The Role of WHO in the International Trade - Essay Example

International trade International Trade Introduction World Trade Organization (WTO) is a culmination of the efforts of the leading countries and the United Nations for promoting growth of trade amongst nations since the end of the World War II. Trade is a two way phenomenon of imports and exports and the sum total of the two represents the total trade. Merchandise is variously described as those goods which a commercial enterprise ordinarily sells to its customers; or any of the movable articles used in trade; or that which is bought to sell again, as distinguished from that which is bought to use etc. In all these definitions, trade is implied. This essay examines the background to trade growth in the past five decades, non-tariff barriers imposed by some countries and the arguments against free trade. Finally, a few of the commonly used trade terms for movement of goods and their significance for international trade are dealt with. Growth of merchandise trade According to WTO Report 2005, world trade in merchandise grew at an average of 7 percent per year between 1955 and 2004. This rate of growth is significant over the long period under consideration and reflects the overall strong growth of economies of the world in spite of periods of slow down in some countries. Three important reasons for this impressive growth rate can be identified as (i) successive efforts among nations since 1947 to negotiate and put in place policies for non-restrictive trade, including tariff reductions (ii) significant growth of information and communication technologies and (iii) growing economies, populations and incomes in many of the developing countries International trade 2 including Brazil, Russia, India and China (BRIC countries), who between them represent a large proportion of the world population. GATT/UNCTAD/WTO Negotiations Trade is an important element of a nation’s economy and not surprisingly, the USA and the UK as the leading economies of the world at the end of World War II took the initiative in 1947 on removing restrictions for free flow of goods (Six decades of world trade growth, WTR 2007, pp.180 - 187). While the US pushed for non-discrimination without exceptions, UK with its historical background, argued for temporary barriers and preferential treatment of commonwealth nations. Beginning with this and successively moving to the formation of International Trade Organization (not ratified by the US) under UNESCO, and formation of General Agreement on Trade and Tariffs in 1947 (GATT) with the main objectives of removing trade restrictions, reducing tariffs, limiting quotas and dispute settlement process – all gave fillip to international trade. Western European nations benefited with the increased access to the US market, while the latter exported more capital goods to the former. Intra-European country trade also has witnessed strong growth as a result of the GATT negotiations and the post war reconstruction of Europe under the Marshall Plan. These and the subsequent international conferences termed as the United Nations Conference on Trade and Development (UNCTAD) successfully brought in the developing nations into the negotiation process as against the earlier efforts that were mainly between the US and European Economic Community. Bilateral agreements and regional trade agreements (like those among EEC member countries, NAFTA, CAFTA etc.) on the one hand, and the multilateral International trade 3 agreements under UNCTAD series helped to rope in more and more countries and products into the negotiation process, culminating in the formation of the World Trade Organization in 1995. Thus what began with 23 countries and 15,000 items in 1947 extended to 150 countries and over 33,000 items by 2001 (Doha Round of negotiations) with the average tariff reduced to just 4% and agreements reached on services and intellectual property rights. Between 1963 and 2005, the volume of world trade increased from $84 billions to over $10 trillions (WTR Report 2007, Table 4 & Appendix Table 4, pp.198 - 199). Impact of ICT Another important reason for trade growth has been the advent of information and communication technologies which led to reduced transaction costs, instant communications and decision making. Internet enabled great access to options for buy decisions with instant comparison of offers in technical, commercial and other parameters. In the background of free trade and nil restrictions on cross border transactions in many countries, trade flourished in all merchandise – from consumables to capital goods, and from raw materials to finished goods. Growing economies, populations and incomes of developing countries There has been significant growth in the population of countries like China and India. Between 1955 and 2004, the Chinese population increased from 606 m to 1209 m while that of India, from 404 m to 1075 m (US Census Bureau, International data base). Many of the under-developed nations of earlier periods have now joined the ranks of the developing countries and are actively participating in international trade. These countries International trade 4 of Latin America, Eastern Europe including former Soviet bloc nations, and Asia have large populations with growing middle class families. Gradual removal and total elimination in some cases of restrictions on imports led to significant increases in use of imported goods. Since the mid-eighties, exports and imports from the developing countries as a percentage of the total world trade have been on the rise (WTR Report 2007, Appendix Table 5, pp.200). Looked at in absolute terms in the backdrop of the $10 trillion world trade, the impact of rising share of the developing countries becomes evident on the world trade growth rate. The double digit growth of Chinese economy since the ‘80s and the strong growth of India since ‘90s along with the growth in incomes of energy producing nations of Africa and Middle East, not forgetting Russia, has been adding to the growth of world trade. Restrictions on free trade and effects on consumers It is an acknowledged fact that free trade is being strongly promoted by the developed nations because of the beneficial impact it has on those economies. This can be seen in the $10 trillion world trade where the lion’s share is cornered by the world’s most advanced nations. At the same time, in order to protect local interests, many European countries resort to non-tariff measures and restrict access to their markets. Such barriers have been in the form of: i. Arbitrary valuation of imported goods with a view to impose ad valorem