Globalizations Major Inconsistencies - Assignment Example

The World Trade Organization (WTO) has been the focus of criticism to discuss the impact of free trade and globalization on world economy. Various meetings and discussions are often held to determine whether globalization is good for the economy and how the role of WTO can be made effective. Free trade would not only make the world prosperous but alleviate the developing nations from poverty. Subsequently WTO became the most widely criticized organization held responsible for steering the global economy in the wrong directions. It especially came into criticism after the 1999 Seattle meet. Without a global authority, it is impossible to set minimum standards on various issues but its role in doing so has given rise to controversy. This paper will discuss the core issues facing international trade as a result of the criticism lashed against the WTO. To understand these issues it is essential to understand the impact of globalization on the economy and the role of WTO in globalization. Globalization leads to the formation of a big commercial enterprise where the industrialized nations are favored at the expense of other nations, says MacPherson.1 Economic growth increased during the post second world war period but trade increased at faster rates and private foreign direct investment was at an even faster pace than both economic growth and trade.2 During this era of globalization WTO was expected to streamline the underlying problems of poverty environmental degradation, inequity in income distribution and declining wages. This has only resulted in discord and disputes while making the rich nations richer. Multinationals are supposed to play a major role in globalization but Singer insists that corporate giants are not the sole beneficiaries3. Concurrent with globalization there has been a remarkable growth in small and mid-size companies that participate in the international economy. Charges have been labeled against WTO that it can compel sovereign states to change laws on grounds of violating the free trade rules, it does not give equal weightage to the developing countries, it does not allow democratic accountability and finally it remains indifferent to the impact of free trade on issues like child labor, worker safety, the right to form a union and environmental and animal welfare protection.4 It placed economic considerations ahead of concerns for environment, animal welfare, and even human rights. After the Uruguay Round the developing countries expected to benefit out of agriculture and textiles. Domestic subsidies increase in the OECD countries instead of declining. USA and Europe preach free trade but they subsidize agriculture which ruins the chances of farmers in the developing countries from attaining self-sufficiency in food. This demonstrates how the rich nations become richer and over which WTO has little control. The developing nations should not take advantage of such subsidies by imposing countervailing tariffs on agricultural imports. The developing countries need to spend their efforts in protecting their known markets rather than forcing open markets of other countries.5 In the textiles and clothing sector, very few items have been taken off the quota list. US announced that it would impose tariffs on steel imports to protect its domestic steel industry. WTO has done little to resolve such issues.6 Brinkman and Brinkman argue that while the WTO’s underlying philosophy states global competition should be conducive to a national welfare of all countries, WTO remains unconcerned with the behavior of private businesses. It works as a regulator of the regulatory actions of the government but WTO argues that it does not tell the governments how to conduct their trade policies.7 WTO intervenes only if a government breaks the WTO agreements. UNDP, concerned with human rights, humanity and equanimity, recommends that WTO expand its mandate to give it ‘antimonopoly’ functions of the activities of multinational corporations.8 The WTO being an association of 149 nations was formed to attempt to reduce the trade barriers among themselves. As such, protests, discord and disputes arise, it has to be from nations or members who have been adversely affected by free trade.9 In the larger interest of the nation, members may have to at times lose certain benefits when the rules are formed. WTO requires certain members to eliminate certain policies that interfere with free trade but this poses a threat to those nations that enjoy an independent framework. For instance, even though China was granted accession to WTO in 2001, China’s government, businesses and people have not yet regulated their behavior according to the norms of the international market.10 China must abolish laws and rules that do not conform to WTO rules and establish regulations that promote fair competition. It has to stop granting special considerations to some foreign companies and treat all businesses as same. According to Singer the standard economic model suggests that no one’s welfare can be improved without reducing the welfare of at least one other person.11 Unconstrained globalization is likely to lead to economic efficiencies. According to Herman Daly when world production shifts to countries that do the poorest jobs, it reduces the efficiency of global production. The fear is that rich countries would use high standards to keep goods out of the poor countries. Instituting global standards is the only way to prevent an equally inhuman form of uncontrolled global capital.12 Another challenge to international trade is that nations must lose their sovereignty in order to derive benefits by being a member of WYO. The WTO tried to defend the charge that the members’ sovereignty is definitely curtailed as long as they are a member of this organization. WTO claims that sustainable development is the primary objective.13 They allow developing countries more time to apply provisions of the agreements and the least