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MBA (General) Group C

Sarvesh Sungkur
1420435

Although the WTO helps trade flow


smoothly and provides countries with a
constructive and fair outlet for dealing
with disputes over trade issues, anti
globalization protestors claim that the
WTO is not sovereign in its decision
making and that, in most cases, it serves
the interests of the rich countries at the
expense of the poor nations

Contents
1.

WORLD TRADE ORGANISATION......................................................................................3

2.

Dispute Examples.....................................................................................................................4
2.1 Cotton Dispute The Rule Oriented System.........................................................................4
2.2 The Doha Round....................................................................................................................6
2.3 Steel.......................................................................................................................................7

3.

WTO benefiting developing countries.....................................................................................8


3.1 The Aid for Trade...................................................................................................................8

4.

Conclusion..............................................................................................................................10

BIBLIOGRAPHY..........................................................................................................................12

1. WORLD TRADE ORGANISATION


The WTO is the main international institution for the management of international trade.
It was founded at the Uruguay Round of trade talks in 1994, when the General Agreement
on Tariffs and Trade (GATT) with a common agreement was turned into a permanent
institution. The Uruguay Round was a set of GATT negotiations started in Uruguay in
1986 and devised to promote free trade. It was the root of the WTO and a range of
multilateral agreements. It currently comprises of 162 Member States. The WTO is
responsible for enabling a forum for trade negotiations, running trade disputes and
supervising national trade policies. (WHO website, 2016)
The WTO also conducts WTO agreements, provides technical assistance to developing
countries and cooperates with other international bodies on trade issues. The liberalization
of trade was extended from good to services, copyright and investment among others. The
WTO was administered with a stronger legal framework than that of GATT. For instance,
new members accepted the conditions of the WTO as a whole package, in the past; it was
open to independent negotiations. According to the organization, its main function is to
ensure that trade flows as smoothly, predictably and freely as possible (WTO website,
2016)
At the WTO decisions are to be taken by common agreement, and if it is impossible to
achieve it, a majority vote with a high threshold will substitute it. Each member state has
one vote, thus ensuring the equal treatment to all its members. Moreover, it is argued that
that new aspect of the WTO of abiding law allows the balance of power for a fair and
equal treatment of all its members. Power should no longer be a critical factor of the result
of a dispute. The different types of negotiations carried out, effectively provided a much
stronger bargaining chip to Western Powers whom could incorporate the economical cost
of trade restrictions. With the utilization of a legal regulatory body for disputes on
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violations, less capable states were equally able to challenge offenders of trade
agreements, legalization thus introduces and equalizing element to trade relations among
states (Chorev, 2005, p.335). As a result, judicial proceedings made market size and
political resources less salient (Chorev, 2005, p.335). Cases conferred to dispute will be
refereed by the Dispute Settlement Body (DSB). The member state who lodges the
complaint, the plaintiff, accuses other member(s) of breaching the WTO obligations. If the
defendant is accusable, the verdict of the DSB will constrain it to make necessary
adjustments on national laws that do not conform to WTO agreements or rulings
(Kapoor, 2004, p.528).

2. Dispute Examples
2.1 Cotton Dispute The Rule Oriented System
One example that might help to represent this change in the institutional approach of
international trade is the complaint lodged by Brazil and Benin against the US. Heinisch
(2006) studies the context around it. The US executed in 2002 the Farm Security and
Rural Investment Act, which increased subsidies for farmers up to 80%(p.252). In
September Brazil registered a complaint against the US (p.263) arguing that its
subsidies policies were against WTO agreements and responsible for significant price
depression and price suppression (p.262) globally.
Benin signed it as a tiers party in 2003, because of its huge interest in the dispute. The
cotton production for Benin in 2002 considered for 77% of its exports (p.259). This was
a historical moment for a couple of reasons. It was the first WTO official objection lodged
against a developed nations domestic subsidies, and for the first time an African nation
had been involved in WTO litigation (Becker, 2004, adapted from Heinisch, 2006,
p.262).
Finally in March 2005, the WTO ruled in the interest of Brazil (and Benin) gave the US
until 1 July to remove the subsidies (Heinisch, 2006, p.262). As a result, it has been
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argued that WTO settlement system is probably the most powerful international tribunal
system in existence (Jackson, 2008, p.438).

