The World Trade Organization (WTO) -

Creation
The origin of the WTO can be traced back to the creation of the International Trade Organization
at the 1944 Bretton Woods' Conference. While the terms of the ITO charter were being drafted
and debated (a process which began in February of 1946 and lasted until their a final draft was
produced in March 1948) and countries pondered whether they would join the organization,
representatives from a group of 17 nations assembled in Geneva and concluded an interim
agreement (GATT) to lower trade barriers and tariffs among themselves. The agreement, which
was to take effect on 1 January 1948, was not meant to be a permanent trade body but rather a
stopgap agreement to serve until the time that the ITO would be put in place.

However, when the Truman Administration decided not to submit the charter creating the ITO to
the US Senate for ratification (since there were not enough votes in the Senate in favor of
ratification) the plan to create the ITO was abandoned leaving the GATT Treaty in its place.

While the GATT functioned well enough, the leading members wished to replace it with a
world-wide trade-regulating body like the WTO for a number of reasons. First, the GATT rules
applied to trade only in merchandise goods. In addition to goods, the WTO covers trade in
services and trade-related aspects of intellectual property (through the agreement on Trade-
related Aspects of Intellectual Property Rights—TRIPs). Second, while GATT was a multilateral
instrument, by the 1980s many new agreements of a plurilateral , and therefore selective nature
had been added. The agreements which constitute the WTO are almost all multilateral and, thus,
involve commitments for the entire membership. Third, The WTO dispute settlement system is
faster, more automatic, and thus much less susceptible to blockages, than the old GATT system.

But beyond these practical and functional reasons for establishing the WTO, there were also
more philosophical and symbolic reasons. The GATT was a set of rules, a multilateral
agreement, with no institutional foundation, only a small associated secretariat which had its
origins in the attempt to establish an International Trade Organization in the 1940s. By contrast,
the WTO is a permanent institution with its own secretariat. Moreover, the GATT was applied
on a "provisional basis" even if, after more than forty years, governments chose to treat it as a
permanent commitment while the WTO commitments are fully and functionally permanent.

For the above reasons, the creation of a new, permanent trade body became one of the principal
objectives about half-way through the GATT's Uruguay round, which ran from 1986 to 1994. A
draft for the new international trade body, the WTO, was drafted and formally approved at the
Ministerial Conference held in the ancient trade center of Marrakesh in July of 1994. Under the
terms of the so-called "Final Act" signed there, the GATT was replaced by the WTO on 1
January 1995.

The Preamble of the Agreement Establishing the WTO states that members should conduct their
trade and economic relations with a view to "raising standards of living, ensuring full
employment and a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services, while allowing for the optimal use
of the world's resources in accordance with the objective of sustainable development, seeking
both to protect and preserve the environment and to enhance the means for doing so in a manner
consistent with their respective needs and concerns at different levels of development."

Furthermore, members recognize the "need for positive efforts designed to ensure that
developing countries, and especially the least-developed among them, secure a share in
international trade commensurate with the needs of their economic development."

To contribute to the achievement of these objectives, WTO Members have agreed to enter into
"reciprocal and mutually advantageous arrangements directed to the substantial reduction of
tariffs and other barriers to trade and to the elimination of discriminatory treatment in
international trade relations."

As the successor to GATT, WHO celebrated the golden jubilee of the multilateral trading system
in May 1998.

THE AGREEMENT ON AGRICULTURE

During the Uruguay Round negotiations, countries agreed to the long-term objective to establish
a more fair and market-oriented agricultural trading system. Countries also agreed to specific
disciplines for agriculture in the areas of market access, export subsidies, and internal support.
These areas are commonly referred to as the three pillars.

Market Access: The market access provisions of the Agreement on Agriculture required that
non-tariff measures be replaced by tariffs. For example, quotas, variable levies, discretionary
licensing, import bans, and other non-tariff barriers were no longer allowed. Thus, virtually all
market access barriers are on a common standard -- tariffs -- that any exporter can readily
measure, understand, and predict. All tariffs are bound. Once bound, a tariff cannot be increased
without compensating other countries.

