Why has the World Trade Organization been formed? Explain in brief the process involved in its formation.

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Points to Remember:

  • Purpose of WTO: Facilitate international trade and reduce trade barriers.
  • Formation Process: Negotiations, agreements, and ratification by member states.
  • Key Agreements: GATT (General Agreement on Tariffs and Trade) as a precursor, followed by the WTO Agreement.
  • Dispute Settlement Mechanism: A crucial function of the WTO.

Introduction:

The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade and encourages the reduction of trade barriers. Its formation was a culmination of decades of efforts to liberalize global trade, stemming from the post-World War II recognition of the importance of international cooperation for economic recovery and growth. The initial framework was laid by the General Agreement on Tariffs and Trade (GATT), which, while successful in lowering tariffs, lacked a robust enforcement mechanism and struggled to address non-tariff barriers. The need for a more comprehensive and effective institution led to the creation of the WTO.

Body:

1. The Need for a Multilateral Trading System:

Following World War II, there was a growing recognition that protectionist trade policies had contributed to the Great Depression. The belief that free and fair trade fostered economic growth and global stability fueled the creation of the GATT in 1948. However, GATT’s limitations, including its focus primarily on tariffs and its weak dispute settlement mechanism, became increasingly apparent as global trade expanded and diversified. The Uruguay Round of negotiations (1986-1994) addressed these shortcomings, paving the way for the WTO.

2. The Uruguay Round and the Birth of the WTO:

The Uruguay Round was a significant multilateral trade negotiation involving 123 countries. It aimed to expand the scope of GATT to include services, intellectual property, and investment, and to strengthen the dispute settlement system. The negotiations were complex and protracted, requiring compromises and concessions from all participating countries. The outcome was the WTO Agreement, a comprehensive legal document that established the WTO as a permanent international organization.

3. Key Features of the WTO Agreement:

The WTO Agreement encompasses various agreements covering different aspects

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of trade, including:
  • GATT 1994: Updated version of the original GATT, covering trade in goods.
  • GATS (General Agreement on Trade in Services): Deals with trade in services.
  • TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights): Protects intellectual property rights.
  • Dispute Settlement Understanding (DSU): Provides a mechanism for resolving trade disputes between member countries.

4. The Establishment of the WTO:

The WTO Agreement was signed in Marrakesh, Morocco, in 1994, and the WTO officially came into existence on January 1, 1995. The agreement required ratification by participating countries, signifying their commitment to the rules and principles of the WTO. The WTO’s headquarters are located in Geneva, Switzerland.

Conclusion:

The WTO was formed to address the limitations of the GATT system and create a more comprehensive and effective framework for regulating international trade. The Uruguay Round negotiations were crucial in achieving this goal, leading to the creation of a permanent organization with a robust dispute settlement mechanism and a broader scope encompassing services and intellectual property. While the WTO has faced criticism regarding its impact on developing countries and its effectiveness in addressing certain trade issues, it remains a vital institution for promoting free and fair trade globally. Moving forward, the WTO needs to continue adapting to the evolving global economic landscape, ensuring that its rules are fair, transparent, and conducive to sustainable and inclusive growth, while also addressing concerns about its effectiveness and fairness. A focus on greater inclusivity and addressing the needs of developing nations is crucial for the WTO’s continued relevance and success in fostering a truly globalized and equitable trading system.

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