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The World Trade Organisation

Question:

Discuss about the Political Proximity and International Trade.

The World Trade Organisation (WTO) can be identified as an intergovernmental organisation that plays a major role in the trade settlement of nations regulating trade set up for manufactured goods and services at the international level. In 1995, the WTO came as a replacement of General Agreement on Tariffs and Trade (GATT) as the global trading organisation of the world (Banks 2016). Precisely, the central principle of the WTO is to make trade-related dispute settlement following a mechanism governed by regulations and legislation. According to the agreement with the WTO and the members, trade disputes are settled following multilateral system instead of unilateral action (Eglin 2015). In this particular study, a current crisis of the WTO has been identified. In the meanwhile, the 2017 Trade Policy Agenda of the United States of America has contributed towards a crisis situation for the WTO. As per the latest Trade Policy Agenda of the US, the trade policy to be delivered for the future will resist any efforts of the WTO or its members that will weaken the trade rights of the US.

Evidently, such stance of the US can be termed as a crisis for the international trade governing organisation such as the WTO limiting the administrative rights and power of the international body. In this study paper, the current crisis scenario of the WTO on this particular issue has been elaborated. Furthermore, the principal cause of the issue has been discussed providing evidence. In addition, the essay paper has demonstrated the impact of the crisis on the WTO’s trade frameworks and operational activities (Dajud 2016). Moreover, the study has identified how the issue can be solved to improve the existing condition and restore the positional status of the World Trade Organisation in front of its members (Limenta 2012). Apparently, the crisis situation will result in the decline in obligation to trade and industry multilateralism as the rest of members will follow the same suit in the near future.

Previously, it was criticised that international trade has been hijacked or dominated by richer countries that affects the economic growth of the poor nations. Such evidence leads to intense criticism and protest. According to Shah (2007), World Trade Organisation is a significant international body that helps to promote free trade among different economies of the world by drawing new rules and policies. Furthermore, the World Trade organisation faces several challenges and issues due to political, economical, socio-cultural, and other factors that influence the operations of the firm over the global market (Winham 2016). Notably, the WTO controls the trade operations and policies of different countries that have varied political powers controlling the ruling chair. Hence, a change in the individual policy of a member country and shift in the international trade choices may lead to imbalance in international trade and negatively impact the economic growth of developing nations. Effectively, such policies and measures are directly related with the economic stability of developed nations (Banks 2016).

The Current Crisis of the WTO

The World Trade Organisation is the responsible body for controlling all sorts of trading operations of both developed and developing nations. The Global Financial Crisis during the year 2007-08 led to the financial downfall in the entire global economy resulting in a disastrous situation that resulted in shortage of trade finance (Eglin 2015). Hence, the problem of the GFC led to a major crisis situation for the WTO during and after that period. In the same manner, the issue of agricultural trade policy and political conflicts between different nations were some of the major factors that have led to crisis situation for the WTO in the past (Winham 2016). However, WTO had been quite capable in mitigating the issues of unavailability of trade finance after the Global Financial Crisis and solved the political conflicts between several economies to promote free trade across the globe. In the same manner, the WTO has faced a new crisis situation in the current scenario due to the new policy of the US government (Winham 2016). The change in the mindset of the US government and their policy for international trade has created different problem for the World Trade Organisation.

The 2017 Trade Policy Agenda of the United States of America has contributed towards a crisis condition for the World Trade Organisation in the existing state of circumstances. As an intergovernmental organisation, the WTO has successfully regulated and managed the international trade for the member nations (Garred 2016). In this recent time, the Trade Policy Agenda of the US in 2017 has positioned a challenge in front of the international trade governing body. Under the Trade Policy Agenda of the US, the emphasis has been put on American sovereignty in trade agreements and policies ("WTO Crisis" 2017). According to the latest Trade Policy Agenda, the governing body of the US Trade has clarified that any efforts by the WTO and its members restricting the trade benefits and rights of the US will be resisted (Paletta et al. 2017). Clearly, the new US trade policy has contained norms that are promoting bilateral trade deals instead of multilateral and regional trade patterns. Moreover, the US trade policy confirms that the WTO’s rules and regulations cannot force the US to make an alteration in the trade policies of the United States of America ("2017 Trade Policy Agenda And 2016 Annual Report Of The President Of The United States On The Trade Agreements Program" 2017).

