WTO: Fighting the Globalization Beast - Essay Example

W Fighting the Globalization Beast Introduction Understanding and making an objective critical assessment of the WTO would be impossible without knowing why it exists. The WTO was formally established on the 1st of January 1995 and since then has become one of the international institutions many people love to hate. Learning a bit of the WTO's pre-history in the context of world history would give us a better perspective to develop our assessment. Our world history is tragically marked by human struggles for power and wealth. In search of elusive peace, mankind has found solutions in minimizing points for bloody conflict. The terrible lessons of the past have made us realize the value of working together and engaging in dialogue to resolve our common problems: hunger, poverty, death, suffering, corruption The list is long, and each one is complex, but our solutions share a common theme: we can peacefully address our problems if we belong to an institution, a community of nations helping each another in an atmosphere of enlightened self-interest (WTOa; WTOb). This, however, is easier said than done, because man is a complex animal - ambitious, free, intelligent, a mixture of all that is good and evil in the world. Each man (or woman), each community or nation, has different goals and wants, dreams and desires. Reconciling all these differences is the substance of politics, the art of the impossible, where give and take is crucial. Ugly compromise is the essence of politics, making living together possible. We established three man-made institutions - the United Nations (UN), the World Bank/International Bank for Reconstruction and Development (WB/IBRD), and the International Monetary Fund (IMF) - after the Second World War with the intention of avoiding a repeat of so great a human tragedy. If we look at the last sixty years, we can proudly claim that despite the cold war threat until the late 1980s, the UN has provided a venue where major differences could be ironed out before minor conflicts could escalate into a world war (Krugman 11). In this sense, it was a success. So too was the WB, set up to help finance the reconstruction after the war and in the economic and social development of nations. The IMF likewise has done a good job helping nations by imposing financial discipline in governments hampered by inexperience, populist bias, and poor governance (Fischer 91). These three are not perfect, as any organization run and managed by humans can never be perfect. A main criticism seems to be their ruthless implementation of the basic rules everyone has agreed to follow: talk before you shoot, repay your loans, avoid weapons of mass destruction, and choose your leaders wisely. Many examples abound of nations seeking exemptions from these rules, or of nations hiding the truth, tying these institutions into moral hazards difficult if not impossible to escape (Fischer 96). Another criticism is that these institutions are mere instruments of powerful nations and groups to subjugate the helpless majority. Statistics and several academic studies do not support this claim: just look at the nations that gained independence and developed in the last sixty years of peace. Yes, problems exist - and may never be totally eradicated - but we cannot deny that these institutions have done more good than bad: sixty years of relatively peaceful co-existence in the world, billions of people definitely out of poverty, and wealth creation at an unprecedented global scale (Ben-David et al. 38-40). How did it happen Simply, world peace led to the globalization of world trade. Globalization: The Beast of the WTO We can say that peace is the consequence of doing battle with three beasts. The UN fought the beast of world wars and, inasmuch as the world has not had one since 1945, seems to be winning. The WB/IBRD fought the beast of poverty and human suffering, and it seems to be ahead too. Although continually locked in battle against the beast of bad government and poor fiscal management, the IMF manages to win most of the time. Success in fighting these beasts unleashed a fourth one: globalization. What is this new monster Micklethwait and Wooldridge (37-56) were the first to make a comprehensive examination of this beast, tracing its roots to the free trade philosophy that Keynes built on the works of Adam Smith (Wealth of Nations, 1776), David Ricardo (On the Principles of Political Economy and Taxation, 1817), and James Mill (Elements of Political Economy, 1821). Globalization is global free trade, driven by the intellectual arguments of Smith's invisible hand and the lesser