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The word "free" in free international
trade is quite intriguing. What is free in free international trade? Why
is there need for internationalization of effort for free international
trade? Why is there need for internationalization or denationalization of
trade law for internationalization of trade regulation? Does the national trade
law/economic sovereignty concept clash with the international trade law
concept and attempt? How are the political obstacles in the political
attempt of formulation of regional economic cooperation for regional
international free trade promotion for regional economic development
acceleration, i.e. treaties, are overcome? Has free trade concept proved
practically purposeful? Is it alleviating poverty in low-income trading
countries participating in the treaties? What are the PROSPECTS
AND PROBLEMS IN INTERNATIONALIZATION OF TRADE LAW ? To know all
these, Ravi Mehta talks to the world-famous international trade law
expert Boris Kozolchyk (BK), Law Professor in the University of Arizona,
USA. BK is the founder of the US-based National Law Center for
Inter-American Free Trade. He plays a key role in developing legal
infrastructure in trading countries, in materialization of international
political cooperation for international trade promotion for indigenous
economic growth. His students from developing countries personify trade
law expertise for indigenous use. BK is the best example of foreign
collaboration for indigenization of international trade law expertise
acquisition and application.
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BORIS KOZOLCHYK
Evo DeConcini Professor of Law, James E. Rogers
College of Law
University of Arizona, USA
Founder and President/Director of National Law
Center for Inter-American Free Trade (NLCIFT), USA
He plays key role in treaties-based regional international
trade promotion for regional economic development acceleration
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Q1: For promoting its international trade and
resultant economic development a country may have internal policy and
attempt that suits it. What necessitates international policy and attempt,
like NAFTA, CAFTA, for international trade?
In order to form an international trade policy
consistent with long term development goals, a developing nation must be
able to count on certain administrative, economic and legal skills. These
skills are generally referred to in free trade treaty parlance as "capacitation"
or the development of a capacity to plan and execute development plans
consistent with international trade policies ("trade capacity building").
The required skills range from having honest and efficient customs
officials to bank supervisors who understand the basics of detecting risks
and implementing cures therefore Thus, an internal credit policy
consistent with international trade policy will make sure that the proper
legal regime exists to assure secured and unsecured creditors of easy and
inexpensive collection of their loans. Without such a secured credit law,
exporters and importers would not be able to export or import as much or
as well.
Q2: How domestic political hurdles are
overcome for internationalization of effort for denationalization of
regulations for facilitation of free international trade?
As long as you have individual countries, what you
refer to as national hurdles will always exist because not all of the
sectors will benefit from free trade; some will inevitably suffer. The key
to success for any country interested in improving its lot through
international trade is to encourage what David Ricardo, the great
economist of free trade, referred to as "comparative advantages", i.e.
that which the country or sector in question can do better and cheaper
than foreign counterparts.
Q3: National law and policies - if they clash
with the international law for trade how the clash is averted?
In theory, clashes can be averted by a national
policy of inclusion: all relevant sectors must be included in the
formulation of the national free trade policies. Once included, (and this
is another aspect of capacitation which requires the presence of
well-trained and knowledgeable public and private sector officials and
negotiators) sectoral participation should produce healthy results. Chile
is a good example of well-trained public and private sector officials who
have brought in an increasing number of sectoral participants in the
formulation of free trade policies. Chile is now, per capita, one of the
premier free trading nations in the world. Other Latin American countries,
such as Costa Rica, also possess highly-trained and knowledgeable free
trade officials. Yet, their efforts to formulate a coherent national
policy has been seriously hampered by labor union demagoguery. These
labor unions represent the workers of government monopolies. I was
recently told by a former Costa Rican government official that significant Venezuelan
funds were sent to Costa Rican labor unions to encourage their opposition
to CAFTA.
Q4: If there is international law replacing
or supporting national law for trade regulation how then trade is free -
what's free in free trade?
Your question brings out the seeming paradox of free
trade, which was once compared to the Code of an Anarchist: Article 1:
Everyone is free to do whatever he or she wants; Article 2: Everyone is
free to disregard Article 1. I said "seeming paradox" because free trade
is not like the Code of an Anarchist. Free trade presupposes that
participants abide by the agreed-upon rules, whether they pertain to
quotas, tariffs, rules of origin, unfair competition or dispute
resolution. I believe it was the philosopher Spinoza who first pointed
out that true freedom can only be attained by the observance of
pre-established rules, as long as these rules are fair. So even when the
rules of free trade eliminate all taxes, charges, quotas, and tariffs upon
traded goods and services, the question will remain whether other reasons
given by governments to keep foreign goods or services out of their
country such as health or security reasons are valid. And as I noted
earlier, you should always expect to find attempted exclusions because
there will always be a national sector affected by free trade. Thus, you
will always need rules and adjudicatory mechanisms to support free trade.
