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Does the WTO still contribute to World Trade? - Daily News Egypt

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Does the WTO still contribute to World Trade?

In 1948, after years of negotiations, more than 50 nations signed the Havana Charter to create the International Trade Organization (ITO). But in the 1950s, President Truman decided not to resubmit the ITO charter to Congress for ratification due to perceived threats to national sovereignty and the danger of too much ITO intervention in markets. …


In 1948, after years of negotiations, more than 50 nations signed the Havana Charter to create the International Trade Organization (ITO). But in the 1950s, President Truman decided not to resubmit the ITO charter to Congress for ratification due to perceived threats to national sovereignty and the danger of too much ITO intervention in markets.

The result was the much more limited General Agreement on Tariffs and Trade (GATT), which brought rules and regulations to world trade. A major breakthrough occurred in 1994. Negotiators launched a totally new organisation, which the Uruguay Round (1986-1994) negotiations agreed on: the World Trade Organization (WTO).

After two politically and economically charged decades, we find the WTO has been one of the most successful international institutions. With a rejuvenated framework of multilateralism enabled by global political shifts brought on by the fall of communism, the WTO now seeks to reduce tariffs, eliminate trade barriers and quotas, and expand coverage of services, intellectual property, foreign direct investment, and agriculture.

The WTO has encouraged international trade to prosper by fostering openness and lowering trade barriers, increasing confidence, and encouraging fair trade practices. The WTO’s agreements have helped countries develop by increasing international confidence and cooperation in the system. Though there are no WTO black helicopters for enforcement, its dispute settlement process had advanced progress.

Since 1948, world trade has grown very rapidly, with trade in goods growing yearly by an average of 6% a year in real terms. In 1948, total world trade was valued at just above $58bn, with the US accounting for 34% of free world trade flows. Japan’s imports exceeded its exports to the US by 160%. By 1994, world trade exceeded $4tr and the US had a share of 12%.

Just over 20 years later, in 2015, total world trade in goods and services amounted to $23tr. The US held a share of 19% at $3.85bn, heavily influenced by high level of imports. Germany’s share was 13% and Japan’s $1.55bn represented a share of 7%. The US (at third), the EU (at first), and China (at second) have been the three largest global players internationally since 2004 when China passed Japan.

This new international trading system has provided more choices of products and qualities for the consumers, raised incomes internationally, has stimulated economic growth, increased standards of livings. The trade system promoted by the WTO has also helped promote peace and encourage good governance. Economies that have been more open to embrace the international trade and investment policies have grown quicker than the more closed economies. Higher interdependence has allowed countries to specialise in areas where they can be more competitive using their best advantages and opportunities.

The multilateral system has produced new energy, growth, rising incomes, and better standards of living throughout the world, both in developed and developing countries. China is a perfect example of developing countries that have benefited greatly from liberalisation of global trade and investment. About 600 million people have been lifted out of poverty in only 30 years, and moved up from a poor country with less than $400 per capita (on a purchasing power parity basis) in 1980, to a middle-income country in 2015 with $13,801.

China’s accession to the WTO in December 2001 paved the way for its economic rise and significantly contributed to increasing world trade. Two decades ago, China was only entering the playing field of international trade; in 2015, China dominates trade after an unprecedented growth spurt. In the past few decades, China’s growth has seen an exponential rise with its Gross Domestic Product, from representing only 7.4% of the global economy in 2000 to almost 17% of it in 2015.

Tax inversions and other cross-border expansion of manufacturing chains and free trade zones have further globalised corporations. The predominance of both the English language and the US dollar as global reserve currency has kept this process energetic and unifying. All this has reduced the psychic abyss of 20 years ago into a pre-Alpine hillside, supported by standardised and affordable communications.

The WTO’s unenviable position over the past two decades is similar to a team trying to score on a field that was constantly changing in size, with the teams and positions frequently becoming newly named and defined, and the sports equipment taking on different weights and shapes.

The hopes for an ambitious multilateral trade deal at the WTO level have diminished, and the stalemates of the Doha round have forced countries to pursue Regional Trade Agreements. Services and agriculture remain tough to resolve. The marginal benefit from additional resolutions also seems less in the Doha Round, as all the “low-hanging fruits” have already been picked.

According to Ambassador Moore, former director general of the WTO, multilateralism has yet a chance to triumph. It will take some of the newcomers and participants who have only recently found their voice and power, specifically African countries and India, to come to an agreement, before other nations can get much accomplished.

We appreciate the research support by Jozsef Szamosfalvy of Exworks Capital in Washington DC.

Michael R. Czinkota is a professor at Georgetown University, Washington DC.

Valbona Zeneli works at Marshall Centre, Garmisch.

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