MGMT+650+-+Final+Exam+Question+1


 * What are some of the reasons why the World Trade Organization and free trade are being criticized? Do you think that free trade is helping all countries? Why or why not?**

__**Response submitted by Jorge & Habib**__:

//Some argue that the WTO favors the developed nations because it is difficult for poorer nations to compete in a non-regulated world. Environmentalists note that free trade encourages large multinational companies to move environmentally damaging production to poorer and often environmentally sensitive countries. That is, commercial interests have priority over the environment, health, and safety. For example, Shell Company’s oil extraction in Nigeria has damaged environmentally sensitive areas in the delta river communities. Labor unions see free trade leading to the migration of jobs from higher wage countries to lower wage countries.// //The WTO is an evolving organization, and its goal of free trade for all is still not achieved. Not all major world players are WTO members, and trade discussions continue over specific products.//

What are some of the **reasons why** the World Trade Organization and free trade are being criticized? Critics argue that WTO favors the developed nations because it is more difficult for poorer nations to compete in a non-regulated world. Environmentalists argue that free trade encourages large multinationals to move environmentally damaging production to poorer and often environmentally sensitive countries. Commercial interests may have priority over the environment, health and safety. Labor unions see free trade leading to the migration of jobs from higher wage countries to lower wage countries. Do you think that free trade is **helping all countries**? **Why or why not**? I believe free trade is beneficial to all countries because it provides for global economic growth by the reduction of trade barriers. The economic case for an open trading system based on multilaterally agreed rules is simple enough and rests largely on commercial common sense. But it is also supported by evidence: the experience of world trade and economic growth since the Second World War. Tariffs on industrial products have fallen steeply and now average less than 5% in industrial countries. During the first 25 years after the war, world economic growth averaged about 5% per year, a high rate that was partly the result of lower trade barriers. World trade grew even faster, averaging about 8% during the period. The data show a definite statistical link between freer trade and economic growth. Economic theory points to strong reasons for the link. All countries, including the poorest, have assets — human, industrial, natural, financial — which they can employ to produce goods and services for their domestic markets or to compete overseas. Economics tells us that we can benefit when these goods and services are traded. Simply put, the principle of “comparative advantage” says that countries prosper first by taking advantage of their assets in order to concentrate on what they can produce best, and then by trading these products for products that other countries produce best. In other words, liberal trade policies — policies that allow the unrestricted flow of goods and services — sharpen competition, motivate innovation and breed success. They multiply the rewards that result from producing the best products, with the best design, at the best price. But success in trade is not static. The ability to compete well in particular products can shift from company to company when the market changes or new technologies make cheaper and better products possible. Producers are encouraged to adapt gradually and in a relatively painless way. They can focus on new products, find a new “niche” in their current area or expand into new areas. Experience shows that competitiveness can also shift between whole countries. A country that may have enjoyed an advantage because of lower labor costs or because it had good supplies of some natural resources, could also become uncompetitive in some goods or services as its economy develops. However, with the stimulus of an open economy, the country can move on to become competitive in some other goods or services. This is normally a gradual process. Nevertheless, the temptation to ward off the challenge of competitive imports is always present. And richer governments are more likely to yield to the siren call of protectionism, for short term political gain through subsidies, complicated red tape, and hiding behind legitimate policy objectives such as environmental preservation or consumer protection as an excuse to protect producers. Protection ultimately leads to bloated, inefficient producers supplying consumers with outdated, unattractive products. In the end, factories close and jobs are lost despite the protection and subsidies. If other governments around the world pursue the same policies, markets contract and world economic activity is reduced. One of the objectives that governments bring to WTO negotiations is to prevent such a self-defeating and destructive drift into protectionism. [] [] The world is complex, but the WTO doesn’t claim that everything is perfect—otherwise there would be no need for further negotiations and for the system to evolve and reform continually. That’s one of the most important reasons for having the system: it’s a forum for countries to thrash out their differences on trade issues. **The ten benefits of the WTO** 1. [|The system helps promote peace] 2. [|Disputes are handled constructively] 3. [|Rules make life easier for all] 4. [|Freer trade cuts the costs of living] 5. [|It provides more choice of products and qualities] 6. [|Trade raises incomes] 7. [|Trade stimulates economic growth] 8. [|The basic principles make life more efficient] 9. [|Governments are shielded from lobbying] 10. [|The system encourages good government]
 * __Heidi's response and background research__**
 * The case for open trade  **

