Instruments and Institutions of International Trade
In ordinary domestic commercial transactions, there are reasonably simple, well-prescribed means of recourse in the event of nonpayment or other causes of disagreement between parties. For example, the courts can be used to reclaim goods when buyers refuse to pay or are unable to pay. The situation is substantially more complex with international commercial transactions, which by necessity involve more than one legal jurisdiction. In addition, a seller might not receive payment, not because the buyer does not want to pay, but because, for example, the buyer’s country has an insurrection, revolution, war, or civil unrest and decides or is forced to make its currency inconvertible into foreign exchange. In order to handle these and other difficulties faced in international transactions, a number of practices and institutional arrangement have been developed, and these are explained here. In addition to different practices and institutions for ensuring payment and delivering in international versus domestic trade, national and international institutions have been established to finance and monitor international trade. A glance along the shelves at the vast range of goods we purchase from abroad, and a moment’s reflection on the number of jobs which depend on export sales, should amply convince us that international trade is vital to our well-being and that protectionism could do more to harm that well-being than almost any other development. Recognition of the potential damage that protection can bring has resulted in number of post-Second World War institutional arrangements designed to reduce protectionism and allow us to more fully exploit the benefits of trade more fully. We shall quickly review the more important of these institutional arrangements in concluding our discussions of the organization of international trade. The two most important arrangements involve the regulation of the conduct of trade by the World Trade Organization WTO (and formerly by the General Agreement on Tariffs and Trade, GATT), and by the establishment of free-trade areas.