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Status Quo of WTO on Trade Liberalization What is new in trade theory?

What does the new trade theory (NTT) imply for the theory of economic development, and how, in turn, does it fit into the public debate over trade, trade liberalization and development in developing countries? The current state of negotiations on "trade and investment" shows that opposition to seeing the WTO expanding its scope is arising from various fields. In the current international climate where globalization and interdependence is being sought, many would agree that the WTO constitutes an important infrastructure for the international community. But multifaceted problems are associated with the direction this issue is taking.1 In addition, the WTO framework carries within itself a mechanism that could collapse if it does not continue operating. The conservatives of the countries are very prominent. Take for example the textile and steel industries of the United States or the agriculture industry in Japan. Unless liberalization continues to be promoted, the political mechanism is such that the inward strength of a nation could easily pull itself towards taking protective trade measures. The WTO must continue to move on. The GATT agreement first established rules only on border measures (tariffs and quotas) and later added rules on certain internal practices that clearly had direct effects on trade in goods. The Uruguay Round agreements further expanded trade rules to cover new areas such as trade in services and intellectual property rights. U.S. businesses generally want the WTO to refrain from extending beyond these traditionally trade-related issues, because they argue that the greatest export opportunities will be achieved only if negotiators focus on trade barriers and do not include social factors.2 On the other hand, accepting traditional trade theory condemns to the low value added activities as trade liberalization effectively prohibits it from supporting infant industries with greater developmental potential. According to Deraniyagala and Fine (2001) differences between NTT and old trade policy in a critical survey can be divided into two.3 First, traditional

http://www.rieti.go.jp/en/papers/research-review/008.html WTO in Transition - The Current Status of the WTO Framework and its Future by KOTERA Akira 2003 2 http://www.nationalaglawcenter.org/assets/crs/98-928.pdf The World Trade Organization: Background and Issues by Ian F. Fergusson 9 May 2007 3 http://www.jomoks.org/popular/pdf/Trade_Theory.pdf Trade Theory status Quo Despite Krugman by Jomo K S, Rudiger von Arnim 6 december 2008

comparative advantage trade theory offers stagnant gains from specialization, given a countrys recent position, whereas NTT leaves open the likelihood for gains from increasing returns. Second, in traditional theory, industrial policy does more harm than good, whereas NTT leaves room for appropriate subsidies, tariffs and infrastructure investments. In current situation, while trade is often a necessary but not sufficient condition for economic growth and poverty reduction, it is no solution to cope with the challenges of achieving sustainable development. Sound macroeconomic conditions, economic and social infrastructure as well as effective redistribution policies are equally important to truly benefit from trade liberalization.4 The issues considered so far are primarily microeconomic in nature. The founder of macroeconomics, John Maynard Keynes, and his landmark theory of aggregate demand has been developed to include international dimensions. Importantly, relative prices are, to a considerable degree, determined by a macroeconomic asset price, the exchange rate. Conveniently, these theories can be integrated with financial markets (where exchange rates are viewed as asset prices), and with underemployment as well as factor mobility, particularly of capital.5 Inconveniently, such models produce much less gains from trade, and thus, are not drawn upon for free trade policy advocacy. In order to ensure that trade liberalization to be in sustainable development, Article 19 of the General Agreement on Trade in Services (GATS) which also known as the negotiations clause provide that countries that have liberalized on their own initiative since the last multilateral negotiations can be taken into account when they negotiate market access in services. The negotiating guidelines and procedures that members agreed in March 2001 for the GATS negotiations also call for criteria for taking this autonomous or unilateral liberalization into account. These were agreed on 6 March 2003. On the other hand, GATS mandates members to establish how to give special treatment to least-developed countries during the negotiations. These modalities cover both the scope of the special treatment, and the methods to be used.6

http://library.fes.de/pdf-files/iez/global/04787.pdf Trade Liberalization and Development WTO and the Doha Round by STEFFEN GRAMMLING March 2007 5 http://www.jomoks.org/popular/pdf/Trade_Theory.pdf Trade Theory status Quo Despite Krugman by Jomo K S, Rudiger von Arnim 6 december 2008

http://www.wto.org/english/thewto_e/whatis_e/tif_e/understanding_e.pdf Understanding the WTO, 2011

The least-developed countries began the discussions in March 2002. As a result of subsequent discussions, members agreed the modalities on 3 September 2003. Previously, multilateral negotiations are never easy, which usually act as a barrier to attain trade liberalization, as can be witnessed also in other areas than trade. Recently in The Doha Round, WTO entails very complex negotiations that require progress across a number of topics, where the interests of the membership do not always converge. WTO Members often make tactical trade-offs in the negotiations between the various negotiating topics, meaning that sometimes progress can be blocked even rather non-controversial topics. In addition, decisions in the WTO are taken by consensus, meaning that all members must agree with all elements of the final package. Given persistent deadlock in the Doha negotiations, to solve this issue, there is a critical need for strong political leadership and reasonably ambitious and specific guidance to negotiators to support the process of multilateral trade liberalization and rule-making, as well as the WTO system more broadly.7 The members finally came into consensus to come out with an agreement to make the negotiation process easier in the eighth Ministerial Conference of the WTO in Geneva on 15-17 December 2011. In conclusion, developing countries, together with countries currently in the process of transition to market-based economies, they play an increasingly important role in the WTO. Therefore, much attention is paid to the special needs and problems of developing and transition economies. WTO role in guiding trade activities cannot be argued. Thus, in current situation, although there are a lot of measures to be taken to ensure the sustainability of the development of trade activities, WTO role should not be questioned as this organization plays an enormously important role in leading the world to a better economic environment.

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/751 WTO trade negotiations: Doha Development Agenda, Brussels, 31 October 2011