Current Issue Of Business

LOVELY PROFESSIONAL UNIVERSITY

ASSIGNMENT 2
Name of the Student : Arpit Bajaj and Aditya Srivastav

Roll-No : RS1009A16 and RS1009B17

Reg-No : 11000914 and 11000946

Course Title : Current Issues Of Business

Course No : COM-711

Class : [Link] (Prof)

Term : 1st

Section : S-1009

Batch : 2010 – 2013

Max. Marks : 40

Date of Allotment : 2/11/2010

Date of Submission : 11/11/2010

Submitted To : Sunil Budhiraja

Date: Sig. of Faculty member

Remarks by HOD (Mandatory)

Sig. of HOD with date

Remarks by HOS (Mandatory)

Sig. of HOS with date

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CONTENTS
INTRODUCTION

WORLD TRADE ORGANISATION

 Is it a bird, is it a plane?
 Above all, it’s a negotiating forum:
 It’s a set of rules:
 And it helps to settle disputes:

BORN IN 1995, BUT NOT SO YOUNG

MEMBERS

PRINCIPLES OF TRADING SYSTEM

 Trade without discrimination

 Freer trade: gradually, through negotiation back to top
 Predictability: through binding and transparency back to top
 Promoting fair competition back to top
 Encouraging development and economic reform back to top

TRADE POLICY REVIEWS: ENSURING TRANSPARENCY

STANDARDS AND SAFETY

 Food, animal and plant products: how safe is safe?

 Technical regulations and standards

EFFECTS OF WTO

 The system helps to keep the peace

 The system allows disputes to be handled constructively
 A system based on rules rather than power makes life easier for all
 Freer trade cuts the cost of living
 It gives consumers more choice and a broader range of qualities to choose from
 Trade raises incomes
 Trade stimulates economic growth and that can be good news for employment
 The basic principles make the system economically more efficient, and they cut costs
 The system shields governments from narrow interests
 The system encourages good government

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IMPLICATIONS/MISUNDERSTANDINGS

 The WTO does NOT tell governments what to do

 The WTO is NOT for free trade at any cost
 The WTO is NOT only concerned about commercial interests. This does NOT take priority over
development
 In the WTO, commercial interests do NOT take priority over environmental protection
 The WTO does NOT dictate to governments on issues such as food safety, and human health and
safety. again commercial interests do NOT override
 The WTO does NOT destroy jobs or widen the gap between rich and poor
 Small countries are NOT powerless in the WTO
 The WTO is NOT the tool of powerful lobbies
 Weaker countries do have a choice, they are NOT forced to join the WTO
 The WTO is NOT undemocratic

CONCLUSION

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INTRODUCTION

The World Trade Organization — the WTO — is the international organization whose primary purpose is
to open trade for the benefit of all.

The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade
and ensuring a level playing field for all, thus contributing to economic growth and development. The
WTO also provides a legal and institutional framework for the implementation and monitoring of these
agreements, as well as for settling disputes arising from their interpretation and application. The current
body of trade agreements comprising the WTO consists of 16 different multilateral agreements (to which
all WTO members are parties) and two different plurilateral agreements (to which only some WTO
members are parties).

Over the past 60 years, the WTO, which was established in 1995, and its predecessor organization the
GATT have helped to create a strong and prosperous international trading system, thereby contributing to
unprecedented global economic growth. The WTO currently has 153 members, of which 117  are
developing countries or separate customs territories. WTO activities are supported by a Secretariat of
some 700 staff, led by the WTO Director-General. The Secretariat is located in Geneva, Switzerland, and
has an annual budget of approximately CHF 200 million ($180 million, €130 million). The three official
languages of the WTO are English, French and Spanish.

Decisions in the WTO are generally taken by consensus of the entire membership. The highest
institutional body is the Ministerial Conference, which meets roughly every two years. A General Council
conducts the organization's business in the intervals between Ministerial Conferences. Both of these
bodies comprise all members. Specialized subsidiary bodies (Councils, Committees, Sub-committees),
also comprising all members, administer and monitor the implementation by members of the various
WTO agreements.

More specifically, the WTO's main activities are:

 Negotiating the reduction or elimination of obstacles to trade import tariffs, other barriers to trade
and agreeing on rules governing the conduct of international trade e.g. antidumping, subsidies,
product standards, etc.

 Administering and monitoring the application of the WTO's agreed rules for trade in goods, trade
in services, and trade-related intellectual property rights.

 Monitoring and reviewing the trade policies of our members, as well as ensuring transparency of
regional and bilateral trade agreements.

 Settling disputes among our members regarding the interpretation and application of the
agreements.

 Building capacity of developing country government officials in international trade matters.

 Assisting the process of accession of some 30 countries who are not yet members of the
organization.

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 Conducting economic research and collecting and disseminating trade data in support of the
WTO's other main activities.

 Explaining to and educating the public about the WTO, its mission and its activities.

The WTO's founding and guiding principles remain the pursuit of open borders, the guarantee of most-
favoured-nation principle and non-discriminatory treatment by and among members, and a commitment
to transparency in the conduct of its activities. The opening of national markets to international trade,
with justifiable exceptions or with adequate flexibilities, will encourage and contribute to sustainable
development, raise people's welfare, reduce poverty, and foster peace and stability. At the same time,
such market opening must be accompanied by sound domestic and international policies that contribute to
economic growth and development according to each member's needs and aspirations.

World Trade Organization

The World Trade Organization (WTO) deals with the rules of trade between nations at a global or near-
global level.

Is it a bird, is it a plane?
There are a number of ways of looking at the WTO. It’s an organization for liberalizing trade. It’s a forum
for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a
system of trade rules. (But it’s not Superman, just in case anyone thought it could solve — or cause — all
the world’s problems!)

Above all, it’s a negotiating forum:

Essentially; the WTO is a place where member governments go, to try to sort out the trade problems they
face with each other. The first step is to talk. The WTO was born out of negotiations, and everything the
WTO does is the result of negotiations. The bulk of the WTO's current work comes from the 1986-94
negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs
and Trade (GATT). The WTO is currently the host to new negotiations, under the “Doha Development
Agenda” launched in 2001.

Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to
liberalize trade. But the WTO is not just about liberalizing trade, and in some circumstances its rules
support maintaining trade barriers — for example to protect consumers or prevent the spread of disease.

It’s a set of rules:

At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations.
These documents provide the legal ground-rules for international commerce. They are essentially
contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and
signed by governments, the goal is to help producers of goods and services, exporters, and importers
conduct their business, while allowing governments to meet social and environmental objectives.

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The system’s overriding purpose is to help trade flow as freely as possible — so long as there are no
undesirable side-effects — because this is important for economic development and well-being. That
partly means removing obstacles. It also means ensuring that individuals, companies and governments
know what the trade rules are around the world, and giving them the confidence that there will be no
sudden changes of policy. In other words, the rules have to be “transparent” and predictable.

And it helps to settle disputes:

This is a third important side to the WTO’s work. Trade relations often involve conflicting interests.
Agreements, including those painstakingly negotiated in the WTO system, often need interpreting. The
most harmonious way to settle these differences is through some neutral procedure based on an agreed
legal foundation. That is the purpose behind the dispute settlement process written into the WTO
agreements.

