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Case Study Analysis : World Trade Organisation

 

Case Study Analysis: World Trade Organization

 

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Executive Summary

This paper entails a review of the role of the World Trade Organisation (WTO) in facilitating the development of global trade. Through the analysis, it emerges that the WTO has played a significant role in the development of global trade. First, the WTO has facilitated global trade through the establishment of trade policies and such measures as policies that require member states to eliminate tariff and non-tariff barriers. The elimination of trade barriers has in turn facilitated free movement of goods and services. On the other hand, integration of Trade Facilitation Agreement has contributed towards the elimination of non-tariff barriers such as documentation and minimisation of border procedures. The WTO has further integrated the Special and Differential treatment agreement hence promoting trade between the developed and the developing economies. Conversely, the comprehensive trade dispute resolution mechanism adopted by the WTO has promoted cooperation between member states by eliminating discriminatory trade practices. In spite of its contribution, the WTO is limited with reference to its capacity to litigate against trade disputes. This calls for member states to improve the WTO’s dispute resolution capability.   

Introduction

Global trade or international trade refers to the exchange of goods and services between countries (Constantinescu, Mattoo & Ruta 2015). Global trade has experienced cyclical performance over the past few decades, as evidenced by the incidences of economic boom and depression (Francis & Morel 2015). The 2007-2009 global financial crisis is one of the notable economic events that have recently affected global trade. According to Francis and Morel (2015), the crisis slowed the growth in global trade experienced during the pre-crisis era.  Constantinescu, Mattoo and Ruta (2015) state that the rate of growth was less than 3% compared to the 7.1% growth experienced during the pre-crisis period. Stimulating trade recovery requires integration of optimal trade facilitation practices (Kituyi 2013). The premise of the current paper is to review how the World Trade Organisation (WTO) contributes to development of global trade.

Discussion and Analysis

International trade constitutes a vital component of the global economy (Arthur, Stoner & Wankel 2007). Its relevance arises from its role in promoting economic growth hence eliminating poverty. Moreover, international trade fosters international cooperation, which is an essential element in achieving sustainable economic growth. For example, cooperation between countries engaged in international trade stimulates exchange of knowledge and information, which is crucial in enhancing the entrepreneurial spirit. Arthur, Stoner and Wankel (2007) are of the opinion that ‘transfer of existing knowledge can be more important than the creation of new knowledge in fostering increased productivity and improved economic growth in the least developed countries (p. 154). However, the success of international trade depends on the effectiveness with which the requisite trade mechanisms have been established. Different agencies such as the International Monetary Fund and the World Trade Organisation have been established in an effort to promote international trade. In this section, we shall examine how the WTO has contributed to the development of international trade.

Brief background of the WTO

The WTO is an international body comprised of 163 countries that regulates trade between member states through the creation of trade rules. The organisation was established in 1995 as a replacement to its predecessor- the General Agreement on Tariffs and Trade (GATT) (World Trade Organisation 2016).  Baldwin (2016) underline  that ‘the WTO presides over a rule-based trading system based on norms that are almost universally accepted and respected by all its 163 members’ (p. 95). The WTO has over the past decade experienced considerable challenges in its quest to promote international trade. This is evidenced by the long duration taken in concluding negotiations and multiple cases of missed deadlines (Hufbauer & Cimino 2013).  Member states have not also made any significant deal relating to trade liberalisation or trade rules since 1999 (Hufbauer & Cimino 2013). This has led to development of uncertainty regarding the WTO’s capacity to promote international trade. The challenges encountered by the WTO in promoting global trade have culminated in the concurrent establishment of different mega-regional trade groups across the world (Michaely 2014). Some of the notable trade groups include the European Union-Japan Free Trade Agreement, the Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership (RCEP), and the Trans-Atlantic Trade and Investment Partnership (TTIP) (Hufbauer & Cimino 2013).

Trade facilitation

Irrespective of the challenges encountered over the past 12 years, the WTO has played a remarkable role in facilitating development of international trade. One of the notable achievements relate to the elimination of trade barriers that in turn hinders global trade. In eliminating trade barriers, the WTO has focused on eliminating both the tariff and non-tariff barriers (Heydon 2011).  Tariffs, which include the levy charged on imports, are some of the major barriers that hinder international trade (Matsushita 2011). On the other hand, non-tariff barriers include the policy measures adopted by a country in an effort to limit international trade. Examples of non-tariff barriers include trade quotas, import licences and subsidies. These trade barriers increase the cost of international trade (Sourdin & Pomfret 2012). 

Sourdin and Pomfret (2012) define trade facilitation as ‘reduction in trade costs, which include the different between the cost of domestic and international trade other than those costs related to traditional trade policy instruments such as imports’ (p. 3). The WTO has significantly contributed in reducing tariffs amongst member states in different regions across the world as illustrated by table 1 and graph 1 below.  This outcome has been attained through the integration of negotiation amongst member states to reduce trade barriers (World Trade Organisation 2016a). 

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