What is unfair about trade under the World Trade Organization (WTO)?

University Degree Business and Administrative studies

Introduction

Trade has the potential to help poor countries to earn income, built wealth against poverty. Many poor countries or less developed countries (LDCs) are extremely economically dependent on exports, especially agricultural products and minerals, to earn income. One of India’s main exports, for example, is rice, while South Africa’s is gold.

But often, the rules of international trade are unfair and sometimes skewed in favour of rich countries and large corporations. It cannot be denied that the WTO is one of those large and powerful corporations which dominated by the world’s wealthiest countries like United States and Europe.

In this essay, I will first briefly introduce what the WTO is and the present situation in the international trade market. Then I will illustare, with examples, the unfairness of trade towards the LDCs and how it threatens their livelihoods. Finally, I will evaluate the legitimacy and transparency of the WTO and, most importantly, suggest the ways to improve the “fair trade” in the future.

What is the WTO?

According to WTO’s organizational statement, its objective is to “help trade flow smoothly, freely, fairly and predictably…It consists of 135 member nations that shared 90% of the world trade” (WTO, 2002). In every areas of trade, the WTO promotes the removal of barriers to international competition, enabling countries to benefit from globalization. Wilkinson (2002, p.129) states, “the Organization was to be the centre piece of a much consolidated and significantly widened regulatory framework designed not only to administer a series of legal agreements, covering trade in goods and services, intellectual property rights, and overseas the wherewithal to settle trade disputes, but to provide a permanent forum in which further liberalization could be pursued through periodic negotiation”. Furthermore, the WTO has a straightforward rationale: free trade ultimately benefits everyone, even if it means that some people must adjust when trade barriers are lowered (Talvi, 1999)

As what Bayne (2000, p. 219) stated, “all WTO members were on an equal footing, as each one had to subscribe to all the agreements. Dispute settlement was given legal force: where judgement went against a country, it could no longer escape the obligation to correct its policies”. In this sense, it sounds almost perfect of having such a platform in dealing with international trade issues.

International Trade Arena at Present

The LDCs, such as India, Malaysia and China, focus mainly on agricultural production. They are always having a poor economic performance or even great debt. But international trade may seem to have little to do in boosting up an economy during difficult time. The practice of unfair trade may probably push up poverty levels in the LDCs. “Persistent poverty in poor countries is not due to insufficient trade liberalization. For many LDCs, external trade and finance arrangements are an integral part of the poverty trap”(Anonymous, 2002). For this point, I will further elaborate in the next part.

Ganesan (2000, p. 85) mentioned that the LDCs have three major concerns under the WTO: first, they perceive that the multilateral trading system is becoming less fair and more inequitable as attention they deserve. Second, the trade agenda is being expanded to incorporate only issues in which developed countries are interested. And third, the trade rules are increasing becoming a codification of developed countries’ policies, laws, and regulations. As a consequent, these LDCs think that the multilateral trade agenda has been greatly shaped by the some interested groups in the developed countries like the United States and Europe, while ...

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“Free Trade” versus “Fair Trade”

Many international trade rules are mainly designed to increase free trade. When countries reduce their trade barriers, it enables the free flow of goods and services across international boundaries. Nevertheless, the rules have been applies unevenly to rich and poor countries. A typical example of trade barrier is import quotas. It allows a certain amount of given product to be imported into a country. Another example is trade subsidies. It grants directly to farmers or other forms of supports such as the provision of cheap fertilizers and technologies.

In the past two decades, the WTO has put some pressure on LCDs to remove their trade barriers. But at the same time, ironically, wealthy and powerful countries including the United States and European countries have retained, or even increased their own trade barriers. As Bayne (2000, p. 149) argues, “rich countries both maintain their levels on protection and impose new rules on poor countries to make products less competitive. This is not only unreasonable but also self-defeating”. So it seems to be the fact that the poor countries forced to accept some standards on trade simply because of their poverty. As a result, poor countries will get even poorer and the standards will be worsened. In the following, I would like to illustrate how unfair the trade is from four perspectives: environment, dumpling, labour and the NGOs.

