The Economic Growth of Developing Countries - Assignment Example

The WTO has benefited the economic growth of developing countries by enabling them to engage free trade World Trade Organization (WTO) has a profound impact on trade relations and cooperation between states on the global level. For the most part, WTO has played a greater role in economic forums than security or political ones, and in particular has promoted the free trade process. Given countries’ poor provision of natural resources and industry's need for significant overseas markets, the rationale for such advocacy is not difficult to discern. Initially, developed countries utilized WTO in many ways as an 'international public good' which would allow it to enjoy the benefits of greater international market access without necessarily having to make a significant contribution itself. This initial position by developed countries soon came under pressure from other members (especially developing countries). More recently WTO has focused upon the need to sustain an open multilateral trading framework, particularly in the light of the proliferation of regional blocs. In spite of some weaknesses and limitations of its strategies, WTO has benefited the economic growth of developing countries and involves them in free trade relations and international trade. The main question worried many nations and economists “Does WTO really promote free trade or just control the international trading relations and economic order? The WTO was established on 1st January 1995 by the Marrakesh agreement. It was a new agreement between the global nations which improved and extended articles of GATT established in 1947. .WTO differs from GATT as it is based on different principles and policies of trade relations. GATT is just a set of rules while WTO is an international institution with governing bodies. In contrast to GATT, WTO commitments are full. GATT rules and principles of trade cover only retail trade while WTO regulates services and intellectual property industries. The main difference is that WTO is based on multilateral agreements applied to all members of the institution while GATT involved selective agreements applied to some local economies. The befit of WTO is that it is undeniable that trade policy leaders have their own bases of support, such as interest groups and the bureaucratic institutions they direct. As they depend on those bases to maintain their current position, policy makers' interests, priorities and responsibilities in policy making are put by their support bases. In fact, the state-oriented approach underlines the importance of the demands of society on trade policy making. In contrast to GATT, WTO has stricter system of trade control and does not permit trade violations. Trade violations involve such impotent issues as labor relations and environmental concerns. These rules and principles can be seen as a response to dissatisfaction with the explanatory power of international trade relations that concentrate on international factors or assume country interests to be external. Such attempts are grouped by WTO into four, based on their characterization of the international and the domestic, and the lines of responsibility they draw between these political issues. WTO has a set of laws aimed to restrict activity of those companies which violate accepted rules and norms of international trade. The domestic and international relations each possess different and distinct features and limitations on country action; thus domestic goals are more effectively pursued with international trade strategies. WTO is important to international business because and the internationalization process of a business organization as it controls and stipulates international relations and policies. Trade policy is based on complex principles and issues determined by national economic environment and international laws. The two principles issues of trade policy are the debate over trust and fair competition. The liberalization of trade creates new problems and threats for local business required protection and financial support. in this case mutual trust (business ethics) and fair competition are difficult to achieve. Trade cannot exist without trust and fair competition but these policies are often violated by modern companies. Critics argue that multilateral trading system has a negative impact on local economies and allows large multinational corporations to exploit financial resources of weak and developing countries. Thus, hundreds of multinational companies and transnational corporations enter these markets paying no attention to trustworthy relations, ethical behavior and fair competition. Multilateral trading system limits national competition and leads to decline of national business and effective performance of local organizations. Although these reasons on the international system restricting what countries can do sound reasonable, they do not necessarily mean that the international system forces countries to take one particular approach towards their respective trade policy. Trust and fair competition are relevant to changing global environment but it is difficult for TNCs and MNCs to follow these trade