WTO as the Worldwide Economic Crisis of Essay

  • Length: 11 pages
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  • Subject: Economics
  • Type: Essay
  • Paper: #42783003

Excerpt from Essay :


As the worldwide economic crisis of 2008 demonstrated, the economies of governments the world over are highly interdependent. Within this context, the World Trade Organization is coming under closer scrutiny. Negotiations are repeatedly failing and governments continue to violate commitments under WTO agreements with a dispute resolution process many countries find unsatisfactory. This paper reviews both the theoretical and practical economic and political implications of the faltering -yet ongoing -DOHA Round trade liberalization negotiations.

Recent WTO Negotiations: Seattle, Cancun, and Doha

Difficulties during WTO negotiations over the last decade can be attributed to three primary factors: the sheer numbers of member countries who all want to actively participate, the divergent interests between developed and developing nations, and finally the bureaucratic and management complications which arise from the increasing scope of WTO regulations. The most recent round of trade negotiations in the WTO began in the winter of 2001 in Doha, Qatar. In Qatar, the Doha Development Agenda was lauded as the most comprehensive and ambitious undertaking by the WTO yet (Reiterer, 2009, p. 359). The Doha Development Agenda, as it is informally known, includes provisions which focus on agricultural subsidies, services, and the problems facing developing nations (Reiterer, 2009).

At the time, the negotiations begun in Qatar, neither China nor Russia had yet acceded to the WTO; currently members of the WTO involved in the negotiations number 154 countries with more countries in the process of applying. The WTO has a consensus-based model where every country has in effect a veto over every decision and which requires decisions to be unanimous in order to binding (Reiterer, p.366, 2009). The tools of negotiation and bargaining are faced with an impressive obstacle; that of forcing concessions and compromises from so many different countries (Reiterer, 2009). Though the consensus rule often operates to equalize bargaining power among small economies and large economies, it can also lead to negotiation deadlocks.

The ministerial meetings of the WTO have been an exercise in negotiation deadlocks. The last two ministerial meetings of the World Trade Organization in 2009 and 2011 were both held in Geneva, Switzerland (Scott & Wilkinson, 2011). The 2009 ministerial meeting was considered a success but delegates did not discuss any of the substantive proposed mandates placed on the Doha Development Agenda. They did not because negotiations collapsed in July of 2008 and discussion over the next year failed to produce the degree of progress which would have justified a serious undertaking of the agenda (Scott & Wilkinson, 2010, 142). Likewise another deadline for concluding the Doha Round negotiations in December of 2011 was also missed, bringing negotiations up to ten years. The only bright spot was the accession of Russia to the WTO and a renewed commitment by the member countries to identify new negotiating strategies (Associated Press, 2011). In the following pages, I attempt to identify the mechanisms which would allow one to measure the economic consequences and the implications of either protracted trade rounds or an outright failure of the Doha Round negotiations.

Economic Consequences of Failed Negotiations: Positive & Negative

Estimating the economic costs of failed negotiations to liberalize greater trade is a matter of emphasis. The economic costs will be determined, in large part, by focusing on the question of who benefits and who is harmed by either scenario. The two scenarios are one in which the Doha talks move forward and one in which they are indefinitely stalled. In this sense the economic casualties, so to speak, can be defined in a number of binary categories. There are the interests of the developed nations v. developing nations, the interests of importers v. exporters, and the interests of consumers v. those of industry, and finally the interests of WTO members v. those of nonmembers. These binary categories, are of course an over simplification. They, however, provide a framework which allows one to identify the true political economic costs of the WTOs recent struggles. Equally important, the binary framework also allows for a more in-depth look at the economic benefits that may accrue to some groups; in this instance, especially nations who are nonmembers of the WTO and nations who stand to lose if the talks move forward. The binary categories although not true analytical categories, nonetheless, identify the field of participants whose losses and benefits must be considered in the overall analysis. The categories help to answer the question: how can we identify and assess the costs and benefits of failed WTO negotiations.

The Negative Economic Consequences

One may identify and assess the economic costs of failed WTO negotiations by three different methods. One way is to calculate the net decrease in global trade focusing on both importers and exporters; another ways is to calculate the reputational damage to the WTO structure; finally, one may look at the costs to consumers

Declining Net World Trade

One of the best methods to asses an d identify the economic costs of failed WTO negotiations is to find a case study of what would occur in a world where international trade is compromised. Of course the premise is that we are all better off trading with one another. Since the WTO seeks to liberalize and regulate trade, an ineffective WTO, would have a negative impact on trade volumes. The crisis of 2008 and the dramatic decrease in global trade provide a method for analyzing the costs of failed WTO negotiations.

In the face of the crisis, Levchenko et. al, (2010) noted that U.S. imports declined by 20% and all of the decline could not be attributed simply to more protectionist measures by nations experiencing trepidation about the state of the world's economy. Aside from the collapse post 9/11, the 2008 decrease in trade was exceptionally high, with "double digit" decreases in trade worldwide (Levchenko et. al, 2010, 215). The authors collected and analysed aggregated data from U.S. imports and exports in order to determine where and how the marked decreases in trade volume occurred. Their findings led them to conclude that international trade volume decreased in response to a larger impact in the "overall economic activity" of the world's economy rather than in response to the financial crisis itself (Levechenko et. al, 2010, p. 251).

The implications for using trade volume to assess the economic costs of the negotiations failures is attenuated it is not direct. Based on the Levechenko study the appropriate analysis is to first determine that negotiations have broken down permanently, then to assess the impact on the volume of global trade. Of course this analysis requires a type of benchmark, presumably one could use the pre and post trade volume data from the Uruguay, Tokyo, and Kennedy era trade round negotiations. And in this way, assess the loss of a Doha Round failure. The economic costs of a net decrease in global trade may sometimes be precipitated by financial and political collapses. The decrease in global trade in the wake of the 2008 financial crisis demonstrates the myriad of factors which must be considered when calculating true cost.

Reputational Damage to the WTO

The reputational cost to the WTO may be difficult to quantify, but it is still important to assess as an economic cost, primarily because, it will have implications for the pressures ministers receive from their domestic constituents based on their views of the WTO's continued relevance. The reputational damage to the WTO and to the ministerial meetings will indirectly translate into economic costs because the damage will create problems of perception. The perception is that the WTO is faltering and that it on the brink of becoming obsolete. EU trade commissioner, Karel D. Gucht, stated that "our credibility has been seriously damaged by our failure to get Doha off the ground" (Associated Press, 2011). It was clear that the three day conference, like the conference in Geneva in 2009, was not going to address substantive issues.

There are perils to hosting ministerial conferences where nothing of substance is discussed. The public, which does not know about the ongoing negotiation meetings in Geneva, which occur outside of ministerial conferences, will believe that the Doha Development Agenda has been abandoned. Additionally, there will be perils for the member governments whose reputations will be compromised at home. These are reputations which they will need in order to continue to push trade liberalization policies on domestic markets where job losses are sure to occur. EU member states have become increasingly alarmed by the effect of liberal trade policies and on levels of employment and on wages.

Cuvyers et. al, (2003), expand on studies confirming that in the UK, Sweden, and Germany, wages are being depressed and labor flight is occurring (p. 249). Like the U.S., the European nations experiencing labor flight experienced it in the low skilled sectors where the threat of globalization is greatest (Cuvyers et. al, 2003, p. 249). At the same time that trade ministers are facing greater scrutiny for their actions abroad, citizens are suffering at home, and are more likely to punish politicians…

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