The World Trade Organization or WTO is an international organization, whose mission is to harmonize trade between nations. This implies that the trading rules are to be applied on all goods originating from one country and destined for another country. This has made the trade of goods simpler and more convenient. However, it has also come under fire from many quarters due to the excessive privileges that some nations enjoy and at the same time hinders the free flow of goods. To understand the case in point, the recent amendments to the Free Trade Area of the World Trade Organization have provided for a more balanced trade scenario.
The most important provision of the present rules and regulations is that of protecting foreign enterprises from having to pay duties and taxes when importing or exporting goods to other countries. Other nations feel that this practice is an attempt by the World Trade Organization to increase their hold over the international trade. It is believed that the purpose behind this was to increase political leverage over other nations which in turn can increase economic leverage over them. The fear here is that the practice might hamper the free flow of goods and that may lead to the diminution of foreign trade.
Another contention against the free trade area is that it encourages protectionism, or the practice of preventing other nations from exporting goods to you. Though it cannot be denied that this practice may be somewhat common, it does not seem to be very widespread. There is another contention that it denies the right to choose a different provider if you so desire. But this is not mentioned here, since the effects of protectionism might be quite adverse.
On the other hand, protectionism might have some advantages as far as increasing trade is concerned. A higher trade deficit is a good sign for the economy of a nation, since it implies that it is selling goods and services at a cheaper rate than it is buying. One should note that while the export increases the income of a nation, the imports will necessarily imply an increase in costs. This means that unless the government is able to substantially reduce the cost of imports, the resulting deficit will not be very large.
So as to ascertain whether a nation has a surplus or deficit, one must look at the total exports as well as imports. Exports refer to the goods and services which are manufactured by the foreign resident company and which it wishes to sell. Imports refer to those goods and services which are purchased from another foreign firm. The difference between the two quantities is the country’s surplus or deficit.
It is believed that a nation’s trade surplus is a measure of its economic fitness. It indicates that the country is doing whatever it takes to increase the rate of exports while it is holding down the rate of imports. Hence, the main motive of a nation’s trade deficit is and always will be, the ability to increase its income through exports.