TOWARDS A PREDICTABLE LAW ON INTERNATIONAL RECEIVABLES FINANCING: THE UNCITRAL CONVENTION* MARA E. TRAGER** I. INTRODUCTION Receivables have become a vital component of ﬁnancing, and a growing percentage of all receivables ﬁnancing is international.1 Yet under the laws of many countries, certain forms of receivables ﬁnancing are still not recognized.2 Even in transactions involving countries where this form of ﬁnancing is possible, determining which law governs may be difﬁcult. The domestic law of any of several countries may apply to a single transaction, and the disparity among the laws of the various jurisdictions increases uncertainty. The risk associated with a transaction in which any of several legal regimes might apply increases the cost of credit. Thus, in many circumstances, receivables ﬁnancing can be expensive or, at worst, impossible.3 With the goal of increasing predictability and certainty in the governing law, thereby enabling credit to be made available at lower rates, the United Nations Commission on International Trade Law (UNCITRAL) is in the midst of drafting a convention designed to unify the law governing international receivables ﬁnancing. It has been argued that, given the convention’s potential impact on international trade, it may be* The comments and opinions expressed by the delegates cited in this paper are their own and do not necessarily represent the position of their respective governments. ** J.D., New York University School of Law, 1998. B.A., Haverford College, 1994. Clerk to Judge Stanley Marcus, U.S. Court of Appeals, Eleventh Circuit. The author would like to thank Professor Neil Cohen for his advice and comments; Professor Paul Szasz; and the delegates cited in this Note for generously sharing their time and expertise. 1. See Gerald T. McLaughlin & Neil B. Cohen, International Accounts Receivables Financing, 216 N.Y.L.J. 3 (1996). 2. See Michael Sisk, U.N. Drafting Trade Rules that Would Aid ABS, PRIVATE PLACEMENT REP., Apr. 28, 1997, at 1. 3. See McLaughlin & Cohen, supra note 1, at 3. 611 612 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 come the most important work that UNCITRAL has done to date.4 In its most basic form, an assignment of receivables occurs when one party (the assignor) transfers to another party (the assignee) payment claims that the assignor has against a third party (the debtor) under a separate transaction. Since receivables are among the most liquid of all types of assets, they are a desirable form of security for a loan. Many different types of ﬁrms raise capital by borrowing against their accounts receivable as collateral, by selling them to factors, or by assigning them to third parties. The term “receivables ﬁnancing” is used to describe a broad range of transactions in which cash is raised based on receivables. Such ﬁnancing may entail factoring,5 forfaiting,6 reﬁnancing,7 or more sophisticated techniques such as securitization8 and project ﬁnance.9 In the 4. See id. 5. There are many different forms of factoring. In its most basic form, the accounts receivable arising from sales of goods and services are sold to a factor for immediate cash. See FREDDY SALINGER, FACTORING LAW AND PRACTICE 1 (1991). Since the factor buys the accounts at a discounted rate, he is able to earn a proﬁt by maximizing the difference between the purchase price of the accounts and the amount realized on them. See ALAN SCHWARTZ & ROBERT SCOTT, COMMERCIAL TRANSACTIONS: PRINCIPLES AND POLICIES 614 (2d ed. 1991). There is great variety in the types of factoring agreements: they can be recourse or non-recourse; with or without disclosure to the debtor; arrangements where the factor collects the funds directly from the debtor or where the assignor does so himself. See SALINGER, supra, at 14-15. 6. Forfaiting, similar to factoring, involves the purchase or discounting of documentary receivables (promissory notes, for example) without recourse to the party from whom the receivables are purchased. See Assignment in Receivables Financing, Discussion and Preliminary Draft of Uniform Rules, Report of the Secretary-General, UNCITRAL, 28th Sess., para. 25, U.N. Doc. A/CN.9/ 412 (1995) [hereinafter Assignment in Receivables Financing]. 7. Reﬁnancing, also known as secondary ﬁnancing, involves the subsequent assignment of receivables. In its basic form, one bank or ﬁnancier will assign to another bank its interest, with the potential for further assignments. See id. para. 26. 8. In securitization, both marketable (for example, trade receivables) and non-marketable (consumer credit card receivables and home mortgages) asset cash ﬂows are repackaged by a lender and transferred to a lender-controlled company, which will issue securities, sell them, and then use the proceeds to purchase the receivables. See id. paras. 27-28; Walid A. Chammah, An Overview of Securitization, in ASSET SECURITIZATION: INTERNATIONAL FINANCIAL AND LEGAL PERSPECTIVES, 1-15 (Joseph Norton & Paul Spellman eds., 1991). 1999] THE UNCITRAL CONVENTION 613 United States, the total volume of factoring transactions alone amounted to $72.4 billion in 1997.10 UNCITRAL is not the ﬁrst international organization to attempt to address the problems associated with a lack of or a conﬂicting law on receivables. Previous attempts by various international organizations have met with varying degrees of success.11 Even UNCITRAL had once before considered addressing the issue, but decided against it. The importance of the task is underscored by the very fact that attempts toward uniﬁcation continue, either through drafting model laws which countries could adopt or by devising rules which would identify the governing law for the transaction. There are numerous reasons that prior reform attempts have met with setbacks. Difﬁculties abound because of the technical complexity involved and because the approach has been so different in various legal systems. At the same time, however, these issues have made the process of unifying the governing law on receivables ﬁnancing fascinating. While UNCITRAL has made considerable progress in drafting this convention, the process remains incomplete. This Note—based on interviews and written communications with various delegates, as well as on ofﬁcial drafts—describes the drafting process to date, including how some of the more controversial issues have been resolved and the decision-making process. Part II describes UNCITRAL’s history, the various efforts that have been made in the past to unify work in the law of assignment of receivables, and UNCITRAL’s decision to undertake work in this area. Part III describes the substantive issues that have provoked the greatest controversy, including the scope of the convention, conﬂict of laws, and the determi9. In project ﬁnance, repayment of loans made by banks or ﬁnanciers to project contractors for the ﬁnancing of the project are secured through the future revenues of the project. See Assignment in Receivables Financing, supra note 6, para. 29. This is a ﬁnancing technique often used in projects related to the improvement of infrastructure or the exploitation of natural resources. This technique is of particular interest to developing countries because it provides a means of ﬁnancing costly projects with relatively little cash payment required up front. 10. See Telephone Interview with Bruce Jones, Deputy Executive Director, Commercial Finance Association (Oct. 15, 1998). 11. See infra Part II. 614 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 nation of the priority of claimants. Part IV addresses the drafting process, particularly the effect of domestic law and practice on various states’ positions, the general lack of participation by developing countries, and whether, as a consequence of these factors, the convention has a good chance of success. Finally, Part V sets forth some concluding thoughts on the drafting process, noting that for a variety of reasons many countries have had difﬁculty in meaningfully contributing to and evaluating the process. Finally, widespread support for a usable document can only be achieved if all voices are heard in the drafting process, and if those that do participate are ready to accept other perspectives. Since the goal of the convention is to increase certainty and predictability as to what law would apply in any given international transaction, the best way to achieve this is if many states ratify the convention. Consensus and agreement must be achieved for this to occur, which is impossible if only a handful of politically important countries dominate the process. In this respect, the goal of certainty suggests that there are two main difﬁculties associated with the drafting process— problems of contribution and problems of evaluation—both of which will be discussed below. This Note argues that in order for the convention to be successful—that is, widely adopted and useful—states’ representatives must curb their inclinations to view their domestic law and practice as the only correct approach. Rather, they must strive for an approach that is the best law for the international context. II. BACKGROUND: UNCITRAL AND THE CONVENTION RECEIVABLES FINANCING A. UNCITRAL ON In 1966, the United Nations created UNICTRAL because it desired to play a more active role in reducing and removing legal obstacles to the ﬂow of international trade. UNCITRAL’s objective is “to further the progressive harmonization and uniﬁcation of the law of international trade,”12 and its mandate is to be the “core legal body” in the ﬁeld of international trade 12. UNCITRAL, THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (2nd ed. forthcoming Dec. 1991) (manuscript at 4, on ﬁle with author) [hereinafter UNCITRAL Book]. 