There’s a global phenomenon at work that most people probably haven’t heard much about. But it affects us profoundly every day of our lives, and much more than we realize. It’s what academics have labelled “private global regulation.”
The name refers to the growing reach of private industry norms and standards, not set down or regulated by governments or international treaties, but by private industry itself.
These standards are increasingly dominating international trade and commerce and affect us all – every time we purchase a new toaster, buy a light bulb, open our computers or make an electronic bank transfer.
Think about it. Every time we buy a “green” product or a tin of “dolphin safe” tuna at the supermarket, we’re interacting with these private industry standards.
Private global regulation abounds in thousands of specifications that industry has developed on its own to regulate sales of products and services. These really are “rules,” even though they’re not ordained by governments or by intergovernmental organizations such as the World Trade Organization or the Kyoto Protocol.
In fact, as intergovernmental efforts (such as the WTO’s Doha round of talks) have languished or simply ground to a halt, private rule-making has increased at an enormous pace. It’s as if a kind of vacuum has been filled by industry, not content to wait on governments to sort out rules and regulations governing global trade and business.
To be fair, there’s no empirical evidence of a direct linkage between the demise of the Doha round and the ascendancy of private global regulation. But private rule-making did move along at a phenomenal pace while governments dithered in Geneva.
These industry-generated standards are now having an impact on global trade that is in some ways as significant as tariff reductions or other market-opening efforts.
Private rule-making isn’t an entirely modern phenomenon either. It has antecedents in medieval times, dating back to Northern Europe in the 13th and 14th centuries, when there were no national governments in today’s sense and when cities were the nuclei of social and civic organization. That was the era of the Hanseatic League and the origin of something we call lex mercatoria – “merchant’s law.”
It wasn’t really law, not as we know it today, because other than local princely courts, there were no authoritative law-making bodies on a larger scale. So merchants and traders developed their own rules to govern their commercial transactions and resolve disputes.
The modern garb of merchant’s law can be found on the electrical certifications on the underside of your toaster, on the “dolphin safe” labels on your can of tuna or, in an international trade context, on the terms and uses of letters of credit and bills of lading.
The highly valued Leadership in Energy and Environmental Design (LEED) certification for modern buildings isn’t based on government regulation – it’s the work of the U.S. Green Building Council, an industry group.
These private industry rules have been a boon to global economic development. By regularizing product standards, they facilitate international trade. By establishing specifications and uniform designations, they ensure that goods and services meet generally accepted norms in foreign markets. That includes environmental standards and human rights under industry-generated rules for corporate social responsibility.
To the extent that these rules work positively, there’s no need for governments to interfere.
On the other hand, there’s a negative aspect if private industry regulation becomes non-transparent, if stakeholders lack access to the standard-setting process or if it has an anti-competitive effect.
Here’s where governments may need to play a role, not by inserting themselves in the process but by exercising a sort of “trusteeship” function to keep private rule-making on the right track.
That could include promoting public awareness and assisting credible standard-setting bodies through financial or policy support. It could involve advice to the private sector for choosing the best of these standards, much like the encouragement Ottawa now provides to the mining sector for their foreign investment activities.
The point is that private global regulation is here to stay. It’s been little commented on in government and business circles, but it’s playing an increasingly significant role. The time has come for all of us to start paying more attention.
It’s the new multilateralism.
Lawrence Herman is international trade counsel at Cassels, Brock & Blackwell LLP and a senior fellow at the C.D. Howe Institute. He is author of The New Multilateralism: The Shift To Private Global Regulation, released this week by the C.D. Howe Institute.