developed countries even receive exemptions from many provisions, but evidence suggests otherwise. They emphasize that liberalization is gradual and countries are allowed to take time to make adjustments. This appears to be true only in the case of the developed nations and not for the developing nations. The International financial institutions have been pressuring the developing nations to liberalize trade while the developed nations ask for more time to adjust in areas like agriculture and textiles which have remained protected for so many years.14 Africa was not allowed to manufacture the drugs for AIDS indigenously but when antibiotic for anthrax was required, the US Administration asked Bayer to slash the prices or they would be forced to buy a cheaper generic version.15 The developed nations were embarrassed with this show of double standards and accepted WTO’s declaration that the member nation could determine emergencies and take effective measures. This issue shows how sharply trade agreements can intrude into the most vital decisions a government can face. WTO justifies that when adjustments cannot be made, members have the option to resist demands to open the relevant sections of the market.16 MacPherson contends that US has been ‘shouldering’ disproportionate burden for advancing the globalization movement and that it is absorbing record levels of imports to help the countries in the Pacific Rim region. Double standards and discrimination is evident not only between nations but also within the same nations in its different policies. On the one hand, US claims to be absorbing imports while on the other hand they do not allow developing nations to manufacture cheaper substitution. Free trade between US, Canada and Mexico led to shift in thousands of jobs from US to Mexico. This increased the salaries in Mexico but adversely affected US.17 All these do not justify equal weightage given to nations by WTO. On the contrary, doubts arise whether it is worth losing sovereignty for the benefits derived by being a member nation of WTO although it continues to claim that billions have been lifted from poverty since the World War II. WTO claims that without WTO many of the developing nations would have been powerless. Using WTO many develop countries have successfully challenged some actions taken by the developed countries.18 International trade does not derive any impetus if WTO remains indifferent to the various impacts that international trade has on environment, animal welfare and child labor issues. WTO claims that this charge is a misconception. It claims that Article XX of GATT allows countries to take actions to protect human, animal or plant life or health, and to conserve exhaustible natural resources.19 They also claim to provide subsidies for environmental protection. WTO upheld a ban on asbestos products which counters the charge that they give priority to trade over environmental protection. According to Singer, WTO claimed that it opposed measures that use environmental protection as a guise for the protection of domestic industries against foreign competition and not to the measures to protect the environment as the allegations suggested. WTO debated that under its rules, environmental protection measures are prohibited only if those measures treat foreign producers more harshly than domestic producers. It was later found as seen in the case of fur, cosmetic and beef that any country could apply trade restrictions unilaterally.20 WTO had a very narrow interpretation of Article XX of GATT and through its use of the product/process rule; it did place economic considerations ahead of other concerns such as environmental protection, animal welfare, and human rights. A corporation that pollutes a river into which it discharges wastes will be made to clean it up and to compensate those who have been harmed.21 Thus, the cost of keeping the environment clean becomes a part of the production cost. This can be enforced when there is a global authority to regulate pollution. Without global environment protection welfare cannot be maximized but WTO justifies that is not WTO’s job to set international rules for environmental protection22 but Singer states that if WTO could seriously act upon Article XXXVI (3) of GATT, then WTO could be used as a platform to promote minimum standards environmental protection, workers’ safety, union rights and animal welfare.23 WTO claims that its safety concerns are built into the WTO agreements. Around 5% of the world’s child laborers are involved in producing goods that are exported to USA alone.24 USS argues that trade barriers could reduce the sot of moving goods, increase income and wealth for all. Other nations however argue that such rules are not applied fairly. The hasty removal of trade barriers has had negative impact on the economies of the developing nations. WTO does not include measures on labor standards and child labor. WTO is undemocratic approach affects international trade in both theory and practice.25 The US, Japan, Canada, and EU form the majority. Once they reach an agreement, the decision is presented to the formal meeting and the poorer nations have no say. Decisions were taken by consensus, which is not a form of democracy. Moreover, it is impractical to take dispute decisions through consensus. Besides, the disputes panel and the Appellate Body are not responsible either to the majority of members or to the majority of the adult population. Democracy is another issue of concern. Various Summits and meetings emerge with diverse opinions. The deliberations between 34 American leaders implied that democracy takes precedence over free trade.26 These leaders envisioned a kind of club of democratic nations who trade with each other, assist each other, but deny these benefits to those democracies that fall into the hands of the dictators. WTO, on the other hand, does not allow its members to refuse free trade with others because they are undemocratic. The EU is a free trade zone and