.

World Trade Organization:The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

The organization is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. As of June 2012, the future of the Doha Round remains uncertain: The work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed (So was the next unofficial target of the end of 2006. The further imposition of free trade on industrial goods and services and the protectionism on farm subsidies to domestic agricultural sector requested from the developed countries, and the substantiation of the international liberalization of fair trade on agricultural products from developing countries remain the major obstacles. These points of

1

contention have hindered any progress to launch new WTO negotiation(s) beyond the Doha Development Round. As a result of this impasse, there has been an increasing amount of bilateral free trade agreements

WTO's current Director-General is Pascal Lamy, who leads a staff of over 600 people in Geneva, Switzerland. The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy games.

The Official Website for World Trade Organization defines WTO as “There are a number of ways of looking at the World Trade Organization. It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other”. The result is assurance. Consumers and producers know that they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services that they use. Producers and exporters know that foreign markets will remain open to them.

The result is also a more prosperous, peaceful and accountable economic world. Virtually all decisions in the WTO are taken by consensus among all member countries and they are ratified by members' parliaments. Trade friction is channeled into the WTO's dispute settlement process where the focus is on interpreting agreements and commitments, and how to ensure that countries' trade policies conform with them. That way, the risk of disputes spilling over into political or military conflict is reduced.

By lowering trade barriers, the WTO’s system also breaks down other barriers between peoples and nations.

At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified

2

in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit.

The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business.

The goal is to improve the welfare of the peoples of the member countries

Principles of the trading system:

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy games. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

1. Non-discrimination. It has two major components: the most favored nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favor and you have to do the same for all other WTO members." National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods).

2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.

3. Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures.[22][37]

4. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports.

5. Safety valves. In specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.

3

There are three types of provision in this direction:

articles allowing for the use of trade measures to attain non-economic objectives; Articles aimed at ensuring "fair competition"; members must not use environmental

protection measures as a means of disguising protectionist policies.

Provisions permitting intervention in trade for economic reasons.

Exceptions to the MFN principle also allow for preferential treatment of developing countries, regional free trade areas and customs unions

Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.

4

It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making. Another priority of the WTO is the assistance of developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training The result is assurance. Consumers and producers know that they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services that they use. Producers and exporters know that foreign markets will remain open to them.

The Approach to International Agreements

The approach of the courts in enforcing EU agreements was first evident in the Haegeman judgment, concerning the interpretation of a Greek Association Agreement. Unwilling to see its jurisdiction circumscribed, the ECJ held that this was an Act of one of the institutions, as it was concluded by the Council under Article 218 TFEU. The Court emphatically asserted that “[t]he provisions of the Agreement, from the coming into force thereof, form an integral part of [EU] law.” As observed by Menez, this passage provides a clear implication that EU agreements would be capable of being directly effective and supreme law in the member states’ legal orders.

The ramifications for international agreements may have been camouflaged somewhat, as Haegeman itself concerned a challenge to a wholly EU measure. However, any doubts as to the consequences of that judgment were dispelled in the famous case of Kupferberg later that year.i Member states forcefully protested against the directly effective status of the bilateral Trade Agreement with Portugal. In a powerful judgment, the ECJ held that the provisions of international agreements concluded by the EU were to become a part of Union law, with direct effect, where the provision is unconditional, sufficiently precise, and its direct application was within the purpose of the agreement. Indeed, the approach taken by the Court in this regard is equivalent to the test for the direct effect of EU law, from the seminal case of Van Gend en Loos.

The reasoning employed with regard to international agreements is, if nothing else, pragmatic. The agreements entered into by the EU need to be implemented at national level. If a member state could adopt national laws that are inconsistent with the agreement, the aims therein would be compromised.

Of particular interest in the Kupferberg decision is the fact that Advocate-General Rozes viewed the treaty at issue as being inherently ‘flexbile’, and as a consequence, should not be given direct

5

effect. The boldness with which the court dispensed with this opinion indicated a willingness to apply a liberal attitude to the direct effect determination in Van Gend en Loos, insofar as international agreements were concerned.

The Advent of the WTO

Following the changes effected by the conclusion of the Uruguay Round, it was widely expected that the reasoning of International Fruit to prevent the direct effect of GATT law would no longer endure. The Court had long relied on the questionable conclusion that the Agreement lacked binding requirements and an effective dispute settlement procedure. The Uruguay Round appeared to produce an international agreement that was more clearly defined and purposeful than its predecessor ever was.

