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Three Pathways to Global Standards: Private, Regulator, and Ministry Networks

Published online by Cambridge University Press:  20 January 2017

Stavros Gadinis
Stavros Gadinis*
Affiliation:
UC Berkeley School of Law. Email: [email protected].
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Extract

The proliferation of international standards has triggered heated debates in recent years. From human rights to environmental protection, from the Internet to financial derivatives, from antitrust to missile technology, international standards govern some of the most important issues of our day. These standards are not legally binding, but scores of governments around the world have incorporated them wholesale in their national legal orders. The drafters of these standards are not political leaders, formal government representatives, or international organizations, but rather informal committees of ministry officials, regulators, or private experts. Labeled transnational regulatory networks, these informal bodies have puzzled legal scholars and international relations theorists. Why do states adopt these standards instead of producing their own laws? How do these new global standard setters come about, and what are their goals? Addressing these questions has been the source of both “euphoria” and “anxiety,” as a leading commentator has recognized.

Type
Research Article
Information
American Journal of International Law , Volume 109 , Issue 1 , January 2015 , pp. 1 - 57
Copyright
Copyright © American Society of International Law 2015

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Footnotes

*

I would like to thank Kenneth Abbott, Daniel Abebe, Afra Afsharipour, Richard Albert, Julian Arato, Ken Ayotte, Stephen Bainbridge, Stuart Banner, Mehrsa Baradan, Robert Bartlett, Omri Ben-Shahar, Gabriella Blum, Anu Bradford, Richard Buxbaum, Adam Chilton, John Coates, Ruth Collier, Steven Davidoff Solomon, Dhammika Dharmapala, Aaron Dhir, Onnig Dombalagian, Jeffrey Dunoff, Robin Effron, Zachary Elkins, Adam Feibelman, Allen Ferrell, Laurel Fletcher, Jesse Fried, David Gamage, David Gartner, Anna Gelpern, Jacob Gersen, Jack Goldsmith, Erica Gorga, Todd Henderson, Bert Huang, William Hubbard, Howell Jackson, Kathryn Judge, Ehud Kamar, Roberta Karmel, Sung-Hui Kim, Reinier Kraakman, Prasad Krishnamurthy, David Landau, Maximo Langer, Saul Levmore, Odette Lienau, Katerina Linos, Omri Yitzhak Marian, Jonathan Masur, Richard McAdams, Justin McCrary, Tom Miles, Martha Minow, Jennifer Nou, Anne Joseph O’Connell, Jason Oh, Saule Omarova, Eric Pan, Kish Parella, Panos Patatoukas, Eric Posner, Shruti Rana, Annelise Riles, Chris Robertson, Mark Roe, Julie Roin, Heidi Schooner, Hal Scott, Holger Spamann, Matthew Stephenson, Lior Strahilevitz, Steven Sugarman, Symeon Symeonides, Eric Talley, Pierre-Hugues Verdier, Andrew Verstein, Michael Waibel, David Weisbach, Mark Wu, Jacob Yackee, Yesha Yadav, John Yoo, David Zaring, Nick Ziegler, and John Zysman, as well as participants at the American Society of International Law Mid-year Research Forum, Conference of Empirical Legal Studies, University of Chicago Law School Faculty Workshop, U.C.L.A. Law School Faculty Workshop, Brooklyn Law International Business Roundtable, U.S. Securities and Exchange Commission Brown Bag Series, Harvard Law School Faculty Workshop, Tulane Law School International Finance Workshop, ASIL International Organizations Workshop, ASIL International Economic Law Group, Berkeley Comparative Politics Workshop, Berkeley Law Faculty Workshop, and Berkeley International Financial Regulation Workshop. I am grateful for support from the Hellman Fellowship Fund. All mistakes and omissions remain my own.

References

1 For the role of international organizations in producing international law, see Josée E. Alvarez, International Organizations as Lawmakers (2006).

2 See Riles, Annelise, The Anti-network: Private Global Governance, Legal Knowledge, and the Legitimacy of the State, 56 AM. J. Comp. L. 605, 605 (2008)CrossRefGoogle Scholar.

3 See Anne-Marie Slaughterx, A New World Order 8 (2004); Zaring, David, International Law by Other Means: The Twilight Existence of International Financial Regulatory Organizations, 33 Tex. Int’l L. J. 281, 286 (1998)Google Scholar.

4 See Brummer, Chris, How International Financial Law Works (and How It Doesn’t), 99 Geo. L.J. 257, 262– 63 (2011)Google Scholar.

