And it’s Relevance
Table of contents
Executive summary ………………………………….. 1
Introduction …………………………………………….. 2
Analysis .…………………………………………….. 3
Conclusion ……………………………………………….. 4
References …………..………………………………….. 5
Bibliography …………………………………………….. 6
Appendix ……………..………………………………….. 7
The World Trade Organisation is a global forum for multilateral trade agreements between most of the world’s trading countries, which aims to provide a free and open trade environment which is founded on principles of predictability, transparency and non-discrimination. All negotiations are concluded with the consensus of all members, who currently include 146 member states.
Over the past few decades, the World Trade Organisation has made much progress in terms of creating a more open global trading environment, and creating uniformity and certainty of rules and practices, with the bulk of the disputes being resolved by its own panel of adjudication, referred to as the Dispute Resolution System. (Friedman & Wyman, 2005)
The world’s largest trading forum is faced with a multitude of challenges stemming from its relationship with developing countries, the efficiency and legitimacy of its dispute resolution system, the onset of nationalism around the world and the effect of its trade agreements on global trade.
In effect, benefits and disadvantages of the World Trade Organisation must be weighed out in order to reach a conclusion on whether the World Trade Organisation is still relevant in promoting global trade, or if it is time for the world to look towards a new solution.
The World Trade Organisation is the successor to the General Agreement on Tariffs and Trade (GATT) and was established in 1995 to regulate international trade and encourage lower tariffs and fewer restrictions on trade and is based in Geneva, Switzerland. As of 2018, the organization has 164 member states upon whom its trade rules and decisions are binding. The trade agreements are usually passed with the consensus of its members, and disputes between members are first dealt with through negotiations before being decided by a mutually approved dispute resolution method, the effect of which is binding.
The organisation operates on the basis of certain founding principles, including non-discrimination, encouragement of open trade and predictability.
Although WTO has been successful in establishing multilateral agreements between members which have reduced trade barriers and aided the concept of leveling the playing field for less developed countries, it has been subject to various criticisms which must be addressed in order to determine whether WTO is relevant to the promotion of global trade under the current climate.
Since its advent, the WTO has become a representative of 98% of the world’s trade and 429 new trade measures have been implemented during this time. This means that all major players in trade are subject to the rules of the organization, which promotes certainty in the market as trade agreements are clearly laid out and must be adhered to. In recent years, many developing countries have also come to become members of WTO with many of the remaining countries either negotiating their entry or signaling an intention to do the same. Global trade has expanded rapidly, with many less developed countries exporting more products and experiencing better GDP growth. 43% of world merchandise exports in 2016 and 2017 were by developing countries. (Narlikar, Fairness in internation trade negotiations; Developing countries in the GATT and WTO, 2006)
The following graph shows the increase in the share of world exports held by developing economies between the years 2000 to 2016.
The graph is a clear reflection of the success of the WTO in integrating less developed countries into its trade dynamics and creating a suitable environment for them to trade in.
A big advantage to developing countries for being part of the WTO is that they get to partake in major trade agreements which involve members like the EU and the US. Decisions in the WTO which are not in the interests of developing countries may be prevented from being passed as trade agreements require consensus of all members.
The WTO is also committed to providing less developed countries with a certain amount of levy in terms of implementation of trade agreements and ratification into local law. They are given an extended period of time as well as technical guidance for implementation in order to help them keep pace with the developed countries who have more resources and are better capable of aligning their local laws in accordance with international standards.
However, least developed countries (LDC’s) and developing countries may also find themselves having to accede to unflattering agreements due to the pressure imposed by developed countries. In fact, the WTO has faced frequent criticism on this point by many of its opponents, in that it fails to sufficiently protect the interests of underdeveloped countries and benefits mostly the developed world. In addition, WTO is criticized for providing indirect support for oppressive regimes which plague many underdeveloped countries, since politicians are able to push certain agendas which may be in the interests of international trade but are detrimental to the populations living under pernicious rule, because the rulers of such countries are able to gain more power, thereby allowing them to perpetuate their unfair practices.
The statistics above clearly show the dominance of the developed world in terms of exports of agricultural products, with the European Union and the United States leading exports valued at $647 and 170 billion respectively. Most underdeveloped countries are agro-based economies and rely heavily on their agricultural exports to sustain themselves. Least developed countries are reported to have 21% of their economic activity concentrated on agricultural products. Thus, the developed world’s dominance in this sector poses a threat to the economies of underdeveloped countries.
