Issues & Overview Trade Follows The Law

Saturday, October 1, 2005 - 01:00

Robert L. Duncan
The Metropolitan Corporate

During what has been called the Scramble for Africa, the rush to colonize
sub-Sahara Africa by the European Great Powers in the 1880s, the cry was "Trade
follows the flag!" What that meant, in effect, was that the missionaries were
sent in to explore and open up previously unknown regions; followed by the
military, to protect the missionaries and stake out European territorial claims;
followed by trade, to pay for it all.

With the accelerating pace of globalization - and the attendant integration
of the world's economies - today that cry might be "Trade follows the law!" We
say "might" because there is a question as to the depth of commitment to the
rule of law even among some of the most important trading nations on the planet.

Recently, The New York Times began a series on the rule of law in
China, where the discussion appears to be heading in the right direction but
with more than a few obstacles along the way. There is a clear recognition on
the part of the Chinese government that law is one of the most important
underpinnings to a thriving market-oriented economy. The authorities understand
that such an economy cannot function without the trust of people in their legal
system and in that system's ability to enforce contracts, protect property, and
so on. Is that acknowledgement leading to the implementation of a legal system
based upon integrity, transparency and fair dealing, a system that is crucial to
China's modernization? Not quite. Corruption, political influence and a criminal
justice system that has more to do with forced confessions and perfunctory court
proceedings continue to be a reality in China's legal system. And, as Michael
Moser of Freshfields, Beijing, points out in his article on page 22, parties to
a commercial contract frequently provide for dispute resolution by impartial
arbitrators. Until the authorities grasp the fact that they cannot maintain
separate legal systems - one promoting economic development and the other
enforcing social stability - without contributing to a social discontent that is
only going to grow with the pace of globalization, this tension will continue to
serve as a brake on the development the country is working so hard to achieve.
The Times concludes one of its stories by asking the key question:
whether Chinese officialdom is creating the rule of law or merely rule

Closer to home, over the past few years we have attempted to track
developments on several trade disputes between Canada and the U.S. in our pages.
One of the most intractable disputes has to do with the trade in softwood
lumber. This dispute goes back a very long way, and - after years of fruitless
negotiation - one is left with the thought that the inability to resolve it
appears to have much to do with the concern of the American lumber industry for
Canadian competition. There is, under NAFTA, a mechanism designed to deal with
issues such as this and, indeed, bring them to final resolution. On August 10th
of this year, the NAFTA Extraordinary Challenge Committee issued a decision
favorable to Canada on all points. The response of the U.S. side has been to
issue a statement that the U.S. Trade Representative continues to have concerns
about Canadian pricing and forestry practices. The statement goes on to provide,
"We believe that a negotiated solution is in the best interests of both the
United States and Canada, and that litigation will not resolve the dispute."
What is interesting about this response is that it was the U.S. Trade
Representative, not Canada, that brought the matter to the NAFTA tribunal in the
first place. Recourse to litigation seems to be in order, then, unless it
results in a rebuff, which the August 10th decision certainly is. The U.S. Trade
Representative, apparently, has decided to ignore the ruling of a tribunal that
the United States has, through treaty, accorded jurisdiction in matters of this
kind. Such a reaction is simply not in accord with the rule of law.

Shortly after the issuance of the NAFTA tribunal's decision, Prime Minister
Paul Martin of Canada was scheduled to call President Bush to protest the
response of the U.S. side. As it happened, the call was made after the full
extent of Hurricane Katrina's impact on New Orleans and the Gulf Coast became
known. Prime Minister Martin is reported to have deferred his comments on the
softwood lumber dispute and to have offered all the help that Canada could
provide in the circumstances of this tragedy. Several people we have interviewed
for this month's Canadian feature have mentioned the Prime Minister's very
appropriate gesture in response to the tragedy. As one of them indicates, it is
what one would expect of good neighbors and friends. At the very least, good
neighbors and friends - and everyone else, for that matter - ought to be able to
rely on the deference to the rule of law that the United States has always