WORLD TRADE ORGANIZATION
Updated April 2003

Official Name:
World Trade Organization

Editor's note: The information in this article was compiled and edited from 1995, 2001, and 2002 Background Notes and Fact Sheets available through the U.S. Department of State.

BACKGROUND
SPECIFIC AREAS OF FOCUS
STRUCTURE AND PROCEDURES
U.S.-WTO COOPERATION

BACKGROUND

The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 145 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986-1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations.

The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development.

The Uruguay Round

Progress toward multilateral trade liberalization takes place through rounds of negotiations. Eight rounds have been completed since 1948. The eighth round, the Uruguay Round, began in Punta del Este, Uruguay, in September 1986 and concluded at Marrakech, Morocco, in April 1994.

On December 15, 1993, 123 countries, accounting for more than 90% of world trade, concluded a historic agreement to reform international trade. The Uruguay Round of multilateral trade negotiations, conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), extended the GATT's rules to new areas of trade and updated its organization to conform to a more dynamic global trading system.

The WTO effectively replaced the GATT on January 1, 1995.

The Doha Round

At the WTO Ministerial Conference in Doha, Qatar, held in November 2001, the Doha Development Agenda (DDA) was launched. The WTO reiterated its goals of promoting economic development and alleviating poverty through international trade. It recognized the particular vulnerability of the least-developed countries in the world, and pledged commitment to address the marginalization of those poor countries in international trade and to improve their participation in the multilateral trading system. Twenty-one subjects were listed in the Doha Declaration, among them decisions clarifying the objectives of developing country member governments. These included issues relating to agriculture, subsidies, textiles and clothing, technical barriers to trade, traderelated investment measures, and rules of origin. Other subjects covered included services, intellectual property rights, transparency, trade and the environment, electronic commerce, and technical cooperation. The Declaration set the date of January 1, 2005, for adopting all but two of the negotiations.

SPECIFIC AREAS OF FOCUS

Tariffs

Previously existing as well as newly established tariffs will be "bound." Once bound, a tariff cannot be increased without compensation to other countries. In addition, all countries are required to begin reducing tariffs in 1995, with specific schedules established for each member. For developed countries, tariffs will be reduced a minimum of 15% per product line and an overall average of 36% over a six-year implementation period. Developing countries are permitted smaller reduction commitments and longer implementation periods (10 years to cut tariffs by 24%). Important gains include 50-100% cuts in tariffs on electronic items (such as semiconductors and computer parts) and harmonization of tariffs in the chemical sector at low rates.

Services

The agreement on trade in services establishes new rules in more than 150 service sectors and subsectors (such as advertising, law, accounting, information and computer services, environmental services, engineering, and tourism), thus enabling U.S. firms operating overseas to be treated as fairly as local firms.

Intellectual Property

The agreement on trade-related intellectual property rights establishes improved safeguards to protect intellectual property rights. Computer programs and databases are protected under copyright. Patents for virtually all types of inventions, including those in pharmaceuticals and chemicals, are protected for up to 20 years.

Agriculture

The agreement on agriculture requires that all members reduce aggregate support to their domestic agricultural sectors by 20% from a 1986-88 base period. (The U.S. already has reduced domestic support so that further reductions will not be necessary.)

Agricultural products, which represent 10% of total U.S. merchandise exports, were the second-largest contributor to the overall U.S. trade balance in 1992. Since the U.S. is the world's major exporter of agricultural products, with a share of world trade averaging about 15% in recent years, increased market access and reduced subsidies for agriculture will create important opportunities for U.S. producers and exporters.

An agricultural export subsidy agreement specifies reductions in spending on export subsidies (36% over six years for developed countries, 24% over 20 years for developing countries) and outlaws the extension of subsidies to new products not subsidized during a 1986-90 base period.

An agreement on sanitary and phytosanitary measures establishes a scientific standard for measures restricting plant and animal product imports on the basis of health or safety concerns, thereby eliminating import restrictions based on arbitrary or unsubstantiated health concerns.

Environment

Although environmental issues were not included in the original Uruguay Round, the U.S. initiated discussion of the environment in the late stages of the negotiations. The new Committee on Trade and Environment in the WTO will review the relationship of economic and environmental objectives in trade negotiations.

STRUCTURE AND PROCEDURES

Under the Uruguay Round Agreement, the World Trade Organization replaces the GATT, with responsibility for enforcing the revised international trade rules, providing procedures for negotiating additional reductions of trade barriers, and settling disputes arising in areas covered by the new trade agreements.

Trade and Environment

The WTO agreement recognizes the importance of environmental concerns. This addresses a key interest among U.S. environmental and conservation groups, which have often expressed concern that international trade agreements have failed to take environmental issues into account. A WTO committee on trade and environment aims to ensure the responsiveness of the multilateral trading system to environmental objectives.

Decision-making

The U.S. has successfully retained the practice of general decision-making by consensus followed under the GATT since 1947. Consensus is achieved "if no member, present at the meeting where the decision is taken, formally objects to the proposed decision." This continues to enable the U.S. to prevent a decision that it perceives to be contrary to its interest.

Amendments

The agreement permits amendments but ensures that an amendment of the substantive rights and obligations not be binding on the U.S. without acceptance of the amendment. In contrast, amendments to pure procedural provisions of the Uruguay Round agreements will be binding on all members in order to avoid the destabilizing effect that would result if different members were subject to different procedural rules.

