World Trade Organization

Background

In 1994 the U.S. Congress approved the trade agreements resulting from the Uruguay Round of multilateral trade negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT). The agreement liberalized world trade and created a new World Trade Organization (WTO) effective January 1, 1995, succeeding the 47-year-old GATT.

The WTO and its over 150 member nations is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified or approved in their parliaments or legislatures. The goal is to help producers of goods and services, exporters and importers conduct their business.

The GATT was created in 1948 to expand economic activity by reducing tariffs and other barriers to trade. The Uruguay Round agreements built on past successes by reducing tariffs by roughly one-third across the board and by expanding the GATT framework to include additional agreements.

The three pillars of the WTO are:
1. trade in goods (the area covered by the GATT),
2. the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in overseeing each of the main areas of intellectual property, and
3. the General Agreement on Trade in Services (GATS).

Generally, the WTO via the Final Uruguay Round Act:

• reduces or eliminates tariffs
• increases market access
• strengthens intellectual property protection
• creates a dispute settlement understanding
• strengthens anti-dumping and countervailing duty rules
• expands opportunities in foreign government procurement
• reduces standards barriers to U.S. exports
• maintains U.S. health and environmental studies
• simplifies and reduces the export process and related paperwork

The WTO is a multilateral treaty subscribed to by over 150 governments that together account for more than 97 percent of world trade. Over 20 governments are currently negotiating or due to negotiate accession to the WTO. Its basic aim is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development and to the welfare of the world's peoples.

The functions of the WTO are:

• administering WTO trade agreements;
• providing a forum for trade negotiations;
• handling trade disputes;
• monitoring national trade policies;
• offering technical assistance and training for developing countries; and
• cooperation with other international organizations.

The ultimate goal of the WTO is to abolish trade barriers around the world so that trade can be totally free. Members have agreed to reduce, over time, the most favored nation (MFN) duty rates to zero - along with abolishing quotas and other non-barriers to trade. Currently there are over 21 different agreements dealing with goods, services, investment measures and intellectual property rights.

There also are 12 other multilateral agreements, which are agreements signed by all of the WTO member governments:

1. Agriculture Agreement
2. Antidumping Agreement
3. Customs Valuation Agreement
4. Import Licensing Procedures Agreement
5. Preshipment Inspection Agreement
6. Rules of Origin Agreement
7. Safeguards Agreement
8. Sanitary and Phytosanitary Measures
9. Subsidies and Countervailing Measures
10. Technical Barriers to Trade Agreement
11. Textiles and Clothing Agreement
12. Trade-related Investment Measures

There are five plurilateral agreements which have been signed by some of the WTO members:

1. Government Procurement Agreement
2. Trade in Civil Aircraft Agreement
3. Information Technology Agreement
4. Agreement on Trade in Financial Services
5. Agreement on Trade in Telecommunications Services

History of WTO Negotiations

On May 18-29, 1998, the WTO held its second ministerial conference in Geneva, Switzerland, along with a commemoration of the 50th anniversary of the post-World War II multilateral trading system. President Clinton and a number of heads of state or government addressed the gathering, and WTO members accepted the U.S. invitation to host the third ministerial conference in late 1999.

Representatives of the member countries of the WTO met at the Washington State Convention and Trade Center in Seattle, Washington for the 1999 WTO Ministerial Conference Meeting, from November 30 to December 3, 1999. This third Ministerial Conference, was chaired by U.S. Trade Representative Charlene Barshefsky, and was expected to launch three year global negotiations due to start in early 2000 to further open markets in goods, services, and agricultural trade.

The U.S. agricultural agenda for the WTO millennium round of negotiations included: 1) eliminating export subsidies; 2) further reducing worldwide tariffs; 3) raising the ceilings on tariff-rate quotas, and phasing them out over the long run; 4) opening up operations of State Trading Enterprises to market-place risks; 5) facilitating trade in new technology products, including biotechnology; and 6) making sure the rules governing sanitary and phytosanitary measures continue to be effective. Barshefsky had told both Senate and House committees that agriculture was to be at the heart of the Seattle Round's agenda. Further, she emphasized that the European Union's Common Agricultural Policy (CAP) was the largest single distortion of agricultural trade in the world and reform of the CAP was to be a central focus of the Round.

