused at the request of the party against whom it is invoked. The grounds include incapacity of the parties, invalidity of the arbitration agreement, due process, scope of the arbitration agreement, jurisdiction of the arbitral tribunal, setting 1

In instances when business partners’ have mutually agreed on arbitration as the international commercial dispute settlement mechanism. This is standard practice in international trade.

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

aside or suspension of an award in the country which, or under the law which, that award was made. The Convention defines two additional grounds on which the court may, on its own motion, refuse recognition and enforcement of an award—those grounds relate to arbitrability and public policy. The Convention seeks to encourage recognition and enforcement of awards in the greatest number of cases possible. This purpose is achieved through Article VII (1) of the Convention, removing conditions for recognition and enforcement in national laws that are more stringent than the conditions in the Convention, while allowing the continued application of any national provisions that give special or more favorable rights to a party seeking to enforce an award. Article VII (1) recognizes the right of any interested party to avail itself of law or treaties of the country where the award is sought to be relied on, including where such law or treaties offer a regime more favorable than the Convention. B. Rationale for joining the New York Convention The New York Convention is a treaty that promotes the mutual recognition and enforcement of foreign, rather than domestic, arbitral awards. That so many states have acceded to the Convention clearly demonstrates that international businesses from around the world support arbitration and wish their governments to do likewise. Arbitration agreements are popular in a wide range of international contracts in large part because such agreements protect foreign parties from national courts that may be partial to the interests of their co-nationals, heavily politicized, lacking in relevant industry expertise, slow or even expensive. An additional attraction of arbitration lies in the fact that, unlike court proceedings, arbitration hearings are held in private and their existence and outcome are confidential to the parties. These advantages would clearly be meaningless, however, without there being a legally binding means of enforcing awards wherever in the world the losing party may have assets. It is here that the importance of the New York Convention becomes self-evident. Now, just because a 7

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

party‘s assets may be overseas and far removed from the claimant, a party may no longer ignore arbitration proceedings or awards made against it. While opening the 40th anniversary of this landmark instrument, the former UNSecretary General, Kofi Anan, underscored how significant ratifying the New York Convention is as follows: ―Still, a number of States are yet to become parties to the Convention. As a result, entities investing or doing business in those States lack the legal certainty afforded by the Convention and businesses cannot be confident that commercial obligations can be enforced. This increases the level of risk, meaning that additional security may be required, that negotiations are likely to be more complex and protracted, and that transaction costs will rise. Such risks can adversely affect international trade.‖ In summary, state parties to the New York Convention share wide-reaching benefits, including: Predictability— In advance of initiating trade or investment transactions, business partners gain reassurance that, if a commercial dispute arises and goes to arbitration, an arbitration award will be honored and enforced by the courts of other state parties to the Convention. Efficiency—Arbitration awards are often rendered in third countries and subsequently enforced where relevant assets are located. Uniformity—The New York Convention relieves business and investment partners from the need to become specialists in the domestic arbitration laws of each of the countries with whom they plan to do business. The state parties to the New York Convention know that their business partners (operating in countries also party to the Convention) agree to recognize and enforce arbitration awards.

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

Easy application—The interpretation and application of the New York Convention benefits from a wealth of commentaries and case law developed over the last fifty years. These interpretations result in an international arbitral practice, which may prove useful in guiding Ethiopian courts and other legal actors in further interpreting and applying the Convention. Support for local arbitration centers—In general, the Horn of Africa lacks welldeveloped arbitration centers. Ethiopia has at least two operative domestic arbitration centers, but does not benefit from international commitment that awards made in these centers will be recognized and enforced abroad. Existing Ethiopian institutions may seize a significant part of the regional arbitration services market if awards made by Ethiopian centers were internationally recognizable by commitments under the New York Convention. This may be particularly important for Ethiopian small and medium enterprises, which may find prohibitively expensive pursuing arbitration in third countries. The significances attached to becoming a member can also be explained in terms of the opportunity costs that would otherwise be incurred. 

