NOTES ON WTO, REGIONAL TRADING BLOCKS, INTERNATIONAL BUSINESS TREATIES
AND RELEVANT MATTERS
WTO was established on 01/01/1995 in the Uruguay round of Multilateral trade negotiations which
lasted for seven years with the support of at least 85 founding members including India. After IMF and
World Bank, WTO is the third economic pillar of world wide dimensions. There are now around 153
countries as members and nearly 30 countries are involved in negotiations for joining WTO.
Failure of international trade was one of the reasons for “Great Depression” of the 1930s. Global trade
was then governed by the “Havana Chapter” and was based on “bilateralism”.
General Agreement on Tariff and Trade (GATT), 1947, was a multilateral agreement and dealt with
goods only and not services.
The following were the objectives of GATT :-To follow unconditional Most favoured nation (MFN) principle.
-To carry on trade on the principle of non-discrimination, reciprocity and transparency.
-To grant protection to domestic industry through tariff only.
-To liberalize tariff and non tariff measures through multilateral negotiations.
To achieve these objectives, the agreement provided for a) Multilateral negotiations b) consultation and
settlement of disputes, and c) waivers to be granted in exceptional cases.
However, the international scenario was changing fast and the importance of trade in services increased
in post 1970 era. This lead to the evolving General agreement on Trade in services(GATS) which was
notionally made effective from 01/01/1995 to fall in line with WTO.
WTO today mainly stands on THREE PILLARS, although it embraced Twenty Eight agreements.
These three pillars are the three treaties, signing of which was a condition precedent to joining WTO,
while signing of the remaining treaties were made optional. The three treaties are, namely:1) General Agreement of Tariff and Trade (GATT)
2) Trade Related Intellectual Property Rights (TRIPS) and
3) General Agreement on Trade in Services (GATS)
The functions of WTO can be enumerated as follows viz.,:-Facilitate the management of the Multilateral Trade Agreements(MTA) and Plurilateral Trade
Agreements(PTA) for the fulfillment of their obligations.
-All Multilateral Trade Relations concerning the above agreements are negotiated by the Members in
-The WTO also facilitates implementation of the results of the negotiations as decided by the Ministrial
-It administers the Understanding on Rules and Procedures Governing the Settlement of Disputes,
forming part of the Agreements(MTAs and PTAs).
-The WTO is responsible for administration of the Trade Policy Review Mechanism(TPRM) forming
part of the agreement.
-It is also the organ for establishing co-ordination with other wings of the UNO such as the International
Monetary Fund(IMF) and International Bank for Reconstruction and Development(IBRD) and its
The Functions of the WTO is carried on in the following manner viz.,:The Ministerial Conference:- It is the highest body in WTO and is composed of representatives of the
members. The Ministerial Conference (MC) is the executive of the WTO and responsible for carrying
out the functions of the WTO.The MC has authority to take decisions in any matters under the relevant
MTA. The MC shall meet at least once every two years.
The General Council:- The General Council(GC) is an executive forum composed of representatives of
the members. It discharges the functions of the MC during intervals between meetings of the MC. The
GC shall meet as and when appropriate and necessary.
To go back, the dominance of the GATT, and hence the international trading system, by the United
States (US) in particular and the developed countries in general, introduced distortions in the multilateral
trading system to such an extent that its very existence was questioned by the developing countries and
other critics. The Developing Countries had raised their problems regarding trade and development at
the UN forum in response to which the United Nations Conference on Trade and Development
(UNCTAD) was organized in 1964 to review the global trading system.
The Multilateral Trading System governed by GATT was status-quoist; maintaining the overwhelming
dominance of the developed countries in the international economy. Hardly little was done towards
decreasing the gap between the rich and the poor nations, a fact which was reflected in their relative
share in the global trade. In fact GATT remained unchanged in representing the interest of developed
countries inspite of the fact that became larger in number and more articulate in the world forum.
