Do we still need the World Trade Organisation?
Home .International Trade Do we still need the World Trade Organisation?
Do we still need the World Trade Organisation?
Saturday, 03 July 2010 03:18

 

This is a question that many people are asking.  After all, the Doha Development Agenda trade negotiations, launched in 2001, now seem to be as “dead as a dodo”.  Let’s take a good look at this issue.

 

 

 

The World Trade Organisation (WTO) was created in 1995 as a successor of the General Agreement on Tariffs and Trade (GATT), which was created in 1948.  One of its major functions, like that of the GATT, is to conduct multilateral trade negotiations.  All WTO member governments get together to agree mutually to reductions in trade barriers.  Each time they decide to negotiate reductions in trade barriers, it is called a “round” of trade negotiations.  Usually, these rounds take years, and each successive round has been taking longer and longer.

 

Eight rounds of trade negotiations have been successfully completed.  At first these focused on lowering tariffs on mainly manufactured goods.  By the 1990s, it had expanded to cover agriculture, services and intellectual property, and non-tariff barriers.  And when countries agree to reduce trade barriers at the WTO, they “bind” their commitments, by which they promise not to raise a trade barrier in the future.  This provides stability and predictability for business.

 

The list of completed trade rounds is: (i) 1947 -- “Geneva Round”, with 23 countries; (ii) 1949 – “Annecy Round”, 13 countries; (iii) 1951 -- “Torquay Round”, 38 countries; (iv) 1956 -- “Geneva Round” 26 countries; (iv) 1960-61 – “Dillon Round” 26 countries; (v) 1964-67 “Kennedy Round” 62 countries; (vi) “Tokyo Round” 102 countries; and (vii) “Uruguay Round” 123 countries.  One of the major outcomes of the Uruguay Round was the creation of the WTO.  Through these rounds, there has been a very substantial reduction in trade protection which has contributed to the massive growth in prosperity these past 60 years.

 

Why do we need a WTO do reduce barriers to trade when we all know free trade is the best for everyone?

 

In fact, trade protection exists because special interests seek favours from government at the expense of the broader society.  They are able to get away with it because it is too much of a hassle for the silent majority to lobby against the costs of protection, especially since these costs are not always visible and transparent because the "murkiness" of some protection.

 

Trade rounds give national governments ammunition to tackle these vested interests.  They can argue to them that although reductions in protection reduce their special favours, they can gain in return from the greater market openness negotiated from trading partners.  In fact, it is because of this logic that reducing protection in the manufacturing sector has proved easier than in other sectors.

 

But the WTO also does a lot more than multilateral trade negotiations.  What?

 

It is home to quite a number of trade agreements which provide “rules” for the multilateral trading system in areas like trade-related intellectual property rights, trade in services, antidumping, subsidies, product standards, agriculture, textiles and clothing, and much more.

 

It provides a mechanism for settling disputes between trading partners.  It monitors and reviews national trade policies.  And it provides technical assistance and training to developing countries

 

What's happening to the Doha Development Agenda?

 

The Doha Round of trade negotiations was launched in November 2001.  This was of course just after the tragic 9/11 terrorist attacks which inspired WTO trade ministers to put development considerations at the forefront of this Round.  Promoting economic development was seen to be important in terms of tackling the root causes of terrorism.  But it also meant that reaching agreement on liberalization of agricultural trade, a key development issue, would always be difficult for the EU, and countries like the US, Japan and Korea.

 

In point of fact, the Doha trade negotiations cover several areas in addition to agriculture like non-agricultural market access, services, rules (like anti-dumping and counterveiling duties) regional trade agreements, special and differentiated treatment, and aid for trade (including trade facilitation).  While on several occasions conclusion of these trade negotiations seemed possible, we have not managed to get over the finishing line.  And the US government no longer has trade negotiating authority from the US Congress.

 

With the onset of the global financial crisis, trade policy concern has shifted towards resisting the inevitable pressures for protectionism.  Notwithstanding some bubbling of murky protectionism, the international community has been quite successful in resisting protectionism, thanks in part to their commitments under the WTO.

