CHOICE OF LAW IN INTEGRATED AND INTERCONNECTED MARKETS: A Matter of Political Economy Horatia Muir Watt 1. A case of lost innocence: Shifts in the public/private divide. Describing the conflict of laws as an issue of political economy can be seen as a response to the tectonic shifts currently wrought by globalisation in respect of the public/private law divide, which shapes traditional thinking in this field. A new generation of ‘collisions of economic regulation’ linked to unprecedented transnational mobility of firms, goods, services and capital, challenges mainstream Continental European conceptions of choice of law as a tool geared to the resolution of purely private disputes. Unchallenged throughout the major part of the twentieth century, the private interest paradigm which constitutes the foundations of the conflict of laws can no longer cope with the increasing interference of state policies in the field of transnational litigation. Of course, European legal theory has been more loath than American scholarship to embrace the idea that private law can also serve as a regulatory tool, which explains the poor reception of governmental interests analysis this side of the Atlantic. But, as it has been pointed out, fields such as antitrust, securities, banking law, export controls, products liability or environmental regulation, which can all affect private transactions, directly or indirectly, involve interests of an undeniably different order from those premised by traditional conflicts methodology, introducing concerns previously identified as belonging to the field of public interests and as such beyond the pale of choice of law. In its strictest expression, the latter has been shielded from political concerns by the ‘public law taboo’, which led courts to decline to adjudicate other states’ interests, at least when they give rise to the direct enforcement of foreign public rights. The progressive emergence of an intermediate category of semi-public, internationally mandatory provisions, or ‘lois de police’, has contributed somewhat to bridge the methodological gap; while remaining subject to specific unilateral methodology, foreign economic regulation has become amenable to application in domestic courts in private law litigation. Beyond this concession, however, the conflict of laws deals exclusively with ‘private law relationships’; governments, it is thought, do not care directly about outcomes. However, after losing its ‘neutrality’ in the 1970s by allowing in result-selective considerations in private law, choice of law also seems destined to lose the ‘innocence’ which once served to keep it distinct from international politics. 2. The additional challenge of market integration for European conflicts theory. Today, Member States of the European Union are also facing the fact that a federal or integrated political structure bears necessarily on the way in which conflicts between the laws of component units are perceived and solved, and that allocation of legislative jurisdiction within such a structure does indeed give rise to governmental concerns. Indeed, while efforts to approximate national legislations might seem to de-dramatise the conflict of laws, the creation of a closer community seems paradoxically to focus more attention on state interests; issues of regulatory power within the internal market become central to the function of the conflict of laws, while political theories of choice of law seem bound to flourish. The novelty from a European standpoint lies not only, once again, in the blurring of the public/private divide and the inadequacy of the traditional private interest paradigm to explain the transformations induced by new quasi-federalist concerns, but also in the need for a dual choice of law system, geared on the one hand to dealing with cross-border activities within the internal market, on the other to defining the scope of Community regulation vis-à-vis the law of third states. Such a cleavage between interstate and international conflicts - or rather, between conflicts subject to state or federal authority - has long existed in the United States, the former being to a certain degree constitutionalised. The latter, formulated in terms of ‘prescriptive jurisdiction’, are subject to the supposed constraints of public international law or comity; they involve defining the international reach of federal economic legislation, and, when a claim is not supported by the latter, leave no room for the enforcement of foreign public law. 3. New perspectives: Economic theory of choice of law in a market setting. Thus, the European perspective on the conflict of laws is being reshaped by the pressures wrought by globalisation and by internal market integration, which both, for different reasons, challenge the private law model and focus attention on the political importance of ensuring the proper allocation of regulatory authority. The thesis of this paper is, very simply, that an economic analysis of the relationship between law and the market might be used to clarify the function of choice of law in both a global and an internal market setting, and highlight some of the transformations to which the new economic and institutional environment transforms traditional theory. It draws on recent US scholarship, which has suggested that economic analysis could provide renewed foundations for choice of law, although its conclusions may differ from these proposals in many respects. In common with them, however, it relies on liberal market theory, according to which private agreement is the optimal means of allocating resources, in the absence of market failure or social costs; by empowering individuals to act in their self-interest, markets deliver efficient satisfaction of diverse personal preferences. Public regulation becomes