The World Trade Organization is an international organization with global operations and is charged with the responsibility of handling rules of trade among member countries. The core elements of the World Trade Organization include negotiating agreements that have already been signed by a majority of the trading nations in the world. The goal of the World Trade Organization is to assist producers of goods and services, importers, and exporters to conduct trade smoothly (Fergusson 2007). The WTO opens up trade, in addition to acting as a platform for negotiating trade agreements between nations. Countries can also settle their trade disputes at the WTO. The WTO has lengthy and complex agreements since they are legal documents consisting of various activities.
The history of the WTO dates as far back as the end of the Second World War. During this time, victor nations resolved to establish institutions that would ensure that the causes of the war were eliminated in the future (Aaronson 2010). As a result, they sought to create three economic institutions namely; the World Bank, the International Monetary Fund, and the International Trade Organization (ITO).
At the time, the International Trade Organization was stillborn and as a result, the victor countries decided to adopt the General Agreement for Tariff and Trade (GATT), the only existing provisional agreement for the ITO (Fergusson 4). Consequently, the GATT was converted into an institution for enforcing international trade rules through dispute settlement. The agreement was later renamed the World Trade Organization in 1995. The WTO was established in the eight GATT round, popularly known as the Uruguay Round. In 2001, a new round of negotiations was launched at the Fourth Ministerial Conference held in Doha.
In the discussions, the meeting agreed to advance warning no new rules. In addition, developing nations emphasized the need for “special & differential treatment”. The relationship between specific trade obligations and existing WTO rules was also discussed, as well as the link between multilateral environmental agreements (MEA). The European Union’s tracing and labeling laws were also discussed at the meeting.
The United States Department of Commerce is charged with the responsibility of managing the participation of the United States in the World Trade Organization. The entry of the United States into the WTO elicited mixed feelings from various interest groups, political parties, and individuals (Hart 2010). For example, there are those who were opposed to the decision by the United States to join the WTO because according to the institution would usurp American sovereignty.
Michael Kantor, a former US trade representative, argued that the Uruguay Round Agreements would help to protect American sovereignty, in addition to opening up foreign markets to trade American goods. The US Congress also supported the decision to join the WTO and even passed the necessary implementation legislation. Once the president had signed it, the US became a member of the WTO.
When the United States decided to join the WTO, the movie was more of a sovereign decision to conform to the Uruguay Round, and desist from embracing actions that contradict the agreements. Towards this end, opponents of this move contend that to a certain extent, the United States relinquished its sovereignty (Spero and Hart 2010). On the other hand, it is important to note that all treaties, and not just the WTO treaty, demands that we sacrifice some “sovereignty”. Moreover, seeing that global economic interdependence is on the increase, and given its limiting factor on unilateral action, it would appear that the idea of giving up sovereignty is, for all intents and purpose, illusory.
Member states of the WTO accrue a lot of benefits from this institution compared to nonmembers. To start with, the WTO assists in promoting peace among nations. In any trading system, peace is a fundamental requirement because it aids in the smooth flow of trade. In this regard, the WTO provides member states with a fair platform for handling trade disputes. Therefore, the WTO is instrumental in the creation and reinforcement of peace.
The institution also ensures that emerging disputes among member states are dealt with constructively. With the increase in trade volume, the number of companies, goods, and countries trading, the chance is high that dispute will emerge (Aaronson 2010). In such a case, the WTO steps in with the aim of resolving such disputes in a constructive and peaceful manner. There is a high chance that such disputes might degenerate into serious conflicts if the member states are left alone to solve them (Bhagwati 2002).
Member states of the WTO are governed by certain rules, as opposed to power and as a result, every member state is equal. This allows some of the smaller nations to find their voice. Major Powers are also freed from the complexity associated with trade negotiations when dealing with an individual country. By entering into negotiation with member countries, the WTO is able to lower trade barriers, thereby reducing the prices of goods and services from member countries.
Owing to the availability of cheaper imports (for example, raw materials), the cost of the finished goods is also cheaper. Free trade also provides consumers with an additional wide variety of quality goods and services. Because the WTO is able to lower trade barriers, export, and import earnings increases. Consequently, governments are able to collect more revenue. At the same time, manufacturing companies can obtain cheaper raw materials thereby enabling them to increase their production capacity and by extension, the number of employees. Free trade also stimulates economic growth, resulting in the creation of jobs (Bhagwati 2007).
The WTO also shields governments against lobbying from narrow interest groups. Consequently, the government can then concentrate on countering lobbyists by concentrate on trade-offs that address the interest of everybody. Furthermore, free trade encourages good governance. For example, the institution has enforced rules that oppose unwise policies, hence encouraging good governance. With such rules, it becomes hard for corruption to thrive.
Protectionist policies impose tariffs on imports. This is a boost to the local industry. In the United States, imposing tariffs means that imported goods cost more than locally manufactured goods. Protectionist policies also impose anti-dumping legislations. This is important because it protects local firms from cheaper foreign goods dumped in the market. Under the protectionist policy, the local firms often receive direct subsidies to enable them to compete against imports (Pugel 2007).
Such subsidies not only “protect” local jobs, but also assist local companies to make adjustments to the global market. Protectionists opine that government restrictions on free trade are legitimate because they help to protect the living standards of the people, and the country as well. Protectionists are convinced that when governments allow foreign goods into their domestic market without first attracting tax of tariffs, this is to the detriment of the domestic goods. This is a form of reverse protectionism and for those countries that do not take part in Value Added Tax (for example, the US), the system impacts negatively on their economy.
Despite the aforementioned benefits associated with protectionism, many of the mainstream economists have embraced free trade. The comparative advantage principle indicates that the ensuing gains from free trade outweigh the associated losses because it allows nations to enhance their competences by producing specific goods and services (Krugman 1997). In addition, a free market does not experience deadweight loss like protectionism does.
Deadweight loss refers to the overall welfare loss in which nobody benefits. Free trade facilitates the growth of the manufacturing industry in developing countries. It creates more jobs, improves the living conditions of employees, improves employees’ wages, and facilitates competition among producers (Krugman 1997).
The essay has opened my eyes to the many benefits associated with the WTO. Before starting the essay, I was ill-informed about the history behind the establishment of this institution. Although the decision to form the WTO was an economic one, nonetheless, there is a lot of politics involved, as evidenced by the arguments of those opposed to the US joining the WTO when they likened the decision to a loss of sovereignty.
The essay has broadened my mind on the operations of the WTO and the important role it plays in ensuring equality among member countries, as well as in fighting corruption by encouraging good governance through free trade.
Aaronson, Susan. From GATT to WTO: The Evolution of an Obscure Agency to One Perceived as Obstructing Democracy. 2010. Web.
Bhagwati, Jagdish, Free Trade Today. Princeton: Princeton University Press, 2002. Print.
Fergusson, Ian. The World Trade organization: Background and issues. 2007. Web.
Krugman, Paul, The Accidental Theorist: And Other Dispatches from the Dismal Science. New York: W W Norton & Co Inc, 1997. Print.
Pugel, Thomas., 2007, International Economics. 13th edition. New York: McGraw-Hill Irwin.
Spero, Joan and Hart, Jeffrey. The politics of international economic relations (7th Ed.). Boston, MA: Wadsworth Cengage Learning, 2010. Print.