COMPARATIVE ANALYSIS OF THE IMPACT OF THE WORLD TRADE ORGANIZATION ON DEVELOPING AND DEVELOPED COUNTRIES

Submitted as part of curriculum of ECON C372 International Trade and Balance of Payments

by

Ashesh Kaushik Shivi Anand Nikunj Purohit Saurabh Suman

2009B3A3466G 2009B3A3518G 2009B3A3526G 2009B3A3558G

INTRODUCTION
The WTO provides a framework of rules for the conduct of world trade in goods and services, and the trade-related aspects of intellectual property rights and investment measures. These rules, which embody the multilateral trading system, will have a profound impact on international trade and on the world economy well into the twenty-first century. The WTO also provides a forum for trade negotiations and an institutional mechanism for the implementation of around 20 agreements and legal texts.

THE ORIGINS OF THE WTO

The underlying idea and the conceptual origin of the WTO go back to World War II. The leaders of the allied powers were of the view that one of the main causes of the war was the failure of the open world trading system in the 1930s. They agreed that the enduring peace and welfare of nations were inextricably connected with mutual friendly relations, fairness, equality, and the maximum predictable degree of freedom in international trade. Soon after the war ended, preparations for creating a new international economic order commenced. One of the important pillars of this new order, embodied in the Bretton Woods Institutions, was the establishment of the International Trade Organization (ITO), along with the International Monetary Fund, and the International Bank for Reconstruction and Development (The World Bank).

The United Nations Economic and Social Council decided in early 1946 to hold an international conference to draft the charter of the ITO. The UN Conference on Trade and Employment was held in Havana, from November 1947 to March 1948. The end

result of this conference was the Havana Charter, which contained the objectives, principles, rules, and institutional setup of an International Trade Organization. The Havana Charter was signed on March 24, 1948 by representatives of 54 countries.

In tandem with the preparations for the ITO charter, 23 members of the preparatory committee carried out negotiations for the reduction of tariffs, which at that time were the main obstacle to international trade. Accordingly, they agreed on a General Agreement on Tariffs and Trade (GATT) that was based on the chapters on trade policy in the draft charter of the ITO. It was a provisional agreement without an institutional setup because it was envisaged that it would be taken over by the ITO.

The Havana Charter never entered into force because it was not ratified by the US Congress. Thus, the GATT remained the only legal framework of rules for the conduct of world trade for almost half a century. However, the GATT regulated only trade in goods. It did not cover services or investments.

Over the years, the GATT ensured liberalization of world trade through the elimination or reduction of tariffs and other barriers to merchandise trade. It was responsible for the manifold expansion of international trade. The greatest achievement of the GATT was establishing its role as a rules-based system for the conduct of trade relations among nations, which averted further 1930s-like economic depressions.

However, the GATT also had its failings. GATT rules never fully applied to agriculture, and its basic principles and some of its main rules were rendered largely

inoperative in the case of textiles and clothing. The GATT also lagged behind new developments in international trade. Initially, its rules applied to trade in goods only. Trade in services, which had grown rapidly and had become an important and dynamic element of international trade, was not subject to GATT rules.

When the Uruguay Round negotiations started in 1986, it was not envisaged that a new organization would be established to implement the results of the negotiations. However, as the negotiations developed and growth in two new areas, services and intellectual property became increasingly visible, the countries taking part in the Uruguay Round started focusing on the need for establishing a permanent institutional setup to implement and administer the results of the negotiations. It was agreed that an umbrella organization was needed to house the outcome of negotiations in goods, services, and trade-related aspects of intellectual property rights, and to implement the agreements and legal texts negotiated and accepted as a single undertaking.

The charter of the World Trade Organization was elaborated during the last several years of the Uruguay Round negotiations. It was formalized in the Marrakesh Agreement establishing the World Trade Organization, signed in Marrakesh on April 15, 1994. After necessary ratification, the agreement entered into force on January 1, 1995.

ECONOMIC PHILOSOPHY OF THE WTO

The WTO and its predecessor, the GATT, which is now subsumed in the WTO and represents one of its important pillars, are based on the rationale that an open and liberal trading system, underpinned by mutually agreed and legally binding rules, is a sure recipe for growth of the world economy. An open and liberal trading system is the foundation of economic development, ensuring expansion of world trade, expansion of investment and production, job creation and, consequently, of an increase in global living standards and greater prosperity.

Realization of these objectives depends on the stability and predictability of the trading environment, conditions pursued by the WTO through its various built-in mechanisms. In such an environment, businesses, investors, traders, importers and exporters can plan their activities on a long-term basis safe in the knowledge that conditions governing competition and access to markets will not change suddenly.

An open trading system is based on free market philosophy. Government intervention in trade is considered undesirable. However, economic theory has to face practical realities. Thus, while the WTO system basically frowns upon government intervention, it does not totally disallow it. Government intervention is normally to be avoided but, where considered essential to national economic interest, it has to be subject to certain agreed disciplines. The WTO rules constrain the freedom of governments to use specific trade policy instruments.

Whereas liberal and open trade is good for different countries, the realization of this objective is beset with difficulties. One major problem is the opposition of domestic

interest groups. The WTO provides a shield for governments to ward off such interest groups seeking special favours. Governments can maintain that they have legally binding obligations under WTO rules that make it impossible to accept the demands of the special interest groups. Another difficulty is the conflicting perceptions of developed and developing countries in achieving this objective. Developed nations generally want developing countries to adopt open and liberal trade policies in a short time frame, while the latter favour a more gradual, measured approach, which allows time for adjustment.

The WTO is often referred to as an organization for free trade. That is not true. While the WTO does favour an open and liberal trading system and stands for trade liberalization, it is not a temple of free trade. Although WTO rules do allow reasonable protection to both goods and services, the organization does not call for the abolition of tariffs on imported goods, removal of all restrictions on trade in services, or the elimination of all subsidies and support to domestic industries and agriculture. It does, however, call for reduction and discipline in the use of these measures. But WTO principles and rules do not proclaim free trade as the objective.

OBJECTIVES AND FUNCTIONS OF THE WTO Objectives

The objectives of the WTO, as enshrined in the preamble of the Marrakesh Agreement, are as follows:

raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of, and trade in, goods and services, while allowing for the optimal use of the worlds resources in accordance with the objective of sustained development, seeking both to protect and preserve the environment.

A supplementary objective of the WTO is to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development.

These objectives are sought by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations.

Functions

The WTO is the legal and institutional foundation of the multilateral trading system. It provides the contractual obligations determining how governments frame and implement trade legislation and regulations. And it is the platform on which trade relations among countries evolve through collective debate, consultations, and negotiations.

