To Facilitate The International Trade Economics Essay
Since it established in 1995, World Trade Organization (WTO) has an agenda to facilitate the international trade among its members to assist economic growth. It provides assistance in terms of General Agreement on Trade in Services (GATS), General Agreement on Tariffs and Trade (GATT) and Agreement which includes Trade Related Intellectual Property Rights (TRIPS). The basic philosophy of the WTO is to support transparency, ease nondiscriminatory trade between member countries and open new markets for trade for the welfare of the world. In addition to this WTO is responsible for implementing the Multilateral Trade Agreement, facilitate negotiations among members, enhance the dispute settlement mechanism and cooperation with the leading bodies like World Bank and IMF to aid trade procedures (Hoekman & Kostecki,2009).
With the prime objective of Development, World Trade Organization launched a new round of multilateral trade negotiations at Doha on November 2001. This round is called “Doha Development Agenda” and its central objective is to seek the enhancement of integration between poor countries into world economies for the collective development and reduction in poverty. The DDA is still in progress and WTO fails to conclude it.
The purpose of this study is to critically analyze and evaluate the importance of WTO and Doha Round in the economic growth and poverty reduction around the globe, specifically in the light of study conducted by Harvard economist Dani Rodrik (2003) in his seminal paper titled as “The Global Governance of Trade as if Development Really Mattered”. Rodrik (2003) argue the reliability of trade policies mechanism of WTO for generating self-sustaining economic growth and poverty reduction.
The essay will first discuss some background of the Doha Development Agenda, then the economic growth factors highlighted by Rodrik (2003) and then highlights the relation of Doha Development Agenda with poverty reduction incorporating theories and past scholarly studies (Gallagher, 2005; Lipsey and Lancaster, 1956; Kowalcyk, 2002; Amsden, 2001; Kim and Nelson, 2000; Wade, 2004; Amsden 2001; Acemoglu 2000).
Doha Round: Background
The members of the WTO met in Doha, Qatar on November 9-14, 2001, to attend the fourth WTO Ministerial Conference. They decided to start a new round of multilateral trade negotiations. Negotiations in trade in agriculture and trade in services were already started before this round. These on-going talks had been obligatory under the previous multilateral trade negotiations round ( Uruguay Round, 1986- 1994). However, some countries together with United States hunted to enlarge the agriculture and services discussions to allow trade-offs and attain greater trade liberalization.
There were also other reasons for these negotiations. Just months earlier the Doha Ministerial, there was a terrorist attack in United States on September 11, 2001. Several government bureaucrats called for better political unity and saw the trade talks as a means near that culmination. Some administrators thought that a fresh round of multilateral trade discussions could help a world economy debilitated by slump and terrorism-related uncertainty. According to the World Trade Organization, the year 2001 exhibited “.the lowermost growth in output in more than twenty years” and world trade was in fact contracted that year (WTO, 2002).In addition to this, nations progressively have been looking for bilateral or regional trade agreements. The 366 regional trade contracts have been alerted to the GATT/WTO on October 15, 2006, 214 of which are presently in force .4(WTO, 2006). There is divergence on whether these more imperfect trade contracts cast positive or negative impact on multilateral arrangement. Many professionals say that regional treaties are stress-free to negotiate, they consent a better notch of liberalization, and are active in opening new markets. However, other claim that the regional treaties or agreements interrupt the universal nondiscrimination code of the WTO, deny benefits to countless meager nations that are often not gathering to the provisions, and divert resources away from the WTO negotiations.5 (CRS Report RL31356)
With the background of a drooping global economy, terrorist act, and a rising amount of regional trade activities, trade ministers from WTO member countries meet in Doha. At that meeting, they accepted three documents which included the assistance for upcoming activities. The Ministerial Declaration includes a preface and a work package for the future actions of new round. This Statement doubled the on-going talks in agriculture and services into a wider agenda. The plan includes the industrial tariffs, matters to developing nations, changes to WTO rules, and other provisions. The Declaration on the TRIPS Agreement and Public Health benefits a political clarification of the WTO Agreement on Trade-Related Intellectual Property Rights (Fergusson, 2002). A Statement on Implementation-Related Issues and Concerns includes different decisions of interest to developing nations.
