Why Rule of Law Should Act as the Foundation for Market Competition

In a Business Pulse Survey, nearly one in three executives described rule of law as the most important issue to address for business in Latin America and the Caribbean. That may seem surprising at first but defending rule of law and challenging government overreach is critical to promoting competition in the marketplace, which in turn is vital for fostering an economy that is innovative, resilient, and dynamic.

U.S. Chamber commitment to rule of law 

The importance of rule of law to the business community was underscored by U.S. Chamber CEO Suzanne P. Clark in her keynote address during the 2022 State of American Business. This is just as important at home as it is abroad. During Clark’s recent visit to Mexico, she called for greater legal security and transparency in Mexico’s electricity market to promote open and transparent energy investment in the interest of Mexico’s long-term competitiveness. But the focus on rule of law is not new. The U.S. Chamber has long championed the rule of law in creating a favorable investment climate, and in 2010 we founded the Coalition for the Rule of Law in Global Markets to highlight the importance of rule of law for a vibrant economy.

The Coalition, through outside partnerships and direct advocacy, strives 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; and support and defend constitutionalism as the underpinning for the broader application of the rule of law.

Evaluating global rule of law 

The Coalition releases a biennial Global Rule of Law and Business Dashboard to measure countries’ rule of law performance as it relates to business. The Dashboard also serves as a tool to educate stakeholders on the correlation between adherence to the rule of law and ability to attract long-term investment and build a robust private sector.

The Dashboard evaluates countries using five pillars considered deciding factors for foreign investment and operations in any market: transparency, predictability, stability, accountability and due process. These five pillars promote investor confidence through the creation of greater legal certainty for companies, and, as a result, they are also strongly correlated with gross domestic product (GDP) growth.

Economies that scored highly on the Dashboard also fared better during the COVID-19 pandemic, demonstrating that strong institutions and legal and regulatory frameworks form the building blocks for a resilient economy.

Influencing change

The Dashboard results have been discussed in conversations with key government, private sector, and civil society stakeholders in markets as diverse as Trinidad and Tobago, Guatemala, Singapore, Tunisia, Belgium, and Ukraine to underscore the importance of rule of law in driving competition, and to consider steps that can be taken at various levels of society to bolster the rule of law.

For instance, this past October, the Coalition participated in a virtual forum hosted by AmCham Guyana to advance their work to strengthen the rule of law. The event featured Guyana’s Minister of Legal Affairs and Attorney General and the U.S. Ambassador to Guyana, and it highlighted the advocacy efforts of AmCham Guyana and other rule of law champions to improve Guyana’s rule of law environment. These ongoing efforts have led to government actions that have improved Guyana’s score on the Dashboard by 4.41 percentage points between 2019 and 2021.

These case studies and the Dashboard results exemplify the necessity of structural socioeconomic reform centered on improving the rule of law for attracting investments and promoting economic recovery from the pandemic. As the U.S. Chamber tracks global trends—whether relating to economic growth, supply chains, or the clean energy transition—the rule of law will continue to appear as a common thread, and the strength of institutions will be a contributing, if not deciding, factor in their development.

For these reasons, the Coalition will remain attuned to global, cross-sectoral conversations taking place throughout the year, such as at the Summit of the Americas, ASEAN Summit, U.S.-Africa Leaders Summit, and the second Summit for Democracy where the perspective of the private sector can help shape meaningful outcomes. We will continue to leverage the Dashboard results whenever possible, such as at the Coalition’s virtual Global Rule of Law Forum in July 2022, to foster a worldwide investment climate that supports equality, economic growth, and shared prosperity.

Story by Megan Bridges, U.S. Chamber of Commerce

Megan Bridges is a Manager in the America’s Department at the U.S. Chamber of Commerce and supports the U.S.-Colombia Business Council, U.S.-Cuba Business Council, and Coalition for the Rule of Law in Global Markets.