Role of WTO

On January I, 1995, the first and most powerful world trade regulating agency, namely World Trade Organization (WTO) came into existence. The WTO is the umbrella organization responsible for overseeing the implementation of all agreements that have been negotiated just before it came into existence. It is also responsible for the settlement of disputes among its members. Finally, periodic review of the trade policies would also be initiated under the auspices of WTO.

Before the WTO came into existence international trade in merchandise was guided by the rules and provisions of the GAIT. The GAIT rules, however, could not absorb the complexities of world trade, which had been growing steadily since the Bretton Woods days, both in terms of commodity coverage and the nature of regulators applied by the regional trade blocks. Moreover, the GAIT umbrella did not cover trade in services.

The avowed goal of the WTO is to create a fair and equitable, rule based multilateral trade system. The most appealing aspect is that the new multilateral trade regime would be transparent and non-discriminatory. For the world trading community as a whole, every initiative on trade liberalization should ensure rewards in the form of large and expanding markets and greater trade flows for all participating members.

All quantitative restrictions (quotas, import licensing etc.) would be replaced by tariff so as to make the process more transparent and open to international public scrutiny; all reductions and adjustments in tariffs would be effected through negotiations and are to be notified to the WTO. Then, all kinds of subsidies would be reduced in due course by the developed countries so that the developing economies under their sheer comparative cost advantage could gain larger access to the markets in the developed world.

The two most significant principles of WTO agreements are the Most Favoured Nation and the National Treatment Clause. Under the former, no discrimination is to be exercised among member countries; any trade concession offered by one member to another must be offered to all members. Under the latter, imported products and domestic products are to be accorded the same treatment; moreover, besides import duty, no extra tax other than one also levied on domestic products is to be imposed. Foreign companies investors and Government must feel assured that trade barriers would not be raised arbitrarily by any trading partner. Lastly, the new trade regime should work to a greater advantage of the less developed countries; they must be given more time to adjust, greater flexibility and some special privileges.

On a broad plane, the canvas of WTO agreements is spread over three compartments; goods, services and intellectual property rights. First, trade in goods of all descriptions (agricultural or industrial) is to be governed under GAIT reformulations. Second, trade in services of all kinds is to be regulated under General Agreement on Trade in Services. Third, trade related aspects of Intellectual Property Rights would set out the terms and conditions for the international flow of intellectual property.

Evaluation: The new trading system of WTO seems to give undue emphasis on private sector and competition and fails to recognize the strategic role which the state plays in promoting the right kind of development with emphasis on equity and social infrastructure. Overemphasis on competition seems to have eroded the concept of public good and thereby provided a partial view of development process.

One of the objectives of trade negotiations under the GAIT is providing a freer trading environment for the movement of goods and services. This objective is based on the assumption that free trade is an optimal modality for global welfare. But free trade does not necessarily imply fair trade. Given the differences in the initial conditions, total free trade seems to aggravate the gap between the rich and the poor countries. The new trading system under WTO fails to recognize this adverse impact of liberalization of trade on the norms of fairness.

The new World Trade Organization (WTO) which replaced the General Agreements in Tariffs and Trade (GAIT) came into effect from 1st January, 1995, with the backing of at least 85 founding members including India. The WTO now comes as the third economic pillar of worldwide dimensions along with the World Bank and the IMF.

As many as 77 of the 125 countries which signed the Uruguay Round trade accord in April 1994 at a conference in Marrakesh have officially notified GAIT that they would join the WTO.

The new trade body-WTO with powers to settle trade disputes between nations and to widen the principle of free trade to sectors such as services and agriculture, covers more areas than GAIT, whose rules had been in operation for the last 50 years.

The WTO envisages the reduction of tariffs by more than one-third and is concerned with further opening of markets. It is expected that the world trade would be stimulated strongly in the long run as a result of the coming into being of the new trade body-WTO. According to an estimate made by the GAIT, in 2005 turnover through international trade could be as high as $510 billion annually.

The WTO has been entrusted with the following functions:

1. The WTO would facilitate proper implementation of multinational trade agreements.
2.  It will review trade policies undertaken by the member countries.
3.  It will act as a forum for the negotiation of disputes among the member countries over trade related problems.
4.  The WTO will work in cooperation with the IMF and the World Bank.

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