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
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
Goods (main agreement
GATT - General Agreement on Tariffs and Trade) e.g. all industrial products,
consumer durables etc.
agreement GATS - General Agreement on Trade in Services) e.g. Banking,
insurance, consultancy etc.
(TRIPS - Agreement on Trade Related Aspects of Intellectual Property Rights)
e.g. Patents, Copyrights, Trademarks etc.
principles of WTO are :
of WTO in nutshell :
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.
system - with barriers coming down through negotiations.
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.
trading system - by discouraging ‘unfair’ practices in the guise of export
subsidies or dumping products at below cost.
to less developed countries - by giving more time to adjust, greater flexibility
and special privileges.
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.
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.
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.
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.
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
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.