5 See Verdier, Pierre-Hugues, Transnational Regulatory Networks and Their Limits, 34 Yale Int’l L.J. 113, 115 (2009)Google Scholar.

6 See Gadinis, Stavros, The Politics of International Financial Regulation, 49 Harv. Int’l L.J. 447, 447–53 (2008)Google Scholar.

7 See Daniel W. Drezner, All Politics Is Global 58–59 (2007).

8 See Bradford, Anu, The Brussels Effect, 107 NW. U. L. Rev. 1, 27–28 (2012)Google Scholar.

9 See Kingsbury, Benedict, Krisch, Nico & Stewart, Richard B., The Emergence of Global Administrative Law, 68 Law & Contemp. Probs. 15 (2005)Google Scholar; Kingsbury, Benedict, The Concept of Law in Global Administrative Law, 20 Eur. J. Int’l L. 23 (2009)Google Scholar. The argumentisnot limited to networks but applies to international organizations more generally.

10 See infra text accompanying notes 33– 40.

11 See Ho, Daniel E., Compliance and Soft Law: Why Do Countries Implement the Basle Accord?, 2002 J. Int’l Econ. L 647 (2002)CrossRefGoogle Scholar; Judge, William, Li, Shaomin & Pinsker, Robert, National Adoption of International Accounting Standards: An Institutional Perspective, 18 Corp. Gov’t 161 (2010)CrossRefGoogle Scholar; Clements, Curtis E., Neill, John D. & Stovall, O. Scott, Cultural Diversity, Country Size, and the IFRS Adoption Decision, 26 J. Applied Bus. Res. 115 (2010)CrossRefGoogle Scholar; Bach, David & Newman, Abraham, Domestic Drivers of Transgovernmental Regulatory Cooperation, 8 Reg. & Governance 395 (2014)CrossRefGoogle Scholar; Karthik Ramanna & Ewa Sletten, Why Do Countries Adopt International Financial Reporting Standards? (Harvard Bus. Sch. Accounting & Mgmt. Unit Working Paper No. 09-102, 2009), at http://www.hbs.edu/faculty/Publication%20Files/09-102.pdf.

12 For a discussion of how these effects differ from theories of socialization or acculturation of states, see infra note 22.

13 See, e.g., Linos, Katerina, How Can International Organizations Shape National Welfare States? Evidence from Compliance with European Union Directives, 40 Comp. Pol. Stud. 547, 547–48 (2007)CrossRefGoogle Scholar.

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17 See Raustiala, Kal, The Architecture of International Cooperation: Transgovernmental Networks and the Future of International Law, 43 VA. J. Int’l L. 1 (2002)Google Scholar; Zaring, supra note 3.

18 See Brummer, supra note 4.

19 See Zaring, David, Three Challenges for Regulatory Networks, 43 Int’l Law. 211 (2009)Google Scholar.

20 See Gadinis, supra note 6.

21 See Verdier, supra note 5.

22 For useful overviews of relevant literatures in political science and sociology, see Dobbin, Frank, Simmons, Beth & Garrett, Geoffrey, The Global Diffusion of Public Policies, 33 Ann. Rev. Soc. 449 (2007)CrossRefGoogle Scholar; Goodman, Ryan & Jinks, Derek, How to Influence States: Socialization and International Human Rights Law, 54 Duke L.J. 621 (2004)Google Scholar; Alastair Iain Johnston, Social States: China in International Institutions, 1980–2000 (2008); Ryan Goodman & Derek Jinks, Socializing States: Promoting Human Rights Through International Law (2013). The theory presented below suggests that each state’s decision to join a network and adopt its policies alters the material incentives for other countries looking to join, because it makes the network more attractive. See the discussion on network effects in “Applying the Theory to Global Standard Setters: Case Selection” in part II.

23 See Drezner, supra note 7.

24 See Bradford, supra note 8.

25 See Benvenisti, Eyal & Downs, George W., The Empire’s New Clothes: Political Economy and the Fragmentation of International Law, 60 Stan. L. Rev. 595, 597 (2007)Google Scholar.

26 See Kingsbury et al., supra note 9; Kingsbury, supra note 9.

27 See Kingsbury, Benedict & Casini, Lorenzo, Global Administrative Law Dimensions of International Organizations Law, 6 Int’l Org. L. Rev. 319, 325 (2009)CrossRefGoogle Scholar.

28 See, e.g., Meidinger, Errol, The Administrative Law of Global Private-Public Regulation: The Case of Forestry, 17 Eur. J. Int’l L. 47 (2006)CrossRefGoogle Scholar; Van Harten, Gus & Loughlin, Martin, Investment Treaty Arbitration as a Species of Global Administrative Law, 17 Eur. J. Int’l L. 121 (2006)CrossRefGoogle Scholar.

