The World Trade Organization and the Global Economy - Term Paper Example

The World Trade Organization and the Global Economy In essence, the World Trade Organization (WTO) is the sole international agency that handles the global trade rules between countries. Its primary task is to guarantee free trade. Producers and consumers are assured that they can benefit from stable flows of goods and services. Exporters and manufacturers are assured that foreign markets will stay accessible to them. Another outcome is a wealthier, stronger, and more responsible global economy. Decisions in the WTO are normally made through negotiation among all of its members and they are approved by the member countries’ legislatures.1 Trade conflict is handled through the dispute settlement system of the WTO where the emphasis is on making sure that trade policies of member countries comply with agreements. This paper argues that the WTO is a positive influence on the world economy. By loosening trade restrictions, the WTO also eliminates other boundaries between countries and peoples. At the core of the WTO—called the multilateral trading system-- are the treatises, discussed and approved by most of the world’s trading countries, and signed in their legislative bodies. These treatises are the legal protocols for global trade.2 Basically, they are agreements, granting member countries major trade privileges. They also oblige these countries to conform to agreed trade rules to the benefit of everyone. The recent years have been very unstable and turbulent. Stock prices have plummeted, the financial sector has crashed, important commodities like oil have dropped severely and inflationary demands have become deflationary problems. The prospects since 2009 appear bleak, as the global economy is declining, the population of unemployed is growing, trade levels are dropping, and nobody is sure when the financial havoc will end.3 Global production is dwindling as rapidly as demand is declining and foreign direct investment keeps on dropping. In spite of some common declarations from world leaders about the threats of protectionism, it is actually rising in several nations, while public approval for trade liberalization is negligible among others.4 In such an environment, the issue should be raised whether trade liberalization remains vital. The financial crisis clearly appears to be the more urgent concern, and trade has gradually recovered since the system of loosening trade barriers started with the establishment of the General Agreement on Tariffs and Trade (GATT) after the Second World War.5 Since its establishment, the WTO has carried on with the process of trade liberalization, and broadened the directive of the earlier GATT administration to include other trade-based issues, like intellectual property. Abolishing the WTO would be unreasonable. Trade policy is still essential, and it can serve a vital function in boosting the recovery of the world economy. The formation of the WTO reformed many of the original weaknesses of the GATT and created a strong institutional foundation from which the system of international trade could develop. The WTO had several accomplishments, such as China’s accession in 2001, and it is still one of the most important international agencies.6 The Economic Advantages of the WTO Distributive principles and efficiency concerns are generally shown as being in disagreement. Yet, they should not be. Making sure that every party gains from the liberalization of trade is rational from the point of view of economics. Enhanced trade heightens general wealth. Hence enhancing the production and consumption capacity of the poorest nations will result in greater boosts in general wealth. If distributing the wealth will strengthen trade liberalization, this is to the benefit of the nations that are already the frontrunners.7 Moreover, to the point the gains of trade are distributed, nations that would not have gained will have assets to use in the markets of other member countries and to improve the capacity of their peoples to create new resources or wealth. On the other hand, the financial consequences of unsuccessful economies extend beyond national boundaries. The financial impact of poor economies on strong economies, the greater global prevalence of disease, the threats related to political disorder, and the cost of development aid, are not minor concerns.8 Making sure that all the members of the WTO benefit from trade is not simply fair; it is also rational in an economic point of view. Another economic idea is based on the theory of public goods. Public goods—which in the local context may comprise a national defense agency or uncontaminated air—are identified as being ‘non-excludable’ (“if available to anyone it is available to everyone”) and ‘non-rival’ (“one person’s use does not prevent another person’s use”).9 Due to these aspects, market forces by itself usually do not produce adequate inputs to raise the best possible qualities of public goods. In order to prevent this market collapse, government intervention is usually needed to make sure that public goods are adequately distributed or provided. There are claims that free trade is an international public good, or, a good that is felt globally, like world peace or extermination of a contagious disease.10 Cooperation of most, but preferably of all, countries is needed to attain a global public good. Thus global supervision is required, through the