Understanding The Current Crisis In World Trade Organization And The Importance Of Economic Cooperation In This Essay.

The History of World Trade System and Establishment of WTO

World Trade Organization (WTO) is the international organization that deals with the rules and regulations of trade between the nations of the world. WTO designs agreements for trade, known as WTO agreements. These are negotiated, then signed by maximum number of trading nations and ratified in respective country’s parliament for consent. The objective of WTO is to make the trades between the nations flow smoothly and certainly and freely as much as possible (wto.org 2017).

The history of world trade system and the establishment of WTO date back to 1947, when the entire world was suffering from the devastation of World War II and the communist regimes were broken down. These two historical international events compelled the world leaders to establish and improve the structure of WTO. The major question that arises now is that if there should be another historical event to make further improvement in the system (Davis 2012). The essay focuses on the principal cause of the current crisis in WTO and how the causes of economic cooperation are understood.

To understand the desirability of international trade and an regulatory organization i.e. WTO, the metaphor of marathons in New York City and Paris can be used. It is known that, while the New Yorkers love to celebrate their marathons, the Parisians tolerate their marathons. The case of international trade is quite similar. At one time, the global powerhouse nations put their efforts in establishing international trade and tried to increase the level of trade by reducing barriers to trade and introducing a same level platform for every country. However, at present, the nations are merely tolerating the rules and regulations of WTO agreements and the efforts to try to make improvements in the policies. Sometimes, the nations even stand in the way of improvements (Wilkinson 2013). According to the WTO officials, in the past few months, protectionism was not that much effective. When the nations feel that, they are out of the crisis situation, protectionism does not arise, but, the growth rate remain substandard and unemployment rates are very high. During the global financial crisis, the expected level of protectionism was not present in the trade agreements. The reasons are described as the strong global disciplines resulting from 60 years of global multilateral trade negotiations. The rule book was started when the nations wanted to learn from the great depression of 1930s. in this area of global economic life that is more disciplined and more regulated. The WTO members keep a policy space within the trade policies with voluntary agreed constraints. Hence, their ability to go protectionist was limited by their international obligations (Constantinescu, Mattoo and Ruta 2015).

The Current Crisis in WTO

However, it has been proved that the economic integration of the world and global competitiveness cannot be accomplished with protectionism; rather it can be achieved by opening of markets. This needs structural changes in the economy of the nations that in turn affects the living condition of the people (Margulis 2014).

The financial crisis is recognized as an example of the failure of the free market and free trade theory. The WTO should turn away from the neo-liberal trade model and should consider that trades are for the service of the people and for the planet and not for organizational profit. The current crisis started with the Doha Development Agenda. At the backdrop of Uruguay Round, and as the negotiations regarding the trade liberalization failed in Seattle conference, the need for a conference emerged. The Doha round agreed that the trade systems of the world should be further liberalized and special assistance should be given to the emerging and developing economies  while adjusting the process of facilitating of integration into the world trade system. This was the reason behind the Doha Development Agenda (DDA) (Dunne 2012).

The objectives of the negotiation are mainly concerned with liberalization and developmental processes. These included the following conditions: the process of dismantling of the trade distorting agricultural subsidies and opening of markets for agricultural products in the developing countries; reduction of duties on the products and enhancement of the market access in case of non-agricultural products for the developing and emerging economies; introduction of service market; removal of cross-border trade barriers for services and for the movement of personnel, and restrictions on the business activities; and many more improvements in terms of trade flexibility in public health, medicines etc. They also supported the need for trade relevant infrastructure in the emerging and developing countries (Wilkinson, Hannah and Scott 2014). It has been argued that the Doha round has far more concrete and relevant trade liberalization policies than the Uruguay round. The developmental targets are also relevant and feasible. Studies show that if only one-third of the trade barriers are dismantled, these have the potential to generate up to $600 billion across the world (Aggarwal and Evenett 2014).

