1. Explain the background of formation of World Trade Organization.

Which challenges is the World Trade

Organization facing in contemporary world? Discuss. (11th batch- 2020)
2. How does the World Trade Organization regulate the world trade system? What challenges is the WTO
facing in recent times? Discuss. (12th batch- 2021)
Introduction
The World Trade Organization (WTO) is an international institution created in 1995 that regulates trade
between nations.
A replacement for the 1947 General Agreement on Tariffs and Trade (GATT), the WTO manages the rules of
international trade and ensures fair and equitable treatment for its 164 members by conducting negotiations,
lowering trade barriers, and settling disputes.
At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and
ratified in their parliaments.
The goal is to ensure that trade flows as smoothly, predictably and freely as possible.
It guides producers, exporters, and importers of goods and services in conducting their businesses. It further
aims to expand global trade with maximum utilization of resources.
Origin and Development of WTO
After the World War II, there was a consensus among many nations that a more stable and predictable
international trading system was necessary to promote economic recovery and prevent the kinds of trade
policies that had contributed to the Great Depression and global conflict.
1. Bretton Woods Conference (1944):
The groundwork for the establishment of the international trade system, which eventually led to the creation
of the WTO, was laid at the Bretton Woods Conference held in 1944.
Delegates from 44 Allied nations gathered in Bretton Woods, New Hampshire, USA, to design a new
international monetary and economic order.
The conference established the International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD, now part of the World Bank Group) to promote international
monetary cooperation and facilitate post-war reconstruction and development.
2. General Agreement on Tariffs and Trade (GATT) (1947):
One of the key outcomes of the Bretton Woods Conference was the establishment of the General Agreement
on Tariffs and Trade (GATT) in 1947.
GATT was a provisional multilateral agreement that aimed to promote international trade by reducing or
eliminating trade barriers such as tariffs and quotas.
GATT provided a framework for negotiating and regulating international trade until the establishment of the
WTO.
3. Tokyo Round (1973-1979):
The Tokyo Round, which took place from 1973 to 1979, was another important set of negotiations under the
GATT umbrella.
During the Tokyo Round, countries negotiated agreements on non-tariff barriers to trade, addressing issues
related to subsidies, technical barriers, and customs valuation.
4. Uruguay Round (1986-1994):
The most significant development in the evolution of the international trade system was the Uruguay Round
of trade negotiations.
Initiated in 1986, the Uruguay Round aimed to address complex issues such as services, intellectual property,
and agriculture. These negotiations led to the creation of the World Trade Organization.
5. Establishment of the WTO (1995):
The Uruguay Round negotiations concluded in 1994, leading to the Marrakesh Agreement, which established
the World Trade Organization (WTO) on January 1, 1995.
The WTO replaced GATT as the international organization overseeing trade among nations.
GATT signatories shifted the responsibilities and membership of the original trade agreement to a new
institution, the WTO.
Unlike GATT, the WTO is a permanent institution with a broader mandate, encompassing not only trade in
goods but also trade in services and intellectual property rights.
How the WTO is organized
Functions
The WTO’s overriding objective is to help trade flow smoothly, freely and predictably. It does this by:

• administering trade agreements

• acting as a forum for trade negotiations
• settling trade disputes
• reviewing national trade policies
• building the trade capacity of developing economies
• cooperating with other international organizations
Functions of the WTO
The WTO’s functions can be broadly divided into the following categories:

1. Trade Negotiations
The WTO facilitates trade negotiations among countries by providing a framework to structure the
agreements, as well as providing dispute resolution mechanisms. It creates an international legal
framework that ensures the smooth exchange of goods and services among the member countries.

2. Implementation and Monitoring

Once the agreements are negotiated, the job of the WTO is to ensure that the signatory countries adhere
 to their commitments in practice. It also produces research based on the impact of the agreements on the
economies of the countries involved.

3. Dispute Settlement
The WTO also acts as a dispute settlement body when there is a trade conflict between its member states. The
members of the WTO can file complaints against other member states if they feel the trade and economic
policies of a country are divergent from their commitments under one of the agreements of the WTO.
Following the complaint, there are formal hearings like a court until a settlement is reached.
4. Monitoring and Surveillance:
The WTO monitors the trade policies of member countries to ensure that they are in compliance with the
agreed-upon rules. This helps prevent unfair trade practices and promotes transparency in international trade.
5. Building Trade Capacity
The WTO runs special programs to support developing countries by helping them build the capacity to
participate in free trade with more developed countries. It also gives concessions under certain agreements to
low-development countries to ease them into free trade with other countries.
6. Promotion of Fair Competition:
The WTO seeks to promote fair competition by addressing issues such as subsidies and anti-dumping
measures. It aims to create a level playing field for all countries, especially smaller and less developed ones, to
participate in global trade without facing unfair advantages or disadvantages.
7. Accession of New Members:
The WTO facilitates the accession of new members, helping countries integrate into the global trading system.
Accession involves negotiations on trade commitments and the alignment of domestic policies with WTO
rules.
8. Public Forum for Trade Issues:
The WTO provides a platform for member countries to discuss trade-related issues and share information. This
helps foster a better understanding of global trade challenges and encourages dialogue among nations.