The most difficult issue before WTO members was whether to include certain so-called "new issues" in the scope of the round. Four subjects on which work programs were agreed at the Singapore Ministerial in 1996 — investment, competition policy, transparency in government procurement and trade facilitation — were among the potential candidates for negotiation. The future of the WTO's work on trade and the environment was another potentially contentious issue, as well as, a constitutional commitment to sustainable development.

Approximately 5,000 delegates, together with thousands of activists representing labor, environmental, and human rights groups, descended upon Seattle. Following a tumultuous week, the talks were suspended.

On December 7, 1999, WTO Director-General Mike Moore issued the following statement:

"We all left Seattle last Friday disappointed but not dismayed that it was not possible to finish the job we went there to do. The suspension of talks is not unprecedented in the history of the multilateral trading system. But what is vital is that we maintain and consolidate what has already been achieved. The progress made must not be lost. Despite the temporary setback in Seattle, our objectives remain unchanged."

The General Council of the WTO shifted work back on track by taking the following decisions at its meeting on February 7-8, 2000:

• Agreeing on the organization of negotiations to further liberalize trade in services and agriculture;
• Agreeing that consultations will continue on several outstanding issues from Seattle; and
• Agreeing on a slate of chairpersons to head the key WTO bodies.

2001 Doha Ministerial Meeting

The 142 members of the World Trade Organization concluded their 2001 Ministerial Meeting in Doha, Qatar after approving a work program - which they called "broad and balanced" — that included negotiations on a wide range of subjects for the coming years.

The session, originally scheduled to last five days, November 9-13, stretched into an extra day before concluding. This was the first meeting of the WTO since the ill-fated December 1999 meeting in Seattle.

This WTO meeting agenda was very ambitious and held in the Persian Gulf state of Qatar — only 1,000 miles from the fighting in Afghanistan.

The main ministerial declaration included elaboration of objectives and timetables for the negotiations in agriculture and services, negotiations or possible negotiations in a range of issues such as industrial tariffs, trade and investment, trade and competition policy, some aspects of trade and the environment, as well as, implementation.

The successful conclusion of the 2001 Ministerial Meeting avoided a damaging rift between major trading nations at a time of global economic slowdown and promises economic benefits in the future.

2003 Cancun Ministerial Meeting

The Fifth Ministerial Conference was held in Cancun, Mexico, September 10-14, 2003 and was to be considered a "mid-term" review. However, negotiations broke down and the Ministerial was terminated.

Doha Development Agenda 2004 — The 'July Package'

The WTO’s 148 member governments approved a package of framework and other agreements on July 31, 2004 which Director-General Supachai Panitchpakdi said would greatly enhance members’ chances for successfully completing the important Doha negotiations.

Dr. Supachai added, "For the first time, member governments have agreed to abolish all forms of agricultural export subsidies by a certain date. They have agreed to substantial reductions in trade distorting domestic support in agriculture. Governments have agreed to launch negotiations to set new rules streamlining trade and customs procedures. We have assigned ourselves ambitious guidelines for opening trade in manufactured products and have set ourselves a clear agenda for improving rules that are of great benefit to developing countries."

2005 Hong Kong Ministerial Meeting

In preparation for the Hong Kong Ministerial Round of trade talks December 13-18, 2005, U.S. and European Union trade officials announced new proposals aimed at cutting agricultural tariffs and subsidies. U.S. Trade Representative Rob Portman said the United States was willing to make "steep tariff cuts," but looked to the European Union and Japan to reduce their agricultural support programs proportionately. The U.S. proposal would have reduced tariffs and export subsidies over a five-year period, with a second five-year period to eliminate trade-distorting policies.

The California Chamber of Commerce joined the American Business Coalition for Doha and more than 200 other leading U.S. companies and associations in a "call to action" to the world trade ministers "to infuse optimism, creativity and a renewed sense of commitment and urgency to the Doha Round."

