Leadership and trade policy in the World Trade Organization

International Trade

Role of leadership in International trade: Appointment of WTO head Roberto Azevedo

The author has presented the theories of international trade and theoretical positions that researchers have taken regarding free trade as well as liberalization of trade policy. The author mentioned that Regional Trade Agreements (RTAs) and Preferential Trade Agreements (PTAs) are increasing by every year and more than 50% of the all the trade conducted worldwide is through RTAs. Authors have described the pervasiveness of PTAs by stating that all parties to World Trade Organization (WTO) are also signatories of one or another PTA. Elaborating further on the theoretical frameworks of international free trade, the authors have divided theories of international trade in three broad perspectives. Each perspective holds responsible different category factors responsible for trade liberalization or protectionism. Protectionism and liberalization are key indicators as there has been increased regionalization of trade.

Trade policy preferences and domestic politics: The theories described under this category explain the role of domestic interest groups in promoting increased protection or liberalization of trade. Since protection or liberalization increases their income, each interest group pursues her own motive. Distribution consequences of trade provide incentive for the each trade policy.

Role of political institutions in free trade or protectionism: It is mentioned that the role of trade policy making body is vital on the outcome policy. For instance, American congress in 1920-30 developed Smoot-Hawley tariff and was developed under the influence of domestic interest groups rather than national interest. Pressure group model effectively details the working of trade policy and its formulation under the influence of pressure groups. Theories have revolved around two main factors, sources of trade policy preferences, and nature of political interest groups.

Factoral and sectoral preferences: Trade Policy change is thus attributed to benefit anticipated by actors in the state. Preferences of those who lose income and those who gain income impact the trade policy formulation. Sectors with scarce resources support protection whereas those with abundant resources support liberalization. Krurger (1997), an economist described that it is 'ideas' whose change enable the change in trade preferences and policies. The example of Brazilian president Fernando Henrique Cardoso who opposed free trade policy and propagated protection of economy of LDCs from capitalist economic model but initiated trade liberalization once in power in Brazil in 1990s. The economic downturn of 1980s was cited as a time when trade policy reforms were enabled by bad economic situation.

Exchange rate and trade policy: Appreciation of exchange rate increases protectionist policies as appreciation results in increase in imports and decrease in exports income. Since balance of trade disturbed domestically, devaluation may result in protectionism of trade. Both appreciation and devaluation by governments are encouraged by an idea to increase domestic output and decrease depression. Thus, all theories explain domestic sources of opposition and support to the cause of trade liberalization, voters' policy makers, interest groups,

The role of institutions: U.S. before 1934 making trade policy was very susceptible to pressure from interest groups. Making Executive branch of government more authoritative in trade policy formulation decreased the impact of interest groups. Free trade encouraged insulation from pressures from outside sources and this enables the formulation of free trade policy. Administrative capacity of government also impacts trade policy as less developed countries rely more on trade taxes such as import duties. More developed countries on the other hand rely on income taxes rather than import taxes. Mexico has been cited as perfect example where trade liberalization and democratization took place simultaneously. During 1980s, Mexico liberalized trade policies.

International politics: Theory of hegemonic stability (THS) asserts that single power hegemony promotes free trade. This theory though refuted and challenged by most of the researcher s is lent credence from the current U.S. status whereby developing and LDCs are encouraged to adopt free trade and under the 'Washington Consensus' trade liberalization is implemented throughout the ex-communist states as well. Security related issues such as security blocs tend to trade more with each other as compared to countries not bound in a security agreement. International institutions such as GATT, WTO, IMF, and World Bank also impact the trade policies. From information provision to trade dispute resolution and trade regulation, these institutions have a positive role in trade liberalization. The greatest argument in favor of this position is that trade reforms have been the pre-condition of providing loans to LCDs and developing countries. Concluding, the text implies that trade policy liberalization and trade preferences are dependent on number of factors, such as ideas about trade, openness of trade market, and the international factors such as macroeconomic conditions of country and region.