Like GATT, the WTO rests on contractually binding commitments negotiated and undertaken freely by
the governments and ratified through their domestic legislative process. It is therefore a transparent and
profoundly democratic system. In fact the 50th anniversary of the multilateral trading system reinforces
beyond doubt that the ultimate goal of the WTO remains the establishment of a rule-based global system
of free trade as the main element of a strategy for global development and security in the 21st century.
The remarkable achievements are sometimes seen as the victory of free trade. But such an interpretation
completely ignores the compromises the WTO has made to exist and grow. The most significant of these
compromises is , arguably with regionalism. In order to absorb regional groupings, a blind eye was
turned to members of a regional block offering greater concessions to each other than they were willing
to offer other members of the WTO. As a result, rather than encouraging completely free trade, the
multilateral trading system has contributed to the growth of regionalism.
In fact, today the WTO itself counts nearly 180 regional trade agreements. If the compromise with
regionalism has been the WTO’s greatest sin for the protagonist of free trade, for developing world it is
the ability of the few major countries to decide the course the WTO will take. While the rules may be
implemented fairly, it is a few players, notable the US, Europe and Japan who dominate the process of
deciding what the rules will be. These compromises cloud the claims of multilateral trading system to
being a global protector of free trade. But what it has established is a system of order world trade, where
the rules are known and no country, no matter how big, can break them.
India has been a part of the multilateral trade organization since its inception as the GATT in 1948. She
has been a part of all ministerial declarations and agreements that have been signed since inception.
However, today, the WTO is looked upon by many in India as compromise deal which reflects the
interest of the industrialized countries pitted against developing ones. It is felt that developing countries
remain junior partners in the global arena. Many feel that the negative impact of WTO membership
outweighs the gains from it.
REGIONAL GROUPING AND THE WTO
Multilateral trade liberalization in the post-war period has been paralleled by a process of integration
through regional agreements. Agreements have at times been concluded by countries in the same
geographical region, and in other cases, have involved countries in different regions, in all that follows,
the term “regional integration or grouping” covers both. The regional groupings cannot be positive, if
the trade blocs raise barriers against outsiders rather than merely removing them between the members.
The present wave of regionalism has given rise to fears about the future of multilateralism. A part of this
fear rises from the fact that the USA is actively seeking bilateral and regional ties. Further, developing
countries are also trying for deals with developed countries. In recent years they have introduced trade
liberalization measures. In the process of liberalization the focus inevitably falls on export promotion
which calls for trade in any and every direction. If trade barriers are put up in the name of BLOCKS, the
impact on the liberalization efforts of developing countries can be NEGATIVE. For the success of trade
liberalization measures, multilateral trading system is a must. The trade with partners in the same region
and with those in the other regions have both become increasingly important in national economies
throughout the post war period. Hence there is need for putting mutually supporting relationship
between multilateralism and regionalism on a more solid foundation.
Regional integration is one of the important variants of the free trade doctrine. It arises whenever a
group of nations in the same region, preferably of relatively equal size and equal stages of development,
join together to form an economic union by raising a common tariff wall against the products of non
member countries while freeing internal trade among members. South Asian Free Trade Agreement
(SAFTA) is an example of regional grouping.
There are different degrees or levels of such integration viz.,:1) Free trade Area = It abolishes all restriction on trade among the members but each member is left free
to determine its own commercial policy with non members.
2) Customs Union= It is more advanced level of economic integration than the free trade area. It not
only eliminates all restrictions on trade among members but also adopts a uniform commercial policy
against the non members.
3) Common Market= It is a step ahead of Customs Union. It allows free movement of labour and capital
within the common market, besides having the above two characteristics of the customs Union.
4) Economic Union=Apart from satisfying the conditions of the Common market, the Economic Union
achieves some degree of harmonization of national economic policies.
What is Most Favoured Nation (MFN) Status ?
WTO member countries are required to provide MFN treatment to their counterparts. Every member
Country has to accord immediately and unconditionally, the same favourable treatment to foreign goods
and service suppliers that it gives to any other supplier. Members are, however, free to tailor the sector
coverage and substantive content of such commitments in public interest and to suit their national policy
and economic conditions. They are free to extend MFN treatment in any one or more sectors subject to
appropriate conditions and qualifications.