The Strengths and Weakness of World Trade Organization - Term Paper Example

World Trade Organization The World Trade Organization (WTO) is among the most powerful, and one of the most secretive international bodies on earth. The WTO has 149 members (76 members at its foundation and a further 73 members joined over the following ten years) (Wikipedia, 2006). The World Trade Organization was founded in 1995 to replace the General Agreement on Tariffs and Trade (GATT). This multilateral organization aims to lower tariffs and non-tariff barriers to increase international trade. This paper critically analysis the strengths and weakness of WTO. The WTO has become more and more controversial as it has expanded the scope of its work from its original narrow GATT focus on reducing tariffs on manufactured goods. The WTO now also works to get rid of non-tariff barriers, and can be used to challenge environmental, health, and other regulations that may serve legitimate social goals but may be regarded as impediments to international trade. The 1995 replacement of GATT by the WTO heightened concern among critics because its stronger enforcement powers represent a further shift in power from citizens and national governments to a global authority run by unelected bureaucrats. Business, academic, and government supporters applaud the WTO as a more muscular sheriff of the world trading system (Anderson and Cavanagh, 1997). One of the WTO’s strengths, however, is in its power to impose penalties for unfair practices, a way to ‘keep countries honest.’ Countries that breach WTO regulations must change what they are doing or they may have to pay fines or change their domestic laws. This means that disagreements are less likely to spill out into larger, perhaps military, disputes. The WTO has enormous potential to reduce global poverty, if it can regulate trade in a way that’s fair to all countries, particularly the poorest. Currently these countries dont have the bargaining power or resources to negotiate effectively with powerful trading nations. However, critics say that the after-effects of WTO policies are undemocratic because of the lack of transparency during negotiations. Opponents also argue that since the WTO functions as a global authority on trade and reserve the right to review a countrys domestic trade policies, national sovereignty is compromised. For example, policy that a country may wish to establish to protect its industry, workers or environment could be considered barriers to the WTOs aim to facilitate free trade. A country may have to sacrifice its own interests to avoid violating WTO agreements. Thus, a country becomes limited in its choices. Moreover, brutal regimes that are destructive to their own countries may unintentionally be receiving concealed support from foreign governments who continue, in the name of free trade, to do business with these regimes. Unfavourable governments in favour of big business therefore remain in power at the cost of a representative government. Free trade fosters investment into other countries, which can help boost the economy and eventually the standard of living of all countries involved. As most investment comes from the developed and economically powerful into the developing and less influential economies, there is, however, a tendency for the system to give the investor an advantage. Policies that facilitate the investment process are in the investors interest because these policies help foreign investors maintain an edge over local competition. Controversy over what is the best course of action in the creation of a global economic system - one that fosters free trade and free choice - will persist (Heakal, 2003). Globalisation is often taken to mean a process that is synonymous with liberalisation, or the opening up of the local and national markets to the global market. However, the economic globalisation process is much more nuanced than this simple or automatic linkage between globalisation and liberalisation. Whilst there has been very significant liberalisation in recent years, this has been accompanied by the continuation or even the accentuation of protectionism in some areas and in some countries, including some major developed countries. For example, the internationalisation of intellectual property rights (IPR) systems through the WTO has led to increased monopolisation, especially by transnational corporations, that are better able to charge higher prices for their products than if there were greater competition. Also, the high subsidisation of and high tariffs on agricultural products constitutes the continuation of high protection of the agriculture sector in the rich countries (Khor, 2006). An important milestone in the debate was reached when a large number of developing countries actively participated in the Uruguay Round negotiations and signed the agreements. Since then, many other countries joined the WTO, agreed to implement many reforms and committed to make the rule-based multilateral trade regime a cornerstone of their development process. This commitment is stated clearly in the opening sentences of the Doha Ministerial Declaration: “The multilateral trading system embodied in the WTO has contributed significantly to economic growth, development and employment throughout the past fifty years. We are determined, in the light of the global economic slowdown, to maintain the process of reform and liberalization of trade policies, thus ensuring the system plays its full part in promoting recovery, growth and development.” (WTO, 2001). However, the Doha Declarations could not conceal the complaints among the developing countries that the promises of the Uruguay Round were not fulfilled. The events and discussions surrounding and following the Seattle and Doha Ministerial Conferences are illustrations of this dissatisfaction. The