WTO Objectives, Principals and Functions

Essay on WTO: Objectives, Principals and Functions

By K.K Ghai

Essay on WTO: Objectives, Principals and Functions!
The World Trade Organisation (WTO) is the only body making global trade rules with binding effects on its Members. It is not only an institution, but also a set of agreements. The WTO regime is known as the rules-based multilateral trading system. The history of the Organisation dates back to 1947, when the General Agreement on Tariffs and Trade (GATT), was set up to reduce tariffs, remove trade barriers and facilitate trade in goods.
Over the years, GATT evolved through eight rounds of multilateral trade negotiations, the last and most extensive being the Uruguay Round (1986-1994). The WTO came into being in Marrakesh on 1 January 1995, following the conclusion of the Uruguay Round. GATT then ceased to exist, and its legal texts were incorporated into the WTO as GATT 1994.

Objectives of the WTO:

The agreement establishing WTO reiterated the objectives of the GATT.
More specifically, the WTO outlined its objectives to include the following under its scope:
i. Raise standard of living and incomes by ensuring. (i) Full employment, (ii) expanding production and trade, and (iii) optimal use of world’s resources;
ii. Adopt the idea of sustainable development in relation to the optimal use of world’s resources, i.e. reinforce the need to protect and preserve the environment in a manner consistent with the various levels of national economic development;
iii. Recognise the need for positive efforts to ensure that developing countries secure a better share of growth in international trade;
iv. To demolish all hurdles to an open world trading system and usher in international economic renaissance because the world trade is an effective instrument to foster economic growth;

Principals of the WTO:

In its broad perspective, the WTO was to strive at creating a liberal and open trading environment by which enterprises could trade under conditions of fair and undistorted competition.
Towards the achievement of this, the four principles that were laid down to guide the trading rules of its members are as follows:
i. Most Favoured Nation (MFN) Treatment:
The principle of MFN treatment laid that tariffs and regulations must be applied to imports or exports without discrimination among members. In other words, no member country was to be accorded a treatment of ‘a favoured nation’;
ii. National Treatment:
It prevents discrimination between imported products and equivalent domestically produced goods, especially in levying internal taxes and domestic regulations;
iii. Protection through Tariffs:
While advocating liberal trade, the WTO recognises that some members may need to protect their domestic production against foreign competitors. The underlying principle was, however, that such protections through tariffs must be kept at low levels in what was called as ‘bound tariff framework’;
iv. Bound Tariffs:
The principle of ‘bound tariff’ advises the member countries to reduce and gradually eliminate protection to domestic production. The reduction and ultimate phase-outs of tariffs was meant to provide the cushion time required for gaining competitive strength and the tariffs were to be phased out firmly in a committed time frame.

Functions of the WTO:

The WTO is meant to perform the following functions:
i. Administer through various councils and committees, the 29 agreements contained in the final Act of the Uruguay round of world trade talks, plus a number of plurilateral agreements, including those on government procurement;
ii. Oversee the implementation of the significant tariff cuts (average 40 per cent) and reduction of non-tariff measures agreed to in the trade negotiations;
iii. Act as a watchdog of international trade by regularly examining the trade regimes of individual members;
iv. Ensure that members notify in detail various trade measures and statistics, which are to be maintained by the WTO in a large database;
v. Provide several conciliatory mechanisms for arriving at an amicable solution to trade conflicts among members;
vi. Resolve trade disputes that cannot be solved through bilateral talks by adjudication in the WTO dispute settlement court;
vii. Act as a management consultant for world trade by having its economists keep a close watch-on the pulse of the global economy and provide inputs to WTO by studies conducted on the main issues of the day; and
viii. Assist developing countries through its secretariat to implement the Uruguay round agreements through a newly-established development division and a technical co-operation and training division.
The WTO is, thus, a forum where countries continuously negotiate the exchange of trade concessions and trade restrictions all over the world. The WTO has a substantial agenda for further negotiations in many areas, notably certain services sectors