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 existing 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. Now Mr Lamy is adamant the talks can 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.

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.

Controversies

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.

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.

Another criticism of the WTO is that it 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.

Statistics

The WTO currently has 153 members.
The EU is a WTO member in its own right as are each of its 27 member states - making 28 WTO members.
The WTO Secretariat is located in Geneva. It has around 630 staff and is headed by a director-general.
The WTO budget is over 160 million Swiss francs with individual contributions calculated on the basis of shares in the total trade conducted by WTO members. Part of the WTO budget also goes to the International Trade Centre.

Source: WTO - 2011

Quotes

"The Doha Round - when completed - will oil the wheels of international trade in commodities, giving the developing world its fair share of the market. It will improve the workings of what is no more, in the end, than a transmission belt, between countries where there is demand and countries where there is supply.
"For food trade, the climate crisis makes a properly functioning transmission belt even more imperative. Droughts, and other natural catastrophes, should not deprive parts of the globe from food."

WTO director-general Pascal Lamy, inaugural address to the UNCTAD Global Commodities Forum in Geneva - January 2011