Order Code 98-928 E
CRS Report for Congress
Received through the CRS Web
The World Trade Organization:
Background and Issues
Updated March 5, 2003
Lenore Sek
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
The World Trade Organization: Background and Issues
Summary
The World Trade Organization (WTO) was established on January 1, 1995,
under an agreement reached during the Uruguay Round of multilateral trade
negotiations.
The Uruguay Round was the last of a series of periodic trade
negotiations held under the auspices of the WTO’s predecessor, the General
Agreement on Tariffs and Trade (GATT).
The WTO is the most important international organization that governs world
trade. It has 145 members and 31 observer governments (most of which have applied
for membership), and members represent over 95% of world trade. Agreements
administered by the WTO cover a broad range of goods and services trade and apply
to virtually all government practices that directly relate to trade, for example tariffs,
subsidies, government procurement, and trade-related intellectual property rights.
Coverage of the agreements is growing through negotiation.
The WTO continues to apply many of the principles that were included
originally in the GATT. One of these principles is most-favored-nation treatment,
which states that any advantage given by one member country to a product of another
member must also be extended unconditionally to a like product of any other
member. Another principle is national treatment, which requires that countries must
treat imports no worse than domestic products. Countries also commit to open
information on rules and regulations, negotiated limits on trade barriers, and
settlement of disputes under specific procedures.
Several bodies in the WTO administer the agreements reached during the
Uruguay Round. The highest level body is the Ministerial Conference, which is the
group of trade ministers from member countries. The Ministerial Conference meets
at least every two years. The General Council is the body that oversees the day-to-
day operations of the WTO. Each member country has a representative on the
General Council. The Council also meets in two other capacities: it reviews national
trade policies, and it oversees the dispute settlement process. Three major bodies
under the General Council administer rules on (1) trade in goods, (2) trade in
services, and (3) trade-related aspects of intellectual property rights (copyrights,
trademarks, and patents). Also under the General Council are numerous committees
and working groups.
Among the questions asked during debate on U.S. trade policy and the WTO
are: To what extent should the United States meet its trade goals in the WTO versus
other options? Can the United States maintain its sovereignty as a member of the
WTO? Are U.S. interests served through the WTO dispute process? Should the
WTO continue to cover traditional trade issues only, or should it be broadened to
include nontraditional issues such as labor and the environment? What is the role
of Congress in U.S. participation in the WTO?
Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The World Trade Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Appendix 1. WTO Members (as of March 5, 2003) . . . . . . . . . . . . . . . . . . . . . . . 8
Appendix 2. WTO Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The World Trade Organization:
Background and Issues
Background
Following World War II, nations throughout the world, led by the United States
and several other developed countries, sought to establish an open and
nondiscriminatory trading system with the goal of raising the economic well-being
of all countries. Aware of the role of trade barriers in contributing to the economic
depression in the 1930s, and the military aggression that rose following the
depression, the countries that met to discuss the new trading system saw open trade
as essential for economic stability and peace.
The intent of these negotiators was to establish an International Trade
Organization (ITO), which would address not only trade barriers but other issues
indirectly related to trade, including employment, investment, restrictive business
practices, and commodity agreements.
The ITO was to be a United Nations
specialized agency, but the ITO treaty was not approved by the United States and a
few other signatories and never went into effect. Instead, a provisional agreement on
tariffs and trade rules, called the General Agreement on Tariffs and Trade (GATT)
was reached and went into effect in 1948. This provisional GATT became the
principal set of rules governing international trade for the next 47 years.
The GATT document established trade principles that continue to be applied
today. Among the most important of these principles was nondiscrimination with
regard to the treatment of trade in goods among countries. The most-favored-nation
principle, which was Article I of the GATT, states that any advantage given by a
contracting party to a product of another country must be extended unconditionally
to a like product of all other contracting parties. A second rule of nondiscrimination
was national treatment, which said that imported and domestic goods should be
treated equally. Although nondiscrimination was a cornerstone of the GATT, some
exceptions were allowed. For example customs unions, free-trade areas, and special
treatment for developing countries were permitted.
Another principle was the open and fair application of any trade barriers. Tariffs
were the most common and visible form of trade barrier at the time the GATT was
established. Tariffs were to be “bound,” or set at maximum levels, and not increased
above the negotiated level. In general, quantitative restrictions such as quotas were
not allowed, since tariffs were much easier to identify and to eventually reduce.
The GATT also included a forum and process for countries to follow in trying
to resolve disputes. The dispute process allowed countries to consult with each other
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and if that was not successful, a country could ask that a panel hear the complaint.
