The dark side of the WTO

The World Trade Organization (WTO) was established on January 1, 1995.Its purpose is to strengthen global trade and economic opening, but it has been a source of controversy ever since. Therefore, in an era when globalization has caused many people to turn to support protectionism, the WTO is a force for trade. Although many economists believe that free markets and open trade will benefit everyone, many other economists point out that there is evidence that unregulated free trade may be beneficial to some smaller or developing countries, or to smaller domestic ones. Or the developing industry is harmful.

(The WTO has established global trade rules, but what exactly has it done and why are so many people opposed to it? Learn more What is the World Trade Organization? )

Key points

  • The World Trade Organization (WTO) is responsible for overseeing global trade rules between countries to support free trade and open markets.
  • Although many economists support free trade, many politicians and their voters believe that globalization is unfair and weakens their economic autonomy.
  • Proponents of free trade also oppose the WTO, saying that it is unnecessary and actually hinders the market.

Politics and trade

The birth of the WTO is not so much a true new creation as a continuation. Its predecessor, the General Agreement on Tariffs and Trade (GATT), shares its pedigree with Bretton Woods institutions such as the International Monetary Fund (IMF) and the World Bank.The WTO has 164 member states, of which Liberia and Afghanistan are the most recent members and joined in July 2016. There are also 24 governments with observer status.

In theory, WTO members can enter each other’s markets under equal conditions. This means that no two countries can sign a sweetheart trade agreement without granting the same terms to every other country or at least every other country in the WTO.However, some critics believe that in practice, the WTO has become a way of imposing politics on trade, causing long-term problems.

One problem pointed out by many WTO critics is the organization’s obvious concessions to its charter. The most notable example is the tariff intermediary system, which is carried out through an organization aimed at reducing trade barriers. If the removal of tariffs will have undesirable side effects, including the loss of important domestic industries, WTO rules allow a country to protect certain industries. Food production is one of the most common production, but the country can decide to increase steel production, automobile production, and many other productions.What is more worrying is that developed countries are pushing for labor force impactUnemployment, reduced working hours or reduced wagesAdd to the list of reasons for reasonable tariffs.

(For everything you need to knowFrom different types of tariffs to the impact on the local economyCheck Basic knowledge of tariffs and trade barriers.)

Tariff war

Tariff is a general tax imposed on all purchasers of a specific product, and it may have a negative impact. The proceeds from the tariffs eventually go to the government treasury. This increases revenue and may protect domestic industries from foreign competition. However, the resulting high prices of foreign goods have also allowed domestic manufacturers to raise prices. Therefore, tariffs can also be used as wealth transfer taxes, using public funds to support domestic industries that produce uncompetitive products.

Therefore, although the removal of tariffs may hurt workers in the industry, it can reduce the burden on everyone else. The WTO has been involved in the intermediary business of the tariff agreement, which has caused it to be criticized.

What’s in the name?

Anti-dumping measures and restrictive quotas are just tariffs under another name, even if they are treated differently by the WTO. Although the WTO can boast that the number of international tariffs has fallen since its inception, many of the reductions have been offset by the introduction of these “hidden tariffs.”

(It seems that everyone is talking about globalization, but what is it and why are some people opposed to it? Read more What is international trade? )

Operate behind the one-way mirror

Many critics of the WTO also argue that the organization has been working hard to achieve one of the basic goals it has set for itself: transparency.Even in one of its main functionsNegotiate dispute resolutionThe WTO is notoriously opaque in revealing how the settlement was reached. Whether it is resolving disputes or negotiating new trade relations, few countries participate in the decision-making process. Because of this silence, the WTO was under attack from both the left and the right.

Leftists believe that the WTO is a running dog of a shady group in a powerful country. They force an agreement to allow them to exploit less developed countries. This group uses the WTO to open developing countries as sales markets while protecting its markets from products from weaker countries. This view is justified because the most economically powerful countries seem to have set the WTO agenda and passed anti-dumping laws first to protect favored domestic industries, while also opposing similar actions by the weaker countries.

(To check further, please check Globalization debate.)

Don’t like, don’t need, don’t need

Supporters of the free market attack the WTO on the grounds that it is an unnecessary entity. Free market thinking believes that trade should be left to companies to resolve on a transaction-by-transaction basis, rather than reaching complex and highly politicized agreements between countries on what they can and cannot protect. They believe that if the WTO really aims to encourage trade, it will force member states to abandon all protective measures and allow true free trade, rather than promoting tariff negotiations.

Just dessert

In the final analysis, those countries that use the WTO to protect their own industries will only hurt themselves when there is no real international competition that causes their own industries to become more inefficient. According to economic theory, lack of competition will weaken the motivation to invest in new technologies, control costs, and continuously increase production, because domestic companies can only raise prices slightly below the tariff-set price of foreign goods.

At the same time, despite the obstacles, international competitors will only become thinner, more eager, and better at success. If this cycle continues, international competitors may become stronger companies, consumers may choose their products based on quality, and may even pay higher prices than domestic products.

Bottom line

The WTO also has a dark side. For many years, critics have protested that the WTO is a way for countries to participate in trade, wars, and attack underdeveloped countries, and believe that it is an unnecessary and expensive aspect of the natural market power of international trade. Although the economic usefulness of the organization remains controversial, the WTO is very important politically.Subsequently, governmentsWith or without civic supportMay continue to support the organization.

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