The World Trade Organization (WTO)

Introduction

The years after the First and Second World War saw the birth of many international organizations that aimed at offering a lasting peace and cooperation among nations. These bodies included International Monetary Fund, World Bank, and International Trade Organization among others (Amrita, Martin, and Robert 85). The General Agreement on Trade and Tariffs is one of he bodies that aimed at fostering economic cooperation among member states. The World Trade Organization (WTO) is a successor to General Agreement on Trade and Tariffs (GATT). This paper seeks to explore the factors that led to the development of World Trade Organization and its relation to the overall globalization project. The paper will also reflect on the role of WTO in facilitating international flow of production and investments. Lastly, the discourse will examine the role of WTO in dealing with economic inequality among cooperating nations.

World Trade Organization: The Origin

World Trade Organization is an international body that oversees free international trade. The organization started operating officially in 1995 because of an agreement in Marrakech (Amrita, Martin, and Robert 370). The creation of WTO replaced the General Agreement on Trade and Tariffs that commenced in 1948 after the Second World War. The principle function of WTO is to regulate trade between the member states, offer a framework for the negotiation, and formalization of agreements arising from trade. It also has the key role of resolving disputes that ensure that the member states uphold the WTO agreements signed by the member states, and later ratified by their respective parliaments. The bulk of the regulations that WTO enforces come from the negotiations carried out in Uruguay between 1986 and 1994.

As noted earlier, GATT operated from 1948 until the creation of WTO in 1995. There were several attempts among the nations to create an institution with international influence to govern international trade, but GATT continued to operate for almost over fifty years on provisional grounds. Several attempts at negotiations took place under GATT (Amrita, Martin, and Robert 102). The main aim of these negotiations was to reduce trade tariffs. Whereas the negotiation named the Kennedy round in the 1960s created the anti-dumping regulations, only the Tokyo round tackled the existence of trade barriers among the nations. Some of the achievements of Tokyo round were refinements of the existing GATT regulations, but others were entirely new breakthroughs brought about through negotiations (Philip 137). However, these new regulations did not receive full acceptance from the existing GATT members, and remained entirely as codes. Full acceptance and enforcement of these codes only occurred in the Uruguay round of negotiations.

Before forty years of GATT operations, the various member states were realizing various operational deficiencies in its structure. GATT could not address the rising complexity in the rapidly globalizing economy. In consequence, the members organized the Uruguay round of negotiations. The Uruguay round, noted as one of the biggest negotiations, reflected in trade in services, intellectual property ownership, vital reforms in agriculture, and textiles and this also brought all the previous GATT regulations for review. However, the greatest achievement was in the Uruguay last round of negotiation carried out in Marrakech, Morocco. This last round of negotiation created the WTO (Edmond 5). However, GATT still exists as an umbrella body for WTO. The highest decision making organ in WTO is the Ministerial Conference, which meets after every two years. This conference makes all the key decisions that affect the international trade agreements among the member states. The Doha and Cancun rounds of negotiations are the current active negotiation that focuses on making globalization more acceptable, reducing poverty, reducing trade barriers, and offering subsidies to farming. There are proposals to offer substantial aid to developing countries, although the issues remain very contentious.

Functions and Principles of WTO

There are several functions of WTO. Firstly, it provides the forum for the negotiation and settling of trade disputes. Secondly, it reviews the nation’s trade rules and ensure adherence to the agreed international standards (World Trade Organization 1). Thirdly, WTO offers assistance in terms of training to developing nations to bring them to closer conformity to the set regulations and standards. Lastly, WTO is the centre for research and analysis on economic matters that affect the entire globe. Apart from the functions, WTO operates under the guidance of several key principles (World Trade Organization 2). These principles include transparency, enforceability of commitments, reciprocity, non-discrimination, and safety measures among others. Firstly, non-discrimination principle requires a nation to apply the same rules of trade to all other partners, while reciprocity demands that mutual gains arising from free trade should be greater than those from one-dimensional trade should. Secondly, binding and enforceability rule requires strict adherence to regulations agreed upon by the member states. Thirdly, the member states should also publish their trade rules to facilitate understanding among members. Lastly, the safety measures rule allows nations to apply certain measures for reasons that may not even be economical.

