Unit Essay Example

  • Category:
    Business
  • Document type:
    Assignment
  • Level:
    Undergraduate
  • Page:
    3
  • Words:
    2203

International Business 10

Getting the government to fight your battles for you: How firms use the WTO and its rules to their advantage.

Introduction

World Trade Organization (WTO) is an international organization that deals with issues related to trade disputes and regulations. Trade dispute resolution is one of the main tasks of the WTO that helps a great deal in global economic stability. The main aim of the world trade organization is not passing the judgment, but to help settle the disputes. The principles of the World trade organization are to have an equitable, fast, effective and mutually acceptable judgment. The trade disputes that are settled by the WTO arises if one of the member states takes trade measures or uses policies that is perceived to be violating the WTO agreements. The rulings by the world trade organizations are carried out in a fast manner as compared to the GATT procedure. Although the proceeding at WTO resembles court proceedings, the concerned countries are allowed to settle their disputes by themselves and consultations and mediations are always allowed. Most of these cases involve multinational companies where they are represented by their governments. This has led to a situation where the companies use their government to represent them against their rivals. Governments lobbies for their multinationals in the WTO dispute resolution. This essay will look at effectiveness of the ways in which firms’ uses their government to advance their interests in the WTO and look at examples from the past 10 years (Keisuke, 2004).

Role of WTO in dispute resolution

The current rules and procedures that govern trade dispute resolution were agreed during Uruguay Round understanding on Rules and Procedures governing the Settlement of disputes (DSU). This took effect on 1st January 1995. The main aim was to strengthen the existing system under the GATT (Claude, 2001). The process consists of a Dispute Settlement Body (DSB) which consists of all WTO members’ representatives. The World Trade Organization has a major role of solving trade disputes of member countries. This role has gained prominence due to globalization and rise of multinational companies. The case of multinational companies involves complexities which in most cases cannot be handled by the state’s legal system. This makes it prudent to use WTO. Despite this, the World Trade Organization has been faced with controversy over their dispute resolution mechanism. This was evidenced during the 1999 Seattle protests (Janet, 2000). The issue of effectiveness has been raised severally by the concerned parties.

Analysis

There have been several cases where multinationals have turned to their respective governments to fight for them at the WTO. One of such cases is the Mexico Telecoms Case. This was the first case of its kind to be presented to the world trade organization. Telmex which is a major telecommunication supplier had failed in ensuring that there was cross broader interconnection as agreed under the section 2 of its reference papers. The terms and conditions that were offered were unreasonable and oppressed the United States suppliers. The company used unfair competition and ensured that United Sates Suppliers did not access public network in Mexico. Despite their wrong doing, Telmex used their government to fight for them after being challenged by United States government. On the same perspective, the United States supplier firms had turned to their government to fight for them (Luis, 2009).

The case of Mexico and USA telecommunication led to governments trying to fight for their service provider firms. At the end of the case, the agreement reached prohibited uses of anticompetitive practices. The United States firms were now in a better position to compete in their cross border services with Mexico firms. By closely analyzing the case, the main beneficiaries of the ruling were United States telecommunication companies. This was a major triumph as compared to their competitors in Mexico. The Mexico firms had to ensure that they were not engaging in any anti-competitive activity that may compromise fairness with competitors (Luis, 2009).

The United States firms approach in engaging their government to fight for them was a positive move. This is due to fact that they were facing unfavorable trade conditions that could not enable them compete with Mexico firms. The ruling reached in this case acted to enlighten the telecommunication industry on defining the cross boarder calls and anti-competitive behaviors. If there was no involvement of the governments, this case would have been difficult to solve. This is due to the fact that Mexico had their own regional agreement which did not favor foreign telecommunication firms. The ruling also helped Americans firms due to fact that it allowed foreign suppliers to use the host country network in performing their activities (Luis, 2009).

By looking at the approach in which the governments were involved, the case was a battle between the two countries telecommunication firms. The Mexican firms wanted to maintain the situation where they were able to compete unfairly with foreign firms while the American suppliers were against the Mexican cartel like telecommunication procedures. Involvement of the governments to help in solving the trade disputes is sometimes necessary especially where there is state firm involvement. The world trade organization in this case can facilitate the case. Though the case served to helps the firms’ interests through world trade organization, the dissolution served as an important avenue to base other telecommunication cases in the world trade organization (World Trade Organization, Legal Affairs Division, 2009).

Competition between firms is in some cases brought to the World trade organization through governments. The firms challenging each other of unfair competition may advance their interests to WTO in a bid to outdo each other. One of such cases that were brought to the world trade organization is between the Airbus and Boeing (Stephan, 2010). The two aerospace companies accused each other of receiving incompatible support from their respective governments. This dragged the European Union and USA into a dispute over their aerospace industries. The firms had to be represented in the world trade organization by their respective governments (World Trade Organization, Legal Affairs Division, 2009).

Boeing and airbus are the main competitors in the large aircraft industry. Their competition had led to their governments restraining each other from offering unfair support to the companies. This had led to a bilateral agreement between EU and US over funding of their aerospace industry. The case was first filed by the United States government to the World Trade Organization. This led to EU lodging a parallel complaint to the US government. In this case, it’s clear the intention of the Boeing was to get government support in a bid to counter competition against their main competitor. Airbus on the other hand lodged a similar complain of inappropriate funding offered to Boeing (Stephan, 2010).

The two competitors’ main interests are to reduce competition by challenging their competitor. If one of the firms would succeed at the WTO, it meant the other would have reduced funding from their governments making them disadvantaged. By looking at the case facts, it’s clear that both companies had received funding from their respective governments as well as incentives. At the end, the ruling favored EU Airbus. This is due to fact that the subsidies that were received by the company were not prohibited under the WTO law. From the two aerospace companies’ cases, it’s clear that the governments involved were lobbying for the interests of their firms. The companies were set to be the main beneficiaries of the cases. The use of the governments in this case was needed due to fact that the companises were under the two government funding. The only way that the company could have raised their issues on funding is through their respective governments (Stephan, 2010).

