The World Trade Organization and Developing Countries - Essay Example

WHY THE WORLD TRADE ORGANIZATION PRIVILEGE THE INTERESTS OF DEVELOPED OVER DEVELOPING COUNTRIES By Location Why the WTO serves the interests of the developed countries than developing countries The defenders of WTO argue that the organization is democratic since all countries have a single vote and decisions are made by "consensus." However, in practice, votes are always never taken. The U.S. and other strong powers work with the leadership of WTO to make "Green Room" decisions in secrecy with select caucuses of countries that comply. They present the results as the decision of WTO to member countries (Costantini 2013). Smaller and developing countries cannot maintain trade lawyers and representatives needed to make their wishes heard on policy matters at Geneva, the WTO headquarters. The processes of WTO dispute-resolution are biased against these countries. Developing countries lack resources that will help defend them against rich countries’ complaints. The threat of a complaint compels them to settle disputes in favour of transnational organizations and against the interests of many people. The dominant governments often take their signals from influential industry consortia that include Trans-Atlantic Business Dialogue (Costantini 2013). It exerts an inconsistent influence on the organization’s decision-making, much stronger than many governments of poor countries. The U.S and other powerful countries are the main financiers of the WTO. It simply implies that they will have a big say in the affairs of the organization. Liberal theory and WTO Liberalizations of trade have involved adjustment costs for developing countries and LDCs. Preference erosion has been onerous for small countries. Even though preference erosion is not new, what strikes now is the level to which preference erosion is dominated by policy consensus that views the process as unavoidable and desirable (Heron 2013). Trade liberalization has succeeded in opening up foreign markets, something that has left developing countries’ market vulnerable to the domination of Western agricultural markets. Liberal theorists say that there is an irresistible and unmistakable trend in favor of global governance thus reflecting interdependence and willingness of nations to participate engage in collective actions. Nevertheless, global governance is an emerging process, not an established system. The Bretton Woods system originally supervised the economy of the world through the upholding of stability in exchange rates. The system broke down as floating exchange rates were replaced by fixed exchange rates. The breaking down of floating exchange rates started the process where Bretton Woods’s institutions caused economic liberalization (Heywood 2013). The WTO, IMF, and the World Bank have in different ways been involved in the hullabaloo through associations with neoliberal globalization. Supporters of the institutions claim that they have contributed to the expansion of the world’s economy (Heywood 2013). Critics argue that the institutions have increased global disparities and led to unstable financial standard. The global financial crisis experienced in 2009 raised concerns about the efficiency of global economic governance; it leads to calls for reforms. Major impediments may stop reforms, in many countries, since they have neoliberal principles. Conventional theory and its criticisms Conventional theory is an approach to economics that connects supply and demand to a person’s rationality and hi/her capacity to maximize profit or utility. The conventional theory of economics also maximized the use of mathematical equations to study various facets of the economy. Conventional economics state two things (Helleiner 2006). In any free market, competition creates price equilibrium, which is efficient. It implies that demand is the same as supply and no squandering of resources. Additionally, in equilibrium, no party can easily improve without making the other worsen (Michalopoulos 2000). Since the inception of conventional theory, it has become the main take on today’s economics. Even though it is the most taught economics, it still has detractors. Criticisms point out that the theory makes many unrealistic and unfounded assumptions that may not represent real circumstances. For example, the assumption that parties will behave reasonably overlooks that human nature is susceptible to other forces that make people make illogical choices. Many critics view that the approach cannot describe actual economies. The conventional theory of economics receives blame for inequalities in trade relations and global debt because the theory believes that matters such as labour rights improve naturally due to economic conditions (Drahos 2007). Embedded liberalism in the WTO Embedded liberalism is a phrase that emanated from the economic system of the world and the related political orientation, which existed at the end of World War II to the early 1970s.  Embedded liberalism was set up to sustain free trade and the states’ freedom to improve welfare provision and regulation of economies in order to reduce unemployment (Helfer 2004).  