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World Trade Organization (English) Organisation mondiale du commerce (French) Organización Mundial del Comercio (Spanish)
WTO founder members (January 1, 1995) WTO subsequent members Formation Headquarters Membership January 1, 1995 Centre William Rappard, Geneva, Switzerland 153 member states
Official languages English, French, Spanish Director-General Pascal Lamy Budget Staff Website 189 million Swiss francs (approx. 182 million USD) in 2009. 625 www.wto.org
The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).
The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain." The WTO has 153 members, representing more than 97% of total world trade and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland.
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1 History o 1.1 GATT rounds of negotiations 1.1.1 From Genève to Tokyo 1.1.2 Uruguay Round o 1.2 Ministerial conferences o 1.3 Doha Round 2 Functions 3 Principles of the trading system 4 Organizational structure o 4.1 Voting system 5 Dispute settlement 6 Accession and membership o 6.1 Accession process o 6.2 Members and observers 7 Agreements 8 Effectiveness 9 Directors-General 10 See also 11 Notes 12 References 13 External links o 13.1 Official WTO pages o 13.2 Government pages on the WTO o 13.3 Media pages on the WTO
including employment. the World Bank (financial and structural issues). GATT rounds of negotiations . A comparable international institution for trade. and commodity agreements. the GATT would over the years "transform itself" into a de facto international organization. But the ITO treaty was not approved by the U. The WTO's predecessor.o 13. and recommended the establishment of three institutions: the IMF (fiscal and monetary issues).S. investment. In the absence of an international organization for trade. the General Agreement on Tariffs and Trade (GATT). and a few other signatories and never went into effect. restrictive business practices. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade.4 Non-governmental organization pages on the WTO History See also: Timeline of the World Trade Organization and International Trade Organization Harry White (l) and John Maynard Keynes at the Bretton Woods Conference — Both economists had been strong advocates of a liberal international trade environment. and the ITO (international economic cooperation). was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation — notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund. named the International Trade Organization was successfully negotiated.
the eighth . and to improve the system. Luiz Inácio Lula da Silva. and the EU for impeding agricultural imports. responded to the criticisms by arguing that progress would only be achieved if the richest countries (especially the US and countries in the EU) make deeper cuts in their agricultural subsidies. the Kennedy Round in the mid-sixties brought about a GATT anti-dumping Agreement and a section on development. and turned into multilateral commitments accepted by all WTO members. Only four remained plurilateral (those on government procurement. Uruguay Round During the Doha Round. which in some cases interpreted existing GATT rules. and further open their markets for agricultural goods. they were often informally called "codes".). but in 1997 WTO members agreed to terminate the bovine meat and dairy agreements. and in others broke entirely new ground. Several of these codes were amended in the Uruguay Round. spill-over impacts of certain countries' policies on world trade GATT could not manage etc. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take the form of tariffs.  Main article: Uruguay Round Well before GATT's 40th anniversary. From Genève to Tokyo Seven rounds of negotiations occurred under GATT. civil aircraft and dairy products). adopting a series of agreements on non-tariff barriers. the US government blamed Brazil and India for being inflexible. leaving only two. Because these plurilateral agreements were not accepted by the full GATT membership. its members concluded that the GATT system was straining to adapt to a new globalizing world economy. The President of Brazil.See also: General Agreement on Tariffs and Trade The GATT was the only multilateral instrument governing international trade from 1945 until the WTO was established in 1995. Despite attempts in the mid 1950s and 1960s to create some form of institutional mechanism for international trade. the GATT continued to operate for almost half a century as a semi-institutionalized multilateral treaty regime on a provisional basis. bovine meat. In response to the problems identified in the 1982 Ministerial Declaration (structural deficiencies. Then. The first real GATT trade rounds concentrated on further reducing tariffs.
