The United Kingdom and the World Trade Organization

Globalization has been for a long time the driver of increased international trade. Increasing international trade is a delicate balance of relations and interests between countries. However, in recent years, international trade has been declining. According to the United Nations Conference on Trade and Development (2016), world trade declined by 10% in 2015.  The mandate of promoting international trade rests with the World Trade Organization (WTO).  WTO is an international body that seeks to promote trade on a global level among member states (WTO, 2015). The agency achieves this mandate in three major ways: providing a forum for members to engage in trade negotiations, monitoring national trade policies and settling disputes (WTO, 2015).  For this reason, WTO has moved to assert its legitimacy on the world stage by ensuring a delicate balance between resolving disputes and advancing commerce interests of member states (Daemrich, 2011).The organization was formed in 1995 as a successor of the General Agreement on Tariffs and Trade (GATT) as more countries expressed interests to be involved in international commerce (Crowley, 2013). Since its inception, WTO has grown its membership to 160 members in 2014 (Beasley, 2014). States can seek dispute resolution related to ethical issues but the organization can only respond to it if it has implications on trade (Beasley, 2014). The organization developed rules and regulations based on principles of free trade, trade without discrimination, predictability, national treatment and competitiveness (WTO, 2015). WTO impacts the business environment of its members by ensuring that they have better access to markets, increase Foreign Direct Investment (FDI), greater accountability and transparency of bilateral/multilateral agreements etc (Voituriez, 2007).

The purpose of this paper is to compare the roles and relationships of two countries with WTO over time and how the organization influences the global business environment of the said nations. These countries are the United Kingdom (UK) and India. The approach is to examine the history of each country with WTO in terms of roles and relationships and then how that impacts business in the nation.

The UK

History, roles, and relationship of the UK with WTO

According to the WTO (2018), the UK has been a member of the organization since 1995. In addition, together with the US, the country was a founding member of GATT since 1948 (WTO, 2018).  However, the relationship of the UK with the World Trade Organization has been quite fragile. The country abides by WTO rules as a member of the European Union and not on its own right as an individual state (WTO, 2018). Even when in the European Union, the UK sought to be autonomous in its trade policy, free from the oversight of Brussels while still being part of the free trade area of continental Europe. The Global Economic Monitor (2017) the Brexit vote created uncertainties in markets that had a negative impact on the UK’s economy. However, the vote of Brexit complicates the UK’s relationship with the WTO as it seeks an accession in the body on its own right (House of Lords, 2017). The accession process for new members is a lengthy process that can take years to the vast amount of extensive negotiations and consultations to be carried out by the WTO (Chemutai and  Escaith, 2017). According to the UK Department of International Trade(2018), the country is pursuing a policy that will ensure its consumers and business are not negatively affected by Brexit and forging agreements with EU to foster and improve trade with the mainland.

The Global Economic Monitor (2018) estimates the growth in the majority of the world economies will be slow as markets become desynchronized. The report also projects that the UK trade will reduce by 1.5% in 2019 as the country grapples with the consequences of Brexit (GEM, 2018).  The current trade numbers of the UK are quite promising, an indicator that the local and multinational businesses operating the country are responding positively to the high level of uncertainty of international commerce. For instance, in 2017, international trade accounted for 62.5% of the UK’s GDP with only a deficit of 1.4% as a percentage of gross national income (Department of International Trade, 2017).  In the meantime, there were 206, 800 business exporting goods out of the country with mechanical machinery and automobiles accounting for 14.2% and 9.6% respectively(The Department of International Trade, 2017).The trade deficit is projected to remain steady in 2018 and reduce slightly in 2019 (GEM, 2018). The UK has the biggest trade deficit with Germany at negative £26 billion. In the same year, trade with EU members was valued at £622.5 billion while that of non-EU members stood at £650.2 billion accounting for over 51.1% of entire UK commerce (Department of International Trade, 2017). The United States, Germany, Netherlands, France and China are the UK’s largest trade partners (Department of International Trade, 2017). It is interesting to note that the major trading partners of the UK are non-EU members, but then the country is legally bound to trade agreements signed when it was a signatory of the WTO under the Union. In this case, states end up triangulating the majority of WTO’s rules and regulations to advance their own trade interests (Charnovitz, 2002).

Impact of WTO on the UK’s Business environment

The World Trade Organization has had a huge impact on the business environment in the UK. Despite the uncertainties of Brexit, the UK has managed to gain the support of the Government Procurement Committee of the WTO to secure access to a market worth £1.3 trillion after leaving the EU (The Department of International Trade, 2018).  The country is struggling to reach an agreement with the EU to get tariff-free access to its markets but so far both parties have been unable to reach an agreement (House of Lords, 2017). The lack of a deal means that the UK needs to develop its own schedules of trade in goods and services under WTO terms rather than relying upon existing agreements with EU members states to reduce risk and uncertainty (Wessel, 2017). Besides, the withdrawal process is slow and therefore further complicates matters because the rules of EU affirm that a state is bound by its agreements until a final and actual separation from the union occurs (Wessel, 2017). Meanwhile, parliamentary findings indicate that the UK economy will not be greatly affected under a single market system and that the country can develop its own schedules and impose trade tariffs on goods and services without adversely affected international trade (House of Lords, 2017). This will be done under the favored national principle where a country cannot discriminate against its trading partners (WTO, 2015). Therefore, the EU cannot institute predatory trade practices on the UK because it will violate this principle. The risk of this is that multinational companies based in the UK or local business with operations in EU states are uncertain of whether trade tariffs still apply or are likely to change. A WTO (2013), projected that the future of international trade will be highly influenced by geopolitical shifts among the developed countries and rise in Asian economies. Therefore, the ongoing relationship of the UK under WTO terms is likely to have a significant impact on international trade in the near future.

