Why Soft Law Dominates International Finance—and not Trade
International financial law is in many ways a surprising instrument for establishing a global economic order. Unlike international trade and monetary affairs, where global coordination efforts are led by formal international organizations, international financial law is promulgated by inter-agency forums with (at best) ambiguous legal status. Furthermore, the commitments made by participating regulatory agencies have no legal effect, but are instead non-binding as a matter of international law. This divergence is perplexing both from a comparative perspective and from the standpoint of international legal theory, especially when comparing international financial law to international trade. Both trade and finance are clearly key areas addressed by ‘international economic law’, and their rules have important consequences for global markets. In addition, they relate to market access, embrace non-discrimination and potentially have asymmetric distributive implications for special interests in affected jurisdictions.
Why then are most instruments used for the promulgation of international regulatory standards ‘non-binding’ and thus ‘soft’? This chapter suggests that in order to understand soft law’s implications as a coordinating mechanism, it is necessary to undertake an institutional assessment of the way that law is enforced. Specifically, it builds on more recent scholarship demonstrating that international financial law departs from traditional public international law notions of informality, and is in fact ‘harder’ than its soft-law quality suggests. This feature, the chapter suggests, helps explain why international financial rules, though soft, are often relied upon even where commitments may have steep distributional implications for parties. The predominance of international soft law in finance does not, however, imply its perfection, particularly with regard to its ‘compliance pull’, and the chapter highlights important structural deficiencies in the international financial regulatory system that the global trading system, as embodied by the World Trade Organization, largely avoids.