Why Saudi Arabia has not joined the CISG And should it join now - Research Paper Example

? CISG and Saudi Arabia Introduction: The international business transaction has taken a major step after the formation of the CISG. CISG aimed to regulate the international transactions and frame transparent rules for the workings. The popularity of the CISG was however restricted in some Arab Islamic countries due to the presence of conflicting and ambiguous principles. Though certain modification have been done by some of the Islamic countries in signing to the convention but still countries like Saudi Arab have refrained themselves from taking part in the CISG. The factors which prevent Saudi Arab from being a part of the CISG have been studied over here. A special analysis of the article 78 of the CISG has been carefully studied over here. Critical recommendations have been made for analyzing whether CISG should involve them in the treaty and be a part of the global treaty. CISG: The CISG (Convention for the International Sale of goods) is an important adoption in the international business transaction. The area covered by CISG is huge and a large portion of the international business transaction is under its control. The CISG covers only the buying and selling of goods. The various signatories of CISG have decided to implement the laws of the CISG in a uniform fashion. The United Nations Convention for International Sale of goods is applicable to international transactions of goods. However it does not applies to transaction of personal and family household. The CISG came into effectiveness in the year 1988, and fifty eight countries have been the signatory of the treaty including four Islamic countries from the Arab. The success of the CISG can be attributed to the expansion of the global business worldwide. However the establishment of the CISG came into existence after a long struggle in the 1920’s. The evolution of CISG has been an important historical treaty in the international trade. However there exists disparity in terms of the understanding of the CISG and the Islamic law and it is found that many Arabic countries have refrained from joining or being a member nation of the treaty. The contracting propositions are discussed below. Analyzing the causes for Saudi Arab’s non-participation in CISG CISG and Islamic law of Interest: Under the international law of the CISG Article 78 clearly underlines the payment of interest to the distressed party (Akaddaf). The convention of the CISG however does not have any clear rules or policies regarding the interest rate calculation or the time frame required for the payment of interest. However charging of interest is not promoted under the Islamic law and it is prohibited. According to Quran charging of interest is held as an injustice. A notion is held that in order to maintain equity and fairness in carrying out a trade transaction, charging of interest brings differences and becomes unfair in respect to the weaker party of the contract. The Islam idea regarding this unfairness is somewhat similar to the Uniform commercial code as followed in the American approach. Islam’s held the idea that charging of interest leads to the oppression of the poor and is generally believed that interest charging should be eliminated from the commercial transactions. Practice of providing loans is common in the Islamic countries but the theory of profit making is not encouraged to place a party in any sort of financial disadvantage. Relieving a person form the debt is assumed to be an act of charity according to Islamic laws and culture. Evidence of international arbitration regarding the charging of interest or “riba” also exists. It claimed that the policy regarding riba did not provide restriction on all cases where it led to a financial loss of one party due to the inability of one of the party to pay back in time (Twibell). Islamic Banking: Islamic banking came into functioning in the year 1970. It started its operation in Egypt. Soon it became popular in the other Islamic countries as well and became popular for the strong protection of its secrecy in countries like Saudi Arabia, Kuwait and Bahrain. The concept of Islamic banking has become so widely popular that presently it manages funds well over $100 billion. At the beginning Islamic Banking was devoid of any interest charges. Interest was neither paid nor being charged and the investment was done mostly in trade or in partnership business. There are four basic principles which underline the functioning of the Islamic Banking. They are none charging of interest, provision for no excessive risk taking, recognition of money as not a commodity, and the principle underlying the fact that there is no time value of money. The legal system as specified by the CISG was however contradictory to the guidelines of the Islamic banking. CISG aims to promote a free economy and the growth of international business. In order to raise the standards of the International trade and commerce however the barring of the concept of interest cannot be accepted. Business and banks operating in the present economy thrives on the option of interest. The doctrine of Islamic banking is being maintained under the guiding principles of humanity as specified under the Quran. The culture of Saudi Arab tries to maintain a strict adherence to the Muslim dogmas and principles and provides opposition in the signage of the international treaties like CISG which has conflicting rules and ideas. (Twibell) Statute of Limitation and the Islamic laws: In order to eliminate the disparities in the legal proceedings of the national laws and in providing uniformity in the area of the international trade, The U.N. convention on the limitation period was being framed in the year 1974. It was aimed to provide uniform provisions in relation to the time for the proceedings of the international trade to start. Generally the time duration framed was of four years but modification was permitted between the contracting parties by a written declaration. The interpretation of the limitation laws was however not acknowledged in the Islamic countries. Some of the Islamic countries had various interpretations regarding the statute of limitation. The notion of the law is