m

e r as
co
BE2501: INTERNATIONAL BUSINESS ENVIRONMENT

eH w
INDIVIDUAL ASSIGNMENT

o.
rs e Prepared by
ou urc
Aida Asilah Binte Abad
o

U1211101J
aC s
v i y re

Prepared for
Dr. Krishna Udayasankar
ed d
ar stu
sh is
Th

“I, Aida Asilah, declare that the work submitted is original and that I have made proper
referencing and citations (where appropriate and required).”

1
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 Introduction
In the aftermath of the World War II, several international institutions were formed as a
means to manage global economy with the hopes of preventing another Great Depression.
The General Agreement on Tariffs and Trade (GATT), now known as the World Trade
Organisation, was one of them alongside the World Bank and International Monetary Fund.
They now represent the faceless symbols of the today’s global economic order.
Originally meant as a negotiating platform for developed countries, its 160 country members
now include the developing countries as trade liberalisation has become an accepted doctrine
for most developing countries. With a central mission of promoting trade liberalisation
through negotiations, monitoring information on trade policies among countries, the WTO
has been influential in determining regional trade agreements.
This report will attempt to evaluate the following statement, “the WTO is an institution that
promotes ‘free trade’ and not ‘fair trade’.

m
e r as
We will examine the agenda promoted by WTO, its expected benefits to its country members

co
and the extent to which the benefits were fulfilled. It will also examine the possibility of an

eH w
alternative economic trading network and propose recommendations to the WTO regime.

o.
The following theoretical concepts will touched upon for some areas in this report – the
rs e
World Systems Theory and Modernization Theory.
ou urc
The Functions of the WTO
o

As an institution, the WTO consist of the following five functions which is to provide a
forum for trade negotiations and resolution of disputes as well as to monitor trade policies
aC s
v i y re

and implement multilateral trade agreements and work together with international institutions
for matters that affects the world economic order. In all, it is a contractual body of rules
agreed by all members and with the power to enforce and protect them (WTO, 2015).
ed d

WTO Agenda: Trade liberalisation and the Washington Consensus

ar stu

The WTO was founded in an era in which many countries gained independence. From the
vantage of dominant developed core countries such as the United States, this new
independence represents a threat to their political and economic ideologies of democracy and
sh is

trade liberalisation. The Washington Consensus was enacted as a means to promote the states’
values. The creation of the institution was largely influenced by the muscle of the Consensus
Th

in an attempt to permanently institutionalize its values of trade liberalism (Wachtel, 1999).

As such, WTO’s agenda could be attributed to the influence of dominant actors within the
institution – developed countries with similar economic ideology who founded its
predecessor, the GATT, as a platform for developed countries to construct cooperative
relations for a stable world economy (Helen V. Milner, 2005).
At the core of its institution, WTO promotes globalisation, known as neoliberalism by critics.
The adoption of market-friendly policies with limited state intervention in the economy,
deregulation and trade liberalism in a free market economy as promoted by the institution
resonates with traits of Adam Smith’s capitalism. Almost every country in the world is a
member of WTO, allowing their markets the negotiating opportunity to open to global trade
with the other members in a borderless world. As such, WTO facilitates capitalism’s
relentless pursuit for expansion to new market.

2
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 The WTO regime has been seen by critics as a platform of unlevelled playing field due to the
unequal distribution of power among member countries. Their economic prowess of
developed countries far exceeds the developing countries and they are able to wield high
level of influence during negotiation rounds, often taking advantage of the former to form
unfair agreements (Stiglitz, 2002).
Debates regarding the effectiveness and impacts of WTO have arisen due to the mixed record
of economic and development outcomes in member countries since joining the institution.
Impact of WTO: Benefits to Developed and Developing Countries

Increased markets
Developed countries have benefited from the WTO regime as the institution has advanced its
economic interests. With 160 member countries, almost every country in the world is part of
WTO, allowing their markets the negotiating opportunity to open to global trade with the

m
other members in a borderless world. This allows transnational companies in the developed

e r as
countries to pursue relentlessly for new markets and exploit the resources of developing

co
countries.

