15) free trade and the wto Flashcards
what is protectionism?
Protectionism represents any attempt to impose restrictions on trade in goods and services.
what are the most common protectionist measures?
The most common protectionist measures are imposing tariffs and quota on imports from overseas.
what does free trade ivolve linking to the previous statement
free trade normally involves the removal of these 2 and other protectionist policies
the benefits of trade: talk about comparative advantage
Free trade allows countries to benefit from comparative advantage, specialising in areas of relative strength and avoiding inefficiencies that come from non-specialisation
benefits of free trade: as a result of comparative advantage what does this allow for companies?
This allows companies to grow and benefit from economies of scale
benefits of free trade: how does free trade increase AD
It should also increase the volume of a country’s exports, thereby increasing AD
benefits of free trade: what happens to competition?
More trade increases competition and more competition reduce prices
benefits of free trade: talk about growth
World trade is a major driver of economic growth: freer trade should benefit growth
benefits of free trade: talk about resources
Countries with high volumes of natural resources (e.g. Saudi Arabia) can find a market for these resources ensuring they’re not wasted; countries with low levels of natural resources (e.g Japan) can still become very rich by importing the resources they need.
what does wto stand for?
the world trade organisation
when was the wto established?
1995
what has the wto been a major driver for?
it has been a major driver in the trend towards globalisation.
what is the wto main function?
Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.
what rules do the wto set?
The WTO sets the global rules concerning trade between nations.
wto rules characteristics
It sets different rules for different types of products (e.g. food can only be subject to tariffs, not quotas).
is the wto a free trade organisation?
WTO is not a completely free trade body. It allows tariffs and trade restrictions under certain conditions, e.g. protection against ‘dumping’ of cheap surplus goods.
what is the wto’s main objective?
The main objective of the WTO is not “free trade” rather “freer trade”. “lowering trade barriers is an obvious way to encourage trade”.
does te wto believe free trade is good? why?
The WTO believes that freer trade is good for the economy of the whole world. This is because with free trade: “investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition - such as increased choice and lower prices”.
how many countries are signed up to the wto?
There are currently 164 countries in the world signed up to the WTO, including all the major economies and the vast majority of developing economies from SSA.
Evaluation: how has the wto played a major role in promoting trade?
According to a recent UK government report, over 96% of world trade is between WTO members and based on WTO rules. The formation of the WTO has been a major driver in the globalisation of the world economy in the 21st century.
how has the wto’s power and influence been challenged?
as with other aspects of globalisation, the WTO’s power and influence has been challenged by the growth of populist movements (e.g MAGA/BREXIT) and the return to fashion of protectionist policies.
has the wto benefitted everyone?
the WTO has not benefitted everyone equally. Small open economies (e.g Ireland, Netherlands and Norway) have benefitted most whilst developing countries often get swallowed up by the system. For example, the WTO has allowed MCs to get a foothold in many developing countries, often taking advantage of their resources whilst WTO rules have encouraged the drive for growth in real GDP, often at the expense of environmental considerations.
