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World Trade Organization and Economic Globalization
Table of Contents
The World Trade Organization, formerly called as General Agreement on Tariffs and Trade (GATT), is a governing body for driving international trade and policing the trade rules. The organization officially took its charge in 1995 on the basis of Marrakech Agreement, signed by 123 nations. The organization provides a framework for negotiation and formalizing agreements among member countries. It aims to lower the trade barriers and encourage countries to trade with each other. WTO faces most of the issues from previous trade negotiations such as Uruguay Round.
- The Canada, European Union, Japan, and the US are the four biggest traders in WTO. Their trading policies are reviewed every two years.
- WTO settles disputes related to trading among member countries.
- WTO also trains the developing countries for trading. The organization provides information about successful marketing techniques.
- WTO contributes a lot in making global economic policy.
- WTO promotes fair competition between countries and inspires trade liberalization for accelerating economic growth and economic globalization.
- WTO aims to reduce poverty in developing countries by involving them in international trade.
The focus of different organizations on governance of international trade has increased considerably. A number of scholars have criticized and dictated the role of World Bank and IMF to member states and to the goals, priorities they set for each agency. In these cases, these organizations failed to inspire economic growth in developing countries. WTO aims to remove these deficiencies that are hurdles in globalization of world economy. WTO drives a suite of legal agreements among different states. It serves more than just a set of agreements. It facilitates trading among member countries by throwing away all the barriers and settling their disputes. Indeed, WTO servers the function of exceptional governance of trading issues and problems.
The relationship between trade and employment opportunities is complex. The better the trading, there will be more employment opportunities. It is also true that competition in imports will lead to pressure on producers, and force them to lay off workers. WTO motivates countries to take part in international trading to achieve high living standards, full employment, and sustainable development. The developed countries can open their markets very easily and open economies grow faster and steadily as compared to closed economies. As a result, there will be more job opportunities in growing economy.
The policies and rules set by WTO makes trading quite easy and negotiation free to the maximum extent. WTO doesn’t claim to make all countries equal. However, it plays its role in reducing the economic difference between member countries. The decisions are never imposed on countries. Rather the rules are passed with consensus of member countries. Rich and poor countries carry equal rights to challenge each other on rules. The approach, towards equality of trading countries, makes life easy for all.
The international trading increased the choice of products for people. You can import items that are not found in your country and export the ones that are abundant. You can cut flowers from any part of the world, all sorts of electronic items, goods, music, movies, and so on.
International trade is a vital source for raising income levels in a country. WTO lowers trade barriers and allows countries to trade products and services. These tactics increase the flow of assets in national and personal incomes. However, some adjustment is still required.
WTO rules help governments to adopt a balanced approach towards international trading. The governments are able to defend themselves against lobbying from narrow interest groups. The countries prefer interest of everyone to boost globalization of world economy.
The consumers need to buy food, clothing, necessities and luxuries. These items are affected by trade policies. The global system of trade introduced by WTO increase the chances of international trade. It applies the principle of non-discrimination. These strategies result in reduced cost of production (because imports used in the production are cheaper) and reduced prices of goods and services. Hence, the cost of living will be lowered accordingly.
As trade expands in number of products and the number of parties involved, the probabilities of arising disputes increase. The role of WTO is quite important in this regard. WTO resolves these disputes peacefully and in a constructive manner. It is obligation of countries to bring their trade disputes to WTO and not to act unilaterally.
WTO has dealt with around 300 disputes ever since it was created around 20 years ago. Had WTO not resolve these conflicts, there would have been more political issues.
In short, the role of WTO in managing international trade and driving globalization of economy carries significant importance in the growing economies of member countries. The actions and policies play a central role in solving conflicts, lowering trade barrier, improving employment opportunities, easing out life for members, and much more.
The stated core objective and aim of WTO is to promote free trade and stimulate economic growth. The actions and policies of WTO face strong criticism on the face of widening the social gap between rich and poor countries.
According to Martin Khor (Khor 2000), WTO doesn’t manage international trade on non-discrimination policies. It contains a systematic bias towards stronger countries that are economically rich. The policies of WTO harm smaller countries which carry less negotiation power. Some suggested examples to support these arguments are presented as follows:
- Rich countries can easily maintain high import duties and quotas in certain products, while blocking imports from developing countries.
