World Trade Organization (WTO) impacts agriculture Research Paper

World Trade Organization (WTO) impacts agriculture - Research Paper Example The aim of the WTO and the agreements is to assist exporters, importers, consumers and producers to conduct international trade. The outcome is essentially assurance as producers and consumers feel that they have security in supplies and a range of options of products, services and raw materials. As a result of accountability in the economic world, international trade is peaceful and prosperous as the WTO settles trade disputes by interpreting commitments and agreements made by member states. This paper will examine various areas of trade such as international and domestic trade, discussing different elements that influence both forms of trade. The essence of trade is to benefit both consumers and sellers in a mutually beneficial relationship (Mankiw, 2011). Compare and contrast free trade and protectionist theories   Economists continue to argue on the issue of protectionist theories and free trade. These arguments are complex, but the underpinning controversy is even greater. Fre e trade refers to a strategy through which a government allows imports and does not interfere with exports. This is through the application of import tariffs or export quotas or subsidies. Free trade allows both trading partners to gain from trade. This is because, under free trade, the prices of goods and services emerge from the forces of demand and supply (Mankiw, 2011). In addition, free trade allows resource allocation on account of demand and supply. Free trade enables counties to acquire greater levels of production and consumption, which they can obtain in isolation. In case of perfect competition, free trade allows optimal, global resource allocation. This essentially means that free trade allows trading countries to achieve equality in their marginal production transformation rates (OECD, 2000). Theory on free trade suggests that free trade facilitates income increments and equitable distribution of income among countries (Lambert & McKoy, 2009). Free trade differs signifi cantly from protectionist theories since the latter allows the determination of the allocation of products and services amongst trading nations on the basis of different price strategies. The different price strategies amongst trading partners emerge from government interventions in the market. Here, governments intervene by adjusting prices or instituting supply restrictions. Essentially, under protectionist theories of trade, government interventions either increase or decrease the cost of products and services to producers and consumers. Protectionism involves the establishment of trade barriers such as currency restrictions with regard to international trade, taxes, import quotas and other subsidies offered to domestic industries. The essential purpose of protectionist theories is to protect domestic industries from losses incurred in unstable marketplaces (Giovanni, Bohman, Carter, & McCalla, 2007). Consequently, governments also establish non-tariff barriers. They include: the Central America Free Trade Agreement (CAFTA) and the North America Free Trade Agreement (NAFTA), which intervene in markets, hence producing artificial prices. These are prices not set by the natural mechanisms of demand and supply. Moreover, protectionist theories deter equilibrium in countries’ marginal production transformation rates by establishing differences between international and domestic prices of goods (Mankiw, 2011). In essence, this means that protectionist theories produce suboptimal allocations of factors of production, as well as lower global real income than free trade would produce. Protectionism reallocates income, which would not occur under free trade since income reallocation would mean one