The World Trade Organisation

The WTO's roots are linked to the post war period (around the Bretton woods agreement) aiming to boost economies worldwide as the recession post WWII was kicking in

Bretton Woods - the turning point for global economic integration

Post WWII representative of mostly western nations met to reorganise the global economy

One of the big changes was in how exchange rates are calculated

The IMF and world bank were set up as well as GATT (General Agreements on Tariffs and Trade) becoming the WTO

The Bretton Woods Agreement established a system through which a fixed currency exchange rate could be created using gold as the universal standard

The agreement involved representatives from 44 nations and brought about the creation of the International Monetary Fund (IMF) and the World Bank

The World Trade Organisation (WTO) is the global international organisation dealing with the rules of trade between nations

The primary goal is to ensure that trade flows as smoothly and freely as possible

The WTO act to reduce tariffs/barriers by acting as mediators between governments

WTO Rules

Countries should promote free trade

i.e. remove barriers to trade

Countries have to treat other countries fairly, and cannot give another country special trading terms (e.g. lower tariffs) - unless they are in the same trading bloc

There should be fair competition across traded goods

It is important to recognise that the trading relationship between LDE, EME and HDE countries makes it difficult for LDE countries to achieve significant economic growth due to a lack of access to markets and restrictions that prevent them from producing more high-value secondary commodities

e.g. EU places higher tariffs on imports of roasted nuts compared to imports of raw nuts which can make it difficult for LDE countries to access the market for processed goods (meaning there is no point in the LDC converting their raw material into roasted nuts as tariffs placed on their product would make it expensive for the consumer; they will favour domestic roasted nuts.)

Types of trade agreement

Bilateral Trade Agreement

Trade agreement between 2 countries

Multilateral Trade Agreement

Trade agreement between 3 or more countries

Free Trade Areas

Countries agree to abolish tariffs and quotas on trade between themselves but maintain restrictions on goods coming from outside the area

NAFTA

Customs Unions

Member countries operate a tariff on imports from outside the group

Economic Unions

Customs union and common policies in such areas as agriculture, transport, pollution, industry, and energy

e.g. the EU (which also has a 'monetary fund')

Common Markets

Customs unions which in addition to free trade in goods and services also allow the free movement of labour and capital

Trading Blocs

Free Trade Areas

Customs Unions

Economic Unions

Advantages of Trade Agreement Blocs

On a Global Scale

Improved peace and security/reduced conflict

Increased global trade and co-operation on trade issues

On a Regional Scale

Helps members to develop their economies and standard of living

Helps the region to compete effectively with other trading blocs

More negotiating power

To gain a bigger representation in world affairs

To allow free movement of workers around the bloc

Helps to support particular sectors

To share ideas, democracy and human rights

Disadvantages of Trade Agreement Blocs

On a Regional Scale

Some loss of sovereignty

Some loss of financial control

e.g. the European Central Bank for the EU

Pressure to adopt central legislation

e.g. food standards

Certain sectors may be damaged

e.g. UK fishing - having to share resources with Spain and France

Cannot 'tailor' a trade agreement to a specific country's needs