World Trade Organisation (WTO)


Origins and Overview

  • Formed in 1995 as a replacement for GATT which was established in 1947
  • GATT was created as a basis for postwar international trade after International Trade Organisation (ITO) could not be established.
  • ITO was proposed by the UN as an international organization working alongside the IMF and World Bank along with powers such as those the later WTO possessed. 
  • It failed however after Truman failed to propose the Havana Charter to the Senate fearing they would see it as a challenge to sovereignty.
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  • GATT was an agreement to apply the concepts of non-discrimination to matters of trade, this was in active opposition to the idea of protectionism that plagued the international trade system previously, this was guaranteed by the requirement that each country had to concede most favored nation status to all trading partners meaning all trading partners had to be treated equally.
  • Mainly existed as a set of norms and rules that only began to have the characteristics of an international institution when the GATT council was established in 1960.
  • Its main focus was on reducing tariff barriers against manufactured goods, this neglected the agricultural and service sectors, it also had limited scope to check the growth of 'non-tariff barriers' as well as difficulty solving international disputes.
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GATT Cont.

  • Despite these issues, GATT was relatively successful in what it set out to do, for example in the Kennedy, Tokyo, and Uruguay Rounds, tariffs were reduced to almost eradicated levels, while the average tariff was about 40% in 1947 they were reduced to 3% in 2000.
  • In the last three rounds of negotiating combated the issue of non-tariff barriers through things like 'dumping' which involved flooding a market with cheap imports to weaken the domestic industry.
  • It had also started to deal with issues such as services, intellectual property, textiles and agriculture
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Transition To WTO

  • The limitations of GATT became too apparent during the Uruguay Round, it concluded in 1993 and proposed the concept and formation of the WTO.
  • It creation can be seen as response to changing global trade and globalization in the '80s due to rise of neoliberal economic policies in places like the UK and US.
  • Lead to more emphasis on free trade backed by a larger trade organization with more responsibilities, more in line with the proposed ITO.
  • Along with its new responsibilities it also incorporated the framework of agreements concerning manufactured goods as well as the trading services (GATS) and the protection of intellectual property (TRIPS).
  • It also formally recognized a new kind of protectionism in the form of non-tariff that had been a major issue in the '70s in terms of international trade, it also became a lot stronger in resolving international disputes in terms of process and enforcement, settlement judgments can only be rejected if all members of the Dispute Settlement Body opposes it, this has made the WTO the primary instrument of international trade law.
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The Modern WTO

  • The character of the new WTO as well as its interests where heavily shaped by the key parties at the Uruguay round of negotiations, for example the decision to include agriculture and textiles in its responsibilities was a clear concession to developing countries, who were often those propping up non-tariff barriers usually created by developed countries.
  • As well as this, developed countries where keen to include services in its new responsibilities as their economies became increasingly service focused since most of manufacturing had transitioned to the developing world.
  • While the WTO did include agriculture in its scope, the agreements formed where quite weak and allowed a considerable amount of protectionist policies, a matter of interest for the EU and USA.
  • The WTO does appear much more democratic and fairer then the IMF and World Bank with each country having one vote and just a simple majority being needed to secure a decision. This does give the developing world more power within the organisation as they are 2/3 of the members.
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  • It has suffered a lot of   over the years and is often the target for anti-globalisation and anti-capitalist protests as in the 1999 Battle of Seattle.
  • Many argue there are subtle biases in the decision-making framework that systematically prioritises the needs of developed countries over developing.
  • An example of this is the emphasis on consensus-based decision-making which disadvantages those developing countries that do not have permanent representation at the WTO.
  • Developed counties are also more likely to bring issues before the Dispute Settlement Panel as well as serve as 'third parties' which allow them to influence the process. It is also the case that most of the unfair trading claims are brought against developing countries. 
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  • These combinations of small biases, lack of transparency and accountability have led the WTO being labelled as a 'rich countires's club'.
  • Despite this the rise of China which joined in 2001 as well as the quickly growing economies of the other BRICS countries has altered the balance of power within the organisation, demonstrated by the stalling of the Doha round of negations started in 2001 concerning agriculture and textiles, suspended in 2009 when the EU and USA refused to give the protectionist policies concerning both industries.
  • While these are all practical issues, the main ideological debate is over the philosophy of free trade, some argue it brings property to those who work for it, others argue it is intrinsically unfair and causes inequality.
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