 GATT 1994 is not however the only legally binding agreement included via the Final Act at Marrakesh. annexes. Mexico. the G20 developing nations (led by India. Morocco. decisions and understandings was adopted. The conference also approved the joining of China. An alliance of 22 southern states. resisted demands from the North for agreements . Uruguay. The fifth ministerial conference was held in Cancún. The fourth ministerial conference was held in Doha in the Persian Gulf nation of Qatar. It brings together all members of the WTO. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. The GATT still exists as the WTO's umbrella treaty for trade in goods.GATT round — known as the Uruguay Round — was launched in September 1986. updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994. Washington ended in failure. which led to them being collectively referred to as the "Singapore issues". The inaugural ministerial conference was held in Singapore in 1996. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed during the April 1994 ministerial meeting at Marrakesh. Disagreements between largely developed and developing economies emerged during this conference over four issues initiated by this conference. which usually meets every two years. The third conference in Seattle. the original agreement which is still the heart of GATT 1994). and hence is known as the Marrakesh Agreement. all the original GATT articles were up for review. a long list of about 60 agreements. Brazil. The Doha Development Round was launched at the conference. aiming at forging agreement on the Doha round. and GATT 1947. It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas. notably trade in services and intellectual property. the updated parts of GATT. China. with massive demonstrations and police and National Guard crowd control efforts drawing worldwide attention. all of which are countries or customs unions. in Punta del Este. and to reform trade in the sensitive sectors of agriculture and textiles. which became the 143rd member to join. The second ministerial conference was held in Geneva in Switzerland. ASEAN led by the Philippines). The agreements fall into a structure with six main parts: • • • • • • The Agreement Establishing the WTO Goods and investment — the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures Services — the General Agreement on Trade in Services Intellectual property — the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Dispute settlement (DSU) Reviews of governments' trade policies (TPRM) Ministerial conferences The topmost decision-making body of the WTO is the Ministerial Conference.
underpinned by commitments to strengthen substantial assistance to developing countries. The general theme for discussion was "The WTO. the Multilateral Trading System and the Current Global Economic Environment" Doha Round The Doha Development Round started in 2001 and continues today. and terminate any cotton export subsidies by the end of 2006. Mario Matus acknowledged that the prime purpose was to remedy a breach of protocol requiring two-yearly "regular" meetings. at the fourth ministerial conference in Doha. The talks broke down without progress. In this meeting. the Doha Development Agenda (DDA) or Doha Round.on the so-called "Singapore issues" and called for an end to agricultural subsidies within the EU and the US. which had lapsed with the Doha Round failure in 2005. . Other major issues were left for further negotiation to be completed by the end of 2010. The sixth WTO ministerial conference was held in Hong Kong from 13–18 December 2005. A statement by chairman Amb. tariff free access for goods from the Least Developed Countries. The Doha round was to be an ambitious effort to make globalization more inclusive and help the world's poor. particularly by slashing barriers and subsidies in farming. The WTO launched the current round of negotiations. despite the intense negotiations at several ministerial conferences and at other sessions. on 26 May 2009. The negotiations have been highly contentious and agreement has not been reached. agreed to hold a seventh WTO ministerial conference session in Geneva from 30 November-3 December 2009. following the Everything but Arms initiative of the European Union — but with up to 3% of tariff lines exempted. countries agreed to phase out all their agricultural export subsidies by the end of 2013. but "emphasis will be on transparency and open discussion rather than on small group processes and informal negotiating structures". Qatar in November 2001. Further concessions to developing countries included an agreement to introduce duty free. Disagreements still continue over several key areas including agriculture subsidies. It was considered vital if the four-year-old Doha Development Agenda negotiations were to move forward sufficiently to conclude the round in 2006. and that the "scaled-down" meeting would not be a negotiating session. The initial agenda comprised both further trade liberalization and new rulemaking. The WTO General Council.
security standards et al.g. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule. it is necessary that the . That is. Reciprocity." National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e. Finally. Non-Discrimination. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: 1. the IMF and the World Bank.e. discriminating against imported goods). The WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its annual publications and research reports on specific topics are produced by the organization. least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training. the WTO cooperates closely with the two other components of the Bretton Woods system. but their precise scope and nature differ across these areas. Additionally. "Grant someone a special favour and you have to do the same for all other WTO members. it is concerned with setting the rules of the trade policy games. and intellectual property. i. administration and operation of the covered agreements. Principles of the trading system The WTO establishes a framework for trade policies. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members. it does not define or specify outcomes. A related point is that for a nation to negotiate.[show]GATT and WTO trade roundsv · d · e Functions Among the various functions of the WTO. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. services. 2. It provides a forum for negotiations and for settling disputes. it is the WTO's duty to review and propagate the national trade policies. and a desire to obtain better access to foreign markets. Both are embedded in the main WTO rules on goods. and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making. and the national treatment policy. technical standards. these are regarded by analysts as the most important: • • It oversees the implementation. Another priority of the WTO is the assistance of developing. It has two major components: the most favoured nation (MFN) rule.
