Assessment of the World Trade Organization in Dealing with International Trade - Coursework Example

Summarise the fundamental arguments critics levy (assess, impose) at the WTO. What is your own assessment of the WTO in dealing with international trade and investment regulations? Use other academic literatures and real world examples to justify your position. Criticism of the WTO Resistance to the regime of the Multilateral trading system rose to international prominence during the Seattle ministerial meeting in 1999 when internal and external protests brought the third Ministerial meeting to a premature closure. The internal protests, initiated by developing country Members, emanated from an argument that both the content, which continued to condone protectionist policies in some areas, and the “single-undertaking” nature of the Uruguay Round of Agreements had led to uneven distribution of the benefits of trade liberalisation, creating a development deficit in the trading regime (Gill 2000:123; Cho 2004:223). Furthermore, this was an issue which the more developed Members, interested in keeping to the status quo, were unwilling to address (World Bank 2001:60) and thus limited the voice of the developing country delegates. The external protests during the third WTO Ministerial meeting in Seattle was arguably unrelated to the internal discord. The demonstrators were concerned with the way in which international trade law was beginning to intrude upon domestic issues. Recent decisions by the WTO dispute settlement body1 had convinced environmental NGOs that the WTO promoted the economic objectives of multinational cooperations and did not give enough consideration to the social issues involved in trade. Labour NGOs were concerned that multilateral trade rules did not offer any protection to workers. Discontent at the WTO’s prioritisation of economic globalisation, seemingly to the detriment of social and human rights issues, put the organisation in a position of defending its own existence by the time of its 10th Anniversary. The Sutherland Report2 sought to not only defend the international trade regime led form of globalisation, but also the isolationist approach of the WTO, as a self-contained regime whose rights and obligations were not to be impacted upon by other multilateral regimes (Pauwelyn 2005:334). This lack of coherence of the WTO regime with other international bodies was seen in many of the findings of the WTOs dispute settlement regime and the regime’s strong judicial process, compared to its slowly moving legislative mechanism, was a source of further criticism. In an unwelcome change from the days of the GATT, trade law was replacing trade politics. (Pauwelyn 2005) The slow pace in which the trade liberalising agenda is in the WTO has propelled some of its members to form preferential trade agreements (PTAs) among themselves, a statement against the non-discriminatory principles of the WTO3. However, the WTO’s mechanism of oversight of regional trade agreements, to ensure their compatibility with the multilateral trade regime, continued to be ineffective, and the proliferation of PTAs depletes countries’ resources and political capital to further promote multilateralism. (Bhagwati 1996) The criticisms levelled against the WTO call into question the legitimacy of this organisation. The next section of this essay will explore further how the content of trade rules and the resulting development deficit, lack of coherence with other international bodies, and the WTO’s lack of oversight over PTAs contribute to this crisis of legitimacy of the WTO. (Cho 2006: 67) 1. The North-South Divide and the Development Deficit of the WTO: The International trade regime suffers a crisis of legitimacy because developing country Members, through the rules of the WTO regime, are restricted in their policy choices to pursue their development objectives. An important question is why developing countries allowed the content of WTO rules to be so biased against their interests. This section thus looks at how developing countries have been able to influence the content of negotiations in the DOHA round and its effect on the WTO. An outcome of the Uruguay Round is that policies used by the NIC4s (Newly Industrialised Countries) under the GATT regime, could no longer be pursued by developing countries (DiCaprio and Gallagher 2006). The WTO agreements on subsidies, trade-related investment measures (TRIMs), and intellectual property rights (TRIPs) entailed a considerable narrowing of space for the conduct of “industrial policies,” and precluded the adoption of strategies that worked well for growth NICs. Promoting the development agenda was necessary for getting WTO Members to support a new Round of Multilateral Negotiations. As such, the Doha Round was labelled a development round because a number of issues of importance to developing countries were to take precedence within the negotiations (Ismail 2007). Firstly, addressing liberalisation in the agricultural sector, an issue not accomplished during the Uruguay negotiations, was to be a central feature of DOHA and a commitment was made by all the major players to reduce trade distorting subsidies and tariffs at the Doha