WTO to Regional Trade Agreements: Inequities of Globalization

Harun Vemulapalli, Apr 13, 2023

The World Trade Organization (WTO), a multilateral institution that regulates trade, is dead. Over the last two decades, the WTO (known as the GATT agreement before 1995) has significantly declined in terms of legitimacy and power [1,2,3,4]. The WTO’s decline has correlated with the rise in protectionist foreign policy of various administrations which prioritized national interests over the rules-based system. Proponents of the liberal international order (LIO), a paradigm that promotes globalization and rules-based cooperation, view the WTO as a crown jewel and urge the United States to resuscitate the institution in order to protect global trade. In contrast, decolonial theorists view the WTO as a parasitic remnant of colonialism in which Western nations used coercive trade practices to open up the Global South for resource exploitation. I argue that for developing nations, the downfall of the WTO could be a fresh opportunity to effectively challenge unequal trade relations and solve pressing regional issues like inequality, climate change, and food insecurity. However, I also detail how it is important for developing nations to strengthen agreements and institutions to prioritize societal needs over neoliberal competition. Otherwise, the Global South risks falling back into the same trap of the colonial period in which resources, wealth, and power are distributed unevenly.

Global Inequity

Decades after the decolonial period, the gap between the Global South and the Global North in terms of per capita income has only quadrupled since the 1960s in spite of efforts to remedy global inequality [5]. Developing nations bear the brunt of climate effects as developed nations offshore pollutants by shifting industrial production to the South [6]. 

For example, the image above depicts how the Global North bears a significant responsibility for climate change, as overshoot emissions largely originate within developed industrial states. However, the effects of such emissions disproportionately impact the Global South, which is uniquely problematic because the Global South is often portrayed as a threat to sustainability. In tandem with the issue of climate change, 345.2 million people are expected to experience food insecurity this coming year, double the amount from three years ago [7]. All of these pressing issues are closely interconnected, the product of decades of colonialism and resource exploitation. 

However, the WTO is generally viewed as one of the most democratic institutions within the LIO. If developing nations make up a majority of the WTO, and if the WTO runs by a one-member one-vote system, why have developing nations not been able to create any meaningful strides in solving trade inequities or regional issues? The historical context of the WTO and its various failures for developing nations can be explained by its pseudo-democratic structure. There are three controversies within the structure of the WTO. First, while all nations have one vote, most of the decisions are not taken by a majority vote, but by a consensus voting system. A consensus voting system is slightly weaker than a unanimous vote, and scholars have described it as more of an “absence of dissent” rather than a full affirmation of whatever proposal is being voted on [8]. Due to differences in delegation size, developing countries find it difficult to attend every WTO meeting, as they often overlap in time and occur all around the world [9]. As a result, their absence at a number of conventions allows for developed nations to pass resolutions without truly democratic support. Additionally, if countries do want to oppose a particular motion, it must happen on the open floor. Within a consensus system, developing nations are scared of retaliation by their more powerful counterparts if they hardline against a proposal. Second, power asymmetries spill over into the WTO’s member-driven negotiations. While other multilateral organizations have a leading Secretariat that strictly manages the negotiations, the WTO is run through its members. This could have advantages for developing countries, but the differences in resources between developing nations versus developed nations ensure that developing nations are short on research, expertise, time, energy, and the number of delegates. As a result, developed nations are able to overpower developing ones. Third, most of the decisions reached within the WTO are negotiated within informal meetings. There is a lack of transparency within these meetings, as they are invite-only and the only permanent members of these informal discussions include the United States, European Union, Japan, and Canada. Participation is rarely sufficient, and if agreements are reached without certain members, those members are told to ‘take it or leave it’ while given few benefits. These structural issues have not only impacted the direction of negotiations in the past, but actively silence the voices of developing nations today. 

