The reduced cost of production will reduce the price of the finished products and services and therefore the living expenses for consumer. The lowering of trade barriers provides consumers with much more choice. The above two points together improve the average living standard of LDCs. 2
A more open domestic market will attract foreign investment and bring new technology to LDCs6. At the same time it also forces domestic firms to be more innovative and to improve their productivity since they have to face the global competition5. Moreover, the dispute settlement mechanism of the WTO can also create a fair competitive environment for the LDCs in the global market. 6
Disadvantages the LDCs confront
Of course, the benefits cannot come without disadvantages. Free trade of the WTO exposes the LDCs’ domestic firms to a worldwide-competition without shelter. The firms that cannot compete against imports or strong international competitors will go bankrupt. LDCs obviously have less areas with comparative advantage compared with developed countries, which means most of their industry will undergo an inevitable backlash. Although resource reallocation will create new jobs, it does not appear quickly enough for the job losers. It will be a social disaster for LDCs because most of them do not have the public safety nets that developed countries have. Therefore, it may cause the instability of society. 5 Although given the transition periods to establish competitive domestic industries and exports, most of LDCs still find the duration is not long enough. 7
Since the organisation will only accept democracies among its members, some countries have had to change their political and social structure to enter the WTO, and this has led to great modifications in some cultures. As a consequence, the countries lose part of their sovereignty because many rules are dictated by the WTO and the Western culture. This leads to a loss of references for the population, and a threat over national cultures. Furthermore, the population might be less eager to work for multinational firms, since they do not feel directly concerned by the international trade. 8
Moreover, some rules of the WTO directly limit the development of LDCs. Take TRIPS for example, one part TRIPs deals with is access to medicines and this was debated in the Doha Round. This directly makes some southern countries, especially the African countries, face the huge crisis and impacts over lack of treatment and devastating diseases. The richest countries do not want to relax patenting of drugs for the LDCs, which has devastating consequences over the African population. For the past three years, AIDS has caused 400,000 deaths in South Africa. 9
TRIPs also cover agriculture forms— the agriculture researchers in the North have found new technologies that enable northern multinational corporations to artificially produce the goods exported by Southern nations. 9
From a LDC perspective, the agricultural negotiations are crucial since this sector is the most important in terms of GNP and employment but according to the Oxfam report “tariff barriers in rich countries are four times higher for poor countries than for industrialised countries,[and] agricultural subsidies have been increased” 10.
This leads to a question of survival for Africa, which faces now a decrease in gross domestic product growth. For example the Mali received $37 M aid but lost $ 43 M with lower exports. 11
Can LDCs actually fully enjoy the benefits of free trade?
In reality most of the LDC members of the WTO cannot fully enjoy the benefit impact that the WTO promises.
Firstly, some LDCs have not been able to follow the movement and have gradually fallen behind. Indeed, their lack of infrastructure, of qualified human capital, the corruption of their governance and their other climatic and geographic factors has not enabled them to enter the international trade as expected.
Theoretically, all countries are equal and have the same rights inside the organisation. But it is hard to imagine that the forty-eight Least Developed Countries are on the same level of negotiation with the European, North American and East Asian block. This last group of countries represent 85 percent of the international trade flows, whereas the LDCs count for no more than 0.5 percent.
Therefore, although market access has been promised to state members, developed countries often obstruct LDCs’ entrance into their domestic market. When developed countries realise that some of their industries cannot compete with the ones from LDCs, they usually tend to find some excuses to protect their own industries— antidumping actions are one of them. Most of the antidumping actions that are taken are set against LDCs. The anti dumping rule protects national production, in a way that any product entering a market at a lower price than the national products is submitted to taxes. In addition, developed countries also refer to subsidies and countervailing measures as well as safeguards measures to protect their market. The LDCs are also worried about the core labour standard. The rules of the WTO do not allow a trade of product produced with the help of children labour, or including prisoners labour in China. From the LDCs’ point of view this is a development problem they have to solve by themselves, but developed countries are trying to use this to strengthen their bargaining power and protect themselves. 5
However, when LDCs want to protect themselves from the strong competition of the developed countries, these measures seem weaker. A typical example is in the food trade. While most of developed countries use export subsidies to cope with foreign competition in the free market, LDCs use less expensive measures such as tariffs. Of course, this is against the principles of the WTO and is not permitted. Although the dispute settlement system does exist in the WTO, it is almost dominated by developed countries, acting on their own behalf. 12
Conclusion
The benefits of free trade do exist, but to LDCs the negative impacts may out weight the positive ones. To them “Free trade is a myth, a confidence trick, a grand illusion” (writes Larry Elliot, journalist at The Guardian, while dealing with the World Trade Organisation). The free trade becomes fair when the domestic industry grows strong enough to face the competitors from developed countries. Therefore, the only way for LDCs members to survive is to struggle with developed countries to obtain special provision and longer transition periods before implementing agreements and commitments. They have to gain a real fair treatment and true equal rights for themselves in order to enjoy the full benefits of free trade.
(1510 Words)
References
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- Article from the Financial Times, “Developing nations determined to have their voice heard”, by Frances Williams and Guy de Jonquieres
- Global Trading System at the Crossroads, a post-Seattle perspective, by Dilip K. Das
- What does the WTO do for the developing countries? By Sam Laird
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The Dawn, Mohammad Shehzad, 21/4/2002,
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“BRIEFING PAPER ON TRIPS”, by the Campaigns Team in the office
- quote from the article of the Guardian, “Time for the west to put up or shut up”, by Larry Elliot
- Wallis, William, (30/09/2002), “West Africa Unites for attack on subsidies”, Financial Times
- The WTO, the World Food System, and the Politics of Harmonised Destruciton
Bibliography:
Web sites:
Books, University Press:
- O Brian, Robert, (no date available), “Contesting Global Governance, Multilateral Economic Institutions and Global Social Movements”, Cambridge, University Press.
- Greenfield G., (16-18/11/2002), “The WTO, the world food system and the Politics of Harmonised Destruction”.
- K. Das, Dilip, (2001), “Global Trading System at the Crossroads”, Routledge, Taylor and Francis Group.
Newspapers:
- Shehzad, Mohammad, (21/4/2002),The Dawn.
Financial Times:
- Williams, Frances and De Jonquieres Guy, (10/11/2001), “Developing nations determined to have their voice heard”, Financial Times.
- Williams, Frances and De Jonquieres Guy, (10/11/2001), “Moore spells out dangers of failure at WTO talks”, Financial Times.
- Williams, Frances and Kynge James, (05/06/2001), “Enduring bond with the land drives China to gig in on farm subsidies”, Financial Times.
- Wallis, William, (30/09/2002), “ West Africa unites for attack on subsidies”, Financial Times.
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- Harding, James, (date not available), “Globalisation’s children strike back”, Financial Times.
The Guardian:
- Elliot, Larry, (12/11/2001)), “Time for the west to put up or shut up”, The Guardian.
- Elliot, Larry, (no date available), “Morals of the brothel”, The Guardian.
- Klein, Naomi, (08/11/2001), “Morals of the brothel”, The Guardian.
- Deny C., (09/11/01), “Doha, the economic frontline”, The Guardian.
- Monbiot, George, (12/11/01), “Trade piracy unmasked”, The Guardian.