Subject: International Business

Assignment: # 1

Topic on
Emergence of WTO

Submitted to
Prof. R. Jyothirmayee

By

NIROOP K MURTHY
MBA IV Semester

On

March 21, 2011

Emergence of WTO:

The past 50 years have seen an exceptional growth in world trade. Merchandise exports
grew on average by 6% annually. Total trade in 2000 was 22-times the level of 1950.
GATT and the WTO have helped to create a strong and prosperous trading system
contributing to unprecedented growth.

The system was developed through a series of trade negotiations, or rounds, held under
GATT. The first rounds dealt mainly with tariff reductions but later negotiations included
other areas such as anti-dumping and non-tariff measures. The last round — the 1986-94
Uruguay Round — led to the WTO’s creation.

The negotiations did not end there. Some continued after the end of the Uruguay Round. In
February 1997 agreement was reached on telecommunications services, with 69
governments agreeing to wide-ranging liberalization measures that went beyond those
agreed in the Uruguay Round.

In the same year 40 governments successfully concluded negotiations for tariff-free trade in
information technology products, and 70 members concluded a financial services deal
covering more than 95% of trade in banking, insurance, securities and financial
information.

In 2000, new talks started on agriculture and services. These have now been incorporated
into a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar,
in November 2001.

The work programme, the Doha Development Agenda (DDA), adds negotiations and other
work on non-agricultural tariffs, trade and environment, WTO rules such as anti-dumping
and subsidies, investment, competition policy, trade facilitation, transparency in
government procurement, intellectual property, and a range of issues raised by developing
countries as difficulties they face in implementing the present WTO agreements.
The deadline for the negotiations is 1 January 2005.

It does this by:

• Administering trade agreements

• Acting as a forum for trade negotiations
• Settling trade disputes
• Reviewing national trade policies
• Assisting developing countries in trade policy issues, through technical
assistance and training programmes
• Cooperating with other international organizations

Causes for the Emergence of WTO

(1) To create binding rules relating to trade - including on employment, commodity

agreements, restrictive business practices, international investment and services -
which nation states had to follow.

(2) To establish a binding dispute settlement mechanism so that trade disputes could
be conclusively resolved.

(3) To include things which traditionally had not been considered in trade
discussions - notably intellectual property rights - so that they would be linked with
trade.

(4) To progressively reduce tariffs.

(5) To generally promote trade liberalization around the world.

(6) To rectify some of the failings of the GATT.

(7) To establish formal institutions (which the GATT did not have) to deal with
trade policy.
 (8) To establish a system which is less susceptible to blockages - the solution was to
automatically implement findings rather than to wait for a consensus

Contribution to International Economic Integration:

Disputes in the WTO are essentially about broken promises. WTO members have agreed
that if they believe fellow-members are violating trade rules, they will use the multilateral
system of settling disputes instead of taking action unilaterally. That means abiding by the
agreed procedures, and respecting judgements.

A dispute arises when one country adopts a trade policy measure or takes some action that
one or more fellow-WTO members considers to be breaking the WTO agreements, or to be
a failure to live up to obligations. A third group of countries can declare that they have an
interest in the case and enjoy some rights.

A procedure for settling disputes existed under the old GATT, but it had no fixed
timetables, rulings were easier to block, and many cases dragged on for a long time
inconclusively. The Uruguay Round agreement introduced a more structured process with
more clearly defined stages in the procedure. It introduced greater discipline for the length
of time a case should take to be settled, with flexible deadlines set in various stages of the
procedure. The agreement emphasizes that prompt settlement is essential if the WTO is to
function effectively. It sets out in considerable detail the procedures and the timetable to be
followed in resolving disputes. If a case runs its full course to a first ruling, it should not
normally take more than about one year — 15 months if the case is appealed. The agreed
time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are
involved), it is accelerated as much as possible.

