Who Truly Benefits from Free Trade? A Critical Analysis of the WTO
Chonyi Lama, Online Branch, Staff Writer and Assistant Editor
April 2022
Today’s globalized world is largely shaped by the economic conditions which tie nation-states together. These economic conditions, that is of free trade and open markets, are overseen by the World Trade Organization (WTO), representing 98% of world trade. Founded in 1995, the WTO was established to oversee and regulate the free flow of global trade. The organization operates using a member-based approach, from which rules of trade are derived through mutual consensus. Under its governance, member-states are able to negotiate trade agreements and settle trade disputes (1). The WTO was created with the underlying neoliberal assumption that all countries benefit when they trade freely with one another - a narrative that is central to its legitimacy on the world stage. However, with 164 current member-states to consider, a critical question arises: do all countries truly benefit from free trade? A closer look into the WTO reveals that the organization’s neoliberal agenda reflects the interests of wealthy developed countries.
The WTO’s bias towards rich developed states has its origins in its founding. Headed by the US in 1944, the Bretton Woods agreement was established to prevent a recurrence of the global devastation caused by the economic conditions of the 1930s and foster long-term global growth by instituting a system of order and international cooperation (2). From this international economic system emerged three institutions: the International Monetary Fund, the International Bank for Reconstruction and Development, better known as the World Bank, and the General Agreement of Tariffs and Trade (GATT). The GATT was responsible for oversight of the world trading system and the trade liberalization arrangements it sponsored, and in 1995, it was superseded by the WTO. With the creation of Bretton Woods, power was concentrated in the hands of a small number of countries in North America and Western Europe. The liberal free-market stance of powerful Western governments and influences from liberal economists became entrenched in these organizations. The policies and rules outlined by the WTO specifically were adopted after the terms of the Washington Consensus. This involved laissez-faire markets, to be achieved by privatization and deregulation, along with trade and price liberalization. This ‘consensus’ operated in the fundamental interest of the United States, it implied that swimming with the tide of US-led global economic integration would be the only way forward for developing countries seeking economic growth (3).
There is fundamental incompatibility between the interests of rich and poorer members of the WTO, which becomes most apparent at the WTO’s ministerial conference held every two years. Of interest to developed countries are predominantly issues pertaining to intellectual property, services, and foreign direct investment. Also involved in these discussions is the inclusion of oligarchs and multinational corporations (MNCs). Take the WTO’s 1996 Seattle Conference, where Microsoft founder Bill Gates and then-CEO of Boeing, Phil Condit, were appointed co-chairs. Meanwhile, central to the interests of poorer member-states are policy decisions regarding agriculture and textiles since these are in many cases the only sources of ‘comparative advantage’ they have against their wealthy counterparts (4). The US and EU, two of the world’s largest importers of goods, impose high tariffs on agriculture which hurts farmers in developing countries. Not surprisingly, the concerns raised by developing states are often pushed aside. The terms of trade governing the WTO are ultimately determined by rich and powerful countries who are equipped with an abundance of technical and administrative resources that developing countries lack, such as advanced technology, skilled advisors, and highly trained lawyers.
Considering the power discrepancy between member countries in the WTO, how has the organization accumulated 164 members thus far? Simply put, rich countries understand that the WTO membership serves to benefit them while poor countries risk being shunned from global markets. The WTO appeals to countries by ensuring a ‘most favoured nation’ status to member-states. Under this principle, WTO countries cannot discriminate between their trading partners and must provide equal access to their markets to all WTO members. This also applies to the treatment of corporations under the ‘national treatment’ principle, which ensures that foreign firms are treated like domestic ones if they are WTO members. However, this ‘fair treatment’ clause adopted by the WTO has pernicious effects for poor countries. How are developing countries struggling to provide opportunities for their local producers expected to compete with MNCs on absolutely equal terms (5)? Many critics have argued that developing countries require some trade protectionist measures to be able to develop new industries and become competitive, ironically enough, just as many developed economies had done during their development phase. By failing to address such arbitrary trade terms, the WTO undermines domestic industries and livelihoods in developing states, while also encouraging ‘race to the bottom’ tactics.
The reality is that free trade benefits developed countries far more than it benefits developing countries - an issue that represents just one of the many problems associated with the WTO, in addition to its failure to adhere to international law, implement labour standards, and enact environmental regulations. The critiques in this article are not to diminish the WTO’s potential in aiding developing countries towards economic growth, but to consider the ways in which the WTO serves to expand the inequalities that persist between rich and poor countries. The WTO must engage in practices of democratic accountability and take steps to ensure that the interests of developing countries, like wealthy ones, are fully taken into account when determining trade rules. Only once this is achieved, can developing countries truly benefit from free trade.
Endnotes
1. “What Is the WTO?” World Trade Organization. Accessed April 11, 2022. https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm.
2. “Bretton Woods and the Birth of the World Bank.” World Bank. Accessed April 11, 2022. https://www.worldbank.org/en/archive/history/exhibits/Bretton-Woods-and-the-Birth-of-the-World-Bank.
3. Kenneth Surin. “The World Trade Organization: A Flawed Conception,” Workplace, no. 5 (2000): 12-18, https://doi.org/10.14288/workplace.v0i5.184017
4. Kenneth Surin. “The World Trade Organization: A Flawed Conception,” Workplace, no. 5 (2000): 12-18, https://doi.org/10.14288/workplace.v0i5.184017
5. Kenneth Surin. “The World Trade Organization: A Flawed Conception,” Workplace, no. 5 (2000): 12-18, https://doi.org/10.14288/workplace.v0i5.184017