The World Trade Organization and Trade in Services - Essay Example

The Role of the World Trade Organization in the 21st Century in Global Trading This essay discusses the world trade organization in relation to the Ricardo theory. It gives a detailed description of what they are, their roles and importance in international trade. This essay also gives a detailed summary of how they deal with issues to ensure smooth running of international trade. In addition to this, this essay discusses the structure of the world trade organization and its main framework in conducting international trade. This essay will also discuss the importance of the WTO and Ricardo theory in maintaining a smooth operation of international trade. The world trade organization is a global international body that deals with the rules of trade between countries. It was established in 1995 with the Marrakech agreement, which was signed by 123 countries (Jones, 2015). Its main objective is to provide the framework for negotiation between participating countries during the trade. It also regulated trade rules and regulations between member states to ensure smooth running of trade activities. It is run and managed by its member governments and the members normally make all major decisions as a whole. The member states send their representatives who help in making decisions on behalf of their countries. The representatives of the member states meet after every two years to make major decisions regarding the running of the organization. The ambassadors and delegates of the member states are expected to meet regularly for decision making whenever necessary in Geneva. The world trade organization is managed by the Secretariat, which has skilled experts in all sectors of the economy who assist in the smooth running of sector’s specific tasks (Schefer, 2010). The world trade organization has many roles, objectives, and functions, which make it important in international trade (Ahearn & Fergusson, 2010). The first role of this noble body is to conduct and manage implementation, operation, and administration of the agreements covered in their constitution. The world trade organization is supposed to oversee the formation of trade agreements, their implementation, their administration, and their operation (Sampson, 2005). It also ensures that member states lower their tariffs and remove other barriers that restrict free trade between countries. This helps countries to conduct trade freely without many challenges. The next role played by the world trade organization is to provide forums for business negotiations and settling of disputes between member states (Alexander & Andenæs, 2008). Although this body has set rules and guidelines for conducting trade, differences do arise between member states and require attention from the WTO. In such a scenario, the WTO uses the Dispute Settlement Understanding, which provides rules and regulations when settling disputes. When such a situation arises, a set of appointed experts related to the specific sector that has been compromised take over to settle the situation. Another role of the WTO is to review and enforce national trade policies. As a requirement by this body, all member states are supposed to make their trade rules and regulations transparent. In order to do this, the WTO monitors changes in member states’ trade laws and measures. The WTO is supposed to scrutinize countries’ policies, procedures, and practices to ensure that they are in line with international requirements. The WTO is also supposed to ensure that they understand the trade policies that countries adopt and assess their impact to see if they need amendment. The other role of WTO is to ensure that there is coherence and transparency in information flow between member states (Shahabadi, 2007). It is also supposed to provide surveillance in the economic policy making of member states to ensure that there are no conflicts during the trade. This helps the WTO to boost trade capacity of member states and guarantee developing countries of protection in the international markets. In addition to this, the WTO tries to create an equal platform in which both developed and developing countries fit together to conduct business as equals. In order to accomplish this, the WTO ensures that it gives special treatment to developing countries in regard to period required for policy implementation, exposure to the available trade opportunities and exposure to the expected technical standards. This helps in improving cooperation and understanding between countries, which helps countries grow and expand their trade channels. The world trade organization plays in international trade to help in outreach. In order to do this, the WTO maintains steady communication with governments, non-governmental organizations, the general public, international organizations, and the media (Schefer, 2010). This helps in maintaining transparency in its activities and enhances cooperation from member states. In addition to this, transparency enables countries to be aware of its activities and plans which boosts further cooperation from member states and enable for easy incorporation of new members (Eagleton-Pierce, 2013). Another role performed by the world trade organization is the management of trade negotiations. The WTO manages trade agreements involving intellectual property, goods, and services. Its main function is to ensure that member states lower their tariffs, customs, and other trade barriers to promote trade and cooperation between member states (Steger, 2014). Most of the agreements used in trade are mostly dynamic and keep changing depending on market demand and economic stability. Due to this, the WTO ensures that any new rules or agreements reached are fair to both parties and that they will not affect other member states negatively when conducting trade. Through international trade regulation, the WTO is able to control countries development, living costs and living standards, contribute to peace and stability in the world, stimulate economic growth and creation of employment, bring balance in the society and give the weak stronger voice. In addition to this, the world trade organization helps to solve disputes and reduce tension between countries, reduce the costs involved in conducting business internationally, encourage better governance, and support health and the environment (Horlick, 2014). In addition to this, the world trade organization helps in protecting intellectual property. It has agreements, rules relating to trade in ideas and creativity and ensures that it protects individuals’ intellectual property. WTO has rules relating to patents, trademarks, copyrights, specific product names, integrated circuits design and layouts, trade secrets, and industrial designs. As such, the WTO protects both the developed and developing countries to benefit as required from their ideas or creativity. It