<Name of the Academic Institution>
4. Why is there a need for multilateral international trade agreements such as those negotiated through the WTO, relative to simply allowing each country in the world make its own decisions regarding international trade? How do the economic effects of multilateral trade agreements differ from those of regional trade agreements such as NAFTA and the European Union (EU)? Explain.
The existence of international trade organizations and respective global or regional trade agreements serves various important purposes.
The first function of such afreements is unification, standartization and clarification of trading practices, transfers of goods and services as well as respective funds. Current trends towards globalization and international specialization make the world community very vulnerable and dependable on various regional and cross-continental economic players. An opportunity for a single country, which is either a provider or a buyer of strategically important goods and services, to determine its own completely independent position together with probable discrimination of certain trade partners in favor of others, may significantly affect the fragile equilibrium of international relations, not only economically, but also politically. Existence of international and impartial (at least, formally) global trade organizations (e.g. WTO) and respective agreements (GATT, TBT) minimizes, yet not entirely neutralizes, such threat.
Secondly, international agreements are a powerful tool of political influence. It is possible to force any given country to open up the market, minimize or eliminate protectionist barriers again foreign competitors just due to the fact that such country is a member of a respective trade agreement. When the recently emerged Baltic states, for instance, joined the EU, WTO and OECD, their agricultural sector was literally eliminated, because local producers could not compete with manufacturers from Central and Southern Europe. A little could be done in this regard, so the economic consequences can still be detected.
Finally, the membership in such agreements is a good signal for a potential counterpart that the country and all its respective organizations comply with the rules, and may be dealt with according to the punitive measures reflected in agreements in case if the rights of counterparts are violated. This leads to a significant economic impact of such agreements – member states prefer to arrange trading flows between each other, while the outsiders may be punished by rejection of participation, entrance barriers and more expensive international loans. Due to these factors the significance of international trade agreements should not be underestimated.
It may be said that global multilateral trade agreements are functionally similar to those of a regional nature, be it NAFTA in North America, those of the European Union or the Customs Union in Eastern Europe and Central Asia. It should be kept in mind, however, that while global agreements may be formally impartial (yet serve the purposes of certain groups of prosperous nations), regional agreements are in practice aimed at the benefit of just one or quite few (in Europe) strong economic powers. In case of NAFTA these are undoubtedly the USA, in EU – Germany (some would also include France and the UK), in Eastern Europe it’s all about Russia. Such regional agreements are profitable and convenient for the local champion, which gets a chance to dictate its will to the neighbors and provide certain benefits for own producers, exporters and importers. All the rest economic benefits are inferred from this superior position.
The topic of international trade agreements is extremely interesting by nature, and in order to analyze it from various points of view it is not enough to learn respective dates, names, graphs and formulas. Such analysis alse requires a lot of understanding of the world we are all living in, with all its complexity and ambiguity.
5. In what way(s), if any, has your understanding of international trade in the world economy changed as a result of taking this course? Explain fully.
It would not be entirely true to say that I had no general understanding of the concept of international trade before this course. Prior learning as well as surrounding events and processes allowed me to realize the significance of this global perpetual mechanism of value creation. The new things I learned throughout this course, however, are abundant and may be divided into 2 major groups – functional and conceptual.
First of all, it successfully covered a wide range of topics. I had some basic understanding of the mechanisms of export and import, tariffs and quotas, but had little knowledge of specific models, be it Heckshner-Olin model or the model of returns to scale within the system of monopolistic competition. Throughout this course we managed to cover topics of economic, social, political, legal and even historical nature. This brings me to the second functional takeaway from the course.
It is not a secret that most of the factual information we got through is available from open sources. From this point of view it is extremely important that the main point of the course was not merely citing Wikipedia or OECD statistics databases. The three stages of the learning process – general conceptualization, quantitative estimation and practical application – are the main distinction of this course in comparison to many others. We did not merely memorize the dates or formulas, we successfully managed to apply them to real-world problems. The process of such application is the third main functional perk.
As it was mentioned above, our course involved a combination of quantitative and qualitative analysis together with general humanitarian knowledge. This is extremely important for those who intend to assess the system of international trade in all its complexity. It is not difficult to learn 20-30 formulas and get used to applying them for simple linear calculations. It is much more difficult to use the data properly in order to understand the relations between the elements of the complex yet fragile system of international economic relations (trade, in this particular case).
This course did not simply provide me with a knowledge of international trade, it helped me to start perceiving the world around me from a different, more professional and analytical point of view.