World Trade Organization

BACKGROUND
SPECIFIC AREAS OF FOCUS
STRUCTURE AND PROCEDURES
U.S.-WTO COOPERATION
U.S. DOHA DEVELOPMENT AGENDA
MINISTERIAL CONFERENCE

Last Updated: March 2008

Official Name:

World Trade Organization

Editor's note: The information in this article was compiled and edited from Background Notes and Fact Sheets available through the U.S. Department of State. Additional information has been added from releases and reports available from the U.S. Department of State as of March 2007.

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 151 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, trade-related 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. The original deadline of January 1, 2005 was missed. It was extended to the end of 2006, but that deadline was also missed. Efforts then focused on achieving a breakthrough in 2007 and 2008.

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 were 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 phy-tosanitary 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 replaced 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 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. 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 anticompetitive 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.

U.S. DOHA DEVELOPMENT AGENDA

July 24, 2006

The United States has been the leader in seeking to promote development through the Doha Round of trade negotiations. A key to development through trade is agriculture. The World Bank has estimated that 63% of goods trade gains for developing countries comes from agriculture and 93% of that benefit derives from greater market access.

The United States has lower agricultural tariffs than the EU or advanced developing economies. The US average bound tariff is 12%; the EU average bound tariff is 23%. The global average bound tariff is 62% and India's average bound tariff is 114%.

The United States offered a far bolder package of agricultural tariff cuts than anyone else. The U.S. October proposal would require the developed countries to cut average agricultural tariffs by over 60%. Developing countries should offer a two-thirds reduction of this amount.

By contrast, the EU—trying to protect its market—would offer a far more limited tariff cut of 39–48% for developed countries and less than two-thirds of that for advanced developing countries. The EU and developing countries also propose substantial loopholes that could exempt many agricultural commodities from the tariff-cutting formulas altogether. For example, India's proposal would seek to shield up to 98% of its agricultural imports from tariff reduction, while the EU's would result in little if any new market access for key commodities. The United States has fewer trade-distorting agricultural supports than the EU. Total 2005 US trade-distorting agricultural domestic support is $12.5 billion with an allowed level of $19.1 billion. Total 2005 EU trade-distorting agricultural domestic support is $33 billion (est.) with an allowed level of $88 billion. The United States would make real cuts in allowed support in existing farm programs. The U.S. has proposed to cut its most trade-distorting subsidies by 60%. The EU proposal would not require any changes in its current farm programs.

MINISTERIAL CONFERENCE

The Sixth Ministerial Conference was held in Hong Kong from 13-18 December 2005. The main objective of the conference was to settle a number of issues that will shape the final agreement of the Doha agenda. At the conclusion of the 2005 ministerial meeting, the then 149 members of the WTO agreed to an end date for all agricultural export subsidies, came to an agreement on cotton, created solid duty-free, quota-free access for the 32 least-developed members of the WTO, and came to an agreement on trade in services.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain third parties, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices (“Decoupled” support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. This was a significant victory for Brazil and the third parties to the dispute.

World Trade Organization

Last Updated: March 2007

Official Name:
World Trade Organization

Editor’s note: The information in this article was compiled and edited from Background Notes and Fact Sheets available through the U.S. Department of State. Additional information has been added from releases and reports available from the U.S. Department of State as of March 2007.

BACKGROUND

SPECIFIC AREAS OF FOCUS

STRUCTURE AND PROCEDURES

U.S.-WTO COOPERATION

U.S. DOHA DEVELOPMENT AGENDA

MINISTERIAL CONFERENCE

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 150 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, trade-related 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. The original deadline of January 1, 2005 was missed. It was extended to the end of 2006, but that deadline was also missed. Efforts then focused on achieving a breaktrhough in 2007.

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 were 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 replaced 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 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. 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 anticompetitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the well-being 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.

U.S. DOHA DEVELOPMENT AGENDA

July 24, 2006

The United States has been the leader in seeking to promote development through the Doha Round of trade negotiations. A key to development through trade is agriculture. The World Bank has estimated that 63% of goods trade gains for developing countries comes from agriculture and 93% of that benefit derives from greater market access.

The United States has lower agricultural tariffs than the EU or advanced developing economies. The US average bound tariff is 12%; the EU average bound tariff is 23%. The global average bound tariff is 62% and India’s average bound tariff is 114%.

The United States offered a far bolder package of agricultural tariff cuts than anyone else. The U.S. October proposal would require the developed countries to cut average agricultural tariffs by over 60%. Developing countries should offer a two-thirds reduction of this amount.

