Fighting for the Rule of Law
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The economies of Latin America have never been better positioned to attract investment. Coming out of the global financial crisis, it was clear the region had turned a corner. Latin American countries coped with the recession better than most, and came out growing at impressive rates. Foreign direct investment (FDI) followed, particularly from China, as a new trading order was formed that brought geographic diversity to regional trade portfolios once dominated by commerce with the United States.
Free trade agreements have helped: Two Latin American nations, Chile and Mexico, have more free trade partners than any other countries in the world. With Mexico’s entry this fall, both will be partners to the standard-setting Trans-Pacific Partnership (TPP) negotiation. More broadly, countries around the region have expanded their free trade networks and attracted ever-increasing interest from China, India, Europe, and the Asian Pacific.
What these new entrants are finding, though, is that in many Latin markets investments may be built on shaky ground. The removal of other barriers to entry has exposed a lasting Latin American weakness:
Too often, in many countries, the rules of the game are subject to change.
At the U.S. Chamber of Commerce, where we have worked for decades with Latin partners to remove tariffs, quotas, and other conventional impediments to reciprocal international trade, we have seen the question of legal certainty rise to top priority status with many of our member companies operating in the region. There is a wide range of challenges, including both petty and institutional corruption, lack of transparency, inconsistent or inadequate enforcement, and often outright political interventions in judicial, regulatory, or administrative processes.
U.S. Chamber members are the investors that are most sought after by countries worldwide; they are long-term, committed investors, who pay their taxes, bring high labor and environmental standards, create local jobs, and establish roots in the local communities. And the rule of law is among the most critical factors in their ability to maintain a sustainable business model over time.
Five Factors: Rule of Law for the Business Environment
In studying this challenge, we have found five factors related to the rule of law in determining the ability of business to make rational investment and operating decisions, and thereby have a reasonable expectation of returning a profit in any given market:
- Transparency: Laws and regulations applied to business must be readily accessible and easily understood.
- Predictability: Laws and regulations must be applied in a logical and consistent manner regardless of time, place, or parties concerned.
- Stability: The state’s rationale for the regulation of business must be cohesive over time, establishing an institutional consistency across administrations, and free from arbitrary or retrospective amendment.
- Enforceability/Accountability: Investors must be confident that the law will be upheld and applied equally to government as well as private actors.
- Due Process: When disputes inevitably arise, they must be resolved in a fair, transparent, and pre-determined process.
It was specifically to address these factors that the U.S. Chamber of Commerce established the Coalition for the Rule of Law in Global Markets. The Coalition is working to promote and defends the rule of law in global markets as a critical factor in fostering a worldwide investment climate that supports equality, economic growth, and shared prosperity for the world’s citizens. With our members, we are striving to:
- Foster a global business environment where countries respect the rule of law and provide due process under law to investors, producers, and service providers of every nationality.
- Highlight violations of the rule of law and advocate for their prompt and just resolution.
- Support and defend constitutionalism as the underpinning for the broader application of the rule of law.
Today, as a resource for Chamber members, as well as policymakers and thought leaders, we launched a Coalition website that will serve as a single window for information on rule of law challenges related to the business environment. Coalition advocacy is based on the tenet that business should enjoy a statutory and regulatory environment that provides the legal certainty of these factors in the global marketplace.
We feel the business community has been too silent for too long on the subject of the rule of law. The field has been left to academics, unions, and non-government organizations (NGO’s). These groups do admirable, essential work related to marginalized populations, access to justice, and social inclusion—critically important areas. However, they don’t necessarily focus on those aspects of the rule of law that foster a productive business environment. Arguably, they avoid them altogether.
Our goal is to bring companies together, show them the common threads in the challenges they face, and work collectively to bring the leverage of the private sector to bear on the governance deficiencies that undermine the rule of law, and on those who abuse their position to exploit them.