WTO

INTRODUCTION

The World Trade Organization (WTO) is a prominent global international organization dedicated to
overseeing and facilitating international trade among its member nations. It acts as a crucial forum
where governments come together to negotiate trade agreements that aim to reduce barriers to
trade and create a more open and competitive global market. The WTO’s primary objective is to
ensure that trade flows as smoothly, predictably, and freely as possible, which is essential for
fostering economic growth and development worldwide.

A key function of the WTO is to provide a structured environment for trade negotiations. It serves as
a platform where countries can discuss and agree upon various trade-related issues, including tariffs,
subsidies, and regulations affecting goods, services, and intellectual property. These negotiations
result in multilateral agreements that establish the rules of international trade, creating a
transparent and predictable trading environment that benefits all member countries.

Implementation and monitoring are also vital aspects of the WTO’s role. The organization ensures
that member countries comply with their trade agreements and commitments. This involves regular
monitoring and transparency requirements, where members are obligated to publish their trade
policies and regulations. Such transparency is crucial for maintaining trust and predictability in
international trade relations.

Dispute resolution is another cornerstone of the WTO’s mandate. The organization provides a formal
legal framework for resolving disputes that arise between member countries over trade issues. This
process helps prevent unilateral actions and ensures that trade conflicts are addressed based on
mutually agreed rules. The dispute settlement mechanism is designed to be fair, transparent, and
efficient, helping maintain stability in the global trading system.

Additionally, the WTO plays a significant role in building trade capacity, particularly for developing
and least-developed countries. It offers technical assistance and training programs to help these
countries develop the necessary infrastructure and expertise to engage effectively in global trade. By
enhancing their trade capacities, the WTO aims to integrate developing countries into the global
economy, allowing them to benefit from increased trade opportunities and economic growth.

Overall, the WTO is a pivotal institution in the global trading system, dedicated to promoting free and
fair trade, resolving disputes, and supporting the trade-related development needs of its member
countries. Its efforts contribute to creating a stable, predictable, and open international trading
environment that can drive economic prosperity worldwide.

GLOBAL ECONOMIC GOVERNANCE

The issue of global governance has gained significant attention, especially since the 1990s, due to the
rapid pace of globalization. As the world becomes more interconnected, there is growing recognition
that individual countries alone cannot effectively address global problems. Instead, international
cooperation is needed. Global governance refers to how global issues are managed through
international cooperation, but it is a complex and challenging concept. It falls somewhere between
the traditional idea of sovereign states, where each country governs itself, and the fictional idea of a
single world government.

One of the most developed areas of global governance is economic policy-making. This system
started with the Bretton Woods Agreement in 1944, which aimed to create a stable international
economic framework after World War II. The agreement led to the creation of three key
organizations: International Monetary Fund (IMF), World Bank and the GATT (later replaced by the
World Trade Organization). These organizations, collectively known as the Bretton Woods System,
have evolved over time to adapt to changes in the global economy. They continue to play a crucial
role in managing international economic issues, demonstrating how global governance can help
address complex challenges that no single country can handle on its own.

THE EVOLUTION OF THE BRETTON WOODS SYSTEM

The trend towards global governance is especially noticeable in economic policy-making because
economies are highly interconnected. When countries fail to cooperate on economic issues, it can
lead to significant losses for everyone involved.

Since 1945, a system of global economic governance has developed. This system includes multilateral
agreements, formal institutions and informal networks. The foundation for this system was laid by
the Bretton Woods Agreement, negotiated just before the end of World War II.

The main reason behind the Bretton Woods Agreement was to address economic instability and
avoid the chaos that had occurred at different times during the war period. One important lesson
learned from the Great Recession of the 1930s was that protectionism (when countries try to protect
their own economies by limiting imports and exports) was harmful both economically and politically.

To avoid these problems, it was essential to establish norms, rules, and a framework of
understanding that would enable countries to cooperate on economic matters. This cooperation
helps to prevent the negative effects that arise when countries only focus on their own economic
interests without considering the broader impact on the global economy.