rejected based on the doctrine of Prophet Mohammed who states that the rights conferred to the Muslim people cannot be taken away even if the right has become remote in the past. There have been also contradictory views among various schools of Muslims and provides a permission on the claim to be barred under certain period of time. Different civil codes of the Muslim countries have different time limit for the commencement of legal action and some are rigid in adherence to the protection of right by the passage of time. In spite of the difference between the principles of the CISG and the Muslim principles there exist various similarities in rules and regulations which may lead to the adoption of the CISG treaty by the Muslim countries. A similarity in views exists between the article 11 and the law of contracts as specified under the Islamic laws. The provision of the law of contract is in the same lines with the article 11 of the CISG which states that the conclusion of a contract entered by two parties can be possible without any written documents (Akaddaf). Under Islamic laws the contract of sale is given the most important priority. Contracts of agreement in writing are neither recommended nor are they forbidden under the laws. However in the modern era, Islamic countries adhere to the doctrine that undergoes formal contracts for the progress to take place. The reason for Saudi Arabia not joining the CISG could be attributed to the above factors discussed. Saudi Arabia is an Islamic country and it has to abide by the laws pertaining to the Islam regimes. As noted above few of the articles relating to CISG has significant difference and cannot be accepted if a country is strict with its issues and culture. Though some similarities do exist and poses no threat for Saudi Arabia to be a part of the CISG but still a major part of few legal articles poses obstruction. Saudi Arabs being a part of the CISG will harm its reputation as a part of the rigid follower of the Islamic nations. Recommendation for Saudi Arab to join the CISG As dealt in the previous section the guideline for CISG and Islamic laws are contradictory in view and has prevented Saudi Arab from joining the CISG. In the global context Saudi Arab has been an important economy to consider. The market of Saudi Arab should be free from any restriction to operate for international trade and in this context CISG’s importance cannot be ignored. In the modern generation, countries like Saudi Arab should not be strict with the religious and the legal frame of view and should deliver their part for the global cause. It is to be remembered that Islamic laws are being framed by the people and modifications are also possible, without causing severe harm on any section of the people. In the recent past few other Islamic countries have also joined the forum. The role of Islamic law has a strong effect to prove its mark in the politics of countries in Asia, Africa and a considerable portion of the Middle East. The matter relating to prohibition of interest has been handled in a various number of ways among the Islamic countries and Saudi Arab can take examples from those countries. In Egypt the article 226 signifies that the debtor should pay for the losses and the damages due to delay if claim is made regarding a sum of money. Instance of modification and sophistication leading to the rule of interest is also been found in places like morocco. Moroccan legislation draws up a fine line of distinction between the individuals and entities and concluded that charging of interest is prohibited among individuals as specified by the Islamic laws but at the same time claimed that artificial entities like banks and public agencies are free to charge loans as they do not fall under the religion of Islam. Such manipulation in the legal framework can be conducted by Saudi Arab to remain clear of its Islamic views and at the same time participate in the international treaties. The signage of the CISG by all the Islamic countries will bring them in close contact to the western world and their enhanced participation will be better for the global economy. The philosophies and the principles as prohibited in Islam should be dealt in strict vigilance by the legal framework of the Saudi Arab government and careful amendment should be made considering the sentiments of the followers of the Islam. In order to enable the Islamic countries in participation to the CISG, the CISG have been very much flexible in allowing the modification of its laws. Islamic countries including Saudi Arab should stress on the fact and should discriminate between the religion and their business and should treat them as separate entities in respect of the globalization. Article 78 of the CISG which is a main barrier for countries like Saudi Arabia should be studied carefully and areas of improvement needs to be highlighted for its adoption. The article 92(1) of the CISG also confirms on the fact that the states entering into the contract of the agreement may declare it to be held unbounded by the other part of the convention at the time of approval or the signage of the convention (Twibell) Concluding remarks: In the modern era of open economy and globalization, developing countries of the world are making efforts to have a strong stand in terms of economy. The global councils of the world are framing treaties and laws that promote equality in participation and fair global trade all around. . The Saudi Arab government should understand the importance and the benefits of entering into the global trade agreement which will remove a variety of restrictions from the international trade and commerce and it would rather lead into the overall progress for Saudi Arab and marks its presence in the global economy. References Twibell, T, S, implementation of the United Nations Convention on Contracts for the International Sale of Goods (CISG) under Shari'a Law, cisg.law.pace, October, 17, 2011 from: http://www.cisg.law.pace.edu/cisg/biblio/twibell.html Akaddaf, Fatrima, Application of the United Nations Convention on Contracts  for the International Sale of Goods (CISG) to Arab Islamic Countries, cisg.law. Pace, October, 17, 2011 from:http://www.cisg.law.pace.edu/cisg/biblio/akaddaf.html#vi Read More