World Trade OrganizationIntroduction:The World Trade Organization (WTO) is an organization of United Nations that intends tosupervise and liberalize international trade. The organization officially commenced onJanuary 1, 1995 under the Marrakech Agreement, replacing the General Agreement onTariffs and Trade (GATT), which commenced in 1948. The organization deals with regulationof trade between participating countries; it provides a framework for negotiating andformalizing trade agreements, and a dispute resolution process aimed at enforcingparticipants adherence to WTO agreements which are signed by representatives of membergovernments and ratified by their parliaments. Most of the issues that the WTO focuses onderive from previous trade negotiations, especially from the Uruguay Round (1986–1994).There are a number of ways of looking at the WTO. It’s an organization for liberalizing trade.It’s a forum for governments to negotiate trade agreements. It’s a place for them to settletrade disputes. It operates a system of trade rules. (But it’s not Superman, just in caseanyone thought it could solve — or cause — all the world’s problems!)Above all, it’s a negotiating forum … Essentially; the WTO is a place where membergovernments go, to try to sort out the trade problems they face with each other. The firststep is to talk. The WTO was born out of negotiations, and everything the WTO does is theresult of negotiations. The bulk of the WTOs current work comes from the 1986-94negotiations called the Uruguay Round and earlier negotiations under the GeneralAgreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations,under the “Doha Development Agenda” launched in 2001.Where countries have faced trade barriers and wanted them lowered, the negotiations havehelped to liberalize trade. But the WTO is not just about liberalizing trade, and in somecircumstances its rules support maintaining trade barriers — for example to protectconsumers or prevent the spread of disease.It’s a set of rules … At its heart are the WTO agreements, negotiated and signed by thebulk of the world’s trading nations. These documents provide the legal ground-rules forinternational commerce. They are essentially contracts, binding governments to keep theirtrade policies within agreed limits. Although negotiated and signed by governments, thegoal is to help producers of goods and services, exporters, and importers conduct theirbusiness, while allowing governments to meet social and environmental objectives.The system’s overriding purpose is to help trade flow as freely as possible — so long asthere are no undesirable side-effects — because this is important for economic
development and well-being. That partly means removing obstacles. It also means ensuringthat individuals, companies and governments know what the trade rules are around theworld, and giving them the confidence that there will be no sudden changes of policy. Inother words, the rules have to be “transparent” and predictable.And it helps to settle disputes … This is a third important side to the WTO’s work. Traderelations often involve conflicting interests. Agreements, including those painstakinglynegotiated in the WTO system, often need interpreting. The most harmonious way to settlethese differences is through some neutral procedure based on an agreed legal foundation.That is the purpose behind the dispute settlement process written into the WTOagreements.Members/Location:The WTO has 153 members, representing more than 97% of the worlds population, and 30observers, most seeking membership. The process of becoming a WTO member is unique toeach applicant country, and the terms of accession are dependent upon the countrys stageof economic development and current trade regime. The process takes about five years, onaverage, but it can last more if the country is less than fully committed to the process or ifpolitical issues interfere. As is typical of WTO procedures, an offer of accession is only givenonce consensus is reached among interested parties.The WTO is governed by a ministerial conference, meeting every two years; a generalcouncil, which implements the conferences policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference.The WTOs headquarters is at the Centre William Rappard, Geneva, Switzerland.History:Harry White and John Maynard Keynes at the Bretton Woods Conference — Botheconomists had been strong advocates of a liberal international trade environment, andrecommended the establishment of three institutions: the IMF (fiscal and monetary issues),the World Bank (financial and structural issues), and the ITO (international economiccooperation).The WTO began life on 1 January 1995, but its trading system is half a century older. Since1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for thesystem. (The second WTO ministerial meeting, held in Geneva in May 1998, included acelebration of the 50th anniversary of the system.)
