How Effective is the World Trade Organization in Removing Trade Barriers ?
The current era of globalization is increasing the dependency of the countries on one another and reducing the trade distances between them. This is mainly due to the reason that with the help of globalization, countries the trading goods in which they are having comparative or absolute advantages (Boz, Bussiere and Marsilli 2015). This is helping in optimal utilization of the resources across the world along with availability of the global products and services around the world. However, with the increase in trade practices with the countries, numbers of barriers are also being emerged in the recent time. There are number of reasons behind the emergence of trade barriers between the countries with one of the major reasons is safeguarding the domestic interests by them (Wilkinson 2013). With the increase in trade barriers in the recent time, it is becoming more challenging for the stakeholders involved in the global trade. The effectiveness of the global trade got reduced due to the emergence of these barriers. This also initiated the need for having a global and autonomous body to look after the global trade and businesses.
World Trade Organization was initiated with this objective of having a universal governing body to look after the global trading pattern and practices. The main responsibility of the World Trade Organization is to reduce the presence of trade barriers between the two countries and initiate free trade policies (Eaton et al. 2016). Thus, World Trade Organization an effective medium of reducing the global trading barriers between the countries. This report will discuss about the detailed view of what is World Trade Organization and their major objectives and responsibilities. In addition, this report will also critically discuss about the views of different regarding the effectiveness of World Trade Organization in overcoming the trade barriers. The major barriers in the current scenario of the global trade will be identified that will further help to evaluate the benefits serves by the World Trade Organization.
World Trade Organization was first commenced on 1995 with the initial agreement between 124 countries. It was pitched as the replacement of General Agreement on Tariffs and Trade (GATT). This is due to the fact that GATT was not able to include the majority of the countries and it was not effective in dealing with the trading issues around the world. Moreover, GATT was operational as contractual agreements between the countries that do not have the authority to regulate the trading practices and processes of the countries. Thus, the concept of the World Trade Organization was introduced and formed in 1995 as a separate legal entity (wto.org 2018). As of now, it is having 164 member countries that constitute more than 96 percent of the global trade. World Trade Organization is having regulations for goods, services and other trading elements such as intellectual property that are being followed by its member countries. On the other hand, they also act for resolving the trade related disputes between the countries.
Effectiveness of World Trade Organization in Reducing Trade Barriers
World Trade Organization operates on the basis of legal and regulatory framework being signed by the governments of different countries. The regulations of the World Trade Organization are being passed by the member countries and it forms legal standards that should be followed globally. With having all the major economies and countries under legal framework, it is easier for World Trade Organization to resolve the trade issues between the countries. They are having headquartered in Geneva, Switzerland. In the recent time, a number of surveys are being done and it is reported that presence of World Trade Organization helped in boosting and enhancing the global trade (Baldwin 2016). Moreover, it is also being reported that the issues in the global trade are also being reduced significantly with the presence of World Trade Organization. In the following the effectiveness of World Trade Organization in reducing the trade barriers will be discussed.
There are number of trade barriers relevant in the current trend of international business. This is increasing with the increase in complexities and intensity of global trading. According to Lester and Barbee (2013), there are number of reasons behind the initiation of the trade barriers mainly by the governments. One of the major reasons behind initiating the trade barriers is the diplomatic and political issues between the countries. The authors have stated that if any country gets in to political issue with another country, then the probability of implementing restrictions in importing and exporting is more. Thus, in this case, it is important to have a universal governing body that will settle the issue. However, it is also being stated by the authors that the universal governing body should have the acceptance to major countries around the world and the legislations should have value for the countries.
It is also being stated by other authors that apart from political issues between the countries, there are number of other issues such as safeguarding the domestic firms and business by restricting the free trade with the global economy are also being initiated. As stated by Egan and Guimaraes (2017), in the current time, majority of the developed and developing countries are restricting the free flow of the trade in order to safeguard their interests. It is also being stated by the authors that for the developing countries, the major challenge from the global trade is coping up with the advance and updated mechanism. On the other hand, the major challenge for developed countries is the inflow of cheaper human resources and other end products that is affecting their domestic business. These factors are leading to initiation of restrictions and barriers being imposed by the respective governments in the free flow of global trade. Hence, according to the authors, these issues cannot get solved till a proper platform is not being provided for discussion and resolution of the issues among the member countries. It can also be concluded that a governing body such as World Trade Organization is important that will have worldwide presence and will include the major economies around the world.
Trade Barriers in Current International Business
According to Bechtel and Sattler (2015), the major reason of effectiveness of World Trade Organization in mitigating the trade barriers between the countries is their system of conventional wisdom. This refers to the fact that World Trade Organization works on the basis of court like institutions in order to have less influence of power distribution of the world. Thus, the probability of gaining by the developed economies over the developing and underdeveloped economies is less for World Trade Organization. This is also leading to effective resolution of trade barriers between the countries. Based on this theory, Tallberg and McCall Smith (2014) stated that world trade organization being a separate legal institution is having all the provisions for probable trade disputes between the countries. It is helping them to have the effective mechanism in resolving the different aspects of trade disputes between the counties.