1999] THE UNCITRAL CONVENTION 615 law within the U.N. system.13 Some ways to further its objectives are by: 1) coordinating the work of organizations active in the ﬁeld and to encourage cooperation among them; 2) promoting wider participation and acceptance of existing conventions and model laws; and 3) preparing or promoting the adoption of new international conventions and model laws.14 UNCITRAL was originally composed of twenty-nine states,15 but was expanded in 1973 to thirty-six states by a General Assembly resolution.16 Membership is structured so that a speciﬁed number of seats are allocated to each of various geographic regions.17 In 1981 a General Assembly resolution afﬁrmed the importance of the participation of observers from all states and interested international organizations.18 In practice, a number of observers participate on nearly the same terms as members. UNCITRAL has worked on a wide range of projects, including a Model Law on International Commercial Arbitration,19 a Convention on the Carriage of Goods By Sea,20 and a Convention on the Liability of Operators of Transport Terminals.21 In all, UNCITRAL has worked on over one hundred such projects, with “great variations in its quality, usefulness and impact.”22 The best-known and most successful project— 13. Id. (quoting U.N. GAOR, 33rd Sess., Supp. No. 17, para. 67, U.N. Doc. A/33/17 (1978). 14. See Progressive Development of the Law of International Trade, U.N. GAOR 6th Comm., 21st Sess., Agenda Item 88, at 20-21, U.N. Doc. A/6594 (1966). 15. See id. at 20. 16. See G.A. Res. 3108 (XXVIII), U.N. GAOR, 28th Sess., 2187th mtg., para. 8, U.N. Doc. A/9408 (1973). 17. See Progressive Development of the Law of International Trade, supra note 14, at 21. 18. Report of the United Nations Commission on International Trade Law, G.A. Res. 36/32, U.N. GAOR, 36th Sess., 57th plen. mtg., para. 9, U.N. Doc. A/ RES/36/32 (1981). 19. Report of United Nations Commission on International Trade Law on the Work of Its Eighteenth Session, U.N. GAOR, 40th Sess., Supp. No. 17, Annex, at 1, U.N. Doc. A/40/17 (1985). 20. UNITED NATIONS CONFERENCE ON THE CARRIAGE OF GOODS BY SEA, U.N. Doc. A/CONF.89/13 (1978). 21. UNITED NATIONS CONFERENCE ON THE LIABILITY OF OPERATORS OF TRANSPORT TERMINALS IN INTERNATIONAL TRADE, U.N. Doc. A/CONF.152/13 (1991). 22. A.H. Hermann, Business and Law: Sweet Sound of Harmony—Unifying Business Law is No Simple Matter, FIN. TIMES, July 27, 1993, at 14. 616 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 judging by the number of ratiﬁcations and apparent widespread use—is the Convention on the International Sale of Goods (UNCISG), which has been ratiﬁed by more than ﬁfty countries.23 B. 1. The Receivables Convention Previous Work by International Organizations in this Area Work on the UNCITRAL convention on receivables ﬁnancing began in 1992. UNCITRAL had previously considered work on a similar convention in 1979-80, but concluded that “worldwide uniﬁcation of the law of security interests in goods . . . was in all likelihood unattainable,” and thus abandoned these efforts.24 UNCITRAL reached this conclusion because of the complexity of the subject matter, the great divergence among the various legal systems, and the belief that the effort ﬁrst required uniﬁcation in other areas, particularly the laws of insolvency. Further, as representatives of the Council of Europe and the International Institute of Private Law (UNIDROIT) were each working on related projects, UNCITRAL was advised to wait for their efforts to be completed before proceeding.25 UNIDROIT has worked on two projects related to receivables ﬁnancing: 1) in 1988, the Convention on International Factoring (Factoring Convention),26 and 2) more recently, in March 1992, a group began examining the possibility of developing “uniform rules on certain aspects of security interests in 23. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, 1489 U.N.T.S. 3 (entered into force for the United States on Jan. 1, 1988). According to the U.N. treaty section, 54 states had ratiﬁed the CISG as of March 1, 1999. <http://cisgw3.law.pace.edu/cisg/ countries/cntries.html> (Visited Mar. 9, 1999). 24. Assignment of Claims: Note by the Secretariat, U.N. Doc. A/CN.9/378/ Add.3, para. 14, reprinted in  24 Y.B. UNCITRAL 244, 246, U.N. Doc. A/CN.9/SER.A/1993 [hereinafter Assignment of Claims] (quoting Report of the Secretary-General: Security Interests; Issues To Be Considered in the Preparation of Uniform Rules, U.N. Doc. A/CN.9/186 (1980),  11 Y.B. 89, U.N. Doc. A/CN.9/SER.A/1980). 25. See id. 26. Diplomatic Conference for the Adoption of the Draft UNIDROIT Conventions on International Factoring and International Financial Leasing: Final Act and Text of Two Conventions, May 28, 1988, 27 I.L.M. 922, 943 [hereinafter UNIDROIT Conference]. 1999] THE UNCITRAL CONVENTION 617 mobile equipment.”27 The former covers the assignment of claims to the extent they take place in the context of factoring. Its application is limited in that it does not cover domestic factoring arrangements, regulate priorities, or adopt choice-oflaw rules.28 The convention on mobile equipment would be conﬁned to equipment that regularly moves between countries, such as airplanes, containers, and trucks.29 It is notable that the Factoring Convention, which was only ratiﬁed by four countries, was drafted by a small group of experts.30 UNCITRAL has more broad-based participation in the drafting process, which will hopefully increase the acceptability of its work product to more countries. Other international bodies—the European Committee on Legal Cooperation of the Council of Europe (CDCJ) and the International Chamber of Commerce (ICC)—have also worked on a somewhat related subject: retention of title. The CDCJ prepared a draft convention in 1982, but no ﬁnal position was taken due to numerous legal reforms pending in various countries at that time.31 The ICC prepared a guide with basic information regarding the law on retention of title in nineteen countries.32 In addition, the European Bank for Reconstruction and Development (EBRD) drafted a model law on secured transactions designed to be either adopted “as is” or modiﬁed in Central and Eastern European countries.33 The drafting team of the EBRD was supported by an international advisory board of twenty experts in the ﬁeld of secured transactions.34 With these developments in the background, UNCITRAL perceived a current need and decided to revisit the idea of taking up work in this area of law. In May 1992, a suggestion 27. Assignment of Claims, supra note 24, para. 18, at 247. 28. See SALINGER, supra note 5, at 270-71. 29. See Assignment of Claims, supra note 24, para. 18, at 247. 30. See UNIDROIT Conference, supra note 26, at 928. As of March 1997, four states have ratiﬁed the convention: France (with reservations), Italy, Hungary, and Nigeria. 31. See Assignment of Claims, supra note 24, para. 17, at 246. 32. RETENTION OF TITLE: A PRACTICAL GUIDE TO NINETEEN NATIONAL LEGISLATIONS (ICC Publication No. 467, 1989) (currently out of print). 33. See Current Activities of International Organizations Related to the Harmonization and Uniﬁcation of International Trade Law, U.N. Comm’n Int’l Trade Law, 26th Sess., 380th mtg., at 12, U.N. Doc. A/CN.9/380 (1993). 34. See id. 618 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 was made—at a symposium entitled “Uniform Commercial Law in the Twenty-First Century”—that work might be undertaken on assignment of claims, an issue that the UNCISG left unaddressed.35 There were several reasons that by 1992 the time was ripe for this type of convention, as opposed to 1980 when the idea had been initially considered and discarded by UNCITRAL. The primary reasons were the increased use of trans-border factoring, forfaiting, and securitization, and the increasing importance of receivables in the global economy. Another important factor was that, in the interim, UNCITRAL had begun working on the preparation of a Model Law on Cross-Border Insolvency,36 addressing some of the major concerns—for instance, the lack of harmonization in related areas—that were previously viewed as an impediment to uniﬁcation in the ﬁeld of receivables ﬁnancing.37 The work of other organizations also had provided accumulated experience in drafting laws in this area. Thus, uniﬁcation became a less daunting task than it may have seemed in 1980. Members of UNIDROIT and EBRD shared information and their experiences with various UNCITRAL members and, in some instances, the delegates to the UNIDROIT convention were the same people as those participating in UNCITRAL.38 For these reasons, UNCITRAL took on the task from which it had retreated a decade earlier. Building on the Factoring Convention, UNCITRAL hoped to go further to address transactions such as securitization and project ﬁnancing. Since the subject matter is similar, UNCITRAL is aware that there are potential conﬂicts between the text it will produce and the Factoring Convention, and will endeavor to avoid them.39 35. See id. See also  23 Y.B. UNCITRAL 399-401, U.N. Doc. A/ CN.4/SER.A/1992. 