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World Trade Organization

The World Trade Organization (WTO) came into being on 1 January 1995 with a membership of 128 countries. Nearly 50 years after the failure of the International Trade Organization, the dream of those who had worked for an international trade organisation had been realised.

The WTO’s creation had much to do with growing dissatisfaction with the General Agreement on Tariffs and Trade (GATT) and the changing priorities of both developed and developing nations. In an attempt to deal with proliferating non-tariff barriers, the GATT had come to incorporate several voluntary codes by the end of the Tokyo Round (1973-79). But these codes were governed by different rules and dispute settlement mechanisms, and were often inconsistent with each other or with central GATT disciplines. It was recognised that unless a mechanism for coordinating this unwieldy set of agreements was found, the Uruguay Round (1986-94) negotiations would make the system even more unmanageable. As a solution, trade lawyer John Jackson proposed the creation of a world trade organisation and the European Union subsequently made the first formal proposal for an organisation along such lines. Developing countries were initially suspicious of an organisation with powers much more expansive than the GATT’s but they were brought round to the idea with what came to be referred to later as the “Grand Bargain.” In return for agreeing to the inclusion of the new issues – trade-related intellectual property rights, trade-related investment measures (TRIMs) and services – and the establishment of the WTO, developing countries were promised that the WTO’s mandate would include agriculture and textiles, which had traditionally been exempt from GATT rules, and that they would get special and differential treatment through longer term periods for implementing the agreements.

In many ways, the WTO can be viewed as an evolutionary step as it continued to embody key principles of non-discrimination and reciprocity inherited from the GATT. Accordingly, WTO agreements continued to be founded on the Most Favoured Nation rule and ‘national treatment’ – the idea that a country cannot treat foreign goods any less favourably than its own – to promote non-discrimination. The WTO also adhered to the concept of reciprocity – the notion that contracting parties make reciprocal concessions – a vital principle designed to limit free-riding and to persuade domestic constituencies of the benefits of trade liberalisation.

However, there is much about the WTO that is different from the GATT. First, it is a legally constituted organisation with a secretariat, rather than a treaty supported by contracting parties. Second, unlike the GATT whose Protocol of Provisional Application (the so-called ‘Grandfather clause’) meant that countries could choose not to abide by agreements if they were inconsistent with pre-existing domestic legislation, the WTO does not allow members this excuse for not complying with its agreements. Third, the Single Undertaking requires that members accept all WTO agreements as a package, including the dispute settlement arrangements, and prevents them from cherry-picking only those which suit them. The fourth area of difference is that the WTO’s mandate goes into areas well beyond border measures, such as services, TRIMs and intellectual property. Finally, the WTO has a significantly stronger Dispute Settlement Mechanism (DSM).

Given the weighty issues it deals with, the size of its membership and the fact that it was set up as a result of a compromise between powerful interests, it is perhaps no surprise that the WTO has had a difficult first decade. However, in addition to facing institutional difficulties, the WTO has also attracted widespread public criticism, particularly in relation to its approach to the developing world.

For an organisation set up to provide a rules-based and predictable regime for world trade, the WTO relies to a very great extent on informal decision making and improvisation. Clearly, informal processes are crucial to successful negotiating outcomes. But many of its members, particularly those from the developing world, and some NGOs have complained that this informality within the organisation undermines the predictability and transparency that they seek from a rules-based system. This is a particular concern where WTO rules are created through informal processes, which themselves contrast with the highly legalistic basis on which the WTO operates, for example through the DSM. The WTO’s mandate is another area which has caused friction as the developed world has successfully pressed for WTO jurisdiction in areas where it has comparative advantage, such as intellectual property, but has resisted any meaningful liberalisation in agriculture, which is especially important to developing countries. Also, different interests pull the organisation in opposing directions – for some constituencies, its agreements are already too intrusive while, for others, its agreements do not go far enough.

At the same time as the WTO’s internal problems mounted, it also faced an unprecedented failure of confidence as developing country governments, pressure groups and members of the public protested in the streets of Seattle (1999). Similar demonstrations have accompanied major meetings of the organisation. Not all these protests were based on a full understanding of what the WTO is or does, nor did they add up to a well-defined, coherent agenda. But they have contributed in a big way to the consolidation of the WTO’s public image as the protector of the strong at the expense of the weak.

Amid the concerns about the long-term viability of the WTO, it launched the first round of trade negotiations held under its jurisdiction, in 2001. Known as the Doha Development Agenda (DDA), the negotiations are at the same time an attempt to correct the problems faced by the developing world and an effort to expand the coverage of the WTO’s mandate. Originally scheduled to conclude in January 2005, the negotiations proved to be far more arduous and complex than predicted. The failure to meet what turned out to be a hopelessly optimistic deadline only added to the sense that the WTO was in crisis. When the talks were eventually suspended, in July 2006, it seemed that the situation could hardly be worse both for the future of world trade and the WTO.

Although the DDA negotiations have now formally restarted, the stalemate is proving very hard to break. The progressive loss of confidence in the WTO has led to an increase in trade agreements made outside its auspices. For example, developed nations are using their power to reach bilateral treaties, which cover not only trade but also political and other issues besides trade. There has also been a rise in regional trade deals as nations seek to protect their interests away from the influence of the developed countries.

Against these recurrent and multiple crises, there is a growing consensus that the governance arrangements for world trade will have to be reassessed. At its worst, some observers predict a return to protectionism and a collapse of the multilateral trade regime. Others foresee a less apocalyptic outcome but all agree that the current regime is not working. At the centre of this debate is the future of the WTO as governments and their peoples consider whether its travails result from the way it works or, more fundamentally, are more do to with its mandate and questions about who it is really accountable to.

With thanks to Amrita Narlikar for allowing the use of her excellent study, The World Trade Organization: A Very Short Introduction, Oxford: Oxford University Press, 2005