World Trade Organisation (WTO) - 1 | Economics Optional Notes for UPSC PDF Download

Introduction

• The World Trade Organization (WTO) stands as the singular global entity addressing trade regulations among nations.
• The core of the WTO comprises agreements negotiated and endorsed by a majority of the world's trading nations, subsequently approved by their respective legislative bodies.
• The WTO boasts a membership of 164 nations, inclusive of the European Union, along with 23 observer governments such as Iran, Iraq, Bhutan, Libya, and others.

Goals of WTO

• The global system of the WTO reduces trade barriers through negotiations, following the principle of non-discrimination.
• This leads to a decrease in production costs, as cheaper imports are utilized, resulting in lower prices for finished goods and services, greater consumer choice, and ultimately a reduced cost of living.
• The WTO addresses these aspects through two methods: negotiation of universally acceptable rules and resolution of disputes concerning adherence to these agreed-upon rules.
• The WTO has the potential to stimulate economic growth and employment, reduce international business costs, and promote good governance by ensuring transparency, shared information, and rule-based systems that minimize arbitrariness and corruption opportunities.
• The organization also plays a role in fostering the development of countries by recognizing that open trade can contribute to economic growth.
• Commerce and development are mutually beneficial, with WTO agreements containing provisions that consider the interests of developing nations.
• The WTO empowers smaller countries by narrowing differences in bargaining power through agreed rules, consensus decision-making, and coalition building, giving them a stronger voice in negotiations.
• The resulting agreements establish a rule of law, replacing the notion of might-makes-right, ensuring all countries, including the most powerful, adhere to established rules.
• The WTO's focus on trade as a means to desired ends includes supporting a clean and safe environment, preventing protectionist measures under the guise of environmental or health objectives.
• The WTO contributes to global peace and stability by stabilizing the world economy during times of turmoil, discouraging abrupt policy changes, promoting predictability, deterring protectionism, and building confidence in international trade.

How did WTO came into Being?

• Throughout history, trade has played a crucial role in fostering economic development and fostering peaceful relations between nations, from the Silk Road era to the establishment of the General Agreement on Tariffs and Trade (GATT) and the subsequent creation of the World Trade Organization (WTO).
• Originating from the Bretton Woods Conference in 1944, which also led to the formation of the International Monetary Fund (IMF) and the World Bank, GATT emerged as a pivotal institution focusing on international trade regulations.
• Initially, there was a proposal for the International Trade Organization (ITO) to complement the Bretton Woods system. The UN Conference on Trade and Employment in Havana in 1948 produced the Havana Charter, outlining comprehensive rules for trade, investment, services, and business practices. However, the U.S. Senate's failure to ratify the charter prevented the establishment of the ITO.
• Simultaneously, the GATT, signed in 1947 by 23 countries in Geneva, came into effect on January 1, 1948, aiming to phase out import quotas and reduce tariffs on merchandise trade. Despite being an instrument rather than an institution, the GATT functioned as a de facto international organization, overseeing multiple rounds of multilateral trade negotiations.
  
• The GATT served as the primary international trade governance mechanism from 1948 until the establishment of the WTO in 1995, facilitating eight rounds of negotiations, each addressing tariff reductions and related trade matters.
• The Uruguay Round, spanning from 1987 to 1994, resulted in the Marrakesh Agreement, formally establishing the WTO. The WTO builds upon GATT principles, providing a more enduring institutional framework for their implementation and expansion.
• The original GATT of 1947 was terminated in 1996, and its provisions were integrated into the GATT 1994, which is now an international treaty binding upon all WTO members, specifically focusing on trade in goods.

WTO Replaced the GATT

• The General Agreement on Tariffs and Trade (GATT) operated solely as a collection of rules and multilateral agreements and did not have a formal institutional structure.
• The GATT 1947 was formally concluded, leading to the preservation of its provisions within the GATT 1994, which now serves as the governing framework for international trade in goods under the World Trade Organization (WTO).
• Notably, the original GATT lacked coverage for trade in services and intellectual property rights, necessitating the development of additional agreements to address these areas.
• While the GATT did incorporate provisions for consultations and dispute resolution, it lacked specificity in outlining a clear dispute procedure, resulting in a deficiency of deadlines, a casual approach to establishing dispute panels, and a lack of prompt adoption of panel reports by GATT Parties.
• These shortcomings collectively contributed to the GATT's dispute settlement mechanism being perceived as weak, highlighting challenges such as the absence of a well-defined procedure, delays in panel establishment, and a general laxity in enforcing dispute resolution decisions.