Hopewell (2015) has taken a different approach regarding the effectiveness of World Trade Organization. According to him, the rise of the developing nations such as India, Brazil and China in the World Trade Organization is a positive sign for the neutral resolution of the disputes between the countries. In the case of most of the international governing bodies, developed countries are having major power and preferences such as the provisions of veto power for the selected countries in the United Nation Security Council. Thus, according to the authors, rise of the developing countries in the World Trade Organization is denoting that all the member countries of them are having equal rights and values. This is helping in having equality in the dispute settlement process of World Trade Organization.
There are few different statements also being given by some authors regarding the dispute settlement mechanism of World Trade Organization. According to Sattler, Spilker and Bernauer (2014), the dispute settlement system is more of enforcement rather than clarifying the legislations. This is due to the fact that the main objective of World Trade Organization is to maintain the cooperation between the countries with disputes and providing enforcement mechanism. The authors have also stated that the role of World Trade Organization is not to clarifying the existing legislations or to reducing complexities rather their role is to enforce the stated regulations and legislations in accordance to the situation. Therefore, it can be concluded that World Trade Organization will not reduce the complexities in settling the disputes between the two countries; rather they will go by their own standards and legislations.
Critical Views on World Trade Organization's Impact
On the other hand, there are number of authors who have given not so favorable opinion about the effectiveness of World Trade Organization in settling the disputes. According to Chaudoin, Kucik and Pelc (2016), there are both arguments regarding the effectiveness of World Trade Organization in settling disputes. This is due to the reason that one section consisting of exporters, policy makers and authoritative bodies are having the opinion that policies of World Trade Organization are effective in promoting and increasing the trade pattern between the countries. However, according to the authors, analysis is being done regarding the promotion of trade between the countries showed that there is little or no improvement in trading pattern between the countries even after the interferences of World Trade Organization. Moreover, it is also being stated that dispute settlement mechanism of World Trade organization do not being able to increase the level of import and export between the countries with issues.
It is also being stated by the authors that impact of the dispute settlement of World Trade Organization is different in different countries. However, in majority of the cases, the major improvement is not being seen. Thus, based on this view of the authors, it can be concluded that effectiveness of World Trade Organization is not entirely agreed and it is having varied outcome in different countries and in different situations.
There are number of trade barriers being present in the current scenario of the international business. The major trade barriers are being initiated by government that can be solved through the settlement of the World Trade Organization. The following sections will discuss about the major trade barriers relevant in the current scenario of the global trade.
This issue is mainly faced by the developed countries due to the emergence of outsourcing from the developing countries. Thus, the governments in the developed countries are restricting outsourced jobs and products in the country in order to save the domestic employment (Riasi and Amiri Aghdaie 2013). In the recent time, United Stated is having issues with India and China regarding the outsourced jobs. This is also leading the government to impose restrictions and tariff barriers to reduce the flow of outsourcing.
There are number of instances, when the government imposes trade barriers in the form of higher level of tax and tariffs in order to improve the trade deficit with a particular country. This is due to the reason that in number of cases, one county is having much higher level of imports and trade deficit with another country that leads to outflow of the foreign reserves. Thus, in order to restrict the deficiency in bilateral trade, barriers are being imposed to reduce the import from the particular country (Howse 2016).
Currently, there are number of trading blocs such as SAARC, NAFTA and ASEAN are present among different countries. Countries within these trading blocs are having free trade policies and special benefits among themselves that are promoting the trade among them (Mansfield 2015). However, on the other hand, countries outside of these trading blocs are being deprived from these benefits. Thus, the free flow of trade is being restricted.
Dumping is major issue in the current trend of international business between the countries. This refers to the process of importing goods in price lower than their production cost. This is mainly being done by the developed countries to the underdeveloped and developing countries when they have surplus of obsolete goods (De Bievre and Eckhardt 2014). In accordance to this issue, many countries are having anti dumping policy that also creates obstacle in the free flow of trade.
If any country is having absolute advantage over other in terms of any product or service, then there are instances where they are imposing levies and added taxes. This is being done due to the reason that having absolute advantage means that all other countries have to import from them and imposing of added taxes helps in earning more foreign reserves (Levchenko and Zhang 2016). However, it should be noted that though the particular country is gaining profit by taxing but it is affecting the free flow of the international trading pattern.
There are number of benefits that can be gained from the World Trade Organization by the member countries (Ganelli and Tervala 2015). The following sections will discuss about these benefits.
Countries with having membership with the World Trade Organization are being given the status of most favored nation. This refers to the process of equal treatment to all the member countries of World Trade Organization in terms of trading (Boik and Corts 2016). Therefore, the countries cannot discriminate in trading with others and no preferential trading can be promoted. Thus the objective of free trade practices can be achieved with granting the status of most favored nation to all the member countries.
World Trade Organization is having more than 80 percent of the total countries around the world as their members. Thus, having the most favored nation status of all these countries is helping in having less trade barriers in major section of the global trade and business. The lower will be the trade barriers among the countries, the more effective will be the international business and trade across the world (Li and Beghin 2017).
