Do the WTO Rules Against Industrial Policies Hurt Developing Countries? (Case Study)
Q1. Why WTO has rules against industrial policies?
As known, the WTO is an international
organization that deals with rules of trade between countries, and its main
goal is to help producers of services, goods, importers and exporters to conduct their business properly. In this particular situation many
developing countries have the potential for implementing a long run
productivity improvement, and in most cases industrial policies are pursued
with several objectives (short term or long term).
Hence, the WTO should
take several actions
that contains special provision for developing countries, that includes long
time periods for implementing agreements . For example if a company exports a
product at a lower price than the price it usually charges in home market,
(Dumping the product) The WTO action here is to focus on how governments can react
to such situation. Another action should be taken from the WTO is to
discipline the use of subsidies, and to regulate its actions. WTO
also takes actions to temporarily limit
imports, to protect domestic industries.
Finally, we have to point that many of the practices described are
considered harmful to foreign countries firms interest, and the new rules
introduced by the WTO limits the ability
of countries to employ their policies.
Q2. What
is the effect of industrial policies on international trade?
The
industrial policies that are in effect, creating a huge impact on international trade. Many economists feel that industrial policies are more
benefited by the developed countries contrary to the developing countries. The
actual existence of the policy is more under scrutiny by many economists. For Instance, due to industrial policies like
TRIM & WTO the agreement is limiting the access to path-breaking technology
know-how and causing potential harm to the developing countries in terms of
absolute advantage and comparative advantage.
· Developing
countries are losing on the absolute advantage they have, and the resources
they have in abundance are getting drained into other avenues which the country
has limited access
· Trade agreement
like SCM (Subsidies and Countervailing Measures) is hindering the chances of
developing countries exports into other developed countries and denting its
export value (due to subsidy given to a particular industry by developing
country , the foreign firm export value might devaluate leading to heavy tax
duty on imports of developing countries)
Many
of the industrial policies are linked to market failure, for instance, during
2008 recession, the impact was seen across globe and drastically effected were
developing countries and slump of market failure was progressive across globe.
Market failure very often is linked to externalities and monopolies existing in
the market. These market failures create encumbrance of well performing market
and corrective measures are necessary to ensure that effectiveness and
efficiency is maintained in a free market to avoid any conflicts that arise due
to vested interest by the developed countries.
Q3. How can industrial policy affect a developing country?
Provide examples.
There are the
countries, especially South Korea (South Korea has now become to OECD member),
Singapore, and Taiwan, which are from most of the experienced evidence on the
effectiveness of industrial policies. Argentina, Brazil, Chile, Malaysia,
Mexico, South Africa, and Turkey are also from upper middle-income countries as
well. These countries set up the
political system with well-established rules and guidelines, reasonable
managerial ability in industrialization section.
Low and lower-middle-income countries have
been much less empirical literature, even if most developing countries related
to these groups. The World Bank, by country classification department, said it
can be considered as ‘low-income group’ for 43 countries and another 55
countries can be under the ‘low-middle-income’ section. The developed country
usually motivated to developing country by the industrial development
strategies or even modeled after.
Q4. Should the rules of WTO
concerning industrial policies be revised? If yes, then in what way?
The
rules of WTO concerning industrial policy has to change as they are biased,
favoring the developed and rich countries. Few of the instances where we can
see the marked difference are :
· Rich and developed countries are maintaining
high import tax duties and segments in certain products, blocking imports from
developing countries (e.g. Garments)
· The increase in non-tariff barriers ex: anti-dumping measures
allowed against developing countries;
· The conservation of high protection of
agriculture in developed countries while developing ones are forced to open
their markets;
· The TRIP agreement
that limits the developing countries from utilizing technology that originates
from abroad in their local systems (including medicines and agricultural
products)
The aforementioned rules
are favoring the rich and developed countries, whereas the developing and poor
countries are losing out in the global arena. They succumb to the pressure
brought upon by these favored members of WTO. Such biased policies should be
scrutinized and all the countries should be equal to voice to their opinions.
