The World Trade Organization and Supply Chains

Currently, there are about three hundred various international trade and economic organizations with a wide and narrow composition of the participants. However, a major role in the shaping of global trade flows and setting the rules of international business is played by a relatively small circle of trade and economic organizations; the World Trade Organization (WTO) is among the most crucial ones (Bossche & Zdouc, 2013). The WTO plays a critical role in the regulation of world trade regarding products and services as well as the formation of trade policies of its member countries and the settlement of trade disputes between them. The primary objectives of the WTO are the liberalization of international trade, the provision of its fairness and predictability, and the promotion of economic growth and well-being of the people. The specific objective of the WTO is to regulate the world trade mainly by tariff methods through the sequential reduction of the level of import duties, as well as the reduction in the number of various non-tariff barriers, quantitative restrictions, and other obstacles to the international exchange of goods and services. The member countries of the WTO solve these problems by monitoring the creation of multilateral agreements, conducting trade negotiations, settling trade disputes in accordance with the WTO mechanism, as well as providing assistance to the developing countries and reviewing the national economic policy of the states. The WTO agreements cover almost the whole field of the international trade policy and a significant part of the international commercial practices, i.e. the international business (Bossche & Zdouc, 2013). Therefore, the WTO has a significant impact on all of the aspects of international trade, including the international logistics. However, its influence on the international supply chain is rather difficult to define as, in most cases, the WTO does not affect it directly. Therefore, the following work is dedicated to the impact of the WTO on the international supply chain as well as its separate components.

In general, the regulation of logistics and supply chains on the global scale can be performed on the various levels: the level of the market (i.e. the natural regulation), state, and supranational level. The market regulation is carried out under the influence of supply and demand in a particular market of products or services. On the other hand, state and supra-state regulation can be divided into several components: regulation within the country as an exporter of goods or services; regulation in the country which performs the transit of goods through its territory; regulation in the importing country (Rushton & Walker, 2007).

Governmental and supranational regulation of logistics and supply chains in the international business is usually manifested in tariff and non-tariff methods. The bases of tariff regulation are both import and export duties. In particular, customs duties are usually presented in the form of a tax on the export or import of goods crossing the customs border of the country. The change of duties has a significant impact on the pricing of goods crossing the border as well as the costs of their transportation. The level of customs duties is determined by the objectives of the foreign trade policy of a particular country. Depending on the situation, it may include the restriction of the export or import of certain products and raw materials ensuring a certain level of income to the state budget and protection of domestic products from the competition with imported ones. Such measures may interfere with the transit of particular goods and services causing changes in the structure of the local as well as the international supply chain (Branch, 2009).

On the contrary, non-tariff methods include quotas, licenses, and voluntary export restraints. The role of the quotas is to limit the size of the import or export of certain products. Licenses for import and export are permits for foreign trade transactions and are issued by the competent public authorities. Voluntary export restrictions represent a compromise agreement between the competitors on the certain markets of goods or services. As in the case with the tariff methods, they may hinder the transportation of particular goods and raw materials, leading to the changes in the structure of the international supply chain (Kersten, 2011).

Finally, the protectionist measures are also widely used in the international trade, being aimed at protecting the national economy. They may include exchange restrictions, i.e. legislative or administrative limitation of the operations with the currency. In addition, it is possible to introduce the additional sanitary norms and certain technological standards for products (Mangan et al, 2008).

The abovementioned ways of influencing the international supply chain are rather common and can be used by any of the participants of the global market in terms of the policy of protectionism. However, in the case with the countries that are the members of the WTO, some of the mentioned methods can be unacceptable since they are contradictory to the policy of the organization. The most important principles of the WTO in the field of management of the international supply chain and trade policy are as follows (Bossche & Zdouc, 2013):

• The most favored nation treatment is the principle of non-discrimination on the customs border. Any member of the WTO applies equally to imported goods from any country that is also a member of the WTO (Davey, 2012);
• The national treatment principle claims that member states must treat the goods of foreign origin the same as national products in the field of internal taxes and fees;
• The principle of the protection of national industry. It is expected that through import tariffs for the development of national industry the country can implement the protection based only on customs tariffs rather than the other trade policy measures (quotas and restrictions);
• The principle of creating a sustainable basis to ensure obligatory observance of trade tariff levels agreed by the contracting parties, which cannot be increased thereafter;
• The promotion of fair competition. The WTO tries to prevent the so-called “war of subsidies” and the use of compensatory measures for protectionist purposes;
• The general prohibition of quantitative restrictions on imports. However, such restrictions still have an impact on the trade in agricultural goods, textiles, steel, and some other products.
• The principle of possible actions in case of emergency. In this case, the member country is provided with the options of withdrawal and safeguard clause. The first action means the abolition of the specific commitments under the WTO if it is caused by economic or commercial reasons. Safeguard clause implies the possibility of imposing restrictions on imports or suspension of tariff concessions on goods that are imported in increasing quantities and pose a threat to domestic producers (Davey, 2012);
• The principle of regional trade agreements according to which a group of countries agrees to eliminate or reduce the trade barriers against each other;
• Special conditions for the developing countries that aim at encouraging assistance to them and ensure the better access of their products to world markets. However, the exemption for textiles and clothing involves the regulation of trading of these products by establishing the quotas on imports of textiles and clothing from the developing countries (Davey, 2012).

