Is the WTO Based on Mercantilist Principles - Research Paper Example

World Trade Organisation Table of contents Introduction…………………………………………………………………3 World Trade Organisation…………………………………………………..3 Use of contingent trade protection………………………………………….4 WTO dispute settlement systems…………………………………………...5 Mutually mercantilism………………………………………………………6 Criticism to the World Trade Organisation……………………………….......6 Conclusion…………………………………………………………………..7 Reference……………………………………………………………………8 Introduction The World Trade Organisation is based on rules which help prevent discrimination among trading countries, allow the countries to have market access and also help in the elimination of trade barriers. These rules also ensure that there is stability in trade relations and eliminate trade practices that are unjust. The rules of the World Trade Organisation have been put into a series of treaties and policies which it maintains. The organisation has a mandate to resolve disputes resulting from trade using dispute settlement systems. When an issue arises after WTO has resolved disputes, the organisation is forced to give decisions that are mandatory to the countries involved. Then after the organisation’s final decision a panel is set to hear the issues raised. This panel encourages countries to resolve disputes themselves and if necessary the panel gives compulsory decisions which can be appealed. If a country turns down the appeal then it is forced to change its trade policies or World Trade Organisation authorizes those countries harmed by the policies to impose retaliatory measures to the offending country. These measures include an increase in tariffs, use of subsidies or any other protectionist measure. These measures are a clear indication that World Trade Organisation is based on mercantilist principles and is not aimed at bringing unity among member countries by encouraging free trade. The organisation has principles governing its activities like the non discrimination principle, the reciprocity principle and the transparency principles but it rarely uses them. World Trade Organisation Mercantilism is termed as an economic assumption that makes a country prosper. It mostly depends on the capital supply and the volume resulting from international trade. Capital in this theory is represented by silver, gold and any other trade value which the country has. The capital is increased by creating a positive balance in trade with other nations. The country plays protectionist measures whereby it protects its domestic firms against competition from foreigners by use of tariffs, subsidies and quotas. Mercantilism contains policies that the given countries should follow. For example, mercantilism allows a country to utilise its soil for agricultural activities, mining and manufacturing of products. It also allows a country to use its raw materials to manufacture goods since it assumes that finished goods have more value than the materials. This rule also discourages the importation of foreign goods and also says that no importation should be made if the goods are produced in the country. Mercantilism encourages countries to obtain imports that are indispensable first in exchange of other locally produced goods but not silver or gold. This practice encourages countries to seek to have a large working force because it is one of the policies in mercantilism. Countries are also allowed to seek opportunities for selling excess manufacturers to the foreign firms in exchange of gold or silver. Mercantilists assume that only one country should benefit while the other countries should loose in the process. They also believe that any policies that benefit one country can harm the other country by making that country not to experience economic growth thus not helping them to develop. Although most countries practice liberalism mercantilist principles are still common in other countries. The liberalism method has not benefited all trading partners. Countries practicing neo mercantilism have experienced high economic growth compared to countries practicing free trade. For example, the US and United Kingdom have experienced slow economic growth after adapting free trade. WTO applies the economic liberalism theory when achieving its objectives. This theory assumes that economic policies are made to bring prosperity among people. Economists have preferred specialisation as it is made to achieve comparative advantage, free trade and open markets. When comparative advantage is used in trade it leads to a more efficient distribution of resources. It also brings competition and leads to the transfer of technology and information. Countries are said to approach trade negotiations so as to reduce trade barriers among themselves (Milner, 2001). World Trade Organisation agreements are based on three principles. The non discrimination principle that forces WTO and its members to treat foreign goods equally to the locally produced goods and to treat imported products equally to products found in the country. The second principle is reciprocity that is made to address issues arising from tariffs. This principle makes the process of making decisions concerning tariffs effective thus ensuring satisfaction in every government and this helps reduce political interference in trade. It also reduces the chances of countries using protection measures that only benefit them and disadvantage other countries. This can be as a result of the non discrimination principle. The last principle is the transparency principle that is made to address trade policies. This principle