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Economics: World Trade Organization - Conspiracy?

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  • Type: Video Tutorial
  • Length: 16:16
  • Media: Video/mp4
  • Use: Watch Online & Download
  • Access Period: Unrestricted
  • Download: MP4 (iPod compatible)
  • Size: 173 MB
  • Posted: 03/29/2010

This lesson is part of the following series:

Economics: Full Course (269 lessons, $198.00)
Economics: International Focus (25 lessons, $43.56)
Economics: Government Policies (5 lessons, $8.91)

This video lesson on economics asks: Is the World Trade Organization a Conspiracy? Taught by Professor Tomlinson, this lesson was selected from a broader, comprehensive course, Economics. This course and others are available from Thinkwell, Inc. The full course can be found at http://www.thinkwell.com/student/product/economics. The full course covers economic thinking, markets, consumer choice, household behavior, production, costs, perfect competition, market models, resource markets, market failures, market outcomes, macroeconomics, macroeconomic measurements, economic fluctuations, unemployment, inflation, the aggregate expenditures model, banking, spending, saving, investing, aggregate demand and aggregate supply model, monetary policy, fiscal policy, productivity and growth, and international examples.

Steven Tomlinson teaches economics at the Acton School of Business in Austin, Texas. He graduated with highest honors from the University of Oklahoma and earned a Ph.D. in economics at Stanford University. Prof. Tomlinson's academic awards include the prestigious Texas Excellence Teaching Award given by the University of Texas Alumni Association and being named "Outstanding Core Faculty in the MBA Program" several times. He has developed several instructional guides and computerized educational programs for economics.

