Origins Of The Wto And Its Transformation From Gatt International Law Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The WTO is a direct descendant of the General Agreement on Tariffs and Trade (GATT). It was formed in 1995 after the "Uruguay Round" of GATT negotiations was completed. Together with the World Bank and the International Monetary Fund (IMF), GATT was created in 1947 by the U.S.

The main purpose of GATT has been to reduce tariff barriers, and it has been largely successful. Through the course of several trade rounds over more than 50 years, average tariffs have fallen from about 40 percent in 1948 to about 5 percent today.

Yet this has not meant the elimination of all trade restrictions. Japan and Germany emerged as major competitors in the 1970s, challenging U.S. dominance of world markets and causing the collapse of the Bretton Woods system. This caused rival states to employ other forms of protectionism known as "non-tariff barriers." These included voluntary export restraint pacts, government procurement procedures, product standards, local content rules and state subsidies to industry and agriculture.

From GATT to WTO

The WTO is an organization of representatives of states (currently 134 members) who assemble in order to negotiate the terms of international trade. Like all international bodies, it is dominated by the most powerful nations, known as the "Quad": the United States, Japan, and the EU and, as a junior partner of the U.S., Canada.

During the Uruguay Round of GATT from 1986 to 1994, the formation of the WTO was pushed most strongly by the U.S. The U.S. sought to create new trade rules and to lower trade barriers in order to open world markets further to American goods and services, as well as to reverse a growing trade deficit and expand trade, particularly in agricultural goods.

What was prominent in the Uruguay Round of the GATT-and has since been showcased even more explicitly in the WTO-was the drive to eliminate non tariff barriers.

Such barriers as quotas, package labeling requirements, local content laws, inspection procedures and discriminatory government procurement policies all inhibit world trade. We need conditions that are conducive to expanded trade. This means a worldwide business environment that's unfettered by government interference. 5

How the WTO works

The WTO's member states are meant to operate by consensus. In practice, however, consensus is first reached by the Quad states, which then impose their will on the remaining members.

While GATT dealt mostly with tariff reduction, the WTO has a far wider scope and broader powers to deal with trade disputes. The WTO appoints a three-member panel that wields the power to make binding rulings on complaints brought by member states. Once the panel rules that a state has violated WTO rules (namely, that it has imposed an "unfair" trade barrier against a member or member states), the losing state must either adjust its policies or submit to trade sanctions by the state or states that raised the complaint. The proceedings of this complaint resolution panel are secret, as are all proceedings of the WTO.

The WTO's future

As a weapon wielded to eliminate health, environmental and labor regulations, the WTO must be opposed at every step of the way. The WTO is distant, secretive and unaccountable. It favors multinational companies and the "wealthiest few in developed and developing countries."15 The calls by various trade unions and nongovernmental organizations (NGOs) for reform of the WTO are therefore welcome. The WTO has opened up a new debate-not just about this or that specific economic problem, but about how capitalism internationally runs roughshod over workers and the environment in the unquenchable pursuit of profit.

An analysis by two Canadian authors sympathetic to the WTO and its policies was written not long before the Battle in Seattle, and offers this accurate observation:

The Quad countries, particularly the United States and the European Union and to a lesser extent Japan, will as usual be in the driving seat for the Millennium Round. Canada will be going along for the ride, but may be able to do some back seat driving. Other countries, especially the developing countries, will be even further away from the steering wheel, and less likely to influence the direction of the vehicle.19

What the authors fail to add is that the vast majority of the world's population-billions of workers, small farmers, the poor and the destitute-aren't even in the car, which is either speeding past them or running them over. No matter how much the WTO trumpets the benefits of "free trade," Seattle has lifted the veil and exposed the WTO's real purpose: to pile up wealth on one side, misery and poverty on the other. It may be a long time before the Quad countries can come to enough agreement even to meet. But in the meantime, the issues brought to the surface by the Seattle demonstrations-from environmental destruction to attacks on workers' rights-aren't going away. In the U.S. and around the world, workers need to take the spirit of Seattle and translate it into the language of fightback on many different home fronts. More than ever, the battle in Seattle has shown the need for cross-border, international solidarity among the world's workers and poor who share a common enemy. The anger that was given a focus in Seattle needs to be transformed into the rebirth of day-to-day struggles that not only challenge the priorities of capitalism, but also overturns them. Only then can we nullify the WTO and all of the other institutions that serve global capitalism.