9. Outreach
Finally, the WTO carries out lobbying and outreach across the world as a part of its larger objectives to
promote free trade. They try to persuade governments to reduce barriers to trade to free, fair, and open
markets around the world.
Structure:
The WTO has 164 members, accounting for 98% of world trade. A total of 22 countries are negotiating
membership.
Decisions are made by the entire membership. This is typically by consensus.
A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the
WTO’s predecessor, the GATT.
The WTO’s agreements have been ratified in all members’ parliaments.

The Ministerial Conference

The Ministerial Conference of the WTO meets every two years to make important decisions about existing
trade agreements.
The Ministerial Conference holds the authority to make decisions on any aspects of all multilateral
agreements made under the WTO.
General Council
The General Council comprises the representatives of all member countries and acts as the representative of
the Ministerial Conference when it comes to daily operations.
Its job is to carry out the implementation and monitoring function of the WTO.
The General Council is further divided into multiple councils and committees that focus on specific topics.
Examples of such bodies include the Council on Goods, the Councils on Services, the Committee on Textiles
under the Council on Goods, etc.
Dispute Settlement Body
The Dispute Settlement Body is a part of the General Council and is responsible for settling trade disputes
between member states.
There is also an Appellate Body, where member states can appeal any decisions made against them during a
dispute settlement.

Trade Policy Review Body

The Trade Policy Review Body is also a part of the General Council and is responsible for ensuring the trade
policies of member states are in line with the goals of the WTO.
Member countries are required to inform the WTO about changes in their laws and trade policies.
Objectives of World Trade Organisation (WTO)
The objectives of World Trade Organisation (WTO) are:
1. Creating and Enforcing International Trade Regulations:
The General Agreement on Trade in Services, the Trade-Related Aspects of Intellectual Property Rights
Agreement, and the Agreement on International Trade in Goods, all serve as the foundation for the World
Trade Organization (WTO).
The WTO uses a multilateral dispute settlement system to enforce its rules when one of its member countries
violates a trade agreement.
The methods and decisions must be respected and adhered to by the members through signed agreements.
Creating and Enforcing International Trade Regulations
2. Making the Decision Making Process More Transparent:
The WTO has made an effort to promote transparency in decision-making by encouraging participation and, in
particular, the use of the consensus rule. Such measures work together to increase institutional transparency.
3. Collaboration between International Economic Institutions:
The onset of globalization has made strong collaboration amongst multilateral institutions necessary.
The World Trade Organization, the International Monetary Fund, the United Nations Conference on Trade and
Development, and the World Bank are some international economic institutions
These institutions help develop and carry out a framework for international economic policy. Policy making
may be disturbed in the absence of regular cooperation and mutual participation.
4. Serving as the World’s Leading Forum:
The WTO is the international platform for regulating and negotiating additional trade liberalization. The
foundation of WTO liberalization initiatives is based on members’ benefits to make the best use of their
comparative advantages as a result of a free and fair trade system.
5. Settlements of Trade Disputes:
Before the WTO, trade disputes usually arise from the breach of agreements between the member nations.
Such trade disputes are settled through a multilateral system with predetermined rules and regulations.
6. Non-discrimination:
The Most Favored Nation (MFN) principle ensures that every member receives equal trade advantages.
National treatment ensures that imported and locally-produced goods are treated equally once they enter the
market.
7. Special and Differential Treatment for Developing Countries:
Recognizing the developmental needs and challenges of some countries, the WTO provides special and
differential treatment to developing nations.
8. Trade Liberalization: The WTO promotes the progressive liberalization of trade barriers, including tariffs
and non-tariff measures, with the goal of facilitating the flow of goods and services globally.
9. Trade and Labor Standards:
The WTO does not specifically enforce labor standards, but it recognizes the importance of core labor
standards.
The preamble to the WTO Agreement acknowledges the objective of raising standards of living, ensuring full
employment, and allowing for the effective recognition of the right to collective bargaining.

• Preferential Trade Agreements (PTAs):

The WTO recognizes the role of preferential trade agreements among its members.
While such agreements should not raise barriers to the trade of other WTO members, they are allowed under
certain conditions. The WTO monitors these agreements to ensure they meet specific criteria.
10. Others:
Some of the other objectives of the World Trade Organisation are as follows:

• To ensure optimum utilization of world resources.

