Sunday, January 3, 2010

Restoring Legitimacy to the WTO - Part 2

- by of Steve Greenberg


Negotiation of trade agreements is a key purpose of the WTO but the appropriate implementation of the agreements also falls under its umbrella of responsibility. Trade agreements which pass the test for consensual decision-making have still drawn criticism for the way in which they have been carried out. Thompson states, "As the African continent has increased its exports, the industrialized countries importing these goods have maintained or increased their trade barriers. The World Bank estimates that if the North America, Europe and Japan eliminated all barriers to imports from sub-Saharan Africa, the continents exports would rise by 14%, an annual increase in revenue of $2.5 billion" (322). Sub-Saharan Africa is the poorest region in the world, being comprised of 50 countries with a collective GDP of $774 billion in 2008. The numerical figure sounds adequate at first,, but in perspective, it is only 28% of China's GDP and yet has to be divided among 50 nations, rather than one. If the WTO aims for trade liberalization, then it must work towards eliminating all trade barriers, especially if they can have such a profound effect on poor countries.

A key factor as to why industrialized countries have been able to increase trade barriers without drawing the attention of the WTO is the use of non-tariff trade barriers. NTBs such as anti-dumping policy, safeguards, and surveillance have been used for long by developed nations, but in recent years, developing nations have learned from the example set for them. According to Drope, two decades years ago, the most popular NTB, anti-dumping(AD), was used exclusively by only three developed nations, and fifteen years later was being used by about forty developing nations (402). South Africa and Mexico have made A.D policy a regular part of their trade policies to the detriment of the trade relationships they have with other nations. A.D policy was first developed as a protective measure against foreign firms who 'dumped' their product in a country's markets at costs lower than manufacturing costs or lower than the domestic price. Foreign firms use dumping to either establish themselves in a new market, or eliminate the domestic firms as competition. While GATT originally allowed the use of AD policy to buffer markets for these reasons, Drope has found that many nations continue to use the policy out of habit, and as a last resort of barring trade(402.

The decision by South Africa and Mexico to use AD policy as an NTB is detrimental because throughout history, nation-states have been shown to use the equivalent retaliation strategy of game theory. This means, that inter-state relationships are conducted similarly to a game, in which the main strategy is tit for tat. Nation-states react to other nation-states in similar manner, and so by using AD policy, developed nations provoked retaliation by developing nations, and the strategy became cyclical in the game of international relations. Unfortunately, developing nations have more to lose by over- protecting their markets from foreign competition. The WTO must address the use of NTBs in present day trade relations, by looking back at the GATT policies which were never revised after WTO formed in 1995. The policies which may have worked three decades ago when globalization had not yet entered its current cycle have vastly different ramifications today. Globalization undoubtedly adds to the interconnectedness of global markets, and policies which generate destructive cycles of negative retaliation must be eliminated.


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