The World Trade Organisation - Essay Example

The World Trade Organisation - Uncovering the Truth behind the Accusation that the WTO is Benefiting Richer Nations to the Detriment of the PoorerOnes - Student’s Name Instructor’s Name Subject / Course Date Total Number of Words: 1,986 Table of Contents I. Introduction ………………………………………………………………. 3 II. Thesis Statement ………………………………………………………… 3 III. Advantages and Disadvantages of Joining the WTO ………………... 4 a. Advantages ………………………………………………………. 4 a.1 Increases the Overall Economic Activities in Developing Countries …………………………………. 4 a.2 Widening the Business Opportunity by Widening the Available Target Market ……………………………….. 5 a.3 Narrows Down the Poverty Rate between the Developed and Developing Countries ………………. 5 b. Disadvantages …………………………………………………... 6 b.1 Increased Poverty Rate and Crime Rate in Developed and Developing Country ………………… 6 IV. Discussion ………………………………………………………………... 7 V. Recommendations Solutions and Suggestions ………………………. 8 VI. Conclusion ………………………………………………………………… 9 Appendix I – GDP Trends of Developing Countries, Years 1975 – 2002 . 11 – 15 Appendix II – Inflation Rate in Developing Countries ……………………... 15 – 18 Appendix III – China’s Rising Export Exposure ……………………………… 19 References ………………………………………………………………………. 20 – 21 Introduction Global trading, as an end-result of globalization, is ruling the world economy today. Established back in 1995, the World Trade Organization (WTO) deals with the “legal trading rules and regulations between two nations regardless of whether it is a global or near-global level.” (World Trade Organization, 2008) As part of the General Agreement on Tariffs and Trade (GATT) negotiations, WTO has been officially given the responsibility to monitor the national trading policies the occurs around the world aside from the handling of trade disputes and the enforcement of the GATT agreement which considers lowering down the tariff rates and other possible physical and non-physical barriers that could significantly affect the free trading in the world market. (The Columbia Encyclopedia. 6th Ed., 2004) For this reason, WTO is considered to be the backbone of globalization. Considering the on-going trading between developed and developing countries, WTO is often accused of benefiting richer nations to the detriment of poorer ones. For this study, the advantages and disadvantages of joining the WTO will be discussed. Based on the evidences gathered during the research process, critical analysis will be applied in the study. Prior to conclusion, recommended ways in which the WTO could be transformed positively in terms of being able to help developing nations will be tackled. For the conclusion part, whether or not the WTO is benefiting richer nations to the detriment of the poorer ones will be answered as part of the conclusion. Thesis Statement “The truth behind the accusation that the WTO is benefiting richer nations to the detriment of the poorer ones” Advantages and Disadvantages of Joining the WTO Advantages Increases the Overall Economic Activities in Developing Countries WTO offers a better business opportunity on the part of developing countries. A good example is the case of China which signed the joining contract with WTO back in 2001. (Klapper, 2008; Mastel, 2001) Prior to China’s active participation in the world market, the country was considered one of the most underdeveloped countries due to lack of infrastructure, technology, and technical skills that could enable them to compete with developed countries. (Chow, 2006) Because of the huge market in China and cheaper labor costs, developed countries like the U.S., Canada and Europe among others began establishing their manufacturing companies in China. (Francis, 2008) For this reason, Chinese economy started to transform from being under developed into one of the fastest developing country in the world. Increased in economic activites in China can be noted with the significantly increasing trend its gross domestic product (GDP) back in 1980, 1990, 2000, and 2002 with 410, 1,310, 3,870, and 4,580 PPP-dolar respectively. (UN Common Database / World Bank, 2008) One of the reasons that made China enter WTO is to take an important decision-making together with the U.S., European Union, Brazil, India, Japan, and Australia with the purpose of promoting and strengthening the trade market and economic activities in Asian countries. (Klapper, 2008; Asian Development Bank, 2002) Similar to China, the GDP of other developing countries like the Brazil, India, Indonesia, Mexico, Philippines, Poland, South Africa, and South Korea shows a positively increasing trend. (UN Common Database / World Bank, 2008) (See Appendix I – GDP Trends of Developing Countries, Years 1975 – 2002 on pages 11 – 15) Widening the Business Opportunity by Widening the Available Target Market As a positive effect of joining WTO, China and other developing countries are not only serving the Asian market but also the Western market among others. The increased in the market of a developing country can be noted by taking a glance at the value of their export performance. (Brodsky & Sampson, 1980) In line with this matter, the International Trade Statistics shows the total exports of Brazil, China, India, Indonesia, Mexico, Philippines, Poland, South Africa, and South Korea between the years in 2001 and 2005 are constantly increasing over the years. (International Trade Centre, 2008) With a total export increase of as much as 1,600 percent from China to the United States alone (Zakaria, 2005), Chinese’s export exposure has gone up from close to 20% of its GDP in 1997 to as much as 37% in 2005. (See Appendix III – China’s Rising Export Exposure on page 19) Likewise, the total export value of India has reached US$79,593 million in 2005 as compared to U$36,822 million back