An Introduction to the WTO
A. What is the WTO?
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The World Trade Organisation (WTO)
Established on 1st January 1995
As a result of the Uruguay Round negotiations (1986-1994)
Located in Geneva, Switzerland
Members: 149 countries (as of 11 Dec. 2005)
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At its simplest:
“A global organisation dealing with rules of trade
between nations”.
(source: WTO)
Evolution of the WTO
Predecessor of the WTO – The GATT ‘47
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The General Agreement on Tariffs and Trade (GATT) 1947 -the first
major effort to establish international rules governing trade in goods.
Though initially conceived as a provisional legal instrument, it endured
for almost 50 years.
It functioned without a formal organisational framework to oversee its
implementation as the proposed International Trade Organisation
(ITO) never came into being and the ITO Charter (aka the Havana
Charter) of which GATT was only to be a part, never came into effect.
GATT’s primary focus was the reciprocal reduction of tariffs which later
expanded to other trade related areas. In the years leading up to the
Uruguay Round, GATT expanded its competence through several
rounds of trade negotiations which witnessed the formulation of
complex legal instruments on specific aspects of trade, particularly
disciplines on the use of non tariff barriers.
The Uruguay Round (1986-1994)
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The results of the Uruguay Round (UR) were signed in
Marrakech, Morocco on 15 April 1994 .The WTO came into
being on 1 January 1995 by virtue of the Agreement
establishing the WTO.
The scope of the multilateral trading system was broadened
from trade in goods (GATT) to encompass trade in services
(GATS) and trade related aspects of intellectual property rights
(TRIPS). It was a rule-based global trading system complete
with its own dispute resolution procedures .
The “Single Undertaking” concept
The multilateral trade agreements under the WTO system are
treated as a single undertaking which means that every
member state of the WTO is a party to every one of these
agreements and must implement them accordingly.
The WTO’s functions
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Administers the WTO Agreements and facilitates their operation
and implementation
Provides a forum for trade negotiations among member states
on matters covered by the Agreements and for further
liberalisation of trade amongst members
Responsible for the settlement of differences and disputes
between members
Responsible for periodic reviews of the trade policies of
members
Also provides technical assistance and training for developing
countries
Cooperates with other international organisations on subjects of
mutual interest
Principles of the world trading system
under the WTO
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Non discrimination- Most Favoured Nation (MFN) and National
Treatment obligations
Freer trade – negotiations aimed at lowering trade barriers
Predictability and transparency - binding commitments,
restrictions on the use of barriers to trade and transparent trade
policies and regulatory frameworks (e.g. transparency
obligations in the major trade agreements and the Trade Policy
Review Mechanism)
The promotion of fair competition- MFN, national treatment and
rules against unfair trade practices (e.g. anti dumping)
Encouragement of development and economic reform
Organisational structure of the WTO
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Ministerial Conference- The apex body for decision making (meets
every 2 years). Composition:-ministerial representatives.
General Council- performs the functions of the Conference between
meetings and has specific duties assigned to it by the WTO
agreements. Composition:- governmental representatives.
The General Council also meets as the Dispute Settlement Body and
the Trade Policy Review Body.
Councils for Trade in Goods (oversees GATT), Trade in Services
(oversees GATS) and TRIPS which report to and assist the General
Council.
Committees on special subjects, Committees functioning under the
Councils and Committees for the Plurilateral Agreements.
Membership- developed, developing, least developed countries and
economies in transition.
Decision making is by consensus. If consensus is not possible decisions
will be taken by a majority vote.
The Uruguay Round agreements
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The Agreement establishing the WTO
Its Annexes
Annex
1A - GATT 1994 , related agreements (e.g. Agreements on
Agriculture, Subsidies etc.) and texts
1B- General Agreement on Trade in Services (GATS) and
Annexes
1C- Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS)
Annex 2 Understanding on the Rules and Procedures
Governing the Settlement of Disputes (aka Dispute Settlement
Understanding /DSU)
Annex 3 Trade Policy Review Mechanism
Annex 4 Plurilateral Agreements (e.g. Agreement on Trade in
Civil Aircraft)
Four main principles of GATT
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Most Favoured Nation –
Art. 1 of GATT embodies the MFN rule. At its simplest, it
requires any favourable treatment granted to a product
originating in or destined for any other country, to be accorded
immediately and unconditionally to the like product originating
in or destined for the territories of all other member states.
E.g. Spanish coffee case: Spain applied a higher duty on the
types of coffee imported from Brazil while applying a lower duty
on other coffees considered to be ‘like products’. The Panel
considered this to be a breach of its GATT MFN obligation.
There are permitted exceptions to the MFN rule:
for e.g. free trade areas/customs unions and preferential
systems.
[The principle of MFN is also found in GATS(Art.2) and TRIPS (Art.4)]
Principles (Cont.)
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National Treatment –
The national treatment rule in Art. 3 of GATT provides that
internal taxes, charges, laws and regulations must not be
applied so as to afford protection to domestic production. The
imported product must not be subject directly or indirectly to
internal taxes in excess of those applied directly or indirectly to
the like domestic product.
E.g. Japan- Alcoholic beverages case (1996)
imported vodka (and other alcoholic beverages) vs. local
shochu (a distilled white spirit) and excessive taxes on the
former.
[The national treatment principle is also found in GATS (Art.17) and TRIPS
(Art.3).]
Principles (Cont.)
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Tarrification
- Protection of the domestic industry by tariffs only.
