World trade Organization

What are the advantages and disadvantages of the World Trade Organization for developing states?

The WTO is a continuation of the General Agreement on Tariffs and Trade (GATT) which aims to promote the practice of free trade around the world. According to the WTO website it is ‘an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a system of trade rules.’ (WTO, Accessed 14th February). In essence the WTO is a contractual body of rules agreed to by member nations and a judicial system to enforce and protect these rules and regulations. This essay will outline the advantages and disadvantages of the WTO for developing states, by taking a World Systems-Theory perspective. This essay will argue that however much the WTO aims to increase the level of trade for all its members, there will be far more disadvantages than advantages for developing states. Firstly, this essay will argue that the global economic system is inherently unfair as the economic power of core nations (developed nations) is so great that the periphery (developing nations) will always be exploited. However, this essay will then argue that the concessions made by the WTO for developing states on its reciprocity and most-favoured-nation (MFN) principles with its introduction of Special and Differential (S&D) treatment is advantageous to developing states. Finally this essay will highlight the relationship between the WTO and dependency, stating that the WTO leads to developing nations becoming more dependent on the developed world.

An important question that I aim to answer in this section is; does the fact that the WTO was created by the Core countries affect the ability for it to ever be fair towards developing countries? The answer to this question is that developing countries are disadvantaged from the beginning as they are in an international organisation which has been founded and dominated by the developed world. Yes it is undeniable that the WTO has evolved from its early days as GATT to include aspects which are advantageous to developing countries (which will be discussed later), however, ultimately the WTO represents and helps advance the developed nations aims and goals. John H. Jackson argues that one of the main concepts within the WTO and other international dispute settlement procedures is that of ‘rule orientation’ as opposed to ‘power orientation’. He argues that long gone are the days where disputes were settled implicitly or explicitly through the ‘relative power status of the parties’ but instead today settlements are reached with reference to norms or rules to which both parties have previously agreed’ such as that of the WTO (2008: 439). Jackson is referring to the WTOs dispute- settlement-mechanism (DSM) which is recognised as the most significant international tribunal system in the world today, with mandatory jurisdiction, binding rulings and powers of retaliation being the main way in which disputes are settled through the laws it represents. However, this is not the case. Today the dominant actors within the WTO are its core founders such as the US and Great Britain. Developing countries have a comparative disadvantage to the developed nations as Jeffrey Haynes argues that ‘Many poorer countries are handicapped by being unable to even fund permanent delegations to the WTO.’ (2005: 219). As a result it is hard for developing countries to bring their issues to the table effectively unlike the developed nations.

The core nations are also accused by developing countries of hypocrisy, as they use their economic power to ensure that they only live up to and uphold the principles of the liberal international trading system such as free trade when it benefits them. This can be seen in a US cotton protectionist case study by Donna Lee and Nicola J. Smith. This article explored the effects of a ‘cotton initiative’ brought forward by four small African nations (C4 nations) to the WTO against the USA. It proposed the elimination of domestic payments and exports subsidies on Cotton. However, the USA which makes huge domestic payments to its cotton industries was under internal pressure not to negotiate; and up till today there has not been much progress on the issue. Lee and Smith

… uncovered a puzzle, which was that although small state developing countries have been increasingly active and assertive in the DDA talks, this activism has not led to increased influence over substantive outcomes. (2008: 268)

There conclusion supports the claim made by developing countries; as it highlights the ‘incapacity of the WTO to force the US to comply with WTO rules and obligations’ (2008: 269). Therefore, we can say that the WTO is inherently unfair as it automatically puts developing countries at a disadvantage as it has been created in a way in which the more developed core nations can use it at their behest and disregard it when it does not suit them.

An advantage for developing countries within the WTO is how the WTO has offered concessions to developing nations in order to make the system more worthwhile for them. In effect membership of the WTO gives developing nations the legal right not to be discriminated against in its trade with all the other members. Therefore in many ways the concept of being able to trade freely with all the WTO members is a huge advantage for developing nations, however, it brings many disadvantages with it. Trade tariffs were traditionally seen as an advantage by states as they were an important source of state revenue and the tariffs were a way of protecting domestic producers from foreign competition. The later of the two was the most controversial when dealing with developing countries as it was believed that their domestic businesses were not ready to compete with their extremely rich, highly efficient and well backed foreign counterparts, therefore they needed differential treatment from developing nations. Two of the WTOs main principles are most-favoured-nation (MFN) and reciprocity. MFN upholds the principle of non-discrimination by ensuring that ‘the government of the home country sets a single tariff on both of its trading partners, and a single world price’ (Bagwell, 2005:10). Reciprocity is the ideal that once a nation decides to reduce its tariffs on a certain product you reduce your tariff on another product. The main effect of the MFN was to ensure that discrimination between trading partners was eliminated, although it had been disadvantageous to developing countries as it meant that the developed countries could not give them special treatment as they would have to also give tat special treatment to all the other members. The ‘principle of special and differential (S&D) treatment [argues] that international trade rules should be adapted to the particular economic situation of developing countries.’ (The University of Dublin, Accessed 21st February). This provision negotiated by the developing countries is beneficial for them as developed countries provide preferential access to their markets in order to support developing countries participation in international trade. These provisions also include exemptions from disciplines of the WTO such as non-reciprocity, time extensions to fulfil certain obligations and the protection of domestic industries ‘through the provisions of GATT Article XVIII, which give developing countries the freedom to: be able to grant the tariff protection required for the establishment of a particular industry’ (Michalopoulos, 2000:19). All these provisions provided by the WTO are very advantageous for developing countries, however, reiterating on the point made earlier in this essay, developing countries will always be exploited by institutions such as the WTO as they are created by the developed nations in a which is inherently unfair. Constantine Michalopoulos states that ‘the commitments of developed countries regarding preferential market access and other treatment are in practice much less important than they appear to be on paper’ (2000:24). Therefore, one can stress that the provisions made in the WTO for developing countries such as (S&D) are in essence huge advantages to developing nations; however, the core nations use their relative power advantage over developing countries to bypass the WTO whenever it does not benefit them.