eH w
Influence economic ideology

o.
rs e
In order for countries to become a member of the WTO, there is policy reforms required
ou urc
before they are able to join. Member countries especially the rich developed countries are
able to wield their political and economic ideologies to influence policies reforms that suit
their interests.
o
aC s

Impact of WTO: Benefits to Developing Countries

v i y re

Increase economic development and standards of living

The developing countries joined the WTO with the hopes of developing their economies and
opening it to new markets and raising the standards of living as well as social mobility of its
ed d

citizens (WTO, 2015). WTO’s most-favoured-nation (MFN) principle promotes non-

ar stu

discrimination amongst member by ensuring a single world price and tariff on its trading
partners (WTO, 2015). This ensures discriminated between trading partners are eliminated.
Life expectancy has increased from 46 to 63 years in 1960 to 2000 for developing countries.
sh is

Poverty as well as child mortality and illiteracy rates have declined significantly (UNDP,
Th

2004).
For instance, the decrease has been significant in China. According to the World Bank, the
amount of its population living on $1 a day has fallen to below 22 percent in 2000 from 28
percent 10 years ago. However, in terms of absolute numbers, the desperately poor citizens
have not fallen due to the high rate of population growth (Aisbett, 2005).
Apart from improved living standards, developing countries have move up their role in the
global economy. They are now producers and exporters of manufacturers’ goods instead of
simply producing and exporting low-cost agricultural goods (World Bank, 2005). This
diversification of developing countries’ productions and trade has been profitable for the
country.

3
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 Impact of WTO: Disadvantages to the Developing Countries
Decrease in economic development
To participate fully in WTO, developing had to drop their trade tariffs even though tariffs are
important source revenue to the state and protects domestic producers such as small and
medium-sized enterprise (SME) sector from foreign competitors. The SME is a significant
employer in many developing countries, especially among the poor, and a major contributor
to GDP. However, the development of SMEs is a perspective that is lost in current WTO
debates where negotiation with the private sector is steadfastly focused on multinational
corporations and hence, results in a decrease in the SME economic sector and the country’s
GDP (IFAT, 2003).
In an attempt to level the playing field, WTO grants developing countries members’
concession – giving developing countries the legal right not to be discriminated against in its
trade against other members so as to promote free trade amongst all. However, when special

m
concessions or commitments were made by developed countries to developing countries on

e r as
goods, they are short-term expedients that cause damage to the developing countries instead.

co
For instance, Zambia’s GDP per capita has fallen and its population living in poverty

eH w
increased by 5% from 70% in 1991 even though the country had a large-scale liberalisation

o.
programme in the 1990s according to Zambian Trade Policy Review (TPR, 2002).
rs e
ou urc
A sizeable number of developing countries were worse off economically in 2000 than they
were in 1980 after they joined the WTO. For instance, World Bank data indicate that per
capita income for Haiti, Chad, Ghana, Central African Republic and Nicaragua was lower in
1999 than in 1960. Furthermore, there was a decrease in the human development index from
o

1980 to 2002 for twenty countries (UNDP, 2004).

aC s
v i y re

There is increasing income gap between the rich and poor countries. Since the 1980s, the
poorest countries have been economically worse than the wealthiest country. This can be
attributed to the rich countries’ rapid growth that results in a divergence in incomes between
the rich and the poor. For instance, rich countries in the Organisation for Economic Co-
ed d

operation and Development (OECD) grew at 2.5 percent annually in the 1980s and 1.8
ar stu

percent in the 1990s. Compared to this, developing countries only grew at 0.7 percent and 1.7
percent respectively. Hence, they have been facing slower growth even as members of WTO. .

Information Asymmetry
sh is
Th

There exists an asymmetry in the monitoring and information provision provided by the
WTO. It is the developing countries that are monitored and provided more information on
more than developed countries. In turn, this increases the likelihood of private investors and
developed countries to invest in, trade with and provide loans for the developing countries.
However, the terms of the agreements have often imposed numerous and powerful conditions
on the developing countries that impeded their growth (Helen V. Milner, 2005).

