World Trade Organization

Also called: WTO · Topic: The Making of a Global World · NCERT: Beyond NCERT

Meaning

The World Trade Organization (WTO) is an international body that started work on 1 January 1995, with its headquarters in Geneva, Switzerland. It makes and enforces rules for trade between member countries, gives them a place to bargain over trade, and settles their trade disputes.

• It matters because it is the main global body for trade. The IMF and World Bank, set up at Bretton Woods in 1944, deal with money and loans [1].
• It also matters because it finished a job left half-done after the Second World War. That job was a firm set of rules for world trade.

Explanation

Background: why a trade body was needed

• The 1930s lesson. In the inter-war years, countries put up trade barriers to protect their own jobs.
• World trade shrank.

• The Great Depression grew deeper.

• Bretton Woods left a gap. The 1944 conference at Bretton Woods, New Hampshire, created two bodies [1][2]:

• the IMF (International Monetary Fund), which dealt with countries' external surpluses and deficits, meaning whether a country earned more or less from the outside world than it paid out;
• the IBRD / World Bank (International Bank for Reconstruction and Development), which lent money to rebuild countries wrecked by the war.

• No full trade body came out of the conference.

• A trade body was planned but never started. A proposed International Trade Organization (ITO) never came into being.

• GATT took its place. The General Agreement on Tariffs and Trade (GATT) was signed in 1947 and came into force in 1948.
• GATT was an agreement, not a proper organisation.

• Its job was to cut tariffs (taxes on imported goods) through rounds of bargaining.

• High tariffs shaped the post-war economy. Countries kept high import tariffs. Firms got past this "tariff wall" by building factories inside each country, and this helped MNCs (multinational corporations, which make goods in several countries at once) spread in the 1950s and 1960s.

The Uruguay Round and the birth of the WTO

• The Uruguay Round (1986–1994) was the eighth and longest round of GATT talks. It was the first round to bring in services, intellectual property and farm trade in a big way.
• The Marrakesh Agreement was signed in Marrakesh, Morocco, in April 1994. It created the WTO.
• 1 January 1995: the WTO began work.

• GATT did not disappear. It became one of the agreements the WTO looks after, mainly for trade in goods.

• India was a founding member of the WTO. It had also been one of the first members of GATT.

How the WTO works

• Who decides? The member governments, usually by consensus (everyone agreeing, or no one objecting).
• Ministerial Conference: the highest body. Trade ministers meet at least once every two years.
• General Council: runs day-to-day business. It also sits as the Dispute Settlement Body and the Trade Policy Review Body.

• Secretariat in Geneva, led by a Director-General.

• Core rules

• Most-Favoured-Nation (MFN): a trade favour given to one member must be given to all members.
• National treatment: once imported goods enter a country, they must be treated the same as goods made at home.

• Binding of tariffs: countries promise not to raise tariffs above an agreed limit.

• Main agreements it looks after

• GATT: trade in goods.
• GATS (General Agreement on Trade in Services): trade in services such as banking or telecom.
• TRIPS (Trade-Related Aspects of Intellectual Property Rights): rules on patents, copyright and trademarks.
• TRIMs (Trade-Related Investment Measures): limits on trade-distorting rules for foreign investment.

• Agreement on Agriculture (AoA): limits on farm subsidies and protection.

• Dispute settlement

• A member that believes another member is breaking the rules can file a case.
• Panels hear the case. An Appellate Body hears appeals.
• The losing side must change its policy, or it may face trade penalties.
• This "teeth" is the biggest difference from the old GATT.

Results and problems over time

• Wider membership. China joined in 2001. Its entry fitted the larger story in which China, after being cut off from the world economy after its 1949 revolution, re-entered through new economic policies.
• The Doha Round (from 2001) was launched as a "development round" to help poorer countries. It has largely stalled over farm subsidies and market access.
• North–South tension. Developing countries argue that the rules still favour rich countries, especially on farm subsidies, patents (TRIPS and medicines) and food security.

• This echoes the old G-77 demand for better access to Western markets and fairer prices for raw materials [3][5].