Businesses looking to engage with a country that is not a party to the New York Convention must dedicate legal resources to gain understanding of the arbitration laws and norms in that specific country. This can be a deterrent for trade and investment, considering that 142 potential trade/investment partners already subscribe to the New York Convention‘s uniform set of legal commitments on arbitration.



Ethiopian businesses (and others) that do not have affordable access to international commercial lawyers sacrifice their voice on arbitration matters to their partners‘ contract predilections—even so, business partners do not gain reassurance that Ethiopian courts will enforce awards made outside Ethiopia, or the inverse. 9

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009



Some companies may not be able to pursue arbitration at an international center because of the higher costs associated with such proceedings.



Ethiopia‘s existing arbitration centers are not supported by international commitments to uphold their award rulings in courts outside Ethiopia.



The arbitration services industry in Ethiopia cannot function competitively in an international context without Ethiopia‘s ratification of the New York Convention.



Ethiopia‘s ranking in The World Bank Group‘s Doing Business index will continue to be low, also due to limited participation in international trade law instruments. Ethiopia ranks 162 (of 193 countries) in the category of traderelated legal instruments ratified, and 37 (out of 47 countries) in the sub-Saharan African region.

C. Limitations of the New York Convention The New York Convention has been applied internationally for fifty years now, its exact meaning has been examined in numerous judicial decisions and its pros and cons discussed in countless articles, books and conference papers. After all this, it is generally agreed that its advantages far outweigh its disadvantages - particularly bearing in mind that it only seeks to regulate the enforcement of foreign awards and not domestic awards. Nonetheless, there still are a number of criticisms leveled against it, if only premised on fallacious arguments. Some may, for instance, criticize the New York Convention because it would render Ethiopian business liable to enforcement proceedings overseas. This criticism should not, however, be taken very seriously nor is it sound for the following reasons: 

Arbitration is a result of the parties‘ agreement - an award cannot be enforced against a party that did not agree to resort to arbitration in the first place. When

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

an agreement has been willingly entered into it is only natural that the parties should honor the terms of their agreement. 

In the majority of arbitrations the parties have chosen the language, venue, procedure and number of arbitrators – possibly even their exact identity. In such circumstances it is difficult to see why any party should consider itself disadvantaged by having to arbitrate its disputes.



While Ethiopia is not a New York Convention state, Ethiopian business would be at a disadvantage because, whereas foreign parties (from New York Convention states) can often enforce arbitration awards made in their own country against the assets of Ethiopian parties held in any other New York Convention state, an Ethiopian party that obtains an award in Ethiopia might find it difficult to enforce that award against the foreign party‘s assets located in many New York Convention states because Ethiopia did not accede to the New York Convention.

This is in no way to suggest that the New York Convention is without any flaw. The following are in fact mentioned as its limitations: 

the absence of a global field of application of the Convention, in the sense that, in principle, it does not apply to the enforcement of awards in the country of origin;



the written form requirement of the arbitration agreement, which is considered to be too stringent;



the possibility of enforcement of interim measures;



discretionary power to enforce an award notwithstanding the presence of a ground for refusal of enforcement;



waiver of a ground for refusal of enforcement;



the annulment of the award in the country of origin; and



procedure for enforcement of a Convention award.

While some of these arguments may have some merit, it should be noted that, on the one hand, they do not outweigh the benefits stemming from the adoption of the New 11

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

York Convention and, on the other hand, they could be adequately addressed by the adoption of modern legislation on commercial arbitration at the domestic level, which can typically be inspired by the UNCITRAL Model Law on International Commercial Arbitration (see below). D. Ethiopian Law and Its Compatibility As is true of every member of the community of nations, international intercourse will undoubtedly cause Ethiopian business men to seek the enforcement of foreign arbitral awards. Because Ethiopia would want arbitral awards rendered in its territory to be recognized and executed by foreign courts, so it is expected that Ethiopia should render similar treatment to arbitral awards pronounced by arbitral tribunals situated elsewhere. ―It is evidently true that, however internationally minded a state may be, foreign [arbitral awards] cannot command unconditional execution by the courts of that state.‖ In the absence of international treaties or conventions providing otherwise, a state to whose court such an award has been submitted for execution insists that the foreign award meet requirements laid down in its laws. In that vein, Ethiopia has incorporated few provisions on the recognition and execution of foreign arbitral awards in its Civil Procedure Code of 1965. ―However, comparisons of these provisions with similar other provisions in other countries manifests that they are not detailed enough to accommodate as many legal situations as others do. ―2 The Convention would therefore assist to fill any such gaps left by Ethiopian law. One basic requirement that Ethiopian courts would check before giving a judgment on enforcing such foreign awards is reciprocity. In an attempt to explain this parameter, Robert Allen Sedler maintains that “If the courts of that country refuse to execute Ethiopian judgments, the Ethiopian court must, in turn, refuse to execute their judgment. In as much as

