WTO as the Central Structure That Facilitates Global Trade - Term Paper Example

International Business Contents Contents 2 Introduction 2 Discussion and Analysis 3 Conclusion 6 Recommendation 7 Reference list 8 Executive Summary The WTO is the central structure that facilitates global trade. It was mainly created with the objective of promoting free trade between nations, which is likely to improve mutual benefits for both the trading countries. Since its inception, WTO has come a long way establishing conditions for robust economic development, creating jobs and reducing unemployment as is predicted by the international theory of trade. Yet, its actions have not been free of criticism. The purpose of this paper is to examine the ways in which WTO has positively contributed to economic development of nations through trade and to provide recommendations for its more efficient functioning in the future. Introduction The World Trade Organization (WTO) is a post-war establishment, which was primarily set up as an attempt to liberalize world trade. Prior to this, trade settlements were conducted by International Trade Organization (ITO) and then by GATT. The end of Uruguay Round in 1994 led to establishment of WTO and this was a major departure from GATT on two main grounds. The first was inclusion of better dispute settlement measure in order to promote international cooperation and the second was inclusion of agriculture and services in the agreements to mainly promote progress of the developing countries. The purpose of this paper is to analyze the role of WTO in promoting economic development among nations. The system operates in the gamut of multilateral trade agreements to contribute to economic development and employment for all its member nations. The organization has its headquarters in Geneva with 159 member countries. China was one of the last countries to have joined WTO, which had significant impacts on the entire global trade (Faizel, 2005). Discussion and Analysis One of the primary focus of WTO since its inception has been the promotion of free and fair trade through multilateral negotiations. The WTO involves all its member countries in the decision making process to ensure that outcomes from the agreements are fair for all. The economic rationale behind this idea is that international trade has a major role in alleviation of poverty. The WTO has realized that least-developed countries are the most vulnerable ones and therefore, commits to increase their participation in the multilateral trading system, thereby assigning equal importance to these countries (Klug, 2006). The task undertaken by WTO is a very complex one because its member countries have different political, legal and economical status. This means that developed countries are in a better position to open their markets to the developing ones, yet the latter is not. This is because if developing countries open their markets fully, then local producers cannot sustain the competition from superior foreign products and eventually suffer. This often leads to disputes between developing and developed countries (Bhattacharjea, 2006). The WTO clearly understands that the relation between stimulation of economic growth and generation of employment is a complex one. This is because with opening up of trade, multinational companies have access to superior quality products with affordable prices. This is because trade enhances productivity and efficiency of nations. As a result of this, companies often require less manual workforce compared to a situation when there was no trade. This often leads to higher unemployment and greater poverty. This is the reason for which the task of WTO becomes difficult. However, WTO believes that this reason is insufficient for not opening up trade. This is because in the long run, such job protectionism by countries is not sustainable. Also, there are jobs related to importing of goods such as, jobs in retail, logistics and shipping, which are likely to be hampered if economies stop importing (Brenton, 2003). So, in order to open up trade as well as protect interests of the developing countries, WTO strives to balance opposing interests in the agenda. The WTO has come up with a program named as program of Technical Assistance and Capacity Building to help developing countries improve their trade facilitation priorities and requirements. This also involves providing technical help for implementation of the agreements by the developing countries. The WTO agreements also tend to provide special advantages to economies of least developing countries so that they can compete against powerful nations. The Economic Partnership Agreements promoted by WTO is also an attempt by which it tries to establish stronger and fair trade relationships between countries of European Union and African, Caribbean and Pacific countries (ACP). The basic focus of this agreement is to allow developing countries access to the European Markets as quota free markets. This also endows developing countries with the benefit of long periods before they are required to open their markets to the EU. Another major purpose of this agreement was also to promote regional trade between developing countries of ACP by minimizing the trade barriers between these countries (Krugman, 1997). The role of the WTO is perhaps more important because there exists a strong relationship between promotion of trade and sustainable development. Mutually beneficial trade relationships between nations have the power to raise economic welfare of both the nations and in turn generate higher economic growth. The agreements of WTO are based on principles of non-discrimination, which in turn is expected to support more efficient allocation of resources. The WTO agreement clearly states that its basic aim has been to raise the standard of living of all member nations. The Agreement aims to expand production of goods and services of the nations, coupled with increasing trading relations between them, keeping objectives of sustainable development in mind (Crown Copyright, 2013). One of the positive contributions of WTO has been reduction in the cost of living, which in turn has raised standard of living in countries. As WTO functions on the non-discriminatory principle, it can reduce cost of production by making the imports cheaper through trade. It has been observed in case of U.S., since its incorporation in WTO, overall income of the population has increased by $9,000 per household (World Trade Organization, n.d.). As a result of free trade promoted by WTO, food and clothes have become cheaper. This in turn has contributed positively to raising the standard of living. In case of developed countries, it has been observed that subsidies in the powerful nations raise international price of commodities for which the poorer countries tend to suffer. It is for this reason that negotiating agricultural trade