Foreword
Summary
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A1
Acknowledgements
Figures and tables
Economic value of English law | Oxera

A1.1.3: Risks and opportunities

Published: October 5th 2021
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2.1: Introduction 2.2: Economic value is created by ‘gains from trade’—realised through transactions 2.3: The law underpins growth in the volume of transactions (and therefore the generation of economic value) 2.4: Considering the law as infrastructure on which transactions take place
3.1: Introduction 3.2: The economic value created through the UK legal services ecosystem 3.3: The economic value created for the UK as a whole -3.3.1: English law as a global market standard -3.3.2: Agglomeration effects -3.3.3: Reduced transaction costs for UK businesses trading internationally 3.4: The choice of law and legal services for internationally mobile transactions
4.1: Introduction 4.2: English law provides significant value to the UK economy -4.2.1: Maritime sector -4.2.2: Commodity trading -4.2.3: ISDA swaps and derivatives -4.2.4: International insurance contracts -4.2.5: The value of English law to the UK economy is significant 4.3: Risks and opportunities 4.4: Future opportunities for the use of English law represent significant potential value to the UK
5.1: Introduction 5.2: English law suffers from a type of ‘market failure’ 5.3: Solutions to the free-rider problem: coordination across private and public parties 5.4: How to manage the ‘provision’ of English law
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Chapter A1

A1.1.3: Risks and opportunities

While the UK remains the primary global hub for maritime services, and English law remains the most common legal framework for global maritime contracts, there is growing potential competition in this area. Singapore in particular has been promoting itself as a centre for arbitration of maritime disputes under contracts governed by English law.[1]LLMA (2018), ‘Call for Evidence Response Maritime 2050’.

London currently remains the most popular choice of jurisdiction for maritime arbitration, with Singapore and Hong Kong the two strongest competitors (these currently lag far behind, though they likely have ambition to grow in this area).[2]Although a newly established Nordic arbitration centre promoted by Scandinavian maritime clusters may also emerge as an alternative to the UK for international maritime arbitration. See HFW (2020), … Continue reading The success of the UK as the leading global arbitration seat directly results in significant revenue for the UK. This is not only in the form of legal fees to UK law firms, but also from the use of specialist consultants and technical experts, who are mostly based in the UK.[3]LLMA (2018), ‘Call for Evidence Response Maritime 2050’.[4]Maritime London (2017), ‘London arbitration, just a few good reasons why’. However, as other regional hubs seek to expand in the coming years, the use of English law and the UK as the pre-eminent global hub may become increasingly at risk.

More generally, Singapore, Shanghai and Hong Kong have each recently pursued active strategies to attract maritime business services. Singapore is now the second largest maritime services hub after London.[5]PwC (2016), op. cit. It has also been estimated that as Asia grows as a market for global container trade flows, an increasing share of some business service transactions—such as marine cargo insurance—may be situated in Asia.[6]See, for example, BCG (2014), ‘London matters: The competitive position of the London Insurance Market’, p. 16.

Box A1.1 Value at risk in the maritime sector—stylised scenarios

If competition were to cause UK maritime business to move elsewhere and possibly be governed by a law other than English law, this would represent a significant loss to the UK. We illustrate this using the following stylised scenarios.

  • A 10% reduction in UK maritime business could mean a loss to the UK economy of approximately £400m each year.
  • A reduction of 30% in UK maritime business could lead to a loss of approximately £1.2bn to the UK each year.

Due to the agglomeration effects described above, a reduction in size of this important part of the maritime cluster may have a much wider effect in the long run.

Nevertheless, there exist opportunities for the UK to promote the use of English law in maritime transactions as the sector continues to expand globally. Continued success of English law would enable the UK maritime cluster to further attract internationally mobile transactions. For instance, if the UK maritime business sector were to expand by 5%, this could represent an additional £200m for the UK economy.

Source: Oxera analysis, based on data from CEBR (2017), ‘The economic contribution of the UK Maritime Business Services industry’, September.

References

References
↑1, ↑3LLMA (2018), ‘Call for Evidence Response Maritime 2050’.
↑2Although a newly established Nordic arbitration centre promoted by Scandinavian maritime clusters may also emerge as an alternative to the UK for international maritime arbitration. See HFW (2020), ‘The Maritime arbitration universe in numbers: London remains ever dominant’, May.
↑4Maritime London (2017), ‘London arbitration, just a few good reasons why’.
↑5PwC (2016), op. cit.
↑6See, for example, BCG (2014), ‘London matters: The competitive position of the London Insurance Market’, p. 16.