but only after negotiating with its trading partners.gain from doing so be greater than the gain available from unilateral liberalization. to respond to requests for information by other members. These schedules establish "ceiling bindings": a country can change its bindings. to maintain institutions allowing for the review of administrative decisions affecting trade. If satisfaction is not obtained. the complaining country may invoke the WTO dispute settlement procedures. Binding and enforceable commitments. reciprocal concessions intend to ensure that such gains will materialise. The body also has several groups relating to textiles. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. The WTO members are required to publish their trade regulations. 5. The body has its own chairman and only 10 members. The WTO system tries also to improve predictability and stability. These internal transparency requirements are supplemented and facilitated by periodic countryspecific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). discouraging the use of quotas and other measures used to set limits on quantities of imports. Council for Trade-Related Aspects of Intellectual Property Rights Information on intellectual property in the WTO. and can create subsidiary bodies as required. news and official records of the activities of the TRIPS Council. regional free trade areas and customs unions. Transparency. All members of the WTO participate in the committees. Exceptions to the MFN principle also allow for preferential treatment of developed countries. . In specific circumstances. Organizational structure The General Council has multiple bodies which oversee committees in different areas. and to notify changes in trade policies to the WTO. It is open to all WTO members. Council for Trade in Services The Council for Trade in Services operates under the guidance of the General Council and is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS). which could mean compensating them for loss of trade. and provisions permitting intervention in trade for economic reasons. The Textiles Monitoring Body is separate from the other committees but still under the jurisdiction of Goods Council. 4. There are three types of provisions in this direction: articles allowing for the use of trade measures to attain noneconomic objectives. and details of the WTO’s work with other international organizations in the field. governments are able to restrict trade. Safety valves. re the following: Council for Trade in Goods There are 11 committees under the jurisdiction of the Goods Council each with a specific task. articles aimed at ensuring "fair competition". 3.
and the tendency for final agreements to use ambiguous language on contentious points that makes future interpretation of treaties difficult. but actual votes have never been taken. There are committees on the following: Trade and Environment.. WTO members have agreed that. Decision making is generally by consensus. These processes have been regularly criticised by many of the WTO's developing country members which are often totally excluded from the negotiations. GATS rules and specific commitments. and as a "unique contribution to the stability of the global economy". if they believe fellow-members are violating trade rules. Dispute settlement Main article: Dispute settlement in the WTO In 1994. The chair is WTO’s director-general. and relative market size is the primary source of bargaining power. Regional Trade Agreements. WTO negotiations proceed not by consensus of all members. the WTO members agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) annexed to the "Final Act" signed in Marrakesh in 1994. domestic regulations. and Trade and technology transfer.S. or "Mini-Ministerials". and may not lead to Pareto improvement. The Service Council has three subsidiary bodies: financial services. but by a process of informal negotiations between small groups of countries. Main disadvantages include large time requirements and many rounds of negotiation to develop a consensus decision. Richard Harold Steinberg (2002) argues that although the WTO's consensus governance model provides law-based initial bargaining.. There are working groups on the following: Trade. The advantage of consensus decision-making is that it encourages efforts to find the most widely acceptable decision. Finance and Administration. they will use the multilateral system of settling disputes instead of taking action unilaterally. and working parties. Balance of Payments Restrictions. In reality. working groups. . debt and finance. The committee is currently tasked with the Doha Development Round. Such negotiations are often called "Green Room" negotiations (after the colour of the WTO Director-General's Office in Geneva). when they occur in other countries. trading rounds close through power-based bargaining favouring Europe and the U.Trade Negotiations Committee The Trade Negotiations Committee (TNC) is the committee that deals with the current trade talks round. Voting system The WTO operates on a one country. one vote system. The General council has several different committees. Dispute settlement is regarded by the WTO as the central pillar of the multilateral trading system. and Budget. Trade and Development (Subcommittee on LeastDeveloped Countries). There are working parties on the following: Accession.
and has to describe all aspects of its trade and economic policies that have a bearing on WTO agreements. Bodies involved in the dispute settlement process. independent experts and several specialized institutions. As is typical of WTO procedures. The working party determines the terms and conditions . but it can last more if the country is less than fully committed to the process or if political issues interfere. negotiations to start later or no Memorandum on FTR submitted frozen procedures or no negotiations in the last 3 years no official interaction with the WTO A country wishing to accede to the WTO submits an application to the General Council. the WTO Secretariat. The process takes about five years. and the terms of accession are dependent upon the country's stage of economic development and current trade regime. Accession process Status of WTO negotiations: members (including dual-representation with the European Union) Draft Working Party Report or Factual Summary adopted Goods and/or Services offers submitted Memorandum on Foreign Trade Regime submitted observer. World Trade Organization. Several commentators have pointed out the practical difficulty in establishing legal elements required to bring trade remedy claim under WTO law. The application is submitted to the WTO in a memorandum which is examined by a working party open to all interested WTO Members. the working party focuses on issues of discrepancy between the WTO rules and the applicant's international and domestic trade policies and laws. Accession and membership Main article: WTO accession and membership The process of becoming a WTO member is unique to each applicant country. on average. an offer of accession is only given once consensus is reached among interested parties. the Appellate Body. arbitrators.The operation of the WTO dispute settlement process involves the DSB panels. After all necessary background information has been acquired.
