Business

Environment

B.N. Ghosh

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 Chapter 40

World Trade Organization

and Its Impact

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 Learning Objectives

• The genesis of the World Trade Organization (WTO)

• The objectives of the WTO
• The regulatory principles and functions of the WTO
• The role of the WTO on developing countries
• An evaluation on the achievements and
failures/limitations of the WTO

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Genesis of world trade organization
• The Bretton Woods Conference in 1944 recommended,
among others, the establishment of an international trade
organization to look into the problems of international
trade (Sen 1944 ).
• Due to lack of unanimity among the participating
members, an interim organization, called the General
Agreement on Tariffs and Trade (GATT), was set up in 1947.

• The GATT continued for nearly five decades and then was
replaced by the WTO, which started functioning since 1
January 1995.
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Genesis of world trade organization

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 Objectives of world trade
organization
• It is committed to develop a viable and durable multilateral trading
system in the world.
• It will work to achieve sustainable development and ensure
optimum utilization of resources.
• It will promote and preserve the environment and also augment
resources commensurate with the respective needs and concerns at
different levels of development.
• In the area of trade and economic development, it tries to increase
the volume of real resources, raise the standard of living and effective
demand, and achieve full employment.
• An important objective of the WTO is the expansion of world
production and also of trade in goods and services.

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Regulatory principles and functions
of WTO
• It has been administering the understanding on the roles and
procedures that govern the
settlement of disputes among the member countries.
• It provides a forum for trade negotiations between member
countries so that the terms and conditions become clear.
• It provides a framework on the basis of which the negotiations can
be implemented.
• It has been providing all cooperation with the World Bank and the
IMF in formulating and implementing world economic policies.
• The most favoured nation (MFN) clause says that countries cannot
discriminate between two trading partners. If a favour is shown to
one partner, it has to be shown also to the other partner.

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Regulatory principles and functions
of WTO
• It also allows to protect infant industries and safeguard the
economic interests of newly admitted developing countries.
• It tries to eliminate all discriminations among the member nations.
• It is committed to eliminate protectionism and encourage free
trade.
• It has a dispute resolution body to settle all disputes among its
members.
• In most cases, tariffs are fixed (bound) but if these are to be raised
by members, which adversely affect other members, they have to be
compensated.

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 World trade organization and the
developing countries
Agricultural Trade, Food Security, and World Trade Organization
• In the case of the agricultural sector of poor developing economies,
a concerted attempt has been made by the WTO along with the
multinational corporations (MNCs) and many developed capitalist
economies to allow for more liberalization and openness.

• The WTO-sponsored globalization in the matter of agricultural

development in a country like India is beset with many contradictions

• Agriculture cannot simply be regarded as a commodity producing

sector; it creates different types of relations and associations with the
producers and also with other sectors.

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 World trade organization and the
developing countries
Impact of World Trade Organization
• One of the main objectives of the WTO is to reduce tariff and pave
the way for more and more free or fair trade.
• Tariff reduction being practised by LDCs at the behest of the WTO has
substantially reduced their revenue earning, and therefore, their
economic power and resources have gone down.
• The policies formulated and implemented by the WTO are
discriminatory in character.

• The Uruguay Round clearly shows that the developed countries are
benefitted more than the poor countries.
• India wants complete liberalization in the textile trade but the USA
is opposing it because it will lose many American jobs.
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 Achievements of WTO
• The trade policy review mechanism has given a kind of
transparency, which was conspicuous by its absence before
the existence of the WTO (i.e., before 1995).
• A democratic norm with one member having one vote has
been instituted by the WTO.
• The WTO has furthered the process of liberalization,
privatization, and globalization, like
the other two institutions.
• The rates of tariffs have been reduced, and on theory,
protectionism is on the wane.
• Anti-dumping rules have also been framed by the WTO.
• Bilateral trade relations are being encouraged through
official negotiations process.
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 Limitations and Drawbacks
• It has substantially reduced the revenues of the governments of
LDCs by reducing the level of tariffs.
• The implementation of the WTO provisions and rules are full of
discriminations against the LDCs and in favour of developed
countries.
• Modern era is marked by instability of the exchange rate system,
which is creating havoc and so is the case with short-term capital
movement. The world organizations including the WTO could not
yet settle these problems.
• The introduction of social clause in the matter of export and the
use of child labour and so forth are to reduce the competitiveness
of the LDCs vis-à-vis the developed countries.

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