The increased adoption of emerging technology, such as artificial intelligence and distributed ledger technology (blockchain), is creating a new digital economy and affecting international trade and dispute resolution. With these changes comes a need for new or updated international legislation. The UNCITRAL and UNIDRIOT have jointly been exploring this area and some of the early reports are now available. SCC’s Lise Alm has participated in the expert sessions.
UNCITRAL has released a report of its explanatory work within the digital economy and the effect of emerging technology on international trade. The report (here) includes an overview of the conclusions and proposals for continued work in this area. The aim is to formulate concrete proposals for international harmonization or legislative guidance as next steps. Dispute resolution is one of the areas UNCITRAL proposes to examine further on the basis of this report.
The report concludes that law has a role to play in creating certainty for business in the digital economy and further that it can be used to develop the tools of the tools of the digital economy – such as data, digital assets, AI systems, smart contracts, distributed ledger technology (blockchain) and other emerging technologies. Creating a harmonized international response to these issues could pre-empt fragmented national legal responses leading to the obstruction of cross-border trade.
Accompanying the report are three addenda on taxonomy – one on AI (here), one on data transactions (here), and one on digital assets (here). The taxonomy provides a vocabulary for the relevant terms, technology and actors and lays a groundwork for legislation in this area. It is presented to the UNCITRAL Commission both a product in itself and a tool to guide decision making as to future work. It may also serve as a useful reference tool for states in developing their own policy and legal responses to the new ways of doing business using the tools of the digital economy.
The taxonomy focuses on formulating definitions, identifying the relevant actors and legal relationships involved, and highlighting the implications for existing legal regimes. The discussion raised multiple interesting issues, such as to what extent data can be seen as property, which are the relevant legal actors in applications based on distributed ledger technology, and which impact can autonomous contracts have on international trade.
The technologies mapped in this report will highly affect also international dispute resolution and arbitration in the years to come. It will be relevant to examine the international legislation to ensure it will be able to both embrace and where relevant regulate the upcoming developments in this area.
Arbitration on the agenda when UN discusses the future of world trade
One of the consequences of Covid 19 on International Arbitration is a rapid increase in the development and adoption of digital tools and procedures. This is also likely to speed up the adoption of more disruptive technology such as predictive AI and blockchain.
As a part of this year’s annual meeting with the member states, UNCITRAL: United Nations Commission on International Trade Law is arranging a series of open virtual panels addressing the consequences of Covid-19 on different aspects of international trade. Lise Alm at SCC will participate and share her view on long-term effects on international dispute resolution.
Lise Alm will talk about the need to speed up the development and application of automation, AI and blockchain within arbitration. Adoption of these technologies will come and will introduce new possibilities and challenges to the existing legal framework.
How far have we come and what are the potential ethical concerns with the development ahead?
The panels are open for registration and will be held online 8-9 and 13-16 July Discussion topics on the agenda:
Identification and Authentication in the Digital Economy and Trade Finance Assisting Economic Recovery – Targeting MSMEs Public-Private Partnerships and Public Procurement COVID-19 Impact on International Dispute Resolution, short term and long term Gender, Trade and COVID-19 Digital Economy
UNCITRAL, The UN Commission on International Trade Law, is working to develop conventions, norms and legal guidelines which will coordinate and facilitate international trade. The Commission includes 60 Member States, elected by the General Assembly. The members meet at the annual session - even years in New York, odd years in Geneva, and this year virtually.
What is blockchain arbitration and can it replace the NY convention?
Arbitration has historically gained ground, inter alia, by enabling international enforcement through the NY convention. However, new digital innovation challenge established routines and working methods. Lise Alm, Head of Business Development at SCC, addresses the subject of blockchain technology and a future possible effect on the process of arbitration and the relevance of the NY convention.
You may have heard of blockchain arbitration. If you’re like me, you might have thought it was just another way to add the word blockchain to a random concept to try to make it sexier, and it kind of is. That said, even if blockchain arbitration still is in early stages, itmight enablea ground-breaking change to international arbitration. Blockchain arbitrationcould remove the need for enforcement and thereby the need to abide by today’s procedural steps and safeguards.
Blockchain is atechnology that allows you to store and trace information on a large number of computers at the same time.It also provides you with a trace of everything that happens in the system. This makes it virtually impossible to hack the system or corrupt the information storedsince that would require hacking all computers at the same time. This makes the systemsgood for storing information about for instance ownership or tracing various types of transactions through updating registries.
The blockchainsaredecentralized and often does not have one central data storage or administrator. They are fully transparent in terms of transactions, but thetrue identity of the users can be anonymized behind a username. Essentially, you can hide in full daylight.
The values registered on the blockchain sometimes represents a real-world value, like a realestate registry or intellectual property rights, and sometimes it represents something that only exists on the blockchain, like a cryptocurrency.
As with most digital systems, you can automate actions in the system using various if-thenrules. For instance, a payment for a shipment could be described as “Ifthe buyer registers the reception of the goods on the blockchain, then a value, egBitcoin, shall be transferred to the seller”. This is essentially the description of a“smart contract” – i.e. a contract or software that auto-enforces via blockchain when certain conditions are met.
The step to apply this on arbitration instead of contract creation is not far. Imagine instead of a “smart contract” a “smart award”?The judge renders an award on blockchain, which automatically enforces it as soon as it is rendered.I.e.,if the award for instance stipulates that the respondent should pay damages to the claimant, the award could be coded to immediately transfer e.g. cryptocurrency on the blockchain, just like a “smart contract”. The asset could of course also be a real-world asset, like IP ownership, where the registered ownership is updated on blockchain.No further enforcement process would be needed and no need for a national institution to assist in the enforcement with an unwilling loosing party.
Today, arguably not enoughassets are traded on blockchain for this to be relevant in practice, but this will almost certainly change. Over time,more and more assets will betraceable or tradeable on blockchain, making blockchain enforcement more and more relevant. A report from WTO already in 2017states that “if the projects that are under development succeed, Blockchain could well become the future of trade infrastructure and the biggest disruptor to the shipping industry and to international trade since the invention of the container.”
What willthis mean for arbitration?
100 years ago, arbitration gained ground by promising speed and confidentiality. In 1958, theNew York Convention on the Recognition and Enforcement of Foreign Arbitral Awards(the New York convention)provided the grounds for international arbitration by adding international enforcement and the removal of the need for trust in the other party’s nationalcourt systems.
The combination of speed, confidentiality, international enforcement and removal of the need of trustin central institutions is the calling card for blockchain.The enforcement is immediate, it provides both transparency and anonymity, it’s by its nature internationally enforceable, and it does not rely on central institutions. The consequences and possibilities are thought provoking.
Blockchain cannot remove the adjudication aspect of arbitration. Until an AI judge comes along, a person needs to decide the dispute and render an award. Today, the arbitrator needs to stay within the procedural safeguards provided by the NY convention and local law to ensure that the award rendered is enforceable. Those safeguards are intended to ensure a fair process and outcome.When you no longer need to stay within the parameters of the NY convention to ensureenforceability, how will that effect the process of arbitration?When blockchain enforcement provides a new possible path to the goal, we need to make sure we still include the procedural safeguards we deem necessary to continue to provide a fair outcome.