theUSSRandEastern Europe, ifthetrading environment istobeimproved further. 99.GATTissometimes characterized asanunwieldy vehicle fortradenegotiations becauseofthelargenumberofcountries (about 100)involved inmajor negotiations. However, bargaining abouttradebarriers iscarried outwithin GATT a.llongsmallgroupsofmembers -"theprincipal suppliers" -ineachcase,sothat inpractice, thenumberofnegotiators hasnotcreated majorobstacles toagreement. 100.Therehavebeentimeswhenthenumber and,moreimportantly. diversity of views,amongcontracting parties haveimpeded progress. Nevertheless, GATT provides avehicle forreaping thelargest gainsfromnegotiated reductions in tradebarriers. Itistheidealtrading bloc,becauseitcanencompass alltrading countries. Thefailure ofGATTtodeliver universal liberal trade(forwhichit "'asdesigned) isthefaultofthemembers, notofthesystem. Thecausesof failurelieindomestic political factors within eachcountry, buttheyalsohave aninteractive andcumulative aspect. Ifcountry A,orgroupA,doesnot contribute toGATTnegotiations orfloutstherules,country B'staskofconvincing itsownelectorate thatparticipation isworthwhile becomes muchharder. 101.Mostexisting andpotential regional arrangements areagainst GATTrules. GATTarticle XXIVpermits countries toformacustoms unionorfreetradeareaon condition that: (a)Itspurpose istofacilitate tradeamongtheconstituent territories and nottoraisebarriers tothetradeofothercontracting parties; and (b)Tradebarriers amongmembers ofthearrangement are"eliminated on SUbstantially all"theirmutualtrade. Theserulesweredesigned tolimitthescopeforsucharrangements~discrimination. Theyarenotenforced, because muchofthe regional blocsispolitical rather thaneconomic. -31-toleadto motivation forD.TherQleofprivate direct foreign investment inthe develQpment Qftrading blocsandthegrowth Qf multilateral trade 102.Private direct foreign investment iscQmplementary totrade. Mineral development, forexample, usually leadstoexports. Sodoes inve~tme~t i~ labour-intensive manufacturing. Evenin"defensive" import-subst~tut~ng ~nvestment inmanufacturing, tradeflowsofinputs -andsometimes ofoutputs -are stimulated. Investment inbanking isoftennecessary tothedevelopment oftrade. Whereforeign investment stimulates international trade,private returns to investment aregenerally determined byfairly openandcompetitive markets. Investments thatarenotprofitable arenotundertaken bytransnational enterprises orareclosed downiftheydonotturnouttobeprofitable. Ininternational tradethereisusually notagreatdealofdifference between social andprivate returns toinvestment. 103.Foreign investment forimportsubstitution inprotected industries raises control issues andisdifficult toevaluate. Private returns are,ofcourse, usually highbecause ofthemonopoly rentsearnedinprQtected activities. However, thesocialreturns associated withsuchactivities areusually lowand, often, negative. Ifacountry hasadistorted taxstructure orotherreasons for capital flight, transfer pricing atotherthanarm·s-length prices maybecome prevalent. 104.Private direct foreign investment canplayaroleintheadjustment of economies tochanging technology, changing factorprices, changing natural resource prices andchanging thecomposition ofdemand (suchasachange fromgoodsto services). Butthesocialcostsandbenefits thataccrue tQprivate direct foreign investment primarily depend onahostcQuntry's policies; ifthehostcountry environment isopenandoriented tQwards worldmarket prices. thebenefits Qf private direct fQreign investment arelikelytoexceed thecostsbyasubstantial margin; inaprotected envirQnment, thecostsarelikely toexceed thebenefits. 105.Whether thereisanycrowding outofcapital fromcountries outside theEC_ forexample, intheMaghreb -willdepend onthedegree towhich ECandEFTA policies aretrade-diverting rather thantrade-creating. Special access forgoods frQmcentrally planned econQmies intotheECandEFTAcouldalsQleadtotrade
**Analysis**
The text appears to be discussing the economic aspects of international trade, particularly the role of the General Agreement on Tariffs and Trade (GATT) and private direct foreign investment in promoting trade and economic development. It also touches on the impact of regional trade agreements and the importance of an open and competitive market environment.

**Category**
International trade, Economic development