The World Trade Organization (WTO) is a multilateral trading arrangement established on 1995 January 1 as the successor of the General Agreement on Tariffs & Trade (GATT). It is a rule-based trading arrangement that advocates free and fair global trade in order to maximize the benefits from such trade for global prosperity and development. In works under a certain principle, and the basic principles are:
Basic principles of the World Trade Organization
1. Non-discrimination in trade
Non-discrimination in trade is a fundamental principle of international trade law, especially under the World Trade Organization (WTO) framework. It ensures that countries treat each other fairly and do not give unjustified preferential treatment to some while discriminating against others.
It mainly rests on two core rules:
Most-Favored-Nation (MFN) treatment
A country must treat goods and services from one WTO member no less favorably than it treats those from any other WTO member. Example: If Nepal lowers tariffs on clothing imports from India, it must extend the same tariff rate to all other WTO members.
National Treatment
Once foreign goods or services enter a domestic market, they must be treated no less favorably than domestically produced goods or services. Example: If Nepal allows imported smartphones, it cannot impose higher sales taxes or stricter rules on them compared to locally made smartphones.
2. Free trade
Free trade ensures the removal of any tariff and non-tariff barriers and promote gradual liberalization.
3. Transparency in trade
Every member country must make the trade related policies, laws, rules and regulation publicly available to promote transparency in trade.
4. Dispute settlement mechanism
Mechanism for resolving the trade related disputes among the member countries.
5. Promoting fair competition
It discourage unfair practices such as dumpling.
6. Differential in special treatment
Provide additional incentives to the product of LDCs such as duty free, quota free (DFQF), technical and financial supports for trade capacity building.
7. Safety measure
Countries can use the safety tools to protect the market competition, human health and environmental health etc. For example:
- Anti dumping duty
- Countervailing duty
- Infant industry protection
- Sanitary and phytosanitary measures
| Measure | Purpose | Example |
|---|---|---|
| Anti-Dumping Duty | Prevents dumping of cheap imports | Nepal imposing duty on Chinese steel |
| Countervailing Duty | Neutralizes foreign subsidies | Duty on subsidized Indian sugar |
| Infant Industry Protection | Supports new local industries | Tariffs on imported EVs in Nepal |
| Sanitary and Phytosanitary (SPS) Measures | Protects health & safety | Restricting poultry imports due to bird flu |
Structure of World Trade Organization
The World Trade Organization (WTO) has a well-defined organizational structure to manage global trade rules, settle disputes, and oversee agreements.
1) Ministerial Conference
- Top decision-making body of the WTO.
- Meets at least once every two years.
- Composed of all member countries (currently 160+).
- Takes decisions on all matters under WTO agreements.
- Example: Ministerial meetings like Doha (2001), Nairobi (2015).
2) General Council
- Acts on behalf of the Ministerial Conference when it is not in session.
- Composed of representatives (usually ambassadors) of all member states.
- Meets regularly in Geneva.
- It has three important roles (meets under different names):
- General Council (normal session) → overall trade issues.
- Dispute Settlement Body (DSB) → handles trade disputes.
- Trade Policy Review Body (TPRB) → reviews trade policies of member countries.
Councils Under the General Council. There are three main councils, each overseeing a major area of trade:
- Council for Trade in Goods – supervises trade in goods and WTO agreements like GATT, Agriculture, Anti-dumping, Subsidies.
- Council for Trade in Services – supervises trade in services under the GATS (General Agreement on Trade in Services).
- Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council) – oversees rules on intellectual property rights.
Committees and Subsidiary Bodies. These work under the councils to handle specific agreements and technical issues, e.g.
- Committee on Agriculture
- Committee on Sanitary and Phytosanitary (SPS) Measures
- Committee on Trade and Environment
- Committee on Balance-of-Payments Restrictions
- Committee on Technical Barriers to Trade (TBT)
- Working groups on regional trade agreements, trade and development, etc.
3)Secretariat
- Located in Geneva, Switzerland.
- Headed by the Director-General (currently Ngozi Okonjo-Iweala since 2021).
- Staff of around 600.
- Provides technical, legal, and administrative support but does not take decisions (members take decisions).
Summary in a simple structure:
- Ministerial Conference (highest body)
- General Council (day-to-day decisions)
- Dispute Settlement Body
- Trade Policy Review Body
- Council for Goods → Committees (Agriculture, SPS, TBT, etc.)
- Council for Services
- TRIPS Council
- General Council (day-to-day decisions)
- Secretariat (administrative support)
Objectives of World Trade Organization (WTO)
- To make global trade free and fair in order to reduce cost of living and improve the quality of life.
- To stimulate the economic growth and employment by increased production and job creation.
- To settle down the trade related disputes by providing a neutral ruled based system.
- To reduce the cost of doing business by making the trade procedures simple and predictable.
- To promote transparency and rule-based trade to support good governance.
- To protect environmental and human health by adopting green trade practices and standard products for human health and environment.
- To contribute peace and stability by creating inter-dependence through trade among the countries.
- To provide the weaker counter a strong voice by providing equal voting rights in the decision making.
