Read this essay to learn about World Trade Organization (WTO). After reading this essay you will learn about:- 1. Introduction to The WTO (World Trade Organisation) 2. Objective of WTO 3. Functional Levels of WTO 4. Membership of WTO 5. Main Functions of WTO 6. WTO Structure 7. Working of WTO 8. Group Culture in WTO 9. WTO Agreements and Other Details.
List of Essays on the World Trade Organization (WTO)
- Essay on the Introduction to WTO (World Trade Organisation)
- Essay on the Objective of WTO
- Essay on the Functional Levels of WTO
- Essay on the Membership of WTO
- Essay on the Main Functions of WTO
- Essay on the WTO Structure
- Essay on the Working of WTO
- Essay on the Group Culture in WTO
- Essay on the WTO Agreements
- Essay on the Dispute Settlement System and Multilateral Trading System
- Essay on the WTO and Global Trade Regulations
- Essay on the Reciprocity in Trade Relations
Essay # 1. Introduction to The WTO (World Trade Organisation):
This is the most recent addition to the international business regime that was dominated for long by IMF, WB, OECD, and similar agencies. It has a strong mandate to perform that it inherited from GATT, with least manpower to work with but still it has done commendable job.
Its central theme has been to bring the governments of the world to sit together and discuss their differences and to arrive at a mutually acceptable solution in line with the policies and guidelines it (WTO) has devised for the international business. Merchandise trade between WTO members is now over US $ 5 trillion and service trade accounting for another 1.3 trillion making total global trade over 6 trillion.
Essay # 2. Objective of WTO:
The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably. This objective is intended to be achieved by establishing common rules that are non-discriminatory, transparent, and with high degree of predictability in the conduct of the trade policies, through administration of the trade agreements, by acting as the forum for trade negotiations, by settling trade disputes amongst the member countries, by monitoring and reviewing member country’s trade policies, by cooperation with other global organizations, and by assisting the developing countries in matters relating to their trade policies.
The Goal of WTO:
To improve the welfare and living standard of the peoples of the member countries.
Essay # 3. Functional Levels of WTO:
Ministerial Conference is the highest decision making body of WTO. It meets once in two years. Respective ministers of foreign trade represent the member countries for this conference.
General Council is the next level decision making body that remains in session during the intervening periods of the ministerial conference. Their ambassadors or the heads of the delegations represents the member countries. This body also acts as the trade policy review body and trade dispute settlement body.
Specific Utility Councils are the third level of decision making body in WTO. They include various councils like goods, services, TRIP etc., and they report to General Council.
Specialized Committees these are the ground level working bodies in supportive role to the overall requirements of the WTO policy framework. Their operative areas being environments, development, membership cases, regional trade agreements, trade and investment, governmental procurement policies, e-commerce etc.
The decisions are taken on consensus basis and every delegate is admissible during the process of decision making. This participation is voluntary. This is contrary to what is being practiced at EC.
In WTO the ministerial meeting are scheduled on alternate year basis whereas IMF and WB meet annually and in between they have half yearly meeting (development committees) to monitor the progress and to undertake operational adjustments of plans, if required. In this sense WTO Secretariat is far removed from the people they tend to help but WB and IMF are much closer to the people.
Essay # 4. Membership of WTO:
The pre-condition being that “Any state or customs territory having full autonomy in the conduct of its trade policies may join (“accede to”) the WTO”, but WTO members must agree on the terms. The negotiations for membership took place under the old GATT system.
At that time most of them signed the Uruguay Round agreement in Marrakesh in April 1994 and thus automatically became the founder- members of the WTO when it was established on 1 January 1995.
As of 31st December 1999 the WTO had 135 members with 30 applicants negotiating membership (they are WTO “observers”). Representing 90% of the world trade. All members have joined the system as a result of negotiation and therefore membership means a balance or rights and obligations.
They enjoy the privileges that other member- countries give to them and the security that the trading rules provide. In return, they had to make commitments to open their markets and to abide by the rules. The prominent nations that are not yet members of WTO are Russia and China but are likely to be inducted very soon, perhaps by year end (2000).
The membership application has to pass through four stages:
The government applying for membership has to describe all aspects of its trade and economic policies that have a bearing on WTO agreements. This is submitted to the WTO in a memorandum that is examined by the working party dealing with the country’s application. These working parties are open to all WTO members.
When the working party has made sufficient progress on principles and policies, parallel bilateral talks begin between the prospective new member and individual countries. They are bilateral because different countries have different trading interests.
These talks cover tariff rates and specific market access commitments, and other policies in goods and services. The new member’s commitments are to apply equally to all WTO members under normal non discrimational rules, even though they are negotiated bilaterally.