and the Republic of China (ROC) (commonly known as Taiwan. When the bilateral talks conclude. Iran. which includes a summary of all the working party meetings. As observers. The 27 states of the European Union are represented also as the European Communities. The new member's commitments are to apply equally to all WTO members under normal non-discrimination rules. Thus Hong Kong (as "Hong Kong. observers must start accession negotiations within five years of becoming observers. Member countries must sign and ratify all WTO agreements on accession. 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. Iraq and Russia are not yet members. Agreements Main article: Uruguay Round The WTO oversees about 60 different agreements which have the status of international legal texts. WTO members do not have to be full sovereign nation-members. the working party sends to the general council or ministerial conference an accession package. Penghu. and the rest had to get membership). even though they are negotiated bilaterally. With the exception of the Holy See. and may consider transitional periods to allow countries some leeway in complying with the WTO rules. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. . China" since 1997) became a GATT contracting party. Once the general council or ministerial conference approves of the terms of accession. 14 states and 2 territories so far have no official interaction with the WTO. Members and observers The WTO has 153 members (almost all of the 123 nations participating in the Uruguay Round signed on at its foundation. A discussion of some of the most important agreements follows.of entry into the WTO for the applicant nation. and lists ("schedules") of the member-to-be's commitments. Iran would be the biggest economy outside the WTO. the Protocol of Accession (a draft membership treaty). whose sovereignty has been disputed by the People's Republic of China or PRC) acceded to the WTO in 2002 under the name of "Separate Customs Territory of Taiwan. the applicant's parliament must ratify the Protocol of Accession before it can become a member. Instead. Russia is the biggest economy outside WTO and after the completion of Russia's accession. they must be a customs territory with full autonomy in the conduct of their external commercial relations. Some international intergovernmental organizations are also granted observer status to WTO bodies. A number of non-members (30) are observers at WTO proceedings and are currently negotiating their membership. Kinmen and Matsu" (Chinese Taipei).
and entered into force with the establishment of the WTO at the end of 1994. inspection and labelling) as well as animal and plant health (imported pests and diseases). or "pillars": domestic support. as well as testing and certification procedures. do not create unnecessary obstacles to trade". it adopts the "transaction value" approach. At its heart are the WTO agreements. negotiated and signed by the bulk of the world’s trading . The Agreement on the Application of Sanitary and Phytosanitary Measures — also known as the SPS Agreement was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade. pesticides. The Agreement entered into force in January 1995. The Agreement on Customs Valuation. The Agreement on Technical Barriers to Trade is an international treaty of the World Trade Organization. prescribes methods of customs valuation that Members are to follow. market access and export subsidies. The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector. Under the SPS agreement. What is the WTO? The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. the WTO sets constraints on members' policies relating to food safety (bacterial contaminants. formally known as the Agreement on Implementation of Article VII of GATT. The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. The object ensures that technical negotiations and standards. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. 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 beginning of 1995. Chiefly.The AoA has three central concepts. in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.
