Background Role and principles Impact on trade WTO covered agreements Comment

At the heart of the international trading system lies the World Trade Organisation (WTO). As a member-driven organisation, all WTO decisions are taken by consensus among its 159 members. Established on January 1 1995, the WTO may appear a fairly young international organisation. However, this overlooks the legacy that the WTO inherited from the General Agreement on Tariffs and Trade (GATT), which lasted from 1947 to 1994.

Background

Led by the post-war agenda of the United States, the United Kingdom and Canada, the GATT was adopted in 1947 by 23 signatories, with a primary focus on tariff concessions and liberalisation of trade in industrial goods. The GATT's purpose was to provide the basis of a regulatory framework for world trade, as incorporated in an international organisation governing world trade. However, the envisaged International Trade Organisation was never established, and the GATT gradually evolved into a de facto institutionalised international organisation.

A total of eight negotiating rounds were held under the GATT's auspices, leading to a significant elimination or reduction in tariff levels. Indeed, tariffs applied to manufactured goods imposed by developed countries dropped from an average of about 40% in the pre-GATT years, to an average of about 4% by the time of the WTO's establishment. Other agreements were also negotiated, addressing, for instance, anti-dumping measures. Nevertheless, it became evident over the years that the GATT system was ill-equipped to address the needs of an ever-globalising world economy. These negotiations were mainly dominated by the United States and Europe, and to a lesser extent Canada.

As a result, the eighth and final negotiating round under the GATT, known as the Uruguay Round, was launched in 1986. With the largest negotiating mandate ever agreed on, the Uruguay Round covered almost all trade, whether in goods or services, intellectual property or trade-related investment measures. All GATT articles were subject to review and several new agreements were negotiated. Finally, a streamlined and institutionalised dispute settlement system was created. After seven years of painstaking negotiations, the Marrakesh Agreement was signed in 1994, concluding the Uruguay Round and officially establishing the WTO on January 1 1995.

Role and principles

The WTO's primary objective is to assist in allowing "trade to flow as freely as possible", in order to promote economic development. In doing so, the WTO has several functions:

  • administering WTO agreements;
  • serving as a forum for trade negotiations, whether multilateral or plurilateral;
  • serving as a forum for the settlement of trade disputes;
  • monitoring the national trade policies of its members;
  • providing technical assistance and capacity building for its developing country members; and,
  • cooperating with other international organisations.

While the WTO's functions are numerous, and the content of its agreements wide ranging and complex, certain essential core principles serve as the WTO's foundation:

  • The WTO's fundamental underlying principle is that of non-discrimination as embodied in the most-favoured-nation principle and the national treatment principle. According to the most-favoured-nation principle, a WTO member may not discriminate between its trading partners, while according to the national treatment principle, a WTO member may not discriminate between its own nationals and those of its trading partners once a product, service or item of intellectual property has entered the domestic market.
  • The WTO promotes free and open trade by lowering trade barriers (eg, import duties or quantitative restrictions).
  • The WTO aims to ensure transparency, predictability and stability in the trade policies of its members.
  • The WTO attempts to create a more competitive and fair trading system by providing its members with the tools to tackle unfair trading practices (eg, harmful subsidisation or dumping).
  • The WTO provides special and differential treatment to its developing country members, which comprise over three-quarters of its membership. In doing so, these members are provided with increased flexibility in adapting to certain WTO provisions.

Finally, while often misunderstood, environmental protection is an important principle embodied in the WTO agreements and the organisation as a whole. This includes the conservation of natural resources, as well as the protection of human, animal and plant health. WTO members can take measures to protect the environment, provided that these comply with a number of conditions to avoid the misuse of such measures for protectionist purposes.

Impact on trade

In the two decades since the WTO's establishment, the global economy has experienced growth and liberalisation at an unprecedented rate. While this cannot be credited exclusively to the WTO, it is undeniable that the WTO has played a major, if not principal, role. By lowering and eliminating trade barriers, as well as by providing assistance and capacity building to developing nations, the WTO has been and continues to be the central pillar of the global trading system. The WTO also served a pivotal role in the unravelling of the global financial and resulting economic crisis, in helping to minimise protectionist tendencies.

