The contribution of trade to the economy of a country is beyond any doubts. The positive contribution of trade to the economy of a country is done through creation of new jobs, encouraging entrepreneurial activities, and bringing new skills, knowledge and competencies into the country.
Founded in 1995 World Trade Organisation (WTO) deals with the rules of trade between nations at a global or near-global level by providing a negotiating forum and helping to settle disputes. Until its formation in 1995, some of the main function of WTO including formulating the rules of international trade was performed by the General Agreement on Tariffs and Trade (GATT) since 1948 (Peng, 2009).
Scope of the WTO
In order to analyse at what extent WTO is contributing to the facilitation of the international trade it is necessary to establish the scope of the organisation. Currently WTO has 153 members and 30 observers, most of whom are striving to be members (Members and Observers, online 2011). Moreover, the amount of trade engaged in by WTO members account for over 97 percent of the total world trade (The Organisation, online, 2011).
WTO Contribution to International Trade
WTO positively contributes to international trade in many ways. However, the contribution of WTO to the facilitation of international trade can be seen by the principles that the organisation has adopted. Specifically the main Principles of WTO can be summarised in the following points:
A) Trade without discrimination.
WTO does not allow trade discrimination among its members. If any WTO member wishes to grant advantages to any of their partners within WTO like lower taxes for their products, all other WTO members should be granted such an advantage as well. This particular principle is also referred to as the most-favourite-nation (MFN) treatment as well. The adherence to this principle positively contributes to the international trade in a way that all WTO members have equal chance of trading with each-other.
Moreover, trade without discrimination principle requires WTO members to treat imported products no worse than domestically produced products, which clearly positively contributes to the volume of international trade.
B) Freer trade
WTO maintains intensive negotiations with its members to lower barriers for between them to encourage trade. However, in doing so the organisation does not put any forms of ultimatum or harsh demands, but allows developing countries to implement recommended changes gradually. Because the economies of developing countries are weaker and more fragile on many aspects compared to the economies of developed countries, and any form of pressure would negatively affect it.
In this way international trade is further encouraged by WTO through ensuring that all of the members are engaged in fair trade, and at the same time, economically weaker members are not disadvantaged in terms of implementing WTO rules and regulations.
C) Maintaining predictability through binding and transparency
Maintaining predictability in international trade through binding and transparency is one of the efficient measures through which WTO guards members from huge trade losses caused by unpredicted tariff changes or any other regulatory changes done by any other members. As a result members more actively engage in trade among themselves. Still, any member can introduce changes in its tariffs or any other trade-related legislation, however, this must be agreed with trading partners, and any compensation involved should be paid.
This specific WTO principle greatly contributes to the amount of international trade by encouraging WTO member to confidently engage in trade without any fear of any sudden changes in the legislation of their trading partners.
D) Promoting fair competition
Having introduced trade without discrimination principle and strictly adhering to it, WTO also protects its members from other members abusing this principle against them. In other words, there are also rules and regulations in place within WTO that allow its members to introduce tariffs in some circumstances if it is clear that otherwise the country can be a victim of other members ‘dumping’ their products within that country.
Fair competition principle does allow WTO members to protect their economies from ‘product dumping’, ensuring that no members are disadvantaged from non-discrimination principle, and at the same time even further promoting fair trade between member countries.
E) Encouraging development and economic reform
Being a very dynamic organisation WTO encourages development and economic reform in its member countries. It is clear that some of the developing countries that are WTO members have not integrated some of the key elements of the free market economy within their national economies.
Such a developing countries get great assistance from the organisation that will positively contribute to the development of their national economies in many ways. For instance, as Herta-Goldman (2010) informs over 60 developing countries have implemented economy and trade liberalisation programmes at the same time during the Uruguay Round that had lasted for eight years.
The level of economic reforms within developed countries is positively correlated with the level if international trade due to the fact that the more is country is developed the greater number exports and imports the country would be engaged in. In this was, we can say that the fifth main principle of WTO also positively contributes to the level of international trade between countries.
Apart from adhering to above specified contributions to the international trade WTO also positively contributes to the development of its members in many ways including helping to promote piece, protecting the governments from lobbying, raising income for the governments, and increasing the variety of goods within a country.
Criticism of WTO
Although WTO is considered to be a big force positively influencing international trade among its members, nevertheless the organisation has attracted a range of criticism regarding various aspects of its operations.
According to (Gilbert, 2004) although WTO maintains that it is reducing sociological gap between rich and poor, it’s policies and practising actually producing reverse results, widening the sociological gap between rich and poor.
Moreover, (Hoekman and Mavroidis, 2007) state that developing countries are being greatly disadvantaged within WTO for various reasons, but mainly due to anti dumping measures against them, high barriers for agricultural products in developed countries, and the organisation itself being influenced by rich countries, a d even rich multinational corporations.
Other criticisms towards WTO include labour and environmental issues caused by WTO being ignored (Nielsen, 2009), and inefficient and complicated decision-making (Howse, 2007). The popular idea is that negligence of environmental issues can cause massive ecological and other problems in later periods of time.
Recommendations can be made to WTO senior-level management that if implemented, would greatly help the organisation to achieve its objectives more efficiently, and contribute even more to trade between it’s members.
Firstly, WTO should make progress in considering the applications from Russia and Kazakhstan, because the ascendance of these large, resourceful countries into WTO would positively contribute the amount of trade between members.
Secondly, labour and environmental issues should be addressed by WTO, because otherwise environmental or otherwise crisis may occur that will have tragic consequences for the members involved.
Thirdly, WTO management should critically evaluate their approach towards developing countries, and be more cooperative in terms of addressing their concerns in order to avoid possible conflict and improve their image. Moreover, WTO should not allow the interests of individual multinational companies to influence it’s decision-making process in one way or the other.
This report has established that currently WTO is a huge force in facilitating trade among it’s members. The efficiency of the organisation has been ensured by adherence to it’s core principles that have been effectively formulated in order to achieve objectives of the organisation.
However, at the same time there are issues that if not addressed are threatening to compromise the efficiency of WTO. The main issues include developing countries feeling disadvantaged for various reasons, labour and environmental issues caused by the organisation being ignored, complicated and inefficient decision-making etc.
The increasing forces of globalisation have dramatically changed business rules, providing both, advantages, as well as disadvantages. However, the main effect of globalisation has been decreasing the importance of borders between countries in terms of international trade. The importance and role of WTO in facilitating international trade is greater than ever before now. Because of increasing volume of trade between countries globally, including non-WTO members need specific rules and regulations to be guided by. Therefore, WTO management must work on increasing the number of members, and at the same time improving principles, rules and regulations of the organisation in order to be able to address the challenges of the 21st century.
- Gilbert, G, 2004, World Poverty: A Reference Handbook, Cengage Learning
- Hoekman, BM & Mavroidis, PS, 2007, The World Trade Organisation: Law, Economics, and the Politics, Routledge
- Howse, R, 2007, The WTO System: Law, Politics & Legitimacy,
- Huerta-Goldman, JA, 2010, Mexico in the WTO and NAFTA: Litigating International Trade Disputes, Kluwer Law International
- Nielsen, L, 2009, The WTO, Animals and PPM
- Members and Observers, World Trade Organisation, Available at: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm Accessed February 3, 2011
- Peng, WM, 2009, Global Business, Cengage Learning
- The Organisation, World Trade Organisation, Available at: http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr02_e.htm Accessed February 3, 2011
- What is The World Trade Organisation? Available at: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm Accessed February 2, 2011