EMERGENCE OF WTO :After the Second World War, many countries got down together to work on ways and means to promote international trade. The result was signing of General Agreement on Tariffs and Trade (GATT) by 23 countries in 1947. India was one of the founder members of GATT. GATT was created to reduce global depression and to liberalis e and regulate the world trade by reducing tariff barriers. GATT has been replaced by WTO in 1995. WTO is wider in scope as it regulates world trade tr ade in goods, as well as in services intellectual property rights, and investment. In January 2010, the membership of WTO was 153 countries. Its rules and policies are the outcome of negotiations among WTO members. members. Thus WTO is a member driven, consensus based organisation.
What are the basic principles and objectives of the WTO? The WTO‟s objectives and reason for existence is to help international trade flow „smoothly, freely, fairly and predictably‟. It does this by:
Administering trade agreements Providing a forum for trade negotiations Providing a format for settling trade disputes Reviewing national trade policies Assisting developing countries by giving technical assistance and holding training programmes Cooperating with other international organizations All WTO trade agreements are based around two basic principles:
Most-Favoured-Nation status National treatment Most Favoured Nation status The principle of “Most-Favoured“Most-Favoured- Nation” Nation” (MFN) status amounts to treating all countries equally. That is, if one country grants another country lower custom duties for a particular product, it has to grant the same lower duties for all other WTO members. members. This principle is considered so important that it is the first article of the GATT, which pertains to all trade in goods. It is in the second article in the General Agreement on Trade in Services (GATS) and in the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The MFN rule says that every time a country countr y opens up a market for a particular good or service, for example by lowering a trade barrier, it has to do the same for all its trading partners. Some exceptions to this principle are allowed:
In case of goods traded only within a group of countries, articles manufactured outside that group may be restricted. Developing countries may be given special access to a country's markets. National treatment The principle of national treatment says a country should treat imported and locally-produced goods, services and intellectual property equally, after these foreign products have entered its market.
This principle is found in all the three main WTO agreements: GATT, GATS and TRIPS. Note: National treatment applies only once a product, service or item of intellectual property has actually entered a country's market. Theref ore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax. More working principles
These two basic principles are supported by some more working principles:
Countries work to negotiate towards freer trade . That is, countries work to lowering trade barriers like duties, quotas and import bans. Governments give a promise of stability that tariffs and other trade barriers will not be changed. Thispredictability gives trading partners some market security and a chance to plan and strategize properly. When countries agree to open their markets for goods or services, they are said to “bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates. A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. Many WTO agreements require governments to disclose their policies and practices publicly within the country or by notifying the WTO. This encourages transparency both domestically and at an international, multilateral level. The WTO tries to promote fair competition . Countries are not allowed to „dump‟ goods, meaning export at below cost price to gain market share. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond. The WTO tries to encourage development and economic reform . Who decided these principles? How did they evolve? The WTO principles evolved from neo-classical economics and evidence that says freer and open trade results in economic growth. According to this view, all protective measur es are counterproductive in the long run. Since the WTO is run by its member governments, these principles were decided by the countries that make up the membership of the WTO. All major decisions are made by the membership as a whole, either by ministers, who meet at ministerial conferences, or by country delegates who meet at scheduled occasions. Decisions are normally taken by consensus. This makes the WTO radically different from the World Bank or the IMF. In the WTO power is not delegated to a board of directors or a chairperson.
