REGULATING ARTIFICIAL INTELLIGENCE AND SMART CONTRACTS IN PAKISTAN'S COMMERCIAL TRANSACTIONS: A MERCANTILE LAW FRAMEWORK FOR DIGITAL TRADE AND CONSUMER PROTECTION

Abstract

The increasing integration of artificial intelligence (AI) and smart contracts into commercial transactions has significantly reshaped the structure and operation of digital trade systems worldwide. These technologies enhance efficiency, transparency, and automation in commercial dealings; however, they simultaneously introduce complex legal and regulatory challenges related to contractual validity, liability allocation, consumer protection, and regulatory oversight. In Pakistan, the existing mercantile legal framework remains largely grounded in traditional contract principles and electronic transaction laws, which are insufficient to address the autonomous and self-executing nature of AI-driven systems and blockchain-based smart contracts. This legal gap has created uncertainty for regulators, businesses, and consumers operating within the emerging digital economy. This study examined the regulatory challenges associated with AI and smart contracts in Pakistan’s commercial transactions and proposed a comprehensive mercantile law framework for digital trade and consumer protection. A quantitative, explanatory, and cross-sectional research design was employed, using structured survey data collected from legal practitioners, fintech professionals, regulators, academicians, and technology experts. The data were analysed using descriptive statistics and Structural Equation Modelling (SEM) to test the proposed relationships among variables. The findings revealed that AI adoption and smart contract utilization significantly enhance commercial efficiency and legal certainty in digital transactions. Furthermore, the existence of an effective mercantile regulatory framework plays a critical mediating role in strengthening consumer protection and promoting a sustainable digital economy. The study concludes that Pakistan requires a technology-responsive and adaptive legal framework that integrates AI governance, smart contract recognition, and robust consumer protection mechanisms to ensure secure and sustainable digital trade development