Born in 1995, but not so young

The WTO began life on 1 January 1995, but its trading system is half a century older. Since 1948, the
General Agreement on Tariffs and Trade (GATT) had provided the rules for the system. (The second
WTO ministerial meeting, held in Geneva in May 1998, included a celebration of the 50th anniversary of
the system)

It did not take long for the General Agreement to give birth to an unofficial, de facto international
organization, also known informally as GATT. Over the years GATT evolved through several rounds of
negotiations.

The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and led to the
WTO’s creation. Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements now
cover trade in services, and in traded inventions, creations and designs (intellectual property).

Members
There are 153 members in this organization. These statistics were taken on 23  July 2008 with dates of
membership.

NAME OF THE COUNTRIES DATE OF MEMBERSHIP

Albania 8 September 2000

Angola 23 November 1996
Antigua and Barbuda  1 January 1995
Argentina  1 January 1995
Armenia  5 February 2003
Australia  1 January 1995
Austria  1 January 1995
Bahrain, Kingdom of  1 January 1995

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Bangladesh  1 January 1995
Barbados  1 January 1995
Belgium  1 January 1995
Belize  1 January 1995
Benin  22 February 1996
Bolivia  12 September 1995
Botswana  31 May 1995 
Brazil  1 January 1995
Brunei Darussalam  1 January 1995
Bulgaria  1 December 1996
Burkina Faso  3 June 1995
Burundi  23 July 1995
Cambodia 13 October 2004
Cameroon  13 December 1995
Canada  1 January 1995
Cape Verde  23 July 2008
Central African Republic  31 May 1995
Chad  19 October 1996
Chile  1 January 1995
China  11 December 2001
Colombia  30 April 1995
Congo  27 March 1997
Costa Rica  1 January 1995
Côte d'Ivoire  1 January 1995
Croatia     30 November 2000
Cuba  20 April 1995
Cyprus  30 July 1995
Czech Republic  1 January 1995
Democratic Republic of the Congo  1 January 1997
Denmark  1 January 1995
Djibouti  31 May 1995
Dominica  1 January 1995
Dominican Republic  9 March 1995
Ecuador  21 January 1996
Egypt  30 June 1995
El Salvador  7 May 1995
Estonia  13 November 1999
European Union (formerly European Communities)  1 January 1995
Fiji  14 January 1996
Finland  1 January 1995
Former Yugoslav Republic of Macedonia (FYROM)  4 April 2003
France  1 January 1995
Gabon  1 January 1995
The Gambia    23 October 1996
Georgia  14 June 2000
Germany  1 January 1995
Ghana  1 January 1995
Greece  1 January 1995
Grenada  22 February 1996
Guatemala  21 July 1995
Guinea  25 October 1995

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Guinea Bissau  31 May 1995
Guyana  1 January 1995
Haiti  30 January 1996
Honduras  1 January 1995
Hong Kong, China  1 January 1995
Hungary  1 January 1995
Iceland  1 January 1995
India  1 January 1995
Indonesia  1 January 1995
Ireland  1 January 1995
Israel  21 April 1995
Italy  1 January 1995
Jamaica  9 March 1995
Japan  1 January 1995
Jordan  11 April 2000
Kenya  1 January 1995
Korea, Republic of  1 January 1995
Kuwait  1 January 1995
Kyrgyz Republic  20 December 1998
Latvia  10 February 1999
Lesotho  31 May 1995
Liechtenstein  1 September 1995
Lithuania  31 May 2001
Luxembourg  1 January 1995
Macao, China  1 January 1995
Madagascar  17 November 1995
Malawi  31 May 1995
Malaysia  1 January 1995
Maldives  31 May 1995
Mali  31 May 1995
Malta  1 January 1995
Mauritania  31 May 1995
Mauritius  1 January 1995
Mexico  1 January 1995
Moldova  26 July 2001
Mongolia  29 January 1997
Morocco  1 January 1995
Mozambique  26 August 1995
Myanmar  1 January 1995
Namibia  1 January 1995
Nepal  23 April 2004
Netherlands -For the Kingdom in Europe and for the Netherlands Antilles  1 January 1995
New Zealand  1 January 1995
Nicaragua  3 September 1995
Niger  13 December 1996
Nigeria  1 January 1995
Norway  1 January 1995
Oman  9 November 2000
Pakistan  1 January 1995
Panama  6 September 1997
Papua New Guinea  9 June 1996

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Paraguay  1 January 1995
Peru  1 January 1995
Philippines  1 January 1995
Poland  1 July 1995
Portugal  1 January 1995
Qatar  13 January 1996
Romania  1 January 1995
Rwanda  22 May 1996
Saint Kitts and Nevis  21 February 1996
Saint Lucia  1 January 1995
Saint Vincent & the Grenadines  1 January 1995
Saudi Arabia  11 December 2005
Senegal  1 January 1995
Sierra Leone  23 July 1995
Singapore  1 January 1995
Slovak Republic  1 January 1995
Slovenia  30 July 1995
Solomon Islands  26 July 1996
South Africa  1 January 1995
Spain  1 January 1995
Sri Lanka  1 January 1995
Suriname  1 January 1995
Swaziland  1 January 1995
Sweden  1 January 1995
Switzerland  1 July 1995
Chinese Taipei 1 January 2002
Tanzania  1 January 1995
Thailand  1 January 1995
Togo  31 May 1995
Tonga  27 July 2007
Trinidad and Tobago  1 March 1995
Tunisia  29 March 1995
Turkey  26 March 1995
Uganda  1 January 1995
Ukraine  16 May 2008
United Arab Emirates  10 April 1996
United Kingdom  1 January 1995
United States of America  1 January 1995
Uruguay  1 January 1995
Venezuela (Bolivarian Republic of)  1 January 1995
Viet Nam  11 January 2007
Zambia  1 January 1995
Zimbabwe  5 March 1995

Principles of the trading system

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of
activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government
purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and

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much more. But a number of simple, fundamental principles run throughout all of these documents. These
principles are the foundation of the multilateral trading system.

Trade without discrimination

1. Most-favored-nation (MFN): treating other people equally:

Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant
someone a special favor (such as a lower customs duty rate for one of their products) and you have to do
the same for all other WTO members.

This principle is known as most-favored-nation (MFN) treatment. It is so important that it is the first
article of the General Agreement on Tariffs and Trade (GATT) which governs trade in goods. MFN is
also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement
the principle is handled slightly differently. Together, those three agreements cover all three main areas of
trade handled by the WTO.

Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only
to goods traded within the group —   discriminating against goods from outside. Or they can give
developing countries special access to their markets. Or a country can raise barriers against products that
are considered to be traded unfairly from specific countries. And in services, countries are allowed, in
limited circumstances, to discriminate. But the agreements only permit these exceptions under strict
conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market,
it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or
strong.

