For many centuries regulation of trade was done through trade treaties between two or more countries. Over that period countries had high tariffs and numerous restrictions on international trade. However, in 19th century countries especially European nations realized the need to have a free international trade. As a result, countries tried to form multilateral treaties in order to regulate trade globally rather than between two nations. World Trade Organization (WTO) happened to be one of these multilateral treaties established in January 1 1995. WTO is a global organization structured to oversee and liberalize international trade. It succeeded the “General Agreement on Tariff and Trade (GATT) which was formed in 1947 and “operationalized” for nearly 50 years as the supervisor of international trade.” (Bossche, p. 236)
GATT was established after the World War two alongside the World Bank and International Monetary Fund, as the victors of the war sought to establish global economic cooperation. The International Trade Organization (ITO) similar to GATT was first negotiated. The ITO was mandated to look on trade barriers and any other matters that indirectly related to trade. Then, in 1948 the ITO was renamed GATT and was entitled to “establish and enforce international trade rules through dispute settlement and multilateral negotiation.” (Bossche 237) GATT successfully managed to lower trade tariffs which were the main barriers to free trade. “Since 1948, GATT has been the only body regulating international trade until 1995 when it becomes World Trade Organization.” (Gallagher 16)
The road to formation of GATT underwent several rounds of negotiation. “The first five rounds helped in lowering tariffs and shifted trade from protectionism to non tariff barrier. Tariffs were lowered from 50 per cent to 12 per cent.” (Gallagher 19)
- From Geneva to Tokyo rounds: The Kennedy round in 1960s was concerned with problems facing third world countries and agreed on anti- dumping policies to protect developing nations. The Tokyo round in 1970s attempted to remove non- tariff trade barriers and produced the subsidies agreement.
- The Uruguay round: Prior to this round, members of GATT had concluded that its policies could no longer adapt to the world changing economy. In response the Uruguay round was establish in 1986 to review GATT articles. The round extended trade in goods by adding: agreement on trade in services and agreement on trade in intellectual property and agriculture. The last act ending the Uruguay round and official formation of the World Trade Organization was signed in Marrakesh Morocco during the 1994 trade ministers meeting. Other agreements agreed upon during GATT 1994 include; investment and goods, dispute settlement understanding and review of country’s trade policies (Steinberg, p. 357).
After formal establishment of WTO in 1995, several ministerial conferences followed to further constitute world trade organization. The first ministerial conference was held in Singapore in 1999 which ended in disagreement between third world countries and developed economies on four issues discussed during that meeting. The 2001 Doha conference administered china as the 143rd member of the WTO. The next four conferences built on issues discussed during the Doha conference. In 2005 during the Hong Kong conference, all member countries agree to phase out agricultural subsidies by the end of the 2013. Further an agreement was reached to allow developing nations to export to developed countries goods free from duty and tariff. Other major trade issues were to be completed in 2006.
According to Steinberg, among the several functions of WTO, the functions of supervising the implementation and operation of the agreements and provision of field for dispute settlement and negations are seen by many analysts as the main functions of WTO (349-374). In addition, the WTO has a duty to revise national trade policies, ensure transparency of such policies through overseeing making of economic policies globally. WTO also assists developing and low income nations, through technical assistance and training to adjust to rules and regulations of WTO. Being a center for economic research and analysis, the organizations assesses the world trade regularly and makes duplications on its findings. Lastly the WTO works closely with World Bank and international monetary fund to promote one global economy.
WTO works under five principles namely:
- Non-discrimination: it has two rules; the most favored nation (MFN) and National treatment policy. Under MFN rule, all members of the WTO are required in all trade with other WTO members to apply same conditions. National treatment requires imported and locally produced goods to be equally treated while in domestic market.
- Reciprocity: it was introduced to limit the problem of free-riding that may result due to the rule of MFN(Steinberg 336).
- Binding and enforceable commitments: it establishes all tariff commitments agreed upon during trade negotiation. It states that country can only revise its binding after negotiations with its trading partners. If not the agreement is reached and the complaining nation can turn to dispute settlement procedures of WTO (Steinberg 340).
- Transparency: The WTO members are supposed to make publication on their trade restriction, allow room for changes in decisions affecting trade and inform WTO in any changes in its trade policies. These requirements are facilitated through the trade policy review mechanism on periodic reports for each member country.
Safety rules: Governments are allowed to restrict trade on specific situations such as when it needs to ensure fair competition and to attain non-economic objectives.
- Bossche, Peter van den. “The Origins of the WTO”. The Law and Policy of the World Trade Organization: Text, Cases and Materials, Cambridge University, 2005. 233-241
- Gallagher, Peter “The GATT Becomes the WTO, 1995”. The First Ten Years of the WTO: 1995-2005, Cambridge University Press, 2005. 12-19
- Steinberg, Richard H. In the shadow of law or power? Consensus-based bargaining and outcomes in the GATT/WTO. International Organization 56, 2002:339–374.