WORLD TRADE ORGANIZATIONMERITS AND DEMERITS

SUBJESCT: MACROECONOMICS

PREPARED BY:AAMIR HAYAT

STUDENT OF:

GRADUATE SCHOOL OF MANAGEMENT

INTERNATIOMAL ISLAMIC UNVERSITY ISLAMABAD

World Trade Organization:

Definition:The World Trade Organization (WTO) is the only global international organization dealing with

the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.Some facts about WTO:

World trade organization is established in January 1, 1995. Its office is situated in Geneva, Switzerland and it is created by Uruguay Round negotiations (1986-94). It has 153 members till July 2008. Its budget is 189 million Swiss francs for 2009. Its secretariat staff consists of 625 persons and Pascal Lamy is its Director-General. WTO and Pakistan:

Pakistan has been a WTO member since 1 January 1995Functions of World Trade Organization:

Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations 

Merits of World Trade Organization:The system helps to keep the peace:

This sounds like an exaggerated claim, and it would be wrong to make too much of it. Nevertheless, the system does contribute to international peace, and if we understand why, we have a clearer picture of what the system actually does. The system allows disputes to be handled constructively:

As trade expands in volume, in the number of products traded, and in the numbers of countries and companies trading, there is a greater chance that disputes will arise. The WTO system helps resolve these disputes peacefully and constructively.A system based on rules rather than power makes life easier for all:

The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving smaller countries more voice, and at the same time freeing the major powers from the complexity of having to negotiate trade agreements with each of their numerous trading partners.Freer trade cuts the cost of living:

We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries, and everything else in between, are affected by trade policies.It gives consumers more choice:

Think of all the things we can now have because we can import them: fruits and vegetables out of season, foods, clothing and other products that used to be considered exotic, cut flowers from any part of the world, all sorts of household goods, books, music, movies, and so on.Trade raises incomes:

Lowering trade barriers allows trade to increase, which adds to incomes — national incomes and personal incomes. But some adjustment is necessary.

Trade stimulates economic growth:

Trade clearly has the potential to create jobs. In practice there is often factual evidence that lower trade barriers have been good for employment. But the picture is complicated by a number of factors. Nevertheless, the alternative — protectionism — is not the way to tackle employment problems.Economic efficiency:

Many of the benefits of the trading system are more difficult to summarize in numbers, but they are still important. They are the result of essential principles at the heart of the system, and they make life simpler for the enterprises directly involved in trade and for the producers of goods and services.The system shields governments from narrow interests:

The GATT-WTO system which evolved in the second half of the 20th Century helps governments take a more balanced view of trade policy. Governments are better-placed to defend themselves against lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone in the economy.The system encourages good government:

Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is difficult to reverse. The rules also discourage a range of unwise policies. For businesses, that means greater certainty and clarity about trading conditions. For governments it can often mean good discipline.

Demerits of World Trade Organization:

Dictations to members:WTO will dictate its policies to member countries and will interfere in their decisions and it will

not allow members to operate freely.Failure of domestic industry:

Policies of WTO will cause tough competition for domestic industry which will be the cause of their failure Widen gap between rich and poor:

Policies of WTO will widen the gap between rich and poor countries and also between the people of these countries.Small countries are powerless in the WTO:

WTO will not give any liberty to small countries and will remain poor because of this contract.The WTO does NOT tell governments what to do:

The WTO does not tell governments how to conduct their trade policies. Rather, it’s a “member-driven” organization.The WTO is NOT for free trade at any cost:

It’s really a question of what countries are willing to bargain with each other, of give and take, request and offer.Concerned about commercial interests:

The WTO agreements are full of provisions taking the interests of development into accountNo environmental protection:

WTO is not concerned with environmental problems either it is more concerned with commercial problems.The WTO is NOT the tool of powerful lobbies:

Many people argue that WTO is not a tool of power full bodies and it will face difficulties in implementing its polices.

Undemocratic setup:WTO will be a undemocratic setup only large and power full countries make and their polices and

small and weaker countries left with no choice to accept these policies.

Terms and conditions of World Trade Organization:

How to become a member of the WTO:

Article XII of the WTO Agreement states that accession to the WTO will be “on terms to be agreed” between the acceding government and the WTO. Accession to the WTO is essentially a process of negotiation; all interested WTO Members must be in agreement that their individual concerns have been met and that outstanding issues have been resolved in the course of their bilateral and multilateral negotiations. All documentation examined by the accession Working Party during the process of negotiation remains restricted until completion of the process.

Who can apply:“Any state or customs territory having full autonomy in the conduct of its trade policies is eligible

to accede to the WTO on terms agreed between it and WTO Members”. (Article XII of the WTO Agreement).

The request for accession: The accession process commences with the submission of a formal written request for accession

by the applicant government.

Submission of a memorandum on the foreign trade regime: The applicant government presents a memorandum covering all aspects of its trade and legal

regime to the Working Party. This memorandum forms the basis for detailed fact finding by the Working Party.

Conditions of entry :After examining all aspects of the existing trade and legal regimes of the acceding government the

Working Party goes into the substantive part of the multilateral negotiations involved in accessions. This determines the terms and conditions of entry for the applicant government. Terms and conditions include commitments to observe WTO rules and disciplines upon accession and transitional periods required to make any legislative or structural changes where necessary to implement these commitments.

The final “accession package” The “accession package” consists of three documents which represent the results of both the

multilateral and bilateral phases outlined above. These are: A Report of the Working Party containing a summary of proceedings and conditions of entry and

a Protocol of Accession.Schedules of market access commitments in goods and services agreed between the acceding government and WTO Members.

Approval of the “accession package” Once both the Working Party's Draft Report and Protocol of Accession and the market access

commitments in goods and services are completed to the satisfaction of members of the Working Party, the “accession package” is adopted at a final formal meeting of the Working Party. The documents are then presented to the General Council or the Ministerial Conference for adoption.

Becoming a full member:Once approved by the General Council of Ministerial Conference, the applicant is then free to sign

the Protocol of Accession stating that it accepts the approved “accessions package” subject to ratification in its national parliament.