2. National treatment: Treating foreigners and locals equally:

Imported and locally-produced goods should be treated equally — at least after the foreign goods have
entered the market. The same should apply to foreign and domestic services, and to foreign and local
trademarks, copyrights and patents. This principle of “national treatment” (giving others the same
treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of
GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly
differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the
market. Therefore, charging customs duty on an import is not a violation of national treatment even if
locally-produced products are not charged an equivalent tax. 

Freer trade: gradually, through negotiation back to top

Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned
include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities
selectively. From time to time other issues such as red tape and exchange rate policies have also been
discussed.

Since GATT’s creation in 1947-48 there have been eight rounds of trade negotiations. A ninth round,
under the Doha Development Agenda, is now underway. At first these focused on lowering tariffs

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(customs duties) on imported goods. As a result of the negotiations, by the mid-1990s industrial
countries’ tariff rates on industrial goods had fallen steadily to less than 4%.

But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods, and to the new
areas such as services and intellectual property.

Opening markets can be beneficial, but it also requires adjustment. The WTO agreements allow countries
to introduce changes gradually, through “progressive liberalization”. Developing countries are usually
given longer to fulfil their obligations. 

Predictability: Through binding and transparency back to top

Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the
promise gives businesses a clearer view of their future opportunities. With stability and predictability,
investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition —
choice and lower prices. The multilateral trading system is an attempt by governments to make the
business environment stable and predictable.

The Uruguay Round increased bindings

Percentages of tariffs bound before and after the 1986-94 talks

Before After
Developed countries 78 99
Developing countries 21 73
Transition economies 73 98
(These are tariff lines, so percentages are not weighted according to trade volume
or value)

In the WTO, when countries agree to open their markets for goods or services, they “bind” their
commitments. For goods, these bindings amount to ceilings on customs tariff rates. Sometimes countries
tax imports at rates that are lower than the bound rates. Frequently this is the case in developing countries.
In developed countries the rates actually charged and the bound rates tend to be the same.

A country can change its bindings, but only after negotiating with its trading partners, which could mean
compensating them for loss of trade. One of the achievements of the Uruguay Round of multilateral trade
talks was to increase the amount of trade under binding commitments (see table). In agriculture, 100% of
products now have bound tariffs. The result of all this: a substantially higher degree of market security for
traders and investors.

The system tries to improve predictability and stability in other ways as well. One way is to discourage
the use of quotas and other measures used to set limits on quantities of imports — administering quotas
can lead to more red-tape and accusations of unfair play. Another is to make countries’ trade rules as clear
and public (“transparent”) as possible. Many WTO agreements require governments to disclose their
policies and practices publicly within the country or by notifying the WTO. The regular surveillance of

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national trade policies through the Trade Policy Review Mechanism provides a further means of
encouraging transparency both domestically and at the multilateral level.

Promoting fair competition back to top

The WTO is sometimes described as a “free trade” institution, but that is not entirely accurate. The
system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a
system of rules dedicated to open, fair and undistorted competition.

The rules on non-discrimination — MFN and national treatment — are designed to secure fair conditions
of trade. So too are those on dumping (exporting at below cost to gain market share) and subsidies. The
issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond,
in particular by charging additional import duties calculated to compensate for damage caused by unfair
trade.

Many of the other WTO agreements aim to support fair competition: in agriculture, intellectual property,
services, for example. The agreement on government procurement (a “plurilateral” agreement because it
is signed by only a few WTO members) extends competition rules to purchases by thousands of
government entities in many countries. And so on.

 Encouraging development and economic reform back to top

The WTO system contributes to development. On the other hand, developing countries need flexibility in
the time they take to implement the system’s agreements. And the agreements themselves inherit the
earlier provisions of GATT that allow for special assistance and trade concessions for developing
countries.

Over three quarters of WTO members are developing countries and countries in transition to market
economies. During the seven and a half years of the Uruguay Round, over 60 of these countries
implemented trade liberalization programmes autonomously. At the same time, developing countries and
transition economies were much more active and influential in the Uruguay Round negotiations than in
any previous round, and they are even more so in the current Doha Development Agenda.

At the end of the Uruguay Round, developing countries were prepared to take on most of the obligations
that are required of developed countries. But the agreements did give them transition periods to adjust to
the more unfamiliar and, perhaps, difficult WTO provisions — particularly so for the poorest, “least-
developed” countries. A ministerial decision adopted at the end of the round says better-off countries
should accelerate implementing market access commitments on goods exported by the least-developed
countries, and it seeks increased technical assistance for them. More recently, developed countries have
started to allow duty-free and quota-free imports for almost all products from least-developed countries.

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On all of this, the WTO and its members are still going through a learning process. The current Doha
Development Agenda includes developing countries’ concerns about the difficulties they face in
implementing the Uruguay Round agreements.

Trade policy reviews: ensuring transparency

Individuals and companies involved in trade have to know as much as possible about the conditions of
trade. It is therefore fundamentally important that regulations and policies are transparent. In the WTO,
this is achieved in two ways: governments have to inform the WTO and fellow-members of specific
measures, policies or laws through regular “notifications”; and the WTO conducts regular reviews of
individual countries’ trade policies — the trade policy reviews. These reviews are part of the Uruguay
Round agreement, but they began several years before the round ended — they were an early result of the
negotiations. Participants agreed to set up the reviews at the December 1988 ministerial meeting that was
intended to be the midway assessment of the Uruguay Round. The first review took place the following
year. Initially they operated under GATT and, like GATT, they focused on goods trade. With the creation
of the WTO in 1995, their scope was extended, like the WTO, to include services and intellectual
property.

The importance countries attach to the process is reflected in the seniority of the Trade Policy Review
Body — it is the WTO General Council in another guise.

The objectives are:

 To increase the transparency and understanding of countries’ trade policies and practices, through
regular monitoring
 To improve the quality of public and intergovernmental debate on the issues
 To enable a multilateral assessment of the effects of policies on the world trading system.

The reviews focus on members’ own trade policies and practices. But they also take into account the
countries’ wider economic and developmental needs, their policies and objectives, and the external
economic environment that they face. These “peer reviews” by other WTO members encourage
governments to follow more closely the WTO rules and disciplines and to fulfill their commitments. In
practice the reviews have two broad results: they enable outsiders to understand a country’s policies and
circumstances, and they provide feedback to the reviewed country on its performance in the system.

Over a period of time, all WTO members are to come under scrutiny. The frequency of the reviews
depends on the country’s size:

 The four biggest traders — the European Union, the United States, Japan and China (the “Quad”)
— are examined approximately once every two years.
 The next 16 countries (in terms of their share of world trade) are reviewed every four years.

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 The remaining countries are reviewed every six years, with the possibility of a longer interim
period for the least-developed countries.

For each review, two documents are prepared: a policy statement by the government under review, and a
detailed report written independently by the WTO Secretariat. These two reports, together with the
proceedings of the Trade Policy Review Body’s meetings are published shortly afterwards.

Standards and safety

Article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments to act on trade in
order to protect human, animal or plant life or health, provided they do not discriminate or use this as
disguised protectionism. In addition, there are two specific WTO agreements dealing with food safety and
animal and plant health and safety and with product standards in general. Both try to identify how to meet
the need to apply standards and at the same time avoid protectionism in disguise. These issues are
becoming more important as tariff barriers fall — some compare this to seabed rocks appearing when the
tide goes down. In both cases, if a country applies international standards, it is less likely to be challenged
legally in the WTO than if it sets its own standards.

