Global and Local Market Place in a Changing World

Introduction

Nowadays the World Trade Organization (WTO) is one of the most powerful institutions. It was established in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT). This international organization establishes the rules of trade between nations, handles trade disputes and enforces the GATT agreements. According to the Marrakesh Agreement Establishing the World Trade Organization the main functions of the WTO are: to “facilitate the implementation, administration and operation” of the WTO agreements; to “provide the forum for negotiations among its Members concerning their multilateral trade relations”; to provide a dispute settlement mechanism; to achieve “greater coherence in global economic policy-making” (Marrakesh Agreement Article III).

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These functions presuppose raising standards of living, ensuring full employment, ensuring the optimal use of the world’s resources, assisting developing countries, etc. Though the functions and goals stated by the WTO are aimed at promotion of free trade and economic growth they often become a subject of friction between the WTO members which count 151 states (On 27 July, 2007).

Main text

One of the most debatable points among the WTO members is that free trade promoted by the WTO does not lead to convergence of income levels within rich and poor members of the WTO; on the contrary, it results in divergence, which means that rich countries become richer while the poor countries get poorer. (Cline 264) Small countries might argue that they have little influence as compared to other members that have more negotiation power.

Despite of the WTO claim to protect the interests of the developing countries, the organization often fails to manage the global economy impartially, defending only the commercial interests of the rich countries. According to Martin Khor, the director of the Third World Network, the principle “we are all gainers, there are no losers”, established by the WTO sounds unsubstantiated. “Some have gained more than others; and many (especially the poorest countries) have not gained at all but may well have suffered severe loss to their economic standing” (Martin Khor’s Presentation at Davos Part I).

The thing is that only a small number of countries experienced economic growth during the last two decades, whereas most countries have suffered declines in living standards. The principles of trade liberalization are imposed on all members of the WTO without taking into account the countries’ readiness and opportunities to cope with them. It comes out that poor countries find themselves in a constant state of financial instability, debt and recession.

The law of trade liberalization is that this or that country can control the liberalization of its imports, but cannot determine the growth of its exports. Trade liberalization leads to imports growth without a corresponding exports growth. This contributes to the widening of trade deficits, worsening of external debts which in its turn lead to persistent stagnation and recession. Trade liberalization in developing countries should be implemented in condition that they are characterized by strong local enterprises and farms, human resource and technological development. These countries should be able to decide on the strategic economic choices in such spheres as finance, trade, investment policies, to make them, to define the rate and scope of liberalization required for the appropriate development of their economics.

To solve this divergence between the established WTO principles of equality “the rich countries must now correct the imbalances and inequities in the world trading system – they should increase their market access to products from developing countries, but they should not press the developing countries to further open up. Developing countries should be allowed to choose their own rate of liberalization” (Martin Khor’s Presentation at Davos Part I).

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Developing countries – members of the WTO – are not satisfied with some Agreements of the Uruguay Round that led to the worsening of their economic situation. The hopes that developing countries had concerning the increase of the market access of their exports to the rich countries’ markets were not realized after the Agreements’ ratification. The following issues contradict the policy proclaimed by the WTO and remain vexed questions that need urgent solving:

  • Developing countries are not given the opportunity to export certain products to the rich countries. Rich countries are empowered to maintain high import duties and quotas, blocking imports from developing countries (for example, some food, and clothing). Contrary to their promises to abolish “tariff peaks” rich countries keep on taking advantage of the high import duties on industrial products that developing countries export.
  • Developing countries are not satisfied with the increase in non-tariff barriers in the rich countries. Such non-tariff barriers as anti-dumping measures are allowed against products of developing countries. Amendments to the Anti-Dumping Agreement seem to be a reasonable way out from the current situation but these actions are resisted by the USA.
  • Agriculture in developed countries is highly protected, whereas developing countries are pressed to open their markets. The Agriculture Agreement did not improve the situation in the developing countries, as the protection in the developed countries remained very high that made developing countries’ exports impossible to gain market access.
  • Trade Related Investment Measures Agreement reduces the opportunities of developing countries for their industrialization. According to the Agreement developing countries are limited in utilizing some abroad technologies in their local system. The technologies include medicines, agricultural products, etc.
  • As far as the problem of the developing countries in the WTO is concerned, many of them cannot follow the negotiations and take an active part in the Uruguay Round.

Cited above are the most crucial points that developing countries might argue with other members of the WTO. To solve the problems discussed the WTO activities should focus on the review of many of the existing Agreements: their weaknesses should be thoroughly analyzed; special attention should be given to assess their influence on the developing countries with the appropriate amendments made.