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Thinkwell
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Demonstrators in Seattle say that the World Trade Organization is a conspiracy that undermines the power of laborers to demand fair wages and good conditions and it threatens the environment. Demonstrators in Washington, D.C. say that there is a global conspiracy on the part of corporations to co-op the international monetary fund and the World Bank and the World Trade Organization to become their own puppets, and therefore to hurt workers and the environment in their pursuit of profits. Is it true? Is the World Trade Organization a conspiracy, and how would you evaluate this claim?
Well, let's first talk about international trade, which in some measure is inherently confrontational. That is, when a country lowers its tariffs and dismantles its quota and allows free trade in goods and services, customers in that country always benefit from access to imports because the imports themselves and the competition on domestic industries lowers prices. In the United States when we someday get rid of our quotas on sugar imports and textile imports, all of us customers will be able to sugar and clothing at lower prices. On the other hand, the producers who compete with imports love the tariff and quota protection because it allows them to charge higher prices and make higher profits. And if you work for a factory that produces clothing and you've learned how to operate those machines and you've got your own human capital invested in that particular business, then you're happy for the tariffs and quotas that keep you from losing your job.
So as consumers, we like free trade; as producers we typically don't. There's this inherent conflict within a society about trade liberalization. On the whole, however, trade liberalization increases the market, allows more specialization according to comparative advantage, and overall increases the size of the pie. The world economy has grown so rapidly since World War II largely due to its integration, the dismantling of tariff and quota barriers, free trade, and lowering in the cost of communication and transportation, which have made trade easier to do. Trade has increased the wealth of the world and has allowed a lot of countries to rise out of poverty, notably Japan, Korea, we could go on and on. However, the period of transition from being a closed economy with tariffs and quotas to being an open economy that has free flow of goods and services and competition, that can be a troublesome period for an economy and socially disruptive.
So, what does the World Trade Organization have to do with any of this? The World Trade Organization was formed in January of 1995 as a successor to the general agreement on trade and tariffs. The general agreement on trade and tariffs, also called the GAT, was a regular meeting of the countries of the world that saw that by cooperating and negotiating together, they could get everyone to lower their tariffs and quotas at once. That is, "I'll lower mine if you'll lower yours," and therefore each country suffered a little bit but not as much as if they'd tried to do this unilaterally. There was cooperation to dismantle trade barriers. However, it was a regular meeting of countries without anybody to, on a regular basis, implement and enforce its agreements. It would be kind of as if Congress got together and made laws but there was no Executive Branch - no president, no army, no police force - to actually enforce the rules. So the World Trade Organization as the successor to the GAT is actually the first step towards the creation of some kind of international authority that can actually punish offenders and make sure that the agreements are implemented.
So, of course, anytime you put a face on something, you now have someone to point at and blame for things. So when the World Trade Organization is created, it automatically is going to draw fire because now there is someone to blame for globalization and the adjustment costs associated with international trade.
Well, what exactly is the World Trade Organization doing? The World Trade Organization has four sets of rules that it enforces of all of its members. If you're a country and you belong to the World Trade Organization, then you are expected to first of all accord national treatment to imported goods. That is, regulate goods that are imported into your country the same way that you regulate domestically produced goods so that you don't show favoritism. The second thing that you're expected to do is to accord most-favored-nation status to all of the other members of the World Trade Organization. That is, you charge them the same tariffs on imported goods that you charge everyone else. So within the World Trade Organization, you can't pick one country and give them favored access to your economy and another not. The third thing that you have to do as a member of the World Trade Organization is you have to eliminate quotas and other non-tariff barriers. That is, any barriers that don't operate as taxes on imports - that's what a tariff is, a tax on imports - but rather some other kind of restriction on trade, those have to be dismantled because trade barriers have to be rendered transparent - easy to see, easy to understand, and by the same logic easy, then, to negotiate downwards over time. The fourth thing that you have to do as a member of the World Trade Organization is agree that your governments will not restrict their purchases to domestically produced goods. That is, the government of California, for instance, can't pass a rule saying that it's only going to buy goods produced in California, but rather that it's going to look for the best-produced or the lowest prices from all competitors, foreign as well as domestic. So when California's congress proposed a California-only purchase restriction a few years ago, the governor of California vetoed it as being inconsistent with the principles of the World Trade Organization, of which the United States and California are members. So those are the rules of the WTO. You can't have protection on goods and services that are not in the form of tariffs and that are applied unevenly from one country to another.
Now what all kinds of trade does the World Trade Organization seek to regulate? All trade in manufactured goods. They want to regulate trade in agricultural products, but that's more sensitive because there are some countries that subsidize their farms and don't want to stop, although other countries view these subsidies as unfair advantages for the farmers. Services - the World Trade Organization increasingly seeks to regulate services; that is, trade in financial services, banking, insurance, telecommunications, computer services, and so forth. Also intellectual property - the World Trade Organization want to seek to have its members observe the patent restrictions of other countries. Developing countries don't like this. They don't want to have to observe patent restrictions. Rich countries are already way down the road toward economic prosperity; they'd like to catch up by being able to quickly copy and imitate the best-practiced technologies without having to pay money that they don't have to get patent rights. So the enforcement of intellectual property rules is something that works to the advantage of rich countries and in some cases to the detriment of poor countries, although, of course, if those rights aren't enforced, then people will stop innovating and there won't be inventions for poor countries to copy. So it's controversial and it's complex. Also, rules about the regulation of food quality. The sanitary and FIDO sanitary standards - the SPS Agreement - covers food safety issues ranging from pesticide to hormone-treated beef and all of this kind of stuff, and these rules are designed so that a country can't say, "We're not going to import goods from your country because we don't think they're clean." As long as everyone agrees what the standards are, then those rules can be applied evenly across the board.
