WORLD TRADE ORGANISATION

Is the World Trade Organisation an instrument for the rich and powerful countries?

Is the World Trade Organisation an instrument for the rich and powerful countries?

Introduction

The World Trade Organization (WTO) is a multistage organization formed to administer a set of interlocking international agreements, which are concerned primarily with trade regulation. It also functions as a forum to negotiate changes and additions to these agreements. It officially came into existence on January 1, 1995. As of July 2008, there were 153 members, including most but not all of the world's sovereign governments. The WTO is explicitly committed to lowering trade barriers and to general economic liberalization. It plays a key role in international political economy and in contemporary geopolitics (Bhagwati, 2005, 141).

Most of the constituent agreements of the WTO took their present form during a series of multilateral negotiations known as the Uruguay Round, taking place from 1986 to 1994. These built on and incorporated an older set of international agreements known as GATT (General Agreement on Tariffs and Trade), dating from 1947. The Uruguay Round agreements regulate a vast sweep of international economic policy, including tariff levels, the use of nontariff trade barriers, subsidies, copyright law, trade in services, and foreign investment. In addition, trade in agriculture and textiles were deemed exceptional and were subject to separate agreements. The foundational WTO agreements also included provisions for their own alteration and augmentation in expected future negotiations. Ministerial meetings of the WTO are held about once every 2 years in different locations around the world to conduct these negotiations, the most recent being held in Hong Kong in 2005. Thus far, few changes have been made to the original agreement other than time-dependent clauses from the Uruguay Round kicking in (e.g., the expiration of the Agreement on Textiles and Clothing in 2005).

Discussion and Analysis

The question of whether the GATT/WTO system has expanded trade and then influenced economic outcomes of country members has been documented and analysed in a number of well-known empirical studies. The first class of relevant literature is by Rose. Using conventional econometric tools, Rose assesses these claims in a series of papers. In Rose's studies, GATT/WTO membership is econometrically captured by using binary dummy variables, rather than directly identifying the changes in trade policies resulting from WTO membership or WTO accession. Firstly, Rose (2004a) finds no statistically significant effect of GATT/WTO membership on the value of bilateral trade flows over a 50-year period. The author regards this finding as mysterious. Secondly, Rose (2004b) finds that GATT/WTO accession increased the value of bilateral trade flows, but WTO membership itself does not. Finally, according to Rose (2005), there is little evidence that GATT/WTO membership has a statistically significant effect on trade volatility, which is measured by the coefficient of variation of bilateral trade flows over a 25-year period (George, 2004, 85).

Rose's findings have prompted others to revisit the question about the possible effects of joining or belonging to the GATT/WTO on the economy of country ...