 

There are several reasons why concluding the Doha Round has not been possible.  Following several rounds of trade negotiation under the GATT, we have now entered the most difficult items for trade liberalisation.  Developing countries, which insist that the Doha Round delivers on the development agenda, have diverse priorities, which make negotiating difficult.  The US and other OECD countries are looking for voluntary sector-specific deals in areas like chemicals, electronics and industrial machinery which would result in major tariff reductions in countries like Argentina, Brazil, China, India and South Africa.  And there is disagreement over the special safeguard mechanism for protecting domestic farmers in developing countries from agricultural import surges.

 

As WTO Director-General said, “Today the Doha negotiations are in an impasse. Although 80% of the job is done, negotiators are considering the remaining 20%, staring at each other waiting for the other side to move first. Obviously nobody wants to move first by fear that its moves would be pocketed by others without obtaining anything in return.”

 

Is the WTO doing anything useful today?

 

Yes indeed!

 

First, during this terrible financial crisis, it has been forever reminding us all of the dangers of a return to protectionism.  The commitments made by WTO members, including through bindings, provide some shield against protectionism.  They make it more difficult for national governments to surrender to domestic protectionist pressures.  And the monitoring work of the WTO is keeping pressure on governments.

 

Second, through the Enhanced Integrated Framework and other initiatives, the WTO provides technical assistance to developing countries to help build and strengthen their trade capacities, better integrate trade in their national development strategies and use trade as a tool for growth and poverty reduction.

 

Third, it is very active solving trade problems through its dispute settlement mechanism, like for example the subsidy dispute between Airbus and Boeing.  The WTO found that certain launch aid packages given to Airbus are illegal subsidies under WTO rules.  This affair is likely to keep going on for years.  Airbus will appeal.  And Airbus is also challenging US government support for Boeing through military and research contracts and tax breaks.  But the good thing is, however, that the WTO provides a civilized forum in which this North Atlantic airliner war can take place – even if the ultimate settlement will like occur through negotiation.  And it should also establish some clear rules of the game for large emerging economies which are now becoming more active in the aviation industry.

 

Fourth, the WTO’s reviews of the trade policies of its members also play a very important role.  Its third review of China’s trade policies and practices and their impact on the functioning of the multilateral trading system took place on 31 May and 2 June 2010.  The WTO recognized China's constructive role in resisting protectionist pressures and boosting global demand during the crisis.

 

The WTO did highlight several areas where China needs to improve its trade policy:

 

"• the importance of China continuing to improve the transparency of its trade and investment policies and practices, building on current efforts to review, revise and amend its trade and trade-related laws

 

• the need for the Government to continue reducing regulatory and other barriers to trade, especially customs procedures, technical regulations and standards (including SPS measures) and certification practices, import licensing, and export restrictions (notably taxes and partial VAT rebates)

 

• the benefit to China and to foreign suppliers of faster liberalisation of China's services industries, such as banking, insurance, telecommunications and postal services, including the lifting of foreign investment restrictions and the adoption of more international standards in these industries

 

• the importance of China accelerating its accession to the WTO Agreement on Government Procurement, given the increasingly important role that government procurement will play in China's economy

 

• concern about China's indigenous innovation policies, and their effect in restricting access for foreign products, investors, technology and intellectual property

 

• accelerating progress towards China's goal of comparatively high standards for intellectual property rights by 2020.

 

Concluding comments

 

Although no end is in sight for the Doha Development Agenda, the WTO is very much hard at work and doing a good job.  But it will need to find new ways of working.  Any organization with 153 members (of which 117 are developing countries) will find decision making difficult or nigh impossible, especially when consensus is necessary among all its member countries and when agreements must be ratified by legislatures.

 

References:

World Trade Organisation website – www.wto.org

Chia, S.Y. 2010.  Regional Trade Policy Cooperation and Architecture in East Asia.  ADBI Working Paper 191.  Asian Development Bank Institute.

http://www.adbi.org/working-paper/2010/02/02/3450.regional.trade.policy.east.asia/


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