The global trade and commercial scenario has developed significantly over the last few decades and has undergone considerable changes and dynamics. Much of this development of the global trade scenario can be attributed to the international phenomena like that of Globalization, industrial liberalisation as well as liberalisations of the trade sectors of different countries across the globe in different periods of time (Beck 2018). The governments of the countries have also played crucial roles in contributing to the dynamics of the trade sectors across the globe, which in turn has huge implications on the global economy.
With the international economy becoming more integrated, inclusive and highly interconnected and with more businesses going global, the advantages of trade and commerce can be seen to be observed by the economies across the globe, especially in terms of increased expansion of businesses and productivity of the domestic producers, contributing to increased economic growth of the economies as well as in terms of increased options of goods and services for the consumers and inflow of technologies and infrastructures in the countries (Hirst, Thompson and Bromley 2015). Over the years, the government of different countries as well as several international organizations have worked in facilitating this global trade dynamics, of which one of the primary international body is that of the World Trade Organization.
However, in spite of its immense significance and contribution in the history of global trading scenario, in the recent period, the World Trade Organization has been facing several critical issues which have been challenging the existence and purpose of the institution (Muro 2014). Keeping this into consideration, the concerned assignment tries to discuss about the crisis faced by the World Trade Organization and the principle reasons behind the same, thereby discussing the economic interpretations and implications of economic cooperation, the causes behind the same and the problems encountered in terms of economic cooperation in the recent years.
The World Trade Organization, commencing on January 1st, 1995, is one of the primary international organization which had been formed with the primary objective of regulating and facilitating international trade and the increasing dynamics and activities in this domain. This institution was formed by mutual agreement of 124 nations, replacing the General Agreement on Tariffs and Trade (GATT) (Narlikar et al. 2012).
The WTO was primarily formed with the objectives of regulating the trade of goods and services between the different trading nations across the globe and also for monitoring the intellectual property of the trade participating countries. The WTO provides the framework for negotiation of the trade agreements and resolution of disputes for the purpose of enhancing the adherence of the participating nations to the agreements of the WTO (Margulis 2014).
The primary functions of this international trade regulating organization include that of monitoring the implementation, operation and administration of the trade and commercial agreements between the various member nations of the organization (Stoler 2014). The institution also facilitates negotiations between the trading countries for solving any kind of disputes regarding trade and transactions and administers the Mechanism of Trade Policy Review. Apart from these, the WTO also Cooperates with other international institutions like that of the International Monetary Fund, International Bank for Reconstruction and Development and others for the purpose of achieving a more inclusive framework for global economic policy-making and growth of the trade and commerce related activities (Vidigal 2013).
The World Trade Organization primarily designs its trade policy framework based on the principles of:
Non-Discrimination- According to this principle, the WTO needs to keep an unbiased attitude for implementation of policies and provision of facilities and favours to all the member nation, without any special emphasis on any particular country, except for instances related to environmental protection and other issues of concern (Davey 2014).
Transparency- The WTO and the member countries need to publish their trade regulations in order to keep transparency among their member partners and of the trading activities, tariff rates, quota and other aspects.
Binding commitments- The tariff commitments imposed by the members of the WTO in multilateral agreements are usually binding and are changes only after negotiations with the other trading partners (Davis 2012).
Apart from the above principles, the WTO also operates in a framework with the principles of reciprocity, safety values like that of restriction of trade voluntarily by the member countries for protection of environment, public health and social welfare purposes.
Thus, from the above discussion, it becomes evident that the World Trade Organization has been playing crucial roles in the international trade dynamics by regulating, monitoring and facilitating global exchange of goods, services, technologies and intellectual properties and by solving any disputes or discrepancies arising out of the same (Wilkinson 2013). However, in spite of being one of the primary regulators of international trade, the organization can be seen to be burdened in the recent periods, with several critical issues which, along with their probable cause, are discussed in the following sections.
