The World Trade Organization May be Regarded as the Third Economic Pillar of Worldwide Trade and Commerce Dimensions Along with IMF and IBRD

The World Trade Organization May be Regarded as the Third Economic Pillar of Worldwide Trade and Commerce Dimensions Along with IMF and IBRD

Introduction

International Trade is known as the movement of goods and services from one state to another. It has been taking place for ages but it was not as intense as it is now. The world is moving towards globalization. Globalization is the change or shift towards a market, which is interdependent on another market and creates a world economy, which is integrated.

Previously countries use to restrict imports by imposing high tariffs. The main intention of doing so was to protect the domestic industry. They thought that if they imposed high tariff on imports then, the imported goods and services would be expensive. This would force the consumers to buy products, which are made domestically. Hence, the industries in the home country would develop. However, this method of protecting domestic industries led to retaliation. Other countries also imposed tariffs on the imports of the country, which imposed tariffs on that country’s export. In this way, countries kept on raising their tariff against each other and ultimately it led to the Great Depression of 1930.

After the experience of 1930, the industrially advanced nations of the West, came together and made a commitment among them after the World War II that they will remove all the barriers in international trade and allow the goods and services to move freely among nations.

Every country has assets with which they can produce goods and services more efficiently and economically. They can produce those goods in which they are good at producing and export them to another country that lacks resources to produce those. On the other hand, they can import goods and services in which they are not so good at producing. This is where the theory of “comparative advantage” comes.

It is said that free trade can help to increase competition among industries, which will drive them to produce goods and services more efficiently and will encourage innovation, which will set them apart from their competitor. This will give “best product, with the best design at the best price.”

In 1947, the United Nations assembled a Conference on Trade and Employment, where a proposal was given by both United Nation and United Kingdom about creating an International Trade Organization (ITO) in Havana (Cuba). It was created to complete a “post-war multilateral economic regime” that started many years before. The International Monetary Fund and the World Bank was also part of the regime. They were the first two pillar of world wide trade and commerce dimensions. ITO was suppose to be the third. ITO was suppose to have a “strong decision making and dispute settlement power” to look after all the multilateral trading. However, ITO was never accepted by any major trading country. Therefore, it failed after the Havana Charter and later on General Agreements on Tariffs and Trade (GATT) carried its work forward. GATT was an agreement made in international trading which stated the rules and regulations. It was also a system that administered that the agreements are carried out properly. Later on, WTO was formed which included tasks that GATT did, with some additional work.

The World Trade Organization

The World Trade Organization promotes free trade. They deal with the rules among countries, which sells their goods and services in different countries, and negotiates them. World Trade Organization was established in 1 January 1995. Much of its works today, are based on the Uruguay Round negotiation (1986-94) and General Agreements on Tariffs and Trades (GATT), which was created in 1948. It currently has a member of about 159 countries. These members were previously the members of GATT as well, who have signed the final act of Uruguay Round and concluded their negotiations on goods and services by the Marrakesh meeting in 1994.

WTO is the successor of GATT, established after the Second World War to bring countries together and cooperate on international economy. GATT was just a mere agreement, whereas WTO has to look after everything in the trading of goods and services from one nation to another and they need to look at the security (intellectual property rights) as well.

Uruguay Round Negotiation

The Uruguay Round Negotiation was an agreement on agriculture, which was administered by the World Trade Organization, under the framework of GATT. It began in the 1986 and included 123 countries in the contract. The main purpose of this negotiation was to change protectionism method from restricted quantity to tariffs and a reduction in the tariff. However, this agreement was criticized of neglecting special needs of the developing countries. The figures were close to that of a rich country.

Agreements that WTO administers:³

  • The General Agreements on Tariffs and Trades (GATT)- whose main purpose is to minimize trade barriers like tariffs, as low as possible to increase the free flow goods and services.
  • The General Agreement on Trade in Services (GATS) – It is the first multilateral agreement on trade in services.
  • Trade Related Intellectual Property Rights (TRIPS)- These are rules to protect intellectual property. This agreement includes the following restrictions patent, copyrights, and trademarks. It restricts access to life-saving medicines, and permits the patenting of many new inventions. Patents are also seen as rewards to the person who has put in the effort and invented the product.
  • Trade Related Investment Measures (TRIMS)- This states about government investment. They give restrictions on what the can and cannot do in foreign investment.
  • The Agreement on the Application of Sanitary and Phytosanitary Standards (SPS)- This negotiation took place during the Uruguay Round. It restricts the member government policies relating to food safety and as well as animal and plant health.
  • The Financial Services Agreement (FSA)- The main purpose of this agreement was to remove the obstacle to help the free flow of financial services corporations, including banks and insurance companies.
  • The Agreement on Agriculture (AoA)- This agreement consists of rules that are set on the international food trade and restricts domestic agricultural policies such as protection against dumping, small scale farmer’s protection, government supporting the farmers and sustainable agricultural practices, maintaining emergency food stock, ensuring the adequate food supply for the citizens. The AoA has three central concepts, or “pillars”: domestic support, market access and export subsidies.
  • The Agreement on Subsidies and Countervailing Measures (ASCM)- restricts government on what they may and may not subsidized. This agreements was criticized of favoring rich countries.
  • The Agreement on Technical Barriers to Trade (TBT)- Restricts national regulations such as non-tariff barriers that causes problem with trade.
  • The Agreement on Government Procurement (AGP)- Restricts government purchase.

