An Assessment Of The Impact Of WTO Rules On The Developing Countries Trade

Project and Seminar Material for Economics

Project and Seminar Material for Economics

Chapter One

1.0 Introduction

1.1 Background Of Study

Nigeria is one of the greatest countries in the whole of West Africa. It is known for her high level participation in the world trade relations. The country got registered with the world trade organization (WTO) in December 1994 and became a founding member in January, 1995. The purpose for such action was to accelerate growth and development of the economy of Nigeria.

Every organisation has a certain kind of rule governing them. WTO rules govern International trade relations between and among nations including Nigeria. WTO provide a certain kind of rule in form of document to promote the growth of commerce among nations.

The world trade organisation (WTO) rules does not only bind nations together but it also bind the federal government of Nigeria together with the government of other nations in business. In as much as the WTO rules provides room for the growth and development of commerce among countries, there must be some kind of trade issues facing different countries especially in the face of the growing globalization. Consequently, Adeleye (2002) observed that during the negotiation process there are some issues from the manufacturing sectors of Nigeria calling for futher negotiation with the world trade organisation.

The general view of many sectors and people on the rule of the world trade organisation is that their rules are favourable to only the rich countries; reason being that; most of the rich country are exporters of goods and raw materials for industries. It is believed that the rule of world trade organisation is to balance trade and standard of living of all nations registered under it but some of the developing countries suffer because the rule does not help to better their standard of living. There have being a critics on the world trade organisation concerning labour and enviroment. Their complaint was that the world trade organisation completely ignored the labour and environment. They call for a link between trade, labour and enviroment as they see such as a way to better the standard of living of most of the developing countries. The former director of Global Environment and Trade Study (GETS) said that lack of proper regulation of trade, labour and environment can actually cause more loss than gain and the gain from trade will be less than the environmental cost.

The World Trade Organisation emanated from negotiation, both its rules and other activities were as a result of negotiation. The major activity of the WTO comes from the 1986-1994 negotiation which was named the Uruguay round and earlier negotiation under general agreement on tariffs and trade (GATT).

1.2 Statement Of Problem

It is commonly accepted that increased trade is essential for developing countries to fully benefit from increased globalization of products and financial markets (United Nations 2001). Unfortunately, the competitive and rival nature of states in the quest for greater market access and control in international trade has obviously led to unequal relations between the advantageous developed North and the disadvantageous developing South in international economic relations. Understandably, the economic growth and development of the West is largely explained by its involvement in the international trading system, leading to the view that free trade is inherently beneficial. Yet, despite the developing world’s increasing inclusion in the global economy under the WTO multilateral arrangement, the benefits from trade do not appear to have reached a significant number of its population.

Since the establishment of WTO in January 1995, many governments and civil society organizations, particularly from developing countries have been disappointed with the operational modalities of the institution. Many of these nations joined WTO in large numbers believing that its objectives of rule based liberal trade will foster their economic development. Developing countries ‘leaped from exclusion to inclusion’ by willingly acceding to WTO and thus: (a) accepting a new trade rule likely to undermine their former right; as well as (b) making significant offers or commitments in order to get their own demand considered under the “single undertaking” mechanism of WTO. Today, it is clear that the benefits from such inclusion is far less than what these nations expected as: the implementation of some commitments was delayed and sidetracked; in areas of market access of developing countries’ products, realized gains have been disappointingly slow; many developing countries have been confronted with serious institutional and economic constraints in implementing their commitments; and the governance structure of WTO had remained that of democratic deficit.

The “Doha Development Agenda” that emerged from the fourth WTO Ministerial Meeting in 2001 reflected the need to put developing countries’ concerns at the heart of the organization. However, achieving a pro-development outcome from the agenda has remained a great challenge due to absence of a strong support from Organization for Economic Cooperation and Development (OECD) countries and their transnational corporations (TNCs). With the confusion which finally resulted in the collapse of the trade talk in Cancun in September 2003, it became clear that developed countries and developing ones still have deep divisions as to their interpretations of free and fair trade, despite numerous bilateral and multilateral agreements they entered into among themselves on the subject. Until these fundamental differences between them are recognized and appropriately provided for, multilateral agreements on trade are nothing but no agreements. In other words, while both of them agree with the idea of free and fair trade, the conspiracy of divergent interpretation suggests that none of them knows how to make free and fair trade to work practically.