Therefore, the principles of the WTO are aimed at the prevention of protectionism and the reduction in the number of trade barriers between the member countries. In turn, the logistic situation on the global market makes it easier to predict the risks concerning the transit of goods as the territory of the member countries is reduced. Since the WTO has more than 140 members (the majority of the countries of the world), the entire international supply chain becomes more stable and safe (Alexander & Andenas, 2008).

By taking into account that in the modern conditions, the international supply chain is used not only for the transit of goods and raw materials across the globe but also the products that are considered the intellectual property, it is necessary to give an insight into the reflection of the WTO on this matter as well. In general, such transportations are regulated by the Agreement on Trade-Related Aspects of Intellectual Property Rights, which defines the scope of application of the basic principles for the protection of intellectual property rights. These principles include the mutual and the most favored nation treatment as well as non-discrimination (Davey, 2012). The agreement applies to the copyrights, trademarks and service marks, patents, geographical names, industrial design, layout of integrated circuits, know-how, and trade secrets. Moreover, the agreement commits the WTO members to adopt national legislation that would allow protecting intellectual property rights of both foreigners and citizens. In addition, member states must provide criminal penalties or large fines for the willful counterfeiting of trademarks and other similar violations. Moreover, the WTO identifies specific measures that can be taken by the customs authorities on the border in order to prevent the importation of pirated goods up to their destruction (Bossche & Zdouc, 2013). As a result, in case of identification of the transit of such products across the border, the abovementioned measures taken by the WTO members may slow down or even halt the work of a particular segment of the international supply chain. The consequences of such actions can be even more sever in case the customer did not know about the nature of the supplied goods and, therefore, will have to look for the new suppliers in the shortest time.

All of the abovementioned principles and measures are applied to the countries that are the members of the WTO and, therefore, have their economic systems as well as the methods of supply chain management adapted to the requirements of the organization. However, the countries that are yet to obtain membership in the WTO are also a part of the global supply chain and thus must be taken into account when defining the impact of the organization on the global logistics. In particular, the primary concern for the potential members is the fact that the foreign logistics organizations and transportation companies will conquer the domestic market. In most cases, they are better organized and are willing to work with lower margins. However, it should be noted that the relationships in the transport market are regulated by licensing system and bilateral agreements, i.e. the accession to the WTO will not change this situation (Alexander & Andenas, 2008). However, the rules of managing the supply chains will have to be adapted to meet the necessary requirements. As a result, the companies that do not work for the future will have to leave the market. Moreover, in the member states, transport and logistics companies are competing not in the sphere of pricing but rather the speed of delivery and quality. Hence, it is possible to identify the desire to maintain an acceptable share of the transport component in the price of the final product under the WTO standards of quality and safety. However, it should be noted that the accession to the WTO will bring more benefits to large companies. In particular, those who invest in their development, will not only be able to serve the growing volume of transactions of its customers, but also improve the quality of services provided (Wolfrum et al., 2007).

Therefore, the accession to the WTO is the next logical step in the development of the supply chain management and logistics industry as a whole for a particular country. The economic level of the industry will grow, and the efficiency of services provided will be increased. However, such development will also bring a number of difficulties for the local logistics companies. Some participants of the market may either become fatal or get the additional experience and profits. In the end, the increased competition in the sphere of logistics will bring benefits both to the consumers and the market, which will be excluded from the non-viable companies. In turn, such a strengthening of the local industry of transport and logistics will have a beneficiary effect on the international supply chain as a whole increasing its efficiency and durability.

In conclusion, it is possible to say that the WTO is concerned with the multilateral regulation of trade in goods and services. Moreover, the organization itself is the forum where in the process of collective discussion and negotiation international trade rules are formed and the reduction of barriers in the way of trade is discussed. Despite not having a direct effect on the international supply chain, the WTO still can influence it – mostly in a positive way. The abovementioned ways of regulation and standardization are aimed at the provision of a fair competition for all the members of the organization. In turn, these measures provide more stable and predictable environment for various logistics operations and, therefore increase the efficiency and safety of the international supply chain. Moreover, the transformation of the logistics in the countries that are the potential members of the WTO in order to meet the specific requirements also has a positive effect on the global scale.

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