2 Quoted in Alan Maass, "The Politics of Trade," unpublished manuscript, p 5.

3 Robert K. Schaeffer, Understanding Globalization: The Social Consequences of Political, Economic and Environmental Change (Lanham, Md.: Rowman & Littlefield Publishers, 1997), p. 191.

4 Schaeffer, p. 183.

5 Schaeffer, p. 188.

6 Noam Chomsky, Profit Over People: Neoliberalism and Global Order (New York: Seven Stories, 1998), p. 69.

7 Susan George, "Trading Places," Socialist Review 233, September 1999: p. 19.

15 Wallach and Sforza, pp. 14-15.

16 "Whose Trade?," The Nation, December 6, 1999.

17 Kim, p 14.

18 Internationally Recognized Core Labor Standards in the United States: Report for the WTO General Council Review of the Trade Policies of the United States, Geneva, 12 and 14 July 1999 <>.

19 Patrick Grady and Kathleen Macmillan, Seattle and Beyond (Ottawa: Global Economics Ltd., 1999), p. 150.

What countries are doing to alleviate?

With the steady decrease in world-wide tariffs accomplished in the various rounds of multilateral trade negotiations over the past several decades, the attention of both policy-makers and economists has turned to the role played by non-tariff methods of protection. Especially for the purpose of negotiations, it is important that the impacts of these NTMs be quantified. Yet this has proven difficult. Variation across countries in product prices is due to many factors of which NTMS are just one. In addition, the many types of NTMs--quotas, non-automatic licensing, bans, prior authorization for protection of human health, local content requirements, among others--defy the development of a simple uniform method to convert the effect of these quantity controls into tariff-equivalents.

Governments are increasingly called upon to respond to a variety of concerns raised by society in many areas such as the environment, animal welfare and food safety. Corrective actions are expected when markets either do not exist or fail and hence result in inefficient outcomes. If market solution is not satisfactory, governments have a number of options available to intervene, including regulatory, subsidy or tax based measures.

Responding to some of those concerns is a purely local or national matter with little or no incidence on trade or trade policy. But in the case of traded goods, non-tariff measures

(NTMs) are becoming an increasingly important policy tool particularly against a background of continued trade integration and lowering classical barriers to trade, such as tariffs and quotas.

Assessing the economic effects of NTMs poses significant challenges. Many technical measures may restrict trade but improve welfare through reduction in negative externalities (e.g. through reduced risk of importing pests or diseases) or informational asymmetries (e.g. through a label providing to the consumers details on the product).

Efficiency costs of NTMs are hence much less evident than the welfare losses associated with tariffs and quantity measures. They do not necessarily embody the economic inefficiencies that are associated with classical trade barriers, unless they discriminate between sources of supply, and they may be the least trade-restricting policies available in the face of market imperfections. It is, therefore, not clear a priori that the trade impacts of regulations are inefficient, or that removal of associated non tariff measures that affect trade would achieve efficiency gains that would exceed the losses from weaker regulation.

With increased international integration, trade is increasingly becoming a vector of external effects, and governments have responded with a wide array of NTMs to the need to safeguard domestic concerns (Levine and d‟Antonio, 2003). Imports can carry invasive species such as pathogens, pests, or weeds, foreign to an economy‟s ecology (CABI, various). Different trade partners may have different food safety standards and institutional capacity to enforce these standards. This may lead to imports of food that do not meet domestic requirements. Imperfect and incomplete monitoring at the border where it occurs compounds the health or environmental risk. In countries with ill-defined property rights, trade may also encourage unsustainable production of some goods for the export market, leading to a deterioration concerning global-commons issues

(Chichilnisky, 1994).

