World Trade Organization

2007 Schools Wikipedia Selection. Related subjects: Economics

World Trade Organization
Headquarters	Geneva, Switzerland
Membership	149 member states
Official languages	English, French and Spanish
Secretary-General	Pascal Lamy
Formation	1995
Official website	www.wto.int

The World Trade Organization (WTO, French: Organisation mondiale du commerce, Spanish: Organización Mundial del Comercio) is an international, multilateral organization, which sets the rules for the global trading system and resolves disputes between its member states; all of whom are signatories to its approximately 30 agreements.

WTO headquarters are located in Geneva, Switzerland. Pascal Lamy is the current Director-General taking over from the previous Director-General Supachai Panitchpakdi on September 1, 2005. As of November 7, 2006, there are 149 members in the organization with Vietnam being the latest to join.

Since its inception in 1995, the WTO has been a major focus for protests by civil society groups in many countries. See criticism.

History

The Bretton Woods Conference of 1944 proposed the creation of an International Trade Organization (ITO) to establish rules and regulations for trade between countries. Members of the UN Conference on Trade and Employment in Havana agreed to the ITO charter in March 1948, but ratification was blocked by the U.S. Senate (WTO, 2004b). Some historians have argued that the failure may have resulted from fears within the American business community that the International Trade Organization could be used to regulate (rather than liberate) big business (Lisa Wilkins, 1997; Helen Milner 1993).

Only one element of the ITO survived: the General Agreement on Tariffs and Trade (GATT). Seven rounds of negotiations occurred under the GATT before the eighth round - known as the Uruguay Round — which began in 1986 and concluded in 1995 with the establishment of the WTO. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them and approximately 30 other agreements and resolving trade disputes between member countries. Unlike the GATT, the WTO has a substantial institutional structure.

Mission

The WTO states that its aims are to increase international trade by promoting lower trade barriers and providing a platform for the negotiation of trade and to their business.

Principles of the trading system

The WTO discussions should follow these fundamental principles of trading.

1. A trading system should be free of discrimination in the sense that one country cannot privilege a particular trading partner above others within the system, nor can it discriminate against foreign products and services.
2. A trading system should tend toward more freedom, that is, toward fewer trade barriers (tariffs and non-tariff barriers).
3. A trading system should be predictable, with foreign companies and governments reassured that trade barriers will not be raised arbitrarily and that markets will remain open.
4. A trading system should tend toward greater competition.
5. A trading system should be more accommodating for less developed countries, giving them more time to adjust, greater flexibility, and more privileges.

Formal Structure

According to WTO rules, all WTO members may participate in all councils, committees, etc., except Appellate Body, Dispute Settlement panels, and plurilateral committees. In practice, most of the WTO's decisions are made in informal meetings, often called " Green Room" meetings, to which most members are not invited. See criticism.

Highest level: Ministerial Conference

The topmost decision-making body of the WTO is the Ministerial Conference, which has to meet at least every two years. It brings together all members of the WTO, all of which are countries or separate customs territories. The Ministerial Conference can make decisions on all matters under any of the multilateral trade agreements.

Second level: General Council

The daily work of the ministerial conference is handled by three groups: the General Council, the Dispute Settlement Body, and the Trade Policy Review Body. All three consist of the same membership - representatives of all WTO member states - but each meets under different rules.

1. The General Council- is the WTO’s highest-level decision-making body in Geneva, meeting regularly to carry out the functions of the WTO. It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years. The council acts on behalf on the Ministerial Council on all of the WTO affairs. The current chairman is Amb. Eirik Glenne (Norway).

2. The Dispute Settlement Body - Made up of all member governments, usually represented by ambassadors or equivalent. The current chairperson is H.E. Mr. Muhamad Noor Yacob (Malaysia).

3. The Trade Policy Review Body (TPRB) - the WTO General Council meets as the Trade Policy Review Body to undertake trade policy reviews of Members under the TRPM. The TPRB is thus open to all WTO Members. The current chairperson is H.E. Ms. Claudia Uribe (Colombia).

Third level: Councils for Trade

The Councils for Trade work under the General Council. There are three councils - Council for Trade in Goods, Council for Trade-Related Aspects of Intellectual Property Rights, and Council for Trade in Services - each council works in different fields. Apart from these three councils, six other bodies report to the General Council reporting on issues such as trade and development, the environment, regional trading arrangements and administrative issues.

