Introduction to the World Trade Organization (WTO)
The primary purpose of the WTO is to resolve trade disputes between nations to reduce the risk of international conflict resulting from trade issues. As the primary interaction between states tends to be in the trade arena, the WTO seeks to alleviate pressures on international relations at this logical tension point. The WTO generally looks to liberalize trade and provide a reliable and consistent framework for trade and dispute resolution.
Unlike the other offspring of the Bretton Woods agreements, the WTO is a multilateral trade system. While it sets ground rules for conduct in negotiation and enforcement, the treaty terms are left mainly to the negotiation between the nation-state parties to the treaties. The WTO agreements arising out of the Uruguay Round (1986-1993) completely revised the 1947 GATT with a 1994 version. Also, they concluded several new agreements dealing in the trade in services, intellectual property, dispute settlement, and trade policy review. Additionally, there are 60+ schedules to the agreements made by individual members dealing with specific elements of the trade environment.
One of the critical elements of the WTO framework is the desire for reciprocity and the guarantee that its exports will be treated fairly and consistently in other markets in return for similar treatment.
A link to a series of UN International Law presentations on the WTO is linked here:
Principal Pillars of WTO Law
The critical elements of WTO Law can be summarized in four key concepts:
- Most Favored Nation (MFN) Treatment
- National Treatment
Carrying forward from the GATT framework, reciprocity includes granting mutual concessions in tariff rates, quotas, or other economic trade elements in return for the same. Historically, the concept of reciprocity was not generalized, as it was designed to create a favorable trade status with other nations within the agreement – generally at the expense of those outside. In the WTO environment, the combination of reciprocity and MFN treatment creates universal reciprocity and has served to reduce and, in some cases, preclude the development of other bilateral and limited-scope reciprocity treaties.
Most Favored Nation (MFN) Treatment
A state receives the same concessions and treatment from a state provided to any other third state in most simple terms. Historically, countries used the MFN to demonstrate a long-term commitment to a relationship (particularly in bilateral agreements), recognition, and desire to ensure that the terms remain relevant. That nation continues to experience the benefits of the “best” treaty terms offered by the state. The 1994 GATT coming from the Uruguay Round, effectively extended the MFN treatment to all signatories in Article I – both expanding the concept of reciprocity and limiting the scope of “special” bilateral agreements given the universality of MFN.
Under Article III of the 1994 GATT, the member nations must treat the products of other states as they treat their own products. This Article includes restrictions on taxation or the development of regulations for protectionist measures. While there can be differential charges or regulations associated with legitimate expenses, such as transportation, the framework will generally look askance at any charges that impact the pure economics (as opposed to safety or other components) that treat imported goods differently from domestic goods.
Non-Discrimination is a critical component of International Trade Law, in that like products cannot be discriminated against based on their origin. This pillar rests on two others – above – the MFN pillar and National Treatment.
A good video series from the United Nations discussing these elements of WTO Law are linked here:
Structure of the WTO
Coming out of the Uruguay Round of 1993, one of the key accomplishments was the development of the WTO in the Marrakesh Agreements of 1994. This marks over 50 years between the initial desire to develop the organization at Bretton Woods, the subsequent failure of the ITO and interim state of the GATT of 1947, and the eventual ascendancy of capitalism.
The main functions of the WTO are to:
- Facilitate the negotiation, implementation, operation, and purposes of international trade agreements.
- Provide a forum for negotiations concerning multilateral trade matters and agreements.
- Administer the Understanding of Rules and Procedures Governing the Settlement of Disputes
- Administer a trade policy review system
The highest decision-making body in the WTO is the Ministerial Conference, which consists of all member organizations and represents each. Meeting at least every two years, this is the primary decision-making body for the WTO. Under the Ministerial Conference is the General Counsel. The General Council also has representatives from all members and is tasked with discharging responsibilities of the Disputes Settlement Body and the Trade Policy Review Body. Additionally, the General Counsel serves as the general decision-making body between Ministerial Conference meetings.
