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World Trade Organization

World Trade Organization

THE SUCCESSOR TO THE GATT

INSTITUTIONAL FRAMEWORK AND DISPUTE-RESOLUTION MECHANISMS

THE DOHA ROUND

CONTROVERSY AND 1999 SEATTLE PROTESTS

BIBLIOGRAPHY

The World Trade Organization (WTO) is the international organization that oversees trade among member nations and acts as a forum for governments to negotiate trade agreements and settle trade disputes under a system of rules and procedures. Its aim is to increase world trade by lowering barriers to the international sale of goods and services, including intellectual property. The WTO was formed on January 1, 1995, replacing the postwar multilateral trading order under the General Agreement on Tariffs and Trade (GATT) with a more formal institutional arrangement. Headquartered in Geneva, Switzerland, the WTO as of November 2006 had 150 members, the latest addition being Vietnam. As of this date Russia was the largest state that was not yet a member. The governing principles of the WTOs global trading system were described by Director General Pascal Lamy in 2006: Built up stone by stone over the past 50 years, this system is founded on the idea that prosperity depends on efficiency, stability, predictability, and equity in international trade (Lamy 2006).

THE SUCCESSOR TO THE GATT

In some respects, the WTO is a new organization, growing out of globalization, but the idea of an international trade institution dates at least to the period immediately following World War II (19391945). The Bretton Woods Conference of 1944, near the end of World War II, proposed the creation of an International Trade Organization to complement the International Monetary Fund and Bank for Reconstruction and Development (World Bank) in order to stabilize the postwar world economy and promote trade. The member states of the United Nations (UN) agreed to the creation of the International Trade Organization (ITO) at the UN Conference on Trade and Employment in Havana, Cuba, in 1948. The ITO charter covered trade in goods and services and included rules on employment, commodity agreements, restrictive business practices, and investment. The organization failed to materialize, however, when the U.S. Senate rejected the implementing agreement.

GATT, a part of the proposed ITO, survived as a treaty agreement among twenty-three of the fifty signatory states of the ITO to set tariffs (or customs duties) to mutually agreed-upon levels without discrimination among members under a generalized system of preferences. This system called for treating goods from all countries on the same level as that of the most-favored nation (MFN ) and allotted national treatment to both domestic and imported goods once they had entered the market. Certain exceptions to the nondiscrimination principle were allowedfor example, for regional trading arrangements or special access to developing countriesbecause these types of arrangements expanded regional trade and accorded with the goal of expanding global trade. These principles and exceptions were incorporated into the WTO. Tariff levels were agreed on through an intergovernmental negotiating forum facilitated by the small GATT secretariat, but the system did not provide for any enforcement mechanisms or dispute-settlement procedures, and it dealt almost entirely in trade in goods. Services and intellectual property were later addressed under separate agreementsthe General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)that were also incorporated into the WTO. GATT also contained provisions against unfair competitive practices, such as dumping and subsidies, that are also part of WTO fair-trade rules.

Two major industries were given special treatment under the postwar systemagriculture, which was not covered by GATT, and textiles and apparel, which was regulated under a quota system set up by a separate multilateral agreement, the Multifiber Agreement, until 2005. Eight rounds of multiyear trade negotiations were completed under GATT. The WTO was created at the conclusion of the eighth round, known as the Uruguay Round (19861995).

INSTITUTIONAL FRAMEWORK AND DISPUTE-RESOLUTION MECHANISMS

Unlike GATT, the WTO has an extensive institutional structure. It comprises the Ministerial Conference, the General Council, and a Secretariat with various bodies, committees, divisions, and working groups on specific issues. The General Council is the WTOs highest decision-making body and meets on a regular basis. Its members are official government representatives, the ambassadors to the WTO, from all member states. The Ministerial Conference comprises the trade or commerce ministers of the member states and meets approximately every two years; the Sixth WTO Ministerial Conference met in Hong Kong, China, on December 1318, 2005. The Ministerial Conference issues declarations and decisions outlining the broad mandate of the WTO. A recurrent desire expressed in these declarations has been for greater cooperation and coherence between the IMF, World Bank, and WTO on global economic policy making and development.

The structure of the WTO was created by the legal texts of the Uruguay Round of trade negotiations, which include approximately sixty agreements, annexes, decisions, and understandings incorporating GATT, GATS, and TRIPS and covering trade in goods, services, intellectual property, dispute settlement, and transparency through reviews of governments trade policies. The agreements negotiated under GATT and the WTO provide the legal ground rules for international commerce, binding governments much like commercial contracts. Like any contract, disputes between parties are likely to arise, and for this reason a new dispute-settlement process was written into the WTO agreements and have become a central pillar of the global trading system. Within this system, a member country can file a dispute against another country or group of countries that it believes is violating a rule of the agreements or failing to live up to its obligations under the agreements.

The procedure resembles a court or tribunal, with formal consultations, mediation, and a panel set up to hear the arguments, examine the legal obligations of the parties, and prepare a report for the Dispute Settlement Body (consisting of all WTO members) to adopt or reject. It also includes an appeals process based on legal interpretation heard by a permanent Appellate Body composed of seven individuals of high legal standing without governmental affiliations. Members of the Appellate Body have four-year terms and can uphold, modify, or reverse the panels legal findings or conclusions. Rulings are adopted by the Dispute Settlement Body automatically unless there is a consensus against the panel or appeals report (not a consensus in favor of the report) and are binding; if a state loses a dispute, it must comply with the report recommendations and state its intention to do so within thirty days. In cases of nonimplementation, the parties negotiate compensation pending full implementation. The Dispute Settlement Body monitors implementation of the report rulings and recommendations (if adopted) and has the power to authorize retaliatory action by the harmed country against the country violating its treaty obligations. By July 2005 a total of 332 cases had been brought before the WTO. A typical dispute may take up to sixty days for consultations, up to a year for panel review without an appeal, or a year and three months with an appeal. For any given dispute, the panels report is normally presented to the parties within six months (or three months when the issue involves perishable goods).

THE DOHA ROUND

Trade negotiations among member states continue under the WTO, as under GATT, on a multiyear, multilateral basis. As of May 2007 the ninth round of global trade negotiations, the Doha Round, was still ongoing. Doha Round negotiations began in 2001 and are considered by many as much more difficult than earlier rounds. Several reasons are commonly used to explain this difficulty: (1) It goes deeper and farther than other rounds in addressing for the first time such issues as agricultural subsidies and bureaucratic border requirements and documentation, making for political complexity. (2) It makes greater attempts at fair trade by making economic development more central to the international trading system. (3) The membership has grown so much in size and socioeconomic diversity that negotiating outcomes based on the practice of consensus has become much more difficult. (4) It faces strong opposition to globalization by various nonprofit associations representing labor, the environment, and other constituencies. The WTO has been a focus of globalization debates among intellectuals and policy makers and a target of antiglobalization protests by civil society groups.

CONTROVERSY AND 1999 SEATTLE PROTESTS

The WTO has come to represent the institutionalization of globalization, with its positive trade expansion effects as well as its negative effects on communities, local industry, and human rights. The adverse effects of globalization have given rise to a global social movement with active published criticism and consistent protests by activists at WTO Ministerial meetings as well as the annual World BankIMF conferences. The first protest of significant size and impact took place at the WTO Ministerial meeting in Seattle from November 29, 1999, to December 3, 1999. An estimated 50,000 protesters from around the world included human rights groups, students, environmental groups, religious leaders, labor-rights activists, others demanding fair trade with less exploitation, and various protectionist groups demanding a nationalist response to maintain domestic industries and preserve communities without foreign influence. While the majority were nonviolent protestors, a small group clashed violently with police, leading the Seattle police and the National Guard to declare a state of emergency that included curfews, arrests, teargas, pepper spray, and rubber bullets fired at nonviolent protestors. Many found the violation of the right of free speech for the purpose of free trade and the ensuing police actions unacceptable. Enormous public protests ensued, ultimately causing the resignation of the Seattle police chief and succeeding in disrupting the meeting, which collapsed. Over 500 related events took place between February 18, 1999, the day the Ministerial location in Seattle was announced, and mid-December 1999, after the WTO had departed. Over 1,400 organizations signed a letter stating their opposition to the WTO. According to the text of the letter, protesting organizations accused the WTO of

principally to pry open markets for the benefit of transnational corporations at the expense of national and local economies; workers, farmers, indigenous peoples, women and other social groups; health and safety; the environment; and animal welfare. In addition, the WTO system, rules and procedures are undemocratic, un-transparent and non-accountable and have operated to marginalize the majority of the worlds people. (WTO History Project)

At the root of the protests are many fundamental differences in the perspectives of developing and industrialized nations, as well as labor unions and some domestic industry in developed countries, on the current reality of free trade and how it affects them. The protests have drawn attention to the democratic deficit within the WTO and to the social issues globalization can adversely impact. However, long-term legislative impact on the WTO itself remains unclear.

SEE ALSO Diplomacy; Free Trade; General Agreement on Tariffs and Trade; Globalization, Social and Economic Aspects of; International Monetary Fund; Protest; Social Movements; Trade; Uruguay Round; World Bank, The

BIBLIOGRAPHY

Bhagwati, Jagdish. 2005. In Defense of Globalization. Oxford: Oxford University Press.

Jackson, John H. 1998. The World Trade Organization: Constitution and Jurisprudence. London: Royal Institute of International Affairs.

Lamy, Pascal. 2006. Partnership and Global Prosperity. Speech made on June 5, 2006, in Montreal, Canada, for the International Economic Forum of the Americas. http://www.wto.org

Scott, Jeffrey J., ed. 2000. WTO after Seattle. Washington, DC: Institute for International Peace.

Stiglitz, Joseph E. 2003. Globalization and Its Discontents. New York: Norton.

Stiglitz, Joseph E. 2006. Making Globalization Work. New York: Norton.

Thomas, Janet. 2000. The Battle in Seattle: The Story behind and beyond the WTO Demonstrations. Golden, CO: Fulcrum.

Wallach, Lori, and Michell Sforza. 1999. Whose Trade Organization? Corporate Globalization and the Erosion of Democracy: An Assessment of the World Trade Organization. Washington, DC: Public Citizen.

WTO History Project, University of Washington. http://depts.washington.edu/wtohist/index.htm

Anastasia Xenias

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World Trade Organization

World Trade Organization


The General Agreement on Tariffs and Trade (GATT) was an international organization created in 1947 to reduce trade barriers through multilateral negotiations. The World Trade Organization (WTO) was organized in January 1995 to replace GATT and improve international trade. Its membership in 2002 totaled more than 140 nations.

Whereas GATT focused on tariff reduction, the WTO works to eliminate so-called nontariff barriers, which can include environmental, health, and other public-interest regulations that are considered impediments to international trade. Any member country has the right to challenge other members' laws under the WTO dispute-settlement process. When this occurs, the WTO forms a three-person tribunal to hold hearings on the case, which take place in secret in Geneva, Switzerland. If the tribunal finds that the law is illegal within the context of WTO policy, it has the power to order the country to change the law or face trade sanctions.