1. Council for Trade in Goods- The workings of the General Agreement on Tariffs and Trade (GATT) which covers international trade in goods, are the responsibility of the Council for Trade in Goods. It is made up of representatives from all WTO member countries. The current chairperson is Amb. Yonov Frederick Agah (Nigeria).

2. 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’s work with other international organizations in the field.

3. 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’s open to all WTO members, and can create subsidiary bodies as required.

Fourth level: Subsidiary Bodies

There are subsidiary bodies under each of the three councils.

1. The Goods Council- subsidiary under the Council for Trade in Goods. It has 11 committees consisting of all member countries, dealing with specific subjects such as agriculture, market access, subsidies, anti-dumping measures and so on. Committees include the following:

• Information Technology Agreement (ITA) Committee
• State Trading Enterprises
• Textiles Monitoring Body - Consists of a chairman and 10 members acting under it.
• Groups dealing with notifications - process by which governments inform the WTO about new policies and measures in their countries.

2. The Services Council- subsidiary under the Council for Trade in Services which deals with financial services, domestic regulations and other specific commitments.

3. Dispute Settlement panels and Appellate Body- subsidiary under the Dispute Settlement Body to resolve disputes and the Appellate Body to deal with appeals.

Other committees

• Committees on
  • Trade and Environment
  • Trade and Development (Subcommittee on Least-Developed Countries)
  • Regional Trade Agreements
  • Balance of Payments Restrictions
  • Budget, Finance and Administration
• Working parties on
  • Accession
• Working groups on
  • Trade, debt and finance
  • Trade and technology transfer

Trade negotiations

While most international organizations operate on a one country, one vote or even a weighted voting basis, many WTO decisions, such as adopting agreements (and revisions to them) are officially determined by consensus of all member states. The advantage of consensus decision-making is that it encourages efforts to find the most widely acceptable decision. Main disadvantages include large time requirements and many rounds of negotiation to develop a consensus decision, and the tendency for final agreements to use ambiguous language on contentious points that makes future interpretation of treaties difficult.

In reality, WTO negotiations proceed not by consensus of all members, but by a process of informal negotiations between small groups of countries. Such negotiations are often called "Green Room" negotiations (after the colour of the WTO Director-General's Office in Geneva), or "Mini-Ministerials", when they occur in other countries. These processes have been regularly criticized by many of the WTO's developing country members which are often totally excluded from the negotiations.

Richard Steinberg (2002) argues that although the WTO's consensus governance model provides law-based initial bargaining, trading rounds close through power-based bargaining favouring Europe and the United States, and may not lead to Pareto improvement.

Doha round

The WTO began the current round of negotiations, the Doha round, at the Fourth Ministerial Conference in Doha, Qatar in November 2001. The talks have been highly contentious and agreement has not been reached, despite continuing talks at Fifth Ministerial Conference in Cancún in 2003 and at the Sixth Ministerial Conference in Hong Kong on December 13 - December 18, 2005 and in Geneva - July 2006.

Dispute resolution

Apart from hosting negotiations on trade rules, one of the principal functions of the WTO is to act as an arbiter of disputes between member states. Member states can bring disputes to the WTO's Dispute Settlement Body (DSB) if they believe another member has breached WTO rules. The DSB is the WTO General Council acting in a specialized role under a separate chair. It administers the Understanding on Rules and Procedures Governing Settlement of Disputes (DSU), which regulates dispute settlement under all covered WTO agreements.

Disputes are heard by a Dispute Settlement Panel, usually made up of three trade officials. The panels meet in secret and are not required to alert national parliaments that their laws have been challenged by another country.

Either side can appeal a panel's ruling. Appeals have to be based on points of law such as legal interpretation -they cannot reexamine existing evidence or examine new issues. Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the Dispute Settlement Body and broadly representing the range of WTO membership. Members of the Appelate Body have four-year terms. They have to be individuals with recognized standing in the field of law and international trade, not affiliated with any government. The appeal can uphold, modify or reverse the panel's legal findings and conclusions. Normally appeals should not last more than 60 days, with an absolute maximum of 90 days. The Dispute Settlement Body has to accept or reject the appeals report within 30 days - and rejection is only possible by consensus.

