Advantages and Disadvantages of Joining the World Trade Organization - Case Study Example

World Trade Organization Name Course Instructor’s Name 23rd April 2010 Introduction The World Trade Organization is an international organization and its main concern or area of operation is focusing on the rules that govern trade between nations (Elsig, 2010). This governance is essential so as to ensure that there are lees conflicts in international trade. It also ensures that in times of conflicts they are resolved in an orderly manner. These among other many benefits that are associated with joining WTO have made many nations to be part of the organization (World Trade Organization, 2007). At the same time there are disadvantages that accrue from joining WTO. Some nations, which are yet to join the organization, are still debating whether to join or not. This paper will explore both the benefits of joining WTO as well as the disadvantages associated with it. It will further seek to address the issue of how WTO can be used to benefit the developing nations so that they reap as many benefits from the organization as their developed counterparts. Advantages of joining WTO Joining WTO helps a nation to expand her export trade and at the same time attract foreign capital. Any nation that joins world trade organization gets the benefit of trading with other nations in the organization. This increases the comparative advantage that these nations have as now they are able to trade their goods in more markets than they were previously capable of. The opening of more markets also helps a nation to increase her production and use its competitive advantage over those nations with inferior products as compared to its products (Wilkinson, 2000). Improvement or increase in production in turn means better balance of trade and this goes a long way to improve the economy of a nation. When a nation joins WTO it has to abide by the conditions of the organization and this means it in turn has to open its domestic market. This in turn causes other nations to invest freely into this nation. This means that foreign expertise and technology are introduced into this nation and this initiates further economic development in the nations. By joining the WTO a country is able to use foreign technology and foreign capital to improve its old industries and improve them. This raises the industrial level of that nation (Elsig, 2010). Joining WTO also makes a nation to have a competitive economic environment. This emanates from the fact that the introduction of new range of products in the internal market will make the producers to produce better quality products so as to compete effectively with the products in the market. This thus improves the internal industrial conditions. It also makes the cost of living within a nation lower (Foster, 2008). This is due to the fact that when a nation joins the WTO they are able to import the equipment and machinery for production at a lower price. This in turn causes these nations to produce at a lower cost and the goods are in turn cheaper. This makes people in the nation to have higher disposable income. This arises from the fact that they can buy goods at cheaper prices at the same salary level (Macrory, Appleton & Plummer, 2005). Another advantage that nations get from joining WTO is that they are able to handle their trade disputes with their trade partners in a constructive way. This is especially because WTO is an organization that sets up the rules in trade. Incase of a trade dispute the governing body is able to settle the disputes well. This is in line with the fact that WTO provides good governance in the issues arising. Trade disputes have been known to cause major feuds between nations and because of the set of rules that are put in place by WTO the nations are able to resolve conflicts easily (Bossche, 2005). Joining the WTO also helps a nation to specialize in what it is able to produce most cheaply. This helps a nation to, produce only what it has competitive advantage in producing. It produces in surplus what it produces cheaply and exports among the nations that are in the organization. It imports what it would produce expensively and these provide better terms of trade. This also encourages the nations to be inventive and innovative (Foster, 2008). This is because of the trade relations that exist between the partners of these organizations. One nation is able to specialize in a particular field. Nation is also able to enjoy the benefits of global trade and it accrues the benefits to ensure it has a better economic positioning. In the wake of joining WTO nations improve the banking systems the insurance systems and all the commercial aspects. This happens inevitably so as to allow this nation to cope with the new investment demands as well as the expansion in growth. This further helps the nation to establish its multinational companies both within and without its borders (Wilkinson, 2000). The multinational companies that it sets in the foreign nation further establish its economic growth as all the income generated from these companies will be flowing into these nations and improving their balance of trade. The nation is also able to use the sales channels of the nations within the WTO, these are cheaper, they reach further, and thus it expands more economically (Bossche, 2005). It is also advantageous for a developing nation to join WTO for it gets a higher advantage for most times the developing nations do not have a negotiating power. Lack of a negotiating power makes these nations not have a voice at all in the trade world and they are not able to present their issues, as they would otherwise want. Instead in the ordinary setting the developed nations always seem to have a greater voice. Joining WTO enables these nations to have a body that sets rule and it also gives them a voice. This is enhanced by the fact that the developing nations have the greatest membership in WTO (Bossche, 2005). Disadvantages