forces states or countries to publish their trade regulations and makes the countries responsible in notifying other countries that their changes and policies are being watched by the World Trade Organisation secretary. These three principles are a sign that the World Trade Organisation is based on mercantilist principles as they show the mercantilist spirit that exists in World Trade Organisation’s activities. For example, the non discrimination principle shows that the importation of foreign goods by a country is costly. This is clear sign of mercantilism because one of the policies of mercantilism is to discourage the importation of foreign goods. This is a contradiction on how World Trade Organisation is supposed to encourage countries to have free trade leading to importation of goods without restriction. The second principle is used to create the environment to tolerate high import costs. The transparency principle is used to show the rules that are to be represented in order to prevent change of the non discrimination principle and the reciprocity principle. (Milner, 2001) Another sign of mercantilist activities in the World Trade Organisation is the trade protection provisions which includes anti dumping laws and safeguards. This trade protection provision is said to bring irony in trade liberalisation agreements as these agreements are designed to make sure there is transparency in World Trade Organisation thus removing trade barriers. The World Trade Organisation uses mercantilist mechanics when making trade discussions and this makes the organisation to lack transparency thus it’s not able to achieve its objectives. Contingent protection allows many countries to depart from dispute cases without being subjected to costly retaliation measures thus benefiting countries that use contingent protection as a tool for protection and achieving benefits (Milner, 2001). The three principles World Trade Organisation uses in negotiations are said to be infringed in several ways thus making them not useful for World Trade Organisation negotiations. For example, the non discrimination principle allows a nation to protect itself against importing foreign goods and the reciprocity principle allows a country to reject trade barrier measures after they have been enforced. This prevents free trade among countries. The transparency principle has been infringed in that it has enabled a country to determine the conditions under which protections can be implemented thus preventing free trade and market access among trading countries. (Milner, 2001) Use of contingent trade protection (CTP) WTO is made up of many nations and this makes it not to consider free trade among nations to be its main objective but only ensures that there is durable economic growth through trade openings. The opening to international trade is mostly viewed to be a political cost for many governments and this has led to problems in the World Trade Organisation as its main aim is to maximize the gap created between the economic growth and international trade. The World Trade Organisation’s concentration on the growth of the economy has created a big problem in many governments as the governments have decided to look for ways to open international trade. This has been partly influenced by high political costs. The high political costs have lea to many governments using trade policies that are not efficient. For example, most governments are using trade protection provisions to reduce the high political costs brought about by a lack of opening in international trade. Contingent trade protection has also been used by countries to help them in fighting international competition. Contingent trade protection is also used to control anti dumping which is allowed by the World Trade Organisation by ensuring that there is limited anti dumping laws. Many countries like the US have used anti dumping measures in their industries. These measures make the foreign firms in the country imposing the measures to loose and the country to benefit. Contingent trade protection has also been used in trade to control pressure that results from international trade and makes many countries to use nonnegotiable barriers. Many governments in WTO have chosen to protect themselves against competition from foreigners. The governments have chosen to protect their domestic property thus practicing mercantilism instead of free trade. This is because the countries have seen the benefit mercantilist practices bring compared to free trade. (Milner, 2001) WTO Dispute settlement systems World trade mercantilist characteristics are also shown in the way it resolves its disputes. WTO is said to make a ruling during disputes settlement and in case an issue arises, a special panel is set up to allow the countries in dispute to solve the dispute themselves. The WTO enforces mandatory decisions and same to the panel. The system also allows the offended state to use retaliation measures against the country using tariffs when this country doesn’t adhere to WTO rules. For example, America is said to have imposed tariffs on steel importation and violated the multilateral trade agreement. A panel was set up by WTO to settle the dispute by allowing the member states to resolve it. In this case EU was unable to tolerate America’s failure to adhere to WTO rules so WTO gave Brussels a chance to retaliate using its own tariffs because the Americans refused to remove the duties. The foreign sales corporation (FSC) and its successor Extra Territorial Income (ETI) were also affected by World Trade Organisation rulings