• To protect the environment.
• To ensure full employment and a significant rise in effective demand.
• To raise the level of standard of living for citizens of member nations.
• To embrace the idea of sustainable development.
Advantages of WTO
The World Trade Organization (WTO) offers several advantages to its member countries, which contribute to
global economic growth, stability, and development. Some of the key advantages of the WTO include:
Promotion of International Trade:
The WTO facilitates international trade by providing a platform for negotiations and agreements, leading to
reduced trade barriers and increased trade opportunities among member countries.
Rule-Based System:
The WTO establishes clear and transparent rules for international trade, providing a predictable and stable
environment for businesses. This rule-based system reduces uncertainty and promotes confidence among
traders.
Non-Discrimination (Most-Favored-Nation Principle):
Member countries are required to treat all other members equally (most-favored-nation principle), preventing
discrimination and ensuring fair treatment in trade relations.
Promotion of Fair Competition:
The WTO helps prevent unfair trade practices such as subsidies and dumping, promoting fair competition
among nations and preventing trade distortions.
Dispute Resolution Mechanism:
The WTO provides a structured dispute settlement process that allows member countries to resolve trade
disputes peacefully, reducing the likelihood of trade wars and conflicts.
Market Access and Economic Growth:
WTO agreements provide improved market access for goods and services, fostering economic growth and
development by creating opportunities for businesses to expand their markets globally.
Technical Assistance for Developing Countries:
The WTO offers technical assistance and capacity-building programs to developing countries, helping them
participate effectively in international trade and integrate into the global economy.
Encouragement of Foreign Direct Investment (FDI):
Stable and predictable trade policies established by the WTO can attract foreign direct investment, leading to
economic development and job creation in member countries.
Consumer Benefits:
International trade facilitated by the WTO leads to a wider variety of goods and services available to
consumers at competitive prices, enhancing consumer choice and welfare.
Promotion of Sustainable Development:
The WTO recognizes the importance of sustainable development and encourages trade policies that support
environmental protection and social development.
Challenges and Issues related to WTO
The World Trade Organization (WTO) faces several challenges that impact its effectiveness and relevance in
the evolving global economic landscape. These challenges are complex and multifaceted, reflecting the diverse
interests and concerns of its member countries. Here are some of the key challenges faced by the WTO:

• Institutional Issues: The Appellate Body’s operations have effectively been suspended since December
2019, as the US’s blocking of appointments has left the body without a quorum of adjudicators needed
to hear appeals.
The crisis with the dispute settlement function of the WTO is closely linked to the breakdown in its negotiation
function.

• Lack of Transparency: There is a problem in WTO negotiations as there is no agreed definition of what
constitutes a developed or developing country at the WTO.
Members can currently self-designate as developing countries to receive ‘special and differential treatment’ –
a practice that is the subject of much contention.

• The WTO's dispute settlement system is in crisis:

The WTO's dispute settlement system is one of its most important features, but it has been paralyzed since
December 2019 due to the United States' blocking of new appointments to the Appellate Body. This is a major
challenge for the WTO, as it undermines its ability to resolve trade disputes and uphold its rules.

• The WTO's negotiating function is at a standstill:

The WTO has not been able to successfully conclude a major round of negotiations since the Uruguay Round
was completed in 1994. This is a challenge for the WTO, as it makes it difficult to update the WTO's rules and
address new trade issues.
• China’s State Capitalism: The nature of China’s economic system, combined with the size and growth
of its economy, has created tensions in the global trading system.
China’s state-owned enterprises present a major challenge to the free-market global trading system.
However, a critical part of the problem is that the rulebook of the WTO is inadequate for addressing the
challenges that China presents in respect of intellectual property, state-owned enterprises and industrial
subsidies. It is due to this US-China are engaged in Trade war.

• Rising Protectionism:
One of the significant challenges facing the WTO is the resurgence of protectionist measures, including tariffs
and trade barriers, in many countries. Trade tensions between major economies, such as the United States
and China, have escalated, leading to concerns about the potential breakdown of the global trading system.
Policy Recommendations

There are a number of policy recommendations that can be made to address the challenges and issues facing
the WTO. These include:

Strengthening the WTO's rules and institutions:

This could involve updating the WTO's rules to cover new trade issues, such as digital trade, and
strengthening the WTO's dispute settlement system.

Promoting greater transparency and openness in the WTO:

This could involve making the WTO's negotiating process more transparent and involving civil society more in
the WTO's work.
Building trust and cooperation among WTO members:
This could involve more dialogue and engagement between WTO members, and a greater focus on finding
common ground and consensus.

Making the WTO more responsive to the needs of developing countries:

This could involve providing more technical assistance and capacity building to developing countries, and
giving developing countries a greater voice in the WTO's decision-making process.

Ensuring that the benefits of trade are shared more widely:

This could involve promoting policies that help to create jobs and raise wages, and that protect the
environment and labor standards.

• Promote dialogue and negotiation to resolve disputes, encouraging adherence to WTO rules to
prevent the onset of trade wars.
• Implement policies that address the specific needs of developing nations, providing technical
assistance and capacity building to enhance their participation in global trade.
• Strengthen the commitment to multilateralism, emphasizing the importance of a rules-based
international trading system to foster cooperation among nations.

Conclusion
In conclusion, the World Trade Organization (WTO) stands at a critical juncture in its mission to facilitate global
trade and economic cooperation.
While it has played a crucial role in promoting a rules-based international trading system, the organization
faces several challenges that require thoughtful and collaborative solutions.
The escalating trade tensions, protectionist measures, and the erosion of multilateralism pose significant
threats to the principles of free and fair trade.
The ongoing dispute resolution mechanism crisis further adds to the complexity of the situation. To address
these challenges, there is a pressing need for reforms within the WTO.