The three main pillars of the WTO are the GATT and its associated agreements on trade in goods, the General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Intellectual Property Rights (TRIPs). These are reinforced by subsidiary bodies and agreements, the most important of which are the Dispute Settlement Rules and Procedures and the Trade Policy Review Mechanism.

The principal functions of the WTO are to: implement and administer the multilateral and plurilateral trade agreements that together make up the WTO; act as a forum for multilateral trade negotiations and a framework for implementing the results of such negotiations; seek to resolve trade disputes by administering the Understanding on Rules and Procedures Governing the Settlement of Disputes; oversee national trade policies through the Trade Policy Review Mechanism; and cooperate with other international institutions involved in global economic policy making

BASIC PRINCIPLES OF THE WTO

The basic principles of the WTO are built on those of the GATT. Relatively few and simple, they are far reaching in importance, and have been the guiding light for the past 50 years and should continue to illuminate the path of the multilateral trading system well into the new millennium. These basic principles are discussed below.

A. Non-Discriminatory Most Favoured Nation Treatment

The most important and fundamental principle of the WTO is non-discriminatory treatment or, to be legally precise, most favoured nation (MFN) treatment. What it means is simply that any advantage, favour, privilege, or immunity granted by one WTO member to another has to be granted immediately and unconditionally to all other members.

In the case of goods, MFN treatment applies to customs duties, other border duties and charges, rules and regulations relating to imports and exports, methods of levying customs duties, and international transfers of payments for imports or exports. MFN treatment also applies to trade in services and intellectual property rights.

There are, however, some exceptions to the MFN rule. For example, WTO member countries may grant more favourable treatment to countries with which they have customs unions, free-trade areas, or economic integration arrangements. Such favourable treatment need not be extended to all other WTO members. In the case

of services, member countries may make exceptions for some measures applicable to particular sectors for a limited period not exceeding 10 years.

B. National Treatment

The principle of national treatment implies that imported goods and services and foreign service suppliers will be given treatment that is no less favourable than that given to domestic goods and services and to domestic service suppliers. The principle is observed by giving either the same treatment or more favourable treatment to imported goods and services and to foreign service suppliers as that given to domestic goods and services and to domestic service suppliers.

In addition, whereas national treatment is unqualified in the case of goods, for services it is applicable to those service sectors and sub-sectors on which a WTO member has made specific commitments that are recorded in its schedule of commitments.

The TRIPs Agreement obliges each WTO member to accord the nationals of other WTO members no less favourable treatment than that it accords to its own nationals with regard to the protection of intellectual property rights. There is, however, an exception to national treatment as provided in the Paris, Bern and Rome Conventions.

C. Stability and Predictability

The stability and predictability of trading conditions is another basic principle of the WTO. Stable and predictable conditions of access to markets promote confidence because investors and traders can plan their investments secure in the knowledge that market access conditions will not change for the worse. This is achieved through the binding of tariffs and conditions of market access for services.

Tariffs on different products that are reduced or agreed to in trade negotiations are bound; that is, a country agrees that it will not levy tariffs at rates higher than those agreed to. Tariffs on all agricultural products have been bound by each WTO member, both developed and developing. As for industrial products, developed countries have bound tariffs on practically all products, while developing countries have bound them for more than 70 per cent of their products. Bound rates of tariffs for different products are recorded by each country in its schedule of tariff concessions and commitments. Every WTO member is required, as a necessary condition of membership, to have a schedule of tariff concessions and commitments.

A similar devise applies to services. Each WTO member is obliged to have a schedule of specific commitments on services that lists the service sectors and subsectors for which a country agrees to provide market access and national treatment in its market. Members are permitted to place any limitations or conditions on market access and national treatment. The sectors and sub-sectors of services included in a schedule, and the limitations and conditions on market access and national treatment are bound; that is, they cannot be changed to make them less

advantageous. WTO rules do provide the possibility, in exceptional cases, to change the bindings on goods and services, but this can only be one after negotiations with affected countries and after compensating them. Under normal circumstances, bindings cannot be altered adversely.

D. Transparency

WTO rules oblige member countries to ensure transparency in their foreign trade regimes by requiring them to publish all laws, regulations, measures, and administrative decisions affecting trade. The publication of laws has to be done in a manner that allows importers, exporters, consumers and investors to be aware of them. Transparency is also ensured by requiring member countries to submit periodic notification to the WTO Secretariat on different aspects of the trade regime.

E. Trade Liberalization

As mentioned earlier, the WTO is not an organization for free trade, since it does allow protection. However, one of the principles of the WTO is progressive liberalization of trade in goods and services. This principle is rooted in the belief that the removal or reduction of trade barriers results in an expansion of international trade that is to the benefit of all countries. To achieve progressive liberalization, the WTO provides a forum for trade negotiations and a framework for implementing the results of such negotiations.

F. Fair Competition

One of the basic principles of the WTO is fair competition in international trade. The rules on MFN treatment and national treatment are designed to promote fair competition. WTO rules also contain disincentives or remedies against unfair competition, such as dumping or subsidization that causes injury to domestic industries.

G. Economic development

Last, but not least, is the principle of economic development of developing countries. There are many provisions in different WTO agreements designed to promote economic development of developing countries and to encourage economic reforms both in developing countries and in transition economies.

FORMAL AND INFORMAL RULES OF THE GAME

The WTO provides a rules-based system for the conduct of world trade. It lays down a binding code of conduct for member countries to formulate and implement their trade policies. The code of conduct contains the rights and obligations of member countries. Most of the WTO rules are formal written rules, but like any body of rules, there are also conventions or informal rules.

Formal rules

WTO rules for the most part are formal written rules. They encompass all areas of the WTOs competence and are spread over some 550 pages. They apply to all merchandise trade, agricultural and industrial products, and services and traderelated aspects of intellectual property rights.

These rules are designed to ensure the achievement of the objectives of the WTO, as discussed above, and to codify the rights and obligations of members. Furthermore, the rules cater for the specific situations of the different areas and sectors of international trade, and regulate the use or rein in the abuses of different trade policy instruments.

WTO rules are organized in three sets of multilateral trade agreements, an understanding, a mechanism, and two plurilateral agreements. The first is the set of multilateral agreements on trade in goods, of which there are 13. The most important of these is the GATT 1994, supplemented by six understandings that interpret or clarify some articles of the GATT. GATT 1994 is legally distinct from GATT 1947. GATT 1994 consists of GATT 1947, as amended and modified since 1947, but excluding the Protocol of Provisional Application; Protocols of Tariff Concessions; Protocols of Accession; and Decisions of the GATT Contracting Parties taken between 1948 and 1993. The other 12 agreements are:

Agreement on Agriculture Agreement on Textiles and Clothing

Agreement on Subsidies and Countervailing Measures Agreement on Anti-dumping Agreement on Safeguards Agreement on Trade-Related Investment Measures Agreement on Technical Barriers to Trade Agreement on Sanitary and Phytosanitary Measures Agreement on Customs Valuation Agreement on Import-Licensing Procedures Agreement on Rules of Origin Agreement on Pre-shipment Inspection General Agreement on Trade in Services Agreement on Trade-Related Intellectual Property Rights Understanding on Rules and Procedures Governing Settlement of Disputes Trade Policy Review Mechanism Plurilateral Agreements on Government Procurement and Trade in Civil Aircraft

It should be clarified that all the agreements listed in the previous paragraph must be accepted and implemented by WTO member countries, with the exception of the two plurilateral agreements on Government Procurement and Trade in Civil Aircraft, whose acceptance is not obligatory. The rights and obligations in these agreements are applicable only to those countries that accept and are signatories to each of them.

