Assignment: 01: Global Business Management

ASSIGNMENT: 01
Global business management
NAME: SHOZAB ALI ASAD
REG.NO: FA19-BAF-109
SUBMITTED TO: MA’AM KANWAL
SUBMISSION DATE: 28TH.APRIL.2021
It is argued that stable and growing world economy requires removal of trade barriers but there is
a lack of trust among states when it is about removing the trade barriers. There is dilemma that if
for example Pakistan removes all trade barriers but Iran does not and continues to erect trade
barriers and same is the case with Iran when it does and Pakistan refuses to do so. To end this
dilemma there was a need to develop some supra-national authority which can manage the
conflicts between states and if one of states does not comply with the mutual agreement on
removing barriers then this authority must have power to make the violator comply with rules
and regulations. But problem was who will monitor the trade between different countries. So
after WWII, under the leadership of USA a framework was laid out known as General
Agreement on Trade and Tariffs (GATT).
If we study the historical evolution of this concept of free trade then it can be seen that this
concept of free trade was present even before the GATT and was being practiced. This free trade
concept was put in practice by the Great Britain and France, when UK revoked the Corn Laws in
treaty known as Cobden-Chevalier treaty signed in 1846. This practice continued for next 70-80
years and mainly UK was practicing this concept while other powers like Japan and Germany
were reluctant. Although these all states were enjoying benefits of free trade but in their own
domestic markets they were adhered to policy of protectionism. The reason why UK alone was
practicing this free trade policy was that the UK was trading power and any trade war could had
more devastating impacts on its own economy as compared to any other country. This free trade
continued and in this era many other states on seeing the growth of UK moved toward
liberalization. So the era after 1850s till the onslaught of WWI was the era of liberalism or we
can say free trade.
When WWI occurred, all major economies were exhausted, USA went toward isolationism and
rest of Europe was destroyed by war. After WWI, Great depression further narrowed the scope
of free trade. Even the champion of Free trade, the USA adopted the policy of protectionism
because its economy was hit hard by stock market crash 1929. The congress passed the Smoot-
Hawley act in which USA adopted the policy of protectionism to protect its domestic markets
from foreign competition and decrease the growing unemployment. All other economies like
Germany, Italy and Russia also adopted protectionist policies.
After WWII, being the victor and in strong favor of Free trade, USA established the GATT in
1947. The GATT did not immediately remove all barriers from global trade rather it ratcheted in
8 rounds. In GATT, the rules and regulation were imposed by mutually agreed mechanism. If a
country did not comply with rules then it would be removed from the agreement. This system
was not strict in enforcing. But this agreement was successful in increasing the world trade i.e.
global trade grew by 6% from 1947 to 1963 and by 8.9% from 1963 to 1973.
In 1980s, again a wave of protectionism started emerging in world. There were three main
reasons of this revival of this mercantilism. First, Japan which was devastated at the time of
formation of GATT had now become the second largest economy of world. Japan developed
specialization in industries such as automobile by using neo- protectionist policies and was not
opening its domestic market for foreign competition not by imposing trade barriers or Tariffs but
by administrative barriers. This prompted other countries especially western to adopt the policies
of neo-protectionism and use Non-Tariff barriers.
Second, the leader of GATT, the USA was going through the current account deficit of about
$170 billion and its trade deficit with Japan was about $45 billion which caused the congress to
again go for protectionist policies. Final, other countries had developed the ways to not comply
with GATT rules and these states had developed mechanism known as bilateral voluntary export
restraints (VERs). One of the examples of this is the VER between Washington and Tokyo that
Japan would decrease its automobile imports in America and in return the growing trade tension
between both countries would reduce.
These all problems called for a new mechanism, more strict and effective the GATT to make
states comply with rules and regulations. So in the Uruguay round which last till1993, on 15
December 1993 World trade Organization was formed. WTO has following provisions;
 All tariffs on industrial good would be decrease by 1/3rd.

 Tariffs imposed on manufactured goods by the developed nations would be reduced to
4% of original price
 Agricultural subsidies would be decreased
 GATT rules will be applied on range of services
 Intellectual property rights would be under GATT rules
 All trade Barriers on textile will be eliminated in course of next 10 years.
WTO was more effective in implementing the rules and regulation of GATT. General agreement
on trade in services (GATS) and Trade related aspects of Intellectual property rights (TRIPS)
was also formed which made it different from GATT. Also the effective policing of WTO can be
shown from the number of disputes it solved. Around 400 trade disputed were brought before
WTO and it solved while compared with 196 disputes brought before GATT in half century.
WTO also expanded the GATT by covering the international communication markets and
financial services. Telecommunication markets were open for foreign competition under an
agreement signed in 1997. Also the cross border trade in financial services was liberalized.
In 1999 when WTO member met in Seattle, USA, many critics chanted the end of WTO.
Growing criticism from the environmentalists, labor unions and human rights activists labelled
the WTO as ineffective etc. Environmentalists were of the view that this free trade concept is
destroying the environment for example free trade and subsidies in agriculture as increased the
deforestation around the globe. Human right activists were arguing for imposing sanctions on all
those countries which child labor for manufacturing their products. Labor unions were pushing
the idea that products produced in low-wage countries when imported in countries of high-wages
causes the unemployment in these countries.
Current issues
The following are the major issues which WTO is facing right now and which were discussed in
every schedule but are still unresolved.
 Rise in anti-dumping policies to maintain market share in foreign countries.

 Elevated level of tariffs and subsidies in the agricultural sector of many countries.
 Lack of strong protection of intellectual property rights in many countries, for
instance, Indian drug companies making copies of patented drugs.
 Elevated level of tariffs on nonagricultural goods and services in many countries. WTO
want to lower the tariff rates to receive full benefits of international trade, but many
countries use the immature industry arguments to justify their high tariff rates.
 Reducing barriers to foreign direct investment (FDI).

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ASSIGNMENT: 01

Global business management

NAME: SHOZAB ALI ASAD

SUBMITTED TO: MA’AM KANWAL

SUBMISSION DATE: 28TH.APRIL.2021

 All tariffs on industrial good would be decrease by 1/3rd.

 Rise in anti-dumping policies to maintain market share in foreign countries.

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