WTO- Objectives - Policies and Winners or Loosers

Question: Describe about the WTO for Objectives, Policies and Winners or Loosers. Answer: Introduction The modern world is a highly integrated place where practically no economy is closed and self-sufficient with regards to various resources that it requires. Thus, the global economy and stability is dependent on constituent supply of goods and services from other countries and thus international trade is the lynch pin on the back of which the nations are able to fulfil the needs of their people. Besides, trade also ensures that employment is provided to people as a substantial portion of the global GDP is derived from trade. Further, trade also leads to enhanced efficiency with regards to usage of the scare resources as has been indicated by the various trade theories such as comparative advantage and absolute advantage (Misra Puri, 2002). The importance of free trade was realised by UN which led to the introduction of GATT or General Agreement on Trade and Tariffs which was introduced with the specific mandate of enhancing trade liberalisation between countries by ensuring that the various tariff and non-tariff barriers could be minimised resulting in mutual gains. The most significant round of negotiations for GATT was the Uruguay Round held from 1986 to 1994. In order to carry forward the agenda of GATT and the Uruguay round, a new institution came into existence in 1995 known as the WTO or World Trade Organisation (Hoekman, Mattoo English, 2002). The aim of the current research opine is to reflect on the objectives with which WTO came into existence along with focusing on the specific policies that WTO deploys in order to achieve the objectives that it has entrusted with. Further, empirical evidence of WTO functioning in the last two decades would be highlighted to opine on the potential winners and losers on the basis of the WTO negotiations and functioning. On the basis of this critical review, conclusion would be derived at the end. Objectives of WTO The WTO has been formed with a multitude of objectives which tend to deal with the trade related issues and resolution of the same in the betterment of the economy. These objectives are highlighted below (Hoekman, Mattoo English, 2002). To enhance the trade between member states by reducing the various barriers between nations by acting as an appropriate forum for increasing the liberation in trade through intense negotiations amongst representatives of countries. This objective is primarily based on the notion that higher trade liberalisation leads to economic development of for all the involved parties in the trade with particular reference to the interest of the developing countries and LDC (Least Developed Countries) since trade liberalisation provides higher access to developed market for these nations. To act as a forum for the framing of rules and frameworks in the sphere of international trade by bringing the various stakeholders to a consensus and further ensure that member states tend to observe these rules. To act as the highest international forum for the resolution of trade disputes between countries by acting as a neutral arbitrator considering the relevant case facts and thereby promoting free trade. Additionally, the various rules and regulations implemented at the WTO also aim to enhance the overall decision making in regards to decision in relation with trade. The foremost area where this is visible is with regards to imposing of non-tariff barriers which are sanctioned if in accordance with SPS (Sanitary and Phytosanitary Measures) agreement which ensures that national interests are not sidelined which considering the demands of free trade. Policies of WTO Some of the specific policies of the WTO in order to serve the key objectives it is bestowed with deal with the following subjects (WTO, 2016b). Providing assistance to transition and developing economies About 75% of the countries which are part of the WTO belong to this category and hence it is imperative that any future agreement that is negotiated is considerate towards the collective ambitions of these countries. Keeping this objective in mind, training and access to requisite data is provided to these nations so that they are in a position to effectively negotiate at the WTO meetings. The various assistance provided to the nations ensure that the interests of these countries are safeguarded at the hands of the developed countries. Providing specialised assistance to nations for exporting using the ITC or International Trade Centre The ITC was formed during the GATT era but it now operated jointly by WTO and UN so ass to ensure that help is extended to the developing nations with regards to exports promotion. In this regards, the developing nations may request assistance in the response of which specific advice and training is available for these nations so as to identify potential markets for exporting and marketing their products effectively. It is noteworthy that the ITC provides free services for export promotion to LDCs. Enhancing the increased role of WTO in global economic decision making As per the Marrakesh Agreement which paved the way for putting WTO in place, the WTO would ensure higher coherence in the field of economic decision making by enhancing the coordination with other multilateral organisations such as IMF, World Bank and other multilateral organisations which are involved in economic decision making. This engagement by the WTO is performed in accordance with the belief that trade liberalisation is a key contributor to economic development and hence could not be ignored. Hence, attempts are made to ensure that national economic agendas especially for developing nations and LDC tend