The Role of World Trade Organisation in International Trade and Investment
The Role of World Trade Organisation in International Trade and Investment
The Role of World Trade Organisation in International Trade and Investment
Abstract
This paper examines the role of the World Trade Organisation (WTO) in the promotion of
international trade and investment. It gives a brief historical background of the limitations and
constrains of international trade prior to the establishment of the WTO. The establishment of the
WTO heralded a multilateral international institution with a global face. The existence of WTO
has led to the liberalisation of international trade and investment. The WTO also has well-
structured institutions to ensure economic globalisation and enforcement of trade regimes
amongst member states. However, the mistrust and lack of ability for states to put their economic
difference aside has stalled trade negotiation rounds. The polemics between developed and
developing member states have led to a proliferation of regional economic organisation which
policies sometimes run foul with that of WTO. This has the potential of weakening the impact of
WTO. It is thus concluded herein that, for WTO to continue to be effective and not lose its
relevance, it must continue to assure its member states, especially the developing countries, of
having their interest at heart by ensuring that it does not just promote free but fair trade.
Keywords: World Trade Organisation, International Trade, General Agreement on Trade and
Tariffs, Most Favoured Nation, National Treatment
1. Introduction
International law largely recognises the sovereignty of states over their internal affairs. States
also exercise unfettered authority over their domestic jurisdiction. These principles are so
important and generally recognised in international law that they have gained the prominence of
international customary law significance. Consequently, states take full charge and determine
what happens within their territory through the exercise of territorial sovereignty.The stricto
senso application of the above principles of international law would mean that it becomes
impossible to achieve what is referred to as international committee of nations. Hence, states
have to give away certain percentage of their sovereign right in order for things to work.1 This is
more necessary, as no state is an island of itself. For international organizations such as United
Nations and the other to be formed, this compromise is required. In fact, the lack of this
compromise was largely responsible for the failure of the League of Nations.
Narrowing it down to the aspect of trade, states exercise economic sovereignty by
determining and controlling the trade within its territory. States determine the kind of goods that
come in and out of their territory. A state may decide to seal its borders to prevent any goods
*
HERBERT, ETI BEST LL.B (Uyo); BL; LL.M (Ibadan) E-mail: [email protected]
1
At a two-day Summit Conference of the African Union in Abuja, Nigeria, on November 11-12, 2005, President
John Agyekum Kuffuor of Ghana, who was the chairman of the opening session, stated that: “when nations join
with others in a trade or political bloc, they give up a portion of their national sovereignty. What people need to
understand is that the solutions to the problems that affects them as individuals or as groups today can no longer be
found just at the national level”. See, P G Adogamhe, ‘Pan-Africanism Revisited: Vision and Reality of African
Unity and Development’ (2008) 2 (2) African Review of Integration, 3.
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from come in or go out of its territory. This had been the economic stance of China and so many
communist nations, as they had viewed the importation of foreign goods into their territory as
alien incursion, infiltration and adulteration of their uniqueness. The result had been the trade
barrier that existed between nations. The down side of this was that states don’t get to take
benefit of their comparative advantage. There were scarcity and unavailability of certain
commodities in the market of states.
These challenge necessitated the removal of trade barriers between states. At first, states
have entered into bilateral trade treaties between themselves. This ameliorated the situation to
some extent as it established international trade. However, for international trade to develop at a
wide scale there was the need for the formation of international organisation through the
plurilateral and multilateral treaties. Attempts in this regard after the 2nd World War never
yielded result with the failure of states to agree to terms in the formation of International Trade
Organisation (ITO). That notwithstanding, a group of states were able to reach a General
Agreement on Trade and Tariffs (GATT) in 1947. GATT acted as a place holder and template
regulating international trade among signatory parties until the formation of World Trade
Organisation (WTO) in 1994 2 during the Uruguay Rounds to replace GATT.
In the WTO commissioned Sutherland Report of 2004 it was observed thus:
In committing to the WTO and its procedures and
disciplines, governments are returning to themselves a
degree of ‘sovereignty’ lost through the process of
globalization. If governments are losing the capacity to
regulate meaningfully at the domestic level, they are
reclaiming some control of their economic destinies at the
multilateral level. 3
No doubt, the establishment of WTO has been a great achievement for international trade due the
liberalisation of trade and removal of barrier and tariffs that came with it. However, this has not
been achieved without challenges. In as much as WTO has played prominent role in boosting
international trade and investment and establishment of globalisation, there is still much to be
desired. The task of this work is to evaluate the impact of WTO in promoting international trade
and investment. Consideration of the existing road blocks to the WTO’s role and dominance in
this regard shall also be examined. In conclusion, necessary recommendations shall be made.
