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The World Trade Organization (WTO) is a multilateral body that regulates world trade and provides a forum for negotiations to reduce trade barriers. It began in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT) and includes over 150 member states. Unlike the GATT, the WTO has a mechanism for settling trade disputes between member states and authorizing sanctions. Negotiations are guided by a set of principles and take place in rounds of talks, with agricultural subsidies the most contentious issue. The WTO has been the focus of anti-globalization protests highlighting negative consequences of trade liberalization.
The WTO operates under several broad principles, including the bedrock commitment to free trade. The member states agree to extend their best tariff rates to all other member states, a principle known as most-favored nation treatment. They commit to national treatment for foreign goods and services, treating them equally once in the domestic market. States agree to set ceiling rates on tariffs, avoid trade-distorting subsidies, and refrain from dumping products below cost. They also recognize that the least developed countries (LDCs) deserve special protection.
Each negotiating round has a set of items for discussion in a package arrangement. No items are concluded until all have been discussed and an agreement reached on each one. The rationale behind this package approach is that compromises essential in negotiations can be unpalatable back in the home countries. Each state wants some victories to offset the inevitable concessions. It is typically difficult to reach agreement on every item and so rounds take years to conclude.
Three main agreements serve as the framework for WTO regulations and negotiations. The first is the General Agreement on Tariffs and Trade (GATT), the original agreement covering trade in manufactured goods and agricultural products. The second is the General Agreement on Trade in Services (GATS) such as shipping, tourism, and financial services. The third is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), establishing minimum levels of protection for the intellectual property of member states. To resolve trade disputes, the WTO’s Dispute Settlement Body appoints panels to investigate complaints brought by member states. If a member state is found out of compliance with rules specified in the agreements, it must revise its policies or face retaliation.
In 2001, the agenda for a new round of negotiations was set in Doha, Qatar. Trade ministers designed the negotiations as a development round, focused on issues important to the poorest countries. By far the most contentious issue has concerned agricultural subsidies that encourage overproduction and drive down prices. Developed countries compensate farmers for market downturns but developing countries do not have sufficient resources for subsidies. When developed countries’ subsidies depress prices, farmers in poor countries are hurt the most, deepening their poverty. The reluctance of developed countries to reduce farm subsidies has undercut the credibility of the WTO and disillusioned developing countries, who feel the Doha Development Round has not lived up to its promise.
The WTO has been the object of wide-ranging anti-globalization protests such as the ”Battle in Seattle” in 1999. Opponents decry the negative impact of liberalization on poor farmers, the lack of transparency in negotiations, damage to the environment by multinational corporations, and high unemployment brought about by unfair competition.
- Stiglitz, J. E. & Charlton, A. (2005) Fair Trade for All: How Trade Can Promote Development. Oxford University Press, Oxford.
- World Trade Organization (2007) Understanding the World Trade Organization. World Trade Organization, Geneva.