10th February 2020 0 By indiafreenotes

During great depression of 1930s the international trade was badly affected and various countries imposed import restriction for safeguarding their economies. This resulted in a sharp decline in the world trade in 1945. USA put forward many proposals for extending international trade and employment. On October 30, 1947, 23 countries at Geneva, signed an agreement related to tariffs imposed on trade.

This agreement is known as General Agreement on Tariffs and Trade (GATT). It came into force on January 1, 1948. Initially GATT was established in the form of a temporary arrangement but later on it took the shape of a permanent agreement. GATT’s headquarter was in Geneva. On December 12, 1995, GATT was abolished and replaced by World Trade Organisation (WTO), which came into existence on January 1, 1995.

The WTO was established on January 1, 1995. The WTO is the embodiment of the Uruguay Round results and the successor to GATT. 76 Governments became members of the WTO on its first day. As of September 1999, there are 134 members of the WTO and 34 countries have an observer status. There is a waiting list of 31 members. They account for more than 90 percent of the world trade.

Functions of WTO:

i)The WTO shall facilitate the implementation, administration and operation, and further the objectives of the Multilateral Trade Agreements, and shall also provide the framework for the implementation, administration and operation of Plurilateral Trade Agreements.

ii)The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the Agreements.

iii) The WTO shall administer the ‘Understanding on Rules and Procedures Governing the Settlement of Disputes’.

iv)The WTO shall administer the ‘Trade Review Mechanism’.

v)With a view to achieve greater coherence in global economic policy making, the WTO shall co-operate, as appropriate, with the IMF and IBRD and its affiliated agencies.

The General Council will serve four main functions:

i)To supervise on a regular basis the operation of the revised agreements and ministerial declarations relating to: Goods, services, and TRIPs.

ii)To act as a Dispute Settlement Body,

iii) To serve as a Trade Review Mechanism,

iv)To establish Goods Council, Services Council and TRIPs Coun­cil, as subsidiary bodies.

The WTO is a more powerful body with enlarged functions than the GATT and is envisaged to play a major role in the world economic affairs. To become a member of the WTO, a country must completely accept the results of the Uruguay Round.


Agreements and National Policy

Since the various agreements that constitute the WTO cover such a wide range of topics, dispute settlement panelists find that a number of subjects come under their authority. This places WTO dispute panels in a delicate position. On the one hand they must identify cases where nations are failing to comply with international trade agreements; on the other, they must be cautious when making recommendations that reverse the preferences of national governments.

Thus far, in the decisions of the panels and the Appellate Body, there has been a tendency to write decisions in a way that minimizes the burden on nations to change their regulations and laws in order to comply with their WTO trade obligations. This does not mean that dispute settlement panels have not found nations in violation of the trade agreements. When they have, however, they have left national governments with a variety of options in order to come into compliance.

Two cases in which panel reports were adopted reflect the WTO’s tendency to avoid becoming overly involved in the internal regulatory affairs of nations. These cases have been selected as examples because they have received a lot of attention, but the trend described can be found in each case where a panel report has been issued. Both examples are complaints by the United States, one against the European Union (EU) regarding restrictions on import of hormone treated meat, and the other against Japan regarding the photographic film industry. In the first case the United States won the concessions it sought; in the second case the panel found no evidence of violation of the trade agreements.

European Hormone Case

In the European Hormone Case the panel found the scientific evidence for the import restrictions on beef treated with growth hormones to be insufficient to justify the restriction on trade, but, in effect, left open a wide variety of ways for the EU to comply. The EU is conducting further studies in the hopes of justifying the ban. This was a case where the WTO panel clearly confronted the democratic will of the people, as expressed through their national legislatures and the European Parliament, since the hormone restrictions were initially adopted under intense public pressure. The panel sided with the United States by finding that the provisions were arbitrary and had the effect of restricting trade, but left options for the EU as well by suggesting that more complete scientific evidence would justify the ban. Alternatively, the panel indicated that technical changes in the way the policy is implemented could reduce the policy’s negative impact on trade. Still, the panel was firm in ruling that the current policy is inconsistent with the SPS Agreement, and the EU will have to make substantive changes to come into compliance. If it does not, the EU will be required to offer other trading concessions to compensate for losses, some $200 million per year according to the United States. The EU has until 1999 to comply.

Japan Alcohol Case

A U.S. complaint against Japan that resulted in a dispute settlement panel decision adopted in July of 1996 will require a 40 per cent reduction of the Japanese tax on alcohol imports, which will add tens of millions of dollars in exports to U.S. producers. The panel agreed with U.S. claims that the Japanese Liquor Tax Law that provided for lower taxes on a Japanese produced liquor called shochu, versus a higher one on whiskey, cognac and wine spirits, was a violation of the GATT Article III, Section 2, national treatment provisions.