Hofstede’s model of national culture (1984) can assist in determining how WTO impacts the business environment in the UK. According to McSweeney (2002), national cultural differences among countries impact various spheres of society. The WTO has a huge impact on the international cultural policy of member nations, hence impacting commerce in those specific countries (Acheson and Christopher, 2006).  The national culture is a collection of customs, values, and beliefs that will influence the way individuals embrace and respond to international organizations in their country (Acheson and Christopher, 2006). Kristjánsdóttir, Guðlaugsson, Guðmundsdóttir, and Aðalsteinsson (2017), conducted studies that showed a positive relationship between national culture and international trade using Hofstede’s model.  The six dimensions of a national culture of Hofstede’s model are Power distance, masculinity vs Feminity, Individualism vs. Collectivism, and long-term vs short orientation, indulgence vs restraint (Kristjansdottir et al., 2017).

a) Power distance: this refers to the attitude of the society towards inequalities and distribution of authority in their culture (Kristjansdottir et al., 2017). In the UK, the culture abhors the high inequality between classes of people and believes in establishing strategies to reduce the gap. In the power distance rankings, the UK has a score of 35 indicating a very low PDI (Hosfeste insights, 2018).  The low PDI ensures that there are high democracy and social control in decision making. With this dimension, the UK is using soft power in its negotiations with WTO for developing its own trade schedules. However, the country can use hard power to fend off trade discrimination from its partners that it might deem negatively impacting its economy. Dabler, Kruck and Zangl (2018) indicate that hard and soft power is crucial in the WTO negotiations. Through its relationship with WTO, UK’s economy can thrive and further reduce power distance in the society. However, the US still has high-income inequality among developed countries that might threaten the low power distance index (GEM, 2018).

b) Uncertainty avoidance:  the extent to which the culture allows members to feel ambiguous towards uncertain situations (Afaneh, Khaireddin, Sanjug and Qadduomi, 2014).  Cultures with low uncertainty avoidance tend to cope very with anxiety although it is not an indication that they avoid risk (Hofstede, 2010). The UK has a very low score of uncertainty avoidance as indicated in the Brexit vote where people and business are coping well with the anxiety caused by the separation from the EU (Hofstede insights, 2018). The WTO is contributing to the increase in trade uncertainties through its slow accession process that continues to impact business negatively in the UK. Any violation of EU’s WTO agreements by the UK might have adverse legal implication for business in the country (Wessel, 2017). The fact that negotiations with WTO take a long time to arrive at a trade deal is hurting business in the UK (Jansen, 2010).

c) Individualism vs. Collectivism:  cultures with high individualism value put personal ambitions over public interests (Hofstede, 2010). This element emphasizes the need the society places on its members to take initiative and pursue personal ventures to enjoy social and economic independence. The UK has an individualism index of 89, which is quite high compared with other countries in Europe (Hofstede’s insights, 2018).As such; people might favor capitalism and take initiative to achieve personal happiness at the expense of the community.  For this reason, people in the UK might engage in international commerce to create personal wealth that will increase their standards of living. The WTO finds it extremely hard to promote trade in countries with high individualist index because personal interests of key players might trump global trends in commerce (Daemrich, 2015).

d) Masculinity vs Femininity:  according to Kristjanstdottir et al.(2017), masculinity is the main cultural dimension that significantly impacts international trade. Cultures that are highly masculine are competitive, value achievement and are success oriented (Hofstede, 2010). Despite the Brits being modest in mannerism, the country is quite competitive and many of its individuals have achieved success in sports, arts, science, and commerce (Hofstede’s insights, 2018). Highly masculine cultures exhibit increase consumerism levels, raising the demand for imported goods (Kristjanstdottir et al., 2017). The country is ranked 5th in the importation of merchandise goods (WTO, 2018).

e) Long term vs short term orientation: this phenomenon examines the way a society challenges its historical past to forge a new direction for the future. Long-term oriented cultures encourage virtues, pragmatic and modest in the expression of its values (Hofstede, 2010). On the other hand, short-term oriented cultures tend to be more religious, nationalist and capitalist. The UK has long-term orientation, which is evident in their manner of conducting negotiations after the EU exit vote. Through the WTO, UK trade representatives have been key to communicate national value in schedule negotiations and disputes from existing multilateral agreements with EU countries (The Department of International Trade, 2017).

