Transnational Private Regulation

by

Paul Verbruggen, Phillip Paiement

• LAST REVIEWED: 26 July 2017
• LAST MODIFIED: 26 July 2017
• DOI: 10.1093/obo/9780199756223-0226

Introduction

Transnational private regulation has attracted great attention from academics in the last decade. Scholars from different disciplinary backgrounds, including economics, political science, law, and sociology, have studied the emergence, governance, and impact of this form of regulation. Transnational private regulation is not a new phenomenon (the medieval lex mercatoria arguably being the oldest example), but the way in which it has developed in the last two decades, both in terms of coverage and depth, is definitely innovative. Transnational private regulation has now developed across a wide range of policy areas, from finance to food safety and from labor to environmental sustainability. As such, it has become a key governance instrument to regulate transnational business conduct, either as an alternative or complement to public regulation. Transnational private regulation is an analytical construct that emerged to capture the observation that private, nonstate actors pursue regulatory objectives beyond the territorial borders of the nation-state. In doing so, these actors use predefined norms and goals as standards and deploy instruments for monitoring and enforcing compliance with these standards. These activities raise various governance challenges. Many scholars have drawn attention to the legitimacy and accountability challenges triggered by transnational private regulation. Compared to the way in which the legitimacy of treaty-based international governmental organizations is secured, regimes of transnational private regulation suffer a clear legitimacy deficit due to the apparent lack of representative democratic structures or the delegation of regulatory powers by state actors. This legitimacy deficit seemingly increases given that traditional accountability mechanisms, such as parliamentary committees, ombudsman schemes, or judicial review by courts, do not readily apply to them. Other challenges relate to ensuring compliance with transnational private regulation and its effectiveness. What is the best method to ensure astute and robust enforcement? How can transnational private regulators deliver on their promises? The answers to these questions are key in preventing that transnational private regulation turns into a mere paper exercise. This overview presents the steadily growing body of literature on transnational private regulation by first focusing on the concept itself and relating this to parallel concepts developed in political science, law, and sociology. A discussion then follows on manifestations of transnational private regulation in the domains of technical standardization, environmental sustainability, labor, consumer protection, banking and finance, sports, and the Internet. It is from these individual domains that scholarship around transnational private regulation has formed and particular fundamental governance challenges were identified. Taken together, authors of this literature have developed a number of recurring “grand themes” in which these governance challenges and the appropriate responses to them are theorized. These themes are discussed in the conclusion.

Concept

Bartley 2007 terms coalitions of nonstate actors that codify, monitor, and, in some cases, certify firms’ compliance with labor, environmental, human rights, or other standards of accountability systems as “transnational private regulation.” Scott, et al. 2011 discusses transnational private regulation as being a composite notion, involving the activities of standard setting, monitoring compliance, and enforcement that have cross-border effects while being driven by private actors. The law merchant (lex mercatoria) may be considered an early form of transnational private regulation. As Cafaggi 2011 and Cafaggi 2015 explain, however, modern regimes of transnational private regulation involve different kinds of actors, assume different legal and organizational forms, and use different instruments and procedures to regulate transnational business conduct. Braithwaite and Drahos 2000, Büthe 2010, Cafaggi 2011, and Vogel 2009 provide important insights into the driving forces behind the rise of transnational private regulation, discussing the need for transnational rules in globalizing market conditions and the failure of state actors to meet that need. Bartley 2007 argues that the rise of specific forms of transnational private regulation (certification schemes) cannot be explained by these driving forces and holds that the political contestation around the regulation of transnational business conduct provides a better explanation. Büthe and Mattli 2011 also places greater emphasis on the politics in transnational private standard setting to explain regulatory outcomes. Finally, Organisation for Economic Co-operation and Development 2013 highlights the prominence that transnational private regulation currently assumes as a policy instrument to regulate global business conduct, either as an alternative or complement to regulation by state actors at the international or national level.