The system encourages good government 2. This booklet is brief. The basic principles make life more efficient 9. Nor does it claim that everyone agrees with everything in the WTO. One of the most vivid is the trade war of the 1930s when countries competed to raise trade barriers in order to protect . and importers conduct their business. Trade raises incomes 7. The system helps promote peace 2. Trade stimulates economic growth 8. Governments are shielded from lobbying 10. Freer trade cuts the costs of living 5. others not so obvious. 10 benefits of the WTO trading system From the money in our pockets and the goods and services that we use. It highlights some of the benefits of the WTO’s trading system. It provides more choice of products and qualities 6. Here are 10 of them. 1. but it doesn’t claim that everything is perfect—otherwise there would be no need for further negotiations and for the system to evolve and reform continually. History is littered with examples of trade disputes turning into war. The system helps to keep the peace This sounds like an exaggerated claim. The ten benefits 1. That’s one of the most important reasons for having the system: it’s a forum for countries to thrash out their differences on trade issues. but it tries to reflect the complex and dynamic nature of trade. some well-known. to a more peaceful world — the WTO and the trading system offer a range of benefits. The world is complex. The goal is to help producers of goods and services. It is also an outcome of the international confidence and cooperation that the system creates and reinforces. there are many over-riding reasons why we’re better off with the system than without it. the system does contribute to international peace. and if we understand why. and it would be wrong to make too much of it. That said. exporters. Rules make life easier for all 4. and providing countries with a constructive and fair outlet for dealing with disputes over trade issues. Nevertheless.nations and ratified in their parliaments. Disputes are handled constructively 3. we have a clearer picture of what the system actually does Peace is partly an outcome of two of the most fundamental principles of the trading system: helping trade to flow smoothly.
People who are more prosperous and contented are also less likely to fight. in the number of products traded. the other the World Trade Organization (WTO). Both have proved successful. When governments are confident that others will not raise their trade barriers. The WTO trading system plays a vital role in creating and reinforcing that confidence. 2. The GATT/WTO system is an important confidence-builder. a loss of confidence in freer trade.domestic producers and retaliate against each others’ barriers. sales people are usually reluctant to fight their customers. and in the numbers of countries and companies trading. But that is not all. the General Agreement on Tariffs and Trade (GATT) was created. and in iron and steel. This worsened the Great Depression and eventually played a part in the outbreak of World War 2. there is a greater chance that disputes will arise. Globally. international cooperation developed in coal. The system allows disputes to be handled constructively As trade expands in volume. What’s more. But that view ignores how other countries are going to respond. How does this work? Crudely put. smoothly-flowing trade also helps people all over the world become better off. The short-sighted protectionist view is that defending particular sectors against imports is beneficial. Everyone loses. The WTO system helps resolve these disputes peacefully and constructively . In other words. Two developments immediately after the Second World War helped to avoid a repeat of the pre-war trade tensions. They will also be in a much better frame of mind to cooperate with each other. The trade wars in the 1930s are proof of how protectionism can easily plunge countries into a situation where no one wins and everyone loses. In Europe. so much so that they are now considerably expanded — one has become the European Union. and a focus on abiding by the rules. they will not be tempted to do the same. and a slide into serious economic trouble for all — including the sectors that were originally protected. if trade flows smoothly and both sides enjoy a healthy commercial relationship. Particularly important are negotiations that lead to agreement by consensus. political conflict is less likely. Confidence is the key to avoiding that kind of no-win scenario. The longer term reality is that one protectionist step by one country can easily lead to retaliation from other countries.
the WTO. Once the judgement has been made. the agreements provide the focus for any further actions that need to be taken. But it does reduce some inequalities. Without a multilateral regime such as the WTO’s system. but they always aim to conform with the agreements and commitments that they themselves negotiated. the more powerful countries would be freer to impose their will unilaterally on their smaller trading . the world’s community of trading nations negotiated trade rules which are now entrusted to the WTO. Rich and poor countries alike have an equal right to challenge each other in the WTO’s dispute settlement procedures. But in reality.There could be a down side to trade liberalization and expansion. Before World War 2 that option was not available. in several different ways. The fact that the disputes are based on WTO agreements means that there is a clear basis for judging who is right or wrong. giving smaller countries more voice. Those rules include an obligation for members to bring their disputes to the WTO and not to act unilaterally. Decisions in the WTO are made by consensus. a lot of international trade tension is reduced because countries can turn to organizations. Around 300 disputes have been brought to the WTO since it was set up in 1995. countries concentrate on trying to comply with the rules. those disputes could lead to serious conflict. it reflects the closer economic ties throughout the world. After the war. in particular the WTO. A system based on rules rather than power makes life easier for all The WTO cannot claim to make all countries equal. 3. some could have led to more serious political conflict. When they bring disputes to the WTO. Sometimes the exchanges between the countries in conflict can be acrimonious. does not reflect increasing tension in the world. The agreements apply to everyone. This makes life easier for all. More trade means more possibilities for disputes to arise. and at the same time freeing the major powers from the complexity of having to negotiate trade agreements with each of their numerous trading partners. and perhaps later renegotiating the rules — not on declaring war on each other. Once a ruling has been made. were approved by consensus and were ratified in all members’ parliaments. The increasing number of disputes brought to GATT and its successor. Smaller countries can enjoy some increased bargaining power. Rather. Without a means of tackling these constructively and harmoniously. Left to themselves. to settle their trade disputes. the GATT/WTO’s expanding membership and the fact that countries have faith in the system to solve their differences. the WTO’s procedure focuses their attention on the rules. The WTO agreements were negotiated by all members.