in the year 1999. In this dispute, Brussels is said to have had the right to carry out retaliation measures should the congress have remained reluctant in abiding with WTO rules. This is a clear indication that the World Trade Organisation has allowed countries to take retaliatory measures against the offender country hence a sign of mercantilism as these measures include use of tariffs, quotas or subsidies (Milner, 2001). The dispute system set is made up of rules and is made to serve all member states equally and in a mutual manner ensuring that every country benefits. Governments forming the World Trade Organisation have also decided not to abide by WTO rules governing trade. This is shown in democratic states whereby top officials ask political parties to defend their trade policies and not abide by the rules governing international trade. The World Trade Organisation encourages anti dumping measures in some countries making foreign firms to loose and the countries to benefit by imposing their political powers. For example the World Trade Organisation has allowed America to practice anti dumping in its steel industries thus benefiting the country and penalising the foreign firms. This has led to lack of market access for these countries and also discrimination as they are not able to start businesses or import or export in the country imposing these measures. World Trade Organisation practices are also said to contain biasness and full of mercantilism. This is shown by the organisation allowing Brussels to use tariffs falling anywhere in the range 8% to 30% on the imports it selects belonging to US. This has totalled to a large amount and it is said to be the largest trade permit award in World Trade Organisation history likewise the ruling made against America FSC and ETI schemes will make EU to make a sanction worth a large amount in the next two years. These two sanctions have shown that World Trade Organisation has encouraged countries operating within it to use tariffs against their trading patterns. This makes the World Trade Organisation objective to change from free trade to a Mercantilist trade hence not benefiting the countries. Anti dumping is said to be trade rules that importing countries use to counteract dumping the export of goods that are of low cost or have less value for example the country can impose import duties or the country can also negotiate with other countries so as to increase prices of goods. (Milner, 2001) Mutually mercantilism Mutual mercantilism is a way that enables one country to benefit from free trade by putting measures like import duties, use of tariffs and quotas thus the country benefiting and the trading partner loosing in the process. This is a bad practice as it benefits one country and disadvantages the trading partner which can be a foreign firm. This practice has been common in United States and other powerful countries. The countries affected end up losing market, products and employment opportunities and this benefits members of the powerful countries. The World Trade Organisation dispute settlement system has flaws in that the punishment for the country violating the trade rules allows retaliation. That is the country affected by the trade policies can penalise the offending country in the same way the affected country suffered. This means the country affected by the policies will use protectionist measures like subsidies, tariffs and any other measure to penalise the offender. This is an indication that World Trade Organisation encourages use of protectionist measures in carrying out trade negotiations. This also implies that the World Trade Organisation does not encourage mutual benefit and free trade among the trading nations. The retaliation measures the World Trade Organisation allows its winning members to use are made to cultivate hostility among its members. The retaliation measures prevent market access thus making each country to protect its property by enforcing some measures. This turns out to be a contradiction to the principles and objectives of the World Trade Organisation because the World Trade Organisation doesn’t allow the offending state to take any measures during settlement of disputes but only allow the country to decide how it will use its protectionist measures. The countries affected by the barriers are allowed to use the mutually harsh and mercantilist choice of retaliation. This makes the World Trade Organisation decisions unfair and influenced by favouritism. The organisation uses remedies that are unfair during dispute settlement because it doesn’t allow the countries that have undergone hardships as a result of its decision to be compensated. This shows infraction in its activities since the World Trade Organisation is aimed at making all countries to have economic growth through use of its non discrimination principles and transparency principles (Laidi, 2007). Criticism to the World Trade Organisation The World Trade Organisation is highly criticized by countries due to lack of democracy in its procedures and the failure to include the environment in its discussions. The World Trade Organisation is made up of a strong legal structure that is inherited from GATT. Despite this strong structure and agreements, World Trade Organisation has a negotiation process that is not formal. The measures the organisation uses to run its negotiations create discrimination among the countries forming the organisation. This is shown by its decision making process whereby it encourages the use of consensus thus disadvantaging the developing