2

Ambassador Ibrahim Idris, Ethiopia’s Ambassador to Egypt, The Ethiopian Law on the Recognition and Execution of Foreign Judgments, Journal of Ethiopian Law.

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

most countries will execute the judgment of other countries, it should be presumed that any country will execute an Ethiopian judgment unless the contrary is proved.” 3 Unlike the practice in a number of other countries, grounds on which foreign arbitral awards would be denied execution for reason of public order are not enumerated under the Ethiopian law, nor has there been an attempt to enumerate them on the part of the courts. Currently, recognition and enforcement of foreign arbitral awards in Ethiopia is regulated by art. 461 of the Civil Procedure Code (1965). Arbitration agreements and clauses fall under the provisions contained in the Ethiopian Civil Code (1960), Book V (Special Contracts), Title XX (Compromise and Arbitral Submission), Chapter 2 (Arbitral Submission).

Those provisions do not seem to pose special obstacles to the

adoption of the New York Convention.

Below is a comparative table illustrating some of the similarities and differences between the New York Convention and domestic law in Ethiopia.

New York Convention

Civil Procedure Code

Defines ―foreign arbitral agreement‖: --A definition is outlined in Article II *No rule in the Civil Procedure Code or (I)(II) of the Convention.

3

the Civil Code defining this term.

Sedler, R. A., The Conflict of Laws in Ethiopia, (Ethiopia, Addis Ababa: Faculty of Law, 1965).

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

Includes Separability clause: --This specifies that an arbitration * No rule in the Civil Procedure Code or clause

is

distinct

from

the

main the Civil Code addressing this subject.

contract; that if a contract becomes invalid, the arbitration clause is not dependent on the validity of the main contract.

Provides for reciprocity on recognition and enforcement of awards: --Reciprocity in principle applies to the *Reciprocity is conditional to: recognition and enforcement of foreign arbitral awards made in a territory of a state other than the state where the recognition and enforcement is sought.

--The existence of a bilateral treaty for recognition

and

enforcement,

which

rarely exists (actually, the bilateral treaty system foreseen in the Civil Procedure Code

has

been

replaced

by

the

multilateral system of the New York Convention); --The presumption that arbitral awards 14

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

made in Ethiopia will automatically be enforced by a country (with whom Ethiopia has diplomatic relations) where the award is sought. NB: This policy could be seen as limiting Ethiopia‘s commercial activity only to countries diplomatically tied to Ethiopia.

Provides a process for award recognition and enforcement: --There must be an application by the *The same procedure is followed under Party seeking the recognition and Art. 456 of the Civil Procedure Code; enforcement (Art. IV (1)).

except

that,

unlike

the

New

York

Convention, it is not widely recognized by the international legal community.

--The application must be accompanied by a duly authenticated original award or duly certified copy (Article IV (1)(a)).

*Under Art. 457 of the Civil Procedure Code, the formal process outlined is highly similar; except that, unlike the New York Convention, it is not widely recognized by the international legal community.

Outlines grounds for refusal of arbitral 15

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

awards: --Awards that are contrary to public *Similar to Art. 461 (e), except that the in policy

where

the recognition

and this code there is also reference to

enforcement is sought (Art. V (2)(b)).

―public moral‖ as grounds for refusal. This term could be viewed as subjective, and perhaps open to interpretation and abuse.