Doha Ministerial Declaration repeatedly stresses the commitment to WTO “as the unique forum for global trade rule-making and liberalization.” For the global commitment to economic integration, trade liberalization and especially to the WTO to continue, it is imperative to have a clear understanding of what institutional features of the present trade regime can help or hurt the interests of the developing countries. This is especially important today since “the majority of WTO members are developing countries” and the ministers in Doha were clear on their desire to “place developing countries’ needs and interests at the heart of Work Program adopted in this Declaration” (WTO, 2001). Some of the current criticisms of the multilateral trade regime are based on its perceived failures in protecting the interests of the developing countries. And these criticisms, in return, are deteriorating the legitimacy of the GATT/WTO regime. Hoekman (2002) argues that its “development credibility” needs to be enhanced for the Doha Development Agenda to reach its goals. As Bhagwati once stated, GATT is like a bicycle; you will fall unless you go forward. Currently, we are at a critical stage where the momentum to go forward with trade liberalization is being challenged. Unless the concerns of the developing countries are adequately addresses, the historic process of trade liberalization may be derailed. Developing countries argue that the new rules for global trade are imbalanced, favouring the interests of rich countries to the detriment of poor countries. They point to the fact that the developed countries continue to drag their heels on the liberalisation of developing country exports, such as textiles and agriculture, while at the same time making difficult new demands on developing countries in areas such as intellectual property protection. Similarly, many NGOs are deeply critical of the WTO, arguing that its emphasis on economic liberalism marginalises other important concerns such as environmental protection and human rights, while overlooking the differential economic impacts of trade liberalisation. On the streets, anti-globalisation activists and demonstrators have become a regular fixture at WTO ministerial meetings. A major concern here is the political functionality of the WTO. As many have observed before, the GATT’s greatest strength was—paradoxically—its weakness. Its lack of a strong organisational base and the flexibility of its rules gave governments sufficient policy autonomy to reconcile domestic interests with the goal of trade liberalisation. To be sure, powerful interests in powerful countries could block liberalisation; for instance, electorally powerful farm lobbies in the United States, the European Union and Japan have prevented significant liberalisation of agricultural production and trade. However, participation in the GATT also gave governments some counterweight to domestic political pressures; governments encouraged domestic coalitions of export-oriented interests that could provide momentum for trade liberalisation in the face of opposition from import-competing industries. And the norm of reciprocity in the GATT trade negotiation process enabled governments to demonstrate gain as well as pain to domestic constituencies in the granting and securing of ‘concessions’. The WTO has new agreements that extend deeply into many aspects of domestic policy and regulation. These include intellectual property protection, foreign investment policies, and tradeable service sectors of the economy such as health, education, culture, and social services. In the WTO, there is a much stronger focus on the international harmonisation of rules (for example, intellectual property protection) and much stronger obligations for all members, regardless of their stage of development (John, et al. 2006). Martin Khor (2005) argues that the WTO does not manage the global economy impartially, but in its operation has a systematic bias toward rich countries and multinational corporations, harming smaller states which have less negotiation power. Some examples of this bias are: (1) rich countries are able to maintain high import duties and quotas in certain products, blocking imports from developing countries (e.g. clothing); (2) the increase in non-tariff barriers such as anti-dumping measures allowed against developing countries; (3) the maintenance of high protection of agriculture in developed countries while developing ones are pressed to open their markets; (4) many developing countries do not have the capacity to follow the negotiations and participate actively in the Uruguay Round; and (5) the TRIPs agreement which limits developing countries from utilizing some technology that originates from abroad in their local systems (including medicines and agricultural products). Many non-governmental organizations, such as the World Federalist Movement, are calling for the creation of a WTO parliamentary assembly to allow for more democratic participation in WTO decision making. Dr Caroline Lucas recommended that such an assembly "have a more prominent role to play in the form of parliamentary scrutiny, and also in the wider efforts to reform the WTO processes, and its rules". However, Dr Raoul Marc Jennar argues that a consultative parliamentary assembly would be ineffective for the following reasons: It does not resolve the problem of “informal meetings” whereby industrialized countries negotiate the most important decisions; It does not reduce the de facto inequality which exists between countries with regards to an effective and efficient participation to all activities within all WTO bodies; It does not rectify the multiple violations of the general principles of law which affect the dispute settlement mechanism (Wikipedia, 2006). To summarize, the following are some of the weakness of WTO. The WTO