Food, animal and plant products: how safe is safe?

Problem: How do you ensure that your country’s consumers are being supplied with food that is safe to
eat — “safe” by the standards you consider appropriate? And at the same time, how can you ensure that
strict health and safety regulations are not being used as an excuse for protecting domestic producers?

A separate agreement on food safety and animal and plant health standards (the Sanitary and
Phytosanitary Measures Agreement or SPS) sets out the basic rules.

It allows countries to set their own standards. But it also says regulations must be based on science. They
should be applied only to the extent necessary to protect human, animal or plant life or health. And they
should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions
prevail.

Member countries are encouraged to use international standards, guidelines and recommendations where
they exist. When they do, they are unlikely to be challenged legally in a WTO dispute. However,
members may use measures which result in higher standards if there is scientific justification. They can
also set higher standards based on appropriate assessment of risks so long as the approach is consistent,
not arbitrary. And they can to some extent apply the “precautionary principle”, a kind of “safety first”
approach to deal with scientific uncertainty. Article 5.7 of the SPS Agreement allows temporary
“precautionary” measures.

The agreement still allows countries to use different standards and different methods of inspecting
products. So how can an exporting country be sure the practices it applies to its products are acceptable in
an importing country? If an exporting country can demonstrate that the measures it applies to its exports

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achieve the same level of health protection as in the importing country, then the importing country is
expected to accept the exporting country’s standards and methods.

The agreement includes provisions on control, inspection and approval procedures. Governments must
provide advance notice of new or changed sanitary and phytosanitary regulations, and establish a national
enquiry point to provide information. The agreement complements that on technical barriers to trade.

Technical regulations and standards

Technical regulations and standards are important, but they vary from country to country. Having too
many different standards makes life difficult for producers and exporters. If the standards are set
arbitrarily, they could be used as an excuse for protectionism. Standards can become obstacles to trade.
But they are also necessary for a range of reasons, from environmental protection, safety, national
security to consumer information. And they can help trade. Therefore the same basic question arises
again: how to ensure that standards are genuinely useful, and not arbitrary or an excuse for protectionism.

The Technical Barriers to Trade Agreement (TBT) tries to ensure that regulations, standards, testing
and certification procedures do not create unnecessary obstacles.

However, the agreement also recognizes countries’ rights to adopt the standards they consider appropriate
— for example, for human, animal or plant life or health, for the protection of the environment or to meet
other consumer interests. Moreover, members are not prevented from taking measures necessary to ensure
their standards are met. But that is counterbalanced with disciplines. A myriad of regulations can be a
nightmare for manufacturers and exporters. Life can be simpler if governments apply international
standards, and the agreement encourages them to do so In any case, whatever regulations they use should
not discriminate.

The agreement also sets out a code of good practice for both governments and non-governmental or
industry bodies to prepare, adopt and apply voluntary standards. Over 200 standards-setting bodies apply
the code.

The agreement says the procedures used to decide whether a product conforms to relevant standards have
to be fair and equitable. It discourages any methods that would give domestically produced goods an
unfair advantage. The agreement also encourages countries to recognize each other’s procedures for
assessing whether a product conforms. Without recognition, products might have to be tested twice, first
by the exporting country and then by the importing country.

Manufacturers and exporters need to know what the latest standards are in their prospective markets. To
help ensure that this information is made available conveniently, all WTO member governments are
required to establish national enquiry points and to keep each other informed through the WTO — around
900 new or changed regulations are notified each year. The Technical Barriers to Trade Committee is the

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major clearing house for members to share the information and the major forum to discuss concerns about
the regulations and their implementation.

IMPLICATIONS/EFFECTS of WTO
1. The system helps to keep the peace
This sounds like an exaggerated claim, and it would be wrong to make too much of it. Nevertheless, the
system does contribute to international peace, and if we understand why, we have a clearer picture of
what the system actually does.

Sales people are usually reluctant to fight their customers 

Peace is partly an outcome of two of the most fundamental principles of the trading system: helping
trade to flow smoothly and providing countries with a constructive and fair outlet for dealing with
disputes over trade issues. It is also an outcome of the international confidence and cooperation that
the system creates and reinforces.

History is littered with examples of trade disputes turning into war. One of the most vivid is the trade war
of the 1930s when countries competed to raise trade barriers in order to protect domestic producers and
retaliate against each others’ barriers. This worsened the Great Depression and eventually played a part in
the outbreak of World War 2.

Two developments immediately after the Second World War helped to avoid a repeat of the pre-war trade
tensions. In Europe, international cooperation developed in coal, and in iron and steel. Globally, the
General Agreement on Tariffs and Trade (GATT) was created.

Both have proved successful, so much so that they are now considerably expanded — one has become the
European Union, the other the World Trade Organization (WTO). 
 
How does this work?

Crudely put, sales people are usually reluctant to fight their customers. In other words, if trade flows
smoothly and both sides enjoy a healthy commercial relationship, political conflict is less likely.

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What’s more, smoothly-flowing trade also helps people all over the world become well off. People who
are more prosperous and contented are also less likely to fight.

But that is not all. The GATT/WTO system is an important confidence-builder. The trade wars in the
1930s are proof of how protectionism can easily plunge countries into a situation where no one wins and
everyone loses.

The short-sighted protectionist view is that defending particular sectors against imports is beneficial. But
that view ignores how other countries are going to respond. The longer term reality is that one
protectionist step by one country can easily lead to retaliation from other countries, a loss of confidence in
freer trade, and a slide into serious economic trouble for all — including the sectors that were originally
protected. Everyone loses.

Confidence is the key to avoiding that kind of no-win scenario. When governments are confident that
others will not raise their trade barriers, they will not be tempted to do the same. They will also be in a
much better frame of mind to cooperate with each other.

The WTO trading system plays a vital role in creating and reinforcing that confidence. Particularly
important are negotiations that lead to agreement by consensus, and a focus on abiding by the rules.

2. The system allows disputes to be handled constructively

As trade expands in volume, in the number of products traded, and in the numbers of countries and
companies trading, there is a greater chance that disputes will arise. The WTO system helps resolve these
disputes peacefully and constructively.

Countries in dispute always aim to conform to the agreements 

There could be a down side to trade liberalization and expansion. More trade means more possibilities for
disputes to arise. Left to themselves, those disputes could lead to serious conflict. But in reality, a lot of
international trade tension is reduced because countries can turn to organizations, in particular the WTO,
to settle their trade disputes.

Before World War 2 that option was not available. After the war, the world’s community of trading
nations negotiated trade rules which are now entrusted to the WTO. Those rules include an obligation for
members to bring their disputes to the WTO and not to act unilaterally.

When they bring disputes to the WTO, the WTO’s procedure focuses their attention on the rules. Once a
ruling has been made, countries concentrate on trying to comply with the rules, and perhaps later
renegotiating the rules — not on declaring war on each other.