The Hong Kong Ministerial talks held in December 2005 addressed:

• trade and development related concerns of developing countries;
• agricultural subsidies;
• elimination of tariff and non-tariff barriers of industrial, fish and forestry products;
• improved market access for manufactured goods;
• trade facilitation;
• trade and competition policy;
• transparency in government;
• opening in the global services market.

Hong Kong's Commerce, Industry and Technology Secretary John Tsang, who chaired the conference, outlined the achievements in the ministerial declaration: securing an end date for all export subsidies in agriculture; reaching agreement on cotton; agreeing on duty-free, quota free access for the 32 least developed country members; fleshing out a significant framework for full modalities in agriculture and non-agricultural market access; and agreeing on a services text.

The talks ended without many of the desired agreements on agricultural subsidies, market access for manufactured goods, and government transparency.

July 2006 WTO Talks - Switzerland

The Group of Six (G-6) nations met in Switzerland in late July 2006 to revive stalled talks. After a weekend of difficult discussions about agricultural subsidies and tariffs, the meeting was suspended without any resolution. Advocates of freer trade will now need to shift their focus to renewing U.S. presidential authority to quickly negotiate future trade agreements.

July 2008 WTO Geneva – The July Package

The July 2008 package is a stepping stone on the way to concluding the Doha Round by the end of 2008. The main task before WTO members is to settle a range of questions that will shape the final agreement of the Doha Development Agenda. Political breakthrough requires consultations among a group of ministers representing all interests in the negotiations. A series of meetings were held in Geneva from 21 to 30 July.

On July 30, 2008, World Trade Organization (WTO) Director-General Pascal Lamy announced that the Doha Development Agenda negotiations failed to move forward after trade ministers stalled in their efforts to agree on blueprint agreements in agriculture and industrial products.  Lamy told the media after speaking to members that out of a to-do list of 20 topics, 18 had seen positions converge, but the gaps could not narrow on the 19th — the special safeguard mechanism for developing countries.

Still on the table are the draft agriculture and non-agricultural modalities texts containing formulas for cutting tariffs and agricultural subsidies, flexibilities for making different cuts, and related rules and disciplines.

House Resolution on U.S. Membership in WTO

The 1994 U.S. law covering the entry of the United States into the WTO, succeeding the GATT, provided special procedures for a congressional resolution on continued U.S. membership in the organization. Sections 124-125 of the Uruguay Round Agreements Act require the White House to send a report to Congress evaluating United States membership in the WTO every five years. Following the report, members of Congress may introduce legislation opposing US membership.

In March 2000, five years after the WTO began operating, a report from the U.S. trade representative was sent to the Congress. Following that report, a resolution was introduced to withdraw the United States from the international trade body. Perceived as a pro-trade vote, the U.S. House of Representatives overwhelmingly rejected the resolution. H.J. Res. 90, authored by Texas Republican Representative Ron Paul, was defeated 363-56, with 12 members not voting, on June 21, 2000.

In June 2005, Congress once again confirmed the United States' WTO membership. After receiving an evaluation from the White House, Representative Bernard Sanders of Vermont proposed legislation to pull the United States out of the WTO. Through a vote of 338-86, the House easily defeated the bill. No similar bills were proposed in the Senate.

Impact

The WTO is having a tremendous impact on how California producers of goods and services compete in overseas markets, as well as domestically, and is creating jobs and economic growth through expanded international trade and investment. It gives businesses improved access to foreign markets and better rules to ensure that competition with foreign businesses is conducted fairly.

The WTO estimates that the impact of the 1994 Uruguay Round trade deal added over $100 billion to world income. The World Bank estimates that successful world trade talks could bring nearly $325 billion in income to the developing world by 2015, and could lift 500 million people out of poverty. Other studies have shown that an elimination of trade barriers would mean $2,500 a year in increased income to the average American family of four. Trade liberalization can create new jobs, higher incomes, and economic growth for countries around the world.

California is one of the ten largest economies in the world with an economy of over $1.7 trillion. International related commerce accounts for approximately one-quarter of the state’s economy.  Although trade is a nationally determined policy issue, its impact on California is immense. California exports goods to over 220 foreign markets around the world. Trade offers the opportunity to expand the role of California’s exports. In its broadest terms, trade can literally feed the world and raise the living standards of those around us.