For example, the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) regulates IP, most specifically in the context of technology and pharmaceuticals. Pre-COVID, the lobbying power of the North enforced strict WTO regulations surrounding the manufacturing and patenting of vaccines. The immediate impact of these regulations was felt within developing nations, where only 15% of individuals within developing countries had received only one dose of the COVID-19 vaccine [10]. Even though a waiver on IP was eventually negotiated in 2022, it was significantly watered down in comparison to the original version proposed by leaders of the developing world largely due to the inequitable voting system. Some argue that flexibilities within the TRIPS agreement allow for developing nations to bypass IP when necessary, but the issue is that when such nations do so, political pressure from Northern countries crack down on the South. Even with the waiver, the South lacks the manufacturing capabilities necessary to produce their own vaccines because the agreement only waives IP, not trade secrets. 

Another example includes the liberalization of digital data by the WTO. There are calls from Big Data corporations in the North to open up developing nations for increased access to data. Developing nations hold a significant amount of unprocessed data largely restricted for their own use. However, these nations lack the necessary infrastructure to tap into these data banks. At the same time, Global South nations prefer not to become unwilling suppliers to the multinational tech corporations of the Global North. Most countries do not have a legal structure to deal with digital trade or cybersecurity, so the litany of proposals currently in the WTO hopes to pre-emptively rewrite the rulebook to ensure open access [11]. Data is the new resource of our time, synonymous with physical resources like oil or gas. Developing nations would rather create their own manufacturing capabilities (like China and Sweden did) to process data in order to secure national wealth. The present issue is that developing nations are not present at most of the WTO negotiations surrounding digital trade. Because of their lacking legal structure for digital data, many countries are reluctant to engage in such talks, spelling trouble for the future. By being absent, the Global South could be the victim of detrimental policies passed through the consensus voting system. 

Both issues surrounding IP and digital data demonstrate how the structure of WTO is dangerous for developing nations. Luckily, the WTO has fallen victim to an unlikely foe, the United States, creating chances for developing nations to change the trajectory of their development. 

The Beginning of the End

The United States had been the champion of the liberal international order (LIO), and as a result, the WTO. However, continued frustration with how the WTO ruled on disputes has led to the United States taking an aggressive stance towards the once beloved institutions. Powerful countries, especially China and the United States do not abide by the ruling or are allowed by the Appellate Body, the WTO’s court, to misuse rules for self-serving interests. For example, Former President Trump invoked a national security clause to justify tariffs on steel and aluminum production. The WTO ruled in 2022 that Trump violated trade rules, but reactions from American companies and politicians were fierce largely because of anti-Chinese sentiments. China, using high government subsidies, flooded the market with steel and aluminum products much to the chagrin of both Trump and Biden. President Biden has avoided the numerous public lash-outs towards the WTO that his predecessor, Former President Trump, often engaged in. However, President Biden has not changed the United States’ aggressive approach toward the rules of the WTO. The present administration rarely mentions its obligations to the WTO, and that has been uniquely damaging since WTO members often rely on US leadership to keep the institution functioning. In January, the United States called to appeal the national security tariffs (which Biden has still kept in place) while also continuing its blocking of new Appellate Body members, effectively wrecking the dispute settlement process [12]. In an almost mystical moment, Republicans and Democrats largely agreed in their thrashing of the WTO’s Appellate Body under an “America first” paradigm as members publicly called to depart, violate, or abolish the WTO [13]. The WTO’s decline can also be attributed to gridlocks, walkouts, and disagreements between diplomats. In the Doha Round, businesses in the North applied pressure to negotiations surrounding agricultural and industrial markets. Countries in the Global North and South reached an impasse, and the round was subsequently suspended. Now, WTO participation is limited and powerless as Global North countries refuse to abide by rules, and developing nations outcry against the hypocrisy. 

Regional Trade Organizations as an Alternative to the WTO

The perceptual death of the WTO could be an opportunity for developing nations to pursue alternative pathways to increase their power without intervention from foreign powers or institutions. The stage is set with China, South Africa, Brazil, and other developing nations consolidating power in Asian, African, and Latin American organizations. While the United States and China are engaged in strategic competition over just about everything, previously third-world countries are pursuing new development models [14]. For example, developing countries are increasingly pursuing regional trade agreements (RTAs) and other regional opportunities. Some examples of shifting commitments include China’s Belt and Road Initiative (BRI), the strengthening of the Association of Southeast Asian Nations (ASEAN), and Brazil, Russia, India, China, and South Africa (BRICS). The Global South is significantly less obedient to colonial financial restructuring projects or international aid efforts from the Global North. 