In some instances, the firms exporting products and services may feel they are being treated unfairly by the host company. This was the case when Egypt anti-dumping measures affected the steel rebar imported from turkey. In this case, the exporters were experiencing unfair terms. This led to involvement of the turkey and Egypt government in a dispute. The main beneficiaries were set to be the exporters of the products. In such a case, the Turkey firm needed support from their government since the case involved another government. The case though being under the turkey government was set to help the exporting firms in the country. The case comes to a conclusion that Egypt was acted inconsistently with the set rules. However the ruling found that most of the claims by Turkey government could not be established (World Trade Organization, Legal Affairs Division, 2009).

Why the firms are using the governments to fight their war

Using the government to intervene for the company is an effective means of dispute resolution in multinational companies. This is supported by the fact that most of the world governments are signatory to the world trade organizations. If a firm perceives unfair competition from the host country or unfavorable business terms, it’s advisable to seek government support through world trade organization. The success of the world trade organization conflict resolution has been established through resolved cases. This offers multinational firms an avenue in which international trade disputes can be solved amicably through help of their governments. Though WTO has come under accusations of not being able to end trade wars, there have been several cases that have been solved effectively (Keisuke, 2004).

The use of WTO by firms through their governments has been determined by availability of other means of dispute resolution. If the firm finds that WTO will resolve their dispute to favor them, they are more inclined to use it. The cost is another determinant where the firm will use WTO to resolve dispute due to low costs. The firms’ using the WTO to resolve their disputes saves cost due to government involvement (Keisuke, 2004).

Pitfalls of WTO dispute resolution

One of disadvantages that arise through use of WTO to resolve trade disputes is unilateralism. Some of the stronger economies such as USA may use their powers to block ruling implementation. The article 301 has been used by the governments to enable them use unilateral measures. The auto talks between the United States and Japan are an example of a threat of unilateralism. The United States had threatened to use unilateral measures against Japan luxury cars. This was due to failure by Japan to recalcitrance during their negotiations (Marc, 2000).

Another pitfall is the high cost of using the WTO by the developing countries. Firms in the developing countries are faced with cost barrier making them to keep silent despite being members of the WTO. This makes the firms in the developing countries to be underrepresented in the world trade organization. Most of the developing countries have been target by the developed world. A firm from the developing country may face unfair trial through WTO due to lack of funding and being targeted (Chakravarthi, 2000).

Conclusion

The world trade organization has been able to offer dispute resolution services to firms through their governments. The use of the world trade organization to fight the multinational companies foreign rivals have been seen in most of the trade disputes. The case of Boeing and Airbus, Mexico and USA telecommunication firms and many others have been perfect example of multinational using their governments to lobby for the at WTO. The use of governments by the firms at the WTO gives them a cheaper means of conflict resolution. It has also been possible to apply trade regulations that could not have been achieved through use of other legal means. The main disadvantage of using the WTO to solve the conflict lies in unilateralism and the lack of funds by developing countries to represent their firms. The developed countries have been targeting firms from developing countries due to fact that they are underrepresented. In some cases, developed countries have been using their economic powers to block the ruling. From the analysis, it is evident that using the government to fight the firms’ battle is an effective means of dispute resolution among multinational companies.

Reference

Chakravarthi, R. (2000). The World Trade Organization and Its Dispute Settlement System:

Tilting the Balance Against the South. Penang, Malaysia: Third World Network, Retrieved April 21, 2014, http://www.twnside.org.sg/title/tilting.htm

Claude E. B. (2001). Free Trade, Sovereignty, Democracy: The Future of the World Trade

Organization. Washington, D.C.: AEI Press. Retrieved April 21, 2014, http://www.tulane.edu/~dnelson/PEReformConf/Barfield.pdf

Janet, T. (2000). The Battle in Seattle: The Story Behind and Beyond the WTO

Demonstrations. Golden, Colo.: Fulcrum. Retrieved April 21, 2014, http://research.easybib.com/research/index/search?ft=contributor_full&search=%20%20%22Janet%20Thomas%22&medium=all_sources

Keisuke, I. (2004). Is WTO Dispute Settlement Effective? Global Governance, Vol.10, no. 2,

pp. 207–225. Retrieved April 21, 2014, http://www.library.eiu.edu/ersvdocs/4295.pdf

Luis, A. L. (2009). The Mexico-Telecoms Case: What Lessons Can Be Drawn for South Asian

Countries?, CUTS GRC. Retrieved April 21, 2014,

https://openknowledge.worldbank.org/bitstream/handle/10986/3801/WPS5317.pdf?sequence=1

Marc, L. B. (2000). Democracy, Consultations, and the Paneling of Disputes Under GATT.

Journal of Conflict Resolution, Vol.4, no. 4, pp. 425–446. Retrieved April 21, 2014,

https://www.alexandria.unisg.ch/export/DL/39371.pdf

Stephan, W. (2010). The Airbus-Boeing Dispute: Implications of the WTO Boeing Decision, Intereconomics, vol.1, no. 3, pp. 262-263, Retrieved April 21, 2014,

http://www.econstor.eu/bitstream/10419/66526/1/730076830.pdf

World Trade Organization, Legal Affairs Division. (2009). WTO Dispute Settlement: One-Page

Case Summaries 1995 – 2008, World Trade Organization. Retrieved April 21, 2014,

http://www.wto.org/english/res_e/booksp_e/dispu_summary95_08_e.pdf