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Overview: Relationships, Forums and Tools Are Vital for Global Business Regulation

Overview: Aspects of Diffusing Law Globally

Globalization Involves a Battle of Principles

How Are Global Business Regulations Created?

Businesses Play Key Roles in Globalizing Business Regulations

Based on their interviews of 500 individuals across 13 business arenas, scholars John Braithwaite and Peter Drahos draw a series of conclusions about the processes of the globalization of business regulations.

Powerful Actors in Global Business Regulation

The authors draw seven general conclusions about the actors involved in the globalization of business regulation.

1. The U.S. is by far the most influential actor in the globalization of business regulation. In terms of importance, the European Union follows the U.S. However, degree of influence is not simply a matter of economic power. Nations like Japan have powerful economies but exert little influence over the globalization of business regulation.
2. States are not merely agents of regulation, but are subject to regulation, regulators and regulatees,
3. Large U.S. corporations are the most consistently effective actors in enrolling states and powerful international organizations,
4. The International Chamber of Commerce (ICC) is an important actor in the globalization of business regulations. The ICC has used two particularly successful strategies:
   • Use interests groups,
   • Collect information from members on customary practices and then release these practices in the form of model rules and agreements.
5. Individuals may exert a tremendous influence over business regulation by enlisting the support of the CEO of a powerful corporation who, in turn, enlists the support of a powerful state actor. These individuals can be described as “legal entrepreneurs.”
6. Obscure technical committees of powerful international organizations and standard-setting bodies serve as potent forums for shaping global regulation,
7. In the 1980s and 1990s many governments moved away from directly regulating behavior to monitoring the self-regulation of business arenas. This form of governance is sometimes known as the “regulatory state.” Because of this, self-regulatory organizations have become more important than governments in the global discussions surrounding business regulation.

Regulation Forums May Be Used Strategically

The forums in which global business regulation occurs may be used strategically to accomplish actors' goals. Actors may “forum shift” or "forum shop" in order to accomplish their goals.

1. After World War II, when the U.S. could not achieve its goals through multilateral agreement, it often withdrew from a forum and pursued bilateral agreements to gain its objectives. Bilateral agreements accumulate and often serve as the framework for later multilateral agreements.
2. There are four common strategies for forum-shifting:
   • Move the regulatory agenda from one organization to another,
   • Leave the organization,
   • Pursue the same agenda in multiple organizations,
   • Prevent an international organization from participating in a forum.
3. When a strong state realizes that it cannot achieve its goals within one forum, it will shift to another forum more congenial to its principles.

While strong actors may use the above strategies, weak actors may also use forums in strategic ways.

1. Weak actors can link obscure forums conducive to their principles to forums in which strong actors participate. This greatly increases the complexity of the situation for strong actors. When this happens strong actors may lose some of the benefit of being able to shift forums.
2. Forum shifting away from an organization (like the International Labor Organization) may be difficult when the organization has a tripartite constitution (where actors on both sides of an issue along with states have voting privileges with no participant having veto power).

The Role of Principles

Regarding the role of principles in the globalization of business regulation:

1. Contests over global business regulations proceed as a contest of principles. National rules are generally too complex to be put forward as negotiation points.
2. New regulatory regimes generally begin as a framework of principles since variation in national rules is too complex,
3. Transparency has become a meta-principle (revealing the operation of other principles) and emerges from globalization,
4. The principle of national sovereignty has become less important in the face of global harmonization of regulations and mutual recognition. However, this principle is still very important for understanding global business regulation.
5. Principles of non-discrimination (such as national treatment and most favored nation) have become more entrenched and have “inched” toward wide-spread acceptance,
6. The more dominant a principle becomes, the more likely there will be a niche market created in opposition to it (for instance, the creation of lowest-cost markets with less transparency),
7. Principles may be used as part of a rhetorical strategy to reduce opposition. However, this strategy may backfire when a crisis or disaster stirs the interests of the public.
8. Mechanisms for globalization can be powerful when they are linked to principles. On the other hand, principles need mechanisms to “push start” them until they gain their own momentum.
9. The rule of law is less important in the context of the globalization of business regulation than it is for internal regulation within liberal democracies. Rule of principles rather than rule of law is the signature of global regulation.

Webs of Influence

The authors describe “webs of influence” as many actors using many mechanisms to influence global regulation. Because influence is exercised through chains of individuals who may have different agendas and use various mechanisms, influence over global regulation becomes diffused throughout an interconnecting web of individuals and organizations.

Webs of influence play the following roles in global business regulation:

1. Global regulation has eroded the sovereignty of nations and national parliaments to some degree. This has had the effect of sometimes increasing the sovereignty of ordinary citizens.
2. States not only create webs of influence, but they are also constituted by webs of influence,
3. Globalization cannot be understood as the result of single actors using single mechanisms,
4. International agreements are sometimes the result of coalitions of minority interests within separate states. Unless majority interests build cross-national coalitions, cross-national alliances among minority interests may prevail.
5. Epistemic communities (audiences that share a common regulatory language based on shared knowledge) must generally be enlisted to bring about regulatory change. The OECD is the single most important builder of business regulation epistemic communities.
6. Attempts of NGOs and weak countries to influence regulation have not been successful when they do not include business-dominated epistemic communities,
7. NGO influence has been greatest when they have been able to capture the imagination of the public in strong states.

The Role of Dialog in the Globalization of Business Regulation

Dialog plays an important part—especially for the influence of weaker actors—in the process of globalizing business regulation.

• Dialog builds regulatory regimes through defining issues as concerns. Dialog is also important in the process of modeling (by allowing customary or “best” practices to be transmitted to and be learned by others). Many mechanisms of this sort are available, and when multiple dialogic mechanisms are used, regime building is more successful.
• While webs of coercion are generally not available to weak actors, webs of dialog are. Webs of dialog are both more common and more effective than webs of coercion. Because of this, weaker actors may have greater influence in the development of regulatory regimes than we might otherwise expect.
• Webs of dialog can build regulatory regimes from the top-down or from the bottom-up. Top-down formation occurs when the problem is defined, principles are applied and rules are formulated. Bottom-up formation occurs through a process of modeling of customary or best practices.

Bottom Line

Braithwaite and Drahos say that the process of globalizing business regulation is enormously complex. Strong and weak actors draw on a number of resources within complex webs of influence across different forums to put forward competing regulatory principles. There is no single “master mechanism” for globalization, and because influence is exercised and diffused within networks of individuals, no single actor controls the process.

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