A disadvantage of the WTO for developing countries is that the WTO makes developing countries dependent on the stronger more powerful core nations. The WTO has put developing countries in a vulnerable position in which they are easily exploited by core nations as the developing countries now depend on the core nations for investment, loans, trade and technology. Due to word restraints we cannot discuss all of the above cases; therefore, this paper will only discuss the technological dependency created by the WTO through analysing intellectual property rights (IPRs). The access to medicines needed to fight diseases became a big issue on the international stage. The developing countries saw the IPRs as a disadvantage as it would make their countries more vulnerable and dependent on the West to provide the medicine which they may otherwise be able to produce, usually cheaper and faster. Whereas Michalopoulos argued that the reason why the pharmaceutical industry was most at risk was because ‘the pharmaceutical industry has not previously enjoyed patent protection in many developing countries, it is the main sector for which the potential losses from TRIPS have been estimated.’ (Michalopoulos, 2001:134). However, I believe that there was a rare glimpse of a fight back by the developing nations as they believed ‘access to lower-cost generic medicines could easily be translated into lives saved or lost in the fight against aids and other diseases.’ (Winham, 2008:166). Developing nations where originally restricted from producing patented medicines to fight diseases, therefore they were left dependent on the developed nations that controlled most of these patents to provide them with these medicines. However, the WTO in the Doha development round saw the developing countries force the developed countries into making concessions. There was a temporary solution to the problem, in that there was an agreement reached ‘to extend the date by ten years, until 2016, for least developed countries to provide patents for pharmaceuticals’ (Winham, 2008:166). Even though there was an agreement later on cheaper-drug imports, the WTO does not go far enough to make it fairer for developing nations. After 2016 the WTO will be faced with another deadlock as there are still a huge number of developing countries that will not be able or willing to adopt any tougher form of the IPRs. Therefore, the WTO may have made developing countries a little less dependent on the developed world with some concessions made at the Doha Development Round, it has not gone far enough and consequently still keeps developing countries looked in a dependency trap facilitated by the WTO and created by the developed world.

This essay has analysed the advantages and disadvantages of the WTO for developing nations. (criticise power orientated to rule orientated-)This essay firstly, argued that the global economic system is inherently unfair as the economic power of core nations is so great that the periphery will always be exploited unless the system is substantially reorganised. It criticised a common view that the system is a lot more fair now as negotiations have moved from being power orientated to rule orientate, by concluding this is not the case as powerful nations can still use their power to bypass the WTO and developing nations whenever it is in their benefit. This essay then went on to highlight that the concessions made by the WTO for developing states on its reciprocity and most-favoured-nation (MFN) principles with its introduction of Special and Differential (S&D) treatment is advantageous to developing states. This essay finally highlighted the relationship between the WTO and dependency, showing how the WTO leads to developing nations becoming more dependent on the developed world through using intellectual property rights as a mode of analyses.

Bibliography

• WTO, ‘UNDERSTANDING THE WTO: BASICS’, 14th February 2010, http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm
• Bagwell Kyle, Staiger Robert W. (2005), ‘Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO’, Journal of International Economics Volume 63 pp. 268 – 294
• Lee, Donna and Smith, Nicola J. (2008), ‘The Political Economy of Small African States in the WTO’, The Round Table, Volume 97, pp. 259 – 271
• Jackson, John H. (2008), ‘The case of the World Trade Organization’, International Affairs, Volume 84, pp. 437 – 454
• The University of Dublin, ‘Special and differential treatment for developing countries’ 21st February 2010, http://www.tcd.ie/iiis/policycoherence/index.php/iiis/wto_agriculture_rules/special_and_differential_treatment_for_developing_countries
• Michalopoulos, Constantine (2000), ‘THE ROLE OF SPECIAL AND DIFFERENTIAL TREATMENT FOR DEVELOPING COUNTRIES IN GATT AND THE WORLD TRADE ORGANIZATION’, The World Bank, World Bank Policy Research Working Paper No. 2388 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=630760)
• Michalopoulos, Constantine (2001), ‘Developing Countries in the WTO’ (Palgrave: Hampshire).
• Winham R. Gilbert (2008), ‘Global Political Economy’ in Ravenhill, John ed, The evolution of the Global Trade Regime (Oxford University Press: New York), pp. 137-171
• Haynes, Jeffry (2005), ‘Development Studies’ (Palgrave: Hampshire)