The paper contains a discussion about the roles of WTO. The roles of WTO in promoting international trade, globalization, good interrelationships and dispute resolution have been explained. The background about the organization has been provided to link its role with the mandate provided by its founders. The current issues affecting the organization such as the global recession of the 2007-2009 have been discussed to explain how the organization has intervened in the problem. Criticisms of the organization have been discussed towards the end of the essay to show the shortfalls affecting it.
Introduction Many leaders of the world felt that after the World War II, trade was the only tool that could be used to reverse the negative trends of the war. They developed multilateral organizations to control trade between different countries of the world. Several agreements on trade were created to enhance the member countries practice favorable trade. Most of the economies had been closed before and during the war to avoid the ripple effects of poor economic practices from foreign countries. The establishment of the trade agreements led to the removal of many trade barriers which had been placed.
WTO was created to monitor the activities of trade among the countries in the global scene. Since its establishment, the organization has played the role of negotiating trade agreements and assisting the poor countries. The organization has also helped in the economic recovery of many countries after the global recession that affected the world economies recently (World Trade Organization, 2010). Role of WTO in promoting international trade World Trade Organization (WTO) was created to control trade between the member countries. Currently the organization has 152 member countries.
More than 95 percent of the world trade is regulated by WTO (Fergusson, 2008). After the General Agreement on Tariffs and Trade (GATT) was abolished, WTO was established. The organization was founded in 1995 to take over the activities of GATT. After the World War II, countries discussed ways of promoting economic development through trade. Open trade was among the key factors discussed as a tool to enhance trade through removal of discriminatory trade barriers (World Trade Organization, 2010). WTO has its headquarters located in Geneva. More than 625 staffs are employed at the headquarters to control the activities of the organization.
The organization had a budget of approximately $152 million in 2007 (Fergusson, 2008). A Director-General heads the organization. Pascal Lamy of France currently holds the position of the Director-General. The member countries make decisions about the operations of the organization. The staff of WTO has no mandate to make any decision. A consensus system is used to make decisions but not a formal vote. A Ministerial Conference makes high-level policy decisions. The conference is composed of representatives from the member countries and they meet after two years.
The General Council has members drawn from all the member countries. They make operational decisions and they meet each month. The rules of WTO are revised regularly through negotiations (rounds) to create new ones to accommodate the changing trade climate. The developing nations benefit more from the negotiations since most of the agreements are established to improve the economic status of the developing countries (World Trade Organization, 2010). The current situation of WTO A new round of multilateral trade negotiations was started at the Doha meeting in 2001 during the fourth Ministerial Conference of WTO.
Negotiations about trade in agriculture and trade in services have been going on for a long period of time. Greater trade liberalization has been the main agenda of the rounds as the developed nations seek a free market system in the international market. The September 11th terrorists attack in America encouraged the member countries to establish negotiations about reducing the effects of economic recession and terrorism (Sally, 2003). Several regional agreements have been established under WTO to enhance trade. By 2007, 385 regional trade agreements had been created.
Currently only 197 are operational (Fergusson, 2008). Trade agreements are more effective in opening trade between countries. They are easier to negotiate and provide more liberalization. However, these negotiations violate the nondiscriminatory principles of WTO. Developing countries have been disadvantaged by the establishment of the regional agreements since they cannot access the markets in developed countries (Sally, 2003; World Trade Organization 2010). The Doha meeting discussed the issues relating to the global recession, terrorists activities and the increasing number of trade agreements.
Other issues discussed were improving trade in agriculture and trade in services. Agreement on Trade Related Intellectual Property rights (TRIPS) was amended. The interest of the developing nations has been a major concern since the developed countries have dominated discussions in the past rounds (World Trade Organization, 2010). Role of WTO in trade dispute resolution WTO is involved in settling disputes concerning trade between countries. As countries trade with each other, conflicts come up and WTO is used as a mediator to solve such disputes. The organization has the power to mediate trade disputes among the member countries.
Some of the trade disputes relate to bad trade policies adopted by some countries upon others. WTO acts as a custodian to international law and uses the international law on trade to enforce the international trade laws. Countries which disobey the rules encounter sanctions which may hinder them from operating in the international trade. All countries have an obligation to follow the rules provided by WTO (Information for Development Program. 2010). Role of WTO in improving international relations International relations refer to the co-existence between two or more countries.
Private businesses, governments, international investors and other parties are involved in the transactions of international business. WTO helps the countries of the world interact peacefully with each other. This has reduced conflicts which may arise due to differences in culture and other aspects. WTO helps international leaders unite in the fight against terrorism. Many countries have developed a system of establishing a common pool of ideas. Sharing in ideas among the countries has improved peace in the world. WTO settles disputes arising from bad trade practices.
Such disputes if not controlled may result into war which can cause a lot of destruction. When countries are at peace with each other, international trade becomes more possible and exchange of goods and services is enhanced. Good international relationships have enhanced economic growth and development of the countries of the world. Economic growth and development is described as the increase in the wealth, infrastructure and the living standards of the people living in a country. When countries are at peace with each other, they can participate properly in trade and create more wealth.
Conflicts between countries lead to destruction of property and poor trade. WTO has encouraged peaceful coexistence between countries and this has been a factor which has promoted growth and development of many economies (World Trade Organization, 2010). Role of WTO in globalization WTO has been involved in the globalization of many economies in the world. Regulation about the global activities has been done by WTO to ensure fare practices are exercised by the countries of the world. Globalization refers to the opening up of the international boundaries and the exchange of information between different countries.
