[Senate Executive Report 115-7]
[From the U.S. Government Publishing Office]
115th Congress } { Exec. Rept.
SENATE
2d Session } { 115-7
======================================================================
UNITED NATIONS CONVENTION ON THE ASSIGNMENT OF RECEIVABLES IN
INTERNATIONAL TRADE, DONE AT NEW YORK ON DECEMBER 12, 2001, AND SIGNED
BY THE UNITED STATES ON DECEMBER 30, 2003
_______
September 12, 2018.--Ordered to be printed
_______
Mr. Corker, from the Committee on Foreign Relations,
submitted the following
REPORT
[To accompany Treaty Doc. 114-7]
The Committee on Foreign Relations, to which was referred
the United Nations Convention on the Assignment of Receivables
in International Trade, done at New York on December 12, 2001,
and signed by the United States on December 30, 2003 (Treaty
Doc. 114-7), having considered the same, reports favorably
thereon with six declarations and five understandings, as
indicated in the resolution of advice and consent, and
recommends that the Senate give its advice and consent to
ratification thereof.
CONTENTS
Page
I. Purpose..........................................................1
II. Background.......................................................2
III. Major Provisions.................................................4
IV. Entry Into Force and Denunciation................................6
V. Implementing Legislation.........................................6
VI. Committee Action.................................................6
VII. Committee Recommendation and Comments............................6
VIII.Text of Resolution of Advice and Consent to Ratification........14
I. Purpose
The United Nations Convention on the Assignment of
Receivables in International Trade (the ``Convention'')
provides uniform rules to facilitate cross-border receivables
financing. Receivables financing is an important tool in
helping U.S. companies secure working capital financing. Within
the United States, lenders and buyers of receivables are
familiar with providing financing based upon the use of
receivables from debtors located within the United States as
working capital collateral. Uniform Commercial Code Article 9,
as adopted by all 50 states, the District of Columbia, and the
territories of Puerto Rico and the Virgin Islands, provides
extensive rules on the use of receivables as to finance
operations or use as collateral and how to resolve potential
conflicts of law. However, U.S. based lenders may be less
willing to make loans secured by receivables owed by debtors
located outside the United States because such cross-border
transactions may involve countries whose laws are not
consistent with modern financial practices.
The Convention, if widely adopted, will establish clear
rules for resolving conflicts of law with respect to
receivables financing. A key element of the Convention includes
providing clear rules on establishing location under the
treaty, allowing commercial parties to structure deals and
effectively choose the forum that suits their needs in many
transactions. Further, the Convention requires Parties to
establish certain modern commercial finance rules consistent
with U.S. Uniform Commercial Code Article 9 practices.
II. Background
In the United States, U.S. companies often rely on
receivables financing to secure access to working capital for
their business operations. An assignment of receivables occurs
when one party (the assignor) transfers to another party (the
assignee) the right to receive the contractual amount owed by
its customers or other third parties (the debtors). Small and
medium size businesses in particular use these rights to
payments from their customers as working capital or operational
funding collateral with their local lenders to secure needed
cash to finance purchases of raw materials and other resources.
If the assignor, the assignee, and the debtor are U.S.
companies, the applicable laws are well understood.
Receivables financing is governed by the principles found
in the Uniform Commercial Code (UCC), Article 9 as adopted by
the 50 states, the District of Columbia, and the territories of
Puerto Rico and the Virgin Islands (referred to herein as ``the
states''). UCC Article 9 is the foundation for U.S. laws on
secured finance. For example, the UCC establishes rules on
assignee priority rights and secured lending. The UCC also
provides a framework for U.S. courts on resolving conflicts of
law between assignors or debtors and assignees located in
different states. The U.S. modern commercial finance laws, as
represented by the UCC, are considered among the most advanced
in the world.
Modern receivables financing principles in the UCC, such as
rules that allow interests in future receivables, receivables
in bulk financing, and rules on proceeds and other mechanisms
protect the assignee's rights. These rules reduce receivables
financing risk and cost and make receivables financing an
attractive option that has provided U.S. companies, especially
small and medium size enterprises with business finance options
that have led to significant economic growth and job creation
in the United States over the past several decades.
Many countries, however, do not have the kinds of modern
commercial finance laws on the assignment of receivables found
in UCC Article 9. Because of the risk, cost and uncertainty
created by receivables financing laws in other countries that
vary greatly or that can be vague or unpredictable, the ability
of small and medium sized U.S. enterprises to access financing
with lenders using their international accounts receivables
derived from exports or other cross-border transactions is
severely limited.
The U.N. Convention on the Assignment of Receivables in
International Trade (``the Convention'') solves many of these
problems. First, the Convention would establish more uniformity
with respect to receivables financing in cross border
transactions.