36. See Cross-Border Insolvency: Note by the Secretariat, U.N. Doc. A/CN.9/ 378/Add.4, reprinted in  Y.B. U.N. Comm’n on Int’l Trade L. 248, U.N. Doc. A/CN.9/SER.A/1993. 37. See Assignment of Claims, supra note 24, para. 14, at 246. 38. See Interview with Stephen Katz, UNCITRAL Liaison Ofﬁcer at U.N. Headquarters in Ofﬁce of Legal Affairs, in New York, N.Y. (Nov. 21, 1996). 39. See Spiro Bazinas, Ofﬁcer of the UNCITRAL Secretariat, Remarks at Department of Trade and Industry, Business Law Unit, at Symposium on 1999] THE UNCITRAL CONVENTION 619 Shortly after the May 1992 Congress, the Secretariat prepared three reports on the subject of receivables ﬁnancing, which were discussed by the Commission at its twenty-sixth to twenty-eighth sessions (1993-1995).40 At the twenty-eighth session in New York, in May-June 1995, the Commission concluded that preparation of uniform rules would be both desirable and feasible.41 The purpose of these rules would be to “remove obstacles to receivables ﬁnancing arising from the uncertainty existing in various legal systems as to the validity of cross-border assignments . . . and the effects of such assignments on the debtor and other third parties.”42 Once UNCITRAL decided that devising rules to govern international receivables ﬁnancing was a project that it wished to pursue, the Working Group on International Contract Practices (Working Group)—composed of all the Member States of the Commission—began constructing a set of uniform rules in Vienna in November 1995.43 The preliminary drafts and commentaries were prepared by the International Trade Law Branch of the United Nations Ofﬁce of Legal Affairs, which serves as the secretariat of UNCITRAL.44 Most of the delegates are academics or representatives of the foreign ministries of their countries.45 Assignment in Receivables Financing, in London, U.K. (Mar. 12, 1996) (unpublished transcript on ﬁle with author) [hereinafter 1996 Symposium]. 40. See Provisional Agenda, UNCITRAL, 27th Sess., Notes, U.N. Doc. A/ CN.9/WG.II/WP.94 (1997). The reports were: A/CN.9/378/Add.3, A/ CN.9/397, and A/CN.9/412. 41. See Report of the United Nations Commission on International Trade Law on the Work of its Twenty-eighth Session, U.N. GAOR, 50th Sess., para. 7, U.N. Doc. A/50/17 (1995). 42. Id. See also Report of the United Nations Commission on International Trade Law on the Work of its Twenty-sixth Session, U.N. GAOR, 48th Sess., Supp. No. 17, paras. 297-301, U.N. Doc. A/48/17 (1993); Report of the United Nations Commission on International Trade Law on the Work of its Twenty-seventh Session, U.N. GAOR, 49th Sess., Supp. No. 17, paras. 208-14, U.N. Doc. A/49/17 (1994). 43. See Report of the United Nations Commission on International Trade on the Work of its Twenty-ninth Session, U.N. GAOR, 51st Sess., Supp. No. 17, para. 232, U.N. Doc A/51/17 (1996). 44. See UNCITRAL Book, supra note 12, at 5. 45. See List of Participants, UNCITRAL, 28th Sess., U.N. Doc. A/CN.9/ WG.II/XXXVIII/INF.1 (1998). 620 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 The Working Group continues to meet twice annually, alternating between New York and Vienna.46 Among the issues that it is considering are those relating to: 1) the form and content of assignment; 2) the rights and obligations of the assignor, the assignee, the debtor, and other third parties; 3) subsequent assignments; and 4) conﬂict of laws issues.47 The Working Group is scheduled to submit its ﬁnal draft text to the full Commission for consideration at its thirty-second session, in mid-1999.48 2. Goals of the Convention The main goal of this convention is to make credit cheaper and more easily available by facilitating project ﬁnancing, cross-border factoring, and other receivables transactions.49 Uniform rules on receivables ﬁnancing would beneﬁt all three parties to the transaction: the suppliers of goods (assignors) would have enhanced creditworthiness; ﬁnancial institutions (assignees) would beneﬁt from the certainty of the enforceability of their security interests; and buyers of goods and services (debtors) would beneﬁt because their rights and obligations would be clearly deﬁned and harmonized. Presumably, suppliers would be more willing to provide goods and services on credit,50 and the cost to purchasers of such credit transactions would be reduced. Because of the beneﬁts to debtors and the potential for domestic creditors to be better able to raise money in international markets, it also has been suggested that this convention is in part for the beneﬁt of developing countries.51 46. The June 1997 New York meeting was canceled. 47. See Revised Articles in Draft Uniform Rules on Assignment in Receivables Financing, UNCITRAL, 25th Sess., U.N. Doc. A/CN.9/WG.II/WP.87 (1996). 48. See UN: Speakers in Legal Committee Welcome Adoption of UNCITRAL’s Model Law on Cross-Border Insolvency, M2 PRESSWIRE, Oct. 7, 1997, at 8, available in LEXIS, News Library, Presswire File. 49. See Report of the Working Group on International Contract Practices on the Work of its Twenty-fourth Session, UNCITRAL, 29th Sess., para. 16, U.N. Doc. A/CN.9/420 (1995). 50. See Assignment of Claims, supra note 24, para. 22, at 247. 51. See Telephone Interview with Professor Jean Stoufﬂet, delegate from France (Oct. 15, 1997); Telephone Interview with Sr. Leonel P´ rez Castro, e delegate from Mexico (Nov. 11, 1997); Letter from David Mor´ n Bovio, a Chairman, The Working Group on International Contract Practices, to the author (Nov. 13, 1997) (on ﬁle with author). 1999] THE UNCITRAL CONVENTION 621 Currently, the divergence of national laws impedes the realization of the above goals. For example, questions as to the validity of assignments are met with different responses in various jurisdictions. Different levels of formality are required under different legal regimes: some laws require written evidence for an assignment to be valid, some require notiﬁcation of the debtor, and some require registration of the assignment.52 The assignability of claims is another area where laws diverge. Assignments of receivables in bulk or of future receivables are still not accepted under the laws of many countries.53 Finally, ranking the priorities of claimants—the assignee and third parties asserting a right in the assigned claim—raises exceedingly difﬁcult questions due to the different solutions offered by national laws.54 The convention seeks to eliminate all of these impediments. 3. Form of the Convention UNCITRAL employs four different drafting techniques: 1) conventions; 2) model laws; 3) model provisions for a convention; and 4) recommendations for legislative work.55 At its second meeting, the Working Group decided to act on the assumption that the text would take the form of a convention.56 That assumption was questioned at the third meeting by some delegates who suggested that a model law would enable enacting states to be ﬂexible in adjusting domestic legislation, and thus would be acceptable to more states. 52. See Assignment of Claims, supra note 24, para. 7, at 245. 53. See Sisk, supra note 2, at 3. 54. See id. at 2. See also Assignment of Claims, supra note 24, paras. 9-10, at 245. 55. See UNCITRAL Book, supra note 12, at 9-11. With a convention, ratifying states adopt legislation in line with the provisions of that convention. A model law is a legislative text recommended to states for adoption as their national law. A model provision for a convention occurs when several conventions deal with a particular issue in a way that is considered to require uniﬁcation or modernization. Lastly, recommendation for legislative work is a call upon states and international organizations to review relevant legislation and conventions on a certain issue, bearing in mind the objectives stated in the recommendation. See id. 56. See Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, UNCITRAL, 30th Sess., paras. 26-28, U.N. Doc. A/CN.9/432 (1996). 622 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 After some discussion, the prevailing view was that a convention would be more suitable for accomplishing the objectives of the Working Group. As the main goals of the project are increasing the availability and lowering the cost of credit, a convention would achieve a higher degree of certainty in the law than would a model law.57 Additionally, it was believed that, together with the UNIDROIT Factoring Convention, a convention would be better suited to achieving a comprehensive regime of the law on assignments. 4. Working Group Decision-Making Procedures Decisions of the Working Group, as in all UNCITRAL meetings, are made by consensus.58 This method of decisionmaking is appropriate for the goals of the convention. Since the goal is increasing trade through the development of a single uniform governing law, it is more useful if more countries agree with the provisions of the convention and then sign and ratify it. If there is no general agreement on aspects of the convention at the Working Group level, then the likelihood that the convention will ultimately be ratiﬁed by a large number of states—including those that are not currently members of the Working Group—is greatly diminished. The process of consensus decision-making was once described in the following manner: In order to assure the general application of a speciﬁc “decision,” it should be adopted by the largest possible number of states. Instead of seeking a decision through a vote, which might produce an uncooperative minority, efforts are made to bring it on through a process of negotiations . . . involving all interested parties, making it thus possible for all to identify with the result as a whole even if dissent is registered on details.59 57. See Report of the Working Group on International Contract Practices on the Work of its Twenty-sixth Session, UNCITRAL, 30th Sess., para. 34, U.N. Doc. A/ CN.9/434 (1997). 