World Trade Organization’s Creation and Challenges

Introduction

Some nations around the world may create policies that impair other countries from trading competitively in various markets. This state of affairs introduces a trade imbalance that directly hinders development in the affected nations if appropriate rules and checks in the form of trading pacts are not introduced in time to govern trading relationships. Seay’s lecture notes titled “The Origins of Political Economy” present the European Economic Community (EEC) as among the pioneer bodies that played a key role in establishing WTO’s trade policies since its creation in 1958.¹ Other tariffs emerged following the creation of the North American Free Trade Agreement (NAFTA) in line with the demands of many economists such as Joe Roberson, a renowned British pioneer economist. Consequently, from the lecture notes by Seay, it can be concluded that NAFTA’s trading discrimination benefited Britain more compared to any other nation.² The World Trade Organization (WTO) emerged as the game-changer in 1995 to nations that faced such trading favoritism. Tim Harford’s book “The Undercover Economist” will form the foundation of the current study, which discusses the WTO with a particular emphasis on its purpose and creation. As the paper argues, despite the WTO’s present challenges, the agency has significantly attained its core function of promoting balance in international trade.

The Creation and Purpose of the WTO

The WTO, which has its headquarters in Geneva, Switzerland, facilitates trade openings among different nations. According to Matsushita, the organization was created to offer a forum in which governments could assemble to negotiate and develop pacts addressing inter-nation trade.³ For example, according to Anderson, the provisions of the General Agreements in Tariffs and Trade (GATT) developed from 1984 to 1986 following the Uruguayan negotiations, explain the role of the WTO in resolving problems in trading among its members.⁴ For example, the 2001 Doha Development Agenda paid an incredible effort in resolving the challenges of trade constraints in global commerce.

The WTO, which took over from the GATT in 1995, makes its decision through a ministerial conference. Matsushita asserts that the organization has a secretariat constituting not less than 600 staff members who are charged with implementing the organization’s daily activities.⁵ The whole membership makes critical decisions through ministers who meet after two years. It also has delegates and ambassadors who assemble regularly in Geneva. The organization holds various periodic conferences aimed at addressing international trade issues among member states. When WWII was concluded in 1945, nations encountered a unique opportunity to boost their productivity through international trade, regardless of the scarcity of the available resources. In his book, Harford presents scarcity as an important factor that shapes market prices.⁶

According to Chen, Jackson, Kim, and Resiandini, where scarcity occurs within domestic markets, nations can help to regulate prices by seeking supplies from other countries that have excess supplies of similar or substitute commodities.⁷ This situation explains the critical rationale that was adopted when developing fair trade agreements among nations after the Second World War through bodies such as the GATT. The entity’s main objective was to negotiate and bargain for reducing various tariffs that prevented some nations from engaging proactively in global trade. The purpose of the GATT emerged following challenges that ensued concerning the clause of the Most Favored Nations (MFN). The clause gave some nations specific trading rights while denying others an opportunity to participate equally in international trade. In line with the lecture notes by Seay concerning the need for a society that could allow individuals to exercise freedom, GATT was meant to eliminate such selective discrimination.⁸

The WTO expanded the scope of the GATT that primarily focused on promoting international trading in goods. The WTO’s mandate has included intellectual property and services. Its pacts are binding to all member states. Hence, nations can only develop and maintain their trading policies within limits controlled by the agreements. Overall, according to a study by Cao and Flach, the WTO has helped to streamline trading activities by advocating for non-partisan production, importation, and exportation of products and services among nations.⁹

The WTO’s Role of Balancing Global Trade

The WTO has proactively taken steps that have made it live to its core mandate of achieving a balanced global trade among its member states. For instance, it has eliminated various trade-unfriendly policies to enhance global trade through its dispute settlement mechanisms. Specifically, since its inception, it has resolved about 300 trade disputes.¹⁰ Besides, the WTO has promoted global living standards following its policies that have enabled businesses around the world to thrive. This goal has been achieved via the agency’s successful establishment of free-riding zones, free trading areas, and the development of customs union. In line with the lecture notes by Seay, the establishment of proper transport networks, which was witnessed in the 1930s in Britain and its trading partners facilitated trade in the respective regions.¹¹

Hence, the WTO’s achievements have been substantive since they have been marked by the prevailing global accessibility of goods to the public in different nations at lower prices. Such reasonable prices are founded on Harford’s argument that scarcity influences the amount that suppliers charge for their products.¹² In other words, a nation’s comparative advantage provides an avenue for a lower production cost, thanks to its utilization of economies of scale. Indeed, in free markets, Harford informs that players set the prices of their products subject to the prevailing market rates.¹³ Consequently, with the WTO’s elimination of trade barriers, cheap products in foreign nations have successfully reached all liberal markets at lower prices, thus forcing local producers to lower their prices.