Second, the Convention provides a unique benefit to the
United States in that it closely reflects UCC Article 9
principles. Many U.S. commercial, finance and business sectors
were participants in the development of the Convention and will
be familiar with its terms. In addition, the Convention was
developed in close coordination with the National Conference of
Commissioners on Uniform State Laws (``Uniform Law Commission''
or ``ULC'') and representatives of the American Law Institute
(ALI). The Uniform Law Commission, which is composed of
representatives of the states, together with the ALI, drafted
the Uniform Commercial Code which has been adopted by all the
states and jurisdictions of the United States.
Importantly, because the Convention closely reflects UCC
Article 9, the administration has assured the committee the
Convention will have minimal effect on current financing
practice. The Convention would help U.S. businesses who rely on
receivables financing to extend their operations across borders
because foreign businesses will also be complying with an
agreed upon international version of Article 9 of the UCC once
their home government has ratified the Convention.
The administration has indicated that the treaty would be
self-executing. According to the testimony of the State
Department's Acting Legal Advisor in testimony given to the
committee on December 13, 2017:
The treaty would be self-executing, which is consistent
with the recommendation of the ULC Committee. There is
no need for federal or state implementing legislation.
Ratification of the Convention would not change U.S.
practice in this area in any material respect. The
Convention's rules are largely based on U.S. law and
will produce substantially the same results as those
under the UCC Article 9.
The Convention is limited to transactions that are
international in nature. In addition, the Convention does not
create any new legal bodies. As with Article 9, the Convention
establishes rules that would facilitate private transactions
that are governed by private contract, enforceable through
contract remedies. The Convention does not create any appeal
mechanism to a foreign government or international body.
While the Convention requires countries party to the
Convention to establish minimum standards in some areas such as
rules on proceeds or priority assignment (rules already highly
developed within the United States beyond the standards
required under the Convention), the Convention generally adopts
an approach that allows private parties maximum flexibility to
develop and adopt their own contractual relationships as will
be determined by their own specific business needs.
Finally, the Convention, in Articles 35, 40, 41, and 42,
provides additional flexibility for countries party to the
Convention to make future declarations with respect to
exemption of businesses, public purpose entities, other
government entities, or specific transactions from application
under the Convention, should the need arise. Given that the
goal is to establish more uniformity with respect to these
international transactions involving receivables financing
across borders, the committee does not anticipate the United
States making such a future declaration at this time.
The Convention is supported by the Uniform Law Commission,
the U.S. Chamber of Commerce, the Financial Services
Roundtable, the Commercial Finance Association, BAFT (Bankers
Association for Trade and Finance), Equipment Leasing and
Finance Association, the International Swaps and Derivatives
Association, Inc., the National Foreign Trade Council, the
National Law Center for Inter-American Free Trade, the Small
Business & Entrepreneurship Council, the U.S. Council for
International Business, Southwestern/Great American, Inc., and
the American Bar Association.
A detailed paragraph-by-paragraph analysis of this treaty
may be found in the Letter of Submittal from the Secretary of
State to the President on this instrument, which is reprinted
in full in Treaty Document 114-7. What follows is a brief
summary of some key provisions.
III. Major Provisions
As noted above, the Convention focuses generally on secured
finance rules and is largely consistent with U.S. law,
specifically Article 9 of the Uniform Commercial Code, which
the Convention is largely based on. Therefore, according to
administration testimony before the Foreign Relations
Committee, not only would the Convention require little change
in current practices within the United States with respect to
receivables financing, the Convention would help promote U.S.
UCC rules on receivables financing to the benefit of both U.S.
and foreign exporters as well as businesses using foreign
receivables for financing or collateral.
It is the considered opinion of the committee that
ratification of the Convention is in the interest of the United
States. The Convention will support U.S. exports and related
cross-border transactions and job growth by facilitating cross-
border trade. In particular, among countries ratifying the
Convention, the Convention establishes a framework for
reconciling conflicts of laws with respect to cross-border
receivables financing. Among countries that ratify the
Convention, the Convention will also establish new baseline
standards, modeled on U.S. modern commercial finance rules,
regarding proceeds, priorities, and future and bulk
receivables.
III.A. ESTABLISHING RULES FOR RECONCILIATION OF CONFLICTS BETWEEN
COUNTRIES ON CROSS-BORDER RECEIVABLES TRADE FINANCE
Establishing clear rules on what law governs competing
priority claims over a receivable is one of the key benefits of
the Convention. With respect to an assignment of a receivable
in international transactions, competing claimants to the
receivable could include the other assignees of the same
receivable, bankruptcy trustees in an insolvency proceeding, or
creditors of the assignor who intend to make claims on the
receivable assigned to an unrelated assignee. With high degrees
of uncertainty and without a clear pathway as to how to resolve
potential competing claims, a potential assignee, concerned
with the status of the priority of their claim to the
assignment, may be inclined to avoid an otherwise favorable
transaction due to the risks and costs associated with the
assignment.
