Wto's Role In International Trade

1243 Words5 Pages
In today’s interconnected global economy, efforts to streamline speed up and coordinate trade procedures, as much as efforts to further liberalize trade policies, will drive the expansion of world trade and help countries to integrate into an increasingly globalized production system, rather than being left on the margins of world trade and the way the world trades has changed since the establishment of World Trade Organization (WTO). Fewer goods and services originate from any one supplier or country. Components and intermediate services are increasingly sourced and assembled from specialist suppliers around the world. Regulation also plays a more significant role in this era of international trade. The World Trade Organization (WTO) is an…show more content…
The GATT/WTO is an institution regulating trade negotiations through a set of renegotiated articles. The principles of reciprocity and nondiscrimination are usually considered to be the essence of these articles. Generally speaking, the former requires that trade policy changes keep changes in imports equal across trading partners and the latter stipulates that the same tariff must be applied against all trading partners for any given traded product. In this report, I am going to rationalize the role played by the fundamental WTO principles of reciprocity and nondiscrimination using economic theory known as absolute advantage and comparative advantage. Trade liberalization can help countries to better utilize their resources through specialization and exploitation of economic scale. It is a more efficient use of resources that provides the potential for a higher level of income and therefore, a higher level of development. The impact of trade on growth, however, is conditional upon other policies being…show more content…
When barriers to trade are eliminated, firms will face the demand of a larger market. Therefore, firms will be able to choose to produce at a more efficient level of production, and save costs. These lower costs will benefit the country as a whole. Now suppose, there are two countries: Country A and Country B, and two goods: video cameras and bicycles, for example. Suppose that both the production of video cameras and the production of bicycles are subject to economies of scale, so that doubling the number of workers employed in each sector, more than doubles the output of the sector. Suppose also that the two countries are identical, that is they have the same technologies and same endowment of resources. Assume also that labour is the only endowment. Initially Country A employs 10 workers in the video camera sector, and produces 10 video cameras, and employs 10 workers in the production of bicycles and produces 5 bicycles. Assume that the situation is identical in Country B – so that overall the world will produce 20 video cameras and 10 bicycles. Suppose now that all production of video cameras gets concentrated in Country A, while that of bicycles concentrates in Country B. Then, Country A will employ 20 workers in the production of video cameras and Country B will employ 20 workers in the production of
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