policies. Today, the state as a whole should be taken as an actor in trade policy making, and economic relations should be viewed as main principles in the process. In this case, these 'policy makers' should be perceived as representatives of 'national interest' and should participate in the trade policy making process (Anonymous 2008). Free trade is defined as “a trade policy aims to support traders to act without involvement of a government” (Hoekman et al 2002, p. 54). Trade barriers are explained as: “the state policy which restricts or limits the international trade” (Hoekman et al 2002, p. 55). WTO has a great impact on entry mode choice and other strategic issues which help the business enterprise succeed in international business In contemporary analyses of WTO’s position within the international state system, these new circumstances have caused the boundaries of debate to be transferred away from the East-West dichotomy, and to become focused instead upon the need to regard post-Cold War participation in world events on a case-by-case basis, as part of a complex web of relations within a changing external environment. The evolving structures created through bilateral dialogue over trade issues have been important for forming a distinct set of negotiating channels over time between these two significant trading partners. These developments derive from a combination of coordinating EU member states' approaches to developing countries; applying the WTO’s dispute settlement mechanism; engaging in multilateral negotiations within the WRO; developing a bilateral regulatory dialogue; and employing a whole range of sector and issue-specific bilateral negotiations. In addition to creating a modus operandi for bilateral relations within a wide range of forums, then, the bilateral dialogue also permits bilateral attention to be turned towards specific areas of interest relevant to either or both parties. “The concept of an internationally harmonized export certificate was a long awaited development by all involved parties” (Lewis and Morris 2009, p. 9). The information mentioned above suggests that WTO really promote free trade or just control the international trading relations and economic order. Opportunities and benefits proposed by WTO to developing countries coordinate industrial policy and result in several specific agreements with the aim of reducing time-consuming testing and regulatory requirements, especially on industrial products which are required to conform as a matter of law to standards. Most of the agreements aim to establish a collaborative framework for action, and a means both to simplify procedures and to facilitate market access (Lewis and Morris 2009). WTO is set up to provide a regular forum for analysis of trade issues, to compare trade performance and to make trade discussion reciprocal Based upon an explicitly non-confrontational approach, it utilizes two indicators of market performance: the first compares the performance of EU exports on the international market with that of other comparable trading partners (the US, Canada, Australia and New Zealand); while the other compares the EU's performance on the international market with how the same products perform on the markets of the other four countries. Analogous indicators for international trade with the EU are calculated for the same period. (Webber and Fort 2006). These agreements have been made possible because of the formation of channels of bilateral consultation between countries and WTO. What is more, greater EU-level coordination over industrial issues has facilitated the launch of several high-profile campaigns to promote European industry. An example of these is China and India. “China, despite being a single party state, its citizens clearly have far greater freedom of choice, freedom of movement, and freedom of association than they did 30 years ago. That was when the country took its first, tentative steps into the global trading system. transportation, stabilizing societies and more effective economic management” (Davis 2009, p. 181). Both China end India exchange information and run seminars, and in addition carries out studies into specific sectors (for example, agrichemical distribution) when requested to do so by the European Commission. This example, too, demonstrates the importance of having open an available bilateral channel through which developing countries are able to communicate to one another particular areas of concern (Irwin, 2005). The main arguments against WTO are increased power and authority of international body, unfair policies towards small states, support of multinational corporations and negligence towards less developed countries. In terms of the possible development of civilian power characteristics, this overview of participation in international organizations shows how much of the terminology used in today's WTO has similar patterns to those employed in discussions of civilian power. On the one hand, economic concerns now dominate debate among the advanced industrialized nations, having replaced the once prominent matters of Cold War security and nuclear standoffs (Miller 2009). In addition, traditional aspects of security have developed to