International Economics

(Option2): Discuss why countries impose trade restrictions if ‘free trade’ is the best policy. On the basis of economic theory explain why the WTO is a good idea. Analyse also why WTO negotiations in the past had experienced difficulties.
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Table of Contents
HYPER13 HYPERLINK \l "__RefHeading___Toc408596065"HYPER141.0 Introduction3
2.0 Free Trade4
2.1 Market access5
2.2 Comparative advantage5
3.0 Trade Restrictions6
3.1 Import tariffs7
3.2 Quantitative restrictions7
3.2.1 Subsidies8
3.2.2 Standards and embargos8
4.0 Logic behind Trade Restrictions9
4.1 Protection of infant industries9
4.2 Anti-dumping policy11
4.3 National security12
4.4 Environmental sustainability12
4.5 Job protection13
5.0 WTO and Economic Theory14
6.0 Challenges Facing WTO in the Past17
7.0 Conclusion19
8.0 Bibliography21
HYPER15
1.0 Introduction
Over the last several decades and more specifically since the World War II, international trade has witnessed a tremendous growth. The increase in the volume of international trade has been regarded as the primary cause of globalization which has seen world trade increase by over 8 fold since the end of the war. Today, consumers around the world are continuously enjoying a broader selection of goods with domestic products facing an increased competition from imports from other countries. Further, international trade has been associated with increased job opportunities, incomes, increased earning power and reduced prices. In essence, advances in technology and trade and capital markets’ liberalization which have resulted from increased trade agreements continues to increase the volume of international trade per year. Several organizations have been established in the post-World War II period with the aim of opening up the international market and increasing the flow of goods and services in the international market. Such institutions include the General Agreement on Tariffs and Trade (GATT), World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank (Bagwell & Staiger, 2009). There are also other regional institutions such as EU which are designed to allow for the free flow of goods within a given region. Despite this, there are some detrimental effects of globalization which include but are not limited to political, economic and social disruptions. In this line of argument, countries while realizing the need for free trade and trade liberalization have continued to impose trade restrictions in a bid to reduce and mitigate the negative effects arising from free trade. Today, many countries still impose trade restrictions to protect their infant industries, as an anti-dumping policy and to maintain national security among other reasons. In line with the course requirement, this paper seeks to explicate the concepts of free trade and trade restrictions and how the two are interrelated. The paper, uses WTO as a case study, also seeks to give an insight into why countries impose trade restrictions in the view of the operations international trade institutions and the challenges that has befallen such institutions in the past.
2.0 Free Trade
Urata (2002, 2...