The World Trade Organization (WTO)

Introduction The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994).

The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain." Subject to formal ratification of the three most recent members, the WTO has 157 members,[7] representing more than 97% of the world's population,[8] and 26 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland.

Function Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.[28][29]

It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO duty to review and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making. Another priority of the WTO is the assistance of developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training.

The WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its annual publications and research reports on specific topics are produced by the organization. Finally, the WTO cooperates closely with the two other components of the Breton Woods system, the IMF and the World Bank.

More specifically, the WTO main activities are:

Negotiating the reduction or elimination of obstacles to trade (import tariffs, other barriers to trade) and agreeing on rules governing the conduct of international trade (e.g. antidumping, subsidies, product standards, etc.)

Administering and monitoring the application of the WTO agreed rules for trade in goods, trade in services, and trade-related intellectual property rights.

Monitoring and reviewing the trade policies of our members, as well as ensuring transparency of regional and bilateral trade agreements. Settling disputes among our members regarding the interpretation and application of the agreements. Building capacity of developing country government officials in international trade matters Assisting the process of accession of some 30 countries who are not yet member of the organization.

Conducting economic research and collecting and disseminating trade data in support of the WTO other main activities.

Explaining to and educating the public about the WTO, its mission and its activities.

Principles of the trading system 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 games. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:
1. Non-Discrimination. It has two major components: the most favored nation

2.

3.

4.

5.

(MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favor and you have to do the same for all other WTO members. National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize. Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic countryspecific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports. Safety valves. In specific circumstances, governments are able to restrict trade. There are three types of provisions in this direction: articles allowing for the use of trade measures to attain non economic objectives; articles aimed at ensuring
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"fair competition"; and provisions permitting intervention in trade for economic reasons. Exceptions to the MFN principle also allow for preferential treatment of developed countries, regional free trade areas and customs unions.

Organizational structure The General Council has multiple bodies which oversee committees in different areas, re the following: Council for Trade in Goods There are 11 committees under the jurisdiction of the Goods Council each with a specific task. All members of the WTO participate in the committees. The Textiles Monitoring Body is separate from the other committees but still under the jurisdiction of Goods Council. The body has its own chairman and only 10 members. The body also has several groups relating to textiles. Council for Trade-Related Aspects of Intellectual Property Rights Information on intellectual property in the WTO, news and official records of the activities of the TRIPS Council and details of the WTO work with other international organizations in the field. Council for Trade in Services The Council for Trade in Services operates under the guidance of the General Council and is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS). It is open to all WTO members, and can create subsidiary bodies as required. Trade Negotiations Committee The Trade Negotiations Committee (TNC) is the committee that deals with the current trade talks round. The chair is WTO director-general. The committee is currently tasked with the Doha Development Round. The Service Council has three subsidiary bodies: financial services, domestic regulations, GATS rules and specific commitments. The General council has several different committees, working groups, and working parties.[42] There are committees on the following: Trade and Environment; Trade and Development (Subcommittee on Least-Developed Countries); Regional Trade Agreements; Balance of Payments Restrictions; and Budget, Finance and Administration. There are working parties on the following: Accession. There are working groups on the following: Trade, debt and finance; and Trade and technology transfer. Agreements The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A discussion of some of the most important agreements follows. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or "pillars": domestic support, market access and export subsidies. The General Agreement on Trade in Services was created to

extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The Agreement entered into force in January 1995. The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. The Agreement on the Application of Sanitary and Phytosanitary Measures also known as the SPS Agreement was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the beginning of 1995. Under the SPS agreement, the WTO sets constraints on members' policies relating to food safety (bacterial contaminants, pesticides, inspection and labeling) as well as animal and plant health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the end of 1994. The object ensures that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade". The Agreement on Customs Valuation, formally known as the Agreement on Implementation of Article VII of GATT, prescribes methods of customs valuation that Members are to follow. Chiefly, it adopts the "transaction value" approach. The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A discussion of some of the most important agreements follows. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or "pillars": domestic support, market access and export subsidies. The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The Agreement entered into force in January 1995. The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. The Agreement on the Application of Sanitary and Phytosanitary Measures also known as the SPS Agreement was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the beginning of 1995. Under the SPS agreement, the WTO sets constraints on members' policies relating to food safety (bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the end of 1994. The object ensures that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade". The

Agreement on Customs Valuation, formally known as the Agreement on Implementation of Article VII of GATT, prescribes methods of customs valuation that Members are to follow. Chiefly, it adopts the "transaction value" approach.