The WTO's first ruling involved a successful challenge to the U.S. Clean Air Act. Brazil and Venezuela had complained that a part of the act that required all foreign sources of U.S. gas imports to meet a certain cleanliness standard was discriminatory. The U.S. government was ordered to amend its regulation or face retaliatory trade sanctions of approximately $150 million per year. It opted to modify the law.

This ruling unleashed a flood of other challenges against environmental laws, such as U.S. dolphin and sea turtle protections, Japan's ban on fruit imports carrying invasive species, and the European Union's ban on U.S. beef injected with growth hormones.

The WTO does allow some exceptions for laws that are "necessary to protect human, animal or plant life and health." However, this exception has proved virtually useless, since WTO panels have interpreted the language to mean that laws must represent the "least trade-restrictive" way to achieve the environmental goal.

Although WTO rulings have most often targeted environmental protections, the organization has also drawn strong criticism from labor unions. Among other complaints, they argue that the WTO should adopt rules in support of internationally recognized labor rights as a way to prevent corporations and governments from gaining an unfair trade advantage by abusing workers.

In December 1999 tens of thousands of environmentalists joined with trade unionists and other activists to protest the WTO Ministerial Meeting in Seattle, Washington. The "Teamsters and Turtles" united in the streets, combined with disputes among some member countries, forced the organization to abandon plans to launch a new round of negotiations. The "Battle in Seattle" also thrust the WTO into the public limelight for the first time. The next WTO meeting was sited far from angry crowds and international media attention in isolated Doha, Qatar. Although it concluded with the announcement of plans for a new round of discussion, the meeting was fraught with tensions and the WTO's future appears anything but smooth.

see also Economics; Environmental Crime; Environmental Justice; Laws and Regulations, International; Treaties and Conferences.

Bibliography

shrybman, steven. (1999). the world trade organization: a citizen's guide. toronto, ontario: canadian centre for policy alternatives.


internet resource

world trade organization web site. available from http://www.wto.org.

Sarah Anderson

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World Trade Organization

World Trade Organization (WTO), international organization established in 1995 as a result of the final round of the General Agreement on Tariffs and Trade (GATT) negotiations, called the Uruguay Round. The WTO is responsible for monitoring national trading policies, handling trade disputes, and enforcing the GATT agreements, which are designed to reduce tariffs and other barriers to international trade and to eliminate discriminatory treatment in international commerce. In an effort to promote international agreements, WTO negotiations are conducted in closed sessions; many outsiders have strongly criticized such meetings as antidemocratic. Unlike GATT, the WTO is a permanent body but not a specialized agency of the United Nations; it has far greater power to mediate trade disputes between member countries and assess penalties. In the Uruguay Round, agreement was reached to reduce tariffs on manufactured goods by one third. Under the WTO, subsidies and quotas are to be reduced on imported farm products, automobiles, and textiles, which were not covered by GATT; there is also freer trade in banking and other services and greater worldwide protection of intellectual property. Negotiations to eliminate subsidies and protections for agricultural products, however, have proved to be a stumbling block. The Doha Round of talks, launched in 2001, have been deadlocked over such subsidies; the round was originally scheduled to be finished in Jan., 2005. The WTO is headquartered in Geneva and also holds international ministerial conferences; it has 159 members.

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World Trade Organization

World Trade Organization (WTO) Body sponsored by the United Nations (UN) to regulate international trade. The WTO was established on January 1, 1995, to replace the General Agreement on Tariffs and Trade (GATT). The WTO took over GATT's rules with increased powers, and brought intellectual property rights, agriculture, clothing and textiles, and services under its control.

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World Trade Organization

World Trade Organization

BACKGROUND
SPECIFIC AREAS OF FOCUS
STRUCTURE AND PROCEDURES
U.S.-WTO COOPERATION
U.S. DOHA DEVELOPMENT AGENDA
MINISTERIAL CONFERENCE

Last Updated: March 2008

Official Name:

World Trade Organization

Editor's note: The information in this article was compiled and edited from Background Notes and Fact Sheets available through the U.S. Department of State. Additional information has been added from releases and reports available from the U.S. Department of State as of March 2007.

BACKGROUND

The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 151 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986-1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations.

The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development.

The Uruguay Round

Progress toward multilateral trade liberalization takes place through rounds of negotiations. Eight rounds have been completed since 1948. The eighth round, the Uruguay Round, began in Punta del Este, Uruguay, in September 1986 and concluded at Marrakech, Morocco, in April 1994.

On December 15, 1993, 123 countries, accounting for more than 90% of world trade, concluded a historic agreement to reform international trade. The Uruguay Round of multilateral trade negotiations, conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), extended the GATT's rules to new areas of trade and updated its organization to conform to a more dynamic global trading system.

The WTO effectively replaced the GATT on January 1, 1995.

The Doha Round

At the WTO Ministerial Conference in Doha, Qatar, held in November 2001, the Doha Development Agenda (DDA) was launched. The WTO reiterated its goals of promoting economic development and alleviating poverty through international trade. It recognized the particular vulnerability of the least-developed countries in the world, and pledged commitment to address the marginalization of those poor countries in international trade and to improve their participation in the multilateral trading system.

Twenty-one subjects were listed in the Doha Declaration, among them decisions clarifying the objectives of developing country member governments. These included issues relating to agriculture, subsidies, textiles and clothing, technical barriers to trade, trade-related investment measures, and rules of origin. Other subjects covered included services, intellectual property rights, transparency, trade and the environment, electronic commerce, and technical cooperation. The Declaration set the date of January 1, 2005, for adopting all but two of the negotiations. The original deadline of January 1, 2005 was missed. It was extended to the end of 2006, but that deadline was also missed. Efforts then focused on achieving a breakthrough in 2007 and 2008.

SPECIFIC AREAS OF FOCUS

Tariffs

Previously existing as well as newly established tariffs will be “bound.”Once bound, a tariff cannot be increased without compensation to other countries. In addition, all countries were required to begin reducing tariffs in 1995, with specific schedules established for each member. For developed countries, tariffs will be reduced a minimum of 15% per product line and an overall average of 36% over a six-year implementation period.

Developing countries are permitted smaller reduction commitments and longer implementation periods (10 years to cut tariffs by 24%). Important gains include 50–100% cuts in tariffs on electronic items (such as semiconductors and computer parts) and harmonization of tariffs in the chemical sector at low rates.

Services

The agreement on trade in services establishes new rules in more than 150 service sectors and subsectors (such as advertising, law, accounting, information and computer services, environmental services, engineering, and tourism), thus enabling U.S. firms operating overseas to be treated as fairly as local firms.

Intellectual Property

The agreement on trade-related intellectual property rights establishes improved safeguards to protect intellectual property rights. Computer programs and databases are protected under copyright. Patents for virtually all types of inventions, including those in pharmaceuticals and chemicals, are protected for up to 20 years.

Agriculture

The agreement on agriculture requires that all members reduce aggregate support to their domestic agricultural sectors by 20% from a 1986-88 base period. (The U.S. already has reduced domestic support so that further reductions will not be necessary.)

Agricultural products, which represent 10% of total U.S. merchandise exports, were the second-largest contributor to the overall U.S. trade balance in 1992. Since the U.S. is the world's major exporter of agricultural products, with a share of world trade averaging about 15% in recent years, increased market access and reduced subsidies for agriculture will create important opportunities for U.S. producers and exporters. An agricultural export subsidy agreement specifies reductions in spending on export subsidies (36% over six years for developed countries, 24% over 20 years for developing countries) and outlaws the extension of subsidies to new products not subsidized during a 1986–90 base period.

An agreement on sanitary and phy-tosanitary measures establishes a scientific standard for measures restricting plant and animal product imports on the basis of health or safety concerns, thereby eliminating import restrictions based on arbitrary or unsubstantiated health concerns.

Environment

Although environmental issues were not included in the original Uruguay Round, the U.S. initiated discussion of the environment in the late stages of the negotiations. The new Committee on Trade and Environment in the WTO will review the relationship of economic and environmental objectives in trade negotiations.

STRUCTURE AND PROCEDURES

Under the Uruguay Round Agreement, the World Trade Organization replaced the GATT, with responsibility for enforcing the revised international trade rules, providing procedures for negotiating additional reductions of trade barriers, and settling disputes arising in areas covered by the new trade agreements.

Trade and Environment

The WTO agreement recognizes the importance of environmental concerns. This addresses a key interest among U.S. environmental and conservation groups, which have often expressed concern that international trade agreements have failed to take environmental issues into account. A WTO committee on trade and environment aims to ensure the responsiveness of the multilateral trading system to environmental objectives.

Decision-making

The U.S. has successfully retained the practice of general decision-making by consensus followed under the GATT since 1947. Consensus is achieved “if no member, present at the meeting where the decision is taken, formally objects to the proposed decision.” This continues to enable the U.S. to prevent a decision that it perceives to be contrary to its interest.

Amendments

The agreement permits amendments but ensures that an amendment of the substantive rights and obligations not be binding on the U.S. without acceptance of the amendment. In contrast, amendments to pure procedural provisions of the Uruguay Round agreements will be binding on all members in order to avoid the destabilizing effect that would result if different members were subject to different procedural rules.

Waivers

The agreement allows members to grant waivers of substantive provisions in the various Uruguay Round agreements, but only in exceptional circumstances. In the case of an obligation subject to phased-in implementation, such as those in the agreement on trade-related intellectual property issues (TRIPs), which has not yet been fulfilled by the requesting member, members may grant a waiver only by consensus. Also, the waiver provision substantially increases the threshold for obtaining waivers, from two-thirds of members present to three-quarters of all members. Any waivers granted are subject to specific conditions, including a date on which the waiver will terminate.

Interpretations

Under the WTO, the reports of dispute settlement panels do not constitute “authoritative”interpretations of the relevant agreements. Only the members themselves—acting through the Ministerial Conference or General Council—can adopt such an interpretation. The agreement also states that interpretations not be used in a manner that undermine amendment provisions.

Non-application

The agreement does not permit sector non-application. Thus, for example, India is precluded from not applying the TRIPs agreement to the U.S. With respect to WTO members that accede to the WTO but are not “original members” (generally, are not GATT contracting parties), a member can invoke “global” non-application. Thus, with respect to acceding members, the U.S. can choose not to apply the GATT and the Uruguay Round agreements to that country as a whole.

Definitive Application

In joining the WTO agreement, members agree to the definitive application of the obligations of the Uruguay Round multilateral trade agreements. (Accession to the multilateral trade agreements, such as the agreement on government procurement, is limited to those members who affirmatively accept these agreements.) Annex 1 to the WTO agreement eliminates the protocol of provisional application and corresponding provisions in protocols of accession to the GATT that had the effect of allowing certain existing legislation of contracting parties that are inconsistent with the GATT. However, Annex 1 includes a clause that protects from GATT challenge U.S. maritime laws relating to sabotage (“Jones Act”).

