What are the benefits of trade? What do the WTO want to achieve? Why do trading blocs exist?

With reference to Extract 1, explain the role of the World Trade Organisation (WTO) (5)

 The WTO seeks to encourage free trade, however there is often a stumbling block between rival trading blocs  For example the US has been aggrieved at EU protectionism in agriculture.  This has led to retaliation, such as “The Banana Wars” this involved the US imposing high tariff on imports of bananas from French colony’s in the Caribbean 

 barriers go up between members & non-members  members trading can lead to trade diversion – less efficiency  weaker countries may not be excluded from larger markets  trading bloc rules may prevent members from pursuing potential benefits of trade with non- members  if trade becomes concentrated in these zones, WTO may become obsolete or powerless Trade Diversion – consumption shifts from lower-cost producer to a higher-cost producer (reducing world efficiency) – eg. if tariff exists on all imports of wool, and New Zealand is the lowest cost producer, then UK will import from New Zealand. But once customs union created, no tariff on Irish wool so it bears a cheaper price tag, even though Irish may be higher cost producers – loss to world efficiency as UK chooses Irish wool.

When is the WTO most needed? When will countries be tempted to look inward and ↑ protectionism? Evaluating the WTO

General reduction in world tariffs may be more due to groups of countries recognising mutually beneficial trade rather than through action of the WTO (states tend to operate in their own interests)

 Some poorer countries were allowed to join even with high tariffs in place (eg. India) whereas other are still blocked (eg. China & Russia) Evaluating the WTO

Special exemptions for “economic emergency” give convenient cover for predatory tariffs (eg. USA steel tariff)

Many countries have replaced tariffs with non-tariff barriers to trade (eg. Exports subsidies & import regulations) – this is harder to combat Evaluating the WTO

Anti-globalisation protestors view the global marketplace as the source for poverty and inequality as the rich countries MNC’s get richer without the poor countries being able to benefit Evaluating the WTO

With reference to Extract 1, explain the role of the World Trade Organisation (WTO) (5)