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The importance of trade in the international economy cannot be underestimated. The global trade has been considered a backbone of the contemporary commercial world since producers from different countries attempt to increase their profits by exploiting expanded markets. The international trade is facilitated through the establishment of trade organizations that seek to liberalize the trade among countries that are parties to an agreement. Some of the trade organizations that have been established to facilitate productive collaboration include the World Trade Organization (WTO) and a great number of various multilateral and bilateral trade agreements between countries worldwide. The primary focus of trade organizations is reducing tariffs. In addition, these organizations have the goal of developing and maintaining a balanced trade between nations, wherein countries are needed to offer a reciprocal – a fair trade in order to avoid huge trade deficits. However, attaining a balanced trade is a significant challenge for nations that participate in global trade organizations since these institutions often limit the amount and tariffs. The significance of trade organizations stems from a number of trends such as an increase in the number of multinational enterprises and industrialization, as well as intensified offshore outsourcing. This paper focuses on the WTO including its creation and purpose. Moreover, it evaluates the organization WTO in terms of ensuring a balanced global trade and assesses the current challenges that it faces.
World Trade Organization
The WTO is an international institution that develops and imposes provisions outlined in its trade policies and regulations. The organization is headquartered in Geneva, Switzerland and is controlled by a general council. It is one of the most powerful international organizations. As stated, the main purpose of the WTO is to make sure that member states adhere to the trade agreements and declarations, agreed upon. Since it was established, the organization has concluded at least 12 different trade agreements covering various areas including the investments, settlement of disputes, and agriculture, among many other issues. This organization has the mandate to administer and present new and existing trade agreements, oversee world business practices, and settle trade disputes between the member nations.
The WTO was founded in 1994 when members of the General Agreement on Tariffs and Trade (GATT) resolved to sign a new trade agreement. The GATT was both a treaty and a global organization. Therefore, the WTO was formed to replace GATT. Conversely, the new organization acquired a significantly broader scope than GATT used to have as the last regulated the trade in merchandise goods only. In such a manner, the scope of the WTO was relatively broader as compared to that of GATT, which was only limited to regulating the trade involving merchandise goods. On the other hand, the establishment of the WTO sought to expand the GATT agreement in order to include other aspects such as international trading in services, as well as the intellectual property protection. Moreover, the WTO attracted more membership as compared to its predecessor – GATT. As of 2003, the institution had 146 members.
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Currently, the WTO member states include the world’s leading trading players, as well as developed countries. The WTO membership covers more than 90% of both the world’s population and global trade. Furthermore, independent territories that are autonomous in performing their foreign trade affairs, such as Taiwan and Hong Kong, are also the WTO members. Since its founding, the WTO has been subjected to criticism, especially from people that are concerned about the economic globalization, integration, and free trade. Specifically, the opponents of the institution maintain that it is already extremely powerful since it has an authority of issuing and imposing regulations and laws on sovereign countries. However, those supporting WTO believe that it must have sufficient power and influence in order to make sure that the member states adhere to the established regulations. It means that WTO can impose sanctions for member countries violating the agreed rules.
Response of the WTO in Promoting Global Trade
As stated previously, the WTO was founded with an aim of promoting the international trade. As much as the international trade has improved, Drezner and McNamara report that the WTO helps in promoting the international trade strongly albeit in an uneven manner. No evidence exists to link the increase in the international trade to the WTO, which the author attributes to the lack of consistency between trade asymmetries between the member countries. According to these authors, the growth of the international trade is caused by countries removing trade barriers; it is something that can be achieved via other avenues and not solely due to the WTO.
Simply stated, the first asymmetry in the system is the gap between the developed and developing nations. According to this irregularity, it can be argued that the WTO advocates for a greater liberalization that benefits developed countries more than it does to developing economies. Over subsequent negotiation rounds under the WTO, developed economies have been significantly lowering their trade barriers. Nevertheless, this trend was not observed in developing economies. What can be inferred from this observation is that developed economies use the WTO as a tool for achieving a full economic liberalization. It is well recognized that the WTO is an organization that imposes far greater liberalization obligations on the developed than developing member states.