The Uruguay Round agreement also made it impossible for the country losing a case to
block the adoption of the ruling. Under the previous GATT procedure, rulings could only
be adopted by consensus, meaning that a single objection could block the ruling. Now,
rulings are automatically adopted unless there is a consensus to reject a ruling — any
country wanting to block a ruling has to persuade all other WTO members (including its
adversary in the case) to share its view.
Positive and Negative aspects of WTO Contribution:

WTO contribution has positive and negative aspects. On top of its positive aspects comes
the tremendous development of new information and communication technology. This
progress helped bring the various parts of the world closer and disseminate knowledge
particularly through the Internet which created a new and open world, a world with unified
feelings and with increasingly closer cultures and interacting civilizations. However,
globalization was planned in a rush. It is a momentous phenomenon indeed. Was
it acceptable to leave its handling to large capital and international financial organizations,
created to serve capitalism and provide conditions for its limitless movement around the
world?

The societies that rightfully fear the negative aspects of globalization are those where
national capitalism is unable to spread its hegemony for the simple reason that either it does
not exist at all or that it is too weak. Such societies also cannot relinquish their Nation-State
that has not yet fulfilled its objectives, and where civil society and the private sector are still
unable to take over the State’s authority and leading role, particularly in social areas.
Moreover, in those societies, privatization is impossible because the private sector is unable
to replace the public sector, i.e. the societies where privatization is a squandering of the
State’s wealth and resources in favour of foreign companies

Causes for Development of Regional Trade Bloc:

Several reasons explain the recent emergence of trade blocs. The so-called ‘old
regionalism’ was motivated by the desire to pursue in developing countries import
substitution development at a regional level, to insulate a region from the world economy
and to stabilise and foster the economy at a regional level. Political and economic
considerations also played a major role, as in the case of the European Coal and Steel
Community (ECSC, 1951) and the European Economic Community (EEC, 1957). The
recent emergence of trade blocs (the so-called ‘new regionalism’) has been explained by
various factors.3 Recognising the gains from liberalisation, it is often argued that
concluding a PTA is politically easier than pursuing multilateral trade liberalisation
agreements. It is easier to negotiate with few partners than with a large number of
participants in the multilateral process as envisaged under the General Agreement of Tariffs
and Trade (GATT)/World Trade Organization (WTO). Not only concessions can be more
easily exchanged among a small number of countries, but effective enforcement
mechanisms can also be agreed upon at a lower cost. The length and difficulties
encountered during the Uruguay Round of GATT negotiations (1986-1994) is usually
considered to have contributed to increase the attractiveness of the regional (i.e.
preferential) path to trade liberalisation. PTAs also allow trading partners to go deeper and
faster in their liberalisation process, addressing modern trade barriers which are more
varied, more complex and less transparent than standard tariffs and quotas traditionally
considered under GATT Rounds. Preferential integration agreements can also entail
elements beyond standard trade policy concerns, such as competition, investments, labour
and capital market considerations. In other words, the fewer the number of participants to
trade negotiations, the larger the number of issues on which it is possible to reach an
agreement. Another claimed advantage of PTAs is that they may help ensuring the
credibility of the reform process undertaken by one or several members of the trade bloc.
Indeed, trade blocs often involve (small) reform-minded countries willing to bind their
commitments to (often unilateral) liberalisation process by entering a PTA with larger
entities. More generally, PTAs can serve as commitment, signalling and insurance
mechanisms in the policy determination of its members, hence contributing to reducing
uncertainty and increasing credibility about political and economic developments. Trade
blocs may exert other types of ‘pressures for inclusion’. The gravity model suggests that
countries geographically close trade more than distant countries. Namely, the gravity
equation predicts, among other things, that the volume of trade between two countries is
negatively related to the economic distance (i.e. geographic distance, taking into account
transport costs and trade barriers) between them. As neighbouring countries tend to be
‘natural trading partners’, they are more likely to form a trade bloc. Moreover, as trade bloc
formation diverts trade at the expense of non-member countries, the deepening of an
existing bloc or the creation of a new one may cause excluded trading partners to join the
PTA in order to reduce the costs of being “left out”: the so-called ‘domino effect’ of
regionalism. Finally, trade blocs may serve to pursue non-economic objectives, or
objectives beyond the immediate economic concerns of a PTA, such as political stability,
democratic development or security issues (either domestic security, or as a response to
third-country security threats, or security threats between partner countries).