need for state intervention, Ricardo's idea of comparative advantage, and Mill's virtues of world trade. In less than a decade, by 1914, globalization was in full swing in most of the developed world, marked by the free flow not only of goods and services but of people. And then the war came (1914), caused by the widening gap among social classes within and among nations, followed by communism in Russia (1917), the Great Depression in the U.S. (1929), and then the bloodiest war of all (1939) within a 30-year period. These events led to the formation of the UN, WB, and IMF. Almost imperceptible in the background was a fourth institution, the General Agreement on Tariffs and Trade (GATT), WTO's precursor. For close to fifty years, globalization and capitalism - helped by these institutions - moved side by side with globalization and communism (who were part in the UN but had their own WB and IMF counterparts), engaged in an ideological battle until in 1990, globalised communism collapsed. Globalised capitalism had won, but it evolved into a beast that the WTO was designed to tame. As shown by the way it caused unprecedented economic growth in large parts of Asia and Latin America, global capitalism, now simply known as globalization, became accepted as the key to prosperity. Micklethwait and Wooldridge (xvi) called globalisation "the most important economic, political, and cultural phenomenon of our time" characterized by the "integration of the world economy, reshaping business and reordering the lives of individuals, creating social classes, different jobs, unimaginable wealth and, occasionally, wretched poverty." Stiglitz, Nobel Prize winner, ex-WB chief economist and a vehement critique of globalization, defined it as "the integration of countries and peoples of the world brought about by the enormous reduction of transportation and communication costs, and the breaking down of artificial barriers to the flow of goods, services, capital, knowledge, and people across borders (164)." But if globalization leads to prosperity, progress, riches, and development, why is it a beast that many people love to hate How did it turn out that way WTO: Good or Bad Reading our wide collection of literature for or against the WTO allows us to classify our assessment of the institution into three: the good (we like), the bad (we do not like), and the ugly (issues that can lead to global disaster). WTOs opponents hate the last two. The Good The WTO's best contribution to the world is that it provides a forum where sovereign nations of all sizes can negotiate trade agreements among themselves like civilized and educated humans. WTO itself is driven by its member nations and decisions are made by consensus (WTOc). Therefore, WTO does not violate national sovereignty as claimed by its critics, in the same way that in a tennis match, one gets beaten by the opponent and not by the umpire. Perceived threats to national sovereignty - e.g., requests for lower tariffs or trade barriers - are really just a lack of political will against their own economic self-interests. We observe that world trade in recent decades has been transformed from a war where there are victims and casualties, and where winners can also be losers, into something more akin to a soccer match, where a draw is possible and where each game builds up one's experience, useful for future matches without bloody and permanent casualties. The WTO is a recent invention, but the ideological principles that built it - free trade economics, civilized negotiations, lowering of protectionist barriers, and prudent state intervention - have been shown by numerous studies (UNCTAD 6-7; Ben-David et al.) to have propelled world trade, wealth creation, poverty alleviation, and human development and progress to unprecedented levels, in comparison with its ideological opponent - global communism - which caused much more suffering and misery. The rules that govern the WTO and world trade are likewise drafted and ratified by its members. Unfortunately, unlike in the sport of golf where a handicapping system allows a mediocre player to beat a good golfer, world trade is a viciously merciless beast. However, if smaller and least developed nations group together to present a common stand, then they can win. There are several examples in the past where the European Union (E.U.), India, South Korea, and Pakistan won trade disputes against the U.S. (USTR 1-4). A rules-based trading regime is a good starting point, but as we shall see below, it is neither the only nor the best solution in each case. The WTO handles a huge volume of trade issues at any one time, so having rules understood