Three other councils oversee the implementation of trade agreements within their area of control that reports to the General Council:
- The Council for Trade in Goods
- The Council for Trade in Services
- The Council for Trade-Related Aspects of International Property Rights (TRIPS)
Additionally, the Ministerial Conference established specialized committees on:
- Trade and Development
- Balance of Payments Restrictions
- Budget, Finance, and Administration
Membership on these committees is open to all members and focuses on their areas of expertise.
Areas Covered by the WTO
The original GATT of 1947 focused on the trade in goods – predominantly manufactured goods. The GATT framework was predominantly used to negotiate lower customs duties and other barriers using rules such as MFN and National Treatment principles (discussed above). Since the Marrakesh Agreement in 1994, the WTO has been the umbrella organization for implementing the 1994 GATT. The 1994 GATT shifted to focus on the distortion of trade deals in goods and looked at::
- Anti-Dumping and Countervailing Duties
- Emergency Action on the Import of Certain Goods
- Rules on GATT Exceptions and when they can be invoked
One of the changes in the 1994 GATT was the expansion and emphasis on the trade in services as the service economy developed as part of the Information Age. Under the General Agreement on Trade in Services (GATS), industries such as banking, tourism, hotels, airlines, insurers, telecommunications firms, and others can now operate in a liberalized trade environment that historically was limited to only goods.
GATS has three primary pillars in its framework:
- The main framework contains major basic agreements applicable to all member countries
- Schedules of commitments from members for liberalization of markets at the national level
- A Special Situations annex at the industry level
The main framework is a 5 part Agreement outlining the methodology for implementation.
Part I of the framework agreement defines the nature and scope of liberalization of four types of services:
• services supplied from the territory of one party to the territory of another.
• services supplied in the territory of one party to the consumers of any other.
• services provided through the presence of service-providing entities of one party in the territory of any other.
• services provided by nationals of one party in the territory of any other.
Part II sets out general obligations and disciplines based on the service sector’s most favored nation and national treatment. Part III contains provisions on market access and national treatment based on commitments made in national schedules. Part IV looks at further liberalization by engaging in multiple additional rounds, and Part V established the Council on Trade in Services within the WTO framework.
Similarly to GATT, GATS requires the concept of National Treatment and uses the four pillars of the WTO principles.
The second major expansion from the original 1947 GATT was the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. TRIPS regulates how copyrights, patents, trademarks, industrial designs, trade secrets, and other “intellectual property” broadly defined should be protected in international trade.
As in other WTO-related agreements, the principles include MFN, National Treatment, Non-Discrimination, and Reciprocity. TRIPS updated and strengthened the Paris (1967) and Bern (1971) Agreements. One of the essential elements of TRIPS was that member states provide procedures and remedies within their legal framework for enforcing foreign IP rights against their domestic nationals – including injunctive relief and damages.
Dispute Settlement Provisions
One of the critical elements of the WTO agreements was adding the Dispute Settlement Body (DSB) to enforce the WTO-governed agreements. The Dispute Settlement Understanding Agreement (DSU) Article 2 allows member countries to bring disputes forward for resolution by the WTO if they believe their rights are being infringed. The WTO DSB uses an escalating and sequential approach, beginning with consultation and negotiation – often facilitated by a body of experts appointed specifically for this task. The process is well-defined and structured if this negotiation fails to result in an agreement. Article 3 of the DSU states that the procedure must begin within 30 days of a bona fide dispute notification. If negotiations have not produced a resolution within 60 days, move to formalized processes, including a ruling by a panel of experts and a legal appeals process.
Unlike the GATT system, which lacked timelines and a consensus-driven resolution process, the WTO system is more formalized and speedy. If a dispute remains unresolved, the DSB may impanel a group of three disinterested experts to hear the dispute and make a recommendation. The parties had about 80 days from issuance to act on the recommendations or move to the DSB. If they disagree or appeal, the DSB appoints a seven person appellate board to review and hear the case. These proceedings cannot exceed 60 days and are limited to the case. If the parties do not comply within 45-90 days following the appellate body’s report, the aggrieved party may request the suspension of concessions or other benefits of WTO membership or other agreements.