The Impact of the Crisis on the WTO’s Trade Frameworks and Operational Activities

Evidently, such trade policy of the US will be a critical issue for the international trade regulatory body i.e. WTO. According to the economists, such trade policy will encourage the other members of the WTO to follow the same trend in the upcoming future. The US Trade Administrative has disregarded multilateral trade engagements as it is not beneficial for the country’s economic perspective while bilateral trade set up has been more profitable. Furthermore, the US can be identified as the leading driver of the international trade policy (Stevis and Assetto 2016). Hence, if the US Trade Administrative will be reluctant to follow the collective rule-making system of the World Trade Organisation, it will create long-term economic as well as trade uncertainties as the rest of members of the WTO will follow the same footprints. In this way, the control and sovereignty of the WTO over the international trade and policies will be restricted (Umana Dajud 2016).

Under the existing circumstances, the administration led by the US President, Donald Trump has set up latest US Trade Policy stance that has been identified as the principal cause of the crisis of the WTO. In the past, the WTO has successfully managed the Trade Facilitation Agreement (TFA) among its members to control the trade of goods. In the current scenario, the authority of the WTO may reduce as the largest economy of the world; the United States of America is disrespecting the trade and dispute settlement tactics of the WTO (Grabel 2009). Evidently, it is the dominance of the US on the global market that has contributed such crisis situation for the WTO. According to the 2017 Trade Policy Agenda of the United States of America, the US will not follow any of the trade related orders carried out by the WTO or its members if those are limiting the trade benefits and profitability of the nation (Hufbauer and Jung 2016).

According to Paletta and Swanson (2017), the new trade approach of the US government is expected to impact the businesses and customers across the globe. The new approach suggests putting new tariffs against the countries that practices unfair trade in order to develop adversarial relationship with China and other trading nations. Additionally, the new policy of the US government will punish the organisations that relocate their production facilities in the overseas market and sell its products in the US market (Bahar 2017). As per the US President Donald Trump, the government will use a more aggressive approach in order to enhance its economic growth and seek better positioning over the global market (Bahar 2017). However, the new policy of the US government is expected to negative impact the free trade strategy of the World Trade Organisation. It can be seen through the 336 pages report of the new US Trade Policy includes a section named as the “President’s Trade Policy Agenda” that presents some of the possible policies that would break from the international trade policy of the WTO ("2017 Trade Policy Agenda And 2016 Annual Report" 2017).

Proposed Solutions to Restore the Positional Status of the World Trade Organisation


The new US trade Policy include a term of putting check over the outsourcing of production process in the foreign market that would provide better employment opportunities in the domestic market (Auboin 2017). By considering the case example of Ford Motors, it can be seen that the company has been forced to cancel the development of its factory sight in Mexico after the introduction of the new trade policy of the US President just after the election (Colander 2013). Though the new policy is expected to provide better employment opportunity in the US market, the cancellation of the development of new factory sight in a cost effective location will negatively impact the financial model of the Ford Motors and lead to a loss of reputation in the Mexican market. Hence, the new trade policy of the US government will force the domestic companies to stop outsourcing their production processes and negative impact the balance of trade over the international market.

The major threat that has been felt from the decision of Donald Trump government is the breakout of the US government against the policies of the World Trade Organisation. According to the article WTO Crisis (2017), the 2017’s Trade Policy Agenda of the United States has emerged as a major factor leading to a crisis for the World Trade Organisation. Though the current stories of the WTO organisation depicts the success of the Trade Facilitation Agreement (FTA) in goods, the beginning of disrespecting the dispute settlement policy of the WTO from the largest economy of the world would encourage other economies to follow same suit ("WTO Crisis" 2017). Hence, it can be seen that the changes in the trade policy of the US government is the major factor leading to the current crisis faced by the World Trade Organisation in terms of encouraging free trade across the globe.

