While this virtuous circle encompassing trade liberalization, FDI, and customs modernization benefits all who participate in it, the costs of non-participation will become increasingly burdensome in terms of lost investment and increasing economic isolation. Trend toward trade liberalization The initial condition for realization of the virtuous circle is a trend toward trade liberalization, and it is clear that that condition holds in today's world. Trade liberalization at the multilateral and regional levels is progressing at an accelerated pace. The Uruguay round and creation of the WTO have resulted in substantial, continuing tariff reductions, and ongoing work in the WTO will further market liberalization on many fronts. At the same time, economic turbulence has the potential to arouse protectionist sentiments that are self-defeating and lead to a vicious circle that can trigger worldwide trade wars and economic depression.
Customs frequently is a favored tool of protectionists.
Countries must guard against employing their customs administrations as barriers to trade. Traditionally, FDI has been driven in substantial part by the need to invest behind tariff barriers. High trade barriers in a country create an incentive for investment to serve consumers of that country that does not depend on efficiency of the workforce, availability of world-class material suppliers, access to other markets, or the maintenance of an effective system of commercial law. Even the advantages to be gained from economies of scale are overwhelmed, often requiring the construction of small, inefficient plants in each of several markets that could be served collectively by a single, scale-efficient factory. Markets traditionally protected by trade barriers often fall behind world standards because the goods and services they provide are not tested by international competition.