Economic Growth and Development
Although it has taken substantial advantages, the current wave of globalization has combined massively different economies at different stages of development. Developed and developing countries similarly, are hit with market failures. In many cases integration can lead to the globalization of market disaster – in other words, economic distortions (Gallagher, 2005). According to economic theory when the market claps, policy tools should be organized to correct the distortions shaped by private markets (Lipsey and Lancaster, 1956). According to Rodrik (2003), the economies of a market are based on a wide variety of non-market institution that regulates, legitimize and stabilizes the economy. Most of these non-market institutions include governmental and public institution. They serve like the backbone of the economy. A research conducted by Acemoglu (2000) concludes that the quality of the public institutions of any country determines its short term and long term development.
Institutional diversity has in fact a more important implication (Rodrik 2003). According to author, there is no single plotting between a good working market and the form of non – market institutions required to sustain it, as is clear from the wide variety of supervisory, steadying and legitimizing institutes in today’s progressive industrial cultures. Rodrik (2003) give the example of American style of capitalism and Japanese style. They both are different each other and also differ from the European style. And even within Europe, there are huge variations between the institutional arrangements like in Sweden and Germany. Over the long term, each of these systems has accomplished equally well (Rodrik, 2003).
Rodrik (2003) also raise the question that why certain nations adjust their macroeconomic policies faster than other countries? According to him the real determinants of development performance after the 1970s are based on the capability of national institutions to be able to manage the distributional battles prompted by the external jolts of the period. Whether successful or not, the social clashes and their management plays an important role in spreading the effects of external economic performance shocks. Countries with poor establishments for conflict management are proved to be worse in managing shocks (Rodrik 1999).
Doha Developing Agenda & Poverty reduction
Studies show that the Doha Development Agenda is comparatively less poverty improving because it contains limited reforms that are most poverty eliminating. These reforms includes the reduction in developing countries tax and tariffs, while involving the complete elimination of export subsidies, the reform of which raises national poverty in many countries (Rodrik, 2003). Ivanic (2005) studies shows the fact that the deletion of export subsidies in the Europe and US tends to increase poverty in most of the developing nations, even while dropping poverty between the agriculture-dependent individuals in these poorer republics (Valdes and McCalla, 2004). Since these export subsidies are completely detached under the Doha Development agenda, this adverse poverty influence is wholly recognized under the incomplete reform scenario. In contrast, Ivanic (2005) finds that reduction in developing country tariffs as a group has a very promising influence on nationwide poverty of the focused nations. Yet there is a slight improvement of developing country tariffs under the main Doha scenario – first due to limited reciprocity, and second due to the extensive obligatory overhang in developing countries (Hertel & Winters, 2005). This concludes that profounder reductions in developing country tariffs under the Doha development agenda may have a positive impact on the poverty outcome.
Continued decreases in poverty require economic development, which leads to the question of how a Doha Development Agenda might affect the development rates of nations with uppermost levels of poverty. For example in the case of Bangladesh, trade transformations which include across-the-board drops in domestic tariffs tend to rouse growth and poverty reduction by sinking the price of capital goods and urging investment.
One sector which is most favorably affected by this trade-led evolution is readymade garments, a key employer of low-income women, and therefore has a valuable influence on poverty (Annabi, 2005). Increase in poverty is the second linkage between growth and trade. To have a considerable growth influence or impact, trade reforms have to be long-term and far reaching (Rutherford, Tarr and Shepotylo, 2005). Services sector also plays an important role in the economic development. Because services signify a critical contribution into nearly every sector in the economy, refining the quality, cost and diversity of services available in the economy can increase productivity significantly.
Anderson, Martin and van der Mensbrugghe (2005) guesstimate the income increase to the poorest families in different countries, by devaluing the unskilled salary by food and clothing prices and then applying this to real income alteration an expected elasticity of poverty reduction with respect to income progress at the poverty line. By applying these estimations of wages at the poverty line to the elasticity of the income in each region, they forecast the degree of poverty decrease in developing countries. This depends on the poverty line and also on the baseline poverty forecasts, which will decline significantly between 2001 and 2015. For dollar one per day poverty, the predictable reduction in 2015 is four million for the core Doha Development Agenda and thirty five million for Full-Lib. When it is applied to 2001 poverty levels, the author’s calculations conclude poverty falls of 12.2 million and 88.1 million, respectively. For dollar two per day poverty, the decrease in the amount of poor is greater. It is clear that the Doha development Agenda capture only a comparatively minor portion of the total poverty decrease possible under trade restructurings. They also find that applying deeper cuts in the developing nations boosts the poverty outcome, nearly doubling the poverty reduction gained under the central Doha Development Agenda. This finding strengthens Ivanic’s (2005) assumption on the beneficial poverty influences of developing nation tariff cuts under the DDA.
