Singapore became the first of 46 countries to sign a new United Nations (UN) treaty on commercial mediation on August 7, when officials from 70 nations convened in the city-state to officiate an agreement designed to facilitate global trade and resolve cross-border disputes.

The Singapore Convention on Mediation, the first treaty concluded under UN auspices to be named after the city-state, aims to give businesses greater confidence to settle international disputes through mediation, which involves a neutral party working with different sides to come to an agreement rather than resort to costly court proceedings.

While both the United States and China remain at loggerheads in an escalating trade war, the world’s two largest economies were among the convention’s first signatories, an outcome that observers see as a small coup for Singapore, a staunch free trade advocate that has cautioned against an unravelling of multilateral institutions.

Once ratified, the treaty’s provisions establish a framework for commercial parties in a dispute to enter a mediated negotiation with the ability to enforce the terms of a settlement in any of the convention’s signatory jurisdictions. Parties to the treaty are obliged to ensure that the terms of any settlement are enforced by their courts.

The new convention cements Singapore’s position as a leading dispute resolution hub at a time when cross-border commercial and trade disputes are on the rise. The city-state’s international arbitration center handles one of the world’s largest administered annual caseloads, while the nation plays host to more than 130 foreign law firms.

Prime Minister Lee Hsien Loong hailed the symbolic importance of the convention, which was drafted and negotiated by a working group chaired by a Singaporean, as a “powerful statement in support of multilateralism” that would help advance international trade, commerce and investment at a time when multilateralism suffers from a loss of confidence.

“Today, a group of states have come together to recommit ourselves to multilateralism and to declare that we remain open for business, we are prepared to make binding commitments, and we are committed to preserving our relationships,” he said, adding that all countries stand to lose in an alternative world order where “might is right.”

Singapore’s Prime Minister Lee Hsien Loong speaks during the opening of the IISS Shangri-La Dialogue summit in Singapore on May 31, 2019. Photo: Roslan Rahman/AFP

Singapore’s leader, who during his address acknowledged that multilateral institutions are “in need of urgent reform,” has articulated various critiques of American trade policies under the Donald Trump administration in recent months, often by signaling concern over rising protectionism and unilateralism without explicitly mentioning Washington.

When asked during a press conference yesterday whether he was surprised that the current US administration embraced the treaty, Law and Home Affairs Minister K Shanmugam, who was the first signee to the convention as Singapore’s representative, described the US as playing “a completely constructive role from beginning to end.”

“When they indicated to us that they would be signing, we actually thought it would take a longer time…but their signing today is completely consistent with how the US has approached these UNCITRAL [UN Commission on International Trade Law] negotiations,” he said, noting that it was actually a US delegate who recommended a mediation convention.

Timothy Schnabel, then a State Department attorney, proposed the convention in 2014 and headed the American delegation to the UN working group that was assigned to develop the convention as an alternative method of resolving trade disputes, making it in effect a Barack Obama-era initiative that the current US administration has seen through.

The fact that both the US and China, as well as others such as India and South Korea, signed up to the treaty on day one is “very indicative of what they think of the importance of the convention” Shanmugam said, adding however that issues between the US and China were “far bigger” compared with the role the convention is expected to play.

“This convention is helpful in strengthening the multilateral order and facilitating international trade flows. When there are differences that arise at that strategic and political level, they also have to be dealt with at that level. This builds the foundations and helps, but this is not the solution for those issues,” he said.

The Sinamale Bridge, formerly known as the China-Maldives Friendship Bridge, was built with funding from China in the Maldives capital Male. But former president Abdulla Yameen was beaten in an election last month that was a fight for influence between India and China. Photo: AFP
The Sinamale Bridge, formerly known as the China-Maldives Friendship Bridge, was built as part of the BRI in the Maldives capital Male. Photo: AFP

Singapore and China recently inked a separate deal to establish an arbitration center, known as the Beihai Asia International Arbitration Centre (BAIAC), in the city-state which officially launched on August 8 to resolve disputes arising from projects under China’s Belt and Road Initiative, which encompasses global infrastructure projects worth an estimated US$1 trillion.

The naming of the new convention could also be seen as a one-up over Hong Kong, another leading regional dispute resolution center which competes with Singapore to be Asia’s premier financial services hub. The latter is widely regarded to be a beneficiary of recent turmoil in the Chinese-ruled city as investors hedge against the unrest.

Simon Chesterman, the dean of the National University of Singapore’s (NUS) Faculty of Law, said that having the convention signed in the city-state was very “on brand” for Singapore, which has closely identified with the rule of law and positioned itself as Asia’s legal hub by offering a full suite of dispute resolution techniques, including litigation and arbitration.

“This convention adds a third arrow to that dispute resolution quiver and the key role of Singapore reflects both the importance of law to the Republic as well as its desire to be seen as a thought leader in the field,” Chesterman told Asia Times, adding that mediation has come a long way as a viable and effective dispute resolution alternative.

In litigation processes, a judge makes a public legal ruling on a dispute, whereas in arbitration, an arbitrator makes a binding ruling behind closed doors. Mediation offers a third way by giving disputing parties control over the settlement process with the help of a neutral mediator that facilitates discussions with the aim of finding a commercial solution.

“This convention sensibly skirted some of the more politicized issues, confining itself to commercial mediation. The key issue is not that mediation agreements were not being enforced, but that parties were unwilling or unable to mediate because of a lack of certainty,” Chesterman said.

“By providing certainty that mediation agreements can be enforced, the Singapore Convention will encourage more parties to consider this as an alternative to arbitration or litigation. Mediation won’t be appropriate to all situations, but where parties want to preserve their relationship it can be a cheaper and faster method to move beyond a dispute.”

Singapores Law and Home Affairs Minister K Shanmugam becomes the first signatory of the Singapore Convention as the city-state’s representative, August 7, 2019. Photo: Ministry of Law (Singapore)

Chesterman added that because there is generally no “winner” or “loser” in mediation, the process makes it much more likely that commercial parties can continue to work together.

Others who advocate mediation argue that the treaty, officially known as the UN Convention on International Settlement Agreements Resulting from Mediation, offers the best framework for settling disputes involving costly infrastructure projects that would otherwise risk being derailed or abandoned.

In order for the treaty to be successful, however, it needs many countries to enforce its settlements. Shanmugam said the convention was off to “a flying start” with 46 initial signatories and at least 20 others said to be closely assessing their applicability. The convention comes into force after three countries ratify it.

“I would be surprised if it hasn’t come into force by the middle of next year,” the law minister said. “The more countries which are parties to the convention… the easier it is to recover [funds awarded through mediation]. In a multilateral way, it helps everybody. The more parties sign up, the better it is.”