duties. ii. Subsidies and countervailing duties. This has been an contentious issue between the US and European Union, especially on the US subsidies for International trade 5 farming sector and opening up of the markets for each other’s food and meat products. iii. Levy of anti-dumping duties solely for the purpose of making imports (which are permitted under the WTO agreements) expensive and therefore discouraging trade. Another reason for resorting to anti-dumping duties is the policy of some exporting countries which sell at heavily subsidised rates in the export market as compared to their home markets. A typical example is the steel products from China which attract anti-dumping duties in many countries of the world. Reasons for subsidised sales in export market include a) sustaining domestic industry and earning scarce foreign exchange b) gaining political influence c) cross subsidising etc. iv. Import licensing procedures, which are designed to discourage imports. This is one of the most popular non-tariff barriers. In a country like India, till the early 1990s, import licenses were compulsory for practically all imports and a buyer has to justify the imports with the intended benefits which must include future foreign exchange earnings capability of the items imported. The process of issuing licences would take months with great uncertainty. In India, non-tariff barriers to trade were mainly responsible for the slow growth of the economy right up to 1991, when most of the restrictions were lifted. From the time of its independence in 1947 to 1991, consumers were encouraged to rely upon import substitution and as a result, the quality of goods or their prices were not in tune with international developments. Tardy growth of economy led to low wages, high rate of International trade 6 unemployment and long waiting periods even for basic facilities like telephones, white goods, not to talk of even a two-wheeler. In one decade after trade liberalisation, not only did most of these disappear but what is more surprising is the fact that India is now the second fastest growing economy of the world with surpluses in every conceivable area of economy and with high export growth rates. In this context, one may examine two relevant trade theories that underline the success of India’s growth story: i) theory of comparative advantage and ii) theory of factors endowment. The theory of comparative advantage underlines the fact that absolute advantage is not as important as comparative advantage for trading to flourish between two parties. India with its large population is an attractive market for many of the industrialised nations. Consumer product market is still far from being saturated. On the other hand, the technological and product advances of the industrialised nations are deemed attractive by the Indian market. Hence trade flourishes under the theory of comparative advantage. Coming to the theory of factors endowment, one can readily recall the India growth story of the last 15 years which is based on the contribution of the large English educated middle class population. Whether it is in services or in industry, this segment (estimated at about 300 million) is in the forefront of growth for creation and consumption of wealth. India’s leadership in software and IT enabled services and its emergence as a major source of manufacturing can be attributed entirely to its being endowed with the best of educated and trained manpower. International trade 8 Terms of common usage in commerce Free on board (f.o.b.): A ‘free on board’ contract demands the seller to supply the goods as per the contract of sale, deliver them on board the vessel named by the buyer at the named port of shipment; in a manner customary at that port etc. and inform the buyer that the goods have been delivered on board the vessel. The seller bears all the risks of the goods until the time they have been effectively passed the ship’s rail at the named port; provide the customary clean document in proof of delivery. The buyer takes over the risk of the goods from the time they have been effectively passed over the ship’s rail and arrange at his cost freight and insurance etc. Cost, insurance and freight (c.i.f.): This contracting term demands the seller to supply the goods as per the contract of sale, deliver them at the named port of destination using a seagoing vessel, pay for the ocean freight and marine transit insurance charges, and pay for any unloading charges at the port of discharge. The marine transit insurance cover shall be in transferable form. The seller should furnish a clean bill of lading for the agreed port of destination. The buyer assumes the risk for the goods from the time they have been effectively passed over the ship’s rail at the port of loading (under transferable insurance cover) and pay for all the charges at the port of destination otherwise as noted above. Direct duty paid: This contracting term used where the seller owns the goods in transit, bears and pays all costs including duties, taxes, fees etc. at the port of destination and obtains insurance for the goods. International trade 9 International trade encountered the difficulty of differing interpretation of commercial terms in different countries, based on local custom and tradition, leading to disputes and liabilities. In order to reduce the scope for such a situation, International Commerce Organization (INCO) formulated definitions of important commercial terms of shipment. These definitions contain the basis for supply, handing over for shipment, insurance coverage etc. and contracting parties are encouraged to specifically mention INCO terms in their agreements to give legal status to the conditions of supply. From the important aspects of the terms as described above, it is seen that the process of trade is facilitated by INCO terms. Conclusion International trade has greatly benefited the growth of economies of various countries. Efforts to remove artificial barriers in free movement of goods were successful and the cooperation among nations helped to realize the potential of each country to harness its comparative advantages and endowments to the best extent. Standardisation of commercial terms of shipment has helped to reduce friction among trading partners and wasting time on disputes. References INCO Terms, Available at: http://www.iccwbo.org/incoterms/id3040/index.html [Accessed on 5 Apr 2008]. US Census Bureau, International data base. Available at: http://www.census.gov/ipc/www/idb/ [accessed on 11 March 2008]. WTO (2005), World Trade Report 2005. WTO, (2007), “Six decades of world trade growth, WTR 2007”. Read More