This example might lead us to think that the legal system of the WTO provides valuable
means to developing countries with better chances to challenge successfully trade
practice of their trading partners and to ensure their adherence to international
obligations (Chorev, 2005, p.336).
Moreover, this WTO rule shows an effective change in the international trade system. This
is more sensitive when comparing a situation that occured during the Uruguay Round
which led to the formation of the WTO. Developing countries were against propositions
including intellectual property rights, investment and services, and the US threatened to
withdraw from the Round and cancel its obligations to any member refusing to sign that
Final Act (Steinberg, 2002, p.360; Kapoor, 2004, p.528). During that time, the US was
able to use its power to pressure developing countries to accept disadvantageous
conditions, whereas under the WTO the relative influence of member-states has been
equalised (Chorev, 2005, p.323.)
In spite of the fact that the settlement of disputes by judicial process on the DSB could be
read as a guarantor of equality for developing countries, because of the power and
knowledge imbalance, it seems to be less probable. Western states have far larger
resources, thus a not a proportional advantage, substituting Western negotiation power
with Western legal power (Gabilondo, 2001, adapted from Kapoor, 2004, p.536).
Developing countries are yet disadvantageous as compared to powerful Western states.
The high startup cost for using trade litigations are an obstacle to developing country use
of the dispute settlement process (Davis, Bermeo, 2009, p.1033). Moreover, the lack of
knowledge and the scarcity of human resources for dealing with increasing complex
issues (Delilah, 2002:75 Davis, Bermeo, 2006, p.1035) place them in a very delicate
situation. On top of the market, according to DSB rules, if the defendant is proved to be
guilty, the plaintiff may engage in retaliations against the violator. The problem with lots
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of developing countries is that because they have an insignificant share of international


trade retaliation becomes unbearable since their resulting losses would exceed any
possible gains (Alavi, 2007, p.34) as powerful members could induce retaliations.

2.2 The Doha Round


The Doha Development Agenda, more often tagged as the Doha round trade talks, is the latest
cycle of negotiations of the World Trade Organization (WTO). There have been nine rounds of
multilateral trade talks since the end of the WWII, but the Doha round is the first to lay emphasis
on helping developing countries join the global marketplace, and boost their economies
consequently. The round was started in November 2001 and is still ongoing.
The Doha round, which means cutting import taxes wshich are known as tariffs on
everything from wheat to cars to lingerie. It also means prohibiting countries' use of subsidies for
farmers and fishermen; reducing taxes and regulatory barriers that influences the cross-border
trade in services, such as banking and consulting; and negotiating new intellectual property rules
on things such as drugs and copyrighted works.
More strict restrictions on farm subsidies in the EU and the US would be good for farmers in the
developing world. But if developing countries sign a deal that severely limits the tariffs they're
allowed to place on, like, imports of maize, it could prove to be harder for them to protect their
domestic maize farmers in the event of a drought or other disaster at home. Most economists
would point out that, that sort of "protectionism" which a Doha deal would guard against is
bad for the global economy, but a lot of anti-poverty activists would disagree.
Trade officials are still holding regular meetings at the WTO headquarters in Geneva, but they
have made precious little progress over the last few years.
The Doha round is based on the idea of a single undertaking, which means that, in effect,
"nothing is agreed until everything is agreed", to quote a popular phrase among trade officials.
Negotiators are trying to employ new rules on a huge array of topics; if talks in one of those
areas hit a snag, then the whole deal is held hostage. Officials were close to strike a deal and
conclude the Doha round once and for all at a high-level meeting in Geneva in July 2008. But
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after 10 days of talks, the negotiations were disrupted over a dispute between the US and India
about rules governing trade in agricultural goods
2.3 Steel
Beyond textiles and agriculture, steel is another sector in which exports from developing
countries have been continuously subjected to harassment. Concerning this issue, the constant
misuse of trade remedies, especially anti-dumping measures, has caused the sector another
painful exception to free-trade.
Consequently, developing countries have either secured very small concessions in the areas of
their greatest interest or have seen such concessions cancelled by restrictive trading practices. In
contrast, the results of the negotiations included texts with provisions that incorporated very
strong commitments to be observed by developing countries that were not fully prepared to
undertake those adjustments so speedily.
The duties mentioned in some of the agreements such as the Agreement on Trade-Related
Aspects of Intellectual Property Rights, the Agreement on Subsidies and Countervailing Duties
and the Agreement on Trade-Related Investment Measures, entailed the need for the changes in
domestic laws and regulations and, ultimately, restricted the ability of those countries to pursue
industrial policy objectives. Many of the instruments traditionally used, such as subsidies and
local content requirements, were wither severely restrained or totally prohibited. The fact that
there are special and differential treatment provisions in some of the agreements does not alter
this picture, since most of these provisions do not go beyond allowing for additional (frequently
short) time periods for the adaptation of developing countries to the new rules.