The Doha Round, initiated in 2001, aimed to center its focus on the developing world by liberalizing global agricultural trade and reducing the subsidies provided to farmers of developed countries in order to help the developing countries compete in the international market. It also aimed to lower trade barriers further but after years of negotiations, the talks failed to reach an agreement and were labelled as a failure of the WTO.
In contrast, membership of the WTO has had a positive effect on the integration of developing countries into newer trading domains such as those of intellectual property and services. For example, Africa experienced a 25% increase in travel exports in 2017, following a two year decline, making tourism Africa’s leading export services sector. South and Central America and the Caribbean also experienced a 6% growth in travel exports, despite hurricanes hitting many of the pivotal areas of tourism. (Friedman ; Wyman, 2005)
Another positive outcome for developing countries is that they can benefit from the uniform application of trade facilitators and trade restrictions, which may help them expand their exports into newer territories.
Although membership of WTO can be said to be detrimental to the welfare of developing countries in certain circumstances, the benefits and opportunities accruing to their economies seem to be much greater and necessitate the importance of the organisation in improving the living standards of these countries and helping them develop faster in the long run, making the WTO’s relevance with respect to developing countries, very much prominent.
One unique feature of the WTO is its dispute resolution system (DSB) which consists of a panel and decides conflicts between members. The decision of the panel is binding and failure to follow the decision can empower the other trading party to impose sanctions as penalty for non-compliance. The advantage of the DSB is that it prevents countries from immediately resorting to trade wars and helps them bring their concerns to a specialized panel and resolve the dispute without disrupting international trade. This feature has increase the stability of the global market with countries first taking matters to a mutually agreed upon resolution method and abiding by the decisions.
More than 65% of WTO members have reportedly been engaged in dispute settlements as respondents, complainants or third parties. However, the DSB is far from perfect. In its annual report of 2018, the DSB chair highlighted the main issues presenting a challenge to the success of the DSB.
The Appellate Body of the DSB, which was originally intended to be approached sparingly, is now burdened with a mass of appeals as disputes brought forth by members are on the rise and the Appellate Body has unfilled vacancies which are not being filled due to long delays. The overburdening of this institution makes its efficiency questionable and has potentially put the fate of the entire WTO system in the balance. The DSB has taken various steps to combat these problems and to make the resolution process more swift but is encountering problems in being fully functional. The DSB has insufficient allocation of resources to effectively deal with the rising complaints being filed by members. There has been a surge in compliance disputes in the past 5 years has doubled in comparison to previous numbers, adding to the DSB’s burden and making dispute resolution take as long as a few years to be settled, dragging out the resolution process unduly. This problem can mean reduced faith in the dispute resolution system as some parties may unfairly benefit from the longevity of the resolution process and take advantage of delays and eventually lead to countries preferring to handle the problem either bilaterally or by virtue of unilateral trade barriers or worse, trade wars.
Another problem faced by the DSB rests within its decisions themselves. The agreements of the WTO lay out that disputes are to be solved with respect to the rules laid out in the agreements and decisions are to be made in alignment with the established doctrines. However, not all texts are clear and there may be gaps with respect to the topics covered by the agreements, with some points deliberately left vague due to inability of members to settle on a concise description of a point during negotiations. In such situations, the question of DSB’s legitimacy in terms of being able to adjudicate on complex points arises. If the DSB resolves a dispute between members by interpreting the agreement in the context of the members in question, the point of law being deliberated upon may become binding on all disputes of a similar nature, and the interpretation might not necessarily be the correct conclusion in disputes faced by other members. This might in turn make the judgments unreliable and call into question the entire system of the WTO. As such, there is no concrete mutually agreed method of tackling such complex disputes, which require the urgent attention of members for the sake of the WTO’s relevance in modern times. (Lim, Elms, ; Low, 2012)
To make matters for the WTO worse, there has been a rise of the ideal of nationalism around the world, threatening globalization as a whole, and in turn all the institutions in place that are upholding the ideals of a connected and free world. Countries such as Turkey, Netherlands, and even the United States are increasingly shifting towards support of nationalist ideals. The ‘Brexit’ which one of the major causes of instability in the UK and Europe, also stems from the ideal of nationalism, and the need to close borders and build barriers of access to the rest of the world. This means countries are no longer fond of the idea of working together and are inching towards retracting back to restrictive methods of trade and upholding sovereignty and furthering their own individual interests as countries. A recent embodiment of this concept can be seen in the conflict between the United States and China, which has led China to urge the WTO to bring reforms to rectify the destructive practices of some of the members, and the US is speaking out against the WTO for being unable to regulate China’s trade abuse.