E. Legal and Institutional Framework Required for Implementation The phrasing of Art. 458 (a) as cross-referenced to under Art. 461(1) (a) appears to be adequate enough to accommodate the new developments that may come with the ratification of the New York Convention. It does so simply because the sub-article gives primacy to conditions set in international conventions to which Ethiopia is a party to over the ones stipulated in the Code as conditions precedent for enforcement of arbitral awards. Only in the absence of such conventions would courts need to resort to the applications of the ones set in the Code. Ethiopia‘s ratification of the New York Convention, therefore, would bring an end to the applications of the subsequent provision under Art. 461. In lieu of these provisions would thus be applied the ones set in the New York Convention. It should also be noted that becoming a party to the New York Convention has no financial implications for member States. Its administration at the domestic level does not require any dedicated body, and no mandatory reporting requirements arise from adoption of the treaty. In other words, the cost of ratifying the New York Convention is virtually nothing.

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

Nonetheless, accession to the New York Convention may greatly benefit from the adoption of domestic legislation on international commercial arbitration, which can be derived from model texts prepared by UNCITRAL, if desirable. The New York Convention is ideally complemented at the domestic level by the UNCITRAL Model Law on International Commercial Arbitration, 1985. The Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement of the arbitral award. The Model Law reflects worldwide consensus on key aspects of international arbitration practice having been accepted by over 50 jurisdictions belonging to all legal and economic systems of the world. Often, its scope of application has been broadened to include all commercial matters, or all matters which may be arbitrated. At least one draft arbitration bill has already been prepared in Ethiopia. After the adoption of the New York Convention--which needs to take place on a priority basis to buttress Ethiopia’s economic development--additional work on arbitration legislation is encouraged, using the Model Law as the starting point. The final outcome of this legislative effort will provide Ethiopia with a complete legislative framework for international arbitration, which is, in turn, key in attracting foreign investment and trade in the country.

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F. Trade and Investment, and Ratification of the New York Convention – Showing the Nexus The modern state has the need to provide its private sector with the necessary instrumental framework to enable it to compete with its foreign counterparts without being disadvantaged. Unless it is ensured that foreign arbitral awards can be recognized and enforced even outside the State in which those awards are pronounced, a State places its traders and enterprises at a clear competitive disadvantage when they do business at an international scale. The absence of key international legal assurances currently limits Ethiopia‘s competitiveness in attracting foreign investment and facilitating cross border trade in goods. When many of Ethiopia‘s principal trading partners and global marketplace competitors already share in the benefits of the New York Convention and the United Nations Convention on Contracts for the International Sale of Goods (CISG)—two of the world‘s most influential and widely recognized international commercial treaties—why has Ethiopia not yet sought to ratify these conventions?

Robert Briner, Chairman, International Court of Arbitration of the International Chamber of Commerce eloquently put it that ‗[i]nternational commercial arbitration is the servant of international business and trade.‘ In fact, the very objective of the New York Convention is serving international trade and commerce. It is evidently clear now that ‗a country's ratification of key international treatises affects trade patterns.‘ 4 This is mainly because of the resulting change in perception that comes with such credible commitments. A study by Daniel et al proved that ratifying the NY Convention does indeed have a measurable impact on a country‘s trading patterns. This is mainly because ‗The NY Convention triggers a process of institutionalization. Countries signal their commitment to abide by international rules by ratifying the NY Convention. And foreign 4

Daniel Berkowitz, et al, Legal Institutions and International Trade Flows , 26 Mich. J. Int’l L. 163, 2005.

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entrepreneurs respond to this signal by collectively changing their trading behavior. Countries that have ratified the NY Convention …are able to improve their position in international trade flows, even when domestic institutional quality has not caught up. In particular, ratifying the NY Convention enhances a country’s trade in complex goods.’5