Objectives of WTO [4]

WTO’s main objectives are:

  • Bringing the member country’s government together and solve any problem related to trade.
  • Keeping the trade barriers as low as possible so that goods and services can move freely.
  • It not only tries to minimize trade barrier, it also tries to maintain trade barrier to, for example, prevent consumers from getting affected by spread of diseases.
  • They make sure that developing countries also benefit in their development from international trade.
  • Enhance competitions among countries, which will encourage producers to focus on efficiency and innovation.
  • The high competition encouraged by the WTO will also encourage producers to produce more.
  • Use the world’s resources most efficiently and effectively.
  • Helps in the development of member countries.

Functions of WTO [4]

According to Article III, there are five functions of WTO:

  • WTO should help in the implementation, administration and operation of the agreements.
  • Forum for negotiations among the countries who are member of WTO shall be provided.
  • Understanding on Rules and Procedures Governing the Settlement of Disputes shall be administered by the WTO.
  • Trade Policy Review shall be administered by the WTO.
  • The WTO shall cooperate with the International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD) to bring coherence.

Principles of WTO [5][1]

The WTO agreements are very long and complicated because they cover a huge range of activities. Therefore, there are five principles that are used in all the documents. These principles are the base of multilateral trading system:

  • Non- Discrimination– WTO policy is to treat all the nations equally. Domestic companies cannot be favored over foreign companies. If a trade concession is offered to one company, others must get it too. This principle is known as “Most Favored Nation” (MFN). Another concept of this principle is the “National Treatment.” It means that foreign companies should also be treated as national companies.
  • Reciprocity-Lower trade barriers encourage trade. At first, the negotiations were about lower the tariffs but later on in focused more on non-tariff barriers. However, WTO allows this change to take place gradually through “progressive liberalization.” Longer time are given to the developing countries so that they can fulfill their obligations.
  • Binding and enforceable commitments- The tariff that the members of WTO agree on, must be specified. These are commitments, which they have to “bind” themselves in. It becomes their “ceiling bindings.” They can change these bindings by negotiating with the trading partner. However, for changing the bindings, they might have to face compensation to loss of trade.
  • Transparency- The trading rules and regulations should be as clear and as “transparent” as possible to the public. The national trade policies are observed regularly to make sure and encourage governments to keep their policies transparent.
  • Safety valves- WTO allow the members to protect their nation from environmental harm, harmful diseases, plant and animal health. Regarding these issues, governments can restrict trade.

The WTO are known to be working on free trade. They do work on lower trade barrier but at the same time they also encourage actions against dumping and encourage government giving subsidies to those who needs development. WTO supports and promotes “fair competition.”

The WTO encourages development and economic reform. However, some developing countries require more time to inherit this system. That is why they are given flexibility.

When it comes to international trade and economic development, IMF and IBRD is equally important.

International Monetary Fund

The International Monetary Fund or the IMF is an internationa organization that was created after the Second World War, in 1945. Its main purpose was to balance the exchange rate and to improve the International Payment System. The IMF helps its members’ economy lending money temporarily to those whose exchange rate is imbalance or requires stabilizing. Apart from just stabilizing exchange rate, IMF also works on bringing countries together to cooperate with each other to bring development in the economy and promoting international trade. They created a source of financial resources to help the countries who need money.

The IMF currently has 188 members. Their members are part of the International Bank for Reconstruction and Development (IBRD) as well and the members of IBRD are also a member of IMF. This means that IBRD also has 188 members. Both of these organizations were created in the Bretton Woods Conference.

International Bank for Reconstruction and Development (IBRD)

IBRD is the first of five institutions that is composed of the World Bank Group, established in 1944, with the mission of financing and reconstruction. IBRD’s initial purpose was to provide war-torn countries with finance to reconstruct their infrastructure. Now, they provide financial help to developing countries. Their authorities has expanded from just providing finance to providing “worldwide development” and “removing poverty.”

The World Trade Organization may be regarded as the third economic pillar of worldwide trade and commerce dimensions along with International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD). All three organizations have worked to bring sustainable economic growth worldwide. However, there are critics about these three organizations.

Critics [6][2]

Reality of WTO Principle- WTO is criticized of being “opaque”. They do not allow enough public participation but they seem to encourage the participations of big corporations. They are very welcoming to them.

