World Trade Organization Overview

World Trade Organization (WTO)

• WTO is the only global international organization dealing with the rules of trade between nations.
• Its headquarters are located in Geneva, Switzerland.
• It has 164 members and 22 countries are in the process of joining.
• Major decisions are made by member governments through ministers, ambassadors, or delegates.
• WTO's predecessor was the General Agreement on Tariffs and Trade (GATT).
• GATT was established in 1947 after World War II.
• GATT was part of a larger effort for international economic cooperation with the World Bank and International Monetary Fund.

Goal of WTO

• The WTO aims to ensure smooth, predictable, and free flow of trade.
• Its goal is to aid producers, exporters, and importers.

Roles of WTO

• Operates a global system of trade rules.
• Acts as a forum for negotiating trade agreements.
• Resolves trade disputes between members.
• Supports the needs of developing countries.

Director General of WTO

• Ngozi Okonjo-Iweala is the first woman and first African director general.
• Her term ends August 31, 2025.

Main Theories

Classical/Country-Based Theory

• Focuses on the country as the primary unit of analysis.
• Explains trade patterns based on national characteristics like resources, productivity or comparative advantage.
• Examples: Mercantilism, Absolute Advantage (Adam Smith), Comparative Advantage (David Ricardo), and Heckscher-Ohlin Theory.

Firm-Based/Company-Based Theory

• Emphasizes the role of individual companies in international trade.
• Highlights competitive strategies, branding, customer loyalty, and innovation.
• Examples: Product Life Cycle Theory, New Trade Theory, and Strategic Trade Theory.

Adam Smith and David Ricardo

• Their work is foundational in economics, exploring wealth creation, division of labor, free markets, and government's role in the economy.

Theory of Free Trade

• Supports unrestricted international trade without tariffs, quotas, or subsidies.
• Advocates that open markets lead to efficient resource allocation, benefiting all participating nations.

International Trade History

• Trade is a very old occupation in human history.
• Roman empire development occurred in the 15th to 18th century with the improvements in navigation and the discovery of new trade routes.
• Examples of important historical figures/events related to trade: Christopher Columbus, Vasco Da Gama, Bartolemeu Dias, the Silk Road.

Theory of Price-Specie Flow Mechanism

• Created in the mid-18th century by David Hume.
• Explains how international trade imbalances self-correct under a gold standard through gold flows affecting money supply, price levels, and trade balances.

Trade Surplus

• Occurs when a country's exports exceed its imports.
• Indicates a positive balance in a nation's trade account.

Division of Labor

• Separates a work process into tasks performed by different people/groups.
• Increases productivity and specialization.

Industrial Capitalism

• A phase of capitalism where industries dominate production.
• Transition from agricultural economies to industrialized production.
• Characterized by private ownership of production, competitive markets, and profit-seeking.

Mercantilism

• Emphasizes maintaining a positive trade balance.
• Focuses on maximizing exports while minimizing imports.

Comparative Advantage

• Emphasizes a country's ability to produce a particular good at a lower opportunity cost compared to other countries.

Barter

• Direct exchange of goods and services.
• Used before the adoption of monetary systems.
• Disadvantages include difficulty finding suitable partners, valuing goods, and preserving perishables.

Fiat Currency/Cash

• Currency issued and printed by a country's central bank.
• Fully backed by the government and accepted as payment for transactions.

E-Money

• Digital representation of fiat currency.
• Stored in digital wallets and used for payments.

Debit Cards

• Allow access to funds directly from a bank account.
• Transactions are directly deducted from the account balance.

New Generation Currency (NGC)

• Enhanced banknotes with improved security, ecological concerns, and user-friendliness (e.g., made of polymer).

Mobile Payments

• Transactions using portable electronic devices.
• Increase due to increased convenience and adoption of technology.

Virtual Currency (Cryptocurrency)

• Digital form of currency using cryptography for security and transactions on a decentralized network (e.g., blockchain).
• Often not controlled by a central authority.