Role of WTO + Free Trade

Question 1

What is the World Trade Organisation (WTO)?

Answer 1

• an international organisation, founded in 1995, that promotes free trade by ensuring trade flows as freely as possible + helps resolve trade disputed between countries

Question 2

What is free trade?

Answer 2

• trade involving removal of restrictions, such as tariffs, quotas + subsidies, + aims to promote smoother global trade flows, dec protectionism + encourage fairer + more competitive trading conditions

Question 3

What are the benefits of the WTO?

Answer 3

• WTO has been largely successful, shown by avg tariffs dec by around 90% since GATT was introduced + world trade growing at a faster rate than global GDP
• it has promoted free trade by dev trade restrictions, encouraging trade reforms + establishing agreements that facilitate smoother trade
  
  • e.g. WTO has eliminated tariffs on >200 IT products, which contributed to the dec in avg global tariffs rate from around 15% in 1995, to 5% in 2023
• it also provides a platform for member countries to negotiate trade agreements, helping to dec trade barriers + resolve conflicts

Question 4

Describe how the WTO has been successful in resolving trade disputes.

Answer 4

• it has been successful in resolving trade disputes, as member countries are obligated to not take unilateral action + are expected to resolve disputes through WTO’s dispute-settlement system
• between 1995 + 2011, >400 trade disputes were brought to WTO + < half required formation of dispute panels, as many were resolved through bilateral consultations, thus showing the system’s effectiveness, as helped avoid trade wars + promote stability in global economy

Question 5

What are the limitations of the WTO?

Answer 5

• protectionism remains an issue, esp in sectors such as agri, textiles + clothing, where many countries continue to impose tariffs + quotas despite WTO rules
• many LICs + MICs argue that WTO is dominated by interests of HICs, esp USA + EU, often neglecting specific needs of dev countries, making it difficult for them to fully benefit from or participate in global trade
• LICs are often pressurised to open their markets immediately to sensitive sectors like banking, telecommunication + agri, which can harm domestic industries
  
  • e.g. India was forced too open its markets, resulting in food imports quadrupling, leading to a sig dec in prices + rural incomes
  • e.g. price of coconuts dropped by 80%, + foreign imports like Malaysian palm oil outcompeted local producers

Question 6

What are limitations of the WTO when dealing w trade disputes?

Answer 6

• although WTO has helped resolve many trade disputes, dispute-settlement system is often slow + complex, meaning disputes can take yrs to be resolved, which disadvantages LICs lacking money or legal support to handle long WTO disputes
• WTO also struggles to enforce its rules when dealing w disputes between powerful HICs
  
  • e.g. during 2018 steel trade war, USA imposed tariffs on steel imports, claiming it was for national security. Several HICs, like EU + Canada challenged this through dispute settlement system, but WTO couldn’t stop USA from maintaining tariffs
  • this proves WTO lacks authority + power to hold powerful HICs accountable when they break trade rules

Question 7

Conclusion on success of WTO

Answer 7

• overall, WTO has been successful in encouraging global trade by dec trade barriers + providing a system for resolving disputes between countries
• however, it’s effectiveness is limited by its slow processes + inability to effectively enforce rules against powerful HICs, making it harder for smaller + poorer countries to benefit fairly from global trade