Making Sense of Trade Treaties

By Bourque, Jean-François; de Sousa, Prema | International Trade Forum, October 1, 2005 | Go to article overview
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Making Sense of Trade Treaties

Bourque, Jean-François, de Sousa, Prema, International Trade Forum

As world trade grows more complex, the rules for international business are also growing in number and intricacy. How can countries with limited resources spot and adopt the major trade treaties? And how can they participate in drafting new trade rules?

There are more than 50,000 international treaties, 600 of which cover multilateral trade issues. Why should developing countries, with many demands on the public purse, pay attention to ratifying and implementing trade treaties? It's because some treaties are critical to building business confidence. They help to create a secure legal environment that will attract investors and boost trade, laying the foundation for sustainable growth, jobs and income.

Building business confidence

An example of a treaty that builds business confidence is the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). It protects firms whose countries have signed the convention by upholding arbitrators' decisions made in other countries. For example, if a dispute arises between a Ugandan company and a Chinese exporting company over imported goods, an arbitrator can take a decision (known as an award) in Singapore. Through the convention, the assets of the Chinese defendant can be seized in a Californian bank. This could never be achieved without such a treaty.

The countries that ratify the important treaties are those with the most secure legal environment for trade. It is not by chance that many of them are export leaders.

In a first for trade, the 19 organizations that oversee the main trade treaties came together to look at how international trade rules are changing, at an ITC-organized symposium in October 2005. Working with representatives from 50 developing economies, their priority was to help such countries make the most of trade treaties on topics ranging from money laundering, maritime transport and exempting duty for goods at trade fairs, to out-of-court dispute settlement mechanisms, governance and patent rights.

What participants at the symposium found is that new trade rules, in these areas and others, are developing in a rather scattered way, making it harder for poor countries to keep abreast of the most important developments. There is a real need to simplify and harmonize the rules so that more countries are able to apply them.

Business needs harmonized trade rules for the flow of goods and services. The way to do this is through multilateral trade treaties and model laws. Like regional agreements, multilateral trade treaties have the advantage over bilateral treaties of being more neutral politically, culturally and economically. Developing countries are facing problems, however, because there are hundreds of such multilateral treaties, with many more coming into being, and many organizations dealing with them.

They need guidance towards the treaties that can best help their firms do business across borders. ITC has made a start by identifying the top 205 trade treaties and creating a web-based system, Lega Carta, to monitor treaties at the country level, giving more coherence to national efforts in deciding which treaties should be ratified.

Having a voice in new rules

While it's important for countries to choose the right treaties from those already in place, they could also take part in developing the many treaties that are still being created.

Until recently, the focus of international organizations has been on making trade rules, without really considering how easy - or difficult - it is for the rules to be applied in a variety of countries. Developing economies need to learn how to voice their concerns and have a say in what the multilateral trading system will look like in the future.

To do this, we need to re-think the way treaties work, from before they are drafted to how they are implemented. There are new responsibilities for the organizations that manage trade treaties, as well as for governments, the business sector, legal practitioners and academia.

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