Making of the Bretton Woods System:

In August 1944, the United States, Britain, and 42 other states met at the United Nations Monetary
and Financial Conference in the small resort town of Bretton Woods, New Hampshire. The task of
this monetary and financial conference was to create an institutional architecture for the post-war
international financial and monetary system. The most important result of the Bretton Woods
process was the establishment of three new bodies, collectively known as the ‘Bretton Woods
system’. These bodies were:
 International Monetary Fund (IMF), which came into operation in 1947, whose main function was
to maintain the smooth exchange of currency exchange.
 The International Bank for Reconstruction and Development (IBRD), known as the World Bank,
came into operation in June 1946. It was intended to support the revival of member countries’
economies.
 General Agreement on Tariffs and Trade (GATT), which was replaced in 1995 by the World Trade
Organization (WTO). Although the GATT is commonly seen as part of the Bretton Woods system, it
was created by the United Nations Convention for Trade and Employment and came into operation in
January 1948. It was related to the operation and regulation of world trade.

At the heart of the ‘Bretton Woods system’ was a new monetary order overseen by the International
Monetary Fund, which sought to maintain a stable exchange system. The World Bank and GATT
supplemented the new international monetary order by establishing a new international financial
order and a new international trade order, respectively. The main responsibility of the World Bank
was to provide loans to countries in need of reconstruction and development. Whereas GATT, which
existed more as a multilateral agreement than as an international organization, sought to advance
the cause of free trade by bringing tariff levels down. Between them, these bodies established a form
of proto-global economic governance, based on a framework of norms and rules that would guide
future economic relations between states.

FROM ‘GATT’ TO ‘WTO’

During the 1930s and World War II, global trade faced significant challenges. After the war, countries
aimed to create a liberal, open world trade system to prevent such problems from happening again.
To achieve this, an International Conference on Trade and Employment was held in Havana during
the winter of 1947-48, where 53 countries signed a charter to create an International Trade
Organization (ITO). However, the US Congress did not support the Havana Charter, so the ITO never
came into existence.

Before the Havana Charter, 23 countries had already agreed in Geneva in 1946 to negotiate tariffs
and trade concessions. These negotiations were included in the General Agreement on Tariffs and
Trade (GATT), which was signed on October 30, 1947, and came into force on January 1, 1948.

While the World Bank (established in 1946) and the International Monetary Fund (IMF, established in
1945) were successfully set up and functioning well as part of the Bretton Woods system, the ITO
faced problems. It was supposed to be the third institution of Bretton Woods and a part of the
United Nations, with a broad draft charter covering trade, employment, international investment,
and services. A conference in Havana in March 1948 was planned to finalize this charter. However,
long before the Havana Charter could be approved, 23 countries had already agreed to reduce tariffs
based on mutual negotiations. The US, a key player, and other governments did not ratify the charter.
In 1950, when the US officially declined to accept it, the charter was formally declared "dead."

Later, the Tokyo Round of GATT negotiations (1973-79) aimed to address trade barriers beyond
tariffs, such as non-tariff trade barriers, and implement reforms. The results were mixed, but the
Tokyo Round did introduce a subsidy code.

To further address GATT’s shortcomings, member countries decided another major round of
negotiations was needed. This led to the Uruguay Round, resulting in the establishment of the World
Trade Organization (WTO) on January 1, 1995, which replaced GATT and created a stronger
framework for international trade.

‘GATT’ AND ‘WTO’

The World Trade Organization (WTO) is not just an extension of GATT, but on the contrary, it
completely replaces GATT. The main differences between these two are discussed below:

 GATT was a collection of rules and multilateral agreements that had no institutional basis. In
contrast, the World Trade Organization is a permanent institution with its own secretariat.

 GATT was concerned with the regulation of matters arising out of international trade of goods on
international borders. While the WTO’s methodology and decision-making process of the agreement
extends to the political level.

 Although the governments of the member countries were permanently committed to obeying the
GATT, yet the GATT was implemented only on an ad-hoc basis. While in the WTO, the commitments
of member states are permanent.

• While the GATT rules were applicable only to the commodity trade, the WTO’s rules also apply to
services trade, trade-related intellectual property in addition to goods trade.
 The dispute resolution system of WTO, in comparison to GATT, is more intense, self-sustaining and
not going to be disrupted in any way, whereas this system could have been disrupted in the GATT
era.

FAVOURABLE CONDITIONS CREATED BY WTO FOR DEVELOPING ECONOMIES

The World Trade Organization (WTO) has had a significant positive impact on the global economy,
particularly by fostering a more open and predictable trading environment. One of the most notable
benefits is the reduction of trade barriers, such as tariffs and quotas, which has facilitated the
expansion of international trade. For example, through successive rounds of trade negotiations, such
as the Uruguay Round, the WTO has helped lower tariffs on a wide range of products. This reduction
in trade barriers has allowed countries like China and India to become major players in global trade,
leading to substantial economic growth and poverty reduction in these countries.