- To support the LDCs through special and differential treatment and technical assistance for trade and development.
Nepal and World Trade Organization
- Nepal joined the World Trade Organization (WTO) on 23rd April 2004 as 147th member country. Nepal became the member of TWO as first Least Developed Country (LDC) through the full accession process (not just original membership). Before WTO was established, Nepal had applied for the membership of General Agreement on Tariffs and Trade (GATT) on 16th Mau 1989. Nepal’s initial GATT application did not result in immediate membership, but it later transitioned its application to the World Trade Organization (WTO) when the GATT was replaced by the WTO in 1995, and it officially joined the WTO in 2004.
- After WTO was established in January 1, 1995, Nepal applied for its membership in December 5, 1995. Then in January 31, 1996 Nepal was given the status of the observer member.
- In August 10, 1998, Nepal submitted the memorandum of foreign trade regime and followed all procedure required to receive the membership.
- In 11th September 2003, the 5th ministerial conference of WTO in Cancún, Mexico approved the accession package of Nepal’s membership and in 23rd April 2004, Nepal formally became 147th member country of World Trade Organization.
Commitment of Nepal under WTO
| Measures | Deadline |
|---|---|
| Agriculture tariff (Final Offer = Avg 42%) | 2006 Dec 31 |
| Industrial Tariff (Final Offer - avg 24%) | 2013 Dec 31 |
| Service liberalization | 2009 Dec 31 |
| Full implementation of TRIPS, SPS, TBT agreement | 2006 Dec 31 |
| Custom valuation | 2006 Dec 31 |
| Not to introduce export subsidy on agriculture | From accession date |
| Not to introduce trade related investment measure (TRIPS) | From accession date |
| Zero tariff on IT products | 2008 Dec 31 |
| Complete phasing out of other duties and charges (ODCs) | 2013 Dec 31 |
Benefits of WTO Membership to Nepal
WTO is a ruled-based multilateral trading arrangement and its membership has given a lots of opportunities to Nepal. However, the membership alone does not ensure the benefits which depends on the strategies and capacity to play the global game of trade.
Though Nepal is not able to maximize the benefits from the membership, there are some benefits of advantages from the WTO membership which are
-
- Increase market access for the Nepalese product due to MFN advantages.
- Benefits as a LDC member in the form of preferential market access such s duty free quota free access to the Nepali products.
- Technical and financial assistance for trade related capacity building and policy making.
- Access to dispute settlement mechanism to deal with any trade related issues.
- Ensure the right to access to the sea as a land of member country.
- Technology transfer and development in the Nepali market.
- Diversification of the economic opportunities and activities due to easy market access.
- Better utilization of available resources due to increased domestic and foreign investment.
- Increase in government revenue due to increase in international/foreign trade and other economic activities.
- Increase in employment opportunities both domestically and abroad.
- Supports to reduce poverty, unemployment and increase economic growth.
- Provide consumer choice and increase social welfare.
- Increase competition between domestic and foreign products ensuring quality products at reasonable price.
Threats/Challenges of WTO Membership
- Threats to the local products, technologies and industries due to poor competitiveness.
- Issues of brain drain, financial and natural resources (e.g. Yarshagumba) due to lack of domestic technologies.
- Increased consumerism culture and demonstration (showoff) culture.
- Erosion in the preference for domestic products, technology and resources (local products replaces by foreign products).
- Increase trade deficit and threat for macroeconomic stability.
- Dissemination of misinformation, disinformation and threat for social harmony and cohesion due to technology and social media.
- Intervention of Multinational Companies (MNCs) in the domestic issues, priorities and policies.
- Threat for national sovereignty and national unity due to both domestic and international factors.
- Premature deindustrialization and conversion into trade based business or entrepreneurship.
- Weakness of economic diplomacy to promote trade and investment due to lack of sufficient human and financial resources.
- Import based revenue policy and too liberal import policy.
- Increase the risk of vulnerability of the economy due to overdependence on external sector.
Emerging Challenges of WTO
- WTO is forcing a serious crisis since the establishment in 1995 and it is facing the crisis of its existence due to unpredictable, trade and tariff was among the major economies.
- Due to the trade and tariff was between the USA and China, USA and INDIA, USA and EU etc has made to think about the role and rational of multilateral trading systems like WTO. This recently emerged tariff war is not a single issue rather there are multiple issues and challenges to bring the WTO in such existential crisis which are:
- Growing nationalism and protectionism.
- Priority on bilateral and regional trade agreements rather than multilateral.
- Crisis in the dispute settlement mechanism due to dysfunctional appellate court.
- Emergence of new issues on trade such as ecommerce, green trade policies etc.
- Being too comprehensive in order to cover almost all aspects of trade such as health, environment, labor standard giving less space to domestic policies. So, every country want to remove such aspect and promote domestic policies.
- Time consuming and slow decision making process due to the principle and unanimous decision making.
- Trust deficit and lack of institutional reforms in WTO.
- Issues of special and differential treatment such as emerging economy like China, India and Brazil. They claim themselves to be developing and enjoy some market privileges which developed countries claim to be unfair and should be equal.