Lesson-39 Understanding the WTO


Trade between countries has been an age-old practice. In reality, it was free and there were not many restrictions. Transportation and settlement systems were the problems of trade between countries. The mode of transportation was sea, encountering problems like loss of life and goods due to poor navigation and pirate menace. The settlement was through gold or barter system. As the communication and transportation facilities improved and new settlement systems evolved, it was natural to expect increased international trade. However, several restrictions on international trade started creeping in viz, to protect domestic industry, to protect the prices of the goods in local markets, balance of payment problem, political reasons etc. Therefore, foreign trade was affected and led to scarcity of goods in some parts of the world and glut in other parts. Even before the second world ended, the allied countries gave serious thought in developing a system that would end the chaotic conditions prevailing and pave the way for an orderly conduct of international trade and promote good monetary relations among the countries. The efforts towards this end resulted in formation of GATT which then was replaced by WTO. This chapter discusses the origin and evolution of WTO.


The developed countries started working with the objective of finding a system which would:

  • Help to remove the restrictions on trade

  • Ensure free convertibility of currencies

  • Maintain stability in exchange rates among the currencies

The representatives of 44 allied countries met a Brettonwoods, New Hampshire, USA in June 1944 to give a concrete shape to their ideas. The conference made recommendations to set up three international organizations viz., International Monetary Fund (IMF) to deal with the problems of balance of payments, International Bank for Reconstruction and Development (IBRD) to deal with the problems of reconstruction and development of economies of countries shattered in the two world wars and International Trade Organisation (ITO) to deal with the problems of international trade. The first two were set up in 1945 but there were serious controversies about the third i.e. ITO and therefore could not be established.

Over 50 countries participated in negotiations to create ITO as a specialized agency of United Nations (UN). The draft ITO charter was ambitious. It extended beyond world trade disciplines, to include rules on employment, commodity agreements, restrictive business practices, international investment, and services. The aim was to create the ITO at a UN conference on Trade and Employment in Havana, Cuba in 1947. During the negotiations before the conference, 23 countries came together and signed the package of trade rules and tariff concessions on 30 October 1947. So the new General Agreement on Tariffs and Trade (GATT) was born, with 23 founding members. India was also a founding member of GATT. Subsequently, when the conference began on 21 November 1947, ITO could not be established because of Havana charter was not ratified by US congress. So the GATT which came into force with effect from 1 January 1948 became the only multilateral instrument governing international trade until the WTO was established in 1 January 1995.


  • Raising standard of living of public world over

  • Ensuring full employment and a large and steadily growing volume of real income and effective demand in all the countries.

  • Developing full use of resources of the world and

  • Expansion of production and international trade.


GATT embodies certain conventions and general principles governing international trade among the member countries that adhere to the agreement. The rules of conventions of GATT require that:

1. Any proposed change in the tariff or other type of commercial policy of a member country should not be undertaken without consultation of other parties to the agreement and

2. That the countries that adhere to GATT should work towards the reduction of tariffs and other barriers to international trade which should be negotiated within the frame work of GATT.

  • Principles of GATT                                                                                                                   

1. Non-discrimination: The principle of non-discrimination requires that no member country shall discriminate between the members of GATT in the conduct of international trade. To ensure this the members agree to apply the principle of Most Favoured Nation (MFN) to all member countries on import and export duties. As for as quantitative restrictions are permitted, they too are to be administered without favour to any country. Each nation shall be treated as well as the most faovoured nation.

2. Prohibition of Quantitative Restrictions (QRs): GATT rules seek to prohibit quantitative restrictions as far as possible and limit the restrictions on trade to the less rigid tariffs. However, certain exceptions to this prohibition are granted to countries confronted with balance of payments difficulties and to developing countries.

3. Consultation: By providing a forum for continuing consultations, GATT seeks to resolve disagreements through consultations.

On account of persistent follow up by member developing countries for removing or modifying the provisions which are perceived to be biased against them, eight rounds of trade negations were held during the period from 1947 to 1994. They were Geneva Round (1947), Annecy Round (1949), Torquay Round (1951), Geneva Round (1956), Dillon Round (1960-61), Kennedy Round (1964-67), Tokyo Round (1973-79) and Uruguay Round (1986-94).