Convention Article 22 provides clear rules for determining
which country's substantive law may apply with respect to the
priority of an assignee's rights over other claimants to the
receivable. The Convention applies to cross-border or
international receivables or assignment of receivables. The
laws governing receivables may vary greatly from country to
country. Further, the laws governing questions as to which
nation's substantive law should apply may also vary greatly.
The Convention would provide a clear path for determining which
countries' laws should apply and for determining what that law
is and how it might apply to the particular receivables
transaction.
III.B. ADOPTION OF MODERN PRIORITY RULES
Convention Article 42 allows countries to declare that they
intend to be bound by one of three sets of priority rules as
set out in the Annex of the Convention. The first option
parallels the system in the United States, and the committee
recognizes that the United States is already in compliance with
these provisions in the Annex. In fact, the U.S., in several
areas, is including understandings and declarations to ensure
that the Convention works seamlessly with the Uniform
Commercial Code and that U.S. law can continue to lead the
world in the development of modern finance rules.
Because the Convention provides conflict-of-law rules to
determine which country's law applies to priority conflicts
rather than providing substantive rules of priority itself, the
substantive rules for resolving priority are generally
determined by the domestic law of individual States. The
committee notes that the State Department and the Uniform Law
Commission have taken the position that current U.S. law
reflected in state enactments of the Uniform Commercial Code is
consistent with the priority system in sections 1 and 2 of the
Annex.
Convention Article 8 (consistent with U.S. UCC Article 9)
provides clear, modern finance rules on the assignment of
existing and future receivables to secure current and future
advances, the bulk assignment of receivables, and allows for
the assignment of partial and undivided interests in
receivables. For some countries, adoption of the Convention may
require changes to current law, but the State Department has
informed the committee that current U.S. law and practice is
wholly consistent with these provisions of the Convention, a
position also supported by the Uniform Law Commission.
Convention Article 24 provides for the adoption of rules on
proceeds. As discussed below, the United States has advanced
rules on proceeds and intends to offer an understanding that
U.S. laws will go beyond the basic standards offered in the
Convention. The committee believes that establishing a firm
foundation of law with respect to the rights of assignees, as
they relate to proceeds, is an important part of developing
modern commercial finance laws and practices. The committee is
encouraged to believe that other nations that adopt the
Convention will establish these important principles in their
laws.
Finally, it is the hope of the committee that other nations
seriously consider adoption of the Convention. The committee
believes that developing countries in particular could benefit
from the anticipated better credit availability and rates that
adoption of the modern commercial finance rules of the
Convention would generate.
IV. Entry into Force and Denunciation
Convention Article 45 provides that the treaty will enter
into force on the first day of the month following the
expiration of six months from the date of the deposit of the
fifth instrument of ratification, acceptance, approval or
accession with the depository. Currently, the Republic of
Liberia has acceded to the treaty. Because it is widely
recognized that the Convention reflects uniform state laws of
the United States, the State Department has informed the
committee that it expects other countries to consider the
Convention once the United States ratifies the treaty. With
deposit of its instrument of ratification, the United States
would be the second State to join the Convention. Under Article
46, a Contracting State may denounce the Convention at any time
by written notification addressed to the depositary. Such
denunciation would take effect on the first day of the month
following the expiration of one year after the notification is
received by the depositary. The Convention would continue to
apply to certain assignments concluded before the date of
denunciation.
V. Implementing Legislation
The executive branch has indicated its view that the treaty
is self-executing. Accordingly, federal or state implementing
legislation is not necessary. The Resolution of Advice and
Consent to Ratification includes a declaration stating that the
Convention is self-executing.
VI. Committee Action
The committee held a hearing to consider the treaty on
December 13, 2017. Senator Risch chaired the hearing. The
committee considered the treaty on March 20, 2018, and ordered
the treaty favorably reported by voice vote, with a quorum
present and without objection, with the recommendation that the
Senate give advice and consent to its ratification, as set
forth in this report and the accompanying resolution of advice
and consent to ratification.
VII. Committee Recommendations and Comments
The committee believes the Convention would provide
significant benefits for U.S. companies, particularly small and
medium sized enterprises that rely on receivables financing to
generate working capital and, therefore, recommends the Senate
give its advice and consent to ratification. The Convention
closely follows UCC Article 9 and is, therefore, consistent
with U.S. laws and common practices. In fact, the committee
believes that, because the Convention is based so closely on
the United States Uniform Commercial Code, widespread adoption
will extend U.S. commercial financing practices globally.
