The Responsibilities of the World Trade Organization - Essay Example

Developing Countries, Free Trade and the World Trade Organization According to its website, the World Trade Organization (WTO) is the sole global international organization that handles the rules of international trade. Its core consists of the WTO agreements, negotiated and signed by trading nations and ratified by their respective law-making bodies. It aims to help producers, exporters, and importers conduct business. While these definitions seem neutral, the WTO has been accused of holding wealthy countries in higher regard than poor countries. It is precisely because it handles the rules of national trade that makes it prone to the vested interests of more powerful nations. This paper seeks to answer how the WTO accomplishes its objectives, why it is believed to be biased against poorer states and in what ways it can transform developing nations. The main responsibility of the WTO is to serve as a negotiating forum where trading nations can air their concerns and problems with each other (World Trade Organization, 2008). It has contributed to the trade policies of different countries in two ways. First, if a nation wants to be free from trade barriers, the WTO can help liberalize trade. Second, if circumstances do not allow liberal trade, the WTO maintains trade barriers. The rules set after negotiations are binding contracts that impose limits on the trading abilities of participating nations. The main premise for these rules is that trade should be as free as possible because this is essential for economic development and well-being. In order to assure governments that there will be no sudden changes in trading policies, “the rules have to be ‘transparent’ and predictable” (World Trade Organization, 2008). It is, of course, inevitable that disputes would occur along the way. The settlement of these trade disputes, including conflicting interpretations of previously negotiated agreements, is accomplished through some neutral procedure with agreed legal basis. The major principles of the trading system promoted by the WTO include trade nondiscrimination, reciprocity, transparency and special or different treatment (Shah, 2006). Such principles are the main reasons why it is advantageous for a country to become a member of WTO. Under non-discrimination, there are two other principles: the most-favoured-nation (MFN) rule and the national treatment principle. The MFN rule states that a product manufactured by one member country cannot be treated less favourably than a very similar or “like” product that comes from any other member country. If, for example, a trading country imposes a 5% tariff on a good by its partner, this 5% tariff is applied unconditionally and immediately to imports of the same or like goods from any other WTO member. The importance of MFN cannot be undermined. It guarantees that larger countries will not exploit their power by raising tariffs against smaller countries when times are bad, when domestic industries clamour for protection, or when preferential treatment is given to specific countries due to foreign policy reasons. On the other hand, “National treatment ensures that liberalization commitments are not offset by the imposition of domestic taxes and similar measures” (Hoekman, 1976). Reciprocity means that member nations provide similar trade concessions for each other; transparency means that the rules in negotiation and any other process are fair and open for all; and special and different treatment means that developing countries may need “positive discrimination” due to historic unequal trade (Shah, 2006). With China as example, joining the WTO was advantageous because the nation was able to expand export, attract foreign capital and enjoy its status as one of the most favoured member nations resulting to the opening up of other markets and abolition of discrimination against Chinese products (Yan, 2000) One of the most pressing criticisms levelled against the WTO is that free trade may not necessarily benefit poor, developing countries. Criticisms against the free trade goal the WTO can be summarized as follows: in theory, free trade is an optimal system for everyone but in fact, it mainly benefits richer nations (Pollock, 2002). According to Shah (2006), while free trade may appeal to our sensibilities, some national laws and decisions for the protection of health, environment and national economies serve as barriers to free trade. For example, the Guatemalan government tried to reduce infant mortality in accordance to World Health Organization guidelines that breast milk is the best food for babies and counter the aggressive marketing by multinational companies. GATT (General Agreement on Tariffs and Trade), the predecessor of the WTO, sided with the said companies and profits prevailed (Shah, 2006). The United States once threatened to take South Africa to the WTO because of the law that Nelson Mandela passed, enabling South African companies to manufacture cheaper drugs as long as they pay royalties to the drug developers. Lori Wallach (as cited in Shah, 2006) noted that various global agreements often undermine local laws sand constitutions. Accordingly, rich countries push poor countries to reciprocate equally. This undermines the principle of WTO that developing countries have to be treated with “positive discrimination”. Criticisms against the structure and practice of the WTO focus on its undemocratic nature. Pollock (2001) points out that this is separable into two related arguments. First, the structure and the personnel of the WTO are undemocratic since they result into developed richer countries prevailing over developing poorer countries. Second, despite not being actively biased or undemocratic, the WTO condones or promotes the domination of powerful groups (developed richer countries or transnational corporations) over others. Moreover, the WTO turns a blind eye to the fact that free trade arguments are used to open up third world markets whereas the same arguments are used by developed nations to retain all kinds of protectionist measures. From the aforementioned examples and reasons, it is easy to see that the WTO, due to its power and influence, can readily institutionalize trade policies that harm poor countries and profit rich ones. How then, is the playing field going to be levelled in order to give genuine equal opportunities to both developed and developing nations? Singh (2000) based on the UNDP Poverty Report 2000, stated that international trade should not just work for the advantage of poorer developing countries but also contribute to poverty reduction. According to the report, poor countries can only benefit from global trade if the rules and institutions governing it are transparent and fair (Singh, 2000). The report declares that transparency is particularly important because “industrial countries and many multilateral institutions are exhorting developing countries, in the name of good governance, to be more accountable to their citizens” (as quoted in Singh, 2006). Consequently, these poor countries must be capable of negotiating favourable agreements, such as those made with the WTO. If unfair competition continues, developing countries will continue to suffer and their respective populations will continue to shoulder increasing debts and decreasing compensation. The UNDP report asserted, “Eliminating protectionism that is biased against developing countries should be a high priority” (as quoted in Singh, 2006). The WTO continues to be a major player in the trading field and it affects not just economies but also politics. In order to achieve its objectives, it has to be true to its principles. If it continues to disregard the concerns of developing countries, then it is not really a “world” trade organization but an institution built for the rich and the powerful. References Hoekman, B. (1976). The WTO: Functions and Basic Principles. In B. M. Hoekman, Development, Trade, and the WTO: A Handbook (p. 641). World Bank Publications. Pollock, R. (2002, June 20). Criticisms of the WTO. Retrieved April 26, 2008, from http://www.rufuspollock.org/wto/wto_criticisms.htm Shah, A. (2006, July 28). The WTO and Free Trade. Retrieved April 26, 2008, from Free Trade and Globalization: http://www.globalissues.org/TradeRelated/FreeTrade/WTO.asp Singh, S. (2000, April 5). WTO Rules Must Become "Fair", Says UNDP Report. Retrieved April 26, 2008, from Third World Network: http://www.twnside.org.sg/title/undp.htm Third World Traveler. (2000, January). The Case Against the WTO: The Progressive magazine, January 2000. Retrieved April 26, 2008, from Third World Traveler: http://www.thirdworldtraveler.com/WTO_MAI/CaseAgainstWTO.html World Trade Organization. (2008). Understanding the WTO: Basics - What is the World Trade Organization? Retrieved April 26, 2008, from World Trade Organization: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm Yan, G. (2000, February 28). Chinas Entry into WTO. Retrieved April 26, 2008, from Peoples Daily Online: http://english.peopledaily.com.cn/special/WTO/2000022800N101.html Read More