An American political scientist, John Ruggie, was the first person to use the term in 1982. Ruggie introduced the term to explain the orientation of policy after the World War II economic order, and to describe the social conditions where it rested. The order had a base on two doctrines. The first doctrine was that it should cooperate in making and implementing economic institutions to assist the integration of international market and preserve economic stability of the world. The institutions consisted of fixed exchange rates that were based on a gold/dollar standard, convertibility of currency, and the International Monetary Fund (IMF). The second doctrine was that states should maintain autonomy to follow social and economic objectives domestically, for instance production strategies and systems, employment policies, and the protection of social welfare (Martin & Messerlin 2007). Embedded liberalism signifies a compromise between excessive domestic protectionism and excessive free market international economics. The interwar years experience demonstrated how damaging excessive economic protectionism was to international stability and general peace. However, there was still a prevalent expectation just after the World War II that nations would be more practical in addressing the social and economic needs of their people. The theory of embedded liberalism challenged other explanations for creating and sustaining this international economic order, principally accounts that stressed the position of American power and leadership. Embedded liberalism showed that the order reflected a big international agreement upon social ideas, values, and objectives. The decline of embedded liberalism leads to essential questions for modern discussions of autonomy and globalization. The social embedded economic order notion implies that the existing neo-liberal economic inclination stems in changing social ideology and ideas than from outside economic shifts in the distribution of power of the world (Subramanian & Wei 2007). It is clear that if neo-liberalism has replaced embedded liberalism, a departure from the policy orientation would need a global shift in social and economic and priorities. Embedded liberalism underlines the reciprocal economic and political influences that existed between international and national institutions. The recent global realities need to inform the approaches undertaken by reformists’ policy-makers and activists who seek more autonomy at domestic level. Although the efforts may be hindered in home settings which have closed political and economic structures, social disillusionment with these institutional arrangements and agendas can fuel reform (Matthews 2005). Although there may be support for the integration of the global market, such eagerness may get hindrances, if states become unsuccessful in providing important aspects of economic and social security. The autonomy and well-being of many people remain highly reliant upon their countries possessing the necessary autonomy and ability to offer an enabling condition for self-determination, for example, education, social security and health care (Bergsten 2005). The challenges the rise of the new powers to the WTO governance structure There are some indicators of the importance of the BICs (Brazil, India and China) in the world’s trade governance: BICs’ large trade shares, rigorous activism in the WTO, and growing presence in important decision-making within the WTO. China, notwithstanding the downturn in the economy of the world caused by the financial crisis, maintained its spot as one of the largest exporters of goods (Bouët, Bureau, Decreux & Jean 2005). The export accounted for 11.3% in 2008 but excluding intra-European Union trade. India and Brazil accounted for 1.5% and 1.6% of the globe’s export market (Yonk 2009). The two countries featured among the top 20 leading merchandise exporters. The three countries have cornered a large portion of the market. In 2009, China was the third largest exporter of commercial services. China had 5.3% of the market. India was ranked the fifth largest exporter, with 3.7% of the market, while Brazil was ranked 18th. Let compare the figures against the position of the three countries a decade ago. In 1997, China was ranked as the 10th largest exporter of products, with 3.3% of world exports, and was the 16th largest exporter of commercial services at 1.9% of world exports. India and Brazil did not even feature among the top 25 leading services or merchandise exporters. The rise of the three countries as main trading nations has been regarded as dramatic. The three economies have managed to show far greater buoyancy to the havoc created by the financial crisis other western markets. Include the still unexploited potential of their markets; we would expect the BICs to have a critical role in many aspects of world governance. Cornering a big share of the globe’s export markets and resilience to economic downturns may not lead to a greater say in the WTO. The entrenched interests in the majority of international organizations make BICs slow to counter external changes. The WTO is less prone to the inertia of bureaucracy than associations led by their staffs. In the market of WTO, power does not directly convert into institutional influence (Wade 2003). Not every leading trader in the WTO receives invitations to high places of multilateral talks. As far as having any international organization is the role of the agency that some countries are willing to invest, the three countries have an advantage in comparison to many members of the WTO, both developed and developing. Adaptability and flexibility to new centres of power need to have caused the WTO functioning smoothly. However, there is disengagement by the US and EU, the BICs dissatisfaction, and discontent from the developing world. Permanent stalemate at the WTO is an indication