Journal Academic Literature: What is the Principle Cause of the Current Crisis in the World Trade Organization | Essay Writing Assignment

1. Essays must include referencing and a bibliography.The major essay will be graded on:

   1. Your capacity to thoroughly research a topic
   2. Your comprehension of material you have read and
   3. Your capacity to develop a structured reasoned and evidenced argument in response to the selected question.

   You must engage with the academic literature (journal articles and books) on the topic.

This essay examines the key causes of the crisis in the World Trade Organisation. Also, the focus of the essay is to look at most probable diagnosis to understand the causes of the economic cooperation. The WTO is an independent body which operates across the world and is considered an important process of commercial globalisation. The organisation has a system of corporate-controlled trade and short-run corporate profits under it which controls the social, labor and environmental values of the countries across the globe. It was set up in 1995 as a result of the Uruguay Round of international trade talks.

The World Trade Organisation protects the MNCs based in the North and considered as the tool of rich and powerful countries such as the US, the EU, Canada and Japan. The majority of the members of the WTO are developing countries from Asia, Africa and Latin America but they do not have any significant role in taking decisions at WTO meetings (Bacchus, 2004). These developing countries do not offer to the WTO from an economic point of view due to which they do not have any real power. Interestingly, many of these developing countries are not even invited to the key gatherings. Hence, the WTO has been viewed as a self-serving and undemocratic organization, which operates outside the control of its members. Due to this, the organisation has experienced numerous crises such as legitimacy, financial and economic. The crisis is usually originated from developed countries such as the USA. One of the crises faced by the country is economic meltdown which is an economic situation in which the capital investment is obtained after numerous efforts. As per this crisis, there was nothing left with the investors. Some of the reasons that led to the economic and financial crisis in the WTO include status dispute, inability of the organization to control its member countries, and financial deregulation.

Advantages and Disadvantages of the Free Trade provided by the WTO

WTO encourages free trade through agreements and treaties among countries. There are numerous advantages of free trade and eventually the WTO. Foremost, the FTA provides low prices for consumers by eliminating the tariffs and facilitating the buyers to buy the imports at cheaper prices. Secondly, it encourages competitiveness among different industries. Since organizations face higher incentive to minimize the prices so there is a huge competition. For instance, domestic monopoly of an organization in a country may face tough competition from a foreign firm. The third advantage is the increase in the economic welfare because the countries can specialize in developing goods where they have a lower opportunity cost. The fourth advantage is that it helps in economies of scale since it encourages the organizations to manufacture higher quantity of products. The last advantage of the free trade is that it helps in the increase of the global economic growth (Blackhurst, and Hartridge, 2004).

On the other hand, there are various disadvantages of the free trade as well. The WTO has experienced much criticism from critics due to the fact that it has neglected the condition of the developing countries. The benefits of FTA are mostly taken by rich countries while poor ones are treated as inferiors. The incompetency of the WTO to control its member’s countries is one of the causes of the crisis. For instance, in case a developing country tries to diversify the economy by the development of a new manufacturing industry. They are unable to do without any tariff protection.

However, when financial crisis occurred, the WTO members took steps to protect their country’s economy and ignoring the WTO rules. For instance, as per Buy-American provision, the US stimulates economy by infrastructure industry and there were about 52 countries signing the agreement (Blackhurst and Hartridge, 2004). Many other countries were excluded from the agreement such as China, India and Brazil which led to lose of revenue. This wasn’t fair for the developing countries since WTO provides FTA for fair trade to all members. However, the rules of the WTO were ignored by the USA.

Starting of the crisis

The crisis had started in the WTO when free market capitalism developed. There was a misconception that markets could control themselves which was later known. It was known that the markets cannot control themselves on their own. There was a development of the global casino system and detachment of the finance from the real economy. The financial organizations were developed to manage the unfair and unjust system to punish those who make real assets and also do not involve in anything in any rumor. As far as the money in hand is concerned, the following scenario arises. The real money is often reflected as only 1% of the liquidity which is only 7% of the GDP of the world. This is also followed by the broad money which is defined as the money which is with the individuals in their accounts utilized for paing bills and shopping. There are several reasons of this crisis. The explanation of the crisis is given below.

Reasons of the Crisis in the WTO

The key reason behind such an attitude of the developed countries and crisis of the WTO was incompetency of the organization to make the member countries follow strict rules. The countries, particularly developed were so uncontrollable that they didn’t follow the rules. Since each country tried to protect its own economy so the WTO rules were ignored. But this protectionism is one of the reasons which lead to crisis of the WTO. There were many other problems faced with the WTO (Blackhurst, 2001). Some of these are explained below.

Status dispute: The WTO didn’t provide appropriate status to every country. For instance, the organization had enabled the countries to develop their own status in order to reap the benefits under the WTO provisions. For instance, the countries, China and India were developing and hence not needed to make any concessions like developed countries. This enabled the countries to get benefits of exporting their products to international market and also protecting their local markets. This clearly depicts the flaws in the WTO as it was not able to control the member countries. In reality, the countries, China and India would have been categorized as developed due to their competency of exporting (Esty, 2002).

Financial deregulation: The FTA provided by the WTO enables free trade among member countries. Hence, it encourages the foreign countries to get 100% ownership in the host countries. This is also considered as one of the reasons for the financial crisis of the WTO. With this provision, the host countries are unable to control their capital movement and financial services. For instance, India had witnessed banking crisis due to the flooding of various foreign banks in the economy. As of 2008 reports, there were approximately 30 foreign banks that flooded the Indian banking market. Hence, it led to closure of many domestic banks. Also, the middle-class public of the India such as farmers, SME owners etc could not access to banking since the foreign banks only targeted rich people. The Government of India couldn’t control the financial crisis of their country and hence it led to banking crisis. Therefore, the Indian economy collapsed (Esty, 2002).