The committee believes that the Convention will reduce
legal risks and costs associated with cross-border receivables
financing, as other countries become party to the Convention.
With such risk and cost reduction, U.S. lenders will be more
willing to provide financing to exporters and businesses using
foreign receivables for financing or collateral, thereby
facilitating growth in exports and related cross-border
transactions, improving U.S. global competitiveness, and
creating U.S. jobs.
The committee also notes the testimony of the State
Department that ratification by the United States will have a
beneficial effect with respect to ongoing efforts to modernize
commercial finance rules in other countries:
U.S. ratification could have a particularly important
leadership impact [in encouraging other countries to
ratify the Convention.] There are currently a number of
regional initiatives underway focused on reforming the
law of secured transactions, including in Latin
America, Africa, and the Asia-Pacific region. Expanded
ratification of the Convention in the near term has the
potential to influence these initiatives and to expand
the acceptance and use of the Convention's framework
for receivables financing in these regions. In
addition, the European Union (EU) is currently involved
in an effort to develop an internal legal framework
concerning the law applicable to third party effects of
the assignment of receivables. While there is
significant support in the EU for the approach taken in
the Convention (and thus under U.S. law), there is also
some support for alternative choice of law rules in
some cases that would be inconsistent with the
Convention and would thus introduce uncertainty into
receivables financing governed by the alternative
rules. U.S. ratification could helpfully influence the
EU process to ensure that the framework adopted is
consistent with the Convention.
The committee has included five understandings and six
declarations in the resolution of advice and consent.
VII.A. UNDERSTANDINGS INCLUDED IN THE
RESOLUTION OF ADVICE AND CONSENT
Section 2, Understanding (1)
It is the understanding of the United States that
paragraph (2)(e) of Article 4 excludes from the scope
of the Convention the assignment of (i) receivables
that are securities, regardless of whether such
securities are held with an intermediary, and (ii)
receivables that are not securities but are financial
assets or instruments, if such financial assets or
instruments are held with an intermediary.
The committee believes this technical understanding is
necessary to clarify the scope of paragraph (2)(e) of Article
4. Article 4 deals with the limitations and exclusions from the
scope of the receivables covered by the Convention.
This understanding is intended to clarify that with respect
to the Article 4(2)(e) exclusion, the phrase ``held with an
intermediary'' modifies only the phrase ``other financial
assets'' and does not modify the term ``securities.'' As a
result, the assignment of securities is excluded from the scope
of the Convention regardless of whether the assigned
receivables are held with an intermediary. The assignment of
other financial assets is excluded from the Convention when the
assigned financial assets are held with an intermediary. The
administration has informed the committee that a possible
alternative reading--that assignments of securities are not
excluded from the Convention if the securities are not held
with an intermediary--was not the intention of the Convention's
negotiators. Nor was the provision intended to refer to
``repurchase securities'' as if this were a limited class of
financial assets being addressed specifically and separately
from other securities.
Section 2, Understanding (2)
It is the understanding of the United States that the
phrase ``that place where the central administration of
the assignor or the assignee is exercised'' as used in
Articles 5(h) and 36 of the Convention has a meaning
equivalent to the phrase ``that place where the chief
executive office of the assignor or assignee is
located.''
Article 5 of the Convention is the main provision that
provides definitions of terms used in the Convention, including
the definition of determining location for the assignor and
assignee. Because of the important role of location of parties
in determining both the scope of the Convention and the
applicable laws, the State Department and the Uniform Law
Commission recommended further clarification to ensure the
definition is clear under U.S. law.
Under the Uniform Commercial Code, as adopted by the
states, location is determined by reference to the place where
the ``chief executive office'' of the assignor is located.
Under the Convention, the phrase ``central administration
office'' is used for determining location. Understanding (2)
further makes clear that the United States will treat the two
phrases as equivalent.
Section 2, Understanding (3)
It is the understanding of the United States that the
reference in the definition of ``financial contract''
in Article 5(k) to ``any other transaction similar to
any transaction referred to above entered into in
financial markets'' is intended to include transactions
that are or become the subject of recurrent dealings in
financial markets and under which payment rights are
determined by reference to (a) underlying asset classes
or (b) quantitative measures of economic or financial
risk or value associated with an occurrence or
contingency. Examples are transactions under which
payment rights are determined by reference to weather
statistics, freight rates, emissions allowances, or
economic statistics.
Article 5(k) sets out the definition of a ``financial
contract.'' As drafted, Article 5(k) is intended to cover both
current and future developments in market usage.
