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A Three-Year Review of the WTO:
Executive Summary

 

The World Trade Organization (WTO) is an international trade institution. The WTO superseded and replaced the GATT. The GATT was a provisional, multilateral agreement governing international trade from 1947 until January 1, 1995. The creation of the WTO was negotiated in the final GATT round, the Uruguay Round. The WTO inherited a number of core principles from the GATT. These principles include:

  • Non-discrimination, which in practice means two things. The first principle is MFN - most favored nation treatment. Any trade concession a nation offers to one member, it must offer to all. The second principle is national treatment. This means that imported products must be treated the same as domestic goods.
  • Reciprocity of Trade Concessions.
  • Trade Liberalization.
  • Transparency and predictability in import and export rules and regulations.
  • Favorable treatment to less developed countries.

Although built on the GATT legacy, the Uruguay Round and WTO added many new issues and features. To begin with, many older agreements were replaced by new, stronger agreements. For example, the Agreement on Textiles and Clothing established a time-table to liberalize textile trade, while the Agreement on Sanitary and Phytosanitary Measures established a more transparent regime for trade in agricultural goods and ensures plant and animal health standards are followed. The WTO also broke new ground, adding a number of trade sectors and issues not addressed by the GATT:

  • The General Agreement on Trade in Services (GATS) adds services.
  • Trade in Intellectual Property Rights (TRIPs) adds copyrights, trademarks and patents.
  • Trade Related Investment Measures (TRIMs) sets rules for Foreign Direct Investment.
  • Government Procurement (GPA) & the Information Technologies (ITA) agreements also international rules on new product areas.

These new agreements are ambitious issues additions to the rule governing the world trading system. However, at this stage there are significant enforcement problems and numerous loopholes that countries use to evade their obligations. It is not yet clear if these agreements will benefit the US in the long run.

The WTO differs from the GATT not only in scope, but in institutional functioning. The WTO has two significant functions that the GATT did not. First, the WTO has a Trade Policy Review Mechanism. This process periodically accesses a country's trade policies and notes any changes. It is a non-judgmental, non-confrontational process.

More controversial is the Dispute Settlement Body and its dispute settlement panels. These panels, composed of economists, hand down binding judgments in trade disputes.

Several cases have already gone against the US, raising concerns among some Americans that the WTO is eroding US sovereignty. As the world's largest economy and export market, however, the US maintains considerable influence on the shape of the world trading system.

The WTO currently has 132 members, and 31 nations are actively seeking to join. The US plays an important role in all accession negotiations, ensuring that US economic interests are well represented.  

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Last Updated on 4/1/98