Joining WTO and employment prospects in developing countries

On the one hand, it is claimed that joining the organization results in the vast inflow of foreign investment and the creation of millions of job opportunities for developing countries while, reconstruction of the economic infrastructures, privatization, reforms and policies that are the prerequisites of  joining the organization, would result in the loss of many job opportunities. Thus, joining the WTO will have both negative and positive impacts on the labor markets and structures of developing countries.

In this article, we are trying to review the repercussions of joining the WTO on employment situation in developing countries.

To achieve the aim, we are obliged to first give a brief understanding of the current condition of the organization then, we will examine the economic indexes that would be influenced by joining it and its effects on employment in the developing host countries.

The World Trade Organization (WTO)

The WTO is comprised of the countries that in 1994, in Uruguay ratified the General Agreement on Tariffs and Trade (GATT). The GATT was replaced by the WTO in 1995. The organization currently has about 150 members. The member countries have now some 97 percent of the world trade in their control. More than three fourths of the countries member to the WTO are developing or less developed countries and, about 30 more countries are currently negotiating to join the organization.

The WTO is the sole international organization that reviews and discusses international laws regarding trades between the countries. Its main responsibility is to ensure the free flow of unlimited trade. However, the WTO is responsible for the following:

1- Management and implementation of the multilateral trade agreements

2- Establishment of a center for multilateral trade negotiations

3- Taking necessary measures for settling trade disputes among the members

4- Supervision over the economic and trade policies taken by the members

5- Cooperation with other international economic institutions and organizations in regulating the world’s economic policies

Joining the WTO would entail requirements such as eliminating non – tariff trade obstacles and customs tariffs, abolishing state subsidies and supports, privatization, etc.

On the other hand, the WTO member countries are able to impose up to 600 percent tariff on the imports of the non- member countries.  Thus, not being a member to the WTO would be equal to:

- Being deprived of the 97 percent of the world trade share

- Not participating in decision-makings on the world trade regulations governing the member countries.

- Facing the 600 percent tariff on the imports from by the member countries.

Joining the WTO and its influences on employment

Liberalization of the foreign trades including imports and exports of goods and services and the free flow of capital and production elements are the main concerns of the countries trying to join the WTO.

As it was earlier mentioned, liberalizing free foreign trade and free flow of capital are the two basic objectives behind joining the WTO. We will first review the freeing the foreign trade and its effects on employment:

Elimination of and non-tariff trade obstacles and customs tariffs is one of the basic articles of the WTO. Implementation of the article would result in the smoother inflow and outflow of goods and services. Therefore, membership in the WTO, on one hand paves the ways for the increase in imports and powerful competitors for the domestic producers will emerge in the market. For this reason a lot of domestic producers would face recession and many companies and industries not able to withstand the competitions would shut down. On the other hand, free trade will lead to the establishment of new enterprises that produce products of better quality. This would create more job opportunities and more exports.

Apparently, free trades in developing countries results in the significant increase in the imports. According to the surveys carried out on few developing countries that have joined the WTO (Venezuela, Egypt, Morocco and Nigeria):

- Average annual growth rate of the imports of goods and services in the 1990’s has increased compared to the 1980s.

- Average annual growth rate of the exports of goods and services in 1990s has decreased in comparison to the preceding decade.

- Average annual growth rate of employment has decreased and unemployment has increased.

As inferred from the survey, it becomes clear that liberalization of foreign trade in the aforementioned developing countries has resulted in the increase in the growth rate of imports, decrease in the growth rate of exports and, decrease in the growth rate of employment in the 1990s compared to the 1980s

Free flow of capital and employment, foreign direct investment and employment:

Free flow of capital is its transfer from a sector to other parts, this could be in the form of foreign direct investment, stock investment, loans or in other shapes.

Actually, the foreign direct investment (FDI), as one of the forms of flow of capital, has always been of the special interest of developing countries. But, it should be noted that while, FDI could have beneficial effects on economic performance of a country, it could be detrimental to it as well.

It is clear that under suitable conditions, FDI could act as an important source of private capital for the developing countries that are unable to mobilize domestic investment, create jobs, facilitate the transfer of technologies and boost their access to the world markets. But, what if the foreign investors have more imports rather than exports? Evidently, this type of investment would have a negative impact on the payment balances.

Volume of the FDI 

As a matter of fact, boosting the flow of FDI is one of the results of joining the WTO but unfortunately, the flow is not equal in different countries. Not all the member countries have succeeded to attract foreign investments.

Due to the fact that investment is considered a risky business and foreign investors always envision the return of their capitals, issues such as security in the region investment is done, its natural resources, legal policies and legal conditions dominating it among some of  the factors determining the amount of their investments.

Results

Liberalization of foreign trade in a few developing countries (Venezuela, Egypt, Morocco and Nigeria) has resulted in a growth in the imports of goods and services and decrease in their export in the 1990’s compared to the 1980s. Also, unemployment rates in the countries have increased during the period compared to the preceding decade.

In fact, direct foreign investment is an important source of private investment that developing countries in particular should take extreme care when deciding on making use of them, because it could be a bounty or a bane for the host country. It could enhance employment when properly utilized, however.

Expansion of the flow of the FDI is an outcome of joining the WTO but, unfortunately it is focused on some particular countries. Most of the developing countries have not been very successful in attracting them.

RA/MA

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