The World Trade Organization - Literature review Example

INTERNATIONAL TRADE Executive Summary Trade liberalization is a beneficial to the global economy as it leads to development and growth of a country’s economy and in the international market. In trade liberalization, the element of free trade is most essential as it eliminates barriers to global trade and ensures that countries interact effectively on the business and commerce front. Liberalization policy involves setting the series of capital and trade liberalization throughout the globe by ensuring that governments do not formulate policies that restrict free trade especially through imports and exports. Therefore, it has had a significant impact on the economic development by assuaging poverty. Trade liberalization is exemplified in statutes including the World Trade organization (WTO) mutual agreements, North American Free Trade Agreement and the European Union. However, governments hinder the process of free trade by formulating protectionist policies that restrict global trade. Generally, the trade barriers are intended to support the local industries by limiting import and exports. This paper will cover on the issue of trade barriers and the reasons why the strategies are still in utilization by many governments. The report also dwells on the role of WTO (World Trade Organization) as it highly determines the success of trade liberalization. Consequently, there is need for studies on trade issues, which are rampant in the globe as a result of the free trade. Therefore, the report will incorporate the utilization of child labor in the production of commodities, which are in circulation in the international market. Trade Barriers Throughout history, the economy has experienced depressions, which hinder global trade due to economic isolationism. Even though trade liberalization has had positive outcomes on growth and development of economies, it has resulted in social problems, increasing unemployment, failure of local industries and loss of income. In order for governments to ensure that the local industries are protected, countries have been forced to formulate and apply a number of methods and policies to counter foreign (International) competition. Therefore, trade barriers and relevant policies have been the norm in numerous countries like China, Brazil, and South Africa among others (Irwin, 2009). Trade barrier is a restraint enforced by government to limit the flow of international commodities and services. The most utilized barriers by governments include tariffs, quotas and non-tariff barriers. A tariff is a restraint policy, which targets imports by raising the price of the commodities to the buyers. The purpose of the tariffs is to aim for revenue and also limit the rate of import into the host country (Schaffer, Agusti, & Earle, 2009). Consequently, a quota targets a given commodity, which is being imported into the country. The purpose of both barriers is to protect local industries by restricting the dominance of international actors and investors. A tariff generally guarantees that the price of imported goods is beyond the market equilibrium cost, which consequently affects the demand and supply of that product while a quota limits the supply of the product or service and thus increases its price in the market. Nontariff barriers may involve regulations and quotas on the quality of a commodity or service. The nontariff restraint imposes regulations like product standards that automatically hinder the supply of the good. Consequently, a government may enforce subsidies to domestic industries, which make the production of goods cheaper. The production of goods influences the market price and thus a subsidy will result in affordable domestic prices for the related products (Schaffer, Agusti, & Earle, 2009; Irwin, 2009). Trade barriers are referred to as “protections” as they shield domestic industries or segments of the domestic economy. According to proponents, the costs of protection methods to a domestic economy usually outweigh the benefits accrued from the trade barriers. Reasons for Trade Barriers Even though the level of economic isolation is not similar to that of the Great Depression in the 1930s, the current global economy is still a gated economy by a small margin. After decades of enormous success in trade liberalization, whereby goods and services have moved freely, many governments both in the developing and developed countries have turned back to protectionism. As the countries want to enjoy the benefits of the international trade, they also want to protect their economies from the downside accrued by free trade (Hanson, 2010). According to World Trade Organization, the impacts of protectionism have had little, if none, impact on trade since the wake of 2008. However, proponents argue that countries are flourishing under intense policies that restrain global trade. For instance, India is characterized by local-content requirements on a wide range of products including IT and solar-power products. On the other hand, Brazil imposed policies for local industries to purchase their products locally while Europe and America imposed tariffs on various products from China notably the Chinese solar equipments (Hanson, 2010). According to Irwin (2009), there are various reasons for the formulation of trade barriers by governments. The reasons include unemployment prevention, monetary revenue objectives, industry protection and payment balance maintenance. According to countries for protectionism, trade is an essential element in the international economy as it has positive impacts; however, it also imposes negative impacts in some regions. A general argument states that free trade is colonialism in disguise. Developing and under developing countries view that developed countries have a motive of destroying