In some instances in which trade is the direct conduit of significant external effects, it may be an option to restrict trade, but some policies are more effective at addressing external effects than others. Many technical barriers to trade may restrict trade but improve welfare in the presence of negative externalities or informational asymmetries.

Other measures can expand trade as they enhance demand for a good through better information about the good or by enhancing the good‟s characteristics. The different forms of NTMs carry different costs and benefits for different parts of society. For example, banning non-compliant beers from the German market has benefited some domestic beer producers by excluding foreign competition, it may also have protected consumers from consuming unsafe ingredients, but it also deprived some consumers of access to foreign varieties of beer, once the technology was in place to make beer tradeable over longer distances.

Imperfect monitoring and other government failures

In practice, the implementation of existing regulatory policies can only be imperfectly monitored and incompletely enforced. In this sense governments are failing by not doing enough, and consequently this is sometimes called failure by omission. The limited institutional capacity to monitor and enforce regulations sometimes calls for additional interventions, or may necessitate policies that would not be welfare-optimal if monitoring were perfect. Mitigating the institutional deficiencies can have strong trade implications and bring costly policies. A failure to detect and contain FMD or BSE early can induce a collapse of trade if partners are closing borders as an emergency measure. If institutional capacity for border inspection is limited, a country might chose to designate just one port of entry for imports of certain food products, and this measure can lead to an additional trade cost. Other policy responses may be more cooperative when they can be planned, especially in the North-South context. For example, coordination of policies such as certification of South exporters by importing countries in the North providing the additional capacity missing in the exporting country (e.g. the EU assisting Latin American meat packers to meet EU food safety and phytosanitary standards).

Concluding remarks

Efficiency costs of NTMs are much less evident than the welfare losses associated with tariffs and quota. NTMs do not necessarily embody the economic inefficiencies that are associated with classical trade barriers, unless they discriminate between sources of supply, and they may be the least trade-restricting policies available in the face of market imperfections. It is therefore not clear a priori that the trade impacts of regulations are inefficient, or that removal of associated non-tariff measures that affect trade would achieve efficiency gains that would exceed the losses from weaker regulation.

The proposed comparative approach to NTMs allows for the identification of alternative ways to address a given regulatory problem. By systematically enumerating costs and benefits for all the different economic actors involved, an evidence-based approach can be followed that yields a solid basis for mutual exchange and identification of least-cost solutions.

What Mauritian government is doing?

From an International Development Association (IDA) - supported monocrop economy, predominantly dependent on sugar, and caught in the Malthusian nightmare of overpopulation and massive unemployment, Mauritius has successfully diversified its economic activities by carving out special niches in textile, tourism and financial services. Mauritius is now classified as a middle income country and ranks, on the basis of the recent Human Development Index for 173 countries, 67th globally, 40th among developing countries and second in Africa. Sustaining the growth momentum well into the future is a major challenge because of international pressures such as globalization and liberalization. Furthermore, reforms are required domestically to arrest fiscal decline, achieve growth in labour and total factor productivity and address the issues of pockets of poverty and an ageing population.

The World Bank Database on 'Non Tariff Measures' (NTMs), containing a catalogue of some 6 000 tariff lines, was handed over to the Minister of Foreign Affairs, Regional Integration and International Trade, Dr. Arvin Boolell, by the Ag Country Director of the World Bank, Mr. Constantine Chikosi, recently.

The Database will help Mauritius to conduct systematic analysis of the effects of NTMs on trade and competitiveness as well as facilitate exports by improving information on NTMs in export markets.  NTMs involve standards and labelling requirements for different products and are put in place to protect public health or the environment.  NTMs, if poorly designed or implemented, become Non-tariff barriers and can hinder business productivity and reduce trade competitiveness.

