International trade allows different countries to expand and evolve their markets so as to make those goods and services available at their doorstep which is not available domestically. Due to the system of International trade, the market is more competitive and this helps the consumer to bring a much cheaper product to their homes due to the structure of competitive pricing. It provides various choices to the consumer.[1]
International trade involves exchange of various goods and services across the borders because there is a want of goods and services.[2]
The process of trading internationally allows developed and wealthy countries to use their resources, labour, technology and capital more efficiently and effectively. If a country cannot efficiently produce a product, it can obtain the same by trading it with another country wherein these countries are enabled with different assets and natural resources and can produce certain products more efficiently.
International trade has been in existence since a long time and to facilitate and smoothen the process, various economic organisations have been formed which work towards the facilitation and growth of International trade.[3]
Since time immemorial, International institutions have been successfully providing businesses and government loans for sustainable economic development and has helped in facilitating economic growth of various countries and normal business functions. These international institutions provide financial, economic, technical aid and assistance to various different economies in order to help them flourish and enable them to face various global challenges.[4]
In 1947, GATT i.e. General Agreement on Tariffs and Trade, an international organisation was created in order to propagate and disseminate free trade through multilateral trade negotiations. It aimed at raising the standard of living, providing higher incomes, full employment and best use of available resources in order to encourage sustainable development throughout the world.[5]
Since 1948, there have been as many as 8 rounds of global trade talk and the last round led to the creation of World Trade Organization (hereinafter referred to as WTO).
World Trade Organization replaced GATT in 1995 and became its successor-in-interest. World Trade Organization created a new legal structure for enabling multilateral trade between the countries where all the members have equal and mutual rights and obligations.
The developing countries who were a member of GATT were able to enjoy the rights, but were exempted and absolved from their obligations to liberalise trade and these obligations only applied to the developed countries. But in WTO, this dichotomy was removed and all obligations including rights and duties applied to every nation be it in the ‘Developing Country Category’ or ‘Developed Country Category’. Not only that, the WTO, developed a dispute settlement mechanism, which resolved as much as 132 complaints during its first 3 years while the GATT dealt with only 300 complaints in its huge tenure of 47 years.[6]
WTO has a different setup in comparison to GATT, wherein it has a set of rules, principles and procedures on multilateral trade agreement which is not binding on the member countries i.e. to say it enables any member to stay out of an agreement without signing the same.[7]
Functions of WTO
As per the preamble, WTO has declared the following important functions[8]:
- The Trade Policies Review Body helps the different countries to facilitate multilateral trade agreement and other agreements which also helps in the implementation of the same in order to provide warning trends of a potential concern to the participants.
- To provide a forum or a platform which will help them in solving the problems related to trade and negotiate the matters relating to multilateral trade.
- To monitor the national trade and also facilitate administration and implementation of multifarious trade agreement.
- To ensure cooperation among different international institutions in order to procure better results in global trade.
WTO has positively contributed in International trade. This contribution of WTO in facilitating and following the principles has encouraged the international trade. The following are the principles based on which the WTO functions which can also be referred to as the ‘ salient features ‘ of WTO[9]:
- No Discrimination Policy This is the main principle which implies that all trading partners will be granted the status of MFN i.e. Most Favoured Nation. In other words, each member State will treat the other member with utmost respect and shall be treated equally as the Most Favoured Nation doing the trade.[10]
- Free Trade Policy Just like GATT, WTO is also committed towards promoting free trade amongst countries with the help of negotiations. To promote free trade, WTO is required to enable progressive liberalisation of trade through reduction in Tariffs and removal of quantitative restriction on imports by Member Countries.[11]
- Stabilised Trading System The members of the WTO are committed not to raise tariffs and other non tariffs barriers in an arbitrary and whimsical manner. This step ensures stability and predictability of trading system thereby increasing the efficiency.[12]
- Fair Competition WTO promotes fair Competition among the member states so as to enable a system wherein transparent, equitable,impartial,just and non – discriminatory competition among various nations can take place. WTO policies and rules which provide that every nation shall be treated equally and as the most favoured nation enables a fair and just competition among the trading parties. WTO also discourages various unfair practises such as export subsidies, dumping etc.[13]
Scope of WTO [14]:
Unlike the GATT, WTO’s scope is much wider and focuses on the progressive liberalisation of trade.
