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Has the World Trade Organization Been a Success?

1670 words (7 pages) Essay in International Business

23/09/19 International Business Reference this

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Has the World Trade Organization been a success?

The World Trade Organization (WTO) was established in 1995, as one of the outcomes in the Uruguay Round of multilateral trade talks (Hoekman, et al 2002). It is the successor organization to the General Agreement on Tariffs and Trade (GATT). The main objective of the WTO and GATT is to lower trade barriers to contribute in the free flow of trade hence increasing trade plays a prominent role in economic development. According to the neoliberal view of global trade, the unrestricted flow of goods and services will sharpen competition, motivate innovation and contribute in the success of participating countries. However, the WTO has proven itself incapable, hence it does not serve in interest of all, and is being used as a tool to control other countries in the world through trade related agreements.

The primary failure of the WTO is the increased dominance of developed nations, which questions its democratic nature. In regard to decision making, there is an inequality of decision-making power in the WTO in light of the fact that the trading system is still to a large extent a power based rather than a rules-based system. In spite of the fact that there is a one member and one vote system in the WTO, it has never been utilized. This results into problems because weaker states are in no position to influence the way trade agreements are carried out. The WTO provides a structure for the developed and wealthy nations to impose their rules on the weaker and less developed countries. Negotiations are never conducted between equal partners and weaker states face exclusion from the many “informal” decision making sessions that are carried out within the WTO through ‘green room deals’ and ‘confessionals’, which lack transparency (Odell, 2006). Green room meetings are carried out by invitations only and the list of invitees us confidential (Narlikar,2005). African trade ministers issued a statement on 2 December 1999 before the Seattle talks were concluded stating that “There is no transparency in the proceedings and African countries are being marginalized and excluded from issues that are of high importance for their people and future”, (Narlikar, 2005).

Additionally, the WTO take elongated periods of time to arbitrate and settle disputes, exceeding five years from the initial receipt of a complaint from a specific member to the final panel ruling. Although the WTO operates as a multilateral organization, many member countries and trading blocs prefer bilateral discussions with partners or competitors. This is because bilateral negotiations are faster to complete. This results in many countries bypassing the WTO process, and dealing directly with other countries. The failure of the most recent round of WTO negotiations, the Doha round, is widely perceived as evidence of the inherent problems of multilateral discussions (Hoekman,et al,2002).  In numerous cases a government has taken the initial step to apply for an accession and have a working party set up, however it does not maintain a follow up for the accession process by preparing a memorandum on its policies or taking consecutive steps, and when it does it is after a prolonged interval. For instance, working partakers for Uzbekistan and Sudan were set up in 1994 , nevertheless the memoranda of foreign trade policy was only submitted in September 1998, for Uzbekistan , and January 1999 for Sudan.(Hoekman,et al,2002).

In a few cases, political issues between an applicant and another influential WTO member have led to delays which has occurred in the past with the accessions of China.  Furthermore, the preparation of the memorandum presents significant difficulties for governments that are short on human or material resources to address the issues needed to be discussed in detail. In most cases, countries were in a position where they had to seek assistance from outside experts funded by bilateral aid agencies, such as the WTO themselves and the World Bank. The Negotiations phase has been the most time-consuming phase of accession (Hoekman, et al , 2002).

Moreover, free trade areas have been a matter of concern. Free trade areas resemble a “common market” , in such areas groups of neighboring states agree to diminish the entire structure of trade barriers within their area. However, with other countries , trade continues to be governed by bilateral treaties and the WTO framework (Goldstein,et al 2008)

The creation of a regional free trade area enables a group of states to cooperate in increasing their own wealth with no consideration of the rest of the world. This can enhance a region’s power at the expense of other areas of the world. The most significant free trade area is Europe, it is connected with the EU but with a larger membership. Europe contains a small number of industrialized states living close together , thus the creation of a single integrated market allows these states to gain the same economic advantages as a large state (Hoekman,et al,2002).In addition to the statement made, we can further argue that the globalization of the world economy, which extends to growing trade created a backlash in numerous parts of the world, such as the US. Workers located in industrialized countries, those facing increasing competition from low wage countries in the global South are amongst the most highly affected by free trade(Goldstein,et al 2008). Traditional manufacturing industries, such as steel, automobiles, electronics and clothing are affected the most.