U.S.-WTO COOPERATION

Benefits to the U.S. Economy

Exports of goods and services have been steadily rising as a share of the U.S. economy's total output. An increase in U.S. export opportunities helps stimulate greater capital investment; technological innovation; higher productivity; job growth; and rising living standards. Export growth is important not only for U.S. export producers but also for U.S. industries which provide the intermediate and capital goods used by producers of exports as well as the U.S. firms and workers supporting the export process. A large and growing share of the U.S. work force depends on U.S. exports for employment. The substantial reductions in trade barriers negotiated in the Uruguay Round will result in lower prices for imported intermediate and final products and a greater variety of goods for American consumers.

Competition in the U.S. market from increased imports stimulates U.S. industries to improve their productivity, quality, and technology; this can benefit both the firms and U.S. consumers who buy their goods at reduced prices.

U.S. Trade Policy

U.S. trade policy aims to raise standards of living in the U.S. and around the world. Trade accounts for one-quarter of the U.S. gross domestic product; for many nations, the figure is much higher. In a changing and more interdependent world, the key to prosperity and improved living standards is engagement rather than withdrawal and protectionism. The Administration is committed to harnessing the forces of change for the benefit of all Americans and the people of all nations through reducing trade barriers and promoting sustainable development.

When the General Agreement on Tariffs and Trade (GATT) began after World War II, it dealt only with tariffs. Later, the U.S. began to address non-tariff barriers to global trade. Opening new markets is critical to fostering global growth and creating jobs both in the United States—richer countries are able to buy more goods and services from the U.S.— and abroad. But sustainable development also is important to such growth, and it has both environmental and social dimensions. As President Clinton cautioned in January 1994:

“While we continue to tear down anticompetitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the wellbeing of workers.”

More nations are recognizing that economic growth must occur at a rate that the environment can sustain. The U.S. strongly favored the establishment of the World Trade Organization's Committee on Trade and Environment to discuss the environmental aspects of sustainable development.

Another dimension of sustainable development is that a rise in productivity should occur in tandem with the growth of middle classes, the rise in standards of living, and the improvement of internationally recognized labor standards. Such labor standards include freedom of association, freedom to organize and bargain collectively, freedom from forced or compulsory labor, a minimum age for the employment of children, and conditions of work.

The U.S. supports improved environmental and labor standards; at the same time, it will resist efforts to use them as protectionist tools.

U.S. Objectives

The principal trade negotiating objectives of the United States regarding the improvement of the General Agreement on Tariffs and Trade (GATT) and multilateral trade negotiation agreements were:

  • To enhance the status of the GATT;
  • To improve the operation and extend the coverage of the GATT and such agreements and arrangements to products, sectors, and conditions of trade not adequately covered; and
  • To expand country participation in particular agreements or arrangements, where appropriate.

The agreement establishing the WTO facilitates the implementation of trade agreements in the diverse areas of trade in goods, trade in services, and the protection of trade-related intellectual property rights. The WTO encompasses the former GATT structure and extends it to new disciplines that have not been adequately covered in the past. By bringing together disciplines on government practices affecting trade in goods and services and the protection of intellectual property rights under one institutional umbrella, the WTO agreement also facilitates the "cross-retaliation” mechanism of the integrated dispute settlement understanding. In addition, the WTO resolves the "free rider"problem in the world trading system. WTO benefits only extend to its members who have agreed to adhere to all of the Uruguay Round agreements and who submit schedules of market access commitments for industrial goods, agricultural goods, and services. This eliminates the shortcomings of the former GATT system in which, for example, only a handful of countries voluntarily adhered to disciplines on subsidies under the 1979 Tokyo Round agreement. The WTO agreement establishes a number of institutional rules (described below) that are applied to all Uruguay Round agreements. It establishes an international organization with a stature commensurate with that of the World Bank and the International Monetary Fund. The organization is similar to that of the existing GATT Secretariat.

U.S. DOHA DEVELOPMENT AGENDA

July 24, 2006

The United States has been the leader in seeking to promote development through the Doha Round of trade negotiations. A key to development through trade is agriculture. The World Bank has estimated that 63% of goods trade gains for developing countries comes from agriculture and 93% of that benefit derives from greater market access.

The United States has lower agricultural tariffs than the EU or advanced developing economies. The US average bound tariff is 12%; the EU average bound tariff is 23%. The global average bound tariff is 62% and India's average bound tariff is 114%.

The United States offered a far bolder package of agricultural tariff cuts than anyone else. The U.S. October proposal would require the developed countries to cut average agricultural tariffs by over 60%. Developing countries should offer a two-thirds reduction of this amount.

By contrast, the EU—trying to protect its market—would offer a far more limited tariff cut of 39–48% for developed countries and less than two-thirds of that for advanced developing countries. The EU and developing countries also propose substantial loopholes that could exempt many agricultural commodities from the tariff-cutting formulas altogether. For example, India's proposal would seek to shield up to 98% of its agricultural imports from tariff reduction, while the EU's would result in little if any new market access for key commodities. The United States has fewer trade-distorting agricultural supports than the EU. Total 2005 US trade-distorting agricultural domestic support is $12.5 billion with an allowed level of $19.1 billion. Total 2005 EU trade-distorting agricultural domestic support is $33 billion (est.) with an allowed level of $88 billion. The United States would make real cuts in allowed support in existing farm programs. The U.S. has proposed to cut its most trade-distorting subsidies by 60%. The EU proposal would not require any changes in its current farm programs.

MINISTERIAL CONFERENCE

The Sixth Ministerial Conference was held in Hong Kong from 13-18 December 2005. The main objective of the conference was to settle a number of issues that will shape the final agreement of the Doha agenda. At the conclusion of the 2005 ministerial meeting, the then 149 members of the WTO agreed to an end date for all agricultural export subsidies, came to an agreement on cotton, created solid duty-free, quota-free access for the 32 least-developed members of the WTO, and came to an agreement on trade in services.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain third parties, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices (“Decoupled” support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. This was a significant victory for Brazil and the third parties to the dispute.

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World Trade Organization

WORLD TRADE ORGANIZATION

Last updated March 2006

Official Name:
World Trade Organization


Editor's note: The information in this article was compiled and edited from 1995, 2001, and 2002 Background Notes and Fact Sheets available through the U.S. Department of State.



BACKGROUND

The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 145 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986-1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations.

The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development.

The Uruguay Round

Progress toward multilateral trade liberalization takes place through rounds of negotiations. Eight rounds have been completed since 1948. The eighth round, the Uruguay Round, began in Punta del Este, Uruguay, in September 1986 and concluded at Marrakech, Morocco, in April 1994.

On December 15, 1993, 123 countries, accounting for more than 90% of world trade, concluded a historic agreement to reform international trade. The Uruguay Round of multilateral trade negotiations, conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), extended the GATT's rules to new areas of trade and updated its organization to conform to a more dynamic global trading system.

The WTO effectively replaced the GATT on January 1, 1995.

The Doha Round

At the WTO Ministerial Conference in Doha, Qatar, held in November 2001, the Doha Development Agenda (DDA) was launched. The WTO reiterated its goals of promoting economic development and alleviating poverty through international trade. It recognized the particular vulnerability of the least-developed countries in the world, and pledged commitment to address the marginalization of those poor countries in international trade and to improve their participation in the multilateral trading system. Twenty-one subjects were listed in the Doha Declaration, among them decisions clarifying the objectives of developing country member governments. These included issues relating to agriculture, subsidies, textiles and clothing, technical barriers to trade, trade-related investment measures, and rules of origin. Other subjects covered included services, intellectual property rights, transparency, trade and the environment, electronic commerce, and technical cooperation. The Declaration set the date of January 1, 2005, for adopting all but two of the negotiations.


SPECIFIC AREAS OF FOCUS

Tariffs

Previously existing as well as newly established tariffs will be "bound." Once bound, a tariff cannot be increased without compensation to other countries. In addition, all countries are required to begin reducing tariffs in 1995, with specific schedules established for each member. For developed countries, tariffs will be reduced a minimum of 15% per product line and an overall average of 36% over a six-year implementation period. Developing countries are permitted smaller reduction commitments and longer implementation periods (10 years to cut tariffs by 24%). Important gains include 50-100% cuts in tariffs on electronic items (such as semiconductors and computer parts) and harmonization of tariffs in the chemical sector at low rates.

Services

The agreement on trade in services establishes new rules in more than 150 service sectors and subsectors (such as advertising, law, accounting, information and computer services, environmental services, engineering, and tourism), thus enabling U.S. firms operating overseas to be treated as fairly as local firms.

Intellectual Property

The agreement on trade-related intellectual property rights establishes improved safeguards to protect intellectual property rights. Computer programs and databases are protected under copyright. Patents for virtually all types of inventions, including those in pharmaceuticals and chemicals, are protected for up to 20 years.

Agriculture

The agreement on agriculture requires that all members reduce aggregate support to their domestic agricultural sectors by 20% from a 1986-88 base period. (The U.S. already has reduced domestic support so that further reductions will not be necessary.)

Agricultural products, which represent 10% of total U.S. merchandise exports, were the second-largest contributor to the overall U.S. trade balance in 1992. Since the U.S. is the world's major exporter of agricultural products, with a share of world trade averaging about 15% in recent years, increased market access and reduced subsidies for agriculture will create important opportunities for U.S. producers and exporters. An agricultural export subsidy agreement specifies reductions in spending on export subsidies (36% over six years for developed countries, 24% over 20 years for developing countries) and outlaws the extension of subsidies to new products not subsidized during a 1986-90 base period.

An agreement on sanitary and phytosanitary measures establishes a scientific standard for measures restricting plant and animal product imports on the basis of health or safety concerns, thereby eliminating import restrictions based on arbitrary or unsubstantiated health concerns.

Environment

Although environmental issues were not included in the original Uruguay Round, the U.S. initiated discussion of the environment in the late stages of the negotiations. The new Committee on Trade and Environment in the WTO will review the relationship of economic and environmental objectives in trade negotiations.


STRUCTURE AND PROCEDURES

Under the Uruguay Round Agreement, the World Trade Organization replaces the GATT, with responsibility for enforcing the revised international trade rules, providing procedures for negotiating additional reductions of trade barriers, and settling disputes arising in areas covered by the new trade agreements.

Trade and Environment

The WTO agreement recognizes the importance of environmental concerns. This addresses a key interest among U.S. environmental and conservation groups, which have often expressed concern that international trade agreements have failed to take environmental issues into account. A WTO committee on trade and environment aims to ensure the responsiveness of the multilateral trading system to environmental objectives.

Decision-making

The U.S. has successfully retained the practice of general decision-making by consensus followed under the GATT since 1947. Consensus is achieved "if no member, present at the meeting where the decision is taken, formally objects to the proposed decision." This continues to enable the U.S. to prevent a decision that it perceives to be contrary to its interest.

Amendments

The agreement permits amendments but ensures that an amendment of the substantive rights and obligations not be binding on the U.S. without acceptance of the amendment. In contrast, amendments to pure procedural provisions of the Uruguay Round agreements will be binding on all members in order to avoid the destabilizing effect that would result if different members were subject to different procedural rules.