This new international agreement received full examination for the first time in Portugal v Council. The Portuguese government contested the legality of agreements concluded with India and Pakistan concerning market access for textiles. The applicant argued that these agreements should be declared void, on the grounds of their incompatibility with the WTO Agreement on Textiles and Clothing. Portugal attempted to distinguish the WTO from its predecessor, with particular regard to the altered dispute settlement procedure now in place.ii

However, the Court was unmoved by this line of argument. While admitting that the WTO provisions did indeed differ from the provisions of the GATT, it was concerned by the significant importance still attached to negotiations in the new system. With specific regard to the Dispute Settlement Understanding, the Court stated that although the main purpose was to withdraw measures found to be inconsistent with WTO rules, it also provided that compensation was to be provided on an interim basis, and that negotiations between parties to determine compensation could still take place.

The Court’s approach in this instance displays a continued reliance on ostensibly pre-WTO reasoning. It is questionable as to why the Court focused on the freedom of members to negotiate alternative forms of dispute settlement. This is even more bewildering, when you consider that there is now the possibility of a binding decision regarding the WTO legality of domestic law. Surely this indicates that the Agreement is by no means as flexible as the Court sought to portray. Griller adds to the analysis, making the salient point that in the case at issue, no agreement on compensation existed, or was in sight. There was not even an ongoing dispute at WTO level. Nonetheless, the Court used the apparent lack of an unconditional dispute settlement to deny the judicial enforceability of WTO law. It is submitted that in avoiding any form of

6

meaningful analysis of the novel and effective features of the Agreement, the Court implicitly displayed its reluctance to compromise the negotiating freedom of EU representatives before the WTO.

Another intriguing feature of this judgment is the ECJ’s discussion on reciprocity. The Court pointed out that some of the Union’s main trading partners refused to apply WTO rules to their legal order, in reviewing the legality of domestic law. The ECJ were particularly mindful that it did not deprive the executive organs of the Community of the scope for manoeuvre enjoyed by their trading partners. In one respect, this is a salutary line of reasoning. The WTO has the capacity to have a profound effect on the economies of its members. If the court enforced WTO rules in this situation, it would effectively seal the EU in an economic straightjacket. Yet the question remains as to whether reciprocity itself is a valid legal ground for the Court’s analysis. Does this not instigate a regulatory ‘race to the bottom’? The aims of the WTO are overlooked, for no other reason than the fact that specific members refuse to implement WTO rules.

Indeed, the Court’s interpretation of reciprocity is in direct contradiction of the Kupferberg case, discussed earlier. There, several governments argued that the lack of reciprocity on Portugal’s behalf would prevent the direct applicability of the Free Trade Arrangement. However, the Court emphatically rejected this argument, stressing that the fact that one of the parties does not consider certain stipulations of the agreement to be directly effective, does not, of itself, constitute a lack of reciprocity. In Portugal, the Court attempted to carve out an exception for the WTO in its case law. It claimed that the WTO is far removed from other international treaties; the latter are simply bilateral agreements, in which the EU attempts to establish a special relationship with a third country. According to the Court, the WTO is an altogether different entity- its membership comprises of a large group of countries with which the EU does not necessarily wish to establish close relationships, and the rules therein are merely a balance of concessions.

This theory is difficult to accept. Take, for example, the desire to create a special relationship with other member states. Both the intention and effect of creating this relationship is to simplify trade between the parties concerned. This is, of course, a key focus of the WTO. Granted, the WTO contains a larger membership than other, more conventional treaties. Yet this was a fact known to the EU when it decided to sign up to the Agreement. Surely the Union should not be allowed to enjoy the benefits that WTO membership immediately brings (most notably access to the foreign markets of every member), while retrospectively claiming that it had no intention of enduring the obligations that come with membership.

7

Despite the restricted application afforded to WTO provisions generally in light of the Portugal decision, it was nonetheless anticipated that the significantly augmented dispute settlement procedures under the new Agreement would receive a more amenable interpretation from the European Court. This hope was extinguished in the subsequent decision in Van Parys. The case concerned a trader attempting to rely on WTO provisions, to challenge a Community regulation restricting banana imports from certain states. His claim was based on a Dispute Settlement Body decision, which stated that the same regulation was incompatible with obligations under the WTO.