Legal Effect of WTO Decisions

The adoption by the WTO Dispute Settlement Body of a panel or Appellate Body report finding that a U.S. law, regulation, or practice violates a WTO agreement does not give the report direct legal effect in this country. Thus, federal law is not affected until Congress or the executive branch, as the case may be, changes the law or administrative measure at issue.22 Procedures for executive branch compliance with adverse decisions are set out in §§ 123(g) and 129 of the Uruguay Round Agreements Act, P.L. 103-465, 19 U.S.C. §§ 3533(g), 3538. Only the federal government may bring suit against a state or locality to declare a state or local law invalid because of inconsistency with a WTO agreement; private remedies based on WTO obligations are also precluded.23 Federal courts have held that WTO panel and Appellate Body reports are not binding on the judiciary24 and have treated determinations involving “whether, when, and how” to

comply with a WTO decision as falling within the province of the executive rather than the judicial branch.

Section 301: Unilateral Sanctions and the Japan Auto Dispute

The second argument that raised vis a vis the WTO dispute settlement mechanism and U.S. sovereignty regards the question of whether or not the United States can employ unilateral sanctions to punish trading partners who do not cooperate with U.S. wishes. In the Japan auto parts dispute, the United States insisted that the WTO does not cover the anti-competitive policy issue, therefore unilateral action was permissible. However, the language of the DSU implies that unilateral sanctions without authorization by the WTO violate WTO rules. For example, Article III and Article XXII of the DSU, which emphasize multilateral dispute settlement; and Article I of the GATT, which addresses MFN status, as well as Article II of the GATT, which deals with excessive tariffs, can all be interpreted as prohibiting unilateral punitive sanctions.(99) Other WTO member-states also opposed the United States’ unilateral action, with the European Union and Canada going so far as to reserve their third party rights in the dispute because of this issue.

The DSU does not affect application of Section 301 if it is used against non-WTO members, however. The DSU does not demand any significant modification in Section 301 investigations if those investigations include alleged breaches of Uruguay Round Agreements or the impairment of U.S. benefits under the Agreements. The United States could always decide to use Section 301 trade sanctions without WTO authorization against a fellow member-state. In this case, the member-country subjected to the use of Section 301 may seek counter-retaliation against the United States by arguing that the United States has violated its obligations under the DSU. While the United States clearly retains the practical ability to apply Section 301, doing so would probably undo the delicate world trade regime that the United States has sought to promote.

Since the United States and Japan settled the auto-parts dispute before a WTO panel was formed, the issue of the legality of unilateral sanctions was not formally decided by the WTO. Both the threat of sanctions by the United States and the existence of the possibility of a binding settlement by the DSU panel brought pressure on the parties to come to a negotiated settlement. Since the issue was not formerly resolved, the United States has quietly maintained the legal position that it could use unilateral sanctions in the future, even before a panel found that a U.S. complaint was justified. The Clinton Administration has not chosen to force the issue.

On balance, the record of the first three years suggests that the WTO’s dispute settlement provisions are not a significant threat to the sovereignty of the United States. Instead, the United States maintains enough practical power to move issues out of the venue of the WTO when it sees fit, as illustrated by Helms Burton case and the Japan auto parts conflict. Since dispute settlement panels are only authorized to consider whether laws and regulations are consistent with trade agreements, there is a tendency for their decisions to place a preponderance of importance on trade issues. Ultimately, the United States may face the need to exercise its sovereignty by violating a WTO recommendation on environmental, health and safety, and/or national security grounds. The United States, or any other member-country, should carefully consider the consequences of such an action for long-term trade stability before doing so. The option to maintain the controversial regulation always remains, while compensating trading partners in another realm.

The existence of the WTO regime offers the United States a valuable opportunity to extend its global influence. Through minor adjustments in policy, the United States has demonstrated its willingness to abide by the dispute settlement process. By setting an example of compliance, the United States further promotes its vision of a stable, law-based international trading system.

Pros of World Trade Organization

  1. Rouses Monetary Progress

The World Trade Organization is such an international firm that looks after all the trade-related concerns of the member nations. Thus, for confirming that people have enough to choose from, it inspires countries to vary their product to simulate monetary progress.

  1. Simplifies Businesses

The World Trade Organization is committed to laying down guidelines aimed at making business simpler. The WTO establishes these laws and regulations and guarantees that all nations comply with the trade regulations set down by them, thus simplifying businesses.