• Bartley, Tim. “Institutional Emergence in an Era of Globalization: The Rise of Transnational Private Regulation of Labor and Environmental Conditions.” American Journal of Sociology 113.2 (2007): 297–351.

  This article argues that market-based approaches for understanding transnational private regulation in labor and sustainability need to take greater account of the political contestation that underpins the emergence of such regulatory systems. The analysis illustrates how conflicts and subsequent compromises about the politics of global regulation led to certification as a dominant institutional format of transnational private regulation in the case studies discussed.

• Braithwaite, John, and Peter Drahos. Global Business Regulation. Cambridge, UK: Cambridge University Press, 2000.

  Building on no less than thirteen case studies, this seminal book provides an authoritative account of how public and private business regulation has shifted from national to global institutions. A conclusion from all of these case studies is that “state regulation follows industry self-regulatory practice more than the reverse, though the reverse is also very important” (p. 481).

• Büthe, Tim. “Private Regulation in the Global Economy: A (P)Review.” In Special Issue: Private Regulation in the Global Economy. Edited by Tim Büthe. Business and Politics 12.3 (2010): 1–38.

  This article is an introduction to a special issue and combines a review of the existing literature about the causes and consequences of private regulation in the global economy with a preview of the articles in the issue. It also asks how such private regulation may attain regulatory authority. Available online by subscription.

• Büthe, Tim, and Walter Mattli. The New Global Rulers: The Privatization of Regulation in the World Economy. Princeton, NJ: Princeton University Press, 2011.

  Examining three transnational private regulators (International Accounting Standards Board, International Organization for Standardization, and International Electrotechnical Commission), the authors discuss the politics of global private standard setting, even in areas in which standard setting considered to be of technical nature only. Winners in this political game, the authors claim, are those actors that organize interests at the national level effectively, provide timely information to negotiations at the international level, and speak with one voice.

• Cafaggi, Fabrizio. “New Foundations of Transnational Private Regulation.” Journal of Law and Society 38.1 (2011): 20–49.

  Cafaggi discusses the concept of transnational private regulation, as well as its drivers and institutional forms. The author also reflects on the interaction between the private and the public sphere at the transnational level and asks whether this relationship differs from that at the national level.

• Cafaggi, Fabrizio. “The Many Features of Transnational Private Rule-Making: Unexplored Relationships between Custom, Jura Mercatorum and Global Private Regulation.” University of Pennsylvania Journal of International Law 36.4 (2015): 875–938.

  The article provides a comprehensive account of transnational private regulation, exploring its historical roots, current governance design and linkages with the law merchant (lex mercatoria), and custom.

• Organisation for Economic Co-operation and Development. International Regulatory Co-operation: Addressing Global Challenges. Paris: OECD, 2013.

  This OECD report considers the potential of regulatory cooperation between international actors to address global challenges. It explores the role of transnational private regulation as an example of such cooperation and discusses to what extent public actors may engage with such regulation to achieve policy goals.

• Scott, Colin, Fabrizio Cafaggi, and Linda Senden. “The Conceptual and Constitutional Challenge of Transnational Private Regulation.” In Special Issue: The Challenge of Transnational Private Regulation: Conceptual and Constitutional Debates. Edited by Colin Scott, Fabrizio Cafaggi, and Linda Senden. Journal of Law and Society 38.1 (2011): 1–19.

  This article, which is an introduction to a special issue, explores the concept of transnational private regulation and discusses its constitutional standing from the perspective of a variety of state and nonstate mechanisms through which legitimacy may be achieved.

• Vogel, David. “The Private Regulation of Global Corporate Conduct.” In The Politics of Global Regulation. Edited by Walter Mattli and Ngaire Woods, 151–188. Princeton, NJ: Princeton University Press, 2009.

  Chapter 5 describes the growth of transnational private regulation (here coined the “civil regulation” of global business conduct) and places it in broader historical and institutional contexts. It thus accounts for the drivers of transnational private regulation and explains how large numbers of global firms have come to accept this form of nonstate transnational governance.