Waivers

The agreement allows members to grant waivers of substantive provisions in the various Uruguay Round agreements, but only in exceptional circumstances. In the case of an obligation subject to phased-in implementation, such as those in the agreement on trade-related intellectual property issues (TRIPs), which has not yet been fulfilled by the requesting member, members may grant a waiver only by consensus. Also, the waiver provision substantially increases the threshold for obtaining waivers, from two-thirds of members present to three-quarters of all members. Any waivers granted are subject to specific conditions, including a date on which the waiver will terminate.

Interpretations

Under the WTO, the reports of dispute settlement panels do not constitute "authoritative" interpretations of the relevant agreements. Only the members themselves—acting through the Ministerial Conference or General Council—can adopt such an interpretation. The agreement also states that interpretations not be used in a manner that undermine amendment provisions.

Non-application

The agreement does not permit sector non-application. Thus, for example, India is precluded from not applying the TRIPs agreement to the U.S. With respect to WTO members that accede to the WTO but are not "original members" (generally, are not GATT contracting parties), a member can invoke "global" non-application. Thus, with respect to the People's Republic of China and possibly other acceding members, the U.S. can choose not to apply the GATT and the Uruguay Round agreements to that country as a whole.

Definitive Application

In joining the WTO agreement, members agree to the definitive application of the obligations of the Uruguay Round multilateral trade agreements. (Accession to the multilateral trade agreements, such as the agreement on government procurement, is limited to those members who affirmatively accept these agreements.) Annex 1 to the WTO agreement eliminates the protocol of provisional application and corresponding provisions in protocols of accession to the GATT that had the effect of allowing certain existing legislation of contracting parties that are inconsistent with the GATT. However, Annex 1 includes a clause that protects from GATT challenge U.S. maritime laws relating to sabotage ("Jones Act").


U.S.-WTO COOPERATION

Benefits to the U.S. Economy

Exports of goods and services have been steadily rising as a share of the U.S. economy's total output. An increase in U.S. export opportunities helps stimulate greater capital investment; technological innovation; higher productivity; job growth; and rising living standards.

Export growth is important not only for U.S. export producers but also for U.S. industries which provide the intermediate and capital goods used by producers of exports as well as the U.S. firms and workers supporting the export process. A large and growing share of the U.S. work force depends on U.S. exports for employment. By 1990, the jobs of 7.2 million U.S. workers were supported by U.S. merchandise exports, an increase of 44% from 5 million in 1986.

The substantial reductions in trade barriers negotiated in the Uruguay Round will result in lower prices for imported intermediate and final products and a greater variety of goods for American consumers.

Competition in the U.S. market from increased imports stimulates U.S. industries to improve their productivity, quality, and technology; this can benefit both the firms and U.S. consumers who buy their goods at reduced prices.

U.S. Trade Policy

U.S. trade policy aims to raise standards of living in the U.S. and around the world. Trade accounts for one-quarter of the U.S. gross domestic product; for many nations, the figure is much higher. In a changing and more interdependent world, the key to prosperity and improved living standards is engagement rather than withdrawal and protectionism. The Administration is committed to harnessing the forces of change for the benefit of all Americans and the people of all nations through reducing trade barriers and promoting sustainable development.

Editor's Update     March 2006

A report on important events that have taken place since the last State Department revision of this Background Note.

The Sixth Ministerial Conference was held in Hong Kong from 13-18 December 2005. The main objective of the conference was to settle a number of issues that will shape the final agreement of the Doha agenda, due to be completed at the end of 2006. At the conclusion of the 2005 ministerial meeting, the 149 members of the WTO agreed to an end date for all agricultural export subsidies, came to an agreement on cotton, created solid duty-free, quota-free access for the 32 least-developed members of the WTO, and came to an agreement on trade in services.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain third parties, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices ("Decoupled" support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. This was a significant victory for Brazil and the third parties to the dispute.

When the General Agreement on Tariffs and Trade (GATT) began after World War II, it dealt only with tariffs. Later, the U.S. began to address non-tariff barriers to global trade. Opening new markets is critical to fostering global growth and creating jobs both in the United States— richer countries are able to buy more goods and services from the U.S.—and abroad.

But sustainable development also is important to such growth, and it has both environmental and social dimensions. As President Clinton cautioned in January 1994:

While we continue to tear down anti-competitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the wellbeing of workers.

More nations are recognizing that economic growth must occur at a rate that the environment can sustain. The U.S. strongly favored the establishment of the World Trade Organization's Committee on Trade and Environment to discuss the environmental aspects of sustainable development.

Another dimension of sustainable development is that a rise in productivity should occur in tandem with the growth of middle classes, the rise in standards of living, and the improvement of internationally recognized labor standards. Such labor standards include freedom of association, freedom to organize and bargain collectively, freedom from forced or compulsory labor, a minimum age for the employment of children, and conditions of work.

The U.S. supports improved environmental and labor standards; at the same time, it will resist efforts to use them as protectionist tools.

U.S. Objectives

The principal trade negotiating objectives of the United States regarding the improvement of the General Agreement on Tariffs and Trade (GATT) and multilateral trade negotiation agreements were:

  • To enhance the status of the GATT;
  • To improve the operation and extend the coverage of the GATT and such agreements and arrangements to products, sectors, and conditions of trade not adequately covered; and
  • To expand country participation in particular agreements or arrangements, where appropriate.

The agreement establishing the WTO facilitates the implementation of trade agreements in the diverse areas of trade in goods, trade in services, and the protection of trade-related intellectual property rights. The WTO encompasses the former GATT structure and extends it to new disciplines that have not been adequately covered in the past. By bringing together disciplines on government practices affecting trade in goods and services and the protection of intellectual property rights under one institutional umbrella, the WTO agreement also facilitates the "cross-retaliation" mechanism of the integrated dispute settlement understanding.

In addition, the WTO resolves the "free rider" problem in the world trading system. WTO benefits only extend to its members who have agreed to adhere to all of the Uruguay Round agreements and who submit schedules of market access commitments for industrial goods, agricultural goods, and services. This eliminates the shortcomings of the former GATT system in which, for example, only a handful of countries voluntarily adhered to disciplines on subsidies under the 1979 Tokyo Round agreement.

The WTO agreement establishes a number of institutional rules (described below) that are applied to all Uruguay Round agreements. It establishes an international organization with a stature commensurate with that of the World Bank and the International Monetary Fund. The organization is similar to that of the existing GATT Secretariat.

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World Trade Organization

World Trade Organization

What It Means

The World Trade Organization (WTO) is an institution composed of more than 150 countries, the purpose of which is to monitor international trade and promote increasingly free (unregulated) trade between countries.

Historically, many countries have taken competitive stances toward one another in terms of exporting and importing goods and services. For instance, a country that wants to protect its steel industry from foreign competition might set limits (called quotas) on imports of foreign steel, or it might charge high fees (called tariffs) to the companies that bring steel into the country. The WTO seeks to end or minimize such practices in the interest of making possible the freer movement of goods and services across borders, which many economists believe is in the best interest, over time, of all countries. With this goal in mind, the WTO sets standards for international trade, monitors member nations’ trading practices, and helps countries resolve their trade disputes with one another.

Together with the International Monetary Fund (IMF) and the World Bank, the World Trade Organization is a leading force in the movement called globalization. Globalization refers to the increasing ease with which companies conduct business across national borders. Globalization has many proponents, who often view the trend not only as economically beneficial but also as a stabilizing force responsible for higher standards of living worldwide. There are, however, many who object to the negative side of globalization. Some critics argue that it tends to disrupt local communities and damage the environment; another criticism is that it empowers multinational corporations at the expense of small businesses and the rights of individuals. Starting in the 1990s meetings of the WTO provided a focal point for protestors against globalization.

When Did It Begin

The WTO was officially established in 1995 as a successor to the General Agreement on Tariffs and Trade (GATT). GATT had been created in 1947 to promote free trade, which was seen as one of the best ways of spurring recovery from World War II (1939–45) and of ensuring international stability thereafter. Although GATT was initially intended to be merely a temporary treaty to be replaced by a trade group called the International Trade Organization, for complex reasons this replacement never happened, and GATT evolved into the global trade organization that would eventually become the WTO. Over the course of its 47-year history, GATT was highly effective at promoting increasingly liberalized (free from rules and regulations) trade between countries.

A revision of GATT in 1994 became the cornerstone of the WTO. The new organization added components to the established GATT provisions, including an increased emphasis on protecting intellectual property (creative work such as patented inventions and copyrighted publications), new rules for solving disputes between countries, and procedures for judging how well the member countries were living up to the standards set by the WTO. One other key difference between the WTO and GATT is that GATT exclusively governed goods (physical objects that are sold), whereas the WTO covers trade practices regarding services (tasks requiring human attention) as well.

More Detailed Information

The WTO sets rules for member countries and monitors their trading activities to make sure that they are abiding by these rules. The rules all have the goal of promoting free trade between nations. In the WTO’s view, free trade not only provides for the economic welfare of all countries but also reduces global political tensions. In the interest of promoting these larger goals, WTO rules have several more specific functions.

First, WTO rules emphasize nondiscrimination. The barriers between nations cannot be dissolved if countries engage in double standards by charging some countries higher tariffs than others or otherwise distinguishing between trading partners. For truly free trade, all countries must treat each other equally, accepting goods from one country as readily as another. This ideal also extends to a country’s domestic companies (domestic means that it operates within that country). Free trade is hampered when a WTO member nation shows favoritism to its domestic business firms at the expense of foreign competitors. The WTO helps national governments resist the temptation to give in to special-interest groups, such as the lobbyists (representatives who try to influence politicians) of a particular industry that wants greater protection from foreign competitors.

Additionally, WTO rules are intended to promote transparency (complete openness) in trade activities. If a government has secret trade priorities, then it necessarily cannot be trading freely. This requirement has the added benefit of encouraging better government. In less developed countries and countries whose economies were in the past centrally planned by the government (as opposed to being run by private individuals, which is the case with capitalist economies such as the United States’), the WTO’s rules provide an effective tool for protecting against secretive government maneuvers.

Another goal of the WTO rules is to promote predictability in international trade. Economies flourish when conditions are predictable, and they experience problems in times of unpredictability. Stable economies allow for stable countries.

WTO rules furthermore require that trade disputes be settled by the organization so that countries do not resort to retaliation or other forms of conflict. This promotes international stability.

In reality, few countries perfectly abide by WTO rules. While the organization is able to pressure countries to change their behavior when they violate WTO principles, exceptions to the rules exist. One of the most noticeable of these is that countries are still allowed, in some cases, to favor certain trading partners over others. Even in light of such exceptions, the WTO sees itself as helping to prevent the more extreme problems that might arise from economic competition and unpredictability.

Recent Trends

The WTO is one of the three organizations responsible for regulating the economic interaction of national governments with one another. The other two organizations are the International Monetary Fund, which oversees issues having to do with currency and debt, and the World Bank, which makes loans and provides other forms of assistance to developing countries. These three associations together are responsible for promoting globalization, a phenomenon that became increasingly visible in most of the world starting in the 1990s.