necessary, on the other hand, in the presence of externalities. The normative implications of this basic distinction for the regulation of international markets may look, in many ways, like old wine in new bottles. Cross-border transactions raise conflicts of laws, or, in terms more familiar to law and economics scholarship, require an allocation of regulatory jurisdiction. Market theory considers party choice of law as the optimal means of allocating such authority, unless there is a risk that private choice and public interest do not coincide. In such a case, when cross-border externalities exist in an international context, legislative competition will be superseded by some form of mandatory allocation of decision-making authority. Most Western systems of private international law project this model into the field of market transactions; these are generally left to party autonomy, which is, however, restricted in the name of state interests or public policy. So where, then, is the new wine? 4. Unilateralism and global welfare. The change is not merely in vocabulary. Firstly, rephrasing choice of law in terms of market theory draws attention to issues of global welfare raised by the unilateralism inherent in current approaches to prescriptive jurisdiction in the international arena. In the absence of a central authority, the extent to which public interest concerns interfere with party choice is left to the unilateral decision of each state, which then defines independently the scope of its own legislation and pursues its own conception of the best way of dealing with social costs in an international setting. Risks of under- or over-regulation are thus endemic to the global market and surely unconducive to general well-being, which would seem to require, at the very least, a coherent allocation of regulatory authority. Secondly, understanding the relationship between law and the market in the context of a structured regulatory framework, such as can be found in an integrated or federal structure, may help suggest ways in which this can be achieved. In such a context, cross-border externalities and market breakdowns are dealt with by the central legislative authority, through harmonised substantive rules. Whereas they take the form of minimum standards for internal market transactions, they are also projected into the world market in the form of internationally mandatory rules, in cases where the European legislator has decided that the connection with the Community is sufficient to justify its interest. In both instances, they are designed to provide an effective regulatory framework within which party choice of law can operate effectively. However, whereas harmonised substantive legislation can obviously project a coherent view of the requirements of collective welfare within the internal market, this is clearly not the case in a global setting. The new wine thus resides in the idea that conflicts of economic regulation should be fitted into a larger picture of coherent market regulation, with a clear focus on global welfare. More than a change in vocabulary, it implies redefining the scope and function of the conflicts of laws. 5. The dual function of choice of law in the global market. The transformation in perspective highlighted by economic analysis is evidenced by the increasing pressure to include public regulation within the scope of conflicts of laws. Firstly, when desirable, inter-jurisdictional competition is not perceived as being restricted to fields traditionally bearing the label of ‘private law’, but also extends to the regulation of public goods on offer in different locations to mobile firms and capital. Secondly, absent a central authority or international agreement to deal with third-party effects, the only - albeit second-best - means to reduce the discrepancy between national laws and global markets would be to extend the scope of the conflict of laws to fields currently bearing a ‘public law’ label, in order to design appropriate tests with which to allocate economic regulatory authority. Here, then, is the political economy of choice of law in a market setting. Fostering legislative competition through party choice as long as social and private costs coincide (I), the conflict of laws should also be relied upon to assert a regulatory function in cases of cross-border externalities (II). I Choice of law as an instrument of inter-jurisdictional competition 6. Reversal of perspectives. Traditional ‘conflicts’ rhetoric suggests that choice of law has a peace-keeping function between rival, mutually exclusive regulatory claims. The various theoretical models reinforce this impression: multilateralism carries a policy of alignment in order to produce decisional harmony out of chaos, whereas neo-statutist theories tend to pursue an agenda of political deference designed to induce reciprocity. Contemporary economic analysis offers a reverse perspective, in which the idea that diversity is a source of disorder to be smoothed out wherever possible, is superseded by the conviction that competition between national legislators is basically salutary. Far removed from its traditional justifications, party choice in cross-border transactions is viewed through economic lenses as instrumental in stimulating such competition, both in a federal context, where it promotes market integration (A) and, more controversially, on a global level, where it can contribute to efficient horizontal allocation of regulatory authority (B). I.A Choice of law and the economics of federalism 7. Three new uses for choice of law. In a federal or vertically integrated structure, inter-jurisdictional competition appears an alternative to centralized regulation. The theme of regulatory competition, with the correlative question of the optimal level at which regulation