29 See generally Global Administrative Law: Towards a LEX ADMINISTRATIVA (Javier Robalino-Orellana & Jaime Rodrígues-Arana Munñoz eds., 2010) (exploring how the principles and values of global administrative law reverberate in various states).

30 See Tim Büthe & Walter Mattli, The New Global Rulers: The Privatization Of Regulation in the World Economy 12 (2011).

31 See “Current Theories of Regulatory Networks” in part I.

32 Id.

33 See Sweet, Alec Stone, The New Lex Mercatoria and Transnational Governance, 13 J. Eur. Pub. Pol’y 627, 627 (2006)CrossRefGoogle Scholar; Gadinis, Stavros & Jackson, Howell E., Markets as Regulators: A Survey, 80 S. Cal. L. Rev. 1239, 1250 (2007)Google Scholar.

34 See Kraakman, Reinier H., Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy, 2 J.L. Econ. & Org. 53, 54 (1986)Google Scholar; Cooter, Robert D., Decentralized Law for a Complex Economy: The Structural Approach to Adjudicating the New Law Merchant, 144 U. Pa. L. Rev. 1643, 1656–59 (1996)CrossRefGoogle Scholar.

35 See Bamberger, Kenneth A., Regulation as Delegation: Private Firms, Decision-Making, and Accountability in the Administrative State, 56 Duke L.J. 376, 383 (2006)Google Scholar.

36 See Bressman, Lisa Schultz & Thompson, Robert B., The Future of Agency Independence, 63 Vand. L. Rev. 599 (2010)Google Scholar; Barkow, Rachel, Insulating Agencies: Avoiding Capture Through Institutional Design, 89 Tex. L. Rev. 15, 24 (2010)Google Scholar; Tushnet, Mark, Administrative Law in the 1930s: The Supreme Court’s Accommodation of Progressive Legal Theory, 60 Duke L.J. 1565 (2011)Google Scholar.

37 Whitman v. Am. Trucking Ass’ns, 531 U.S. 457 (2001).

38 See Blumstein, James F., Regulatory Review by the Executive Office of the President: An Overview and Policy Analysis of Current Issues, 51 Duke L. J. 851, 885 (2001)CrossRefGoogle Scholar; Kagan, Elena, Presidential Administration, 114 Harv. L. Rev. 2245, 2384 (2001)CrossRefGoogle Scholar; Lessig, Laurence & Sunstein, Cass R., The President and the Administration, 94 Colum. L. Rev. 1, 103 (1994)CrossRefGoogle Scholar.

39 See Posner, Eric A. & Vermeule, Adrian, Crisis Governance and the Administrative State: 9/11 and the Financial Meltdown of 2008, 76 U. Chi. L. Rev. 1613 (2009)Google Scholar; Posner, Eric A. & Vermeule, Adrian, Accommodating Emergencies, 56 Stan. L. Rev. 605 (2003)Google Scholar.

40 See Gadinis, Stavros, From Independence to Politics in Financial Regulation, 101 Cal. L. Rev. 327 (2013)Google Scholar.

41 In countries with a professional civil service, like the United Kingdom or Germany, industry practitioners in private networks have very different backgrounds from career bureaucrats. But even in countries like the United States, where people move between private practice and the government more commonly, aseparate network allows private practitioners to promote their agendas uninhibited by political realities, regulatory directives, or institutional limitations, all of which can influence government initiatives.

42 For a discussion of the implications of global standards for multinational firms, see Gadinis, supra note 6, at 470, and Bradford, supra note 8, at 27–28.

43 I do not mean to exclude the possibility that some networks might engage actors of two or even all three institutional backgrounds when concerted action seems desirable. As an empirical matter, the Financial Stability Board, discussed in this article’s concluding remarks, is a “network of networks,” bringing together networks from all three types. However, the FSB’s constituents remain separate institutions—that is, it assigns different tasks to private, regulator, and ministry networks, a form of organization that represents a recent development in international financial networks. This article’s theory is potentially useful in developing predictions about its future course. See infra text accompanying note 157.

44 See generally Fabrizio Gilardi, Delegation in the Regulatory State: Independent Regulatory Agencies in Western Europe (2008) (showing that some countries emphasize independence in the appointment process, others emphasize independence in budgetary resources, and others in decision making).

