The World Trade Organization

The World Trade Organization

1. Introduction

The World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT) have been enormously successful over the last 50 years at reducing the trade barriers among an ever-increasing number of countries. These two institutions reduced the bilateral opportunism by implementing multilateral trade arrangement in various fields; be it TRIMS, TRIPS, Environmental obligations, antidumping obligations etc. Although the GATT was initially largely limited to a tariff agreement, over time, as average tariff levels fell, it increasingly came to concentrate on nontariff trade policies and domestic policies having an impact on trade. Its success was reflected in a steady expansion in the number of contracting parties. The WTO differs in a number of important respects from the GATT. The GATT was a rather flexible institution; bargaining and deal-making lay at its core, with significant opportunities for countries to "opt out" of specific disciplines. In contrast, WTO rules apply to all members, who are subject to binding dispute settlement procedures. This is attractive to groups seeking to introduce multilateral disciplines on a variety of subjects, ranging from the environment and labor standards to competition and investment policies to animal rights. But it is a source of concern to groups that perceive the (proposed) multilateral rules to be inappropriate or worry that the adoption of specific rules may affect detrimentally the ability of governments to regulate domestic activities and deal with market failures. Despite all the resistance these multilateral obligations and arrangements proved boon to the international trade as can seen from the diagram.

2. Multilateral vs. Bilateral

Multilateral trade agreements are between many nations at one time. For this reason, they are very complicated to negotiate, but are very powerful once all parties sign the agreement. The primary benefit of multilateral agreements is that all nations get treated equally, and so it levels the playing field, especially for poorer nations that are less competitive by nature. A major example is The Doha round of trade agreements is a multilateral trade agreement between all 149 members of the World Trade Organization.

One of the advantages of bilateral agreements is that countries can choose when to enter into agreements. In theory a global trade agreement is an ideal solution in terms of resource allocation, economic welfare and economic prosperity . The next best solution is the regional trade agreement which lowers the trade barrier amongst members without having to lower barriers for non-members. However, resolving systemic issues such as rules of origin, antidumping and subsidies are best left to multilateral trade agreements.

3. Basic principles of Multilateral obligations:

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy game, not with the results of the game. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: nondiscrimination, reciprocity, enforceable commitments, transparency, and safety valves.

3.1 Nondiscrimination has two major components: the most-favored-nation (MFN) rule, and the national treatment principle. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these three areas. This is especially true of the national treatment principle, which is a specific, not a general commitment when it comes to services.

(a) The MFN rule requires that a product made in one member country be treated no less favorably than a "like" (very similar) good that originates in any other country. Thus, if the best treatment granted a trading partner supplying a specific product is a 5 percent tariff, this rate must be applied immediately and unconditionally to imports of this good originating in all WTO members. In view of the small number of contracting parties to the GATT (only 23 countries), the benchmark for MFN is the best treatment offered to any country, including countries that are not members of the GATT.

(b) National treatment requires that foreign goods, once they have satisfied whatever border measures are applied, be treated no less favorably, in terms of internal (indirect) taxation than like or directly competitive domestically produced goods (Art. III, GATT). That is, goods of foreign origin circulating in the country must be subject to taxes, charges, and regulations that are "no less favorable" than those that apply to similar goods of domestic origin.

The MFN rule applies unconditionally. Although exceptions are made for the formation of