The WTO does not tell governments how to conduct their trade policies. Rather, it’s a member driven organization. That means: the rules of the WTO system are agreements resulting from negotiations among member governments The WTO is not for free trade at any cost. It’s really a question of what countries are willing to bargain with each other, of give and take, request and offer. The WTO’s role is to provide the forum for negotiating liberalization. They have special provisions that take into account the situations that developing countries face, protecting their domestic producers. The WTO is NOT only concerned about commercial interests. This does NOT take priority over development. The WTO agreements are full of provisions taking the interests of development into account. //Sustainable development is a principal objective // The preamble of the Marrakesh Agreement Establishing the World Trade Organization includes among its objectives, optimal use of the world’s resources, sustainable development and environmental protection. This is backed up in concrete terms by a range of provisions in the WTO’s rules. Among the most important are umbrella clauses (such as Article 20 of the General Agreement on Tariffs and Trade) which allow countries to take actions to protect human, animal or plant life or health, and to conserve exhaustible natural resources. Beyond the broad principles, specific agreements on specific subjects also take environmental concerns into account. Subsidies are permitted for environmental protection. Environmental objectives are recognized specifically in the WTO agreements dealing with product standards, food safety, intellectual property protection, etc. In addition, the system and its rules can help countries allocate scarce resources more efficiently and less wastefully. For example, negotiations have led to reductions in industrial and agricultural subsidies, which in turn reduce wasteful over-production. Freer-flowing and more stable trade boosts economic growth. It has the potential to create jobs, it can help to reduce poverty, and frequently it does both. The biggest beneficiary is the country that lowers its own trade barriers. The countries exporting to it also gain, but not as much. In many cases, workers in export sectors enjoy higher pay and greater job security. However, producers and their workers who were previously protected clearly face new competition when trade barriers are lowered. Some survive by becoming more competitive. Others don’t. Some adapt quickly (for example by finding new employment), others take longer. In the WTO trading system, everyone has to follow the same rules. As a result, in the WTO’s dispute settlement procedure, developing countries have successfully challenged some actions taken by developed countries. Without the WTO, these smaller countries would have been powerless to act against their more powerful trading partners.

Will's Response


 * What are some of the reasons why the World Trade Organization and free trade are being criticized? **
 * __DEFINITION OF WTO __****: A FORMAL STRUCTURE FOR CONTINUED NEGOTIATIONS TO REDUCE TRADE BARRIERS AND A MECHANISM FOR SETTLING TRADE DISPUTES. **
 * __REASONS WTO IS CRITICIZED: __**
 * · ****CRITICS ARGUE THAT THE WTO FAVORS THE DEVELOPED NATIONS BECAUSE IT IS MORE DIFFICULT FOR POORER NATIONS TO COMPETE IN A NON-REGULATED WORLD. **
 * · ****ENVIRONMENTALISTS NOTE THAT FREE TRADE ENCOURAGES LARGE MULTINATIONAL COMPANIES TO MOVE ENVIRONMENTALLY DAMAGING PRODUCTION TO POORER AND OFTEN ENVIRONMENTALLY SENSITIVE COUNTRIES. **
 * o ****COMMERCIAL INTERESTS HAVE PRIORITY OVER THE ENVIRONMENT, HEALTH, AND SAFETY. **
 * · ****LABOR UNIONS SEE FREE TRADE LEADING TO THE MIGRATION OF JOBS FROM HIGHER WAGE COUNTRIES TO LOWER WAGE COUNTRIES. **
 * Do you think that free trade is helping all countries? Why or why not? **
 * THIS QUESTION IS SUBJECTIVE: FROM MY POINT OF VIEW, THE ANSWER IS YES AND NO, BECAUSE IT ALLOWS FREE TRADE SO SMALLER AND POORER COUNTRIES CAN COMPETE WITH LARGER AND WEALTHY COUNTRIES, BUT I CAN SEE WHERE IT CAN ALSO HURT BOTH. COMPANIES FROM THE LARGE AND WEALTHIER COUNTRIES CAN DEFINITELY TAKE ADVANTAGE BY SHIPPING PRODUCTION TO THE POORER COUNTRIES AND USING CHEAP LABOR TO PRODUCE THEIR PRODUCTS. THEY ALSO ARE LESS INCLINED TO THINK ABOUT THE ENVIRONMENTAL EFFECTS THEY LEAVE BEHIND BECAUSE THE GOVERNMENTS OF POORER COUNTRIES ARE PROBABLY NOT AS STRINGENT ON ENVIRONMENTAL ISSUES AS THE WEALTHIER NATIONS. IT CAN HURT THE LARGER COUNTRIES, BECAUSE AS THE LABOR UNIONS HAVE CRITICIZED, LARGE INDUSTRIALIZED NATIONS LIKE THE U.S. WILL LOSE JOBS OVERSEES. **
 * <span style="font-family: "Arial","sans-serif";">THE BOOK ALSO STATES THAT IT WILL HELP SMALLER BUSINESSES BECAUSE THE WTO MAKES TRADE LESS COMPLEX AND REDUCES THE RESOURCE REQUIREMENTS. **<span style="color: #548dd4; font-family: "Arial","sans-serif"; font-size: 6.5pt; line-height: 115%;">