Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions
The cotton industry has almost entirely opted out of the public legal system, replacing it with one of the oldest and most complex systems of private commercial law. Most contracts for the purchase andsale of domestic cotton, between merchants or between merchants andmills, are neither consummated under the Uniform Commercial Code(“Code”) nor interpreted and enforced in court when disputes arise. Rather, most such contracts are concluded under one of several privately drafted sets of contract default rules and are subject to arbitration in one of several merchant tribunals. Similarly, most international sales of cotton are governed neither by state-supplied legal rules nor by the Convention on the International Sale of Goods, but rather by the rules of the Liverpool Cotton Association. The institutions that create and administer the industry’s private legal system work extraordinarily well. The trade rules are periodically revised to respond to technological advancements, market changes, and ambiguities revealed during disputes. Their content is known and understood by most market participants. The arbitration tribunals that resolve disputes do so expeditiously and inexpensively. Their decisions, which are recorded in written opinions, reveal a distinctive and coherent jurisprudential approach. Within the industry, arbitration awards are widely respected and complied with promptly. In short, the industry has succeeded in creating and maintaining a private legal system (“PLS”) in which transactions costs, error costs, legal system costs, and collection costs are low. This system has endured since the mid-1800s, surviving widespread social change, years of extreme price volatility, and substantial changes in the background public legal regime.