As discussed earlier, World Trade Organization is having higher representation of underdeveloped and developing countries compared to the developed countries. This is helping the less privileged countries to have the market opportunities in the global economy and they will also gain the access to the markets of the developed countries (Cohn 2017). Thus, along with the reduction of the trade barriers, coverage of global trade will also get increased with the help of World Trade Organization.
In the current time, trade and business are one of the major sources of emergence of political issues among the countries. This gets further amplified when the trade barriers are being imposed by the governments, restricting the free trade practices. For instance, the recent trade war between China and the United States has emerged due to the restrictive trade policies of the United States against China (Seeebens et al. 2015). This trade war lead to global consequences with adverse impacts on the economies of other countries as well. In this case, World Trade Organization can be effective. This is due to the reason that World Trade Organization will provide the scope of discussion between the two countries and can also gather the views of other member states as well. Moreover, decisions in the World Trade Organization are being finalized by two third majorities of member states (Handley and Limao 2013). Thus, World Trade Organization will be able to provide the platform to both the United States and China in settling the disputes with consultation of other countries. This process is more constructive in nature and will be beneficial in maintaining the foreign relations of the countries as well as the global political environment.
With the help of the World Trade Organization, majority of the countries around the world will be able to get involved in a free flow trading mechanism. Thus, the natural resources will get more optimally utilized due to this along with increase in the business for the countries. Developed countries will be able to have lower cost of production by sourcing from the developing and under developed countries. On the other hand, developing and under developed countries will get benefited by having the access to the market of the developed countries. This will in turn help in enhancement of the economy of all the countries and the global market as whole.
The core objective of World Trade Organization is to have equal trading opportunities for the countries. In addition, the standards and regulations being enforced by them is universal and should be followed by all the member countries. As discussed earlier, majority of the countries around the world are having membership with the World Trade Organization (Derkx and Glasbergen 2014). Thus, following the trade standards of them is helping in having universal trade standards among the countries. This is also helping the importers and exporters in the international business to have more favorable business environment and lower level of complexities in the process. In addition, it should also be noted that having the universal trade standards is helping the member countries to have equal trade opportunities and bargaining power.
World Trade Organization is having a number of agreements in view to reducing the trade barriers in the global trade. One of the major regulations for them is the Agreement on Import Licensing Procedures (wto.org 2018). According to this agreement, licensing process for importing should be made more simple and transparent. In addition, in the agreement, number of provisions is being stated that will further enable the government of different countries to initiate and design the application process for licenses. In the process of global trade, licensing for importing process is the primary step and implementation of this agreement of World Trade Organization will help in reducing the barriers of complex licensing process (Beghin and Maertens and Swinnen 2015).
Another important agreement for World Trade Organization is Agreement on Customs Valuation that states that process of valuation of goods for custom process should be made simple, neutral and uniform (wto.org 2018). This agreement is having number of provisions that will enable the governments of the countries to set a uniform rules, regulations and standards in valuation custom duties. In the agreement, it is also stated that further information can be asked for the particular government if any accuracy in the valuation are doubted. This agreement is providing a holistic cover for the fair valuation of the custom duty. This is also helping in removing the barriers emerging from complex custom valuation process.
The Preshipment Inspection Agreement of World Trade Organization discussed about the importance of safeguarding the financial interests of member countries especially the developing counties (wto.org 2018). This is important due to the reason that there are many instances where it is identified that fraud in commercial affairs and evasion of custom duties caused loss in financial interests of the countries. The aim and objective of this agreement is to safeguard from the potential loss for these factors. Thus, it can be concluded that with the help of this agreement, World Trade Organization is more effective in managing the barriers related to the evasion and unlawful acts of custom duties (Michaletos 2013). This agreement can also help the governments indulging in the global trade in maintaining the confidentiality of the business information and avoiding conflict of interests.
Trade related Investment Measures Agreement of World Trade Organization aims to reduce the factors in the global trade that are affecting the free flow of global trade. According to this agreement, member countries of World Trade Organization should refrain from discrimination against the foreign products (wto.org 2018). Thus, this agreement of World Trade Organization states that all the member countries should have free trade policy with all the countries and preferences should not be given to any particular country. This is helping in having common and universal trade policies across all the countries. World Trade Organization is effective enough in reducing the trade barriers due to the reason that all the above discussed agreements are signed by all the member countries (Michaletos 2013). As World Trade Organization is having majority countries as their members, the effectiveness and coverage of these agreements will be more. Moreover, it should also be noted that each and every aspects in the global trade are included in different agreements of World Trade Organization that will further help in having efficient management of the trade barriers.
Thus it can be concluded that World Trade Organization is effective enough in reducing the trade barriers relevant in the global trade. In this report, there are number of views of different authors are being discussed and both negative and positive factors are being identified. In addition, the agreements of World Trade Organization are also being discussed in this report. It is identified in this report that World Trade Organization is not much effective in enhancing the business rate between the countries but it is effective enough in reducing the trade related barriers in the global trade. This is also concluded that World Trade Organization can also help in promoting free trade process in the larger global scenario.
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