The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A discussion of some of the most important agreements follows. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or "pillars": domestic support, market access and export subsidies. The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The Agreement entered into force in January 1995. The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. The Agreement on the Application of Sanitary and Phytosanitary Measures also known as the SPS Agreement was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the beginning of 1995. Under the SPS agreement, the WTO sets constraints on members' policies relating to food safety (bacterial contaminants, pesticides, inspection and labeling) as well as animal and plant health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the end of 1994. The object ensures that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade".[61] The Agreement on Customs Valuation, formally known as the Agreement on Implementation of Article VII of GATT, prescribes methods of customs valuation that Members are to follow. Chiefly, it adopts the "transaction value" approach.

The WTO Dispute Settlement Developing countries need access to foreign markets if they are to reap the benefits of globalization. Multilateral negotiations under the World Trade Organization (WTO) play a pivotal role in facilitating market access.2 yet, throughout the global economy, pressures for protectionism abound, threatening to roll back these gains. As a result, the Whos dispute settlement mechanism is widely seen as one of the most critical and successful features of the trade regime. Using this mechanism, WTO member-states can shine the spotlight of international legal scrutiny on the protectionist practices of

their trading partners. This rule-of-law system is especially important for developing countries, which typically lack the market size to exert much influence through more power-oriented trade diplomacy. Indeed, some poorer countries have used the WTO dispute settlement system to great effect, proving the system worth from a development perspective. 3 Nonetheless, the technical and legal complexity of this regime makes it difficult for other developing countries to effectively use the system, many of which have never filed a WTO dispute, despite having repeated grounds to do so. In this issues brief, we elaborate this point by describing:
a) How WTO dispute settlement works; b) The prospective benefits and hurdles to effective use of the regime by developing

countries; and
c) Some potential directions for technical assistance and capacity- building,

focusing on WTO dispute settlement, in particular.

How WTO Dispute Settlement Works A WTO dispute proceeds through three main stages: consultation; formal litigation; and, if necessary, implementation (figure 1). All disputes start with a request for consultations, in which the member government bringing the case to the WTO (the complainant) sets out its objections to the trade measure(s) of another member government (the defendant). The two Sides are then required to consult for 60 days with the goal of negotiating a mutually satisfactory solution to the dispute. Interestingly, a large proportion of cases are successfully resolved during consultations; 46% of all disputes brought to the WTO end at this stage, and three-quarters of those yield at least partial concessions from the defendant. If consultations do not result in a mutually satisfactory solution, the complainant can request a panel proceeding, marking the start of the formal litigation stage. Panels are comprised of three to five persons with a background in trade law, agreed to by the parties on a case-by-case basis. There are typically two rounds of testimony, including from other countries (third parties) that notify the WTO of a substantial interest in the case. The panel then circulates an interim report, offering both sides an opportunity to comment and seek clarification. The complainant and defendant can still negotiate a settlement at this point. In fact, another 13% of all cases end at this stage before a ruling is rendered. If not, the panel issues its final report, which is then adopted by the WTO, unless one of two things happens. First, the two sides can agree not to adopt the panel report for whatever reason, although to date this has not happened. Second, one or both sides (but not third parties) can appeal the panels report, which happens frequently The Appellate Body (AB) handles these appeals. Unlike panels, the AB is a standing body of jurists which is designed to ensure greater consistency across its rulings. The AB is tasked with hearing testimony from the parties, and any third parties, on how the panel may have erred in its legal reasoning. The AB can uphold or overturn the panel in whole or in part, and its decision is final. If this verdict favors the defendant, the case typically ends. If this verdict, instead, favors

