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Discrimination complicates trade

Trade allows a division of labour between countries. It allows resources to be used more appropriately and effectively for production. But the WTO’s trading system offers more than that. It helps to increase efficiency and to cut costs even more because of important principles enshrined in the system.

Imagine a situation where each country sets different rules and different customs duty rates for imports coming from different trading partners. Imagine that a company in one country wants to import raw materials or components — copper for wiring or printed circuit boards for electrical goods, for example — for its own production.

It would not be enough for this company to look at the prices offered by suppliers around the world. The company would also have to make separate calculations about the different duty rates it would be charged on the imports (which would depend on where the imports came from), and it would have to study each of the regulations that apply to products from each country. Buying some copper or circuit boards would become very complicated.

That, in simple terms, is one of the problems of discrimination.

Imagine now that the government announces it will charge the same duty rates on imports from all countries, and it will use the same regulations for all products, no matter where they come from, whether imported or locally produced. Life for the company would be much simpler. Sourcing components would become more efficient and would cost less.

Non-discrimination is just one of the key principles of the WTO’s trading system. Others include:

• transparency (clear information about policies, rules and regulations);
• increased certainty about trading conditions (commitments to lower trade barriers and to increase other countries’ access to one’s markets are legally binding);
• simplification and standardization of customs procedure, removal of red tape, centralized databases of information, and other measures designed to simplify trade that come under the heading “trade facilitation”.

Together, they make trading simpler, cutting companies’ costs and increasing confidence in the future. That in turn also means more jobs and better goods and services for consumers.

 
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