In other words, the talks determine the benefits (in the form of export opportunities and guarantees) other WTO members can expect when the new member joins. (The talks can be highly complicated. It has been said that in some cases the negotiations are almost as large as an entire round of multilateral trade negotiations.)
Once the working party has completed its examination of the applicant’s trade regime, and the parallel bilateral market access negotiations are complete, the working party finalizes the terms of accession. These appear in a report, a draft membership treaty (“protocol of accession”) and a list (schedules”) of the member-to-be’s commitments.
The final package, consisting of the report, protocol and lists of commitments, is presented to the WTO General Council or the Ministerial Conference. If a two-thirds majority of WTO members vote in favour, the applicant is free to sign the protocol and to accede to the organization.
In some cases, the country’s own parliament or legislature has to ratify the agreement before membership is complete. All membership and applicants for new negotiations until 1995 that were brought to WTO from GATT, when completed were considered as “original” WTO members.
Essay # 5. Main Functions of WTO:
(i) Assisting developing and transition economies,
(ii) Specialized help for exporting: the International Trade Centre,
(iii)The WTO in global economic policy-making,
(iv) Transparency in keeping the WTO informed,
(v) Transparency in keeping the public informed,
(vi) Trade policy reviews of the member nations, and
(vii)Technical assistance and training.
(i) Assisting Developing and Transition Economies:
Developing countries make up about three- quarters of the total WTO membership. Together with countries currently in the process of “transition” to market-based economies, they are expected to play an increasingly important role in the WTO as membership expands.
Therefore, much attention is paid to the special needs and problems of developing and transition economies. The WTO Secretariat organizes a number of programmes to explain how the system works and to help train government officials and negotiators.
Some of the events are in Geneva, others are held in the countries concerned. A number of the programmes are organized jointly with other international organizations. Some take the form of training courses. In other cases individual assistance might be offered.
The subjects can be anything from help in dealing with negotiations to join the WTO and implementing WTO commitments to guidance in participating effectively in multilateral negotiations. Developing countries, especially the least-developed among them, are helped with trade and tariff data relating to their own export interests and to their participation in WTO bodies.
Training courses take place in Geneva twice a year for officials of developing countries. Since their inception under GATT in 1955 and up to June 1997, the courses have been attended by about 1,515 trade officials from 130 countries and 11 regional organizations. Since 1991, special courses have been held each year in Geneva for officials from the former centrally-planned economies in transition to market economies.
(ii) Specialized Help for Exporting: The International Trade Centre:
ITC was established by GATT in 1964 at the request of the developing countries to help them promote their exports. It is jointly operated by the WTO and the United Nations, the latter acting through UNCTAD (the UN Conference on Trade and Development).
The center responds to requests from developing countries for assistance in formulating and implementing export promotion programmes as well as import operations and techniques.
It provides information and advice on export markets and marketing techniques. It assists in establishing export promotion and marketing services, and in training personnel required for these services. The Center’s help is freely available to the least-developed countries.
(iii) The WTO in Global Economic Policy-Making:
An important aspect of the WTO’s mandate is to cooperate with the IMF, the WB and other multilateral institutions to achieve greater coherence in global economic policy-making. A separate Ministerial Declaration was adopted at the Marrakesh Ministerial Meeting in April 1994 to underscore this objective.
The declaration envisages an increased contribution by the WTO to achieving greater coherence in global economic policy-making. It recognizes that different aspects of economic policy are linked, and it calls on the WTO to develop its cooperation with the international organizations responsible for monetary and financial matters—the World Bank and the International Monetary Fund.
The declaration also recognizes the contribution that trade liberalization makes to the growth and development of national economies. It says this is an increasingly important component in the success of the economic adjustment programmes which many WTO members are undertaking, even though it may often involve significant social costs during the transition.
(iv) Transparency in keeping the WTO Informed:
Often the only way to monitor whether commitments are being implemented fully is by requiring countries to notify the WTO promptly when they take relevant actions. Many WTO agreements say member governments have to notify the WTO Secretariat of new or modified trade measures.
For example, details of any new anti-dumping or countervailing legislation, new technical standards affecting trade, changes to regulations affecting trade in services, and laws or regulations concerning the intellectual property agreement—they all have to be notified to the appropriate body of the WTO.
Special groups are also established to examine new free-trade arrangements and the trade policies of countries joining as new members.
(v) Transparency in Keeping the Public informed:
On July 18, 1996 the WTO’s General Council agreed to make more information about WTO activities available publicly and decided that public information, including derestricted WTO documents, would be accessible on-line.