Trade and the Environment

The decisions on trade made by the WTO have greatly undermined some environmental safeguards. In February 1999, for example, “more than 140 nations met in Colombia to complete the Biosafety Protocol, the result of seven years of international effort toward a policy to protect the public from the potential health and environmental threat of genetically modified organisms...the adoption of protocol has been blocked by the US-led Miami Group” Talvi (1999) argues. The WTO put much concern not only on trade, but environmental issues as well. Fox (2000) mentions, “In 1998, Thailand, India, Malaysia and Pakistan challenged a U.S. ban on the sale of shrimp caught without the use of Turtle Excluder Devices (TEDs) designed to protect sea turtles. Shrimp fishermen in the U.S. have long been required to use TEDs on their trawl nets to prevent turtle drownings, the largest cause of sea turtle deaths.

Besides, “some developed country members of the WTO, go further and have advocated a set of concepts linking trade measures in the WTO to the environment. These concepts are process and production methods (PPMs), internalization of environmental cost, and eco-dumpling…if a country has lower environmental standards in an industry or sector, the cost of that country’s product is not internalized, making prices artificially low”, Khor (2000, p. 42) suggested

Thus, when these countries export their product, it can be regarded as eco-dumpling. So the importing countries may impose trade penalties on the goods, such as tariff or duties. In this sense, the LDCs are likely to find themselves at a great disadvantage within this unfavorable trade arrangement under WTO. They have to raise their products’ price and their products would become noncompetitive. According to the statistics from the Oxfam (Anonymous, 2002), “trade restrictions imposed by rich countries are costing the poorest countries’ a staggering $2.5 billion a year in lost foreign exchange earning”.

(ii) Dumpling

Another form of unfair trade is dumpling, when international markets are flooded with extremely cheap exports from wealthy countries. The reasons that these exports can be sold so cheaply is because many farmers in the developed countries received financial support or subsidies from their government, for example, the United States and Europe.

The result of these subsidizes overproduction and too much food left. Farmers then dump the surplus on the international market with very cheap prices. When there is a shape increase in the supply of a particular product, the price drops and the farmers in the LDCs may be forced to sell their crops for less than their cost to product. They may result in great debt and have to find other ways to survive. So “13 LDCs will emerge from the Heavily Indebted Poor Countries (HIPC) Initiative spending more than 10% of government revenue on debt” (Anonymous, 2002).

(iii) Labour

At the Singapore Ministerial Meeting in 1996, the WTO member governments decided that the issues of international trade standard should be left to the International Labour Organization (ILO) under the United Nations. As the Wallach and Dforza (1999, p. 59) argues, “the rights of workers are completely ignored, except to the extent that government policies promoting workers’ rights are considered barriers to trade and therefore are subject to attack under WTO rules”.

(iv) NGOs’ Participation

In fact, the WTO is not much accountable and responsive to the needs and concerns of non-governmental organization (NGOs). Khor (2000, p. 43) states, “Non-governmental organizations (NGOs) worldwide have criticized the fact that they have little participation in the WTO’s activities and that much of the negotiations are shrouded in secrecy”. Furthermore, “the basic reason for NGOs’ opposition to WTO is that the government policies and negotiating strategies have been captured by the big corporate lobbies in the major countries”, suggested Walter (2001, p. 52).

The situation, nonetheless, has improved as NGOs have been able to attend the Ministerial Meetings of WTO since the Singapore Meeting. Lacking transparency is another accusation towards the WTO and website is their only medium of exchange with public as well as to promote their public image.

Is the WTO a Democratic Institution?

A question frequently raised by NGOs and the LDCs – is whether the WTO is a democratic organization. The WTO has always emphasized that they are open and democratic. The membership of is in form of “nation-state” and most of the decisions are consensus rather than voting. This is the major difference between the WTO and United Nations (UN) or International Monetary Fund (IMF). Sampon (2000, p. 12) argues, “ if democracy means the consent of all members in the decision-making process, then the WTO is very democratic…decisions are not taken until each member is satisfied that the rights it has acquired and obligations it has undertaken are balanced fairly”.

In addition, the WTO is an organization that has been regarded as anti-democratic, anti-people and anti-environment. And, the WTO is frequently perceived as a nontransparent organization. Sampson (2000, p. 36) says, “one problem is the difficulty in obtaining information on activities of the Organization itself. It is hard to find out what the WTO is doing, the critics say, the Organization must have something to hide”. Despite we have no idea whether the WTO is hiding something, we can sure that there is insufficient transparency of the WTO.