Globalization has improved the exchange of technologies and knowledge between countries. As economies become open more people with skills can move to other countries where there is high market potential for their labor. The public sector alone cannot accommodate all the skilled labor in a country and trade provides more employment opportunities for the people in a nation. The introduction of the internet has increased efficiency in trade by enabling people transfer information more easily. Trade attracts private investment and this generates more capital in the economy.
The gross domestic product of a country increases with increase in global trade. Growth and development of an economy is accelerated by trade since more income is generated and the living standards of the people are improved (Daniels, Radebaugh & Sullivan, 2007). Poverty levels in both developing and developed countries have declined by greater margins due to participation of countries in the international trade. Economies have acquired more wealth and the gross domestic product of countries has improved. WTO has become the custodian of international law on trade.
The enforcement of trade laws about good trade practices has been possible after the creation of WTO. The establishment of regional and multilateral trade agreements was experienced after WTO was created. This has encouraged many countries remove barriers to trade (World Trade Organization 2010). Regulation of the 2007-2009 economic recessions by WTO The financial crisis was initiated by poor lending practices of the U. S. banks. The subprime mortgage industry failed and caused many other sectors of the economy to fail. Subprime mortgages are policies which have a high risk of default.
Subprime borrowers are the people with low incomes and have a poor credit history. They have higher risk of default compared to the prime borrowers. The crisis started with the rise in prices for basic products due to the international increase in fuel prices. The prices of oil and food products increased within a short duration leading to an economic crisis which affected many people in the US. The prices for many products increased and inflation was experienced all over the country. Many subprime borrowers had low incomes and the rise in prices for basic products increased the expenses for their living.
Many companies retrenched employees to accommodate the increasing production costs. The borrowers were unable to repay the loans resulting to massive defaults. More than 100 subprime mortgage intermediaries filed for bankruptcy. Reacquisition of the houses from the defaulters caused a lot of people to become homeless (Platt, 2008). The US government had deregulated the real estate mortgages leading to massive investment in subprime mortgages. This caused the risky lending of subprime mortgages. The sub-prime mortgages were initially not popular but they became widely used in the 1990s.
The climax of the sub prime mortgages was in 2006 when they accounted for more than 21 percent of all mortgages traded in the US market. The value of subprime mortgages in 2006 was valued at $600 billion. Many subprime mortgage intermediaries were established to reap the benefits of the expanding industry (Stapledon, 2009). The world economies have experienced a major decline due to poor performance of many industries. This is a crisis which has affected all sectors of the economy. Williams (2009) claims that the crisis was initiated by the subprime mortgage lending crisis in the US.
The banking sector issued many loans to subprime mortgage intermediaries. Due to the expanding market in the sub prime mortgage market, many banks issued unsecured loans to the intermediaries. The climax of the boom was reached in 2007 when the prices of products started to increase and many subprime mortgage lenders were unable to repay their loans. This led to massive default of debts and banks registered huge losses. This reduced the lending capacity of many banks. The resulting effect was lack of credit in the economy and the collapse of many companies (Stapledon, 2009).
The World Trade Organization has negotiated with the oil producing countries to reduce the oil prices as one of the measures to reduce the effects of the crisis. The global oil prices increased causing the prices of many products to rise. The high product prices caused inflation in the whole world. WTO has also encouraged trade by persuading some countries remove the trade barriers they had placed upon their trade partners when the crisis was at climax (Stephen, 2008). Criticisms of WTO The developed nations have dominated the activities and policies of WTO. For example, according to Anderson (2005)
With decision-making based on a consensus system, so each member has equal decision-making power, the WTO is held to be the most democratic of all the international institutions with a global mandate. In practice, however, the working methods of the WTO lack transparency, inclusiveness and equity, (pp. 431). There have been conflicts as the developing nations are becoming concerned about the great influence the developed nations have on the decisions in these organization. The interests of each country should be represented during the negotiations to ensure that conflicts do not arise afterwards (Amadeo, 2010).
Despite the establishment of the trade organizations, many countries continue to place more trade discrimination measures upon other countries. “They include not just trade taxes-cum-subsidies but also contingent protection measures such as anti-dumping, regulatory standards that can be technical barriers to trade, and domestic production subsidies,” Anderson (2005, pg. 415). Many trade distortions have occurred since the global economies were established. Conclusion WTO has been successful in improving trade between the member countries. More regional and multilateral trade agreements have been established after the creation of WTO.
The developed countries have dominated discussions at the Ministerial Conferences of WTO. International trade has been effective in alleviating poverty. Economies have expanded their operations and more GDP has been generated by countries with improved systems of international trade. Poverty still affects many countries in the world and much effort need be done to address the issue. Globalization has increased trade between nations and has also enabled access to many technologies and knowledge about production. Trade has been used as a tool for alleviating poverty in many countries.
International relationships have improved with the introduction of the WTO. The organization has encouraged the member countries interact with each other to enhance understanding. The global recession was brought to a halt by WTO when it intervened in the global economic systems which had caused the failure of many economies. The organization has promoted the economic growth and development of many economies as well as encouraging international peace. The activities of WTO have been criticized for the excess domination by the developed countries. This remains a barrier to the achievement of the goals of WTO.