1
PERMANENT COUNCIL OF THEOEA/Ser.G
ORGANIZATION OF AMERICAN STATESCP/CAJP/INF. 299/16
2December 2016
COMMITTEE ON JURIDICAL AND POLITICAL AFFAIRSVERBATIM
U.S. STATEMENT TO THE OAS COMMITTEE ON JURIDICAL AND POLITICAL AFFAIRS
ON THE INTER-AMERICAN JURIDICAL COMMITTEE’S MODEL LAW ON SIMPLIFIED STOCK CORPORATIONS
MICHAEL DENNIS, OFFICE OF THE LEGAL ADVISER, U.S. DEPARTMENT OF STATE
DECEMBER 1, 2016
U.S. STATEMENT TO THE OAS COMMITTEE ON JURIDICAL AND POLITICAL AFFAIRS
ON THE INTER-AMERICAN JURIDICAL COMMITTEE’S MODEL LAW ON SIMPLIFIED STOCK CORPORATIONS
MICHAEL DENNIS, OFFICE OF THE LEGAL ADVISER, U.S. DEPARTMENT OF STATE
DECEMBER 1, 2016
The United States supports the call of other delegations that the OAS General Assembly formally approve the Inter-American Juridical Committee’s (IAJC) Model Law on Simplified Stock Companies.
We appreciate the excellent report of the Department of International Law on the model law and its similarity to standards developed in other fora, particularly the World Bank, UN Commission on International Trade Law (UNCITRAL) and UNCTAD. We also want to thank Dr. Reyes for his highly informative presentation concerning the positive effect laws on simplified stock companies have had in reducing informality and promoting commercial development around the world, particularly in OAS member states.
Micro-, small- and medium-sized enterprises (MSMEs) are the engines of economic growth and job creation in all OAS member states. They were identified as key elements in achieving the sustainable development goals (SDGS) of the post 2015 UN development agenda. It is envisaged that the funding to achieve the SDGS will come primarily from commercial trade rather than development aid.
MSMEs typically constitute 95% or more of businesses in OAS member states and employ a substantial portion of the work force. However, the vast majority of MSMEs in developing countries operate in the informal sector. UNCITRAL has reported that 90% of MSMEs in developing countries operate in the informal sector, despite the need for a formal legal status to operate and enter into contracts. The OECD has also found that 60% of the world’s workers (1.8 billion people out of 3 billion) are employed in the informal sector. According to the World Bank IFC, “[w]orldwide, women are three times more likely than men to be working in the informal economy.”
The legal uncertainty under which informal businesses operate renders their transactions costlier and discourages attempts to grow, hire employees and seek credit. Courts and officials regard them as “irregular” entities subject to the invalidation of their contracts, plus fines. Informal businesses don’t pay taxes or minimum wages, nor do they offer maternity leave or the health and safety protections afforded by international labor standards.
On the other hand, simplified business registration and incorporation promotes the rule of law. Greater formalization is the basis for inclusive growth, providing workers with the dignity of lawfulness and access to social services and protections. It reduces corruption and opportunities for extortion and gives workers peace of mind. Workers who pay taxes feel empowered to demand better infrastructure and governmental services. This increases governments' accountability and efficiency and ultimately increases economic growth.
An enabling legal environment providing for simplified business incorporation creates the gateway through which businesses enter the formal economy and provides them:
•Greater certainty of operation;
•Access to previously unreachable markets; and
•The capacity to compete and seek a fair treatment under the law.
The benefits of simplified business incorporation are not limited to the businesses themselves.
•Entering the formal sector obligates businesses to pay taxes and comply with labor laws that protect their workers.
•Easier start-up laws generate more businesses, lower prices, and increase product availability for consumers.
For these reasons, ILO Labor Standard (R204) recommends that ILO Members facilitate workers’ transition from the informal to the formal economy. The World Bank has also found that economies with modern business registration “grow faster,” “promote greater entrepreneurship and productivity,” “create jobs,” “boost legal certainty,” and “attract larger inflows of foreign direct investment.”
As the Juridical Committee concluded: The lack of a progressive legislative framework permitting simpler and more modern business associations is often described as a major impediment to economic development within our hemisphere. Under many national legal codes, only certain types of business associations are permitted . . . . These business forms have roots in European legal codes of the last century and often require businessmen to follow elaborate and costly notarial and administrative processes.
As highlighted in the Committee report, the framework for the Model Law on Simplified Stock Corporations is drawn from successful legislative reforms in both developed and developing countries, including in the Americas. The Model Law blends features of two business forms: partnerships and corporations. We agree with the conclusion of the Committee that by combining both corporate and partnership-like components, the Model Law promotes significant contractual flexibility, while preserving the benefits of limited liability and asset partitioning.
As noted by the Department of International Law, the best practices underlying the Model Law are substantially similar to standards developed by UNCITRAL, UNCTAD, and the World Bank.
In summary, we hope the CAJP omnibus resolution for the General Assembly will formally approve the Model Law. We believe widespread implementation of the Model Law would assist OAS states in providing an enabling legal framework for simplified incorporation that will: (1) empower small businesses; (2) promote international economic growth based on trade not aid; and (3) enable women to participate more fully in the global supply chain. This reform has the potential to make a difference for many people across the Americas and give them a job, a future and a hope.
Thank you very much, Madame Chair. (END)