The agreement under WTO includes and covers trade in all service sectors including:
- Agriculture
- Trade of textile and clothing
- Intellectual Property etc.
- Other agreements which have led to the widening of the scope of WTO includes General Agreements on Trade in services wherein the basic objective of the particular agreement is to achieve liberalised multinational mechanism of trade and services.
- TRIMS also known as Agreement on Trade Related Investment Measures under WTO aims to abolish all the restrictions and measures which are imposed on investments from the outside.
WTO and Developing Countries [15]
Even though there are various provisions and features which give special attention to the developing countries and most favourable treatment is provided to these countries, but a lot of developing countries feel otherwise. They are of the view that they are not being treated fairly. The developing countries should be provided with free access to the markets of developed countries without any restrictions on tariffs, non – tariffs or other forms.
Positive Impact [16]
(1) Farmers and Agricultural Workers will have the benefit of the economic liberalisation as it will help the developing countries when the farmers will be able to use improved seeds prepared by the MNCs.
(2) It has largely benefited the developing countries after the inclusion of trade in services. Due to the expansion of trade in service sector, unemployed youth in developing countries will get employment.
Negative Impact[17]
TRIPS agreement might discourage the process of research, development and innovation in developing countries that is to say if uniform standards of provisions with regard to intellectual property will be applied for all the member countries, it will aggravate the backwardness of agriculture and medical sciences of developing countries.
Conclusion
WTO has proved to be one of the biggest intergovernmental institutions which have hugely contributed in facilitating trade, commerce and business among different nations.[18] The efficiency of the organisation has been ensured by adhering to the core principles which encourage free international trade without any discrimination among various nations.[19]
Due to increasing globalisation, the implementation of the policies and objectives of WTO has become most vital than ever. Therefore, WTO shall work on improving its various principles, rules and regulations of organization which will enable them to face various challenges and issues of modern world.[20]
[1]https://www.investopedia.com/insights/what-is-international-trade/
[2]https://en.wikipedia.org/wiki/International_trade#:~:text=International%20trade%20is%20the%20exchange,gross%20domestic%20product%20(GDP).
[3]Ibid
[4]Chapter 18; pg.18.1; Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[5]Chapter 18; pg.18.11; Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[6]Chapter 18; pg.18.11;Para 2;Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[7]Chapter 18; pg.18.12;18.3.1;Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[8]https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr_e.htm
[9]https://research-methodology.net/world-trade-organisation-wto-scope-contribution-and-criticism/
[10]https://research-methodology.net/world-trade-organisation-wto-scope-contribution-and-criticism/ and Chapter 18; pg.18.12; 2. Principles of WTO; Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[11]Ibid
[12]Ibid
[13]Ibid
[14]Chapter 18 ; pg.18.14 ; 4. Scope of WTO ; Economics II by Dr. D.D.Chaturvedi & Prof. Anuradha Jain
[15] Chapter 18; pg.18.16; 18.3.2.; Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[16] Chapter 18; pg.18.16; 18.3.2.; Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[17] Chapter 18; pg.18.17; 18.3.2.; Economics II by Dr. D.D. Chaturvedi& Prof. Anuradha Jain
[18]https://en.wikipedia.org/wiki/World_Trade_Organization
[19]https://research-methodology.net/world-trade-organisation-wto-scope-contribution-and-criticism/
[20]Ibid
This Article Written by Sonakshi Chaturvedi, Maharaja Agrasen Institute of Management Studies, IP University.
Also Read – World Trade Organization(WTO) Dispute Settlement: The Process