Waivers

The agreement allows members to grant waivers of substantive provisions in the various Uruguay Round agreements, but only in exceptional circumstances. In the case of an obligation subject to phased-in implementation, such as those in the agreement on trade-related intellectual property issues (TRIPs), which has not yet been fulfilled by the requesting member, members may grant a waiver only by consensus. Also, the waiver provision substantially increases the threshold for obtaining waivers, from two-thirds of members present to three-quarters of all members. Any waivers granted are subject to specific conditions, including a date on which the waiver will terminate.

Interpretations

Under the WTO, the reports of dispute settlement panels do not constitute "authoritative" interpretations of the relevant agreements. Only the members themselves—acting through the Ministerial Conference or General Council—can adopt such an interpretation. The agreement also states that interpretations not be used in a manner that undermine amendment provisions.

Non-application

The agreement does not permit sector non-application. Thus, for example, India is precluded from not applying the TRIPs agreement to the U.S. With respect to WTO members that accede to the WTO but are not "original members" (generally, are not GATT contracting parties), a member can invoke "global" non-application. Thus, with respect to the People's Republic of China and possibly other acceding members, the U.S. can choose not to apply the GATT and the Uruguay Round agreements to that country as a whole.

Definitive Application

In joining the WTO agreement, members agree to the definitive application of the obligations of the Uruguay Round multilateral trade agreements. (Accession to the multilateral trade agreements, such as the agreement on government procurement, is limited to those members who affirmatively accept these agreements.) Annex 1 to the WTO agreement eliminates the protocol of provisional application and corresponding provisions in protocols of accession to the GATT that had the effect of allowing certain existing legislation of contracting parties that are inconsistent with the GATT. However, Annex 1 includes a clause that protects from GATT challenge U.S. maritime laws relating to sabotage ("Jones Act").

U.S.-WTO COOPERATION

Benefits to the U.S. Economy

Exports of goods and services have been steadily rising as a share of the U.S. economy's total output. An increase in U.S. export opportunities helps stimulate greater capital investment; technological innovation; higher productivity; job growth; and rising living standards.

Export growth is important not only for U.S. export producers but also for U.S. industries which provide the intermediate and capital goods used by producers of exports as well as the U.S. firms and workers supporting the export process. A large and growing share of the U.S. work force depends on U.S. exports for employment. By 1990, the jobs of 7.2 million U.S. workers were supported by U.S. merchandise exports, an increase of 44% from 5 million in 1986.

The substantial reductions in trade barriers negotiated in the Uruguay Round will result in lower prices for imported intermediate and final products and a greater variety of goods for American consumers.

Competition in the U.S. market from increased imports stimulates U.S. industries to improve their productivity, quality, and technology; this can benefit both the firms and U.S. consumers who buy their goods at reduced prices.

U.S. Trade Policy

U.S. trade policy aims to raise standards of living in the U.S. and around the world. Trade accounts for one-quarter of the U.S. gross domestic product; for many nations, the figure is much higher. In a changing and more interdependent world, the key to prosperity and improved living standards is engagement rather than withdrawal and protectionism. The Administration is committed to harnessing the forces of change for the benefit of all Americans and the people of all nations through reducing trade barriers and promoting sustainable development.

When the General Agreement on Tariffs and Trade (GATT) began after World War II, it dealt only with tariffs. Later, the U.S. began to address non-tariff barriers to global trade. Opening new markets is critical to fostering global growth and creating jobs both in the United States—richer countries are able to buy more goods and services from the U.S.—and abroad.

But sustainable development also is important to such growth, and it has both environmental and social dimensions. As President Clinton cautioned in January 1994:

While we continue to tear down anti-competitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the wellbeing of workers.

More nations are recognizing that economic growth must occur at a rate that the environment can sustain. The U.S. strongly favored the establishment of the World Trade Organization's Committee on Trade and Environment to discuss the environmental aspects of sustainable development.

Another dimension of sustainable development is that a rise in productivity should occur in tandem with the growth of middle classes, the rise in standards of living, and the improvement of internationally recognized labor standards. Such labor standards include freedom of association, freedom to organize and bargain collectively, freedom from forced or compulsory labor, a minimum age for the employment of children, and conditions of work.

The U.S. supports improved environmental and labor standards; at the same time, it will resist efforts to use them as protectionist tools.

U.S. Objectives

The principal trade negotiating objectives of the United States regarding the improvement of the General Agreement on Tariffs and Trade (GATT) and multilateral trade negotiation agreements were:

• To enhance the status of the GATT;
• To improve the operation and extend the coverage of the GATT and such agreements and arrangements to products, sectors, and conditions of trade not adequately covered; and
• To expand country participation in particular agreements or arrangements, where appropriate.

The agreement establishing the WTO facilitates the implementation of trade agreements in the diverse areas of trade in goods, trade in services, and the protection of trade-related intellectual property rights. The WTO encompasses the former GATT structure and extends it to new disciplines that have not been adequately covered in the past. By bringing together disciplines on government practices affecting trade in goods and services and the protection of intellectual property rights under one institutional umbrella, the WTO agreement also facilitates the "cross-retaliation" mechanism of the integrated dispute settlement understanding.

In addition, the WTO resolves the "free rider" problem in the world trading system. WTO benefits only extend to its members who have agreed to adhere to all of the Uruguay Round agreements and who submit schedules of market access commitments for industrial goods, agricultural goods, and services. This eliminates the shortcomings of the former GATT system in which, for example, only a handful of countries voluntarily adhered to disciplines on subsidies under the 1979 Tokyo Round agreement.

The WTO agreement establishes a number of institutional rules (described below) that are applied to all Uruguay Round agreements. It establishes an international organization with a stature commensurate with that of the World Bank and the International Monetary Fund. The organization is similar to that of the existing GATT Secretariat.