Imperfection of the World Trade Organization as a Hazard for International Business

Abstract

This paper examines the negative impact of the paralysis observed in the World Trade Organization (WTO) functioning on international business. We provide an overview of the loopholes in the WTO rules and principles which became serious threats for the multilateral trading system. Our research identifies important loopholes in the MFN clause, DSB and Appellate Body. We bring clarity that the paralysis observed in the WTO functioning is a consequence of these factors. The deviations and exceptions of the WTO rules permit the WTO members to compete “unfairly”. China is among the economies which are the most efficient in this respect. We term China’s behaviour on the global market as “economic factitious disorder”. It can be explained as permanently maintaining the status of a developing country by China and using preferences for LDCs despite a really high level of economic development. These findings indicate that the WTO lacks the mechanism to react and to prevent such abuses. They were not envisaged by the WTO creators, which suggests the need of the WTO reform. We contribute to international business research and the international organizations literature by identifying the causes of the paralysis of the WTO functioning.