Another asymmetry is the connection between the liberalized and exempted sectors that do not consider multilateral negotiations aimed at reducing the barriers to trade. In this regard, it is worthy to note that the developed member countries have exempted the majority of their key sectors from the WTO provisions while only bringing down barriers in the non-core sectors such as clothing, agriculture, and textile from their liberalization efforts. Developed countries altered the WTO rules prohibiting quantitative restrictions to their favor in order to protect some of their key sectors. As a result, through a multi-fiber arrangement, developed nations imposed restrictions on the imports from developing nations. It is considered an infringement of the core WTO rules. Based on these asymmetries, a trade imbalance in the member states exist. Therefore, the WTO is not promoting trade equally as it was initially intended to do.
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Challenges Facing the World Trade Organization
One of the main challenges facing WTO is the reluctance of the member states to adhere to the WTO trade requirements fully. As a result, developing countries have become pessimistic of the institution, and they are reluctant to give up a tariff protection in exchange for a market access. This condition has created an economic imbalance between developing and developed countries due to the inaccessibility of large economies, reduced trade distortions, and lower investments in the agricultural infrastructure on the side of the less developed countries. Therefore, it is difficult for the developing nations to influence the negotiations focused primarily on retaining special and differential treatment and preferential access to the markets of developed states because they seem to be inferior. Additionally, developing states feel that they do not have the labor power to negotiate with many countries due to mixed feelings about the trade.
The second challenge stems from the fact that countries are shunning the Doha Development Round in favor of other arrangements such as the Free Trade Agreements (FTAs) in order to encourage the trade liberalization. This issue undermines the WTO’s goal of achieving a full trade liberalization globally. The Doha Round focuses on reducing trade problems in some economic areas such as services, industrial sector, and agriculture. On the contrary, countries are opting for the FTAs following the establishment of the Doha Round in order to be able to access novel markets and to explore unique issues associated with the trade that is not tackled by the WTO at the moment. FTAs are preferred because of the flexibility and fact that they offer an opportunity to strengthen multi-lateral ties between countries that share a common interest. As a result, the core role played by the WTO with respect to achieving a trade liberation is being seriously doubted. Therefore, due to the availability of other flexible arrangements such as the FTAs, bilateral trade agreements, and strategic partnerships, the significance of the WTO in the global trade has significantly reduced.
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The third problem is the work overload in the WTO members and the Secretariat. In this context, participating in periodic rounds of multilateral negotiations and frequently handling arising matters are challenging tasks. It is unlike in the case of the GATT where a few countries were involved in the rounds of bargaining and in settling the ongoing disputes. In other international economic organizations, smaller nations can rely on the technical experts of the organization to supply relevant information for making informed decisions about matters at hand. Nevertheless, because the initial purpose of the GATT was to conduct a monetary policy role assigned to the WTO temporarily, it did not have a formally designed structure. For the reason, the remarkable success of the members in transforming the organization into an institution that could extend the tariff cuts and achieve significant reductions in the import duties strengthened the assertion of members that they needed neither a vast bureaucracy of the support staff nor a chief executive with a considerable decision-making power.
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Another barrier is the fact that the pressure for change originates from non-governmental organizations (NGOs). In such a manner, the recent agreements extending the reach of the WTO rules into the domestic economy have created some tension between the WTO and NGOs as a consequence of different agendas pursued by the two institutions. Precisely, most NGOs are much concerned with the economic and social conditions faced by various social groups such as the poor, women, and ethnic minorities within both developed and developing nations. Arguably, the reduction of tariffs and other trade barriers may contribute to reach an economic efficiency at the national level. In its turn, this situation can worsen economic and social conditions of the poor and marginalized domestic groups, according to NGOs.
With the foundation of the WTO and its powerful dispute settlement mechanism in 1995, a new forum for addressing international trade disputes was established. With its increased achievements, now, the dispute resolution body possesses a significant ability to reduce nations to submission by the international agreements that they sign. The key purpose of this International organization is to eliminate the political aspect from the process, in which disputes are solved. The body hopes to replace political maneuvers with the structured disputes settlement process. Presently, an increase in the number of cases taken to the WTO has created a back load. This rise places a strain on the process by establishing delays and increasing the likelihood that the quality of case reports will suffer. Another important issue facing the WTO is the limited funds required to boost the production process that, in turn, increases the international trade via intensified export and import of different products. Other challenges include the emergence of other alternative arrangements to the trade liberalization, as well as the pressure from NGOs in some changes. Although the WTO was mainly formed to promote the world trade, studies reveal that the organization has some asymmetries as it favors developed over developing nations. As a result, the body fails to implement its purpose as expected.
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