Ministerial meeting. However, by the 2003 Ministerial meeting in Cancun, this commitment had wavered substantially and what was presented to the Members at the meeting, was a US-EU alliance which sought to accommodate each other’s trade-distorting agricultural subsidies. This was challenged very strongly by developing country Members, resulting in the formation of the G-20 alliance of developing countries, all who wanted a ‘fairer’ agricultural trade arena (Ismail 2007:6). By the time of the Hong Kong Ministerial meeting in December 2005, the Aid for Trade (or capacity building) initiative within the WTO had become a focal point. According to Lester (2007) the Aid for Trade initiative represents an attempt by the WTO, along with other organisations, 1) to help developing countries benefit more from the global trading regime; and 2) to improve their participation in the trade regime. Since the inception of the GATT, the content of liberalisation negotiations has favoured the largest producers. This resulted in the development of a regime that favoured the more developed Members because of their larger productive capacities, compared to that of the developing country members. This constraint on the participation of developing countries questioned the legitimacy of the regime and recent efforts have sought to more effectively address the needs of developing countries through increased participation. This has been accomplished in a number of ways, through developing countries coming together as a bloc and demanding certain rights and obligations, or the regime itself transforming its modes of operation so that all of its Members could have a voice within the regime. However, a consequence of this increased participation seems to have impeded multilateral agreement (Collier 2006). 2. WTO Coherence and Legitimacy Issues. The Sutherland Report recognised that the legal scope of the WTO was significantly wider than that of the GATT, but as it does not cover all aspects of trade and investment, the activities of the WTO would need to be coordinated with that of other intergovernmental institutions (Sutherland et al 2004:39). Having said that however, the Report constrains this coordination and this has been the subject of much criticism (Pauwelyn 2005) because nation States do not only coordinate their activities within a WTO framework but must also comply with other international agreements. This section looks at the criticism levelled against the scope of the WTO’s coordination with other intergovernmental organisations and highlights changes made in the system to counteract these criticisms. The major Bretton Woods Institutions, the World Bank, IMF and the WTO5 were all established, in the wake of World War II, as peace promoting institutions, providing specialist support to the intergovernmental coordination accomplished through the United Nations. These three institutions, although important for shaping the globalisation, have done so from different foci (Winters 2007; Yeuh 2009). While the WTO coordinates the trade-related activities that support economic interdependence among Nation States, countries do not only conclude agreement on rules on economic market activity within the GATT or WTO framework. Correction of environmental and other social market failures, as well as promotion of human rights, of which economic rights are a core, are done in a number of intergovernmental settings (Pauwelyn 2007:334). The criticism levelled against the WTO in this matter is based on the fact that the WTO as an organisation, promotes a position in which WTO rules, focused on trade liberalisation and maintaining an open global economy, should trump non-WTO rules (Sutherland et al 2004:39-40). But there is debate on how the WTO should manage this coherence. One way is for the organisation to achieve “observatory status” membership in other intergovernmental organisations, to contribute to the intellectual debate of globalisation policy (Sutherland et al 2004). This mode would allow the WTO to remain as a lex specialis organisation within the international legal framework. This can be seen in the development of the Enhanced Integrated Framework, adopted in 2006, which allows for the coordination of trade related technical assistance among a number of multilateral organisations (Marceau and Illy 2009:483). Another method is to broaden the scope of WTO rules to include a number of trade related issues (Pauwelyn 2007). More recently, the WTO has sought to broaden the scope of its activities. For example, environmental elements have been included in the Doha Negotiations, which, upon completion of the negotiations, could include disciplines for fisheries and subsidies (Charnovitz 2008). The broadening of the WTO’s scope of operations to include social and human rights issues, is one way of improving the legitimacy of the WTO in this increasingly interdependent world. However, doing so is not without controversy. Arguably, part of the effectiveness of the WTO is its strong judiciary, which has specialised in promoting the organisation’s main principles of non-discriminatory trade liberalisation. Broadening the scope of the organisation’s activities can be viewed as undermining its principal philosophy of promoting non-discriminatory trade. ( Is it your opinion or it has to be referenced? My opinion based on what I understand are the implementation problems of these trade and issues.) 