World Trade OrganisationFormation, functions and case studies

Contents1. The formation and functions of the WTO2. Important WTO negotiations and

agreements3. South Korea agriculture case-study4. The WTO as a liberal institution

What is the WTO?•An international trade body that regulates

import/export barriers, trade conduct, etc•Members account for around 90% of

world trade (Balaam & Veseth, 2008, p.111)

•Holds negotiations between member states in order to formulate wide-ranging trade agreements

•A powerful and vital international institution

Pretext to the World Trade Organzation•General Agreement on Tariffs and Trade

(1948) provided a trade framework but not a formal institution

•GATT’s enlarged role arose out of the failure to create the International Trade Organization (ITO)

•A recognised need for an international body to regulate trade between states and a recognition that the GATT could not fulfil the role

Establishment and growth of the WTO•Formed in 1995 as a result of the Uruguay

Round of negotiations between 1986-1994•GATT reverted back to its original role•Originally consisted of 146 members;

many of whom were GATT signatories•As of 2010, membership had increased to

153 states, with others still awaiting accession

Functions of the WTO

• Negotiating the reduction/elimination of trade barriers• Agreeing and enforcing rules that govern international

trade• Ensuring transparency in trade agreements between

states• Settling disputes between member states• Assisting less developed countries (LDCs) to become

more active in international trade• Conducting economic research and collecting trade data

‘to open trade for the benefit of all’

WTO negotiationsNegotiation rounds of the GATT and WTO

GATT negotiation rounds•Kennedy Round (1963-1967)

▫Political tensions between the US and EEC▫LDCs dissatisfied with processes and

outcomes•Tokyo Round (1973-1979)

▫Focused on areas of concern for large states▫EEC and US clashes until the Swiss Formula

(1977)▫Limited success in reducing non-tariff

measures

GATT negotiation rounds (cont’d)•Uruguay Round (1986-1994)

▫Exclusion of areas such as agriculture and textiles hampered ability to reach meaningful agreements

▫‘Tariffication’ process – non-tariff barriers converted as a step towards free trade

▫Blair House Accord (1992) enabled 123 states to sign a wide-reaching trade agreement in 1994

▫Following the conclusion of the Uruguay Round the WTO was formally created in 1995

WTO negotiation rounds•Initial WTO negotiations were troublesome,

with the US walking out in 1995•First ministerial meeting of WTO in

December 1996•A number of problems

▫The ‘battle’ of Seattle (1999)▫‘Crisis’ in Cancun (2003)

•Despite these issues, the Doha Round was launched in 2001 with a focus on assisting LDCs

South Korea case-studyAsian agricultural market reform

Background•The South Korean economy has

traditionally been reliant on the agricultural sector, with the rice market having strong cultural importance

•Due to the rice market’s importance, the state had used tariffs to limit foreign competition

•Reform to Asian agriculture has long been a priority for both GATT and the WTO

Korean opposition•During the Doha Round

negotiations of 2005 in HongKong, Korean farmers protested against reform to domestic rice markets proposed by the WTO

•Many Korean rice farmers believe that further reduction of trade barriers would bankrupt them

•European nations argue that they have been lenient, and that LDCs need to do more to open their markets to foreign competition

Consequences of the Uruguay Round•Following the Uruguay Round of

negotiations South Korea was committed to increasing its rice imports to 4% of domestic use

•In 2004 this target was doubled to 8% of domestic use by 2014

•Whilst this demonstrates the WTO’s commitment to free trade, it leaves Korea’s agricultural sector in steady decline

The decline of agriculture

Conclusions & consequences•Despite Korea’s best efforts to protect its

rice market, the WTO has succeeded in forcing the state to gradually liberalise its economy

•Increased agricultural imports is leaving Korean farmers with declining incomes and few prospects for development

Thailand case-studyThai tuna exports to the European Community

Background•Thailand is the 3rd largest producer of

tinned tuna and the largest exporter in the world

•Main customers include the USA, Canada and the EU (formerly EC)

•The Thai government argued that African, Caribbean and Pacific (ACP) states were given preferential tariffs by the EC

WTO involvement•Thailand complained to the WTO which

investigated the claims•The EC claimed that the agreement with

ACP states was historical and helped LDCs to export their goods

•However, the WTO saw the disparity as being too high

Introduction of quotas•A quota system was introduced in June

2003 whereby the EC could import up to 25,000 tonnes of tuna with a universal tariff of 12%

•The 25,000 tonne limit was to be negotiable to allow increases if consumer demand fluctuated

•The tariff quota system enabled Thailand to provide the EC with up to 52% of its annual volume of tuna

•Indonesia also benefited from the solution

Conclusions & consequences•A strong example of how developing

states can use the WTO to further their economic interests

•Demonstrates the strength of the WTO’s dispute settlement mechanism

•Encouraged other LDCs to pursue cases at the WTO level, with bigger cases being brought forward against the EU (e.g. sugar)▫WTO rules against the EU again

WTO and LiberalismLiberalism’s enforcer in international trade

Liberalism•Based on a ‘laissez faire’ attitude – i.e. ‘let

it be’•Opposes state intervention in the

economy; instead favouring free-trade and open markets

•Three forms of Liberalism▫Classical (Locke, Smith)▫Social (J.S. Mill, Keynes)▫Neo-Liberalism (Hayek, Friedman)

WTO as a Liberal institution•The WTO exists to break down trade

barriers and encourage free trade between its members

•It can intervene in the affairs of member states when it feels that they are unfairly maintaining trade barriers (e.g. South Korea)

•With the creation of the WTO in 1995, Liberal economics and norms were clearly entrenched in international politics

Economics and interdependence•Liberalism’s focus on trade encourages

more friendly relations between states•Trade also makes states interdependent•The WTO’s role in dispute settlement

provides a diplomatic means of settling differences

•Keohane and Nye (1977): Economic interdependence limits conflict between states

WTO and LiberalismUsing Mercantilism to critique the WTO

The complexity of trade•Several nations have threatened to

withdraw from the WTO as a result of the increasing complexity of trade▫Other states have been reluctant to join

and/or actively participate (e.g. China)•Although states have thus far accepted

the WTO’s judgements on disputes, it increasingly seems that sovereignty is being compromised

Is the WTO too powerful?•The theory of mercantilism would argue

that the WTO is too powerful; taking away the state’s power to determine its own trade policies

•South Korea could be viewed as a mercantilist economy as a result of high its high tariffs▫WTO intervention therefore undermines

the state’s ability to protect the rice market▫Whilst other states may benefit from free-

trade, it puts Korean farmers in danger of bankruptcy

Interdependence and peace•Whilst some Liberal scholars claim that

economic interdependence promotes lasting peace, mercantilism holds that developed states would invest in security

•This links closely with Realist IR thought whereby states are self-interested and seek to protect their own interests

Conclusions

Conclusions•The WTO has shown consistency in

pressuring member states to apply the principles of free trade

•Some LDCs have benefited from WTO intervention (e.g. Thailand), whereas others have been disadvantaged (e.g. Korea)

•The WTO fulfils many of its functions, however it is arguable that it is becoming too powerful