The WTO is credited with helping to create 1.5 million new jobs worldwide and since 1994, has bolstered trade by nearly 40 percent. The World Bank estimates that the percentage of people living in poverty worldwide declined in the last decade, a decade of expanding world trade. The Office of the U.S. Trade Representative estimates that liberalization of trade under the WTO has increased the purchasing power of the American household of four by $3,000.

The World Bank predicts that successful WTO negotiations could boost global incomes by as much as $500 billion a year and raise 144 million people out of poverty by 2015. Trade liberalization can create new jobs, higher incomes, and economic growth for countries around the world.

Accession to The WTO

On Saturday, November 10, 2001 concluding nearly 15 years of negotiations, members of the World Trade Organization - meeting in Doha, Qatar - unanimously approved China’s application for membership. China’s own Parliament immediately ratified the accession terms outlined in the nearly 1,000 page text. China waited 30 days and officially became a member of the WTO on Tuesday, December 11, 2001.

As a result of the negotiations, China agreed to undertake a series of important commitments to open and liberalize its regime in order to better integrate in the world economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules.

Among some of the commitments undertaken by China are:

• China will provide non-discriminatory treatment to all WTO members. All foreign individuals and enterprises, including those not invested or registered in China, will be accorded treatment no less favorable than that accorded to enterprises in China with respect to the right to trade.
• China will eliminate dual pricing practices as well as differences in treatment accorded to goods produced for sale in China in comparison to those produced for export.
• Price controls will not be used for purposes of affording protection to domestic industries or services providers.
• The WTO agreement will be implemented by China in an effective and uniform manner by revising its existing domestic laws and enacting new legislation fully in compliance with the WTO agreement.
• Within three years of accession, all enterprises will have the right to import and export all goods and trade them throughout the customs territory with limited exceptions.
• China will not maintain or introduce, but limit any export subsidies on agricultural products.

Taiwan also was approved for WTO accession in 2001. Admission of Taiwan was prearranged to follow China's admission, with terms being completed 18 months prior. China originally objected to Taiwan's independent admission, but it was agreed that the two are separate, functioning as different customs territories and imposing different regulations on the importation of goods. Taiwan is known as Chinese Taipei in the WTO.

On September 9, 2004, Cambodia completed the ratification of its invitation to join the WTO. It became a formal member of the organization on October 13, 2004.

The World Trade Organization gave Saudi Arabia approval to join the international trading body in November 2005, after over a decade of talks. The nation is the largest oil producer in the world and a powerful voice in the Organization of Petroleum Exporting Countries (OPEC). The decision to approve membership, according to a Saudi official, stemmed from structural reform and a pledge that Saudi Arabia will champion the needs of poor countries. Some of the commitments taken by Saudi Arabia as part of their WTO membership include:

• Saudi Arabia will not maintain any export subsidies on agricultural products.
• Within ten years, average bound tariff levels will decrease to 12.4 and 10.5 percent for agricultural and non-agricultural products respectively.
• Foreign insurance companies will be permitted to open and operate direct branches in Saudi Arabia.
• Commercial presence of banks will be permitted in the form of a locally incorporated joint-stock company or as a branch of an international bank.
• Within three years from accession, Saudi Arabia's commitments will allow up to 70 percent foreign equity ownership in the telecommunications sector.
• While Saudi Arabia will maintain some restrictions on the distribution of goods inside the country, these restrictions will be phased out over a three-year transition period.

