ORIGIN AND DEVELOPMENT OF

WORLD TRADE ORGANISATION

(WTO)
By: Dr. Piyush Chaubey

The Uruguay round of GATT led to the formation of World TradeOrganisation (WTO) in 1995 with series of new
agreements on world trade byreplacing GATT.GATT ended in 1994 with Marrakesh declaration signed by India
and other member countries of GATT with the formation of WTO with the aim to make the world trade more
liberalized.
WTO looks after the rules and regulations of trade of goods and services between the member countries;
international laws and agreements on tariff and trade; intellectual property rights; investment measures ; dispute
settlement; trade policy review; agreements on agriculture, agreements on textiles and clothing; anti-dumping;
agreement on sanitary and Phyto sanitary measures; subsidies and countervailingmeasures; agreements on
safeguards; etc.

Domain of GATT
GATT was initially concentrated on bilateral trade agreements. The GATT traderounds till 1960-61 dealt with
reduction of tariffs. The Kennedy round introduced Anti-Dumping Agreement. The Tokyo Round introduced non-
tariff barriers. The Uruguay Round introduced trades in services; intellectual property rights; investment measures;
dispute settlement; trades in agriculture, textiles; creation of WTO etc.

Objectives of GATT
The major objectives of GATT are:
 equating international trade with economic growth and development
 increasing the demand of goods
 increasing the real income
 improving the standard of living
 effective usage of resources worldwide
 expansion of production of goods and their international trading
 progressive economic development

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 encouraging multilateralism by discouraging bilateralism to expand the world trade.

 promoting world trade by means of solidariting co-operative attitudes among member nations.
As over the years, GATT trade rounds on negotiations have reduced tariffs on trade for manufacturing goods, the
main objective of GATT for the reduction of trade barriers (such as tariffs) to facilitate the liberalised trade among
the member countries, was fulfilled.

Summary of GATT Negotiations

Name Start Duration Countries Subjectscovered Achievements
Geneva, January 1956 5 months 26 Tariffs, admission $2.5 billion in tariff
Switzerland of Japan reductions

Geneva (Dillon Sept 1960 11months 26 Tariffs Tariff concessions worth

Round) (1960- 61) $4.9
billion of world trade.
Geneva (Kennedy May 1964 37Months 62 Tariffs, Tariff concessions worth
Round) (1964-67) Antidumping $40
billion of world trade.
Geneva (Tokyo Sept.1973 74 months 102 Tariffs, non-tariff Tariff reductions worth
Round) (1973- 79) measures, $300
“framework” billion dollars achieved.
agreements
Geneva (Uruguay Sept.1986 87 Months 123 Tariffs, non-tariff The round led to the
Round) (1986- 94) measures, rules, creation of

services intellectual WTO, and extended the

property, dispute range of

settlement, textiles, trade negotiations,

agriculture, creation leading to
of WTO major reductions in
etc. tariffs (about
40%) and agricultural
subsidies, an
agreement to allow full
access for
textiles and clothings
from
developing countries,
and an
extension of intellectual
property
rights

Role of India in GATT

India is one among the 23 founding parties in the GATT and India is the spokesman of the developing countries
in GATT.India was the leader of the less developed countries in the multilateral trade negotiations (MTN) under
the GATT.India was reluctant to endorse the new MTN round in the WTO held at Doha in Qatar in November,
2001 since India was not satisfied with the agreement in the eighth Uruguay round due to the fact that
India’s developmental strategies were inward-oriented before 1991 economic reforms.

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India and Brazil with other developing nations objected in the GATT summit 1982that the industrialised developed
countries were not obliging the textile trade andagricultural trade and demanded to eliminate the inconsistencies
of GATT measures.However, India along with Brazil &European Commission/Community reduced theiropposition
& agreed to begin the new round in 1985.
The Ministerial Uruguay summit in September 1986 witnessed the formation of G-10 (10 developing nations
group) led by India and Brazil.In the G10 texts India along with Brazil and other developing nations objected
the inclusion of three new issues like services, investment, intellectual property right since demanded by
USA.
Later, India and USA reached to an agreement to undertake the services negotiation separately.The consultation
committee formed under the GATT, settled the disputes on intellectual property rights relating to trade
(TRIPS), investment, agriculture as a result of which 14 amendments of G-40 text (the amendments of G-40
text were protested by the industrialised developed nations) were withdrawn for facilitating trade liberalization
and to improve international monetary system.