Another positive impact of the WTO is its role in ensuring trade predictability and stability. By
providing a framework of agreed-upon rules, the WTO helps create a stable trading environment
where businesses can operate with confidence. This stability encourages investment and economic
planning. For instance, the accession of China to the WTO in 2001 provided foreign investors with
greater confidence in the Chinese market, leading to an influx of foreign direct investment (FDI)
which has been instrumental in China’s economic development.

The WTO’s dispute settlement mechanism is also a key positive aspect, providing a structured and
legalistic method for resolving trade disputes between member countries. This mechanism has been
crucial in preventing trade wars and maintaining global economic stability. For example, in 2002, the
WTO ruled against the United States’ imposition of steel tariffs, which were found to violate WTO
agreements. This ruling helped to prevent a potential trade war between the U.S. and the European
Union, thereby maintaining stability in global steel markets.

Additionally, the WTO has played a significant role in supporting the development needs of poorer
nations through various initiatives aimed at building trade capacity. Programs such as the Aid for
Trade initiative help developing countries improve their trade infrastructure and regulatory
environments, enabling them to participate more effectively in global trade. For instance, countries
in Sub-Saharan Africa have benefited from technical assistance and training programs provided by
the WTO, which have helped them enhance their export capabilities and integrate more fully into the
global economy.

Overall, the WTO has made substantial contributions to the global economy by promoting trade
liberalization, ensuring trade stability, providing a platform for dispute resolution, and supporting the
development of poorer nations. These efforts have collectively helped to enhance economic growth,
reduce poverty, and increase global economic integration.

CRITICS OF WTO

Critics of the World Trade Organization argue that there is considerable bias within decision-making
structures that systematically favour the developed countries bypassing the interests of developing
countries. They generally emphasize ‘consensus’ decision making. Such a situation is detrimental to
developing countries, as they do not have stable representation at the World Trade Organization’s
Geneva headquarters. Their delegation is much smaller than the developed countries or they are
excluded from the meetings, in which the dominance of the developed countries usually prevails.
Similarly, developed countries are more likely to serve as ‘Third Parties’ capable of bringing issues
before the Dispute Settlement Panel and influencing the Dispute Settlement process. Such unfair
trade practices are done with developing countries. Due to such biased and general lack of
transparency and accountability in decision-making processes, the World Trade Organization is called
the ‘rich man’s club’. However, the economic rise of China and it’s becoming a member of the World
Trade Organization in the year 2001, as well as the growing influence of the fast-emerging economies
of countries like India, Brazil, Egypt and South Africa, affected the balance within the World Trade
Organization and the organization has started changing. This was particularly demonstrated by the
halting of the Doha Round of Talks, which began in 2001but it was suspended in 2009 largely due to
disagreements over agriculture and clothing, as the United States and the European Union were
unwilling to give up ‘protectionism’. Nevertheless, the main ideological debate focuses on its benefits
and the philosophy of free trade. Some argue that free trade brings prosperity to all and in the
process the chances of war are reduced. On the other hand, other critics view ‘fair trade’ as clearly
unfair and a reason for structural inequality.

CONCLUSION

In conclusion, the World Trade Organization (WTO) is a cornerstone of global economic governance,
promoting open, fair, and predictable trade relations among its member nations. By reducing trade
barriers and creating a rule-based trading system, the WTO has significantly expanded global trade,
driving economic growth and development, especially in emerging and developing economies. Its
role in trade liberalization has dismantled protectionist policies, allowing countries to specialize and
compete more efficiently, exemplified by the economic transformations in China and India.

The WTO’s dispute settlement mechanism has maintained international economic stability by
providing a formal process for resolving trade disputes. This approach ensures that conflicts are
settled based on agreed rules, preventing trade issues from escalating and fostering a stable
environment essential for investment and economic planning.

Moreover, the WTO’s commitment to building the trade capacity of developing countries through
technical assistance and initiatives like Aid for Trade has enabled these nations to participate more
effectively in the global economy, promoting a more equitable distribution of globalization’s benefits.

Despite its achievements, the WTO faces challenges such as addressing globalization's disparities and
adapting to modern trade issues like digital commerce and environmental sustainability. However, its
fundamental principles and mechanisms provide a solid foundation for addressing these challenges
and promoting a fair and open global trading system.

Overall, the WTO has significantly shaped the modern global economy through trade liberalization,
stability in dispute resolution, and support for developing nations, driving economic progress and
integration. Its continued ability to adapt to new challenges will be crucial in sustaining its positive
impact on international trade and development.