Cooperation between the WTO and the UN

• Despite not being designated as a UN specialized agency, the World Trade Organization (WTO) has consistently fostered robust connections with the United Nations (UN) and its various agencies since its inception.
• The parameters of WTO-UN relations are defined by the "Arrangements for Effective Cooperation with other Intergovernmental Organizations-Relations between the WTO and the United Nations," a document signed on 15 November 1995.
• Notably, the Director General of the WTO actively engages in the Chief Executive Board, an essential coordinating body within the UN system, demonstrating the commitment of the WTO to collaborate and coordinate with the broader United Nations framework.

Structure of Governance of WTO

Ministerial Conference

• The primary decision-making authority within the World Trade Organization (WTO) is the Ministerial Conference, a gathering that typically occurs every two years.
• Comprising all members of the WTO, which consist of countries or customs unions, the Ministerial Conference holds the authority to make decisions on a wide range of subjects covered by any of the multilateral trade agreements.

General Council

• The General Council stands as the highest-level decision-making body within the World Trade Organization (WTO), situated in Geneva and convening regularly to execute the functions of the WTO.
• Comprising representatives, typically ambassadors or equivalent officials, from all member governments, the General Council possesses the authority to act on behalf of the Ministerial Conference, which convenes approximately every two years.
• The General Council functions under different rules in various capacities, including as the General Council itself, the Trade Policy Review Body, and the Dispute Settlement Body (DSU).
• Three councils, each focusing on distinct areas of trade, report to the General Council. These are: 
  a. The Council for Trade in Goods (Goods Council)
  b. The Council for Trade in Services (Services Council)
  c. The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)
• These councils, mirroring their respective names, are responsible for overseeing the implementation of WTO agreements within their specific realms of trade, and, importantly, include representation from all WTO member nations.

The Trade Policy Review Body (TPRB)

• The World Trade Organization (WTO) General Council convenes as the Trade Policy Review Body (TPRB) to conduct trade policy reviews of its member nations under the Trade Policy Review Mechanism (TPRM). Additionally, the TPRB assesses the regular reports on trade policy development submitted by the Director-General.
• In February 2021, Ngozi Okonjo-Iweala from Nigeria was appointed as the Director-General of the WTO, making her the first African official and the first woman to assume this prominent position.
• The Trade Policy Review Body (TPRB) is inclusive, allowing participation from all WTO member nations in its proceedings and activities.

Dispute Settlement Body (DSU)

• The General Council of the World Trade Organization (WTO) functions as the Dispute Settlement Body (DSB) to address and manage disputes that may arise between WTO member nations.
• Disputes under consideration pertain to any agreement within the Final Act of the Uruguay Round that falls under the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).
• The Dispute Settlement Body (DSB) possesses the authority to:
  a. Establish dispute settlement panels.
  b. Refer matters to arbitration.
  c. Adopt reports from panels, the Appellate Body, and arbitration.
  d. Monitor the implementation of recommendations and rulings outlined in these reports.
  e. Authorize the suspension of concessions in cases of non-compliance with the recommendations and rulings provided in the reports.

Appellate Body

• Established in 1995 pursuant to Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the Appellate Body serves as a key component of the dispute resolution mechanism within the World Trade Organization (WTO).
• The Dispute Settlement Body (DSB) is responsible for appointing individuals to the Appellate Body, with each appointee serving a four-year term.
• Comprising seven members, the Appellate Body is a standing entity tasked with hearing appeals arising from reports issued by panels in disputes initiated by WTO Members.
• The Appellate Body holds the authority to either uphold, modify, or reverse the legal findings and conclusions of a panel. Once the Appellate Body issues its reports, these must be accepted by the parties involved in the dispute after being adopted by the Dispute Settlement Body (DSB).
• The physical location of the Appellate Body is in Geneva, Switzerland, serving as its official seat.