Difference between GATT and WTO

Basic distinctions between GATT and WTO

GATT WTO
GATT is adhoc and provisional WTO and its agreements are permanent
GATT had contracting parties WTO has members
GATT allow existing domestic legislation to continue WTO does not permit this
even if GATT agreement is violated
GATT is less powerful, dispute settlement mechanism WTO is more powerful than GATT, dispute settlement
is slow and less efficient, its ruling can easily be mechanism is faster and more efficient, very difficult to
blocked block the rulings.

Objectives, Functions and Purposes of WTO

The major objectives of WTO is to ensure flow of trade smoothly, fairly, freely,predictably among member
countries. The main contention of WTO lies in achieving (a) free economic expansion throughcontinued efforts, (b)
strengthening rule-based global trading system, by reckoningnew economic realities in the process of globalization
to ensure sustain development.

Structure of WTO
 The Ministerial Conference (MC) is at the top of the structural organisation of the WTO. It is the supreme
governing body which takes ultimate decisions on all matters. It is constituted by representatives of (usually,
Ministers of Trade) all the member countries.
 The General Council (GC) is composed of the representatives of all the members. It is the real engine of the
WTO which acts on behalf of the MC. It also acts as the Dispute Settlement Body as well as the Trade Policy
Review Body.
 There are three councils, viz.: the Council for Trade in Services and the Council for Trade-Related Aspects
of Intellectual Property Rights (TRIPS) operating under the GC. These councils with their subsidiary bodies
carry out their specific responsibilities
 Further, there are three committees, viz., the Committee on Trade and Development (CTD), the Committee
on Balance of Payments Restrictions (CBOPR), and the Committee on Budget, Finance and Administration
(CF A) which execute the functions assigned to them by e WTO Agreement and the GC.

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Role of India in WTO: Brief Background

 During the Seattle conference, India stressed the importance of deriving useful solutions for the
implementation issues voiced by the developing countries without linking to future negotiations
on multilateral trade, as a result of which decision was taken to hold special sessions by WTO’s General
Council.
 In agriculture, India mentioned that the developing countries with agrarian economies must maintain
flexibility for domestic support, market access commitments with regard to tariff rates, export subsidies
due to their concerns on rural employment, food security.
 Indian agriculture being non-commercial in nature must not be subjected to WTO rules which are mainly for
commercial protection and commercial trading.
 India has stressed that the tariff rates are to be made more transparent, non-discriminatory for gaining
market access by the new &small-scale exporters of the developing countries.
 In anti-dumping, India has stressed upon to avoid anti-dumping (back-to-back) investigations.
 India has highlighted the need to make the integration process of textile & clothing commercially viable
while pleading for avoiding anti-dumping actions under quota restrictions.
 India drawn the attention in the WTO in the areas of Sanitary & Phytosanitary measures for setting
international standard organizations by ensuring active participation of all countries in setting standards.
 India proposed (in the TRIPS Agreement) that the patent system is to be aligned with the provisions of
Bio-Diversity as laid down in UN Convention.
 India pointed out that the large subsidiesprovided in the agriculture sector by the developed countries are
creating distortion ininternational trade of agricultural products.