infant industries. The moral argument is that free trade results in income inequality, sweatshops and child labor, environmental degradation, cultural impacts, wage slavery, “race to the bottom” and accentuates poverty levels in poor countries. Socialist countries argue that free trade has resulted in maximum exploitation of workers and child labor in poor countries as many investors often target regions that are characterized by favorable demographics including cheap labor, raw materials and capital. Therefore, to ensure that countries are protected from exploitation, governments adopt relevant policies that restrain the exploitation of domestic economies (Vaidya, 2006; Irwin, 2009). Citing Vaidya (2006), domestic industries of a given country are often against trade liberalization as it affects the development of these industries. Trade liberalization leads to the import of goods and service in to a country, which are characterized by lower prices. The import of these commodities has a significant impact on the market share and profits of the domestic industries. For instance, if tariffs on products like sugar were reduced in the United States, the American producers will receive less profit as consumers will have a wide range of sugar products to choose from. In this case, the price and quality of the sugar products influence the purchasing power of buyers as individuals tend to purchase products at affordable prices. According to David Ricardo’s economic theory, consumers tend to benefit than producers as a result of trade liberalization. Therefore, the producers of goods are usually the protagonists who drive for the formulation of tariffs and other forms of barriers. Consequently, producers often rally behind their government for subsidies and tariffs in their country while opposing the same policies in other countries (Vaidya, 2006). Governments tend to favor trade barriers as a response to declining domestic industries. At some point, industries reach their maturity phase and may decline due to inefficiency. The decline of industries results in loss of employment, which pose adverse effects on domestic economies. Therefore, countries may impose tariffs to protect the jobs of their citizens. Moreover, protectionism is often related to revenue as numerous developing countries fail to generate adequate revenue from corporation tax and income tax due to the high unemployment rate. Hence, the governments impose tax tariffs on imported goods to raise sufficient revenue to sustain its economy (Hanson, 2010). World Trade Organization (WTO) Significance and purpose The WTO is an entity that seeks to alleviate problems that arise from international trade. Governments meet in summits to negotiate and indulge in talks, which are essential in streamlining trade agreements. The organization was a product of the Uruguay Round in the 1986-94 negotiations, which were initially under the GATT (General Agreement on Tariffs and Trade) negotiations. Under the 2001 “Doha Development Agenda,” the WTO is the current host of trade agreements. In instances where the member countries have faced barriers and obstacles in trade, they sort negotiation s through WTO to seek amendments of the trade barriers. The WTO is an international body characterized by 159 member countries. Its main purpose is to promote trade liberalization on a global level to ensure free flow of commodities, services and investment. It deals with the formulation of rules of global trade between numerous countries and thus encompasses major trading economies. The WTO ensures that international trade flows freely, predictably and also promotes peaceful coexistence between member countries by the formulating policies that deal with trade issues and disputes (Steger, 2010). The WTO is characterized by a set of regulations, which have been mutually agreed and signed by the member countries. The set of rules provide the foundation for effective international commerce for countries. Generally, the regulations are contracts that bind countries to ensure that their policies on international trade are within the specific limits and within the reach of member governments. Even though these agreements are between governments, the sole purpose of the regulations is to assist exporters, importers and producers of commodities and services to conduct their activities effectively and in the process ensure that governments meet their environmental, economic and social objectives (Steger, 2010). Therefore, it is a vital body in international commerce as it ensures a streamlined flow of trade activities and alleviates any undesirable outcomes. The future of WTO The WTO organization is faced with intense challenges in ensuring an effective environment for the progress of international commerce. Therefore, there is need for analysis of current and future challenges to international trade. The rapid transformation of global economy necessitate multilateral systems of trade and the WTO to look at the trade patterns and trends in reference to open trade, while considering the role of trade in economic development, employment and poverty reduction. According to the WTO Director General, Anabel Gonzales, there is great potential in under developing countries, which utilize the rules-based system of trading in order to ensure development in these countries. The under developing countries are underrepresented and thus the level of poverty and growth is not pleasant. This will require the evolution and reevaluation of current strategies, issues and regulations. The organization has surpassed expectations by effectively addressing critical issues. The economy transformation has had major impact since the formulation of WTO. Moreover, the organization through its members and their needs will require more changes on the strategies of trade liberalization and conflict