President Trump has appears to be severely against the concept of multilateral agreements and appears to be wanting a way out altogether. This is a major problem because the US is one of the major contributors to the world Gross Domestic Product and its exit from the World Trade Organization could mark the end of it altogether, as the benefits accruing to members will suffer a significant blow and other members will also want to opt out of the organization altogether, preferring bilateral talks over multilateral ones.
Another agreement of the WTO that has come under fire is the Trade Related Aspects of Intellectual Property Rights (TRIPS). This agreement offers protection to pharmaceutical companies by enforcing rules regarded patented drugs. The criticism of this agreement stems from the fact that it is literally causing the deaths of many people in poorer countries who are unable to benefit from the trade and imports of the medicines they need due to the inability of their country to acquire them. The patented drugs are expensive and it is difficult for less developed countries, the populations of which are more susceptible to diseases and ailments, to receive the treatment they need.
People of many countries are also critical of the lack of sovereignty that membership of the WTO entails. This is because environmental labelling which signify environmentally friendly manufacturing processes are against the WTO rules because they are considered to be discriminatory against other products. This factor is not only a restriction on the member states to their sovereign authority, but also poses an environmental threat as it discourages the use of environmentally friendly production practices, which may in turn infringe other international obligations too.
Developing countries also argue against the requirement of fair labor practices, which lie at the heart of the conflict between the United States and China, as the United States accuses China of gaining an unfair cost advantage by abusing labor and indulging in unfair labour practices, which not only is an international human rights violation, but also gives an unfair cost advantage to China over the United States. However, developing countries like China argue against this by stating that enforcement of labour standards are a disguised form of protectionism which unfairly restrict the progress of developing countries.
In light of all the arguments discussed above, it appears that the current political and global climate is posing a threat of the relevance of the World Trade Organisation and if the challenges are not urgently and swiftly dealt with, it might threaten the very existence of the World Trade Organisation as a trade institution, a fallback from which will be heavily destructive the progress of globalization in the past few decades, and the world economy as a whole. However, it is clear that the World Trade (Narlikar, Daunton, & Stern, The Oxford Handbook on the World Trade Organization, 2012) Organisation has made many scores of progress in terms of pulling developing countries into the 21st century, and expanding global trade into newer areas of trade, and keeping trade wars at bay.
Therefore, if these issues are made the urgent concern of the members of the World Trade Organisation, and a collective effort is made to rectify the problems and reach amicable solutions, then there are no bounds to how much development can be achieved through the forum presented by the World Trade Organisation, and its relevance in promoting global trade will be unfettered in the long run.
1) R. Howse, “The World Trade Organization 20 Years On: Global Governance by Judiciary” (2016) European Journal of International Law 27(1), p. 11.
2) Appellate Body Reports, Russia – Pigs (EU); US – Anti-Dumping Methodologies (China); US – Tax Incentives; EU – Fatty Alcohols (Indonesia); Indonesia – Import Licensing Regimes.
3) EC and certain member States – Large Civil Aircraft (Article 21.5 – US); US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU).
4) EU – Fatty Alcohols (Indonesia); Indonesia – Import Licensing Regimes; Russia – Commercial Vehicles; US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU); EU – PET (Pakistan); Indonesia – Iron or Steel Products (Chinese Taipei); Brazil – Taxation; US – Tuna II (Mexico) (Article 21.5 – US) / US – Tuna II (Mexico) (Article 21.5 – Mexico II).
5) Korea – Radionuclides (Japan); US – Countervailing Measures (China) (Article 21.5 – China); Korea – Pneumatic Valves (Japan).
6) Australia – Tobacco Plain Packaging.
7) Number of Appellate Body and panel reports circulated under Article 21.5 of the DSU: (a) period 2013 2018: 10 panel reports; 4 AB reports; and (b) period 2008-2012: 4 panel reports; 4 AB reports.
8) Appellate Body Report, US – Section 211 Appropriations Act, para. 189.
9) Appellate Body Report, US – Stainless Steel (Mexico), para. 160.
10) Auboin M. and Borino F. (2017), ” The falling elasticity of global trade to economic activity: Testing the demand channel, improving global trade forecasts”, Voxeu.org, 12 June
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