The World Trade Organisation
What is the WTO? Multilateral body responsible for overseeing the conduct of international trade.
Aims of the WTO. 1. Freer trade through negotiation.
2. Trade without discrimination. So buyers will regard Polish coal as equal to Russian coal.
3. Predictability through binding and transparency. If there have to be tariffs – keep them stable.
4. Promoting fair competition, so the WTO has rules against dumping and intellectual property theft.
Successes 1. When compared with the autarky and war of the 1930s, the WTO promotes peace. Sales people rarely fight with their customers.
2. The WTO provides a place to handle disputes before they escalate into a full trade war.
3. The WTO is based on rules rather than power. So even the biggest powers – the EU or the USA can, in theory, be judged as violators of power.
USA Second-largest producer and world’s largest exporter of cotton.
In recent years, the United States has been exporting an increasing share of its cotton because……
Brazil claimed that the subsidised export of cotton to their country damaged domestic producers.
The WTO sided with Brazil in the dispute. Under the terms of the agreement, the US granted a one-off payment of US$300 million to the Brazilian Cotton Institute.
4. Being a member of the WTO removes the temptation for national governments to bow to the will of a special interest group.
Usual arguments about free trade Greater choice Lower prices National monopolies are more difficult to maintain
Russia and the EU So, assume Russia has absolute advantage at producing steel but the EU has absolute advantage at producing microchips. Free Trade negotiated by thw WTO removes the welfare loss triangles.
However…. Poorer countries cannot afford to have teams of negotiators at WTO meetings that the rich countries can. Therefore, their views are often not taken into account.
The WTO has not succeeded in reducing subsidies rich countries provide to their farmers. - OC for their taxpayers - unfair competition for developing world farmers - these subsidies depress world prices
Protecting intellectual property rights keeps innovation spreading more quickly to the LEDCs.
This affects healthcare levels in LEDCs.
Firms protect the intellectual property (IP) that drugs represent and sue those who try to manufacture and sell patented drugs cheaply.
These criticisms reached their zenith more than a decade ago at the peak of the HIV plague. When South Africa’s government sought to legalise the import of cheap generic copies of patented AIDS drugs, pharmaceutical companies took it to court. The case earned the nickname “Big Pharma v Nelson Mandela”.
However, the WTO is seen as being on the side of MEDC pharmaceutical companies, rather than the world’s poor and sick.
WTO – significant criticism The WTO does not allow members to place tariffs against goods on the grounds of worker exploitation or goods that are produced in an environmentally damaging fashion.
Free trade removes the chances of countries to protect new industries, diversify and allow infant industries to grow.
So, if we agree to free trade, we will import the machines from Manchester and export tomatoes to them.
Further analysis In the WTO’s defence – hugely ambitious goal. 153 member states from all corners of the world resolve disputes through negotiation. May not be perfect, but it is a huge improvement on previous centuries.
Further analysis Maybe the WTO’s global ambitions are too unrealistic. Better approach is to reduce barriers through RTAs rather than reach agreements at a snail’s pace in the WTO. Last significant trade deal (Uruguay Round) was over 20 years ago.
Distinguish between a quota and a tariff. Does the 22 days by boat from China have a serious impact on the fashion industry. Where would you open a shoe factory if you were to do so?
Assess the impact on western consumers and western clothing firms following the removal of restrictions in the world clothing industry. (16)