the complainant, the dispute may proceed to the implementation stage. When a defendant is ruled against, the panel and (or) AB calls for it to bring its measures into accordance with its WTO obligations. What this means in practice is, itself, often contested. If the complainant feels that the defendant has not taken appropriate steps, it can subsequently request a compliance panel. This panel, which is often comprised of the original panel members, must determine whether the defendants efforts have, in fact, brought its measure(s) into compliance. If not A judgment the defendant can appeal to the AB the complainant can request a second panel to set the level at which it can retaliate against the defendant. This typically involves imposing tariffs on the defendants exports. It is essential to note two things about retaliation. First, requests for authorization to retaliate are rare. Indeed, complainants have asked for authorization to retaliate in just seven of the hundreds of cases handled by the WTO. Second, it is up to the complainant, and not the WTO, to follow through on this authorization to retaliate, and this is rarer still. Of the six requests authorized to date (the seventh is pending at the time of this writing), complainants have retaliated in only three cases. What is remarkable is that, despite its blend of law and politics, the system works, and works quite well. In fact, two-thirds of the disputes brought for adjudication in Geneva are resolved to the full satisfaction of the complainant. But is this true for all members? In particular, is the system useful for developing countries, most notably in disputes against developed countries? The answer is clearly yes, although more can be done to help developing countries make better use of the system.

WTO Dispute Settlement from a Development Perspective Trade liberalization promises considerable returns, but comes with risks. One such risk is the possibility that a foreign government will succumb to lobbying by its own domestic producers and grant them protection. This can undermine a developing countrys interest in reallocating resources to the affected export sector, since poor countries tend to have fewer alternative export markets, and fewer export goods. As a result, the mere anticipation of such protectionism can deter or dilute much needed trade reform in developing countries. The WTO dispute settlement system can help insure against this risk by maintaining market access once it is won, thereby encouraging developing countries to embark on an open trade growth strategy. The conventional wisdom, of course, is that developing countries face substantial hurdles in using WTO dispute settlement.5 Foremost among these is their lack of market size with which to credibly threaten retaliation for noncompliance. In other words, the concern is that even with a legal victory in hand, a developing country may not be able to compel the defendant to liberalize, since its in the first place. A developing country might also be reluctant to initiate a dispute because of fears of reprisals, such as the suspension of foreign aid or unilateral trade preferences. In addition to these difficulties, which in fact

are true for small developed countries as well, developing countries face a unique problem: the lack of legal capacity. To take full advantage of WTO law, developing countries need the facility to aggressively pursue their rights in the increasingly complex legal trade regime. For such capacity, a country must have several things. It needs experienced trade lawyers to litigate a case, but also seasoned politicians and bureaucrats to decide whether it is worth litigating a case, which is arguably the most critical stage of the process. It needs a staff to monitor trade practices abroad, but also the domestic institutions necessary to participate in international negotiations on complex issues, like health and safety standards, which figure so prominently on the WTO agenda. The truth of the matter is that many developing countries lack even a single full-time WTO representative, let alone the necessary dedicated trade negotiation bureaucracy at home. With these obstacles in mind, it might seem that developing countries stand to benefit little from WTO dispute settlement. But this is far from true. Poorer complainants have filed and won concessions from large industrialized states in a wide variety of disputes, with millions of dollars at stake. These cases have involved exports of underwear (Costa Rica v. US), shrimp (Thailand and Pakistan v. US), wool shirts (India v. US), gasoline (Venezuela and Brazil v. US), sardines (Peru v. European Communities) and poultry (Brazil v European Communities), among other products. Why, despite their lack of a credible threat to retaliate, have these developing countries succeeded in making effective use of WTO dispute settlement? The reason is that these complainants, like their wealthier counterparts, have benefited from the fact that defendants worry about the normative condemnation that goes along with a legal defeat, rather than threats of direct retaliation per se. In other words, defendants prefer to avoid being found noncompliant because such a label may damage their prospects of gaining compliance when they, in turn, file as complainants. In this way, defendant governments may value the integrity of the multilateral trade regime over the outcome of a single case. This means that poor complainants can use legal victories at the WTO to weigh in on the domestic political debates over free trade within defendant countries, as they look to gain market access. In short, the effectiveness of WTO dispute settlement derives more from these intangibles than from trade sanctions, which are rare, and which could never have been a credible factor in the dozens of cases in which wealthy defendants have conceded to poor complainants. Viewed from this perspective, the emphasis on retaliation at the WTO is misplaced. While it is true that larger countries can more credibly threaten to retaliate, threats of retaliation are not the key to the system. As Robert Hudec explained, other provisions of the WTO make legal complaints without retaliation quite a bit more effective than they were under GATT. He further observed that the inability of poor countries to retaliate is a problem, but it is a separate problem that has nothing to do with the utility of the dispute settlement procedure for a developing country complainant.6 The evidence, to which we now turn, bears out Hudecs discerning insight. In looking at the evidence, the first thing to note is that most WTO disputes are among a few members that account for the bulk of international trade, most notably the US and Europe. By comparison, developing countries have had little experience with dispute settlement. But, as Table 1 indicates, this disparity is largely explained by differences in trade volumes. Consistent with this explanation, a few developing countries, such as Brazil and India, have launched a