also looks out for individuals who violate such intellectual property rights and prosecutes them accordingly. This helps in creating a peaceful coexistence of countries and companies from different countries without panic or intimidation (Carlino, 2011). The theory of comparative advantage or Ricardo’s theory is an economic theory that deals with the gains from trade for firms, individuals, and countries (Johnson & Samuels, 2010). These gains are mainly generated by technological progress and factor endowment. According to this theory, someone has a comparative advantage in an economy if he can be able to produce goods at a comparatively lower opportunity cost than his competitors. This means that one must be able to keep his marginal costs prior to trade as low as possible in order to get a comparative advantage. The theory further explains that in order for individuals to gain a comparative advantage, it is wise that they compare the opportunity cost of producing goods across countries and not concentrate on the production costs or even associated resource costs (Cottier et al., 2003). According to the principle of comparative advantage, someone will always produce more and consume less of a product that he has comparative advantage under free trade (Johnson & Samuels, 2010). David Ricardo developed this theory to explain why countries still engage in international trade even though some countries’ employees are more skilled than those of other countries (Nsour, 2010). He further explains this by stating that countries continue to engage in international trade as long as they are able to increase their consumption of a product they are good at producing as exports and receive products in which they are poor at production as imports as long as there are differences in labor costs in the two countries. According to Ricardo, international trade is based on comparative advantage and not on absolute advantage. Countries prefer to import goods as long as the producing country is able to make it at a much lower cost than them. This gives them an advantage in case they are also able to give back their products to the trading partner as exports (Carlino, 2011). David uses the labor theory of value in his discussion and shows that an economy moves towards a standstill. He stated that the rate of profits for a country is directly dependent on the amount of labor required to sustain the workers who farm (Nsour, 2010). However, for the comparative theory to work as required, there are a number of assumptions that need to be addressed. This theory assumes that there is no transportation, there are no economies of scale and costs are constant, there are only two countries producing two different goods, and there are no trade barriers like tariffs. In addition to this, David states that for this theory to hold, the goods traded must be homogenous, presence of mobile factors of production, and presence of knowledge about the market indicating where cheapest goods can be found internationally. From this discussion, the principle idea behind international trade is that if a country is able to buy something from a country at a lower price than they would have produced it, then that country is making profit (Marqués, Martín & Sorolla, 2011). In conclusion, it is evident that international trade has many concepts that need to be understood in order to boost profitability. The first concept that helps countries in international trade is world trade organization. This organization helps countries in setting rules and regulations of trade, maintaining peace between partner countries, maintaining forums for trade and dispute handling, reviewing countries trade rules to ensure that they show transparency, and maintaining steady communication between the major parties in international trade. In addition, the world trade organization is responsible for ensuring that it reaches out to support other countries through the outreach program. They are also supposed to maintain transparency and accountability on their part to enable for more cooperation among members and promotion of peace. The next concept that is very helpful in international trade is the David Ricardo theory. In regard to this theory, different countries need to understand the concept of comparative advantage in order to obtain the most leverage from international trade. According to the theory, comparative advantage helps countries to determine the benefit they are gaining by conducting business transaction with a particular country. This theory has been in use for years and helps companies to determine if they need to buy a product or buy it from another country in order to gain a comparative advantage. In general, the world trade organization performs many functions that help to keep good international relations. Through it, the international trade has thrived over the years and will continue to expand if countries take advantage of their comparative advantage over other countries. References Ahearn, R. J. & Fergusson, I. F. (2010). World Trade Organization (WTO) : issues in the debate on continued U.S. Participation. Washington: Congressional Research Service. Alexander, K. & Andenæs, M. T. (2008). The World Trade Organization and trade in services. Leiden : Martinus Nijhoff Publishers. Carlino, R. (2011). Distance psychoanalysis : the theory and practice of using communication technology in the clinic. London : Karnac. Cottier, T., Mavroidis, P. C. & Blatter, P. (2003). The role of the judge in international trade regulation : experience and lessons for the WTO. Ann Arbor: University of Michigan Press. Eagleton-Pierce, M. (2013). Symbolic power in the World Trade Organization. Oxford : Oxford University Press. Horlick, G. N. (2014). World Trade Organization and international trade law : antidumping, subsidies and trade agreements. New Jersey : World Scientific. Johnson, M. F. & Samuels, W. J. (2010). Economic theory by Taussig, Young, and Carver at Harvard. Bingley: Emerald. Jones, K. A. (2015). Reconstructing the World Trade Organization for the 21st century : an institutional approach. New York: Oxford University Press. Marqués, R., Martín, F. & Sorolla, M. (2011). Metamaterials with Negative Parameters Theory, Design and Microwave Applications. New York: John Wiley & Sons. Nsour, M. F. A. (2010). Rethinking the world trade order : towards a better legal understanding of the role of regionalism in the multilateral trade regime. Leiden : Sidestone Press. Sampson, G. P. (2005). The WTO and sustainable development. Tokyo : United Nations Univ Press. Schefer, K. N. (2010). Social Regulation in the WTO : Trade Policy and International Legal Development.. Cheltenham : Edward Elgar Pub. Shahabadi, A. (2007). World Trade Organization : politics of regionalism. New Delhi : A P H Publ. Steger, D. P. (2014). The World Trade Organization. Vol. I : critical perspectives on the world economy. London : Routledge. Read More