58. See UNCITRAL Book, supra note 12, at 8. See also 1996 Symposium, supra note 39. 59. Karl Zemanek, Majority Rule and Consensus Technique in Law-Making Diplomacy, in THE STRUCTURE AND PROCESS OF INTERNATIONAL LAW: ESSAYS IN LEGAL PHILOSOPHY DOCTRINE AND THEORY 857, 875 (R. St. J. MacDonald & Douglas M. Johnston eds., 1993). 1999] THE UNCITRAL CONVENTION 623 Thus, decision-making through consensus is deemed likely to produce the most wide-spread support for a treaty as a whole, while still allowing room for parties to dissent on minor points. Consensus decision-making also provides a face-saving solution for another serious problem—the dominance of the process by developed countries. Professor Jonathan Charney explained it as follows: “Since it is difﬁcult to obtain acceptance of voting systems that overtly recognize the differences in nations’ importance, the consensus approach permits the maintenance of egalitarian procedure which in practice may assure that multilateral negotiations reﬂect the real geopolitical power of participating nations.”60 Thus, through consensus, while all countries participate in the process, politically powerful ones can still exert inﬂuence. 5. Participation of Non-Governmental Organizations In addition to several states that are not currently serving on UNCITRAL, some international organizations send observers to participate in the process to varying degrees. Some of these organizations are inter-governmental, including the Hague Conference on Private International Law and the International Chamber of Commerce. Others represent private interests or are trade organizations, such as the Commercial Finance Association (CFA), the Factors Chain International (FCI), the Federaci´ n Latinoamericana de Bancos (FELBAN), o and the Federation Bancaire de l’Union Europeene.61 Also, the International Bar Association is sending an observer.62 A leading delegate has stated that these groups are very interested in the work being done, and that the Secretariat and the delegates actively try to encourage their presence.63 Not only is their presence helpful in the drafting stage, but this delegate also believes that their participation and support 60. Jonathan I. Charney, United States Interest in a Convention on the Law of the Sea: The Case for Continued Efforts, 11 VAND. J. TRANSNAT’L L. 39, 43 (1978), cited in Barry Buzan, Negotiating by Consensus: Developments in Technique at the United Nations Conference on the Law of the Sea, 75 AM. J. INT’L L. 324, 327 (1981). 61. See Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, supra note 56, para. 6. 62. See Letter from Bruce Markell, observer from the International Bar Association, to the author (Nov. 11, 1997) (on ﬁle with author). 63. See Mor´ n Bovio, supra note 51. a 624 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 is essential to the ultimate usefulness and acceptance of the convention. Thus, this delegate notes that: [it] could be convenient to establish the distinction between the support of the business community and the success of the ﬁnal project. Governments look for votes not [always coincident with] good laws. Normally, international conventions do not attract the time of town-based politicians and perhaps there are not too many leaders for the global village.64 While the participation of observers, who are usually also practitioners, may increase the usefulness of the convention, the support of the town-based politicians is, in his view, the only way the necessary political support can be obtained for ratiﬁcation. Among more developed countries, the participation of non-governmental organizations is also viewed in different terms. Thus, one delegate from a major European country regarded his role, and that of the other delegates, as balancing the interests involved.65 He emphasized: “I am not the delegate of special interests such as the interests of banks, the factoring business, any industry or consumers. Instead, I think it is our duty to ﬁnd an equilibrium among the different interests.”66 Still, this delegate believed that the participation of non-governmental organizations was important and regretted that insurance companies and small and medium-sized corporations, especially those that are very dependent on trade ﬁnancing, were not well represented. III. SUBSTANTIVE ISSUES OF THE GREATEST CONTROVERSY AMONG DELEGATES Regarding those issues which have been the most controversial, one delegate observed: “[T]he points of controversy may shift from session to session. A matter which seems of great importance at one session may scarcely trouble the next at all.”67 Nonetheless, the dialogue has centered on several 64. Id. 65. See Telephone Interview with Professor Dr. Uwe H. Schneider, delegate from Germany (Oct. 31, 1997). 66. Id. 67. Letter from Christopher Doyle, delegate from Ireland, to the author (Oct. 6, 1997) (on ﬁle with author). 1999] THE UNCITRAL CONVENTION 625 fundamental issues or themes, including the scope of the convention, issues regarding priority of claims, the necessity of a registry, and conﬂict of laws rules. A. Scope The scope of the convention, perhaps the most fundamental issue to be resolved, has also been one of the more controversial. Under this rubric, attention has focused on two principal issues: 1) the “internationality” of the assignment; and 2) the types of receivables covered. 1. Internationality There are three different trans-border transactions that the draft rules might cover: 1) international assignment of international receivables, where the assignor, assignee, and debtor are in three different countries; 2) domestic assignments of international receivables, where the assignor and assignee are in the same country, and the debtor is in another country; and 3) international assignment of domestic receivables, where the assignor and debtor are in one country and the assignee in another.68 In one of the initial drafts, the internationality issue was introduced, but no recommendations were made.69 At its ﬁrst meeting, the Working Group agreed that the draft should cover the applicability of the rules to the assignment—both domestic and international—of international receivables.70 Even though there was consensus on this issue, concern was expressed that there may be conﬂict or overlap with the Factoring Convention, which dealt with a subset of international receivables. The Secretariat’s initial draft had suggested that such conﬂict might be avoided if the Commission would address only issues which were beyond the scope of the Factoring Convention or if it dealt with factoring contracts not covered 68. See Remarks following Article III of UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW, WORKING GROUP ON INTERNATIONAL CONTRACT PRACTICES, REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, U.N. Doc. A/CN.9/WG.II/WP.93 (1997). 69. See Assignment in Receivables Financing, supra note 6, paras. 10, 11, and 30. 70. See Report of the Working Group on International Contract Practices on the Work of its Twenty-fourth Session, supra note 49, paras. 26-29. 626 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 by the Factoring Convention. For instance, the convention would deal with non-notiﬁcation factoring (i.e., where the debtor is not notiﬁed) and factoring of receivables which do not arise solely from sales and service contracts.71 As a result, this convention could complement the Factoring Convention, and create a more comprehensive legal regime.72 Nonetheless, there remained some concern, expressed particularly by the few countries that have ratiﬁed the Factoring Convention, as to what would happen if a conﬂict did result.73 The international assignment of domestic receivables was perhaps the most controversial aspect of the internationality issue, but has been resolved in favor of inclusion.74 While coverage of these assignments would provide domestic traders with easier access to international ﬁnancing, initially there was a great deal of hesitation to include them within the scope of the convention.75 As described by one delegate: [This] creates parallel law for domestic issues . . . . The assignee of the bulk receivables [,for instance,] would probably not check, or be able to check, where the receivables come from. So that means that you rely on a domestic contract with the assignor. This could be a problem for some delegations, because you would disappoint somehow the reliance on the domestic character of the assignment.76 71. See Assignment in Receivables Financing, supra note 6, para. 23. 72. See id. 73. See Telephone Interview with Professor Franco Ferrari, delegate from Italy (Oct. 8, 1997). 74. See id. See also UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW, WORKING GROUP ON INTERNATIONAL CONTRACT PRACTICES, REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, U.N. Doc. A/CN.9/WG.II/ WP.96 (1998) [hereinafter 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING]. 