The Court began by examining the operation of the DSU, and found that its primary focus was to secure the withdrawal of infringing measures. On this basis, the Court suggested that to give direct effect to the Body’s decision would defeat the logic of the DSU, in preventing the possibility for alternative remedies, such as compensation. Moreover, the ECJ found that several trading partners, most notably the USA, did not give the rules direct effect. It was stated once more that to allow direct effect for WTO obligations would place the EU at a considerable competitive disadvantage.

After Van Parys, it seems that whenever there is a possibility for negotiation, as left open after a DSB ruling, the Court will be unwilling to review the legality of Union measures in the light of WTO rules. However, the framework in this area of WTO law is far more succinct and direct than that evident in GATT. In this regard, it was disappointing to see the ECJ use much the same reasoning to dispel any notion of direct effect. The question must be asked: just how precise must rules be for their application in the European Union? Would a more binding, and thus more adversarial, dispute resolution mechanism not contradict one of the aspirations of the WTO in the first place- to provide a cooperative and harmonious forum for international trade?

From analyzing the reasoning employed in both Portugal and Van Parys, the ECJ has been motivated by purely political considerations. It is undeniably that the Court is uneasy in removing power from the Union, and providing it to an international organization over which it has limited influence.

WTO History: A Chronology of Events:

8

1947 October - 23 countries sign the General Agreement on Tariffs and Trade (Gatt) in Geneva, Switzerland, to try to give an early boost to trade liberalisation.

1947 November - Delegates from 56 countries meet in Havana, Cuba, to start negotiating the charter of a proposed International Trade Organisation.

1948 1 January - Gatt agreement comes into force.

1948 March - Charter of International Trade Organisation signed but US Congress rejects it, leaving Gatt as the only international instrument governing world trade.

1949 - Second Gatt round of trade talks held at Annecy, France, where countries exchanged some 5,000 tariff concessions.

1950 - Third Gatt round held in Torquay, England, where countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%.

1955-56 - The next trade round completed in May 1956, resulting in $2.5bn in tariff reductions.

1960-62 - Fifth Gatt round named in honour of US Under Secretary of State Douglas Dillon who proposed the negotiations. It yielded tariff concessions worth $4.9bn of world trade and involved negotiations related to the creation of the European Economic Community.

1964-67 - The Kennedy Round, named in honour of the late US president, achieves tariff cuts worth $40bn of world trade.

1973-79 - The seventh round, launched in Tokyo, Japan, sees Gatt reach agreement to start reducing not only tariffs but trade barriers as well, such as subsidies and import licensing. Tariff reductions worth more than $300bn dollars achieved.

1986-93

- Gatt trade ministers launch the Uruguay Round in Punta Del Este, Uruguay, embarking on the most ambitious and far-reaching trade round so far. The round extended the range of trade negotiations, leading to major reductions in agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights.

1994 - Trade ministers meet for the final time under GATT auspices at Marrakesh, Morocco to establish the World Trade Organization (WTO) and complete the Uruguay Round.

1995 - The World Trade Organization is created in Geneva.

1999 - At least 30,000 protesters disrupt WTO summit in Seattle, US; New Zealander Mike Moore becomes WTO director-general.

9

2001 November - WTO members meeting in Doha, Qatar, agree on the Doha Development Agenda, the nineth trade round which is intended to open negotiations on opening markets to agricultural, manufactured goods, and services.

2001 December - China formally joins the WTO. Taiwan is admitted weeks later.

2002 August - WTO rules in favour of the EU in its row with Washington over tax breaks for US exporters. The EU gets the go-ahead to impose $4bn in sanctions against the US, the highest damages ever awarded by the WTO.

2002 September - Former Thai deputy prime minister Supachai Panitchpakdi begins a three-year term as director-general. He is the first WTO head to come from a developing nation.

2003 September - WTO announces deal aimed at giving developing countries access to cheap medicines, hailing it as historic. Aid agencies express disappointment at the deal.

2003 September - World trade talks in Cancun, Mexico collapse after four days of wrangling over farm subsidies, access to markets. Rich countries abandon plans to include so-called "Singapore issues" of investment, competition policy and public procurement in trade talks. 2003 December - WTO rules that duties imposed by the US on imported steel are illegal. US President Bush repeals the tariffs to avoid a trade war with the EU.