 The competition arising from low wage countries weighs down wages of communities in industrialized countries. Moreover, it implies pressure to loosen standards of labor regulation for instance, ones protecting worker safety and it can result in unemployment if manufacturers annihilate plants in high wage countries and maneuver their operations to the global South. Human rights NGOs have affiliated labor unions pushing for trade agreements to introduce obligations regarding the improvement of working conditions in low wage countries, which could include laws with reference to a minimum wage, child labor and worker safety (Goldstein, et al 2008 ).Clothing Manufacturers including Nike and Reebok have been criticized for their inhumane working conditions in their factories in Asia (Goldstein, et al 2008).Approximately 250 million children under the age of 14 are working in the global South, according to the UN affiliated International Labor Organizations , about 20% of 10-40 years old located in Latin America and Asia , and 40% of them in Africa (Goldstein ,et al 2008).During the most recent period of rapid growth in global trade and investment (1960 to 1998) inequality worsened both internationally and nationally. The rules of the WTO have accelerated these trends by opening up countries to foreign investment and thereby making it easier for production to progress where the labor is cheapest, most easily exploited and environmental costs are low.( Goldstein ,et al 2008).In developing countries, four out of every five people make their living from the land. However, the leading concept in the WTO’s agreement on Agriculture is that the market forces should control agricultural policies instead of having a national commitment to ensure food security and maintain adequate family farmer incomes. Policies of the WTO enabled the disposal of massively subsidized and industrially produced food into underprivileged countries, resulting in the disruption of local production, thus increasing hunger. Moreover, the WTO has enforced a strong defense in favor of  ‘Trade Related Intellectual Property’ rights  TRIPs , which enable firms to implement patents and copyrights. This agreement sets out minimized standards for the protection of intellectual property , which extends to patents for pharmaceuticals, this has led to an increase in the price of life saving drugs, thus it made it less affordable for developing countries.

The most favored nation principle provided the basis of GATT negotiations, and is formally included in GATT Article 1. The principle states that any preferential trading agreement implemented in a country should extend to other countries, this aims to disqualify countries from using asymmetric tariffs for the purpose of imposing higher trading costs on certain countries than others (Baylis, et al, 2014). This concept favors multinationals and although, it has its advantages, it also means that developing countries cannot prioritize local contractors and have to choose foreign multinationals instead.

Bilateral treaties covering trade are reciprocal arrangements to reduce trade barriers between two states, those agreements are of high specifications. For example, one country may reduce its prohibition on imports on product X (which the second country exports at competitive prices), meanwhile the second country lowers its tariff on product Y (which is exported by the first country)(Goldstein, et al 2008).However, the principle has been completely disregarded by the move towards regional trading blocs .These arrangements allow countries to set lower tariffs for their in-bloc trading partners than for countries outside the bloc. The concept behind the GATT/WTO was to put an end to  bilateral agreements on trade to simplify the system of tariffs. However, this has resulted in globalization purists arguing that regional trade agreements are an impediment to genuine economic globalization (Baylis, et al, 2014).

In conclusion, the WTO has set unfavorable trade rules for developing countries, and the emergence of free trade might prevent prospering economies from developing their industries. Additionally, the WTO faces high dominance by bilateral trade agreements, which exclude countries, thus it threatens to decrease the importance of the WTO and only works in favor of the richer nations, although it has numerous accomplishments, many economies are subject to a great amount of consequences due to its failure to fulfill its objectives.

References

  • Baylis, J., Smith, S. and Owens, P. (2014). The globalization of world politics.
  • Goldstein, J. and Pevehouse, J. (2008). International Relations. 4th ed.
  • Hoekman, B., Mattoo, A. and English, P. (2002). Development, trade and the WTO. Washington, D.C.: World Bank.
  • Narlikar, A. (2005). The World Trade Organization A very short introduction.
  • Odell, J. and Udenrigshandelspolitik (2006). Negotiating trade. Cambridge: Cambridge University Press.
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