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Would would falling back on WTO rules mean for Britain?

If the UK leaves the EU with ‘no deal’, it will fall back on World Trade Organisation Rules, but what does this mean?

The WTO and Free Trade 

The WTO was founded in 1995 and sets the rule book by which global trade takes place.

One of the main things it has done over the past two decades is to reduce tariffs (basically taxes) levied by governments on imports and exports, and to promote a free-trade agenda.

In 1947, the average external tariff charged by GATT (the predecessor of the WTO) signatories was 22%, which was a massive disincentive to trade, by 1999 it was down to 5%, and today the weighted average tariff charged by the US and EU is 1.6%.

Over the same period, there has been a massive increase in world trade: In the 1950s international trade accounted for 8% of the world economy, today it accounts for 30% of a much bigger global economy.

The Limitations of the WTO

Recently, the WTO’s trade liberalisation has stalled, and most of the progress countries have made in reducing barriers to trade have been through regional and bilateral trade agreements. The European Union is a principle example of this: UK companies pay no tariffs on exports to Europe or imports from Europe, which makes trade easy.

If we were to fall back on WTO trade rules, there are some economic areas which still have very high tariffs – cars and car parts would face a 10% tariff every time they crossed a boarder (making BMWs a LOT more expensive! given international supply chains) and agricultural tariffs stand at 35%.

The latest Treasury forecast predicts that the UK economy would be 9.3% smaller in 15 years if we exited the EU under WTO rules.

Isn’t this just all part of ‘project fear’?

Of course Brexiteers argue that we could forge new bilateral and multilateral trade agreements once we leave the EU, but most estimates suggest that a no deal WTO fall-back Brexit would be detrimental to the UK economy.

However, what all of the above suggests is maybe that ‘globalisation’ isn’t so good for world trade anymore…. maybe it’s too difficult to sort out genuinely mutually beneficial trade agreements between all 160 odd member states of the WTO.

Instead it seems that regional agreements are much more important for economic growth – it makes sense that it’s easier to get a deal between a dozen local countries rather than ten times that number after all.

To my mind it seems unlikely that we’re going to be able to negotiate dozens of little deals with specific countries that outweigh the benefits of being part of a massive trading block like the EU!

Sources:

The Week, 26 January.

 

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The Role of the World Trade Organisation in International Development

The World Trade Organisation (WTO) is the body through which governments and businesses (mainly TNCs) negotiate the rules of trade, and settle trade disputes once these rules have been established.

The concept of the WTO first began with the 1947 the General Agreement on Tariffs and Trade (GATT) was signed by the Western powers to govern global trade and to reduce trade barriers between nations. In 1994, the WTO was set up to replace GATT, originally consisting of 126 members; it has since expanded to 164 member states currently.

wto

The WTO now has trade rules in place covering not only goods but also services such as telecommunications, banking and investment, transport, education, health and the environment.

The WTO is committed to the concept of free trade, believing that unlimited competition in the free market results in efficient production, innovation, cheap prices and the fastest possible rates of economic growth. They see government interference in markets as stifling businesses and being harmful to economic growth. WTO trade agreements and trade rules have thus tended to focus on reducing government intervention, such as the reduction of tariffs, subsidies and restrictions on imports.

However, critics argue that the WTO has hidden goals, and that it is really interested in helping rich countries and TNCs maintain their economic dominance. Chang (2010) for example has criticized the World Trade Organisation, arguing that its trade rules are unfair, and biased against developing countries. The WTO pressurizes poor countries to open up their economies immediately to western corporations and banks by abandoning tariffs (taxes) on western imports. However, the developed countries are still allowed to impose quotas on the imports of manufactured goods from poor countries, in order to protect their manufacturing industries.

Along the same lines as Chang above, McKay argues that WTO trade rules have rigged the terms of global trade in favour of the West and consequently the WTO is a rich man’s club dominated by the neo-liberal philosophy of the developed, industrialised nations.

A second major criticism of the WTO is that it is notoriously undemocratic – decision making at the WTO is dominated by a small group of Western members, with representatives of developing countries being outnumbered by the representativeness of wealthier countries and TNCS, even though the majority of the world’s population lives in those poorer countries.  A consequence of this is that the WTO tends to see free-trade as more important than protecting workers rights or the environment.

This brief article from Forbes suggests various reasons why poor countries fail to get decent trade deals out of the WTO:

–They are seriously understaffed–at the extreme, some states have no permanent delegation in Geneva, or just one or two people who must also cover other international agencies in the city.

–Their experience of trade policy issues and multilateral negotiations is limited.

–Individually, and even collectively, few account for a significant share of any element in world trade.

Philippe Legrain (2002), former special advisor to the Director-General of the WTO has acknowledged four main criticisms of the WTO:

  • It does the bidding of TNCs
  • It undermines workers’ rights and environmental protection by encouraging a ‘race to the bottom’ between governments of developing countries competing for jobs and foreign investment.
  • It harms the poor
  • It destroys democracy by imposing its approach on the world secretly and without accountability. He argues that the WTO’s free trade rules have prioritised the interests of TNCs over democratic and human rights.

Further sources of criticisms

Sources 

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.