2004 April - WTO rules that US subsidies to its cotton farmers are unfair.

2004 August - Geneva talks achieve framework agreement on opening up global trade. US and EU will reduce agricultural subsidies, while developing nations will cut tariffs on manufactured goods.

2005 March - Upholding a complaint from Brazil, WTO rules that US subsidies to its cotton farmers are illegal.

2005 May - WTO agrees to start membership talks with Iran.

2005 September - Frenchman Pascal Lamy takes over as WTO director-general. He was formerly the EU's trade commissioner.

2005 October - US offers to make big cuts in agricultural subsidies if other countries, notably in the EU, do the same. EU responds, but France opposes more concessions.

2005 November - WTO approves membership for Saudi Arabia.

2005 December - World trade talks in Hong Kong begin amid widespread belief that they will not succeed in making a breakthrough.

10

2007 December - WTO clears way for Cape Verde's membership by approving a package of agreements which spell out the terms of it's accession. Cape Verde is expected to ratify the deal by June 2008.

2008 July - Ministerial talks aimed at resuscitating the Doha Round of talks break down on ninth day of meeting after the US and India fail to find a compromise on measures intended to help poor countries protect their farmers against import surges.

2008 November - G20 leaders meeting in Washington agree to "strive" for a major breakthrough in Doha talks by the end of the year.

2008 December - Pascal Lamy drops plans to hold a ministerial meeting to seek breakthrough on Doha citing the "unacceptably high" risk of failure.

2009 March - WTO says global trade flows are set to shrink by 9% during 2009. Hardest hit will be developed nations, where trade is set to fall 10%. Poorer countries will see exports fall by 2-3%.

2010 March - Pascal Lamy predicts that the worst of global trade recession is over and WTO economists foresee 2010 world economic growth of 9.5%.

2010 June - The WTO rules that the European Union paid illegal subsidies to aircraft giant Airbus after the US lodged a complaint in a long-running dispute between the EU and US.

2010 September - Leaks of WTO report say it will order more than $20bn of cuts in US government subsidies to the Boeing aircraft manufacturer.

2010 November - G20 meeting of major economic powers in Seoul sees 2011 "window of opportunity" for the conclusion of the WTO Doha Round.

2010 December - The European Union expresses support for Russia's bid to join the WTO after Moscow agreed to cut timber export tariffs and rail freight fees. Russia is the only major economy outside the WTO.

China says it plans to appeal against a WTO ruling that the US was entitled to impose extra duties on Chinese tyre imports.

2011 January - Former WTO director-general Peter Sutherland joins British Prime Minister David Cameron and German Chancellor Angela Merkel in demanding the conclusion of the Doha talks by the end of 2011.

2011 May - Both the US and Europe Union claim victory after the WTO partly overturned an earlier ruling that Airbus received billions of euros in illegal subsidies.

11

2011 July - WTO upholds complaints by the US, European Union and Mexico that China had broken global free trade rules by imposing quotas and taxes on exports of certain key materials, including minerals like bauxite, magnesium and zinc. China complains.

2011 August - WTO rules that a tax levied in the Philippines on imports of alcohol breaks global rules on free trade on the grounds that it grants domestic producers who use local cane and palm sugar an unfair advantage. The US has previously urged the Philippines to open its market to foreign alcoholic drinks.

2011 December - Russia finally joins the WTO after 18 years negotiating its membership. Switzerland brokered a deal to persuade Georgia to lift its veto, which it had imposed after the 2008 Russo-Georgian war.

WTO agrees terms for Samoa and Montenegro to join in 2012.

2012 January - The WTO rejects China's appeal against a ruling that it broke free trade rules by imposing quotas and taxes on exports of key materials.

