What is the World Trade Organisation (WTO)? The WTO is an international organization dealing with globalization and rules on trade between nations. Its main economic function is to ensure that trade flows as smoothly, predictably and freely as possible. What does economic globalization mean, in the first case? Globalization refers to the increasing integration and interdependence of the world’s economies arising from not only increasing trade but also from greater mobility of factors of economic production like capital, labour and enterprise. The WTO is an international organization that aims to facilitate global trade and to promote investment liberalization. One view is that without the aid of the WTO, international trade will be more distant and unlikely. Although there are other economic causes of globalization, the WTO plays a very important role to promote globalization. This economics paper discusses the WTO and how it has impacted the spread and extent of globalization.
First, what does the WTO do? The WTO is run collaboratively by its member countries and all major decisions are made collectively by the countries respective representative, either by ministers who usually meet at least once every two years or by their delegates who meet regularly in Geneva. The functions of WTO include administering WTO trade agreements, being an international forum for trade negotiations, handling international trade disputes, monitoring national trade policies, providing technical assistance and training to developing countries, and cooperating with other international organizations. An important fact of the WTO are the WTO agreements. These are industry or issue-specific agreements that are collectively decided by its member countries with the aim of reducing international trade barriers and limiting anti-competitive trade practices. From this perspective, globalization is well-promoted by the WTO through moving away from protectionism. This has resulted in the easing of artificial barriers to international trade and this has led to increases in factor mobility. There are great benefits generated from international trade among countries and success of those export-oriented economies like Singapore, Hong Kong, and South Korea is irrefutable evidence of the benefits of international trade in facilitating economic growth. More and more developing countries in the world have actively tried to open their economies to trade and foreign direct investment, thus setting the stage for globalization to take place. The WTO is a well-placed and well-positioned organization which can help these developing countries to join in free international trade and enjoy the benefits of globalization.
Although WTO aims to promote international free trade, which according to standard economic theory is mutually beneficial for the countries involved in international trade, studies on how successful the WTO has actually been in achieving these benefits for its member countries have shown mixed results. According to research, studies by the General Agreement on Tariffs and Trade (GATT, the forerunner and predecessor of WTO) and Organisation of Economic Cooperation and Development (OECD) both estimate a gain to the international world economy from the WTO as more than $200 billion annually once its agreements are fully in force and would raise global real incomes by about 1%. Some international trade economists even argue that these estimates are much too low, as they do not account for the dynamic effects of the agreements.
However, on the other hand, economic studies done by the World Bank (using 1997-1998 economic data) reported that effective tariffs faced by low-income groups are still much higher than those faced by high-income economic groups in that economic study. Those living on less than US$1 a day and those living on between US$1 and US$2 per day faced effective tariffs rate of well over 14% while those from higher income groups (higher than US$2 per day) faced tariffs at only just over 6% on average. This is a fairly strong criticism of WTO agreements because the economic outcome seems to have favoured the richer countries at the expense of the poorer ones. Therefore, the WTO is not always economically good. It may sometimes benefit the developed and richer countries more which might cause certain countries to refuse to join WTO. Without WTO, those developing countries might cooperate more actively with other countries to promote economic growth.
The other main reason explaining the trend towards globalization is that advances in technology has resulted in significant improvements in international transportation and international telecommunications, thus enabling goods and factors of economic production to flow more easily across international boundaries.
In the area of international transportation, the proliferation of international commercial air travel arising from improving aircraft technology has enabled people to fly more cheaply and to move to places at a moment's notice. This has made it easier and cheaper for international business travel and also for people to relocate to work in other countries. Foreign direct investment is thus facilitated because businesses find it increasingly easier to break their supply chain up to locate different parts of their operations in different countries. For example, instead having all the stages of production being located in one country, a firm can now station its headquarters and research and development operations in a developed country where capital, technology and skills are easily available, but locate its manufacturing and assembly facilities in a developing country where land and labour are cheaper.
Another major development in international transportation is the development of container shipping, which has greatly increased the efficiency in which goods and raw materials can be transported. Compared to non-container shipping, where goods have to be individually loaded and unloaded from a ship’s cargo holding area, containers (with the goods already stored in them) can easily stacked and moved from ship to ship or from a ship to container trucks using large container cranes. Containers can also be individually refrigerated, which significantly increase the ease in which perishable products can be shipped.
Another major development in international transportation is the development of container shipping, which has greatly increased the efficiency in which goods and raw materials can be transported. Compared to non-container shipping, where goods have to be individually loaded and unloaded from a ship’s cargo holding area, containers (with the goods already stored in them) can easily stacked and moved from ship to ship or from a ship to container trucks using large container cranes. Containers can also be individually refrigerated, which significantly increase the ease in which perishable products can be shipped.
In the area of international telecommunications, the greatest economic impact undoubtedly came from the development of the Internet, which has enabled massive amounts of information transferred quickly, cheaply and securely over long distances internationally. New modes of international communication such as email and video-conferencing have allowed businesses to effectively coordinate their operations across different countries. This has enabled international firms to break their economic supply chain into parts and locate different parts of their operations in different countries, hence facilitating the flow of foreign direct investments between countries.
Hence, it can be argued that globalization is the inevitable outcome of the advance in technology, especially in improvements in transportation and telecommunications, rather than due to the WTO's efforts per se. International integration and interdependence among different countries are more and more crucial to countries’ economic growth and development in this world today. Without the aid of WTO, economic globalization will still be promoted by world economies themselves. However, WTO provides a great forum for countries to build economic and trade relationships with more and more countries. Maybe, just perhaps, the pace of liberalization via WTO is very slow because consensus is difficult with so many countries involved. Regional trade groupings were thus formed as an alternative way to integrate markets. Although forming bilateral free trade agreement and the formation of a trade bloc can be seen as being second best compared to global multilateral of free trade, members can at least enjoy ‘freer’ trade given that complete global free trade seems distant and unlikely. Hence, without the WTO, the extent of globalisation will still be promoted as people expected. There may be no major difference when globalization is without WTO, but multilateral at free trade may be reduced as a result.
JC Economics Essays - 'H2, H3 standards for an economics essay' - tutor's comments: Clear, interesting, and well-written, this economics paper will achieve a very high grade for the range of ideas, arguments, and examples presented on the institution of the WTO. Logical, reasonable, and well targeted to answering the requirements of the economics question, and with very solid, good background knowledge of the WTO and relevant and economic theories. Empirical economic data is present, to a relevant and large extent, to buttress arguments, advance and develop the paragraphs presented, and thus overall this is an excellent Economics paper.
