WE Course 8

Overview: WTO and GATT

The World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), have played a major role in reducing tariff and other trade barriers among an increasing number of countries. The GATT started in $1947$ with $23$ members, and the WTO now has $164$ members (as of $29\,July\,2016$), accounting for about $97\%$ of world trade. Although the WTO was established in $1995$, its origins trace back to the Bretton Woods Conference at the end of World War II.

Timeline of GATT and the WTO

• $1944$: At the Bretton Woods Conference, there is discussion of the International Trade Organization (ITO) alongside the World Bank and IMF.
• $1947$: The General Agreement on Tariffs and Trade (GATT) is created, forming a set of rules to govern trade among $23$ member countries, not a formal institution.
• $1950$: Formal U.S. withdrawal from the ITO concept; congressional ratification efforts for the ITO end.
• $1951-1986$: Periodic negotiating rounds occur; disputes begin to surface in the 1980s.
• $1986-1994$: The Uruguay Round, a new round of trade negotiations, leads to a 1994 treaty establishing the WTO.
• $1995$: The WTO is created, replacing GATT.
• $2003$: The WTO comprises $146$ members, accounting for about $97\%$ of world trade.

Fundamental Principles

The GATT/WTO rests on three core principles: reciprocity, most-favored-nation (MFN) treatment, and national treatment.

Reciprocity

Reciprocity is applied in formal and informal ways. Negotiations typically occur between countries with mutual export interests; there is no requirement to negotiate market access, but once a party commits to opening its market, renegotiations follow reciprocal expectations, especially in disputes.

Most-Favored-Nation (MFN) Treatment

MFN means nondiscrimination among foreign exporters. When one country lowers tariffs for foreign producers in another member’s market, the same lower tariff and market access terms must be extended to all other member countries on an MFN basis. MFN is a central reason for joining the WTO.

National Treatment

After a foreign good has entered an import market (tariff paid), it must be treated no less favorably than a domestically produced good. This rule prevents post-entry measures (taxes, subsidies, or regulations) from eroding the market access gained through tariff reductions.

Differences between GATT and WTO

1) GATT was provisional; no formal organization existed and it was a legal text with contracting parties. 2) The WTO is permanent and built on ratified agreements with a formal organization. 3) GATT had contracting parties; the WTO has full-fledged members. 4) GATT covered trade in goods; the WTO covers goods, services, and intellectual property. 5) The WTO dispute settlement system is faster and more automatic and rulings cannot be blocked. 6) The WTO includes a trade policy review mechanism to increase transparency of members’ policies.

Curiosities

Official site: $https://www.wto.org/$
WTO (and GATT) Explained - YouTube and other resources:

• GATT vs WTO - YouTube