The 6 000 tariff lines that have been catalogued and classified under the existing regulations in Mauritius are in line with the different World Trade Organisation's agreements dealing with NTMs such as sanitary and phytosanitary agreement, agreement on technical barriers to trade and import licensing.

It is recalled that the Mauritian Government had set up a jointly chaired Public-Private Sector Committee to assess the situation regarding non-tariff barriers.  This Committee has been working closely with the World Bank and other stakeholders to establish the database of NTMs for Mauritius.  A team from the World Bank was in Mauritius early this year to assist the country in establishing the permanent data collection mechanism on NTMs, modelled on a new classification method that would be easy to compare and convenient to calculate trade restrictiveness.

Minister Boolell said that the database constitutes an important tool which will enable the country to become more competitive especially at a time when there is a second wave of crisis, the euro crisis, impacting on the economy.  For the Minister, the database should be used judiciously.  It has been well established and is in line with efforts in respect of how best to streamline procedure. Moreover it should be ensured that clear recommendations are made as how to eliminate any impediments.  Proper interaction between public and private sectors and the World Bank should also be ensured. The precision and completeness of the database make it an invaluable tool for policymakers but also for the business community for whom transparency and regulations are basic requirements.

Furthermore, it provides the government with analytical data which is necessary to design appropriate policies that enhance the investment climate in competitiveness of Mauritian businesses and facilitates informed decision on regional integration issues such as harmonisation and streamlining of non-tariff barriers.

COMESA-EAC-SADC Training Workshop on Non-Tariff Barriers

The implementation of the programme aimed at facilitating trade has contributed to rank Mauritius first in Sub-Saharan Africa in the Ease of Doing Business index of the World Bank. Mauritius is rated 27th globally in the Ease of Doing Business index of the World Bank, 2nd among SIDS economies and is in the top 10 worldwide for the ease of starting a business. There is the need to remove all impediments and obstacles to trade so as to capture more markets adding that no markets will be elusive if the needs of consumers are taken into consideration. 

In light of the on-going financial crisis and global economic downturn,   opportunities that exist within the region cannot be missed out due to unnecessary restrictions to trade. On this score the importance for Government and the private sector to put up a common front and adopt a synergistic approach to address the daunting challenges ahead is underlined.  There is the need to work hard to identify and prevent the emergence of Non-Tariff Barriers.

For the Ag President of the Mauritius Chamber of Commerce and Industry (MCCI), Mr. M. Venkatasamy, Non-Tariff Barriers such as import licensing and technical regulations can act as a serious hindrance to trade.  Non-Tariff Barriers have always been an issue of concern for the private sector as they have considerable potential of decreasing or even nullifying market access benefits achieved through tariff liberalization.

The objective of the workshop was to enlighten the participants on the issue of Non-Tariff Barriers in the COMESA and SADC regions.  It also gave them an overview of the online Non-Tariff Barriers reporting, monitoring and eliminating mechanism.  The resource persons are from the COMESA and SADC Secretariats.

The online system has been devised in collaboration with the Eastern African Community and the Regional Hub for Trade Facilitation.  In Mauritius, the Ministry of Foreign Affairs, Regional Integration and International Trade and the MCCI act as enquiry points for COMESA and SADC on matters pertaining to Non-Tariff Barriers.

WTO Regional Workshop Discusses Technical Barriers to Trade

This workshop was conducted in order to exame the existing situation in Mauritius regarding the problem of Non-Tariff Barriers (NTBs). The team has met various key stakeholders and discussed barriers that Mauritian exporters face on regional and international markets regarding standards applicable to food safety, plant health requirements and technical standards.  

A joint Public-Private sector committee has been set up to examine in detail the situation regarding NTBs in Mauritius and to submit to Government clear recommendations on their elimination. Addressing NTBs in our own countries is a prerequisite to building a competitive economy.  It is therefore essential that we embark on such a process to ensure that we create the right conditions for business to flourish.

