UPH MTIC Program | Introduction

to WTO Law
Features and Functions of the World Trade Organization
Simon Lacey

What is the WTO or what is it NOT ?

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Common Misconceptions

The WTO is not part of the United Nations.

The WTO is not an organization staffed by men in dark suits, wearing reflective
sunglasses and flying around at night in black helicopters.

Nor is the WTO part of some international conspiracy to take over the world.

It is also not an organization that advocates the interests of multinational

corporations to the detriment of poorer developing countries.

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The World Trade Organization

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The WTO as an International

Organization
The WTO was established on 1 January 1995 (thus a young organization).
It comprises 160 Members (as June 2014), with countries as diverse (politically
and economically) as Israel, Saudi Arabia, Cuba and the USA, and includes
developed, developing and least developed countries (developing countries in
the majority).
It has approximately 30 countries currently in the queue to join, representing
such differing political and economic systems as Uzbekistan, the Bahamas,
Belarus and Bosnia Herzegovina.
It has a small secretariat located on the shores of Lake Geneva.
It decides by consensus.

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The WTO as a Body of Rules

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The WTO, as an organization, administers a body of rules known as the Final

Act Embodying the Results of the Uruguay Round of Multilateral Trade
Negotiations but which most people just call the WTO Agreement and its
related Annexes (about 500 pages of treaty texts).
These rules are first and foremost concerned with how governments regulate
trade between each other (trade in goods and trade in services).
They are only concerned with other issues like food safety, protection of the
environment, intellectual property rights, investment, government procurement
etc. to the extent that these issues affect trade between WTO Members.

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Main Principles Embodied in WTO Rules

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Non Discrimination
This is achieved by means of the MFN and National Treatment obligations, which apply
throughout all the agreements in different forms (GATT, GATS, TRIPS etc.)
Transparency
Any laws, regulations or measure which affect trade must be published BEFORE they enter into
effect, and if possible, be preceded by a process of consultation (notification obligations).
Predictability
Traders need to know the terms and conditions subject to which they will be operating, WTO
Members cannot, say, increase tariffs above bindings or re-introduce quantitative restrictions.
Consensus decision-making
All WTO bodies operate on the basis of consensus. However, consensus does not mean
unanimity, and in the WTO context merely means that no Member present when a decision is
taken, explicitly objects to it.
Single Undertaking
With the exception of a very limited number of plurilateral agreements, the Uruguay Round legal
texts must be accepted by WTO Members as a whole, (no opt-out, or choosing which
agreements to be bound by la carte)

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The WTO as a Balance of Rights and

Obligations
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Each WTO Member has a Schedule of Tariff Concessions which set out the
maximum tariff levels (called bindings) it shall levy on goods from other WTO
Members.
For services trade, each WTO Member has a Schedule of Specific Commitments
which sets out the terms and conditions subject to which foreign service providers
will be allowed to enter and operate on the Members domestic services market.
Together with the rules contained in the WTO Agreement and its related Annexes,
the Schedule of Tariff Concessions (for goods) and the Schedule of Specific
Commitments (for services), these make up the package of rights and obligations
which WTO Members enjoy and are bound by.

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The Concept of the Single Undertaking

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The use of the term Single Undertaking first came into common parlance during the
Uruguay Round
It was used to sum up the notion that the Round would not be concluded, until
consensus had been achieved in all the various negotiating groups
Today, given that the Uruguay Round is over, we still talk of the Single Undertaking
with regard to the notion that all the Results of the Uruguay Round are binding on
all WTO Members. Apart from the plurilateral agreements, Members cannot pick
and choose which agreements they wish to be bound by and which not

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Exceptions to the Single Undertaking

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In terms of the Single Undertaking as a negotiating imperative, we talk today of an

early harvest in the Doha negotiations, whereby some of the commitments on
which consensus may be achieved early on, could be adopted by the WTO
Membership and become operationalized before the Round as a whole has been
concluded.
Paragraph 47 of the Doha Ministerial Declaration makes an explicit reference to
this possibility with regard to dispute settlement.
Otherwise, the large degree of flexibility built into some agreements, particularly the
GATS, make it almost pointless to talk of a Single Undertaking with regard to, say,
market opening and other specific commitments in services trade.