- The non-tariff barriers like anti-dumping measures play against developing countries.
- The agriculture is highly protected in developed countries. On the other hand, the developing countries are forced to open their markets.
- Many developing countries don’t have sufficient resources to follow the negotiations and take part actively in Uruguay Round.
- The developing countries are limited from utilizing some technology that originates from abroad in their local systems (including medicines and agricultural products).
According to Khor, the Northern countries have not lived up to their agreements in implementing their obligations with reference to various policies. Khor also argues that Doha Round negotiations have been oriented towards development-friendly outcomes. The developing countries are pressurized to open their agricultural, industrial, and other sectors (Khor 2007).
Steve Charnovitz, former Director of the Global Environment and Trade Study, asserted that WTO should address the environmental aspects of increasing the international trade. The increased trade among various countries would cause adverse effect to environment that cannot be traded off with the benefits offered by growing economy (Charnovitz 2000).
The policies of WTO seem to support big corporations in the developed countries. According to Martin Knor, the trade measures have become a vehicle for social organizations and big corporations to boost their own interests (Khor 2002).
Bhagwati researched a lot about rich country lobbies in favor of their own interests. He has criticized the introduction of TRIPs into the WTO framework. Such non-trade agencies would control the overall function of organization in a negative way. The TRIPS have resulted in reduced welfare for developing countries and rest of the world as a whole (Bhagwati 2005).
The international trade policies of WTO are oriented towards reducing the discrimination between member countries. However, the design and implementation of policies make it difficult for developing countries for fully utilizing the core objectives of WTO. Some of the WTO agreements and policies lead to imbalances in favor of developed countries. One of the core objectives of WTO is to enhance member states, and access to member markets, has been realized in an imbalanced fashion, leading to the detriment of developing countries.
The stipulations and rules of WTO contribute towards reducing the policy space of developing countries. This condition hampers their pursuance of national interests aimed at boosting economic development. A lot of these asymmetries could be attributed to governance structure of WTO which explains why international trade negotiations have preserved such imbalanced outcomes.
WTO must develop some advanced trade regime that facilitates most sustainable integration of developing countries into the world economy. The efforts of WTO should be aligned towards benefitting developing countries equally from its policies and mitigate the hindrances in this regard.
Among the Great Bargain agreements, there was also an agreement of Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Bernhardt 2014). This agreement was initiated by the advanced economies who aimed to force developing countries to recognize their intellectual property. The TRIPS agreement requires the members to set minimal standards for the protection of complete range of their intellectual property. It contains plenty of imbalances from North-South perspective. First, it plays in the favor of global uniformization of IPR regimes according to Northern standards which burdens the Southern countries a lot in relation to adjustment costs. The TRIPS require IPR protection to around 20 years in virtually all fields of technology. Previously, many developing countries had extremely relaxed IPRs. Strict IPR conditions result in more economic costs for developing countries. In addition to the adjustment and implementation costs, there are also welfare costs for firms which are using foreign patented or newly patentable knowledge and also for consumers who have to pay higher prices for patented products.
Figure 1: Low and Middle income countries, flow of royalty and license fee in BoP (Million US $, 1985-2009). (Bernhardt 2014)
It is obvious from the figure that international payments for licenses and royalties from developing countries increased tremendously since the TRIPs agreement. Northern countries contain 86% of all worldwide patents and receive 97% of all patent royalties. This situation makes very difficult for developing countries to access technology and to enter the innovation process.
The countries that form trade blocks, get involved in inter-governmental agreements to promote narrow-level trading in a certain region. They trade with each other more as compared to the rest of the world. The regional blocks damage the process of further trade liberalization (Zissimos n.d.).
The current dispute over bananas between the US and the EU is a case to consider in the blocking regard. According to the US claims, EU countries are providing favored access to banana producers from former colonies. They have closed imports from US owned banana plantations. The European Union has asked the members to take firm stand against US objections.
In certain situations, it is good to have combined power to stand against a foreign body. However, the situation with bananas doesn’t fall in this category. The European consumers are paying the quote rent in an excess amount. The quota rent is basically the difference between the market value of buying bananas elsewhere and high priced protected bananas. Less than 10% quota goes into the hands of developing countries.
