Sunday, May 01, 2005

WTO membership: To join or not

Jakarta Post
Wednesday, September 17, 2003

By Thang Nguyen, political analystGeneva, Switzerland

As Cambodia and Nepal--two of the world's poorest countries--were approved for the World Trade Organization (WTO) membership during its Fifth Ministerial Conference, taking place in Cancun, Mexico, from Sept. 10 to 14, their peoples back home must be happy.

It may please these new members to think that, once their admissions are ratified, they will belong to the world's trading club in which all members are equal. What they may not realize--or perhaps they do, but have no choice but to accept--is that in the WTO, to paraphrase George Orwell, some members are more equal than others.

Undoubtedly, joining the WTO brings its new members numerous benefits and tremendous opportunities. For one thing, this 146-member body is a great market for their exports and, at the same time, a major supply of their imports. More importantly, as a member's trade increases because of its WTO membership, its economy is, reasonably, expected to grow and poverty to diminish.

Nevertheless, when Third-World countries join the WTO, they face several challenges. First, most of the members from the underdeveloped world are agricultural or primary-commodity exporting economies.

If these economies have a "comparative advantage" in making and exporting such products as rice or coffee to their industrialized counterparts, why should this be a problem? The problem, which is not new, comes from--according to the rather controversial Prebisch-Singer hypothesis--the fluctuations of prices and the inelastic demands of primary commodities in the world market.

In other words, when the prices of primary commodities that agriculture-based countries export decrease at the same time when the prices of their exports remain constant or increase, their terms of trade--or the prices of a country's exports divided by the prices of its imports-- worsen.

Furthermore, the demands of primary commodities do not increase as consumers' incomes increase. As an Indonesian coffee-producer earns more income from growing and exporting coffee, he is likely and able to buy, say, a Chevrolet made in and imported from Detroit.

Nevertheless, as a car-manufacturing worker earns more income from producing and exporting the Chevrolet, will he drink more Indonesian coffee? No--and maybe, now that he has more money, the he might actually substitute coffee with another more luxurious drink that he could not afford before.

The second problem facing developing countries when they join the WTO is the increasing protectionist measures taken by the world's economic powers--particularly in area of agriculture. It is estimated that together, the US, Europe, Japan, and other industrialized countries give their farmers US$ 300 billion a year in subsidies.

Moreover, when agricultural imports enter these countries, they often face considerably high tariffs, making them more expensive--and therefore less desirable--to the consumer. One may argue that primary-commodity-exporting countries can retaliate by imposing high tariffs on their imports from the developed world or providing their farmers with export subsidies.
But alas, the very prerequisite of a bilateral trade agreement, for example, with the U.S. or Switzerland, for them is that their tariffs must be very low, that is, between 0 and 5 percent. Furthermore, subsidies are a luxurious (but economically unsound as they do not generate revenue) policy that poor countries cannot afford.

Protectionist measures de facto defeat the purpose of the WTO. In addition to serving as body that regulates the rules of trade between nations, the WTO's raison d'être is to liberalize it.
The final issue is the so-called 'green room' consultation process within the WTO. Named after the earlier color of the wallpaper in the office of the WTO director-general in Geneva, green-room consultations are private gatherings between the director-general and a group of member-country representatives. These consultations are by invitation only and, thus, only transparent to those who are present.

Chakravarthi Raghavan, Chief Editor of the South-North Development Monitor (SUNS), explains that "these limited consultations, of invited representatives of about 15-25 countries (the number depending on the issues), [were] a very prevalent practice under the old GATT [General Agreement on Tariffs and Trade], and [were] used during the Uruguay Round, when a few developing countries, who were opposed to the particular demands of the majors, were generally brought in, isolated and pressured to yield."

Perhaps representatives of new members from the developing world and their fellow countries seeking WTO membership all know that someday they will walk into the famous green room and walk out of it with an unfavorable deal, but for now, joining the club seems better than being left out.


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