Functions of WTO and rules needed for governance

Kuthula Matshazi

Perspectives on International Trade

Over the past 50 years international trade has expanded at a tremendous rate (Rodrik, 2007) recording an unparalleled growth rate in the history of trade. The growth in international trade has been accompanied by the need to form institutions that will facilitate, manage and draw up rules to administer international trade. The current trade which is of gigantic volumes requires that institutions such as the World Trade Organization be established for the facilitation of free trade between countries. This helps to eliminate inefficiencies in the system such as protectionist tendencies and short circuiting rules among many others. While I subscribe to the notion of setting up international organizations such as the WTO, I argue that the WTO and its rules have not been helpful to developing countries in advancing their trade agenda.
Petersmann (2003) outlines several reasons why there should be the establishment of organizations such as the WTO. First he says that organizations such as the WTO are required to correct market failures, correcting government failures and assist in the supply of public goods. Market failures have proven to be common because free trade has not delivered what it promises. For instance, as Naim (1999) demonstrates, the ideas that underpin trade theory, encapsulated within the Washington Consensus are hotly disputed at all levels and the results of free trade have clearly demonstrated the fallacy of these ideas. Their theoretical conceptions do not match the practical outcomes.
Financial markets have been crushing often, the epitome being the 1997 Asian Financial Crisis. Other examples include the current effects of the United States subprime mortgage fiasco. Yet these erratic free trade rules serve as ideological underpinnings of organizations such as the WTO. While indeed the WTO is needed to contain market failures, its regime framework has undermined its ability to perform this task. However, this is not to suggest that the WTO has been unable to prevent market failures. The WTO has been able to enhance, for instance intra-trade between developed countries and Asia (Naim, 1999). Developing countries have largely failed to get protection from transnational adversities such as dumping of excess agricultural products from developed countries. As a result many farmers from the developing countries have failed to compete with their counterparts from the developed countries although they possess comparative advantage. Instead of correcting market failures, the WTO has facilitated the occurrence of market failures through its rules that are sometimes inconsistence within country or region situations (Rodrik, 2007).
Secondly, international organizations such as the WTO assist in the correction of government failures (Petersmann, 2003). Governments have a tendency to pursue protectionist goals that can inhibit trade. Within countries there are special interests groups that favour protectionist tendencies for particular industries. These can be industry players or national economists generally within government or other influential places. While the US is a champion of free trade, it has is almost one of the major culprits. The US government has frustrated the developing nations by firstly excluding agriculture from trade talks in the Uruguay Round and then when it came around to including it, it has pushed for significant liberalization while at the same time increasing subsidies to its farmers. Also, agricultural products from developing countries are finding it difficult to export to the US because of the pressure from the US farmers calling for protectionism and high tariffs.
The third reason why the presence of international organizations such as the WTO is important is that they assist in enhancing the supply of a variety of public goods. The signing of the WTO Agreement is predicted to increase net world welfare by about US$250 billion (Petermann, 2003). For instance the streamlining of WTO rules has managed to facilitate trade to deliver more and diverse goods to the people.
The rules needed to be implemented to facilitate international trade have to be those that can give countries policy space (Rodrik, 2007). While these rules should generally promote free international trade, they must also protect member countries. Rodrik (2007) cites the Agreement on Safeguards as a safety valve that could allow countries protect themselves from international trade. Countries have the right to re-impose tariffs or the quantity of goods placed under restriction under certain circumstances for a limited period in order to regulate imports (Rodrik, 2007). Similarly, Naim (1999) shows, international trade is prone to the vagaries of financial markets, therefore there is need for instituting rules that can control capital flows across borders.
Also these rules ought to be sensitive to national priorities (Rodrik, 2007) especially in areas such as industrial policy. When a country tries to establish an industrial sector, it should be allowed to shield it from competition from well established external companies. Sure, there needs to be a rule that ensures that such protection is not abused. Further, these rules must be sensitive to human rights. Trade should not be pursued at the expense of the dignity and equal rights of others. This is not to argue for a very rigid and protectionist set of rules rather that the rules established should be sensitive to different compelling circumstances.