Around 300 disputes have been brought to the WTO since it was set up in 1995. Without a means of
tackling these constructively and harmoniously, some could have led to more serious political conflict.

The fact that the disputes are based on WTO agreements means that there is a clear basis for judging who
is right or wrong. Once the judgement has been made, the agreements provide the focus for any further
actions that need to be taken.

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The increasing number of disputes brought to GATT and its successor, the WTO, does not reflect
increasing tension in the world. Rather, it reflects the closer economic ties throughout the world, the
GATT/WTO’s expanding membership and the fact that countries have faith in the system to solve their
differences.

Sometimes the exchanges between the countries in conflict can be acrimonious, but they always aim to
conform to the agreements and commitments that they themselves negotiated.

3. A system based on rules rather than power makes life easier for all
The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving smaller
countries more voice, and at the same time freeing the major powers from the complexity of having to
negotiate trade agreements with each of their numerous trading partners.

Smaller countries enjoy more bargaining power, and life is simpler for bigger countries

Decisions in the WTO are made by consensus. The WTO agreements were negotiated by all members,
were approved by consensus and were ratified in all members’ parliaments. The agreements apply to
everyone. Rich and poor countries alike have an equal right to challenge each other in the WTO’s dispute
settlement procedures.

This makes life easier for all, in several different ways. Smaller countries can enjoy some increased
bargaining power. Without a multilateral regime such as the WTO’s system, the more powerful countries
would be freer to impose their will unilaterally on their smaller trading partners. Smaller countries would
have to deal with each of the major economic powers individually, and would be much less able to resist
unwanted pressure.

In addition, smaller countries can perform more effectively if they make use of the opportunities to form
alliances and to pool resources. Several are already doing this.

There are matching benefits for larger countries. The major economic powers can use the single forum of
the WTO to negotiate with all or most of their trading partners at the same time. This makes life much
simpler for the bigger trading countries. The alternative would be continuous and complicated bilateral
negotiations with dozens of countries simultaneously. And each country could end up with different
conditions for trading with each of its trading partners, making life extremely complicated for its
importers and exporters.

The principle of non-discrimination built into the WTO agreements avoids that complexity. The fact that
there is a single set of rules applying to all members greatly simplifies the entire trade regime.

And these agreed rules give governments a clearer view of which trade policies are acceptable.

4. Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries, and
everything else in between, are affected by trade policies.

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According to one calculation, consumers and governments in rich countries pay $350 billion per year
supporting agriculture — enough to fly their 41 million dairy cows first class around the world one and a
half times

  
Protectionism is expensive: it raises prices. The WTO’s global system lowers trade barriers through
negotiation and applies the principle of non-discrimination. The result is reduced costs of production
(because imports used in production are cheaper) and reduced prices of finished goods and services, and
ultimately a lower cost of living.

There are plenty of studies showing just what the impacts of protectionism and of freer trade are. These
are just a few figures:

Food is cheaper
When you protect your agriculture, the cost of your food goes up — by an estimated $1,500 per year for a
family of four in the European Union (1997); by the equivalent of a 51% tax on food in Japan (1995); by
$3 billion per year added to US consumers’ grocery bills just to support sugar in one year (1988).
Negotiating agricultural trade reform is a complex undertaking. Governments are still debating the roles
agricultural policies play in a range of issues from food security to environmental protection.
But WTO members are now reducing the subsidies and the trade barriers that are the worst offenders.
And in 2000, new talks started on continuing the reform in agriculture. These have now been incorporated
into a broader work programme, the Doha Development Agenda, launched at the fourth WTO Ministerial
Conference in Doha, Qatar, in November 2001.

Clothes are cheaper

Import restrictions and high customs duties combined to raise US textiles and clothing prices by 58% in
the late 1980s.
UK consumers pay an estimated £500 million more per year for their clothing because of these
restrictions. For Canadians the bill is around C$780 million. For Australians it would be A$300 annually
per average family if Australian customs duties had not been reduced in the late 1980s and early 1990s.
The textiles and clothing trade is going through a major reform — under the WTO — that will be
completed in 2005. The programme includes eliminating restrictions on quantities of imports.

If customs duties were also to be eliminated, economists calculate the result could be a gain to the world
of around $23 billion, including $12.3 billion for the US, $0.8 billion for Canada, $2.2 billion for the EU
and around $8 billion for developing countries.

The same goes for other goods …

When the US limited Japanese car imports in the early 1980s, car prices rose by 41% between 1981 and
1984 — nearly double the average for all consumer products. The objective was to save American jobs,
but the higher prices were an important reason why one million fewer new cars were sold, leading to
more job losses.
If Australia had kept its tariffs at 1998 levels, Australian customers would pay on average A$2,900 more
per car today. In 1995, aluminium users in the EU paid an extra $472 million due to tariff barriers.
One of the objectives of the Doha Development Agenda (DDA) is another round of cuts in tariffs on
industrial products, i.e. manufactured and mining products. Some economists, Robert Stern, Alan
Deardorff and Drusilla Brown, predict that cutting these by one third would raise developing countries’
income by around $52 billion.

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… and services
Liberalization in telephone services is making phone calls cheaper — in the 1990s by 4% per year in
developing countries and 2% per year in industrial countries, taking inflation into account.
In China, competition from a second mobile phone company was at least part of the reason for a 30% cut
in the price of a call. In Ghana the cut was 50%.
The group of economists led by Robert Stern estimates that lowering services barriers by one third under
the Doha Development Agenda would raise developing countries’ incomes by around $60 billion.

And so it goes on. The system now entrusted to the WTO has been in place for over 50 years.

In that time there have been eight major rounds of trade negotiations. Trade barriers around the world are
lower than they have ever been in modern trading history. They continue to fall, and we are all benefiting.

5. It gives consumers more choice and a broader range of qualities to choose

from
Think of all the things we can now have because we can import them: fruits and vegetables out of season,
foods, clothing and other products that used to be considered exotic, cut flowers from any part of the
world, all sorts of household goods, books, music, movies, and so on.

Think also of the things people in other countries can have because they buy exports from us and
elsewhere. Look around and consider all the things that would disappear if all our imports were taken
away from us. Imports allow us more choice — both more goods and services to choose from, and a
wider range of qualities. Even the quality of locally-produced goods can improve because of the
competition from imports.

The wider choice isn’t simply a question of consumers buying foreign finished products. Imports are used
as materials, components and equipment for local production.

This expands the range of final products and services that are made by domestic producers, and it
increases the range of technologies they can use. When mobile telephone equipment became available,
services sprang up even in the countries that did not make the equipment, for example.

Sometimes, the success of an imported product or service on the domestic market can also encourage new
local producers to compete, increasing the choice of brands available to consumers as well as increasing
the range of goods and services produced locally.

If trade allows us to import more, it also allows others to buy more of our exports. It increases our
incomes, providing us with the means of enjoying the increased choice.

6. Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes — national incomes and
personal incomes. But some adjustment is necessary.

The WTO’s own estimates for the impact of the 1994 Uruguay Round trade deal were between $109
billion and $510 billion added to world income (depending on the assumptions of the calculations and
allowing for margins of error).