new talks started on continuing the reform in agriculture.partners. And each country could end up with different conditions for trading with each of its trading partners. our necessities and luxuries. Freer trade cuts the cost of living We are all consumers. and ultimately a lower cost of living. smaller countries can perform more effectively if they make use of the opportunities to form alliances and to pool resources. in November 2001. This makes life much simpler for the bigger trading countries.500 per year for a family of four in the European Union (1997). The principle of non-discrimination built into the WTO agreements avoids that complexity. and would be much less able to resist unwanted pressure. Several are already doing this. . are affected by trade policies According to one calculation. launched at the fourth WTO Ministerial Conference in Doha. Qatar. But WTO members are now reducing the subsidies and the trade barriers that are the worst offenders. There are matching benefits for larger countries. The major economic powers can use the single forum of the WTO to negotiate with all or most of their trading partners at the same time. Smaller countries would have to deal with each of the major economic powers individually. These are just a few figures: Food is cheaper When you protect your agriculture. consumers and governments in rich countries pay $350 billion per year supporting agriculture — enough to fly their 41 million dairy cows first class around the world one and a half times Protectionism is expensive: it raises prices. Negotiating agricultural trade reform is a complex undertaking. The result is reduced costs of production (because imports used in production are cheaper) and reduced prices of finished goods and services. the cost of your food goes up — by an estimated $1. And these agreed rules give governments a clearer view of which trade policies are acceptable. The alternative would be continuous and complicated bilateral negotiations with dozens of countries simultaneously. The prices we pay for our food and clothing. by the equivalent of a 51% tax on food in Japan (1995). These have now been incorporated into a broader work programme. There are plenty of studies showing just what the impacts of protectionism and of freer trade are. The WTO’s global system lowers trade barriers through negotiation and applies the principle of non-discrimination. The fact that there is a single set of rules applying to all members greatly simplifies the entire trade regime. 3. Governments are still debating the roles agricultural policies play in a range of issues from food security to environmental protection. And in 2000. the Doha Development Agenda. making life extremely complicated for its importers and exporters. In addition. by $3 billion per year added to US consumers’ grocery bills just to support sugar in one year (1988). and everything else in between.
In Ghana the cut was 50%.e. competition from a second mobile phone company was at least part of the reason for a 30% cut in the price of a call. It gives consumers more choice. The programme includes eliminating restrictions on quantities of imports. economists calculate the result could be a gain to the world of around $23 billion. Trade barriers around the world are lower than they have ever been in modern trading history. The objective was to save American jobs. $0. If Australia had kept its tariffs at 1998 levels. .Clothes are cheaper Import restrictions and high customs duties combined to raise US textiles and clothing prices by 58% in the late 1980s. and so on.2 billion for the EU and around $8 billion for developing countries. The same goes for other goods … When the US limited Japanese car imports in the early 1980s. Australian customers would pay on average A$2. all sorts of household goods. but the higher prices were an important reason why one million fewer new cars were sold. One of the objectives of the Doha Development Agenda (DDA) is another round of cuts in tariffs on industrial products. The textiles and clothing trade is going through a major reform — under the WTO — that will be completed in 2005. Robert Stern. The system now entrusted to the WTO has been in place for over 50 years. movies. 5. In 1995. For Australians it would be A$300 annually per average family if Australian customs duties had not been reduced in the late 1980s and early 1990s. i. Alan Deardorff and Drusilla Brown. car prices rose by 41% between 1981 and 1984 — nearly double the average for all consumer products. If customs duties were also to be eliminated. foods. The group of economists led by Robert Stern estimates that lowering services barriers by one third under the Doha Development Agenda would raise developing countries’ incomes by around $60 billion. clothing and other products that used to be considered exotic. music. manufactured and mining products.900 more per car today. predict that cutting these by one third would raise developing countries’ income by around $52 billion. and a broader range of qualities to choose from Think of all the things we can now have because we can import them: fruits and vegetables out of season. books. cut flowers from any part of the world.3 billion for the US. For Canadians the bill is around C$780 million. And so it goes on. taking inflation into account. In China. and we are all benefiting. aluminium users in the EU paid an extra $472 million due to tariff barriers. Some economists. including $12. … and services Liberalization in telephone services is making phone calls cheaper — in the 1990s by 4% per year in developing countries and 2% per year in industrial countries. In that time there have been eight major rounds of trade negotiations. $2.8 billion for Canada. UK consumers pay an estimated £500 million more per year for their clothing because of these restrictions. leading to more job losses. They continue to fall.