should take place, has only recently begun to appear as a subject for debate in the European Union, where it is more common to think of legal diversity as being at odds with the very idea of an internal market. Borrowed from US scholarship, the economics of federalism now raises new issues both as to the ways in which legislative authority should be allocated vertically within the EU, emphasising the importance of subsidiarity, and, paradoxically, as to the importance of emulation between national legislators as a factor of integration. Desire for deregulation is linked to the perceived dangers of centralisation as giving rise to rent-seeking and problems of public choice, excessive bureaucratisation and an inability to respond to individual preferences. Lowering the level at which regulation takes place in order to introduce more market pressure on legislators implies reintroducing the conflict of laws in fields which might have been mapped out for unification. However, as an economic tool of federalism, the conflict of laws has to fit into a sophisticated, multi-level scheme, which affects its traditional function in several ways. Firstly, by maintaining a field of free regulatory competition between national laws, it is an important instrument in the vertical allocation of competences within the Union (a). Secondly, under the pressure of market integration, it has simultaneously to promote fundamental market freedoms (b). Finally, extending its scope to the market for public goods, it must ensure that competition between national economic policies remains undistorted (c). 8. (a) Setting the vertical allocation of competences. European contract law rests upon the distinction between centrally harmonised regulation, designed to cure market failures, on the one hand, and national choice-facilitating rules which remain amenable to the conflict of laws, and in particular to free party choice, on the other. Party autonomy thus operates within a centralised regulatory framework which cures informational asymmetries and restrictions of competition. However, ensuring the full cross-border effect of party autonomy also requires the removal of national regulatory barriers which interfere with the access to national markets. Regulation of market failure doubles up as a market integration issue. Community law therefore imposes a second, parallel, series of constraints on Member States, which must refrain from applying measures which will lead to over-regulation or multiple burdens which restrict access to foreign markets. Scrutiny under market freedoms may apply to any form of mandatory state regulation which is internationally enforceable under articles 5 to 7 of the Rome Convention, including measures implementing Community directives, but does not apply to the choice-facilitating rules which fall within the scope of article 3 of the Rome Convention. Thus, the conflict rule governing transactions on the internal market draws a double dividing line: it demarcates internationally mandatory regulation from the scope of free choice, while simultaneously ensuring the vertical allocation of competence between Community law, imposing minimum (consumer protection) or maximum standards (market freedoms), and regulation at the lower, Member State level, of the garden variety of contract law. If the double line admittedly lacks clarity in some cases, it may be due to fluctuations in the case-law of the European Court of Justice as to the desirable extent of state competition. However, the encounter between the economic dynamics of Community law and the more traditional private law concerns of the conflict of laws inevitably brings about shifts in traditional categories, which may also require time to settle. Thus, pre-emptive law under market freedoms is not necessarily internationally mandatory within the traditional meaning of article 7 of the Rome Convention, whereas national public economic regulation may similarly be disqualified as such and subjected to party choice. 9. (b) Ensuring the full extent of economic freedoms. Indeed, harmonisation of Member State legislation designed to remedy market failure does not preclude regulatory competition entirely, as national legislators are often free to adopt measures more stringent than those required by Community directives. Here, however, the application of more stringent national measures to cross-border situations justifies scrutiny under fundamental freedoms, in order to avoid reconstitution of regulatory barriers. Such scrutiny has given rise to the well-known distribution of Member State regulatory authority under Keck and its progeny, in the form of mutual recognition. The home country may apply its regulation in relation to the product itself, whereas host country law prevails as far as selling arrangements are concerned. A similar division can be found, for example, in the field of financial services, where the host country may impose rules of conduct, while the service itself is shaped through prudential and supervisory requirements according to home country provisions. Interestingly, such a design gives rise to the formulation of a new generation of choice of law rules, which raise familiar issues of characterisation and definition of connecting factors. Designed to prevent discrimination in the form of a double regulatory burden imposed on goods or services entering a foreign market, the new rules pre-empt divergent national conflicts solutions, and apply whatever the nature of the measures involved (public/private; mandatory/default). Products and services may thus enter foreign markets freely, without being deprived of their original competitive advantage. At the same time, citizen preferences are maintained as host states are free to look for the most efficient marketing arrangements. Here again, the