WTO, to bring together the agreements of member countries to open their markets. The liberalization of trade has boosted the supply of goods and the level of production and general economic development of nations participating in it. Trade has encouraged economic progress and technological developments, and in numerous ways it has created constructive interdependencies among nations. The WTO ensures that markets are open for global trade because this is what its members oblige it to do.11 Not all nations have gained evenly from the liberalization of trade because they lack the domestic ability to exploit or profit from market opportunities or they do not have the same level of access to international markets. In order for trade to capitalize on its benefits to the economy, greater efforts should be initiated in these countries to create their economic and political strength, their important educational and physical resources, and their ability to participate in the international trading system.12 Trade is a particular component of global order, and countries should try hard to build a global governance system that embraces a complex world of environmental, social, political, and economic interests. However, it is vital that the WTO carries on with its role unhindered by disruptive non-trade forces. Adding new human rights, labor, or environmental concerns into the WTO cannot occur due to the trade liberalization agreement that is the core of the agency. The function for trade in these WTO modifications would be largely unconstructive—to penalize members of WTO with trade punishments for failure to comply.13 Exercising the WTO in this way would signify a violation of its basic doctrine. Without a solid groundwork of compromise on nondiscrimination and a regulated structure, the international trading system would disintegrate and perhaps fail. Numerous countries would make use of a self-protective stance of preferential trade agreements, looking for select trade partners and facilitating the dependence of market access on unilateral or bilateral negotiations. Selecting trade partners is a simple approach that nations may resort to, and without obligatory WTO rules, trade relations would fall apart.14 The level of trade would drop. Global capital flow would also drop, alongside economic development in most nations. This already occurred in the past—the 1930’s protectionist trade conflicts and the crash of global trade and finance.15 The most appropriate way to deal with the worries related to globalization and trade is to endorse corresponding international organizations and domestic policies, which will facilitate the continuation of trade liberalization despite disruptive reforms and non-trade concerns. For instance, liberalization of trade requires change to trade competition, which usually implies job rearrangements and disturbance. Economic adjustment generally is usually troublesome, and economic studies tend to show that technological adjustment has contributed more to the disruption of labor markets and wage reductions than trade.16 However, just like technology and other leaders of change, trade is normally an important component of economic development. Countries with economies that motivate their industries to take part in the global economy tend to acquire great benefits from it. Participation in international competition and access to new markets, latest technologies, and competent foreign suppliers is favorable for consumers and producers. It is failing to adjust that is unfavorable. However, change can be upsetting, and the structural economic adjustment that is happening via market globalization seems to place workers in the wealthy, industrialized, environmentally aware, and politically secure nations against untrained, poorly educated workers in impoverished nations with deficient labor and environmental standards to pressure the process of production. Nevertheless, the primary explanation for the joining of these two markets is the fact that wages are lower in underdeveloped nations due to the greater availability of labor and the status of the economy.17 This is an essential component of the foundation for mutually favorable trade. Nations at this point in their economic development will usually start to manufacture simple goods that were previously manufactured in huge volumes by other nations that have now developed.18 Moreover, workers in developed nations tend to be highly educated and trained, and they have the chance to merge their abilities with greater technology and financial resources than workers in underdeveloped nations. Such disparities, rooted in greater labor efficiency, validate the higher wage rates received by workers in developed nations. Those workers in rich countries with lesser skills, lower educational level, and less training may be disrupted from their jobs through import competition, and they will have to look for new employment opportunities. This mechanism—structural changes progressing in all nations connected to the global economy—influences considerably economic development and productivity, and it is crucial that it advances uninterrupted.19 Countries should cope with structural economic adjustments and assist their workers in coping, without delaying or disrupting the important process. For that reason, the dilemma is not the WTO. It is the ability to adjust, and the answer resides in stronger domestic policies, with the correct combination of fiscal and