A Query into the Randomness of the Complaints at World Trade Organization: A Matter of Trade Agreement Breaches or a Systematic Financial and Economic Necessity.
35 Pages Posted: 1 Aug 2014
Date Written: July 30, 2014
The explorative study by the author found out that the current literature still needs to explore the relationship between the number of complaints filed at the WTO and the financial and economic state of the WTO member countries. The explorative study categorised the WTO member countries into four categories based on their activeness at the WTO platform. The study provided conceptual models to show the theoretical possibility of causality between the legal or non-legal trade obstacle and financial and economic variables at the macro level. It used a quantitative model to test the model and to find the extent of causality between various financial and economic factors and the aggregate level trade complaints for the most active nations at the WTO.
There is a consensus among the economists about the role of open economy in economic growth. The trade liberalization which results more in the export promotion strategy rather than import substitution strategy has proven a key to the economic growth.
The World Trade organization, henceforth WTO, with the 159 member countries and 25 observers champions the cause of trade liberalization. It discourages unfair practices, such as export subsidies. The WTO also facilitates the necessary organizational infrastructure for the members who perceive that their trade partner countries do not keep to the trade agreement.
The study results show that the aggregate number of complaints lodged by the most active WTO member countries can be explained in eighty percent cases at 0.01 confidence level by the three variables: intellectual property rights, the net foreign direct investment and the percentage of population with structural unemployment. The current account balance of a complainant country also emerges out to be another important factor.
The purpose of this paper is to extend this cross section analysis for the most inactive countries at the WTO and to check whether the extent of causality applies also to these countries. The macro government spending is taken as a proxy variable for the most inactive countries due to lack of complaints filed by them or against them.
The country wise data related to trade related variables is taken from the it appeared at the WTO. The data related to intellectual property rights, government spending is taken from the world bank source. This data containing the same variables which emerged out as significant in the regression model of the most active countries is used to apply to inactive counties in a regression model. Furthermore it attempts to build a potential WTO complaint index for these inactive countries. This is expected to measure the likelihood of the WTO complaints given their combined respective export share. To support the cross section analysis a time series model is built for four countries U.S.A, Canada, Japan, and the EU respectively.
The results show out that it is not just the cross section country analysis which shows a very strong regression results with 0.85 regression coefficient for most active countries. It also holds true for the most inactive WTO member countries. The time series analysis of the major four U.S.A, Canada, Japan, and EU confirm the results at the country level showing that complaints are not just lodged by a random breach of an agreement.
With these encouraging results the study proves that conceptual models used in the paper are an effective tool to provide a key, if not the path, to solve the home bias puzzle in international trade theory.
Keywords: WTO, complaints
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