shifts in traditional categories become apparent: in exercising supervisory powers, for instance in order to determine whether home country regulation has remained within the limits defined by Keck, host country authorities inevitably consider foreign public law. Put another way, the conflict of laws can only ensure the full expression of economic freedoms within the internal market by extending its scope to public law. 10. (c) Fostering undistorted competition for public goods, Completion of the internal market and progress in technology have clearly brought about increased mobility of firms, enhancing intra-European competition and improving allocational efficiency. In such a context, it becomes clear that the attractiveness of a given location, in terms of environmental concerns, quality of the workforce, infrastructures, etc., also depends on the economic policies of Member States. The only way to limit such competition would be to centralise economic policy or raise barriers to mobility. It has thus been demonstrated very convincingly that the combined effect of deregulation and mobility leads to competition between Member States to attract businesses in the field of public goods. Indeed, an essential part of European integration seems to be that former monopolistic states are transformed into locations that must compete with others for goods and services. This regulatory competition for public goods creates incentives to improve performance and ensures that governmental initiative really responds to citizens’ preferences. An important difficulty arises, however, insofar as the ‘playing-field’ made up of divergent economic policies is not level, and competition between Member States could thus be seen to be distorted; clearly, rules of public law may create competitive advantages which are not subject to competition law between firms. However, the effects of an uneven playing field on competition can easily be corrected by allowing firms free choice of relevant provisions of public law. At this point, it has been shown that the home-country rule, which at present ensures consumer choice of goods or services produced under foreign laws, is not necessarily optimal, as it cannot ensure undistorted regulatory competition unless it also allows for choice by producers. The conflict of laws, expanding its scope beyond the traditional field of ‘private law’, thereby has an important corrective or levelling function to play here, in order to ensure that state competition for public goods remains undistorted. Thus, built into to a framework of mandatory requirements which ensure against market failure, choice of law appears as an important deregulatory tool in the integrated market. The question is whether similar use of inter-jurisdictional competition is sustainable in a global context, where there is no centralised authority to monitor externalities or remedy market failure through minimum requirements. I.B ‘Portable reciprocity’ in a global market? 11. ‘Empowering investors’ or racing to the bottom? Recent American scholarship has raised the issue of party choice in the field of economic law, such as in capital markets. The extent to which such competition is desirable remains controversial, however. Does regulatory competition really ‘empower investors’ or does it generate harmful externalities with which the market itself cannot deal satisfactorily? Despite the seductiveness of the global competition thesis, the desirability of entrusting market failures to party choice is not entirely clear (a). This does not mean, however, that party choice has no place in economic regulation. It is probable that the public law label, signalling regulatory responses to externalities, is at present over-inclusive (b). 12. (a) The controversial case for efficient regulatory differentiation. The idea of introducing regulatory competition into areas of economic regulation, at least in an interstate context, is not new in the United States. However, a second generation debate seems to have been sparked off recently by empirical findings in the field of corporate law, according to which the ‘Delaware effect’ does not necessarily signify a degenerative race to the bottom involving the sacrifice of shareholder interests, but may lead to greater sophistication of legislative offer. Within the European Union, the recent Centros decision has drawn attention to a similar debate. Significantly, the battle-horse of global competition is spurred on in this and other fields by law and economics scholars, whose agenda is geared to ‘putting the “private” back into international law’ by means of party choice. Thus, it is suggested that regulatory competition through exit (or party choice of foreign law) could be to be the optimal mode of global governance in such fields as securities, anti-trust, insolvency, banking or environmental protection. The case has been put most strongly in the field of securities, in favour of a system of ‘portable reciprocity’ involving free choice of law by the issuer, thus delinking the applicable regulatory regime and the location at which the securities transactions take place. It is argued that because there is a considerable array of distinct preferences among investors and issuers alike, greater competition will lead to more efficient differentiation of regulatory regimes across the global market, each catering to different needs. For example, high-quality issuers will opt for strong anti-fraud and disclosure provisions and will attract risk-averse investors. Other issuers may prefer a weaker, less costly protective regime, capable of raising cheap capital quickly, and investors will discount the difference in the price. Management will thus sort itself out into different categories according to the type of regime chosen, which will in turn act