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 India stressed the need for increased and active participation by the developing countries in the trade of
services for augmenting progressive liberalization in conformity with Article XIX of Services Agreement.
 India pointed out that multilateral investment agreement (which is binding type) will eat away the
options of strategic policy that are available to the developing nations (including India) to pursue their
developmental industrialization objectives.
 India mentioned that the Trade Related Investment Measures (TRIMS) agreement is having adverse
impact in the process of industrialisation in the developing countries
 India is not in the favour of linking trade with core labour standards, since its linkingto trade and WTO
would result in a position where core labour standards will beutilized for protectionist purposes. India is
in favour that core labour standards issues are to be tackled under the ambit of the International
Labour Organisation (ILO) only.
 India pleaded for transferring of environment technology to developing nations in fair manner,
since the developing countries has limited resources which restrict the adoption of environment friendly
technology of large scale in nature.
 India took the lead in the formation of alliances or groups in the name G13, G21, G22 of the developing
countries for negotiating with the developed countries and in particular with the US-EU alliance for
agriculture issue.
 India adopted Trade Related Intellectual Property Rights (TRIPS) based on the rulings of the Dispute
Settlement Mechanism (DSM) of the WTO since a complaint was filed by USA, although many nations
including India were not in favour to bring intellectual property rights under WTO through TRIPS
agreement, as there already exists specialized agencies like World Intellectual Property Organization
(WIPO).
 Due to the absence of enthusiasm in the Uruguay Round Agreement (URA) Indiawas not in favour to start
Multilateral Trade Negotiations (MTN) in the WTO.The absence of enthusiasm resulted since URA was
unbalanced as several developing nations had to make several costly commitments vis-a-vis URA
including TRIPS and TRIMS agreements did not benefit the developing nations at all both in short run and
in long run besides the implementation issues raised by India.
 Main stand of India in WTO Doha summit is that the implementation issues are to be addressed first
followed by the decision on negotiations in the next New Round, which was agreed by WTO by including
the un-addressed issues relating to developing countries in the New Round.

What are the recent cases against India?

 In 2018, US filed a complaint against India alleging that India has paid out far more in cotton
subsidies than the WTO rules permit.
 On November 7 2018, India lost a trade dispute at the WTO after a settlement panel upheld Japan’s
complaint on the imposition of safeguard duty on imports of hot-rolled steel flat products during
September 2015 and March 2018.
 In May 2018, the US submitted a communication under provisions of the WTO Agreement on Agriculture
(AoA) on certain measures of India providing Market Price Support (MPS) to wheat and rice for
the years 2010-11 to 2013-14. Here, US stated that India has “under-reported” its domestic support
provided for wheat and rice and violated its commitments under the WTO Agreement on Agriculture.
 In 2016, the dispute settlement panel had ruled in favour of a US complaint against the requirement
that power producers under the Jawaharlal Nehru National Solar Mission compulsorily procure a
part of solar panels and modules for their projects from domestic producers.

What is India’s Stand?

 In 2018, the government of India had approved a Rs 5,538-crore package for the sugar industry.
 India has maintained its stand that the country’s sugar exports comply with WTO rules. India does not
extend a subsidy to its farmers for exports, but instead gives a production subsidy.

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 On the issue of MPS being violative of WTO norms, India has dismissed these allegations and has
demanded that MPS should be calculated by using the recent reference period instead of 1986/88
prices, which was factored in at the time of the creation of the WTO.

Book Review
The book namedWTO and INDIA: Issues and Negotiation strategies edited by Alokesh Barua and Robert
M.Stern, provides the developing countries’ perspective, negotiating options and strategies, market access, trade
facilitation and government procurement, TRIPS and GATS, and growth, poverty and inequality. Manoj Pant
notes that, with the single-undertaking clause allowing cross-sectoral bargaining, the art of negotiations
is something that developing countries have to learn.
Arvind Panagariya argues that, the continued asymmetries in the influence of the rich and poor countries
notwithstanding, the WTO is by far India’s best hope for protecting its trading rights. He says India, while
evolving its negotiating strategies, must take into consideration the direct benefits that flow from the
demands put forward, define its negotiating positions positively rather than negatively, and take a hard look
at the endgame.

Criticism of WTO
In 1995 when the WTO was established world trade as a percentage of GDP was at 44%. In 2013 the figure stood
at 56%. TheWTO could be defined as successful from the perspective of elite Western groups and elites in parts of
the developing world, but this is success that only benefits those who already have great wealth and power.

