Eliminating barriers to trade: Different laws

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Fungai Kuzinya
Zimbabwe trades with several states. Each country that Zimbabwe trades with has its own laws, methods of creating laws and legal system. There is nothing wrong with this from a political perspective. It may, however; have adverse effects on international trade.

Zimbabwe’s national question has moved away from seeking answers to political sovereignty to establishing an environment where business can develop and thrive. This is a step in the right direction.

Our Government is in the process of eliminating the political barrier to trade with Zimbabwe. This initiative will spark the interest of potential foreign investors.

However, I do believe that in order to go further than spark interest, one other barrier to international trade and investment ought to be eliminated; that is the different laws and legal systems. This will ensure foreign businesses will come and invest in Zimbabwe.

Laws can be a debilitating barrier to trade and investment. If I decide to set up shop in China, France, England or Germany, I face the problem of ascertaining which law will apply to the transactions I propose to conclude in each country. I also need to determine how these laws will affect my business.

In order to gain access to the relevant laws, I would have to consult a legal practitioner in each country who has specialist knowledge of the sector of the economy I wish to participate in. This process is time consuming and will cost money. If people from these countries also wish to come to Zimbabwe, they face the same problem.

This ultimately translates to initial costs of setting up business and constitutes a barrier to entry into the market.

Getting to know which law applies to, for example, a contract of sale concluded in a foreign country is very important.

Some legal systems impose more duties on contracting parties that go further than what is required of them in the contract. An example of such is the duty to act in good faith. Whilst our legal system does recognize the existence of good faith in contractual arrangements, there is no legal obligation for a party to a contract to exceed his end of the bargain.

For example, if a contract, concluded according Zimbabwean laws, allows someone to cancel a contract within five days because the goods delivered are deformed, any deformity would be sufficient to warrant cancellation within the stipulated time.

In jurisdictions that impose the duty to act in good faith, not all deformities will provide someone with grounds to cancel the contract.

Further enquiries may have to be carried out. It will have to be determined whether the deformity can be cured by other remedies, for example by the replacement of the goods or a reduction in the price.

This is just one of the many differences in the many legal aspects of international trade.

Several other differences that have far reaching consequences exist. Some are; South Africa taxes resident companies on their worldwide revenue, Zimbabwe only taxes on revenue generated within its borders, Germany allows contracts to be modified because of a change of circumstances, England will have none of that, a change can only happen if it has become impossible to perform your end of the bargain, French law stipulates that when a breach of contract occurs, the party responsible for such breach can be compelled to perform his end of the bargain; our system does not impose such an obligation.

Our system is happy to have the defaulting party pay damages to the other party as opposed to ordering specific performance.

African States were colonised by the countries discussed above. As such, we adopted the laws of our former colonizers.

In Southern Africa alone, there is a minimum of three legal systems, Civil, Roman-Dutch and Common law. Some countries use a combination of the Common and Roman Dutch systems in their commercial affairs. To add to the pot-pourri, several traditional and religious laws play a role on the manner business is conducted within the region

Outside of Southern Africa, attempts to deal with the multiplicity of legal systems have been made. On the African continent, the Organisation pur l’Harmonization en Afrique de Droit des Affaires (OHADA) is the leading organisation in this feat. OHADA is a membership based organisation. Its membership is currently made up of West and Central African states.

The majority of its members are former French colonies. Their legal systems are based on French law. The complication these countries faced was that their laws developed at different paces. The result was, different laws for similar factual scenarios existed across the region

OHADA’s focus is on business laws. The idea is to create a strong legal framework that is necessary for the development of the region’s economy. In order to achieve this, business laws across the different jurisdictions are harmonized, simplified and made easily accessible.

The goal is to create one business legal system for all member states. It is believed that this will make it easier for businesses to trade across the region.

Ministers of Finance and Justice from the member states meet and agree on laws that need to be enacted or harmonised. Once agreement is reached, these laws automatically become binding on all member States.

There is no need for the individual States to refer the laws to their parliaments for ratification. It is a fair exchange. A little bit of parliamentary sovereignty is sacrificed for the attainment of harmony. The region will also develop its business practices at a uniform pace. In addition, legal certainty is established.

Those who argue against unification or harmonisation of business laws rely on the fact that States compete against each other for foreign investments. One factor that gives a state an advantage over other states is the legal system.

The argument goes further to state that businesses race to the bottom; that is, they go to the jurisdictions that impose the least regulatory burdens on their affairs.

They say, unification eliminates this important basis of competition and distorts the flow of capital. It is uncompetitive behaviour they say.

Another argument, which I find unconvincing, is that investors and traders do not concern themselves with the laws of a country. Their main focus is on the economic well being of the region. I find this argument difficult to follow because the economy and the legal system are inextricably linked. Our experiences in Zimbabwe have demonstrated this time and again.

It is better to harmonize business laws than not to do so. I think our government should spearhead this process. The focus should be on the COMESA area. This should be done in tandem with the work that OHADA has already carried out. This will eliminate the multiplicity of laws and another barrier to trade would be smashed.

 Adv Fungai Mgcini Kuzinya LLB LLM is a regional commercial lawyer. He is a Legal Practitioner of the High Court of Zimbabwe and Advocate of the South African and Lesotho High Courts. He can be reached at fkuzinya@gmail.com

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