THE WORLD TRADE ORGANISATION (WTO)

The World Trade Organisation was created on January 01, 1995 as the only body dealing with the rules of trade between the nations. It is located in Geneva, Switzerland. All economic activities be it an industry, trade, banking or service sector anywhere in the world  are bound to be affected by the WTO and its agreements. It is the only regulatory body of world trade and its objective is to ensure free, more transparent and more predictable trading regime in the world. WTO is based on sound legal system and its agreements are ratified by the Parliaments of Member countries. No one country controls WTO; the top decision makers are the designated Ministers of member countries.
The WTO Agreements cover :

  • Goods (main agreement GATT - General Agreement on Tariffs and Trade) e.g. all industrial products, consumer durables etc.
  • Services (main agreement GATS - General Agreement on Trade in Services) e.g. Banking, insurance, consultancy etc.
  • Intellectual Property (TRIPS - Agreement on Trade Related Aspects of Intellectual Property Rights) e.g. Patents, Copyrights, Trademarks etc.
  • Trade Dispute Settlement Body.
GATT and GATS follow three part structure viz. general principles; associate agreements/annexes on specific sectors/issues and commitments of member countries.  The TRIPS agreement contains general principles only that are to be followed by members.

Guiding Principles :

The Guiding principles of WTO are :

  • Non-discrimination, which in practice means two things. First, most Favoured Nation (MFN) Treatment - Any trade concession offered by one member of WTO to another member, must be offered to all members.   Second, National Treatment i.e. imported goods should not be discriminated against the domestic goods - same treatment to be accorded to both.
  • Freer trading system - with barriers coming down through negotiations.
  • Predictable trading system - foreign companies, investors and governments should be confident that trade barriers (including tariffs, non-tariff barriers and other measures) would not be raised arbitrarily; more and more tariff rates are to be ‘bound’ against subsequent increases. 
  • More competitive trading system - by discouraging ‘unfair’ practices in the guise of export subsidies or dumping products at below cost.
  • More beneficial to less developed countries - by giving more time to adjust, greater flexibility and special privileges.
General implications of WTO in nutshell : 

It is a tribute to the human civilization that sovereign nations have agreed to subordinate their freedom (to act) and have agreed to work within the framework of rules to promote global trade. The Uruguay Round of negotiations has resulted into formation of WTO, a rule based system which is expected to lead to smooth and orderly international trade.   In a nutshell, the implications both threats and opportunities, could be summarised as: 

  • The impact of WTO and its agreements are on every economic activity be it agriculture, trading, service or manufacturing.
  • World markets are opening up due to lowering of tariffs and dismantling of other restrictions in developed and developing countries. Enlightened and awakened entrepreneurs have greater opportunities to benefit from their comparative advantages.
  • Domestic markets will be increasingly threatened because of lowering of tariffs leading to freer entry of foreign goods and because of foreign companies establishing manufacturing bases locally. 
  • Whereas the developing countries will have greater opportunities in sectors in which they have cost based comparative advantages e.g. Textiles, Agriculture etc. the developed countries will benefit by opening of service sector and tightening of intellectual Property Rights.   However, without corresponding reforms in their domestic economic policies developing countries may fail to benefit from WTO regime.
  • Export Markets will become tougher because of competition among developing countries having similar comparative advantages.
  • There is a wave of standardization blowing across the globe; products from developing countries are to face tougher quality standards in developed markets, particularly in the areas where they have comparative cost advantage. 
  • Every company, whether serving domestic or international market, will have to undertake internal exercise to identify factors affecting its international competitiveness in terms of cost as well as quality. It will need to study if it can stay competitive once the product becomes freely importable or tariffs are further lowered or both.
  • The WTO regime will benefit those countries more which show wits and skills in the ongoing dialogue. The Governments that are in constant touch with their industries and affected groups will be able to determine with clarity how and what should be negotiated at multilateral negotiations to the best of their advantage.
  • The international trade is increasingly becoming knowledge based. The entrepreneurial ability will come to fore in the new environment.
  • The concepts of liberalisation of international trade, deregulation and privatization of internal economy, have now been strengthened and legalized under WTO. The choice before countries in adopting a direction other than this, has become almost unrealisable. The countries that have understood this, have moved swiftly in  fine tuning their domestic and international trade policies creating a winning environment for their businesses. Those who are still debating the issue or are in the stage of bewilderment, will help neither themselves nor their businesses.