countries. Disadvantages to these countries are shown in many ways. First any objection arising from a given discussion is made to present by the opponents and this creates a difficult condition for the developing conditions. About 22 countries who are members of the organisation have no delegations in the World Trade Organisation headquarters, Geneva thus these countries are not able to give their views concerning an objection to the decision which is being discussed. Many countries have been excluded from meetings when the World Trade Organisation uses clubs that exclude other countries. This has led to many developing countries being discriminated in terms of decision making thus the World Trade Organisation going contrary to its principles as it is supposed to prevent discrimination among member states by providing equal services. The procedures the organisation has been using are in contrast with its objectives and principles as they don’t encourage transparency in the World Trade Organisation and among the member states. The organisation has faced a lot of opposition in protecting the environment as it has been termed as inadequate in environmental protection. There are two arguments that show that World Trade Organisation should include the environment in its negotiations. This includes the general agreement on tariffs and trade (GATT) that is the predecessor of World Trade Organisation. It is now out of date and when it was formed, the environment was not a public discussion. The second reason considers the environment to be important and that the World Trade Organisation should allow restrictions to enable the environment to be restricted. This is because powerful countries in the organisation are using environmental products like trees for their own benefits making developing countries to have slow growth as opposed to the developed countries. The World Trade Organisation is supposed to give its members and products equal treatment so as to have a high economic growth but the organisation does not work towards its objective hence the much opposition. Another argument is in agricultural products. This arguments emphasise that agricultural products should be exempted when it comes to free trade since the World Trade Organisation has encouraged use of mercantilist policies in trade. For example mercantilist policies allow a country to utilise its soil well in doing agricultural activities, mining or manufacturing. This policy has led to many countries in the World Trade Organisation practising import and export duties on agricultural products like maize and fertilizers. This disadvantages the developing countries as they are not able to import fertilizers for farming leading to low production and low profits hence low economic growth. The environmentalists have argued that environmental degradation requires extra territorial reach. However this implies that this lies with the national sovereignty of the countries that are within World Trade Organisation and the World Trade Organisation is based on the sovereignty of the member states. The World Trade Organisation is only aimed at meeting economic growth but not protecting the environment. This makes the World Trade Organisation to be criticised as it doesn’t see all the products and countries as equal but instead practices discrimination (Laidi, 2007). Conclusion In order for the World Trade Organisation not to be termed as based on the mercantilist principle, it should have a strong multilateral trading system that is based on rules and it should be open. This will make the system effective so as to fight protectionism and also help promote recovery, economic growth and development. This will enable the organisation to meet its objectives and utilise its principle as required. The principles of transparency, openness and non discrimination and practice of equality should remain the guidelines to ensure countries have an opening in international trade and hence have economic growth. By utilising these principles, the World Trade Organisation will ensure views from developing countries are integrated into their decisions. The World Trade Organisation should reduce use of retaliatory measure as a form of punishment. It should not allow countries to use anti dumping measures as these measures do not allow equal economic growth but encourage hostility among trading partners reducing the benefit of free trade. The organisation should change or revise its objectives from maximizing the gap between economic growth and international trade and focus on having equal economic growth. This will help reduce cases of mercantilism among trading partners and encourage free trade. Though mercantilism has some benefits it’s a poor practice and should not be encouraged. Thus the future of the World Trade Organisation will be good as it won’t have much opposition. References Buterbaugh, K. (2007).The WTO premer. Tracing trades visible hand through case studies. Palgrave Macmillan, page179 Dunkley, G. (2000).The free trade adventure. The WTO, the Uruguay round and globalism. A critique. Zed books, page 108 Ford, J. (2003).A social theory of the WTO. Trading cultures. Palgrave Macmillan, page 83 Howse, R. (1998).The world trading system. Taylor and Francis, page 322 Laidi, Z. (2007).The greatest disruption. Polity, page124 Milner, C. (2001).The world economy. Global trade policy. Wiley Blackwell, page 161 Naftel, M. (2000).The telecoms trade war. The United States, the European Union and the world. Hart publishing, page 472 Ray, J. (2004).Global politics. Houghton Mifflin, page 318 Read More