India

History, roles and relationships

India has been a founding member of GATT and World Trade since its inception. However, since then, India is a developing country, the relationship and roles with WTO have changed drastically over time as the nation seeks resolutions that favor trade. The result of this has been endless disputes at WTO that the organization has more than resolved amicably. The country continues to express concerns related to trade governance by the organization which it perceives keen on dispute resolution rather than promoting international commerce (Howse, 2016). According to the Department of Commerce (2011), India values multilateral trade agreements facilitated by environmental measures that guarantee access to markets. In the meantime, India’s international commerce remains strong for a developing country (GEM, 2017b). However, external vulnerabilities might threaten the country’s trade standing in 2019 (GEM, 2018). India’s inflation is projected to reach 4.9% in 2020 due to the continued weakening of the Rupee, increase in domestic demand, high fuel prices and increase in agricultural subsidy (GEM, 2018). In addition, oil price shocks and increase in trade disputes will further heighten the country’s external vulnerability (GEM, 2018). The United States and the European Union are India’s largest trading partners (WTO, 2018).

The WTO report (2013) cited India as a developing country that will significantly influence international commerce in the next decade. The increasing presence of India on the world stage particularly in the formulation and negotiation of the Doha Agreement reinforced its role as a key member of the World Trade Organization (Mattoo and Stein, 2003). The country in the eight Ministerial Meeting in Geneva, Switzerland, indicated that the WTO should do more to address protectionist policies that hinder free trade for developing countries (Rajamani, 2012). To that effect, India is part of a powerful alliance, known as the BRICS group (made up of South Africa, Brazil, and China) that aims to strengthen negotiating powers for trade schedules that are advantageous for developing nations (Rajamani, 2012).  Indeed, the country has used its double-digit economic growth in recent years to increase its diplomacy at the World Trade Organization (Tripathi, 2009).  The country is using sot power plays to advance negotiations on key trade issues with its neighbors instead of threatening military action or sanctions (Tripathi, 2009).India also challenged the World Trade Organization to be prudent and forthcoming with global powers that already control international trade and are focused on ensuring that commercial interests of their private companies supersede the welfare of people in the third world country (Rajamani, 2012). India has been a strong critic of WTO particularly in the manner in which trade policies of national countries are monitored and settling of disputes involving smaller and poorer nations (Singh, 2014).  However, this form of criticism on the WTO is not unique to India. The body has constantly found itself at the center of a controversy that challenges its legitimacy and regulatory disciplinary measures to foster trade liberalization (Stewart and Badin, 2011). This criticism has played out in the trade tension between India and the US over the Trade Facilitation Agreement (TFA) where the former agreed on regulations regarding agricultural stockpiles for its own food security (Schaffer, 2014). Hover, in 2014, the Indian government reneged on the TFA, demanding fresh negotiation that culminated in a trade diplomacy row that saw the country alienated and lack of support by other WTO members on the issue (Schaffer, 2014).

Impact of WTO on the business environment

The impact of WTO on the Indian business environment is undeniable. The complicated relationship of India with WTO has had negative effects on India’s economy. The WTO rules imposed on the country after 1995 has seen increased growth of India’s trade but at a relatively slow pace compared to other developing nations in Europe (Rajamani, 2012). The trade schedules by the WTO that bound India to several multilateral and bilateral agreements have no significant positive impact on the growth of the country’s manufacturing sector (Department of Commerce, 2011). The most affected sector is agricultural products that have been so adversely affected that the country is competitively disadvantaged in relation to international trade (Schaffer, 2014). The TFA agreements have limited the amount of agricultural produce India can stock to promote the food security of its citizens (Schaffer, 2014). The nation also has massive trade deficits with its major trading partners in the EU that has led to decreased negotiation strength when addressing commerce issues at ministerial meetings (Singh, 2014). Moreover, India still imports more than exports meaning that WTO schedules under which it operates have not boosted its business environment to allow local and multinational manufacturing companies to thrive (Singh, 2014). India’s percentage of the world merchandise trade was 1.68% in 2017 with the country being ranked 8th in the exportation of commercial services (WTO, 2018). The country’s major agriculture export is rice while travel was the main commercial service (WTO, 2018). India’s total agricultural exports and imports in 2017 were $23.2 million and $20.2 respectively compared to $183.3 million and $153.3 million (WTO, 2018). Developed countries like the United States and Germany have abused their powers in the WTO to vote for resolutions that promote antagonistic trade practices against emerging economies like India (Smith, 2013). Therefore, the business environment in India has remained the same for both Pre-WTO and WTO although the latter is proving to be highly hazardous to commerce in the country.

Conclusion

International trade is necessary for globalisation. Free trade areas, bilateral and multilateral agreements form the basis of international commerce. At the centre of all this is the World Trade Organization that plays an integral part against protectionist policies and discriminatory practices of commerce.  However, the WTO needs to do more than just serve as an arbitrary court that solves disputes involving members. The organization has a mandate to ensure that emerging economies in Asia, Africa and Latin America have an equal platform with developed countries to increase volume of trade.  The WTO has positively impacted business in the UK than India, a testament to the kind of relationship the body enjoys with developing and developed countries.

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