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More recent research has produced similar figures. Economists estimate that cutting trade barriers in
agriculture, manufacturing and services by one third would boost the world economy by $613  billion —
equivalent to adding an economy the size of Canada to the world economy.

In Europe, the EU Commission calculates that over 1989–93 EU incomes increased by 1.1–1.5% more
than they would have done without the Single Market.

So trade clearly boosts incomes.

Trade also poses challenges as domestic producers face competition from imports. But the fact that there
is additional income means that resources are available for governments to redistribute the benefits from
those who gain the most — for example to help companies and workers adapt by becoming more
productive and competitive in what they were already doing, or by switching to new activities.

7. Trade stimulates economic growth and that can be good news for
employment
Trade clearly has the potential to create jobs. In practice there is often factual evidence that lower trade
barriers have been good for employment. But the picture is complicated by a number of factors.
Nevertheless, the alternative — protectionism — is not the way to tackle employment problems.

This is a difficult subject to tackle in simple terms. There is strong evidence that trade boosts economic
growth, and that economic growth means more jobs. It is also true that some jobs are lost even when trade
is expanding. But a reliable analysis of this poses at least two problems.

First, there are other factors at play. For example, technological advance has also had a strong impact on
employment and productivity, benefiting some jobs, hurting others.

Second, while trade clearly boosts national income (and prosperity), this is not always translated into new
employment for workers who lost their jobs as a result of competition from imports.

The picture is not the same all over the world. The average length of time a worker takes to find a new job
can be much longer in one country than for a similar worker in another country experiencing similar
conditions.

In other words, some countries are better at making the adjustment than others. This is partly because
some countries have more effective adjustment policies. Those without effective policies are missing an
opportunity.

There are many instances where the facts show that the opportunity has been grasped — where freer trade
has been healthy for employment. The EU Commission calculates that the creation of its Single Market
means that there are somewhere in the range of 300,000–900,000 more jobs than there would be without
the Single Market.

Often, job prospects are better in companies involved in trade. In the United States, 12 million people
owe their jobs to exports; 1.3 million of those jobs were created between 1994 and 1998. And those jobs
tend to be better-paid with better security. In Mexico, the best jobs are those related to export activities:
sectors which export 60 per cent or more of their production, pay wages 39% higher than the rest of the
economy and maquiladora (in-bond assembly) plants pay 3.5 times the Mexican minimum wage.

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The facts also show how protectionism hurts employment. The example of the US car industry has
already been mentioned: trade barriers designed to protect US jobs by restricting imports from Japan
ended up making cars more expensive in the US, so fewer cars were sold and jobs were lost.

In other words, an attempt to tackle a problem in the short term by restricting trade turned into a bigger
problem in the longer term.

Even when a country has difficulty making adjustments, the alternative of protectionism would simply
make matters worse.

8. The basic principles make the system economically more efficient, and they
cut costs
Many of the benefits of the trading system are more difficult to summarize in numbers, but they are still
important. They are the result of essential principles at the heart of the system, and they make life simpler
for the enterprises directly involved in trade and for the producers of goods and services.

Trade allows a division of labour between countries. It allows resources to be used more appropriately
and effectively for production. But the WTO’s trading system offers more than that. It helps to increase
efficiency and to cut costs even more because of important principles enshrined in the system.

Imagine a situation where each country sets different rules and different customs duty rates for imports
coming from different trading partners. Imagine that a company in one country wants to import raw
materials or components — copper for wiring or printed circuit boards for electrical goods, for example
— for its own production.

It would not be enough for this company to look at the prices offered by suppliers around the world. The
company would also have to make separate calculations about the different duty rates it would be charged
on the imports (which would depend on where the imports came from), and it would have to study each
of the regulations that apply to products from each country. Buying some copper or circuit boards would
become very complicated.

That, in simple terms, is one of the problems of discrimination.

Imagine now that the government announces it will charge the same duty rates on imports from all
countries, and it will use the same regulations for all products, no matter where they come from, whether
imported or locally produced. Life for the company would be much simpler. Sourcing components would
become more efficient and would cost less.

Non-discrimination is just one of the key principles of the WTO’s trading system. Others include:

 transparency (clear information about policies, rules and regulations);

 increased certainty about trading conditions (commitments to lower trade barriers and to
increase other countries’ access to one’s markets are legally binding);

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 simplification and standardization of customs procedure, removal of red tape, centralized
databases of information, and other measures designed to simplify trade that come under the
heading “trade facilitation”.

Together, they make trading simpler, cutting companies’ costs and increasing confidence in the future.
That in turn also means more jobs and better goods and services for consumers.

9. The system shields governments from narrow interests

The GATT-WTO system which evolved in the second half of the 20th Century helps governments take a
more balanced view of trade policy. Governments are better-placed to defend themselves against
lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone
in the economy.

One of the lessons of the protectionism that dominated the early decades of the 20th Century was the
damage that can be caused if narrow sectoral interests gain an unbalanced share of political influence. The
result was increasingly restrictive policy which turned into a trade war that no one won and everyone lost.

Superficially, restricting imports looks like an effective way of supporting an economic sector. But it
biases the economy against other sectors which shouldn’t be penalized — if you protect your clothing
industry, everyone else has to pay for more expensive clothes, which puts pressure on wages in all
sectors, for example.

Protectionism can also escalate as other countries retaliate by raising their own trade barriers. That’s
exactly what happened in the 1920s and 30s with disastrous effects. Even the sectors demanding
protection ended up losing.

Governments need to be armed against pressure from narrow interest groups, and the WTO system can
help.

The GATT-WTO system covers a wide range of sectors. So, if during a GATT-WTO trade negotiation
one pressure group lobbies its government to be considered as a special case in need of protection, the
government can reject the protectionist pressure by arguing that it needs a broad-ranging agreement that
will benefit all sectors of the economy. Governments do just that, regularly.

10. The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is difficult to
reverse. The rules also discourage a range of unwise policies. For businesses, that means greater
certainty and clarity about trading conditions. For governments it can often mean good discipline.

The rules include commitments not to backslide into unwise policies. Protectionism in general is unwise
because of the damage it causes domestically and internationally, as we have already seen.

Particular types of trade barriers cause additional damage because they provide opportunities for
corruption and other forms of bad government.

One kind of trade barrier that the WTO’s rules try to tackle is the quota, for example restricting imports or
exports to no more than a specific amount each year.

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Because quotas limit supply, they artificially raise prices, creating abnormally large profits (economists
talk about “quota rent”). That profit can be used to influence policies because more money is available for
lobbying.

It can also provide opportunities for corruption, for example in the allocation of quotas among traders.
There are plenty of cases where that has happened around the world.

In other words, quotas are a particularly bad way of restricting trade. Governments have agreed through
the WTO’s rules that their use should be discouraged.

Nevertheless, quotas of various types remain in use in most countries, and governments argue strongly
that they are needed. But they are controlled by WTO agreements and there are commitments to reduce or
eliminate many of them, particularly in textiles.

Many other areas of the WTO’s agreements can also help reduce corruption and bad government.

