Does the WTO still contribute to World Trade? (With Prof. Valbona Zeneli)

In 1948, after years of negotiations, more than 50 nations signed the Havana Charter to create the International Trade Organization (ITO). But in the 1950s, President Truman decided not to resubmit the ITO charter to Congress for ratification, due to perceived threats to national sovereignty and the danger of too much ITO intervention in markets. The result was the much more limited General Agreement on Tariffs and Trade (GATT), which brought rules and regulations to world trade. A major breakthrough occurred in 1994. Negotiators launched a totally new organization, which the Uruguay Round (1986-1994) negotiations agreed on—the World Trade Organization (WTO).

After two politically and economically charged decades, we find that the WTO has been one of the most successful international institutions. With a rejuvenated framework of multilateralism enabled by global political shifts brought on by the fall of communism, the WTO now seeks to reduce tariffs, eliminate trade barriers and quotas, and expand coverage of services, intellectual property, foreign direct investment, and agriculture.

The WTO has encouraged international trade to prosper by fostering openness and lowering trade barriers, increasing confidence and encouraging fair trade practices. The WTO’s agreements have helped countries develop by increasing international confidence and cooperation in the system. Thought there are no WTO black helicopters for enforcement, its dispute settlement process had advanced progress.

Since 1948, world trade has grown very rapidly, with trade in goods growing yearly by an average of 6% a year in real terms. In 1948, total world trade was valued at just above $58 billion, with the United States accounting for 34 percent of free world trade flows. Japan’s imports exceeded its exports to the U.S.  by 160 percent. By 1994, world trade exceeded $4 trillion and the United States had a share of 12 percent. Almost twenty years later, in 2015, total world trade in goods and services amounted to $23 trillion. The United States held a share of 19 percent at $3,848 billion, heavily influenced by a high level of imports. Germany’s share was 13 percent and Japan’s $1,547 billion represented a share of 7 percent. The United States (3), the European Union (1) and China (2) have been the three largest global players in international trade since 2004 when China passed Japan.

This new international trading system has provided more choices of products and qualities for the consumers, raised incomes internationally, has stimulated economic growth, increased standards of livings. The trade system promoted by WTO has also helped promote peace and encouraged good governance. Economies that have been more open to embrace the international trade and investment policies have grown quicker than the more closed economies. Higher interdependence has allowed countries to specialize in areas where they can be more competitive using their best advantages and opportunities.

The multilateral system has produced new energy, growth, rising incomes and better standards of living throughout the world, both in developed and developing countries. China is a perfect example of developing countries that have benefited greatly from liberalization of global trade and investment. 600 million people have been lifted out of poverty in only 30 years only, and moved up from a poor country with less than $400 per capita (on a purchasing power parity basis) in 1980, to a middle-income country in 2015 with $13,801.

China’s accession to WTO in December 2001 paved the way for its economic rise and significantly contributed to increasing world trade. Two decades ago, China was only entering the playing field of international trade; in 2015, China dominates trade after an unprecedented growth spurt. In the last decades, China’s growth has seen an exponential rise, with its Gross Domestic Product representing only 7.4 percent of the global economy in 2000, and almost 17 percent of it in 2015.

Tax inversions and other cross-border expansion of manufacturing chains and free trade zones have further globalized corporations. The predominance of both the English language and the U.S. dollar as global reserve currency has kept this process energetic and unifying. All this has reduced the psychic abyss of 20 years ago into a pre-Alpine hillside, supported by standardized and affordable communications.

The WTO’s unenviable position over the last two decades is similar to a team trying to score on a field that was constantly changing in size, with the teams and positions frequently becoming newly named and defined, and the sports equipment taking on different weights and shapes.

The hopes for an ambitious multilateral trade deal at the WTO level have diminished, and the stalemates of the Doha round have forced countries to pursue Regional Trade Agreements. Services and agriculture remain tough to resolve. Also, the marginal benefit from additional resolutions seems less in the Doha Round, as all the “low-hanging fruits” have already been picked. According to Ambassador Moore, former Director General of the WTO, multilateralism has yet a chance to triumph. It will take some of the newcomers and participants who have only recently found their voice and power, specifically African countries and India, to come to an agreement, before other nations can get much accomplished.We appreciate the research support by Jozsef Szamosfalvy of Exworks Capital in Washington D.C.

We appreciate the research support by Jozsef Szamosfalvy of Exworks Capital in Washington D.C.

WTO TRADE FACILITATION AGREEMENT GUIDE

The Agreement on Trade Facilitation was adopted at the World Trade Organization’s 9th Ministerial Conference in Bali, Indonesia, in December 2013. This Agreement is the first major agreement to have been reached by WTO Member States since the conclusion of the Uruguay Round 20 years ago.

Barely was the ink dry on the Uruguay Round of multilateral trade negotiations concluded in 1993 than some WTO Member States were already thinking about the next round. Amongst the issues that featured in this thinking was trade facilitation. The uncertainty over how long it will take to clear a border crossing creates unpredictability, and adds cost to business that are eventually passed on to consumers in countries where consumers are least able to afford them. Uncertainty in supply chains also acts as a disincentive to potential business investors, who rely on efficient supply chains to minimise inventory costs. Companies have to tie up capital in extra holding costs above the levels that should be necessary. This is especially true for businesses in developing countries, which face these delays and uncertainties on a daily basis.

Inefficient border procedures also add costs to the very authorities whose job it is to control the borders. Over-zealous inspection can actually delay revenue collection. When authorities are intent on maximizing collection from import duties and other border taxes by checking every consignment that passes across the border, they cause queues to form at border points; with faster traffic-flows, revenues could be collected more efficiently post-clearance from compliant traders.

Trade facilitation aims at simplifying not only the documentation required to clear goods, but also the procedures employed by border agencies. Focusing on the biggest risks allows border agencies to speed up the flow of goods across the border, and increases the collection of duties. Trade facilitation has been described as a classic ‘win-win’ subject for developing and developed countries, since there should be no losers. Yet some developing countries have been concerned about the potential costs of implementing trade facilitation commitments, and have sought commitments from developed countries and other donors to assist in the implementation process.

WTO members finally agreed to add trade facilitation to the Doha Development Agenda in 2004. The Agreement reached at Bali in late 2013 provides a framework of rights and obligations that should see reform of border procedures around the world, if legitimate requests from developing countries for technical assistance are met.

The agreement has the potential to be of particular benefit to traders in developing countries, who continually face lengthy and costly border delays. It will be important for business in developing countries to monitor its implementation in the countries with which they trade. This simple guide aims at helping business understand the obligations that developing countries have accepted – or will in due course accept, so that they can work in partnership with governments to arrive at outcomes that will benefit governments and traders alike.
Find the guide here.