75. See Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, supra note 56, paras. 20-21. See also Remarks of Ed Smith, Bingham, Dana and Gould LLP, at the Department of Trade and Industry, Business Law Unit, Seminar on Receivables Financing, in London, U.K. (Feb. 24, 1997) (commenting that, with respect to issues of priority, if the international assignment of domestic receivables were included, many jurisdictions would have to review their domestic laws to make sure that the differences between domestic law and the convention are not so disruptive as to defeat the latter’s purpose) [hereinafter 1997 Seminar]. 76. Ferrari, supra note 73. 1999] THE UNCITRAL CONVENTION 627 Additionally, some concerns focused on the effect on the debtor, particularly if it were a small or medium-sized company or a consumer, who would be made subject to a different legal regime because the domestic seller or creditor had chosen to assign the debt to someone overseas.77 This concern has been alleviated somewhat by draft article 7, which provides that the international assignment of a receivable should not adversely affect the legal position of the debtor.78 Even this resolution did not completely quiet the concern of certain delegates that parties’ expectations in purely domestic transactions may be undermined if the international assignment of domestic claims were included.79 These concerns were lessened, but not eliminated, when it was settled that domestic law would still govern the relationship between the debtor and creditor. While the issue of internationality is for now resolved in favor of including all non-purely domestic transactions under the ambit of the convention, one delegate thought that the issue might get raised again.80 2. Types of Receivables to be Covered There is still no agreement among delegations regarding what types of receivables should be included. The ﬁrst draft stated that the convention might cover factoring, forfaiting, reﬁnancing, securitization, and project ﬁnance.81 The Working Group decided that, rather than emphasize the form in 77. See Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, supra note 56, para. 21; Ferrari, supra note 73; Schneider, supra note 65. 78. See Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, supra note 56, paras. 23 & 87; 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 2. 79. See Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, supra note 56, para. 23; Ferrari, supra note 73. 80. See id. See also Report of the Working Group on International Contract Practices on the Work of its Twenty-ﬁfth Session, supra note 56, para. 23; 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 3; Remarks by Professor Roy Goode, University of Oxford, at 1997 Seminar, supra note 75 (suggesting that the assignment of domestic and international receivables should not be treated alike, as they are very different types of transactions). 81. See Assignment in Receivables Financing, supra note 6, paras. 22-29. 628 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 which the receivables appear, it would instead concentrate on the way in which they might be transferred (contractual or non-contractual) and the purpose of the transaction (for ﬁnancing or non-ﬁnancing purposes).82 Thus, the Working Group agreed that contractual receivables and assignments made in order to secure ﬁnancing and other related services would be covered. It was left for a future session whether noncontractual receivables—such as insurance and tort receivables, deposit bank accounts, or claims arising by operation of law—and assignments for those other than ﬁnancing purposes would be within the ambit of the draft convention.83 Even in the latest draft of 1998, the issue of whether to include these types of receivables remains unresolved.84 Some delegates were in favor of the inclusion of non-contractual receivables because they believed exclusion would result in inconsistencies and gaps in the law. One delegate, for instance, favored including tort receivables and insurance policies because he “didn’t want harmonization to be like a mosaic.”85 Likewise, another indicated that he would like to see the convention as broad as possible and would limit the exclusions.86 But not all delegates share this attitude. The remarks of the Secretariat revealed a belief that an overly-broad draft might compromise the acceptability of the draft to many states.87 One commentator has argued that the deﬁnition of receivables should be “reined in.” Otherwise the convention would be unacceptable to many states, as it would completely rewrite their domestic law on intangibles.88 In addition, if non-contractual receivables were covered, they might require special provisions with respect to priority and other rules. Further, one commentator has argued that 82. See Report of the Working Group on International Contract Practices on the Work of its Twenty-fourth Session, supra note 49, para. 38. 83. See id. 84. See 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 2. 85. Schneider, supra note 65. 86. See Ferrari, supra note 73. The exclusions he was referring to are found in 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 4. 87. See Remarks following Article 1 of 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74. 88. See Remarks of Colin Bamford, Financial Law Panel, at 1997 Seminar, supra note 75. 1999] THE UNCITRAL CONVENTION 629 insurers already maintain records of title and claims to policies, and thus there may be no real beneﬁt to including most insurance policies in the convention, since there is no real need for another registry of these interests.89 In addition, this commentator noted that, in the case of life insurance policies, the public policy of many countries may run against inclusion because otherwise the main purpose of such policies—to provide beneﬁciaries a substitute means of support—might be frustrated.90 Likewise, covering the assignment of deposit accounts might lead to undesirable consequences in the banking sector, insofar as the depository institution may not wish to pay anyone other than the depositor.91 One European delegate expressed reluctance to include assignments of receivables made for purposes other than ﬁnancing. He was “not sure that this is a good solution because it could lead to [a complete] change . . . [of] the national system of [assignment].”92 While coverage of these may or may not be beneﬁcial, it is evident that concern over supplanting domestic laws, as was also exhibited during the discussion over the internationality issue,93 has strongly affected the position of states during the decision-making process. B. Registration/Priority The one issue that has caused perhaps the greatest conﬂict to date has been the issue of priority and, in that regard, whether a registry94 should be employed. The initial report by the Secretariat suggested four alternative methods for determining priority: 1) ﬁrst in time; 2) ﬁrst to notify the debtor; 3) ﬁrst to register; and 4) a private international law rule based on the assignor’s place of business.95 At its ﬁrst meeting, the Working Group discussed the advantages and disadvantages of each method.96 89. See id. 90. See id. 91. See id. 92. Stoufﬂet, supra note 51. 93. See supra Part III.A.1. 94. A registry is a ﬁling or recording database. A similar mechanism is found in the Uniform Commercial Code, Article 9. 95. See Assignment in Receivables Financing, supra note 6, paras. 74-80. 96. See Report of the Working Group on International Contract Practices on the Work of its Twenty-fourth Session, supra note 49, paras. 152-53. 630 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 Although a ﬁrst-in-time rule provides simplicity, it comes at the price of protection for innocent third parties if there is a subsequent assignment. A rule that requires debtor notiﬁcation is often inconvenient or impractical. A registry would avoid the latter possibility and, in addition, provide certainty, but it may not necessarily be feasible and its expense could be great.97 While a private international law rule would provide a clear-cut but diverse substantive law solution, certain delegates questioned whether the correct approach was to create this type of conﬂict of laws rule rather than a substantive law regime.98 The positions taken by most countries seemed to favor the type of priority system that exists in their domestic legal regimes. The United States, for instance, advocated strenuously for a registry much like its domestic registry system. While European states such as France and others supported a debtor notiﬁcation approach similar to their domestic regime, other countries supported the “ﬁrst to exist” approach favored at home.99 These attitudes are perhaps understandable inasmuch as it is a general rule that its own domestic law is the law each country knows and understands best. Yet, simply because the system works well on a domestic level does not necessarily mean that this is the approach that would work best on an international level. French law, for instance, does not support the use of bulk assignments, a mechanism central to receivables ﬁnancing. At a recent session, the Working Group decided that the law of the assignor’s place of business would govern.100 While this approach shows respect for the sovereignty of each na97. From the lender’s perspective, the registry would offer the most protection, while a priority rule based on the ﬁrst to assign would offer the least. A ﬁrst to notify the debtor rule would be somewhere in between. See Remarks of Ed Smith, at 1997 Seminar, supra note 75. 