Q5: Is Inter-American Free Trade working well
for alleviation of poverty in Latin America as part of its economic
development?
Only when the capacity component mentioned earlier is
properly implemented. Take the case of Mexico. It has been holding its
own in terms of a balance of trade or exports and imports in the NAFTA
region. Yet, to be able to improve the lot of its citizens in a
sustainable fashion and not to have to depend upon foreign remittances
from workers in the United States, Mexico needs to build its credit
capacity, particularly for small and medium-sized businesses. Since 1992,
the National Law Center for Inter American Free Trade (NLCIFT) has been
trying to encourage various Mexican administrations to enact an effective
secured transactions law. Finally, after a seriously deficient
legislative effort in 2000, a significantly better (although not fully
effective) decree was enacted in 2003. A year later, Mexican official
publications reported a jump of about 40% in consumer credit and 18% in
credit to small and medium-sized businesses. The NLCIFT has now been
helping the Guatemalan and Chilean governments to enact a fully effective
version of a secured transactions law inspired by the OAS Model Law of
Secured Transactions. When enacted, these laws should give a significant
boost to the GDP in those countries (in excess of 10%, according to
studies by World Bank economists).
Q6: Does internationalization of law for
international free trade serve well for minimization of commercial and political
risks inherent in international trade?
The commercial risks are significantly reduced by
internal trade "capacitation" measures such as the secured transactions
laws mentioned in the preceding answer. The political risks are reduced
by an increasing level of economic interdependence. To use a blunt example: if
the Peoples Republic of China becomes the owner of a major US oil company
with production and storage facilities in many nations (as it tried to be
a couple of months ago), it will have a much greater stake in reducing the
political risk posed by Islamic terrorism. In other words, it will do whatever
it can to prevent its facilities from being blown up by "political" or
religious terrorists.
Q7: In internationalization of effort for
international free trade how banking/trade financing facilities are
integrated with the international free trade?
Banking facilities provide the lifeblood of
international trade by financing import and export transactions as well as
investments either by direct loans or by means of structured or project
finance. Their integration into the trade process comes about by
providing the services needed in the above-listed activities.
Q 8. How are ICC's UCP rules and INCOTERMS
fit into a framework of regional international law, for example, NAFTA,
for regional international free trade - Inter-American Free Trade, for
example - promotion? What INCOTERMS are most popular in international free
trade?
The International Standard Banking Practices prompted
by the implementation of Article 13 of UCP 500 were first drafted and
applied in the NAFTA region between United States and Mexican banks. From
there, the ISBP became an ICC and worldwide venture. The reason why they
were tried first in the NAFTA region was to reduce the litigation on
strict compliance related issues among Mexican and United States banks.
Having accomplished a significant reduction of such litigation in the
NAFTA region and having allowed banks to continue to issue letters of
credit at reasonable costs, it was only natural that the same approach be
tried in other trading regions.
Q9: How is expertise for international free
trade developed in the participating countries?
At this point, the development of this expertise is
largely in the hands of business and law schools and of the international
departments of banks. Some countries have created special international
trade schools but these are very few in number.
Q10. Are special alternative dispute
resolution mechanisms designed for international free trade? How disputes
related to Inter-American Free Trade are resolved?
There are official and private sector mechanisms.
Both the NAFTA treaty for North American countries and the CAFTA treaty
for Central American countries contain dispute settlement mechanisms,
especially in the areas of investment and unfair trade practices. Private
disputes are settled by arbitration and mediation entities associated with
law firms or with entities such as the American Arbitration Association or
the International Chamber of Commerce.
Q11. What is the most popular method of
international payment in treaties-based international free trade?
Electronic wire transfers are replacing the
traditional "cash on the barrelhead" transactions, documentary collections
and irrevocable confirmed letters of credit.
Q12. What's the significance of freight
forwarding, credit insurance and goods in transit insurance - does free
trade treaty moderate or promote their contribution?
The significance of freight forwarding cannot be
exaggerated. Although many developing nations do not use freight
forwarders locally or for their exports, they need to resort to them as
importers. The absence of freight forwarding services hurts the ability
to lower the costs and duration of shipping. Credit insurance and
in-transit insurance are much more available to developed nations
exporters than to developing nations exporters and importers.
Q13. What role high-tech technology plays in
international free trade?
It is playing an increasingly important role in facilitating
payments (say via SWIFT), investments or trade in securities, including
derivatives through entities such as ISDA, credit through electronic
banking and registries, shipments, and (last but not least) competitive production
and distribution facilities.
Q14. Do treaties-based international free
trade encourage/support single-window service and paperless trade?
They encourage and support it. Take, for example, the
capacitation of modernized customs facilities and procedures or the
required transparency in government procurement which usually means a greater
use of the Internet as the bidding media, as is now the case with free trade countries
like Chile.
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