The WTO has excellently served the principal purpose of providing a platform for intergovernmental negotiation in matters of international trade. Besides eliminating impediments to global commerce, the agency has guaranteed the existence and protection of rules that guide the administration of international trade.¹⁴ Indeed, the 2001 ministerial conference held in Doha advocated for the need to incorporate agriculture as a key component in the Doha development agenda. Such a move would lower the cost of living of the public in the WTO member states. In fact, from Seay’s lecture notes, Britain turned out to be a major beneficiary of the agreements made in this conference.¹⁵In 1930, the country engaged in a plan to build aircraft to ease its movement of goods, thanks to the efforts made by John Maynard Keynes.

Challenges that the WTO Faces Presently

The Doha Development Agenda (DDA) of 2001 was meant to address various challenges that the WTO continues to face, hence questioning the capacity of the organization to achieve its principal function of ensuring fair trade deals among member nations. For example, amid WTO’s increased emphasis on market liberalization, nations such as the EU and the US have resorted to policy frameworks that seek to protect their local industries from the influx of foreign-produced products and services. In response, some WTO member states have embarked on creating free trading areas that increase their capacity to penetrate new markets, especially within Asia-pacific areas. Such a move exerts pressure on developing nations because of their weakened bargaining power. Consequently, mercantilism becomes even weaker. The discourse of reciprocity as ingrained in commercial pacts that have been entered between developed nations and emerging economies suffers.

According to a study by Welch, the WTO’s effort to establish a multilateral system of trade has attracted anti-WTO protests.¹⁶ Opponents suggest that national regulations that seek to have policy frameworks implemented to protect local industries are interpreted as barriers to the WTO’s facilitation of free trade. The organization also faces the challenge of protecting intellectual property. For example, while developed nations can manufacture HIV/AIDS medicines at a patented cost, WTO member nations in sub-Saharan Africa and South America are poor to the extent that they cannot purchase them at such patented costs. Hence, if they must buy the medicines or manufacture them, they can only accomplish this goal under the generic label, which is more affordable. However, such a move violates the WTO’s intellectual property rights pacts (TRIPS), a situation that subjects the respective member countries to potential trading sanctions.

Upon succeeding GATT, the WTO now plays an incredible role in ensuring that capital, services, and goods produced within a nation find their way into foreign markets through international trade channels. In many nations, trade contributes significantly to its Gross Domestic Product (GDP). Amid its historical existence, international trade only gained far-fetched importance following the liberalization of many markets across the world. Consequently, through the fruitful efforts of the WTO, member nations have developed various policy frameworks that have facilitated socio-economic growth through the witnessed increased participation in international trade.

The Doha Round and its Effectiveness in Solving Important Global Economic Issues

In 2001, WTO-member countries assembled in Doha, Qatar, ready for the Doha Developmental Agenda (DDA) negotiations. At the top of the agenda was the need to address issues such as the inclusion of agriculture and services as part of the trading agreement. Most developing nations’ economic prosperity then depended mostly on agriculture. The Doha Round was a significant milestone for ensuring that developing economies incorporated agriculture into multi-state trading systems. Participants were assured that the agreement would foster food security and rural growth, especially among emerging economies. However, despite setting a timetable for attaining the Doha Round’s anticipated agreements, the paper provides sufficient evidence in line with Tim Harford’s arguments in his book “The Undercover Economist” confirming that indeed little has been achieved due to the massive failures witnessed in implementing the pacts. This situation has been marked by differences among various states and unions such as America and the European Union, just to name a few. In other words, this paper holds the position that the agreements have been fruitless in solving important global economic issues.

The Objectives of the Doha Round

The ministers of the WTO trading partners met in Doha for their fourth ministerial conference in November 2001. They collectively supported the need for engaging in a fresh round talk where they would primarily table various negotiations on the matter of multilateral trading system. Top of the agenda was the issue of agriculture. According to the World Trade Organization, even before the Doha Round was convened, the debate on agriculture was already under consideration by the WTO member states.¹⁷ The US was interested in the talks on agriculture since they were projected to yield a mechanism for establishing a tradeoff, which it thought was crucial in enhancing trade liberalization, hence creating a possibility of rejuvenating the global economy that had encountered challenges such as terrorism and recession. Some attendees believed that tariff exemptions would open up markets. They held that trade liberalization policies would create efficient trade among member states. Nevertheless, such an argument opened WTO trading rules such as nondiscrimination and jeopardy policies, which are among the causes behind the failure of the Doha Round agreements.

