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Prior to the world war II, there existed a tug of war between the economic benefits of free trade & the political appeal of protection By and large trade remained protected. The trade barriers were deepened during the Great Depression with the aim to raise output and employment Consequences were mostly higher prices and further aggravated economic distress This led to negotiations of free trade the world over, particularly among developed countries

One of the most successful multilateral agreements was the General Agreement on Tariffs & Trade (GATT) This was signed in 1947 and was in place till 1993 Its provisions were incorporated in the World Trade Organization (WTO) in 1995 The charter speaks of raising the living standards of nations through substantial reduction in tariffs & other barriers to trade & the elimination of discriminatory treatment in international commerce As of 2011, WTO has 153 member countries, which accounted for 90% of international trade of the World

Countries should work to lower trade barriers All trade barriers should be applied on a nondiscriminatory basis across nations- all nations should enjoy mostfavoured-nation (MFN) status When a country increases its tariffs above agreed-upon levels, it must compensate its trading parter for the economic injury Trade conflicts should be settled by consultation and arbitration

Multilateral trade negotiations successfully lowered trade barriers in the half-century following World War II
The latest successful negotiations were the Uruguay round, which included 123 countries and was completed in 1994. In 2001, countries launched a new round in Doha, Qatar. The items in the agenda are agriculture, IPR & the environment. This round has been controversial both among developing countries which believe that rich countries are protecting agriculture too heavily & among anti-globalization groups, which argue that growing trade is hurting the environment. Due such controversies, the Doha round has made no progress as of 2008

In the last few years, governments across the world have taken steps to promote free trade or to broaden regional markets
This had led to the signing of Regional Trade Agreements (RTAs ) across different countries of the World

Regional trade agreements (RTAs) have proliferated since the 1990s, particularly after the completion of the Uruguay Round.
Such agreements have been concluded among high-income countries, low-income countries and more recently starting with the North American Free Trade Agreement ((NAFTA) involving USA, Canada and Mexico) between high-income and developing countries.

reducing barriers to trade between member countries.

may go beyond to cover non-tariff barriers and to extend liberalization to trade and investment. large number of agreements now also cover the services sector.

Nondiscrimination among trading partners who are contracting parties/members of GATT/WTO is the foundation of GATT/WTO.
Article I, on most-favored nation (MFN) treatment, requires that members of the WTO (Contracting Parties in GATT terminology) shall extend unconditionally to all other members any advantage, favor, privilege or community affecting customs duties, charges, rules and procedures that they give to members. Customs unions (CUs) and Free Trade areas (FTAs) are exceptions to this MFN treatment permitted by articles of GATT/WTO

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Three routes: By conforming to provisions of Article XXIV- Paragraphs 4 to 10 of Article XXIV of GATT provide for the formation and operation of customs unions and free trade areas covering trade in goods. The Enabling Clause of the Tokyo Round Agreement invoked in 1979. This talks about differential and more favorable treatment, reciprocity and fuller participation of developing countries. In particular, its paragraph 2(c) permits preferential arrangements among developing countries in goods trade. Under this provision, developing countries have exchanged partial tariff preferences within arrangements such as the ASEAN Preferential Trading Area (AFTA) and South Asian Free Trading Area (SAFTA). The third route is Article V of the General Agreement on Trade in Services (GATS), which governs the conclusion of RTAs in the area of trade in services, for both developed and developing 10 countries.

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WTO provision

Number of RTAs

GATT Art. XXIV (FTA) Enabling Clause GATS Art. V

Total
Note: At that same date, 354 agreements were in force
Source: http://www.wto.org

390 38 118
546

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A trade bloc can have several effects on the well-being of its member countries and the world overall. If forming or joining the trade bloc results in lower prices in the importing member country, the country and the world gain as additional trade is created trade creation If forming or joining the trade bloc results in shifting the source of imports into the country from low-priced suppliers from countries outside the trade bloc to higher-priced partner suppliers, the country and the world lose as trade is diverted from low-cost to higher-cost producers trade diversion The net effect depends on whether the gains from trade creation are larger than the losses from trade diversion. There are also possible dynamic gains from forming or joining a trade bloc, including gains if extra competition within the larger, bloc-wide market area leads to lower prices, lower costs, or greater innovation, and gains if economies of scale are achieved within the larger area.
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A nation or group of nations can keep ordinary barriers on its trade with most countries, but insist on making trade with a particular country or countries difficult or impossible To wage economic warfare, nations have often imposed economic sanctions or embargoes, which refer to discriminatory restrictions or bans on economic exchange. Eg: China under embargo by EU and US; its arms embargo, enacted in response to the Tiananmen Square protests of 1989

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