98. See Report of the Working Group on International Contract Practices on the Work of its Twenty-sixth Session, supra note 57, paras. 239-53. 99. See Ferrari, supra note 73. See also Comments of the U.S. Delegation following Art. 18 of Revised Articles in Draft Uniform Rules on Assignment in Receivables Financing, supra note 47. Some of the countries which have a debtor notiﬁcation system are Luxembourg, France (and the legal systems it has inﬂuenced), Japan, Scotland, and South Africa. See remarks by Philip Wood, at 1996 Symposium, supra note 39. 100. See 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 26. 1999] THE UNCITRAL CONVENTION 631 tional state, it is debatable whether it advances the ultimate goal of the convention—promoting international receivables trade by providing easier credit. Thus, one European delegate expressed some skepticism toward the approach taken by the Working Group: [The] issue seems to have been effectively avoided by . . . resort to private international law. . . . If this proposal is adopted at the next session it will in my view make the completion of the convention much easier. However, there is a danger . . . that all questions of difﬁculty might be referred to private international law. In my view a convention which simply referred all problems to the assignor’s state of business would hardly be worth drafting.101 Where a private international law solution is employed, the convention’s goal of reducing costs may not necessarily be furthered. One way costs can be reduced is through a convention that not only provides consistency, clarity, and predictability in the law, but also simplicity. While the applicable law in a private international law approach can be easily ascertained, there will still be costs involved in discerning the domestic law of the country. Moreover, some countries do not have a developed law in this area, making the result almost as unpredictable as if there was no convention. At the same meeting, there was a tentative decision to create an optional chapter of the convention that, if adopted by a country, would provide an international registry for receivables assignments. Priority would be based on time of registration.102 This decision averted what seemed to be an issue that could have jeopardized the entire convention. For several meetings, the U.S. delegation had insisted that a registry would be necessary. Several other delegations objected to any form of registration system just as adamantly. Some objected on the premise that an electronic registry would be too expensive and too cumbersome (particularly for short-lived receivables), or that it would infringe on privacy.103 Others objected 101. Letter from Christopher Doyle, Ofﬁce of the Attorney General, to the author (Nov. 10, 1997) (emphasis in original) (on ﬁle with author). 102. See 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, Annex. 103. See Ferrari, supra note 73; Stoufﬂet, supra note 51. 632 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 because of the concern that some countries lacked the technology necessary for implementation.104 Still others thought it would hurt their countries’ businesses, particularly if the majority of transactions were too small to warrant paying the ﬁling fee.105 One delegate observed that whether the country indicated that it would sign on to the registry depended to some extent on whether there was already a domestic registry for secured transactions.106 Those countries which do not have registries tended to resist the concept. The same conﬂict arose during the drafting of the Factoring Convention, where the proposal for a registry was ultimately dropped.107 C. Conﬂict of Laws Rules As mentioned above, the Working Group has currently agreed to resolve the issue of priority by resort to a conﬂict of laws approach.108 Regarding other issues, many delegates, particularly Europeans, question whether a conﬂict of laws resolution would create tension between UNCITRAL and the Hague Conference.109 Aside from some discussion at the time the initial draft was presented, the issue remained in the background during most drafting sessions. At the most recent meeting, however, possibly in reaction to the decision made on the issue of priority, the issue came into the forefront. Arguably, no tension exists between the UNCITRAL draft and the Rome Convention. At any point where conﬂict of laws rules are found in the draft, they either mirror those found in, or are not covered by, the Rome Convention.110 For instance, 104. See Report of the Working Group on International Contract Practices on the Work of its Twenty-sixth Session, supra note 57, para. 252. 105. See Schneider, supra note 65. 106. See Ferrari, supra note 73. 107. See id. 108. See 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 31. 109. See Ferrari, supra note 73. The Hague Conference on Private International Law, an intergovernmental organization, adopted a draft convention on the Law Applicable to Contracts for the International Sale of Goods in 1985. See 24 I.L.M. 1573 (1985). 110. Rome Convention on the Law Applicable to Contractual Obligations, opened for signature June 19, 1980, 19 I.L.M. 1492 (entered into force April 1, 1991 between several states of the Common Market). The rules of the Rome 1999] THE UNCITRAL CONVENTION 633 those aspects of recent drafts which deal with the assignor/ assignee relationship111 and the assignee/debtor relationship112 follow a very similar approach to that taken by the Rome Convention.113 Some European delegates have nonetheless expressed hesitation toward including choice of laws rules in the convention: We think generally here that it is not a good solution to cut in pieces the private international law; I mean to put into conventions particular articles related to conﬂicts of law. We prefer, as we have in the European Union, a general law of conﬂicts of law—the Rome Convention of 1980. This is our present position on conﬂicts of law.114 Another European delegate said the following on the subject: Although European Union states do not generally adopt a common position [on conﬂict of laws], on this issue there was unanimity among European Union member states that they would prefer not to have a chapter on private international law in case there was any risk of a conﬂict with the Rome Convention.115 One European said that his delegation had been explicitly instructed to avoid a conﬂict of laws approach: Our government does not like that we deal with it at all considering that there are other conventions. And we want to separate substantive law conventions and conﬂict of law conventions. . . . In general, normally I have great discretion, but my government speciﬁcally told me to avoid conﬂict of laws rules.116 Convention “apply to contractual obligations in any situation involving a choice between the laws of different countries.” 31 I.L.M. 245 (1992). 111. See 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 29. 112. See id. art. 30. 113. See generally Address of Jonathan Hill, at 1996 Symposium, supra note 39. 114. Stoufﬂet, supra note 51. 115. Doyle, supra note 101 (emphasis in original). 116. Schneider, supra note 65. 634 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 In addition to the fear of risking any inconsistency with the Rome Convention, some countries expressed concern that, under a conﬂict of laws approach, transactions and parties’ rights may be governed by a set of domestic laws to which these countries are opposed. Furthermore, as several potential signatories do not have a developed body of law in this area at all, the law might change or be confusing. As another delegate said: “The conﬂict of laws rules issue will be a big problem . . . because it will create conﬂict between UNCITRAL and the Hague Conference and countries that have rules and countries that don’t have rules, and countries that would like other countries to have rules.”117 Since under the convention parties could choose the governing law and would, at a minimum, know what the rule is, most of this concern over surprise or unfair results seems unwarranted. Some of the concern over the potential for unexpected outcomes derives from the current ambiguity in the draft as to whether a renvoi situation might arise.118 Currently, the scope of application of the conﬂict of laws provisions is not deﬁned clearly in the draft convention, leaving open the possibility that the forum’s conﬂict of laws provisions might be applied and might lead to the application of a law other than the substantive law of the assignor’s state.119 The potential for unplanned results would be reduced if this were clariﬁed. D. Other Issues In addition to those previously mentioned, several other issues are of concern to some delegations. Two are of particular note: the necessity of a writing requirement and the question of debtor notiﬁcation. 1. Writing Requirement The convention contemplates potentially employing a writing requirement for two purposes: writing as evidence of the debt and writing as evidence of the assignment. The former has not been very controversial, as most delegations agree 117. Ferrari, supra note 73. 118. See Remarks following Article 26 of 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74. 