Historical Background of WTO
The World Trade Organisation (WTO) has taken concrete shape in 1995 after successful operation of the General Agreements in Tariffs and Trade (GAIT) for around five decades. GATT again, had emerged out of some other experimentation on trade negotiations. Indeed GATT owes its origin to the pre- World War II American endeavour to secure mutual tariff reductions from 29 countries through bilateral means.
The concept of a multilateral institution emerged after World War II especially with the initiative of America and Britain and formed the basis of the formation of GATT in 1947 as a transient arrangement. The original intention was to create the third institution to handle the trade side of international economic cooperation, joining the two Bretton Woods institutions, the World Bank and IMF. Over 50 countries participated in negotiations to create an International Trade Organisation (ITO) as a specialised agency of the United Nations.
The draft ITO Charter extended beyond world trade disciplines to include rules on employment, commodity agreements, restrictive business practices, international investment and services. Even before the tasks concluded 23 of the 50 participants decided in 1946 to negotiate to reduce and bind customs tariffs. These 23 nations ratified through negotiations a combined package of trade rules and tariff concessions which later known as General Agreements on Tariffs and Trade. It entered into force in January 1948, while ITO Charter still was being negotiated. The 23 became the founding GATT members. India was also a signatory.
Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in 1948, due to the opposition by some national legislatures, especially U.S. Congress which refused to ratify it apprehending ITO’s interference in its sovereignty, ITO was effectively dead. So, GATT continued until January 1995 when the World Trade Organisation came into being after the Uruguay Round Final Act signed at Marrakesh on 15th April, 1994.
It has emerged as a super sovereign global agency for framing rules for international trade, investment, intellectual property rights, economic and social agenda for nations with adjudicating authority over member States. The Governments of all the sovereign national states have to comply with the provisions and pronouncements of WTO. India is a signatory of WTO also.
When ITO could not materialise due to various reasons, 23 nations around the globe agreed to continue trade negotiations that were eventually incorporated in the General Agreement on Tariffs and Trade (GATT), which formally came into existence in October 1947.
This increased the role of trade during the post-World War II period. This was accompanied by the reduction in tariff barriers gradually both in developing and developed countries due partly to autonomous policies and partly to the series of multilateral trade rounds under GATT. In the eighth round of GATT negotiations popularly known as Uruguay Round, the contracting parties agreed to establish the World Trade Organisation (WTO) to undertake multilateral trade negotiations.
The Bretton Woods Institutions are the World Bank and the International Monetary Fund (IMF). The creation of the World Bank and the IMF came at the end of the Second World War. They were set up at a meeting of 43 countries in Bretton Woods, New Hampshire, USA in July 1944. They were based on the ideas of a trio of key experts – US Treasury Secretary Henry Morganthau, his chief economic advisor Harry Dexter White, and British economist John Maynard Keynes. They wanted to establish a postwar economic order based on notions of consensual decision-making and cooperation in the realm of trade and economic relations.
It was felt by leaders of the Allied countries, particularly the US and Britain, that a multilateral framework was needed to overcome the destabilising effects of the previous global economic depression and trade battles. Their aims were to help rebuild the shattered postwar economy and to promote international economic cooperation. The original Bretton Woods agreement also included plans for an International Trade Organisation (ITO) but these lay dormant until the formation of World Trade Organisation (WTO) in 1995.
The World Trade Organisation, which came into being on 1st January, 1995 replacing GATT, is an international organisation setting out the global rules of trade between nations. Whereas GATT was a bilateral agreement WTO is an organisational set up, which means any decision of the organisation is applicable to all the member nations. The stated aim of WTO is to provide a global decision making structure of setting and enforcing rules in relation to international trade.
The WTO secretariat is based in Geneva. Its main function is to ensure that international trade flows smoothly, predictably and as freely as possible. In 2005,148 countries are members of WTO accounting for 97% of the world trade and more and more countries are compelled to be members of WTO. Decisions are made by the entire membership of WTO and the agreements have to be ratified by the parliament of each and every member nation. The WTO’s top-level decision-making body is the Ministerial Conference, which meets at least once every two years. The fifth WTO ministerial conference was held in Cancun, Mexico, in September 2003.
The main functions of WTO are:
- Administering trade agreements;
- Maintaining a forum for trade negotiations;
- Handling trade disputes;
- Monitoring national trade policies;
- Technical assistance and training for developing countries; and
- Cooperation with other international organisations.
WTO became an important player in regulating global trade. It became more significant to have a world trade regulatory body as trade liberalisation gradually increased during the 1990s. The share of world exports in world GDP rose from about 6% in 1950 to 12% in 1973 and to 16% in 1992. WTO trade agreements are mainly in goods, services, intellectual property, dispute settlement and policy review. Trade agreements in goods deal with all aspects such as lower customs duty rates and other trade barriers as well as with specific sectors such as agriculture and textiles and specific issues such as state trading, product standards, subsidies and actions taken against dumping.
The service sector includes banks, insurance firms, telecommunications, tour operators, hotel chains and transport companies. All these now enjoy freer and fairer trade. The intellectual property agreement amounts to rules for trade and investment in ideas and creativity. The WTO system encourages countries to settle differences through consultations. Countries bring disputes to WTO if they think their rights under the agreements are being infringed.
The trade policy review mechanism of WTO proposes to improve transparency in national policies of individual countries.
The WTO has a range of rules designed to prohibit “trade-related investment measures” (TRIMs), including many of the ways in which national governments might seek to develop industry and investment policies to assist the development of industries and firms. The WTO rules in relation to “trade related intellectual property” (TRIPs) provide unprecedented protection in the areas of copyright and intellectual property rights.
The existing agreements of the national governments with WTO require domestic legislation and policies of member states to be altered and brought into line with it. Non-compliance can result in trade sanctions being imposed against a country’s exports through the dispute settlement system, thus giving WTO a strong enforcement mechanism. Thus national governments have to comply with the disciplines and obligations in the wide range of issues under the purview of WTO. The functioning of WTO promotes the empowerment of the market or the minimal role for the State and rapid liberalisation.
India is a founder member of GATT and its successor the WTO. India’s participation in an increasingly rule based system in the governance of international trade is claimed to ensure more stability and predictability, which may lead to more trade and prosperity. By being a member of WTO India automatically avails most favoured nation and national treatment for its exports to all WTO nations. India made necessary legislative changes to implement WTO standard intellectual property laws in the year 2005, although after showing initial resistance.