Globalization makes it easier for goods, services, labor, money, equipment, and ideas to move easily from nation to nation. Businesses benefit greatly when, for example, they can reduce their costs by moving a factory from the United States or Europe, where workers must be paid high wages, to a country where workers make only a fraction of U.S. and European wages. Economists typically argue that the free movement of resources and money increases worldwide economic efficiency, which they see as a desirable outcome. Likewise, globalization has helped strengthen the economies of many poor countries and raise the standard of living for many people.

Many people, however, believe that globalization’s chief beneficiaries are multinational corporations, large companies that do business freely around the world thanks in part to the trade liberalization encouraged by the WTO. These corporations have increased their influence in much of the world, making it harder for small businesses to compete and for unskilled workers to protect their interests. Critics of globalization also often contend that free trade takes a great toll on the environment because it allows corporations to pursue their economic interests freely without regard for any other priorities.

One of the largest demonstrations staged by antiglobalization forces occurred in 1999, outside of a WTO meeting in Seattle, Washington. It was estimated that 50,000 protestors participated in the Seattle protests. Since then WTO meetings have been a common object of large antiglobalization protests.

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World Trade Organization

World Trade Organization

Last Updated: March 2007

Official Name:
World Trade Organization

Editor’s note: The information in this article was compiled and edited from Background Notes and Fact Sheets available through the U.S. Department of State. Additional information has been added from releases and reports available from the U.S. Department of State as of March 2007.

BACKGROUND

SPECIFIC AREAS OF FOCUS

STRUCTURE AND PROCEDURES

U.S.-WTO COOPERATION

U.S. DOHA DEVELOPMENT AGENDA

MINISTERIAL CONFERENCE

BACKGROUND

The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 150 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986–1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations.

The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development.

The Uruguay Round

Progress toward multilateral trade liberalization takes place through rounds of negotiations. Eight rounds have been completed since 1948. The eighth round, the Uruguay Round, began in Punta del Este, Uruguay, in September 1986 and concluded at Marrakech, Morocco, in April 1994.

On December 15, 1993, 123 countries, accounting for more than 90% of world trade, concluded a historic agreement to reform international trade. The Uruguay Round of multilateral trade negotiations, conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), extended the GATT’s rules to new areas of trade and updated its organization to conform to a more dynamic global trading system.

The WTO effectively replaced the GATT on January 1, 1995.

The Doha Round

At the WTO Ministerial Conference in Doha, Qatar, held in November 2001, the Doha Development Agenda (DDA) was launched. The WTO reiterated its goals of promoting economic development and alleviating poverty through international trade. It recognized the particular vulnerability of the least-developed countries in the world, and pledged commitment to address the marginalization of those poor countries in international trade and to improve their participation in the multilateral trading system.

Twenty-one subjects were listed in the Doha Declaration, among them decisions clarifying the objectives of developing country member governments. These included issues relating to agriculture, subsidies, textiles and clothing, technical barriers to trade, trade-related investment measures, and rules of origin. Other subjects covered included services, intellectual property rights, transparency, trade and the environment, electronic commerce, and technical cooperation. The Declaration set the date of January 1, 2005, for adopting all but two of the negotiations. The original deadline of January 1, 2005 was missed. It was extended to the end of 2006, but that deadline was also missed. Efforts then focused on achieving a breaktrhough in 2007.

SPECIFIC AREAS OF FOCUS

Tariffs

Previously existing as well as newly established tariffs will be “bound.” Once bound, a tariff cannot be increased without compensation to other countries. In addition, all countries were required to begin reducing tariffs in 1995, with specific schedules established for each member. For developed countries, tariffs will be reduced a minimum of 15% per product line and an overall average of 36% over a six-year implementation period.

Developing countries are permitted smaller reduction commitments and longer implementation periods (10 years to cut tariffs by 24%). Important gains include 50- 100% cuts in tariffs on electronic items (such as semiconductors and computer parts) and harmonization of tariffs in the chemical sector at low rates.

Services

The agreement on trade in services establishes new rules in more than 150 service sectors and subsectors (such as advertising, law, accounting, information and computer services, environmental services, engineering, and tourism), thus enabling U.S. firms operating overseas to be treated as fairly as local firms.

Intellectual Property

The agreement on trade-related intellectual property rights establishes improved safeguards to protect intellectual property rights. Computer programs and databases are protected under copyright. Patents for virtually all types of inventions, including those in pharmaceuticals and chemicals, are protected for up to 20 years.

Agriculture

The agreement on agriculture requires that all members reduce aggregate support to their domestic agricultural sectors by 20% from a 1986-88 base period. (The U.S. already has reduced domestic support so that further reductions will not be necessary.)

Agricultural products, which represent 10% of total U.S. merchandise exports, were the second-largest contributor to the overall U.S. trade balance in 1992. Since the U.S. is the world’s major exporter of agricultural products, with a share of world trade averaging about 15% in recent years, increased market access and reduced subsidies for agriculture will create important opportunities for U.S. producers and exporters. An agricultural export subsidy agreement specifies reductions in spending on export subsidies (36% over six years for developed countries, 24% over 20 years for developing countries) and outlaws the extension of subsidies to new products not subsidized during a 1986-90 base period.

An agreement on sanitary and phytosanitary measures establishes a scientific standard for measures restricting plant and animal product imports on the basis of health or safety concerns, thereby eliminating import restrictions based on arbitrary or unsubstantiated health concerns.

Environment

Although environmental issues were not included in the original Uruguay Round, the U.S. initiated discussion of the environment in the late stages of the negotiations. The new Committee on Trade and Environment in the WTO will review the relationship of economic and environmental objectives in trade negotiations.

STRUCTURE AND PROCEDURES

Under the Uruguay Round Agreement, the World Trade Organization replaced the GATT, with responsibility for enforcing the revised international trade rules, providing procedures for negotiating additional reductions of trade barriers, and settling disputes arising in areas covered by the new trade agreements.

Trade and Environment

The WTO agreement recognizes the importance of environmental concerns. This addresses a key interest among U.S. environmental and conservation groups, which have often expressed concern that international trade agreements have failed to take environmental issues into account. A WTO committee on trade and environment aims to ensure the responsiveness of the multilateral trading system to environmental objectives.

Decision-making

The U.S. has successfully retained the practice of general decision-making by consensus followed under the GATT since 1947. Consensus is achieved “if no member, present at the meeting where the decision is taken, formally objects to the proposed decision.” This continues to enable the U.S. to prevent a decision that it perceives to be contrary to its interest.

Amendments

The agreement permits amendments but ensures that an amendment of the substantive rights and obligations not be binding on the U.S. without acceptance of the amendment. In contrast, amendments to pure procedural provisions of the Uruguay Round agreements will be binding on all members in order to avoid the destabilizing effect that would result if different members were subject to different procedural rules.

Waivers

The agreement allows members to grant waivers of substantive provisions in the various Uruguay Round agreements, but only in exceptional circumstances. In the case of an obligation subject to phased-in implementation, such as those in the agreement on trade-related intellectual property issues (TRIPs), which has not yet been fulfilled by the requesting member, members may grant a waiver only by consensus. Also, the waiver provision substantially increases the threshold for obtaining waivers, from two-thirds of members present to three-quarters of all members. Any waivers granted are subject to specific conditions, including a date on which the waiver will terminate.

Interpretations

Under the WTO, the reports of dispute settlement panels do not constitute “authoritative” interpretations of the relevant agreements. Only the members themselves—acting through the Ministerial Conference or General Council—can adopt such an interpretation. The agreement also states that interpretations not be used in a manner that undermine amendment provisions.

Non-application

The agreement does not permit sector non-application. Thus, for example, India is precluded from not applying the TRIPs agreement to the U.S. With respect to WTO members that accede to the WTO but are not “original members” (generally, are not GATT contracting parties), a member can invoke “global” non-application. Thus, with respect to acceding members, the U.S. can choose not to apply the GATT and the Uruguay Round agreements to that country as a whole.

Definitive Application

In joining the WTO agreement, members agree to the definitive application of the obligations of the Uruguay Round multilateral trade agreements. (Accession to the multilateral trade agreements, such as the agreement on government procurement, is limited to those members who affirmatively accept these agreements.) Annex 1 to the WTO agreement eliminates the protocol of provisional application and corresponding provisions in protocols of accession to the GATT that had the effect of allowing certain existing legislation of contracting parties that are inconsistent with the GATT. However, Annex 1 includes a clause that protects from GATT challenge U.S. maritime laws relating to sabotage (“Jones Act”).

U.S.-WTO COOPERATION

Benefits to the U.S. Economy

Exports of goods and services have been steadily rising as a share of the U.S. economy’s total output. An increase in U.S. export opportunities helps stimulate greater capital investment; technological innovation; higher productivity; job growth; and rising living standards. Export growth is important not only for U.S. export producers but also for U.S. industries which provide the intermediate and capital goods used by producers of exports as well as the U.S. firms and workers supporting the export process. A large and growing share of the U.S. work force depends on U.S. exports for employment. The substantial reductions in trade barriers negotiated in the Uruguay Round will result in lower prices for imported intermediate and final products and a greater variety of goods for American consumers.

Competition in the U.S. market from increased imports stimulates U.S. industries to improve their productivity, quality, and technology; this can benefit both the firms and U.S. consumers who buy their goods at reduced prices.

U.S. Trade Policy

U.S. trade policy aims to raise standards of living in the U.S. and around the world. Trade accounts for one-quarter of the U.S. gross domestic product; for many nations, the figure is much higher. In a changing and more interdependent world, the key to prosperity and improved living standards is engagement rather than withdrawal and protectionism. The Administration is committed to harnessing the forces of change for the benefit of all Americans and the people of all nations through reducing trade barriers and promoting sustainable development.

When the General Agreement on Tariffs and Trade (GATT) began after World War II, it dealt only with tariffs. Later, the U.S. began to address non-tariff barriers to global trade. Opening new markets is critical to fostering global growth and creating jobs both in the United States—richer countries are able to buy more goods and services from the U.S.—and abroad. But sustainable development also is important to such growth, and it has both environmental and social dimensions. As President Clinton cautioned in January 1994: “While we continue to tear down anticompetitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the well-being of workers.”

More nations are recognizing that economic growth must occur at a rate that the environment can sustain. The U.S. strongly favored the establishment of the World Trade Organization’s Committee on Trade and Environment to discuss the environmental aspects of sustainable development.

Another dimension of sustainable development is that a rise in productivity should occur in tandem with the growth of middle classes, the rise in standards of living, and the improvement of internationally recognized labor standards. Such labor standards include freedom of association, freedom to organize and bargain collectively, freedom from forced or compulsory labor, a minimum age for the employment of children, and conditions of work.

The U.S. supports improved environmental and labor standards; at the same time, it will resist efforts to use them as protectionist tools.

