Marketing: "Chapter 7.3: The World Trade Organization (WTO)"

Read this article on the World Trade Organization (WTO) to learn about why it was formed, its members and observers, the Doha Development Round, major obstacles, and agreements. Note: Unit 6 also includes information about the WTO and its role in world trade negotiation.

The World Trade Organization (WTO)

The World Trade Organization (WTO) was created in 1995 and has 157 member countries working together to supervise and liberalize international trade.

Learning Objective: Review the purpose and status of the World Trade Organization (WTO)

Key Points

    • The World Trade Organization (WTO) provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements signed by representatives of member governments.
    • The General Agreement on Tariffs and Trade (GATT) preceded the WTO, but after nearly 40 years, its members concluded it was straining to adapt to the new global economy. In 1994 its members agreed to create the WTO, during the last round of GATT negotiations in Uruguay.
    • Major obstacles in the Doha Development Round include: conflicts regarding free trade of industrial goods and services; protectionist farm subsidies in the domestic agricultural sector; and, differing levels of international support for liberalizing fair trade on agricultural products.

Terms

  • Protectionism: A policy that protects a product's domestic producers by imposing tariffs, quotas or other barriers on imports.
  • Accession: The act by which one power becomes party to engagements already in force between other powers.

Members of the GATT created the World Trade Organization (WTO) with the adoption of the Marrakesh Agreement in April 1994, to supervise and liberalize international trade among participating countries. The WTO provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements signed by representatives of member governments. The main focus of the WTO's latest round of negotiations, the Doha Development Round which began in 2001, is to address the needs of developing countries.

In 2019 the WTO had more than 160 members representing 98 per cent of world trade. More than 20 countries were seeking to join the WTO.

WTO Predecessor

The General Agreement on Tariffs and Trade (GATT) was established after World War II in the wake of several new multilateral institutions dedicated to international economic cooperation. Well before GATTs 40th anniversary, its members concluded their system was straining to adapt to the new global economy. They created the World Trade Organization (WTO) in GATT's final Uruguay Round in 1994. The WTO supervises GATT treaties and 60 other agreements made during the Marrakesh Agreement.

Functions

WTO's most important functions:

  • Oversees the implementation, administration, and operation of the covered agreements.
  • Provides a forum for negotiation and for settling disputes.
  • Reviews and propagates national trade policies.
  • Ensures the coherence and transparency of trade policies through surveillance in global economic policy-making.
  • Helps least-developed and low-income countries-in-transition adjust to WTO rules and disciplines through technical cooperation and training.
  • Regularly assesses the global trade picture in its annual publications and research reports.
  • Cooperates closely with the International Monetary Fund (IMF) and the World Bank.

Members and Observers

The WTO has 164 members and 23 observer governments. WTO members do not have to be full sovereign nation-members. Instead, they must be a customs territory with full autonomy in the conduct of their external commercial relations. Iran is the biggest economy outside the WTO. Most observers must start accession negotiations within five years of becoming observers. Fourteen states and two territories so far have no official interaction with the WTO.

The Doha Development Round

The Doha negotiations round was to be an ambitious effort to make globalization more inclusive and help the world's poor, by slashing barriers and subsidies in farming. The initial agenda comprised further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries.

According to the European Union, "The 2008 ministerial meeting broke down over a 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."

The European Commission believes "The successful conclusion of the Doha negotiations would confirm the central role of multilateral liberalization and rule-making. It would confirm the WTO as a powerful shield against protectionist backsliding." An impasse remains and as of January 2019, agreement has not been reached, despite intense negotiations at several ministerial conferences and at other sessions.

Major Obstacles

The conflict between free trade on industrial goods and services, but retention of protectionism on farm subsidies to the domestic agricultural sector (requested by developed countries) and the substantiation of the international liberalization of fair trade on agricultural products (requested by developing countries) remain the major obstacles. These points of contention have hindered any progress to launch new WTO negotiations beyond the Doha Development Round.

Agreements

The WTO oversees about 60 different agreements which have the status of international legal texts. These include the following.

  • The Agreement on Agriculture (1995) has three central pillars: domestic support, market access, and export subsidies.
  • The General Agreement on Trade in Services (1995) extends the multilateral trading system to the service sector, in the same way as the General Agreement on Tariffs and Trade (GATT) provided such a system for merchandise trade.
  • The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (1995) sets down minimum standards for many forms of intellectual property (IP) regulation.
  • The Agreement on Technical Barriers to Trade (the TBT Agreement) (1995) ensures technical negotiations and standards, and testing and certification procedures, do not create unnecessary obstacles to trade.
  • The Agreement on Customs Valuation (the WTO Valuation Agreement or Agreement on Implementation of Article VII) (1995) adopts a transaction value approach and prescribes methods of customs valuation that members are to follow.
Last modified: Friday, March 29, 2019, 6:29 PM