WORLD TRADE ORGANIZATION (WTO)



The World Trade Organization (WTO) is an international organization founded in 1995 to promote global trade in goods, services, and intellectual property. It is the successor to the General Agreement on Tariffs and Trade (GATT), which since 1947 sought to promote international economic growth through the establishment of legally binding rules governing trade between countries. In 1993 GATT held its Uruguay Round negotiations at which it was decided that its final act would further liberalize trade measures and establish a permanent structure, the WTO, to manage international trading procedures and protocols. Ministers meeting in Marrakesh, Morocco, in i994 agreed to the final act. Concurrently in Marrakesh, a majority of GATT countries approved the establishment of the WTO. In 1998, 132 countries, including the United States, belonged to the WTO.

The WTO provides a framework used by national governments to implement trade legislation and regulations and the WTO provides a forum for collective debate, negotiation, and adjudication of trade disputes. In this regard the WTO has five essential functions: to administer and implement the multilateral and plurilateral trade agreements that make up the WTO; to provide a forum for trade negotiations; to provide a forum for the resolution of trade disputes; to monitor trade policies of member countries; and to cooperate with other international organizations involved in global trade, commerce, and economic policy making.

Although the WTO shares many of the same goals as GATT, it is much more than just an extension of GATT—its scope is much broader and the nature of the new organization is much different. GATT was a collection of trade rules bound together by multilateral agreements but lacking a real institutional foundation. The WTO, on the other hand, is a permanent institution with a large staff and secretariat. Although GATT had been in existence for a number of decades, its application was on a "provisional basis," while the WTO was created as a permanent institution. GATT rules applied only to "merchandise goods" or tangible products. WTO agreements apply to merchandise goods but also cover intellectual property and trade in services. Many of the GATT arrangements were plurilateral and therefore selective in nature. Most of the WTO arrangements are multilateral and involve the entire WTO membership. The WTO has also instituted a more efficient system for settling disputes that is much less susceptible to blockage as was the GATT system.

The highest authority of the WTO is the Ministerial Conference, which is made up of ministerial representatives from member countries. The conference meets at least once every two years and has the authority to make decisions on all matters of the multilateral trade agreements. The WTO General Council is composed of representatives from member countries and is responsible for day-to-day WTO activities and operations. The General Council reports to the Ministerial Conference. The General Council convenes as the Dispute Settlement Body, which oversees the settlement of trade disputes between members, and as the Trade Policy Review Body, which reviews the trade policies of member countries. The WTO's Council for Trade in Goods, Council for Trade in Services, and the Council for Trade-Related Aspects of Intellectual Property are subsidiary bodies of the council.

The WTO decision-making process utilizes consensus, at least initially, rather than voting. This continues the GATT decision-making process and seeks to ensure that all members' needs and interests receive attention and consideration. When agreement cannot be reached via consensus, however, there is a voting procedure. In the voting procedure decisions are based on a simple majority with every member country having one vote. The WTO agreement anticipates four specific voting situations. An interpretation of any WTO multilateral trade agreement can be adopted by a majority vote of at least three-quarters of WTO members. WTO's Ministerial Conference can, by a majority vote of three-quarters of its members, waive a member country's obligation under a multilateral trade agreement. Multilateral trade agreement provisions can be amended by an approval vote of all members, or under certain circumstances, a two-thirds majority vote of the members. Finally, a two-thirds majority vote of the Ministerial Conference is necessary for the admission of new members.

A central feature of the WTO is its dispute settlement process. This process is especially important because it adds security and predictability to the world trading system and prevents member countries from taking unilateral preemptive action. The first stage of the process requires bilateral discussions between members on each side of the dispute. If after 60 days a settlement has not been reached, the complainant may ask the General Council, convening as the Dispute Settlement Body (DSB), to set up an independent panel to review the case. Both parties submit arguments to the panel followed by a presentation of their respective cases. If scientific or technical expertise is required, then an expert review group can be appointed. The panel submits an interim report to both parties and within three to six months, depending on the circumstances of the case, a final report is submitted. The DSB usually adopts the report in 60 days. Appeals to the final report are allowed on matters of law and legal interpretation only and can be presented to three members of the Appellate Body but only within 90 days of the report's submission. The Appellate Body has the final authority on the case and its decision must be accepted by both parties unless there is a DSB consensus against it. If the decision of the Appellate Body is not instituted within a reasonable period, then the conflicting members are required to negotiate mutually acceptable compensation. The DSB is also responsible for overseeing the implementation of the final decision. Since the WTO's founding in 1995, it has adjudicated approximately 150 trade dispute cases, as opposed to GATT's 300 cases in 47 years.

Despite this elaborate system for settling disputes, the WTO has come under severe criticism from various U.S. organizations and businesses that feel that the WTO is perpetuating rather than eliminating trade barriers —at the expense of U.S. companies. Most of the criticism centers on three very large U.S. defeats in the late 1990s. On appeal the WTO has allowed Britain, Ireland, and the European Union to reclassify U.S. local area network computer equipment as telecommunication hardware. This decision nearly doubles the duty on this equipment from 3.9 percent to 7.5 percent, making it less competitive in European markets. The WTO also ruled that U.S. attempts to protect endangered sea turtles from shrimp nets violated world trading rules. The largest loss, in terms of U.S. dollars, was the much publicized U.S. case brought on behalf of Eastman Kodak against Japan. The United States and Kodak charged that Japan violated WTO agreements by protecting its home film market in favor of the Fuji Photo Film Co. Some analysts feel that the United States presented a weak case based on dated information. Nevertheless, these same analysts faulted the WTO for giving implicit support to Japan's protective home distribution system by claiming it fell outside the purview of WTO trade agreements. In bringing trade complaints before the WTO the United States seems to win the small cases but lose the major ones.

The WTO is also under attack by environmentalists who claim that the WTO's dispute resolution panels favor international trade at the expense of environmental protection. Cases cited by WTO critics include the aforementioned U.S./sea turtle dispute and a WTO ruling that the European Union could not ban hormone-treated beef from its markets. The WTO has also ruled that the state of Massachusetts cannot put a pricing penalty on state procurement bids from companies doing business with Myanmar (formerly Burma) because of that nation's human rights violations. Although not an environmental decision, activists fear that the WTO may use this case as a precedent to invalidate multilateral environmental agreements. Particularly worrisome would be an invalidation of the so called Basel ban. The Basel ban, which is an amendment to the Basel convention, deals with international shipments of hazardous wastes and prohibits the shipping of hazardous waste from Organisation for Economic Co-operation and Development countries to developing countries. The WTO is also criticized for attacking the use of "eco-labels." These labels, which are required by some governments, provide environmental claims and environmental information on product labels.

[ Michael Knes ]

FURTHER READING:

Blackhurst, Richard. "The WTO and Global Economy." World Economy 20 (August 1997): 527-44.

Das, Bhagirath Lal. Trade and Development Issues and the World Trade Organisation. London: Zed Books, 1997.

Hileman, Bette. "WTO and the Environment." Chemical and Engineering News 76, no. 4 (2 November 1998): 17-18.

Hoekman, Bernard M. The Political Economy of the World Trading System: From GATT to WTO. New York: Oxford University Press, 1995.

International Monetary Fund. "World Trade Organization." Washington: International Monetary Fund, 1998. Available from www.imf.org/externalnp/sec/decdo/wto.htm .

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

Magnussoon, Paul. "Why the WTO Needs an Overhaul." Business Week, 29 June 1998, 35.

Siegmund, John E. "Services in the WTO: Recent Developments and Overview." Business America 119, no. 4 (April 1998): 12 14.



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