Although some LDCs do have a seat in the WTO, as far as mentioned, the developed countries or the wealthier countries dominated the decision making. Khor (2000, p. 44) argues, “these powerful countries negotiate and make decisions among themselves, and then embark on an exercise of winning over (sometimes through intense pressure) a select number of the more important or influential developing countries”. For example, there is informal meetings in Geneva with very limited participation of the LDCs. Khor (2000, p. 46) continued suggested that the LDCs cannot individually and adequately respond to these new proposals and positions, nor can they collaborate with other developing countries to develop common positions.

Theoretically, every citizen has a voice through his or her government. The decisions of the WTO, unfortunately, are only made behind closed doors and documents of disputes are kept secret. As such, it is not accountable to public too!

Future Scenario

As far as concerned, the LDCs will even getting poorer and if the developed countries choose to maintain their protections on trade. Bayne (2000, p. 146) suggested that the developing countries could well have agreed to discuss labour and environment if the Americans had opened up more on tariffs, textiles and anti-dumpling”. As the income gap between the developed countries and the LDCs has been widened, much social conflicts and unrest aroused. “ It would therefore be the interest of all countries if rich nations reduced their tariff and other protection…the products of the poorest countries should be admitted duty- and quota-free”, Bayne (2000, p. 144) states.

In order to alleviate the problem, the developed countries should make sure that the LDCs will not being left by globalization and even help them expand their trade and revive their growth. To be more forward looking, according to Bayne (2000, p. 144), the new round of WTO “should focus on issues where developed countries still denied access to the products developing countries had comparative advantage: agriculture, textiles, anti-dumpling procedures and tariff escalation…faster removal of textile quotas”.

As such, reform of world trade is the unique solution for ending up the deep social injustices that bought by globalization. It is ironic that while the developed countries exploit the LDCs, it is left to western NGOs and charities to press their own governments for decent trade rules.

Conclusion

To sum up, this essay mainly outlined how the trade is unfair to the LDCs under the practice of the WTO. Meanwhile, lacking transparency and its closed-doors nature have also been covered.

Some advocates found the WTO positive as it provides some necessary trade rules to regulate international trade. Also, it is a valuable platform which provides chances for open discussion on trade issues. Certainly, the WTO can no longer do whatever they like behind closed doors. The public started realizing the undemocratic processes under this trade regime. What is need is not free trade but fair trade, but a holistic and democratic approach to global trade that ensure public participation and accountability.

Bibliography

Anonymous, 2002 “How the West Stays Rich Through Unfair Trade” at URL: http://www.goacom.com/overseas-digest/Archives%203/stayrich.html, accessed on 2 October 2002.

Fox, C. H. 2000 “When Free Trade is Not Fair Trade – Behind Closed Doors of the World Trade Organization”, at

URL: http://www.api4animals.org/default.asp?ID=774, accessed on 1 October 2002.

Ganesan, A. V. 2000 “Seattle and Beyond: Developing-Country Perspectives”, The WTO After Seattle, International Economics, Washington, pp. 85-90.

Khor, M. 2000, “How the south is getting a raw deal at the WTO”, Views From the South, Foodfirst, Chicago. pp. 7-53.

Sampson, G. P. 2000 “Transparency and Public Access”, Trade, Environment, and the WTO: The Post-Seattle Agenda, Johns Hopkins University Press, Washington, pp. 35-48.

Talvi, S. J. A. 1999 “World Trade or World Domination?”, at URL: http://www.motherjones.com/wto/talvi.html, accessed on 1 October, 2002.

Wallach, L. & Sforza, M. 1999 “Human and Labor Rights Under WTO”, The WTO: Five Years of reasons to Resist Corporate Globalization, Seven Stories Press, N.Y. pp. 59-62.

Walter A. 2001 “NGOs, Business, and International Investment: The Multilateral Agreement on Investment, Seattle, and Beyond”, Global Governance, vol. 7, no. 1, pp. 51-73.

Wilkinson, R. 2002 “The World Trade Organization”, New Political Economy, vol. 7, no. 1, pp. 129-141.

World Trade Organization 2002, at URL: , accessed on 2 October, 2002.