  1. Productively Knobs Quarrels

Responsibility of the World Trade Organization is also to knob the quarrels that might arise among the nations when conducting trade amid themselves. Hence, the WTO makes sure that each dispute is heard clearly and correct jurisdiction is passed for resolving it productively.

  1. Endorses Harmony

One of the prime objectives of the WTO is to endorse trade between the member nations and guarantee that each nation continues to abide by the provisions of the trade treaty set by it so as to maintain harmony and peace in trade within the member nations.

  1. Lessens the Lifestyle Cost

As long as the matter is related to trade, WTO confirms that the nations remain fruitful which eventually raises their profiles. The countries try to maintain that profile by continuing the trade following the WTO guidelines which then improves their lifestyle by lowering the living cost.

  1. Heightens Nations’ Net Income

The basic aim of WTO is to embolden trade between the nations and ensure smooth trade flow. This allows nations to do business with other nations and ensures the flow of the economy which eventually then leads to the diversification of the capital and increasing of the nations’ net income.

Cons of World Trade Organization

  • However, the WTO has often been criticised for trade rules which are still unfavourable towards developing countries. Many developed countries went through a period of tariff protection; this enabled them to protect new, emerging domestic industries. Ha Joon Chang argues WTO trade rules are like ‘pulling away the ladder they used themselves to climb up’ (Kicking away the ladder at Amazon)
  • Free trade may prevent developing economies develop their infant industries. For example, if a developing economy was trying to diversify their economy to develop a new manufacturing industry, they may be unable to do it without some tariff protection.
  • WTO is being overshadowed by new TIPP trade deals. These deals are negotiated away from WTO and focuses mainly on US and EU. It excludes China, Russia, India, Brazil and South Africa. It threatens to diminish the global importance of WTO
  • Difficulty of making progress. WTO trade deals have been quite difficult to form consensus. Various rounds have taken many years to slowly progress. It results in countries seeking alternatives such as TIPP or local bilateral deals.
  • WTO trade deals still encompass a lot of protectionism in areas like agriculture. Protectionist tariffs which primarily benefit richer nations, such as the EU and US.
  • WTO has implemented strong defense of TRIPs ‘Trade Related Intellectual Property’ rights These allow firms to implement patents and copyrights. In areas, such as life-saving drugs, it has raised the price and made it less affordable for developing countries.
  • WTO has rules which favour multinationals. For example, ‘most favoured nation’ principle means countries should trade without discrimination. This has advantages but can mean developing countires cannot give preference to local contractors, but may have to choose foreign multinationals whatever their history in repatriation of profit, investment in area.

Some of the criticisms of the WTO

  • Free Trade benefits developed countries more than developing countries. It is argued, developing countries need some trade protection to be able to develop new industries; this is important to be able to diversify the economy. It is known as the infant industry argument. Many developed economies used a degree of tariff protection in their development phase. Economist Ha Joon Chang argues WTO trade rules are like ‘pulling away the ladder they used themselves to climb up’ (Kicking away the ladder at Amazon)
  • Most favoured nation principle. This is a core tenant of WTO rules – countries should trade without discrimination. It means a local firm is not allowed to favour local contractors. It is argued this gives an unfair advantage to multinational companies and can have costs for local firms and the right of developing economies to favour their own emerging industries.
  • Failure to reduce tariffs on agriculture. Free trade is not equally sought across different industries. Both the US and EU retain high tariffs on agriculture, this hurts farmers in developing economies who face tariff protection
  • Arguably developing countries who specialise in primary products (e.g. agricultural products) need to diversify into other sectors. To diversify they may need some tariff protection, at least in the short term. Many of the existing industrialised nations used tariff protection when they were developing. Therefore, the WTO has been criticised for being unfair and ignoring the needs of developing countries.
  • Free trade has often ignored environmental considerations. e.g. Free trade has enabled imports to be made from countries with the least environmental protection. Many criticise the WTO’s philosophy that the most important economic objective is the maximisation of GDP. In an era of global warming and potential environmental disaster, increasing GDP may be the least important. Arguably the WTO should do more to promote environmental considerations.
  • Free trade ignores cultural and social factors. Arguably a reasonable argument for restricting free trade is that it enables countries to maintain cultural diversity. Some criticise the WTO for enabling the domination of multinational companies which reduce cultural diversity and tend to swamp local industries and firms.
  • The WTO is criticised for being undemocratic. It is argued that its structure enables the richer countries to win what they desire; arguably they benefit the most.
  • Slow progress. Trade rounds have been notoriously slow and difficult to reach an agreement.
  • WTO becoming overshadowed by TIPP agreements which fall outside the purvey of WTO rules.