3. The WTO and the threats caused by regionalism. A number of concerns have been raised by academics and practitioners in a variety of disciplines regarding the joint regulation of international trade flows via the multilateral system and through preferential trade agreements (PTAs) (Bhagwati 1996; Bartels and Ortino 2006; Baharumshah, Onwuka et al. 2007). Traditional economic analysis placed emphasis measuring welfare gains and losses achieved through trade and emphasised the “second-best” nature of PTAs versus the ideal of non-discriminatory trade in the multilateral system. Political economy research on trading relationships, positions various aspects of power relations at the centre of the enquiry into this issue and examines questions on the extent to which regional developments contribute to global governance; the sources of regionalism; the relative importance of domestic and international factors; and the role of institutions in reflecting regional objectives and their subsequent impact on institutional members. International trade theorists are concerned with the conflicts posed by having regulation and dispute settlement mechanisms at numerous levels, and the possibility of “forum shopping” in order to get a satisfactory outcome of a dispute. (Taylor 2008) PTAs and the multilateral system are mutually exclusive because they are premised on opposing concepts. PTAs allow for varying degrees of unhindered trade between members, but they are also discriminatory; they are about exclusion and preference. In contrast, the unconditional Most Favoured Nation (MFN) principle, which is the cornerstone of multilateral system, rejects the notion of discrimination and looks to market forces to guide economic flow. One of the main arguments is that the proliferation of PTAs creates a “spaghetti bowl” system that is a maze of discriminatory rules and barriers which hinders the multilateral process. Secondly, a high proportion of PTAs are between countries with highly dissimilar economic power. This asymmetry of power between PTA members could distort the negotiations and compel the weaker partners to adopt rules that are neither beneficial nor wanted. It is argued that the multilateral system provides more protection to such members. (Cho 2006:78) However, arguments abound on the benefits of PTAs and include the promotion of economic, political and security cooperation and community, the consolidation of state-building and democratization, the containment of heavy-handed behaviour by strong states, the creation and locking in of norms and values, increasing transparency, and assistance with managing the negative effects of globalization (Fawcett 2004). PTAs also provide a ‘training ground’ for the liberalisation of new areas before they are enforced in the multilateral framework thus allowing for the advancement of the global system. The option of pursuing trade liberalisation on many fronts can only lead to a more open global trading system (Sally 2009). As there is no way to stop countries from joining a PTA, the WTO, the only organisation with the capacity for this, needs to find a way to ensure that these PTAs do not contradict its MFN principles (Warwick 2007:52-53). Work needs to be done to make Article XXIV of GATT (1994), which articulates the requirements that PTAs must meet inorder to be compatible with the GATT/WTO regime, more effective. Particularly, the language of Article XXIV needs to be better defined and its interpretation more transparent (Mathis 2002). The WTO has seemingly ignored the proliferation of PTAs in global economic governance. As PTAs develop rules of trade that go beyond the WTO’s scope and implement their own systems of dispute settlement, the legitimacy of the WTO as the central trade regulating body is threatened. The only way for the WTO to remove this threat is to accept and deal with their presence. Conclusion This essay has highlighted the crisis in legitimacy facing the WTO as it tries 21st Century global trade. The three issues highlighted, the development deficit, the lack of coherence and coordination with other intergovernmental organisations, and the proliferation of PTAs, all bring into question the role of the WTO as the only regulator of trade-related economic governance. Unquestionably, the two World Wars in the 20th Century, both followed a period in which trade protectionist measures had led to global political discord and the Contracting Parties to the GATT regime were mindful of the need to promote a non-discriminatory trading regime to maintain global peace. In the 21st Century, the international political economy necessity a non-discriminatory multilateral trading regime has been forgotten. I think that the WTO cannot forget the lessons of the 20th Century and must continue to be the body to promote non-discriminatory trade. However, it can only do that if it is believed to be a legitimate organisation, which addresses the concerns of all of its members. 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