Rethinking the Role of Law and Contracts in East-West Commercial Relations

45 Pages Posted: 4 Jan 2001

See all articles by Philip McConnaughay

Philip McConnaughay

Peking University School of Transnational Law

Date Written: December 2000


Commerical law in Asia is outpacing Asian commercial practices by a wide margin. Even though Western insistence on the rule of law as a condition of cross-border commerce has been met by enthusiastic acceptance and lawmaking by Asian policymakers, it has not occasioned the pervasive change in individual attitudes and beliefs essential to a widespread change in the traditionally subordinate role of law and contracts in matters of private commerce. As a result, there is a significant normative gap throughout Asia between written commercial law and commercial behavior, with traditional expectations often still strong regarding the subordination of law and contracts to evolving circumstances and relational values. Moreover, there is every reason to expect this gap to persist for decades or longer, with its narrowing no more likely to herald the complete Westernization of Asian commercial practices than it is the evolution of entirely new principles for East-West economic exchange that incorporate and reflect fundamental non-Western values. An important challenge for East-West commerce in the meantime is to somehow account in the structure and governance of commercial relationships for traditions so different that law and contracts are determinative of performance and outcomes in one but subordinate to other values in the other. The likely trade-off, for those bold enought to attempt an accommodation, will be reductions in "legal" predictability for increases in commercial stability. In the context of dispute resolution and international commercial arbitration, this will require turning a deaf ear to demands for Westernizing "control mechanisms" and instead working to preserve inexact and flexible rules of procedure, elastic notions of relevance and evidence, significant presentational latitude and variance, arbitrator responsibilities inconsistent with Western notions of impartiality, and, an openness to decisional rules and outcomes inconsistent with Western notions of legal predictability and commercial justice. In the context of contractual choice of law, this will require the designation of unconventional decisional rules, such as the combination of equity and lex mercatoria, that would empower arbitrators to act contra legem, and in the process, to explore and articulate new principles of governance that transcend the fundamentally different understandings within the Western and non-Western worlds regarding the role and rank of law and contracts in commercial relationships. Finally, this will require new contract terms that blur the traditional distinction between dispute resolution and performance by embodying mutual executory promises to consider and adjust in good faith to evolving circumstances in a business relationship. Through all of these efforts, a shared understanding may emerge of a legal basis upon which East-West commerce successfully may proceed.

Suggested Citation

McConnaughay, Philip J., Rethinking the Role of Law and Contracts in East-West Commercial Relations (December 2000). Available at SSRN: or

Philip J. McConnaughay (Contact Author)

Peking University School of Transnational Law ( email )

University Town
Xili Nanshan District
Shenzhen, Guangdong 518055

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