Why Trade?

The WTO and Trading Blocs

5th March 2010

The Global Economy

Lesson Objectives

By the end of the lesson students will be able to:

Describe the role of the WTO in international trade liberalisation

Describe the role of trading blocs in international trade

Sample Essay Questions

‘Trading blocs are the most significant factor contributing to globalisation.’ To what extent do you agree with this statement?

Evaluate the possible economic effects of the introduction of a single currency by a trading bloc

Discuss whether or not the formation of trading blocs such as the European Community contributes to an increase in economic welfare

Trading Bloc Anagrams

WTO – World Trade Organisation

NAFTA

EMCCA

CAN

ASEAN

SACU

EEA

CARICOM

Trading Bloc Anagrams

WTO - World Trade Organisation NAFTA - North American Free Trade Area EMCCA - Economic and Monetary Community of

Central Africa CAN - Andean Community of Nations ASEAN - Association of Southeast Asian Nations SACU - Southern African Customs Union EEA - European Economic Area CARICOM - Caribbean Community

What do you know about the WTO?

The role of the WTO?

Formed from the GATT in 1995 following implementation of the Uruguay round. China joined in 2001

GATT sought to reduce protectionism on trade in goods

WTO also deals in trade in services, agriculture and intellectual property

Negotiating Forum: Doha round began in 2001 and ground to a halt in 2008 – may be restarted but unlikely until end of recession

Rules & Disputes: It operates a system of rules and helps to settle disputes between nations

Criticisms of the WTO

Often seen as promoting the interests of multinationals over rights of poor workers

Small, poor countries have equal vote but little influence on decisions

Exploitation of developing countries and their workers

Still high levels of agricultural protection

Environmental degradation

Intellectual property rights make it expensive for developing countries to get access to medicines

Key Terms

Trade creation occurs when a new trading bloc has been set up and businesses begin to take advantage of the opportunities arising from free trade between member countries. Because there are fewer trade barriers, new markets open up and businesses will try to extend into them. There will be increased specialisation and more trade.

Trade diversion takes place because some member countries of a trading bloc will shift to buying more from other member countries rather than from non-member countries. For example, when the UK joined the European Union, it began to buy more butter from France and less from New Zealand. The absence of trade barriers between member countries and the common external tariff give people an incentive to switch

The routes of trade

Questions

What are the benefits of trade?

What does the WTO look at that GATT didn’t

Which countries have the most votes on the WTO General Council?

Free Trade Area

A group of countries which allow free trade amongst themselves but retain a separate set of trade barriers against other countries

• North American Free Trade Area: • Canada, Mexico, USA

Customs Union

A group of countries which agrees to trade freely within their borders and imposes a common external tariff on imports from outside the area

• South African Customs Union: • South Africa,

Botswana, Lesotho, Swaziland, Namibia

Common Market

An area within which there is free trade and free movement of people and capital

• Community of Andean Nations: • Bolivia, Columbia,

Ecuador, Peru

Economic and Monetary Union

A single market with a common currency

Trade Conflicts

Questions

What was the impact of the protection on Venezuela?

How did the WTO intervene

Why haven’t all members of the EU joined the Euro?

Doha Australia, New Zealand & Developing countries wanted

cuts in tariffs on imports to US and EU countries & an end to export subsidies which were leading to dumping

Further reductions in tariffs were negotiated

Trying to reduce non-tariff barriers in services (e.g. bidding for government contracts)

First World countries wanted to tighten up intellectual property rights

Tightening up of the role of the WTO in settling trade disputes