Trade-Related Intellectual Property Rights (TRIPS)

Using Wallerstein’s World Systems theory, the WTO has resulted in developing countries
becoming more dependent on the developed countries. Through the regime, developing
countries are now made more vulnerable as they are participating on the multilateral trade
agreements within the institution and are affected by the actions of other players. For instance,
the WTO’s inclusion of trade-related intellectual property rights (TRIPs) in its purview has
resulted in technological dependency of the developing countries on the developed countries.

4
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 The interest-driven lobbies of multi-national corporations (MNCs) such as pharmaceutical
drug companies to include their intellectual property rights under the WTO regime have
shaped the rules of intellectual property, world trade and aid (Bhagwati, 90). Due to TRIPs,
these MNCs are able to leverage on economic interests and demand royalties for the use of
their intellectual properties and have the backing of the WTO in the form of trade sanctions.
As such, developing countries now have to rely upon the developed countries for medicines
when they could have been able to produce the needed medicine much faster and at a lower
cost.

Criticism of WTO: One size fits all approach

Using the Modernization Theory, the WTO regime has been implementing a one-size-fits all
approach when it comes to its strategy of market access in developing countries. It expects
the developing countries to be able to follow in the footsteps of successful developed
countries, and by doing so, the developing countries will excel as well (IFAT, 2003).

m
Although there is the Special and Differential treatment for less developing countries, the

e r as
WTO does not acknowledge or take into account the special needs certain countries may

co
require for them to realize the gains from market liberalisation.

eH w
In the case of China as an example of a developing country, the country experience

o.
rs e
tremendous growth since joining the WTO and implementing the required reforms that the
ou urc
institution called for in order as part as its ascension to the WTO. For instance, Japan, the
United States and European countries requested China to first reform its various policies
including tariffs and industrial and open market policies.
o

However, not all countries would be able to experience such growth as it would be depending
aC s

on the countries’ unique factors.

v i y re

Fair Trade: An Alternative Network?

There has been an increasing trend of fair trade produce in the market place over the recent
ed d

years. Sales of Fairtrade products in the UK have increased by 14% to £1.78bn in 2013 from
ar stu

the previous year according to the Fair Trade Foundation.

According to the World Fair Trade Organisation, fair trade is a trade network based on
“dialogue, transparency and respect that seeks greater equity in international trade.” It
sh is

promotes an alternative mode of trade in order to achieve sustainable development as

opposed to conventional free trade. By offering improved trading conditions for goods to
Th

marginalized producers and workers, fair trade contributes to a sustainable development.

Fair trade seeks to address the inequity faced in the current free trade system in which
powerless producers at the bottom of the supply chain who lack the negotiating power.
The International Federation for Alternative Trade (IFAT) represents an international global
network comprising of Fair Trade organisations with an outreach that spreads across the 5
continents. It operates on the basis that fair trade is able to contribute significantly to poverty
alleviation.

5
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 The Evolution of Fair Trade
The fair trade network was first developed in the 1940s during the Bretton Woods era. It was
created as an alternative parallel trading system that would form part of a new international
economic order based on strong state intervention at both national and international levels
unlike that of free trade (Fridell, 2004). The fair trade network aspires to break away from the
pressures imposed by profit-driven transnationals.
The emergence of fair-trade labelling initiatives such Fair Trade Labelling Organisations
International (FLO), increasing fair-trader’s desire to expand the size of their small fair-trade
markets and major decline in national and international market regulation led to the growth of
fair trade.
Through FLO, fair-traders wanted to gain access to the very same markets that they
previously wanted to reform. Under FLO, it certifies companies that are voluntarily willing to
follow its fair trade criteria. Goods are produced under conditions and standards based on

m
International Labour Organization (ILO) Conventions to ensure FLO-certified goods are

e r as
exchanged under minimum guaranteed price that helps producing communities develop their

co
social and physical infrastructures such as schools (FLO, 2003).

