This essay identifies an underappreciated side-effect of the increasing influence of industry associations in the development of transnational law. As the law governing commercial contracts harmonizes across territorial boundaries, it will increasingly split along boundaries between industry sectors, a phenomenon I call “sectoral differentiation.” Sectoral differentiation is largely a by-product of the growth of transnational legal orders in an environment where state laws and networks may be unable to keep pace with commercial globalization. Industry associations are not the sole drivers of sectoral differentiation, but their activities often promote it, either directly through rulemaking activities related to their particular industries, or indirectly through influence on treaty drafting and other national and international rulemaking processes.

In this essay I discuss the rise in industry's participation in transnational standard setting, which implicates transnational legal ordering, and address the risks such participation generates: Economic globalization has led to increased demand for transnational standards. Yet regulators lack the expertise needed to write increasingly complex and rapidly changing standards, and turn to those that hold the expertise: industry. Thus, industry engagement in standard setting has clear benefits. Such engagement introduces, however, a problem well known from the national context: the risk of capture. In the context of standard setting, two kinds of capture are of particular importance: (i) information and (ii) representational capture. The consequence of such capture, in the transnational context, is that it may (i) undermine the global public interest, (ii) lead to unfair competitive advantages, and (iii) undermine the public interest in developing countries. I illustrate these risks with examples from health law and policy. While states have national laws to manage capture (albeit not effectively at times), at the transnational level, organizations are largely free of such legal constraints. As the “new frontier” of standard setting, transnational bodies should introduce reforms for balancing the benefits and risks of industry engagement, otherwise, they risk impairing the public interest and undermining trust in their integrity.

The standard approach of international organizations (IOs) makes no formal distinctions between nonprofit private sector associations, known as trade or industry groups, and public interest groups like Amnesty International or Greenpeace. After all, these groups are all organized as nonprofits; they may all be characterized as nongovernmental organizations representing the interests of their memberships; and the groups all seek to advance the agendas of members by offering ideas and expertise to international officials or bodies—classic lobbying activity. Thus, most IOs offer accreditation and access to both private sector and public interest groups on equal terms, without differentiating between them. I will call this approach “interest blind” and use this essay to examine its origins and consequences.

This essay describes the normative dynamics within industry associations that affect their contributions to private transnational legal ordering. It asserts that even the most powerful associations possess characteristics that undermine their autonomy to rulemake for their industries, and so, their ability to govern. Examining the relationships between associations and their members helps us identify the forces that impede the effectiveness of associational governance, an important source of transnational private regulation.

A transnational legal order (TLO) is emerging regarding the role of businesses in respecting human rights. This legal order includes multistakeholder initiatives, international organization recommendations and guidelines, NGO certifications, and other voluntary instruments. Many of the norms within this TLO are nonbinding and therefore lack mandatory compliance; what they may possess is persuasive power, particularly when the norms are developed, endorsed, and managed by reputable organizations. It is that reputational, or legitimacy, advantage that matters for encouraging industry associations to comply with the nonbinding norms associated with these organizations. Industry associations and other business actors will gravitate more towards legitimacy enhancing organizations when their own legitimacy is at stake. They pivot towards public organizations such as the United Nations or private NGO initiatives like the Rainforest Alliance, seeking to associate themselves publicly with these organizations that enjoy more perceived legitimacy. These business relationships with legitimizing bodies can take the form of partnerships, certifications, or other arrangements where an industry association adopts and incorporates nonbinding norms when it otherwise might not. In this essay, I discuss three transnational legal processes that encourage industry associations, their members, and other business actors to abide by nonbinding transnational legal norms concerning business and human rights.