How successful has the WTO been in achieving it’s objectives?

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How successful has the WTO been in achieving it’s objectives? / Ben Weland / 13/10/2002

The World Trade Organisation  (WTO) was founded in 1995 and resulted from a series of General Agreements on Tariffs and Trade, which started after the Second World War in 1947.

The WTO is the first global, constantly operating organisation responsible for the promotion of free trade and the settlement of possible trade disputes through independent disputes panels. A WTO ruling has to be accepted by a member state, otherwise the respective country may face trade sanctions. Major decisions are made on a basis of unanimity in the trade rounds, the most recent one happening in Doha, Quatar. This essay should clarify what the WTO’s five main objectives are and to what extent they have been achieved in recent years.

Establishing and promoting free global trade is seen by many as the main objective of the WTO. It is the orthodoxy of the time that free trade is the economic policy most economic thinkers believe in, especially because empirical evidence seems to support the argument. Mercantilism, with it’s main idea that wealth is finite and should therefore be kept in the country by encouraging exports and stopping imports, has long gone out of fashion. The argument goes that free trade is the way to optimise world output and income levels in the long run. The problem is that it is possible that individual countries may still gain from protectionism of some sort, the government protects it’s own industry through tariffs, the firms can then compete at a lower price in foreign markets and the government earns a handsome revenue from increased corporate profits and the tariffs on foreign goods in general. Even the USA are not immune to this temptation, the recent steel tariffs of 30% on foreign steel are a proof of that (though some tariffs have already been reduced again, thanks to WTO mediation) The issue evolves around the prisoner’s dilemma, with individual incentives for nations to restrict trade, but a collective interest that all nations should pursue it. In general, tariffs may only further protect inefficient firms or even whole industries, countries may be better off to let those firms go bust and redeploy their resources. Also, there is the infant-industry argument, newly developed industries have to be protected initially against foreign competitors with higher economies of scale, until a certain size has been reached. The problem is to remove tariffs after they have been but into place, as it is likely that the industry will resist any such attempts. Some industries may also argue that they want to preserve a certain way of life, but it may be better to support such an industry through subsidies rather than through tariffs (if that should be necessary at all). Overall,therefore, tariffs are likely to harm not only the global economy as a whole, but may also stop structual reform in a country from happening. Though some countries may resist freer trade because of the stated reasons, the overall trend should be towards free trade, the WTO should be able to use that movement. So how has the objective been achieved? Tariffs overall have decreased substantially, in the years 1973-1979 alone the tariff reduction amounted to $300 billion. This would support the argument that the free trade promotion of the WTO was successful, despite understandable resistance by individual countries, and therefore even more admirable considering the circumstances under which the WTO had to operate.

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The problem with this overly optimistic view links however with the next big WTO objective, the equal expansion of trade concessions to all member countries. A good thing is that WTO membership has increased hugely over the years, there are now 144 countries in the WTO and around 25 still waiting to join. However, the problem is that though tariffs have decreased, this is also due to an increase in trading pacts. In these trading agreements like the Andean Pact, NAFTA, Marcosur, the EU or the Asia Pacific Economic Cooperation, tariffs are lowered whilst all trade barriers against the ...

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***** This is an excellent analysis of the work of the WTO and evaluation of its success. The writer uses many relevant examples to support their point and the essay is well structured.