economic policies, resilience of the labor market, and flexible educational system that will drive the redistribution of resources from deteriorating to advancing industries and segments of the economy.20 Not every worker experiences disadvantages due to job loss; for instance, young workers in the U.S. have a tendency to benefit from higher paychecks after a job displacement. For workers who become unemployed, trade is not normally the major cause in developed nations. The importance of adjustment aid is most appropriately seen in this way as the outcome of countless market factors, such as structural adjustments in economic practices, changes in preferences, population changes, technology, and other unsettling market episodes, not only trade.21 Viewing economic change as a common occurrence, with adjustment strategies and assistance for affected workers derived from wider standards, would offer a stronger foundation for addressing resistance to economic adjustment and, particularly, resistance to trade. With regard to the impact of lower labor and environmental standards on competition, the factors do not, in most instances, generate inequitable cost advantage in global trade. The costs of environmental conformity in developed nations remain to be a minor fraction of overall production costs and are usually associated with additional productive technologies that counteract the pollution reduction cost.22 Sweatshop and child labor are present mostly in non-traded areas, and their handling in traded goods has currently been criticized, accompanied by major domestic responses to regulate or eradicate such unfair labor practices. Penalizing trade policies would not yield positive results because they would harm the poorer laborers and weaken the economic foundation for social improvement. Another way is to promote constant monitoring, political demands, and favorable incentives to advance labor situations, while sustaining open trade practices.23 Even though assimilation into the global trading system does not ensure dynamic, developing policies in these sectors, the related advancement in trade generates the prospects for development, and the connection with most countries across the globe builds motivation for growth. With regard to the worldwide issues of biodiversity, food security, pollution, and similar concerns, environmentalists criticize the WTO because they believe that trade itself, as well as trade policies, are the cause of environmental deterioration. Yet, a great deal of economic research reveals that trade does not damage the environment. Because trade supports technological development and economic progress, it indirectly contributes to the creation of incentives to protect the environment.24 In addition, trade positively influences the process of development in underdeveloped nations, which results in higher wage rates and more demands for a protected environment. In contrast, trade policies included in the WTO are frequently suspected to hinder environmental actions by surpassing unilateral, nationally enforced trade policies, which go against national sovereignty. Yet again, criticisms against the WTO are generally inaccurate: it is the pursuit of valuable means of achieving environmental objectives that is the key.25 Those objectives are most excellently pursued in committed international environmental organizations and other global agencies, rooted in commitment and agreement among the nations involved and with innovative and dynamic motivations for compliance. Supporters of international human rights and labor standards have the same worries about the WTO and demand trade policies to assist them in achieving their objectives. They refer to the ILO key labor principles and the UN Declaration on Human Rights, implemented by numerous nations, thus validating their integration into WTO trade policies.26 However, the clear agreement on human rights and labor principles does not essentially indicate an involuntary agreement on enforcement policies. Trade sanctions require actual and possibly huge costs on producers and consumers alike. Regardless, such actions are not likely to gain approval from the members of the WTO.27 Conclusions The WTO, since its inception, has been heavily criticized, mostly by environmentalists and human rights advocates. They claim that the agency is only focused on economic development. But in fact, the WTO is favorable for the global economy, as well as for the environment, labor, and human rights issues. Through trade liberalization, more employment opportunities are created, economic development assistance among countries is guaranteed, and trade rights of all participating countries are protected. Through trade, poorer economies are given the chance to improve their economic condition. Bibliography Jones, Kent. Who’s Afraid of the WTO? New York: Oxford University Press, 2004. Lanoszka, Anna. The World Trade Organization: Changing Dynamics in the Global Political Economy. New York: Lynne Rienner Publishers, 2009. Lewis, Meredith. “WTO Winners and Losers: The Trade and Development Disconnect.” Georgetown Journal of International Law 39, no. 1 (2007): 165+ Mercurio, Bryan. “Reflections on the World Trade Organization and the Prospects for its Future.” Melbourne Journal of International Law 10, no. 1 (2009): 49+ Steger, Debra. Redesigning the World Trade Organization for the Twenty-First Century. Ottawa, Canada: Wilfrid Laurier University Press, 2010. Read More