U.S. Objectives

The principal trade negotiating objectives of the United States regarding the improvement of the General Agreement on Tariffs and Trade (GATT) and multilateral trade negotiation agreements were:

  • To enhance the status of the GATT;
  • To improve the operation and extend the coverage of the GATT and such agreements and arrangements to products, sectors, and conditions of trade not adequately covered; and
  • To expand country participation in particular agreements or arrangements, where appropriate.

The agreement establishing the WTO facilitates the implementation of trade agreements in the diverse areas of trade in goods, trade in services, and the protection of trade-related intellectual property rights. The WTO encompasses the former GATT structure and extends it to new disciplines that have not been adequately covered in the past. By bringing together disciplines on government practices affecting trade in goods and services and the protection of intellectual property rights under one institutional umbrella, the WTO agreement also facilitates the “cross-retaliation” mechanism of the integrated dispute settlement understanding. In addition, the WTO resolves the “free rider” problem in the world trading system. WTO benefits only extend to its members who have agreed to adhere to all of the Uruguay Round agreements and who submit schedules of market access commitments for industrial goods, agricultural goods, and services. This eliminates the shortcomings of the former GATT system in which, for example, only a handful of countries voluntarily adhered to disciplines on subsidies under the 1979 Tokyo Round agreement. The WTO agreement establishes a number of institutional rules (described below) that are applied to all Uruguay Round agreements. It establishes an international organization with a stature commensurate with that of the World Bank and the International Monetary Fund. The organization is similar to that of the existing GATT Secretariat.

U.S. DOHA DEVELOPMENT AGENDA

July 24, 2006

The United States has been the leader in seeking to promote development through the Doha Round of trade negotiations. A key to development through trade is agriculture. The World Bank has estimated that 63% of goods trade gains for developing countries comes from agriculture and 93% of that benefit derives from greater market access.

The United States has lower agricultural tariffs than the EU or advanced developing economies. The US average bound tariff is 12%; the EU average bound tariff is 23%. The global average bound tariff is 62% and India’s average bound tariff is 114%.

The United States offered a far bolder package of agricultural tariff cuts than anyone else. The U.S. October proposal would require the developed countries to cut average agricultural tariffs by over 60%. Developing countries should offer a two-thirds reduction of this amount.

By contrast, the EU—trying to protect its market—would offer a far more limited tariff cut of 39–48% for developed countries and less than two-thirds of that for advanced developing countries. The EU and developing countries also propose substantial loopholes that could exempt many agricultural commodities from the tariff-cutting formulas altogether. For example, India’s proposal would seek to shield up to 98% of its agricultural imports from tariff reduction, while the EU’s would result in little if any new market access for key commodities. The United States has fewer trade-distorting agricultural supports than the EU. Total 2005 US trade-distorting agricultural domestic support is $12.5 billion with an allowed level of $19.1 billion. Total 2005 EU trade-distorting agricultural domestic support is $33 billion (est.) with an allowed level of $88 billion. The United States would make real cuts in allowed support in existing farm programs. The U.S. has proposed to cut its most trade-distorting subsidies by 60%. The EU proposal would not require any changes in its current farm programs.

MINISTERIAL CONFERENCE

The Sixth Ministerial Conference was held in Hong Kong from 13-18 December 2005. The main objective of the conference was to settle a number of issues that will shape the final agreement of the Doha agenda. At the conclusion of the 2005 ministerial meeting, the then 149 members of the WTO agreed to an end date for all agricultural export subsidies, came to an agreement on cotton, created solid duty-free, quota-free access for the 32 least-developed members of the WTO, and came to an agreement on trade in services.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain third parties, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices (“Decoupled” support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. This was a significant victory for Brazil and the third parties to the dispute.

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World Trade Organization

World Trade Organization

The World Trade Organization (WTO) was established on January 1, 1995, to oversee world commerce. In particular, it was meant to make free trade across national borders easier. It has 140 member nations and 32 observer governments (most of which have applied for membership). WTO members represent more than 95 percent of world trade.

Background

The roots of the WTO date back to the Great Depression of the 1930s, a period of worldwide economic downturn and collapse, when unemployment was high and many businesses failed. During the Great Depression most countries adopted economic policies that favored their own nation's trade and damaged the trade of competing nations. The impulse to compete led to barriers to foreign trade, such as tariffs (taxes imposed on goods imported into the country) and quotas (limitations on imports).

The U.S. Congress erected rigorous trade barriers with the Smoot-Hawley Tariff Act, which became law in 1930 and raised the effective rate of U.S. tariffs by almost 50 percent from 1929 to 1932. The act provoked retaliation by a number of America's trading partners, who countered with their own barriers to American trade goods. The result was a decrease of nearly two-thirds in U.S. exports in the two years following passage of the act. Among the painful lessons of the period was that protectionism (policies designed to protect a nation's trade goods from the competition of foreign goods) was not helpful economically.

Bretton Woods system

After World War II (1939–45), leaders of the victorious Allied powers decided to create a worldwide trade agreement that would encourage cooperation and interdependence rather than competition and protectionism. In July 1944, in the New Hampshire resort community of Bretton Woods, representatives of forty-four countries met to construct the so-called Bretton Woods system of open international economy, also called the free market.

The delegates at Bretton Woods created the International Monetary Fund (IMF) and the World Bank. These two international organizations were designed to help countries maintain stability in their currencies and to finance economic growth. The architects of this new international economic order also envisioned the creation of an International Trade Organization (ITO), a specialized agency of the United Nations that would permanently manage economic relations and rule in defense of open and nondiscriminatory world trade. The 1948 Havana Charter that christened the ITO, however, failed to secure ratification (approval) by enough signatories.

GATT

With the ITO abandoned, supporters of free trade turned to the only remaining international trade agreement: the new General Agreement on Tariffs and Trade (GATT). The GATT began as a set of tariff-reduction negotiations among twenty-three countries that had met in Geneva, Switzerland, in 1947. These negotiations resulted in some 45,000 tariff reductions impacting about one-fifth of the world's trade. The GATT came into force in January 1948 and became the principal set of rules governing international trade for the next forty-seven years.

The GATT established trade principles that continue to be applied today. Among the most important of these principles was nondiscrimi-nation in the treatment of trade in goods among countries. Any advantage given to an imported product must be extended unconditionally to a like product from another country. Countries also agreed to treat imported and domestic goods equally. Maximum levels for tariffs were set, and quotas were not allowed.

The GATT included a process for countries to follow to resolve disputes. The process allowed countries to consult with each other first; if that was not successful, a country could ask that a panel hear the complaint. Although the panel's decision was not enforceable, the panel report encouraged countries to work toward an agreeable resolution.

GATT members met periodically to negotiate the further reduction of tariffs and other trade barriers and changes to GATT rules. These negotiations were called rounds. The most recent round, the Uruguay Round, lasted from 1986 to 1994 and included the most encompassing set of negotiations in the history of the GATT. On the agenda was the reform of the existing GATT system and an expansion of rules to cover new areas such as the trade aspects of intellectual property rights (copyrights, trademarks, and patents).

Establishment of the WTO

One of the most important changes that came from the Uruguay Round was the establishment of the World Trade Organization (WTO). In contrast to the GATT, the WTO was created as a permanent structure. The WTO went into effect on January 1, 1995.

Headquartered in Geneva, the WTO administered and enforced trade agreements signed by its member countries, facilitating the freer flow of goods and services worldwide. The WTO has a staff of around five hundred people and is headed by a director-general. Its rulings are law among members. If, for example, the United States and the European Union clash over hormone-treated beef or the right to do business in Cuba, then the WTO acts as both judge and jury to this dispute. The WTO is empowered to enforce standing GATT rules as well as newly constructed ones in the fields of trade, services, and intellectual property, and it has a legal process that is enforced by substantial sanctions. Sanctions are measures adopted by several nations acting together to penalize a nation that has violated an international law or agreement in order to persuade it to conform to the law.

Pros and cons of the WTO

By certain measures, the GATT/WTO system has produced positive results, especially in expanding world trade and securing a system of peaceful economic interdependence. Total trade at the end of the 1990s was more than fifteen times the level of 1950. According to supporters of the WTO, global free trade has worked much more effectively than the protectionist measures of the pre–World War II era.

Globalization—the process of increasing the economic and cultural connections and interdependence between all the nations and peoples of the world—has transformed the way business is done worldwide. Other highly successful institutions dedicated to globalization are the United Nations, the North American Free Trade Agreement (NAFTA), the European Union, Asia-Pacific Economic Cooperation (APEC), and others. Technological advancements (in, for example, computers, telecommunications, and transportation) have facilitated economic interdependence and the mobility of goods, services, people, and capital across national borders.

But globalization and the WTO itself have had negative impacts as well as positive, and there has been steady opposition to the WTO. Since economic globalization has become the norm, there has been a marked increase in nongovernmental organizations (NGOs) seeking to protect and defend the environment, culture, consumers, workers, indigenous (native) people, children, the poor, and others. WTO opponents argue that this is because countries are less able to restrict their own trade for humanitarian or environmental reasons.

Opponents of the WTO also argue that the number of multinational corporations (huge and powerful businesses that operate in many countries) has soared since World War II. The multinational corporations are based in wealthy countries but usually operate in poorer countries, where they exploit the population for cheap labor and strip the environment of its raw materials.

WTO opponents in the 1990s and 2000s were concerned that the WTO—in the name of free trade—had the power to undermine laws passed by individual countries to promote health, food safety, environmental protection, and workplace safety. To these protesters, free trade meant the manipulation of national political processes by business interests bent on profit at any price.

In meetings in the 2000s, the WTO discussed whether it should continue to address traditional trade issues only, or if it should begin to include nontraditional issues such as labor and the environment. The U.S. president and Congress continued to debate their respective roles in participating in the WTO to ensure that the United States was making its own trade policies for the benefit of the nation.

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World Trade Organization

WORLD TRADE ORGANIZATION

The World Trade Organization (WTO) is the largest, most powerful international organization dealing with global rules of trade among nations. It was formed in 1995 following the so-called Uruguay Round of negotiations under the General Agreement on Tariffs and Trade (GATT), the previous multilateral trading system established in 1948. Whereas GATT was primarily concerned with trade in goods, the WTO covers trade in goods and services, banking and finance, intellectual property, dispute settlement, and trade policy reviews. The purpose of the WTO is to provide a negotiating forum for nations to form agreements to lower trade barriers to ensure that trade flows as freely, fairly, and predictably as possible. The WTO regulates trade by administering and negotiating trade agreements, resolving trade disputes, reviewing national trade policies, providing technical assistance and training programs in developing nations, and cooperating with other international organizations. All WTO trade agreements are the result of a consensus among representatives of member governments, ratified by the parliaments of the participating nations. These binding agreements guarantee nations their trade rights and responsibilities. For the 147 member nations, the WTO is the most influential institution of international commerce.

