To what extent might the policies of trading BLOCs conflict with the objectives of the WTO (World Trade Organisation)?
The objectives of the WTO include, the promotion of free world trade through the promotion the reduction in tariff barriers and other limits to trade, along with helping to settle trade disputes between nations.
Trading blocs are groups of countries usually in specific regions who allow free trade between each other which is usually mutually beneficial.
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A key feature of a trade bloc is usually protectionism, designed to protect firms inside the bloc from cheaper world markets. Protectionism by blocs can lead to tension or retaliation by other blocs or nations, this further worsens the freeness of world trade.
The WTO will try to reduce tension between blocs using its year long dispute settlement system, however the WTO contradicts itself with the “most favoured nation” clause, whereby it encourages preferential bilateral trade agreements between nations, with specific trade advantages such as reduced tariffs. However this clause is usually only enforced between developing nations who need to develop more in order to compete with world trade.
Trade Bloc's Adverse Effects
Trade blocs can have adverse effects on countries that don’t belong to the blocs (especially developing nations), policies such as the EU’s common agricultural policy which leads to market distortion of world trade in the products of agriculture.
The recent 9th round of WTO talks in Doha tried to settle many world trade inequalities, agriculture was a priority, with aims of increasing market access, eliminating export subsidies and reducing distorting domestic support (in direct conflict with the EU CAP policy).
Deepening Trade Links
If a trade bloc is able to be created that includes a nation which had previously been in a state of autarky then due to easier access to each other’s markets, free trade is likely to increase because of comparative advantage and specialisation taking place, leading to an increase in total world output.
The increase in trade could also lead to the ‘consumption effect’ where, because of higher employment and falling prices, the increased disposable income could lead to increased demand for imports from outside the bloc. This deepens the trade links between other nations, in correlation with the WTO’s main objective.
A Good Foundation? - Infant Industries
It could be argued that trade blocs are a good foundation for nations who will one day open their markets up to the world once they have matured enough to compete with the lower long run average costs of rest-of-the-world producers. However the protectionism inherent in trade blocs could lead to long term inefficiencies and further un-competitiveness, making free trade less and less viable.
In conclusion, the significance of protectionism for trade blocs, which directly opposes the WTO’s objectives means that the extent to which the conflict is great in that key respect. However there are some smaller policies of trade blocs, which complement the objectives of the WTO such as trade blocs between developing nations.
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