Under the Convention, the Article 5(k) definition of
financial contracts covers a wide range of financial
instruments, including ``any other transaction similar to any
transaction referred to above.'' With respect to ``other
transactions similar to any transaction referred to above,''
the committee understands that the Convention's drafters
recognized that the industry is continually developing new
instruments in response to industry needs and circumstances.
This understanding is intended to provide greater clarity
regarding the application of this provision to evolving usages.
This understanding notes that ``financial contracts'' could
include a variety of transactions that involve recurrent
dealings whereby payment rights may be influenced or determined
by reference to particular asset class valuations or contingent
events that may affect the underlying contract. For further
guidance, a non-exclusive list of examples is given in the
understanding.
Section 2, Understanding (4)
It is the understanding of the United States that
because the Convention applies only to ``receivables,''
which are defined in Article 2(a) as contractual rights
to payment of a monetary sum, the Convention does not
apply to other rights of a party to a license of
intellectual property or an assignment or other
transfer of an interest in intellectual property or
other types of interests that are not a contractual
right to payment of a monetary sum.
This understanding clarifies the application of the
Convention to assignments of receivables involving intellectual
property. It clarifies that the Convention's coverage of an
assigned right to payment extends only to the right to the
payment and does not extend to rights in the underlying
intellectual property that is generating the revenue that is
the subject of the right to payment.
Section 2, Understanding (5)
The United States understands that, with respect to
Article 24 of the Convention, the Article requires a
Contracting State to provide a certain minimum level of
rights to an assignee with respect to proceeds but that
it does not prohibit Contracting States from providing
additional rights in such proceeds to such an assignee.
Article 24 of the Convention ``Special Rules on Proceeds''
requires Convention countries provide a minimum level of rights
to an assignee with respect to proceeds. U.S. law, including
that adopted by the states, is highly developed.
In the United States, assignees have rights under
``proceeds'' provisions of U.S. law to collect money due to the
assignee and that should have been paid to the assignee, but
which have been diverted to other uses, such as a purchase by
the assignor or debtor of other assets. Proceeds provisions
under U.S. law allow for the unwinding of such transactions
intended to defeat the claims of the assignee. Unlike the
United States, many countries do not have modern commercial
finance laws governing the rights of an assignee to
``proceeds.'' U.S. proceeds laws provide an assignee entitled
to payment with the ability to attach liens or other claims to
property subsequently purchased with proceeds funds that
otherwise should have been paid to the assignee.
This understanding clarifies that with respect to Article
24, the United States and the states retain the right to adopt
laws that may go beyond the minimum level of rights an assignee
can claim with respect to proceeds as required under the
Convention. The understanding makes clear the United States may
act to provide additional rights in such proceeds to an
assignee.
VII.B. DECLARATIONS INCLUDED IN THE
RESOLUTION OF ADVICE AND CONSENT
Section 3, Declaration (1)
Pursuant to Article 23(3), the United States declares
that, in an insolvency proceeding of the assignor, the
insolvency laws of the United States or its territorial
units may under some circumstances (a) result in
priority over the rights of an assignee being given to
a lender extending credit to the insolvency estate, or
to an insolvency administrator that expends funds of
the insolvency estate for the preservation of the
assigned receivables (see, for example, Title 11 of the
United States Code, Sections 364(d) and 506(c)); or (b)
subject the assignment of receivables to avoidance
rules, such as those dealing with preferences,
undervalued transactions and transactions intended to
defeat, delay or hinder creditors of the assignor.
Article 23(3) provides an exception to the general rule in
Article 23(2) limiting the ability of the forum state to refuse
application of the law of the State in which the assignor is
located. Article 23(3) allows a State by declaration to
identify preferential rights arising by operation of the law in
the forum country in an insolvency preceding that would take
precedence over the rights of an assignee. This declaration
provides, consistent with Article 23(3), that in insolvency
proceedings of the assignor, certain parts of U.S. bankruptcy
law providing preferential rights will continue to apply within
the United States, regardless of the priority rights of the
assignee. The declaration is intended to provide notice of the
application of such preferential rights under U.S. bankruptcy
laws.
U.S. bankruptcy laws favor efforts to reorganize and
preserve the insolvent party if such efforts are reasonably
expected to be successful. For example, Chapters 11 and 13 of
the United States Bankruptcy Code allow for the readjustment of
debts and for corporations or individuals to continue to hold
property and pay debts over time to bring the bankrupt party
out of insolvency.