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Purpose and Functions of the WTO

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The main objective of the Organization is the establishment of rules for Members
trade policy regimes which help international trade to expand with a view to raising
living standards.
These rules aim to promote non-discrimination, transparency and predictability in
the conduct of trade policy (we will look into these concepts slightly later in this
presentation).
The WTO pursues this objective by
Administering trade agreements
Acting as a forum for trade negotiations
Settling trade disputes
Reviewing national trade policies
Assisting developing countries in trade policy issues through technical
assistance
Cooperating with other international organizations.
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Organizational Chart of the WTO

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WTO Members 2013

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The WTO Secretariat

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The WTO Secretariat: Staff 2013

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The WTO Secretariat: Budget 2013

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The New Director General

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Brings a badly needed breath of fresh air to the Director

Generalship.
Should be able to play a decisive role in steering big
emerging market Members towards playing a more
constructive role.
Also has the tough role of finding a face-saving
conclusion to the Doha Round and then re-orientating
the Organization to meet the needs of an evolving
trading system.

The WTO as a System of Agreements

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The WTO Agreements have a fairly unique treaty structure, which is due to the fact
that they are simply the embodiment of a long and arduous round of trade
negotiations which lasted from 1986 to 1993.
The main document is one entitled The Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade Negotiations
Annexed to the Final Act are all the legal texts and other documents which make up
the entirety of the WTO nomenclature, namely: The Agreement Establishing the
World Trade Organization (The WTO Agreement), the Ministerial Declarations and
Decisions and the Understanding on Commitments in Financial Services.

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The WTO Agreements

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The Marrakesh Agreement

Establishing the WTO
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Otherwise known as the WTO Agreement

Essentially an institutional charter for the Organization
Governs such issues as functions of the WTO, structure, relations with other
organization, budget and contributions, decision-making procedures, accession,
withdrawal et al.
Short agreement comprising some 26 articles

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The Annex 1A Agreements Trade in

Goods
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These agreements cover trade in goods, they are:

GATT 1994
Agreement on Agriculture
SPS Agreement
Agreement on Textiles and Clothing (no longer in force)
TBT Agreement
TRIMS Agreement
Anti-dumping Agreement
Customs Valuation Agreement
Preshipment Inspection
Rules of Origin
Import Licensing Procedures
Subsidies and Countervailing Measures
Safeguards
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Annex 1B Trade in Services

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The General Agreement on Trade and Services and its Annexes:

Annex on Article II Exemptions

Annex on Movement of Natural Persons Supplying Services under the Agreement
Annex on Air Transport Services
Annex on Financial Services
Second Annex on Financial Services
Annex on Negotiations on Maritime Transport Services
Annex on Telecommunications
Annex on Negotiations on Basic Telecommunications

The Schedules of Specific Commitments also form an integral part of Annex 1B

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Annex 1C Intellectual Property

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Annex 1C to the WTO Agreement comprises the Agreement on Trade-Related

Aspects of Intellectual Property Rights.
The TRIPS Agreement was one of the new areas which became subject to
multilateral trade rules as a result of the Uruguay Round (together with services).
Many of its substantive obligations were already codified at the international level in
other treaties, but the main innovation provided by the TRIPS Agreement was to
henceforth make these obligations subject to formal dispute settlement (see next
slide).