2
The organisation became effective from 1st January, 1995.
3
H G Schermers & N M Blokker, International Institutional Law (5th Rev. Ed, Leiden: Martinus Nijhoff Publishers,
2011) pp. 4-5.
4
G A Solanki, ‘Globalization and Role of WTO in Promoting Free International Trade’ (2012) 3 (1) Journal of
Humanities and Social Science, 13.
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Meanwhile, 23 countries had entered into trade negotiations in Geneva in 1947. The
agreement was known as the General Agreements on Trade and Tariffs (GATT) and was to
come into force on 1st January, 1948. The agreement aims to remove the use of import quotas
and to reduce tariffs on goods. GATT was not to be a permanent agreement. However, it
continued to hold sway as the major multilateral agreement governing international trade for
over 45 years until the establishment of WTO. It was also not an international trade organisation.
Yet it gathered approximately 130 signatory parties into the system. GATT continued to extend
through various negotiation rounds, supplementary codes and arrangements, interpretations,
waivers, reports by dispute-settlement panels and decisions of its council. 5
Signatory states of GATT took a long walk to form the WTO. This happened in the
Uruguay Round of negotiations that lasted from 1986 to1994. The Round was finally completed
on 15 April, 1994 wherein 111 out of the 125 participating states signed the final document. 104
states accepted it and it came into force on 1st January, 1995 for eighty-one members which
reflected more than 90 per cent of international trade. Apart from its success in creating WTO,
the round also enlarged the scope of multilateral agreements regulating trade and ensured
institutional restructuring. It is also credited to have concluded the General Agreement on Trade
in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) thereby bringing services and intellectual property under the regime of multilateral
agreements. It also replaced the 1948 GATT with the 1994 version.
In replacing GATT, WTO aims to create equitable trade conditions and fairer
environment for goods and services to allow the free flow of trade. It recognises the importance
of aligning the structural imbalanced economic conditions. 6 WTO was established to ensure
substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory
treatment in international trade relations. 7
5
K Anderson, ‘World Trade Organization (WTO)’ (2010) Encyclopaedia Britannica Student and Home
Edition. Chicago: Encyclopaedia Britannica.
6
T B Ayres, ‘The Role of the WTO in Assisting Developing Countries, Especially the BRICS: An Analysis of Doha
and Bali’ (2015) 3 Law School International Immersion Program Papers, p. 1.
7
See, the Preamble to the WTO Establishment Agreement.
93
Article xi WTO Establishment Agreement.
8
See, generally: S Mathur & M Dasgupta, ‘BRICS Trade Policies, Institutions and Areas for Deepening
Cooperation’ (2013) Centre for WTO Studies Indian Institute of Foreign Trade, Bhawan.
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However, where consensus could not be reached, it could be determined by majority vote cast by
member States.9
The General Council is the administrative organ. There are also special councils below the
level of the General Council. These include: Council for Trade in Goods, Council for Trade in
Services, Council for TRIPS and further subsidiary bodies. Several committees also exist, such
as: Committee on Trade and Development, Committee on Balance-of-Payments Restrictions and
Committee on Budget and Finance. Unlike GATT, WTO has international legal personality.
9
Article IX WTO Establishment Agreement.
10
J Langille, ‘Neither Constitution nor Contract: Understanding the WTO by Examining the Legal Limits on
Contracting out through Regional Trade Agreements’ (2011) 86 New York University Law Review, p. 1507.
11
World Trade Organization. ‘Understanding the WTO’ 5th ed. (2015) World Trade Organization: Geneva,
<https://www.wto.org/english/thewto_e/whatis_e/tif_e/understanding_e.pdf> accessed 21 February 2018.
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HERBERT: The Role Of World Trade Organisation In International Trade And Investment
12
J Langille, (n. 10).
13
J L Dunoff, ‘Constitutional Conceits: The WTO’s ‘Constitution’ and the Discipline of International Law’ (2006)
17 (3) The European Journal of International Law, p. 657.
14
Argentina - Safeguard Measures on Imports of Footwear - Appellate Body Report and Panel Report - Action by
the Dispute Settlement Body WT/DS121/9 (2 March 2000).