Finally, through its unique dispute settlement system, the WTO has become a forum where trading nations, both large and small, can settle their trade disputes in an efficient and peaceful manner. This is a vast improvement over the dispute settlement of the past, when trading nations would engage in retaliatory measures, or even war. Today, the WTO dispute settlement system is widely used and generally complied with.

Nevertheless, soon after the WTO's establishment, it became clear that further negotiations were necessary in order to prepare the organisation for the 21st century. In the GATT and early WTO days, the United States, European Union, Japan and Canada dominated the negotiating agenda. However, the shifting balance of power at the end of the 20th century meant that the concerns of developing countries demanded greater attention, particularly those of the emerging economies. As a result, the Doha Round (also known as the Doha Development Agenda) was launched in 2001.

These negotiations have dragged on ever since, and eventually collapsed in 2008, mainly over irreconcilable differences on agricultural issues that existed between certain WTO members. However, ever since, efforts have been made to resume the negotiations, which culminated most recently in the adoption of the Bali Package, including the WTO Trade Facilitation Agreement. This was hailed as the first major step towards putting the Doha Round back on track, but in the meantime it appears that the Doha Development Agenda remains dead, and the key focus in now on plurilateral sectoral agreements. To date, the Trade Facilitation Agreement has been ratified by 100 WTO members, and has only 10 more ratifications to go before it enters into force.

WTO covered agreements

Several agreements exist under the WTO's auspices, which are mostly annexed to the Agreement Establishing the World Trade Organisation. While the WTO is a multilateral organisation – meaning that its agreements and decisions are generally agreed on by the full WTO membership – plurilateral agreements may also be negotiated and concluded, meaning that only part of the WTO membership is party to the relevant agreement. However, this has been little used, as compared to multilateral agreements in the past, the main focus of WTO negotiations is now on plurilaterals. A number of plurilaterals are currently being negotiated under the auspices of the WTO (eg, the Trade in Services Agreement and the Environmental Goods Agreement).

Multilateral agreements include:

  • The General Agreement on Tariffs and Trade 1994;
  • The Agreement on Agriculture;
  • The Agreement on Sanitary and Phytosanitary Measures;
  • The Agreement on Technical Barriers to Trade;
  • The Agreement on Trade-Related Aspects of Investment Measures;
  • The Anti-dumping Agreement;
  • The Customs Valuation Agreement;
  • The Agreement on Pre-shipment Inspection;
  • The Agreement on Rules of Origin;
  • The Agreement on Import Licensing Procedures;
  • The Agreement on Subsidies and Countervailing Measures;
  • The Agreement on Safeguards;
  • The General Agreement on Trade in Services;
  • The Agreement on Trade-Related Aspects of Intellectual Property Rights;
  • The Understanding on Rules and Procedures Governing the Settlement of Disputes; and
  • The Trade Policy Review Mechanism.

Plurilateral agreements include:

  • The Agreement on Trade in Civil Aircraft;
  • The Agreement on Government Procurement; and
  • The Information Technology Agreement.

Three sectoral agreements that existed under the WTO's auspices have since been terminated. Two plurilateral agreements – the International Dairy Agreement and the International Bovine Meat Agreement – were terminated in 1997. One multilateral agreement – the Agreement on Textiles and Clothing – was terminated in 2005.

Comment

The WTO has played a pivotal role in international trade over the past 20 years. Through the WTO, many companies have benefitted from market access around the world and have been able to enjoy non-discriminatory treatment. Companies have relied on several instruments provided for under the WTO agreements, particularly trade defence instruments (eg, anti-dumping, anti-subsidy and safeguard measures), and have influenced the framing of laws and policies by reminding governments of their WTO obligations.

For further information on this topic please contact Renato Antonini, Byron Maniatis or Eva Mondard at Jones Day by telephone (+32 2645 1419) or email (rantonini@jonesday.com, bmaniatis@jonesday.com or emonard@jonesday.com). The Jones Day website can be accessed at www.jonesday.com.

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