World Trade - Global Economics in the 21st Century - Essay Example

World Trade: Global Economics in the 21st Century Globalization has brought more nations together to engage in trade and commerce, the most universalof all activities. In the arena of world trade, some countries have flourished, while others have been left to develop on their own. Trade agreements with Mexico, that lead to the construction of factories that built televisions in the 1990s, have been idled as manufacturers moved to cheaper markets as the communications and infrastructure were improved in developing nations. Developing nations have been utilized for their cheap labor as multi-national corporations seek to maximize profits. In the United States, trade deficits with China have soared as American products are unable to compete with the less expensive Chinese imports. American agricultural exports of corn, soybeans, and wheat reach markets all around the globe as vegetables from Chile and Mexico fill our supermarket shelves. Trade is everywhere and world trade seems to be a chaotic mix of goods and money, commodities and cash. However, world trade, administered under regional trade agreements and the World Trade Organization, are actually rather well orchestrated transactions with rules, agreements, quotas, and regional trade organizations. A central component of the agreements on international trade is the World Trade Organization (WTO). The WTO is the "only global international organization dealing with the rules of trade between nations" (What is the WTO?). The WTO was established in 1995 as a successor to the General Agreement on Tariffs and Trade (GATT). The GATT evolved as an international forum for establishing fair trade guidelines, negotiating agreements, and settling trade disputes. The biggest accomplishment of the international forum is that it has "dramatically lowered both tariff and non-tariff barriers around the world, creating freer trade and contributing to postwar world growth" (Democratizing the World Trade Organization). In addition, the WTO has addressed the issues of quotas and subsidies that give nations an unfair advantage on the world market. The 153 members of the WTO have agreed to non-discrimination in regards to tariff levels among the member nations, and have agreed to treat them all equally. The WTO is simply an organization that works to liberalize trade and reduce the barriers to international commerce. The vast amount of world trade is conducted under the WTO and is regulated by a set of agreed upon principles. All members agree to treat all other members equally. In addition, imported products are to be treated as equals to locally produced items after they have entered the market. In addition, the WTO attempts to instill predictability and stability in the world markets by discouraging the use of "quotas and other measures used to set limits on quantities of imports", which can lead to administration problems, trade wars, and accusations of unfair trade (World Trade Organization 12). These general principles reduce the possibility of establishing trade barriers or seeking retaliation through unfair trade restrictions. In addition, the WTO serves to settle trade disputes as they arise among member nations. World trade agreements are negotiated through the WTO in a series of rounds. The Uruguay round, named after the location that the negotiations were held, was completed in 1994 under the previous GATT. The current round, known a Doha, is still in progress and has had some difficulty resolving the issues of trade distortion, primarily in agriculture. As an example, countries will justify farm subsidies as a way to ensure adequate food production and safeguard farmers against irregular production due to unfavorable weather or natural events. However, these subsidies give the local farmer an unfair advantage on the world market. They may inflate prices and lead to overproduction. "If the surplus is to be sold on world markets, where prices are lower, then export subsidies are needed. As a result, the subsidizing countries can be producing and exporting considerably more than they normally would" (World Trade Organization 26). This leads to global trade distortions and is an issue that the WTO is working to resolve. The trade agreements are negotiated between the largest producer and the largest purchaser of a product and then instituted to the other members. "In general then, the market size of the United States gives it a disproportionately large influence in negotiating trade agreements, [and] WTO trade rules are also highly reflective of U.S. interests" (Democratizing the World Trade Organization). The WTO has come under some criticism for being an instrument of the US based multi-national corporations that have profit as their only motive, and fair trade as only a secondary concern. While the WTO monitors and negotiates trade between its member nations, regional trade agreements promote free trade among specific nations or geographical areas. The North American Free Trade Agreement (NAFTA) is probably the most visible regional trade agreement involving the United States. In signing the NAFTA in 1993, President Clinton stated that the agreement would lead to "more growth, more equality, better preservation of the environment and the greater possibility of world peace” (qtd. in Risen). NAFTA was designed to lift the trade restrictions on products such as "corn, dry edible beans, nonfat dry milk and high fructose corn syrup" (North American Free Trade Agreement (NAFTA)). The goal was to open up new markets in Mexico and Canada for US agricultural and industrial products. According to the US Department of Agriculture NAFTA, "has contributed to significant increases in agricultural trade and investment between the United States, Canada and Mexico and has benefited farmers, ranchers and consumers throughout North America" (North American Free Trade Agreement (NAFTA)). Similar regional trade agreements have been reached with Central America, Southeast Asia, the Asia-Pacific region, and nations in the Middle East. In addition to lowering tariffs and encouraging trade, these agreements also promote foreign direct investments (FDI) into the countries of the negotiating partners. The concept of world trade has necessitated global agreement, but has at times been controversial in regards to their success. Proponents of NAFTA and similar agreements point to the record levels of US manufacturing exports that have reached nearly $1 trillion in 2007, as well as a 117 percent increase in business investment (Office of the United States Trade Representative 1). Critics contend that Mexico has not created a large customer base for US products and that their 3 to 5 percent growth rate in the last decade is far below the double-digit growth rate of "other advanced developing countries like Brazil, China, and India" (Risen). While the WTO has been responsible for promoting global free trade, the recent Doha talks, which began in 2001, have stalled over issues of critical importance to the US such as agriculture and industrial tariffs. In addition, critics of the WTO have expressed concern over "the effects of globalization on labor standards, human rights, and the environment" and argue that it is too heavily influenced by US corporations that are "trampling on the rights and interests of workers and environmentalists" (Democratizing the World Trade Organization). Still, the alternative to the WTO could well be trade wars and trade barriers in the globalized world of the 21st century. In conclusion, global trade needs a structure and forum to ensure that disadvantaged nations are treated fairly and equally in regards to trade. While the WTO may be an imperfect mechanism to generate agreements between its 153 members, the alternative would be chaos on the worlds markets. The WTO and GATT have been instrumental in reducing trade barriers, quotas, and tariffs around the globe. Regional trade agreements have also been controversial and have been accused of costing jobs and failing to fulfill their promise on expanding markets for US goods. However, they have been responsible for an increase in exports and promoting FDI around the world. The US corporations that have been criticized for exerting too much influence have also been cited for acting irresponsibly towards environmental and workers rights. Still, this is a failure of the corporations to act responsibly, and not the fault of the agreements intensions. As the world becomes more globalized and nations become more developed, the need for the WTO and regional trade agreements will continue to grow. Works Cited "Democratizing the World Trade Organization." Essays in Public Policy. 2008. Hoover Institution. 2 Dec. 2008 . "North American Free Trade Agreement (NAFTA)." Fact Sheet. Jan. 2008. United States Department of Agriculture. 2 Dec. 2008 . Office of the United States Trade Representative. NAFTA – Myth vs. Facts. Washington, DC: Office of the United States Trade Representative, 2008. Risen, Clay. "Failed Promise? Mexico and NAFTA, 15 Years Later." World Trade 28 Oct. 2008. 2 Dec. 2008 . "What is the WTO?." WTO. World Trade Organization. 2 Dec. 2008 . World Trade Organization. Understanding the WTO. 3rd ed. Geneva, Switzerland: World Trade Organization, 2007. Read More