The laissez-faire model and deregulation for the financial markets caused the crisis and those are included in the GATS. The GATS liberalization process is mainly based on the assumption that regulation is not required before liberalization and more regulations are associated with liberalization. The GATS focused on the increase of international competition that results in the more risky behavior and made financial sector asking for lower level of regulation. They claimed that less regulation would make them more innovative and efficient. The governments allowed for the laissez faire system for enabling the finance sector gaining more profits and contributing more in the GDP and economic growth. However, later on, the finance companies that voted for GATS and WTO finance service agreements were in trouble due to excessive deregulation and free markets. Liberalization without sufficient level of supervision and regulation of the financial services led to untransparent and speculative services and derivative trading (Efstathopoulos 2012).

The Importance of Economic Cooperation

The banks bailed out and some of the financial measures violated the GATS rules. It is seen that some banks from the developing economies bailed out because the competitiveness of those countries were unfairly affected due to lack of financial support from the governments and market share of the banks did not decrease. The financial reforms in US and EU were in the conflicts with GATS. The stabilization measures for the financial sectors were restricted as these were not helping in the liberalization commitments. The developed countries such as US, Canada and the EU had avoided the discussions on these measures and the regulations with the GATS secretariat, while the developing and emerging economies such as, Argentina, India, South Africa and Ecuador were interested in doing so (Wouters and Odermatt 2014).

Finally, the negotiations of the Doha Agenda continued to follow the wrong direction. The developed countries did not want to modify their approach in negotiations with the GATS. It indicates that the EU kept on requesting many countries to restrict the capital reserve requirements but the current solutions of the crisis required more capital. On the other hand, the bilateral negotiations by the EU for liberalization of more financial services were pushed forward. The bigger banks of the world demanded that the finance market of the developing countries like Brazil should be opened for derivative trading, which can bring about complex and other deadly financial products and cause harm to the economy. The international supervision and regulation of such toxic products were not designed or implemented (Dunne 2012).

For dealing with the wrong direction of the GATS, there were some restrictions, which were imposed on the governments to deal with the crisis and the unbalanced bailouts and interventions in the crisis among the member states. The developing countries should be permitted to pull out financial services without paying for compensations until and unless the domestic and global financial reform measures have been implemented. The negotiations regarding financial services in GATS should be entirely changed and the requests and offers should be withdrawn. The liberalization process should be taken out of GATS and submitted to the primary regulators and regulatory capture by the financial sector should be avoided at all expenses. WTO has failed in dealing with these problems of financial services that led to the crisis in the WTO. Lastly, it has been observed that the crisis was mostly generated by the northern region, causing difficulties for the developing nations, who are more dependent on the trade and terms of trade than the developed countries (Efstathopoulos 2012).

Trade politics are always difficult and would remain difficult due to the rules of global trade, that are agreed upon and enforced by the parliaments. These are in favor of the developed countries, while the developing and emerging economies suffer unfairly. The Doha round is still under observation. The distortions of trade between the countries are avoided through the principles of the most favored nation. In the sensitive areas, the liberalization negotiations and process should  be supported by all the member states. The order of the WTO is the legal backbone of the world trade. The rules are implemented with dispute settlement mechanism with every member, small or big, with equal rights. Hence, a failure of the negotiations of the agreements, designed by the WTO can cause severe financial crisis in the world economy (Wilkinson 2013).

The term Economic cooperation refers to the cooperation among the countries in the field of economy, bilateral, domestic, regional and global levels. The cooperation covers several areas such as imports and exports of goods and services, borrowing and lending of capital, and grants and aids acceptance (Samadi and Homaie Rad 2013).

In the recent years, the economic cooperation among the countries has become extremely important. Over the years, the terms and conditions of economic cooperation have been evolving to include more benefits for the countries. In the modern era of globalization and liberalization, the concept of economic cooperation has become extremely important for making progress. It is also one of the most significant challenges of the countries, as it has important implications in the economic activities of the nations. This affects the industrial, productive, entrepreneurial and financial cooperation (Haya et al. 2015).

