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International Trade Essay

Established on January 1, 1995, the World Trade Organization (WTO) is now the umbrella organization of the General Agreement on Tariffs and Trade (GATT). GATT came into existence in 1947 with the intentions of providing the world with a forum that encouraged international trade between its member countries. GATT did so mainly by encouraging member countries to reduce trading tariffs and by providing guidelines for international trade. The last round of GATT discussions, the Uruguay Round held from 1986-1994, led to the birth of the WTO . The WTO is an international trading organization “designed to promote, monitor, and adjudicate international trade”. It has expanded upon what GATT had already established, taking on a larger scope in international trade and also approaching the functions of their permanent institution in a different way than GATT had previously done.

The purpose of this paper is to analyse the role of the World Trade Organization in the world today. The first section will provide a brief overview of the organization. Subsequent section sections will examine three of the main functions of the WTO including, respectively, trade agreements, providing assistance to developing countries, and settling disputes. The final section will present a critique of the WTO, discussing views of its opponents.

“The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible”. The WTO has the same legal institutional standing as the International Monetary Fund (IMF) and the World Bank (WB). The multilateral trading system covers not only trade in goods, as GATT did, but also includes trade in services and protection of intellectual property rights. The widening scope of the WTO to include such things as trade of services and intellectual property rights has allowed the multilateral system to “[cover] almost all trade, an astonishing total of US$6,800 billion in 1999,” taking place in the world today. With 144 member countries as of January 1, 2002 and additionally, approximately thirty countries pending membership, this international organization has its hands in 97% of trading that goes on in the world today.

There are eight different areas of agreements that the WTO covers. These include agreements over tariffs, agriculture, textiles, services, intellectual property, anti-dumping, non-tariff trade barriers, pluri-lateral agreements which involve only a few member countries and finally, agreements on trade policy reviews . The function of these agreements is to ensure that trade flows as freely as possible, to the best interests of participating exporters and importers. Each agreement is covered by different “rule books” implemented by the WTO; for example, trade in goods is covered by the original GATT agreement while trade in services is covered by the new General Agreement on Trade Services (GATS). However, for the purposes of this paper, focus will be placed on tariff agreements.

One of the main roles of the WTO is as a regulator of tariffs. The purpose of tariff agreements is to cut and “bind” tariffs to further the liberalization of international trade. The “Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994” established in the Uruguay Round, is a legally binding agreement listing the “bound” tariff agreed upon by member countries. “Bound” rates are guarantees set out by countries that tariffs will not increase above levels listed in the Marrakesh Protocol . Generally, in developing countries, “bound” rates serve as tariff ceilings, while in developed countries “bound” rates are those that are actually charged. “Developed countries increased the number of imports whose tariff rates are “bound” from 78% of product lines to 99% “for developing countries, the increase was considerable: from 21% to 73%” . “Bound” rates have effectively decreased average tariff rates “from around 40 per cent to less than four percent”, of what they have previously been. Taking into consideration that over one hundred members of the current WTO members are developing countries, this reduction in tariffs have opened these economies to possibilities that would otherwise have been unrealised. Developing nations, with the help of the WTO, have thus become key players in world trade; between 1963 and 1997 “the share of developing nations in world exports of manufactures” increased from 4 per cent to more than 24 per cent”. However, this explosion of trade in developing countries could not have been possible without certain provisions provided by GATT, followed through with the help by the WTO.

As previously stated, with over one hundred members of the WTO being developing countries, they are able to have substantial influence over WTO trade rules. Developing countries are a growing influence in the international trading world, however, they “could not have achieved this if they had not found growing markets for their exports and if they had not taken advantage of technological advances and foreign know-how available in an increasingly globalized world.” Developing countries would not have been able to achieve these advances without the help of the WTO, of which a principal role is providing “Technical assistance and training for developing countries.” Due to the fact that developing and least developed countries (LDCs) have “limited supply capacity, poor infrastructure, and low level of skills,” it is essential that technical assistance and training be provided in order to help these countries and their economies develop over the long-term. Training sessions and workshops are held by the WTO, specifically for developing countries and LDCs, which educate their governmental officials on international trade policies, effective negotiation strategies and in general, how to be successful in the global economy. Technical assistance pertaining to how to operate within the WTO is offered, in addition to special provisions for developing countries. For instance, the Dispute Settlement Understanding (DSU) contains specific rules that allow LDCs increased time ranges in which to settle disputes. Furthermore, longer time periods are given to developing and least developed countries in order to implement the agreements made by the WTO. Due to the fast-paced nature of the global economy, it is essential to provide assistance and training to developing countries in order to more effectively and efficiently integrate these countries into the world of international trade.