G. Possible setbacks for pushing through the ratification process An attempt has already been made to contact the MOFA to see if they could initiate the ratification process for this Convention. Although they seem to have a favorable opinion about it in general, they identified one possible setback- that ratifying to this Convention, as things stand now, would invite a possible surge of flimsy claims by Eritreans against government-owned assets abroad. They expressed fear that any interim order that may be obtained against state assets could lead to an unnecessary exorbitant cost. Apart from such cost, the very likelihood of any harassment that may come with such claims is an unflattering risk the government wishes to assume. Particular mention was made of any attachment that may, for instance, be ordered against the properties of Ethiopian Airlines. One thing important to note, however, is that the mere accession to this instrument would not tantamount to forfeiting the immunity a state is internationally endowed. Further imperative to underscore is the reservation clauses the Convention allows any acceding state to make. When acceding to the Convention, a State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Party to the Convention. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration. Moreover, it may declare that it 5

Daniel Berkowitz, et al, Legal Institutions and International Trade Flows , 26 Mich. J. Int’l L. 163, 2005.

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will apply the Convention only to those arbitral awards which were adopted after the entry into effect of the Convention. Therefore, Ethiopia may, for instance, address the foregoing concern by limiting the scope of application of the Convention only to cases arising out of commercial contracts as defined in its law or could also effectively shield itself of such claims by excluding any claims whose cause of action may arise prior to its ratifying of the document .

H. Conclusions Finally, it should be emphatically noted that Ethiopia is historically known for being an active member of the international community. This is reflected in its position as one of the founding members of the League of Nations and the OAU and its present quest to becoming a member of the WTO. It is certainly inconsistent for a country with such a record to not also be a member of the New York Convention. Accordingly, a number of local stakeholders in the Ethiopian Government, private sector, and academia, endorse Ethiopia‘s adoption of the New York Convention, as a means for boosting business competitiveness and complementing ongoing economic reforms.

III. The United Nations Convention on Contracts for the International Sale of Goods (1980) A. General Remarks The use of contracts to define the terms of business transactions is a universal phenomenon. Contracts of sale are the most common legal vehicle for cross-border transactions. Nearly every step along the export value chain can be captured somehow by a contract of sale. Given the prevalence of contractual commercial instruments, the United Nations Convention on Contracts for the International Sale of Goods (CISG) is 20

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

considered among the essential international trade treaties.

The CISG provides a

modern, uniform, and fair regime that introduces an element of certainty in commercial exchanges, thus decreasing transaction costs and making more consistent the process of settling disputes relating to the international sale of goods.

The CISG has been adopted by 71 states since its formulation in 1980. Member States include China, Germany, Italy, Japan and the United States of America, some of Ethiopia‘s main trading partners. In the region, Egypt and Uganda are already a party to the CISG. Regional organizations such as the African Union and COMESA support members‘ adoption of the CISG. The Convention governs international sales of goods between private business, excluding sales to consumers and sale of services, as well as sales of certain specified types of goods. Certain matters relating to the international sales of goods, for instance the validity of the contract and the effect of the contract on the property in the goods sold, fall outside the Convention‘s scope. The CISG applies directly to contracts concluded between parties domiciled in contracting States, even in absence of a choice by those parties on the law governing the contract. In other words, once Ethiopia should become a party to the CISG, all contracts for the international sale of goods concluded between an Ethiopian entrepreneur and an entrepreneur domiciled in another contracting State would fall under the CISG, absent a choice to the contrary. This avoids recourse to rules of private international law to determine the law applicable to the contract, adding significantly to the certainty and predictability of international sales contracts and eliminating unnecessary disputes on procedural matters.

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The CISG is a uniform supranational text; it is neutral with respect to the domestic laws of the parties to the contract of sale. Therefore, the adoption of the CISG prevents disputes relating to the choice of any domestic law as law of the contract in the negotiating phase. The universal nature of the CISG informs also its interpretation, as mandated by article 7 of the Convention, strengthens the neutral character of the text, and reinforces the confidence of commercial operators in its application. Its uniform interpretation is facilitated by various tools, including CLOUT, a collection of case law prepared by the UNCITRAL Secretariat and available also in the form of a Digest.

