WTO promotes global free trade as proposed based on the concept of Classical Economist Adam Smith with Absolute Advantage in 1776 and David Ricardo with Comparative Advantage in 1817. It is believed that countries will enjoy the benefits by promoting free trade. Imposing lower tariff to all members of WTO is not easy, especially when most developing countries believe it is merely for the sake of the benefits for the rich. In this essay, I’m going to discuss the contradictory trends between multilateral liberalization and protectionism where regional blocks seem to be more dominant these days.
WTO was created with a purpose to help trade between countries flow freely so that countries keep their economic being developed and increased the quality of life. Countries have always kept their own interest which make it difficult for global trade to happen easily. WTO has been able to make trade between them be done more easily and freely by keeping them under the same rules which is the GATT. However, today regional trade blocks (protectionism) are getting more dominant. Regional trade blocks are associations of nations at a governmental level to promote trade within the block and defend its members against global competition by establishing tariffs on goods produced by member states, import quotas, government subsidies, and technical and other non-tariff barriers. This is clearly very contradictory with Article I of the GATT which is the most-favored nation treatment. In Article I, its ultimate goal is so that members under the rule will treat all other members equally with no discrimination. In the regionalized trade areas such as the North American Free Trade Agreement (NAFTA); MERCOSUR; and the Asian Pacific Economic Council, preferential treatment are given to the members of those regional trading areas. This clearly shows a breach of Article I of the GATT which stated that there should be no preferential treatment given to one trading partner and members should give the same treatment to all other trading partners. However, even though it is a breached of WTO rule, such regional trade agreements seem to be supporting the multilateral trading system of the WTO. It is because regional trade agreements have allowed countries to negotiate rules and commitments that will be possible to be done with too many members under the WTO. WTO itself agreed that regional trade agreements can benefit nations and have helped them in aiming the goal they always keep which is to facilitate trade among its parties.
Countries that join the WTO aim to improve their living standard by opening their doors to the international trade. However, the fact is, the rich countries have been able to manipulate the poor countries. There are some cases showing how WTO has failed developing nations. One of them are the cotton trade impacting developing countries like the Africa. Developed countries such as the U.S paying the most subsidies, causes damage and should be responsible for most of the reduction in cotton-earning potential in developing countries. It is because cotton subsidies encourage overproduction which then causes the reduction of cotton prices. It is absolutely damaging those poor countries which rely on exports of cotton for their earnings. Therefore, sometimes opening up the doors to international trade didn’t raise the living standard and economic situation of a country. Today, countries are starting to think about shifting their trade activities to a more regionalized trade deals. It will be more effective for nations to choose who they want to trade with and have a negotiation that can benefit both or more sides. WTO consists of a lot of members from different nations that have each of their own interest, making it difficult and quite impossible to be able to satisfy all of them at once, especially the poor developing countries with little power on their hand. Protectionism make it possible for poor countries to have a better economic situation and higher living standards.
National sovereignty is where a nation or state have the ability to govern itself without foreign interference. There has been argument about how WTO undermines the national sovereignty where WTO themselves believe that it is not true to say so. However, in reality, up to a certain level WTO does undermine national sovereignty. It is because nations start to lose their ability govern their own country and lost some economic sovereignty. Sovereignty has been deeply attached to the international law and the idea of nation having the absolute power and authority to govern itself will no longer exist. Members have to avoid trade barriers and abide the WTO’s resolution of the dispute. However, despite all of this, nation states still persist as members of the WTO. It is because despite having them restricted and limited up to some point, nations still enjoy the privileges that other member-countries give to them through the international trade as well as reducing the perceived risk through the trading rules provided. One of the privileges is none other than the Most Favored Nation status which in result all of them are treated equally. Other privilege is that WTO has allowed them to have a larger market to trade with lower trade barriers.
Debate between protectionism and free trade has been lasted for decades. But nowadays regionalization seems to be strengthen. It is probably the melting point between the two extremes. While WTO/GATT has opened up a broader and larger market for all members to trade, the rules can sometimes be undermining for some of them with the fact that it is very difficult to satisfy all of them at once. Trading blocs as a form of protectionism can balance the situation in which the world is operated under the Most Favored Nation status. Furthermore, with the help of trading blocs, developing countries can level up their playing field and not be disadvantaged by the rich countries try to manipulate the WTO/GATT. In the long run, this can lead to a freer trade and faster economic growth that will lead to a higher living standards around the world. However still, nations would not be able to live without the WTO since it has the ability to resolve disputes brought up from time to time.
In this contemporary global trade situation, Australia needed to pursue every chance and opportunities to make trade deals. The future couldn’t be predicted and being in the same place by refusing protectionism will be too risky. Being under the rule that govern more than 100 nations, Australia won’t know what might happen to them. Especially with the new presidency of United States, remembering that the U.S is the most powerful nation in the world that have the power to force something that can bring great disadvantages to other members such as Australia itself. Today, Australia is still in a free trade agreement with the USA which is the NAFTA. According to the chief executives of Australian companies, they try to speak directly to the world most important investors about a possible lock-out of companies from the US market. Also, Australia is currently negotiating nine Free Trade Agreements with three of its largest trading partners which are China, Japan and South Korea. These movements support the idea that trading blocs are getting more dominant in this complex today’s world.
In conclusion, the evolution of trade was shown of how it shifted from a large and broad international trade under the WTO to something to be more regionalized with trading blocs existed. Even though the idea of trading blocs is against the rule of Most Favored Nation status in which more than 100 countries are under now, it is proved that the trading blocs help the WTO to reach their initial goal which is to allow trade to flow smoothly and to raise the standards of living around the world. Trading blocs has been a melting point between the debate of growling liberalization of trade and the protectionism. In the long run, trading blocs would lead to a freer trade, faster economic growth and higher living standards around the world. However, WTO still hold a very important role showed by how it has been able to settle disputes arising from the international trade done between countries. The Australian Government should pursue every chance and opportunities available to seek for trade deals. Saying no to protectionism and being under the wing of the WTO with the Most Favored Nation status will be very risky in today’s complex world.