as a form of brand or trademark alerting shareholders to possible agency problems. Such a regime is presented as a more efficient alternative to the over-extensive reach of securities regulation in present US court practice, which fails to maximise potential profits from competition and encourages issuers to avoid the US market, in view of the notoriously stringent content of federal legislation. Such a thesis is undoubtedly seductive and seems likely to be influential across the Atlantic. The case for pure regulatory competition remains highly controversial, however. While the very concept of a race to the bottom has been challenged as an intellectual fallacy, at the same time, party choice does not seem adequately to address the double issue of market and social costs on a global level. Under the Tiebout model of competition for public goods, which inspires contemporary theories of regulatory federalism, prerequisites for undistorted locational competition are informed choice and the absence of externalities. Critics remain skeptical as to whether the first can be achieved, but focus more particularly on the danger of detrimental pressure on national legislators to bargain away higher standards in order to attract business, thereby externalising harmful effects through under-regulation. The field of environmental protection offers clear empirical evidence that unbridled competition leads to sub-optimal regulation whenever there are important cross-border externalities, and similar demonstrations have been made in such areas as banking, antitrust and arbitration. At best, such evidence may indicate that it is unrealistic to generalize, and that the benefits to be gained from regulatory competition are field-specific. However, even in the area of securities regulation, where third-party effects are arguably less important, it is not clear that pure party autonomy would be feasible or necessarily bring desirable results. Even setting aside the problem of flawed choices due to breakdowns in information, it has been pointed out that benefits from competition could be reaped only if all legislators were ready to extend recognition to the chosen regime; if recognition is not universal, then prisoner’s dilemma dynamics would enter into play. However, universal reciprocity is highly unlikely, since party choice will not be allowed by a given regulator unless the focus of securities regulation is indeed the protection of private interests and not the market itself. Although this is arguably the case in the US, European legislation seems to have a stronger concern for investor protection, and party choice is perceived to be insufficiently attentive to third-party effects. The same observation can obviously be made in the field of anti-trust or insolvency. Similar demonstrations of the varying focus of economic regulation and its consequences on the desirability of free legislative competition become more forceful still with respect to the policies of developing countries, where antitrust regulation may be designed to ‘grow competition’ and where environmental concerns may conflict with more basic economic needs. 13. (b) The need for balance: The present public law label is over-inclusive. It would be excessive to conclude, however, that regulatory competition through party choice has no place in the global market. Indeed, much of contemporary scholarship in the field of economic federalism is devoted to designing the optimal dosage between competition and cooperation. The European Union model inspires the idea that a prerequisite for competition would be prior agreement on essential harmonisation in order to give rise to ‘managed recognition’. Failing that, recognition of foreign regimes could be restricted to the choice of certain jurisdictions, or predicated on certain quality requirements, along lines similar to alternative or conditional choice of law rules. In the field of securities regulation, partial reciprocity may also be an option, according to which a state might be ready to extend recognition to foreign regimes in certain areas rather than others (such as insider trading), or to certain types of sophisticated investors. Two lessons seem to emerge. Firstly, the desirability of freedom of choice is tributary to the objectives and policies of economic regulation, which means that conclusions will necessarily vary across the board. Secondly, present methods practised by the courts to determine the scope of economic regulation in the global market are insufficiently flexible; in particular, the public law label remains over-inclusive. Indeed, the field of economic regulation suffers from a very extensive public law label. On the basis of the correct but somewhat indiscriminate premise that public economic law involves governmental interests, US practice, followed by the European Union, has traditionally reasoned in terms of prescriptive jurisdiction in antitrust claims and in the field of securities regulation. Before the US courts, the anti-fraud provisions of the Securities Exchange Act have been characterised traditionally as ‘public law’. However, it might be time to take the lead from recent case-law, which seems to evidence a ‘turn of the tides’. Such a label may need to be lifted, in order to sift through the complex objectives of economic regulation and identify the fields in which the primary focus is on private interests rather than on effectuating the public good. Debate was sparked recently, in the spectacular Lloyd’s litigation, when the federal courts unanimously upheld party choice of English law and forum, despite the adverse effects suffered in the United States by investors who had been induced there by Lloyd’s agents to sign away their personal fortune at a level of disclosure clearly inferior than the - apparently - mandatory