119. See Remarks by Eva Lomnicka, King’s College, at 1997 Seminar, supra note 75. 1999] THE UNCITRAL CONVENTION 635 that writing as evidence of a debt is not necessary. As evidence of an assignment, a written form is beneﬁcial from the standpoint of certainty and avoidance of potential litigation. Mandating the use of a writing, however, may be costly and, in many circumstances, unnecessary.120 Many European delegations opposed a mandatory writing requirement. One, in particular, did not believe that assignments were so risky that it would be necessary;121 Austria agreed with this position.122 Another European delegate, though more ﬂexible about his position, agreed that a writing requirement was not necessary.123 Japan, the United States, Canada, and Ireland favor a writing requirement for assignments. According to one delegate, this is because many countries would prefer to follow the legal framework that already exists in their countries.124 In the latest draft, the issue remains unresolved. There are three alternative provisions regarding a writing as evidence of the assignment. The ﬁrst requires a writing for the assignment to be valid. The second requires a writing unless the absence would comply with the law of the state in which the assignor is located. The third provides that the law of the state in which the assignor is located governs.125 2. Debtor Protection A ﬁnal issue that has been discussed during the Working Group meetings is the issue of debtor protection, an issue of major concern to some countries.126 This concern was apparent in the discussion regarding whether to cover international assignments of domestic receivables. The general approach has been that assignments should not negatively affect the position of the debtor.127 For instance, the debtor should be no120. See Assignment in Receivables Financing, supra note 6, paras. 41-44. 121. See Schneider, supra note 65. 122. See id. 123. See Ferrari, supra note 73. 124. See Schneider, supra note 65. See also Report of the Working Group on International Contract Practices on the Work of its Twenty-fourth Session, supra note 49, para. 76. 125. See 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74, art. 9. 126. See Schneider, supra note 65. 127. See Remarks of Spiro Bazinas, at 1996 Symposium, supra note 39. 636 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 tiﬁed if his creditor has changed, and it should not be his responsibility to ﬁnd out whom he has to pay.128 In the latest draft, Article 7 states that the rights and obligations of a debtor would not be affected by an assignment, but the phrase “except as otherwise provided” was added. There are at least six other provisions in the draft rules which allow for some modiﬁcation in the debtor’s legal status, but which also attempt to ensure that the debtor would not be negatively affected.129 For example, draft Article 20 allows agreements not to raise defenses or rights of set-off in general, but the article does not permit agreements not to raise the right to contest the validity of the original contract. Moreover, draft Article 20 prohibits agreements not to raise a defense that arises from a fraudulent act of the assignor or assignee.130 Draft Article 18 entitles the debtor to discharge its obligation until it has received notiﬁcation of the assignment and, when it is notiﬁed by the assignee, to request proof that the assignment was actually made.131 These provisions are designed to ensure that the debtor will be protected if the debt is assigned. Certain countries feel that these provisions in the draft do not yet provide sufﬁcient protection for the debtor. One delegate of this opinion gave the following illustration: Imagine one day, you get a letter from Singapore saying “Hello, Ms. Trager, . . . I am your creditor. Please pay the money to our account in Hong Kong.” You don’t know this guy. . . . Imagine the letter is in Chinese, and you cannot read Chinese. . . . You would be very much surprised. Debtor protection in international business is a new situation.132 128. See id. 129. See Remarks following Article 7 of 1998 REVISED ARTICLES OF DRAFT CONVENTION ON ASSIGNMENT IN RECEIVABLES FINANCING, supra note 74. 130. Draft Report of the Working Group on International Contract Practices on the Work of its Twenty-eighth Session, Addendum, UNCITRAL, 28th Sess., U.N. Doc. A/CN.9/WG.II/XXVIII/CRP.1/Add.7 (1998). 131. Draft Report of the Working Group on International Contract Practices on the Work of its Twenty-eighth Session, Addendum, UNCITRAL, 28th Sess., U.N. Doc. A/CN.9/WG.II/XXVIII/CRP.1/Add.5 (1998). 132. Schneider, supra note 65. 1999] THE UNCITRAL CONVENTION 637 As shown by these comments, the potential effects on debtors’ rights and obligations will have to be further considered and explored by the Working Group. IV. THE DRAFTING PROCESS AND ITS EFFECT ON OF SUCCESS FOR THE CONVENTION A. THE CHANCES Inﬂuence of Domestic Laws and Practice on the Drafting Process The previous discussion illustrates that domestic laws and practice play a major role in the positions taken by many states on substantive issues. One inﬂuential member of the Working Group described this phenomenon as follows: [The] domestic law of various countries [has] deeply inﬂuenced the project at its ﬁrst steps. Provisions on form, non-contractual credits, insurance debts, and consumer protection, for instance, can be better understood if somebody looks [at] the Draft from the European point of view, particularly with the view of the practice in Germany and the German area of inﬂuence (Austria, Finland, sometimes France and perhaps but not always Italy and Spain). The same for the reaction against the registry system. You can be sure that when [there appears] a general remark [in the drafts] against the position of the USA or Canada [on the registry], the observation came from one of the delegates mentioned above. The rationale can be found in the lack of domestic law on [a registry] in those countries. Yes, this is not a happy situation because it [portrays] an . . . incorrect view of the work to be done. We do not try to make sacred National Law but to prepare the International one.133 Other delegates shared the view that domestic laws and practice play large roles in the drafting process, but some thought that the existing business practices of the ﬁnancing industries in various countries have also had an important impact.134 The example of the registry illustrates this well. As mentioned previously, some countries objected to the elec133. Mor´ n Bovio, supra note 51. a 134. See, e.g., Schneider, supra note 65. 638 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 tronic registry because their ﬁnancial institutions did not have the technology to support it. One representative from a country in which the law in this ﬁeld is still developing held a cynical view of the process: The Representatives of [the] two big law systems (Anglo-American and Continental) in [the] Working [G]roup try to make the [convention the] law of their countries . . . instead of working out and suggesting a new, third, international concept. (And they do have the necessary knowledge [to accomplish] this.) As a result, the other representatives simply support one of these positions, or suggest a [particular provision] based on their internal law. Such discussions in [the] Working Group take up a lot of time without perceptible results sometimes. Such work is not always creative work. In such a situation it is very difﬁcult to reach consensus.135 If this delegate’s perceptions are accurate, this does not bode well for the prospect of widespread support. A delegate from another country without developed law in this area focused on the impact of domestic laws on the drafting process. This delegate also believes that developed countries seemed to be trying to preserve as much of their national law as possible. In case of conﬂict among the regulations of these countries, the delegates try to minimize the differences by “building a bridge.” She fears, however, that the very general character of such rules may make them only minimally useful.136 This delegate explained that less developed countries have neither a developed legal system in this area nor a vested interest in existing systems. Therefore, countries in this category are not trying to impose their law quite to the same extent. She said that her country’s interest lies in “devising a reliable, inexpensive, uncomplicated procedure for international trade,” and thinks that this is also the aim of a majority of countries.137 135. Letter from Tatjana Bazarova, delegate from Russia, to the author (Dec. 11, 1997) (on ﬁle with author). 136. See Letter from Maria Wieckowska-Suewska, delegate from Poland, to the author (Nov. 17, 1997) (on ﬁle with author). 