 

 

Motivations for WTO Development

The understanding of the motivations behind the creation of WTO requires a proper reflection on the theory, and concept of multilateral trading system. The idea of WTO represents a convergence of three areas namely; law, economics, and politics (Craig 3). The member states of WTO, desired to work together to reduce barriers of trade among members with varying economic levels, and asymmetrical political ideologies. The first idea was that nations are sovereign, and have proper control over their destinies (Philip 6). However, proper sovereignty can only be realized when nations enter into agreements which puts mutual limits on the exercise of their sovereignty. This idea prompted the creation of international law, which included diplomatic norms, protocols, and treaties that eventually led to the creation of international organizations. WTO thus, represents international point of legal, economic, and political convergence for mutual benefit to the member states.

The second motivation relies on the notion that nations can enjoy the benefits of free trade (Craig 4). Policy-makers form various nations would only consent to international trade agreements if such agreements guaranteed not only collective but also individual interests. This hinges on comparative advantages, varying production levels, and specialization (Philip 63). From the economic perspective, the idea of open markets overwhelms the mercantilists’ theory that viewed international trade as maximization of exports, and minimization of imports. The birth of cooperative economic thoughts and the establishment of international law provided countries with the motivation, and capacity to initiate closer economic ties. However, the field of international cooperation, particularly along the lines of trade, is delicate and dynamic, and thus proponents of such ideas must cope up with frequent obstacles relating to such cooperative movements.

The last concept in international cooperation revolves around power and politics. The legal and economic ideas underlying international trading so far discussed seeks to downplay the role of power. These regulations seek to bring powerful countries into world order by proper legal framework or recognition of mutual benefits. However, power remains an indispensable tool in the creation internationally recognized world order. The conception of international world order, and its subsequent translation into practice could not receive attention without the powerful intervention of Great Britain, and USA (Craig 6). The onset was the British hegemonic tendency followed by the US leadership that eventually led to GATT and, finally the WTO. These two powerful nations established the envisioned international order that saw the equalization of legal and economic advantages, radically changing the one-sided and unregulated forms of trade. The magnitude influence of these factors varies accordingly, depending on the scenario.

World Trade Organization and Globalization

Globalization entails a movement towards the integration of worldwide economic, financial, and communication activities. In practice, globalization thrives in free trading and flow in goods, services, technology, and capital among nations. However, certain regional barriers impede the success of this view. Such barriers include high tariffs, protectionist regulations, piracy, and several forms on intellectual property violations (Amrita, Martin, and Robert 394). The barriers arise from discriminatory trade rules, uneven trading patterns, and dumping problems. WTO plays a key role in minimizing the effects of such barriers in several ways.

Firstly, WTO brings the member states together to meet, and discuss these vital issues affecting trade, and reach generally acceptable agreements. These agreements aim at opening and liberating trade regimes in smooth and gradual pattern. WTO also arbitrates and settles trade disputes arising between member states. The disputes could involve violation of trade agreements or treaties. WTO therefore, promotes free trade increasing globalization, international integration, and interdependence among international economies (Philip 127). The main function of WTO in trade regulation expands on this role towards globalization. With free markets, customers receive a wider choice of goods, suppliers and producers have reliable and open foreign markets.

Secondly, WTO achieves its agreements through negotiations, which must receive support from the majority at the conference, and at parliamentary level of the member states. Such agreements serve as the basic regulations for international trade. In practice, these rules guarantee members economic rights (Philip 128). Moreover, the contracts force governments to keep their trading activities within the set limits for the benefit of all the members. The importers and exporters can enjoy a wider market.

Thirdly, WTO seeks to improve the overall welfare of the citizens of the member states. The existence of WTO with almost 134 members represents a global organization (Philip 136). WTO not only supervises, and liberalizes international trade, but also negotiates, and implements fresh trade agreements, and ensures the adherence to such regulations by the member states. Different nations host varying standards of technology, and production capacities (Philip 129). With the chief aim of WTO being free trade, the citizens in the member states enjoy services from various states at competitive prices. Moreover, the existence of wider choice of products also serves to improve the standards of living among the citizens of the member states.

The Role of WTO in Facilitating Trans-national Flow of Production and Investment

There are a number of ways through which WTO contributes to the international flow of production, and investment. On matters of investment, the WTO is still conducting negotiations on the perfect liberalization of foreign direct investments. The Doha and Cancun rounds of negotiations represent important steps towards this end. However, WTO facilitates the flow of production in some vital ways.

Firstly, the fragmentation of production and sales of goods and services among multinational corporations has increased steadily (Andreas and Christophe 6). Due to the free trade, most firms can shift production from the domestic firms to the firms a broad. The goods sent to these firms abroad go to specific zones where the producers enjoy lower tariffs, and preferential tax benefits. In most cases, the goods sent abroad reach the Export Processing Zones in the developing nations where final processing takes place in readiness for export. Thus, the free trade regulations allow the shift in production from domestic zones to foreign zones. The economic importance of Export Processing Zones is immense. These zones help the host nations diversify their exports, improve their balance of payment, and offer employment to their citizens.