Although the panel’s decision was not enforceable, the panel report carried some
force of opinion and encouraged countries to work toward an agreeable resolution.
One of the GATT’s chief purposes was the reduction of barriers to trade. With
this goal in mind, GATT contracting parties met periodically to negotiate further
reduction of tariffs and other trade barriers and changes to GATT rules. These
negotiations were called “rounds.” Early rounds dealt only with tariff reductions, but
later rounds also included nontariff barriers to trade. The most recent round, the
Uruguay Round, lasted from 1986 to 1994 and included the most encompassing set
of negotiations in the history of the GATT. On the agenda was reform of the existing
GATT system, as well as expansion of rules to cover new areas such as services trade
and the trade aspects of intellectual property rights (copyrights, trademarks, and
patents). The agreements that resulted from the Uruguay Round also contained a
built-in agenda requiring that further negotiations on agriculture, services, intellectual
property rights, and government procurement begin by the year 2000.
One of the most important changes that came about from the Uruguay Round
was the establishment of a new trade structure, the World Trade Organization
(WTO), which incorporated the many changes reached during the Uruguay Round:
the former GATT with its newly negotiated reforms, bodies to oversee the new trade
issues, a stronger dispute resolution procedure, a regular review of members’ trade
policies, and many other committees and councils. In contrast to the GATT, the
WTO was created as a permanent structure, with “members” instead of “contracting
parties.” The WTO went into effect on January 1, 1995.
The World Trade Organization
There are 145 members of the WTO, representing over 95% of world trade, 31
observer governments (most of which have applied for membership in the WTO),
and seven international organization observers. (Members and observers are listed
in Appendix 1.) The WTO is located in Geneva, Switzerland. Its top official is
Director-General Supachai Panitchpakdi of Thailand, whose 3-year term began on
September 1, 2002. The WTO staff numbers about 550. Its budget for the year 2003
is 153.8 million Swiss francs, or about $111 million (1.3868 Sf = $1). Countries
contribute according to their share of world trade, based on trade in goods, services
and intellectual property rights.1
Decisions within the WTO are made by members, not staff, and they are made
by consensus, not by formal vote. The highest level body in the WTO is the
Ministerial Conference, which is the body of political representatives (trade
ministers) from each member country. (See the WTO structure in Appendix 2.) The
Ministerial Conference examines current programs and sets the agenda for future
work. It must meet at least every two years.
1
In 2003, the U.S. share is 15.9% of total contributions to the WTO budget. The
U.S. contribution is part of the Department of State budget and was $12 million in fiscal
year 2002, the most recent calculation available.
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The first meeting of the Ministerial Conference was held in Singapore on
December 9-13, 1996. At that meeting, trade ministers reviewed the work of the
WTO, since its establishment and agreed on a work schedule for the next few years.
They also approved an action plan for least-developed countries, and many members
entered into an agreement to eliminate tariffs on information technology products by
the year 2000. The second meeting of the Ministerial Conference was held in
Geneva on May 18 and 20, 1998. Again, it reviewed the work of the WTO and
approved a future work program. It called for an examination of issues related to
global electronic commerce and started preparations for the next meeting. The third
Ministerial Conference was held in Seattle on November 29-December 3, 1999. That
meeting was intended to review an agenda for a new round of trade negotiations, but
trade ministers could not reach agreement and suspended their work. The WTO
Director-General was directed to consult with delegations and discuss ways in which
countries might bridge remaining differences. The fourth Ministerial Conference was
held in Doha, Qatar on November 9-14, 2001. At that meeting, trade ministers
agreed to launch a new round of multilateral trade negotiations, called the Doha
Development Agenda, and set a deadline for final agreements of January 1, 2005.
They established a work program for the new round and agreed to consider numerous
developing-country issues.2
The fifth Ministerial Conference is scheduled for
September 10-14, 2003, in Cancun, Mexico.
The body that oversees the day-to-day operations of the WTO is the General
Council, which consists of a representative from each member. The Council
generally meets monthly and provides a forum for countries to discuss a range of
trade matters. The U.S. delegate to the General Council is the Deputy U.S. Trade
Representative in Geneva.
The General Council also meets in two other, unique capacities. One is the
Trade Policy Review Mechanism (TPRM). The TPRM was established under the
Uruguay Round agreements to allow closer monitoring of national trade policies of
member countries. The four countries with the largest shares of world trade are
reviewed every two years, the next 16 largest traders are reviewed every four years,
and other countries are reviewed every 6 years, although least-developed countries
might be reviewed less frequently. The trade reviews provide information on a
country’s trade policies and comment on whether a country is pursuing market-
opening or market-restrictive policies. This public examination is a mild form of
pressure for a country to avoid practices that discourage trade.