45 See International Financial Reporting Standards Foundation, Constitution, Arts. 25, 26, 32 (Jan. 2013) [hereinafter IFRS Constitution], at http://www.ifrs.org/About-us/IFRS-Foundation/Over-sight/Constitution/Pages/Constitution.aspx.

46 See Simmons, Beth A., The International Politics of Harmonization: The Case of Capital Market Regulation, 55 Int’l Org. 589, 590 (2001)CrossRefGoogle Scholar. The United States and United Kingdom famously used this strategy in the 1980s in order to get France, Germany, and Japan to join in the 1988 Basel Accord. Anu Bradford makes a similar argument with regard to European Union regulations in international commerce. See Bradford, supra note 8.

47 See International Monetary Fund, Reports on the Observance of Standards and Codes (ROSCs), at http://www.imf.org/external/NP/rosc/rosc.aspx.

48 See Gadinis, Stavros, The Financial Stability Board: The New Politics of International Financial Regulation, 48 Tex. Int’l L. J. 157 (2013)Google Scholar.

49 See Financial Stability Board, Key Standards for Sound Financial Systems, at http://www.financialstabilityboard.org/cos/key_standards.htm. The three standards included in this study, along with the Basel Accords, are generally considered the most influential of the twelve Key Standards.

50 See Kees Camfferman & Stephen A. Zeff, Financial Reporting and Global Capital Markets: A History Of the International Accounting Standards Committee 1973–2000, at 45 (2007).

51 These predictions are borne out in the empirical analysis. See infra Figures 1–4.

52 See Gadinis, supra note 6, at 477–78.

53 In its initial formulation, IASB (then IASC) was an informal association established under a private agreement between professional accountancy associations from various countries—now known as the 1973 IASC constitution (on file with author). IASC’s staff was provided by the United Kingdom and Ireland professional accountancy associations. In a 2001 reorganization, the IASC Foundation became a nonprofit Delaware corporation (File No. 3353113). For a discussion of the reorganization and the governance changes it brought, see subsections “Membership” and “Governance” (IFRS) in part II, infra text accompanying notes 61– 68.

54 See Camfferman & Zeff, supra note 50, at 30.

55 Id. at 31.

56 Id. at 45.

57 See European Commission, Update of the Accounting Strategy Frequently Asked Questions, Memorandum, MEMO/00/34 (June 14, 2000), at http://europa.eu/rapid/press-release_MEMO-00-34_en.doc.

58 See Camfferman & Zeff, supra note 50, at 316.

59 See IFRS Constitution, supra note 45, Art. 44.

60 See Büthe & Mattli, supra note 30, at 120.

61 IFRS Constitution, supra note 45, Arts. 6, 26. The breakdown for IASB members is as follows: four from Asia/Oceania, four from Europe, four from North America, one from Africa, one from South America, and two from any geographic area. The breakdown for the IFRS Foundation Trustees is as follows: six from Asia/Oceania, six from Europe, six from North America, one from Africa, one from South America, and two from any geographic area. For a discussion of the different roles of the IASB and IFRS Foundation in the network’s governance structure, see subsection “Governance” (IFRS) in part II, infra notes 62–68.

62 See Camfferman & Zeff, supra note 50, at 219.

63 See Technical Committee of the International Organization of Securities Commissions, IASC Standards— Assessment Report (May 2000), at http://www.iasplus.com/en/binary/iosco/ioscores0005.pdf (Mar. 23, 2014) (referring to the IASC-IOSCO joint press release of July 1995, which initiated closer cooperation between the two networks).

64 See Büthe & Mattli, supra note 30, at 71.

65 Up to three IASB members can participate on a part-time basis. IFRS Constitution, supra note 45, Art. 24.

66 Id., Arts. 4–6.

67 The creation and synthesis of the Monitoring Board is another illustration of global efforts to coordinate networks’ outputs, which is part of the political and regulatory response to the 2008 financial crisis. For a discussion of how this article’s theory and findings help better understand these developments, see “Network TypesasVehicles for International Policy Coordination” in part V.

68 IFRS Constitution, supra note 45, Arts. 18–23.

69 Id., Art. 43.

70 At least ten out of sixteen IASB members must agree with the interpretation proposed. IFRS Constitution, supra note 45, Art. 43(d).

71 See By-Laws of IOSCO, Art. 7, at https://www.iosco.org/library/by_laws/pdf/IOSCO-By-Laws-Section-1-English.pdf. If a country has not established any administrative bodies but has chosen to delegate this authority to self-regulatory organizations, such as stock exchanges, then these self-regulatory organizations can become eligible for membership.