The economic cooperation between countries can be classified into two categories, namely bilateral and multilateral. The bilateral cooperation is the one involving two countries, while multilateral involves relation among many countries or one-to-many countries. Multilateral cooperation again is of two types: regional and international. Regional cooperation refers to the cooperation among many countries belonging to one particular region. International cooperation is the one among the countries scattered around the world (Knight 2013).

It is important to understand the forms of economic cooperation. It covers interstate commerce, that is, imports and exports of goods, and implementation and reception of investments and services regarding exports-imports. The purpose of economic cooperation can be explained as the following:

• Filling up the gap in the economic fields of the countries mutually
• Overall increase in the activities of the fields of monetary or financial sectors, such as, industry, trade, mining, agriculture, banking and general development of the nation
• Improvement in the standard of living across the world
• Maintaining order and peace in the world and having a cordial relationship among the countries (Hahnel 2013).

The Economic Cooperation Organization (ECO) is the intergovernmental organization for political and economic cooperation in the Eurasian region. It was founded in 1985 by the political leaders of Pakistan, Iran and Turkey. It is a platform for designing and negotiating the improvement policies for development and promoting and investment and trade opportunities. However, this organization acts for the three nations, while the other countries across the world also follow the economic cooperation in their own mutual way (Salahuddin and Gow 2014). 

Economic cooperation is required for international economic integration among the major powerhouses. If the cooperation does not happen, then globalization would not survive. The current crisis led to severe macroeconomic challenges and the world faced a difficult adjustment to cope up with the crisis situation. The adjustments implied a reduction in the surpluses of the main surplus countries of Europe and East Asia, and deficits of the main deficit countries in Europe and North America. Both of these measures need substantial changes in the domestic economies. People and the economies would prefer to turn inward and the governments would be tempted to decrease the priority given to the external ties. This situation leads to increase in the risks of breakdown in the international cooperation (Lewis 2015).

In the past, many times the countries backed out from cooperation, which had a severe effect on the economies. Sometimes political problems create economic issues. In the post crisis adjustments, the governments of the major economies would face challenge to work together for supporting a well functioning global economy. There would be some nations, who would oppose the changes enforced on them. Hence, for economic cooperation, political support and cooperation is extremely important. Then only economic integration would sustain (Hahnel 2013). 

After World War II, the thought process of the world has changed. The nations initially thought trade was a zero-sum game of winning or losing. This idea has changed to the philosophy of increasing the benefits of trade for all. The effects of the world war have been devastating for all the nations in terms of resources, man power, balance of peace and cooperation. After that, the nations were interested to adopt a new economic and political model, which would promote and expand the free trade across the globe and would also contribute in the world peace through economic, social and political cooperation. Hence, economic cooperation is not a single factor, it also includes social and political cooperation (Balassa 2013).

Economic cooperation requires reduction in the barriers to trade and in the regulations regarding the economic activities among the nations. These promote the expansion of regional and global cooperation as well as bilateral and multilateral cooperation. This cooperation helps the economies of the world to find their strengths and weaknesses, their bargaining power and positions, and ability to adjust with changed economic conditions. These changes were likely to affect the enthusiasm and the capability of the nations to collaborate and manage the global economy. The lessons learnt from the history of economic and political integration indicates that the world economy needs determined cooperation among the countries. The cross border economic cooperation needs proper infrastructure for successful implementation of the policies. It gives stable expectations about the future. In times of a crisis, when the whole economy of the world suffers, the economic cooperation among the countries can come to rescue (Lewis 2015).

Conclusion

Hence, it can be said that, to have a stable and grounded international economy, economic cooperation is very important. In the times of globalization, when the nations are becoming more and more dependent on each other due to competitiveness and comparative advantage, economic cooperation is needed. If the countries do not cooperate, the international economy would not survive the shocks of economic turbulences and crisis. Economic cooperation can only happen if there is political and social cooperation among the nations.

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