Informal rules

As stated earlier, the trend over the past 50 years of the GATT and then the WTO has been to formalize most of the rules of the game. However, there are still some unwritten rules that are, nevertheless, equally important.

The most significant of these relate to the reduction and binding of tariffs. Not only are there no written rules governing the proper level and extent of reduction of import tariffs but, more importantly, there are no rules on the extent and level of bindings of tariffs. Article XI of the Agreement Establishing the WTO does provide that a WTO member must have a schedule of tariff concessions and commitments. However, neither this article nor any other article of the GATT or the WTO specifies what percentage of the total number of items, or on what percentage of total import trade, tariffs should be bound. Since the Uruguay Round negotiations the informal rule is that tariffs on all agricultural products should be bound. And all WTO members have, in fact, done just that. As for non-agricultural products, the informal rule for developed countries is that tariffs on practically all products should be bound. Some developed states have bound tariffs on all industrial products, while others, including the United States, Japan, and Canada have not bound tariffs on a few items, especially crude oil.

The informal rule on binding tariffs on all agricultural products also applies to developing countries, including the least developed among them. For industrial products, the informal rule is rather diluted. Some developing countries that have bound tariffs on all industrial products, while others have bound tariffs on very few.

There are also some countries that have bound industrial tariffs on just 60 to 70 per cent of the items.

According to the informal rule tariffs on all industrial products need not be bound and developing countries may bind tariffs on fewer items than developed countries, this rule has been superseded by another informal rule relating to countries that accede to the WTO after its establishment. Acceding countries, whether developed or developing, are required to bind tariffs on all industrial products.

A somewhat similar situation exists in regard to binding commitments on services. The formal rule says that all WTO members must make commitments on services, but does not specify the number of service sectors and sub-sectors, or the level of commitment. The informal rule requires developed countries to make commitments on a larger number of sectors and subsectors while developing countries depending upon their level of development, may make commitments, on a smaller number. The informal rule for acceding countries, especially developing ones, requires them to make commitments on a relatively large number of sectors and sub-sectors, compared to existing developing country members.

The WTO has no written rules on multilateral trade negotiations. In practice, the basic rules are decided at the beginning of each round of trade negotiations. However, no attempt has been made to agree on detailed rules for trade negotiations that evolve as informal rules during each round of multilateral negotiations. Since the informal rules have an important bearing on the conduct of negotiations, it is important that developing countries get involved from the beginning

of a trade negotiation round in framing and agreeing on the rules for that round. Acting together, they should influence the development of such rules, which would serve to protect their interests during the negotiations.

There are many references to developing countries in the various WTO agreements. But there is no definition of a developing country in WTO rules. This is yet another area of informal rules, but a rather hazy one. Thus far, in practice according to an informal rule the question of developing country status has been decided on the basis of self-election. A country that considered itself a developing country would avail itself of the provisions in WTO agreements relating to developing countries. Developed states would extend special privileges or preferences to developing countries, but only to those countries they classified as developing. This informal arrangement worked reasonably well until recent years. In the case of recent accessions to the WTO, however, difficulties have arisen. Major developed countries have been reluctant to agree to developing country status for acceding countries. They have also tended to refuse to grant acceding developing countries the same special treatment already enjoyed by existing members at similar stages of economic development.

REVIEW OF PREVIOUS LITERATURE

A. In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly
Theo S. Eicher and Christian Henn

Through this paper, the authors aim to establish a generalised result as to the effects of WTO accession on countries. An exhaustive literature review on their part led them to consolidate studies by notable researchers in this field, Rose, SubramanianWei and Tomz-Goldstein-Rivers. They established that previous research showed that there is no evidence of positive WTO trade effects. The authors combine three controls namely, multilateral resistance, unobserved bilateral heterogeneity and individual PTA trade effects (Preferential Trade Agreements) in a large, bilateral trade setting to examine WTO trade effects.

Since each of the above mentioned studies fails to taken one or more of the above variables into account, the authors have considered all three omitted variables and come up with a unique consolidated study on the matter of WTO trade effects. Each of these factors has a profound influence on previous estimations. They establish that PTAs create trade strongly but unevenly, i.e., only the regional trading parties are benefitted in the process as compared to the overall uniform gains and integration that WTO aims at. The authors have also stressed on the fact that on disentangling the impacts of overlapping WTO and PTA membership, the WTO membership increases trade effects just before PTA accession. Also, countries with

greater incentives to bargain for tariff reductions during WTO accession exhibit positive and significant WTO trade effects.

The strong suit of this paper is that it unifies all of the noted approaches historically applied to study WTO trade effects, as depicted in the review of literature, and delivers a well consolidated result. However, it fails to apply a new approach or methodology to this topic and simply builds upon previously used techniques.

B. The WTO Trade Effect

Pao-Li Chang and Myoung-Jae Lee

The authors have used a non-parametric approach to analyse the impact of WTO and GATT accession on a nations trade flows. A total of 234,597 observations on trade flows among 178 IMF trading entities between 1948 and 1999 were taken. Previous research in this field was based on the gravity trade model with parametric estimations and concluded that membership in the WTO/GATT does not affect trade flows significantly. The following studies only partially reversed this result, again through the use of the gravity trade model. However the authors of this paper claim that their contrasting results have been obtained due to their different approach methodology or the non-parametric approach.

Their approach of dividing the sample countries into dyads or pairs of trading countries allows them to check for bilateral flows of trade. Their findings state that

membership in the GATT/WTO by both countries on average raises bilateral trade volume by 74% to 277% for dyads that both chose to be in the GATT/WTO.