eH w
Fair trade network experienced financial success and growth under its market-driven vision

o.
rs e
of fair-trade based on non-binding, voluntary commitments from increasing participation of
ou urc
private firms that view it as a voluntarist alternative to state regulation (Fridell, 2004). From
1997 to 2000, sales grew by 35% and total retail turnover as of 2000 was worth US$196
million. US46 million of the sales went directly to its producers, 40% more than it would
o

have been if it was sold at conventional prices (FLO, 2001).

aC s

Currently, fair-trade is commonly depicted by the media as a project designed to help poor
v i y re

producers improve their livelihood through the means of training and development based on a
network of trust and cooperation within the capitalist system (Fridell, 2004). However, there
is potential for fair trade to rise as an alternative trade network supported by countries
international trading.
ed d
ar stu

The Increasing Need for Fair Trade:

How WTO Agenda is not Helping Developing Countries
The WTO regime has faced several criticisms from supporters of Fair Trade.
sh is

Firstly, these supporters view the small and medium enterprises (SMEs) of developing
Th

countries as crucial to the development of the nation as the sector itself contributes
significantly to the GDP. However, with the elimination of trade tariffs placed around
domestic market, the SMEs face competition from foreign companies. The SME perspective
is crucial for sustainable development however the WTO does not take this view into
consideration.
Secondly, the WTO’s emphasis on increasing market access is not a sufficient strategy for
developing countries. In order to build sustainable markets in developing countries, more
comprehensive strategies are needed in order to close the gap between the rich and poor
countries. For instance, even though increasing market access increases the possibility of
more economic activities for domestic firms, it must also come with capacity building in
order for the firms to be able to handle the increased demand. Capacity building inputs are
needed in business development areas such as supply chain management, health and safety

6
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 compliances and marketing. Without capacity building, developing countries would not be
able to realise the economic benefits of international trade.
Thirdly, there is a need for more policy capacity in developing countries. The WTO must
recognise the weak negotiating capacity of developing countries and accounts for its special
needs in order to govern the global economic order fairly. For instance, during the WTO
Miniterials, the EU was represented by more than 500 negotiators in Doha. Developing
countries do not have the huge amount of resource for representatives to engage in
multilateral negotiations (IFAL, 2003).
The Fair Trade movement seeks sustainable development through the need for equal and fair
trading partnerships between countries. A fair global trading system could only be created
when there is equity in the areas of political intent, capacity, resources and opportunity.

Should the role of WTO be to promote free or fair trade?

m
In my opinion, the WTO should shift to promote fair trade in order to remain relevant. This is

e r as
due to the increasing inequalities and income gap between developed and developing

co
countries. By promoting fair trade, it allows for sustainable development within the

eH w
developing countries, stabilizing the foundations of its domestic market and preparing it for
future trade liberalization (IFAT, 2003).

o.
rs e
However, due to the economic interests of trade liberalization of its developed countries
ou urc
members, changing to promotion of fair trade within WTO is highly unlikely as the
institution operates on multilateral agreements jointly agreed by all members.
o

Conclusion: Recommendations for WTO to remain relevant

aC s
v i y re

The WTO regime does indeed promote free trade due to the influence of the Washington
Consensus in its creation of the institution. The WTO is dominated by powerful countries that
use the institution to advance its own interests in its pursuit for market liberalisation that
helps its own economic interests. As such it promotes free trade as seen by the functions of
ed d

the WTO. Some of these interests are exploitative in nature, such as using child labourers in
ar stu

developing country as a means to decrease the manufacturing costs of transnational

companies.
The benefits of free trade and of being a member of WTO may seem advantageous on the
sh is

surface, however not all members were able to experience them. It was skewed in favour of
developed countries with vast economic power. Due to the various historical contexts of the
Th

country that resulted in the economy it has today, a one-size-fits-all approach for market
liberalisation as a means to facilitate the development for developing country is not a
recommended approach for all countries.
To truly facilitate development in developing countries, the WTO must address the special
needs required by the former in order to truly develop and provide assistance in order to level
the playing field as the developing country is already at a disadvantage as compared to its
economically stronger members. Fair trade is a potential way for developing country to have
sustainable development. However, due to the economic interests of its more dominant
members, changing to promotion of fair trade within WTO is highly unlikely. There needs to
be a change in economic ideology and that ideology change must be driven by one of the
hegemony powers. With them, comes the power of influence and their vast economic
prowess would enable them to force changes to occur.

