WORLD TRADE ORGANIZATION

TO, BY,
SIR, AKBAR SIDDHARTH
 ABSTRACT

The World Trade Organization (WTO) has three main functions—first,

negotiations on trade matters; second, oversight of existing WTO agreements; and
third, dispute settlement. The WTO's negotiation function has broken down and its
oversight function, while useful and valuable, is the least visible and least
significant of the three functions. Thus, the credibility of the WTO as a functioning
international organization essentially depends on ensuring the effectiveness of its
dispute settlement function. This paper briefly traces the historical evolution of the
dispute settlement system under the General Agreement on Tariffs and Trade
(GATT) and then considers the current state of the WTO dispute settlement system
—how effectively has it operated to date and what operational and procedural
problems have arisen.
INTRODUCTION

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 business.

There are a number of ways of looking at the World Trade Organization. It is an

organization for trade opening. It is a forum for governments to negotiate trade
agreements. It is a place for them to settle trade disputes. It operates a system of
trade rules. Essentially, the WTO is a place where member governments try to sort
out the trade problems they face with each other.

The WTO agreements are lengthy and complex because they are legal texts
covering a wide range of activities. But a number of simple, fundamental
principles run throughout all of these documents. These principles are the
foundation of the multilateral trading system.

History Of The Multilateral Trading System

From the early days of the Silk Road to the creation of the General Agreement on
Tariffs and Trade (GATT) and the birth of the WTO, trade has played an important
role in supporting economic development and promoting peaceful relations among
nations.
The Early Days Of Trade
Trade and foreign policy have been intertwined throughout history, with foreign
policy often tailored to promote trade interests.  In the 3rd century BC, during the
Han Dynasty, China used its military power to maintain the Silk Road for its value
for trade.  In the year 30 BC, Rome conquered Egypt in large part to have a better
supply of grain.

The GATT Years

From 1948 to 1994, the GATT provided the rules for much of world trade and
presided over periods that saw some of the highest growth rates in international
commerce. It seemed well-established but throughout those 47 years, it was a
provisional agreement and organization.

Birth Of The WTO

The WTO’s creation on 1 January 1995 marked the biggest reform of international
trade since the end of the Second World War. Whereas the GATT mainly dealt
with trade in goods, the WTO and its agreements also cover trade in services and
intellectual property. The birth of the WTO also created new procedures for the
settlement of disputes.
SALIENT FEATURES OF THE WTO

Some of the most important salient features of world trade organisation are as
follows: (a) Non-Discrimination (b) Free Trade (c) Stability in the Trading System
(d) Promotion of Fair Competition (e) Special Concern for Developing Countries
(f) Market Access Commitment (g) Decision at the Ministerial Level Meeting (h)
Wider Range of Issues

(a) Non-Discrimination:

This is the most important principle on which WTO has been founded. The
principle of non-discrimination means two things. (1) All trading partners will be
granted the most favoured nation (MFN) status, that is, each member state of WTO
will treat every other member state equally as the most favoured nation doing
trade.

No discrimination will be done by a member of state between different trading

states who are also members of WTO. However, some exceptions have been
provided in this regard, for example, in case regional trade agreements exist. (1)
Foreign goods, services, trademarks, patents and copyrights shall be given the
same treatment as is given to nationals of a country.

(b) Free Trade:

The objective of WTO, as in case of GATT, is to promote free trade among nations
through negotiations. For this purpose WTO has to work for progressive
liberalisation of trade through reduction in tariffs and removal of quantitative
restrictions on imports by member countries.

(c) Stability in the Trading System:

Under WTO agreements member states are committed not to raise tariff and non-
tariff trade barriers arbitrarily. This provides stability and predictability to the
trading system.

(d) Promotion of Fair Competition:

WTO system of multilateral trading system provides for transparent, fair and
undistorted competition among the various countries. Rules such as Most Favoured
Nation (MFN) treatment to all trading parties, equal treatment to foreign goods,
patents and copyrights as with nationals ensure fair competition among trading
countries. Besides, WTO agreement provides for discouraging unfair competitive
practices such as export subsidies and dumping (that is, selling products abroad
below domestic prices to gain market access).

(e) Special Concern for Developing Countries:

WTO has shown special concern for the developing countries as it has given them
more time to adjust to agreements under it and also some special privileges. An
important feature of WTO is that it would deal with not only the disputes in the
area of trade in goods but a whole range of issues such services and intellectual
property rights.