The General Council also meets in the capacity of the Dispute Settlement Body
(DSB).
The Uruguay Round agreements greatly strengthened the process for
settlement of disputes. The first stage of the process is consultation between the
governments involved. If consultation is not successful, the complainant may ask the
DSB to establish a dispute panel. The dispute panel hears the case and reports back
to the DSB. If the complaint is upheld, the respondent must either change its practice
or negotiate an agreeable resolution. Otherwise, the complainant may request that
2 For more information on results of the Doha Ministerial Conference, see CRS Report
RL31206, The WTO Doha Ministerial: Results and Agenda for a New Round of
Negotiations, coordinated by William H. Cooper.
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the DSB authorize suspension of obligations, thereby giving permission for the
complainant to retaliate. For example, a complainant may receive permission to
increase tariffs against a respondent country that disregards a decision by the DSB.
Permission is automatic unless unanimously disapproved. Procedures are clearly set
out with specific timetables at each stage.
More specialized work is done in three major bodies under the General Council.
One of these is the Council for Trade in Goods, under which committees work on
a number of trade areas. One committee works on trade in agriculture. Another
committee oversees the related topic of sanitary and phytosanitary measures, which
are measures that pertain respectively to animal and plant health and safety. Some
committees monitor practices that are considered “unfair” if not implemented in
accordance with WTO rules (antidumping, subsidies and countervailing measures).
Other committees examine practices that are not necessarily “unfair” but could be
trade-distorting nonetheless (rules of origin, safeguards, technical barriers, customs
valuation, and import licensing). One committee works on the relatively new area
of trade-related investment measures, and another addresses market access issues
(tariffs and nontariff measures).
Also under the Council for Trade in Goods are the Information Technology
Agreement Committee and the Textiles Monitoring Body. Before the Uruguay
Round, trade in textiles had been regulated by an extensive system of bilateral quotas
under the Multifiber Agreement, but the Uruguay Round agreement on textiles will
eventually replace the quota system with tariffs, and these tariffs will be reduced
through multilateral negotiation.
A second major body under the General Council is the Council for Trade in
Services, which oversees the Uruguay Round agreement on trade in services. The
Uruguay Round services agreement has three parts.
The first part lists basic
principles that countries agree to observe, including national treatment, most-favored-
nation treatment, and transparency (open information about relevant laws and
regulations). The second part contains four annexes with rules on: (1) the movement
of persons who provide services, (2) financial services, (3) telecommunications, and
(4) air transport services. The third part is a schedule of country commitments.
These commitments are bound and cannot be reduced in scope, much like the tariff
levels on goods, which cannot be increased once they are bound. The service
commitments may include exceptions to the national treatment and most-favored-
nation principles, if countries included these exceptions when they originally
negotiated the commitments.
The Council for Trade-Related Aspects of Intellectual Property Rights
(TRIPS) is the third major body under the General Council. The TRIPS Council
monitors the agreement on intellectual property rights that was reached during the
Uruguay Round and supervises members’ compliance. The TRIPS agreement has
three parts. The first part outlines basic principles that countries must observe,
including national treatment and most-favored-nation treatment. The second part
establishes standards for the different types of intellectual property rights. For
example, it ensures copyright protection for computer programs, sets rules for rental
rights, protects integrated circuit designs and geographical indications (e.g.,
“champagne” indicates a wine from a specific region), and ensures minimum lengths
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of time for protections. The third part of the agreement establishes enforcement
processes.
Developing, transition, and least-developed countries are allowed
additional time to implement the changes.
In addition to the bodies discussed above, there are many other committees and
working groups under the General Council. For example, working groups cover the
relationship between trade and investment, the interaction between trade and
competition policy, and transparency in government procurement.
Plurilateral
groups, which do not necessarily include all WTO members, deal with civil aircraft
and with government procurement. The Committee on Trade and Development often
works with other international institutions on special concerns of countries in
development. Working parties on accession meet with applicant countries to identify
changes that are necessary to bring the applicant’s trade regime into line with WTO
rules and principles. The Uruguay Round also established a committee on trade and
environment.
Policy Issues
Congressional debate involving the WTO has focused on several major issues.
