International Trade Today

International Trade Today

Introduction

International trade is the purchasing and vending of goods and services between different countries (Cavusgil, Knight, Riesenberger, Rammal, & Rose, 2014). International trade upgrades the world’s economy as prices, demand, and supply impact and are impacted by international happenings. Global trading avails opportunities for customers and nations to access goods and services that are not available in their home countries. Products purchased from the international markets are imported while those sold on these markets are exported. International trade enhances the global trading efficiency of a country as it helps it utilize its resources (capital, labor, technology, etc.) efficiently and effectively to produce more products to serve the worldwide market (Grimwade, 2000).

International trade also promotes specialization as nations known to be good at producing an individual product will be globally recognized (McGovern, 2015). This, in turn, leads to comparative advantage as different countries will focus on producing the products they are good at. International trade also allows different states to participate in a global economy by encouraging the Foreign Direct Investment (FDI), for example, the funds that individuals channel into foreign corporations and other assets (Cavusgil et al., 2014).

International trade has two conflicting opinions vis-à-vis the regulation level placed on trade, i.e. free trade and protectionism (McGovern, 2015). Free trade embraces the laissez-faire approach that refers to the situation where there are no restrictions on trade. The dominant impression is that supply and demand factors operate on the global scale, which ensures efficient production process (Grimwade, 2000). Consequently, nothing needs to be done to protect or promote trade and growth as the market forces take course. On the other hand, protectionism believes that the international trade regulation is essential to ensure that markets operate properly. Protectionism commonly exists in the form of tariffs, subsidies, and quotas (Grimwade, 2000).

International trade is governed by the World Trade Organization (WTO). The WTO is the only global organization dealing with the rules and regulations of trade between different countries (Cavusgil et al., 2014). The fundamental principle of the WTO is the agreements negotiated and signed by a majority of the trading nations and endorsed by their legislative bodies. The chief objective of the WTO is to enable producers, exporters, and importers carry out their businesses (McGovern, 2015). The current paper aims to provide critical evaluation of the WTO and to select a country and describe its bilateral agreement while discussing the benefits and disadvantages of that agreement and the WTO. The paper also provides an opinion on whether in future the WTO or bilateral agreements should be favored by the countries involved in international trade or be left to take their own course.

The World Trade Organization

The WTO is the chief international institution for the management of international trade (Stern, 2009). The WTO delivers a framework for discussing and sanctifying trade pacts and a dispute resolution procedure whose objective is to execute the members’ loyalty to the WTO covenants signed by the participant governments (Grimwade, 2000). The WTO is a dominant organization as it the only body that can administer its rules. The WTO augments an even flow of trade universally via the trade treaties signed, thus providing its members with proper methods of solving trade incongruities. The WTO has around 700 employees who are led by Roberto Azevedo (the organization’s Director-General) (Haerens, 2010). The WTO is headquartered in Geneva, Switzerland. As of 2011, the WTO operated a budget of approximately 196 million Swiss francs ($209 million) (World Trade Organization, 2015). The WTO’s official languages are English, French, and Spanish. The WTO comprises of 162 member states across the globe, 117 of these members are the developing countries (World Trade Organization, 2015).

History of the WTO

The WTO was established in the Uruguay Round of trade talks in 1995 (World Trade Organization, 2015). The WTO authoritatively started on January 1, 1995, under the Marrakesh Agreement signed by 123 countries on April 15, 1994 (World Trade Organization, 2015). The association succeeded the General Agreement on Tariffs and Trade (GATT) that was designed in 1947 after the Second World War (Haerens, 2010). GATT targeted to reduce the tariffs for the facilitation of the global trade on goods. GATT was based on the Most Favored Nations (MFN) rule that stipulated that once the MFN license had been assigned to one nation by another, the designated country received free trading rights. GATT fought to ensure all countries had the MFN license. The WTO replaced GATT in 1995 after an agreement was reached from the Uruguay Round of GATT negotiations that lasted throughout 1986-1994 (World Trade Organization, 2015).