• Dispute system under strain. In recent years the Appellate Body has been unable to work because new judges have not been appointed. This weakens enforcement.

Time, place and evidence

• Period: the post-Cold War phase of globalisation. It came after the collapse of the Bretton Woods money system (1971–73) and the shift of industry to low-wage Asia from the late 1970s [6][7].
• Places:
• Geneva, Switzerland: WTO headquarters. Geneva was also where GATT was based and where UNCTAD I met in 1964 [3].
• Uruguay: the round of talks was launched there in 1986.

• Marrakesh, Morocco: the founding agreement was signed there in 1994.

• Key groups: member governments acting through the Ministerial Conference. Developing-country groups pressed their demands in the tradition of the G-77 (founded 15 June 1964) [3][4].

• How we know:
• The text of the Marrakesh Agreement Establishing the World Trade Organization (1994).
• The Uruguay Round legal texts (GATT 1994, GATS, TRIPS and others).

• Official records of ministerial meetings and dispute rulings.

• Note on sources: the WTO is not discussed in the NCERT chapter. It is "Beyond NCERT", and its dates come from settled textbook knowledge.

Don't confuse with

• GATT (1947/48): an agreement that only dealt with trade in goods and had weak enforcement. The WTO (1995) is a permanent organisation. It also covers services and intellectual property, and it has a binding dispute-settlement system.
• IMF and World Bank (the Bretton Woods twins): they came from the 1944 Bretton Woods conference and deal with money, balance of payments and loans [1][2]. The WTO deals with trade rules and was born fifty years later.
• UNCTAD: a United Nations forum on trade and development, which first met in Geneva in 1964 [3]. It speaks for developing countries but cannot enforce rules. The WTO is not a UN agency and can enforce its rules.
• NIEO (1974): a UN General Assembly declaration (resolution 3201 (S-VI), 1 May 1974) that demanded a fairer world economy [5]. It was a demand, not an institution. The WTO is a working institution with binding rules.

Prelims Hooks

• The WTO came into being on 1 January 1995. It was created by the Marrakesh Agreement (April 1994) at the end of the Uruguay Round (1986–94). Its headquarters are in Geneva.
• The WTO replaced GATT as an institution, but GATT survives as the WTO's agreement on trade in goods.
• Trap: the WTO was not set up at Bretton Woods. Bretton Woods (July 1944, 44 nations) set up only the IMF and IBRD [1][2].
• India was a founding member of both GATT and the WTO. China joined in 2001.
• TRIPS (intellectual property), GATS (services), TRIMs (investment) and the Agreement on Agriculture are all WTO agreements, not IMF or World Bank agreements.
• The WTO's highest body is the Ministerial Conference, which meets at least every two years. Its Dispute Settlement Body is what separates it from the old GATT.

Mains Points

• The WTO completed the post-war design, but on different ideas. The 1944 planners believed in a managed economy. Governments were to control the flow of goods, capital and labour to keep everyone employed. The WTO was born in 1995 into a world of open markets that took shape after Bretton Woods collapsed in 1971–73 [6]. So the WTO marks a change: from national control over trade to binding global rules that limit what a government can do.
• The WTO continues the North–South debate. The G-77 (1964) and the NIEO (1974) asked for better market access and fairer prices [3][5]. Developing countries such as India now raise the same concerns inside the WTO:
• farm subsidies in rich countries;
• TRIPS and the price of medicines;
• food-security stockholding (governments buying and storing grain for the poor).

This shows that political independence did not settle the question of economic fairness.

• Globalisation through the WTO is uneven. WTO rules free the movement of goods, services and capital, but not of labour. Firms move to where workers are cheap, but workers cannot freely move to where wages are high. This helps explain both the manufacturing rise of China and India and the backlash against free trade in the industrial world.

Related concepts

• Bretton Woods Conference
• Bretton Woods system
• International Monetary Fund
• World Bank
• Fixed exchange rate
• Marshall Plan
• General Agreement on Tariffs and Trade
• Multinational corporation
• Group of 77
• New International Economic Order

Read more

• Rebuilding the world economy: Bretton Woods to globalisation