These concern: (1) seeking U.S. trade goals in the WTO versus alternative means; (2)
maintaining U.S. sovereignty; (3) serving U.S. interests through the WTO dispute
process; (4) traditional versus nontraditional topics in the WTO; and (5) the
congressional role in U.S. participation in the WTO
1. To what extent should the United States seek trade goals through the
WTO versus alternative means? The WTO has many benefits for the United
States: it provides the only multilateral dispute mechanism for international trade,
administers rules to discourage discrimination, and ensures greater security on how
trade will be conducted. However, critics of the WTO charge that the WTO is slow-
moving, because there are so many members with such varied national interests and
decisions are by consensus. One option is to pursue U.S. goals through another
multilateral body. For example, the United States and other (mostly developed)
countries have pursued negotiations on shipbuilding and investment in the
Organization for Economic Cooperation and Development, but with mixed success.
Another option is to pursue trade benefits through regional or bilateral agreements.
Some trade experts say that these agreements offer substantial benefits to U.S.
exporters and are easier to negotiate. Other, however, assert that regional and
bilateral agreements may distract the United States and other countries from the
possibly greater benefits from a worldwide approach.
2. Can the United States maintain its sovereignty as a member of the
WTO? Some critics of the WTO have raised the question of whether the United
States will lose its sovereignty as a member of the WTO. As a member of the WTO,
the United States does commit to act in accordance with the rules of the multilateral
body. It is legally obligated to ensure national laws do not conflict with WTO rules;
however, the WTO cannot force members to adhere to their obligations. The United
States and any other WTO member may act in its own national interest in spite of
WTO rules. The WTO even recognizes certain allowable exceptions such as national
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security. However, any multilateral institution is only as strong as its members’
adherence to the institution’s rules. If the United States or any other member country
chooses to take unilateral action contrary to WTO rules, that action may weaken the
institution. It is a decision for U.S. policymakers whether the discipline imposed by
the WTO is an acceptable cost for the benefits of more open trade.
3. Are U.S. interests served through the WTO dispute process? The United
States realizes several benefits from the existence of a multilateral forum for trade
disputes. Such a forum in general allows countries to peacefully resolve disputes
without having to use destructive action. The WTO dispute process presents a clear,
understandable set of rules that must be followed, and the process is
nondiscriminatory among countries.3 The United States has used the process as a
complainant 68 times, and has been relatively successful in addressing foreign trade
barriers: the U.S. Trade Representative reports that of those 68 cases, 35 were either
resolved to U.S. satisfaction without litigation, or the United States was successful
in its challenge of a foreign measure.4
There have been, however, many complaints. In some cases, countries have not
adhered to dispute panels’ findings. An example is the U.S. complaint brought
against European Union (EU) trade restrictions on imports of beef produced with
hormones. Another complaint is that some cases are said to be filed for political, not
economic, reasons. For example, some analysts say that the EU took no action for
years against a U.S. tax benefit for exports, but then filed a challenge after a U.S. win
in another case. Finally, the United States as defendant has lost several cases
involving trade remedies, and this has led some Members to charge that the WTO
dispute panels are assuming too much authority in interpreting trade agreements.
4. Should the WTO cover traditional trade issues only, or should it be
broadened to include nontraditional issues such as labor and the environment?
The GATT agreement first established rules only on border measures (tariffs and
quotas) and later added rules on certain internal practices that clearly had direct
effects on trade in goods (e.g., subsidies, government procurement). The WTO-
administered agreements further expanded trade rules to cover new areas such as
trade in services, but did not include rules that reached into areas that were not
directly related to trade practices. U.S. businesses generally want the WTO to refrain
from extending beyond these traditionally trade-related issues, because they argue
that the greatest export opportunities will be achieved only if negotiators focus on
trade barriers and do not include social factors.
Many groups, however, argue that the WTO should be expanded to include
nontraditional topics. Two topics that have been at the center of current trade debate
are labor and the environment. Labor groups argue that countries sometimes exploit
workers, including children, to produce low-cost products for foreign markets, and
environmental groups want more consideration of the environmental effects of the
production of goods for trade included under WTO rules.
There is strong
3 For information on the WTO dispute process, see CRS Report RS20088, Dispute
Settlement in the World Trade Organization: An Overview, by Jeanne J. Grimmett.
4 U.S. Trade Representative web site at <http://www.ustr.gov/enforcement/snapshot.pdf.>
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disagreement domestically on traditional and nontraditional topics in trade
negotiations, and internationally countries hold a wide range of positions on this
question.
5. What is the role of Congress in how the United States participates in the
WTO? Although the executive branch maintains a staff in Geneva and conducts
trade negotiations in the WTO, Congress has had an important role in how the United
States participates in the WTO through its constitutional responsibility for the
conduct of foreign commerce. In recently enacted legislation (P.L. 107-210) that
approved expedited procedures for legislation to implement trade agreements (“trade
promotion authority”), Congress prescribed trade objectives for U.S. negotiators and
required the executive branch to consult with it. After an agreement is reached, some
Members will probably work jointly with the executive branch in drafting legislation
to implement the trade agreement. Once an implementing bill has been introduced,
Congress decides whether or not to approve those legislative changes necessary to
implement the trade agreement.