Differences in the Area of Agriculture and Services

The issue of agriculture attracted many differences among the attendees of the Doha Round. According to Ismail, some of them advocated for its sidelining arguing that it had been incorporated in GATT and various other preferential trading pacts.¹⁸ However, developing nations felt offended. They argued that its sidelining was a misplaced idea, especially considering that their economies relied heavily on communal agriculture. The nations highlighted their priority for enhancing the accessibility of agricultural markets in developed markets through the Doha Round negotiations. Such access would incredibly benefit upcoming economies. For example, Harford informs that some customers in developed nations can pay higher prices for commodities, especially agricultural goods such as coffee if they are informed about the extra amount goes into supporting poor farmers in developing countries.¹⁹ The Doha Round agreed to implement the service agenda via a general agreement on trade and services, which governed the supply of services among various WTO members.

Tariffs affect the capacity of nations to participate in international trade. This realization propelled the immense push through Non-Agricultural Market Access (NAMA) to lower tariffs coupled with various enumerated charges that were levied on exports and imports. The objective was to realize the concerns of individual member states on their capacity to trade internationally. This agenda was scheduled to be executed through the provision of flexible monetary demands for parties, including their developmental and strategic trading needs.²⁰ The concern was an attempt to resolve the stalemate that some parties considered inappropriate. For example, before convening the ministerial conference in Uruguay, only developed nations benefited from the lowering of tariffs. According to the lecture notes by Seay, Britain benefited significantly from this move.²¹ Indeed, while the focus of the Doha Round through NAMA was to enhance trade, some member states resorted to engineering ways of protecting themselves from the pacts. This situation attracted the need for transcending above viewing tariffs as the only principal trade policy regulation mechanism, especially by nations that were seeking to protect their domestic markets.

The Doha Round gave rise to three key developmental issues. Firstly, the special and differential treatment clause influenced developing nations. The Doha Round emphasized the need to strengthen the clause, guarantee precision, make it operational, and increase effectiveness. The clause suggested an agenda of forming bilateral trading pacts between the developed and emerging economies. The objective was to increase trading opportunities for developing nations. Under the clause, the WTO has the responsibility of protecting the interest of developing nations. It also provides support aimed at ensuring that developing WTO countries establish an infrastructure that can enable them to address disputes, execute the work of the WTO and/or implement different technical standards. According to the lecture notes by Seay, in 1930, Britain steered the move to upgrade its infrastructure by building aircraft.²²

The strategy enhanced its economy to the current level of being listed as an industrialized zone. Secondly, the TRIPS agreement led to the incorporation of the IP law in the international trading systems. The pact was negotiated during the conclusion of the Uruguay Round of GATT in1994. It arose following developing nations’ concerns about the narrow approach deployed when interpreting TRIPS. According to Timmermann and van den Belt, the Doha Declaration clarified the scope insisting that the provision should be read in the context of promoting medicine accessibility among all players.²³ Under the pact, the WTO members should provide various copyrights for protecting producers’ contents. Thirdly, the accessibility of HIV/AIDS drugs in sub-Saharan Africa formed one of the main issues under controversy in the Doha Round declaration. The regulation of patents played an immense role in increasing the cost of essential drugs across Africa. Nevertheless, this challenge did not provoke any alteration of TRIPS rules. However, in 2001, the declaration provided a room for TRIPS to permit states to take active interventions in health crises, although developed nations began to modify the pronouncement in their favor soon after Doha Round.

The Level of Ineffectiveness of the Doha Round in Solving Global Economic Issues

In the context of the agricultural agenda, developing nations could not secure a deal that could favor them. To effectively access rich markets in the developed world, they would have to engage in expensive, yet counterproductive commitments. For instance, TRIPS, sanitary, and phytosanitary pacts were costly affairs that mainly guaranteed the advancement of markets to various developed nations, as opposed to expanding poor nations’ trading capacity.²⁴ The service agenda was particularly ineffective in solving global economic issues. The clause on the general agreement on service trade had massive negative implications to various providers who had earlier benefited extraordinarily because of monopolies in their respective areas of service provision. For example, in the telecommunication industry, the clause created the possibility of increasing cross-border privatization due to the direct foreign investment liberalization that began to prevail around the globe. Negotiating for services, as opposed to agriculture, evidenced a significant backdrop. Agriculture was interpreted as playing an important role in propelling reforms. Services were considered to play only complementary functions. This misperception impaired independent intergovernmental bargaining efforts for various unilateral potential markets.

The Doha Round advocated for bilateral trading relationships between developed and developing nations. This move failed to solve the prevailing global economic issues that affected members. For example, Japan and the USA suffered losses arising from the witnessed negative effects on their GDP. The trading agreement between a developing and developed nation had the net effect of disadvantaging the industrialized country due to non-compliance by the struggling economy with the laid-down treaty. The challenges became pronounced to the extent that players in the import sector attempted to seek competition protection from their governments. Consequently, an incredible delay occurred in the liberalization of trading policies. The situation jeopardized WTO set rules.²⁵ TRIPS failed to safeguard intellectual property rights in the public health sector. Hence, TRIPS pacts could not achieve their anticipated outcomes in developing nations.

