International trade organizations and trade agreements have enormous power in the global trade environment. In this lesson, you will learn about the roles of the GATT, NAFTA, and the World Trade Organization.
Once upon a time, there were three friends who were leaders of the world's international trade. The three friends were called The Three Musketeers of International Trade. In this lesson, you will learn about each of the three leaders and the roles that they play regarding international trade. International trade is the exchange of goods between national borders. The three leaders were named GATT, NAFTA, and WTO. Let's take a look at their individual roles.
The first leader, GATT, or General Agreement on Tariffs and Trade, has the objective to reduce tariffs among all member nations. This trade agreement allows for the creation of the MFN (Most Favored Nation) designation, which permits the designated country to export goods with very low tariffs and other beneficial terms.
An example of the power of GATT can be seen in their ability to ensure a living wage worldwide. GATT fights for companies to pay above minimum wage to help working conditions. In 1995, the GATT actually joined the WTO, which we will learn about later in the lesson. GATT is considered a success as over 100 countries are members and covers 90% of world trade.
The NAFTA, or North American Free Trade Agreement, is the second leader of international trade. NAFTA's purpose is to remove all trade barriers between Canada, Mexico, and the U.S. It has also reduced restrictions on banking and provided uniform protection of intellectual property. A leading women's cosmetics company called Mary Kay is one of the success stories of NAFTA. The ability to eliminate trade barriers and shorter processing times of business orders allowed Mary Kay to compete with Canadian and Mexican cosmetic companies. In addition, the company built a new corporate division in Mexico, leading to many new jobs.
The last of the three leaders is WTO, or World Trade Organization, which has absorbed GATT since its inception. The WTO tries to reduce trade barriers and governs trade agreements in areas such as agriculture and intellectual property. Each member nation of the WTO has to designate other member nations with the MFN status, leading to better trade. The WTO is unique in that it mediates disputes between nations. Every nation in the WTO is regarded with equal rights, so even smaller developing nations can challenge larger ones.
Not all countries want to cooperate with the WTO and regard their work as bullying. For example, the WTO can force companies to pay employees better wages. In addition, some decisions by the WTO can undermine a country's national law for the sake of trade. For example, the U.S. tried to ban the catching of shrimp through the use of equipment that were harming endangered sea turtles. The WTO ruled that banning illegal and the U.S. could not proceed with their ruling.
The GATT, NAFTA, and WTO are responsible for overseeing the foundation of international trade, which is the exchange of goods between national borders.
- The objective of the GATT, or General Agreement on Tariffs and Trade, is to reduce tariffs among all member nations.
- The purpose of the NAFTA (North American Free Trade Agreement) is to remove all trade barriers between Canada, Mexico, and the U.S.
- The WTO (World Trade Organization) tries to reduce trade barriers and governs trade agreements in areas such as agriculture and intellectual property. The WTO is unique in that it mediates disputes between nations.
When this lesson is over, you should be able to:
- Define international trade
- Describe the most important trade agreement: the General Agreement on Tariffs and Trade
- Explain the purpose of the North American Free Trade Agreement
- Determine the influence of the World Trade Organization