12

13

WTO Organization Chart:

14

WTO Accession and Membership:The process of becoming a WTO member is unique to each applicant country, and the terms of accession are dependent upon the country's stage of economic development and current trade regime.The process takes about five years, on average, but it can last more if the country is less than fully committed to the process or if political issues interfere. The shortest accession negotiation was that of the Kyrgyz Republic, while the longest was that of Russia, which, having first applied to join GATT in 1993 was approved for membership in December 2011 and became a WTO member on August 22, 2012. The second longest was that of Vanuatu, whose Working Party on the Accession of Vanuatu was established on 11 July 1995. After a final meeting of the Working Party in October 2001, Vanuatu requested more time to consider its accession terms. In 2008, it indicated its interest to resume and conclude its WTO accession. The Working Party on the Accession of Vanuatu was reconvened informally on 4 April 2011 to discuss Vanuatu’s future WTO membership. The re-convened Working Party completed its mandate on 2 May 2011. The General Council formally approved the Accession Package of Vanuatu on 26 October 2011. On 24 August 2012, the WTO welcomed Vanuatu as its 157th member. An offer of accession is only given once consensus is reached among interested parties

A country wishing to accede to the WTO submits an application to the General Council, and has to describe all aspects of its trade and economic policies that have a bearing on WTO agreements. The application is submitted to the WTO in a memorandum which is examined by a working party open to all interested WTO Members.

After all necessary background information has been acquired; the working party focuses on issues of discrepancy between the WTO rules and the applicant's international and domestic trade policies and laws. The working party determines the terms and conditions of entry into the WTO for the applicant nation, and may consider transitional periods to allow countries some leeway in complying with the WTO rules.

The final phase of accession involves bilateral negotiations between the applicant nation and other working party members regarding the concessions and commitments on tariff levels and market access for goods and services. The new member's commitments are to apply equally to all WTO members under normal non-discrimination rules, even though they are negotiated bilaterally. When the bilateral talks conclude, the working party sends to the general council or ministerial conference an accession package, which includes a summary of all the working party meetings, the Protocol of Accession (a draft membership treaty), and lists ("schedules") of the member-to-be's commitments. Once the general council or ministerial conference approves of the terms of accession, the applicant's parliament must ratify the Protocol of Accession before it can become a member.

15

Recent Trends in World Trade:

International Trade: An Introduction

If you walk into a supermarket and are able to buy South American bananas, Brazilian coffee and a bottle of South African wine, you are experiencing the effects of international trade.

International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us. It is the reason why you can pick between a Japanese, German or American car. As a result of international trade, the market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer.

International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes.

Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments.

Global trade allows wealthy countries to use their resources - whether labor, technology or capital - more efficiently. Because countries are endowed with different assets and natural resources (land, labor, capital and technology), some countries may produce the same good more efficiently and therefore sell it more cheaply than other countries. If a country cannot efficiently produce an item, it can obtain the item by trading with another country that can. This is known as specialization in international trade. Let's take a simple example. Country A and Country B both produce cotton sweaters and wine. Country A produces 10 sweaters and six bottles of wine a year while Country B produces six sweaters and 10 bottles of wine a year. Both can produce a total of 16 units. Country A, however, takes three hours to produce the 10 sweaters and two hours to produce the six bottles of wine (total of five hours). Country B, on the other hand, takes

16

one hour to produce 10 sweaters and three hours to produce six bottles of wine (total of four hours).

But these two countries realize that they could produce more by focusing on those products with which they have a comparative advantage. Country A then begins to produce only wine and Country B produces only cotton sweaters. Each country can now create a specialized output of 20 units per year and trade equal proportions of both products. As such, each country now has access to 20 units of both products

INTRODUCTION:THE STATE OF THE WORLD ECONOMY AND TRADE IN 2006:The year 2006 witnessed robust growth in the world economy and vigorous trade expansion. According to data available in April 2007, global gross domestic production (GDP) growth accelerated to 3.7 per cent, the second best performance since 2000. All major regions recorded GDP growth in excess of population growth. Economic growth in the least-developed countries continued to exceed 6 per cent for the third year in a row. A large part of the stronger global economy is attributable to the recovery in Europe, which turned out to be stronger than expected in early 2006. The United States economy maintained its overall expansion as weaker domestic demand was balanced by a reduction in the external deficit, mainly due to a faster export growth. In Japan somewhat faster economic growth was achieved despite weaker domestic demand reflected in a widening of its external surplus. China and India continued to report outstandingly high economic and trade growth. Strong economic fundamentals in many key economies contributed to stronger investor confidence worldwide. General government deficits decreased in the United States, the European Union and in Japan and inflationary pressures were contained. A high level of global monetary liquidity combined with a low level of real interest rates contributed to a rally on global stock markets. Stock markets in emerging economies again recorded much faster growth than those in developed economies. Increased investor confidence in emerging markets is also reflected in the sharply reduced spread in interest margins between emerging market bonds and those of US government bonds. The more favorable investment climate is also reflected in a sharp rise in global foreign direct investment (FDI) flows in 2006, which approached the record levels of the past.

