The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 145 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986-1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations.
The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development. (Source: WTO,2010)
World Trade Organisation (WTO)
World Trade Organisation is an international agency which was formed in 1st January 1995 for administrating existing multilateral trade agreements between its member nations and it also helps in resolving trade disputes when they arise as well as helps in supporting current negotiation for new trade agreements.
Structure of the WTO
WTO is operated by its member nations. Decisions are made by consensus through involvement of entire member nations. Ministerial conference is the WTO's top-level decision-making body and it meets at least once in every two years. General council is below the ministerial conference and it meets many times a year in Geneva. The General Council also act as a Trade Policy Review Body and the Dispute Settlement Body. There are three councils below the General council and each handles the different broad area of trade they are:
* The Council for Trade in Goods (Goods Council)
* The Council for Trade in Services (Services Council) and
* The Council for Trade-Related Aspects of intellectual property Rights (TRIPS Council).
Inorder to deal with the individual agreements and other areas which are environment, membership applications, development and regional trade agreements there are specialized committees, working groups and working parties, which gives daily report to the General Council, Goods Council and Services Council as appropriate. WTO Secretariat in Geneva has about 600 staffs, headed by a Director General. WTO Secretariat's main tasks is to provide administrative support for the operation of the system.
Changing scope of WTO since its inception
Trade Ministers meeting was held in Marrakesh which is in Morocco in the year 1994 for establishing World Trade Organisation, which was created in Geneva on 1st January 1995 and replaced GATT as an international trade governing body. Protesters of Seattle disrupted the WTO summit as they were against it. In November 2001,Doha Round was formed, which was the 9th trade round and it was intended for opening negotiations on opening markets to agricultural, manufactured goods and services. In December 2001, China joins the WTO, whereas Taiwan was admitted a weeks later. In August 2002, EU got justice from WTO against US exporters, US government paid penalty of 4 billion $ to EU as damages charged by WTO. In September 2003,WTO declares a deal which was aimed for developing countries to access to cheaper medicines and due to this aid agencies were disappointed. The meeting of the WTO in Mexico fails whose aim was to give farm subsidies access to market. In August 2004,WTO tells US and EU to reduce their agricultural subsidies while developing countries should cut their tariffs on manufactured goods. In October 2005, US makes a deal to cut down its agricultural subsidies if other European countries do the same but France opposed it.In July 2008,US and India were not successful in compromising with each other, for the protection of poor countries farmers against import surges.WTO announces that the trade flows in developed countries has fall by 10%,poorer countries export has fall by 2-3% and global trade flows has shrink by 9% in 2009.
History of GATT and WTO
Over the last fifty years world trade organisation (WTO) and its predecessor, the General agreement on Tariffs and Trade(GATT) have been successful in reducing tariffs and other trade barriers of its increasing number of member countries. Even though WTO was established in 1995 but now also it is relatively young for an international institution, which has its origins in the Bretton Woods Conference at the end of World War II. At this conference finance minister of allied nations were gathered for the discussion of the failure of world war I's Versailles Treaty and for the development of a new international monetary system, which would be helpful in supporting post-war reconstruction, economic stability, and peace.
Two of the most important international economic institutions of the postwar period was produced by Bretton Wood conference and they are: The international monetary fund (IMF) and the international Bank for Reconstruction and Development(The world bank). The beggar-thy-neighbor tariff policies of the 1930s had created a bad situation in the environment which led to war therefore WTO felt that there is need for third postwar institution which is the international Trade Organization(ITO) for encouraging free trade between nations.
In 1947 journey of GATT begins from Havana. At Havana first conference was held which led to negotiation among member countries and this has resulted to formation of number of trade rules and also 45,000 tariff concessions, which affected about 1/5th of worlds total trade. The deal was signed by 23 countries in 1947 and tariff concession came into existence in June 1948, which led to the formation of General Agreement on Tariffs and Trade (GATT).The founding members of GATT were also part of ITO charter, which was agreed at Havana conference in 1948.The US congress was not willing to support ITO and declared it as a dead organisation therefore due to this, in 1948 the GATT became the only international organisation to govern international trade.
There were many trade rounds held since 1948 for discussion about developments of trade, new agreements and further reduction of tariff and among these GATT trade rounds mainly concentrated on further tariff reduction.
Geneva Round was the first round which was held in 1947 and in this round 23 countries negotiated which resulted in 45,000 tariff concessions affecting $10 billion of trade.
Kennedy Round was held in 1963-67 in which 74 countries were participated. In this round the outcome were agreement on anti-dumping and customs valuation. The developed countries also reduced its tariffs to some extent.
Tokyo Round was held in 1973-1979 in which 99 countries were participated. Under this round the results included were one third reduction in custom duties in the world's nine major industrial markets, which played an important role in bringing down the average tariff of industrial products down to 4.7%. Tokyo Round failed to deal with fundamental problems which affect farm trade and agreement on “safeguards”.
The availability of some non tariff barriers has resulted in new negotiations and agreements, but not all members of GATT were agreed to this agreement and due to this it was sometimes called “codes” as it was not accepted by all GATT members.
Uruguay Round was held in 1986 in which 103 countries were participated and 128 countries in 1995.In this round many codes raised as an issue. Under this round special emphasis was placed on further reductions of tariffs and elimination of tariffs for certain products. Many codes of Tokyo Round were renegotiated, which increased a number of specific issues and this has resulted in the development of new GATT known as World Trade Organisation(WTO).Under WTO agreement, the agreements like General Agreement on Trade in Services (GATS), Trade Policies Review Mechanism (TRIM) and Trade-related intellectual property rights (TRIPs) are also included.
