World Trade Organisation in the Modern Global Economy

Table of Contents

Acknowledgments
Abstract
Introduction and methodology
Results of findings
Conclusions and recommendations
References

Acknowledgments

This report would not have been made possible without the kind assistance of university librarians who assisted me in tracking down the correct books and articles needed for data collection. Moreover, the bulk of the research was done online particularly when it comes to accessing the Internet to retrieve information from the World Trade Organisation’s official website. In this regard, the proponent of this stud is also thankful to the university’s computer center staff.

Abstract

The World Trade Organization is an international organization that deals with global rules of trade between nations. These rules were made based on numerous rounds of negotiations. Using principles from GATT the WTO is keen on reducing trade barriers while protecting intellectual property rights. The WTO is guided by core principles that allow it to create a freer and fairer trade. While the WTO has been instrumental in improving the global economy there are still groups of people who are still in opposition to the WTO. The WTO must take a closer look at what the critics are saying in order to increase its scope and improve its performance.

Introduction and methodology

Globalization is a phenomenon that affects every corner of this planet (Scholte, 2005: 90). Globalization is due to a number of different factors such as the radical improvements in technology as well as the increasing mobility of people. As result goods and services can be easily exported and imported from different parts of the globe. It is now a common occurrence to have the company’s headquarters in California, USA, and yet build factories in China. Financing can come from London and yet businesses are established in faraway places like Brazil and Vietnam. It is not only raw materials and machinery that can easily ship thousands of miles away from point of origin. Millions of individuals have left their place of birth to work as migrant workers in foreign lands.

Globalization is shrinking the planet and yet on the other hand countries remain independent and there are forces working within a nation that is centuries old and these traditions and culture cannot change overnight. As a result, conflicts arise as nations begin to interact and do business together. Before the forces of globalization tear this planet apart there is a need for the establishment of an international organization that specifically deals with international trade. In 1995 the World Trade Organization (WTO) came into being; it was one of the youngest of the international organizations (WTO, 2009: 3). This report will take a closer look at the role of the WTO in the modern global economy.

In order to do this, there is a need to perform a review of the literature. The best source of information is of course the official website of the WTO. In the said site the proponent was able to download files that were of great help to this project, specific information concerning the historical background of the WTO and the circumstances surrounding its creation in the 1990s. Aside from accessing the official site of the WTO, it is imperative to take a look at other sources that are objective and yet provide an outsider perspective on how the WTO functions in the real world. Finally, there is a need to look at a source that seems to be not in agreement with leaders of WTO. In this way, the proponent will be able to analyze the functions of the WTO from the perspective of critics and therefore ensure that multiple sources were considered to paint an accurate view of the WTO.

Results of findings

The WTO was not created in a vacuum. In fact, it was the successor to the General Agreement on Tariffs and Trade (GATT) an organization that was founded in the aftermath of the Second World War (WTO, 2009: 3). The world was in shambles after World War II and therefore there was an urgent need for an international organization that will facilitate trade between many nations. The Second World War was also a grim reminder that before conflicts reach crisis proportions there must be a mechanism to diffuse them (Huntington, 2004: 37). Five decades after the creation of GATT there is a need for another organization that can build on the idea that there must be a mutual agreement when it comes to tariffs and trade but at the same time, it must be an organization that can handle other issues pertaining to globalization.

The WTO was developed through a series of trade negotiations or rounds that were held under GATT (WTO, 2009: 3). One of the primary goals of the said trade negotiations was to deal with the problems of tariff reductions but later on, discussions were expanded to include anti-dumping and non-tariff measures that are major sources of conflict and trade barriers between countries (WTO, 2009: 3). The last round of negotiations was held between the period 1986 to 1994 and it was called the Uruguay Round – this led to the creation of the WTO in 1995.