Vietnam’s bid for membership in the World Trade Organization was approved on November 7, 2006. This follows nearly a decade of negotiations between Vietnam and WTO members and economic preparation on the part of the Vietnamese government. “Vietnam has shown how anchoring domestic reforms in the WTO can yield dramatic results,” commented Director General Lamy. Vietnam’s economic growth topped 8 percent in 2005, foreign direct investment rose steeply to over $6 billion, and exports surged 20 percent. Vietnam formally entered the WTO 30 days after the country’s National Assembly passed the agreement in late November 2006. The United States Congress failed to pass a measure granting Vietnam Permanent Normal Trade Relations Status (PNTR) before it was accepted into the WTO. This means that the US will not benefit from the trading concessions Vietnam has made as part of their WTO membership. The United States Congress passed measures (H.R. 6111 in the Senate and H.R. 6406 in the House of Representatives) granting Vietnam Permanent Normal Trade Relations Status (PNTR) on December 8-9, 2006. Both California Senators and 19 California Representatives voted for PNTR. This means that the US will now benefit from the trading concessions Vietnam has made as part of their WTO membership.

The Russian Federation made significant steps towards WTO membership in 2006. The United States and the Russian Federation reached a bilateral trade agreement in November 2006, which cleared a major hurdle to their membership. This follows the 2005 completion of bilateral negotiations on goods with 29 total WTO members, accounting for countries that provide 87 percent of all Russian imports. The US Congress must grant the Russian Federation PNTR in order to take part in the market openings negotiated by the recent bilateral agreement.

In March 2006, the United States established normal trade relations with Ukraine, ending Cold War era restrictions on trade with non-market economy countries that limit the freedom of emigration.  This 'normalization' serves as a major step for the Ukraine to join the World Trade Organization, with the last set of talks ending in June 2006.  

Ukraine applied for WTO membership in 1993, and the Working Party concluded the negotiations in January 2008. The General Council accepted the Working Party report in February 2008. Ukraine would have to ratify the deal by July 4, 2008. An extension of this deadline would be possible if necessary. Ukraine will become a WTO member 30 days after the ratification. Ukraine ratified its accession package on April 16,2008 which was the final step in the accession process before it could officially join the WTO. Under WTO rules, a country becomes a member 30 days after national ratification.

Libya was accepted as a candidate for membership in the WTO in July 2004, after a unanimous vote by current member states. This will allow Libya to begin negotiations on membership in the WTO, but the process will likely take several years.

In December 2004, the World Trade Organization decided to open talks with Iraq. Iraqi Trade Minister, Mohammed Mustafa al-Jibouri, stated that he hoped measures such as these would help bring stability and security to his nation. Formal talks are likely to last four years.

Future WTO Negotiations

WTO Director General Pascal Lamy is urging all members to resume talks to come to a successful conclusion to the Doha Round of trade negotiations. He emphasized the importance of the Round in a speech to the Business Advisory Council of the Asia Pacific Economic Cooperation (APEC) in November 2006 by detailing major changes that could be made through a continuance of talks.

• A significant reduction of agricultural subsidies
• New disciplines for export support (export credits, food aid, etc.)
• A standard methodology to be used in tariff reduction
• An increase in the number of tariffs subject to a maximum ceiling
• New commitments on foreign equity participation
• Increased market access for financial, environmental and telecommunications services
• Improved trade facilitation through reduced transit costs
• Increased transparency to combat dumping and subsidies

For American businesses, the successful implementation of these negotiations would translate to:

• Major cuts in foreign tariffs on US farm exports
• Expanded market access for all US farm products through tariff cuts and quota expansion.                                                                 
• Expanded market access for US manufactured goods
• Opening of foreign markets for US such as telecommunications, entertainment, construction and engineering, etc.
• A reduction in the cost of exporting to some countries by 5 to 15 percent.
• An improvement in foreign customs procedures that currently cause shipment delays.

Director-General Pascal Lamy, in his report on the Doha Round to the General Council on 9 October 2007, said "we have regained a good level of momentum in our work, and the challenge now is to accelerate it in the days and weeks ahead, so that the necessary compromises can be found." He warned that "now more than ever, time is running against us."

Director-General Pascal Lamay, in his speech at the 20th World Energy Congress on November 15, 2007 in Rome asked participants to call on governments to "take bold steps to run the last mile" in the Doha Round.

CalChamber Policy

The CalChamber, in keeping with long-standing policy, enthusiastically supports free trade worldwide, expansion of international trade and investment, fair and equitable market access for California products abroad and elimination of disincentives that impede the international competitiveness of California business.

Additional  Information

• World Trade Organization.