By contrast, the EU—trying to protect its market—would offer a far more limited tariff cut of 39–48% for developed countries and less than two-thirds of that for advanced developing countries. The EU and developing countries also propose substantial loopholes that could exempt many agricultural commodities from the tariff-cutting formulas altogether. For example, India’s proposal would seek to shield up to 98% of its agricultural imports from tariff reduction, while the EU’s would result in little if any new market access for key commodities. The United States has fewer trade-distorting agricultural supports than the EU. Total 2005 US trade-distorting agricultural domestic support is $12.5 billion with an allowed level of $19.1 billion. Total 2005 EU trade-distorting agricultural domestic support is $33 billion (est.) with an allowed level of $88 billion. The United States would make real cuts in allowed support in existing farm programs. The U.S. has proposed to cut its most trade-distorting subsidies by 60%. The EU proposal would not require any changes in its current farm programs.

MINISTERIAL CONFERENCE

The Sixth Ministerial Conference was held in Hong Kong from 13-18 December 2005. The main objective of the conference was to settle a number of issues that will shape the final agreement of the Doha agenda. At the conclusion of the 2005 ministerial meeting, the then 149 members of the WTO agreed to an end date for all agricultural export subsidies, came to an agreement on cotton, created solid duty-free, quota-free access for the 32 least-developed members of the WTO, and came to an agreement on trade in services.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain third parties, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices (“Decoupled” support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. This was a significant victory for Brazil and the third parties to the dispute.

WORLD TRADE ORGANIZATION

Last updated March 2005

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

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, trade-related 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 onequarter 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.

Editor's Update     March 2005

A report on important events that have taken place since the last State Department revision of this Background Note.

The Fifth WTO Ministerial Conference was held in September 2003, in Cancun, Mexico, to assess the progress of the goals of the Doha Round and to plan further work. One of the key issues discussed was agricultural tariffs, export subsidies, and domestic supports. (Other issues included non-agricultural market access and services, and the issue of patents and access to medicines.) The Cancun meeting ended with the Doha negotiations at an impasse.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain West African cotton-producing nations, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices ("Decoupled" support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. The U.S. appealed the ruling, but in March 2005, the WTO issued a final ruling that the bulk of the U.S. government subsidies to its cotton industry were illegal. The U.S. had until July 1, 2005 to comply with the ruling, or face possible trade sanctions by Brazil.

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 "crossretaliation" 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.

WORLD TRADE ORGANIZATION

Last updated March 2006

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

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, trade-related 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.

Editor's Update     March 2006

A report on important events that have taken place since the last State Department revision of this Background Note.

The Sixth Ministerial Conference was held in Hong Kong from 13-18 December 2005. The main objective of the conference was to settle a number of issues that will shape the final agreement of the Doha agenda, due to be completed at the end of 2006. At the conclusion of the 2005 ministerial meeting, the 149 members of the WTO agreed to an end date for all agricultural export subsidies, came to an agreement on cotton, created solid duty-free, quota-free access for the 32 least-developed members of the WTO, and came to an agreement on trade in services.

The United States, the European Union, and Japan lead the world in agricultural subsidies for their farmers. Brazil, joined by certain third parties, brought a complaint to the WTO over U.S. cotton subsidies, and in 2004, a WTO dispute resolution panel issued a mixed verdict on the complaint. The panel agreed with the United States that income support provided to U.S. cotton farmers and others that is decoupled from production and prices did not depress or suppress world cotton prices ("Decoupled" support means farmers are paid according to the number of acres they planted and the cotton they produced in the past, regardless of how they cultivate those fields in the present. Thus, farmers do not receive extra support for excess cotton produced.) However, the panel agreed with Brazil that some U.S. farm payments cause adverse effects to Brazil, and that export credit guarantees for some agricultural commodities are prohibited. In total, the WTO panel decided $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules. This was a significant victory for Brazil and the third parties to the dispute.

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.

World Trade Organization

THE SUCCESSOR TO THE GATT

INSTITUTIONAL FRAMEWORK AND DISPUTE-RESOLUTION MECHANISMS

THE DOHA ROUND

CONTROVERSY AND 1999 SEATTLE PROTESTS

BIBLIOGRAPHY

The World Trade Organization (WTO) is the international organization that oversees trade among member nations and acts as a forum for governments to negotiate trade agreements and settle trade disputes under a system of rules and procedures. Its aim is to increase world trade by lowering barriers to the international sale of goods and services, including intellectual property. The WTO was formed on January 1, 1995, replacing the postwar multilateral trading order under the General Agreement on Tariffs and Trade (GATT) with a more formal institutional arrangement. Headquartered in Geneva, Switzerland, the WTO as of November 2006 had 150 members, the latest addition being Vietnam. As of this date Russia was the largest state that was not yet a member. The governing principles of the WTO’s global trading system were described by Director General Pascal Lamy in 2006: “Built up stone by stone over the past 50 years, this system is founded on the idea that prosperity depends on efficiency, stability, predictability, and equity in international trade” (Lamy 2006).