Using the above factors, the authors have divided their analysis into two categories: the effects on trade between (i) two nations both of which are part of the WTO/GATT and (ii) two nations where only one is a member. This has special relevance to our study as we are exploring the comparative impacts on trade flows in developing countries before they were part of the WTO and after their accession to the WTO . In the first case, i.e., the both-in model, as indicated above the, the bilateral trade volume rises by 74%. Thus there is an overall significant positive impact on trade flow. The findings for the second case, i.e., the one-in case suggest that the trade flow could take either direction in this case. The easier trading conditions for the member country could direct it towards imports from other countries rather than its corresponding dyad country. Also, the effects of lower trade barriers and tariff reductions could affect a third non-member trading partner. For instance, oil imports from Iran would increase if Turkey steps up its production in order to meet the rising volume of exports. The overall effect however, continues to be positive but at a smaller increase of 39% as compared to the previous case.

The one issue which is slightly ambiguous in this paper is the criteria for selection of the two countries which compose a dyad. Apart from this gap, the paper establishes some fairly sound results.

C. The Impact of the WTO Regime on Developing Countries

Basudeb Guha-Khasnobis

After getting a general idea of WTOs impact on trade flows between member nations, we move on to a comparative study of its impacts on developed and developed nations. Here we review a paper on the impact of WTO on developing nations due to trade policies and provisions made by developed member nations, specifically Japan, USA and Europe.

The WTO regulations dictate that each member nation accords MFN (Most Favoured Nation) status to other member countries. Since this particular directive is tedious and can be improved upon, the GSP or Generalised System of Preferences has been examined by the author as an extension of the policies set forth by the WTO. The study of the impacts of such a preferential agreement has taken a two pronged approach where (i) effect due to tariff reduction and (ii) effect due to tariff diversion, is explored. The triad USA, Europe and Japan offer a certain number of preferential trading agreements to developing nations. As per the equations used by the author, among the three, USA experienced the maximum trade diversion (-19.4) and trade reduction (-8.3) effects. This implies that one per cent change in tariffs will reduce imports to the US by 8.3% and one per cent preference tariff towards an exporter will increase his trade volume by 19.4%.

The figures analysed by the authors suggest that Japans preference policy is the most effective as it increases the imports from LDCs (least developed countries) by 65%, however in absolute numbers; it has the least imports from LDCs while the US

has the most. Other findings in this paper revolve around the 5.3% import weighted average tariff imposed by the US on LDCs. In case these tariffs had not been implemented, the projected figures showed that the increase in LDC imports would have been close to 148%.

Thus through this data analysis, we can observe the huge impact that WTO policies and their offshoots such as the GSP system, can have on developing nations. Favourable tariff and trade policies can double trade volumes in certain developing nations as has been expounded by the author.

D. The Impact of Chinas WTO Accession on Patterns of World Trade

Zhi Wang

Zhi Wang has approached this paper as a significant current topic following Chinas rise to being one of the most important nations in terms of expanding international trade. Chinas accession to WTO will significantly impact not just its own economy but also have some spill-over effects on the developing economies due to increased competition, lower prices and so on. The author has used a 17 region, 25 sector computable general equilibrium model. It is based on actual data regarding China and Taiwans major trading partners in both developed and developing countries between 1997 and 2010.

The results of the study indicate that China gains the most from the accession with its trade volumes doubling in a period of 10 years as compared to an international average of 83% increase in trade within the same time period. Other developing nations and newly industrialised countries as well as LDCs stand to gain from expansion of world trade and improvement of terms of trade. However countries with endowments similar to Chinas such as the South and Southeast Asian countries have to face heightened competition in labour-intensive commodities.

Much of the economic theory backing the results in this paper is based on the Principle of Comparative Advantage which states that a nation exports the commodity which is intensive in the factor that is present excess and imports the commodity which is intensive in the scarce factor. Thus the endowments of the nation determine its trade patterns.

This explains why Chinas accession to WTO would lead to an expansion of the labour-intensive sectors and increases its net imports in agriculture and capitalintensive products. The simulations performed by the author indicate that China increases its land-intensive agriculture imports dramatically leading to its share in the total world imports more than doubling.

Some limitations of the paper as pointed out by the author himself are that it does not take into account all the aspects of WTO membership, the uncertainties

regarding policy and concessions in China since the accession process is not yet complete and the overly simplified and stylised approach of the paper.

E. The Impact of Chinas Accession to WTO on the Exports of Developing Countries

S.M. Shafaeddin

Extensive research has been done on the subject of Chinas accession to the WTO. Here the author aims to dispel any discrepancies that the previous literature may have on the subject. He has tackled two approaches on the subject (i) application of the general equilibrium model and (ii) comparison of the industrial and technological capability of China at the general level. The authors major point of focus is tackling the exaggeration of the competitive effects of Chinas accession.

The expansion of Chinas exports has a two-fold effect on the rest of the world- the competitive effect and complementarity effect. Firstly, it provides stiff competition to the developing countries in South Asia (as reiterated in the previous paper). The author explains the cause for this as the labour-intensive goods produced by these countries which compete against the labour-intensive commodities exported by China (since Chinas competitive advantage arises out of its low wage structure). The accession to WTO and export oriented policies employed by the Chinese government provides a stimulus to its exports. However the author claims that the time taken to procure and divert resources into increased production will be significant, thus not posing as high a level of competitiveness as usually stated.

The second complementarity effect is experienced by countries whose capital products are imported by China for use in production of Chinese finished goods. Countries included in this category would be the Asian NIEs (newly industrialised economies) and members of the ASEAN. Since China is moving towards production of more technology/skill -intensive products, their imports would shift and expand accordingly proving beneficial to these nations.

The author concludes with a statement that Chinas accession will not improve its competitive position in these products to seriously threaten other developing countries. However the paper does not state any concrete methodology used by the author to reach these conclusions. Results are based on the observations made using data from 1992-98. No specific before and after case studies have been made to generate a proper comparative effect of Chinas accession to the WTO.

F. India and China in WTO - Building Complementarities and Competitiveness in the External Trade Sector
T P Bhat, Atulan Guha and Mahua Paul

The authors have done an exhaustive study of the bilateral trade ties between India and China. They have studied the competitive as well as complementarity effects using the statistical methods of complementarity index, trade overlap index and Grobel-Lloyd index. Extensive surveys of Indias and Chinas imports and exports before and after Chinas accession to the WTO in 2001 have been carried out. The data spans from 1996 to 2003.

The study finds that Chinas joining of the WTO led to a growth in two-way trade of over 25% per annum. The data over 2000-2004 indicates that Indian exports to China increased by 26%and imports from China increased by 24%. However though share of China in Indias global imports is around 1 per cent, the share of India in Chinas global imports is around 1 per cent. Primary and resource based products form majority of Indias exports. Chinese exports to India are more diversified.

The revealed comparative advantage index value showed that India has an advantage in primary products, natural resource based or low technology manufacturing products. Low wages and high labour productivity are the main sources of Chinas competitive advantage. Since exports of both countries are directed towards the US, EU, Japan and ASEAN, China is Indias main competitor. There has been a clear increase in Chinas exports and imports since its accession. Thus the authors establish that the post accession effects of China has levelled the playing field for both nations due to the regulations prescribed by the WTO and hence a fair study of the trade volumes of both nations can be undertaken.

