World Trade Organisation

What is the World Trade Organisation?

The World Trade Organisation (WTO) is a permanent institution which agrees, governs and administers the rules of the international trading system. The WTO's member states together contribute around 90 per cent of world trade.

It is charged with enforcing the rules that its members agree to. It does this through a framework of WTO Agreements, which are principally designed to eliminate protectionism and promote free trade. In this way, the WTO's rules are intended to uphold the principle of non-discrimination in trade: that is, the idea that similar products from different countries must be treated in the same way.

At the same time, the WTO acts as a negotiating forum, bringing together the trading nations of the world to resolve disputes and agree common principles. Member states can raise their concerns with one another in the WTO environment, while it also provides a mechanism for settling trade rows on the legal foundation of the Agreements.

The WTO is not a United Nations body, having its legal basis in the General Agreement on Tariffs and Trade Treaty 1994, which in turn has its roots in the General Agreement on Tariffs and Trade Treaty 1947.

Background

The WTO was created in 1995 to replace the General Agreement on Tariffs and Trade (GATT), the multilateral trade framework established in 1948 as an interim measure on the way to a proposed International Trade Organisation operating alongside the World Bank and International Monetary Fund.

The GATT began with 23 member states, and conducted its work of promoting trade and liberalisation through a series of "rounds" of negotiation, which saw average external tariff levels fall from 40 per cent to around 4 per cent in 1994.

The WTO was created as a result of the "Uruguay Round" of the GATT trade negotiations, which lasted from 1986 to 1994. The GATT process was an informal arrangement without binding rules, but it remained the only international trade forum following the failure of members (principally the USA) to ratify the Havana Charter of 1948 that would have set up the International Trading Organisation. The WTO was intended to be a permanent forum for negotiations and a source of a binding international framework of rules.

The new Organisation was charged with taking forward a widened agenda, which included for the first time agriculture and textiles. However, its focus has shifted from an emphasis on the trading in goods, towards one of dealing with services and intellectual property.

Its short history has been characterised by a series of major disputes. The very future of the WTO was cast into doubt by the collapse of Ministerial talks held in Seattle in 1999. Not only were hundreds arrested in anti-globalisation disturbances outside the meetings, but the representatives of around 40 developing countries refused to accept US-led proposals for reducing tariffs on cotton and other goods, while the West refused to address the development concerns that were not on the agenda. The blocking coalition held out until the time scheduled for concluding the negotiations expired.

Development concerns were reserved for the next scheduled meeting, to be held in 2001 in Doha, Qatar. The "Doha Development Agenda" formed the basis of negotiations intended to be completed by 2005.

However, following a positive meeting in Doha in November 2001 - galvanised by the impact of the 9-11 terrorist attacks on the USA - the next round of talks, in Cancun, Mexico, in 2003, also collapsed in failure. Once again, the developed world and the developing world could not reach agreement on the question of agricultural subsidies.

The original deadline of 1 January 2005 was missed, as was the next unofficial target of the end of 2006 and it was then hoped the Doha round would finally be concluded by the end of 2008. In a speech to the Finance Commission of the French National Assembly, on 1 October 2008, WTO director-general, Pascal Lamy, warned that failure of the Doha round would weaken the WTO system.

But once again talks broke down because of a failure to reach agreement over agricultural imports. Mr Lamy was adamant the talks could and must be completed by the end of 2011. He told delegates at a trade negotiations committee meeting in November 2010 that the G20 in Seoul and APEC Leaders and Ministers in Yokohama had both "sent strong signals of political resolve" to conclude the Doha Development Round in 2011.

However, the long-awaited agreement yet again failed to materialise and hopes of keeping the Doha round alive are now pinned on some sort of progress being made at the Ninth WTO Ministerial Conference scheduled to take place in Bali from 3rd to 6th December 2013.

Controversies

In its early years, the developing countries represented within the WTO were disorganised and weak in the face of the developed world, particularly the USA; unable to resist the pressure exerted by countries that were frequently major investors and creditors. However, since Seattle, they have been increasingly working together, turning the WTO into a battleground between the rich and the poor.

It would be wrong, however, to characterise the history of the WTO as purely one of conflict between developed, rich members and the developing, poor members. 1997 saw the outbreak of a "banana war" between the USA and the EU, when the USA pressed the WTO into ruling against the EU's privileged trade agreements with Caribbean banana producers, subjecting them to competition from US-based multinationals such as Chiquita. The USA and the EU have also clashed over EU restrictions on genetically modified crops and hormone-treated beef.

The commitment of the WTO to trade liberalisation, which is perceived in many quarters to be at the expense of social objectives, has made it the focus of the anti-globalisation movement in recent years. It is feared that the removal of protections to markets in the developing world will expose their domestic industries, notably agriculture, to competitive pressures from multinational companies that they cannot cope with.

The WTO itself and its supporters deny this charge, pointing to the Doha Development Agenda's focus on the concerns of many developing countries.

Conversely, the WTO has been criticised for protecting the interests of Western pharmaceutical companies at the expense of public health, through the TRIPS (trade-related aspects of intellectual property rights) agreement. This prevented developing countries from producing generic versions of patented drugs, notably treatments for HIV/AIDS and malaria, which they maintained were being sold at unfair prices.

In 2001, a group of pharmaceutical companies took South Africa to court for permitting the manufacture of generic antiretroviral HIV/AIDS drugs in contravention of TRIPS, despite the country's inability to provide otherwise for a population of 4.7 million infected people. The case was eventually dropped, and an agreement on generic drugs was reached in 2003.

Another criticism of the WTO is that the organisation itself lacks the power to stand up to the rich nations. This was illustrated in 2002, when the USA introduced steel tariffs in order to protect domestic producers following the economic downturn precipitated by 9-11. Although the WTO ruled the move to be illegal in March that year, it refused to impose any sanctions on the USA. This prompted the EU to retaliate with its own tariffs on US goods; precisely the sort of tit-for-tat "trade war" the WTO was founded to prevent.

The Doha round of trade negotiations is another area of increasing controversy, with the latest failure to reach agreement in December 2011 leading to much speculation that the project will have to be abandoned altogether.

However, WTO director-general Pascal Lamy remains committed to the process and has called for the 2013 Bali Ministerial Conference to “signal confidence” in continuing with the Doha agenda.

Indonesia said the beautiful setting of Bali “would be conducive to advancing the Doha Round.”

Statistics

The WTO currently has 158 members.

In 2012, the WTO welcomed 4 new members: Montenegro, Samoa, Russian Federation and Vanuatu.
Laos ratified its membership agreement on 3 January 2013 to officially become the WTO’s 158th member on 2 February 2013.

Source: WTO - 2013

Quotes

“Any state or customs territory having full autonomy in the conduct of its trade policies may become a member (“accede to”) the WTO, but all WTO members must agree on the terms. This is done through the establishment of a working party of WTO members and through a process of negotiations.”

WTO - December 2012

“Although we must manage expectations and keep ambitions in check for Bali, we cannot fall short of delivering on a credible basket of issues that would signal your confidence that the rest of the Doha agenda can be addressed in due course.”

WTO director-general Pascal Lamy, in his report to the Trade Negotiations Committee - December 2012