While such agreements are a step away from the coercive and colonial systems of international institutions like the WTO, neoliberal regional trade agreements could recreate inequity. The reality of economic integration is that free trade is always favorable to more powerful countries. The presence of a winner requires a loser. Inequalities before economic integration are exacerbated as the stronger economies of industrial nations grow at the expense of weaker ones. For example, in the European Union, the more industrial Germany grew at the cost of a weaker Greece. While Germany experienced a boost in GDP and manufacturing, Greece experienced reversed trends and a wide trade deficit with Germany [15]. This evidence equally applies to rising regional coalitions such as ASEAN. Countries within ASEAN, according to three economic indicators (Income Quintile Share Ratio, Palma Ratio, and the Gini Coefficient) have experienced aggravated inequalities in terms of income and its distribution among classes [16]. While there has been significant economic and developmental growth in one of the world’s fastest-growing regions, the success is distributed to the few at the top. 

BRICS has experienced a similar fate in which high periods of growth have not spurred inclusive economic results. For example, most of the members do not have security nets, resulting in rural economies becoming increasingly poorer than urban areas. Individuals already experiencing severe levels of poverty are taxed at rates disproportionate to the wealthy [17]. With the slight exception of Brazil, the rest of the members have pursued conservative fiscal policies while depending heavily on cheap labor to remain competitive in the export market (exports are the primary mechanism for BRICS's integration). The large informal economy within the BRICS members has kept the wages of workers low, food insecurity remains at an all-time high, and natural resources are quickly depleted [18]. A strict focus on growth has resulted in decreased public investment in hopes of increased private investment, but such investment has yet to come. As a result, unemployment, poverty, and malnutrition are high due to the lack of collective social services. India contains a third of the world’s poor people, China has a significant portion of the population below the poverty line, and South Africa has almost a fourth of the population unemployed. While economic growth has certainly helped to expand the middle and upper classes, workers within the informal economy have been the losers. 

Cooperative Frameworks

Cooperation instead of competition is a core tenet of any sustainable framework. As such, regional coalitions should end austerity measures and instead support public investment. Regional coalitions must create “solidarity funds” so the winners of globalization can ease the distress of the present and coming crises of climate change, food insecurity, and income inequality in developing nations. A focus on economic policies that prioritize the pooling of resources for common needs is imperative to minimize the effects of unequal distribution and growth. 

ASEAN should repurpose the ASEAN Fund so member nations with large trade surpluses can contribute to the development of countries that lag behind in trade. Poorer countries that are subject to the most severe impacts of climate change can practice transnational cooperation for the migration of refugees into safer areas. The New Development Bank, formerly known as the BRICS Development Bank, should ramp up lending activities (with no conditions or interest rates) to impoverished nations to provide additional public financing while avoiding debt traps. Funding should not only go to the strengthening of social services, but also to the development of renewable technologies in order to mitigate the effects of climate change. 

Regional coalitions need to place greater restrictions on unsustainable development, as transnational corporations are engaged in environmentally destructive practices that worsen existing inequalities. Forming international linkages between worker movements within coalitions will be integral to any paradigm shift within regional leadership. While existing and coming regional coalitions have served as a counterweight to Western-led economic institutions and practices, neoliberalism in the South is not any better than neoliberalism in the North. As such, it is imperative that coalitions truly provide for the needs of workers and impoverished countries lagging behind in economic integration so the benefits are evenly distributed. 

In the wake of the WTO dying, regional agreements are en route to be the standard rules for the liberalization of trade. The WTO has undoubtedly failed developing nations in creating equitable development, compounding structural crises like climate change and food insecurity. While leaders in the regions of Africa, Latin America, and Asia have often celebrated the exchange of international multilateral institutions for regional organizations, it is important to recognize the potential for neoliberal tendencies to co-opt movements striving for development. Free trade promotes the exacerbation of pre-existing inequalities between developing nations and developed nations within regional organizations. The Global South should focus more heavily on cooperative investments to ensure that the benefits of development are distributed in an equitable process. Otherwise, the Global South will continue to fall into the trap of neoliberalism disguised as fairness.


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