72 See Verdier, supra note 5, at 143.

73 See International Organization of Securities Commissions, Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information 2012, at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD386.pdf [hereinafter IOSCO MMOU 2012].

74 See id., Art. 9.

75 See Karmel & Kelly, supra note 15, at 913 (2009). These memorandums are nonbinding agreements between regulators that do not have formal authority to represent their respective states but that agree with one another to adhere to the conduct delineated in the document.

76 See Verdier, supra note 5, at 144.

77 For example, in its consultation report on financial benchmarks, which came at the heels of the 2012 LIBOR scandal, IOSCO received over fifty letters of comment from the public. See Board of the International Organization of Securities Commissions, Principles for Financial Benchmarks: Consultation Report (2013), at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD409.pdf.

78 See subsection “Membership” (IOSCO) in part II, infra text accompanying notes 80–84.

79 Between 2012 and 2014, IOSCO’s board was in transition, with its final structure to be determined in the 2014 Presidents Committee meeting. See Proposal to the Presidents Committee from the Executive Committee Chairman and Secretary General, Agenda Item 3c, Proposal for a New Committee Structure for IOSCO and Potential Amendment to the IOSCO By-Laws (Mar. 31, 2011), at http://www.iosco.org/library/by_laws/pdf/IOSCO-By-Laws-Appendix-3-English.pdf.

80 For example, Japan’s finance ministry is a member. See infra note 83. For the treatment of multiple member ships in the data set, see section “Data Set” in part III.

81 For the duration of this study, this group comprised the chairmen of the Technical Committee, Emerging Markets Committee, and Executive Committee, a smaller body responsible for IOSCO’s management. After 2012, the group has changed to accommodate the IOSCO board. See International Organization of Securities Commissions, Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information 2002, App. B (on file with author); IOSCO MMOU 2012, supra note 73, App. B.

82 The Presidents Committee endorsed the MMOU at its 2002 meeting. See International Organization of Securities Commissions, Annual Report 2004, at 18 (2004), at http://www.iosco.org/annual_reports/annual_report_2004/.

83 Because of regulatory authority retained at the ministerial level, Japan is the only country with a ministry that participates as an ordinary member in IOSCO. See International Organization of Securities Commissions, Ordinary Members of IOSCO, at https://www.iosco.org/about/?subsection=membership&memid=1.

84 Arguably, the recently revamped Financial Stability Board can be seen as introducing some political considerations into IOSCO’s work, but this change does not affect standards examined in this study. See Gadinis, supra note 48, at 157–59.

85 See By-Laws of IOSCO, supra note 71, Art. 27. When a country has more regulators for securities law (such as the United States, where the SEC and the Commodity Futures Trading Commission are both members), each regulator gets one vote, but the total vote for regulators from one country cannot exceed three. Id., Art. 28.1.

86 See Id., Art. 36.4.

87 See Emerging Markets Committee, International Organization of Securities Commissions, Obstacles to Joining the IOSCO MMOU 13–15 (2007), at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD246.pdf.

88 See Chris Brummer, Soft Law and the Global Financial System 52 (2012).

89 For example, it has organized training in Kuala Lumpur, Malaysia, in 2007; Santiago, Chile, in 2008; and Warsaw, Poland, in 2008. See International Organization of Securities Commissions, Past IOSCO Training Programs, at https://www.iosco.org/training/?subsection=iosco_training_programs.

90 See International Organization of Securities Commissions, Annual Report 2011, at 50 (2011), at https://www.iosco.org/annual_reports/2011/; International Organization of Securities Commissions, Annual Report 2012, at 22 (2012), at https://www.iosco.org/annual_reports/2012/.

91 See Media Release, International Organization of Securities Commissions, IOSCO to Progress Reform Agenda Under New Leadership 5 (Apr. 1, 2013), at http://www.csrc.gov.cn/pub/csrc_en/affairs/AffairsIOSCO/.

92 See IOSCO MMOU 2012, supra note 73, Art. 16(b); id., App. B, (III) (e), (f).

93 The G-7 countries were not fully satisfied with the 1988 UN Convention Against Illicit Traffic in Narcotic Drugs, which fell short of establishing an institutional structure to prevent money laundering that actively engaged financial institutions. They consequently decided to push their own plan. See Pieth, Mark, International Standards Against Money Laundering, in A Comparative Guide to Anti–money Laundering 3, 8 (Pieth, Mark & Aiolfi, Gemma eds., 2004)Google Scholar.

94 See Financial Action Task Force, 20 Years of FATF Recommendations 1990 –2010, at 4 (2010), at http://is-suu.com/fatf/docs/20_years_of_recommendations/.