include new areas of interaction, with the result that the consideration of traditionally 'high' political issues (such as the Indian and Pakistani nuclear tests of 1998) becomes located within different frameworks (focused on multilateral dialogue in particular). This conclusion assesses important differences between interaction at regional and global levels as they relate to the bilateral dialogue. “There is no express provision in WTO against Parties choice of not envisaging coverage of any specific product or sectors for tariff elimination under CECA. The Agreement, including the liberalization of the specified sections, is subject to periodic review. Priority for this liberalization schedule has been given to sectors in which Singapore & India have trade and economic interest “(COMPREHENSIVE ECONOMIC COOPERATION 2008). These issues affect the potential for agenda-setting and agenda implementation of global and regional environments respectively (Webber and Fort 2006). In terms of agenda-setting, WTO provides the relationship between states on the global scale with a dominant framework upon which to build its own dialogue. Not only do larger organizations represent a point of contact familiar to both bilateral partners, they also engender a process of 'socialization', whereby the developing countries and the EU member states are exposed to common sets of norms and principles (Hoekman et al 2002). It is therefore unsurprising that these norms should in turn form the basis of the foundations of the bilateral relationship. As shown above, international institutions set the agenda for discussions at a variety of lower levels of interaction, and forums such as the WTO and UN may also link different sets of issues and thereby create a universally accepted context within which linguistic and conceptual foundations are formed. In this way, global institutions — especially the WTO and the UN — set the terms and agenda for bilateral interaction (Webber and Fort 2006). The number of tariff barriers has been reduced in the 1990s, but a few specific ones remain in areas such as confectionery and fish products. The issue of market access now encompasses many different sectors, and is addressed by India and Singapore in a wide range of bilateral and global forums. In these various areas of macroeconomic policy-making, India and Singapore have come to regard one another as significant partners and now sustain a range of discussions over how to coordinate their policies in these different sectors. WTO has welcomed reform in the financial services sector, by which, among other things, foreign exchange controls are to be lifted for the most part. “The criteria such as labour intensivity, small-scale industry, infant industry protection, etc are taken into account to determine sensitivity of sectors excluded from full liberalization” (COMPREHENSIVE ECONOMIC COOPERATION 2008). This initiative on the part of s government, although criticized by some international observers for its slow pace, at least shows willingness to participate more actively as a fully fledged member of the globalized economic community of states within the WTO system. It has been precipitated to a large extent by external pressure (especially American) upon Japan to open its markets. Although reforms are set to continue, both internal and external attention has now turned to the problems of banking sector and its deepening internal troubles (Wallach, 2004). Regional participation not only offers another set of forums in which representatives of developing countries and the EU are able to get to know one another and exchange information but it also presents each of the bilateral partners with greater leverage in dealing with one another over certain issues (Preece 2009). One example of this leverage in ASEM is the fact that, in response to the Asian crisis, the EU has allied with members of the Asian contingent of ASEM to increase its pressure on Japan to take more stringent measures to reform its domestic economy. Tangible cooperation in Asia and Europe also provides them with the opportunity to examine future paths of bilateral cooperation in these regions (Wallach, 2004). Cooperation in both Europe and Asia provides the bilateral dialogue with a further set of institutional processes within which to discuss, shape and determine a range of issues that have become fundamental to their relationship and which continue to deepen relations beyond the purely economic realm (Davis 2009). Rather than challenging the need for bilateral engagement, therefore, cooperation within regional institutions actually has the potential to strengthen the bilateral core, by providing Thailand, Singapore, India, China and the EU with a cooperative partner with which to address regional-level concerns (MacGillivray, 2005). At the same time, agreement on the terms of the subject matter is noticeably harder to achieve in ASEM than within the bilateral relationship where a long history of incremental develop- ments have enabled Thailand, Singapore, India, China and the EU to address a multitude of issues on the same terms as one another. In fact, one way of avoiding some of the more 'troublesome' issues at ASEM 1 was to place them in