(f) Market Access Commitment:

WTO agreements which seek to establish multilateral trading system require the
member countries to undertake market access commitment on reciprocity basis. In
fact, market access is ensured by abolishing non-tariff barriers as well as by
reducing tariffs.

The understanding on market access requires that member countries will cut tariffs
on industrial goods and agricultural products by about 37 per cent. In order to
provide market access for the products of developing countries to the USA, USA
agreed to cut down farm subsidies. The developing countries are also required to
reduce agricultural subsidies to the level of 10 per cent of the value of agricultural
produce.

In the area of trade in services, market access has been ensured by giving Foreign
Service suppliers the same treatment as domestic service suppliers.

(g) Decision at the Ministerial Level Meeting:

Another feature of WTO agreement is that it has upgraded decision-making at the

ministerial level. Important decisions regarding trade related matters are to be
taken at the Ministerial level meetings. Ministerial level meetings have now been
incorporated in the legal structure of WTO.

(h) Wider Range of Issues:

Another important feature of WTO is that it will deal with not only issues and
disputes relating to trade in goods but also the whole range of issues concerning
trade in services and intellectual property rights.

Structure of the WTO:

The Ministerial Conference (MC) is at the top of the structural organization 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.
The administration of the WTO is conducted by the Secretariat which is headed by
the Director General (DG) appointed by the MC for the tenure of four years. He is
assisted by the four Deputy Directors from different member countries. The annual
budget estimates and financial statement of the WTO are presented by the DG to
the CBFA for review and recommendations for the final approval by the GC.

Objectives of the WTO:

The purposes and objectives of the WTO are spelled out in the preamble to the
Marrakesh Agreement.

In a nutshell, these are:

1. To ensure the reduction of tariffs and other barriers to trade.

2. To eliminate discriminatory treatment in international trade relations.

3. To facilitate higher standards of living, full employment, a growing volume of

real income and effective demand, and an increase in production and trade in
goods and services of the member nations.

4. To make positive effect, which ensures developing countries, especially the least
developed secure a level of share in the growth of international trade that reflects
the needs of their economic development.
5. To facilitate the optimal use of the world’s resources for sustainable
development.

6. To promote an integrated, more viable and durable trading system incorporating

all the resolutions of the Uruguay Round’s multilateral trade negotiations.

Above all, to ensure that linkages trade policies, environmental policies with
sustainable growth and development are taken care of by the member countries in
evolving a new economic order.

Functions of the WTO:

The WTO consisting a multi-faced normative framework: comprising institutional

substantive and implementation aspects.

The major functions of the WTO are as follows:

1. To lay-down a substantive code of conduct aiming at reducing trade barriers

including tariffs and eliminating discrimination in international trade relations.

2. To provide the institutional framework for the administration of the substantive

code which encompasses a spectrum of norms governing the conduct of member
countries in the arena of global trade.

3. To provide an integrated structure of the administration, thus, to facilitate the

implementation, administration and fulfillment of the objectives of the WTO
Agreement and other Multilateral Trade Agreements.

4. To ensure the implementation of the substantive code.

5. To act as a forum for the negotiation of further trade liberalization.

6. To cooperate with the IMF and WB and its associates for establishing a
coherence in trade policy-making.

7. To settle the trade-related disputes.

Role of World Trade Organization (WTO):

The World Trade Organization (WTO) is playing an important role for

administering the new global trade rules in the following manner:
Firstly, the WTO administers, through various councils and committees, the 28
agreements contained in the final act of the Uruguay Round, plus a number of
plurilateral agreements, including one government procurement.

Secondly, the WTO also oversees the implementation of the significant tariff cuts
(averaging 40 per cent) and reduction of non-tariff measures agreed to in the trade
negotiations.

Thirdly, the WTO is a watchdog of international trade, regularly examining the

trade regimes of individual members. In its various bodies, member’s flag
proposed or draft, measures by others that can trade conflicts. Members are also
required to notify in detail various trade measures and statistics, which are
maintained by the WTO in a large data base.

Fourthly, the WTO provides several conciliation mechanisms for finding an

amicable solution to trade conflicts that can arise among members.
Fifthly, trade disputes that cannot be solved through bilateral talks are adjudicated
under the WTO Dispute Settlement Court. Panels of independent expert are
established to examine disputes in the light of WTO rules and provide rulings. This
tougher streamlined procedure ensures equal treatment for all trading partners and
encourages members to live up to their obligations.