U.S. bankruptcy laws are considered among the most
advanced. For example, the bankruptcy code contains
``avoidance'' rules whereby the bankruptcy judge can reach back
up to 90 days and invalidate a transaction intended to defraud
or otherwise avoid payments to legitimate creditors. Further,
as noted above, U.S. bankruptcy laws favor efforts to
rehabilitate insolvent businesses if possible (as opposed to
proceeding directly to liquidation.) In such cases, the court
may appoint a ``debtor in possession'' to manage the company's
affairs, including invalidating certain contracts to keep the
business afloat. Under U.S. law, because the debtor in
possession is taking certain risks to keep the company going,
they may be afforded certain rights to priority of payment as
the manager of the insolvent company.
With this declaration, for bankruptcy proceedings commenced
in the U.S. courts, these preferential rights arising under
U.S. bankruptcy law would take precedence over the rights of an
assignee.
Section 3, Declaration (2)
Pursuant to Article 36 of the Convention, the United
States declares that, with respect to an assignment of
receivables governed by enactments of Article 9 of the
Uniform Commercial Code, as adopted in one of its
territorial units, if an assignor's location pursuant
to Article 5(h) of the Convention is the United States
and, under the location rules contained in Section 9-
307 of the Uniform Commercial Code, as adopted in that
territorial unit, the assignor is located in a
territorial unit of the United States, that territorial
unit is the location of the assignor for purposes of
this Convention.
Article 36 provides that a State with two or more
territorial units may specify by declaration at any time other
rules for determining the location of a person within that
State. This ``federalism'' declaration supplements the
Convention's Article 5(h) and Article 36 rules on location. The
declaration is intended to ensure that the location rules of
Uniform Commercial Code 9-307, as adopted by the states, are
upheld. The declaration simply clarifies that if the assignor's
location under Article 5(h) is determined to be the United
States, then further determination of the assignor's location
within a territorial unit of the United States will be
determined by reference to the laws of the United States.
Specifically, the location rules of UCC 9-307, as adopted by
the states, shall apply.
Section 3, Declaration (3)
Pursuant to Article 37 of the Convention, the United
States declares that any reference in the Convention to
the law of the United States means the law in force in
the territorial unit thereof determined in accordance
with Article 36 and the Article 5(h) definition of
location. However, to the extent under the conflict-of-
laws rules in force in that territorial unit a
particular matter would be governed by the law in force
in a different territorial unit of the United States,
the reference to ``law of the United States'' with
respect to that matter is to the law in force in the
different territorial unit. The conflict-of-laws rules
referred to in the preceding sentence refer primarily
to the conflict-of-laws rules in Section 9-301 of the
Uniform Commercial Code as enacted in each state of the
United States.
Article 37 of the Convention addresses the issue of which
law is to be applied within the ``territorial units'' of a
State. Article 37 further provides that a State may specify by
declaration other rules for determining the applicable law,
which may be the law of another territorial unit of the State.
For the purpose of determining conflict of laws rules within
the United States and for determining which particular state's
law may apply within the United States, this declaration
preserves the existing location rules, state by state, of the
UCC as adopted by the states.
UCC Article 9 contains detailed rules that determine which
U.S. state's laws may govern a particular transaction
determined under the Convention to be subject to U.S. law. This
declaration affirms that, once location is determined to be the
United States under the Article 5(h) definition, to determine
applicable law, one must then look to state laws, as adopted,
to make the final determination as to which law may apply. The
committee notes that among the U.S. states and territories
adopting the provisions of UCC Article 9, there is a high
degree of uniformity, creating an essentially uniform law
within the United States.
Section 3, Declaration (4)
Pursuant to Article 39 of the Convention, the United
States declares that it will not be bound by Chapter V
of the Convention.
Chapter V (Articles 26-32) of the Convention is optional.
Under Article 39 a State may declare that it will not be bound
by the Rules in Chapter V. The committee understands that
Chapter V is intended to fill gaps with respect to conflict of
laws rules.
The United States has very advanced rules in this area and
while the rules among the United States produce essentially the
same results, the executive branch and Uniform Law Commission
recommended that U.S. adoption of Chapter V, given the wording
differences with U.S. law, would overly complicate
interpretation of the law with little corresponding benefit.
The executive branch hopes, however, to promote the adoption of
Chapter V among countries party to the Convention that have
underdeveloped laws on receivables financing.
Section 3, Declaration (5)
Pursuant to Article 40, the United States declares that
the Convention does not affect contractual anti-
assignment provisions where the debtor is a
governmental entity or an entity constituted for a
public purpose in the United States.
Article 40 allows a State to exempt certain government
entities, subdivisions thereof, and entities constituted for a
public purpose from the scope of Convention Articles 9 and 10
that covers limitations on assignments and transfer of security
rights. It is the understanding of the committee that the State
Department recommends a carve-out for these government entities
and entities constituted for a public purpose.
