World Trade Organization (WTO) And Its Role in Globalization: An Analysis

Posted on April 13, 2012 in GlobeScope

By Arpita Sharma:

WTO_Ministerial_Conference_December_2011The impact of the information technology has been to highlight a fourth element in the process of globalization and make it typical of globalization in our times. This is financial capital invested in the capital market of emerging countries. It is true that in the earlier period of gradual globalization, finances were even invested but this was in the form of foreign direct investment in factories and enterprises in different countries. The integrated capital market is a unique feature of the 20th century and our current times. A corollary of the process of globalization and the impact of technology has been the impact of advances in communication especially through satellite broadcasts as well as other means of communications like fax, telephones and the internet. This freedom of communication has also led to a pressure especially on those governments which try to operate a controlled regime. The collapse of the Soviet Union from 1990 onwards and the conversion of many of the erstwhile communist countries to market dynamics can also be, among other things, traced to the era of information technology where policing the borders became more difficult in view of the reach of technology.

This, in turn, led to a greater pressure on the global trade front resulting finally in the end of the Uruguay round leading to the setting up of the WTO in 1995. One major impact of the WTO has been that the trade barriers must be brought down. Government of India is also now part of this general trend. After the permit license raj for nearly forty years, from 1991 due to factors beyond contract, the Government of India adopted policies which are more market friendly. We are still progressing perhaps in a gradual way with two steps forward and one step backward. But the fact remains that in certain infrastructure areas like telecommunications, changes have come to stay.

The World Trade Organization (WTO) is among the most powerful and one of the most secretive international bodies on earth. It is rapidly assuming the role of global government, as 134 nation-states, including the U.S., have ceded to its vast authority and powers. The WTO represents the rules-based regime of the policy of economic globalization. The central operating principal of the WTO is that commercial interests should supersede all others. Any obstacles in the path of operations and expansion of global business enterprise must be subordinated. In practice these “obstacles” are usually policies or democratic processes that act on behalf of working people, labor rights, environmental protection, human rights, consumer rights, social justice, local culture, and national sovereignty.

The International Forum on Globalization (IFG) focused its efforts throughout most of 1999 on the WTO and its relation to the larger issue of economic globalization. In Seattle, World Trade Organization (WTO) talks collapsed from internal irreconcilable divisions and the weight of protests directed at labor, human rights, the environment and secrecy. While grievances coalesce into new coalitions, an extensive structure of roots underlying these branches was unearthed: the perverse incentives favoring transnational corporations and vast inequality in the prices of goods traded. Creating a system that promotes healthy economic development will require creating new “rules,” new institutions and funds.

The WTO, globalization, and a new world order

IMF-instituted structural adjustment programs (SAPs) were designed to boost export crops to ensure repayment of debts. But belt-tightening stipulations cut nation-state spending on housing, education, health and public transport — the sectors that buttress domestic economies. Dismantling state infrastructures has harmed many nations and has widened income gaps. The discrepancy between the “state of the economy” and the condition of populations has become increasingly evident. By the early 1990s it became apparent — even to prominent World Bank economists — that SAPS were pulling the rug out from under national infrastructures, preventing poverty alleviation and competition, and encouraging corruption. Meanwhile, floating exchange rates facilitated an explosion in currency trading (yen vs. dollars, etc.) from $18 billion daily in 1972 to over $1.5 trillion daily in the 1990. The rapid movement of what might be called “specudollars” helped set the stage for the 1996/97 collapse of Asian currencies. A new architecture for global governance could have three elements:

[1] Rules: New rules are needed to constrain capital flows to prevent the volatile, destabilizing, speculative movement of capital and to direct funds towards healthy development. Unplayable debts must be forgiven. The forgiving of debt would be a compensation for past inequities of terms of trade and extraction of wealth.
[2] Institutions: The World Bank (WB) is a bank, not a development agency. One possible candidate for administrating global governance is the Global Environmental Facility (GEF) — a union of the UN Development Program, the UN Environmental Program and the WB. GEF gives grants. Recently it has increased Non-Governmental Organization (NGO) participation, albeit inadequate; and its funding is grossly insufficient.
[3] Incentives and Funds: Perverse subsidies — those encouraging the extraction, mining, refining and combustion of coal and oil — must be eliminated. Subsidies and tax incentives must be switched to stimulate producers and consumers of clean energy and energy-efficient technologies. New enterprises for fuel cells, solar, etc., can generate jobs and trade — a “win-win” for the economy and the environment. International agreements — such as the Kyoto Climate and Biodiversity Conventions — are hampered by the absence of financial resources. Universal acceptance of the 1987 Montreal Protocol to phase out stratospheric ozone depleting chemicals was achieved when funds were allocated to transfer technology to poor nations. For wealthy and poor nations, funds can help “jump-start” clean, infant industries. Funds are also needed to support what the private sector will not, such as watershed protection.