between nations of unequal economic development is a crucial factor. The WTO has also been successful in reducing the pricing of services like, telephone, in a number of developing countries such as, Uganda, Tanzania and Mozambique. It has already been mentioned that settling of disputes between nations was one of the primary objectives of WTO. After five decades of its establishment, it can be argued that WTO has been quite successful in resolving conflicts between nations in an efficient manner. The annual number of complaints for both developing and developed countries has reduced over the years. This is a particularly positive development because conflicts between countries often lead to situation of economic distress, thereby slowing down economic growth of the concerned nations (Lee and Wilkinson, 2013). Figure 1: Reduction of complaints over the years (Source: World Trade Organization, n.d.) The above chart clearly shows that complaints have fallen for not only the developing countries, but also for the developed ones. This has mainly happened because when any dispute arises, all member countries focus on ways to resolve it in a way, which safeguards the interests of every member. On reaching a solution, all the countries comply with the rule that has been negotiated and this can be open to renegotiation. Another major benefit that has been accrued from establishment of WTO is that cost of doing international business has lowered relatively. Free trade promoted by WTO leads to division of labour in the economy, which in turn increases efficiency of production. The most important responsibility of WTO since its early days has been to promote development of the least developed countries. This fact is not surprising because more than three quarters of member countries in WTO are either developing or least developed. The latest round of agreement, named the Doha round of agreement, has focused specifically on certain areas that can promote development of LDCs. The LDCs are offered a number of exemptions as they are financially weak (Chang, 2003). It must be considered that WTO is not an aid agency, yet it has come up with aid for trade. The ambit of this project does not guarantee enhanced trade flows between countries, but it definitely raises opportunities for the LDCs. Regardless of its good efforts, WTO is often criticized and is argued to have rendered the rich countries richer and the poor countries poorer. Most of the critics of WTO are of the view that the number of agreements in WTO is not enough to resolve the dispute between nations. It is also argued that tariff and non-tariff barriers in the non-agricultural sectors by both developing and developed countries ultimately violate the principles of benefits of free trade. Others argue that WTO has been unable to conform to ethical standards and failed to improve conditions of child poverty in several developing countries. It has also been claimed that WTO in reality works on a bilateral principle, in spite of propagating multilateral agreements. Despite these criticisms, it cannot be said that WTO has been ineffective entirely. It has also been providing a number of benefits as have been discussed above (Appleton and Plummer, 2007). Conclusion This paper has analyzed in details the ways in which WTO is constantly trying to devise ways to contribute positively to economic development of the nations. The analysis points out that in the recent years, WTO has been focusing on development of the weaker countries. The duties performed by WTO are difficult because of complex nature of the relationship between economic variables. It has been seen that employment levels always do not increase as a result of rise in trade between nations. This is because higher productivity often leads to hiring of lesser labourers. Then again, the difference in economic development of the nations makes it difficult to negotiate trade in agriculture as subsidies of trade in developed nations negatively affect the developing ones. Recommendation The WTO has often been criticized on favouring the rich nations. So, the recent Doha round that was launched in 2001 is also called the development round for its emphasis on developing countries. The first recommendation can be reduction of subsidies in agricultural trade by the developed countries. This is because developed countries have other sectors, which can compensate for their overall economic growth, even if the agricultural sector suffers. The developing countries, on the other hand, rely mostly on the agricultural sector, which is negatively affected because of the subsidies. The second recommendation that is suggested is reduction of both tariff and non-tariff barriers by the member countries in non-agricultural goods. Free trade promotes higher economic development. So, it is suggested that both developing and developed countries can benefit from such an agreement. The third recommendation that is suggested by this paper is that more policies like, “Aid for Trade”, must be introduced so that developing countries can benefit from entailing opportunities. This will not only enable the developing countries to raise their standard of living, but also to fight social evils of child labour. The final recommendation of this paper is that the organization should try to minimize the bilateral agreements and work on the basis of multilateral agreements. Otherwise, it will become difficult for least developed countries to compete with the developed ones as bilateral trade almost always robs benefits of the developing countries. Reference list Appleton, A. E. and Plummer, M. G., 2007. The World Trade Organization: Legal, economic and political analysis. Berlin: Springer. Bhattacharjea, A., 2006. The Case for a Multilateral Agreement on Competition Policy: A Developing Country Perspective. Journal of International Economic Law, 9(2), pp. 293-323. Brenton, P., 2003. Integrating the Least Developed Countries into the World Trading System: The Current Impact of European Union Preferences under “Everything But Arms”. Journal of World Trade, 37(3), pp. 623-646. Chang, H. J., 2003. Globalization, economic development and the role of the state. London: Zed Books. Crown Copyright, 2013. The World Trade Organization and trading with developing countries. [online] Available at: [Accessed 29 April 2014]. Faizel, I., 2005. Mainstream Development in the World Trade Organization. Journal of World Trade, 39(1), pp. 11-21. Klug, A., 2006. Theories of international trade. London: Routledge. Krugman, Paul. 1997. What Should Trade Negotiators Negotiate About? Journal of Economic Literature, 35(1), pp. 113-20. Lee, D. and Wilkinson, R., 2013. The WTO after Hong Kong: progress in, and prospects for, the Doha Development Agenda. London: Routledge. World Trade Organization, n.d. 10 things the WTO can do. [pdf] World Trade Organization. Available at: [Accessed 29 April 2014]. Read More