Export Subsidies: Under the WTO, export subsidies for agriculture were, for the first time,
subject to effective rules. Member countries established maximum ceilings on the quantity and
budgetary outlays for export subsidies on a product-specific basis, subject to reductions over
time. Export subsidies include direct government or producer subsidies on exports,
transportation, and freight; marketing; and the sale or disposal of government stocks below
domestic prices. Export subsidies generally are the most trade distorting of government policies
because they allow subsidizing countries to displace competitive producers in world markets.

Internal Support: Governments provide internal support to their producers in many ways. Some
of these policies have significant consequences beyond a country's borders. Such policies can
impose costs on other countries and world markets by encouraging overproduction or inducing
production of specific commodities. Under the WTO, policies that seriously distorted trade were
differentiated from those with minimal trade effects. The two respective categories were labeled
"amber" and "green".
For amber policies, countries are not able to exceed the level of support to which they have
agreed as measured by their Aggregate Measurement of Support (AMS). The AMS essentially
totals, commodity by commodity, a country's support measures linked to production or prices.
They include price supports, marketing loans, payments based on acreage or number of
livestock, and certain subsidized loan programs.

Direct payments linked to certain production-limiting policies are also trade distorting, but are
free from reduction requirements under the "blue" box exemption. No reduction requirements or
restrictions are placed on green (permitted) policies. Generally, these are taxpayer-funded
policies that do not involve transfers from consumers and do not have the effect of providing
price support to producers. Examples include research, pest/disease control, extension services,
inspection, marketing and promotion, crop insurance, natural disaster relief, and conservation
programs.

As part of the Agreement on Agriculture, countries committed to continue the reform process
begun in the Uruguay Round. These negotiations began in March 2000.

World Trade Organization (WTO), international organization established to supervise

and liberalize world trade. The WTO is the successor to the General Agreement on Tariffs and
Trade (GATT), which was created in 1947 in the expectation that it would soon be replaced by a
specialized agency of the United Nations (UN) to be called the International Trade Organization
(ITO). Although the ITO never materialized, the GATT proved remarkably successful in
liberalizing world trade over the next five decades. By the late 1980s there were calls for a
stronger multilateral organization to monitor trade and resolve trade disputes. Following the
completion of the Uruguay Round (1986–94) of multilateral trade negotiations, the WTO began
operations on January 1, 1995.

Origins

The ITO was initially envisaged, along with the International Monetary Fund (IMF) and the
World Bank, as one of the key pillars of post-World War II reconstruction and economic
development. In Havana in 1948, the UN Conference on Trade and Employment concluded a
draft charter for the ITO, known as the Havana Charter, which would have created extensive
rules governing trade, investment, services, and business and employment practices. However,
the United States failed to ratify the agreement. Meanwhile, an agreement to phase out the use of
import quotas and to reduce tariffs on merchandise trade, negotiated by 23 countries in Geneva
in 1947, came into force as the GATT on January 1, 1948.

Although the GATT was expected to be provisional, it was the only major agreement governing
international trade until the creation of the WTO. The GATT system evolved over 47 years to
become a de facto global trade organization that eventually involved approximately 130
countries. Through various negotiating rounds, the GATT was extended or modified by
numerous supplementary codes and arrangements, interpretations, waivers, reports by dispute-
settlement panels, and decisions of its council.
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
Intellectual Property 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 early 21st century the WTO had more than 140 members.

Objectives and operation

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. Although shared by
the GATT, in practice these goals have been pursued more comprehensively by the WTO. For
example, whereas the GATT focused almost exclusively on goods—though much of agriculture
and textiles were excluded—the WTO encompasses all goods, services, and intellectual property,
as well as some investment policies. In addition, the permanent WTO Secretariat, which replaced
the interim GATT Secretariat, has strengthened and formalized mechanisms for reviewing trade
policies and settling disputes. Because many more products are covered under the WTO than
under the GATT and because the number of member countries and the extent of their
participation has grown steadily—the combined share of international trade of WTO members
now exceeds 90 percent of the global total—open access to markets has increased substantially.