WTO Agreements and Organization

Under WTO agreements, countries should neither discriminate among their trading partners nor should they discriminate between foreign and domestic products and services. Every government should be given "most-favored-nation" status whereby any favor granted to one nation must be granted to every other nation, thus ensuring that all trade partners be treated equally. The WTO aims to make trade more free and more fair by lowering trade barriers such as customs duties (tariffs), eliminating import bans or quotas, and limiting the nontariff trade barriers that nations may implement and enforce, such as domestic laws regulating product standards and liability, environmental protections, use of tax revenues for public services, and other domestic laws regulating investment and trade. The WTO limits the nature of tariffs a nation may impose, as well as what kind of nontariff barriers to trade nations may implement and enforce. Through the WTO Dispute Settlement Process, nations can challenge each other's laws on behalf of their commercial interests if they believe barriers to trade exist. If member nations do not conform to WTO regulations they face possible economic sanctions.

Six main agreements comprise the WTO: the umbrella agreement establishing the WTO, the General Agreement on Tariffs and Trade, the General Agreement on Trade in Services (GATS), and the agreements on Trade-Related Aspects of Intellectual Property (TRIPS), Dispute Settlement, and Trade Policy Reviews. The highest authority is the Ministerial Conference, where delegates from member nations meet every two years to reach consensus on multilateral agreements. The second level of authority, responsible for decisions between Ministerial Conferences, has three branches: the Dispute Settlement Body, the Trade Policy Review Body, and the General Council. The General Council is divided into three more councils, each handling a different area of trade: the Goods Council, the Services Council, and the TRIPS Council. Numerous specialized committees and working groups work on the details of individual agreements, as well as issues relating to the environment, development, finance, and regional trade agreements. The WTO Secretariat is based in Geneva, Switzerland, headed by a director-general with limited authority. The Secretariat's main duties include providing legal and technical support to the various councils and ministerial conferences, conducting research, and performing public affairs activities.


Relation to Science and Technology

Many WTO agreements affect the science and technology laws and practices of member nations. One example is the Sanitary and Phytosanitary Measures Agreement (SPS), which sets food safety and animal and plant health standards, including quarantine, inspection, and testing requirements. The aim of the SPS agreement is to establish standards based on accepted science to allow countries to set reasonable health and safety regulations but only to the extent necessary to protect human, plant, or animal life or health. The SPS agreement prevents countries from using higher sanitary and phytosanitary measures in order to protect domestic producers. WTO members can challenge each other's food health and plant and animal safety regulations if they exceed mandated limits.

The Agreement on Technical Barriers to Trade (TBT) ensures that product standards, regulations, testing, and certification for all goods, including industrial and agricultural products, do not become obstacles to trade. The TBT agreement sets limits on the standards governments may enforce to achieve social, environmental, consumer, or public health objectives. The aim is to prevent technical regulations and industrial standards from being used for protectionism. The WTO recognizes the rights of nations to protect the environment and public welfare but not if standards give domestically produced goods an unfair advantage or so far exceed the standards of other nations that they become an obstacle to trade. The TBT agreement subjects national product standards and regulations to scrutiny under WTO Trade Policy Reviews and challenges in Dispute Settlement Court.

The Agreement on Trade-Related Aspects of Intellectual Property establishes the levels of protection governments have to give the intellectual property rights of other governments. The agreement covers copyright (including computer programs, music recordings, and film), trademarks (signs and slogans), geographical indications (place-names that indicate where a product is from and what it is, such as champagne or tequila), industrial designs (for large-scale technologies), patents (protecting products and processes lasting for twenty years), trade secrets (and other undisclosed information with commercial value), and integrated circuit layout designs. TRIPS extends intellectual property rights to include pharmaceuticals, plant varieties, human and plant cell lines, microorganisms, and genes. The agreement defines what counts as intellectual property, how governments should enforce rights, and how to settle disputes over rights between member nations.

Criticisms of the WTO

The WTO has been dogged by controversy from its inception. It continues to be on the defensive against criticism that its agreements privilege corporate interest goals over public interest goals. Critics maintain that the WTO illegitimately dictates the policies of sovereign nations, promotes free trade at any cost, and gives commercial interests priority over development, the environment, health, safety, and worker rights. They further claim that it eliminates both job security and food security, favors developed nations over underdeveloped nations, and fosters a dispute resolution process that is undemocratic and unaccountable. The WTO maintains that through lowering import tariffs and "harmonizing" the international rules of commerce trade should become more predictable, more competitive, and more beneficial for all nations, especially less-developed nations.


DAVID M. KAPLAN

SEE ALSO Intellectual Property; Political Economy; Property.

BIBLIOGRAPHY

Wallach, Lori, and Michelle Sforza. Whose Trade Organization?: Corporate Globalization and the Erosion of Democracy: An Assessment of the World Trade Organization. Washington, DC: Public Citizen, 1999.

World Trade Organization, ed. The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations. Cambridge, UK, and New York: Cambridge University Press, 1999.


INTERNET RESOURCE

World Trade Organization Website. Available from http://www.wto.org.

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World Trade Organization

WORLD TRADE ORGANIZATION

Last updated March 2005

Official Name:
World Trade Organization


Editor's note: The information in this article was compiled and edited from 1995, 2001, and 2002 Background Notes and Fact Sheets available through the U.S. Department of State.



BACKGROUND

The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 145 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986-1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations.

The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development.

The Uruguay Round

Progress toward multilateral trade liberalization takes place through rounds of negotiations. Eight rounds have been completed since 1948. The eighth round, the Uruguay Round, began in Punta del Este, Uruguay, in September 1986 and concluded at Marrakech, Morocco, in April 1994.

On December 15, 1993, 123 countries, accounting for more than 90% of world trade, concluded a historic agreement to reform international trade. The Uruguay Round of multilateral trade negotiations, conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), extended the GATT's rules to new areas of trade and updated its organization to conform to a more dynamic global trading system.

The WTO effectively replaced the GATT on January 1, 1995.

The Doha Round

At the WTO Ministerial Conference in Doha, Qatar, held in November 2001, the Doha Development Agenda (DDA) was launched. The WTO reiterated its goals of promoting economic development and alleviating poverty through international trade. It recognized the particular vulnerability of the least-developed countries in the world, and pledged commitment to address the marginalization of those poor countries in international trade and to improve their participation in the multilateral trading system. Twenty-one subjects were listed in the Doha Declaration, among them decisions clarifying the objectives of developing country member governments. These included issues relating to agriculture, subsidies, textiles and clothing, technical barriers to trade, trade-related investment measures, and rules of origin. Other subjects covered included services, intellectual property rights, transparency, trade and the environment, electronic commerce, and technical cooperation. The Declaration set the date of January 1, 2005, for adopting all but two of the negotiations.


SPECIFIC AREAS OF FOCUS

Tariffs

Previously existing as well as newly established tariffs will be "bound." Once bound, a tariff cannot be increased without compensation to other countries. In addition, all countries are required to begin reducing tariffs in 1995, with specific schedules established for each member. For developed countries, tariffs will be reduced a minimum of 15% per product line and an overall average of 36% over a six-year implementation period. Developing countries are permitted smaller reduction commitments and longer implementation periods (10 years to cut tariffs by 24%). Important gains include 50-100% cuts in tariffs on electronic items (such as semiconductors and computer parts) and harmonization of tariffs in the chemical sector at low rates.

Services

The agreement on trade in services establishes new rules in more than 150 service sectors and subsectors (such as advertising, law, accounting, information and computer services, environmental services, engineering, and tourism), thus enabling U.S. firms operating overseas to be treated as fairly as local firms.

Intellectual Property

The agreement on trade-related intellectual property rights establishes improved safeguards to protect intellectual property rights. Computer programs and databases are protected under copyright. Patents for virtually all types of inventions, including those in pharmaceuticals and chemicals, are protected for up to 20 years.

Agriculture

The agreement on agriculture requires that all members reduce aggregate support to their domestic agricultural sectors by 20% from a 1986-88 base period. (The U.S. already has reduced domestic support so that further reductions will not be necessary.)

Agricultural products, which represent 10% of total U.S. merchandise exports, were the second-largest contributor to the overall U.S. trade balance in 1992. Since the U.S. is the world's major exporter of agricultural products, with a share of world trade averaging about 15% in recent years, increased market access and reduced subsidies for agriculture will create important opportunities for U.S. producers and exporters. An agricultural export subsidy agreement specifies reductions in spending on export subsidies (36% over six years for developed countries, 24% over 20 years for developing countries) and outlaws the extension of subsidies to new products not subsidized during a 1986-90 base period.

An agreement on sanitary and phytosanitary measures establishes a scientific standard for measures restricting plant and animal product imports on the basis of health or safety concerns, thereby eliminating import restrictions based on arbitrary or unsubstantiated health concerns.

Environment

Although environmental issues were not included in the original Uruguay Round, the U.S. initiated discussion of the environment in the late stages of the negotiations. The new Committee on Trade and Environment in the WTO will review the relationship of economic and environmental objectives in trade negotiations.


STRUCTURE AND PROCEDURES

Under the Uruguay Round Agreement, the World Trade Organization replaces the GATT, with responsibility for enforcing the revised international trade rules, providing procedures for negotiating additional reductions of trade barriers, and settling disputes arising in areas covered by the new trade agreements.

Trade and Environment

The WTO agreement recognizes the importance of environmental concerns. This addresses a key interest among U.S. environmental and conservation groups, which have often expressed concern that international trade agreements have failed to take environmental issues into account. A WTO committee on trade and environment aims to ensure the responsiveness of the multilateral trading system to environmental objectives.

Decision-making

The U.S. has successfully retained the practice of general decision-making by consensus followed under the GATT since 1947. Consensus is achieved "if no member, present at the meeting where the decision is taken, formally objects to the proposed decision." This continues to enable the U.S. to prevent a decision that it perceives to be contrary to its interest.

Amendments

The agreement permits amendments but ensures that an amendment of the substantive rights and obligations not be binding on the U.S. without acceptance of the amendment. In contrast, amendments to pure procedural provisions of the Uruguay Round agreements will be binding on all members in order to avoid the destabilizing effect that would result if different members were subject to different procedural rules.

Waivers

The agreement allows members to grant waivers of substantive provisions in the various Uruguay Round agreements, but only in exceptional circumstances. In the case of an obligation subject to phased-in implementation, such as those in the agreement on trade-related intellectual property issues (TRIPs), which has not yet been fulfilled by the requesting member, members may grant a waiver only by consensus. Also, the waiver provision substantially increases the threshold for obtaining waivers, from two-thirds of members present to three-quarters of all members. Any waivers granted are subject to specific conditions, including a date on which the waiver will terminate.

Interpretations

Under the WTO, the reports of dispute settlement panels do not constitute "authoritative" interpretations of the relevant agreements. Only the members themselves—acting through the Ministerial Conference or General Council—can adopt such an interpretation. The agreement also states that interpretations not be used in a manner that undermine amendment provisions.

Non-application

The agreement does not permit sector non-application. Thus, for example, India is precluded from not applying the TRIPs agreement to the U.S. With respect to WTO members that accede to the WTO but are not "original members" (generally, are not GATT contracting parties), a member can invoke "global" non-application. Thus, with respect to the People's Republic of China and possibly other acceding members, the U.S. can choose not to apply the GATT and the Uruguay Round agreements to that country as a whole.

