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WTO (World Trade Organization) and how they regulate global trade? -…
WTO (World Trade Organization) and how they regulate global trade?
Who is WTO?
WTO (World Trade Organization) is the only global organization that deals with the rules of trade between nations.
Was established in 1995
Was the heir organization to GATT (General Agreement on Trade and Tariff).
Was founded in 1948 with 23 countries as the global trade organization.
164 countries are members in WTO
Afghanistan became the 164th country in 2016.
Objectives of WTO
To set and execute rules for international trade
To present a panel for negotiating and controlling additional trade liberalization
To solve trade conflicts
To improve the clarity of decision-making methods
Functions of WTO
Form rules
It establishes a rule-based trading regime, in which nations cannot place arbitrary restrictions on trade.
Facilitate international trade
It facilitates international trade through the removal of tariff and non-tariff barriers.
It provides greater market access to all member countries.
Protecting the interest of developing countries
It frames fair global rules, regulations.
It safeguards and advocates the interests of the developing world.
Optimum utilization of world resources
It is also responsible to increase production and trade of services.
It ensures optimum utilization of world resources.
Regulation of global trade
Protection of Domestic industry through tariffs
Member countries can protect their domestic industries using tariffs.
It prohibits the use of quantitative restrictions. But there are some exceptions in limited number of situations.
Binding of tariffs
Member countries are encouraged to eliminate the protection of domestic industries/ production.
Most Favored Nation (MFN) treatment
The rule lays down the principles of non-discrimination amongst the member countries.
Tariff and other regulations should be applied to imported or exported goods and services without any discrimination among countries.
National treatment rule
The rule prohibits member countries from discriminating between imported products and domestically-made goods.
Advantages of WTO
Lower prices for consumers
Removing tariffs enables us to buy cheaper imports
Free trade encourages greater competitiveness
Through free trade, firms face a higher encouragement to reduce costs. For example, a domestic monopoly may now face competition from foreign firms
Promotes Peace
WTO contributes to international peace. Without this system in place, chances are that countries would participate in unhealthy commercial relationships and political conflicts.
Disadvantages of WTO
WTO has often been criticized for trade rules which are still unfavorable towards developing countries.
Many developed countries went through a period of tariff protection; this enabled them to protect new, emerging domestic industries.
Free trade makes it harder for industries and production to come up.
For example, if a developing economy was trying to diversify their economy to develop a new manufacturing industry, they may be unable to do it without some tariff protection.
Countries build more industries and technical enterprises causing the destruction of the environment.
The World Trade Organization encourages countries to maintain free trade throughout the globe and inspires them to increase their trade for more profit.