Future of the WTO

Gonzales (2017) notes that emerging nations are calling for the WTO to support inclusive globalization: “The Philippines, together with the Friends of MSMEs, is seeking appropriate arrangements within the existing framework of the WTO and relevant committees, such as the establishment of a working group under the General Council that will be mandated to consider how the multilateral trading system can impact and benefit MSMEs [micro, small and medium enterprises], with particular consideration to the needs and interests of developing and least-developed countries.” In other words, as the a new power paradigm emerges in the 21st century, with China and Russia asserting a larger role in the global economic balance of power through trade, emerging nations want reassurance that the WTO will protect them and provide a legal framework that will help them to flourish. Lohr (2016) has shown that the “America First” approach is a direct challenge to the WTO’s purpose of ensuring a concept of fairness and freedom in trade that focuses more on equitability than it does on guaranteeing old power structures.

However, in the past, the WTO has been used not so much to protect emerging nations as it has to protect the interests of more powerful multinationals—such as those based in the West. This protection was provided by legal framework: Rodrik (2016) highlights how “China’s WTO accession agreement, signed in December 2001, permitted the country’s trade partners to deal with China as a ‘non-market economy’ (NME) for a period of up to 15 years. NME status made it a lot easier for importing countries to impose special tariffs on Chinese exports, in the form of antidumping duties.” As a major importer, the U.S. benefitted substantially from this WTO mandate. Yet, before the 15 years were even over, China was being viewed by other trade partners “such as Argentina, Brazil, Chile, and South Korea” as already having market-economy status. Meanwhile, the U.S. and the EU have refused China this recognition in a territorial bid to maintain their own hegemony in the world trade order of the past.

The WTO officially got its start in 1995, with 123 nations signing on for what would replace the old GATT agreement—the General Agreement on Tariffs and Trade—which critics like Sir James opposed on the grounds of its inherent promotion of off-shoring, which James contended undermined the stability of the domestic economy (by taking jobs out of the domestic market) even while it boosted a nation’s GDP on paper (by allowing multinationals to profit at the domestic laborer’s expense) (Quijones, 2012). The WTO was another manifestation of GATT and essentially a new form of mercantilism (Ahmed & Bick, 2017) made appealing to emerging markets because of the promise of position, which they would have in the new world trade order.

Increasing globalization is the growing interconnectedness of nations’ economies as a cross-border movement of technology, intellectual property, goods, services, and information flows faster and further than ever before in the history of the earth. Thanks in no small part to the rise of the Internet, the integration of economies (shown to be quite intimate during the Global Economic Crisis of 2007-08), has changed the way the world operates and the way trade is not only conducted but, in essence, necessitated. In the past, trade was a natural outcome of what Adam Smith described as the economic extension of the “division of labor”—the concept that by focusing energy on maximizing production in an area that was a natural fit for a particular nation, that nation would be positioned to export its product to nations less fit to produce at the same level. Those other nations would have their own products that they could produce with maximum efficiency and which they could trade with other nations. The cumulative effect would be a kind of balance of power in which trade benefited one and all. In other words, it was an early idealistic example of the multipolar world currently being promoted by Russia and China, whose One Belt, One Road Initiative (Bloomberg, 2017) seeks to tie the East to the West in a manner that would further establish the necessary integration of nations’ economies as though they were all really one economy rather than multiple disparate ones.

Will free trade or protectionism flourish in the future? The question is posed by VanGrasstek (2013) of the WTO itself—and the answer is not easy to discern. The growing body of nations that want to participate in trade around the world has essentially given the lie to the Smith thesis of more than two centuries ago: maximizing potential leads to a zero-sum game in which there is one winner and every other nation is a loser. The alternative is a balance of power in which trade is moderated—i.e., restricted, and therefore less “free” than it is “fair.” Fairness, however, must be measured in terms of the whole—not just in terms of what is good for one’s own nation. For example, in the U.S., the emphasis on an “America First” economic trade policy presents the need that many nations (such as the UK) feel to put self-interest before fairness. The idea is that a nation’s leaders seek to be fair to the nation’s populace by obtaining as much of the pie as is possible. In a globalized world, this type of approach has little footing and not much room for maneuvering short of all-out war.