Conclusion

The WTO member states met in Doha in November 2001 for its fourth ministerial conference. The Doha Round was determined to address critical issues affecting the development of emerging nations. Key agenda items included agriculture, the diversion of trade, the issue of tariff reduction, and the improvement of terms of service. The conference led to a declaration of various important milestones for improving the international trade system. Nevertheless, some member countries demonstrated interests, especially in tariff barriers, hence complicating the capacity of the Doha Round to effectively resolve global economic issues among member countries, especially those in sub-Saharan Africa and South America.

Bibliography

Anderson, Kym. “Contributions of the GATT/WTO to Global Economic Welfare: Empirical Evidence.” Journal of Economic Surveys 30, no. 1 (2016): 56-92.

Cao, Vinh, and Lisandra Flach. “The Effect of GATT/WTO on Export and Import Price Volatility.” World Economy 38, no. 12 (2015): 2049-2079.

Chen, Shu-Ling, John Jackson, Hyeongwoo Kim, and Pramesti Resiandini. “What Drives Commodity Prices?” American Journal of Agricultural Economics, 96, no. 5 (2014): 1455-1468.

Harford, Tim. The Undercover Economist. New York: Oxford University Press, 2012.

Ismail, Faizel. “Is the Doha Round Dead? What is the Way Forward? World Economics, 13, no. 3 (2012): 143-169.

Matsushita, Mitsuo. The World Trade Organization: Law, Practice, and Policy. New York: Oxford University Press, 2015.

Timmermann, Cristian, and Henk van den Belt. “Intellectual Property and Global Health: From Corporate Social Responsibility to the Access to Knowledge Movement.” Liverpool Law Review 34, no.1 (2013): 47-73.

World Trade Organization. Non-Agricultural Market Access (NAMA). Web.

W. Seay, “The Origins of Political Economy”, Econ 101: Virginia Commonwealth University, February 3, 2017.

Welch, Matt. “Meet the Free Traders who don’t like Global Trade Agreements: Trump’s Unusual Fusionism puts Anti-WTO Libertarians on the Spot.” Reason Magazine, 48, no. 10 (2017): 12-12.

Footnotes

1. W. Seay, “The Origins of Political Economy”, Econ 101: Virginia Commonwealth University. 2017.
2. Ibid.
3. Mitsuo Matsushita, The World Trade Organization: Law, Practice, and Policy (New York: Oxford University Press, 2015), 9.
4. Kym Anderson, “Contributions of the GATT/WTO to Global Economic Welfare: Empirical Evidence,” Journal of Economic Surveys 30, no. 1 (2016): 57.
5. Matsushita, The World Trade Organization, 25.
6. Tim Harford, The Undercover Economist (New York: Oxford University Press, 2012), 12.
7. Shu-Ling Chen et al., “What Drives Commodity Prices?” American Journal of Agricultural Economics, 96, no. 5 (2014): 1457.
8. W. Seay, “The Origins of Political Economy.”
9. Vinh Cao and Lisandra Flach, “The Effect of GATT/WTO on Export and Import Price Volatility,” World Economy 38, no. 12 (2015): 2050.
10. Ibid., 2051.
11. W. Seay, “The Origins of Political Economy.”
12. Harford, The Undercover Economist, 15.
13. Ibid., 23.
14. Matsushita, The World Trade Organization, 29.
15. W. Seay, “The Origins of Political Economy.”
16. Matt Welch, “Meet the Free Traders who don’t like Global Trade Agreements: Trump’s Unusual Fusionism Puts Anti-WTO Libertarians on the Spot,” Reason Magazine, 48, no. 10 (2017): 12.
17. World Trade Organization, Non-Agricultural Market Access (NAMA), Web.
18. Faizel Ismail, “Is the Doha Round Dead? What is the Way Forward? World Economics, 13, no. 3 (2012): 144.
19. Harford, The Undercover Economist, 16.
20. Ismail, “Is the Doha Round Dead?” 146.
21. W. Seay, “The Origins of Political Economy.”
22. Ibid.
23. Cristian Timmermann and Henk van den Belt, “Intellectual Property and Global Health: From Corporate Social Responsibility to the Access to Knowledge Movement,” Liverpool Law Review 34, no.1 (2013): 48.
24. World Trade Organization, Non-Agricultural Market Access (NAMA).
25. Matsushita, The World Trade Organization, 22.