THE SUCCESSOR TO THE GATT

In some respects, the WTO is a new organization, growing out of globalization, but the idea of an international trade institution dates at least to the period immediately following World War II (1939–1945). The Bretton Woods Conference of 1944, near the end of World War II, proposed the creation of an International Trade Organization to complement the International Monetary Fund and Bank for Reconstruction and Development (World Bank) in order to stabilize the postwar world economy and promote trade. The member states of the United Nations (UN) agreed to the creation of the International Trade Organization (ITO) at the UN Conference on Trade and Employment in Havana, Cuba, in 1948. The ITO charter covered trade in goods and services and included rules on employment, commodity agreements, restrictive business practices, and investment. The organization failed to materialize, however, when the U.S. Senate rejected the implementing agreement.

GATT, a part of the proposed ITO, survived as a treaty agreement among twenty-three of the fifty signatory states of the ITO to set tariffs (or customs duties) to mutually agreed-upon levels without discrimination among members under a generalized system of preferences. This system called for treating goods from all countries on the same level as that of the most-favored nation (MFN ) and allotted national treatment to both domestic and imported goods once they had entered the market. Certain exceptions to the nondiscrimination principle were allowed—for example, for regional trading arrangements or special access to developing countries—because these types of arrangements expanded regional trade and accorded with the goal of expanding global trade. These principles and exceptions were incorporated into the WTO. Tariff levels were agreed on through an intergovernmental negotiating forum facilitated by the small GATT secretariat, but the system did not provide for any enforcement mechanisms or dispute-settlement procedures, and it dealt almost entirely in trade in goods. Services and intellectual property were later addressed under separate agreements—the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)—that were also incorporated into the WTO. GATT also contained provisions against unfair competitive practices, such as dumping and subsidies, that are also part of WTO fair-trade rules.

Two major industries were given special treatment under the postwar system—agriculture, which was not covered by GATT, and textiles and apparel, which was regulated under a quota system set up by a separate multilateral agreement, the Multifiber Agreement, until 2005. Eight rounds of multiyear trade negotiations were completed under GATT. The WTO was created at the conclusion of the eighth round, known as the Uruguay Round (1986–1995).

INSTITUTIONAL FRAMEWORK AND DISPUTE-RESOLUTION MECHANISMS

Unlike GATT, the WTO has an extensive institutional structure. It comprises the Ministerial Conference, the General Council, and a Secretariat with various bodies, committees, divisions, and working groups on specific issues. The General Council is the WTO’s highest decision-making body and meets on a regular basis. Its members are official government representatives, the ambassadors to the WTO, from all member states. The Ministerial Conference comprises the trade or commerce ministers of the member states and meets approximately every two years; the Sixth WTO Ministerial Conference met in Hong Kong, China, on December 13–18, 2005. The Ministerial Conference issues declarations and decisions outlining the broad mandate of the WTO. A recurrent desire expressed in these declarations has been for greater cooperation and coherence between the IMF, World Bank, and WTO on global economic policy making and development.

The structure of the WTO was created by the legal texts of the Uruguay Round of trade negotiations, which include approximately sixty agreements, annexes, decisions, and understandings incorporating GATT, GATS, and TRIPS and covering trade in goods, services, intellectual property, dispute settlement, and transparency through reviews of governments’ trade policies. The agreements negotiated under GATT and the WTO provide the legal ground rules for international commerce, binding governments much like commercial contracts. Like any contract, disputes between parties are likely to arise, and for this reason a new dispute-settlement process was written into the WTO agreements and have become a central pillar of the global trading system. Within this system, a member country can file a dispute against another country or group of countries that it believes is violating a rule of the agreements or failing to live up to its obligations under the agreements.

The procedure resembles a court or tribunal, with formal consultations, mediation, and a panel set up to hear the arguments, examine the legal obligations of the parties, and prepare a report for the Dispute Settlement Body (consisting of all WTO members) to adopt or reject. It also includes an appeals process based on legal interpretation heard by a permanent Appellate Body composed of seven individuals of high legal standing without governmental affiliations. Members of the Appellate Body have four-year terms and can uphold, modify, or reverse the panel’s legal findings or conclusions. Rulings are adopted by the Dispute Settlement Body automatically unless there is a consensus against the panel or appeals report (not a consensus in favor of the report) and are binding; if a state loses a dispute, it must comply with the report recommendations and state its intention to do so within thirty days. In cases of nonimplementation, the parties negotiate compensation pending full implementation. The Dispute Settlement Body monitors implementation of the report rulings and recommendations (if adopted) and has the power to authorize retaliatory action by the harmed country against the country violating its treaty obligations. By July 2005 a total of 332 cases had been brought before the WTO. A typical dispute may take up to sixty days for consultations, up to a year for panel review without an appeal, or a year and three months with an appeal. For any given dispute, the panel’s report is normally presented to the parties within six months (or three months when the issue involves perishable goods).