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Annex 2 Dispute Settlement

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Annex 2 to the WTO Agreement comprises the Understanding on Rules and

Procedures Governing the Settlement of Disputes
This is an important document for dealing with trade disputes and one of the most
important innovations of the Uruguay Round
We shall discuss the DSU and its application in later sessions (with Peter van den
Bossche)

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Annex 3 Trade Policy Review

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Annex 3 sets out provisions governing the Trade Policy Review Mechanism.
The trade policy review had already existed prior to the entry into force of the WTO,
and had been operational since the 1980s.
But the Uruguay Round codified the procedure more formally and brought it under
the treaty structure of the WTO.
It also established the Trade Policy Review Body as part of the WTOs institutional
structure

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Annex 4 - Plurilaterals
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Annex 4 to the WTO Agreement contains the so-called Plurilateral Trade Agreements,
namely

Agreement on Trade in Civil Aircraft

Agreement on Government Procurement
International Dairy Agreement (expired)
International Bovine Meat Agreement (expired)

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Ministerial Decisions and Declarations

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These are a series (27) of decisions and declarations also annexed to the WTO
Agreement, concerning various issues, such as:
Decision on Measures in Favour of Least-Developed Countries
Decision on Notification Procedures
Declaration on the Relationship of the WTO with the IMF
and various other decisions and declarations

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Understanding on Commitments in
Financial Services
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This Understanding, explicitly mentioned in the Uruguay Round Final Act

The Understanding was necessary in order to allow the so-called overtime
negotiations on financial services which certain Members (particularly the US)
insisted on before allowing the Round to be concluded.

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GATT 1947 and GATT 1994

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Although superseded by GATT 1994, the legal text of GATT 1947 is still of the
greatest relevance today, and as such GATT 1947 has been appended to the
Uruguay Round Final Act.
The GATT 1994 comprises the provisions of the GATT 1947 as well as a number of
legal instruments which entered into force under GATT 1947 before the date of
entry into force of the WTO Agreement.
The GATT 1994 also comprises a number of Understandings which are
enumerated and subsequently set out at the start of Annex 1A (in goods).

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The Work of the WTO Expanding Membership

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The WTO aspires to be a universal organization, meaning that any State or

separate customs territory may apply to join.
The WTO is somewhat like a club, to which applicants must negotiate their entry
fee.
At present, some 30 such applications are at various stages of being negotiated.
WTO accession negotiations are generally fairly long and drawn-out affairs, and
can take anything from 2 to 15 years.
Working Parties are set up to manage the negotiation process for each applicant
individually, and it is the WTO General Council that ultimately adopts the protocol
of accession once these negotiations are complete.

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The WTO Accession Process in a Nutshell

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Accession to the WTO is by agreement with current members.

A candidate country must make offers
offers to these members which are then
accepted.
These offers concern:
tariff levels (market access for foreign goods)
services (access to ones own market for foreign service suppliers)
agriculture (market access and use of subsidies).
But the process also involves making often far-reaching legislative changes, the
purpose of which is to ensure that the market access opportunities given by means
of these offers, is not subsequently undermined by other, contradictory policies.

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WTO Accession Which Members are

Most Active?
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Each Working Party is different and attracts the interest of different Members
Not every Member has resources in Geneva or the capital to dedicate to
accessions and some wont have a trade interest which is significant enough for
them to weigh in
However a core group of Members are represented on every accession working
party: Australia, Canada, the European Communities and its Member States, India,
Japan, New Zealand, Switzerland, and the United States

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WTO Accession: The Different Issues

Involved
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Market access interests

Real and present Market access interest
Potential or theoretical market access interest
Systemic interests
Compliance with current rules
Compliance with future rules
Other Geopolitical or strategic interests
Going after geopolitical objectives
Settling old scores

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WTO Accession and Market Access

Interests
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The importance of market access as a driving force for Members

It will, most probably, be a market access issue which underlies any decision for a
non-core group Members to join a given accession working party

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WTO Accession: Real and Effective

Market Access Interests
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Definition: a good or service which a WTO Member currently exports into the
market of the applicant
Members objectives here are clear: Improve current market access terms or lock in
current market access conditions

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WTO Accession: Real Market Access

Issues for Trade in Goods
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Negotiate a tariff binding at or below the applied level which the product currently
enjoys;
Commitment not to set up more restrictive trade barriers where none have existed
before (TRQs, import licensing procedures);
Use of antidumping duties by the applicant (case of Belarus and Lithuania, or
Ukraine and Kyrgyz Republic);
Opposite case of antidumping duties in place by a Members and negotiating a kind
of peace clause: for them (case of Mexico and China).