of how poorly WTO is functioning. Recurrent deadlock delays the benefits of trade liberalization and undermines WTO credibility, and further improves the risk that nations will go back to protectionism when things get tough. It is the result seen as governments tackle the financial crisis. The inclusion of the three countries at the core of making decision places some countries in front of others. The BICs are at different development stages, with different political economies from the US, and they also carry different negotiating ideas and cultures of distributive justice and fairness to the negotiating table (Subramanian & Wei 2007). WTO power is evenly distributed among the leading countries; this is in contrast to the power monopoly that the US enjoyed at the creation of the GATT or the duopoly, which emerged with the post-war recovery of Europe (Henson & Loader 2001). The more the equal power distribution, the tougher it is to reach an agreement. The power balance using concrete examples from the Doha round The Doha Round was to act as the “Development Round” that could help the developing countries to increase growth rate and end poverty. The Doha Round was not expected to meet the deadline for a concurrence by 2006. Beyond the deadline, just symbolic agreements on aid and trade seemed possible, and significant advancement in multilateral negotiations was delayed (Ackerman 2005). The Doha Round deadlock exposed the complexity of the issues to be discussed and also the growing impediments to reaching an international trade agreement. The challenges derive from far-reaching and fundamental changes in the world trade’s structure. The increasing power of China, India, and Brazil (BICs); the increasing role of trans-national organizations that change the structure of trade and production, and obtain growing influence on the political and economic decision-making in nations, alters the balance of power (Shafaeddin 2006). The creation of trade agreements also help to alter the balance of power in trade. The developments require some changes in the negotiation process structure on a new international trade agreement since the negotiations have no determination through the leadership of the EU and the US that had dominated on the former rounds of negotiations by exercising a big impact on the agreements (Young 2007). There are some reasons of concern about the possibility of progress in forthcoming rounds. Firstly, the negotiation structure in the Doha Round went through a significant change with the change from a bi-polar balance of power to a multi-polar balance of power. The shift presents a challenge not just to the WTO capacity to broker trade agreements, but also its capacity to solve trade disputes and its function as an international organization, which enforces and supervises world trade rules (Panagariya 2002). Secondly, the balance of power among member countries that participate in the negotiations has managed to change. The larger weight of countries that are developing in the world economy was noticed in the Doha round, and some countries started the G-20 coalition. In the Doha Round, the LDCs did not receive a proper depiction in the negotiations. Their interests were inadequately addressed when making decisions for the agreements. If the Doha Round had come to an end with a complete trade agreement, there are reasons to believe that a few LDCs would not have gained from the agreement, and the objective to have a “Development Round” that help to end poverty could not be achieved (Panagariya 2002). Developed countries were favoured compared in the Doha round The three critical issues in the negotiations of Doha were agricultural subsidies, agricultural and industrial tariffs (Chai 2003). Developed countries are accused of providing large subsidies to their agriculture sector. The large subsidies permit these countries to sell or dump their goods at the international markets at low rates. The dumping discourages international prices and allows trade in agriculture not to be remunerative for countries that are developing (Clapp 2006). Developing countries insist that developed nations need to change their agricultural sector and open up their manufacturing sector to goods from developing countries. It is critical to remember that when the work program of Doha was accepted, it was explained to developing countries as the development agenda of Doha. If it was indeed a development agenda, developing countries would need to be given access to developed countries’ markets (Bouët et al. 2005). Developed countries are eager to see developing countries reduce their industrial and agricultural tariffs. Developing countries say that agriculture’s tariffs comprise the only protection that is available to them, and they cannot reduce the tariffs until developed countries reduce their subsidies. Agriculture is a crucial sector in developing countries since it is not as much trade issue as a source of livelihood (Helleiner 2006). It is through tariffs that the developing countries can easily protect their domestic agriculture and farmers from the vagary of international trade. Developing countries will not afford reduce their subsidies until developed countries reduce theirs. The developing countries’ markets will easily be dumped with cheaper imports from developed countries (Beghin & Aksoy 2003). The shift away from multilateralism Trade negotiations in the Doha Round stopped in 2006. The continuous need for ‘open regionalism,’ where friendly countries decide on liberalization strategies, is