The rules embodied in both the GATT and the WTO serve at least three purposes. First, they
attempt to protect the interests of small and weak countries against discriminatory trade practices
of large and powerful countries. The WTO’s most-favoured-nation and national-treatment
articles stipulate that each WTO member must grant equal market access to all other members
and that both domestic and foreign suppliers must be treated equally. Second, the rules require
members to limit trade only through tariffs and to provide market access not less favourable than
that specified in their schedules (i.e., the commitments that they agreed to when they were
granted WTO membership or subsequently). Third, the rules are designed to help governments
resist lobbying efforts by domestic interest groups seeking special favours. Although some
exceptions to the rules have been made, their presence and replication in the core WTO
agreements were intended to ensure that the worst excesses would be avoided. By thus bringing
greater certainty and predictability to international markets, it was thought, the WTO would
enhance economic welfare and reduce political tensions.

Functions of WTO

The former GATT was not really an organisation; it was merely a legal arrangement. On the
other hand, the WTO is a new international organisation set up as a permanent body. It is
designed to play the role of a watchdog in the spheres of trade in goods, trade in services, foreign
investment, intellectual property rights, etc. Article III has set out the following five functions of
WTO;

(i) The WTO shall facilitate the implementation, administration and operation and further the
objectives of this Agreement and of the Multilateral Trade Agreements, and shall also provide
the frame work for the implementation, administration and operation of the plurilateral Trade
Agreements.

(ii) The WTO shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the Agreement in the Annexes to this
Agreement.

(iii) The WTO shall administer the Understanding on Rules and Procedures Governing the
Settlement of Disputes.

(iv) The WTO shall administer Trade Policy Review Mechanism.

(v) With a view to achieving greater coherence in global economic policy making, the WTO
shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the
International Bank for Reconstruction and Development (IBRD) and its affiliated agencies.

Objectives of WTO

Important objectives of WTO are mentioned below:

(i) to implement the new world trade system as visualised in the Agreement;

(ii) to promote World Trade in a manner that benefits every country;

(iii) to ensure that developing countries secure a better balance in the sharing of the advantages
resulting from the expansion of international trade corresponding to their developmental needs;

(iv) to demolish all hurdles to an open world trading system and usher in international economic
renaissance because the world trade is an effective instrument to foster economic growth;
(v) to enhance competitiveness among all trading partners so as to benefit consumers and help in
global integration;

(vi) to increase the level of production and productivity with a view to ensuring level of
employment in the world;

(vii) to expand and utilize world resources to the best;

(viii) to improve the level of living for the global population and speed up economic
development of the member nations.

WTO Principles

WTO consist of fundamental principles

1. Trade without discrimination

2. Free trade through negotiation
3. Predictability through binding and transparency
4. Promoting fair competition
5. Encouraging development and economic reforms

Functions of the WTO

The main functions of the WTO can be described in very simple terms. These are:

 To oversee implementing and administering WTO agreements;

 To provide a forum for negotiations; and
 To provide a dispute settlement mechanism.

The goals behind these functions are set out in the preamble to the Marrakech Agreement. These
include:

 Raising standards of living;

 Ensuring full employment;
 Ensuring large and steadily growing real incomes and demand; and
 Expanding the production of and trade in goods and services.

These objectives are to be achieved while allowing for the optimal use of the world's resources in
accordance with the objective of sustainable development, and while seeking to protect and
preserve the environment. The preamble also specifically mentions the need to assist developing
countries, especially the least developed countries, secure a growing share of international trade.
Structure of the World Trade Organizatio

The World Trade Organization came into force on January 1, 1995, fully replacing the previous
GATT Secretariat as the organization responsible for administering the international trade
regime. The basic structure of the WTO includes the following bodies (see organizational
diagram):

 The Ministerial Conference, which is composed of international trade ministers from all
member countries. This is the governing body of the WTO, responsible for setting the
 strategic direction of the organization and making all final decisions on agreements under
its wings. The Ministerial Conference meets at least once every two years. Although
voting can take place, decisions are generally taken by consensus, a process that can at
times be difficult, particularly in a body composed of 136 very different members.

