WTO - World Trade Organisation - 1995
The Agreement establishing the WTO commits its member states to a variety of
improved standards of living,
expanded production of and trade in goods and services,
an enhanced share of developing countries in world trade.
The Agreement commits its members to contribute to these objectives ‘by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations’.
The WTO as an institution is committed to trade liberalization.
Roots of the WTO:
Out of the ashes of WW2 there was a feeling that much of the world should not only be re-structured but to varying degrees planned
Government Intervention as a mechanism was quite widely acceptable
and was of course one implication that could be drawn from the ascendancy of Keynesian economic theory - at least so
In the wake of the failures of markets in the inter-war period, the basic idea that government could use its resources or at least manage affairs to arrange investment to promote industrial expansion seemed a workable mediation between markets and government - what Macmillan (PM 1957-1963) in the 1930s had called 'the middle way'.
Such ideas had found some resonance even in
that most free-market/capitalist of systems - the
In other words thee was political acceptability for what might be seen as a politics of macro-economic planning at some level.
"Following the end of the Second World War, international leaders
were anxious to build safeguards and institutions into the
international system that would protect the world from the
recurrence of such disastrous events. The
advancing the view that free trade provided an important
mechanism for achieving world peace." (Amrita, 2005, p.10)
Planning for post-war reconstruction was
being prepared during the war such that In 1944, at
the Bretton Woods conference, the
Three pillars were envisaged for the purpose of maintaining international economic cooperation:
the International Monetary Fund (IMF),
the International Bank for Reconstruction and Development (or the World Bank)
the International Trade Organization (ITO).
Certainly this was no turn to socialist economics but, was a planning for a stable economic order via managed capitalism on the basis not of a top-down set of rules but more of a bottom-up set of negotiated settlements between participating states over (tariff) free trade (as the preferred version of trade).
In this the ITO would take the lead...
But largely because of US congressional politics, it all fell apart and President Truman abandoned it in 1950. Equally other countries realised that without US involvement an economic inter-national economic co-ordinating structure would be meaningless.
It envisaged as doing many things:
"commercial policy, the 106 articles of the ITO extended to areas of
employment, economic development, restrictive business practices,
and commodity agreements. It gave recognition to the importance
of ensuring fair labour standards, and also incorporated provisions
that allowed governments to address their development and
humanitarian concerns" (Havana Charter)
Furthermore it was to be a specialised agency of the UN
Negotiations: 1944 onwards
Forces that disrupted the creation of the ITO were:
and this built into the Charter an expanding systems of rules for exceptions
a phenomenon known as logrolling (a variant of you scratch my back (low value issue for you) and I'll scratch yours (low value for me)
In a preference ordering
1) a, b, c
2) b, c, a
3) c, a, b
1 &2 will gang up to achieve b
2 &3 will gang up to achieve c
1 &3 will gang up to achieve a
Problem: externalities = real world frustration and over-complicated agreements wherein the overall shape of charter satisfies no-one fully.
General dis-satisfaction build up across time and criticism grows.
Developing countries especially got involved after 1946 and demanded that the Charter include exceptions that allowed them to impose special quantitative and other restrictions to facilitate their economic development. They were successful partly as a result of the value-climate of those days when everybody wanted to be seen to get on.
Altogether, the scope of the ITO had been too great as well as had opened too many avenues for endless (re-) negotiations in a multi-stakeholder situation.
However, at the same time as the ITO was being sorted out the US who were keen on restricting tariffs to promote trade (perhaps in its own interests + being the hegemon in the post-war world) came up with another idea.
The Truman admin sensed the troubles of getting ITO through, so in 1945 began the process of passing a Reciprocal Trade Agreements Act - a much les ambitious and troubling project.
Simultaneously with the negotiations on the
Havana Charter, negotiations on a multilateral tariff-reduction treaty entered into full swing at the
Geneva Conference in 1947. The result of the latter set of negotiations was the
General Agreement on Tariffs and Trade (
This was signed up to by 23 countries including developing ones to provide a set of rules whereby all participants would restrict tariffs as far as possible with respect to each other.
Compared with the ITO it was far less extensive in scope - it did not provide for what would be considered domestic matters such as labour and employment legislation.
and less extensive than GATTs successor - it was not such a highly legal rule-bound structured organisation as is the WTO..it rested on much more informal types of negotiation between parties.