In the wake of the current financial and economic crisis, international trade has slowed down and economic leaders foresee a decline of nearly 10% in terms of volume for this year, its worst result since the end of the Second World War. The situation in African economies, already severely impacted by the global economic downturn, is becoming more difficult because of new NTBs that are being used as protectionist measures.

It is pointed out that the fundamental objective of the agreement on Technical Barriers to Trade is to discourage the use of standards, technical regulations and conformity assessment procedures as non-tariff barriers.  It is also to be noted that the twin objectives of the national quality infrastructure of Mauritius which are to ensure that goods and services on the local market are of good quality safe and reliable; and to support exporters to become more competitive on the global market. 

Trade policy review

This Trade Policy Review of Mauritius has given an opportunity to considerably improve the understanding of its trade and related policies, and its evolution. Mauritius has taken steps to liberalize trade by significantly increasing the number of duty-free import items, and therefore reducing the simple average tariff. It has also eliminated the discrimination in the implementation of tariffs and other duties based on the sources of imports.

Members encouraged Mauritius to further improve the transparency of its trade regime by making key notifications, notably in agriculture. The regime would also gain in predictability if the scope of tariff binding were extended, the gaps between applied and bound rates reduced, and the existing services commitments enhanced to make them better reflect the actual more liberal services sector. Elimination of non-tariff barriers would improve the transparency of Mauritius' trade regime. Members urged Mauritius to bring other duties on tea imports to their bound level. Mauritius was also encouraged to accelerate the legislative process, notably in the areas of competition and intellectual property rights, and to become an observer to the Plurilateral Agreement on Public Procurement.

In conclusion, Members were appreciative of Mauritius' trade reforms and of its active participation in the multilateral trading system. They urged Mauritius to pursue its reforms and take further steps to enhance the predictability of its trade regime, mainly through the extension and improvement of its multilateral binding commitments on goods and services.

Tariff and Non-tariff Barriers to Trade

In March 2002, Mauritius submitted a joint proposal along with nine other developing countries suggesting a possible modality for upcoming trade negotiations concerning manufactured goods. The proposal builds upon a concept of less reciprocity for developing nations in terms of reducing tariff and non-tariff barriers. The EU has alternatively proposed a harmonization of tariff rates that will simultaneously give favorable conditions to products coming from the developing countries, while the US has suggested the gradual reduction of all tariffs to zero by 2015.

The developing countries group, including Mauritius, has frowned on these latter proposals, however, wary that the reciprocal adjustments demanded would more severely impact the typically high tariff structure of the developing countries. Therefore the group advocates a simpler and smaller percentage tariff cut, with the onus for the most part on developed nations to diminish trade barriers. Decisions about negotiations on these non-agricultural market access (NAMA) issues were meant to be made at the WTO ministerial meeting in Cancun in September 2003; they were not discussed since the meeting adjourned when countries could not agree on modalities to discuss investment issues, the first topic addressed. NAMA issues remain on the agenda for the Doha Development Round.

The recent increase in demands for poor countries to reduce their trade barriers in the WTO in exchange for subsidy concessions from developed countries prompted the Mauritian government to take a defensive stance, arguing that 'liberalization works against vulnerable countries like Mauritius', and that 'the WTO [should not be] allowing the law of the jungle where the strongest dominate the weakest.' The government claims that it is preparing the economy to face difficult adjustments by developing its services industries, which are already the largest economic sector, and continuing to restructure the sugar and textile industries.

Intellectual Property Rights

Mauritius is party to the 20-member Common Market for Eastern and Southern Africa (COMESA), which has applied as a region to the WTO for permission to begin making generic drugs for the treatment of HIV/AIDS. A plan for a domestic manufacturing licensing system was submitted in November 2002, which would permit one country to produce cheap generic drugs and export them to the other member states. An agreement reached before the Cancun ministerial conference in September 2003 set up a framework for parallel importing of generic drugs between developing countries, however, there are currently no plans in any of the COMESA states to issue licenses for generic production and export.