and followed by all is a good starting point for the conduct of negotiations (WTOc 23-24). It may not be as quick as an armed invasion, but it has been proven to work in most cases if all sides allow it to work. The Bad Among the many criticisms against the WTO, the strangest may be those against the organization, and for valid reasons. A rules-based multilateral institution as the WTO has reduced world trade into a legal affair, where lawyers, accountants, bureaucrats, and journalists take center stage, studying reams of documents and engaging in rhetoric for hours on arcane issues such as tariff rates, quotas, and product standards. The hostility and hate and the emotional ups and downs are unavoidable. What is missing are the blood and gore on the battleground, but these continue to flow in each nation's people - the poor, the helpless, and the workers who suffer the consequences of decisions made in Geneva, Doha or Hongkong. Besides, good negotiations depend on having good negotiators, and the deck is stacked in favor of developed member nations, where long-term business experience, higher levels of education, and the government's ability to attract talent and promote them based on merit give them an edge (Global Exchange). Compare these developed country negotiators with those from many developing nations, some of which were former supporters of global communism, long on ideology but short on the practical experience of making products more globally competitive, and what you have are negotiations so one-sided that Western garments importers may just watch on the sidelines as negotiators from Indochina, Eastern Europe, or Latin America conduct a duel to reach the lowest, though not necessarily profitable, prices. Fortunately, the WTO offers capability-building programs for negotiators from developing nations (WTOb), who could still find themselves in a bind: once negotiators are trained, they may be lost to the private sector, often to foreign companies, starting a vicious cycle where these well-trained negotiators with inside information take the opposite position. This is akin to being robbed by someone in your own house. Pooling of resources and working through trade lobbies, allowed by WTO, may help address this. Contrary to common perception, it is not only the Asian fisherman who suffers from world trade; generally unseen in the carnage of WTO talks are the millions of healthy Europeans and Americans whose jobs disappear almost overnight because the most expensive GM cars could not compete with the cheapest Nissan. At least, the Asian fisherman could be trained to work at a car factory; for the former GM auto worker, the alternatives are much narrower (Oxfam; IRC-IPS 3-4). Every trade concession has winners and losers, and it is up to each nation to assess the extent of the evil they can live with. Computing the costs and benefits of trade concessions in a constantly changing world is not easy, despite advances in technology and computing power. As each government faces down its own set of lobby groups (and there are many, each one as intransigent as the other), they can be hit by analysis paralysis (Brauer and Hickok 65; Katz and Revenga 526-529). However, finding solutions is just as urgent. However, several academic studies have shown that world trade is not a win-lose game for nations, though they may be for different economic sectors within each nation (Murphy and Welch 127). When a government concedes to bring down tariff rates for Japanese cars, it does so with the hope that taxes and profits from, say, construction projects by U.S. companies in Japan would more than offset the welfare and re-training costs for Detroit's laid off car workers. And although U.S. economic growth figures are up and unemployment rates are not rising, it is difficult to pin down the proportion of such statistics to concessions made at the WTO negotiating table. The WTOs consensus-based decision-making, where nothing is agreed until everything is agreed, makes it time-consuming to reach decisions (WTOc), which is why the Doha Round collapsed after five years, while the previous Uruguay Round took eight years to conclude. In the end, the WTO is a test of the political abilities of each member nation's government back home to agree to work for the common good, to reach a compromise, and to convince its own people that this is what is best for all. Unfortunately, it is not that easy, and it can be, as most politics are, very ugly. The Ugly The Uruguay Round took eight years; the Doha Round has been going on for five with no resolution in sight. Is the long wait well worth it An even more basic question is whether