The rules of WTO are formulated to ensure that creation of trade block increases the multilateral liberalization process. The countries may form blocks if they are willing not to become protectionist towards outsiders. The purchasing powers of block countries increase, while that of outside countries decreases. It is due to the fact that the members could purchase outsiders’ items more cheaply. So, there should be limit to the expansion that we should expect from blocks.
The northern countries and US impose non-tariff trade barriers for developing countries. Due to these barriers, the market access for the developing countries is severely restricted. WTO addresses these non-tariff barriers, but the rules are limited in their effect on the progress of non-industrial nations into Northern markets (Bernhardt 2014)
The non-tariff barrier could take several shapes. Anti-dumping rule is a good example in this regard. This rule prevents selling goods below cost. The real problem is their application. Each country can set its own standard and have its own calculations method for determining the price of imports. The current system of calculations increases the likelihood of dumping. The number of anti-dumping claims has grown significantly.
The Northern countries always seem to protect their own benefits. They would love to deal with the consequences of competitive imports for entering into foreign markets. Their policies would never take care of industries that are under tremendous pressure from anti-dumping laws.
Some other forms of non-tariff trade barriers are quantitative restrictions and technical standards. All these barriers reduce the expectations of Southern countries to enter into Northern markets. These factors clearly highlight North-South imbalance in market access. After the implementations of Uruguay Round commitments, the tariffs from developed countries against purchasing goods from developing countries was on average four times more as compared to that traded from other developed countries.
The officials of WHO and WTO always keep a close eye on the relation between international trade and public health. WTO itself has passed many agreements related to health and health polices such as Technical Barriers to Trade (TBT), Trade-Related Intellectual Property Rights (TRIPS), and Trade in Services (GATS). WTO makes sure that the imports and exports of products are limited where they are dangerous for health of human, animals, and plants. Health is a serious constraint which subordinates the trade-related issues in most of the policies of WTO.
The WTO members are given the right to determine the level of health protection they consider appropriate. Human health is given the supreme importance while making policies. WTO also ensures that the workplace abuse is minimized to the maximum extent. This abuse may include harassment against women and also forcing children to work beyond their capabilities. The developed countries are striving hard to bring the rules against child labor in the developing countries.
WTO has passed some rules against child labor also. Unfortunately, unfair labor practices are followed in many developing countries. The workers in developing countries are subjected to exploitive and abusive working conditions that are dangerous for their health and safety. The proposed solution is that the organizations such as WHO should ensure that the trade rules and policies should be declared specifically to reduce workplace abuse and child labor (Stern 2003).
WTO plays a central role in governing and leading international trade. Unfortunately, some trade policies go in favor of Northern countries against Southern countries. The approach of WTO is still unbiased, but the circumstances and conditions don’t favor developing countries to take advantage of the WTO policies in a fair way. The unfair means creep in automatically due to various trade barriers and restrictions. As a result, the access of Southern products in Northern markets is restricted. Discrimination among member states arises due to the unintentional orientation of WTO policies in favor of Northern countries.
WTO ensures that international trade is globalized by managing health rules and impact of trade blocks in Northern countries.
Bernhardt, T 2014, 'North-South Imbalances in the International Trade Regime:Why the WTO Does Not Benefit Developing Countries as Much as it Could', The Journal of Sustainable Development, vol 12, no. 1, pp. 123--137.
Bhagwati, J 2005, ' From Seattle to Hong Kong', Foreign Affairs 84 (7): Article 15.
Charnovitz, S 2000, Addressing Environmental and Labor Issues in the World Trade Organization.
Khor, M 2000, 'Rethinking liberalisation and reforming the WTO', THIRD WORLD RESURGENCE, pp. 41--47.
Khor, M 2002, 'How the South is Getting a Raw Deal at the WTO', Global Backlash: Citizen Initiatives for a Just World Economy, p. 154.
Khor, M 2007, The WTO's Doha negotiations and impasse: A development perspective, Third World network (TWN).
Stern, RMATK 2003, 'Labor Standards and the World Trade Organization', Ann Arbor, vol 1001, pp. 48109--1220.
Zissimos, BAVD, 'The WTO: Friend or Foe of Free Trade?', CSGR Newsletter.