Definitive Application

In joining the WTO agreement, members agree to the definitive application of the obligations of the Uruguay Round multilateral trade agreements. (Accession to the multilateral trade agreements, such as the agreement on government procurement, is limited to those members who affirmatively accept these agreements.) Annex 1 to the WTO agreement eliminates the protocol of provisional application and corresponding provisions in protocols of accession to the GATT that had the effect of allowing certain existing legislation of contracting parties that are inconsistent with the GATT. However, Annex 1 includes a clause that protects from GATT challenge U.S. maritime laws relating to sabotage ("Jones Act").


U.S.-WTO COOPERATION

Benefits to the U.S. Economy

Exports of goods and services have been steadily rising as a share of the U.S. economy's total output. An increase in U.S. export opportunities helps stimulate greater capital investment; technological innovation; higher productivity; job growth; and rising living standards.

Export growth is important not only for U.S. export producers but also for U.S. industries which provide the intermediate and capital goods used by producers of exports as well as the U.S. firms and workers supporting the export process. A large and growing share of the U.S. work force depends on U.S. exports for employment. By 1990, the jobs of 7.2 million U.S. workers were supported by U.S. merchandise exports, an increase of 44% from 5 million in 1986.

The substantial reductions in trade barriers negotiated in the Uruguay Round will result in lower prices for imported intermediate and final products and a greater variety of goods for American consumers.

Competition in the U.S. market from increased imports stimulates U.S. industries to improve their productivity, quality, and technology; this can benefit both the firms and U.S. consumers who buy their goods at reduced prices.

U.S. Trade Policy

U.S. trade policy aims to raise standards of living in the U.S. and around the world. Trade accounts for onequarter of the U.S. gross domestic product; for many nations, the figure is much higher. In a changing and more interdependent world, the key to prosperity and improved living standards is engagement rather than withdrawal and protectionism. The Administration is committed to harnessing the forces of change for the benefit of all Americans and the people of all nations through reducing trade barriers and promoting sustainable development.

Editor's Update     March 2005

A report on important events that have taken place since the last State Department revision of this Background Note.

The Fifth WTO Ministerial Conference was held in September 2003, in Cancun, Mexico, to assess the progress of the goals of the Doha Round and to plan further work. One of the key issues discussed was agricultural tariffs, export subsidies, and domestic supports. (Other issues included non-agricultural market access and services, and the issue of patents and access to medicines.) The Cancun meeting ended with the Doha negotiations at an impasse.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain West African cotton-producing nations, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices ("Decoupled" support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. The U.S. appealed the ruling, but in March 2005, the WTO issued a final ruling that the bulk of the U.S. government subsidies to its cotton industry were illegal. The U.S. had until July 1, 2005 to comply with the ruling, or face possible trade sanctions by Brazil.

When the General Agreement on Tariffs and Trade (GATT) began after World War II, it dealt only with tariffs. Later, the U.S. began to address non-tariff barriers to global trade. Opening new markets is critical to fostering global growth and creating jobs both in the United States—richer countries are able to buy more goods and services from the U.S.—and abroad.

But sustainable development also is important to such growth, and it has both environmental and social dimensions. As President Clinton cautioned in January 1994:

While we continue to tear down anti-competitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the wellbeing of workers.

More nations are recognizing that economic growth must occur at a rate that the environment can sustain. The U.S. strongly favored the establishment of the World Trade Organization's Committee on Trade and Environment to discuss the environmental aspects of sustainable development.

Another dimension of sustainable development is that a rise in productivity should occur in tandem with the growth of middle classes, the rise in standards of living, and the improvement of internationally recognized labor standards. Such labor standards include freedom of association, freedom to organize and bargain collectively, freedom from forced or compulsory labor, a minimum age for the employment of children, and conditions of work.

The U.S. supports improved environmental and labor standards; at the same time, it will resist efforts to use them as protectionist tools.

U.S. Objectives

The principal trade negotiating objectives of the United States regarding the improvement of the General Agreement on Tariffs and Trade (GATT) and multilateral trade negotiation agreements were:

  • To enhance the status of the GATT;
  • To improve the operation and extend the coverage of the GATT and such agreements and arrangements to products, sectors, and conditions of trade not adequately covered; and
  • To expand country participation in particular agreements or arrangements, where appropriate.

The agreement establishing the WTO facilitates the implementation of trade agreements in the diverse areas of trade in goods, trade in services, and the protection of trade-related intellectual property rights. The WTO encompasses the former GATT structure and extends it to new disciplines that have not been adequately covered in the past. By bringing together disciplines on government practices affecting trade in goods and services and the protection of intellectual property rights under one institutional umbrella, the WTO agreement also facilitates the "crossretaliation" mechanism of the integrated dispute settlement understanding.

In addition, the WTO resolves the "free rider" problem in the world trading system. WTO benefits only extend to its members who have agreed to adhere to all of the Uruguay Round agreements and who submit schedules of market access commitments for industrial goods, agricultural goods, and services. This eliminates the shortcomings of the former GATT system in which, for example, only a handful of countries voluntarily adhered to disciplines on subsidies under the 1979 Tokyo Round agreement.

The WTO agreement establishes a number of institutional rules (described below) that are applied to all Uruguay Round agreements. It establishes an international organization with a stature commensurate with that of the World Bank and the International Monetary Fund. The organization is similar to that of the existing GATT Secretariat.

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World Trade Organization

WORLD TRADE ORGANIZATION.

BIBLIOGRAPHY

The World Trade Organization (WTO) is an international organization that administers a number of commercial agreements to regulate trade relations between its members. It was established on 1 January 1995, as a result of the Marrakech Agreement of April 1994, which concluded the Uruguay Round of GATT negotiations (1986–1994), with the aim of setting up an institutional framework to rule multilateral trade in a smooth, fair, free, and predictable way. It is based in Geneva, Switzerland, and as of early 2005, it counted 148 members, representing almost 97 percent of world trade.

At the end of World War II, the United States wanted to establish an institution to manage international trade relations, to be placed side by side with the Bretton Woods institutions, the World Bank and the International Monetary Fund. As a result, in 1950 the International Trade Organization (ITO) was created as a specialized agency of the United Nations. While waiting for the final draft and then for the ratification of the ITO, a provisional agreement was established in 1947 among some twenty-three major trading countries to negotiate reciprocal reduction of tariffs and to ensure that trade restrictions other than tariffs did not impair or nullify concessions negotiated. This accord, the General Agreement on Tariffs and Trade (GATT 1947), came into force on 1 January 1948 as a prelude to the ITO. However, it was soon established as the only agreement concerned with international trade negotiations because, in 1950, it became clear that the U.S. Congress would not ratify the ITO, fearing that it would markedly constrain domestic sovereignty. As a result, the provisional GATT became the only basis of the multilateral trading system, and from 1948 to 1994 it provided the rules of international trade.

In spite of attempts made from time to time since 1950 to place the GATT on a more stable institutional footing, this goal was only achieved in the 1990s. In 1990, during the Uruguay Round, the Canadian government put forward a proposal for a multilateral trade organization in order to establish an institutional framework for governing world trade, encompassing the updated General Agreement on Tariffs and Trade (GATT 1994), the General Agreement on Trade in Services (GATS), the intellectual property agreement (TRIPs), the Trade Related Investment Measures (TRIMs), the Dispute Settlement Understanding (DSU), and all the other agreements and arrangements concluded during the Uruguay Round. While the European Union supported the Canadian proposal, the United States initially resisted it because of U.S. Congress suspicions of any restriction of its prerogatives in trade policy. It was only after negotiations on the substance of the new organization that the United States also consented to setting it up under the name of World Trade Organization.

The WTO is led by the Ministerial Conference of all members, which convenes at least once every two years. Between the meetings of the Ministerial Conference, the General Council, largely composed of ambassadors and heads of delegations in Geneva, meets several times per year to carry out the functions of the WTO. When needed, the General Council sits as the Trade Policy Review Body (TPRB) to review trade policies of member states and as the Dispute Settlement Body (DSB) to judge on trade disputes.

Three secondary councils, the Goods Council, Services Council, and Intellectual Property Council, work under the guidance of the General Council and report to it, while additional subsidiary working groups and committees operate in matters covered by GATT, GATS, and TRIPs. Specialized committees, working groups, and working parties deal with areas such as accessions, environment, development, and government procurement. Decisions are generally taken by consensus. If consensus cannot be achieved, recourse to voting can occur, but only when WTO provisions explicitly allow this. Unlike other international organizations where weighted voting is used, in WTO the vote is based on the rule "one member, one vote."

The WTO Secretariat, headed by the director general, is the administrative body of the WTO. It provides technical support to the various councils and committees and the ministerial conferences, supplies world trade data, and explains WTO affairs to the public. Moreover, it reviews trade policy of member states and supplies legal assistance in the dispute settlement process.

In the WTO system, a central position is held by the Dispute Settlement Understanding treaty, which set up the Dispute Settlement Body (DSB) to arbitrate trade disputes between governments. The DSU agreement established a more structured procedure than GATT 1947 and introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of the procedure. The outcome of a trade dispute is decided by the DSB on the recommendation of a dispute panel and, if necessary, a report from the Appellate Body. The DSB rules according to a procedure known as "reverse consensus," which requires that the recommendations of the dispute panel and the Appellate Body should be adopted unless there is a consensus of the members to reject them. While under the previous GATT procedure rulings could only be adopted by consensus, under the DSU rulings are automatically adopted unless there is a consensus to reject them: any country willing to obstruct a ruling has to convince all other WTO members, including its adversary in the case, to support its view. The DSB has also the key function of authorizing retaliatory measures if the losing party does not implement its rulings. By establishing in considerable detail the procedures and timetable to be followed in resolving disputes, by adopting automatic adoption, and by foreseeing authorized retaliatory measures, the DSU underlines that punctual settlement of trade disputes is vital if the WTO is to function efficiently.

Since the late 1990s the WTO has come under attack by the antiglobalization movement, which has protested the globalization drive of the WTO and what is perceived as the undemocratic nature of this international organization.

See alsoGlobalization.

BIBLIOGRAPHY

Hockman, Bernard M., and Michel M. Kostecki. The Political Economy of the World Trading System: The WTO and Beyond. 2nd ed. Oxford, U.K., 2001.

Jackson, John H. The World Trading System: Law and Policy of International Economic Relations. 2nd ed. Cambridge, Mass., 1997.

Krueger, Anne O., ed. The WTO as an International Organization. Chicago and London, 1998.

Matsushita, Mitsuo, Thomas J. Schoenbaum, and Petros C. Mavroidis. The World Trade Organization: Law, Practice, and Policy. Oxford, U.K., 2003.

WTO Secretariat. From the GATT to the WTO: The Multilateral Trading System in the New Millennium. The Hague, London, and Boston, 2000.

Lucia Coppolaro

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