The Convention contains provisions on the formation of contracts. It also deals with the seller‘s obligation to deliver goods conforming in quantity and quality to the contractual stipulations and at the time and place stated therein (or, alternatively, as determined by the Convention), as well as to hand over the relevant documents. The Convention further regulates the obligations of the buyer, which include payment of price and taking delivery of the goods. Moreover, it provides rules on the passing of risk, as well as a number of provisions common to the obligations of the seller and of the buyer such as anticipatory breach of contract, damages, and exemption from the obligation to perform the contract. The CISG allows for certain declarations modifying its scope of application, namely: 

a Party may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1) (b) of article 1 of the Convention, allowing application of the CISG by virtue of conflict of laws provisions (article 95);



a Party whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with 22

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

article 12 that any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State (article 96). Absent specific reasons to the contrary, it is desirable to maintain the broadest possible scope of application of the CISG, and therefore not to lodge the declaration under article 95. In light of the economic and social conditions of Ethiopia, and, in particular, of the fact that Ethiopian business (as well as business conducted by many African neighbors, in general) relies significantly on oral agreements, it is also suggested not to lodge the declaration under article 96. In conclusion, it seems advisable that Ethiopia shall not lodge any declaration on becoming a party to the CISG. B. Benefits of Ratification State parties to the CISG share wide-reaching benefits, including: Reliability—Businesses that are in the habit of generating contracts of sale tend to abide by contract provisions more than businesses that rely on their international partners exclusively to propose contract terms.

Familiarity with the composition and the

application of contracts makes businesses savvier, and more likely to honor contractual commitments. Contrary to what might seem natural, foreign businesses prefer to trade with more sophisticated and knowledgeable partners and in a predictable legal framework. The wide adoption of the CISG provides such framework. Legal representation for small businesses—The nature of the treaty is such that if a business transaction meets a minimum of requirements, by default these requirements constitute a contract. The CISG is simple enough so that companies unable to afford

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

formal legal representation can avail themselves of modern and fair terms for their international sales contracts without incurring in additional costs. Lower transaction costs—The efficiencies created by the above benefits typically result ultimately in a lower transaction costs and lower prices of traded goods for the final user. Stronger overall legislative framework—The CISG provides a modern, uniform legislative framework for the international sale of goods, applicable whenever contracts for the sale of goods are concluded between parties domiciled in Ethiopia and in another contracting State, or when conflict of laws provisions indicate Ethiopian law as the law of the contract. Consistency—The CISG prevents the application of private international law rules by an adjudicatory body (court or arbitral panel) absent a predetermined choice of law to the contrary. The CISG also prevents disputes relating to the choice of ―applicable‖ law, in the event of a dispute. Modernization—It is interesting to note that the CISG has played a key role in the modernization of the international trade law framework of China (and other countries), thus paving the way to China‘s accession to the WTO and to its impressive economic development. Neutrality—Stronger parties, typically from developed countries, tend to impose their domestic law as law of the contract of sale of goods. The CISG is a uniform neutral text, thus equally fit for developed and developing countries. Easy application—The interpretation and application of the CISG may benefit from a wealth of commentaries and case law developed over the last 28 years. These interpretations concur to develop an international practice, which may prove useful in

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

guiding Ethiopian courts and other legal actors in further interpreting and applying the Convention. 

The benefits of ratification highlighted above can also be explained better in terms of the otherwise opportunity costs non-ratifying states would have to assume.



A contract for the international sale of goods may contain a choice of the law governing the contract, or ―applicable law‖. The choice may be agreed upon by the parties, or may reflect the preference of the party with more bargaining power – often, the one in the more developed country. This is particularly true in contracts concluded by small and medium enterprises, which typically have limited access to qualified legal counsel during contractual negotiations due to financial and other constraints. Therefore, Ethiopian small and medium enterprises would derive particular benefit from the application of the CISG as a default regime to contracts falling under its scope.



Absent a choice of the law applicable to the contract, the adjudicatory body (court or arbitral panel) would need to identify the applicable law by virtue of the rules on conflict of laws (or private international law). Such exercise is often complex and time-consuming. Moreover, it might lead to apply different laws depending on the venue seized, due to the different rules on private international law adopted in the various jurisdictions, thus affecting legal predictability.