resolution to ensure effective commerce. Reinvigorating WTO responsibilities in serving the international business community is an essential accomplishment for the organization (Macrory, Appleton, & Plummer, 2005). Attraction of more members is a key concern that should be addressed in the near future by the organization. This can be done by ensuring that the Doha agenda is carefully considered and addressed to welcome more countries into the liberalization agenda to promote economic development and respond to risks as a result of the international supply chain (Bossche & Zdouc, 2013). Currently, the main concern for the organization is finalizing the Doha Development Round, which was initially launched in November 2001in Doha. The initiative would make globalization more effective and also assist in development in the world’s poorer countries. Moreover, the Doha negotiations will solve future issues of barriers and subsidies in sectors like agriculture. The negotiations have undergone many obstacles due to disagreements between members in contentious issues including agricultural subsidies (Bossche & Zdouc, 2013). Even though WTO disputes have involved the issues concerning social and environments issues, it is still important to cover these concerns as they are aligned with the concept of development and economic growth. In conclusion, it is therefore critical for the organization to analyze new initiatives on facilitation measures in trade, effective investment regime and effective measures that will restrain the utilization of tariffs and other trade barriers (Macrory, Appleton, & Plummer, 2005). Trade Issue: Child Labor According to Eckes (2009), the issue of child labor has been linked with free trade. In the United State, the products, which are in supply and demand, are characterized by child labor in one way or the other. Major American firms have always offered subcontractors the responsibility of producing many commodities. Partly, it has been through the trade relationship between United States and other countries that are members of the WTO. According to studies, many of the products including those in mining, agricultural and manufacturing sectors, which are produced for exportation, involve the utilization of child laborers in their production. The U.S Department of Labor in 2010, issued a report titled List of Goods Produced by Child Labor or Forced Labor, which incorporated a list of 128 commodities from over 60 countries that are characterized by child/forced labor in the production phase of products. This included coffee from Kenya and Guatemala among other countries, shrimp that is exported in Thailand and Cashews that come from India (Eckes, 2009). In the world, estimates indicate that approximately 211 million laborers are under aged children. Therefore, it is evident that child labor is rampant in many countries, for instance Asia has the largest share of under aged laborers accounting to approximately 60%. Many proponents argue that the labor issue is a product of free trade and the lack of trade barriers. Many companies exploit workers in the developing counties by imposing strict and poor working conditions as well as utilizing child labor in production of goods. This is because the trade regulations are not implemented in poor countries and thus investors take advantage of the citizens. The hasty elimination of tariffs that act as barriers has adverse effects on poor countries and thus results in trade issues like child labor (Hindman, 2009). In order to ensure the alleviation of trade issues including child labor, the United States has incorporated labor standards which not only carter for the needs of the worker but also impose strict measures on the utilization of child labor. For instance in the 90s, the federal government threatened to ban products which were produced with child labor (Graber, Kuprecht & Lai, 2012). The Trade Act of 2002 ensures that U.S trade negotiators during WTO seek the provision of children rights in agreements. Consequently, the Act urges the WTO to endorse universal ratification and implementation of the ILO Convention in reference to No.182, which seeks to prohibit the “Worst Forms of Labor.” As the current labor standards are not the concern of WTO regulations, the United States and Europe feel that labor standards should be incorporated in the international trading system. Currently this proposal is one of the contentious issues in the WTO agreements as labor and trade standards matters has always been a thorny issue since the formulation of WTO (Graber, Kuprecht & Lai, 2012). References Bossche, P. ., & Zdouc, W. (2013). The law and policy of the World Trade Organization: Text, cases, and materials. Eckes, A. E. (2009). U.S. trade issues: A reference handbook. Santa Barbara, Calif: ABC-CLIO. Graber, C. B., Kuprecht, K., & Lai, J. C. (2012). International trade in indigenous cultural heritage: Legal and policy issues. Cheltenham, UK: Edward Elgar. Hanson, D. (2010). Limits to free trade: Non-tariff barriers in the European Union, Japan and United States. Cheltenham, UK: Edward Elgar. Hindman, H. D. (2009). The world of child labor: An historical and regional survey. Armonk, N.Y: M.E. Sharpe. Irwin, D. A. (2009). Free trade under fire. Princeton, N.J: Princeton University Press. Macrory, P. F. J., Appleton, A. E., & Plummer, M. G. (2005). The World Trade Organization: Legal, economic and political analysis. New York: Springer. Schaffer, R., Agusti, F., & Earle, B. (2009). International business law and its environment. Mason, OH: South-Western Cengage Learning. Steger, D. P. (2010). Redesigning the World Trade Organization for the twenty-first century. Waterloo, Ont.: Wilfrid Laurier Univ. Press. Vaidya, A. K. (2006). Globalization: Encyclopedia of trade, labor and politics. Santa Barbara, Calif. [u.a.: ABC-CLIO. Read More