To export these goods you have to have an organization which deals with the rules of trade between nations. Such an international organization is the World Trade Organization (WTO). The goal is to help producers of goods and services, exporters, and importers conduct their business.
Result: -is assurance-Consumers and producers know they can enjoy secure supplies and greater choice of the finished products.-Producers and exporters know that foreign markets will remain open to them.Heart of the system are the:-WTOs agreements-The agreements are negotiated and signed by governments. They have to be ratified in their parliaments.World Trade Organization (WTO)-came into being in 1995-deals with rules of trade between nations-the agreements are signed by the governments-It is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War-It has more than 140 members and the top decision making body meets at least once every two yearsThe 3 main purposes of WTO:- trade flow as freely as possible-means removing obstacles.
-also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be transparent and predictable. -to serve as a forum for Tradenegotiations-dispute settlementTrade relations often involve conflicting interests. Contracts and agreements often need interpreting. The best way to solve these differences is based on an agreed legal foundation.Principles of the trading systemThe WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards, food sanitation regulations, intellectual property, and much more.
Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements now cover trade in services, and in traded inventions, creations and designs (intellectual property).The trading system should be …
without discrimination a country should not discriminate between its trading partners (they are all, equally, granted most-favoured-nation or MFN status); and it should not discriminate between its own and foreign products, services or nationals (they are given national treatment).freer with barriers coming down through negotiationpredictable foreign companies, investors and governments should be confident that trade barriers (including tariffs, non-tariff barriers and other measures) should not be raised arbitrarily; more and more tariff rates and market-opening commitments are bound in the WTO.more competitive by discouraging unfair practices such as export subsidies and dumping products at below cost to gain market share.more beneficial for less developed countries by giving them more time to adjust, greater flexibility, and special privileges.-Most developed countries opposed free trade. -They wanted to industrialize in order to counteract what they rightly saw as an inevitable fall in commodity prices.
They practised import substitution and imposed high tariff barriers to protect their industries.-Nowadays many developing countries have huge debts with Western commercial banks on which they are unable to pay theirinterests.-Under these conditions the IMF imposes severe conditions usually including the obligation to export as much as possible.The case for open trade-Tariffs on industrial products have fallen; now about 4% in industrialized countries. – After the war world economic growth averaged about 5% per year. That was partly the result of lower trade barriers.
– World trade grew even faster, averaging about8% during the period. -Abandoning all sectors in which a countrydoes not have a comparative advantage is likely to lead to structural unemployment inthe short term and sometimes long term.Example:Country A is better than Country B at making automobiles and Country B is better than Country A at making bread. So the result is:-A will benefit if it specialized in automobiles-B will benefit if it specialized in bread and they traded their products.
That is a case of absolute advantage.But what if a country is bad at making everything? Will trade drive all producers out of business? The answer, according to Ricardo, is no. The reason is the principle of comparative advantage, arguably the single most powerful insight in economics.According to the principle of comparative advantage, countries A and B still stand to benefit from trading with each other even if A is better than B at making everything, both automobiles and bread. If A is much more superior at making automobiles and only slightly superior at making bread, then A should still invest resources in what it does best producing automobiles and export the product to B. B should still invest in what it does best making bread and export that product to A, even if it is not as efficient as A. Both would still benefit from the trade.
A country does not have to be best at anything to gain from trade. That is comparative advantage.GATT: provisional for almost half a century- 1948 to 1994: General Agreement on Tariffs and Trade (GATT) provided the rules for much of world trade.
– It was well-established, but throughout those47 years, it was a provisional agreement and organization.- Its success over 47 years in promoting and securing the liberalization of much of world trade is incontestable.- GATT, the international agency, no longer exists. It has now been replaced by the World Trade Organization.- GATT, the agreement, does still exist, but it is no longer the main set of rules for international trade.
And it has been updated.- The General Agreement on Tariffs and Trade always dealt with trade in goods, and it still does. It has been amended and incorporated into the new WTO agreements. -While GATT no longer exists as an international organization, the GATT agreement lives on. – The old text is now called GATT 1947. – The updated version is called GATT 1994.
The main differencesGATT was ad hoc and provisional. The General Agreement was never ratified in members parliaments, and it contained no provisions for the creation of an organization.The WTO and its agreements are permanent.
As an international organization, the WTO has a sound legal basis because members have ratified the WTO agreements, and the agreements themselves describe how the WTO is to function.The WTO has members. GATT had contracting parties, underscoring the fact that officially GATT was a legal text.GATT dealt with trade in goods.
The WTO covers services and intellectual property as well.The WTO dispute settlement system is faster, more automatic than the old GATT system. Its rulings cannot be blocked.