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WTO Accession: Potential or

Theoretical Market Access Interests
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Definition: market access requests of an applicant involving a product where

there is little or even no trade currently taking place.
As a rule, involve products which are of general export interest to a given
Member such as of cheese, or luxury watches (Swiss) Tequila (Mexicans)
Member in question will have this request as part of a standard formula or
template
The importance of this concession to the Member in question can be seen
more in terms of domestic politics

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WTO Accession: Systemic Issues

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A number of broader and more far-reaching concerns also see Members take
a tough and committed stance
Two Distinct Categories of Systemic Interests:
Applying Todays Rules Now
Creating Conditions on the Ground for Tomorrow

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WTO Accession: Systemic Issues:

Applying Todays Rules Now
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Example: Immediate and Full Implementation of the TBT and SPS Agreements
Issue important for Members who want to protect their market access interests
from nullification or impairment by WTO-illegal TBT or SPS measures
The best strategy for applicants is to identify what are the most significant products
for Members and bring standards into compliance for these products
And then there is always the legislative action plan
Members generally hostile to any requests for implementation period, given the
lengthy period of time accessions usually take anyway

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WTO Accession: Systemic Issues = Creating

Conditions on the Ground for Tomorrow
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Members can see a given accession as a chance to ask the applicant to

accede with rules in place which the multilateral system may be moving
towards
Example The GPA

Essentially only 15 Signatories (counting the EU as one)

Only limited success in broadening membership since the UR
WTO Accession seen as a good way to up-the-numbers
14 acceded Members have become observers, of which 7 are currently negotiating
accession
Also an underlying market access interest given the importance of the public
sector in many acceded Members

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WTO Accession: Other Geopolitical or

Strategic Interests
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A number of accessions have also seen a different set of issues leveraged within
the unique dynamic represented by the WTO accession process
Essentially two types of non-trade related issues:
Pursuit of Geopolitical Objectives (example of Kyoto Protocol)
Settling old scores (settlement of old Comecon debts)

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WTO at Work - Doha

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DOHA
DEVELOPMENT
AGENDA - DDA
Monitoring of the
negotiations and
organization of work

Ad hoc Negotiating Structure for the Doha Round

Trade Negotiations Committee (TNC)
reports to the General Council
chaired by the Director-General (ex-officio)
(new) Negotiating Groups (ad hoc)
Special Sessions of existing Bodies

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Doha Work Programme

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Implementation (12)
Agriculture (13-14)
Services (15)
Market Access for Non-Agricultural Products (16)
TRIPS (17-19)
Trade and Investment (20-22)
Trade and Competition Policy (23-25)
Transparency in Government Procurement (26)
Trade Facilitation (27)
WTO Rules (28-29)
Dispute Settlement (30)
Trade and Environment (31-32)
Electronic Commerce (34)
Small Economies (35)
Trade, Debt and Finance (36)
Trade and Transfer of Technology (37)
Technical Cooperation and Capacity Building (38-41)
Least-Developed Countries (42-43)
Special and Differential Treatment (44)
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The Doha Round in Brief

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Since the launch of the Round in 2001, progress has been slow and tumultuous:
September 2013 Collapse in Cancun
July 2004 The July Package temporarily puts the Round back on track
December 2005 - the Hong Kong Ministerial steady progress
July 2008 Lamy bets the farm and loses, leading to an impasse
Since 2008 a number of Ministerial Conferences, without substantial progress on the Doha Work Program
December 2013 Bali, seen as somewhat of a breakthrough

