WTO – a Paper Tiger? Part I

WTO 1

At the ministerial meeting of the WTO in Hong Kong in December 2005, it was decided that the small island state of Tonga can be admitted as member number 150. The growth in WTO membership seems to have no end. And still some thirty countries are on the waiting list, with Russia, Ukraine and Vietnam among important non-members. It has long been clear that the growth in membership numbers has made the WTO “another animal”. A large majority of the member countries are developing countries. This has to a large extent affected the ongoing round of negotiations in the WTO – also referred to as the “development round” – it should first and foremost benefit developing countries – or the Doha Round. According to Besteducationschools, WTO stands for World Trade Organization.

  • How is membership development in the WTO?
  • How has the GATT / WTO changed character from 1950 until today?
  • Has the WTO become a “paper tiger”?

The protests against the WTO sometimes give the impression that the WTO is developing rapidly and radically. The fact is that the organization often moves quite slowly forward.

  • It took fifty years to reduce the industrialized countries’ tariffs on industrial goods from forty to three percent.
  • The WTO Service Agreement (GATS) has mostly led countries to put on paper what was already being practiced, rather than to lead to more open trade.
  • The liberalization of trade in agricultural goods, which was adopted in the previous round of negotiations (Uruguay Round, 1986–94), has had small practical effects, partly as a result of the footnotes in the agricultural agreement.

Will the Doha Round lead to radically new rules for trade? Or has the WTO become a paper tiger with a lot of talk and little wool? According to some of the participants, the WTO ministerial meeting in Hong Kong led to “from 55 to 60 percent agreement”. But things are slowing down, and the parties are long over in overtime. Does the growth in membership numbers mean that the negotiations in the WTO become unmanageable and that the time for major trade reforms is over?

2: Airy tariffs

One of the main themes in the development round is customs for industrial goods . These negotiations include fish, and Norway wants liberalization so that exports of Norwegian fish products have better market access. Norway’s own tariffs on imports of industrial goods have been sharply reduced in recent years and are approaching zero. The reduced tariffs have been of great benefit to developing countries, which previously had a major tariff disadvantage compared with Norway’s free trade partners in Western Europe (cf. the EEA agreement).

In the WTO negotiations, proposals for radical cuts in tariffs abound. Among other things, it has been proposed that tariffs be sharply reduced in sectors of particular interest to developing countries, such as textiles and clothing. The paradox is that it is developing countries that are the brake pad here. They fear increased competition from other developing countries, cf. China. Developing countries that export clothing fear that liberalization benefits China’s exports more than their own.

Even if the WTO member countries were to agree to reduce tariffs significantly, it is not certain that the practical effect will be so strong. The reason is that the WTO countries negotiate the so-called “bound” tariffs, which are only upper limits for customs. For the duty that applies in practice – the so-called “applied” duty – can be far lower. The graph on page 3 shows the difference between bound and applied customs duties for industrial goods for 137 WTO countries (the 25 EU countries are counted as one in the figure). The countries are ranked by income level: the richer the country, the further to the right in the figure.

The bright, low columns in the foreground show that few countries have applied tariffs of more than 20 percent. The dark bars in the background show that the fixed rates that the parties negotiate in the WTO are often much higher. The big difference is referred to as “air in the tariff rates” and shows that the WTO countries largely negotiate air. An example: If the WTO countries were to adopt a 40% reduction in bound tariffs on fish worldwide, the reduction would in practice be only 9%.

This gap between theory and practice – between words and deeds – also leads to injustice: what for one country is a matter of air, for another can mean strong liberalization and adjustment. Some poor countries have gone a long way towards liberalization, and it may seem unreasonable that they should be faced with the same demands as those who have guarded themselves with air in buckets and buckets – that is, with high “tied” rates. Could it be that some countries set an artificially high tariff to have a lot to go on in negotiations?

WTO 1