to enhance trade liberalisation in principle. Enhancing transparency by ensuring that the WTO and public is kept informed The WTO agreements ensure that the WTO through its secretariat is kept in loop in relation to the various measures introduced to promote free trade and additional various protectionery measures which may be introduced that are permissible by WTO provided certain conditions are met. Further, the various discussions and issues raised by the members are also brought in the public domain by the WTO so as to ensure that civil society could remain informed and ensure that government take stance which is in the interest of their people. Besides, the specific policies that are mentioned above, there are certain principles that all trading frameworks need to necessarily adhere to and are highlighted below (WTO, 2016a). Non Discrimination This particularly prescribes for two aspects namely the MFN (Most Favoured Nation) status and also the policy with regards to national treatment. As per the MFN clause, it is imperative that the members must not extend differential tariff structures and non-tariff barriers to other member states and thus should treat every trade partner as MFN thereby extending the lowest possible tariffs to the other states. National treatment policy implies no discrimination between the imported goods and those produced domestically which is usually demonstrated by erection of non-tariff barriers. Reciprocity This implies that concessions must be mutual and not unilateral particularly with regards to MFN status. The basic belief that drives this is that negotiations based on mutual reciprocity result in higher gains for the parties involved. Enforceable Commitments The accession of any nation to any WTO agreement would imply that these commitments made should be upheld and any adverse variation in the same should be with the permission of the trading partner(s) adversely impacted or else a dispute may be raised by the party being adversely impacted. Transparency The members should maintain transparency with regards to trade policies pursued and any alterations in the same should be notified to the WTO in a prompt manner. Besides, members can also request information regarding trade. Further, the WTO releases country specific reports which highlight a review of the underlying trade policies. Safety valves In order to safeguard the national interest, the WTO does provided exception to the MFN and other principles but it is imperative that these must be utilised only in a considerate manner and if these are used for offering protectionism to the domestic industry, then the other member state being adversely impacted can raise a dispute. Winners Losers From the above discussion, it is apparent that the main focus of the WTO is developing and LCD nations which are the ones that prior to accession to WTO had considerable barriers to trade. The examples of two countries that have emerged as winners from WTO are highlighted below. China China is one country which has immensely benefitted from the accession to the WTO which is apparent from the average growth of 9% pa which it has clocked from 2001-2011 (Lai, Riezman Wang, 2016). The accession to WTO for China in 2001 came with a host of condition which required it to lower the tariffs on the various imports and thereby allow for the economy to be more open. Further, the vast Chinese consumers were thrown open to the presence of foreign businesses which could directly serve domestic clients now. Besides, the tariff barriers related to industrial products (35% to 17% in five years), agricultural products (31.5% to 14.5% by 2004) were required to be slashed which ensured that foreign products became more competitive in the Chinese economy as the domestic businesses would be subject to competition (Chow, 2001). Due to increased competition in the short term, the domestic business had some adverse impact and this is the long term led to the closure of the inefficient businesses while the businesses that could cope up with the increased presence of foreign businesses became more efficient and thus has proved incremental for the Chinese economy in the long term as it has established itself as the manufacturing hub of the world. Further, since the accession to the WTO, China has emerged as being one of the favourite destinations of FDI for the foreign investors due to large size of the domestic consumers (Yong, 2011). As a result of these, China has enhanced its stature from being the fourth largest trading nation in the world in 2001 to being the largest trading nation in the world in 2015. It is apparent that accession to the WTO has proved immensely favourable for the country to enhance its inefficiency in wake of competition which has improved the competitiveness of Chinese exports. Further , as imports have become cheaper, the local producers tend to use the available resources in the most efficient manner by focusing only on the activities that their competency lies in. Additionally, by opening up the economy to foreign businesses, the economy has been able to woo advanced foreign technology which then has been adopted by the Chinese manufacturers to improve their processes. Besides, the presence of foreign businesses and larger integration with the global economy has also initiated (Lai, Riezman Wang, 2016). Also, the increased integration of the economy and presence of foreign businesses had improved the political and legal institutions which have ensured ease of doing business in the interest of the economy. This further has also reaped gained for the domestic businesses as compliance costs have decreased and also the government support to local businesses has gradually decreased which have enhanced the ease