The Uruguay Round also positioned two key practicalities of regulating the free trading services, for example, the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property rights (TRIPS) (World Trade Organization, 2015). These two grounds contain provisions for the protection of public health and safety, but they always remain contentious. In November 2001, the WTO launched Doha Development Agenda at the Doha Development Round during the fourth ministerial conference in Doha, Qatar (World Trade Organization, 2015). The negotiations were started with an unambiguous concentration on the needs and issues affecting the developing countries. This was to make globalization more comprehensive and help the world's impoverished nations by removing barricades and subsidies in farming (World Trade Organization, 2015).

How the WTO Operates

The WTO’s decisions are made by consensus (Haerens, 2010). The Ministerial Committee holds meetings once in two years in Geneva, Switzerland, to make the ultimate decisions affecting the organization. The institution consists of a Goods and Services Council and an Intellectual Property Rights Council, and both report to the General Council (Haerens, 2010). The General Council conducts the organization’s businesses at intervals of the Ministerial Conferences. There are also working groups and committees involving all the member countries that ensure a smooth running of operations.

The WTO solves its disputes through negotiations between the affected nations. If two or more countries have disputes, they have the right to beseech the WTO dispute settlement procedures (World Trade Organization, 2015). However, the organization cannot prosecute any member. It is up to the member countries involved in the dispute to report the matter to the WTO. If the difference has been reported, it is only the complainant who is allowed to argue the case only if the issue relates to the WTO covenants (McGovern, 2015). The WTO is unique due to the endorsements it may impose on the country losing the case, for instance, the complainant may be permitted to inflict import tariffs on the products from the offending country to a certain worth equal to the reparation decided by the WTO.

The WTO operates on a framework guided by the following five doctrines: the first one is non-discrimination that encompasses the MFN rule and the national treatment policy (Haerens, 2010). This principle states that all members should be treated equally. The organization theoretically desires to treat all its members equally, but practically, it is not the case as the powerful and the wealthy countries always become dominant. Secondly, the reciprocity principle provides that two or more countries should remove trade barriers for one another to trade freely, hence registering the reciprocal trade relationship. Thirdly, the binding and enforceable commitments principle states that all the member countries should be committed to the signed trade agreements, failure to which they will face the consequences (World Trade Organization, 2015). Fourthly, there is the transparency principle where all the participants should be committed to transparency in the conduction of activities by publishing their trade regulations and responding to information requests from other countries. Lastly, the safety valves principle advocates for trade restrictions, in particular, situations (Haerens, 2010). The WTO's treaties allow its members to protect the environment as well as the public, animal, and plant health.

Functions of the WTO

The WTO is responsible for providing a medium for trade dialogs and handling trade disagreements; it avails a legal and institutional framework for the execution and monitoring of the national trade guidelines (Haerens, 2010). The institution also governs the WTO treaties to ensure transparency of regional and bilateral trade contracts, avails technical support to evolving nations, and collaborates with other global bodies on trade matters (Stern, 2009). The WTO aims at reducing obstacles to international trade and ensuring an equal platform for all its members, hence contributing to the economic growth and development. The organization is further responsible for capacity building for the developing countries’ government officials in international trade matters (Stern, 2009).

The Morocco-United States Bilateral Trade Agreement

A bilateral trade agreement is an exchange agreement between two countries that gives each nation a preferred trade position regarding particular goods and services acquired from the participants (Cavusgil et al., 2014). The covenant sets the purchase pledges, reduces or gets rid of tariffs, import quotas, export restraints, and other trade blocks (Grimwade, 2000).