requirements of article 10 b of the Securities Exchange Act. When the English court gave judgment for Lloyd’s, recognition and enforcement was extended without a suspicion of a ‘second look’ in the name of American public policy. Was this not proof enough of the dangers of relaxing the public law taboo? The result was all the more controversial that discrepancies appeared to exist between cases of enforcement of public law by regulatory agencies, those where suit is brought by a private attorney general, and those in which public law is invoked to prevent enforcement of a choice of law or forum clause. In the latter case, an important enforcement function seemed to have been bargained away in a degenerative regulatory race to the bottom, to the detriment of American public interests as expressed in federal mandatory disclosure requirements. Lloyd’s, it has been said, will not survive Hartford Fire. However, it has also been argued that the Lloyd’s decisions may well be no accident. Several precedents would in fact suggest that the real reason for upholding party choice lay in the private nature of the placements, negotiated at arms-length and exempted as such from the mandatory disclosure regime; their admittedly harmful effects can be considered as concerning individual private investors, not the American market as a whole. Recent analysis of the changing aims of securities regulation lends credit to this explanation. It seems that article 10 b disclosure requirements can now be justified solely by efficiency considerations, and not by wider attention to investor protection with which they are more frequently associated. There is no reason, therefore, why the conflict of laws should not be called upon to express similar concerns in a transnational context, in particular in allowing party choice of law in arms-length transactions, thereby fostering regulatory competition. On the other hand, where the public good is directly involved, the public law label is obviously justified and the interests it protects should be represented in the international arena. This is where the conflict of laws could be called upon to assert a significant regulatory function. II The regulatory function of the conflict of laws 14. How best, then, to coordinate regulation across the global market, while allowing sufficient flexibility to accommodate different conceptions of the reach of national laws designed to implement the public good? Presently, actions brought before forum courts based on foreign public law are subject only to a unilateral, monopolistic approach, which aims to ensure that forum courts will not serve foreign state interests. This is true with respect to the implementation of foreign economic regulation both in the Unites States and in the European Union; an approach defined in terms of ‘prescriptive jurisdiction’ requires dismissal of a claim when it is not subject to the scope of federal or Community legislation, unilaterally defined - usually by reference to the ‘effects’ suffered on the domestic market. It is no doubt a truism to say that self-interested behaviour of states is at odds with global efficiency in that it generates inconsistencies, aggressive protectionist policies by states anxious to protect forum jurisdiction to adjudicate, duplication of procedures, costs and fraud, which all cry out for international coordination. Of course, absent an international agreement, there is unlikely to be any ideal solution and certainly no greater likelihood of achieving international harmony than in the context of more traditional, less sensitive, conflicts in private law. However, awareness that any proposal can only be second-best should not deter attempts to define ways in which a regulatory framework, albeit imperfect, might be achieved. Indeed, interaction between the rapidly increasing number of national economic regulations is likely to become the primary challenge for the global market in the coming years. The real question is how far monopolistic or purely ‘horizontal’ approaches, which focus on the scope of forum law and pay little attention to global welfare, are inevitable. Renewal could be achieved by recognising that economic regulation is amenable to conflict of laws methodology, traditionally restricted to the field of private interests. This would imply opening domestic courts to the enforcement of foreign law bearing a ‘public’ label (A). It would then involve building a workable test in which the more traditional mediating function of the conflict of laws would also leave room for considerations linked to the harmonious working of the global market (B). II.A Extending choice of law to conflicts of public interests 15. Overcoming the public law taboo. The first step forward would be to bury the idea that public law as such is never amenable to a conflict of laws approach because foreign law is unenforceable before domestic courts. It would obviously be unrealistic to deny the existence of sensitive state interests in the outcome of disputes in the field of economic regulation. However, it does not follow that such domestic courts should never extend their jurisdiction to claims framed in foreign public law. It is a strange comparative paradox that Continental European practice has come closer to such a result than its American counterpart, despite the far stronger attachment of the former to the private interest paradigm in private international law. However, whatever the differences across the board, the reasons for which the public law taboo seems bound to disappear are clearly universal. Change seems as inevitable now as, a century ago, the gradual acceptance by courts still labouring under territorial conceptions, that they could ignore the ‘foreign law taboo’ and apply the law of other jurisdictions as such. Now, just as then, two sorts of reasons justify relaxing any exclusionary approach. 