Rich countries are said to be pushing developing countries to reciprocate equally. This will give an unequal result. This is the main reason for the failure of Doha Development Round in July 2006. The United Nations felt that the developing countries did not want to open their market the way rich countries open their market. The Doha “Development” Round was named in the way that showed the negotiation was to benefit the poor countries. However, as the reality shows, such negotiations were always biased towards the industrialized nations. Therefore, even if the poorer countries open their markets, it will be the rich countries who will benefit the most. Unfairness remains.

Lots of countries are now demanding more cooperation between the developed countries and developing countries, or as some say cooperation between North and South. 50 years of multilateral trade was celebrated in May 20, 1998. The African nations did not feel like it was something to celebrate for them. Rather they mentioned that it is something the rich countries could only celebrate. Nelson Mandela demanded a more fair game in this.

“It is yet another Civilized Power, with its banner of the Prince of Peace in one hand and its loot-basket and its butcher-knife in the other.”

– This is how Mark Twain described the concept of free trade and globalization.

Critics of TRIPS- The TRIPS agreement is about the protection of products from piracy. This regime of international property rights is blamed to suppress competition. It is reasonable to reward an inventor for its invention but the intellectual property rights is now used to protect one’s profit and investment. It is very expensive for developing countries to build their own industries and sometimes it is even IMPOSSIBLE. It restricts the developing country from progressing since most of the latest technologies or product, such as medicines, are originated from the rich countries.

Critics of IMF and IBRD/ World Bank– Not only the WTO, the other two organizations, The International Monetary Fund and World Bank or IBRD, are accused of being “unaccountable, corporate-led and non-democratic.” The protest in Seattle shows the link between these organizations’ policies and poverty.

Conclusion

The World Trade Organization may be regarded as the third economic pillar of worldwide trade and commerce dimensions along with International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD). It could bring great changes to the economy of the world if they set aside the discrimination and make more rooms for participants from developing nations.

Reference:

Mark Twain, To the Person Sitting in Darkness, 1901

Sansad. (n.d.). Objectives and organization of the WTO. Retrieved from:

http://www.sansad.org.in/pdf/WTOREPORTENGLISH.pdf

Shah, Anup. “The WTO and Free Trade.” Global Issues. 02 Jul. 2007. Web. 02 Apr.

2013. <http://www.globalissues.org/article/42/the-wto-and-free-trade>.

Sinha, A. (n.d.). What are the functions and objectives of WTO. Retrieved from:

http://www.preservearticles.com/201012291900/functions-and-objectives-of-wto.html

Sneyd, A. (n.d.). International trade organization. Globalization and Autonomy,

Retrieved from: http://www.globalautonomy.ca/global1/glossary_entry.jsp?id=OR.0041

The World Trade Organization. (n.d.). Understanding the wto. Principles of the Trading

System. Retrieved from: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

World Trade Organization. (n.d.). Retrieved April 2, 2013, from

<href=”#Agreements”>http://en.wikipedia.org/wiki/World_Trade_Organization#Agreements

5 See The World Trade Organization. (n.d.). Understanding the wto. Principles of the Trading

System. Retrieved from: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

6 See Shah, Anup. “The WTO and Free Trade.” Global Issues. 02 Jul. 2007. Web. 02 Apr.

2013. <http://www.globalissues.org/article/42/the-wto-and-free-trade>.

Disclaimer:

The information contains in this web-site is prepared for educational purpose. This site may be used by the students, faculties, independent learners and the learned advocates of all over the world. Researchers all over the world have the access to upload their writes up in this site. In consideration of the people’s participation in the Web Page, the individual, group, organization, business, spectator, or other, does hereby release and forever discharge the Lawyers & Jurists, and its officers, board, and employees, jointly and severally from any and all actions, causes of actions, claims and demands for, upon or by reason of any damage, loss or injury, which hereafter may be sustained by participating their work in the Web Page. This release extends and applies to, and also covers and includes, all unknown, unforeseen, unanticipated and unsuspected injuries, damages, loss and liability and the consequences thereof, as well as those now disclosed and known to exist.  The provisions of any state’s law providing substance that releases shall not extend to claims, demands, injuries, or damages which are known or unsuspected to exist at this time, to the person executing such release, are hereby expressly waived. However the Lawyers & Jurists makes no warranty expressed or implied or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product or process disclosed or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product process or service by trade name, trade mark, manufacturer or otherwise, does not necessarily constitute or imply its endorsement, recommendation or favouring by the Lawyers & Jurists. The views and opinions of the authors expressed in the Web site do not necessarily state or reflect those of the Lawyers & Jurists. Above all, if there is any complaint drop by any independent user to the admin for any contents of this site, the Lawyers & Jurists would remove this immediately from its site.