Negotiations did not end in 1995 and in fact, in February 1997 an agreement was reached with regards to telecommunication services and as a result, 69 governments agreed to wide-ranging liberalization measures. The latest major negotiation was completed in the year 2000 and it was held in Doha, Qatar. In the said meeting of WTO members, there was an agreement regarding how to deal with agriculture products and services. Based on these negotiations the WTO, “…is the only international organization dealing with the global rules of trade between nations … to ensure that trade flows as smoothly, predictably and freely as possible” (WTO, 2009, 1).

There are three major components of a country’s economy that are of primary concern to the WTO and these are a) goods; b) services; and c) Intellectual Property. Before the creation of the WTO, businessmen who are not into the manufacturing of goods were unable to compete in an open market. It was almost impossible for banks, insurance firms, telecommunication companies, tour operators, hotel chains, and transport companies to do business abroad (WTO, 2009: 4). But thanks to the WTO these businessmen can now consider expanding abroad for they get the same assurance of freer and fairer trade. The WTO is also instrumental in enforcing Intellectual Property Agreement and the rules concerning copyrights, patents, trademarks, etc. This means that businessmen are no longer hesitant to enter into a business agreement with companies abroad because this time they are assured intellectual property will be protected.

While Intellectual Property and services are important components of a nation’s economy, it is the goods that are manufactured, bought, and sold that can demonstrate the impact of the WTO in the modern global economy. Before GATT and the WTO came along individual nations can create trade barriers designed to protect the domestic product from the influx of foreign made goods. A country can raise the tariff of a particular imported product making it difficult for domestic consumers to purchase and enjoy these products. This is usually the case if the said nation is also manufacturing a similar product. Therefore, in order to manipulate the market tariffs and other trade barriers are used.

With the WTO these issues were addressed by setting rules that member countries should respect and follow. These sets of rules were based on five principles governing international trade and these are: 1) non-discrimination, reciprocity, enforceable commitments, transparency, and safety valves (Hoekman et al., 2002: 42). Non-discrimination can be fully understood with the discussion of the concept called Most-Favoured-Nation or MFN. This means that “…a product made in one member country be treated no less favorably than a ‘like’ (very similar) good that originates in any other country (Hoekman, 2002: 42). This will mean that importers and consumers will have an incentive to use the lowest-cost foreign supplier (Hoekman, 2002): 41). This will also provide assurance that manufacturers and exporters are assured of a free market.

This means that member countries cannot manipulate prices and tariffs so that they can benefit from the reduction of tariffs in other parts of the world but at the same time limit another WTO member from doing business in the said country. This is an example of unfair trade practices and this is what the WTO tries to avoid. The incentive of following rules and guidelines is that a member of the WTO gets the privilege to sell their products thereby increasing market share.

Freer and fairer trade if there is reciprocity, enforceable commitments, transparency, and safety valves (Hoekman, 2004: 41). Member countries are encouraged to settle their differences using diplomacy. But there are times when they will need to settle their disputes. The WTO provides an avenue for this kind of conflict resolution. This is made possible by using the expertise of independent experts. Their job is to preserve the integrity of the system allowing the WTO to continue guiding the global economy.

Conclusions and recommendations

The WTO plays a major role in the creation of freer and fairer trade. The agreements made by member countries bind them to specific rules and regulations. This also allows them to deal with conflicts and resolve the matter quickly. If one is a member of the WTO there is the assurance that products can compete in an open market. There are many benefits for the members. Indeed the WTO is a very important international organization because it maintains the flow of business and yet at the same time able to resolve problems related to international trade. On the other hand, there are those who are not too happy with the fact that this nation’s economy is now at the hands of a few men.

There is a need to investigate further the specific contributions of the WTO to the global economy. There is a need to understand why there are many who are in opposition to the WTO. For these people, the WTO is not an organization that is tasked to regulate the global economy. They believe that the WTO is controlled by a few good men, these trade bureaucrats can make decisions that can impact nations. It is not a good thing for democracy and for the people as a whole. It is therefore important to re-examine these issues.