in 2000. (Indian Industry, 2008) Narrows Down the Wage Gap in Developing Countries Based on the study that was conducted by Wood (1997), global trading between the East Asia and the Western countries narrows down the wage gap between the skilled and unskilled workers that are available in developing countries because of the availability of technology. As a result, there is a much lesser wage inequality as compared with the times wherein global trading has not been practiced. Prior to globalization, small- and medium-businesses in developing countries were badly affected by the 1997 Asian-crisis. For this reason, a large number of existing businesses were forced to close down. This theory is one good example that shows the narrowing down of wage gap in developed countries. In reality, it is the less skilled workers in developed countries who suffer more from globalization since large multi-national companies were forced to shift some of its operations in the Asian countries where the costs of labour, electricity, and transportation are relatively cheaper as compared with doing its business operations in a developed country. (Burtless, 1996) Disadvantages Increased Poverty Rate and Crime Rate in Developed and Developing Country Since not all individuals in developing country are able to qualify in the search for a good paying job, these people end up engaging themselves in criminal acts in order to provide their family with food to eat aside from the other daily necessities in life. In relation to the continuously increasing number of crime around the world, Mehanna (2004) determined the close relationship between economic development, poverty, crime rate, and income inequality using a 4-variable vector autoregressive (VAR) model and a Granger Test. The test results show that there is a direct relationship between poverty, economic development, and crime rate such that when poverty rate is high caused by poor economic development, crime rate also increases. Discussion The concept of globalization can be beneficial on part of the businessmen in developed countries since these individuals are able to take advantage of being able to acquire products and services they need at a much lesser costs. As a result, top ten percent of the highest income earners in the United States and other developed countries are easily able to double their annual income and profitability of their businesses. (Creative Destruction, 2006) Even though there has a considerable increase in the gross domestic product of developing countries, these nations are subject to the consequences of having a much higher inflation rate in the long-run. The problem with a high inflation rate is very much associated with the higher costs of basic commodities and services available in developing countries. A higher GDP does not necessarily mean that all people in developing countries are able to feel the benefit of the country’s economic growth since most people in developing countries have no other choices but to work hard in exchange with a low salary. For this reason, low-paid individuals are the ones that suffer most with the higher inflation. (See Appendix II – Inflation Rate in Developing Countries on pages 15 – 18) Many people consider globalization or the world trade organization as the root cause of poverty. Basically, those people who would agree that the existence of WTO and globalization is the root cause of poverty that millions of people are experiencing today are mostly those individuals who are not capable of keeping themselves competitive and equipped with necessary skills required in a globalized market. It is wrong to consider WTO and globalization as the main reason of poverty since there are some individuals who are able to take advantage of such major economic change. For example: Some of the highly competitive individuals who were born from developing countries have the option to grab the opportunity to compete with the local working group in a developed country. In return, these individuals are able to take advantage of the huge differences in the monetary exchange rate. In the end, these individuals has the option to take the money they earn from developed countries back to developing country where they could enjoy the fruit of their own labour. It is also not right to believe that only developing countries are not experiencing the challenges of globalization. In fact, it is the developed countries that are greatly affected by WTO since most of the available jobs these countries used to have have already been transferred to developing countries. Because of the high unemployment rate in some developing countries such as in the case of the United States, most of its people are saving money for emergency use. This is one of the main factors that is causing the slow economic growth in the country. Recommendations Solutions and Suggestions Globalization and WTO is already a huge part in the market today. Therefore, it is necessary on the part of the government both in developed and developing countries to strengthen the educational support they extend to children who belongs to the low-income families. This strategy is the best way to lessen the poverty rate caused by lack of employment. Eventually, a good education will enable the youth to be able to compete and face the challenges associated with globalization. Solution such as a government subsidy for the poor is not really the answer to the socio-economic problems that has resulted from globalization since this kind of solution offers only a short-term remedy. Financial subsidies that came from the government could provide the poor families with food to eat. However, this will only last for a day or two. Since the main problem which is the lack of education is not solved, poverty issues will still remain in most of developing