G. The Effect of WTO and FTAA on Agriculture and Rural Sector in Latin America
Samuel Morley and Valeria Pineiro

The purpose of the paper as stated by the authors is to analyse the impact of two situations on the trade patterns of Latin America (i) the elimination of all barriers to trade including producer subsidies world-wide and(ii) a regional free trade agreement

among all countries in the western hemisphere called FTA (Free Trade Area of Americas). The methodology employed here is the national Computable General Equilibrium (CGE) and micro-simulation models for fifteen Latin American countries.

Changes in the international prices of certain primary commodities (agricultural and animal husbandry) resulting from the FTAA and WTO full implementation simulations were observed. The impact on world prices was found to be much higher in case in WTO as compared to FTAA since it involves complete removal of trade tariffs and producer subsidies in order to promote free trade. For agriculture as a whole the increase in prices was found to be 11% and for meat, grain it was 20% in case of WTO regulations. Both these alternatives resulted in an expansion in output and employment in general and for agriculture in particular in most Latin American countries.

A study on welfare performed by the authors found that these measures also increased the welfare of rural households more than urban in most cases. A microsimulation exercise helped them determine the impact of trade liberalisation on poverty. All of these findings indicated that WTO/FDAA regulations and their impact on rural or developing economies was highly positive and helped in reducing poverty and inequality.

Thus the authors have established through this paper that WTO accession by countries and the implementation of free trade rules world-wide will have a positive impact on the agricultural and rural sectors.

H. Liberalising FDI in Services: Russian WTO Accession

Jesper Jensen, Thomas Rutherford and David Tarr

Since there have been no credible studies done in the past on the impacts of Russian accession to the WTO in 1993, the authors aim to examine these impacts in the pre and post accession phase. They have developed a 35-sector open economy comparative static computable general equilibrium model to evaluate the impacts. The Russian tariff structure as well barriers to FDI inflow have been varied considerably since the accession.

Using the Hicksian equivalent variation, the authors estimate that the gains to Russia from WTO accession are 7.2% of Russian consumption in the medium term and as high as 23.6% in the long run. Out of these gains, only 1.3 percentage points were attributed to tariff reforms and 5.2 percentage points from FDI liberalisation. The impact of application of WTO guidelines to the Russian trade scenarios has been divided into four sections: (i) improved access to international markets for Russian exporters due to lower trade barriers, (ii) tariff reductions in imports will improve total factor productivity, (iii) removal of barriers will improve services through the entry of multinational service providers and (iv) increased investment due to higher rate of return to capital.

Thus the results established in this paper are consistent with the economic geography literature and earlier economics literatures as pointed out by the authors through their review of literature. The limitation of this paper is that it only deals with two aspects of the WTO accession, i.e., the tariff reforms and FDI liberalisation. The other aspects have not been discussed at length. However apart from that limitation, it gives a fairly clear and well-rounded sector wise comparison between pre and post Russian accession to WTO.

I. A Comparative Analysis of CIS Countries WTO Accession; Ways to European Integration

Vugar Bayramov

The author of this paper has undertaken a wholesome study of the effects of WTO accession on Commonwealth of Independent States (CIS) countries with special reference to Azerbaijan. He has divided their study into four parts where they observe the effects of WTO accession on specific sectors in CIS countries, general pros and cons, implications on Azerbaijan and policy recommendations which will enhance the positive impacts.

The main points brought out through this study are: WTO membership increases predictability and openness in international markets due to fixed tariffs, transparency is enhanced reducing corruption and finally technology transfers will be encouraged. WTO membership is especially important for a country like Azerbaijan due to its small domestic market thus requiring greater access to foreign markets. The author

strongly suggests that Azerbaijan join the WTO despite its various preference trade agreements with other CIS countries.

Both the positive and negative impacts of Azerbaijans accession to the WTO have been examined by the author. Whereas it would bring a whole new foreign market and more foreign investment into the country, the domestic producers might not have the capacity to face the stiff competition posed by foreign players. Negative impacts will be most evident on agriculture farmers, small producers and the service sector. However the paper concludes that the advantages outweigh the disadvantages of joining the WTO.

The author offers special recommendations to support the primary agricultural sector within the country since it might not be able to catch up to international standards as fast as other sectors. Thus, specific protection measures are recommended for this sector. This paper is a good example of the impact of WTO accession on small developing countries but fails to base its results on a theoretical model with empirical data.

J. An Analysis of the EU Positions in WTO: Impact on EU and New Zealand

C. Saunders and J.D. Santiago

WTO accession impacts the sensitive primary sector of a country substantially. In this paper, the authors examine the effects of WTO on the trade ties between EU

and Australia-New Zealand with specific reference to the agricultural and animal husbandry sectors. The agricultural aspects concern mainly three factors: market access, domestic supports and export subsidies. The case of the Doha negotiations as taken up by the authors brought out the main problem to be the market access component with liberal countries asking developed countries with strict policies for greater market access. The paper analyses the impact of this greater market access on New Zealand and Australia.

The aspect of animal husbandry has been analysed with the help of the Lincoln Trade and Environment Model (LTEM). Since the EU is the second largest consumer of Australian exports, this paper examines the impact of lowering agricultural import tariffs in the EU in two forms. The economic modelling in this paper considered (i) a linear tariff cut of 39% and (ii) a tiered formula with cuts ranging from 60% to 35%. The tiered formula will bring about positive gains to NZ and Australian exports. Another scenario considered was that where a complete removal of tariffs was examined. Although highly unlikely, this scenario showed that results doubled in comparison to the previous cases.

Thus this paper displays how different types of tariff cuts bring about greater market access in strategic sectors and protect certain others. The one limitation of this paper is that it examines effects only on the primary sector and not on various others like the services or manufacturing sectors.

K. CAP Reform and the WTO: Potential Impacts on EU Agriculture

Julian Binfield, Trevor Donnellan, Kevin Hanrahan, Chad Hart and Patrick Westhoff

In this paper, an analysis of the Common Agricultural Policy (CAP) under the WTO is presented. This study forms the basis for the analysis of the implications of the WTO and CAP reform for the agricultural sector in the EU. It specially focuses on the two aspects that WTO trade reforms aim to tackle market access and trade subsidies.

The WTO classifies subsidies into two categories the amber box subsidies which have a trade-distorting effect and the blue/green box subsidies which do not have a trade distorting effect. Thus WTO directives instruct countries to reduce their amber and blue box expenditure limits in order to promote free unaffected trade. As a result developed countries try to shift their subsidy expenditures from the amber and blue boxes to the green box category. This paper shows how the single factor payment (SFP) system under the CAP reform allows the EU to consider that expenditures under that measure would fall into green box. The author identifies that the use of export subsidies by the EU to dispose of surplus production is the bone of contention in the WTO negotiations.