C. Legal and Institutional Framework Required for Implementation As with the New York Convention, becoming party to the CISG carries no financial implications for member States. Its administration at the domestic level does not require any dedicated body. Furthermore, no mandatory reporting requirements arise from the adoption of this treaty. 25

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

The CISG is complemented by the Convention on the Limitation Period in the International Sale of Goods, 1980 (the Limitation Convention). Concluded in 1974, the Limitation Convention establishes uniform rules governing the period of time within which legal proceedings arising from an international sales contract must be commenced. It was amended by a Protocol adopted in 1980 in order to harmonize its scope of application with that of the CISG. Indeed, the Limitation Convention may be functionally seen as a part of the CISG. Adoption of the Limitation Convention in conjunction with the CISG would therefore provide Ethiopia with a comprehensive uniform framework for international sale contracts and would be highly advisable. In practice, this would require the simultaneous deposit of two instruments of accession, one for the CISG, and the other for the Limitation Convention (as amended in 1980). In the field of electronic commerce, the CISG is complemented by the Convention on the Use of Electronic Communications in International Contracts (2005).

The E-

Commerce Convention is largely based on UNCITRAL texts, namely the UNCITRAL Model Law on Electronic Commerce (1996) and the UNCITRAL Model Law on Electronic Signatures (2001). These two model laws have been adopted in a number of jurisdictions and may well provide Ethiopia with modern legislation on electronic commerce. If this will be the case, that legislation and the CISG will be fully compatible, thus ensuring seamless electronic transactions relating to international sale of goods.

D. Ethiopian Law and Its Compatibility The adoption of the CISG by 71 States belonging to all legal traditions and levels of economic development is clear evidence of the universal nature of the Convention‘s 26

REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

provisions. In particular, the CISG has entered into force in a number of domestic jurisdictions sharing the same fundamental principles in the field of sale of goods with Ethiopia (such as France) without major difficulties. In particular, it seems useful to stress that the CISG has an impact only at the international level. The CISG is usually considered a self-executing treaty, the main effects of which is to avoid resorting to conflict of laws rules to determine the law applicable to the contract of sale. Domestic sale contracts are not affected by the CISG and they will continue to be regulated by the Ethiopian Civil Code (1960), Book V (Special Contracts), Title XV (Contracts Relating to the Assignment of Rights), Chapter 1 (Sale). The entry into force of the CISG in Ethiopia (which will take place on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of accession with the Secretary-General of the United Nations) will have the following effects, absent a choice of the parties to the contrary:



All contracts of international sale of goods concluded between a party having its place of business in Ethiopia and a party having its place of business in another contracting State will fall under the scope of application of the CISG;



All contracts of international sale of goods concluded between a party having its place of business in Ethiopia and a party having its place of business in a noncontracting State will fall under the scope of application of the CISG when the rules on conflict of laws require the application of Ethiopian law;



Any other case will not fall under the scope of application of the CISG.

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REINFORCING ETHIOPIA’S INTERNATIONAL TRADE LAW FRAMEWORK FOR A STRONGER BUSINESS ENVIRONMENT: A CASE FOR THE RATIFICATIONS OF THE NEW YORK CONVENTION AND THE CISG, 2009

IV. Assistance with Treaty Implementation The USAID Accession Plus project and the UNCITRAL secretariat are available to assist in providing additional information on the New York Convention and the CISG, and in facilitating the uniform interpretation and application of these treaties in Ethiopia after their entry into force. A large number of scholarly works and cases originating from developed and developing countries, which may help judges and other legal actors in the interpretation of the Convention, may be made available. Other ratification initiatives may include seminars and workshops, as well as dissemination of relevant publications. In particular, the UNCITRAL secretariat has prepared a Digest of case law on the CISG, which provides a comprehensive overview of the judicial decisions relating to the Convention. This tool may assist in improving the efficiency of dispute resolution in this area as it ensures adequate information on the main interpretative trends of the CISG and promotes its uniform interpretation. In this respect, after the entry into force of the treaties, Ethiopia may consider appointing correspondents to report to the UNCITRAL secretariat on Ethiopian cases relating to the CISG. Those cases would be published by the secretariat in the CLOUT (Case Law on UNCITRAL Texts) series and disseminated worldwide, thus reinforcing the confidence of the international business community in the application of commercial law in Ethiopia.

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