now more pronounced (Guha 2007). For governments and large business, trade rounds that existed in the last decade are turning irrelevant in an environment where business and money move very fast. Additionally, the World Trade Organisation (WTO) is entangled in a risky cycle of bluffs and recrimination. The rising amount of globalization may lack the capacity to lift all boats; however the WTO’s capacity of organising is diminishing by a big number of differing expectations and interests (Subedi 2003). It seems the era of sole-undertaking world multilateralism, where ongoing negotiation in some issue-areas is paved together to make a complete trade deal for different countries, is becoming to an end. The refusal of trade multilateralism is comprised of a cocktail of tough rules, protectionism, and a representation crisis that has affected multilateral trade’s institutional gears (Humphrey & Messner 2006). For instance, the WTO’s antidumping agreements and subsidy were to be an important step away from the arrangement of waivers and exemptions that symbolized the General Agreement on Tariffs and Trade governance. Although there are more than 3,000 antidumping notifications, it seems that is not the case. Competition policy is not on the radar of WTO for this round since agricultural liberalization matters are now more pressing (Clapp 2006). Market and political accumulation in the South, the hyper-legalism of the WTO, and the process of bargaining have impacted the system of world trading. There is evidence to suggest that the WTO is getting into a period called a regime shift. Helfer (2004) noted that countries make regimes that will reduce the costs of transactions and information challenges that face uncoordinated state relations. When a regime is in operation, it causes some benefits and costs. When accompanied by continued investment of states, it allows a regime to exist, although founding members’ interests such as the EU and US have begun to move away. Regime theory’s predictive value shows when interests change; states and non-state actors try to reshape constituent principles of a regime, rules and norms with unintended results for global governance and interstate relations (Helfer 2004). Regime shifting attempts to change the status quo by changing focus and resources from regime to another. In the regime of international trade, there has been an increase in bilateral and regional deals, even as additional countries continue joining the WTO. It is significant to note that shifting of regime is not a 20th century globalisation phenomenon. In the modern era, countries have depended on a tactical approach to cooperation among countries (Correa 2000). The modern trading system, in this globalisation season, has a resemblance to the British system of the 19th century where the United States plays the ‘benign hegemon’ role in place of Britain. The inter-capitalist rivalry is increasing, and markets do not need to look entirely to the hegemon for leadership. The slump in the prices of equity caused by a China’s stock market emphasises the point (TD Bank Financial Group, 2007). States are becoming reluctant to position all their efforts and resources at the services of the American trade regime and what it represents. Although there has been a reasonable protectionism level, growth, increased unabated, and an open trading system has been a pragmatic reality, but not an ideological conviction. Trade collapsed dependent economic policies affected the system between the year 1914 and 1945 (Bergsten 2008). The world war led to the dismantling of the former trading system and put the foundation for after-war negotiation between the welfare state and economic liberalism. It appears that the clearance of required policy space takes a system crisis (Narlikar 2013). The future of the WTO and the Doha round With the collapse of securing an agreement on Doha, it may be possible that bilateral trade agreements will rise and become more prominent. For example, a few days after the collapse of the Doha talks, India managed to sign a regional trade agreement with some Asian countries. India is also negotiating an agreement with Australia. The development is to be of concern to developing countries since powerful countries like China, the US, Europe, and India could find it advantageous to discuss bilateral agreements where they can easily apply enough pressure on trading partner. Nations may seek to realize through litigation what they did not achieve through negotiation. The action may result to a tit-for-tat rejoinder from other countries, leading to immense pressure on the dispute settlement mechanism of the WTO. There is also a concern that a glide in the Doha Round negotiations may foster an abandonment of the multi-lateral trading system, thus causing harm to the credibility of the WTO as a negotiating meeting. The danger of delaying WTO’s progress is twofold: Firstly, countries will look to regional and bilateral free trade arrangements to quickly get the benefits of lower barriers of trade. Secondly, the pressure of implementing protectionist measures in regards to the economic downturn will increase. Free trade agreements will help reduce restrictions of trade globally by showing solutions to hard trade problems. They can also discriminate against nations not part of the agreement and their rules can easily add to the cost of trade. References Ackerman, F 2005, The shrinking gains from trade: a critical assessment of Doha Round projections. 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