A BRIEF ON WTO

EMERGENCE OF WTO:

After the Second World War, many countries got down together to work on ways and means to
promote international trade. The result was signing of General Agreement on Tariffs and Trade
(GATT) by 23 countries in 1947. India was one of the founder members of GATT. GATT was
created to reduce global depression and to liberalise and regulate the world trade by reducing
tariff barriers. GATT has been replaced by WTO in 1995. WTO is wider in scope as it regulates
world trade in goods, as well as in services intellectual property rights, and investment. In
January 2010, the membership of WTO was 153 countries. Its rules and policies are the outcome
of negotiations among WTO members. Thus WTO is a member driven, consensus based
organisation.

During negotiations ending in 1994, the original GATT and all changes to it introduced prior to
the Uruguay Round were renamed GATT 1947. This set of agreements was distinguished from
GATT 1994, which comprises the modifications and clarifications negotiated during
the Uruguay Round(referred to as “Understandings”) plus a dozen other multilateral agreements
on merchandise trade. GATT 1994 became an integral part of the agreement that established the
WTO. Other core components include the General Agreement on Trade in Services (GATS),
which attempted to supervise and liberalize trade; the Agreement on Trade-Related Aspects
of IntellectualProperty Rights (TRIPS), which sought to improve protection of intellectual
property across borders; the Understanding on Rules and Procedures Governing the Settlement
of Disputes, which established rules for resolving conflicts between members; the Trade Policy
Review Mechanism, which documented national trade policies and assessed their conformity
with WTO rules; and four plurilateral agreements, signed by only a subset of the WTO
membership, on civil aircraft, government procurement, dairy products, and bovine meat (though
the latter two were terminated at the end of 1997 with the creation of related WTO committees).
These agreements were signed in Marrakech, Morocco, in April 1994, and, following their
ratification, the contracting parties to the GATT treaty became charter members of the WTO. By
the 2020s the WTO had more than 160 members.
OBJECTIVES:

The WTO has six key objectives:

(1) to set and enforce rules for international trade,

(2) to provide a forum for negotiating and monitoring further trade liberalization,

(3) to resolve trade disputes,

(4) to increase the transparency of decision-making processes,

(5) to cooperate with other major international economic institutions involved in global
economic management, and

(6) to help developing countries benefit fully from the global trading system. 

RESOLUTION OF TRADE DISPUTES:

The GATT provided an avenue for resolving trade disputes, a role that was strengthened
substantially under the WTO. Members are committed not to take unilateral action against other
members. Instead, they are expected to seek recourse through the WTO’s dispute-settlement
system and to abide by its rules and findings. The procedures for dispute resolution under the
GATT have been automated and greatly streamlined, and the timetable has been tightened.

Dispute resolution begins with bilateral consultations through the mediation, or “good offices,”
of the director-general. If this fails, an independent panel is created to hear the dispute. The panel
submits a private draft report to the parties for comment, after which it may revise the report
before releasing it to the full WTO membership. Unlike the IMF and the World Bank, both of
which use weighted voting, each WTO member has only one vote. As in the earlier GATT
system, however, most decisions are made by consensus. Unless one or both of the parties files a
notice of appeal or the WTO members reject the report, it is automatically adopted and legally
binding after 60 days. The process is supposed to be completed within nine months, and, if an
appeal is lodged, the WTO Appellate Body hears and rules on any claim of legal error within 60
days. Appellate rulings are automatically adopted unless a consensus exists among members
against doing so.
FUNCTIONS:

 To implement rules and provisions related to trade policy review mechanism.

 To provide a platform to member countries to decide future strategies related to trade and
tariff.
 To provide facilities for implementation, administration and operation of multilateral and
bilateral agreements of the world trade.
 To administer the rules and processes related to dispute settlement.
 To ensure the optimum use of world resources.
 To assist international organizations such as, IMF and IBRD for establishing coherence in
Universal Economic Policy determination.

STRENGTH AND SUCCESS OF WTO:

Lower prices for consumers. Removing tariffs enables us to buy cheaper imports
Free trade encourages greater competitiveness. Through free trade, firms face a higher
incentive to cut costs. For example, a domestic monopoly may now face competition from
foreign firms.
The law of comparative advantage states that free trade will enable an increase in economic
welfare. This is because countries can specialise in producing goods where they have a lower
opportunity cost.
Economies of scale. By encouraging free trade, firms can specialise and produce a higher
quantity. This enables more economies of scale, this is important for industries with high fixed
costs, such as car and aeroplane manufacture. In new trade theory, it is this specialisation and
exploitation of economies of scale that is most important factor in improving economic welfare.