Unlike most other international organizations, the WTO has significant power to enforce its decisions through the authorization of trade sanctions against members which fail to comply with its decisions.

The WTO dispute settlement system has been quite active since the founding of the organization. Proceedings have produced a huge corpus of what is sometimes called WTO law.

If decisions of the Dispute Settlement Body are not complied with, it may authorize "retaliatory measures" - trade sanctions - in favour of the member(s) which brought the dispute. While such measures are a strong mechanism when applied by economically powerful states like the United States or the European Union, when applied by economically weak states against stronger ones, they can often be ignored. This has been the case, for example, with the March 2005 Appellate Body ruling in case DS 267, which declared US cotton subsidies illegal.

In order to assist developing countries overcome their limited expertise in WTO law and assist them in the management of complex trade disputes, an Advisory Centre on WTO Law was established in 2001. The aim is to level the playing field for these countries and customs territories in the WTO system by enabling them to have a full understanding of their rights and obligations under the WTO Agreement.

Membership

The WTO has 150 members (76 members at its foundation and a further 74 members joined over the following years). The 25 states of the European Union are represented also as the European Communities. Some non-sovereign autonomous entities of member states are included as separate members.

The latest member to join was Vietnam (although the Kingdom of Tonga was admitted on 15 December, 2005 during the ministerial conference, Tonga has yet to finalize ratification of this admittance, and is not expected to do so until July 2007). A current list of members can be found here.

The shortest accession negotiation was that of the Kyrgyz Republic, lasting 2 years and 10 months. The longest was that of the People's Republic of China, lasting 15 years and 5 months. Russia, having first applied to join GATT in 1993, is still in negotiations for membership.

A number of non-members have been observers (31) at the WTO and are currently negotiating their membership: Algeria, Andorra, Azerbaijan, Bahamas (process frozen in 2001), Belarus, Bhutan, Bosnia and Herzegovina, Cape Verde, Equatorial Guinea (expected to start membership negotiations in 2007 or earlier), Ethiopia, Holy See (Vatican; special exception from the rules allows it to remain observer without starting negotiations), Iran ¹, Iraq, Kazakhstan, Lao People's Democratic Republic, Lebanon, Libya, Montenegro, Russian Federation, Samoa, Sao Tome and Principe, Serbia, Seychelles (negotiations frozen since 1998), Sudan, Tajikistan, Ukraine, Uzbekistan, Vanuatu (accession agreed in 2001, but not ratified by Vanuatu itself), and Yemen.
¹ Iran first applied to join the WTO in 1996, but the United States, accusing Tehran of supporting international terrorism, blocked its application 22 times. The U.S. said in March it would drop its veto on a start to Iran's accession negotiations. The U.S. has chosen not to block Iran's latest application for membership as part of a nuclear related deal.

Syria first applied to join the WTO in October 2001, then again in January 2004 and September 2005. Its application for membership is currently still pending, waiting for WTO General Council approval to start negotiations.

The following states (15) and territories (2) so far have no official interaction with the WTO: the states of Eritrea, Somalia, Liberia, Turkmenistan, North Korea, Monaco, San Marino, East Timor, Comoros, Nauru, Tuvalu, Palau, Kiribati, Micronesia, Marshall Islands and the territories of Western Sahara, Palestine.

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 list of WTO agreements can be found here A discussion of some of the most important agreements follows.

Agreement on Agriculture (AoA)

The AoA 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.

Domestic support

The first pillar of the AoA is "domestic support". The AoA structures domestic support ( subsidies) into three categories or "boxes": a Green Box, an Amber Box and a Blue Box. The Green Box contains fixed payments to producers for environmental programmes, so long as the payments are "decoupled" from current production levels. The Amber Box contains domestic subsidies that governments have agreed to reduce but not eliminate. The Blue Box contains subsidies which can be increased without limit, so long as payments are linked to production-limiting programmes.

The AoA's domestic support system currently allows Europe and the USA to spend $380 billion annually on agricultural subsidies alone. "It is often still argued that subsidies are needed to protect small farmers but, according to the World Bank, more than half of EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of producers, mainly agri-businesses." . The effect of these subsidies is to flood global markets with below-cost commodities, depressing prices and undercutting producers in poor countries – a practice known as dumping.