137. Id. 1999] THE UNCITRAL CONVENTION 639 B. Participation of Developing Countries The comments of these last two delegates indicate that a sense exists that the developed countries, or at least those with a more developed legal system, have thus far dominated the drafting process. The last comment, in particular, illustrates that perhaps the reason is that countries without a developed law in this area do not have vested interests in the current system and thus are not as reluctant to change. Of the thirty-six states that currently compose the Working Group, approximately two-thirds are states that might be considered “developing countries.” Nonetheless, several delegates indicated that, relative to their numbers, they are making a small contribution to the drafting process. This may seem surprising, because, as mentioned earlier, it has been said that this convention should be in the interest of developing countries, as it has the potential to facilitate and reduce the cost of obtaining credit. One delegate conﬁrmed that only a few countries speak regularly, but he was uncertain as to the reason for, and signiﬁcance of, this lack of participation.138 Each delegate explained differently why the developing countries participate less than developed ones. Certain explanations focused on the fact that in some developing countries there is a lack of a developed domestic law or practice. One European delegate stated that it is possible to construe the lack of participation as a stalling mechanism.139 Another had a different interpretation of why the developing countries do not participate—he believed that these countries lacked resources and that their governments did not consider the convention a high priority.140 A delegate from a country with an emerging economy stated that his country has been regularly participating in the Working Group meetings. His explanation for the lack of participation from other developing countries was the lack of an effective mechanism in developing countries for getting the information from those who receive it to those who are involved in the issues: 138. See Ferrari, supra note 73. 139. See id. 140. See Schneider, supra note 65. 640 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 You have to understand the mechanism between UNCITRAL and developing countries. UNCITRAL sends information to all the members. But the information only arrives to the minister of Foreign Relations of those countries. . . . [O]ne of the main questions of undeveloped countries is the bureaucrats. . . . I’ve had this kind of conversation a lot of times with people from underdeveloped countries that they come to UNCITRAL for certain issues. They tell me, “I haven’t been advised by the minister of foreign relations; I [have only] been advised from a friend from another department.” And that’s the problem. They don’t have the proper information. And it’s just a question of information being hoarded by the Ministers of Foreign Affairs. They don’t pass the information, or simply they don’t care about it.141 This delegate did not believe that this was the situation in his country. An UNCITRAL delegation was formed there many years ago, and he has been a delegate to it from its inception. He said that his country takes the work seriously and gives him the resources to participate.142 In sum, the explanations for why developing countries are not participating in the drafting process are varied. In general, while many developing countries realize that the convention may have a signiﬁcant effect and are thus attending the convention, they may not be fully participating because, in part, they may be uncertain as to which rule would best further their interests. Whatever the reasons, some developing countries appear not to be meaningfully participating in the drafting of this convention, which, as has been noted previously, is arguably designed to assist them. C. Chances of Success As a majority of countries refrained from participating in the drafting of this convention, whether they will ultimately ratify it is difﬁcult to predict. One cannot help but wonder whether this convention will face the same fate as the UNIDROIT Factoring Convention or several other recent trea141. P´ rez Castro, supra note 51. e 142. See id. 1999] THE UNCITRAL CONVENTION 641 ties of UNCITRAL—not widely ratiﬁed and largely ineffective. As one European delegate noted: “UNCITRAL has produced some conventions which have not been entered into force. The last convention to come into force was the Sales Convention (CISG). [It was a] very successful one. The more recent ones have not been so successful. I would hate to see the efforts that we have made wasted.”143 Nonetheless, he was optimistic about the fate of this convention: “Imagine that all the receivables were handled by one convention—that may be even more important than the Sales Convention (CISG). So that is why I am rather conﬁdent.”144 Another delegate was also cautiously optimistic, saying that the difﬁculties described were the nature of the beast: As a rule, I would say that the atmosphere was very good. Please don’t misunderstand. International harmonization is very difﬁcult work. I’ve been doing the business for ten years. My experience is that it is very, very difﬁcult indeed. . . . It is difﬁcult . . . because we have very different legal systems, different legal traditions. [And it is also necessary to look at] the consequences. As I have often said, if we change our law, this has great implications . . . [y]ou should not only look to what extent that you facilitate trade, and the ﬁnancial markets but also on the impact on competition.145 One delegate opined that the general success of the convention depended on its support from the private sector: The orientation of the convention is not yet clear, so it difﬁcult to say how it [will] be received. But if the convention will be possible, it is sure that the position of the banks in each country shall be crucial. It is the inﬂuence of banks that will be certainly important— whether they accept it or not.146 Not all deﬁne success of a convention by the number of ratiﬁcations it receives. One writer has noted: 143. 144. 145. 146. Ferrari, supra note 73. Id. Schneider, supra note 65. Stoufﬂet, supra note 51. 642 INTERNATIONAL LAW AND POLITICS [Vol. 31:611 The success of these conventions in terms of their operation and interpretation in practice is harder to gauge than their successes judged by how many states have ratiﬁed them. . . . Many of them have received only modest acceptance in terms of the numbers of party states, although some may nonetheless have had a considerable effect through acceptance of some of their approaches and concepts in national legislation.147 Similarly, one delegate indicated that, even if the convention is not widely ratiﬁed, the work will be of tremendous signiﬁcance to the European Union: I think that [the Convention] will be successful. And at any rate, it will be of great interest to the European Union because these types of conventions will be taken up by the European Commission in Brussels. And they will take it up and transpose it into European law if they are interested. I can’t imagine that they will not be interested. . . . These [rules in the conventions] are very important for the European Union. . . . That is why I think that they might take it up. That is why I am very optimistic. Or else I wouldn’t spend so much time [on it].148 V. CONCLUSION While most countries recognize the usefulness of this convention, the process of developing an international legal regime is never smooth. The drafting process of the convention to date has faced two main categories of problems: those of contribution and those of evaluation. Some countries which do not have a developed law in this area have had difﬁculty contributing to the drafting process. On the other side, countries with a more developed law may be comfortable with their present regime and have difﬁculty imagining themselves functioning under a legal regime different from their own. Since many developing countries ﬁnd making a contribution difﬁcult due to lack of resources, expertise, or other reasons, those 147. Peter H. Pfund, The Increasing Focus of Public International Law on Private Law Issues, 86 AM. SOC’Y INT’L L. PROC. 456, 457 (1992). 148. Schneider, supra note 65. 1999] THE UNCITRAL CONVENTION 643 few countries with developed law dominate the discussion. As a consequence, it is difﬁcult to predict whether the draft will gain widespread support. Additionally, while the laws of developed countries may be appropriate for domestic use, they may be inappropriate in an international context. The discussions over priority and the registry are good examples. Most delegates advocated the approach employed in their home countries. Failing to agree, the delegates resorted to a private international law rule, which is not a uniﬁcation of law at all but rather a pointer toward a particular domestic law. For similar reasons, the evaluation of proposed solutions has been difﬁcult. Countries with little expertise or background may have few criteria for judging how their interests might be affected; those with a developed law may ﬁnd it difﬁcult to accept the suggestions of others if based on a paradigm completely different from their own. A possible solution to these problems might be to convene a small group of experts to study the issue, which was the approach taken by the Factoring Convention. While the idea has merit and may be appropriate for certain issues, widespread participation in the process as a whole is ultimately necessary to achieve the support needed for ratiﬁcation. Although it is understandable that some delegates may be reluctant to change the status quo too drastically because of the uncertainty of the result, this reticence may potentially come at the expense of the success of the convention. For the convention to achieve its goals and gain widespread support, all participants must search for a law that is the most appropriate for a new international regime.