15
Brazil- Measures Affecting Imports of Retreaded Tyres- Status Report by Brazil- Addendum WT/DS332/19/Add.6
(15 September 2009).
16
J Langille, (n. 10) pp. 1486-1487.
17
Ibid.
18
Ibid.
19
P Malanczuk, Akehurst’s Modern Introduction to International Law (7th rev. Ed, New York: Routledge, 1997) p.
229.
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enabling cooperate with other major international economic institutions involved in global
economic management and (vi) providing help to developing countries to take full benefit of the
global trading system. 20 WTO has succeeded in concluding several trade agreements liberalising
trade between states.21 This success has resulted in the increase in the volume of world trade.
This increase has been measured to amount up to 25% in the preceding 8 years. 22
There is prospect of further increase with more rounds of negotiations on going in various
areas of trade and services. State members have continued to maintain economic openness. For
instance, since China’s accession to the WTO in 2001, her simple average tariff dropped from
about 40 percent in 1985 to under 10 percent currently. The growing openness of large
developing markets has given room for new export opportunities for countries. 23 This is a
positive indication of growth. Globalisation has been attributed to have emerged and continued
to expand courtesy of the WTO regime which has encouraged free or less restricted trading in
goods, services, technology, and capital transfer among various countries. Various conditions
including trade barriers, financial assistance, piracy and more prominently violation of
intellectual property rights which previously confronted the growth of international trade due to
divergent trade rules and absence of reciprocity have been largely dealt with. WTO provides a
global avenue for states to meet and tackle these issues in order to device means to guarantee
generally accepted solutions towards smooth transition to greater free trade regimes. 24
Despite the successes of WTO in encouraging free trade, it has been argued that this only
favours developed countries which possess the capital, material and technological wherewithal to
compete in a global economy. It is disappointing to note that the benefits of the aforesaid 25%
increase in world trade are not evenly spread between the developed and developing member
states. Despite the population size of the developing countries, they only get to generate 0.03%
of world trade flows. 25 Rather than the ‘free’ trade as promoted by WTO, developing countries
would prefer, advocate and canvass for a ‘free and fair’ trade among state. While developing
countries are expected to remove trade barriers and make their market accessible to developed
countries, developed countries have subtly made their market inaccessible to developing
20
K Anderson, (n. 5).
21
Such agreements include but not limited to the following: Multilateral Agreements on Trade in Goods; General
Agreement on Tariffs and Trade 1994; Agreement on Agriculture; Agreement on the Application of Sanitary and
Phytosanitary Measures; Agreement on Textiles and Clothing; Agreement on Technical Barriers to Trade;
Agreement on Trade-Related Investment Measures; Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994; Agreement on Implementation of Article VII of the General Agreement on
Tariffs and Trade 1994; Agreement on Preshipment Inspection; Agreement on Rules of Origin; Agreement on
Import Licensing Procedures; Agreement on Subsidies and Countervailing Measures; Agreement on Safeguards;
Agreement on Trade-Related Aspects of Intellectual Property Rights; Agreement on Trade in Civil Aircraft;
Agreement on Government Procurement; International Dairy Agreement; International Bovine Meat Agreement; the
General Agreement on Tariffs and Trade (GATT); the Agreement on Differential and More Favourable Treatment,
Reciprocity, and the Fuller Participation of Developing Countries; and the General Agreement on Trade in Services
(GATS).
22
M Igbokwe, ‘World Trade Organisation and its Role in International Trade’
<http://www.mikeigbokwe.com/new1/WTO%20and%20its%20role%20in%20the%20international%20trade..pdf>
accessed 21 February, 2018.
23
World Bank Group and World Trade Organization, ‘The Role of Trade in Ending Poverty’ (2015) Geneva: World
Trade Organization, pp. 13-14.
24
G A Solanki, (n. 4) p. 12.
25
M Igbokwe, (n. 22).
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countries with the subtle use of tariff and non-tariff barriers. 26 For instance, the US government
has continued to heavily support its agricultural industry with subsidy. The implication is that
agricultural products from developing countries which do not get such support from their
government would find it difficult to compete with the heavily subsidized US agricultural
products.
26
G A Solanki, (n. 4) p. 14.