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Assessing the BaliPackage

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Food Security
Trade Facilitation
Least Developed
Countries
Other Issues

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Assessing Bali: Food Security

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In November 2012, a group of developing countries led by India (known
as the G-33) tabled an informal proposal seeking additional flexibilities in
agricultural disciplines.
The main thrust of the proposal is to allow developing countries to pay
domestic farmers above-market prices to grow staple crops needed for
national stock-piling programs. These rules would normally run afoul of
WTO subsidy disciplines on trade-distorting domestic support.
Another element of this proposal is to loosen or broaden the definition of
what constitutes non trade-distorting domestic support to allow
developing countries to finance a range of agricultural reform policies.
Farm lobbies in developed countries have urged their trade negotiators
to fight these proposals or to encumber any such provisions with tight
constraints so they dont represent a blank check for developing country
governments to bankroll their farm sectors indefinitely.

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Assessing Bali: Trade Facilitation

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This is the one Singapore Issue that Members
achieved an explicit consensus on in July 2004 to
start negotiations on.
The negotiating mandate directs Members to
clarify and improve a number of existing GATT
disciplines including:
Article V (Freedom of Transit),
Article VIII (Fees and Formalities connected with
Importation and Exportation), and
Article X (Publication and Administration of Trade
Regulations).

Negotiations also focus on technical assistance

and capacity building

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Assessing Bali: Least Developed

Countries
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Original Doha mandate spoke of integration of the LDCs into

the multilateral trading system requiring meaningful market
access, support for the diversification of their production and
export base, and trade-related technical assistance and
capacity building;
At Hong Kong, language was adopted that would see WTO
Members required to provide duty-free and quota-free
(DFQF) market access on a lasting basis, for all products
originating from all LDCs.
At Bali, the onus will be on Members to unhook this
commitment from the Single Undertaking and operationalize
it immediately.

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Assessing Bali: Other Issues

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Expanding membership and coverage of the Information Technology Agreement

(now seems very unlikely in the face of Chinese intransigence)
Ratifying the changes to the Government Procurement Agreement agreed at the
WTO Ministerial in 2011 (probably not going to happen either since not enough
Members have themselves implemented the new rules)
Achieving consensus on an Agreement on Non-Preferential Rules of Origin (not
really being talked about at all for Bali but may come after)
Abandoning the Single Undertaking in areas such as services (this has long been
the de-facto position of many countries and is a tendency that will only increase)

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Effective Participation in Trade Negotiations

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Although the WTO boasts some 153 Members, some are more effective than
others at using their Membership to further the national economic interest.
Sending a negotiating team to the WTO is much like sending a team to the
Olympics or the World Cup: many teams compete, but only a handful do so
effectively.
The negotiating team needs sufficient and adequate input from those affected by
their negotiated outcomes, i.e. economic operators and the private sector in
general.

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What are the Benefits of the WTO?

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The WTO website lists 10 benefits of the WTO and the trading system it oversees. They
are, it says:

The system helps promote peace.

Disputes are handled constructively.
Rules make life easier for all.
Freer trade cuts the cost of living.
It provides more choice of products and qualities.
Trade raises incomes.
Trade stimulates economic growth.
The basic principles make life more efficient (for traders).
Governments are shielded from lobbying (from domestic pressure groups).
The system encourages accountable governance.
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Benefits of WTO Membership: Market

Diversification
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Being a WTO Member, and thus benefiting from MFN access to other WTO
Members allows exporters to develop alternative export markets.
Market diversification makes sense if exports into one market are suddenly
disrupted (such as by an antidumping measure etc.).

