What is WTO? How is it associated with the free trade? Why is it important? What are the principles governing it? How does its dispute resolution still holds relevance? To answer these questions, read further.
The World Trade Organization (WTO) is the international body in the world that deals with international trade regulations.
World Trade Organization and two Bretton Woods Institutions, IMF and World Bank form the essential components of a liberal international economic order.
What does Liberal International Economic Order suggest?
It is the collection of post-World War II regimes, seeking to advance monetary stability and lower the barriers to the free movement of capital and trade.
It suggested that free trade leads to interdependence and prosperity and there is a linkage between peace and prosperity.
Hence it was held that there should be free trade.
Advantages of free trade
Free trade means no barriers to trade. it means more trade and more profitable trade.
More trade means more economic activity, more economic activity means more national income, and more national income needs more resources and hence more development.
World Trade is based on the theory of comparative advantage which is a Win-Win situation for all countries.
World Trade Organization
The USA has proposed LIEO. However it could not come into existence and place of LIEO, a set of treaties dealing with different terms of International Trade and aspects came into existence in 1948 known as GATT (General Agreement on Tariffs and Trade).
GATT was dealing with trade in goods, especially non-agricultural goods. Gradually agricultural goods also became an essential component of external trade.
Even the share of the service sector started increasing. New areas of trade like IPR emerged.
The volume of trade has become too large that business as usual was not possible. There was a need for an institution to formulate the rules governing different aspects of foreign trade.
With the end of the cold war, the number of countries participating in external trade became too many.
The structural reforms also force the economy to open up. It was realized by the developing countries that trade not aid can address their poverty.
Ultimately Uruguay round of talks ended. 123 countries accepted these trade agreements. This has led to the establishment of the WTO which came into existence in 1995.
India is the original member of the World Trade Organization.
Purpose of WTO
- To establish rule of law in international trade.
- To ensure free and fair trade.
- To maintain transparency and predictability in international trade.
- To contribute to the development of developing countries.
WTO and developing countries
- The WTO classifies nations into developed, developing, and least developed countries (LDCs).
- The terms “developed” and “developing” countries are not defined by the WTO.
- The members declare themselves whether their countries are “developed” or “developing.”
- However, other members have the right to challenge the member’s choice to use a provision that is available to developing nations.
- Like IMF and World Bank where a system of weighted voting exists, in WTO also each country has an equal vote. WTO agreements require consensus.
- The Developing Country status comes with certain rights. The status ensures special and differentiating treatment (S&DT).
Special and Differential Treatment
The WTO Agreements include provisions that grant special rights to developing nations.
These provisions are referred to as “special and differential treatment” provisions.
At the 4th WTO Ministerial Conference in Doha, the Ministers designated the Committee on Trade and Development to review these special and differential treatment provisions.
The special provisions consist of:
- extending the time frames for implementing commitments and agreements,
- enhancing the trading prospects for developing nations
- all WTO members to protect developing nations’ trade interests,
- assistance in helping developing nations to enhance their capacity to conduct WTO operations, resolve conflicts, and adopt technical standards,
- clauses pertaining to Members from least developed countries (LDCs).
Member nations agreed in the Doha Declaration that all special and differential treatment provisions are a fundamental feature of the WTO agreements.
Principles governing WTO agreements
- The guiding principle is that trade has to be free and fair.
- No discrimination between foreign and domestic firms.
- Openness by reducing the tariff and non-tariff barriers.
- Special and differential treatment.
- Transparency and predictability.
- GATT (General Agreement on Tariffs and Trade)
- AOA (Agreement on Agriculture)
- GATS (General Agreement on Trade in Services)
- TRIPS (Trade Related Aspects of Intellectual Property Rights)
- TRIMS ( The Agreement on Trade Related Investment Measures)
WTO organizational structure
Ministerial Council: It is the highest decision-making body. It meets every two years.
General council: The body works out the year for the formulations of the proposal.
Trade policy review Board: One of the main objectives of WTO is to maintain transparency and accountability. Therefore the body undertake policy reviews of members from time to time. It is also one reason why WTO has been considered intrusive.
Trade dispute body: The WTO’s important contribution to the stability of the global economy is dispute settlement, which is the foundational element of the multilateral trading system.
The resolution of disputes is of the utmost importance, preferably by a mutually acceptable solution, and provisions have been created for the process to be carried out in a timely and effective manner.
World Trade Organization Dispute Resolution
The WTO is an international organization that also handles dispute resolution.
When a member country feels that a country has violated WTO regulations, it will file a complaint with the WTO’s dispute body.
If the consultation fails, a panel will be formed with the help of all the members to resolve the conflict.
The panel will communicate the decision of the dispute settlement to WTO members, who have the option to disagree with it.
If the judgment is upheld, the member nation that broke the rules is required to amend its laws to comply with the WTO Agreement.
And if this isn’t done, the violating country and the complaining country may come to an agreement on compensation; if not, the complaining country may take appropriate retaliation.
In a nutshell, the World Trade Organization (WTO) is the only international body in charge of implementing international trade laws. It ensures that trade continues to move as easily, reliably, and freely as possible.
The WTO’s future role is critical for keeping the post-World War II liberalized economic system on a global scale. India and other developing economies can lay a solid foundation for a successful WTO while defending the interests of developing nations at a time when nations are threatening to exit the WTO, making it dysfunctional.
Article written by Chetna Yadav.
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