Market Access

"Market access" is the second pillar of the AoA, and refers to the reduction of tariff (or non-tariff) barriers to trade by WTO member-states. The 1995 AoA required tariff reductions of:

• 36% average reduction by developed countries, with a minimum per tariff line reduction of 15% over five years.
• 24% average reduction by developing countries with a minimum per tariff line reduction of 10% over nine years.

Least Developed Countries (LDCs) were exempted from tariff reductions, but either had to convert non–tariff barriers to tariffs—a process called tariffication—or "bind" their tariffs, creating a "ceiling" which could not be increased in future.

Export subsidies

"Export subsidies" is the third pillar of the AoA. The 1995 AoA required developed countries to reduce export subsidies by at least 35% (by value) or by at least 21% (by volume) over the five years to 2000.

Criticism

The AoA is criticized for reducing tariff protections for small farmers – a key source of income for developing countries – while allowing rich countries to continue to pay their farmers massive subsidies which developing countries cannot afford.

General Agreement on Trade in Services (GATS)

Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement

Sanitary and Phyto-Sanitary (SPS) Agreement

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 member-states' policies relating to food safety (bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant health (imported pests and diseases).

SPS & Genetically Modified Organisms (GMOs)

In 2003, the USA challenged a number of EU laws restricting the importation of Genetically Modified Organisms (GMOs), arguing they are “unjustifiable” and illegal under SPS agreement. In May 2006, the WTO's dispute resolution panel issued a complex ruling which took issue with some aspect's of the EU's regulation of GMOs, but dismissed many of the claims made by the USA. A summary of the decision can be found here

Criticism

Quarantine policies plays an important role in ensuring the protection of human, animal and plant health. Yet under the SPS agreement, quarantine barriers can be a ‘technical trade barrier’ used to keep out foreign competitors.

The SPS agreement gives the WTO the power to override a country's use of the precautionary principle – a principle which allows them to act on the side of caution if there is no scientific certainty about potential threats to human health and the environment. Under SPS rules, the burden of proof is on countries to demonstrate scientifically that something is dangerous before it can be regulated, even though scientists agree that it is impossible to predict all forms of damage posed by insects or pest plants.

Agreement on Technical Barriers to Trade (TBT)

The Agreement on Technical Barriers to Trade - also known as the TBT Agreement 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 beginning of 1995.

The object of the TBT Agreement is to "to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade"

Chronology

• 1986-1994 - Uruguay Round of GATT negotiations culminating in the Marrakech Agreement that established the WTO.
• January 1, 1995 - The WTO came into existence.
• May 1, 1995 - Renato Ruggiero became director-general for a 4-year term.
• December 9 - December 13, 1996 - The inaugural ministerial conference in Singapore. Disagreements between largely developed and developing economies emerged during this conference over four issues initiated by this conference, which led to them being collectively referred to as the " Singapore issues".
• May 18 - May 20, 1998 - 2nd ministerial conference in Geneva, Switzerland.
• September 1, 1999 - Mike Moore became director-general. The post had been fiercely contested; eventually a compromise was reached with Mike Moore and Supachai Panitchpakdi taking half each of a six-year term.
• November 30 - December 3, 1999 - 3rd ministerial conference in Seattle, Washington, USA. The conference itself ended in failure, with massive demonstrations and riots drawing worldwide attention.
• November 9 - November 13, 2001 - 4th ministerial conference in Doha, Qatar begins the Doha round. Issuance of the Doha Declaration.
• December 11, 2001 - The People's Republic of China joined the WTO after 15 years of negotiations (the longest in GATT history).
• January 1, 2002 - Taiwan joined under the name "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu".
• September 1, 2002 - Supachai Panitchpakdi became director-general.
• September 10 - September 14, 2003 - 5th ministerial conference in Cancún, Mexico aims at forging agreement on the Doha round. An alliance of 22 southern states, the G20 (led by India, China and Brazil), resisted demands from the North for agreements on the so-called " Singapore issues" and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress, although trade facilitation, one of the Singapore issues, re-emerged with the support from both developed and developing countries in later Doha trade round discussion.
• August 2004 - Geneva talks achieve a framework agreement on the Doha round. Developed countries will lower agricultural subsidies, and in exchange the developing countries will lower tariff barriers to manufactured goods.
• May 2005 - Paris talks aimed at finalizing issues for agreement before the December 2005 ministerial conference in Hong Kong are hung over technical issues. The group of five (U.S., Australia, the EU, Brazil and India) fail to agree over chicken, beef and rice. France continues to protest restrictions on subsidies to farmers. Oxfam accuses the EU of delaying tactics which threaten to scupper the Doha round.
• November 11 - WTO General Council successfully adopts Saudi Arabia’s terms of Accession
• December 13 - December 18, 2005 - 6th ministerial conference in Hong Kong.
• July 24, 2006 - The Doha Development Agenda negotiations were suspended, because gaps between key players remained too wide.