Sixth, the WTO is a management consultant for world trade. Its economists keep a
close watch on the pulse of the global economy and provide studies on the main
trade issues of the day. The Secretariat assists developing countries in the
implementation of Uruguay Round results through a newly established
Development Division and strengthened technical co-operation and training
division.

Finally, the WTO will be a forum where countries continuously negotiate

exchange of trade barriers all over the world. And the WTO already has a
substantial agenda for further negotiations in many areas.

Accession And Membership

The process of becoming a WTO member is unique to each applicant country, and
the terms of accession are dependent upon the country's stage of economic
development and current trade regime. The process takes about five years, on
average, but it can last longer if the country is less than fully committed to the
process or if political issues interfere. The shortest accession negotiation was that
of the Kyrgyz Republic, while the longest was that of Russia, which, having first
applied to join GATT in 1993, was approved for membership in December 2011
and became a WTO member on 22 August 2012. Kazakhstan also had a long
accession negotiation process. The Working Party on the Accession
of Kazakhstan was established in 1996 and was approved for membership in
2015. The second longest was that of Vanuatu, whose Working Party on the
Accession of Vanuatu was established on 11 July 1995. After a final meeting of the
Working Party in October 2001, Vanuatu requested more time to consider its
accession terms. In 2008, it indicated its interest to resume and conclude its WTO
accession. The Working Party on the Accession of Vanuatu was reconvened
informally on 4 April 2011 to discuss Vanuatu's future WTO membership. The re-
convened Working Party completed its mandate on 2 May 2011. The General
Council formally approved the Accession Package of Vanuatu on 26 October
2011. On 24 August 2012, the WTO welcomed Vanuatu as its 157th member. An
offer of accession is only given once consensus is reached among interested
parties.

A 2017 study argues that "political ties rather than issue-area functional gains
determine who joins" and shows "how geopolitical alignment shapes the demand
and supply sides of membership". The "findings challenge the view that states first
liberalize trade to join the GATT/WTO. Instead, democracy and foreign policy
similarity encourage states to join."

Accession Process.

A country wishing to accede to the WTO submits an application to the General

Council, and has to describe all aspects of its trade and economic policies that have
a bearing on WTO agreements. The application is submitted to the WTO in
a memorandum which is examined by a working party open to all interested WTO
Members.
After all necessary background information has been acquired, the working party
focuses on issues of discrepancy between the WTO rules and the applicant's
international and domestic trade policies and laws. The working party determines
the terms and conditions of entry into the WTO for the applicant nation, and may
consider transitional periods to allow countries some leeway in complying with the
WTO rules.

The final phase of accession involves bilateral negotiations between the applicant
nation and other working party members regarding the concessions and
commitments on tariff levels and market access for goods and services. The new
member's commitments are to apply equally to all WTO members under normal
non-discrimination rules, even though they are negotiated bilaterally. For instance,
as a result of joining the WTO, Armenia offered a 15 per cent ceiling bound tariff
rate on accessing its market for goods. Together with the tariff bindings being ad
valorem there are no specific or compound rates. Moreover, there are no tariff-rate
quotas on both industrial and agricultural products. Armenia's economic and trade
performance growth was noted since its first review in 2010, especially its revival
from the 2008 global financial crisis, with an average annual 4% GDP growth rate,
despite of some fluctuations. Armenia's economy was marked by low inflation,
diminishing poverty and essential progress in enhancing its macroeconomic
steadiness in which trade in goods and services, which is the equivalent of 87% of
GDP, played a growing role.

When the bilateral talks conclude, the working party sends to the general council
or ministerial conference an accession package, which includes a summary of all
the working party meetings, the Protocol of Accession (a draft membership treaty),
and lists ("schedules") of the member-to-be's commitments. Once the general
council or ministerial conference approves of the terms of accession, the
applicant's parliament must ratify the Protocol of Accession before it can become a
member Some countries may have faced tougher and a much longer accession
process due to challenges during negotiations with other WTO members, such as
Vietnam, whose negotiations took more than 11 years before it became official
member in January 2007.

Members and Observers

The WTO has 164 members and 24 observer governments. Liberia became the
163rd member on 14 July 2016, and Afghanistan became the 164th member on 29
July 2016. In addition to states, the European Union, and each EU country in its
own right, is a member. WTO members do not have to be fully independent states;
they need only be a customs territory with full autonomy in the conduct of their
external commercial relations. Thus Hong Kong has been a member since 1995 (as
"Hong Kong, China" since 1997) predating the People's Republic of China, which
joined in 2001 after 15 years of negotiations. Taiwan acceded to the WTO in 2002
as the "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu." The
WTO Secretariat omits the official titles (such as Counsellor, First Secretary,
Second Secretary and Third Secretary) of the members of Taiwan's Permanent
Mission to the WTO, except for the titles of the Permanent Representative and the
Deputy Permanent Representative.