WTO and its institutional flaws

 The WTO can be seen as a continuation of the GATT rather than a radical disjuncture, and like the GATT the
purpose of the WTO is trade liberalisation. The GATT itself was developed by Western powers with an
explicit, limited aim, which was predominantly to benefit the US and Europe in the aftermath of the
Second World War, an aim that has been ignored in mainstream accounts of the agreement.
 When the GATT was established it was Western powers that had the main input, possessing what have been
called ‘first mover advantages’, a term which refers to the notion of the states which join first finding it
easier it to influence and shape negotiations. (Robert Keohane in Wilkinson. “The Problematic of Trade
and Development beyond the Doha Round)
 Former colonies which joined were subject to a process of ‘grandfathering’ in which they were instructed
what to do by their former colonial masters. (Rorden Wilkinson. “The Problematic of Trade and
Development beyond the Doha Round).
 There were very few trade-related benefits for the developing world in early years due to the limited influence
late-joining developing countries could exert on proceedings.
 The WTO suffers from numerous negative institutional problems inherited from the GATT era that cause
it to be unable to function as a fair or effective multilateral trading system. These, along with ‘discursive
barriers’, ‘preclude any discussion of substantive reform of the multilateral trading system’,which
suggests that the WTO is flawed in both its institutional structure and due to the theoretical discourse,
that supports the WTO.(Rorden Wilkinson. “The Problematic of Trade and Development beyond the
Doha Round.)
 In looking at how decisions are made, there is clearly not an equality of decision-making power in the
WTO, as the ‘trading system is still to a large degree a power-based as opposed to a rules-based system’.
(Tony Heron. “The Ending of the Multifibre Arrangement: A Development Boon for the South?”)
 Whilst there is formally a one-member, one-vote system in the WTO, it has never been used,[10] and as is
the case in most international governance institutions, the interests of the powerful dominate.(Ray Kiely.
The clash of globalisations: neo-liberalism, the third way, and anti-globalisation)
 Weaker statescannot influence the way in which trade agreements are reached, which can be manifest
in several ways, from basic resource issues such as the inability ‘to establish permanent delegations in
Geneva’, (Rorden Wilkinson. “The Problematic of Trade and Development beyond the Doha Round.)

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 It also means exclusion from day-to-day administrative WTO activityto exclusion from the many
“informal” (a euphemism for non-democratic) decision-making sessions that occur within the WTO
through ‘green room deals’ and ‘confessionals’,which are frequently lacking in transparency. (Bhagirath
Lal Das. The WTO and the multilateral trading system: Past, present and future)
 Decision making has often been described as ‘coercive’, theDoha Round in particular being an example
of ‘overt power politics [in which the] rich pressured the poor’. (Morten Boasand Desmond McNeill.
Multilateral institutions: A critical introduction.)
 The Doha Conference, rather than being about development, actually ‘enhanced the asymmetry [of
power] in the WTO’ by focusing on issues that were of benefit to developed countries and limiting the
‘policy space’.
 The very process by which negotiations are conducted act as barriers to effective trade promotion for
the developing world. WTO negotiations – the successive ‘rounds’ – occur as a series of ‘iterated games’in
which developing countries are often forced into accepting ‘new concessions in return for remedial
actions’ on earlier decisions. (Rorden Wilkinson. “The Problematic of Trade and Development beyond
the Doha Round.)
 For example, developing countries accepted the Trade-Related Aspects of Intellectual Property Rights
(TRIPs) agreement in 1996 in exchange for ‘modest’ agricultural liberalisation in the form of access
to Western markets.
 One again the issue is one of material capability as poorer countries often have less ability and skill in
complex trade negotiations, as well as having much more to lose – namely, access to developed countries’
markets. Such problems are compounded by the ‘single undertaking’ a negotiating tool which means all
participants have to comply with everything that is decided, causing power asymmetries to become
perpetual between developing and developed nations. (Rorden Wilkinson. “The Problematic of Trade
and Development beyond the Doha Round.)
 Dispute Settlement Understanding (DSU)is a costly process which ‘results in procedural rules that favour
developed economies.
 A large part of the problem is that the ultimate response in any trade dispute is ‘retaliation’ in the form
of punitive trade measures. However, the economic and political risk is much greater for poorer nations,
as richer nations will be less affected by penalties or sanctions, hence power ultimately always being
with the wealthier nations. (Lal Das. The WTO)