Role of leadership in International trade: Appointment of WTO head Roberto Azevedo

Of all the theories that have been discussed in the text, the role of leadership has been central in conceiving and implementing ideas regarding free trade and policy of trade liberalization. Roberto Azevedo, Brazil's top trade diplomat has been appointed the head of WTO back in May 2013 (BBC News Business, 2013). This puts Azevedo as well as WTO in a challenging position as prior to this appointment, WTO's role an international trade body has been questioned for its effectiveness. Brazil as well as the U.S. has also got embroiled in several trade disputes whereby each has alleged the other to protect domestic industries through import tariffs and provision of subsidies, a potential threat to trade liberalization policies. A more appropriate case in this regards was filed by Brazil in 2002 at the WTO forum in which Brazil alleged the U.S. Of providing cotton subsidies to its domestic cotton industry (Stolepestad, 2011). The main theories explained in the text of this book gets applied in the U.S.-Brazil cotton subsidy case whereby initially during the early 2000s, U.S. did not pay heed to Brazil's position and insisted on keeping its cotton industry protected. With a gradual increase in the political power of Brazil in world politics and economy, the U.S. has conceded to some of Brazil's demands for removing subsidies. Further, Brazil also acknowledged the U.S. position as the procedures for trade ratification adopted by several institutions does not allow speedy abolition of subsidies. Further, a change in U.S. economic position due to GFC has also led the U.S. To come to terms with Brazil in this dispute. Thus, power politics, domestic pressures, role of national institutions, and procedural factors are eminent in this trade dispute. The role of Azevedo in this case has been that of an advocate of Brazil in WTO. The recent change in his designation will put him in greater pressure to display neutrality in such cases as heads WTO.

The role of Brazil in shifting its trade policy from an underdeveloped protectionist Latin American country towards becoming one of the fastest growing emerging economies with trade reforms will also be vital. Azevedo has to ensure that trade violations by Brazil do not go unchecked. Since the paramount responsibility of WTO remains to aid the process of trade liberalization, the role if its leader will be vital. Azevedo's predecessor did not achieve much success in bringing countries to liberalize their trade policies. The 'Doha' round spanning over a period of ten years did not yield much good results as well for the trade liberalization. The other impediments in Azevedo's way are the protectionist policies of Brazilian president Rousseff. Higher customs duties and tax incentives were provided by Rousseff to protect domestic industries. This was cited as an intervention in the role of local institutions of Brazil liberalizing the trade. Now Azevedo has been tasked to balance the amount of 'protectionism' that he would allow while being charged with dispensing justice to the majority of the countries who appeal against Brazil's role in protecting her domestic industries. The role of Brazil has been expanding in the last few years, while the country has increased her influence in WTO and other international institutions. As occurred in a recent article of the Guardian, "Azevedo's acid test will probably come in December, barely three months after taking office, with the ninth WTO ministerial conference in Bali. He will need all his talent to avoid further deadlock, at a time when people all over the world are asking what purpose the organization serves"(Broucier, 2013, Para 10). The main challenge for Azevedo will be bring back the leading role of WTO to host some serious trade agreement negotiations. As mentioned in the text of analyzed book, the rise in RTAs has led to a decrease in the role of WTO as a major player in international trade. Since RTAs are negotiated without the support or active participation of WTO, it is increasingly argued that WTO has got changed into a 'dispute resolution' forum only that happens to be only one forum within WTO. Although, Azevedo has stated that he would be setting off his 'Brazilian hat' to forge more close consensus between developed and developing countries, there are reservations as to how in the presence of such pervasive and deeply entrenched RTAs will enable a truly global free trade (Heilprin, 2013). Nonetheless, Brazil after analyzing the text and conducting independent research, it is safe to assume that drastic changes in WTO role in international trade might not take place. The main rationale is that domestic interest groups of Brazil are deeply entrenched in lobbying protectionism for several of Brazil's industries. Brazil has one of the lowest trade-to-GDP ratios (Kleckner, 2013) amongst the countries that were in the race to the top slot WTO.

Conclusion

The text provides an insight into the theoretical basis of international trade and how the policies of trade are formulated in countries. Domestic interest groups, political institutions, exchange rate, factoral and sectoral preferences, and international politics are described as the main forces that shape trade policy formulation. The change in ideas regarding trade is also termed as an important source of modification in trade policies of different countries and Brazil has been cited as the appropriate example of that. WTO has been at the center of dispute resolution amongst member states and the role of this international institution has now become questionable due to its becoming non-entity. The rise in number of RTAs that undermine true global free trade, have been cited as the main source of concern to the future of free trade. Azevedo, Brazil's top WTO diplomat has been appointed as WTO's head and the appointment is being seen as a challenge for Azevedo and for Brazil to prove sustained support to the cause of free trade.