Products Mauritius has banned for security measures:

1) Pork

WHO (World Health Organisation) raised the swine flu level to phase 5. Actually we assen to be in swine flu level 5 on a scale of 6 which in simple word means that swine flu pandemic is imminent and that all countries must be prepared to cope. Mauritius Health department has banned the import of pork meat as preventive measures even though that WHO said that pork meat does not carry swine flu.

2) Indian snacks

The Mauritius ministry of Health, in collaboration with the ministry of Education decided to control the amount of colouring agents and fat contents of all foodstuffs that are being sold in school and college canteens. The ministry is came out with a new set of regulations concerning the sale of snacks and fried foods in educational institutions.

Also the official pointed out that the main culprits are cheap Indian snacks which are very popular in Mauritius especially among children and that they will be the first items that will be banned from school canteens.

On a similar vein, the ministry of Health has ordered the seizure of all chips which are being sold under the trademark Frimax, following analysis by the government laboratory which has indicated that the chips contain an excessive amount of fatty substances.

3) White Rabbit candy

Mauritius has taken measures to protect the population from imported food which may be contaminated with melamine. The alarm was raised when tests carried out in Singapore revealed that the White Rabbit candy, imported from China, was tainted with melamine. As the White rabbit candies are widely consumed in Mauritius, particularly among children, the health authorities asked that they be removed from sale until appropriate tests were conducted. The tests were carried out at the Government Analyst department and then sent for confirmation in a US laboratory. The results were communicated about a week later. The candies, in fact contained melamine. On the same day, the sales of the candies were banned and consumer protection officers toured all the school canteens to see to it that that the ban was being enforced. As the news was relayed by the media, the scare extended to other products imported from China, particularly those which had milk ingredients. As the list of banned products in Singapore contained items which were also on sale in Mauritius, retailers became alarmed about a drop in sales and several among them were quick to point out that their products originated from Dubai, and not from China.

4) Milk from china

The ministry of Health has also found that milk imported from China contained melamine and banned their sales. Milk from China were imported in bulk and sold to ice cream manufacturers and vendors of 'alouda', a drink based on milk and mixed with colouring agents and ice.

As if the melamine scare was not enough, another fear gripped the population. It came out that producers of roasted peanuts were using the colouring agent " Rhodamine", normally used in the textile industry as a dye. Peanuts sold in Mauritius usually had a pink colour, which was the result of the colouring agent. Once more sales dropped dramatically and the peanuts are now sold in their natural colours. 


Mauritius continues to specifically target the development of niche markets in textiles, while more generally maintaining a stable and attractive business climate. Boosted economic cooperation between Mauritius and several nearby countries including Mozambique, Kenya and Pakistan is expected in the near future. Demonstrating its commitment to fostering competition and safeguarding consumer interests, and acknowledging the large stake the highly export-dependent country remains upon the rules of international trade, the Mauritian parliament passed a bill in April 2003 to check market monopolies, and Mauritian trade delegates have stayed very active promoting African and small-developing-country interests in both WTO and bilateral trade affairs.


As tariff barriers are reduced around the world, increasing attention has been paid to non-tariff measures. Although differing definitions exist of exactly what these NTMs are, let alone how their quantitative impacts are measured, they can basically be defined as government measures other than tariffs that restrict trade flows.

Categories of non-tariff measures

A useful means of examining NTMs is to place them into three broad - admittedly arbitrary - groupings. The first is those measures that are put in place to protect the health, safety and environment, which include import and export bans, SPS requirements, and standards and conformance requirements.

The second comprises a wide range of trade policy regulations: broader policy measures including export assistance, export taxes, import licences, import quotas, production subsidies, state trading and import monopolies, tax concessions and trade remedies practices (anti-dumping, safeguard and countervailing duty measures).

The third group is not generally regulations per se, but rather a wide grouping of administrative disincentives to export - customs clearance delays, lack of transparency and consistency in customs procedures, overly bureaucratic or arbitrary processing and documentation requirements for consignments, high freight transport charges and services that are not user friendly