 The General Council, composed of senior representatives (usually ambassador level) of

all members. It is responsible for overseeing the day-to-day business and management of
the WTO, and is based at the WTO headquarters in Geneva. In practice, this is the key
decision-making arm of the WTO for most issues. Several of the bodies described below
report directly to the General Council.

 The Trade Policy Review Body is also composed of all the WTO members, and oversees
the Trade Policy Review Mechanism, a product of the Uruguay Round. It periodically
reviews the trade policies and practices of all member states. These reviews are intended
to provide a general indication of how states are implementing their obligations, and to
contribute to improved adherence by the WTO parties to their obligations.

 The Dispute Settlement Body is also composed of all the WTO members. It oversees the
implementation and effectiveness of the dispute resolution process for all WTO
agreements, and the implementation of the decisions on WTO disputes. Disputes are
heard and ruled on by dispute resolution panels chosen individually for each case, and the
permanent Appellate Body that was established in 1994. Dispute resolution is mandatory
and binding on all members. A final decision of the Appellate Body can only be reversed
by a full consensus of the Dispute Settlement Body.

 The Councils on Trade in Goods and Trade in Services operate under the mandate of
the General Council and are composed of all members. They provide a mechanism to
oversee the details of the general and specific agreements on trade in goods (such as
those on textiles and agriculture) and trade in services. There is also a Council for the
Agreement on Trade-Related Aspects of Intellectual Property Rights, dealing with just
that agreement and subject area.

 The Secretariat and Director General of the WTO reside in Geneva, in the old home of
GATT. The Secretariat now numbers just under 550 people, and undertakes the
administrative functions of running all aspects of the organization. The Secretariat has no
 legal decision-making powers but provides vital services, and often advice, to those who
do. The Secretariat is headed by the Director General, who is elected by the members.

 The Committee on Trade and Development and Committee on Trade and Environment
are two of the several committees continued or established under the Marrakech
Agreement in 1994. They have specific mandates to focus on these relationships, which
are especially relevant to how the WTO deals with sustainable development issues. The
Committee on Trade and Development was established in 1965. The forerunner to the
Committee on Trade and Environment (the Group on Environmental Measures and
International Trade) was established in 1971, but did not meet until 1992. Both
Committees are now active as discussion grounds but do not actually negotiate trade rules
Dispute Settlement Body
The DSB is, in effect, a session of the General Council of the WTO: that is, all of the
representatives of the WTO member governments, usually at ambassadorial level, meeting
together. It decides the outcome of a trade dispute on the recommendation of a Dispute Panel and
(possibly) on a report from the Appellate Body of WTO, which may have amended the Panel
recommendation if a party chose to appeal. Only the DSB can make these decisions: Panels and
the Appellate Body are limited to making recommendations.

The DSB uses a special decision procedure known as 'reverse consensus' or 'consensus against'
that makes it almost certain that the Panel recommendations in a dispute will be accepted. The
process requires that the recommendations of the Panel (as amended by the Appellate Body)
should be adopted "unless" there is a consensus of the members against adoption. This has never
happened, and because the nation 'winning' under the Panel's ruling would have to join this
reverse consensus, it is difficult to conceive of how it ever could.

Once it has decided on the case, i.e., whether the complaint had been shown to be right or wrong,
the DSB may direct the 'losing' Member to take action to bring its laws, regulations or policies
into conformity with the WTO Agreements. This is the only direction that emerges from a WTO
dispute. There is no concept of "punishment" or even restitution. The DSB will give the losing
party a "reasonable period of time" in which to restore the conformity of its laws etc.

If the losing party fails to restore the conformity of its laws within the "reasonable period of
time", the DSB may—on an exceptional basis—authorise a successful complainant to take
retaliatory measures to induce action on the part of the losing party. This is very rare. Almost all
WTO members "voluntarily" implement DSB decisions in time. Of course, when a losing
country brings its laws etc. into conformity it may choose how to do so; indeed, it may not
necessarily make the changes that the winning party would prefer.