Besides the example of the India, another example which can be taken to understand the reason of crisis in the World Trade Organisation is China. The country invested huge capital in the US real estate industry at low rates. Hence, it eventually made people in USA to borrow a huge capital since it facilitated them to loan easily. The demand of lending became rapid and the USA citizens were unable to repay the loans. Therefore, the US sub-prime mortgage collapsed and eventually leading to financial crisis across the globe. Another situation was various foreign manufacturing firms relocated to the China due to cheap labour and low operating cost. As a result, the Chinese government provided subsidies on different resources such as land, energy and water which were attractive propositions for the foreign companies to establish their business in China. Hence, China was able to export goods more cheaply than competitors. Since China has claimed itself as a developing country in the WTO so it got the benefits of developing their economy. This eventually led to economic crisis globally (Henderson, 2002).

As per a study conducted by the Economic Policy Institute, from the time WTO has entered in business with China, it has resulted in the loss of 2.8 million jobs. However, the workers who were fortunate enough to retain their jobs observed their yearly earnings decreasing by 1400 USD approximately. In order to cope with such instances, there are numerous policies made by WTO. There have been many protests which had rocked the major international economic meetings and eventually the role of the WTO in globalization is questioned by numerous observers. As per (Howse and Nicolaidis, 2003), the WTO is required to re-establish its legitimacy in order to cope with its economic crisis. Also, the WTO needs to serve the interests of the world community and also show sensitivity towards other important goals such as poverty alleviation, protection to environment and encouragement of public health.

There have been numerous meetings carried out by the WTO that has broken down in chaos. Also, many WTO international gatherings have triggered many similar protects and violent clashes among demonstrators and the police. The anti-globalisation backlash has number of causes. There are numerous legitimate concerns linked with the WTO. Foremost, the trade liberalization has created a situation of considerable turbulence. The fear of job insecurity and less payment provided to the labour. The second factor is that the economic integration and the forces of the globalization are threatened by the traditions and locales. The benefits got by the trade liberalization can be distributed effectively. The pubic in some countries do not have access to goods at cheaper prices but in some countries, the rich people dominate the economy. Hence, the public do not have access to the products in that case. These are the key problems for the WTO to minimize the strength f he key activities related to the trade liberalization (Keohane and Nye Jr, 2001).

Steps to be taken by the WTO

The WTO is required to use its potential for key trade liberalization activities. It can retreat from its existing role of being dispute resolution mechanism to the world in order to reestablish its reputation as an efficient organization. Besides that, it can reestablish its image for authoritativeness. Also, the organization should avoid taking decisions for the activities which are beyond its scope. It will result in the improvement of the authoritativeness and legitimacy (Keohane and Nye Jr, 2001). For instance, it can be redirected to a functioning Global Environmental Organisation

It can be indicated from the above discussion that the WTO is competent to regain broad public acceptance and legitimacy. However, restructuring of the trade regime’s substantive rules and procedures is required. There is a dire need to establish effective global institutions whose decision making processes are appropriately understood and accepted. Although there may not be coherent political community at an international level but it is possible to visualize transparent international decision making bodies including a revitalized WTO. For the WTO, there is a need to broaden the base of the global governance and eventually developing a system of checks to spread the authority across national and international organizations (Henderson, 2002). The WTO needs to rebuild its reputation for efficacy in order to provide commitment to transparent procedures and also provide a platform for broader global-scale political dialogue. The WTO requires a well-defined set of rules and procedures to balance the competing goals of economic integration, trade and investment liberalization. The WTO must be perceived a as a crucial element of the developing international governance system.

The concept of economic cooperation

One of the crucial developments in the world trade system has been the evolution of regional cooperation. The end of the cold war between Asian countries marked the emergence of globalization production processes. The cities such as Bangkok, Singapore have been taking efforts to alleviate poverty through the cooperative efforts with neighboring countries. It led to exploitation of cooperative trade and mergence of development opportunities for the Asian countries. The emergence of economic cooperation led to use of technology and manufacturing processes between different nations to grow collectively. Also, the information technology enhanced the links between different economies and also improves the access of the far-off regions in the world. The economic cooperation provided capital for investment and infrastructure leading to rising economy. The economic cooperation provides a competitive model to the countries to attract investment and also be economically advanced. It offers growth areas which are flexible to change. Also, it enables the countries to determine that they compete with other nations that are potentially capable and have high capacity to attract investors. Therefore, the economic cooperation is highly valuable for the countries across globe.

To conclude, it can be indicated that during the global financial crisis, the member countries protected their domestic country instead of following the WTO rules. There is a dire need to establish effective global institutions whose decision making processes are appropriately understood and accepted. Although there may not be coherent political community at an international level but it is possible to visualize transparent international decision making bodies including a revitalized WTO. The organization needs strict provisions to stimulus international trade and prevents protectionism. Also, there is a need to encourage economic cooperation among nations so as to facilitate the economies to improve effectively. The stakeholders such as the investors and the member countries need to work in collaboration in order to cope with the problems developed. This should not be held in the hands of the economists but everyone has to work collectively to get the results. The development of an ethical system will facilitate in the reduction of the crisis faced by the WTO.