[From LC VIEWS Issue 8, Voulme 3, July 2006]

Trade can promote development if backed by trade agreements and trade law

Trade specialists can help promote trade if they implement the agreements and enforce the law

WTO and other trade agreements

The preamble of the General Agreement on Tariffs and Trade (GATT), signed shortly after the World War II in 1947, promulgates that one of the fundamental purposes of trade is economic development. For over half of the century, GATT and later on the WTO have been promoting economic development through the facilitation of cross-border trade. The WTO member states seek to raise living standards, ensure the growth of GDP, develop the full use of the resources and expand the production and exchange of goods. These objectives are achieved through the substantial reduction of tariffs and other trade barriers as well as the elimination of discrimination in international trade.

Various economic theories support the proposition that effective trade fosters economic development. “Trade and competitive markets lead countries to specialization in certain products in which they retain comparative advantages over their trading counterparts. Such specialization reduces the average cost of production due to economies of scale and the collective welfare of countries increases when they exchange specialized products and thus reallocate resources in a more efficient manner.”[1][1] “Modern commerce needs large markets and modern trading rules that permit industry to compete in the global marketplace, to prevent pollution that crosses borders, and to assure adequate protection of health and safety by discouraging a regulatory race to the bottom.”[2][2]

Look at the example of China whose economy in recent years, particularly since it became the WTO member, has been growing at staggering pace. The development is fueled by the increasing exporting activity, foreign investment and high efficiency in manufacturing processes.

A similar objective is sought to be achieved in Central America through the Central American Free Trade Agreement (CAFTA), a free trade agreement signed by the United States with the governments of Nicaragua, Honduras, Guatemala, Costa Rica, El Salvador, and the Dominican Republic.[3][3] The critics argue that CAFTA is a tool that is used by the U.S. to promote its economic and political policies, to impose control over the agricultural sector and as a result of its implementation North Americans will be loosing jobs to Central Americans. On the contrary, proponents believe that trade liberalization, globalization, and economic development policies provide opportunities for growth in developing countries.

Frequently, it is noted that traditional trade liberalization and economic development goals anchored in trade agreements have been unnecessarily expanded to include non-economic priorities with some political flavor. For instance, the proposed Free Trade Area of the Americas agreement (FTAA) incorporates rules promoting the rule of law, democratization, and equitable distribution of economic, political, and social resources.[4][4]

Rule of law and economic development

The lack of rule of law hinders the implementation of free trade agreements and forestalls economic development. Empirical studies have proved that rule of law and properly functioning court systems positively affect the growth of the GDP.[5][5] It encourages private business as well as foreign investment by providing certainty and predictability in contractual relationships and their enforcement. Effective protection of investment and property rights attracts more liquidity to the markets.

Furthermore, regard or disregard for the rights of “others” is also a major factor in economic development.[6][6] Legal regimes that protect third parties, acting as buyers, sellers, creditors, borrowers, investors, bankers and their intermediaries, facilitate the emergence of a well-functioning commercial marketplace.[7][7] Accordingly, the rule of law and the protection of third parties play a vital role in economic development.

The role of Trade specialists

Another crucial element of economic development is a proper implementation and enforcement of legal and trade rules in daily practice. The enforcers are obviously judicial and state institutions that oversee the entire state, including economic and trade structures. Those who implement trade and economic objectives may be grouped in the category of trade specialist. Trade specialists and professional institutions work with the rules set out in free trade agreements on daily basis. Whether these entities issue certificates of origin, prepare studies on the impact of proposed investment on environment and culture, transport goods or provide banking services, they are looking for the best solution that would satisfy interests and needs of the people living in the country and their activity thus benefits the entire economy.

Trade specialists operate within a spectrum delineated in trade agreements and other measures that promote economic development. Their presence backed up by strong and efficient legal systems is indispensable for the future and success of any country.




[1]Richard E. Caves et al., World Trade and Payments: An Introduction 38-48 (7th ed. 1996).

[2]Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 US. 666, 703 (1999).

[3]See l.

[4]See .

[5]David Dollar, Governance and Social Justice in Caribbean States 1-2, p. 11 (World Bank Development Research Group, Report No. 20449, 2000).

[6]Boris Kozolchyk, A Roadmap to Economic Development through Law: Third Parties and Comparative Legal Culture, 23 Ariz. J. Int'l & Comp. L. 1 (2005).


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