Compensation will be needed for nations sharing their genetic resources for medicines and crops. And (credit Harvard economist Jeffrey Sachs), funds are needed to develop vaccines and drugs for diseases like HIV/AIDS and malaria, for which there is no current lucrative market in the most afflicted nations. And funds are needed for reparations for climate and extreme weather-driven devastation in nations such as Honduras, Venezuela and Mozambique. Developed nations have also begun to experience more severe and unpredictable weather patterns. Hurricane Floyd in North Carolina, September 1999, afforded an abrupt and devastating end to an extended summer drought. Prolonged droughts are also afflicting parts of Europe, while growing temperature contrasts between cold poles and warm tropics generate windstorms, like the twin winds that raced across the Atlantic over Christmas 1999, destroying France’s forests. Extreme weather events are having long-lasting ecological and economic impacts on a growing cohort of nations, affecting infrastructure, trade, travel and tourism.

WTO’s limited mission

The WTO replaced the better known GATT (General Agreements on Tariffs and Trade) which was itself a far cry from the originally planned International Trade Organization (ITO). The ITO was to be created after the second World War as the third pillar of the Breton Woods system and was meant to take an integrated approach to many trade related matters: securing full employment, reducing tariffs which stand in the way of economic growth, protecting workers’ rights, preventing undue domination and manipulation by big companies (competition policy), assisting weaker economies in gaining access to capital and technology, and managing commodity trade. The WTO was established with a far more limited mission:

[1] Enforcing the trade
contracts negotiated in the Uruguay Round (1986-1994) among the member countries (132 by end September 1997).
[2] Continuing negotiations on trade and investment rules and liberalization of trade in agricultural and manufactured goods, the services sector (e.g. consultancies, tourism) and investment.

But many of the matters the Ministerial Conference, the highest decision-making body of the WTO, had to contend with at its initial meeting in Singapore in December 1996 were ITO issues left out of the WTO: passionate discussions on whether the WTO should deal with labor rights; calls for technical and financial assistance for the least developed countries (LLDCs) and new WTO discussion groups on the issues of competition policy and multilateral investment rules. As in the draft ITO, the WTO has to cooperate with the World Bank and the IMF with a view to achieving greater coherence in global economic policy-making. Cooperation agreements between the WTO, the World Bank and the IMF have been signed but there is no high level macro-economic co-coordinating mechanism to deal with debt, trade imbalances and budget deficits – all obstacles to weaker economies benefiting from world trade. Co-operation seems to occur mostly at the operational and country level such as exchanging information and expertise at meetings and among officials (e.g. on balance of payment problems of a particular country). Recently, the World Bank and the IMF have been involved in efforts to coordinate technical assistance for each of the LLDCs. Such co-operation increases the danger of joint conditionality towards total free trade in developing countries.

WTO’s role in globalization and marginalization

At the Singapore Ministerial conference many euphoric statements were made about the achievements of globalization and the WTO’s contribution to this process. Globalization is not only the result of technical innovations, capital concentration, the geographic spread of production processes and other company strategies to improve profit-making worldwide 24 hours a day. Political decisions by governments to remove institutional barriers to international trade and capital flows and to provide incentives for companies have also supported the globalization process: at national level through unilateral liberalization and structural adjustment for export-led growth, and through labor and social policy reform; at regional and multilateral levels, through agreements on trade and investment liberalization.

The WTO is the most important regulator of trade at international level and also sets the terms within which regional agreements can be signed. In this way, globalization is managed at world level from a trade perspective.

The WTO contributes to unequal competition

The WTO and the Uruguay Round agreements contribute to unequal competition because:
1. Developed countries give less market access to products from developing countries (average 4.3%) than those from among themselves (average 3.8%), and tend to impose high tariffs on those products most valuable to least developed countries (clothing, leather, fish, agriculture).
2. The phasing out of quantitative restrictions for textiles and clothing exports to the North is very slow and may make it difficult for small and poor producers to compete.
3. The agricultural agreement has led to competition between (indirectly) subsidized farm products of the North and unsubsidized agricultural products in developing countries.
4. Safeguard and anti-dumping rules still have loopholes and are more frequently being used to stop competition from labor-intensive products.
5. The enforcement of intellectual property rights (TRIPs) is likely to make necessary technology and essential goods (e.g. medicines, seeds) too expensive while not being able to stop bio-piracy by foreign companies.

About the author: Arpita Sharma is Ph.D. Research Scholar with UGC-JRF fellowship in the Dept. of Agricultural Communication of G. B. Pant University at Pantnagar. She obtained her M.Sc. from the same University. Her research interests focus on Effects of Information Communication Sources on Rural Society. She has published review papers, research papers, articles in various Mass Communication journals and Rural Development Journals as well as Magazines. She had got the Assistance- ship during M.Sc. and UGC-JRF Fellowship in Ph.D. She has presented papers in National and International seminars.