Criticism

The stated aim of the WTO is to promote free trade and stimulate economic growth. Many people argue that free trade does not make ordinary people's lives more prosperous but only results in the rich (both people and countries) becoming richer. WTO treaties have also been accused of a partial and unfair bias toward multinational corporations and wealthy nations.

Critics contend that small countries in the WTO wield little influence, and despite the WTO aim of helping the developing countries, the influential nations in the WTO focus on their own commercial interests. They also claim that the issues of health, safety and environment are steadfastly ignored..

Martin Khor argues that the WTO does not manage the global economy impartially, but in its operation has a systematic bias toward rich countries and multinational corporations, harming smaller states which have less negotiation power. Some examples of this bias are: (1) rich countries are able to maintain high import duties and quotas in certain products, blocking imports from developing countries (e.g. clothing); (2) the increase in non-tariff barriers such as anti-dumping measures allowed against developing countries; (3) the maintenance of high protection of agriculture in developed countries while developing ones are pressed to open their markets; (4) many developing countries do not have the capacity to follow the negotiations and participate actively in the Uruguay Round; and (5) the TRIPs agreement which limits developing countries from utilizing some technology that originates from abroad in their local systems (including medicines and agricultural products).

Jagdish Bhagwati, although pro-free trade and pro-globalization, has strongly criticized the introduction of TRIPs (forum shifting) into the WTO/GATT framework. His fear is that other non-trade agendas might overwhelm the organization's function.

Many non-governmental organizations, such as the World Federalist Movement, are calling for the creation of a WTO parliamentary assembly to allow for more democratic participation in WTO decision making . Dr Caroline Lucas recommended that such an assembly "have a more prominent role to play in the form of parliamentary scrutiny, and also in the wider efforts to reform the WTO processes, and its rules" . However, Dr Raoul Marc Jennar argues that a consultative parliamentary assembly would be ineffective for the following reasons :

• It does not resolve the problem of “informal meetings” whereby industrialized countries negotiate the most important decisions;
• It does not reduce the de facto inequality which exists between countries with regards to an effective and efficient participation to all activities within all WTO bodies;
• It does not rectify the multiple violations of the general principles of law which affect the dispute settlement mechanism.

Ministerial conferences

First ministerial conference

The inaugural ministerial conference was held in Singapore in 1996. Disagreements between largely developed and developing economies emerged during this conference over four issues initiated by this conference, which led to them being collectively referred to as the " Singapore issues".

Second ministerial conference

Was held in Geneva in Switzerland.

Third ministerial conference

The third conference in Seattle, Washington ended in failure, with massive demonstrations and police and National Guard crowd control efforts drawing worldwide attention.

Fourth ministerial conference

Was held in Doha.

Fifth ministerial conference

The ministerial conference was held in Cancún, Mexico, aiming at forging agreement on the Doha round. An alliance of 22 southern states, the G20 (led by India, China and Brazil), resisted demands from the North for agreements on the so-called " Singapore issues" and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress.

Sixth ministerial conference

The sixth WTO Conference Ministerial was held in Hong Kong from December 13 - December 18, 2005. It was considered vital if the four-year-old Doha Development Agenda negotiations were to move forward sufficiently to conclude the round in 2006. In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. Further concessions to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed Countries, following the Everything But Arms initiative of the European Union - but with up 3% of tariff lines exempted. Other major issues were left for further negotiation to be completed by the end of 2006.