Now, what's the problem with the World Trade Organization? Why is it that protesters are out in the street calling it a demonic force? Well, first of all, there is concern that the World Trade Organization's rules prevent countries from being able to hold one another accountable for so-called fair-trade practices. In particular the concern is that some countries actually subsidize their domestic industries to make them more competitive internationally. That is, if the European farmers are subsidized by their governments, they're able to export their agricultural products at lower prices than, say, U.S. farmers or Canadian farmers can, and therefore their farmers have an unfair advantage in international competition. The World Trade Organization says then you can't block imports of European products because that would be discriminatory, and yet the U.S. and Canada might like to do that to punish those countries for their unfair subsidies of their farmers. So what happens then is countries lose the ability to punish other countries that are engaging in unfair trade practices. So whenever people in the United States claimed that Japanese semi-conductor factories were selling their products below cost, what they wanted to do then was to put a ban on the imports of Japanese semi-conductors into the United States, but the World Trade Organization would not permit that because that kind of ban would be counter to the kind of trade protection that it allows. Therefore, that kind of action would be rendered illegal. So if you're a member of the WTO, you no longer have the ability to use blocked trade as a tool to encourage another country to stop subsidizing or enabling its own industries to dump their products at low cost into your market and therefore create unfair competition for your domestic producers. So that's one controversy, that the WTO doesn't prohibit dumping. Now in principle, it should. It should go to countries and say, "Look, we agree that this isn't a good policy. This is damaging industries in other countries." But once again you see we're getting there at the tension between producers and consumers because as a consumer, I have nothing but thanks to any country that wants to subsidize its producers and let me get goods at lower prices. It's the domestic producers that have the problem with that because they're the ones who have to compete with dumped, cheap goods.
Another problem with the World Trade Organization is that it operates in secret. That is, the countries that send representatives to the WTO are scared to some extent that if they liberalize their trade and open their markets without tariffs and quotas, their domestic producers are going to rise up and vote the government out of office or in some other way make their lives hard. So if you were a politician whose government was being represented at the World Trade Organization, you'd like for these negotiations to be held behind closed doors so that your domestic producers didn't get wind of the fact that they may be about to lose their quota protection.
Well, this doesn't sit well with the protesters in Seattle and Washington who say, "We want to know what's being talked about in there. You know, it looks like a conspiracy. The doors are shut, we can't hear, there's not T.V. cameras in there. All of this is being done in secret. If you have nothing to hide, then let us come in and watch." So the secrecy and the lack of transparency of course engenders suspicion, and therefore the countries are under scrutiny and criticism.
On the other hand, the politicians argue, "If you make us talk about this in the open, then we don't have the political will to stand up to these powerful special interests in our countries, and we can't do what's good in the long run for the economy if we have to bear the short-run political cost." So there's another problem with the whole thing. Are we going to have transparency or are we not?
However, there's also a final concern, and this one is the most serious. That is, who's really to benefit from the operations of the World Trade Organization? Is the liberalization of trade in the long run going to be most beneficial to consumers or most beneficial to businesses? Right now, multi-national corporations and large businesses benefit from trade liberalization because they get to send their goods freely wherever people are willing to pay for them. Of course, the people who are paying lower prices in those countries get the benefit of good products at lower prices, too, but they're also other costs of trade. I mean, think about this: In our own country businesses pollute and damage the environment, and therefore we have a government that regulates pollutions. Businesses are inclined to try to organize in ways that get them labor at the lowest costs. They want to bust up unions, they want to hire workers and put them in dangerous conditions at low wages. I mean, that's how you make a big return on capital. And government regulation, in many cases, allows unions to organize and gets workers in situations where they can work in safe conditions at a reasonable wage. And we don't have that kind of government regulation on the international level. That is, the world economy is, to a large extent, still completely unregulated. Therefore, pollution can occur as a result of international trade. Labor exploitation can occur as a result of the profit opportunities created by the world economy, and people blame that on the World Trade Organization. If we're going to have more trade, we're going to have more activity that goes beyond the power of the existing governments, and that's going to create the Wild West again...it's going to create a jungle in which all kinds of abuses can occur.
However, an economist says, "Well, then, if what we need is some kind of governmental body, isn't the World Trade Organization trying to be that?" And maybe this is where the protesters are on to something. Maybe what the protesters are saying is that it's not so much that the World Trade Organization needs to be abolished or that globalization couldn't occur, but it's just that we need the kind of transparency and accountability that we all expect from a good government if we're going to have international trade - that is, an economy that is truly global in scope needs some kind of government regulation that's truly global in scope. There are all kinds of suspicions and prejudices about global government, too, so all of that gets triggered by this.
But the idea that the World Trade Organization is a conspiracy, it's kind of funny that the very people who are concerned often about protecting labor and protecting the environment are opposed to the first steps to create some kind of international authority that might actually do that very thing. And if you look at the records, corporations that operate in less-developed countries often have a much better record of protecting human rights in those countries and protecting the environment in those countries than do the governments of those countries themselves. So in some cases, one power - that is, a corporation - may actually be better than the existing power - the corrupt government - that's already there. It's complex, but the issue is what are we really concerned about? Are we concerned, then, about the rights of workers, the environment, and the prospects for citizens in countries that are poor to get access to food, clothing, and other goods at low prices? If we are, then we should be in favor of organizations that exert their power to protect those interests, and perhaps the World Trade Organization could be such an organization if it were properly accountable and if it were properly transparent and participatory.
I think this is what's happening right now is the World Trade Organization is undergoing an adolescence as the first step towards some kind of international regulatory authority. It's going to be subject to all kinds of questions and criticism and protest, and perhaps in the end the protesters voices will lead to the kind of accountability and participation that will make for an authority that can give us some kind of regulation to improve working conditions internationally, raise standards of living, and protect the environment. But it does require diligence, and it requires a willingness to participate, ask hard questions, expend ourselves, and to support the kinds of efforts that may be faltering and inadequate at first but eventually turn into something really worthwhile.
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