16. (a) The normative implications of globalisation. The first is linked to the postulate which lies at the heart of the ‘power paradigm’ underlying the prescriptive jurisdiction perspective, and sees the state as a regulatory citadel. Such a monopolistic view is hardly sustainable in a global context; interconnected markets clearly require a truly international framework. Territorial boundaries are no longer (if they have ever been) a screen against the economic effects of activities originating in other jurisdictions. Economic interdependency between national markets thus becomes a normative argument in favour of the duty of each legislator to contribute to global regulation. Professor Robert Hillman argues that, by opening their markets, states actually renounce claims to exclusive regulatory authority over cross-border transactions. Signs of the link between changing global economic conditions and the consequential need for coordination in the field of economic regulation can be found in national practice. For example, the Swiss federal court has held that in view of the increasing internationalisation of capital markets, extending spontaneous assistance to foreign authorities is desirable in Switzerland’s own national interests, while the recent Swiss codification of private international law provides for a multilateral rule in the field of antitrust torts. These signs are compounded by the fact that tests used to define prescriptive jurisdiction are often practically interchangeable with those recognised within the conflict of laws. For example, while the rule of reason implemented in the United States’ Third Restatement on Foreign Relations Law (§ 403) will lead only to a decision not to apply forum law if the interests involved do not weigh in favour of its application, nevertheless, such a test implies a readiness to envisage foreign public interests in a way similar to the ‘significant relation’ approach of the Second Restatement on the Conflict of Laws. Indeed, it appears that the traditional idea, famously voiced by Lord Wilberforce in the Westinghouse case, according to which giving effect to foreign public law necessarily implies enforcing hostile foreign interests, is actually waning; it may well be that regulation in the field of securities, antitrust, environment or the protection of cultural heritage fall into categories where ‘typical’ interests may be identified as a necessary prerequisite to coordination. However, recent pleas in the United States for the revival of the public law taboo clearly rest on the different fear that introducing choice of law will lead to subordinating the public good to purely private schemes, rather than to foreign interests. These fears are entirely misplaced. They stem in many cases from reactions to the results achieved in the recent Lloyd’s litigation, in which it seemed that private parties were being allowed to opt out of federal public law; but as we have seen, such a label was probably inappropriate in the first place. Nevertheless, in fields where public interests do authentically call for protection, it may be time to abandon the idea that it would necessarily be contrary to the forum state’s interest to serve a foreign sovereign’s own aims by applying its public law. 17. (b) Intermingling of interests, in fact. More pragmatically, the conclusion that public law could be subjected to a choice of law methodology is related to the intermingling of private and public interests which already exists in practice and which makes any attempt to exclude the latter from the conflict of laws very difficult. Indeed, a brief glance at recent case-law in various jurisdictions points to such shifts in categories as the key difficulty encountered by contemporary jurisprudence and practice in this field. In the United States - now to be followed by the European Union - the appearance of the private attorney general and other whistle-blowing devices in transnational litigation means that disputes between private litigants may well involve the enforcement of public regulatory interests. Public interests figure prominently, too, in issues of judicial jurisdiction even over private litigation, such as the use of forum non conveniens in the area of products liability, where foreign plaintiffs’ class actions may well be rejected for reasons linked to the costs of the administration of justice - or, more controversially, to the protection of American industry abroad. In European countries, neo-statutist theories are gaining new ground with fundamental rights-based approaches, which by creating rights of action both against other citizens and the state, blur the separation between the political and legal spheres. It is also apparent that the shifting of the relationship between state and individual interests is not a one-way process. Economic regulatory policies are not a monopoly of public law. On both sides of the Atlantic, the extension of the scope of arbitration to areas previously covered by the exclusive jurisdiction of state courts and the move towards decentralisation of enforcement procedures contribute to general uncertainty as to where to draw the dividing line between public and private law and, perhaps more importantly, lead to wondering whether it is still really necessary to do so, from the point of view of choice of law. If, then, it is admitted that the reasons which justify the public law taboo are no longer as convincing as they may once have been, the next question is how best to coordinate those rules which express regulatory economic policies. II.B Coordinating conflicting regulations 18. Focusing on global welfare. Recent scholarship invites considering a world-view of economic regulation, rising above a ‘horizontal’ outlook, to embrace a ‘cosmopolitan’ account of transnational governance. In such a perspective, according to which ‘our old nation-state paradigm is no longer sufficient to the task’, the challenge is to see how the conflict of laws could best serve not merely the public good as seen through domestic lenses, but the requirements of global welfare. To do so, it would have to focus on providing a neutral framework for coordination rather than on the implementation of specific state interests (a). Lessons both from traditional conflicts and from governmental interest-type approaches seem to indicate that the ‘effects’ test makes the most sense in both political and economic terms. However, it clearly requires greater determinacy, which could be achieved incrementally by building principles of preference out of comparative field study (b). 