The dramatic proliferation of regional economic integration within the last decade has demonstrated that the existing multilateral trading arrangement is faulty. The question is how to protect Nigeria’s interest under the current trade impasse. Free market economists (Bhagwati, Greenaway and Pangariya, 1998) were disappointed when they see threats to the existing multilateral system, given its fundamental importance to global prosperity. Also, Garnaut (2002), an Australian economist supported their stand by reminding us that the theoretical case for the potential negative economic impact of bilateral and regional agreements occurs when trade diversion exceeds trade creation (Viner, 1950). If we all believe in the multilateral trading system, why then is each member country of WTO is enlisting in one trading bloc or another?

In Nigeria context, apart from the oil and gas sectors of the economy, export trade has performed very poorly. Nigeria has in the past few years continued to record trade deficits against her major trading partners. Several attempts have been made by successive governments to revitalize the agriculture sector which developing countries particularly Nigeria has comparative advantage in order to boost export trade, but all these resulted in a dismal failure. In the manufacturing sector for instance, Nigerians have watched helplessly as cheap Chinese and Indian goods especially textiles, electronic items/appliances and drugs, flood the markets while the domestic factories remain closed thus fueling the unemployment crisis.

Similarly, a significant number of developing countries are largely behind other members of the international community in trade performance and face increasing marginalization as they remain unable to adapt to the rapidly evolving structure of the global economy. WTO is “member driven”, institution, meaning that all decisions are taken by country members and not for instance, by corporations or by WTO itself. Although, this is the case, the global trade agenda is essentially influenced and run by a small handful of wealthy countries notably the US, the EU, Japan, Australia, Canada etc. Most of the smaller countries (developing countries) that make up most of the WTO membership are marginalized from the negotiating process, or have limited impact. Many of these countries are not even invited to key meeting, which are by invitation only (although no one knows exactly how these invitations are handed out, since this is done in a completely non-transparent way).

The bottom line is that the structure of the multilateral trading system under WTO ensures that different countries have different degrees of influence on WTO outcomes, decisions and policies. That each country must agree by consensus does not mean that each country has the same power when sitting at the negotiating table. Developing countries do not have enough economic advantage to or power to really hurt another country with trade sanctions, but the US since many countries rely on it as a trading partner is able to make good on its trade threats. This is a fear tactic which is used to give powerful countries more negotiating coverage at the expense of nations in the developing South.

More worrisome is that the WTO Rules and their interpretation constitute a wet of rules/agreements that subordinate all other values ranging from environmental sustainability, consumer and worker safety, public health freedom of labour and human rights to maximizing trade. The provision and interpretation articulating these rules impede nations especially developing countries from enforcing their own laws to protect the public good and enhance economic development. Nigeria and indeed other African countries are signatories to most of these international trade agreements and are therefore bound by the terms and conditions contained in them. However, as a result of the imbalance in the nature of the terms of trade agreements, these poor countries are unable to benefit from international trade with the attendant consequences of growing poverty, disease, illiteracy, underdevelopment occasioned by huge debt profiles and balance of payment problems.

1.3 Research Question

  1. What are the rules of the World Trade Organization?
  2. What are the impacts of World Trade Organization rules’ on the Nigerian’s trade?
  3. Does the world trade organisation (WTO) rules help trade liberalization in Nigeria?

1.4 Objectives / Purpose Of Study

The following are the objectives of this study:

  1. To identify the World Trade Organization’s rules.
  2. To assess the impacts of the World Trade Organization’s rules on Nigerian’s trade.
  3. To examine the effect of the rules of world trade organisation (WTO) on trade liberalization in Nigeria.

1.5 Significance Of Study

The research work is a very important one as it will expose the problems associated with the liberalization of trade in Nigeria to the federal government of Nigeria, the managers of the Nigeria economy and the general public. The study will also reveal the impacts of General Agreement on Trade and Services (GATS), Agreement on Intellectual Property Rights (TRIPS) and Agreement on Agriculture (AoA) on the Nigerian economy.

The study will explore the journey so far on the Nigeria trade since becoming a signatory to the World Trade Organisation. The study and its recommendations will assist policy makers with their choice of policy making as it relate to trade. The research work will discuss in details the literature on the trade dynamics between developed and developing countries with the hope of creating rooms for further research concerning the research topic.

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