This is the loophole in the WTO Agreement on Agriculture treaty. The authors also establish that the reforms are less likely to have an impact on export subsidy levels or market access. As explained above, export subsidies can be clubbed into a different, more acceptable category so do not have the intended effects on trade. Further, the authors explore the EU-US joint initiatives proposal for blended set of

rules for tariff reductions but the text does not go so far as to draw detailed conclusions on the level of market access.

L. WTO Impacts on US Rice Producing Households

Roman Keeney and Jayson Beckman

This paper aims to study distributional impacts of proposed agricultural reforms under the WTO on the welfare of US farm households. The authors have specifically focussed on rice producing households in the US. The reason for choosing rice as the main commodity is that rice constitutes a staple diet in developing countries and enjoys heavy protection and support in developed nations. A modified version of the standard GTAP (Global Trade Analysis Project) CGE has been used in order to focus on the agricultural features. Assumptions of constant returns to scale and perfect competition are retained.

The authors stress on the fact that WTO distributional impacts on far household incomes in poor countries are wrongly given more importance than to those in wealthy countries. The results obtained from the study state that the WTO agricultural reforms push for more market access from other countries benefitting the rice producers in the US and this effect outweighs the income loss sustained from subsidy removal. This also explains why the US would like to control the subsidy cuts to their domestic programs. The losses sustained from complete removal of subsidy would not be recoverable from fully opening export markets as per the findings of the micro-simulation conducted.

The significance of conducting this study in a developed country scenario lies in the fact that farming households in these countries have the ability to organise with producers with similar interests and influence the policy process. This could significantly impact the implementation of trade reforms in these countries.

The limitation of this paper lies in the fact that it focuses on rice producing households which are the most heavily protected (in terms of subsidies given) and hence display extreme distributional impacts. Also, the base year taken for this study is 2001 which stands out as the year with the highest output subsidies for rice in the US. This has a magnifying effect on the quantitative results.

M. Barriers to Agricultural Exports from Developing Countries: The Role of Sanitary and Phytosanitary Requirements
Spencer Henson and Rupert Loader

The sanitary and phytosanitary measures under the SPS agreement of WTO constitute an essential factor affecting trade of agricultural exports between nations. The technical and social impacts of this agreement pose indirect trade barriers to many developing countries. This paper seeks to highlight the issues faced by both developed and developing countries due to the SPS requirements as stated by the WTO.

Through extensive surveys conducted in countries with varying income groups, the authors have identified that the implementation of SPS measures in large developing countries like India and Brazil, is due to the fact that staff lacks technical expertise in SPS issues limiting their participation in the Agreement. Other administrative issues related to this include non-attendance at international meetings, absence of single reporting point and enquiry point for amended SPS regulations/standards. The authors also establish that developing countries are in general less able to exploit the procedures of the SPS Agreement to their advantage as compared to the developed countries.

However the main issue which presented itself through the survey conducted by the authors was that developed countries take insufficient account of the needs of developing countries while setting SPS requirements. Even the WTO website recognises that developed countries sometimes use SPS requirements to protect domestic produce and encourage exports while presenting a trade barrier to imports from developing countries which might not be able to comply with the harsh SPS standards. The length of time allotted between notification and implementation of SPS requirements, as well as the technical assistance offered to developing countries were identified as additional problem areas.

The authors have provided a three-fold solution to the above mentioned issues: WTO should ensure more effective participation by developing countries, developed countries should be more considerate to the needs and abilities of developing nations and finally, developing countries should implement institutional structures

and procedures that help them integrate better into the WTO SPS Agreement system.

N. Distributional Effects of WTO Agricultural Reforms in Rich and Poor Countries

Thomas Hertel, Roman Keeney, Maros Ivanic and Alan Winters

The authors of this paper aim to highlight the comparative distributional effect of trade reforms, particularly agricultural trade reforms, on rich and poor countries. They seek to dispel the belief that trade reforms have a positive impact on poor farmers and not so significant an impact on rich farmers. They have considered the US as the rich country and fifteen other developing countries. The methodology used for analysis is a modified version of the GTAP CGE model of the global economy. These modifications are made to enhance the analysis of agricultural reforms and simulation of distributional impacts.

The use of household survey data shows the impact of trade reforms by wealth decile (level of income) and commodity specialisation. The authors found that in the medium run, wealthy farmers are the main beneficiaries of protectionist trade policies. These benefits are mainly concentrated in a few products that receive very high levels of support. In the US, these products are found to be rice, cotton, sugar and dairy.

In the poor countries, it was found that rich country agriculture reforms benefit lowincome farm households due to increased market access. The impact on non-farm population is mixed however, as those dependent on remittances from abroad would stand to lose while unskilled labour is benefitted due to increased demand. The impact on poverty depends on the proportion of these groups in the population.

The authors conclude with the statement that global trade liberalisation is the most favourable path as it helps tackle poverty across the developing nations.

O. Do WTO members Have More Liberal Trade Policy?

Andrew K. Rose

The author is of the strong opinion that WTO membership does not significantly affect the trade policies of any country. He has used two methods of comparative analysis to prove his hypothesis (i) comparison between trade policies of WTO member and non-members (ii) comparison of trade policies for countries before and after WTO accession. The author has considered 60 quantitative measures of trade policy to reach the conclusion that membership in the WTO is not significantly correlated with liberalisation in trade policies.

The measures of trade policy have been divided into seven groups: openness, trade flows, tariffs, non-tariff barriers, informal/qualitative measures, composite indices and measures based on price outcomes. The author has employed regression analysis

using OLS estimates and determined that there is no obvious connection between WTO membership and trade policy. Results are perversely signed at certain points as well, i.e., members are less open than non-members, with higher tariffs.

The second aspect of the study further confirms a loose relationship between WTO membership and trade policy on considering data from 1950 to 1998 of pre and post accession of countries to WTO. Liberalisation either occurs before accession or after it with no clear link to the accession process itself. The findings indicate that a typical accession country has an openness ratio of 73.1% five years before joining and a ratio of only 70.4% five years after accession. Similarly tariffs rise from 12.5% to 13.1% on imports.

The reason for this as identified by the author is that countries were largely allowed to follow their own trade policies even after joining the GATT/WTO which may not necessarily adhere to the spirit of the agreement. Also members were permitted to extend MFN status to non-members giving no real weight to the actual members of the organisation. The only opposition to the authors findings is provided by the Heritage Foundations index which states that members of the system enjoy more economic freedom.