To what extent has the WTO being able to promote free trade?:
The WTO has over 160 members representing 98 per cent of world trade. Over 20 countries are
seeking to join the WTO. 
An increased number of trade disputes have been brought to the WTO, showing the WTO is a
forum for helping to solve disputes.
WTO regulations and co-operation helped avoid a major trade war; this was significant during
2008/09 global recession. We could compare this to 1930s, where trade wars broke out causing a
fall in global trade. According to (Bagwell and Staiger 2002) the average tariff in 1930s was
50%. In 2000s, average tariff is 9% (VOX)
According to Ralph Ossa, "WTO success: No trade agreement but no trade war"

WEAKNESS:
 However, the WTO has often been criticised for trade rules which are still unfavourable
towards developing countries. Many developed countries went through a period of tariff
protection; this enabled them to protect new, emerging domestic industries. Ha Joon Chang
argues WTO trade rules are like 'pulling away the ladder they used themselves to climb up'
 Free trade may prevent developing economies develop their infant industries. For example, if
a developing economy was trying to diversify their economy to develop a new manufacturing
industry, they may be unable to do it without some tariff protection.
 WTO is being overshadowed by new TIPP trade deals. These deals are negotiated away from
WTO and focuses mainly on US and EU. It excludes China, Russia, India, Brazil and South
Africa. It threatens to diminish the global importance of WTO
 Difficulty of making progress. WTO trade deals have been quite difficult to form consensus.
Various rounds have taken many years to slowly progress. It results in countries seeking
alternatives such as TIPP or local bilateral deals.
 WTO trade deals still encompass a lot of protectionism in areas like agriculture. Protectionist
tariffs which primarily benefit richer nations, such as the EU and US.
 WTO has implemented strong defense of TRIPs ‘Trade Related Intellectual Property’ rights
These allow firms to implement patents and copyrights. In areas, such as life-saving drugs, it
has raised the price and made it less affordable for developing countries.
 WTO has rules which favour multinationals. For example, 'most favoured nation' principle
means countries should trade without discrimination. This has advantages but can mean
developing countires cannot give preference to local contractors, but may have to choose
foreign multinationals - whatever their history in repatriation of profit, investment in area.
CRITICISMS OF WTO:
These are some of the criticisms of the WTO

1. Free Trade benefits developed countries more than developing countries. It is argued,
developing countries need some trade protection to be able to develop new industries; this is
important to be able to diversify the economy. It is known as the infant industry
argument. Many developed economies used a degree of tariff protection in their development
phase. Economist Ha Joon Chang argues WTO trade rules are like ‘pulling away the ladder
they used themselves to climb up’ (Kicking away the ladder at Amazon)
2. Most favoured nation principle. This is a core tenant of WTO rules – countries should trade
without discrimination. It means a local firm is not allowed to favour local contractors. It is
argued this gives an unfair advantage to multinational companies and can have costs for local
firms and the right of developing economies to favour their own emerging industries.
3. Failure to reduce tariffs on agriculture. Free trade is not equally sought across different
industries. Both the US and EU retain high tariffs on agriculture, this hurts farmers in
developing economies who face tariff protection
4. Diversification. Arguably developing countries who specialise in primary products (e.g.
agricultural products) need to diversify into other sectors. To diversify they may need some
tariff protection, at least in the short term. Many of the existing industrialised nations used
tariff protection when they were developing. Therefore, the WTO has been criticised for
being unfair and ignoring the needs of developing countries.
5. Environment. Free trade has often ignored environmental considerations. e.g. Free trade has
enabled imports to be made from countries with the least environmental protection. Many
criticise the WTO’s philosophy that the most important economic objective is the
maximisation of GDP. In an era of global warming and potential environmental disaster,
increasing GDP may be the least important. Arguably the WTO should do more to promote
environmental considerations.
6. Free trade ignores cultural and social factors. Arguably a reasonable argument for
restricting free trade is that it enables countries to maintain cultural diversity. Some criticise
the WTO for enabling the domination of multinational companies which reduce cultural
diversity and tend to swamp local industries and firms.
7. The WTO is criticised for being undemocratic. It is argued that its structure enables the
richer countries to win what they desire; arguably they benefit the most.
8. Slow progress. Trade rounds have been notoriously slow and difficult to reach an agreement.
9. WTO becoming overshadowed by TIPP agreements which fall outside the purvey of WTO
rules.
MAJOR REASONS FOR A COUNTRY TO JOIN WTO:

 Since each country needs to export its goods and services to receive foreign exchange for
essential imports, such as capital goods, technology, fuel, and sometimes even food, it
requires access to foreign markets. But countries require permission for making their goods
and services enter foreign countries. Thus countries need to have bilateral agreements with
each other. By joining a multilateral framework like the WTO, the need to have individual
bilateral agreements is obviated as the member countries are allowed to export and import
goods and services among themselves.
 An individual country is unlikely to get a better deal in bilateral agreements than what it gets
in a multilateral framework. It has been observed that developing countries had to commit to
a greater degree to developed countries in bilateral agreements than what is required under
the WTO.
 A country can learn from the experiences of other countries, being part of the community of
countries and influence the decision-making process in the WTO.
 The WTO provides some protection against subjective actions of other countries by way of
its dispute settlement system that works as an in-built mechanism for enforcement of rights
and obligations of member countries.

ORGANISATIONAL STRUCTURE OF WTO:

First level – The Ministerial Conference:

The Ministerial Conference is the topmost decision-making body of the WTO, which has to meet
at least once every two years.

Second level – General Council:

Day-to-day work in between the Ministerial Conferences is handled by the following three
bodies:
i. The General Council

ii. The Dispute Settlement Body

iii. The Trade Policy Review Body

In fact, all these three bodies consist of all WTO members and report to the Ministerial
Conference, although they meet under different terms of reference.

Third level – Councils for each broad area of trade:

There are three more councils, each handling a different broad area of trade, reporting to the
General Council.

i. The Council for Trade in Goods (Goods Council)

ii. The Council for Trade in Services (Services Council)

iii. The Council for Trade Related Aspects of Intellectual Property Rights (TRIPS Council)

Each of these councils consists of all WTO members and is responsible for the working of the
WTO agreements dealing with their respective areas of trade. These three also have subsidiary
bodies. Six other bodies, called committees, also report to the General Council, since their scope
is smaller.

They cover issues, such as trade and development, the environment, regional trading
arrangements, and administrative issues. The Singapore Ministerial Conference in December
1996 decided to create new working groups to look at investment and competition policy,
transparency in government procurement, and trade facilitation.
Fourth level – Subsidiary bodies:
Each of the higher councils has subsidiary bodies that consist of all member countries.

Goods Council:
It has 11 committees dealing with specific subjects, such as agriculture, market access, subsidies,
anti-dumping measures, etc.

Services Council:
The subsidiary bodies of the Services Council deal with financial services, domestic services,
GATS rules, and specific commitments.

Dispute settlement body:

It has two subsidiaries, i.e., the dispute settlement ‘panels’ of experts appointed to adjudicate on
unresolved disputes, and the Appellate Body that deals with appeals at the General Council level.
Formally all of these councils and committees consist of the full membership of the WTO. But
that does not mean they are the same, or that the distinctions are purely bureaucratic.

In practice, the people participating in the various councils and committees are different because
different levels of seniority and different areas of expertise are needed. Heads of missions in
Geneva (usually ambassadors) normally represent their countries at the General Council level.

Some of the committees can be highly specialized and sometimes governments send expert
officials from their countries to participate in these meetings. Even at the level of the Goods,
Services, and TRIPS councils, many delegations assign different officials to cover different
meetings.

All WTO members may participate in all councils, etc., except the Appellate Body, dispute
settlement panels, textile monitoring body, and plurilateral committees.

The WTO has a permanent Secretariat based in Geneva, with a staff of around 560 and is headed
by the Director-General. It does not have branch offices outside Geneva. Since decisions are
taken by the members themselves, the Secretariat does not have the decision-making role those
other international bureaucracies are given.
The Secretariat’s main duties are to extend technical support for the various councils and
committees and the Ministerial Conferences, to provide technical assistance for developing
countries, to analyse world trade, and to explain WTO affairs to the public and media.

The Secretariat also provides some forms of legal assistance in the dispute settlement process
and advises governments wishing to become members of the WTO.

CONCLUSION:

The basic objective of the WTO framework is to liberalize trade in goods and services and
protection of intellectual property. Countries with supply capacity directly benefit from
expansion of exports whereas countries with intellectual property benefit from monopoly
privileges, including high financial returns to owners of IPRs.

As most developing countries neither have good supply base for goods and services nor much of
IPRs, their direct gains from the WTO system is much lower compared to developed countries.
The basic principles of the multilateral framework, such as national treatment, i.e., non-
discrimination between imported and domestic goods, works against the process of development
by discouraging domestic production by developing countries.

Besides trade in goods, it covers a number of issues related to international trade, such as
services, intellectual property rights, anti-dumping, safeguards, non-tariff barriers, dispute
settlement, etc., making its approach highly comprehensive.