3. WTO benefiting developing countries

3.1 The Aid for Trade.

There has not been a country which has ever lifted itself out of poverty without international
trade. Trade is indispensable to help countries develop. So it must be ensured that people in the
worlds poorest countries have access to markets, to create jobs and encourage growth as a result.
However, t trade needs the necessary conditions to flourish. Obstacles and inefficiencies be it
at border crossings or in the way the economy is coordinated, or even within the private sector
get in the way of progress and prosperity.
Aid for Trade helps as financial assistance to build new infrastructure, improve ports or customs
facilities in developing countries, helping developing countries trade their way out of poverty.
Today, the EU and its Member States provide more trade-related development assistance than the
rest of the world put together. Statistics show that a 10% increase in Aid for Trade spending on
infrastructure has been shown to lead to a 6.5% increase in goods exports.
However, what really counts in the current crisis, with ODA shrinking, is to continue to support
developing countries integration into the global economy and make the most of the aid
budgets for this purpose.

The WTO has established the progress made by many developing countries by granting them
advantages to adapt to and soothe risks arising from the four trends identified:

the rise of the developing world;

the expansion of global value chains;

the higher prices of commodities; and

the increasingly global nature of macroeconomic shocks.

It was able to accomplish these through binding commitments, flexibilities, technical assistance,
and its institutional infrastructure.
Commitments under the WTO are vital for developing countries to boost their trade and
development. Countries undertaking huge reforms in the context of WTO accession were found
to grow 2.5 per cent faster for several years in the future. At the same time, developing countries
need flexibilities because their economic situations can be an obstacle to their ability to
implement obligations.

Development is the primary goal of the WTO. The agreement concluded in the Bali Ministerial
Conference in December 2013 is a positive step towards this objective and offers many
opportunities for developing countries. To make trade work more productively for development,
more progress on the Post-Bali Agenda would be vital.
The four trends show that trade is one of the key facilitators of growth. Trade has played an
important role in lifting millions of people out of poverty in recent years and helped to
accomplish many of the UN millennium development goals (MDGs). The WTO and its rules
should be seen as an integral part of the enabling environment for realizing any post-2015
development agenda. ( OECED insights , Online)