Look around and consider all the things that would disappear if all our imports were taken away from us. It increases our incomes. But some adjustment is necessary The fact that there is additional income means that resources are available for governments to redistribute The WTO’s own estimates for the impact of the 1994 Uruguay Round trade deal were between $109 billion and $510 billion added to world income (depending on the assumptions of the calculations and allowing for margins of error). services sprang up even in the countries that did not make the equipment. and it increases the range of technologies they can use. In Europe. But the fact that there is additional income means that resources are available for governments to redistribute the benefits from those who gain the most — for example to help companies and . for example. which adds to incomes — national incomes and personal incomes. Trade raises incomes Lowering trade barriers allows trade to increase.Think also of the things people in other countries can have because they buy exports from us and elsewhere. components and equipment for local production. manufacturing and services by one third would boost the world economy by $613 billion — equivalent to adding an economy the size of Canada to the world economy. Economists estimate that cutting trade barriers in agriculture. the success of an imported product or service on the domestic market can also encourage new local producers to compete. So trade clearly boosts incomes. Trade also poses challenges as domestic producers face competition from imports. and a wider range of qualities. Even the quality of locally-produced goods can improve because of the competition from imports. increasing the choice of brands available to consumers as well as increasing the range of goods and services produced locally. Imports allow us more choice — both more goods and services to choose from. When mobile telephone equipment became available. Imports are used as materials. This expands the range of final products and services that are made by domestic producers. 6. More recent research has produced similar figures. If trade allows us to import more. Sometimes. The wider choice isn’t simply a question of consumers buying foreign finished products.1–1. the EU Commission calculates that over 1989–93 EU incomes increased by 1. providing us with the means of enjoying the increased choice.5% more than they would have done without the Single Market. it also allows others to buy more of our exports.
It is also true that some jobs are lost even when trade is expanding.000 more jobs than there would be without the Single Market. But the picture is complicated by a number of factors. Trade stimulates economic growth. and that economic growth means more jobs. Nevertheless. Those without effective policies are missing an opportunity.3 million of those jobs were created between 1994 and 1998. The EU Commission calculates that the creation of its Single Market means that there are somewhere in the range of 300. And those jobs tend to be better-paid with better security. job prospects are better in companies involved in trade. But a reliable analysis of this poses at least two problems. 12 million people owe their jobs to exports. Second.000–900. There are many instances where the facts show that the opportunity has been grasped — where freer trade has been healthy for employment. In the United States. This is partly because some countries have more effective adjustment policies. Often. some countries are better at making the adjustment than others. 7. or by switching to new activities. the best jobs are those related to export activities: sectors which export 60 per cent or more of their . In other words.workers adapt by becoming more productive and competitive in what they were already doing. this is not always translated into new employment for workers who lost their jobs as a result of competition from imports. and that can be good news for employment Trade clearly has the potential to create jobs. benefiting some jobs. In practice there is often factual evidence that lower trade barriers have been good for employment. For example. First. the alternative — protectionism — is not the way to tackle employment problems Careful policy-making harnesses the job-creation powers of freer trade This is a difficult subject to tackle in simple terms. The picture is not the same all over the world. while trade clearly boosts national income (and prosperity). hurting others. There is strong evidence that trade boosts economic growth. 1. technological advance has also had a strong impact on employment and productivity. In Mexico. The average length of time a worker takes to find a new job can be much longer in one country than for a similar worker in another country experiencing similar conditions. there are other factors at play.
