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WTO And Growth Of Free International Trade

"Trade is not a zero-sum game. It is a win-win opportunity for all involved. Free trade creates more jobs, fosters innovation, and fuels economic growth"- Roberto Azevedo

The WORLD TRADE ORGANIZATION or WTO is an international organization, whose headquarter is in Geneva, Switzerland and was established in the year 1st January,1995. Building up upon its predecessor GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) which was established in 1947 with the idea of curbing down the effects of World War2 by establishing trade once again amongst all the nations who had been indulged into war and to reduce the barriers of trade between them. The reason why GATT was transformed into WTO was because it lacked formal institutional structure and enforcement mechanisms.

Then WTO came into existence and adopted all principles of GATT but in a more expanded form such as regulation of trade in services, intellectual property rights, investments measures etc. As per the data, WTO rules and regulations currently govern about 98 % of all international trade and at the time of its creation there were only 125 members and today it has 164 countries as members of WTO.

The growth of trade in the world market is all because of the upcoming globalization in the world market where nations can easily import & export any commodity.

Free International Trade:

The rise of the global economy can be attributed to international trade. The goods and services are bought and sold by companies in different countries, these intra-countries' trade is called international trade in which not only consumer goods but also raw materials, food, and machinery are purchased and traded in the marketplace internationally.

Due to international trade, countries are able to expand the horizon of their markets, access those goods and services that otherwise may not have been possible to avail in the domestic market and also the market became more competitive. This competitive pricing ultimately helped the consumers as they are able to get cheaper products home.

Renowned political economists, to name a few, like Adam Smith and David Ricardo recognized early the importance of international trade.

Free trade agreements are nothing but treaties, the terms of which regulate the tariffs, taxes, and duties which are imposed by the countries on their imports and exports.

Free international trade plays a vital role in the global economy in promoting efficiency in trade and benefiting countries worldwide. By promoting free international trade, WTO fuels economic expansion, enhances competitiveness and drives an urge between nations across the globe.

Key Factors Behind Rise of Free International Trade:

  1. International Specialization:
    Free trade, in a way, helps the countries of the world to have the manufacturing of only those goods in which they have a comparative edge over the others, thereby leading to special´┐Żization in the goods at international level and reaping the advantages of specialization.
     
  2. Rise in World Production and Consumption Level:
    Trade at international level allows industries to obtain absolute benefits of the economies of scale (production at large-scale level). If the production of goods is done for the domestic market only, it will be in a very less quantity and manufacturers will not get the full advantage of large-scale production, which also lowers the cost of production and thus, benefitting all. Hence, overall, it increased the world production and also increased the consumption of internationally traded goods at the global level as every trading country tends to produce only the selected goods at lower costs.
     
  3. Technology Transfer:
    Local companies get the opportunity and advantage to come across the know-how the latest technologies from their multinational partners / collaborators. With the growth in the local economies, job opportunities also grow in proportion. Multinational companies ensure job/skill training to local employees and thus, it also broadens their future prospects.
     
  4. Advantages to Consumers:
    Due to free trade, the ultimate consumers belonging to the different parts of the world get the best, in the sense, that superior quality foreign goods that too of a wider range of choice and at low prices are available for them to choose from.

Role of WTO in Promoting Free International Trade:

The World Trade Organization (WTO) plays a crucial role in the world of international trade as it encourages liberalization in trade, while eliminating different kinds of trade barriers and promoting a fair trade amongst member countries for overall economic development.

Below are mentioned some of the ways which WTO uses to promotes free international trade:
  1. Trade Liberalization:
    Primary focus of the World Trade Organization (WTO) is towards the reducing of trade barriers such as tariffs and non-tariffs barriers, by initiating multilateral negotiations. It helps in providing a platform for member countries to negotiate and agree on trade liberalization measures, which results in lowering trade barriers and increased market access for goods and services.
     
  2. Most Favored Nation:
    The concept of Most Favored Nation also referred as MFN was used in GATT, which says every member country should treat other member countries equally as most favored trading allies. Simply, it says if one country treats another country with some additional favors then it has to grant the same best dealing to all the other members of WTO and MFN beliefs ensures that each nation treats its over 164 members equally.
     
  3. Rule-Based Trading System:
    The WTO sets out some rules and agreements that govern international trade. These types of rules help in ensuring that the trade is done in a fair, transparent & predictable manner. By adding up the clear rules promotes a stability and the boundaries of work that how it should be performed and helps in reducing the uncertainty in the international market between traders and building up confidence in investors to engage in cross border trade.
     
