Major strengths and weaknesses of the global trading system

Economic integration is moving through the world at rapid speed and globalization has brought great benefits to both developed and developing countries. As trade is considered to be the ‘engine’ (driving force) of the integration process, the World Trade Organization (WTO) with its 153 members can be viewed as an essential pillar of globalization. Since its inception in 1995, the WTO has been the main international organization for liberalizing trade in goods, services and intellectual property, as well as the guardian of economic stability and predictability for the world’s trading nations. However, the multilateral trading system that was a prosperous source of new unique trade agreements and rules faces now severe challenges, as it is unable to counter the criticism. The conclusion drawn by radical critics and reformers, as well as strong supporters, is that there is an urgent need to reform the WTO: to introduce a more flexible approach to negotiations and decision-making, provide greater transparency and address issues related to politics, labour and the environment. 

In this essay I intend to discuss the main strengths of the current trade system, showing their importance to both the world economy and to the economy of a particular country, address the weak points, which are regarded as vital within the WTO, and which may lead to critical and dramatic outcomes. We must take into consideration the globally important agreements as well as the essential platform that the WTO represents for both developed and developing host countries.

It is these strengths that I intend to bring to light in this essay, along with certain weaknesses concerning the WTO’s relationships with external societies and its structural breakdowns. This essay will offer three proposals as possibilities for reform, with the aim to counter the criticism, limit the range of extraneous threats and strengthen the WTO’s ability to detect any negotiation vulnerability.

It’s clear that the WTO has both strengths and weakness. In particular, strong supporters of the organization believe that since its creation, the WTO “has made negotiations more transparent and has increasingly involved its developing country members” [Dadush, 2009, p. 2]. 

Still, to a considerably high degree, the WTO is gaining opportunities thanks to its democratic legitimacy, and here I can point out several remarkable strengths, namely:

  • The representation of a unique negotiation platform for countries;
  • The most significantly accepted agreements (GATS, TRIMS, TRIPS, SPS, TBT and SCMs);
  • A high interdependence and cooperation with fast-developing countries.

Firstly, the WTO’s negotiation system, which is based on principals of cooperation and non-discrimination, is helping to reduce inequality, bridging the economic divide, has hitherto resulted in numerous beneficial agreements between countries, and is frequently used to settle disagreements. Providing grounds for negotiating commercial agreements and to settling trade disputes, the WTO, with its predecessor the GATT, has reached a total of 211 agreements that are in force now, and 23 regional trade agreements among developing countries. In addition, within the WTO’s Dispute Settlement Understanding (DSU), which establishes panel procedures, some 399 disputes have been filed, providing nations with key findings on significant procedural matters. Contributing to trade liberalization the WTO has provided substantial reductions and rationalization in tariffs, introduced economically rational boundaries on the implementation of subsidies and non-tariff measures. Despite the fact that the WTO is one of the youngest international organizations its host role to new negotiations can be considered to be its unique and hugely important strength.

Secondly, the creation of the GATS and latest agreements in transportation, telecommunications, finance and insurance under it should not be underestimated, because regardless of the fact that services present about 20% of total trade, these agreements are becoming increasingly important for cross-border flows of services. Restrictions under the Agreement on Textiles and Clothing terminated on 1 January 2005, as well as most common free trade agreements among RTAs, can be presented as economically significant achievements among WTO members.

As the organisation’s third remarkable strength, I can point out that, since about two thirds of the WTO’s members are developing countries, the WTO plays an increasingly important role in the integration of these countries into global trade liberalization to the benefit of both developed and developing countries. The elements of such integration (into the WTO and the multilateral trading system) include not only the continuation of the existing special and differentiated treatment of developing countries and increasing technical and financial help, but also reform of existing agreements and the formulation of new agreements to improve market access opportunities [Schoenbaum, 2005, p. 10]. The most remarkable gain made in the past years has been made by China, providing access to new markets and reshaping the global economy. Therefore, the evident strength of the WTO is in dealing with special needs of not only developed countries but also the developing ones, and thereby promoting the liberalization of trade by providing improved access to new rapidly-growing markets and to more efficient factors of production.

Yet, it’s clear that the WTO system has weaknesses. Its opponents claim the WTO to be a fundamentally undemocratic organization, which continues to increase inequality, making the world unsafe and destroying the environment. However, I believe that the criticisms of the WTO, which reflect its major weaknesses, can be divided into three main categories:

  • The dysfunctional structure of decision-making, agenda-setting and DSU processes;
  • WTO’s external non-transparency;
  • The inability of developing countries to posit and protect their interests.

