The World Trade Organization, or WTO, is an international body that is located in Geneva, Switzerland and was officially founded in 1995 (The World Trade Organanization, 2012). There stated purpose is to help trade flow as freely as possible under a number of given restrictions. For example, the WTO does not try to get countries to openly trade items that are safety concerns or can cause illnesses without proper restrictions to address such concerns. Basically, the organization tries to maximize trade without bringing in any undesirable side effects that can diminish trade between two countries. However, given consideration of such restrictions, the WTO basically tries to open markets up to international importers and exporters.
Much of what the WTO does is try to facilitate trade through negotiations. The WTO does not have the authority to tell countries what they can and cannot do in regards to their trade policies. Another way to state this is that they cannot act unilaterally. However, what they can do is to make sure that representatives from any particular nation have the resources to understand how global markets operate and what their options are. They do not have to abide by the rules of that the WTO organization recommends however this could come at a great deal of economic cost to the participating countries. While the WTO does not have any direct influence over a country's policies, they can indirectly affect a country by utilizing their member's collective economic activities.
A great example of the power that the WTO can have on any particular country is provided by the case of Iran in today's news. Iran has threatened to use military force to block one of the main routes for which oil is shipped in the region. A result of this would be a shock to the world markets that could act to destabilize international trade. Therefore the United States has led an effort to have economic sanctions imposed upon Iran that will be severe enough that the Iranian population should suffer in their own individual economic well-being. The intent of this is to make the people of Iran pressure their leaders to resolve the conflicts in a peaceful manner. However, other countries such as China who depend on Iranian oil for their development, also are affected by the sanctions and therefore the WTO also steps into hear complaints from other nations as well as offer a place where peaceful trade negotiations can be conducted (The Economist, 2012).
Importance of Trade Liberalization
Under most circumstances, free trade can have a wide range of benefits. These benefits can be felt by either consumers, producers, or the entire domestic economy as a whole. Generally, the only instance in which free trade is limited is when free trade might somehow reduce the capacity of some good or service that is deemed as of vital importance to national security. For example, many Western nations have many restrictions on food imports. These nations not only want to have some control over the quality and safety of their food supply but they also want to ensure that their domestic production is sufficient to feed their populations. If a country was over dependent on another nation to supply it its food then if for whatever reason trade was disrupted then people could literally starve. Other industries that have similar restrictions are the defense industry as well as many pharmaceutical industries.
The advantages to consumers are one of the biggest segments that can benefit from international trade. Consumers in open international markets can have access to a wide array of goods and services produced from producers a crossed the globe. As a result of more choices there is also more competition for the producers to either lower costs or increase quality. One example of how consumers can immediately benefit can be provided by China. China has become one of the world's largest exporters of manufactured goods mainly due to the fact that they have very low labor rates. Therefore products can be produced in China for a fraction of what they could be produced in more modernized nations with stricter labor laws. Therefore consumers in open markets can purchase these goods at deeply discounted rates when compared to domestic production.
However, from a long-term perspective, the short-term consumer benefits can come at a cost to the long-term domestic economy. Although the effects of trade liberalization are often hard to quantify, if a country becomes dependent on low cost Chinese goods then it can slowly disassemble its own manufacturing base which can cost many jobs to the domestic population. Determining which action has the greater overall effect on any economy is a difficult task that can be largely debated. However if a long enough perspective is considered, another possibility is that eventually the costs of general labor from around the globe will eventually reach an equilibrium and no country will have a significant advantage over the others in terms of human resources.
The benefits to producers can also be a significant advantage since there are exposed to many more markets in which they can sell their goods. Sometimes the number of customers they are exposed to can grow exponentially through trade deals on the open market. However, again at the same time they can also experience greater levels of competition. For the most competitive firms this can be a beneficial position and they can grow to seemingly limitless operations. McDonald's, Wal-Mart, and Apple are all great examples of success stories that have become truly global forces. Yet less competitive players are also sometimes gobbled up by larger players on the international market. In theory, this is beneficial for the consumer under most of the more common situations.
Trade Liberalization and the Developing World
Trade liberalization and its implications for the developing world have been a particularly debatable issue for many decades now (Edwards, 1993). It was argued that in order to help smaller countries develop that this required a boost from more developed economies especially in the manufacturing and technology sectors. While there has been much evidence presented about the impacts that trade liberalization can have on growth and income distribution, the results are often mixed (Bussolo & Lecomte, 2009). While the trade liberalization may lead to greater economic growth, this growth may benefit small sectors of the population who hold the means of production and property. Furthermore, in some instances, trade liberalization does little to reduce poverty.
However, such poor results in regards to poverty may not always be the case. Another example, provided by India, has shown that the ability to acquire the capital inputs that were needed to bolster growth and drive economic activity (Goldberg, et al., 2009). It is reasonable to suspect that having access to exterior markets that can provide a domestic economy the needed resources or materials to overcome certain obstacles in production. In the case of India, the country was able to build a great deal of technological infrastructure which allowed them to focus on high tech education and eventually become one of the world's foremost technological service providers. Although the results of such growth have not been shared a crossed the board in regards to the entire population, it is hard to deny that India did not benefit significantly from trade liberalization.
In conclusion the trade liberalization of markets has had some mixed results that have helped some and have hurt others. It seems as if one must take each instance on a case by case basis to determine the effectiveness of trade liberalization. Furthermore, it also depends on the perspective that you view the policies from. If you only consider the effects of what trade liberalization might have upon total GDP then you might reach one…