Theoretical Analysis – The World Trade Organization

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Table of Contents

Background to the study
Aim
Scope
Ways in which WTO has been successful in regulating trade
Challenges faced by WTO
How powerful countries influence the WTO international trade framework
Conclusion
Recommendations
Reference List

Background to the study

Schaffer & Augsti (2009, p.297) defines the World Trade Organization [WTO] as an intergovernmental organization whose central objective is to assist member countries in conducting international trade. The WTO was established in 1995 and its membership is mainly composed of countries that previous belonged to GATT.

The WTO regulates international trade by ensuring free, predictable and smooth flow of trade amongst member countries. The WTO facilitates international trade by encouraging trade liberalization in various industries such as the manufacturing and the services sector (Schaffer & Augsti, 2009, p. 297).

In the process of conducting multi-lateral trade, trade disputes cannot be avoided. For example, the disputes may emanate from failure to understand the trade agreements. According to Perdikis and Read (2007, p.35), trade relations are usually associated with numerous conflicting interests.

Since its inception, the WTO has been successful in executing its roles. However, there are a number of challenges facing the WTO in its operation. Additionally, the operation of the WTO is also hindered by the fact the process of making international trading rules and regulation is influenced by the developed countries.

Aim

This paper evaluates how the major successes of the WTO in attaining in its objectives. The paper also evaluates the challenges faced by the WTO in its operation. The influence of the developed WTO member countries on the rules and regulations made is also analyzed.

Scope

The paper evaluates the two main issues. These include whether the WTO has been successful in attaining its objective and how the developed countries influence the international trade framework.

Ways in which WTO has been successful in regulating trade

The WTO has been very successful in executing its role as explained herein. The WTO has been very effective in formulating and implementing trading rules and regulations. These rules are detailed in the various WTO trade agreements.

According to World Trade Organization (2011, p.3), there are a number of trade agreements which are negotiated and signed by all the member countries. The agreements take into account numerous trading aspects such type of goods and services and intellectual property.

There are three main categories of trade agreements that form the WTO. They include; the General Agreement on Trade in Services (GATS), Trade-Related Aspects of Intellectual Property (TRIPS) and the General Agreement on Tariffs and Trade (GATT).Through GATT, the WTO has been able to eliminate politics from trade.

The trade agreements are basically contracts that bind governments of the member countries to ensure that their trade policies are kept within the agreed boundaries. Another reason that illustrates the WTO success in attaining its role is the effectiveness with which it has been reviewing the trade policies formulated. The WTO has formulated the Trade Policy Review Mechanism.

Through the TPRM, the WTO ensures commitment and adherence to trade rules, promote discipline within the WTO’s multilateral trading system and to ensure transparency of trade practices (Johnson &Turner, 2009, p.87).

In addition to the above, one of the major successes of the WTO in attaining its goals is associated with its effectiveness in settling disputes. In the process of conducting multilateral trade between the member states, disputes may arise. For example, they may arise from failure to follow the WTO trade agreements or violating trade rules (World Trade Organization, 2011, p.60).

To ensure that the multilateral trading system established by the WTO is effective, the WTO has incorporated dispute settlement as one of its pillars. Lack of a dispute settlement mechanism would lender the trading rules ineffective. This arises from the fact that it would be difficult to enforce rules.

The WTO has been very effective in its dispute settlement. One of the ways through which the WTO has attained this is by instituting a Dispute Settlement Body (DSB) referred to as the WTO’s General Council. The DSB is constituted of all the member states and is charged with the responsibility of settling disputes (Schaffer & Augsti, 2009, p.299).

The WTO has also incorporated an effective procedure through which trade disputes amongst the member states are settled. The first stage of dispute resolution entails consultation whereby parties to the dispute are encouraged to talk to resolve the dispute by talking to each other. If this fails, disputing countries are further encouraged to request the WTO director general to act as the mediator.

However, if this fails, the disputing countries may request for a panel to be formed to resolve the dispute. The rulings made by the selected panel may either be endorsed or rejected by all the member states. However, it is possible to make appeals on legal basis (World Trade Organization, 2011, p.55).