It did not take long for the General Agreement to give birth to an unofficial, de factointernational organization, also known informally as GATT. Over the years GATT evolvedthrough several rounds of negotiations.The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994and led to the WTO’s creation. Whereas GATT had mainly dealt with trade in goods, theWTO and its agreements now cover trade in services, and in traded inventions, creationsand designs (intellectual property).The WTOs predecessor, the General Agreement on Tariffs and Trade (GATT), wasestablished after World War II in the wake of other new multilateral institutions dedicatedto international economic cooperation — notably the Bretton Woods institutions known asthe World Bank and the International Monetary Fund. A comparable internationalinstitution for trade, named the International Trade Organization was successfullynegotiated. The ITO was to be a United Nations specialized agency and would address notonly trade barriers but other issues indirectly related to trade, including employment,investment, restrictive business practices, and commodity agreements. But the ITO treatywas not approved by the U.S. and a few other signatories and never went into effect.In the absence of an international organization for trade, the GATT would over the years"transform itself" into a de facto international organization.Functions:The main functions of the WTO can be described in very simple terms. These are:• To oversee implementing and administering WTO agreements;• To provide a forum for negotiations; and• To provide a dispute settlement mechanism.The goals behind these functions are set out in the preamble to the Marrakech Agreement.These include:• Raising standards of living;• Ensuring full employment;• Ensuring large and steadily growing real incomes and demand; and• Expanding the production of and trade in goods and services.These objectives are to be achieved while allowing for the optimal use of the worldsresources in accordance with the objective of sustainable development, and while seeking
to protect and preserve the environment. The preamble also specifically mentions the needto assist developing countries, especially the least developed countries, secure a growingshare of international trade.The WTO aims to achieve its objectives by reducing existing barriers to trade and bypreventing new ones from developing. It seeks to ensure fair and equal competitiveconditions for market access, and predictability of access for all traded goods and services.This approach is based on two fundamental principles: the national-treatment and most-favoured nation principles. Together, they form the critical "discipline" of non-discrimination at the core of trade law.• The principle of national treatment requires, in its simplest terms, that the goodsand services of other countries be treated in the same way as those of your own country.• The most-favoured nation principle requires that if special treatment is given to thegoods and services of one country, they must be given to all WTO member countries. Noone country should receive favours that distort trade.Members follow these principles of non-discrimination among "like products"—those of asimilar quality that perform similar functions in a similar way. They are, of course, free todiscriminate among products that are not like-foreign oranges need not be treated the sameas domestic carrots. Note, however, that products that are not physically or chemicallyidentical can still be considered like products if, among other things, the products have thesame end use, perform to the same standards and require nothing different for handling ordisposal. The "like products test," which tries to determine which products are and are notlike, is thus of central importance.Principles of the trading system under WTO:The WTO establishes a framework for trade policies; it does not define or specify outcomes.That is, it is concerned with setting the rules of the trade policy games. Five principles are ofparticular importance in understanding both the pre-1994 GATT and the WTO:1. Non-Discrimination. It has two major components: the most favoured nation (MFN)rule, and the national treatment policy. Both are embedded in the main WTO rules ongoods, services, and intellectual property, but their precise scope and nature differ acrossthese areas. The MFN rule requires that a WTO member must apply the same conditions onall trade with other WTO members, i.e. a WTO member has to grant the most favorableconditions under which it allows trade in a certain product type to all other WTOmembers. "Grant someone a special favour and you have to do the same for all otherWTO members." National treatment means that imported goods should be treated no lessfavorably than domestically produced goods (at least after the foreign goods have entered
the market) and was introduced to tackle non-tariff barriers to trade (e.g. technicalstandards, security standards et al. discriminating against imported goods).2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arisebecause of the MFN rule, and a desire to obtain better access to foreign markets. A relatedpoint is that for a nation to negotiate, it is necessary that the gain from doing so be greaterthan the gain available from unilateral liberalization; reciprocal concessions intend to ensurethat such gains will materialise.3. Binding and enforceable commitments. The tariff commitments made by WTOmembers in a multilateral trade negotiation and on accession are enumerated in a schedule(list) of concessions. These schedules establish "ceiling bindings": a country can change itsbindings, but only after negotiating with its trading partners, which could meancompensating them for loss of trade. If satisfaction is not obtained, the complaining countrymay invoke the WTO dispute settlement procedures.4. Transparency. The WTO members are required to publish their trade regulations, tomaintain institutions allowing for the review of administrative decisions affecting trade, torespond to requests for information by other members, and to notify changes in tradepolicies to the WTO. These internal transparency requirements are supplemented andfacilitated by periodic country-specific reports (trade policy reviews) through the TradePolicy Review Mechanism (TPRM). The WTO system tries also to improve predictabilityand stability, discouraging the use of quotas and other measures used to set limits onquantities of imports.5. Safety valves. In specific circumstances, governments are able to restrict trade. Thereare three types of provisions in this direction: articles allowing for the use of trade measuresto attain noneconomic objectives; articles aimed at ensuring "fair competition"; andprovisions permitting intervention in trade for economic reasons. Exceptions to the MFNprinciple also allow for preferential treatment of developed countries, regional free tradeareas and customs unions.