The merits and flaws of the World Trade Organization

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Russia is likely to join the World Trade Organization (WTO) this week — or even on the day of this column’s publication — after nearly 18 years of talks. Though perhaps the nation would have joined sooner if not for their brief 2008 war with Georgia (as a WTO member, Georgia has a right to veto any new ascension to the organization, as all WTO decisions are made by consensus). This development is significant for the world economy. Though Russia is no longer the superpower of the Cold War era, its economy still comprises over two percent of the global total.

Russia joined the World Trade Organization in December 2011, making it the last APEC member to. (Courtesy of http://indrus.in/articles/2011/12/19/russias_wto_entry_and_apec_presidency_14028.html)

However, though Russia will be the largest economy to join the WTO since China joined in 2001, is the WTO still a relevant institution? In a world of seemingly never-ending smaller trade agreements, I would argue that it has largely been both ignored by the creation of trade barriers and integrated into norms of international trade. This ascension will have huge implications for Russia and its trading partners — especially since tariff reductions could help the Russian economy grow by as much as eleven percent, according to World Bank estimates.

Following World War II, the WTO was created in 1947 as the General Agreement on Tariffs and Trade (GATT) in order to avoid the unhealthy protectionism that followed the first World War. In 1995 the GATT became the WTO and expanded its members. At the same time, the European Union was created — a development that was almost antithetical to theWTO’s purpose of lowering barriers to international trade. The preponderances of regional trade agreements (RTAs), which create smaller free trade areas such as the EEC/EU and bilateral trade agreements, such as the recent agreements between the USA and South Korea and between the U.S. and Panama, suggest that the aims of the WTO are certainly not being considered.

Bilateral trade agreements provide preferential treatment to the two countries involved, directly contradicting the concept of giving all WTOmember states “most favored nation” status.

Additionally, non-tariff implicit barriers to trade persist, such as in the absurd agricultural subsidies of the U.S. and EU. So the primary purpose of the WTO is to promote free trade, but clearly this is not achieved. Nonetheless, the WTO retains some teeth in its ability to sanction members, though this system is deeply flawed in its inability to correct for inequitable distribution of resources among members. (South American countries filing a suit against the EU’s agricultural policies only won because the U.S. put its weight and resources behind the case.) Perhaps this failure of effectiveness and legitimacy is for the best, though. A discussion of the merits and flaws of free trade, which could fill several tomes, is necessary. As any good Intro to Econ student knows, trade promotes competitive advantage, which allows for more efficient allocation of resources. In a perfect environment, free trade ensures that each country would produce what they produce best. Very few economists would argue for protectionism (in the form of overt tariffs), which has repeatedly led (with the exception of pre-1854 Japan) to stunted growth and recession.

However, the case for a lack of trade barriers is not settled. In recent years, scholars of globalization have come to differing conclusions about the continued lowering of trade barriers. Dani Rodrik insists that openness and its unclear link to growth do not provide an adequate substitute for measures directly promoting development. Martin Wolf and Tom Friedman are more staunch believers in free trade, but even they caution against complete removal of trade barriers. This indicates that a completely enthusiastic approach to free trade is not tenable among academic heavyweights of any ilk.

Removing competition-impeding barriers to Russian trade is not objectionable in and of itself. There is no reason Russia should continue to languish not a “most favored nation” in its trade (a status which would be granted with WTO membership), and its growth should positively impact other countries. However, in this slow global economy, any discussion of raising barriers to trade seems out of place and inadvisable.

Accordingly, Russia’s ascension should be cause for renewed discussion ofWTO reforms and the integration of RTAs into WTO policy. It may even be cause for an expansion of the scope of policy covered by the WTO to include more environmental issues and to work towards eliminating unfair barriers to trade such as the subsidies given to agriculture in rich countries. These changes — including Russia and broadening the range of policy areas — would increase the WTO’s legitimacy, which would in turn increase theWTO’s ability to enact greater changes.

Olivia is a junior. She can be reached at onatan1@swarthmore.edu.

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