countries. Conclusion The existence of globalization and WTO had resulted to a significant change in the world market in the sense that businesses are facing more challenges because of the need to compete not only within the domestic competitors but also those in the global market. Considering the high inflation rate in developing countries, businesses need to keep their operational cost as low as possible possibly by making their workers self-directed aside from creating an organizational culture than acknowledges multi-tasking. It is not right to believe that WTO is only benefiting the richer nations more than the poorer ones since there are more available jobs in developing countries today since business people from developed countries have already shifted their companies in developing countries. In fact, a large number of skilled and unskilled workers in developed countries have had experienced being lay-off from work due to the fact that companies in developed countries need to cut down its operational cost in order to survive the challenges associated with globalization. The only reason why there are still a huge population in developing countries that are not able to find a good employment despite the available jobs is because of their lack of necessary skill which is required for the job. For example: There are a lot of call centre job opportunities in developing countries such as the Philippines, India, and Indonesia. However, not every person is qualified for the job since this type of profession requires fluency in speaking the English language. Therefore, there is a strong need to educate the people with regards to the positive and negative impact of globalization. By knowing the best way to deal with the major economic changes that is happening around the world, people can still reduce the rate of poverty despite the challenges that globalization has caused. As a result, both developed and developing countries could lessen the annual crime rates that may occur in the country. *** End *** Appendix I – GDP Trends of Developing Countries, Years 1975 – 2002 Brazil Source: UN Common Database / World Bank, 2008 China Source: UN Common Database / World Bank, 2008 India Source: UN Common Database / World Bank, 2008 Indonesia Source: UN Common Database / World Bank, 2008 Mexico Source: UN Common Database / World Bank, 2008 Philippines Source: UN Common Database / World Bank, 2008 Poland Source: UN Common Database / World Bank, 2008 South Africa Source: UN Common Database / World Bank, 2008 South Korea Source: UN Common Database / World Bank, 2008 Appendix II – Inflation Rate in Developing Countries Brazil Source: UN Common Database / World Bank, 2008 China Source: UN Common Database / World Bank, 2008 Indonesia Source: UN Common Database / World Bank, 2008 Mexico Source: UN Common Database / World Bank, 2008 Philippines Source: UN Common Database / World Bank, 2008 South Africa Source: UN Common Database / World Bank, 2008 South Korea Source: UN Common Database / World Bank, 2008 Appendix III – China’s Rising Export Exposure Source: CEIC, UBS Estimates, 2008 References: Asian Development Bank. (2002, May 9). Retrieved July 24, 2008, from ADB, WTO Agree to Join Efforts to Promote Trade in Asia: http://www.adb.org/Documents/News/2002/nr2002076.asp Brodsky, D. A., & Sampson, G. P. (1980). Retained value and the export performance of developing countries. Journal of Development Studies , 17(1):32 - 47. Burtless, G. (1996). The Brookings Institution. Retrieved July 25, 2008, from Worsening American Income: Inequality: Is world trade to blame?: http://www.brookings.edu/articles/1996/spring_poverty_burtless.aspx Chow, G. C. (2006). Globalization and Chinas Economic Development. Pacific Economic Review , 11(3):271 - 285. Creative Destruction. (2006, October 17). Retrieved July 25, 2008, from Income Inequality: http://gecon.blogspot.com/2006/10/income-inequality.html Francis, C. (2008). Ezine@articles. Retrieved July 24, 2008, from American Markets Before Globalization: http://ezinearticles.com/?American-Markets-Before-Globalization&id=1053458 Indian Industry. (2008). Retrieved July 25, 2008, from Trade Statistics: http://www.indianindustry.com/trade-information/trade-statistics.html International Trade Centre. (2008). Retrieved July 25, 2008, from International Trade Statistics 2001 - 2005: http://www.intracen.org/tradstat/sitc3-3d/er076.htm Klapper, B. S. (2008, July 24). elpasotimes.com. Retrieved July 24, 2008, from China now part of World Trade Organization trade negotiation group: http://www.elpasotimes.com/ci_9974346?source=rss Mastel, G. (2001). China, Taiwan, and the World Trade Organization. The Washington Quarterly , 24(3):45 - 56. Mehanna, R.-A. (2004). Poverty and economic development: not as direct as it may seem . Journal of Socio-Economics , 33(2):217 - 228. The Columbia Encyclopedia, Sixth Edition . (2008). Retrieved July 24, 2008, from United States Supreme Court: United States Supreme Court highest court of the United States, established by Article 3 of the Constitution of the United States. : http://www.encyclopedia.com/doc/1E1-SupremeC.html UN Common Database / World Bank. (2008). Retrieved July 25, 2008, from China: GDP per capita: http://globalis.gvu.unu.edu/indicator_detail.cfm?IndicatorID=19&Country=CN Wood, A. (1997). Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom. World Bank Economic Review , 11(1):33 - 57. World Trade Organization. (2008). Retrieved July 24, 2008, from What is the World Trade Organization?: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm Zakaria, F. (2005, May 9). Newsweek. Retrieved July 25, 2008, from Does the Future Belong to China?: A new power is emerging in the East. How America should handle unprecedented new challenges, threats‹and opportunities: http://www.fareedzakaria.com/articles/newsweek/050905.html Read More