As is evident from the reviewed papers, there seem to be contrasting views on the effects of WTO accession on countries. Some studies show positive effects while other display negative results as a consequence of this action. We have discovered

that there is no compact comparative study between the effects of WTO accession on developed and developing countries. The methods of evaluating data in the reviewed papers are mostly centred on the GTAP standard computable general equilibrium (CGE). This also generates the requirement to use an alternate methodology to analyse the comparative effects of joining the WTO and implementing its policies. Further it would be useful to have a clear and concise pre and post WTO accession analysis for developed and developing countries. A precise evaluation of its effects on income, GDP, employment and inequality in these nations would also be beneficial.

DATA AND ECONOMETRIC ANALYSIS

The analysis covers the data for the period 1985-2006, i.e. eleven years before and eleven years after the WTO that has been taken from World Bank, IMF and WTO websites. We have taken 1995 as the segregating point of the WTO, as in this year the implementation of the WTO was started. The model specifications are given as: TRG = 0 + 1IND + 2AGR + 3SERV + 4WIN + 5GDP where TRG = Trade volume (exports + imports) as percentage of GDP IND = Value added by industry in GDP in percentage. AGR = Value added by agriculture in GDP in percentage. SERV = Value added by service sector in GDP in percentage. WIN = World Income (US $ Billions). GDP = Gross Domestic Product of countries (US $ Million).

NOTE: This is a general model for each country, i.e. the same model will be applied for all countries to the relevant data-sets of Developed and Developing economies before and after the WTO. The econometric estimates have been obtained through Ordinary Least Square estimates model, where trade bulk is a function of economic variables like the ratio of agriculture, service and industrial sector in GDP, global GDP etc. The agricultural and industrial sectors are the major contributors of trade bulk for South Asian countries as agriculture mainly contributes to exports and industry in the form of

import of raw material mainly contribute to imports. Thus we have included these variables in our model along with GDP of the nations and global GDP. We have regressed the trade bulk of each country with these variables for the periods before and after the WTO to see the difference in impact of these variables on trade bulk.

VALUES FOR DEVELOPING COUNTRIES

Before WTO Country India China* Brazil Russia Thailand Industry 0.6255 -0.17 0.03966 -2.198 -4.41 Agriculture -9.255 2.2499 0.501 2.55 0.038 Services 0.047 1.18 -0.109 5.97 9.29 World Income 0.0055 -0.00156 0.0091 0.08738 -0.00462 GDP 0.0044 -0.000825 -0.00142 -0.02432 0.00939

*China joined WTO in 2001 (all others joined WTO in 1995) After WTO Country India China* Brazil Russia Thailand Industry 6.890 1.488 1.171 3.87 5.363 Agriculture 0.2328 0.538 -6.54 -3.88 -1.157 Services 1.149 0.755 -3.14 0.5147 21.455 World Income 0.00394 -0.103 -0.0083 -0.05289 -0.0681 GDP 0.000269 0.0037 0.00187 0.0064 0.0175

*China joined WTO in 2001 (all others joined WTO in 1995)

For India only two explanatory variables, i.e. ratio of industrial and service sector in GDP have statistically significant values for the data set before the WTO. For the data-set after the WTO, the explanatory variables which have significant values are the ratio of industrial sector, ratio of service sector in GDP and ratio of agriculture sector in GDP. The role of industrial sector has been increased after the WTO. It is important to note that agriculture sector is negatively affecting the international trade of India. India registered a sharp growth in merchandise and service sector of 10.3% and 9.7% respectively after joining WTO.

China joined WTO in 2001. For china increase in volume of trade can be explained by increase in industry variable and world income after joining WTO. The accession of china to WTO has led to an expansion of the labour-intensive sectors and increased its net imports in agriculture and capital-intensive products. As China is worlds largest economy, its WTO joining has a complementary effect on other developing countries whose capital products are imported by China for use in production of Chinese finished goods.

Rise in trade volume of Brazil can be explained by industry variable and increase in global GDP after joining WTO. Brazil has experienced a strong growth of 7.5% in its industrial sector. It has emerged as a major economy in Latin American countries.

For Russia increase in trade volume can be accounted by mainly two factors change in industry variable and change in GDP of all the countries. After joining WTO, both industry trade and GDP of all the countries have increased.

Thailands increase in trade volume can be explained by three variables industry, services and GDP of all countries. The development of merchandise industry in Thailand was built on foreign capital, foreign technology and foreign product designs; final products, moreover, relied significantly on foreign markets.

We can say that developing countries have experienced the following benefits by joining WTO (i) Improved access to international markets for exporters due to lower trade barriers, (ii) (iii) (iv) Tariff reductions in imports will improve total factor productivity, Improved services through the entry of multinational service providers Increased investment due to higher rate of return to capital.

 VALUES FOR DEVELOPED COUNTRIES

Before WTO Country Industry Agriculture Services World Income Australia Germany UK USA Japan -7.74 -2.544 9.73 3.595 4.03 -8.87 -3.88 -2.04 -4.023 -9.04 -5.10 -4.008 15.21 3.102 1.75 -0.043 0.00468 -0.0188 0.00045 -0.00018 0.0056 -2.03e-05 0.003855 0.000142 0.00093 GDP

After WTO Country Industry Agriculture Service World Income Australia Germany UK USA Japan -1.66057 -6.47 -7.87 4.41 17.96 0.5652 2.57 -5.272 -2.999 -11.86 0.887 -8.83 -5.86 3.55 16.65 0.00414 -0.00581 0.01011 0.0047222 -0.00222 -0.0008 0.00285 -0.00128 -0.000401 0.00005 GDP

In case of Australia, the impact of agriculture sector and service sector has become positive. They serve as major variables that are responsible for increase in volume of trade. For Germany and UK there is no variable that accounts for increases in trade after joining WTO. However there is an increase in employment in these countries but the volume of trade has remained the same.

For USA only two explanatory variables, i.e. ratio of industrial and service sector in GDP have statistically significant values for the data set before the WTO and after WTO. The contribution of industrial sector in trade has increased after WTO while the contribution of service sector in trade remained the same.

For Japan, the ratio of industrial and service sector in GDP has positive value. There has been a considerable growth of these sectors after Japan joined WTO. Japans automobile industry emerged as the biggest beneficiary as joining WTO opened the market in developing countries.

So we can say that developed countries also gained from joining WTO as it provided entry of high-technology products into emerging markets of developed countries but their agricultural products have to suffer due to price disadvantage in comparison with developing countries. So government had to provide subsidies to make them more competitive.

UNEMPLOYMENT RATE

While looking at it from a short-term point of view, the entry into the WTO will exert an impact on the traditional trades in developing countries by breaking up the original employment pattern thus increasing unemployment rate.