THE DOHA ROUND

Trade negotiations among member states continue under the WTO, as under GATT, on a multiyear, multilateral basis. As of May 2007 the ninth round of global trade negotiations, the Doha Round, was still ongoing. Doha Round negotiations began in 2001 and are considered by many as much more difficult than earlier rounds. Several reasons are commonly used to explain this difficulty: (1) It goes deeper and farther than other rounds in addressing for the first time such issues as agricultural subsidies and bureaucratic border requirements and documentation, making for political complexity. (2) It makes greater attempts at fair trade by making economic development more central to the international trading system. (3) The membership has grown so much in size and socioeconomic diversity that negotiating outcomes based on the practice of consensus has become much more difficult. (4) It faces strong opposition to globalization by various nonprofit associations representing labor, the environment, and other constituencies. The WTO has been a focus of globalization debates among intellectuals and policy makers and a target of antiglobalization protests by civil society groups.

CONTROVERSY AND 1999 SEATTLE PROTESTS

The WTO has come to represent the institutionalization of globalization, with its positive trade expansion effects as well as its negative effects on communities, local industry, and human rights. The adverse effects of globalization have given rise to a global social movement with active published criticism and consistent protests by activists at WTO Ministerial meetings as well as the annual World Bank–IMF conferences. The first protest of significant size and impact took place at the WTO Ministerial meeting in Seattle from November 29, 1999, to December 3, 1999. An estimated 50,000 protesters from around the world included human rights groups, students, environmental groups, religious leaders, labor-rights activists, others demanding fair trade with less exploitation, and various protectionist groups demanding a nationalist response to maintain domestic industries and preserve communities without foreign influence. While the majority were nonviolent protestors, a small group clashed violently with police, leading the Seattle police and the National Guard to declare a state of emergency that included curfews, arrests, teargas, pepper spray, and rubber bullets fired at nonviolent protestors. Many found the violation of the right of free speech for the purpose of free trade and the ensuing police actions unacceptable. Enormous public protests ensued, ultimately causing the resignation of the Seattle police chief and succeeding in disrupting the meeting, which collapsed. Over 500 related events took place between February 18, 1999, the day the Ministerial location in Seattle was announced, and mid-December 1999, after the WTO had departed. Over 1,400 organizations signed a letter stating their opposition to the WTO. According to the text of the letter, protesting organizations accused the WTO of

principally to pry open markets for the benefit of transnational corporations at the expense of national and local economies; workers, farmers, indigenous peoples, women and other social groups; health and safety; the environment; and animal welfare. In addition, the WTO system, rules and procedures are undemocratic, un-transparent and non-accountable and have operated to marginalize the majority of the world’s people. (WTO History Project)

At the root of the protests are many fundamental differences in the perspectives of developing and industrialized nations, as well as labor unions and some domestic industry in developed countries, on the current reality of free trade and how it affects them. The protests have drawn attention to the democratic deficit within the WTO and to the social issues globalization can adversely impact. However, long-term legislative impact on the WTO itself remains unclear.

SEE ALSO Diplomacy; Free Trade; General Agreement on Tariffs and Trade; Globalization, Social and Economic Aspects of; International Monetary Fund; Protest; Social Movements; Trade; Uruguay Round; World Bank, The

BIBLIOGRAPHY

Bhagwati, Jagdish. 2005. In Defense of Globalization. Oxford: Oxford University Press.

Jackson, John H. 1998. The World Trade Organization: Constitution and Jurisprudence. London: Royal Institute of International Affairs.

Lamy, Pascal. 2006. Partnership and Global Prosperity. Speech made on June 5, 2006, in Montreal, Canada, for the International Economic Forum of the Americas. http://www.wto.org

Scott, Jeffrey J., ed. 2000. WTO after Seattle. Washington, DC: Institute for International Peace.

Stiglitz, Joseph E. 2003. Globalization and Its Discontents. New York: Norton.

Stiglitz, Joseph E. 2006. Making Globalization Work. New York: Norton.

Thomas, Janet. 2000. The Battle in Seattle: The Story behind and beyond the WTO Demonstrations. Golden, CO: Fulcrum.

Wallach, Lori, and Michell Sforza. 1999. Whose Trade Organization? Corporate Globalization and the Erosion of Democracy: An Assessment of the World Trade Organization. Washington, DC: Public Citizen.

WTO History Project, University of Washington. http://depts.washington.edu/wtohist/index.htm

Anastasia Xenias