2.2 WTO, trade agreements, fair trade

Question 1

What is the WTO?

Answer 1

• Aims to reduce barriers to trade - forum for countries to negotiate blocs on trade - tariffs, quotas, licensing, subsidies
• 164 countries are members
• Provides rules for trade, negotiated and signed by member trading nations
• Promotes trade, seeks to liberalise markets and reduce protectionism
• Settle trade disputes in negotiations called rounds
• More competition and benefit for LICs
• Protects environment
• Most favoured nation - have to tariff the same for every country
• National treatment - cannot discriminate between domestic or international goods

Question 2

Benefits of WTO

Answer 2

• Prevents demerit goods
• Reduce trade barriers - global market bigger
• equal access to companies for all members
• transparency - cannot introduce other barriers
• competitiveness -> prices -> wages - > trade
• Greater choice
• Solves disputes and promotes peace
• Good governance
• Increased credit rates - 80% of WTO
• Promotes peace
• Increased GDP - added over $100bn to world income
• Belarus $12bn o FDI in 5 years since joining

Question 3

Criticsms

Answer 3

• Decline in domestic industry
• Countries outside miss out
• Trade blocs undermine most favoured nation
• Negotiation takes years
• Controlled by elites - protects MNCs
• Poor countries have little say - african countries never filed complaint
• Undemocratic
• Ignores environment, morals and development
• Used as weapon
• Agricultural subsidies paid to rich countries, not poor
• Manipulates and exploits developing countries
• Legal costs, natural disaster, decision making too high for poorest countries - poorest dont get medicine
• HICs have EofS, subsidies and control so can benefit

Question 4

Examples of failures

Answer 4

$47bn subsidised to HICs - barrier to 15m cotton farmers

• African countries remove tariff on 40% of trade due to protectionism
• Failed to develop special and different treatment
• No African country filed complaint
• Failed to alleviate suffering - 2 years to solve Pakistan flood
• Only consensus between 153/164 members

Question 5

What are trade blocs? What are the types?

Answer 5

-Groups of countries who share trade agreements to reduce trade barriers

Free trade: abolish internal barriers, maintain external barriers e.g. NAFTA

Preferential - lower barriers among members

Customs - eliminate internal barriers, common external e.g. EU/Turkey

Common markets - eliminate internal, common external, free movement of resources e.g. WAC

Economic union - eliminate internal barriers, common external, free movement of resources and uniform policies e.g. EU
EU has 1/3 of world market value, 500m consumers
NAFTA quadrupled in trade in 20 years

Question 6

Benefits of trade blocs

Answer 6

• Free to live and work in member countries - job
• Trade = higher SOL
• Protects areas from overconsumption
• Specialisation and comparative advantage
• Market creation + competition
• EofS gained
• Trade leads to development leads to jobs. 3 million jobs made from EU
• Inside bloc protected from exports outside
• WEaker peripheral regions protected
• Environmental standards
• REduced conflict
• Better political influence and voting power
• Democratic and parliaments

Question 7

Cons of trading blocs

Answer 7

• Relaxed borders - smuggling, illegal immigration
• Legislation limits workers and protection
• Benefits lost of global trade if stuck in block
• Inefficient producers lose protection from outside
• Trade wars e.g. Beef war - US chlorinated beef, EU imposed £60m tariffs
• Non members ostracized
• High cost - EU cost £960bn
• pollution
• Specialisation hurts sectors
• US has 17% of votes
• Creates new government
• Loss of sovereignty

Question 8

What is the Fairtrade system?

Answer 8

Small scale producers join into cooperative meeting fairtrade standards protecting workers and the environement

• Provides fairtrade minimum price
• Additional premium to be reinvested into business
• Sets economic, social, environmental, worker rights as well as minimum price and premium
• Certifies products and ingredients - usually higher cost to ensure fair pay
• Works directly with producers
• Certification includes: democratic decision making, systems for capacity building, employee wages, unions and bargains, no child labour, health and safety requirements

Question 9

Advantages of fairtrade

Answer 9

• Improved negotiation in supply chain
• Higher prices for suppliers and control
• Support rights
• Provides training and services like organic training
• Environmental protection - less pesticides, emissions, soil and water, environmentally friendly
• Minimum price supports growing crops whilst being less vulnerable to poverty
• Provides access to finance, producer support and expertise in sustainable development
• Premium invested into education, housing, facilities health and work standards - betting living standards
• Income reinvested into cooperatives, farming and assets to rise crop yields

Question 10

Disadvantages of fairtrade

Answer 10

• High price, mainly to supermarket as only paid minimum wage
• Cooperates pay and have standards to join schemes - poorest lose out
• Paying guaranteed price leads to overproduction and low demand due to high pricing
• Political message used for profits
• Overspecialisation of primary produce and other sectors fall beyond - short run development and debt
• Producers chosen by means to supply rather than demand - poorest miss out and most countries do not have the EofS to join the schemes
• MEDCs 54%, LICs, 21% certification
• Must pay for certification - Latin America get 56% of Coffee certifications yet it is 2% of GDP and Africa get 29% yet it countries like Ethiopia and Burundi are fully dependent on it
• Mexico gets 1/4 of GDP in Latin American but gets most of FT despite not needing the aid.