DEVELOPMENT ECONOMICS
PRINCIPLES OF INTERNATIONAL TRADE
International trade is an economy’s connection to the global marketplace. A country’s ability to participate actively in trade can help it achieve long-term growth and improve the wellbeing of its citizens.
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International Trade Governance
How do countries advance open and equitable trade?
Trade can sometimes result in disputes which require mediation and clear frameworks
General Agreement on Tariffs and Trade (GATT)
A mechanism for periodic reviews of each country’s trade policies. It created ground rules for multilateral negotiation for further tariff reductions, which occurred in eight rounds of talks between 1948 and 1994.
World Trade Organization
The Uruguay Round in 1994 led to the adoption of an agreement that included the creation of the World Trade Organization. As a formal organization, the WTO had the power to adjudicate trade disputes, monitor member countries’ trade policies, convene multilateral trade negotiations, and cooperate with the other international financial institutions on global policy issues.
Third GATT Round
Included 38 countries and more than 8,500 tariff concessions.
Sixth GATT Round
Also known as the "Kennedy Round", included 68 countries, representing 75% of global trade. Discussions led to an average 35% reduction in tariffs across multiple sectors. This round also included preliminary international framework for anti-dumping policies.
Seventh GATT Round
Included 102 countries and expanded discussions around voluntary export restrictions and other non-tariff barriers. Tariff reductions amounted to ~$19 billion.
Uruguay Round
Included 123 countries and expanded negotiations to include important areas like services and intellectual property. This trade round also tackled the difficult topics of agricultural trade barriers.
International Trade Rules
What are the functions of the WTO?
The WTO established clear norms for international trade – setting a framework for coordination
Transparency & Equal Treatment
- Trade agreements take the following principles into account:
- Non-discrimination – Countries cannot treat trade partners unequally
- Reciprocity – Trade agreements will seek mutual changes in trade policy
- National Treatment – Imported and locally-produced goods should be treated equally
- Under the WTO, protectionist emphasize the use of tariffs, while quantitative restrictions are largely prohibited.
- All countries publish updated tariff schedules and face regular trade policy reviews.
WTO Country Status
Countries can either be WTO members or observers depending on organization requirements for full membership, economic development level, and/or their status within the international community. Full WTO membership affords greater privileges to a country.
Data Source
Look up your country’s WTO membership status here.
The WTO also established mechanisms for mediation and rule enforcement
The WTO has several mechanisms and tools to ensure respect for international trade rules:
- Rules for ensuring fair competition – allowing for the use of anti-dumping and countervailing duties.
- Temporary protection from unfair trade practices – Escape clause and safeguards rules.
- A dispute settlement mechanism and appeals process.
Understanding Disputes
Countries can bring trade disputes to the WTO’s Dispute Settlement Body, which includes a panel of other member countries. Prior to dispute resolution, the involved parties can go through a mediation process to agree on steps to resolve the dispute.
Case Study: Dispute Resolution
Read about a WTO dispute resolution case study between Venezuela and the United States. Read the case study here.
Data Source
Look up current and past WTO trade disputes here.
Despite potential benefits, trade is only one tool for increasing development – not a silver bullet.
Relying on trade or foreign direct investment alone is not enough to alleviate global poverty. The global poor often need access to holistic development interventions that improve access to:
Education
Health Care
Finance
Infrastructure
And much more…
Learn more about Development Economics