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Benefits of WTO Membership: Access to the

Dispute Settlement System
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Although WTO dispute settlement is always a last resort, sometimes it represents the
only way to force a recalcitrant Member to restore market access.
There are many examples of developing countries taking on other developing and
developed countries at the WTO and having their market access restored.
Without the WTO dispute settlement process, an aggrieved country has very little
leverage over the country denying it market access. This is because the WTO also a
system of remedies and sanctions in place when a WTO Member illegally restricts
the market access of another Member.

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Benefits of WTO Membership:

Transparency
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WTO Members have to publish any regulations or measures which affect their
trade regimes.
Some WTO Agreements (GATS, TBT, SPS) require them to establish enquiry
points which must respond to requests for information from foreign exporters and
service providers.
WTO Members enacting any measure to restrict trade (e.g. imposing a safeguard
measure) have to provide advance notice before doing so.

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Benefits of WTO Membership: Binding

Rules = Predictability
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WTO Members who have agreed to bind tariffs at certain levels, or to do away with
quantitative restrictions, cannot just disregard these commitments from one day to
the next.
In light of this reality, economic operators can be confident of the minimum
conditions of market access they can expect.
If WTO Members do breach these commitments, the dispute settlement system is
there to police them.

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Benefits of WTO Membership: More

Choice as Consumers
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We are all consumers of goods and services.

Being part of the WTO ultimately results in a domestic market that is more
liberalized and by definition more competitive.
One of the results of this competition is greater choice and cheaper prices.
Foreign banks and financial services providers are able to operate in the domestic
market.
Foreign telecommunications providers and retailers are allowed to operate in the
domestic market.
The result is more choice, cheaper prices, and better quality of life for everyone.

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Benefits of WTO Membership: More

Attractive to FDI
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WTO membership requires far-reaching legislative changes.

It results in an economic system which is more attractive to FDI, and WTO
Membership will be a sign to foreign investors that an economy fulfills certain
basic governance criteria.
There is evidence that FDI in China experienced a huge leap in the year
immediately following its accession to the WTO, as did Vietnam

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Benefits of WTO Membership: Improved

Governance
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WTO membership requires far-reaching changes of a legislative and institutional

nature.
It results in the discretion of the government to suddenly and arbitrarily impose
new barriers to foreign (and thus also domestic) economic operators being heavily
curtailed.
It also curtails the governments ability to pander to special economic interests
within the domestic economy that might be advocating protection at the cost of the
rest of the economy.
In short, it acts as a code of good conduct which limits the ability of governments to
enact damaging economic policies for the short-term benefits of a few.

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Challenges Currently Facing the

WTO
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Lack of negotiating authority in the US (will this change any time soon?)
Increasing tendency towards bilateralism and regionalism amongst WTO
Members (is this bad for the system?);
Increasing size of the Organization and out-dated decision making structures
(need for reform);
Negative perception of the Organization since Seattle Ministerial (is this
deserved?).

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The WTO as Treaty, Institution or

Something Else
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So far we have looked at the WTO as an organizational

structure comprising Members (Countries and Customs
Territories)
We have also looked at it as a system of agreements
It is also a binding body of rules, set out in the WTO
agreements and enforced within the context of the
institutional structures
The WTO is also a work in progress, constantly adding new
Members, and updating/amending its rules, as well as
adding new agreements to its treaty structure.

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Conclusion
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The benefits of the world trading system administered by the WTO are real, even
if they seem somewhat intangible sometimes.
WTO membership results in more competition, which can bring short-term
hardship as well as short and long-term benefits.
There is a clear need to manage expectations when it comes to trade
negotiations and obtaining WTO membership.
Trade policy is just one piece of the puzzle when it comes to the overall economic
reform program and must be managed sensibly.
The WTO is a institution and a system of rules created by humans and thus it is
not perfect. It does not claim to work perfectly to the satisfaction of everyone. If
Winston Churchill were to describe it, he would probably say that it is the worst
way to manage international economic relations except for all the other ways.

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Thank You
UPH MTIC Program | Introduction
to WTO Law
Features and Functions of the World Trade Organization