The General Council also agreed that efforts should be made to de-restrict new documents more quickly. The objective is to make more information available to the public, including to non-governmental organizations interested in the WTO.
Some documents, such as trade policy review reports and dispute settlement panel reports, are made public almost immediately. Others, including minutes of meetings, are considered for de- restriction after about six months, but WTO members can decide that the information should remain confidential for longer.
(vi) Trade policy Review:
The WTO conducts regular reviews of individual countries’ trade policies— the trade policy reviews. This is partly to ensure that individuals and companies involved in trade face transparent regulations and policies.
The importance of the process can be seen from the seniority of the Trade Policy Review Body—it’s the WTO General Council in another guise. The Trade Policy Review Mechanism’s purpose is to improve transparency, to create a greater understanding of the policies that countries are adopting, and to assess their impact.
Many members also see the reviews as constructive feedback on their policies. All WTO members must undergo periodic scrutiny, each review containing reports by the country concerned and the WTO Secretariat. Over 45 members have been reviewed since the WTO came into force.
(vii) Technical assistance and training:
The WTO organizes around 100 technical cooperation missions to developing countries annually. It holds on average three trade policy courses each year in Geneva for government officials. Regional seminars are held regularly in all regions of the world with a special emphasis on African countries.
Training courses are also organized in Geneva for officials from countries in transition from central planning to market economies.
In 1997-98, the WTO set up reference centres in almost 40 trade ministries in capitals of least-developed countries, providing computers and internet access to enable ministry officials to keep abreast of events in the WTO in Geneva through online access to the WTO’s immense database of official documents and other material.
WTO’s main functions are to do with trade negotiations and the enforcement of negotiated multilateral trade rules (including dispute settlement) with special focus given to five specific policies supporting these functions.
Essay # 6. WTO Structure:
A Director-General and four deputies head the WTO Secretariat. Each division will come under one of the four Deputy Directors-General or directly under the Director-General. The WTO has more than 130 members, accounting for over 90% of world trade.
Over 30 others are negotiating membership. Its member governments run the WTO. All major decisions are made by the membership as a whole, either by ministers (who meet every two years) or by officials (who meet regularly in Geneva).
Decisions are normally taken by consensus. The highest authority is the ministerial conference that meets at least once every two years. The General Council (in three guises) supervises more routine work. Numerous other councils, committees, working parties and negotiating groups cover the wide range of WTO issues.
Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTO’s predecessor, GATT.
The WTO’s agreements have been ratified in all members’ parliaments. The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters.
The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council.
Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.
Essay # 7. Working of WTO:
The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who meet every two years) or by officials (who meet regularly in Geneva). Decisions are normally taken by consensus.
The highest authority is the ministerial conference which meets at least once every two years. More routine work is supervised by the General Council (in three guises). Numerous other councils, committees, working parties and negotiating groups cover the wide range of WTO issues. New members enjoy the privileges that other member-countries give to them and the security that the trading rules provide.
In return, they had to make commitments to open their markets and to abide by the rules—those commitments were the result of the membership (or “accession”) negotiations. Once they are members, countries increasingly find themselves in groups, some regional (such as the EU or ASEAN), some dealing with specific issues (such as the Cairns Group).
The work of the WTO is undertaken by representatives of member governments but its roots lie in the everyday activity of industry and commerce. Trade policies and negotiating positions are prepared in capitals, usually taking into account advice from private firms, business organizations, farmers, consumers and other interest groups.
Most countries have a diplomatic mission in Geneva, sometimes headed by a special ambassador to the WTO. Officials from the missions attend meetings of the many councils, committees, working parties and negotiating groups at WTO headquarters. Sometimes expert representatives are sent directly from capitals to put forward their governments’ views on specific questions.
With the expanding range of issues covered by the WTO and the increasing technicality of some subjects, many less developed countries face difficulty in assigning enough suitably qualified officials for WTO work. In the WTO this is considered a priority problem that needs to be tackled.
Essay # 8. Group Culture in WTO:
It is a common feature found wherever there is accumulation of people with demands and or aspirations. In WTO the single unit is a country. Once they become members they also tend to form groups and alliances.
In some cases they even speak with one voice using a single spokesman or negotiating team. This is partly the natural result of economic integration – more customs unions, free trade areas and common markets are being set up around the world. It is also seen as a means for smaller countries to increase their bargaining power in negotiations with their larger trading partners.
Sometimes when groups of countries adopt common positions consensus can be reached more easily. Sometimes the groups are specifically created to compromise and break a deadlock rather than to stick to a common position. But there are no hard and fast rules about the impact of groupings in the WTO.