4. Conclusion

The structure of the WTO favors the maintenance of the dominant position of Western states.
Moreover, going by the WTO, obliges implementation of the full package in a single
undertaking, including TRIPS and GATTS, independently of how damaging it could be for their
economy or even sovereignty. Developing countries have to make an advantage to cost
calculation before joining the WTO to counterbalance the losses of joining again the losses of not
joining. Developing countries have little power within the WTO framework for a few reasons:
Even though developing countries make up two-thirds of WTO membership and by their vote
can in theory have an impact on the agenda and the result of trade negotiations, however, the
developing countries have till yet, not use this as an advantage. A large part of the developing
country economies are in a way or another dependent on US, EU and Japan in terms of imports,
exports, aid, security etc. They often consider their obstruction of a consensus at the WTO too
much of a threat to their overall well-being and security. As a result, while many countries may
be opposed to an agreement, as was the case with the Trade Related Intellectual Property Rights
Agreement (TRIPS) concluded in the Uruguay Round, developing countries did not eventually
obstruct its conclusion.
Trade negotiations are based on the principle of exchange or trade-offs. For instance, one
country gives a concession in an area, such as the lowering of tariffs for a certain product, in
return for another country agreeing to sign on to a certain agreement. This type of bartering
proves to be advantageous to the large and diversified economies since they can get more by
giving more. Hence the divergence between those who can give and those who cannot, or only a
little is heightened. The stronger members accumulate benefits, while the weaker ones have their
interests discarded. In fact, it is known in WTO circles that developing countries almost never
bargain for benefits, but usually give in to the requests of the developed countries. For the larger
part, negotiations and trade-offs occurs between the developed countries, and some of the richer
or larger developing countries.
Developing countries have fewer human and technical resources and consequently often enter
negotiations less prepared then their developed country counterparts. Moreover, developing
countries have discovered that seeking refuge in the dispute settlement system is costly and
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requires a level of legal knowledge and expertise which they may not have. Moreover, the basis
on which the system is run - whether a country is violating free trade rules - is not the most
appropriate for their development necessities.
This assignment has used some examples to analyze whether WTO serves the interest of rich
countries at the expense of the poor ones and clearly it is indeed the case.

BIBLIOGRAPHY

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Alavi, A., (2007) African Countries and the WTOs Dispute Settlement Mechanism,
Development Policy Review, Vol.25, No.1, pp.25-42
Chorev, N., (2005) The Institutional Project of Neo-Liberal Globalism: The Case of the WTO,
Theory and Society, Vol.32, No.3, pp.317-355
Davis, C., Bermeo, S, (2009) Who Files? Developing Country Participation in GATT/WTO
Adjudication, The Journal of Politics, Vol.71, No.3, pp.1033-1049
Heinisch, E., (2006) West Africa versus the United States on Cotton Subsidies: How, Why and
What Next?, The Journal of Modern African Studies, Vol.44, No.2, pp.251-274
Jackson, J., (2008) The Case of the World Trade Organisation, International Affairs (Royal
Institute of International Affairs 1944-), Vol.84, No.3,
Kappor, I., (2004) Deliberative democracy and the WTO, Review of International Political
Economy, Vol.11, No.3, pp.522-541
Steinberg, R., (2002) In the Shadow of Law or Power? Consensus-Based Bargaining and
Outcomes in the GATT/WTO, International Organisation, Vol.56, No.2, pp.339-374
Country Ambassador Celso L.N. Amorim (2000) The WTO from the Perspective of a
Developing Vol 24 Article 6

WTO (2016) What is the WTO?, online resource available at


<https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm> , last accessed 30-0316

WHO (2016) World Trade Organization (WTO) online resource available at <
http://www.who.int/trade/glossary/story098/en/>, last accessed 30-03-16

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Guardian (2012) Doha Round, online resource available at <http://www.theguardian.com/globaldevelopment/2012/sep/03/doha-round-trade-talks-explainer>, last accessed 03-04-16
OECD Insights, Aid for Trade online resource available at
<http://oecdinsights.org/2013/01/14/aid-for-trade-helping-developing-countries-trade-theirway-out-of-poverty/ last accessed 03-04-16

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