8. That. so fewer cars were sold and jobs were lost. They are the result of essential principles at the heart of the system. Imagine a situation where each country sets different rules and different customs duty rates for imports coming from different trading partners. It would not be enough for this company to look at the prices offered by suppliers around the world. The basic principles make the system economically more efficient. is one of the problems of discrimination. Imagine that a company in one country wants to import raw materials or components — copper for wiring or printed circuit boards for electrical goods. Even when a country has difficulty making adjustments. Sourcing components would become more efficient and would cost less. and it will use the same regulations for all products. an attempt to tackle a problem in the short term by restricting trade turned into a bigger problem in the longer term. Life for the company would be much simpler. whether imported or locally produced. for example — for its own production. and they cut costs Many of the benefits of the trading system are more difficult to summarize in numbers. It allows resources to be used more appropriately and effectively for production. pay wages 39% higher than the rest of the economy and maquiladora (in-bond assembly) plants pay 3. . The example of the US car industry has already been mentioned: trade barriers designed to protect US jobs by restricting imports from Japan ended up making cars more expensive in the US. In other words. in simple terms. Imagine now that the government announces it will charge the same duty rates on imports from all countries. and it would have to study each of the regulations that apply to products from each country. and they make life simpler for the enterprises directly involved in trade and for the producers of goods and services. The company would also have to make separate calculations about the different duty rates it would be charged on the imports (which would depend on where the imports came from). Discrimination complicates trade Trade allows a division of labour between countries. no matter where they come from. The facts also show how protectionism hurts employment.production. But the WTO’s trading system offers more than that.5 times the Mexican minimum wage. It helps to increase efficiency and to cut costs even more because of important principles enshrined in the system. the alternative of protectionism would simply make matters worse. Buying some copper or circuit boards would become very complicated. but they are still important.
centralized databases of information. everyone else has to pay for more expensive clothes. Others include: • • • transparency (clear information about policies. for example. The system shields governments from narrow interests The GATT-WTO system which evolved in the second half of the 20th Century helps governments take a more balanced view of trade policy. Governments are better-placed to defend themselves against lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone in the economy. Protectionism can also escalate as other countries retaliate by raising their own trade barriers. Governments need to be armed against pressure from narrow interest groups. The result was increasingly restrictive policy which turned into a trade war that no one won and everyone lost. But it biases the economy against other sectors which shouldn’t be penalized — if you protect your clothing industry. That’s exactly what happened in the 1920s and 30s with disastrous effects. That in turn also means more jobs and better goods and services for consumers. The GATT-WTO system covers a wide range of sectors. simplification and standardization of customs procedure. restricting imports looks like an effective way of supporting an economic sector. removal of red tape. they make trading simpler. which puts pressure on wages in all sectors. and the WTO system can help. Governments are better placed to ward off powerful lobbies One of the lessons of the protectionism that dominated the early decades of the 20th Century was the damage that can be caused if narrow sectoral interests gain an unbalanced share of political influence. rules and regulations). cutting companies’ costs and increasing confidence in the future. the government can reject the protectionist pressure by arguing that it needs a broad-ranging agreement that will benefit all sectors of the economy. regularly . Superficially. So. and other measures designed to simplify trade that come under the heading “trade facilitation”.Non-discrimination is just one of the key principles of the WTO’s trading system. increased certainty about trading conditions (commitments to lower trade barriers and to increase other countries’ access to one’s markets are legally binding). if during a GATT-WTO trade negotiation one pressure group lobbies its government to be considered as a special case in need of protection. Governments do just that. 9. Even the sectors demanding protection ended up losing. Together.
Nevertheless. quotas of various types remain in use in most countries. There are plenty of cases where that has happened around the world. for example in the allocation of quotas among traders. they artificially raise prices. other aspects of “trade facilitation”. once a commitment has been made to liberalize a sector of trade. Protectionism in general is unwise because of the damage it causes domestically and internationally. clearer criteria for regulations dealing with the safety and standards of products. for example restricting imports or exports to no more than a specific amount each year. Governments have agreed through the WTO’s rules that their use should be discouraged. particularly in textiles. One kind of trade barrier that the WTO’s rules try to tackle is the quota. and non-discrimination also help by reducing the scope for arbitrary decision-making and cheating. It can also provide opportunities for corruption. In other words. creating abnormally large profits (economists talk about “quota rent”). as we have already seen. Because quotas limit supply. That profit can be used to influence policies because more money is available for lobbying. and governments argue strongly that they are needed. Particular types of trade barriers cause additional damage because they provide opportunities for corruption and other forms of bad government. Quite often. that means greater certainty and clarity about trading conditions. it is difficult to reverse. .10. The rules include commitments not to backslide into unwise policies. governments use the WTO as a welcome external constraint on their policies: “we can’t do this because it would violate the WTO agreements”. The system encourages good government Under WTO rules. quotas are a particularly bad way of restricting trade. For governments it can often mean good discipline. For businesses. But they are controlled by WTO agreements and there are commitments to reduce or eliminate many of them. The rules also discourage a range of unwise policies. Transparency (such as making available to the public all information on trade regulations). Many other areas of the WTO’s agreements can also help reduce corruption and bad government.
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