would like you to believe that creating a world of "free trade" will promote global understanding and peace. On the contrary, the domination of international trade by rich countries for the benefit of their individual interests fuels anger and resentment that make us less safe. To build real global security, we need international agreements that respect peoples rights to democracy and trade systems that promote global justice. The WTO is seeking to privatize essential public services such as education, health care, energy and water. Privatization means the selling off of public assets - such as radio airwaves or schools - to private (usually foreign) corporations, to run for profit rather than the public good. The WTOs General Agreement on Trade in Services, or GATS, includes a list of about 160 threatened services including elder and child care, sewage, garbage, park maintenance, telecommunications, construction, banking, insurance, transportation, shipping, postal services, and tourism. In some countries, privatization is already occurring. Those least able to pay for vital services - working class communities and communities of colour - are the ones who suffer the most. The WTO is being used by corporations to dismantle hard-won local and national environmental protections, which are attacked as "barriers to trade." The very first WTO panel ruled that a provision of the US Clean Air Act, requiring both domestic and foreign producers alike to produce cleaner gasoline, was illegal. The WTO declared illegal a provision of the Endangered Species Act that requires shrimp sold in the US to be caught with an inexpensive device allowing endangered sea turtles to escape. The WTO is attempting to deregulate industries including logging, fishing, water utilities, and energy distribution, which will lead to further exploitation of these natural resources. The WTOs fierce defense of Trade Related Intellectual Property rights (TRIPs)—patents, copyrights and trademarks—comes at the expense of health and human lives. The WTO has protected for pharmaceutical companies right to profit against governments seeking to protect their peoples health by providing lifesaving medicines in countries in areas like sub-saharan Africa, where thousands die every day from HIV/AIDS. Developing countries won an important victory in 2001 when they affirmed the right to produce generic drugs (or import them if they lacked production capacity), so that they could provide essential lifesaving medicines to their populations less expensively. Unfortunately, in September 2003, many new conditions were agreed to that will make it more difficult for countries to produce those drugs. Once again, the WTO demonstrates that it favours corporate profit over saving human lives. Free trade is not working for the majority of the world. WTO rules have hastened these trends by opening up countries to foreign investment and thereby making it easier for production to go where the labour is cheapest and most easily exploited and environmental costs are low. Farmers produce enough food in the world to feed everyone -- yet because of corporate control of food distribution. According to the Universal Declaration of Human Rights, food is a human right. In developing countries, as many as four out of every five people make their living from the land. But the leading principle in the WTOs Agreement on Agriculture is that market forces should control agricultural policies-rather than a national commitment to guarantee food security and maintain decent family farmer incomes. WTO policies have allowed dumping of heavily subsidized industrially produced food into poor countries, undermining local production and increasing hunger (Global exchange, 2006). In conclusion, no global body should be able to challenge any nation’s health, safety, environmental, or other laws as being too stringent; it is up to each nation to determine how high standards should go. Besides, no nation should be allowed to gain unfair advantage in international trade through the denial of emerging international worker rights and other standards. As the dispute emerges over what form a replacement of the WTO should assume, it is useful to put the old blueprints of the International Trade Organization on the table. While the world has changed markedly in the past decades, the original architecture which placed employment issues and corporate behavior on the agenda may still be appropriate today. References Anderson, S. and Cavanagh, J. (1997). World Trade Organization. Foreign policy in focus, International relations center. Volume 2, Number 14, January 1997. Global exchange, (2006) Top Reasons to Oppose the WTO. Retrieved on 21 August 2006 from http://www.globalexchange.org/campaigns/wto/OpposeWTO.html Heakal, R. (2003) What Is The World Trade Organization? Retrieved on 21 August 2006 from http://www.investopedia.com/articles/03/040203.asp Hoekman, B. (2002), Economic Development and the World Trade organization After Doha, World Bank Policy Research Working Paper #2851. John H. Barton, Judith L.Goldstein, Timothy E. Josling & Richard H. Steinberg (2006) The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO, Princeton NJ, Princeton University Press. Khor, M. et al (2005), WTO and the Global Trading System: Development Impacts and Reform Proposals, Zed Books. Khor, M. (2006) Globalisation, Liberalisation, And Protectionism: The Global Framework Affecting Rural Producers In Developing Countries. Third World Network. Retrieved on 21 August 2006 from http://www.globalpolicy.org/socecon/bwi-wto/wto/2006/04khorglobal.pdf Wikipedia, (2006) World Trade Organization. Wikimedia Foundation, Inc. Retrieved on 21 August 2006 from http://en.wikipedia.org/wiki/World_Trade_Organization World Trade Organization (2001), Ministerial Declaration, Document WT/MIN(01)/DEC/1, 20 December 2001. Read More