The way the WTO institution is run

The structure of the WTO is based on a set of rules, which were created for a smaller number of participants of trade negotiations many years ago. As globalization is spreading rapidly and creating new emerging markets and economies that have access to the WTO, the WTO operations can no longer be based solely on these rules. Jawara F. and Kwa A. stress that “reform must also focus on the matter in which the WTO agenda is currently biased in favour of the interests of its most-developed members at the expense of less affluent members”. It is worth emphasizing, that it was the imbalances between countries in setting the agenda and the inability to agree on the agenda, which led to the unsuccessful Seattle process. Other critics have characterized the decision making in the WTO as complicated, ineffective, unrepresentative and non-inclusive; more active participants, representing more diverse interests and objectives, have complicated WTO decision-making, and the process of «consensus-building» has broken down. With respect to the weaknesses of the WTO Dispute Settlement System, the length of disputes, despite the deadlines, is another source of unfairness. Critics state that “the WTO dispute settlement system is veering off course, and is increasingly a threat to the legitimacy of the entire body” [Lighthizer, 2007] and that “the WTO dispute settlement system has been far more an exercise in policy-making, and far less an exercise in even-handed interpretation of the carefully negotiated language … than the WTO enthusiasts are willing to admit” [Greenwald J., 2003 as cited in Ikenson, D.J. and Lighthizer R.E., 2007].

External transparency and the relationship of WTO to civil society and business

Many critics of the WTO note that the organization lacks external democracy and believe that, because decisions taken at the WTO have a great impact on the whole society, the WTO should aim at transparency. Information about trade issues and final decisions, as well as clear dispute settlement mechanisms are essential for representation at the international level, so that every citizen and trading organization, has complete, real-time access to information about how settlements were reached, because it is rarely clear which nations really take part in the decision-making process. In other words, operational relations with NGOs during trade negotiations and dispute settlement will contribute to positive key issues discussion and “influence WTO outcomes, especially on sensitive environmental and labour issues” [“Institutional Reform of the WTO”, 2000, p.15].

Developing and least-developed countries within WTO

Although the WTO claims that it works internationally to benefit every ordinary person, more and more critics oppose the WTO with regard to its developing countries policy. Developing countries that lack both economical and administrative platforms to hold negotiations are the main beneficiaries of trade facilitations, but the main question raised by critics has been whether the advantages for developing countries from the WTO’s trading agreements exceed the disadvantages, when put into practice. The best-known example of this was the situation after the Uruguay Round, when, despite the promises made to developing countries, agricultural liberalization didn’t proceed and still “it is true that agriculture is heavily protected and subsidized in the developed countries” [Panagariya, 2005, p.9]. Another criticism points to the lack of legal resources and research support available to developing countries and the growing concern about pressure being exerted on developing country leaders by using official and un-officials methods.

I would like to propose several concrete structural recommendations that provide a systemic basis for reforming the WTO presently and effectively:

  1. The WTO faces the crisis of legitimacy and needs to meet many critical demands. The WTO’s governance has to completely rethink the ineffective, and to some extent unfair, process of decision-making, moving towards internal and external transparency. The issue in need of reform is the structure and process of decision-making. There is need for the possibility to contemplate and to implement the consensus, which would be based on the majority of voices, diplomacy and the true system of weighted voting in controversial issues where the necessity of presence of all members is not proven and can be neglected that will definitely ‘lighten’ and speed decision making process.
  2. Provision of a real-time and partial voting power access of NGOs to the WTO negotiations, in order to secure their participation in controversial matters, and deal with specialized issues that not only affect trade decisions, but would also have a comprehensive impact on non-trade, environmental and labour, practices. Shaping relationships with NGOs, making these relationships legal and providing the NGOs with access to the WTO’s processes of negotiation and dispute settlement will allow the organization to integrate rationally into the challenging and quickly-developing world trade society.
  3. In regards to the lack of attention to procedural issues within the WTO, a highest Executive body or Consulting Committee can be established to control the way the negotiations are held, in order to provide effective coordination within the WTO and between the WTO and other institutions, and to establish a mechanism for dealing with trade issues – which would take into account that trade should not be considered as an end in itself. The most urgent measures for reform include: better practices for guidelines and timetables, limiting powerful countries in the use of blackmail, automatically allowing de-restriction for all members have to be represented immediately. Another important task of the highest Executive Body would be to estimate the economical effect of decisions made and agreements reached within the WTO on both the member and the beneficiary countries, taking into account their population level and export-import structure, and to plan possible outcomes of a particular proposal on a particular country taking into account its economic figures.

To conclude, in its 14 years, the WTO has seen its members through hundreds of negotiations, aiming first and foremost to liberalize trade and ensure a beneficial outcome for all participants. As a global institutional organization, the WTO has succeeded in this, and key changes were introduced into society, resulting in trade proposals and agreements that affect the whole planet. However, the negotiation system of the WTO, with its rule-based principals, is not able to cope with the growing demand of all countries to be heard, and lacks effectiveness in addressing the global scale of the present situation. The time to reform the WTO, to implement new ways of settling disputes and drafting a new global trade agenda has come. I believe that as long as it is of vital importance to counter the significant conflict of interests facing the WTO today, reforming the organization is justified.

Statistics: 1988 words.

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