relatively large number of disputes, while others, like China, are increasingly active in dispute settlement as third parties, seeking to gain experience with the system.

Importance of the WTO dispute settlement system

The best international agreement is not worth very much if its obligations cannot be enforced when one of the signatories fails to comply with such obligations. An effective mechanism to settle disputes thus increases the practical value of the commitments the signatories undertake in an international agreement. The fact that the Members of the (WTO) established the current dispute settlement system during the Uruguay Round of Multilateral Trade Negotiations underscores the high importance they attach to compliance by all Members with their obligations under the WTO Agreement. Settling disputes in a timely and structured manner is important. It helps to prevent the detrimental effects of unresolved international trade conflicts and to mitigate the imbalances between stronger and weaker players by having their disputes settled on the basis of rules rather than having power determine the outcome. Most people consider the WTO dispute settlement system to be one of the major results of the Uruguay Round. After the entry into force of the WTO Agreement in 1995, the dispute settlement system soon gained practical importance as Members frequently resorted to using this system.

10 benefits of the WTO trading system

1. 2. 3. 4. 5. 6. 7. 8. 9.
10.

The system helps promote peace Disputes are handled constructively Rules make life easier for all Freer trade cuts the costs of living It provides more choice of products and qualities Trade raises incomes Trade stimulates economic growth The basic principles make life more efficient Governments are shielded from lobbying
The system encourages good government

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Dispute settlement This page is a gateway to material on:

Disputes in general, and how they are handled in the WTO and its Dispute Settlement Body New negotiations on the Dispute Settlement Understanding Individual dispute cases: The disputes

The WTOs procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO. The authors of these agreements are the member governments themselves the agreements are the outcome of negotiations among members. Ultimate responsibility for settling disputes also lies with member governments, through the Dispute Settlement Body.

The objectives of the WTO

The preamble to the WTO Agreement (Box 1.1) describes its objectives as including: raising standards of living ensuring full employment realizing these aims consistently with sustainable development and environmental protection ensuring that developing countries, especially the least developed countries (LDCs), secure a proper share in the growth of international trade. However, since its creation the WTOs emphasis has slipped from concentrating on these public interest goals to seeing itself primarily as an organization for liberalizing trade, and declaring that the systems overriding purpose is to help trade flow as freely as possible.1 This has been the source of one of the fundamental tensions surrounding the mandate and activities of the organization. Some (such as developing countries and non-governmental organizations) would like to see added emphasis on the public interest goals, whilst others (private companies and some industrialized countries, for instance) favour faster removal of obstacles to free trade.

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Today, an increasing number of voices are being raised to underline that free trade should not be an end in itself, but rather a tool to achieve equitable development and a better world. That the WTO public interest objectives remain out of reach of many has drawn criticism that the organization is dominated by rich countries, functions in a secretive manner, and helps feed the greed of the rich in the name of trade liberalization.

Conclusion The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO current work comes from the 198694 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the Doha Development Agenda launched in 2001. Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to open markets for trade. But the WTO is not just about opening markets, and in some circumstances its rules support maintaining trade barriers for example, to protect consumers or prevent the spread of disease. At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations. These documents provide the legal ground rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives. The systems overriding purpose is to help trade flow as freely as possible so long as there are no undesirable side effects because this is important for economic development and well-being. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be transparent and predictable. Trade relations often involve conflicting interests. Agreements, including those painstakingly negotiated in the WTO system, often need interpreting. The most harmonious way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the purpose behind the dispute settlement process written into the WTO agreements.

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