Over the last few years, the World Trade Organization has been facing several critical issues challenging the structural framework of the organization and its primary objective of facilitating, monitoring and regulating the international trade activities across the member nations. One of the most critical issues in this context is that of the recent non-cooperation of one of its primary initial members, the United States of America (Qureshi 2015). The country has recently started blocking any kind of interactions or appointments with the dispute resolving segment of the international organization, known as the Appellate Body of the WTO. The primary reasons behind the same has been the dissatisfaction of the USA with the procedures of the dispute resolving body of the WTO and the rules and regulations designed and implemented by the body for the purpose of mediating and dispute resolving among the member nations (Evenett 2012).
The dispute resolving department of the World Trade Organization is known as the most active and efficient wing of the organization, serving the purpose of negotiation and solving of the different trade and transaction related issues among the member countries to facilitated more regulated and smooth trade channels (Aggarwal and Evenett 2014). From 1995, the World Trade Organization has dealt with more than 500 disputes among its member trading partners. The issues which have been encountered by the Appellate Body of the WTO includes the crisis like that of protection of environment of the member countries, patent protection, tax evasion, social welfare, protection of patents and intellectual property and many others.
Out of these disputes, nearly 100 disputes had been brought by the United States of America itself while the country has also been on the respondent side over the years. However, in the recent periods, the country has put have serious objections and allegations against this Appellate Body (Lovett, Eckes Jr and Brinkman 2015). The main objections which have been put forward by the United States of America, regarding the dispute solving wing of the World Trade Organization are primarily regarding the selection process of appointing the new members in the Appellate Body.
The primary causes for the crisis regarding the objections in the aspects of the dispute solving body of the WTO, as brought forward by the United States of America are multi-dimensional. The primary one being the problem of the concerned country with that of the trade activities of China. Both the countries, experiencing hostility in their trade activities with each other, have threatened to impose tariffs on each other’s products and services (Mastel 2016). The United States of America has threatened to levy tariffs on the Chinese goods and services imported to the country of valuation of nearly 150 billion US dollars and the Chinese government has also retaliated the threat by warning the imposition of their own tariffs on the substantial imports of the USA in the country (Amiti et al. 2017).
These disputes regarding the imposition of unilateral tariffs, both on part of the USA and that of China, are not as per the established procedures and regulations designed and implemented by the World Trade Organization, of which both the countries are member and there remains high chances of triggering the potential dangers which can in turn lead to wider tensions in the global commercial framework, which if happens can be a huge threat to the mere existence of the World Trade Organization as a whole (Nelson 2015).
Another primary crisis which can be seen to be faced by the World Trade Organization is the increasing number of Free Trade Agreements and regional economic cooperation between different countries across the globe. In the recent period and economic environment, with the global business domains expanding and the economies becoming more commercialised and industrially developed, various countries or regions, have been indulging in building Free Trade Agreements and economic cooperation among themselves to facilitate bilateral trade transactions and increasing and symbiotic economic growth for the member countries.
Some of the examples of such Free Trade Agreements are those formed by the ASEAN countries, NAFTA, EFTA and others, with these agreements being both of multilateral as well as bilateral types. These regional Free Trade Agreements and economic cooperation, increasing in number over the years has led the countries to independently form trade relations, reduce trade barriers and solve trade related problems with or without the presence of the WTO, thereby reducing the central importance of the organization considerably and has decreased the previously pivotal roles played by the same in regulating international trade to a huge extent (Krueger 2012). In the recent years, the World Trade Organization can be seen to play a considerably limited role in addressing the global issues of concerns, especially like that of food security, global climate changes as well as the international trade imbalances.
To understand the impacts of the economic cooperation and free trade agreements on the activities of the WTO and the recent crisis situations faced by the organization it is of immense importance to understand the notion of the term “Economic Cooperation” and the economic interpretation and implications of the same in the international trade and commercial scenario.
