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To what extent might the policies of trading BLOCs conflict with the objectives of the WTO (World Trade Organisation)?

Updated on January 15, 2016

Introduction

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.

Also...

If anyone finds this piece interesting or has an interest in the subject in general and would like to discuss this topic some more, feel free to comment below :)

Protectionism

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.

Conclusion

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.

Just A Quick Poll ...

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© 2016 ReadersDigress

Comments

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    • profile image

      Dodo 

      17 months ago

      Dear Author , your article is really helpful to me and what you have written is also very important as a reference

    • ReadersDigress profile imageAUTHOR

      ReadersDigress 

      2 years ago from United Kingdom

      Thanks DEB 1976, you're definitely right about how important this topic is.

    • ReadersDigress profile imageAUTHOR

      ReadersDigress 

      2 years ago from United Kingdom

      Hi HSchneider, thanks for commenting and i'm really pleased you enjoyed the piece. Interesting that you mention what you would hope to see from trade blocs in the future as I have been writing a piece on this today, so hopefully that can provide you with some more thoughts also.

    • profile image

      Howard Schneider 

      2 years ago from Parsippany, New Jersey

      Excellent and thought provoking Hub, ReadersDigress. Overall I believe trade blocs open up more trade than close it especially the larger ones. I would like to see these blocs eventually merge with one another creating a worldwide free trade zone. This might be "pie in the sky" but it is the ultimate goal of the WTO.

    • profile image

      Deb 1976 

      2 years ago

      This is definitely a topic which people need to understand more; these global trading partnerships can define our individual economic liberty.

      Great piece, will be following for more.

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