World Trade Org

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UNDERSTANDING THE WTO: BASICS
What is the World Trade Organization?
World Trade Organization (WTO) deals with the rules of trade between nations at a global or
near-global level. It’s an organization for liberalizing trade.
Three main functions of the WTO
1. Negotiating forum; it’s a forum for governments to negotiate trade agreements. This
allows member countries to negotiate and sign agreements.
 The first step is to talk. The WTO was born out of negotiations, and everything
the WTO does is the result of negotiations.
 The bulk of the WTO's current work comes from the 1986-94 negotiations called
the Uruguay Round and earlier negotiations under the General Agreement on
Tariffs and Trade (GATT).
 The WTO is currently the host to new negotiations, under the “Doha
Development Agenda” launched in 2001.
2. WTO is a set of rules. WTO agreements are negotiated and signed by majority of the
world’s trading nations.
 These documents provide the legal ground-rules for international commerce. They
are essentially contracts, binding governments to keep their trade policies within
agreed limits.
 Although negotiated and signed by governments, the goal is to help producers of
goods and services, exporters, and importers conduct their business, while
allowing governments to meet social and environmental objectives.
3. It’s a place for trade disputes settlement- it is a place where member governments go to
try to sort out the trade problems they face with each other.
 Trade relations often involve conflicting interests.
 Agreements, including those painstakingly negotiated in the WTO system, often
need interpreting.
 The most harmonious way to settle these differences is through some neutral
procedure based on an agreed legal foundation. That is the purpose behind the
dispute settlement process written into the WTO agreements
The overriding purpose of WTO is to help make trade flow as freely as possible -so long as there
are no undesirable side-effects.
This is important for economic development and well-being. That partly means removing
obstacles. It also means ensuring that individuals, companies and governments know what the
trade rules are around the world, and giving them the confidence that there will be no sudden
changes of policy. In other words, the rules have to be “transparent” and predictable.

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Misconception about WTO
WTO is not just about liberalizing trade. In some circumstances its rules support maintaining
trade barriers — for example to protect consumers or prevent the spread of disease.
Some important events: From GATT to WTO
 It started with General Agreement on Tariffs and Trade (GATT) in 1948.
 The Agreement Regarding International Trade in Textiles, better known as the Multifibre
Arrangement (MFA), enters into force in 1974.
 The MFA restricts export growth in clothing and textiles to 6 percent per year. It was
renegotiated in 1977 and 1982 and extended in 1986, 1991, and 1992.
 The Uruguay Round is launched in Punta del Este, Uruguay in 1986.
 The WTO began life on 1 January 1995.
 A new round of trade talks (the Doha Development Agenda) is agreed on in Doha, Qatar
(2001).
Basic principles
1. Nondiscrimination-It has two major components:
 The most-favored-nation (MFN) rule,
 The national treatment principle.
The MFN rule requires that a product made in one member country be treated no less favorably
than a “like” (very similar) good that originates in any other country. Thus, if the best treatment
granted a trading partner supplying a specific product is a 5 percent tariff, this rate must be
applied immediately and unconditionally to imports of this good originating in all WTO
members.
National treatment requires that foreign goods, once they have satisfied whatever border
measures are applied, be treated no less favorably, in terms of internal (indirect) taxation than
like or directly competitive domestically produced goods (Art. III, GATT). That is, goods of
foreign origin circulating in the country must be subject to taxes, charges, and regulations that
are “no less favorable” than those that apply to similar goods of domestic origin.
2. Reciprocity- is a fundamental element of the negotiating process. It reflects both a desire
to limit the scope for free-riding that may arise because of the MFN rule and a desire to
obtain “payment” for trade liberalization in the form of better access to foreign markets.
Benefits, although in the aggregate usually greater than costs, accrue to a much larger set
of agents, who thus do not have a great individual incentive to organize themselves
politically. In such a setting, being able to point to reciprocal, sector-specific export
gains may help to sell the liberalization politically. Obtaining a reduction in foreign
import barriers as a quid pro quo (this for that) for a reduction in domestic trade
restrictions gives specific export-oriented domestic interests that will gain from
liberalization an incentive to support it in domestic political markets.

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3. Binding and Enforceable Commitments
Liberalization commitments and agreements to abide by certain rules of the game have
little value if they cannot be enforced. The nondiscrimination principle, embodied in
Articles I (on MFN) and III (on national treatment) of the GATT, is important in ensuring
that market access commitments are implemented and maintained.
4. Transparency
Enforcement of commitments requires access to information on the trade regimes that
are maintained by members.WTO therefore incorporate mechanisms designed to
facilitate communication between members on issues. Numerous specialized committees,
working parties, working groups, and councils meet regularly in Geneva. These
interactions allow for the exchange of information and views and permit potential
conflicts to be defused efficiently. WTO members are required to publish their trade
regulations, to establish and maintain institutions allowing for the review of
administrative decisions affecting trade, to respond to requests for information by other
members, and to notify changes in trade policies to the WTO.
5. Safety Valves
In specific circumstances, governments should be able to restrict trade. There are three
types of provisions in this connection:
(a) Articles allowing for the use of trade measures to attain noneconomic objectives-
includes provisions allowing for policies to protect public health or national security and
to protect industries that are seriously injured by competition from imports.
(b) Articles aimed at ensuring “fair competition”-include the right to impose
countervailing duties on imports that have been subsidized and antidumping duties on
imports that have been dumped.
(c) Provisions permitting intervention in trade for economic reasons- there are provisions
allowing actions to be taken in case of serious balance of payments difficulties or if a
government desires to support an infant industry.