Finally, dispute settlement is a crucial role that the WTO plays. Renato Ruggerio, the former director general of the WTO calls its dispute settlement system “the WTO’s most individual contribution to the stability of the global economy”. The clearly structured DSU allows the international trade system to function predictably and as effortlessly as possible, which is one of the main functions the WTO wishes to perform. Since the DSU functions on a clearly defined timetable, with fixed stages a case must go through, and no single country can block rulings, it is a much more affective dispute settlement system than GATT previously had. Disputes usually occur when one WTO member country takes on a policy that another member country thinks violates any of the WTO agreements. Arguing countries have sixty days to settle their differences between themselves before taking action through the WTO. Cases are settled through the Dispute Settlement Body (DSB), who establishes panels, like tribunals, which are chosen upon deliberation with the countries involved in the dispute. A fixed time of one year is allowed before the decision of the panel, which is not to interfere with any WTO agreements, must be circulated to all members of the WTO and then taken to the DSB. The DSB can either adopt the ruling made by the panel, or reject it, in which case, either of the arguing countries can appeal the DSB decision. Because the DSU adheres to strict rules, it has made the “WTO dispute settlement process [not] only compulsory, but also virtually automatic” It allows politically sensitive cases to be pursued, and it protects the weaker WTO members,” thus benefiting all member countries equally. Unfortunately, there are various critics who do not think that anything the WTO provides, including their dispute settlement system, is beneficial to all countries.

“It is obvious to many observers that the development of the world economy is outpacing the capacity to govern it, at both the national as well as the international level”. Antonia Neto, President of the Central Geral das Trabalhadares and a prominent labour leader in Brazil has said that the WTO “has helped the forces of globalization to rip apart the third world economies, weaken the states and compromise their sovereignty in the name of free trade”. The swiftly expanding influence of the WTO has brought some economies into very precarious positions by magnifying their current dependence on exports. “Most [LDCs] generate more than 70 per cent of their export earnings from their three top exportsЕ This dependence on a narrow range of exports makes poor countries more vulnerable to external shocks,” which are not uncommon in the realm of global trade. Sovereignty is a “condition whereby states recognize no higher authority either domestically or externally and are thus free to act as they wish”. This means that state “rights of self-determination and authority may not be overridden by any other international actor,” however, sovereignty has been compromised by the WTO. The WTO and its member countries have the ability to question and use the dispute settlement mechanism to bring a case against countries that have adopted policies that “violate” world trade rules. The European Union (EU) for example, had banned imports of hormone treated beef from the United States due to potential health risks. The WTO panel involved with this case ruled in 1997 that the ban went against certain provisions of a WTO trade sanitation agreement, and thus contradicted the rules set out by the WTO. The WTO thus has the “ability to override or change democratically passed laws concerning trade at the national level.” This clearly depicts the fact that the WTO can and will override the policies implemented by its member countries, thus illustrating its complete lack of regard for the will of the citizenry of the world and its ability to override their legitimacy.

The World Trade Organization is a growing force in the world today, playing a number of different roles. Those illustrated above – trade agreements, providing assistance to developing countries, and settling disputes – are only a few roles that the WTO plays in order to ensure that member countries are able to function effectively and efficiently in the world of global trade. The roles that the WTO takes on ensure global trade functions smoothly by providing a structured system. Inevitably, the WTO has its opponents who vehemently oppose the institution. Additionally, some members are benefiting more from the WTO than others. As it is, industrialised countries seem to be flourishing in global trade through the WTO but others, such as LDCs, appear to be further exploited by the WTO. Since it has only been functioning in the capacity that it does today since 1995, it is too early to say whether or not the WTO will be beneficial to global trade; the world simply has to watch and wait.

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