In the event of disputes amongst member states, the WTO’s objective is to encourage consultations even if the cases are in the advanced stage of the dispute settlement process. The WTO has also formulated clear dispute settlement rules and a timetable within which trade disputes should be settled. The WTO ensures that the disputes are settled within a short time (Finger & Wilson, 2006, p.45).

Challenges faced by WTO

Despite the above successes, the WTO faces a number of challenges. According to Niskanen (2000, p.459), the WTO is a very fragile institution. One of the major challenges relates to work overload.

Over the past decades, there has been increased concern by the WTO Secretariat and the WTO member states on the technical complexities of matters associated with the basis on which the WTO rules are proposed and negotiated. The overload arises from the fact that the WTO is experiencing an increment in its membership which makes it difficult for the WTO to enforce broader rules.

If the WTO enforces these rules, there is a high probability that some of the member states would pull out of the WTO. According to Niskanen (2000, p.459), most governments are pressuring member states to establish a cartel in order to reduce competition on issues such as antitrust, labor and environmental standards (Niskanen, 2000, p.459).

There has also been deepening dissatisfaction between member states especially the developing countries regarding the adjustment costs and balance of gains between the developing and the developed countries.

The members argue that the WTO’s trading system is aimed at benefiting the developed countries (Niskanen, 2000, p.459).

For example, by signing the Uruguay Round agreement, the developing countries were of the opinion that they would receive equal market-access benefits with the developed countries in the trade of agricultural products such as textile and intellectual property rights. However, according to their view, this is yet to happen.

There are also claims that the WTO’s Appellate Body and the dispute-settlement panels are exceeding their mandate as outlined by the new dispute-settlement rules which were adopted during the Uruguay Round. The WTO’s member states argue that the dispute-settlement panel legislates on the basis of their understanding of the WTO rules (Niskanen, 2000, p.459).

The WTO is also experiencing a challenge arising from the new-dispute settlement system. Some of the member states argue that the system is sovereignty-threatening with regard to social and economic conditions.

The changes to the WTO’s rules were supposed to expand its regulation with regard to non-tariff trade measures. However, the new rules resulted to more disputes. Considering the fact that the WTO establishes its rules on the basis of consensus, the new rules were unclear and subject to different interpretation by the member states.

The WTO is also facing increased pressure from non-governmental organizations. The tension has emanated from the differences of agenda between the NGOs and the WTO. The WTO is aimed at improving trade for example through elimination of trade tariffs.

NGO’s argue that the social and economic benefits associated with the WTO may only be attained at the national level. However, the poor and the minority groups within the developed and the developing countries such as women, minority ethnic groups and children may not be attained.

How powerful countries influence the WTO international trade framework

Over the years, there has been increased concern regarding the WTO’s international trade framework. Most countries perceive that the rules and regulations established by the WTO are unfair. This is due to the fact that most of these rules are influenced by the developed and power countries such as the United States (Action Aid, 2006, p. 4).

There are a number of ways through which the developed countries influence the rules and regulations. For example, the influential countries manipulate other developing WTO member countries to agree with their proposals. The US and EU countries influence international rules and regulation by creating a notion of ‘development package’ for the developing countries.

The resultant effect is that they are able to divide the developing countries groupings such as the G90 and also to cut off the major developing countries. This enables them to succeed in furthering their agendas (Action Aid, 2006, p. 4).

This is one of the reasons why the Cancun negotiations failed. During the negotiations, twenty developing including China, India, Mexico, Thailand and South Africa refused to participate in the negotiation of the Singapore issues which included matters related to trade facilitation, foreign investment, competition and government procurement.

The reason behind the move is that the developed countries were not willing to commit themselves to decrease import barriers associated with agricultural goods and to lower agricultural subsidies. As a result, the developing countries were not getting a fair package of the concession (Singh, n.d, para. 5).