1 ) UNCTAD reports that global FDI inflows surged by one-third to $1.23 trillion, the second highest level ever. The high growth of global FDI flows can be attributed partly to increased mergers and acquisitions activity and higher share prices.

  2) A high level of total net private capital flows to emerging markets was reported by the Institute of International Finance. A further sign of high global liquidity is the rise in global foreign exchange reserves and the advanced re-payment of external public debt by a number of developing countries. Debt levels, measured by the outstanding debt to GDP ratios, decreased

17

in all developing regions partly due to debt forgiveness. For the heavily indebted poor countries the debt levels in 2006 are estimated to have come down to half the level reported five years ago.

3) The real effective exchange rate of the US dollar continued to depreciate moderately, contributing to the readjustment of the US current account deficit (the trade deficit in goods and services).

4) The exchange rates of the Asian economies with large current account surpluses fared differently in 2006. On an annual average basis, real effective exchange rates appreciated significantly in the case of the Republic of Korea and Singapore and moderately in the case of China. The Japanese yen, however, continued to depreciate in 2006.

5) High global liquidity and a further steep rise in the price of fuels and nominal interest rates have not so far translated into higher domestic inflation rates. In developed markets consumer price increases averaged between 2 and 3 per cent and in the developing economies the rate was about 5 per cent. In both developed and developing regions no acceleration in consumer price inflation was observed between 2005 and 2006.

6) However, inflationary pressures can be detected in sectors for which supply is less elastic, such as real estate markets and auction prices for works of art.

The strong global macroeconomic situation in 2006 provided a favorable framework for the expansion of international trade. In 2006, world merchandise exports grew in real terms (i.e. at constant prices) by 8.0 per cent, compared to 6.5 per cent in the preceding year. A large part of this trade acceleration can be attributed to the marked recovery in Europe’s export and import growth. Higher prices of fuels and metals led to a moderate increase in the quantity of mining products traded internationally but the higher export earnings of oil exporters resulted in import growth in excess of the world average. High energy prices also invigorated demand for mining equipment and investment in machinery with high energy efficiency. China’s merchandise trade expansion remained outstandingly strong in 2006. Office and telecom equipment continued to be the mainstay of Chinese export growth but significant gains in world market shares in 2006 could be observed in ³traditional´ exports such as clothing and³new´ products such as iron and steel. Chinese imports again rose faster than global trade but continued to lag behind export growth.

18

2. REAL MERCHANDISE TRADE DEVELOPMENTS AND OUTPUT IN 2006

The pickup in global economic activity was the major factor in the vigorous expansion of global trade in 2006. Real merchandise export growth is provisionally estimated to have grown by 8.0 per cent in 2006, almost two percentage points faster than in 2005, and well above the average expansion of the last decade (1996-2006). The expansion of real trade exceeded global output growth by more than 4 percentage points.

NOMINAL MERCHANDISE AND COMMERCIAL SERVICES TRADEDEVELOPMENTS IN 2006.

World merchandise exports in dollar value terms were strongly affected by price developments in 2006. Price developments differed widely by sector in the course of the year. According to the IMF commodity price indices, the world export prices of minerals and non-ferrous metals increased by 56 per cent, those of fuels by 20 per cent and those of food and agricultural raw materials by 10 per cent (see Chart 3). Export prices of manufactured goods are estimated to have increased by not more than 3 per cent.9 Price changes for manufactured goods remained less strong than those for primary products for the third consecutive year. An important element in the moderate price trends for manufactured goods was the continued decline in prices for electronic goods, which accounted for more than one in six dollars of world exports of manufactured goods in 2005. These shifts in relative prices explain largely the different regional export unit values (prices) which ranged from 4 per cent to 5 per cent for Asia and Europe to about 18 per cent to 20 per cent for exports of South and Central America, Africa, the Middle East and the CIS.The price deflators for US services exports and imports increased between 3and 4 per cent in 2006, somewhat less rapidly than in the preceding year. Overall exchange rate developments in 2006 only had a moderate impact on the dollar price level of internationally traded goods. Contrary to developments between 2002 and 2004, the average annual exchange rate change between the US dollar and the euro and the British pound had been