Another point that causes friction among members of the World Trade Organization is the correlation between trade and labor and environmental concerns. The increasing trade standards lead to the environmental damage. Steve Charnovitz, former Director of the Global Environment and Trade Study claims that “in the absence of proper environmental regulation and resource management, increased trade might cause so much adverse damage that the gains from trade would be less than the environmental costs” (Charnovitz). According to his researches, “the scale, structure, and physical effects of trade can potentially harm the environment” (Charnovitz 167) but not all the members of the WTO understand this. The debate on environment, trade and labor remains polarized among governments of the WTO members. Charnovits suggests a series of steps to undertake to elaborate a sole policy in these fields:

  • Subsidies. The WTO needs to cooperate with other international organizations on this issue: 1. governments need to agree to phase out harmful subsidies; 2. governments need to agree to prohibit some of these subsidies (in order to inform citizens in the country using them);
  • International Standards. The members of the WTO should strictly follow the environmental management standards proclaimed by the preeminent standardizing organization, the ISO.
  • New Institutional Steps. The WTO should coordinate its work with the World Bank, the OECD, the U.N. Conference on Trade and Development, the World Health Organization, the Food and Agriculture Organization, UNEP, the ILO, and others. (Charnovitz)They will help its members to come to consensus on the debatable points.

Another issue that causes friction among the WTO members is the absence of clear and effective mechanism of decision making. In general, the process of decision taking looks like as follows. Most of the routine questions are discussed in committees, councils and other groups. “The process by which WTO members discuss, debate and negotiate issues is distinct from the organization’s reliance on consensus to adopt decisions”(Blackhurst Part I). Large and influential developing countries are regular participants in decision making process whereas all other WTO members are left outside.

The Third World Network has called the WTO “probably the most non-transparent of international organizations” as “most, if not all, its key decisions are worked out in informal meetings” and “in many cases only a few countries are invited to these meetings” (Transparency, Participation and Legitimacy of the WTO). The largest developed countries not only get the decisions they want but are also able to veto the issues that they don’t want to be raised or do not agree with even if it contradicts the decision of the vast majorities of countries.

The main cause that prevents most of the developing countries from taking an active part in decision making process is the lack of financial and human resources to adequately participate. Even if they participate in the negotiations on this or that issue they are often urged to make the decisions or to take the positions that they oppose to. To change this situation of inequity The Third World Network insists on the following:

  1. “The processes of consultations, discussion, negotiations and decision-making in the WTO have to be made truly transparent, open, participatory and democratic”;
  2. The civil society of each country-member should be informed in six months time about the changes to the rules, agreements, commitments, etc in their draft form.
  3. “The discussions and negotiations that are being planned and are taking place at the WTO must be made known, and all Members must be allowed to be present and participate. The practice of small informal groups making decisions on behalf of all Members must be stopped”;
  4. “Parliaments and Parliamentarians should be kept constantly informed of proposals and developments at the WTO, and they should have the right to make policy choices regarding proposals arising in the WTO that have an effect on national policies and practices”;
  5. Civil society should be adequately informed about the issues discussed and the status of the discussions. Civil society groups and institutions should be able to express their views and the latter should get the WTO response. Thus, civil society will be empowered to influence the outcome of policies and decisions. (The Third World Network).

As far as the problem of WTO decision making is concerned one more authoritative opinion presents certain interest. Richard Blackhurst argues that the model of decision making established by the GATT does not correspond to the present needs of the WTO. The GATT model was effective in the past as there were much fewer countries engaged in the decision making process and not all the countries were forced to adhere to the results.

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According to Blackhurst, nowadays the establishment of a small Consultative Board responsible for developing consensus on trade issues among the WTO members is the most effective way to make all members involved in decision making process. The author claims that for about 90 WTO members that are constantly excluded from the green room meetings, the fight for the change is really worth the candle as the Consultative Board will guarantee their active participation in the WTO decision-making process. (Blackhurst)

Conclusion

As it is clear from the mentioned above, being a very powerful institution of the present day, the World Trade Organization has a lot of burning issues to solve to correspond to the status it has. An adequate solution of the problems discussed will lead to the effective work of the Organization which presupposes achieving the primary goals. Without the consensus found, the WTO will not only fail to succeed in its undertakings, but will always remain under the threat of being called the illegitimate and undemocratic institute.

Works Cited

Blackhurst, Richard. “Reforming WTO Decision Making: Lessons from Singapore and Seattle”. Center for Research on Economic Development and Policy Reform 2000. Working Paper No 63. Web.

Charnovitz, Steve. “Addressing Environmental and Labor Issues in the World Trade Organization.” Progressive Policy Institute. 1999. PPI Briefing. Web.

Cline, William. Trade Policy and Global Poverty. Washington, D. C., Center for Global Development and Institute for International Economics, 2004.

Charnovitz, Steve. “Promoting Higher Labor Standards.” The Washington Quarterly 18 (1995): 167.

Third World Network. .2008. Rethinking Liberalisation and Reforming the WTO: Martin Khor’s Presentation at Davos. Web.

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Third World Network. 2008. Transparency and Legitimacy of the WTO. Web.

World Trade Organization. Marrakesh Agreement Establishing the World Trade Organization. Web.

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