The Cancun meeting which was held between on from 10^th to 14^th September 2003 failed because Draft Text which had been previously issued by the Chairman Mr. Luis Ernesto Derbez had been interfered with. The issued Draft Text was completely biased and was mainly in favor of the European Union and the United State. The Text did not reflect the interests and position of the developing countries.

This was mainly so with regard to agriculture, the Singapore issue and non-agriculture products issues. Most of the developing countries did not support the Cancun meeting due to disappointments (Singh, n.d, para. 5).

A study conducted by Action Aid relating to the 2003 Doha Round talks on global trade revealed that manipulation, threats and deception were the main negotiation tactics which were being used by the developed countries for example the EU member states and the US (Action Aid, 2006, p. 1).

These findings were further emphasized by non-governmental organizations in both the developed and the developing countries. According to these organizations, the core objective of WTO’s negotiations is to promote the creation of a global trading system. However, the negotiations result into exploitation of the poor countries.

However, a number of trade ministers from the developing countries came together in 2006 and rejected the framework that was being advocated by the developing countries during the Cancun meeting.

Through activism, the developing countries are currently able to question policy issues for example issues relating to the economic benefits to be attained by participating in the round. The increased concern relating to establishment of rules and regulations governing international trade by the developing countries have stimulated the need to evaluate WTO’s power dynamics and procedures.

Conclusion

The above report shows that the WTO has been very effective in attaining its objectives. The WTO has attained this by incorporating a number of trade agreements which have successfully contributed towards maintenance of an environment conducive for conducting trade amongst the member states. The trade agreements outline the rules within which international trade should be conducted.

The WTO has also been successful in regulating trade through incorporation of the Trade Policy Review Mechanism. This has enabled the WTO to ensure adherence to the formulated trade rules. In addition to the above, one of the major success of the WTO is its effective in resolving trade disputes amongst the member states. The WTO attains this by instituting an effective dispute resolution procedure.

Despite the above successes, the WTO faces a number of challenges in its effort to attain its goals. One of the major challenges facing the institution relates to work overload. The work overload emanates from an increment in the number of countries ascending to the WTO.

There has also been deepening dissatisfaction between member states especially amongst the developing countries on the basis of the benefits accrued from being members of the WTO.

The WTO’s Appellate Body and the dispute-settlement panels have also been accused of exceeding their mandate as outlined by the new dispute-settlement rules. Additionally, the WTO is also facing increased pressure from non-governmental organizations.

The framework instituted by the WTO to govern international trade is influenced by the developed countries through political and economic means. This is illustrated by the failure of the Cancun Ministerial meeting. The developing countries argue that they do not access the benefit that they should be and that the developed countries who are members of the WTO only aim at furthering their agenda.

Recommendations

In order for the WTO to be effective in attaining its objective, it is important for the following be considered.

The organization should conduct a review of its operational procedures so as to identify possible areas of weakness. This will significantly enhance the organization’s effectiveness in making the necessary adjustments.
The WTO should evaluate its dispute resolution mechanism from time to time so as to assess its effectiveness. This is due to the fact that failure to effectively resolve conflicts amongst member states may affect WTO’s operations.
The less developed countries should ensure that the framework developed by the WTO does not discriminate them. However, the framework should contribute towards attainment of benefits in a similar manner. These countries can achieve this by resisting any form of influence for example on the basis of economic benefits or threats by the developed countries.

Reference List

Action Aid. (2006). The Doha deception round. Web.

Finger, J. & Wilson, J. (2006). Implementing a WTO agreement on trade facilitation. New York: World Bank Publication.

Johnson, D. & Turner, C. (2009). International business: Themes and issues in the modern global economy. New York: Taylor & Francis.

Niskanen, W. (2000). Building on the WTO’s success. Web.

Perdikis, N. & Read, R. (2007). The WTO and the regulation of international trade: A recent trade dispute between the European Union and the United Statess. Cheltenham: Edward Elgar.

Schaffer, R. & Augsti, F. (2009). International business law and its environment. Mason, OH: South-Western Cengage Learning.

Singh, K. (n.d). Cancun conundrum. Web.

World Trade Organization. (2011). Understand the WTO. Geneva: WTO.

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