  4. National Treatment Rule:
    It is the most important principle of WTO; it talks about treating all the goods uniformly irrespective of whether they are domestic products or from the international market. It applies from the time the product enters the market. It says "treat foreigners and locals equally".
     
  5. Monitoring and Transparency:
    The World Trade Organization (WTO) keeps an eye on the trade policies of member countries, ensuring that they adhere to the agreed-upon rule without violating any of them. The publication of the trade related information helps in contributing transparency in global trade and this transparency also assists in preventing protectionism and promoting a more open and a predictable trading environment.
     
  6. Fair Competition:
    WTO is not always referred to as the "free trade" organizations. Tariffs and other forms of protection are permitted, although under certain conditions. To be more specific, it is a set of guidelines for fair, accurate, and open competition. Other WTO agreements, on agriculture, I.P.R, and services, among others, are to promote fair competition.

Future Aspects For WTO And Free Trade:

  1. Modernizing Trade Rules:
    WTO addresses emerging trade issues in the global economy such as digital trade, e-commerce, and intellectual property rights. Focus will be on modernizing trade rules to accommodate these evolving sectors, ensuring that WTO remains relevant and effective in promoting free trade in the digital era.
     
  2. Environmental Sustainability:
    Future aspects for the WTO involve integrating environmental consideration into trade agreements, addressing issues such as climate change, biodiversity, and sustainable resource management. The WTO can play a role in balancing trade liberalization with environmental protection to foster sustainable and inclusive growth.
     
  3. Public Support and Transparency:
    Enhancing transparency and public understanding of trade policies and the benefits of free trade is also a crucial aspect for WTO. Engaging with civil societies, businesses, and the public to address concerns and promote informed discussions about trade- related issues can help build broader support for free trade and multilateral trading systems.

Case Studies:
  1. China Accession to the WTO:
    China finally gained accession in WTO in 2001 and it was considered as a landmark year for China as after 15 years of negotiations, China got representation. It has impacted economic growth and the expansion of international trade. China accession led to massive growth by reducing tariffs & non- tariffs barriers, opening up its economy for FDI's. China moved to the top exporter and second-largest importer positions in the world as a result.

    The accession of China to WTO resulted in decrease in the state-run enterprises and boosted private interests. The clause of National Treatment in WTO agreement resulted in prevention of no discrimination against the export of Chinese products in other member nations of WTO. In accordance to official data, China's net exports as a percentage of GDP climbed from 2.5% to 7.5% between 2002 and 2007, and by 2010, the country had a $305 billion in its foreign account balance. The expansion of international trade has played a crucial role in lifting millions of people out of poverty in China and has increased export-oriented production, job creation and income growth resulting in poverty reduction.
     
  2. European Union and Its Single Market:
    Also being called as the internal market or common market, is a single market comprising of 27 member states of European Union. The WTO has played a complementary role in shaping the trade policies and regulations of the European Union. The European Union market aims to create an economic area by removing barriers to trade, facilitating free movement of goods, services, capital etc.

    The European Union trade policies and regulations including those with single market are designed to comply with the rules and principles of WTO which tells us that the EU is an active member of WTO and has involved in various multilateral negotiations. The alignment of EU trade policies with WTO rules helps ensure consistency, predictability and transparency in international trade. The EU and its member states have been involved in trade disputes with other WTO members and disputes are often settled through WTO'S dispute settlement mechanism.

Conclusion:
The WTO has played a vital role in the growth of free international trade by promoting liberalization, establishing rules, resolving disputes, providing assistance to developing countries and facilitating trade. By fostering an open and predictable trading environment, the WTO has contributed to global economic integration, higher living standards, and increased opportunities for businesses and consumers around the world.

Reference:
  • 1. https://acadpubl.eu/hub/2018-120-5/3/269.pdf
  • 2. https://single-market-economy.ec.europa.eu/single-market/single-market-strategy_en
  • 3. https://digitalcommons.iwu.edu/cgi/viewcontent.cgi?article=1364&context=parkplace
  • 4. https://www.thebalancemoney.com/free-trade-agreement-pros-and-cons-3305845
  • 5. https://www.investopedia.com/terms/f/free_trade_area.asp
  • 6. https://www.trade.gov/free-trade-agreement-overview
Written By:
  1. Yavnika Jain, 4th year BA LLB students - Delhi Metropolitan Education, Noida Affiliated to GGSIP University, Delhi and
  2. Shivanshu Gusain, 4th year BA LLB students - Delhi Metropolitan Education, Noida Affiliated to GGSIP University, Delhi.

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