Q: Discuss the function of coverage of WTO as distinguished from
GATT
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The World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT), while closely related, have distinct functions and coverage. GATT was the precursor to the WTO, primarily focusing on trade in goods. The WTO, which succeeded GATT in 1995, expanded the scope of international trade regulation and introduced new areas of trade governance. Below is a discussion of the functions and coverage of the WTO as distinguished from GATT.
1. Scope of Coverage:
GATT:
- Focus on Trade in Goods: GATT was established in 1947 and primarily focused on the regulation of trade in goods. Its main objective was to reduce tariffs and other trade barriers among its member countries to promote free trade in physical goods.
- Tariff and Non-Tariff Barriers: GATT emphasized reducing tariff barriers (customs duties) on goods and also addressed non-tariff barriers such as quotas and subsidies that affected international trade in goods.
WTO:
- Broader Coverage: The WTO, created in 1995, covers not only trade in goods but also trade in services, intellectual property rights, and dispute settlement. This expanded coverage represents a significant departure from GATT’s limited focus on goods.
- Trade in Services (GATS): The General Agreement on Trade in Services (GATS) under the WTO regulates international trade in services such as banking, telecommunications, and tourism.
- Intellectual Property Rights (TRIPS): The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement under the WTO protects intellectual property rights in international trade, a domain absent under GATT.
- Trade-Related Investment Measures (TRIMs): The WTO also regulates investment measures that affect trade, such as local content requirements and other investment-related policies.
2. Institutional Structure:
GATT:
- Provisional Agreement: GATT was not a formal organization but a provisional agreement signed by countries to regulate international trade. It lacked a structured organization or legal identity and was governed through a series of trade negotiations, known as “rounds.”
- Limited Legal Power: GATT had no formal institutional structure for enforcement or dispute resolution. Its decisions were largely based on consensus, and there was no mechanism to ensure compliance with its rulings.
WTO:
- Permanent International Organization: The WTO is a full-fledged international organization with a legal identity and a permanent institutional structure. It has a secretariat, a director-general, and a clear mandate to oversee and administer international trade agreements.
- Legally Binding Framework: WTO agreements are legally binding on member countries, and its decisions and rulings must be followed. This gives the WTO greater enforcement power compared to GATT.
3. Dispute Settlement Mechanism:
GATT:
- Weak Dispute Settlement: GATT’s dispute settlement system was weak and inefficient. Disputes were resolved through diplomatic negotiations, and any party could block a decision. The lack of a formal enforcement mechanism often resulted in unresolved trade conflicts.
- Consensus-Based Approach: Under GATT, rulings in disputes required consensus among all members, which allowed the party against whom a ruling was made to block the adoption of the decision.
WTO:
- Strong Dispute Settlement Mechanism: One of the most significant improvements under the WTO is the establishment of a binding dispute resolution system. The Dispute Settlement Body (DSB) allows countries to resolve trade conflicts more efficiently.
- Binding Arbitration: WTO rulings are binding, and if a member fails to comply, the complaining party can seek authorization to impose retaliatory trade measures.
- Automatic Rulings: Unlike GATT, WTO rulings cannot be blocked by a single member; decisions are automatically adopted unless all members agree to block them, which has made the system more effective.
4. Coverage of New Trade Areas:
GATT:
- Limited to Goods: GATT was limited in its scope and did not cover emerging trade areas like services, intellectual property rights, or investments. It focused on the reduction of tariffs and quotas on goods but left new and complex areas of trade unregulated.
WTO:
- Inclusion of New Trade Areas: The WTO addresses a broader array of trade issues and includes agreements that regulate:
- Trade in Services (GATS): Covers service industries and aims to reduce barriers to trade in services.
- Intellectual Property Rights (TRIPS): Establishes international standards for the protection of intellectual property, including patents, copyrights, and trademarks.
- Trade-Related Investment Measures (TRIMs): Regulates investment measures related to trade, ensuring that investments do not distort or restrict trade.
5. Decision-Making Process:
GATT:
- Diplomatic and Flexible: GATT operated through a more informal, diplomatic process of decision-making, where negotiations and consensus-building were central to resolving issues. It lacked strict rules for decision-making, which often made it a slow and inefficient process.
WTO:
- More Structured: The WTO has a more structured decision-making process. Decisions are still generally taken by consensus, but there is a provision for voting when consensus cannot be reached. This provides a more effective and transparent way of managing global trade agreements.
6. Membership and Participation:
GATT:
- Limited Membership: Initially, GATT had a limited number of member countries, and it mainly represented the interests of developed countries. Many developing nations participated only marginally in the negotiation rounds, leading to limited inclusiveness.
WTO:
- Universal Membership: The WTO has a much larger membership base, including a significant number of developing and least-developed countries. The participation of developing countries has increased, and special provisions exist to address their concerns. Today, the WTO represents almost all countries involved in global trade, making it a near-universal body for trade governance.
Conclusion:
While both GATT and the WTO aim to promote free trade and reduce trade barriers, the WTO has a much broader scope and more robust institutional framework compared to GATT. The WTO’s coverage extends beyond trade in goods to include services, intellectual property rights, and investment measures, and its dispute settlement mechanism is more effective and binding. Additionally, the WTO has a formal institutional structure that provides greater legal enforceability of its agreements, making it a more comprehensive and powerful organization in regulating global trade.