Last January 20, 2015, the Executive Branch of Paraguay officially published Law 5393/2015, on the law applicable to international contracts (the “Law”), thus putting an end to a long discussion held in academic and professional circles on the possibility of choosing the law governing international contracts.

The new law thus clearly allows the parties to agree on the application of the law they deem most convenient for their international contracts, thus providing greater predictability and confidence to international commercial transactions.

The Law is largely based on the draft Hague Principles on the Choice of Law Applicable to International Contracts (Hague Principles). However, there are some differences introduced by the Congress during the discussions on the draft Law.

Some of the most salient features of this legislation are as follows:

• Excluded from its scope of application are certain agreements such as: arbitration agreements, partnerships or other associations, agency contracts, international distribution, trusts, among others.
• It also contains provisions on police and public order laws, which generally prevail over the agreement of the parties.
• It recognizes the possibility of agreeing to the application of “rules of law”, i.e. non-state or state law. soft law.
• It includes a provision on equitable harmonization of interests, which is perhaps the most striking difference with the Hague Principles.

The entry into force of the Law grants Paraguay the role of “pioneer” - according to the recognition made by the Hague Conference on Private International Law itself - in the legislative incorporation of the Principles into local law. It remains to be seen how the courts and arbitrators in Paraguay will apply and interpret the new legislation.