The largest and most comprehensive group is the European Union (for legal reasons known officially as the European Communities in WTO business) and its 15 member states. The EU is a customs union with a single external trade policy and tariff.
While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU at almost all WTO meetings. The EU is a WTO member in its own right as are each of its member states.
A lesser degree of economic integration has so far been achieved by WTO members in the Association of South East Asian Nations (ASEAN)—Malaysia, Indonesia, Singapore, Philippines, Thailand and Brunei Darussalam. (The seventh member, Vietnam, Joined In early 2000.)
Nevertheless, they have many common trade interests and are frequently able to coordinate positions and to speak with a single voice. EU members criticized USA as being the noisiest country in the WTO platform behaving as if they are 15 nations whereas EU with 15 nations speaks as one nation.
Canada, EU, USA and Japan are known for their toughness in negotiations against other members of WTO. These four countries are known in WTO as the “Quad” group. Pitched against this group is the “Caims Group” consisting of members from OECD countries to the least developed (Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji, Hungary, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, Thailand, Uruguay etc.).
It was set up just before the Uruguay Round began in 1986 to argue for agricultural trade liberalization. The group became an important third force in the farm talks and remains in operation. Its members are diverse, but sharing a common objective—that agriculture has to be liberalized—and the common views that they lack the resources to compete with larger countries in domestic and export subsidies.).
Among other groupings which occasionally present unified statements are the Latin American Economic System (SELA) and the African, Caribbean and Pacific Group (ACP). More recent efforts at regional economic integration have not yet reached the point where their constituents frequently have a single spokesman on WTO issues.
Examples include the North American Free Trade Agreement: NAFTA (Canada, US and Mexico) and MERCOSUR: the Southern Common Market (Brazil, Argentina, Paraguay and Uruguay).
Essay # 9. WTO Agreements:
Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and their obligations. Binding tariffs, and applying them equally to all trading partners (MFN) are key to the smooth flow of trade in goods.
Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.
The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets.
They prescribe special treatment for developing countries. They require governments to make their trade policies transparent. And to ensure that trade is as fair as possible, and as free as is practical. The process of negotiation of rules and abiding by them ensures this.
The Uruguay Round agreement is a significant first step towards order, fair competition and a less distorted sector. It is being implemented over a six-year period (10 years for developing countries), that began in 1995.
Participants have agreed to initiate negotiations for continuing the reform process one- year before the end of the implementation period. This Round also created new rule for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy review.
The complete set runs to some 30,000 pages consisting of about 60 agreements and separate commitments (called schedules), made by individual members in specific areas such as lower customs duty rates and services market-opening, a number of agreements deal with various technical, bureaucratic or legal issues that could involve hindrances to trade.
Technical regulations and standards, import licensing, rules for the valuation of goods at customs, pre-shipment inspection, rules of origin, investment measures etc. The individual countries’ commitments on specific categories of goods and services include commitments to cut and “bind” their customs duty rates on imports of goods. In some cases, tariffs were cut to zero.
The original GATT did apply to agricultural trade, but it contained loopholes, it allowed countries to use some non-tariff measures such as import quotas and subsidies that would not normally have been allowed for industrial products, that made the agricultural trade highly distorted. Textiles, like agriculture, were one of the hardest-fought issues in the WTO. It is now going through fundamental change.
The General Agreement on Trade in Services (GATS) is the first ever set of multilateral, legally- enforceable rules covering international trade in services. GATS operates on three levels: the main text containing general principles and obligations; annexes dealing with rules for specific sectors; individual countries’ specific commitments to provide access to their markets.
GATS also has a fourth element: lists showing where countries are temporarily not applying the “most-favoured-nation” norms of nondiscrimination. These commitments—like tariff schedules under GATT—are an integral part of the agreement and so are the temporary withdrawals of most-favoured-nation treatment.
The Uruguay Round brought intellectual property rights—copyrights, trademarks, patents, etc.,—into the WTO system for the first time.
The new agreement tackles five broad issues: how the trading system’s principles should be applied to intellectual property rights, how best to protect intellectual property rights, how to enforce the protection, how to settle disputes, and what should happen while the system is gradually being introduced.
Essay # 10. Dispute Settlement System and the Multilateral Trading System:
It has become a tool of international economic diplomacy. It is a step towards “rule-oriented” system that will hopefully allow better adjustment of frictions between the nations and allow better predictability and reliability in international relationships between the nations and the people of the nations.
The positive effect of the system would be on the risk side of the international business. The mere existence of this system is enough guarantee for the good behaviour from the negotiating teams of the countries.