Morocco and the USA have entered into a bilateral trade agreement widely known as the US-Morocco Free Trade Agreement or the Morocco FTA under the leadership of the US President George W. Bush and Morocco’s King Mohamed VI. The covenant was signed on June 15, 2004, but it came into effect on January 1, 2006 (Crombois, 2005). The Free Trade Agreement (FTA) between the two countries reduced and eliminated tariffs and other barriers that hindered free trade. This FTA substantially abolished tariffs on more than 95% of consensual trade with all tariffs to be eradicated within 10 years (Crombois, 2005). The covenant further agreed on the following: a publication of each party's indispensable gen on the internet regarding its customs laws and procedures and general administrative techniques. The countries agreed to keep each other's information confidential (Crombois, 2005). Each party should adopt streamlined customs procedures and simplified information technologies for the actual release of goods to simplify trade. Each party should also uphold risk management schemes to streamline the clearance and movement of goods. Both countries should also implemented penalties to be enacted on the criminal or civil defilements of the agreed upon laws and principles regarding the tariff classifications, and customs valuation (Crombois, 2005).

Benefits and Disadvantages of the WTO and the Bilateral Agreement in Morocco

Morocco benefits from the FTA as it supports the fundamental economic and political transformations that are underway in the country. The FTA agreement also provides improved commercial opportunities for Morocco’s exports by eliminating trade barriers (Crombois, 2005). Morocco grew economically as, for instance, it exported goods worth $996 million to the USA in 2011, which was a 45% increment from the previous year (Crombois, 2005). The FTA has prompted Morocco to become the 55th largest export market for the US goods and services. Morocco’s production increased following the FTA as it took advantage of the efficiencies generated from the economies of scale and as it now had a comparative advantage. The agreement also led to the increase of Morocco’s market size that resulted in lesser operating costs and augmented output as, for instance, Morocco’s goods surplus rose to $1.8 billion in 2011 from 2005’s $79 million (Cavusgil et al., 2014). The unemployed Moroccans also secured jobs as more employment opportunities cropped up since the US firms opened offices in the country.

On the other hand, Morocco is also a member of the WTO. Consequently, it also enjoys the benefits accrued by the WTO. Moroccans enjoy lower prices on the imported products such as crude petroleum, textile fabric, wheat, gas, and electricity (Crombois, 2005). Morocco also enjoys the economies of scale as it specializes to produce and export fertilizers and pesticides. The country has also become competitive both locally and internationally as free trade encourages competitiveness (Grimwade, 2000). Morocco also secures foreign exchange gains from the exports of its fertilizers and pesticides to other WTO members. The foreign revenues it generates is used to pay for the imports such as petroleum since it does not produce any from its overseas import partners (Cavusgil et al., 2014).

Morocco as well faces the following shortfalls with respect to the WTO and the FTA such as the inequality brought about by the WTO as the powerful countries dominate the less fortunate nations (Cavusgil et al., 2014). Morocco’s local decision-making has been hindered as well as the national sovereignty as they have to follow the MFN rule that necessitates all the WTO members to treat each other equally regardless of their track record (Cavusgil et al., 2014). FTA has destroyed the Moroccan natural environment that it profoundly banked on as corporations use the FTA to disassemble the domestic and international environmental guardians (Grimwade, 2000). The Moroccan domestic economy has declined as a result of the global trade progressions that has prompted its economies to overly rely on the international markets.

Conclusion

A bilateral trade agreement is an exchange agreement between two countries that favor each other in profitable affiliations. The WTO is the chief international institution for the management of international trade whose chief objective is to enable producers, exporters, and importers carry out their businesses. The WTO delivers a framework for discussing and sanctifying trade pacts, and a dispute resolution procedure. In my opinion, in future, the WTO and the bilateral agreements should be favored by the countries involved in the free trade as they bring about more good than harm. For instance, the economies and the living standards of the FTA nations are improved. The consumers in these countries also enjoy relatively low prices on the imported products. The member states enjoy the comparative advantage where the free trade will facilitate an upsurge in economic welfare because different countries can specialize in producing goods where they have a lower opportunity cost.