19

rather moderates divergent developments in the course of 2005 and 2006 balanced each other. While a weaker yen might have contributed to weaker dollar export prices of Japan, the appreciation of the Canadian dollar and the currencies of several Asian traders had the opposite effect World merchandise exports in dollar terms rose by 15.4 per cent to $11.76 trillion. About 40 per cent of this value change can be attributed to inflation. Commercial services exports rose by 11 per cent to $2.71 trillion. The increase in commercial services exports in 2006 was about the same as in the preceding year and for the fourth consecutive year less pronounced than that of merchandise trade. It is uncertain to what extent divergent relative price developments have contributed to the differences in the growth of merchandise and commercial services trade values. Merchandise exports by region in dollar terms have been strongly affected again by price developments. The four regions with the highest share of fuels and other mining products in their merchandise exports ± the Middle East (70 per cent in 2005), Africa (65 per cent), the Commonwealth of Independent States (60 per cent) and South/Central America (37 per cent) again recorded the strongest annual export increases in 2006. However, as prices of fuels increased in 2006 less rapidly than in 2005, the sharp rise in the export values of these regions were in effect smaller than in the preceding year. The opposite development can be observed for the net importers of fuels ± North America, Europe and Asia reported a faster export growth in 2006 than in 2005, although the growth in their shipments remained less strong than that of the fuel exporting regions. Although Europe’s merchandise exports recorded the weakest regional growth rate (13 per cent), its share in world merchandise exports, at 42 per cent, remained the largest of all regions. Europe’s imports rose by 14 per cent to $5.22 trillion. Intra-EU (25) trade rose by 13 per cent, which was somewhat stronger than export growth to third countries (11 per cent) but slower than imports from third countries (15 per cent).The Baltic’s and the Balkan states continued to record export and import growth in excess of 20 per cent. The combined exports/imports of the Balkan states exceed those of Turkey, whose exports and imports also expanded faster than those of total Europe. In North America, Mexico reported stronger export and import growth than its NAFTA partners. The United States reported its best annual export growth performance (14 per cent) in more than a decade, and although US export growth exceeded its import growth (11 per cent), the merchandise trade deficit had grown already so large that it continued to grow in 2006. Only in the fourth quarter, supported by the decline in import volumes and falling import prices for crude oil, did the US merchandise trade deficit started to decrease. Asia’s merchandise exports and imports continued to expand faster than world trade in 2006. Among the six major Asian traders China continued to record the highest export and import growth, and as its export growth continued to exceed its import growth, the merchandise trade surplus rose sharply. In the course of 2006, China’s trade surplus widened further as the momentum in the export expansion was maintained while nominal import growth slackened, partly due to weaker oil prices. The dollar value of Japan’s merchandise exports grew by nearly 9 per cent but continued to lag behind the expansion of world trade and its own import growth. The fast growing economies of India and Vietnam reported a vigorous expansion of exports and imports, in the range of 20 per cent to 35 per cent in 2006. Since 1995, the exports and imports of these two countries have expanded faster than Asia’s trade and their share in

20

world merchandise exports increased markedly. Among the smaller Asian traders, Bangladesh, Cambodia and Mongolia continued their double-digit export expansion, a feature since 2003, with exports up between 20 per cent and 44 per cent in 2006. The merchandise trade of New Zealand virtually stagnated while that of Chinese Taipei and the Philippines was less dynamic than world trade in 2006. Africa’s merchandise exports rose by 21 per cent, again faster than imports, which are estimated to have increased by nearly 16 per cent. The share of Africa in world merchandise exports reached its highest level since 1990.Although most of Africa’s export growth can be attributed to the rise in oil exports, it is a noticeable development that non-oil exporting African countries increased their exports by about16 per cent. It is estimated that about one in 10 African countries experienced a decline in their exports, while half of them recorded an export expansion which exceeded the global average. South Africa, the region’s largest merchandise trader, reported a rise in its imports of 24 per cent while exports advanced by 13 per cent. Middle Eastern trade has been strongly affected by political and oil market developments. The region’s merchandise exports are estimated to have grown by 19 per cent, roughly in line with crude oil prices. Merchandise imports increased by 14 per cent which must be considered a rather moderate increase given the surge in the region’s export earnings and foreign exchange reserves in the past years. Among the seven geographic regions distinguished in this report, the Commonwealth of Independent States (CIS) recorded the most dynamic export and import growth in 2006. Benefiting from strong fuel and metal prices on world markets, the region’s exports increased by one-quarter last year to $422 billion, more than twice the level recorded only three years ago. Imports rose by nearly one-third to $278 billion, but the region’s merchandise trade surplus continued to expand by about $20 billion in2006. South/Central Americas merchandise exports and imports continued to expand faster than world trade in 2006 even though their growth was less pronounced than in the preceding year. The deceleration in the region’s export growth is attributable largely to the performance of the region’s oil exporters and Brazil. Sharply higher prices for metals benefited exports from Chile, Jamaica, Peru and Suriname. The exports of Chile and Peru surged by more than 40 per cent, the highest export growth rates reported in the region in 2006.

