The World Trade Organisation is responsible for dealing with the rules of trade between nations at a global or near-global level.
- The WTO helps to resolve conflicts between nations and provide forums for agreeing over trade agreements and their implementation.
- The aim of WTO is to help trade flow as freely as possible, except where free trade conflicts with other objectives such as environmental or legal.
GATT: This was the forerunner to the WTO, GATT stood for the general agreement on tariffs and trade
The Uruguay Round: This started in 1986 and was not signed until 1993. It attempted to reduce barriers to trade. In recent years countries had increasingly made use of NTBs such as VER.
One of the biggest stumbling blocks was agriculture. In the US and EU, many agricultural markets are protected for political reasons.
The EU CAP caused significant problems.
- The CAP involved high tariffs on imports from outside the EU to protect domestic farmers
- The EU guaranteed to by any surplus at the minimum target price. This surplus was then dumped onto world markets, causing further problems for world farmers.
- This led to lower incomes for world farmers, the USA retaliated by flouting GATT rules and imposing restrictions on EU exports to the US
- Eventually, the EU agreed to make changes to the CAP cutting Import duties and subsidized export volumes
Other Features of the Uruguay Round – WTO
- Cut in tariffs by 38%
- Prohibition of VERs
- Protection of international Copyright laws
- Limiting domestic subsidies from govt
- Stronger powers for the WTO to settle disputes and enforce its rulings
- Each country to have its trade policy periodically reviewed by the WTO
N.B. Some food importing countries would be worse off with a reduction in protectionism from the EU because they will lose out on cheap imports “dumped” on world markets
Trade Blocks – Groups of countries which have trade agreements amongst themselves and a common external tariff, e.g., EU, NAFTA
Bilateral Trade agreements, Trade agreements between one country and another. These are not encouraged by the WTO because they can involve high tariffs with countries not included.
Multi-lateral Agreements. This occurs when a reduction in tariffs is passed onto all countries
Trading Blocks and The WTO
The WTO seeks to encourage free trade. However, there is often a stumbling block between rival trading blocks, For example, the US has been aggrieved at EU protectionism in agriculture. This has led to retaliation, such as “The Banana Wars” this involved the US imposing a high tariff on imports of bananas from French colony’s in the Caribbean
Conflicts between Trading Blocks
- “Dumping of surplus goods”
- High Tariffs on agriculture
- Need for protectionism in the third world and developing countries
- Subsidies given to domestic producers, therefore, creating unfair subsidies
Began in 2001.
Reasons for WTO trying to avoid Protectionist Policies
- Free trade enables gain of comparative advantage – countries can specialise in producing goods where they have a lower opportunity cost
- Greater competition in the global economy. Tariffs may enable an inefficient industry to hide from competition. In the long term, this is not good for the productivity of the economy.
- Specialisation enables gains from economies of scale. One benefit of free trade is that countries can make gains from specialising in the goods where they have a comparative advantage.
- Ongoing retaliation. If a country starts putting tariffs, this inevitably leads to retaliation from other countries leading to a decline in global trade, which could push economy back into recession.
- See also: benefits of free trade