peripheral, bilateral forums in which they could be addressed more easily and away from the glare of international publicity. For this reason, it is clear that there is still a need to hold dialogue at bilateral level (Hoekman et al 2002). The structures of existing regional institutions are important for determining the options available for new regional gatherings, since new institutions almost invariably borrow both practical and cognitive structures from pre-existing ones. For example, ASEM is premised upon many of the features of APEC, and the costs of creating the ARF as a kind of PMC+ proved to be far lower than those needed to establish a whole new framework. In a similar manner, a new institutional arrangement that is premised upon the same foundations as a pre-existing model will import with the model for its structure the potential legitimacy associated with it. By becoming associated with these legitimate authorities, the partners of the WTO dialogue not only have the opportunity to promote their own relationship at a regional level but also tend to draw on such frameworks for some of the language used in their bilateral dialogue (Hoekman et al 2002). One of the reasons why developing countries and the EU have been able to interact in so many bodies in Southeast Asia is that this region has better developed institutions which contain partners with which the developing countries and the EU have well established relations. “Structural reforms and stabilization programs during the 1990s contributed to India’s sustained economic growth, which has been relatively strong over the past two decades, averaging over 6 percent. With rising incomes and improving lifestyles in India, the demand for dairy products and products containing dairy ingredients has continually grown” (Lewis and Morris 2009, p. 7), Regional forums also provide a 'safe' structure in which Thailand, Singapore, India, China and the EU are able to expand and diversify their foreign policy strategies. This is particularly evident in the case of Thailand, Singapore, India, China which, through regional cooperation, able to move away from an over-reliance on the United States while cooperating with a partner with which the US actively encourages the developing countries to interact. In this way, the developing countries are also given opportunities to challenge the US position without open bilateral disagreement. Regional activities are able to contribute to the respective regional concerns of the developing countries and the EU while satisfying US pressure to play a greater international role (Wallach, 2004). In sum, WTO promotes free trade or just control the international trading relations and economic order. Mutual participation in global forums forms an increasingly important part of the developing countries WTO relations. WTO promotes and benefits free trade between developing countries, and between the developed and the Third world states. As the above cases have shown, however, the success of their cooperation within larger forums will be affected by a number of factors. It is clear that cooperation is most successful in the cases where the developing countries and WTO interest in the specific issue has already been established. Cooperation over US trade barriers and the arms register, for example, involved fields which countries had been addressing independently for a number of years. Further consolidation is made possible when the developing countries and the WTO have addressed the issue already within their bilateral dialogue, or when they at least have channels (such as a bilateral environmental dialogue) through which to discuss multilateral activities. References Anonymous (2008). Beyond Doha;. The Economist. Oct 11. 389 (8601), 1. COMPREHENSIVE ECONOMIC COOPERATION AGREEMENT BETWEEN INDIA AND SINGAPORE (2009). Committee on Regional Trade Agreements. 15 September. Davis, S. (2009). NEW WORLD OF GLOBAL COMMERCE AND COMPETITION DEMANDS ADjUSTMENT. Global Trade. February 26. Davis, B. (2009). Surge in Protectionism Threatens to Deepen World-Wide Crisis. Wall Street Journal. New York, N.Y.: Jan 12, p. A.2. Hoekman, B. M., Mattoo, A., English, Ph. (2002). Development, Trade, and the Wto: A Handbook (World Bank Trade and Development Series). Irwin, D.A. (2005). Free Trade Under Fire: Princeton University Press; 2 edition. Lewis, D., Morris, Sh. (2009). Testimony of the National Milk Producers Federation and U.S. Dairy Export Council Before the International Trade Commission Concerning Investigation No. 332-504. April 17. MacGillivray, A. (2005). Globalization. Carroll & Graf. Matsushita, M. (2006). The World Trade Organization: Law, Practice, and Policy (Oxford International Law Library. Oxford University Press, USA; 2 editio. Miller, J. W. (2009). World News: WTO Details Rising Protectionism, Pushes Countries to Reverse Course, Wall Street Journal. New York, N.Y.: Mar 28,, p. A.8. Preece, H. (2009). Dangerous decade ahead. Finweek, 15 January. Wallach, L. (2004). Whose Trade Organization?: A Comprehensive Guide to the World Trade Organization, New Press; 2 edition. Webber, D., Fort, B. (2006). Regional Integration in Europe and East Asia: Convergence and Divergence? Routledge. Read More