Scope Of GATT
The main function of GATT is to restrict member countries from imposing trade tariffs so that international trade can be controlled. To reduce trade tariff internationally is the main aim of GATT and this would help in free trade environment.
The scope of GATT does not only covers tariffs, quotas, custom procedures, and state trading but it also helps in extending domestic activities such as internal taxes, subsidies, and domestic regulation and this imposes heavy tariffs on imported products. GATT had several rounds From 1947 to 1944 and these rounds had helped in several tariff reductions and agreement.
Rounds of GATT
There were eight trade rounds of negotiations, which were held under GATT. The following are the eight trade rounds.
1. The Geneva Round
2. The Annecy Round
3. The Torquay Round
4. The Geneva Round II
5. The Dillon Round
6. The Kennedy Round
7. The Tokyo Round
8. The Uruguay Round
The Geneva Round
The Geneva Round which was held in 1947 was the first round of trade negotiations. 23 countries participated. GATT was signed under this round. After the negotiation 45,000 tariff concession were exchanged.
The Annecy Round
It was the Second Round which took place in 1949 in which 29 countries were participated. The main focus of the round was further reduction in tariffs, around 5000 tariff concession were exchanged.
The Torquay Round
It was the third Round which took place in 1950-51 in which 32 countries were participated. 8,700 tariff concession were made.
The Geneva Round II
It was the fourth Round which took place in 1955 and lasted till May 1956.Total number of countries which participated was 33. Tariff reduction in this round was modest.
The Dillon Round
It was the fifth Round which took place in 1960-61 in which 39 countries were participated. Along with reducing tariff a new proposal was made by European Economic Community(EEC) for a 20% cut in manufacturers tariffs which were rejected. By the end of this round 4,400 tariffs were reduced.
The Kennedy Round
It was the sixth Round which took place in 1963-67 in which 74 countries were participated. In this round a new negotiating method was created for reducing average tariff to 35% by developed countries. Kennedy round was named by president Kennedy and it was also the first round for dealing with non tariff measures (NTMs).It also focussed on agreements on customs valuation and anti dumping.
The Tokyo Round
It was the seventh Round which took place in 1973 and ended in 1979, in which 99 countries were participated. In the worlds nine major industrial market, there was an average one-third reduction in customs duties and this played an important role in bringing down the average tariff on manufactured products down to 4.7%.On agricultural and industrial products tariffs were reduced and due to this the tariff on imported product declined to 6%.
The Uruguay Round
It was the eighth and last round of the GATT which took place in 1986 and ended in 1994, in which 103 countries and 117 countries were participated in 1986 and 1994 respectively. In this round new agreements were made on services and TRIPs and even old issues as well as new issues such as Tokyo and dispute settlement were discussed. This round reduced average tariff of developed countries by one-third.one of the most historical moment of this round was the creation of WTO in 1995.
WTO's Involvement in Dispute settlement
Dispute settlement is the central pillar of multilateral trading system. If disputes are not settled, the system of rule based would not be more effective as it helps in making the trading system more secure and predictable.
The Dispute Settlement Body of WTO established a panel on 25th March 1998, inorder to examine the complaints against Canada's measures affecting dairy exports.
United State claimed that, the Canadian government imposed export subsidies on its “special milk classes”, which is against the WTO agreements. The United State also said that the Canada imposed a tariff rate quota on imports of fluid Milk and Cream. As a result of this the US producers find it difficult for market access to Canadian market.
New Zealand also said that Canada's export subsidies to dairy products have broken the provisions of GATT 1994 and the Agreement on Agriculture.
The Dispute Settlement Body agreed in establishing a single panel for examining the complaints made by United States and New Zeland and came out with possible solution.
Benefits of WTO
* WTO plays an important role in maintaining peace among its member countries. It avoids trade disputes among its member countries. For example: During 1930's every country raised their trade barriers, for protecting their domestic producer and retaliate against each other's barriers .As a result this led to outbreak of World War II therefore for maintaining trade peace an organisation was formed.
* If there is more trade among member countries then the chances of arising trade disputes are more which can lead to serious conflicts. To settle their trade disputes, countries can seek help of WTO which plays an important role in reducing international trade tension.
* A system which is based on rules is easier than those system based on power as it makes life easier for all. The WTO agreement was negotiated by all its members. Rich and poor countries have equal rights in the WTO dispute settlement procedures to challenge each other, which makes life easier for all in many ways. It results in higher bargaining power of small countries. On smaller trading partners, the powerful countries would be freer to impose their will.
* Trade boosts economic growth and that economic growth means more jobs.
Disadvantages of WTO
* WTO is a member driven organization. All the decisions which are taken in the WTO are negotiated and democratic. All the rules of WTO system are agreements which results from negotiations among member government.
* WTO is not a free trade. Its principle is to reduce trade barrier and allow trade to move freely. Due to low trade barrier there has been an increment in trade.WTO should be platform for free trade but instead of this it is a platform for fair trade.
Europe and United States announced strict action against China for violating the rules of World Trade Organisation by restricting exports of essential raw materials.
China restricted exports of commodities such as Silicon, Coke and Zinc for giving Chinese manufacturers an unfair advantage over their international rivals. China imposes 70% tariffs along with minimum prices, on the export range of raw materials.
The EU claims that these not only breaks WTO rules but also the promises which China had made while joining the organisation in 2001.The US claimed that in 2008 China has produced 336m tonnes of Coke but it has only exported 12m tonnes.
Brussels said that manufacturers and processors in Europe were at risk, If the export flow from China was not restarted.
The US and Europe announced that it would start formal “Dispute resolution Consultation” at the WTO because of violation of trade rules by the China.