WTO and the lack of International Labour Standards

 There is currently no agreed multilateral ‘social clause’ in international trade, meaning that the WTO
‘[does not] include any protection for labour rights’ [Sandra Polaski, “Protecting labour rights
through trade agreements: An analytical guide.”] or arguably see ‘[any] role for internationally-agreed
labour standards. [Werner Sengenberger, Globalization and Social Progress: the role and impact of
international labour standards.]
 This presents a major obstacle for the development of equitable and progressive trade policy and is indicative
of the WTO’s failure.
 However, part of the problem in failing to implement labour standards has been due – along with the
lack of any substantive Western elite action – to certain powerful developing countries, again including
China and India.
 During Singapore Ministerial conference minimum labour standards were discussed; however, some
developing nations regarded them as ‘non-tariff barriers’ to trade, resulting in the issue being passed
to the International Labour Organisation (ILO). (Stephen Woolcock, “The Singapore issues in Cancun: a
failed negotiation ploy or a litmus test for global governance)
 Shifting responsibility in this way is problematic and will not lead to improved global trade, as the ILO lacks
any real coercive or material power, limited as it is to attempting ‘moral suasion’ and providing ‘technical
assistance’.
 Such a failure by the WTO is unfortunate, as the incorporation of labour rights in international trade could
be the way in which trade could be used to foster development and raise the living standards of workers,
initiating a ‘race to top’vis-à-vis standards as opposed to a race to bottom.

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 Developing countries fear that they would be used by the West as a form of non-tariff barrier. In a sense it
is understandable for developing countries to fear the loss of any potential threat of sovereignty; past
experiences are evidence that Western powers do not act altruistically.
 In its current form it is an illusionthat WTO decisions are consensual; power-politics prevail.

Problem in the theoretical discourse of neoclassical, laissez-faire economics

with its commitment to trade liberalisation.
As its statement of principles declares, the WTO maintains a commitment to the ‘opening of national markets to
international trade’.
Neoclassical theory is manifest in neoliberal economic policy and is predicated on the seemingly a priori
assumption that free markets will allow nations, acting on their various competitive advantages, to achieve
GDP growth. Neo-classical economic orthodoxy at the WTO is built on this assumption, leading to hostility
towards anything that may interrupt the free-functioning of markets.
This ‘implicit belief in the benevolence of free trade’isfundamentally flawed in two major areas which are not
considered in the operations of the WTO, leading to its failure to promote trade that aids development.(Heron.
“The Ending of the Multifibre Arrangement)
 Firstly, and most importantly, the WTO often promotes trade liberalisation exclusively for poor,
developing countries whilst maintaining protectionist policies for rich countries, examples of this being
the Agreement on Agriculture, TRIPs and the Agreement on Trade Related Investment Measures (TRIMS).[
Bello. “The iron cage “]
f TRIPs are problematic with regard to development in that they give ‘exclusive rights’ of use to the
holders – generally Western firms – leading to the likelihood, as often occurs, of exploitative usage.
f For example, holders of intellectual property rights (IPRs) on pharmaceutical products prevent
independent development of generic, low-cost drugs, leading to monopolies rather than fostering
genuinely ‘free’ trade.
f Whilst there are conditions in WTO policies for IPRs to be overruled in cases of anti-competitive
practice or national emergency, such rules are complex and open to interpretation by Western
corporations with substantial legal resource.
f Such a discrepancy between WTO rhetoric and reality have led to India’s former representative to the
GATT stating that IPRs are designed to protect the ‘investments of multinational corporations’in
order to ensure the maintenance of ‘monopoly profits.[Lal Das. The WTO]
f WTO trade policy in area like (IPs) is designed to protect advanced Western sectors, leading to a
dependency trap for poor countries that are forced to buy these foreign products rather than
innovate domestically.
 Secondly, there is overwhelming empirical evidence that trade liberalisation does not lead to sustainable
growth and that developing countries which adopt protectionist trade policies actually develop
quicker than those which liberalise their economies, for example South Koreaand China.[UNCTAD,
World Investment Report, New York: United Nations. 1998]

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