The committee notes that the President, with the advice and
consent of the Senate, could modify the scope of this
declaration in the future. (See VII.C. Future Declaration under
the Convention, below.)
Section 4, Self-Execution Declaration
The Senate's advice and consent under section 1 is
subject to the following declaration: This Convention
is self-executing.
The Senate's sixth declaration declares that the advice and
consent under Section 1 is subject to the declaration that the
Convention is self-executing.\1\ This declaration is consistent
with statements made in the Letter of Submittal from the
Secretary of State to the President on this instrument. The
Senate continues to include statements regarding the self-
executing nature of treaties in resolutions of advice and
consent, in light of the Supreme Court decision, Medellin v.
Texas, 128 S. Ct. 1346 (2008). The committee continues to
believe that a clear statement in the resolution is warranted.
A further discussion of the committee's views on this matter
can be found in Section VIII of Executive Report 110-12.
---------------------------------------------------------------------------
\1\Treaty-Doc. 114-7 at p. VI (stating that ``The Convention would
be self-executing and there would not be a need for the enactment of
implementing legislation.'')
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VII.C. FUTURE DECLARATIONS UNDER THE CONVENTION
The committee notes that the Convention provides some
flexibility to adjust to changed circumstances and allows
certain additional declarations to be made in the future should
the need arise. In particular, the following Articles allow for
a party to the treaty to make a declaration ``at any time:''
1. Article 35 allows a State to exclude from application under
the Convention, certain territorial units within a
State in which different systems of law are applicable.
The Convention allows for the State to declare the
extent to which the Convention shall apply to those
territorial units.
2. Article 40 of the Convention allows a State to exempt
government entities, central or local, any subdivision
thereof, or entities constituted for a public purpose.
3. Article 41 of the Convention allows a State to declare at
any time that it will not apply the Convention to
specific types of assignment or to the assignment of
specific categories of receivables clearly described in
a declaration.
4. Article 42 of the Convention allows a State to declare at
any time that it will be bound by the priority rules
set forth in the Annex to the Convention.
The committee reminds the President that, should it be
necessary to consider, in the United States interest, making a
declaration with respect to Articles 35, 40, 41 or 42, the
committee must be notified in advance with a reasonable period
for consideration and with a description giving the reasons for
the proposed change.
While, historically, the United States has rarely sought to
modify a condition to consent to ratification included by the
Senate, precedent nevertheless exists for cooperation between
the two branches to effectuate a modification to a condition to
ratification. The committee recalls the example whereby in
1984, then President Reagan sought the Senate's advice and
consent for the withdrawal of a reservation that had previously
been included with the U.S. ratification of the Patent
Cooperation Treaty. See Letter of Transmittal from President
Ronald Reagan, July 27, 1984, in Treaty Doc. 98-20. The Senate
gave its advice and consent to the withdrawal two years later.
To the extent any future modification of any understanding
or declaration allowed under the Convention goes beyond a tacit
change and constitutes a substantive change to the terms of the
Convention, the committee expects any such substantive change
to follow a similar Constitutional process of the President
seeking the advice and consent of the Senate to the
modification.
At times, circumstances may require that minor, technical
adjustments be made to treaties to which the Senate has given
its advice and consent. There may be times when such an
adjustment may not rise to the level of a substantive amendment
requiring the advice and consent of the full Senate. The
committee has previously indicated its willingness to consider
tacit amendments proposed by the executive branch on a case-by-
case basis and has provided an incomplete list of illustrative
factors to be considered when determining if a change is tacit
in nature or a substantive change:
1. The significance and character of the amendment;
2. Whether it is technical or administrative;
3. Whether it is consistent with the object and purpose of the
treaty and simply implements objectives already
identified in the treaty;
4. Whether the proposed amendment can be given effect without
Congressional action;
5. Whether the committee has indicated (in its report on the
treaty or otherwise) that such amendments are to be
submitted to the Senate for advice and consent.
VIII. Text of the Resolution of Advice
and Consent to Ratification
TEXT OF THE RESOLUTION OF ADVICE AND CONSENT TO RATIFICATION OF THE
UNITED NATIONS CONVENTION ON THE ASSIGNMENT OF RECEIVABLES IN
INTERNATIONAL TRADE, DONE AT NEW YORK ON DECEMBER 12, 2001, AND SIGNED
BY THE UNITED STATES ON DECEMBER 30, 2003
Resolved, (two-thirds of the Senators present concurring
therein),
SECTION 1. SENATE ADVICE AND CONSENT SUBJECT TO UNDERSTANDINGS AND
DECLARATIONS.