PARTIES’ (in the upper case) was used, as opposed to ‘organization’
2The elements of the
Amrita takes a slightly different view inasmuch as he suggests that key to
practice, however, the
by consensus; that is, a decision would be arrived at if none
of the parties present objected to it..
Across time problems arose;
These decisions were usually reached in the so-called Green Room meetings, which worked by invitation only. Tariff negotiations were conducted primarily on the Principal Supplier Principle: the principal suppliers and consumers of a particular product would negotiate tariff reductions and then extend the concessions to all contracting parties.
So developed countries were at a much greater advantage than developing ones because of:
1) Principal Supplier principle - the principal suppliers and consumers of a particular product would negotiate tariff reductions and then
extend the concessions to all contracting parties - and usually principle suppliers were the developed countries - so they sorted
2) larger staff and expertise to call on (such that developing countries sometimes felt marginalised at negotiations)
but at least its very informality meant that tariff restriction was not too tightly adhered to when developing nations felt that they were being harmed by imports.
Forms of tariff rights were sometimes invented to accommodate weaker nations, e.g. Voluntary Export Restraints.
where the latter was the
prelude to the formation of the WTO on
Why WTO rather than remaining with
The changing structure of world trade and the idea of comparative advantage
changing comparative advantage of developed countries, led by the
would have to expand into the new issues of services, intellectual property rights, and investment measures
if it wanted to keep the major traders aboard.
leading to developed countries wanting to expand the range of goods and services that should be subject to no tariffs
Proliferation of non-tariff barriers: e.g. sanction, embargoes etc
More countries in the face of changing
markets and political initiatives sought to be part of
and this led under the old rather informal way of negotiating to a far too complicated set of agreements.
Indeed as early as 1990 the EU had proposed a single dispute settling body
The simplicity of
Equally the interaction with the World Bank and the IMF in terms of loans to shore up under-investment or other economic needs should be put on a firmer structured basis. (note: unlike WB/IMF WTO is a member-drive org - not a top down staff/expert led org.)
But the WTO was not to include issues such as employment and labour practices e.g. treatment of foreign labour
It was going to apply the key rule of the Single Undertaking: that all participating countries had to apply trade agreements settled at the WTO as of a piece - they could not cherry-pick parts of agreements
The basic principles of trade under WTO
the WTO (as did
provides its members with two firm rules that provide the basis for all trade negotiations under its auspices:
a) the Most Favoured Nation (MFN) rule
b) the National Treatment rule.
The MFN principle applies to the standard trade in goods, but also to trade in services (GATS), and trade related aspects of intellectual property (TRIPS).
With the first principle, everybody is 'most-favoured nation - or as the WTO primer puts it: "Why ‘most-favoured’? This sounds like a contradiction. It suggests special treatment, but in the WTO it actually means non-discrimination — treating virtually everyone equally.
Each member treats all the other members equally as “most-favoured” trading partners.
If a country improves the benefits that it gives to one trading partner, it has to give the same “best” treatment to all the other WTO members so that they all remain “most-favoured”.
If X makes an agreement to trade tomatoes (at price L) with Y then X must also agree to trade tomatoes (at price L) with any other WTO member. X could however impose tariffs of a non-member of the WTO; but X could not trade non-tariff goods with a non-WTO country... yet trading those same goods with a tariff to fellow WTO members
That said, subject to quinquennial review, member states may be exempt from the MFN principle in respect of specified goods (Article XXIX Annexes: Annex on Article II exemptions)
and: a member may provide preferential treatment only to some countries within a free trade area or customs union, without having to extend such better treatment to all members. (e.g. EFTA/EU)
the National Treatment rule
Whilst the MFN principle seeks to ensure that a WTO Member does not discriminate between like products originating in or destined for other WTO Members....
The objective of the national treatment principle is to provide equality of competitive conditions for imported products in relation to domestic products.
the National Treatment principle applies to imported products once they are in a Member's territory.
The National Treatment principle prohibits a Member from favouring its domestic products over the imported products from other Member countries.
for instance X cannot impose on importer from Y... laws, taxes or standards that aim to protect Xs national products/sales/markets.
"The products of
the territory of any Member imported into the territory of any other Member
shall be accorded treatment no less favourable than that accorded to like
products of national origin" (Article
note my emphasis here: the concept of like is very slippy and open to much dispute!