21

Current Economic Condition :A 2012 Analysis

A Brief summary of the Trade situation globally was explained hereunder in a conference held Los Angeles by the Milken Institute:

“Global patterns of trade are being fundamentally redrawn: Not only are U.S. energy imports declining, but China just posted its biggest trade deficit in 22 years. New trading partnerships are being formed between powerhouses like China and Brazil; Canada is negotiating a potential free-trade agreement with Europe; and emerging economies from across Asia are becoming major exporters. Although many nations are looking to exports as a driver of growth, world trade flows for most major economies have slowed in recent quarters, and the OECD recently cut its forecast

22

for 2012 trade growth by almost half. How will a European slowdown affect world trade? What are the implications of Russia joining the WTO? As nations compete for market share, what are the new relationships - and rivalries - that will define the future?”

World trade in 2009 was dominated by the worst financial and economic crisis in decades. Global output shrank. So did the volume of international trade. Despite bearing no responsibility for the crisis, the poorer developing countries have fared the worst. China, Brazil and India saw exports drop by between a fifth and a third in the second half of 2008, but countries not belonging to the top 20 developing country exporters were hit even harder. Trade and GDP growth have started to pick up again, but some economists fear a “double-dip” recession. If unemployment continues to grow, it may become harder for governments to resist protectionist pressures. In terms of the WTO negotiations, the crisis cuts both ways. Governments are preoccupied with more immediate concerns. But the crisis has shattered the sense that protectionism was unthinkable, making a trade deal seem more valuable. The G-20 major economies have called for concluding the Doha Round in 2010, but it remains to be seen whether this pledge will amount to anything.

The number of bilateral trade deals continues to grow, with Switzerland an enthusiastic participant. Some of these deals have been criticized for “WTO-plus” obligations, particularly regarding intellectual property. Meanwhile, there are real grounds for arguing that the Doha Round agenda does not reflect many current problems, especially climate change. With the US and the EU threatening to impose tariffs

23

on exports from emerging economies with no hard emissions caps, it is clear that governments need to find some way of discussing the new challenges confronting the global economy.

According to a study by Ernst & Young the following has been interpreted:

New patterns of trade emerge

Today, there is a net redistribution of wealth away from the rapid-growth economies — a process accelerated by the financial downturn and the economic recession that it has caused. Companies from those rapid-growth markets are now challenging the giants of the Fortune and Forbes lists.

We are witnessing a surge of investment from west to east, some of it speculative but much of it the result of by individual businesses decisions.

Focusing on west to east misses the important east to east and growing east to west dimension. And centering on flows to India and China misses the far greater increase that is happening within regional blocs closer to home.

24

World exports

Although global trade collapsed during the financial crisis, it has since bounced back strongly, led by trade among emerging markets.

But what remains unclear is whether the key trends of the past ten years can be expected to extend into the coming decade, or whether the global financial crisis has changed the dynamic of the global economy, resulting in new patterns of international trade.

25

BIBLIOGRAPHY http://www.ey.com/GL/en/Issues/Business-environment/Trading-places--New-patterns-of-

international-trade http://news.bbc.co.uk/2/hi/europe/country_profiles/2430089.stm www.milkeninstitute.com T.Y.B.Com-Michael Vaz

http://www.wto.com/doc/104620780/The-Arguments-of-Fair-Trade-Weighed-Up

26

i

ii