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The WTO agreement: winners and losers

December 13, 2013

Published in ‘New Europe’ print & digital editions

WTOIt all started with the so-called Uruguay Round (1986-1994), which led to the creation of the World Trade Organization (WTO), then in 2001 came Doha Round, which in 12 years led to practically nothing, until a few days ago, when the representatives of 159 countries finally came to the first substantial multilateral agreement in recent history.

Heralded as the agreement that “represents the rejuvenation of multilateral trading system that supports millions of American jobs” by President Barack Obama, and as a “lifeline for the world’s poorest nations, as well as benefiting British businesses” by Prime Minister David Cameron, it is obvious that this agreement is much welcome, at least by most leaders of the large industrial exporting nations. To say the least, it will reverse the trend towards making bilateral or regional agreements, and will facilitate the conclusion of other large-scale similar trade deals, such as the US-EU pact (currently, severely damaged by the revelation of the US spying on European companies and governments), or the Trans-Pacific Partnership.

The WTO deal does not really liberalize the world trade by removing tariffs and quotas, as many would have hoped, but is mostly focused on “facilitating” the international shipment of goods, by reducing red-tape and streamlining customs procedures. In fact, one shouldn’t underestimate the importance of such practical barriers to world trade, especially in the world’s poorest countries, where corruption and bureaucracy are a major obstacle to the free circulation of goods. The real issue here is how, practically speaking, those obstacles will be tackled, in an environment of poor administration and chronic corruption without dealing with the more general structures of the countries involved first. For instance, will it be possible to remove the 50 or so control checkpoints along the highway connecting two neighboring African countries without restructuring the entire administrative apparatus of those countries?

Most of the WTO’s delegates seem optimistic about these questions, and look forward to  benefiting from the technical assistance granted by the western nations to the least developed ones. If the effects of such assistance were fully effective, then one could hope a 10 to 15 percent reduction of costs in international trade, which could be translated into a benefit to world economy estimated between 400 billion and 1 trillion dollars.

However, although the progress made by this agreement is undeniable (materialized by the simple fact of a 159-countries’ unanimous decision), οne should look at the long term perspectives and challenges raised by it. The WTO was established in order to promote the idea of globalization in world trade. Taken in its most simplistic form, this idea boils down to  the principle that if all nations play by the same trade rules, then all will win. But, in real life, this would mean removing farm subsidies in poor countries across the board, and suppressing all quotas and tariffs in the industrial world. Such decisions would certainly bring about food crises and massive job losses, respectively—a good reason for not being adopted during this highly publicized agreement, especially after the fierce opposition of India against the reduction of farm subsidies.

So, all in all, what are the benefits of the agreement? Apart from the fact of better world cooperation and coordination of trade policies, the end result of the agreement is rather limited. The general feeling is that we go along as we are, showing some level of tolerance towards individual actions of self-protection by countries that consider them necessary to feed their populations. Hence this ‘peace clause’ guaranteeing that WTO members will not initiate disputes against those breaking the subsidy limits as part of their food-security programmes.

Most importantly, as restatement of faith to the free trade dogma, the agreement waives the fears that the 2008 financial crisis could hurt the free circulation of goods and reign in the globalization process.

Finally, if the agreement is implemented properly, the world’s poorest nations will see some benefit from the increase in their exports; similarly, large multinational companies will also benefit from the simplification of export procedures, especially for the goods manufactured by their subsidiaries in developing countries. On the other hand, it is reasonable to think that the facilitation of world trade will increase pressure on the already depressed western economies and enhance the trend of plant relocation; at this time, no one can say whether this extra pressure will be compensated by the benefits of increased wealth, and thus purchasing power, of their developing world clients. In other words, we can’t affirm that the overall effect of the agreement on world economy will be significantly positive or negative. We can only be optimistic about it, as most politicians do.

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