27
H. Stewart, ‘Doha: India Accuses US of Sacrificing World’s Poor at Trade Talks’.
<http://www.theguardian.com/world/2008/jul/1/wto.india> accessed 17 December 2017.
28
World Trade Organisation, ‘Day 3, 4 and 5: Round the Clock Consultations Produce ‘Bali Package’’.
<http://www.wto.org/english/news_e/news13_e/mc9sum_07dec13_e.htm> accessed 17 December 2017.
29
Several Trade blocs such as European Community, NAFTA, BRICS, etc. have continued to be influential and
seek more to serve their own developmental aim.
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are allowed to abdicate their WTO obligations. In the Mexico- Soft Drinks Case,30 the Appellate
Body asserted its right to adjudicate disputes between parties while a Regional Trade Agreement
(RTA) dispute settlement mechanism was being employed. In that case, Mexico imposed taxes
on soft drinks using corn syrup instead of cane sugar and sought arbitration under Chapter 20
North America Free Trade Agreement (NAFTA). The United States refused to submit to the
NAFTA body. Instead it brought the dispute before WTO. The Appellate Body exercised
jurisdiction and exerted authority over the RTA.
No doubt WTO has advance the growth of economic globalisation by promotion of free
trade. However, some anti-globalist has continued to pick fault in globalisation itself and by
extension WTO policies. One of the negative impacts so conversed is the issue of dumping
which has been said to be more visible with the increasing global trade between nations. For
instance, the tobacco and pharmaceutical sector of Nigerian economy affords opportunity for
dumping. Developed countries have continued to use open access to our market as ready outlets
for dumping of below standard and fake pharmaceutical and textile products into the country. 31
Trade agreements have not helped matters either. One instance in point is the GATS. Article 1 of
GATS provides that trade in services includes the supply of a service:
(a) from the territory of one Member into the territory of any other Member;
(b) in the territory of one Member to the service consumer of any other Member;
(c) by a service supplier of one Member, through commercial presence in the territory of any
other Member;
(d) by a service supplier of one Member, through the presence of natural persons of a Member in
the territory of any other Member.
Liberalisation of trade in service is achieved through “commitments”. In essence WTO
members are to covenant on their “schedule of commitments” as to the extent of migration of
natural persons which they are willing to permit into their territory. Although Mode 4 is limited
to the extent of a member state’s commitment, the commitment once entered is binding and
enforceable against such state under the WTO dispute settlement mechanism. 32 Unlike the
situation for trade in goods, market access 33 and the principle of national treatment 34 are not
binding but conditional in GATS. 35 When compared to other forms of trade in services, the level
of liberalisation obtainable from Mode 4 is accessed to be the lowest and account for between 0–
4% of all GATS commitments. Compared this to the 55–60% accounted for worldwide services
delivered by Mode 3; 25–30% by Mode 1 and 10–15% by Mode 2.36 The reasons for this
situation are not farfetched considering the bias which state have against persons from other
countries entering into their countries.
4. Conclusion
30
Appellate Body Report, Mexico-Tax Measures on Soft Drinks and Other Beverages, 51, WT/DS308/AB/R (Mar.
6, 2006).
31
E E Ekanem, ‘Globalisation: The Consumer’s Albatross?’ (2014) 1 (1) Juris Insight, p. 16.
32
P E Giordaniy & M Rutaz, ‘Coordination Failures in Immigration Policy’ (2011) World Trade Organization,
Economic Research and Statistics Division, Staff Working Paper, p. 21.
33
GATS Art. XVI.
34
GATS Art. XVII.
35
GATS Art. XX.
36
M Panizzon, ‘Trade and Labor Migration: GATS Mode 4 and Migration Agreements’ (2010) 47 Dialogue on
Globalization Occasional Papers, <library.fes.de/pdf-files/iez/global/06955.pdf> accessed 6 January, 2018.
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This paper discussed the contribution of WTO in increasing international trade and investment.
This, it is discovered, was achieved through torturous rounds of negotiation that recognised and
promoted free trade amongst nations. WTO trade policies have advanced economic globalisation
in the world. It has also advanced binding dispute resolution mechanism to tackle trade disputes
among member states. The successes notwithstanding, some challenges have also been identified
with the WTO system.
It is, hereby, recommended that WTO must not only be concerned with promoting free trade but
fair trade. This requires that the peculiarities of developing nations must be considered in
negotiation rounds before reaching agreements as it would enable the developing nations survive
the highly competitive global market.
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