increased global trade is worth the environmental and resource exploitation taking place. Yes, billions of people have risen above the poverty line in sixty years, but is our present pace of global development sustainable Are we enjoying ourselves but endangering future generations Are we leaving enough dolphins for the future Disneyland in Hanoi Alright, the last one was an exaggeration, but thanks to the work of civil society groups in and beyond Seattle in 1999 when activists made their presence felt at a WTO meeting there, bombing Starbucks and burger shops to save dolphins, sustainable development has become an almost permanent condiment on WTO's plate. This is a serious issue that has led to ugly and violent protests, though not as deadly as the world wars WTO claims to helping avoid, but making it easier to subdue the earth now has a cost that future generations will have to bear. The question is: should the WTO be responsible for it The worst criticism of capitalism, the basis of globalization, is its tendency to be heartless (Wood 1470-1472). Coupled with a rules-based system at the WTO magnifies this aspect of capitalism's genetic code. After all, it is those with centuries of capitalistic experience such as the developed countries who know the rules well, how to apply and twist them, putting the weaker nations at the mercy of the capitalist's instinct for greed and vice. In a race to the bottom, there are no winners, only losers. First, cheaper mined resources would push producing nations to greater exploitation volumes so as not to diminish earnings. Then, consumers enjoying the benefits of cheaper jewelry (or products where those minerals are used, such as oil) would demand more. All these would result in a vicious cycle, depleting resources even further. Our generation's prosperity may cost us our future. "That's not our business", the WTO can heartlessly say, perfectly within the rules, "for it is up to the member nations to know what is best for them and for future generations." The WTO, however, should not be allowed to get off easily. As a promoter and arbiter of trade, it has to think carefully about the benefits of doing its job well. Assuming that world trade becomes frictionless and all deals are negotiated successfully, with the importing and exporting nations agreeing without any tariff or trade barrier conflicts being erected at all, would this be good for the world community This is where the WTO has to work even more closely with civil society, NGOs, the UN, and the WB. Whether it likes it or not, the WTO has to play a key role in enforcing a "speed limit" to globalization and upholding human rights, so that the extent of human misery and the move towards the potential unsustainability of economic activity are tempered. Too much of a good thing is bad, be it credit card loans by U.S. consumers to buy laptops from China, or fishing of Yellow Fin Tuna in Vietnam for Japanese sashimi eaters. The question is: are the WTO bureaucrats aware of this As the recent collapse of the Doha Round illustrates well, it is not only the democratic and capitalist nations such as the U.S. and Japan who "abuse" their power, wealth, and experience in recent disputes on steel and automobiles. In fact, even the E.U. nations, small but rich Norway, and giant but emerging India all do so, conspiring by their stubbornness not to compromise, citing tariff and subsidy cuts as going against national sovereignty, of being anti-poor and anti-farmer (Economist 67-68). Should we give the WTO more power to twist the arms of nations The WTO should therefore learn to consider not only animal rights but, more importantly, human rights in its task of contributing towards sustainable economic development, especially in emerging economies. Development, peace, and respect for national sovereignty -key objectives of the WTO - must serve man's welfare above all. It may be too soon to say whether its successes and failures to date are or will be good for the world and the majority in it. The WTOs performance is something for the WTO itself, helped by NGOs, nations, and economists, to decide. As a venue for raw politics at the highest levels, it is but natural that even the WTOs own existence is put into question. Is WTOs Failure an Option What would happen if the WTO closes shop Is this thinkable Yes, and possible. Its first incarnation as the International Trade Organization or ITO, a trade body within the U.N., was shot down by U.S. big business and by the Senate on the ground of threats to U.S. sovereignty, enabling the General Agreement on Tariffs and Trade or GATT to evolve over fifty years into the WTO (IRC-IPS 1-2). In