This memo explores the formation of the World Trade Organization (WTO) and the purposes of its formation. It also sets out the procedure which a country can follow, to report a trade dispute to the WTO. In addition, a case study is given to help in the understanding of how a dispute that is brought before the WTO panel is solved. Lastly, the paper enumerates the achievements that WTO has made regarding its objectives, and what the critics have to say about the organization.
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Over the years international trade has been going on albeit under individual country agreements. This has however not been without disputes, where one country complains of being manipulated in a business deal. It was therefore agreed that some body be formed to regulate international business and help maintain fairness among trading members. This led to the formation of General Agreements on Tariffs and Trade (GATT) among other international trade agreements, and later the World Trade Organization (WTO).
The World Trade Organization is an international trade organization that was established in 1995 to administer trade agreements, as agreed upon by member countries. The WTO was formed after countries realized that the initial agreements of trade had loopholes, and a standardized forum was essential for fair trade among different countries.
Therefore, the WTO is sometimes defined as an international forum where various countries are able to negotiate for trade agreements (Hartigan, 2009). On the same note, the WTO also provides a framework through which member countries can address areas which are seen to have issues and solve trade disputes. The WTO operates under the principles of transparency, non-discrimination, reciprocity, safety valves and enforceable commitments to foster fair trade internationally (Krugman, Obstfeld & Melitz, 2011).
When one country breaches trade agreements as they are set out within the framework of WTO, the affected countries are supposed to report the matter in writing to the WTO dispute board. Before any dispute qualifies to be considered by the WTO panel, affected countries are supposed to consult for amicable agreement within 60 days according to the framework of WTO (Wu, 2012).
If the countries do not agree, then the complainant can request for the formation of a panel which will solve the dispute. The defending country is not able to influence the formation of the panel or prolong the duration of the case, because WTO has a time frame within which to determine any dispute (Krugman, Obstfeld & Melitz, 2011).
An example of a case that has been settled by the WTO is that of Venezuela verses United States in 1995. The dispute arose when Venezuela complained that the rules of United States regarding gasoline composition were discriminatory to Venezuela. The United States of America had actually implemented some rules on the quality and chemical components of gasoline in an effort to prevent the environmental pollution.
However, the rules were stringent when it came to imported gasoline, compared to how the rules were applied to domestically-refined gasoline. This according to Venezuela, and later on Brazil, contravened the national treatment principle, and could not be supported under the WTO rules for health and environmental conservation measures (Krugman, Obstfeld & Melitz, 2011).
Venezuela officially asked for consultations with the United States on January 23rd, 1995. The consultations failed and a panel was formed, which completed its work on January 29th, 1996. The panel concurred with both Venezuela and Brazil that United States of America had actually violated trade agreements and had applied discriminatory measures by favoring domestically-refined gasoline over imported gasoline.
After the verdict, United States of America appealed but the appellate body upheld the report by the panel, and this was adopted on May 20th, 1996. United States later amended its regulations which were reported to the WTO dispute settlement body on August 27th, 1997 (Hartigan, 2009).
The world trade organization has been endeavoring to meet its objectives, and actually some have been met, though there are some areas which require further actions. Since the formation of the WTO many countries, that joined the organization, have been able to negotiate better terms for their exports as well as imports. On the same note, many countries which were trading under unfavorable terms of trade are nowadays able to trade fairly with other countries, because of the principle of equity that is promoted by WTO.
Additionally, the principal of reciprocity has enabled member countries of WTO to benefit from trade agreements, leading to beneficial effects to both countries for example; lifting of import barriers as well as tax cuts (Wu, 2012). Moreover, since the inception of WTO member countries have been able to increase their access to international markets. This has increased the volume of trade, thus improving the economies of member countries.
However, the WTO has not gone without criticism, because there are those who feel that developed countries are getting more benefits than developing countries. Developing countries are said to have little influence if any, in the process of decision making in the world trade organization.
As a result, developed countries take advantage of the minimal negotiating power of the third world countries, to make decisions in their favor. Consequently, critics have argued that WTO has not been able to fully meet its principle of non-discrimination (Hartigan, 2009).
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The WTO enables a country to establish beneficial trade agreements with other member countries, besides increasing access to international markets. Though critics argue that developed countries get an upper hand compared to developing countries, the framework of WTO ensures that all actions done are as fair as possible. On the same note, dispute resolution which is one of the main objectives of WTO is carried out expeditiously without influence from either party.
Hartigan, J. C. (2009). Trade Disputes and the Dispute Settlement Understanding the WTO: An Interdisciplinary Assessment. Bingley: Emerald Group Publishers.
Krugman, P., Obstfeld, M., & Melitz, M. (2011). International Economics: Theory and Policy, Student Value Edition. Upper Saddle River: Pearson Publishers.
Wu, C. H. (2012). WTO and the Greater China: Economic Integration and Dispute Resolution. Boston: Martinus Nijhoff Publishers.