The WTO operated in the past as a means of striking a balance between fair and free trade that would benefit the dominant powers in the overall trade structure while attracting the participation of emerging nations. In the present, the WTO finds itself being more and more bent towards one side or the other of the balance. With the U.S. pushing for an “America First” policy, as Lohr (2016) has shown, a new balance of power will either emerge through the strength of ties made by China’s and Russia’s influence around the globe—with the WTO supporting these ties—or the WTO itself will collapse as nations like the U.S. withdraw their support from what they perceive to give unfair advantage to competing nations. Today, the WTO operates as a moderating influence in the world of trade, but only so long as all participants subscribe to its influence and authority; once that is removed, the WTO holds no power. As countries entertain the notion of balancing ideals of fairness and freedom with the realities of propping up their own national interests, the actual implications of dealing with a globalized world are becoming manifested rapidly. Many countries seek to participate and profit from the exchange of trade under the principle that all nations are equal—yet some countries hold to the opinion that some nations are more equal than others (as Orwell ironically pointed out in the mid-20th century).

The rise of globalization has shifted the balance of power from the formidable unipolar world of the 20th century to the proposed and indeed happening multipolar world of business and trade. Lamy (2012) notes, for instance, that emerging nations like India represent a new source of influence altering “the pattern and scope of international trade, creating new supply and demand pulls and flexing their influence in international organizations.” Meanwhile, the threat of trade wars—manifested most recently in the GOP’s border-tax proposal—has jarred the status quo and led commentators to speculate that the World Trade Organization (WTO) would serve as the legal impetus for retaliation by those who felt that unfair trade restrictions based on economic nationalist policies were adversely affecting their own GDP (Brown, 2017). While the WTO offers some semblance of an economic salve for the aggrieved, the reality is that the threat of trade war—and the expression of nationalistic self-interest that underpins it—may very well undermine the WTO itself. In this tense and global economic environment, the future of the WTO now poses a question: how should it operate in the future? As Dani Rodrik (n.d.) states, today’s nations face “a deep crisis of legitimacy that threatens to overwhelm the world’s trading regime.”

The plans of the WTO for the future are to remain a vital influence in the world trade order, facilitating the negotiation of agreements between nations. However, with increasing globalization, the inevitable conflict is that the so-called impartiality of the WTO is identified for what it really is—a support structure for world powers engaged in a zero-sum game. Rodrik (n.d.) shows that for the WTO to be fair it must adopt realistic principles—such as: “Trade rules have to allow for diversity in national institutions and standards,” “Nondemocratic countries cannot count on the same trade privileges as democratic ones,” and “Countries have the right to protect their own social arrangements and institutions.” This might be easier said than done, for as Rodrik (n.d.) admits, countries also must not be allowed to “impose their institutional preferences on other.” In a world trade order where the threat of a zero-sum victory is always palpable, controlling for this outcome may be impossible.

References

Ahmed, S. & Bick, A. (2017). Trump’s national security strategy: A new brand of mercantilism? Retrieved from http://carnegieendowment.org/2017/08/17/trump-s-national-security-strategy-new-brand-of-mercantilism-pub-72816

Bloomberg. (2017). China’s Silk Road cuts through some of the world’s riskiest countries. Retrieved from https://www.bloomberg.com/news/articles/2017-10-25/china-s-new-silk-road-runs-mostly-through-junk-rated-territory

Brown, C. (2017). Will the Proposed US Border Tax Provoke WTO Retaliation from Trading Partners? Retrieved from https://piie.com/system/files/documents/pb17-11.pdf

Gonzales, A. (2017). Govt pushing for inclusive globalization at WTO meet. Retrieved from http://www.manilatimes.net/govt-pushing-inclusive-globalization-wto-meet/367928/

Lamy, P. (2012). Emerging economies have shifted the balance of power in world trade. WTO. Retrieved from https://www.wto.org/english/news_e/sppl_e/sppl258_e.htm

Lohr, S. (2016). New approach to corporate tax law has House GOP support. Retrieved from https://www.nytimes.com/2016/12/12/business/economy/new-approach-to-corporate-tax-reform.html

Quijones, J. (2012). Sir James Goldsmith, an Unlikely Defender of the Common Man. Retrieved from https://ragingbullshit.com/2012/12/19/a-prophetic-voice-from-the-past/

Rodrik, D. (n.d.). Five simple principles for world trade. Retrieved from https://sites.hks.harvard.edu/m-rcbg/research/d.rodrik_american.prospect_five.simple.principles.for.world.trade.pdf

Rodrik, D. (2016). Fairness and free trade. Retrieved from https://www.project-syndicate.org/commentary/china-market-economy-status-debate-by-dani-rodrik-2016-05?barrier=accessreg

VanGrasstek, C. (2013). The history and future of the World Trade Organization. Retrieved from https://www.wto.org/english/res_e/booksp_e/historywto_e.pdf