The second aspect involves the intra-firm trade (Andreas and Christophe 11). With the opening of global markets, most international firms can move goods and services to foreign firms without changing ownership and thus enjoying the existing tax considerations. Similarly, most international firms can easily relocate their production units to countries where they can enjoy relative economic advantages. Most firms can ship raw materials to its affiliate firm abroad for final assembly. The exportation of the final products to other developing countries then follows. The pattern is clear in considering how the Japanese multinationals moved to East Africa where the final products reach other developing countries.

The last aspect is the trade in value added (Andreas and Christophe 14). The emergence of globalization has seen the rise in the concept of sharing international production through supply chains. This leads to increased trade and production flow with intermediate products. The service sectors also experiences linking through the global production chains, which ensures that products are well customized, and diversified. Presently, most multinational firms only have their service sectors claiming a huge portion of the economy in their host nations. This results from the fact that production is shifting to offshore locations. Firms are realizing that the cost of production is dependent on transport cost more than the tariffs and taxes. Admittedly, the lowering of tariffs and taxes favors the offshore relocation of production to bring firms closer to the market in order to lower the cost of transport.

WTO and Inequality in Production and Trade

WTO addresses economic inequality among the member states through its provisions. Firstly, the principle of the most favored nation offers the member states a similar treatment. This principle eliminates the possibility of discrimination within WTO. If one member of WTO grants another member certain preferential treatments, then the treatments must extend to all other members of the WTO (World Trade Organization 4). The concept of the most favored nation also extends to other articles such as General Agreement on Trade and Services and Intellectual Property Rights. However, in most cases, there are slight differences in the application of the principle.

According to World Trade Organization (2014), the principle of national treatment demands that nations that are members to WTO should apply the same treatment to both local and foreign goods, and services. The nations should not discriminate the foreign goods and services by applying unnecessary restrictions that hinder their penetration of the local market. However, the countries are free to charge certain taxes even if such charges are not applicable to locally produced goods. The charges imposed should cushion the local producers from competition with well-established international firms that also enjoys economies of large-scale production.

Lastly, the anti-dumping law also offers the member nations fairness and equality. Some countries can produce certain products cheaply, and therefore can compete favorably in the international market. Moreover, some countries may choose to export their products at prices lower than their actual value. This tendency stifles the growth of domestic producers, and creates monopoly in the importing country. There are provisions for actions against those involved in dumping. The countries affected can take action or even consult on matters of dumping. However, the complexity of the idea of dumping, and the fact that developing nations do not have the expertise to explore these avenues of redress hinders the effectiveness of this provision.

 Conclusion

WTO is increasingly gaining praise for facilitating trade, investment, and production in the global field. WTO achieves these through expanded regulations, lower subsidies, dispute resolution, stimulation of demand for products from the developing world, giving of more attention to developing countries, and recognition of individual country needs among other notable areas (World Trade Organization 3). However, there are several points of failure. Firstly, WTO favors the rich as opposed to the developing nations. The anti-dumping regulations clearly do not favor developing countries. Moreover, environmental destruction, violation of labor laws, privatization of essential services, and unregulated market for agricultural produce among other areas are some of the weaknesses WTO has to deal with.

However, countries occupy different geographical locations with varying norms that govern the social, economic, and political interactions. Moreover, the international arena is continually evolving in all dimensions. Creating uniform international laws that suits every nation is not an easy task. WTO has so far done well than GATT; more open and guided consultations will still render it more relevant.

 

Works Cited

Amrita, Narlikar, Martin, Daunton and Robert, Stern. The Oxford handbook on the World Trade Organization. New York: Oxford University Press, 2012. Print.

Andreas, Maurer, and Christophe, Degain. Globalization and trade flows: what you see is not what you get! World Trade Organization, Economic Research, and Statistics Division, June 2010.Web. 21 February 2014.

Craig, VanGrasstek. The history and future of the world trade organization. Geneva: World Trade Organization, 2013. Print.

Edmond, McGovern. International trade regulation. Topsham: Globe field Press, 2013.Print.

Philip, McMichael. Development and social change: a global perspective (sociology for a new century series). New York: Sage publications, 2012. Print.

World Trade Organization. WTO trade topics. World Trade Organization, Feb. 2013. Web. 20 Feb. 2014.

 

 

Last Completed Projects

Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.

Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.

[order_calculator]