Eclecticism of Hard Law Instruments on Authentication

Hard law is different from soft law in three dimensions, namely, precision, legally binding obligations, and delegation of authority for interpreting and implementing the law.²⁵⁶ Faced with the divergence between different legal systems, particularly the divergence in electronic authentication methods, many countries have suggested that only the compelling hard law instruments can effectively remove the obstacles derived from the current incoherent situation.

For instance, the US government has proposed to the UNCITRAL to consider an International Convention on Electronic Transactions that allows transactions using different kinds of authentication methods to be recognized and enforced worldwide.²⁵⁷ However, the idea of using hard law instrument to preclude the legal divergence is most likely unrealistic. The reason is simple. An international legal body, namely, the UNCITRAL is incapable of designing a treaty or other binding instruments, which every sovereign state will be willing to sign and enforce while the treaty imposes precision and binding obligations on electronic authentication.

This fact is due to the eclectic nature of hard law instruments. Even the generally admitted successful United Nations Convention on Contracts for the International Sales of Goods has to allow certain extent of vagueness inside its provisions.²⁵⁸

The dilemma with a hard law instrument can be vividly explained by introducing a classic two-party game theory model using the US and the EU as subjects. Leaving aside the political or individual factors inside the regimes, the situation of the EU and the US dealing with the electronic authentication issue can be portrayed as follows:

256 Abbott, Kenneth W., and Duncan Snidal, Hard and soft law in international governance, International organization 54.3 (2000), on p. 421.

257 See supra note 184.

258 For example, the CISG excluded several important but controversial issues such as the validity of contracts (Article 4) from its scope or used vague terms, including “fundamental breach” and “reasonable length,” to regulate sensitive issues (Arts. 25, 47 and 63). See more at De Ly, Filip. “Sources of international sales law: an eclectic model.” JL & Com. 25 (2005), on p.1.

EU

Liberal Conservative

US

Liberal 3 4

5 3

Conservative 2 2

4 2

Figure 3: The Gains of the US and the EU

This diagram indicates that the US and the EU have two alternatives regarding electronic authentication: liberal or conservative. Liberal means to treat all types of authentication methods equally, and conservative means to provide domestic authentication methods with certain advantages. The figures on the bottom left corner of the cell represent the gain of the US, and the figures on the top right corner represent the gain of the EU. If both parties adopt the liberal path, then the US(5) will earn a little more than the EU(3) because of its certain advantage in authentication technologies, but the gain in total will outstrip any other combinations. If one party chooses the conservative path and the other chooses liberal, the one who chooses conservative (4) will gain more than the one who chooses liberal (2/3) because the authentication methods correspondent to the conservative requirements are recognized in the liberal world, but not vice versa. In the circumstance where both parties choose conservative, the cross-border authentication will be difficult and both parties will only gain poorly (2).

Assuming that both parties are rational in a single stage game where both parties are unaware of the choice of their counterpart and the choice can only be made once, the US would choose the liberal path given that no matter what the EU chooses, the US cannot benefit solely by changing its strategy. Based on the same logic, the EU would choose the conservative path.²⁵⁹ Therefore, the US and the EU would eventually reach an equilibrium where the US gains 3 and the EU gains 4. This method is clearly not the premium solution compared with other options, but it reaches a state named “Pareto optimality,” which means that making one

259 This solution is also known as the Nash equilibrium, see, Nash, John, Non-cooperative games, Annals of mathematics (1951), on pp. 286-295.

party better off without making the other party worse off is impossible. This strategy also explains why the laws in the EU and the US are partially incompatible despite the constant expression of coordinating the drafting of domestic laws from both sides.²⁶⁰ If a hard law instrument is applied in this circumstance, then it would look like this in an axis:

In this diagram, the axis represents the interest of parties to electronic authentication. The point EU and the point US represent the place where their best interest would be served. The abbreviation CS stands for current status. The point CS is currently located in the middle of the line segment from point EU to point US. If point CS moves to either direction, the interest of the other party will be hurt, and this party has no reason to agree to the relocation of the point CS. Therefore, no binding treaties can be reached.

Nevertheless, this dilemma can be solved. Obviously, under a certain circumstance, a hard law instrument can be acceptable for both parties. The axis shows that when the CS point is located outside the line segment, both parties can realistically reach to a consensus. For instance, when the current status is in the position of the point CS1, both parties can benefit from the movement of the point CS1 as long as it does not exceed point CS2 (assuming that the distance between CS1 and EU is the same as the distance between EU and CS2). To apply this strategy in real world, the US should also adopt a conservative approach. By vastly reducing the gain of its opponent, the US and the EU gain the incentive to negotiate a good agreement. In real world, this process will usually take decades and through countless conferences and negotiations until compromises can be reached, not to mention the great economic loss due to the artifactual barrier. Moreover, that the final arrangement will always be honored is not

260 See, for example, the Joint Statement on Electronic Commerce of the European Union and the United States of

December 5, 1997. Through this statement, the US and the EU expressed their willingness to cooperate together to establish a coherent legal framework and law principles to support electronic commerce. About the incompatible parts, see

Christopher T Poggi, Electronic Commerce Legislation: An Analysis of European and American Approaches to Contract Formation, (2000) 41 Virginia Journal of lnternational Law, on p. 224.

guaranteed because all parties are tempted to benefit themselves by occasionally derogating such a compromised arrangement.²⁶¹

As this model is much simplified, many other variables may partake in the real lawmaking process. For instance, unexpected technological innovation can rewrite the whole model along with current legal institution. Transaction costs can also distort the gains of the players and provide completely different results. One thing that can be drawn from this model is that hard law instruments are not elixir for current international legal incoherence, particularly, when the participants have very distinct interests.