The threat to bring the dispute to WTO is just enough to pressurize the nations to seek amicable settlements to the disputes because no government wants to be labeled s the rule breaker in the WTO system which has proved on many occasions as the true redressal system for the contracting nations.
Countries bring disputes to the WTO when they think their rights under the agreements are being infringed. Judgments by specially appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.
The system encourages countries to settle their differences through consultation. Failing which they can follow a carefully mapped out, stage-by-stage procedure that includes the possibility of a ruling by a panel of experts, and the chance to appeal the ruling on legal grounds.
Confidence in the system is borne out by the number of cases brought to the WTO—167 cases by March 1999 compared to some 300 disputes dealt with during the entire life of GATT (1947-94).
Multilateral trading systems are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground- rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights.
They also bind governments to keep their trade policies within agreed limits to everybody’s benefit. It was originally set up under GATT is already 50 years old. The system celebrated its golden jubilee in Geneva on 19 May 1998, with many heads of state and government leaders attending.
The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on average by 6% annually. Total trade in 1997 was 14-times the level of 1950. GATT and the WTO have helped to create a strong and prosperous trading system contributing to unprecedented growth.
The system was developed through a series of trade negotiations, or rounds, held under GATT The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non- tariff measures.
The negotiations did not end there. Some continued after the end of the Uruguay Round. In February 1997 agreement was reached on telecommunications services, with 69 governments agreeing to wide-ranging liberalization measures that went beyond those agreed in the Uruguay Round.
In the same year 40 governments successfully concluded negotiations for tariff-free trade in information technology products, and 70 members concluded a financial services deal covering more than 95% of trade in banking, insurance, securities and financial information. At the May 1998 ministerial meeting in Geneva, WTO members agreed to study trade issues arising from global electronic commerce.
Essay # 11. WTO and Global Trade Regulations:
WTO is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The result is assurance.
Consumers and producers know that they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services that they use. Producers and exporters know that foreign markets will remain open to them.
The result is also a more prosperous, peaceful and accountable economic world. Decisions in the WTO are typically taken by consensus among all member countries and they are ratified by members’ parliaments.
Trade friction is channeled into the WTO’s dispute settlement process where the focus is on interpreting agreements and commitments, and how to ensure that countries’ trade policies confirm with them. That way, the risk of disputes spilling over into political or military conflict is reduced. By lowering trade barriers, the WTO’s system also breaks down other barriers between peoples and nations.
The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business. The core activity of WTO relates to the negotiation and implementation of the explicit global rules on government policies relating to cross border trade.
This activity is explicitly international and relates to the treatment by one government of internationally traded goods and services produced in another country relative to those produced in third country and within its own.
This is quite unlike to the WB whose primary job is the adjustment assistance comprising of advice and loan, or more specifically developmental assistance (loan). The primary output of WTO is rule writing and enforcement of an explicit global regime. It is an organization that writes rules and in doing so makes laws with which its contracting parties agree to abide by.
Unlike the fund and the bank whose effectiveness ultimately stems from a combination of an internal knowledge base and an ability to exert conditionality on the individual countries, the effectiveness of the WTO rests upon its combination of a global forum in which rules can be broken and a dispute settlement process in which they can be enforced.
Essay # 12. Reciprocity in Trade Relations:
Trade theory argues free trade is first best for individual nations considered separately so that unilateral trade liberalization is desirable for individual countries. Much of the worldwide drive to liberalization in the past decade had been genuinely unilateral and the WB had played a critical role in encouraging this process.
But if these were all that there was to liberalization then there would be no collective action problem for an international organization to solve. The collective action problem that WTO addresses arises from the need for reciprocity in the trade liberalization. The fact that there are kinds of trade liberalization that individual countries will not pursue unilaterally.
For such liberalization to occur countries must trade concessions. A country desiring liberalization of a particular kind from another country must make an offer of liberalization itself which it would not do otherwise. When there is a need for liberalization in reciprocity trade negotiations takes on the nature of a prisoner’s dilemma in which only cooperative solutions take place and yield results.
WTO has focused on four points since its inception; MNF, Broader commitments, WTO interacts at governmental level and not on private sector, WTO by its charter is limited to interaction at government levels and has no scope for R&D in leadership and organizational culture building.
The success of WTO remains so long market imperfect conditions prevail but the same market forces can strain the fragile body to breaking point when the sense of reciprocity is not balanced in favour of those who are still in the developmental stages of economy building process.
The biggest problem to come up in near future is the process of standardization in the areas of telecommunication and computing. The powerful partner would enforce their standards on those not so powerful and thus create a situation of monopoly in the market. Microsoft is a living example of what it can do on the operating system for the computer world over.