Eighth round of multilateral trade negotiations held under the auspices of the GATT is known as the Uruguay round because it was launched in punta del Esta in Uruguay in September 1986. While GATT covered international trade in goods, idea of creating WTO was to include trade in services and intellectual property and to reform trade in the sensitive sectors of agriculture and textiles. Arthur Dunkel, the then Director General of GATT, presented a draft act embodying the negotiations of the Uruguay round. This was popularly known as Dunkel draft. This was replaced by an enlarged and modified final text which was approved by delegations from the member countries of the GATT on 15 December 1993. This final act was signed by Ministers of 125 Governments on 15 April 1994. The results of the Uruguay Round are to be implemented within ten years different time periods are given for effecting the different agreements.

The most important decision at the Uruguay round was setting up of WTO to replace GATT. The WTO located at Geneva (Switzerland) came into effect on 1 January 1995. It brought international trade rules to areas previously excluded or subjected to weak rules (agriculture, textiles and clothing), services, trade related intellectual property rights (TRIPS) and trade related investment measures (TRIMS) and strengthened the dispute settlement mechanism. Thus, WTO is the international organization dealing with the global rules of trade between nations. Its objective is to help trade flow smoothly, freely, fairly and predictably. It does this by:

1. Trade negotiations

The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes. These agreements are not static; they are renegotiated from time to time and new agreements can be added to the package. Many are now being negotiated under the Doha Development Agenda, launched by WTO trade ministers in Doha, Qatar, in November 2001.

2. Implementation and monitoring

WTO agreements require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted. Various WTO councils and committees seek to ensure that these requirements are being followed and that WTO agreements are being properly implemented. All WTO members must undergo periodic scrutiny of their trade policies and practices, each review containing reports by the country concerned and the WTO Secretariat.

3. Dispute settlement

The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are being infringed. Judgments by specially appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.

4. Building trade capacity

WTO agreements contain special provision for developing countries, including longer time periods to implement agreements and commitments, measures to increase their trading opportunities, and support to help them build their trade capacity, to handle disputes and to implement technical standards. The WTO organizes hundreds of technical cooperation missions to developing countries annually. It also holds numerous courses each year in Geneva for government officials. Aid for Trade aims to help developing countries develop the skills and infrastructure needed to expand their trade.

5. Outreach

The WTO maintains regular dialogue with non-governmental organizations, parliamentarians, other international organizations, the media and the general public on various aspects of the WTO and the ongoing Doha negotiations, with the aim of enhancing cooperation and increasing awareness of WTO activities.


The following are the objectives of WTO spelt out in the preamble to the WTO agreement.

1. In the field of trade and economic development, its relations will be guided by following

a. Raising the standards of living

b. Achieving full employment and increasing the volume of real income and effective demand and

c. Expanding the production and trade in goods and services

2. towards the fulfillment of the overall objective of sustainable development to ensure the optimal use of world’s resources by

a. Promoting the protection and preservation of environment

b. Augmenting resources commensurate with the respective needs and concerns at different levels of economic development

3. for ensuring that the developing countries, particularly the poorest countries, may get a share in the growth of international trade consistent with their needs of economic development

4. for achievement of these objectives to enter into mutually beneficial arrangements aiming at reduction of barriers and elimination of discrimination in international trade

5. Based on the past agreements and efforts and their results to develop a more viable and durable multilateral trading system

6. for coordinating policies in the field of trade, environment and economic development, to take effective steps.  


1. Ministerial Conference:  It is the supreme authority and takes decisions on all matters falling within the purview of an agreement. It consists of all the member countries. It meets at least once in 2 years.

2. General Council: It comes next to the ministerial conference and consists of the representatives of all the member countries. It oversees the operations of WTO agreement and ministerial decisions. Besides, it acts as a dispute settlement body (DSB) and a Trade Policy Review Body (TPRB). It meets once in a month on an average. The general council works trough; a. council for trade in goods, b. council for trade in services, c. council for trade related aspects of intellectual property rights (TRIPS).

There are three committees that perform the functions assigned to them under by the general council. The three committees are;

1. Committee on trade and development

2. Committee on balance of payment restriction

3. Committee on budget, finance and administration.

 3. Director General: The head of the WTO secretarial is appointed by the general council. The term of the director general is four years.

There are presently 155 members of WTO. Samoa is the latest country to join the member list of WTO on 10th May 18, 2012.


Subba Reddy S., Raghu Ram P., Neelakanta Sastry T.V., and Bhavani Devi I. 2004. In Agricultural Economics, Oxford & IBH Publishing Co. Pvt Ltd. New Delhi, PP-626-629

Last modified: Thursday, 10 October 2013, 4:58 AM