of doing business and also the competitiveness of the e conomy (Lewis, 2011). India Another country that has gained immensely from the joining of WTO is India which was one of the founder members. The membership of WTO came in the backdrop of the economic reforms that were initiated in the country in 1991 which focused on privatisation, liberalisation and globalisation. The WTO policies enabled the country to accelerate these reforms as the protectionism offered to industry further ended and thus, gradually the focus shifted to enhancing the overall efficiency (Misra Puri, 2002). As in case of China, India also had to reduce tariff barriers which enhanced the presence of foreign players in various sectors and also enhanced the FDI inflows in the country from the developed nations. Further, in regards to the Doha Declaration in 2001 and its subsequent negotiation, India has collaborated with other developing nations such as Brazil, China so as to draw attention on the high subsidies that the developed countries continue to provide to their farmers which fuels the competency of these products. As a result, India has been able to secure the interest of its farmers at the WTO platform (Ray Sabyasachi, 2009). Additionally, recently at the WTO, with regards to the food subsidies that it offers under the MSP (Minimum Support Price), it was able to gain an exemption with the support of other nations especially the LDC. However, the major gains that India have been reaped by India from the WTO have been in the form of increased exports of services especially software, BPO, KPO. With the reduction of barriers to services export, the country today has emerged as the leading exporter of software in the world primarily due to the easy availability of skilled manpower whic h augers well for the developed nations clients as cost saving is reaped. This unprecedented growth in the services sector has been largely responsible for the high GDP growth rate as the contribution of the service sector to Indias GDP has continuously increased and caused a shift from agriculture to the services sector (Mukherjee, nd). Besides, through the implementation of TRIPS (Trade Related Intellectual Property Rights), the patent regime in the country has drastically improved while ensuring that the interest of the generic drug manufacturers in India is not hurt as a result of which India today is the largest manufacturer of generic drugs in the world. Besides, there are safeguards such as compulsory licensing that have been used by the government in a prudent manner so as to safeguard the national interest and providing affordable drugs to the people. Also, through mechanisms such as Geographic Indication, the traditional knowledge is being safeguarded and also gained visibility in the foreign countries which augers well for the continuation of these (Lewis, 2011). An industry which has further gained from the WTO regime is the textile industry as the Indian exporters gained better access to the importing nations as the quota system was abolished under the Multi Fibre Agreement (Gupta, 2005). This has been i mmensely beneficial for the trade in clothing and textile which witnessed a double digit growth from 2005 onwards before this was adversely impacted by the global financial crisis. Additionally, the financial services sector has also seen high growth coupled with investment in the form of FII (Foreign Institutional Investors) in the Indian stock markets. This has led to greater integration of the Indian economy with the global economy and simultaneously had led to increasing demand for reduction of inefficiencies with relation to inflexible and complex tax structure coupled with red-tapism and corruption in the system (Guru, nd). Conclusion From the above, it is apparent that liberalisation of trade has significant long term gains for the economy in terms of efficiency and better utilisation of the scarce resources. In this regards, WTO was formed from GATT in 1995 and played a pivotal role even though it has not closed a single multilateral trade treaty due to differences between the developed and the developing nations. However, consideration needs to be given to the objectives of the WTO which aim to enhance trade liberalisation by the removal of various tariff and non-tariff barriers (Lewis, 2011). Further, WTO aims to provide an appropriate platform where the rules of global trade could be forged through multilateral negotiation and in this regards various discussions have been held over the last two decades which has let to incremental progress with regards to accepted principle. Additionally, with regards to the various objectives, the WTO also has policies in place which outlines the principles of trading framew orks that must be framed by member countries. These principles ensure that trade barriers are minimised and differentiation between trading partners is reduced through MFN status while ensuring that any negotiation must be carried out on a mutually reciprocal basis. Additionally, it also emphasises on transparency besides providing safety values to the members for safeguarding their valid interests. Through the example of India and China which are the two largest developing countries, the gains of WTO are apparent as these companies over the last decade or so have emerged as winners as they have opened up their economy to competition from foreign players. As a result, the efficiency of the domestic players has also improved and the quantity of trade has enhanced. Further, due to relaxed entry norms for the foreign players, there has been an improvement in the ease of doing business which augers well for the economic development of the nations. 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