- Reinforced through rules which prohibit use of quantitative
restrictions
(Art 11 GATT).
Limited exceptions are allowed e.g. for BOP reasons (Art 12
GATT).
Tariff Concessions- negotiations shall be aimed at reducing
tariffs (Preamble and Art. 28bis GATT). Tariffs shall also be
bound against further increases [Art 2.1(b) GATT].
(Tariff concessions are recorded in schedules of concessions)
The WTO as a dispute settlement
forum and a monitoring body
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Settlement of disputes under the DSU
1. Consultations, good offices, conciliation and mediation
2. Panel proceedings
3. Appellate Body
4. Consideration and adoption of Panel/AB reports by the DSB
If the report concludes that a measure is inconsistent with a covered
agreement the Panel (/AB) must recommend that the Member
concerned bring the measure into conformity with that agreement.
Adoption of Panel (/AB) reports by the DSB is automatic.
5. Implementation of reports by members
- Compliance
- Negotiation of compensation (voluntary, mutually acceptable)
- Authorisation of retaliatory action (suspension of concessions/obligations)
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Trade Policy Review Mechanism- Periodic review of trade policies
Services and the WTO
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The WTO regulates trade in services through the General
Agreement on Trade in Services (GATS). The GATS is “broadly
comparable” to the GATT but there are significant differences in
its approach to liberalization.
Services cover a wide range of activities. Under the GATS, the
term “services” include any service in any sector except
services supplied in the exercise of governmental authority.
The GATS applies to all measures by Members affecting trade
in services.
Measures can be laws, regulations, procedures, decisions,
administrative action etc., of Member governments.
Cont.
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Trade in services under the GATS is defined in terms of four modes
of supply. They are :(1) from the territory of one Member into the territory of any other
Member (aka cross border supply of services/ Mode 1)
(2) in the territory of one Member to the service consumer of any other
Member (aka consumption abroad/ Mode 2)
(3) by a service supplier of one Member, through commercial presence
in the territory of any other Member; (aka commercial presence/ Mode
3)
(4) by a service supplier of one Member, through presence of natural
persons of a Member in the territory of any other Member (aka
presence of natural persons/ Mode 4)
(Art.1 GATS)
GATS obligations
Two main categories of obligations
 General obligations which apply to all service sectors
of all Members.
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Specific obligations which apply only to service
sectors specified in the Member’s “Schedule of
specific commitments”.
General Obligations
MFN (Art.2)
“With respect to any measure covered by this Agreement, each Member
shall accord immediately and unconditionally to services and service
suppliers of any other Member treatment no less favorable than that it
accords to like services and service suppliers of any other country.”
Note qualifications to the MFN rule via Art. 2 exemptions and RTAs (Art.5)
Transparency (Art.3)
Art. 3 is mainly concerned with the provision of information. The rule
requires the “prompt” publication of general measures, notification of
changes to/introduction of measures that affect sectors covered by
specific commitments to the Services Council. Also requires the
establishment of national enquiry points.
Specific obligations
Market Access Art. 16
“With respect to market access through the modes of supply identified in
Article 1, each Member shall accord services and service suppliers of any
other Member treatment no less favorable than that provided for under the
terms, limitations and conditions agreed and specified in its Schedule.”
Art. 16 contains a prohibition of a list of measures (mostly quantitative)
which Members cannot maintain unless they specify them in their
Schedules as limitations on market access. These measures include:
- limitations on the number of suppliers (e.g. quotas)
- limitations on the quantity of service out put (e.g. limited broadcasting
time for foreign films)
- limitations on the participation of foreign capital or restrictions on the
type of legal entity (e.g. joint venture)
Cont.
National Treatment Art. 17
“In the sectors inscribed in its Schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and
service suppliers of any other Member, in respect of all measures
affecting the supply of services, treatment no less favorable than that it
accords to its own like services and service suppliers.”
Example : The availability of tax incentives only to companies controlled
by nationals of the country in the retail services sector.
Art. 17 covers both de jure and de facto discrimination.
Cont.
Domestic regulations Art. 6
Article 6 addresses domestic regulations as these may act as barriers to
trade even if they are non-discriminatory. E.g. professional qualifications,
licensing procedures and technical regulations.
Certain Art. 6 obligations apply only to service sectors in which
commitments have been undertaken. They include:
obligations to ensure that general measures are administered in “a
reasonable, objective and impartial manner”.
obligations aimed at preventing licensing and qualification
requirements and technical standards from being unnecessary barriers
to trade.
WTO: Benefits for business
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Creation of a stable, rule based, multilateral trading regime
Market access translates into market opportunities
The rule based system creates certain rights of access
- Security of access
tariff bindings and disciplines on barriers to trade whether tariff or non tariff. It
also provides non discriminatory treatment of products and services.
- Stability of access
the application of uniform rules in key areas of the trading process e.g. customs
valuation, import licenses etc.
- Rights against unfair trade practices for
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Domestic industry
Export industry
Import industry
Participating in the process
Why is it important?
 Improve market access through continuous lobbying through
chambers of commerce, trade/product/service organizations.
 Overcome problem areas in international trading e.g. technical
standards, high tariffs on processed goods.
 Expand or protect trading interests through support or
opposition of new subject areas in trade negotiations.
 Preserve or defend markets through their governments’ use of
the dispute resolution mechanism.
For further information
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The WTO Website : www.wto.org
Some related websites of interest
 OECD www.oecd.org
 ITC www.intracen.org
 World Bank www.worldbank.org
Thank you