The WTO is an intergovernmental organization formed on 1 January 1995 with the commencement of the Marrakesh Agreement, replacing the General Agreement on Tariffs and Trade (GATT).
- It was formed to boost trade by reducing tariffs and other trade barriers.
- The WTO aimed to provide the common institutional framework for the conduct of trade relations among its Members in matters related to the agreements and associated legal instruments included in the Annexes to this Agreement.
- It also acts as the forum for negotiations among its Members concerning their multilateral trade relations in matters dealt with under the agreements in the Annexes to this Agreement.
- The WTO agreements cover a wide range of legal activities like agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more, which makes them are lengthy and complex.
Principles of World Trade Organization
Most Favored Nation (MFN)
- A country should not discriminate between its trading partners – under WTO Agreements member countries cannot discriminate between their trading partners
- This principle is known as the most favored nation, it is mentioned under article 2 of the General Agreement on Trade in Services (GATS) and article 4 of Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
- It should not discriminate between its national and foreign products – local and imports goods should be treated equally after the foreign goods have entered the local market.
- It is expressed in article 3 of the General Agreement on Trade in Services (GATS) and article 17 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
- To encourage trade most significant role is played by lowering trade barriers like custom duties, tariffs, and measures such as import bans or quotas that restrict quantities selectively.
- The WTO agreements allow countries to introduce changes gradually, through “progressive liberalization”. Developing countries are usually given longer to fulfill their obligations.
Predictability: through binding and transparency
- Stability and predictability encourages’ investment
- promising not to raise trade barrier can be more important than lowering these barriers
- These promises are made in form of agreement which helps the organization to create a stable and predictable business environment.
- In the WTO, when countries enter an open market for goods or services, they “bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates.
- A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade
Promoting fair competition
The rules on non-discrimination, export subsidies, and dumping (exporting at below cost to gain market share) are also to maintain the fair competition as these 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.
Encourage the development and economic reform
- The Uruguay round implemented a trade liberalization program with over 60 countries. At the end of the Uruguay Round, developing countries were competent to adopt all the obligations required but the agreement gave them a timeline to transit and adjust to the unfamiliar provisions.
- Developed countries have started to allow duty-free and quota-free imports for almost all products from least-developed countries.