Transparency (such as making available to the public all information on trade regulations), other aspects
of “trade facilitation”, clearer criteria for regulations dealing with the safety and standards of products,
and non-discrimination also help by reducing the scope for arbitrary decision-making and cheating.

Quite often, governments use the WTO as a welcome external constraint on their policies: “we can’t do
this because it would violate the WTO agreements”.

MISUNDERSTANDINGS
1. The WTO does NOT tell governments what to do
The WTO does not tell governments how to conduct their trade policies. Rather, it’s a “member-driven”
organization.

The WTO is member-driven

 That means:

 the rules of the WTO system are agreements resulting from negotiations among member
governments,
 the rules are ratified by members’ parliaments, and
 decisions taken in the WTO are virtually all made by consensus among all members.

In other words, decisions taken in the WTO are negotiated, accountable and democratic.

The only occasion when a WTO body can have a direct impact on a government’s policies is when a
dispute is brought to the WTO and if that leads to a ruling by the Dispute Settlement Body (which
consists of all members). Normally the Dispute Settlement Body makes a ruling by adopting the findings
of a panel of experts or an appeal report.

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Even then, the scope of the ruling is narrow: it is simply a judgement or interpretation of whether a
government has broken one of the WTO’s agreements—agreements that the infringing government had
itself accepted. If a government has broken a commitment it has to conform.

In all other respects, the WTO does not dictate to governments to adopt or drop certain policies.

As for the WTO Secretariat, it simply provides administrative and technical support for the WTO and its
members.

In fact: it’s the governments who dictate to the WTO.

2. The WTO is NOT for free trade at any cost

It’s really a question of what countries are willing to bargain with each other, of give and take, request
and offer.

It all depends on what countries want to bargain

 Yes, one of the principles of the WTO system is for countries to lower their trade barriers and to allow
trade to flow more freely. After all, countries benefit from the increased trade that results from lower
trade barriers.

But just how low those barriers should go is something member countries bargain with each other. Their
negotiating positions depend on how ready they feel they are to lower the barriers, and on what they want
to obtain from other members in return. One country’s commitments become another country’s rights,
and vice versa.

The WTO’s role is to provide the forum for negotiating liberalization. It also provides the rules for how
liberalization can take place.

The rules written into the agreements allow barriers to be lowered gradually so that domestic producers
can adjust.

They have special provisions that take into account the situations that developing countries face. They
also spell out when and how governments can protect their domestic producers, for example from imports
that are considered to have unfairly low prices because of subsidies or “dumping”. Here, the objective is
fair trade.

Just as important as freer trade — perhaps more important — are other principles of the WTO system. For
example: non-discrimination, and making sure the conditions for trade are stable, predictable and
transparent.

3. The WTO is NOT only concerned about commercial interests. This does
NOT take priority over development
The WTO agreements are full of provisions taking the interests of development into account

Sustainable development is a principal objective

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 Underlying the WTO’s trading system is the fact that freer trade boosts economic growth and supports
development. In that sense, commerce and development are good for each other.

At the same time, whether or not developing countries gain enough from the system is a subject of
continuing debate in the WTO. But that does not mean to say the system offers nothing for these
countries. Far from it, the agreements include many important provisions that specifically take developing
countries’ interests into account.

Developing countries are allowed more time to apply numerous provisions of the WTO agreements.
Least-developed countries receive special treatment, including exemption from many provisions.

The needs of development can also be used to justify actions that might not normally be allowed under
the agreements, for example governments giving certain subsidies.

And the negotiations and other work launched at the Doha Ministerial Conference in November  2001
include numerous issues that developing countries want to pursue.

4. In the WTO, commercial interests do NOT take priority over

environmental protection
Many provisions take environmental concerns specifically into account.

The preamble of the Marrakesh Agreement Establishing the World Trade Organization includes among
its objectives, optimal use of the world’s resources, sustainable development and environmental
protection.

This is backed up in concrete terms by a range of provisions in the WTO’s rules. Among the most
important are umbrella clauses (such as Article 20 of the General Agreement on Tariffs and Trade) which
allow countries to take actions to protect human, animal or plant life or health, and to conserve
exhaustible natural resources.

Beyond the broad principles, specific agreements on specific subjects also take environmental concerns
into account. Subsidies are permitted for environmental protection. Environmental objectives are
recognized specifically in the WTO agreements dealing with product standards, food safety, intellectual
property protection, etc.

In addition, the system and its rules can help countries allocate scarce resources more efficiently and less
wastefully. For example, negotiations have led to reductions in industrial and agricultural subsidies,
which in turn reduce wasteful over-production.

A WTO ruling on a dispute about shrimp imports and the protection of sea turtles has reinforced these
principles. WTO members can, should and do take measures to protect endangered species and to protect
the environment in other ways, the report says. Another ruling upheld a ban on asbestos products on the
grounds that WTO agreements give priority to health and safety over trade.

What’s important in the WTO’s rules is that measures taken to protect the environment must not be
unfair. For example, they must not discriminate. You cannot be lenient with your own producers and at
the same time be strict with foreign goods and services. Nor can you discriminate between different

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trading partners. This point was also reinforced in the recent dispute ruling on shrimps and turtles, and an
earlier one on gasoline.

Also important is the fact that it’s not the WTO’s job to set the international rules for environmental
protection. That’s the task of the environmental agencies and conventions.

An overlap does exist between environmental agreements and the WTO — on trade actions (such as
sanctions or other import restrictions) taken to enforce an agreement. So far there has been no conflict
between the WTO’s agreements and the international environmental agreements.

5. The WTO does NOT dictate to governments on issues such as food safety,
and human health and safety. Again commercial interests do NOT override
The agreements were negotiated by WTO member governments, and therefore the agreements reflect
their concerns.

Safety concerns are built into the WTO agreements

Key clauses in the agreements (such as GATT Art. 20) specifically allow governments to take actions to
protect human, animal or plant life or health. But these actions are disciplined, for example to prevent
them being used as an excuse for protecting domestic producers — protectionism in disguise.

Some of the agreements deal in greater detail with product standards, and with health and safety for food
and other products made from animals and plants. The purpose is to defend governments’ rights to ensure
the safety of their citizens.

As an example, a WTO dispute ruling justified a ban on asbestos products on the grounds that WTO
agreements do give priority to health and safety over trade.

At the same time, the agreements are also designed to prevent governments setting regulations arbitrarily
in a way that discriminates against foreign goods and services. Safety regulations must not be
protectionism in disguise.

They must be based on scientific evidence or on internationally recognized standards.

Again, the WTO does not set the standards itself. In some cases other international agreements are
identified in the WTO’s agreements. One example is Codex Alimentarius, which sets recommended
standards for food safety and comes under the UN Food and Agriculture Organization (FAO) and World
Health Organization (WHO).

But there is no compulsion to comply even with internationally negotiated standards such as those of
Codex Alimentarius. Governments are free to set their own standards provided they are consistent in the
way they try to avoid risks over the full range of products, are not arbitrary, and do not discriminate.