In the meanwhile, the current crisis of the WTO will bring a number of consequences to be discussed. In this particular section, the impact of the existing crisis of the WTO followed by 2017 Trade Policy Agenda of the United States of America has been described herein below:

  • The chance of eliminating TFA in Goods: Since the inception of the WTO, the organisation has come a long way in setting up global trade agreements between its members via the Trade Facilitation Agreement (TFA) in goods. In the existing policy condition of the US, the 2017 Trade Policy Agenda of the United States of America has threatened to leave the WTO. During such move, TFA in goods with the other members may be disrupted as well in the upcoming future.
  • Loss of Authenticity in Global Trade Settlement: As the US Trade Policy Agreement has vowed to follow aggressive trade system for the interest of the US workers, new trade agreements can be disrespecting for the WTO. As a result of the consequences, the rest of the WTO members might follow the same suit in the near future that will lead to loss of authenticity in international trade settlement and dispute management (Moon 2015).
  • Decline in multilateralism trade order: The main agenda of the WTO has been to promote multilateralism trade order at the international level. However, the 2017 Trade Policy Agenda of the United States of America has been focused on bilateral trade system. In this way, influence of the largest economy of the world may increase further opportunities in bilateral trade system as other WTO members may show their interest in bilateral trade agreements.
  • Possible Trade War situation for the US: The current trade policy led by Donald Trump may force the US to face a possible trade war scenario as US exports may to deal with export tariffs imposed during the bilateral trade settlement with the countries such as China and Mexico. In this particular scenario, the GDP of the US may see a slow growth till 2026 as shown in the underlying figure.
  • Restricting the expansion of global trade: Markedly, over the previous two decades, the WTO has largely contributed towards the expansion of global trade involving the developing countries within the multilateralism trade agreements (Destler 2016). However, the latest crisis scenario led by the US Trade Policy may restrict the expansion of global trade.

On the basis of the above analysis, it can be seen that the new crisis in the World Trade Organisation may lead to several negative impacts over the international trade balance and economic stability of various member countries of the WTO. Additionally, the policy of the US government may lead to several issues for the developing countries who are the member of the WTO. Hence, the international governing body needs to develop new policies to mitigate the crisis situation and promote free trade and cooperation among the various major economies of the world. Firstly, the WTO must focus on negotiating the international trade policies with the US government in order to meet their demands and make necessary changes in the Trade Facilitation Agreement to minimise the opposition of the United States (Oatley 2016). Secondly, the World Trade Organisation may use a discriminating policy by asking its members to boycott any sort of international trade with United States (Panagariya and Duttagupta 2012). The second step will lead to economic losses for the nation as it will not get any access to developing markets in the countries that are the member of the WTO (Oatley 2016). Therefore, the US government will be forced to make changes in the 2017 Trade Policy and follow all rules and regulation of the WTO.

Conclusion

Conclusion

By considering the above analysis, it can be seen that the WTO is an international intergovernmental organisation that is responsible for regulating the trade among several economies of the world. Currently, the 2017 Trade Policy of the US government has emerged as a major factor leading to a crisis situation for the World Trade Organisation. The disrespect of the US government towards the rules and regulations of the WTO would encourage other major economies to work as independent market and lead to a chaos in the global economy. Furthermore, the policy of the US government would negatively impact the free trading strategy of the WTO and further lead to financial crisis in various developing nations of the world. The current crisis of the WTO may restrict expansion of global trade and lead to a trade war situation in the US economy. Hence, it is important for the WTO to take necessary steps in order to enforce the US government to make changes in its current trade policy. Conclusively, the crisis situation must be dealt with proper negotiation process and strict policy measures in order to mitigate the issue and benefit the entire global economy.

"2017 Trade Policy Agenda And 2016 Annual Report Of The President Of The United States On The Trade Agreements Program". 2017, 1-50. https://ustr.gov/sites/default/files/files/reports/2017/AnnualReport/AnnualReport2017.pdf.

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Winham, Gilbert R. 2016. "The World Trade Organisation: Institution-Building In The Multilateral Trade System". The World Economy 21 (3): 349-368.

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