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Background

The world trade system


A fisherman in the Lomé harbour, Togo.

The globalisation process is gradually cutting the ground away from under pure­ly national eco­nom­ic and trade policies oriented to domestic markets. Tech­no­log­i­cal pro­gress in the fields of com­mu­ni­ca­tion and pro­duc­tion are opening up borders between countries. This is especially evident in the case of 'trans­port­able' services such as soft­ware de­vel­op­ment. Practically any location in the world can be considered as a potential production site or sales market. Be it de­vel­op­ment, accounting, mar­ket­ing, sales or pro­duc­tion, the relocation of entire businesses to new sites or the out­sourc­ing of individual units has become stan­dard pro­cedure today. Com­panies think not so much in terms of national bor­ders, but more in terms of: Where are the lowest wage costs? Where are skills to be found? Where is the highest sales potential?

As a result of technological progress and economic policy decisions, the glo­bal­i­sa­tion of trade has moved ahead strongly in recent decades; while the vol­ume of global trade was 124 billion US dollars in 1948, that figure had risen to around 20,670 bil­lion US dollars in 2005.

Young women in the Youth Center Tanga learning how to use the computer. Copyright: Ute Grabowski/photothek.netAccording to the World Trade Or­ga­ni­za­tion (WTO) the vol­ume of world trade fell in 2009 by 22 per cent to 12,500 bil­lion US dol­lars. This was a result of the world eco­nom­ic crisis which started in 2008; a fall of this mag­ni­tude had not been ex­perienced for more than 70 years. World trade re­covered again in 2010, how­ever, reach­ing a volume of 15,200 bil­lion US dol­lars (up 22 per cent). In 2011 there was a 19 per cent in­crease, to 18,200 billion US dollars. Higher com­mod­i­ty prices were the main fac­tor behind the renewed increase.

Direct investment by foreign providers of capital also fell world­wide in the wake of the economic crisis. Following sharp declines in 2008 and 2009, the United Nations Con­ference on Trade and De­vel­op­ment (UNCTAD), in its World In­vest­ment Report 2012, reported a slight in­crease in foreign direct in­vest­ment in 2011 to a total of 1,500 bil­lion US dollars. That level is still 23 per cent below the peak of 1,970 bil­lion US dollars in 2007. Ac­cord­ing to UNCTAD cal­cu­la­tions, the figure is ex­pect­ed to rise to about 1,600 bil­lion US dollars in 2012, and 1,900 bil­lion US dollars in 2014.

According to UNCTAD the fall in foreign direct in­vest­ment af­fect­ed mainly the western in­dus­tri­al­ised coun­tries, while de­vel­op­ing coun­tries and new­ly in­dus­tri­al­ising econ­o­mies as a whole were re­port­ing in­creases. The latters' share in total for­eign direct in­vest­ment in 2010 was over 50 per cent for the first time.

Problems developing countries face

The liberalisation of world trade has not led to the im­prove­ments most de­vel­op­ing coun­tries had hoped for, how­ever. Small and poor de­vel­op­ing coun­tries are largely excluded from the growth in trade. In order to become at­trac­tive for in­vestors they are forced to make com­pro­mises in the global com­pe­ti­tion for business lo­ca­tions, which is why they set up free trade zones or lower taxes, for example. How­ever, such mea­sures mean that gov­ern­ments for­feit income which they ur­gent­ly need to invest in ed­u­ca­tion, health, social systems and infrastructure.

Often businesses in developing countries are not yet able to compete with for­eign com­pe­ti­tors. Because many coun­tries have not yet been able to develop an ef­fec­tive export econ­o­my, opening up the mar­ket quickly does not help either – it is very dif­fi­cult to suc­cess­fully establish an export economy with­out cer­tain mechanisms to pro­tect the domestic econ­o­my. The strong fluc­tua­tions in glo­bal market prices, especially when it comes to com­mod­i­ties, make matters worse, jeo­par­dising eco­nom­ic stability in many de­vel­op­ing coun­tries that depend on the export of commodities.

In addition, the subsidies paid to support agri­cul­ture in industrial countries are a serious problem for many poor countries. They mean that many products from less developed regions cannot compete on the world market.

Rules for fair global trade

After 1945, the victorious powers of World War II set out to establish a new in­ter­na­tional financial, monetary and trade system. The World Bank and the In­ter­na­tional Monetary Fund (IMF) were set up as specialised agencies of the United Nations to stabilise and finance this re­con­struc­tion. The In­ter­na­tional Trade Organization (ITO) was charged with reviving world trade. The idea came to nothing, how­ever. Instead, the General Agree­ment on Tariffs and Trade (GATT) was adopted. Its aim was to eliminate tariffs in in­ter­na­tional trade and to establish a pro­cedure for resolving trade con­flicts. Tariffs were reduced step by step in a total of eight rounds of ne­go­ti­a­tions lasting several years each; ne­go­ti­a­tions were also held on reducing subsidies.

During the last round of GATT negotiations, known as the Uruguay Round (1986 to 1994), the General Agree­ment on Trade in Services (GATS) and the Agree­ment on Trade-Related Aspects of Intellectual Property Rights (TRIPS) were added to the GATT.

The World Trade Organization (WTO) was established as a suc­ces­sor or­ga­ni­sa­tion in 1995. It is based on the GATT and has become the most im­por­tant forum on world trade. The WTO sets out rules on how goods, services and in­tel­lec­tu­al property are to be handled at in­ter­na­tional level. These rules affect prac­tic­al­ly every person in the world. The GATT remained as one of the most im­por­tant agree­ments on in­ter­na­tional trade within the WTO and is being developed further.

The Doha Round

The WTO reaches its agree­ments in what are known as trade rounds. Ne­go­ti­a­tions on various topics are held in parallel and all ne­go­ti­a­tions are com­pleted by an appointed date. The cur­rent ne­go­ti­a­tions are known as the Doha Round. It was hailed by industrialised coun­tries as a 'de­vel­op­ment round', beginning after the WTO Ministerial Conference in Doha, Qatar in 2001 and was orig­i­nal­ly to be com­pleted by 21 December 2004.

The aim of the Doha Round is to further open up markets and ensure better in­te­gra­tion of the developing countries into the world trade system. How­ever, on account of far-reaching dif­fer­ences between the interests of in­dus­tri­al­ised coun­tries and those of developing countries, the round has yet to be completed after several un­suc­cess­ful ne­go­ti­a­tions. High agri­cul­tural ex­port subsidies from Europe and the United States are the main con­ten­tious issue.

The successful conclusion of the Doha Round con­tinues to be the aim of the German gov­ern­ment and the EU. Germany sup­ports the EU Commission, which is con­duct­ing the ne­go­ti­a­tions, in its efforts to find com­pro­mises and get the stalled negotiations moving again.

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