95 See Brummer, supra note 88, at 20–24.

96 See 20 Years of FATF Recommendations 1990–2010, supra note 94, at 4.

97 See, e.g., SC Res. 1617 (July 29, 2005); GA Res. 60/288 (Sept. 20, 2006). But the United Nations has not required its members to adopt the FATF Recommendations.

98 See G-7 Economic Declaration, July 16, 1989, at http://www.g8.utoronto.ca/summit/1989paris/communique/index.html. The UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Sub stances, Dec. 20, 1988, 1582 UNTS 164, went into force in 1990.

99 G-7 Economic Declaration, supra note 98.

100 See William C. Gilmore, Dirty Money: The Evolution of Money Laundering Counter-Measures 80 (1999).

101 See Financial Action Task Force, Annual Report 1990 –1991 (1991), at http://www.fatf-gafi.org/documents/documents/fatfannualreport1990-1991.html.

102 See Financial Action Task Force, High-Level Principles and Objectives for FATF and FATF-Style Regional Bodies (FSRBs), at http://www.fatf-gafi.org/topics/fatfgeneral/documents/high-levelprinciplesfortherelationshipbetweenthefatfandthefatf-styleregionalbodies.html.

103 See Financial Action Task Force, Financial Action Task Force Mandate (2012–2020), Art. 20 (2012), at http://www.fatf-gafi.org/topics/fatfgeneral/documents/ministersrenewthemandateofthefinancialactiontaskforceuntil2020.html.

104 See id., Arts. 18, 19.

105 For example, see FATF’s guidance on the meaning of politically exposed persons, a term used in Recommendations 12 and 22. Financial Action Task Force, FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22) (2013), at http://www.fatf-gafi.org/documents/documents/peps-r12-r22.html.

106 See Financial Action Task Force, Annual Report 2011–2012, at 34 (2012), at http://www.fatfgafi.org/documents/documents/fatfannualreport2011-2012.html.

107 For an overview of the Mutual Evaluation Process and Report and information about the recent round of reviews, see id. at 20–23.

108 See Financial Action Task Force, AML/CFT Evaluations and Assessments: Handbook for Countries and Assessors (2009), at http://www.fatf-gafi.org/topics/mutualevaluations/documents/handbookforcountriesandassessorsamlcftevaluationsandassessments.html.

109 See Brummer, supra note 88, at 154.

110 See id. at 152.

111 See Financial Action Task Force, High-Risk and Non-cooperative Jurisdictions: CFATF Decides to Call for Counter Measures Against Belize and Guyana (May 30, 2014), at http://www.fatf-gafi.org/topics/highriskandnon-cooperativejurisdictions/documents/cfatf-ps-nov2013.html.

112 It was not possible to include Canadian provinces separately, however, because data were available only for Canada as a whole.

113 See Securities and Exchange Commission, Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards Without Reconciliation to U.S. GAAP, 73 Fed. Reg. 986 (Jan. 4, 2008).

114 IFRS were seen as potentially watering down the protection that U.S. GAAP afforded investors. See Bratton, William W., Heedless Globalism: The SEC’s Roadmap to Accounting Convergence, 79 U. Cin. L. Rev. 471 (2010)Google Scholar.

115 Some countries, such as Cyprus and Egypt, had announced compliance with the International Accounting Standards (IFRS’s predecessors) in the 1980s, when the standards did not yet amount to a separate, self-standing set of principles but were complementary to national standards. These early announcements are disregarded, as they do not amount to full adoption; both Cyprus and Egypt reintroduced the full set of IFRS at a later date.

116 To help improve readability for the non-expert reader, the text presents the intuitions underlying key concepts. More technical information is included in the footnotes, especially for readers interested in the statistical techniques.

117 See supra note 11.

118 For readers interested in reading more about spatial lags, see generally Luc Anselin, Spatial Econometrics: Methods and Models (1988).

119 To calculate these weights, this study relied on export data for each country in each year in sixty different product categories. For more details, see subsection “Competition” in part IV.

120 In this study, all spatial lags range from 0 to 1, where 1 indicates that all countries potentially influencing C in the manner explored by the spatial lag have adopted the standard. This assignment of values is standard in spatial lags exploring country-to-country influences, and results from a conventional practice in spatial econometrics known as row standardization. For a discussion of this practice, see Katerina Linos, The Democratic Foundations of Policy Diffusion 90 n.66 (2013).