other words, we have managed to live without the WTO, which in effect is an institutionalized version of the GATT, so does this mean we can go into the future without it In the aftermath of the collapse of the Doha round of WTO talks, regional or bilateral trade agreements, in lieu of WTO agreements, were seen by many nations especially the U.S. as an alternative forum for negotiating with countries on a one-on-one basis. In fact, the Bush government has quietly signed some 14 free-trade deals in the last few years and is negotiating 11 more, while East Asia alone has an estimated 70 free-trade deals with its trading partners, in the hope that what they lost from Doha's failure can be recovered from gains in these free-trade agreements (Economist 68). In the end, we need to remember that the WTO is merely a human creation. If its creators do not find it useful, then they must end its existence and move on. This does not mean, however, that the globalization beast will freely rampage across the world and cause widespread havoc and misery. The death of the WTO, if it happens at all, may only mean that taming the globalization beast may be more effective done in parts rather than in whole. Works Cited and Bibliography Ben-David, Dan, Hakan Nordstrm and L. Alan Winters. WTO Special Studies: Trade, Income Disparity, and Poverty. Geneva: WTO, 1999. Borjas, George J., and Valerie A. Ramey. "Foreign Competition, Market Power, and Wage Inequality: Theory and Evidence." Quarterly Journal of Economics, 110 (1995): 1075-1110. Brauer, David A. and Susan Hickok. "What are the Causes of Rising Wage Inequality in the United States" Economic Policy Review, 1.1 (1995): 61-75. Economist. "In the twilight of Doha." London: The Economist. 29 July 2006: 67-68. Fischer, Stanley (1999) "On the need for an international lender of last resort." Journal of Economic Perspectives, Fall (1999): 85-104. Global Exchange. Position Papers. San Francisco: Global Exchange, No date. "Twelve Reasons to Oppose the World Trade Organization" "Corporate Rights or Citizen Rights" "The FTAA, the WTO, and the assault on public interest, services, and our water" "Food security, farming, and the WTO/FTAA" "Free Trade, the Environment, and Biotech" IRC-IPS (Interhemispheric Resource Center and the Institute for Policy Studies). "World Trade Organization." Foreign Policy in Focus, 2.14 (1997): 1-4. Katz, Lawrence F. and Ana Revenga. "Changes in the Structure of Wages: The United States vs. Japan." Journal of Japanese and International Economics, 3 (1989): 522-543. Krugman, Paul A. "Technology, Trade, and Factor Prices." NBER Working Paper No. 5355, November, 1995. Lawrence, Robert Z. and Matthew J., Slaughter. "Trade and US Wages: Great Sucking Sound or Hiccup." Brookings Papers on Economic Activity: Microeconomics, 2 (1993): 161-210. Micklethwait, John and Adrian Wooldridge. A Future Perfect: The Challenge and Hidden Promise of Globalization. New York: Crown, 2000. Murphy, Kevin M. and Finis Welch. "Industrial Change and the Rising Importance of Skill" in Sheldon Danziger and Peter Gottschalk eds., Uneven Tides: Rising Inequality in America. New York: Russell Sage Press, 1993: 101-132. Oxfam. "Stop the Dumping! How EU agricultural subsidies are damaging livelihoods in the developing world." Oxfam Briefing Paper No. 31, 2003. Stiglitz, Joseph E. Globalisation and its discontents. London: Allen Lane, 2000. Treffler, Daniel. "International Factor Price Differences: Leontief Was Right!" Journal of Political Economy. 101 (1993): 961-987. UNCTAD (United Nations Conference on Trade and Development). The Least Developed Countries Report 2004. Paris: United Nations, 2004 United States Office of the Trade Representative (USTR). "Snapshot of WTO cases involving the United States." Updated: September 2, 2004. USTR. 5 November 2006 . Wallach, Lori and Patrick Woodall. Whose Trade Organization The Comprehensive Guide to the WTO. Excerpts from the book No date. #6: "The WTO's Environmental Impact: First, Gatzilla ate Flipper". #7: "Warning: The WTO can be dangerous to public health". Wood, Adrian. "Globalization and the rise in labor market inequalities." Economic Journal, 108 (1998): 1463-1482. WTOa (World Trade Organization). The Geneva Briefing Book: World Trade Organization. Geneva: WTO, p. 69-79, No date. WTOb. Pamphlets. Geneva: WTO, 2003. "10 common misunderstandings about the WTO". "10 benefits of the WTO". WTOc. A Primer on the WTO. Geneva: WTO, 2003. Chapter 2. "The agreements", p. 23-53. Chapter 3. "Settling disputes", p. 55-61. Chapter 4. "Cross-cutting issues", p. 63-75. Chapter 5. "The Doha Agenda", p. 77-91. Chapter 7. "Organization", p. 101-111. Read More