6. The WTO does NOT destroy jobs or widen the gap between rich and poor

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The accusation is inaccurate and simplistic. Trade can be a powerful force for creating jobs and
reducing poverty. Often it does just that. Sometimes adjustments are necessary to deal with job losses,
and here the picture is complicated. In any case, the alternative of protectionism is not the solution. Take
a closer look at the details.

The relationship between trade and employment is complex. So is the relationship between trade and
equality.

Freer-flowing and more stable trade boosts economic growth. It has the potential to create jobs, it can
help to reduce poverty, and frequently it does both.

The biggest beneficiary is the country that lowers its own trade barriers. The countries exporting to it also
gain, but not as much. In many cases, workers in export sectors enjoy higher pay and greater job security.

However, producers and their workers who were previously protected clearly face new competition when
trade barriers are lowered. Some survive by becoming more competitive. Others don’t. Some adapt
quickly (for example by finding new employment), others take longer.

In particular, some countries are better at making the adjustments than others. This is partly because they
have more effective adjustment policies. Those without effective policies are missing an opportunity
because the boost that trade gives to the economy creates the resources that help adjustments to be made
more easily.

The WTO tackles these problems in a number of ways. In the WTO, liberalization is gradual, allowing
countries time to make the necessary adjustments. Provisions in the agreements also allow countries to
take contingency actions against imports that are particularly damaging, but under strict disciplines.

At the same time, liberalization under the WTO is the result of negotiations. When countries feel the
necessary adjustments cannot be made, they can and do resist demands to open the relevant sections of
their markets.

There are also many other factors outside the WTO’s responsibility that are behind recent changes in
wage levels.

Why for example is there a widening gap in developed countries between the pay of skilled and unskilled
workers? According to the OECD, imports from low-wage countries account for only 10–20% of wage
changes in developed countries. Much of the rest is attributable to “skill-based technological change”. In
other words, developed economies are naturally adopting more technologies that require labour with
higher levels of skill.

The alternative to trade — protection — is expensive because it raises costs and encourages inefficiency.
According to another OECD calculation, imposing a 30% duty on imports from developing countries
would actually reduce US unskilled wages by 1% and skilled wages by 5%. Part of the damage that can
be caused by protectionism is lower wages in the protectionist country.

At the same time, the focus on goods imports distorts the picture. In developed countries, 70% of
economic activity is in services, where the effect of foreign competition on jobs is different — if a foreign
telecommunications company sets up business in a country it may employ local people, for example.

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Finally, while about 1.15 billion people are still in poverty, research, such as by the World Bank, has
shown that trade liberalization since World War II has contributed to lifting billions of people out of
poverty. The research has also shown that it is untrue to say that liberalization has increased inequality.

7. Small countries are NOT powerless in the WTO

Small countries would be weaker without the WTO. The WTO increases their bargaining power.

Everyone has to follow the same rules

In recent years, developing countries have become considerably more active in WTO negotiations,
submitting an unprecedented number of proposals in the agriculture talks, and working actively on the
ministerial declarations and decisions issued in Doha, Qatar, in November 2001. They expressed
satisfaction with the process leading to the Doha declarations. All of this bears testimony to their
confidence in the system.

At the same time, the present rules are the result of multilateral negotiations (i.e. negotiations involving
all members of GATT, the WTO’s predecessor). The most recent completed negotiation, the Uruguay
Round (1986–94), was only possible because developed countries agreed to reform trade in textiles and
agriculture — both issues were important for developing countries.

In short, In the WTO trading system, everyone has to follow the same rules.

As a result, in the WTO’s dispute settlement procedure, developing countries have successfully
challenged some actions taken by developed countries. Without the WTO, these smaller countries would
have been powerless to act against their more powerful trading partners.

8. The WTO is NOT the tool of powerful lobbies

The WTO system offers governments a means to reduce the influence of narrow vested interests.

Governments can use the WTO to resist lobbying

 This is a natural result of the “rounds” type of negotiation (i.e. negotiations that encompass a broad range
of sectors).

The outcome of a trade round has to be a balance of interests. Governments can find it easier to reject
pressure from particular lobbying groups by arguing that it had to accept the overall package in the
interests of the country as a whole.  

A related misunderstanding is about the WTO’s membership. The WTO is an organization of

governments.

The private sector, non-governmental organizations and other lobbying groups do not participate in WTO
activities except in special events such as seminars and symposiums.

They can only exert their influence on WTO decisions through their governments.

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9. Weaker countries do have a choice, they are NOT forced to join the WTO
Most countries do feel that it’s better to be in the WTO system than to be outside it. That’s why the list of
countries negotiating membership includes both large and small trading nations

Countries willingly want to join 

The reasons are positive rather than negative. They lie in the WTO’s key principles, such as non-
discrimination and transparency. By joining the WTO, even a small country automatically enjoys the
benefits that all WTO members grant to each other. And small countries have won dispute cases against
rich countries — they would not have been able to do so outside the WTO.

The alternative would be to negotiate bilateral trade agreements with each trading partner. That could
even include regularly negotiating the renewal of commitments to treat trading partners as equals.

For this, governments would need more resources, a serious problem for small countries. And in bilateral
negotiations smaller countries are weaker.

By joining the WTO, small countries can also increase their bargaining power by forming alliances with
other countries that have common interests.

10. The WTO is NOT undemocratic

Decisions in the WTO are generally by consensus. In principle, that’s even more democratic than
majority rule because no decision is taken until everyone agrees

Decisions are by consensus. Agreements are ratified in parliaments.

 It would be wrong to suggest that every country has the same bargaining power. Nevertheless, the
consensus rule means every country has a voice, and every country has to be convinced before it joins a
consensus. Quite often reluctant countries are persuaded by being offered something in return.

Consensus also means every country accepts the decisions. There are no dissenters.

What is more, the WTO’s trade rules, resulting from the Uruguay Round trade talks, were negotiated by
member governments and ratified in members’ parliaments.

CONCLUSION
The World Trade Organization (WTO) is the only international organization dealing with the global
rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably
and freely as possible.

The result is assurance. Consumers and producers know that they can enjoy secure supplies and greater
choice of the finished products, components, raw materials and services that they use. Producers and
exporters know that foreign markets will remain open to them.

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The result is also a more prosperous, peaceful and accountable economic world. Virtually all decisions in
the WTO are taken by consensus among all member countries and they are ratified by members'
parliaments. Trade friction is channelled into the WTO's dispute settlement process where the focus is on
interpreting agreements and commitments, and how to ensure that countries' trade policies conform with
them. That way, the risk of disputes spilling over into political or military conflict is reduced.

By lowering trade barriers, the WTO’s system also breaks down other barriers between peoples and
nations.

At the heart of the system — known as the multilateral trading system — are the WTO’s agreements,
negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments.
These agreements are the legal ground-rules for international commerce. Essentially, they are contracts,
guaranteeing member countries important trade rights. They also bind governments to keep their trade
policies within agreed limits to everybody’s benefit.

The agreements were negotiated and signed by governments. But their purpose is to help producers of
goods and services, exporters, and importers conduct their business.

The goal is to improve the welfare of the peoples of the member countries

REFERENCES
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