inducts members who have a democratic form of government and basic human rights guarantees. In other words, they put democracy and human rights above free trade. In Africa too, there has been an increasing acceptance of the monitoring of elections by international observers. Democracy is seen as a great value to be promoted through international collaboration.27 A trade pact between democracies would promote the value of democracy. Similarly, blacklisting illegitimate governments also could help promote the value of democracy. It is not a coincidence that Nigeria has one of the world’s highest levels of corruption and enormous revenue from sale of oil.28 Wealth becomes a temptation to overthrow civilian governments and pocket the wealth. If overthrowing governments did not fetch the control of oil revenues, then legitimacy and democracy would hold value. Obtaining power by illegitimate means would become unattractive when trade is linked to it and the prospects of such governments staying in power would greatly reduce. WTO claims that every country may not have the same power but every nation has a voice and every nation has to be convinced before it joins a consensus. The fact that the WTO’s trade rules were negotiated by member governments and ratified in members’ parliament suggests that WTO is not undemocratic in it approach.29 Theoretically, open markets and free trade should increase economic welfare as a whole. We have also seen that global inequality has increased during the era of expansion. The gap has definitely widened between the rich and the poor. Singer explains that disparity in comparison stems from the fact all calculations were made in the local currency.30 Secondly, the average income of the rich in the rich nations was compared with the average income of the poor in the poor nations. Individual household income should have been the basis of comparison rather than average incomes. Inequality hampers economic growth and lowers the self-esteem of those on the lower levels of the society. The concern should be whether the poor have become poor in absolute terms and not in relative terms. Life expectancy is another measure of well being and it has fallen in Eastern Europe reflecting the impact of increase in poverty following the end of communalism. The World Bank estimates that those living below the international poverty line have risen slightly since 1987. Life below the poverty line lacks in necessities. The narrow commercial focus of WTO has to be expanded, which would help the developing nations to finally begin benefiting economically. The undemocratic and unequal powers vested in the developed nations allow them more time for adjustment. If the US is allowed to Americanize the world in the name of globalization, and if it succeeds in exporting its capitalist ideology to the rest of the world, then the developing countries be worse than before. If USA joins in the effort to democratize WTO then it would be helping in raising the standards of the major population of the world.31 Another major concern that faces member nations is that free trade takes advantage of the underprivileged and ignores environmental concern. When seafood started coming from other countries, riots broke out in a number of fish markets along the French coast.32 WTO was accused of having little concern other than commercial and corporate interests. The Seattle episode brought together for the first time human rights activists and the environmentalists in an effort to resolve issues like child and prison labor, working conditions and wages in third world countries, pollution, protection of sea turtles and dolphins, and the lack of human rights in many countries. Different factions of the society came together and expressed grievances in a united and powerful political voice. The pressure on WTO is such that it has to accede to the demands of the members and expand its mandate and turn it into a more representative institution. WTO cannot work in isolation. Various agencies like the World Bank, the International Monetary Fund (IMF) and the WTO contribute towards globalization and improving trade between nations. IMF has failed in its responsibility to ensure global financial stability. The purpose was to channel funds from the rich countries to the poor countries in times of need but United States is the largest borrower in the world. Transparency is all dealings have to be brought in. Veto powers of the developed countries have to be replaced with equal participation from all nations. While participation from developing nations is desirable but a core groups is essential to solve issues fast. It also helps to keep the costs low. For the WTO to be successful, it requires cohesion in efforts of all international development institutions in the larger interest of global economic. The tool can be effectively used to develop the global economy and bring economic stability in the world, rather than the power being in the hands of a few rich nations. References: BBCNews (2005), Profile: World Trade Organization, 14 Nov 2006 Brinkman, R. L. & Brinkman, J. E. (2002), Corporate Power and the Globalization Process, International Journal of Social Economics, Vol. 29 No. 9 pp. 730-752 Daly, H E (n.d.), Globalization’s Major Inconsistencies, 14 Nov 2006 Hammond, C. & Grosse, R. (2003), Rich man, Poor man: resources on globalization, Reference Services Review, Vol. 31 no. 3 pp. 285-295 IOWA (n.d.), International Trade Issues, 17 Nov 2006 Junglian, Wu (2006), The road ahead for capitalism in China, 17 Nov 2006 MacPherson, R (2001), Can the World Trade Organization become a democratic institution? European Business Review Volume 13 Number 3 . 2001 . pp. 185-191 Singer, Peter One world : The ethics of globalization, 2nd edition. New Haven : Yale University Press, 2004. WTO-OMC (2003), 10 common misunderstandings about the WTO, 16 Nov 2006 WTO-PDA (n.d.), The WTO, the post-doha agenda and the future of the trade system :A development perspective, 16 Nov 2006 Read More