FORMATION OF WTO

The underlying idea and the conceptual origin of the WTO goes back to World War II. The leaders of the allied powers were of the view that one of the main causes of the war was the failure of the open world trading system in the 1930s. They agreed that the enduring peace and welfare of nations were inextricably connected with mutual friendly relations, fairness, equality, and the maximum predictable degree of freedom in international trade. Soon after the war ended, preparations for creating a new international economic order commenced. One of the important pillars of this new order, embodied in the Bretton Woods Institutions, was the establishment of the International Trade Organization (ITO), along with the International Monetary Fund, and the International Bank for Reconstruction and Development (The World Bank). The United Nations Economic and Social Council decided in early 1946 to hold an international conference to draft the charter of the ITO. It established for that purpose a preparatory committee that held its first meeting in London in October of the same year. After further preparatory meetings, the UN Conference on Trade and Employment was held in Havana, from November 1947 to March 1948. The end result of this conference was the Havana Charter, which contained the objectives, principles, rules, and institutional setup of an International Trade Organization. The Havana Charter was signed on March 24, 1948 by representatives of 54 countries. In tandem with the preparations for the ITO charter, some 23 members of the preparatory committee carried out negotiations for the reduction of tariffs, which at that time were the main obstacle to international trade. In order to implement and secure the results of tariff reductions in advance of the ITO, it was decided by the 23 countries to establish an interim agreement. Accordingly, they agreed on a General Agreement on Tariffs and Trade that was based on the chapters on trade policy in the draft charter of the ITO. The results of

tariff negotiations were inscribed in country schedules annexed to the text of the GATT and became an integral part of it. The General Agreement on Tariffs and Trade was signed by 23 countries on October 30, 1947 and entered into force on January 1, 1948. It was a provisional agreement without an institutional setup because it was envisaged that it would be taken over by the ITO. The Havana Charter never entered into force because it was not ratified by the US Congress. Thus, the GATT remained the only legal framework of rules for the conduct of world trade for almost half a century. However, the GATT regulated only trade in goods. It did not cover services or investments. Over the years, the GATT ensured liberalization of world trade through the elimination or reduction of tariffs and other barriers to merchandise trade. It was responsible for the manifold expansion of international trade. The greatest achievement of the GATT was establishing its role as a rules-based system for the conduct of trade relations among nations, which averted further 1930s like economic depressions. However, the GATT also had its failings. GATT rules never fully applied to agriculture , and its basic principles and some of its main rules were rendered largely inoperative in the case of textiles and clothing. The GATT also lagged behind new developments in international trade. Initially, its rules applied to trade in goods only. Trade in services, which had grown rapidly and had become an important and dynamic element of international trade, was not subject to GATT rules. When the Uruguay Round negotiations started in 1986, it was not envisaged that a new organization would be established to implement the results of the negotiations. However, as the negotiations developed and growth in two new areas, services and intellectual property, became increasingly visible, the countries taking part in the Uruguay Round started focusing on the need for establishing a permanent institutional setup to implement and administer the results of the negotiations. It was agreed that an umbrella organization was needed to house the outcome of negotiations in goods, services, and trade-related aspects of intellectual property rights, and to implement

the 20 or so agreements and legal texts negotiated and accepted as a single undertaking. The charter of the World Trade Organization was elaborated during the last several years of the Uruguay Round negotiations. It was formalized in the Marrakesh Agreement Establishing the World Trade Organization, signed in Marrakesh on April 15, 1994. After necessary ratification, the agreement entered into force on January 1, 1995.