Friday, June 21, 2013

Global business strategy

Introduction

The World Trade Organization (WTO), whose headquarters are in Geneva, was set up in 1995 for the purpose of supporting international trade and resolving any conflicts that might arise from the involved nations (Fergusson, 2008). By the end of the 20th century the WTO had one hundred and thirty four members with a large majority being from the developing nations in Africa, Asia and Latin America.The world Trade Organization currently has a total of 157 member states from all parts of the world. The WTO was created with an intention of supervising and liberalizing international trade. This organization was officially launched 1st January 1995 to replace the General Agreement on Tariffs and Trade (GATT) (WTO, 2013).

WTO regulates trade between member countries by providing a framework for negotiation and formalization of trade agreements. It also provides a dispute resolution process which ensures that member states adhere to the agreements signed by the organization and ratified by individual parliaments. The organization has developed a very strong dispute resolution mechanism which involves a step-by-step process of timely schedules.


The final decisions made by the dispute resolutions panels after completing the appeal process cannot be overturned. The only way through which such decisions can be abolished is through a reverse consensus. The organizations wider agenda involves agriculture, intellectual property rights and services. The rules are enforced and sanctions imposed by member countries.

Functions
The WTO oversees implementation, operation and administration of covered agreements among member countries. It also provides a good forum for negotiations and dispute resolution between countries. The WTO does not deal with individual organizations but instead it deals with governments. It is the responsibility of WTO to review and propagate national trade policies as well as ensuring transparency and coherence of trade policies by supervising the global economic policy-making. The WTO also assists developing, low-income and less-developed countries to adjust to rules and regulations by use of training and technical cooperation (WTO, 2013). It also acts as the centre for economic research and analysis from which regular assessments about the global trade picture are provided through research reports and annual publications. The WTO closely cooperates with the World Bank and the IMF in carrying out its functions.

Dispute settlement mechanism
An agreement on the rules and procedures to govern dispute settlement was reached in 1994 by the WTO member states. The WTO considers dispute settlement as a central pillar to the international trading system that greatly contributes to the global economic stability. The member states have agreed that in case the fellow members act in violation of trade rules, a multilateral system of dispute resolution will be used instead of acting unilaterally. The dispute settlement process at the WTO involves the DSB panels, the WTO secretariat, independent experts, the Appellate Body, arbitrators and other specialized institutions. The dispute settlement mechanism in the WTO has a fixed timetable which lasts for a period of one year if there is no appeal but in case of appeals, it runs for one year and three months.

The first 60 days are reserved for consultation and mediation after which the panel is set up and the panellists are appointed within 45 days. The panellists are required to listen to the dispute and compile a final report to the parties involved within six months. The final panel report is then presented to WTO members within three weeks and if there is no appeal, the dispute settlement body is expected to adopt the report within 60 days. In case of any appeal, this is heard and the final appeals report compiled within 60-90 days. The disputes settlement body then adopts the appeals report within 30 days.


Retaliation is also allowed under the WTO dispute resolution system. The organization allows for sanctions to be imposed on members that are not willing to bring an inconsistent trade measure into conformity with the law. A member that fails to conform to the WTO rules is faced with the aggrieved party who is entitled to get compensation or even suspend concessions. The aggrieved party is allowed to suspend concession in that sector, a different sector within the same agreement or any other sectors within another agreement. If a member country that lost in a dispute does not comply with the Panels and Appellate Body within a given time period, the other country which wins the dispute can seek authority to suspend some duties against the country in question.

Agreements

The WTO supervises about 60 agreements in form of international legal texts. The WTO agreements must be signed and ratified by all member countries on accession. One of the most important agreements is the Agreement on Agriculture (AoA) which was effected during the establishment of WTO in early 1995(Fergusson, 2008). This agreement has a total of three pillars consisting of domestic support, export subsidies and market access. The General Agreement on Trade in Services was also created by the organization in January 1995 to expand the multilateral trading system into the service sector. Such a system was provided to merchandise trade by the General Agreement on Tariffs and Trade (GATT). The WTO also adopted an Agreement on Trade-Related Aspects of Intellectual Property Rights which outlines the minimum standards required for different types of intellectual property regulations. This was negotiated during the Uruguay round of GATT in the year 1994.


The SPS agreement was also negotiated in the Uruguay round of GATT but this entered into effect with the establishment of WTO in early 1995. The SPS agreement outlines constraints policies related to food safety as well as plant and animal health. On the other hand, the Agreement on Technical Barriers to Trade was formed as an international treaty for the WTO. This treaty was negotiated in the Uruguay round of GATT but it was enforced with the creation of WTO towards the end of the year 1994(Malanczuk, 1999). The treaty ensures that the technical standards and negotiations as well as certification and testing procedures do not create trade obstacles. Another very important agreement is the Agreement on Customs Valuation. This agreement outlines customs valuation methods that should be followed by members by adopting the transaction value approach.