If judging the problem from a long-term point of view, the entry of the WTO will exert a positive influence on the increase of job opportunities due to the growth of trade and the adjustment and update of industry structure. The labour-intensive, tertiary industries and small enterprises will get further developed, thereby increasing elasticity for employment.

14 12 10 brazil 8 6 4 2 0 year 19911992199319941995 199619971998199920002001200220032004 india china russia thailand

THE DARK SIDE OF WTO

Establishment of the WTO was controversial all over the world as it placed the importance of international commerce and industry interests before all other values, including consumer safeguards, environmental and labour protections, food safety, and human rights.

In 1993 US government regulated Environmental Protection Agency (EPA) rule on gasoline contaminants that cause health-threatening air emissions. Venezuelan government approached WTO with a claim that the U.S. foreign standard pertaining to so-called reformulated gasoline put Venezuelan domestic refiners at an unfair disadvantage by requiring that their product meet the average cleanliness of U.S. domestically refined reformulated gasoline. The WTO's very first ruling in early 1996 ordered the U.S. to eliminate its Clean Air Act regulation on gasoline cleanliness.

The second case came when the WTO ruled against U.S. Endangered Species Act rules that protected sea turtles from getting killed in shrimpers nets. In this situation the U.S. complied with the WTO, and replaced the requirement that all countries seeking to sell shrimp in the U.S. had to ensure that their shrimpers used turtle-safe devices.

Another area, amongst many, that is a cause for tension, is the TRIPS agreement that defines how products can be protected from piracy. This agreement increased corporate control that harmed millions of lives in underdeveloped countries. A major criticism then has been that in its current form, intellectual property rights regimes

like TRIPS serve to stifle competition and protect ones investments and profits from it in that way. For poor nations it makes developing their own industries independently more costly, if at all possible.

Liberalization often enables the knowledge of the poor to be converted into the property of global corporations. Resentment occurs when the poor are then made to pay for seeds and medicines that they themselves have evolved or created the basis for, without receiving royalties for the part they played in development.

Out of 26,088 applications for patents in Africa in 2000 and 2001, only 31 were from residents of Africa.

70 patents have been granted to FW companies on the products of the Neem tree of India, which has always been used locally for treatment of fever, snake bites, leprosy and as a natural insecticide and disinfectant.

In 1998, a US company (Rice Tec) was awarded a patent on the basmati variety of rice, grown only in India and Pakistan.

Countries such as, India, Argentina, The Dominican Republic, Brazil, Vietnam and Thailand, have all been threatened under the Special 301 provisions of US trade law. By contrast the US seems prepared to override patents at home in the case of patented antibiotics to treat anthrax.

INCOME INEQUALITY

GINI Coefficient for Developed Countries Country Japan Australia UK USA Germany Before WTO 24.9 35.2 32.5 41.4 28.2 After WTO 38.1 30.5 34 45 27.1

The above data shows that there has been an increase in inequality for countries after joining WTO. This can be explained by Stopler-Samuelson theorem. According to this theorem inequality is most likely to increase in developed countries as a consequence of trade with developing countries, because the former are relatively well-endowed with skilled labor. Only Australia shows a decrease in inequality after joining WTO. Along the same lines, we would expect to see declining inequalities in developing countries.

GINI Coefficient for Developing Countries Country India China Thailand Russia Brazil Before WTO 30.8 40 47.9 39.9 57.4 After WTO 36.8 47 42 42.3 58.6

But the data shows that there has been an increase in inequality for countries after joining WTO. This can be explained with the help of technological change. In this case technological catch-up causes production of the least skill-intensive developed country goods to migrate to developing countries where they become the most skillintensive goods. Thus, the demand for skills and hence wage inequality rises in both the regions. The changes in sector of industry from agriculture to non-agricultural play a very effective role in determining the income distribution in developing countries.

CONCLUSION

The new WTO continues the principles of the GATT and expands them to cover not only trade in goods, but also services, trade-related investment, and aspects of intellectual property. It provides an effective forum in which members can negotiate mutually beneficial liberalization and resolve any subsequent disputes. The main principles of the WTO boil down to the following: Non-discrimination, Reciprocity, Transparency, Special and Differential Treatment

REALITY DIFFERENT FROM THE PRINCIPLES

The WTO is an unfair system with flawed views and actions. Yet in this era of globalization it is a necessary organization. What must happen is a change in the way agreements are made, and there must be less attention to corporate agendas, and more attention to national and local interest. Regardless of their intentions, the WTO is harming millions across the globe. Until something changes, the gap between rich and poor will likely continue to grow, and the progress of poorer nations will be significantly slowed. Power politics has meant that the WTO has received criticized by various groups and third world countries for numerous things, including: Being very opaque and not allowing enough public participation. Some national laws and decisions for safety and protection of peoples health, environment and national economies have been deemed as barriers to free trade. In terms of the environment the WTO has stood in the way of many environmental protections throughout the world. In the United States there

have been two heavily scrutinized cases pertaining to environmental protection Instead of respecting the reasons why there has been special and differential treatment for developing countries, rich countries instead want to push poor countries to reciprocate equally, in what would therefore actually be an unequal result (as it would maintain the unequal terms of trade.) Poor countries can also be threatened with losing foreign aid, debt relief, or trade opportunities if they do not sign to certain agreements. Citizen input is consistently ignored, whereas corporate input often becomes law. The WTO and its defenders argue that it is democratic because all countries officially have one vote and decisions are usually made by what they call "consensus." In practice, however, votes are almost never taken. Smaller and poorer countries cannot afford to maintain the representatives and trade lawyers necessary to make their voices heard on policy issues at the WTO headquarters in Geneva. WTO dispute-resolution processes, too, are slanted against such countries, which don't have the resources to defend themselves against complaints by rich countries. Often just the threat of a complaint forces them to settle a dispute in favour of transnational enterprises and against the interests of the majority of their citizens. TRIPS aims to prevent imitation of products (which is ironic, given that this would allow further competition and better prices for drugs and other products, which is something that transnational corporations have often sung as being the benefits of free trade and corporate-led capitalism with minimal restrictions) .TRIPS, WTO and general international trade related agreements

do not take public health needs into account. Instead, commercial interests are promoted. The Multilateral Agreement on Investment (MAI) was one such example of a trade and investment related treaty which would emphasize the ability for corporations to be allowed more freedom and less constraints. Transnational corporations (TNCs) are able to exert enormous influence in no less a powerful body as the World Trade Organization (WTO). These TNCs are closely linked to the WTO decision-makers themselves.

The notion of the World Trade Organization seems optimistic. They promote free trade, and according to their own studies help alleviate poverty around the globe. Unfortunately there is a strong force of people that oppose the WTO for a number of justified reasons. Overall we believe that the organization is necessary, but that some of their practices must change. Too often human rights, labour rights, environmental protection, and national sovereignty give way to corporate ambition.

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