121 Construction of the spatial lag begins with a matrix whose elements represent the degree of connectedness between any two countries in the sample, on the basis of the characteristic in question, be it export profiles, levels of government effectiveness, or military alliances. The matrix varies over time because the relevant connections change over time. By convention, the diagonal values—that is, a country’s relationship to itself—are set to 0. In addition, the matrix is row-standardized, so that countries with many neighbors and countries with few neighbors get proportional weights. This matrix is then multiplied by a vector of country-year observations that takes the value of 1 if a connected country has adopted the standard in question, and 0 if it has not. This vector is then lagged by one or more years, meaning that neighbors’ policies in the prior year (or earlier years) are inputted. This lag reflects the time that it takes for one country’s policies to influence those of others.

122 The models estimated take the following form: $$Yit = α + βXit-1 + ρWy*t-1 + sit + Yit is a binary variable, indicating whether country i has adopted an international standard in year t or not. X is a vector of conditions that affect country i’s decision, Wy* is a vector of spatial lags and ϵ is the error term.

123 In the regressions presented in Table 3 below, one of the reasons that each standard has a different sample size is that the time frame for each standard is different. For a more detailed discussion, see infra note 135.

124 The Cox model is popular because it is especially flexible and does not require the researcher to make strong assumptions about the pace at which countries adopt international standards. The Cox model does require the researcher, however, to ensure that a key test is satisfied: the proportionality of hazards assumption. See infra note 134. For more details on these statistical models, see generally David G. Kleinbaum, Survival Analysis: A Self-Learning Text (3d ed. 2011).

125 See Elkins, Zachary, Guzman, Andrew T. & Simmons, Beth A., Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960–2000, 60 Int’l Org. 811 (2006)Google Scholar.

126 These data are provided by the World Governance Indicators (WGI) project of the World Bank group. The WGI project has been criticized for relying heavily on surveys of firms, experts, and officials regarding their perceptions of governance, rather than metrics of governance on the ground. See, e.g., Kurtz, Marcus J. & Schrank, Andrew, Growth and Governance: Models, Measures, and Mechanisms, 69 J. Pol. 538, 539 (2007)CrossRefGoogle Scholar. For a response to these criticisms by the WGI project, see Kaufmann, Daniel, Kraay, Aart & Mastruzzi, Massimo, Growth and Governance: A Reply, 69 J. Pol. 555 (2007)CrossRefGoogle Scholar. These criticisms could affect the results in this study to the extent that network members, when screening new applicants, were better able than the WGI project to discern the quality of governance in an applicant country. However, because, for each country/year, the spatial lag aggregates and weighs governance measures for all other countries, only very large and systematic deviations between network members’ screening and the WGI index could substantially affect on the findings.

127 See Schraeder, Peter J., Hook, Steven W. & Taylor, Bruce, Clarifying the Foreign Aid Puzzle: A Comparison of American, Japanese, French, and Swedish Aid Flows, 50 World Pol. 294 (1998)CrossRefGoogle Scholar.

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129 See Li, Quan, The Effect of Security Alliances on Exchange-Rate Regime Choices, 29 Int’l Interactions 29, 159 (2003)Google Scholar.

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131 See Henisz, Witold Jerzy, Political Institutions and Policy Volatility, 16 Econ. & Pol. 1 (2004)CrossRefGoogle Scholar.

132 One of the most extensive studies to date includes an analysis of mostly European regulators. See Gilardi, Fabrizio, The Formal Independence of Regulators: A Comparison of 17 Countries and 7 Sectors, 11 Swiss Pol. Sci. Rev. 139, 139–40 (2005)CrossRefGoogle Scholar.

133 See Porta, Rafael La, Lopez-de-Silanes, Florencio & Shleifer, Andrei, What Works in Securities Laws, 61 J. Fin. 1 (2006)CrossRefGoogle Scholar; Djankov, Simeon, Porta, Rafael La, Lopez-de-Silanes, Florencio & Shleifer, Andrei, The Law and Economics of Self-Dealing, 88 J. Fin. Econ. 430 (2008)CrossRefGoogle Scholar.

134 I employed the residual-based test of the proportional hazards assumption to ensure that the Cox model is appropriate for these data; I found that the model as a whole and the main independent variables are robust and proportional in their effects in each set of standards analyzed below.