19. (a) Global welfare as coordination. Obviously, definitional problems arise at this point. There may indeed be debate as to the appropriate yardstick to measure global welfare. Recent economic analysis focusing on the choice of yardstick has reinstated individual values such as protecting party expectations, reducing costs of legal information and avoidance of forum shopping as the appropriate goals of choice of law, rather than the furthering of governmental interests. Such a position hardly comes as a surprise to the European observer, where ‘conflicts justice’ has always served such interests, at least in traditional fields. Two problems arise with this point of view, however. On the one hand, it is undeniable that in the field of public law, state mandatory economic regulations express various conceptions of the public good, whose implementation may override considerations of private fairness and convenience. On the other hand, the pursuit of global welfare cannot mean giving a collective expression to given substantive values, such as investor protection or free competition, since state policies behind economic regulation are inevitably divergent. Practically, this double constraint can only mean that if the conflict of laws is to rise above a parochial or ‘horizontal’ approach, its contribution to global welfare must reside exclusively in an optimal coordination of divergent expressions of regulatory authority, geared to nothing more than avoiding under- and over-regulation in cases of cross-border externalities and eradicating discrimination. The conflict of laws would retrieve its lost ‘neutrality’ in this respect, and the somewhat obscure traditional objectives such as the ‘smooth functioning of the international system’ or the ‘coordination of systems’, could find a renewed significance. 20. (b) Principles of preference. One might therefore be tempted to formulate a simple multilateral ‘effects’ test, under which legislative authority would be assigned to the community suffering the most extensive adverse effects of a given activity, and therefore with the strongest incentive to regulate it optimally. However, although such an idea is certainly sound, it is also somewhat simplistic, thus stated, and would require addressing the problem of indeterminacy. Indeed, where effects are widespread, the difficult issue of concurrent regulatory claims must be dealt with; it may even be necessary to disperse jurisdiction in such a case. Similarly, when the protection of the domestic market is not the focus of a given state’s legislation, it makes little sense to apply its legislation on the basis of the effects test alone. It would therefore be necessary to refine the rule. Principles of preference built on careful analysis of the nature and source of the externalities with which conflicting legislations seek to deal might help to provide guidance in cases of concurrent interests; comparative field studies could contribute on this basis to the elaboration of connecting factors believed to be most generally acceptable, while the content of bilateral agreements already reached should be considered. Thus, using the example of antitrust, Eleanor Fox has suggested that when effects are targeted into the forum state, it seems legitimate to leave it paramount regulatory authority; on the other hand, where there are spillovers or ‘ripple effects’ from conduct essentially designed to respond to conditions in the domestic market, regulation would best be left to the host country, which would have the strongest incentive to internalise the effects of anti-competitive conduct. Where the focus of domestic legislation is not the market but individual actors, the long-maligned renvoi principle might help achieve optimal coordination. 21. Conclusion. Global markets and universalism. It may well seem na?ve to wish for globally acceptable, ‘universal’ solutions to conflicts of economic regulation, as if the previous turns of the methodological wheel had delivered no lessons. Indeed, in the field of private law, previous efforts to present the conflict of laws as ‘neutral’ have been unsuccessful, while governmental interests analysis, which might seem more appropriate in the field of conflicts of public law, carries the double stigma of discrimination or lex forism. But it may be that, however divergent regulatory policies might be, a shared need born of participation in the world market creates sufficient common ground between state economic laws for a global approach to be sustainable. Based on coordination, such an approach would have the double advantage of being applicable by international arbitrators, increasingly called upon to participate in the smooth working of the global market, and of improving accountability of regulatory agencies. Taking the lead from shifts already taking place within the European Union itself, the price to pay for European legal doctrine would be to accept the conflict of laws as a tool of political economy.