The Senate advises and consents to the ratification of the
United Nations Convention on the Assignment of Receivables in
International Trade, done at New York on December 12, 2001, and
signed by the United States on December 30, 2003 (the
``Convention'') (Treaty Doc. 114-7), subject to the
understandings of section 2 and the declarations of sections 3
and 4.
SEC. 2. UNDERSTANDINGS.
The Senate's advice and consent under section 1 is subject
to the following understandings, which shall be included in the
instrument of ratification:
(1) It is the understanding of the United States that
paragraph (2)(e) of Article 4 excludes from the scope
of the Convention the assignment of--
(A) receivables that are securities,
regardless of whether such securities are held
with an intermediary; and
(B) receivables that are not securities, but
are financial assets or instruments, if such
financial assets or instruments are held with
an intermediary.
(2) It is the understanding of the United States that
the phrase ``that place where the central
administration of the assignor or the assignee is
exercised,'' as used in Articles 5(h) and 36 of the
Convention, has a meaning equivalent to the phrase,
``that place where the chief executive office of the
assignor or assignee is located.''
(3) It is the understanding of the United States that
the reference, in the definition of ``financial
contract'' in Article 5(k), to ``any other transaction
similar to any transaction referred to above entered
into in financial markets'' is intended to include
transactions that are or become the subject of
recurrent dealings in financial markets and under which
payment rights are determined by reference to--
(A) underlying asset classes; or
(B) quantitative measures of economic or
financial risk or value associated with an
occurrence or contingency. Examples are
transactions under which payment rights are
determined by reference to weather statistics,
freight rates, emissions allowances, or
economic statistics.
(4) It is the understanding of the United States that
because the Convention applies only to ``receivables,''
which are defined in Article 2(a) as contractual rights
to payment of a monetary sum, the Convention does not
apply to other rights of a party to a license of
intellectual property or an assignment or other
transfer of an interest in intellectual property or
other types of interests that are not a contractual
right to payment of a monetary sum.
(5) The United States understands that, with respect
to Article 24 of the Convention, the Article requires a
Contracting State to provide a certain minimum level of
rights to an assignee with respect to proceeds, but
that it does not prohibit Contracting States from
providing additional rights in such proceeds to such an
assignee.
SEC. 3. DECLARATIONS TO BE INCLUDED IN THE INSTRUMENT OF RATIFICATION.
The Senate's advice and consent under section 1 is subject
to the following declarations, which shall be included in the
instrument of ratification:
(1) Pursuant to Article 23(3), the United States
declares that, in an insolvency proceeding of the
assignor, the insolvency laws of the United States or
its territorial units may under some circumstances--
(A) result in priority over the rights of an
assignee being given to a lender extending
credit to the insolvency estate, or to an
insolvency administrator that expends funds of
the insolvency estate for the preservation of
the assigned receivables (see, for example,
title 11 of the United States Code, sections
364(d) and 506(c)); or
(B) subject the assignment of receivables to
avoidance rules, such as those dealing with
preferences, undervalued transactions and
transactions intended to defeat, delay, or
hinder creditors of the assignor.
(2) Pursuant to Article 36 of the Convention, the
United States declares that, with respect to an
assignment of receivables governed by enactments of
Article 9 of the Uniform Commercial Code, as adopted in
one of its territorial units, if an assignor's location
pursuant to Article 5(h) of the Convention is the
United States and, under the location rules contained
in section 9-307 of the Uniform Commercial Code, as
adopted in that territorial unit, the assignor is
located in a territorial unit of the United States,
that territorial unit is the location of the assignor
for purposes of this Convention.
(3) Pursuant to Article 37 of the Convention, the
United States declares that any reference in the
Convention to the law of the United States means the
law in force in the territorial unit thereof determined
in accordance with Article 36 and the Article 5(h)
definition of location. However, to the extent under
the conflict-of-laws rules in force in that territorial
unit, a particular matter would be governed by the law
in force in a different territorial unit of the United
States, the reference to ``law of the United States''
with respect to that matter is to the law in force in
the different territorial unit. The conflict-of-laws
rules referred to in the preceding sentence refer
primarily to the conflict-of-laws rules in section 9-
301 of the Uniform Commercial Code as enacted in each
State of the United States.
(4) Pursuant to Article 39 of the Convention, the
United States declares that it will not be bound by
chapter V of the Convention.
(5) Pursuant to Article 40, the United States
declares that the Convention does not affect
contractual anti-assignment provisions where the debtor
is a governmental entity or an entity constituted for a
public purpose in the United States.
SEC. 4. SELF-EXECUTION DECLARATION.
The Senate's advice and consent under section 1 is subject
to the following declaration: This Convention is self-
executing.
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