Worldviews


Three main worldviews are used to analyze the global political economy. This includes liberalism, economic nationalism and structuralism. In liberalism, the basic analysis unit is an individual corporation. The primary focus is on the market as opposed to the state and the state only plays a very minimal role. The extreme liberals do not see the importance of having WTO in place. This is mainly because the WTO deals with countries or governments instead of individual organizations. The idea of working with governments is contrary to the liberalism believe in which the primary focus is on specific organizations within the market. The state plays a very minimal role in the extreme liberal system and therefore it cannot be used to implement policies and settle disputes effectively. However, the embedded liberals think that WTO is essential for settling trade disputes between all nations. They believe that WTO is capable of dealing with trade disputes for the interests of different countries.


For economic nationalism, the basic unit for analysis is the state and not individual organizations. The primary focus in this case is on the state as opposed to the market with state playing a stronger role. The economic nationalists view the WTO as a very important organization for facilitating international trade and solving disputes. This is because WTO deals with governments instead of individual organizations. The main goal for the economic nationalists is to pursue power or national interest. This is well catered for by the WTO which allows fair trade among member states. The dispute settlement mechanisms put in place by WTO enables various countries to effectively pursue their interests. Nationalists therefore perceive WTO positively as it deals with states.


Finally structuralism is an approach in which the basic unit for the analysis is the class. Priority is given to the dominant class whereby the state is submissive to the dominant class. The structuralists think that the WTO is only serving wealthy nations and not poor ones. According to structuralists, WTO and most of the agreements have nothing to do with the interests of developing nations. It is believed the idea to form GATT which later transformed to WTO was brought about by the United States of America. Most of the agreements were formed to protect the interests of the US and other developed nations.


The US government has pushed through several regulations to promote its international business at the expense of developing countries. Structuralists hold that the WTO was specifically established to serve the interests of American corporations which were not well catered for under the GATT.
The WTO fits into the embedded liberalism category. This refers to a global economic system and international political orientation. The embedded liberal system seeks to support free trade as well as freedom for individual states. This is done to enhance provision of welfare and regulate the economies of states to minimize unemployment. The WTO advocates for free trade between member countries and resolves trade disputes between its members. This ensures fair trade across the world. Examples of disputes

Several cases have been brought before the WTO since its formation. However, very few cases have been effectively settled by the organization with others resulting into unresolved disputes. An example of a dispute that was effectively settled by the WTO was the US-EU steel tariff dispute. In this case, the US government imposed 30 percent tariff on imported steel products for a period of three years that was applicable to all countries except Mexico, Israel, Canada, Jordan and other developing countries. This was aimed at shielding the domestic steel industry from cheaper imports. The EU was opposed to these measures and they planed to retaliate by imposing their own safeguard measures on several products to protect their domestic market (WTO, 2013). They also demanded for a dispute resolution at the WTO.

The US protected its move basing on Article II of the WTO agreements which allows member states to take safeguard measures to protect their domestic industry from cheaper imports. However, the US decision was rejected by WTO dispute resolution panel as they failed to provide adequate explanation for the claims that cheaper imports had caused harm to the domestic industry. The dispute was finally resolved and the tariffs were reduced to the initial percentage. However, the US-EU Beef hormone dispute was never effectively resolved by the WTO. The dispute started in 1988 when EU banned the importation of beef that is treated with certain growth-promoting hormones. This move greatly affected Canada and the US who decided to challenge it before the WTO in 1996. The dispute resolution system authorised them to impose sanctions on other EU produce worth C $ 11.3 million and US $ 116.8 million per year respectively.

This action hampered EU exports leading to the less of a significant market share for EU producers. An agreement was later negotiated between the EU and US governments in 2009 to gradually reduce the US sanctions on the EU products while gradually increasing the EU tariff quota for the hormone-free beef.
Conclusion

There are a variety of reasons that cause the activities of the WTO to be perceived has having negative repercussions and worsening the lives of people all over the world. Firstly WTO’s power to arbitrate over any emergent conflicts between countries involved in international trade is perceived as mandating it with the authority to supersede federal rules and regulations especially those regarding the safeguarding of the environment. In addition to this, despite the fact that globalization has certain opportunities and advantages such as opening up of trade, extensive markets and an assortment of manufactured goods for customers to consume, there advantages do not benefit parties involved in the commercial ventures uniformly. The worst affected nations are the developing ones; more often that nit multinational corporate will venture into unexploited markets in the developing nations and set up large business enterprises.




References

Walden Bello, 2000. WTO: Serving The Wealthy, Not The PoorThe Ecologist Fergusson, Ian F. (2008-01-18). "World Trade Organization Negotiations: The Doha Development Agenda" (PDF). Congressional Research Service. Retrieved 2012-04-13. Page 9 (folio CRS-6) WTO website, 2013. Retrieved on January 21, 2013 from http://www.wto.org/