of joining WTO Any nation that joins the WTO also faces some challenges from this engagement. The first one is that when it opens its markets for imports it jeopardizes the market for its local producers. This is especially so when the importing nations offer substitute goods to the products produced within. It is worsened when the goods they offer are better quality and are cheaper (Foster, 2008). This makes the inhabitants of the nation to now purchase the goods of the foreign companies. This could eventually cause the indigenous people to close down eventually and this has many consequences such as a rise in the unemployment rate. All this arises from the competitive nature that comes from the introduction of new suppliers. This however can be looked at positively by the inhabitants of the nation who now have a greater voice (Wilkinson, 2000). Another disadvantage of joining the WTO for any nation is that the nation will now have to abide by the rules that are put in place by WTO and this will take the former authority that the government had to make rules. The national transactions are now tied by the rule s that is given by the WTO. This takes away the protectionism rules as earlier discussed and the internal industries have to face up the challenges (Macrory, Appleton & Plummer, 2005). Joining WTO is also disadvantageous especially if the nation in question is a developing nation because WTO tends to give more advantage to the already developed nations. This is so because they tend to have a comparative advantage over their developing counterparts (Wilkinson, 2000). The developed nations always have access to new and very efficient technology and they have access to cheap labor. More than that they produce using the latest machinery and thus their products are produced at a lower cost. This in turn makes their goods cheaper (World Trade Organization, 2007). On the contrary the developing nations import the production machinery expensively. When the developing nations do not have the capital to import cheap machinery they result to using the labor extensive machinery and thus their production cost is always high. This makes their products more expensive than for the developed nations. Therefore it may not be so advantageous for a developed nation to join WTO as it may be for the developed nations (Palmeter & Mavroidis, 2004). How to benefit developing nations from the WTO As sited above developed nations tend to benefit more from WTO. However there have been measures to ensure that even the developing nations benefit from joining WTO. This has been necessitated by the fact that they comprise the highest majority of the membership of WTO. These measures that have been put in place include that the WTO helping governments in the developing countries to develop reforms or to initiate programs that will improve the economy (Chishti, 2002). However some things, which I would further, suggest that for the WTO to be beneficial to developing nations is to protect the local industries of those nations. This is because many times they are eroded by their competitive developed counterparts. They could ensure that they teach the government and ensure that the products of these local industries are competitive (World Trade Organization, 2010). The WTO should pay special attention to liberalize trade in the developing nations and to increase the level of investment in these nations. They should also make sure that the channels of distribution, which the exports of these nations use, are such as increase their sales level (Wilkinson, 2000). One way that they can ensure this is by making sure the target market will buy these products at high prices so as to improve the balance of trade for these nations and make them more competitive with their partners. They should further also help the developing countries by giving them preferential treatment and this is by making sure their dependent industries as agriculture or textile production industries are subsidized (Chishti, 2002). Conclusion The World Trade Organization has helped many nations who have since its initiation joined its membership. It has issued rules that govern trade between these nations and this ensures that there is proper governance between them. More than that it also ensured that there is peace between these nations and offered a platform where differences are sorted between trade partners. It is there fore of utter most importance that more nations whether developed or developing should join WTO so as to enjoy the benefits that accrue from it. WTO should on the other hand put more measures in place so as to ensure that the developing nations are shielded. Reference Bossche, P. 2005. The law and policy of the World Trade Organization: text, cases and materials. Cambridge: Cambridge University Press. Chishti, S. 2002. The decision making in world trade organization and South Asian countries. South Asian Survey, 9, pp. 219-237. Elsig, M. 2010. Principal agent theory and the World Trade Organization: Complex agency and ‘missing delegation’. European Journal of International Relations, doi: 10.1177/1354066109351078 Foster, C. 2008. Public opinion and the interpretation f the world trade organization’s agreement on sanitary and phytosanitary measures. Journal of International Economic, Law, 11, pp. 427-458 Macrory, P., Appleton, A. & Plummer, M. 2005. The World Trade Organization: legal, economic and political analysis, Volume 1. New York: Springer. Palmeter, N. & Mavroidis, P. 2004. Dispute settlement in the World Trade Organization: practice and procedure, 2nd Ed. Cambridge: Cambridge University Press. Wilkinson, R. 2000. Multilateralism and the World Trade Organization: the architecture and extension of international trade regulation. London: Routledge World Trade Organization. 2007. WTO analytical index: guide to WTO law and practice, Volume 1, 2nd Ed. Cambridge: Cambridge University Press. World Trade Organization. 2010. Home. Retrieved http://www.wto.org/ Read More