135 As discussed above in the immediately preceding section, “Main Independent Variables,” the sample size for each set of three models also reflects the different times at which countries enter and exit the data set. Each of the standards became available for adoption at a different time. For IFRS, which evolved gradually, the sample begins in 1980, a year before a professional accountants’ association formally recommended voluntary adoption to its members. See information pertaining to the Institute of Certified Public Accountants of Cyprus, a private professional association. International Federation of Accountants, Assessment of the Regulatory and Standard-Setting Framework: The Institute of Certified Public Accountants of Cyprus 6 (question 44(b)), at http://www.adoptifrs.org/uploads/Cyprus/international%20federation%20of%20accountants.pdf (information submitted as part of International Federation of Accounts compliance program). This recommendation indicates that from that time onward, standards had reached a form that countries could have adopted them if they so desired. For IOSCO, the sample begins in 2002, when the MMOU was executed and became available to countries. Similarly, for FATF, the sample begins in 1990, when the 40 Recommendations were first introduced. The number of observations in Table 3 reflects this timing.

136 These fitted survivor curves are based on Model 4 in Table 3; all other variables are held at their means.

137 These fitted survivor curves are based on Model 5 in Table 3; all other variables are held at their means.

138 These fitted survivor curves are based on Model 6 in Table 3; all other variables are held at their means.

139 For the connection between cross-listings and competitiveness, see Committee on Capital Markets Regulation, The Competitive Position of the U.S. Public Equity Market (2007), at http://capmktsreg.org/app/uploads/2014/12/The_Competitive_Position_of_the_US_Public_Equity_Market.pdf.

140 See Coffee, John J., The Future as History: The Prospects for Global Convergence in Corporate Governance and Its Implications, 93 NW. U. L. Rev. 641 (1999)Google Scholar; Coffee, John J., Racing Towards the Top? The Impact of Cross-listings and Stock Market Competition on International Corporate Governance, 102 Colum. L. Rev. 1757 (2002)CrossRefGoogle Scholar; Stulz, René, Globalization, Corporate Finance, and the Cost of Capital, 26 J. Applied Corp. Fin. 3 (1999)Google Scholar.

141 See Rubenfeld, Jed, Unilateralism and Constitutionalism, 79 N.Y.U. L. Rev. 1971, 2017–18 (2004)Google Scholar.

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146 See Linos, Katerina, Diffusion Through Democracy, 55 AM. J. Pol. Sci. 678 (2011)CrossRefGoogle Scholar; Katerina Linos, The Democratic Foundations of Policy Diffusion: How Health, Family and Employment Laws Spread Across Countries (2013).

147 See, e.g., Joined Cases C-584/10 P, C-593/10 P & C-595/10 P, Comm’n v. Kadi (Eur. Ct. Justice, July 18, 2013).

148 See Stephan, Paul B., Accountability and International Lawmaking: Rules, Rents, and Legitimacy, 17 NW. J. Int’l L. & Bus. 681, 699 (1996–97).Google Scholar

149 See Benvenisti, Eyal, Reclaiming Democracy: The Strategic Uses of Foreign and International Law by National Courts, 102 AJIL 241 (2008)CrossRefGoogle Scholar. Daniela Caruso similarly argues that private law can help legitimize transnational bodies through its depoliticization and neutrality. Caruso, Daniela, Private Law and State-Making in an Era of Globalization, 39 N.Y.U. J. Int’l L. & Pol. 1, 71–74 (2006)Google Scholar.

150 See Keohane, Robert O., Macedo, Stephen & Moravcsik, Andrew, Democracy-Enhancing Multilateralism, 63 Int’l Org. 1, 2 (2009)CrossRefGoogle Scholar.

151 De Búrca, Gráinne makes a similar remark in Developing Democracy Beyond the State, 46 Colum. J. Transnat’l L. 221, 224 (2008)Google Scholar.

152 See Stewart, Richard B., Remedying Disregard in Global Regulatory Governance: Accountability, Participation, and Responsiveness, 108 AJIL 211, 213 (2014)CrossRefGoogle Scholar.

153 See supra note 38 (references cited).

154 See Gadinis, supra note 40.

155 Id.

156 See Gadinis, supra note 48.

157 See Stephan, Paul B., International Governance and American Democracy, 1 Chi. J. Int’l L. 237, 238 (2000)Google Scholar. Daniel Esty accepts what he terms “the inevitable lack of democratic underpinnings”asstates move decision making to the international level, but looks at other justifications such as expertise and procedural legitimacy. Esty, Daniel C., Good Governance at the Supranational Scale: Globalizing Administrative Law, 115 Yale L. J. 1490, 1490 (2006)CrossRefGoogle Scholar; see id. at 1495–97.

158 See Alvarez, supra note 143, at 341; De Bürca, Gráinne, The European Court of Justice and the International Order After Kadi, 51 Harv. Int’l L. J. 1, 2 (2010)Google Scholar.