And under the
Special and differential treatment: The negotiations have to take fully into account the principle of special and differential treatment for developing and least-developed countries.
Sustainable development: The Trade and Development and Trade Environment identify and debate developmental and environmental aspects of the negotiations to ensure that sustainable development is appropriately reflected.
The WTO covers not only the traditional area of trade in goods, as with
but also has General Agreements on Trade in Services, GATS - very open to asymmetries of trade - movements of highty trained doctors and other experts that were once thought of as untrade-ables. Undermines local development of experts and the tourist economy and the like. Internationalisation of hotel chains...
trade-related intellectual property rights (TRIPs), setting minimum standards on telecoms, electronics; medicines (patents v generics problem); very difficult for developing contries to keep up with/adhere to.
and trade-related investment measures (TRIMs): policies used by governments that require foreign investors to
meet certain performance standards in order to boost their domestic economies in a particular way. Examples include local
content requirements (whereby investors must use a certain minimum of domestically produced inputs), export requirements
(multinational enterprises must export a certain proportion of their produce to improve the balance of payments position of the
country), or technology transfer requirements..and what if the inputs are not of the requisite minimum standard that WTO mandates????
As has been noted:
Given all the above features, members of the WTO are far more deeply bound to its rules than the contracting parties of the
enjoy increased enforceability through the enhanced Dispute Settlement Mechanism that the previous regime could not afford. The organizational
structure of the WTO provides an excellent
illustration of how the WTO builds on some old
legalizes them in a way so unprecedented that the resulting change is a qualitative one.
Crit of WTO as an organisation that is run by its members:
"An analysis of the structures of the WTO reveals an interesting paradox. In many ways, the WTO is one of the most expansive and
intrusive organizations of its time. Its Ministerial Conference and many committees make rules that go deep inside the borders of
states. Members must adhere to these rules or face
retaliation. But simultaneously, the legacy of the
is also a very weak organization in other ways. The organization, up to its highest decision-making body – the Ministerial Conference –
is made up of the members themselves. The members have not had to surrender any of their decision-making powers to a secretariat, or
delegate them to an executive body. Any rules that the members must implement are ones that they themselves made in the councils
and committees (which are open to all of them). Any punitive action has to be exercised by the member rather the collective body, and
even the Dispute Settlement Body that authorizes such retaliations is ultimately the same as the General Council and therefore
constituted by country delegates. Given this rather frail existence of the WTO as an international organization, one might well wonder
why the WTO has attracted charges of a democratic deficit."
Other lines of criticism of the WTO
Anti-dumping difficult to police
....are not so abstract and have to do with the simmering frustration of developing countries' weakness in
negotiation as the expertise as well as the pace of negotiation lead them to often agree to proposals to just get a few crumbs of advantage.
Developing countries have long been
resentful of the relative ease with which developed countries, both in the
have been able to bludgeon them into consensus, and keep expanding the agenda of the organization despite the reservations that
developing countries have consistently had with this. This leads to distrust between developing and developed countries.
For example: An Oxfam report points out that Cambodia was required to give up the use of generic medicines as part of its
accession package, even though the WTO actually exempts LDCs from implementing this part of the agreement on intellectual
property rights until 2016. (Amrita, 2005)
Another example: prior to the Uruguay Round, only 22% of industrial products from developing countries were
bound. Post Uruguay Round, this figure had risen to 72%. Developed countries, in turn, took their own commitments on
industrial products even further, increasing the share of their bound industrial tariff lines from 78% to 99%. (Hoekman and Kostecki, 2009)
And of course developing countries are far more affected in their income from tariff binding that are developed economies.
Equally average tariff levels in developed countries goods appear low but on goods where developing countries have comparative advantage, developed countries tariffs are high thereby excluding the developing country for importing those items.
see page 13 and, for info as to what kinds of trading goods and service they are concerned with see p.7
Seminar & Reading
The WTO’s creation on
Much of the history of those 47 years was written in
from: The Economist - a critical piece. (2014)
A longish and sophisticated piece from the Geneva Institute of International Relations that surveys the nture and effects of the agreements of the recent (and moderately successful, givn the complexity of negotiations) Bali round of talks that are the last part of the very inconclusive 'Doha round of talk from previous years.
note: The Bali Package is a trade agreement resulting from the Ninth Ministerial Conference of the WTO in
4) a short
piece that looks at the results of the