7
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 Using the World’s System theory, the developed countries would always exploit the weaker
countries through its economic and political might. I would recommend the less developing
countries to cut off its trade relations with the developed countries as well as the WTO and
pursue relations with other developing countries, forming its own organisation with countries
with on the same playing field as itself. With this, developing countries would be able to help
on another due to similar economic interests.

m
e r as
co
eH w
o.
rs e
ou urc
o
aC s
v i y re
ed d
ar stu
sh is
Th

8
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/
 References

Aisbett, E. (2004). Why are the Critics so Convinced that Globalization is Bad for the
Poor?National Bureau of Economic Research Working Paper.
Bhagwati, J. (2004). In Defense of Globalization. Oxford University Press.
Chen, S., & Ravallion, M. (2004). How Have the World’s Poorest Fared Since the Early
1980s? World Bank Research Observer. doi:10.1093/wbro/lkh020
Frankel, J. A., & Romer, D. (1999). Does Trade Cause Growth? American Economic Review.
doi:10.1257/aer.89.3.379
Fridell, G. (2006). Fair Trade and Neoliberalism: Assessing Emerging Perspectives. Latin
American Perspectives, 33(151). doi:10.1177/0094582X06294109
Halverson, K. (n.d.). CHINA'S WTO ACCESSION: ECONOMIC, LEGAL, AND
POLITICAL IMPLICATIONS. Retrieved from
http://www.bc.edu/content/dam/files/schools/law/lawreviews/journals/bciclr/27_2/06
_TXT.htm

m
Hochman, H. M. (2005). Easterly William, The Elusive Quest for Growth: Economists'

e r as
Adventures and Misadventures in the Tropics. Journal of Socio-economics.

co
doi:10.1016/j.socec.2005.07.017

eH w
How the Washington Consensus changed the 'rules' of International trade | Mona Sam -

o.
Academia.edu. (n.d.). Retrieved from
rs e
http://www.academia.edu/1228716/How_the_Washington_Consensus_changed_the_
ou urc
rules_of_International_trade
International Labor Organization. (2004). A fair globalization: Creating opportunities for
all.Geneva: International Labor Office.
o

Keohane, R. (1984). After Hegemony: Cooperation and Discord in World Political

Economy.American Economic Review.
aC s
v i y re

Milner, H., & Kubota, K. (2003). Why the Rush to Free Trade? Democracy and Trade Policy
in the Developing Countries. International Organization, 59(1).
Milner, H. V. (2005). Globalization, Development, and International Institutions: Normative
and Positive Persepctives. Perspectives on Politics, 3(4).
ed d

Murray, A. (2014, February 24). British Fairtrade sales rise 14% to £1.7bn. Retrieved from
ar stu

http://www.thenews.coop/51033/news/co-operatives/british-fairtade-sales-rise-14-1-
7bn/
Pogge, T. (2005). World Poverty and Human Rights. Cambridge KUK: Polity.
doi:10.1111/j.1747-7093.2005.tb00484.x
sh is

Rostow, W. W. (1960). The Stages of Economic Growth. Oxford Journals.

Th

Stiglitz, J. E. (2002). Globalization and Its Discontents W. W. W. Norton.

UNDP. (2004). Human development report 2004.
Wallerstein, I. (1974). The Modern World System. Duke University Press.
World Fair Trade Organization. (n.d.). World Fair Trade Organization. Retrieved from
http://www.wfto.com/
World Trade Organization. (n.d.). World Trade Organization (WTO). Retrieved from
http://www.referenceforbusiness.com/encyclopedia/Val-Z/World-Trade-
Organization-WTO.html

9
https://www.coursehero.com/file/14072823/BE2501-Individual-Assignment-Aida-Asilah/

Powered by TCPDF (www.tcpdf.org)