The congressional role described above has evolved as one way to address the
separate constitutional authorities of the executive and legislative branches on trade
matters, but this role is continually debated and reevaluated. Many of those involved
in the debate question whether this executive-legislative relationship is still useful or
appropriate. The Administration has called for greater authority in trade negotiations,
saying that the need for repeated reauthorization of trade promotion authority
interrupts U.S. trade policy and keeps the United States from participating in trade
negotiations. However, many Members assert that Congress has given up too much
of its constitutional role and should have a stronger hand in trade policy formulation
and in oversight of trade negotiations.
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Appendix 1. WTO Members (as of March 5, 2003)
Members
Albania
Dominican Republic
Lesotho
Saint Kitts and Nevis
Angola
Ecuador
Liechtenstein
Saint Lucia
Antigua & Barbuda
Egypt
Lithuania
Saint Vincent & the
Grenadines
Argentina
El Salvador
Luxembourg
Senegal
Armenia
Estonia
Macau
Separate Customs
Territory of Taiwan,
Penghu, Kinmen, and
Matsu
Australia
European Communities
Madagascar
Sierra Leone
Austria
Fiji
Malawi
Singapore
Bahrain
Finland
Malaysia
Slovak Republic
Bangladesh
France
Maldives
Slovenia
Barbados
Gabon
Mali
Solomon Islands
Belgium
The Gambia
Malta
South Africa
Belize
Georgia
Mauritania
Spain
Benin
Germany
Mauritius
Sri Lanka
Bolivia
Ghana
Mexico
Suriname
Botswana
Greece
Moldova
Swaziland
Brazil
Grenada
Mongolia
Sweden
Brunei Darussalam
Guatemala
Morocco
Switzerland
Bulgaria
Guinea
Mozambique
Tanzania
Burkina Faso
Guinea Bissau
Myanmar
Thailand
Burundi
Guyana
Namibia
Togo
Cameroon
Haiti
Netherlands, for the
Trinidad and Tobago
Kingdom in Europe
and for the Netherlands
Antilles
Canada
Honduras
New Zealand
Tunisia
Central Africa Republic
Hong Kong, China
Nicaragua
Turkey
Chad
Hungary
Niger
Uganda
Chile
Iceland
Nigeria
United Arab Emirates
China
India
Norway
United Kingdom
Columbia
Indonesia
Oman
United States
Congo
Ireland
Pakistan
Uruguay
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Costa Rica
Israel
Panama
Venezuela
Cote d'Ivoire
Italy
Papua New Guinea
Zambia
Croatia
Jamaica
Paraguay
Zimbabwe
Cuba
Japan
Peru
Cyprus
Jordan
Philippines
Czech Republic
Kenya
Poland
Democratic Republic of
Korea, Republic of
Portugal
the Congo
Denmark
Kuwait
Qatar
Djibouti
Kyrgyz Republic
Romania
Dominica
Latvia
Rwanda
Observer Governments
Algeria
Former Yugoslav Republic of
Seychelles
Macedonia
Andorra
Holy See (Vatican)
Sudan
Azerbaijan
Kazakstan
Tajikistan
Bahamas
Lao People's Democratic
Tonga
Republic
Belarus
Lebanese Republic
Ukraine
Bhutan
Nepal
Uzbekistan
Bosnia and Herzegovina
Russian Federation
Vanuatu
Cambodia
Samoa
Vietnam
Cape Verde
Sao Tome and Principe
Yemen
Equatorial Guinea
Saudi Arabia
Ethiopia
Serbia and Montenegro
International Organization Observers to General Council
United Nations (UN)
Food and Agricultural Organization (FAO)
United Nations Conference on Trade and
World Intellectual Property Organization
Development (UNCTAD)
(WIPO)
International Monetary Fund (IMF)
Organization for Economic Co-operation and
Development (OECD)
World Bank
Source: World Trade Organization web page [http://www.wto.org/]
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Appendix 2. WTO Structure
All WTO members may participate in all councils, committees, etc., except Appellate Body, Dispute
Settlement panels, Textiles Monitoring Body, and plurilateral committees. The negotiations mandated
by the Doha Declaration take place in the Trade Negotiations Committee and its subsidiaries.
Source: World Trade Organization web page at [http://www.wto.org/].