As of 2007, WTO member states represented 96.4% of global trade and 96.7% of
global GDP.Iran, followed by Algeria, are the economies with the largest GDP and
trade outside the WTO, using 2005 data. With the exception of the Holy See,
observers must start accession negotiations within five years of becoming
observers. A number of international intergovernmental organizations have also
been granted observer status to WTO bodies. 12 UN member states have no
official affiliation with the WTO.

Agreement

The WTO oversees about 60 different agreements which have the status of
international legal texts. Member countries must sign and ratify all WTO
agreements on accession. A discussion of some of the most important agreements
follows.

The Agreement on Agriculture came into effect with the establishment of the WTO

at the beginning of 1995. The AOA has three central concepts, or "pillars":
domestic support, market access and export subsidies.

The General Agreement on Trade in Services was created to extend the multilateral

trading system to service sector, in the same way as the General Agreement on
Tariffs and Trade (GATT) provided such a system for merchandise trade. The
agreement entered into force in January 1995.

The Agreement on Trade-Related Aspects of Intellectual Property Rights sets

down minimum standards for many forms of intellectual property (IP) regulation.
It was negotiated at the end of the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT) in 1994.

The Agreement on the Application of Sanitary and Phytosanitary Measures—also

known as the SPS Agreement—was negotiated during the Uruguay Round of
GATT, and entered into force with the establishment of the WTO at the beginning
of 1995. Under the SPS agreement, the WTO sets constraints on members' policies
relating to food safety (bacterial contaminants, pesticides, inspection and labelling)
as well as animal and plant health (imported pests and diseases).
The Agreement on Technical Barriers to Trade is an international treaty of the
World Trade Organization. It was negotiated during the Uruguay Round of
the General Agreement on Tariffs and Trade, and entered into force with the
establishment of the WTO at the end of 1994. The object ensures that technical
negotiations and standards, as well as testing and certification procedures, do not
create unnecessary obstacles to trade".

The Agreement on Customs Valuation, formally known as the Agreement on

Implementation of Article VII of GATT, prescribes methods of customs valuation
that Members are to follow. Chiefly, it adopts the "transaction value" approach.

In December 2013, the biggest agreement within the WTO was signed and known
as the Bali Package.

Office Of The Director General

The procedures for the appointment of the WTO director-general were updated in
January 2003,and include quadrennial terms. Additionally, there are four deputy
directors-general. As of 13 June 2018 under director-general Roberto Azevêdo, the
four deputy directors-general are:

 Yi Xiaozhun of China (since 1 October 2017),

 Karl Brauner of Germany (since 1 October 2013),
 Yonov Frederick Agah of Nigeria (since 1 October 2013) and
 Alan W. Wolff of the United States (since 1 October 2017)
Budget

The WTO derives most of the income for its annual budget from contributions by
its Members. These are established according to a formula based on their share of
international trade.

Criticism

Although tariffs and other trade barriers have been significantly reduced thanks to
GATT and WTO, the promise that free trade will accelerate economic growth,
reduce poverty, and increase people's incomes has been questioned by many
critics. Some prominent skeptics cite the example of El Salvador. In the early
1990s, they removed all quantitative barriers to imports and also cut tariffs.
However, the country's economic growth remained weak. On the other
hand, Vietnam which only began reforming its economy in the late 1980s, saw a
great deal of success by deciding to follow the China's economic model and
liberalizing slowly along with implementing safeguards for domestic commerce.
Vietnam has largely succeeded in accelerating economic growth and reducing
poverty without immediately removing substantial trade barriers.

Critics also put forward the view that the benefits derived from WTO facilitated
free trade are not shared equally. This criticism is usually supported by historical
accounts of the outcomes of negotiations and/or data showing that the gap between
the rich and the poor continues to widen, especially in China and India, where
economic inequality is growing even though economic growth is very high. In
addition, WTO approaches aiming to reduce trade barriers can harm developing
countries. Trade liberalization that is too early without any prominent domestic
barriers is feared to trap the developing economies in the primary sector, which
often does not require skilled labor. And when these developing countries decide to
advance their economy by means of industrialization, the premature domestic
industry cannot immediately skyrocket as expected, making it difficult to compete
with other countries whose industries are more advanced.