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Published on Feb 15, 2016

Abstract

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was estab-lished after World War II in the wake of other new multilateral institutions dedicated to in-ternational economic cooperation — notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund.

A comparable international institu-tion for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barri-ers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect. In the absence of an internation-al organization for trade, the GATT "transformed itself" into a de facto international organiza-tion over the years. The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their busi-ness. It is a place where member governments go, to try to sort out the trade problems they face with each other. However, it is only the stated aim of the World Trade Organiza-tion (WTO) to promote free trade and stimulate economic growth. Behind the general stat-ed functions of the WTO, there is a lot more that takes place that is not perceived easily.

Principles

The WTO establishes a framework for trade policies; it does not define or specify outcomes. It is concerned with setting the rules of the trade policy games. Five principles are of particu-lar importance in understanding both the pre-1994 GATT and the WTO:

1) Non- Discrimination

It has two major components: the most favoured nation (MFN) rule, and the national treat-ment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO mem-bers, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. Grant someone a special favour and you have to do the same for all other WTO members. National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods).

2) Reciprocity

It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a na-tion to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will ma-terialise.

3) Binding and enforceable commitments

The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceil-ing bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not ob-tained, the complaining country may invoke the WTO dispute settlement procedures

4) Transparency

The WTO members are required to publish their trade regulations, to 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. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports.

5) Safety Valves

Under specific circumstances, governments are able to restrict trade. There are three types of provisions in this direction: articles allowing for the use of trade measures to attain noneco-nomic objectives, articles aimed at ensuring "fair competition", and provisions permitting intervention in trade for economic reasons. Exceptions to the MFN principle also allow for preferential treatment of developing countries, regional free trade areas and customs unions..

Critics contend that smaller countries in the WTO wield little influence, and despite the WTO aim of helping the developing countries, the politicians representing the most influen-tial nations in the WTO focus on the commercial interests of profit-making companies ra-ther than the interests of all. The WTO does not seem to manage the global economy impar-tially, but in its operation has a systematic bias toward rich countries and multinational cor-porations and harms smaller countries which have less negotiation power. Some examples of this bias are:

1. Rich countries are able to maintain high import duties and quotas in certain products, blocking imports from developing countries (e.g. clothing)

2. The increase in non-tariff barriers such as anti-dumping measures allowed against de-veloping countries

3. The maintenance of high protection of agriculture in developed countries while de-veloping ones are pressed to open their markets

4. Many developing countries do not have the capacity to follow the negotiations and participate actively in the Uruguay Round

5. The TRIPs agreement which limits developing countries from utilizing some tech-nology that originates from abroad in their local systems (including medicines and ag-ricultural products).

Developing countries have not benefited from the WTO Agreements of the Uruguay Round and the credibility of the WTO trade system could be eroded. One of the major categories of 'problems of implementation of the Uruguay Round is the way the Northern countries have not lived up to the spirit of their commitments in implementing (or not implementing) their obligations agreed to in the various Agreements. The Doha Round negotiations have veered from their proclaimed direction oriented to a development-friendly outcome, towards a 'market access' direction in which developing countries are pressurized to open up their agri-cultural, industrial and services sectors.

Reference :

The Journal of Commerce Article

IISD website http://www.gao.gov/new.items/d01727.pdf

WTO and the Environment working paper by Alan Oxley