In a generalised framework, economic integration or economic cooperation between countries or states is referred to the process in which usually the neighbouring countries or states involve themselves into mutual agreements, mostly for the purpose of development of their economies, industrial and trade scenarios by mutual and symbiotic assistance. These types of economic cooperation can be seen to be specifically becoming prominent from the 1990s, especially after the end of the Cold War (Xie et al. 2014).
This type of economic cooperation can be especially seen among the developing countries, in the recent periods, highly facilitated by the technological developments, global integration and inclusiveness as well as increasing improved communication channels across the globe. The primary reasons behind the increase in number and implementation of such regional economic cooperation are that of facilitating economic development by contributing positively in the aspects of trade and commercial transactions as well as bilateral or multilateral transfer of technological progresses and economic benefits, so as to develop each other robustly with time.
The primary rational for the above discussed notion of economic cooperation across countries or regions is based on different significant factors, of which the primary one is that of crossing the hurdle of small and limited markets. This is especially true in the case of the developing or less developed countries. In general, due to less progressed economic scenarios, the markets for goods and services in these economies are limited in size and opportunities, with the demand patterns of the residents being constricted and mostly monotonous, crippled by constrained purchasing power on their part (Xie et al. 2014). Economic cooperation or economic integration, in this context, increases the opportunities for the domestic businesses in the member countries to explore different foreign markets, thereby increasing their potential clientele as well as demands, which in turn helps the companies to achieve economies of scale and cost efficiency in production of goods and services.
In this context, the concept of “Economies of Scale” can be defined as the advantages in the reduction of cost of per unit production of commodities or services, which the companies experience as their production and sales increase and they employ the productive resources more efficiently.
This is one of the primary aspects which can be achieved by the countries by participating in the regional economic cooperation or economic integrations. Another aspect of economic cooperation is that of the provision which this cooperation makes for the participating members for utilizing the productive resources (both human as well as non-human) present in their geographical domains of these countries. This also helps in inflow of technologies and productive knowledge from one country to another, thereby contributing in the aspects of increased industrialisation as well as industrial diversifications across the member countries of the economic cooperation existing, thereby decreasing their economic dependence (Balassa 2013).
Another aspect of this type of economic integration, which can be seen to be particularly beneficial aspects of trade and commerce is that of the exploitation of the potential opportunities of exploring the complementarities, especially in terms of products and services among the countries, with the help of strategic alliances, thereby improving the effectiveness as well as the level of competitiveness of the member states of countries in the global market as a whole.
This can be explained with the help of the economic concept of Comparative Advantage, according to which refers to the economic advantage which individual countries experience in terms of production of goods and services. According to this theory, the countries should produce those commodities or services in which they enjoy productive advantages and for the production of which the countries have efficient resources (Laursen 2015). Thus, optimally, the production of those commodities and services by the countries where the opportunity cost is less than others and then trading those commodities for those in which the concerned country does not have cost effectiveness can help all the countries to increase their economic development and facilitate inter-country trade.
This aspect of economic cooperation can be seen to be receiving increasing popularity over the years, thereby leading to more regional economic integration as well as Free Trade Agreements across the globe, which in turn can be seen to be affecting the influence and the very purpose of the World Trade Organization.
Thus, the increasing popularity of economic cooperation and the impacts of the same in the trading and commercial activities across the globe can be seen to be contributing to the crisis faced by the World Trade Organization in the current period.
Conclusion
From the above discussion, it can be seen evidently that in spite of being one of the primary international institutions facilitating and regulating international trade and playing crucial roles in the global trade and commerce framework, the World Trade Organization has been facing several crisis of immense significance which includes the agitations in the countries like that of the USA, China and others, primarily related to the working and selection process of the dispute resolving wing of the organizations. The crisis can also be seen to be aggravated by the increasing number of free trade agreements and economic cooperation and regional economic integration, which in turn can be seen to be cumulatively threatening the very existence and purpose of the concerned organization in the contemporary global scenario.
References
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